-----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, V8L5WGpebzOqByzTshIqK/ec4VY/KtLF8j2PjaRrweqgQJrUurXWxzjoYevLBJQ6 UqyB5B8toh/znnwZGIS3WA== 0000950144-98-014011.txt : 19981222 0000950144-98-014011.hdr.sgml : 19981222 ACCESSION NUMBER: 0000950144-98-014011 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 19981221 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: S-1/A SEC ACT: SEC FILE NUMBER: 333-57747 FILM NUMBER: 98772554 BUSINESS ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138234000 MAIL ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 S-1/A 1 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1998 REGISTRATION NO. 333-57747 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (Exact name of registrant as specified in its charter) FLORIDA 6748 59-3422536 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- 360 CENTRAL AVENUE ST. PETERSBURG, FLORIDA 33701 (727) 803-2040 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------- C. ANTHONY SEXTON, ESQ. ASSOCIATE GENERAL COUNSEL INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. 360 CENTRAL AVENUE ST. PETERSBURG, FLORIDA 33701 (727) 803-2040 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- WITH COPIES TO: G. WILLIAM SPEER, ESQ. TODD B. PFISTER, ESQ. POWELL, GOLDSTEIN, FRAZER FOLEY & LARDNER & MURPHY, LLP 100 NORTH TAMPA STREET 191 PEACHTREE STREET, N.E. SUITE 2700 16TH FLOOR TAMPA, FLORIDA 33602 ATLANTA, GEORGIA 30303
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of this prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED , 1999 PROSPECTUS 3,350,000 SHARES INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (LOGO) COMMON STOCK ------------------------ Of the 3,350,000 shares of Common Stock offered hereby, 2,000,000 shares are being issued and sold by Insurance Management Solutions Group, Inc. ("IMSG" or the "Company") and 1,350,000 shares are being sold by Venture Capital Corporation (the "Selling Shareholder"). The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholder. See "Use of Proceeds" and "Principal and Selling Shareholders." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price for the Common Stock will be between $12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Of the shares being issued and sold by the Company, shares of Common Stock will be sold for an aggregate purchase price of $2,000,000 to a strategic investor (the "Strategic Investor") at a price per share equal to the initial public offering price per share, less the per share underwriting discounts and commissions. See "Underwriting." The Company has applied for inclusion of the Common Stock on the Nasdaq National Market under the symbol "INMG". ------------------------ SEE "RISK FACTORS" ON PAGES 5 THROUGH 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER - ---------------------------------------------------------------------------------------------------------------------- Per Share........................ $ $ $ $ - ---------------------------------------------------------------------------------------------------------------------- Total(3)......................... $ $ $ $ - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) The Company, its principal shareholder Bankers Insurance Group, Inc., and the Selling Shareholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses, estimated at $1,000,000, payable by the Company. (3) The Company and the Selling Shareholder have granted the Underwriters a 30-day option to purchase up to 502,500 additional shares of Common Stock on the same terms and conditions set forth above to cover over-allotments, if any. If the Underwriters exercise the over-allotment option in full, the total Price to Public will be $ , the total Underwriting Discounts and Commissions will be $ , the total Proceeds to Company will be $ and the total Proceeds to the Selling Shareholder will be $ . See "Underwriting." ------------------------ The shares of Common Stock are offered by the several Underwriters subject to prior sale, when, as and if delivered to and accepted by them, and subject to certain other conditions, including the right of the Underwriters to withdraw, cancel, modify or reject any order in whole or in part. It is expected that delivery of the shares will be made on or about ,1999, at the offices of Raymond James & Associates, Inc., St. Petersburg, Florida. RAYMOND JAMES & ASSOCIATES, INC. The date of this Prospectus is , 1999. 3 [COVER FLAP] PROPERTY & CASUALTY FINANCIAL INSURANCE COMPANIES INSTITUTIONS
INSURANCE MANAGEMENT SOLUTIONS [LOGO] GROUP [PICTURE [COLLAGE [COLLAGE [COLLAGE OF OF OF OF A MAN AND TWO CAR, FLOODED TWO MEN AND A A HAND ON A WOMEN HOUSE, WOMAN COMPUTER VIEWING A BURNING HOME WORKING, AND A MOUSE, COMPUTER AND HAND HOLDING A CLOCK, SCREEN] A TELEPHONE] A MEASURING AND A COMPASS, CALENDAR] ALL OVERLAYING A CLOCK] POLICY CLAIMS FLOOD ZONE INFORMATION ADMINISTRATION ADMINISTRATION DETERMINATIONS TECHNOLOGY
--------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 4 [INSIDE SPREAD LEFT] IMSG OFFERS PROPERTY & CASUALTY COMPANIES: - Reduced overhead - Cost-effective technology - Fast, economic expansion of product lines - Enhanced customer service - Increased speed of product delivery - Accounting and regulatory reporting - Freedom to focus on strategic planning IMSG OFFERS FINANCIAL INSTITUTIONS: - Flood zone determinations - Opportunities to add profit centers in new lines of business - A simplified flood compliance regulation process - Loan portfolio protection - Increased speed of product delivery OTHER POTENTIAL MARKETS INCLUDE: - General Agencies - Virtual Insurance Companies - Governmental Agencies - Lending Institutions - Windpools - Related Affinity Groups INSURANCE [LOGO] MANAGEMENT SOLUTIONS GROUP
COMPREHENSIVE OUTSOURCING SERVICES FOR INSURANCE COMPANIES & FINANCIAL INSTITUTIONS 5 [INSIDE SPREAD RIGHT] IMSG: RESOURCES FOR STRATEGIC INSURANCE MANAGEMENT FLOOD, HOMEOWNERS & AUTOMOBILE INSURANCE PROGRAMS - Comprehensive Policy Administration - Experienced Claims Administration & Customer Service - Integrated Technological Systems & Software - Private Label Insurance Products [Collage of a flood zone map, a hand - Flood Catastrophe Assistance holding a measuring compass, a clock, a - Marketing & Advertising Support car, a burning house, a flooded house, - Agent Training & Educational Courses and two men and one woman working] - Financial & Statistical Reporting FLOOD ZONE DETERMINATIONS - Life-of-Loan Flood Compliance Tracking - Force-placed Flood Insurance - Database covering counties encompassing 92% of all U.S. Households - National Flood Zone Database on CD ROM
6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. As used herein, the "Company" means Insurance Management Solutions Group, Inc. and its wholly-owned subsidiaries, Insurance Management Solutions, Inc., Geotrac of America, Inc. (formerly Bankers Hazard Determination Services, Inc.) ("Geotrac"), IMS Direct, Inc., and Colonial Claims Corporation, unless the context otherwise requires. Unless otherwise indicated, the information in this Prospectus (i) reflects a one-for-two reverse split of the Common Stock effected December 17, 1998, (ii) reflects the consummation of the Company's acquisition (the "Geotrac Acquisition") of Geotrac, Inc. ("Old Geotrac"), including the issuance of 443,552 shares of Common Stock pursuant thereto (assuming an initial public offering price of $13.00 per share), and (iii) assumes that the Underwriters' over-allotment option will not be exercised. See "Recent Acquisitions" and "Underwriting." THE COMPANY The Company provides (1) 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, and (2) flood zone determinations to financial institutions, mortgage lenders and insurance companies. 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. The Company processed approximately 575,000 and 667,000 insurance policies during 1997 and the nine months ended September 30, 1998, respectively (including approximately 450,000 and 540,000 flood insurance policies respectively), making it a significant provider of flood insurance outsourcing services. The Company provides outsourcing services to its affiliate, Bankers Insurance Group, Inc. (together with its subsidiaries, "BIG"), 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 believes this product is attractive to insurance companies that desire to offer flood insurance but are not certified by the Federal Emergency Management Agency ("FEMA") to sell and service flood insurance. FEMA estimates that only 25% to 33% of U.S. properties required to be covered by flood insurance are in fact covered. Accordingly, the Company anticipates continued growth in the demand for flood insurance and related flood outsourcing and flood zone determination services over the next several years. During 1997 and the nine months ended September 30, 1998, the Company processed approximately 1.4 million and 1.2 million flood zone determinations, respectively, for over 725 and 900 customers, respectively, including financial institutions such as SouthTrust Bank, mortgage lenders such as ABN Amro North America, Inc. and Mortgage Corporation of America, and P&C insurance companies such as Allendale Mutual Insurance Company and Wausau Underwriters Insurance Company. Flood insurance is required by federal law in connection with virtually all residential mortgage loans, including refinancing loans, covering properties located within federally designated high-risk flood zones. A flood zone determination is necessary in order to ascertain a property's flood zone classification. In addition, due to more stringent underwriting criteria, P&C insurers increasingly require flood zone determinations prior to issuing commercial property policies. The Company uses its proprietary database, compiled and digitized from flood maps maintained and distributed by FEMA, to determine whether a particular property or structure is located within a flood zone classification that requires flood insurance. The Company estimates that 92% of U.S. households are located in counties covered by its electronic database. The Company is a 75.2% 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. From 1993 to 1997, BIG's total written premiums grew from $113.7 million to $259.0 million, representing annual growth rates of 14.8%, 22.5%, 46.8% and 10.4%, respectively, and a compound annual growth rate of 22.8%. BIG is the largest underwriter of flood insurance policies through independent agents (and the second largest overall) in the United States. Upon completion of this offering, BIG will beneficially own 63.2% of the Company's Common Stock. BIG is the Company's principal customer, accounting for approximately 75.6% (on a historical basis) and 54.8% (on a pro forma basis) of the Company's total revenues and 98.0% (on both a historical basis and a pro forma basis) of the Company's outsourcing revenues in 1997, and 56.2% and 96.8% of the Company's total revenues and 1 7 outsourcing revenues, respectively, for the nine months ended September 30, 1998. See "Risk Factors -- Reliance on Key Customer." The Company's principal growth strategies include (1) expanding the Company's flood outsourcing business by (i) marketing flood outsourcing services to existing carriers certified by FEMA, (ii) offering its outsourcing services to potential new entrants into the flood insurance market, and (iii) marketing its ability, in conjunction with BIG, to provide and service a private label insurance product to insurance companies that desire to offer flood insurance but are not certified by FEMA to sell and service flood insurance, (2) expanding the Company's existing relationships with flood insurance outsourcing and flood zone determination customers to generate additional outsourcing business, (3) focusing on maximizing the Company's existing economies of scale to provide customers with more cost-effective services, and continuing to expand such efficiencies through greater utilization of the Company's existing infrastructure and databases, (4) expanding the Company's direct sales force and developing strategic relationships with other service providers, (5) generating recurring revenues by providing services based on long-term contractual relationships or based upon events which occur frequently in the course of a customer's business, and (6) pursuing strategic acquisitions that offer opportunities to increase market share or expand the Company's menu of outsourcing services. The principal costs associated with implementing these growth strategies include (i) compensation and overhead expenses associated with establishing a direct sales team, (ii) expenses associated with implementing a marketing program, (iii) incremental depreciation and amortization expense associated with maintaining technological competency in the Company's principal business segments and (iv) legal, accounting, due diligence and similar costs and expenses incurred in connection with prospective acquisitions. See "Business -- Growth Strategy." The Company is a holding company that was incorporated in the State of Florida in December, 1996 by 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. The Company's principal executive offices are located at 360 Central Avenue, St. Petersburg, Florida 33701, and its telephone number is (727) 803-2040. THE OFFERING Common Stock offered by the Company.................. 2,000,000 shares (1) Common Stock offered by the Selling Shareholder...... 1,350,000 shares (1) Common Stock to be outstanding after the Offering................. 12,574,321 shares (1)(2) Use of Proceeds............ To repay outstanding indebtedness, to fund capital expenditures for upgraded technology and for general corporate purposes, including working capital and possible acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market Symbol............ INMG - --------------- (1) Excludes up to 300,000 shares and 202,500 shares that may be sold by the Company and the Selling Shareholder, respectively, pursuant to the Underwriters' over-allotment option. See "Underwriting." (2) Includes 130,769 shares of Common Stock (assuming an initial public offering price of $13.00 per share) issued in connection with the acquisition of Colonial Catastrophe Claims Corporation, and excludes (a) 437,500 shares of Common Stock reserved for issuance under the Company's Long Term Incentive Plan, pursuant to which options to purchase 251,750 shares will be granted immediately upon the completion of this offering, (b) 100,000 shares of Common Stock reserved for issuance under the Company's Non-Employee Directors' Stock Option Plan, and (c) 62,500 shares of Common Stock reserved for issuance under the Company's Non-Qualified Stock Option Plan, pursuant to which options to purchase 62,500 shares will be granted immediately upon the completion of this offering. See "Recent Acquisitions -- Colonial Catastrophe Acquisition," "Management -- Long Term Incentive Plan," "-- Non-Employee Directors' Stock Option Plan" and "-- Non-Qualified Stock Option Plan." 2 8 SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The historical information presented for the years ended December 31, 1995, 1996 and 1997 was derived from the audited consolidated financial statements of the Company. The historical information presented as of September 30, 1998 and for the nine months ended September 30, 1997 and 1998 was derived from the unaudited consolidated financial information of the Company. With respect to the unaudited financial information, the Company is of the opinion that all material adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's interim results of operations have been included. The pro forma condensed consolidated financial data are based on assumptions and adjustments described in the notes to the pro forma condensed consolidated financial statements and are not necessarily indicative of the results of operations that may be achieved in the future. The information set forth below should be read in conjunction with "Selected Consolidated Financial Data of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," the Company's Consolidated Financial Statements and the Company's Pro Forma Condensed Consolidated Statements of Income (unaudited). The results of operations presented below are not necessarily indicative of the results of operations that may be achieved in the future.
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------ --------------------------------------- PRO PRO PRO FORMA FORMA FORMA 1995 1996 1997 1997(1) 1997 1998 1997(1) 1998(1) ------ ------- ------- ------- ------- ------- ------- --------- STATEMENT OF OPERATIONS DATA: Outsourcing services revenues.................. $3,444 $ 5,125 $29,714 $30,577 $22,177 $27,508 $23,113 $27,508 Flood zone determination services revenues......... 5,127 7,705 8,792 22,600 6,582 19,865 16,912 19,865 ------ ------- ------- ------- ------- ------- ------- ------- Total revenues............ 8,571 12,830 38,506 53,177 28,759 47,373 40,025 47,373 Operating expenses.......... 8,083 11,742 32,806 46,242 24,331 40,259 35,055 39,607 Operating income............ 488 1,088 5,699 6,935 4,428 7,114 4,970 7,766 Net income.................. 254 617 3,410 4,008 2,528 2,907 3,141 3,664 Net income per common share..................... $ .03 $ .06 $ .34 $ .38 $ .25 $ .29 $ .30 $ .35 ====== ======= ======= ======= ======= ======= ======= ======= Weighted average common shares outstanding........ 10,000 10,000 10,000 10,444 10,000 10,149 10,444 10,444 ====== ======= ======= ======= ======= ======= ======= =======
SEPTEMBER 30, 1998 ------------------------ ACTUAL AS ADJUSTED(2) ------- -------------- BALANCE SHEET DATA: Working capital (deficiency)................................ $(4,969) $ 12,204 Total assets................................................ 47,021 48,084 Long-term debt, less current portion........................ 8,216 6,600 Notes payable -- affiliates, less current portion........... 5,891 1,500 Total shareholders' equity.................................. 7,744 30,924
- --------------- (1) Unaudited pro forma condensed consolidated Statement of Operations Data for the nine months ended September 30, 1997 and 1998 and the year ended December 31, 1997 reflect (i) the Geotrac Acquisition, which was completed in July, 1998, using the purchase method of accounting as if the Geotrac Acquisition had occurred at January 1, 1997, (ii) the new affiliated service and administrative agreements that became effective January 1, 1998 as though the new terms were in existence on January 1, 1997, and (iii) the purchase of certain fixed assets from affiliated companies used in the business, which occurred in April, 1998, as if such purchase had occurred at January 1, 1997. See "Recent Acquisitions," "Certain Transactions" and the Company's Pro Forma Condensed Consolidated Statements of Income (unaudited). 3 9 (2) As adjusted to reflect (i) the application of the net proceeds to be received by the Company from the issuance and sale of 2,000,000 shares of Common Stock offered hereby by the Company (assuming an initial public offering price of $13.00 per share), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, and (ii) settlement or satisfaction of intercompany accounts from funds made available to BIG by a loan from a subsidiary of the Selling Shareholder, using a portion of the net proceeds of this offering received by the Selling Shareholder. Does not reflect the issuance of 130,769 shares of Common Stock (assuming an initial offering price of $13.00 per share) in connection with the acquisition of Colonial Catastrophe Claims Corporation. See "Recent Acquisitions -- Colonial Catastrophe Acquisition," "Use of Proceeds" and "Capitalization." 4 10 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should consider carefully the following risk factors, as well as the other information set forth in this Prospectus, in evaluating an investment in the Common Stock offered hereby. This Prospectus contains statements that constitute forward-looking statements. All statements other than statements of historical facts included in this Prospectus, including without limitation statements set forth under "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Geotrac" and "Business," regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations, are forward-looking statements. When used in this Prospectus, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, such as those disclosed under "Risk Factors," including but not limited to the Company's reliance on a key customer, dependence on economic and other factors, fluctuations in operating results, changes in legal and regulatory requirements, integration of the Geotrac Acquisition, conflicts of interest, and matters set forth elsewhere in this Prospectus. Such statements reflect the current views of the Company with respect to future events and are subject to those and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. 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, 1995, 1996, 1997 and 1997 (pro forma), and the nine months ended September 30, 1998, revenues from services provided to BIG accounted for approximately 40%, 37%, 76%, 55% and 56%, respectively, of the Company's total revenues and approximately 100%, 93%, 98%, 98% and 97%, respectively, of the Company's revenues from outsourcing services. The Company has entered into contracts with BIG pursuant to which it will continue to provide administrative services to BIG. See "Certain Transactions -- Service Agreements." 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. Any 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 "Business -- Customers." 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, the demand for flood zone determinations by lenders and their customers is directly related to the affordability of mortgage financing and refinancing. Current interest rates are relatively low and therefore conducive to a higher volume of mortgage lending and flood zone determinations. An increase in interest rates could have a negative impact on mortgage lending and consequently also on the level of flood zone determinations requested. Fluctuations in interest rates will likely produce fluctuations in the Company's quarterly earnings and operating results. Likewise, natural disasters such as hurricanes, tornadoes, and floods, all of which are unpredictable, directly impact the demand for both the Company's outsourcing, particularly claims outsourcing, and flood zone determination services. 5 11 REGULATORY INVESTIGATIONS Bankers Insurance Company ("BIC"), a subsidiary of BIG, is currently 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 BIC's 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. In addition, BIC and certain of its employees (one of whom is now an officer of IMS and several of whom are now employees of the Company) have been subpoenaed on behalf of FEMA to produce documentation or testify in connection with its investigation of certain cash management and claims processing practices of BIC. BIC is currently involved in discussions relating to the resolution of certain matters raised in the investigation. If the parties are unable to reach agreement in these matters, the United States could file suit under the False Claims Act and/or various common law and equitable theories. In the event either or both of these investigations or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss 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. See "Business -- Legal Proceedings." 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. See "Business -- Market Opportunities." 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. INTEGRATION OF GEOTRAC ACQUISITION On July 31, 1997 the Company acquired a 49% equity interest in Old Geotrac. In July, 1998, the Company acquired the remaining 51% equity interest in Old Geotrac. The Company is in the process of consolidating its existing flood zone determination operations with those of Old Geotrac in an effort to realize economies of scale. There can be no assurance, however, that the Company will be able to integrate the operations of Old Geotrac with its own operations, or that such economies of scale will be realized. The failure to successfully integrate its own operations with those of Old Geotrac could have a material adverse effect on the Company's business, financial condition and results of operations. See "Recent Acquisitions -- Geotrac Acquisition." CONTROL BY PRINCIPAL SHAREHOLDER; CONFLICTS OF INTEREST Prior to this offering, BIG owned approximately 75.2% of the outstanding shares of Common Stock. After this offering, BIG will own 63.2% of the outstanding shares of Common Stock. As a result, BIG will continue to be able to elect the Company's directors and determine the outcome of other matters requiring shareholder 6 12 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, President and Chief Executive Officer, and Robert M. Menke and Robert G. Menke, directors 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 benefit of one or more of the beneficiaries of the trust and (ii) remove the trustee and appoint one or more new trustees. This corporation possesses the same discretionary powers with respect to a discretionary charitable trust that wholly owns the Selling Shareholder. See "Principal and Selling Shareholders." The ownership by BIG of shares of Common Stock after this offering may discourage or prevent unsolicited mergers, acquisitions, tender offers, proxy contests or changes of incumbent management, even when shareholders other than BIG consider such 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. Certain officers and directors of the Company, including David K. Meehan, the Company's Chairman of the Board, President and Chief Executive Officer, also serve as officers and directors of BIG. Effective as of the completion of this offering, certain of these officers and directors will resign from their positions with BIG. However, Mr. Meehan will continue to serve as Vice Chairman of the Board of Directors of BIG, Robert M. Menke will continue to serve as President and Chairman of the Board of Directors of BIG, and Robert G. Menke will continue to serve as Executive Vice President of BIG. In addition, as described below, the Company will continue to have a variety of contractual relationships with BIG. As the interests of the Company and BIG may differ, Messrs. Meehan, Robert M. Menke and Robert G. Menke may face certain conflicts of interests. See "Principal and Selling Shareholders" and "Certain Transactions." The Company's relationship with BIG is governed by various agreements, including (i) an administration services agreement pursuant to which BIG provides benefits administration, cash management, and certain limited accounting and legal services to the Company, (ii) service agreements pursuant to which the Company provides policy and claims administration services for BIG, (iii) lease agreements pursuant to which BIG leases certain facilities to the Company, and (iv) an employee leasing agreement pursuant to which BIG leases certain of its employees to the Company. The agreements generally are intended to maintain the relationship between the Company and BIG in a manner consistent in material respects with past practice, except that certain changes in the fee structure for the Company's services have been implemented and the Company does not anticipate receiving any loans or capital contributions from BIG following this offering. None of these agreements resulted from arm's-length negotiations and, as a result, the terms of such agreements may be more or less favorable to the Company than could be obtained from an independent third party. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" and "Certain Transactions." RIGHTS OF FORMER GEOTRAC SHAREHOLDER The Company has entered into a Corporate Governance Agreement with Geotrac and Daniel J. White setting forth certain terms and conditions pertaining to the operation of Geotrac following the Geotrac Acquisition. The Corporate Governance Agreement provides, in part, that for so long as Mr. White is a shareholder of the Company or Geotrac or has an option to purchase Geotrac stock, (i) the Company will vote all of its shares of Geotrac stock to fix and maintain the number of Geotrac directors at five, (ii) the Company will vote its shares of Geotrac stock to elect as directors of Geotrac two persons designated by Mr. White, (iii) Mr. White's termination as a Geotrac employee will require the vote of four out of five members of the Board of Directors, and (iv) certain actions by Geotrac will require the unanimous approval of the Geotrac Board of Directors, including any merger or consolidation, the payment of management or similar fees to the Company, or its subsidiaries or affiliates, the sale or issuance of Geotrac stock, and the sale of Geotrac assets outside the ordinary course of business to anyone other than an affiliate of Geotrac. Mr. White also has a right of first refusal to purchase the assets of Geotrac in the event such assets are to be sold. The Corporate Governance Agreement therefore allows Mr. White to block certain transactions involving Geotrac even if such transactions are approved by all of the other directors of Geotrac and may be in the best interest of the 7 13 Company and its shareholders. Mr. White is a director and shareholder of the Company. See "Management," "Principal and Selling Shareholders" and "Certain Transactions -- Geotrac Transactions." 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 K. Meehan, the Company's Chairman of the Board, President and Chief Executive Officer, Jeffrey S. Bragg, the Company's Executive Vice President and Chief Operating Officer, and Daniel J. White, Geotrac's President and Chief Executive Officer. Although each of the Company's executive officers, including Messrs. Meehan, Bragg and White, is a party to an employment agreement with the Company, no assurances can be given that any of them will remain in the employment of the Company. The Company's continued growth and 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 its 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. See "Management." LIMITED OPERATING HISTORY IN THIRD-PARTY OUTSOURCING Since its inception, the Company has provided outsourcing services to BIG, the largest underwriter of flood insurance policies through independent agents (and the second largest overall) in the United States. 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 growth strategy is to leverage its experience and expertise in servicing BIG's flood, homeowners and automobile businesses to market its outsourcing capabilities in various P&C lines, including flood, homeowners and automobile insurance, to other insurance companies and financial institutions. There can be no assurance that the Company will be successful in implementing this growth strategy, and the failure to do so could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Business -- Growth Strategy." EXISTENCE OF WELL-POSITIONED COMPETITORS The Company competes principally in three markets -- the market for flood insurance outsourcing services, the market for other P&C insurance outsourcing services and the market for flood zone determinations and related services. The markets for these services are highly competitive. Management believes the market for flood insurance outsourcing services is dominated by several principal competitors. The Company competes for flood insurance 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, the Company competes for customers on the basis of customer service, performance and price. The claims administration services segment of the outsourcing market is also 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. The Company believes, however, that its most significant competition for 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. In addition, insurance company personnel may have a vested interest in maintaining these responsibilities in-house. Management believes the market for flood zone determination services is dominated by several principal competitors. The Company believes that the principal competitive factors in the market for flood zone determinations include quality and reliability of services, response time and price. Certain of the Company's competitors in each of these 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 8 14 quickly to emerging technologies and changes in customer requirements. In addition, current and potential competitors may establish cooperative relationships among themselves or with third parties to increase the ability of their services and products to address customer needs. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. 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. See "Business -- Competition." IMPLEMENTATION OF ACQUISITION STRATEGY A key element of the Company's growth strategy is to pursue potential acquisitions that offer opportunities to increase market share or expand the Company's menu of outsourcing services. Nevertheless, there can be no assurance that the Company will be able to locate and consummate or, if consummated, successfully integrate future acquisitions. Acquisitions involve significant risks which could have a material adverse effect on the Company, including: (i) the diversion of management's time and attention to the negotiation of the acquisition and to the assimilation of the businesses acquired; (ii) the need to modify financial and other systems and add management resources; (iii) potential liabilities of the acquired business; (iv) unforeseen difficulties in the acquired operations; (v) possible adverse short-term effects on the Company's results of operations; (vi) the dilutive effect of the issuance of additional equity securities; and (vii) the financial reporting effects of the amortization of goodwill and other intangible assets. Furthermore, there can be no assurance that any business interest acquired in the future will achieve acceptable levels of revenue and profitability or otherwise perform as expected. Currently, the Company has no arrangements or understandings with any party with respect to any future acquisition. The Company, however, continues to monitor potential acquisition opportunities. See "Business -- Growth Strategy." POTENTIAL LIABILITY TO CLIENTS Many of the Company's contractual engagements involve 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 depends 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. See "Business -- Market Opportunities." RELIANCE ON TECHNOLOGY AND COMPUTER SYSTEMS The Company currently licenses its primary processing software systems from BIG. Under the terms of its licensing agreement, the Company is responsible for maintaining and upgrading such systems. The Company anticipates that it will be necessary to continue to invest in and develop new technology to maintain its competitiveness. Significant capital expenditures may be required to keep its technology up-to-date. The 9 15 Company's future success will also depend in part on its ability to anticipate and develop information technology solutions which keep pace with evolving industry standards and changing customer demands. The temporary or permanent loss of any such equipment or systems, through operating malfunction or otherwise, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Business -- Information Systems" and "Certain Transactions." In addition, the nature of the Company's business requires that it recruit and retain qualified technical personnel. The Company generally experiences significant turnover of its information technology personnel and is continuously required to recruit and train replacement personnel. The demand for qualified personnel conversant with certain technologies is intense and may exceed supply as new and additional skills are required to keep pace with evolving computer technology. There can be no assurance that the Company will be successful in attracting and retaining the information technology personnel it requires to conduct its operations successfully. Failure to attract and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. YEAR 2000 ISSUES There is significant uncertainty regarding the impact of Year 2000 issues, which arise when computer systems do not properly recognize date-sensitive information beyond December 31, 1999, thereby generating erroneous data or failing altogether. The Company believes that its primary processing systems will function properly with respect to dates in the Year 2000 and thereafter. However, third parties that have relationships with the Company, including suppliers, customers and creditors, may experience significant Year 2000 issues. These issues may have a serious adverse impact on the operations of such third parties, including a shut-down of operations for a period of time, which may, in turn, have a material adverse effect on the Company's business, financial condition and results of operations. In addition, competitors, and other third parties may experience significant Year 2000 issues and, as a result, seek to hire the Company's programmers and other software-related personnel at higher salaries to address these issues. The loss of certain employees or a significant number of employees could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Year 2000 Compliance." SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering, the Company will have 12,574,321 shares of Common Stock outstanding. Of these shares, the 3,350,000 shares of Common Stock sold in this offering will be freely tradable without restriction or registration under the Securities Act by persons other than "affiliates" of the Company, as defined under the Securities Act. The remaining 9,224,321 shares of Common Stock will be "restricted securities" within the meaning of Rule 144 under the Securities Act, and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Upon completion of the offering, the Company will have options outstanding to purchase 314,250 shares of Common Stock. In addition, 185,750 and 100,000 additional shares will remain available for issuance under the Company's Long Term Incentive Plan and Non-Employee Directors' Stock Option Plan, respectively. See "Management -- Long Term Incentive Plan," "-- Non-Employee Directors' Stock Option Plan" and "-- Non-Qualified Stock Option Plan" and "Shares Eligible for Future Sale." The 7,950,000 restricted shares owned by BIG will, under Rule 144 (and subject to the conditions thereof, including volume limitations), become eligible for sale 90 days after the offering. However, BIG has agreed not to sell, contract to sell or otherwise dispose of any of these shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., on behalf of the Underwriters. After such 180-day period, this restriction will expire and shares permitted to be sold under Rule 144 will be eligible for sale. Raymond James & Associates, Inc., on behalf of the Underwriters, may at any time and without prior notice, release all or any portion of the shares of Common Stock subject to such agreement. See "Underwriting." 10 16 Prior to this offering, there has been no public market for the Common Stock and no predictions can be made of the effect, if any, that the sale or availability for sale of additional shares of Common Stock will have on the market price of the Common Stock. Nevertheless, sales of substantial amounts of such shares in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. See "Shares Eligible for Future Sale." NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or continue following this offering, or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price for the Common Stock will be determined by negotiations among the Company, the Selling Shareholder and the Underwriters based on several factors, and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting." 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. DILUTION Purchasers of the Common Stock offered hereby will experience immediate and substantial dilution of $11.81 in the net tangible book value per share of Common Stock, while the net tangible book value of the shares of Common Stock owned by BIG and the Selling Shareholder will increase by $1.99 per share. See "Dilution." BENEFITS OF THE OFFERING TO THE CURRENT SHAREHOLDERS BIG and the Selling Shareholder will benefit from this offering in that a public market will be created for their stock in the Company. The 7,950,000 shares of Common Stock that will be owned by BIG after this offering, which were acquired at a cost of approximately $135,000, will have a value of approximately $103.4 million, assuming an initial public offering price of $13.00 per share. The 700,000 shares of Common Stock that will be owned by the Selling Shareholder after this offering, which were acquired at a cost of approximately $13.5 million, will have a value of approximately $9.1 million, assuming an initial public offering price of $13.00 per share. The Selling Shareholder will also realize a substantial profit on the shares it sells in this offering. See "Principal and Selling Shareholders." RECENT ACQUISITIONS GEOTRAC ACQUISITION In July, 1997, the Company acquired a 49% equity interest in Geotrac, Inc., an unaffiliated Ohio corporation ("Old Geotrac"), from Daniel J. White and his spouse (the "Whites"), as joint tenants, for $6.75 million in cash. In July, 1998, the Company acquired the remaining 51% equity interest in Old Geotrac from the Whites and certain other minority shareholders in exchange for (i) 443,552 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (ii) a promissory note in the principal amount of $1.5 million, and (iii) cash in the amount of $728,069 (paid in December 1998). The Company also granted the Whites certain demand and piggyback registration rights with respect to the shares of Common Stock issued to them pursuant to this transaction. The transaction was effected pursuant to the merger of Old Geotrac into a wholly-owned subsidiary of the Company, with the surviving entity being known as "Geotrac of America, Inc.". See "Certain Transactions -- Geotrac Transactions". 11 17 Old Geotrac, a leading provider of flood zone determinations, began operations in 1987. In 1997, Old Geotrac's revenues were $6.3 million (on a historical basis) and $14.1 million (on a pro forma basis) and its net income was $2.1 million (on a historical basis) and $1.9 million (on a pro forma basis). For the six months ended June 30, 1998, the period immediately prior to consummation of the Company's acquisition of the remaining 51% equity interest in Old Geotrac, Old Geotrac's revenues and net income were $8.8 million and $927,000, respectively. Old Geotrac's President, Chief Executive Officer and joint majority shareholder, Daniel J. White, now serves as President, Chief Executive Officer and a director of Geotrac and as a director of the Company. The acquisition of Old Geotrac (the "Geotrac Acquisition") strengthens the Company's position as a leader in the flood zone determination business and broadens the range of flood data services the Company is able to provide. In addition, the Company is in the process of consolidating its own flood zone determination operations with those of Old Geotrac in an effort to realize economies of scale. Finally, the Company believes that access to Old Geotrac's customer base of financial institutions and insurance companies will facilitate cross-selling opportunities and expansion of the Company's outsourcing services. COLONIAL CATASTROPHE ACQUISITION Effective January 6, 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"), from J. Douglas Branham and Felicia A. Rivas, husband and wife, in exchange for (i) 130,769 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (ii) cash in the amount of $375,000, and (iii) an additional payment of $300,000, payable in additional shares of Common Stock, in the event Colonial Claims (as hereinafter defined) attains a targeted net income before taxes for the year ended December 31, 1999. Upon the consummation of the acquisition, Colonial Catastrophe was merged into the acquiring subsidiary and the name of the acquiring subsidiary was changed to "Colonial Claims Corporation" (hereinafter "Colonial Claims"). Pursuant to a registration rights agreement, Mr. Branham and Ms. Rivas have been granted certain piggyback registration rights with respect to all of the shares (including the earn out shares, if any), issued in connection with the acquisition. In addition, Colonial Claims entered into a separate employment agreement with each of Mr. Branham and Ms. Rivas pursuant to which they serve as employees of Colonial Claims. Each of the employment agreements is for a period of five years and provides for an annual base salary of $102,000, plus additional compensation based on annual revenues of the Colonial Claims business. 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. Colonial Catastrophe was incorporated in 1994 and had revenues of approximately $3.4 million during the year ended December 31, 1997. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered by the Company (assuming an initial public offering price of $13.00 per share), after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, are estimated to be approximately $23.2 million. The Company intends to use approximately $10.0 million of the net proceeds to repay indebtedness that is outstanding at the time of this offering. Additionally, the Company intends to use approximately $3.2 million for capital expenditures on upgraded technology, including network and mainframe upgrades, and the remaining balance of $10.0 million for general corporate purposes including working capital and possible acquisitions. The Company has no present commitments or understandings with respect to the acquisition of any business, although the Company continues to monitor potential acquisition opportunities. Pending such uses, the Company intends to invest the net proceeds of this offering in short-term, investment 12 18 grade, interest-bearing securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Liquidity and Capital Resources" and "Business -- Growth Strategy." The indebtedness to be repaid by the Company with proceeds from this offering includes: (i) a note payable to Bankers Insurance Company, dated April 1, 1998, used to fund the purchase of fixed assets from Bankers Insurance Company, which note had an outstanding balance of $2,353,424 at September 30, 1998, bears interest at 8.5% and matures April, 1999; (ii) a note payable to Southern Rental Leasing Company, dated April 1, 1998, used to fund the purchase of fixed assets from Southern Rental Leasing Company, which note had an outstanding balance of $356,250 at September 30, 1998, bears interest at 8.5% and matures December, 2000; (iii) a note payable to bank, dated December 30, 1997, used to fund fixed asset purchases and general corporate activities, which note had an outstanding balance of $1,647,499 at September 30, 1998, bears interest at 8.19% and matures December, 2000; (iv) a note payable used to repurchase outstanding Preferred Stock sold by BHDS in July 1997 to fund the purchase of the Company's 49% interest in Old Geotrac, which note had an outstanding balance of $6,750,000 at September 30, 1998, bears interest at 8.566% and matures August 2002; and (v) various other term loans used to fund general operating activities, which loans had a combined outstanding balance of $800,094 at September 30, 1998, bear interest at rates ranging from 8.19% to 8.50% and mature at various dates through December, 2000. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Shareholder. The net proceeds to be received by the Selling Shareholder from the sale of the 1,350,000 shares offered by the Selling Shareholder (assuming an initial public offering price of $13.00 per share) will be approximately $16.3 million after deducting underwriting discounts and commissions payable by the Selling Shareholder. A wholly-owned subsidiary of the Selling Shareholder has agreed to loan $12.0 million to BIG in exchange for a subordinated note. This loan will be funded using a portion of the net proceeds to be received by the Selling Shareholder in this offering. BIG has agreed with the Company to use a portion of such loan proceeds to satisfy outstanding accounts and note payable to the Company not later than ten business days following receipt of the loan proceeds. As of September 30, 1998, BIG's accounts and note payable to the Company totaled approximately $11.3 million. The balance of the loan proceeds will provide BIG with additional working capital. The Company, in turn, has agreed with BIG to use a portion of the funds received from BIG to satisfy accounts, income taxes and notes payable to BIG. As of September 30, 1998, the Company's accounts, income taxes and notes payable to BIG (other than those referred to in the preceding paragraph) totaled approximately $12.7 million. See "Principal and Selling Shareholders" and "Certain Transactions." DIVIDEND POLICY In December, 1996, December, 1997, and June, 1998, the Company paid dividends of $1.0 million, $3.5 million, and $1.1 million, respectively, to BIG. The Company currently anticipates that all of its earnings will be retained for development and expansion of the Company's business and does not anticipate declaring or paying any cash dividends in the foreseeable future. 13 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1998: (1) on an actual basis; and (2) on an as adjusted basis to reflect (i) the application of the net proceeds from the issuance and sale of 2,000,000 shares of Common Stock offered hereby (assuming an initial public offering price of $13.00 per share), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, and (ii) settlement or satisfaction of intercompany accounts from funds made available to BIG by a loan from a subsidiary of the Selling Shareholder, using a portion of the net proceeds of the offering received by the Selling Shareholder. See "Use of Proceeds."
SEPTEMBER 30, 1998 ------------------------- ACTUAL AS ADJUSTED --------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Current portion of long-term debt........................... $ 3,066 $ 2,035 Current portion of notes and interest payable -- affiliates..................................... 10,330 -- Due to affiliates........................................... 802 -- Income taxes payable........................................ 4,615 670 Long-term debt, less current portion........................ 8,216 6,600 Notes payable -- affiliates, less current portion........... 5,891 1,500 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; 10,443,552 shares issued and outstanding; 12,443,552 shares issued and outstanding, as adjusted(1)............................................ 104 124 Additional paid-in capital................................ 5,832 28,992 Retained earnings......................................... 1,808 1,808 ------- ------- Total shareholders' equity................................ 7,744 30,924 ------- ------- Total capitalization.............................. $40,664 $41,729 ======= =======
- --------------- (1) Excludes (a) 437,500 shares of Common Stock reserved for issuance under the Company's Long Term Incentive Plan, pursuant to which options to purchase 251,750 shares will be granted immediately upon the completion of this offering, (b) 100,000 shares of Common Stock reserved for issuance under the Company's Non-Employee Directors' Stock Option Plan, (c) 62,500 shares of Common Stock reserved for issuance under the Company's Non-Qualified Stock Option Plan, pursuant to which options to purchase 62,500 shares will be granted immediately upon the completion of this offering, and (d) 130,769 shares of Common Stock (assuming an initial offering price of $13.00 per share) issued pursuant to the acquisition of Colonial Catastrophe Claims Corporation. See "Recent Acquisitions -- Colonial Catastrophe Acquisition" and "Management -- Long Term Incentive Plan," "-- Non-Employee Directors' Stock Option Plan" and "-- Non-Qualified Stock Option Plan." 14 20 DILUTION Purchasers of the Common Stock offered hereby will experience an immediate and substantial dilution in the net tangible book value (deficiency) of their Common Stock from the initial public offering price. The net tangible book value (deficiency) of the Company as of September 30, 1998 was approximately $(8.3 million), or $(.80) per share. Net tangible book value (deficiency) per share represents the amount of the Company's tangible net worth (total tangible assets less total liabilities) divided by the total number of shares of Common Stock outstanding. After giving effect to the sale of 2,000,000 shares of Common Stock by the Company in this offering and the application of the estimated net proceeds therefrom (after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company), the net tangible book value of the Company as of September 30, 1998 would have been $14.9 million, or $1.19 per share of Common Stock. This represents an immediate increase in net tangible book value of $1.99 per share to the existing shareholders and an immediate dilution of $11.81 per share to purchasers of shares of Common Stock in this offering. The following table illustrates the per share dilution: Assumed initial public offering price per share............. $ 13.00 -------- Net tangible book value (deficiency) per share before this offering............................................... $ (.80) -------- Increase per share attributable to new investors.......... 1.99 -------- Pro forma net tangible book value after this offering(1).... 1.19 -------- Dilution in net tangible book value per share to new investors................................................. $ 11.81 ========
- --------------- (1) If the Underwriters' over-allotment option is exercised in full, the net tangible book value after this offering would be $1.45 per share, resulting in dilution to new investors in this offering of $11.55 per share. The following table sets forth on a pro forma basis as of September 30, 1998 the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share of Common Stock paid by the Company's existing shareholders and to be paid by new investors in this offering and before deduction of estimated underwriting discounts and commissions and estimated offering expenses (and assuming no exercise of the Underwriters' over-allotment option):
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE -------------------- --------------------- PER NUMBER PERCENT AMOUNT PERCENT PRICE SHARE ---------- ------- ----------- ------- ----------- Existing shareholders............... 10,443,552 83.9% $ 5,936,172 18.7% $ .57 New investors....................... 2,000,000 16.1 25,849,462 81.3 12.93 ---------- ---- ----------- ---- Total..................... 12,443,552 100% $31,785,634 100% ========== ==== =========== ====
- --------------- (1) Does not reflect the sale of 1,350,000 shares of Common Stock by the Selling Shareholder in this offering and does not include (a) 130,769 shares of Common Stock (assuming an initial public offering price of $13.00 per share) issued pursuant to the acquisition of Colonial Catastrophe Claims Corporation and (b) an aggregate of 314,250 shares of Common Stock issuable upon the exercise of stock options to be granted upon the completion of this offering. See "Recent Acquisitions -- Colonial Catastrophe Acquisition" and "Management -- Long Term Incentive Plan," "-- Non-Employee Directors' Stock Option Plan" and "-- Non-Qualified Stock Option Plan." Sales by the Selling Shareholder in this offering will reduce the number of shares held by existing shareholders to 9,093,552 shares, or approximately 73.1%, and will increase the number of shares held by new investors to 3,350,000, or approximately 26.9%, of the total number of shares of Common Stock outstanding after this offering. See "Principal and Selling Shareholders." 15 21 SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, Pro Forma Condensed Consolidated Statements of Income (unaudited) of the Company, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" included elsewhere in the Prospectus. The following selected consolidated financial data of the Company as of and for the years ended December 31, 1995, 1996, and 1997 has been derived from the Company's audited consolidated financial statements. The historical information presented as of and for the years ended December 31, 1993 and 1994 and the nine months ended September 30, 1997 and 1998 was derived from the unaudited financial statements of the Company. In 1997, the Company's investment in Geotrac was accounted for using the equity method of accounting, since the Company owned less than 50% and had a significant but not controlling influence. In July, 1998, the Company acquired the remaining 51% of Geotrac. As a result, the operations of Geotrac for the entire nine months in the period ended September 30, 1998 are consolidated with that of the Company, with the portion of Geotrac's net income allocable to the 51% interest held by the majority stockholders prior to June 30, 1998 reflected as a minority interest. With respect to the unaudited financial information, the Company is of the opinion that all material adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's results of operations and financial position have been included. The results of operations presented below are not necessarily indicative of the results of operations that may be achieved in the future.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------- -------------------- PRO FORMA 1993 1994 1995 1996 1997 1997(1) 1997 1998 ------ ------ ------- ---------- ---------- ---------- ------- ---------- STATEMENT OF OPERATIONS DATA: Revenues Outsourcing services........... $1,454 $1,861 $ 3,444 $ 5,125 $ 29,714 $ 30,577 $22,177 $ 27,508 Flood zone determination services..................... 2,661 2,975 5,127 7,705 8,792 22,600 6,582 19,865 ------ ------ ------- ---------- ---------- ---------- ------- ---------- Total revenues............. 4,115 4,836 8,571 12,830 38,506 53,177 28,759 47,373 ------ ------ ------- ---------- ---------- ---------- ------- ---------- Expenses Cost of outsourcing services... 1,000 1,586 2,955 3,896 21,989 22,097 16,528 19,814 Cost of flood zone determination services....... 2,052 1,842 3,415 5,362 4,764 10,552 3,361 8,524 Selling, general and administrative............... 630 990 804 1,121 3,026 5,927 2,241 5,706 Management services from Parent....................... 232 362 725 1,054 2,344 2,344 1,758 2,506 Deferred compensation (non- recurring item).............. -- -- -- -- -- 1,461 -- 728 Depreciation and amortization................. 37 106 184 309 684 3,861 443 2,981 ------ ------ ------- ---------- ---------- ---------- ------- ---------- Total expenses............. 3,951 4,886 8,083 11,742 32,807 46,242 24,331 40,259 ------ ------ ------- ---------- ---------- ---------- ------- ---------- Operating income (loss)......... 164 (50) 488 1,088 5,699 6,935 4,428 7,114 Equity in earnings (loss) of Geotrac, Inc................... -- -- -- -- 201 -- (32) -- Minority interest............... -- -- -- -- -- -- -- (473) Other income (non-recurring item).......................... -- -- -- -- -- 1,700 -- -- Interest income................. -- -- -- -- -- -- -- 308 Interest expense(3)............. -- (48) (72) (75) (378) (1,601) (223) (1,653) ------ ------ ------- ---------- ---------- ---------- ------- ---------- Income (loss) before income taxes.......................... 164 (98) 416 1,013 5,522 7,034 4,173 5,296 Provision (benefit) for income taxes.......................... 69 (31) 162 396 2,112 3,026 1,645 2,389 ------ ------ ------- ---------- ---------- ---------- ------- ---------- Net income (loss)............... $ 95 $ (67) $ 254 $ 617 $ 3,410 $ 4,008 $ 2,528 $ 2,907 ====== ====== ======= ========== ========== ========== ======= ========== Net income (loss) per common share.......................... $ .01 $ (.01) $ .03 $ .06 $ .34 $ .38 $ .25 $ .29 ====== ====== ======= ========== ========== ========== ======= ========== Weighted average common shares outstanding.................... 10,000 10,000 10,000 10,000 10,000 10,444 10,000 10,149 ====== ====== ======= ========== ========== ========== ======= ========== Dividends declared on Common Stock(4)....................... $ -- $ -- $ -- $ 1,000 $ 3,500 $ 3,500 $ -- $ 1,100 ====== ====== ======= ========== ========== ========== ======= ========== NINE MONTHS ENDED SEPTEMBER 30, ----------------------- PRO FORMA PRO FORMA 1997(1) 1998(1) ---------- ---------- STATEMENT OF OPERATIONS DATA: Revenues Outsourcing services........... $ 23,113 $ 27,508 Flood zone determination services..................... 16,912 19,865 ---------- ---------- Total revenues............. 40,025 47,373 ---------- ---------- Expenses Cost of outsourcing services... 16,646 19,532 Cost of flood zone determination services....... 7,660 8,524 Selling, general and administrative............... 4,560 5,706 Management services from Parent....................... 1,758 2,506 Deferred compensation (non- recurring item).............. 1,461 Depreciation and amortization................. 2,970 3,339 ---------- ---------- Total expenses............. 35,055 39,607 ---------- ---------- Operating income (loss)......... 4,970 7,766 Equity in earnings (loss) of Geotrac, Inc................... -- -- Minority interest............... -- -- Other income (non-recurring item).......................... 1,700 -- Interest income................. -- 308 Interest expense(3)............. (1,161) (1,781) ---------- ---------- Income (loss) before income taxes.......................... 5,509 6,293 Provision (benefit) for income taxes.......................... 2,368 2,629 ---------- ---------- Net income (loss)............... $ 3,141 $ 3,664 ========== ========== Net income (loss) per common share.......................... $ .30 $ .35 ========== ========== Weighted average common shares outstanding.................... 10,444 10,444 ========== ========== Dividends declared on Common Stock(4)....................... $ -- $ 1,100 ========== ==========
16 22
SEPTEMBER 30, DECEMBER 31, -------------------------------- ------------------------------------------- AS ADJUSTED 1993 1994 1995 1996 1997 1997 1998 1998(2) ------ ------ ------ ------ ------- ------- -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital (deficiency)...... $ 28 $ (146) $ (141) $ (425) $ (148) $ 1,359 $ (4,969) $12,204 Total assets...................... 1,186 1,311 2,649 3,441 19,532 22,998 47,021 48,084 Long-term debt, less current portion......................... 140 278 156 894 2,187 658 8,216 6,600 Notes and interest payable, affiliates, less current portion......................... -- -- -- -- -- -- 5,891 1,500 Preferred Stock of Subsidiary..... -- -- -- -- 6,750 6,750 -- -- Total shareholders' equity........ 172 125 529 260 170 2,788 7,744 30,924
- --------------- (1) Unaudited pro forma condensed consolidated Statement of Operations Data for the nine months ended September 30, 1997 and 1998 and the year ended December 31, 1997 reflect (i) the Geotrac Acquisition, which was completed in July, 1998, using the purchase method of accounting as if the Geotrac Acquisition had occurred at January 1, 1997, (ii) the new affiliated service and administrative agreements that became effective January 1, 1998 as though the new terms were in existence on January 1, 1997 and (iii) the purchase of certain fixed assets from affiliated companies used in the business, which occurred in April, 1998, as if such purchases had occurred at January 1, 1997. See "Recent Acquisitions," "Certain Transactions" and the Company's Pro Forma Condensed Consolidated Statements of Income (unaudited). (2) As adjusted to reflect (i) the application of the net proceeds from the issuance and sale of 2,000,000 shares of Common Stock offered hereby by the Company (assuming an initial public offering price of $13.00 per share), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company and (ii) settlement or satisfaction of intercompany accounts from funds made available to BIG by a loan from a subsidiary of the Selling Shareholder, using a portion of the net proceeds of the offering received by the Selling Shareholder. Does not reflect the issuance of 130,769 shares of Common Stock (assuming an initial offering price of $13.00 per share) in connection with the acquisition of Colonial Catastrophe Claims Corporation. See "Recent Acquisitions -- Colonial Catastrophe Acquisition," "Use of Proceeds" and "Capitalization." (3) Dividends declared on Preferred Stock for 1997 and the nine months ended September 30, 1997 and 1998 were $229,315, 113,500 and $189,370, respectively, and were included in interest expense. See Note 8 to the Company's Consolidated Financial Statements. (4) In December, 1996, December, 1997, and June, 1998, the Company paid dividends of $1.0 million, $3.5 million, and $1.1 million, respectively, to BIG. The Company currently anticipates that all of its earnings will be retained for development and expansion of the Company's business and does not anticipate declaring or paying any cash dividends in the foreseeable future. See "Dividend Policy." 17 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus. 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. BIG is a diversified group of P&C insurance companies with premium writings in all fifty states. BIG's principal lines of business include flood, homeowners and automobile insurance lines. From 1993 to 1997, BIG experienced substantial growth in total written premiums from $113.7 million to $259.0 million. For the nine months ended September 30, 1998, BIG had total written premiums of $232.2 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 written service agreements with BIG which 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. BIG presently accounts for approximately 97% of the Company's outsourcing services revenues and is expected to continue to account for a significant majority of the Company's outsourcing revenues in the near future. See "Risk Factors -- Reliance on Key Customer" and "Certain Transactions -- Service Agreements." 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 increase in the late second quarter and peak 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. 18 24 Flood zone determination revenues, which are recognized as services are performed, are cyclically impacted by both changes in mortgage interest rates and trends in home sales. 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. Cost of flood zone determination services primarily includes wages and related benefits associated with personnel who perform flood zone determination services, telephone expenses, general liability insurance, data processing and other direct costs associated with providing service to customers. Due to the ongoing automation of the Company's flood zone database, a gradual increase in the number of automated flood zone determinations, versus manually determined flood zones, has occurred. Automated flood zone determinations cost less for the Company to perform than manually generated determinations. 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 have historically been charged to the Company under a management agreement with BIG for common costs that are incurred by BIG and allocated to its affiliated companies. These common costs include human resources, legal, corporate planning and communications, cash management, certain executive management and rent. Allocation of the management services is based on employee head counts and estimates of time incurred, which management believes to be a reasonable basis of allocation. The Company presently purchases certain services, including human resources, internal audit and legal services, from BIG. See "Certain Transactions." If the Company develops the capability to provide these services internally, certain sales and administrative support costs may fluctuate. In 1997, the Company's investment in Geotrac was accounted for using the equity method of accounting, since the Company owned less than 50% and had a significant but not controlling influence. In July, 1998, the Company acquired the remaining 51% of Geotrac. As a result, the operations of Geotrac for the entire nine months in the period ended September 30, 1998 are consolidated with that of the Company, with the portion of Geotrac's net income allocable to the 51% interest held by the majority stockholder prior to June 30, 1998 reflected as a minority interest. 19 25 QUARTERLY RESULTS The following table presents unaudited quarterly operating results for the Company for the quarters included in years 1996 and 1997 and the first three quarters of 1998. In 1997, the Company's investment in Geotrac was accounted for using the equity method of accounting, since the Company owned less than 50% and had a significant but not controlling influence. In July, 1998, the Company acquired the remaining 51% of Geotrac. As a result, the operations of Geotrac for each of the quarters in the nine months ended September 30, 1998 are consolidated with that of the Company, with the portion of Geotrac's net income allocable to the 51% interest held by the majority stockholders prior to June 30, 1998 reflected as a minority interest. This information has been prepared on the same basis as the Company's Consolidated Financial Statements included elsewhere in this Prospectus, and includes all adjustments, consisting of normal recurring accruals, that the Company considers necessary for a fair presentation of the periods presented. These operating results are not necessarily indicative of the Company's future performance.
QUARTER ENDED ------------------------------------------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1996 1996 1996 1996 1997 1997 1997 --------- -------- ------------- ------------ --------- -------- ------------- (IN THOUSANDS) Revenues Outsourcing services...... $1,200 $1,270 $1,279 $1,376 $6,857 $7,419 $ 7,901 Flood zone determination services................ 1,822 2,237 1,888 1,758 1,947 2,394 2,241 ------ ------ ------ ------ ------ ------ ------- Total revenues...... 3,022 3,507 3,167 3,134 8,804 9,813 10,142 ------ ------ ------ ------ ------ ------ ------- Expenses Cost of outsourcing services................ 964 963 952 1,017 5,019 5,787 5,722 Cost of flood zone determination services................ 1,343 1,567 1,269 1,183 974 1,125 1,263 Selling, general and administrative.......... 281 269 257 314 727 773 746 Management services from Parent.................. 263 264 263 264 586 586 586 Deferred compensation(non- recurring).............. -- -- -- -- -- -- -- Depreciation and amortization............ 67 75 80 87 116 126 195 ------ ------ ------ ------ ------ ------ ------- Total expenses...... 2,918 3,138 2,821 2,865 7,422 8,397 8,512 ------ ------ ------ ------ ------ ------ ------- Operating income........... 104 369 346 269 1,382 1,416 1,630 Equity in earnings (loss) of Geotrac, Inc........... -- -- -- -- -- -- (32) Minority interest.......... -- -- -- -- -- Interest income............ -- -- -- -- -- -- -- Interest expense........... (19) (19) (18) (19) (36) (36) (151) ------ ------ ------ ------ ------ ------ ------- Income before income taxes..................... 85 350 328 250 1,346 1,380 1,447 Provision for income taxes..................... 35 136 127 98 513 527 605 ------ ------ ------ ------ ------ ------ ------- Net income................. $ 50 $ 214 $ 201 $ 152 $ 833 $ 853 $ 842 ====== ====== ====== ====== ====== ====== ======= QUARTER ENDED --------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1997 1998 1998 1998 ------------ --------- -------- ------------- (IN THOUSANDS) Revenues Outsourcing services...... $7,537 $ 8,655 $ 9,099 $ 9,753 Flood zone determination services................ 2,210 6,864 6,627 6,375 ------ ------- ------- ------- Total revenues...... 9,747 15,519 15,726 16,128 ------ ------- ------- ------- Expenses Cost of outsourcing services................ 5,461 6,428 6,367 7,020 Cost of flood zone determination services................ 1,402 3,067 3,016 2,442 Selling, general and administrative.......... 780 1,685 1,855 2,164 Management services from Parent.................. 586 678 690 1,137 Deferred compensation(non- recurring).............. -- -- 728 -- Depreciation and amortization............ 246 633 1,131 1,217 ------ ------- ------- ------- Total expenses...... 8,475 12,491 13,787 13,980 ------ ------- ------- ------- Operating income........... 1,272 3,028 1,939 2,148 Equity in earnings (loss) of Geotrac, Inc........... 233 -- -- -- Minority interest.......... -- (425) (49) -- Interest income............ -- -- 106 201 Interest expense........... (156) (406) (580) (667) ------ ------- ------- ------- Income before income taxes..................... 1,349 2,197 1,416 1,682 Provision for income taxes..................... 467 1,089 599 700 ------ ------- ------- ------- Net income................. $ 882 $ 1,108 $ 817 $ 982 ====== ======= ======= =======
20 26 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain selected historical operating results of the Company as a percentage of total revenues:
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ------------------------------------- PRO FORMA PRO FORMA PRO FORMA 1995 1996 1997 1997 1997 1998 1997 1998 ----- ----- ----- --------- ----- ----- --------- --------- Revenues Outsourcing services........ 40.2% 39.9% 77.2% 57.5% 77.1% 58.1% 57.7% 58.1% Flood zone determination services.................. 59.8 60.1 22.8 42.5 22.9 41.9 42.3 41.9 ----- ----- ----- ----- ----- ----- ----- ----- Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- ----- ----- ----- Expenses Cost of outsourcing services.................. 34.5 30.4 57.1 41.6 57.5 41.8 41.6 41.2 Cost of flood zone determination services.... 39.8 41.8 12.4 19.8 11.7 18.0 19.1 18.0 Selling, general and administrative............ 9.4 8.7 7.8 11.1 7.8 12.0 11.4 12.0 Management services from Parent.................... 8.5 8.2 6.1 4.4 6.1 5.3 4.4 5.3 Deferred compensation (non- recurring item)........... -- -- -- 2.8 -- 1.6 3.6 -- Depreciation and amortization.............. 2.1 2.4 1.8 7.3 1.5 6.3 7.5 7.1 ----- ----- ----- ----- ----- ----- ----- ----- Total expenses....... 94.3 91.5 85.2 87.0 84.6 85.0 87.6 83.6 ----- ----- ----- ----- ----- ----- ----- ----- Operating income.............. 5.7 8.5 14.8 13.0 15.4 15.0 12.4 16.4 Equity in earnings (losses) of Geotrac, Inc................ -- -- 0.5 -- (0.1) -- -- -- Minority interest............. -- -- -- -- -- (1.0) -- -- Other income (non-recurring item)....................... -- -- -- 3.2 -- -- 4.2 -- Interest income............... -- -- -- -- -- 0.7 -- 0.6 Interest expense.............. (0.8) (0.6) (1.0) (3.0) (0.8) (3.5) (2.9) (3.8) ----- ----- ----- ----- ----- ----- ----- ----- Income before income taxes.... 4.9 7.9 14.3 13.2 14.5 11.2 13.7 13.2 Provision for income taxes.... 1.9 3.1 5.5 5.7 5.7 5.1 5.9 5.5 ----- ----- ----- ----- ----- ----- ----- ----- Net income.................... 3.0% 4.8% 8.8% 7.5% 8.8% 6.1% 7.8% 7.7% ===== ===== ===== ===== ===== ===== ===== =====
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Outsourcing Services Revenues. Outsourcing services revenues increased $5.3 million, or 24.0%, to $27.5 million for the nine months ended September 30, 1998 from $22.2 million for the corresponding period in 1997. The increase was primarily attributable to (i) the expansion of the services provided to BIG to include policy administration for certain of BIG's automobile lines of insurance, (ii) the change in fee structure for claims administration (excluding BIG's flood and homeowners lines) from a cost reimbursement basis to a percentage of earned premium and, in certain instances, incurred losses, and (iii) increased services provided to BIG due to the growth in the volume of BIG's flood insurance business. The increase was partially offset by the revised fee structure pertaining to policy administration and claims administration for BIG's homeowners insurance line. Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $13.3 million, or 201.8%, to $19.9 million for the nine months ended September 30, 1998 from $6.6 million for the corresponding period in 1997. The revenue growth was primarily attributable to the inclusion of the consolidated revenues of both Geotrac and BHDS for the nine months ended September 30, 1998 as compared with the revenues of BHDS only for the nine months ended September 30, 1997. The revenue growth was also attributable to the increased number of flood zone determinations processed due to the large number of mortgage financings and refinancings occurring largely as a result of continued low interest rates. 21 27 Cost of Outsourcing Services. Cost of outsourcing services increased $3.3 million, or 19.9%, to $19.8 million for the nine months ended September 30, 1998 from $16.5 million for the corresponding period in 1997. The increase in cost of outsourcing services was primarily attributable to (i) increases in staffing due to the expansion of the services provided to BIG to include policy administration for certain of BIG's automobile lines of insurance, (ii) increases in information services personnel costs due to additions to staff, (iii) increased services provided to BIG due to the growth in the volume of BIG's insurance business and (iv) the Company assuming responsibility for claims costs for independent adjusters and appraisers that were previously borne by BIG. These increases were partially offset by a decrease in the lease cost of fixed assets that were purchased by the Company from BIG on April 1, 1998. Prior to April 1, 1998, the depreciation for such equipment, which totaled $282,515 and $573,189 during the nine months ended September 30, 1998 and 1997, respectively, was charged to the Company under an arrangement similar to an operating lease and is included in cost of outsourcing services. Such costs are now included in depreciation and amortization. Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $5.2 million, or 153.6%, to $8.5 million for the nine months ended September 30, 1998 from $3.4 million for the corresponding period in 1997. The increase in cost of flood zone determinations was primarily attributable to the inclusion of the consolidated expenses of both Geotrac and BHDS for the nine months ended September 30, 1998 as compared with the expenses of BHDS only for the nine months ended September 30, 1997. As a percentage of flood zone determination services revenue, the decrease in cost of flood zone determination services resulted primarily from a reduction of approximately $527,000 in insurance costs associated with the Company's life of loan program due to favorable loss experience under the life of loan program, partially offset by cross-licensing fees for database management paid to Old Geotrac. These cross-licensing fees were terminated upon the merger of Old Geotrac into the Company in July, 1998. Effective June 1, 1998, the Company terminated its insurance policy associated with its life of loan program. Consequently, from such date forward, the Company deferred a portion of each life of loan fee received in order to account for its obligation to perform future flood zone redeterminations. Selling, General and Administrative Expense. Selling, general and administrative expenses increased $3.5 million, or 154.6%, to $5.7 million for the nine months ended September 30, 1998 from $2.2 million for the corresponding period in 1997. The increase is primarily related to additional wages and related benefits associated with adding executive management, accounting, sales and marketing and other administrative staff during 1998 to support the Company's expanded operations, as well as the inclusion of the consolidated expenses of both Geotrac and BHDS for the nine months ended September 30, 1998 as compared with the expenses of BHDS only for the nine months ended September 30, 1997. Management Services from Parent. Management services from Parent increased $748,000, or 42.6%, to $2.5 million for the nine months ending September 30, 1998 from $1.8 million for the corresponding period in 1997. The increase is primarily related to the Company's portion of an employment practices judgment totaling approximately $400,000 rendered in the third quarter of 1998 and an increase in management services provided to the Company due to the Company's expanded operations. Such increased services primarily include agency accounting, audit services, cash management services and legal services. Depreciation and Amortization Expense. Depreciation and amortization expense increased $2.5 million, or 572.9%, to $3.0 million for the nine month period ended September 30, 1998 from $443,000 for the same period in 1997 primarily as a result of depreciation related to assets consisting of telephone equipment and computer hardware and software, transferred and assigned to the Company in April, 1998 for use in its business. Prior to April 1, 1998, the depreciation for such equipment, which totaled $282,015 and $762,260 during the nine months ended September 30, 1998 and 1997, respectively, was charged to the Company under an arrangement similar to an operating lease and is included in cost of outsourcing services. Also, the nine-month period ended September 30, 1998 reflects amortization and depreciation related to the consolidation of Geotrac that took place in July, 1998. Equity in Earnings of Geotrac, Inc. During July, 1997, the Company purchased a 49% interest in Old Geotrac. Equity in earnings of Old Geotrac contributed a ($32,000) net loss to the Company for the nine 22 28 months ended September 30, 1997. Geotrac was shown on a consolidated basis for the nine months ended September 30, 1998. Provision for Income Taxes. The Company's effective income tax rates were 45.1% and 39.4% for the nine months ended September 30, 1998 and 1997, respectively. Income before income taxes for the first nine months of 1998, excluding the equity in earnings of Old Geotrac, resulted in a effective income tax rate of 45.0%. This effective rate reflects the impact of a minority interest on equity earnings in Old Geotrac presented net of tax and other items discussed in Note 10 to the Consolidated Financial Statements of the Company. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 ON A PRO FORMA BASIS Outsourcing Services Revenues. Outsourcing services revenues increased $4.4 million, or 19.0%, to $27.5 million in 1998 from $23.1 million in 1997. Continued strong flood premium production through the first nine months of 1998 generated an increase in related service fees. In addition, a higher level of flood losses resulted in greater claims fee revenues. Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $3.0 million, or 17.5%, to $19.9 million in 1998 from $16.9 million in 1997. The increase in revenues was due to an increase in determinations performed resulting primarily from a substantial rise in refinancing activity, particularly during the first half of 1998. This increase was partially offset by a decrease in the average fee per determination as a result of competitive pressures. Cost of Outsourcing Services. Cost of outsourcing services increased $2.9 million, or 17.3%, to $19.5 million in 1998 from $16.6 million in 1997. As a percentage of outsourcing services revenues, cost of outsourcing services decreased from 72.0% in 1997 to 71.0% in 1998. The improvement in this percentage was primarily the result of continued emphasis on managing actual staffing levels to conform to the Company's staffing models, particularly with respect to the customer service and claims service units for the homeowners and automobile product lines. The increase in absolute costs was primarily due to an increase in salary expenses, principally relating to information technology professionals. Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $864,000, or 11.3%, to $8.5 million in 1998 from $7.7 million in 1997. As a percentage of flood zone determination services revenue, cost of flood zone determination services decreased from 45.3% in 1997 to 42.9% in 1998. The decrease in this percentage was primarily due to the consolidation of two separate flood zone operations (BHDS and Geotrac) into one operation, which resulted in a substantial short-term reduction in employees engaged in the processing of flood zone determinations, as well as the elimination of certain duplicative costs. The decrease was also due to reduced insurance cost of approximately $527,000 related to the Company's life of loan program due to favorable loss experience under the life of loan program. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996 Outsourcing Services Revenues. Outsourcing services revenues increased $24.6 million, or 479.8%, to $29.7 million in 1997 from $5.1 million in 1996. During 1997, outsourcing services revenue was generated primarily from the Company's service agreements with BIG to provide policy and claims administration related to its flood and homeowners insurance programs. In addition, during 1997, the Company provided claims administration services on a cost reimbursement basis for most of BIG's other lines of business, excluding flood and homeowners. During 1996, the Company provided only information technology services to its affiliated companies on a cost reimbursement basis. Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $1.1 million, or 14.1%, to $8.8 million in 1997 from $7.7 million in 1996. The increase in revenues was due to the increase in determinations performed, offset by a decrease of approximately 6.0% in the average fee per determination as a result of competitive pressures. Cost of Outsourcing Services. Cost of outsourcing services increased $18.1 million, or 464.4%, to $22.0 million in 1997 from $3.9 million in 1996. The increase was primarily the result of the transfer of various 23 29 policy and claims administration units from BIG to the Company, as well as upward pressure on salaries resulting from continued competition for qualified employees. Cost of Flood Zone Determination Services. Cost of flood zone determination services decreased $598,000, or 11.2%, to $4.8 million in 1997 from $5.4 million in 1996. As a percentage of flood zone determination services revenue, cost of flood zone determination services decreased from 69.6% in 1996 to 54.2% in 1997. The decrease was primarily the result of reduced insurance cost of approximately $800,000 related to the Company's life of loan program due to favorable loss experience under the life of loan program. The cost savings during 1997 under this program was partially offset by increases in personnel to process the increased volume of flood zone determinations. Selling, General and Administrative Expense. Selling, general and administrative expenses increased $1.9 million, or 169.9%, to $3.0 million in 1997 from $1.1 million in 1996. The increase was primarily related to additional wages and related benefits associated with adding executive management, accounting, sales and marketing and other administrative staff during 1997 to support the Company's expanded operations. Management Services from Parent. Management services from Parent increased $1.3 million, or 122.4%, to $2.3 million in 1997 from $1.1 million in 1996. The increase is primarily related to the expansion of the Company's services during 1997 to include policy and claims administration. Prior to 1997, the Company mainly provided data processing services to its affiliates. The expansion of services resulted in a significant need for additional space and human resource services, which were included in the management services allocation. Depreciation and Amortization Expense. Depreciation and amortization expense increased $375,000, or 121.1%, to $684,000 in 1997 from $309,000 in 1996 primarily as a result of upgrading existing data processing equipment. Interest Expense. Interest expense increased $303,000, or 402.5%, to $379,000 in 1997 from $75,000 in 1996 as a result of increased borrowings used to fund the Company's capital expenditures. Equity in Earnings of Geotrac, Inc. During July 1997, the Company purchased a 49% interest in Old Geotrac. Equity in earnings of Old Geotrac contributed $201,000 to the earnings of the Company in 1997. Provision for Income Taxes. The Company's effective income tax rates were 38.3% and 39.1% in 1997 and 1996, respectively. Income before provision for income taxes for 1997, excluding the equity in earnings of Old Geotrac, resulted in an effective income tax rate of 38.1%. The equity in earnings in Old Geotrac are presented net of tax. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995 Outsourcing Services Revenues. Outsourcing services revenues increased $1.7 million, or 48.8%, to $5.1 million in 1996 from $3.4 million in 1995 primarily as a result of an increase in the information technology services provided to BIG due to the growth in the volume of BIG's insurance business. Flood Zone Determination Services Revenues. Flood zone determination services revenue increased $2.6 million, or 50.3%, to $7.7 million in 1996 from $5.1 million in 1995, primarily as a result of significant growth in the Company's client base and in the number of requests for flood zone determinations, partially offset by a decrease in the average fee per determination due to competitive pressures. Cost of Outsourcing Services. Cost of outsourcing services increased $941,000, or 31.8%, to $3.9 million in 1996 from $3.0 million in 1995. The increase resulted primarily from additions to the Company's information technology staff due to the growth in the volume of BIG's insurance business, as well as salary adjustments due to the competitive market for qualified personnel. Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $2.0 million, or 57.0%, to $5.4 million in 1996 from $3.4 million in 1995. The increase was primarily attributable to an increased demand for the Company's life of loan program, for which the Company purchases insurance to fund its obligation to update flood zone determinations under the life of loan program. Additionally, the 24 30 increase in cost of flood zone determination services was attributable to the addition of flood zone determination staff to handle higher business volume levels. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $317,000 or 39.4%, to $1.1 million in 1996 from $804,000 for 1995, primarily as a result of adding additional administrative staff to support the Company's growth. Management Services from Parent. Management services from Parent increased $329,000, or 45.4%, to $1.1 million in 1996 from $725,000 in 1995. The increase is primarily related to the growth of the Company's data processing department and resulting need for additional space and human resource services, which were included in the management services allocation. Depreciation and Amortization. Depreciation and amortization increased $125,000, or 67.9%, to $309,000 in 1996 from $184,000 in 1995 primarily as a result of adding $1.0 million of property and equipment in 1996. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its operations through cash generated from operations and receipt of service fees advanced from BIG. Bank borrowings have been used to finance fixed asset purchases. Net cash provided by operating activities for the nine months ended September 30, 1997 and 1998 was $4.8 million and $5.8 million, respectively. For 1995, 1996 and 1997, net cash provided by operating activities was $831,000, $963,000 and $7.7 million, respectively. The significant increase in net cash provided by operating activities in 1997 was primarily attributable to the increased level of net income, employee-related accrued expenses and income taxes payable to BIG. Net cash used in investing activities for the nine months ended September 30, 1997 and 1998 was $7.7 million and $2.0 million, respectively. For 1995, 1996 and 1997, net cash used in investing activities was $464,000, $1.0 million and $8.2 million, respectively. In July 1997, BHDS issued $6.75 million in non- cumulative, 8% Preferred Stock. The proceeds from the sale of the Preferred Stock were used to fund the purchase of the Company's 49% interest in Old Geotrac. In May 1998, the Company repurchased the outstanding Preferred Stock in exchange for a note. The note is currently payable in its entirety on August 25, 2002 and accrues interest at a rate of 8.566%. The Company intends to use a portion of the net proceeds from this offering to repay the note. See "Use of Proceeds." Net cash provided by (used in) financing activities for the nine months ended September 30, 1997 and 1998 was $3.2 million and $(4.3) million, respectively. For 1995, 1996 and 1997, net cash provided by (used in) financing activities was $(333,000), $12,000 and $681,000, respectively. Cash dividends were paid to BIG in 1996 and 1997 in the amount of $1.0 million and $3.5 million, respectively. Additionally, the Company paid a cash dividend of $1.1 million to BIG in June, 1998 and repaid $2.8 million in debt. Net advances to BIG were $3.3 million and $5.1 million for the nine months ended September 30, 1997 and the year ended December 31, 1997, respectively. At December 31, 1997 and September 30, 1998 amounts due from BIG totaled $8.8 million and $11.3 million, respectively. At the same dates, amounts due to BIG (including income tax payable to BIG), totaled $5.1 million and $4.7 million, respectively. In addition, at September 30, 1998, notes payable to BIG totaled $8.0 million. Upon completion of this offering, it is contemplated that all intercompany balances will be satisfied. The Company maintained a zero balance account arrangement with BIG through June, 1998. As a result of this funding arrangement, the Company has a negative cash balance for financial reporting purposes representing checks that have been issued but that have not yet been presented to the bank for payment. This arrangement was discontinued in June, 1998. See "Certain Transactions -- Miscellaneous." The Company believes that cash flows from operations and net proceeds from this offering will not only satisfy working capital needs for approximately one year but will also be sufficient to retire or redeem most existing debts of the Company, including (i) acquisition debt of approximately $1.5 million outstanding as of September 30, 1998 and (ii) debts assigned to the Company in conjunction with the transfer of certain fixed assets from its affiliates. See "Recent Acquisitions" and "Use of Proceeds." Prior to the consummation of the 25 31 Geotrac Acquisition, Geotrac's operations generated cash flows sufficient to provide it with necessary working capital, and the Company anticipates this trend will continue in the future, although no assurances can be given in this regard. Unanticipated rapid expansion, business or systems development, or potential acquisitions may cause the Company to require additional funds. In addition, prior to this offering, the Company at times relied upon advances against the service fees it charges its affiliates to support working capital needs, which included payroll, particularly with respect to certain members of the management team who had previously allocated or divided their duties between the Company and the affiliates. After this offering, this practice will discontinue. In December, 1998, the Company received a commitment for a $5.0 million revolving line of credit with NationsBank that will provide bridge financing for working capital or acquisition needs. The Company identifies and assesses, in the normal course of its business, technologies or businesses which it believes to strategically fit its business plan. The Company has no current commitments with respect to any such transaction. The Company may, however, enter into such transactions should opportunities present themselves in the future. YEAR 2000 COMPLIANCE The Company is currently addressing a universal situation commonly referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of certain computer software programs to properly recognize and process date-sensitive information relative to Year 2000 and beyond, and the inability of non-information technology systems to function properly when the Year 2000 arrives. Information concerning the Company's (1) state of readiness, (2) cost of addressing Year 2000 issues, (3) risk of Year 2000 issues, and (4) contingency plans is provided below. The discussion is divided into two parts: the first addresses the Company's outsourcing operations, and the second addresses the Company's flood zone determination operations. Outsourcing Operations. With respect to both information technology ("IT") and non-information technology ("non-IT") systems associated with its outsourcing operations, the Company has developed a detailed Year 2000 Project Plan (the "Plan") and is in the process of carrying out the Plan. An independent accounting firm has been engaged to validate the Plan. The Plan calls for testing, validation and modification of the Company's systems in order to ensure Year 2000 compliance. For IT hardware systems, the Plan addresses the Year 2000 Problem with respect to: production servers; imaging servers; communication servers; development servers; Q&A servers; wide-area network and network infrastructure; AS/400 processors and tape drives; desk-top personal computers; telecommunications equipment, including voice, fax and modems; and printers. For IT software systems, this Plan addresses the Year 2000 Problem with respect to: AS/400 operating and applications systems; personal computer applications software, including spreadsheets, "macros", "uploads" and "downloads"; and electronic forms. Testing has commenced and is expected to continue through the first two quarters of 1999. The Company is already issuing policies with terms extending beyond the Year 2000 and believes it will not experience any difficulty in processing business on its core processing systems. For non-IT systems, the Plan provides for testing of elevators, generators, utilities, card key access, alarms, uninterrupted power source, air conditioning/heating units and thermostats. Non-IT systems testing is underway and is expected to be completed during the first quarter of 1999. The Plan also provides for certification of Year 2000 compliance by the Company's business partners. Such partners provide office supplies, paper supplies, copy center support, off-site tape management and disaster recovery services. The Plan also provides for detailed questionnaires and follow-up letters to be sent to all outside software vendors requiring responses, and ultimately certification, as to their Year 2000 readiness. A review of these responses by Company management will lead to decisions regarding the retention or replacement of vendors and/or their products. Such decisions are expected to be made prior to June 30, 1999. The Company will replace such vendors and products if it believes their state of Year 2000 readiness poses a risk to the Company sufficient to warrant doing so. The Company does not anticipate any difficulty in securing adequate replacements for such vendors or products. 26 32 Costs associated with addressing the Year 2000 Problem were immaterial prior to 1998. For internally built applications software, the Company has consistently accounted for the Year 2000 date as a normal part of program development. Nearly all costs associated with addressing the Year 2000 Problem are internal expenses, with the exception of the costs of engaging the independent accounting firm. The Company currently estimates direct costs associated with addressing the Year 2000 Problem for its outsourcing operations to be in the range of $300,000 to $400,000. The Company does not anticipate the total replacement of any core system. In the event an outside vendor's software is targeted for replacement, the Company may incur additional costs relating to the purchase price of new software (which may be inflated if demand is high), conversion of data to the new system, and training of personnel on the new system. Management does not expect these costs to materially adversely affect the Company's business or financial condition. The most reasonably likely worst case scenario for the Company's outsourcing operation is the possibility that the Company will be required to process manually applications for insurance, which will result in increased costs of issuing insurance policies. Manually-processed applications would increase data entry and also increase customer service intervention as representatives of the Company seek to obtain complete and accurate customer information in order to issue correct insurance policies. These increased responsibilities may require overtime on the part of customer service representatives and supervisors. Moreover, the Company may be required to perform additional internal cash processing if its lockbox vendor is required to operate in a manual environment. The flood insurance product may require manual flood zone searches in lieu of automatic determinations in the event such automated flood zone processes become unavailable. In addition, the Company may be required, for a period of time, to issue manual checks for return premiums, claims payments and producers' commissions as well as to perform manual policy assembly. Such activities may result in a substantial increase in overtime wages for a significant percentage of the Company's workforce as well as require the addition of a significant number of temporary employees. Non-computer generated forms, manual check stock, retrieval of physical records rather than electronic facsimiles and manual processing would supplant computer processing until such systems are adapted to address the Year 2000 Problem. Risks associated with a manual environment as described above could have a material adverse effect on the Company's business, financial condition or results of operations. The Company will develop a contingency plan to deal with situations which may require manual processing. This plan, expected to be developed in the first half of 1999, will incorporate each processing department's needs in the event it must convert to manual systems from automated systems. Such needs may include overtime hours, temporary employees, additional space, paper forms in replacement of computer-generated forms, blank paper stock, physical file space, additional copiers and fax machines, additional equipment, greater support for data reconciliation and cash reconciliation processes in the absence of computer-generated production data, and greater use of fiche and fiche readers. Flood Zone Determination Operations. The Company has also adopted a detailed plan (the "Project Plan") to address the Year 2000 Problem with respect to its flood zone determination operations. The Project Plan also calls for testing, validation and modification of the IT and non-IT systems associated with the Company's flood zone determination operations in order to ensure Year 2000 compliance. For IT hardware systems, the Project Plan addresses the Year 2000 Problem with respect to: IBM AS/400 processors and tape drives; production servers; communication servers; development servers; wide area network and network infrastructure hardware; modems; printers; tape drives; desktop personal computers; and fax servers. For IT software systems, the Plan addresses the Year 2000 Problem with respect to: network operating systems; software development packages and third-party vendor software packages; in-house developed software packages; GeoCompass(R), the Company's flood zone determination electronic ordering and delivery package; and GMaS internal production routing. The Company has reviewed and validated the Year 2000 compliance of the IBM AS/400 business system used in its flood zone determination operations. This process involved reviewing all internally developed application code, modules, databases, and reports for correct date handling, changing all date fields to handle the four digit century format, and upgrading the operating system to the Year 2000 compliant version. The Company's internally developed GeoCompass(R) and GMaS software packages have also been 27 33 assessed for Year 2000 readiness. Updated versions of such software that are Year 2000 compliant are expected to be put into service during the first quarter of 1999. Of the Company's flood zone determination network operating systems, the Company has determined that certain versions are not Year 2000 compliant. These versions are expected to be upgraded in the second quarter of 1999. The Company is in the process of having its other flood zone determination hardware and software components validated for Year 2000 compliance by the vendors that supply those products. The non-IT systems used in the Company's flood zone determination operations include: internal telephone systems, auxiliary power supplies, security systems, environmental control systems, and postal equipment. The Company has contacted the various vendors providing such systems regarding validation of their systems. This project is expected to be completed by July 31, 1999. Testing methodology of existing internal systems includes the identification of programs and Year 2000 critical dates for date rollover testing. A test will be set up in February 1999 of a mirrored production environment. This environment will test AS/400 applications, communication and data transfer systems, electronically generated faxes and data files, LAN and WAN connections, and production flow within the Company. All tests will be documented, errors corrected and retested before verification can be signed-off. The Company has a number of flood zone determination clients with which it electronically exchanges data. The clients that use a proprietary method for communicating data have been contacted by the Company regarding their need to upgrade their interfaces. Most of the Company's flood zone determination clients utilize its Compass product line. Version 3.x of that software has been tested and verified for Year 2000 compliance. Users of non-compliant versions of such software are expected to be upgraded to Year 2000 compliant versions by September 30, 1999. The Company estimates that, to date, it has spent approximately $150,000 in time and materials (computing costs, network and telephone support, office supplies, programming support and project coordination) in executing its Project Plan with respect to its flood zone determination operations. The Company anticipates that it will cost an additional $100,000 to address the Year 2000 Problem with respect to these operations. Nearly all costs, whether incurred or to be incurred, are internal to the Company. The Company does not anticipate the total replacement of any core system. In the event an outside vendor's software is targeted for replacement, the Company may incur additional costs relating to acquisition of replacement software, conversion of data, and personnel training. Management does not expect these costs to materially adversely affect the Company's business or financial condition. The most reasonably likely worst case scenario for the Company's flood zone determination operations is the possibility that the Company will be unable to electronically exchange data with its clients. Such circumstances would require the Company to revert to manually exchanging requests for searches and remitting completed determinations to clients. This increase in manual operations would likely result in significant increases in the cost of clerical support (temporary employees), data entry (overtime wages), paper supplies, fax machines and telephone customer service support (overtime wages). Moreover, the inability to electronically exchange data with certain clients could result in a material loss of revenue. The Company is in the process of developing a contingency plan relating to manual preparedness in the event of the impairment of its flood zone determination IT systems. This plan involves construction of adequate staffing models that provide an accurate indication of the number of additional employees required to process determinations manually on a short-term basis. The plan also addresses potential alternative forms of data exchange, such as faxes and data tapes. 28 34 SELECTED CONSOLIDATED FINANCIAL DATA OF GEOTRAC (IN THOUSANDS) The following selected financial data should be read in conjunction with the Financial Statements of SMS Geotrac, Inc. (as the predecessor to Geotrac, Inc. (formerly YoSystems, Inc.) ("Old Geotrac")) and the Notes thereto, the Financial Statements of Old Geotrac and the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Geotrac" included elsewhere in this Prospectus. The following selected financial data of SMS Geotrac, Inc. for the years ended June 30, 1996 and 1997 and for the one month ended July 31, 1997 and of Old Geotrac for the years ended December 31, 1995, 1996, and 1997 have been derived from the company's audited financial statements. The selected financial data presented as of June 30, 1998 and the six months ended June 30, 1998 were derived from the unaudited financial information of Old Geotrac. The pro forma selected financial data of Geotrac for the years ended December 31, 1996 and 1997 was derived from the unaudited financial statements and notes thereto of Old Geotrac. The pro forma selected financial data of Geotrac for the six months ended June 30, 1997 was derived from unaudited financial data of Old Geotrac and SMS Geotrac not included herein. With respect to the unaudited financial information, the Company is of the opinion that all material adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the company's interim results of operations have been included. This data should be read in conjunction with the Financial Statements of SMS Geotrac, Inc. and the Financial Statements of Old Geotrac included elsewhere in this Prospectus.
OLD GEOTRAC (FORMERLY SMS GEOTRAC, INC. YOSYSTEMS, INC.) GEOTRAC ------------------------------- ---------------------- ------------------------------------------ YEAR ENDED ONE MONTH YEAR ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, ENDED DECEMBER 31, DECEMBER 31, JUNE 30, ------------------ JULY 31, ---------------------- ----------------- ---------------------- 1996 1997 1997 1995 1996 1997 1996 1997 1997 1998 ------- ------- ---------- ---- ---- ------ ------- ------- --------- ---------- PRO FORMA PRO FORMA HISTORICAL STATEMENT OF OPERATIONS DATA: Revenues.................. $12,490 $12,522 $1,210 $ -- $ -- $6,336 $13,375 $14,063 $6,517 $8,848 ------- ------- ------ ---- ---- ------ ------- ------- ------ ------ Expenses: Cost of revenues........ 6,219 5,914 530 -- -- 2,679 6,673 6,043 2,834 3,919 Selling, general and administrative........ 3,079 2,839 227 10 30 1,319 3,287 2,900 1,354 1,557 Deferred compensation (non-recurring item)................. -- -- -- -- -- 733 -- 733 -- 728 Depreciation and amortization.......... 689 1,331 104 -- -- 594 1,639 1,908 1,150 727 ------- ------- ------ ---- ---- ------ ------- ------- ------ ------ Total expenses.... 9,987 10,084 861 10 30 5,325 11,599 11,584 5,338 6,931 ------- ------- ------ ---- ---- ------ ------- ------- ------ ------ Operating income (loss)... 2,503 2,438 349 (10) (30) 1,011 1,776 2,479 1,179 1,917 Other income (non-recurring item).... -- -- -- 932 -- 1,700 -- 1,700 -- -- Interest expense.......... (82) (79) (8) -- -- (338) (770) (825) (391) (372) ------- ------- ------ ---- ---- ------ ------- ------- ------ ------ Income before income taxes................... 2,421 2,359 341 922 (30) 2,373 1,006 3,354 788 1,545 Provision for income taxes................... 1,047 1,079 148 -- -- 272 421 1,457 315 618 ------- ------- ------ ---- ---- ------ ------- ------- ------ ------ Net income (loss)......... $ 1,374 $ 1,280 $ 193 $922 $(30) $2,101 $ 585 $ 1,897 $ 473 $ 927 ======= ======= ====== ==== ==== ====== ======= ======= ====== ======
OLD GEOTRAC (FORMERLY YOSYSTEMS, INC.) ----------------------------- YEAR ENDED SIX MONTHS DECEMBER 31, ENDED -------------- JUNE 30, 1996 1997 1998 ---- ------- ------------ BALANCE SHEET DATA: Working capital (deficiency)................................ $(25) $ 1,402 $ 1,788 Total assets................................................ -- 18,637 19,432 Long-term debt.............................................. -- 7,745 6,677 Total shareholders' equity (deficit)........................ (25) 7,126 8,053
29 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GEOTRAC The following discussion should be read in conjunction with the Financial Statements of Old Geotrac and the Notes thereto and the Financial Statements of SMS Geotrac, Inc. and the Notes thereto included elsewhere in this Prospectus. OVERVIEW During July, 1998, the Company completed the Geotrac Acquisition. The Geotrac Acquisition occurred through a series of transactions beginning in July, 1997. At that time, the Company acquired 49% of the issued and outstanding common stock of YoSystems, Inc. which had nominal net assets at the date of acquisition. YoSystems, Inc. concurrently purchased all of the issued and outstanding common stock of SMS Geotrac, Inc. ("SMS Geotrac"), an unaffiliated entity. SMS Geotrac subsequently merged into YoSystems, Inc., which changed its name to "Geotrac, Inc." ("Old Geotrac"). In July, 1998, the Company acquired the remaining 51% of the issued and outstanding common stock of Old Geotrac. For all periods presented herein and until August 1, 1997, Old Geotrac was a relatively inactive S Corporation whose principal activity was to receive contingent earn-out payments from the prior sale of its operating assets in 1994 and to distribute these earn-out payments to its shareholders. Geotrac's primary source of revenues is derived from the performance of flood zone determinations principally for mortgage origination and P&C insurance companies. Revenues are recognized upon completion of services performed. Mortgage interest rates and weather patterns have historically impacted Geotrac's revenues. The current low level of interest rates, which has stimulated the increase in the number of mortgage financings and refinancings, and the increased awareness of severe weather occurrences have resulted in an increase in the number of determinations processed by Geotrac. Cost of revenues primarily consists of wages and related benefits for personnel who perform flood zone determinations. As Geotrac continues to migrate towards performing more automated than manual determinations, management believes cost of revenues as a percentage of revenues will decrease. For comparative purposes, the operating results herein reflect the pro forma results of Old Geotrac for the years ended December 31, 1996 and 1997 and the six months ended June 30, 1997 as if Old Geotrac acquired SMS Geotrac on January 1, 1996. The pro forma adjustments that have been made reflect the additional goodwill amortization and interest expense that would have been incurred if Old Geotrac had acquired SMS Geotrac on January 1, 1996. Additionally, for comparative purposes, the operating results herein reflect the historical results of SMS Geotrac for the years ended June 30, 1996 and 1997. Because Old Geotrac had limited operations during the year ended December 31, 1996 and for the period January 1, 1997 through July 31, 1997, the date of the acquisition of SMS Geotrac, Inc., no comparisons of the six months ended June 30, 1998 and 1997, the years ended December 31, 1997 and 1996, and the years ended December 31, 1996 and 1995 are provided. Similarly, no comparison to the prior period is provided for SMS Geotrac with respect to the one month ended July 31, 1997. 30 36 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of revenues represented by certain income and expense items.
OLD GEOTRAC (FORMERLY SMS GEOTRAC, INC. YOSYSTEMS, INC.) GEOTRAC ------------------------- ---------------------- ------------------------------------- YEAR ENDED ONE MONTH YEAR ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, ENDED DECEMBER 31, DECEMBER 31, JUNE 30, ------------- JULY 31, ---------------------- ------------- --------------------- 1996 1997 1997 1995 1996 1997 1996 1997 1997 1998 ----- ----- --------- ----- ----- ------ ----- ----- --------- --------- PRO FORMA PRO FORMA HISTORICAL STATEMENT OF OPERATIONS DATA: Revenues..................... 100.0% 100.0% 100.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- --- --- ----- ----- ----- ----- ----- Expenses: Cost of revenues........... 49.8 47.2 43.8 0.0 0.0 42.3 49.9 43.0 43.5 44.3 Selling, general and administrative........... 24.7 22.7 18.7 0.0 0.0 20.8 24.6 20.6 20.8 17.6 Deferred compensation (non- recurring item).......... 0.0 0.0 0.0 0.0 0.0 11.5 -- 5.2 -- 8.2 Depreciation and amortization............. 5.5 10.6 8.6 0.0 0.0 9.4 12.2 13.6 17.6 8.2 ----- ----- ----- --- --- ----- ----- ----- ----- ----- Total expenses....... 80.0 80.5 71.1 0.0 0.0 84.0 86.7 82.4 81.9 78.3 ----- ----- ----- --- --- ----- ----- ----- ----- ----- Operating income............. 20.0 19.5 28.9 0.0 0.0 16.0 13.3 17.6 18.1 21.7 Other income (non-recurring item)...................... 0.0 0.0 0.0 0.0 0.0 26.8 -- 12.1 -- -- Interest expense............. (0.6) (0.7) (0.7) 0.0 0.0 (5.3) (5.8) (5.8) (6.0) (4.2) ----- ----- ----- --- --- ----- ----- ----- ----- ----- Income before income taxes... 19.4 18.8 28.2 0.0 0.0 37.5 7.5 23.9 12.1 17.5 Provision for income taxes... 8.4 8.6 12.2 0.0 0.0 4.3 3.1 10.4 4.8 7.0 ----- ----- ----- --- --- ----- ----- ----- ----- ----- Net income................... 11.0% 10.2% 16.0% 0.0% 0.0% 33.2% 4.4% 13.5% 7.3% 10.5% ===== ===== ===== === === ===== ===== ===== ===== =====
31 37 COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ON A PRO FORMA BASIS -- GEOTRAC Revenues. Revenues increased $2.3 million, or 35.8%, to $8.8 million for the six months ended June 30, 1998 from $6.5 million for the same period in 1997. This revenue growth was attributable to the increased number of determinations processed due to the large number of mortgage financings and refinancings as a result of continued low interest rates. Cost of Revenues. Cost of revenues increased $1.1 million, or 38.2%, to $3.9 million for the six months ended June 30, 1998 from $2.8 million for the same period in 1997. As a percentage of revenues, cost of revenues increased to 44.3% for the six months ended June 30, 1998 from 43.5% for the same period in 1997. The increase primarily relates to additions to staffing in order to process the increased number of determinations. During May, 1998, Old Geotrac began processing large blocks of flood zone determinations for the Company. Pursuant to their cross-license agreement, Old Geotrac was reimbursed on a flat monthly fee basis. The flat monthly fee resulted in revenue per determination that was significantly less than Old Geotrac was receiving from its other customers. The increase was partially offset by the effect of the efficiencies associated with the increased volume of determinations, coupled with the greater proportion of automated determinations. Selling, General and Administrative Expense. Selling, general and administrative increased $203,000, or 15.0%, to $1.6 million for the six months ended June 30, 1998 from $1.4 million for the same period in 1997. As a percentage of revenues, selling, general and administrative expenses decreased to 17.6% for the six months ended June 30, 1998 from 20.8% for the same period in 1997. This percentage decrease was primarily due to spreading certain fixed costs over a larger revenue base. Interest Expense. Interest expense decreased $19,000, to $372,000 for the six months ended June 30, 1998 from $391,000 for the same period in 1997. Provision for Income Taxes. The effective income tax rate was 40.0% for the six months ended June 30, 1998 and 1997. COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996 ON A PRO FORMA BASIS -- GEOTRAC Revenues. Revenues increased $688,000, or 5.1%, to $14.1 million in 1997 from $13.4 million in 1996. Most of this revenue growth occurred after SMS Geotrac was acquired in July, 1997, as a result of the increased number of determinations processed due to the large number of mortgage financings and refinancings as a result of continued low interest rates. Cost of Revenues. Cost of revenues decreased $630,000, or 9.4%, to $6.0 million in 1997 from $6.7 million in 1996. As a percentage of revenues, cost of revenues decreased to 43.0% in 1997 from 49.9% in 1996. The decrease, in both actual dollar amount and as a percentage of revenues, resulted primarily from (i) efficiencies associated with an increased volume of determinations, (ii) a greater proportion of automated determinations, and (iii) higher expenses incurred in 1996 related to the expansion of Old Geotrac's automated database. Selling, General & Administrative Expense. Selling, general and administrative expenses decreased $387,000, or 11.8%, to $2.9 million in 1997 from $3.3 million in 1996. As a percentage of revenues, selling, general and administrative expenses decreased from 24.6% in 1996 to 20.6% in 1997. This decrease was the result of a reduction of bad debt expense in 1997 resulting from improved billing and collection procedures. Deferred Compensation (Non-Recurring Item). On September 11, 1997, Old Geotrac's Board of Directors, recognizing the nonbinding commitment of the president of SMS Geotrac, which commitment originated prior to the acquisition of SMS Geotrac, approved and granted bonuses to certain current and former employees of SMS Geotrac. Such bonuses were principally related to prior services rendered by these employees and resulted in additional compensation in 1997 of $732,795, which amount is separately disclosed in the statement of operations as deferred compensation (non-recurring item) and of which approximately $362,000 and $371,000 relate to cost of revenues and selling, general and administrative expenses, respectively. These amounts are to be paid to the individuals on or before December 31, 1998. Prior to and at the time of the acquisition of SMS Geotrac, the president of SMS Geotrac also had a nonbinding commitment to grant to certain former and current employees options to purchase shares of Old Geotrac common stock held jointly by the president and his spouse, for prior employee services rendered. On 32 38 May 12, 1998, the president and his spouse awarded 46.45 shares of their common stock to these individuals. In conjunction with the agreement and plan of merger with the Company, Old Geotrac acquired the common stock held by these individuals for approximately $728,069. In May, 1998, Old Geotrac recorded additional compensation expense (non-recurring item) of $728,069 and an increase to contributed capital of $728,069. Interest Expense. Interest expense increased $55,000 to $825,000 from $770,000 in 1996. Other Income (Non-Recurring Item). In 1997, Old Geotrac received a contingent earn-out of $1,700,000, representing the final payment under a 1994 sale agreement. No payment was received in 1996. Provision for Income Taxes. The effective income tax rate was 43.4% in 1997 and 41.9% in 1996. COMPARISON OF THE YEAR ENDED JUNE 30, 1997 AND 1996 -- SMS GEOTRAC, INC. Revenues. Revenues remained relatively unchanged at $12.5 million in fiscal 1997 and 1996. The flat revenues were primarily attributable to a lack of marketing emphasis. Cost of Revenues. Cost of revenues decreased $305,000, or 4.9%, to $5.9 million in fiscal 1997 from $6.2 million for fiscal 1996. As a percentage of revenues, cost of revenues decreased to 47.2% in fiscal 1997 from 49.8% in fiscal 1996. Management attributes this decrease to a greater proportion of automated determinations, which are less costly than manual determinations. Selling, General and Administrative Expense. Selling, general and administrative expense decreased $240,000, or 7.8%, to $2.8 million in fiscal 1997 from $3.1 million in fiscal 1996. As a percentage of revenues, selling, general and administrative expense decreased to 22.7% in fiscal 1997 from 24.7% in fiscal 1996. The reduction of bad debt expense in 1997, resulting from improved billing and collections procedures, accounted for the decrease in the dollar amount and percentage. Provision for Income Taxes. The effective income tax rate was 45.8% in fiscal 1997 and 43.2% in fiscal 1996, reflecting an additional provision for state income taxes in 1997. LIQUIDITY AND CAPITAL RESOURCES Historically, Geotrac has funded its operations primarily through cash generated from operations and to a lesser extent from capital leases and a revolving line of credit. The July, 1997 acquisition of SMS Geotrac was funded by BHDS' contribution of $6,750,000 in cash and proceeds of a seven-year term note of $8,750,000 entered into by Old Geotrac. The note, which had an outstanding balance of $7,500,000 at June 30, 1998, currently bears interest at prime rate and is collateralized by substantially all of the assets of Old Geotrac. It is anticipated that the note will be repaid from a portion of the offering proceeds. In conjunction with BHDS' purchase of the remaining 51% of Old Geotrac, BHDS was the surviving company and changed its name to "Geotrac, Inc." Accordingly, Geotrac is presently a wholly-owned subsidiary of the Company. As such, the above information should be read in conjunction with "Selected Consolidated Financial Data of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," the Company's Consolidated Financial Statements and the Company's Pro Forma Condensed Consolidated Financial Statements (unaudited). 33 39 BUSINESS GENERAL The Company provides (1) 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, and (2) flood zone determinations to financial institutions, mortgage lenders and insurance companies. 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 1997 and the nine months ended September 30, 1998, the Company processed approximately 575,000 and 667,000 insurance policies, respectively, including approximately 450,000 and 540,000 flood insurance policies, respectively, making it a significant provider of flood administration services. The Company currently provides flood outsourcing services to its affiliate, Bankers Insurance Group, Inc. (together with its subsidiaries, "BIG"), 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 believes this product is attractive to insurance companies that desire to offer flood insurance but are not certified by the Federal Emergency Management Agency ("FEMA") to sell and service flood insurance. FEMA estimates that only 25% to 33% of U.S. properties required to be covered by flood insurance are in fact covered. The Company anticipates continued growth in the demand for flood insurance, and related flood outsourcing and flood zone determination services, over the next several years. During 1997 and the nine months ended September 30, 1998, the Company processed approximately 1.4 million and 1.2 million flood zone determinations, respectively, for over 725 and 900 customers, respectively, including financial institutions such as SouthTrust Bank, mortgage lenders such as ABN Amro North America, Inc. and Mortgage Corporation of America, and P&C insurance companies such as Allendale Mutual Insurance Company and Wausau Underwriters Insurance Company. Flood insurance is required by federal law in connection with virtually all residential mortgage loans, including refinancing loans, covering properties located within federally designated high-risk flood zones. A flood zone determination is necessary in order to ascertain a property's flood zone classification. In addition, due to more stringent underwriting criteria, P&C insurers increasingly require flood zone determinations prior to issuing commercial property policies. The Company uses its proprietary database, compiled and digitized from flood maps distributed by FEMA, to determine whether a particular property or structure is located within a flood zone classification that requires flood insurance. The Company estimates that 92% of U.S. households are in counties covered by its electronic database. The Company is a 75.2% 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. From 1993 to 1997, BIG's premiums grew from $113.7 million to $259.0 million, representing annual growth rates of 14.8%, 22.5%, 46.8% and 10.4%, respectively, and a compound annual growth rate of 22.8%. BIG is the largest underwriter of flood insurance policies through independent agents (and the second largest overall) in the United States. Upon completion of this offering, BIG will beneficially own 64.2% of the Company's Common Stock. BIG is the Company's principal customer, accounting for approximately 75.6% (on a historical basis) and 54.8% (on a pro forma basis) of the Company's total revenues and 98.0% (on both a historical basis and a pro forma basis) of the Company's outsourcing revenues in 1997, and 56.2% and 96.8% of the Company's total revenues and outsourcing revenues for the nine months ended September 30, 1998. OVERVIEW OF THE FEDERAL FLOOD INSURANCE PROGRAM The U.S. flood insurance market is regulated by 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 floodplain communities, on the condition that such communities comply 34 40 with the Flood Program's floodplain 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. Lenders who fail to comply with the 1994 Reform Act are subject to substantial monetary penalties. MARKET OPPORTUNITIES Growth in the Flood Market. The U.S. flood insurance market has grown significantly in recent years. Currently, almost 19,000 communities participate in the Flood Program, and approximately 100 insurance companies are registered to offer WYO flood insurance. The following table illustrates the growth in flood insurance policies and premiums under the Flood Program since 1987 and highlights the Company's increased penetration of this growing market:
PERCENTAGE OF ANNUAL TOTAL FLOOD TOTAL NUMBER OF NUMBER OF FLOOD PROGRAM FLOOD PREMIUMS POLICIES IN FLOOD POLICIES TOTAL ANNUAL PREMIUMS ADMINISTERED FLOOD ADMINISTERED BY FLOOD ADMINISTERED BY BY THE AS OF SEPTEMBER 30, PROGRAM(1) THE COMPANY PREMIUMS(2) THE COMPANY COMPANY - ------------------- --------------- --------------- ------------- --------------- ------------- (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) 1987.......... 2,023 55 $ 554,249 $ 16,105 2.9% 1988.......... 2,052 66 571,265 17,918 3.1 1989.......... 2,167 91 623,409 21,277 3.4 1990.......... 2,341 115 658,359 27,055 4.1 1991.......... 2,459 142 716,650 33,171 4.6 1992.......... 2,530 156 779,746 37,723 4.8 1993.......... 2,690 193 859,128 49,591 5.8 1994.......... 2,805 208 946,898 58,737 6.2 1995.......... 3,265 274 1,114,059 79,914 7.2 1996.......... 3,546 376 1,209,178 101,973 8.4 1997.......... 3,811 453 1,390,015 132,041 9.5 1998.......... 4,178 542 1,599,231 205,405 12.8
- --------------- (1) Source: National Flood Insurance Program Bureau and Statistical Agent and the 1997 FIA Annual Report. (2) Source: National Flood Insurance Program Bureau and Statistical Agent. 35 41 The following table illustrates the growth in the number of flood zone determinations performed by the Company from 1994 through 1997:
TOTAL NUMBER OF TOTAL NUMBER OF FLOOD ZONE DETERMINATIONS 1-4 FAMILY MORTGAGE YEAR GENERATED BY THE COMPANY LOAN ORIGINATIONS IN U.S.(1) - ---- ------------------------- ---------------------------- 1994................................... 458,232 7,484,600 1995................................... 757,642 5,976,700 1996................................... 1,191,182 6,882,300 1997................................... 1,384,089 6,905,000 1998 (through September 30)............ 1,197,279 *
- --------------- (1) Reported by Mortgage Bankers Association of America ("MBAA") based on statistics from the U.S. Department of Housing & Urban Development, the Federal Housing Finance Board and the MBAA. * Not Available. The Company believes that the demand for flood outsourcing services and flood zone determinations will continue to grow as a result of the following factors: - Higher Levels of Compliance with Federal Flood Laws. The 1994 Reform Act has compelled mortgage lenders to enforce federal flood insurance requirements or be subject to substantial monetary penalties. As a result, a higher percentage of purchasers of residential property located in federally designated high-risk flood zones are being required to purchase flood insurance as a condition to receiving mortgage financing from a federally-backed financial institution. Based on a FEMA estimate that only 25% to 33% of U.S. properties required to be covered by flood insurance are in fact covered, and given that only approximately 3.8 million U.S. properties were covered as of September 30, 1997, management estimates that approximately 11.4 million to 15.2 million U.S. properties are in fact required to be covered by flood insurance. The Company believes the demand for flood insurance outsourcing services will grow as compliance with federal flood insurance requirements increases. The Company also believes such compliance will result in greater demand for flood zone determinations, since a flood zone determination is necessary in order to determine whether a property is located in a high-risk flood zone. - Increase in Voluntary Purchase of Flood Insurance. The Company expects the number of property owners who purchase flood insurance on a voluntary basis to increase over the next several years. Management believes consumers are increasingly aware that affordable flood insurance is available to them through the Flood Program. Management attributes this growing awareness to a number of factors, including (1) the Flood Program's national advertising campaign, known as Cover America, which began in 1995, (2) increasing consumer awareness that the typical homeowners' policy does not cover flood damage, and (3) the occurrence of several recent flooding disasters, such as the Mississippi River floods of 1993 and the Red River floods of 1997. Similarly, the substantial media attention given the El Nino phenomenon and the resulting severe weather patterns, have heightened the public's awareness that flood insurance may be necessary even for properties not located in high-risk flood zone classifications. Approximately 25% to 30% of flood damage claims paid relate to properties located outside such flood zone classifications. According to the National Flood Insurance Program Bureau and Statistical Agency, the number of flood insurance policies purchased by homeowners on a voluntary basis has increased from 168,000 policies as of September 30, 1994 to 614,000 policies as of September 30, 1998, a compound annual growth rate of 38.3%. - Growth in Commercial Flood Zone Determination Business. The demand for flood zone determinations by commercial property insurers and commercial mortgage lenders has increased recently and the Company expects this growth pattern to continue. Commercial property insurance policies generally cover floods and similar events. As public attention has focused more closely on severe weather patterns in recent years and insurers have become increasingly aware of 36 42 the importance of flood coverage, P&C insurers that issue such policies have been developing more stringent underwriting criteria. Trend Toward 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 3.5% annually since 1990. 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, 1997, there were approximately 3,300 P&C insurance companies in the United States. These companies generated approximately $277 billion in annual P&C premium revenues in 1997, 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. More specifically, the Company believes it can offer many of these insurance companies the opportunity to reduce their processing costs by outsourcing such functions to the Company for a flat fee. 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. Insurance companies historically have invested less in information technology than companies in other industries. In 1996, for example, insurance companies spent only 2.4% of revenues on information technology, as compared to 6.6% for banking firms and 2.9% for all industry sectors combined. The Company believes that insurance companies will 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. According to forecasts published by The Yankee Group, the amount spent annually by insurers on outsourcing is expected to increase from $5 billion in 1997 to $13 billion within the next five years. The Company believes it will have significant opportunities to market its outsourcing services 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 outsource 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. For example, the Company believes the Year 2000 issue may generate additional demand for outsourcing services because many insurance companies will resolve the Year 2000 issue by either purchasing new software systems or outsourcing some or all of their policy and claims requirements. - Changing Distribution Channels. The Company believes that demand for outsourcing services will increase as banks, credit unions and other financial service companies enter the P&C market. These new entrants were generally precluded from selling insurance until the U.S. Supreme Court decision in Barnett Bank v. Nelson in 1996. The Company believes that, following this decision, and despite continuing restrictions and pressure from state regulators, banks and other financial institutions will enter the P&C market at an increasing rate, often forming joint ventures and other 37 43 alliances with certain insurers to sell P&C insurance. Many new entrants lack the technology, expertise or desire to perform policy and claims processing in-house. These so-called "virtual insurance companies" often focus their resources on the core marketing, underwriting and financial aspects of the P&C business and seek to outsource their policy and claims administration to third-party vendors. The Company believes that it is well-positioned to provide services to new entrants to the P&C market. - 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. THE IMSG SOLUTION The Company believes it has positioned itself to capitalize on the foregoing market opportunities in the following ways: - Flood Insurance Experience. The Company is one of the leading providers of flood insurance outsourcing services in the United States, currently servicing over 540,000 flood insurance policies. As a result, the Company has developed substantial expertise and scale in virtually all aspects of the flood insurance servicing business. - Flexible, Comprehensive, Turnkey Solutions. The Company offers a comprehensive range of outsourcing services, both individually and on a bundled basis, giving clients flexibility in selecting and matching services to their needs. The Company's turnkey solutions allow clients to focus on core competencies and better manage costs and allow new market entrants an opportunity to offer insurance products on a cost-effective basis by leveraging the Company's systems and business processes. - Insurance Industry Expertise. Unlike certain of its competitors, the Company's senior management has substantial experience in the insurance industry. See "Management." As a result of this core competence, management believes the Company is better suited to understand and address its customers' needs. - Flood Zone Determination Services. The Company offers a highly automated flood zone determination service based on its proprietary national database. This service provides an accurate, prompt and relatively low cost determination of a residential or commercial property's status with respect to national flood zones. Insurance companies, credit unions, banks and other financial institutions use this service to comply with federal laws requiring mortgage lenders to oversee and ensure the purchase of flood insurance by certain borrowers, create a competitive advantage in loan approval/insurance underwriting response time and generate additional fees from their borrowers. - Modular, Integrated and Real-time Systems. The Company's information systems are table-driven and modular in design, enabling the Company to provide systems that address the specific needs of the client, such as distinct underwriting rules. The core system permits integration of a client's database, thereby eliminating the need for data re-entry for multiple applications. The system provides real-time processing of key functions, such as policy processing and endorsements, that enhances completeness and accuracy in processing. The Company's system also has a proven track record of reliability and low system "down-time." The Company is committed to upgrading and maintaining its systems in an effort to remain competitive. - Customer Service to Independent Agent Networks and Policyholders. Because residential flood insurance rates are set by FEMA and therefore are not directly subject to competitive pressures, the Company believes customer service is a critical consideration for independent sales agents in 38 44 determining which carrier's flood insurance policies to sell. BIG is the largest underwriter of flood insurance policies through independent agents in the United States, and the Company processes and services all of BIG's flood insurance policies. The Company believes that as a result of its affiliation with BIG it has developed a customer service-oriented culture that strengthens its clients' relationships with their independent sales agent networks and policyholders. The Company focuses on providing superior service, such as timely policy issuance and rapid and professional response to agent and policyholder inquiries. The Company maintains and monitors quality service standards and continually seeks to measure customer satisfaction. The Company believes that its focus on customer service has enabled it to retain all of its principal outsourcing customers since 1994. GROWTH STRATEGY The Company's objectives are (1) to become a leading provider of outsourcing services to the P&C industry and (2) to become the leading provider of flood zone determinations to financial institutions, mortgage lenders and P&C insurers. The Company's principal strategies for achieving these objectives are as follows: - Expand Flood Outsourcing Business. The Company has extensive experience and expertise in virtually all aspects of the flood insurance servicing business and occupies a leading position in that market. Key aspects of the Company's growth strategy include (1) marketing flood outsourcing services to existing WYO carriers that it believes will benefit for cost or infrastructure reasons from the Company's services, (2) offering its outsourcing services to new entrants that lack the infrastructure or expertise necessary to service flood insurance customers, (3) marketing its ability, in conjunction with BIG, to provide and service a private label insurance product to insurance companies that desire to offer flood insurance but are not certified by FEMA to sell and service flood insurance, and (4) increasing the volume of flood outsourcing services business from the Company's existing customer base, which includes over 20 customers under contract, either directly or through BIG. - Expand Relationships with Existing Customers. The Company intends to capitalize on its existing flood insurance outsourcing customer base and substantial flood zone determination customer base by cross-marketing its flood, homeowners and automobile outsourcing services to certain of these customers. Management believes these marketing opportunities are especially prevalent today, given that recent regulatory changes have permitted non-traditional insurance companies -- most notably banks, credit unions and other financial services companies -- to enter the P&C insurance industry. These new entrants -- many of which are existing flood zone determination customers of the Company -- often do not have the necessary infrastructure or expertise in place and are natural candidates for outsourcing. See "-- Market Opportunities." - Focus on Maximizing Economies of Scale. The Company believes that demand for P&C insurance outsourcing services will grow as such services become more affordable and cost effective. To achieve such affordability and cost effectiveness, a P&C outsourcing provider must develop certain economies of scale. The Company currently services over 667,000 insurance policies annually. As a result, it has developed a large number of efficiencies in most 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. As a consequence, the Company believes it is well-positioned to capitalize on the growing trend toward outsourcing administrative functions in the P&C industry by offering insurers better quality and more cost-effective "back office" operations. Moreover, the Company intends to continue expanding these efficiencies by increasing the utilization of its existing infrastructure and databases. 39 45 - Expand Direct Sales Force and Develop Strategic Relationships. The Company has recently begun to develop a direct sales force and sales support organization to focus on new customer opportunities and generate additional business from the Company's current customer base. The Company is also seeking to develop new business opportunities by creating additional strategic distribution and marketing alliances. For example, the Company's flood zone determination business targets credit unions of all sizes through its marketing alliance with CUNA Mutual Group, the largest provider of insurance products to credit unions, and large mortgage lenders through its marketing alliance with Equifax Mortgage Services, the nation's largest mortgage credit reporting agency. See "-- Services." - Generate Recurring Revenues. The Company seeks to generate recurring revenues by entering into contractual relationships (typically one to three 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. - Pursue Strategic Acquisitions. A key element of the Company's growth strategy is to pursue potential acquisitions that offer opportunities to increase market share or expand the Company's line of outsourcing services. The Company's recent Geotrac Acquisition enabled it to solidify its position as a leader in the flood zone determination business and broaden the range of ancillary services the Company is able to provide. Moreover, the Company is currently in the process of consolidating its own flood zone determination operations with those of Old Geotrac. See "Recent Acquisitions." SERVICES Outsourcing 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. Claims 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, distinguishing its outsourcing services in the P&C insurance market. The Company is typically compensated for claims administration services on either a percentage of earned premiums or claims-paid basis. The Company's claims administration menu includes the 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. 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 menu includes 40 46 the following services: information management via integrated, secure computer systems; document imaging; on-line 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. Because the Company is affiliated with and provides comprehensive outsourcing services to BIG, a certified 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, claims 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 market its outsourcing services to banks, credit unions and other financial institutions as they become increasingly involved in the sale of insurance. Flood Zone Determination Business. For a fixed fee, the Company will provide a customer -- typically a mortgage loan originator or an insurance company -- with a determination as to whether a specified property is located within a federally-designated flood zone classification. The Company uses its proprietary national flood zone database to make flood zone determinations. This database, which is continually updated, allows the Company to determine if a particular structure is located within the special flood hazard areas established by FEMA. These determinations assist mortgage lenders in complying with federal regulations under which they must require borrowers to purchase the appropriate level of flood insurance. Management estimates that approximately 92% of U.S. households are located in counties covered by the Company's electronic flood zone database. For approximately 75% of determinations requested, the Company is able to perform automated flood zone determinations in a matter of seconds. Determinations made on a fully-automated basis are significantly more cost effective than manual determinations. In some cases, particularly where a property is not clearly within or outside a flood hazard area, the database search will not produce an automatic determination, or "hit," and a manual search becomes necessary. Manual searches require extra time and labor and are not nearly as cost effective as fully-automated searches. The Company provides both one-time and life-of-loan flood zone determinations. Under a "life of loan" determination, the Company is responsible for updating the initial flood zone determination based on revisions to the federal flood maps occurring during the term of the loan. The Company also provides portfolio analyses and audits for mortgage service agencies by reviewing blocks of loans that usually require between 100 and 50,000 flood zone determinations. In addition to flood zone determinations, the Company provides flood-related ancillary services. For example, the Company provides a standard flood compliance packet to lenders which includes information on community status, mapping, specific structure location, amount of flood insurance required, secondary market and government program restrictions, and floodway and coastal zone barrier restrictions. The life-of-loan product tracks both community status and FEMA map changes on a daily basis for the life of the loan. If changes occur that affect the subject property, a new report is automatically generated for no additional charge. Certain ancillary services are transferable if the mortgage loan for which the flood zone determination was done is sold or transferred. Through its GeoCompass(R) service, the Company provides certain CD-ROM services on-site at customer locations. The CD-ROM delivery system offers customers the ability to perform certain flood zone determinations at their own desktops. The Company also actively seeks to leverage its expertise in mapping technology by providing ancillary mapping services. For example, the Company has been engaged by various municipalities or has partnered 41 47 with software firms to digitize manual property tax maps and then integrate these maps with appraisal data. Most municipality property tax maps have not been digitized and the Company believes there is a significant opportunity to penetrate this market. Additionally, the Company was recently hired by the Columbus, Ohio Police Department to digitize property records and then integrate these records with crime statistics in order to better monitor crime trend activity. Each police precinct in Columbus is now able to analyze where and when crimes occur and thus become more proactive in crime prevention. The Company believes there are numerous other related opportunities to apply its core mapping technology expertise. The Company has established a relationship with Kirloskar Computer Services ("KCS"), located in India, which the Company believes can provide certain services that will increase the efficiency of the Company's flood zone determination business. Under a Secrecy and Confidentiality Agreement, KCS has agreed, for a period of five years from the date of termination of its relationship with Geotrac, not to engage, directly or indirectly, in certain activities relating to Geotrac's business. KCS currently builds databases and creates digitized maps that the Company uses in connection with its flood zone determination business. In addition, Geotrac presently leases employees from KCS who perform manual flood zone determination searches at costs significantly below U.S. market rates. The Company expects that such leased employees will become direct employees of Geotrac in the near future. These employees currently perform approximately 300 manual searches per day. As the Company continues to shift its manual search processing to India, it expects to have approximately 1,000 manual searches per day performed in that country by August 1999. These plans are subject to change based upon various factors, including the demand for manual searches as well as political and economic conditions in India. The Company also has retained two KCS systems analysts on a consulting basis at its Norwalk, Ohio headquarters to assist in the design and programming of GeoCompass(R) technologies. Each of these consultants directs a team of programmers in Bangalore, India. The Company uses different pricing and contractual arrangements for one-time and life-of-loan flood zone determinations. The Company performs flood zone determinations for both residential and commercial properties, with determinations for residential properties comprising approximately 85% of such business. CUSTOMER SUPPORT AND INSTALLATION The Company's outsourcing services are provided from two separate customer service centers in St. Petersburg, Florida -- one for policy and claims administration and one for catastrophic claims administration. The policy administration center has approximately 210 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 insurance agents, the phone center also handles calls from mortgage companies, policyholders and insureds. The policy administration phone center handles an average of approximately 15,000 calls per week (19,000 calls per week during peak periods). The claims 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 160 employees, approximately half of which are licensed claims representatives responsible for the adjustment of claims. Incoming calls are taken by 15 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 claims 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 currently maintains two separate customer service centers relating exclusively to its flood zone determination business, one of which was acquired as part of the acquisition of Geotrac. The Company is currently in the process of consolidating its own flood zone determination operations with those of Geotrac. See "Geotrac Acquisition." The Company believes the service center acquired as part of the Geotrac Acquisition is one of the largest flood zone determination service centers in the industry. A team comprised of a senior manager and up to four service representatives is assigned to each customer account. The team 42 48 advises the customer in all matters of flood compliance and will train a customer's staff at their own or the Company's offices. The team also provides direct support to their customers' independent direct sales agent networks. The Company installs its GeoCompass(R) CD-ROM system on site at customer locations. GeoCompass(R), which enables customers to make their own flood zone determinations, is based on the Windows operating system, operates on the customer's network and is relatively simple for customers to learn to use. SALES AND MARKETING The Company seeks to market its outsourcing capabilities by leveraging its existing expertise in flood insurance administration, expanding its relationships with existing flood zone determination customers and targeting prospective customers, such as insurers with high expense ratios or limited expertise in certain P&C lines. The Company recently formed a sales and marketing division dedicated to direct sales of its outsourcing services. The Company began staffing its sales and marketing division in 1997. This division now includes a senior vice president, a marketing vice president, two full-time sales representatives, three project managers and a marketing assistant. The Company plans to add two additional full-time sales representatives in the near future. In addition to direct marketing, the Company markets its P&C outsourcing services through insurance brokers, reinsurers and other strategic partners. 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. The Company markets its flood zone determination services both directly through its own sales personnel and indirectly through its alliances with other service providers. For example, the Company targets credit unions of all sizes through its alliance with CUNA Mutual Group, the nation's largest provider of insurance products to credit unions, and large mortgage lenders through its alliance with Equifax Mortgage Services, believed by the Company to be the largest mortgage credit reporting agency in the U.S. INFORMATION SYSTEMS The Company utilizes fully-integrated, real-time, processing systems at its St. Petersburg 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 data center has controls to ensure security and a disaster recovery plan which is tested regularly. The Company also utilizes computer systems at its Geotrac location, including two IBM AS/400 processors. Geotrac also has several major production systems, including GeoCompass(R) and life-of-loan tracking. 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 to develop the appropriate modifications or enhancements to its software system. The Company believes that the principal computer equipment and software currently used by the Company will function properly with respect to dates in the year 2000 and thereafter. See "Risk Factors -- 43 49 Year 2000 Issues" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Year 2000 Compliance." CUSTOMERS The Company currently provides outsourcing services to 18 companies. The Company's largest customer, BIG, accounted for approximately 40%, 37%, 76%, 55% and 56%, respectively, of the Company's revenues in 1995, 1996, 1997, 1997 (pro forma) and for the nine months ended September 30, 1998. 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 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. The Company provides flood zone determination services to over 900 banks, credit unions, mortgage lenders, insurance companies and, other financial institutions. The Company's principal financial institution customers for such services include SouthTrust Bank. The Company's principal insurance company customers for such services include Allendale Mutual Insurance Company and Wausau Underwriters Insurance Company. In addition, the Company provides flood zone determination services to numerous credit unions, a number of which became customers as a result of the Company's alliance with CUNA Mutual Group, the nation's largest provider of insurance products to credit unions. The Company also provides such services to mortgage lenders such as ABN Amro North America, Inc. and Mortgage Corporation of America primarily through its alliance with Equifax Mortgage Services, believed by the Company to be the largest mortgage credit reporting agency in the U.S. COMPETITION The Company competes principally in three markets: (1) the market for flood insurance outsourcing services, (2) the market for other P&C insurance outsourcing services and (3) the market for flood zone determination 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 National Con-Serv, Inc. and Electronic Data Systems, Inc. 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 INSpire Insurance Solutions, Inc. In this segment of the market, the Company competes for customers on the basis of customer service, performance and price. The claims 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 INSpire Insurance Solutions, 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. In addition, insurance company personnel have a vested interest in maintaining these responsibilities in-house. The market for flood zone determination services is dominated by the Company and several principal competitors, including First American Financial, TransAmerica, Chicago Title Corp. and Palma Lazar & Ulsh. The Company believes that the principal competitive factors in the market for flood zone determinations include price, quality and reliability of services, and response time. 44 50 Certain of the Company's competitors in each of these 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. FACILITIES The following table sets forth certain information with respect to the principal facilities used in the Company's operations:
SQUARE LOCATION FEET FUNCTION LEASE EXPIRATION -------- ------ -------- ---------------- St. Petersburg, 76,700 Corporate Headquarters December 1999(2) Florida(1)............ and Outsourcing St. Petersburg, 7,400 Outsourcing December 1999(2) Florida(1)............ St. Petersburg, 6,600 Flood Zone Determination May 1999(3) Florida(1)............ Norwalk, Ohio........... 12,400 Flood Zone Determination August 1999(4) Norwalk, Ohio........... 21,000 Flood Zone Determination November 2002(4) Dunedin, Florida........ 4,000 Outsourcing December 2003
- --------------- (1) Each of these facilities is leased or subleased from BIG. See "Certain Transactions." (2) The Company has the option to renew each of these leases for an additional two-year period. (3) The Company is currently negotiating with BIG to reassign this lease to BIG as of the summer of 1999. No assurances can be given that such assignment will occur. (4) The Company has the option to renew each of these leases for an additional five-year 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. EMPLOYEES As of December 1, 1998, the Company had 785 full-time employees, consisting of 15 in sales and marketing, 429 in customer service and support, 308 in technical support, and 33 in management, administration and finance. None of the Company's employees is subject to a collective bargaining agreement, and the Company considers its relations with its employees generally to be good. LEGAL PROCEEDINGS The Company is not involved in any pending legal proceedings other than routine litigation arising in the ordinary course of business. The Company does not believe that the results of such litigation, even if the outcome were unfavorable to the Company, would have a material adverse effect on the Company's business, financial condition or results of operations. Bankers Insurance Company ("BIC"), a subsidiary of BIG, the Company's principal shareholder and customer, is currently 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 BIC's 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. In addition, BIC and certain of its employees (one of whom is now an officer of IMS and several of whom are now employees of the Company) have been subpoenaed on behalf of FEMA to produce documentation or testify in connection with its investigation of certain of BIC's cash management and claims processing practices. BIC is currently involved in discussions relating to the resolution of certain 45 51 matters raised in the investigation. If the parties are unable to reach agreement in these matters, the United States could file suit under the False Claims Act and/or various common law and equitable theories. In the event either or both of these investigations 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. 46 52 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS 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 the date of this Prospectus, regarding the directors and executive officers of the Company.
TERM AS DIRECTOR NAME AGE POSITION EXPIRES - ---- --- -------- -------- David K. Meehan........................... 51 Chairman of the Board, President, Chief 1999 Executive Officer and Director Jeffrey S. Bragg.......................... 49 Executive Vice President, Chief Operating 2001 Officer and Director Kathleen M. Batson........................ 56 Senior Vice President Kelly K. King............................. 41 Vice President, Treasurer, Chief Financial Officer and Secretary Daniel J. White........................... 48 President and Chief Executive Officer of 1999 Geotrac and Director Robert M. Menke........................... 65 Director 2000 Robert G. Menke........................... 36 Director 2001 John A. Grant, Jr......................... 54 Director 1999 William D. Hussey......................... 64 Director 2000 E. Ray Solomon............................ 69 Director 2000 Alejandro M. Sanchez...................... 40 Director 2001
David K. Meehan has served as the Chairman of the Board, Chief Executive Officer and a director of the Company since December, 1996. Mr. Meehan joined BIG in 1976 as Corporate Secretary. He was appointed President of BIG in 1979 and will serve in such capacity until the completion of this offering. He is currently Vice Chairman of the Board of BIG and Bankers Insurance Company. 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 Director/Vice Chairman of the Florida Insurance Council and past Chairman and President of the Florida Association of Domestic Insurance Companies. Jeffrey S. Bragg has served as Executive Vice President and Chief Operating Officer of the Company since November, 1997 and as a director of the Company since May, 1997. Mr. Bragg has 20 years experience in the insurance and insurance related information technology industries. He was with Policy Management Systems Corporation from 1987 to 1995, most recently serving as Senior Vice President and Group Manager. He was also appointed by President Reagan in 1981 to head the Federal Insurance Administration, with responsibility for administering the Flood Program, Federal Crime Insurance program, and Federal Riot Reinsurance programs. Mr. Bragg has served on Legislating and Advising Boards for the Alliance of American Insurance and the National Association of Mutual Insurance Companies. Kathleen M. Batson has served as Senior Vice President of the Company and Insurance Management Solutions, Inc., the Company's outsourcing subsidiary ("IMS"), since December, 1996. Mrs. Batson joined BIG in 1983 and most recently served as Senior Vice President of BIG from June, 1992 to December, 1996. Prior to such time, she was employed with Colonial Penn Insurance Company as Sales Manager from 1977 to 1983. Mrs. Batson was the founding Director and Secretary and past President of the Flood Insurance Servicing Companies Association of America, Inc. and is a member of the National Write Your Own (WYO) Flood Marketing Committee and the Institute for Business and Home Safety Flood Committee. 47 53 Kelly K. King has served as Vice President, Treasurer and Chief Financial Officer of the Company since December, 1996 and as Secretary of the Company since May, 1998. Mr. King joined BIG in 1992 and served as Vice President and Chief Financial Officer from February, 1993 to October, 1997. Prior to 1992, he was employed in various capacities with Integon Insurance Corporation, NAC Re Corporation, A.M. Best Company and Kemper Group. He is a CPA and a Chartered Property Casualty Underwriter. Daniel J. White has served as a director of the Company since May, 1998. Mr. White founded Geotrac in 1987 and has served as President of Geotrac since that time and as Chief Executive Officer of Geotrac since September, 1994. Mr. White also currently serves as a director of Independent Community Bank Corp. Robert M. Menke has served as a Director of the Company since December, 1996. Mr. Menke founded BIG in 1976 and has been the Chairman of the Board since 1979. 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 is currently Chairman of the Board and President of First Community Insurance Company, Bankers Security Insurance Company, Bankers Life Insurance Company and Bankers Insurance Company, all affiliates of BIG and the Company. He is also a director of the Florida Windstorm Association and First Community Bank of America. Robert G. Menke has served as a Director of the Company since December, 1996. Mr. Menke, the son of Robert M. Menke, joined BIG in 1985 and has held positions as programmer, systems analyst, systems manager, manager of information services, and Vice President and Senior Vice President of Corporate Services. He is currently Executive Vice-President of BIG and has served in such capacity since October, 1997. Mr. Menke also serves as President of each of Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company, subsidiaries of BIG, and has served in such capacities since November, 1998. He previously served as Executive Vice President of each of such entities. John A. Grant, Jr. has served as a Director of the Company since December, 1996. Mr. Grant has been a partner with the St. Petersburg, Florida-based law firm of Harris, Barrett, Mann, and Dew since 1989. Since 1986, he has also been a member of the Florida State Senate, where he currently serves as Chairman of the Education Committee and where he previously served as the Chairman of the Banking & Insurance, Commerce, Criminal Justice, Judiciary, and Government Reform committees. He was a former Advisory Board Member of the United States Small Business Administration and served on the Graduate Fellows Board of the United States Department of Education. 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 an advisor with the Florida Bankers Association. 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 School 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. Messrs. Robert M. Menke, Meehan and Hussey are also members of the Board of Directors of First Community Insurance Company (a company owned 72% by BIG and 28% by Bankers Life Insurance Company). Messrs. Robert M. Menke and Meehan are on the Board of Directors of Bankers Security Insurance Company, which is wholly-owned indirectly by BIG. Messrs. Robert M. Menke and Meehan are on the Board of Directors of each of Bankers Insurance Company and Bankers Life Insurance Company, which are owned directly or indirectly by BIG. 48 54 KEY EMPLOYEES James J. Andrews has served as Vice President -- Information Systems of Geotrac since March, 1998. Mr. Andrews joined Geotrac in June, 1996 as AS/400 Project Leader and served in such capacity until March, 1998. Prior to joining Geotrac, Mr. Andrews was President and owner of Andrews Technical Services, Inc., a computer consulting firm, from May, 1995 to June, 1996, and MIS Manager of Green Circle Growers, Inc. and Express Seed Company from August, 1984 to May, 1995. Thomas Becker has served as Vice President -- Production and Operations of Geotrac since March, 1996. Prior to joining Geotrac, Mr. Becker spent over 15 years with Equifax, Inc., most recently as Regional Office Manager from October, 1988 to February, 1996. Howard B. Davis has served as Vice President -- Customer Service and Residual Markets of IMS since December, 1996. He also served as Vice President -- Customer Service and Residential Markets of the Company from August, 1997 to June, 1998. Mr. Davis joined BIG in 1988 and served as its Vice President -- Customer Service and Residual Markets from 1990 to 1997. He was appointed Executive Vice President of Universal Acceptance Corporation in 1991 and will continue to serve in such capacity until the completion of this offering. Prior to joining BIG, Mr. Davis was with Colonial Penn Insurance Company. He is a past President of the Florida Premium Finance Association and past Chairman of the Florida Auto Joint Underwriting Association Operating Committee. Robert G. Gantley has served as Vice President -- Claims of IMS since August, 1997. He also served as Vice President-Claims of the Company from August, 1997 to June, 1998. Mr. Gantley joined BIC in October, 1996 and will serve as Vice President -- Claims until the completion of this offering. Prior to joining BIC, Mr. Gantley was the Assistant Director of the Massachusetts State Lottery from 1993 to 1996 and a Territorial Claims Manager with Allstate Insurance Company from 1989 to 1993. Karen R. Kiedrowicz has served as Vice President -- Human Resources of Geotrac since January, 1996. Ms. Kiedrowicz joined Geotrac in September, 1993 and served as Training Leader from September, 1993 to May, 1995 and as Human Resources Manager from May, 1995 to January, 1996. Prior to joining Geotrac, she served as Recruiting and Training Manager of KPMG Peat Marwick LLP from September, 1989 to July, 1992. S. Kyle Moll has served as Vice President and Chief Information Officer of IMS since December, 1996. He also served as Vice President and Chief Information Officer of the Company from December, 1996 to June, 1998. Mr. Moll joined BIG in 1993 and served as its Vice President and Chief Information Officer from October, 1996 to October, 1997. Prior to joining BIG, he was employed by Electronic Data Systems from July, 1985 to September, 1993 as Systems Engineer Manager. Kay L. Womble has served as Vice President -- Marketing of IMS since July 1998. Prior to joining IMS, Ms. Womble spent eighteen years with Policy Management System Corporation, most recently as Alternative Markets Sales Manager and Assistant Vice President from December 1994 to June 1998, Catastrophe Plan Manager and Assistant Vice President from February 1994 to December 1994, and Government Sales Executive from 1991 to 1994. 49 55 EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation paid to or earned by the Company's Chairman of the Board and Chief Executive Officer and each of the Company's four other current executive officers for the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) -------------------------------------- OTHER NAME AND ANNUAL PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) ------------------ -------- ------- --------------- David K. Meehan Chairman of the Board and Chief Executive Officer(3).......................................... $220,999 $58,000 -- Jeffrey S. Bragg Executive Vice President and Chief Operating Officer(4).......................................... 84,806 10,000 -- Kathleen M. Batson Senior Vice President(5)............................ -- -- -- Kelly K. King Vice President, Treasurer, Chief Financial Officer and Secretary(6).................................... 56,151 7,500 -- Daniel J. White President and Chief Executive Officer of Geotrac(7).......................................... -- -- --
- --------------- (1) During the year ended December 31, 1997, 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. David K. Meehan was the only executive officer of the Company who was paid in excess of $100,000 by the Company in 1997. (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, accruing to Messrs. Meehan, Bragg and King under the Executive Phantom Stock Plan of Bankers Financial Corporation, the parent of BIG. Upon completion of this offering, no officers or directors of the Company (with the exception of Robert G. Menke) will be eligible to receive additional grants under such Phantom Stock Plan. (3) Mr. Meehan did not receive any cash compensation from BIG during the year ended December 31, 1997. During such year, Mr. Meehan spent a majority of his time on the Company's business. (4) Mr. Bragg joined the Company in May, 1997. He did not receive any cash compensation from BIG during the year ended December 31, 1997. (5) Excludes $112,000 in salary and $15,000 in bonus paid to Ms. Batson for her service as an executive officer of BIG during the year ended December 31, 1997. During such year, Ms. Batson spent less than one-half of her time on the Company's business. (6) Excludes $56,151 in salary and $7,500 in bonus paid to Mr. King by BIG for his service as an executive officer of BIG during the year ended December 31, 1997. During such year, Mr. King spent approximately one-half of his time on the Company's business. (7) Mr. White did not join the Company as an officer until the consummation of the Geotrac Acquisition in July, 1998. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of Messrs. Meehan, Bragg and King, and Mrs. Batson, which shall become effective as of the completion of this offering. The initial annual base salary payable to these executive officers under their respective employment agreements are as follows: David K. Meehan, $245,000; Jeffrey S. Bragg, $145,000; Kathleen M. Batson, $120,000; and Kelly K. King, $125,000. The remaining terms of each of the employment agreements are substantially the same. Each 50 56 employment agreement provides for an initial term of three years, subject to automatic continuation until terminated by either party. Each agreement further provides that, if the employee is terminated by the Company without cause (as defined therein), the employee shall be entitled to severance payments, payable in accordance with the Company's usual payroll practices, equal to the employee's then current annual base salary. In the event the employee 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 the employee by his or her new employer during the twelve-month period following termination by the Company. Each employment agreement provides that the employee 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, the employee also shall be entitled to participate in the Company's bonus, stock option and other plans, if any. Each agreement further provides that, during the term of the agreement and for a period of two years thereafter, the employee will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities. In connection with the Geotrac Acquisition, Geotrac entered into an employment agreement with Daniel J. White pursuant to which Mr. White will continue to serve as President and Chief Executive Officer of Geotrac. This agreement provides for an initial term of four years and shall continue in effect thereafter until terminated by either party upon 90 days prior written notice. The agreement provides for an initial annual base salary of $150,000, subject to annual review by Geotrac's board of directors. To the extent authorized by Geotrac's board of directors, Mr. White shall be entitled to participate in any bonus programs established by Geotrac. Mr. White shall also be entitled comparable benefits, including health, life and disability insurance, as are offered to any of Geotrac's other executive officers. In the event of Mr. White's death or disability, Geotrac's obligations under the agreement will automatically terminate, except that Mr. White shall be entitled to severance equal to his then current annual base salary. The agreement further provides that, in the event of termination by Geotrac without cause (as defined therein) or by Mr. White for good reason (as defined therein), or in the event the agreement is not renewed for any reason other than death, disability or for cause, then Geotrac shall pay Mr. White at the rate of his annual base salary then in effect for the longer of (i) the remainder of the term of the agreement and (ii) one year after such termination date, subject to a credit of up to 75% of the base salary paid to Mr. White by his new employer, if any. This agreement also provides that, for a period of two years following Mr. White's termination of employment other than by Mr. White for good reason or by Geotrac without cause, Mr. White will not, directly or indirectly, engage (or have an interest) in the flood zone compliance business nor in any other business engaged or planned to be engaged in by Geotrac within any state or country in which Geotrac is doing or plans to do business. Finally, the agreement provides that, during the term of the agreement and for a period of two years thereafter, Mr. White will not, directly or indirectly, employ, attempt to employ, or solicit for employment, any of Geotrac's employees. LONG TERM INCENTIVE PLAN The Company currently maintains a Long Term Incentive Plan (the "Incentive Plan") 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"). A total of 437,500 shares of Common Stock may be issued pursuant to the Incentive Plan. The Incentive Plan has been adopted by the Company's Board of Directors and is expected to be approved by the shareholders of the Company prior to the consummation of this offering. The Incentive Plan provides for the grant of incentive or nonqualified stock options to purchase shares of Common Stock. Upon the completion of this offering, the executive officers of the Company will be granted options to purchase a total of 102,500 shares of Common Stock at the initial public offering price as follows: David K. Meehan, 30,000 shares; Jeffrey S. Bragg, 25,000 shares; Kathleen M. Batson, 17,500 shares; Kelly K. King, 17,500 shares; and Daniel J. White, 12,500 shares. All employees of the Company as a group, including these executive officers, will be granted options to purchase a total 251,750 shares of Common Stock 51 57 at the initial public offering price. All of such options expire on the tenth anniversary of the date of grant. Options shall become exercisable 60% after three years, 20% after four years and 20% after five years. The 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 "Non-Employee 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 Non-Employee Director Plan has been adopted by the Company's Board of Directors and is expected to be approved by the shareholders of the Company prior to the consummation of this offering. The Non-Employee Director Plan provides for the grant of nonqualified stock options to purchase up to 3,600 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 100,000 shares of Common Stock may be issued pursuant to this plan. As of the date of this Prospectus, such members held no options under the Non-Employee Director Plan. The Company will initially grant to each non-employee director options to purchase 3,600 shares of Common Stock. Non-employee directors receiving such options will become vested in options for the purchase of 400 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 200 shares of Common Stock (100 shares in the event the non-employee director is absent from, arrives late for, or departs early from, such meeting) 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, neither Robert M. Menke nor Robert G. Menke will accept any option grants under the Non-Employee 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 Non-Employee Director Plan is a formula plan and accordingly is intended to be self-governing. To the extent that questions of interpretation arise, they will be resolved by the Board of Directors. NON-QUALIFIED STOCK OPTION PLAN The Company's Board of Directors also has adopted a Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), which plan is expected to be approved by the shareholders of the Company prior to the consummation of this offering. The Non-Qualified Plan provides for the grant of non-qualified stock options to purchase up to 62,500 shares of Common Stock. Upon the completion of this offering, options to purchase 62,500 shares of Common Stock at the initial public offering price will be granted to certain executive officers of BIG, including options to purchase 12,500 shares each to Messrs. Robert M. Menke and Robert G. Menke, directors of the Company. All of such options expire on the tenth 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 as such for service as members of either the Board of Directors or committees thereof. Directors who are not executive officers of the Company receive $1,000 per Board meeting attended and $150 ($200 in the case of a committee chairperson) per committee meeting attended, plus reimbursement of reasonable expenses. The outside directors are also eligible to receive options to purchase Common Stock under the Company's 1998 Non-Employee Directors' Stock Option Plan. See " -- Stock Option Plans -- 1998 Non-Employee Directors' Stock Option Plan." 52 58 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) and Grant 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 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) and Grant 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 Incentive Plan and the Non-Qualified Plan, including the recipients, amounts and terms of stock option grants under each. Marketing Committee. The Marketing Committee is comprised of Messrs. Meehan, Bragg, Robert M. Menke, Robert G. Menke and Sanchez and is responsible for establishing the marketing policy of the Company and providing overall supervision of its marketing efforts. Executive Committee. The Executive Committee is comprised of Messrs. Meehan (Chairman), Robert M. Menke (Vice Chairman), Robert G. Menke, Bragg and Grant. 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 Committee and the Marketing 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 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. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee recently was established in connection with this offering. Except for David K. Meehan, no officer or employee of the Company has participated in deliberations of the Board of Directors prior to this offering concerning executive officer compensation. 53 59 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of Common Stock as of the date of this Prospectus, and as adjusted to reflect the sale of Common Stock offered hereby, with respect to: (i) each of the Company's directors and the executive officers named in the Summary Compensation Table; (ii) all directors and executive officers of the Company as a group; and (iii) each person known by the Company to own beneficially more than 5% of the Common Stock. Each of the shareholders listed below has sole voting and investment power over the shares beneficially owned.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING SHARES AFTER OFFERING ------------------- BEING ------------------- NAME SHARES PERCENT OFFERED SHARES PERCENT - ---- --------- ------- --------- --------- ------- Bankers Insurance Group, Inc.(1)......... 7,950,000 75.2% -- 7,950,000 63.2% Venture Capital Corporation(2)........... 2,050,000 19.4 1,350,000 700,000 5.6 David K. Meehan(3)....................... -- -- -- -- -- Jeffrey S. Bragg......................... -- -- -- -- -- Kathleen M. Batson....................... -- -- -- -- -- Kelly K. King............................ -- -- -- -- -- Daniel J. White.......................... 443,552(4) 4.2 -- 443,552(4) 3.5 Robert M. Menke(3)....................... -- -- -- -- -- Robert G. Menke.......................... -- -- -- -- -- John A. Grant, Jr........................ -- -- -- -- -- William D. Hussey........................ -- -- -- -- -- E. Ray Solomon........................... -- -- -- -- -- Alejandro M. Sanchez..................... -- -- -- -- -- All directors and executive officers as a group (11 persons)(3)(4)............... 443,552 4.2 -- 443,552 3.5
- --------------- * Less than 1%. (1) The business address of Bankers Insurance Group, Inc. is 360 Central Avenue, St. Petersburg, Florida 33701. Bankers Insurance Group, Inc. 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 Islands 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 benefit 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 the date of this Prospectus, the directors of IFPCE include David K. Meehan, Robert M. Menke and Robert G. Menke. (2) The business address of Venture Capital Corporation is Bank America Building, Fort Street, Georgetown, Grand Cayman, British West Indies. Venture Capital Corporation is a Cayman Islands corporation wholly owned by Venture II Trust, a discretionary charitable trust. The sole trustee of this trust is Cayman National Bank, a Cayman bank unaffiliated with BIG, the Company or their respective 54 60 officers or directors. Pursuant to the trust's declaration of trust, IFPCE possesses the same discretionary powers as described in note (1) above. (3) Excludes 7,950,000 shares held by Bankers Insurance Group, Inc. and 2,050,000 shares (1,350,000 of which are to be sold in the offering) held by Venture Capital Corporation. See Notes (1) and (2) above. (4) Held jointly with his spouse. Constitutes the number of shares of Common Stock issued jointly to the Whites in connection with the Geotrac Acquisition, assuming an initial public offering price of $13.00. If the initial public offering price is greater or less than $13.00, the number of shares held jointly by the Whites will be adjusted proportionately. See "Recent Acquisitions -- Geotrac Acquisition." CERTAIN TRANSACTIONS ADMINISTRATION SERVICES AGREEMENT Effective as of January 1, 1998, the Company and BIG entered into an Administration Services Agreement (the "Administration Agreement") pursuant to which BIG (i) provides the Company with various administrative and support services, including 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, and (ii) makes available its facilities to the Company as requested by the Company from time to time and as reasonably necessary to the conduct of its operations. The Company reimburses BIG for all direct and directly allocable expenses determined by BIG to be attributable to the provision of such services and facilities, plus an agreed upon assessment for direct overhead. For the services and facilities being provided in 1998, the Company shall pay BIG a quarterly fee of $396,250, subject to renegotiation by either party. In addition, the Company shall pay BIG an annual fee of $120,000 for routine legal services provided. Legal services provided with respect to non-routine matters, such as mergers and acquisitions and equity or debt offerings, will be billed to the Company at negotiated prices. The current term of the Administration Agreement expires on December 31, 1999, but may be renewed by the Company, at its sole option, for an additional one-year period upon 30 days prior written notice. Thereafter, the Administration Agreement may be terminated by either party upon 60 days prior written notice. The Administration Agreement memorializes the administrative service arrangements that existed between the Company and BIG prior to such time. Effective as of January 1, 1999, the Administration Agreement was amended to eliminate certain accounting and audit service functions (which functions are currently performed by the Company directly) and to reduce the quarterly fee payable by the Company to BIG to $258,750, subject to renegotiation by either party. SERVICE AGREEMENTS During 1995, 1996 and 1997, the Company provided information technology services to BIG based generally on actual cost incurred (including selling, general and administrative expenses), which amounted to $3,443,628, $4,787,772 and $3,236,255 in outsourcing revenue for 1995, 1996 and 1997, respectively, and $2,467,447 for the nine months ended September 30, 1997. For the nine months ended September 30, 1998, these charges are included in the fee structure related to the affiliated service agreement discussed below. Under the terms of its service arrangements with BIG in 1997, the Company charged a monthly fee for its policy and claims administration services based on certain factors. For policy and claims administration, the Company charged a fee based on a percentage of direct written premiums and a percentage of direct paid losses for certain lines of business, respectively. The fee ranged from 8.5% to 9.0% for services rendered in connection with policy administration and 0.5% to 15.0% for claims administration services related to these policies. Also, in 1997, the Company processed claims for BIG and its other affiliates related to those lines of business not covered under the service agreement and provided other miscellaneous services on a cost reimbursement basis. Charges related to this claims processing and other miscellaneous services amounted to $9,518,525 for 1997 and $7,138,896 for the nine months ended September 30, 1997. 55 61 Effective as of January 1, 1998, the Company entered into a separate Service Agreement (each a "Service Agreement") with each of Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company, all direct or indirect subsidiaries of BIG, pursuant to which the Company will continue to provide 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 P&C lines of business. Under the Service Agreements, as amended, 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, flood, and workers' compensation 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). Effective January 1, 1999, these fee arrangements were modified to provide for tiered pricing based on the volume of business processed. 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 shall expire on June 1, 2001, provided that it shall thereafter be automatically extended until terminated upon 90 days prior notice by either party. 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. Effective December 1, 1998, the Company, through its subsidiary, Insurance Management Solutions, Inc., entered into a Service Agreement with Bankers Life Insurance Company ("BLIC"), an indirect subsidiary of BIG, pursuant to which the Company provides certain administrative services and allows BLIC to make use of certain of the Company's property, equipment and facilities in connection with BLIC's day-to-day operations. Under the Service Agreement, as amended, BLIC agrees to pay the Company predetermined fees on a quarterly basis. The term of the Service Agreement with BLIC ends on June 1, 2001, but may be terminated at any time by BLIC upon 90 days prior written notice. PROPERTY LEASES The Company currently leases from BIC approximately 76,700 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $76,700. The initial term of this lease expires on December 31, 1999. The Company has an option to renew this lease for an additional two-year term at a monthly rate not to exceed approximately $83,200. The Company currently leases from BIG approximately 7,400 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $7,400. The initial term of this lease also expires on December 31, 1999, subject to the Company's right to renew the lease for an additional two-year period at a monthly rate not to exceed approximately $8,000. Effective January 1, 1998, BIG assigned to the Company a lease of approximately 6,600 square feet of office space in St. Petersburg, Florida. This lease expires on May 31, 1999, subject to the Company's right to renew the lease for four successive one-year terms. The current monthly rental rate under this lease is approximately $2,500. The Company is currently negotiating with BIG to reassign this lease to BIG as of the summer of 1999. No assurances can be given that such assignment will occur. 56 62 EMPLOYEE LEASING AGREEMENT Effective as of January 1, 1998, the Company entered into an Employee Leasing Agreement with BIC (the "Employee Leasing Agreement") pursuant to which the Company continues to lease customer service personnel from BIC. The number of employees to be leased will vary depending on the needs of the Company and the availability of employees from BIC. The Company shall be responsible for all expenses associated with such leased employees, including salaries, bonuses and benefits. The Company may terminate any leased employee for disloyalty, misconduct or other similar cause. The Employee Leasing Agreement is terminable by either the Company or BIC upon 60 days prior notice. 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 require monthly installment payments of $10,417 plus accrued interest and mature on April 1, 1999 and December, 2000. 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 for certain tax credits arising on or before July 31, 1998. Under the Tax Indemnity Agreement, the parties terminated a previous tax allocation agreement which 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-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 57 63 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. The Company has since assumed the loan from Huntington National Bank, which is payable in quarterly installments of $312,500 plus interest, with the final installment due on June 30, 2004. 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 its subsidiary, 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 is currently payable in its entirety on August 25, 2002 and accrues interest at a rate of 8.566%. After May 8, 1998, the preferred stock of BHDS held by the Company was exchanged for 675,000 shares of 8.5% cumulative preferred stock of BHDS. The shares of non-cumulative 8% preferred stock were then retired. The new preferred stock serves as collateral on the note payable to the commercial bank. Dividends declared on the preferred stock for 1997 were $229,315 and for the nine months ended September 30, 1997 and 1998 were $113,500 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." The Company acquired the remaining 51% interest from Mr. White and his wife and certain minority shareholders in exchange for (i) 443,552 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (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. In connection with this transaction, Geotrac of America, Inc. entered into an employment agreement with Mr. White pursuant to which Mr. White will serve as the President and Chief Executive Officer of Geotrac of America, Inc. See "Recent Acquisitions -- Geotrac Acquisition" and "Management -- Employment Agreements." In addition, the Company entered into a Corporate Governance Agreement with Mr. White and Geotrac setting forth certain terms and conditions upon which Geotrac will operate following the merger. The Corporate Governance Agreement provides, in part, that, for so long as Mr. White owns stock in the Company or Geotrac, or has an option to purchase stock in Geotrac, (i) the Company will vote all of its shares in Geotrac to fix and maintain the number of directors on the Geotrac Board of Directors at five, (ii) the Company will vote its shares in Geotrac to elect as directors of Geotrac two persons designated by Mr. White, (iii) the termination of Mr. White as an employee of Geotrac will require the vote of four out of five members of the Board of Directors, and (iv) certain actions by Geotrac will require the unanimous approval of the 58 64 Geotrac Board of Directors, including any merger or consolidation, the payment of management or similar fees to the Company or its subsidiaries and affiliates, the sale or issuance of Geotrac stock, and the sale of Geotrac assets outside the ordinary course of business to anyone other than an affiliate of Geotrac. Mr. White also has a right of first refusal to purchase the assets of Geotrac in the event such assets are to be sold. The Company does not currently intend to sell or otherwise dispose of all or part of the operations of Geotrac. The board of directors of Geotrac of America, Inc. consists of five members: Robert M. Menke (Chairman), David K. Meehan, David M. Howard, Daniel J. White and John Payne. Pursuant to his rights under the Corporate Governance Agreement, Mr. White appointed himself and Mr. Payne to such board. Mr. Howard is an executive officer of various subsidiaries of BIG and the former President of BHDS. Geotrac currently leases a 12,400 square-foot facility in Norwalk, Ohio from DanYo LLC, a limited liability company wholly owned by Daniel J. White and his spouse. This lease is for a term of five years, expiring on August 31, 1999, and provides for monthly rental payments of approximately $8,717, plus payment of utilities, real estate taxes and assessments, insurance, repairs and similar expenses. MISCELLANEOUS A wholly-owned subsidiary of the Selling Shareholder has agreed to loan $12.0 million to BIG in exchange for a subordinated note. It is anticipated that this loan will be funded by using a portion of the net proceeds to be received by the Selling Shareholder in this offering. BIG has agreed with the Company to use a portion of such loan proceeds to satisfy outstanding accounts and note payable to the Company not later than ten business days following receipt of the loan proceeds. As of September 30, 1998, BIG's accounts and note payable to the Company totaled approximately $11.3 million. 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, has agreed with BIG to use a portion of the funds received from BIG to satisfy accounts, income taxes and notes payable to BIG. As of September 30, 1998, the Company's accounts, income taxes and notes payable to BIG totaled approximately $12.7 million. See "Use of Proceeds" and "Principal and Selling Shareholders." 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 or director has a material interest. Any such transactions must be on terms no less favorable than those that could be obtained on an arms-length basis from independent third parties. DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $.01 per share, and 20,000,000 shares of Preferred Stock, par value $.01 per share. As of the date of this Prospectus, there were issued and outstanding 10,574,321 shares of Common Stock and no shares of Preferred Stock. See "Principal and Selling Shareholders." The following description is qualified in its entirety by reference to the Company's Amended and Restated Articles of Incorporation (the "Articles of Incorporation") and Amended and Restated Bylaws (the "Bylaws"), which are filed as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Cumulative voting in the election of directors is not permitted. Subject to preferences that may be granted to holders of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and 59 65 the liquidation preference, if any, which may be granted to the holders of Preferred Stock. Holders of Common Stock have no conversion, preemptive or other rights to subscribe for additional shares or other securities, and there are no redemption or sinking fund provisions with respect to such shares. The issued and outstanding shares of Common Stock are, and the shares offered hereby will be upon payment therefor, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority to issue up to 20,000,000 shares of Preferred Stock in one or more series and to fix the number of shares constituting any such series and the rights and preferences thereof, including dividend rates, terms of redemption (including sinking fund provisions), redemption price or prices, voting rights, conversion rights and liquidation preferences of the shares constituting such series, without any further vote or action by the Company's shareholders. The issuance of Preferred Stock by the Board of Directors could adversely affect the rights of holders of Common Stock. For example, an issuance of Preferred Stock could result in a class of securities outstanding that would have preferences over the Common Stock with respect to dividends and liquidations, and that could (upon conversion or otherwise) enjoy all of the rights appurtenant to Common Stock. CERTAIN STATUTORY AND OTHER PROVISIONS The Florida Business Corporation Act (the "Florida Act"), the Company's Articles of Incorporation and the Company's Bylaws contain provisions that could have an anti-takeover effect. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board and in the policies formulated by the Board and to discourage certain types of transactions described below, which may involve an actual or threatened change of control of the Company. The provisions are designed to encourage any person interested in acquiring the Company to negotiate with and obtain the approval of the Board in connection with the transaction. However, certain of these provisions may discourage a future acquisition of the Company not approved by the Board in which shareholders might receive the maximum value for their shares or which a substantial number and perhaps even a majority of the Company's shareholders believes to be in the best interests of all shareholders. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. See "Risk Factors -- Anti-Takeover Considerations." Statutory Provisions. The Company is subject to several anti-takeover provisions under Florida law that apply to a public corporation organized under Florida law unless the corporation has elected to opt out of such provisions in its Articles of Incorporation or (depending on the provision in question) its Bylaws. The Company has not elected to opt out of these provisions. The Florida Act contains a provision that prohibits the voting of shares in a publicly held Florida corporation which are acquired in a "control share acquisition" unless the board of directors approves the control share acquisition or the holders of a majority of the corporation's voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A control share acquisition is defined as an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of such voting power, (ii) one third or more but less than a majority of such voting power and (iii) a majority or more of such voting power. This statutory voting restriction is not applicable in certain circumstances set forth in the Florida Act. The Florida Act also contains an "affiliated transaction" provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested shareholder" unless (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder, (ii) the interested shareholder has owned at least 80% of the Company's outstanding voting shares for at least five years, or (iii) the transaction is approved by the holders of two-thirds of the Company's voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who, together with affiliates and associates, beneficially owns (as defined in Section 607.0901(1)(e), Florida Statutes) more than 10% of the Company's outstanding voting shares. 60 66 Classified Board of Directors. Under the Company's Articles of Incorporation and Bylaws, the Board of Directors of the Company is divided into three classes, with staggered terms of three years each. Each year the term of one class expires. The Company's Articles of Incorporation provide that any vacancies on the Board of Directors shall be filled only by the affirmative vote of a majority of the directors then in office, even if less than a quorum. The Articles of Incorporation of the Company also provide that any director may be removed from office, with or without cause. Special Voting Requirements. The Company's Articles of Incorporation provide that all actions taken by shareholders must be taken at an annual or special meeting of the shareholders or by unanimous written consent. The Articles of Incorporation provide that special meetings of shareholders may be called by only a majority of the members of the Board of Directors, the Chairman of the Board or the holders of not less than 10% of the Company's outstanding voting shares. Under the Company's Bylaws, shareholders will be required to comply with advance notice provisions with respect to any proposal submitted for shareholder vote, including nominations for elections to the Board of Directors. The Articles of Incorporation and Bylaws of the Company contain provisions requiring the affirmative vote of the holders of at least two-thirds of the Common Stock to amend certain provisions thereof. Indemnification and Limitation of Liability. The Florida Act authorizes Florida corporations to indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or other entity, against liability incurred in connection with such proceeding, including any appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of an action by or on behalf of a corporation, indemnification may not be made if the person seeking indemnification is adjudged liable, unless the court in which such action was brought determines such person is fairly and reasonably entitled to indemnification. The indemnification provisions of the Florida Act require indemnification if a director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding to which he or she was a party by reason of the fact that he or she is or was a director or officer of the corporation. The indemnification authorized under Florida law is not exclusive and is in addition to any other rights granted to officers and directors under the Articles of Incorporation or Bylaws of the corporation or any agreement between officers and directors and the corporation. A corporation may purchase and maintain insurance or furnish similar protection on behalf of any officer or director against any liability asserted against the officer or director and incurred by the officer or director in such capacity, or arising out of the status, as an officer or director, whether or not the corporation would have the power to indemnify him or her against such liability under the Florida Act. The Company's Articles of Incorporation provide for the indemnification of directors, officers, employees and agents of the Company to the maximum extent permitted by Florida law and for the advancement of expenses incurred in connection with the defense of any action, suit or proceeding that the director, officer, employee or agent was a party to by reason of the fact that he or she is or was a director or executive officer of the Company so long as he or she has undertaken to repay such amount if it is ultimately determined that such person is not entitled to indemnification. Under the Florida Act, a director is not personally liable for monetary damages to the Company or any other person for acts or omissions in his or her capacity as a director except in certain limited circumstances such as certain violations of criminal law and transactions in which the director derived an improper personal benefit. As a result, shareholders may be unable to recover monetary damages against directors for actions taken by them which constitute negligence or gross negligence or which are in violation of their fiduciary duties, although injunctive or other equitable relief may be available. The foregoing provisions of the Florida Act and the Company's Articles of Incorporation and Bylaws could have the effect of preventing or delaying a person from acquiring or seeking to acquire a substantial equity interest in, or control of, the Company. 61 67 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Firstar Bank of Milwaukee, N.A., Milwaukee, Wisconsin. SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering, the Company will have 12,574,321 shares of Common Stock outstanding. Of these shares, the 3,350,000 shares of Common Stock sold in this offering will be freely tradable by persons other than affiliates of the Company, without restriction under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 9,224,321 shares of Common Stock will be "restricted" securities within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. All of the restricted shares beneficially owned by BIG will be eligible for public sale pursuant to Rule 144 commencing 90 days after the date of this Prospectus, subject to the volume restrictions discussed below. However, BIG has agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of the Underwriters. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned his or her shares for at least one year (including the prior holding period of any prior owner other than an affiliate) is entitled to sell within any three-month period that number of shares which does not exceed the greater of 1% of the outstanding shares of the Common Stock, or the average weekly trading volume during the four calendar weeks preceding each such sale. Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not or has not been deemed an "affiliate" of the Company for at least three months, and who has beneficially owned shares for at least two years (including the holding period of any prior owner other than an affiliate) would be entitled to sell such shares under Rule 144 without regard to the limitations discussed above. Prior to this offering, there has been no public market for the Common Stock. Sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. 62 68 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company and the Selling Shareholder have agreed to sell to each of the Underwriters listed below, and the Underwriters, for whom Raymond James & Associates, Inc. is acting as representative (the "Representative"), have severally agreed to purchase the respective number of shares of Common Stock set forth opposite their names below:
UNDERWRITERS NUMBER OF SHARES ------------ ---------------- Raymond James & Associates, Inc............................. -------- Total............................................. ========
The Underwriting Agreement provides that the obligations of the several Underwriters thereunder are subject to approval of certain legal matters by their counsel and to various other conditions. The Underwriters are obligated to purchase all the shares of Common Stock offered hereby, excluding shares covered by the over-allotment option granted to the Underwriters, if any are purchased. The Company and the Selling Shareholder have been advised by the Representative that the Underwriters propose to offer the Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price, less a concession of not in excess of $ per share, and that the Underwriters and such dealers may re-allow a concession of not in excess of $ per share to other dealers. The public offering price and concessions and re-allowances to dealers may be changed by the Representative after the initial public offering. Of the shares being offered hereby, shares of Common Stock will be sold for an aggregate purchase price of $2.0 million to a strategic investor, RIC Corporation of Delaware (the "Strategic Investor"), at a price per share equal to the initial public offering price per share, less the per share underwriting discounts and commissions. The Strategic Investor is a wholly-owned subsidiary of General Reinsurance Corporation, the principal reinsurer of BIG's P&C insurance subsidiaries. The Strategic Investor has agreed that it will not, without the prior written consent of Raymond James & Associates, Inc., sell, offer to sell, offer or contract to sell or otherwise transfer or dispose of such shares of Common Stock during the 180-day period commencing on the date of this Prospectus. The Company and the Selling Shareholder have granted to the Underwriters an option, exercisable within 30 days after the date of the initial public offering, to purchase up to an additional 502,500 shares of Common Stock to cover over-allotments, at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments, if any, in connection with the offering. This offering of Common Stock is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of this offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. Until the distribution of Common Stock in this offering is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the Representative is permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with this offering, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the Representative may reduce the short position by purchasing Common Stock in the open market. The Representative may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Representative may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Representative purchases shares of Common Stock in the open market to reduce the Underwriters' 63 69 short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of this offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it discouraged resales of any security. Neither the Company, the Selling Shareholder nor any of the Underwriters makes any representations or predictions as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company, the Selling Shareholder nor any of the Underwriters makes any representation that the Representative will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. The Company, BIG, the Selling Shareholder and certain officers and directors of the Company have agreed that they will not, without the prior written consent of the Representative, sell, offer to sell, contract to sell or otherwise transfer or dispose of any shares of Common Stock (other than the shares offered by the Selling Shareholder in this offering), options, rights or warrants to acquire shares of Common Stock, or securities exchangeable for or convertible into shares of Common Stock, during the 180-day period commencing on the date of this Prospectus, except that the Company may grant additional options under the Incentive Plan and the Non-Employee Director Plan, provided that without the prior written consent of the Representative, such additional options shall not be exercisable during such period. See "Shares Eligible for Future Sale." Prior to this offering, there has been no public market for the Common Stock. The initial public offering price was determined by negotiation among the Company, the Selling Shareholder and the Representative. The factors considered in determining the initial public offering price include the history of and prospects for the business in which the Company operates, past and present operations, revenues and earnings of the Company and the trend of such earnings, the prospects for such earnings, the general condition of the securities markets at the time of the offering and the demand for similar securities of reasonably comparable companies. The Representative has informed the Company that the Underwriters do not intend to make sales to any accounts over which they exercise discretionary authority. The Company, BIG, the Selling Shareholder and the Underwriters have agreed to indemnify, or to contribute to payments made by, each other against certain civil liabilities, including certain civil liabilities under the Securities Act. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Foley & Lardner, Tampa, Florida. Certain legal matters in connection with the sale of the Common Stock offered hereby will be passed upon for the Underwriters by Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia. EXPERTS The consolidated financial statements of Insurance Management Solutions Group, Inc. as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and in the Registration Statement, have been audited by Grant Thornton LLP, independent certified public accountants, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Geotrac, Inc. (formerly YoSystems, Inc.) as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and in the Registration Statement, have been audited by Grant Thornton LLP, independent certified public accountants, 64 70 as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of SMS Geotrac, Inc. for each of the two years in the period ended June 30, 1997 and for the one month period ended July 31, 1997 appearing in this Prospectus and in the Registration Statement, have been audited by Grant Thornton LLP, independent certified public accountants, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (of which this Prospectus is a part) under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in the Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules thereto. For further information regarding the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules which may be obtained from the Commission at the public reference facilities maintained by the Commission at 450 Fifth Street, N. W., Washington, D. C. 20549, at prescribed rates. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the Commission. The address of such web site is http://www.sec.gov. The Company intends to furnish its shareholders with annual reports containing audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year. 65 71 INDEX TO FINANCIAL STATEMENTS
PAGE ---- PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Pro Forma Condensed Consolidated Financial Information...... F-2 Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 1997 and for the nine months ended September 30, 1997 and 1998, and Notes to Pro Forma Condensed Consolidated Statements of Income............... F-3 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......... F-14 Consolidated Balance Sheets as of December 31, 1996 and 1997, and September 30, 1998 (unaudited).................. F-15 Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997, and for the nine months ended September 30, 1997 and 1998 (unaudited)............. F-16 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997, and for the nine months ended September 30, 1998 (unaudited)............... F-17 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997, and for the nine months ended September 30, 1997 and 1998 (unaudited)............. F-18 Notes to Consolidated Financial Statements.................. F-20 GEOTRAC, INC. (FORMERLY YOSYSTEMS, INC.) FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......... F-40 Balance Sheets as of December 31, 1996 and 1997, and June 30, 1998 (unaudited)...................................... F-41 Statements of Operations for the years ended December 31, 1995, 1996 and 1997, and for the six months ended June 30, 1997 and 1998 (unaudited)................................. F-42 Statement of Shareholders' Equity (Deficit) for the years ended December 31, 1995, 1996 and 1997, and for the six months ended June 30, 1998 (unaudited).................... F-43 Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997, and for the six months ended June 30, 1997 and 1998 (unaudited)................................. F-44 Notes to Financial Statements............................... F-46 SMS GEOTRAC, INC. FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......... F-54 Statements of Income for the years ended June 30, 1996 and 1997, and for the one month period ended July 31, 1997.... F-55 Statement of Shareholder's Equity for the years ended June 30, 1996 and 1997, and for the one month period ended July 31, 1997.................................................. F-56 Statements of Cash Flows for the years ended June 30, 1996 and 1997, and for the one month period ended July 31, 1997...................................................... F-57 Notes to Financial Statements............................... F-58
F-1 72 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION INTRODUCTION The accompanying unaudited pro forma condensed consolidated statements of income for the year ended December 31, 1997 and for the nine months ended September 30, 1997 and 1998 reflect (i) the acquisition of Geotrac, Inc., which was completed in July 1998, using the purchase method of accounting as if the acquisition of Geotrac, Inc. had occurred at January 1, 1997 (ii) the new affiliated service and administrative agreements that are effective January 1, 1998 as though the new terms were in existence on January 1, 1997 and (iii) fixed asset purchases from affiliated companies, consisting of telephone equipment and computer hardware and software, to be used in operating the business, which occurred in April 1998, as if the purchase had occurred at January 1, 1997. The unaudited pro forma condensed consolidated statements of income are based on currently available information and do not purport to represent what the Company's results of operations would have been if the events referred to occurred on the above dates, or to project the Company's results of operations for any future periods. The pro forma condensed consolidated financial statements should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Geotrac," the Company's Consolidated Financial Statements, Geotrac, Inc.'s (formerly YoSystems, Inc.) Financial Statements and SMS Geotrac, Inc.'s Financial Statements. F-2 73 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1997
INSURANCE MANAGEMENT SOLUTIONS GROUP PRO FORMA PRO FORMA PRO FORMA AND SUBSIDIARIES GEOTRAC, INC.(2) SUB TOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(1) ---------------- ---------------- ----------- -------------- -------------- ------------ REVENUE Outsourcing services... $29,714,044 $ -- $29,714,044 $ -- $ 862,756(g) $ 30,576,800 Flood zone determination services............. 8,791,935 14,062,665 22,854,600 (254,683)(a) -- 22,599,917 ----------- ----------- ----------- ----------- ----------- ------------ Total revenues... 38,505,979 14,062,665 52,568,644 (254,683) 862,756 53,176,717 ----------- ----------- ----------- ----------- ----------- ------------ EXPENSES Cost of outsourcing services............. 21,988,824 -- 21,988,824 -- 1,124,810(h) -- (1,016,349)(i) 22,097,285 Cost of flood zone determination services............. 4,763,723 6,042,664 10,806,387 (254,683)(a) -- 10,551,704 Selling, general and administrative....... 3,026,388 2,900,281 5,926,669 -- -- 5,926,669 Management services from Parent.......... 2,343,866 -- 2,343,866 -- -- 2,343,866 Deferred compensation (non-recurring item)................ -- 732,795 732,795 728,069(b) -- 1,460,864 Depreciation and amortization......... 683,672 1,908,276 2,591,948 252,882(c) 1,016,349(i) 3,861,179 ----------- ----------- ----------- ----------- ----------- ------------ 32,806,473 11,584,016 44,390,489 726,268 1,124,810 46,241,567 ----------- ----------- ----------- ----------- ----------- ------------ Operating income (loss)............... 5,699,506 2,478,649 8,178,155 (980,951) (262,054) 6,935,150 Equity in earnings of Geotrac, Inc......... 201,009 -- 201,009 (201,009)(d) -- -- Interest expense....... (378,660) (824,621) (1,203,281) (127,500)(e) (270,619)(j) (1,601,400) Other income (non- recurring item)...... -- 1,700,000 1,700,000 -- -- 1,700,000 ----------- ----------- ----------- ----------- ----------- ------------ Income before income taxes................ 5,521,855 3,354,028 8,875,883 (1,309,460) (532,673) 7,033,750 Provision (benefit) for income taxes......... 2,112,200 1,456,600 3,568,800 (342,200)(f) (200,400)(k) 3,026,200 ----------- ----------- ----------- ----------- ----------- ------------ Net income............. $ 3,409,655 $ 1,897,428 $ 5,307,083 $ (967,260) $ (332,273) $ 4,007,550 =========== =========== =========== =========== =========== ============ Net income per common share................ $ .34 $ .38 =========== ============ Weighted average common shares outstanding... 10,000,000 10,443,552 =========== ============
See accompanying notes. F-3 74 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1997 (1) See the introduction to Pro Forma Condensed Consolidated Financial Information. (2) Represents the historical financial statements of SMS Geotrac, Inc. and Geotrac, Inc. (formerly YoSystems, Inc.) adjusted to reflect the pro forma 1997 operations of the two entities on a calendar year basis as if Geotrac, Inc. had acquired SMS Geotrac on January 1, 1997. A summary of pro forma Geotrac, Inc. follows:
PRO FORMA SMS GEOTRAC, INC. GEOTRAC, INC. GEOTRAC, INC. SEVEN MONTHS ENDED YEAR ENDED PRO FORMA YEAR ENDED JULY 31, 1997 DECEMBER 31, 1997 SUB TOTAL ADJUSTMENTS DECEMBER 31, 1997 ------------------ -------------------- ----------- ----------- ----------------- (UNAUDITED) (AUDITED) (UNAUDITED) REVENUES Flood zone determination revenue............... $7,726,640 $6,336,025 $14,062,665 $ -- $14,062,665 ---------- ---------- ----------- ----------- ----------- EXPENSES Cost of flood zone determination services.............. 3,364,107 2,678,557 6,042,664 -- 6,042,664 Selling, general and administrative........ 1,580,847 1,319,434 2,900,281 -- 2,900,281 Deferred compensation (non-recurring item)................. -- 732,795 732,795 -- 732,795 Depreciation and amortization.......... 911,439 594,045 1,505,484 402,792(a) 1,908,276 ---------- ---------- ----------- ----------- ----------- Total expenses... 5,856,393 5,324,831 11,181,224 402,792 11,584,016 ---------- ---------- ----------- ----------- ----------- Operating income.......... 1,870,247 1,011,194 2,881,441 (402,792) 2,478,649 Interest expense.......... (48,339) (338,391) (386,730) (437,891)(b) (824,621) Other income (non-recurring item).... -- 1,700,000 1,700,000 -- 1,700,000 ---------- ---------- ----------- ----------- ----------- Income before income taxes................... 1,821,908 2,372,803 4,194,711 (840,683) 3,354,028 Provision for income taxes................... 840,900 272,000 1,112,900 343,700(c) 1,456,600 ---------- ---------- ----------- ----------- ----------- Net income................ $ 981,008 $2,100,803 $ 3,081,811 $(1,184,383) $ 1,897,428 ========== ========== =========== =========== ===========
- --------------- (a) Reflect amortization of goodwill, customer contracts and deferred financing costs, assuming Geotrac, Inc. was purchased in its entirety on January 1, 1997. Following is a summary of the pro forma adjustment: Goodwill ($8,847,119 amortized over 20 years) January 1, 1997 through July 31, 1997..................... $258,041 Customer contracts ($1,600,000 amortized over 8 years) January 1, 1997 through July 31, 1997..................... 116,667 Deferred financing costs ($385,171 amortized over 8 years) January 1, 1997 through July 31, 1997..................... 28,084 -------- Total pro forma adjustment........................ $402,792 ========
(b) Reflect interest, at a rate of 8.5%, on a promissory note, of which $8,250,000 was used as partial consideration to acquire SMS Geotrac, Inc. on July 31, 1997. (c) Provision for income taxes is calculated at an effective tax rate of 40%. F-4 75 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) -- (CONTINUED) (3) The following pro forma adjustments were made to reflect the results of operations as though Geotrac, Inc. was purchased in its entirety on January 1, 1997. (a) Eliminate intercompany transactions between the Company and Geotrac, Inc. related to the Cross-License Agreement. (b) In conjunction with the acquisition, Geotrac, Inc.'s majority shareholders granted 46.45 shares of Common Stock to certain former and current employees for prior employee services rendered while employed at Geotrac. These shares were granted prior to the closing of this transaction. In accordance with the purchase agreement, the Company reacquired for $728,069 the stock held for these individuals. Accordingly, compensation expense has been reflected in Geotrac's historical financial statements in May 1998. (c) Reflect amortization of goodwill related to the acquisition of Geotrac, Inc. as follows: On July 31, 1997, the Company, through its subsidiary, BHDS, acquired a 51% interest in YoSystems, Inc. ("YoSystems") through a cash contribution of $6,750,000. At the time of the Company's cash investment, YoSystems had nominal net assets. Accordingly, the Company's investment of $6,750,000 was reflected on the Company's records at July 31, 1997 as two components: the Company's share (49%) of YoSystems' net assets after the Company's investment (or $3,307,500), and the portion of the net assets allocable to the other stockholders' 51% interest (or $3,442,500), reflected as goodwill to the Company. On July 31, 1997, YoSystems concurrently acquired all of the issued and outstanding shares of capital stock of SMS Geotrac, Inc. SMS Geotrac, Inc. merged into YoSystems, with YoSystems becoming the surviving entity, which then changed its name to Geotrac, Inc. YoSystems entered into a term note for $8,750,000 to provide additional funds required to fund the total purchase price of $15,000,000. In July 1998, the Company acquired the remaining 51% of the outstanding shares of Geotrac, Inc.'s common stock for a total consideration of $7,994,250 consisting of: 443,552 shares of the Company's Common Stock valued at $13.00 per share (the estimated initial public offering price).... $5,766,181 Promissory note............................................. 1,500,000 Short-term obligation paid in December 1998................. 728,069 ---------- $7,994,250 ==========
Following the Company's acquisition of the remaining 51% of Geotrac, Inc., Geotrac, Inc. was merged into BHDS, with BHDS as the surviving company, which simultaneously changed its name to Geotrac of America, Inc. The acquisition of the remaining 51% of the outstanding shares of Geotrac, Inc. has increased the Company's total investment in Geotrac, Inc. to $15,272,512 at July 1, 1998, consisting of: Original July 31, 1997 investment........................... $ 6,750,000 August 1, 1997 - July 30, 1998, 49% share in Geotrac's net income, net of amortization of goodwill of approximately $158,000................................. 528,262 Additional July 1, 1998 investment.......................... 7,994,250 ----------- $15,272,512 ===========
F-5 76 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) -- (CONTINUED) The recording of the Company's additional 51% interest in Geotrac, Inc. and the elimination of the investment in Geotrac, Inc. account through the consolidation process at July 1, 1998 results in the recognition of consolidated goodwill of $14,933,247 and net assets of $339,265 recorded at estimated fair values as follows:
JULY 1, 1998 ------------- Current assets.............................................. $ 5,968,680 Property and equipment...................................... 3,305,740 Customer contracts.......................................... 1,416,667 Other assets................................................ 299,065 Current liabilities......................................... (3,453,093) Long-term obligations....................................... (7,197,794) ----------- Net assets acquired......................................... 339,265 Goodwill.................................................... 14,933,247 ----------- $15,272,512 ===========
The goodwill of $14,933,247 includes the unamortized goodwill of $3,284,719 at June 30, 1998, previously recorded when the 49% interest was acquired July 31, 1997. Goodwill is amortized using the straight-line method over twenty years, the estimated period of benefit. Customer contracts are amortized using the straight-line method over seven years, which does not materially differ from the underlying contract lives. For pro forma purposes, the adjustment to reflect amortization of consolidated goodwill is as follows: Annual amortization calculated ($15,000,000 divided by 20 years).............................................. $750,000 Less amortization reflected in: Company's historical records.............................. (71,719) Geotrac's pro forma....................................... (442,356) Other..................................................... 16,957 -------- Total pro forma adjustment........................ $252,882 ========
(d) Eliminate the equity in earnings of Geotrac, Inc. which has been reflected historically on the equity method of accounting. (e) Reflect interest, at a rate of 8.5%, on a $1,500,000 promissory note issued as partial purchase consideration for the acquisition of the remaining 51% interest in Geotrac, Inc. in July 1998. (f) Reflect the income tax effect of the Company and Geotrac, Inc., recognizing the following pro forma adjustments: Total pro forma adjustments before income taxes............. $(1,309,000) Equity in earnings.......................................... 201,000 Non-deductible goodwill amortization........................ 253,000 ----------- Additional taxable loss..................................... $ (855,000) ===========
Since the above items relate to Geotrac, Inc., its statutory rate of approximately 40% was used to calculate the income tax effect. F-6 77 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) -- (CONTINUED) (4) The following pro forma adjustments were made to reflect the results of operations for the year ended December 31, 1997 under the Company's new service agreements, which were effective January 1, 1998: (g) Reflects outsourcing revenues based on the revised policy and claims administration agreements adopted January 1, 1998. The adjustment reflects (i) a change in the service fee percentage charged for policy administration for certain lines of business, (ii) a change in the claims service fee from a cost reimbursement basis to percentage of earned premium for certain lines of business, (iii) a change in the claims service fee from a percentage of direct incurred losses to a percentage of direct earned premium for certain lines of business, and (iv) claims administration revenue related to the Florida Automobile Joint Underwriting Association ("FAJUA") and the Florida Residential Property and Casualty Joint Underwriting Association ("FRPCJUA"). The FAJUA and FRPCJUA contracts are currently in run-off and were charged on a cost reimbursement basis during 1997. Also included is a pro forma adjustment to reflect a deferral of claims service fee income based on the 1998 service agreement as claims service fees are being charged on an earned premium basis, which is in advance of the total claims expense that will be recognized by the Company. (h) Reflects additional claims adjustment expenses that would have been recognized by the Company during 1997 had it operated under the provisions of the 1998 service agreements. Such expenses were previously passed through to the affiliated companies under the 1997 service agreements. (i) Reclassify amounts previously charged to the Company related to fixed assets that were owned by affiliated companies and purchased at their net book value by the Company. (j) Reflect interest, at a rate of 8.5%, on two promissory notes entered into to fund equipment purchases from affiliated companies. (k) Represents the income tax effects on the year ended December 31, 1997 pro forma adjustments at the statutory rate of 37.63%. (5) The following is provided for informational purposes only: (A) As a result of the acquisition of Geotrac, in July 1998 the Company wrote-off (charged to expense) approximately $123,000 of duplicate database costs. (B) Effective January 1, 1998, the Company began servicing its affiliated companies automobile lines of insurance under its servicing agreements. Had this servicing commenced January 1, 1997, outsourcing service revenue and cost of outsourcing services would have increased by approximately $2,670,000 and $2,472,000, respectively, for the year ended December 31, 1997. F-7 78 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
INSURANCE MANAGEMENT SOLUTIONS GROUP PRO FORMA PRO FORMA PRO FORMA AND SUBSIDIARIES GEOTRAC, INC.(2) SUB TOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(1) ---------------- ---------------- ----------- -------------- -------------- ------------ REVENUE Outsourcing services... $22,176,943 $ -- $22,176,943 $ -- $ 936,270(f) $ 23,113,213 Flood zone determination services............. 6,582,012 10,329,835 16,911,847 -- -- 16,911,847 ----------- ----------- ----------- ----------- ----------- ------------ Total revenues... 28,758,955 10,329,835 39,088,790 -- 936,270 40,025,060 ----------- ----------- ----------- ----------- ----------- ------------ EXPENSES Cost of outsourcing services............. 16,528,033 -- 16,528,033 -- 880,717(g) -- (762,260)(h) 16,646,490 Cost of flood zone determination services............. 3,361,144 4,299,032 7,660,176 -- -- 7,660,176 Selling, general and administrative....... 2,240,930 2,318,897 4,559,827 -- -- 4,559,827 Management services from Parent.......... 1,757,898 -- 1,757,898 -- -- 1,757,898 Deferred compensation (non-recurring item)................ -- 732,795 732,795 728,069(a) -- 1,460,864 Depreciation and amortization......... 443,062 1,549,908 1,992,970 214,762(b) 762,260(h) 2,969,992 ----------- ----------- ----------- ----------- ----------- ------------ 24,331,067 8,900,632 33,231,699 942,831 880,717 35,055,247 ----------- ----------- ----------- ----------- ----------- ------------ Operating income (loss)............... 4,427,888 1,429,203 5,857,091 (942,831) 55,553 4,969,813 Equity in earnings (loss) of Geotrac, Inc.................. (32,325) -- (32,325) 32,325(c) -- -- Interest expense....... (223,309) (638,882) (862,191) (95,625)(d) (202,964)(i) (1,160,780) Other income (non- recurring item)...... -- 1,700,000 1,700,000 -- -- 1,700,000 ----------- ----------- ----------- ----------- ----------- ------------ Income before income taxes................ 4,172,254 2,490,321 6,662,575 (1,006,131) (147,411) 5,509,033 Provision (benefit) for income taxes......... 1,644,700 1,108,650 2,753,350 (329,500)(e) (55,470)(j) 2,368,380 ----------- ----------- ----------- ----------- ----------- ------------ Net income............. $ 2,527,554 $ 1,381,671 $ 3,909,225 $ (676,631) $ (91,941) $ 3,140,653 =========== =========== =========== =========== =========== ============ Net income per common share................ $ .25 $ .30 =========== ============ Weighted average common shares outstanding... 10,000,000 10,443,552 =========== ============
See accompanying notes. F-8 79 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (1) See the introduction to Pro Forma Condensed Consolidated Financial Information. (2) Represents the historical financial statements of SMS Geotrac, Inc. and Geotrac, Inc. (formerly YoSystems, Inc.) adjusted to reflect the pro forma 1997 operations of the two entities for the nine months ended September 30, 1997 as if Geotrac, Inc. had acquired SMS Geotrac on January 1, 1997. A summary of pro forma Geotrac, Inc. follows:
PRO FORMA SMS GEOTRAC, INC. GEOTRAC, INC. GEOTRAC, INC. SEVEN MONTHS ENDED NINE MONTHS ENDED PRO FORMA NINE MONTHS ENDED JULY 31, 1997 SEPTEMBER 30, 1997(D) SUB TOTAL ADJUSTMENTS SEPTEMBER 30, 1997 ------------------ --------------------- ----------- ----------- ------------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUES Flood zone determination revenue.............. $7,726,640 $2,603,195 $10,329,835 $ -- $10,329,835 ---------- ---------- ----------- ----------- ----------- EXPENSES Cost of flood zone determination services............. 3,364,107 934,925 4,299,032 -- 4,299,032 Selling, general and administrative....... 1,580,847 738,050 2,318,897 -- 2,318,897 Deferred compensation (non-recurring item)................ -- 732,795 732,795 -- 732,795 Depreciation and amortization......... 911,439 235,677 1,147,116 402,792(a) 1,549,908 ---------- ---------- ----------- ----------- ----------- Total expenses...... 5,856,393 2,641,447 8,497,840 402,792 8,900,632 ---------- ---------- ----------- ----------- ----------- Operating income (loss)................. 1,870,247 (38,252) 1,831,995 (402,792) 1,429,203 Interest expense......... (48,339) (152,652) (200,991) (437,891)(b) (638,882) Other income (non- recurring item)........ -- 1,700,000 1,700,000 -- 1,700,000 ---------- ---------- ----------- ----------- ----------- Income before income taxes.................. 1,821,908 1,509,096 3,331,004 (840,683) 2,490,321 Provision (benefit) for income taxes........... 840,900 (75,950) 764,950 343,700(c) 1,108,650 ---------- ---------- ----------- ----------- ----------- Net income............... $ 981,008 $1,585,046 $ 2,566,054 $(1,184,383) $ 1,381,671 ========== ========== =========== =========== ===========
- --------------- (a) Reflect amortization of goodwill, customer contracts and deferred financing costs, assuming Geotrac, Inc. was purchased in its entirety on January 1, 1997. Following is a summary of the pro forma adjustment: Goodwill ($8,847,119 amortized over 20 years) January 1, 1997 through July 31, 1997..................... $258,041 Customer contracts ($1,600,000 amortized over 8 years) January 1, 1997 through July 31, 1997..................... 116,667 Deferred financing costs ($385,171 amortized over 8 years) January 1, 1997 through July 31, 1997..................... 28,084 -------- Total pro forma adjustment........................ $402,792 ========
(b) Reflect interest, at a rate of 8.5%, on a promissory note, of which $8,250,000 was used as partial consideration to acquire SMS Geotrac, Inc. on July 31, 1997. (c) Provision for income taxes is calculated at an effective tax rate of 40%. (d) The results of operations for Geotrac, Inc. for the nine months ended September 30, 1997 were derived from Geotrac's audited statement of operations for the year ended December 31, 1997 (included F-9 80 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) -- (CONTINUED) elsewhere herein) and from Geotrac's unaudited statement of operations for the quarter ended December 31, 1997 (not included in this prospectus). Following is a summary of the calculation:
GEOTRAC, INC. GEOTRAC, INC. GEOTRAC, INC. YEAR ENDED QUARTER ENDED NINE MONTHS ENDED DECEMBER 31, 1997 DECEMBER 31, 1997 SEPTEMBER 30, 1997 ----------------- ----------------- ------------------ (AUDITED) (UNAUDITED) (UNAUDITED) Total revenues................ $6,336,025 $3,732,830 $2,603,195 Total expenses................ 5,324,831 2,683,384 2,641,447 Other income (expense), net... 1,361,609 (185,739) 1,547,348 Net income.................... 2,100,803 515,757 1,585,046
(3) The following pro forma adjustments were made to reflect the results of operations as though Geotrac, Inc. was purchased in its entirety on January 1, 1997. (a) In conjunction with the acquisition, Geotrac, Inc.'s majority shareholders granted 46.45 shares of Common Stock to certain former and current employees for prior employee services rendered while employed at Geotrac. These shares were granted prior to the closing of this transaction. In accordance with the purchase agreement, the Company reacquired for $728,069 the stock held for these individuals. Accordingly, compensation expense has been reflected in Geotrac's historical financial statements in May 1998. (b) Reflect amortization of consolidated goodwill related to the acquisition of Geotrac, Inc. as follows: Nine months of amortization calculated ($15,000,000 divided by 240 months multiplied by 9 months)..................... $562,500 Less amortization reflected in: Company's historical records........................... (28,688) Geotrac's pro forma.................................... (331,763) Other.................................................. 12,713 -------- Total pro forma adjustment........................ $214,762 ========
(c) Eliminate the equity in earnings (loss) of Geotrac, Inc. which has been reflected historically using the equity method of accounting. (d) Reflect interest, at a rate of 8.5%, on a $1,500,000 promissory note issued as partial purchase consideration for the acquisition of the remaining 51% interest in Geotrac, Inc. in July 1998. (e) Reflect the income tax effect of the Company and Geotrac, Inc., recognizing the following pro forma adjustments: Total pro forma adjustments before income taxes............. $(1,006,131) Equity in earnings (loss) of Geotrac, Inc. ................. (32,325) Non-deductible goodwill amortization........................ 214,762 ----------- Additional taxable loss..................................... $ (823,694) ===========
Since the above items relate to Geotrac, Inc., its statutory rate of approximately 40% was used to calculate the income tax effect. F-10 81 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) -- (CONTINUED) (4) The following pro forma adjustments were made to reflect the results of operations for the nine months ended September 30, 1997 under the Company's new service agreements, which were effective January 1, 1998: (f) Reflects outsourcing revenues based on the revised policy and claims administration agreements adopted January 1, 1998. The adjustment reflects (i) a change in the service fee percentage charged for policy administration for certain lines of business, (ii) a change in the claims service fee from a cost reimbursement basis to percentage of earned premium for certain lines of business, (iii) a change in the claims service fee from a percentage of direct incurred losses to a percentage of direct earned premium for certain lines of business, and (iv) claims administration revenue related to the Florida Automobile Joint Underwriting Association ("FAJUA") and the Florida Residential Property and Casualty Joint Underwriting Association ("FRPCJUA"). The FAJUA and FRPCJUA contracts are currently in run-off and were charged on a cost reimbursement basis during 1997. Also included is a pro forma adjustment to reflect a deferral of claims service fee income based on the 1998 service agreement as claims service fees are being charged on an earned premium basis, which is in advance of the total claims expense that will be recognized by the Company. (g) Reflects additional claims adjustment expenses that would have been recognized by the Company during 1997 had it operated under the provisions of the 1998 service agreements. Such expenses were previously passed through to the affiliated companies under the 1997 service agreements. (h) Reclassify amounts previously charged to the Company related to fixed assets that were owned by affiliated companies and purchased at their net book value by the Company. (i) Reflect interest, at a rate of 8.5%, on two promissory notes entered into to fund equipment purchases from affiliated companies. (j) Represents the income tax effects on the nine months ended September 30, 1997 pro forma adjustments at the statutory rate of 37.63%. (5) The following is provided for informational purposes only: (A) As a result of the acquisition of Geotrac, in July 1998 the Company wrote-off (charged to expense) approximately $123,000 of duplicate database costs. (B) Effective January 1, 1998, the Company began servicing its affiliated companies automobile lines of insurance under its servicing agreements. Had this servicing commenced January 1, 1997, outsourcing service revenue and cost of outsourcing services would have increased by approximately $2,147,000 and $1,898,000, respectively, for the nine months ended September 30, 1997. F-11 82 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSURANCE MANAGEMENT SOLUTIONS GROUP AND PRO FORMA SUBSIDIARIES ADJUSTMENTS(2) PRO FORMA(1) ------------ -------------- ------------ REVENUE Outsourcing services............................ $27,507,410 $ -- $27,507,410 Flood zone determination services............... 19,865,141 -- 19,865,141 ----------- --------- ----------- Total revenues.......................... 47,372,551 -- 47,372,551 ----------- --------- ----------- EXPENSES Cost of outsourcing services.................... 19,813,902 (282,015)(a) 19,531,887 Cost of flood zone determination services....... 8,524,121 -- 8,524,121 Selling, general and administrative............. 5,705,077 -- 5,705,077 Deferred compensation (non-recurring item)...... 728,069 (728,069)(b) -- Management services from Parent................. 2,506,321 -- 2,506,321 Depreciation and amortization................... 2,981,179 282,015(a) 76,237(c) 3,339,431 ----------- --------- ----------- 40,258,669 (651,832) 39,606,837 ----------- --------- ----------- Operating income.................................. 7,113,882 651,832 7,765,714 Interest income................................... 307,905 -- 307,905 Interest expense.................................. (1,653,165) (63,750)(d-1) (64,177)(d-2) (1,781,092) Minority interest................................. (472,803) 472,803(e) -- ----------- --------- ----------- Income before income taxes........................ 5,295,819 996,708 6,292,527 Provision for income taxes........................ 2,388,400 240,100(f) 2,628,500 ----------- --------- ----------- Net income........................................ $ 2,907,419 $ 756,608 $ 3,664,027 =========== ========= =========== Net income per common share....................... $ .29 $ .35 =========== =========== Weighted average common shares outstanding........ 10,149,476 10,443,552 =========== ===========
See accompanying notes. F-12 83 NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (1) See the introduction to Pro Forma Condensed Consolidated Financial Information. (2) The following pro forma adjustments were made to reflect the results of operations as though Geotrac was purchased in its entirety on January 1, 1997. (a) Reclassify amounts previously charged to the Company related to fixed assets that were owned by affiliated companies and purchased at their net book value by the Company. (b) Reversal of compensation expense reflected in Geotrac's historical financial statements during the nine months ended September 30, 1998. This compensation expense arose prior to the closing of Geotrac and is reflected in the Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 1997. See Note (3)(b) to the Company's Pro Forma Condensed Consolidated Statement of Income (unaudited) for the year ended December 31, 1997. (c) Reflects amortization of goodwill assuming Geotrac was purchased in its entirety on January 1, 1997. Following is a summary of the pro forma adjustment: Nine months amortization calculated ($15,000,000 divided by 240 months multiplied by 9 months)........................ $562,500 Less amortization reflected in the Company's records........ (498,976) Other....................................................... 12,713 -------- Total pro forma adjustment.................................. $ 76,237 ========
(d-1) Reflect interest, at a rate of 8.5%, on a $1,500,000 promissory note issued as partial purchase consideration for the acquisition of the remaining 51% interest in Geotrac, Inc. (d-2) Reflect interest, at a rate of 8.5%, on two promissory notes entered into on April 1, 1998 to fund equipment purchases from affiliated companies. (e) Eliminate the minority interest, which represents net income earned by the former majority shareholder prior to the Company's acquisition of the remaining 51% of Geotrac. (f) Represents the income tax effects on the nine months ended September 30, 1998 pro forma adjustments, not including the minority interest of $472,803 and non-deductible goodwill amortization of $76,237, at the statutory rate of 40%. (3) The following is provided for informational purposes only: Prior to July 31, 1998, the Company, as a wholly-owned subsidiary, was included in its Parent's consolidated income tax return, subject to a tax sharing and allocation agreement with its affiliates. As the Company's Parent now owns less than 80% of the Company's Common Stock, the Company is a separate tax paying entity. The change in income tax reporting status does not result in a pro forma adjustment herein as the Company's income tax provision has historically been determined on a separate return basis. F-13 84 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, 1996 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Tampa, Florida May 29, 1998 (Except for Notes 1 and 3, and paragraph three of Note 2 as to which the date is July 31, 1998, and December 17, 1998, respectively.) F-14 85 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------ SEPTEMBER 30, 1996 1997 1998 ---------- ----------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents.............................. $ -- $ 115,070 $ 3,550,338 Accounts receivable, net............................... 894,323 1,218,741 3,892,290 Due from affiliates.................................... 903,789 8,834,733 6,120,773 Note and interest receivable -- affiliate.............. -- -- 5,163,881 Prepaid expenses and other assets...................... 63,119 108,150 828,026 ---------- ----------- ----------- Total current assets........................... 1,861,231 10,276,694 19,555,308 PROPERTY AND EQUIPMENT, net.............................. 1,446,376 2,331,336 8,792,238 INVESTMENT IN GEOTRAC, INC............................... -- 6,879,291 -- OTHER ASSETS Goodwill, net.......................................... -- -- 14,711,079 Customer contracts, net................................ -- -- 1,366,667 Deferred tax assets.................................... 128,700 -- 1,659,665 Other.................................................. 4,935 44,384 935,929 ---------- ----------- ----------- Total assets................................... $3,441,242 $19,531,705 $47,020,886 ========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt...................... $ 315,500 $ 1,522,822 $ 3,066,325 Current portion of notes and interest payable -- affiliates............................... -- -- 10,329,861 Note payable........................................... 600,000 600,000 -- Accounts payable, trade................................ 53,519 271,165 705,249 Due to affiliates...................................... 26,303 2,889,212 802,432 Employee related accrued expenses...................... 570,312 1,850,553 2,337,101 Other accrued expenses................................. 241,257 596,424 1,768,328 Income taxes payable................................... 472,729 2,239,058 4,615,473 Deferred compensation.................................. -- -- 692,461 Deferred revenue....................................... 6,811 455,827 207,308 ---------- ----------- ----------- Total current liabilities...................... 2,286,431 10,425,061 24,524,538 LONG-TERM DEBT, less current portion..................... 894,475 2,186,653 8,216,139 NOTES PAYABLE -- AFFILIATES, less current portion........ -- -- 5,891,377 DEFERRED REVENUE......................................... -- -- 645,241 COMMITMENTS AND CONTINGENCIES PREFERRED STOCK OF SUBSIDIARY............................ -- 6,750,000 -- 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, 10,000,000 shares at December 31, 1996 and 1997, and 10,443,552 shares at September 30, 1998 issued and outstanding......................... 100,000 100,000 104,436 Additional paid-in capital............................. 160,336 69,991 5,831,736 Retained earnings...................................... -- -- 1,807,419 ---------- ----------- ----------- Total shareholders' equity..................... 260,336 169,991 7,743,591 ---------- ----------- ----------- Total liabilities and shareholders' equity..... $3,441,242 $19,531,705 $47,020,886 ========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-15 86 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1995 1996 1997 1997 1998 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) REVENUES Outsourcing services -- affiliated...... $ 3,443,628 $ 4,787,772 $29,114,601 $21,738,733 $26,614,949 Outsourcing services.................... -- 337,458 599,443 438,210 892,461 Flood zone determination services....... 4,886,946 7,291,031 7,763,576 5,884,640 18,800,574 Flood zone determination services -- affiliated................ 239,980 414,209 1,028,359 697,372 1,064,567 ----------- ----------- ----------- ----------- ----------- Total revenues................... 8,570,554 12,830,470 38,505,979 28,758,955 47,372,551 ----------- ----------- ----------- ----------- ----------- EXPENSES Cost of outsourcing services............ 2,954,766 3,895,801 21,988,824 16,528,033 19,813,902 Cost of flood zone determination services.............................. 3,415,023 5,362,154 4,763,723 3,361,144 8,524,121 Selling, general and administrative..... 804,003 1,121,467 3,026,388 2,240,930 5,705,077 Management services from Parent......... 724,904 1,053,546 2,343,866 1,757,898 2,506,321 Deferred compensation (non-recurring item)................................. -- -- -- -- 728,069 Depreciation and amortization........... 184,155 309,188 683,672 443,062 2,981,179 ----------- ----------- ----------- ----------- ----------- Total expenses................... 8,082,851 11,742,156 32,806,473 24,331,067 40,258,669 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME.......................... 487,703 1,088,314 5,699,506 4,427,888 7,113,882 ----------- ----------- ----------- ----------- ----------- EQUITY IN EARNINGS (LOSS) OF GEOTRAC, INC. ................................... -- -- 201,009 (32,325) -- ----------- ----------- ----------- ----------- ----------- MINORITY INTEREST......................... -- -- -- -- (472,803) OTHER INCOME (EXPENSE): Interest income......................... -- -- -- -- 307,905 Interest expense........................ (71,493) (75,350) (378,660) (223,309) (1,653,165) ----------- ----------- ----------- ----------- ----------- Total other income (expense)..... (71,493) (75,350) (378,660) (223,309) (1,345,260) INCOME BEFORE PROVISION FOR INCOME TAXES................................... 416,210 1,012,964 5,521,855 4,172,254 5,295,819 PROVISION FOR INCOME TAXES................ 162,400 396,000 2,112,200 1,644,700 2,388,400 ----------- ----------- ----------- ----------- ----------- NET INCOME................................ $ 253,810 $ 616,964 $ 3,409,655 2,527,554 2,907,419 =========== =========== =========== =========== =========== NET INCOME PER COMMON SHARE............... $ .03 $ .06 $ .34 $ .25 $ .29 =========== =========== =========== =========== =========== Weighted average common shares outstanding............................. 10,000,000 10,000,000 10,000,000 10,000,000 10,149,476 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-16 87 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL -------- ---------- ----------- ----------- Balance at January 1, 1995..................... $100,000 $ 91,000 $ (66,138) $ 124,862 Capital contribution from Parent............. -- 150,000 -- 150,000 Net income................................... -- -- 253,810 253,810 -------- ---------- ----------- ----------- Balance at December 31, 1995................... 100,000 241,000 187,672 528,672 Capital contribution from Parent............. -- 114,700 -- 114,700 Cash dividends to Parent..................... -- (195,364) (804,636) (1,000,000) Net income................................... -- -- 616,964 616,964 -------- ---------- ----------- ----------- Balance at December 31, 1996................... 100,000 160,336 -- 260,336 Cash dividends to Parent..................... -- (90,345) (3,409,655) (3,500,000) Net income................................... -- -- 3,409,655 3,409,655 -------- ---------- ----------- ----------- Balance at December 31, 1997................... 100,000 69,991 -- 169,991 Cash dividends to Parent (unaudited)......... -- -- (1,100,000) (1,100,000) Issuance of Common Stock as partial consideration for the acquisition of Geotrac, Inc. (Note 3) (unaudited)........ 4,436 5,761,745 -- 5,766,181 Net income (unaudited)....................... -- -- 2,907,419 2,907,419 -------- ---------- ----------- ----------- Balance at September 30, 1998 (unaudited)...... $104,436 $5,831,736 $ 1,807,419 $ 7,743,591 ======== ========== =========== ===========
The accompanying notes are an integral part of this consolidated statement. F-17 88 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------- 1995 1996 1997 1997 1998 --------- ----------- ----------- ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 253,810 $ 616,964 $ 3,409,655 $ 2,527,554 $ 2,907,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 184,155 309,188 683,672 443,062 2,981,179 Depreciation and amortization of Geotrac prior to July 1998 acquisition........ -- -- -- -- (712,990) Loss on disposal of property and equipment............................. 7,124 72,726 2,329 -- 37,914 Equity in (earnings) loss of Geotrac, Inc................................... -- -- (201,009) 32,325 (485,034) Deferred income taxes, net.............. (4,200) (119,800) 131,000 42,300 (1,074,665) Changes in assets and liabilities: Accounts receivable................... (379,694) (179,713) (324,418) (517,611) (474,170) Prepaid expenses and other current assets............................. (7,075) (11,751) (45,031) (353,781) (542,464) Other assets.......................... -- (4,935) (40,394) (31,377) 6,279 Accounts payable, trade............... 290,755 (301,090) 217,646 6,577 125,587 Employee related accrued expenses..... 196,858 136,210 1,280,241 723,662 (163,486) Other accrued expenses................ 147,516 79,591 352,867 (5,072) 696,250 Income taxes payable.................. 137,127 365,515 1,766,329 1,575,996 2,172,415 Deferred revenue...................... 4,861 (153) 449,016 406,494 319,369 --------- ----------- ----------- ----------- ----------- Net cash provided by operating activities....................... 831,237 962,752 7,681,903 4,850,129 5,793,603 --------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Geotrac, cash acquired..... -- -- -- -- 2,797,008 Cash investment in Geotrac, Inc........... -- -- (6,750,000) (6,750,000) -- Purchases of property and equipment....... (464,048) (1,011,807) (1,498,298) (993,505) (825,358) --------- ----------- ----------- ----------- ----------- Net cash provided by (used in) investing activities............. (464,048) (1,011,807) (8,248,298) (7,743,505) 1,971,650 --------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under line of credit....... 213,000 -- -- -- -- Proceeds from issuance of Preferred Stock of Subsidiary........................... -- -- 6,750,000 6,750,000 -- Proceeds from the issuance of debt........ -- 1,054,000 2,815,000 -- -- Repayment of debt......................... (122,000) (122,025) (315,500) (236,640) (2,798,665) Cash dividends paid to Parent............. -- (1,000,000) (3,500,000) -- (1,100,000) Capital contribution from Parent.......... 150,000 114,700 -- -- -- Net advances to (from) affiliates......... (573,847) (34,886) (5,068,035) (3,338,410) 183,476 Deferred offering costs................... -- -- -- -- (614,796) --------- ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities............. (332,847) 11,789 681,465 3,174,950 (4,329,985) --------- ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... 34,342 (37,266) 115,070 281,574 3,435,268 CASH AND CASH EQUIVALENTS, beginning of period.................................... 2,924 37,266 -- -- 115,070 --------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period.... $ 37,266 $ -- $ 115,070 $ 281,574 $ 3,550,338 ========= =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES: Cash paid for: Interest................................ $ 71,493 $ 75,350 $ 149,345 $ 111,685 $ 819,754 ========= =========== =========== =========== =========== Income taxes............................ $ 50,000 $ 150,290 $ 214,743 $ -- $ 675,000 ========= =========== =========== =========== ===========
F-18 89
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------- 1995 1996 1997 1997 1998 --------- ----------- ----------- ----------- ----------- (UNAUDITED) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of fixed assets by issuance of debt (including capital lease obligations).......................... $ -- $ -- $ -- $ -- $ 4,265,639 ========= =========== =========== =========== =========== Repurchase of Preferred Stock of Subsidiary for issuance of note....... $ -- $ -- $ -- $ -- $ 6,750,000 ========= =========== =========== =========== =========== Purchase of 51% interest in net assets of Geotrac, Inc.: Total consideration consists of: Common Stock................... $ 5,766,181 Promissory note................ 1,500,000 Short-term obligation.......... 728,069 ----------- 7,994,250 =========== Fair value of assets acquired..................... 10,990,152 Liabilities assumed............ 10,650,887 ----------- Net assets..................... 339,265 Goodwill....................... 14,933,247 ----------- 15,272,512 ===========
The accompanying notes are an integral part of these consolidated statements. F-19 90 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") 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"), which contributed to IMSG two of its wholly-owned operating subsidiaries, Insurance Management Solutions, Inc. ("IMS") and Bankers Hazard Determination Services, Inc. ("BHDS"), which 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 of America"). In September 1998, IMS Direct, Inc. was formed as a wholly-owned subsidiary of IMSG (see Note 12). IMSG, IMS, IMS Direct and Geotrac of America are hereinafter collectively known as the "Company". On July 31, 1998, BIG sold 2,050,000 shares of the issued and outstanding common shares it held in IMSG to Venture Capital Corporation, a Cayman Islands company. See Note 12 for further discussion. The Company operates 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 IMS, include policy and claims administration (policy issuance, billing and collection functions, claims adjusting and processing) and information technology services. The Company's flood zone determination services are provided by Geotrac of America. Prior to 1997, the Company's outsourcing services principally related to information technology services provided to BIG and its other affiliates on a cost reimbursement basis. Commencing in 1997, the Company also provided, on a fee basis, policy and claims administration services, previously provided by BIG and its other affiliates, related to flood and homeowners insurance lines accounting for approximately 55% of total outsourcing revenues for 1997, and 54% and 97% for the nine months ended September 30, 1997 and 1998, respectively. Starting in 1998, the automobile insurance line has also been added to these services. During 1997, the Company also provided claims administration services to its affiliates on all other insurance lines on a cost reimbursement basis accounting for approximately 29% of total outsourcing revenues. In 1998, the company receives a fee for claims administration on these insurance lines similar to that for flood, homeowners and automobile lines. In addition, in 1998, third-party claims adjustment costs, such as outside appraisers, are recognized by the Company. In 1997, these costs were paid and absorbed by the Company's affiliates. 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. See Notes 2 and 12 for further organization and business information. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The formation of IMSG as described in Note 1, is reflected in the financial statements retroactively on a historical cost basis as if the entities under common control had been consolidated for all years presented. IMSG, IMS and BHDS have historically maintained separate accounting records as their operations have generally been on a stand-alone basis in regards to BIG and its other affiliates. The Company, under a management agreement with BIG, is charged a management fee for common costs that are incurred by its Parent on behalf of all affiliated companies. Management services include human resources, legal, corporate planning and communications, cash management, certain executive management F-20 91 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) and rent. The basis of allocation for the management services is employee head counts and estimates of time incurred, which management believes to be a reasonable basis of allocation. In January 1998, the Board of Directors increased the amount of the Company's authorized shares of Common Stock from 1,000,000 to 100,000,000 shares and changed the Common Stock's par value from $1.00 to $.01 per share. Effective May 8, 1998, the Company declared a stock dividend of 40,000 (pre-split) shares of Common Stock for each share of Common Stock then outstanding, resulting in an increase in the number of outstanding shares of Common Stock from 500 (pre-split) to 20,000,000 (pre-split) shares. On December 17, 1998 the Company's Board of Directors approved a one-for-two reverse split of Common Stock effective December 31, 1998. The May and December 1998 recapitalizations have been retroactively reflected in the accompanying consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of Insurance Management Solutions Group, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In 1997, the Company's investment in Geotrac, Inc. was accounted for using the equity method since the Company owned less than 50% and had a significant but not controlling influence. In 1998, the operations of Geotrac for the entire nine months ended September 30, 1998 are consolidated in the Company's statement of income. The minority interest deduction in the statement of income represents the net income of Geotrac allocable to the 51% interests held by the other stockholders during the six months ended June 30, 1998, prior to the Company acquiring the remaining 51% interest in Geotrac. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at December 31, 1995, 1996 and 1997, and September 30, 1997. Prior to June 1998, the Company maintained a zero balance account arrangement with its Parent. As a result of this funding arrangement, the Company had a negative cash balance for financial reporting purposes representing checks that have been issued but that have not yet been presented to the bank for payment. Such negative cash balances have been reclassified to accounts payable in the accompanying consolidated balance sheets. Accounts Receivable, Trade and Concentration of Credit Risk Accounts receivable, trade represents amounts due from Geotrac customers. Geotrac provides flood zone determination services to insurance companies and financial institutions. Credit is granted to customers of Geotrac based on management's assessment of their credit worthiness. Customer deposits are required in certain instances. The allowance for doubtful accounts is immaterial for all periods presented. F-21 92 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) 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. Deferred Offering Costs The Company incurred accounting, legal, printing and other expenses in connection with its proposed initial public offering of its Common Stock. These offering costs are being deferred and will be charged to additional paid-in capital when the proceeds from the initial public offering are received. At September 30, 1998, $631,581 of deferred offering costs are included in other assets in the consolidated balance sheet. To the extent the Company's initial public offering is not consummated, the deferred offering costs will be charged to expense. Goodwill Goodwill related to the acquisition of Geotrac is being 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 strong market position and historical and projected operating results. Accumulated amortization at December 31, 1997 and September 30, 1998 was $71,719 and $346,825, respectively. Customer Contracts Customer contracts related to the acquisition of Geotrac are being amortized using the straight-line method over seven years. The amortization period, which does not materially differ from the underlying contract lives, was determined based on historical and expected contract duration periods as well as the nature of the products and services provided. Accumulated amortization at September 30, 1998 was $50,000. 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. An impairment is recognized to the extent the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the carrying value. Revenue Recognition and Deferred Revenue Revenue generated from outsourcing and flood zone determination services are recognized as earned when services are provided. In 1997, the Company's affiliated service arrangements, as they pertain to policy administration, resulted in deferred revenue being recorded as the related fees are billed and payable based on a percentage of the customers' premiums written which is in advance of a portion of the administrative services being performed by the Company. In 1998, the service arrangements were changed so that fees related to policy administration services are billed based on a percentage of written premiums, which generally eliminates the need for any deferral. The transition from the 1997 service arrangements to the 1998 service agreements resulted in the F-22 93 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Company reclassifying on January 1, 1998 deferred revenue of $443,704 recorded at December 31, 1997 to due to affiliates. In 1998, the affiliated service agreements as they pertain to claims administration, resulted in deferred revenue being recorded as the related fees are billed and payable based on a percentage of the customers' earned premiums which is in advance of a portion of the total claims expense that will be incurred by the Company. In 1997, deferred revenue related to claims administration was not recorded, as the Company was paid, either on a fee or cost reimbursement basis, as the claims and related expenses were incurred. The Company, in 1998, estimates the deferred revenue amounts based on several factors including actual historical claims expense and related development factors. The transition from the 1997 to the 1998 service agreements resulted in the Company recording, at January 1, 1998, deferred revenue of approximately $2,138,000 along with a due from affiliates for the same amount, representing the Company's estimated future cost of servicing claims associated with premiums earned prior to December 31, 1997. The Company has recorded deferred revenues totaling $2,276,044 at September 30, 1998 relating to its outsourcing services, of which $2,068,736 represents amounts billed and due from its affiliates. As such, for financial statement reporting purposes, the $2,068,736 amount has been netted against amounts due from affiliates at September 30, 1998. Under the affiliated claims service agreements, the payment of claim costs associated with the litigation of the claims remains the customers' responsibility. In addition, the agreements contain a catastrophe provision under which the Company would be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses from a single event exceed $2,000,000, subject to a cap of 5% of direct incurred losses from that storm. The Company's flood zone revenues are principally derived from flood zone determination services and life-of-loan monitoring services. Flood zone determinations involve the Company ascertaining and certifying to a property's flood zone classification. Each determination is completed within a short period of time and is performed with a high degree of accuracy. Revenues for these services are recognized upon completion of each flood zone determination. The Company receives an up-front, non-refundable fee to provide life of loan monitoring of flood zone determinations whereby the Company notifies its customers of changes in previously issued flood zone determinations. The Company defers a portion of the fee associated with this future obligation and amortizes these amounts using the straight-line method over the average life of the underlying loan, approximately 7 years. 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. Deferred tax expense is the result of changes in deferred tax assets and liabilities. Prior to July 31, 1998, the Company's results of operations were included in the consolidated federal and state income tax returns of its Parent. As provided by SFAS No. 109 and in accordance with the intercompany tax sharing/allocation agreement with its Parent and affiliates, income taxes are determined by the amount that would have been due and payable had the Company filed a separate income tax return. Included in income taxes payable in the accompanying consolidated balance sheets, are income taxes payable to parent totaling $472,729, $2,239,058 and $3,945,922 at December 31, 1996 and 1997 and at September 30, 1998, respectively. F-23 94 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) As of July 31, 1998, BIG had sold a sufficient number of shares in the Company such that the Company no longer files 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 for certain tax credits arising on or before July 31, 1998. Under the Tax Indemnity Agreement, the parties terminated a previous tax allocation agreement which had been in effect since October 1, 1993. Net Income Per Common Share Net income 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 by the weighted average common shares outstanding. The following table reconciles the numerator and denominator of the basic and dilutive EPS computation:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1995 1996 1997 1997 1998 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Numerator: Net income............................... $ 253,810 $ 616,964 $ 3,409,655 $ 2,527,554 $ 2,907,419 =========== =========== =========== =========== =========== Denominator: Weighted average number of Common Shares used in basic EPS...................... 10,000,000 10,000,000 10,000,000 10,000,000 10,149,476 Diluted stock options.................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Weighted average number of Common Shares and diluted potential Common Stock used in diluted EPS......................... 10,000,000 10,000,000 10,000,000 10,000,000 10,149,476 =========== =========== =========== =========== ===========
Fair Value of Financial Instruments The carrying amount of the Company's financial instruments, which include cash, accounts receivable, due from affiliates, accounts payable, due to affiliates and debt, approximate fair value due to the short maturity of those instruments. The Company considers the fixed and variable rate debt instruments to be representative of current market interest rates and, accordingly, the recorded amounts approximate their present fair market value. Unaudited Financial Statements The unaudited financial statements and the related notes thereto for September 30, 1997 and 1998 include all normal and recurring adjustments, which in the opinion of management are necessary for a fair presentation and are prepared on the same basis as the audited annual financial statements. The interim results are not necessarily indicative of the results that may be expected for the full year. F-24 95 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. INVESTMENT IN AND ACQUISITION OF GEOTRAC, INC. Year Ended December 31, 1997: On July 31, 1997, the Company, through its subsidiary, BHDS, acquired a 49% interest in YoSystems, Inc. ("YoSystems") through a cash contribution of $6,750,000. At the time of the Company's cash investment, YoSystems had nominal net assets. Accordingly, the Company's investment of $6,750,000 was reflected on the Company's records on July 31, 1997 as two components: the Company's share (49%) of YoSystems' net assets after their investment (or $3,307,500), and the portion of the net assets allocable to the other stockholders 51% interest (or $3,442,500) reflected as goodwill to the Company. On July 31, 1997, YoSystems concurrently acquired all of the issued and outstanding shares of capital stock of SMS Geotrac, Inc. SMS Geotrac, Inc. merged into YoSystems, with YoSystems becoming the surviving entity, which then changed its name to Geotrac, Inc. YoSystems entered into a term note for $8,750,000 to provide additional funds required to fund the total purchase price of $15,000,000. The following table represents summarized financial information of Geotrac, Inc. for the period August 1, 1997 to December 31, 1997:
FOR THE PERIOD AUGUST 1, 1997 TO DECEMBER 31, 1997 -------------- Condensed Statement of Income: Total revenues............................................ $ 6,336,025 Operating income.......................................... 1,001,775 Net income................................................ 410,222 Condensed Balance Sheet: Current assets............................................ 4,693,232 Noncurrent assets......................................... 13,943,450 Current liabilities....................................... 3,291,024 Non-current liabilities................................... 8,219,856 Shareholders' equity...................................... 7,125,802
The Company's investment in Geotrac, Inc. of $6,879,291 at December 31, 1997 includes unamortized goodwill of $3,370,782. In connection with the acquisition, the Company and Geotrac, Inc. entered into a Cross-License Agreement in which the flood zone databases of each company were made available to one another in exchange for specified license fees. In addition to the use of each Company's database, Geotrac, Inc. is primarily responsible for the development, modification and maintenance of the respective databases. Total amounts incurred during 1997 for maintenance of the databases amounted to $129,056. The Company incurred $125,627 for usage of Geotrac, Inc.'s database for 1997. F-25 96 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. INVESTMENT IN GEOTRAC, INC. -- (CONTINUED) Nine Months Ended September 30, 1998: In July 1998, the Company, acquired the remaining 51% of the outstanding shares of Geotrac, Inc.'s common stock for a total consideration of $7,994,250 consisting of: 443,552 shares of the Company's common stock valued at $13.00 per share, the estimated initial public offering price..................................................... $5,766,181 Promissory note............................................. 1,500,000 Cash paid in December 1998.................................. 728,069 ---------- $7,994,250 ==========
The shares of the Company's Common Stock to be issued as partial consideration will be adjusted to reflect the actual initial public offering price. In addition, the Cross-License Agreement with BHDS, referred to above, has been terminated along with any amounts due to each other, which were insignificant. The acquisition of the remaining 51% of the outstanding shares of Geotrac has increased the Company's total investment in Geotrac to $15,272,512 at July 1, 1998, consisting of: Original July 31, 1997 investment........................... $ 6,750,000 August 1, 1997-June 30, 1998, 49% share in Geotrac's net income, net of amortization of goodwill of approximately $158,000.................................................. 528,262 Additional July 1, 1998 investment.......................... 7,994,250 ----------- $15,272,512 ===========
The recording of the Company's additional 51% interest in Geotrac and the elimination of the investment in Geotrac account through the consolidation process at July 1, 1998 results in the recognition of consolidated goodwill of $14,933,247 and net assets of $339,265 recorded at estimated fair values under the purchase method of accounting as follows:
JULY 1, 1998 ------------ Current assets.............................................. $ 5,968,680 Property and equipment...................................... 3,305,740 Customer contracts.......................................... 1,416,667 Other assets................................................ 299,065 Current liabilities......................................... (3,453,093) Long-term obligations....................................... (7,197,794) ----------- Net assets acquired......................................... 339,265 Goodwill.................................................... 14,933,247 ----------- $15,272,512 ===========
F-26 97 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. INVESTMENT IN GEOTRAC, INC. -- (CONTINUED) The following unaudited pro forma consolidated results of operations for the year ended December 31, 1997 and the nine months ended September 30, 1997 and 1998 are presented as if the acquisition of Geotrac, Inc. had been made on January 1, 1997. The unaudited pro forma information reflects the additional goodwill amortization and interest expense that would have been incurred if the Company had purchased Geotrac, Inc. on January 1, 1997. These pro forma results are not necessarily indicative of the results of operations that would have occurred had the purchase been made at January 1, 1997 or the future results of the consolidated operations (in thousands, except per share data):
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------- 1997 1997 1998 ------------ ------- ------- (UNAUDITED) Revenue................................................ $52,315 $39,089 $47,373 Operating income....................................... 7,197 4,914 7,766 Net income............................................. 4,340 3,233 3,664 Net income per common share............................ $ .42 $ .31 $ .35
In addition, the Company entered into a Corporate Governance Agreement with Geotrac and its president and former majority shareholder (the "former majority shareholder") setting forth certain terms and conditions upon which Geotrac will operate following the merger. The Corporate Governance Agreement provides, in part, that, for so long as the former majority shareholder owns stock in the Company or Geotrac, or has an option to purchase stock in Geotrac, (i) the Company will vote all of its shares in Geotrac to fix and maintain the number of directors on the Geotrac Board of Directors at five, (ii) the Company will vote its shares in Geotrac to elect as directors of Geotrac two persons designated by the former majority shareholder, (iii) the termination of the former majority shareholder as an employee of Geotrac will require the vote of four out of five members of the Board of Directors, and (iv) certain actions by Geotrac will require the unanimous approval of the Geotrac Board of Directors, including any merger or consolidation, the payment of management or similar fees to the Company or its subsidiaries and affiliates, the sale or issuance of Geotrac stock, and the sale of Geotrac assets outside the ordinary course of business to anyone other than an affiliate of Geotrac. The former majority shareholder also has a right of first refusal to purchase the assets of Geotrac in the event such assets are to be sold. NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, LIFE ------------------------ SEPTEMBER 30, (YEARS) 1996 1997 1998 ------- ---------- ----------- ------------- (UNAUDITED) Computer equipment and acquired software............................... 3-5 $1,475,970 $ 2,864,348 $ 8,130,976 Office furniture and equipment........... 5 545,773 575,940 2,078,290 Leasehold improvements................... 5 31,673 31,673 125,372 Maps and map database.................... 5 107,633 194,954 2,299,556 ---------- ----------- ----------- 2,161,049 3,666,915 12,634,194 Less -- accumulated depreciation and amortization........................... (714,673) (1,335,579) (3,841,956) ---------- ----------- ----------- $1,446,376 $ 2,331,336 $ 8,792,238 ========== =========== ===========
F-27 98 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. PROPERTY AND EQUIPMENT (CONTINUED) Maps and map database, which are used as a basis for making flood zone determinations, include the capitalized costs of purchasing maps as well as the direct labor cost of converting the maps to digitized computer files. Depreciation and amortization expense was $184,155, $309,188, and $611,954 in 1995, 1996 and 1997, respectively, and $414,374 and $2,290,123 for the nine months ended September 30, 1997 and 1998, respectively. NOTE 5. NOTE PAYABLE The Company had a revolving line of credit agreement with a bank that provided for borrowings of up to $600,000 subject to 80% of eligible receivables, as defined. Interest was payable monthly at the bank's prime rate plus 1% (9.5% at December 31, 1997). The principal balance plus accrued interest were due on demand. The line of credit was repaid in August 1998 and the agreement was terminated. NOTE 6. NOTES RECEIVABLE AND PAYABLE -- AFFILIATES On March 31, 1998, the Company entered into a $4,950,000 promissory note with an affiliate that had previously advanced funds to the Company. The note, which is included in "Current portion of notes and interest payable -- affiliates" in the accompanying September 30, 1998 consolidated balance sheets, bears interest at 8.5% per annum and is payable in full together with accrued interest in April 1999. On April 1, 1998, the Company entered into a $4,950,000 promissory note with an affiliate to which the Company had previously advanced funds. The note, which is reflected as "note and interest receivable -- affiliate" in the accompanying September 30, 1998 consolidated balance sheet, bears interest at 8.5% per annum and is payable in full together with accrued interest in April 1999. In May 1998, the Company entered into a sales and assignment agreement with certain affiliated companies whereby certain assets were transferred and assigned to the Company, effective April 1998, for use in its business. The assets, consisting of telephone equipment and computer hardware and software, were transferred at their net book value as of the date of transfer in exchange for consideration consisting of $325,075 in cash and entered into two promissory notes totaling $2,802,175 ($2,709,674 at September 30, 1998). The notes, which are included in "notes payable -- affiliates, less current portion" in the accompanying September 30, 1998 consolidated balance sheet, require monthly installment payments of $15,417 plus accrued interest and mature on April 1, 1999 and December 2000. In July 1998, in connection with the Geotrac acquisition, the Company issued a note payable to the previous majority shareholder in the amount of $1,500,000. The note requires quarterly interest payments at a fixed interest rate of 8.5%. The entire principal and accrued interest is payable on January 6, 2000. The note is included in "Notes payable -- affiliates, less current portion" in the accompanying consolidated balance sheet at September 30, 1998. F-28 99 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------------------ SEPTEMBER 30, 1996 1997 1998 ---------- ---------- -------------- (UNAUDITED) Note payable to bank, interest at Company's option of: 1) the current prime rate; 2) a seven year fixed rate; 3) a certain percentage over the LIBOR rate based upon a formula; or 4) or a combination of the above rates, due in quarterly installments of $312,500, plus accrued interest thereon (8.5% at December 31, 1997), plus annual prepayments in an amount equal to fifty percent of excess cash flow, as defined with the final payment due June 2004, collateralized by certain fixed assets of the Company...................................... $ -- $ -- $ 7,187,500 Note payable to bank, interest at a fixed rate of 8.19%, due in monthly principal and interest installments of $66,965, with the final payment due December 2000, collateralized by certain fixed assets of the Company...................................... -- 2,131,000 1,647,499 Note payable to bank, interest at the lender's base lending rate (8.5% at December 31, 1997), due in monthly principal installments of $16,854, plus accrued interest thereon, with the final payment due December 2000, collateralized by certain fixed assets of the Company and guaranteed by the Company's Parent....................................... 809,000 606,750 455,062 Promissory note to bank, interest at a fixed rate of 8.19%, due at maturity on February 28, 1998, collateralized by certain fixed assets of the Company........................ -- 500,000 -- Notes payable to banks, interest at both fixed (8.19%) and at the lender's base lending rate (8.5% at December 31, 1997), due in monthly principal installments ranging from $1,000 to $5,104, with the final payments due ranging from December 1999 to 2000, collateralized by certain fixed assets of the Company, with certain notes guaranteed by the Company's Parent....................................... 400,975 471,725 345,032 Capitalized equipment lease obligations (net of interest of approximately $114,250) due in monthly principal and interest payments of approximately $74,000 through 2001........... -- -- 1,647,371 ---------- ---------- ----------- 1,209,975 3,709,475 11,282,464 Less current maturities........................ 315,500 1,522,822 3,066,325 ---------- ---------- ----------- $ 894,475 $2,186,653 $ 8,216,139 ========== ========== ===========
Certain of the Company's debt agreements contain cross-default provisions whereby the Company's debt instruments could be in default if any of the Company's affiliates are in default on debt instruments with the same financial institution. Additionally, the note payable to bank totaling $7,187,500 at September 30, 1998 contains various covenants requiring the Company to maintain certain financial ratios, as follows: (1) net worth, as defined, of at least $7,750,000 through December 31, 1998 increasing by 50% of net income thereafter, (2) leverage ratio, as defined, of not greater than 2.5 to 1.0 through December 1999 and 2.0 to 1.0 F-29 100 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. LONG-TERM DEBT -- (CONTINUED) thereafter, (3) cash flow coverage ratio, as defined, of at least 1.10 to 1.0 through December 1998, 1.15 to 1.0 through December 1999 and 1.20 to 1.0 thereafter), restricts the payment of dividends to 50% of excess cash flows (as defined), and limits the payment of management fees to $350,000 on an annual basis. In the opinion of management, the Company and BIG and its affiliates were in compliance with their required debt covenants. The Company anticipates it will repay all of its debt instruments containing cross-default provisions from the proceeds received from the contemplated initial public offering. Aggregate maturities of long-term debt are as follows for the years ended December 31: 1998........................................................ $1,522,822 1999........................................................ 1,083,819 2000........................................................ 1,102,834 ---------- $3,709,475 ==========
At September 30, 1998, property and equipment includes $1,713,591 and $180,060 of assets and accumulated amortization, respectively, recorded under capital leases. At September 30, 1998, $784,524 of the capital lease obligations are included in "current portion of long-term debt" and $862,847 is included in "long-term debt, less current portion" in the accompanying consolidated balance sheet. The leases bear interest at various rates between 3% to 5% per annum and expire at various dates through September 2001. NOTE 8. PREFERRED STOCK OF SUBSIDIARY In connection with the Company's purchase of a 49% interest in Geotrac, Inc., BHDS issued non-cumulative, 8% Preferred Stock to a corporation owned by the half-brother of a director of the Company. The related party funded the Preferred Stock purchase by entering into a note agreement with a bank. The Preferred Stock served as collateral on the bank note and the Company acts as a guarantor. In May 1998, IMSG repurchased the outstanding Preferred Stock of BHDS in exchange for a note in the same amount. Subsequent to September 30, 1998, the note, which was payable in its entirety on December 31, 1998, was refinanced with the same lender into an installment note requiring monthly payments of principal plus accrued interest of $138,701 commencing in January 1999 until its maturity in August 2002. At September 30, 1998, $2,529,873 is included in "Current portion of notes and interest payable -- affiliates" and $4,220,127 is included in "Notes payable -- affiliates, less current portion," in the accompanying consolidated balance sheet, which reflects the modification of the terms of the loan. Subsequent to May 1998, the Preferred Stock of BHDS, currently held by IMSG, was exchanged for 675,000 shares of 8 1/2% cumulative Preferred Stock of BHDS. The non-cumulative 8% Preferred Stock was then retired. The new Preferred Stock serves as collateral on the bank note held by the related party. Dividends declared on the Preferred Stock during 1997 were $229,315 and for the nine months ended September 30, 1997 and 1998 were $113,500 and $189,370, respectively, and are included in "interest expense" in the accompanying consolidated statements of income as the amounts are insignificant and the preferred stock has certain characteristics similar to debt. NOTE 9. SHAREHOLDERS' EQUITY Long Term Incentive Plan The Long-Term Incentive Plan (the "Incentive Plan") has been adopted by the Company's Board of Directors and is expected to be approved by the shareholders of the Company prior to the consummation of the contemplated initial public offering. A total of 437,500 shares of Common Stock may be issued pursuant to the Incentive Plan. The Incentive Plan provides for the grant of incentive or nonqualified stock options to purchase shares of Common Stock. Upon the completion of the contemplated initial public offering, the F-30 101 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. SHAREHOLDERS' EQUITY -- (CONTINUED) executive officers of the Company will be granted options to purchase a total of 102,500 shares of Common Stock at the initial public offering price. All such options 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. Non-Employee Directors' Stock Option Plan The Non-Employee Directors' Stock Option Plan (the "Non-Employee Director Plan") has been adopted by the Company's Board of Directors and is expected to be approved by the shareholders of the Company prior to the consummation of the contemplated initial public offering. The Non-Employee Director Plan provides for the grant of nonqualified stock options to purchase up to 3,600 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 100,000 shares may be issued pursuant to this plan. The Company will initially grant each non-employee director options to purchase 3,600 shares of Common Stock. Non-employee directors receiving such options will become vested in options for the purchase of 400 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 200 shares of Common Stock (100 shares in the event the non-employee director is absent from, arrives late for, or departs early from, such meeting) 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. Non-Qualified Stock Option Plan The Non-Qualified Stock Option Plan (the "Non-Qualified Plan") has been adopted by the Company's Board of Directors and is expected to be approved by the shareholders of the Company prior to the consummation of the contemplated initial public offering. The Non-Qualified Plan provides for the grant of non-qualified stock options to purchase up to 62,500 shares of Common Stock. Upon the completion of the contemplated initial public offering, options to purchase 62,500 shares of Common Stock at the initial public offering price will be granted to certain executive officers of BIG. All of such options 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. 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 has no present intention to issue shares of Preferred Stock, although it may determine to do so in the future. F-31 102 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10. INCOME TAXES The provision for income taxes is summarized as follows:
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- ------------------------ 1995 1996 1997 1997 1998 -------- -------- ---------- ---------- ----------- (UNAUDITED) Current: Federal...................... $142,200 $441,600 $1,686,500 $1,324,500 $ 2,874,300 State........................ 24,400 70,200 294,700 231,500 591,400 -------- -------- ---------- ---------- ----------- 166,600 511,800 1,981,200 1,556,000 3,465,700 -------- -------- ---------- ---------- ----------- Deferred: Federal...................... (3,600) (98,900) 112,400 76,100 (919,800) State........................ (600) (16,900) 18,600 12,600 (157,500) -------- -------- ---------- ---------- ----------- (4,200) (115,800) 131,000 88,700 (1,077,300) -------- -------- ---------- ---------- ----------- $162,400 $396,000 $2,112,200 $1,644,700 $ 2,388,400 ======== ======== ========== ========== ===========
Reconciliation of the federal statutory income tax rate of 34% to the effective income tax rate is as follows:
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- ----------------------- 1995 1996 1997 1997 1998 -------- -------- ---------- ---------- ---------- (UNAUDITED) Federal income taxes, at statutory rates............... $141,500 $344,400 $1,877,400 $1,418,600 $1,847,000 State taxes, net of federal benefit....................... 15,700 35,200 200,400 151,500 253,400 Equity in earnings of Geotrac, Inc........................... -- -- (68,300) -- -- Minority interest............... -- -- -- -- 160,800 Dividends declared on Preferred Stock of Subsidiary........... -- -- 78,000 38,600 64,400 Non-deductible goodwill......... -- -- 24,400 9,800 56,700 Other, net...................... 5,200 16,400 300 26,200 6,100 -------- -------- ---------- ---------- ---------- $162,400 $396,000 $2,112,200 $1,644,700 $2,388,400 ======== ======== ========== ========== ==========
F-32 103 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10. INCOME TAXES -- (CONTINUED) 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, ------------------- SEPTEMBER 30, 1996 1997 1998 -------- -------- ------------- (UNAUDITED) Deferred tax assets Currently non-deductible items, principally vacation pay and deferred compensation.......... $183,900 $172,400 $ 499,000 Deferred recognition of life of loan premium......... -- -- 1,200,165 Deferred tax liability Depreciation and fixed asset bases differences..... (55,200) (174,700) (39,500) -------- -------- ---------- Net deferred tax asset (liability)................... $128,700 $ (2,300) $1,659,665 ======== ======== ==========
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. The Company has entered into contracts with BIG pursuant to which it will continue to provide administrative services to BIG (See Note 12). 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. Any 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. The Company's business is dependent upon various factors, such as general economic conditions and weather patterns, that are beyond its control. For example, the demand for flood zone determinations by lenders and their customers is directly related to the affordability of mortgage financing and refinancing. Current interest rates are relatively low and therefore conducive to a higher volume of mortgage lending and flood zone determinations. An increase in interest rates could have a negative impact on mortgage lending and consequently also on the level of flood zone determinations requested. Fluctuations in interest rates will likely produce fluctuations in the Company's quarterly earnings and operating results. Likewise, natural disasters such as hurricanes, tornadoes and floods, all of which are unpredictable, directly impact the demand for both the Company's outsourcing and flood zone determination services. Legal Proceedings Bankers Insurance Company ("BIC"), the Company's principal customer and a wholly-owned subsidiary of BIG, is currently 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 BIC's 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. In addition, BIC and certain of its employees (one of whom is now an officer of IMS and several of whom are now employees of the Company) have been subpoenaed on behalf of the Federal Emergency Management Agency ("FEMA") to produce documentation or testify in connection with its investigation of certain cash management and claims processing practices of BIC. BIC is currently involved in discussions relating to the resolution of certain matters raised in the investigation. If the parties are unable to reach agreement in these matters, the United States could file suit under the False Claims Act and/or F-33 104 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) various common law and equitable theories. In the event either or both of these investigations or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss 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 management of BIC and the Company do not believe the outcome of these investigations will have a material adverse effect on the business, financial condition or results of operations of BIC or the Company. Since the investigations are in the early stages, it is impossible at this time to predict the ultimate outcome of these investigations. The Company is involved in various legal actions arising in the ordinary course of business. Management cannot predict the outcome of these matters. It is management's belief, after discussion with legal counsel, that the ultimate resolution of these actions will not have a material adverse effect on the Company's financial position, results of operations, or liquidity. Tax Examination The Company's ultimate parent, Bankers International Financial Corporation, recently completed an income tax examination by the Internal Revenue Service related to the years 1995 and 1996 in which no material assessment was levied to the Company. Common Stock Awards Prior to the Company's acquisition of Geotrac, Inc., the president had a nonbinding commitment to grant to certain former and current employees options to purchase shares of Geotrac, Inc. common stock held by the president and his wife, for prior employee services rendered. During May 1998, the president and his wife contributed 46.45 shares of their Common Stock to these individuals which is recorded as deferred compensation (non-recurring item) totaling $728,069 in the accompanying September 30, 1998 Statement of Income. The valuation of the Common Stock used to compute the deferred compensation expense was determined by dividing the purchase price of $7,994,250 for the 51% interest in Geotrac by 510 shares, the remaining shares purchased. Employment Agreements The Company entered into employment agreements with certain members of its executive management team, which will be effective on completion of the contemplated initial public offering. 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. ("Mr. White"). This agreement provides for an initial term of four years and shall continue in effect thereafter until terminated by either party upon 90 days prior written notice. The agreement provides for an initial annual base salary of $150,000 subject to annual review by Geotrac, Inc.'s Board of Directors. In the event of Mr. White's death or disability, Geotrac, Inc.'s obligations under the agreement will automatically terminate, except that Mr. White shall be entitled to severance equal to his then current annual base salary. The agreement further provides that, in the event of termination by Geotrac, Inc. without cause (as defined therein) or by Mr. White for good reason (as defined F-34 105 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) therein), or in the event the agreement is not renewed for any reason other than death, disability or for cause, then Geotrac, Inc. shall pay Mr. White at the rate of his annual base salary then in effect for the longer of (i) the remainder of the term of the agreement and (ii) one year after such termination date, subject to a credit of up to 75% of the base salary paid to Mr. White by his new employer, if any. The agreement contains certain non-compete provisions which prevent Mr. White from engaging in the flood zone compliance business within a specified area and soliciting or employing any Geotrac, Inc. employees. NOTE 12. RELATED PARTY TRANSACTIONS Service and Administrative Agreements During 1995, 1996 and 1997, the Company provided information technology services to affiliated entities based generally on actual cost incurred (including selling, general and administrative expenses), which amounted to $3,443,628, $4,787,772 and $3,236,255 of the outsourcing revenues for 1995, 1996 and 1997, respectively, and $2,467,447 for the nine months ended September 30, 1997. For the nine months ended September 30, 1998, these charges are included in the fee structure related to the affiliated service agreement discussed below. In 1997, the Company charged a monthly fee for its policy and claims administration services based on certain factors under the terms of the 1997 service agreements with BIG and other affiliated companies. For policy and claims administration, the Company charged a fee based on a percentage of direct written premiums and a percentage of direct paid losses for certain lines of business, as defined, respectively. The fee ranged from 8.5% to 9% for services rendered in connection with policy administration and .5% to 15% for claims administration related to these policies. Also, in 1997 the Company processed claims for BIG and its other affiliates related to those lines of business not covered under the servicing agreement and provided other miscellaneous services on a cost reimbursement basis. Amounts charged related to this claims processing and other miscellaneous services amounted to $9,518,525 for 1997 and $7,138,896 for the nine months ended September 30, 1997. Effective January 1, 1998, the Company and BIG, along with its affiliates, entered into a service agreement which replaced the previous arrangement. For policy administration, the Company charges a fee, ranging from 8% to 10% of direct written premiums for certain lines of business, as defined. In 1998, in addition to policy processing services previously provided under the 1997 service agreements, the Company also provides policy processing related to its affiliated companies' automobile lines of business. In addition, claims services that were previously provided on a cost reimbursement basis are included in its 1998 affiliated servicing agreements. For claims administration, the Company charges fees ranging from 7% to 12.50% of direct earned premiums, except for flood related programs which are based on 1% of earned premiums and 1.5% of incurred losses. Also, a service fee of 2% of direct earned premiums is charged related to information technology services. Under these service agreements, the Parent Company accounted for $16,359,821 of total outsourcing revenue in 1997, and $11,999,314 and $26,614,949 for the nine months ended September 30, 1997 and 1998, respectively. Effective December 1, 1998, the Company entered into a Service Agreement with Bankers Life Insurance Company ("BLIC"), an indirect subsidiary of BIG, pursuant to which the Company provides certain administrative services and allows BLIC to make use of certain of the Company's property, equipment and facilities in connection with BLIC's day-to-day operations. Under the Service Agreement, as amended, BLIC agrees to pay the Company predetermined fees on a quarterly basis. The term of the Service Agreement F-35 106 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 12. RELATED PARTY TRANSACTIONS -- (CONTINUED) with BLIC ends on June 1, 2001, but may be terminated at any time by BLIC upon 90 days prior written notice. Effective January 1, 1999, these fee arrangements were modified to provide for tiered pricing based on the volume of business processed. 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 shall expire on June 1, 2001, provided that it shall thereafter be automatically extended until terminated upon 90 days prior notice by either party. The Company has historically been charged a monthly management fee under an administrative services agreement with BIG for common costs that are incurred by its Parent and allocated to its affiliated companies. These common costs include human resources, legal, corporate planning and communications, cash management, certain executive management and rent. The basis of allocation for the management services is employee head counts and estimates of time incurred, which management believes to be a reasonable basis of allocation. Total management fees in 1995, 1996, 1997 and the nine months ended September 30, 1997 were $724,904, $1,053,546, $2,343,866 and $1,757,898, respectively. Effective January 1, 1998, the Company is being charged for these services, exclusive of rent, generally based on agreed-upon amounts (quarterly fee of $396,250 and an annual fee of $120,000 for routine legal services) totaling $1,749,405 for the nine months ended September 30, 1998. The current term of the agreement expires on December 31, 1999, but may be renewed by the Company, at its sole option, for an additional one-year period. Thereafter, the agreement may be terminated by either party. Effective as of January 1, 1999, the administration services agreement was amended to eliminate certain accounting and audit service functions (which functions are currently performed by the Company directly) and to reduce the quarterly fee payable by the Company to BIG to $258,750, subject to renegotiation by either party. Prior to December 31, 1997, the Company was also charged for rental expenses through the management services allocated from its Parent as discussed above. Subsequent to this time, the Company entered into specific lease agreements for its office space. The future minimum lease payments under these non-cancelable operating leases are $1,150,535 and $1,384,180 for the years ending December 31, 1998 and 1999, respectively. For financial statement purposes, rent expense of $756,916 for the nine months ended September 30, 1998 is included in management services from Parent. The Company leases certain employees, from time to time, that have been trained in customer service and other areas of property and casualty insurance from its affiliated companies. The Company has agreed to pay all direct and indirect expenses in connection with these employees. These charges are included in cost of outsourcing services and selling, general and administrative expenses and amounted to $6,635,249 for 1997, and $4,327,914 and $4,303,152 for the nine months ended September 30, 1997 and 1998, respectively. Effective January 1, 1998, the Company entered into a perpetual license agreement with BIG and BIC pursuant to which the Company licensed its primary operating systems from BIG and BIC in exchange for a nominal fee. The license agreement provides that the Company shall be solely responsible for maintaining and upgrading the systems and shall have the authority to license such systems to third parties. Flood zone determination services performed for affiliated companies amounted to $239,980, $414,209 and $1,028,358 for 1995, 1996 and 1997, respectively, and $697,372 and $1,064,567 for the nine months ended September 30, 1997 and 1998, respectively. F-36 107 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 12. RELATED PARTY TRANSACTIONS -- (CONTINUED) Intercompany Accounts The Company's due from affiliates, including the note receivable -- affiliate, generally resulted from the zero balance account arrangement with BIG (See Note 2) whereby the Company's excess cash was swept into BIG's operating cash account. The Company's due to affiliates, including the note payable -- affiliate, generally resulted from the Company's affiliates advancing service fees and paying certain expenses on behalf of the Company. The Company's income tax payable to Parent represents the current income tax liability owed to the Parent under the intercompany tax sharing/allocation agreement. On July 31, 1998, the Parent sold an approximate 20% interest in the Company to Venture Capital Corporation ("VCC"), a Cayman Islands corporation. VCC acquired its interest in the Company directly from the Company's Parent. VCC is wholly owned by a discretionary charitable trust. The sole trustee of this trust is a Cayman Islands bank unaffiliated with BIG, the Company or their respective officers or directors. BIG is indirectly owned by a separate Cayman Islands corporation which is owned by a separate discretionary charitable trust. The sole trustee of this trust is a Cayman Islands corporation unaffiliated with BIG, the Company or their respective officers or directors. The declaration of each trust provides that the same not-for-profit Cayman Islands corporation possesses the discretionary power to (i) direct the trustee to appoint the trust fund to another trust for the benefit 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. The Board of Directors of this entity includes certain executive officers of BIG and the Company. VCC is selling a portion of its interest in the Company in the offering, and a subsidiary of VCC has agreed to loan approximately $12.0 million to BIG in exchange for a subordinated note. A portion of the funds to be received by BIG will be used to satisfy the due from affiliates and note receivable -- affiliate balances recorded by the Company. With the funds, the Company will repay the entire due to affiliate, income taxes payable to Parent and note payable -- affiliate balances at that time. Certain officers and directors of the Company also serve as officers and directors of BIG. Effective as of the completion of the Company's initial public offering, certain of these officers and directors will resign from their positions with BIG. However, the Company's Chairman of the Board, President and Chief Executive Officer will continue to serve as Vice Chairman of the Board of Directors of BIG, and two other directors of the Company will continue to serve as executive officers and/or directors of BIG. As the interests of the Company and BIG may differ, these individuals may face certain conflicts of interests. In the event that the Company's offering is not completed, the due to affiliates (including income taxes payable to Parent) and due from affiliates, which are without any specific terms and are non-interest bearing, will be satisfied during the ordinary course of business. In September 1998, the Company formed IMS Direct, Inc., a Florida corporation, to directly market insurance products to consumers. IMS Direct, Inc. purchased nominal assets from BIG to begin operations. This note should also be read in conjunction with the other notes to the financial statements for additional related party transactions. NOTE 13. EMPLOYEE BENEFIT PLANS The Company's employees participate in its Parent company's 401(k) plan. The Plan covers substantially all employees. Benefits vest based on the number of years of service. To participate in the plan, employees must be at least 21 years old and have completed twelve months of service. The Company, at its discretion, can make matching contributions based upon the participant's deferral depending on the participant's annual salary up to a maximum of 6% of compensation. The Company's expense related to this plan was F-37 108 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13. EMPLOYEE BENEFIT PLANS (CONTINUED) approximately $70,191, $121,390 and $466,096 in 1995, 1996 and 1997, respectively, and $305,809 and $450,131 for the nine months ended September 30, 1997 and 1998, respectively. In addition, the Company's employees 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 $1,000,000. 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 flood zone determinations. 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":
INTERCOMPANY OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED SERVICES DETERMINATIONS AND OTHER TOTALS ----------- -------------- ------------ ------------ 1995 Operating revenues -- affiliated.......... $3,516,704 $ 239,980 $ (73,076) $ 3,683,608 Operating revenues -- unaffiliated........ -- 4,886,946 -- 4,886,946 Operating income.......................... (244,370) 732,073 -- 487,703 Interest expense.......................... 17,527 53,966 -- 71,493 Depreciation and amortization............. 92,597 91,558 -- 184,155 Identifiable assets....................... 613,022 2,036,315 -- 2,649,337 Equity in earnings of Geotrac, Inc........ -- -- -- -- 1996 Operating revenues -- affiliated.......... $ 4,819,786 $ 417,949 $ (35,754) $ 5,201,981 Operating revenues -- unaffiliated........ 337,458 7,291,031 -- 7,628,489 Operating income.......................... (78,801) 1,167,115 -- 1,088,314 Interest expense.......................... 11,901 63,449 -- 75,350 Depreciation and amortization............. 171,683 137,505 -- 309,188 Identifiable assets....................... 1,508,426 1,932,816 -- 3,441,242 Equity in earnings of Geotrac, Inc........ -- -- -- -- 1997 Operating revenues -- affiliated.......... $30,374,066 $ 1,028,359 $ (1,259,465) $30,142,960 Operating revenues -- unaffiliated........ 599,443 7,763,576 -- 8,363,019 Operating income.......................... 3,290,830 2,408,676 -- 5,699,506 Interest expense.......................... 69,781 308,879 -- 378,660 Depreciation and amortization............. 404,830 278,842 -- 683,672 Identifiable assets....................... 8,178,483 11,353,222 -- 19,531,705 Equity in earnings of Geotrac, Inc........ -- 201,009 -- 201,009 SEPTEMBER 30, 1997 -- (UNAUDITED) Operating revenues -- affiliated.......... $22,571,143 $ 697,372 $ (832,410) $22,436,105 Operating revenues -- unaffiliated........ 438,210 5,884,640 -- 6,322,850 Operating income.......................... 2,369,918 2,057,970 -- 4,427,888 Interest expense.......................... 52,336 170,973 -- 223,309 Depreciation and amortization............. 257,534 185,528 -- 443,062 Identifiable assets....................... 12,556,045 10,442,159 -- 22,998,204 Equity in earnings (loss) of Geotrac, Inc..................................... -- (32,325) -- (32,325)
F-38 109 NOTE 14. SEGMENT INFORMATION -- (CONTINUED)
INTERCOMPANY OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED SERVICES DETERMINATIONS AND OTHER TOTALS ----------- -------------- ------------ ------------ SEPTEMBER 30, 1998 -- (UNAUDITED) Operating revenues -- affiliated.......... $27,872,981 $ 1,064,567 $ (1,258,032) 27,679,516 Operating revenues -- unaffiliated........ 892,461 18,800,574 -- 19,693,035 Operating income.......................... 1,250,767 5,863,115 -- 7,113,882 Interest expense.......................... 733,371 919,794 -- 1,653,165 Depreciation and amortization............. 1,487,956 1,493,223 -- 2,981,179 Identifiable assets....................... 24,303,879 32,958,313 (10,241,306) 47,020,886 Minority interest......................... -- (472,803) -- (472,803)
NOTE 15. SUBSEQUENT EVENT (UNAUDITED) Effective January 6, 1999, the Company, through a wholly-owned subsidiary, will acquire all of the issued and outstanding capital stock of Colonial Catastrophe Claims Corporation, a Florida corporation ("Colonial Catastrophe"), from J. Douglas Branham and Felicia A. Rivas, husband and wife, in exchange for (i) 130,769 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (ii) cash in the amount of $375,000, and (iii) an additional payment of $300,000, payable in additional shares of Common Stock, in the event Colonial Claims (as hereinafter defined) attains a targeted net income before taxes for the year ended December 31, 1999. Upon the consummation of the acquisition, Colonial Catastrophe will be merged into the acquiring subsidiary and the name of the acquiring subsidiary will be changed to "Colonial Claims Corporation" (hereinafter "Colonial Claims"). Pursuant to a registration rights agreement, Mr. Branham and Ms. Rivas will be granted certain piggyback registration rights with respect to all of the shares (including the earn out shares, if any), issued in connection with the acquisition. In addition, Colonial Claims entered into a separate employment agreement with each of Mr. Branham and Ms. Rivas pursuant to which they will serve as employees of Colonial Claims. Each of the employment agreements is for a period of five years and provides for an annual base salary of $102,000, plus additional compensation based on annual revenues of the Colonial Claims business. F-39 110 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Geotrac, Inc. We have audited the accompanying balance sheets of Geotrac, Inc. (formerly YoSystems, Inc.) as of December 31, 1996 and 1997, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Geotrac, Inc. as of December 31, 1996 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Tampa, Florida May 29, 1998 F-40 111 GEOTRAC, INC. BALANCE SHEETS
DECEMBER 31, ---------------------- JUNE 30, 1996 1997 1998 -------- ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents............................... $ 138 $ 1,897,262 $ 2,797,008 Accounts receivable, net................................ -- 2,227,236 2,413,260 Prepaid expenses........................................ -- 278,734 177,412 Deferred tax assets..................................... -- 290,000 581,000 -------- ----------- ----------- Total current assets............................ 138 4,693,232 5,968,680 PROPERTY AND EQUIPMENT, net............................... -- 3,419,916 3,305,740 OTHER ASSETS Goodwill, net........................................... -- 8,662,804 8,441,626 Customer contracts, net................................. -- 1,516,667 1,416,667 Deferred tax assets..................................... -- 25,000 4,000 Other................................................... -- 319,063 295,065 -------- ----------- ----------- Total assets.................................... $ 138 $18,636,682 $19,431,778 ======== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Current portion of long-term debt....................... $ -- $ 1,250,000 $ 1,250,000 Current portion of capital lease obligations............ -- 288,952 288,952 Accounts payable........................................ -- 120,754 308,497 Accounts payable -- related party....................... 25,139 -- -- Income taxes payable.................................... -- 297,000 204,000 Deferred compensation................................... -- 705,000 692,461 Other current liabilities............................... -- 629,318 709,183 -------- ----------- ----------- Total current liabilities....................... 25,139 3,291,024 3,453,093 LONG-TERM DEBT, less current portion...................... -- 7,187,500 6,250,000 CAPITAL LEASE OBLIGATIONS, less current portion........... -- 557,356 426,737 DEFERRED REVENUE.......................................... -- 475,000 521,057 COMMITMENTS AND CONTINGENCIES............................. -- -- -- SHAREHOLDERS' EQUITY (DEFICIT) Common Stock, $.01 par value, 1,000 shares authorized; 490, 1,000 and 1,000 shares issued and outstanding at December 31, 1996, 1997 and June 30, 1998, respectively......................................... 5 10 10 Additional paid-in capital.............................. 5,995 6,715,570 7,443,639 Retained earnings (deficit)............................. (31,001) 410,222 1,337,242 -------- ----------- ----------- Total shareholders' equity (deficit)............ (25,001) 7,125,802 8,780,891 -------- ----------- ----------- Total liabilities and shareholders' equity (deficit)..................................... $ 138 $18,636,682 $19,431,778 ======== =========== ===========
The accompanying notes are an integral part of these statements. F-41 112 GEOTRAC, INC. STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------- ---------------------- 1995 1996 1997 1997 1998 -------- -------- ---------- ------- ------------ (UNAUDITED) REVENUES Flood zone determination services...... $ -- $ -- $6,242,815 $ -- $8,718,117 Other revenues......................... -- -- 93,210 -- 129,536 -------- -------- ---------- ------- ---------- Total revenues................. -- -- 6,336,025 -- 8,847,653 -------- -------- ---------- ------- ---------- EXPENSES Cost of revenues....................... -- -- 2,678,557 -- 3,918,662 Selling, general and administrative expense............................. 9,755 29,841 1,319,434 9,419 1,556,638 Deferred compensation (non-recurring item)............................... -- -- 732,795 -- 728,069 Depreciation and amortization.......... -- -- 594,045 -- 727,486 -------- -------- ---------- ------- ---------- Total expenses................. 9,755 29,841 5,324,831 9,419 6,930,855 -------- -------- ---------- ------- ---------- OPERATING INCOME (LOSS).................. (9,755) (29,841) 1,011,194 (9,419) 1,916,798 OTHER INCOME (non-recurring item)........ 932,222 -- 1,700,000 -- -- INTEREST EXPENSE......................... -- -- (338,391) -- (371,778) -------- -------- ---------- ------- ---------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.................................. 922,467 (29,841) 2,372,803 (9,419) 1,545,020 PROVISION FOR INCOME TAXES............... -- -- 272,000 -- 618,000 -------- -------- ---------- ------- ---------- NET INCOME (LOSS)........................ $922,467 $(29,841) $2,100,803 $(9,419) $ 927,020 ======== ======== ========== ======= ==========
The accompanying notes are an integral part of these statements. F-42 113 GEOTRAC, INC. STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ------ ---------- ----------- ----------- Balance at January 1, 1995....................... $ 5 $ 5,995 $ 78,744 $ 84,744 Dividend paid to shareholder................... -- -- (1,002,371) (1,002,371) Net income..................................... -- -- 922,467 922,467 --- ---------- ----------- ----------- Balance at December 31, 1995..................... 5 5,995 (1,160) 4,840 Net loss....................................... -- -- (29,841) (29,841) --- ---------- ----------- ----------- Balance at December 31, 1996..................... 5 5,995 (31,001) (25,001) Dividend paid to S Corporation shareholder..... -- -- (1,700,000) (1,700,000) Sale of Common Stock........................... 5 6,749,995 -- 6,750,000 Recapitalization of Company for change from S Corporation to C Corporation................ (40,420) 40,420 -- Net income..................................... -- -- 2,100,803 2,100,803 --- ---------- ----------- ----------- Balance at December 31, 1997..................... 10 6,715,570 410,222 7,125,802 Contribution of shares from shareholder to employees for services rendered (unaudited)................................. -- 728,069 -- 728,069 Net income (unaudited)......................... -- -- 927,020 927,020 --- ---------- ----------- ----------- Balance at June 30, 1998 (unaudited)............. $10 $7,443,639 $ 1,337,242 $ 8,780,891 === ========== =========== ===========
The accompanying notes are an integral part of this statement. F-43 114 GEOTRAC, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------ --------------------- 1995 1996 1997 1997 1998 ----------- -------- ----------- ------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)...................... $ 922,467 $(29,841) $ 2,100,803 $(9,419) $ 927,020 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization....... -- -- 594,045 -- 727,486 Contribution of shares from shareholder to employees for services rendered................. -- 728,069 Deferred federal income tax credit............................ -- -- (315,000) -- (270,000) Changes in assets and liabilities: Accounts receivable............... 84,298 -- 8,284 -- (186,024) Prepaid expenses and other assets......................... -- -- (73,945) -- 101,923 Accounts payable and other liabilities.................... -- 25,139 63,058 -- 267,608 Deferred compensation............. -- -- 705,000 -- (12,539) Income taxes payable.............. -- -- 297,000 -- (93,000) Deferred revenue.................. -- -- (25,000) -- 46,057 ----------- -------- ----------- ------- ----------- Net cash provided by (used in) operating activities......... 1,006,765 (4,702) 3,354,245 (9,419) 2,236,600 ----------- -------- ----------- ------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment.... -- -- (153,371) -- (268,735) Acquisition of business, net of cash acquired............................ -- -- (6,163,057) -- -- ----------- -------- ----------- ------- ----------- Net cash used in investing activities................... -- -- (6,316,428) -- (268,735) ----------- -------- ----------- ------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of note payable from shareholder......................... -- -- (200,000) -- -- Proceeds from note payable............. -- -- 447,800 -- -- Payments on note payable............... -- -- (312,500) -- (937,500) Payments on capital lease obligations......................... -- -- (125,993) -- (130,619) Dividend paid S corporation shareholder......................... (1,002,371) -- (1,700,000) -- -- Sale of common stock................... -- -- 6,750,000 -- -- ----------- -------- ----------- ------- ----------- Net cash provided by (used in) financing activities......... (1,002,371) -- 4,859,307 (1,068,119) ----------- -------- ----------- ------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 4,394 (4,702) 1,897,124 899,746 CASH AND CASH EQUIVALENTS, beginning of period................................. 446 4,840 138 -- 1,897,262 ----------- -------- ----------- ------- ----------- CASH AND CASH EQUIVALENTS, end of period................................. $ 4,840 $ 138 $ 1,897,262 $ 2,797,008 =========== ======== =========== ======= =========== SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest................. $ -- $ -- $ 155,110 $ -- $ 744,666 =========== ======== =========== ======= =========== Cash paid for income taxes............. $ -- $ -- $ 290,000 $ -- $ 981,000 =========== ======== =========== ======= ===========
F-44 115 GEOTRAC, INC. STATEMENTS OF CASH FLOWS -- (CONTINUED) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During the year ended December 31, 1997, the Company financed the acquisition of SMS Geotrac, Inc. with $8,250,000 of debt and incurred $337,035 of deferred financing costs. During the year ended December 31, 1997, the Company acquired $25,398 in equipment under a capital lease. Acquisition of Business Net of Cash Acquired:
YEAR ENDED DECEMBER 31, 1997 ------------ Fair value of assets acquired............................... $17,308,778 Liabilities assumed......................................... (2,308,778) Debt issued................................................. (8,250,000) Cash acquired............................................... (586,943) ----------- $ 6,163,057 ===========
During the six months ended June 30, 1998, the president of Geotrac, Inc. and his wife contributed 46.45 shares of Geotrac, Inc.'s Common Stock owned by them to certain employees for prior services rendered. The contribution of shares to these employees and the corresponding expense recognized by the Company, totaling $728,069, has been reflected as deferred compensation (non-recurring item) and additional paid-in capital in the accompanying financial statements. See Note 7. The accompanying notes are an integral part of these statements. F-45 116 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION Geotrac, Inc. (the "Company"), formerly YoSystems, Inc., is a provider of flood zone determination services for financial services companies and individuals located throughout the United States. On July 31, 1997, the Company acquired the outstanding stock of SMS Geotrac, Inc., a wholly-owned subsidiary of Strategic Mortgage Services, Inc. ("SMS"), an unrelated company, for $15,000,000. Prior to the acquisition, the Company had limited activity and was an S corporation for federal income tax purposes. The Company's principal activity prior to July 31, 1997 was to receive contingent earnout payments from the sale of its operating assets during 1994 and to distribute any payments received to its shareholder. Simultaneous with the acquisition of SMS Geotrac, Inc., the Company sold 49% of its outstanding shares to Bankers Hazard Determination Services, Inc. ("BHDS"), a subsidiary of Insurance Management Solutions Group, Inc. ("IMSG"), for $6,750,000. Such proceeds of the stock sale together with the proceeds of $8,250,000 from a bank borrowing were used to acquire SMS Geotrac, Inc. Subsequent to the acquisition, the Company changed its name from YoSystems, Inc. to Geotrac, Inc. As of July 31, 1997, the Company became a C corporation for federal income tax purposes. On May 12, 1998, the Company, its shareholders (including BHDS), IMSG and IMSG's parent, Bankers Insurance Group, Inc., executed a definitive agreement whereby all the shares of common stock held by the Company's president, his wife and by certain employees representing 51% of the outstanding shares, were acquired by IMSG and BHDS for total consideration of $7,994,250 consisting of: Shares of IMSG Common Stock................................. $5,766,181 Promissory note............................................. 1,500,000 Cash........................................................ 728,069 ---------- $7,994,250 ==========
During July 1998, the transaction was completed with the Company merging into BHDS, with BHDS as the surviving corporation, which simultaneously changed its name to Geotrac of America, Inc. The cross-license agreement with BHDS (See Note 3) was terminated upon completion of the merger. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates In preparing the financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Concentration of Credit The Company provides flood zone determination services primarily to insurance companies and financial institutions throughout the United States. Credit is extended to customers (primarily financial services F-46 117 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) companies) based on management's assessment of their credit worthiness. Customer deposits are required in certain instances. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is provided for using the straight line method over the estimated useful life of the assets. Capitalized costs include the cost of purchasing maps as well as the direct labor cost of converting the maps to digitized computer files. The Company capitalizes the costs of acquiring and computerizing maps that are used as a basis for making flood zone determinations. Impairment of Long-Lived Assets The Company evaluates the recoverability of its long-lived assets and intangibles (including goodwill) held whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related asset may be less than previously anticipated. If the net book value of the related asset exceeds the undiscounted future cash flows of the asset, the carrying amount would be reduced to the present value of its expected future cash flows and an impairment loss would be recognized. Management does not believe that an impairment reserve was required for all periods presented. Goodwill Goodwill of $8,847,119 related to the acquisition of SMS Geotrac, Inc., is being 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 strong market position and historical and projected operating results. Accumulated amortization at December 31, 1997 and June 30, 1998 was $184,315 and $405,493, respectively. Customer Contracts In connection with the acquisition of SMS Geotrac, Inc., the Company estimated the fair value of its customer contracts and allocated $1,600,000 of the purchase price to such contracts. Customer contracts are being amortized using the straight-line method over eight years. The amortization period, which does not materially differ from the underlying contract uses, was determined based on historical and expected contract duration periods as well as the nature of the product and services provided. Accumulated amortization at December 31, 1997 and June 30, 1998 was $83,333 and $183,333, respectively. Revenues The Company's flood zone revenues are principally derived from flood zone determination services and life-of-loan monitoring services. Flood zone determinations involve the Company ascertaining and certifying to a property's flood zone classification. Each determination is completed within a short period of time and is performed with a high degree of accuracy. Revenues for these services are recognized upon completion of each flood zone determination. The Company receives an up-front fee to provide life of loan monitoring of flood zone determinations whereby the Company notifies its customers of changes in previously issued flood zone determinations. The Company defers a portion of the fee associated with this future obligation and amortizes these amounts using the straight-line method over the average life of the underlying loan, approximately 7 years. F-47 118 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income Taxes For the year ended December 31, 1996 and through July 31, 1997 the Company was an S Corporation for federal income tax purposes. Accordingly, federal income taxes on net income of the Company were payable by the shareholder. Beginning August 1, 1997, the Company accounts for income taxes on the asset and liability method. 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. Deferred tax expense is the result of changes in deferred tax assets and liabilities. At the date of the termination of the S Corporation election, there were no deferred tax assets or liabilities created. Deferred Financing Costs The Company incurred financing costs of approximately $337,000 related to its bank borrowings. Such costs are being amortized using the straight line method (approximates the effective yield method) over the term of the loan (see Note 5). Fair Value of Financial Instruments The carrying amount of the Company's financial instruments at December 31, 1997, and June 30, 1998, which includes cash, accounts receivable, accounts payable and debt, approximates fair value due to the short maturity of those instruments. The Company considers the fixed rate and variable rate financial instruments to be representative of current market interest rates and, accordingly, the recorded amounts approximate their present fair market value. Unaudited Financial Statements The unaudited financial statements and the related notes thereto for June 30, 1998 include all normal and recurring adjustments, which in the opinion of management are necessary for a fair presentation and are prepared on the same basis as audited annual statements. The interim results are not necessarily indicative of the results that may be expected for the full year. Segments and Related Information The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about products and geographic service areas, and major customers. This statement requires the reporting of financial and descriptive information about an enterprise's reportable operating segments. The Company only has one operating segment and one principal product or service (See Note 1). All the Company's operations are located within the United States and no individual customer represents more than 10% of total revenues for all periods presented herein. New Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting of Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and display of comprehensive income and its components (revenues, expense, gains and losses) in a full set of financial statements as components of comprehensive income be reported in a financial statement that is displayed with the same F-48 119 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) prominence as other financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Earlier application is permitted. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The adoption of SFAS 130 in 1998 did not have any effect on the financial statements. NOTE 3. ACQUISITION OF SMS GEOTRAC, INC. On July 31, 1997 the Company acquired all of the outstanding common stock of SMS Geotrac, Inc. (Note 1) for a purchase cost of $15,000,000 which was funded as follows: Cash contributed by BHDS.................................... $ 6,750,000 Bank borrowing.............................................. 8,750,000 Excess cash not required for acquisition.................... (500,000) ----------- $15,000,000 ===========
The acquisition has been accounted for as a purchase, and accordingly the net assets acquired on July 31, 1997 were recorded at their estimated fair value as follows: Current assets.............................................. $ 3,026,152 Property and equipment...................................... 3,547,454 Excess of cost over assets acquired......................... 8,847,119 Customer contracts.......................................... 1,600,000 Other assets................................................ 288,053 Liabilities assumed......................................... (2,308,778) ----------- $15,000,000 ===========
In addition, BHDS and the Company entered into a cross licensing agreement whereby the Company is to receive a total of $900,000 for the use of its database of digitized maps, for the period from the date of acquisition through June 2000. Further, BHDS will reimburse the Company for fifty percent of its cost to maintain the database. As of December 31, 1997 and June 30, 1998, approximately $250,000 and $345,000, respectively have been recorded under this agreement. The following unaudited proforma consolidated results of operations for the years ended December 31, 1996 and 1997 is presented as if the acquisition of SMS Geotrac, Inc. had been made on January 1, 1996. The unaudited proforma information reflects the additional goodwill amortization and interest expense that would have been incurred if the Company had purchased SMS Geotrac, Inc. on January 1, 1996. These pro forma F-49 120 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. ACQUISITION OF SMS GEOTRAC, INC. -- (CONTINUED) results are not necessarily indicative of the results of operations that would have occurred had the purchase been made at January 1, 1996 or the future results of the consolidated operations:
1996 1997 ------- ------- (UNAUDITED) (IN THOUSANDS) Revenues.................................................... $13,375 $14,063 Cost of revenues............................................ 6,673 6,043 Selling, general and administrative......................... 3,287 2,900 Deferred compensation (non-recurring item).................. -- 733 Depreciation and amortization............................... 1,639 1,908 ------- ------- Total expenses.................................... 11,599 11,584 ------- ------- Operating income............................................ 1,776 2,479 Other income (non-recurring item)........................... -- 1,700 Interest expense............................................ (770) (825) ------- ------- Income before income taxes.................................. 1,006 3,354 Provision for income taxes.................................. 421 1,457 ------- ------- Net income.................................................. $ 585 $ 1,897 ======= =======
The following table distinguishes the condensed historical results of operations for the year ended December 31, 1997 by the period before and after the acquisition of SMS Geotrac, Inc.
AUGUST 1, JANUARY 1, 1997 1997 THROUGH THROUGH DECEMBER 31, JULY 31, 1997 1997 TOTAL ------------- ------------ ---------- Revenues.......................................... $ -- $6,336,025 $6,336,025 Operating income (loss)........................... (9,419) 1,001,775 1,011,194 Other income (expense)............................ 1,700,000 (338,391) 1,361,609 Net income........................................ 1,690,581 410,222 2,100,803
NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
LIFE DECEMBER 31, JUNE 30, YEARS 1997 1998 ------ ------------ ----------- (UNAUDITED) Computer equipment..................................... 3-5 $1,343,736 $1,438,209 Furniture and fixtures................................. 7 498,002 510,760 Transportation equipment............................... 5 28,908 28,908 Maps and map database.................................. 3-5 1,855,554 2,016,308 ---------- ---------- 3,726,200 3,994,185 Less accumulated depreciation and amortization......... (306,284) (688,445) ---------- ---------- $3,419,916 $3,305,740 ========== ==========
Depreciation and amortization expense for the year ended December 31, 1997 and the six month period ended June 30, 1998 was $306,284 and $383,303, respectively. F-50 121 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5. LONG-TERM DEBT In connection with the purchase of SMS Geotrac, Inc., the Company borrowed $8,750,000 from a bank. The note is payable in quarterly installments of $312,500 plus interest, with the final installment due June 30, 2004. Interest is charged, at the Company's option, at 1) the current prime rate; 2) a seven year fixed rate; 3) a certain percentage over the LIBOR rate based upon a formula; or 4) a combination of the above rates. In addition to the quarterly payments, annual prepayments may be required in an amount equal to fifty percent of excess cash flow, as defined in the loan agreement. The agreement contains covenants that require the Company to maintain certain financial ratios (e.g., stockholders' equity of at least $6,250,000 through June 30, 1998 increasing by 50% of net income thereafter), limits the dollar value of capital expenditures and restricts the payment of dividends to 50% of excess cash flows (as defined). The note is collateralized by substantially all the assets of the Company. The outstanding balance (and prime interest rate) at December 31, 1997 and June 30, 1998 was $8,437,500 (8.5%) and $7,500,000 (8.5%), respectively. Scheduled maturities of the note payable to bank at December 31, 1997 are as follows: 1998........................................................ $1,250,000 1999........................................................ 1,250,000 2000........................................................ 1,250,000 2001........................................................ 1,250,000 2002........................................................ 1,250,000 Thereafter.................................................. 2,187,500 ---------- $8,437,500 ==========
NOTE 6. OTHER INCOME (NON-RECURRING ITEM) During 1996 and on July 30, 1997 the Company received contingent earn-out payments of $932,222 and $1,700,000 (final payment), respectively associated with the sale of its operating assets during 1994. These amounts are classified as other income (non-recurring item). NOTE 7. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases office space and equipment under operating leases with unexpired terms ranging from a month-to-month basis to seven years. Rent expense under all operating leases was approximately $186,000 and $221,000 for the year ended December 31, 1997 and the six month period ended June 30, 1998, respectively. The Company is currently leasing one of its operating facilities from its 51 percent shareholder. This lease requires monthly rental payments of $8,717 through August 1999. The future minimum lease payments under these operating lease agreements are as follows:
YEAR ENDED DECEMBER 31, - ----------------------- 1998........................................................ 423,792 1999........................................................ 380,650 2000........................................................ 263,368 2001........................................................ 219,331 ---------- 1,287,141 ==========
F-51 122 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) Capital Leases The Company has capital lease agreements for computer equipment and furniture and fixtures. At December 31, 1997 and June 30, 1998 property and equipment includes $695,623 of assets recorded under capital leases and accumulated amortization of $57,543 and $127,108, respectively. The future minimum lease payments under these capital lease agreements are as follows:
YEAR ENDED DECEMBER 31, - ----------------------- 1998........................................................ $343,762 1999........................................................ 323,763 2000........................................................ 241,835 2001........................................................ 38,099 -------- Total............................................. 947,459 Less amount representing interest........................... 101,151 -------- Present value of minimum lease payments..................... 846,308 Less amount representing current portion.................... 288,952 -------- Long-term portion......................................... $557,356 ========
Deferred Compensation On September 11, 1997 the Company's Board of Directors, recognizing SMS Geotrac, Inc.'s president's nonbinding commitment which originated prior to the acquisition of SMS Geotrac, approved and granted bonuses to certain current and former employees of SMS Geotrac. Such bonuses were principally related to prior services rendered by these employees and resulted in additional compensation of $732,795 which is separately disclosed in the statement of operations as deferred compensation (a non-recurring item) of which approximately $362,000 and 371,000 relates to cost of revenues and selling, general and administrative expenses, respectively. These amounts are to be paid to the individuals on or before December 31, 1998. Common Stock Awards Prior to and at the time of the acquisition of SMS Geotrac, the president of SMS Geotrac also had a nonbinding commitment to grant to certain former and current employees options to purchase shares of Geotrac, Inc. (formerly YoSystems) common stock held by the president and his wife, for prior employee services rendered. During May 1998, the president and his wife contributed 46.45 shares of their common stock to these individuals, which is recorded as deferred compensation (non-recurring item) totaling $728,069, in the accompanying June 30, 1998 statement of operations. The valuation of the Company's Common Stock used to compute the deferred compensation expense was determined by dividing the purchase price for the remaining 51% of the Company ($7,994,250) by the remaining shares to be purchased (510). Risks and Uncertainties The nature of the Company's business is such that it is dependent upon various factors such as general economic conditions and weather patterns that are beyond its control. The demand for flood zone determinations by lenders and their customers is directly related to the affordability of mortgage financing and refinancing. Current interest rates are relatively low and therefore conducive to a higher volume of mortgage lending and flood zone determinations. An increase in interest rates would have a negative impact on mortgage lending and consequently on the level of flood zone determinations performed. Fluctuations in interest rates will likely produce fluctuations in the Company's operating results. Likewise, natural disasters such as hurricanes, tornadoes, and floods, all or which are unpredictable, directly impact the demand for the Company's flood zone determination business. F-52 123 GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8. INCOME TAXES The provision for income taxes consists of the following components:
YEAR SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------- 1997 1997 1998 ------------- -------- -------- (UNAUDITED) Federal: Current............................................ $ 461,000 $ -- $690,000 Deferred........................................... (249,000) -- (210,000) --------- -------- -------- 212,000 -- 480,000 --------- -------- -------- State: Current............................................ 126,000 -- 198,000 Deferred........................................... (66,000) -- (60,000) --------- -------- -------- 60,000 -- 138,000 --------- -------- -------- Total...................................... $ 272,000 $ -- $618,000 ========= ======== ========
A reconciliation of the federal statutory income tax rate of 34% to the Company's effective income tax rate is as follows:
YEAR SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------- 1997 1997 1998 ------------- -------- -------- (UNAUDITED) Federal income taxes, at statutory rates............. $ 807,000 $ -- $525,000 S corporation earnings not subject to tax............ (575,000) -- -- State taxes, net..................................... 40,000 -- 93,000 --------- -------- -------- $ 272,000 $ -- $618,000 ========= ======== ========
Deferred federal 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 purposes. Significant components of the Company's deferred tax assets are as follows:
DECEMBER 31, JUNE 30, 1997 1998 ------------ ----------- (UNAUDITED) Current deferred tax assets (liabilities): Vacation accrual.......................................... $(18,000) $ (4,000) Deferred compensation..................................... 303,000 565,000 Allowance for doubtful accounts........................... 5,000 20,000 -------- -------- Net current deferred tax asset............................ $290,000 $581,000 ======== ======== Long-term deferred tax asset: Depreciation and amortization............................. $ 25,000 $ 4,000 ======== ========
NOTE 9. EMPLOYEE BENEFIT PLAN From August 1, 1997 through December 31, 1997, the Company participated in a 401(k) plan established by the former parent of SMS Geotrac, Inc. Eligible full-time employees of the Company made voluntary contributions to the plan. No Company contributions were made to the plan. Effective January 1, 1998 the Company established its own 401(k) plan. Any contributions to the new plan by the Company are discretionary. F-53 124 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors SMS Geotrac, Inc. We have audited the accompanying statements of income, shareholder's equity and cash flows of SMS Geotrac, Inc. for each of the two years in the period ended June 30, 1997 and the one month period ended July 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations its and cash flows of SMS Geotrac, Inc. for each of the two years in the period ended June 30, 1997 and the one month period ended July 31, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Tampa, Florida May 29, 1998 F-54 125 SMS GEOTRAC, INC. STATEMENTS OF INCOME
ONE MONTH ENDED YEAR ENDED JUNE 30, JULY 31, ------------------------- ---------- 1996 1997 1997 ----------- ----------- ---------- REVENUES Flood zone determination services...................... $12,286,525 $12,313,735 $1,197,314 Other revenues......................................... 203,301 207,772 12,365 ----------- ----------- ---------- Total revenues................................. 12,489,826 12,521,507 1,209,679 ----------- ----------- ---------- EXPENSES Cost of revenues....................................... 6,219,142 5,913,800 529,597 Selling, general and administrative expense............ 3,079,377 2,839,433 227,286 Depreciation and amortization.......................... 688,678 1,330,876 103,560 ----------- ----------- ---------- Total expenses................................. 9,987,197 10,084,109 860,443 ----------- ----------- ---------- OPERATING INCOME......................................... 2,502,629 2,437,398 349,236 INTEREST EXPENSE......................................... (81,495) (78,850) (8,215) ----------- ----------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES................. 2,421,134 2,358,548 341,021 PROVISION FOR INCOME TAXES............................... 1,046,900 1,079,100 148,000 ----------- ----------- ---------- NET INCOME............................................... $ 1,374,234 $ 1,279,448 $ 193,021 =========== =========== ==========
The accompanying notes are an integral part of these statements. F-55 126 SMS GEOTRAC, INC. STATEMENT OF SHAREHOLDER'S EQUITY
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ---------- ---------- ---------- Balance at July 1, 1996............................ $1 $1,464,047 $ 326,215 $1,790,263 Capital contribution from parent................. -- 932,222 -- 932,222 Net income....................................... -- -- 1,374,234 1,374,234 -- ---------- ---------- ---------- Balance at June 30, 1996........................... 1 2,396,269 1,700,449 4,096,719 Capital contributions from parent................ -- 2,111,140 -- 2,111,140 Net income....................................... -- -- 1,279,448 1,279,448 -- ---------- ---------- ---------- Balance at June 30, 1997........................... 1 4,507,409 2,979,897 7,487,307 Capital contribution from parent................. -- 1,700,000 -- 1,700,000 Net income....................................... -- -- 193,021 193,021 -- ---------- ---------- ---------- Balance at July 31, 1997........................... $1 $6,207,409 $3,172,918 $9,380,328 == ========== ========== ==========
The accompanying notes are an integral part of this statement. F-56 127 SMS GEOTRAC, INC. STATEMENTS OF CASH FLOWS
ONE MONTH ENDED YEAR ENDED JUNE 30, JULY 31, ------------------------- ----------- 1996 1997 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.......................................... $ 1,374,234 $ 1,279,448 $ 193,021 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 688,678 1,330,876 103,560 Deferred federal income tax (credit) expense..... (240,400) 53,100 8,000 Income taxes due to Parent....................... 1,304,440 1,106,539 139,988 Gain on sale of property and equipment........... (1,252) -- -- Provision for bad debts.......................... 385,908 -- -- Changes in assets and liabilities: Accounts receivable............................ (1,204,784) 517,209 49,514 Prepaid expenses and other assets.............. (99,933) (38,993) (38,223) Accounts payable and other liabilities......... 241,530 (459,510) (11,793) Deferred revenue............................... 231,261 157,880 (1,490) ----------- ----------- ----------- Net cash provided by operating activities... 2,679,682 3,946,549 442,577 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment deposit returned............. -- -- 130,670 Purchases of property and equipment................. (1,679,980) (1,457,719) (60,941) Proceeds from disposal of property and equipment.... 12,400 -- -- ----------- ----------- ----------- Net cash provided by (used in) investing activities................................ (1,667,580) (1,457,719) 69,729 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Advance from officer................................ -- -- 200,000 Advance to related party............................ -- -- (796,597) Net repayments on revolving line of credit.......... (283,884) -- -- Repayment of capital lease obligations.............. (146,788) (291,219) (22,433) Advances to parent.................................. -- (905,780) (1,850,000) Capital contribution from parent.................... -- 500,000 -- ----------- ----------- ----------- Net cash used in financing activities....... (430,672) (696,999) (2,469,030) ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 581,430 1,791,831 (1,956,724) CASH AND CASH EQUIVALENTS, beginning of period........ 170,406 751,836 2,543,667 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period.............. $ 751,836 $ 2,543,667 $ 586,943 =========== =========== =========== SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest.............................. $ 81,495 $ 78,850 $ 8,215 =========== =========== ===========
Supplemental disclosures of non-cash investing and financing activities: During the year ended June 30, 1996 and on July 31, 1997, the Company's parent made a payment of $932,222 and $1,700,000 to the Company's former owner in conjunction with the August 1, 1994 purchase of the Company. The amounts were recorded as an increase to goodwill and an additional capital contribution to the Company. During the year ended June 30, 1997, the Company and its parent agreed to treat $1,611,140 of intercompany obligations as a capital contribution to the Company. During the year ended June 30, 1997, the Company entered into capital lease agreements relating to equipment with a cost of $427,452. The accompanying notes are an integral part of these statements. F-57 128 SMS GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION SMS Geotrac, Inc. (the "Company"), headquartered in Norwalk, Ohio, is principally a provider of flood zone determination services for insurance companies and financial institutions located throughout the United States. The Company is a wholly-owned subsidiary of Strategic Mortgage Services, Inc. ("Parent"). NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates In preparing the financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Concentration of Credit The Company provides professional flood zone determination services for financial services companies and individuals throughout the United States. Credit is extended to customers (primarily financed services companies) based on management's assessment of their credit worthiness. Customer deposits are required in certain instances. Depreciation and Amortization of Property and Equipment Depreciation and amortization is computed using accelerated methods for financial reporting and federal income tax purposes, over the estimated useful lives of the assets which range from 3-5 years for computer equipment and 5-7 years for furniture and fixtures, transportation equipment and maps. Depreciation and amortization for the years ended June 30, 1996 and 1997 were $594,797 and $1,226,820, respectively and $94,889 for the one month period ended July 31, 1997. Goodwill Goodwill is being amortized using the straight-line method over fifteen years. Amortization for the years ended June 30, 1996 and 1997 was $93,881 and $104,056, respectively; and $8,671 for the one month period ended July 31, 1997. Revenues The Company's flood zone revenues are principally derived from flood zone determination services and life of loan monitoring services. Flood zone determinations involve the Company ascertaining and certifying to a property's flood zone classification. Each determination is completed within a short period of time and is performed with a high degree of accuracy. Revenues for these services are recognized upon completion of each flood zone determination. The Company receives an up-front fee to provide life of loan monitoring of flood zone determinations whereby the Company notifies its customers of changes in previously issued flood zone determinations. The Company defers a portion of the fee associated with this future obligation and amortizes these amounts using the straight-line method over the average life of the underlying loan, approximately 7 years. F-58 129 SMS GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income Taxes Income taxes are accounted for on the asset and liability method. 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. Deferred tax expense is the result of changes in deferred tax assets and liabilities. Segments and Related Information The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about products and services geographic areas, and major customers. This statement requires the reporting of financial and descriptive information about an enterprise's reportable operating segments. The Company only has one operating segment and one principal product or service (See Note 1). All the Company's operations are located within the United States and no individual customer represents more than 10% of total revenues for all periods presented herein. NOTE 3. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases office space and equipment under operating leases with unexpired terms ranging from a month to month basis to seven years. Rent expense under all operating leases was approximately $438,000 and $405,000 for the years ended June 30, 1996 and 1997, respectively and $41,000 for the one month period ended July 31, 1997. The Company leases one of its operating facilities from a Company controlled by the President of the Company. This lease requires monthly rental payments of $8,717 through August 1999. The future minimum lease payments under these operating lease agreements are as follows:
YEAR ENDED JUNE 30, - ------------------- 1998........................................................ $ 419,400 1999........................................................ 410,159 2000........................................................ 316,359 2001........................................................ 291,600 2002........................................................ 219,399 Thereafter.................................................. 90,280 ---------- $1,747,197 ==========
F-59 130 SMS GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) Capital Leases The Company has capital lease agreements for computer equipment and furniture and fixtures. The future minimum lease payments under these capital lease agreements are as follows:
YEAR ENDED JUNE 30, - ------------------- 1998........................................................ $ 356,670 1999........................................................ 316,670 2000........................................................ 316,670 2001........................................................ 105,460 2002........................................................ 4,412 ---------- Total............................................. 1,099,882 Less amount representing interest........................... 130,546 ---------- Present value of minimum lease payments..................... 969,336 Less amount representing current portion.................... 304,950 ---------- Long-term portion........................................... $ 664,386 ==========
Risks and Uncertainties The nature of the Company's business is such that it is dependent upon various factors such as general economic conditions and weather patterns that are beyond its control. The demand for flood zone determinations by lenders and their customers is directly related to the affordability of mortgage financing and refinancing. Current interest rates are relatively low and therefore conducive to a higher volume of mortgage lending and flood zone determinations. An increase in interest rates would have a negative impact on mortgage lending and consequently on the level of flood zone determinations performed. Fluctuations in interest rates will likely produce fluctuations in the Company's operating results. Likewise, natural disasters such as hurricanes, tornadoes, and floods, all or which are unpredictable, directly impact the demand for the Company's flood zone determination business. NOTE 4. INCOME TAXES The Company's results of operations are included in the consolidated federal income tax return of its Parent. Income taxes are determined and recorded in the amount that would have been due and payable had the Company filed a separate income tax return on an accrual basis. Federal and state income taxes payable is included in the amount due to Parent. The provision for income taxes consists of the following components:
ONE MONTH ENDED YEAR ENDED JUNE 30, JULY 31, ----------------------- --------- 1996 1997 1997 ---------- ---------- --------- Federal: Current.......................................... $1,016,500 $ 793,000 $111,000 Deferred......................................... (164,700) 37,100 6,000 ---------- ---------- -------- 851,800 830,100 117,000 ---------- ---------- -------- State: Current.......................................... 270,800 233,000 29,000 Deferred......................................... (75,700) 16,000 2,000 ---------- ---------- -------- 195,100 249,000 31,000 ---------- ---------- -------- Totals................................... $1,046,900 $1,079,100 $148,000 ========== ========== ========
F-60 131 SMS GEOTRAC, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
ONE MONTH ENDED YEAR ENDED JUNE 30, JULY 31, ----------------------- --------- 1996 1997 1997 ---------- ---------- --------- Federal income taxes, at statutory rates........... $ 823,000 $ 802,000 $116,000 State taxes........................................ 195,100 249,000 31,000 Other.............................................. 28,800 28,000 1,000 ---------- ---------- -------- $1,046,900 $1,079,000 $148,000 ========== ========== ========
NOTE 5. EMPLOYEE BENEFIT PLAN The Company participates in a 401(k) plan established by its Parent. Eligible full-time employees of the Company may make voluntary contributions to the plan. Matching Company contributions to the plan may be made at the discretion of the Board of Directors. No Company contributions were made during the years ended June 30, 1996 and 1997 or for the one month ended July 31, 1997. NOTE 6. RELATED PARTY TRANSACTIONS During the year ended June 30, 1996 and on July 30, 1997, the Parent made a payment of $932,222 and $1,700,000 to the Company's former owner (a company controlled by the President of the Company) in conjunction with the August 1, 1994 purchase of the Company. The amounts were recorded as an increase to goodwill and an additional capital contribution to the Company. During the year ended June 30, 1997, the Company and its Parent agreed to treat all outstanding amounts owed to the Parent, $1,611,140, as an additional capital contribution. In addition, the Parent contributed $500,000 to the Company. During the one month period ended July 31, 1997, the Company advanced $796,597 to YoSystems, Inc, a company owned by the Company's President. NOTE 7. SUBSEQUENT EVENT On July 31, 1997 all of the outstanding stock of the Company was acquired by YoSystems, Inc., which is owned by the Company's President, for $15 million. Concurrent with the acquisition of the Company, YoSystems, Inc. sold 49% of its common stock to Bankers Hazard Determination Services, Inc. F-61 132 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 5 Recent Acquisitions................... 11 Use of Proceeds....................... 12 Dividend Policy....................... 13 Capitalization........................ 14 Dilution.............................. 15 Selected Consolidated Financial Data of the Company...................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company........ 18 Selected Consolidated Financial Data of Geotrac.......................... 29 Management's Discussion and Analysis of Financial Condition and Results of Operations of Geotrac............ 30 Business.............................. 34 Management............................ 47 Principal and Selling Shareholders.... 54 Certain Transactions.................. 55 Description of Capital Stock.......... 59 Shares Eligible for Future Sale....... 62 Underwriting.......................... 63 Legal Matters......................... 64 Experts............................... 64 Available Information................. 65 Index to Financial Statements......... F-1
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 3,350,000 SHARES INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (LOGO) COMMON STOCK ------------------------ PROSPECTUS ------------------------ RAYMOND JAMES & ASSOCIATES, INC. , 1999 - ------------------------------------------------------ - ------------------------------------------------------ 133 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Securities and Exchange Commission filing fee............... $ 23,600 NASD filing fee............................................. 8,500 Nasdaq listing fee.......................................... 100,000 Transfer agent expenses and fees............................ 3,000 Printing and engraving...................................... 250,000 Accountants' fees and expenses.............................. 400,000 Legal fees and expenses..................................... 200,000 Miscellaneous............................................... 14,900 ---------- Total............................................. $1,000,000 ==========
- --------------- * All of the above fees, costs and expenses above will be paid by the Company. Other than the SEC filing fee and NASD filing fee, all fees and expenses are estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Florida Business Corporation Act (the "Florida Act") permits a Florida corporation to indemnify a present or former director or officer of the corporation (and certain other persons serving at the request of the corporation in related capacities) for liabilities, including legal expenses, arising by reason of service in such capacity if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe his conduct was unlawful. However, in the case of actions brought by or in the right of the corporation, no indemnification may be made with respect to any matter as to which such director or officer shall have been adjudged liable, except in certain limited circumstances. The Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws provide that the Company shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by the Florida Act. In addition, the Company may enter into Indemnification Agreements with its directors and executive officers in which the Registrant has agreed to indemnify such persons to the fullest extent now or hereafter permitted by the Florida Act. The indemnification provided by the Florida Business Corporation Act and the Company's Amended and Restated Bylaws is not exclusive of any other rights to which a director or officer may be entitled. The general effect of the foregoing provisions may be to reduce the circumstances which an officer or director may be required to bear the economic burden of the foregoing liabilities and expense. The Company may obtain a liability insurance policy for its directors and officers as permitted by the Florida Act, which policy may extend to, among other things, liability arising under the Securities Act of 1933, as amended (the "Securities Act"). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The Company is a holding company that was incorporated in the State of Florida on December 26, 1996 by its parent, Bankers Insurance Group, Inc. ("BIG"). On or about December 30, 1996, BIG contributed two of its wholly-owned operating subsidiaries, Insurance Management Solutions, Inc. and Bankers Hazard Determination Services, Inc., in exchange for 500 shares of the Company's Common Stock. The issuance of shares of the Company's Common Stock pursuant to this transaction is claimed to be exempt from registration under the Securities Act pursuant to Section 4(2) thereof. II-1 134 Effective May 8, 1998, the Company declared a stock dividend of 40,000 shares of Common Stock for each share of Common Stock then outstanding, resulting in an increase in the outstanding capital stock of the Company to 20,000,000 shares of Common Stock. On July 31, 1997, the Company acquired a 49% equity interest in Geotrac, Inc., an Ohio corporation ("Old Geotrac"), for $6.75 million in cash. In July, 1998, the Company acquired the remaining 51% equity interest in Old Geotrac in exchange for (i) 443,552 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (ii) a promissory note in the principal amount of $1.5 million, and (iii) cash in the amount of $723,069. The transaction was effected pursuant to the merger of Old Geotrac into a wholly-owned subsidiary of the Company, with the surviving entity being known as "Geotrac of America, Inc." The issuance of shares of the Company's Common Stock pursuant to this merger is claimed to be exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Effective January 6, 1\999, the Company, through a wholly-owned subsidiary, acquired all of the issued and outstanding capital stock of Colonial Catastrophe Claims Corporation, a Florida corporation, from J. Douglas Branham and Felicia A. Rivas, husband and wife, in exchange for (i) 130,769 shares of Common Stock (assuming an initial public offering price of $13.00 per share), (ii) cash in the amount of $375,000, and (iii) an additional payment of $300,000, payable in additional shares of Common Stock, in the event Colonial Claims (as hereinafter defined) attains a targeted net income before taxes for the year ended December 31, 1999. Upon the consummation of the acquisition, Colonial Catastrophe Claims Corporation was merged into the acquiring subsidiary and the name of the acquiring subsidiary was changed to "Colonial Claims Corporation" ("Colonial Claims"). The issuance of shares of the Company's Common Stock pursuant to this acquisition is claimed to be exempt from registration under the Securities Act pursuant to Rule 506 under Regulation D. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 1.1 -- Proposed Form of Underwriting Agreement. 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. 5.1 -- Opinion of Foley & Lardner. 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 -- Bankers Building -- 5th Street North Lease Agreement, dated January 1, 1997, between Bankers Insurance Group, Inc. 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 -- Lease, dated September 2, 1994, between DanYo LLC (as successor to Sandan) and SMS Geotrac, Inc.* 10.8 -- Indenture of Lease, dated September 23, 1994, between Southview Business Center, Ltd., an Ohio limited partnership, and SMS Geotrac, Inc., including Addendum I, dated March 20, 1995, and Addendum II, dated December 8, 1995.*
II-2 135
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.9 -- Master Equipment Lease Agreement, dated May 11, 1995, and executed on May 15, 1995, between National City Leasing Corporation and SMS Geotrac, Inc.* 10.10 -- Term Lease Master Agreement, dated June 30, 1995, between IBM Credit Corporation and SMS Geotrac, Inc.* 10.11 -- Employee Leasing Agreement, dated May 19, 1998, between Bankers Insurance Company and Insurance Management Solutions Group, Inc.* 10.12 -- 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. 10.13 -- 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. 10.14 -- 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. 10.15 -- 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. 10.16 -- Vendor Flood Insurance Agreement, dated January 1, 1996, between Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) and Mobile USA Insurance Company, Inc.* 10.17 -- Vendor Flood Insurance Agreement, dated November 10, 1995, between AAA Auto Club South Insurance Company and Insurance Management Information Services, Inc.* 10.18 -- Flood Insurance Program Services Agreement by and among Insurance Management Information Services, Inc., American Alternative Insurance Corporation, and Corporate Insurance Agency Services.* 10.19 -- Loan and Security Agreement, dated July 31, 1997, between Huntington National Bank, YoSystems, Inc. and SMS Geotrac, Inc.* 10.20 -- Pledge and Security Agreement, dated May 8, 1998, by Insurance Management Solutions Group, Inc. in favor of SouthTrust Bank, N.A.* 10.21 -- 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.* 10.22 -- Employment Agreement, dated July 31, 1998, between Geotrac of America, Inc. (as successor to Geotrac, Inc.) and Daniel J. White.* 10.23 -- 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.* 10.24 -- 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 Bankers Security Insurance Company.* 10.25 -- Software Maintenance and Enhancement Agreement, dated January 7, 1997 between Systems Integration and Imaging Technologies Incorporated and Insurance Management Information Services, Inc.* 10.26 -- Corporate Governance Agreement, dated July 31, 1998, between Geotrac, Inc., Daniel J. White and Insurance Management Solutions Group, Inc.*
II-3 136
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.27 -- Tax Indemnity Agreement dated July 31, 1998 between Bankers Insurance Group, Inc., Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White.* 10.28 -- Flood Insurance Agreement, dated January 6, 1998, between First Community Insurance Company and Keystone Insurance Company.* 10.29 -- Marketing Agreement, dated November 14, 1997, between First Community Insurance Company and Nobel Insurance Company.* 10.30 -- Flood Insurance Agreement, dated February 11, 1998, between First Community Insurance Company and Horace Mann Insurance Company.* 10.31 -- Promissory Note dated April 1, 1998, from Insurance Management Solutions, Inc. to Bankers Insurance Company in the principal amount of $2,353,424.42.* 10.32 -- Promissory Note dated April 1, 1998, from Insurance Management Solutions, Inc. to Southern Rental & Leasing Corporation in the principal amount of $448,749.95.* 10.33 -- Promissory Note dated May 8, 1998, from Insurance Management Solutions Group, Inc. to Heritage Hotel Holding Company in the principal amount of $6,750,000, as amended.* 10.34 -- Note dated December 30, 1994, from Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $200,000.* 10.35 -- Loan Agreement dated December 30, 1994, between First of America Bank -- Florida F.S.B., Geotrac, Inc. (as successor to National Flood Certification Services, Inc.), Southern Rental & Leasing Corporation, Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) and Bankers Insurance Group, Inc.* 10.36 -- Security Agreement dated December 30, 1994, by Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) in favor of First of America Bank -- Florida F.S.B.* 10.37 -- Note dated December 30, 1994, from Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $60,000.* 10.38 -- Security Agreement dated December 30, 1994, by Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) in favor of First of America Bank -- Florida F.S.B.* 10.39 -- Note dated December 30, 1996, from Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $245,000.* 10.40 -- Note dated December 30, 1996, from Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) to First of American Bank -- Florida FSB in the principal amount of $809,000.* 10.41 -- Loan Agreement dated December 30, 1996, between First of America Bank -- Florida F.S.B., Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.), Bankers Insurance Group, Inc., Bankers Risk Management Services, Inc., Bankers Underwriters, Inc., Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.), Southern Rental & Leasing Corporation, Bankers Financial Corporation and Bankers International Financial Corporation.* 10.42 -- Security Agreement dated December 30, 1996, by Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services Inc.), in favor of First of America Bank -- Florida F.S.B. securing $245,000 loan.* 10.43 -- Security Agreement dated December 30, 1996, by Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) in favor of First of America Bank -- Florida F.S.B. securing $809,000 loan.* 10.44 -- Installment Note dated December 30, 1997, from Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) to SouthTrust Bank, N.A. in the principal amount of $184,000.*
II-4 137
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.45 -- Cross-Collateralization and Cross-Default Agreement dated December 30, 1997, in favor of SouthTrust Bank, N.A. by Bankers Financial Corporation, Bankers Insurance Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.).* 10.46 -- Security Agreement dated December 30, 1997, between Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.), and SouthTrust Bank, N.A.* 10.47 -- Revolving Line of Credit Note dated December 27, 1993, from Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) to Marine Bank, in the amount of $600,000.* 10.48 -- Security Agreement dated December 27, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and Marine Bank.* 10.49 -- Installment Note dated December, 1997, from Insurance Management Solutions, Inc. to SouthTrust Bank, N.A. in the principal amount of $2,131,000.* 10.50 -- Promissory Note dated December 30, 1997, from Insurance Management Solutions, Inc. to SouthTrust Bank, N.A. in the principal amount of $500,000.* 10.51 -- Security Agreement dated December 30, 1997, between Insurance Management Solutions Group, Inc. and SouthTrust Bank, N.A.* 10.52 -- Flood Compliance Service Agreement dated November 1, 1996, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and Mortgage Corporation of America.* 10.53 -- Flood Compliance Service Agreement dated March 1, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and CitFed Mortgage Corporation of America.* 10.54 -- Flood Compliance Service Agreement dated March 1, 1998, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac), ABN AMRO North American and certain of its affiliates.* 10.55 -- Flood Compliance Service Agreement dated April 12, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and Third Federal Savings.* 10.56 -- Flood Compliance Service Agreement dated April 9, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and MidAm, Inc.* 10.57 -- Flood Compliance Service Agreement dated December 28, 1995, between Geotrac of America, Inc. (as successor to Geotrac, Inc.) and Crestar Bank.* 10.58 -- Flood Compliance Service Agreement dated April 1, 1996, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and ReliaStar Mortgage Corporation.* 10.59 -- Flood Zone Determination Agreement dated March 25, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and AIG Consultants, Inc.* 10.60 -- Flood Zone Determination Agreement dated December 28, 1995, between Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) and SouthTrust Corporation, as amended on June 3, 1997.* 10.61 -- Flood Zone Determination Agreement dated July 14, 1994, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and SunBank, N.A.* 10.62 -- Flood Zone Determination Agreement dated November 8, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and Royal Indemnity Company.* 10.63 -- Flood Insurance Agreement, dated February 17, 1995, between First Community Insurance Company and Armed Forces Insurance Exchange, as amended.* 10.64 -- Flood Insurance Agreement, dated November 17, 1995, between First Community Insurance Company and Amica Mutual Insurance Company, as amended.* 10.65 -- Non-Qualified Stock Option Plan.*
II-5 138
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.66 -- Funding Agreement, dated June 19, 1998, by and between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.* 10.67 -- Assignment of Registered Service Mark ("Floodwriter"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.68 -- Assignment of Registered Service Mark ("Undercurrents"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.69 -- Registration Rights Agreement, dated July 31, 1998, between Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White* 10.70 -- Software License Agreement, effective January 1, 1998, between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc. and Bankers Insurance Company.* 10.71 -- First Amendment to Loan and Security Agreement, dated July 31, 1998, between Geotrac, Inc. and Huntington National Bank.* 10.72 -- Continuing Guaranty Unlimited, dated July 29, 1998, by Insurance Management Solutions Group, Inc. in favor of Huntington National Bank.* 10.73 -- Subordination Agreement dated July 31, 1998 between Geotrac of America, Inc., Daniel J. and Sandra White, and Huntington National Bank.* 10.74 -- Subordination Agreement dated July 31, 1998 between Geotrac of America, Inc., Insurance Management Solutions Group, Inc. and Huntington National Bank.* 10.75 -- Tax Indemnity Agreement dated July 31, 1998 between Bankers International Financial Corporation and Insurance Management Solutions Group, Inc.* 10.76 -- 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. 10.77 -- Employment Agreement dated June 11, 1998 between Jeffrey S. Bragg and Insurance Management Solutions Group, Inc.* 10.78 -- Employment Agreement dated June 11, 1998 between Kelly K. King and Insurance Management Solutions Group, Inc.* 10.79 -- Articles of Merger filed with the Florida Department of State relating to the merger between Bankers Hazard Determination Services, Inc. and Geotrac, Inc.* 10.80 -- Certificate of Merger filed with the Ohio Department of State relating to the merger between Bankers Hazard Determination Services, Inc. and Geotrac, Inc.* 10.81 -- Guaranty of Payment of Debt, dated July 31, 1998, by Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc. in favor of Daniel J. White and Sandra White.* 10.82 -- Secrecy and Confidentiality Agreement, dated October 8, 1993, between Geotrac of America, Inc. (formerly Geotrac, Inc.) and Kirloskar Computer Services, Ltd.* 10.83 -- 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. 10.84 -- Stock Purchase Agreement, dated July 31, 1997, between YoSystems, Inc., Bankers Hazard Determination Services, Inc. and Daniel J. and Sandra White. 10.85 -- Employment Agreement, dated September 22, 1998 between Kathleen M. Batson and Insurance Management Solutions Group, Inc. 10.86 -- Term Note dated July 31, 1997, from YoSystems, Inc. and SMS Geotrac, Inc. to Huntington National Bank in the principal amount of $8,750,000.00. 10.87 -- AYO Claims Agreement between Florida Windstorm Underwriting Association and Bankers Insurance Group, Inc. dated February, 1998. 10.88 -- Assignment of AYO Claims Agreement among Bankers Insurance Group, Inc., Bankers Insurance Company and Florida Windstorm Underwriting Association dated December 15, 1998.
II-6 139
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.89 -- 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. 10.90 -- Lease Agreement effective January 6, 1999 between J. Douglas Branham and Colonial Claims Corporation. 10.91 -- Registration Rights Agreement effective January 6, 1999 between Insurance Management Solutions Group, Inc., J. Douglas Branham and Felicia A. Rivas. 10.92 -- Employment Agreement effective January 6, 1999 between Colonial Claims Corporation and J. Douglas Branham. 10.93 -- Employment Agreement effective January 6, 1999 between Colonial Claims Corporation and Felicia A. Rivas. 10.94 -- 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 Addendum thereto. 10.95 -- Loan Agreement dated December 16, 1998 between Bankers Insurance Group, Inc. and Western International Insurance Company. 10.96 -- Form of Promissory Note of Bankers Insurance Group, Inc. in favor of Western International Insurance Company. 10.97 -- Agreement for Satisfaction of Debt and Capitalization of Subsidiary dated December 16, 1998 between Venture Capital Corporation and Western International Insurance Company. 21.1 -- List of subsidiaries of Insurance Management Solutions Group, Inc. 23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1)). 23.2 -- Consent of Grant Thornton LLP. 23.3 -- Consent of Grant Thornton LLP. 23.4 -- Consent of Grant Thornton LLP. 24.1 -- Power of Attorney relating to subsequent amendments.* 27.1 -- Financial Data Schedule (filed for SEC purposes only). 27.2 -- Financial Data Schedule (filed for SEC purposes only).
- --------------- * Previously filed. (b) Financial Statement Schedules. None. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 140 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 141 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, and State of Florida, on this 18th day of December, 1998. INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ JEFFREY S. BRAGG ------------------------------------ Jeffrey S. Bragg Executive Vice President and Chief Operating Officer Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board, Chief December 18, 1998 - --------------------------------------------------- Executive Officer and David K. Meehan Director (Principal Executive Officer) /s/ KELLY K. KING Vice President, Chief December 18, 1998 - --------------------------------------------------- Financial Officer and Kelly K. King Treasurer /s/ JEFFREY S. BRAGG Director December 18, 1998 - --------------------------------------------------- Jeffrey S. Bragg * Director December 18, 1998 - --------------------------------------------------- Robert M. Menke * Director December 18, 1998 - --------------------------------------------------- Robert G. Menke * Director December 18, 1998 - --------------------------------------------------- John A. Grant, Jr. * Director December 18, 1998 - --------------------------------------------------- William D. Hussey * Director December 18, 1998 - --------------------------------------------------- E. Ray Solomon * Director December 18, 1998 - --------------------------------------------------- Daniel J. White Director December , 1998 - --------------------------------------------------- Alejandro M. Sanchez *By: /s/ KELLY K. KING --------------------------------------------- Kelly K. King Attorney-In-Fact
II-9 142 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 1.1 -- Proposed Form of Underwriting Agreement. 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. 5.1 -- Opinion of Foley & Lardner. 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 -- Bankers Building -- 5th Street North Lease Agreement, dated January 1, 1997, between Bankers Insurance Group, Inc. 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 -- Lease, dated September 2, 1994, between DanYo LLC (as successor to Sandan) and SMS Geotrac, Inc.* 10.8 -- Indenture of Lease, dated September 23, 1994, between Southview Business Center, Ltd., an Ohio limited partnership, and SMS Geotrac, Inc., including Addendum I, dated March 20, 1995, and Addendum II, dated December 8, 1995.* 10.9 -- Master Equipment Lease Agreement, dated May 11, 1995, and executed on May 15, 1995, between National City Leasing Corporation and SMS Geotrac, Inc.* 10.10 -- Term Lease Master Agreement, dated June 30, 1995, between IBM Credit Corporation and SMS Geotrac, Inc.* 10.11 -- Employee Leasing Agreement, dated May 19, 1998, between Bankers Insurance Company and Insurance Management Solutions Group, Inc.* 10.12 -- 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. 10.13 -- 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. 10.14 -- 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. 10.15 -- 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. 10.16 -- Vendor Flood Insurance Agreement, dated January 1, 1996, between Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) and Mobile USA Insurance Company, Inc.* 10.17 -- Vendor Flood Insurance Agreement, dated November 10, 1995, between AAA Auto Club South Insurance Company and Insurance Management Information Services, Inc.*
E-1 143
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.18 -- Flood Insurance Program Services Agreement by and among Insurance Management Information Services, Inc., American Alternative Insurance Corporation, and Corporate Insurance Agency Services.* 10.19 -- Loan and Security Agreement, dated July 31, 1997, between Huntington National Bank, YoSystems, Inc. and SMS Geotrac, Inc.* 10.20 -- Pledge and Security Agreement, dated May 8, 1998, by Insurance Management Solutions Group, Inc. in favor of SouthTrust Bank, N.A.* 10.21 -- 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.* 10.22 -- Employment Agreement, dated July 31, 1998, between Geotrac of America, Inc. (as successor to Geotrac, Inc.) and Daniel J. White.* 10.23 -- 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.* 10.24 -- 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 Bankers Security Insurance Company.* 10.25 -- Software Maintenance and Enhancement Agreement, dated January 7, 1997 between Systems Integration and Imaging Technologies Incorporated and Insurance Management Information Services, Inc.* 10.26 -- Corporate Governance Agreement, dated July 31, 1998, between Geotrac, Inc., Daniel J. White and Insurance Management Solutions Group, Inc.* 10.27 -- Tax Indemnity Agreement dated July 31, 1998 between Bankers Insurance Group, Inc., Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White.* 10.28 -- Flood Insurance Agreement, dated January 6, 1998, between First Community Insurance Company and Keystone Insurance Company.* 10.29 -- Marketing Agreement, dated November 14, 1997, between First Community Insurance Company and Nobel Insurance Company.* 10.30 -- Flood Insurance Agreement, dated February 11, 1998, between First Community Insurance Company and Horace Mann Insurance Company.* 10.31 -- Promissory Note dated April 1, 1998, from Insurance Management Solutions, Inc. to Bankers Insurance Company in the principal amount of $2,353,424.42.* 10.32 -- Promissory Note dated April 1, 1998, from Insurance Management Solutions, Inc. to Southern Rental & Leasing Corporation in the principal amount of $448,749.95.* 10.33 -- Promissory Note dated May 8, 1998, from Insurance Management Solutions Group, Inc. to Heritage Hotel Holding Company in the principal amount of $6,750,000, as amended.* 10.34 -- Note dated December 30, 1994, from Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $200,000.* 10.35 -- Loan Agreement dated December 30, 1994, between First of America Bank -- Florida F.S.B., Geotrac, Inc. (as successor to National Flood Certification Services, Inc.), Southern Rental & Leasing Corporation, Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) and Bankers Insurance Group, Inc.* 10.36 -- Security Agreement dated December 30, 1994, by Insurance Management Solutions, Inc. (as successor to Bankers Data Center, Inc.) in favor of First of America Bank -- Florida F.S.B.*
E-2 144
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.37 -- Note dated December 30, 1994, from Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $60,000.* 10.38 -- Security Agreement dated December 30, 1994, by Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) in favor of First of America Bank -- Florida F.S.B.* 10.39 -- Note dated December 30, 1996, from Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) to First of America Bank -- Florida F.S.B. in the principal amount of $245,000.* 10.40 -- Note dated December 30, 1996, from Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) to First of American Bank -- Florida FSB in the principal amount of $809,000.* 10.41 -- Loan Agreement dated December 30, 1996, between First of America Bank -- Florida F.S.B., Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.), Bankers Insurance Group, Inc., Bankers Risk Management Services, Inc., Bankers Underwriters, Inc., Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.), Southern Rental & Leasing Corporation, Bankers Financial Corporation and Bankers International Financial Corporation.* 10.42 -- Security Agreement dated December 30, 1996, by Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services Inc.), in favor of First of America Bank -- Florida F.S.B. securing $245,000 loan.* 10.43 -- Security Agreement dated December 30, 1996, by Insurance Management Solutions, Inc. (as successor to Insurance Management Information Services, Inc.) in favor of First of America Bank -- Florida F.S.B. securing $809,000 loan.* 10.44 -- Installment Note dated December 30, 1997, from Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) to SouthTrust Bank, N.A. in the principal amount of $184,000.* 10.45 -- Cross-Collateralization and Cross-Default Agreement dated December 30, 1997, in favor of SouthTrust Bank, N.A. by Bankers Financial Corporation, Bankers Insurance Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.).* 10.46 -- Security Agreement dated December 30, 1997, between Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.), and SouthTrust Bank, N.A.* 10.47 -- Revolving Line of Credit Note dated December 27, 1993, from Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) to Marine Bank, in the amount of $600,000.* 10.48 -- Security Agreement dated December 27, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and Marine Bank.* 10.49 -- Installment Note dated December, 1997, from Insurance Management Solutions, Inc. to SouthTrust Bank, N.A. in the principal amount of $2,131,000.* 10.50 -- Promissory Note dated December 30, 1997, from Insurance Management Solutions, Inc. to SouthTrust Bank, N.A. in the principal amount of $500,000.* 10.51 -- Security Agreement dated December 30, 1997, between Insurance Management Solutions Group, Inc. and SouthTrust Bank, N.A.* 10.52 -- Flood Compliance Service Agreement dated November 1, 1996, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and Mortgage Corporation of America.* 10.53 -- Flood Compliance Service Agreement dated March 1, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and CitFed Mortgage Corporation of America.*
E-3 145
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.54 -- Flood Compliance Service Agreement dated March 1, 1998, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac), ABN AMRO North American and certain of its affiliates.* 10.55 -- Flood Compliance Service Agreement dated April 12, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and Third Federal Savings.* 10.56 -- Flood Compliance Service Agreement dated April 9, 1997, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and MidAm, Inc.* 10.57 -- Flood Compliance Service Agreement dated December 28, 1995, between Geotrac of America, Inc. (as successor to Geotrac, Inc.) and Crestar Bank.* 10.58 -- Flood Compliance Service Agreement dated April 1, 1996, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and SMS Geotrac) and ReliaStar Mortgage Corporation.* 10.59 -- Flood Zone Determination Agreement dated March 25, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and AIG Consultants, Inc.* 10.60 -- Flood Zone Determination Agreement dated December 28, 1995, between Geotrac of America, Inc. (as successor to Bankers Hazard Determination Services, Inc.) and SouthTrust Corporation, as amended on June 3, 1997.* 10.61 -- Flood Zone Determination Agreement dated July 14, 1994, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and SunBank, N.A.* 10.62 -- Flood Zone Determination Agreement dated November 8, 1993, between Geotrac of America, Inc. (as successor to Geotrac, Inc. and National Flood Certification Services, Inc.) and Royal Indemnity Company.* 10.63 -- Flood Insurance Agreement, dated February 17, 1995, between First Community Insurance Company and Armed Forces Insurance Exchange, as amended.* 10.64 -- Flood Insurance Agreement, dated November 17, 1995, between First Community Insurance Company and Amica Mutual Insurance Company, as amended.* 10.65 -- Non-Qualified Stock Option Plan.* 10.66 -- Funding Agreement, dated June 19, 1998, by and between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.* 10.67 -- Assignment of Registered Service Mark ("Floodwriter"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.68 -- Assignment of Registered Service Mark ("Undercurrents"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.69 -- Registration Rights Agreement, dated July 31, 1998, between Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White* 10.70 -- Software License Agreement, effective January 1, 1998, between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc. and Bankers Insurance Company.* 10.71 -- First Amendment to Loan and Security Agreement, dated July 31, 1998, between Geotrac, Inc. and Huntington National Bank.* 10.72 -- Continuing Guaranty Unlimited, dated July 29, 1998, by Insurance Management Solutions Group, Inc. in favor of Huntington National Bank.* 10.73 -- Subordination Agreement dated July 31, 1998 between Geotrac of America, Inc., Daniel J. and Sandra White, and Huntington National Bank.* 10.74 -- Subordination Agreement dated July 31, 1998 between Geotrac of America, Inc., Insurance Management Solutions Group, Inc. and Huntington National Bank.* 10.75 -- Tax Indemnity Agreement dated July 31, 1998 between Bankers International Financial Corporation and Insurance Management Solutions Group, Inc.*
E-4 146
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 10.76 -- 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. 10.77 -- Employment Agreement dated June 11, 1998 between Jeffrey S. Bragg and Insurance Management Solutions Group, Inc.* 10.78 -- Employment Agreement dated June 11, 1998 between Kelly K. King and Insurance Management Solutions Group, Inc.* 10.79 -- Articles of Merger filed with the Florida Department of State relating to the merger between Bankers Hazard Determination Services, Inc. and Geotrac, Inc.* 10.80 -- Certificate of Merger filed with the Ohio Department of State relating to the merger between Bankers Hazard Determination Services, Inc. and Geotrac, Inc.* 10.81 -- Guaranty of Payment of Debt, dated July 31, 1998, by Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc. in favor of Daniel J. White and Sandra White.* 10.82 -- Secrecy and Confidentiality Agreement, dated October 8, 1993, between Geotrac of America, Inc. (formerly Geotrac, Inc.) and Kirloskar Computer Services, Ltd.* 10.83 -- 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. 10.84 -- Stock Purchase Agreement, dated July 31, 1997, between YoSystems, Inc., Bankers Hazard Determination Services, Inc. and Daniel J. and Sandra White. 10.85 -- Employment Agreement, dated September 22, 1998 between Kathleen M. Batson and Insurance Management Solutions Group, Inc. 10.86 -- Term Note dated July 31, 1997, from YoSystems, Inc. and SMS Geotrac, Inc. to Huntington National Bank in the principal amount of $8,750,000.00. 10.87 -- AYO Claims Agreement between Florida Windstorm Underwriting Association and Bankers Insurance Group, Inc. dated February, 1998. 10.88 -- Assignment of AYO Claims Agreement among Bankers Insurance Group, Inc., Bankers Insurance Company and Florida Windstorm Underwriting Association dated December 15, 1998. 10.89 -- 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. 10.90 -- Lease Agreement effective January 6, 1999 between J. Douglas Branham and Colonial Claims Corporation. 10.91 -- Registration Rights Agreement effective January 6, 1999 between Insurance Management Solutions Group, Inc., J. Douglas Branham and Felicia A. Rivas. 10.92 -- Employment Agreement effective January 6, 1999 between Colonial Claims Corporation and J. Douglas Branham. 10.93 -- Employment Agreement effective January 6, 1999 between Colonial Claims Corporation and Felicia A. Rivas. 10.94 -- 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 Addendum thereto. 10.95 -- Loan Agreement dated December 16, 1998 between Bankers Insurance Group, Inc. and Western International Insurance Company. 10.96 -- Form of Promissory Note of Bankers Insurance Group, Inc. in favor of Western International Insurance Company. 10.97 -- Agreement for Satisfaction of Debt and Capitalization of Subsidiary dated December 16, 1998 between Venture Capital Corporation and Western International Insurance Company. 21.1 -- List of subsidiaries of Insurance Management Solutions Group, Inc.
E-5 147
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1)). 23.2 -- Consent of Grant Thornton LLP. 23.3 -- Consent of Grant Thornton LLP. 23.4 -- Consent of Grant Thornton LLP. 24.1 -- Power of Attorney relating to subsequent amendments.* 27.1 -- Financial Data Schedule (filed for SEC purposes only). 27.2 -- Financial Data Schedule (filed for SEC purposes only).
- --------------- * Previously filed. E-6 EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 ___________ Shares INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. Common Stock -------------- UNDERWRITING AGREEMENT St. Petersburg, Florida _____________, 1999 RAYMOND JAMES & ASSOCIATES, INC. As Representative of the Several Underwriters c/o Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 Ladies and Gentlemen: Insurance Management Solutions Group, Inc., a Florida corporation (the "Company") and a majority-owned subsidiary of Bankers Insurance Group, Inc., a Florida corporation ("BIG"), proposes, subject to the terms and conditions stated herein, to issue and sell an aggregate of __________ authorized and unissued shares (the "Company Firm Shares") of the Company's common stock, par value $.01 per share, to the several Underwriters named in Schedule I hereto (the "Underwriters"). A certain shareholder of the Company, named in Schedule II hereto (the "Selling Shareholder"), proposes, subject to the terms and conditions stated herein, to sell an aggregate of __________ authorized and outstanding shares (the "Shareholder Firm Shares") of the Company's common stock, par value $.01 per share, to the Underwriters. The Company Firm Shares and the Shareholder Firm Shares are hereafter collectively referred to as the "Firm Shares." In addition, the Company has agreed to sell to the Underwriters, upon the terms and conditions set forth herein, up to an additional _______________ authorized and unissued shares of the Company's common stock, par value $.01 per share (the "Company Additional Shares"), solely to cover over-allotments by the Underwriters, if any. In addition, the Selling Shareholder has agreed to sell to the Underwriters, upon the terms and conditions set forth herein, up to an additional __________ authorized and outstanding shares of the Company's common stock, par value $.01 per share (the "Shareholder Additional Shares"), solely to cover over-allotments by the Underwriters, if any. The Company Additional Shares and the Shareholder Additional Shares are hereinafter collectively referred to as the "Additional Shares." The Firm Shares and the 2 Additional Shares are hereinafter collectively referred to as the "Shares." The Company's common stock, par value $.01 per share, including the Shares, is hereinafter referred to as the "Common Stock." Raymond James & Associates, Inc. is acting as the representative of the several Underwriters and in such capacity is hereinafter referred to as the "Representative." Each of the Company, BIG and the Selling Shareholder wishes to confirm as follows its agreement with you and the other several Underwriters, on whose behalf you are acting, in connection with the several purchases of the Shares from the Company and the Selling Shareholder. SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 (File No. 333-57747), including a prospectus subject to completion, relating to the Shares. Such registration statement (including all financial schedules and exhibits), as amended at the time when it became effective and as thereafter amended by post-effective amendment, together with any registration statement filed by the Company pursuant to Rule 462(b) under the Act, is referred to in this Agreement as the "Registration Statement." The term "Prospectus" as used in this Agreement means (i) the prospectus in the form included in the Registration Statement, or (ii) if the prospectus included in the Registration Statement omits information in reliance upon Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act or as part of a post-effective amendment to the Registration Statement after the Registration Statement becomes effective, the prospectus as so filed, or (iii) if the prospectus included in the Registration Statement omits information in reliance upon Rule 430A under the Act and such information is included in a term sheet (as described in Rule 434(c) under the Act) filed with the Commission pursuant to Rule 424(b) under the Act, the prospectus included in the Registration Statement and such term sheet, taken together. The prospectus subject to completion in the form included in the Registration Statement at the time of the initial filing of such Registration Statement with the Commission and as such prospectus is amended from time to time until the date upon which the Registration Statement was declared effective by the Commission, is referred to in this Agreement as the "Prepricing Prospectus." SECTION 2. AGREEMENTS TO SELL AND PURCHASE. Subject to the terms and conditions set forth herein, the Company agrees to sell the Company Firm Shares, and the Selling Shareholder agrees to sell the Shareholder Firm Shares, to the Underwriters and, upon the basis of the representations, warranties and agreements of the Company, BIG and the Selling Shareholder herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Shareholder the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule I 2 3 hereto (or such number of Firm Shares as adjusted pursuant to Section 10 hereof), at a purchase price of $__________ per Share (the "purchase price per Share"). Of such Firm Shares, a total of __________ shares will be offered by the Underwriters for sale at the purchase price per Share to the parties whose names appear on Schedule IV hereto, in the amounts set forth opposite their respective names. The Company also agrees, subject to the terms and conditions set forth below, to sell to the Underwriters, and upon the basis of the representations, warranties and agreements of the Company and BIG herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right for 30 days from the date upon which the Registration Statement is declared effective by the Commission to purchase from the Company up to ____________ Company Additional Shares at the purchase price per Share for the Firm Shares. In addition, subject to the terms and conditions herein contained, the Selling Shareholder also agrees, subject to the terms and conditions set forth below, to sell to the Underwriters, and upon the basis of the representations, warranties and agreements of the Company and the Selling Shareholder herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right for 30 days from the date upon which the Registration Statement is declared effective by the Commission to purchase from the Selling Shareholder up to __________ Shareholder Additional Shares, at the purchase price per Share for the Firm Shares. The Additional Shares shall, if purchased, be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments as you may determine to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be sold as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted pursuant to Section 10 hereof) bears to the total number of Firm Shares. SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in our reasonable judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the Underwriters of the Firm Shares and payment therefor shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, four business days after the date hereof (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement between you and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. 3 4 Petersburg, Florida time, on such date or dates (the "Additional Closing Date") (which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than three nor later than ten business days after the giving of the notice hereinafter referred to), as shall be specified in a written notice from you an behalf of the Underwriters to the Company, of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. Such notice may be given to the Company by you at any time within 30 days after the date upon which the Registration Statement is declared effective by the Commission. The place of closing for the Additional Shares and the Additional Closing Date may be varied by agreement between you and the Company. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and such denominations as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, on the second full business day preceding the Closing Date or the Additional Closing Date, as the case may be. Such certificates shall be made available to you in St. Petersburg, Florida for inspection and packaging not later than 9:30 a.m., St. Petersburg, Florida time, on the business day immediately preceding the Closing Date or the Additional Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Additional Closing Date, as the case may be, against payment of the purchase price therefor by wire transfer or certified or official bank check or checks payable in same day funds. If the Representative so elects, delivery of the Shares may be made by credit through full fast transfer to the accounts at the Depository Trust Company designated by the Representative. The certificates in negotiable form for the Shareholder Firm Shares and Shareholder Additional Shares have been placed in custody (for delivery under this Agreement) under the Custody Agreement (as defined below). The Selling Shareholder agrees that the certificates for the Shares for such Selling Shareholder so held in custody are subject to the interests of the Underwriters hereunder, that the arrangements made by such Selling Shareholder for such custody, including the Power of Attorney (as defined below) is to that extent irrevocable and that the obligations of such Selling Shareholder hereunder shall not be terminated by the act of such Selling Shareholder or by operation of law, whether by the death or incapacity of such Selling Shareholder or the occurrence of any other event, except as specifically provided herein or in the Custody Agreement. If the Selling Shareholder should die or be incapacitated, or if any other such event should occur, before the delivery of the certificates for the Shares to be sold by such Selling Shareholder hereunder, such Shares, except as specifically provided herein or in the Custody Agreement, shall be delivered by the Custodian (as defined below) in accordance with the terms and conditions of this Agreement as if such death, incapacity or other event had not occurred, regardless of whether the Custodian shall have received notice of such death or other event. 4 5 SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters as follows: (a) The Company will advise you promptly and, if requested by you, will confirm such advice in writing (i) when the Registration Statement has become effective (if not effective as of the time and date of this Agreement) and when any post-effective amendment to the Registration Statement or any registration statement filed pursuant to Rule 462(b) under the Act is filed or becomes effective, (ii) if Rule 430A under the Act is employed, when the Prospectus or term sheet (as described in Rule 434(b) under the Act) has been timely filed pursuant to Rule 424(b) under the Act, (iii) of any request by the Commission for amendments or supplements to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation (or threatened initiation) of any proceeding for such purposes, and (v) within the period of time referred to in Section 5(e) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of any event that comes to the attention of the Company, that makes any statement made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue in any material respect or that requires the making of any additions thereto or changes therein in order to make the statements therein not misleading in any material respect, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act of any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (b) The Company will furnish to you, without charge, two signed copies of the Registration Statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto, and will also furnish to you, without charge, such number of conformed copies of the Registration Statement as originally filed and of each amendment thereto as you may reasonably request. (c) The Company will not file any amendment to the Registration Statement, file any registration statement pursuant to Rule 462(b) under the Act or make any amendment or supplement to the Prospectus of which you shall not previously have been advised (with a reasonable opportunity to review such amendment, registration statement or supplement) or to which you have reasonably objected after being so advised, or which is not in compliance with the Act. The Company will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel of the several Underwriters, are reasonably necessary or advisable in connection with the distribution of the Shares by the Underwriters. 5 6 (d) The Company has delivered or will deliver to you, without charge, in such quantities as you have requested or may hereafter reasonably request, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (e) As soon after the execution and delivery of this Agreement as is practicable and thereafter from time to time for such period as in the reasonable opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or a dealer, the Company will deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as they may reasonably request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If at any time prior to the later of (i) the completion of the distribution of the Shares pursuant to the offering contemplated by the Registration Statement or (ii) the expiration of prospectus delivery requirements with respect to the Shares under Section 4(3) of the Act and Rule 174 thereunder, any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with the Act or any other law, the Company will promptly prepare and file with the Commission an appropriate supplement or amendment thereto, and will furnish to each Underwriter and to each dealer who has previously requested Prospectuses, without charge, a reasonable number of copies thereof. (f) The Company will cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may reasonably designate and will file such consents to service of process or other documents as may be reasonably necessary in order to effect such registration or qualification for so long as required to complete the distribution of the Shares, provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, in any jurisdiction where it is not now so subject. In each jurisdiction in which the Shares shall have been qualified as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction. In the event that the qualification of 6 7 the Shares in any jurisdiction is suspended, the Company shall so advise you promptly in writing. (g) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a 12-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act, and will advise you in writing when such statement has been so made available. (h) During the period ending five years from the date hereof, the Company will furnish to you (i) as soon as available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or mailed to shareholders, and (ii) from time to time such other information concerning the Company as you may reasonably request. Until the termination of the offering of the Shares, the Company will timely file all documents, and any amendments to previously filed documents, required to be filed by it pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (i) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth under the caption "Use of Proceeds" in the Prospectus. (j) If Rule 430A under the Act is employed, the Company will timely file the Prospectus or term sheet (as described in Rule 434(b) under the Act) pursuant to Rule 424(b) under the Act. (k) The Company will not sell, contract to sell or otherwise dispose of any Common Stock or rights to purchase Common Stock until after the date 180 days from the effective date of the Registration Statement, without the prior written consent of Raymond James & Associates, Inc., except (i) to the underwriters pursuant to this Agreement, (ii) pursuant to and in accordance with the Company's stock option plans described in the Prospectus, (iii) pursuant to the exercise or conversion of warrants, stock options, preferred stock or convertible debentures issued and outstanding at the time of effectiveness of the Registration Statement and described in the Registration Statement, (iv) pursuant to that certain Agreement and Plan of Merger, dated May 12, 1998, among Geotrac, Inc., the Company, BIG, Daniel J. White, Sandra White and Bankers Hazard Determination Services, Inc., or (v) pursuant to that certain Stock Purchase Agreement dated December 10, 1998, as amended, between Colonial Catastrophe Claims Corporation, J. Douglas Branham, Felicia A. Rivas and the Company. (l) The Company will not, directly or indirectly, take any action that would constitute or any action designed, or which might reasonably be expected to cause or result in or constitute, under the Act or otherwise, stabilization nor manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. 7 8 (m) If, during the period commencing on the date on which the Registration Statement becomes effective and ending upon the later of (i) the completion of the distribution of the Shares pursuant to the offering contemplated by the Registration Statement or (ii) the expiration of prospectus delivery requirements with respect to the Shares under Section 4(3) of the Act and Rule 174 thereunder, any rumor, publication, or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock (including the Shares) has been or is likely to be materially affected (regardless of whether such rumor, publication, or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, promptly consult with Raymond James & Associates, Inc. concerning the advisability and substance of, and, if appropriate, disseminate, a press release or other public statement responding to or commenting on such rumor, publication, or event. (n) The Company shall not invest or otherwise use the proceeds received by the Company from its sale of the Shares, or otherwise conduct its business, in such a manner as would require the Company or any Subsidiary (as defined below) to register as an investment company under the Investment Company Act of 1940, as amended. (o) The Company will maintain a transfer agent and, if necessary under the jurisdiction of its incorporation or the rules of the Nasdaq National Market or any national securities exchange on which the Common Stock is then listed, a registrar (which, if permitted by applicable laws and rules, may be the same entity as the transfer agent) for its Common Stock. (p) The Company hereby agrees that this Agreement shall be deemed, for all purposes, to have been made and entered into in Pinellas County, Florida. The Company agrees that any dispute hereunder shall be litigated solely in the Circuit Court of the State of Florida in Pinellas County, Florida or in the United States District Court for the Middle District of Florida, Tampa Division, and further agrees to submit itself to the personal jurisdiction of such courts. SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND BIG. The Company and BIG, severally and jointly, represent and warrant to each Underwriter on the date hereof, and shall be deemed to represent and warrant to each Underwriter on the Closing Date and the Additional Closing Date, that: (a) The Registration Statement has been declared effective by the Commission under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. Each Prepricing Prospectus included as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a) under the Act, complied when so filed in all material respects with the provisions of the Act, except that this representation and warranty does not apply to statements in or omissions from such Prepricing Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with 8 9 information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (b) The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus, and the Prepricing Prospectus included as part of the Registration Statement declared effective by the Commission complies as to form in all material respects with the requirements of the Act. The Registration Statement, in the form in which it became effective and also in such form as it may be when any post-effective amendment thereto shall become effective, and any registration statement filed pursuant to Rule 462(b) under the Act, complies and will comply in all material respects with the provisions of the Act and does not and will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. The Prospectus, and any supplement or amendment thereto, when filed with the Commission under Rule 424(b) under the Act, complies and will comply in all material respects with the provisions of the Act and does not and will not at any such times contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in or omissions from the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) The capitalization of the Company is as set forth in the Prospectus as of the date set forth therein. All the outstanding shares of Common Stock (including without limitation the Shareholder Firm Shares and the Shareholder Additional Shares) and other securities of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; all offers and sales of the capital stock, warrants, options and debt or other securities of the Company and the Subsidiaries prior to the date hereof (including without limitation the Shareholder Firm Shares and Shareholder Additional Shares) were made in compliance with the Act and all other applicable state, federal and foreign laws or regulations, or any actions under the Act or any state, federal or foreign laws or regulations in respect of any such offers or sales are effectively barred by effective waivers or statutes of limitation; the Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; and the securities of the Company conform to the description thereof in the Registration Statement and the Prospectus (or any amendment or supplement thereto), the form of certificate for the Shares conforms to the corporate law of the State of Florida. 9 10 (d) The Company is a corporation duly organized, and its status is active, under the laws of the State of Florida. The Company has full corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), and is duly registered or qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company. (e) Each of Geotrac of America, Inc., a Florida corporation, IMS Direct, Inc., a Florida corporation, Insurance Management Solutions, Inc., a Florida corporation, and Colonial Claims Corporation, a Florida corporation (individually a "Subsidiary" and collectively, the "Subsidiaries"), is a corporation duly organized, and its status is active, under the laws of the State of Florida, with full corporate power and authority to own, lease and operate its properties and to conduct its businesses as presently conducted and as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered or qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries, taken as a whole. All of the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, free and clear of any material lien, adverse claim, security interest, equity or other encumbrance. Except for the Subsidiaries, the Company does not own a material interest in or control, directly or indirectly, any other corporation, partnership, joint venture, association, trust or other business organization. (f) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company or any Subsidiary, or to which the Company or any Subsidiary, or to which its respective properties, is subject, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) but are not described as required. There is no action, suit, inquiry, proceeding, or investigation by or before any court or governmental or other regulatory or administrative agency or commission pending or, to the best knowledge of the Company, threatened against or involving the Company or any Subsidiary (including without limitation any such action, suit, inquiry, proceeding or investigation relating to any product alleged to have been developed or sold by the Company or any Subsidiary and alleged to have been unreasonably hazardous, defective, or improperly designed or produced), nor, to the Company's knowledge, is there any basis for any such action, suit, inquiry, proceeding, or investigation. There are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement that are not described or filed as required or incorporated by 10 11 reference as permitted by the Act. All such contracts to which the Company or any Subsidiary is a party have been duly authorized, executed and delivered by the Company or the respective Subsidiary, constitute valid and binding agreements of the Company or the respective Subsidiary and are enforceable against the Company or the respective Subsidiary in accordance with the terms thereof, except that the validity, binding effect and enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting the rights of creditors and by general principles of equity, or the availability of specific performance, injunctive relief and other equitable remedies. (g) Neither the Company nor any Subsidiary is (i) in violation of (A) its articles of incorporation or bylaws, or (B) any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any Subsidiary or (C) any decree of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary, or (ii) in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties may be bound except, in the case of (i)(B), (i)(C) and (ii) above, where such violation or default would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole. (h) The execution and delivery of this Agreement, and the performance by the Company of its obligations under this Agreement, have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except insofar as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles or the availability of specific performance, injunctive relief and other equitable remedies. (i) None of the issuance and sale of the Company Firm Shares and Company Additional Shares, the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby (i) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), compliance with the securities or Blue Sky laws of various jurisdictions, or to clear the offering and the underwriting arrangements with the NASD, all of which will be, or have been, effected in accordance with this Agreement) or (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the articles of incorporation or bylaws of the Company or any Subsidiary, or (iii) conflicts or will conflict with or constitutes a breach of, or a default under, any agreement, indenture, 11 12 lease or other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties may be bound, or violates any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or any Subsidiary or any of their respective properties, except where such conflict, breach, violation or default would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole. (j) Except as described in the Prospectus, the Company does not have outstanding and at the Closing Date (and the Additional Closing Date, if applicable) will not have outstanding any options to purchase, or any warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of Common Stock or any such warrants or convertible securities or obligations. Except as referenced in the Prospectus or as has been complied with or waived, no holder of securities of the Company or any other person has rights to the registration of any securities of the Company because of the filing of the Registration Statement. (k) Grant Thornton LLP, the certified public accountants who have certified the consolidated financial statements filed as part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), are independent public accountants as required by the Act. The consolidated financial statements of the Company and the financial statements of Geotrac, Inc. and SMS Geotrac, Inc., together with related schedules and notes, forming part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the historical consolidated financial position, results of operations and changes in financial position of such entities on the bases stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved and all adjustments necessary for a fair presentation of the results for such period have been made; and the other financial information and data set forth in the Registration Statement and Prospectus (and any amendment or supplement thereto) is accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. No financial statements or schedules are required to be included in or incorporated by reference into the Registration Statement that have not been so included or incorporated. The pro forma condensed consolidated financial statements and other pro forma financial information of the Company included in the Registration Statement and the Prospectus have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma basis described therein, and, in management's opinion, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. Grant Thornton LLP performed a review of the consolidated financial statements of the Company as of and for the nine months ended September 30, 1998 in accordance 12 13 with Statement of Auditing Standards 71 and issued a review report with respect thereto, copies of which have been delivered to the Representatives. Grant Thornton also performed certain agreed upon procedures with respect to such financial statements and issued a letter with respect thereto, copies of which have been delivered to the Representatives. (l) Subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), neither the Company nor any Subsidiary has incurred any liability or obligation, direct or contingent, or entered into any transaction, whether or not in the ordinary course of business, that is material to the Company and the Subsidiaries, taken as a whole, and there has not been (i) any material change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company or any Subsidiary, or (ii) any material adverse change, or any development involving or which may reasonably be expected to involve a potential future material adverse change, in the condition (financial or other), business, net worth or results of operations of the Company and the Subsidiaries, taken as a whole, except in each case as described in or contemplated by the Prospectus or Prepricing Prospectus. (m) The Company and the Subsidiaries have good and marketable title to all property (real and personal) described in the Registration Statement and the Prospectus (or any amendment or supplement thereto) as being owned by the Company or such Subsidiary, free and clear of all liens, claims, security interests or other encumbrances except such as are described in or contemplated by the Registration Statement and the Prospectus (or any amendment or supplement thereto) or such as are not materially burdensome and do not interfere in any material respect with the use of the property or the conduct of the business of the Company and the Subsidiaries, taken as a whole, and the real property, personal property and buildings held under lease by the Company or any Subsidiary, as applicable, is held by them under valid, subsisting and enforceable leases, except that the validity, binding effect and enforceability of any such lease may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws generally affecting the rights of creditors and by general principles of equity, or the availability of specific performance, injunctive relief and other equitable remedies, and with such exceptions as in the aggregate are not materially burdensome and do not interfere in any material respect with the conduct of the business of the Company and the Subsidiaries, taken as a whole, or as are described in or contemplated by the Registration Statement and the Prospectus (or any amendment or supplement thereto). (n) The Company has not distributed and will not distribute prior to the Closing Date (or the Additional Closing Date, if any) any offering material in connection with the offering and sale of the Shares other than the Prepricing Prospectus and the Registration Statement, the Prospectus or other materials permitted by the Act and distributed with the prior approval of the Underwriters, The Company has not taken, directly or indirectly, any action which constituted or any action designed, or which might reasonably be expected to cause or result in or constitute, under the Act or otherwise, stabilization or 13 14 manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (o) Neither the Company nor any Subsidiary is an "investment company," an "affiliated person" of, or "promoter" or "principal underwriter" for an investment company within the meaning of the Investment Company Act of 1940, as amended. (p) The Company and the Subsidiaries have all permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities or private persons or entities (hereinafter "permit" or "permits") as are necessary to own their respective properties and to conduct their respective businesses in the manner described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subject to such qualifications as may be set forth therein, except where the failure to have obtained any such permit has not had and will not have a material adverse effect upon the condition (financial or other) or the business of the Company and the Subsidiaries, taken as a whole; the Company and the Subsidiaries have fulfilled and performed all of their material obligations with respect to each such permit and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination of any such permit or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company and the Subsidiaries, taken as a whole. (q) The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the business in which they are engaged; and the Company has no reason to believe that the Company and the Subsidiaries will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective businesses at a cost that would not materially and adversely affect the condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. (r) The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) Neither the Company nor any Subsidiary has, directly or indirectly, at any time during the past five years (i) made any unlawful contribution to any candidate for 14 15 political office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal, state or foreign governmental official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof or applicable foreign jurisdictions. (t) Except as set forth in the Registration Statement and the Prospectus, to the knowledge of the Company neither the Company nor any Subsidiary has violated any environmental, safety or similar law applicable to their respective businesses, nor any federal or state law relating to discrimination in the hiring, promotion or pay of employees nor any applicable federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, which in each case might result in any material adverse change in the business, prospects, financial condition or results of operation of the Company and the Subsidiaries, taken as a whole. To the best of the Company's and BIG's knowledge, no labor disturbance by the employees of the Company or any of the Subsidiaries exists or is imminent; and neither the Company nor BIG is aware of any existing or imminent labor disturbances by its employees that might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and the Subsidiaries, taken as a whole. No collective bargaining agreement exists with any of the Company's or any Subsidiary's employees and, to the Company's and BIG's knowledge, no such agreement is imminent. To the knowledge of the Company and BIG, neither the employment by the Company or any Subsidiary of their key personnel nor the activities of such individuals at the Company or any Subsidiary conflicts with, constitutes a breach of, or otherwise violates any employment, noncompetition, nondisclosure or similar agreement or covenant by which such individuals may be bound. (u) The Company and the Subsidiaries own and have full right, title and interest in and to, or have the right to use, each material trade name, trademark, service mark, patent, copyright, license, and other rights and all know-how (including trade secrets and other unpatented and/or proprietary or confidential information, systems, or procedures) (collectively, "Intellectual Property Rights") under which the Company and the Subsidiaries conduct all or any portion of their respective businesses, which Intellectual Property Rights are adequate to conduct such businesses as conducted or as proposed to be conducted or as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto); except as otherwise disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto) neither the Company nor any Subsidiary has granted any right or license with respect to, its respective Intellectual Property Rights; to the Company's knowledge, there is no claim pending against the Company or any Subsidiary with respect to any of their respective Intellectual Property Rights; neither the Company nor any Subsidiary has received notice that, nor is the Company or BIG aware that, any Intellectual Property Right which the Company or any Subsidiary uses or has used in the conduct of their respective businesses infringed or infringes upon or conflicted or conflicts with the rights of any third party, which infringement of conflict could have a material adverse effect upon the condition 15 16 (financial or other) of the Company and the Subsidiaries, taken as a whole; and neither the Company nor BIG is aware of any facts which, with the passage of time or otherwise, would cause the Company or any Subsidiary to infringe upon or otherwise violate the Intellectual Property Rights of any third party. (v) All federal, state, local and foreign tax returns required to be filed by or on behalf of the Company and any Subsidiary with respect to all periods ended prior to the date of this Agreement have been filed (or are the subject of valid extension) with the appropriate federal, state, local and foreign authorities (except where such failure to file would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole) and all such tax returns, as filed, are accurate in all material respects. All federal, state, local and foreign taxes (including estimated tax payments) required to be shown on all such tax returns or claimed to be due from or with respect to the respective businesses of the Company and the Subsidiaries have been paid or reflected as a liability on the consolidated financial statements of the Company for appropriate periods (except for any such tax, the failure of which to pay would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole). All deficiencies asserted as a result of any federal, state, local or foreign tax audits have been paid or finally settled and no issue has been raised in any such audit which, by application of the same or similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so audited. No state of facts exist or has existed which would constitute grounds for the assessment of any tax liability with respect to the periods that have not been audited by appropriate federal, state local or foreign authorities. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any federal, state, local or foreign tax return for any period. (w) The Company and the Subsidiaries are in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with Cuba; if the Company or any Subsidiary commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the business of the Company or any Subsidiary with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate in a form acceptable to the Department. SECTION 6A. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The Selling Shareholder represents and warrants to each Underwriter and the Company on the date hereof, and shall be deemed to represent and warrant to each Underwriter and the Company on the Closing Date and the Additional Closing Date, that: (a) Such Selling Shareholder has full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder hereunder; and upon delivery of such Shares hereunder and payment of the purchase price as herein 16 17 contemplated, each of the Underwriters purchasing such Shares in good faith and without notice of any lien, claim or encumbrance will obtain valid title to the Shares purchased by it from such Selling Shareholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, including any liability for estate or inheritance taxes, or any liability to or claims of any creditor, devisee, legatee or beneficiary of such Selling Shareholder. (b) Such Selling Shareholder has duly authorized (if applicable), executed and delivered, in the form heretofore furnished to the Representative, a Power of Attorney (the "Power of Attorney") appointing Barry B. Benjamin as attorney-in-fact (the "Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody Agreement") with Firstar Bank Milwaukee, N.A., as custodian (the "Custodian"); each of the Power of Attorney and the Custody Agreement constitutes a valid and binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and such Selling Shareholder's Attorney, acting alone, is authorized to execute and deliver this Agreement and the certificate referred to in Section 9(i) hereof on behalf of such Selling Shareholder, to determine the purchase price to be paid by the several Underwriters to such Selling Shareholder as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by the Selling Shareholder under this Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Shares or a stock power or powers with respect thereto, to accept payment therefor, and otherwise to act on behalf of such Selling Shareholder in connection with this Agreement. Certificates in negotiable form for all Shares to be sold by such Selling Shareholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Shareholder, have been placed in custody with the Custodian for the purpose of effecting delivery hereunder. (c) All authorizations, approvals, consents and orders necessary for the execution and delivery by such Selling Shareholder of the Power of Attorney and the Custody Agreement, the execution and delivery by or on behalf of such Selling Shareholder of this Agreement and the sale and delivery of the Shares to be sold by the Selling Shareholder under this Agreement (other than such authorizations, approvals or consents as may be necessary under federal, state or other securities or Blue Sky laws or to clear the offering and the underwriting arrangements with the NASD) have been obtained and are in full force and effect; such Selling Shareholder has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be; and such Selling Shareholder has full right, power, and authority to enter into and perform its obligations under this Agreement and such Power of Attorney and Custody Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder under this Agreement. 17 18 (d) Such Selling Shareholder will not offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, Common Stock, during the period from the date of this Agreement to the date 180 days following the effective date of the Registration Statement, inclusive, without the prior written consent of Raymond James & Associates, Inc. (e) Certificates in negotiable form for all Shares to be sold by such Selling Shareholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Shareholder, have been placed in custody with the Custodian for the purpose of effecting delivery hereunder. (f) This Agreement has been duly authorized by the Selling Shareholder and has been duly executed and delivered by or on behalf of such Selling Shareholder and constitutes the valid and binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with its terms, except insofar as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a material breach of or material default under any material bond, debenture, note or other evidence of indebtedness, or any material contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder or any Selling Shareholder Shares hereunder may be bound or, to the best of such Selling Shareholder's knowledge, result in any violation of any law, order, rule, regulation, writ, injunction or decree of any court or governmental agency or body or result in any violation of any provisions of the charter, bylaws or other organizational documents of such Selling Shareholder. (g) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (h) Such Selling Shareholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (i) All information furnished by or on behalf of such Selling Shareholder relating to such Selling Shareholder and the Shares to be sold by such Selling Shareholder under this Agreement that is contained in the representations and warranties of such Selling Shareholder in such Selling Shareholder's Power of Attorney or set forth in the Registration Statement or the Prospectus is, and on the Closing Date will be, true, correct and complete, and does not, and on the Closing Date will not, contain an untrue 18 19 statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such statements not misleading. (j) Such Selling Shareholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date and will advise its Attorney-in-Fact prior to the Closing Date if any statement to be made on behalf of such Selling Shareholder in the certificate contemplated by Section 9(i) would be inaccurate if made as of the Closing Date. (k) Such Selling Shareholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company to the Underwriters pursuant to this Agreement, and such Selling Shareholder does not own any capital stock of the Company or warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus. (l) Such Selling Shareholder is not aware (without having conducted any investigation or inquiry) that any of the representations and warranties of the Company and BIG set forth in Section 6 is untrue or incorrect. SECTION 7. EXPENSES. The Company and the Selling Shareholder hereby agree with the several Underwriters that the Company and the Selling Shareholder will pay or cause to be paid the costs and expenses associated with the following: (i) the preparation, printing or reproduction, and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, each registration statement filed pursuant to Rule 462(b) under the Act, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Prepricing Prospectus, the Prospectus, each registration statement filed pursuant to Rule 462(b) under the Act, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the offering of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the Nasdaq National Market; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(f) hereof (including the reasonable fees and expenses of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification), which fees will not exceed, in the aggregate, $5,000 so long as the Shares qualify for listing on the 19 20 Nasdaq National Market; (vii) the filing fees in connection with any filings required to be made with the National Association of Securities Dealers, Inc, in connection with the offering; (viii) the transportation, lodging and other expenses incurred by or on behalf of representatives of the Company in connection with the presentations to prospective purchasers of the Shares; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company; (x) the preparation, printing and distribution of bound volumes for the Representatives and their counsel; and (xi) the performance by the Company of its other obligations under this Agreement. If the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company or the Selling Shareholder to perform any agreement on its part to be performed hereunder or to fulfill any condition of the Underwriters' obligations hereunder, the Company will reimburse the several Underwriters for all reasonable out-of-pocket expenses (including fees and disbursements of counsel for the several Underwriters) incurred by the Underwriters in investigating, preparing to market or marketing the Shares. The provisions of this Section 7 are intended to relieve the Underwriters from the payment of the expenses and costs which the Selling Shareholder and the Company hereby agree to pay, but shall not affect any agreement which the Selling Shareholder and the Company may make, or may have made, for the sharing of such expenses and costs. Such agreements shall not impair the obligations of the Company and the Selling Shareholder hereunder to the several Underwriters. SECTION 8. INDEMNIFICATION AND CONTRIBUTION. Each of the Company and BIG agrees to indemnify and hold harmless you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and reasonable costs of investigation) arising out of or based upon any breach of any representation, warranty, agreement or covenant of the Company or BIG contained herein or any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus, the Registration Statement, the Prospectus, any amendment or supplement thereto, or in any Registration Statement filed pursuant to Rule 462(b) under the Act, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in any audio or visual materials used in connection with the marketing of the Shares, including, without limitation, slides, videos, films and tape recordings, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to an Underwriter furnished to the Company by or on behalf of any Underwriter through you for use in connection therewith or arise out of materials prepared solely by the Underwriters without the knowledge and approval of the Company or any of its representatives based upon material information obtained from sources other than, directly or indirectly, the Company or its representatives; provided, further, that the indemnity agreement contained in this subsection with respect to any Prepricing 20 21 Prospectus and the Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, claim, damage, liability or action purchased any of the Shares which are the subject thereof if a copy of the Prospectus (as amended or supplemented, if the Company shall have furnished any amendment or supplement thereto to such Underwriter which shall correct the untrue statement or alleged untrue statement or omission or alleged omission which is the basis of the loss, claim, damage, liability or action for which indemnification is sought) was not delivered or given to such person at or prior to the written confirmation of the sale to such person. This indemnification shall be in addition to any liability that the Company or BIG may otherwise have. The Selling Shareholder agrees to indemnify and hold harmless you and each other Underwriter and each person, if any, who controls any underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any breach of any representation, warranty, agreement or covenant of such Selling Shareholder contained herein or any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus, the Registration Statement, the Prospectus, any amendment or supplement thereto, or in any Registration Statement filed pursuant to Rule 462(b) under the Act, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to information relating to the Selling Shareholder that is furnished in writing by or on behalf of such Selling Shareholder through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act. This indemnification shall be in addition to any liability that the Selling Shareholder may otherwise have. If any action or claim shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company, BIG or the Selling Shareholder, such Underwriter or such controlling person shall promptly notify in writing the party(s) against whom indemnification is being sought (the "indemnifying party" or "indemnifying parties"), and such indemnifying party(s) shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party(s) similarly notified, to assume the defense thereof, including the employment of counsel reasonably acceptable to such Underwriter or such controlling person and payment of all reasonable fees and expenses. After notice from the indemnifying party(s) to such Underwriter or controlling person of its election so to assume the defense thereof, the indemnifying party(s) shall not be liable to such Underwriter or controlling person under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Underwriter or controlling person, in connection with the defense thereof. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying 21 22 party(s) has (have) agreed in writing to pay such fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume the defense and employ counsel reasonably acceptable to the Underwriter or such controlling person, or (iii) the named parties to any such action (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying party(s), and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party(s) by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party(s) shall not have the right to assume the defense of such action on behalf of such Underwriter or such controlling person). The indemnifying party(s) shall not be liable for any settlement of any such action effected without its (their) written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, the indemnifying party(s) agrees to indemnify and hold harmless any Underwriter and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment, but in the case of a judgment only to the extent stated in the immediately preceding paragraph. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the Selling Shareholder, to the same extent as the foregoing indemnity from the Company, BIG and the Selling Shareholder to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act. If any action or claim shall be brought or asserted against the Company, any of its directors, any such officers, or any such controlling person or the Selling Shareholder based on the Registration Statement, the Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph, such Underwriter shall have the rights and duties given to the Company, BIG and the Selling Shareholder by the preceding paragraph (except that if the Company, BIG or the Selling Shareholder shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officers, and any such controlling persons and the Selling Shareholder shall have the rights and duties given to the Underwriters by the immediately preceding paragraph. This indemnification shall be in addition to any liability the Underwriters or any Underwriter may otherwise have. If the indemnification provided for in this Section 8 is unavailable to an indemnified party under the first, second or fourth paragraph hereof in respect of any 22 23 losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, BIG or the Selling Shareholder, as applicable, on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, BIG or the Selling Shareholder, as applicable, on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, BIG or the Selling Shareholder, as applicable, on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares (before deducting expenses) received by the Company, BIG or the Selling Shareholder, as applicable, bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company, BIG or the Selling Shareholder, as applicable, or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company, BIG or the Selling Shareholder, as applicable, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company, BIG or the Selling Shareholder, as applicable on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, BIG or the Selling Shareholder, as applicable, on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In any event, none of the Company, BIG or the Selling Shareholder will, without the prior written consent of the Representative, settle or compromise or consent to the entry of any judgment in any proceeding or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not the Representatives or any person who controls the Representatives within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of all Underwriters and such controlling persons from all liability arising out of such claim, action, suit or proceeding. The Company, BIG, the Selling Shareholder and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 was determined 23 24 by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the fifth paragraph of this Section 8. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in the fifth paragraph of this Section 8 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 8 are several in proportion to the respective number of Firm Shares set forth opposite their names in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 10 hereof) and not joint. Notwithstanding the foregoing, the liability of the Selling Shareholder under the representations and warranties contained in Section 6A hereof and under the indemnity agreements contained in the provisions of this Section 8 shall be limited to an amount equal to the initial public offering price of the Shares sold by such Selling Shareholder to the Underwriters minus the amount of the underwriting discount paid thereon to the Underwriters by such Selling Shareholder. The Company, BIG, and such Selling Shareholder may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amount of such liability for which they each shall be responsible. In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus, any supplement or amendment thereto, or any registration statement filed pursuant to Section 462(b) of the Act, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company, BIG and the Selling Shareholder set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any 24 25 person controlling any Underwriter, the Company, its directors or officers or any person controlling the Company, or the Selling Shareholder, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A Successor to any Underwriter or any person controlling any Underwriter, to the Company, its directors or officers, or any person controlling the Company, or the Selling Shareholder, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Firm Shares hereunder are subject to the following conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings required by Rules 424(b) and 430A under the Act shall have been timely made; and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. (b) Subsequent to the effective date of the Registration Statement there shall not have occurred any change, or any development involving, or which might reasonably be expected to involve, a future material adverse change, in the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries, taken as a whole, not contemplated by the Prospectus (or any supplement thereto), that in your reasonable opinion, as Representative of the several Underwriters, would materially and adversely affect the market for the Shares. (c) You shall have received on the Closing Date (and the Additional Closing Date, if any) an opinion of Foley & Lardner, counsel for the Company, dated the Closing Date (and the Additional Closing Date, if any), satisfactory to you and your counsel, to the effect that: (i) The Company is a corporation duly incorporated and its status is active under the laws of the State of Florida. The Company has corporate power and authority to own or lease its properties and to conduct its business as described in the Registration Statement and the Prospectus. (ii) Each Subsidiary is a corporation duly incorporated and its standing is active under the laws of the State of Florida. Each Subsidiary has corporate power and authority to own or lease its properties and to conduct its business as described in the Registration Statement and the Prospectus. All issued and outstanding shares of capital stock of each Subsidiary have been validly issued and are fully paid and nonassessable. To such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than Geotrac of America, Inc., IMS Direct, Inc., Insurance Management Solutions, Inc. and Colonial Claims Corporation; 25 26 (iii) The statements set forth under the heading "Description of Capital Stock" in the Prospectus, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions. (iv) All shares of capital stock of the Company outstanding immediately prior to the issuance of the Firm Shares to be issued and sold by the Company hereunder have been duly authorized and validly issued, are fully paid and nonassessable and, to the actual knowledge of such counsel, have not been issued in violation of any co-sale right, registration right, right of first refusal, preemptive right, or other similar right that is required to be described in the Registration Statement, the Prepricing Prospectus or the Prospectus. (v) To such counsel's knowledge, all of the issued shares of capital stock of the Company immediately prior to the date hereof were originally issued in compliance with the registration provisions of the Act and the registration provisions of all other applicable state and federal laws or regulations, or pursuant to applicable exemptions therefrom (or any actions under the Act, or any state or federal laws or regulations in respect thereof are effectively barred by effective waivers or statutes of limitation). (vi) The Firm Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized by all necessary corporate action of the Company and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and, to the actual knowledge of such counsel, will not have been issued in violation of any co-sale right, registration right, right of first refusal, preemptive right, or other similar right that is required to be described in the Registration Statement, the Prepricing Prospectus or the Prospectus. (vii) The form of certificate for the Shares complies with the requirements of the Florida Business Corporation Act. (viii) The Registration Statement has become effective under the Act and, to the knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or threatened by the Commission. (ix) The Company has requisite corporate power and authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the Underwriters as provided herein, and the execution and delivery of this Agreement have been duly authorized by all necessary corporate action of the Company. This Agreement has been duly executed and delivered by the Company and is a valid, legal and binding agreement of the Company enforceable against the Company, except as enforceability thereof may be limited by (A) the 26 27 application of bankruptcy, reorganization, insolvency and other laws affecting creditors' rights generally, and (B) equitable principles being applied at the discretion of a court before which any proceeding may be brought; provided, however that such counsel may specifically refrain from opining as to the validity of the indemnification and contribution provisions hereof insofar as they are or may be held to be violations of public policy. (x) To the actual knowledge of such counsel, neither the Company nor any Subsidiary is in violation of any decree of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary except as described in or contemplated by the Registration Statement or the Prospectus or where such violation does not and will not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operation of the Company and the Subsidiaries, taken as a whole. (xi) To such counsel's knowledge, no contract or other document is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described therein or filed as required. (xii) Neither the Company nor any Subsidiary is, nor will any of them become, solely as a result of the consummation of the transactions contemplated hereby and the application of the net proceeds therefrom as set forth in the Registration Statement and the Prospectus (or any amendment or supplement thereto) under the caption "Use of Proceeds," an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. In rendering such opinion, counsel may rely upon an opinion or opinions, each dated the Closing Date (and the Additional Closing Date, if applicable), of other counsel as to the laws of a jurisdiction other than the State of Florida, provided that (1) each such local counsel is acceptable to you, (2) each such opinion so relied upon is addressed to counsel and you, (3) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to you and is in form and substance satisfactory to you, and (4) counsel shall state in their opinion that they believe that they and you are justified in relying thereon. In rendering such opinion, local counsel may rely, to the extent they deem such reliance proper, as to matters of fact upon certificates of officers of the Company and of government officials. Copies of all such certificates shall be furnished to you and your counsel on the Closing Date (and the Additional Closing Date, if applicable). In rendering such opinion, in each case where such opinion is qualified by "the knowledge of such counsel after reasonable inquiry," such counsel may rely as to matters of fact upon certificates of executive and other officers and employees of the Company as you and such counsel shall deem are appropriate and such other procedures as you and 27 28 such counsel shall mutually agree; provided, however, in each such case, such counsel shall state that it has no knowledge contrary to the information contained in such certificates or developed by such procedures and knows of no reason why you should not reasonably rely upon the information contained in such certificates or developed by such procedures. In addition to the opinion set forth above, such counsel shall state that during the course of the preparation of the Registration Statement and the Prospectus, and any amendments or supplements thereto, no facts have come to the attention of such counsel which cause it to believe that the Registration Statement, as of the time it became effective under the Act, the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b), as of the respective dates when such documents were filed with the Commission, and the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the Closing Date (except in each case for the financial statements and other financial and statistical information contained therein or omitted therefrom as to which no opinion need be expressed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. With respect to such statement, counsel shall state that although such counsel did not undertake to determine independently the accuracy, completeness and fairness of the statements contained in the Registration Statement or in the Prospectus and takes no responsibility therefor (except to the extent specifically set forth herein), such counsel did participate in discussions and meetings with officers and other representatives of the Company and discussions with the auditor for the Company in connection with the preparation of the Registration Statement and the Prospectus, and it is on the basis of the foregoing (relying as to certain factual matters on the information provided to such counsel and not on an independent investigation) that such counsel is making such statement. (d) You shall have received on the Closing Date (and the Additional Closing Date, if any) an opinion of G. Kristin Delano or C. Anthony Sexton, counsel for the Company, dated the Closing Date (and the Additional Closing Date, if any), satisfactory to you and your counsel, to the effect that: (i) The Company is duly registered or qualified to transact its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the financial condition, business, properties, net worth or results of operation of the Company and the Subsidiaries, taken as a whole. (ii) Each Subsidiary is duly registered or qualified to transact its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification except where the failure to so register or qualify does not have a material adverse effect on the financial condition, business, properties, net worth or results of 28 29 operation of the Company and the Subsidiaries, taken as a whole. (iii) To the knowledge of such counsel after reasonable inquiry, the Company and the Subsidiaries have such permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities ("permits"), as are necessary to own their respective properties and to conduct their respective businesses in the manner described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subject to such qualifications as may be set forth therein; the Company and the Subsidiaries have fulfilled and performed all of their respective material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Registration Statement and the Prospectus (or any amendment or supplement thereto); and except as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), such permits contain no restrictions that are materially burdensome to the Company and the Subsidiaries, taken as a whole. (iv) The property described in the Registration Statement and the Prospectus (or any amendment or supplement thereto) as held under lease by the Company or any Subsidiary is held under valid, subsisting and enforceable leases, with only such exceptions as in the aggregate are not material and do not interfere in any material respect with the conduct of the business of the Company and the Subsidiaries, taken as a whole. (v) The statements under the captions "Risk Factors -- Government Regulation," "-- Shares Eligible for Future Sale," "Business -- Legal Proceedings," "Description of Capital Stock" and "Shares Eligible for Future Sale" in the Registration Statement and the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly summarize and present in all material respects the information called for with respect to such documents and matters. Such counsel has no reason to believe that the descriptions in the Registration Statement and the Prospectus (or any amendment or supplement thereto) of statutes, regulations or legal or governmental proceedings are other than accurate or fail to present fairly the information required to be shown. (vi) To the knowledge of such counsel after reasonable inquiry, neither the Company nor any Subsidiary has received written notice from any third party alleging that their employment of any individual or the activities of any individual at the Company or any Subsidiary conflicts with, constitutes a breach of, or otherwise violates any employment, noncompetition, nondisclosure or similar agreement or covenant by which such individual may be bound, and such counsel has no reason to believe that the employment by the Company or any Subsidiary of any individual or the activities of any individual at the Company or any 29 30 Subsidiary conflicts with, constitutes a breach of, or otherwise violates any employment, noncompetition, nondisclosure or similar agreement or covenant by which such individual may be bound. In rendering such opinion, counsel may rely upon an opinion or opinions, each dated the Closing Date (and the Additional Closing Date, if applicable), of other counsel as to the laws of a jurisdiction other than the State of Florida, provided that (1) each such local counsel is acceptable to you, (2) each such opinion so relied upon is addressed to counsel and you, (3) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to you and is in form and substance satisfactory to you, and (4) counsel shall state in their opinion that they believe that they and you are justified in relying thereon. In rendering such opinion, local counsel may rely, to the extent they deem such reliance proper, as to matters of fact upon certificates of officers of the Company and of government officials. Copies of all such certificates shall be furnished to you and your counsel on the Closing Date (and the Additional Closing Date, if applicable). In rendering such opinion, in each case where such opinion is qualified by "the knowledge of such counsel after reasonable inquiry," such counsel may rely as to matters of fact upon certificates of executive and other officers and employees of the Company as you and such counsel shall deem are appropriate and such other procedures as you and such counsel shall mutually agree; provided, however, in each such case, such counsel shall state that it has no knowledge contrary to the information contained in such certificates or developed by such procedures and knows of no reason why you should not reasonably rely upon the information contained in such certificates or developed by such procedures. In addition to the opinion set forth above, such counsel shall state that during the course of the preparation of the Registration Statement and the Prospectus, and any amendments or supplements thereto, no facts have come to the attention of such counsel which cause it to believe that the Registration Statement, as of the time it became effective under the Act, the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b), as of the respective dates when such documents were filed with the Commission, and the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the Closing Date (except in each case for the financial statements and other financial and statistical information contained therein or omitted therefrom as to which no opinion need be expressed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statement therein not misleading. With respect to such statement, counsel shall state that although such counsel did not undertake to determine independently the accuracy, completeness and fairness of the statements contained in the Registration Statement or in the Prospectus and takes no responsibility therefor (except to the extent specifically set forth herein), such counsel did participate in discussions and meetings with officers and other representatives of the Company and discussions with the auditor for the Company in connection with the preparation of the Registration Statement and the Prospectus, and it is on the basis of the foregoing (relying as to certain factual 30 31 matters on the information provided to such counsel and not on an independent investigation) that such counsel is making such statement. (e) You shall have received on the Closing Date (and the Additional Closing Date, if any) an opinion of Truman Bodden & Company, counsel for the Selling Shareholder, dated the Closing Date (and the Additional Closing Date, if any), satisfactory to you and your counsel, to the effect that: (i) The Selling Shareholder has full right, power and authority to enter into and to perform its obligations under the Power of Attorney and Custody Agreement to be executed and delivered by it in connection with the transactions contemplated herein; the Power of Attorney and Custody Agreement of the Selling Shareholder has been duly authorized by such Selling Shareholder and has been duly executed and delivered by or on behalf of such Selling Shareholder; and the Power of Attorney and Custody Agreement of such Selling Shareholder constitutes the valid and binding agreement of such Selling Shareholder, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (ii) The Selling Shareholder has full right, power and authority to enter into and to perform its obligations under this Agreement and to sell, transfer, assign and deliver the Shares to be sold by such Selling Shareholder hereunder; (iii) This Agreement has been duly authorized by the Selling Shareholder and has been duly executed and delivered by or on behalf of such Selling Shareholder and, assuming due authorization, execution and delivery by you, is a valid and binding agreement of such Selling Shareholder, enforceable in accordance with its terms, except insofar as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (iv) Upon the delivery of and payment for the Shares as contemplated in this Agreement, each of the Underwriters will receive valid marketable title to the Shares purchased by it from such Selling Shareholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. In rendering such opinion, such counsel may assume that the Underwriters are without notice of any defect in the title of such Selling Shareholder to the Shares being purchased from such Selling Shareholder; (f) You shall have received on the Closing Date (and the Additional Closing Date, if any) an opinion of Powell, Goldstein, Frazer & Murphy LLP, counsel for the Underwriters, dated the Closing Date (and the Additional Closing Date, if any), with 31 32 respect to the issuance and sale of the Firm Shares, the Registration Statement and other related matters as you may reasonably request, and the Company shall have furnished to your counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (g) You shall have received letters addressed to you and dated the date hereof and the Closing Date (and the Additional Closing Date, if any) from Grant Thornton LLP, independent certified public accountants, substantially in the forms heretofore approved by you. (h) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be, contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock or other securities of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or supplement thereto); (iii) there shall not have been since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business properties, net worth or results of operation of the Company and the Subsidiaries, taken as a whole, and (v) all of the representations and warranties of the Company and BIG contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company and of BIG (or such other officers as are acceptable to you) to the effect set forth in this Section 9(h) and in Section 9(i) hereof. (i) The Company shall not have failed in any material respect at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (j) You shall be satisfied that, and you shall have received a certificate dated the Closing Date, from the Attorney-in-Fact for the Selling Shareholder to the effect that as of the Closing Date, he has not been informed that: (i) the representations and warranties made by such Selling Shareholder herein are not true or correct in any material respect on the Closing Date; or (ii) such Selling Shareholder has not complied with any obligation or satisfied any condition which is required to be performed or satisfied on its part at or prior to the Closing Date. (k) The Company and the Selling Shareholder shall have furnished or caused to have been furnished to you such further certificates and documents as you shall reasonably request. 32 33 (l) At or prior to the Closing Date, you shall have received the written commitment of each of the Company's directors, executive officers and shareholders set forth on Schedule III hereto, not to offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, Common Stock, during the period from the date of this Agreement to the date 180 days following the effective date of the Registration Statement, inclusive, without the prior written consent of Raymond James & Associates, Inc., which commitments shall be in full force and effect as of the Closing Date (and the Additional Closing Date, if any). All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and your counsel. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of the Additional Closing Date of the conditions set forth in this Section 9, except that, if the Additional Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (k) shall be dated in the Additional Closing Date and the opinions and letters referred to in paragraphs (c) through (g) shall be revised to reflect the sale of Additional Shares. SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon the later of (a) the execution and delivery hereof by the parties hereto, or (b) release of notification of the effectiveness of the Registration Statement by the Commission. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in the Agreement Among Underwriters, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed, but failed or refused to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholder. In any such case that does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven (7) days, in order that the required changes, if any, in the Registration 33 34 Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company, by notice to the Company, if prior to the Closing Date or the Additional Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, The Nasdaq Stock Market shall have been suspended or materially limited, (ii) trading of any securities of the Company, including the Shares, on the New York Stock Exchange, or The Nasdaq Stock Market shall have been suspended or materially limited, whether as the result of a stop order by the Commission or otherwise, (iii) a general moratorium on commercial banking activities in New York or Florida shall have been declared by either federal or state authorities, (iv) there shall have, occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions or other material event the effect of which on the financial markets of the United States is such as to make it, in your reasonable judgment, impracticable or inadvisable to market the Shares or to enforce contracts for the sale of the Shares, or (v) the Company or any Subsidiary shall have, in the sole judgment of the Representatives, sustained any loss or interference, material to the Company and the Subsidiaries, taken as a whole, with their respective businesses or properties from fire, flood, hurricane, accident, or other calamity, whether or not covered by insurance, or from any labor disputes or any legal or governmental proceeding, or there shall have been any material adverse change (including, without limitation, a material change in management or control of the Company) in the condition (financial or otherwise), business prospects, net worth, or results of operations of the Company and the Subsidiaries, taken as a whole, except in each case as described in, or contemplated by, the Prospectus (excluding any amendment or supplement thereto). Notice of such cancellation shall be promptly given to the Company and its counsel by telegraph, telecopy or telephone and shall be subsequently confirmed by letter. All representations, warranties, covenants and agreements of the Company and the Selling Shareholder herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 8 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person, or by or on behalf of the Company or the Selling Shareholder, or any of their officers, directors or controlling persons, and shall survive the delivery of the Shares to the several Underwriters hereunder or termination of this Agreement. SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus (other than the paragraph therein referring to the sale of Shares to the purchasers whose names appear on Schedule IV hereto), constitute all the information 34 35 furnished by or on behalf of the Underwriters through you or on your behalf as such information is referred to in Sections 6(a), 6(b) and 8 hereof. SECTION 13. NOTICES; SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 360 Central Avenue, St. Petersburg, Florida 33701, Attention: Chief Executive Officer (with a copy to Todd B. Pfister, Esq., Foley & Lardner, 100 N. Tampa Street, Suite 2700, Tampa, Florida 33602-5804 or (ii) if to you, as the Underwriters, to Raymond James & Associates, Inc., 880 Carillon Parkway, St, Petersburg, Florida 33716, Attention: Charles W. Uhrig; (with a copy to G. William Speer, Esq., Powell, Goldstein, Frazer & Murphy LLP, 16th Floor, 191 Peachtree Street, N.E., Atlanta, Georgia 30303); or (iii) if to the Selling Shareholder, to Venture Capital Corporation or Barry B. Benjamin as Attorney-in-Fact for the Selling Shareholder, at IIMC, Ltd., P.O. Box 1369, Bank of America Building, Fort Street, Georgetown, Grand Cayman, British West Indies. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers and the other controlling persons referred to in Section 8 hereof, and the Selling Shareholder, and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue or this Agreement. Neither of the terms "successor" and "successors and assigns" as used in this Agreement shall include a purchaser from you of any of the Shares in his status as such purchaser. SECTION 14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without reference to choice of law principles thereunder. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. This Agreement shall be effective when, but only when, at least one counterpart hereof shall have been executed on behalf of each party hereto. 35 36 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter and your acceptance shall constitute a binding agreement between us. Very truly yours, INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- BANKERS INSURANCE GROUP, INC. By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- VENTURE CAPITAL CORPORATION By: ---------------------------------------- Barry B. Benjamin Attorney-in-Fact for the Selling Shareholder named in Schedule II hereto CONFIRMED as of the date first above mentioned, on behalf of itself and the other several Underwriters named in Schedule I hereto. RAYMOND JAMES & ASSOCIATES, INC. By: -------------------------------------- 36 37 AUTHORIZED REPRESENTATIVE 37 38 SCHEDULE I UNDERWRITERS
Number of Name Firm Shares - ---- ----------- Raymond James & Associates Inc. TOTAL ============
38 39 SCHEDULE II SELLING SHAREHOLDER
Number of Number of Additional Name Firm Shares Shares - ---- ----------- ---------- Venture Capital Corporation TOTAL =========== ==========
39 40 SCHEDULE III LOCK-UP AGREEMENTS Name Bankers Insurance Group, Inc. Kathleen M. Batson Jeffrey S. Bragg John A. Grant, Jr. William D. Hussey Kelly K. King David K. Meehan Robert G. Menke Robert M. Menke Alejandro M. Sanchez E. Ray Solomon Daniel J. White 40 41 SCHEDULE IV Name of Purchaser Number of Shares to be offered for purchase 41 EX-4.1 3 SPECIMEN STOCK CERTIFICATE 1 EXHIBIT 4.1
INSURANCE MANAGEMENT SOLUTIONS GROUP NUMBER INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA [SHARES] [INMG 0001] SEE REVERSE SIDE FOR CUSIP 458045 10 1 CERTAIN DEFINITIONS INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AUTHORIZED COMMON SHARES OF 100,000,000 PAR VALUE $0.01 EACH This is to Certify that ROBERT M. MENKE is the owner of FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. transferable on the books of the Corporation in person or by duly authorized Attorney whose surrender of this Certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly authorized officers and the facsimile of its seal to be printed hereon. Dated: Countersigned and Registered: Firstar Bank Milwaukee, N.A. (Milwaukee, WI) Transfer Agent and Registrar By Authorized Signature Kelly K. King [SEAL] David K. Meehan SECRETARY CHAIRMAN OF THE BOARD
2 THE RECORD HOLDER OF THIS CERTIFICATE MAY OBTAIN FROM THE SECRETARY OF THE CORPORATION, UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED AND THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SERIES OF PREFERRED SHARES AUTHORIZED TO BE ISSUED SO FAR AS THE SAME HAVE BEEN FIXED AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF OTHER SERIES. The following abbreviations, when used in the inscription on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations;
TEN COM- as tenants in common UNIF GIFT MIN ACT Custodian TEN ENT- as tenants by the entireties ----- ------ JT TEN- as joint tenants with right of (Cust) (Minor) survivorship and not as Under Uniform Gift to Minors tenants in common Act- ------------ (State) UNIF TRANS MIN ACT Custodian ----- ------- (Cust) (Minor) Under Uniform Transfer to Minors Act- ------------ (State)
Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign, and transfer unto. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OR ASSIGNEE --------------------------------------- --------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - -------------------------------------------------------------------------- of the common stock represented by the million Certificate, and do hereby irrevocable constitute and appoint Attorney, to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Date X -------------------------------- -------------------------------------- X -------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER, - ------------------------------------- SIGNATURE GUARANTEED THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15. EX-5.1 4 OPINION OF FOLEY & LARDNER 1 EXHIBIT 5.1 FOLEY & LARDNER 100 North Tampa Street, Suite 2700 Tampa, Florida 33602 December 18, 1998 Insurance Management Solutions Group, Inc. 360 Central Avenue St. Petersburg, FL 33701 Ladies and Gentlemen: This firm has acted as counsel to Insurance Management Solutions Group, Inc., a Florida corporation (the "Company"), in connection with the filing with the Securities and Exchange Commission of the Company's registration statement on Form S-1 (File No. 333-57747) and all pre-effective amendments thereto (the "Registration Statement"), relating to the sale by the Company and a selling shareholder (the "Selling Shareholder") of 3,350,000 shares of the Company's common stock, $.01 par value ("Common Stock"), and up to an additional 502,500 shares of Common Stock to cover over-allotments (such 3,852,500 shares of Common Stock are hereinafter referred to as the "Shares"). This letter is furnished to you pursuant to the requirement set forth in Item 601(b)(5) of Regulation S-K in connection with such registration. For purposes of rendering this opinion, we have examined and relied upon originals or copies, certified to our satisfaction, of (1) the Articles of Incorporation and Bylaws of the Company, each as amended and restated, (2) resolutions of the Board of Directors of the Company authorizing, among other things, the offering and the issuance of the Shares and related matters, (3) the Registration Statement and exhibits thereto, and (4) such other documents and instruments as we have deemed necessary or appropriate to render the opinions expressed in this letter. In making the foregoing examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and the authenticity of all such copies. The opinions expressed herein are based exclusively on the applicable provisions of the Florida Business Corporation Act, Chapter 607 of the Florida Statutes (the "FBCA") as in effect on the date hereof, and we express no opinion as to any other matters, statutes, regulations or ordinances. Based upon, subject to and limited by the foregoing, we are of the opinion that (1) the Shares to be sold by the Company pursuant to the Registration Statement, when and if issued, sold and delivered in the manner and on the terms described in the Registration Statement and 2 in accordance with the Underwriting Agreement (a form of which has been filed as Exhibit 1.1 to the Registration Statement), will be legally issued, fully paid and nonassessable, and (2) the Shares to be sold by the Selling Shareholder pursuant to the Registration Statement have been validly issued and are fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Nothing in this letter shall be construed to cause us to be considered "experts" within the meaning of Section 11 of the Securities Act of 1933, as amended. Very truly yours, FOLEY & LARDNER EX-10.12 5 SERVICES AGREEMENT DATED JANUARY 1, 1998 1 EXHIBIT 10.12 ADMINISTRATION SERVICES AGREEMENT ADMINISTRATION SERVICES AGREEMENT ("Agreement") made effective as of the 1st day of January, 1998, by and between Bankers Insurance Group, Inc., a Florida corporation (herein, "Bankers") and Insurance Management Solutions Group, Inc., a Florida corporation (herein, "IMSG"). WHEREAS, Bankers has extensive experience in the management of property/casualty insurance business; and WHEREAS, IMSG is a subsidiary of Bankers and desires Bankers to perform certain administrative and special services (collectively "services") for IMSG in its operations and as IMSG may request; and WHEREAS, Bankers and IMSG contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both Bankers and IMSG; and WHEREAS, Bankers and IMSG wish to assure that all charges for services and the use of Facilities incurred hereunder are reasonable and to the extent practicable reflect actual costs and are arrived at in a fair and equitable manner, and that estimated costs, whenever used, are adjusted periodically, to bring them into alignment with actual costs; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, and intending to be legally bound hereby, Bankers and IMSG agree as follows: 1. PERFORMANCE OF SERVICES AND USE OF FACILITIES. Bankers agrees to the extent requested by IMSG to perform such services for IMSG as IMSG determines to be reasonably necessary in the conduct of its operations. Bankers agrees to the extent requested by IMSG to make available its Facilities to IMSG as IMSG may determine to be reasonably necessary in the conduct of its operations, including but not limited to: human resource services, such as recruiting, hiring, benefits administration and training, legal services, certain corporate accounting functions, buildings and services, cash management, agency accounting and corporate communications. Bankers agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform this Agreement. (a) Capacity of Personnel: Status of Facilities. Whenever Bankers utilizes its personnel to perform services for IMSG pursuant to the this Agreement, such personnel shall at all times remain employees of Bankers or its affiliates and Bankers shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No Facility of Bankers used in performing services for or subject to use by IMSG shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. (b) Exercise of Judgment in Rendering Services. In providing any services hereunder which require the exercise of judgment by Bankers, Bankers shall perform any such service in accordance with any standards and guidelines IMSG develops and communicates to Bankers. In performing any services hereunder, Bankers shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interests of IMSG, and in any event in accordance with the written standards and guidelines of IMSG. (c) Control. The performance of services by Bankers for IMSG pursuant to this Agreement shall in no way impair the absolute control of the business and operations of Bankers or IMSG by their respective Boards of Directors. Bankers shall act hereunder so as to assure the separate operating identity of IMSG. 1 2 2. SERVICES A. Custodial Services. Subject to the direction and control of the Board of Directors of IMSG, IMSG does hereby appoint Bankers and Bankers does accept such appointment to act as a custodian of cash and similar assets, with full power and authority to act for, on behalf of, and in the name of IMSG in the maintenance and management of monies, or other sums as IMSG may entrust to Bankers under this Agreement; provided that: (1) Bankers shall keep and maintain proper books and records wherein shall be recorded the business transacted by it on behalf of, in the name of, or on account of IMSG. Bankers shall monthly submit to an officer of IMSG designated by IMSG for that purpose a transaction report for the preceding month. (2) Subject to the direction and control of the Board of Directors of IMSG, and subject to compliance with investment guidelines established by IMSG, Bankers shall make, manage, and dispose of all investments of IMSG in accordance with the terms and conditions of a separate agreement to be entered into between the parties hereto. (3) Whenever Bankers receives and collects monies for the account of IMSG, Bankers will not commingle such monies with its own, but will deposit such monies in an appropriate separate account in the name of IMSG. B. Functional Support Services. Subject to the ultimate control and direction of the IMSG Board of Directors, Bankers shall provide legal services, including the negotiation and preparation of contracts, agreements and agency documents, governmental relations and advising on regulatory compliance and rendering opinions on various legal matters, assisting IMSG with the selection and performance management of third party legal counsel associated for purposes of the prosecution or defense of actions. Other services to be provided include Human Resources, payroll and employee relations services. Also provided is Agency Accounting and Accounts Payable, Cash Management, Property Accounting, Audit Services and Agency Licensing. C. Location. Except as is herein specifically set forth to the contrary, it is understood Bankers shall be providing all of the services for which provision is herein set forth from its principal place of business located in St. Petersburg, FL.; provided that such facility may be relocated from time to time to such reasonable location as IMSG may determine upon 60 days' advance notice to IMSG. 3. CHARGES. (a) IMSG agrees to reimburse Bankers for services and Facilities provided by Bankers to IMSG pursuant to this Agreement. The charge to IMSG for such services and Facilities shall include all direct and directly allocable expenses, reasonably and equitably determined to be attributable to IMSG by Bankers, plus a reasonable charge for direct overhead, the amount of such charge for overhead to be agreed upon by the parties from time to time. Quarterly charges for Calendar Year 1998 are identified in Exhibit A. (b) Bankers' determination of charges hereunder shall be presented to IMSG, and if IMSG objects to any such determination, it shall so advise Bankers within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified public accountants which shall determine the charges properly allocable to IMSG and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to Bankers and IMSG whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified public accountants shall be borne equally by Bankers and IMSG. 2 3 4. PAYMENT. (a) IMSG shall advance such funds to Bankers as the parties may mutually agree are reasonably necessary to cover the charges (provision for which is set forth in paragraph 3 hereof) of IMSG for the ensuing calendar quarter. (b) Within thirty (30) days after the end of each month, Bankers will submit to IMSG a detailed written statement and accounting of the charges due from IMSG to Bankers for services and the use of Facilities pursuant to this Agreement in the preceding calendar quarter, including charges not included in any previous statements. Any amount advanced by IMSG to Bankers under Section 4(a) hereof in excess of (i) the actual charges for services and Facilities rendered and received plus (ii) such amount as is reasonably required for such charges for the subsequent calendar quarter shall be refunded to IMSG by Bankers along with the detailed written statement and accounting. 5. RECORDS AND DOCUMENTS RELATING TO CHARGES. Bankers shall be responsible for maintaining full and accurate accounting records of all services rendered and Facilities used pursuant to this Agreement and such additional information as IMSG may reasonable request for purposes of its internal bookkeeping and accounting operations. Bankers shall make such accounting records insofar as they pertain to the computation of charges hereunder available at its principal offices for audit, inspection and copying by IMSG or any governmental agency having jurisdiction over IMSG during all reasonable business hours. 6. OTHER RECORDS AND DOCUMENTS. (a) All books, records, and files established and maintained by Bankers by reason of its performance under this Agreement which, absent this Agreement, would have been held by IMSG, shall be the property of IMSG and shall be subject to examination by IMSG and persons authorized by it at all times. IMSG may at any time require Bankers to surrender possession of such books, records and files, whereupon Bankers shall deliver them to IMSG. (b) Without limiting the generality of the foregoing and notwithstanding anything in this Agreement appearing to the contrary, it is mutually understood and agreed that IMSG shall maintain the originals of its books of account at its home office in Florida. For the purposes of this Agreement, the term "books of account" means: the Charter and By-laws; the record containing the names and addresses of shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; the minutes of any meetings of shareholders and of the board of directors and any committees thereof; the general ledger; the investment ledger; journals; the cash book; subsidiary ledgers; annual and quarterly statements; and all minutes supporting annual, quarterly and other statements and reports filed with or submitted to supervisory and regulatory authorities. 7. TERMINATION AND MODIFICATION. This Agreement or any part thereof shall commence and be effective as of the day and year first above set forth and shall remain in effect for a period of one year. IMSG has the option of renewing this Agreement for two successive one year periods upon 30 days prior written notice. Thereafter, the term of this Agreement shall be perpetual, but can be terminated, at no penalty, by either party upon 60 days prior written notice to the other party. Upon termination, Bankers shall promptly deliver to IMSG all books and records that are, or are deemed by this Agreement to be, the property of IMSG. This Agreement may be amended only by mutual consent in writing signed by the parties. 8. SETTLEMENT ON TERMINATION. No later than ninety (90) days after the effective date of termination of this Agreement, Bankers shall deliver to IMSG a detailed written statement for all charges incurred and not included in any previous statement to the effective date of termination. The amount owed by either party hereunder shall be due and payable within thirty (30) days of receipt of such statement. 3 4 9. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except by operation of law. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto, or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other that the parties hereto, or their respective legal successors, from any obligations or liabilities that would otherwise be applicable. 10. GOVERNING LAW. This Agreement is made pursuant to and shall be governed by, interpreted under, and the right of the parties determined in accordance with, the laws of the State of Florida. 11. NOTICE. All notices, statements or requests provided for hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service, as certified or registered mail, postage prepaid, addressed (a) If to Bankers to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: G. Kristin Delano (813) 803-4016 FAX (813) 823-6518 (b) If to IMSG to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: David K. Meehan, Chairman (813) 823-4000 x 4201 FAX (813) 823-6518 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 12. HEADINGS. The headings of the various paragraphs of this Agreement are for convenience only, and shall be accorded no weight in the construction of this Agreement. 13. ENTIRE AGREEMENT. This Agreement, together with such Amendment as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. /s/ C. Anthony Sexton BY: /s/ Jeffrey S. Bragg - -------------------------------------- --------------------------------- AS ITS: COO - -------------------------------------- ----------------------------- DATE: 5/15/98 ------------------------------- 4 5 WITNESSES: BANKERS INSURANCE GROUP, INC. /s/ Erica Rudin BY: /s/ G. Kristin Delano - --------------------------------------- --------------------------------- AS ITS: Corporate Secretary - --------------------------------------- ----------------------------- DATE: 5/18/98 ------------------------------- Exhibit A Fee Schedule 5 6 Exhibit A Management Agreement Bankers Insurance Group, Inc. Services to Insurance Management Solutions Group Functions performed by Bankers Insurance Group, Inc. for the benefit of Insurance Management Solutions Group, Inc. for the Calendar year 1998 by quarter: Human Resources: Quarter 1 $ 175,000 Quarter 2 $ 175,000 Quarter 3 $ 175,000 Quarter 4 $ 175,000 Accounts Payable: Quarter 1 $ 11,250 Quarter 2 $ 11,250 Quarter 3 $ 11,250 Quarter 4 $ 11,250 Agency Accounting: Quarter 1 $ 137,500 Quarter 2 $ 137,500 Quarter 3 $ 137,500 Quarter 4 $ 137,500 Cash Management: Quarter 1 $ 21,250 Quarter 2 $ 21,250 Quarter 3 $ 21,250 Quarter 4 $ 21,250 Property Accounting: Quarter 1 $ 5,000 Quarter 2 $ 5,000 Quarter 3 $ 5,000 Quarter 4 $ 5,000 Audit Services: Quarter 1 $ 37,500 Quarter 2 $ 37,500 Quarter 3 $ 37,500 Quarter 4 $ 37,500 Agency Licensing: Quarter 1 $ 5,000 Quarter 2 $ 5,000 Quarter 3 $ 5,000 Quarter 4 $ 5,000 Affiliated Senior Management: Quarter 1 $ 3,750 Quarter 2 $ 3,750 Quarter 3 $ 3,750 Quarter 4 $ 3,750 Total Contract Based on 1998 Budgets and Projections: $1,570,000
IMS may, from time to time as needed, require Corporate Legal Services and Corporate Communications Services. Such services will be provided on an Hourly Basis as follows: Legal Services: $150.00 per Hour Corporate Communications: $40.00 per Hour 7 It is understood by both IMS and Bankers Insurance Group, Inc. that should material fluctuations in either a positive or negative direction impact IMS, either party has the right to re-negotiate those contemplated services and corresponding fees in light of material changes in demand for said services. 8 ADDENDUM TO ADMINISTRATION SERVICES AGREEMENT This is an addendum to an Administration Services Agreement ("Agreement") executed to be effective the 1st day of January, 1998, by and between Bankers Insurance Group, Inc. (herein "Bankers") and Insurance Management Solutions Group, Inc. (herein "IMSG"). WHEREAS, as part of the Agreement, Bankers agreed to provide certain legal services to IMSG, and WHEREAS, the parties wish to establish the appropriate remuneration for such legal services. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and intending to be legally bound thereby, Bankers and IMSG agree as follows: 1. For the full term of the Agreement Bankers shall provide the routine, ordinary and necessary legal services to IMSG as generally described in Section 2B of the Agreement in consideration for the payment of $120,000 annually. 2. Legal services for other than routine matters shall be performed as required by IMSG and shall be billed at a negotiated price. Examples of non-routine legal matters shall include but not be limited to, mergers or acquisitions with unrelated third parties, and significant equity or debt securities offerings. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have set their hands and seals in St. Petersburg, Florida. WITNESSES: BANKERS INSURANCE GROUP, INC. By: /s/ J. Kristin Delano - -------------------------------- -------------------------------- As Its: Corporate Secretary - --------------------------------- --------------------------- Date: ------------------------------ 1 9 WITNESSES: INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ Kelly K. King - -------------------------------- ------------------------------- As Its: Chief Financial Officer - -------------------------------- ---------------------------- Date: 12/2/98 ----------------------------- 2 10 ADDENDUM TO ADMINISTRATION SERVICE AGREEMENT Administrative Service Agreement ("Agreement") by and between Insurance Management Solutions Group, Inc. ("IMSG") and Bankers Insurance Group, Inc. ("BIG") was entered into effective January 1, 1998, WHEREAS, the parties desire to amend that Agreement effective January 1, 1999. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intending to be legally bound hereby, IMSG and BIG agree as follows: 1. Revised service fees attached as Exhibit "A" are adopted by the parties. 2. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. BY: /s/ Kelly K. King - --------------------------------- --------------------------------- AS ITS: CFO - --------------------------------- ----------------------------- DATE: ------------------------------- WITNESSES: BANKERS INSURANCE GROUP, INC. BY: /S/ G. Kristin Delano - --------------------------------- --------------------------------- AS ITS: Corporate Secretary - --------------------------------- ----------------------------- DATE: ------------------------------- 11 EXHIBIT A MANAGEMENT SERVICES AGREEMENT BANKERS INSURANCE GROUP, INC. SERVICES TO INSURANCE MANAGEMENT SOLUTIONS GROUP FUNCTIONS PERFORMED BY BANKERS INSURANCE GROUP, INC. FOR THE BENEFIT OF INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. FOR THE CALENDAR YEAR 1999 BY QUARTER: HUMAN RESOURCES: QUARTER 1 $175,000 QUARTER 2 $175,000 QUARTER 3 $175,000 QUARTER 4 $175,000 AGENCY ACCOUNTING: QUARTER 1 $27,500 QUARTER 2 $27,500 QUARTER 3 $27,500 QUARTER 4 $27,500 CASH MANAGEMENT: QUARTER 1 $21,250 QUARTER 2 $21,250 QUARTER 3 $21,250 QUARTER 4 $21,250 AGENCY LICENSING: QUARTER 1 $5,000 QUARTER 2 $5,000 QUARTER 3 $5,000 QUARTER 4 $5,000 CORPORATE LEGAL SERVICES QUARTER 1 $30,000 QUARTER 2 $30,000 QUARTER 3 $30,000 QUARTER 4 $30,000 IMS MAY, FROM TIME TO TIME AS NEEDED, REQUIRE CORPORATE COMMUNICATIONS SERVICES. SUCH SERVICES WILL BE PROVIDED ON AN HOURLY BASIS AS FOLLOWS: CORPORATE COMMUNICATIONS: $40.00 PER HOUR IT IS UNDERSTOOD BY BOTH IMSG AND BANKERS INSURANCE GROUP, INC. THAT SHOULD MATERIAL FLUCTUATIONS IN EITHER A POSITIVE OR NEGATIVE DIRECTION IMPACT IMSG, EITHER PARTY HAS THE RIGHT TO RE-NEGOTIATE THOSE CONTEMPLATED SERVICES AND CORRESPONDING FEES IN LIGHT OF MATERIAL CHANGES IN DEMAND FOR SAID SERVICES. EX-10.13 6 SERVICE AGREEMENT DATED JANUARY 1, 1998 1 EXHIBIT 10.13 SERVICE AGREEMENT SERVICE AGREEMENT ("Agreement") made effective as of the 1st day of January, 1998, by and between Insurance Management Solutions, a Florida corporation (herein, "IMS") and Bankers Insurance Company, a Florida insurance corporation (herein, "BIC"). WHEREAS, IMS has extensive experience in the operation of property/casualty insurance business; and WHEREAS, BIC is an affiliate of IMS and desires IMS to perform certain administrative and special services (collectively "services") for BIC in its operations and desires further to make use in its day to day operations of certain property, equipment, and facilities (herein collectively called, "Facilities") of IMS in Florida and as BIC may request; and WHEREAS, IMS and BIC contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both IMS and BIC; and WHEREAS, IMS and BIC wish to assure that all charges for services and the use of Facilities incurred hereunder are reasonable and are arrived at in a fair and equitable manner, and that estimated charges, whenever used, are adjusted periodically; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, and intending to be legally bound hereby, IMS and BIC agree as follows: 1. PERFORMANCE OF SERVICES AND USE OF FACILITIES. IMS agrees to make available its Facilities to BIC and perform the services hereinafter required for the conduct of its operations, including but not limited to: data processing equipment; business property, whether owned or leased; and communications equipment. IMS agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform this Agreement. A.) Capacity of Personnel: Status of Facilities. Whenever IMS utilizes its personnel to perform services for BIC pursuant to the this Agreement, such personnel shall at all times remain employees of IMS or its affiliates and IMS shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No Facility of IMS used in performing services for or subject to use by BIC shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. B.) Exercise of Judgment in Rendering Services. In providing any services hereunder which require the exercise of judgment by IMS, IMS shall perform any such service in accordance with any standards and guidelines BIC develops and communicates to IMS. In performing any services hereunder, IMS shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interests of BIC, and in any event in accordance with the written standards and guidelines of BIC. C.) Control. The performance of services by IMS for BIC pursuant to this Agreement shall in no way impair the absolute control of the business and operations of IMS or BIC by their respective Boards of Directors. IMS shall act hereunder so as to assure the separate operating identity of BIC. 1 2 A.) Accounting, Tax and Auditing. Under the general supervision of the Board of Directors and responsible officers of BIC, IMS shall provide accounting services as may be required, including preparation and maintenance of the financial statements and reports including preparation and processing of the financial records and transactions of BIC as well as the preparation and distribution of producer (agent) statements and payments and any subsequent billing and collection activities. IMS shall also provide such assistance as may be required with respect to tax and auditing services. B.) Claims. Subject to procedures established by BIC and communicated to IMS and managing general agents, IMS shall provide claims services as may be required, including review of claims services rendered by agents and/or managing general agents of BIC. BIC shall at all times have the ultimate and final authority in determining whether to pay or reject payment on claims. Claims services contemplated as "pass through" costs to BIC include: 1) Defense, litigation and medical cost containment expenses, whether internal or external: (a) 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 salaries for rehabilitation nurses, if such cost is not included in the losses. (b) Attorney fees incurred owing to a duty to defend, even when other coverage does not exist. (c) Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year. (d) Litigation Management expenses. (e) Fixed amounts for medical cost containment expenses. (f) Surveillance expenses. 2) Defense expenses are defined as all expenses to defend claims, excluding adjuster expenses. 3) IMS shall report all claims to BIC in accordance with established criteria including, but not limited to, all claims that present a risk of a finding of bad faith. Such reports shall be made on such basis and with such frequency as BIC may from time to time require. Whenever bad faith claim handling results in a claim payment greater than the applicable policy limits (herein, "Bad Faith Occurrence"), the total amount paid on such claim will be a pass through to BIC as long as BIC gave prior approval to the claim handling management decisions that lead to the Bad Faith Occurrence. If BIC was not give prior approval of the management decisions that lead to the Bad Faith Occurrence, then the amount paid on such claim will only be a pass through to BIC if (i) the Bad Faith Occurrence is based on a common law theory of bad faith, and (ii) the claim handling decisions that lead to the Bad Faith Occurrence were decisions that were fairly debatable. While a court or jury may find that the insurer failed to deal with its insured fairly and honestly, the matter will be deemed to be fairly debatable if the 2 3 fact finder, given the same set of circumstances could reasonably find to the contrary. C) Functional Support Services. Subject to the ultimate control and direction of the BIC Board of Directors, IMS shall provide telecommunications services and electronic data processing services, Facilities and integration, including software programming and documentation and hardware utilization. D) Customer Service. Subject to procedures established by BIC and communicated to IMS, IMS shall provide customer service support as may be required, including responding to telephonic and written inquiries for policy information and modification, receipt of, and accounting for and paying over premium to BIC, policy issuance, policy assembly and policy mailings. E) Except as is herein specifically set forth to the contrary, it is understood IMS shall be providing all of the services for which provision is herein set forth from its principal place of business located in St. Petersburg, FL.; provided that such facility may be relocated from time to time to such reasonable location as IMS may determine upon 60 days' advance notice to BIC. 2. CHARGES. (a) BIC agrees to pay for services and Facilities provided by IMS to BIC pursuant to this Agreement and to reimburse IMS for expenses, all as set forth in Exhibit A which is attached hereto and by reference made a part hereof. (b) IMS's determination of charges hereunder shall be presented to BIC, and if BIC objects to any such determination, it shall so advise IMS within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified puBIC accountants which shall determine the charges properly allocable to BIC and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to IMS and BIC whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified puBIC accountants shall be borne equally by IMS and BIC. 3. PAYMENT. (a) BIC shall advance such funds to IMS as the parties may mutually agree are reasonably necessary to cover the charges (provision for which is set forth in Exhibit A hereof) of BIC for the ensuing calendar quarter. (b) Within thirty (30) days after the end of each month, IMS will submit to BIC a detailed written statement and accounting of the fees and charges due from BIC to IMS for services and the use of Facilities pursuant to this Agreement in the preceding calendar quarter, including charges not included in any previous statements. Any amount advanced by BIC to IMS under Section hereof in excess of (i) the actual charges for services and Facilities rendered and received plus (ii) such amount as is reasonably required for such charges for the subsequent calendar quarter shall be refunded to BIC by IMS along with the detailed written statement and accounting. 4. RECORDS AND DOCUMENTS RELATING TO CHARGES. IMS shall be responsible for maintaining full and accurate accounting records of all services rendered and Facilities used pursuant to this Agreement and such additional information as BIC may 3 4 reasonably request for purposes of its internal bookkeeping and accounting operations. IMS shall make such accounting records insofar as they pertain to the computation of charges hereunder available at its principal offices for audit, inspection and copying by BIC or any governmental agency having jurisdiction over BIC during all reasonable business hours. 5. OTHER RECORDS AND DOCUMENTS. (a) All books, records, and files established and maintained by IMS by reason of its performance under this Agreement which, absent this Agreement, would have been held by BIC, shall be the property of BIC and shall be subject to examination by BIC and persons authorized by it at all times. BIC may at any time require IMS to surrender possession of such books, records and files, whereupon IMS shall deliver them to BIC. (b) Without limiting the generality of the foregoing and notwithstanding anything in this Agreement appearing to the contrary, it is mutually understood and agreed that BIC shall maintain the originals of its books of account at its home office in Florida. For the purposes of this Agreement, the term "books of account" means: the Charter and By-laws; the record containing the names and addresses of shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; the minutes of any meetings of shareholders and of the board of directors and any committees thereof; the general ledger; the investment ledger; journals; the cash book; subsidiary ledgers; annual and quarterly statements; reports on examination; and all minutes supporting annual, quarterly and other statements and reports filed with or submitted to supervisory and regulatory authorities. 6. TERMINATION AND MODIFICATION. This Agreement or any part thereof shall commence and be effective as of January 1, 1998 and shall remain in effect until June 1, 2001; provided that this agreement shall continue thereafter until termination in whole or in part by mutual consent or by either IMS or BIC upon giving ninety (90) days or more advance written notice. Upon termination, IMS shall promptly deliver to BIC all books and records that are, or are deemed by this Agreement to be, the property of BIC. This Agreement may be amended only by mutual consent in writing signed by the parties. 7. SETTLEMENT ON TERMINATION. No later than ninety (90) days after the effective date of termination of this Agreement, IMS shall deliver to BIC a detailed written statement for all charges incurred and not included in any previous statement to the effective date of termination. The amount owed by either party hereunder shall be due and payable within thirty (30) days of receipt of such statement. 8. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except by operation of law. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto, or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other that the parties hereto, or their respective legal successors, from any obligations or liabilities that would otherwise be applicable. 9. GOVERNING LAW. This Agreement is made pursuant to and shall be governed by, interpreted under, and the right of the parties determined in accordance with, the laws of the State of 10. NOTICE. All notices, statements or requests provided for hereunder shall 4 5 be in writing and shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service, as certified or registered mail, postage prepaid, addressed (a) If to IMS to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: David K. Meehan, President (813) 823-4000 x 4201 FAX (813) 823-6518 (b) If to BIC to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: G. Kristin Delano (813) 803-4016 FAX (813) 823-6518 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 11. HEADINGS. The headings of the various paragraphs of this Agreement are for convenience only, and shall be accorded no weight in the construction of this Agreement. 12. ENTIRE AGREEMENT. This Agreement, together with such Amendment as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: BANKERS INSURANCE COMPANY /s/ Erica Rudin BY: /s/G. Kristin Delano - ------------------------------------- ------------------------------------ AS ITS: Corporate Secretary - ------------------------------------- -------------------------------- INSURANCE MANAGEMENT SOLUTIONS, INC. /s/C. Anthony Sexton BY: /s/Jeffrey S. Bragg - ------------------------------------- ------------------------------------ AS ITS: COO - ------------------------------------- -------------------------------- Exhibit A Fee Schedule 5 6 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES
Performance Period: January 1, 1998-June 1, 2001 Customer Service Fees: Homeowners/Dwelling Fire: 8.50% of Direct Premiums Written(1) Flood: 8.00% of Direct Premiums Written(1) Automobile: 10.00% of Direct Premiums Written(1) Claims Service Fees: Homeowners/Dwelling Fire: Property: 7.00% of Direct Earned Premiums(2) IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses from a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Casualty: 10.25% of Direct Earned Premiums(2) Flood: 1.00% of Direct Earned Premiums and 1.50% of Direct Incurred Losses(3) Automobile: Auto Property: 9.00% of Direct Earned Premiums(2) Auto Casualty: 12.50% of Direct Earned Premiums(2) Data Processing Fees: Homeowners/Dwelling Fire: 2.00% of Direct Earned Premiums(2) Flood: 2.00% of Direct Earned Premiums(2) Automobile: 2.00% of Direct Earned Premiums(2) Bail: .20% of Direct Earned Premiums(2) All Other Lines of Business processed by BIC, BSIC & FCIC: 2.00% of Direct Earned Premiums(2) Mailroom, Policy Assembly & Cash Office Service Fees: All Other Lines of Business (not incl.-HO, Flood, Auto, Bail) 1.00% of Direct Earned Premiums(2) Bail: .10% of Direct Earned Premiums(2) Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. 8.00% of Direct Earned Premiums(2)
- --------------- (1) Direct Written Premiums includes gross written premiums net of cancellations. The affiliates pay on the basis of 80% Written and 20% Earned. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. 7 ADDENDUM B ADDENDUM TO SERVICE CONTRACT As respects claims arising from policies issued by Bankers Insurance Company on behalf of the Florida Residential Property Casualty Joint Underwriting Association and the Florida Auto Joint Underwriting Association, Insurance Management Solutions, Inc. has agreed to assume, for a fee, the servicing of all existing indemnity loss claims as well as claims which have occurred but have not yet been reported. Terms of this arrangement are as follows: FLORIDA RESIDENTIAL PROPERTY CASUALTY JOINT UNDERWRITING ASSOCIATION
Effective Date: January 1, 1998 until all such Claims are Settled Fees: $38.75 per Open Claim per Month; this includes Claims Open and closed in Same Accounting Month. Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum. FLORIDA AUTO JOINT UNDERWRITING ASSOCIATION Effective Data: January 1, 1998 until all such Claims are Settled Fees: $175 per Closed Claim File Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum.
8 ADDENDUM TO SERVICES AGREEMENT This is an addendum to a Services Agreement ("Agreement") executed to be effective the 1st day of April, 1998, by and between Bankers Insurance Company (herein "BIC") and Insurance Management Solutions, Inc. (herein "IMS"). WHEREAS, Bankers Insurance Group, Inc. has assigned to BIC an AYO Claims Agreement ("Agreement"), and WHEREAS, BIC desires IMS to administer the Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and intending to be legally bound thereby, BIC and IMS agree as follows: 1. IMS agrees to process and adjust all of the claims under the Agreement pursuant to the terms of the Agreement. 2. The administrative fee equal to 3.3% of the amount of each loss paid shall be allocated 0.65% to BIC and 2.65% to IMS. Cases that close without payment of a claim will produce a reimbursement fee of $75 which shall be paid to IMS. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have set their hands and seals in St. Petersburg, Florida. WITNESSES: BANKERS INSURANCE COMPANY By: /s/ G. Kristin Delano - -------------------------------- --------------------------------- As Its: Corporate Secretary - -------------------------------- ---------------------------- Date: ------------------------------ 1 9 WITNESSES: INSURANCE MANAGEMENT SOLUTIONS, INC. By: /s/ Jeffrey S. Bragg - -------------------------------- --------------------------------- As Its: COO - -------------------------------- ---------------------------- Date: ------------------------------ 2 10 ADDENDUM TO SERVICE AGREEMENTS Service Agreements ("Agreements") by and between Insurance Management Solutions, Inc. ("IMS"), Bankers Insurance Company ("BIC"), First Community Insurance Company ("FCIC"), Bankers Security Insurance Company ("BSIC"), and Bankers Life Insurance Company ("BLIC") have been entered into during the calendar year 1998, WHEREAS, the parties desire to amend those Agreements effective January 1, 1999. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intending to be legally bound hereby, IMS, BIC, FCIC, BSIC and BLIC agree as follows: 1. As regards the Service Agreement between IMS and BLIC, the first sentence of paragraph number 6 of the Agreement entitled "Termination and Modification" shall be revised to reflect that the Agreement can be terminated by BLIC on ninety (90) days prior written notice to IMS. 2. Revised service fees attached as Exhibit "A" are adopted by the parties. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS, INC. BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 11 WITNESSES: BANKERS INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: FIRST COMMUNITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS SECURITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS LIFE INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 2 12 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS INSURANCE CO., FIRST COMMUNITY INSURANCE CO., BANKERS SERCURITY INSURANCE CO. Performance Period: January 1, 1999 - June 30, 2001 Full Service (Homeowners/Dwelling Fire, Flood, Private Passenger Automobile):
HOMEOWNERS/DWELLING FIRE: To 125kPIF Next25k Next25k Next25k Over200k - ------------------------ On Direct Written Premium 10.00% 9.00% 7.00% 5.00% 4.00% On Direct Earned Premium 8.00% 7.00% 7.00% 7.00% 6.00%
FLOOD: To 400kPIF Over400k - ------ On Direct Written Premium 8.00% 6.00% On Direct Earned Premium 1.00% 1.00%
PRIVATE PASSENGER AUTOMOBILE: To 40PIF Next 20k Next 20k Next20k Over100k - ----------------------------- On Direct Written Premium 12.00% 8.00% 7.50% 7.00% 6.50% On Direct Earned Premium 10.00% 8.00% 8.00% 8.00% 8.00%
OTHER CLAIMS SERVICE FEES: Homeowners/Dwelling Fire: IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses form a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Flood: 1.65% of Direct Incurred Losses (3) DATA PROCESSING/MAIL ROOM, POLICY ASSEMBLY, RECORDS MANAGEMENT, CASH OFFICE/CLAIMS: Bail: .30% of Direct Earned Premiums (2) All Other Lines of Business Processed by BIC, BSIC & FCIC To$35Mil $35-$40 $40-$45 $45-$55 $55-$65 $65-$75 On Direct Written Premium 7.50% 6.50% 6.00% 5.00% 4.50% 4.00% On Direct Earned Premium 10.50% 10.50% 10.00% 10.00% 9.50% 9.00%
Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. Fee: 8.00% of Direct Earned Premiums(2) (1) Direct Written Premiums includes gross written premiums net of cancellations. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. (4) PIF = Policies in Force as of each month end accounting period. Mil = Millions of Direct Written Premium. 3 13 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES BANKERS INSURANCE GROUP, INC. AND ITS SUBSIDIARIES (EXCLUDING ITS P & C INSURANCE COMPANIES) Performance: January 1, 1999 - December 31, 2001 Data Processing: 1999 $1,025,000 2000 $1,057,000 2001 $1,087,000 Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: 1999 $100,000 2000 $103,000 2001 $106,000
By reference to an agreement between Insurance Management Solutions Group, Inc. and Bankers Life Insurance Company ("BLIC"), BLIC will be allocated a portion of the above referenced fees. BLIC also will incur a fee for certain claims services performed on its behalf which are expressed in the BLIC fee addendum. 4 14 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS LIFE INSURANCE COMPANY Performance Period: January 1, 1999 - December 31, 2001 Claims Service Fees: 1999 $125,000 2000 $129,000 2001 $133,000 Payment due in quarterly installments. Data Processing: Reference must be made to the Data Processing Fee arrangement with Bankers Insurance Group, of which BLIC is a component. Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: Reference must be made to the arrangement with Bankers Insurance Group, of which BLIC is a component.
EX-10.14 7 SERVICE AGREEMENT BETWEEN IMS AND BANKERS 1 EXHIBIT 10.14 SERVICE AGREEMENT SERVICE AGREEMENT ("Agreement") made effective as of the 1st day of January, 1998, by and between Insurance Management Solutions, a Florida corporation (herein, "IMS") and Bankers Security Insurance Company, a Florida insurance corporation (herein, "BSIC"). WHEREAS, IMS has extensive experience in the operation of property/casualty insurance business; and WHEREAS, BSIC is an affiliate of IMS and desires IMS to perform certain administrative and special services (collectively "services") for BSIC in its operations and desires further to make use in its day to day operations of certain property, equipment, and facilities (herein collectively called, "Facilities") of IMS in Florida and as BSIC may request; and WHEREAS, IMS and BSIC contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both IMS and BSIC; and WHEREAS, IMS and BSIC wish to assure that all charges for services and the use of Facilities incurred hereunder are reasonable and are arrived at in a fair and equitable manner, and that estimated charges, whenever used, are adjusted periodically; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, and intending to be legally bound hereby, IMS and BSIC agree as follows: 1. PERFORMANCE OF SERVICES AND USE OF FACILITIES. IMS agrees to make available its Facilities to BSIC and perform the services hereinafter required for the conduct of its operations, including but not limited to: data processing equipment; business property, whether owned or leased; and communications equipment. IMS agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform this Agreement. A.) Capacity of Personnel: Status of Facilities. Whenever IMS utilizes its personnel to perform services for BSIC pursuant to the this Agreement, such personnel shall at all times remain employees of IMS or its affiliates and IMS shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No Facility of IMS used in performing services for or subject to use by BSIC shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. B.) Exercise of Judgment in Rendering Services. In providing any services hereunder which require the exercise of judgment by IMS, IMS shall perform any such service in accordance with any standards and guidelines BSIC develops and communicates to IMS. In performing any services hereunder, IMS shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interests of BSIC, and in any event in accordance with the written standards and guidelines of BSIC. C.) Control. The performance of services by IMS for BSIC pursuant to this Agreement shall in no way impair the absolute control of the business and operations of IMS or BSIC by their respective Boards of Directors. IMS shall act hereunder so as to assure the separate operating identity of BSIC 1 2 D.) Accounting, Tax and Auditing. Under the general supervision of the Board of Directors and responsible officers of BSIC, IMS shall provide accounting services as may be required, including preparation and maintenance of the financial statements and reports including preparation and processing of the financial records and transactions of BSIC as well as the preparation and distribution of producer (agent) statements and payments and any subsequent billing and collection activities. IMS shall also provide such assistance as may be required with respect to tax and auditing services. E.) Claims. Subject to procedures established by BSIC and communicated to IMS and managing general agents, IMS shall provide claims services as may be required, including review of claims services rendered by agents and/or managing general agents of BSIC. BSIC shall at all times have the ultimate and final authority in determining whether to pay or reject payment on claims. Claims services contemplated as "pass through" costs to BSIC include: 1) Defense, litigation and medical cost containment expenses, whether internal or external: (a) 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 salaries for rehabilitation nurses, if such cost is not included in the losses. (b) Attorney fees incurred owing to a duty to defend, even when other coverage does not exist. (c) Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year. (d) Litigation Management expenses. (e) Fixed amounts for medical cost containment expenses. (f) Surveillance expenses. 2) Defense expenses are defined as all expenses to defend claims, excluding adjuster expenses. 3) IMS shall report all claims to BSIC in accordance with established criteria including, but not limited to, all claims that present a risk of a finding of bad faith. Such reports shall be made on such basis and with such frequency as BSIC may from time to time require. Whenever bad faith claim handling results in a claim payment greater than the applicable policy limits (herein, "Bad Faith Occurrence"), the total amount paid on such claim will be a pass through to BSIC as long as BSIC gave prior approval to the claim handling management decisions that lead to the Bad Faith Occurrence. If BSIC was not give prior approval of the management decisions that lead to the Bad Faith Occurrence, then the amount paid on such claim will only be a pass through to BSIC if (i) the Bad Faith Occurrence is based on a common law theory of bad faith, and (ii) the claim handling decisions that lead to the Bad Faith Occurrence were decisions that were fairly debatable. While a court or jury may find that the insurer failed to deal with its insured fairly and honestly, the matter will be deemed to be fairly debatable if 2 3 the fact finder, given the same set of circumstances could reasonably find to the contrary. C) Functional Support Services. Subject to the ultimate control and direction of the BSIC Board of Directors, IMS shall provide telecommunications services and electronic data processing services, Facilities and integration, including software programming and documentation and hardware utilization. D) Customer Service. Subject to procedures established by BSIC and communicated to IMS, IMS shall provide customer service support as may be required, including responding to telephonic and written inquiries for policy information and modification, receipt of, and accounting for and paying over premium to BSIC, policy issuance, policy assembly and policy mailings. E) Except as is herein specifically set forth to the contrary, it is understood IMS shall be providing all of the services for which provision is herein set forth from its principal place of business located in St. Petersburg, FL.; provided that such facility may be relocated from time to time to such reasonable location as IMS may determine upon 60 days' advance notice to BSIC. 2. CHARGES. (a) BSIC agrees to pay for services and Facilities provided by IMS to BSIC pursuant to this Agreement and to reimburse IMS for expenses, all as set forth in Exhibit A which is attached hereto and by reference made a part hereof. (b) IMS's determination of charges hereunder shall be presented to BSIC, and if BSIC objects to any such determination, it shall so advise IMS within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified puBSIC accountants which shall determine the charges properly allocable to BSIC and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to IMS and BSIC whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified puBSIC accountants shall be borne equally by IMS and BSIC. 3. PAYMENT. (a) BSIC shall advance such funds to IMS as the parties may mutually agree are reasonably necessary to cover the charges (provision for which is set forth in Exhibit A hereof) of BSIC for the ensuing calendar quarter. (b) Within thirty (30) days after the end of each month, IMS will submit to BSIC a detailed written statement and accounting of the fees and charges due from BSIC to IMS for services and the use of Facilities pursuant to this Agreement in the preceding calendar quarter, including charges not included in any previous statements. Any amount advanced by BSIC to IMS under Section hereof in excess of (i) the actual charges for services and Facilities rendered and received plus (ii) such amount as is reasonably required for such charges for the subsequent calendar quarter shall be refunded to BSIC by IMS along with the detailed written statement and accounting. 4. RECORDS AND DOCUMENTS RELATING TO CHARGES. IMS shall be 3 4 responsible for maintaining full and accurate accounting records of all services rendered and Facilities used pursuant to this Agreement and such additional information as BSIC may reasonably request for purposes of its internal bookkeeping and accounting operations. IMS shall make such accounting records insofar as they pertain to the computation of charges hereunder available at its principal offices for audit, inspection and copying by BSIC or any governmental agency having jurisdiction over BSIC during all reasonable business hours. 5. OTHER RECORDS AND DOCUMENTS. (a) All books, records, and files established and maintained by IMS by reason of its performance under this Agreement which, absent this Agreement, would have been held by BSIC, shall be the property of BSIC and shall be subject to examination by BSIC and persons authorized by it at all times. BSIC may at any time require IMS to surrender possession of such books, records and files, whereupon IMS shall deliver them to BSIC. (b) Without limiting the generality of the foregoing and notwithstanding anything in this Agreement appearing to the contrary, it is mutually understood and agreed that BSIC shall maintain the originals of its books of account at its home office in Florida. For the purposes of this Agreement, the term "books of account" means: the Charter and By-laws; the record containing the names and addresses of shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; the minutes of any meetings of shareholders and of the board of directors and any committees thereof; the general ledger; the investment ledger; journals; the cash book; subsidiary ledgers; annual and quarterly statements; reports on examination; and all minutes supporting annual, quarterly and other statements and reports filed with or submitted to supervisory and regulatory authorities. 6. TERMINATION AND MODIFICATION. This Agreement or any part thereof shall commence and be effective as of January 1, 1998 and shall remain in effect until June 1, 2001; provided that this agreement shall continue thereafter until termination in whole or in part by mutual consent or by either IMS or BSIC upon giving ninety (90) days or more advance written notice. Upon termination, IMS shall promptly deliver to BSIC all books and records that are, or are deemed by this Agreement to be, the property of BSIC. This Agreement may be amended only by mutual consent in writing signed by the parties. 7. SETTLEMENT ON TERMINATION. No later than ninety (90) days after the effective date of termination of this Agreement, IMS shall deliver to BSIC a detailed written statement for all charges incurred and not included in any previous statement to the effective date of termination. The amount owed by either party hereunder shall be due and payable within thirty (30) days of receipt of such statement. 8. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except by operation of law. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto, or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other that the parties hereto, or their respective legal successors, from any obligations or liabilities that would otherwise be applicable. 9. GOVERNING LAW. This Agreement is made pursuant to and shall be governed by, interpreted under, and the right of the parties determined in accordance with, the laws of the State of 4 5 10. NOTICE. All notices, statements or requests provided for hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service, as certified or registered mail, postage prepaid, addressed (a) If to IMS to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: David K. Meehan, President (813) 823-4000 x 4201 FAX (813) 823-6518 (b) If to BSIC to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: G. Kristin Delano (813) 803-4016 FAX (813) 823-6518 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 11. HEADINGS. The headings of the various paragraphs of this Agreement are for convenience only, and shall be accorded no weight in the construction of this Agreement. 12. ENTIRE AGREEMENT. This Agreement, together with such Amendment as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: BANKERS SECURITY INSURANCE COMPANY /s/ Erica Rudin BY: /s/G. Kristin Delano - ------------------------------------- ------------------------------------ AS ITS: Corporate Secretary - ------------------------------------- -------------------------------- INSURANCE MANAGEMENT SOLUTIONS, INC. /s/ C. Anthony Sexton BY: /s/Jeffrey S. Bragg - ------------------------------------- ------------------------------------ AS ITS: COO - ------------------------------------- -------------------------------- Exhibit A Fee Schedule 5 6 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES
Performance Period: January 1, 1998-June 1, 2001 Customer Service Fees: Homeowners/Dwelling Fire: 8.50% of Direct Premiums Written(1) Flood: 8.00% of Direct Premiums Written(1) Automobile: 10.00% of Direct Premiums Written(1) Claims Service Fees: Homeowners/Dwelling Fire: Property: 7.00% of Direct Earned Premiums(2) IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses from a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Casualty: 10.25% of Direct Earned Premiums(2) Flood: 1.00% of Direct Earned Premiums and 1.50% of Direct Incurred Losses(3) Automobile: Auto Property: 9.00% of Direct Earned Premiums(2) Auto Casualty: 12.50% of Direct Earned Premiums(2) Data Processing Fees: Homeowners/Dwelling Fire: 2.00% of Direct Earned Premiums(2) Flood: 2.00% of Direct Earned Premiums(2) Automobile: 2.00% of Direct Earned Premiums(2) Bail: .20% of Direct Earned Premiums(2) All Other Lines of Business processed by BIC, BSIC & FCIC: 2.00% of Direct Earned Premiums(2) Mailroom, Policy Assembly & Cash Office Service Fees: All Other Lines of Business (not incl.-HO, Flood, Auto, Bail) 1.00% of Direct Earned Premiums(2) Bail: .10% of Direct Earned Premiums(2) Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. 8.00% of Direct Earned Premiums(2)
- --------------- (1) Direct Written Premiums includes gross written premiums net of cancellations. The affiliates pay on the basis of 80% Written and 20% Earned. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. 7 ADDENDUM B ADDENDUM TO SERVICE CONTRACT As respects claims arising from policies issued by Bankers Insurance Company on behalf of the Florida Residential Property Casualty Joint Underwriting Association and the Florida Auto Joint Underwriting Association, Insurance Management Solutions, Inc. has agreed to assume, for a fee, the servicing of all existing indemnity loss claims as well as claims which have occurred but have not yet been reported. Terms of this arrangement are as follows: FLORIDA RESIDENTIAL PROPERTY CASUALTY JOINT UNDERWRITING ASSOCIATION
Effective Date: January 1, 1998 until all such Claims are Settled Fees: $38.75 per Open Claim per Month; this includes Claims Open and closed in Same Accounting Month. Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum. FLORIDA AUTO JOINT UNDERWRITING ASSOCIATION Effective Data: January 1, 1998 until all such Claims are Settled Fees: $175 per Closed Claim File Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum.
8 ADDENDUM TO SERVICE AGREEMENTS Service Agreements ("Agreements") by and between Insurance Management Solutions, Inc. ("IMS"), Bankers Insurance Company ("BIC"), First Community Insurance Company ("FCIC"), Bankers Security Insurance Company ("BSIC"), and Bankers Life Insurance Company ("BLIC") have been entered into during the calendar year 1998, WHEREAS, the parties desire to amend those Agreements effective January 1, 1999. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intending to be legally bound hereby, IMS, BIC, FCIC, BSIC and BLIC agree as follows: 1. As regards the Service Agreement between IMS and BLIC, the first sentence of paragraph number 6 of the Agreement entitled "Termination and Modification" shall be revised to reflect that the Agreement can be terminated by BLIC on ninety (90) days prior written notice to IMS. 2. Revised service fees attached as Exhibit "A" are adopted by the parties. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS, INC. BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 9 WITNESSES: BANKERS INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: FIRST COMMUNITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS SECURITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS LIFE INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 2 10 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS INSURANCE CO., FIRST COMMUNITY INSURANCE CO., BANKERS SERCURITY INSURANCE CO. Performance Period: January 1, 1999 - June 30, 2001 Full Service (Homeowners/Dwelling Fire, Flood, Private Passenger Automobile):
HOMEOWNERS/DWELLING FIRE: To 125kPIF Next25k Next25k Next25k Over200k - ------------------------ On Direct Written Premium 10.00% 9.00% 7.00% 5.00% 4.00% On Direct Earned Premium 8.00% 7.00% 7.00% 7.00% 6.00%
FLOOD: To 400kPIF Over400k - ------ On Direct Written Premium 8.00% 6.00% On Direct Earned Premium 1.00% 1.00%
PRIVATE PASSENGER AUTOMOBILE: To 40PIF Next 20k Next 20k Next20k Over100k - ----------------------------- On Direct Written Premium 12.00% 8.00% 7.50% 7.00% 6.50% On Direct Earned Premium 10.00% 8.00% 8.00% 8.00% 8.00%
OTHER CLAIMS SERVICE FEES: Homeowners/Dwelling Fire: IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses form a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Flood: 1.65% of Direct Incurred Losses (3) DATA PROCESSING/MAIL ROOM, POLICY ASSEMBLY, RECORDS MANAGEMENT, CASH OFFICE/CLAIMS: Bail: .30% of Direct Earned Premiums (2) All Other Lines of Business Processed by BIC, BSIC & FCIC To$35Mil $35-$40 $40-$45 $45-$55 $55-$65 $65-$75 On Direct Written Premium 7.50% 6.50% 6.00% 5.00% 4.50% 4.00% On Direct Earned Premium 10.50% 10.50% 10.00% 10.00% 9.50% 9.00%
Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. Fee: 8.00% of Direct Earned Premiums(2) (1) Direct Written Premiums includes gross written premiums net of cancellations. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. (4) PIF = Policies in Force as of each month end accounting period. Mil = Millions of Direct Written Premium. 3 11 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES BANKERS INSURANCE GROUP, INC. AND ITS SUBSIDIARIES (EXCLUDING ITS P & C INSURANCE COMPANIES) Performance: January 1, 1999 - December 31, 2001 Data Processing: 1999 $1,025,000 2000 $1,057,000 2001 $1,087,000 Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: 1999 $100,000 2000 $103,000 2001 $106,000
By reference to an agreement between Insurance Management Solutions Group, Inc. and Bankers Life Insurance Company ("BLIC"), BLIC will be allocated a portion of the above referenced fees. BLIC also will incur a fee for certain claims services performed on its behalf which are expressed in the BLIC fee addendum. 4 12 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS LIFE INSURANCE COMPANY Performance Period: January 1, 1999 - December 31, 2001 Claims Service Fees: 1999 $125,000 2000 $129,000 2001 $133,000 Payment due in quarterly installments. Data Processing: Reference must be made to the Data Processing Fee arrangement with Bankers Insurance Group, of which BLIC is a component. Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: Reference must be made to the arrangement with Bankers Insurance Group, of which BLIC is a component.
EX-10.15 8 SERVICE AGREEMENT BETWEEN IMS AND FCIC 1 EXHIBIT 10.15 SERVICE AGREEMENT SERVICE AGREEMENT ("Agreement") made effective as of the 1st day of January, 1998, by and between Insurance Management Solutions, a Florida corporation (herein, "IMS") and First Community Insurance Company, a New York insurance corporation (herein, "FCIC"). WHEREAS, IMS has extensive experience in the operation of property/casualty insurance business; and WHEREAS, FCIC is an affiliate of IMS and desires IMS to perform certain administrative and special services (collectively "services") for FCIC in its operations and desires further to make use in its day to day operations of certain property, equipment, and facilities (herein collectively called, "Facilities") of IMS in Florida and as FCIC may request; and WHEREAS, IMS and FCIC contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both IMS and FCIC; and WHEREAS, IMS and FCIC wish to assure that all charges for services and the use of Facilities incurred hereunder are reasonable and are arrived at in a fair and equitable manner, and that estimated charges, whenever used, are adjusted periodically; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, and intending to be legally bound hereby, IMS and FCIC agree as follows: 1. PERFORMANCE OF SERVICES AND USE OF FACILITIES. IMS agrees to make available its Facilities to FCIC and perform the services hereinafter required for the conduct of its operations, including but not limited to: data processing equipment; business property, whether owned or leased; and communications equipment. IMS agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform this Agreement. A.) Capacity of Personnel: Status of Facilities. Whenever IMS utilizes its personnel to perform services for FCIC pursuant to the this Agreement, such personnel shall at all times remain employees of IMS or its affiliates and IMS shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No Facility of IMS used in performing services for or subject to use by FCIC shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. B.) Exercise of Judgment in Rendering Services. In providing any services hereunder which require the exercise of judgment by IMS, IMS shall perform any such service in accordance with any standards and guidelines FCIC develops and communicates to IMS. In performing any services hereunder, IMS shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interests of FCIC, and in any event in accordance with the written standards and guidelines of FCIC. C.) Control. The performance of services by IMS for FCIC pursuant to this Agreement shall in no way impair the absolute control of the business and operations of IMS or FCIC by their respective Boards of Directors. IMS shall act hereunder so as to 2 assure the separate operating identity of FCIC D.) Accounting, Tax and Auditing. Under the general supervision of the Board of Directors and responsible officers of FCIC, IMS shall provide accounting services as may be required, including preparation and maintenance of the financial statements and reports including preparation and processing of the financial records and transactions of FCIC as well as the preparation and distribution of producer (agent) statements and payments and any subsequent billing and collection activities. IMS shall also provide such assistance as may be required with respect to tax and auditing services. E.) Claims. Subject to procedures established by FCIC and communicated to IMS and managing general agents, IMS shall provide claims services as may be required, including review of claims services rendered by agents and/or managing general agents of FCIC. FCIC shall at all times have the ultimate and final authority in determining whether to pay or reject payment on claims. Claims services contemplated as "pass through" costs to FCIC include: 1) Defense, litigation and medical cost containment expenses, whether internal or external: (a) 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 salaries for rehabilitation nurses, if such cost is not included in the losses. (b) Attorney fees incurred owing to a duty to defend, even when other coverage does not exist. (c) Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year. (d) Litigation Management expenses. (e) Fixed amounts for medical cost containment expenses. (f) Surveillance expenses. 2) Defense expenses are defined as all expenses to defend claims, excluding adjuster expenses. 3) IMS shall report all claims to FCIC in accordance with established criteria including, but not limited to, all claims that present a risk of a finding of bad faith. Such reports shall be made on such basis and with such frequency as FCIC may from time to time require. Whenever bad faith claim handling results in a claim payment greater than the applicable policy limits (herein, "Bad Faith Occurrence"), the total amount paid on such claim will be a pass through to FCIC as long as FCIC gave prior approval to the claim handling management decisions that lead to the Bad Faith Occurrence. If FCIC was not give prior approval of the management decisions that lead to the Bad Faith Occurrence, then the amount paid on such claim will only be a pass through to FCIC if (i) the Bad Faith Occurrence is based on a common law theory of bad faith, and (ii) the claim handling decisions that lead to the Bad Faith Occurrence were decisions that were fairly debatable. While a court or jury may find that the insurer failed to deal with its insured fairly and honestly, the matter will be deemed to be fairly debatable if the fact finder, given the same set of circumstances could reasonably find to the contrary. 3 C) Functional Support Services. Subject to the ultimate control and direction of the FCIC Board of Directors, IMS shall provide telecommunications services and electronic data processing services, Facilities and integration, including software programming and documentation and hardware utilization. D) Customer Service. Subject to procedures established by FCIC and communicated to IMS, IMS shall provide customer service support as may be required, including responding to telephonic and written inquiries for policy information and modification, receipt of, and accounting for and paying over premium to FCIC, policy issuance, policy assembly and policy mailings. E) Except as is herein specifically set forth to the contrary, it is understood IMS shall be providing all of the services for which provision is herein set forth from its principal place of business located in St. Petersburg, FL.; provided that such facility may be relocated from time to time to such reasonable location as IMS may determine upon 60 days' advance notice to FCIC. 2. CHARGES. (a) FCIC agrees to pay for services and Facilities provided by IMS to FCIC pursuant to this Agreement and to reimburse IMS for expenses, all as set forth in Exhibit A which is attached hereto and by reference made a part hereof. (b) IMS's determination of charges hereunder shall be presented to FCIC, and if FCIC objects to any such determination, it shall so advise IMS within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified public accountants which shall determine the charges properly allocable to FCIC and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to IMS and FCIC whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified public accountants shall be borne equally by IMS and FCIC. 3. PAYMENT. (a) FCIC shall advance such funds to IMS as the parties may mutually agree are reasonably necessary to cover the charges (provision for which is set forth in Exhibit A hereof) of FCIC for the ensuing calendar quarter. (b) Within thirty (30) days after the end of each month, IMS will submit to FCIC a detailed written statement and accounting of the fees and charges due from FCIC to IMS for services and the use of Facilities pursuant to this Agreement in the preceding calendar quarter, including charges not included in any previous statements. Any amount advanced by FCIC to IMS under Section hereof in excess of (i) the actual charges for services and Facilities rendered and received plus (ii) such amount as is reasonably required for such charges for the subsequent calendar quarter shall be refunded to FCIC by IMS along with the detailed written statement and accounting. 4. RECORDS AND DOCUMENTS RELATING TO CHARGES. IMS shall be responsible for maintaining full and accurate accounting records of all services rendered and Facilities used pursuant to this Agreement and such additional information as FCIC may reasonably request for purposes of its internal bookkeeping and accounting 4 operations. IMS shall make such accounting records insofar as they pertain to the computation of charges hereunder available at its principal offices for audit, inspection and copying by FCIC or any governmental agency having jurisdiction over FCIC during all reasonable business hours. 5. OTHER RECORDS AND DOCUMENTS. (a) All books, records, and files established and maintained by IMS by reason of its performance under this Agreement which, absent this Agreement, would have been held by FCIC, shall be the property of FCIC and shall be subject to examination by FCIC and persons authorized by it at all times. FCIC may at any time require IMS to surrender possession of such books, records and files, whereupon IMS shall deliver them to FCIC. (b) Without limiting the generality of the foregoing and notwithstanding anything in this Agreement appearing to the contrary, it is mutually understood and agreed that FCIC shall maintain the originals of its books of account at its home office in New York. For the purposes of this Agreement, the term "books of account" means: the Charter and By-laws; the record containing the names and addresses of shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; the minutes of any meetings of shareholders and of the board of directors and any committees thereof; the general ledger; the investment ledger; journals; the cash book; subsidiary ledgers; annual and quarterly statements; reports on examination; and all minutes supporting annual, quarterly and other statements and reports filed with or submitted to supervisory and regulatory authorities. 6. TERMINATION AND MODIFICATION. This Agreement or any part thereof shall commence and be effective as of January 1, 1998 and shall remain in effect until June 1, 2001; provided that this agreement shall continue thereafter until termination in whole or in part by mutual consent or by either IMS or FCIC upon giving ninety (90) days or more advance written notice. Upon termination, IMS shall promptly deliver to FCIC all books and records that are, or are deemed by this Agreement to be, the property of FCIC. This Agreement may be amended only by mutual consent in writing signed by the parties. 7. SETTLEMENT ON TERMINATION. No later than ninety (90) days after the effective date of termination of this Agreement, IMS shall deliver to FCIC a detailed written statement for all charges incurred and not included in any previous statement to the effective date of termination. The amount owed by either party hereunder shall be due and payable within thirty (30) days of receipt of such statement. 8. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except by operation of law. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto, or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other that the parties hereto, or their respective legal successors, from any obligations or liabilities that would otherwise be applicable. 9. GOVERNING LAW. This Agreement is made pursuant to and shall be governed by, interpreted under, and the right of the parties determined in accordance with, the laws of the State of New York. 10. NOTICE. All notices, statements or requests provided for hereunder shall 5 be in writing and shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service, as certified or registered mail, postage prepaid, addressed (a) If to IMS to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: David K. Meehan, President (813) 823-4000 x 4201 FAX (813) 823-6518 (b) If to FCIC to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: G. Kristin Delano (813) 803-4016 FAX (813) 823-6518 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 11. HEADINGS. The headings of the various paragraphs of this Agreement are for convenience only, and shall be accorded no weight in the construction of this Agreement. 12. ENTIRE AGREEMENT. This Agreement, together with such Amendment as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: FIRST COMMUNITY INSURANCE COMPANY BY: - ------------------------------------- ------------------------------------ AS ITS: - ------------------------------------- -------------------------------- INSURANCE MANAGEMENT SOLUTIONS, INC. BY: - ------------------------------------- ------------------------------------ AS ITS: - ------------------------------------- -------------------------------- Exhibit A Fee Schedule 6 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES
Performance Period: January 1, 1998-June 1, 2001 Customer Service Fees: Homeowners/Dwelling Fire: 8.50% of Direct Premiums Written(1) Flood: 8.00% of Direct Premiums Written(1) Automobile: 10.00% of Direct Premiums Written(1) Claims Service Fees: Homeowners/Dwelling Fire: Property: 7.00% of Direct Earned Premiums(2) IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses from a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Casualty: 10.25% of Direct Earned Premiums(2) Flood: 1.00% of Direct Earned Premiums and 1.50% of Direct Incurred Losses(3) Automobile: Auto Property: 9.00% of Direct Earned Premiums(2) Auto Casualty: 12.50% of Direct Earned Premiums(2) Data Processing Fees: Homeowners/Dwelling Fire: 2.00% of Direct Earned Premiums(2) Flood: 2.00% of Direct Earned Premiums(2) Automobile: 2.00% of Direct Earned Premiums(2) Bail: .20% of Direct Earned Premiums(2) All Other Lines of Business processed by BIC, BSIC & FCIC: 2.00% of Direct Earned Premiums(2) Mailroom, Policy Assembly & Cash Office Service Fees: All Other Lines of Business (not incl.-HO, Flood, Auto, Bail) 1.00% of Direct Earned Premiums(2) Bail: .10% of Direct Earned Premiums(2) Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. 8.00% of Direct Earned Premiums(2)
- --------------- (1) Direct Written Premiums includes gross written premiums net of cancellations. The affiliates pay on the basis of 80% Written and 20% Earned. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. 7 ADDENDUM B ADDENDUM TO SERVICE CONTRACT As respects claims arising from policies issued by Bankers Insurance Company on behalf of the Florida Residential Property Casualty Joint Underwriting Association and the Florida Auto Joint Underwriting Association, Insurance Management Solutions, Inc. has agreed to assume, for a fee, the servicing of all existing indemnity loss claims as well as claims which have occurred but have not yet been reported. Terms of this arrangement are as follows: FLORIDA RESIDENTIAL PROPERTY CASUALTY JOINT UNDERWRITING ASSOCIATION
Effective Date: January 1, 1998 until all such Claims are Settled Fees: $38.75 per Open Claim per Month; this includes Claims Open and closed in Same Accounting Month. Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum. FLORIDA AUTO JOINT UNDERWRITING ASSOCIATION Effective Data: January 1, 1998 until all such Claims are Settled Fees: $175 per Closed Claim File Definition of LAE: The same definition of both ULAE and ALAE as applies to all other Claims Service Agreements between the parties applies to this Addendum.
8 ADDENDUM TO SERVICE AGREEMENTS Service Agreements ("Agreements") by and between Insurance Management Solutions, Inc. ("IMS"), Bankers Insurance Company ("BIC"), First Community Insurance Company ("FCIC"), Bankers Security Insurance Company ("BSIC"), and Bankers Life Insurance Company ("BLIC") have been entered into during the calendar year 1998, WHEREAS, the parties desire to amend those Agreements effective January 1, 1999. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intending to be legally bound hereby, IMS, BIC, FCIC, BSIC and BLIC agree as follows: 1. As regards the Service Agreement between IMS and BLIC, the first sentence of paragraph number 6 of the Agreement entitled "Termination and Modification" shall be revised to reflect that the Agreement can be terminated by BLIC on ninety (90) days prior written notice to IMS. 2. Revised service fees attached as Exhibit "A" are adopted by the parties. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS, INC. BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 9 WITNESSES: BANKERS INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: FIRST COMMUNITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS SECURITY INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS LIFE INSURANCE COMPANY BY: - --------------------------------- ---------------------------------- AS ITS: - --------------------------------- ------------------------------ DATE: -------------------------------- 2 10 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS INSURANCE CO., FIRST COMMUNITY INSURANCE CO., BANKERS SERCURITY INSURANCE CO. Performance Period: January 1, 1999 - June 30, 2001 Full Service (Homeowners/Dwelling Fire, Flood, Private Passenger Automobile):
HOMEOWNERS/DWELLING FIRE: To 125kPIF Next25k Next25k Next25k Over200k - ------------------------ On Direct Written Premium 10.00% 9.00% 7.00% 5.00% 4.00% On Direct Earned Premium 8.00% 7.00% 7.00% 7.00% 6.00%
FLOOD: To 400kPIF Over400k - ------ On Direct Written Premium 8.00% 6.00% On Direct Earned Premium 1.00% 1.00%
PRIVATE PASSENGER AUTOMOBILE: To 40PIF Next 20k Next 20k Next20k Over100k - ----------------------------- On Direct Written Premium 12.00% 8.00% 7.50% 7.00% 6.50% On Direct Earned Premium 10.00% 8.00% 8.00% 8.00% 8.00%
OTHER CLAIMS SERVICE FEES: Homeowners/Dwelling Fire: IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses form a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Flood: 1.65% of Direct Incurred Losses (3) DATA PROCESSING/MAIL ROOM, POLICY ASSEMBLY, RECORDS MANAGEMENT, CASH OFFICE/CLAIMS: Bail: .30% of Direct Earned Premiums (2) All Other Lines of Business Processed by BIC, BSIC & FCIC To$35Mil $35-$40 $40-$45 $45-$55 $55-$65 $65-$75 On Direct Written Premium 7.50% 6.50% 6.00% 5.00% 4.50% 4.00% On Direct Earned Premium 10.50% 10.50% 10.00% 10.00% 9.50% 9.00%
Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. Fee: 8.00% of Direct Earned Premiums(2) (1) Direct Written Premiums includes gross written premiums net of cancellations. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. (4) PIF = Policies in Force as of each month end accounting period. Mil = Millions of Direct Written Premium. 3 11 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES BANKERS INSURANCE GROUP, INC. AND ITS SUBSIDIARIES (EXCLUDING ITS P & C INSURANCE COMPANIES) Performance: January 1, 1999 - December 31, 2001 Data Processing: 1999 $1,025,000 2000 $1,057,000 2001 $1,087,000 Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: 1999 $100,000 2000 $103,000 2001 $106,000
By reference to an agreement between Insurance Management Solutions Group, Inc. and Bankers Life Insurance Company ("BLIC"), BLIC will be allocated a portion of the above referenced fees. BLIC also will incur a fee for certain claims services performed on its behalf which are expressed in the BLIC fee addendum. 4 12 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS LIFE INSURANCE COMPANY Performance Period: January 1, 1999 - December 31, 2001 Claims Service Fees: 1999 $125,000 2000 $129,000 2001 $133,000 Payment due in quarterly installments. Data Processing: Reference must be made to the Data Processing Fee arrangement with Bankers Insurance Group, of which BLIC is a component. Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: Reference must be made to the arrangement with Bankers Insurance Group, of which BLIC is a component.
EX-10.76 9 TAX ALLOCATION AGREEMENT 1 EXHIBIT 10.76 TAX ALLOCATION AGREEMENT This Tax Allocation Agreement is executed to be effective as of the 31st day of July, 1998, by and between Insurance Management Solutions Group, Inc. (herein, "IMSG") and each of the subsidiaries of IMSG: Insurance Management Solutions, Inc. and Geotrac of America, Inc. f/k/a Bankers Hazard Determination Services, Inc., a Florida corporation and Geotrac, Inc., an Ohio Corporation (herein collectively called, "Consolidated Group"). For convenience, each corporation within the Consolidated Group shall be called, "Member". R E C I T A L S : 1. IMSG is the ultimate United States domestic controlling corporation in the Consolidated Group. 2. The Consolidated Group has previously filed a consolidated income tax return with the Internal Revenue Service in conformance with that certain Tax Allocation Agreement dated December 3, 1982, and an Amended and Completely Restated Tax Allocation Agreement effective October 1, 1993 by and among Bankers International Financial Corporation (herein "BIFC") and its various subsidiaries (herein, "Prior Agreements"). 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. The Prior Agreements were terminated between BIFC and IMSG effective as of the close of business on July 31, 1998. 2. A U.S. consolidated income tax return shall be filed by IMSG for each taxable year in respect of which this Agreement is in effect and for which the Consolidated Group is required or permitted to file a consolidated tax return. Each Member shall execute and file such consent, elections, and other documents that may be required or appropriate for the proper filing of such returns. 3. (a) For each taxable period, each Member shall compute its separate tax liability as if it had filed a separate tax return in accordance with Treasury Reg. Section 1.1552-(1) (a) (2). (b) For each taxable period, the Consolidated Group shall compute its tax liability on a consolidated basis as provided in Treasury Reg. Section 1.1501 et seq. (c) For each taxable period, in accordance with Treasury Reg. Section 1.1502-33 (d)(2)(ii), an additional amount shall be allocated to each Member to the extent the Member's tax liability computed on a separate return basis exceeds the portion of the consolidated tax liability apportioned to such member under Treasury Reg. Section 1.1552 (1)(a)(2). 1 2 (d) Each Member whose tax liability has been reduced by reason of the filing of a consolidated return and the appropriation of foreign tax credits, investment credits, losses, or any loss carry over (herein collectively called, "Credits") generated by other Members shall pay to IMSG, or such Member as IMSG may direct, cash in the amount of such tax savings. (e) IMSG shall pay (or cause to be paid) to each Member the amount of any Credits generated by that Member to the extent actually used in the consolidated return. Payment shall be equal to the savings generated by the Credits. (f) Once a Member is paid for its Credits, it cannot use such Credits in the calculation of its tax liability on the "separate return basis." Any of the Members' Credits which are not used in the consolidated return and for which it has not been paid shall be retained by the Member for possible future use. (g) For purposes of this Agreement, a separate return is defined as a return completed by an insurer as if it were and had been filed as a separate individual tax payer. However, intercompany transactions which are deferred under the consolidated tax return filing will be recognized. 4. All settlements under this Agreement shall be made within 30 days of the filing of the applicable estimated or actual consolidated federal corporate income tax return with the Internal Revenue Service, except where a refund is due the parent, in which case payment may be deferred to the Member within 30 days of receipt of such refund. All settlements shall be in cash or securities eligible as investments for an insurance company organized and existing under the laws of the State of Florida. Securities shall be valued at market value. 5. If taxable income, special deductions or credits reported in a consolidated federal income tax return are revised by the Internal Revenue Service or other appropriate authority, a recalculation of the tax liability for all parties to the Agreement shall be made. 6. This Agreement shall be terminated if: (h) The parties agree in writing to such termination; (i) Membership in the Consolidated Group (or the Consolidated Group itself) ceases or is terminated for any reason; or (j) The Consolidated Group fails to file a consolidated return for any taxable year. 7. Notwithstanding the termination of this Agreement, its provisions will remain in effect with respect to any period of time during the tax year in which the termination occurs, for which the income of the terminating party must be included in a consolidated income tax return. Further, notwithstanding any termination of this Agreement, all material including, but not limited to, returns, supporting schedules, work papers, correspondence and other documents relating to the consolidated return shall be made available to any Member during regular business hours. 2 3 8. This Agreement shall not be assignable by any Member without the prior written consent of all of the other Members. 9. Any unresolved difference between the parties arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and the Expedited Procedures thereof, and judgment upon the award rendered by the Arbitrator may be entered in any Court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals in St. Petersburg, Florida. Insurance Management Solutions Group, Inc. (and designated subsidiaries) Attest: By: /s/ Kelly K. King By: /s/ Jeffrey S. Bragg --------------------------------- ------------------------------ Kelly K. King, Secretary Jeffrey S. Bragg, Vice President Date: 8/14/98 Date: 8/14/98 -------------------------------- ----------------------------- 3 4 ADDENDUM TO TAX ALLOCATION AGREEMENT This is an addendum to the Tax Allocation Agreement ("Agreement") which was executed to be effective the 31st day of July, 1998 by and between Insurance Management Solutions Group, Inc. ("IMSG") and each of the subsidiaries of IMSG: Insurance Management Solutions, Inc. and Geotrac of America, Inc. f/k/a Bankers Hazard Determination Services, Inc., a Florida corporation, and Geotrac, Inc., an Ohio corporation (herein collectively called "Consolidated Group"). For convenience, each corporation within the Consolidated Group shall be called, "Member". R E C I T A L S WHEREAS, the Agreement included all of the subsidiaries of IMSG at the time the Agreement was executed; and WHEREAS, in October, 1998, IMSG created another wholly owned subsidiary known as IMS Direct, Inc. ("Direct"); and WHEREAS, the parties desire that Direct be treated as a Member of the Consolidated Group. NOW, THEREFORE, in consideration of mutual covenants and agreements and hereinafter set forth as well as other good and valuable consideration, the parties hereto do covenant and agree as follows: 1. As of the date of its incorporation, Direct shall become a Member of the Consolidated Group and consents to being bound by all the terms and conditions of the Agreement and this Addendum. 2. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have set their hands and seals in St. Petersburg, Florida. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ Jeffrey S. Bragg - ---------------------------- --------------------------------- As Its: COO - ---------------------------- ----------------------------- Date: ------------------------------ 1 5 WITNESSES: IMS DIRECT, INC. By: /s/ Kelly K. King - ---------------------------- --------------------------------- As Its: CFO - ---------------------------- ----------------------------- Date: 12/2/98 ------------------------------- 2 EX-10.83 10 SERVICE AGREEMENT BETWEEN IMS AND BLIC 1 EXHIBIT 10.83 SERVICE AGREEMENT SERVICE AGREEMENT ("Agreement") made effective as of the 1st day of December, 1998, by and between Insurance Management Solutions, a Florida corporation (herein, "IMS") and Bankers Life Insurance Company, a Florida insurance corporation (herein, "BLIC"). WHEREAS, BLIC is an affiliate of IMS and desires IMS to perform certain administrative and special services (collectively "services") for BLIC in its operations and desires further to make use in its day to day operations of certain property, equipment, and facilities (herein collectively called, "Facilities") of IMS in Florida and as BLIC may request; and WHEREAS, IMS and BLIC contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both IMS and BLIC; and WHEREAS, IMS and BLIC wish to assure that all charges for services and the use of Facilities incurred hereunder are reasonable and are arrived at in a fair and equitable manner, and that estimated charges, whenever used, are adjusted periodically; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, and intending to be legally bound hereby, IMS and BLIC agree as follows: 1. PERFORMANCE OF SERVICES AND USE OF FACILITIES. IMS agrees to make available its Facilities to BLIC and perform the services hereinafter required for the conduct of its operations, including but not limited to: data processing equipment; business property, whether owned or leased; and communications equipment. IMS agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform this Agreement. A.) Capacity of Personnel: Status of Facilities. Whenever IMS utilizes its personnel to perform services for BLIC pursuant to the this Agreement, such personnel shall at all times remain employees of IMS or its affiliates and IMS shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No Facility of IMS used in performing services for or subject to use by BLIC shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. B.) Exercise of Judgment in Rendering Services. In providing any services hereunder which require the exercise of judgment by IMS, IMS shall perform any such service in accordance with any standards and guidelines BLIC develops and communicates to IMS. In performing any services hereunder, IMS shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interests of BLIC, and in any event in accordance with the written standards and guidelines which may be developed by BLIC in the future. C.) Control. The performance of services by IMS for BLIC pursuant to this Agreement shall in no way impair the absolute control of the business and operations of IMS or BLIC by their respective Boards of Directors. IMS shall act hereunder so as to assure the separate operating identity of BLIC. D.) Claims. Subject to procedures established by BLIC and 1 2 communicated to IMS and general agents, IMS shall provide claims services as may be required, including review of claims services rendered by agents and/or general agents of BLIC. BLIC shall at all times have the ultimate and final authority in determining whether to pay or reject payment on claims. Claims services contemplated under this agreement include: 1.) Consulting and support work from IMS claims litigation management unit. 2.) Consulting and support work from the Special Investigation Unit. 3.) Telephone support, record storage, retention and retrieval from the Claims Service Center. 4.) Consulting from the Medical Resource Unit relative to medical records. E.) Functional Support Services. Subject to the ultimate control and direction of the BLIC Board of Directors, IMS shall provide telecommunications services and electronic data processing services, Facilities and integration, including software programming and documentation and hardware utilization. IMS shall make available: 1.) The use of its two AS400's to run a production and test version of the vendor software utilized by BLIC to process its business. 2.) Use and technical support of the LAN network, support from its Service Center and the Help Desk. 3.) Programming support on an as needed basis. F.) Mail Services. IMS shall provide needed mail services, including, but not limited to, sorting and delivery. G.) Location. Except as is herein specifically set forth to the contrary, it is understood IMS shall be providing all of the services for which provision is herein set forth from its principal place of business located in St. Petersburg, FL.; provided that such facility may be relocated from time to time to such reasonable location as IMS may determine upon advance notice to BLIC. 2. CHARGES. (a) Within 30 days of receipt of itemized billings, BLIC agrees to pay for services and Facilities provided by IMS to BLIC pursuant to this Agreement and to reimburse IMS for expenses, all as set forth in Exhibit A which is attached hereto and by reference made a part hereof. (b) IMS's determination of charges hereunder shall be presented to BLIC, and if BLIC objects to any such determination, it shall so advise IMS within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified public accountants which shall determine the charges properly allocable to BLIC and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to IMS and BLIC whereupon such determination shall be binding. The expenses of such a 2 3 determination by a firm of independent certified public accountants shall be borne equally by IMS and BLIC. 3. CONTINGENCY PLAN. IMS will maintain a contingency plan in case of disaster affecting its hardware or software and will test that plan periodically and make the results of those tests available to its clients upon request. BLIC will be covered under this contingency plan in the event of a disaster. 4. RECORDS AND DOCUMENTS RELATING TO CHARGES. IMS shall be responsible for maintaining full and accurate accounting records of all services rendered and Facilities used pursuant to this Agreement and such additional information as BLIC may reasonably request for purposes of its internal bookkeeping and accounting operations. IMS shall make such accounting records insofar as they pertain to the computation of charges hereunder available at its principal offices for audit, inspection and copying by BLIC or any governmental agency having jurisdiction over BLIC during all reasonable business hours. 5. OTHER RECORDS AND DOCUMENTS. (a) All books, records, and files established and maintained by IMS by reason of its performance under this Agreement which, absent this Agreement, would have been held by BLIC, shall be the property of BLIC and shall be subject to examination by BLIC and persons authorized by it at all times. BLIC may at any time require IMS to surrender possession of such books, records and files, whereupon IMS shall deliver them to BLIC. (b) Without limiting the generality of the foregoing and notwithstanding anything in this Agreement appearing to the contrary, it is mutually understood and agreed that BLIC shall maintain the originals of its books of account at its home office in Florida. For the purposes of this Agreement, the term "books of account" means: the Charter and By-laws; the record containing the names and addresses of shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; the minutes of any meetings of shareholders and of the board of directors and any committees thereof; the general ledger; the investment ledger; journals; the cash book; subsidiary ledgers; annual and quarterly statements; reports on examination; and all minutes supporting annual, quarterly and other statements and reports filed with or submitted to supervisory and regulatory authorities. 6. TERMINATION AND MODIFICATION. This Agreement or any part thereof shall commence and be effective as of December 1, 1998 and shall remain in effect until June 1, 2001; provided that this agreement shall continue thereafter until termination in whole or in part by mutual consent or by either IMS or BLIC upon giving ninety (90) days or more advance written notice. Upon termination, IMS shall promptly deliver to BLIC all books and records that are, or are deemed by this Agreement to be, the property of BLIC. This Agreement may be amended only by mutual consent in writing signed by the parties. 7. SETTLEMENT ON TERMINATION. No later than ninety (90) days after the effective date of termination of this Agreement, IMS shall deliver to BLIC a detailed written statement for all charges incurred and not included in any previous statement to the effective date of termination. The amount owed by either party hereunder shall be due and payable within thirty (30) days of receipt of such statement. 8. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except by operation of law. Nothing in this Agreement, 3 4 expressed or implied, is intended to confer on any person other than the parties hereto, or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other that the parties hereto, or their respective legal successors, from any obligations or liabilities that would otherwise be applicable. 9. GOVERNING LAW. This Agreement is made pursuant to and shall be governed by, interpreted under, and the right of the parties determined in accordance with, the laws of the State of Florida. 10. NOTICE. All notices, statements or requests provided for hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service, as certified or registered mail, postage prepaid, addressed (a) If to IMS to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: David K. Meehan, President (813) 823-4000 x 4201 FAX (813) 823-6518 (b) If to BLIC to: 360 Central Avenue P.O. Box 15707 St. Petersburg, FL 33733 Attn: G. Kristin Delano (813) 803-4016 FAX (813) 823-6518 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 11. HEADINGS. The headings of the various paragraphs of this Agreement are for convenience only, and shall be accorded no weight in the construction of this Agreement. 12. ENTIRE AGREEMENT. This Agreement, together with such Amendment as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. 4 5 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: BANKERS LIFE INSURANCE COMPANY /s/ Erica Rudin BY: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- /s/ Dawn Wutiske AS ITS: Corporate Secretary - --------------------------------- ------------------------------ INSURANCE MANAGEMENT SOLUTIONS, INC. /s/ Dawn Wutiske BY: /s/ Kelly K. King - --------------------------------- ---------------------------------- /s/ Erica Rudin AS ITS: Chief Financial Officer - --------------------------------- ------------------------------ Exhibit A Fee Schedule 5 6 ADDENDUM TO SERVICE AGREEMENTS Service Agreements ("Agreements") by and between Insurance Management Solutions, Inc. ("IMS"), Bankers Insurance Company ("BIC"), First Community Insurance Company ("FCIC"), Bankers Security Insurance Company ("BSIC"), and Bankers Life Insurance Company ("BLIC") have been entered into during the calendar year 1998, WHEREAS, the parties desire to amend those Agreements effective January 1, 1999. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intending to be legally bound hereby, IMS, BIC, FCIC, BSIC and BLIC agree as follows: 1. As regards the Service Agreement between IMS and BLIC, the first sentence of paragraph number 6 of the Agreement entitled "Termination and Modification" shall be revised to reflect that the Agreement can be terminated by BLIC on ninety (90) days prior written notice to IMS. 2. As regards those portions of the Agreements between IMS and BIC, FCIC and BSIC that relate to services described as "All Other Lines of Business" in the attached Exhibit "A", those services and fees can be terminated by BIC, FCIC or BSIC, as the case may be, on ninety (90) days prior written notice to IMS. 3. Revised service fees attached as Exhibit "A" are adopted by the parties. 4. Except for the terms of this Addendum, all other terms of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto as of the date and year first above written. WITNESSES: INSURANCE MANAGEMENT SOLUTIONS, INC. /s/ C. Anthony Sexton BY: Jeffrey S. Bragg - --------------------------------- ---------------------------------- AS ITS: COO - --------------------------------- ------------------------------ DATE: -------------------------------- 7 WITNESSES: BANKERS INSURANCE COMPANY /s/ Kyle C. Reynolds BY: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- /s/ Erica Rudin AS ITS: Corporate Secretary - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: FIRST COMMUNITY INSURANCE COMPANY /s/ Kyle C. Reynolds BY: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- /s/ Erica Rudin AS ITS: Corporate Secretary - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS SECURITY INSURANCE COMPANY /s/ Kyle C. Reynolds BY: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- /s/ Erica Rudin AS ITS: Corporate Secretary - --------------------------------- ------------------------------ DATE: -------------------------------- WITNESSES: BANKERS LIFE INSURANCE COMPANY /s/ Kyle C. Reynolds BY: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- /s/ Erica Rudin AS ITS: Corporate Secretary - --------------------------------- ------------------------------ DATE: -------------------------------- 2 8 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS INSURANCE CO., FIRST COMMUNITY INSURANCE CO., BANKERS SERCURITY INSURANCE CO. Performance Period: January 1, 1999 - June 30, 2001 Full Service (Homeowners/Dwelling Fire, Flood, Private Passenger Automobile):
HOMEOWNERS/DWELLING FIRE: To 125kPIF Next25k Next25k Next25k Over200k - ------------------------ On Direct Written Premium 10.00% 9.00% 7.00% 5.00% 4.00% On Direct Earned Premium 8.00% 7.00% 7.00% 7.00% 6.00%
FLOOD: To 400kPIF Over400k - ------ On Direct Written Premium 8.00% 6.00% On Direct Earned Premium 1.00% 1.00%
PRIVATE PASSENGER AUTOMOBILE: To 40PIF Next 20k Next 20k Next20k Over100k - ----------------------------- On Direct Written Premium 12.00% 8.00% 7.50% 7.00% 6.50% On Direct Earned Premium 10.00% 8.00% 8.00% 8.00% 8.00%
OTHER CLAIMS SERVICE FEES: Homeowners/Dwelling Fire: IMSG will be reimbursed for costs associated with independent adjusters and appraisers when indemnity losses form a single event exceed $2,000,000 subject to a cap of 5.00% of direct incurred losses from that storm. Flood: 1.65% of Direct Incurred Losses (3) DATA PROCESSING/MAIL ROOM, POLICY ASSEMBLY, RECORDS MANAGEMENT, CASH OFFICE/CLAIMS: Bail: .30% of Direct Earned Premiums (2) All Other Lines of Business Processed by BIC, BSIC & FCIC To$35Mil $35-$40 $40-$45 $45-$55 $55-$65 $65-$75 On Direct Written Premium 7.50% 6.50% 6.00% 5.00% 4.50% 4.00% On Direct Earned Premium 10.50% 10.50% 10.00% 10.00% 9.50% 9.00%
Special Contracts entered into by BIC, FCIC or BSIC will be negotiated on an individual basis. The existing General Agents' Program calls for Claims Only Service. Fee: 8.00% of Direct Earned Premiums(2) (1) Direct Written Premiums includes gross written premiums net of cancellations. (2) Direct Earned Premiums are determined by earning direct written premiums ratably over the life of the policies written. (3) Direct Incurred Losses are defined as calendar period paid losses plus ending loss reserves minus beginning loss reserves. (4) PIF = Policies in Force as of each month end accounting period. Mil = Millions of Direct Written Premium. 3 9 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES BANKERS INSURANCE GROUP, INC. AND ITS SUBSIDIARIES (EXCLUDING ITS P & C INSURANCE COMPANIES) Performance: January 1, 1999 - December 31, 2001 Data Processing: 1999 $1,025,000 2000 $1,057,000 2001 $1,087,000 Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: 1999 $100,000 2000 $103,000 2001 $106,000
By reference to an agreement between Insurance Management Solutions Group, Inc. and Bankers Life Insurance Company ("BLIC"), BLIC will be allocated a portion of the above referenced fees. BLIC also will incur a fee for certain claims services performed on its behalf which are expressed in the BLIC fee addendum. 4 10 EXHIBIT A INSURANCE MANAGEMENT SOLUTIONS, INC. SERVICE FEES FOR: BANKERS LIFE INSURANCE COMPANY Performance Period: January 1, 1999 - December 31, 2001 Claims Service Fees: 1999 $125,000 2000 $129,000 2001 $133,000 Payment due in quarterly installments. Data Processing: Reference must be made to the Data Processing Fee arrangement with Bankers Insurance Group, of which BLIC is a component. Mailroom, Policy Assembly, Cash Office and Records Management Service Fees: Reference must be made to the arrangement with Bankers Insurance Group, of which BLIC is a component.
EX-10.84 11 STOCK PURCHASE AGREEMENT 1 Exhibit 10.84 STOCK PURCHASE AGREEMENT Between YOSYSTEMS, INC. DANIEL J. AND SANDRA WHITE AND BANKERS HAZARD DETERMINATION SERVICES, INC. Dated as of July 31, 1997 2
Page ---- ARTICLE I. PURCHASE AND SALE OF YOSYSTEMS SHARES 1 SECTION 1.01 Purchase 1 SECTION 1.02 Transfer 2 SECTION 1.03 Closing 2 SECTION 1.04 Due Diligence 2 SECTION 1.05 Financing 2 SECTION 1.06 Deposit 2 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER 3 SECTION 2.01 Corporate Organization and Power 3 SECTION 2.02 Authorization of Agreement 3 SECTION 2.03 Validity 3 SECTION 2.04 Consents and Approvals 3 SECTION 2.05 Titles to Shares 3 SECTION 2.06 Capitalization of YoSystems 3 SECTION 2.07 Litigation Relating to Transaction 4 SECTION 2.08 Broker's or Finders' Fees 4 SECTION 2.09 Taxes and Liabilities 4 SECTION 2.10 Stock Purchase Agreement with Strategic Holdings USA, Inc. 5 ARTICLE 111. REPRESENTATIONS AND WARRANTIES OF BUYER 5 SECTION 3.01 Corporate Organization and Power 5 SECTION 3.02 Authorization of Agreement 5 SECTION 3.03 Validity 5 SECTION 3.04 Consents and Approvals 6 SECTION 3.05 Litigation Relating to Transaction 6 SECTION 3.06 Broker's or Finders' Fees 6 SECTION 3.07 Capitalization of Buyer 6 SECTION 3.08 Investment Representation and Warranty 6 ARTICLE IV. CONDITIONS PRECEDENT 6 SECTION 4.01 Conditions Precedent to Obligations of Buyer 6 SECTION 4.02 Conditions Precedent to Obligations of Seller 8
3 ARTICLE V. TERMINATION AND ABANDONMENT 9 SECTION 5.01 Termination 9 SECTION 5.02 Procedure and Effect of Termination 9 ARTICLE VI. INDEMNIFICATION; REMEDIES 10 SECTION 6.01 Survival of Representations and Warranties 10 SECTION 6.02 Indemnification by Seller 10 SECTION 6.03 Indemnification by Buyer 10 SECTION 6.04 Third Party Claims 11 SECTION 6.05 Further Limitations 13 ARTICLE VII. MISCELLANEOUS 14 SECTION 7.01 Expenses, Etc. 14 SECTION 7.02 Publicity 14 SECTION 7.03 Execution in Counterparts 14 SECTION 7.04 Notices 14 SECTION 7.05 Amendments, Supplements, Etc. 15 SECTION 7.06 Entire Agreement 16 SECTION 7.07 Applicable Law 16 SECTION 7.08 Attorney's Fees 16 SECTION 7.09 Representation Acknowledged 16 SECTION 7.10 Binding Effect. Benefits 16 SECTION 7.11 Assignability 16
4 INDEX TO SCHEDULES, EXHIBITS AND ANNEXES
Exhibit Description Section Ref. ------- ----------- ------------ A SMS Stock Purchase Agreement Recitals 1.01 Form of Option 1.01 1.05 Huntington Loan Commitment 1.05 2.09 Liabilities 2.09 4.01(f) Opinion of Seller's Counsel 4.01(f) 4.01(h) Shareholders' Agreement 4.01(h) 4.01(i) Employment Agreement 4.01(i) 4.01(l) Cross License Agreement 4.01(l) 4.02(d) Opinion of Buyer's Counsel 4.02(d) 6.01 Liabilities 6.01(d)
5 Stock Purchase Agreement This is a Stock Purchase Agreement ("Agreement") entered into in Cleveland, Ohio on the dates indicated below, by and between parties as follows: a) YoSystems, Inc., an Ohio corporation located at 3900 Laylin Road, Norwalk, Ohio 44857 ("YoSystems" or "Seller"); and b) Daniel J. White ("White"); and c) White and his wife Sandra ("The Whites"); and d) Bankers Hazard Determination Services, Inc., a Florida corporation located at 360 Central Avenue, St. Petersburg, Florida 33701, ("Buyer") or assigns. WITNESSETH Whereas, on June 17, 1997 YoSystems entered into a Stock Purchase Agreement with Strategic Holdings USA, Inc. ("Strategic") to purchase all of the issued and outstanding shares of capital stock of SMS Geotrac, Inc. ("SMS Geotrac"), a Delaware corporation, hereinafter referred to as "SMS Stock Purchase Agreement", a copy of which is attached hereto as Exhibit "A" ; and Whereas, Buyer desires to acquire forty-nine percent (49%) of the then issued shares of common stock of YoSystems concurrently with YoSystems acquisition of all of the issued and outstanding shares of common stock of SMS Geotrac; and Whereas, the parties hereto desire to enter into this Agreement in order to confirm their understanding of the terms and conditions pursuant to which they will own and operate YoSystems. Now, Therefore, in consideration of the premises and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PURCHASE AND SALE OF YOSYSTEMS SHARES Section 1.01. Purchase. Subject to the terms and conditions hereof, YoSystems, agrees to amend its Articles of Incorporation (the "Amended Articles") to increase its authorized common stock to 1,000 shares without par value and to sell to Buyer and Buyer agrees to purchase 490 shares ("the Shares") representing forty-nine percent (49%) of its authorized and issued shares for a purchase price of Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00) cash on the Closing Date. It is understood that the remaining 510 shares will be owned by the Whites. It is also acknowledged and agreed that on or after the Closing Date the Whites intend to grant options (the "Option") to 6 purchase shares of their YoSystems common stock to approximately 10 current employees (the "Optionees") of SMS Geotrac. The form of Options is attached hereto as Exhibit "1.01". Section 1.02. Transfer. On the Closing Date, YoSystems shall issue and deliver to Buyer a certificate or certificates representing the Shares, with all requisite stock transfer taxes paid and stamps affixed, free and clear of all restrictions, liens, charges, security interests, claims, pledges encumbrances and rights of others except as set forth in the Shareholders Agreement (as herein defined). Section 1.03. Closing. The closing contemplated by this Agreement (the "Closing") shall take place at the offices of Benesch, Friedlander, Coplan & Aronoff LLP, 2300 BP America Building, 200 Public Square, Cleveland, Ohio 44114, at 10 a.m. Eastern Standard time, on July 31, 1997, or at such other place or at such other date and time as YoSystems and Buyer may mutually agree (such date and time of closing being herein called the "Closing Date"). Section 1.04. Due Diligence. All due diligence has been completed. Section 1.05. Financing. a) YoSystems has received a loan commitment from The Huntington National Bank of Cleveland, Ohio, a copy of which is attached as Exhibit "1.05" (the "Huntington Loan") for debt financing for not less than Eight Million Seven Hundred Fifty Thousand Dollars ($8,750,000.00). The proceeds of this loan will be used to provide the additional funds required to complete the acquisition of the common stock of SMS Geotrac. b) YoSystems will use the purchase price for the Shares to purchase the stock of SMS Geotrac ($15 million), and pay for all expected costs and fees of closing the purchase (estimated to be $1 million). Section 1.06. Deposit. On July 2, 1997, Buyer deposited with the law firm of Carlton, Fields, et al., 200 Central Avenue, Suite 2300, St. Petersburg, Florida 33701, the sum of One Million Dollars ($ 1,000,000.00) to be applied to the purchase price for the Shares at Closing. The deposited funds together with any interest earned thereon will be returned to Buyer if the transactions contemplated by this Agreement do not close on or before July 31, 1997. 2 7 II. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: Section 2.01. Corporate Organization and Power. YoSystems is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. Seller has the corporate power and authority to execute, deliver and perform its obligations under this Agreement. Section 2.02. Authorization of Agreement. The execution, delivery and consummation of this Agreement by YoSystems has been duly authorized by the board of directors and the shareholders of YoSystems in accordance with all applicable laws and the Articles of Incorporation and Code of Resolutions of YoSystems, and at the Closing no further corporate action will be necessary on the part of YoSystems or its shareholders to make this Agreement valid and binding on YoSystems and enforceable against YoSystems in accordance with its terms. The execution, delivery and consummation of this Agreement by YoSystems (i) is not contrary to the Articles of Incorporation or Code of Regulations of YoSystems, (ii) does not now and will not, with the passage of time, the giving of notice or otherwise, result in a violation or breach of, or constitute a default under, any term or provision of any indenture, mortgage, deed of trust, lease, instrument, order, judgment, decree, rule, regulation, law, contract, agreement or any other restriction to which YoSystems is a party or to which YoSystems or any of its assets is subject or bound, and (iii) will not result in the creation of any lien or other charge upon the Shares or the assets of YoSystems. Section 2.03. Validity. This Agreement has been duly executed and delivered by YoSystems and constitutes the legal, valid and binding obligation of YoSystems, enforceable against YoSystems in accordance with its terms. Section 2.04. Consents and Approvals. No order, authorization, approval or consent from, or filing with, any person or entity or any federal or state governmental or public body or other authority having jurisdiction over YoSystems is required for the execution, delivery and performance of this Agreement. Section 2.05. Title to Shares. YoSystems has full right, power and authority to sell, issue, convey and deliver to Buyer, in accordance with the terms of this Agreement, good and valid title, beneficially and of record, to all of the Shares, free and clear of all restrictions, claims, liens, charges, encumbrances and rights of others. Section 2.06. Capitalization of Yosystems. Giving effect to the Amended Articles, the total authorized capitalization of YoSystems is 1,000 shares of Common Stock, without par value, of which 510 shares have been validly issued and are presently outstanding. All of the outstanding capital stock of YoSystems is owned by the Whites. YoSystems 3 8 does not hold any shares of capital stock as treasury shares. There are no outstanding subscriptions, options, agreements, contracts, calls, commitments or demands of any character to which YoSystems or the Whites is a party which restrict the transfer of the Shares or otherwise related to the Shares other than the Option and a related Agreement among Shareholders, YoSystems, White and the Optionees to be entered concurrently with the Closing. Section 2.07. Litigation Relating to Transaction. There are no actions, suits, proceedings or claims pending before any court, arbitrator or government agency against or affecting YoSystems. White has not received formal service of process relating to any currently pending action, suit or proceeding against SMS Geotrac, other than such actions, suits or proceedings referred to on Schedule 2.07 of the SMS Geotrac Agreement. Section 2.08. Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seller directly with Buyer without the intervention of any person on behalf of Seller (other than NatCity Investments, Inc. of Cleveland, Ohio, whose fees and expenses shall be paid solely by Seller) in such manner as to give rise to any claim by any person against Buyer for a finder's fee, brokerage commission or similar payment. Section 2.09. Taxes and Liabilities. a) YoSystems (i) has filed, and will file, on a timely basis (including all extensions), all federal income tax returns and all combined or unitary state and local income or franchise tax returns (collectively, "Tax Returns") required to be filed by YoSystems for all years or periods ending on or before the Closing Date accurately reflecting in all respects income or franchise taxes owing to the United States or any state or local government, and (ii) has paid in full, or if not paid in full prior to the Closing Date the Whites will pay in full when due, all taxes (including interest, penalties and additions to tax) shown to be due on such Tax Returns. All such Tax Returns are, or will be, true, correct and complete in all material respects. b) There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any YoSystems federal income tax return for any period ending on or before the Closing. c) YoSystems has made or will make available to Buyer for inspection, complete and correct copies of all federal income tax returns of YoSystems. d) Immediately prior to its acquisition of SMS Geotrac, YoSystems shall have no liabilities except as set forth in Exhibit "2.09" attached hereto. 4 9 e) Seller shall cause SMS Geotrac to be liquidated on or before September 30, 1997. Section 2.10. Stock Purchase Agreement with Strategic Holdings USA, Inc. a) All representations of YoSystems or White in the SMS Stock Purchase Agreement shall be true and correct on the date of Closing. b) Buyer shall receive notice from Seller and Strategic in the same manner as the parties to the SMS Stock Purchase Agreement prior to any changes in that Agreement or any agreements referred to therein. There will be no changes or modifications to the SMS Stock Purchase Agreement, and all other agreements referred to therein, without prior written notice to Bankers and Bankers written consent, such consent not being unreasonably withheld. c) Buyer shall have access to the books and records of SMS Geotrac. White represents and warrants Sections 2.05, 2.06, 2.07, 2.08 and 2.09. III. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 3.01. Corporate Organization and Power. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. Buyer has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby and thereby. Section 3.02. Authorization of Agreement. The execution, delivery and consummation of this Agreement by Buyer has been duly authorized by its board of directors and shareholders in accordance with all applicable laws and its Certificate of Incorporation and By-Laws, and at the closing no further corporate action will be necessary on the part of Buyer or its shareholders to make this Agreement valid and binding on Buyer and enforceable against Buyer in accordance with its terms. The execution, delivery and consummation of this Agreement by Buyer (i) is not contrary to its Certificate of Incorporation or By-Laws and (ii) does not now and will not, with the passage of time, the giving of notice or otherwise, result in a violation or breach of, or constitute a default under, any term or provision of any indenture, mortgage, deed of trust, lease, instrument, order, judgment, decree, rule, regulation, law, contract, agreement or any other restriction to which Buyer is a party or to which Buyer or any of its assets is subject or bound. Section 3.03. Validity. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. 5 10 Section 3.04. Consents and Approvals. No order, authorization, approval or consent from, or filing with, any person, entity or federal or state governmental or public body or other authority having jurisdiction over Buyer is required for the execution, delivery and performance by it of this Agreement. Section 3.05. Litigation Relating to Transaction. There are no actions, suits, proceedings or claims pending before any court, arbitrator or government agency against or affecting Buyer which might enjoin or prevent the consummation of the transactions contemplated by this Agreement. Section 3.06. Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Buyer directly with YoSystems and White, without the intervention of any person on behalf of Buyer (other than NatCity Investments, Inc. of Cleveland, Ohio, whose fees and expenses shall be paid solely by Seller) in such manner as to give rise to any claim by any person against YoSystems and White for a finder's fee, brokerage commission or similar payment. Section 3.07. Capitalization of Buyer. On the Closing Date Buyer shall have the working capital and financial resources necessary to perform its obligations under this Agreement. Section 3.08. Investment Representation and Warranty. The Shares being acquired by Buyer hereunder are being acquired for investment only for Buyer' own account and not with a view to, or for sale in connection with, any distribution thereof. IV. CONDITIONS PRECEDENT Section 4.01. Conditions Precedent to Obligations of Buyer. The obligation of Buyer to consummate the transactions contemplated by this Agreement are subject, at the option of Buyer, to the satisfaction at or prior to the Closing Date of each of the following conditions: a) Accuracy of Representations and Warranties. The representations and warranties of Seller and White contained in this Agreement or in any certificate or document delivered to Buyer pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Seller shall have delivered to Buyer a certificate to that effect. b) Compliance with Covenants. Seller shall have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by them at or prior to the Closing Date, and Seller shall have delivered to Buyer a certificate to that effect. 6 11 c) Execution and Delivery of Strategic Agreement, Releases, Stockholder Guaranty and Indemnification Agreement. Strategic Holding USA, Inc. shall have duly authorized, executed and delivered to Seller a Release in the form of Exhibit C hereto, and such Release shall be in full force and effect at the Closing and fully executed stock certificates and stock powers representing all 100 issued and authorized shares of common stock of SMS Geotrac, Inc. Welsh, Carson Anderson & Stowe V, L.P. shall have duly authorized, executed and delivered to YoSystems (i) the Stockholder Guaranty in the form of Exhibit B to the SMS Stock Purchase Agreement and (ii) the Indemnification Agreement in the form of Exhibit C to the SMS Stock Purchase Agreement, and each of such Stockholder Guaranty and Indemnification Agreement shall be in full force and effect at the Closing. d) All assets, including, but not limited to databases, source codes, digital flood zone maps, and programs currently on the books of SMS Geotrac shall continue to be owned by SMS Geotrac immediately following the Closing except that the cash balance will be not less than $1,000,000.00. The parties acknowledge that funds in excess of $1,000,000 will be utilized to pay fees and expenses incurred in connection with this Agreement and the SMS Stock Purchase Agreement and the balance, if any, will be paid out as a distribution to White. Such amounts will be adjusted if necessary after the Closing. For purposes of this Agreement, all amounts owing from Buyer to Seller pursuant to the invoices set forth on Exhibit 4.01(d) shall be deemed paid prior to the Closing. e) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby. f) Opinion of Counsel for YoSystems. Buyer shall have received the opinion of Benesch, Friedlander, Coplan & Aronoff, LLP, counsel for YoSystems, dated the Closing Date, satisfactory in form and substance to Buyer and its counsel, to the effect set forth in Exhibit "4.01 (f)" hereto. g) Material Adverse Change, There shall not have occurred a material adverse change to the business or assets of SMS Geotrac or YoSystems since the date of this Agreement. h) Buyer and Seller shall have entered into a Shareholders' Agreement in the form of Exhibit "4.01(h)" attached hereto (the "Shareholder's Agreement"). i) YoSystems and Daniel J. White shall have entered into an Employment Agreement in the form of Exhibit "4.01(i)" attached hereto. 7 12 j) Buyer shall have received certified copies of certificates of good standing from the Secretary of State of the states in which SMS Geotrac and YoSystems are incorporated. k) Buyer shall have received an executed Resolution of Joint Meeting of Board of Directors and Shareholders of YoSystems authorizing the transactions contemplated by this Agreement and Exhibits and Schedules attached thereto. l) Buyer and YoSystems shall have entered into a Cross License Agreement in the form of Exhibit "4.01(1)" attached hereto. m) The Huntington Loan shall be closed and funded concurrently with the Closing. n) This Agreement and the documents described in Section 4.01 (c), (f), (h), (i), (j), (k), (l) and (m) shall be referred to as "Closing Documents". Section 4.02. Conditions Precedent to Obligations of Seller. The obligations of Seller under this Agreement are subject, at the option of Seller, to the satisfaction at or prior to the Closing Date of each of the following conditions: a) Accuracy of Representations and Warranties. The representations and warranties of Buyer contained in this Agreement or in any certificate or document delivered to Seller pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that dates and Buyer shall have delivered to Seller a certificate to such effect. b) Execution and Delivery of Strategic Agreement, Releases, Stockholder Guaranty and Indemnification Agreement. Strategic Holding USA, Inc. shall have duly authorized, executed and delivered to Seller a Release in the form of Exhibit A hereto, and such Release shall be in full force and effect at the Closing and fully executed stock certificates and stock powers representing common stock of SMS Geotrac, Inc. Welsh, Carson Anderson & Stowe V, L.P. shall have duly authorized, executed and delivered to YoSystems, (i) the Stockholder Guaranty in the form of Exhibit B to the SMS Stock Purchase Agreement and (ii) the Indemnification Agreement in the form of Exhibit C to the SMS Stock Purchase Agreement, and each of such Stockholder Guaranty and Indemnification Agreement shall be in full force and effect at the Closing. c) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby. 8 13 d) Opinion of Counsel to Seller. Seller shall have received the opinion of C. Anthony Sexton, counsel for Buyer, dated the Closing Date, satisfactory in form and substance to Seller and their counsel, to the effect set forth in Exhibit "4.02(d)" hereto. e) Additional documents shall be executed and delivered as follows: 1. Transactions under Purchase Contract with Strategic Holding USA, Inc. have been consummated. 2. Shareholders' Agreement. 3. Cross License Agreement. 4. Employment Agreement. 5. The Huntington Loan (executed and funded). V. TERMINATION AND ABANDONMENT Section 5.01. Termination. This Agreement may be terminated at any time prior to the Closing: a) by the mutual consent of Buyer and YoSystems; or b) by either Buyer or YoSystems if the Closing contemplated in Section 1.03 above shall not have occurred on or before July 31, 1997 or such later date as may be agreed upon by the parties hereto or any of the Conditions Precedent of that party are not met. Section 5.02. Procedure and Effect of Termination. In the event of termination of this Agreement and abandonment of the transactions contemplated hereby by any or all of the parties pursuant to Section 5.01, written notice thereof shall forthwith be given to the other party to this Agreement and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto If this Agreement is terminated as provided herein, no party shall have any liability or further obligation to any other party to this Agreement pursuant to this Agreement, except that the parties preserve and shall retain their rights if another party breaches any representations or warranties or covenants contained herein. 9 14 VI. INDEMNIFICATION; REMEDIES Section 6.01. Survival of Representations and Warranties. The representations and warranties of Seller and White in Article 11 and of Buyer in Article III shall survive the Closing for two years. Section 6.02. Indemnification by Seller. Seller shall indemnify Buyer and the stockholders, directors, employees and agents of Buyer in their capacity as such (collectively, the "Buyer Indemnified Parties") from and against and shall hold the Buyer Indemnified Parties harmless from: a) any proceeding, claim, liability loss, damage or deficiency, including any and all reasonable costs and expenses (including, but not limited to, reasonable legal and accounting fees) related to any of the foregoing (collectively, "Loss"), resulting from or arising out of any inaccuracy in or breach of any representation or warranty by Seller contained in Article 11 hereof (and White shall indemnify Buyer for any Losses resulting from or arising out of any inaccuracy in or breach of any representation or warranty of White contained in Article 11 hereof); b) any Loss resulting from or arising out of a breach or nonperformance of any covenant or obligation of Seller under this Agreement; c) any Loss resulting from or arising out of the claims of any broker, finder or other person acting in a similar capacity on behalf of Geotrac or Seller in connection with the transactions contemplated herein; d) any Loss relating or pertaining to any YoSystems tax or other liability of any nature whatsoever (including interest, penalties and additions to tax) payable with respect to any period ending on or prior to Closing (the Whites shall join YoSystems in regards to this particular indemnification) except for liabilities disclosed on the attached Exhibit "6.01(d)"; e) any Loss relating or pertaining to inaccuracy in or breach of any representation, warranty, covenant or obligation of YoSystems under the SMS Stock Purchase Agreement and its exhibits and schedules. Section 6.03. Indemnification by Buyer. Buyer shall indemnify YoSystems and the stockholder directors, employees and agents of YoSystems in their capacity as such (collectively, the "YoSystems Indemnified Parties") from and against, and shall hold the YoSystems Indemnified Parties harmless from: a) any Loss resulting from or arising out of any inaccuracy in or breach of any representation or warranty by Buyer in Article III hereof; 10 15 b) any Loss resulting from or arising out of any breach or nonperformance of any covenant or obligation of Buyer under this Agreement; and c) any Loss resulting from or arising out of the claims or any broker, finder or other person acting in similar capacity on behalf of Buyer in connection with the transactions contemplated herein. Section 6.04. Third Party Claims. a) Notice of Claim. If any legal proceeding is instituted or any claim is asserted by any third party in respect of which the YoSystems Indemnified Parties on the one hand, or Buyer Indemnified Parties on the other hand may be entitled to indemnity hereunder, the party asserting such right to indemnity (the "Indemnified Party") shall give the party from whom indemnity is sought (the "Indemnifying Party") written notice thereof. A delay in giving notice shall only relieve the Indemnifying Party of liability to the extent the Indemnifying Party Suffers actual prejudice because of the delay. The Indemnifying Party shall have 30 days after receipt of such notice to decide whether it will agree to be responsible for the claim and provide indemnity hereunder. b) Indemnifying Party Accepts Responsibility. If the Indemnifying Party decides to accept responsibility and liability for such claim and proceeding and provides written notice (the "Response Notice") to such effect to the Indemnified Party within-such 30-day period, the Indemnifying Party shall be fully responsible for undertaking and conducting, through counsel of its own choosing and its own expense, the settlement or defense of such claim or proceeding. Notwithstanding the foregoing, the Indemnifying Party shall have the right, after the completion or resolution or such claim or proceeding, to assert a claim back against the Indemnified Party, alleging that the indemnity it provided was not, in fact, required hereunder. If a court of competent jurisdiction determines that the Indemnifying Party was not required to provide indemnity for such claim, the Indemnified Party shall reimburse the Indemnifying Party for all of the Losses incurred by it in providing indemnity for the third-party claim and pursuing its claim against the Indemnified Party. If a court of competent jurisdiction determines that the Indemnifying Party was required to provide indemnity for such claim, the Indemnifying Party shall reimburse the Indemnified Party for all of the Losses, costs or expenses, incurred by the Indemnified Party in defense of the Indemnifying Party's claim. If a court of competent jurisdiction determines that the Indemnifying Party was required to provide indemnity for part, but not all of such third-party claim, the Indemnified Party shall reimburse the Indemnifying Party far the Losses, costs and expenses incident to the defense of the third-party 11 16 claim in proportion to the responsibility allocated by such court, and each party shall bear its own costs and expenses with respect to the Indemnifying Party's claim against the Indemnified Party. The indemnified Party shall have the rights with counsel of its own choice and at its own expense, to participate in, but not control the defense and settlement of any claim or proceeding for which the Indemnifying Party accepts responsibility hereunder. In addition, if, at any time the Indemnified Party believes that a claim is not, (in fact) the proper subject for indemnification by the Indemnifying Party, the Indemnified Party may assume from the Indemnifying Party responsibility for and control of such claim or proceeding; provided that the Indemnified Party reimburses the Indemnifying Party for all of the losses, costs and expenses incurred by it to such date in defense of such claims. If the Indemnified Party assumes control of a claim pursuant to this paragraph, it thereby becomes fully responsible and liable for the defense and settlement thereof, and waives any right to assert any further indemnification obligation with respect to such claim against the Indemnifying Party. Notwithstanding anything to the contrary herein, if, in the reasonable opinion of the Indemnified Party any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could have a material adverse effect on the business operations assets, properties or prospects of the Indemnified Party (including, without limitation, the administration of the tax returns and responsibilities under the tax laws of the Indemnified Party), the Indemnified Party shall have the right to control the defense compromise and settlement of such Third Party Claim undertaken by the Indemnifying Party, and the costs and expenses of the Indemnified Party in connection therewith shall be included as part of the indemnification obligations of the Indemnifying Party hereunder. If the Indemnified Party shall elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense/compromise and settlement of such Third Party Claim at its sole cost and expense. Any compromise or settlement of such Third Party Claim shall be subject to the approval of the Indemnifying Party, which approval shall not be unreasonably withheld, conditioned or delayed. c) Indemnifying Party Declines Responsibility. If the Indemnifying Party fails to deliver a Response Notice timely, or delivers a Response Notice and declines responsibility and liability for such claim or proceeding, the Indemnified Party shall undertake, conduct and control through counsel of its own choosing and at its expense, the settlement or defense of such claim. Notwithstanding the foregoing, the Indemnified Party shall retain the right, after the completion or resolution of such claim or proceeding, to assert a claim against the Indemnifying Party alleging that it should have provided indemnity hereunder. If a court of 12 17 competent jurisdiction determines that the Indemnifying Party was required to provide indemnity for such claim, the Indemnifying Party shall reimburse the Indemnified Party for all of the Losses costs and expenses incurred by the Indemnified Party in defending such claim and pursuing its claim against the Indemnifying Party. If a court of competent jurisdiction determines that the Indemnifying Party was not required to provide indemnity for such claim, the Indemnified Party shall reimburse the Indemnifying Party for all of the Losses, costs and expenses incurred by the Indemnifying Party in defense of the Indemnified Party's claim. If a court of competent jurisdiction determines that the Indemnifying Party was required to provide indemnity for part, but not all of such third-party claim the Indemnifying Party shall reimburse the Indemnified Party for the Losses, costs and expenses incident to the defense of the third-party claim in proportion to the responsibility allocated by such court, and each party shall bear its own costs and expenses with respect to the Indemnified Party's claim against the Indemnifying Party. The Indemnifying Party shall have the right with counsel of its own choice at its own expense, to participate in but not control the defense and settlement of any claim or proceeding for which it initially declines responsibility. In addition, if at any time, the Indemnifying Party believes that the claim is, in fact, the proper subject for indemnity by it, the Indemnifying Party may, subject to the last paragraph of Section 6.04(b) hereof, assume from the Indemnified Party responsibility for and control of such claim or proceeding; provided that the Indemnifying Party reimburses the Indemnified Party for all of the Losses, costs and expenses incurred by it to such date in defense of such claim If the Indemnifying Party assumes control of a claim pursuant to this paragraph, it thereby becomes fully responsible and liable for the defense and settlement thereof, and waives any right to claim back against the Indemnified Party or otherwise object to its indemnification obligations with respect thereto. d) Cooperation. Notwithstanding anything to the contrary herein, the Indemnifying Party and Indemnified Party Shall at all times cooperate with each other in the defense of any third-party claim or proceeding and the party controlling such defense shall, upon request by the other party provide reasonable updates and summaries of such matter. Each party agrees that it shall not, without the written consent of the other, settle or compromise any action or claim in any manner that would materially and adversely affect the other party, other than as a result of money damages or money payments. Section 6.05. Further Limitations. a) Exclusive Remedy. The indemnification provisions of this Article VI shall be the exclusive remedy following the Closing Date for any breaches or alleged breaches 13 18 of any representations, warranties or covenants under this Agreement. Each of the parties hereto, on behalf of itself and its officers, directors, employees, security holders, partners, affiliates, agents or representatives (collectively, such party's "Representatives"), agrees not to bring any actions or proceedings, at law, equity or otherwise against any other party or its Representatives, in respect of any breaches of any representation or warranty of this Agreement, except pursuant to the express provisions of this Article VI, unless there has been an instance of fraud. The parties hereby agree that no party has made any representations or warranties, express or implied, with respect to this Agreement or the matters contemplated hereby except as explicitly set forth in this Agreement. b) No Indemnification For Known Breaches of Representations and Warranties. Notwithstanding any provision to the contrary contained herein, in the event that any party to this Agreement had actual knowledge, on or before the Closing Date, of the specific facts upon which a claim for indemnification for breach of representations and warranties by any other party is based, then the harmed party shall have no liability for any Loss resulting from or arising out of such claim. VII. MISCELLANEOUS Section 7.01. Expenses, Etc. Whether or not the transactions contemplated by this Agreement are consummated, neither of the parties hereto shall have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment Buyer and other experts. Section 7.02. Publicity. The parties hereto agree to cooperate in issuing any press release or other public announcement concerning this Agreement or the transactions contemplated hereby Nothing contained herein shall prevent any party from at any time furnishing any information required by any government authority. Section 7.03. Execution in Counterparts. For the convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the Same instrument. Section 7.04. Notices. All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if (i) delivered personally, (ii) mailed by registered or certified mail, return receipt requested and postage prepaid, or (iii) sent via a nationally recognized overnight courier service or (iv) sent via facsimile confirmed in writing to the recipient in each case as follows: 14 19 If to Seller, YoSystems, White or the Whites: YoSystems, Inc. 3900 Laylin Road Norwalk, Ohio 44057 Attention: Daniel J. White Telephone: (419) 668-8899 Telecopy: (419) 668-9266 with a copy to: Benesch, Friedlander, Coplan & Aronoff LLP 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Attention: Ira Kaplan, Esq. Telephone: (216) 363-4567 Telecopy: (216) 363-4588 If to Buyer, to: Bankers Hazard Determination Services, Inc. 360 Central Avenue St. Petersburg, Florida 33701 Attention: C. Anthony Sexton, Esq. Telephone: (813) 823-4000 extension 4894 Telecopy: (813) 823-6518 or such other address or addresses as either party hereto shall have designated by notice in writing to the other party hereto. Section 7.05. Amendments, Supplements, Etc. At any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates, as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the filing or recording of this Agreement or the consummation of any of the transactions contemplated hereby. Any such agreement, article or certificate must be in writing and signed by both parties. No oral or unexecuted agreement, promise or undertaking shall be effective to modify, amend or alter the terms of this Agreement in any manner whatsoever. 15 20 Section 7.06. Entire Agreement. This Agreement, its Exhibits, Schedules and Annexes and the documents executed on the Closing Date in connection herewith, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty promise, inducement or statement of intention has been made by either party which as not embodied in this Agreement or such other documents; and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement or intention not embodied herein or therein. Section 7.07. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to conflicts of law principles. However, jurisdiction and venue for any action brought to enforce the terms or conditions of this Agreement or any of its Exhibits or Schedules shall be the domicile of the defendant or respondent in any such action. Section 7.08. Attorney's Fees. If any party to this Agreement should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. Section 7.09. Representation Acknowledged. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. Section 7.10. Binding Effect. Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, heirs and permitted assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedied obligations or liabilities under or by reason of this Agreement. Section 7.11. Assignability. Except for the anticipated assignment of this Agreement by Buyer to an affiliated company approved of by Seller, neither this Agreement nor any of the partied rights hereunder shall be assignable by either party hereto without the prior written consent of the other party hereto; provided, however, that the parties may assign a security interest in their rights to receive indemnification hereunder as part of a grant of collateral security to secure any indebtedness for money borrowed by YoSystems from a 16 21 bank or other financial institution. An assignee shall be required to execute the Shareholders Agreement prior to issuance of Shares. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the day and year indicated below. WITNESSES Bankers Hazard Determination Services, Inc. /s/ C. Anthony Sexton BY: /s/ Edwin C. Hussemann - --------------------------------- ---------------------------------------- /s/ Erica Rudin AS ITS: Treasurer DATE: 7/29/97 - --------------------------------- -------------------- ----------- WITNESSES YoSystems, Inc. /s/ Ira Kaplan BY: /s/ Daniel J. White - --------------------------------- ---------------------------------------- /s/ Illegible AS ITS: President DATE: 7/31/97 - --------------------------------- -------------------- ----------- WITNESSES /s/ Ira Kaplan /s/ Daniel J. White DATE: 7/31/97 - --------------------------------- --------------------------- ----------- Daniel J. White /s/ Illegible - --------------------------------- WITNESSES /s/ Ira Kaplan /s/ Sandra White DATE: 7/31/97 - --------------------------------- --------------------------- ----------- Sandra White /s/ Illegible - --------------------------------- 17 EX-10.85 12 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.85 EMPLOYMENT AGREEMENT AGREEMENT made effective this 22nd day of September, 1998 between INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation, which corporation, together with its subsidiary companies, shall hereinafter be referred to as "Company" and Kathy Batson, of ______________, Florida, hereinafter referred to as "Employee". R E C I T A L S : 1. Company is engaged in the business of providing comprehensive outsourcing services to the property and casualty insurance industry with an emphasis on providing full third party administration outsourcing services for flood insurers and is also a provider of flood zone determination and ancillary services primarily to insurance companies and financial institutions throughout the State of Florida and such other states as the Company shall deem appropriate. 2. The Company's business requires secrecy in connection with the methods and systems employed, and, for the proper protection of the Company, it is absolutely necessary and essential (which necessity Employee expressly recognizes) that all matters connected with, arising out of, or pertaining to the business of the Company, its methods and systems and the names of its customers be kept secret and confidential as goodwill belonging to the Company. 3. The Company will sustain great loss and damage, if during the term of this Agreement, or for a period of two (2) years immediately following its termination for any reason whatsoever, the Employee should, for himself or herself, or on behalf of any other person, persons, company, partnership or corporation, call upon the customers or clientele of the Company for the purpose of soliciting, selling or servicing any of the programs or services of the Company as described in Section 1 hereof, or the solicitation of any Company employee for the purpose of hiring such employee, for which loss and damage, by reason of his or her financial circumstances, Employee could not be compelled by law to respond to damages in any action at law. NOW, THEREFORE, Company and Employee, in consideration of the covenants and agreements herein contained and in further consideration of the benefits and advantages flowing from each to the other, covenant and agree as follows: SECTION 1. EMPLOYMENT OF EMPLOYEE. Company hereby agrees to employ Employee as Senior Vice President. SECTION 2. EMPLOYEE'S BEST EFFORTS. Employee hereby accepts employment by Company, and agrees to devote his or her entire time and best efforts to this employment. Employee agrees to perform such other duties as are customarily performed by one holding such position in other, same or similar businesses as that engaged in by Company, and shall also render such other and unrelated services and duties as may be assigned to him or her from time to time by Company. 2 SECTION 3. TERMS OF EMPLOYMENT. (a) Company and Employee understand and agree that the term of employment of this Agreement shall be for a period of three years from the date hereof and thereafter shall continue indefinitely until terminated by either party pursuant to the terms herein. (b) Said employment may be terminated with cause, and no notice or severance is owed. Involuntary termination with cause is defined as a dismissal at any time based on failure to conform to the conditions of employment, material breach of this Agreement, gross misconduct or willful violation of Company policy or procedure as outlined in Section 2.12 on Involuntary Termination contained in the Company's Human Resources Policies and Procedures Manual, as amended from time to time. (c) In the event this Agreement is terminated without cause, then the Employee shall be entitled to any payments payable under Section 4 which have been earned but not yet paid,and in addition, Employee shall be entitled to severance pay equal to Employee's then current salary payable in accordance with the Company's usual payroll practices for a period equal to twelve (12) months (the "Severance Payment"). In the event that Employee is entitled to a Severance Payment pursuant to this Section 3(c) and Employee secures employment at any time during the twelve (12) months following termination (the "Severance Period"), then the Company shall be entitled to a credit against its obligations to make the Severance Payment in the amount up to seventy-five percent (75%) of Employee's base salary during the Severance Period paid to him by his new employer. (d) Notwithstanding anything contained herein to the contrary, in the event Company shall discontinue operating its business, then this Agreement shall terminate as of the last day of the month on which Company ceases operations with the same force and effect as if such last day of the month were originally set as the termination date hereof. SECTION 4. EMPLOYEE'S COMPENSATION AND EXPENSES. (a) As compensation for the service to be performed by Employee under this Agreement, Company shall pay Employee, and Employee shall accept from Company, a base salary of One Hundred Twenty Thousand dollars ($120,000) per annum paid on a bi-weekly basis. (b) In addition to the base salary, some employees shall be entitled to earn additional compensation pursuant to a bonus plan, and an employee stock option plan. If Employee is eligible for either a bonus plan or the stock option plan, copies of the plan will be provided to Employee. (c) The Employee shall be provided the same benefits and on the same basis as other employees of the Company including, but not limited to, the 401(k) plan, life insurance, disability insurance and health insurance. (d) Employee's salary, bonuses and allowances may be modified, as agreed upon between Employee and Company, from time to time, and any such modifications made during the term of this Agreement shall be incorporated as part of the Agreement. 2 3 (e) Company shall reimburse Employee for all other reasonable, ordinary and necessary expenses incurred by Employee on Company's behalf pursuant to Company's directions and subject to Company's restrictions and requirements. SECTION 5. FUNDS COLLECTED BY EMPLOYEE. Employee does explicitly understand and agree that all funds received by him on behalf of Company, as may be authorized by Company from time to time, shall be held in trust by Employee and shall immediately be remitted to Company by Employee. Additionally, Employee shall be responsible for any and all technical data, books, equipment, or other property of Company which may come into his possession by reason of his or her employment. In the event this employment is terminated for any reason whatsoever, Employee shall immediately turn in to Company and account for all such funds, equipment and property which may be in the possession of Employee at such termination. SECTION 6. RESTRICTIVE COVENANTS. (a) Covenant not to Compete. The Employee hereby expressly covenants and agrees, which covenants and agreements are of the essence of this contract, that he or she will not, during the term of this Agreement and for a period of two (2) years immediately following the termination of this Agreement, for any reason whatsoever, directly or indirectly, for himself or herself, or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: (1) call upon any customer or customers of Company solicited or contacted by Employee while at the Company or whose account was serviced by Employee while at the Company, pursuant to his or her employment hereunder, for the purpose of soliciting, selling or servicing any programs or services of the type sold and serviced by Company during the term hereof within the state of Florida and such other states in which the Company shall conduct business; (2) nor will Employee divert, solicit or take away any customer or customers of Company or the business or patronage of any such customers of the Company for the purpose of selling or servicing any programs or services of the type sold and serviced by Company during the term hereof, (3) nor will Employee call upon any prospective customer or customers of the Company, solicited or contacted by Employee or Employee's staff pursuant to his or her employment hereunder, for the purpose of soliciting, selling or servicing programs or services of the type sold and serviced by Company during the term hereof within the State of Florida and such other states in which the Company shall conduct business. For purposes of this Agreement, it is agreed between the parties hereto that prospective customers are defined as those called upon by Employee or by Employee's staff two (2) times or more during any part of the six (6) month period next preceding the termination of this Agreement for any reasons whatsoever, or those prospective customers as listed by Employee or by Employee's staff as active potential prospects on Employee's weekly or monthly 3 4 sales call reports submitted to Company during any part of the six (6) month period next preceding the termination of this Agreement for any reasons whatsoever; (4) nor upon termination of Employee's employment from Company, whether by resignation, discharge, or otherwise, and for a period of two (2) years from the date of termination, shall Employee, directly or indirectly, for himself or herself or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: solicit, approach, or call upon any Company employee for the purpose of retaining or hiring the Company employee in any capacity. In the event of a breach or threatened breach by Employee of the provisions of this paragraph, Company shall be entitled to an injunction restraining Employee from directly or indirectly soliciting, approaching, or calling upon any Company employee for the purpose of retaining or hiring the Company employee in any capacity and/or in fact hiring the Company employee in any capacity; and, in addition to obtaining an injunction, Company shall be entitled to recover damages from Employee. In the event any Court determines the specified time period to be unreasonable, arbitrary, or against public policy, a lesser time period which is determined to be reasonable, non-arbitrary and not against public policy may be enforced against Employee by injunction, as well as by all other legal remedies available to Company. In the event of any legal action in connection with this agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or during an appeal and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. (b) Nondisclosure. Employee recognizes and acknowledges that the list of the Company's customers, trade secrets, data processing systems, computer software, computer programs, or other systems, data, methods, or procedures developed or used by the Company, as they may exist from time to time, are valuable, special and unique assets of the Company's business. The Employee will not, during or after the term of his or her employment without the prior written consent of the Company, which consent may be arbitrarily withheld, and except to the extent necessary to accomplish assignments on behalf of the Company in which the Employee is, at any given time during the term of Employee's tenure with the Company, currently and actively engaged, possess, transmit, copy, reproduce, or disclose the list of the Company's customers or any part thereof or any of the Company's present or future trade secrets, or any data processing systems, computer software, computer programs or other systems, data, methods, or procedures to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, nor will the undersigned assist anyone else to do so. In the event of a breach or threatened breach by Employee of the provisions hereof, the Company shall be entitled to an injunction restraining Employee from disclosing, in whole or in part, the list of the Company's customers or the Company's trade secrets, or from rendering any services to any person, firm, corporation, association, or other entity to whom such list or such trade secrets, in whole or in part, has been disclosed or is threatened to be disclosed and requiring the return to the Company of all copies of customer lists, manuals, data, software, 4 5 computer programs, or written procedures in the possession of Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. The existence of any claim or cause of action of Employee against the Company shall not constitute a defense to the enforcement by the Company of this covenant. No failure of the Company 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 the Agreement on the part of Employee. SECTION 7. SEVERABILITY OF RESTRICTIVE COVENANTS. Company and Employee agree that the restrictive covenants contained in Section 6, or any of its sub-paragraphs, are severable and separate and the unenforceability of any specific covenant therein shall not affect the validity of any other covenants set forth therein. These covenants on the part of the Employee shall be construed as an agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of the Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants. Employee agrees and acknowledges that any violation by Employee of the covenants set forth in Section 6 hereof would cause irreparable damage to Company, and Employee further agrees that upon proof of the existence of such a violation of the covenants set forth in said Section 6 hereof Company will be entitled to injunctive relief against the Employee by any Court of competent jurisdiction. In the event any Court of competent jurisdiction should determine that the territorial restrictions set forth in Sections 6 hereof, and/or their durations, are unreasonable in their scope, then, and in that event, the territorial restrictions, and/or their duration, shall be limited to such territory and/or duration as may be determined reasonable by a Court of competent jurisdiction. SECTION 8. ATTORNEY'S FEES. The parties hereto agree that, in the event of any legal action in connection with this Agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or appeal, and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. SECTION 9. CHOICE OF LAW AND VENUE. This agreement shall be construed according to the laws of the State of Florida, without regard to choice of law provisions. Venue to resolve any dispute under this Agreement shall be Pinellas County, Florida. SECTION 10. INVALIDITY OF PRIOR AGREEMENTS. This Agreement supersedes all prior agreements and understandings between Employee and Company and this Agreement expresses the whole and entire agreement between the parties with reference to Employee's employment and it cannot be modified or changed by any oral or verbal promise by whomsoever made, nor shall any written modification of it be binding on Company until such written modification shall have been approved in writing by the President of the Company. SECTION 11. SEVERABILITY. All agreements and covenants contained herein are severable and, in the event any of them shall be held to be invalid, illegal or unenforceable by any 5 6 competent Court, this contract shall be interpreted as if such invalid, illegal or unenforceable agreement or covenants were not contained herein. SECTION 12. NON-WAIVER OF RIGHTS. All of the rights of Company and Employee hereunder shall be cumulative and not alternative, but a waiver or indulgence on the part of Company or Employee of any rights or entitlement hereunder shall not be construed as a waiver of any other rights or entitlements hereunder by either Company or Employee. No notice shall be required by Company or Employee to enforce strict adherence to all the terms of this agreement. SECTION 13. MISCELLANEOUS PROVISIONS. The provisions of this Agreement shall extend to the successors, surviving corporations and assigns of Company. Singular and masculine pronouns shall include plural, feminine, and artificial persons and entities whenever the context permits. SECTION 14. EMPLOYEE'S ACKNOWLEDGMENT. Employee certifies that he is over twenty-one (21) years of age and hereby acknowledges having read the entire contents of this Agreement before signing his name below and that he has received a copy hereof for his own use. IN WITNESS WHEREOF, the Company and Employee have affixed their hands and seals on this, the day and year first above written, the Company acting through its duly authorized officers. Signed, Sealed and Delivered in the Presence of: WITNESSES: "COMPANY" Insurance Management Solutions Group, Inc. By: /s/ David K. Meehan - ----------------------------------- --------------------------------------- As Its: Chairman - ----------------------------------- ----------------------------------- Date: 9/22/98 ------------------------------------- WITNESSES: "EMPLOYEE" /s/ Kathleen M. Batson - ----------------------------------- ------------------------------------------ Date: 9/22/98 - ----------------------------------- ------------------------------------- 6 EX-10.86 13 TERM NOTE 1 EXHIBIT 10.86 THE HUNTINGTON NATIONAL BANK TERM NOTE $8,750,000.00 Dated as of July 31, 1997 Cleveland, Ohio FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one, promise to pay to the order of THE HUNTINGTON NATIONAL BANK (hereinafter called the "Bank", which term shall include any holder hereof), at such place as the Bank may designate or, in the absence of such designation, at any of the Bank's offices, the sum of Eight Million Seven Hundred Fifty Thousand and No/100 Dollars ($8,750,000.00) (hereinafter called the "Principal Sum"), together with interest as hereinafter provided. The undersigned promise to pay the Principal Sum and the interest thereon at the time(s) and in the manner(s) hereinafter provided in this note (this "Note"). This Note is executed and the advances contemplated hereunder are to be made pursuant to a Loan and Security Agreement by and between the undersigned and the Bank (hereinafter called the "Loan Agreement") dated as of July 31, 1997, and all the covenants, representations, agreements, terms and conditions contained therein, including but not limited to additional conditions of default, are incorporated herein as if fully rewritten. INTEREST Interest will accrue on the unpaid balance of the Principal Sum at the applicable interest rate set forth in the Loan Agreement. Interest shall be payable quarterly and at such other times as specified in the Loan Agreement. Upon the occurrence and during, the continuance of an "Event of Default" pursuant to the Loan Agreement, interest will accrue on the unpaid balance of the Principal Sum and unpaid interest, if any, until paid, at a variable rate of interest per annum, which shall change in the manner set forth below, equal to five percentage points (5%) in excess of the Prime Commercial Rate. All interest shall be calculated on the basis of a 360 day year for the actual number of days the Principal Sum or any part thereof remains unpaid. As used herein, Prime Commercial Rate shall mean the rate established by the Bank from time to time based on its consideration of economic, money market, business and competitive factors, and it is not necessarily the Bank's most favored rate. Subject to any maximum or minimum interest rate limitation specified herein or by applicable law, any variable rate of interest on the obligation evidenced hereby shall change automatically without notice to the undersigned immediately with each change in the Prime Commercial Rate. 2 MANNER OF PAYMENT The Principal Sum shall be due and payable in twenty-eight (28) consecutive quarterly installments, beginning on September 30, 1997, and continuing on the last day of each calendar quarter thereafter, and at maturity whether by demand, acceleration, or otherwise. Each installment of the Principal Sum shall be in the amount of Three Hundred Twelve Thousand Five Hundred and No/100 Dollars ($312,500.00), plus a final installment of the remaining Principal Sum which shall be due and payable on June 30, 2004. The undersigned shall also pay annual Mandatory Prepayments pursuant to Section 2 of the Loan Agreement. Regular payments made by the undersigned with respect to the indebtedness evidenced hereby shall be applied first to accrued interest then due and then to the Principal Sum. Optional and Mandatory Prepayments made by the undersigned with respect to the indebtedness evidenced hereby shall be applied first to accrued interest then due and then to the Principal Sum in the inverse order of installments due hereunder without relieving the undersigned from continuing to make regular payments as set forth herein and in the Loan Agreement. PREPAYMENT Prepayment of all or any portion of the Principal Sum may be subject to a prepayment premium as set forth in the Loan Agreement. LATE CHARGE Any installment or other payment not made within 10 days of the date such payment or installment is due shall be subject to a late charge equal to the lesser of 5% of the amount of the installment or payment, or $250.00. SECURITY This Note is secured by the security interest in the Collateral (as defined in the Loan Agreement) granted by the undesigned pursuant to the terms and conditions of the Loan Agreement. The rights of the Bank under this Note shall be cumulative and in addition to any and all rights of the Bank under the Loan Agreement or otherwise. DEFAULT Upon the occurrence and continuance of an "Event of Default" under the Loan Agreement, the Bank may, at its option, without notice or demand, accelerate the maturity of the obligations evidenced hereby, which obligations shall become immediately due and payable. In the event the Bank shall institute any action for the enforcement or collection of the obligations evidenced hereby, the undersigned agree to pay all costs and expenses of such action, including reasonable attorneys' fees, to the extent permitted by law. -2- 3 GENERAL PROVISIONS All of the parties hereto, including the undersigned, and any endorser, surety, or guarantor, hereby severally waive presentment, notice of dishonor, protest, notice of protest, and diligence in bringing suit against any party hereto, and consent that, without discharging any of them, the time of payment may be extended an unlimited number of times before or after maturity without notice. The Bank shall not be required to pursue any party hereto, including any guarantor, or to exercise any rights against any collateral herefor before exercising any other such rights. The obligations evidenced hereby may from time to time be evidenced by another Note or Notes given in substitution, renewal or extension hereof. Any security interest or mortgage which secures the obligations evidenced hereby shall remain in full force and effect notwithstanding any such substitution, renewal, or extension. The captions used herein are for reference only and shall not be deemed a part of this Note. If any of the terms or provisions of this Note shall be deemed unenforceable, the enforceability of the remaining terms and provisions shall not be affected. This Note shall be governed by and construed in accordance with the law of the State of Ohio. WAIVER OF RIGHT TO TRIAL BY JURY THE UNDERSIGNED ACKNOWLEDGE THAT, AS TO ANY AND ALL DISPUTES THAT MAY ARISE BETWEEN THE UNDERSIGNED AND THE BANK, THE COMMERCIAL NATURE OF THE TRANSACTION OUT OF WHICH THIS NOTE ARISES WOULD MAKE ANY SUCH DISPUTE, UNSUITABLE FOR TRIAL BY JURY. ACCORDINGLY, THE UNDERSIGNED HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY AS TO ANY AND ALL DISPUTES THAT MAY ARISE RELATING TO THIS NOTE OR TO ANY OF THE OTHER INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH. WARRANT OF ATTORNEY Each of the undersigned authorize any attorney at law to appear in any Court of Record in the State of Ohio or in any other state or territory of the United States after the above indebtedness becomes due, whether by acceleration or otherwise, to waive the issuing and service of process, and to confess judgment against any one or more of the undersigned in favor of the Bank for the amount then appearing due together with costs of suit, and thereupon appearing to waive all errors and all rights of appeal and stays of execution. No such judgment or judgments against less than all of the undersigned shall be a bar to a subsequent judgment or -3- 4 judgments against any one or more of the undersigned against whom judgment has not been obtained hereon; this being a joint and several warrant of attorney to confess judgment. WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. YOSYSTEMS, INC., an Ohio corporation By: /s/ Daniel J. White ---------------------------------- Daniel J. White, President SMS GEOTRAC, INC., a Delaware corporation By: /s/ Daniel J. White ---------------------------------- Daniel J. White, President -4- EX-10.87 14 AYO CLAIMS AGREEMENT 1 EXHIBIT 10.87 AYO CLAIMS AGREEMENT THIS AYO CLAIMS AGREEMENT, entered into as of this _____ day of ___________, 199__, between THE FLORIDA WINDSTORM UNDERWRITING ASSOCIATION (the "FWUA") and _______________________________________________ (the "Company"). R E C I T A L S: The Company writes homeowner's policies, in FWUA Eligible Areas in Florida. Such policies may exclude windstorm coverages and, if so, such windstorm coverages are written with the FWUA. In the event of losses under FWUA policies, the FWUA has agreed to appoint the Company to process and handle claims on properties which are covered both by the Company's policies and FWUA policies (the "FWUA Claims"). NOW, THEREFORE, it is agreed as follows: 1. APPOINTMENT. The FWUA hereby appoints the Company to process, handle and adjust all FWUA Claims on properties which are covered both by an FWUA policy and a policy issued by the Company. 2. TERM AND TERMINATION. This Agreement shall commence on the above date and shall continue for a period of one (1) year thereafter or until terminated under Section 6, whichever first occurs. If not terminated under Section 6 before the end of such one (1) year term, it shall continue in effect for successive one (1) year terms or until this Agreement has been terminated under Section 6 hereof, whichever occurs first. 3. POWERS AND DUTIES OF THE COMPANY. The Company shall: (a) process and adjust all FWUA Claims and perform its obligations in compliance with the FWUA's Adjuster Manual and in conformance with generally accepted standards in the claims adjustment business and in a manner comparable to the services performed by the Company in the voluntary market and not in violation of any statute governing unfair claim-handling practices, exercising at all times ordinary care and diligence in the performance of such duties (the "Servicing Standards"); (b) transmit to the FWUA, promptly after a loss occurrence, copies of all loss notices (which shall contain such information as the FWUA shall require) and, when the FWUA Claim has been fully adjusted, furnish a closing report and such back-up documentation supporting payment of the FWUA Claims as the FWUA shall reasonably require; (c) advance all payments and engineering expenses required by the Adjuster Manual; (d) assign all FWUA Claims to approved, independent adjusting firms or qualified adjusting staff in accordance with the Company's established standards; and (f) in the event of litigation, promptly forward the matter to the FWUA for handling, 4. POWERS AND DUTIES OF THE FWUA. The FWUA shall: (a) upon receipt of loss notices, verify coverages, establish reserves and set up a file pending receipt of prescribed status reports and/or closing report; (b) upon receipt of closing report and back-up documentation acceptable to the FWUA, pay all FWUA Claims; (c) provide such coverage information on policies involving FWUA Claims as the Company shall reasonably require; (d) provide the Company with copies of the FWUA Adjuster Manual and copies of all amendments to its Manual of Procedures or other documents which affect FWUA obligations to its policyholders; (e) provide training on policy coverages and other matters on an as-needed basis, including the adjuster "Train the Trainer" programs for the Company's use in the certification of staff and independent adjusters. 5. COMPENSATION. (a) The FWUA shall pay to the Company for the performance of its services hereunder an administrative fee equal to 3.3% of the amount of each loss paid. (b) The FWUA shall reimburse the Company for the fees and expenses of all staff adjusters and independent adjusters in accordance with the current FWUA Adjuster Fee schedule attached hereto. (c) The Company shall be entitled to receive only such fees and cost reimbursements as are specifically authorized under this Agreement and shall not receive reimbursement for any costs, fees, fines, penalties, damages or expenses incurred in any proceeding arising from: (i) the failure of the Company to perform its services hereunder in accordance with the Servicing Standards, as reasonably applied; or (ii) a finding that the Company acted in bad faith in the adjustment of an FWUA Claim. 2 (d) The Company shall be compensated for its services and shall be reimbursed for its expenses hereunder within 30 days after payment of an FWUA Claim. 6. TERMINATION. Either party may terminate this Agreement upon 90 days written notice to the other. All books, records, files, policies, contracts, supplies and related material furnished by the FWUA to the Company in the performance of its services hereunder shall remain the property of the FWUA and shall be returned by the Company to the FWUA upon termination. 7. RELATIONSHIP OF THE PARTIES. The Company shall be deemed an independent contractor, performing its services hereunder free from any supervision or control by the FWUA, except as may be exercised by the FWUA in connection with enforcing the Servicing Standards. The Company shall have no right or authority to bind or obligate the FWUA with respect to any FWUA Claim without the prior approval of the FWUA. All employees or agents of the Company performing duties hereunder shall be solely and exclusively under the Company's direction and control and shall not be deemed employees of the FWUA. 8. AUDIT. (a) The Company shall maintain adequate books, records, reports and other documents relating to its services hereunder which shall be separate and apart from those pertaining to services performed by it in the voluntary market and all of them shall be open for inspection, audit and copying by the FWUA and its agents or other representatives at all reasonable time. The Company shall cooperate fully with all of such agents or other representatives during audits or examinations conducted by them and shall permit them to have full access during normal business hours of all such books, records, reports and other material. (b) At any time during the term hereof and on or before one hundred twenty (120) days after the termination hereof, the FWUA may conduct an audit of the Company's FWUA operations to determine whether the Company has performed its obligations hereunder in compliance with the Servicing Standards and this Agreement. 9. INDEMNIFICATION. (a) The Company agrees to indemnify the FWUA against and hold it harmless from any and all payments of money (including fines, damages, liabilities, liens, losses, costs and expenses, including attorneys' fees, whether incurred in anticipation of trial, at trial or on appeal), imposed on, incurred by or asserted against the FWUA, arising out of or resulting directly or indirectly from the obligations of the Company under Section 3 of this Agreement or arising out of any claim, action, suit or proceeding relating to the obligations of the Company under Section 3 hereof. (b) The FWUA agrees to indemnify the Company against and hold it harmless from any and all payments of money (including fines, damages, liabilities, liens, losses, costs and expenses, including attorneys' fees, whether incurred in anticipation of trial, at trial or on appeal), imposed on, incurred by or asserted against the Company, arising out of or resulting directly or indirectly from the obligations of the FWUA under Section 4 of this Agreement or arising out of any claim, action, suit or proceeding relating to the obligation's of the FWUA under Section 4 hereof. 10. ARBITRATION. Any dispute between the FWUA and the Company (the "parties") regarding performance of the provisions of this Agreement shall be resolved by the parties and if not so resolved, shall be resolved solely by binding arbitration in accordance with rules and procedures of the American Arbitration Association (AAA). When demand for arbitration is made, each party will select an arbitrator and the two arbitrators will select a third from a panel provided by the AAA. Arbitrators shall have familiarity with dispute resolution in the insurance industry. Each party will pay the expenses it incurs and bear the expenses of the third arbitrator equally. Unless both parties agree otherwise, arbitration will take place in Duval County, Florida. All decisions of the arbitrators will be binding on the parties. 11. MISCELLANEOUS. (a) This Agreement shall be binding upon the parties and their legal representatives, successors and assigns and is being executed and is intended to be performed in the State of Florida and shall be construed, interpreted and enforced in accordance with the laws of that state. (b) Neither this Agreement nor any term hereof may be changed, waived, discharged, amended or terminated orally, but only by an instrument in writing signed by the parties. (c) This Agreement is solely between the FWUA and the Company and no insured, agent, producer, claimant or other person having or asserting a claim against either the FWUA or the Company shall have or acquire any rights by reason of the execution and delivery of this Agreement or the performance of any obligations or duties hereunder. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the date and year first above written. FWUA: Attest: FLORIDA WINDSTORM UNDERWRITING ASSOCIATION By: /s/ William Schmitz ---------------------------------- Title: Assistant Manager - --------------------------------- ------------------------------- Secretary COMPANY: Attest: BANKERS INSURANCE GROUP By: /s/ Robert S. Gantley ---------------------------------- Title: Vice President - Claims - --------------------------------- ------------------------------- Secretary -3- EX-10.88 15 ASSIGNMENT OF AYO CLAIMS AGREEMENT 1 EXHIBIT 10.88 ASSIGNMENT OF AYO CLAIMS AGREEMENT Assignment of AYO Claims Agreement ("Assignment") made effective as of the 15 day of December, 1998 by and between Bankers Insurance Group, Inc. ("BIG") and Bankers Insurance Company ("BIC"). WHEREAS, BIG entered into an AYO Claims Agreement ("Agreement"), a copy of which is attached hereto as Exhibit A, with the Florida Windstorm Underwriting Association; and WHEREAS, the Agreement calls for the servicing company to be an underwriter of homeowners policies and BIC writes such policies; and WHEREAS, BIC is a wholly owned subsidiary of BIG. NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained and intended to be legally binding hereby, BIG and BIC agree as follows: BIG does hereby and with these presents assign to BIC and BIC agrees to accept the assignment of the AYO Claims Agreement as attached. BIC further agrees to perform the services required under the Agreement pursuant to a service agreement with an affiliated company. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers duly authorized so to do and their respective corporate seals to be attached hereto as of the date near first written above. WITNESSES: BANKERS INSURANCE COMPANY "BIC" /s/ Kyle C. Reynolds BY: /s/ J. Kristin Delano - ----------------------------------- --------------------------------- /s/ Nancy C. Haire AS ITS: Corporate Secretary - ----------------------------------- ----------------------------- WITNESSES: BANKERS INSURANCE GROUP, INC. "BIG" BY: /s/ J. Kristin Delano - ----------------------------------- --------------------------------- AS ITS: Corporate Secretary - ----------------------------------- ----------------------------- THE FLORIDA WINDSTORM UNDERWRITING ASSOCIATION "FWUA" BY: /s/ William Schmitz --------------------------------- AS ITS: /s/ Claim Director ----------------------------- EX-10.89 16 SOFTWARE TRANSFER AGREEMENT 1 EXHIBIT 10.89 SOFTWARE TRANSFER AGREEMENT This Software Transfer Agreement (this "Transfer Agreement") effective the 1st day of September, 1998, by and between Bankers Insurance Group, Inc. and Bankers Insurance Company ("Bankers"), Insurance Management Solutions, Inc. (hereinafter referred to as "IMS"), and First Community Insurance Company (hereinafter referred to as FCIC). WHEREAS, Bankers and IMS desire to transfer all their right, title and interest to FCIC in certain policy and claims administration software, specifically the Florida Auto Residuals Market policy and procedures systems software ("Transferred Program") and enhancements thereto without payment by FCIC of any transfer, user or other fee except for the one time payment of one dollar and other valuable consideration, the receipt and value of which is hereby acknowledged; and NOW, THEREFORE, for and in consideration of the covenants and promises herein recited, it is understood and agreed as follows: 1. Transfer of Software. a) Bankers and IMS hereby transfer to FCIC all of their right, title and interest in both source and object code in machine readable form the Transferred Program, together with the documentation (including, but not limited to, manuals, printed materials, source and object codes "Documentation"). The Transferred Program and the Documentation are referred to collectively herein as the "Program". b) The Program includes policy and claims administration, processing, billing, and production programs owned by Bankers and IMS, specifically, the Florida Auto Residuals Market policy and procedures systems software. 2. License Retained. Bankers and IMS are hereby granted a non-exclusive, perpetual license by FCIC in connection with the Program, authorizing them to do the following: a) Use, enhance, or modify the Program in machine readable form on their computers at such locations as they may conduct their business from time to time and in conjunction therewith to store the Program and transmit it through or display it on units associated with their computers; b) Utilize the Documentation in support of the use of the Program; c) Copy the Program and the Documentation to provide sufficient copies to support their use of the Program as authorized under this Agreement. d) Sell or grant non-exclusive, perpetual licenses of the Program and any enhancements to any third parties. 1 2 3. Warranty. To the extent that Bankers or IMS received patent rights, copyrights, trademarks or similar rights in its purchase of the Program, then FCIC, or its assigns are granted the same rights. 4. Enhancements. The parties hereto agree to provide to each other at no additional cost any enhancements to the Transferred Program. FCIC agrees to be responsible for the maintenance of and upgrades to the Program. 5. Construction of Agreement. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. 6. Captions. The paragraph captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. 7. Modification. No change or modification of this Transfer Agreement shall be valid unless the same shall be in writing and signed by all of the parties hereto. 8. Severability. All agreements and covenants contained herein are severable and in the event any of them shall be held to be illegal, invalid or unenforceable by any Court of competent jurisdiction, this Agreement shall be interpreted as if such illegal, invalid, or unenforceable agreements or covenants were not contained herein. 9. Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: TO IMS: Insurance Management Solutions, Inc. 360 Central Avenue St. Petersburg, FL 33701 Attention: Jeffrey Bragg Telephone (813) 823-4000 ext. 4427 Fax (813) 823-6518 To Bankers and FCIC: Bankers Insurance Group, Inc., Bankers Insurance Company and First Community Insurance Company 360 Central Avenue St. Petersburg, FL 33701 Attention: G. Kristin Delano Telephone (813) 823-4000 ext. 4416 Fax (813) 823-6518 2 3 Notices sent by hand delivery shall be deemed effective on the date of 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 third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 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. IN WITNESS WHEREOF, the parties hereto executed this Agreement on the day and year set forth below in St. Petersburg, Florida. WITNESSES: "IMS" Insurance Management Solutions, Inc. /s/ Dawn Wuteski BY: /s/ Kelly K. King - --------------------------------- ---------------------------------- AS ITS: CFO ------------------------------- DATE: 12/3/98 - --------------------------------- ------------------------------- WITNESSES: "Bankers" Bankers Insurance Group, Inc. and Bankers Insurance Company /s/ Dawn Wuteski By: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- AS ITS: Corporate Secretary ------------------------------- DATE: 9/1/98 - --------------------------------- ------------------------------- WITNESSES: "FCIC" First Community Insurance Company /s/ Dawn Wuteski By: /s/ J. Kristin Delano - --------------------------------- ---------------------------------- AS ITS: Corporate Secretary ------------------------------- DATE: 9/1/98 - --------------------------------- ------------------------------- 3 EX-10.90 17 LEASE AGREEMENT 1 EXHIBIT 10.90 LEASE AGREEMENT J. DOUGLAS BRANHAM, LANDLORD COLONIAL CLAIMS CORPORATION, TENANT 2 INDEX
Page No. 1. DEFINITIONS................................................................1 2. PREMISES...................................................................2 3. TERM.......................................................................2 4. RENT.......................................................................3 5. TENANT'S SHARE OF OPERATING COSTS..........................................4 6. SECURITY DEPOSIT...........................................................6 7. ADDITIONS AND ALTERATIONS..................................................7 8. PERMITTED USE..............................................................7 9. UTILITIES..................................................................8 10. INDEMNIFICATION; INSURANCE ................................................9 11. ASSIGNMENT OR SUBLETTING...................................................11 12. SIGNS; ADVERTISING.........................................................12 13. MAINTENANCE OF INTERIOR OF PREMISES........................................12 14. DAMAGE OR DESTRUCTION......................................................13 15. DEFAULTS...................................................................13 16. REMEDIES...................................................................15 17. LANDLORD'S RIGHT OF ENTRY..................................................16 18. NOTICES....................................................................16 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED ON RENTALS.........................................16 20. COSTS OF COLLECTION........................................................17 21. PRIOR AGREEMENTS...........................................................17 22. FLOOR PLANS................................................................17 23. NO AUTOMATIC RENEWAL.......................................................18 24. BUILDING STANDARDS MANUAL..................................................18 25. TERMS AND HEADING..........................................................18 26. CONDEMNATION...............................................................18 27. SUBORDINATION TO MORTGAGES.................................................19 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.............................19 29. QUIET ENJOYMENT............................................................20 30. PARKING SPACES.............................................................20 31. LANDLORD'S RIGHT TO ALTER COMMON AREAS.....................................20 32. EXCULPATION................................................................21 33. SUCCESSORS AND ASSIGNS.....................................................21 34. SECURITY AGREEMENT.........................................................21 35. ATTORNEY'S FEES............................................................21 36. MECHANICS LIEN.............................................................21 37. RECORDATION................................................................22 38. RADON GAS..................................................................22 39. REAL ESTATE BROKER.........................................................22 EXHIBIT "A"........................................................FLOOR PLAN EXHIBIT "B"......................................BUILDING RULES & REGULATIONS
3 COLONIAL CATASTROPHE CLAIMS CORPORATION LEASE AGREEMENT THIS LEASE, made as of the _______ day of ____________, 19 , by and between J. DOUGLAS BRANHAM hereinafter called the "Landlord", and Colonial Claims Corporation, 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 1.19 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: Dunedin, Florida 33701 Legal description: according to the Public Records of Pinellas County, Florida 4 1.3 Premises or Demised Premises: As outlined on Exhibit A 1.4 Term: 5 years 1.5 Commencement Date: _______________, 1998 1.6 Termination Date: ______________, 2004 1.7 Base Rent: $13.50 per square foot ______ per annum ______ per month 1.8 Prepaid Rent: N/A 1.9 Rentable Area of Demised Premises ("Net Rentable Area"): __________ square feet, MOL with option to lease an additional _________ square feet, MOL. 1.10 Tenant's Proportionate Share of Operating Costs ("Proportionate Share"): __________% 1.11 Tenant Improvement Allowance: N/A 1.12 Number of Parking Spaces which Tenant shall have:______________ 1.13 Monthly Rental for parking spaces: No Charge 1.14 Security Deposit: N/A 1.15 Permitted Use: Office Use 1.16 Tenant's Address: _____________________________________________ _____________________________________________ _____________________________________________ 1.17 Landlord's Address: J. Douglas Branham 147 Edgewater Drive Dunedin, FL 34698 1.18 Guarantor: N/A 1.19 Expense Stop: Building operating costs, as defined in Section 5.1(a) herein, for calendar year ending December 31, 1999. 5 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 Tenant shall have the option, on sixty (60) days' prior written notice, to lease any additional unleased space at the Premises which it does not lease in this original Lease. Such rental shall be under the same terms and conditions as set forth in this Lease. 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 three additional one (1) year periods by providing the Landlord with notice to do so no more than six (6) months nor less than three (3) 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 5% over the rent paid for the then current term. 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. 6 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 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. 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 which is applicable to such payment. 4.6 If Tenant does not lease 100% of the Premises, it shall pay an additional $_________ per square foot that it does lease in recognition of expense payment for common areas. 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), 7 paid or incurred by Landlord in such year in excess of the Building Operating Cost for the Base Year ("Operating Expenses Rent") which shall be the calendar year ending December 31, 1999. (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 of 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 8 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. (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. 9 (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 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 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. (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. 6. SECURITY DEPOSIT: N/A 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, 10 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 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. All said costs 11 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 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 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 12 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; (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. 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. 13 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. 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 14 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 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 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 15 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 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 16 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 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 17 (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 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 18 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 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 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. 19 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. 20 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. 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 21 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. 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 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. 22 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 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's corporate parent is a company which is required to make periodic reports to the Securities and Exchange Commission, a copy of Tenant's corporate parent 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: Landlord shall provide Tenant at no additional charge ____ parking spaces for every 1,000 square feet, or fraction thereof, rented. 31. 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. 23 32. 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. 33. 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. 34. 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. 35. 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. 36. MECHANICS LIEN: 24 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 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. 25 IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS: LANDLORD: - ----------------------------------- - ----------------------------------- ---------------------------------- J. DOUGLAS BRANHAM Date: -------------------------------- WITNESS: TENANT: COLONIAL CLAIMS CORPORATION - ----------------------------------- By: - ----------------------------------- ---------------------------------- Date: -------------------------------- EX-10.91 18 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.91 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of _________________, 1998 between Insurance Management Solutions Group, Inc., a Florida corporation (the "Company"), and J. Douglas Branham and Felicia A. Rivas (including permitted successors and assigns hereunder) (the "Stockholders") of shares of Common Stock, par value $.01 per share ("Common Stock"), of the Company. WHEREAS, on ________________, 1998, the Stockholders, Insurance Management Solutions, Inc., a subsidiary of the Company, and Colonial Catastrophe Claims Corporation ("Colonial") entered into a Stock Purchase Agreement ("Purchase Agreement"); WHEREAS, pursuant to the terms of the Purchase Agreement Insurance Management Solutions, Inc., a subsidiary of the Company acquired all of the issued and outstanding capital stock of Colonial; WHEREAS, as part of the Purchase Agreement consideration, the Stockholders received or will receive shares of Common Stock; and WHEREAS, under the Purchase Agreement, it is a condition to the obligations of the Stockholders and Colonial that the Company execute this Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth in this Agreement, the parties agree as follows: 1. "Piggyback" Registration. Subsequent to its initial public offering, whenever the Company proposes to file a registration statement relating to any of its securities under the Securities Act of 1933 (the "1933 Act") for its account or the account of any other stockholder of the Company (other than a registration statement required to be filed in respect of employee benefit plans of the Company on Form S-8 or any similar form from time to time in effect or any registration statement on Form S-4 or similar successor form), the Company shall, at least twenty-one (21) days (or if such twenty-one (21) day period is not practicable, then a reasonable shorter period which shall not be less than seven (7) days) prior to such filing, give written notice of such proposed filing to the Stockholders, and such notice shall offer each of the Stockholders the opportunity to register such shares of Common Stock of the Company received by the Stockholders pursuant to the Purchase Agreement ("Registrable Securities") as such Stockholder may request, and such notice shall state the name of the managing underwriter for such registration, the number of securities to be registered for the account of the Company and for the account of any stockholder, and the intended method of disposition of such securities. Upon the written request of a Stockholder, given within five (5) days after receipt of any such notice of registration from the Company, to register any shares of Common Stock owned by him or her (which request shall state the amount of Registrable Securities requested to be registered), the Company shall include such Registrable Securities in such registration statement or in a separate registration statement concurrently filed on terms and conditions comparable to those of the securities offered on behalf of the Company or for the account of any other stockholder of the Company, unless the managing underwriter therefor concludes in its reasonable judgment that the 2 inclusion of such Registrable Securities in such offering would materially adversely affect such offering, in which event the number of shares that may be sold in such offering shall be allocated, first, to the Company (or, if the offering is being made principally for the account of another person, to such person), second to the Stockholders pro rata in accordance with their percentage of shares of Common Stock included in the offering and, third, to any other third party having registration rights with respect to shares. Notwithstanding the foregoing, Stockholders shall only be entitled to participate in one Piggyback registration of a subsequent public offering. 2. Information, Documents, Etc. Upon making a request for registration pursuant to Section 1, each of the Stockholders shall furnish to the Company such information regarding his or her holdings and the proposed manner of distribution thereof as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. The Company agrees that it will furnish to each of the Stockholders the number of prospectuses, offering circulars or other documents, or any amendments or supplements thereto, incident to any registration, qualification or compliance referred to in this Agreement as the Stockholders from time to time may reasonably request. 3. Expenses. The Company will bear all expenses of registrations incident to its performance of or compliance with this Agreement, including, without limitation, registration and filing fees, exchange listing fees, printing expenses, fees and expenses of compliance with blue sky or other state securities law and fees and disbursements of (a) counsel for the Company, (b) all independent certified public accountants, (c) underwriters, and (d) any and all other persons retained by the Company; provided, however, the Company will not pay (i) underwriting discounts and commissions and brokerage commissions and fees, if any, payable with respect to Registrable Securities sold by a Stockholder, (ii) filing fees attributable to a Stockholder's Registrable Securities, (iii) fees and expenses of compliance with blue sky or other state securities laws that are required by law to be paid directly by a Stockholder, and (iv) fees and expenses of any counsel and accountants for any Stockholder. 4. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless each Stockholder and their agents (including counsel), and agrees to indemnify each underwriter participating in such offering and sale and each Person, if any, who controls such underwriter within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which the Stockholders, any agent or any such underwriter or controlling Person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the 1933 Act pursuant to Section 1 or Section 2, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any violation by the Company of the 1933 Act or the Securities 2 3 Exchange Act of 1934, as amended (the "1934 Act"), or other federal or state law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration, and will reimburse the Stockholders, each such agent and underwriter and each such controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information pertaining to such Stockholder, such underwriter or controlling Person, furnished in writing to the Company by the Stockholder, such underwriter or such controlling Person for use in such registration statement or prospectus or by a Stockholder's or such controlling Person's failure to deliver a copy of the registration statement or prospectus or any amendment or supplement thereto after being furnished with a sufficient number of copies of the same by the Company. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Stockholders, such underwriter or such controlling Person and shall survive any transfer by the Stockholders. (b) If the Stockholders sell Registrable Securities under a prospectus that is part of a registration statement, then the Stockholder(s) participating in such offering (the "Participating Stockholders"), by exercising their registration rights hereunder, hereby agree, jointly and severally (if applicable), to indemnify and hold harmless the Company, its agents (including counsel) and each Person, if any, who controls the Company within the meaning of the 1933 Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each Person who controls any underwriter within the meaning of the 1933 Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such agent, officer or director or underwriter or controlling Person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the 1933 Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Participating Stockholders of the 1933 Act or the 1934 Act, or other federal or state law applicable to the Participating Stockholders and relating to any action or inaction required by the Participating Stockholders in connection with such registration, and will reimburse the Company and each such agent, officer, director, underwriter and controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Participating Stockholders will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the 3 4 Company by the Participating Stockholders specifically for use in such registration statement or prospectus. 5. Amendments. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the Company and each of the Stockholders. 6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by an overnight courier service, such as Federal Express, or by registered or certified mail, return receipt requested, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to the Company: Insurance Management Solutions Group, Inc. 360 Central Avenue St. Petersburg, Florida 33701 Attention: C. Anthony Sexton, Esq. Telephone: (813) 823-4000, ext. 4894 Telecopy: (813) 823-6518 (b) If to the Stockholders: J. Douglas Branham 147 Edgewater Drive Dunedin, FL 34698 Any notice given by (i) telecopier will be effective when confirmed if given prior to 6:00 p.m., local time, on a Business Day, otherwise it will be effective on the next succeeding business day; (ii) overnight courier or personal delivery will be effective on the day delivered, unless such day is not a Business Day, in which case it will be effective on the next succeeding Business Day; and (iii) registered or certified mail will be effective three Business Days after deposit in the mails, all fees prepaid. 7. Interpretation and Definitions. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." 8. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 4 5 9. Entire Agreement; Limitation on Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon any Person other than the parties hereto and their permitted successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement or result in any such Person being deemed a third party beneficiary of this Agreement. 10. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 11. Specific Performance. The parties agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms of this Agreement and that the parties shall be entitled to the remedy of specific performance of the terms of this Agreement, in addition to any other remedy at law or equity. 12. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Florida. 13. Assignment. Each of the terms, provisions and obligations of this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective legal representatives, successors and assigns. Notwithstanding the foregoing, the Stockholders shall not be permitted to assign their interests, during their life, under this Agreement to any person or entity other than Permitted Assigns. For purposes of this Agreement "Permitted Assigns" shall mean Doug Branham and Felicia Rivas, their lineal descendants and any trust or other fiduciary for the benefit of such individual; and/or such individual's spouse and/or lineal descendants, and such individual's parents. 14. Number; Gender. Whenever the context so requires, the singular number shall include the plural and the plural shall include the singular, and the gender of any pronoun shall include the other genders. 15. Captions. The titles, captions and headings contained in this Agreement are inserted herein only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 16. Termination of Registration Rights. The registration rights provided by this Agreement shall terminate and be of no further force and effect unless exercised prior to the earlier of: (a) the fifth anniversary of the Closing Date of an IPO or other registration of the Company's securities under the Securities Exchange Act of 1934, as amended; or (b) with respect to any Stockholder, such time as the Stockholder has an unlimited right to sell all of his or her Registrable Securities in the public market without restriction on volume or otherwise; or (c) either Stockholder voluntarily leaves the employ of the Company. 5 6 IN WITNESS WHEREOF, the Company and the Stockholders have duly executed this Registration Rights Agreement as of the date first written above. "COMPANY" WITNESSES: INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: - --------------------------------- ---------------------------------- As Its: - --------------------------------- ------------------------------ WITNESSES: "STOCKHOLDERS" - --------------------------------- ------------------------------------- J. DOUGLAS BRANHAM - --------------------------------- ------------------------------------- FELICIA A. RIVAS 6 EX-10.92 19 EMPLOYMENT AGREEMENT WITH DOUGLAS BRANHAM 1 Exhibit 10.92 EMPLOYMENT AGREEMENT AGREEMENT made effective this _______ day of ___________, 1998 between COLONIAL CLAIMS CORPORATION, a Florida corporation, which corporation, shall hereinafter be referred to as "Company" and J. Douglas Branham, of 147 Edgewater Drive, Dunedin, Florida 34698, hereinafter referred to as "Employee". R E C I T A L S : 1. Company is engaged in the business of providing claims adjudication and ancillary services primarily to insurance companies and financial institutions throughout the United States. 2. The Company's business requires secrecy in connection with the methods and systems employed, and, for the proper protection of the Company, it is absolutely necessary and essential (which necessity Employee expressly recognizes) that all matters connected with, arising out of, or pertaining to the business of the Company, its methods and systems and the names of its customers be kept secret and confidential as goodwill belonging to the Company. 3. The Company will sustain great loss and damage, if during the term of this Agreement, or for a period of two (2) years immediately following its termination for any reason whatsoever, the Employee should, for himself or herself, or on behalf of any other person, persons, company, partnership or corporation, call upon the customers or clientele or potential customers or clients of the Company for the purpose of soliciting, selling or servicing any of the programs or services offered by the Company or substantially similar programs or products, or the solicitation of any Company employee or independent claims adjuster previously retained by the Company for the purpose of hiring such employee, or independent claims adjuster for which loss and damage, by reason of his or her financial circumstances, Employee could not be compelled by law to respond to damages in any action at law. NOW, THEREFORE, Company and Employee, in consideration of the covenants and agreements herein contained and in further consideration of the benefits and advantages flowing from each to the other, covenant and agree as follows: SECTION 1. EMPLOYMENT OF EMPLOYEE. Company hereby agrees to employ Employee. SECTION 2. EMPLOYEE'S BEST EFFORTS. Employee hereby accepts employment by Company, and agrees to devote his or her entire time and best efforts to this employment. Employee agrees to perform such other duties as are customarily performed by one holding such position in other, same or similar businesses as that engaged in by Company, and shall also render such other and unrelated services and duties as may be assigned to him or her from time to time by Company. SECTION 3. TERMS OF EMPLOYMENT. (a) Company and Employee understand and agree that the term of employment of this Agreement shall be for a period of five years from the date hereof. If this Agreement 2 has not been previously terminated as provided herein, at the expiration of the Term, this Agreement shall continue until terminated by either party on ninety (90) days' prior written notice to the other. (b) Said employment may be terminated by the Company with cause, and no notice or severance is owed. Involuntary termination with cause is defined as a dismissal at any time based on failure to conform to the conditions of employment, material breach of this Agreement, gross misconduct or willful violation of Company policy or procedure as outlined in Section 2.12 on Involuntary Termination contained in the Bankers Insurance Group, Inc. Human Resources Policies and Procedures Manual, as amended from time to time, which has been adopted verbatim by the Company. (c) In the event this Agreement is terminated by the Company without cause during the initial five year term, then the Employee shall be entitled to any payments payable under Section 4 which have been earned but not yet paid, and in addition, Employee shall be entitled to severance pay equal to Employee's then current salary payable in accordance with the Company's usual payroll practices for a period equal to twelve (12) months (the "Severance Payment"). In the event that Employee is entitled to a Severance Payment pursuant to this Section 3(c) and Employee secures employment at any time during the remaining term of this Agreement following termination (the "Severance Period"), then the Company shall be entitled to a credit against its obligations to make the Severance Payment in the amount up to seventy-five percent (75%) of Employee's base salary during the Severance Period paid to him by his new employer. (d) Notwithstanding anything contained herein to the contrary, in the event Company shall discontinue operating its business, then this Agreement shall terminate as of the last day of the month on which Company ceases operations with the same force and effect as if such last day of the month were originally set as the termination date hereof. (e) If this Agreement is terminated for any reason by either the Company or Employee, the Company shall have the absolute right to immediately terminate its employment with Felicia A. Rivas on the same basis, be it voluntary or involuntary. Likewise, if Mr. Branham or Ms. Rivas become legally separated or divorced from each other or institute dissolution proceedings, the Company shall have the right to terminate either one or both of them for cause. SECTION 4. EMPLOYEE'S COMPENSATION AND EXPENSES. (a) As compensation for the services to be performed by Employee under this Agreement, Company shall pay Employee, and Employee shall accept from Company, a per annum compensation paid on a bi-weekly basis pursuant to the schedule attached hereto as Schedule "A" and incorporated herein by reference. (b) In addition, although not currently contemplated at the time this Agreement is entered into, Employee may be entitled to earn additional compensation pursuant to a bonus plan, and an employee stock option plan. If Employee is eligible for either a bonus plan or the stock option plan, copies of the plan will be provided to Employee. 2 3 (c) The Employee shall be provided the same benefits and on the same basis as other employees of the Company including, but not limited to, the 401(k) plan, life insurance, disability insurance and health insurance. (d) Employee's salary, bonuses and allowances may be modified, as agreed upon between Employee and Company, from time to time, and any such modifications made during the term of this Agreement shall be incorporated as part of the Agreement. (e) Company shall reimburse Employee for all other reasonable, ordinary and necessary expenses incurred by Employee on Company's behalf pursuant to Company's directions and subject to Company's restrictions and requirements. SECTION 5. BUDGET. Employee shall prepare and deliver to the Board of Directors of the Company's parent corporation at least ninety (90) days prior to fiscal year-end a calendarized budget which includes a sales plan on a monthly basis for the next fiscal year indicating how the Company expects to reach the target for that fiscal year (the "Budget"). Employee shall use his or her best efforts to cause the Company to operate within, in all material respects, the Budget and failure to exercise his or her best efforts and to not achieve such goals, in all material respects, shall be reason for termination. Failure of the Company to achieve the results reflected in the Budget will not, in and of itself, be deemed a violation by Employee of this Agreement and not constitute an event giving rise to a "for cause" termination. SECTION 6. FUNDS COLLECTED BY EMPLOYEE. Employee does explicitly understand and agree that all funds received by him or her on behalf of Company, as may be authorized by Company from time to time, shall be held in trust by Employee and shall immediately be remitted to Company by Employee. Additionally, Employee shall be responsible for any and all technical data, books, equipment, or other property of Company which may come into his possession by reason of his or her employment. In the event this employment is terminated for any reason whatsoever, Employee shall immediately turn in to Company and account for all such funds, equipment and property which may be in the possession of Employee at such termination. SECTION 7. RESTRICTIVE COVENANTS. (a) Anti-Piracy. The Employee hereby expressly covenants and agrees, which covenants and agreements are of the essence of this contract, that he or she will not, during the term of this Agreement and for a period of two (2) years immediately following the termination of this Agreement, for any reason whatsoever, directly or indirectly, for himself or herself, or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: (1) call upon any customer or customers of Company solicited or contacted by Employee while at the Company or whose account was serviced by Employee while at the Company, pursuant to his or her employment hereunder, for the purpose of soliciting, selling or servicing any programs or services of the type sold 3 4 and serviced by Company during the term hereof within the state of Florida and such other states in which the Company shall conduct business; (2) nor will Employee divert, solicit or take away any customer or customers of Company or the business or patronage of any such customers of the Company for the purpose of selling or servicing any programs or services of the type sold and serviced by Company during the term hereof; (3) nor will Employee call upon any prospective customer or customers of the Company, for the purpose of soliciting, selling or servicing programs or services of the type sold and serviced by Company during the term hereof within the State of Florida and such other states in which the Company shall conduct business; (4) nor upon termination of Employee's employment from Company, whether by resignation, discharge, or otherwise, and for a period of two (2) years from the date of termination, shall Employee, directly or indirectly, for himself or herself or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: solicit, approach, or call upon any Company employee, customers or independent claims adjusters who adjudicated claims for the Company for the purpose of retaining or hiring the Company employee or independent claims adjusters in any capacity; and (5) In the event of a breach or threatened breach by Employee of the provisions of this Section 7, Company shall be entitled to an injunction restraining Employee from directly or indirectly soliciting, approaching, or calling upon any Company employee, customers or independent claims adjusters for the purpose of retaining or hiring the Company employee in any capacity and/or in fact hiring the Company employee or independent claims adjusters in any capacity; and, in addition to obtaining an injunction, Company shall be entitled to recover damages from Employee. In the event any Court determines the specified time period to be unreasonable, arbitrary, or against public policy, a lesser time period which is determined to be reasonable, non-arbitrary and not against public policy may be enforced against Employee by injunction, as well as by all other legal remedies available to Company. In the event of any legal action in connection with this agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or during an appeal and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. (b) Nondisclosure. Employee recognizes and acknowledges that the list of the Company's customers, trade secrets, data processing systems, computer software, computer programs, or other systems, data, methods, or procedures developed or used by the Company, as they may exist from time to time, are valuable, special and unique assets of the Company's business. The Employee will not, during or after the term of his or her employment without the prior written consent of the Company, which consent may be arbitrarily withheld, and except to the extent necessary to accomplish assignments on 4 5 behalf of the Company in which the Employee is, at any given time during the term of Employee's tenure with the Company, currently and actively engaged, possess, transmit, copy, reproduce, or disclose the list of the Company's customers or any part thereof or identify any of the independent claims adjusters who adjusted claims for the Company or any of the Company's present or future trade secrets, or any data processing systems, computer software, computer programs or other systems, data, methods, or procedures to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, nor will the undersigned assist anyone else to do so. In the event of a breach or threatened breach by Employee of the provisions hereof, the Company shall be entitled to an injunction restraining Employee from disclosing, in whole or in part, the list of the Company's customers or the Company's trade secrets, or from rendering any services to any person, firm, corporation, association, or other entity to whom such list or such trade secrets, in whole or in part, has been disclosed or is threatened to be disclosed and requiring the return to the Company of all copies of customer lists, manuals, data, software, computer programs, or written procedures in the possession of Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. The existence of any claim or cause of action of Employee against the Company shall not constitute a defense to the enforcement by the Company of this covenant. No failure of the Company 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 the Agreement on the part of Employee. SECTION 8. SEVERABILITY OF RESTRICTIVE COVENANTS. Company and Employee agree that the restrictive covenants contained in Section 7, or any of its sub-paragraphs, are severable and separate and the unenforceability of any specific covenant therein shall not affect the validity of any other covenants set forth therein. These covenants on the part of the Employee shall be construed as an agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of the Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants. Employee agrees and acknowledges that any violation by Employee of the covenants set forth in Section 7 hereof would cause irreparable damage to Company, and Employee further agrees that upon proof of the existence of such a violation of the covenants set forth in said Section 7 hereof Company will be entitled to injunctive relief against the Employee by any Court of competent jurisdiction. In the event any Court of competent jurisdiction should determine that the territorial restrictions set forth in Sections 7 hereof, and/or their durations, are unreasonable in their scope, then, and in that event, the territorial restrictions, and/or their duration, shall be limited to such territory and/or duration as may be determined reasonable by a Court of competent jurisdiction. SECTION 9. KEY MAN INSURANCE. The Company may purchase key man term life insurance on the life of Employee for the benefit of the Company (the "Life Insurance Policy"). Employee agrees to submit to any reasonable physical examination required in connection with the Life Insurance Policy and to otherwise cooperate with the Company in connection with its obtaining the Life Insurance Policy. Employee confirms to Company that to the best of his or her knowledge, he or she is insurable at normal rates. 5 6 SECTION 10. ATTORNEY'S FEES. The parties hereto agree that, in the event of any legal action in connection with this Agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or appeal, and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. SECTION 11. CHOICE OF LAW AND VENUE. This agreement shall be construed according to the laws of the State of Florida, without regard to choice of law provisions. Venue to resolve any dispute under this Agreement shall be Pinellas County, Florida. SECTION 12. INVALIDITY OF PRIOR AGREEMENTS. This Agreement supersedes all prior agreements and understandings between Employee and Company and this Agreement expresses the whole and entire agreement between the parties with reference to Employee's employment and it cannot be modified or changed by any oral or verbal promise by whomsoever made, nor shall any written modification of it be binding on Company until such written modification shall have been approved in writing by the Company's Board of Directors. SECTION 13. SEVERABILITY. All agreements and covenants contained herein are severable and, in the event any of them shall be held to be invalid, illegal or unenforceable by any competent Court, this contract shall be interpreted as if such invalid, illegal or unenforceable agreement or covenants were not contained herein. SECTION 14. NON-WAIVER OF RIGHTS. All of the rights of Company and Employee hereunder shall be cumulative and not alternative, but a waiver or indulgence on the part of Company or Employee of any rights or entitlement hereunder shall not be construed as a waiver of any other rights or entitlements hereunder by either Company or Employee. No notice shall be required by Company or Employee to enforce strict adherence to all the terms of this agreement. SECTION 15. MISCELLANEOUS PROVISIONS. The provisions of this Agreement shall extend to the successors, surviving corporations and assigns of Company. Singular and masculine pronouns shall include plural, feminine, and artificial persons and entities whenever the context permits. SECTION 16. EMPLOYEE'S ACKNOWLEDGMENT. Employee certifies that he is over twenty-one (21) years of age and hereby acknowledges having read the entire contents of this Agreement before signing his name below and that he has received a copy hereof for his own use. IN WITNESS WHEREOF, the Company and Employee have affixed their hands and seals on this, the day and year first above written, the Company acting through its duly authorized officers. Signed, Sealed and Delivered in the Presence of: 6 7 WITNESSES: "COMPANY" Colonial Claims Corporation By: - --------------------------------- --------------------------------- As Its: - --------------------------------- ----------------------------- Date: ------------------------------- WITNESSES: "EMPLOYEE" - --------------------------------- ------------------------------------ J. Douglas Branham Date: - --------------------------------- ------------------------------- 7 8 SCHEDULE "A" Annual Compensation shall be calculated as follows: 1. A base salary of $8,500.00 per month. In addition, a year-end bonus of $18,000.00 if Company Revenues reach Four Million Dollars ($4,000,000.00) for calendar year ended December 31, 1999 and an additional year-end bonus of $18,000.00 for each of the following four year-ends if year-end Company Revenues are as follows:
Company Year-Ended Revenues ---------- --------- 2000 $4,200,000 2001 $4,410,000 2002 $4,630,500 2003 $4,862,025
Company Revenues shall be defined as total revenues produced by the Company. Plus, Three percent (3%) of Company Revenues in excess of the Company Revenue amounts for the years and amounts set forth in the table above. Payment of the 3% bonus is subject to the Company maintaining a gross margin of 24% for the year in question. Gross Margin shall be defined as gross revenues less external adjuster expenses and all internal expenses. The 3% will be reduced prorata for gross margins under 24%, for example, a gross margin of 22.5% would result in a 1.5% bonus on company revenues in excess of the amounts set above. EX-10.93 20 EMPLOYMENT AGREEMENT WITH COLONOIAL CLAIMS CORP. 1 Exhibit 10.93 EMPLOYMENT AGREEMENT AGREEMENT made effective this ___ day of ______________, 1998 between COLONIAL CLAIMS CORPORATION, a Florida corporation, which corporation, shall hereinafter be referred to as "Company" and Felicia A. Rivas, of 147 Edgewater Drive, Dunedin, Florida 34698, hereinafter referred to as "Employee". R E C I T A L S : 1. Company is engaged in the business of providing claims adjudication and ancillary services primarily to insurance companies and financial institutions throughout the United States. 2. The Company's business requires secrecy in connection with the methods and systems employed, and, for the proper protection of the Company, it is absolutely necessary and essential (which necessity Employee expressly recognizes) that all matters connected with, arising out of, or pertaining to the business of the Company, its methods and systems and the names of its customers be kept secret and confidential as goodwill belonging to the Company. 3. The Company will sustain great loss and damage, if during the term of this Agreement, or for a period of two (2) years immediately following its termination for any reason whatsoever, the Employee should, for himself or herself, or on behalf of any other person, persons, company, partnership or corporation, call upon the customers or clientele or potential customers or clients of the Company for the purpose of soliciting, selling or servicing any of the programs or services offered by the Company or substantially similar programs or products, or the solicitation of any Company employee or independent claims adjuster previously retained by the Company for the purpose of hiring such employee, or independent claims adjuster for which loss and damage, by reason of his or her financial circumstances, Employee could not be compelled by law to respond to damages in any action at law. NOW, THEREFORE, Company and Employee, in consideration of the covenants and agreements herein contained and in further consideration of the benefits and advantages flowing from each to the other, covenant and agree as follows: SECTION 1. EMPLOYMENT OF EMPLOYEE. Company hereby agrees to employ Employee. SECTION 2. EMPLOYEE'S BEST EFFORTS. Employee hereby accepts employment by Company, and agrees to devote his or her entire time and best efforts to this employment. Employee agrees to perform such other duties as are customarily performed by one holding such position in other, same or similar businesses as that engaged in by Company, and shall also render such other and unrelated services and duties as may be assigned to him or her from time to time by Company. 2 SECTION 3. TERMS OF EMPLOYMENT. (a) Company and Employee understand and agree that the term of employment of this Agreement shall be for a period of five years from the date hereof. If this Agreement has not been previously terminated as provided herein, at the expiration of the Term, this Agreement shall continue until terminated by either party on ninety (90) days' prior written notice to the other. (b) Said employment may be terminated by the Company with cause, and no notice or severance is owed. Involuntary termination with cause is defined as a dismissal at any time based on failure to conform to the conditions of employment, material breach of this Agreement, gross misconduct or willful violation of Company policy or procedure as outlined in Section 2.12 on Involuntary Termination contained in the Bankers Insurance Group, Inc. Human Resources Policies and Procedures Manual, as amended from time to time, which has been adopted verbatim by the Company. (c) In the event this Agreement is terminated by the Company without cause during the initial five year term, then the Employee shall be entitled to any payments payable under Section 4 which have been earned but not yet paid, and in addition, Employee shall be entitled to severance pay equal to Employee's then current salary payable in accordance with the Company's usual payroll practices for a period equal to twelve (12) months (the "Severance Payment"). In the event that Employee is entitled to a Severance Payment pursuant to this Section 3(c) and Employee secures employment at any time during the remaining term of this Agreement following termination (the "Severance Period"), then the Company shall be entitled to a credit against its obligations to make the Severance Payment in the amount up to seventy-five percent (75%) of Employee's base salary during the Severance Period paid to him by his new employer. (d) Notwithstanding anything contained herein to the contrary, in the event Company shall discontinue operating its business, then this Agreement shall terminate as of the last day of the month on which Company ceases operations with the same force and effect as if such last day of the month were originally set as the termination date hereof. (e) If this Agreement is terminated for any reason by either the Company or Employee, the Company shall have the absolute right to immediately terminate its employment with J. Douglas Branham on the same basis, be it voluntary or involuntary. Likewise, if Mr. Branham or Ms. Rivas become legally separated or divorced from each other or institute dissolution proceedings, the Company shall have the right to terminate either one or both of them for cause. SECTION 4. EMPLOYEE'S COMPENSATION AND EXPENSES. (a) As compensation for the services to be performed by Employee under this Agreement, Company shall pay Employee, and Employee shall accept from Company, a per annum compensation paid on a bi-weekly basis pursuant to the schedule attached hereto as Schedule "A" and incorporated herein by reference. 2 3 (b) In addition, although not currently contemplated at the time this Agreement is entered into, Employee may be entitled to earn additional compensation pursuant to a bonus plan, and an employee stock option plan. If Employee is eligible for either a bonus plan or the stock option plan, copies of the plan will be provided to Employee. (c) The Employee shall be provided the same benefits and on the same basis as other employees of the Company including, but not limited to, the 401(k) plan, life insurance, disability insurance and health insurance. (d) Employee's salary, bonuses and allowances may be modified, as agreed upon between Employee and Company, from time to time, and any such modifications made during the term of this Agreement shall be incorporated as part of the Agreement. (e) Company shall reimburse Employee for all other reasonable, ordinary and necessary expenses incurred by Employee on Company's behalf pursuant to Company's directions and subject to Company's restrictions and requirements. SECTION 5. BUDGET. Employee shall prepare and deliver to the Board of Directors of the Company's parent corporation at least ninety (90) days prior to fiscal year-end a calendarized budget which includes a sales plan on a monthly basis for the next fiscal year indicating how the Company expects to reach the target for that fiscal year (the "Budget"). Employee shall use his or her best efforts to cause the Company to operate within, in all material respects, the Budget and failure to exercise his or her best efforts and to not achieve such goals, in all material respects, shall be reason for termination. Failure of the Company to achieve the results reflected in the Budget will not, in and of itself, be deemed a violation by Employee of this Agreement and not constitute an event giving rise to a "for cause" termination. SECTION 6. FUNDS COLLECTED BY EMPLOYEE. Employee does explicitly understand and agree that all funds received by him or her on behalf of Company, as may be authorized by Company from time to time, shall be held in trust by Employee and shall immediately be remitted to Company by Employee. Additionally, Employee shall be responsible for any and all technical data, books, equipment, or other property of Company which may come into his possession by reason of his or her employment. In the event this employment is terminated for any reason whatsoever, Employee shall immediately turn in to Company and account for all such funds, equipment and property which may be in the possession of Employee at such termination. SECTION 7. RESTRICTIVE COVENANTS. (a) Anti-Piracy. The Employee hereby expressly covenants and agrees, which covenants and agreements are of the essence of this contract, that he or she will not, during the term of this Agreement and for a period of two (2) years immediately following the termination of this Agreement, for any reason whatsoever, directly or indirectly, for himself or herself, or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: 3 4 (1) call upon any customer or customers of Company solicited or contacted by Employee while at the Company or whose account was serviced by Employee while at the Company, pursuant to his or her employment hereunder, for the purpose of soliciting, selling or servicing any programs or services of the type sold and serviced by Company during the term hereof within the state of Florida and such other states in which the Company shall conduct business; (2) nor will Employee divert, solicit or take away any customer or customers of Company or the business or patronage of any such customers of the Company for the purpose of selling or servicing any programs or services of the type sold and serviced by Company during the term hereof; (3) nor will Employee call upon any prospective customer or customers of the Company, for the purpose of soliciting, selling or servicing programs or services of the type sold and serviced by Company during the term hereof within the State of Florida and such other states in which the Company shall conduct business; (4) nor upon termination of Employee's employment from Company, whether by resignation, discharge, or otherwise, and for a period of two (2) years from the date of termination, shall Employee, directly or indirectly, for himself or herself or on behalf of, or in conjunction with, any other person, persons, company, partnership or corporation: solicit, approach, or call upon any Company employee, customers or independent claims adjusters who adjudicated claims for the Company for the purpose of retaining or hiring the Company employee or independent claims adjusters in any capacity: and (5) In the event of a breach or threatened breach by Employee of the provisions of this Section 7, Company shall be entitled to an injunction restraining Employee from directly or indirectly soliciting, approaching, or calling upon any Company employee, customers or independent claims adjusters for the purpose of retaining or hiring the Company employee in any capacity and/or in fact hiring the Company employee or independent claims adjusters in any capacity; and, in addition to obtaining an injunction, Company shall be entitled to recover damages from Employee. In the event any Court determines the specified time period to be unreasonable, arbitrary, or against public policy, a lesser time period which is determined to be reasonable, non-arbitrary and not against public policy may be enforced against Employee by injunction, as well as by all other legal remedies available to Company. In the event of any legal action in connection with this agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or during an appeal and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. (b) Nondisclosure. Employee recognizes and acknowledges that the list of the Company's customers, trade secrets, data processing systems, computer software, computer programs, or other systems, data, methods, or procedures developed or used by 4 5 the Company, as they may exist from time to time, are valuable, special and unique assets of the Company's business. The Employee will not, during or after the term of his or her employment without the prior written consent of the Company, which consent may be arbitrarily withheld, and except to the extent necessary to accomplish assignments on behalf of the Company in which the Employee is, at any given time during the term of Employee's tenure with the Company, currently and actively engaged, possess, transmit, copy, reproduce, or disclose the list of the Company's customers or any part thereof or identify any of the independent claims adjusters who adjusted claims for the Company or any of the Company's present or future trade secrets, or any data processing systems, computer software, computer programs or other systems, data, methods, or procedures to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, nor will the undersigned assist anyone else to do so. In the event of a breach or threatened breach by Employee of the provisions hereof, the Company shall be entitled to an injunction restraining Employee from disclosing, in whole or in part, the list of the Company's customers or the Company's trade secrets, or from rendering any services to any person, firm, corporation, association, or other entity to whom such list or such trade secrets, in whole or in part, has been disclosed or is threatened to be disclosed and requiring the return to the Company of all copies of customer lists, manuals, data, software, computer programs, or written procedures in the possession of Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. The existence of any claim or cause of action of Employee against the Company shall not constitute a defense to the enforcement by the Company of this covenant. No failure of the Company 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 the Agreement on the part of Employee. SECTION 8. SEVERABILITY OF RESTRICTIVE COVENANTS. Company and Employee agree that the restrictive covenants contained in Section 7, or any of its sub-paragraphs, are severable and separate and the unenforceability of any specific covenant therein shall not affect the validity of any other covenants set forth therein. These covenants on the part of the Employee shall be construed as an agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of the Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants. Employee agrees and acknowledges that any violation by Employee of the covenants set forth in Section 7 hereof would cause irreparable damage to Company, and Employee further agrees that upon proof of the existence of such a violation of the covenants set forth in said Section 7 hereof Company will be entitled to injunctive relief against the Employee by any Court of competent jurisdiction. In the event any Court of competent jurisdiction should determine that the territorial restrictions set forth in Sections 7 hereof, and/or their durations, are unreasonable in their scope, then, and in that event, the territorial restrictions, and/or their duration, shall be limited to such territory and/or duration as may be determined reasonable by a Court of competent jurisdiction. SECTION 9. KEY MAN INSURANCE. The Company may purchase key man term life insurance on the life of Employee for the benefit of the Company (the "Life Insurance Policy"). 5 6 Employee agrees to submit to any reasonable physical examination required in connection with the Life Insurance Policy and to otherwise cooperate with the Company in connection with its obtaining the Life Insurance Policy. Employee confirms to Company that to the best of his or her knowledge, he or she is insurable at normal rates. SECTION 10. ATTORNEY'S FEES. The parties hereto agree that, in the event of any legal action in connection with this Agreement, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs, whether the same are incurred in connection with trial or appeal, and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. SECTION 11. CHOICE OF LAW AND VENUE. This agreement shall be construed according to the laws of the State of Florida, without regard to choice of law provisions. Venue to resolve any dispute under this Agreement shall be Pinellas County, Florida. SECTION 12. INVALIDITY OF PRIOR AGREEMENTS. This Agreement supersedes all prior agreements and understandings between Employee and Company and this Agreement expresses the whole and entire agreement between the parties with reference to Employee's employment and it cannot be modified or changed by any oral or verbal promise by whomsoever made, nor shall any written modification of it be binding on Company until such written modification shall have been approved in writing by the Company's Board of Directors. SECTION 13. SEVERABILITY. All agreements and covenants contained herein are severable and, in the event any of them shall be held to be invalid, illegal or unenforceable by any competent Court, this contract shall be interpreted as if such invalid, illegal or unenforceable agreement or covenants were not contained herein. SECTION 14. NON-WAIVER OF RIGHTS. All of the rights of Company and Employee hereunder shall be cumulative and not alternative, but a waiver or indulgence on the part of Company or Employee of any rights or entitlement hereunder shall not be construed as a waiver of any other rights or entitlements hereunder by either Company or Employee. No notice shall be required by Company or Employee to enforce strict adherence to all the terms of this agreement. SECTION 15. MISCELLANEOUS PROVISIONS. The provisions of this Agreement shall extend to the successors, surviving corporations and assigns of Company. Singular and masculine pronouns shall include plural, feminine, and artificial persons and entities whenever the context permits. SECTION 16. EMPLOYEE'S ACKNOWLEDGMENT. Employee certifies that he is over twenty-one (21) years of age and hereby acknowledges having read the entire contents of this Agreement before signing his name below and that he has received a copy hereof for his own use. 6 7 IN WITNESS WHEREOF, the Company and Employee have affixed their hands and seals on this, the day and year first above written, the Company acting through its duly authorized officers. Signed, Sealed and Delivered in the Presence of: WITNESSES: "COMPANY" Colonial Claims Corporation By: - ---------------------------------- ---------------------------------- As Its: - ---------------------------------- ------------------------------ Date: -------------------------------- WITNESSES: "EMPLOYEE" - ---------------------------------- ------------------------------------- Felicia A. Rivas Date: - ---------------------------------- -------------------------------- 7 8 SCHEDULE "A" Annual Compensation shall be calculated as follows: 1. A base salary of $8,500.00 per month. In addition, a year-end bonus of $18,000.00 if Company Revenues reach Four Million Dollars ($4,000,000.00) for calendar year ended December 31, 1999 and an additional year-end bonus of $18,000.00 for each of the following four year-ends if year-end Company Revenues are as follows:
Company Year-Ended Revenues ---------- ---------- 2000 $4,200,000 2001 $4,410,000 2002 $4,630,500 2003 $4,862,025
Company Revenues shall be defined as total revenues produced by the Company. Plus, Three percent (3%) of Company Revenues in excess of the Company Revenue amounts for the years and amounts set forth in the table above. Payment of the 3% bonus is subject to the Company maintaining a gross margin of 24% for the year in question. Gross Margin shall be defined as gross revenues less external adjuster expenses and all internal expenses. The 3% will be reduced prorata for gross margins under 24%, for example, a gross margin of 22.5% would result in a 1.5% bonus on a company revenues in excess of the amounts set above. EX-10.94 21 STOCK PURCHASE AGREEMENT 1 Exhibit 10.94 STOCK PURCHASE AGREEMENT BY AND BETWEEN COLONIAL CATASTROPHE CLAIMS CORPORATION ("COLONIAL") AND INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. ("IMSG") AND J. DOUGLAS BRANHAM AND FELICIA A. RIVAS ("SHAREHOLDERS") 2 TABLE OF CONTENTS
PAGE ---- 1. Definitions 1 2. Purchase Price 2 3. Option and Exchange Agreement 3 4. Conveyance 3 5. Representations, Warranties and Covenants of Colonial and Shareholders 3 6. Representations, Warranties and Covenants of IMSG 6 7. Survival of Representations and Warranties 7 8. Closing 7 9. Expenses 10 10. Brokerage and Finder's Fees 10 11. Indemnifications 10 12. Notices 11 13. Business Terms and Conditions 11 14. Miscellaneous 12 15. Attorney's Fees 12 16. Captions 13 17. Construction of Agreement 13 18. Counterparts 13 19. Modification 13 20. Representation Acknowledged 13 21. Venue 13 22. No Public Announcement 13 LIST OF EXHIBITS 15
3 EXHIBIT 10.94 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is entered into this 10th day of December, 1998, by and between Colonial Catastrophe Claims Corporation, a Florida corporation with its principal place of business located at 147 Edgewater Drive, Dunedin, Florida 34698 (hereinafter referred to as "Colonial"), Colonial's shareholders, J. Douglas Branham and Felicia A. Rivas (hereinafter referred to as "Shareholders"), and Insurance Management Solutions Group, Inc., a Florida corporation, with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701 or assigns (which together with its affiliates shall be hereinafter referred to as "IMSG"). R E C I T A L S WHEREAS, Shareholders desire to sell and IMSG desires to purchase all of the authorized and issued shares of capital stock of Colonial. NOW, THEREFORE, in consideration of the premises and of the mutual promises and agreements hereinafter set forth, the parties hereto agree as follows: 1. Definitions. a) "Shares" shall mean all of the authorized and issued shares of capital stock of Colonial. b) "Business Day" shall mean any day other than a Saturday, Sunday or day which is a bank holiday for commercial banks which are organized and existing either under the laws of the State of Florida or under the laws of the United States. c) "Purchase Price" shall be defined and determined in accordance with the provisions of paragraph 2 hereof. d) "Transaction Documents." Transaction Documents shall mean this Agreement and its Exhibits, Option and Exchange Agreement, Employment Agreements, Lease, and Registration Rights Agreement. e) "Net Income Before Tax" shall mean gross income before taxes on a calendar year basis as determined by auditing accountants using generally accepted accounting principals and shall not include any expenses associated with this acquisition or otherwise created by IMSG. 2. Purchase Price. As consideration for the proposed sale of Shares, Shareholders shall receive the following payment ("Purchase Price") to be paid at Closing. a) IMSG shall pay Shareholders a total of up to Two Million Three Hundred 1 4 Seventy-five Thousand Dollars ($2,375,000.00) in two separate parts. The first part shall consist of IMSG's common stock that shall have a market value of One Million Seven Hundred Thousand Dollars ($1,700,000.00) as of the date of IMSG's initial public offering of its common stock ("IPO") and cash at Closing of Three Hundred Seventy-five Thousand Dollars ($375,000). The second part ("Earned Out Payments") shall not exceed Three Hundred Thousand Dollars ($300,000.00) and shall be paid on an earned out basis. Specifically, IMSG shall pay Shareholders Three Hundred Thousand Dollars ($300,000.00) in IMSG IPO stock following the conclusion of Colonial's 1999 fiscal year if Colonial meets its 1999 Target Net Income Before Tax ("Target Figure") of Nine Hundred Sixteen Thousand Dollars ($916,000.00). The Target Figure is based upon IMSG's Five Year Projection Model. The Earned Out Payment shall be reduced proportionally by any percentage shortfall in the attainment of the Target Figure for the year in question; b) The Earned Out Payment shall be made within thirty (30) days of verification, to IMSG's reasonable satisfaction, of Colonial's (or its successors') Net Income for the fiscal year in question. The Earned Out Payments shall be paid in common stock of IMSG based on its fair market value at the close of business on the last day of the year on which the Earned Out Payment is based. c) In the event the IPO is not consummated prior to Closing or when the Earned Out Payments are due to be paid, shares of IMSG common stock will be issued to Shareholders based on an assumed price per share of $12.00, subject to adjustment if an IPO is consummated and the initial public offering price is less than or exceeds $12.00 per share. d) Shares of common stock in IMSG acquired by Shareholders pursuant to this Agreement shall be subject to a Registration Rights Agreement, a copy of which is attached as Exhibit 2d and incorporated herein by reference. 3. Option and Exchange Agreement. The parties will enter into an Option and Exchange Agreement that provides, in the event the IPO does not close, the Shareholders will be entitled to elect to have their shares of IMSG redeemed by IMSG for a cash payment of $1,700,000 plus interest at 8.5% per annum from the Closing date upon 90 days prior written notice to IMSG as of December 31, 1999, 2000 and 2001. The terms and conditions of the foregoing option are as set forth in the Option and Exchange Agreement attached hereto as Exhibit 3a. 4. Transfer. On the closing date (as hereinafter defined), Colonial and Shareholders shall issue and deliver to IMSG a certificate or certificates representing One Hundred Percent (100%) of the authorized and issued Shares, with all requisite stock transfer taxes paid and stamps affixed, free and clear of all restrictions, liens, charges, security interests, claims, pledges encumbrances and rights of others. 2 5 5. Representations, Warranties and Covenants. Colonial and Shareholders hereby represent, warrant and covenant to IMSG as follows: a) Colonial is duly organized, validly existing and in good standing under the laws of the State of Florida, is qualified to do business in the State of Florida and has the corporate power to carry out its present business as now being conducted and to own or lease its present properties. b) As of the time of Closing, the Board of Directors and Shareholders of Colonial have unanimously approved the Transaction Documents attached hereto and the transactions contemplated hereby and have duly authorized the execution, delivery and performance hereof by Colonial. All corporate and other proceedings required to be taken by Colonial to authorize it to carry out this Agreement in accordance with the terms hereof shall have been, prior to the time of Closing, fully and properly taken, as required by its Certificate of Incorporation, By-Laws and all applicable laws. Such approval will be evidenced by a written Consent in Lieu of special meeting of Colonial's Shareholders and Directors which will (i) authorize and approve the transactions described in this Agreement and its exhibits (ii) authorize J. Douglas Branham to execute all such documents on behalf of Colonial and (iii) reaffirm the identity of Colonial's officers and directors and (iv) authorization of Section 2.12 of IMSG's Policies and Procedures Manual, as amended from time to time, as its own. Such resolution shall be attached hereto as Exhibit 5b. c) At the time of Closing, Colonial shall have good, and indefeasible title to all of the Shares, free and clear of all liens, mortgages, pledges, security interests, encumbrances, claims of any creditor or charges of any kind or nature whatsoever, and shall have the absolute and unrestricted right to transfer, sell and convey to IMSG or its assigns the Shares. d) The sale of the Shares pursuant to this Agreement will not contravene any federal, state, municipal or other law, rule, regulation or ordinance, and Colonial shall fully comply with all such applicable laws, rules, regulations and ordinances. e) Neither the execution, delivery nor performance of this Agreement nor the consummation of the transactions described herein will materially conflict with or violate any provision of (i) the Certificate of Incorporation or By-Laws of Colonial or (ii) any indenture, agreement or other contract of any kind or character to which Colonial is a party or by which it is bound, or be in material conflict with, result in material breach of or constitute (with due notice or the passage of time or both) a material default under any such indenture, agreement or other contract or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the Shares. f) Colonial is not in material default under any provision of any contract, 3 6 commitment, agreement or letter of intent to which it is a party or by which it is bound, which default would adversely affect the ability or right of Colonial to transfer the Shares to IMSG pursuant to this Agreement, or would adversely affect Colonial's business condition, and no event has occurred which, with due notice or passage of time or both, would constitute such material default. g) No representation, warranty or covenant of Colonial under this Agreement, nor any statement, certificate or other instrument furnished either to IMSG pursuant to this Agreement or in connection with the transactions consummated pursuant hereto, contains, or will contain, to Colonial's knowledge, any untrue statement of a material fact or omit to state a material fact necessary to make not misleading the statements contained herein and therein or necessary to provide IMSG with complete and accurate information as to Colonial and its businesses, operations, properties and assets. h) Except as set forth on Exhibit 5h there are no actions, suits, claims or proceedings pending or threatened and no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a Court, administrative agency or arbitration) against Colonial's assets nor does Colonial have reason to believe or know of any circumstances which may give rise to any legal action against them at the present time which would have any affect on its Shares. i) Neither Colonial nor Shareholders are delinquent in the filing of any tax returns or in the payment of any amount of Federal, State or local taxes, including any interest or penalties. There are no threatened claims against Colonial or Shareholders for deficiencies with respect to any amount of taxes. j) Colonial is not a party to any union contracts which continue to be in force or effect. k) Colonial's Employer Identification Number is 59-3210223. l) From time to time, after the Closing, at the request of IMSG, Colonial will deliver such other instruments of conveyance and transfer and take such other action as IMSG may reasonably require more effectively to convey, transfer to and to put IMSG in possession of, the Shares. Through the Closing date, the following conditions will be met: 1. Debts of Colonial shall be timely paid in accordance with the terms of Colonial existing debt instruments and only in accordance with such terms. 2. There will be no changes, modifications or amendments in connection 4 7 with any contracts with Colonial Corporate Principals. No bonuses shall be paid to nor assets transferred to Colonial Corporate Principals. "Corporate Principal" shall mean any shareholder, director or officer of Colonial. 3. There will be no dividends declared or paid on the Shares. 4. Business will be conducted in its normal course. Any proposed transaction outside of the normal course of business will only be done with the prior written consent of IMSG. 5. Best efforts will be used to retain and satisfy clients. Attached hereto as Exhibits and by reference made a part hereof is a copy, which Colonial and Shareholders warrant, covenant and represent to IMSG in each case is a true, correct and complete copy of each of the following: n) Colonial's most recent year-end and quarterly financial statement. o) Colonial's consolidated 1997 tax returns including any k-1's generated for the shareholders. p) All significant business contracts and agreements in connection with the Shares being acquired pursuant to this Agreement. q) Colonial's premises lease, if any. r) All employment contracts of Colonial employees. s) Colonial's Article of Incorporation and By-Laws and any amendments thereto. t) Incumbency Certificate listing current officers and directors of Colonial. u) Regulatory authorizations, if any, in connection with the business being acquired pursuant to this Agreement. v) Pending or threatened lawsuits or regulatory actions. w) Schedule of all Colonial's work-in-process as of the Closing date. x) Schedule of all Colonial's liabilities. y) Colonial will deliver to IMSG all the contracts, dealer franchises, agreements, commitments and rights pertaining to Colonial's business and other data relating to its assets, business and operation, except its books of account and supporting records, corporate minute books and stock transfer records of Colonial. 6. Representations, Warranties and Covenants of IMSG. As an inducement to Colonial to sell the Shares being sold pursuant to this Agreement and for entering into this Agreement, IMSG represents, warrants and covenants to Colonial as 5 8 follows: a) Neither the execution nor the delivery of this Agreement by IMSG, nor the performance of this Agreement, nor the consummation of the transactions contemplated hereby by IMSG, violates the provisions of any note, indenture, agreement, loan agreement, mortgage, security agreement, or other instrument to which IMSG is a party or by which either is bound, or be in material conflict with, result in material breach of or constitute (with due notice or the passage of time or both) a material default under any such indenture, or agreement. b) The purchase, acquisition and ownership of the Shares will not conflict with the Articles of Incorporation, By-Laws or any corporate resolution of IMSG. c) No representation, warranty or covenant by IMSG herein and no statement or certificate to be furnished to Colonial pursuant hereto or in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading. d) IMSG's Employer Identification Number is 59-3422536. 7. Survival of Representations and Warranties. a) The respective representations and warranties set forth in this Agreement shall survive the Closing and thereafter shall be fully effective and enforceable and shall not be affected by any investigation, verification or approval by any party hereto or by anyone acting on behalf of any such party and shall constitute a condition precedent to Closing. Failure of any representation, warranty or covenant of a Party as of Closing shall act as a condition precedent for closing by the other Party. b) The respective covenants and agreements of the parties set forth in this Agreement, except those covenants and agreements that are required expressly by this Agreement to be fully kept, performed and discharged at or prior to the time of Closing, shall survive the Closing and thereafter shall be fully effective and enforceable. c) Any party hereto shall have the right to compel the specific performance of any obligation of any other party hereto, or affected by the terms and provisions hereof. d) Notwithstanding the other provisions of this Agreement, the representations and warranties set forth in this Agreement shall expire after two years. 8. Closing. The delivery of the documents referred to herein shall take place at the offices of IMSG at 360 Central Avenue, St. Petersburg, Florida on or before 6 9 January 15, 1999, provided that the Closing will be deemed effective January 1, 1999. At the Time of Closing, the parties shall deliver the following documents, or such other documents and substitutions thereof as are satisfactory to the other, and shall comply with the following procedures: 1. Colonial shall deliver to IMSG: a) Copies of appropriate written consent of the Board of Directors and Shareholders of authorizing the execution, delivery and performance of this Agreement by Colonial certified by the Secretary of Colonial as set forth in Exhibit 8.1.a and said consent shall reflect that the statements made in the Agreement are true and correct to the best of Colonial's, its officers and Shareholders knowledge after due inquiry, review and examination; b) Executed Transaction Documents. c) An opinion of counsel for Colonial as to the following matters; i) Colonial is duly organized, validly existing, and in good standing under the laws of the State of Florida, and is entitled to own or lease property and to carry on its businesses as they are now being conducted. ii) Colonial is duly authorized to enter into this Agreement, execute, deliver, and perform the same to Colonial and to consummate the transaction herein contemplated in accordance with the terms thereof. The execution, delivery, and performance of this Agreement, and the consummation of the transactions contemplated hereby, do not violate the provisions of any note, indenture, agreement, loan agreement, mortgage, security agreement, or other instrument to which Colonial is a party or by which it is bound. iii) There are no proceedings or actions pending to limit or impair any corporate power, right or privilege or to dissolve Colonial. iv) Neither the execution, delivery, nor performance of this Agreement nor the consummation of the transactions described herein will materially conflict with or violate any provision of (i) the Articles of Incorporation or By-Laws of Colonial, or (ii) any indenture, agreement, or other contract of any kind or character to which Colonial is a party or be in material conflict with, result in material breach of, or constitute (with due notice or the passage of time or both) a material default under any such indenture, agreement, or other contract or result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of its 7 10 Shares. d) Executed Employment Agreements for J. Douglas Branham and Felicia A. Rivas (the form of which is attached as Exhibit 8.1.f.). e) Executed lease of premises (the form of which is attached as Exhibit 8.1.g.). f) Executed Option and Exchange Agreement (the form of which is attached as Exhibit 3a. g) A Certificate of Good Standing from the Secretary of State reflecting that Colonial is a corporation in good standing under the laws of the State of Florida. h) Colonial will deliver to IMSG at Closing its books of account and supporting records, corporate minute books and stock transfer records. i) Certificates representing all authorized and issued Shares with appropriate stock powers attached. 2. IMSG shall deliver or cause to be delivered to Colonial: a) Copies of appropriate resolution adopted by the Board of Directors of IMSG and certified by its Secretary authorizing the execution, delivery and performance of this Agreement and the Transaction Documents. b) Executed Employment Agreements for J. Douglas Branham and Felicia A. Rivas. c) Executed lease of premises. d) An opinion of counsel for IMSG as to the following matters; i) IMSG is duly organized, validly existing, and in good standing under the laws of the State of Florida, and is entitled to own or lease property and to carry on its businesses as they are now being conducted. 8 11 ii) IMSG is duly authorized to enter into this Agreement together with its Exhibits and the Transaction Documents, execute, deliver, and perform the same to IMSG and to consummate the transaction herein contemplated in accordance with the terms thereof. The execution, delivery, and performance of this Agreement, and the consummation of the transactions contemplated hereby, do not violate the provisions of any note, indenture, agreement, loan agreement, mortgage, security agreement, or other instrument to which IMSG is a party or by which it is bound. iii) There are no proceedings or actions pending to limit or impair any corporate power, right or privilege or to dissolve IMSG. iv) Neither the execution, delivery, nor performance of this Agreement nor the consummation of the transactions described herein will materially conflict with or violate any provision of (i) the Articles of Incorporation or By-Laws of IMSG, or (ii) any indenture, agreement, or other contract of any kind or character to which IMSG is a party or be in material conflict with, result in material breach of, or constitute (with due notice or the passage of time or both) a material default under any such indenture, agreement, or other contract. e) Executed Option and Exchange Agreement 9. Expenses. Each party shall pay its own expenses and fees of its counsel and accountants incurred in connection with the negotiation, execution and delivery of this Agreement and the performance and consummation of the transactions described herein. 10. Brokerage and Finder's Fees. Colonial represents and warrants to IMSG that no person was or will be entitled to any brokerage commission or finder's fee in connection with the transaction described in this Agreement as a result of any action taken by Colonial, or any officer, director or employee of Colonial, and IMSG represents and warrants to Colonial that no such commission or finder's fee was or will be due to any person in connection with such transaction as a result of any action taken by IMSG. Colonial agrees to indemnify and hold harmless IMSG, and IMSG agrees to indemnify and hold harmless Colonial, from and against any and all claims or causes of action asserted by any third person or persons for brokerage commissions or for finder's fees in connection with the transactions described in this Agreement as a result of any action taken by or on behalf of the indemnifying party or parties. 11. Indemnifications. a) Colonial shall, indemnify and hold IMSG harmless against any damage, loss, liability, cost or expense, including reasonable attorney's fees, resulting or arising from or in connection with any material misrepresentation or breach of any warranty or covenant on the part of 9 12 Colonial under this Agreement or any litigation resulting from causes of action which occurred prior to the closing date herein. IMSG shall indemnify and hold Colonial harmless against any and all damage, loss, liability, cost or expense, including reasonable attorney's fees, in connection with any material misrepresentation or breach of any warranty or covenant on the part of IMSG under this Agreement or any litigation resulting from causes of action which occurred prior to the closing date. b) Upon the determination of the liability under this Section 11, the appropriate party shall pay to the other, as the case may be, within ten days after such determination, the amount of any claim for indemnification made thereunder. Upon the payment in full of any claim, either by set-off or otherwise, the entity making payment shall be subrogated to the rights of the indemnified party against any person, firm or corporation other than the parties to this Agreement and their affiliates with respect to the subject matter of such claim. c) The parties acknowledge that IMSG gives no assurances as to the federal or state income tax implications or consequences to Colonial and Shareholders in connection with the transaction contemplated by this Agreement and that Colonial and Shareholders have looked to their own advisors for such advice. 12. Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Colonial: J. Douglas Branham, President Colonial Catastrophe Claims Corporation 147 Edgewater Drive Dunedin, Florida 34698 Telephone (727) 738-1366 Fax (727) 738-1460 As to IMSG Insurance Management Solutions Group, Inc. 360 Central Avenue St. Petersburg, Florida 33701 Attention: Jeffrey S. Bragg Telephone (727) 803-4027 Fax (727) 803-2099 Notices sent by hand delivery shall be deemed effective on the date of hand delivery. Notices sent by overnight carrier shall be deemed effective on the next 10 13 business day after being placed into the hands of the overnight carrier. Notices sent by registered or certified mail shall be deemed effective on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 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. 13. Business Terms and Conditions: Upon closing, the following business terms and conditions shall apply: a) Immediately following Closing, Colonial shall be merged into a newly formed wholly-owned subsidiary of IMSG. For a period of at least five years Colonial will not merge with Insurance Management Solutions, Inc., except that this provision shall not be applicable should either Mr. Branham or Ms. Rivas terminate their employment contract or be terminated for cause prior to the expiration of the five year term. Following the merger, the newly formed corporation shall change its name to Colonial Claims Corporation or Colonial Catastrophe Claims Corporation. b) Mr. Branham and Ms. Rivas shall report administratively to the head of IMSG's Claims Department; c) Colonial shall be subject to periodic audit and review by IMSG's Claims Department or its duly appointed representative; d) Employees of Colonial shall be eligible for any employee benefit normally offered to all IMSG's employees, including IMSG's 401 K Plan; e) Prior to Closing, Shareholders shall cooperate in qualifying for keyman life insurance on their lives. IMSG shall purchase such insurance in an amount it deems appropriate and designate the beneficiary. 14. Miscellaneous. The following terms and conditions apply to this Agreement: a) In the event that any provision of this Agreement is finally adjudged to be invalid, unenforceable or unlawful, the invalid, unenforceable or unlawful provisions of this Agreement shall be deemed of no force and effect and the remaining provisions of this Agreement shall be deemed severable therefrom and fully enforceable. b) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns; provided, however, in no event shall this Agreement be assignable prior to the Closing. c) No failure or failures by any party to exercise any right under this Agreement shall be deemed to be a waiver or bar to the exercise or enforcement by such party of any future right or remedy. 11 14 d) No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy given under this Agreement or hereafter existing in law or in equity or by statute or otherwise and may be exercised independently of, or in conjunction with, each and every other such remedy. The election of any one or more remedies by any party shall not constitute a waiver of the right to pursue any other remedy available. e) The parties hereto agree that this Agreement shall be construed in all respects in accordance with the laws of the State of Florida. f) Time is of the essence in the construction of this Agreement. 15. Attorney's Fees. If any party hereto should bring a regulatory, arbitration or other proceeding seeking to interpret, enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees paralegal costs and any other reasonable costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. 16. Captions. The paragraph captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. 17. Construction of Agreement. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. 18. Counterparts. This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and said counterparts shall together constitute and be one and the same instrument. 19. Modification. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by all of the above parties hereto. 20. Representation Acknowledged. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement, the transaction documents described herein or any amendments or exhibits hereto. 21. Venue. The venue for any action brought to interpret or enforce the terms and conditions of this Agreement shall be in Pinellas County, Florida. 22. No Public Announcement. Except as may be required by law, without the prior written consent of IMSG each party shall not, and will direct and cause 12 15 representatives not to, make any release to the press or other public disclosure with respect to this Agreement or the proposed undertaking contemplated hereby. Notwithstanding anything in this Agreement to the contrary, this section shall, at all times, be legally binding upon the parties whether or not the proposed undertaking is completed. IN WITNESS WHEREOF, each of the parties hereto has subscribed to this Agreement or caused its corporate name to be subscribed to this Agreement by its duly authorized officers on the day and year indicated below in St. Petersburg, Florida. COLONIAL CATASTROPHE CLAIMS CORPORATION WITNESSES: "COLONIAL" /s/ Lewis Robinson BY: /s/ J. Douglas Branham - --------------------------------- --------------------------------- J. Douglas Branham /s/ Illegible AS ITS: President 12-10-98 - --------------------------------- ----------------------------- President INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. WITNESSES: "IMSG" /s/ Kathleen M. Batson BY: /s/ Jeffrey S. Bragg - --------------------------------- --------------------------------- Jeffrey S. Bragg /s/ Illegible AS ITS: - --------------------------------- ----------------------------- Executive Vice President WITNESSES: "SHAREHOLDERS" /s/ Kathleen M. Batson /s/ J. Douglas Branham - --------------------------------- ------------------------------------- J. Douglas Branham /s/ Illegible /s/ Felicia A. Rivas - --------------------------------- ------------------------------------- Felicia A. Rivas 13 16 EXHIBIT LIST
EXHIBIT NO. NAME - ----------- ---- 2.d Registration Rights Agreement 3.a Option and Exchange Agreement 3.b Note 5.b Colonial Resolution 5.h Colonial's litigation, if any 5 h - y Colonial's due diligence docs 8.1.a 8.1.d Colonial's Opinion of Counsel 8.1.f Employment Agreements 8.1.g Lease 8.2.a IMSG's Resolution 8.2.d IMSG's Opinion of Counsel
14 17 ADDENDUM TO STOCK PURCHASE AGREEMENT This Addendum to Stock Purchase Agreement (this "Addendum") is entered into this _____ day of December, 1998, by and between Colonial Catastrophe Claims Corporation, a Florida corporation with its principal place of business located at 147 Edgewater Drive, Dunedin, Florida 34698 (hereinafter referred to as "Colonial"), Colonial's shareholders, J. Douglas Branham and Felicia A. Rivas (hereinafter referred to as "Shareholders"), and Insurance Management Solutions Group, Inc., a Florida corporation, with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701 or assigns (which together with its affiliates shall be hereinafter referred to as "IMSG"). R E C I T A L S WHEREAS, the parties hereto entered into a Stock Purchase Agreement dated December 10, 1998 which they desire to amend by this Addendum. NOW, THEREFORE, in consideration of the premises and of the mutual promises and agreements hereinafter set forth, the parties hereto agree as follows: 1. The fourth sentence of paragraph 2(a) of the Agreement shall be modified to read as follows: Specifically, IMSG shall issue Shareholders that number of Shares determined by dividing $300,000.00 by the average closing price per Share (as reported by Nasdaq) for the last five trading days in calendar year 1999. 2. Paragraph 5 of the Agreement shall be amended to add the following subparagraphs: (z) The Shareholders have received, read and are familiar with the Form S-1 Registration Statement, as amended, of IMSG relating to its proposed IPO. The Shareholders and their representatives have had full access to all documents, records and books pertaining to IMSG and the Shareholders' acquisition of shares of IMSG common stock pursuant hereto, and all documents requested by Shareholders or their representatives have been made available or delivered to Shareholders. Shareholders have had the opportunity to ask questions of, and receive answers from, the officers and directors of IMSG concerning such company, its business and the terms and conditions of the transactions contemplated hereby. Shareholders have relied solely upon independent investigations made by them or their representatives in making a decision to enter into the Agreement and acquire shares of IMSG common stock. Shareholders are aware that an investment in shares of IMSG common stock involves a high degree of risk and they have carefully 18 considered the investment based upon such independent investigations. (aa) Shareholders: (i) can bear the economic risk of losing their entire investment; (ii) have an overall commitment to investments that are not readily marketable which is not disproportionate to their net worth, and the shareholders' investment in shares of IMSG common stock will not cause such overall commitment to become excessive, (iii) have adequate means of providing for their current needs and personal contingencies and have no need for liquidity in their investment in shares of IMSG common stock; (iv) have such knowledge and experience in financial affairs as to be capable of evaluating the merits and risks of the investment; and (v) find the objectives of IMSG are compatible with their investment goals. (bb) Each Shareholder is a permanent resident of the State of Florida and intends to remain a resident of such state. (cc) Shareholders understand that the shares of IMSG common stock to be issued to them have not been registered with the Securities and Exchange Commission or any state securities commissions in reliance on exemptions which are contingent, among other things, on such shares being acquired solely for the account of the Shareholders for investment and are not being acquired for resale, fractionalization or distribution; Shareholders have no contract, undertaking, agreement or arrangement with any person to sell, transfer, or pledge the shares of IMSG common stock, or any part thereof; and the Shareholders have no present plan to enter into any such contract, undertaking, agreement or arrangement. (dd) Shareholders agree not to dispose of the shares of IMSG common stock to be acquired hereunder or any interest therein, except in compliance with the Securities Act of 1933 (the "Act") and all applicable state securities laws. (ee) Shareholders acknowledge and agree that there are substantial restrictions on the transferability of the shares of IMSG common stock being acquired hereunder, such restrictions will be evidenced by a legend on any certificates representing such shares, and resales of such shares in contravention of such restrictions are void. 3. Except for the terms of this Addendum, all other terms of the Agreement shall remain the same. 2 19 IN WITNESS WHEREOF, each of the parties hereto has subscribed to this Agreement or caused its corporate name to be subscribed to this Agreement by its duly authorized officers on the day and year indicated below in St. Petersburg, Florida. WITNESSES: Colonial Catastrophe Claims Corporation "Colonial" BY: /s/ J. Douglas Branham - --------------------------------- ---------------------------------- J. Douglas Branham - --------------------------------- AS ITS: President ------------------------------ President Insurance Management Solutions Group, Inc. WITNESSES: "IMSG" BY: /s/ Kelly K. King - --------------------------------- ---------------------------------- Kelly K. King AS ITS: - --------------------------------- ------------------------------ Vice President WITNESSES: "SHAREHOLDERS" /s/ J. Douglas Branham - --------------------------------- ------------------------------------- J. Douglas Branham /s/ Felicia A. Rivas - --------------------------------- ------------------------------------- Felicia A. Rivas 3 EX-10.95 22 LOAN AGREEMENT 1 EXHIBIT 10.95 LOAN AGREEMENT THIS LOAN AGREEMENT, is made this 16th day of December, 1998, by and between Bankers Insurance Group, Inc. (herein, "Borrower"), and Western International Insurance Company (herein, "Lender"). IN CONSIDERATION OF Lender's agreement to loan to Borrower the sum of twelve Million (U.S. $12,000,000.00) Dollars in United States currency, all in accordance with the terms and conditions of this Agreement, as well as for other good and valuable consideration, the parties hereto do covenant and agree as follows: 1. Definitions. a) "Affiliate" shall mean any party who controls, is controlled by, or is under common control with another party. b) "Corporate Principal" shall mean any shareholder, director or officer of Borrower. c) "Event Of Default" shall mean any of the events or conditions described in the subsequent paragraph hereof captioned, "Event Of Default" and "Events Of Default" shall refer collectively thereto. d) "Loan" shall mean the loan established pursuant to paragraph 2 hereof. e) "Net Proceeds" shall mean the net cash proceeds received by Venture Capital Corporation, a Cayman Islands company (herein, "VCC") from the public sale of the Stock in excess of the expenses of VCC attributable to the sale all as provided for and described in that certain Agreement for Satisfaction of Debt and Capitalization of Subsidiary dated of even date herewith made by and between Lender and VCC. f) "Note" shall mean the Promissory Note required and described in paragraph 2 hereof. g) "Obligations" shall mean any and all indebtedness, liabilities and obligations of Borrower to Lender whatsoever, including by way of illustration and not by way of limitation, any indebtedness, liability or obligation of Borrower to Lender under Note, under this Agreement, under any loan made to Borrower by Lender prior to the date hereof and any and all extensions or renewals thereof in whole or in part; any indebtedness, liability or obligation of Borrower to Lender arising hereunder or as a result hereof, and any and all extensions or renewals thereof in whole or in part; any indebtedness, liability or obligation of 2 Borrower to Lender under any later or future advances or loans made by Lender to Borrower, and any and all extensions or renewals thereof in whole or in part; and any and all future or additional indebtedness, liabilities or obligations of Borrower to Lender whatsoever and in any event, whether existing as of the date hereof or hereafter arising, whether arising under a loan, line of credit, letter of credit or other form of financing, and whether direct, indirect, absolute or contingent, as maker, endorser, guarantor, surety or otherwise, and whether evidenced by, arising out of, or relating to a promissory note, bill of exchange, check, draft, letter of credit, guaranty agreement, banker's acceptance, foreign exchange contract, security agreement, loan agreement or otherwise. h) "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof. i) "Prime Rate" shall mean the rate published in the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks. j) "Subsidiary" shall mean any corporation of which more than fifty (50%) percent of the outstanding voting securities shall, at the time of the termination, be owned directly, or indirectly, through one or more intermediaries, by Borrower. Voting shares which would be attributed to Borrower pursuant to Section 318 of the Internal Revenue Code of 1986, as the same may be hereafter, from time to time, amended, shall be deemed to be owned by Borrower. 2. Loan. a) Upon the execution of this Agreement and compliance with its terms and conditions, and the receipt by Lender of the Net Proceeds, Lender agrees to loan to Borrower the sum of Twelve Million (U.S. $12,000,000.00) Dollars in United States currency. Said loan shall be videnced by Borrower's good and sufficient Promissory Note of even date herewith which shall bear interest from the date hereof at the rate of Prime Rate per annum until maturity on the balance of the principal from time to time remaining unpaid. No payments shall be made during the first two years of the loan. The Note shall contain the following repayment provision: Commencing on the first day of January 2001 equal principal payments of One Million Four Hundred Seventy Thousand Two Hundred Ninety Nine and 32/100 Dollars ($1,470,299.32) shall be due and payable together with accrued interest in semiannual payments, payments being made on the first day of January 2 3 and July of each and every year. All unpaid principal and interest shall be due and payable in full on January 1, 2004. b) All indebtedness evidenced by the Note together with all accrued interest thereon, however such indebtedness may be created, extended, renewed or evidenced shall at all times and in all respects be subordinate and junior in right of payment to any and all indebtedness of Borrower to any of its other creditors (other than creditors who are Affiliates with the Borrower), whether secured or unsecured. c) No payments shall be due under the Note at any time when the debt to equity ratio of the Borrower is 1.5 or higher. d) No payments shall be due under the Note to the extent that such payment would result in a fixed charge coverage ratio of 1.1 or lower. Payments shall be made to the extent that they would not result in a fixed charge coverage ratio of 1.1 or lower. That is, partial payments otherwise required under this paragraph 2 shall be due and payable. For this purpose, "fixed charge coverage ratio" shall be determined by dividing (i) total cash inflows projected for payment for the six month period immediately following the due date for a payment under the Note by (ii) the total cash outflows projected for payment for the six month period immediately following the due date for a payment under the Note, such projections to be determined in good faith by the Chief Financial Officer of the Borrower. e) All payments that are otherwise due and payable but are not paid by reason of the application of subparagraphs 2. c) or d) hereof: Shall bear interest either at the rate of Prime Rate plus 5% per annum until paid in full or at the highest rate permitted by law, whichever is lower; and Shall be added to and paid at the time of the due date of the next payment due under the Note until paid in full. 3. Conditions Precedent. Prior to there being any advances by Lender to Borrower pursuant to this Agreement and as a condition precedent to any of Lender's other obligations under this Agreement, Borrower shall execute and deliver to Lender or shall cause to be executed and delivered to Lender each of the following: a) Note; 3 4 b) The good and sufficient Resolution of the Board of Directors of the Borrower authorizing its officers to enter into this Agreement; 4. Affirmative Covenants. Borrower hereby covenants with Lender that for so long as any Obligations remain outstanding and unless Lender notifies Borrower in writing it dispenses with any one or more of the following requirements, Borrower will: a) Do or cause to be done all things necessary to keep in full force and effect its corporate existence and all rights, franchises, licenses, authorizations, permits and qualifications to carry on business in all jurisdictions where qualifications may be necessary; b) Give prompt written notice to Lender upon becoming aware of the occurrence of any Event Of Default or event which, by passage of time or the giving of notice or both would constitute an Event Of Default; c) As soon as practicable, and in any event within fifteen (15) days after the end of each calendar quarter, furnish to Lender a quarterly unaudited financial statement of Borrower, including balance sheets and income statements, for the calendar quarter just ended, and for the calendar year to date, certified by a duly authorized officer of Borrower; d) As soon as practicable, and in any event within one hundred fifty (150) days after the end of each fiscal year, furnish to Lender the annual audit report of Borrower, certified without material qualification by independent certified public accountants selected by Borrower and acceptable to Lender, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, together with relevant financial statements of Borrower for the twelve (12) month period just ended; e) Notify Lender immediately, but in any event within five (5) days of any fact or facts which might materially and adversely affect Borrower's financial condition; f) Notify Lender immediately, but in any event within five (5) days after Borrower should become a party, or be threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative; g) Pay or cause to be paid when due all amounts necessary to fund, in accordance with its terms, all pension plans presently in existence or hereafter created; 4 5 h) Borrower will maintain, or cause to be maintained, public liability insurance and fire and extended coverage insurance on all assets owned by it, all in such form and amounts as are consistent with industry practices and with such insurers as may be satisfactory to Lender. Borrower will furnish to Lender such evidence of insurance as Lender may require. Borrower hereby agrees that, in the event it fails to pay or cause to be paid the premium on any such insurance, Lender may do so and be reimbursed by Borrower therefor. Borrower hereby assigns to Lender any return or unearned premiums that may be due the Borrower upon cancellation of such policies for any reason whatsoever and directs the insureds to pay Lender any amounts due. Lender is hereby appointed Borrower's Attorney-in-Fact, with full power of substitution and revocation (without requiring Lender to act as such) to endorse any check which may be payable to Borrower to collect such returned or unearned premiums or the proceeds of such insurance, and any amount so collected may be applied to Lender toward satisfaction of any of the Obligations; i) Borrower will collect its accounts and sell its inventory only in the ordinary course of business; j) Borrower will pay when due (or within applicable grace periods) all indebtedness due third Persons, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefor being set aside on the books of Borrower. If default be made by Borrower in the payment of any principal (or installment thereof) of, or interest on, any such indebtedness, Lender shall have the right, in its discretion (but it shall not be under any requirement), to pay such interest or principal for the account of Borrower and be reimbursed by Borrower therefor; k) Borrower will notify Lender thirty (30) days in advance of any change in the location of any of its businesses or of the establishment of any new, or the discontinuance of any existing, place of business; l) From the date hereof, Borrower will use the Property in full compliance with all applicable environmental laws and regulations including the removal or clean-up of any hazardous substance (as defined by state or federal law) required by any agency. 5. Negative Covenants. Borrower covenants to Lender that from and after the date hereof and for so long as any Obligations remain unpaid, it will not, without the prior written consent of Lender: a) Guaranty. Guaranty, endorse, become surety with respect to, or otherwise become directly or contingently liable for and in connection with the obligations of any other person, firm or corporation, except 5 6 endorsements for negotiable instruments for collection in the ordinary course of business; b) Reorganization. Enter into any merger, reorganization or consolidation or make any substantial change in the basic type of business conducted by Borrower as of the date hereof; c) Untrue Statements. Furnish Lender any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in the light of circumstances under which it was furnished; d) Change Business. Materially alter or change the principal business in which Borrower is engaged or the manner in which Borrower conducts its business affairs. 6. Warranties. Borrower represents and warrants to Lender that: a) Correct Financials. Any financial statements heretofore delivered to Lender are true and correct in all respects, have been prepared in accordance with generally accepted accounting practices and fairly represent the respective financial conditions of the subject thereof as of the respective dates thereof, do not fail to disclose any fact or facts which might materially or adversely affect Borrower's financial condition, no material adverse changes have occurred in the financial conditions reflected therein since the respective dates thereof and no additional borrowings have been made by Borrower since the date thereof other than the borrowing contemplated hereby or borrowings approved by Lender; b) No Actions, Suits, etc. There are no actions, suits or proceedings pending or, to the knowledge of Borrower, threatened against or affecting it whether civil, criminal, administrative or investigative, and it is not in default with respect to any judgment, decision, order, writ, injunction, decree or demand of any court or governmental authority other than those matters reflected in Borrower's audited financial statement; c) No Breach or Violation. The consummation of the transactions hereby contemplated in performance of this Agreement or of any Obligation will not result in any breach of or constitute a default under any mortgage, deed of trust, lien, bank loan or credit agreement, corporate charter, by-law or other instrument to which Borrower is a party, or by which it is bound or affected; d) Good Standing. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida; each 6 7 Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation; Borrower and its Subsidiaries have the lawful power to own their properties and to engage in the business they conduct, and each is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it make such qualification necessary; the addresses of all places of business of Borrower and each Subsidiary are as have been previously represented to Lender; the states in which Borrower and each Subsidiary are qualified to do business are as have been previously represented to Lender; the percentage of Borrower's ownership of the outstanding stock of each Subsidiary are as have been previously represented to Lender; neither Borrower nor any Subsidiary has changed its name, been the surviving corporation in a merger, acquired any business, or changed its principal executive office except as has been previously represented to Lender; e) No Commissions. Neither Borrower nor any Subsidiary has made any agreement or has taken any action which may cause anyone to become entitled to a commission or finder's fee as a result of making the within described loan; f) Pension Plan. All defined benefit pension plans, as defined in the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") of Borrower and each Subsidiary meet, as of the date hereof, the minimum funding standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction, as defined in ERISA, has occurred with respect to any such Plan; g) Environmental Compliance. Borrower has no knowledge, either actual or constructive, of any use of the Property, either in the past or present, which would violate state or federal environmental laws, and hereby represents that no proceedings have been commenced, or notices received, concerning any alleged violations of environmental laws; h) Warranties Survive. All of the representations and warranties set forth in this paragraph 0 shall survive until all Obligations are satisfied in full. 7. Events of Default. The following occurrences shall constitute Events Of Default hereunder: a) Non-Payment. Non-payment of any sum due under Note or under any other Obligation or non-performance of any obligation to be performed under this Agreement or any other agreement between Lender and Borrower, whether now in existence or hereafter executed; 7 8 b) Breach of Warranty. Any warranty, representation, statement, affirmative covenant and negative covenant made or furnished to Lender by or on behalf of Borrower or any guarantor of Borrower's Obligation proves to have been false in any material respect when made or furnished or is breached, violated or not complied with; c) Change of Financial Condition. Any material adverse change in the financial condition of Borrower or any guarantor of any of Obligations; d) Dissolution/Bankruptcy. Dissolution, termination of existence, insolvency (failure to pay its debts as they mature or the failure to maintain the fair saleable value of its assets in an amount greater than its liabilities, whichever shall first occur), a business failure, appointment of a receiver, assignment for the benefit of creditors or the commencement of any proceedings under any bankruptcy or insolvency law by or against Borrower or any guarantor or the making by either Borrower or any guarantor of any offer or settlement, exchange or composition to their respective unsecured creditors generally. For purposes of this Agreement, any guarantor shall mean any party required by this Agreement to guaranty Obligations and any party whose guaranty of Obligations is tendered to Lender to induce Lender to make this loan; e) Attach Liens. The issuance or filing against Borrower or any guarantor of a tax lien or the issuance or filing of any attachment, injunction, execution or judgment which is not removed within fifteen (15) days after issuance of filing; f) Waste. Lender shall at any time deem itself insecure or unsafe or shall fear diminution, removal or waste of collateral; g) Third Party Debt. Borrower shall fail to pay any indebtedness due any third (3rd) Persons and such failure shall continue beyond any applicable grace period, or Borrower shall suffer to exist any other Event Of Default under any agreement binding the Borrower; h) Judgment. Borrower shall suffer final judgments for payment of money aggregating in excess of and shall not discharge the same within a period of thirty (30) days (unless, pending further proceedings, execution has not been commenced, or if commenced has been effectively stayed) or a judgment creditor of Borrower shall obtain possession of any of the Collateral by any means, including, without limitation, levy, distraint, replevin or self help; 8. Default Remedies. Upon any Event Of Default, all or any portion of Obligations due or to become due from Borrower to Lender whether under this Agreement or otherwise, shall, at the option of Lender, without notice, demand, presentment or 8 9 dishonor, all of which Borrower hereby waives, become at once due and payable. Further, on the occurrence of any Event Of Default, Lender may also, with or without proceeding with sale or foreclosure or demanding payment of a debt owing by Borrower to Lender, without notice, terminate further performance under this Agreement or any other agreement between Lender and Borrower and may also, at any time appropriate and apply on said Obligations owing by Borrower to Lender any and all balances, credits, deposits, accounts, reserves, indebtedness or other monies due or owing to Borrower or held by Lender hereunder or under any other agreement or otherwise, whether accrued or not. The failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under any of the aforesaid agreements or other documents shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights, powers and remedies shall continue in full force and effect until all loans and advances and all Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied and all liens, rights, powers and remedies herein provided are cumulative and none is exclusive. 9. Further Assurances. From time to time, Borrower will execute and deliver to Lender such additional documents and will provide such additional information as Lender may reasonably require to carry out the terms of this Agreement and be informed of Borrower's status and affairs. 10. Waiver by Lender. Enforcement and Waiver by Lender. Lender shall have the right at all times to enforce the provisions of this Agreement and any other loan documents executed pursuant hereto in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time or times. The failure of Lender at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 11. Inspection of Records. Lender (or any person or persons designated by it) shall, in its sole discretion, have the right to call at any place of business of Borrower at any reasonable time, and without hindrance or delay, inspect, audit, check and make extracts from Borrower's books, records, journals, orders, receipts and any correspondence and other data relating to Borrower's business or any other transactions between the parties hereto. 12. Costs/Expenses. All costs and expenses of this loan shall be paid by Borrower, including but not limited to, out-of-pocket expenses for payment of taxes, governmental fees, legal fees and expenses of counsel appointed by the Lender, 9 10 any applicable sales tax together with any interest and penalties for the late payment thereof, all of which amounts shall be payable at the time of the execution of this Agreement or upon demand in the event they are hereafter incurred. 13. Subordinated Indebtedness. All indebtedness evidenced by the Note together with all accrued interest thereon, however such indebtedness may be created, extended, renewed or evidenced shall at all times and in all respects be subordinate and junior in right of payment to any and all indebtedness (herein, "Senior Debt") of Borrower to any of its other creditors, whether secured or unsecured except for indebtedness to affiliates of Borrower. IN WITNESS WHEREOF, the parties hereto have set their hands and seals, the day and year first above written. WITNESSES: WESTERN INTERNATIONAL INSURANCE COMPANY /s/ John E. Smith, Secretary BY: /s/ Barry B. Benjamin - --------------------------------- ---------------------------------- Barry B. Benjamin, President WITNESSES: BANKERS INSURANCE GROUP, INC. BY: /s/ G. Kristin Delano - --------------------------------- ---------------------------------- G. Kristin Delano, Secretary 10 EX-10.96 23 PROMISSORY NOTE 1 Exhibit 10.96 "ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, AS REQUIRED BY SECTION 163(f)(2)(B) (ii) (II) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING THE LIMITATIONS PROVIDED IN SECTION 165(j) AND SECTION 1287(a) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED." PROMISSORY NOTE U.S. $____________ _______, 19__ FOR VALUE RECEIVED, the undersigned, Bankers Insurance Group, Inc. jointly and severally, promise to pay to the order of Western International Insurance Company, a company organized and existing under the laws of the Cayman Islands, British West Indies, together with any other holder hereof (herein, "Holder"), at a place designated by Holder outside the United States and its possessions the principal sum of ______________________________________________________ and 00/100, ($___________) together with interest thereon from date at Prime Rate per annum until maturity on the balance of principal from time to time remaining unpaid. Prime Rate shall mean the rate published in the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks. Commencing on the first day of January 2001 equal principal payments of __________________________________________ and 00/100 Dollars ($____________.00) shall be due and payable together with accrued interest in semiannual payments, payments being made on the first day of January and July of each and every year. All unpaid principal and interest shall be due and payable in full on January 1, 2004. The obligations under this Note are subject to the terms of that certain Loan Agreement dated of even date hereof executed by and between Bankers Insurance Group, Inc. and Western International Insurance Company. The makers hereof shall not incur any penalty upon the prepayment of all or any part of the indebtedness evidenced hereby. If any payment of principal or interest hereby required is overdue for more than 30 days, the holder of this Note may, at its option, and without notice, declare the entire balance of principal then remaining unpaid to be immediately due and payable, and any failure to exercise said option shall not constitute a waiver of the right to exercise the same at any other time. Upon default in making any payment hereby required, each maker and endorser, jointly and severally, 2 promise to pay all costs and expenses, including reasonable attorney's fees (including the cost of any appeals), of not less than 10 (ten) percent, incurred in collecting this Note by legal proceedings or through an attorney. Principal and interest shall be payable in lawful money of the United States of America. All payments of principal and interest shall be payable only outside the United States and its possessions. This Note shall not be assigned or otherwise transferred by the Holder or by any other person, except with the prior written consent of the Maker, which may withhold such consent in its sole discretion, and assuming such consent is given the Maker shall require the Holder to surrender this Note to the Maker and thereupon the Maker shall either reissue a new promissory note to the transferee or assignee of the Holder. Time is of the essence hereunder. Any payment of principal or interest which is not paid when due, whether upon maturity or acceleration or otherwise as provided herein, shall bear interest at the rate of Eighteen (18%) percent per annum from the due date until paid. This Note is to be governed by and construed under the laws of the State of Florida, as amended. The remedies of Holder shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No action or omission of Holder, including specifically any failure to exercise or forbearance in the exercise of any remedy, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Holder and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent remedy as to a subsequent event. The undersigned and any other person liable for the payment hereof respectively, hereby (a) expressly waive any presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever, and diligence in collection; and (b) agree that Holder, in order to enforce payment of this Note against any of them, shall not be required first to institute any suit or to exhaust any of its remedies against the undersigned (or any co-maker) or against any other person liable for payment hereof or to attempt to realize on any collateral for this Note. BANKERS INSURANCE GROUP, INC. By: -------------------------------------- G. Kristin Delano, Secretary 3 PORTFOLIO INTEREST LOAN CERTIFICATE In connection with the loans from Western International Insurance Company, BANKAMERICA Building, Fort Street, P.O. Box 1369, George Town, Grand Cayman, B.W.I., to Bankers Insurance Group, Inc., Western International Insurance Company hereby certifies that the following statements are true and correct: 1. Western International Insurance Company is not a United States person nor is it a bank for United States tax purposes. 2. Bankers Insurance Group, Inc.'s obligation is not being acquired by or on behalf of or for resale to a United States person by Western International Insurance Company. [Place] ------------------------------ [Date] ------------------------------- Western International Insurance Company By: ----------------------------------- Barry B. Benjamin, President EX-10.97 24 AGREEMENT FOR SATISFACTION OF DEBT 1 Exhibit 10.97 AGREEMENT FOR SATISFACTION OF DEBT AND CAPITALIZATION OF SUBSIDIARY THIS AGREEMENT FOR SATISFACTION OF DEBT AND CAPITALIZATION OF SUBSIDIARY is executed to be effective as of the 16th day of December, 1998 by and between Venture Capital Corporation, a Cayman Islands company (herein, "VCC") and Western International Insurance Company, a Cayman Islands insurance company (herein, "WIIC"). WHEREAS, Venture Capital Corporation, a Cayman Islands Company (herein, "VCC") is the owner and holder of 100% of the common capital stock of Western International Insurance Company, a Cayman Islands insurance company (herein, "WIIC"); and WHEREAS, there is that certain promissory note (herein, "Note") dated as of January 1, 1997 made by VCC and payable to the order of WIIC in the original principal amount of $560,566.00 given upon the occasion of the sale by WIIC to VCC of Star Insurance Company, Ltd. and Western International Trust Company Limited; and WHEREAS, VCC is the owner and holder of 4,100,000 shares of the common capital stock (herein, the "Stock") of Insurance Management Solutions Group, Inc., a Florida corporation (herein, "IMSG"); and WHEREAS, VCC either has executed or intends to execute that an Underwriting Agreement (herein, "Underwriting Agreement") by and between VCC, IMSG, and Raymond James & Associates, Inc., Lehman Brothers, ING Baring Furman Selz LLC. pursuant to which VCC will be a Selling Shareholder with respect to the public sale of stock of IMSG; and WHEREAS, WIIC has negotiated to loan (herein, "Loan") to Bankers Insurance Group, Inc., a Florida corporation the sum of U.S.$12,000,000.00 which loan shall be contingent upon the closing of the transaction contemplated by this Agreement; and WHEREAS, the parties wish to satisfy the Note and provide additional capital to WIIC to permit WIIC to make the Loan to BIG and otherwise to accomplish its corporate purposes; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth and with the intent that Bankers Insurance Group, Inc. may rely hereon agreements the parties hereto do covenant and agree as follows: 1. VCC shall convey all of its right, title and interest in and to not less than 50% of the Excess Stock (as hereafter defined) to WIIC free and clear of all liens and encumbrances and further shall contribute the Net Proceeds (as hereafter defined) to the capital of WIIC. Such conveyance and contribution shall occur promptly upon receipt by VCC. For purposes hereof the term "Excess Stock" shall 2 mean all of its Stock other than that which is sold pursuant to the Underwriting Agreement, and the term "Net Proceeds" shall mean the net cash proceeds received by VCC from the public sale of the Stock in excess of the expenses of VCC attributable to the sale. 2. WIIC shall mark the Note "Satisfied In Full" and shall return the same to VCC for retirement. 3. WIIC shall make the Loan to Bankers Insurance Group, Inc. IN WITNESS WHEREOF, the undersigned has executed this instrument under seal the day and year first above written. Signed, sealed and delivered in the presence of: Venture Capital Corporation /s/ JOHN E. SMITH By: /s/ BARRY B. BENJAMIN - ---------------------------------- ----------------------------- SIGNATURE Barry B. Benjamin, President John E. Smith, Secretary - ---------------------------------- NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED /s/ ILLEGIBLE - ---------------------------------- SIGNATURE Illegible - ---------------------------------- NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED (CORPORATE SEAL) Western International Insurance Company /s/ JOHN E. SMITH By: /S/ BARRY B. BENJAMIN - ---------------------------------- ----------------------------- SIGNATURE Barry B. Benjamin, President John E. Smith, Secretary - ---------------------------------- NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED /s/ ILLEGIBLE - ---------------------------------- SIGNATURE Illegible - ---------------------------------- NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED (CORPORATE SEAL) EX-21.1 25 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. NAME STATE OF INCORPORATION ---- ---------------------- 1. Insurance Management Solutions, Inc. Florida 2. Geotrac of America, Inc. Florida 3. Colonial Claims Corporation Florida 4. IMS Direct, Inc. Florida EX-23.2 26 CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated May 29, 1998 (except for Notes 1 and 3 and paragraph three of Note 2 as to which the date is July 31, 1998, and December 17, 1998, respectively), accompanying the consolidated financial statements of Insurance Management Solutions Group, Inc. and Subsidiaries contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". GRANT THORNTON LLP Tampa, Florida December 18, 1998 EX-23.3 27 CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated May 29, 1998, accompanying the financial statements of Geotrac, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus and to the use of our name as it appears under the caption "Experts". GRANT THORNTON LLP Tampa, Florida December 18, 1998 EX-23.4 28 CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated May 29, 1998, accompanying the financial statements of SMS Geotrac, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". GRANT THORNTON LLP Tampa, Florida December 18, 1998 EX-27.1 29 FINANCIAL DATA SCHEDULE RESTATED
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-1 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 115,070 0 1,218,741 0 0 10,276,694 3,666,915 (1,335,579) 19,531,705 10,425,061 0 0 6,750,000 100,000 69,991 19,531,705 0 38,505,979 0 32,806,473 0 0 378,660 5,521,855 2,112,200 0 0 0 0 3,409,655 .34 .34
EX-27.2 30 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,550,338 0 3,892,290 0 0 19,555,308 12,634,194 (3,841,956) 47,020,886 24,524,538 0 0 0 104,436 5,831,736 47,020,886 0 47,372,551 0 40,258,669 0 0 1,653,165 5,295,819 2,388,400 0 0 0 0 2,907,419 .29 .29
-----END PRIVACY-ENHANCED MESSAGE-----