<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION NO. 333-57747
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
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)
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<S> <C> <C>
FLORIDA 6748 59-3422536
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
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)
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WITH COPIES TO:
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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
</TABLE>
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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.
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<PAGE> 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 JANUARY 22, 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 $11.00 and $13.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price.
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.
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<CAPTION>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
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</TABLE>
(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 February , 1999, at the
offices of Raymond James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC. KEEFE, BRUYETTE & WOODS, INC.
The date of this Prospectus is February , 1999.
<PAGE> 3
[COVER FLAP]
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PROPERTY & CASUALTY FINANCIAL
INSURANCE PRODUCERS INSTITUTIONS
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<S> <C> <C> <C>
INSURANCE
MANAGEMENT
SOLUTIONS
[LOGO]
GROUP
OUTSOURCING SERVICES
[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
</TABLE>
---------------------
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."
<PAGE> 4
[INSIDE SPREAD LEFT]
IMSG OFFERS PROPERTY & CASUALTY PRODUCERS:
- 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
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<S> <C>
INSURANCE
[LOGO] MANAGEMENT
SOLUTIONS
GROUP
</TABLE>
COMPREHENSIVE
OUTSOURCING
SERVICES
FOR
INSURANCE
PRODUCERS
&
FINANCIAL
INSTITUTIONS
<PAGE> 5
[INSIDE SPREAD RIGHT]
IMSG: RESOURCES FOR STRATEGIC INSURANCE MANAGEMENT
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<S> <C>
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 representing 85% of all U.S. Households
- National Flood Zone Database on CD ROM
</TABLE>
<PAGE> 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 480,515 shares of Common Stock pursuant
thereto (assuming an initial public offering price of $12.00 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 approved by the Federal Emergency Management Agency
("FEMA") to sell and service flood insurance. FEMA estimates that only 25% to
33% of U.S. properties in high risk areas that are 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 880 customers, respectively, including 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 over 85% of U.S. households are located in counties
covered by its electronic database.
The Company is a 74.8% 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 63.0% of the Company's
Common Stock. BIG is the Company's principal customer, accounting for
approximately 75.6% (on a historical basis) and 56.4% (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
<PAGE> 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 approved 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 approved 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................. 12,622,182 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 141,667 shares of Common Stock (assuming an initial public offering
price of $12.00 per share) issued in connection with the acquisition of
Colonial Catastrophe Claims Corporation, and excludes (a) 875,000 shares of
Common Stock reserved for issuance under the Company's Long Term Incentive
Plan, pursuant to which options to purchase 505,500 shares will be granted
immediately upon the completion of this offering, (b) 200,000 shares of
Common Stock reserved for issuance under the Company's Non-Employee
Directors' Stock Option Plan, pursuant to which options to purchase 24,000
shares will be granted immediately upon completion of this offering, and (c)
125,000 shares of Common Stock reserved for issuance under the Company's
Non-Qualified Stock Option Plan, pursuant to which options to purchase
125,000 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
<PAGE> 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.
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<CAPTION>
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)
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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 5,700 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 10,481 10,000 10,162 10,481 10,481
====== ======= ======= ======= ======= ======= ======= =======
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<TABLE>
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SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)................................ $(4,969) $ 10,544
Total assets................................................ 47,021 46,424
Long-term debt, less current portion........................ 8,216 6,800
Notes payable -- affiliates, less current portion........... 5,891 1,500
Total shareholders' equity.................................. 7,744 29,064
</TABLE>
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(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
<PAGE> 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 $12.00 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 141,667 shares of Common Stock
(assuming an initial offering price of $12.00 per share) in connection with
the acquisition of Colonial Catastrophe Claims Corporation. See "Recent
Acquisitions -- Colonial Catastrophe Acquisition," "Use of Proceeds" and
"Capitalization."
4
<PAGE> 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%, 56% 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
<PAGE> 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 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. 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 74.8% of the outstanding
shares of Common Stock. After this offering, BIG will own 63.0% 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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 depend in large part on the insurance
industry's trend toward outsourcing administration and information technology
services. There can be no assurance that this trend will continue, as
organizations may elect to perform such services in-house. A significant change
in the direction of this trend could have a material adverse effect on the
Company's business, financial condition and results of operations. 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
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<PAGE> 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 12,622,182
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 9,272,182 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 654,500 shares of Common
Stock. In addition, 369,500 and 176,000 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."
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<PAGE> 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 $10.96 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 $1.84 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
$95.4 million, assuming an initial public offering price of $12.00 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 $8.4 million, assuming an initial
public offering price of $12.00 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) 480,515
shares of Common Stock (assuming an initial public offering price of $12.00 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".
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<PAGE> 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, presently 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 7, 1999, the Company, through a wholly-owned subsidiary,
acquired all of the issued and outstanding capital stock of Colonial Catastrophe
Claims Corporation, a Florida corporation ("Colonial Catastrophe"), from J.
Douglas Branham and Felicia A. Rivas, husband and wife, in exchange for (i)
141,667 shares of Common Stock (assuming an initial public offering price of
$12.00 per share), (ii) cash in the amount of $500,000, (iii) a promissory note
in the principal amount of $500,000, and (iv) an additional payment of up to
$300,000, payable in additional shares of Common Stock, based upon the net
income before taxes of Colonial Claims (as hereinafter defined) for the year
ended December 31, 1999. On January 15, 1999, Colonial Catastrophe was merged
into the acquiring subsidiary and the name of the acquiring subsidiary was
changed to "Colonial Claims Corporation" (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 initial annual base salary of $102,000,
(subject to a 5% annual increase), 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 $12.00 per share), after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company, are estimated to be
approximately $21.3 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 approximately $8.1 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
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<PAGE> 18
opportunities. Pending such uses, the Company intends to invest the net proceeds
of this offering in short-term, investment 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 $12.00 per share) will
be approximately $15.1 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 $10.0 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.
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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 $12.00 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."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
--------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
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 6,800
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; 10,480,515 shares issued and outstanding;
12,480,515 shares issued and outstanding, as
adjusted(1)............................................ 105 125
Additional paid-in capital................................ 5,831 27,131
Retained earnings......................................... 1,808 1,808
------- -------
Total shareholders' equity................................ 7,744 29,064
------- -------
Total capitalization.............................. $40,664 $40,069
======= =======
</TABLE>
- ---------------
(1) Excludes (a) 875,000 shares of Common Stock reserved for issuance under the
Company's Long Term Incentive Plan, pursuant to which options to purchase
505,500 shares will be granted immediately upon the completion of this
offering, (b) 200,000 shares of Common Stock reserved for issuance under the
Company's Non-Employee Directors' Stock Option Plan, pursuant to which
options to purchase 24,000 shares will be granted immediately upon
completion of this offering, (c) 125,000 shares of Common Stock reserved for
issuance under the Company's Non-Qualified Stock Option Plan, pursuant to
which options to purchase 125,000 shares will be granted immediately upon
the completion of this offering, and (d) 141,667 shares of Common Stock
(assuming an initial offering price of $12.00 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
<PAGE> 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 $13.0 million, or
$1.04 per share of Common Stock. This represents an immediate increase in net
tangible book value of $1.84 per share to the existing shareholders and an
immediate dilution of $10.96 per share to purchasers of shares of Common Stock
in this offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.00
Net tangible book value (deficiency) per share before this
offering............................................... (.80)
Increase per share attributable to new investors.......... 1.84
--------
Pro forma net tangible book value after this offering(1).... 1.04
--------
Dilution in net tangible book value per share to new
investors................................................. $ 10.96
========
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value after this offering would be $1.28 per share, resulting
in dilution to new investors in this offering of $10.72 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):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 10,480,515 84.0% $ 5,936,172 19.8% $ .57
New investors.................... 2,000,000 16.0 24,000,000 80.2 12.00
---------- ---- ----------- ----
Total.................. 12,480,515 100% $29,936,172 100%
========== ==== =========== ====
</TABLE>
- ---------------
(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) 141,667 shares of
Common Stock (assuming an initial public offering price of $12.00 per share)
issued pursuant to the acquisition of Colonial Catastrophe Claims
Corporation and (b) an aggregate of 654,500 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 9,130,515 shares, or approximately 73.2%, and will
increase the number of shares held by new investors to 3,350,000, or
approximately 26.8%, of the total number of shares of Common Stock
outstanding after this offering. See "Principal and Selling Shareholders."
15
<PAGE> 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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- --------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998
------ ------ ------- ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 10,481 10,000 10,162
====== ====== ======= ========== ========== ========== ======= ==========
Dividends declared on Common
Stock(4)....................... $ -- $ -- $ -- $ 1,000 $ 3,500 $ 3,500 $ -- $ 1,100
====== ====== ======= ========== ========== ========== ======= ==========
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
PRO FORMA PRO FORMA
1997(1) 1998(1)
---------- ----------
<S> <C> <C>
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.................... 10,481 10,481
========== ==========
Dividends declared on Common
Stock(4)....................... $ -- $ 1,100
========== ==========
</TABLE>
16
<PAGE> 22
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, --------------------------------
------------------------------------------- AS ADJUSTED
1993 1994 1995 1996 1997 1997 1998 1998(2)
------ ------ ------ ------ ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)...... $ 28 $ (146) $ (141) $ (425) $ (148) $ 1,359 $ (4,969) $10,544
Total assets...................... 1,186 1,311 2,649 3,441 19,532 22,998 47,021 46,424
Long-term debt, less current
portion......................... 140 278 156 894 2,187 658 8,216 6,800
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 29,064
</TABLE>
- ---------------
(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 $12.00 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 141,667 shares of Common Stock (assuming an initial offering
price of $12.00 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
<PAGE> 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 and commercial 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
<PAGE> 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 stockholders prior to June 30, 1998 reflected
as a minority interest.
19
<PAGE> 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 those 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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
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 1,262
Selling, general and
administrative.......... 281 269 257 314 727 773 741
Management services from
Parent.................. 263 264 263 264 586 586 586
Deferred compensation(non-
recurring).............. -- -- -- -- -- -- --
Depreciation and
amortization............ 67 75 80 87 116 126 201
------ ------ ------ ------ ------ ------ -------
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
====== ====== ====== ====== ====== ====== =======
<CAPTION>
QUARTER ENDED
---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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................ 1,403 3,067 3,016 2,442
Selling, general and
administrative.......... 785 1,685 1,855 2,164
Management services from
Parent.................. 586 678 690 1,137
Deferred compensation(non-
recurring).............. -- -- 728 --
Depreciation and
amortization............ 240 633 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
====== ======= ======= =======
</TABLE>
20
<PAGE> 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:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- -------------------------------------
PRO FORMA PRO FORMA PRO FORMA
1995 1996 1997 1997 1997 1998 1997 1998
----- ----- ----- --------- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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.
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<PAGE> 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 defers 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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 January, 1999, 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.
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<PAGE> 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 that total incurred
and future direct costs associated with addressing the Year 2000 Problem for its
outsourcing operations will 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
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<PAGE> 33
version. The Company's internally developed GeoCompass(R) and GMaS software
packages have also been 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 also
estimates 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.
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<PAGE> 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.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
======= ======= ====== ==== ==== ====== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
OLD GEOTRAC (FORMERLY
YOSYSTEMS, INC.)
-----------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
-------------- JUNE 30,
1996 1997 1998
---- ------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)................................ $(25) $ 1,402 $ 2,516
Total assets................................................ -- 18,637 19,432
Long-term debt.............................................. -- 7,745 6,677
Total shareholders' equity (deficit)........................ (25) 7,126 8,781
</TABLE>
29
<PAGE> 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
<PAGE> 36
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain income and expense items.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== === === ===== ===== ===== ===== =====
</TABLE>
31
<PAGE> 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
<PAGE> 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
<PAGE> 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 approved by the Federal Emergency Management Agency
("FEMA") to sell and service flood insurance. FEMA estimates that only 25% to
33% of U.S. properties in high risk areas that are 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 880 customers, respectively, including 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 over 85% of U.S. households are in counties covered by
its electronic database.
The Company is a 74.8% 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 63.0% of the Company's Common Stock.
BIG is the Company's principal customer, accounting for approximately 75.6% (on
a historical basis) and 56.4% (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
<PAGE> 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 when other payments are escrowed.
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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 41
The following table illustrates the growth in the number of flood zone
determinations performed by the Company from 1994 through September 1998:
<TABLE>
<CAPTION>
TOTAL NUMBER OF TOTAL NUMBER OF
FLOOD ZONE DETERMINATIONS 1-4 FAMILY MORTGAGE
YEAR GENERATED BY THE COMPANY LOAN ORIGINATIONS IN U.S.(1)
- ---- ------------------------- ----------------------------
<S> <C> <C>
1994................................... 458,234 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 *
</TABLE>
- ---------------
(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 in high risk areas that are 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
<PAGE> 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
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<PAGE> 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 federal 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 and commercial 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
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<PAGE> 44
independent sales agents in 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 approved 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.
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<PAGE> 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 menu
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
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<PAGE> 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 approved WYO carrier under the Flood Program, it
emphasizes to prospective customers its ability to provide third-party
administration outsourcing for flood insurance. The Company offers its flood
outsourcing services, including software and processing functions, policy
administration, 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 approved 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 over 85% 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
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<PAGE> 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
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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 --
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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%, 56%
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 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.
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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:
<TABLE>
<CAPTION>
SQUARE
LOCATION FEET FUNCTION LEASE EXPIRATION
-------- ------ -------- ----------------
<S> <C> <C> <C>
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)
</TABLE>
- ---------------
(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
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<PAGE> 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.
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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.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ---- --- -------- --------
<S> <C> <C> <C>
David K. Meehan........................... 51 Chairman of the Board, President, Chief 1999
Executive Officer and Director
Jeffrey S. Bragg.......................... 50 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......................... 55 Director 1999
William D. Hussey......................... 64 Director 2000
E. Ray Solomon............................ 69 Director 2000
Alejandro M. Sanchez...................... 41 Director 2001
</TABLE>
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
<PAGE> 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 Judiciary Committee and where he previously served as the Chairman of the
Banking & Insurance, Commerce, Criminal Justice, Education, 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
<PAGE> 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
<PAGE> 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
years ended December 31, 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------------
OTHER
NAME AND ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David K. Meehan
Chairman of the Board and Chief Executive 1998 $239,092 $ -- $ -- $8,978
Officer(5) 1997 221,000 59,000 -- 9,000
Jeffrey S. Bragg
Executive Vice President and Chief Operating 1998 156,552 -- -- 5,714
Officer(6) 1997 84,806 10,000 -- --
Kathleen M. Batson 1998 124,010 -- -- 6,718
Senior Vice President(7) 1997 -- -- -- --
Kelly K. King
Vice President, Treasurer, Chief Financial
Officer 1998 117,390 -- -- 7,094
and Secretary(8) 1997 56,151 7,500 -- 3,909
Daniel J. White 1998 66,050 -- -- 1,044
President and Chief Executive Officer of
Geotrac(9)................................. 1997 -- -- -- --
</TABLE>
- ---------------
(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 for such year 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. During the year ended December 31, 1998, all of the
executive officers of the Company spent substantially all of their time on
the Company's business and were compensated solely by the Company.
(2) Excludes accrued bonuses for 1998 for the named executive officers in
amounts equal to their 1997 bonuses. The Compensation Committee has not yet
approved, and may adjust, such bonuses.
(3) 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 and Mrs. Batson 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 M. Menke and Robert G. Menke) will be eligible to
receive additional grants under such Phantom Stock Plan. The Company did not
grant any options, restricted stock or other long-term incentive
compensation to its executive officers during either 1997 or 1998.
(4) Reflects matching amounts paid by the Company under its 401(k)plan for the
year indicated.
(5) Mr. Meehan did not receive any cash compensation from BIG during the year
ended December 31, 1997. During, Mr. Meehan spent a majority of his time on
the Company's business.
(6) Mr. Bragg joined the Company in May, 1997. He did not receive any cash
compensation from BIG during the year ended December 31, 1997.
(7) Excludes $111,000 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.
(8) 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.
(9) Mr. White did not join the Company as an officer until the consummation of
the Geotrac Acquisition in July, 1998.
50
<PAGE> 56
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 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 875,000 shares of Common Stock may be issued pursuant to the Incentive Plan.
The Incentive Plan has been approved by the Company's Board of Directors and
shareholders.
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<PAGE> 57
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 205,000 shares of Common Stock at the initial public
offering price as follows: David K. Meehan, 60,000 shares; Jeffrey S. Bragg,
50,000 shares; Kathleen M. Batson, 35,000 shares; Kelly K. King, 35,000 shares;
and Daniel J. White, 25,000 shares. All employees of the Company as a group,
including these executive officers, will be granted options to purchase a total
505,500 shares of Common Stock 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 approved by the Company's Board
of Directors and shareholders.
The Non-Employee Director Plan provides for the grant of nonqualified stock
options to purchase up to 7,200 shares of Common Stock in any three-year period
to members of the Board of Directors who are not employees of the Company. A
total of 200,000 shares of Common Stock may be issued pursuant to this plan. As
of the date of this Prospectus, such members held no options under the
Non-Employee Director Plan. Upon the completion of this offering, each
non-employee director will be granted options to purchase 6,000 shares of Common
Stock. Non-employee directors receiving such options will become vested in
options for the purchase of 800 shares of Common Stock after the adjournment of
each annual meeting of shareholders of the Company, to the extent he or she has
been granted options that have not yet vested, and provided that he or she is
then a non-employee director of the Company. In addition, each non-employee
director shall become vested in options for the purchase of 400 shares of Common
Stock upon the adjournment of each regularly scheduled quarterly meeting of the
Board of Directors (other than following the annual meeting of shareholders), to
the extent he or she has been granted options that have not yet vested, and
provided that he or she is then a non-employee director of the Company.
Notwithstanding the foregoing, neither Robert M. Menke nor Robert G. Menke will
be granted 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 and shareholders also have 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 125,000 shares of Common Stock.
Upon the completion of this offering, options to purchase 125,000 shares of
Common Stock at the initial public offering price will be granted to certain
executive officers of BIG, including options to purchase 25,000 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
52
<PAGE> 58
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."
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.
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<PAGE> 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING SHARES AFTER OFFERING
------------------- BEING -------------------
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Bankers Insurance Group, Inc.(1)......... 7,950,000 74.8% -- 7,950,000 63.0%
Venture Capital Corporation(2)........... 2,050,000 19.3 1,350,000 700,000 5.5
David K. Meehan(3)....................... -- -- -- -- --
Jeffrey S. Bragg......................... -- -- -- -- --
Kathleen M. Batson....................... -- -- -- -- --
Kelly K. King............................ -- -- -- -- --
Daniel J. White.......................... 480,515(4) 4.5 -- 480,515(4) 3.8
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)............... 480,515 4.5 -- 480,515 3.8
</TABLE>
- ---------------
* 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
<PAGE> 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 $12.00. If the
initial public offering price is greater or less than $12.00, 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.
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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.
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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 $15,417 plus
accrued interest and mature in April, 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
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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) 480,515 shares of
Common Stock (assuming an initial public offering price of $12.00 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
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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 $10.0 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 10,622,182 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
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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.
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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.
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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 12,622,182
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 9,272,182 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.
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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. and Keefe, Bruyette & Woods, Inc. are acting as representatives
(the "Representatives"), have severally agreed to purchase the respective number
of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Raymond James & Associates, Inc.............................
Keefe, Bruyette & Woods, Inc................................
--------
Total.............................................
========
</TABLE>
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
Representatives 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 Representatives after the initial public offering.
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 Representatives are 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 Representatives may reduce the short position by purchasing
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above. The Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchases shares of Common Stock in the open market to reduce the Underwriters'
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
63
<PAGE> 69
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 Representatives 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 Representatives, 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 Raymond James & Associates, Inc., 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 will be determined by negotiation among
the Company, the Selling Shareholder and the Representatives. The factors to be
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 Representatives have 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, 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
64
<PAGE> 70
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
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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, 1998 and 1997, 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
</TABLE>
F-1
<PAGE> 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, 1998 and 1997 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
<PAGE> 73
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INSURANCE
MANAGEMENT
SOLUTIONS GROUP PRO FORMA PRO FORMA PRO FORMA
AND SUBSIDIARIES GEOTRAC, INC.(2) SUB TOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(1)
---------------- ---------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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 10,480,515
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== =========== ===========
</TABLE>
- ---------------
(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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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
<PAGE> 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, invested cash
in the amount of $6,750,000 in YoSystems in exchange for 490 shares of common
stock issued by YoSystems, representing a 49% equity interest. At the time of
the Company's investment, YoSystems' President and his wife owned 510 shares of
YoSystems' common stock, representing a 100% equity interest. In addition, at
the time of the Company's contribution, YoSystems had nominal net assets. As a
result of the Company's capital infusion, the net assets of YoSystems increased
to approximately $6,750,000. The Company's equity share of these net assets of
$6,750,000 equated to $3,307,500 (49% X $6,750,000), with the remainder of the
Company's investment of $3,442,500 ($6,750,000 - $3,307,500) representing
goodwill.
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:
<TABLE>
<S> <C>
480,515 shares of the Company's Common Stock valued at
$12.00 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
==========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
F-5
<PAGE> 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:
<TABLE>
<CAPTION>
JULY 1, 1998
-------------
<S> <C>
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
===========
</TABLE>
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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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:
<TABLE>
<S> <C>
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)
===========
</TABLE>
Since the above items relate to Geotrac, Inc., its statutory rate of
approximately 40% was used to calculate the income tax effect.
F-6
<PAGE> 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
<PAGE> 78
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INSURANCE
MANAGEMENT
SOLUTIONS
GROUP AND PRO FORMA
SUBSIDIARIES ADJUSTMENTS(2) PRO FORMA(1)
------------ -------------- ------------
<S> <C> <C> <C>
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........ 10,161,932 10,480,515
=========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 79
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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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-9
<PAGE> 80
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
INSURANCE
MANAGEMENT
SOLUTIONS GROUP PRO FORMA PRO FORMA PRO FORMA
AND SUBSIDIARIES GEOTRAC, INC.(2) SUB TOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(1)
---------------- ---------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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 10,480,515
=========== ============
</TABLE>
See accompanying notes.
F-10
<PAGE> 81
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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== =========== ===========
</TABLE>
- ---------------
(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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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-11
<PAGE> 82
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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
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
</TABLE>
(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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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:
<TABLE>
<S> <C>
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)
===========
</TABLE>
Since the above items relate to Geotrac, Inc., its statutory rate of
approximately 40% was used to calculate the income tax effect.
F-12
<PAGE> 83
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-13
<PAGE> 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
<PAGE> 85
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
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 10,480,515 shares at September 30,
1998 issued and outstanding......................... 100,000 100,000 104,805
Additional paid-in capital............................. 160,336 69,991 5,831,367
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
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE> 86
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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 10,161,932
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE> 87
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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)........ 4,805 5,761,376 -- 5,766,181
Net income (unaudited)....................... -- -- 2,907,419 2,907,419
-------- ---------- ----------- -----------
Balance at September 30, 1998 (unaudited)...... $104,805 $5,831,367 $ 1,807,419 $ 7,743,591
======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-17
<PAGE> 88
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
========= =========== =========== =========== ===========
</TABLE>
F-18
<PAGE> 89
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE> 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
<PAGE> 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
effected a one-for-two reverse split of its Common Stock. 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
<PAGE> 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
<PAGE> 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 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
<PAGE> 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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 10,161,932
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 10,161,932
=========== =========== =========== =========== ===========
</TABLE>
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
<PAGE> 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, BHD,invested cash in
the amount of $6,750,000 in YoSystems in exchange for 490 shares of common stock
issued by YoSystems, representing a 49% equity interest. At the time of the
Company's investment, YoSystems' President and his wife owned 510 shares of
YoSystems' common stock, representing a 100% equity interest. In addition, at
the time of the Company's contribution, YoSystems had nominal net assets. As a
result of the Company's capital infusion, the net assets of YoSystems increased
to approximately $6,750,000 . The Company's equity share of these net assets of
$6,750,000 equated to $3,307,500 (49% X $6,750,000), with the remainder of the
Company's investment of $3,442,500 ($6,750,000 - $3,307,500) representing
goodwill.
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:
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 1,
1997 TO
DECEMBER 31,
1997
--------------
<S> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
480,515 shares of the Company's common stock valued at
$12.00 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
==========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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:
<TABLE>
<CAPTION>
JULY 1, 1998
------------
<S> <C>
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
===========
</TABLE>
F-26
<PAGE> 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):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Revenue................................................ $52,314 $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............................ $ .41 $ .31 $ .35
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
LIFE ------------------------ SEPTEMBER 30,
(YEARS) 1996 1997 1998
------- ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
========== =========== ===========
</TABLE>
F-27
<PAGE> 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 in April, 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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ===========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
1998........................................................ $1,522,822
1999........................................................ 1,083,819
2000........................................................ 1,102,834
----------
$3,709,475
==========
</TABLE>
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 675,000 shares of 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 approved by
the Company's Board of Directors and shareholders. A total of 875,000 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 executive officers of the Company will be granted options to
purchase a total of 205,000 shares of Common Stock at the
F-30
<PAGE> 101
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. SHAREHOLDERS' EQUITY -- (CONTINUED)
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 approved by the Company's Board of Directors and shareholders.
The Non-Employee Director Plan provides for the grant of nonqualified stock
options to purchase up to 7,200 shares of Common Stock in any three-year period
to members of the Board of Directors who are not employees of the Company. A
total of 200,000 shares may be issued pursuant to this plan. Upon the completion
of the contemplated initial public offering, each non-employee director will be
granted options to purchase 6,000 shares of Common Stock. Non-employee directors
receiving such options will become vested in options for the purchase of 800
shares of Common Stock after the adjournment of each annual meeting of
shareholders of the Company, to the extent he or she has been granted options
that have not yet vested, and provided that he or she is then a non-employee
director of the Company. In addition, each non-employee director shall become
vested in options for the purchase of 400 shares of Common Stock upon the
adjournment of each regularly scheduled quarterly meeting of the Board of
Directors (other than following the annual meeting of shareholders), to the
extent he or she has been granted options that have not yet vested, and provided
that he or she is then a non-employee director of the Company. All options
granted will have an exercise price equal to the fair market value of the Common
Stock as of the date of grant, will become exercisable upon vesting, and will
expire on the sixth anniversary of the date of grant.
Non-Qualified Stock Option Plan
The Non-Qualified Stock Option Plan (the "Non-Qualified Plan") has been
approved by the Company's Board of Directors and shareholders. The Non-Qualified
Plan provides for the grant of non-qualified stock options to purchase up to
125,000 shares of Common Stock. Upon the completion of the contemplated initial
public offering, options to purchase 125,000 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
<PAGE> 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:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- ------------------------
1995 1996 1997 1997 1998
-------- -------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======== ======== ========== ========== ===========
</TABLE>
Reconciliation of the federal statutory income tax rate of 34% to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- -----------------------
1995 1996 1997 1997 1998
-------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income taxes, at
statutory rates............... $141,500 $344,400 $1,877,400 $1,418,600 $1,800,600
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 52,500
-------- -------- ---------- ---------- ----------
$162,400 $396,000 $2,112,200 $1,644,700 $2,388,400
======== ======== ========== ========== ==========
</TABLE>
F-32
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1996 1997 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
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
======== ======== ==========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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 in June, 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 $1,028,359 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
<PAGE> 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
<PAGE> 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":
<TABLE>
<CAPTION>
INTERCOMPANY
OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED
SERVICES DETERMINATIONS AND OTHER TOTALS
----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
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)
</TABLE>
F-38
<PAGE> 109
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
INTERCOMPANY
OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED
SERVICES DETERMINATIONS AND OTHER TOTALS
----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
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)
</TABLE>
NOTE 15. SUBSEQUENT EVENT (UNAUDITED)
Effective January 7, 1999, the Company, through a wholly-owned subsidiary,
acquired all of the issued and outstanding capital stock of Colonial Catastrophe
Claims Corporation, a Florida corporation ("Colonial Catastrophe"), from J.
Douglas Branham and Felicia A. Rivas, husband and wife, in exchange for (i)
141,667 shares of Common Stock (assuming an initial public offering price of
$12.00 per share), (ii) cash in the amount of $500,000, (iii) a promissory note
in the principal amount of $500,000, and (iv) an additional payment of up to
$300,000, payable in additional shares of Common Stock, based upon the net
income before taxes of Colonial Claims (as hereinafter defined) for the year
ended December 31, 1999. On January 15, 1999, Colonial Catastrophe was merged
into the acquiring subsidiary and the name of the acquiring subsidiary was
changed to "Colonial Claims Corporation" (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 will
serve as employees of Colonial Claims. Each of the employment agreements is for
a period of five years and provides for an initial annual base salary of
$102,000 (subject to a 5% annual increase), plus additional compensation based
on annual revenues of the Colonial Claims business.
F-39
<PAGE> 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
<PAGE> 111
GEOTRAC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 112
GEOTRAC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- -------- ---------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======== ======== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE> 113
GEOTRAC, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
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
=== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-43
<PAGE> 114
GEOTRAC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ---------------------
1995 1996 1997 1997 1998
----------- -------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
=========== ======== =========== ======= ===========
</TABLE>
F-44
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
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
===========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
Shares of IMSG Common Stock................................. $5,766,181
Promissory note............................................. 1,500,000
Cash........................................................ 728,069
----------
$7,994,250
==========
</TABLE>
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
<PAGE> 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 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C>
Cash contributed by BHDS.................................... $ 6,750,000
Bank borrowing.............................................. 8,750,000
Excess cash not required for acquisition.................... (500,000)
-----------
$15,000,000
===========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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 pro forma 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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1997
------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
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.
<TABLE>
<CAPTION>
AUGUST 1,
JANUARY 1, 1997
1997 THROUGH
THROUGH DECEMBER 31,
JULY 31, 1997 1997 TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
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
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
LIFE DECEMBER 31, JUNE 30,
YEARS 1997 1998
------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
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
==========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1998........................................................ 423,792
1999........................................................ 380,650
2000........................................................ 263,368
2001........................................................ 219,331
----------
1,287,141
==========
</TABLE>
F-51
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
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
========
</TABLE>
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
<PAGE> 123
GEOTRAC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
YEAR SIX MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, -------------------
1997 1997 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
A reconciliation of the federal statutory income tax rate of 34% to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, -------------------
1997 1997 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE> 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
<PAGE> 125
SMS GEOTRAC, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED JUNE 30, JULY 31,
------------------------- ----------
1996 1997 1997
----------- ----------- ----------
<S> <C> <C> <C>
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
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 126
SMS GEOTRAC, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-56
<PAGE> 127
SMS GEOTRAC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED JUNE 30, JULY 31,
------------------------- -----------
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------
<S> <C>
1998........................................................ $ 419,400
1999........................................................ 410,159
2000........................................................ 316,359
2001........................................................ 291,600
2002........................................................ 219,399
Thereafter.................................................. 90,280
----------
$1,747,197
==========
</TABLE>
F-59
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------
<S> <C>
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
==========
</TABLE>
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:
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED JUNE 30, JULY 31,
----------------------- ---------
1996 1997 1997
---------- ---------- ---------
<S> <C> <C> <C>
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
========== ========== ========
</TABLE>
F-60
<PAGE> 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:
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED JUNE 30, JULY 31,
----------------------- ---------
1996 1997 1997
---------- ---------- ---------
<S> <C> <C> <C>
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
========== ========== ========
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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.
KEEFE, BRUYETTE & WOODS, INC.
FEBRUARY , 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
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
==========
</TABLE>
- ---------------
* 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
<PAGE> 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) 480,515 shares of Common Stock (assuming an initial public
offering price of $12.00 per share), (ii) a promissory note in the principal
amount of $1.5 million, and (iii) cash in the amount of $728,069. 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 December 17, 1998, the Company effected a one-for-two reverse
split of its Common Stock, resulting in a decrease in the outstanding capital
stock of the Company to 10,480,515 shares of Common Stock (assuming an initial
public offering price of $12.00 per share).
Effective January 7, 1999, the Company, through a wholly-owned subsidiary,
acquired all of the issued and outstanding capital stock of Colonial Catastrophe
Claims Corporation, a Florida corporation, from J. Douglas Branham and Felicia
A. Rivas, husband and wife, in exchange for (i) 141,667 shares of Common Stock
(assuming an initial public offering price of $12.00 per share), (ii) cash in
the amount of $500,000, (iii) a promissory note in the principal amount of
$500,000, and (iv) an additional payment of up to $300,000, payable in
additional shares of Common Stock, based upon the net income before taxes of
Colonial Claims (as hereinafter defined) for the year ended December 31, 1999.
On January 15, 1999, 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
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.*
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
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.*
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
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.*
</TABLE>
II-5
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
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.*
</TABLE>
II-6
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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 -- Promissory Note, dated January 7, 1999, of Insurance
Management Solutions Group, Inc. in favor of J. Douglas
Branham and Felicia A. Rivas.
10.91 -- Registration Rights Agreement dated January, 1999 between
Insurance Management Solutions Group, Inc., J. Douglas
Branham and Felicia A. Rivas.
10.92 -- Employment Agreement dated January 7, 1999 between Colonial
Claims Corporation and J. Douglas Branham.
10.93 -- Employment Agreement dated January 7, 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 Addenda 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.*
10.98 -- Plan of Merger dated January 7, 1999 and effective January
15, 1999 between IMS Colonial, Inc. and Colonial Catastrophe
Claims Corporation.
10.99 -- Flood Insurance Services Agreement, dated January 14, 1999,
by and between Insurance Management Solutions Group, Inc.
and Farmers Services Corporation.
21.1 -- List of subsidiaries of Insurance Management Solutions
Group, Inc.*
23.1 -- Consent of Foley & Lardner.*
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).
</TABLE>
- ---------------
* 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
II-7
<PAGE> 140
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.
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
<PAGE> 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 21st day of January, 1999.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief January 21, 1999
- --------------------------------------------------- Executive Officer and
David K. Meehan Director (Principal
Executive Officer)
/s/ KELLY K. KING Vice President, Chief January 21, 1999
- --------------------------------------------------- Financial Officer and
Kelly K. King Treasurer
/s/ JEFFREY S. BRAGG Director January 21, 1999
- ---------------------------------------------------
Jeffrey S. Bragg
* Director January 21, 1999
- ---------------------------------------------------
Robert M. Menke
* Director January 21, 1999
- ---------------------------------------------------
Robert G. Menke
* Director January 21, 1999
- ---------------------------------------------------
John A. Grant, Jr.
* Director January 21, 1999
- ---------------------------------------------------
William D. Hussey
* Director January 21, 1999
- ---------------------------------------------------
E. Ray Solomon
* Director January 21, 1999
- ---------------------------------------------------
Daniel J. White
Director January 21, 1999
- ---------------------------------------------------
Alejandro M. Sanchez
*By: /s/ KELLY K. KING
---------------------------------------------
Kelly K. King
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
</TABLE>
E-1
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
</TABLE>
E-2
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
</TABLE>
E-3
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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.*
</TABLE>
E-4
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
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 -- Promissory Note, dated January 7, 1999, of Insurance
Management Solutions Group, Inc. in favor of J. Douglas
Branham and Felicia A. Rivas.
10.91 -- Registration Rights Agreement dated January, 1999 between
Insurance Management Solutions Group, Inc., J. Douglas
Branham and Felicia A. Rivas.
10.92 -- Employment Agreement dated January 7, 1999 between Colonial
Claims Corporation and J. Douglas Branham.
10.93 -- Employment Agreement dated January 7, 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 Addenda 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.*
</TABLE>
E-5
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
10.98 -- Plan of Merger dated January 7, 1999 and effective January
15, 1999 between IMS Colonial, Inc. and Colonial Catastrophe
Claims Corporation.
10.99 -- Flood Insurance Services Agreement, dated January 14, 1999,
by and between Insurance Management Solutions Group, Inc.
and Farmers Services Corporation.
21.1 -- List of subsidiaries of Insurance Management Solutions
Group, Inc.*
23.1 -- Consent of Foley & Lardner.*
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).
</TABLE>
- ---------------
* Previously filed.
E-6
<PAGE> 1
EXHIBIT 1.1
3,350,000 Shares
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
Common Stock
--------------
UNDERWRITING AGREEMENT
St. Petersburg, Florida
_____________, 1999
RAYMOND JAMES & ASSOCIATES, INC.
KEEFE, BRUYETTE & WOODS, INC.
As Representatives 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 2,000,000 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 1,350,000 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 300,000
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 202,500 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
<PAGE> 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.
and Keefe, Bruyette & Woods, Inc. are acting as the representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives."
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
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<PAGE> 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").
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
300,000 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 202,500 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.
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<PAGE> 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 Representatives so elect, delivery of the
Shares may be made by credit through full fast transfer to the accounts at the
Depository Trust Company designated by the Representatives.
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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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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,
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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
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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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
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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
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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
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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 Representatives 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;
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(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
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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
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<PAGE> 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
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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
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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
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<PAGE> 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
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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.
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(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
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<PAGE> 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, constitute all the information
34
<PAGE> 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 and to
Keefe, Bruyette & Woods, Inc., Two World Trade Center, 85th Floor, New York, New
York 10048, Attention: Michael Oakes; (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
<PAGE> 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.
KEEFE, BRUYETTE & WOODS, INC.
By: RAYMOND JAMES & ASSOCIATES, INC.
By:
---------------------------------
Authorized Representative
36
<PAGE> 37
AUTHORIZED REPRESENTATIVE
37
<PAGE> 38
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Name Firm Shares
- ---- -----------
<S> <C>
Raymond James & Associates, Inc.
Keefe, Bruyette & Woods, Inc.
TOTAL ===========
</TABLE>
38
<PAGE> 39
SCHEDULE II
SELLING SHAREHOLDER
<TABLE>
<CAPTION>
Number of
Number of Additional
Name Firm Shares Shares
- ---- ----------- ----------
<S> <C> <C>
Venture Capital Corporation
TOTAL =========== ==========
</TABLE>
39
<PAGE> 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
<PAGE> 41
<PAGE> 1
EXHIBIT 10.2
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
LONG TERM INCENTIVE PLAN
ARTICLE 1:
1. ESTABLISHMENT; PURPOSE:
1.1. ESTABLISHMENT. Insurance Management Solutions Group, Inc., a Florida
corporation, (the "Company") hereby establishes an incentive
compensation plan to be known as the "Insurance Management Solutions
Group, Inc. Long Term Incentive Plan" (the "Plan").
1.2. PURPOSE. The purpose of the Plan is to (a) attract, retain and motivate
participating employees of the Company and its subsidiaries through
awards of shares of the Common Stock of the Company (the "Shares"),
options to purchase Shares (the "Options") and Stock Appreciation
Rights (the "SARs"), (b) encourage employee ownership of Shares and (c)
encourage participating employees to think and act like owners of the
Company.
1.3. MAXIMUM NUMBER OF SHARES. The maximum number of Shares that may be
issued under the Plan is 875,000, subject to adjustment as provided
in Section 9.1. Such Shares may be issued through the purchase of
either authorized and unissued Shares, or issued Shares acquired by the
Company. If an Option is surrendered or for any other reason ceases to
be exercisable in whole or in part, the Shares that are subject to such
Option, but as to which the Option has not been exercised, shall again
become available for offering under the Plan.
1.4. STATUS. It is the intention of the Company that incentive stock options
granted under the Plan qualify as "incentive stock options" under
Section 422 of the Code, and the regulations promulgated thereunder.
The provisions of the Plan with respect to ISOs, accordingly, shall be
construed in a manner consistent with such requirements. Except with
respect to ISOs, no Award under the Plan is intended to qualify for
special treatment or status under the Code.
ARTICLE 2:
2. DEFINITIONS:
2.1. DEFINITIONS. The following words and terms as used herein shall have
that meaning set forth therefor in this Article 2 unless a different
meaning is clearly required by the context.
2.1.1. "Award" shall mean any Option, Restricted Share, SAR or cash
payment granted or awarded under the Plan.
2.1.2. "Award Agreement(s)" shall mean any document, agreement or
certificate deemed by the Committee as necessary or advisable to be
entered into with or delivered to a Participant in connection with the
grant of an Award under the Plan.
<PAGE> 2
2.1.3. "Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
2.1.4. "Committee" is defined in Article 3.1.
2.1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include a reference
to any successor provision.
2.1.6. "Company" shall mean Insurance Management Solutions Group, Inc.,
a Florida corporation, and its successors.
2.1.7. "Effective Date" is defined in Section 9.7.
2.1.8. "Eligible Employee" shall mean any individual employed by the
Company, any Subsidiary who meets the eligibility requirements of
Article 4, or any individual who is employed as a consultant or advisor
by the Company that provides bona fide services not in connection with
a capital transaction.
2.1.9. "Fair Market Value" of the Shares shall mean the closing price
on the date in question (or, if no Shares are traded on such day, on
the next preceding day on which Shares were traded) of the Shares on
the principal securities exchange in the United States on which such
stock is listed, or if such Shares are not listed on a securities
exchange in the United States, the closing price on such day in the
over-the-counter market as reported by the National Association of
Security Dealers Automated Quotation System (NASDAQ), or NASDAQ's
successor, or if not reported on NASDAQ, the fair market value of such
Shares as determined by the Committee in good faith and based on all
relevant factors.
2.1.10. "ISO" shall mean an incentive stock option granted in
accordance with the provisions of Article 5 of the Plan.
2.1.11. "NSO" shall mean a nonqualified stock option granted in
accordance with the provisions of Article 6 of the Plan.
2.1.12. "Option" shall mean an ISO or an NSO.
2.1.13. "Optionee" shall mean an Eligible Employee to whom an Option is
granted under the Plan.
2.1.14. "Participant" shall mean an Eligible Employee, who in
accordance with the terms of the Plan, is approved by the Committee for
participation in the Plan as a recipient of an Award and who receives
an Award.
2.1.15. "Plan" shall mean the Insurance Management Solutions Group,
Inc. Long Term Incentive Plan, as set forth herein and as amended from
time to time.
2.1.16. "Restricted Share(s)" shall mean any Shares granted or awarded
to a Participant in accordance with the provisions of Article 8 of the
Plan.
<PAGE> 3
2.1.17. "SAR" shall mean a Stock Appreciation Right granted in
accordance with the provisions of Article 7 of the Plan, which as to
each SAR entitles the Participant to receive payment equal to the
excess of (1) the Fair Market Value of a Share at the time of payment
or exercise over (2) a specified price or value set or established at
the time of grant of the SAR.
2.1.18. "Shares" shall mean shares of the common stock of the Company.
2.1.19. "Subsidiary" shall mean any corporation that at the time
qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Section 424(f) of the Code.
<PAGE> 4
2.1.20. "10% Stockholder" shall mean an individual who owns more than
10% of the total combined voting power of all classes of stock of the
Company or of a parent or subsidiary corporation.
2.2. USAGE. Whenever appropriate, words used in the singular shall be deemed
to include the plural and vice versa, and the masculine gender shall be
deemed to include the feminine gender.
ARTICLE 3
3. ADMINISTRATION
3.1. COMMITTEE. This Plan shall be administered by a committee appointed by
the Board of Directors (the "Committee"). The Committee shall consist
of not less than two (2) nor more than five (5) persons, each of whom
shall be a member of the Board and none of whom shall be eligible to
participate under the Plan. The Board of Directors may from time to
time remove members from, or add members to, the Committee. Vacancies
on the Committee, howsoever caused, shall be filled by the Board of
Directors.
3.2. ORGANIZATION. The Committee shall select one of its members as
chairman, and shall hold meetings at such time and places as it may
determine. The acts of a majority of the Committee at which a quorum is
present, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be valid acts of the Committee.
3.3. POWER AND AUTHORITY. Subject to the provisions of the Plan, the
Committee shall have full authority, in its discretion: (a) to
determine from among Eligible Employees those persons who shall become
Participants; (b) to determine the nature, amount and terms and
conditions of all Awards under the Plan, in accordance with and subject
to the specific limitations and requirements set forth in the Plan; and
(c) to interpret the Plan, the terms of all Awards and Award Agreements
and any other agreement or instrument awarded, issued or entered into
under the Plan, and to prescribe, amend and rescind rules and
regulations with respect to the administration of the Plan. The
interpretation and construction by the Committee of any provision of
the Plan, any Award or any other agreement or instrument awarded,
issued or entered into under the Plan, and all other determinations and
decisions of the Committee pursuant to the provisions of the Plan,
shall be final, conclusive and binding on all Participants and other
affected persons. All actions and policies of the Committee, to the
extent they deal with ISOs, shall be consistent with the qualification
of ISOs as incentive stock options under Section 422 of the Code.
<PAGE> 5
3.4. DISCRETIONARY AUTHORITY. The Committee's decision to authorize the
grant of an Award to an Eligible Employee at any time shall not require
the Committee to authorize the grant of an Award to that employee at
any other time or to any other employee at any time; nor shall its
determination with respect to the size, type or terms and conditions of
the Award to be granted to an Eligible Employee at any time require it
to authorize the grant of an Award of the same type or size or with the
same terms and conditions to that employee at any other time or to any
other employee at any time. The Committee shall not be precluded from
authorizing the grant of an Award to any Eligible Employee solely
because the employee previously may have been granted an Award of any
kind under the Plan.
3.5. NO LIABILITY. No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan.
ARTICLE 4
4. EMPLOYEES ELIGIBLE TO PARTICIPATE
4.1. GENERALLY. Any person, including any officer but not a person who is
solely a director, who is in the employ of the Company or any
Subsidiary on the date of a grant of an Award shall be an Eligible
Employee, able to participate in the Plan in accordance with the terms
of the Plan. The Committee shall have the sole power to determine if
the eligibility requirements have been satisfied.
4.2. PARTICIPANT STATUS. In accordance with the provisions of Section 3.3,
the Committee, in its sole discretion, from time to time may select
from among Eligible Employees persons to become Participants in the
Plan. Any Eligible Employee so selected and who remains an Eligible
Employee shall become a Participant upon the approval of such status by
the Committee, which approval shall be conclusively evidenced by the
award or grant of an Award to a Participant.
4.3. ISO ELIGIBILITY REQUIREMENT. Notwithstanding any provision of the Plan
to the contrary, no person shall be eligible to receive any ISOs under
the Plan if such person would not be able to qualify for the benefits
of incentive stock options under Section 422 of the Code.
ARTICLE 5
5. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
5.1. GRANT. Any ISO granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by certificates or agreements in such
form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the
terms and conditions hereinafter specified. Upon the granting of any
ISO, the Committee shall promptly cause the Optionee to be notified of
the fact that such Option has been granted. The date on which the
Committee approves the grant of an ISO shall be considered to be the
date on which such Option is granted.
5.2. NUMBER OF SHARES. Each ISO shall state the number of Shares to which it
pertains.
<PAGE> 6
5.3. OPTION PRICE. Each ISO shall state the option price, which option price
shall be determined by the Committee in its discretion. Notwithstanding
the foregoing, the option price in no event shall be less than 100% of
the Fair Market Value of the Shares on the date of grant of the Option;
or, in the case of an ISO being issued to an Eligible Employee who is a
10% Stockholder at the time an ISO is granted, 110% of the Fair Market
Value of the Shares on the date of grant.
5.4. METHOD OF EXERCISE. An Optionee may exercise an ISO during such time as
may be permitted by the Option and the Plan by providing written notice
to the Committee, tendering the purchase price in accordance with the
provisions of Section 5.5, and complying with any other exercise
requirements contained in the Option or promulgated from time to time
by the Committee.
5.5. METHOD OF PAYMENT. Payment of the option price upon the exercise of the
ISO shall be in: (a) United States dollars in cash or by check, bank
draft or money order payable to the order of the Company; (b) in the
discretion of and in the manner determined by the Committee, by the
delivery of Shares already owned by the Optionee; (c) by any other
legally permissible means acceptable to the Committee at the time of
grant of the Option (including cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable legal
restrictions); or in the discretion of the Committee, through a
combination of (a), (b) and (c) of this Section. If the option price is
paid in whole or in part through the delivery of Shares, the decision
of the Committee with respect to the Fair Market Value of such Shares
shall be final and conclusive.
5.6. TERM AND EXERCISE OF OPTIONS.
5.6.1. Unless otherwise specified in writing by the Committee at the
time of grant or in the Award Agreement, each ISO shall be
exercisable, in whole or in part, only in accordance with the
"Vesting Schedule" which is attached to and hereby made a part
of this Plan. To the extent not exercised, exercisable
installments of ISOs shall be exercisable, in whole or in
part, in any subsequent period, but not later than the
expiration date of the Option. The Committee shall determine
the expiration date of the Option at the time of the grant of
the Option; provided, however, that no ISO shall be
exercisable after the expiration of ten (10) years from the
date it is granted; or, in the case of a 10% Stockholder, no
ISO shall be exercisable after the expiration of five (5)
years from the date it is granted. Not less than one hundred
(100) Shares may be exercised at any one time unless the
number exercised is the total number at the time exercisable
under the Option.
5.6.2. Within the limits described above, the Committee may impose
additional requirements on the exercise of ISOs. When it deems
special circumstances to exist, the Committee in its
discretion may accelerate the time at which an ISO may be
exercised if, under previously established exercise terms,
such Option was not immediately exercisable in full, even if
the acceleration would permit the Option to be exercised more
rapidly than the vesting set forth in the attached Vesting
Schedule, or as otherwise specified by the Committee, would
permit.
5.7. ADDITIONAL LIMITATIONS. The aggregate Fair Market Value (determined as
of the time an ISO is granted) of the Shares with respect to which ISOs
are exercisable for the first time by any Optionee in any calendar year
under the Plan and under all other incentive stock option plans of
<PAGE> 7
the Company and any parent and subsidiary corporations of the Company
(as those terms are defined in Section 424 of the Code) shall not
exceed $100,000.
5.8. DEATH OR OTHER TERMINATION OF EMPLOYMENT.
5.8.1. In the event that an Optionee shall cease to be employed by
the Company or a Subsidiary for any reason other than his or
her death, subject to the conditions that no ISO shall be
exercisable after its expiration date, such Optionee shall
have the right to exercise the ISO at any time within ninety
(90) days after such termination of employment to the extent
his or her right to exercise such Option had accrued pursuant
to this Article 5 at the date of such termination and had not
previously been exercised; such ninety (90) day period shall
be increased to one (1) year for any Optionee who ceases to be
employed by the Company or a Subsidiary because he is disabled
(within the meaning of Section 22(e)( 3) of the Code) or who
dies during the ninety (90) day period and the Option may be
exercised within such extended time limit by the Optionee or,
in the case of death, the personal representative of the
Optionee or by any person or persons who shall have acquired
the Option directly from the Optionee by bequest or
inheritance. Whether an authorized leave of absence or absence
for military or governmental service shall constitute
termination of employment for purposes of the Plan shall be
determined by the Committee, whose determination shall be
final and conclusive.
5.8.2. In the event that an Optionee shall die while in the employ of
the Company or a Subsidiary and shall not have fully exercised
any ISO, the ISO may be exercised, subject to the conditions
that no ISO shall be exercisable after its expiration date, to
the extent that the Optionee's right to exercise such Option
had accrued pursuant to this Article 5 at the time of his or
her death and had not previously been exercised, at any time
within one (1) year after the Optionee's death, by the
personal representative of the Optionee or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
5.8.3. No ISO shall be transferable by the Optionee otherwise than by
will or the laws of descent and distribution.
5.8.4. During the lifetime of the Optionee, an ISO shall be
exercisable only by him or her and shall not be assignable or
transferable, and no other person shall acquire any rights
therein.
5.9. DELIVERY OF CERTIFICATES REPRESENTING SHARES.
5.9.1. As soon as practicable after the exercise of an ISO, the
Company shall deliver or cause to be delivered to the Optionee
exercising the ISO a certificate or certificates representing
the Shares purchased upon the exercise.
5.9.2. Certificates representing Shares to be delivered to an
Optionee will be registered in the name of the participating
employee, or if the Optionee so directs, by written notice to
the Company, and to the extent permitted by applicable law, in
the names of the Optionee and one such other person as may be
designated by the participating Optionee, as joint tenants
with rights of survivorship.
<PAGE> 8
5.10. RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to any Shares covered by his or her ISO until
the date on which he or she becomes a record owner of the Shares
purchased upon the exercise of the Option (the "record ownership
date"). No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to
the record ownership date, except as provided in Article 9.
5.11. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Committee
may modify outstanding ISOs granted under the Plan, or accept the
surrender of outstanding ISOs (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to
the extent not theretofore exercised). The Committee shall not,
however, modify any outstanding ISO so as to specify a lower option
price or accept the surrender of outstanding ISOs and authorize the
granting of new Options in substitution therefor specifying a lower
option price. Notwithstanding the foregoing, however, no modification
of an ISO shall, without the consent of the Optionee, alter or impair
any of the rights or obligations under any ISO theretofore granted
under the Plan.
5.12. LISTING AND REGISTRATION OF SHARES. Each ISO shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the
Shares covered thereby upon any securities exchange or under any state
or federal laws, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such ISO or the issuance or purchase
of Shares thereunder, such ISO may not be exercised unless and until
such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to
the Committee. Notwithstanding anything in the Plan to the contrary, if
the provisions of this Section become operative, and if, as a result
thereof, the exercise of an ISO is delayed, then and in that event, the
term of the ISO shall not be affected.
5.13. OTHER PROVISIONS. The ISO certificates or agreements authorized under
the Plan shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Option, as the
Committee shall deem advisable. Any such certificate or agreement shall
contain such limitations and restrictions upon the exercise of the ISO
as shall be necessary in order that such Option will be an incentive
stock option as defined in Section 422 of the Code, or to conform to
any change in the law.
<PAGE> 9
ARTICLE 6
6. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
6.1. GRANT. Any NSO granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by certificates or agreements in such
form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the
terms and conditions hereinafter specified. Upon the granting of any
NSO, the Committee shall promptly cause the Optionee to be notified of
the fact that such Option has been granted. The date on which the
Committee approves the grant of a NSO shall be considered to be the
date on which such Option is granted.
6.2. NUMBER OF SHARES. Each NSO shall state the number of Shares to which it
pertains.
6.3. OPTION PRICE. Each NSO shall state the option price, which option price
shall be determined by the Committee in its discretion and may be equal
to, less than or greater than 100% of the Fair Market Value of the
Shares on the date of grant.
6.4. METHOD OF EXERCISE. An Optionee may exercise a NSO during such time as
may be permitted by the Option and the Plan by providing written notice
to the Committee, tendering the purchase price in accordance with the
provisions of Section 6.5, and complying with any other exercise
requirements contained in the Option or promulgated from time to time
by the Committee.
6.5. METHOD OF PAYMENT. Payment of the option price upon the exercise of the
NSO shall be: (a) in United States dollars in cash or by check, bank
draft or money order payable to the order of the Company; (b) in the
discretion of and in the manner determined by the Committee, by the
delivery of Shares already owned by the Optionee; (c) by any other
legally permissible means acceptable to the Committee at the time of
grant of the Option (including cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable legal
restrictions); or in the discretion of the Committee, through a
combination of (a), (b) and (c) of this Section. If the option price is
paid in whole or in part through the delivery of Shares, the decision
of the Committee with respect to the Fair Market Value of such Shares
shall be final and conclusive.
6.6. TERM AND EXERCISE OF OPTIONS.
6.6.1. Unless otherwise specified in writing by the Committee at the
time of grant or in the Award Agreement, each NSO shall be
exercisable, in whole or in part, only in accordance with the
attached Vesting Schedule.To the extent not exercised,
exercisable installments of NSOs shall be exercisable, in
whole or in part, in any subsequent period, but not later than
the expiration date of the Option. The Committee shall
determine the expiration date of the Option at the time of the
grant of the Option; provided, however, that no NSO shall be
exercisable after the expiration of ten (10) years from the
date it is granted. Not less than one hundred (100) Shares may
be exercised at any one time unless the number exercised is
the total number at the time exercisable under the Option.
6.6.2. Within the limits described above, the Committee may impose
additional requirements on the exercise of NSOs. When it deems
special circumstances to exist, the Committee in its
<PAGE> 10
discretion may accelerate the time at which a NSO may be
exercised if, under previously established exercise terms,
such Option was not immediately exercisable in full, even if
the acceleration would permit the Option to be exercised more
rapidly than the vesting set forth in the attached Vesting
Schedule, or as otherwise specified by the Committee, would
permit.
6.7. DEATH OR OTHER TERMINATION OF EMPLOYMENT.
6.7.1. In the event that an Optionee shall cease to be employed by
the Company or a Subsidiary for any reason other than his or
her death, subject to the conditions that no NSO shall be
exercisable after its expiration date, such Optionee shall
have the right to exercise the NSO at any time within ninety
(90) days after such termination of employment to the extent
his or her right to exercise such Option had accrued pursuant
to this Article 6 at the date of such termination and had not
previously been exercised; such ninety (90) day period shall
be increased to one (1) year for any Optionee who ceases to be
employed by the Company or a Subsidiary because he is disabled
(within the meaning of Section 22(e)( 3) of the Code) or who
dies during the ninety (90) day period, and the Option may be
exercised within such extended time limit by the Optionee or
in the case of death, the personal representative of the
Optionee or by any person or persons who shall have acquired
the Option directly from the Optionee by bequest or
inheritance. Whether an authorized leave of absence or absence
for military or governmental service shall constitute
termination of employment for purposes of the Plan shall be
determined by the Committee, whose determination shall be
final and conclusive.
6.7.2. In the event that an Optionee shall die while in the employ of
the Company or a Subsidiary and shall not have fully exercised
any NSO, the NSO may be exercised, subject to the conditions
that no NSO shall be exercisable after its expiration date, to
the extent that the Optionee's right to exercise such Option
had accrued pursuant to this Article 6 at the time of his or
her death and had not previously been exercised, at any time
within one (1) year after the Optionee's death, by the
personal representative of the Optionee or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
6.7.3. No NSO shall be transferable by the Optionee otherwise than by
will or the laws of descent and distribution.
6.7.4. During the lifetime of the Optionee, an NSO shall be
exercisable only by him or her and shall not be assignable or
transferable, and no other person shall acquire any rights
therein.
6.8. DELIVERY OF CERTIFICATES REPRESENTING SHARES.
6.8.1. As soon as practicable after the exercise of a NSO, the
Company shall deliver or cause to be delivered to the Optionee
exercising the NSO a certificate or certificates representing
the Shares purchased upon the exercise.
6.8.2. Certificates representing Shares to be delivered to an
Optionee under the Plan will be registered in the name of the
Optionee, or if the Optionee so directs, by written notice to
<PAGE> 11
the Company, and to the extent permitted by applicable law, in
the names of the Optionee and one such other person as may be
designated by the Optionee, as joint tenants with rights of
survivorship.
6.9. RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to any Shares covered by his or her NSO until
the date on which he or she becomes a record owner of the Shares
purchased upon the exercise of the Option (the "record ownership
date"). No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to
the record ownership date, except as provided in Article 9.
6.10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Committee
may modify outstanding NSOs granted under the Plan, or accept the
surrender of outstanding NSOs (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to
the extent not theretofore exercised). The Committee shall not,
however, modify any outstanding NSO so as to specify a lower option
price or accept the surrender of outstanding NSOs and authorize the
granting of new Options in substitution therefor specifying a lower
option price. Notwithstanding the foregoing, however, no modification
of an NSO shall, without the consent of the Optionee, alter or impair
any of the rights or obligations under any NSO theretofore granted
under the Plan.
6.11. LISTING AND REGISTRATION OF SHARES. Each NSO shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the
Shares covered thereby upon any securities exchange or under any state
or federal laws, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such NSO or the issuance or purchase
of shares thereunder, such NSO may not be exercised unless and until
such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to
the Committee. Notwithstanding anything in the Plan to the contrary, if
the provisions of this Section become operative, and if, as a result
thereof, the exercise of a NSO is delayed, then and in that event, the
term of the NSO shall not be affected.
6.12. OTHER PROVISIONS. The NSO certificates or agreements authorized under
the Plan shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Option, as the
Committee shall deem advisable.
<PAGE> 12
ARTICLE 7
7. STOCK APPRECIATION RIGHTS
7.1. GRANT. The Committee, in its sole discretion, from time to time may
authorize the grant of SARs to a Participant. An SAR may be granted in
connection with all or any portion of a previously or contemporaneously
granted Award (other than an SAR), or by itself and not in connection
with any other Award. An SAR may be granted at the time of grant of the
related Option and shall be subject to the same terms and conditions as
the related Option, except as this Article 7 may otherwise provide. The
grant of SAR shall be evidenced either by provisions in the Option to
which it relates or by a separate written agreement between the Company
and the Participant, which shall comply with and be subject to the
terms and conditions of the Plan and shall be in such form as the
Committee from time to time shall approve (an "SAR Agreement"). The SAR
Agreement may contain such additional terms, conditions or limitations,
not inconsistent with the specific provisions of the Plan, as may be
approved by the Committee in it sole discretion.
7.2. TERMS AND CONDITIONS. Each SAR granted under the Plan shall be
exercisable or payable at such time or times, or upon the occurrence of
such event or events, and in such amounts or types of consideration
(including cash or Shares) as the Committee shall specify in the SAR
Agreement. Subsequent to the grant of an SAR, the Committee, at any
time before complete termination of such SAR, may accelerate the time
or times at which such SAR may be exercised or paid in whole or in
part.
7.3. EXERCISE.
7.3.1. An SAR shall be exercised by surrendering the SAR Agreement
or, if the SAR was granted in connection with an Option, the
surrender of the related Option together with any SAR
Agreement, or the portion(s) thereof pertaining to the Shares
with respect to which the SAR is exercised, and providing the
Company with a written notice in such form and containing such
information (including the number of Shares with respect to
which the SAR is being exercised) as the SAR Agreement or the
Committee may specify. The date on which the Company receives
such surrender and notice shall be the date on which the
related Option, or portion thereof, shall be deemed
surrendered and the SAR shall be deemed exercised.
7.3.2. An SAR granted in connection with an Option shall be
exercisable only at such time or times, to such extent and by
such persons as the Option to which it relates shall be
exercisable, provided that an SAR granted in connection with
an ISO shall not be exercisable on any date on which the Fair
Market Value of a Share is less than or equal to the per share
exercise price of the ISO. An SAR shall be canceled when, and
to the extent that, any related Option is exercised, and an
Option shall be canceled when, and to the extent that, the
Option is surrendered to the Company upon the exercise of a
related SAR.
7.4. PAYMENT. To effect payment or exercise of an SAR, the Company shall
make payment to the Participant in cash or Shares (valued at their Fair
Market Value on the date of payment or exercise) or in combination of
cash and Shares as provided in the SAR Agreement. If payment is to be
made in Shares, upon such exercise, the Participant shall be entitled
to receive that number
<PAGE> 13
of Shares which have an aggregate Fair Market Value on the exercise
date equal to the amount by which the Fair Market Value of one Share on
the exercise date exceeds the Option price per share of any related
Option or the Fair Market Value on the date of grant of the SAR, as the
case may be, multiplied by the number of Shares covered by the related
Option or the SAR, as the case may be, or portion thereof, surrendered
in connection with the exercise of the SAR.
7.5. EXPIRATION. An SAR granted in connection with or related to an Option,
unless previously exercised or canceled, shall expire upon the
expiration of the Option to which it relates. Any other SAR, unless
previously exercised or canceled, shall expire upon the tenth
anniversary of its grant. The exercise of an SAR granted in connection
with an Option shall result in a pro rata surrender or cancellation of
any related Option to the extent the SAR has been exercised.
7.6. DEATH OR OTHER TERMINATION OF EMPLOYMENT.
7.6.1. In the event that a Participant shall cease to be employed by
the Company or a Subsidiary for any reason other than his or
her death, subject to the conditions that no SAR shall be
exercisable after its expiration date, such Participant shall
have the right to exercise the SAR at any time within ninety
(90) days after such termination of employment to the extent
his or her right to exercise such SAR had accrued pursuant to
this Article 7 at the date of such termination and had not
previously been exercised; such ninety (90) day period shall
be increased to one (1) year for any Participant who ceases to
be employed by the Company or a Subsidiary because he is
disabled (within the meaning of Section 22(e)(3) of the Code)
or who dies during the ninety (90) day and the SAR may be
exercised within such extended time limit by the Participant
or, in the case of death, the personal representative of the
Participant or by any person or persons who shall have
acquired the SAR directly from the Participant by bequest or
inheritance. Whether an authorized leave of absence or absence
for military or governmental service shall constitute
termination of employment for purposes of the Plan shall be
determined by the Committee, whose determination shall be
final and conclusive.
7.6.2. In the event that a Participant shall die while in the employ
of the Company or a Subsidiary and shall not have fully
exercised any SAR, the SAR may be exercised, subject to the
conditions that no SAR shall be exercisable after its
expiration date, to the extent that a Participant's right to
exercise such SAR had accrued in accordance with the
provisions of this Article 7 at the time of his or her death
and had not previously been exercised, at any time within one
(1) year after a Participant's death, by the personal
representative of a Participant or by any person or persons
who shall have acquired the SAR directly from a Participant by
bequest or inheritance.
7.6.3. No SAR shall be transferable by a Participant otherwise than
by will or the laws of descent and distribution.
7.6.4. During the lifetime of a Participant, an SAR shall be
exercisable only by him or her and shall not be assignable or
transferable, and no other person shall acquire any rights
therein.
7.7. DELIVERY OF CERTIFICATES REPRESENTING SHARES. As soon as practicable
after the exercise or payment of an SAR payable in whole or in part in
Shares, the Company shall deliver or cause to
<PAGE> 14
be delivered to the Participant exercising the SAR for Shares a
certificate or certificates representing the Shares issuable upon such
purchase or exercise. Certificates representing Shares to be delivered
to a Participant will be registered in the name of the Participant or
if the Participant so directs, by written notice to the Company, and to
the extent permitted by applicable law, in the names of the Participant
and one such other person as may be designated by the Participant, as
joint tenants with rights of survivorship.
7.8. LISTING AND REGISTRATION OF SHARES. Each SAR shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of any
Shares covered thereby upon any securities exchange or under any state
or federal laws, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of Shares, such SAR may not
be paid or exercised unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee. Notwithstanding
anything in the Plan to the contrary, if the provisions of this Section
become operative, and if, as a result thereof, the exercise of an SAR
is delayed, then and in that event, the term of the SAR shall not be
affected.
7.9. RIGHTS AS A STOCKHOLDER. In general, the holder of an SAR shall have no
rights as a stockholder. The holder of an SAR under which Shares are
issuable upon payment or exercise shall have no rights as a stockholder
of the Company until the date on which he or she becomes a record owner
of the Shares issued upon the payment or exercise of the SAR (the
"record ownership date"). No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property), distributions, or other rights for which the record date is
prior to the record ownership date, except as provided in Article 9.
ARTICLE 8
8. RESTRICTED SHARES
8.1. GENERAL. The Committee, in its sole discretion, from time to time may
authorize the grant of Restricted Shares to a Participant. In making
any such grant of Restricted Shares, the Committee may grant Restricted
Shares without the requirement of any cash payment or may require a
cash payment from a Participant in an amount no greater than the
aggregate Fair Market Value of the Restricted Shares as of the date of
grant in exchange for, or as a condition precedent to, the completion
of the grant and the issuance of the Restricted Shares.
8.2. RESTRICTION PERIOD. All Restricted Shares issued under Article 8 shall
be subject to certain restrictions as set forth in Section 8.3, which
restrictions shall continue in effect for such period of time as is
specified in the Award Agreement (the "Restriction Period"). The Award
Agreement may contain such additional terms, conditions or limitations,
not inconsistent with the specific provisions of the Plan, as may be
approved by the Committee in it sole discretion.
8.3. CERTAIN RESTRICTIONS. Until the expiration of the Restriction Period,
Restricted Shares shall be subject to the following restrictions: (a)
the Participant shall not be entitled to take possession of the
certificate or certificates representing the Shares; (b) the Restricted
Shares may not be sold, transferred, assigned, pledged, conveyed,
hypothecated or otherwise disposed of (other than by
<PAGE> 15
operation of law); and (c) the Shares may be forfeited immediately as
provided in Section 8.4. In addition, the Committee, as specified in
writing at the time of grant or in the Award Agreement, may condition
the right to receive Restricted Shares upon the satisfaction of such
additional terms, conditions or limitations, including but not limited
to performance criteria, as may be approved by the Committee in its
sole discretion.
8.4. TERMINATION OF EMPLOYMENT. Unless otherwise specified by the Committee
in writing at the time of the Award or in the Award Agreement, if the
employment of a Participant is terminated for any reason other the
death or disability (within the meaning of Section 22(e)(3) of the
Code) of the Participant before the expiration of the Restriction
Period, the Restricted Shares shall be forfeited immediately and all
rights of a Participant to such Shares shall terminate immediately
without further obligation on the part of the Company. Unless otherwise
specified by the Committee in writing at the time of the Award or in
the Award Agreement, if a Participant's employment is terminated by
reason of the death or disability (within the meaning of Section
22(e)(3) of the Code) of the Participant before the expiration of the
Restriction Period, (a) the number of Restricted Shares held by the
Company for a Participant's account pursuant to Section 8.6 shall be
reduced by partial forfeiture in an amount of Restricted Shares in
proportion equal to the percentage of the total Restriction Period
remaining after a Participant's termination of employment, (b) the
restrictions on the unforfeited balance of such Restricted Shares shall
lapse on the date the Participant's employment terminated and (c) the
certificate or certificates representing the Shares upon which the
restrictions have lapsed shall be delivered to the Participant (or, in
the event of the Participant's death, to his or her legal
representative).
8.5. DISTRIBUTION OF RESTRICTED SHARES. If a Participant to whom Restricted
Shares have been issued pursuant to Article 8 remains in the continuous
employment of the Company or a Subsidiary until the expiration or
waiver by the Board of the Restriction Period and the satisfaction of
any other conditions imposed by the Award Agreement, with respect to
the Restricted Shares in question, all restrictions applicable to such
Restricted Shares shall lapse and the certificate or certificates
representing the Shares that were granted to the Participant shall be
delivered to the Participant.
8.6. DELIVERY OF CERTIFICATES REPRESENTING SHARES.
8.6.1. As soon as practicable after a grant of Restricted Shares,
unless the Award Agreement provides for a different issuance
procedure, the Company shall issue certificates representing
the Restricted Shares registered in the name of the holder of
Restricted Shares.
8.6.2. To administer the restrictions imposed on Restricted Shares
under the Plan and the Award Agreement, certificates
representing Restricted Shares (to the extent they are issued
under the Award Agreement prior to satisfaction of such
restrictions) shall not be delivered to Participants but shall
be delivered to the Company to be held by the Company as
safekeeping agent for the benefit of each Participant. A
written safekeeping receipt evidencing the Shares so held in
safekeeping, bearing the name of the Participant, indicating
the number of the certificate or certificates and the number
of Shares so represented shall be delivered promptly to each
Participant. In its capacity as safekeeping agent for
Participants, the Company shall act in accordance with
instructions received from such Participants, which
instructions are to be confirmed in writing if deemed
<PAGE> 16
appropriate by the Company. The safekeeping agency shall not
affect the rights of Participants as owners of Restricted
Shares, nor shall such agency affect the restrictions imposed
on Restricted Shares under the Plan or the Award Agreement.
8.6.3. Upon the lapse, satisfaction or waiver of the Restriction
Period and any other restrictions imposed on Restricted Shares
under the Plan or the Award Agreement, any safekeeping agency
arrangement adopted pursuant to Section 8.6.2 shall terminate
and the certificates representing the Shares owned by
Participants, registered in the name(s) of the Participants,
shall be delivered promptly to such Participants.
8.7. WAIVER OF RESTRICTIONS. The Committee, in its sole discretion, may at
any time waive or accelerate the expiration of any or all restrictions
with respect to Restricted Shares issued pursuant to this Article 8.
8.8. RIGHTS AS A STOCKHOLDER. A Participant receiving Restricted Shares
shall have no rights as a stockholder with respect to any Restricted
Shares grant to him or her under the Plan until the date on which he or
she becomes a record owner of the Restricted Shares (the "record
ownership date"). No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to
the record ownership date, except as provided in Article 9.
<PAGE> 17
ARTICLE 9
9. MISCELLANEOUS
9.1. STOCK ADJUSTMENTS.
9.1.1. In the event of any increase or decrease in the number of
issued Shares resulting from a stock split or other division
or consolidation of shares or the payment of a stock dividend
(but only on Shares) or any other increase or decrease in the
number of Shares effected without any receipt of consideration
by the Company, then, in any such event, the number of Shares
that remain available under the Plan, the number of Shares
covered by each outstanding Option, the exercise price per
Share covered by each outstanding Option, the number of Shares
covered by each outstanding SAR and the price per Share and
the number and any purchase price for any Restricted Shares
granted but not yet issued, in each case, shall be
proportionately and appropriately adjusted for any such
increase or decrease.
9.1.2. Subject to any required action by the stockholders, if any
change occurs in the Shares by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination
or exchange of shares, or of any similar change affecting
Shares, then, in any such event, the number and type of Shares
then covered by each outstanding Option, the purchase price
per Share covered by each outstanding Option, the number of
Shares covered by each outstanding SAR and the exercise price
per Share and the number and any purchase price for any
Restricted Shares granted but not yet issued, in each case,
shall be proportionately and appropriately adjusted for any
such change.
9.1.3. In the event of a change in the Shares as presently
constituted that is limited to a change of all of its
authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be Shares
within the meaning of the Plan.
9.1.4. To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made
by, and in the discretion of, the Committee, whose
determination in that respect shall be final, binding and
conclusive; provided, however, that any Option granted
pursuant to Article 5 shall not be adjusted in a manner that
causes such Option to fail to continue to qualify as an
incentive stock option within the meaning of Section 422 of
the Code.
<PAGE> 18
9.1.5. Except as hereinabove expressly provided in this Section, an
Eligible Employee or a Participant shall have no rights by
reason of any division or consolidation of shares of stock of
any class or the payment of any stock dividend or any other
increase or decrease the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger or
consolidation, or spin-off of assets or stock of another
corporation; and any issuance by the Company of shares of
stock of any class, securities convertible into shares of
stock of any class, or warrants or options for shares of stock
of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
Shares, any Option, any SAR or any Restricted Shares granted
but not yet issued.
9.1.6. The existence of the Plan, or the grant of an Option, SAR or
Restricted Shares under the Plan, shall not affect in any way
the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital
or business structure or to merge or to consolidate, or to
dissolve, to liquidate, to sell, or to transfer all or any
part of its business or assets.
9.2. TAX ABSORPTION PAYMENTS. The Company may, but is not required to, make
a cash payment, either directly to any Participant or on a
Participant's behalf, in an amount that the Committee estimates to be
equal (after taking into account any federal and state taxes that the
Committee estimates to be applicable to such cash payment) to any
additional federal and state income taxes that are imposed upon a
Participant as a result of the granting of any Award under the Plan (a
"Tax Absorption Payment"). In determining the amount of any Tax
Absorption Payment, the Committee may adopt such methods and
assumptions as it considers appropriate, and it shall not be required
to examine the individual tax liability of any Participant. The
decision to make any Tax Absorption Payment shall be made by the
Committee at the same time as the grant of the Award to which it
relates.
9.3. AMENDMENT OF THE PLAN; TERMINATION. The Board shall have the right to
revise, amend or terminate the Plan at any time without notice;
provided, however, that without shareholder approval the Board may not
(a) increase the aggregate number of Shares that may be issued pursuant
to this Plan, (b) extend the period during which any Award may be
granted, (c) extend the term of the Plan, or (d) modify the
requirements as to eligibility for participation hereunder; provided,
further, that no such action may be taken, without the consent of the
Participant to whom any Award shall have been granted, that adversely
affects the rights of such Participant concerning such Award, except as
such termination or amendment of this Plan is required by statute, or
rules or regulations promulgated thereunder, or as otherwise permitted
hereunder. The foregoing prohibitions in this Section shall not be
affected by adjustments in shares and purchase price made in accordance
with the provisions of Section 9.1.
9.4. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Shares or the exercise of Awards pursuant to the Plan will be
used for general corporate purposes.
9.5. NO IMPLIED RIGHTS TO EMPLOYEES. The existence of the Plan and the
granting of Awards under the Plan shall in no way give any employee the
right to continued employment or the right to receive any additional
Awards or any additional compensation under the Plan, or otherwise
provide any employee any rights not specifically set forth in the Plan
or in any Option, SAR or Award Agreement.
<PAGE> 19
9.6. WITHHOLDING.
9.6.1. The Company shall have the power to withhold, or require a
Participant to remit to the Company, an amount sufficient to
satisfy any federal, state or local withholding or other tax
due from the Company with respect to any amount payable and/or
shares issuable under the Plan, and the Company may defer such
payment or issuance unless indemnified to its satisfaction.
Whenever under the Plan payments are to be made in cash, such
payments shall be made net of an amount sufficient to satisfy
any federal, state or local withholding tax liability.
9.6.2. Subject to the consent of the Committee, with respect to (i)
the exercise of an NSO, (ii) the lapse of restrictions on
Restricted Stock, or (iii) the issuance of any other stock
Award under the Plan, a Participant may make an irrevocable
election (an "Election") to (A) have shares of Common Stock
otherwise issuable under (i) withheld, or (B) tender back to
the Company shares of Common Stock received pursuant to (i),
(ii), or (iii), or (C) deliver back to the Company pursuant to
(i), (ii), or (iii) previously acquired shares of Common Stock
having a Fair Market Value sufficient to satisfy all or part
of the Participant's estimated tax obligations associated with
the transaction. Such Election must be made by a Participant
prior to the date on which the relevant tax obligation arises.
The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with
respect to any Award under this Plan that the right to make
Elections shall not apply to such Awards.
9.6.3. CONDITIONS PRECEDENT TO EFFECTIVENESS. Subject to the approval
of the Plan by the stockholders of the Company within 12
months after its adoption by the Board of Directors, the Plan
shall become effective upon the satisfaction of all the
following conditions, with the Effective Date of the Plan
being the date that the last of the following conditions is
satisfied:
9.6.3.1. the adoption of the Plan by the Board of
Directors; and
9.6.3.2. the effectiveness of the Company's
Registration Statement on Form S-1 relating
to the Company's initial public offering, as
filed with the SEC (File No. 333-57747).
<PAGE> 20
VESTING SCHEDULE:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Number of Years from Percentage of Shares
Date Option is Granted Exercisable
----------------------------------------------------------------------------
<S> <C>
Less than 1 year 0%
----------------------------------------------------------------------------
1 year but less than 2 years 20%
----------------------------------------------------------------------------
2 years but less than 3 years 40%
----------------------------------------------------------------------------
3 years but less than 4 years 60%
----------------------------------------------------------------------------
4 years but less than 5 years 80%
----------------------------------------------------------------------------
5 years or more 100%
----------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.3
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE 1:
1. GENERAL:
1.1. PURPOSE. The purpose of the Insurance Management Solutions Group, Inc.
Non-Employee Directors' Stock Option Plan is to secure for Insurance
Management Solutions Group, Inc. and its stockholders the benefits of
the incentive inherent in increased common stock ownership by the
members of the Board of Directors of the Company who are not employees
of the Company or any of its Subsidiaries.
1.2. MAXIMUM NUMBER OF SHARES. The maximum number of shares of Common Stock
that may be issued under the Plan is 200,000, subject to adjustment as
provided in Section 3.1 below. The Common Stock to be issued may be
either authorized and unissued shares or issued shares acquired by the
Company. In the event that Options granted under the Plan shall
terminate or expire without being exercised in whole or in part, new
Options may be granted covering the shares not purchased under such
lapsed Options.
1.3. DEFINITIONS. The following words and terms as used herein shall have
that meaning set forth therefor in this Section 1.3 unless a different
meaning is clearly required by the context. Whenever appropriate,
words used in the singular shall be deemed to include the plural and
vice versa, and the masculine gender shall be deemed to include the
feminine gender.
1.3.1. "Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
1.3.2. "Common Stock" shall mean the common stock of the Company.
1.3.3. "Company" shall mean Insurance Management Solutions Group,
Inc., a Florida corporation, and any successor.
1.3.4. "Effective Date" is defined in Section 3.9.
1.3.5. "Fair Market Value" of the shares of Common Stock shall mean
the closing price on the date in question (or, if no shares are
traded on such day, on the next preceding day on which shares
were traded) of the Common Stock on the principal securities
exchange in the United States on which such stock is listed, or
if such stock is not listed on a securities exchange in the
United States, the closing price on such day in the
over-the-counter market as reported by the National Association
of Security Dealers Automated Quotation System (NASDAQ), or
NASDAQ's successor, or if not reported on NASDAQ, the fair
market value of such stock as determined by the Board in good
faith and based on all relevant factors.
1.3.6. "NSO" shall mean a nonqualified stock option granted in
accordance with the provisions of Article 2 of this Plan.
1.3.7. "Non-Employee Director" shall mean a member of the Board of
Directors of the Company who is not an employee of the Company
or any Subsidiary.
1.3.8. "Option" shall mean an NSO.
1.3.9. "Optionee" shall mean a Non-Employee Director to whom an
Option is granted under the Plan.
1.3.10. "Plan" shall mean the Insurance Management Solutions Group,
Inc. Non-Employee Directors' Stock Option Plan, as set forth
herein and as amended from time to time.
<PAGE> 2
2.
1.3.11. "Subsidiary" shall mean any corporation that at the time
qualifies as a subsidiary of the Company under the definition
of "subsidiary corporation" contained in Section 424(f) of
the Internal Revenue Code of 1986, as amended.
1.4. ADMINISTRATION. This Plan is intended to be administered pursuant to
a formula and, accordingly, is intended to be self governing. To the
extent that any questions of interpretation arise, these questions
shall be resolved by the Board.
1.5. ELIGIBILITY REQUIREMENTS. Each Non-Employee Director shall be eligible
to receive Options in accordance with Article 2 below. The adoption of
this Plan shall not be deemed to give any director any right to be
granted options to purchase Common Stock of the Company, except to the
extent and upon such terms and conditions as set forth in this Plan.
ARTICLE 2:
2. TERMS AND CONDITIONS OF OPTIONS:
2.1. GRANT. Any NSO granted pursuant to the Plan shall be evidenced by
certificates or agreements, which certificates or agreements shall
comply with and be subject to the terms and conditions hereinafter
specified. The date on which the Board approves the grant of an NSO
shall be considered to be the date on which such Option is granted.
2.2. NUMBER OF SHARES. Each NSO shall state the number of Shares to which
it pertains. Although, the Board shall only have authority within this
Plan to issue to each Non-Employee Director a maximum of 7,200 shares
of Common Stock per any three (3) year period. It is anticipated that
the Board shall initially award, to every Non-Employee Director, 7,200
shares of Common Stock which shall vest in accordance with Article 2.6
below. Thereafter, on the three (3) year anniversary date of the
initial grant and all subsequent grants of Common Stock, the Board may
award each Non-Employee Director an additional 7,200 shares of Common
Stock.
2.3. OPTION PRICE. The Option exercise price shall be the Fair Market
Value of the Common Stock on the date of the grant of the Option.
2.4. METHOD OF EXERCISE. An Option may be exercised by a Non-Employee
Director during such time as may be permitted by the Option and the
Plan by providing written notice to the Board and tendering the
purchase price in accordance with the provisions of Section 2.5, and
complying with any other exercise requirements contained in the Option
or promulgated from time to time by the Board.
2.5. METHOD OF PAYMENT. Each Option shall state the method of payment of the
Option price upon the exercise of the Option. The method of payment
stated in the Option shall include payment (a) in United States
dollars in cash or by check, bank draft or money order payable to the
order of the Company, (b) in the discretion of and in the manner
determined by the Board, by the delivery of shares of Common Stock
already owned by the Optionee, (c) by any other legally permissible
means acceptable to the Board at the time of the grant of the Option
(including cashless exercise as permitted under the Federal Reserve
Board's Regulation T, subject to applicable legal restrictions), or
(d) in the discretion of the Board, through a combination of (a), (b)
and (c) of this Section 2.5. If the option price is paid in whole or
in part through the delivery of shares of Common Stock, the decision
of the Board with respect to the Fair Market Value of such shares
shall be final and conclusive.
2.6. TERM AND EXERCISE OF OPTIONS.
2.6.1. Unless otherwise specified in writing by the Board at the
time of grant, each NSO shall be exercisable, in whole or in
part, only in accordance with the "Vesting Schedule" below.
To the extent not exercised, exercisable installments of NSOs
shall be exercisable, in whole or in part, in any subsequent
period, but not later than the expiration date of the Option.
Each NSOs shall be exercisable by the Non-Employee Director
for a period of six (6) years from the date of grant. Not
less than one hundred (100) shares may be
<PAGE> 3
3.
exercised at any one time unless the number exercised is the
total number at the time exercisable under the Option..
Vesting Schedule:
As of the date of the Annual Meeting of Stockholders of the
Company, each Non-Employee Director who is then elected,
reelected or who is continuing as a member of the Board
after the adjournment of the Annual Meeting shall be vested
in 800 shares of Common Stock, to the extent he or she has
been awarded shares of Common Stock that are not yet
vested. In addition, as of the date of each regularly
scheduled quarterly meeting of the Board of Directors,
other than the Annual Meeting, each Non-Employee Director
who is then elected, reelected or who is continuing as a
member of the Board after the adjournment of the meeting
shall be vested in 400 shares of Common Stock, to the
extent he or she has been awarded shares of Common Stock
that are not yet vested. Notwithstanding the foregoing, if
a Non-Employee Director is absent from a meeting, arrives
late for a meeting or leaves a meeting early, then the
Chairman of the Board, in his absolute discretion, may
reduce by one-half the number of shares of Common Stock
that such Non-Employee Director would have been vested in
under this Section had he or she not been absent, arrived
late or left early.
2.6.2. No Option or any part of an Option shall be exercisable
unless written notice of the exercise is delivered to the
Company specifying the number of shares to be purchased and
payment in full is made for the shares of Common Stock being
acquired thereunder at the time of exercise prior to the
expiration of the Option.
2.7. DEATH OR OTHER TERMINATION OF POSITION AS A DIRECTOR. Notwithstanding
the provisions of Section 2.6 above.
2.7.1. In the event that a Non-Employee Director (a) is removed as a
director for dishonesty or violation of his or her fiduciary
duty to the Company, (b) voluntarily resigns under or
followed by such circumstances as would constitute a
violation of his or her fiduciary duty to the Company, or (c)
the Company discovers that he or she has committed an act of
dishonesty not discovered by the Company prior to the
cessation of his or her services as a Non-Employee Director
that would have resulted in his or her removal if discovered
prior to such date, then forthwith from the happening of any
such event, any Option then held by him or her shall
terminate and become void to the extent that it then remains
unexercised.
2.7.2. If a person shall cease to be a Non-Employee Director for any
reason other than one or more of the reasons set forth in
section 2.7.1, such person, or in the case of death, the
executors, administrators or distributees, as the case may
be, may, within six months after such person ceases to be a
Non-Employee Director (unless the option expires under
section 2.6.1 prior to the expiration of six months),
exercise the Option with respect to any shares of Common
Stock, to the extent that the Option has not been exercised
and to the extent the Optionee's right to exercise such
Option had accrued pursuant to this Article 2.6 and on the
date the person ceased to be such a Non-Employee Director.
2.7.2.1. In the event any Option is exercised by the executors,
administrators, legatees or distributees of the estate of a
deceased Optionee, the Company shall be under no obligation
to issue Common Stock thereunder unless and until the Company
is satisfied that the person or persons exercising the Option
are the duly appointed legal representatives of the deceased
Optionee's estate or the proper legatees or distributees
thereof.
2.8. TRANSFERABILITY OF OPTIONS. The Option shall not be transferable by
the Optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by
him.
2.9. DELIVERY OF CERTIFICATES REPRESENTING SHARES. As soon as practicable
after the exercise of an Option, the Company shall deliver, or cause
to be delivered, to the Non-Employee Director exercising the Option, a
certificate or certificates representing the shares of Common Stock
purchased upon the exercise. Certificates representing shares of
Common Stock to be delivered to a Non-Employee Director shall be
registered in the name of such director.
<PAGE> 4
4.
2.10. RIGHTS AS A STOCKHOLDER. A Non-Employee Director shall have no rights
as a stockholder with respect to any shares of Common Stock covered by
his or her Option until the date on which he or she becomes a record
owner of the shares purchased upon the exercise of the Option (the
"record ownership date"). No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property), distributions, or other rights for which the record date is
prior to the record ownership date.
ARTICLE 3:
3. MISCELLANEOUS
3.1. STOCK ADJUSTMENTS.
3.1.1. In the event of any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split or
other division or consolidation of shares or the payment of a
stock dividend (but only on Common Stock) or any other
increase or decrease in the number of such shares effected
without any receipt of consideration by the Company, then, in
any such event, the number of shares of Common Stock that
remain available under the Plan, the number of shares of
Common Stock covered by each outstanding Option, and the
purchase price per share of Common Stock covered by each
outstanding Option shall be proportionately and appropriately
adjusted for any such increase or decrease.
3.1.2. Subject to any required action by the stockholders, if any
change occurs in the shares of Common Stock by reason of any
recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, or of any
similar change affecting the shares of Common Stock, then, in
any such event, the number and type of shares covered by each
outstanding Option, and the purchase price per share of
Common Stock covered by each outstanding Option, shall be
proportionately and appropriately adjusted for any such
change. A dissolution or liquidation of the Company shall
cause each outstanding Option to terminate.
3.1.3. In the event of a change in the Common Stock as presently
constituted that is limited to a change of all of its
authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be shares
of Common Stock within the meaning of the Plan.
3.1.4. To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be
made by, and in the discretion of, the Board, whose
determination in that respect shall be final, binding and
conclusive. Except as hereinabove expressly provided in
this Section 3.1, a Non-Employee Director shall have no
rights by reason of any division or consolidation of shares
of stock of any class or the payment of any stock dividend
or any other increase or decrease in the number of shares
of stock of any class or by reason of any dissolution,
liquidation, merger or consolidation, or spin-off of assets
or stock of another corporation; and any issuance by the
Company of shares of stock of any class, securities
convertible into shares of stock of any class, or warrants
or options for shares of stock of any class shall not
affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common
Stock subject to the Option.
3.1.5. The existence of the Plan and the grant of any Option
pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge or to consolidate, or to dissolve, to
liquidate, to sell, or to transfer all or any part of its
business or assets.
3.2. LISTING AND REGISTRATION OF COMMON STOCK. Each Option shall be
subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or
qualification of the shares of Common Stock covered thereby upon any
securities exchange or under any state or federal laws, or the
consent or approval of any governmental regulatory body, is necessary
or desirable as a condition of, or in connection with, the granting
of such Option or the issuance or purchase of shares thereunder, such
Option may not be exercised unless and until
<PAGE> 5
5
such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable
to the Board. Notwithstanding anything in the Plan to the contrary,
if the provisions of this Section 3.2 become operative, and if, as a
result thereof, the exercise of an Option is delayed, then and in
that event, the term of the Option shall not be affected.
Notwithstanding the foregoing, or any other provisions in the Plan,
the Company shall have no obligation under the Plan to cause any
share of Common Stock to be registered or qualified under any federal
or state law, or listed on any stock exchange or admitted to any
national market system.
3.3. TERM OF THE PLAN. The Plan shall terminate upon the earlier of (a) the
adoption of a resolution of the Board terminating the Plan or (b) ten
years from the Effective Date.
3.4. AMENDMENT OF THE PLAN; TERMINATION. The Board may, insofar as
permitted by law, from time to time, with respect to any shares of
Common Stock at the time not subject to Options, suspend, discontinue
or terminate the Plan or revise or amend it in any respect whatsoever.
3.5. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Options will be used for general
corporate purposes.
3.6. NO OBLIGATION TO EXERCISE. The granting of any Option under the Plan
shall impose no obligation upon any Optionee to exercise such Option.
3.7. NO IMPLIED RIGHTS TO DIRECTORS. Except as expressly provided for in
the Plan, no Non-Employee Director or other person shall have any
claim or right to be granted an Option under the Plan. Neither the
Plan, nor any action taken hereunder, shall be construed as giving any
Non-Employee Director any right to be retained as a Director or in any
other capacity.
3.8. WITHHOLDING.
3.8.1. The Company shall have the power to withhold, or require a
Participant to remit to the Company, an amount sufficient to
satisfy any federal, state or local withholding or other tax
due from the Company with respect to any amount payable
and/or shares issuable under the Plan, and the Company may
defer such payment or issuance unless indemnified to its
satisfaction. Whenever under the Plan payments are to be made
in cash, such payments shall be made net of an amount
sufficient to satisfy any federal, state or local withholding
tax liability.
3.8.2. Subject to the consent of the Board, with respect to the
exercise of an Option, a Participant may make an
irrevocable election (an "Election") to (A) have shares of
Common Stock otherwise issuable withheld, or (B) tender
back to the Company shares of Common Stock received, or (C)
deliver back to the Company previously acquired shares of
Common Stock having a Fair Market Value sufficient to
satisfy all or part of the Participant's estimated tax
obligations associated with the transaction. Such Election
must be made by a Participant prior to the date on which
the relevant tax obligation arises. The Board may
disapprove of any Election, may suspend or terminate the
right to make Elections, or may provide with respect to any
grant under this Plan that the right to make Elections
shall not apply to such grants.
3.9. CONDITIONS PRECEDENT TO EFFECTIVENESS. The Plan shall become effective
upon the satisfaction of all the following conditions, with the
Effective Date of the Plan being the date that the last such condition
is satisfied:
3.9.1. the adoption of the Plan by the Board of Directors; and
3.9.2. the effectiveness of the Company's Registration Statement on Form S-1
relating to the Company's initial public offering, as filed with the
SEC (File No. 333-57747).
<PAGE> 1
Exhibit 10.65
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
NON-QUALIFIED STOCK OPTION PLAN
ARTICLE 1:
1. ESTABLISHMENT; PURPOSE:
1.1. ESTABLISHMENT. Insurance Management Solutions Group, Inc., a Florida
corporation, (the "Company") hereby establishes an incentive
compensation plan to be known as the "Insurance Management Solutions
Group, Inc. Non-Qualified Stock Option Plan" (the "Plan").
1.2. PURPOSE. The purpose of the Plan is to retain, motivate, and reward
participating advisors and consultants of the Company and its
subsidiaries through an award of shares of the Common Stock of the
Company (the "Shares").
1.3. MAXIMUM NUMBER OF SHARES. The number of Shares to be issued under the
Plan is 125,000, subject to adjustment as provided in Section 6.1.
Such Shares may be issued through the purchase of either authorized and
unissued Shares, or issued Shares acquired by the Company. If an
Option is surrendered or for any other reason ceases to be exercisable
in whole or in part, the Shares that are subject to such Option, but as
to which the Option has not been exercised, shall again become
available for offering under the Plan.
1.4. STATUS. No Award under the Plan is intended to qualify for special
treatment or status under the Code.
ARTICLE 2:
2. DEFINITIONS:
2.1. DEFINITIONS. The following words and terms as used herein shall have
that meaning set forth therefor in this Article 2 unless a different
meaning is clearly required by the context.
2.1.1. "Award" shall mean any Option granted or awarded under the
Plan.
2.1.2. "Award Agreement(s)" shall mean any document, agreement or
certificate deemed by the Committee as necessary or advisable
to be entered into with or delivered to a Participant in
connection with the grant of an Award under the Plan.
2.1.3. "Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
2.1.4. "Committee" is defined in Article 3.1.
<PAGE> 2
2.1.3. "Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code shall
include a reference to any successor provision.
2.1.6. "Company" shall mean Insurance Management Solutions Group,
Inc., a Florida corporation, and its successors.
2.1.7. "Effective Date" is defined in Section 6.6.3
2.1.8. "Eligible Individual" shall mean any individual who is
employed as a consultant or advisor by the Company that
provides bona fide services not in connection with a capital
raising transaction.
2.1.9. "Fair Market Value" of the Shares shall mean the closing price
on the date in question (or, if no Shares are traded on such
day, on the next preceding day on which Shares were traded) of
the Shares on the principal securities exchange in the United
States on which such stock is listed, or if such Shares are
not listed on a securities exchange in the United States, the
closing price on such day in the over-the-counter market as
reported by the National Association of Security Dealers
Automated Quotation System (NASDAQ), or NASDAQ's successor, or
if not reported on NASDAQ, the fair market value of such
Shares as determined by the Committee in good faith and based
on all relevant factors.
2.1.10. "NSO" shall mean a nonqualified stock option granted in
accordance with the provisions of Article 5 of the Plan.
2.1.11. "Option" shall mean an NSO.
2.1.12. "Optionee" shall mean an Eligible Individual to whom an Option
is granted under the Plan.
2.1.13. "Participant" shall mean an Eligible Individual, who in
accordance with the terms of the Plan, is approved by the
Committee for participation in the Plan as a recipient of an
Award and who receives an Award.
2.1.14. "Plan" shall mean the Insurance Management Solutions Group,
Inc. Non-Qualified Stock Option Plan, as set forth herein and
as amended from time to time.
2.1.15. "Shares" shall mean shares of the common stock of the Company.
2.1.16. "Subsidiary" shall mean any corporation that at the time
qualifies as a subsidiary of the Company under the definition
of "subsidiary corporation" contained in Section 424(f) of the
Code.
2.2. USAGE. Whenever appropriate, words used in the singular shall
be deemed to include the plural and vice versa, and the masculine
gender shall be deemed to include the feminine gender.
<PAGE> 3
ARTICLE 3
3. ADMINISTRATION
3.1. COMMITTEE. This Plan shall be administered by a committee appointed by
the Board of Directors (the "Committee"). The Committee shall consist
of not less than two (2) nor more than five (5) persons, each of whom
shall be a member of the Board and none of whom shall be eligible to
participate under the Plan. The Board of Directors may from time to
time remove members from, or add members to, the Committee. Vacancies
on the Committee, howsoever caused, shall be filled by the Board of
Directors.
3.2. ORGANIZATION. The Committee shall select one of its members as
chairman, and shall hold meetings at such time and places as it may
determine. The acts of a majority of the Committee at which a quorum
is present, or acts reduced to or approved in writing by a majority of
the members of the Committee, shall be valid acts of the Committee.
3.3. POWER AND AUTHORITY. Subject to the provisions of the Plan, the
Committee shall have full authority, in its discretion: (a) to
determine from among Eligible Individuals those persons who shall become
Participants; (b) to determine the nature, amount and terms and
conditions of all Awards under the Plan, in accordance with and subject
to the specific limitations and requirements set forth in the Plan; and
(c) to interpret the Plan, the terms of all Awards and Award Agreements
and any other agreement or instrument awarded, issued or entered into
under the Plan, and to prescribe, amend and rescind rules and
regulations with respect to the administration of the Plan. The
interpretation and construction by the Committee of any provision of the
Plan, any Award or any other agreement or instrument awarded, issued or
entered into under the Plan, and all other determinations and decisions
of the Committee pursuant to the provisions of the Plan, shall be final,
conclusive and binding on all Participants and other affected persons.
Notwithstanding the foregoing, the Committee shall only have authority
within this Plan to issue Awards to a maximum of five Participants and
up to a maximum 25,000 Shares per Participant.
3.4. DISCRETIONARY AUTHORITY. The Committee's decision to authorize the
grant of an Award to an Eligible Individual at any time shall not
require the Committee to authorize the grant of an Award to that
employee at any other time or to any other employee at any time; nor
shall its determination with respect to the size, type or terms and
conditions of the Award to be granted to an Eligible Individual at any
time require it to authorize the grant of an Award of the same type or
size or with the same terms and conditions to that employee at any other
time or to any other employee at any time. The Committee shall not be
precluded from authorizing the grant of an Award to any Eligible
Individual solely because the employee previously may have been granted
an Award of any kind under the Plan. Furthermore, without limiting its
authority, the Committee may condition the grant of an Award on a
Participant providing appropriate investment representations and / or
otherwise complying with state and federal rules and regulations that
would enable the Company to meet applicable exceptions under state and
federal securities laws.
3.5. NO LIABILITY. No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan.
<PAGE> 4
ARTICLE 4
4. INDIVIDUALS ELIGIBLE TO PARTICIPATE
4.1. GENERALLY. Any person, that provides bona fide services to the Company
not in connection with a capital raising transaction, who is acting in
the capacity of an advisor or consultant to the Company or to any
Subsidiary of the Company on the date of a grant of an Award shall be
an Eligible Individual, able to participate in the Plan in accordance
with the terms of the Plan. The Committee shall have the sole power to
determine if the eligibility requirements have been satisfied.
4.2. PARTICIPANT STATUS. In accordance with the provisions of Section 3.3,
the Committee, in its sole discretion, from time to time may select
from among Eligible Individuals persons to become Participants in the
Plan. Any Eligible Individual so selected and who remains an Eligible
Individual shall become a Participant upon the approval of such status
by the Committee, which approval shall be conclusively evidenced by the
award or grant of an Award to a Participant.
ARTICLE 5
5. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
5.1. GRANT. Any NSO granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by certificates or agreements in such
form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the
terms and conditions hereinafter specified. Upon the granting of any
NSO, the Committee shall promptly cause the Optionee to be notified of
the fact that such Option has been granted. The date on which the
Committee approves the grant of a NSO shall be considered to be the
date on which such Option is granted.
5.2. NUMBER OF SHARES. Each NSO shall state the number of Shares to which
it pertains.
5.3. OPTION PRICE. Each NSO shall state the option price, which option
price shall be determined by the Committee in its discretion and may be
equal to, less than or greater than 100% of the Fair Market Value of
the Shares on the date of grant.
5.4. METHOD OF EXERCISE. An Optionee may exercise a NSO during such time as
may be permitted by the Option and the Plan by providing written notice
to the Committee, tendering the purchase price in accordance with the
provisions of Section 5.5, and complying with any other exercise
requirements contained in the Option or promulgated from time to time
by the Committee.
5.5. METHOD OF PAYMENT. Payment of the option price upon the exercise of
the NSO shall be: (a) in United States dollars in cash or by check,
bank draft or money order payable to the order of the Company; (b) in
the discretion of and in the manner determined by the Committee, by the
delivery of Shares already owned by the Optionee; (c) by any other
legally permissible means acceptable to the Committee at the time of
grant of the Option (including cashless exercise as
<PAGE> 5
permitted under the Federal Reserve Board's Regulation T, subject to
applicable legal restrictions); or in the discretion of the Committee,
through a combination of (a), (b) and (c) of this Section. If the
option price is paid in whole or in part through the delivery of
Shares, the decision of the Committee with respect to the Fair Market
Value of such Shares shall be final and conclusive.
5.6. TERM AND EXERCISE OF OPTIONS.
5.6.1. Unless otherwise specified in writing by the Committee at the
time of grant or in the Award Agreement, each NSO shall be
exercisable, in whole or in part, only in accordance with the
attached Vesting Schedule. To the extent not exercised,
exercisable installments of NSOs shall be exercisable, in
whole or in part, in any subsequent period, but not later than
the expiration date of the Option. The Committee shall
determine the expiration date of the Option at the time of the
grant of the Option; provided, however, that no NSO shall be
exercisable after the expiration of ten (10) years from the
date it is granted. Not less than one hundred (100) Shares may
be exercised at any one time unless the number exercised is
the total number at the time exercisable under the Option.
5.6.2. Within the limits described above, the Committee may impose
additional requirements on the exercise of NSOs. When it
deems special circumstances to exist, the Committee in its
discretion may accelerate the time at which a NSO may be
exercised if, under previously established exercise terms,
such Option was not immediately exercisable in full, even if
the acceleration would permit the Option to be exercised more
rapidly than the vesting set forth in the attached Vesting
Schedule, or as otherwise specified by the Committee, would
permit.
5.7. DEATH OR OTHER TERMINATION OF EMPLOYMENT.
5.7.1. In the event that an Optionee shall cease to be employed by
the Company or a Subsidiary for any reason other than his or
her death, subject to the conditions that no NSO shall be
exercisable after its expiration date, such Optionee shall
have the right to exercise the NSO at any time within ninety
(90) days after such termination of employment to the extent
his or her right to exercise such Option had accrued pursuant
to this Article 5 at the date of such termination and had not
previously been exercised; such ninety (90) day period shall
be increased to one (1) year for any Optionee who ceases to be
employed by the Company or a Subsidiary because he is disabled
(within the meaning of Section 22(e)( 3) of the Code) or who
dies during the ninety (90) day period, and the Option may be
exercised within such extended time limit by the Optionee or
in the case of death, the personal representative of the
Optionee or by any person or persons who shall have acquired
the Option directly from the Optionee by bequest or
inheritance. Whether an authorized leave of absence or
absence for military or governmental service shall constitute
termination of employment for purposes of the Plan shall be
determined by the Committee, whose determination shall be
final and conclusive.
5.7.2. In the event that an Optionee shall die while in the employ
of the Company or a Subsidiary and shall not have fully
exercised any NSO, the NSO may be exercised,
<PAGE> 6
subject to the conditions that no NSO shall be exercisable
after its expiration date, to the extent that the Optionee's
right to exercise such Option had accrued pursuant to this
Article 5 at the time of his or her death and had not
previously been exercised, at any time within one (1) year
after the Optionee's death, by the personal representative of
the Optionee or by any person or persons who shall have
acquired the Option directly from the Optionee by bequest or
inheritance.
5.7.3. No NSO shall be transferable by the Optionee otherwise than
by will or the laws of descent and distribution.
5.7.4. During the lifetime of the Optionee, an NSO shall be
exercisable only by him or her and shall not be assignable or
transferable, and no other person shall acquire any rights
therein.
5.8. DELIVERY OF CERTIFICATES REPRESENTING SHARES.
5.8.1. As soon as practicable after the exercise of a NSO, the
Company shall deliver or cause to be delivered to the Optionee
exercising the NSO a certificate or certificates representing
the Shares purchased upon the exercise.
5.8.2. Certificates representing Shares to be delivered to an
Optionee under the Plan will be registered in the name of the
Optionee, or if the Optionee so directs, by written notice to
the Company, and to the extent permitted by applicable law, in
the names of the Optionee and one such other person as may be
designated by the Optionee, as joint tenants with rights of
survivorship.
5.9. RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to any Shares covered by his or her NSO until
the date on which he or she becomes a record owner of the Shares
purchased upon the exercise of the Option (the "record ownership
date"). No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to
the record ownership date, except as provided in Article 6.
5.10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Committee
may modify outstanding NSOs granted under the Plan, or accept the
surrender of outstanding NSOs (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to
the extent not theretofore exercised). The Committee shall not,
however, modify any outstanding NSO so as to specify a lower option
price or accept the surrender of outstanding NSOs and authorize the
granting of new Options in substitution therefor specifying a lower
option price. Notwithstanding the foregoing, however, no modification
of an NSO shall, without the consent of the Optionee, alter or impair
any of the rights or obligations under any NSO theretofore granted
under the Plan.
5.11 LISTING AND REGISTRATION OF SHARES. Each NSO shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the
Shares covered thereby upon any securities exchange or under any state
or federal laws, or
<PAGE> 7
the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the
granting of such NSO or the issuance or purchase of shares thereunder,
such NSO may not be exercised unless and until such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Committee. Notwithstanding anything in the Plan to the contrary, if the
provisions of this Section become operative, and if, as a result
thereof, the exercise of a NSO is delayed, then and in that event, the
term of the NSO shall not be affected.
5.12. OTHER PROVISIONS. The NSO certificates or agreements authorized under
the Plan shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Option, as the
Committee shall deem advisable.
<PAGE> 8
ARTICLE 6
6. MISCELLANEOUS
6.1. STOCK ADJUSTMENTS.
6.1.1. In the event of any increase or decrease in the number of
issued Shares resulting from a stock split or other division
or consolidation of shares or the payment of a stock dividend
(but only on Shares) or any other increase or decrease in the
number of Shares effected without any receipt of consideration
by the Company, then, in any such event, the number of Shares
that remain available under the Plan, the number of Shares
covered by each outstanding Option, and the exercise price per
Share covered by each outstanding Option, shall be
proportionately and appropriately adjusted for any such
increase or decrease.
6.1.2. Subject to any required action by the stockholders, if any
change occurs in the Shares by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination
or exchange of shares, or of any similar change affecting
Shares, then, in any such event, the number and type of Shares
then covered by each outstanding Option, and the purchase
price per Share covered by each outstanding Option, shall be
proportionately and appropriately adjusted for any such
change.
6.1.3. In the event of a change in the Shares as presently
constituted that is limited to a change of all of its
authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be Shares
within the meaning of the Plan.
6.1.4. To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made
by, and in the discretion of, the Committee, whose
determination in that respect shall be final, binding and
conclusive.
6.1.5. Except as hereinabove expressly provided in this Section, an
Eligible Individual or a Participant shall have no rights by
reason of any division or consolidation of shares of stock of
any class or the payment of any stock dividend or any other
increase or decrease the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger or
consolidation, or spin-off of assets or stock of another
corporation; and any issuance by the Company of shares of
stock of any class, securities convertible into shares of
stock of any class, or warrants or options for shares of stock
of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
Shares or any Option granted but not yet issued.
6.1.6. The existence of the Plan, or the grant of an Option under the
Plan, shall not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge or to consolidate, or to dissolve, to
liquidate, to sell, or to transfer all or any part of its
business or assets.
<PAGE> 9
6.2. TAX ABSORPTION PAYMENTS. The Company may, but is not required to,
make a cash payment, either directly to any Participant or on a
Participant's behalf, in an amount that the Committee estimates to be
equal (after taking into account any federal and state taxes that the
Committee estimates to be applicable to such cash payment) to any
additional federal and state income taxes that are imposed upon a
Participant as a result of the granting of any Award under the Plan (a
"Tax Absorption Payment"). In determining the amount of any Tax
Absorption Payment, the Committee may adopt such methods and
assumptions as it considers appropriate, and it shall not be required
to examine the individual tax liability of any Participant. The
decision to make any Tax Absorption Payment shall be made by the
Committee at the same time as the grant of the Award to which it
relates.
6.3. AMENDMENT OF THE PLAN; TERMINATION. The Board shall have the right to
revise, amend or terminate the Plan at any time without notice;
provided, however, that without shareholder approval the Board may not
(a) increase the aggregate number of Shares that may be issued pursuant
to this Plan, (b) extend the period during which any Award may be
granted, (c) extend the term of the Plan, or (d) modify the
requirements as to eligibility for participation hereunder; provided,
further, that no such action may be taken, without the consent of the
Participant to whom any Award shall have been granted, that adversely
affects the rights of such Participant concerning such Award, except as
such termination or amendment of this Plan is required by statute, or
rules or regulations promulgated thereunder, or as otherwise permitted
hereunder. The foregoing prohibitions in this Section shall not be
affected by adjustments in shares and purchase price made in accordance
with the provisions of Section 6.1.
6.4. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Shares or the exercise of Awards pursuant to the Plan will be
used for general corporate purposes.
6.5. NO IMPLIED RIGHTS TO PARTICIPANTS. The existence of the Plan and the
granting of Awards under the Plan shall in no way give any employee the
right to continued employment or the right to receive any additional
Awards or any additional compensation under the Plan, or otherwise
provide any employee any rights not specifically set forth in the Plan
or in any Option or Award Agreement.
6.6. WITHHOLDING.
6.6.1. The Company shall have the power to withhold, or require a
Participant to remit to the Company, an amount sufficient to
satisfy any federal, state or local withholding or other tax
due from the Company with respect to any amount payable and/or
shares issuable under the Plan, and the Company may defer such
payment or issuance unless indemnified to its satisfaction.
Whenever under the Plan payments are to be made in cash, such
payments shall be made net of an amount sufficient to satisfy
any federal, state or local withholding tax liability.
6.6.2. Subject to the consent of the Committee, with respect to the
exercise of an NSO, a Participant may make an irrevocable
election (an "Election") to (A) have shares of Common Stock
otherwise issuable withheld, or (B) tender back to the Company
shares of Common Stock or (C) deliver back to the Company
previously acquired shares of
<PAGE> 10
Common Stock having a Fair Market Value sufficient to satisfy
all or part of the Participant's estimated tax obligations
associated with the transaction. Such Election must be made
by a Participant prior to the date on which the relevant tax
obligation arises. The Committee may disapprove of any
Election, may suspend or terminate the right to make
Elections, or may provide with respect to any Award under this
Plan that the right to make Elections shall not apply to such
Awards.
6.6.3. CONDITIONS PRECEDENT TO EFFECTIVENESS. The Plan shall become
effective upon the satisfaction of all the following
conditions, with the Effective Date of the Plan being the date
that the last of the following conditions is satisfied:
6.6.3.1. the adoption of the Plan by the Board of Directors;
and
6.6.3.2. the effectiveness of the Company's Registration
Statement on Form S-1 relating to the Company's
initial public offering, as filed with the
SEC (File No. 333-57747).
<PAGE> 11
VESTING SCHEDULE:
Number of Years from Percentage of Shares
Date Option is Granted Exercisable
- ---------------------- ---------------------
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
<PAGE> 1
EXHIBIT 10.90
PROMISSORY NOTE
$500,000 January 7, 1999
St. Petersburg, Florida
FOR VALUE RECEIVED, Insurance Management Solutions Group, Inc., a
corporation organized and existing under the laws of the State of Florida (the
"Company"), hereby promises to pay J. Douglas Branham and Felicia A. Rivas,
jointly ("Holder") the principal sum of Five Hundred Thousand Dollars ($500,000)
plus interest at 8% per annum.
The principal amount of this Note and accrued interest shall be paid to
Holder on March 8, 1999.
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, promise to pay all costs and expenses, including reasonable
attorney's fees (including the cost of any appeals), incurred in collecting this
Note by legal proceedings or through an attorney.
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 has been executed and delivered in, and is to be governed by
and construed under the laws of, the State of Florida, as amended, except as
modified by the laws and regulations of the United States of America.
The undersigned shall have no obligation to pay interest or payments in
the nature of interest in excess of the maximum rate of interest allowed to be
contracted for by law, as changed from time to time, applicable to this Note
(the "Maximum Rate"). Any interest in excess of the Maximum Rate paid by the
undersigned ("excess sum") shall be credited as a payment of principal, or, if
the undersigned so requests in writing, returned to the undersigned, or, if the
indebtedness and other obligations evidenced by this Note have been paid in
full, returned to the undersigned together with interest at the same rate as was
paid by the undersigned during such period. Any excess sum credited to principal
shall be credited as of the date paid to Holder. Holder may, without such action
constituting a breach of any obligations to the undersigned, seek judicial
determination of the applicable rate of interest, and its obligation to pay or
credit any proposed excess sum to the undersigned.
<PAGE> 2
Provided Holder has not exercised its right to accelerate this Note,
then the undersigned hereof shall pay Holder a late charge of five percent (5%)
of any required payment which is not received by Holder when said payment is
due. The parties agree that said charge is a fair and reasonable charge for the
late payment and shall not be deemed a penalty.
Acceptance of partial payments or payments marked "payment in full" or
"in satisfaction" or words to similar effect shall not affect the duty of the
undersigned to pay all obligations due hereunder, and shall not affect the right
of Holder to pursue all remedies available to it hereunder or under any other
agreement between the maker hereof and the Holder.
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 hereby consents and submits to the jurisdiction of the
courts of the State of Florida, and, notwithstanding its place of residence or
organization or the place of execution of this Note, any litigation relating
hereto, whether arising in contract or tort, by statute or otherwise, shall be
brought in (and, if brought elsewhere, may be transferred to) a State court of
competent jurisdiction in Pinellas County, Florida.
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.
IN WITNESS WHEREOF, this Note is executed by a duly authorized officer
of the undersigned as of the date and year first above written.
INSURANCE MANAGEMENT SOLUTIONS
GROUP, INC.
By: /s/ Jeffrey S. Bragg
-----------------------------------
As Its: COO
-------------------------------
2
<PAGE> 1
EXHIBIT 10.91
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of January,
1999 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, in December, 1999 [sic], 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
/s/ Illegible By: /s/ Kelly K. King
- --------------------------------- ----------------------------------
As Its: Chief Financial Officer
-----------------------------
WITNESSES: "STOCKHOLDERS"
/s/ Illegible /s/ J. Douglas Branham
- --------------------------------- -------------------------------------
J. DOUGLAS BRANHAM
/s/ Felicia A. Rivas
-------------------------------------
FELICIA A. RIVAS
6
<PAGE> 1
Exhibit 10.92
EMPLOYMENT AGREEMENT
AGREEMENT made effective this 7 day of January, 1999 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 7
WITNESSES: "COMPANY"
Colonial Claims Corporation
/s/ C. Anthony Sexton By: /s/ Kelly K. King
- --------------------------------- ---------------------------------
As Its: Secretary
- --------------------------------- -----------------------------
Date: 1-7-99
-------------------------------
WITNESSES: "EMPLOYEE"
/s/ Illegible /s/ J. Douglas Branham
- --------------------------------- ------------------------------------
J. Douglas Branham
Date: 1-7-99
- --------------------------------- -------------------------------
7
<PAGE> 8
SCHEDULE "A"
Annual Compensation shall be calculated as follows:
1. A base salary of $8,500.00 per month. On January 1, 2000 and each
January 1 thereafter, for the duration of the Employment Agreement, the base
salary shall be increased 5% over the previous year. 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:
<TABLE>
<CAPTION>
Company
Year-Ended Revenues
---------- ---------
<S> <C> <C>
2000 $4,200,000
2001 $4,410,000
2002 $4,630,500
2003 $4,862,025
</TABLE>
Company Revenues shall be defined as total revenues produced by the Company.
Plus,
2. 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.
<PAGE> 1
Exhibit 10.93
EMPLOYMENT AGREEMENT
AGREEMENT made effective this 7 day of January, 1999 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.
<PAGE> 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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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").
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<PAGE> 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.
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<PAGE> 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
/s/ C. Anthony Sexton By: /s/ Kelly K. King
- ---------------------------------- ----------------------------------
As Its: Secretary
- ---------------------------------- ------------------------------
Date: 1-7-99
--------------------------------
WITNESSES: "EMPLOYEE"
/s/ C. Anthony Sexton /s/ Felicia A. Rivas
- ---------------------------------- -------------------------------------
Felicia A. Rivas
Date: 1-7-99
- ---------------------------------- --------------------------------
7
<PAGE> 8
SCHEDULE "A"
Annual Compensation shall be calculated as follows:
1. A base salary of $8,500.00 per month. On January 1, 2000 and each
January 1 thereafter, for the duration of the Employment Agreement, the base
salary shall be increased 5% over the previous year. 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:
<TABLE>
<CAPTION>
Company
Year-Ended Revenues
---------- ----------
<S> <C>
2000 $4,200,000
2001 $4,410,000
2002 $4,630,500
2003 $4,862,025
</TABLE>
Company Revenues shall be defined as total revenues produced by the Company.
Plus,
2. 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.
<PAGE> 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")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 16
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NO. NAME
- ----------- ----
<S> <C>
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
</TABLE>
14
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 20
SECOND ADDENDUM
TO
STOCK PURCHASE AGREEMENT
This Second Addendum to Stock Purchase Agreement (this "Second
Addendum") is entered into this 7th day of January, 1999, 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 and an Addendum dated December ____, 1998 "Addendum"
which they desire to amend by this Second 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 first sentence of Paragraph 2(a) of the Agreement shall be
modified to read as follows:
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 Three Million Dollars
($3,000,000.00) 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"),
cash at Closing of Five Hundred Thousand Dollars ($500,000.00) and
a Promissory Note in the principal amount of Five Hundred Thousand
Dollars ($500,000.00) due in full on March 8, 1999, the form of
which is attached hereto as Exhibit 2(a).
2. Paragraph 2(c) of the Agreement shall be modified to read as
follows:
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 $13.00, subject to adjustment if an IPO is consummated and
the initial public offering price is less than or exceeds $13.00
per share.
1
<PAGE> 21
3. Paragraph 2(e) shall be added to the Agreement as follows:
e) IMSG shall pay Shareholder the dividend due them as of December 31,
1998 equal to the cash balance in the Colonial business operating
account at the time the dividend is paid which is estimated to be
approximately $670,000.00. The dividend shall be paid within five
business days of Closing.
4. Except for the terms of this Second Addendum, all other terms of
the Agreement and Addendum shall remain the same.
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/ Illegible BY: /s/ J. Douglas Branham
- ------------------------------- ------------------------------------
J. Douglas Branham
AS ITS: President
- ------------------------------- --------------------------------
President
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
WITNESSES: "IMSG"
/s/ C. Anthony Sexton BY: /s/ Jeffrey S. Bragg
- ------------------------------- --------------------------------------
Jeffrey S. Bragg
AS ITS:
- ------------------------------- ----------------------------------
Executive Vice President
WITNESSES "SHAREHOLDERS"
/s/ Illegible /s/ J. Douglas Branham
- ------------------------------- -----------------------------------------
J. Douglas Branham
/s/ Illegible /s/ Felicia A. Rivas
- ------------------------------- -----------------------------------------
Felicia A. Rivas
2
<PAGE> 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. $12,000,000 February __, 1999
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
Twelve Million and 00/100 Dollars, ($12,000,000) 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
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 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,
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT 10.98
PLAN OF MERGER
PLAN OF MERGER between, IMS Colonial, Inc., a Florida corporation and
Colonial Catastrophe Claims Corporation, a Florida corporation pursuant to
Florida Statute Section 607.1101.
1. The names of the two corporations planning to merge are IMS
Colonial, Inc. and Colonial Catastrophe Claims Corporation.
2. Colonial Catastrophe Claims Corporation shall be merged into IMS
Colonial, Inc., and IMS Colonial, Inc. shall be the surviving
corporation; provided that IMS Colonial, Inc. shall change it's
name to Colonial Claims Corporation as set forth in Paragraph 4
hereof.
3. The terms and conditions of the proposed merger are as follows:
Since IMS Colonial, Inc. is the owner and holder of 1,000 shares
of the common capital stock, $1.00 par value of Colonial
Catastrophe Claims Corporation, and there being no other stock
of Colonial Catastrophe Claims Corporation issued and
outstanding, upon the merger said shares of Colonial Catastrophe
Claims Corporation stock shall be canceled.
4. The Articles of Incorporation of IMS Colonial, Inc. are hereby
amended, by deleting Article I thereof in it's entirety and
substituting the following Article I in lieu thereof:
ARTICLE I.
NAME
The name of this corporation is Colonial Claims Corporation.
The undersigned being the secretaries of IMS Colonial, Inc. and
Colonial Catastrophe Claims Corporation respectively, hereby certify that the
within plan of merger is a true, correct and complete copy of said plan as
approved by the Directors and Shareholders of IMS Colonial, Inc. and the
Directors and Shareholders of Colonial Catastrophe Claims Corporation all on
the 7th day of January, 1999, to be effective 15th day of January, 1999.
Exhibit "A"
<PAGE> 2
IMS COLONIAL, INC.
BY: /s/ Kelly K. King
--------------------------------------
Kelly K. King, Secretary
COLONIAL CATASTROPHE CLAIMS CORPORATION
BY: /s/ Felicia A. Rivas
--------------------------------------
Felicia A. Rivas, Secretary
STATE OF FLORIDA )
COUNTY OF Pinellas )
The foregoing instrument was acknowledged before me this 7 day of
January, 1999, by Kelly K. King, as Secretary of IMS Colonial, Inc., a Florida
corporation, on behalf of the corporation. He is personally known to me or who
has produced identification, and did not take an oath.
/s/ Nancy C. Haire
(NOTARY SEAL) -----------------------------------------
Nancy C. Haire, Notary Public
Serial Number: No. CC 440661
My Commission Expires: 3/25/99
STATE OF FLORIDA )
COUNTY OF PINELLAS )
The foregoing instrument was acknowledged before me this ___ day of
January, 1999, by Felicia A. Rivas, as Secretary of Colonial Catastrophe Claims
Corporation, a Florida corporation, on behalf of the corporation. She is
personally known to me or who has produced identification, and did not take an
oath.
/s/ Nancy C. Haire
(NOTARY SEAL) -----------------------------------------
Notary Public
Serial Number:
My Commission Expires:
<PAGE> 1
EXHIBIT 10.99
FLOOD INSURANCE SERVICES AGREEMENT
THIS FLOOD INSURANCE SERVICES AGREEMENT ("Agreement") is entered into
by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("Vendor"), St. Petersburg,
Florida, and FARMERS SERVICES CORPORATION ("Company"), a Nevada Corporation.
WHEREAS, Vendor has been designated by FIA as a "qualified performer"
for the provision of services to WYO Carriers under the NFIP; and
WHEREAS, Company wishes to engage the services of Vendor to administer
certain of Company's obligations under the WYO Flood Program in the state(s)
set forth herein.
NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements
hereinafter set forth, the parties hereto do covenant and agree as follows:
I. AUTHORITY OF VENDOR:
A. Appointment - Company hereby appoints Vendor to supervise and
administer its WYO Flood Program in those states ("Applicable
States") specified in the attached "Territory Schedule", attached
to and hereto made a part of this Agreement. Vendor hereby
accepts such appointment, and the grant of authority, and agrees
to carry out the resulting duties and responsibilities to the
best of its ability, knowledge, skill, and judgment, and in
accordance with the highest reasonably attainable standards of
quality generally utilized in the insurance and data processing
industries.
B. Authority - Company hereby grants Vendor the authority to act for
and on behalf of Company in matters required for Vendor to
properly supervise and conduct the handling of the aforesaid WYO
Flood Program, including the authority to collect and remit
premiums, process applications and other forms, issue policies,
and process claims, all in a manner consistent with, pursuant to
and as authorized by the provisions of the National Flood
Insurance Act of 1968 (as amended), the regulations of the NFIP,
FIA, FEMA and the terms of this Agreement.
II. SPECIFIC RESPONSIBILITIES OF VENDOR:
A. Policy Administration: - Vendor shall administer Company's WYO
Flood Program policies ("WYO Policy", or the plural, "WYO
Policies") and in accordance therewith shall be responsible for
the following policy administration functions: compliance with
community eligibility/rating criteria; policyholder eligibility
determination; WYO Policy issuance; WYO Policy endorsements; WYO
Policy cancellations; WYO Policy correspondence; payment of
agents' commissions to the Company for disbursement to its
agents; and, the receipt, recording, control, timely deposit, and
disbursements of premium funds in connection with the foregoing,
all in accordance with the WYO Flood Program Financial Control
Plan ("Financial Control Plan") requirements established by
1
<PAGE> 2
the FIA. Further, Vendor shall promptly reply to written and
telephone inquiries from policyholders and/or producers regarding
any WYO Policy administered pursuant to this Agreement.
B. Full Claim Service - Company shall have responsibility for the
administration and processing of WYO Policy claims ("Claim")
under this Agreement. Vendor shall provide "Full Claim Service",
which shall be defined as processing and administering a Claim
from the Claim's inception until closing. It is hereby agreed and
understood that Company may, upon ninety (90) days advance
written notice to Vendor, terminate the Full Claim Service
portion of this Agreement while leaving the remainder of duties
and obligations under this Agreement intact. In such event,
Company shall no longer be obligated to pay Vendor the Claims
Administration Fee as described in the attached Claims
Administration Fee Schedule.
The Claim shall be processed and administered in accordance with
the following procedures:
1. Processing. Vendor shall provide Claims processing in
accordance with the Arrangement and the Financial Control
Plan, and as further described in the Claims Administration
Schedule attached hereto. Vendor may also rely on information
and direction contained in the WYO Flood Program Claims
Manual, the FEMA Adjuster Manual, the Flood Insurance
(Agent's) Manual, the standard flood insurance policy, the
WYO Operational Overview, and/or other WYO Flood Program
instructional material.
2. Catastrophe Office. A catastrophe team may be engaged at the
discretion of the Vendor to provide Claims support. Vendor
shall coordinate activities and shall provide information to
the FIA or its designee whenever a flood insurance
catastrophe office is established.
C. Statistical Reporting - Vendor shall prepare and submit, to FIA,
monthly financial and statistical reports, reconciliations,
certifications, and statistical tapes on Company's behalf, in
accordance with WYO Flood Program Accounting Procedures and the
Transaction Record Reporting and Processing Plan ("TRRP Plan").
Vendor shall submit copies of all monthly reports to the Company.
D. Company Agents - Vendor shall provide to each Company Agent
appointed under this Agreement, a limited license to use Vendors
FloodWriter(C)(TM) software program, and a current flood zone
determination for any WYO Policy application submitted pursuant
to this Agreement. Further, excluding records required to be
maintained by Company in accordance with the FloodWriter(C)(TM)
software license, Vendor shall keep appropriate records, in
conformity with Internal Revenue Services regulations, for the
purpose of preparing 1099 reports for Company Agent's commissions
and Adjuster's fees paid by Vendor on behalf of Company. The
expense for the above services has been incorporated into the
Vendor's Monthly Service Fee.
2
<PAGE> 3
E. Time Standards - Vendor shall use its best efforts to adhere to
certain time standards for performance, as may be outlined and
amended from time to time within the FEMA/FIA Financial
Assistance/Subsidy Arrangement ("Arrangement").
III. PREMIUM COLLECTION AND ARRANGEMENT
A. Banking Arrangement - Vendor and Company shall establish banking
arrangements which comply with the Arrangement and other WYO
Flood Program requirements, and which will provide for the
establishment of a NFIP restricted account ("Restricted Account")
with Company as custodian, and a FEMA letter of credit ("Letter
of Credit"), with additional accounts as needed to facilitate
operations, all in conformity with FEMA/FIA guidelines. Company
shall grant specific Vendor employees check-signing authority on
any Restricted Account and the authority to initiate appropriate
drawdowns against Company's Letter of Credit, in order for Vendor
to act on Company's behalf in making disbursements for Company
liabilities established by the Arrangement, the WYO Flood
Program, and this Agreement. All such authorizations shall be in
writing and may be revoked, amended or modified at any time by
Company upon thirty (30) days advance written notice to Vendor.
B. Premium Remittance - Vendor shall be liable to the FIA for any
premiums Vendor has received on WYO Flood Program business
written under this Agreement. Vendor shall establish procedures
for a timely deposit and remittance of funds to the U.S. Treasury
via authorized automatic clearinghouse mechanism. Gross premium
collected by Vendor, for WYO Flood Program business written under
this Agreement, shall be remitted to the FIA by Vendor net of the
established NFIP Allowable Expenses. "Allowable Expenses" shall
mean a WYO Carrier's operating and administrative expenses.
C. Financial Data - Vendor shall maintain supporting documentation
for all bank accounts over which it has authority. At least
quarterly, Vendor shall prepare financial data, by state,
reflecting all debits and credits with respect to WYO Flood
Program business written pursuant to this Agreement, including
agents' commissions and Vendor's Servicing Fees paid, during the
preceding quarter.
IV. RECORDS AND AUDITS
Vendor shall keep adequate records of its performance of the services
provided pursuant to this Agreement, which shall be subject to review
by the Company during customary business hours and upon prior
notification, as agreed to by Vendor, which agreement shall not be
unreasonably withheld. Vendor shall retain such records for a period
of six (6) years unless otherwise agreed.
Company, and any insurance regulatory officials authorized by law,
shall have the authority to inspect and audit the books and records of
Vendor and its assignees which pertain to the business of Company,
including but not limited to policy files and loss and claim files, at
any time during reasonable business hours, and they may make copies or
extracts of any records pertaining
3
<PAGE> 4
thereto. Vendor shall provide auditors and inspectors of Company any
assistance that they may reasonably require in order for Company to
confirm compliance with the provisions of this Agreement. Vendor shall
notify Company of any audit or pending audit of Vendor by any person
or entity other than either of the parties or any of their agents. If
an audit by a regulatory authority results in Vendor or Company being
notified that Vendor or any of its subcontractors is not in
compliance with any generally accepted accounting principle or other
audit requirement, Vendor shall, at its own expense and within the
time period specified, comply with such regulatory authority.
V. EXPENSES AND FEES
A. Monthly Service Fee - Company shall pay Vendor a monthly
servicing fee ("Servicing Fee") as specified in the "Servicing
Fee Schedule", attached to and hereto made a part of this
Agreement.
B. Claims Administration Fee - In addition to the above Servicing
Fee, Company shall pay Vendor a claim administration fee ("Claim
Administration Fee") as specified in the "Claims Administration
Fee Schedule", attached hereto and made a part of this Agreement.
C. Additional Expenses - In accordance with the Arrangement, Company
shall be liable for operating, administrative and production
expenses, including but not limited to any State premium taxes,
agents' commissions, or any other expense of whatever nature
incurred by the Company in the performance of its obligations
under the Arrangement.
D. Vendor Expenses - In consideration of the Servicing Fees and
Claims Administration Fees paid to Vendor, Vendor shall pay the
general expenses of processing the WYO Flood Program Policies,
including those of policy administration, cash management, claims
processing and financial and transactional reporting.
E. WYO Flood Program Reimbursements - Any WYO Flood Program
Reimbursements made pursuant to the Arrangement, including, but
not limited to, those for Vendor's portion of unallocated loss
adjustments, the allocated loss adjustments, and for approved
special allocated loss expenses, shall be payable to Vendor upon
receipt by Company.
VI. ADDITIONAL SERVICES AND FEES
A. Flood Zone Determination Services - At no additional costs to
Company, Vendor shall provide flood zone determinations to the
Company or Company's Agents to assist in writing a flood policy
or policies to be placed with the Company.
B. Agent or Company Training - Vendor will provide, at no additional
cost to Company, four (4) training sessions per Agreement Year
and training material manuscripts suitable
4
<PAGE> 5
for reproduction by Company to Company or Company's agents. The
training materials provided by Vendor shall be in such form that
they are suitable for filing with the appropriate Departments of
Insurance and satisfy the requirements set forth in order for
continuing education credits to be awarded to those agents who
successfully complete the training session(s). Company agrees to
provide the training facility. Additional requests for training
by the Company will be charged at a rate of $125 per day plus per
diem and associated travel expense; reasonable per diem and
travel expense to be determined by the Company. Vendor will
require and Company agrees to provide thirty (30) days notice
for all training sessions, unless otherwise agreed.
C. Marketing Material - Company may use Vendor's previously
developed marketing or promotional materials, which Vendor may
customize and produce for Company at Company's expense.
D. Additional Fees and Service - Additional services not defined in
this Agreement may be provided as mutually agreed upon between
the Company and Vendor in writing.
E. Toll Free Telephone Number/Call Center - Vendor shall establish
and maintain toll free telephone number(s) on behalf of the
Company's WYO business, at no additional charge to Company.
Company shall own the toll free telephone number(s) which shall
be in the name of Company. Incoming calls shall be answered in
the name of the Company. The toll free telephone number(s) shall
be maintained by Vendor in good working order to accept all
inbound calls during the designated hours of operation, as
further described in the Claims Administration Schedule attached
to and made part of this Agreement. Best efforts will be made to
remedy any equipment or line failures in a timely manner.
VII. CONFIDENTIAL MATERIAL
A. Confidential and Proprietary Information -
1. During the course of performance under this Agreement, Vendor
will obtain or have access to certain proprietary information
of Company or its Affiliates or Subsidiaries including,
without limitation, names of contract owners, insureds,
beneficiaries, the identity and production of Farmers' Agents
and District Managers, compensation levels, the identity and
types of insurance purchased, and Farmers' distribution
network (the "Company Confidential Information"). Company
Confidential Information may also include rate manuals,
experience reports, and underwriting standards to the extent
such information applies specifically to Company's
policyholders and Policies. Each party acknowledges that all
such material is offered on a proprietary basis, for the sole
purpose of enhancing this Agreement. Further, each party
agrees that the original owner of these materials is deemed
to be the sole owner of these materials. Vendor will only
disclose Company Confidential Information to those persons
who require such information for the purpose of this
Agreement and how have been advised
5
<PAGE> 6
and agree to be bound by the terms of this Section.
2. During the course of information under this Agreement,
Company will obtain or have access to certain proprietary
information of Vendor. Each party acknowledges that all such
material is offered on a proprietary basis, for the sole
purpose of enhancing this Agreement. Further each party
agrees that the original owner of these materials is deemed
to be the sole owner for these materials. Company will only
disclose Vendor's Confidential Information to those persons
who require such information for the purpose of this
Agreement and who have been advised and agree to be bound by
the terms of this Section.
3. Each party further warrants, represents, undertakes and
agrees, for itself, its agents, employees and
representatives.
i. to keep the other party's Confidential Information
confidential to the extent it is not already available
publicly;
ii. to use the other party's Confidential Information only
as is necessary to carry out the terms and conditions
of this Agreement;
iii. not to disclose such information to others without the
prior written consent of the party who has claim to
the Confidential Information under the terms of this
Agreement. Such disclosure may be permitted if
required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in
which case prior to making such disclosure written
notice must be given to the party with legal right of
ownership under this Agreement. Such notice shall
describe in reasonable detail the proposed content of
such disclosure and shall permit the non-disclosing
party to review and comment upon the form and
substance of such disclosure; and
iv. upon the termination, to return to the other party or,
at its option, destroy all documents, electronic data
or records, and all other materials containing
Confidential Information. Vendor shall also require
all third parties with which it has contracted to
return to Company all Confidential Information. If a
party chooses to destroy rather than return
Confidential Information, it shall provide the other
party with a written, signed statement certifying that
all such Confidential Information has been destroyed.
B. Trademarks, Service Marks, Trade Names - Neither party shall use
or duplicate the name(s), trademark(s), servicemark(s), or trade
name(s) (whether registered or not) of the other party in public
releases or advertising or in any other manner unless such use or
duplication is specifically authorized in writing by the other
party, except that Vendor may include Company's name in a list of
clients/customers without such authorization.
6
<PAGE> 7
C. Agreement Terms - Neither party shall disclose information as to
specific terms of this Agreement, in particular any details about
the work performed or the Service Fees or claims Administration
Fees paid, without prior written consent of the other party.
D. Company's Records - Vendor shall maintain system integrity and
data security necessary to protect Company's records and data
from loss and damage and to protect against unauthorized
disclosure of Company's Confidential Information as described in
section VII(A) above.
E. Public Disclosure - The disclosure restrictions provided in this
section shall be extinguished at the time and to the extent that
the Confidential Information becomes generally available to the
public domain without the fault of either Vendor or Company.
VIII. COMMENCEMENT AND TERMINATION
A. Term of Agreement - This Agreement shall become effective on the
date that this document is executed by Company and by Vendor. The
initial term and subsequent terms shall expire on the last day of
the Arrangement Year ("Termination Date"), and this Agreement
shall automatically renew for additional one-year terms beginning
on October lst of each year, subject to the termination
provisions set forth below. The term Arrangement Year refers to
the annual policy issuing period established under the
Arrangement commencing on October 1st of one year and concluding
on September 30th of the following year.
B. Termination Without Cause - This Agreement may be terminated,
without cause, at any time after the initial one (1) year term by
either party upon written notice of termination to the other, not
less than ninety (90) days prior to the Termination Date.
C. Termination for Cause - Any party may immediately terminate this
Agreement for cause upon written notice to the other party in the
event of:
1. Bankruptcy, receivership, of either party, regardless of
whether any of these occur voluntarily or involuntarily; or
2. Failure by any party to fulfill a material obligation under
this Agreement, provided that such party has been notified in
writing of such failure and such failure continues without
cure for a period of ninety (90) days after written notice
thereof.
D. Accounting - Upon termination of this Agreement, Vendor shall,
within thirty (30) days following termination, fully account to
Company for all of its responsibilities and activities pursuant
to this Agreement.
IX. LIABILITY
7
<PAGE> 8
A. Limit of Liability - Vendor shall not be liable for any lost
profits, business goodwill, or other consequential, punitive,
special or incidental damages incurred by the Company, unless
such damages result from Vendor's gross negligence or willful
misconduct.
B. Indemnification of Company - Vendor shall indemnify, defend and
hold harmless Company, its officers, directors, agents, employees
and shareholders from and against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs,
losses or expenses, including reasonable attorney's fees, caused
by or resulting from any breach of this Agreement, misconduct,
error, omission, or other unauthorized act by Vendor or Vendor's
officers, directors, shareholders, agents or representatives,
except to the extent that such alleged misconduct, act, error,
omission or other unauthorized or improper act is primarily
attributable to Company. Vendor's indemnification under this
paragraph shall be in accordance with the limitations set forth
in this Agreement.
C. Indemnification of Vendor - Company shall indemnify, defend and
hold harmless Vendor, its officers, directors, agents, employees
and shareholders from and against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs,
losses or expenses, including reasonable attorney's fees, caused
by or resulting from any breach of this Agreement, misconduct,
error, omission, or other unauthorized act by Company or
Company's officers, directors, shareholders, agents or
representatives, except to the extent that such alleged
misconduct, act, error, omission or other unauthorized or
improper act is primarily attributable to Vendor.
D. Notice of Claim - All parties agree to promptly give the other
notice upon being notified or becoming aware of an allegation or
claim, which could give rise to a claim under this section.
X. ARBITRATION
A. Resolution of Disputes by Arbitration. The parties agree that all
controversies or disputes arising out of, in connection with, or
which relate to this Agreement or performance under this
Agreement, which cannot be resolved by mutual agreement, shall be
submitted to arbitration for resolution, as herein provided.
B. Selection of Arbitrators
1. Arbitration shall be by a panel of three neutral arbitrators,
each of which shall be an active or former officer of an
insurance administrator. In addition, each arbitrator shall
meet the requirements of, and shall agree to act in
accordance with, the Code of Ethics for Arbitrators in
Commercial Disputes sponsored by the American Bar Association
and the American Arbitration Association, except to the
extent that conduct prohibited by such Code is specifically
permitted by the terms of this Agreement.
8
<PAGE> 9
2. Within thirty (30) days after receipt of a demand for
arbitration, each party shall designate its arbitrator.
3. The arbitrators so designated shall, within thirty (30) days
of designation, select the third arbitrator. Arbitrators may
consult with the party nominating them as to acceptability of
persons under consideration for appointment by them as third
arbitrator. If the third arbitrator has not been selected
within that time, each arbitrator shall, within fifteen (15)
days, nominate three qualified individuals to serve as the
third arbitrator. The American Arbitration Association shall
appoint a third arbitrator from the persons nominated who
meet the qualifications described in this Agreement.
C. Arbitration Procedure.
1. Arbitration shall begin upon the filing by one of the parties
of a written demand for arbitration. Such demand shall
contain a statement setting forth the nature of the dispute,
the amount involved, if any, and the remedy sought. Such
demand shall be served upon the other party by certified
mail, return receipt requested.
2. Within sixty (60) days after the arbitration panel has been
finalized, the parties shall submit their dispute or
controversy to the panel of arbitrators for decision. The
site for the arbitration hearing shall be Los Angeles,
California, unless otherwise agreed to by the parties. The
rules for the gathering of evidence, taking of discovery or
depositions, if any, and the conduct of the hearing shall be
such rules as are included in the Commercial Arbitration
Rules of the American Arbitration Association as of the date
the arbitration panel was finalized, to the extent not
inconsistent with the terms of this Agreement. The parties
may agree to use modified rules to expedite the arbitration
process. The formal rules of evidence need not apply, in the
arbitrators' discretion, to the hearing.
3. All arbitrators shall participate in the deliberations and a
decision on any matter shall be by a majority of the
arbitrators.
4. The final decision of the arbitration panel shall be
submitted in writing, in such form as the arbitrators
determine, within thirty (30) days after the conclusion of
the arbitration hearing. The decision of the arbitrators
shall be final, except that an appeal may be taken only for
one or more of the reasons assigned for vacating an award by
the Uniform Arbitration Act as enacted by the State of
California, which law shall apply and govern the arbitration
process contemplated hereunder, to the extent not
inconsistent with this Agreement.
D. Costs of Arbitration Proceeding. Each party shall bear the cost
of its own arbitrator. The costs of the arbitration proceeding,
including the fees of the third arbitrator, shall be
9
<PAGE> 10
borne equally by the parties, unless the arbitration panel orders
otherwise. The panel, in its discretion, may also allocate and
award other reasonable out-of-pocket costs of the parties,
including reasonable attorney's fees, as it deems fair and
equitable under the circumstances.
E. Confidentiality. The parties agree, and the appointed arbitrators
shall agree as part of their acceptance of nomination, to keep
confidential and not disclose to persons not connected with the
arbitration the details of the arbitration proceeding and all
information received by them in connection therewith, except as
may be required by process of law.
XI. GENERAL AGREEMENTS
A. Applicable Law - This Agreement in all matters arising thereunder
shall be governed by and determined in accordance with the laws
of the State of California.
B. Entire Agreement - This Agreement, and any exhibits, schedules or
addenda attached hereto, contain all of the prior oral and/or
previously written agreements, representations, and arrangements
between the parties hereto. There are no representations or
warranties other than those set forth herein. No change or
modification of this Agreement shall be valid unless the same
shall be in writing and signed by all of the parties hereto. All
schedules, addendum of any kind, or attachments to this Agreement
shall be made a part of this Agreement and shall be subject to
all terms and conditions of this Agreement.
C. Company Warranties - Company warrants that its insurer affiliates
have entered into an agreement with FEMA pursuant to which they
are authorized to issue WYO Policies, and that they are licensed
to engage in the insurance business in all jurisdictions in which
it has duly authorized Vendor to issue WYO Policies or other
insurance coverage on the Company's behalf, or so deemed.
Further, Company warrants to Vendor that it and its insurer
affiliates will comply with the laws of the state or states
covered by this Agreement and with the rules and regulations of
all regulatory authorities having jurisdiction over their
activities, and shall, whenever necessary, maintain at their own
expense all required licenses to transact business in such
states, or so deemed.
D. Vendor Warranties - Vendor warrants to Company that it is duly
authorized and incorporated to transact the business of servicing
insurance companies. Further, Vendor warrants to Company that it
will comply with the laws of the state or states covered by this
Agreement and with the rules and regulations of all regulatory
authorities having jurisdiction over Vendor's activities, and
shall, whenever necessary, maintain at its own expense all
required licenses to transact business in such states.
10
<PAGE> 11
E. Invalidation - Should any part of this Agreement for any reason
be declared invalid, such decision shall not effect the validity
of any remaining portion, which remaining portion shall remain in
full force and effect as if the Agreement had been executed with
the invalid portion thereof eliminated. It is, therefore,
declared the intention of the parties hereto that each of them
will have executed the remaining portion of this Agreement
without including therein any such part, parts or portion which
may, for any reason, be hereafter declared void.
F. Construction of Agreement - 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.
G. Miscellaneous - 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.
Section headings are intended for purposes of description only
and shall not be used for purposes of interpretation of this
Agreement.
H. 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 Company Farmers Services Corporation
4680 Wilshire Boulevard
Los Angeles, CA 90010
Fax Number: (213) 932-3950
Attention: Jim Griffin, Manager
As to Vendor Insurance Management Solutions, Inc.
360 Central Avenue
St. Petersburg, FL 33701
Fax Number: (813) 823-6518
Attention: Kathy Batson, Senior Vice President
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 carriers. 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 the day
when sent if sent prior to 4:30 p.m. (the time being determined
by the time zone of the recipient) otherwise they shall be deemed
effective on the next business day.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto by their respective duly
authorized representatives have executed this Agreement to be effective as of
the ____day of________, 19___.
"Vendor" "Company"
INSURANCE MANAGEMENT SOLUTIONS, INC. FARMERS SERVICES CORPORATION
By: /s/ Jeffrey S. Bragg By: /s/ [signature illegible]
--------------------------------- ----------------------------------
Date: January 14, 1999 Date: January 12, 1999
------------------------------- --------------------------------
12
<PAGE> 13
SERVICING FEE SCHEDULE
Company shall pay Vendor a monthly Servicing Fee, for all Policy administration
services rendered by Vendor pursuant to this Agreement, in accordance with the
schedule below:
<TABLE>
<CAPTION>
SERVICING FEE:
ARRANGEMENT YEAR POLICIES IN-FORCE (AS % OF WRITTEN PREMIUM)
- ---------------------------------- -------------------------
<S> <C>
0 - 100,000 6%
100,001 - 250,000 5.75%
250,001 - + 5.5%
</TABLE>
The Service Fee shall be retained from the Restricted Account as an Allowable
Expense payable to Vendor. Any reduction in Servicing Fees, resulting from the
attainment of a certain number of policies in-force as specified above, shall
only be applicable to WYO Flood Program business administered by Vendor after
Company's number of policies in-force reaches that certain specified level and
during the balance of that Arrangement Year. At renewal of the Agreement, the
Servicing Fee shall initially be based on the Company's number of policies
in-force during the prior Arrangement Year, and then modified on a quarterly
basis in accordance with the above Servicing Fee Schedule.
13
<PAGE> 14
CLAIMS ADMINISTRATION FEE SCHEDULE
In accordance with the corresponding claims service, Company shall pay Vendor
the following Claims Administration Fees:
1. Full Claim Service. Vendor shall retain 1.65% of Claim Catastrophe Fee.
The above Claims Administration Fees shall be retained from the Restricted
Account as an Allowable Expense payable to Vendor.
14
<PAGE> 15
TERRITORY SCHEDULE
Company hereby appoints Vendor to supervise and administer its WYO Flood
Program in the following "Applicable States":
The United States, its Territories and Possessions or such states that Company
or its insurer affiliates may be licensed by State law to engage in the
property insurance business and as may be mutually agreed upon in writing
between Company and Vendor.
15
<PAGE> 16
CLAIMS ADMINISTRATION SCHEDULE
Vendor will provide to Company the following claims administration services:
1. Vendor shared customer service representatives will be available each
business day by telephone at (800) numbers between 8:00 a.m. and 8:00 p.m.
(Eastern Time). Such customer service representatives will answer claims
administration related calls. If Vendor reasonably believes that a
catastrophic flood event has or is likely to occur, Vendor will (i)
activate, and maintain thereafter during the term of such event, a claim
reporting mailbox on the 1 (800) numbers to allow Company Issuing Agents
and Insureds to report claims at times other than those specified above,
and (ii) check such mailbox at the following intervals and respond to
emergency calls received: once between 6:00 a.m. and 8:00 a.m. (Eastern
Time) each business day; every two hours between 6:00 p.m. and 10:00 p.m.
(Eastern Time) each business day; and every two hours between 8:00 a.m.
and 10:00 p.m. (Eastern Time) each Saturday, Sunday and Vendor Holiday.
2. Upon receipt of claims by Company Agents or Insureds, Vendor will, either
through subcontracts with independent claims adjusters ("Independent
Adjusters") or through Company staff adjusters ("Company Adjusters"),
investigate and process such claims. Company will instruct Vendor as to
whether to use Independent Adjusters or Company Adjusters in the
investigating and processing of claims and Vendor will comply with such
instructions. Independent Adjusters will be approved by Company in advance
of performing any services with respect to Written Policies.
3. Independent Adjusters and Company Adjusters will service claims in
accordance with the FIA/NFIP Claims Service Instructions. Company will
promptly answer in writing any questions with respect to the
interpretation of such Instructions. Company will promptly resolve any
issues concerning Written Policies that Vendor is unable to resolve
through Vendor's standard procedures.
4. For each claim requiring a claim disbursement, Vendor will input the
amount of such disbursement into the WYO Claim System for processing.
5. Vendor will (i) print and mail checks for claims disbursements to the
Insured and provide a copy thereof to the associated Company Issuing
Agent, unless otherwise directed in writing by Company, and (ii) manage
the inventory of check stock and envelopes used in this process.
6. Vendor will conduct periodic audits of a random selection of the pending
and closed files of Independent Adjusters. Such audits will be conducted
once per calendar year, unless otherwise agreed in writing by Company and
Vendor. Such audits will consist of a review of the following: timeliness
of loss reporting; quality of investigation and supervision; expense
control; promptness of settlement and payments; and compliance with
procedures established by Company, Vendor, FEMA and FIA. The results of
such audits will be delivered by Vendor to Company.
7. On a weekly basis, Vendor will remit to an account designated by Company
any unallocated loss
16
<PAGE> 17
adjustment expenses paid pursuant to Article III.C.1 of the WYO
Arrangement, as applicable, net of amounts to be retained by Vendor
pursuant to Section III.
8. Vendor will notify Company of any pending or threatened litigation against
Company arising out of or related to any claim involving a Written Policy
of which Vendor becomes aware. Vendor will furnish documents, information
and personnel in connection with any litigation arising out of or related
to, claims by Insureds as reasonably requested by Company or its counsel,
at no additional charge except for Vendors' out-of-pocket costs for travel
and travel-related expenses, which costs will be subject to the
determinations of the Company. Company will have complete authority,
control and responsibility for any such litigation.
9. Vendor will update the adjuster file within the WYO Claim System with
those additions and deletions provided to Vendor from time to time by
Company.
10. Upon mutual agreement of the Company and Vendor, Vendor will produce
pre-loss notices for catastrophes that consist of at least 350 anticipated
losses. Vendor shall ship such notices via overnight courier to the
applicable Issuing Agents.
17
<PAGE> 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
January 21, 1999
<PAGE> 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
January 21, 1999
<PAGE> 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
January 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,550,338
<SECURITIES> 0
<RECEIVABLES> 3,892,290
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,555,308
<PP&E> 12,634,194
<DEPRECIATION> (3,841,956)
<TOTAL-ASSETS> 47,020,886
<CURRENT-LIABILITIES> 24,524,538
<BONDS> 0
0
0
<COMMON> 104,805
<OTHER-SE> 5,831,367
<TOTAL-LIABILITY-AND-EQUITY> 47,020,886
<SALES> 0
<TOTAL-REVENUES> 47,372,551
<CGS> 0
<TOTAL-COSTS> 40,258,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,653,165
<INCOME-PRETAX> 5,295,819
<INCOME-TAX> 2,388,400
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,907,419
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
