INSPIRE INSURANCE SOLUTIONS INC, S-1/A, 1997-08-22

INSPIRE INSURANCE SOLUTIONS INC
S-1/A, 1997-08-22
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997.

REGISTRATION NO. 333-31173
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 3

TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
INSPIRE INSURANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
---------------------

<TABLE>
<S> <C> <C>
TEXAS 7373 75-2595937
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>

---------------------

300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
TELEPHONE: (817) 332-7761
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

F. GEORGE DUNHAM, III
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
TELEPHONE: (817) 332-7761
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------

Copies to:

<TABLE>
<S> <C>
TERRY M. SCHPOK, P.C. FRED W. FULTON
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. THOMPSON & KNIGHT, A PROFESSIONAL CORPORATION
1700 PACIFIC AVENUE, SUITE 4100 1700 PACIFIC AVENUE, SUITE 3300
DALLAS, TX 75201-4675 DALLAS, TX 75201-4693
(214) 969-2800 (214) 969-1700
</TABLE>

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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 the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===============================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 6,325,000 Shares $12.00 $75,900,000 $23,000(3)
- -------------------------------------------------------------------------------------------------------------------------------
Series A Junior Preferred Stock
Purchase Rights 6,325,000 Rights -- -- --
===============================================================================================================================
</TABLE>

(1) Includes 825,000 shares subject to the Underwriters' over-allotment option.

(2) One Preferred Stock Purchase Right will be issued with each share of Common
Stock. As no additional consideration will be received for the Preferred
Stock Purchase Rights, no registration fee is required with respect to them
under Rule 457(i).

(3) A registration fee of $19,167 was previously paid upon the initial filing or
prior amendment of this registration statement and the balance of the
registration fee is being paid in connection with Amendment No. 3 to this
registration statement.

---------------------

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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

PROSPECTUS

5,500,000 SHARES

[INSPIRE INSURANCE SOLUTIONS, INC. LOGO]

COMMON STOCK
------------------------

Of the 5,500,000 shares of Common Stock offered hereby, 2,775,000 shares
are being issued and sold by INSpire Insurance Solutions, Inc. (the "Company")
and 2,725,000 shares are being sold by the Selling Shareholder. The Company will
not receive any proceeds from the sale of Common Stock being sold by the Selling
Shareholder. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "NSPR." Prior to this offering, there has been
no public market for the Common Stock. See "Underwriting" for a discussion of
the factors considered in determining the initial price to public.

------------------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 14 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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=============================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $12.00(4) $0.84(5) $11.16 $11.16
- -----------------------------------------------------------------------------------------------------------------------------
Total(6)............................... $66,000,000(4) $4,620,000(5) $30,969,000 $30,411,000
=============================================================================================================================
</TABLE>

(1) The Company 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 $504,545 payable by the Company.

(3) Before deducting expenses estimated at $495,455 payable by the Selling
Shareholder.

(4) At the Company's request, the Underwriters have reserved up to 175,000 of
the shares offered by the Company hereby for sale directly to directors,
officers, employees and designees of the Company at a price of $11.52 per
share. If all such shares are purchased by such persons, the total Price to
Public will be $65,916,000, assuming no exercise of the Underwriters'
over-allotment option. See "Underwriting."

(5) With respect to the shares offered directly to the Company's directors,
officers, employees and designees as described in footnote (4), the per
share Underwriting Discounts and Commissions will be $0.36. If all such
shares are purchased by such persons, the total Underwriting Discounts and
Commissions will be $4,536,000, assuming no exercise of the Underwriters'
over-allotment option. See "Underwriting."

(6) The Company and the Selling Shareholder have granted to the Underwriters a
30-day option to purchase up to 825,000 additional shares of Common Stock on
the same terms and conditions as the securities offered hereby, solely to
cover over-allotments, if any. If such option is exercised in full and all
shares referred to in footnote (4) are purchased as described therein, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholder will be $75,816,000, $5,229,000,
$35,614,350 and $34,972,650, respectively. See "Underwriting."

------------------------

The shares of Common Stock are offered by the 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 August 28, 1997 at the offices
of Raymond James & Associates, Inc., St. Petersburg, Florida.

RAYMOND JAMES & ASSOCIATES, INC. SOUTHWEST SECURITIES

The date of this Prospectus is August 22, 1997.

<PAGE> 3

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
[INSPIRE INSURANCE SOLUTIONS LOGO]

THE ONE-SOURCE OUTSOURCING ANSWER

POLICY ADMINISTRATION

CLAIMS ADMINISTRATION

TECHNOLOGY AND SYSTEMS

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."

The following text overlays a stylized multi-color geometric design:

<TABLE>
<S> <C>
INSpire
Provides

o Increased Efficiency
o Greater Flexibility/Quicker Response
o Ability to Maximize Surplus
o Ease of Entry

Policy Administration
o Processing Policies, Renewals, Cancellations, Reinstatements
o Document/Application Review
o Direct, Agency and Internet Marketing Support
o Billing and Accounting
o Issuing, Canceling, Amending Policies
o Inquiries By Agents, Insureds and Others
o Bureau Reporting
o Commission Handling
o Data Access/Reporting to Customer

[INSpire Insurance Solutions Logo]

P & C Insurance Industry
o Approximately 2,500 Existing Companies
o Approximately $260 Billion in Premium Revenues Claims Administration
o New Entrants o Coverage Verification
o Financial Institutions o Loss Reports to Insured and Agents
o Virtual Insurance Companies o Administering Appraisal/Assessment Process
o Other Start-ups o Administering Claim and Loss Reports
o Preparing Checks and Vouchers
o Compromises, Releases and Agreements
o Service Standards and Claims Documentation

Technology & Systems
o Integrated Systems
Customer o Policy and Claims Administration System
Goals o Windows into Property and Casualty System
o Software Productivity Tools
o Focus on Core Competencies o EmPower - Automated Workflow Management
o Reduce Fixed Costs o Underwriting Expert System
o Leverage Economies of Technology o Policy Set Production
o Create New Distribution Channels o Visual Rater
o "Year 2000" Solution o Software Services
o Regulatory Reporting o Installation
o Improve Customer Service o Customization/Conversion/Enhancements/Upgrades
o Maintenance
</TABLE>
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in this Prospectus. As used herein, the "Company" or
"INSpire" means INSpire Insurance Solutions, Inc., and "Millers Mutual" or the
"Selling Shareholder" means The Millers Mutual Fire Insurance Company, unless
the context otherwise requires. Unless otherwise indicated, all financial
information and share data in this Prospectus (i) have been adjusted to reflect
the stock splits effected as stock dividends on March 11, 1997 and June 18, 1997
and (ii) assume no exercise of the Underwriters' over-allotment option.

THE COMPANY

The Company is a provider of policy and claims administration solutions to
the property and casualty ("P&C") insurance industry, offering a comprehensive
choice of outsourcing services and software and software services. The Company's
outsourcing services, which generally are provided on a percentage of premiums
or claims paid basis, include application of underwriting and rating criteria
defined by the insurer, policy issuance, customer service, billing and
collections, claims adjusting and processing, and policyholder mailings. The
Company's software products include policy and claims administration systems, as
well as systems that increase the productivity of insurers by automating certain
functions, such as workflow management, underwriting rules and guidelines,
document production and rating algorithms. These systems, which run on a variety
of platforms including IBM AS/400, IBM RS/6000, Windows 3.1, Windows 95 and
Windows NT, enable the Company's customers to conduct their policy and claims
administration more efficiently. The Company's software services include
installation, customization, conversion and maintenance of these systems to meet
customer specifications.

The Company was established in April 1995 as a wholly-owned subsidiary of
Millers Mutual, an insurance company chartered in Texas in 1898. The Company was
created to provide outsourcing services to other P&C insurers by capitalizing on
Millers Mutual's success in developing, implementing and managing software
systems for its internal use. As a result of the acquisition of Strategic Data
Systems, Inc. ("SDS") in March 1997 (the "SDS Acquisition"), the Company now
also develops and markets software and software services to the P&C insurance
industry. SDS offered software and software services to the P&C insurance
industry for 16 years prior to its acquisition by the Company. The Company
believes its services and products allow customers to focus on core
competencies, reduce costs by converting their fixed costs of in-house
information technology to variable costs and leverage the Company's investment
in software systems and productivity tools.

According to A.M. Best Company ("A.M. Best"), there were approximately
2,500 P&C insurance companies in the United States as of December 31, 1995,
generating more than $260 billion of premium revenues each year. According to
the National Association of Independent Insurers, information systems expenses
as a percentage of written premiums increased from 2.5% in 1992 to 3.3% in 1996.
Recent trends in the P&C insurance industry include selling policies directly to
policyholders rather than through independent agents and the emergence of new
entrants such as banks, credit unions and other financial services companies.
The Company believes the availability of outsourcing enables these insurers,
which often lack the necessary infrastructure to process policies and administer
claims, to improve efficiency, manage costs and increase customer satisfaction.
The Company's outsourcing services also allow these insurers to quickly enter
markets being exited by more established insurers seeking to reduce their
exposure to geographical risk due to the occurrence of recent natural
catastrophes.

The Company has experienced rapid growth since its inception as a result of
the development of its policy and claims administration facility in Fort Worth,
Texas, the expansion of its network of claims administration centers and the SDS
Acquisition. Pro forma revenues increased to $28.7 million for the first six
months of 1997 from pro forma revenues of $15.7 million for the first six months
of 1996, an increase of 83%. The Company's strategy is to become the leading
provider of policy and claims administration solutions to the P&C insurance
industry by offering a comprehensive choice of solutions, implementing an
integrated marketing plan, penetrating new markets, enhancing product
capabilities, generating recurring revenues and pursuing strategic acquisitions.
The Company's customers include Clarendon National Insurance Company,
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<PAGE> 6

Employers Reinsurance Corporation, Firemen's Fund Insurance Company, Grinnell
Mutual Reinsurance Company, Interco, Inc., National Alliance Insurance Company,
Society Insurance Company, Zurich Insurance Company and Millers Mutual and
affiliated companies.

The Company was incorporated in Texas and recently changed its name to
INSpire Insurance Solutions, Inc. from MiliRisk, Inc. The Company's principal
executive office is located at 300 Burnett Street, Fort Worth, Texas 76102, and
its telephone number is (817) 332-7761.

THE OFFERING

Common Stock offered by the Company......... 2,775,000 Shares

Common Stock offered by the Selling
Shareholder................................. 2,725,000 Shares

Common Stock to be outstanding after this
offering.................................... 9,775,000 Shares(1)(2)

Use of Proceeds............................. For repayment of indebtedness
and general corporate purposes,
including working capital,
research and development and
possible acquisitions. See "Use
of Proceeds" and "Certain
Transactions."

Nasdaq National Market Symbol............... NSPR

- ---------------

(1) Excludes (a) 2,250,000 shares reserved for issuance under the Company's 1997
Stock Option Plan (the "Stock Option Plan"), pursuant to which options
covering 840,248 shares have been granted at an exercise price of $1.30 per
share and options covering 1,085,243 shares have been granted at an exercise
price of $12.00 per share, (b) 50,000 shares reserved for issuance under a
nonemployee directors stock option plan (the "Director Plan"), pursuant to
which options covering 7,500 shares have been granted at an exercise price
of $12.00 per share, and (c) 425,000 shares reserved for issuance under an
employee stock purchase plan (the "Stock Purchase Plan").

(2) The number of shares of Common Stock to be outstanding after this offering
would be 10,524,221 after giving effect to the issuance of 749,221 shares of
Common Stock issuable under outstanding options granted pursuant to the
Stock Option Plan applying the treasury stock method using the initial price
to public of $12.00 per share.

FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact included in this
Prospectus, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire" 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 limited operating history
and dependence on major customers, competitive factors and pricing pressures,
changes in legal and regulatory requirements, technological change, product
development risks and general economic conditions. Such statements reflect the
current views of the Company with respect to future events and are subject to
these 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.
4
<PAGE> 7

SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

The historical information as of June 30, 1997 and for the period April 28,
1995 through December 31, 1995, the year ended December 31, 1996 and the six
months ended June 30, 1997 was derived from the audited consolidated financial
statements of the Company. The information presented as of and for the six
months ended June 30, 1996 was derived from the unaudited financial statements
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 INSpire," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of INSpire," the
Company's Consolidated Financial Statements and the Company's Pro Forma
Condensed Consolidated Financial Statements (Unaudited). The results of
operations presented below are not necessarily indicative of the results of
operations that may be achieved in the future.

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
AS
ACTUAL ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 451 $20,894
Working capital............................................. (2,576) 22,262
Total assets................................................ 30,888 51,331
Current portion of long-term debt........................... 1,563 --
Due to parent............................................... 2,833 --
Long-term debt, excluding current portion................... 5,625 --
Shareholders' equity........................................ 9,558 40,022
</TABLE>

- ---------------

(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.

(2) Unaudited pro forma condensed consolidated statements of operations data for
the year ended December 31, 1996 and for the six months ended June 30, 1996
and 1997 reflect: (i) the acquisition of SDS using the purchase method of
accounting as if the SDS Acquisition, which occurred on March 12, 1997, had
occurred on January 1, 1996 and (ii) the results of operations of the
Company as if the Company had operated on an independent basis separate from
Millers Mutual since January 1, 1996. See the Company's Pro Forma Condensed
Consolidated Financial Statements (Unaudited).

(3) Includes $3.0 million of purchased research and development expenses
relating to the SDS Acquisition and $3.9 million of deferred compensation
expense relating to the grant of stock options to executive officers during
the period. Excluding the effect of such one-time, noncash expenses,
historical operating expenses, operating income and net income would have
been $20.7 million, $2.5 million and $1.6 million, respectively, and
historical net income per share would have been $0.21; and pro forma
operating expenses, operating income and net income would have been $25.6
million, $3.1 million and $2.0 million,
5
<PAGE> 8

respectively, and pro forma net income per share and supplementary net
income per share would have been $0.26 and $0.27, respectively.

(4) Supplementary net income (loss) per share has been computed by adjusting pro
forma net income for the effect of the elimination of interest expense
associated with the repayment of $7.2 million of bank debt in conjunction
with this offering. Supplementary net income (loss) per share is not
presented for historical information as there is no significant difference
from net income (loss) per share as presented. See "Use of Proceeds."

(5) Adjusted to reflect: (i) the sale by the Company of 2,775,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, and (ii)
the application by the Company of its estimated net proceeds therefrom. See
"Use of Proceeds."

6
<PAGE> 9

RISK FACTORS

The following factors, which may affect the Company's current position and
future prospects, should be considered carefully in addition to the other
information contained in this Prospectus before purchasing the Common Stock
offered hereby.

LIMITED OPERATING HISTORY AND NET LOSSES

The Company has a limited operating history in the policy and claims
administration outsourcing business and only two significant outsourcing
customers, one of which is Millers Mutual. In addition, the Company recently
acquired SDS in March 1997. Although SDS had a significant operating history as
a provider of software and software services to the P&C insurance industry, the
Company has very little history conducting its operations on a consolidated
basis. The Company only recently began the process of integrating the SDS
operations into the Company's financial, managerial, administrative and
marketing functions. In addition, certain of the Company's senior management
personnel recently joined the Company. There can be no assurance that the
Company will be successful in this integration process or in implementing its
long-term operating strategy. Prior to the SDS Acquisition, the Company's
operations did not generate net income for any year. The Company had net losses
of $1.3 million for the period from inception through December 31, 1995 and
$515,000 for the year ended December 31, 1996. There can be no assurance that
the Company will be able to maintain revenue growth or that the Company will not
sustain net losses in the future. See "SDS Acquisition," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
INSpire" and "Management."

ABILITY TO GROW AND EXPAND SERVICES

The Company has grown rapidly since its formation. The Company's growth
strategy depends on its ability to increase its share of the policy and claims
administration market and expand sales of its software and software services
through the enhancement of existing products, development of new services and
products and the integrated marketing of its services and products. There can be
no assurance that the Company will have the financial, managerial,
administrative, marketing or other resources necessary to achieve these
objectives.

The success of the Company depends in large part on its ability to attract
and retain highly-skilled managerial, sales and marketing personnel. In
addition, the Company believes it will need to hire additional technical
personnel to enhance and develop its services and products. Competition for such
personnel is intense, and should the Company be unable to hire the necessary
personnel, the development and sale of new or enhanced services and products
would likely be delayed or prevented. There can be no assurance that the Company
will be able to attract, integrate and retain skilled personnel, manage its
infrastructure or overcome other difficulties associated with growth. If the
Company were to encounter difficulties in implementing the expansion or
development of its services and products, or in attracting, integrating and
retaining its personnel, such difficulties could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- The INSpire Strategy" and "Management."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; VOLATILITY OF TRADING PRICE

The Company has experienced and may continue to experience significant
quarter-to-quarter fluctuations in its results of operations. Quarterly results
of operations may fluctuate as a result of a number of factors, including the
introduction of new or enhanced services and products by the Company or its
competitors, customer acceptance or rejection of new services and products,
product development expenses, the timing of significant orders, the timing of
large scale catastrophes, the volume of usage of the Company's services and
products, competitive conditions in its industry and general economic
conditions. Many of these factors are beyond the Company's control.

The sales cycles for the Company's services and products are lengthy
(generally between three and twelve months for outsourcing services and six and
twelve months for software and software services) and subject to a number of
factors beyond the Company's control. As the Company recognizes a substantial
portion of

7
<PAGE> 10

revenues at the time new software systems are licensed, there can be significant
fluctuations from period to period in the revenues and operating income derived
from licensing activities. Customer decisions to enter into new license
agreements may be significantly affected by their decisions to replace current
systems. In addition, demand for the Company's claims administration services
fluctuates greatly depending on the occurrence of large scale catastrophes, such
as hurricanes. For these and other reasons, the revenues of the Company are
difficult to forecast, and the Company believes that period-to-period
comparisons of results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve for any subsequent
quarter or fiscal year. Thus past operating results should not be considered a
reliable indicator of future performance.

The trading price of the Common Stock could fluctuate widely in response to
variations in the Company's quarterly operating results, changes in earnings
estimates by securities analysts, changes in the Company's business and changes
in general market or economic conditions. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. These fluctuations
have significantly affected the trading prices of the securities of many
emerging growth companies without regard to their specific operating
performance. Such market fluctuations could have a material adverse effect on
the trading price of the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of INSpire."

DEPENDENCE ON MAJOR CUSTOMERS

The Company derives a substantial portion of its revenues from outsourcing
services provided to a few large customers, including Millers Mutual and its
subsidiary, The Millers Casualty Insurance Company ("Millers Casualty," and
collectively with Millers Mutual, the "Millers Group"), Clarendon National
Insurance Company ("Clarendon") and Interco, Inc. ("Interco"). The terms of the
contracts with the Millers Group expire in 2000 and automatically renew for
successive one-year periods if neither party terminates them. The Company
provides services to Clarendon through contracts with various subsidiaries of E.
W. Blanch Holdings Company, Inc. (collectively, "Blanch"), each of which is a
managing general agent of Clarendon. The Blanch contracts expire in 1999 and
automatically renew for an additional three years if neither party terminates
them. Blanch may terminate these contracts at any time without cause upon
payment of a specified termination fee. These contracts will also terminate if
the contracts between Blanch and Clarendon are terminated for any reason other
than a breach by Blanch. Pursuant to a contract with the State Corporation
Commission of the Commonwealth of Virginia (the "Virginia Commission"), the
Company provides services to Interco, which administers such contract on behalf
of the Virginia Commission. The Virginia Commission may terminate this contract
at any time without cause upon the payment of a specified termination fee. The
Millers Group, Clarendon and Interco accounted for approximately 68%, 8% and
21%, respectively, of the Company's historical revenues in 1996 and 25%, 3% and
8%, respectively, of the Company's pro forma revenues in 1996. The Millers
Group, Clarendon and Interco accounted for approximately 32%, 18% and 8%,
respectively, of the Company's historical revenues for the six months ended June
30, 1997 and 26%, 15% and 7%, respectively, of the Company's pro forma revenues
for such period. Any loss of or material decrease in the business from any of
these customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Customers."

TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT RISKS

The markets in which the Company competes are increasingly characterized by
rapid technological change. The introduction of competing services or products
incorporating new technologies could render some or all of the Company's
services and products obsolete or unmarketable. The Company believes that its
future success depends on its ability to enhance its services and develop new
products that address the increasingly sophisticated needs of its customers. As
a result, the Company has expended substantial resources for the enhancement of
its services and for product development and intends to continue to do so. The
development of new or enhanced services or products results in expenditures and
capital costs that may not be recovered if the service or product is
unsuccessful. Development projects can be lengthy and subject to changing market
requirements and unforeseen costs and delays. The failure of the Company to
develop and introduce new or

8
<PAGE> 11

enhanced services or products in a timely and cost-effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Research and Development."

ACQUISITION RISKS

The Company completed the SDS Acquisition on March 12, 1997 and intends to
pursue acquisitions of other complementary businesses. There can be no
assurance, however, that the Company will be able to integrate the operations of
SDS with its own operations. Similarly, there can be no assurance that the
Company will be able to consummate or successfully integrate future
acquisitions. Acquisitions involve significant risks, 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) the
potential liabilities of the acquired business, (iv) unforeseen difficulties in
the acquired operations, (v) the possible adverse short-term effects on the
Company's results of operations and (vi) the financial reporting effects of the
amortization of goodwill and other intangible assets. Furthermore, there can be
no assurance that SDS, or any business 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 "SDS Acquisition" and "Business -- The
INSpire Strategy."

LACK OF INDEPENDENT OPERATING HISTORY; CONTROL BY EXISTING SHAREHOLDER;
CONFLICTS OF INTEREST

The Company was formed in 1995 as a wholly-owned subsidiary of Millers
Mutual. Although SDS was an independent company prior to being acquired by the
Company in March 1997, the Company has not previously operated as a stand-alone
company. Following this offering, the Company will be required to develop
financial, managerial, administrative and other aspects of its infrastructure
previously provided to the Company by Millers Mutual. In addition, since
inception the Company has operated with negative working capital and satisfied a
significant portion of its cash requirements from capital contributions and
loans from Millers Mutual. The Company does not anticipate receiving any loans
or capital contributions from Millers Mutual in the future. The Company expects
to use a portion of its net proceeds from this offering to repay all outstanding
loans from Millers Mutual. In addition, Millers Mutual is substantially reducing
its investment in the Company as a result of its sale of Common Stock pursuant
to this offering. The Company believes that its net proceeds from this offering,
together with funds from operations, will be sufficient to fund anticipated
working capital requirements for at least one year. The Company may require
substantial additional funds for potential acquisitions and expansion. There can
be no assurance that the Company will be able to obtain any additional financing
or that the Company will not increase its outstanding indebtedness after this
offering to levels that may have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
and Millers Mutual have entered into several agreements that are intended to
ease the Company's transition to independent status, there can be no assurance
that the Company will be able to manage this transition or develop independent
resources successfully.

After this offering, Millers Mutual will beneficially own 43.7% of the
outstanding shares of Common Stock (37.9% if the Underwriters' over-allotment
option is exercised in full). As the Company's largest shareholder, Millers
Mutual is likely to be able to maintain effective control of the Company
including the ability to elect a majority of the Board of Directors. The
ownership by Millers Mutual 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
Millers Mutual consider such a transaction or event to be in their best
interest. 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.

Until recently, F. George Dunham, III, the Company's President, Chief
Executive Officer and Chairman of the Board, also served as President and Chief
Executive Officer of each of Millers Mutual and Millers Casualty. On June 18,
1997, Mr. Dunham resigned from those positions with Millers Mutual and Millers
Casualty. However, Mr. Dunham serves as Vice Chairman of the Board of Directors
of each of Millers

9
<PAGE> 12

Mutual and Millers Casualty, and his father, Frank G. Dunham, Jr., serves as
Chairman of the Board and Chief Executive Officer of each of Millers Mutual and
Millers Casualty. In addition, the Company will continue to have a variety of
contractual relationships with Millers Mutual and Millers Casualty, including a
benefits administration agreement pursuant to which Millers Mutual provides
certain benefits administration services to the Company and certain contracts
pursuant to which the Company provides policy and claims administration services
to Millers Mutual and Millers Casualty. As the interests of the Company and the
Millers Group will differ, Mr. Dunham will face certain conflicts of interest.
See "Use of Proceeds," "Principal and Selling Shareholders" and "Certain
Transactions."

COMPETITION

The markets for policy and claims administration services and products are
highly competitive and subject to rapid changes in technology. The Company
competes in the following three markets serving the P&C insurance industry: (i)
outsourcing of policy administration, (ii) outsourcing of claims administration
and (iii) software and software services.

The policy administration outsourcing market is relatively new and is
dominated by a few large companies, including Policy Management Services
Corporation ("PMSC"). The Company competes for policy administration outsourcing
customers on the basis of customer service, performance and price. The claims
administration outsourcing market is highly fragmented, with competition from a
large number of claims administration companies of varying size as well as
independent contractors. Competition in the claims administration outsourcing
market is principally price driven. Two of the larger competitors in this market
are Lindsey Morden Claim Services Inc. and Crawford & Company, Inc. The P&C
insurance software and software services market is highly competitive and is
dominated by PMSC. The Company competes for software customers on the basis of
customer service, performance, product features, ability to tailor products and
services to specific customer requirements, timely delivery and price.

The Company believes that its most significant competition for policy and
claims administration software and outsourcing services comes from potential
customers' in-house personnel. Insurance companies that have developed
proprietary software systems to conduct all or most of their policy and claims
administration internally have made a significant investment in their policy and
claims information systems. In addition, insurance company personnel have a
vested interest in maintaining these responsibilities in-house.

Many of the Company's competitors 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 services or products than the Company and respond more
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."

DEPENDENCE ON KEY PERSONNEL

The Company's continued success will depend largely on the efforts and
abilities of its executive officers, including F. George Dunham, III, the
President and Chief Executive Officer of the Company, Stuart H. Warrington, an
Executive Vice President of the Company and founder of SDS, Robert K. Agazzi, an
Executive Vice President of the Company and former President of SDS, and certain
key technical, managerial and sales employees. The loss of the services of
Messrs. Dunham, Warrington or Agazzi, or any of the Company's other key
employees, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has an employment
agreement with Mr. Dunham that terminates in 2000 and employment agreements with
Messrs. Warrington and Agazzi that terminate in 1998.

10
<PAGE> 13

The Company maintains a $1,000,000 key-man life insurance policy on Stuart H.
Warrington with the Company as beneficiary, but does not maintain life insurance
on any other key employees. There can be no assurance that the Company will be
successful in retaining its key personnel. See "Business -- Competition" and
"-- Employees" and "Management."

RELIANCE ON INFORMATION PROCESSING SYSTEMS

The Company's outsourcing services depend on its ability to store,
retrieve, process and manage significant databases, and expand and upgrade
periodically its information processing capabilities. The Company's principal
computer equipment and software systems are maintained at the Company's
facilities in Fort Worth, Texas and Sheboygan, Wisconsin. Interruption or loss
of the Company's information processing capabilities through loss of stored
data, breakdown or malfunctioning of computer equipment and software systems,
telecommunications failure or damage caused by fire, tornadoes, lightning,
electrical power outage or other disruption could have a material adverse effect
on the Company's business, financial condition and results of operations.
Although the Company maintains business interruption insurance with an aggregate
limit of $5.0 million per occurrence, and has entered into an agreement with
International Business Machines, Inc. to provide disaster recovery services, if
needed, there can be no assurance that such insurance or services will continue
to be available at reasonable prices, cover all such losses or compensate the
Company for the possible loss of customers occurring during any period that the
Company is unable to provide services. See "Business -- Customer Support and
Operations."

DEPENDENCE ON PROPRIETARY RIGHTS AND RISKS OF INFRINGEMENT

The Company regards the technology underlying its services and products as
proprietary. The Company has no registered copyrights or trademarks and relies
primarily on a combination of intellectual property laws, confidentiality
agreements and contractual provisions to protect its proprietary rights. Trade
secret and copyright laws afford the Company limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's software or obtain and use information
that the Company regards as proprietary. Policing unauthorized use of the
Company's software is difficult. There can be no assurance that the obligations
to maintain the confidentiality of the Company's proprietary information
(including software source code) will prevent disclosure of such information or
that the Company's proprietary information will not be independently developed
by the Company's competitors. Litigation may be necessary for the Company to
defend against claims of infringement or protect its intellectual property
rights, which could result in substantial costs to the Company and diversion of
management's efforts. There can be no assurance that the Company would prevail
in any such litigation. The absence of federal or state registrations for its
intellectual property could be detrimental to the Company in any infringement
litigation or other disputes regarding intellectual property. The inability of
the Company to protect its proprietary rights could have a material adverse
effect on the Company's business, financial condition and results of operations.

The Company is unaware of any claim that its software, trademarks or other
proprietary rights infringe the proprietary rights of third parties. There can
be no assurance, however, that third parties will not assert infringement claims
against the Company in the future. Any such claims, with or without merit, could
require the expenditure of significant time and money to defend, require the
Company to enter into royalty or license agreements or require the Company to
cease the alleged infringing activities. The failure to obtain such royalty or
license agreements, if required, and the Company's involvement in such
litigation could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Intellectual
Property."

RISKS OF SOFTWARE DEFECTS

The sale and support of software by the Company entails the risks of
product liability and warranty claims, which could be substantial. Software
products may contain errors or defects, especially when first introduced or when
new versions or enhancements are released. Any such defects in the Company's
software products could result in loss of revenues or delay market acceptance of
new products, which could have a

11
<PAGE> 14

material adverse effect on the Company's business, financial condition and
results of operations. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to product
liability or warranty claims. These limitation of liability provisions, however,
may be ineffective because of existing or future federal, state or local laws or
unfavorable judicial decisions.

In February 1997, a lawsuit was filed against the Company by a customer
claiming damages in excess of $1.3 million. The customer alleges that the
software sold to such customer does not meet required specifications. The
Company and the former shareholders of SDS placed $1.5 million of the SDS
purchase price in an escrow account pending resolution of such claim. No
assurance can be given with respect to the outcome of this lawsuit, including
whether the amount of any judgment or settlement will exceed the escrowed funds
and require the Company to pay the amount of the excess. A successful product
liability or warranty claim against the Company could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "SDS Acquisition" and "Business -- Research and Development,"
"-- Intellectual Property" and "-- Legal Proceedings."

GOVERNMENT REGULATION

The P&C insurance industry is subject to extensive regulation by state
governments. As the Company markets and sells its services and products 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 and products are not directly subject to
insurance regulations in the states where the Company currently provides them,
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. 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. See
"Business."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the open market
after this offering could adversely affect the trading price of the Common
Stock. Immediately after this offering Millers Mutual will hold 4,275,000
shares, representing 43.7% of the outstanding shares of Common Stock (3,866,250
shares representing 37.9% if the Underwriters' over-allotment option is
exercised in full). A decision by Millers Mutual to sell shares of Common Stock
could adversely affect the trading price of the Common Stock. Upon consummation
of this offering, the Company will have 9,775,000 shares of Common Stock
outstanding (10,191,250 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, all shares sold in this offering (other
than those sold to affiliates of the Company) will be freely tradeable. All
remaining shares of Common Stock are subject to lock-up agreements with the
Underwriters. Such lock-up agreements restrict transfers of such shares without
the written consent of Raymond James & Associates, Inc. until 180 days after the
date of this Prospectus. After such 180-day period expires, approximately
4,275,000 shares (3,866,250 shares if the Underwriters' over-allotment option is
exercised in full) will be eligible for sale pursuant to Rule 144 under the
Securities Act. In addition, 2,250,000 shares of Common Stock have been reserved
for issuance under the Stock Option Plan, 1,925,491 of which are issuable upon
exercise of options outstanding at the date of this Prospectus, including
options to purchase 584,075 shares exercisable as of the date of this Prospectus
or that will become exercisable within 180 days after the date of this
Prospectus, and 50,000 shares of Common Stock have been reserved for issuance
under the Director Plan, 7,500 of which are issuable upon exercise of options
that are outstanding and fully vested as of the date of this Prospectus. Such
shares issuable upon the exercise of options within 180 days after the date of
this Prospectus are subject to the lock-up agreements described above. An
additional 425,000 shares will be available for future purchase by employees of
the Company pursuant to the Stock Purchase Plan. The Company intends to register
on Form S-8 under the Securities Act the offering and sale of Common Stock
issuable under the Stock Option

12
<PAGE> 15

Plan, the Director Plan and the Stock Purchase Plan. See "Management -- Stock
Option Plan," "-- Director Stock Option Plan," "-- Employee Stock Purchase Plan"
and "Shares Eligible For Future Sale."

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Restated Articles of Incorporation (the
"Restated Articles"), the Company's Bylaws (the "Bylaws") and the Texas Business
Corporation Act ("TBCA") may have the effect of discouraging unsolicited
proposals for acquisition of the Company. The Restated Articles and the Bylaws
divide the Board of Directors into three classes serving staggered three-year
terms. Pursuant to the Restated Articles, shares of preferred stock may be
issued by the Company in the future without shareholder approval and upon such
terms and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, any such preferred stock. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, could
have the effect of discouraging a third party's acquisition of a majority of the
Common Stock. The Company has no present plans to issue any shares of preferred
stock. In addition, the Company has adopted a shareholder rights plan that could
further discourage attempts to acquire control of the Company. Finally,
effective September 1, 1997, the TBCA will restrict certain business
combinations with any "affiliated shareholder," as defined therein and will
provide that directors serving on staggered boards of directors may be removed
only for cause unless the articles of incorporation otherwise provide. The
Company's Restated Articles do not otherwise so provide. See "Description of
Capital Stock -- Anti-Takeover Considerations" and "-- Preferred Stock."

NO PRIOR PUBLIC MARKET; DETERMINATION OF INITIAL PUBLIC OFFERING PRICE; DILUTION

Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market will develop for
the Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial price to public. If no
active public market for the Common Stock develops, the trading price and
liquidity of the Common Stock will be materially and adversely affected. The
initial price to public has been determined by negotiations among the Company,
the Selling Shareholder and the Underwriters and may not be indicative of the
trading price for the Common Stock after this offering.

Purchasers of Common Stock in this offering will experience immediate and
substantial dilution in the net tangible book value of their shares. Prior to
this offering, each share of Common Stock had a net tangible book value of
$(.81). After this offering each share of Common Stock will have a net tangible
book value of $2.53 and the net tangible book value dilution to purchasers of
Common Stock in this offering will be $9.47 per share. See "Dilution,"
"Management -- Stock Option Plan" and "Underwriting."

NO DIVIDENDS

The Company has never paid cash dividends on its stock and has no plans to
do so in the foreseeable future. The Company intends to retain earnings, if any,
to fund growth. See "Dividend Policy."

BENEFITS OF THE OFFERING TO THE CURRENT SHAREHOLDER

The Selling Shareholder and current holders of options to purchase Common
Stock will benefit from this offering in that a public market will be created
for their stock in the Company. The 4,275,000 shares of Common Stock that will
be owned by the Selling Shareholder after this offering (3,866,250 if the
Underwriters' over-allotment option is exercised in full), which were acquired
at a cost of approximately $8.7 million (approximately $7.8 million if the
Underwriters' over-allotment option is exercised in full), will have a value of
approximately $51.3 million (approximately $46.4 million if the Underwriters'
over-allotment option is exercised in full), assuming a market price equal to
the initial price to public. The Selling Shareholder will also realize a
substantial profit on the shares it sells in this offering. None of the
Company's officers, directors or employees are selling any Common Stock in this
offering. See "Principal and Selling Shareholders."

13
<PAGE> 16

SDS ACQUISITION

On March 12, 1997, the Company acquired all of the capital stock of
Strategic Data Systems, Inc., a Wisconsin corporation, for $18.0 million in
cash. Of this amount, $2.5 million remains in escrow to secure certain
indemnification obligations of the former SDS shareholders. The SDS Acquisition
was financed with a $7.5 million loan from NationsBank of Texas, N.A.
("NationsBank") and a capital contribution of $10.5 million from Millers Mutual.
The Company intends to repay the loan from NationsBank with a portion of its net
proceeds from this offering. SDS was merged into the Company in July 1997. See
"Use of Proceeds."

SDS began operations in 1981 as a provider of software and software
services to the P&C insurance industry. SDS's revenues and net income were $23.7
million and $698,000, respectively, in 1996 and $5.4 million and $231,000,
respectively, for the period from January 1, 1997 through March 11, 1997. SDS's
founder and Chief Executive Officer, Stuart H. Warrington, and its President,
Robert K. Agazzi, have become Executive Vice Presidents -- Software and Systems
of the Company.

The software acquired by the Company through the SDS Acquisition includes
policy and claims administration systems, as well as software that increases the
productivity of insurers by automating functions such as workflow management,
underwriting rules and guidelines, document production and rating algorithms.
Through the SDS Acquisition, the Company gained the ability to provide
additional software services, including installation, customization, conversion
and maintenance of the SDS systems to meet customer specifications.

Prior to the SDS Acquisition, the Company's operations were focused solely
on providing outsourcing services to the P&C insurance industry. Millers Mutual
has utilized SDS software since 1993. The SDS Acquisition allows the Company to
offer a comprehensive choice of solutions, including software systems and
services to satisfy the needs of customers that choose to retain their
processing capabilities in-house. These software systems and services also
enhance the quality of the Company's outsourcing services. The Company believes
that utilization of the experienced sales and marketing personnel of SDS and
access to the SDS customer base will facilitate cross-selling opportunities and
expansion of the Company's outsourcing services.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,775,000 shares of
Common Stock offered by the Company will be approximately $30.5 million
(approximately $35.1 million if the Underwriters' over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company intends to use
approximately $7.2 million of such net proceeds to repay the outstanding
balance, including accrued interest, under its bank credit facility with
NationsBank (the "NationsBank Facility") incurred to fund part of the SDS
Acquisition and approximately $2.8 million to repay funds borrowed from Millers
Mutual for working capital purposes. The Company intends to use the remaining
net proceeds of approximately $20.5 million (approximately $25.1 million if the
Underwriters' over-allotment option is exercised in full) for general corporate
purposes, including working capital, research and development and possible
acquisitions. The Company has no present commitments or understandings with
respect to the acquisition of any business, although the Company continues to
monitor potential acquisition opportunities. Pending such uses, the Company
intends to invest the net proceeds in short-term, investment grade, interest
bearing securities.

The NationsBank Facility is comprised of a revolving credit facility and a
term credit facility. The revolving credit facility provides for maximum
borrowings of $4.0 million, and had an outstanding balance of $2.5 million as of
June 30, 1997. The term credit facility had an original principal amount of $5.0
million, and had an outstanding balance of $4.7 million as of June 30, 1997.
Both facilities bear interest at floating rates that may be fixed for 180-day
periods. The interest rate is 7.4375% until September 29, 1997 under the term
credit facility and 7.5% until December 1, 1997 under the revolving credit
facility. The Company must pay a commitment fee of 0.25% per annum on the
average daily unused portion of the revolving credit facility. The revolving
credit facility matures March 12, 1999 and the term credit facility matures
March 12, 2001.

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<PAGE> 17

The Company has borrowed from and repaid funds to Millers Mutual based on
the Company's working capital needs. The Company's borrowings from Millers
Mutual do not have a fixed maturity date and do not bear interest. The
outstanding balance of these borrowings was $2.8 million as of June 30, 1997.

The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Shareholder. The net proceeds to be received
by the Selling Shareholder from the sale of the 2,725,000 shares offered by the
Selling Shareholder will be approximately $29.9 million (approximately $34.5
million if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Selling Shareholder. See "Principal and Selling Shareholders."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on the Common
Stock. The Company intends to retain any future earnings to fund growth and does
not anticipate paying any cash dividends in the foreseeable future. Under the
terms of the NationsBank Facility, the Company cannot declare or pay any
dividends or return any capital to its shareholders or authorize or make any
other distribution, payment or delivery of property or cash to its shareholders
as such without the prior written consent of NationsBank.

15
<PAGE> 18

DILUTION

The net tangible book value of the Company as of June 30, 1997 was
approximately $(5.7) million, or $(.81) per share. "Net tangible book value per
share" represents the amount of total assets less total liabilities and
intangible assets divided by the number of shares of Common Stock outstanding.
Without taking into account any other changes in the net tangible book value
after June 30, 1997, other than to give effect to the receipt by the Company of
the estimated net proceeds from the sale of 2,775,000 shares of Common Stock
offered by the Company hereby, the net tangible book value of the Company as of
June 30, 1997 would have been $24.8 million, or $2.53 per share. This represents
an immediate increase of net tangible book value of $3.34 per share to the
existing shareholder and an immediate dilution of $9.47 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial price to public..................................... $12.00
------
Net tangible book value per share before this offering.... $(.81)
Increase per share attributable to new investors.......... 3.34
-----
Net tangible book value per share after this offering(1).... 2.53
------
Dilution per share to new investors......................... $ 9.47
======
</TABLE>

- ---------------

(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value after this offering would be $2.89 per share, resulting
in dilution to new investors in this offering of $9.11 per share.

The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between the existing shareholder and new investors purchasing
Common Stock in this offering with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid:

<TABLE>
<CAPTION>
SHARES OF COMMON TOTAL
STOCK ACQUIRED CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholder.............. 7,000,000 71.6% $14,191,609 29.9% $ 2.03
New Investors..................... 2,775,000 28.4 33,300,000 70.1 12.00
---------- ----- ----------- -----
Total................... 9,775,000 100.0% $47,491,609 100.0% $ 4.86
========== ===== =========== =====
</TABLE>

The computations in the above table are determined without deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. Both tables set forth in this section assume no exercise of
outstanding stock options. As of June 30, 1997, options to purchase 840,248
shares of Common Stock were outstanding, with an exercise price of $1.30 per
share. To the extent outstanding options are exercised, there will be further
dilution to holders of Common Stock. See "Management -- Stock Option Plan."

16
<PAGE> 19

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, and as adjusted to reflect: (i) the sale by the
Company of 2,775,000 shares of Common Stock offered hereby, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, (ii) the application of the estimated net proceeds therefrom and
(iii) the amendments to the Company's articles of incorporation effected by the
Restated Articles.

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 1,563 $ --
Due to parent............................................... 2,833 --
Long-term debt, excluding current portion:
Term loan................................................. 3,125 --
Revolving credit facility................................. 2,500 --
------- -------
Total long-term debt.............................. 5,625 --
------- -------
Shareholders' equity:
Preferred stock (par value $1.00 per share, 1,000,000
shares authorized and none issued)..................... -- --
Common stock (par value $0.01 per share, 50,000,000 shares
authorized, 7,000,000 shares issued and outstanding,
and 9,775,000 shares issued and outstanding as
adjusted(1))........................................... 70 98
Additional paid-in capital................................ 14,122 47,394
Accumulated deficit....................................... (4,634) (7,470)
------- -------
Total shareholders' equity........................... 9,558 40,022
------- -------
Total capitalization.............................. $19,579 $40,022
======= =======
</TABLE>

- ---------------

(1) Excludes (a) 2,250,000 shares reserved for issuance under the Stock Option
Plan, pursuant to which options covering 840,248 shares have been granted at
an exercise price of $1.30 per share and options covering 1,085,243 shares
have been granted at an exercise price of $12.00 per share and (b) 50,000
shares reserved for issuance under the Director Plan, pursuant to which
options covering 7,500 shares have been granted at an exercise price of
$12.00 per share.

17
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA OF INSPIRE
(IN THOUSANDS, EXCEPT SHARE DATA)

The selected consolidated financial data of the Company presented below as
of December 31, 1995 and 1996 and June 30, 1997 and for the period April 28,
1995 through December 31, 1995, the year ended December 31, 1996 and the six
months ended June 30, 1997 have been derived from the audited consolidated
financial statements of the Company. The information presented as of and for the
six months ended June 30, 1996 was derived from the unaudited financial
statements 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 selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
INSpire," the Company's Consolidated Financial Statements and the Company's Pro
Forma Condensed Consolidated Financial Statements (Unaudited). The results of
operations presented below are not necessarily indicative of the results of
operations that may be achieved in the future and the historical results for the
indicated six-month periods are not comparable between periods due to the SDS
Acquisition.

<TABLE>
<CAPTION>
YEAR ENDED
PERIOD DECEMBER 31, SIX MONTHS ENDED JUNE 30,
APRIL 28, 1995(1) ------------------------ ----------------------------------------------------
THROUGH PRO PRO PRO
DECEMBER 31, FORMA FORMA FORMA
1995 1996 1996(2) 1996 1996(2) 1997 1997(2)
------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Outsourcing services.... $ 3,907 $ 13,653 $ 13,653 $ 5,338 $ 5,338 $ 14,394 $ 14,394
Software and software
services.............. -- -- 19,024 -- 9,299 7,562 12,402
Other................... -- -- 4,640 -- 1,073 1,303 1,875
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues.... 3,907 13,653 37,317 5,338 15,710 23,259 28,671
Expenses:
Cost of outsourcing
services.............. 4,885 10,543 10,543 4,202 4,202 10,098 10,098
Cost of software and
software services..... -- -- 11,609 -- 5,429 2,921 7,282
Cost of other
revenues.............. -- -- 2,699 -- 478 697 1,080
Selling, general and
administrative........ -- -- 4,666 -- 2,007 3,428 3,757
Research and
development........... -- -- 3,455 -- 1,821 680 945
Depreciation and
amortization.......... 33 787 3,768 350 1,857 1,695 2,299
Purchased research and
development........... -- -- -- -- -- 3,000(3) 3,000(3)
Deferred compensation... -- -- -- -- -- 3,949(3) 3,949(3)
Management fees to
parent................ 600 3,100 180 1,200 90 1,200 90
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses.... 5,518 14,430 36,920 5,752 15,884 27,668 32,500
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)... (1,611) (777) 397 (414) (174) (4,409) (3,829)
Other income (expense).... -- (2) (320) -- (196) (159) (219)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes
(benefit)............... (1,611) (779) 77 (414) (370) (4,568) (4,048)
Income taxes (benefit).... (349) (264) (71) (141) (182) (1,712) (1,631)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)......... $ (1,262) $ (515) $ 148 $ (273) $ (188) $ (2,856) $ (2,417)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per
share................... $ (.16) $ (.07) $ .02 $ (.04) $ (.02) $ (.37) $ (.31)
========== ========== ========== ========== ========== ========== ==========
Supplementary net income
(loss) per share(4)..... $ -- $ -- $ .07 $ -- $ -- $ -- $ (.30)
========== ========== ========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding...... 7,749,221 7,749,221 7,749,221 7,749,221 7,749,221 7,749,221 7,749,221
</TABLE>

See notes on following page.

18
<PAGE> 21

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
------------------ -------------------------
1995 1996 ACTUAL AS ADJUSTED(5)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22 $ 363 $ 451 $20,894
Working capital............................................. (1,072) (2,550) (2,576) 22,262
Total assets................................................ 2,817 5,232 30,888 51,331
Current portion of long-term debt........................... -- 2,500 1,563 --
Due to parent............................................... 1,569 996 2,833 --
Long-term debt, excluding current portion................... -- -- 5,625 --
Shareholders' equity........................................ 1,121 606 9,558 40,022
</TABLE>

- ---------------

(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.

(3) Represents $3.0 million of purchased research and development expenses
relating to the SDS Acquisition and $3.9 million of deferred compensation
expense relating to the grant of stock options to executive officers during
the period. Excluding the effect of such one-time, noncash expenses,
historical operating expenses, operating income and net income would have
been $20.7 million, $2.5 million and $1.6 million, respectively, and
historical net income per share would have been $0.21; and pro forma
operating expenses, operating income and net income would have been $25.6
million, $3.1 million and $2.0 million, respectively, and pro forma net
income per share and supplementary net income per share would have been
$0.26 and $0.27, respectively.

19
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INSPIRE

OVERVIEW

The Company's revenues are derived principally from: (i) outsourcing
services and (ii) software and software services. Revenues from outsourcing
services are derived from policy administration services and claims
administration services. Revenues from software and software services are
derived from contracts that grant customers a license to use the Company's
software products and contracts that provide for installation, customization,
enhancement, conversion and maintenance services. Other revenues principally
represent hardware sold in connection with software installations.

Revenues from outsourcing services are recognized as services are rendered.
Initial installations of software systems generally include a one-time license
fee and a contract for the installation and customization of the system to meet
the customer's specifications, which the Company bills at an hourly rate.
Amounts charged for the initial license and the installation and customization
of systems are recognized as revenue during the installation period in
proportion to the hours expended for installation compared to the total hours
projected for installation. In other instances, revenues are recognized based on
performance milestones specified in the contract. The Company recognizes the
annual fee charged for maintenance of the customer's system as revenue as hours
are expended over the maintenance contract period. Revenues from computer
hardware and equipment sales are recognized when the Company receives
notification that the equipment has been shipped by the manufacturer and title
has passed to the customer. Changes in estimates of percentage of completion or
losses, if any, associated with outsourcing or software services are recognized
in the period in which they are determined.

The Company incurs research and development costs that relate primarily to
the development of new products and major enhancements to existing services and
products. Research and development costs are comprised primarily of salaries.
The Company expenses or capitalizes, as appropriate, these research and
development costs in accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." All research and development costs incurred prior to the
time management believes a project has reached "technological feasibility" are
expensed. Software production costs incurred subsequent to reaching
technological feasibility are capitalized, if material, and reported at the
lower of unamortized cost or net realizable value. Capitalized costs are
amortized over the expected service life of the related software, generally five
to seven years, using the straight-line method. The cost and related accumulated
amortization of projects are written off as they become fully amortized.

Millers Mutual, the Company and the other subsidiaries of Millers Mutual
are parties to a Consolidated Federal Income Tax Allocation Agreement, effective
as of January 1, 1994 (as amended, the "Tax Allocation Agreement"). Under the
Tax Allocation Agreement, Millers Mutual must pay the Company an amount equal to
any decrease in the income taxes otherwise payable by the Millers Mutual
consolidated tax group attributable to any net losses of the Company.
Conversely, the Tax Allocation Agreement requires the Company to pay to Millers
Mutual the amount of any income taxes that the Company would have paid if it had
not been included in the Millers Mutual consolidated tax group. Subject to
approval by the Texas Department of Insurance, the parties to the Tax Allocation
Agreement have agreed to terminate such agreement as it applies to the Company
in contemplation of the Company leaving the Millers Mutual consolidated tax
group as a result of this offering. The agreement to terminate the Company's
participation in the Tax Allocation Agreement provides that the Company will
indemnify the other members of the Millers Mutual consolidated tax group for any
of the group's income taxes and related expenses attributable to the Company,
and Millers Mutual will indemnify the Company for any income taxes and related
expenses attributable to any members of the consolidated tax group other than
the Company.

In view of the Company's limited operating history and recent acquisition
of SDS, the Company believes that period-to-period comparisons of its historical
results of operations are not necessarily meaningful. Accordingly, discussions
of the pro forma results of operations that combine the results of operations of
the

20
<PAGE> 23

Company and SDS for the periods indicated are also included. The results of
operations presented should not be relied upon as an indication of future
performance.

RECENT DEVELOPMENTS

Purchase of SDS. On March 12, 1997 the Company acquired SDS for $18.0
million. The results of operations of SDS from March 12, 1997 through June 30,
1997 are included in the results of operations of the Company for the six months
ended June 30, 1997. SDS was merged into the Company in July 1997. See "SDS
Acquisition."

Sale of Subsidiary. In July 1997, the Company signed a nonbinding letter of
intent to sell Applied Quoting Systems, Inc., a wholly-owned subsidiary of the
Company, for $2.5 million pursuant to an unsolicited offer from Samuel J.
Fleager, the former principal shareholder of Applied Quoting Systems, Inc.
Applied Quoting Systems, Inc. sells the Applied Quoting Systems Module ("AQS"),
a DOS-based commercial lines policy administration system. AQS automates
commercial policy rating, issuance, renewals and mid-term policy changes. Sales
of AQS were $4.1 million during 1996 and $2.3 million during the six months
ended June 30, 1997. The transaction is subject to the negotiation of a
definitive agreement and there can be no assurance that the sale of this
subsidiary will be completed.

RESULTS OF OPERATIONS

The following table sets forth, with respect to the Company and for the
periods indicated, the percentage of total revenues represented by certain
revenue, expense and income items:

<TABLE>
<CAPTION>
YEAR ENDED
PERIOD DECEMBER 31, SIX MONTHS ENDED JUNE 30,
APRIL 28, 1995(1) ----------------- -------------------------------------
THROUGH PRO PRO PRO
DECEMBER 31, FORMA FORMA FORMA
1995 1996 1996(2) 1996 1996(2) 1997 1997(2)
------------------ ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services................ 100.0% 100.0% 36.6% 100.0% 34.0% 61.9% 50.2%
Software and software services...... -- -- 51.0 -- 59.2 32.5 43.3
Other............................... -- -- 12.4 -- 6.8 5.6 6.5
----- ----- ----- ----- ----- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
Expenses:
Cost of outsourcing services........ 125.0 77.2 28.2 78.7 26.7 43.4 35.2
Cost of software and software
services.......................... -- -- 31.1 -- 34.6 12.6 25.4
Cost of other revenues.............. -- -- 7.2 -- 3.0 3.0 3.8
Selling, general and
administrative.................... -- -- 12.5 -- 12.8 14.7 13.1
Research and development............ -- -- 9.3 -- 11.6 2.9 3.3
Depreciation and amortization....... 0.8 5.8 10.1 6.5 11.8 7.3 8.0
Purchased research and
development....................... -- -- -- -- -- 12.9 10.5
Deferred compensation............... -- -- -- -- -- 17.0 13.8
Management fees to parent........... 15.4 22.7 0.5 22.5 0.6 5.2 0.3
----- ----- ----- ----- ----- ----- -----
Total expenses................ 141.2 105.7 98.9 107.7 101.1 119.0 113.4
===== ===== ===== ===== ===== ===== =====
Operating income (loss)............... (41.2) (5.7) 1.1 (7.7) (1.1) (19.0) (13.4)
Other income (expense)................ -- (0.0) (0.9) -- (1.2) (0.7) (0.8)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes
(benefit)........................... (41.2) (5.7) 0.2 (7.7) (2.3) (19.7) (14.2)
Income taxes (benefit)................ (8.9) (1.9) (0.2) (2.6) (1.2) (7.4) (5.7)
----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... (32.3)% (3.8)% 0.4% (5.1)% (1.1)% (12.3)% (8.5)%
===== ===== ===== ===== ===== ===== =====
</TABLE>

- ---------------

(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 ON A PRO FORMA BASIS

REVENUES. Pro forma revenues were $28.7 million for the six months ended
June 30, 1997 compared to $15.7 million for the six months ended June 30, 1996,
an increase of $13.0 million or 83%. Revenues from

21
<PAGE> 24

outsourcing services were $14.4 million for the six months ended June 30, 1997
compared to $5.3 million for the six months ended June 30, 1996, an increase of
$9.1 million or 172%, primarily as a result of three significant contracts
entered into during or after March 1996 under which the Company performed
significantly more outsourcing services. These three contracts included a claims
administration agreement with Interco as administrator for the Virginia
Commission, a policy administration agreement and a claims administration
agreement with Clarendon through Blanch. Revenues from software and software
services were $12.4 million for the six months ended June 30, 1997 compared to
$9.3 million for the period ended June 30, 1996, an increase of $3.1 million or
33%. This increase was attributable to an increased number of software product
installations and customizations, primarily WPC (as hereinafter defined), due to
increased sales and marketing efforts. Revenues from other sources were $1.9
million for the six months ended June 30, 1997 compared to $1.1 million for the
six months ended June 30, 1996, an increase of $800,000 or 73%. This increase
was attributable to increased hardware sales in connection with the increased
software installations.

COST OF REVENUES. Cost of outsourcing services, which consists primarily of
personnel costs, was $10.1 million for the six months ended June 30, 1997
compared to $4.2 million for the six months ended June 30, 1996, an increase of
$5.9 million or 140%, primarily as a result of costs associated with the
performance of the three significant contracts described above. Cost of software
and software services, which is comprised primarily of salaries, was $7.3
million for the six months ended June 30, 1997 compared to $5.4 million for the
six months ended June 30, 1996, an increase of $1.9 million or 35%, primarily as
a result of an increased number of software installations. Cost of revenues as a
percentage of total revenues remained constant at 64% for each of the six months
ended June 30, 1996 and 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of corporate operations, finance and
accounting, human resources and other general operations of the Company.
Selling, general and administrative expenses were $3.8 million for the six
months ended June 30, 1997 compared to $2.1 million for the six months ended
June 30, 1996, an increase of $1.7 million or 81%. This increase was due to
additional staffing, office space and computer equipment and software required
to expand the infrastructure to support the Company's growth. Selling, general
and administrative expenses as a percentage of total revenues were 13% for each
of the six months ended June 30, 1996 and 1997.

RESEARCH AND DEVELOPMENT. Research and development expense is comprised
primarily of direct salaries. Research and development expense decreased from
$1.8 million for the six months ended June 30, 1996 to $945,000 for the six
months ended June 30, 1997 due to the temporary redeployment in 1997 of certain
research and development personnel to assist with systems installations.
Amortization of research and development purchased as a result of the SDS
Acquisition was approximately $600,000 and $600,000 for the six months ended
June 30, 1996 and 1997, respectively, and is included in depreciation and
amortization for the periods presented.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$2.3 million for the six months ended June 30, 1997 compared to $1.9 million for
the six months ended June 30, 1996, an increase of $400,000 or 21%. This
increase is primarily attributable to Millers Mutual's capital contribution of
approximately $2.5 million in depreciable property and equipment, including
computer and information system equipment, to the Company in January 1997.

NONRECURRING EXPENSES. In the purchase price allocation of the SDS
Acquisition, $3.0 million was assigned to in-process research and development.
This amount was charged to operations in March 1997. In addition, $3.9 million
was charged to operations as deferred compensation associated with stock options
granted to executive officers during the six months ended June 30, 1997.

INCOME TAXES (BENEFIT). Historically, Millers Mutual filed a consolidated
tax return that included all subsidiaries of Millers Mutual, including the
Company. For financial accounting purposes, the Company recorded its pro rata
share, based on its taxable income or loss, of total consolidated taxable income
or loss.

22
<PAGE> 25

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 ON AN HISTORICAL BASIS

REVENUES. The Company's total revenues were $23.3 million for the six
months ended June 30, 1997 compared to $5.3 million for the six months ended
June 30, 1996, an increase of $18.0 million or 340%. This increase is
attributable primarily to: (i) the SDS Acquisition and (ii) revenues from the
three significant outsourcing contracts described above.

COST OF REVENUES. Total cost of revenues was $13.7 million for the six
months ended June 30, 1997 compared to $4.2 million for the six months ended
June 30, 1996, an increase of $9.5 million or 226%, primarily as a result of:
(i) the SDS Acquisition and (ii) the costs associated with the performance of
services under the three significant outsourcing contracts described above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.6 million for the six months ended June 30, 1997
compared to $1.2 million for the six months ended June 30, 1996, an increase of
$3.4 million or 283%. This increase was primarily due to the SDS Acquisition.
Selling, general and administrative expenses as a percentage of total revenues
decreased from 23% for the six months ended 1996 to 20% for the six months ended
June 30, 1997. This decrease is attributable primarily to revenues from the
three significant outsourcing contracts described above while the level of
management services provided by Millers Mutual, and the resulting management
fees, remained stable.

RESEARCH AND DEVELOPMENT. Research and development expense was $680,000 for
the six months ended June 30, 1997. This expense was comprised primarily of
direct salaries related to software development. Prior to the SDS Acquisition,
the Company did not incur any significant research and development expenses.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$1.7 million for the six months ended June 30, 1997 compared to $350,000 for the
six months ended June 30, 1996, an increase of $1.3 million or 371%. This
increase is primarily attributable to (i) Millers Mutual's capital contribution
of approximately $2.5 million in depreciable property and equipment to the
Company in January 1997 and (ii) amortization of goodwill recorded in connection
with the SDS Acquisition.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION
THROUGH DECEMBER 31, 1995 ON AN HISTORICAL BASIS

REVENUES. The Company's total revenues were $13.6 million for the year
ended December 31, 1996 compared to $3.9 million for the period from inception
through December 31, 1995, an increase of $9.7 million or 249%. This increase is
attributable primarily to (i) the Company conducting twelve months of operations
in 1996 compared to approximately six months in 1995 and (ii) revenues from the
three significant outsourcing contracts described above.

COST OF REVENUES. Cost of revenues was $10.5 million for the year ended
December 31, 1996 compared to $4.9 million for the period from inception through
December 31, 1995, an increase of $5.6 million or 114%. This increase is
attributable primarily to (i) the Company conducting twelve months of operations
in 1996 compared to approximately six months in 1995 and (ii) personnel and
other costs associated with the three significant outsourcing contracts
described above. Cost of revenues as a percentage of total revenues decreased
from 125% for the period from inception through December 31, 1995 to 77% for the
year ended December 31, 1996. This decrease was primarily a result of economies
of scale associated with spreading certain fixed costs over a larger revenue
base and lower personnel costs as a percentage of revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3.1 million for the year ended December 31, 1996
compared to $600,000 for the period from inception through December 31, 1995, an
increase of $2.5 million or 417%. This increase is attributable primarily to the
Company conducting twelve months of operations in 1996 compared to approximately
six months in 1995.

23
<PAGE> 26

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$787,000 for the year ended December 31, 1996 compared to $33,000 for the period
from inception through December 31, 1995, an increase of $754,000 or 2,285%.
This increase is primarily attributable to Miller Mutual's capital contribution
of approximately $2.4 million in depreciable property and equipment during the
last six months of 1995 and the purchase of approximately $1.8 million in
depreciable property and equipment throughout 1996.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has funded its operations through cash generated
from operations, as well as borrowings and capital contributions from Millers
Mutual. Net cash provided by operating activities was $3.2 million in the six
months ended June 30, 1997 compared to $897,000 in the six months ended June 30,
1996. Cash flow used in operating activities was $459,000 and $0 for the year
ended December 31, 1996 and the period from inception through December 31, 1995,
respectively. In 1996, cash flow used in operating activities included an
increase in accounts receivable of approximately $1.2 million and a decrease in
amounts due to affiliates of approximately $573,000, which was offset by
depreciation expense of approximately $787,000 and an increase in accounts
payable and accrued expenses of approximately $1.1 million. At December 31,
1996, the Company is in compliance with its covenants under its bank borrowings.

The Company entered into the NationsBank Facility on March 12, 1997,
pursuant to which the Company borrowed $5.0 million under a term credit facility
and $2.5 million under a revolving credit facility to finance in part the SDS
Acquisition. The term credit facility is payable in quarterly installments with
the final installment due and payable on March 12, 2001. The revolving credit
facility expires and is due and payable on March 12, 1999. Although the Company
intends to use a portion of its net proceeds from this offering to repay the
amounts owed under the NationsBank Facility, the Company intends to keep the
revolving credit facility in place for future borrowings. Borrowings under the
NationsBank Facility are secured by all accounts receivable, inventory,
equipment, servicing contract rights, all of the outstanding stock of the
Company's subsidiary and other personal property of the Company and the
Company's subsidiary. At June 30, 1997, the Company is in compliance with its
covenants under the NationsBank Facility. See "Use of Proceeds."

From time to time, the Company has received loans and capital contributions
from Millers Mutual. In March 1997, Millers Mutual made a $10.5 million capital
contribution to fund in part the SDS Acquisition. As of June 30, 1997, the
outstanding balance of the loans was $2.8 million. The Company intends to use a
portion of its net proceeds from this offering to repay these loans. The Company
does not anticipate receiving any loans or capital contributions from Millers
Mutual in the future. See "Use of Proceeds."

The Company believes that cash generated from operations and its net
proceeds from this offering will satisfy the Company's anticipated working
capital requirements for at least one year. The Company, however, may require
substantial additional funds for potential acquisitions and expansion. In the
normal course of business, the Company evaluates acquisitions of businesses,
products and technologies that complement the Company's business. The Company
has no present commitments or understandings with respect to any such
transaction. The Company, however, may acquire businesses, products or
technologies in the future.

24
<PAGE> 27

SELECTED CONSOLIDATED FINANCIAL DATA OF SDS
(IN THOUSANDS, EXCEPT SHARE DATA)

The selected consolidated financial data of SDS presented below as of
December 31, 1995, 1996 and March 11, 1997, for the years ended December 31,
1994, 1995 and 1996 and for the period January 1, 1997 through March 11, 1997
have been derived from the SDS audited consolidated financial statements
appearing elsewhere in this Prospectus. The selected consolidated financial data
of SDS presented below as of December 31, 1992, 1993, and 1994 and for the years
ended December 31, 1992 and 1993 have been derived from audited consolidated
financial statements of SDS that are not included in this Prospectus. The
selected consolidated financial data of SDS presented below for the three months
ended March 31, 1996 are unaudited but have been prepared on the same basis as
the audited consolidated financial statements of SDS included herein and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of SDS's consolidated financial
position and results of operations for such periods. The results of operations
presented below are not necessarily indicative of the results of operations that
may be achieved in the future. The selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of SDS" and SDS's Consolidated Financial
Statements.

<TABLE>
<CAPTION>
PERIOD
THREE JANUARY 1,
MONTHS 1997
YEAR ENDED DECEMBER 31, ENDED THROUGH
----------------------------------------------- MARCH 31, MARCH 11,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software services............................. $ 7,184 $ 9,199 $ 9,041 $ 9,078 $10,037 $ 2,396 $ 2,385
Software...................................... 6,207 5,682 4,313 9,068 8,987 2,132 2,455
Hardware...................................... 616 924 2,245 2,400 3,680 361 463
Other......................................... 245 349 405 615 960 184 109
------- ------- ------- ------- ------- ------- -------
Total revenues............................ 14,252 16,154 16,004 21,161 23,664 5,073 5,412
Expenses:
Salaries and compensation..................... 8,482 9,793 11,811 13,088 14,505 3,380 3,476
Depreciation and amortization................. 1,219 1,574 2,157 1,879 1,827 462 411
Cost of hardware sold......................... 459 738 1,862 1,979 2,699 291 384
Occupancy costs............................... 1,158 1,343 1,374 1,379 1,566 352 406
Other......................................... 1,536 1,536 1,831 1,667 2,032 379 372
------- ------- ------- ------- ------- ------- -------
Total expenses............................ 12,854 14,984 19,035 19,992 22,629 4,864 5,049
Operating income (loss)......................... 1,398 1,170 (3,031) 1,169 1,035 209 363
Interest income (expense), net.................. (264) (2) (134) (80) 77 (8) 24
Other income (expense), net..................... (15) 97 2 (2) 35 -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes (benefit)..... 1,119 1,265 (3,163) 1,087 1,147 201 387
Income taxes (benefit).......................... 444 503 (1,253) 429 449 81 156
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 675 $ 762 $(1,910) $ 658 $ 698 $ 120 $ 231
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 11,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 67 $ 492 $ 289 $ 529 $ 1,516 $ 940
Working capital................................... 302 993 (1,167) 572 1,785 1,694
Total assets...................................... 11,243 12,705 13,692 12,054 13,465 13,391
Current portion of long-term debt................. 299 361 557 689 525 439
Long-term debt, excluding current portion......... 2,428 2,674 2,570 2,028 1,883 1,879
Shareholders' equity.............................. 5,000 5,596 3,739 4,538 5,385 5,617
</TABLE>

25
<PAGE> 28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SDS

RESULTS OF OPERATIONS

The following table sets forth, with respect to SDS and for the periods
indicated, the percentage of total revenues represented by certain revenue,
expense and income items:

<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
THREE MONTHS 1997
YEAR ENDED DECEMBER 31, ENDED THROUGH
------------------------- MARCH 31, MARCH 11,
1994 1995 1996 1996 1997
----- ----- ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software services....................................... 56.5% 42.9% 42.4% 47.3% 44.1%
Software................................................ 27.0 42.9 38.0 42.0 45.3
Hardware................................................ 14.0 11.3 15.5 7.1 8.6
Other................................................... 2.5 2.9 4.1 3.6 2.0
----- ----- ----- ----- -----
Total revenues.................................... 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
Expenses:
Salaries and compensation............................... 73.8 61.8 61.3 66.6 64.2
Depreciation and amortization........................... 13.5 8.9 7.7 9.1 7.6
Cost of hardware sold................................... 11.6 9.4 11.4 5.7 7.1
Occupancy costs......................................... 8.6 6.5 6.6 6.9 7.5
Other................................................... 11.4 7.9 8.6 7.6 6.9
----- ----- ----- ----- -----
Total expenses.................................... 118.9 94.5 95.6 95.9 93.3
===== ===== ===== ===== =====
Operating income (loss)................................... (18.9) 5.5 4.4 4.1 6.7
Other income (loss)....................................... (0.8) (0.4) 0.5 (0.1) 0.4
----- ----- ----- ----- -----
Income (loss) before income taxes (benefit)............... (19.7) 5.1 4.9 4.0 7.1
Income taxes (benefit).................................... (7.8) 2.0 1.9 1.6 2.9
----- ----- ----- ----- -----
Net income (loss)......................................... (11.9)% 3.1% 3.0% 2.4% 4.2%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1997 THROUGH
MARCH 11, 1997 AND THE THREE MONTHS ENDED MARCH 31, 1996

REVENUES. SDS's revenues were $5.4 million for the period January 1, 1997
through March 11, 1997 and $5.1 million for the three months ended March 31,
1996, an increase of approximately $300,000 or 5.9%. This increase was due to
additional software installation revenues, primarily sales of WPC, as well as
increased hardware sales in connection with the increased software
installations.

OPERATING EXPENSES. Operating expenses were $5.0 million for the period
January 1, 1997 through March 11, 1997 and $4.9 million for the three months
ended March 31, 1996, an increase of approximately $100,000 or 2.0%. This
increase is attributable to: (i) the increased costs of computer hardware sold
associated with the corresponding increase in computer hardware sales revenues
and (ii) additional personnel and occupancy costs. Total operating expenses as a
percentage of revenues remained fairly constant.

COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995

REVENUES. SDS's revenues were $23.7 million for the year ended December 31,
1996 compared to $21.2 million for the year ended December 31, 1995, an increase
of $2.5 million or 11.8%. This increase is primarily attributable to increases
in services performed, including: (i) software service fees, (ii) software
installation revenues, primarily WPC installations, which contributed an
additional $1.2 million in revenues in 1996, and (iii) computer hardware sales
and commissions, which increased by $1.3 million from 1995 to 1996.

OPERATING EXPENSES. Operating expenses were $22.6 million for the year
ended December 31, 1996 compared to $20.0 million for the year ended December
31, 1995, an increase of $2.6 million or 13.0%. This increase is primarily
attributable to increased personnel costs of $1.4 million and the increase of
approximately $720,000 in the cost of computer hardware sold. Total operating
expenses as a percentage of revenues remained constant at approximately 95% for
the years ended December 31, 1995 and 1996.

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<PAGE> 29

COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994

REVENUES. SDS's revenues were $21.2 million for the year ended December 31,
1995 compared to $16.0 million for the year ended December 31, 1994, an increase
of $5.2 million or 32.5%. This increase is attributable primarily to software
installations relating to: (i) several significant new customers in late 1994
and early 1995, as well as additional installations for existing clients, and
(ii) the introduction of new products, such as WPC and UES (as hereinafter
defined) that had been in development in the early 1990s and for which demand
increased in late 1994 and early 1995, resulting in increased software
installations. WPC alone contributed an additional $1.6 million in software
installation revenues in 1995 compared to 1994.

OPERATING EXPENSES. Operating expenses were $20.0 million for the year
ended December 31, 1995 compared to $19.0 million for the year ended December
31, 1994, an increase of $1.0 million or 5.3%. This increase was due primarily
to higher salaries and benefits expenses of approximately $1.3 million relating
to an increase in the number of SDS employees from approximately 230 at December
31, 1994 to approximately 250 at December 31, 1995. Total operating expenses as
a percentage of revenues decreased from 118.9% for the year ended December 31,
1994 to 94.5% for the year ended December 31, 1995 as a result of economies of
scale associated with spreading certain fixed costs over a larger revenue base
and lower personnel costs as a percentage of revenues.

LIQUIDITY AND CAPITAL RESOURCES

Historically, SDS funded its operations primarily through cash generated
from operations, supplemented by borrowings. Net cash provided by operating
activities was approximately $201,000 in the period from January 1, 1997 through
March 11, 1997 compared to approximately $317,000 in the three months ended
March 31, 1996. Cash flow provided by operating activities was $2.2 million,
$2.2 million and $1.2 million for the years ended December 31, 1996, 1995 and
1994, respectively. In 1996, cash flow provided by operating activities was
comprised primarily of $1.8 million of depreciation and amortization expense.

SDS entered into a letter agreement with Norwest Bank Wisconsin, National
Association ("Norwest") on September 21, 1994 (as amended, the "Norwest
Agreement"), pursuant to which SDS borrowed under a line of credit facility and
under certain promissory notes to help finance certain property acquisitions,
such as a building and business equipment, and the repurchase of SDS common
stock. In addition, SDS entered into a contract with the Redevelopment Authority
of Sheboygan, Wisconsin (the "Redevelopment Authority") on November 1, 1988 (the
"Authority Contract"), pursuant to which SDS borrowed $150,000 from the
Redevelopment Authority to finance the acquisition of certain land. In
connection with the SDS Acquisition, SDS transferred the building and land to
Riverview Building, LLC ("Riverview"), and Riverview assumed the debt associated
with the building under the Norwest Agreement and the debt associated with the
land under the Authority Contract. In addition, on June 23, 1997, SDS paid the
outstanding principal balance and accrued interest on the remaining outstanding
debt under the Norwest Agreement. As a result, there are no outstanding
borrowings under the Norwest Agreement or the Authority Contract. See "Certain
Transactions."

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<PAGE> 30

BUSINESS

INTRODUCTION

The Company is a provider of policy and claims administration solutions to
the P&C insurance industry, offering a comprehensive choice of outsourcing
services and software and software services. The Company's outsourcing services,
which generally are provided on a percentage of premiums or claims paid basis,
include application of underwriting and rating criteria defined by the insurer,
policy issuance, customer service, billing and collections, claims adjusting and
processing, and policyholder mailings. The Company's software products include
policy and claims administration systems, as well as systems that increase the
productivity of insurers by automating certain functions, such as workflow
management, underwriting rules and guidelines, document production and rating
algorithms. These systems, which run on a variety of platforms including IBM
AS/400, IBM RS/6000, Windows 3.1, Windows 95 and Windows NT, enable the
Company's customers to conduct their policy and claims administration more
efficiently. The Company's software services include installation,
customization, conversion and maintenance of these systems to meet customer
specifications.

The Company was established in April 1995 as a wholly-owned subsidiary of
Millers Mutual, an insurance company chartered in Texas in 1898. The Company was
created to provide outsourcing services to other P&C insurers by capitalizing on
Millers Mutual's success in developing, implementing and managing software
systems for its internal use. As a result of the SDS Acquisition in March 1997,
the Company now also develops and markets software and software services to the
P&C insurance industry. SDS offered software and software services to the P&C
insurance industry for 16 years prior to its acquisition by the Company. The
Company believes its services and products allow customers to focus on core
competencies, reduce costs by converting their fixed costs of in-house
information technology to variable costs and leverage the Company's investment
in software systems and productivity tools.

OVERVIEW OF THE PROPERTY AND CASUALTY INSURANCE INDUSTRY

The P&C insurance 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 generally include automobile insurance (physical damage and
liability insurance) and homeowners' insurance. Commercial lines generally
include workers' compensation, business, directors and officers liability, theft
and medical malpractice insurance as well as insurance covering other commercial
risks.

The P&C insurance industry is highly competitive. Insurance companies
compete primarily on the basis of price, consumer satisfaction and claims paying
ability. According to A. M. Best, as of December 31, 1995, there were
approximately 2,500 P&C insurance companies in the United States generating
approximately $260 billion in annual premium revenues, of which approximately
53% were written by the top 20 insurers. Based on statistics released by the
Insurance Services Office, an industry advisory organization, premium revenues
for the P&C insurance industry over the past several years have been increasing
approximately 3% annually.

According to a study published by A.M. Best, the 10 largest insured
catastrophes have occurred since 1989, including Hurricane Andrew in 1992, the
Northridge, California earthquake in 1994 and Hurricane Hugo in 1989. The
Company believes that these catastrophes have caused insurers to decrease their
exposure in areas prone to natural disasters. Much of the new demand created by
insurers leaving markets is being met by reinsurers and new market entrants that
have not made significant infrastructure investments and do not desire to do so.
The Company believes that its ability to deliver services priced as a percentage
of premiums or claims paid should be attractive to these new entrants, as it
will enable them to enter new markets without incurring substantial fixed
infrastructure costs.

According to a recent survey by the National Association of Independent
Insurers, information systems expenses as a percentage of written premiums
increased from 2.5% in 1992 to 3.3% in 1996. The Company believes that this
increasing investment in information systems is indicative of the demand for
automation in

28
<PAGE> 31

the P&C insurance industry. This demand promotes the sale of software and
software services and represents an opportunity to provide outsourcing services
for those insurers that do not wish to make increasing levels of capital
expenditures.

NEED FOR INFORMATION MANAGEMENT AND WORK PROCESS AUTOMATION

Technology is a critical element in an insurance company's ability to
compete. Insurance companies use technology and information systems as
management tools to improve efficiency, manage costs and increase customer
satisfaction. A highly technical industry has evolved to meet the unique needs
of P&C insurers to manage and process large amounts of policyholder data. The
focus of insurers has recently shifted away from finding more efficient means of
storing information toward more efficient ways of processing information.

The Company provides a wide variety of services and products to manage and
process policy and claims information more efficiently, including: (i) software
and software services, (ii) policy administration services, (iii) claims
administration services and (iv) "virtual insurance company" services (which
include the outsourcing of both policy and claims administration and related
functions). The Company believes that there are significant opportunities to
market its services and products for the following reasons:

- ECONOMIES OF TECHNOLOGY. The investment in information systems necessary
for P&C insurers to remain competitive is often cost prohibitive,
particularly for smaller companies, because of the specialized technical
knowledge required to develop, install, operate and maintain
sophisticated systems. The Company's services and products allow
insurance companies to take advantage of economies of technology by
leveraging the Company's investment in software systems and productivity
tools.

- TREND TOWARD DIRECT SALES. Many personal lines insurers are reducing
costs by selling policies directly to policyholders rather than through
independent agents. By selling directly to policyholders, insurance
companies can reduce costs, which allows them to reduce premiums. This
trend has created opportunities for the Company to market its services
and products to insurers that sell directly to policyholders and those
that continue to sell through independent agents. Automation of the
policy and claims administration functions allows insurers selling
directly to customers to provide services efficiently that were
traditionally performed by agents. Automation also enables insurers that
sell through agents to reduce administration costs to compete more
effectively with insurers that sell directly to policyholders.

- YEAR 2000 PROBLEM. The Year 2000 problem manifests itself in a number of
ways in the policy and claims administration area. The Year 2000 problem
arose because, until recently, most software systems were not programmed
to recognize correctly dates beyond December 31, 1999. For example,
policy and claims administration systems process information based on
policy commencement and renewal dates, yet systems that are not Year 2000
compliant cannot correctly recognize policy dates beyond December 31,
1999. According to a survey conducted by the National Association of
Independent Insurers, as of November 1996 only 45% of insurance companies
had resolved this problem. The Company believes that many insurance
companies may resolve the Year 2000 problem by either: (i) purchasing new
software systems or (ii) entirely outsourcing their policy and claims
needs rather than incurring the cost of updating their old systems.

- STATE REGULATION. P&C insurers are subject to supervision and regulation
on a state-by-state basis with respect to numerous aspects of their
business. State insurance regulators closely regulate the product
offerings, claims processes and premium structure of insurance companies.
State regulators also require insurance companies to file annual and
other reports relating to their financial condition. Policy and claims
administration systems can facilitate compliance with numerous regulatory
requirements by automating statutory reporting and other compliance
tasks.

- CUSTOMER SERVICE. As policyholders demand faster, broader and better
service, P&C insurers that provide superior customer service enjoy a
competitive advantage. Dissatisfaction with policy or claims handling
processes is frequently cited as a cause of policy nonrenewal. In
addition, retaining an existing

29
<PAGE> 32

policyholder with good customer service is more cost effective for an
insurance company than attracting a new policyholder away from a
competitor. Automation and outsourcing can allow insurance companies to
improve customer service while lowering fixed costs.

TREND TOWARD OUTSOURCING

Since the late 1980s, many P&C insurers have sought to use third parties to
provide certain functions or services that the insurers historically performed
in-house. These companies seek to focus on their core competencies, reduce costs
and avoid the significant investment associated with developing, installing,
operating and maintaining information management and automation systems. The
Company believes that insurance companies increasingly will conclude that policy
and claims administration and regulatory compliance are too complicated, costly
and administratively burdensome to be performed in-house. Other factors
contributing to the outsourcing trend include the following:

- NEED FOR FLEXIBILITY. Many P&C insurers lack the ability to respond
rapidly to changing market conditions. Outsourcing enables insurance
companies to enter new markets quickly and cost-effectively to take
advantage of favorable market conditions without incurring substantial
fixed infrastructure costs.

- NEED TO DIVERSIFY RISK. Many P&C insurers are overexposed to risks from
natural catastrophes in certain markets. Because many states restrict the
ability of insurers to cancel policies or exit particular lines of
business, these insurers often cease writing new policies and outsource
the administration of their remaining policies and claims ("stranded
policies"). Alternatively, insurers may reduce their risk by reinsuring
policies with other insurers that do not have a similar geographic
concentration or by allowing other insurers to renew the stranded
policies. As insurers leave markets, they create demand for outsourcing
the policy and claims administration of the stranded policies.

- DESIRE TO MAXIMIZE STATUTORY SURPLUS. As most state regulations require
insurance companies to maintain certain ratios of surplus to premiums,
insurance companies that maximize surplus are able to write greater total
premiums. Insurance companies cannot capitalize, for statutory-basis
financial statement reporting purposes, most of the hardware and software
they purchase or develop for policy and claims administration. As a
result, an insurance company with a large investment in its policy and
claims administration infrastructure generally will experience a lower
statutory surplus than it would if it were to outsource its policy and
claims administration.

- VIRTUAL INSURANCE COMPANIES. Deregulation has permitted new companies
that are not traditional insurance companies to enter the P&C insurance
industry. Banks, credit unions and other financial services companies are
beginning to underwrite P&C insurance. These new entrants often do not
have policy and claims administration infrastructure or expertise in
place and are natural candidates for outsourcing. The Company facilitates
the creation of these "virtual insurance companies" by providing policy
and claims administration and related back office administration to new
entrants that desire to focus their resources on the core marketing,
underwriting and financial aspects of the P&C insurance business.

THE INSPIRE STRATEGY

The Company's objective is to become the leading provider of policy and
claims administration solutions to the P&C insurance industry. The Company's
strategy to achieve this objective involves the following elements:

- OFFER A COMPREHENSIVE CHOICE OF SOLUTIONS. The Company offers an "a la
carte" menu of services and products that is attractive to a wide variety
of potential customers. This comprehensive and flexible approach enhances
customer stability and increases opportunities for new sales by allowing
the Company to sell multiple services and products to both existing and
new customers.

- IMPLEMENT AN INTEGRATED MARKETING PLAN. The Company is integrating its
sales and marketing efforts to capitalize on its ability to offer a
comprehensive choice of solutions. This integration process involves

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<PAGE> 33

training the Company's sales and marketing personnel to sell a full line
of services and products, forming a dedicated sales team to focus on
larger accounts (generally defined as insurance companies with annual
premiums in excess of $250 million) and expanding sales and marketing
support staff to market directly to specialty line P&C insurers and new
entrants in the P&C insurance industry, such as banks, credit unions and
other financial services companies.

- GENERATE RECURRING REVENUES. The Company's services and products are
structured to generate revenues based on events that occur in the normal
course of a customer's business. Policy administration services generate
recurring revenues because the Company earns a percentage of each premium
received by the insurance company. Claims administration services
generate recurring revenues because the Company earns a percentage of
either each claim paid or each premium received by the insurance company.
Software licensing generates recurring revenues because most of the
Company's customers enter into systems support, maintenance or
enhancement agreements to purchase additional services and software
enhancements throughout the life of their systems.

- PENETRATE NEW MARKETS. Prior to the SDS Acquisition, SDS traditionally
marketed its software products and services to small to mid-size domestic
insurance companies. Utilizing the combined resources of the merged
companies, the Company intends to pursue sales opportunities with larger
insurance companies.

- ENHANCE PRODUCT CAPABILITIES. Maintaining technology leadership is
critical to remaining competitive in the Company's industry. The Company
plans to enhance continuously its existing services and products and
develop entirely new services and products to respond to constantly
changing customer requirements.

- PURSUE STRATEGIC ACQUISITIONS. The Company intends to consider potential
acquisition candidates that offer opportunities to increase market share
and expand the Company's line of outsourcing services and software and
software services.

SERVICES AND PRODUCTS

The Company offers a range of services and products to address the policy
and claims administration needs of the P&C insurance industry. The Company
installs, enhances and maintains a variety of policy and claims administration
software systems and offers outsourcing of policy and claims administration.

OUTSOURCING SERVICES. The Company's outsourcing services include
policyholder mailings, underwriting approval, policy rating and issuance, policy
acceptance, customer service, billing and collections, and claims adjusting and
processing. The customer determines the extent to which it uses the Company's
services. A team of Company and customer personnel work closely together to
ensure the seamless integration of the customer's outsourced and in-house
activities. The Company's outsourcing services include the following:

- POLICY ADMINISTRATION. Policy administration services describes the suite
of services the Company offers customers that desire to outsource their
policy administration. The customer retains all of the financial risk and
works with the Company to provide underwriting and rating guidelines. The
Company typically is paid a percentage of premiums for policy
administration services, which include the following:

- Direct, agency and Internet marketing support

- Policy issuance and acceptance

- Application of underwriting and rating criteria defined by the insurer

- Customer service phone center for policyholders and agents

- Accounting, billing and collections

- Commission calculation and disbursement

- Statutory reporting and regulatory compliance

- Comprehensive management and service bureau reporting

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- CLAIMS ADMINISTRATION. Claims administration services describes the
management of appraising, qualifying and settling P&C insurance claims.
The Company maintains a staff of claims adjusters and examiners. The
Company also uses independent claims adjusters when needed, such as when
a high level of claims arises from a major catastrophe. The Company
reviews insurance coverage, performs a claim analysis and prepares a
check for payment of the claim, if warranted. The Company typically is
compensated on either a percentage of premiums or claims paid basis.

SOFTWARE PRODUCTS. The Company sells information processing systems and
software productivity tools that automate policy and claims administration. The
information processing systems are designed to run on a variety of platforms,
including IBM AS/400 ("AS/400"), IBM RS/6000 ("RS/6000"), Windows 3.1, Windows
95 and Windows NT. The Company's software productivity tools add functionality
and flexibility to base systems. These productivity modules can be sold in
conjunction with the Company's base systems or as add-ons to other vendors' base
systems.

- INTEGRATED SYSTEMS

- POLICY AND CLAIMS ADMINISTRATION SYSTEM. The Policy and Claims
Administration System ("PCA") is an integrated system that offers
policy and claims administration, billing and collections, financial
administration, and management and statistical bureau reporting. PCA
runs on the AS/400 and RS/6000 platforms. PCA was originally
introduced in 1988 and the current version was introduced in 1995. The
Company has completed 38 AS/400 installations and 8 RS/6000
installations of PCA.

- WINDOWS INTO PROPERTY AND CASUALTY SYSTEM. Functionally comparable to
PCA, Windows into Property and Casualty System ("WPC") is an
integrated system that performs functions from submission tracking to
policy and claims administration to management and bureau reporting.
WPC runs on a PC platform in a client/server environment and on most
major PC network operating systems, including Novell Netware and
Microsoft Windows NT. Since its introduction in 1992, the Company has
installed 22 WPC systems.

- SOFTWARE PRODUCTIVITY TOOLS

- EMPOWER. EmPower is an automated workflow management system designed
for the personal lines policy administration needs of P&C insurers.
EmPower interfaces with PCA, other vendors' systems or insurers'
proprietary systems to provide imaging and workflow management
technology. EmPower automatically processes the flow of information,
substantially reducing manual activities through the integration of
voice, data, image and text into one system. EmPower was introduced in
1996 and operates in a client/server environment using Microsoft
Windows. The Company plans to enhance EmPower to support claims
administration and commercial lines policy administration software.

- UNDERWRITING EXPERT SYSTEM. The Underwriting Expert System ("UES")
automates underwriting rules and guidelines to mirror a client's
underwriting process. UES enhances consistency of review and
streamlines customer service and operations departments by reducing
the need for manual underwriting review. UES uses a relational
database to store and report statistics concerning underwriting
efficiency and results of the review process. UES operates in a
client/ server environment and interfaces with PCA and WPC, as well as
most systems sold by other vendors or insurers' proprietary systems.
UES was introduced in 1993.

- POLICY SET PRODUCTION. Policy Set Production ("PSP") allows for laser
quality printing of policy declarations, booklets, forms,
endorsements, billing notices and letters. PSP manages the logistics
of producing the appropriate documents necessary for each
policyholder. Introduced in 1995, PSP operates in a client/server
environment and interfaces with PCA and WPC, as well as most systems
sold by other vendors or insurers' proprietary systems.

- VISUAL RATER. Visual Rater is a productivity tool using object
oriented programming technology that allows nontechnical users to
create, build, test and maintain the rating components of

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<PAGE> 35

insurance processing. Visual Rater's "point and click" rating
construction and maintenance interface can be operated by persons who
are not technical programmers. Instead, reusable rating components
become simple icons used as building blocks to create rating
algorithms. Visual Rater was introduced in 1995 and generally is sold
with WPC.

SOFTWARE SERVICES. The Company customizes all of its software products to
meet customer specifications. The initial license fee paid to the Company gives
the customer the right to use the software, but does not cover customization,
conversion, enhancements or upgrades. The Company provides systems installation,
customization, conversion and maintenance on a time-and-materials basis.
Disaster recovery planning services and bureau reporting services are provided
on either a fixed fee or time-and-materials basis. Future enhancements and
upgrades to a system are provided for an annual fee equal to a percentage of the
initial license fee. Installations of upgrades and enhancements are performed on
a time-and-materials basis.

RESEARCH AND DEVELOPMENT

The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. The Company's future success depends in part on its
ability to enhance its existing services and products and develop new services
and products to meet changing customer requirements. The Company's research and
development efforts are focused on enhancement of existing services and
products, expansion of operating system compatibility and development of new
applications for emerging insurance markets. In addition, the Company has in the
past acquired new services and products through the acquisition of complementary
businesses and may do so in the future. Currently, major areas of research and
development emphasis are (i) the expansion of EmPower to include claims
administration and commercial lines policy administration and (ii) the expansion
of software applications to address additional P&C insurance markets.

Since inception, the Company has made substantial investments in enhancing
and developing its services and products. Prior to being acquired by the
Company, SDS incurred expenses of approximately $3.7 million, $2.8 million and
$2.9 million in 1994, 1995 and 1996, respectively, for research and development
and the Company intends to devote substantial resources to research and
development in the future. As of June 30, 1997, the Company had approximately 56
employees that perform product development and quality assurance, as well as
participate in the initial installations of new products. There can be no
assurance that the Company will be successful in developing and marketing new or
enhanced services or products.

CUSTOMER SUPPORT AND OPERATIONS

The Company's policy administration outsourcing services are provided at
the Company's service center in Fort Worth, Texas. The Company maintains a
customer service phone center for policyholders and agents five days a week. The
Company employs approximately 30 people in the policy administration service
center to administer approximately 200,000 policies representing $170 million in
annual premiums to the insurers.

The Company provides claims administration outsourcing services at its
service centers in Fort Worth, Texas; Laguna Hills, California; Troy, Michigan;
and St. Petersburg, Florida. The Company employs approximately 20 full-time
claims administrators.

The Company provides software development, installation, maintenance and
enhancement services at its facilities in Sheboygan, Wisconsin; Hartland,
Wisconsin; Columbia, South Carolina; and Uxbridge, Massachusetts. The Company
recently signed a nonbinding letter of intent to sell the subsidiary that leases
the facilities in Hartland, Wisconsin. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of INSpire -- Recent
Developments." The Company employs approximately 150 people who provide software
support and maintains a customer help line five days a week.

SALES AND MARKETING

The Company markets its outsourcing services through insurance brokers,
industry consultants, managing general agents and reinsurers. Once an
opportunity is identified by one of these sources and a request for

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<PAGE> 36

proposal is received, the Company prepares and submits a comprehensive proposal
directly to the prospective customer. The prospective customer is then invited
to Fort Worth to tour the Company's service center and discuss the customer's
requirements in detail. If the Company is selected to be the outsourcing service
provider, a multi-year contract is negotiated and executed. While the
outsourcing sales cycle varies from customer to customer, it typically ranges
from three to twelve months.

The Company's software and software services have traditionally been
marketed through a direct sales force located in Sheboygan, Wisconsin and
Columbia, South Carolina. To support its sales force of five people, the Company
conducts marketing programs that include direct mail, trade shows, public
relations, advertising and ongoing customer communication programs. The Company
also maintains strategic relationships with industry consultants who frequently
assist insurance companies in identifying vendors. While the software systems
sales cycle varies from customer to customer, it typically ranges from six to
twelve months.

The Company is in the process of integrating its sales and marketing
efforts to capitalize on its ability to offer outsourcing services as well as
software and software services. This integration process involves training the
Company's sales and marketing personnel to sell a full line of services and
products, forming a dedicated sales team to focus on larger accounts (generally
defined as insurance companies with annual premiums in excess of $250 million)
and expanding the Company's sales and marketing support staff to market directly
to specialty line insurance companies and new entrants into the P&C insurance
industry, such as banks, credit unions and other financial services companies.

COMPETITION

The policy administration outsourcing market is relatively new and is
dominated by PMSC. The Company competes for policy administration outsourcing
customers on the basis of customer service, performance and price. The claims
administration market is highly fragmented, with competition from a large number
of claims administration companies of varying size as well as independent
contractors and in-house claims adjusters employed by P&C insurance companies.
Competition in the claims administration market is highly price driven. Two of
the larger competitors in the claims administration arena are Lindsey Morden
Claim Services Inc. and Crawford & Company, Inc. The P&C insurance software and
software services market is highly competitive and is dominated by PMSC. The
Company competes for software customers on the basis of customer service,
performance, product features, ability to tailor products and services to
specific customer requirements, timely delivery and price. Other competitors
include Computer Sciences Corporation, The Freedom Group, Inc. and The Wheatley
Group, Ltd.

The Company believes that its most significant competition for outsourcing
services and software comes from policy and claims administration and
information systems development performed in-house by insurance companies.
Insurers that perform in-house administration typically have made a significant
investment in their policy and claims administration systems. In addition,
insurance company personnel have a vested interest in maintaining these
responsibilities in-house.

Many of the Company's competitors 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 products than the Company and respond more 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.

34
<PAGE> 37

CUSTOMERS

The Company currently provides claims administration outsourcing services
to reinsurers and managing general agents. The Company has four claims
administration customers, including the Millers Group, Clarendon and Interco.
The Company has two significant policy administration outsourcing customers,
Clarendon and Millers Casualty. The Company provides services to Clarendon
through contracts with Blanch. Pursuant to a contract with the Virginia
Commission, the Company provides services to Interco, which administers such
contract on behalf of the Virginia Commission. Prior to its acquisition by the
Company, SDS historically provided its software and software services to P&C
insurance companies with premium revenues of less than $250 million. The Company
intends to pursue sales opportunities with larger insurance companies in the
future. The Company currently has over 130 software and software services
customers, including Employers Reinsurance Corporation, Zurich National
Insurance Company, Providence Washington Insurance Company, Firemen's Fund
Insurance Company, Old Guard Group, Inc., Colorado Farm Insurance Company,
Society Insurance Company, Rockford Mutual Insurance Company and National
Alliance Insurance Company.

The Millers Group, Clarendon and Interco accounted for approximately 68%,
8% and 21%, respectively, of the Company's historical revenues in 1996 and 25%,
3% and 8%, respectively, of the Company's pro forma revenues in 1996. The
Millers Group, Clarendon and Interco accounted for approximately 32%, 18% and
8%, respectively, of the Company's historical revenues for the six months ended
June 30, 1997 and 26%, 15% and 7%, respectively, of the Company's pro forma
revenues for such period. Any loss of or material decrease in the business from
any of these customers could have a material adverse effect on the Company's
business, financial condition and results of operations.

EMPLOYEES

As of June 30, 1997, the Company had 471 full-time employees, of whom 11
were employed in sales and marketing functions, 172 in customer support
functions, 56 in product development, installations and quality assurance
functions, 190 in operations and 42 in finance and administration. The Company's
employees are not represented by any collective bargaining organization and none
of its employees are covered by a collective bargaining agreement. The Company
believes that its relationship with its employees is good. The Company regularly
seeks to identify skilled software engineers and other potential employee
candidates and experiences intense competition for personnel in the software
industry. The Company believes that its ability to recruit and retain highly
skilled technical, sales and marketing and other management personnel will be
critical to the Company's future success. There can be no assurance that the
Company will be able to hire a sufficient number of employees with the skills
necessary to enable the Company to attain its objective of becoming the leading
provider of policy and claims administration solutions to the P&C insurance
industry. As of June 30, 1997, the Company had 104 additional employees through
Applied Quoting Systems, Inc. The Company has entered into a nonbinding letter
of intent to sell this subsidiary. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of INSpire -- Recent
Developments."

INTELLECTUAL PROPERTY

The Company licenses its software systems to customers under nonexclusive
and nontransferable license agreements, which generally provide for a paid-up
license fee or a license fee payable in installments. The initial license fee
grants the customer the right to use the version of the software system existing
at the time the license is granted and does not cover upgrades or enhancements.

The Company relies on contract rights and copyright and other intellectual
property laws to protect its products, including software source code, as trade
secrets and confidential proprietary information. The Company's agreements with
its customers and prospective customers prohibit disclosure of the Company's
trade secrets and proprietary information to third parties without the consent
of the Company and generally restrict the use of the Company's products to the
customers' operations. The Company also informs its employees of the proprietary
nature of its products and typically obtains from them agreements not to
disclose trade secrets and proprietary information. Notwithstanding these
restrictions, there can be no assurance that

35
<PAGE> 38

competitors of the Company could not obtain unauthorized access to the Company's
software source code and other trade secrets and proprietary information. The
Company owns common law trademarks, copyrights and service marks that it uses in
connection with its business, none of which are registered.

The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology. There
can be no assurance, however, that third parties will not assert technology
infringement claims against the Company in the future. The litigation of such
claims may involve significant expense and management time. In addition, if any
such claim were successful, the Company could be required to pay monetary
damages, refrain from distributing or using the alleged infringing product, or
obtain a license from the party asserting the claim, which could be unavailable
on commercially reasonable terms. The absence of federal or state registrations
for its intellectual property could be detrimental to the Company in any
infringement litigation or other disputes regarding intellectual property.

LEGAL PROCEEDINGS

In February 1997, the Philadelphia Contributionship for the Insurance of
Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action No.
97-CV-1262) against the Company in the United States District Court for the
Eastern District of Pennsylvania. The suit alleges that the PCA, PSP and UES
systems that SDS sold to PCIHLF in 1995 did not meet PCIHLF's specifications.
PCIHLF claims damages in excess of $1.3 million. The Company and the former SDS
shareholders placed $1.5 million of the SDS purchase price in an escrow account
in respect of this claim. The Company has no recourse against the former SDS
shareholders to the extent that the aggregate of any judgment, settlement and
expenses exceeds the amount of the escrowed funds. SDS filed a counterclaim
against PCIHLF for $550,000 for amounts due under its agreements with PCIHLF.
There can be no assurance with respect to the outcome of this lawsuit.

The Company is not a party to any other legal proceedings that the Company
believes could have a material adverse effect on the Company's business,
financial condition or operating results.

PROPERTIES

The following table sets forth certain information with respect to the
principal facilities used in the Company's operations, all of which are leased:

<TABLE>
<CAPTION>
CURRENT
MONTHLY APPROXIMATE LEASE
LOCATION FUNCTION LEASE RATE SQ. FT. EXPIRATION DATE
-------- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Fort Worth, Texas............ Headquarters and policy and $25,449 19,000 Monthly
claims administration
Sheboygan, Wisconsin......... Software and software services 20,679 28,100 February 2007
Columbia, South Carolina..... Software and software services 22,768 17,800 August 2002
Sheboygan, Wisconsin......... Software and software services 5,433 6,500 February 2002
Uxbridge, Massachusetts...... Software and software services 793 1,600 June 1998
Laguna Hills, California..... Claims administration 4,561 3,200 October 1998
St. Petersburg, Florida...... Claims administration 2,978 2,500 December 1999
Troy, Michigan............... Claims administration 1,873 1,600 May 2000
</TABLE>

The aggregate monthly lease rate for the properties listed above is
$84,534. The Company also leases approximately 5,600 square feet in Westborough,
Massachusetts at $6,018 per month under a lease expiring in December 1998, which
the Company subleases to a subtenant at substantially the same monthly lease
rate under a sublease expiring in December 1998. In addition, Applied Quoting
Systems, Inc. leases approximately 16,900 square feet in Hartland, Wisconsin at
a current monthly lease rate of approximately $20,000 under a lease expiring in
July 1999. The Company recently signed a nonbinding letter of intent to sell
this subsidiary. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of INSpire -- Recent Developments."

The Company believes that its existing facilities are adequate to meet the
Company's requirements for the foreseeable future.

36
<PAGE> 39

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
F. George Dunham, III...... 39 President, Chief Executive Officer, Chairman and
Director
Ronald O. Lynn............. 59 Executive Vice President and Chief Information
Officer
Terry G. Gaines............ 37 Executive Vice President, Chief Financial Officer
and Treasurer
Stuart H. Warrington....... 63 Executive Vice President -- Software and Systems
Robert K. Agazzi........... 53 Executive Vice President -- Software and Systems
Jeffrey W. Robinson........ 40 Executive Vice President -- Outsourcing
W. Scott Lewis............. 42 Executive Vice President -- Marketing
Harry E. Bartel............ 55 Director
R. Earl Cox, III........... 63 Director
Mitch S. Wynne............. 38 Director
</TABLE>

F. GEORGE DUNHAM, III has served as President, Chief Executive Officer and
a director of the Company since its inception in 1995. His current term as
director expires in 2000. Mr. Dunham served from inception to March 1996 as
Chairman of the Board of the Company and was again elected to that position in
June 1997. From 1994 to June 1997, Mr. Dunham served as President and Chief
Executive Officer of Millers Mutual and Millers Casualty. From 1992 to 1994, Mr.
Dunham served as Executive Vice President and Chief Financial Officer of Millers
Mutual and Millers Casualty. Mr. Dunham has served as a director of Millers
Mutual and Millers Casualty since 1992, and in June 1997 he was elected Vice
Chairman of the Board of both companies. From 1991 to 1992, Mr. Dunham served as
Vice President -- Finance of Lindsey Morden Claim Services, Inc., an insurance
claim services and administration company.

RONALD O. LYNN has served as Executive Vice President and Chief Information
Officer of the Company since March 1997 and, from March 1996 to March 1997, as
Vice President of the Company. Mr. Lynn also served as Executive Vice President
and Chief Information Officer from March 1997 to June 1997 and as Vice President
from 1993 to March 1997 of Millers Mutual and Millers Casualty. From 1992 to
1993, Mr. Lynn served as Vice President of Harco National Insurance Company,
where he was responsible for computer related functions. From 1988 to 1992, Mr.
Lynn served as Assistant Vice President of Property and Casualty Processing
Services for PMSC.

TERRY G. GAINES has served as Executive Vice President and Chief Financial
Officer of the Company since June 1997 and Treasurer of the Company since July
1997. From March 1997 to June 1997 Mr. Gaines served as Vice
President -- Finance and Administration of Federal Liaison Services, Inc., a
software development company, and from March 1996 to March 1997 as a Product
Manager for that company. From 1992 to February 1996, Mr. Gaines was Controller
of the fixed income department of Rauscher Pierce Refsnes, Inc., a regional
investment banking firm, where he also served as Vice President from August 1995
to February 1996. From 1989 to 1992 he served as Vice President -- Finance of
Richmond Petroleum Inc., an oil and gas company. Mr. Gaines is a Certified
Public Accountant and was employed by Deloitte & Touche LLP from 1982 to 1989.

STUART H. WARRINGTON has served as Executive Vice President of Software and
Systems of the Company since July 1997. Mr. Warrington founded SDS and served as
its Chief Executive Officer from 1989 to July 1997, and as Chairman of the Board
from inception in 1981 until March 12, 1997. Mr. Warrington also served as
President of SDS from inception to 1989. Prior to 1981, Mr. Warrington served in
various executive management and analyst positions for several insurance and
software development companies.

ROBERT K. AGAZZI has served as Executive Vice President of Software and
Systems of the Company since July 1997. Mr. Agazzi served as President of SDS
from 1989 until July 1997 and as Vice President-Marketing

37
<PAGE> 40

of SDS from 1983 to 1989. Prior to 1983, Mr. Agazzi served in various management
positions with PMSC and several insurance and software development companies.

JEFFREY W. ROBINSON has served as Executive Vice President -- Outsourcing
of the Company since June 1997. From November 1996 to June 1997, Mr. Robinson
served as Vice President -- Policy Life Cycle of the Company, Millers Mutual and
Millers Casualty. From 1985 to March 1997, Mr. Robinson served in various
management positions with PMSC, including Vice President of the Risk Services
Division. Prior to 1985, Mr. Robinson served in various management and analyst
positions for Home Insurance Company and Business Computer Systems, an insurance
processing and administration company.

W. SCOTT LEWIS joined the Company in May 1997 as Executive Vice
President -- Marketing. From 1988 to May 1997, Mr. Lewis served as Regional
Sales Manager of The Wheatley Group, Ltd., a software development and policy and
claims administration company. Prior to 1988, Mr. Lewis served in various sales
and sales management positions with PMSC and other companies that develop
software and sell administration services.

HARRY E. BARTEL has served as a director of the Company since 1996 and his
current term as director expires in 2000. Mr. Bartel also served as a director
of Millers Mutual and Millers Casualty from March 1995 to June 1997. Mr. Bartel
has been a partner with the law firm of Cantey & Hanger, L.L.P. since 1968.

R. EARL COX, III has served as a director of the Company since 1996 and his
current term as director expires in 1998. Mr. Cox also served as a director of
Millers Mutual and Millers Casualty from March 1987 to June 1997. Since 1977,
Mr. Cox has served as president of R.E. Cox Realty Co. and has been a co-owner
of OFCO Office Furniture, Inc. since 1985. Mr. Cox has served as a director of
KBK Capital Corp., a factoring company, since 1995 and a director and Chairman
of the Board of Tandycraft, Inc., a manufacturer and retailer of craft products,
since 1985.

MITCH S. WYNNE was elected as a director of the Company in March 1997 and
his current term as director expires in 1999. Mr. Wynne also served as a
director of Millers Mutual and Millers Casualty from March 1997 to June 1997.
Mr. Wynne has owned and operated Wynne Petroleum Company, an oil and gas
production company, for more than five years.

EMPLOYMENT AND INDEMNIFICATION AGREEMENTS

The Company has entered into employment agreements with Messrs. Dunham,
Lynn, Robinson and Gaines, each of which terminates in June 2000, and which
provide for an annual salary for Mr. Dunham of $350,000 and annual salaries for
Messrs. Lynn, Robinson and Gaines of $115,000 each. Messrs. Dunham, Lynn,
Robinson and Gaines have been granted options to purchase 931,539; 158,362;
158,362; and 93,154 shares of Common Stock, respectively, under the Stock Option
Plan. Each of Messrs. Dunham, Lynn, Robinson and Gaines is entitled to an annual
bonus, based on the Company achieving certain performance thresholds, of up to
50% of his base salary and is subject to noncompetition and confidentiality
provisions. Mr. Dunham's employment agreement also permits him to serve as Vice
Chairman of the Board of Millers Mutual and Millers Casualty. See "-- Stock
Option Plan."

Each employment agreement with Messrs. Dunham, Lynn, Robinson and Gaines
also provides that if there is a "change of control" of the Company, the
employee shall be paid, for the term of his employment agreement plus a period
of two years thereafter, his annual "cash compensation" (which is based upon
such employee's average cash compensation for the two years prior to such change
of control), along with an annual amount equal to 50% of such average annual
cash compensation (the "Bonus"). The total amount, however, cannot exceed the
amount that would cause such payment to be deemed a "parachute payment" under
Section 280G of the Internal Revenue Code. Each agreement also provides that the
payments to such employee will cease if he is terminated for cause or in the
event of reasonable proof of any violation of the noncompetition or
confidentiality provisions of his employment agreement. Also, if following a
change of control an employee voluntarily terminates employment for other than
good reason (as defined in the employment agreement), his annual cash
compensation and Bonus will be payable for only one year following such
termination.

38
<PAGE> 41

The Company also has entered into employment agreements with Messrs.
Warrington and Agazzi that terminate in March 1998. Mr. Warrington's agreement
provides for an annual salary of $190,500, options to purchase 93,154 shares of
Common Stock and deferred annual compensation of $40,000 to be paid each year
for the 20-year period commencing January 1, 1999 and ending December 31, 2018.
Mr. Agazzi's agreement provides for an annual salary of $169,000 and options to
purchase 93,154 shares of Common Stock. Messrs. Warrington and Agazzi are
subject to noncompetition and confidentiality provisions.

The Company has entered into indemnification agreements with each of its
directors. Each indemnification agreement provides that the Company shall
indemnify the director against certain liabilities and expenses actually and
reasonably incurred by the director in connection with any threatened, pending
or completed action, suit or proceeding, including an action by or on behalf of
shareholders of the Company or by or in the right of the Company, to which the
director is, or is threatened to be made, a party by reason of his status as a
director, provided that such individual did not derive an improper benefit, such
individual did not commit acts or omissions that were not in good faith or that
involved intentional misconduct or a knowing violation of the law, or such
indemnification is not otherwise disallowed under Texas law.

EXECUTIVE COMPENSATION

During 1995 and 1996 Mr. Dunham was the President and Chief Executive
Officer of both the Company and Millers Mutual, and Millers Mutual paid all
compensation of Mr. Dunham and certain other officers of the Company who were
also officers of Millers Mutual. In turn, the Company paid Millers Mutual a
management fee. Accordingly, the Company did not pay any compensation during
1995 or 1996 to its Chief Executive Officer, and the total salary and bonus that
the Company paid to its other executive officers in 1996 did not exceed $100,000
with respect to any individual. See "Certain Transactions."

EMPLOYEE BENEFIT PLANS

Millers Mutual has a defined benefit pension plan that covers the employees
of the Company. The Company believes that an agreement will be reached between
Millers Mutual and the Company to provide that the assets of this plan
attributable to the Company's employees will be treated as if the Company's
employees were terminated employees under such plan. Millers Mutual and the
Company, however, have not yet determined the terms of such agreement. In
addition, the Company maintains a defined contribution plan for its employees
that is qualified under Section 401(k) of the Internal Revenue Code of 1986.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Frank G. Dunham, Jr., Frank A. Bailey, III, R. Earl Cox, III, F. George
Dunham, III and Frank C. Wilson served as members of the Compensation Committee
of the Company in 1996. Each member of the Compensation Committee in 1996 also
served as a member of the compensation committees for Millers Mutual and Millers
Casualty in 1996. Frank G. Dunham, Jr. is the father of F. George Dunham, III
and both men served as executive officers of the Company, Millers Mutual and
Millers Casualty in 1996. The Company has entered into certain transactions with
Millers Mutual and Millers Casualty. See "Certain Transactions."

The Compensation Committee has established salary and bonus levels for the
executive officers of the Company, including the Chief Executive Officer, based
on a combination of objective and subjective criteria. In certain cases, an
executive officer's salary and potential bonus has been established in an
employment agreement. See "-- Employment and Indemnification Agreements."

The Board of Directors has appointed an Audit Committee, consisting of R.
Earl Cox, III, Harry E. Bartel and Mitch S. Wynne, which will have
responsibility for reviewing the results and scope of the annual audit of the
Company's financial statements and other services provided by the Company's
independent certified public accountants.

39
<PAGE> 42

STOCK OPTION PLAN

A total of 2,250,000 shares of Common Stock has been reserved for issuance
pursuant to the Stock Option Plan. The Stock Option Plan was initially adopted
by the Board of Directors in March 1997 and amended and restated by the Board of
Directors in July 1997. The Stock Option Plan is administered by the Board of
Directors and both nonqualified stock options and incentive stock options (as
defined in the Internal Revenue Code) may be granted. Incentive stock options
granted under the Stock Option Plan may be exercised solely by the grantee, or
in the case of a grantee's death or incapacity, by the grantee's executors,
administrators, guardians or other legal representatives and are not assignable
or transferable by such grantee. Nonqualified stock options (including the
pre-IPO options) may be transferred to certain permitted transferees under the
Stock Option Plan. The following executive officers and other employees have
been granted options pursuant to the Stock Option Plan:

<TABLE>
<CAPTION>
PRE-IPO OPTIONS(1) IPO OPTIONS(2)
----------------------------- -----------------------------
NUMBER OF SHARES EXERCISE NUMBER OF SHARES EXERCISE
NAME UNDERLYING OPTIONS PRICE UNDERLYING OPTIONS PRICE
---- ------------------ -------- ------------------ --------
<S> <C> <C> <C> <C>
F. George Dunham, III................ 279,462 $1.30 652,077(3) $12.00
Ronald O. Lynn....................... 93,154 1.30 65,208 12.00
Terry G. Gaines...................... -- -- 93,154 12.00
Stuart H. Warrington................. 93,154 1.30 65,208 12.00
Robert K. Agazzi..................... 93,154 1.30 65,208 12.00
Jeffrey W. Robinson.................. 93,154 1.30 65,208 12.00
W. Scott Lewis....................... -- -- 46,577 12.00
Other employees(4)................... 188,170 1.30 32,603 12.00
------- ---------
Total...................... 840,248 1,085,243
======= =========
</TABLE>

- ---------------

(1) The pre-IPO options are subject to a two-year vesting schedule, with
one-third becoming exercisable on the date of grant and an additional
one-third becoming exercisable on each of the first two anniversaries of the
date of grant.

(2) The IPO options, except for Mr. Dunham's, are subject to a four-year vesting
schedule, with one-fifth becoming exercisable on the date of this Prospectus
and an additional one-fifth becoming exercisable on each of the first four
anniversaries of such date.

(3) The IPO options granted to Mr. Dunham are subject to a two-year vesting
schedule, with one-third becoming exercisable on the date of this Prospectus
and an additional one-third becoming exercisable on each of the first two
anniversaries of such date.

(4) Excludes IPO options covering up to an aggregate of 100,000 shares of Common
Stock granted by the Company effective on the date of this Prospectus to
additional employees. Such additional IPO options have an exercise price of
$12.00 per share and are subject to a five-year vesting schedule, with
one-fifth becoming exercisable on the first anniversary of the date of grant
and on each of the next four anniversaries thereafter.

DIRECTOR STOCK OPTION PLAN

In July 1997 the Board of Directors adopted the Director Plan, which is
administered by the Board of Directors.

Each current nonemployee director has been granted options under the
Director Plan to purchase 2,500 shares of Common Stock at an exercise price of
$12.00 per share. Such options vested and became exercisable in full as of the
date of this Prospectus.

Each new nonemployee director who is elected (or appointed to fill any
vacancy) as a director of the Company after this offering will be granted
options under the Director Plan to purchase 2,500 shares of Common Stock at the
fair market value of the Common Stock on the date of grant. Also, each
nonemployee director who has previously been granted options under the Director
Plan will be granted additional options

40
<PAGE> 43

under the Director Plan to purchase 250 shares of Common Stock on the day
immediately after each annual meeting of shareholders of the Company subsequent
to the time at which such nonemployee director is first elected or appointed as
a director of the Company if such nonemployee director continues to serve as a
director on such date of grant. The options under the Director Plan will vest
and be exercisable as of the date of grant.

A total of 50,000 shares of Common Stock has been reserved for issuance
pursuant to the Director Plan. Options granted under the Director Plan may be
exercised solely by the grantee, or in the case of a grantee's death or
incapacity, by the grantee's executors, administrators, guardians or other legal
representatives, and are not assignable or transferable by such grantee, except
for certain permitted transfers subject to the prior consent of the Board of
Directors.

EMPLOYEE STOCK PURCHASE PLAN

In July 1997 the Board of Directors adopted the Stock Purchase Plan, under
which a total of 425,000 shares of Common Stock has been reserved for issuance.
The Board of Directors has appointed a committee to administer the Stock
Purchase Plan. Any employee who has been employed by the Company for 90 days is
eligible to participate in offerings under the Stock Purchase Plan.

The Stock Purchase Plan initially will be implemented by an offering of
25,000 shares of Common Stock beginning October 1, 1997 and terminating December
31, 1997. The Stock Purchase Plan will be further implemented by four annual
offerings of Common Stock beginning on January 1 in each of the years 1998,
1999, 2000 and 2001, and terminating December 31 of each such year. The maximum
number of shares issued in such years will be 100,000 in 1998, and 100,000 plus
the number of unissued shares from prior offerings for each of 1999, 2000 and
2001.

On the commencement date of each offering under the Stock Purchase Plan, a
participating employee will be deemed to have been granted an option to purchase
a maximum number of shares of Common Stock equal to: (i) the percentage of the
employee's base pay that such employee has elected to be withheld (not to exceed
10%), (ii) multiplied by such employee's base pay during the period of such
offering and (iii) divided by the lower of 85% of the closing market price of
the Common Stock on the applicable offering commencement date or 85% of the
closing market price of the Common Stock on the offering termination date.
Options held by a participant shall be exercisable only by that participant.

No employee may be granted options to participate in the Stock Purchase
Plan if, as a result of such grant, such employee would (i) own stock or hold
options to purchase stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or (ii) have rights to
purchase stock under all employee stock purchase plans of the Company that
accrue at a rate in excess of $25,000 in fair market value for any calendar
year.

Unless a participant gives written notice to the Company, such
participant's option for the purchase of Common Stock with payroll deductions
made during an offering shall be deemed to have been exercised automatically on
the offering termination date applicable to such offering, for the purchase of
the number of full shares of Common Stock that the accumulated payroll
deductions at that time will purchase at the applicable option price. A
participant may withdraw payroll deductions credited to his account under the
Stock Purchase Plan at any time.

41
<PAGE> 44

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth the number and percentage of the outstanding
shares of Common Stock owned beneficially as of the date of this Prospectus by:
(i) each director of the Company, (ii) each executive officer of the Company,
(iii) all directors and executive officers as a group and (iv) the only
shareholder that beneficially owned more than 5% of the Common Stock as of the
date of this Prospectus.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO THIS OFFERING SHARES TO AFTER THIS OFFERING
----------------------- BE SOLD IN -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT THIS OFFERING SHARES PERCENT
------------------------ ---------- -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Millers Mutual................... 7,000,000 100.0% 2,725,000(2) 4,275,000(3) 43.7%(3)
300 Burnett Street
Fort Worth, Texas 76102-2799
F. George Dunham, III............ 310,513(1) 4.2 -- 310,513(1)(4) 3.1
Ronald O. Lynn................... 44,093(1) * -- 44,093(1)(4) *
Terry G. Gaines.................. 18,631(1) * -- 18,631(1)(4) *
Stuart H. Warrington............. 44,093(1) * -- 44,093(1)(4) *
Robert K. Agazzi................. 44,093(1) * -- 44,093(1)(4) *
Jeffrey W. Robinson.............. 44,093(1) * -- 44,093(1)(4) *
W. Scott Lewis................... 9,315(1) * -- 9,315(1)(4) *
Harry E. Bartel.................. 2,500(1) * -- 2,500(1)(4) *
R. Earl Cox, III................. 2,500(1) * -- 2,500(1)(4) *
Mitch S. Wynne................... 2,500(1) * -- 2,500(1)(4) *
All directors and executive
officers as a group (10
individuals)................... 522,331(1) 7.0% -- 522,331(1)(4) 5.1%
</TABLE>

- ---------------

* Less than 1%

(1) Represents shares of Common Stock subject to options exercisable as of the
date of this Prospectus and within 60 days thereafter.

(2) Assuming exercise in full of the Underwriters' over-allotment option,
Millers Mutual will sell 3,133,750 shares of Common Stock in this offering.

(3) Assuming exercise in full of the Underwriters' over-allotment option,
Millers Mutual will own 3,866,250 shares of Common Stock, constituting 37.9%
of the outstanding shares of Common Stock.

(4) Excludes any shares of Common Stock that may be purchased by such
individuals in this offering.

CERTAIN TRANSACTIONS

BENEFITS ADMINISTRATION CONTRACT

Effective July 1, 1997, the Company and Millers Mutual entered into a
benefits administration contract (the "Benefits Administration Contract")
pursuant to which Millers Mutual provides the Company with certain benefits
administration services, including payroll, and the Company pays Millers Mutual
a service fee of $15,000 per month. The term of the Benefits Administration
Contract is three years.

The Company and Millers Mutual were parties to a management agreement
effective as of January 1, 1996 (the "Management Agreement"), which covered the
period July 1, 1995 to June 30, 1997, under which Millers Mutual provided
certain management, administrative and support services to and on behalf of the
Company, including personnel, legal, banking, investment, financial, payroll,
accounting and recordkeeping, marketing and sales, management information and
electronic data processing. The Company paid Millers Mutual a monthly fee of
$200,000 plus an annual fee equal to a fixed percentage, to be determined
annually by mutual agreement of the parties, of the Company's pre-tax income.
For 1995 and 1996, the Company paid Millers Mutual management fees of $600,000
and $3.1 million, respectively. For the six months ended June 30, 1997, the
Company paid Millers Mutual management fees of $1.2 million. The Management
Agreement has been replaced by the Benefits Administration Contract.

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<PAGE> 45

SERVICE CONTRACTS

Effective July 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into an amended and restated service contract (the "Service Contract"),
which provides for the Company to perform claims administration services for and
on behalf of Millers Mutual and Millers Casualty. Under the Service Contract,
each of Millers Mutual and Millers Casualty pays a monthly service fee equal to:
(i) 7.5% of monthly net earned premiums for the agribusiness line of business,
(ii) 10.2% of monthly net earned premiums for the commercial casualty line of
business, (iii) 8.5% of monthly net earned premiums for the commercial property
line of business and (iv) 7.5% of monthly net earned premiums for personal lines
of business (excluding the premiums written through Sun Coast General Insurance
Agency ("Sun Coast") for Millers Mutual, as described below). The Service
Contract provides that these percentages will be adjusted annually based on the
agreement of the parties. The term of the Service Contract is three years.

The Company, Millers Mutual and Millers Casualty were parties to a service
contract effective as of January 1, 1996, which covered the period July 1, 1995
through November 30, 1996, under which the Company provided claims
administration services to Millers Mutual and Millers Casualty for service fees
ranging from 7.5% to 13.2% of net written premiums with respect to various
classes of business. Effective December 1, 1996, the contract was amended to
provide that each of Millers Mutual and Millers Casualty would pay a monthly
service fee equal to: (i) 8.5% of monthly net earned premiums for agribusiness
and commercial lines of business and (ii) 7.5% of monthly net earned premiums
for personal lines of business (excluding the premiums written through Sun Coast
for Millers Mutual, as described below). Millers Mutual and Millers Casualty
paid the Company aggregate service fees under these contracts of $3.4 million in
1995 and $7.6 million in 1996. For the six months ended June 30, 1997, Millers
Mutual and Millers Casualty paid the Company aggregate service fees under the
latter contract of $3.2 million. This contract has been replaced by the Service
Contract.

The Company and the Speciality Personal Lines Division of Millers Mutual
are parties to a service contract effective as of April 1, 1997 under which the
Company provides claims administration services to Millers Mutual with respect
to nonstandard auto policies issued by Sun Coast. Under this contract, Millers
Mutual pays a service fee of 7.0% of monthly earned premiums and, with respect
to catastrophes, a fee of $175 per claim. Millers Mutual paid the Company fees
for services related to policies issued by Sun Coast of $530,000 in 1995, $1.7
million in 1996 and $1.6 million in the six months ended June 30, 1997.

INFORMATION SERVICES CONTRACT

Effective July 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into an amended and restated information services contract (the
"Information Services Contract"), which requires the Company to provide certain
information system services to Millers Mutual and Millers Casualty, including
telecommunications services, hardware services, application software services,
system software services, network services and system integration services.
Under the Information Services Contract, each of Millers Mutual and Millers
Casualty pays a monthly service fee equal to monthly net written premiums,
multiplied by 6% for the remainder of 1997, 5.5% in 1998, 5% in 1999, and
thereafter such percentage as may be agreed upon by the parties. The term of the
Information Services Contract is three years.

The Company, Millers Mutual and Millers Casualty were parties to an
information services contract, effective as of October 1, 1996, under which the
Company provided certain information system services. This contract has been
replaced by the Information Services Contract. Under this contract, each of
Millers Mutual and Millers Casualty paid a monthly service fee of 6% of monthly
net written premiums. No fees were paid in 1996. For the six months ended June
30, 1997, Millers Mutual and Millers Casualty paid the Company an aggregate of
$2.7 million under this contract.

OUTSOURCING SERVICES CONTRACTS WITH MILLERS CASUALTY

Effective May 1, 1997, the Company and Millers Casualty entered into a
policy administration services agreement (the "Policy Administration Services
Agreement") pursuant to which the Company provides policy administration
services for Millers Casualty's homeowners line of business in Florida. Millers
Casualty pays a monthly service fee equal to 5.6% of its monthly direct written
premiums, subject to a $50.51 per policy

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<PAGE> 46

minimum. The term of the Policy Administration Services Agreement is three
years, which will automatically renew for additional three-year terms unless
terminated by either party.

Effective June 1, 1997, the Company and Millers Casualty entered into a
claims administration services agreement (the "Claims Administration Services
Agreement") pursuant to which the Company provides claims administration
services for Millers Casualty's homeowners line of business in Florida. Millers
Casualty pays a monthly service fee equal to 7% of its monthly gross direct
earned premiums for noncatastrophe claims and 5% of incurred catastrophe loss
for catastrophe claims. The term of the Claims Administration Services Agreement
is three years, which will automatically renew for additional three-year terms
unless terminated by either party.

MISCELLANEOUS

As of June 30, 1997, the Company had outstanding borrowings from Millers
Mutual of $2.8 million for working capital purposes. The largest amount of
borrowings from Millers Mutual outstanding since the inception of the Company
was $4.3 million. See "Use of Proceeds."

In 1993, Millers Mutual licensed SDS software pursuant to a license
agreement with SDS. For 1994, 1995 and 1996, Millers Mutual paid SDS $16,222,
$31,077 and $31,662, respectively, for software and software services. For the
six months ended June 30, 1997, Millers Mutual incurred $442,000 under this
agreement.

The Company leases its principal Sheboygan, Wisconsin facility pursuant to
a lease dated March 12, 1997 (the "Building Lease"). The building is owned by
Riverview, which is controlled by Stuart H. Warrington, an Executive Vice
President of the Company. The term of the Building Lease ends February 28, 2007.
Pursuant to the Building Lease, Riverview leases to the Company approximately
28,000 square feet of office space at a monthly rate of approximately $21,000
for the first four years, $23,000 for the next five years, and $25,000 for the
last year. For the six months ended June 30, 1997, the Company paid Riverview
approximately $75,000 under the Building Lease.

The Company leases its approximately 19,000 square foot headquarters in
Fort Worth, Texas from Millers Mutual pursuant to a month-to-month rental
agreement, effective as of May 1, 1996 (the "Lease"), which provides for monthly
rental payments of approximately $26,000. For 1996 and the six months ended June
30, 1997, the Company incurred rental expense of $207,000 and $158,000,
respectively, under the Lease. Prior to May 1, 1996, the Company incurred no
rental expense for office space provided by Millers Mutual.

The Company and Millers Mutual are parties to a sublease agreement, dated
as of January 1, 1997, pursuant to which Millers Mutual subleases to the Company
certain furniture, equipment and other personal property that Millers Mutual has
leased from third parties under various equipment leases for the benefit of the
Company. The sublease payments by the Company to Millers Mutual under the
sublease equal the lease payments by Millers Mutual to the lessors under the
respective leases.

Millers Mutual, the Company and the other subsidiaries of Millers Mutual
are parties to the Tax Allocation Agreement. Under the Tax Allocation Agreement,
Millers Mutual must pay the Company an amount equal to any decrease in the
income taxes otherwise payable by the Millers Mutual consolidated tax group
attributable to any net losses of the Company. Conversely, the Tax Allocation
Agreement requires the Company to pay to Millers Mutual the amount of any income
taxes that the Company would have paid if it had not been included in the
Millers Mutual consolidated tax group. For the period from April 28, 1995
through December 31, 1995, the Company received from Millers Mutual $337,000
under the Tax Allocation Agreement. The amounts of any payments for 1996 and
1997 have not yet been determined. Subject to approval by the Texas Department
of Insurance, the parties to the Tax Allocation Agreement have agreed to
terminate such agreement as it relates to the Company in contemplation of the
Company leaving the Millers Mutual consolidated tax group as a result of this
offering. The agreement to terminate the Tax Allocation Agreement provides that
the Company will indemnify the other members of the Millers Mutual consolidated
tax group for any of the group's income taxes and related expenses attributable
to the Company and Millers

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Mutual will indemnify the Company for any income taxes and related expenses
attributable to any members of the consolidated tax group other than the
Company.

DESCRIPTION OF CAPITAL STOCK

As of the date of this Prospectus, the authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, par value $0.01 per
share, of which 9,775,000 shares will be outstanding immediately following this
offering, and 1,000,000 shares of Preferred Stock, par value $1.00 per share
(the "Preferred Stock"), of which no shares will be outstanding immediately
following this offering. The following summary of the Company's capital stock is
qualified in its entirety by reference to the Company's Restated Articles and
its Bylaws, each of which is filed as an exhibit 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 on all
matters voted upon by shareholders, including the election of directors, and do
not have cumulative voting rights. Subject to the rights of holders of any then
outstanding shares of Preferred Stock, the holders of the Common Stock are
entitled to such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock are
entitled to share ratably in the net assets of the Company upon liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of the Preferred Stock then outstanding. The holders of Common Stock have
no preemptive rights to purchase shares of stock in the Company. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. All outstanding shares of
Common Stock are, and the shares of Common Stock to be issued by the Company
pursuant to this offering will be, upon payment therefor, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
will be subject to those of the holders of any shares of Preferred Stock the
Company may issue in the future. See "Dividend Policy."

PREFERRED STOCK

The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without shareholder approval.
Subject to the provisions of the Restated Articles and limitations prescribed by
law, the Board of Directors is authorized to adopt resolutions to issue the
shares, establish the number of shares, change the number of shares constituting
any series, and provide or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions on shares of Preferred Stock, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences, in each case without any action or vote by
the shareholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series, except as described below and under
"Anti-Takeover Considerations -- Rights Agreement" below.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company by
means of a tender offer, proxy contest, merger or otherwise, and thereby protect
the Company's management. The issuance of Preferred Stock pursuant to the Board
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
trading price of the Common Stock.

The Board of Directors has authorized 300,000 shares of Series A Junior
Preferred Stock, par value $1.00 per share ("Series A Preferred Stock"), in
connection with the authorization and declaration of the Rights (as defined
below). Each holder of Series A Preferred Stock will be entitled to 100 votes
for each share on all matters voted upon by the shareholders, except as provided
in the Restated Articles. Each share of

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<PAGE> 48

Series A Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment, out of funds legally available therefor, of the greater of:
(i) $1.00 per share or (ii) 100 times the dividend declared per share of Common
Stock. Upon any voluntary or involuntary liquidation, dissolution or winding up
of the Company, no distribution may be made to holders of Common Stock (or other
shares of capital stock ranking junior to Series A Preferred Stock) unless the
holders of Series A Preferred Stock shall have received an amount per share
equal to the greater of: (i) $100 per share, plus accrued and unpaid dividends,
or (ii) an aggregate amount per share equal to 100 times the aggregate amount to
be distributed per share to holders of Common Stock. Shares of Series A
Preferred Stock are not subject to any redemption provisions.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Restated Articles, upon completion of this offering there will be
37,500,000 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised and excluding an aggregate of 2,725,000 shares reserved
for issuance under the Stock Option Plan, the Director Plan and the Stock
Purchase Plan) and 1,000,000 shares of Preferred Stock available for future
issuance without shareholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to raise
additional capital or facilitate acquisitions. The Company does not currently
have any plans to issue additional shares of Common Stock or Preferred Stock
(other than shares of Common Stock issuable under the Stock Option Plan, the
Director Plan and the Stock Purchase Plan and as described under "Anti-Takeover
Considerations -- Rights Agreement" below).

SPECIAL PROVISIONS OF THE RESTATED ARTICLES, THE BYLAWS AND TEXAS LAW

The Texas Miscellaneous Corporation Laws Act (the "Texas Miscellaneous
Laws") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their shareholders for monetary damages for breach
of their fiduciary duty as directors except for liability of a director
resulting from: (i) a breach of such director's duty of loyalty to the
corporation or its shareholders, (ii) an act or omission that is not in good
faith or that involves intentional misconduct or a knowing violation of laws,
(iii) a transaction from which the director received an improper personal
benefit or (iv) an act or omission for which the liability of the director is
expressly provided by an applicable statute. The Restated Articles limit the
liability of directors of the Company (in their capacity as directors but not in
their capacity as officers) to the Company or its shareholders to the fullest
extent permitted by the Texas Miscellaneous Laws. The inclusion of this
provision in the Restated Articles may reduce the likelihood of derivative
litigation against directors and may discourage or deter shareholders from suing
directors for breach of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its shareholders. The
inclusion of such provisions in the Restated Articles together with a provision
requiring the Company to indemnify its directors, officers and certain other
individuals against certain liabilities, is intended to enable the Company to
attract qualified persons to serve as directors who might otherwise be reluctant
to do so. The Securities and Exchange Commission has taken the position that
personal liability of directors for violations of the federal securities laws
cannot be limited and that indemnification by the issuer for such violations is
unenforceable.

The Company has entered into separate indemnification agreements with each
of its directors that may require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the maximum extent permitted under the TBCA and advance
their expenses incurred as a result of any proceeding against them for which
they could be indemnified, obtain directors' and officers' insurance or maintain
self-insurance in lieu thereof.

Under the TBCA, the board of directors of a corporation has the power to
amend and repeal the corporation's bylaws unless the corporation's articles of
incorporation reserve the power exclusively to the shareholders or a particular
bylaw expressly provides that the board of directors may not amend or repeal the
bylaw. The Restated Articles give the Board of Directors the power to amend and
repeal the Company's Bylaws. The Company's Restated Articles and Bylaws also
provide that the number of directors shall be fixed from time to time by
resolution of the Board of Directors. These provisions, in addition to the
existence of authorized but unissued capital stock, may have the effect, either
alone or in combination with each other, of discouraging an acquisition of the
Company deemed undesirable by the Board of Directors.

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ANTI-TAKEOVER CONSIDERATIONS

ANTI-TAKEOVER STATUTE. Beginning September 1, 1997, the Company will become
subject to newly-enacted Part 13 of the TBCA ("Part 13"), which subject to
certain exceptions, prohibits a Texas corporation from engaging in any "business
combination" with an "affiliated shareholder" for three years following the date
that such shareholder became an affiliated shareholder, unless: (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the shareholder
becoming an affiliated shareholder or (ii) the business combination is
authorized at a meeting of shareholders called not less than six months after
such date by the affirmative vote of at least two-thirds of the outstanding
voting shares not owned by the affiliated shareholder.

Part 13 generally defines a "business combination" to include: (i) any
merger, share exchange or conversion involving the corporation and the
affiliated shareholder, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets of the corporation to
the affiliated shareholder, (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of the
corporation to the affiliated shareholder, (iv) any transaction involving the
corporation that has the effect of increasing the proportionate ownership
percentage of the stock of any class or series of the corporation beneficially
owned by the affiliated shareholder, (v) any receipt by the affiliated
shareholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or (vi) any adoption
of a plan or proposal for the liquidation or dissolution of the corporation
proposed by, or pursuant to any agreement or understanding with, an affiliated
shareholder. In general, Part 13 defines an "affiliated shareholder" as any
entity or person beneficially owning 20% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. As Millers Mutual will own more than 20% of
the Common Stock outstanding before this offering, however, transactions between
Millers Mutual and the Company will not be subject to these restrictions. The
provisions of Part 13 could have the effect of delaying, deferring or preventing
a change of control of the Company even if a change of control were in the
shareholders' interests.

CLASSIFIED BOARD OF DIRECTORS. The Restated Articles provide for the Board
of Directors to be divided into three classes serving staggered three-year
terms. The term of office of the first class of directors will expire at the
1998 annual meeting of shareholders, the term of office of the second class will
expire at the 1999 annual meeting of shareholders and the term of office of the
third class will expire at the 2000 annual meeting of shareholders. The terms of
office of the current directors of the Company are set forth herein under
"Management -- Directors and Executive Officers."

At each annual meeting of shareholders, the class of directors to be
elected at such meeting will be elected for a three-year term, and the directors
in the other two classes will continue in office. As holders of Common Stock
will have no right to cumulative voting for the election of directors, at each
annual meeting of shareholders Millers Mutual, as the holder of a majority of
the shares of Common Stock, will be able to elect all of the successors of the
class of directors whose term expires at that meeting. In addition, the
staggered terms for directors may affect the shareholders' ability to change
control of the Company even if a change of control were in the shareholders'
interests.

SHAREHOLDER ACTION. If provided for in the articles of incorporation, the
TBCA permits shareholder action without a meeting, without prior notice, and
without a vote, upon the written consent of less than all of the holders of
outstanding stock. The Restated Articles prohibit shareholder action without a
meeting, except by unanimous written consent. The Company's Bylaws provide that
special meetings of the shareholders may be called only by the President,
Chairman of the Board, a majority of the Board of Directors or the holders of at
least 10% of all shares entitled to vote at the proposed meeting. These
provisions could have the effect of delaying, deferring or preventing a change
of control of the Company even if a change of control were in the shareholders'
interests.

RIGHTS AGREEMENT. The Board of Directors has authorized and declared a
dividend distribution of one right (a "Right") for each outstanding share of
Common Stock of the Company to the sole shareholder as of the date of the
adoption of the Rights Agreement (as defined below). One Right will thereafter
be issued for each share of Common Stock that becomes outstanding between the
date of adoption of the Rights

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<PAGE> 50

Agreement and the earliest of the Distribution Date (as defined below), the
Final Expiration Date (as defined below), and the date the Rights are redeemed.
Except as described below, each Right represents the right to purchase from the
Company one one-hundredth ( 1/100) of a share of Series A Junior Preferred
Stock, par value $1.00 per share (the "Preferred Shares"), at a price of $40.00
(the "Exercise Price"), subject to adjustment. The mechanics of such adjustment,
the timing of the exercise of the Rights, and the description, terms and
preferences of the Rights are set forth in the Rights Agreement (the "Rights
Agreement") between the Company and U.S. Trust Company of Texas, N.A., as Rights
Agent. A copy of a form of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this Prospectus is a part. This summary of the Rights Agreement and the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement.

The Rights will be evidenced by the Common Stock certificates and not by
separate certificates until the earlier of: (i) ten days following a public
announcement that a person or group of affiliated or associated persons, with
certain limited exceptions (an "Acquiring Person"), has acquired, or obtained
the right to acquire, beneficial ownership of capital stock of the Company
representing 15% or more of the voting power of the Company (the "Stock
Acquisition Date") or (ii) ten business days (or such later date as may be
determined by action of the Board of Directors upon approval by a majority of
the Continuing Directors (as defined below), prior to the time that any person
becomes an Acquiring Person) following the commencement of (or a public
announcement of an intention to make) a tender or exchange offer if, upon
consummation thereof, such person or group would be the beneficial owner of
capital stock of the Company representing 15% or more of the voting power of the
Company (such date being called the "Distribution Date").

Until the Distribution Date: (i) the Rights shall be transferred with, and
only with, the Common Stock and (ii) the transfer of any Common Stock
certificates shall also constitute the transfer of the Rights associated
therewith. Following the Distribution Date, separate certificates evidencing the
Rights (the "Right Certificates") will be mailed to the record holders of Common
Stock as of the close of business on the Distribution Date, and thereafter such
separate Right Certificates alone will evidence the Rights.

The Rights are not exercisable until the Distribution Date, and will expire
upon the earliest of: (i) the close of business on the tenth anniversary of the
adoption of the Rights Agreement (the "Final Expiration Date"), (ii) the
redemption of the Rights by the Company as described below, (iii) the date on
which such Rights expire pursuant to the Rights Agreement or (iv) the exchange
of the Rights by the Company as described below.

A person generally will not become an Acquiring Person under the Rights
Agreement if such person is: (i) the Company, (ii) a subsidiary of the Company,
(iii) an employee benefit plan or employee stock plan of the Company or of a
subsidiary of the Company, (iv) Millers Mutual or an affiliate or associate of
Millers Mutual, (v) F. George Dunham, III, or any of the members of his family
or certain trusts, estates or other entities created for their benefit or
controlled by them, (vi) an "Exempt Person" (as defined in the Rights Agreement)
as designated by the Board of Directors or (vii) an Acquiring Person solely by
reason of (A) obtaining 15% or more of the voting power of the Company through
transactions approved by a majority of the Board of Directors and Continuing
Directors before such person or group became an Acquiring Person or (B) a
reduction in the number of shares of voting stock of the Company pursuant to a
transaction approved by a majority of the Board of Directors and Continuing
Directors.

Unless the Rights are earlier redeemed, in the event that a person or group
becomes the beneficial owner of capital stock of the Company representing 15% or
more of the voting power of the Company (other than pursuant to a tender or
exchange offer for all outstanding shares of Common Stock of the Company
approved by a majority of the Board of Directors and Continuing Directors), each
holder of Rights will thereafter have the right to exercise its Rights and to
receive, upon payment of the Exercise Price (as adjusted), for each of its
Rights, such number of shares of Common Stock of the Company (or in certain
circumstances, cash, property or other securities of the Company) as shall have
a value equal to twice the Exercise Price. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including without limitation the right to vote or to receive dividends.
Notwithstanding anything to the contrary, however,

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following the time that a person becomes an Acquiring Person, any Rights that
are beneficially owned by such Acquiring Person or by a transferee of such
Acquiring Person shall automatically become null and void.

The Exercise Price payable and the number of Preferred Shares, shares of
Common Stock or other securities or property issuable upon exercise of a Right,
and the number of Rights outstanding, are subject to adjustment from time to
time to prevent dilution. In addition, if at any time on or after the
Distribution Date the Company is merged into or consolidates with another person
and the Company does not survive such merger or consolidation or all or part of
the shares of Common Stock are in connection with such merger or consolidation
exchanged for securities of another person, or the Company or one or more of the
subsidiaries of the Company transfers to any other person 50% or more of the
assets or earning power of the Company and the subsidiaries, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon exercise at the then current Exercise Price of the Right, common
stock of the applicable issuer or the surviving company having a value equal to
twice the Exercise Price of the Right.

Upon the exercise of a Right, the Company will not be required to issue
fractional Preferred Shares (other than fractions in multiples of one
one-hundredth of a Preferred Share), and in lieu thereof may issue depositary
receipts evidencing fractions of such shares or cash based on the Fair Market
Value (as defined in the Rights Agreements) of Preferred Shares.

At any time after the date of the Rights Agreement until the earlier of ten
days after the Stock Acquisition Date or the Final Expiration Date, the Company
may, upon approval by a majority of the Board of Directors and Continuing
Directors, redeem the Rights in whole, but not in part, at a price of $0.01 per
Right (the "Redemption Price"), subject to adjustment. The Redemption Price may,
at the option of the Company, be paid in cash, shares of Preferred Stock or
shares of Common Stock. The Rights will thereupon terminate and the only right
of the holders of Rights will be to receive the Redemption Price.

At any time after a person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by any such person or
group of 50% or more of the voting power of the Company, the Board of Directors
(with the approval of a majority of the Continuing Directors) may exchange the
Rights (other than Rights owned by such person or group which have become void),
in whole or in part, at an exchange ratio of one share of Common Stock (or a
fraction of a share of Preferred Stock or other consideration having equivalent
value) per Right, subject to adjustment.

As long as the Rights are redeemable, the provisions of the Rights
Agreement may be amended by the Company without the approval of any holders of
the Rights. Any amendment adopted thereafter may not materially adversely affect
the interests of holders of the Rights.

For purposes of the Rights Agreement, a "Continuing Director" means any
member of the Board of Directors who is not an Acquiring Person or an affiliate
or associate of an Acquiring Person, or a representative or nominee of an
Acquiring Person or any such affiliate or associate and who either (i) was a
member of the Board of Directors on the date the Rights Agreement was adopted or
(ii) subsequently became a member of the Board of Directors and whose nomination
for election or election to the Board was recommended or approved by a majority
of the Continuing Directors then on the Board of Directors.

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
other than pursuant to a tender offer or other transaction approved by the Board
of Directors. The Rights, however, provide the Board of Directors and the
Acquiring Person a ten-day period to negotiate such a merger or consolidation
before the Rights become exercisable. If an acceptable arrangement is reached
within this period, the Board of Directors may redeem all of the Rights.

PREFERRED STOCK. The Restated Articles permit the Company's Board of
Directors to issue Preferred Stock at any time without shareholder approval. See
"-- Preferred Stock" and "-- Certain Effects of Authorized but Unissued Stock."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock.
Future sales of a substantial number of shares of Common Stock in the public
market could adversely affect trading prices prevailing from time to time. The
Selling Shareholder will hold 4,275,000 shares, representing 43.7% of the
outstanding shares of Common Stock after this offering (3,866,250 shares,
representing 37.9% if the Underwriters' over-allotment option is exercised in
full), and a decision by the Selling Shareholder to sell shares of Common Stock
in the open market could adversely affect the trading price of the Common Stock.

Upon completion of this offering, the Company will have outstanding
9,775,000 shares of Common Stock (10,191,250 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act ("Rule 144"), which is summarized below.

The remaining 4,275,000 shares (3,866,250 shares if the Underwriters'
over-allotment option is exercised in full) held by the Selling Shareholder will
be "restricted securities" as that term is defined in Rule 144 ("Restricted
Shares"). Restricted Shares may be sold in the public market only if such sale
is registered under the Securities Act or if it qualifies for an exemption from
registration, such as the one provided by Rule 144. Sales of the Restricted
Shares in the open market, or the availability of such shares for sale, could
adversely affect the trading price of the Common Stock.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year following the later of the date of the acquisition of such shares
from the issuer or an affiliate of the issuer would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the number of shares of Common Stock then outstanding (approximately
97,750 shares immediately after this offering, or 101,913 shares if the
Underwriters' overallotment option is exercised in full) or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and the availability of current public information about the
Company. Rule 144 generally becomes available 90 days after the issuer has been
subject to the information reporting requirements of the Exchange Act. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years following the later of the
date of the acquisition of such shares from the issuer or an affiliate of the
issuer, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

The Company intends to file registration statements on Form S-8 under the
Securities Act covering the offering and sale of the 2,250,000 shares of Common
Stock reserved for issuance under the Stock Option Plan, the 50,000 shares
reserved for issuance under the Director Plan and the 425,000 shares reserved
for issuance under the Stock Purchase Plan. Accordingly, shares of Common Stock
issued upon exercise of options granted under the Stock Option Plan or the
Director Plan or purchased with payroll deductions under the Stock Purchase Plan
will be available for sale in the open market, unless such shares are subject to
certain lock-up agreements. See "Underwriting."

50
<PAGE> 53

UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below, through their representatives, Raymond James &
Associates, Inc. and Southwest Securities, Inc. (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholder the
following respective numbers of shares of Common Stock at the initial price to
public less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Raymond James & Associates, Inc............................. 2,145,000
Southwest Securities, Inc................................... 2,145,000
Allen & Company Incorporated................................ 110,000
Bear, Stearns & Co. Inc..................................... 110,000
Alex. Brown & Sons Incorporated............................. 110,000
Cowen & Company............................................. 110,000
Hambrecht & Quist LLC....................................... 110,000
Lazard Freres & Co. LLC..................................... 110,000
Lehman Brothers Inc......................................... 110,000
Robert W. Baird & Co. Incorporated.......................... 55,000
Equitable Securities Corporation............................ 55,000
Hoak Breedlove Wesneski & Co................................ 55,000
Interstate/Johnson Lane Corporation......................... 55,000
Janney Montgomery Scott Inc................................. 55,000
Rauscher Pierce Refsnes, Inc................................ 55,000
The Robinson-Humphrey Company, Inc.......................... 55,000
Ryan, Beck & Co............................................. 55,000
---------
Total............................................. 5,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions. The Underwriters are obligated
to take and pay for all shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are to
be purchased.

The Underwriters, through the Representatives, propose to offer part of the
shares of Common Stock directly to the public at the offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at a
price that represents a concession not in excess of $0.50 per share under the
initial price to public. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $0.10 per share to certain other
dealers. After the initial offering of the shares to the public, the offering
price and other selling terms may be changed by the Representatives. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The Company and the Selling Shareholder have granted the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to an aggregate of 825,000 additional shares of Common Stock, at the
initial price to public, less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
shown, and the Company and the Selling Shareholder will be obligated, pursuant
to the option, to sell such shares to the Underwriters. The Underwriters may
exercise their option only to cover over-allotments made in connection with the
sale of the shares of Common Stock offered hereby. If purchased, the
Underwriters will

51
<PAGE> 54

sell such additional shares on the same terms as those on which the shares that
the Underwriters have agreed to purchase from the Company and the Selling
Shareholder are being offered.

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
purchase 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 representation 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, the Selling Shareholder and certain officers and directors of
the Company, which upon consummation of this offering will own or have the right
to acquire in the aggregate 6,200,491 shares of Common Stock, have agreed that
they will not, without the prior written consent of Raymond James & Associates,
Inc., 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 issue shares of Common Stock under the
Stock Purchase Plan and upon exercise of options outstanding under the Stock
Option Plan and the Director Plan and may grant additional options under the
Stock Option Plan and the 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 price to public for the Common Stock has been determined by
negotiation among the Company, the Selling Shareholder and the Representatives.
Among the factors considered in determining the initial price to public were
prevailing market and economic conditions, revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to those of
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant.

The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities, including liabilities under the Securities Act.

The Company has additionally agreed to pay to the Representatives, solely
by deduction from the proceeds of this offering, a financial advisory fee of
$300,000. Such financial advisory fee shall be paid by the Company and the
Selling Shareholder in proportion to the number of shares of Common Stock sold
by them

52
<PAGE> 55

hereby, and relates to financial advisory services provided by the
Representatives to the Company and Selling Shareholder in connection with this
offering and related matters.

At the Company's request, the Underwriters have reserved up to 175,000
shares of Common Stock for sale to the Company's directors, officers, employees
and designees and have agreed to permit them to buy such shares at $11.52 per
share. The number of shares of Common Stock available for sale by the Company to
the general public will be reduced to the extent purchasers designated by the
Company purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public at the initial price to
public.

The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the form of
Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas,
Texas. Certain matters will be passed upon for the Underwriters by Thompson &
Knight, A Professional Corporation, Dallas, Texas.

EXPERTS

The consolidated financial statements of the Company as of and for the six
months ended June 30, 1997, as of and for the year ended December 31, 1996 and
as of December 31, 1995 and for the period April 28, 1995 (date of inception)
through December 31, 1995 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, and have been so included in
reliance upon the opinion of such firm given upon their authority as experts in
accounting and auditing.

The consolidated financial statements of SDS and subsidiary as of March 11,
1997 and the period January 1, 1997 through March 11, 1997 and as of and for the
three years in the period ended December 31, 1996 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, and have been
so included in reliance upon the opinion of such firm given upon their authority
as experts in accounting and auditing.

During 1996, the Company changed its independent accountants from Price
Waterhouse LLP ("Price Waterhouse") to Deloitte & Touche LLP. There were no
disagreements between the Company and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure that if not resolved to the satisfaction of Price Waterhouse
would have caused such firm to make reference thereto in connection with its
reports on the financial statements of the Company. The Company's decision to
change to Deloitte & Touche LLP was approved by the Board of Directors of the
Company. In 1997, in connection with the SDS Acquisition, SDS changed its
independent accountants from KPMG Peat Marwick LLP ("KPMG") to Deloitte & Touche
LLP, the Company's independent accountants. There were no disagreements between
SDS and KPMG on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure that if not resolved to the
satisfaction of KPMG would have caused such firm to make reference thereto in
connection with its reports on the financial statements of SDS. SDS's decision
to change its independent accountants was approved by the Board of Directors of
the Company.

53
<PAGE> 56

AVAILABLE INFORMATION

The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed with the Securities and Exchange
Commission (the "Commission"), a Registration Statement on Form S-1 under the
Securities Act (the "Registration Statement") with respect to the offering and
sale of Common Stock. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to 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. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, New York, New York 10048 and at 500 Madison Street, Chicago,
Illinois 60661, upon payment of certain fees prescribed by the Commission. The
Commission maintains an Internet world wide web site that contains reports,
proxy and information reports and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. The site
can be accessed at http://www.sec.gov.

The Company intends to distribute to the holders of Common Stock annual
reports containing consolidated financial statements audited by independent
accountants.

54
<PAGE> 57

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Consolidated Financial Information...... F-2
Pro Forma Condensed Consolidated Financial Statements....... F-3
Notes to Pro Forma Condensed Consolidated Financial
Statements................................................ F-6

INSPIRE INSURANCE SOLUTIONS, INC. CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report................................ F-7
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-8
Consolidated Statements of Operations..................... F-9
Consolidated Statements of Shareholder's Equity........... F-10
Consolidated Statements of Cash Flows..................... F-11
Notes to Consolidated Financial Statements................ F-12

STRATEGIC DATA SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-23
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-24
Consolidated Statements of Operations..................... F-25
Consolidated Statements of Shareholders' Equity........... F-26
Consolidated Statements of Cash Flows..................... F-27
Notes to Consolidated Financial Statements................ F-28
</TABLE>

F-1
<PAGE> 58

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

INTRODUCTION

The accompanying unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 reflect: (i) the acquisition of Strategic Data Systems, Inc.
("SDS") using the purchase method of accounting as if the acquisition of SDS,
which occurred on March 12, 1997, had occurred on January 1, 1996 and (ii) the
results of operations of INSpire Insurance Solutions, Inc. (the "Company") as if
the Company had operated on an independent basis separate from The Millers
Mutual Fire Insurance Company ("Millers Mutual") since January 1, 1996.

The unaudited pro forma condensed consolidated statements of operations 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
above had occurred on January 1, 1996, or to project the Company's results of
operations for any future periods.

The pro forma condensed consolidated statements of operations should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of INSpire," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of SDS," the Company's
Financial Statements and SDS's Consolidated Financial Statements.

F-2
<PAGE> 59

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services........ $13,653 $ -- $ 13,653 $ -- $ 13,653
Software and software
services................. -- 19,024 19,024 -- 19,024
Other....................... -- 4,640 4,640 -- 4,640
------- ------- --------- ---------
Total revenues...... 13,653 23,664 37,317 -- 37,317
------- ------- --------- ---------
Operating expenses............ 14,430 22,629 37,059 1,068(b) 36,920
(2,920)(c)
559(d)
(887)(e)
1,200(f)
947(g)
(106)(h)
------- ------- --------- ---------
Operating income (loss)....... (777) 1,035 258 397
Interest expense.............. (2) (207) (209) (430)(i) (639)
Other income (expense), net... -- 319 319 319
------- ------- --------- ---------
Income (loss) from operations
before income taxes
(benefit)................... (779) 1,147 368 77
Income taxes (benefit)........ (264) 449 185 (256)(j) (71)
------- ------- --------- ---------
Net income (loss)............. $ (515) $ 698 $ 183 $ 148
======= ======= ========= =========
Net income (loss) per share... $ 0.02 $ 0.02
========= =========
Supplementary net income
(loss) per share............ $ 0.07
=========
Weighted average common and
common equivalent shares
outstanding................. 7,749,221 7,749,221
</TABLE>

See accompanying notes.

F-3
<PAGE> 60

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services....... $5,338 $ -- $ 5,338 $ -- $ 5,338
Software and software
services................ -- 9,299 9,299 -- 9,299
Other...................... -- 1,073 1,073 -- 1,073
------- ------- ---------- ----------
Total revenues..... 5,338 10,372 15,710 -- 15,710
------- ------- ---------- ----------
Operating expenses........... 5,752 9,861 15,613 438(b) 15,884
(1,110)(c)
360(d)
(438)(e)
600(f)
474(g)
(53)(h)
------- ------- ---------- ----------
Operating income (loss)...... (414) 511 97 (174)
Interest expense............. -- (101) (101) (215)(i) (316)
Other income (expense),
net........................ -- 120 120 120
------- ------- ---------- ----------
Income (loss) from operations
before income taxes
(benefit).................. (414) 530 116 (370)
Income taxes (benefit)....... (141) 233 92 (274)(j) (182)
------- ------- ---------- ----------
Net income (loss)............ $ (273) $ 297 $ 24 $ (188)
======= ======= ========== ==========
Net income (loss) per
share...................... $ 0.00 $ (0.02)
========== ==========
Supplementary net income
(loss) per share........... $ 0.00
==========
Weighted average common and
common equivalent shares
outstanding................ 7,749,221 7,749,221
</TABLE>

See accompanying notes.

F-4
<PAGE> 61

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services....... $14,394 $ -- $ 14,394 $ -- $ 14,394
Software and software
services................ 7,562 4,840 12,402 -- 12,402
Other...................... 1,303 572 1,875 -- 1,875
------- ------- ---------- ----------
Total revenues..... 23,259 5,412 28,671 -- 28,671
------- ------- ---------- ----------
Operating expenses........... 27,668 5,049 32,717 700(b) 32,500
(1,110)(c)
(204)(e)
233(f)
184(g)
(20)(h)
------- ------- ---------- ----------
Operating income (loss)...... (4,409) 363 (4,046) (3,829)
Interest expense............. (212) (33) (245) (84)(i) (329)
Other income (expense),
net........................ 53 57 110 110
------- ------- ---------- ----------
Income (loss) from operations
before income taxes
(benefit).................. (4,568) 387 (4,181) (4,048)
Income taxes (benefit)....... (1,712) 156 (1,556) (75)(j) (1,631)
------- ------- ---------- ----------
Net income (loss)............ $(2,856) $ 231 $ (2,625) $ (2,417)
======= ======= ========== ==========
Net income (loss) per
share...................... $ (0.34) $ (0.31)
========== ==========
Supplementary net income
(loss) per share........... $ (0.30)
==========
Weighted average common and
common equivalent shares
outstanding................ 7,749,221 7,749,221
</TABLE>

See accompanying notes.

F-5
<PAGE> 62

NOTES TO PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(a) See the Introduction to Pro Forma Condensed Consolidated Financial
Information.

(b) Represents compensation for finance, administrative, executive and marketing
employees to perform services performed by Millers Mutual pursuant to a
management agreement.

(c) Reflects the net reduction in the management fee charged to the Company by
Millers Mutual resulting from the recognition of additional compensation for
employees to perform services provided by Millers Mutual pursuant to a
management agreement.

(d) Represents software production expenses during the period that were
capitalized by SDS as a result of conforming its software production expense
capitalization policy to that of the Company.

(e) Reflects the elimination of amortization of software production expenses
capitalized by SDS as a result of conforming its software production expense
capitalization policy to that of the Company.

(f) Reflects the amortization of $6,000,000 of purchased software associated
with the acquisition of SDS.

(g) Represents the amortization of goodwill associated with the acquisition of
SDS.

(h) Represents previously recorded amortization of goodwill by SDS resulting
from the acquisition of Applied Quoting Systems, Inc.

(i) Represents the effect of interest expense associated with the debt incurred
in conjunction with the acquisition of SDS, offset by the elimination of
certain interest expense associated with mortgage debt not assumed in the
acquisition of SDS.

(j) Income tax (benefit) is calculated at an effective rate of 36% less the
deferred tax benefit associated with the amortization of purchased software
associated with the acquisition of SDS.

F-6
<PAGE> 63

INDEPENDENT AUDITORS' REPORT

Board of Directors
INSpire Insurance Solutions, Inc. and Subsidiary
Fort Worth, Texas

We have audited the accompanying consolidated balance sheets of INSpire
Insurance Solutions, Inc. and subsidiary (formerly Millers Integrated Claims
Resources, Inc. and MiliRisk, Inc.) as of December 31, 1995, 1996 and June 30,
1997 and the related consolidated statements of operations, shareholder's equity
and cash flows for the period April 28, 1995 (date of inception) through
December 31, 1995, the year ended December 31, 1996 and the six months ended
June 30, 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, such consolidated financial statements present fairly, in
all material respects, the financial position of INSpire Insurance Solutions,
Inc. and subsidiary at December 31, 1995, 1996 and June 30, 1997 and the results
of their operations and their cash flows for the period April 28, 1995 (date of
inception) through December 31, 1995, the year ended December 31, 1996 and the
six months ended June 30, 1997 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
July 18, 1997

(August 20, 1997 as to Note 13)

F-7
<PAGE> 64

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 21,868 $ 363,398 $ 451,022
Accounts receivable -- net........................... -- 1,168,148 6,416,323
Income taxes receivable.............................. 475,124 339,571 339,571
Deferred income taxes................................ -- -- 1,273,000
Prepaid expenses and other current assets............ -- 140,950 844,581
---------- ---------- -----------
Total current assets......................... 496,992 2,012,067 9,324,497
Accounts receivable, excluding current portion......... -- -- 207,601
Property and equipment, net............................ 2,320,055 3,219,892 6,277,833
Intangibles and other assets........................... -- -- 15,078,103
---------- ---------- -----------
TOTAL.................................................. $2,817,047 $5,231,959 $30,888,034
========== ========== ===========

LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Note payable......................................... $ -- $2,500,000 $ --
Accounts payable..................................... -- 1,066,013 954,243
Accrued payroll and compensation..................... -- -- 657,038
Other accrued expenses............................... -- -- 1,654,296
Customer deposits.................................... -- -- 474,880
Deferred compensation................................ -- -- 2,699,000
Income taxes payable................................. -- -- 1,065,638
Current portion of long-term debt.................... -- -- 1,562,500
Due to parent........................................ 1,569,108 995,706 2,833,053
---------- ---------- -----------
Total current liabilities.................... 1,569,108 4,561,719 11,900,648
Deferred compensation.................................. -- -- 1,609,388
Long-term debt......................................... -- -- 5,625,000
Deferred income taxes.................................. 126,500 64,000 2,195,000

Commitments and Contingencies (Note 12)................ -- -- --

SHAREHOLDER'S EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding........... -- -- --
Common stock, $.01 par value; 1,000 shares
authorized, 100 shares issued and outstanding in
1995 and 1996; 14,000,000 shares authorized and
7,000,000 shares issued and outstanding at June
30, 1997.......................................... 1 1 70,000
Additional paid-in capital........................... 2,383,417 2,383,417 14,121,609
Accumulated deficit.................................. (1,261,979) (1,777,178) (4,633,611)
---------- ---------- -----------
Total shareholder's equity................... 1,121,439 606,240 9,557,998
---------- ---------- -----------
TOTAL.................................................. $2,817,047 $5,231,959 $30,888,034
========== ========== ===========
</TABLE>

See notes to consolidated financial statements.

F-8
<PAGE> 65

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD APRIL 28, SIX MONTHS
1995 THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1996 1997
------------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services.................... $ 3,907,108 $13,653,003 $5,337,755 $14,393,897
Software and software services.......... -- -- -- 7,561,879
Other................................... -- -- -- 1,303,439
----------- ----------- ---------- -----------
Total revenues.................. 3,907,108 13,653,003 5,337,755 23,259,215
----------- ----------- ---------- -----------
EXPENSES:
Cost of outsourcing services............ 4,884,641 10,543,077 4,202,355 10,098,207
Cost of software and software
services............................. -- -- -- 2,921,377
Cost of other revenues.................. -- -- -- 696,495
Selling, general and administrative..... -- -- -- 3,428,330
Research and development................ -- -- -- 679,600
Depreciation and amortization........... 33,070 786,768 349,635 1,695,416
Purchased research and development...... -- -- -- 3,000,000
Deferred compensation................... -- -- -- 3,949,000
Management fees to Parent............... 600,000 3,100,000 1,200,000 1,200,000
----------- ----------- ---------- -----------
Total expenses.................. 5,517,711 14,429,845 5,751,990 27,668,425
----------- ----------- ---------- -----------
OPERATING LOSS............................ (1,610,603) (776,842) (414,235) (4,409,210)
OTHER INCOME (EXPENSE):
Interest income......................... -- -- -- 74,537
Interest expense........................ -- (2,245) -- (212,044)
Other................................... -- -- -- (21,371)
----------- ----------- ---------- -----------
Total other income (expense).... -- (2,245) -- (158,878)
----------- ----------- ---------- -----------
LOSS BEFORE INCOME TAX BENEFIT............ (1,610,603) (779,087) (414,235) (4,568,088)
INCOME TAX BENEFIT........................ 348,624 263,888 140,840 1,711,655
----------- ----------- ---------- -----------
NET LOSS.................................. $(1,261,979) $ (515,199) $ (273,395) $(2,856,433)
----------- ----------- ---------- -----------
NET LOSS PER COMMON SHARE................. $ (.16) $ (.07) $ (.04) $ (.37)
=========== =========== ========== ===========
</TABLE>

See notes to consolidated financial statements.

F-9
<PAGE> 66

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE PERIOD APRIL 28, 1995 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of 100 shares of common stock at
inception.............................. $ 1 $ 999 $ -- $ 1,000
Parent's contribution of fixed assets.... -- 2,382,418 -- 2,382,418
Net loss................................. -- -- (1,261,979) (1,261,979)
------- ----------- ----------- -----------
Balance, December 31, 1995............... 1 2,383,417 (1,261,979) 1,121,439
Net loss................................. -- -- (515,199) (515,199)
------- ----------- ----------- -----------
Balance, December 31, 1996............... 1 2,383,417 (1,777,178) 606,240
Parent's contribution of fixed
assets................................. -- 1,308,191 -- 1,308,191
Parent's contribution of additional
paid-in capital........................ -- 10,500,000 -- 10,500,000
Stock dividend to parent of 64,900
shares, March 1997..................... 649 (649) -- --
Stock dividend to parent of 6,935,000
shares, June 1997...................... 69,350 (69,350) -- --
Net loss................................. -- -- (2,856,433) (2,856,433)
------- ----------- ----------- -----------
Balance, June 30, 1997................... $70,000 $14,121,609 $(4,633,611) $ 9,557,998
======= =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-10
<PAGE> 67

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
PERIOD APRIL 28, ENDED
1995 THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1995 1996 1996 1997
----------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss..................................... $(1,261,979) $ (515,199) $(273,395) $ (2,856,433)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 33,070 786,768 349,635 1,695,416
Deferred income taxes...................... 126,500 (62,500) (57,500) (2,785,000)
Purchased research and development......... -- -- -- 3,000,000
Loss on sales of property and equipment.... 8,348 12,639 -- --
Changes in operating assets and
liabilities:
Accounts receivable...................... -- (1,168,148) (67,853) (281,026)
Income taxes receivable.................. (475,124) 135,553 (32,152) --
Prepaid expenses and other current
assets................................ -- (140,950) -- (442,267)
Other assets............................. -- -- -- 100,462
Accounts payable......................... -- 1,066,013 -- (1,291,495)
Accrued payroll and compensation......... -- -- -- (417,543)
Other accrued expenses................... -- -- -- 945,457
Customer deposits........................ -- -- -- (867,220)
Income taxes payable..................... -- -- -- 615,638
Deferred compensation.................... -- -- -- 3,980,753
Due to parent............................ 1,569,108 (573,402) 977,924 1,837,347
----------- ----------- --------- ------------
Net cash provided by (used in)
operating activities................ (77) (459,226) 896,659 3,234,089
----------- ----------- --------- ------------
INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment.................................. 23,039 67,494 -- --
Purchases of property and equipment.......... (2,094) (1,766,738) (456,560) (882,627)
Acquisition of SDS, net of cash acquired..... -- -- -- (17,118,849)
----------- ----------- --------- ------------
Net cash provided by (used in) investing
activities................................. 20,945 (1,699,244) (456,560) (18,001,476)
----------- ----------- --------- ------------
FINANCING ACTIVITIES:
Proceeds from borrowings..................... -- 2,500,000 77,220 7,500,000
Repayment of borrowings...................... -- -- -- (3,410,396)
Contribution from parent..................... -- -- -- 10,500,000
Issuance of common stock..................... 1,000 -- -- --
Bank overdrafts.............................. -- -- -- 265,407
----------- ----------- --------- ------------
Net cash provided by financing
activities.......................... 1,000 2,500,000 77,220 14,855,011
----------- ----------- --------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS...... 21,868 341,530 517,319 87,624
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... -- 21,868 21,868 363,398
----------- ----------- --------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD....................................... $ 21,868 $ 363,398 $ 539,187 $ 451,022
=========== =========== ========= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid................................ $ -- $ 2,245 $ -- $ 112,947
=========== =========== ========= ============
Income taxes refunded........................ $ -- $ 336,939 $ -- $ --
=========== =========== ========= ============
Noncash investing activities -- contribution
of fixed assets from parent................ $ 2,382,418 $ -- $ -- $ 1,308,191
=========== =========== ========= ============
</TABLE>

See notes to consolidated financial statements.

F-11
<PAGE> 68

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

General -- INSpire Insurance Solutions, Inc. ("INSpire" or the "Company")
(formerly Millers Integrated Claims Resources, Inc. and MiliRisk, Inc.) is a
wholly-owned subsidiary of The Millers Mutual Fire Insurance Company ("Millers
Mutual") and was incorporated April 28, 1995. INSpire is a provider of policy
and claims administration outsourcing services to the property and casualty
("P&C") insurance industry. Through its wholly-owned subsidiary, Strategic Data
Systems, Inc. and subsidiary ("SDS"), which was acquired March 12, 1997, the
Company also develops and markets software and software services to the P&C
insurance industry. The Company sells its products directly to the customer. The
majority of sales are in North America.

Basis of Consolidation -- The accompanying consolidated financial
statements for the period ended June 30, 1997 include the accounts of INSpire
and, since March 12, 1997, SDS. All significant intercompany accounts and
transactions have been eliminated in consolidation.

SDS Acquisition -- On March 12, 1997, INSpire acquired all the outstanding
shares of common stock of SDS for an aggregate cash purchase price of $18.0
million, subject to adjustment as provided in the purchase agreement, and costs
and expenses of $325,000. The acquisition was funded by a $10.5 million capital
contribution from Millers Mutual along with borrowings under a revolving line of
credit and term loan from a bank.

The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their relative fair market values. As of the
acquisition date, assets acquired and liabilities assumed were as follows (in
thousands):

<TABLE>
<S> <C>
Purchase price.............................................. $ 18,325
Fair values of net assets acquired:
Software.................................................. 6,000
Purchased research and development........................ 3,000
Fair value of tangible assets acquired.................... 10,832
Liabilities assumed....................................... (10,786)
--------
9,046
--------
Goodwill.................................................... $ 9,279
========
</TABLE>

The amount assigned to purchased research and development was charged
against operating results at the time of acquisition.

The allocation of the purchase price is pending any additional adjustments
that may arise as a result of the finalization of the Company's ongoing
analysis.

Operating results of the acquired business are included in consolidated
results only from the date of acquisition. Unaudited pro forma data reflecting
results as if the acquisition had been effective at the beginning of 1996
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
<S> <C> <C>
Net revenues.......................................... $37,317 $28,671
Income (loss) from operations......................... 397 (3,829)
Net income (loss)..................................... 148 (2,417)
Net income (loss) per common share.................... .02 (.31)
</TABLE>

F-12
<PAGE> 69

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma results are unaudited and are based on historical results,
adjusted for the impact of certain acquisition-related adjustments, such as:
increased depreciation of property and equipment, the charge-off of purchase
price assigned to purchased research and development, the amortization of
goodwill, acquired software and other intangible assets and the related income
tax effects. The pro forma net earnings per common share were calculated using a
weighted average number of common shares outstanding and common equivalent
shares of 7,749,221 for 1996 and the six months ended June 30, 1997 after giving
effect to the common stock dividends paid during March and June 1997. Pro forma
results do not reflect any synergies that might be achieved from combined
operations and, therefore, in management's opinion, are not indicative of what
actual results would have been if the acquisition had occurred at the beginning
of 1996. In addition, they are not intended to be a projection of future
results.

The management fee historically paid by the Company was determined by
management to be reasonable based on an allocation of total projected common
costs of Millers Mutual and its subsidiaries allocated based on projected
revenues. As a result of the acquisition of SDS, including its existing finance,
administrative, executive and marketing infrastructure, and the addition of
other personnel, the Company is able to provide internally most of the services
previously provided by Millers Mutual.

The net effect of the pro forma adjustments to reflect: (i) differences
between the fees paid under the management agreement in place between the
Company and Millers Mutual through June 30, 1997 and the benefits administration
contract effective July 1, 1997, as described in Note 13, (ii) the additional
costs that would have been incurred by the Company for compensation of finance,
administrative, executive and marketing personnel to perform services provided
by Millers Mutual on behalf of the Company if the management agreement had not
been in place and (iii) the related income tax effects for the year ended
December 31, 1996 and the six months ended June 30, 1997 was to decrease net
loss as reported in the Consolidated Statements of Operations by approximately
$1,223,000 and $256,000, respectively. The pro forma net income per common share
for the year ended December 31, 1996 and the pro forma net loss per common share
for the six months ended June 30, 1997, after giving effect to these pro forma
adjustments, was $.09 and $.34, respectively.

Property and Equipment -- The Company records property and equipment at
cost, less accumulated depreciation. Depreciation is calculated using the
straight-line method based on the related assets estimated useful lives, which
range from three to seven years. Leasehold expenses are amortized over the lease
term or the estimated useful life, whichever is less. Repairs and maintenance
are charged to operations as incurred.

Revenue Recognition -- Revenues from outsourcing services are recognized as
services are rendered. Initial installations of software systems generally
include a one-time license fee and a contract for the installation and
customization of the system to meet the customer's specifications, which the
Company bills at an hourly rate. Amounts charged for the initial license and the
installation and customization of systems are recognized as revenue during the
installation period in proportion to the hours expended for installation
compared to the total hours projected for installation. In other instances,
revenues are recognized based on performance milestones specified in the
contract. The Company recognizes the annual fee charged for maintenance of the
customer's system as revenue as hours are expended over the maintenance contract
period. Revenues from computer hardware and equipment sales are recognized when
the Company receives notification that the equipment has been shipped by the
manufacturer and title has passed to the customer. Changes in estimates of
percentage of completion or losses, if any, associated with outsourcing or
software services are recognized in the period in which they are determined.

Income Taxes -- Millers Mutual and its subsidiaries, including INSpire,
file a consolidated federal income tax return. In accordance with federal income
tax regulations, all corporations included in a consolidated tax return are
jointly and severally liable for all tax liabilities. A tax sharing agreement
among Millers Mutual, the Company and the other subsidiaries of Millers Mutual
(the "Tax Allocation Agreement") provides that taxes on income are charged to
profitable subsidiaries as if they were filing their own

F-13
<PAGE> 70

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

separate returns. Subsidiaries with losses are given credit for tax benefits of
their losses to the extent utilized to reduce the consolidated tax liability or
to the extent the benefits are funded currently. Subsidiaries receive the
benefit of all tax credits. Intercompany tax balances are settled annually.

Federal income taxes have been computed on a separate return basis in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires income taxes to be accounted for
under the liability method. Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred income taxes related primarily to differences between the
basis of property and equipment due to depreciation differences and to the
application of the purchase method of accounting for financial statement
purposes but not for tax purposes, and nondeductible asset and liability
reserves for tax purposes. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are evaluated based on the guidelines for realization and
may be reduced by a valuation allowance.

Industry Concentration -- INSpire's revenues and accounts receivable are
derived primarily from the United States P&C insurance industry.

Research and Development -- All research and development costs incurred
prior to the point at which management believes a project has reached
"technological feasibility" are expensed. Software production costs incurred
subsequent to reaching technological feasibility are capitalized, if material,
and reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized over the expected service life of the related
software, generally five to seven years, using the straight-line method. The
cost and related accumulated amortization of projects are written off as they
become fully amortized.

The Company assesses the recoverability of these costs by determining
whether the amortization of the capitalized costs over the remaining life of the
projects can be recovered through undiscounted future operating cash flows.

Cash and Cash Equivalents -- For the purposes of reporting cash flows, cash
and cash equivalents includes investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.

Intangibles and Other Assets -- Goodwill is amortized over a period of 10
years using the straight-line method. Acquired software is amortized over a
period of five years using the straight-line method.

Accounts Payable -- Bank overdrafts totalling $265,407 are included in
accounts payable at June 30, 1997.

Financial Instruments -- Under SFAS No. 107, "Disclosure About Fair Value
of Financial Instruments," the Company's financial instruments include cash and
cash equivalents, accounts receivable, accounts payable, amount due to parent
and long-term debt. The Company believes that the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, amount due to parent
and long-term debt are a reasonable estimate of their fair value because of the
short-term maturities of such instruments or, in the case of long-term debt,
because of interest rates available to the Company for similar obligations.

Loss Per Share -- Loss per share of common stock of the Company (the
"Common Stock") is computed by dividing net loss by the weighted average number
of common shares outstanding, including common equivalent shares. The weighted
average number of common shares outstanding and common equivalent shares were
7,749,221 in 1995, 1996 and the six months ended June 30, 1997 after giving
effect to the Common Stock dividends paid in May and June 1997. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin Topic 4D, stock
options granted during the twelve months prior to the date of the initial filing
of the Company's Form S-1 Registration Statement have been included in the
calculation of common equivalent shares using the treasury stock method, as if
they were outstanding for all periods presented. In February 1997, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 128, "Earnings

F-14
<PAGE> 71

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

per Share." SFAS No. 128 specifies the computation, presentation and disclosure
requirements for loss per share. The impact on loss per share computed using
SFAS No. 128 is immaterial.

Accounting Estimates -- The preparation of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those amounts.

Recently Issued Accounting Pronouncements -- SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset.
Adoption of SFAS No. 121 during 1996 had no material effect on the Company's
financial position or results of operations.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components, as defined. SFAS No. 130 requires that all items that
must be recognized under accounting standards as components of comprehensive
income be reported in a financial statement displayed with the same prominence
as other financial statements. In addition, SFAS No. 130 requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a balance sheet. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management believes that comprehensive
income, as defined by SFAS No. 130, will not differ materially from net loss as
reported in the Consolidated Statements of Operations.

In addition, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires public
enterprises to report certain financial and descriptive information about
operating segments, as defined, in annual financial statements and selected
information in condensed financial statements for interim periods issued to
shareholders, if practical. SFAS No. 131 is effective for financial statements
for periods beginning after December 15, 1997.

Interim Financial Statements (Unaudited) -- The interim financial
statements presented as of June 30, 1996 and for the six months then ended are
unaudited. With respect to the unaudited interim financial statements, the
Company is of the opinion that all material adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the Company's
interim results of operations and financial condition, have been included. The
results of operations for the six months ended June 30, 1996 should not be
regarded as necessarily indicative of the results of operations for any future
period.

F-15
<PAGE> 72

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTS RECEIVABLE

Accounts receivable is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
----- ---------- -----------
<S> <C> <C> <C>
Accounts receivable -- trade..................... $ -- $1,137,512 $6,597,437
Other............................................ -- 30,636 30,700
----- ---------- ----------
-- 1,168,148 6,628,137
Allowance for doubtful accounts.................. -- -- (211,814)
----- ---------- ----------
-- 1,168,148 6,416,323
Noncurrent -- accounts receivable................ -- -- 207,601
----- ---------- ----------
$ -- $1,168,148 $6,623,924
===== ========== ==========
</TABLE>

No allowance for doubtful accounts was considered necessary by management
as of December 31, 1996.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Computer equipment........................... $2,169,948 $ 4,084,887 $11,549,496
Office equipment............................. 65,343 335,685 2,032,086
Automobiles.................................. 103,108 68,867 231,186
Leasehold improvements....................... -- 2,464 152,174
---------- ----------- -----------
2,338,399 4,491,903 13,964,942
Accumulated depreciation and amortization.... (18,344) (1,272,011) (7,687,109)
---------- ----------- -----------
$2,320,055 $ 3,219,892 $ 6,277,833
========== =========== ===========
</TABLE>

Depreciation and amortization expense was $33,070 and $786,768 for 1995 and
1996, respectively, and $349,635 and $1,039,786 for the unaudited six months
ended June 30, 1996 and the six months ended June 30, 1997, respectively.

4. RESEARCH AND DEVELOPMENT

Research and development costs were approximately $680,000 for the six
months ended June 30, 1997.

5. INTANGIBLES AND OTHER ASSETS

Intangibles and other assets consist of the following at June 30, 1997:

<TABLE>
<S> <C>
Goodwill, net of accumulated amortization of $289,630....... $ 8,989,110
Acquired software, net of accumulated amortization of
$366,000.................................................. 5,634,000
Cash surrender value of life insurance...................... 369,898
Other....................................................... 85,095
-----------
$15,078,103
===========
</TABLE>

F-16
<PAGE> 73

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. NOTE PAYABLE AND LONG-TERM DEBT

NOTE PAYABLE -- On December 11, 1996, INSpire entered into a note agreement
with a bank. The note bears interest at prime (8.25% at December 31, 1996) and
was repaid on February 1, 1997.

LONG-TERM DEBT -- A summary of long-term debt at June 30, 1997 is as
follows:

<TABLE>
<S> <C>
Bank term note, with interest at prime (8.5% at June 30,
1997) or the London Interbank Offering Rate ("LIBOR")
(7.44% at June 30, 1997), collateralized by all assets of
the Company, payable in quarterly principal installments
of $312,500 plus interest through September 30, 2000, with
final payment due March 12, 2001.......................... $4,687,500
Note payable to bank under a $4 million line of credit which
expires on March 12, 1999, with interest at prime or
LIBOR, collateralized by all assets of the Company.
Borrowings are limited based on a borrowing base
calculation. Interest is due and payable quarterly along
with commitment fees of 0.25% of the unused balance....... 2,500,000
----------
7,187,500
Less current maturities..................................... 1,562,500
----------
$5,625,000
==========
</TABLE>

INSpire's bank term note payable and line of credit agreement, which was
amended July 18, 1997, contains certain restrictive covenants. These covenants
require that the Company meet certain requirements such as maintenance of a
minimum net worth, and restrict additional borrowings, dividends or other
distributions without prior consent of the bank. At June 30, 1997, the Company
was in compliance with the covenants in the note payable and line of credit
agreement.

The following represents the approximate future annual maturities of the
Company's long-term debt obligations at June 30, 1997:

7. INCOME TAXES

Federal income tax benefit (expense) consists of the following components:

<TABLE>
<CAPTION>
PERIOD SIX MONTHS
APRIL 28, 1995 ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected tax benefit (expense)........ $ 475,124 $201,388 $ 83,340 $(1,073,345)
Deferred income tax benefit
(expense)........................... (126,500) 62,500 57,500 2,785,000
--------- -------- -------- -----------
$ 348,624 $263,888 $140,840 $ 1,711,655
========= ======== ======== ===========
</TABLE>

F-17
<PAGE> 74

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of expected income tax benefit computed by applying the
federal corporate tax rate of 34% to loss before income taxes to the actual
income taxes is as follows:

<TABLE>
<CAPTION>
PERIOD SIX MONTHS
APRIL 28, 1995 ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------
1995 1996 1996 1997
-------------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected federal income tax benefit.... $ 547,605 $264,889 $140,840 $1,553,150
State income taxes, net of federal
income tax benefit................... -- -- -- (108,000)
Difference in book and tax basis of
assets contributed by parent......... (219,356) -- -- --
Goodwill............................... -- -- -- 98,000
Other.................................. 20,375 (1,001) -- 168,505
--------- -------- -------- ----------
$ 348,624 $263,888 $140,840 $1,711,655
========= ======== ======== ==========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
--------- -------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable........................ $ -- $ -- $ 90,000
Nondeductible accrued expenses............. -- -- 1,183,000
--------- -------- -----------
1,273,000
Noncurrent:
Net operating loss carryforwards........... 102,000 210,000 --
Nondeductible accrued expenses............. -- -- 447,000
--------- -------- -----------
Total deferred income tax assets...... 102,000 210,000 1,720,000
--------- -------- -----------
Deferred income tax liabilities -- noncurrent:
Property and equipment........................ 228,500 274,000 570,000
Acquired software............................. -- -- 2,072,000
--------- -------- -----------
Total deferred income tax
liabilities......................... 228,500 274,000 2,642,000
--------- -------- -----------
Net deferred income tax liabilities............. $(126,500) $(64,000) $ (922,000)
========= ======== ===========
Represented on the consolidated balance sheet
as:
Current deferred income tax assets............ $ -- $ -- $ 1,273,000
Noncurrent deferred income tax liabilities.... (126,500) (64,000) (2,195,000)
--------- -------- -----------
$(126,500) $(64,000) $ (922,000)
========= ======== ===========
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.

8. RELATED PARTY TRANSACTIONS

Effective July 1, 1995, the Company entered into an agreement with Millers
Mutual whereby management and administrative services were provided by Millers
Mutual for a monthly fee of $100,000.

F-18
<PAGE> 75

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1996, the agreement was amended to provide for a monthly
fee of $200,000 plus a fixed percentage of INSpire's pretax income, to be
determined annually. Total fees in 1995 and 1996 were $600,000 and $3,100,000,
respectively. Fees of $1,200,000 were incurred for each of the six months ended
June 30, 1996 (unaudited) and 1997. INSpire, in turn, provided claims services
to Millers Mutual and The Millers Casualty Insurance Company ("Millers
Casualty"), an indirect 99.4% owned subsidiary of Millers Mutual, for fees
ranging from 7.5% to 9.5% of net earned premium by line of business, as defined
in the agreement, excluding the premiums written through Sun Coast General
Insurance Agency, Inc. ("Sun Coast") for Millers Mutual. Effective December 1,
1996, the agreement was amended to provide that the fees would be reduced to
range from 7.5% to 8.5% of earned premium by line of business, as defined. The
Sun Coast business is processed for a fee of 7.0% of earned premium. Total
outsourcing fees of $3,376,168 and $7,557,261 were earned in 1995 and 1996,
under the terms of the Company's agreements with Millers Mutual and Millers
Casualty. Outsourcing fees of $3,711,630 and $3,161,877 were earned for the
unaudited six months ended June 30, 1996 and the six months ended June 30, 1997,
respectively, under the terms of those agreements. Software and software
services revenues of approximately $442,000 were recognized by INSpire for
services provided to Millers Mutual and Millers Casualty for the six months
ended June 30, 1997. Beginning May 1996, the Company incurred rental expenses,
under a month-to-month agreement with Millers Mutual, totalling $207,121 for
1996 and $49,405 and $157,716 for the unaudited six months ended June 30, 1996
and the six months ended June 30, 1997, respectively. Prior to May 1, 1996, the
Company incurred no rental expense for office space provided by Millers Mutual.
Effective January 1, 1997, INSpire began providing data processing services to
Millers Mutual and Millers Casualty for a fee of 6% of net written premiums
which totalled $2,716,320 for the six months ended June 30, 1997.

9. EMPLOYEE BENEFIT PLANS

Substantially all of INSpire's employees are covered by a defined benefit
pension plan (the "Pension Plan") sponsored by Millers Mutual that provides
retirement death and disability benefits for full-time employees completing at
least 1,000 hours of service. INSpire makes annual contributions to the Pension
Plan equal to the amounts accrued for pension expense, including amortization of
past service cost over 30 years. Contributions to the Pension Plan are
determined by consulting actuaries based upon future periodic payments,
including lump-sum distributions that are attributable under the Pension Plan's
provisions to the service employees have rendered. Benefits are based upon the
average of the employee's highest five consecutive years of compensation during
the ten years of credited service immediately preceding the valuation date. The
actuarial present value of accumulated plan benefits is that amount that results
from applying actuarial assumptions to adjust the accumulated plan benefits to
reflect the time value of money (through discounts for interest) and the
probability of payment (by means of decrements such as for death, disability,
withdrawal, or retirement) between the valuation date and the expected date of
payment. Total expense associated with the Pension Plan was $100,000 during
1995. No expense was incurred relative to the Pension Plan during 1996 or the
six months ended June 30, 1997.

INSpire participates in a defined contribution profit sharing plan
sponsored by Millers Mutual that covers substantially all of its employees (the
"Profit Sharing Plan"). Employees are not required to satisfy any age or service
requirements to become eligible to participate in the Profit Sharing Plan.
INSpire also participates in an executive incentive compensation plan covering
officers sponsored by Millers Mutual. Contributions to these plans are
discretionary and are authorized annually by the Board of Directors.
Participants in the Profit Sharing Plan are permitted to contribute 1% to 12%
(not to exceed $9,240 in 1996 and 1995) of their annual compensation on a tax
deferred basis. Vesting of participants' interest in the profit sharing plan's
contributions is based upon length of service. Participants with five or more
years of service are fully vested. Total expense associated with the Profit
Sharing Plan was approximately $30,000 in 1995. There were no contributions made
by the Company to the Profit Sharing Plan in 1996 or for the six months ended
June 30, 1997.

F-19
<PAGE> 76

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. STOCK OPTION PLAN

The Company adopted the 1997 Stock Option Plan (the "Option Plan") in March
1997, which provides for the grant of incentive and nonqualified options to
purchase up to 2,250,000 shares of Common Stock subject to certain adjustments
as described in the Option Plan. Stock options are issuable only to eligible
directors, officers and employees of the Company.

The per share exercise price of an incentive option may not be less than
the greater of par value or 100% of the fair market value of the Common Stock,
as determined by the Board of Directors, on the date the option is granted.
Incentive options granted to an employee who owns in excess of 10% of the voting
stock of the Company must have an exercise price of at least 110% of the fair
market value of the Common Stock at the date of grant. Of the options granted,
33% are immediately exercisable at the date of grant, 33% become exercisable one
year from the date of grant and the remainder become exercisable two years from
the date of grant. The Board of Directors has approved the grant of certain
additional options effective as of the date of the prospectus for INSpire's
initial public offering. Of such options, except for one officer of the Company,
20% are immediately exercisable at the date of grant and an additional 20% will
become exercisable on each of the first four anniversaries of such date. Of the
options of the officer referred to above, 33% are immediately exercisable at the
date of grant, 33% become exercisable one year from the date of grant and the
remainder become exercisable two years from the date of grant. Options may be
exercised only if the optionholder remains continuously associated with the
Company from the date of grant to the date of exercise, subject to certain
conditions as specified in the Option Plan. An option granted under the Option
Plan cannot be exercised later than ten years from the date of the grant. Any
options that expire unexercised or that terminate upon an optionee's ceasing his
or her association with the Company become available once again for issuance.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using a risk-free interest rate of 6.1%
and an expected life of two years. No volatility factors of the expected market
price of the Company's Common Stock have been involved because the Company was a
private entity when the options were granted.

The following summarizes the stock option activity under the Option Plan
for the six months ended June 30, 1997:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Options granted during the six months ended June 30,
1997................................................. 840,248 $1.30
========= =====
Options available for grant............................ 1,409,752
=========
Exercisable at end of period........................... 277,281
=========
</TABLE>

The weighted average fair value of options granted during the six months ended
June 30, 1997 was $4.85 per share.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), and related interpretations in
accounting for the Option Plan, and, accordingly, compensation expense of
approximately $3,949,000 was recognized for the six months ended June 30, 1997
since the stock options granted under the terms of the Plan were at an exercise
price that was less than the estimated fair market value assigned to the options
at the date of grant. Had the Company implemented SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's compensation expense would have
decreased by approximately $126,000 and the Company's pro forma net loss and net
loss per common share, considering the effects of implementing SFAS No. 123, net
of tax effects, would have been approximately $2.94 million and $0.38,
respectively.

F-20
<PAGE> 77

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. TRANSACTIONS WITH MAJOR CUSTOMER

In addition to the outsourcing revenues derived from Millers Mutual and
Millers Casualty (see Note 8), one customer accounted for approximately 21% and
18% of revenues for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases -- The Company leases certain office space and equipment
under operating leases and a sublease for periods ranging from one to five
years. Rentals on operating leases (exclusive of real estate taxes, insurance
and other expenses payable under the leases) amounted to approximately
$1,620,000 for the six months ended June 30, 1997. The Company incurred no
significant rental expense in 1995 and 1996. These leases generally contain
optional renewal provisions for one or more periods. Future annual minimum lease
payments for each of the next five years and in the aggregate are:

<TABLE>
<S> <C>
1997........................................................ $ 1,460,250
1998........................................................ 2,837,500
1999........................................................ 2,370,250
2000........................................................ 1,006,000
2001........................................................ 885,800
2002........................................................ 485,000
Thereafter.................................................. 1,162,700
-----------
Total............................................. $10,207,500
===========
</TABLE>

Employment Agreements -- The Company has employment agreements with certain
key officers that provide for minimum annual salaries and benefits aggregating
approximately $1,055,000 and an annual bonus based on the Company's operating
performance.

Other -- In February 1997, the Philadelphia Contributionship for the
Insurance of Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action
No. 97-CV-1262) against SDS in the United States District Court for the Eastern
District of Pennsylvania. The suit alleges that certain software systems that
SDS sold to PCIHLF in 1995 did not meet PCIHLF's specifications. PCIHLF claims
damages in excess of $1.3 million. In connection with the acquisition of SDS by
INSpire, INSpire and the former SDS shareholders placed $1.5 million of the SDS
purchase price in an escrow account in respect of this claim. INSpire has no
recourse against the former SDS shareholders to the extent that the aggregate
amount of any judgment, settlement and expenses exceeds the amount of the
escrowed funds. SDS filed a counterclaim against PCIHLF for $550,000 for amounts
due under its agreements with PCIHLF. In addition, the Company is involved in
various other legal proceedings arising in the normal course of business.
Management believes the outcome of these matters will not materially affect the
consolidated financial position, results of operations or cash flows of the
Company.

The Company participates in a self-insurance program for certain of its
employees that provides for the payment of employee health claims. The program
provides for specific excess loss reinsurance for aggregate claims greater than
a specified amount for any one claimant. The Company accrues the estimated
liabilities for the ultimate costs of both reported claims and incurred but not
reported claims.

13. SUBSEQUENT EVENTS

In July 1997, in response to an unsolicited offer by the previous owner of
Applied Quoting Systems, Inc. ("AQS"), a wholly owned subsidiary of SDS, the
Company signed a nonbinding letter of intent to sell the stock of such
subsidiary for $2.5 million. For the period from March 12, 1997 (the date of the
SDS acquisition) through June 30, 1997, AQS had revenues of approximately
$1,415,000, net income of approximately $65,000 and income taxes of
approximately $43,000. The income per common share from the separate operations
of AQS had no significant impact on the computation of the net loss per share of
INSpire for the period ended June 30, 1997. Total assets and total liabilities
of AQS at June 30, 1997 were approximately $898,000 and $337,000, respectively.

F-21
<PAGE> 78

INSPIRE INSURANCE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 1997, the Board of Directors approved the termination of the
Company's participation in the Pension Plan described at Note 9. Management
believes that the effects of termination of the Company's participation in the
Pension Plan will be immaterial to INSpire's financial position, results of
operations and cash flows.

Effective July 1, 1997, the Company and Millers Mutual entered into a
benefits administration contract, which replaces the previous management
agreement, pursuant to which Millers Mutual will provide the Company with
certain benefits administration services, including payroll, and the Company
will pay Millers Mutual a service fee of $15,000 per month over a period of
three years.

On July 30, 1997, the Board of Directors and the shareholder of the Company
approved an amendment to the Articles of Incorporation of the Company providing
for an increase in the number of authorized shares of Common Stock from
14,000,000 shares to 50,000,000 shares.

On July 30, 1997, the Board of Directors, subject to approval by the Texas
Department of Insurance, agreed to amend the Tax Allocation Agreement to
terminate the Company's participation in the Millers Mutual consolidated tax
group effective upon the consummation of the initial public offering.

On July 30, 1997, the Board of Directors adopted the Director Stock Option
Plan ("Director Plan"). The Director Plan provides that each current nonemployee
director be granted options to purchase 2,500 shares of Common Stock as of the
effective date of the initial public offering at an exercise price equal to the
initial public offering price. Such options are immediately exercisable as of
the date of the initial public offering. A total of 50,000 shares has been
reserved for issuance pursuant to the Director Plan.

On July 30, 1997, the Board of Directors adopted the Employee Stock
Purchase Plan ("Stock Purchase Plan"), under which a total of 425,000 shares of
Common Stock has been reserved for issuance. Any employee who has been employed
by the Company for 90 days is eligible to participate in offerings under the
Stock Purchase Plan. The Stock Purchase Plan initially will be implemented by an
offering of 25,000 shares of Common Stock beginning October 1, 1997 and
terminating December 31, 1997. The Stock Purchase Plan will be further
implemented by four annual offerings of Common Stock beginning on January 1 in
each of the years 1998, 1999, 2000 and 2001, and terminating December 31 of each
such year. The maximum number of shares issued in such years will be 100,000 in
1998, and 100,000 plus the number of unissued shares from prior offerings for
each of 1999, 2000 and 2001. Options granted under the Stock Purchase Plan will
give employees the right to purchase shares of Common Stock, via payroll
deductions, at a purchase price determined pursuant to a formula included in the
Stock Purchase Plan. No employee may be granted options to participate in the
Stock Purchase Plan if, as a result of such grant, such employee would (i) own
stock or hold options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or (ii)
have rights to purchase stock under all employee stock purchase plans of the
Company that accrue at a rate in excess of $25,000 in fair market value for any
calendar year.

On July 30, 1997, the Board of Directors authorized 300,000 shares of
Series A Junior Preferred Stock, par value $1.00 per share, adopted the Rights
Agreement ("Rights Agreement") and authorized and declared a dividend
distribution of one right (a "Right") for each outstanding share of Common Stock
of the Company to Millers Mutual under the terms of the Rights Agreement. One
Right will thereafter be issued for each share of Common Stock that becomes
outstanding between the date of adoption of the Rights Agreement and the earlier
of the date the Rights become exercisable or are redeemed and the termination of
the Rights Agreement. Each Right represents the right to purchase one
one-hundredth of a share of Series A Junior Preferred Stock at a price of
$40.00, subject to adjustment. The Rights are exercisable only in the event that
a person or group (with certain exceptions) becomes the beneficial owner of
shares representing 15% or more of the voting power of the Company, or announces
or commences a tender or exchange offer that would result in the acquisition of
such number of shares. The Rights Agreement expires ten years from the date of
adoption.

F-22
<PAGE> 79

INDEPENDENT AUDITORS' REPORT

Board of Directors
Strategic Data Systems, Inc.

We have audited the accompanying consolidated balance sheets of Strategic
Data Systems, Inc. and subsidiary (the "Company") as of December 31, 1995, 1996
and March 11, 1997 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 and the period January 1, 1997 through March 11, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Strategic Data Systems, Inc.
and subsidiary as of December 31, 1995, 1996 and March 11, 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 and the period January 1, 1997 through March 11,
1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
July 18, 1997

F-23
<PAGE> 80

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 528,468 $ 1,515,495 $ 939,762
Accounts receivable -- net........................ 3,608,403 4,750,708 4,755,376
Deferred income taxes............................. 273,000 180,000 343,000
Prepaid expenses and other current assets......... 181,712 166,739 262,217
----------- ----------- -----------
Total current assets...................... 4,591,583 6,612,942 6,300,355
----------- ----------- -----------
Property and equipment, net......................... 3,155,318 2,897,819 3,403,477
Accounts receivable, excluding current portion...... 397,671 367,091 313,355
Software -- net..................................... 2,935,140 2,606,888 2,398,017
Goodwill -- net..................................... 612,106 505,702 484,536
Other assets........................................ 362,012 474,927 491,316
----------- ----------- -----------
TOTAL............................................... $12,053,830 $13,465,369 $13,391,056
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 432,686 $ 883,648 $ 914,318
Accrued payroll and compensation.................. 1,069,600 1,002,342 1,033,025
Other accrued expenses............................ 204,257 245,102 187,916
Warranty reserve.................................. 100,292 100,592 197,269
Customer deposits................................. 1,263,419 1,993,242 1,342,100
Income taxes payable.............................. 260,754 78,293 493,096
Current portion of long-term debt................. 688,793 524,699 438,713
----------- ----------- -----------
Total current liabilities................. 4,019,801 4,827,918 4,606,437
----------- ----------- -----------
Long-term debt, excluding current portion........... 2,028,074 1,883,381 1,879,393
Deferred compensation............................... 216,498 311,758 327,635
Deferred income taxes............................... 1,252,000 1,057,000 961,000
Commitments and contingencies (Note 9).............. -- -- --
SHAREHOLDERS' EQUITY:
Common stock, $5.00 stated value; 150,000 shares
authorized; 142,450, 143,950 and 143,950 shares
issued and outstanding in 1995, 1996 and 1997,
respectively................................... 712,250 719,750 719,750
Additional paid-in-capital........................ 1,705,094 1,847,594 1,847,594
Retained earnings................................. 3,057,357 3,755,212 3,986,491
----------- ----------- -----------
5,474,701 6,322,556 6,553,835
Less treasury stock (26,936 shares, at cost)...... 937,244 937,244 937,244
----------- ----------- -----------
4,537,457 5,385,312 5,616,591
----------- ----------- -----------
TOTAL............................................... $12,053,830 $13,465,369 $13,391,056
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-24
<PAGE> 81

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS PERIOD
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
--------------------------------------- JUNE 30, THROUGH
1994 1995 1996 1996 MARCH 11, 1997
----------- ----------- ----------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software services................. $ 9,041,115 $ 9,078,073 $10,036,191 $5,197,143 $2,384,658
Software.......................... 4,312,881 9,068,431 8,987,395 4,101,793 2,455,628
Hardware sales and commissions.... 2,245,134 2,399,537 3,680,048 611,091 463,108
Other............................. 405,396 615,234 960,027 462,320 108,912
----------- ----------- ----------- ---------- ----------
Total revenues............ 16,004,526 21,161,275 23,663,661 10,372,347 5,412,306
----------- ----------- ----------- ---------- ----------
EXPENSES:
Salaries and compensation......... 11,810,524 13,088,072 14,505,432 6,889,904 3,476,165
Depreciation and amortization..... 2,157,093 1,878,973 1,826,826 924,322 411,266
Cost of hardware sold............. 1,862,169 1,978,836 2,698,673 477,564 383,450
Occupancy costs................... 1,374,230 1,379,332 1,565,833 733,890 405,663
Other............................. 1,830,598 1,666,854 2,032,098 835,762 372,223
----------- ----------- ----------- ---------- ----------
Total expenses............ 19,034,614 19,992,067 22,628,862 9,861,442 5,048,767
----------- ----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)............. (3,030,088) 1,169,208 1,034,799 510,905 363,539
OTHER INCOME (EXPENSE):
Interest income................... 158,297 160,959 284,387 120,149 56,987
Interest expense.................. (292,491) (240,481) (207,029) (101,230) (33,272)
Gain (loss) on sale of property
and equipment.................. 1,520 (2,403) 34,698 25
----------- ----------- ----------- ---------- ----------
Total other income
(expense)............... (132,674) (81,925) 112,056 18,919 23,740
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT)......................... (3,162,762) 1,087,283 1,146,855 529,824 387,279
INCOME TAXES (BENEFIT).............. (1,253,000) 429,000 449,000 233,000 156,000
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)................... $(1,909,762) $ 658,283 $ 697,855 $ 296,824 $ 231,279
=========== =========== =========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-25
<PAGE> 82

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
PERIOD JANUARY 1, 1997 THROUGH MARCH 11, 1997

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN RETAINED ------------------ SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------- -------- ---------- ----------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994............. 139,594 $697,970 $1,526,110 $ 4,308,836 26,936 $(937,244) $ 5,595,672
Net loss........................... (1,909,762) (1,909,762)
Issuance of common stock........... 2,856 14,280 178,984 -- -- -- 193,264
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1994........... 142,450 712,250 1,705,094 2,399,074 26,936 (937,244) 3,879,174
Net income......................... -- -- -- 658,283 -- -- 658,283
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1995........... 142,450 712,250 1,705,094 3,057,357 26,936 (937,244) 4,537,457
Net income......................... 697,855 -- -- 697,855
Issuance of common stock........... 1,500 7,500 142,500 -- -- -- 150,000
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1996........... 143,950 719,750 1,847,594 3,755,212 26,936 (937,244) 5,385,312
Net income......................... 231,279 231,279
------- -------- ---------- ----------- ------ --------- -----------
Balance, March 11, 1997.............. 143,950 $719,750 $1,847,594 $ 3,986,491 26,936 $(937,244) $ 5,616,591
======= ======== ========== =========== ====== ========= ===========
</TABLE>

See notes to consolidated financial statements.

F-26
<PAGE> 83

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS PERIOD
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
--------------------------------------- JUNE 30, THROUGH MARCH 11,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................ $(1,909,762) $ 658,283 $ 697,855 $ 296,824 $ 231,279
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.............. 2,157,093 1,878,973 1,826,826 924,322 411,266
Gain (loss) on sales of property and
equipment................................ (1,520) 2,403 (34,701) -- (25)
Deferred income taxes...................... (563,957) 437,768 (102,000) -- (259,000)
Provision for uncollectible accounts
receivable............................... 277,250 235,900 2,000 66,000 21,484
Change in operating assets and liabilities:
Accounts receivable...................... (950,268) 632,474 (1,113,726) 137,306 (344,416)
Income taxes recoverable................. (357,709) 357,709 -- -- --
Prepaid expenses and other current
assets................................. (31,517) (2,818) 14,973 (21,157) (95,478)
Other assets............................. (82,333) (107,624) (112,916) 67,999 (16,389)
Accounts payable......................... (912,410) 16,811 450,962 (15,939) 30,670
Accrued payroll and compensation......... 952,909 116,691 (67,258) (28,365) 30,683
Other accrued expenses................... 204,283 (26) 40,845 (6,216) (57,186)
Warranty reserve......................... 103,270 (2,978) 300 (260,630) 468,677
Customer deposits........................ 2,441,214 (2,329,121) 729,823 (91,344) (651,142)
Income taxes payable..................... (237,120) 260,754 (182,461) (313,700) 414,803
Deferred compensation.................... 71,771 82,855 95,260 38,106 15,877
----------- ----------- ----------- --------- ----------
Net cash provided by operating
activities........................... 1,161,194 2,238,054 2,245,782 793,206 201,103
----------- ----------- ----------- --------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment.................................. 1,520 -- 41,750 -- --
Purchases of property and equipment.......... (853,089) (362,546) (582,868) (265,371) (686,862)
Development of software...................... (1,353,750) (671,000) (558,850) (360,000)
----------- ----------- ----------- --------- ----------
Net cash used in investing
activities........................... (2,205,319) (1,033,546) (1,099,968) (625,371) (686,862)
----------- ----------- ----------- --------- ----------
FINANCING ACTIVITIES:
Net borrowings (repayment) from line of
credit..................................... 480,000 (480,000) -- -- --
Proceeds from issuance of long-term debt..... 500,000 -- 409,817 -- --
Repayments of long-term debt................. (407,004) (410,409) (718,604) (312,925) (89,974)
Proceeds (repayments) from policy loan
against cash surrender value of life
insurance policy........................... 75,000 (75,000) -- -- --
Issuance of common stock..................... 193,264 -- 150,000 -- --
----------- ----------- ----------- --------- ----------
Net cash provided by (used in)
financing activities................. 841,260 (965,409) (158,787) (312,925) (89,974)
----------- ----------- ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (202,865) 239,099 987,027 (145,090) (575,733)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 492,234 289,369 528,468 528,468 1,515,495
----------- ----------- ----------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 289,369 $ 528,468 $ 1,515,495 $ 383,378 $ 939,762
=========== =========== =========== ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid................................ $ 293,000 $ 240,000 $ 208,000 $ 97,200 $ 33,300
=========== =========== =========== ========= ==========
Income taxes paid (refunded)................. $ (94,000) $ (627,000) $ 734,000 $ 320,000 $ --
=========== =========== =========== ========= ==========
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE> 84

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations -- Strategic Data Systems, Inc. ("SDS") and its
wholly-owned subsidiary, Applied Quoting Systems, Inc., develop and market
software and software services to the property and casualty ("P&C") insurance
industry. SDS's software includes policy and claims administration systems, as
well as systems that increase the productivity of insurers by automating certain
functions, such as workflow management, underwriting rules and guidelines,
document production and rating algorithms. SDS's software services include
installation, customization, conversion and maintenance of these systems to meet
customer specifications. SDS also sells computer hardware and related equipment
and manages data centers. SDS sells its products directly to the customer. The
majority of sales are in North America.

Principles of Consolidation -- The consolidated financial statements
include the financial statements of SDS and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Revenue Recognition -- Initial installations of software systems generally
include a one-time licensing fee and a contract for the installation and
customization of the system to meet the customer's specifications, which SDS
bills at an hourly rate. Amounts charged for the initial license and the
installation and customization of systems are recognized as revenue during the
installation period in proportion to the hours expended for installation
compared to the total hours projected for installation. In other instances,
revenues are recognized based on performance milestones specified in the
contract. SDS recognizes the annual fee charged for maintenance of the
customer's system as revenue as hours are expended over the maintenance contract
period. Revenues from computer hardware and equipment sales are recognized when
SDS receives notification that the equipment has been shipped by the
manufacturer and title has passed to the customer. Changes in estimates of
percentage of completion or losses, if any, associated with software related
revenue activities are recognized in the period in which they are determined.

An annual fee is charged for maintenance of the customer's system and is
recognized as revenue as hours are expended over the maintenance contract
period. Losses, if any, are recognized in the period in which they are
determined.

Computer hardware and equipment sales are recognized when SDS receives
notification that the equipment has been shipped by the manufacturer to the
customer.

Depreciation -- Depreciation of property and equipment is computed using
the straight-line method over their estimated useful lives. The range of the
useful lives of the various classes of assets is 3 to 31.5 years. Leasehold
improvements are amortized over the lease term or the estimated useful life,
whichever is less.

Income Taxes -- Federal income taxes have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires income taxes to be accounted for under the liability
method. Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
income taxes related primarily to differences between the basis of property and
equipment due to depreciation differences and to the application of the purchase
method of accounting for financial statement purposes but not for tax purposes,
and nondeductible asset and liability reserves for tax purposes. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets are evaluated based on
the guidelines for realization and may be reduced by a valuation allowance.

Research and Development -- All research and development costs incurred
prior to the time management believes a project has reached "technological
feasibility" are expensed. Software production costs incurred subsequent to
reaching technological feasibility are capitalized and reported at the lower of
unamortized cost or net realizable value. Capitalized costs are amortized over
the expected service life of the

F-28
<PAGE> 85

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related software, generally five to seven years using the straight-line method.
The cost and related accumulated amortization of projects are written off as
they become fully amortized.

SDS assesses the recoverability of these costs by determining whether the
amortization of the capitalized costs over the remaining life of the projects
can be recovered through undiscounted future operating cash flows.

Financial Instruments -- SDS's financial instruments under Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," include cash and cash equivalents, accounts receivable,
accounts payable and long-term debt. SDS believes that the carrying amounts of
cash and cash equivalents, accounts receivable, accounts payable and long-term
debt are a reasonable estimate of their fair value because of the short-term
maturities of such instruments or, in the case of long-term debt, because of
interest rates available to SDS for similar obligations on such long-term debt.

Goodwill -- Goodwill represents the excess of the cost over the estimated
fair value of the net assets acquired and is amortized using the straight-line
method over a period of ten years.

Recently Issued Accounting Pronouncements -- Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment is
evaluated by comparing future cash flows (undiscounted and without interest
charges) expected to result from the use of the asset and its eventual
disposition to the carrying amount of the asset.

Interim Financial Statements (Unaudited) -- The interim financial
statements presented as of June 30, 1996 and for the six months then ended are
unaudited. With respect to the unaudited interim financial statements, SDS is of
the opinion that all material adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of SDS's interim results of
operations and financial condition, have been included. The results of
operations for the six months ended June 30, 1996 should not be regarded as
necessarily indicative of the results of operations for any future period.

2. ACCOUNTS RECEIVABLE

Accounts receivable is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable -- trade................... $3,991,355 $4,961,126 $4,987,278
Allowance for doubtful accounts................ (382,952) (210,418) (231,902)
---------- ---------- ----------
3,608,403 4,750,708 4,755,376
Noncurrent -- accounts receivable.............. 397,671 367,091 313,355
---------- ---------- ----------
$4,006,074 $5,117,799 $5,068,731
========== ========== ==========
</TABLE>

F-29
<PAGE> 86

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Land........................................... $ 150,000 $ 150,000 $ 150,000
Land improvements.............................. 217,276 217,276 217,276
Building....................................... 1,502,574 1,502,574 1,502,576
Computer equipment............................. 4,794,462 5,251,033 5,412,021
Office equipment............................... 1,361,324 1,426,933 1,922,545
Automobiles.................................... 303,326 126,784 126,784
Leasehold improvements......................... 80,154 80,154 105,322
---------- ---------- ----------
8,409,116 8,754,754 9,436,524
Accumulated depreciation and amortization...... (5,253,798) (5,856,935) (6,033,047)
---------- ---------- ----------
$3,155,318 $2,897,819 $3,403,477
========== ========== ==========
</TABLE>

Depreciation and amortization expense was approximately $1,146,000,
$1,030,000 and $833,000 in 1994, 1995 and 1996, respectively, and $432,000 and
$152,000 respectively for the unaudited six months ended June 30, 1996 and the
period from January 1, 1997 through March 11, 1997.

4. RESEARCH AND DEVELOPMENT

The total amount amortized for the capitalized computer software was
approximately $905,000, $742,000 and $887,000 in 1994, 1995 and 1996,
respectively. In addition, the total amortization of capitalized software was
$439,000 and $209,000, respectively, for the unaudited six-month period ended
June 30, 1996 and the period January 1, 1997 through March 11, 1997.

Research and development costs, including amortization expense, were
approximately $4,587,000, $3,581,000 and $3,783,000 in 1994, 1995 and 1996,
respectively.

In addition, total research and development costs were approximately
$1,900,000 and $474,000, respectively, for the unaudited six months ended June
30, 1996 and the period January 1, 1997 through March 11, 1997.

Software -- net consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Software costs.............................. $ 4,435,161 $ 4,994,011 $ 4,994,011
Accumulated amortization.................... (1,500,021) (2,387,123) (2,595,994)
----------- ----------- -----------
$ 2,935,140 $ 2,606,888 $ 2,398,017
=========== =========== ===========
</TABLE>

5. GOODWILL

Goodwill -- net consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Goodwill....................................... $1,078,508 $1,078,507 $1,078,507
Accumulated amortization....................... (466,402) (572,805) (593,971)
---------- ---------- ----------
$ 612,106 $ 505,702 $ 484,536
========== ========== ==========
</TABLE>

F-30
<PAGE> 87

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT

A summary of long-term debt is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage note payable, interest at 7.37%, due
in equal monthly installments of principal
and interest of $17,000, with the final
payment due on January 20, 2001.............. $1,748,223 $1,672,670 $1,658,563
Computer note payable, interest at 6.75%, due
in equal monthly installments of principal
and interest of $23,931, with the final
payment due on December 27, 1996............. 278,054 -- --
Computer note payable, interest at 8.35%, due
in equal monthly installments of principal
and interest of $18,700, with the final
payment due on September 21, 1997............ 291,665 124,997 97,219
Treasury stock purchase note payable, interest
at 7.25%, due in equal monthly installments
of principal and interest of $4,978, with the
final payment due on December 27, 1998....... 166,156 111,639 103,049
Computer note payable with total availability
of $600,000, interest payable at prime plus
1.0%, due in monthly installments of
principal sufficient to amortize the
outstanding balance over a 36-month period,
and interest with the final payment due on
January 31, 1999............................. 143,289 437,127 397,628
Second mortgage note payable, interest at 7.0%,
due in equal annual installments of principal
and interest of $34,097 with the final
payment due on November 1, 1998.............. 89,480 61,647 61,647
---------- ---------- ----------
2,716,867 2,408,080 2,318,106
Less current maturities........................ 688,793 524,699 438,713
---------- ---------- ----------
$2,028,074 $1,883,381 $1,879,393
========== ========== ==========
</TABLE>

The mortgage note payable is collateralized by real estate and
substantially all other assets of SDS. In 1995, the final payment for the
mortgage note payable was extended from January 20, 1996 to January 20, 2001.
The computer notes payable are collateralized by the computer equipment of SDS.
The treasury stock purchase note payable is collateralized by the accounts
receivable of SDS. The second mortgage note is collateralized by a purchase
money mortgage lien pursuant to the terms of the note.

F-31
<PAGE> 88

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following represents the approximate future annual maturities for SDS's
long-term debt obligations:

<TABLE>
<CAPTION>
MARCH 11,
1997
----------
<S> <C>
Year Ended March 11:
1997...................................................... $ 438,713
1998...................................................... 380,107
1999...................................................... 96,726
2000...................................................... 104,101
2001...................................................... 1,298,459
----------
$2,318,106
==========
</TABLE>

7. INCOME TAXES

Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
SIX MONTHS PERIOD
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
---------------------------------- JUNE 30, THROUGH MARCH 11,
1994 1995 1996 1996 1997
----------- -------- --------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal......................... $ (689,000) $ (9,000) $ 504,000 $212,000 $ 330,000
State........................... -- -- 47,000 21,000 85,000
----------- -------- --------- -------- ---------
Total current........... (689,000) (9,000) 551,000 233,000 415,000
----------- -------- --------- -------- ---------
Deferred:
Federal......................... (407,000) 372,000 (132,000) (15,000) $(221,000)
State........................... (157,000) 66,000 30,000 15,000 (38,000)
----------- -------- --------- -------- ---------
Total deferred.......... (564,000) 438,000 (102,000) -- (259,000)
----------- -------- --------- -------- ---------
$(1,253,000) $429,000 $ 449,000 $233,000 $ 156,000
=========== ======== ========= ======== =========
</TABLE>

A reconciliation of expected income taxes computed by applying the federal
corporate tax rate of 34% to income (loss) before income taxes to actual income
taxes is as follows:

<TABLE>
<CAPTION>
PERIOD
SIX MONTHS JANUARY 1, 1997
YEAR ENDED DECEMBER 31, ENDED THROUGH
--------------------------------------- JUNE 30, MARCH 11,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected federal income
taxes (benefit)........... $(1,075,000) $ 370,000 $ 390,000 $180,000 $132,000
State income taxes, net of
federal income tax
(benefit)................. (156,000) 45,000 53,000 32,000 18,000
Goodwill.................... 36,000 36,000 36,000 18,000 7,000
Research and development
credit.................... (80,000) (47,000) (63,000) (25,000) --
Other, net.................. 22,000 25,000 33,000 28,000 (1,000)
----------- ----------- ----------- -------- --------
$(1,253,000) $ 429,000 $ 449,000 $233,000 $156,000
=========== =========== =========== ======== ========
</TABLE>

F-32
<PAGE> 89

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable..................... $ 150,000 $ 81,000 $ 90,000
Nondeductible accrued expenses.......... 123,000 99,000 253,000
----------- ----------- ----------
273,000 180,000 343,000
----------- ----------- ----------
Noncurrent:
Deferred compensation................... 85,000 122,000 128,000
Research and development credit
carryforward.......................... 32,000 -- --
Net operating loss carryforwards........ 61,000 -- --
----------- ----------- ----------
178,000 122,000 128,000
----------- ----------- ----------
Total deferred income tax assets... 451,000 302,000 471,000
----------- ----------- ----------
Deferred income tax liabilities --noncurrent:
Property and equipment..................... 185,000 162,000 154,000
Software costs............................. 1,245,000 1,017,000 935,000
----------- ----------- ----------
Total deferred income tax
liabilities...................... 1,430,000 1,179,000 1,089,000
----------- ----------- ----------
Net deferred income tax liabilities.......... $ (979,000) $ (877,000) $ (618,000)
=========== =========== ==========
Represented on the consolidated balance sheet
as:
Current deferred income tax assets......... $ 273,000 $ 180,000 $ 343,000
Noncurrent deferred income tax
liabilities............................. (1,252,000) (1,057,000) (961,000)
----------- ----------- ----------
$ (979,000) $ (877,000) $ (618,000)
=========== =========== ==========
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not SDS will realize the benefits of these deductible
differences.

8. EMPLOYEE BENEFIT PLANS

SDS sponsors a Profit-Sharing Plan qualified under Section 401(k) of the
Internal Revenue Code of 1986 covering employees who meet minimum service
requirements and who elect to participate. Participants' contributions are
voluntary. SDS made contributions of $103,750, $135,000 and $200,000 to the Plan
in 1994, 1995 and 1996, respectively. Total expenses recognized for the
unaudited six months ended June 30, 1996 were approximately $105,000. In
addition, contributions of $70,000 were recognized for the period from January
1, 1997 through March 11, 1997.

SDS has a supplemental retirement agreement with a key employee providing
for payments over twenty years commencing upon the earlier of retirement,
termination or death. The agreement has a vesting arrangement 20% per year
pursuant to which the employee will become fully vested in 1997 or the earlier
of

F-33
<PAGE> 90

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

permanent disability, death or change in control of SDS, as defined. SDS is the
owner and beneficiary of insurance policies to provide a portion of the funding
of this agreement. The total expense related to the agreement was approximately
$72,000, $83,000, and $95,000 for 1994, 1995 and 1996, respectively. Total
expense related to the agreement for the unaudited six-month period ended June
30, 1996 and the period January 1, 1997 through March 11, 1997 was $38,000 and
$16,000, respectively.

SDS has an incentive compensation plan for certain key employees.
Participants in the plan may receive cash payments or stock contingent upon SDS
exceeding certain pretax earnings levels over a rolling four-year earnout period
as determined by the Board of Directors. If a participant terminates employment
during an earnout period, the participant will not be entitled to any
compensation under the plan. If a change in control, as defined, occurs during
an earnout period, the earnout period is deemed to be completed and all payments
earned become due. No provision was required for the years ended December 31,
1994, 1995 and 1996 and the unaudited six-month period ended June 30, 1996 and
the period January 1, 1997 through March 11, 1997.

In 1996, SDS paid a bonus to a senior executive in an amount sufficient to
fund his purchase from SDS of 1,500 shares of SDS common stock at a price per
share of $100, plus an amount equal to the federal income taxes incurred by such
executive as a result of such bonus. The purchase was made by the executive
pursuant to a purchase right granted to him by SDS in 1989, entitling him to
purchase at fair market value, as determined by the Board of Directors, up to
4,200 shares of SDS common stock upon the attainment of certain performance
goals or discretionary approval by the Board of Directors. As of December 31,
1996, no shares remained available for purchase pursuant to this arrangement.

9. COMMITMENTS AND CONTINGENCIES

Operating Leases -- SDS maintains noncancellable operating leases on
various office facilities, vehicles and computers. These leases generally
contain optional renewal provisions for one or more periods. Rental expense was
approximately $429,000, $451,000 and $530,000 in 1994, 1995 and 1996,
respectively, and $246,000 and $142,000 for the unaudited six months ended June
30, 1996 and the period January 1, 1997 through March 11, 1997.

The future annual minimum lease payments are as follows:

<TABLE>
<CAPTION>
MARCH 11,
1997
-----------
<S> <C>
Year Ending December 31:
1997...................................................... $ 456,000
1998...................................................... 564,000
1999...................................................... 364,000
2000...................................................... 280,000
2001...................................................... 285,000
Thereafter................................................ 153,000
----------
$2,102,000
==========
</TABLE>

The future annual minimum rental revenues to be received under
noncancellable subleases (with initial or remaining lease terms in excess of one
year) as of December 31, 1996 were $67,000 for 1997 and $81,000 for 1998.

F-34
<PAGE> 91

STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

this claim. INSpire has no recourse against the former SDS shareholders to the
extent that the aggregate amount of any judgment, settlement and expenses
exceeds the amount of the escrowed funds. SDS filed a counterclaim against
PCIHLF for $550,000 for amounts due under its agreements with PCIHLF. There can
be no assurance with respect to the outcome of this lawsuit.

SDS participates in a self-insurance program that provides for the payment
of employee health claims. The program provides for specific excess loss
reinsurance for aggregate claims greater than a specified amount for any one
claimant. SDS accrues the estimated liabilities for the ultimate costs of both
reported claims and incurred but not reported claims.

10. SUBSEQUENT EVENTS

On February 18, 1997, SDS's shareholders executed a definitive agreement
with INSpire whereby INSpire agreed to acquire SDS for an aggregate purchase
price of approximately $18.0 million plus assumed indebtedness of approximately
$650,000, subject to satisfactory resolution of certain matters. In addition,
INSpire and the former shareholders of SDS placed into escrow $1.0 million of
the purchase price in respect of certain contingent liabilities and $1.5 million
of the purchase price in escrow in respect of the PCIHLF lawsuit described in
Note 9. The transaction was consummated March 12, 1997.

On March 12, 1997, an affiliate of certain officers of SDS purchased the
land and improvements comprising SDS's administrative home office for the
assumption of debt in the amount of $1.8 million. Total gain from the sale was
approximately $225,000.

In March 1997, SDS terminated its supplemental retirement agreement with a
key employee, described in Note 8. SDS entered into an employment agreement with
such employee pursuant to which SDS will pay to such employee $40,000 per year
during the twenty-year period commencing January 1, 1999 and ending December 31,
2018.

In March 1997, SDS terminated its incentive compensation plan for certain
key employees, described in Note 8.

F-35
<PAGE> 92

(This page intentionally left blank)
<PAGE> 93

(This page intentionally left blank)
<PAGE> 94

(This page intentionally left blank)
<PAGE> 95

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION 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, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL 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 OFFER
OR SOLICITATION.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
SDS Acquisition....................... 14
Use of Proceeds....................... 14
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Selected Consolidated Financial Data
of INSpire.......................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of INSpire............ 20
Selected Consolidated Financial Data
of SDS.............................. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of SDS................ 26
Business.............................. 28
Management............................ 37
Principal and Selling Shareholders.... 42
Certain Transactions.................. 42
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 53
Experts............................... 53
Available Information................. 54
Financial Statements.................. F-1
</TABLE>

UNTIL SEPTEMBER 16, 1997 (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 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.

======================================================

5,500,000 SHARES

[INSPIRE INSURANCE SOLUTIONS, INC. LOGO]

COMMON STOCK

----------------------------
P R O S P E C T U S
----------------------------

RAYMOND JAMES
& ASSOCIATES, INC.

SOUTHWEST SECURITIES

AUGUST 22, 1997

======================================================
<PAGE> 96

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. Millers Mutual, as a selling
security holder, and the Company shall pay the estimated expenses of issuance
and distribution in proportion to the respective number of shares sold by them
in the offering. Each amount, except for the SEC and NASD fees, is estimated.

<TABLE>
<S> <C>
SEC registration fees....................................... $ 23,000
NASD filing fees............................................ $ 7,700
Nasdaq National Market application and listing fees......... $ 50,000
Transfer agents' and registrar's fees and expenses.......... $ 15,000
Printing and engraving expenses............................. $ 175,000
Legal fees and expenses..................................... $ 200,000
Accounting fees and expenses................................ $ 200,000
Representatives' advisory fee............................... $ 300,000
Blue sky fees and expenses.................................. $ 7,500
Miscellaneous............................................... $ 21,800
----------
Total.................................................. $1,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company, a Texas corporation, is empowered by Article 2.02-1 of the
Texas Business Corporation Act (the "TBCA"), subject to the procedures and
limitations stated therein, to indemnify certain persons, including any person
who was, is or is threatened to be made a named defendant or respondent in a
threatened, pending, or completed action, suit or proceeding because the person
is or was a director or officer, against judgments, penalties (including excise
and similar taxes), fines, settlements and reasonable expenses (including court
costs and attorneys' fees) actually incurred by the person in connection with
the threatened, pending, or completed action, suit or proceeding. The Company is
required by Article 2.02-1 to indemnify a director or officer against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a threatened, pending, or completed action, suit or proceeding
in which he is a named defendant or respondent because he is or was a director
or officer if he has been wholly successful, on the merits or otherwise, in the
defense of the action, suit or proceeding. Article 2.02-1 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The Restated Articles of Incorporation
and Bylaws of the Company provide for indemnification by the Company of its
directors and officers to the fullest extent permitted by the TBCA. In addition,
the Company has, pursuant to Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act, provided in its Restated Articles of Incorporation that,
to the fullest extent permitted by the Texas Miscellaneous Corporation Laws Act,
a director of the Company shall not be liable to the Company or its shareholders
for monetary damages for an act or omission in a director's capacity as director
of the Company.

Furthermore, the Company has entered into individual indemnification
agreements with each director of the Company that contractually obligate the
Company to provide to the directors indemnification for liabilities they may
incur in the performance of their duties and insurance or self-insurance in lieu
thereof. The form of such indemnification agreements with a schedule of director
signatories is filed as Exhibit 10.11 hereto.

The Underwriting Agreement among the Company, the Selling Shareholder and
the Underwriters provides for the indemnification by the Underwriters of the
Company, certain of its officers and any controlling person against any
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.

II-1
<PAGE> 97

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since its inception in April 1995, the Company issued and sold the
following unregistered securities:

(1) The Company initially issued 100 shares of Common Stock to Millers
Mutual in April 1995 in exchange for $1,000. This issuance was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").

(2) The Company declared and paid a stock dividend of 64,900 shares of
Common Stock in March 1997. The Company also declared and paid a stock
dividend of 6,935,000 shares of Common Stock in June 1997. The Company
issued rights to its sole shareholder under the Company's Shareholder
Rights Agreement on July 30, 1997. These issuances were not a "sale" under
the Securities Act.

(3) From March 12, 1997 through May 2, 1997, the Company granted
nonstatutory options to purchase an aggregate of 840,248 shares of Common
Stock to employees and officers of the Company under its 1997 Stock Option
Plan at an exercise price of $1.30 per share. These options vest over a
period of time following their respective dates of grant. These issuances
were exempt from registration under Section 4(2) of, and Rule 701
promulgated under, the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

II-2
<PAGE> 98

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.8* Policy Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.9* Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996.
10.10* Administrative Services Agreement, effective as of March 12,
1996, by and among State Corporation Commission of the
Commonwealth of Virginia as Deputy Receiver for HOW
Insurance Company, Home Warranty Corporation, and Home
Owners Warranty Corporation, In Receivership, and the
Company.
10.11* Form of Indemnification Agreement with a schedule of
director signatories.
10.12* Employment Agreement, effective as of July 1, 1997, by and
between the Company and F. George Dunham, III.
10.13* Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington.
10.14* Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi.
10.15* Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC.
10.16* Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997.
10.17* Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A.
10.18* Security Agreement, dated March 12, 1997, between SDS and
NationsBank.
10.19* Security Agreement, dated March 12, 1997, between AQS and
NationsBank.
10.20* Pledge Agreement, dated March 12, 1997, between the Company
and NationsBank of Texas, N.A.
10.21* Pledge Agreement dated March 12, 1997, between SDS and
NationsBank.
10.22* Guaranty of SDS dated March 12, 1997.
10.23* Guaranty of AQS dated March 12, 1997.
10.24* Form of License Agreement.
10.25* Form of System Support Agreement.
10.26* Form of Implementation Support Agreement.
10.27* Form of Accelerated Enhancement Plan Agreement.
10.28* Amended and Restated 1997 Stock Option Plan.
10.29* Form of Stock Option Agreement.
10.30* Consolidated Federal Income Tax Allocation Agreement
effective January 1, 1994 by and between the Company and
Millers Mutual, as amended by Addendum No. 1 and Addendum
No. 2 thereto.
10.31* Form of Policy Life Cycle Services Agreement, effective as
of May 1, 1997, by and between the Company and Millers
Casualty.
10.32* Form of Claims Life Cycle Services Agreement, effective as
of June 1, 1997, by and between the Company and Millers
Casualty.
10.33* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Terry G. Gaines.
</TABLE>

II-3
<PAGE> 99

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.34* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Ronald O. Lynn.
10.35* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Jeffrey W. Robinson.
10.36* Director Stock Option Plan.
10.37* Form of Director Stock Option Agreement.
10.38* Employee Stock Purchase Plan.
10.39* Claims Administration Agreement, effective April 1, 1997, by
and between the Company and the Specialty Personal Lines
Division of Millers Mutual.
10.40* Form of Management Agreement, effective as of January 1,
1996, by and between the Company and Millers Mutual.
10.41* Service Contract, effective as of January 1, 1996, by and
between the Company, Millers Mutual and Millers Casualty.
10.42* Form of Service Contract, effective as of December 1, 1996,
by and between the Company, Millers Mutual and Millers
Casualty.
10.43* Form of Information Services Contract, effective as of
October 1, 1996, by and between the Company, Millers Mutual
and Millers Casualty.
11 Statement regarding Computation of Per Share Earnings.
16* Letter regarding Change in Certifying Accountant.
21* Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP regarding INSpire report.
23.2 Consent of Deloitte & Touche LLP regarding SDS report.
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24* Power of Attorney (included on signature page of the
Registration Statement as initially filed).
27* Financial Data Schedule (included in SEC-filed copy only).
</TABLE>

- ---------------

* Previously filed

(b) Financial Statement Schedules

None.

Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, 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 Securities 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

II-4
<PAGE> 100

by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities 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, 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 the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be 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-5
<PAGE> 101

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Fort Worth, State of Texas, on August 22, 1997.

INSPIRE INSURANCE SOLUTIONS, INC.

By: /s/ F. GEORGE DUNHAM, III
----------------------------------
F. George Dunham, III, President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed by the
following persons in the capacities indicated on August 22, 1997:

<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>

/s/ F. GEORGE DUNHAM, III President, Chief Executive Officer (principal
- ----------------------------------------------------- executive officer) and Director
F. George Dunham, III

/s/ TERRY G. GAINES Chief Financial Officer (principal financial
- ----------------------------------------------------- officer and principal accounting officer)
Terry G. Gaines

/s/ HARRY E. BARTEL* Director
- -----------------------------------------------------
Harry E. Bartel

/s/ R. EARL COX, III* Director
- -----------------------------------------------------
R. Earl Cox, III

/s/ MITCH S. WYNNE* Director
- -----------------------------------------------------
Mitch S. Wynne
</TABLE>

*By: /s/ F. GEORGE DUNHAM, III
--------------------------------------
F. George Dunham, III,
Attorney-in-Fact

II-6
<PAGE> 102

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger, dated as of February 18, 1997,
among the Company, SDS, and the Management Shareholders with
a list identifying omitted schedules.
2.2* Articles and Plan of Merger of SDS into the Company.
2.3* Non-Binding Letter of Intent, dated as of July 1, 1997,
among AQS and Samuel J. Fleager.
3.1* Restated Articles of Incorporation of the Company and
Articles of Amendment No. 1 thereto.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen Certificate for shares of Common Stock of the
Company.
4.2* Form of Rights Agreement, by and between the Company and
U.S. Trust Company of Texas, N.A., dated as of July 30,
1997.
5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1* Benefits Administration Contract, dated as of July 1, 1997,
by and between the Company and Millers Mutual.
10.2* Amended Service Contract, dated as of July 1, 1997, by and
among the Company, Millers Mutual, and Millers Casualty.
10.3* Amended Information Services Contract, dated as of July 1,
1997, by and among the Company, Millers Mutual, and Millers
Casualty.
10.4* Form of Agreement to Lease Office Space, effective as of May
1, 1996, by and between the Company and Millers Mutual.
10.5* Form of Sublease Agreement, effective as of January 1, 1997,
by and between the Company and Millers Mutual.
10.6* Claims Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.7* Amendment No. 1 to Claims Life Cycle Services Agreement,
dated as of June 27, 1997.
10.8* Policy Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.9* Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996.
10.10* Administrative Services Agreement, effective as of March 12,
1996, by and among State Corporation Commission of the
Commonwealth of Virginia as Deputy Receiver for HOW
Insurance Company, Home Warranty Corporation, and Home
Owners Warranty Corporation, In Receivership, and the
Company.
10.11* Form of Indemnification Agreement with a schedule of
director signatories.
10.12* Employment Agreement, effective as of July 1, 1997, by and
between the Company and F. George Dunham, III.
10.13* Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington.
10.14* Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi.
10.15* Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC.
</TABLE>

<PAGE> 103

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.16* Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997.
10.17* Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A.
10.18* Security Agreement, dated March 12, 1997, between SDS and
NationsBank.
10.19* Security Agreement, dated March 12, 1997, between AQS and
NationsBank.
10.20* Pledge Agreement, dated March 12, 1997, between the Company
and NationsBank of Texas, N.A.
10.21* Pledge Agreement dated March 12, 1997, between SDS and
NationsBank.
10.22* Guaranty of SDS dated March 12, 1997.
10.23* Guaranty of AQS dated March 12, 1997.
10.24* Form of License Agreement.
10.25* Form of System Support Agreement.
10.26* Form of Implementation Support Agreement.
10.27* Form of Accelerated Enhancement Plan Agreement.
10.28* Amended and Restated 1997 Stock Option Plan.
10.29* Form of Stock Option Agreement.
10.30* Consolidated Federal Income Tax Allocation Agreement
effective January 1, 1994 by and between the Company and
Millers Mutual, as amended by Addendum No. 1 and Addendum
No. 2 thereto.
10.31* Form of Policy Life Cycle Services Agreement, effective as
of May 1, 1997, by and between the Company and Millers
Casualty.
10.32* Form of Claims Life Cycle Services Agreement, effective as
of June 1, 1997, by and between the Company and Millers
Casualty.
10.33* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Terry G. Gaines.
10.34* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Ronald O. Lynn.
10.35* Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Jeffrey W. Robinson.
10.36* Director Stock Option Plan.
10.37* Form of Director Stock Option Agreement.
10.38* Employee Stock Purchase Plan.
10.39* Claims Administration Agreement, effective April 1, 1997, by
and between the Company and the Specialty Personal Lines
Division of Millers Mutual.
10.40* Form of Management Agreement, effective as of January 1,
1996, by and between the Company and Millers Mutual.
10.41* Service Contract, effective as of January 1, 1996, by and
between the Company, Millers Mutual and Millers Casualty.
10.42* Form of Service Contract, effective as of December 1, 1996,
by and between the Company, Millers Mutual and Millers
Casualty.
10.43* Form of Information Services Contract, effective as of
October 1, 1996, by and between the Company, Millers Mutual
and Millers Casualty.
11 Statement regarding Computation of Per Share Earnings.
16* Letter regarding Change in Certifying Accountant.
21* Subsidiaries of the Registrant.
</TABLE>

<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
23.1 Consent of Deloitte & Touche LLP regarding INSpire report.
23.2 Consent of Deloitte & Touche LLP regarding SDS report.
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24* Power of Attorney (included on signature page of the
Registration Statement as initially filed).
27* Financial Data Schedule (included in SEC-filed copy only).
</TABLE>

- ---------------

* Previously filed.

<PAGE> 1
EXHIBIT 5

[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]

August 22, 1997

INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799

Ladies and Gentlemen:

We have acted as counsel to INSpire Insurance Solutions, Inc., a Texas
corporation (the "Company"), in connection with the proposed public offering of
up to 6,325,000 shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") and up to 6,325,000 Series A Junior Preferred Stock
Purchase Rights (the "Rights"), as described in Registration Statement No.
333-31173 on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission.

We have, as counsel, examined such corporate records, certificates and
other documents and reviewed such questions of law as we have deemed necessary,
relevant or appropriate to enable us to render the opinions listed below. In
rendering such opinions, we have assumed the genuineness of all signatures and
the authenticity of all documents examined by us. As to various questions of
fact material to such opinions, we have relied upon representations of the
Company.

Based upon such examination and representations, we advise you that,
in our opinion:

A. The shares of Common Stock that are to be sold and delivered
by the Company and The Millers Mutual Fire Insurance Company (the "Selling
Shareholder") as contemplated by the Underwriting Agreement (the "Underwriting
Agreement"), the form of which is filed as Exhibit 1 to the Registration
Statement, have been duly authorized by the Company.
<PAGE> 2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.

INSpire Insurance Solutions, Inc.
August 22, 1997
Page 2

B. The shares of Common Stock that are to be sold and delivered
by the Company as contemplated by the Underwriting Agreement will, when issued
and delivered in accordance with the terms of the Underwriting Agreement, be
validly issued, fully paid and non-assessable.

C. The shares of Common Stock that are currently held by the
Selling Shareholder and which are to be sold and delivered by the Selling
Shareholder as contemplated by the Underwriting Agreement, have been validly
issued and are fully paid and non-assessable.

D. The Rights have been duly authorized by the Company.

E. The Rights to be issued in connection with the Common Stock to
be sold and delivered by the Company as contemplated by the Underwriting
Agreement will, when issued, be validly issued.

F. The Rights that are currently held by the Selling Shareholder
and which are to be delivered by the Selling Shareholder in connection with the
Common Stock to be sold and delivered by the Selling Shareholder as
contemplated by the Underwriting Agreement, have been validly issued.

We consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus contained therein.

Sincerely,

/s/ Akin, Gump, Strauss Hauer & Feld, L.L.P.

<PAGE> 1
EXHIBIT 11

COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- --------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding................................. 7,000 7,000 7,000 7,000
Net effect of dilutive stock options based on the treasury
method using average market price assuming all stock
options issued within one year prior to filing of
registration statement deemed outstanding pursuant to
Securities and Exchange Commission Staff Accounting Bulletin

Topic 4D................................................. 749 749 749 749
------- ------- ------- -------

Total ..................................................... 7,749 7,749 7,749 7,749
======= ======= ======= =======

Net loss................................................... $(1,262) $ (515) (273) (2,856)
======= ======= ======= =======

Per share amount .......................................... $ (0.16) $ (0.07) (0.04) (0.37)
======= ======= ======= =======

Fully diluted

Average shares outstanding ................................ 7,000 7,000 7,000 7,000
Net effect of dilutive stock options based on the
treasury stock method using the period-end market
price, if higher than average market price assuming all
stock options issued within one year prior to filing of
registration statement deemed outstanding pursuant to
Securities and Exchange Commission Staff Accounting

Bulletin Topic 4D........................................ 749 749 749 749
------- ------- ------- -------

Total ..................................................... 7,749 7,749 7,749 7,749
======= ======= ======= =======

Net loss................................................... $(1,262) $ (515) (273) (2,856)
======= ======= ======= =======

Per share amount .......................................... $ (0.16) $ (0.07) (0.04) (0.37)
======= ======= ======= =======
</TABLE>

<PAGE> 1
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
333-31173 of INSpire Insurance Solutions, Inc. (formerly Millers Integrated
Claims Resources, Inc. and MiliRisk, Inc.) of our report dated July 18, 1997
(August 20, 1997 as to Note 13) on the consolidated financial statements of
INSpire Insurance Solutions, Inc. and subsidiary, appearing in the Prospectus,
which is a part of such Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
August 22, 1997

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
333-31173 of INSpire Insurance Solutions, Inc. (formerly Millers Integrated
Claims Resources, Inc. and MiliRisk, Inc.) of our report dated July 18, 1997 on
the consolidated financial statements of Strategic Data Systems, Inc. and
subsidiary, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
August 22, 1997