<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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>
---------------------
<TABLE>
<S> <C>
F. GEORGE DUNHAM, III
300 BURNETT STREET 300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799 FORT WORTH, TEXAS 76102-2799
TELEPHONE: (817) 332-7761 TELEPHONE: (817) 332-7761
(Address, including zip code, and telephone (Name, address, including zip code, and
number, telephone number,
including area code, of registrant's principal including area code, of agent for service)
executive offices)
</TABLE>
---------------------
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, TEXAS 75201-4675 DALLAS, TEXAS 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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>
===================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value... 2,300,000 Shares $27.125 $62,387,500 $18,405
- -------------------------------------------------------------------------------------------------------------------
Series A Junior Preferred Stock
Purchase Rights(3)........... 2,300,000 Rights -- -- --
===================================================================================================================
</TABLE>
(1) Includes 300,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) 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).
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 5, 1998
PROSPECTUS
2,000,000 SHARES
[INSPIRE LOGO]
COMMON STOCK
------------------------
Of the 2,000,000 shares of Common Stock offered hereby, 1,500,000 shares
are being issued and sold by INSpire Insurance Solutions, Inc. (the "Company")
and 500,000 shares are being sold by the Selling Shareholder. See "Principal and
Selling Shareholders." The Company will not receive any proceeds from the sale
of Common Stock being sold by the Selling Shareholder.
The Common Stock is listed on the Nasdaq National Market under the trading
symbol "NSPR." On March 4, 1998, the closing sale price of the Common Stock as
reported by the Nasdaq National Market was $27.125 per share. See "Price Range
of Common Stock."
------------------------
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 COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(4)..................... $ $ $ $
====================================================================================================================
</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 $375,000 payable by the Company.
(3) Before deducting expenses estimated at $125,000 payable by the Selling
Shareholder.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 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, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholder will be $ , $ , $
and $ , 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 , 1998 at the
offices of Raymond James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
SOUTHWEST SECURITIES
The date of this Prospectus is , 1998.
<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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 4
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 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, policyholder mailings, customer
service, billing and collections, claims adjusting and processing, and
information technology ("IT") services. 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 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.
The Company's outsourcing revenues have continued to grow rapidly since
inception. These services typically generate recurring revenues due to the
ongoing nature of the services provided and the long-term nature of the service
contracts. Revenues from outsourcing services increased to $32.5 million in 1997
from $13.7 million in 1996. The Company recently formed a sales team, led by an
industry veteran, that is dedicated solely to outsourcing sales. The Company
believes the marketing efforts of this sales team will enhance the growth of its
outsourcing business.
According to A.M. Best Company ("A.M. Best"), there were approximately
2,400 P&C insurance companies in the United States as of December 31, 1996,
generating more than $260 billion of annual premium revenues. 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 as
a result of recent regulatory changes in the P&C insurance industry. The Company
believes the availability of outsourcing enables these new 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 new insurers to quickly enter
markets being exited by more established insurers seeking to reduce their
exposure to geographical risk due to the concentration of recent natural
catastrophes in certain areas.
3
<PAGE> 5
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. Historical revenues increased to $56.6 million for the year ended
December 31, 1997 from $13.7 million for the year ended December 31, 1996, an
increase of 313%. 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, penetrating new markets, enhancing
product capabilities, generating recurring revenues and pursuing strategic
acquisitions. The Company's customers generally are small to mid-size insurance
companies with annual direct written premiums of $10 million to $300 million and
include Atlantic Mutual Insurance Co., Clarendon National Insurance Company,
Firemen's Fund Insurance Company, Grinnell Mutual Reinsurance Company, Interco,
Inc., Nationwide Mutual Insurance Co.-Western Direct Operations, Zurich
Insurance Company, and Millers Mutual and affiliated companies.
The Company's principal executive office is located at 300 Burnett Street,
Fort Worth, Texas 76102, and its telephone number is (817) 348-3999.
THE OFFERING
Common Stock offered by the Company....... 1,500,000 Shares
Common Stock offered by the Selling
Shareholder............................... 500,000 Shares
Common Stock to be outstanding after this
offering.................................. 11,724,323 Shares(1)
Use of Proceeds........................... For general corporate purposes,
including working capital,
product development and possible
acquisitions. See "Use of
Proceeds."
Nasdaq National Market Symbol............. NSPR
- ---------------
(1) Excludes (a) 2,216,927 shares (2,966,927 shares if the shareholders of the
Company approve a proposed amendment to the Stock Option Plan (as defined
below)) reserved for issuance under the Company's Amended and Restated 1997
Stock Option Plan (the "Stock Option Plan"), pursuant to which options
covering 1,993,740 shares are outstanding at a weighted average exercise
price of $8.16 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 are outstanding at an exercise price of
$12.00 per share, and (c) 418,760 shares reserved for issuance under an
employee stock purchase plan (the "Stock Purchase Plan"). The number of
shares of Common Stock to be outstanding after this offering would be
13,122,710 after giving effect to the issuance of 1,398,387 shares of
Common Stock issuable under outstanding options granted pursuant to the
Stock Option Plan and the Director Plan applying the treasury stock method
based on the closing sales price of $27.125 per share on March 4, 1998.
4
<PAGE> 6
SUMMARY HISTORICAL AND PRO FORMA CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The historical information as of December 31, 1997 and for the period April
28, 1995 through December 31, 1995 and the years ended December 31, 1996 and
1997 was derived from the audited financial statements of the Company. The
Company's pro forma condensed financial data are based on assumptions and
adjustments described in the notes to the Pro Forma Condensed Statement of
Operations (Unaudited) 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 Financial Data of INSpire,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire," the Company's Financial Statements and the Company's Pro
Forma Condensed Statement of Operations (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>
PERIOD
APRIL 28, 1995 YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------------
DECEMBER 31, PRO FORMA
1995(1) 1996 1997(2) 1997(2)(3)
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 3,907 $ 13,653 $ 56,569 $ 61,981
Operating expenses...................... 5,518 14,430 56,036 60,868
Operating income (loss)................. (1,611) (777) 533 1,113
Net income (loss)....................... (1,262) (515) 1,716 2,032
Net income (loss) per share (basic)..... (0.18) (0.07) 0.21 0.25
Net income (loss) per share (diluted)... $ (0.16) $ (0.07) $ 0.20 $ 0.23
Weighted average shares (basic)......... 7,000,000 7,000,000 8,137,370 8,137,370
Weighted average shares (diluted)....... 7,749,221 7,749,221 8,782,497 8,782,497
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
AS
ACTUAL ADJUSTED(4)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 28,039 $ 65,911
Working capital............................................. 30,375 68,247
Total assets................................................ 65,471 103,342
Current portion of long-term debt........................... 610 610
Long-term debt, excluding current portion................... 373 373
Shareholders' equity........................................ 48,766 86,637
</TABLE>
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(1) The Company was incorporated April 28, 1995 and commenced operations July
1, 1995.
(2) Includes $3.0 million of purchased research and development expenses
relating to the SDS Acquisition, $3.9 million of deferred compensation
expense relating to the grant of stock options to executive officers and
$1.6 million of other income attributable to the gain on sale of Applied
Quoting Systems, Inc. ("AQS"), a wholly-owned subsidiary of the Company.
Excluding the effect of such one-time items, historical operating expenses,
operating income and net income would have been $49.1 million, $7.5 million
and $5.1 million, respectively, and historical net income per share (basic)
would have been $0.63 and historical net income per share (diluted) would
have been $0.58; and pro forma operating expenses, operating income and net
income would have been $53.9 million, $8.1 million and $5.4 million,
respectively, and pro forma net income per share (basic) would have been
$0.67 and pro forma net income per share (diluted) would have been $0.62.
(3) Unaudited pro forma condensed statement of operations data for the year
ended December 31, 1997 reflects: (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, 1997 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, 1997. See the Company's
Pro Forma Condensed Statement of Operations (Unaudited).
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<PAGE> 7
(4) Adjusted to reflect: (i) the sale by the Company of 1,500,000 shares of
Common Stock offered hereby at an assumed public offering price of $27.125
per share, 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."
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 difficulties associated with growth, the
Company's dependence on major customers and limited operating history,
technological change, competitive factors and pricing pressures, product
development risks, changes in legal and regulatory requirements 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.
6
<PAGE> 8
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.
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 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."
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 32%, 16% and
7%, respectively, of the Company's historical revenues in 1997 and 29%, 14% and
6%, respectively, of the Company's pro forma revenues in 1997. The Millers
Group, Clarendon and Interco accounted for approximately 68%, 8% and 21%,
respectively, of the Company's historical revenues in 1996. 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
7
<PAGE> 9
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 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 -- Product Development."
COMPETITION
The markets for policy and claims administration services and products are
highly competitive. The Company competes in the following markets serving the
P&C insurance industry: (i) outsourcing of policy administration, (ii)
outsourcing of claims administration, (iii) outsourcing of IT services and (iv)
software and software services.
The policy administration and IT services outsourcing markets are dominated
by a few large companies, including Policy Management Systems Corporation
("PMSC"). The Company competes for these outsourcing customers on the basis of
customer service, performance, product features 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 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. Competitors include PMSC, Computer
Sciences Corporation, The Freedom Group, Inc. and The Wheatley Group, Ltd.
The Company believes, however, that its most significant competition for
outsourcing services and software sales comes from policy and claims
administration and information systems development performed in-house by
insurance companies. Insurers that fulfill some or all of their policy and
claims administration needs in-house typically have made a significant
investment in their information processing systems and may be less likely to
utilize the Company's services. In addition, insurance company personnel have a
vested interest in maintaining these responsibilities in-house.
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 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."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects to use the net proceeds from this offering for working
capital and other general corporate purposes, including possible acquisitions.
The Company's management will have broad discretion to allocate the net proceeds
of this offering, and the amounts actually expended for specific purposes may
vary significantly depending on a number of factors, including the amount of
future revenues, the amount of cash generated or used by the Company's
operations and the availability of suitable acquisitions. Shareholders of the
Company will not have the opportunity to review or vote upon any potential
acquisition. See "Use of Proceeds."
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<PAGE> 10
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 completely integrate the
operations of SDS within 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."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; VOLATILITY OF TRADING PRICE
The Company may 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 large scale catastrophes, the volume of usage of the Company's services and
products, competitive conditions in its industry, general economic conditions
and the level of selling, general and administrative expenses. 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. 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 concentration 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. Therefore, 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."
LIMITED OPERATING HISTORY AND NET LOSSES
The Company has a limited operating history in the P&C insurance
outsourcing business and only three 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 continues
to integrate the SDS operations into the Company's financial, managerial,
administrative and marketing functions. In addition, certain of the Company's
senior management
9
<PAGE> 11
personnel recently joined the Company. There can be no assurance that the
Company will be successful 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. The Company had net income of $1.7 million for the year ended
December 31, 1997. 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."
CONTROL BY EXISTING SHAREHOLDER; CONFLICTS OF INTEREST
Prior to this offering, Millers Mutual owned approximately 37.8% of the
outstanding shares of Common Stock. After this offering, Millers Mutual will
beneficially own 28.7% of the outstanding shares of Common Stock (28.0% 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, after this offering. 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 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 the
Company provides certain benefits administration services to Millers Mutual 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 "Principal and Selling Shareholders" and "Certain
Transactions."
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, and certain key technical,
managerial and sales employees. The loss of Mr. Dunham's services, or the
services of 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. 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,
10
<PAGE> 12
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 and/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. Further, there can be no
assurance that, to the extent the Company relies on licenses of software or
other technology from third parties, the Company will be able to maintain or
renew such licenses. 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 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 SDS 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 -- Product Development," "-- Intellectual Property" and "-- Legal
Proceedings."
11
<PAGE> 13
YEAR 2000 ISSUES
There is significant uncertainty regarding the impact of Year 2000 issues,
which arise when computer systems do not properly recognize date sensitive
information beyond December 31, 1999, thereby generating erroneous data or
failing altogether. The Company believes that the computer equipment and
software used and sold by the Company will function properly with respect to
dates in the Year 2000 and thereafter. However, third parties that have
relationships with the Company, including suppliers, customers and creditors,
may experience significant Year 2000 issues. These issues may have a serious
adverse impact on the operations of such third parties, including a shut-down of
operations for a period of time, which may, in turn, have a materially adverse
effect on the Company's business, financial condition and results of operations.
In addition, competitors, other software companies and other third parties may
experience significant Year 2000 issues and, as a result, seek to hire the
Company's programmers and other software-related personnel at higher salaries to
address these issues. Loss of certain employees or a significant number of
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of INSpire -- Year
2000 Issues."
GOVERNMENT REGULATION
The P&C insurance industry is subject to extensive regulation by state
governments. Certain aspects of the Company's business are affected by such
regulations, requiring the Company to periodically 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 3,366,250
shares, representing 28.7% of the outstanding shares of Common Stock (28.0% 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 11,724,323 shares of Common Stock outstanding (12,024,323 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. Of the remaining 9,724,323 shares, 6,358,073
shares are freely transferable and 3,366,250 shares may not be sold unless the
sale is registered under the Securities Act, or an exemption from registration
is available, including the exemption provided by Rule 144 under the Securities
Act. Also, the shares of Common Stock held by the Selling Shareholder and
certain directors and officers of the Company 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 90 days
after the date of this Prospectus, except that (i) officers and directors of the
Company may sell up to an aggregate of 100,000 shares of Common Stock after 30
days from the date of this Prospectus and (ii) 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. After such
90-day period expires, approximately 3,366,250 unregistered shares held by
Millers Mutual will be eligible for sale pursuant to Rule 144 under the
Securities Act. In addition, 2,216,927 shares of Common
12
<PAGE> 14
Stock have been reserved for issuance under the Stock Option Plan, 1,993,740 of
which are issuable upon exercise of options outstanding at the date of this
Prospectus, including options to purchase 839,438 shares exercisable as of the
date of this Prospectus or that will become exercisable within 90 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 90 days
after the date of this Prospectus are subject to the lock-up agreements to the
extent described above. An additional 418,760 shares have been reserved for
issuance to employees of the Company upon their purchase pursuant to the Stock
Purchase Plan. The Company has registered on Form S-8 under the Securities Act
the offering and sale of Common Stock issuable under the Stock Option Plan, the
Director Plan and the Stock Purchase Plan. An amendment to the Stock Option Plan
to increase the maximum number of shares of Common Stock issuable upon exercise
of options from 2,250,000 to 3,000,000 shares has been approved by the Board of
Directors and will be submitted to the shareholders of the Company for approval
at the annual meeting of shareholders to be held April 21, 1998. See
"Management -- Stock Option Plan," "-- Director Stock Option Plan," and
"-- Employee Stock Purchase Plan."
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, the TBCA
restricts certain business combinations with any "affiliated shareholder," as
defined therein and provides 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."
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
After this offering, the Company will have an aggregate of approximately
35,589,990 shares of Common Stock authorized but unissued and not reserved for
specific purposes. All of such shares may be issued without any action or
approval by the Company's shareholders. Any shares issued would further dilute
the percentage ownership of the Company held by the investors in this offering.
Reserved shares of Common Stock include (i) 2,216,927 shares of Common Stock
under the Stock Option Plan, (ii) 50,000 shares of Common Stock under the
Director Plan, and (iii) 418,760 shares of Common Stock under the Stock Purchase
Plan. In addition, an amendment to the Stock Option Plan to increase the maximum
number of shares of Common Stock issuable upon exercise of options from
2,250,000 to 3,000,000 shares has been approved by the Board of Directors and
will be submitted to the shareholders of the Company for approval at the annual
meeting of shareholders to be held April 21, 1998. The terms on which the
Company could obtain additional capital as a result of the Stock Option Plan,
Director Plan and Stock Purchase Plan may be adversely affected because of such
potential dilution and because the holders of the options issued under the Stock
Option Plan and the Director Plan might be expected to exercise them if the
trading price of the Common Stock exceeds their exercise prices. See
"Management -- Stock Option Plan," "-- Director Stock Option Plan," "-- Stock
Purchase Plan" and "Description of Capital Stock."
13
<PAGE> 15
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS
The Restated Articles and Bylaws contain provisions that reduce the
potential personal liability of directors for certain monetary damages and
provide for indemnity of directors and other persons. The Company is unaware of
any pending or threatened litigation against the Company or its directors that
would result in any liability for which a director would seek indemnification or
similar protection. The Company also maintains officers and directors liability
insurance and has entered into indemnification agreements with certain of its
officers and directors. The indemnification agreements provide for reimbursement
for all direct and indirect costs of any type or nature whatsoever (including
attorneys' fees and related disbursements) reasonably incurred in connection
with either the investigation, defense or appeal of a covered legal proceeding,
including amounts paid in settlement by or on behalf of an indemnitee
thereunder. See "Management -- Employment and Indemnification Agreements" and
"Description of Capital Stock -- Special Provisions of the Restated Articles,
the Bylaws and Texas Law."
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."
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 repaid the loan from NationsBank in September 1997 with a portion of
its net proceeds from the Company's initial public offering. SDS was merged into
the Company in July 1997. See "Business -- Legal Proceedings."
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, became executive officers of the Company. See
"Management -- Executive Officers and Directors" and "-- Consulting Agreement."
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 some or all of
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.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company will be approximately $37.9 million
(approximately $45.5 million if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price of $27.125 per share,
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company intends to use the net proceeds for
general corporate purposes, including working capital, product 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 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 500,000 shares offered by the
Selling Shareholder will be approximately $12.6 million at an assumed public
offering price of $27.125 per share, 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 a bank credit facility with NationsBank (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.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the trading
symbol NSPR. The following table sets forth the high and low closing sales price
as reported by the Nasdaq National Market for the Common Stock for the periods
indicated. On August 22, 1997, the Company completed an initial public offering
of the Common Stock at an initial price to public of $12.00 per share.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------- -------
<S> <C> <C>
September 30, 1997.......................................... $18.750 $16.625
December 31, 1997........................................... $20.875 $17.250
March 31, 1998 (through March 4, 1998)...................... $29.750 $19.750
</TABLE>
The closing sale price on March 4, 1998 was $27.125 per share. As of March
2, 1998, there were approximately 13 record holders and 2,800 beneficial holders
of the Common Stock.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, and as adjusted to reflect: (i) the sale by the
Company of 1,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $27.125 per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, and (ii) the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 610 $ 610
Long-term debt, excluding current portion................... 373 373
Shareholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $0.01 par value; 50,000,000 shares
authorized, 10,191,250 shares issued and outstanding
and 11,691,250 shares issued and outstanding as
adjusted(1)(2)......................................... 102 117
Additional paid-in capital................................ 48,725 86,581
Accumulated deficit....................................... (61) (61)
------- -------
Total shareholders' equity............................. 48,766 86,637
------- -------
Total capitalization.............................. $49,749 $87,620
======= =======
</TABLE>
- ---------------
(1) Excludes as of December 31, 1997, (a) 2,250,000 shares reserved for
issuance under the Stock Option Plan, pursuant to which options covering
1,991,479 shares are outstanding at a weighted average exercise price of
$7.57 per share, (b) 50,000 shares reserved for issuance under the Director
Plan, pursuant to which options covering 7,500 shares are outstanding at an
exercise price of $12.00 per share, and (c) 418,760 shares reserved for
issuance under the Stock Purchase Plan.
(2) Excludes as of the date of this Prospectus, (a) 2,216,927 shares reserved
for issuance under the Stock Option Plan, pursuant to which options
covering 1,993,740 shares are outstanding at a weighted average exercise
price of $8.16 per share, (b) 50,000 shares reserved for issuance under the
Director Plan, pursuant to which options covering 7,500 shares are
outstanding at an exercise price of $12.00 per share, and (c) 418,760
shares reserved for issuance under the Stock Purchase Plan.
16
<PAGE> 18
SELECTED FINANCIAL DATA OF INSPIRE
(IN THOUSANDS, EXCEPT SHARE DATA)
The selected financial data of the Company presented below as of December
31, 1995, 1996 and 1997, and for the period April 28, 1995 through December 31,
1995 and the years ended December 31, 1996 and 1997 have been derived from the
audited financial statements of the Company. The selected 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 Financial
Statements and the Company's Pro Forma Condensed Statement of Operations
(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>
PERIOD
APRIL 28,
1995 YEAR ENDED DECEMBER 31,
THROUGH --------------------------------------
DECEMBER 31, PRO FORMA
1995(1) 1996 1997(2) 1997(2)(3)
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Outsourcing services................. $ 3,907 $ 13,653 $ 32,458 $ 32,458
Software and software services....... -- -- 21,101 25,941
Other................................ -- -- 3,010 3,582
---------- ---------- ---------- ----------
Total revenues............... 3,907 13,653 56,569 61,981
---------- ---------- ---------- ----------
Expenses:
Cost of outsourcing services......... 4,885 10,543 20,798 20,798
Cost of software and software
services.......................... -- -- 10,681 15,041
Cost of other revenues............... -- -- 2,413 2,797
Selling, general and
administrative.................... -- -- 8,714 9,060
Research and development............. -- -- 1,190 1,455
Depreciation and amortization........ 33 787 4,001 4,588
Purchased research and development... -- -- 3,000 3,000
Deferred compensation................ -- -- 3,949 3,949
Management fees to shareholder....... 600 3,100 1,290 180
---------- ---------- ---------- ----------
Total expenses............... 5,518 14,430 56,036 60,868
---------- ---------- ---------- ----------
Operating income (loss)................ (1,611) (777) 533 1,113
Other income (expense)................. -- (2) 1,984 1,924
---------- ---------- ---------- ----------
Income (loss) before income tax........ (1,611) (779) 2,517 3,037
Income tax benefit (expense)........... 349 264 (801) (1,005)
---------- ---------- ---------- ----------
Net income (loss)...................... $ (1,262) $ (515) $ 1,716 $ 2,032
========== ========== ========== ==========
Net income (loss) per share (basic).... $ (0.18) (0.07) $ 0.21 $ 0.25
========== ========== ========== ==========
Net income (loss) per share
(diluted)............................ $ (0.16) $ (0.07) $ 0.20 $ 0.23
========== ========== ========== ==========
Weighted average shares (basic)........ 7,000,000 7,000,000 8,137,370 8,137,370
Weighted average shares (diluted)...... 7,749,221 7,749,221 8,782,497 8,782,497
</TABLE>
See notes on following page.
17
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1997
----------------- ----------------------
AS
1995 1996 ACTUAL ADJUSTED(4)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 22 $ 363 $28,039 $ 65,911
Working capital.................................... (1,072) (2,550) 30,375 68,247
Total assets....................................... 2,817 5,232 65,471 103,342
Current portion of long-term debt.................. -- 2,500 610 610
Due to shareholder................................. 1,569 996 -- --
Long-term debt, excluding current portion.......... -- -- 373 373
Shareholders' equity............................... 1,121 606 48,766 86,637
</TABLE>
- ---------------
(1) The Company was incorporated April 28, 1995 and commenced operations July
1, 1995.
(2) Represents $3.0 million of purchased research and development expenses
relating to the SDS Acquisition, $3.9 million of deferred compensation
expense relating to the grant of stock options to executive officers and
$1.6 million of other income attributable to the gain on sale of AQS.
Excluding the effect of such one-time items, historical operating expenses,
operating income and net income would have been $49.1 million, $7.5 million
and $5.1 million, respectively, and historical net income per share (basic)
would have been $0.63 and historical net income per share (diluted) would
have been $0.58; and pro forma operating expenses, operating income and net
income would have been $53.9 million, $8.1 million and $5.4 million,
respectively, and pro forma net income per share (basic) would have been
$0.67 and pro forma net income per share (diluted) would have been $0.62.
(3) Unaudited pro forma condensed statement of operations data for the year
ended December 31, 1997 reflects: (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, 1997 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, 1997. See the Company's
Pro Forma Condensed Statement of Operations (Unaudited).
(4) Adjusted to reflect: (i) the sale by the Company of 1,500,000 shares of
Common Stock offered hereby at an assumed public offering price of $27.125
per share, 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."
18
<PAGE> 20
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, claims administration
services and IT 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.
The Company is typically paid a percentage of premiums for policy administration
services, a percentage of premiums or claims paid for claims administration
services and a percentage of premiums subject to a minimum fee for IT services.
Outsourcing services contracts generally are for terms of two to five years. Due
to the ongoing nature of these services and the length of the terms of the
service contracts, outsourcing services generate recurring revenues. 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, included in other revenues, 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. Unearned revenues
consist of billings to customers in advance of revenues recognized on such
services. Unbilled receivables consist of revenues recognized in advance of
billings due to timing differences related to billing schedules specified in
contracts.
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.
Prior to the Company's initial public offering, Millers Mutual, the Company
and the other subsidiaries of Millers Mutual were 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 was required to 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 required 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. Effective August 23, 1997, the Tax
Allocation Agreement was terminated as it applied to the Company. 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
19
<PAGE> 21
indemnify the Company for any income taxes and related expenses attributable to
any members of the consolidated tax group other than the Company.
RECENT DEVELOPMENTS
Purchase of SDS. On March 12, 1997 the Company acquired SDS for $18.0
million. The results of operations of SDS since March 12, 1997 are included in
the results of operations of the Company. See "SDS Acquisition."
Sale of Subsidiary. On September 15, 1997, the Company sold AQS for $2.5
million to Samuel J. Fleager, the former principal shareholder of AQS. The sale
resulted in a gain of $1.6 million, which is included in other income in the
Company's consolidated statements of operations for the year ended December 31,
1997. AQS sells the Applied Quoting Systems Module ("AQSM"), a DOS-based
commercial lines policy administration system. AQSM automates commercial policy
rating, issuance, renewals and mid-term policy changes. AQS total revenues were
$3.4 million for the period January 1, 1997 through September 15, 1997 and $4.1
million for the year ended December 31, 1996. On October 29, 1997, the Company
entered into a five-year agreement with Cover-All Systems, Inc. ("Cover-All") to
license Cover-All's commercial lines rating, policy issue and forms solutions
for use in the Company's software products and services offerings. The Company
calls this new product "ValueRate" and is currently integrating it with PCA and
WPC (as hereinafter defined). See "Business -- Services and Products."
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>
PERIOD
APRIL 28, 1995 YEAR ENDED DECEMBER 31,
THROUGH ---------------------------
DECEMBER 31, PRO FORMA
1995(1) 1996 1997 1997(2)
-------------- ----- ----- ---------
<S> <C> <C> <C> <C>
Revenues:
Outsourcing services............................. 100.0% 100.0% 57.4% 52.4%
Software and software services................... -- -- 37.3 41.8
Other............................................ -- -- 5.3 5.8
----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses:
Cost of outsourcing services..................... 125.0 77.2 36.8 33.6
Cost of software and software services........... -- -- 18.9 24.3
Cost of other revenues........................... -- -- 4.3 4.5
Selling, general and administrative.............. -- -- 15.4 14.6
Research and development......................... -- -- 2.1 2.3
Depreciation and amortization.................... 0.8 5.8 7.0 7.4
Purchased research and development............... -- -- 5.3 4.8
Deferred compensation............................ -- -- 7.0 6.4
Management fees to shareholder................... 15.4 22.7 2.3 0.3
----- ----- ----- -----
Total expenses........................... 141.2 105.7 99.1 98.2
----- ----- ----- -----
Operating income (loss)............................ (41.2) (5.7) 0.9 1.8
Other income (expense)............................. -- -- 3.5 3.1
----- ----- ----- -----
Income (loss) before income tax.................... (41.2) (5.7) 4.4 4.9
Income tax benefit (expense)....................... 8.9 1.9 (1.4) (1.6)
----- ----- ----- -----
Net income (loss).................................. (32.3)% (3.8)% 3.0% 3.3%
===== ===== ===== =====
</TABLE>
See notes on following page.
20
<PAGE> 22
- ---------------
(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.
(2) Unaudited pro forma condensed statement of operations data for the year
ended December 31, 1997 reflects: (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, 1997 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, 1997. See the Company's
Pro Forma Condensed Statement of Operations (Unaudited).
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996 ON A HISTORICAL BASIS
Revenues. The Company's total revenues were $56.6 million for the year
ended December 31, 1997 compared to $13.7 million for the year ended December
31, 1996, an increase of $42.9 million or 313%. This increase is attributable
primarily to (i) the SDS Acquisition and (ii) revenues from three significant
outsourcing contracts entered into in mid-1996 under which the Company performed
outsourcing services during all of 1997. These three contracts included a claims
administration agreement with Interco as administrator for the Virginia
Commission and a policy administration agreement and a claims administration
agreement with Blanch whereby services are provided to Clarendon. See
"Business -- Customers."
Cost of Revenues. Total cost of revenues was $33.9 million for the year
ended December 31, 1997 compared to $10.5 million for the year ended December
31, 1996, an increase of $23.4 million or 223%, 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. Cost of
revenues as a percentage of total revenues decreased to 60% for the year ended
December 31, 1997 from 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 and equipment costs
as a percentage of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including management fees paid to shareholder, were
$10.0 million for the year ended December 31, 1997 compared to $3.1 million for
the year ended December 31, 1996, an increase of $6.9 million or 223%. This
increase was primarily due to (i) the SDS Acquisition and (ii) 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 decreased to 18% for
the year ended December 31, 1997 from 23% 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 and
equipment costs as a percentage of revenues.
Research and Development. Research and development expense was $1.2 million
for the year ended December 31, 1997, net of capitalized research and
development costs of $819,000. This expense was comprised primarily of
personnel, equipment and occupancy costs 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
$4.0 million for the year ended December 31, 1997 compared to $787,000 for the
year ended December 31, 1996, an increase of $3.2 million or 408%. This increase
is primarily attributable to (i) Millers Mutual's capital contribution of
approximately $1.3 million in depreciable property and equipment to the Company
in January 1997 and (ii) amortization of goodwill recorded in connection with
the SDS Acquisition.
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 1997.
Other Income. Other income for the year ended December 31, 1997 includes a
$1.6 million gain on the sale of AQS. Interest income, attributable primarily to
short-term investments purchased with unused proceeds from the Company's initial
public offering, was $681,000 for the year ended December 31, 1997. During 1996
the Company did not have investments that earned interest income. Interest
expense, attributable
21
<PAGE> 23
primarily to the NationsBank Facility, was approximately $348,000 for the year
ended December 31, 1997. The Company did not have any interest-bearing debt
during 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION
THROUGH DECEMBER 31, 1995 ON A HISTORICAL BASIS
Revenues. The Company's total revenues were $13.7 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 $9.8 million or 251%. 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 entered into during 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 and a policy administration agreement and a claims
administration agreement with Blanch whereby services are provided to Clarendon.
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 126% 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.
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 Company's purchase of approximately $1.8 million
in depreciable property and equipment during 1996.
22
<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS ON A HISTORICAL BASIS
The following table sets forth certain unaudited historical quarterly
financial data for each of the eight consecutive quarters in fiscal 1996 and
1997. This information is derived from unaudited financial statements that
include, in the opinion of the Company, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation when read in
conjunction with the financial statements of the Company and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1996 1997(1)
--------- --------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services....... $ 2,308 $ 3,030 $ 3,837 $ 4,478 $ 6,737
Software and software
services................. -- -- -- -- 1,079
Other...................... -- -- -- -- 375
--------- --------- --------- --------- ---------
Total revenues....... 2,308 3,030 3,837 4,478 8,191
--------- --------- --------- --------- ---------
Expenses:
Cost of outsourcing
services................. 1,877 2,325 2,958 3,383 4,891
Cost of software and
software services........ -- -- -- -- 740
Cost of other revenues..... -- -- -- -- 182
Selling, general and
administrative........... -- -- -- -- 259
Research and development... -- -- -- -- 126
Depreciation and
amortization............. 173 177 210 227 535
Purchased research and
development.............. -- -- -- -- 3,000(2)
Deferred compensation...... -- -- -- -- 3,065(3)
Management fees to
shareholder.............. 600 600 600 1,300 626
--------- --------- --------- --------- ---------
Total expenses....... 2,650 3,102 3,768 4,910 13,424
--------- --------- --------- --------- ---------
Operating income (loss)...... (342) (72) 69 (432) (5,233)
Other income (expense)....... -- -- -- (2) (51)
--------- --------- --------- --------- ---------
Income (loss) before income
tax........................ (342) (72) 69 (434) (5,284)
Income tax benefit
(expense).................. 71 70 (14) 137 1,789
--------- --------- --------- --------- ---------
Net income (loss)............ $ (271) $ (2) $ 55 $ (297) $ (3,495)
========= ========= ========= ========= =========
Net income (loss) per share
(basic).................... $ (0.04) $ -- $ 0.01 $ (0.04) $ (0.50)
========= ========= ========= ========= =========
Net income (loss) per share
(diluted).................. $ (0.03) $ -- $ 0.01 $ (0.04) $ (0.45)
========= ========= ========= ========= =========
Weighted average shares
(basic).................... 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000
Weighted average shares
(diluted).................. 7,749,221 7,749,221 7,749,221 7,749,221 7,749,221
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997
--------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Revenues:
Outsourcing services....... $ 7,658 $ 8,178 $ 9,887
Software and software
services................. 6,482 6,710 6,830
Other...................... 928 294 1,413
--------- --------- ----------
Total revenues....... 15,068 15,182 18,128
--------- --------- ----------
Expenses:
Cost of outsourcing
services................. 5,207 5,066 5,634
Cost of software and
software services........ 2,182 4,288 3,471
Cost of other revenues..... 514 341 1,376
Selling, general and
administrative........... 3,169 2,180 3,106
Research and development... 554 211 299
Depreciation and
amortization............. 1,160 1,122 1,184
Purchased research and
development.............. -- -- --
Deferred compensation...... 884(3) -- --
Management fees to
shareholder.............. 574 45 45
--------- --------- ----------
Total expenses....... 14,244 13,253 15,115
--------- --------- ----------
Operating income (loss)...... 824 1,929 3,013
Other income (expense)....... (108) 1,731(4) 412
--------- --------- ----------
Income (loss) before income
tax........................ 716 3,660 3,425
Income tax benefit
(expense).................. (77) (1,204) (1,309)
--------- --------- ----------
Net income (loss)............ $ 639 $ 2,456 $ 2,116
========= ========= ==========
Net income (loss) per share
(basic).................... $ 0.09 $ 0.29 $ 0.21
========= ========= ==========
Net income (loss) per share
(diluted).................. $ 0.08 $ 0.27 $ 0.19
========= ========= ==========
Weighted average shares
(basic).................... 7,000,000 8,332,000 10,191,250
Weighted average shares
(diluted).................. 7,749,221 9,260,668 11,381,670
</TABLE>
- ---------------
(1) The Company acquired SDS on March 12, 1997. See "SDS Acquisition."
(2) Represents $3.0 million of purchased research and development expenses
relating to the SDS Acquisition.
(3) Represents $3.9 million of deferred compensation expense relating to the
grant of stock options to executive officers.
(4) Primarily attributable to the gain on sale of AQS of $1.6 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire -- Recent Developments."
23
<PAGE> 25
The following table sets forth, for the periods indicated, the percentage
of net sales represented by the indicated items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 1997(1) 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Outsourcing
services............ 100.0% 100.0% 100.0% 100.0% 82.2% 50.8% 53.9% 54.5%
Software and software
services............ -- -- -- -- 13.2 43.0 44.2 37.7
Other................. -- -- -- -- 4.6 6.2 1.9 7.8
----- ----- ----- ----- ------ ----- ----- -----
Total
revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ------ ----- ----- -----
Expenses:
Cost of outsourcing
services............ 81.3 76.7 77.1 75.5 59.7 34.5 33.4 31.1
Cost of software and
software services... -- -- -- -- 9.0 14.5 28.2 19.2
Cost of other
services............ -- -- -- -- 2.2 3.4 2.2 7.6
Selling, general and
administrative...... -- -- -- -- 3.3 21.0 14.4 17.1
Research and
development......... -- -- -- -- 1.5 3.7 1.4 1.7
Depreciation and
amortization........ 7.5 5.9 5.5 5.1 6.5 7.7 7.4 6.5
Purchased research and
development......... -- -- -- -- 36.6(2) -- -- --
Deferred
compensation........ -- -- -- -- 37.4(3) 5.9(3) -- --
Management fees to
shareholder......... 26.0 19.8 15.6 29.0 7.7 3.8 0.3 0.2
----- ----- ----- ----- ------ ----- ----- -----
Total
expenses...... 114.8 102.4 98.2 109.6 163.9 94.5 87.3 83.4
----- ----- ----- ----- ------ ----- ----- -----
Operating income
(loss)................ (14.8) (2.4) 1.8 (9.6) (63.9) 5.5 12.7 16.6
Other income
(expense)............. -- -- -- -- (0.6) (0.7) 11.4(4) 2.3
----- ----- ----- ----- ------ ----- ----- -----
Income (loss) before
income tax............ (14.8) (2.4) 1.8 (9.6) (64.5) 4.8 24.1 18.9
Income tax benefit
(expense)............. 3.1 2.3 (0.4) 3.0 21.8 (0.5) (7.9) (7.2)
----- ----- ----- ----- ------ ----- ----- -----
Net income (loss)....... (11.7)% (0.1)% 1.4% (6.6)% (42.7)% 4.3% 16.2% 11.7%
===== ===== ===== ===== ====== ===== ===== =====
</TABLE>
- ---------------
(1) The Company acquired SDS on March 12, 1997. See "SDS Acquisition."
(2) Represents $3.0 million of purchased research and development expenses
relating to the SDS Acquisition.
(3) Represents $3.9 million of deferred compensation expense relating to the
grant of stock options to executive officers.
(4) Primarily attributable to the gain on sale of AQS of $1.6 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire -- Recent Developments."
The Company has experienced in the past and will experience in the future
quarterly variations in revenues and net income. Thus, operating results for any
particular quarter are not necessarily indicative of results for any future
period. Factors that have affected quarterly operating results include 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 large scale catastrophes, the volume
of usage of the Company's services and products, competitive conditions in its
industry, general economic conditions and the level of selling, general and
administrative expenses.
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company funded its operations through cash generated from
operations, as well as borrowings and capital contributions from Millers Mutual.
In August 1997, the Company completed its initial public offering. Net cash
provided by (used in) operating activities was $4.5 million for the year ended
December 31, 1997 compared to ($459,000) for the year ended December 31, 1996.
In 1997, cash flow used in operating activities included an increase in accounts
receivable of approximately $5.7 million and a decrease in deferred income taxes
of approximately $2.4 million, which was offset by depreciation and amortization
expense of approximately $4.0 million, purchased research and development
expense of $3.0 million, deferred compensation expense of $4.0 million and an
increase in income taxes payable of $2.8 million. Net cash used in investing
activities was $19.1 million for the year ended December 31, 1997, primarily
attributable to the SDS Acquisition, compared to $1.7 million for the year ended
December 31, 1996. Net cash provided by financing activities was $42.3 million
for the year ended December 31, 1997, primarily due to the Company's initial
public offering, compared to $2.5 million for the year ended December 31, 1996.
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 $4.0 million revolving credit facility, subject to a
borrowing base formula, to finance in part the SDS Acquisition. Although the
Company used a portion of the net proceeds of the Company's initial public
offering to repay these amounts, the Company intends to keep the revolving
credit facility in place for future borrowings. The Company must pay a
commitment fee of 0.25% per annum on the average daily unused portion of the
revolving credit facility. In addition, the NationsBank Facility contains
certain restrictive covenants that require the Company to meet certain
requirements, such as maintaining a minimum net worth, and that, without the
prior written consent of NationsBank, prohibit the Company from incurring
indebtedness other than pursuant to the NationsBank Facility or declaring or
paying dividends or other distributions. The revolving credit facility matures
on March 12, 1999. Borrowings under the NationsBank Facility are secured by all
accounts receivable, inventory, equipment, servicing contract rights, and other
personal property of the Company. As of the date of this Prospectus and at
December 31, 1997, there are no outstanding borrowings under the NationsBank
Facility, and the Company is in compliance with its covenants under the
NationsBank Facility.
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.
YEAR 2000 ISSUES
The Company believes that the computer equipment and software used and sold
by the Company will function properly with respect to dates in the Year 2000 and
thereafter. The Company is in the process of communicating with its significant
suppliers and customers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues and the extent to which any products
purchased by or from such entities are vulnerable to Year 2000 issues. The
Company presently believes that the Year 2000 issues will not require the
Company to incur any material costs or pose significant operational problems for
the Company directly or as a result of any Year 2000 issues of suppliers or
customers. The Company believes that Year 2000 issues of its customers or
potential customers provide opportunities to the Company to market its products
and services as a solution to such Year 2000 issues.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
Company believes the adoption of SOP 97-2 will not have a material effect on the
Company's financial position or results of operations.
25
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA OF SDS
(IN THOUSANDS)
The selected consolidated financial data of SDS presented below as of
December 31, 1995 and 1996, and March 11, 1997, and for the years ended December
31, 1994, 1995 and 1996 and 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 only 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 contribution
that the former operations of SDS will make to the Company's results of
operations 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
------- ------- ------- ------- ------- ----------- ----------
(UNAUDITED)
<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 tax...... 1,119 1,265 (3,163) 1,087 1,147 201 387
Income tax benefit (expense)......... (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>
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<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
THREE JANUARY 1,
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 tax............... (19.7) 5.1 4.9 4.0 7.1
Income tax benefit (expense).................. 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 6%. 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%. 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 12%. 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.
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<PAGE> 29
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%. 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.
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 33%. 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%. 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 119% for the year ended December 31,
1994 to 95% 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."
28
<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, policyholder mailings, customer service, billing and
collections, claims adjusting and processing, and IT services. 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, the Company
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 inhouse
information technology to variable costs and leverage the Company's investment
in software systems and productivity tools.
The Company's outsourcing revenues have continued to grow rapidly since
inception. These services typically generate recurring revenues due to the
ongoing nature of the services provided and the long-term nature of the service
contracts. Revenues from outsourcing services increased to $32.5 million in 1997
from $13.7 million in 1996. The Company recently formed a sales team, led by an
industry veteran, that is dedicated solely to outsourcing sales. The Company
believes the marketing efforts of this sales team will enhance the growth of its
outsourcing business.
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, 1996, there were
approximately 2,400 P&C insurance companies in the United States generating
approximately $260 billion in annual premium revenues, of which approximately
55% 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
29
<PAGE> 31
in areas prone to natural disasters. Much of the excess 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 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 compete more effectively by improving efficiency, managing
costs and increasing 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 and allow its customers
to focus on their core competencies, including (i) software and software
services, (ii) policy administration services, (iii) claims administration
services and (iv) IT services. The Company also provides both policy and claims
administration outsourcing services to enable customers to operate as "virtual
insurance companies" by allowing such customers to eliminate infrastructures
necessary for such purposes. The Company believes 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 Issue. The Year 2000 issue manifests itself in a number of ways
in the policy and claims administration area. The Year 2000 issue arose
because, until recently, most software systems were not programmed to
recognize correctly dates beyond December 31, 1999. The Company believes
that many insurance companies may resolve the Year 2000 issue 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
30
<PAGE> 32
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 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. Regulatory changes have 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.
31
<PAGE> 33
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.
- Focus Sales Efforts. The Company believes that specialized sales teams
dedicated to the Company's principal markets of outsourcing services and
software and systems sales can most effectively relate to each type of
customer. The Company's outsourcing marketing group concentrates on
marketing the Company's claims administration, policy administration and
IT services to established P&C insurance companies as well as new
entrants in the P&C industry, such as banks, credit unions and other
financial services companies. The Company's software and systems
marketing group uses dedicated sales teams to focus on larger accounts
(generally defined as insurance companies with annual premiums in excess
of $250 million) as well as certain of the Company's outsourcing
customers. The Company believes that this sales strategy allows the
Company to capitalize on its ability to offer a comprehensive choice of
solutions to a wide variety of customers.
- 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 and IT 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 both domestically and internationally. For example,
the Company recently executed an agreement with Sul America Cia Nacional
de Seguros ("Sul America"), the largest P&C insurance company in Brazil,
pursuant to which the Company will install and implement WPC (as
hereinafter defined) and certain software productivity tools and
customize WPC to Sul America's specifications.
- Enhance Product Capabilities. Maintaining technological 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, with the
capability to provide a complete turnkey solution to all of a customer's policy
and claims administration needs. The Company installs, enhances and maintains a
variety of policy and claims administration software systems and offers
outsourcing of policy and claims administration.
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<PAGE> 34
Outsourcing Services. The Company's outsourcing services include
application of underwriting and rating criteria defined by the insurer, policy
issuance, policyholder mailings, customer service, billing and collections,
claims adjusting and processing, and IT services. 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 describes the suite of
services the Company offers customers that are considering outsourcing
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
- Claims Administration. Claims administration 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. 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.
- IT Outsourcing. IT outsourcing describes the services offered by the
Company to assist customers in operating, maintaining and enhancing information
systems. The Company migrates the customer's current system platform to the
Company's processing platform, including the installation of all necessary
hardware components, depending on the customer's needs. After such migration,
the customer administers its policies and claims internally by utilizing the
Company's systems and other software productivity tools. The Company typically
is compensated on a percentage of premiums basis, subject to a minimum fee.
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, IBM 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.
- Information Processing 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 39 AS/400 installations and 8 RS/6000 installations of PCA.
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<PAGE> 35
- 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 23 WPC
systems.
- ValueRate Policy Administration System. In October 1997, the Company
entered into a perpetual agreement with Cover-All to license
Cover-All's commercial lines rating, policy issue and forms solutions
for use in the Company's products and services. This system, called
ValueRate, is a commercial lines policy administration system designed
to automate policy processing and improve customer service.
ValueRate's functionality includes rating new applications, policy
issuance, mid-term changes, cancellations, reinstatements and
renewals. ValueRate also prints multiple recipient copies of all
relevant documentation for each of these transactions, including quote
summaries, declarations pages and mandatory and optional manuscript
forms. ValueRate may be customized to interface with any policy
administration system, and the Company is currently working to
interface it with PCA and WPC.
- 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 in
a paperless environment, 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 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
34
<PAGE> 36
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.
PRODUCT 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 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 development emphasis are
(i) the expansion of EmPower to include claims administration and commercial
lines policy administration, (ii) integrating ValueRate into PCA and WPC, and
(iii) the expansion of software applications to address additional P&C insurance
markets.
Since inception, the Company has made substantial investments in the
enhancement and development of its services and products. Prior to being
acquired by the Company, SDS incurred costs of approximately $2.9 million, $2.8
million and $3.7 million in 1996, 1995 and 1994, respectively, for research and
development. The Company incurred costs of approximately $2.3 million in 1997
(which includes approximately $250,000 incurred by SDS from January 1, 1997
through March 11, 1997) for research and development, and the Company intends to
devote substantial resources to research and development in the future. As of
December 31, 1997, the Company had approximately 41 employees that performed
product development and quality assurance, as well as participated 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 and IT 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 86 people in the service center.
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 126 people in its
claims administration service centers.
The Company provides software development, installation, maintenance and
enhancement services at its facilities in Sheboygan, Wisconsin, and Columbia,
South Carolina. The Company employs approximately 277 people who provide
software support and maintains a customer help line five days a week.
SALES AND MARKETING
The Company recently formed a sales team, led by an industry veteran, that
is dedicated solely to outsourcing sales. This sales team is conducting
strategic marketing to a target base of customers identified on the basis of
detailed customer criteria developed by the Company's marketing personnel. The
Company believes that this targeted marketing approach should increase its
customer success rate and generate additional outsourcing services revenues.
The Company also 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 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.
35
<PAGE> 37
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 12 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 believes that specialized sales teams dedicated to either
outsourcing services or software and systems sales can most effectively relate
to each type of customer. The Company concentrates on marketing the Company's
claims administration, policy administration and IT services to established P&C
insurance companies as well as new entrants in the P&C industry, such as banks,
credit unions and other financial services companies. The Company's software and
systems sales teams focus on larger accounts (generally defined as insurance
companies with annual premiums in excess of $250 million) as well as certain of
the Company's outsourcing customers.
COMPETITION
The markets for policy and claims administration services and products are
highly competitive. The Company competes in the following markets serving the
P&C insurance industry: (i) outsourcing of policy administration, (ii)
outsourcing of claims administration, (iii) outsourcing of IT services and (iv)
software and software services.
The policy administration and IT services outsourcing markets are dominated
by a few large companies, including PMSC. The Company competes for these
outsourcing customers on the basis of customer service, performance, product
features 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 market is principally price driven. Two of the larger
competitors in this market are Lindsey Morden Claim Services Inc. and Crawford &
Company, Inc. 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.
Competitors include PMSC, Computer Sciences Corporation, The Freedom Group, Inc.
and The Wheatley Group, Ltd.
The Company believes, however, that its most significant competition for
outsourcing services and software sales comes from policy and claims
administration and information systems development performed in-house by
insurance companies. Insurers that fulfill some or all of their policy and
claims administration needs in-house typically have made a significant
investment in their information processing systems and may be less likely to
utilize the Company's services. In addition, insurance company personnel have a
vested interest in maintaining these responsibilities in-house.
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 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.
CUSTOMERS
The Company currently provides claims administration outsourcing services
to insurance companies, reinsurers and managing general agents. The Company has
three claims administration customers, the Millers Group, Clarendon and Interco.
The Company provides services to Clarendon through contracts with Blanch.
36
<PAGE> 38
Pursuant to a contract with the Virginia Commission, the Company provides
services to Interco, which administers such contract on behalf of the Virginia
Commission. The Company has two significant policy administration outsourcing
customers, Clarendon (through Blanch) and Millers Casualty. The Company has
entered into two new contracts to provide both policy administration services
and claims administration services to two new customers, and the Company
believes that it will begin performing such services in the second quarter of
1998. The Company currently provides IT services to two customers, including the
Millers Group.
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
approximately 100 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, Nationwide Mutual Insurance Co. -- Western Direct
Operations, Country Companies, Atlantic Mutual Insurance Co. and Arbella Mutual
Insurance Co.
The Millers Group, Clarendon and Interco accounted for approximately 68%,
8% and 21%, respectively, of the Company's historical revenues in 1996. The
Millers Group, Clarendon and Interco accounted for approximately 32%, 16% and
7%, respectively, of the Company's historical revenues in 1997 and 29%, 14% and
6%, respectively, of the Company's pro forma revenues in 1997. 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 March 1, 1998, the Company had 603 full-time employees, of whom 20
were employed in sales and marketing functions, 50 in finance and
administration, 41 in research and development, 215 in outsourcing operations
and 277 in software and software services functions. 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 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.
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 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.
37
<PAGE> 39
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 SDS 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 results of operations.
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(1)................. Headquarters and policy $25,400 57,000 Monthly
and claims administration
Sheboygan, Wisconsin................. Software and software 20,700 28,100 February 2007
services
Columbia, South Carolina............. Software and software 25,600 29,400 August 2002
services
Sheboygan, Wisconsin................. Software and software 5,400 6,500 February 2002
services
Laguna Hills, California............. Claims administration 4,600 3,200 October 1998
St. Petersburg, Florida(2)........... Claims administration 3,200 2,500 December 1999
Troy, Michigan....................... Claims administration 1,900 1,600 May 2000
</TABLE>
- ---------------
(1) The Company anticipates entering into a new ten-year lease for
approximately 96,000 square feet at this location effective on or about May
1, 1998. See "Certain Transactions -- Miscellaneous."
(2) The Company anticipates subletting this location and relocating to an 8,000
square foot facility on or about May 1, 1998.
The aggregate monthly lease rate for the properties listed above is
$86,800. The Company also leases approximately 5,600 square feet in Westborough,
Massachusetts at $6,000 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.
The Company believes that, subject to the contemplated expansions of
facilities noted above, its existing facilities are adequate to meet the
Company's requirements for the foreseeable future.
38
<PAGE> 40
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....................... 60 Executive Vice President and Chief Information
Officer
Terry G. Gaines...................... 38 Executive Vice President, Chief Financial
Officer and Treasurer
Robert K. Agazzi..................... 54 Executive Vice President -- Software and Systems
Jeffrey W. Robinson.................. 40 Executive Vice President -- Outsourcing
W. Scott Lewis....................... 42 Senior Vice President -- Software and Systems
Sales and Marketing
James P. Strickland.................. 31 Senior Vice President -- Outsourcing Sales and
Marketing
Harry E. Bartel...................... 55 Director
R. Earl Cox, III..................... 64 Director
Mitch S. Wynne....................... 39 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.
Robert K. Agazzi has served as Executive Vice President -- 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 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.
39
<PAGE> 41
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 has served as Senior Vice President -- Software and Systems
Sales and Marketing since January 1998, and from May 1997 to January 1998, 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.
James P. Strickland joined the Company in January 1998 as Senior Vice
President -- Outsourcing Sales and Marketing. From 1996 to January 1998, Mr.
Strickland served as Vice President Integrated Business Services of Computer
Sciences Corporation (formerly The Continuum Company, Inc.), a software
development and policy and claims administration company for P&C and life
insurance companies. From 1992 to 1996, Mr. Strickland served as Vice President
Outsourcing Services for The Continuum Company, Inc. From 1988 to 1992, Mr.
Strickland served as Director of Outsourcing Sales Support for Electronic Data
Systems.
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.
Directors who are executive officers or employees of the Company receive no
compensation as such for service as members of either the Board of Directors or
committees thereof. Directors who are not executive officers or employees of the
Company receive an annual fee of $15,000, plus $1,000 per Board meeting
attended, $300 per committee meeting attended and reimbursement for travel
expenses to attend such meetings. Directors who serve as chairman of a committee
receive an additional annual fee of $3,000. The nonemployee directors are also
eligible to receive options to purchase Common Stock under the Director Plan.
See "Management -- Director Stock Option Plan."
The Company has an Audit Committee and a Compensation Committee. The Audit
Committee is comprised of Messrs. Bartel, Cox and Wynne and is responsible for
reviewing the independence, qualifications and activities of the Company's
independent certified accountants and the Company's financial policies, control
procedures and accounting staff. The Audit Committee recommends to the Board the
appointment of the independent certified public accountants and reviews and
approves the Company's financial statements. The Compensation Committee is
comprised of Messrs. Bartel, Cox and Wynne and is responsible for establishing
the compensation of the Company's directors, officers and other managerial
personnel, including salaries, bonuses, termination agreements and other
executive officer benefits as well as grants of stock options.
40
<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation with
respect to the Chief Executive Officer of the Company and the Company's four
most highly compensated executive officers other than the Chief Executive
Officer (the "named executive officers") for services rendered during 1997.
During 1995, 1996 and the six months ended June 30, 1997, 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 any named executive officer. See
"Certain Transactions."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS($)(2) OPTIONS(#) COMPENSATION($)
----------------- ---- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. George Dunham, III................. 1997 175,000(3) 175,000 931,539 --
President, Chief Executive Officer
and Chairman of the Board
Stuart H. Warrington.................. 1997 153,444(4) 37,718 158,362 75,413(5)
Executive Vice President -- Customer
Relations
Robert K. Agazzi...................... 1997 136,126(6) 33,448 158,362 --
Executive Vice President -- Software
and Systems
Ronald O. Lynn........................ 1997 115,000 57,500 158,362 --
Executive Vice President and Chief
Information Officer
Jeffrey W. Robinson................... 1997 115,000 57,500 158,362 --
Executive Vice
President -- Outsourcing
</TABLE>
- ---------------
(1) Does not include "Other Annual Compensation" because amounts of certain
perquisites and other noncash benefits provided by the Company did not
exceed the lesser of $50,000 or 10% of the total annual base salary and
bonus disclosed in this table for the respective officer.
(2) Represents for the named executive officers incentive compensation under
employment agreements. Amounts were paid in 1998 but are attributable to and
were earned in 1997. See "Management -- Employment and Indemnification
Agreements."
(3) Represents salary paid to Mr. Dunham since July 1, 1997. Mr. Dunham was
compensated by Millers Mutual for the six months ended June 30, 1997.
(4) Represents salary paid to Mr. Warrington since his employment with the
Company began on March 12, 1997. Effective March 15, 1998, Mr. Warrington
will resign as Executive Vice President -- Customer Relations of the Company
but will continue to provide consulting services to the Company. See
"-- Consulting Agreement."
(5) Represents the amount of deferred compensation accrued in 1997 under Mr.
Warrington's employment agreement. Such deferred compensation is payable to
Mr. Warrington in the amount of $40,000 per year during the 20-year period
commencing on January 1, 1999 and ending on December 31, 2018.
(6) Represents salary paid to Mr. Agazzi since his employment with the Company
began on March 12, 1997.
41
<PAGE> 43
The following table sets forth certain information concerning options
granted to the named executive officers during 1997. Since December 31, 1997,
the Company has not granted any options to any of the named executive officers.
For additional information on and certain terms of options, see
"Management -- Stock Option Plan."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR OPTION
SECURITIES GRANTED TO MARKET PRICE TERM($)(2)
UNDERLYING EMPLOYEES EXERCISE ON DATE ----------------------------------
OPTIONS IN FISCAL PRICE OF GRANT EXPIRATION
NAME GRANTED(#) YEAR(1) ($/SH) ($/SH) DATE 0% 5% 10%
---- ---------- ---------- -------- ------------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F. George Dunham, III....... 279,462(3) 14 1.30 6.00 3/12/03 1,313,471 1,883,734 2,607,203
652,077(3) 33 12.00 12.00 8/22/03 -- 2,661,223 6,037,406
Stuart H. Warrington........ 93,154(3) 5 1.30 6.00 3/12/03 437,824 627,911 869,068
65,208(4) 3 12.00 12.00 8/22/03 -- 266,123 603,743
Robert K. Agazzi............ 93,154(3) 5 1.30 6.00 3/12/03 437,824 627,911 869,068
65,208(4) 3 12.00 12.00 8/22/03 -- 266,123 603,743
Ronald O. Lynn.............. 93,154(3) 5 1.30 6.00 3/12/03 437,824 627,911 869,068
65,208(4) 3 12.00 12.00 8/22/03 -- 266,123 603,743
Jeffrey W. Robinson......... 93,154(3) 5 1.30 6.00 3/12/03 437,824 627,911 869,068
65,208(4) 3 12.00 12.00 8/22/03 -- 266,123 603,743
</TABLE>
- ---------------
(1) Options to purchase a total of 1,991,479 shares of Common Stock were granted
to employees in 1997.
(2) The amounts under the columns labeled "0%," "5%" and "10%" are included by
the Company pursuant to certain rules promulgated by the Commission and are
not intended to forecast future appreciation, if any, in the price of the
Common Stock. Such amounts are based on the assumption that the named
persons hold the options for the full term of the options. The actual value
of the options will vary in accordance with the market price of the Common
Stock. With respect to the options with an exercise price per share of
$1.30, the market price per share of Common Stock on the date of grant was
determined on the basis of a valuation report prepared by the Company. The
options with an exercise price per share of $12.00 were granted on the
effective date of the Company's initial public offering at the initial
public offering price.
(3) 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.
(4) Options are subject to a four-year vesting schedule, with one-fifth becoming
exercisable on the date of grant and an additional one-fifth becoming
exercisable on each of the first four anniversaries of the date of grant.
42
<PAGE> 44
The following table sets forth certain information concerning all
unexercised options held by the named executive officers as of December 31,
1997. For additional information on and certain terms of options, see
"Management -- Stock Option Plan." No options were exercised during 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
F. George Dunham, III........................... 310,513 621,026 $3,752,551 $7,505,101
Stuart H. Warrington............................ 44,092 114,270 723,562 1,678,648
Robert K. Agazzi................................ 44,092 114,270 723,562 1,678,648
Ronald O. Lynn.................................. 44,092 114,270 723,562 1,678,648
Jeffrey W. Robinson............................. 44,092 114,270 723,562 1,678,648
</TABLE>
- ---------------
(1) Based upon the closing price of the Common Stock of $20.875 on December 31,
1997.
EMPLOYMENT AND INDEMNIFICATION AGREEMENTS
In July 1997, the Company 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 was paid an
annual bonus for 1997 equal 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.
Each employment agreement with Messrs. Dunham, Lynn, Robinson and Gaines
was amended by a first amendment to employment agreement, dated and effective as
of January 1, 1998. Such amendments revised the bonus provisions to specify that
each of Messrs. Dunham, Lynn, Robinson and Gaines shall be entitled to
participate in the Company's 1998 Annual Bonus Plan during the remainder of the
terms of their employment agreements. See "-- 1998 Annual Bonus Plan."
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. Warrington will retire as an executive officer effective March 15, 1998. 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. See "-- Consulting
Agreement."
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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.
CONSULTING AGREEMENT
Effective March 15, 1998, the Company entered into a consulting agreement
with Stuart H. Warrington pursuant to which Mr. Warrington, age 63, retired as
an executive officer of the Company. The consulting agreement provides that Mr.
Warrington will serve as a consultant to the Company until May 30, 1999 for a
consulting fee of $2,000 per month and will be fully vested with respect to
options to purchase 93,154 shares of Common Stock granted to Mr. Warrington on
March 12, 1997, which were scheduled to vest in three equal annual installments
commencing on the date of grant. Mr. Warrington will also retain the vested
portion of options granted effective August 22, 1997, covering 13,042 shares of
Common Stock. The consulting agreement contains noncompetition and
confidentiality provisions. Mr. Warrington founded SDS and served in one or more
capacities as its President, Chief Executive Officer and Chairman of the Board
from inception in 1981 until July 1997 and served from July 1997 until March 15,
1998 as an executive officer of the Company.
EMPLOYEE BENEFIT PLANS
Millers Mutual has a defined benefit pension plan that covered 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 until June 18, 1997. Each such member of the Compensation
Committee also served as a member of the compensation committees for Millers
Mutual and Millers Casualty during such period. 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 during such period. The Company has
entered into certain transactions with Millers Mutual and Millers Casualty. See
"Certain Transactions."
Since June 18, 1997, R. Earl Cox, III, Harry E. Bartel and Mitch Wynne have
served as members of the Compensation Committee of the Company.
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, amended and restated by the Board of
Directors in July 1997 and amended by the Board of Directors effective as of
July 30, 1997. An additional amendment to the Stock Option Plan that would
increase the maximum number of shares of Common Stock issuable upon exercise of
options granted under the Stock Option Plan from 2,250,000 to 3,000,000 shares
has been approved by the Board of Directors of the Company and recommended to
the shareholders of the Company for approval at the annual meeting of
shareholders to be held on April 21, 1998. The Stock Option Plan was
administered by the Board of Directors through January 27, 1998 and
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<PAGE> 46
thereafter is administered by the Compensation Committee. Both nonqualified
stock options and incentive stock options (as defined in the Internal Revenue
Code) may be granted under the Stock Option Plan. 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 may be transferred
to certain permitted transferees under the Stock Option Plan.
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 August 22, 1997.
Each new nonemployee director who is elected (or appointed to fill any
vacancy) as a director of the Company 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 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.
An amendment to the Director Plan that would increase from 250 to 2,500 the
number of shares of Common Stock covered by the annual option grants described
in the preceding paragraph has been approved by the Board of Directors and
recommended to the shareholders of the Company for approval at the annual
meeting of shareholders to be held on April 21, 1998.
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 was initially implemented by an offering of 25,000
shares of Common Stock from October 1, 1997 to December 31, 1997. Pursuant to
such offering, 6,240 shares of Common Stock were purchased by participants under
the Stock Purchase Plan. The Company anticipates that the Stock Purchase Plan
will be further implemented by eight additional semiannual offerings of Common
Stock beginning on January 1 and July 1 for each of the years 1998, 1999, 2000
and 2001. The maximum number of shares issued in each semi-annual offering will
be 50,000 shares plus the number of unissued shares from prior offerings under
the Stock Purchase Plan.
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.
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<PAGE> 47
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.
1998 ANNUAL BONUS PLAN
In January 1998, the Board of Directors adopted the 1998 Annual Bonus Plan,
which is administered by the Compensation Committee of the Board of Directors.
The Compensation Committee may designate earnout periods and, for each such
earnout period, the performance goal, participants, performance award for each
such participant and the award percentage of the performance award for each such
participant for various degrees of achievement of such performance goal. At the
end of each earnout period, based on a comparison of the actual performance of
the Company over such earnout period to the applicable performance goal, each
participant shall receive a lump-sum cash award within 75 days after the
issuance of the Company's audited financial statements corresponding to such
earnout period in an amount equal to the performance award designated for such
participant for such earnout period multiplied by the award percentage
corresponding to the extent to which such performance goal was achieved.
The Compensation Committee has established (i) the year ended December 31,
1998 as the initial earnout period, (ii) performance goals for such earnout
period based on earnings per share, (iii) a performance award for each
participant of 100% of the base salary of such participant if the performance
goal is fully met, and (iv) award percentages for a portion of the full
performance award if certain percentages of the full performance goal are met.
Pursuant to their employment agreements (as amended), Messrs. Dunham, Lynn,
Robinson and Gaines participate in the 1998 Annual Bonus Plan.
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<PAGE> 48
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 named executive officer of the
Company, (iii) all directors and executive officers as a group and (iv) the
Selling Shareholder, which is 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......................... 3,866,250 37.8% 500,000 3,366,250 28.7%(1)
300 Burnett Street
Fort Worth, Texas 76102-2799
F. George Dunham, III.................. 397,667(2) 3.8 -- 397,667(2) 3.3
Ronald O. Lynn......................... 75,144(3) * -- 75,144(3) *
Stuart H. Warrington................... 111,498(4) 1.1 -- 111,498(4) *
Robert K. Agazzi....................... 80,405(3) * -- 80,405(5) *
Jeffrey W. Robinson.................... 75,144(3) * -- 75,144(3) *
Harry E. Bartel........................ 5,500(5) * -- 5,500(6) *
R. Earl Cox, III....................... 5,500(5) * -- 5,500(6) *
Mitch S. Wynne......................... 24,500(6) * -- 24,500(6) *
All directors and executive officers as
a group (11 individuals)............. 811,069(7) 7.4% 811,069(7) 6.5%
</TABLE>
- ---------------
* Less than 1%
(1) Assuming exercise in full of the Underwriters' over-allotment option,
Millers Mutual will own 3,366,250 shares of Common Stock, constituting
28.0% of the outstanding shares of Common Stock.
(2) Includes 378,667 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
(3) Includes 75,144 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
(4) Includes 106,196 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
(5) Includes 2,500 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus. Does not include
options covering additional shares expected to be granted following the
annual meeting of shareholders pursuant to the Director Plan. See
"Management -- Director Stock Option Plan."
(6) Includes 10,000 shares of Common Stock held in trust, of which Mr. Wynne is
trustee for the benefit of certain family members of Mr. Wynne, and 2,500
shares of Common Stock issuable upon exercise of options exercisable within
60 days of the date of this Prospectus. Does not include options covering
additional shares expected to be granted following the annual meeting of
shareholders pursuant to the Director Plan. See "Management -- Director
Stock Option Plan."
(7) Includes 745,741 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
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<PAGE> 49
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. Effective January 1, 1998, the Company and Millers
Mutual have agreed, subject to approval by the Texas Department of Insurance, to
amend the Benefits Administration Contract to provide that the Company shall
provide Millers Mutual, rather than Millers Mutual providing to the Company, the
benefits administration services specified in the Benefits Administration
Contract, and Millers Mutual shall pay the Company a service fee of $15,000 per
month.
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.
The Management Agreement has been replaced by the Benefits Administration
Contract.
For 1995 and 1996, the Company paid Millers Mutual management fees of
$600,000 and $3.1 million, respectively, under the Management Agreement. For
1997, the Company paid Millers Mutual aggregate service fees of $1.3 million
under the Benefits Administration Contract and the Management Agreement.
CLAIMS SERVICE CONTRACTS
Effective October 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into a claims administration services agreement (the "Claims Services
Agreement"), which amends and restates the Service Contract (as defined below)
in its entirety and provides for the Company to perform claims administration
services for and on behalf of Millers Mutual and Millers Casualty. Under the
Claims Services Agreement, each of Millers Mutual and Millers Casualty pays a
fee per claim administered and a monthly fee for claims open greater than 31
days, both of which are in an amount that depends on the insurance policy line
under which a claim is administered, and a fee per hour for the services of
consultants and programmers. The term of the Claims Service Agreement is five
years, which automatically shall be renewed and extended for successive terms of
three years, unless earlier terminated.
Effective July 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into an amended and restated service contract (the "Service Contract"),
which provided 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 paid a monthly service fee to the
Company. The Service Contract has been replaced by the Claims Services
Agreement.
The Company, Millers Mutual and Millers Casualty were parties to a service
contract, as amended (the "Prior 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. Effective December 1, 1996, the Prior Service
Contract was amended to modify the service fees paid to the Company by each of
Millers Mutual and Millers Casualty. The Prior Service Contract was replaced by
the Service Contract.
Millers Mutual and Millers Casualty paid the Company aggregate service fees
under the Prior Service Contract of $3.4 million in 1995 and $7.6 million in
1996. In 1997, Millers Mutual and Millers Casualty paid the Company aggregate
service fees of $7.2 million under the Claims Service Agreement, the Service
Contract and the Prior Service Contract.
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<PAGE> 50
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 General Insurance Agency ("Sun
Coast"). 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 $3.7 million
in 1997.
POLICY SERVICES CONTRACT
Effective October 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into a policy administration services agreement (the "Policy Services
Agreement"), which provides for the Company to perform policy administration
services for and on behalf of Millers Mutual and Millers Casualty. The term of
the Policy Services Agreement is two years, which automatically shall be renewed
and extended for successive terms of one year unless earlier terminated. In
1997, Millers Mutual and Millers Casualty paid the Company aggregate service
fees of approximately $714,000 under the Policy Services Agreement.
INFORMATION SERVICES CONTRACTS
Effective October 1, 1997, the Company, Millers Mutual and Millers Casualty
entered into a second amended information services contract (the "Second Amended
Information Services Contract"), which amends and restates the Information
Services Contract (as defined below) in its entirety and provides for the
Company to provide certain IT 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 Second Amended Information Services Contract, each of
Millers Mutual and Millers Casualty pays monthly service fees based on the
amount and type of services provided. This monthly service fee is subject to a
minimum of $375,000 per month in 1997, $300,000 per month in 1998, and $275,000
per month in 1999 to 2001. In addition, each of Millers Mutual and Millers
Casualty pays a fee per hour for modifications by the Company to
Company-supplied application software. The term of the Second Amended
Information Services Contract is five years, which automatically shall be
renewed and extended for successive terms of three years unless earlier
terminated. Effective January 1, 1998, the Company, Millers Mutual and Millers
Casualty agreed to amend the Second Amended Information Services Contract to
provide that the Company shall not charge Millers Mutual or Millers Casualty
service fees with respect to policies issued by Millers General Agency, Inc., a
third-party managing general agent that is owned and managed by a former officer
of Millers Mutual and Millers Casualty.
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 required the Company to provide certain
IT services to Millers Mutual and Millers Casualty, including telecommunications
services, hardware services, application software services, system software
services, network services and system integration services. The Information
Services Contract has been replaced by the Second Amended Information Services
Contract.
The Company, Millers Mutual and Millers Casualty were parties to an
information services contract, effective as of October 1, 1996 (the "Services
Contract"), under which the Company provided certain IT services. This contract
was replaced by the Information Services Contract.
No fees were paid in 1996. In 1997, Millers Mutual and Millers Casualty
paid the Company aggregate service fees of $5.5 million under the Second Amended
Information Services Contract, the Information Services Contract and the
Services Contract.
OUTSOURCING SERVICES CONTRACTS WITH MILLERS CASUALTY
Effective May 1, 1997, the Company and Millers Casualty entered into a
policy administration services agreement, which was amended by Amendment No. 1,
effective October 1, 1997 (the "Policy Administration Services Agreement"),
pursuant to which the Company provides policy administration services for
Millers Casualty's homeowners line of business in Florida. The term of the
Policy Administration Services Agreement is three years, which will
automatically renew for successive three-year terms unless terminated by either
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<PAGE> 51
party. In 1997, Millers Casualty paid the Company aggregate fees of
approximately $924,000 under the Policy Administration Services Agreement.
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. The term
of the Claims Administration Services Agreement is three years, which will
automatically renew for successive three-year terms unless terminated by either
party. In 1997, Millers Casualty paid the Company aggregate fees of
approximately $252,000 under the Claims Administration Services Agreement.
MISCELLANEOUS
As of December 31, 1997, the Company had no outstanding borrowings from
Millers Mutual. The largest amount of borrowings from Millers Mutual outstanding
since the inception of the Company was $4.3 million.
In 1993, Millers Mutual licensed SDS software pursuant to a license
agreement with SDS. For 1997, 1996 and 1995, Millers Mutual paid SDS (or the
Company after the SDS Acquisition) $733,000, $32,000, and $31,000, respectively,
for software and software services.
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, a former executive
officer of the Company and, effective March 15, 1998, a consultant to 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
year ended December 31, 1997, the Company paid Riverview approximately $198,000
under the Building Lease.
The Company leases its approximately 57,000 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 $25,400. For 1997 and 1996, the Company
incurred rental expense of $317,000 and $297,000, respectively, under the Lease.
Prior to May 1, 1996, the Company incurred no rental expense for office space
provided by Millers Mutual.
The board of directors of Millers Mutual has approved the sale of the
building in which the Company headquarters are located to a limited partnership
to be formed (the "Partnership"). A 50% interest in the Partnership will be
owned by F. George Dunham, III and the remaining 50% interest in the Partnership
will be owned in equal parts by Messrs. Bartel, Cox and Wynne. The Company
proposes to lease approximately 96,000 square feet of the building from the
Partnership for a term of ten years, with one renewal option of five years, at a
monthly rental rate of approximately $64,000 for the first five years, $72,000
for the next five years and $81,000 for the five-year renewal period, plus
taxes, insurance and maintenance costs. The sale of the building to the
Partnership and lease back of a portion of the building by Millers Mutual is
subject to the approval of the Texas Department of Insurance. The lease of space
by the Company has been approved by the Board of Directors and recommended to
the shareholders of the Company for approval at the annual meeting of
shareholders to be held April 21, 1998. The Company contemplates that, subject
to obtaining requisite approvals, the sale of the building to the Partnership
and lease of space by the Company from the Partnership will occur on or about
May 1, 1998.
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.
Prior to the Company's initial public offering, Millers Mutual, the Company
and the other subsidiaries of Millers Mutual were parties to the Tax Allocation
Agreement. Under the Tax Allocation Agreement, Millers Mutual was required to
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.
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<PAGE> 52
Conversely, the Tax Allocation Agreement required 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, 1996, the Company received from Millers
Mutual approximately $190,000 under the Tax Allocation Agreement. Effective
August 23, 1997, the Tax Allocation Agreement was terminated as it related to
the Company due to the Company leaving the Millers Mutual consolidated tax group
at the time of the Company's initial public 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 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 11,724,323 shares will be outstanding immediately following this
offering (12,024,323 shares if the Underwriters' over-allotment option is
exercised in full), 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.
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
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<PAGE> 53
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 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
35,589,990 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised and excluding an aggregate of 2,685,687 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 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
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<PAGE> 54
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.
ANTI-TAKEOVER CONSIDERATIONS
Anti-Takeover Statute. On September 1, 1997, the Company became subject to
newly-enacted Part 13 of the TBCA ("Part 13"), which subject to certain
exceptions, prohibits a Texas public corporation (as defined) 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. Because Millers Mutual has continuously
owned since prior to December 31, 1996 more than 20% of the outstanding Common
Stock, business combination transactions between Millers Mutual and the Company
would 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 controlling shareholder of
the Company, will likely be able to elect a majority 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.
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<PAGE> 55
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 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
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<PAGE> 56
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, 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.
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<PAGE> 57
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.
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below, through their representatives, Raymond James &
Associates, Inc., NationsBanc Montgomery Securities LLC, 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 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. ...........................
NationsBanc Montgomery Securities LLC.......................
Southwest Securities, Inc. .................................
---------
Total............................................. 2,000,000
=========
</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 $ per share under
the price to public. The Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to certain other dealers.
After the offering of the shares to the public, the offering price and other
selling terms may be changed by the Representatives. The Representatives have
advised the Company that the Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 300,000 additional shares of Common Stock, at the 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 will be
obligated,
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<PAGE> 58
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 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.
Raymond James & Associates, Inc. and Southwest Securities, Inc. currently
make a market in the Common Stock. Although it has no obligation to do so,
NationsBanc Montgomery Securities LLC currently intends to make a market in the
Common Stock and may otherwise effect transactions in the Common Stock. Such
market-making activity may be discontinued at any time. During the period
beginning at the close of the market on , 1998 and ending upon the
completion of each Underwriter's distribution of the shares of Common Stock in
this offering (including the distribution of any shares of Common Stock received
upon the exercise of the Underwriters' over-allotment option), rules of the
Commission will limit the ability of each such Underwriter to bid for and
purchase shares of Common Stock. During this period, any market making by any
such Underwriter will be limited to passive market making on the Nasdaq National
Market. Passive market making consists of displaying bids and effecting
transactions in a security at a price that is not in excess of the highest bid
price for the security that is displayed by a market maker who is not an
Underwriter or affiliated purchaser. New purchases on each day by a passive
market maker are limited to 30% of the average daily trading volume in the
security during a certain period.
Until the distribution of Common Stock in this offering is completed, rules
of the 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, it 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 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 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 90-day period commencing on the date of this Prospectus, except that (i)
officers and directors of the Company may sell up to an aggregate of 100,000
shares of Common Stock after 30 days from the date of this Prospectus and (ii)
the Company may issue shares of Common Stock under the Stock Purchase Plan and
upon exercise of options
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<PAGE> 59
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.
The price to public of the Common Stock will be determined by negotiations
among the Underwriters, the Company and the Selling Shareholder and will be
based largely upon the market price for the Common Stock as reported on the
Nasdaq National Market.
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.
In the ordinary course of their respective businesses, Raymond James &
Associates, Inc., NationsBanc Montgomery Securities LLC and Southwest
Securities, Inc. have provided, and in the future may provide, investment
banking services for the Company. NationsBanc Montgomery Securities LLC is an
affiliate of NationsBank. The Company and NationsBank are parties to the
NationsBank Facility. See "SDS Acquisition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
INSpire -- Liquidity and Capital Resources." In the ordinary course of business,
NationsBank or its affiliates have provided, and in the future may provide,
securities brokerage and commercial banking services to the Company from time to
time.
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
years ended December 31, 1997, and 1996 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 for 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.
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<PAGE> 60
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
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. The Company is also subject to the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy and information
statements, and other information with the Commission. The Company has been
subject to such requirements of the Exchange Act for less than 12 months. A copy
of the Registration Statement and such reports, proxy and information
statements, and other information, to the extent the Company has filed such
reports, proxy and information statements, and other information under the
Exchange Act, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its following regional offices: Suite 788, 1375
Peachtree St. N.E., Atlanta, Georgia 30367; Northwestern Atrium Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60621-2511; and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Commission's Internet world wide web site at http://www.sec.gov.
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<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Pro Forma Condensed Financial Information................... F-2
Pro Forma Condensed Statement of Operations................. F-3
Notes to Pro Forma Condensed Statement of Operations........ F-4
INSPIRE INSURANCE SOLUTIONS, INC. FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-5
Financial Statements:
Balance Sheets............................................ F-6
Statements of Operations.................................. F-7
Statements of Shareholders' Equity........................ F-8
Statements of Cash Flows.................................. F-9
Notes to Financial Statements............................. F-10
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> 62
PRO FORMA CONDENSED FINANCIAL INFORMATION
INTRODUCTION
The accompanying unaudited pro forma condensed statement of operations for
the year ended December 31, 1997 reflects: (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,
1997 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, 1997.
The unaudited pro forma condensed statement of operations is based on
currently available information and does 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, 1997, or to project the Company's results of
operations for any future periods.
The unaudited pro forma condensed statement 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> 63
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSPIRE STRATEGIC
INSURANCE DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
--------------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services.................... $ 32,458 $ -- $ 32,458 $ -- $ 32,458
Software and software services.......... 21,101 4,840 25,941 -- 25,941
Other................................... 3,010 572 3,582 -- 3,582
--------- ------ --------- ------- ---------
Total revenues.................. 56,569 5,412 61,981 61,981
Operating expenses........................ 56,036 5,049 61,085 700(b) 60,868
(1,110)(c)
233(d)
184(e)
(20)(f)
(204)(g)
Operating income.......................... 533 363 896 1,113
Interest income........................... 332 24 356 (84)(h) 272
Other income.............................. 1,652 1,652 1,652
--------- ------ --------- ---------
Income from operations before income
taxes................................... 2,517 387 2,904 3,037
Income tax benefit (expense).............. (801) (156) (957) (48)(i) (1,005)
--------- ------ --------- ---------
Net income................................ $ 1,716 $ 231 $ 1,947 $ 2,032
========= ====== ========= =========
Net income per share (basic).............. $ 0.21 $ 0.25
========= =========
Net income per share (diluted)............ $ 0.20 $ 0.23
========= =========
Weighted average shares (basic)........... 8,137,370 8,137,370
Weighted average shares (diluted)......... 8,782,497 8,782,497
</TABLE>
See accompanying notes.
F-3
<PAGE> 64
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(a) See the Introduction to Pro Forma Condensed 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) Reflects the amortization of $6,000,000 of purchased software associated
with the acquisition of SDS.
(e) Represents the amortization of goodwill associated with the acquisition of
SDS.
(f) Represents previously recorded amortization of goodwill by SDS resulting
from the acquisition of Applied Quoting Systems, Inc.
(g) 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.
(h) 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.
(i) Income tax is calculated at an incremental tax rate of 36%
F-4
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
INSpire Insurance Solutions, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheets of INSpire Insurance
Solutions, Inc. (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity, and cash flows for the period April 28, 1995
(date of inception) through December 31, 1995, and the years ended December 31,
1996 and 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 financial statements present fairly, in all material
respects, the financial position of INSpire Insurance Solutions, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period April 28, 1995 (date of inception) through December 31, 1995, and
the years ended December 31, 1996 and 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
January 19, 1998
F-5
<PAGE> 66
INSPIRE INSURANCE SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 363,398 $28,039,323
Accounts receivable, net.................................. 1,168,148 10,976,672
Income taxes receivable................................... 339,571 149,041
Deferred income taxes..................................... -- 1,434,000
Prepaid expenses and other current assets................. 140,950 1,727,876
----------- -----------
Total current assets.............................. 2,012,067 42,326,912
Accounts receivable, excluding current portion.............. -- 74,258
Property and equipment, net................................. 3,219,892 6,029,973
Intangibles and other assets................................ -- 17,039,634
----------- -----------
TOTAL....................................................... $ 5,231,959 $65,470,777
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable.............................................. $ 2,500,000 $ --
Accounts payable.......................................... 1,066,013 834,418
Accrued payroll and compensation.......................... -- 633,252
Other accrued expenses.................................... -- 1,485,543
Unearned revenue.......................................... -- 2,626,624
Deferred compensation..................................... -- 2,699,000
Income taxes payable...................................... -- 3,063,000
Current portion of long-term debt......................... -- 609,658
Due to shareholder........................................ 995,706 --
----------- -----------
Total current liabilities......................... 4,561,719 11,951,495
----------- -----------
Deferred compensation....................................... -- 1,657,017
Long-term debt.............................................. -- 373,151
Deferred income taxes....................................... 64,000 2,723,000
Commitments and contingencies (Note 15)..................... -- --
SHAREHOLDERS' 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 1996; 50,000,000
shares authorized and 10,191,250 shares issued and
outstanding in 1997.................................... 1 101,913
Additional paid-in capital................................ 2,383,417 48,725,299
Accumulated deficit....................................... (1,777,178) (61,098)
----------- -----------
Total shareholders' equity.................................. 606,240 48,766,114
----------- -----------
TOTAL....................................................... $ 5,231,959 $65,470,777
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 67
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD APRIL 28,
1995 THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997
---------------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Outsourcing services............................. $ 3,907,108 $13,653,003 $32,458,600
Software and software services................... -- -- 21,100,899
Other............................................ -- -- 3,009,960
----------- ----------- -----------
Total revenues........................... 3,907,108 13,653,003 56,569,459
----------- ----------- -----------
EXPENSES:
Cost of outsourcing services..................... 4,884,641 10,543,077 20,797,969
Cost of software and software services........... -- -- 10,680,787
Cost of other revenues........................... -- -- 2,413,170
Selling, general and administrative.............. -- -- 8,714,192
Research and development......................... -- -- 1,190,114
Depreciation and amortization.................... 33,070 786,768 4,001,260
Purchased research and development............... -- -- 3,000,000
Deferred compensation............................ -- -- 3,949,000
Management fees to shareholder................... 600,000 3,100,000 1,290,000
----------- ----------- -----------
Total expenses........................... 5,517,711 14,429,845 56,036,492
----------- ----------- -----------
OPERATING INCOME (LOSS)............................ (1,610,603) (776,842) 532,967
OTHER INCOME (EXPENSE):
Interest income.................................. -- -- 680,508
Interest expense................................. -- (2,245) (348,007)
Other............................................ -- -- 1,651,830
----------- ----------- -----------
Total other income (expense)............. -- (2,245) 1,984,331
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX.................... (1,610,603) (779,087) 2,517,298
INCOME TAX BENEFIT (EXPENSE)....................... 348,624 263,888 (801,218)
----------- ----------- -----------
NET INCOME (LOSS).................................. $(1,261,979) $ (515,199) $ 1,716,080
=========== =========== ===========
NET INCOME (LOSS) PER SHARE (BASIC)................ $ (0.18) $ (0.07) $ 0.21
=========== =========== ===========
NET INCOME (LOSS) PER SHARE (DILUTED).............. $ (0.16) $ (0.07) $ 0.20
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 68
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD APRIL 28, 1995 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1995
AND THE YEARS ENDED DECEMBER 31, 1996 AND 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
Shareholder'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
Shareholder's contribution of fixed
assets................................ -- 1,308,191 -- 1,308,191
Shareholder's contribution of additional
paid-in capital....................... -- 10,500,000 -- 10,500,000
Stock dividends to shareholder of
6,999,900 shares...................... 69,999 (69,999) -- --
Initial public offering of 3,191,250
shares................................ 31,913 34,603,690 -- 34,635,603
Net income.............................. -- -- 1,716,080 1,716,080
-------- ----------- ----------- -----------
Balance, December 31, 1997.............. $101,913 $48,725,299 $ (61,098) $48,766,114
======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 69
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD APRIL 28,
1995 THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1995 1996 1997
---------------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $(1,261,979) $ (515,199) $ 1,716,080
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 33,070 786,768 4,001,260
Deferred income taxes.................................. 126,500 (62,500) (2,429,531)
Purchased research and development..................... -- -- 3,000,000
Gain on sale of subsidiary............................. -- -- (1,634,291)
Loss on sales of property and equipment................ 8,348 12,639 --
Change in operating assets and liabilities (net of
effects of the acquisition):
Accounts receivable.................................. -- (1,168,148) (5,744,286)
Income taxes receivable.............................. (475,124) 135,553 190,530
Prepaid expenses and other current assets............ -- (140,950) (1,334,926)
Other assets......................................... -- -- (468,530)
Accounts payable..................................... -- 1,066,013 (1,766,791)
Accrued payroll and compensation..................... -- -- (324,320)
Other accrued expenses............................... -- -- 1,222,702
Unearned revenue..................................... -- -- 1,310,315
Income taxes payable................................. -- -- 2,821,062
Deferred compensation................................ 1,569,108 (573,402) 3,949,000
----------- ----------- ------------
Net cash provided by (used in) operating activities........ (77) (459,226) 4,508,274
----------- ----------- ------------
INVESTING ACTIVITIES:
Proceeds from sales of property and equipment............ 23,039 67,494 --
Proceeds from sale of subsidiary, net of cash
relinquished........................................... -- -- 2,499,262
Purchase of software license agreement................... -- -- (1,623,750)
Purchases of property and equipment...................... (2,094) (1,766,738) (2,060,125)
Capitalized research and development costs............... -- -- (819,105)
Acquisition of subsidiary, net of cash acquired.......... -- -- (17,118,849)
----------- ----------- ------------
Net cash provided by (used in) investing activities........ 20,945 (1,699,244) (19,122,567)
----------- ----------- ------------
FINANCING ACTIVITIES:
Proceeds from borrowings................................. -- 2,500,000 8,677,503
Repayment of borrowings.................................. -- -- (10,792,589)
Repayment of borrowings to shareholder................... -- -- (995,706)
Contribution from shareholder............................ -- -- 10,500,000
Issuance of common stock, net of issuance costs paid..... 1,000 -- 34,635,603
Bank overdrafts.......................................... -- -- 265,407
----------- ----------- ------------
Net cash provided by financing activities.................. 1,000 2,500,000 42,290,218
----------- ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 21,868 341,530 27,675,925
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... -- 21,868 363,398
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 21,868 $ 363,398 $ 28,039,323
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................... $ -- $ 2,245 $ 360,083
=========== =========== ============
Income taxes refunded.................................. $ -- $ 336,939 $ 48,686
=========== =========== ============
Noncash investing activities -- contribution of fixed
assets from shareholder.............................. $ 2,382,418 $ -- $ 1,308,191
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 70
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO 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
provider of policy and claims administration and information technology
outsourcing services to the property and casualty ("P&C") insurance industry.
The Company also develops, markets, licenses and supports computer software and
related services to the P&C insurance industry. The Company sells its products
directly to the customer. The majority of sales are in North America. Prior to
the initial public offering of common stock on August 22, 1997, the Company was
a wholly-owned subsidiary of The Millers Mutual Fire Insurance Company ("Millers
Mutual").
SDS Acquisition -- On March 12, 1997, the Company acquired all of the
outstanding shares of common stock of Strategic Data Systems, Inc. and
subsidiary ("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 approximately $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............................................... (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.
SDS was merged into the Company on July 1, 1997. The operating results of
the acquired business are included from March 12, 1997, the date of acquisition.
Unaudited pro forma data reflecting results of the Company as if the acquisition
was effective at the beginning of 1996 follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Total revenues.............................................. $ 37,317 $ 61,981
Operating income............................................ 397 1,113
Net income.................................................. 148 2,049
Net income per share (basic)................................ 0.02 0.25
Net income per share (diluted).............................. 0.02 0.23
Weighted average shares (basic)............................. 7,000,000 8,137,370
Weighted average shares (diluted)........................... 7,749,221 8,782,497
</TABLE>
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 amortization of goodwill,
acquired software and other intangible assets and the related income tax
effects. Pro forma results
F-10
<PAGE> 71
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 acquisitions 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, (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 years ended December 31, 1996 and 1997 was to
increase net income as reported in the Statements of Operations by approximately
$1,223,000 and $250,000, respectively. The effect of these pro forma adjustments
was to increase pro forma net income per share (basic) for the years ended
December 31, 1996 and 1997 by $0.09 and $0.04, respectively and to increase pro
forma net income per share (diluted) for the years ended December 31, 1996 and
1997 by $0.09 and $0.03, 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 operating expenses as incurred.
Revenue Recognition -- Revenues from outsourcing services are recognized as
services are rendered. The Company is typically paid a percentage of premiums
for policy administration services, a percentage of premiums or claims paid for
claims administration services and a percentage of premiums subject to a minimum
fee for information technology services. Outsourcing services contracts
generally are for terms of two to five years. Due to the ongoing nature of these
services and the length of the terms of service contracts, outsourcing services
generate recurring revenues. 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, included in other
revenues, 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. Unearned revenues consist of billings to customers in
advance of revenues recognized on services contracts. Unbilled receivables
consist of revenues recognized in advance of billings due to timing differences
related to billing schedules specified in contracts.
Income Taxes -- Prior to the initial public offering on August 22, 1997,
Millers Mutual and its subsidiaries, including the Company, filed a consolidated
federal income tax return. In accordance with federal income tax regulations,
all corporations included in a consolidated tax return were jointly and
severally liable for all tax liabilities. A tax sharing agreement among Millers
Mutual, the Company and the other subsidiaries
F-11
<PAGE> 72
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of Millers Mutual (the "Tax Allocation Agreement") provided that taxes on income
were charged to profitable subsidiaries as if they were filing their own
separate returns. Subsidiaries with losses were 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 received the
benefit of all tax credits. Intercompany tax balances were settled annually.
Effective August 23, 1997, the Tax Allocation Agreement was terminated as it
related to the Company. 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 Mutual will indemnify the Company for
any income taxes and related expenses attributable to any members of the tax
group other than the Company's.
Federal income taxes were 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 -- The Company'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. The realizability of goodwill is evaluated
periodically to assess recoverability and, if warranted, impairment would be
recognized. Acquired software is amortized over a period of five years using the
straight-line method.
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
shareholder and long-term debt. The Company believes that the carrying amounts
of cash and cash equivalents, accounts receivable, accounts payable, amount due
to shareholder 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.
F-12
<PAGE> 73
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation -- SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," ("APB No. 25") and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the stock. See Note
10.
Net Income (Loss) Per Share -- Net income (loss) per share (basic) of the
Company is computed by dividing net income or loss by the weighted average
number of shares outstanding. The weighted average number of shares (basic) was
7,000,000 in 1995 and 1996 and 8,137,370 in 1997 after giving effect to the
stock dividends paid in May and June 1997. The weighted average number of shares
(diluted) was 7,749,221 in 1995 and 1996 and 8,782,497 in 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 net income or loss per share (diluted) using the treasury stock
method, as if they were outstanding for all periods presented.
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
Recently Issued Accounting Pronouncements -- 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 income (loss) as reported in the 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. Management is currently
evaluating the effect of the adoption of SFAS No. 131 on the Company's
disclosures.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
Company believes the adoption of SOP 97-2 will not have a material effect on the
Company's financial position or results of operations.
F-13
<PAGE> 74
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
Accounts receivable -- trade................................ $1,137,512 $ 9,957,538
Accounts receivable -- unbilled............................. -- 1,161,634
Other....................................................... 30,636 160,063
---------- -----------
1,168,148 11,279,235
Allowance for doubtful accounts............................. -- 302,563
---------- -----------
1,168,148 10,976,672
Noncurrent -- accounts receivable........................... -- 74,258
---------- -----------
$1,168,148 $11,050,930
========== ===========
</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,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Computer equipment........................................ $ 4,084,887 $11,948,671
Office equipment.......................................... 335,685 1,938,491
Automobiles............................................... 68,867 242,710
Leasehold improvements.................................... 2,464 114,615
----------- -----------
4,491,903 14,244,487
Accumulated depreciation and amortization................. (1,272,011) (8,214,514)
----------- -----------
$ 3,219,892 $ 6,029,973
=========== ===========
</TABLE>
Depreciation and amortization expense was $33,070 for the period April 28,
1995 (date of inception) through December 31, 1995 and $786,768 and $2,263,087
for 1996 and 1997, respectively.
4. RESEARCH AND DEVELOPMENT
Research and development costs were approximately $2,975,000 for the year
ended December 31, 1997, including capitalized software costs of $819,000 and
amortization expense of approximately $966,000 relating to acquired software
costs. The Company had no significant research and development activities for
the period from April 28, 1995 (date of inception) to December 31, 1995 and the
year ended December 31, 1996.
F-14
<PAGE> 75
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Goodwill, net of accumulated amortization of $748,567....... $ 8,530,173
Acquired software, net of accumulated amortization of
$966,000.................................................. 5,034,000
Capitalized research and development costs, net of
accumulated amortization of $26,513....................... 792,592
Software license agreement.................................. 1,623,750
Cash surrender value of life insurance...................... 409,898
Other....................................................... 649,221
-----------
$17,039,634
===========
</TABLE>
6. NOTE PAYABLE AND LONG-TERM DEBT
Note Payable -- On December 11, 1996, the Company entered into a note
agreement with a bank which was repaid on February 1, 1997.
Long-Term Debt -- The Company has a bank line of credit of $4 million which
expires on March 12, 1999. The line bears interest at prime (8.5% at December
31, 1997) or the London Interbank Offering Rate ("LIBOR") and is collateralized
by substantially all of the 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. The bank line of credit
agreement contains certain restrictive covenants. These covenants require that
the Company meet certain requirements such as maintenance of a minimum net
worth, and does not allow additional borrowings, dividends or other
distributions without prior consent of the bank. As of December 31, 1997, the
Company had no borrowings outstanding under the bank line of credit.
On August 22, 1997, the Company entered into a note agreement with a
financial institution to pay the cost of three-year professional liability and
directors and officers insurance policies. The note is payable in monthly
principal and interest installments of $54,424 through July 1999 and had a
balance of $982,809 at December 31, 1997. The note bears interest at an annual
rate of 6.25%.
The following represents the approximate future annual maturities of the
Company's long-term debt obligation at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $609,658
1999........................................................ 373,151
--------
$982,809
========
</TABLE>
F-15
<PAGE> 76
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Federal income tax benefit (expense) consists of the following components:
<TABLE>
<CAPTION>
PERIOD
APRIL 28, 1995
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1995 1996 1997
-------------- -------- -----------
<S> <C> <C> <C>
Current:
Federal..................................... $ 475,124 $201,388 $(3,048,994)
State and local............................. -- -- (634,881)
Deferred:
Federal..................................... (126,500) 62,500 2,554,340
State and local............................. -- -- 328,317
--------- -------- -----------
$ 348,624 $263,888 $ (801,218)
========= ======== ===========
</TABLE>
A reconciliation of current 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
APRIL 28, 1995
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1995 1996 1997
-------------- --------- ----------
<S> <C> <C> <C>
Current federal income tax benefit (expense).... $ 547,605 $264,889 $(855,881)
State income taxes, net of federal income tax
benefit....................................... -- -- (91,000)
Difference in book and tax basis of assets
contributed by shareholder.................... (219,356) -- --
Valuation of temporary differences.............. -- -- 277,000
Goodwill........................................ -- -- (254,512)
Research and development credits................ -- -- 100,000
Other........................................... 20,375 (1,001) 23,175
--------- -------- ---------
$ 348,624 $263,888 $(801,218)
========= ======== =========
</TABLE>
F-16
<PAGE> 77
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO 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,
-----------------------
1996 1997
-------- -----------
<S> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable.................................... $ -- $ 118,000
Accrued expenses....................................... -- 1,316,000
-------- -----------
-- 1,434,000
Noncurrent:
Net operating loss carryforwards....................... 210,000 --
Accrued expenses....................................... -- 203,000
-------- -----------
Total deferred income tax assets.................. 210,000 203,000
-------- -----------
Deferred income tax liabilities -- noncurrent:
Property and equipment.................................... 274,000 650,000
Capitalized research and development...................... -- 393,000
Acquired software......................................... -- 1,883,000
-------- -----------
Total deferred income tax liabilities............. 274,000 2,926,000
-------- -----------
Net deferred income tax liabilities......................... $(64,000) $(1,289,000)
======== ===========
Represented on the balance sheets as:
Current deferred income tax assets........................ $ -- $ 1,434,000
Noncurrent deferred income tax liabilities................ (64,000) (2,723,000)
-------- -----------
$(64,000) $(1,289,000)
======== ===========
</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 with respect to 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
The Company provided policy and claims administration services, data
processing services and software services to Millers Mutual and The Millers
Casualty Insurance Company ("Millers Casualty"), under the terms of various
agreements. Total fees earned were approximately $3,376,000, $7,557,000 and
$18,864,000 in 1995, 1996 and 1997, respectively.
Since July 1, 1995, the Company has had various agreements with Millers
Mutual for provision by Millers Mutual of management and administrative
services. Total fees paid by the Company in 1995, 1996 and 1997 were
approximately $600,000, $3,100,000 and $1,290,000, respectively. Effective
January 1, 1998, a new agreement was entered into, whereby the Company will
provide benefits administration services to Millers Mutual and Millers Casualty
for a monthly fee of $15,000.
Beginning May 1, 1996, the Company incurred rental expenses to Millers
Mutual, totaling approximately $297,000 for 1996 and $316,500 for 1997.
F-17
<PAGE> 78
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
There was a payable to Millers Mutual of approximately $996,000 at December
31, 1996, and a net receivable due from Millers Mutual of $1,301,000 at December
31, 1997.
9. EMPLOYEE BENEFIT PLANS
Prior to the initial public offering of common stock, substantially all of
the Company's employees were 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. The Company made 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 were determined by consulting
actuaries based upon future periodic payments, including lump-sum distributions
that were attributable under the Pension Plan's provisions to the service
employees had rendered. Benefits were 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 1997, as the pension plan was over-funded.
In addition, the Company participated in a defined contribution profit
sharing plan sponsored by Millers Mutual that covered substantially all of its
employees (the "Profit Sharing Plan"). Employees were not required to satisfy
any age or service requirements to become eligible to participate in the Profit
Sharing Plan. The Company also participated in an executive incentive
compensation plan covering officers sponsored by Millers Mutual. Contributions
to these plans were discretionary and were authorized annually by the Board of
Directors. Participants in the Profit Sharing Plan were permitted to contribute
1% to 12% (not to exceed $9,500 in 1997 and $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 was based upon length of service.
Participants with five or more years of service were 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
1997.
In July 1997, the Board of Directors approved the termination of the
Company's participation in the Pension Plan and the Profit Sharing Plan. The
effects of termination of the Company's participation in the Pension Plan and
the Profit Sharing Plan were immaterial to the Company's financial position,
results of operations and cash flows.
In July 1997, the Company adopted a 401(k) plan (the "Plan") covering all
employees who meet certain minimum age and length of service requirements. The
Plan provides for payment of the employee's vested portion of the Plan upon
retirement, termination, disability or death. Discretionary contributions may be
made to the Plan under the direction of the Company's Board of Directors. The
Company made contributions of $434,000 and incurred expenses of $8,100 related
to the Plan for the year ended December 31, 1997.
10. STOCK OPTION PLANS
The Company adopted the Amended and Restated 1997 Stock Option Plan (the
"Stock 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 Stock 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
F-18
<PAGE> 79
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 in March 1997, 33% were immediately exercisable at the date
of grant, 33% will become exercisable one year from the date of grant and the
remainder will become exercisable two years from the date of grant. The Board of
Directors approved the grant of certain additional options effective as of the
date of the prospectus for the Company's initial public offering. Of such
options, except for one officer of the Company, 20% were 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% were immediately exercisable at the date of grant, 33%
will become exercisable one year from the date of grant and the remainder will
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 Stock Option Plan. An option granted under the Stock 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.
On July 30, 1997, the Board of Directors adopted the Director Stock Option
Plan ("Director Plan"). The Director Plan provided 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 became 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. Each new nonemployee
director who is elected (or appointed to fill any vacancy) as a director of the
Company 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 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.
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 6.3%,
an expected life of five years and a volatility factor of 17.2%.
The following table summarizes the stock option activity under the Stock
Option Plan and Director Plan for the year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Options granted during the year ended December 31, 1997
Options granted prior to the initial public offering...... 840,248 $ 1.30
========= ===========
Options granted contemporaneously with the initial public
offering............................................... 1,185,628 $ 12.00
========= ===========
Options cancelled........................................... (26,897) $1.30-12.00
========= ===========
Options outstanding as of December 31, 1997................. 1,998,979 $1.30-12.00
========= ===========
Exercisable as of December 31, 1997......................... 684,372 $1.30-12.00
========= ===========
Options available for grant................................. 292,771
=========
</TABLE>
F-19
<PAGE> 80
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value of options granted during the year ended
December 31, 1997 was $4.56 per share. The weighted average fair value of
options exercisable at December 31, 1997 was $2.64 per share. The weighted
average fair value of options outstanding at December 31, 1997 was $4.56 per
share. All options granted expire six years from date of grant.
Under APB No. 25, the Company recognized compensation expense of
approximately $3,949,000 for the year ended December 31, 1997 since the stock
options granted under the terms of the Stock Option Plan were at an exercise
price that was less than the estimated fair market value of the Company's common
stock at the date of grant. Had the Company implemented SFAS No. 123, the
Company's compensation expense would have increased by approximately $126,000
and the Company's pro forma net income, net income per share (basic) and net
income per share (diluted), considering the effects of implementing SFAS No.
123, net of tax effects, would have been approximately $1,633,000, $0.20 and
$0.19, respectively.
11. 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 was initially implemented by an offering of 25,000
shares of Common Stock from October 1, 1997 to December 31, 1997. Pursuant to
such offering, 6,240 shares of Common Stock were purchased by participants under
the Stock Purchase Plan. The Company anticipates that the Stock Purchase Plan
will be further implemented by eight additional semiannual offerings of Common
Stock beginning on January 1 and July 1 for each of the years 1998, 1999, 2000
and 2001. The maximum number of shares issued in each semi-annual offering will
be 50,000 shares plus the number of unissued shares from prior offerings under
the Stock Purchase Plan.
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.
12. SHAREHOLDERS' EQUITY
On June 12, 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
F-20
<PAGE> 81
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of common stock from 1,000 shares to 14,000,000 shares. 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 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 was
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. Accordingly, one right has been issued for each share of
common stock outstanding. 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.
13. TRANSACTIONS WITH MAJOR CUSTOMERS
For the period April 28, 1995 (date of inception) through December 31,
1995, 100% of the Company's business was with Millers Mutual and Millers
Casualty. In addition to the outsourcing revenues derived from Millers Mutual
and Millers Casualty, for the years ended December 31, 1996 and 1997 (see Note
8), one customer accounted for approximately 21% and 16% of revenues,
respectively.
14. SALE OF SUBSIDIARY
On September 15, 1997, the Company sold Applied Quoting Systems, Inc.
("AQS"), a wholly-owned subsidiary of SDS, for $2,500,000. The sale resulted in
a gain of $1,634,291, which is included in other income. For the period from
March 12, 1997 (the date of acquisition) through September 15, 1997 (date of
sale), AQS had revenues of approximately $2,535,000 and net income of
approximately $376,000. Net income per common share from the separate operations
of AQS for the period of March 12, 1997 through September 15, 1997 was $.05.
Total assets and total liabilities of AQS on the date of sale were approximately
$1,228,000 and $412,000, respectively.
15. 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
$3,818,000 for the year ended December 31, 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>
1998........................................................ $ 5,123,637
1999........................................................ 4,605,965
2000........................................................ 2,616,352
2001........................................................ 1,335,089
2002........................................................ 860,691
Thereafter.................................................. 1,217,410
-----------
$15,759,144
===========
</TABLE>
F-21
<PAGE> 82
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Employment Agreements -- The Company has employment agreements with certain
key officers that provide for minimum annual salaries and benefits aggregating
approximately $1,737,500 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 SDS Acquisition by the
Company, 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 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 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 by not
reported claims.
F-22
<PAGE> 83
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.
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 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> 84
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> 85
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1, 1997
--------------------------------------- THROUGH
1994 1995 1996 MARCH 11, 1997
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Software services............................. $ 9,041,115 $ 9,078,073 $10,036,191 $2,384,658
Software...................................... 4,312,881 9,068,431 8,987,395 2,455,628
Hardware sales and commissions................ 2,245,134 2,399,537 3,680,048 463,108
Other......................................... 405,396 615,234 960,027 108,912
----------- ----------- ----------- ----------
Total revenues........................ 16,004,526 21,161,275 23,663,661 5,412,306
----------- ----------- ----------- ----------
EXPENSES:
Salaries and compensation..................... 11,810,524 13,088,072 14,505,432 3,476,165
Depreciation and amortization................. 2,157,093 1,878,973 1,826,826 411,266
Cost of hardware sold......................... 1,862,169 1,978,836 2,698,673 383,450
Occupancy costs............................... 1,374,230 1,379,332 1,565,833 405,663
Other......................................... 1,830,598 1,666,854 2,032,098 372,223
----------- ----------- ----------- ----------
Total expenses........................ 19,034,614 19,992,067 22,628,862 5,048,767
----------- ----------- ----------- ----------
OPERATING INCOME (LOSS)......................... (3,030,088) 1,169,208 1,034,799 363,539
OTHER INCOME (EXPENSE):
Interest income............................... 158,297 160,959 284,387 56,987
Interest expense.............................. (292,491) (240,481) (207,029) (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 23,740
----------- ----------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAX................. (3,162,762) 1,087,283 1,146,855 387,279
INCOME TAX BENEFIT (EXPENSE).................... 1,253,000 (429,000) (449,000) (156,000)
----------- ----------- ----------- ----------
NET INCOME (LOSS)............................... $(1,909,762) $ 658,283 $ 697,855 $ 231,279
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 86
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> 87
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1, 1997
--------------------------------------- THROUGH MARCH 11,
1994 1995 1996 1997
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,909,762) $ 658,283 $ 697,855 $ 231,279
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 2,157,093 1,878,973 1,826,826 411,266
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 21,484
Change in operating assets and liabilities:
Accounts receivable................................... (950,268) 632,474 (1,113,726) (344,416)
Income taxes recoverable.............................. (357,709) 357,709 -- --
Prepaid expenses and other current assets............. (31,517) (2,818) 14,973 (95,478)
Other assets.......................................... (82,333) (107,624) (112,916) (16,389)
Accounts payable...................................... (912,410) 16,811 450,962 30,670
Accrued payroll and compensation...................... 952,909 116,691 (67,258) 30,683
Other accrued expenses................................ 204,283 (26) 40,845 (57,186)
Warranty reserve...................................... 103,270 (2,978) 300 468,677
Customer deposits..................................... 2,441,214 (2,329,121) 729,823 (651,142)
Income taxes payable.................................. (237,120) 260,754 (182,461) 414,803
Deferred compensation................................. 71,771 82,855 95,260 15,877
----------- ----------- ----------- ----------
Net cash provided by operating activities........... 1,161,194 2,238,054 2,245,782 201,103
----------- ----------- ----------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of property and equipment............. 1,520 -- 41,750 --
Purchases of property and equipment....................... (853,089) (362,546) (582,868) (686,862)
Development of software................................... (1,353,750) (671,000) (558,850)
----------- ----------- ----------- ----------
Net cash used in investing activities............... (2,205,319) (1,033,546) (1,099,968) (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) (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) (89,974)
----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (202,865) 239,099 987,027 (575,733)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 492,234 289,369 528,468 1,515,495
----------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 289,369 $ 528,468 $ 1,515,495 $ 939,762
=========== =========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 293,000 $ 240,000 $ 208,000 $ 33,300
=========== =========== =========== ==========
Income taxes paid (refunded).............................. $ (94,000) $ (627,000) $ 734,000 $ --
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 88
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> 89
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.
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.
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.
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 estimates.
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.
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> 90
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 $152,000 for
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
$209,000 for 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
$474,000, for 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> 91
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> 92
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>
PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1, 1997
---------------------------------- THROUGH MARCH 11,
1994 1995 1996 1997
----------- -------- --------- -----------------
<S> <C> <C> <C> <C>
Current:
Federal.................................... $ (689,000) $ (9,000) $ 504,000 $ 330,000
State...................................... -- -- 47,000 85,000
----------- -------- --------- ---------
Total current...................... (689,000) (9,000) 551,000 415,000
----------- -------- --------- ---------
Deferred:
Federal.................................... (407,000) 372,000 (132,000) $(221,000)
State...................................... (157,000) 66,000 30,000 (38,000)
----------- -------- --------- ---------
Total deferred..................... (564,000) 438,000 (102,000) (259,000)
----------- -------- --------- ---------
$(1,253,000) $429,000 $ 449,000 $ 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
JANUARY 1, 1997
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------- MARCH 11,
1994 1995 1996 1997
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Expected federal income taxes
(benefit)............................ $(1,075,000) $ 370,000 $ 390,000 $132,000
State income taxes, net of federal
income tax (benefit)................. (156,000) 45,000 53,000 18,000
Goodwill............................... 36,000 36,000 36,000 7,000
Research and development
credit............................... (80,000) (47,000) (63,000) --
Other, net............................. 22,000 25,000 33,000 (1,000)
----------- ----------- ----------- --------
$(1,253,000) $ 429,000 $ 449,000 $156,000
=========== =========== =========== ========
</TABLE>
F-32
<PAGE> 93
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. 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 permanent disability, death or change in control of SDS, as defined. SDS is
the owner and beneficiary of
F-33
<PAGE> 94
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 period January 1, 1997 through March 11, 1997 was $16,000.
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 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 $142,000 for 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.
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 Insurance Solutions, Inc. ("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
F-34
<PAGE> 95
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 agreed to 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> 96
=========================================================
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......................... 15
Dividend Policy......................... 15
Price Range of Common Stock............. 15
Capitalization.......................... 16
Selected Financial Data of INSpire...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of INSpire................. 19
Selected Consolidated Financial Data
of SDS................................ 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of SDS..................... 27
Business................................ 29
Management.............................. 39
Principal and Selling Shareholders...... 47
Certain Transactions.................... 48
Description of Capital Stock............ 51
Underwriting............................ 56
Legal Matters........................... 58
Experts................................. 58
Available Information................... 59
Financial Statements.................... F-1
</TABLE>
=========================================================
=========================================================
2,000,000 SHARES
[INSPIRE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES
& ASSOCIATES, INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
SOUTHWEST SECURITIES
, 1998
=========================================================
<PAGE> 97
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....................................... $ 18,500
NASD filing fees............................................ $ 6,800
Nasdaq National Market application and listing fees......... $ 17,500
Transfer agents' and registrar's fees and expenses.......... $ 15,000
Printing and engraving expenses............................. $100,000
Legal fees and expenses..................................... $200,000
Accounting fees and expenses................................ $100,000
Blue sky fees and expenses.................................. $ 5,000
Miscellaneous............................................... $ 37,200
--------
Total............................................. $500,000
========
</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> 98
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.
(4) On August 22, 1997, the Company granted options to purchase an
aggregate of 1,167,378 shares of Common Stock to employees and officers of
the Company under its Amended and Restated 1997 Stock Option Plan at an
exercise price of $12.00 per share, and the Company granted options to
purchase an aggregate of 7,500 shares of Common Stock to the directors of
the Company under its 1997 Director Stock Option Plan. These options vest
over a period of time following their date 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
<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
(Incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
2.2 -- Articles and Plan of Merger of SDS into the Company
(Incorporated by reference to Exhibit 2.2 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
2.3 -- Form of Stock Purchase and Assumption Agreement, dated as
of September 15, 1997, between the Company, AQS, Inc.,
Samuel J. Fleager and Applied Quoting Systems, Inc.
3.1 -- Restated Articles of Incorporation of the Company and
Articles of Amendment No. 1 thereto (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
3.2 -- Amended and Restated Bylaws of the Company (Incorporated
by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
4.1 -- Specimen Certificate for shares of Common Stock of the
Company (Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
</TABLE>
II-2
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
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 (Incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
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
(Incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.2 -- Amended Service Contract, dated as of July 1, 1997, by
and among the Company, Millers Mutual, and Millers
Casualty (Incorporated by reference to Exhibit 10.2 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.3 -- Amended Information Services Contract, dated as of July
1, 1997, by and among the Company, Millers Mutual, and
Millers Casualty (Incorporated by reference to Exhibit
10.3 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.4 -- Form of Agreement to Lease Office Space, effective as of
May 1, 1996, by and between the Company and Millers
Mutual (Incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.5 -- Form of Sublease Agreement, effective as of January 1,
1997, by and between the Company and Millers Mutual
(Incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
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. (Incorporated by reference to Exhibit 10.6
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173)
10.7 -- Amendment No. 1 to Claims Life Cycle Services Agreement,
dated as of June 27, 1997 (Incorporated by reference to
Exhibit 10.7 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
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. (Incorporated by reference to Exhibit 10.8
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.9 -- Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996 (Incorporated
by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
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 (Incorporated by reference to Exhibit 10.10 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.11 -- Form of Indemnification Agreement with a schedule of
director signatories (Incorporated by reference to
Exhibit 10.11 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.12 -- Employment Agreement, effective as of July 1, 1997, by
and between the Company and F. George Dunham, III
(Incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.13 -- Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington
(Incorporated by reference to Exhibit 10.13 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.14 -- Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi
(Incorporated by reference to Exhibit 10.14 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.15 -- Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC (Incorporated by reference to
Exhibit 10.15 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.16 -- Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997 (Incorporated by
reference to Exhibit 10.16 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.17 -- Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A. (Incorporated by
reference to Exhibit 10.17 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173)
10.18 -- Security Agreement, dated March 12, 1997, between SDS and
NationsBank (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.19 -- Security Agreement, dated March 12, 1997, between AQS and
NationsBank (Incorporated by reference to Exhibit 10.19
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.20 -- Pledge Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A. (Incorporated by
reference to Exhibit 10.20 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173)
10.21 -- Pledge Agreement dated March 12, 1997, between SDS and
NationsBank (Incorporated by reference to Exhibit 10.21
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.22 -- Guaranty of SDS dated March 12, 1997 (Incorporated by
reference to Exhibit 10.22 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.23 -- Guaranty of AQS dated March 12, 1997 (Incorporated by
reference to Exhibit 10.23 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.24 -- Form of License Agreement (Incorporated by reference to
Exhibit 10.24 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.25 -- Form of System Support Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.26 -- Form of Implementation Support Agreement (Incorporated by
reference to Exhibit 10.26 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.27 -- Form of Accelerated Enhancement Plan Agreement
(Incorporated by reference to Exhibit 10.27 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.28 -- Amended and Restated 1997 Stock Option Plan (Incorporated
by reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
</TABLE>
II-4
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.29 -- Form of Stock Option Agreement (Incorporated by reference
to Exhibit 10.29 of the Company's Registration Statement
on Form S-1, Registration No. 333-31173).
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 (Incorporated by reference to Exhibit 10.30
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.31 -- Form of Policy Life Cycle Services Agreement, effective
as of May 1, 1997, by and between the Company and Millers
Casualty (Incorporated by reference to Exhibit 10.31 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.32 -- Form of Claims Life Cycle Services Agreement, effective
as of June 1, 1997, by and between the Company and
Millers Casualty (Incorporated by reference to Exhibit
10.32 of the Company's Registration Statement on Form
S-1, Registration No. 333-31173).
10.33 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Terry G. Gaines
(Incorporated by reference to Exhibit 10.33 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.34 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Ronald O. Lynn
(Incorporated by reference to Exhibit 10.34 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.35 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Jeffrey W. Robinson
(Incorporated by reference to Exhibit 10.35 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.36 -- Director Stock Option Plan (Incorporated by reference to
Exhibit 10.36 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.37 -- Form of Director Stock Option Agreement (Incorporated by
reference to Exhibit 10.37 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.38 -- Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 10.38 of the Company's Registration Statement
on Form S-1, Registration No. 333-31173).
10.39 -- Claims Administration Agreement, effective April 1, 1997,
by and between the Company and the Specialty Personal
Lines Division of Millers Mutual (Incorporated by
reference to Exhibit 10.39 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.40 -- Form of Management Agreement, effective as of January 1,
1996, by and between the Company and Millers Mutual
(Incorporated by reference to Exhibit 10.40 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.41 -- Service Contract, effective as of January 1, 1996, by and
between the Company, Millers Mutual and Millers Casualty
(Incorporated by reference to Exhibit 10.41 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.42 -- Form of Service Contract, effective as of December 1,
1996, by and between the Company, Millers Mutual and
Millers Casualty (Incorporated by reference to Exhibit
10.42 of the Company's Registration Statement on Form
S-1, Registration No. 333-31173).
</TABLE>
II-5
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.43 -- Form of Information Services Contract, effective as of
October 1, 1996, by and between the Company, Millers
Mutual and Millers Casualty (Incorporated by reference to
Exhibit 10.43 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.44 -- Software License and Support Services Agreement, dated
October 29, 1997, between the Company and Cover-All
Systems, Inc.
10.45 -- Form of Contract to Provide Services and Acquire License
to Use Software, dated December 29, 1997, between the
Company and Sul America Cia Nacional de Seguros.
10.46 -- Form of Consulting Agreement, effective March 15, 1998,
between the Company and Stuart Warrington.
10.47 -- Form of Amendment No. 1 to Employment Agreement, dated
and effective as of January 1, 1998, for each of F.
George Dunham, III, Terry G. Gaines, Ronald O. Lynn, and
Jeffrey W. Robinson.
10.48 -- 1998 Annual Bonus Plan.
10.49 -- Form of Claims Administration Services Agreement,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty
10.50 -- Form of Policy Administration Services Agreement,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty.
10.51 -- Form of Second Amended Information Services Contract,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty.
10.52 -- Form of Amendment No. 1 to the Policy Life Cycle Services
Agreement, effective October 1, 1997, by and between the
Company and Millers Casualty.
10.53 -- Form of First Amendment to the Amended and Restated 1997
Stock Option Plan.
10.54 -- Form of Amended and Restated Benefits Administration
Contract, effective as of January 1, 1998, by and between
the Company and Millers Mutual.
11 -- Statement regarding Computation of Per Share Earnings.
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 this
Registration Statement).
27 -- Financial Data Schedule (included in SEC-filed copy
only).
</TABLE>
- ---------------
* To be filed by amendment
(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
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
II-6
<PAGE> 103
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 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-7
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth,
State of Texas, on March 5, 1998.
INSPIRE INSURANCE SOLUTIONS, INC.
By: /s/ F. GEORGE DUNHAM, III
----------------------------------
F. George Dunham, III, President
The undersigned directors and officers of INSpire Insurance Solutions, Inc.
hereby constitute and appoint F. George Dunham, III, with full power to act and
with full power of substitution and resubstitution, our true and lawful
attorney-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission and hereby ratify and confirm all
that such attorney-in-fact or his substitute shall lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on March 5, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ F. GEORGE DUNHAM, III President, Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
F. George Dunham, III and Director
/s/ TERRY G. GAINES Chief Financial Officer (principal
- ----------------------------------------------------- financial officer and principal
Terry G. Gaines accounting officer)
/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>
II-8
<PAGE> 105
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
(Incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
2.2 -- Articles and Plan of Merger of SDS into the Company
(Incorporated by reference to Exhibit 2.2 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
2.3 -- Form of Stock Purchase and Assumption Agreement, dated as
of September 15, 1997, between the Company, AQS, Inc.,
Samuel J. Fleager and Applied Quoting Systems, Inc.
3.1 -- Restated Articles of Incorporation of the Company and
Articles of Amendment No. 1 thereto (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
3.2 -- Amended and Restated Bylaws of the Company (Incorporated
by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
4.1 -- Specimen Certificate for shares of Common Stock of the
Company (Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
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 (Incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
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
(Incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.2 -- Amended Service Contract, dated as of July 1, 1997, by
and among the Company, Millers Mutual, and Millers
Casualty (Incorporated by reference to Exhibit 10.2 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.3 -- Amended Information Services Contract, dated as of July
1, 1997, by and among the Company, Millers Mutual, and
Millers Casualty (Incorporated by reference to Exhibit
10.3 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.4 -- Form of Agreement to Lease Office Space, effective as of
May 1, 1996, by and between the Company and Millers
Mutual (Incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.5 -- Form of Sublease Agreement, effective as of January 1,
1997, by and between the Company and Millers Mutual
(Incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
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. (Incorporated by reference to Exhibit 10.6
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173)
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.7 -- Amendment No. 1 to Claims Life Cycle Services Agreement,
dated as of June 27, 1997 (Incorporated by reference to
Exhibit 10.7 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
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. (Incorporated by reference to Exhibit 10.8
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.9 -- Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996 (Incorporated
by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
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 (Incorporated by reference to Exhibit 10.10 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.11 -- Form of Indemnification Agreement with a schedule of
director signatories (Incorporated by reference to
Exhibit 10.11 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.12 -- Employment Agreement, effective as of July 1, 1997, by
and between the Company and F. George Dunham, III
(Incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.13 -- Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington
(Incorporated by reference to Exhibit 10.13 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.14 -- Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi
(Incorporated by reference to Exhibit 10.14 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.15 -- Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC (Incorporated by reference to
Exhibit 10.15 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.16 -- Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997 (Incorporated by
reference to Exhibit 10.16 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.17 -- Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A. (Incorporated by
reference to Exhibit 10.17 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173)
10.18 -- Security Agreement, dated March 12, 1997, between SDS and
NationsBank (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.19 -- Security Agreement, dated March 12, 1997, between AQS and
NationsBank (Incorporated by reference to Exhibit 10.19
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.20 -- Pledge Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A. (Incorporated by
reference to Exhibit 10.20 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173)
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.21 -- Pledge Agreement dated March 12, 1997, between SDS and
NationsBank (Incorporated by reference to Exhibit 10.21
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.22 -- Guaranty of SDS dated March 12, 1997 (Incorporated by
reference to Exhibit 10.22 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.23 -- Guaranty of AQS dated March 12, 1997 (Incorporated by
reference to Exhibit 10.23 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.24 -- Form of License Agreement (Incorporated by reference to
Exhibit 10.24 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.25 -- Form of System Support Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.26 -- Form of Implementation Support Agreement (Incorporated by
reference to Exhibit 10.26 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.27 -- Form of Accelerated Enhancement Plan Agreement
(Incorporated by reference to Exhibit 10.27 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.28 -- Amended and Restated 1997 Stock Option Plan (Incorporated
by reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
10.29 -- Form of Stock Option Agreement (Incorporated by reference
to Exhibit 10.29 of the Company's Registration Statement
on Form S-1, Registration No. 333-31173).
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 (Incorporated by reference to Exhibit 10.30
of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.31 -- Form of Policy Life Cycle Services Agreement, effective
as of May 1, 1997, by and between the Company and Millers
Casualty (Incorporated by reference to Exhibit 10.31 of
the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.32 -- Form of Claims Life Cycle Services Agreement, effective
as of June 1, 1997, by and between the Company and
Millers Casualty (Incorporated by reference to Exhibit
10.32 of the Company's Registration Statement on Form
S-1, Registration No. 333-31173).
10.33 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Terry G. Gaines
(Incorporated by reference to Exhibit 10.33 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.34 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Ronald O. Lynn
(Incorporated by reference to Exhibit 10.34 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.35 -- Form of Employment Agreement, effective as of July 1,
1997, by and between the Company and Jeffrey W. Robinson
(Incorporated by reference to Exhibit 10.35 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.36 -- Director Stock Option Plan (Incorporated by reference to
Exhibit 10.36 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.37 -- Form of Director Stock Option Agreement (Incorporated by
reference to Exhibit 10.37 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.38 -- Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 10.38 of the Company's Registration Statement
on Form S-1, Registration No. 333-31173).
10.39 -- Claims Administration Agreement, effective April 1, 1997,
by and between the Company and the Specialty Personal
Lines Division of Millers Mutual (Incorporated by
reference to Exhibit 10.39 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
10.40 -- Form of Management Agreement, effective as of January 1,
1996, by and between the Company and Millers Mutual
(Incorporated by reference to Exhibit 10.40 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.41 -- Service Contract, effective as of January 1, 1996, by and
between the Company, Millers Mutual and Millers Casualty
(Incorporated by reference to Exhibit 10.41 of the
Company's Registration Statement on Form S-1,
Registration No. 333-31173).
10.42 -- Form of Service Contract, effective as of December 1,
1996, by and between the Company, Millers Mutual and
Millers Casualty (Incorporated by reference to Exhibit
10.42 of the Company's Registration Statement on Form
S-1, Registration No. 333-31173).
10.43 -- Form of Information Services Contract, effective as of
October 1, 1996, by and between the Company, Millers
Mutual and Millers Casualty (Incorporated by reference to
Exhibit 10.43 of the Company's Registration Statement on
Form S-1, Registration No. 333-31173).
10.44 -- Software License and Support Services Agreement, dated
October 29, 1997, between the Company and Cover-All
Systems, Inc.
10.45 -- Contract to Provide Services and Acquire License to Use
Software, dated December 29, 1997, between the Company
and Sul America Cia Nacional de Seguros.
10.46 -- Form of Consulting Agreement, effective March 15, 1998,
between the Company and Stuart Warrington.
10.47 -- Form of Amendment No. 1 to Employment Agreement, dated
and effective as of January 1, 1998, for each of F.
George Dunham, III, Terry G. Gaines, Ronald O. Lynn, and
Jeffrey W. Robinson.
10.48 -- 1998 Annual Bonus Plan.
10.49 -- Form of Claims Administration Services Agreement,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty
10.50 -- Form of Policy Administration Services Agreement,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty.
10.51 -- Form of Second Amended Information Services Contract,
effective as of October 1, 1997, by and between the
Company, Millers Mutual and Millers Casualty.
10.52 -- Form of Amendment No. 1 to the Policy Life Cycle Services
Agreement, effective October 1, 1997, by and between the
Company and Millers Casualty.
10.53 -- Form of First Amendment to the Amended and Restated 1997
Stock Option Plan.
10.54 -- Form of Amended and Restated Benefits Administration
Contract, effective as of January 1, 1998, by and between
the Company and Millers Mutual.
11 -- Statement regarding Computation of Per Share Earnings.
</TABLE>
<PAGE> 109
<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 this
Registration Statement).
27 -- Financial Data Schedule (included in SEC-filed copy
only).
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
2,000,000 SHARES*
INSPIRE INSURANCE SOLUTIONS, INC.
COMMON STOCK
____________________
UNDERWRITING AGREEMENT
St. Petersburg, Florida
March ____, 1998
Raymond James & Associates, Inc.
NationsBanc Montgomery Securities LLC
Southwest Securities, Inc.
As Representative of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
INSpire Insurance Solutions, Inc., a Texas corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell an aggregate of 1,500,000 shares of common stock, $.01 par value
per share (the "Common Stock"), of the Company, to the several Underwriters
named in Schedule I hereto (the "Underwriters"), and that certain shareholder
of the Company named in Schedule II hereto (the "Selling Shareholder")
proposes, subject to the terms and conditions stated herein, to sell to the
Underwriters an aggregate of 500,000 shares of the Common Stock (the aggregate
of such 2,000,000 shares to be sold by the Company and the Selling Shareholder
hereinafter referred to as the "Firm Shares"). In addition, the Company has
agreed to sell to the Underwriters, upon the terms and conditions set forth
herein, up to an additional 300,000 shares (the "Additional Shares") of the
Common Stock to cover over-allotments by the Underwriters, if any. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as
the "Shares."
The Company and the Selling Shareholder wish to confirm as follows
their agreement with you and the other several Underwriters, on whose behalf
you are acting, in connection with the several purchases of the Shares from the
Company and the Selling Shareholder.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the
- ---------------------
* Plus an additional 300,000 shares subject to the Underwriters'
over-allotment option.
<PAGE> 2
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form S-1 (File No. 333-_________), including a
prospectus subject to completion, relating to the Shares. Such registration
statement, as amended at the time when it becomes effective and as thereafter
amended by post-effective amendment, is referred to in this Agreement as the
"Registration Statement." The prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance upon Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act or as part of a post-effective amendment to the
Registration Statement after the Registration Statement becomes effective, the
prospectus as so filed, is referred to in this Agreement as the "Prospectus."
The prospectus subject to completion in the form included in the Registration
Statement at the time of the initial filing of such Registration Statement with
the Commission and as such prospectus is amended from time to time until the
date of the Prospectus is referred to in this Agreement as the "Prepricing
Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. The Company and the Selling
Shareholder (in accordance with Schedule II hereof) hereby agree, severally and
not jointly, to sell the Firm Shares to the Underwriters and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Shareholder herein contained and subject to all the terms and conditions set
forth herein, each Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Shareholder at a purchase price of $______ per
Share (the "purchase price per Share"), the aggregate number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number of Firm Shares as adjusted pursuant to Section 11 hereof).
The Company hereby also agrees to sell to the Underwriters, and upon
the basis of the representations, warranties and agreements of the Company
herein contained and subject to all the terms and conditions set forth herein,
the Underwriters shall have the right for 30 days from the date of the
Prospectus to purchase from the Company up to an aggregate of 300,000
Additional Shares (in accordance with Schedule II hereof) at the purchase price
per Share for the Firm Shares. The Additional Shares may be purchased solely
for the purpose of covering over-allotments, if any, made in connection with
the offering of the Firm Shares. If any Additional Shares are to be purchased,
each Underwriter, severally and not jointly, agrees to purchase the number of
Additional Shares (subject to such adjustments as you may determine to avoid
fractional shares) which bears the same proportion to the total number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares as adjusted pursuant to Section 11 hereof) bears to
the total number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Shareholder have been advised by you that the Underwriters propose to make a
public offering of their respective
2
<PAGE> 3
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue,
Suite 4100, Dallas, Texas, at 10:00 a.m., Dallas, Texas time, on
_______________, 1998 (the "Closing Date"). The place of closing for the Firm
Shares and the Closing Date may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas,
at 10:00 a.m., Dallas, Texas time, on such date or dates (the "Additional
Closing Date") (which may be the same as the Closing Date but shall in no event
be earlier than the Closing Date nor earlier than three nor later than ten
business days after the giving of the notice hereinafter referred to) as shall
be specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. Such notice may be given to the Company by
you at any time within 30 days after the date of the Prospectus. The place of
closing for the Additional Shares and the Additional Closing Date may be varied
by agreement among you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, not
later than the second full business day preceding the Closing Date or the
Additional Closing Date, as the case may be. Such certificates shall be made
available to you in St. Petersburg, Florida for inspection and packaging not
later than 9:30 a.m., St. Petersburg, Florida time, on the business day
immediately preceding the Closing Date or the Additional Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Additional Closing Date, as the case may be, against payment of the
purchase price therefor by wire transfer to the accounts of the Company and the
Selling Shareholder in accordance with wire transfer instructions provided to
you at least two business days prior to the Closing Date.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
a. The Company will use its best efforts to cause the
Registration Statement to become effective and will advise you
promptly and, if requested by you, will confirm such advice in writing
(i) when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) if Rule 430A
under the Act is employed, when the Prospectus has been timely filed
pursuant to Rule 424(b) under the Act, (iii) of any request by the
Commission for amendments or supplements to the
3
<PAGE> 4
Registration Statement, any Prepricing Prospectus or the Prospectus or
for additional information, (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any
proceeding for such purposes and (v) within the period of time
referred to in the first sentence of Section 5(e) below, of any change
in the Company's condition (financial or other), business, properties,
net worth, results of operations, or prospects or of any event that
comes to the attention of the Company that makes any statement made in
the Registration Statement or the Prospectus (as then amended or
supplemented) untrue in any material respect or that requires the
making of any additions thereto or changes therein in order to make
the statements therein not misleading in any material respect, or of
the necessity to amend or supplement the Prospectus (as then amended
or supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make
every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
b. The Company will furnish to you, without charge, two
signed duplicate originals of the Registration Statement as originally
filed with the Commission and of each amendment thereto, including
financial statements and all exhibits thereto, and will also furnish
to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
c. The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised (with a
reasonable opportunity to review such amendment or supplement) or to
which you have reasonably objected after being so advised.
d. Prior to the execution and delivery of this
Agreement, the Company has delivered or will deliver to you, without
charge, in such quantities as you have requested or may hereafter
reasonably request, copies of each form of the Prepricing Prospectus.
The Company consents to the use, in accordance with the provisions of
the Act and with the securities or Blue Sky laws of the jurisdictions
in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus so furnished by the Company.
e. As soon after the execution and delivery of this
Agreement as is practicable and thereafter from time to time for such
period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or a dealer, and for so long a period as you
may reasonably request for the distribution of the Shares, the Company
will deliver to each Underwriter, without charge, as many copies of
the Prospectus (and of any amendment or supplement thereto) as they
may reasonably request. The Company consents to the use of the
4
<PAGE> 5
Prospectus (and of any amendment or supplement thereto) in accordance
with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by all dealers to whom Shares may be sold in
connection with the offering and sale of the Shares. If at any time
during the period during which a Prospectus is required to be
delivered in accordance with the Act any event shall occur that in the
judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then
amended or supplemented) or should be set forth therein in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with the Act or any other
law, the Company will forthwith prepare and, subject to Sections 5(a)
and 5(c) hereof, file with the Commission and use its best efforts to
cause to become effective as promptly as possible an appropriate
supplement or amendment thereto, and will furnish to each Underwriter
who has previously requested Prospectuses, without charge, a
reasonable number of copies thereof.
f. The Company will cooperate with you and counsel for
the Underwriters in connection with the registration or qualification
of the Shares for offering and sale by the several Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as
you may reasonably designate and will file such consents to service of
process or other documents as may be reasonably necessary in order to
effect such registration or qualification; provided that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
g. The Company will make generally available to its
security holders a consolidated earnings statement (in form complying
with the Provisions of Rule 158), which need not be audited, covering
a twelve- month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter,
as soon as practicable after the end of such period, which
consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Act.
h. During the period ending five years from the date
hereof, the Company will furnish to you and, upon your request, to
each of the other Underwriters, (i) as soon as available, a copy of
each proxy statement, quarterly or annual report or other report of
the Company mailed to shareholders or filed with the Commission, the
National Association of Securities Dealers, Inc. (the "NASD") or any
securities exchange and (ii) from time to time such other information
concerning the Company as you may reasonably request.
i. If this Agreement shall terminate or shall be
terminated after execution pursuant to any provision hereof (except
pursuant to a termination under Section 11 or 12 hereof) or if this
Agreement shall be terminated by the Underwriters because of any
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<PAGE> 6
inability, failure or refusal on the part of the Company or the
Selling Shareholder to perform any agreement herein or to comply with
any of the terms or provisions hereof, the Company agrees to reimburse
you and the other Underwriters for all out-of-pocket expenses
(including travel expenses and reasonable fees and reasonable expenses
of counsel for the Underwriters but excluding wages and salaries paid
by you) reasonably incurred by you in connection herewith.
j. The Company will apply the net proceeds from the sale
of the Shares to be sold by it hereunder for the purposes set forth
under "Use of Proceeds" in the Prospectus.
k. If Rule 430A under the Act is employed, the Company
will timely file the Prospectus pursuant to Rule 424(b) under the Act.
l. For a period of 90 days after commencement of the
public offering of the Shares by the Underwriters, without the prior
written consent of Raymond James & Associates, Inc., the Company will
not directly or indirectly issue, sell, offer to sell, contract to
sell or otherwise dispose of or transfer any shares of Common Stock or
rights to purchase shares of Common Stock, except to the Underwriters
pursuant to this Agreement; provided, however, that the Company may
(i) issue to participants in its Employee Stock Purchase Plan, as
currently in effect, shares of Common Stock pursuant to the terms of
such Employee Stock Purchase Plan, (ii) issue to participants in its
Director Stock Option Plan, as currently in effect, shares of Common
Stock upon the exercise of currently outstanding options that are or
that become exercisable during such 90-day period and may grant
additional options under the Director Stock Option Plan and (iii)
issue to participants in its Amended and Restated 1997 Stock Option
Plan, as currently in effect, shares of Common Stock upon the exercise
of currently outstanding options that are or that become exercisable
during such 90-day period and may grant additional options under the
Amended and Restated 1997 Stock Option Plan, provided that without the
prior written consent of Raymond James & Associates, Inc., such
additional options shall not be exercisable during such 90-day period.
m. Prior to the Closing Date or the Additional Closing
Date, as the case may be, the Company will furnish to you, as promptly
as possible, copies of any unaudited interim consolidated financial
statements of the Company and its subsidiaries for any quarterly
period subsequent to the periods covered by the financial statements
appearing in the Prospectus.
n. The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
o. The Company will not at any time, directly or
indirectly take any action designed, or which might reasonably be
expected to cause or result in, or which will
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<PAGE> 7
constitute, stabilization or manipulation of the price of the shares
of Common Stock to facilitate the sale or resale of any of the Shares.
p. The Company will use its best efforts to qualify or
register its Common Stock for sale in non- issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of
each state where necessary to permit market making transactions and
secondary trading if you, based on advice of counsel, advise the
Company that such qualification, registration or exemption is
necessary, and will comply with such Blue Sky laws and will continue
such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
q. The Company will timely file with the National
Association of Securities Dealers Automated Quotation National Market
System ("Nasdaq/NMS") all documents and notices required by the
Nasdaq/NMS of companies that have issued securities that are traded in
the over-the-counter market and quotations for which are reported by
the Nasdaq/NMS.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter on the date hereof, and shall be
deemed to represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
a. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424(a) under the Act,
complied when so filed in all material respects with the provisions of
the Act, except that this representation and warranty does not apply
to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus.
b. The Registration Statement, in the form in which it
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective, and the
Prospectus, and any supplement or amendment thereto when filed with
the Commission under Rule 424(b) under the Act, will comply in all
material respects with the provisions of the Act and will not at any
such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
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<PAGE> 8
c. The capitalization of the Company is and will be as
set forth in the Prospectus as of the date set forth therein. All the
outstanding shares of Common Stock of the Company have been, and as of
the Closing Date will be, duly authorized and validly issued, are
fully paid and nonassessable and are free of any preemptive or similar
rights; the Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the
capital stock of the Company conforms to the description thereof in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto); and the delivery of certificates for the Shares
pursuant to the terms of this Agreement and payment for the Shares
will pass valid title to the Shares, free and clear of any claim,
encumbrance or defect in title to the several Underwriters purchasing
the Shares in good faith and without notice of any lien, claim or
encumbrance. The certificates for the Shares are in valid and
sufficient form.
d. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Texas
with full power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth,
results of operations or prospects of the Company and the Subsidiaries
(as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
e. Except for INSpire (Barbados), Inc., a Barbados
corporation (the "Subsidiary"), the Company does not own a material
interest in or control, directly or indirectly, any other corporation,
partnership, joint venture, association, trust or other business
organization. The Subsidiary is a corporation duly organized and
validly existing under the laws of the state of its incorporation with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as presently conducted, and is
duly registered and qualified to conduct its business and is in good
standing in each other jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration
or qualification, except where the failure to so register or qualify
does not have a Material Adverse Effect. All of the outstanding
shares of capital stock of the Subsidiary has been duly authorized
and validly issued, are fully paid and nonassessable, and are owned by
the Company directly, free and clear of any lien, adverse claim,
security interest, equity or other encumbrance.
f. There are no legal or governmental proceedings
pending or, to the best knowledge of the Company, threatened, against
the Company or the Subsidiary, or to
8
<PAGE> 9
which the Company or the Subsidiary, or any of their respective
properties, is subject, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or
supplement thereto) but are not described as required. Except as
described in the Prospectus, there is no action, suit, inquiry,
proceeding or investigation by or before any court or governmental or
other regulatory or administrative agency or commission pending or, to
the best knowledge of the Company, threatened, against or involving
the Company or the Subsidiary, which might individually or in the
aggregate prevent or adversely affect the transactions contemplated by
this Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, net worth, results of
operations or prospects of the Company or the Subsidiary, nor is there
any basis for any such action, suit, inquiry, proceeding, or
investigation. There are no agreements, contracts, indentures, leases
or other instruments that are required to be described in the
Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act. All
such contracts to which the Company or the Subsidiary is a party have
been duly authorized, executed and delivered by the Company or the
Subsidiary, constitute valid and binding agreements of the Company or
the Subsidiary and are enforceable against the Company or the
Subsidiary in accordance with the terms thereof, and neither the
Company nor the Subsidiary, nor to the best of the Company's
knowledge, any other party, is in breach of or default under any of
such contracts.
g. Neither the Company nor the Subsidiary is in
violation of its certificate or articles of incorporation or bylaws,
or other organizational documents, or of any law, ordinance,
administrative or governmental rule or regulation applicable to the
Company or the Subsidiary or of any decree of any court or
governmental agency or body having jurisdiction over the Company or
the Subsidiary, or in default in any material respect in the
performance of any obligation, agreement or condition contained in (i)
any bond, debenture, note or any other evidence of indebtedness, or
(ii) any material agreement, indenture, lease or other instrument to
which the Company or the Subsidiary is a party or by which any of them
or any of their respective properties may be bound; and there does not
exist any state of facts which constitutes an event of default on the
part of the Company or the Subsidiary as defined in such documents or
which, with notice or lapse of time or both, would constitute such an
event of default.
h. The execution and delivery of this Agreement and the
performance by the Company of its obligations under this Agreement
have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms.
i. Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated
hereby (i) requires any consent, approval, authorization
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<PAGE> 10
or other order of or registration or filing with, any court,
regulatory body, administrative agency or other governmental body,
agency or official (except such as may be required for the
registration of the Shares under the Act and compliance with the
securities or Blue Sky laws of various jurisdictions, all of which
will be, or have been, effected in accordance with this Agreement) or
conflicts with or will conflict with or constitutes or will constitute
a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the
Company or the Subsidiary or (ii) conflicts or will conflict with or
constitutes a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company or the Subsidiary is a
party or by which any of them or any of their respective properties
may be bound, or violates any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to the Company or
the Subsidiary or any of their respective properties, or results
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or the Subsidiary pursuant to
the terms of any agreement or instrument to which any of them is a
party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
j. Except as described in the Prospectus, the Company
does not have outstanding and at the Closing Date (and the Additional
Closing Date, if applicable) will not have outstanding any options to
purchase, or any warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of Common Stock or any such options, warrants or
convertible securities or obligations. No holder of securities of the
Company has rights to the registration of any securities of the
Company because of the filing of the Registration Statement that have
not been satisfied or heretofore waived in writing.
k. Deloitte & Touche LLP, the certified public
accountants who have certified the financial statements filed as part
of the Registration Statement and the Prospectus (and any amendment or
supplement thereto), are independent public accountants as required by
the Act.
l. The financial statements, together with related
schedules and notes, included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly
the consolidated financial position, results of operations and changes
in financial position of the Company and the Subsidiary on the basis
stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the
other financial and statistical information and data set forth in the
Registration Statement and Prospectus (and any amendment or supplement
thereto) is accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the
Company. No other financial statements or schedules are required to
be included in the Registration Statement.
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<PAGE> 11
m. Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to
the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or
supplement thereto), (i) the Company and the Subsidiary have not
incurred any material liabilities or obligations, indirect, direct or
contingent, or other transaction which is not in the ordinary course
of business or which could result in a material reduction in the
future earnings of the Company and the Subsidiary; (ii) the Company
and the Subsidiary have not sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered
by insurance; (iii) the Company has not paid or declared any dividends
or other distributions with respect to its capital stock and the
Company and the Subsidiary are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale
of the Shares hereunder and upon the exercise of options and warrants
described in the Prospectus) or indebtedness material to the Company
and the Subsidiary (other than in the ordinary course of business);
and (v) there has not been any material adverse change, or any
development involving or which may reasonably be expected to involve a
potential future material adverse change, in the condition (financial
or otherwise), business, properties, net worth, results of operations
or prospects of the Company and the Subsidiary.
n. Each of the Company and the Subsidiary has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims,
security interests or other encumbrances except (i) such as are
described in the financial statements included in, or elsewhere in,
the Prospectus or (ii) such as are not materially burdensome and do
not interfere in any material respect with the use of the property or
the conduct of the business of the Company and the Subsidiary taken as
a whole. The property (real and personal) held under lease by each of
the Company and the Subsidiary is held by it under valid, subsisting
and enforceable leases with only such exceptions as in the aggregate
are not materially burdensome and do not interfere in any material
respect with the conduct of the business of the Company and the
Subsidiary taken as a whole.
o. The Company has not distributed and will not
distribute any offering material in connection with the offering and
sale of the Shares other than the Prepricing Prospectus, the
Prospectus, or other offering material, if any, as permitted by the
Act and the rules and regulations enacted thereunder (the "Rules and
Regulations").
p. The Company has not taken, directly or indirectly,
any action which is designed, or which might reasonably be expected to
cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
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<PAGE> 12
q. The Company is not an "investment company," an
"affiliated person" of, or "promoter" or "principal underwriter" for
an investment company within the meaning of the Investment Company Act
of 1940, as amended.
r. The Company and the Subsidiary have all permits,
licenses, franchises, approvals, consents and authorizations of
governmental or regulatory authorities (hereinafter "permit" or
"permits") as are necessary to own their respective properties and to
conduct their respective businesses in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus, except where the failure to have obtained any such permit
has not and will not have a Material Adverse Effect; the Company and
the Subsidiary have fulfilled and performed all of their material
obligations with respect to each such permit and no event has occurred
which allows, or after notice or lapse of time would allow, revocation
or termination of any such permit or result in any other material
impairment of the rights of the holder of any such permit, subject in
each case to such qualification as may be set forth in the Prospectus;
and, except as described in the Prospectus, such permits contain no
restrictions that are materially burdensome to the Company or the
Subsidiary.
s. The Company and the Subsidiary have complied and will
comply in all material respects with wage and hour determinations
issued by the U.S. Department of Labor under the Service Contract Act
of 1965 and the Fair Labor Standards Act in paying its employees'
salaries, fringe benefits, and other compensation for the performance
of work or other duties in connection with contracts with the U.S.
government. The Company and the Subsidiary have complied and will
comply in all material respects with the terms of all certifications
and representations made to the U.S. government in connection with the
submission of any bid or proposal or any contract. The Company and
the Subsidiary have complied and will comply in all material respects
with their obligations under their agreements and contracts with the
U.S. government and agencies thereof.
t. The Company and the Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
u. Neither the Company nor the Subsidiary has, directly
or indirectly, at any time during the past five years (i) made any
unlawful contribution to any candidate for political office, or failed
to disclose fully any contribution in violation of law, or (ii) made
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<PAGE> 13
any payment to any federal, state or foreign governmental official, or
other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States
or any jurisdiction thereof or applicable foreign jurisdictions.
v. The Company and the Subsidiary have obtained all
material permits, licenses and other authorizations, if any, which are
required under federal, state, local and foreign statutes, ordinances
and other laws relating to pollution or protection of the environment
("Environmental Laws"). The Company and the Subsidiary are in
material compliance with all terms and conditions of all required
permits, licenses and authorizations, and are also in material
compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws. There is no pending
or, to the best knowledge of the Company, threatened civil or criminal
litigation, notice of violation, or administrative proceeding relating
in any way to the Environmental Laws involving the Company or the
Subsidiary. There have not been and there are not any past, present
or foreseeable future events, conditions, circumstances, activities,
practices, incidents, actions or plans relating to the Company or the
Subsidiary that may interfere with or prevent continued compliance
with, or that may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation under the Environmental
Laws, except where the same does not have a Material Adverse Effect.
w. The Company and the Subsidiary own and have full
right, title and interest in and to, or have valid licenses to use,
all the patents, trade names, trademarks service marks and copyrights
necessary for the present and currently planned conduct of the
business of the Company or the Subsidiary, and, except as described in
the Prospectus, neither the Company nor the Subsidiary has created any
lien or encumbrance on, or granted any right or license with respect
to, any such patent, trade name, trademark, service mark or copyright.
There is no claim pending against the Company or the Subsidiary with
respect to any patent, trade name, trademark, service mark or
copyright, and neither the Company nor the Subsidiary has received
notice that any patent, trade name, trademark, service mark or
copyright that it uses or has used in the conduct of its business
infringes upon or conflicts with the rights of any third party. To
the best knowledge of the Company, there is no infringement on the
intellectual property rights of the Company or the Subsidiary by
others, and none of the activities engaged in by the Company or the
Subsidiary infringes or conflicts with the intellectual property
rights of others, in a manner that could adversely affect the
condition (financial or other), business, properties, net worth,
results of operations or prospects of the Company and the Subsidiary,
taken as a whole.
x. All offers and sales of the Company's and the
Subsidiary's capital stock prior to the date hereof were made in
compliance with the Act and all other applicable state and federal
laws or regulations.
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<PAGE> 14
y. The Shares have been duly authorized for trading on
the Nasdaq/NMS subject to notice of issuance with respect to the
Shares being offered by the Company.
z. All federal, state and local tax returns required to
be filed by or on behalf of the Company or the Subsidiary with respect
to all periods ended prior to the date of this Agreement have been
filed (or are the subject of valid extension) with the appropriate
federal, state and local authorities and all such tax returns, as
filed, are accurate in all material respects. All federal, state and
local taxes (including estimated tax payments) required to be shown on
all such tax returns or claimed to be due from or with respect to the
business of the Company or the Subsidiary have been paid or reflected
as a liability on the financial statements of the Company and the
Subsidiary for appropriate periods, except for those taxes or claims
therefor which are being contested by the Company in good faith and
for which appropriate reserves are reflected in the Company's
financial statements. All deficiencies asserted as a result of any
federal, state or local tax audits have been paid or finally settled
and no issue has been raised in any such audit which, by application
of the same or similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so audited.
No state of facts exists or has existed which would constitute grounds
for the assessment of any tax liability with respect to the periods
which have not been audited by appropriate federal, state or local
authorities. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any federal, state or
local tax return for any period. On the Closing Date, and Additional
Closing Date, if any, all stock transfer and other taxes which are
required to be paid in connection with the sale of the shares to be
sold by the Company to the Underwriters will have been fully paid by
the Company and all laws imposing such taxes will have been complied
with.
aa. Except as set forth in the Prospectus, there are no
transactions with affiliates, as defined in Rule 405 promulgated under
the Act, which are required by the Act and the applicable rules and
regulations thereunder to be disclosed in the Registration Statement.
bb. The Company has procured the written agreement of the
Selling Shareholder, and each officer and director of the Company who
owns shares of Common Stock or options to acquire shares of Common
Stock of the Company as set forth in the Prospectus not to sell, offer
to sell or contract to sell, or otherwise dispose of or transfer,
directly or indirectly, any shares of Common Stock owned or controlled,
or hereafter acquired, by such persons, or any rights to purchase any
of such shares of Common Stock, for a period of 90 days after
commencement of the public offering of the Shares by the Underwriters
without the prior written consent of Raymond James & Associates, Inc.,
except that, beginning 30 days after commencement of such public
offering, the officers and directors, as a group, may sell up to but
not more than 100,000 shares of Common Stock, in the aggregate
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<PAGE> 15
without such prior written consent.
cc. Neither the Company nor the Subsidiary (i) conducts
business or has affiliates which conduct business in or with Cuba,
(ii) plans to commence doing business in or with Cuba after the
effective date of the Registration Statement or (iii) is required by
Florida law to report a material change in information previously
reported to the State of Florida regarding business conducted in or
with Cuba.
dd. Neither the sale of the Shares nor any action taken
by the Company or the Selling Shareholder in connection therewith
violates any provision of state insurance laws or regulations.
ee. No officer, director, nominee for director or
shareholder of the Company has any direct or indirect affiliation or
association with any member of the NASD.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder hereby represents and warrants to each Underwriter on
the date hereof (except as otherwise set forth herein), and shall be deemed to
represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
a. All consents, approvals, authorizations and orders
necessary for the execution and delivery by the Selling Shareholder of
this Agreement and the Power of Attorney (the "Power of Attorney")
referred to in the last paragraph of this Section 7, and for the sale
and delivery of the Firm Shares to be sold by the Selling Shareholder
hereunder, have been obtained; and the Selling Shareholder has full
right, power and authority to enter into this Agreement and the Power
of Attorney, and to sell, assign, transfer and deliver the Firm Shares
to be sold by the Selling Shareholder hereunder.
b. This Agreement and the Power of Attorney have been
duly authorized, executed and delivered by the Selling Shareholder and
this Agreement and the Power of Attorney constitute the valid and
binding agreements of the Selling Shareholder enforceable against the
Selling Shareholder in accordance with their respective terms, except
to the extent that the enforceability of the indemnification and
contribution provisions of Section 9 hereof may be limited by
securities laws or by public policy considerations as expressed in
such laws as construed by courts of competent jurisdiction, and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws of general application relating to or
affecting enforcement of creditors' rights generally or the
availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law; the
performance of this Agreement and the Power of Attorney and the
consummation of the transactions contemplated herein and therein will
not result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any statute, indenture, mortgage,
deed of trust, voting trust
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<PAGE> 16
agreement, note agreement, lease or other agreement or instrument to
which the Selling Shareholder is a party or by which the Selling
Shareholder or its properties are bound, or under any order, rule or
regulation of any court or governmental agency or body applicable to
the Selling Shareholder or the business or property of the Selling
Shareholder.
c. The Selling Shareholder has, and immediately prior to
the Closing Date the Selling Shareholder will have, good and valid
title to the Firm Shares to be sold by the Selling Shareholder
hereunder, free and clear of all liens, encumbrances, equities,
shareholder agreements, voting trusts or claims of any nature
whatsoever, and, upon delivery of such Shares and payment therefor
pursuant hereto, good and valid title to such Shares, free and clear
of all liens, encumbrances, equities, shareholder agreements, voting
trusts or claims of any nature whatsoever (other than those arising by
or through the Underwriters), will pass to the several Underwriters.
d. The Selling Shareholder will not, for a period of 90
days after the commencement of the public offering of the Shares by
the Underwriters, directly or indirectly, sell, offer to sell,
contract to sell or otherwise dispose of or transfer any shares of
Common Stock or rights to purchase shares of Common Stock otherwise
than hereunder or with the prior written consent of Raymond James &
Associates, Inc.
e. The Selling Shareholder has not taken, and will not
take, directly or indirectly, any action designed to or which has
constituted nor which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares or otherwise.
f. No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or
body is required for the consummation by the Selling Shareholder of
the transactions on its part contemplated herein or in the Power of
Attorney, except such as have been obtained under the Act and such as
may be required under state securities or Blue Sky laws or the by-laws
and rules of the NASD in connection with the purchase and distribution
by the Underwriters of the Shares to be sold by the Selling
Shareholder.
g. The Selling Shareholder is familiar with the
Registration Statement, the Prepricing Prospectus and the Prospectus
and has no knowledge of any fact or condition not set forth in the
Registration Statement, the Prepricing Prospectus or the Prospectus
which has materially adversely affected, or may materially adversely
affect, the condition (financial or otherwise), business, properties,
net worth, results of operations or prospects of the Company, and the
sale of the Firm Shares proposed to be sold by the Selling Shareholder
is not prompted by any such knowledge.
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<PAGE> 17
h. All information with respect to the Selling
Shareholder contained in the Registration Statement, the Prepricing
Prospectus and the Prospectus (as amended or supplemented, if the
Company shall have filed with the Commission any amendment or
supplement thereto) complied and will comply in all material respects
with all applicable provisions of the Act, contains and will contain
all statements required to be stated therein in accordance with the
Act, and does not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
i. To the best knowledge of the Selling Shareholder, the
representations and warranties of the Company contained in Section 6
hereof are true and correct.
j. Other than as permitted by the Act and the Rules and
Regulations, the Selling Shareholder has not distributed and will not
distribute any Prepricing Prospectus, the Prospectus or any other
offering material in connection with the offering and sale of the
Shares.
k. On the Closing Date, all stock transfer and other
taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Firm Shares to be sold by
the Selling Shareholder to the several Underwriters hereunder will
have been fully paid for by the Selling Shareholder and all laws
imposing such taxes will have been fully complied with.
l. Neither the sale of the Shares nor any action taken
by the Selling Shareholder in connection therewith violates any state
insurance laws or regulations.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, the Selling
Shareholder agrees to deliver to you at least two days prior to the Closing a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The Selling Shareholder represents and warrants that it has duly
executed and delivered a Power of Attorney, in the form heretofore furnished to
you, appointing Joy J. Keller and Frank G. Dunham, Jr. as the Selling
Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to
execute and deliver this Agreement on behalf of the Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to the Selling
Shareholder as provided in Section 2 hereof, to authorize the delivery of the
Firm Shares to be sold by the Selling Shareholder hereunder or otherwise to act
on behalf of the Selling Shareholder in connection with the transactions
contemplated by this Agreement. Prior to the date of this Agreement, the
Selling Shareholder has delivered to the Attorneys-in-Fact certificates in
negotiable form representing all the Firm Shares to be sold by the Selling
Shareholder hereunder, to be held by the Attorneys-in-Fact until such time as
the Attorneys-in-Fact shall deliver such Firm Shares to the Underwriters
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<PAGE> 18
in accordance with this Agreement and the Power of Attorney or, if this
Agreement is terminated prior to such delivery, shall return such Firm Shares
to the Selling Shareholder. The Selling Shareholder specifically agrees that
the Firm Shares represented by the certificates held in custody for the Selling
Shareholder under the Power of Attorney are subject to the interest of the
Underwriters hereunder, and that the arrangements made by the Selling
Shareholder for the custody, and the appointment by the Selling Shareholder of
the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
The Selling Shareholder specifically agrees that the obligations of the Selling
Shareholder hereunder shall not be terminated by operation of law, whether by
the dissolution or change of control of the Selling Shareholder or by the
occurrence of any other event. If the Selling Shareholder should be dissolved,
or if any other such event should occur before the delivery of the Firm Shares
hereunder, certificates representing the Firm Shares shall be delivered by or
on behalf of the Selling Shareholder in accordance with the terms and
conditions of this Agreement and the Power of Attorney, and actions taken by
the Attorneys-in-Fact pursuant to the Power of Attorney shall be as valid as if
such dissolution or other event had not occurred, regardless of whether or not
the Attorneys-in-Fact, or either of them, shall have received notice of
termination, dissolution or other event.
8. EXPENSES. Whether or not the transactions contemplated hereby
are consummated or this Agreement becomes effective or is terminated, the
Company and the Selling Shareholder, jointly and severally, shall be
responsible for and shall pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's and Selling Shareholder's counsel
and accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and filing
of the Registration Statement and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof and of any Prepricing
Prospectus to the Underwriters and dealers; (ii) the printing and delivery
(including, without limitation, postage, air freight charges and charges for
counting and packaging) of such copies of the Registration Statement, the
Prospectus, each Prepricing Prospectus, the Blue Sky memoranda, the Power of
Attorney, the Agreement Among Underwriters, this Agreement, the Selected
Dealers Agreement and all amendments or supplements to any of them as may be
reasonably requested for use in connection with the offering and sale of the
Shares; (iii) all reasonable expenses in connection with the qualification of
the Shares for offering and sale under state securities laws or Blue Sky laws,
including the reasonable fees of the counsel for the Underwriters in connection
therewith; (iv) the filing fees incident to securing any required review by the
NASD of the terms of the sale of the Shares and the reasonable fees and
disbursements of the Underwriters' counsel relating thereto; (v) the cost of
preparing stock certificates; (vi) the costs and charges of any transfer agent
or registrar; (vii) the cost of the tax stamps, if any, in connection with the
issuance and delivery of the Shares to the respective Underwriters; (viii) all
other fees, costs and expenses referred to in Item 13 of the Registration
Statement; and (ix) all other costs and expenses incident to the performance of
the obligations of the Company and the Selling Shareholder hereunder which are
not otherwise specifically provided for in this Section. Notwithstanding the
foregoing, in the event that the proposed offering is terminated for the
reasons set forth in Section 5(i) hereof, the Company agrees to reimburse the
Underwriters as provided in Section 5(i).
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<PAGE> 19
9. INDEMNIFICATION AND CONTRIBUTION. The Company and the Selling
Shareholder jointly and severally agree to indemnify and hold harmless you and
each other Underwriter, the directors, officers, employees and agents of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expense arise out of or are based upon an untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith, or arising
out of or based upon any inaccuracy in the representations and warranties of
the Company or the Selling Shareholder contained herein or any failure of the
Company or the Selling Shareholder to perform their respective obligations
hereunder or under law; provided, however, that with respect to any untrue
statement or omission made in any Prepricing Prospectus, the indemnity
agreement contained in this subsection shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) from
whom the person asserting any such losses, claims, damages or liabilities
purchased the shares of Stock concerned if both (A) a copy of the Prospectus
was not sent or given to such person at or prior to the written confirmation of
the sale of such shares of Stock to such person as required by the Act, and (B)
the untrue statement or omission in the Prepricing Prospectus was corrected in
the Prospectus. Notwithstanding anything in this Section 9, in no event shall
the Selling Shareholder's obligation under the preceding sentence exceed the
total net proceeds from the offering received by the Selling Shareholder (it
being agreed that the Company shall bear the balance.)
In addition to their other obligations under this Section 9, the
Company and the Selling Shareholder jointly and severally agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, any inaccuracy in the representations and warranties of the Company
or the Selling Shareholder herein or failure to perform its obligations
hereunder, all as described in this Section 9, it will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Selling Shareholder's obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company or the Selling Shareholder,
as the case may be, together with interest, compounded daily determined on the
basis of the base lending rate announced from time
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<PAGE> 20
to time by Chase Manhattan Bank, N.A. (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within 30 days of
a request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company or the Selling Shareholder, such Underwriter or such
controlling person shall promptly notify in writing the party(s) against whom
indemnification is being sought (the "indemnifying party" or "indemnifying
parties"), and such indemnifying party(s) shall assume the defense thereof,
including the employment of counsel reasonably acceptable to such Underwriter
or such controlling person and payment of all fees and expenses. Such
Underwriter or any such controlling person shall have the right to employ
separate counsel (but the Company and the Selling Shareholder shall not be
liable for the fees and expenses of more than one counsel) in any such action
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the indemnifying party(s) has (have) agreed in writing to pay such
fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume
the defense and employ counsel reasonably acceptable to the Underwriter or such
controlling person or (iii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying party(s) and such Underwriter or such controlling person shall
have been advised by its counsel that one or more legal defenses may be
available to the Underwriter which may not be available to the Company, or that
representation of such indemnified party and any indemnifying party(s) by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party(s) shall not have the right to assume the defense
of such action on behalf of such Underwriter or such controlling person
(notwithstanding its (their) obligation to bear the fees and expenses of such
counsel)). The indemnifying party(s) shall not be liable for any settlement of
any such action effected without its (their) written consent, but if settled
with such written consent, or if there be a final judgment for the plaintiff in
any such action, the indemnifying party(s) agree(s) to indemnify and hold
harmless any Underwriter and any such controlling person from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment, but in the case of a judgment only to the extent stated in the
immediately preceding paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and the
Selling Shareholder, to the same extent as the foregoing indemnity from the
Company and the Selling Shareholder to each Underwriter, but only with respect
to information furnished in writing by or on behalf of such Underwriter through
you expressly for use in the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto. If any action
or claim shall be brought or asserted against the Company, any of its
directors, any such officers, or any such controlling person or the Selling
Shareholder based on the Registration
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<PAGE> 21
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph, such Underwriter shall have the rights
and duties given to the Company and the Selling Shareholder by the preceding
paragraph (except that if the Company shall have assumed the defense thereof
such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officers, and any such controlling persons and
the Selling Shareholder shall have the rights and duties given to the
Underwriters by the immediately preceding paragraph.
If the indemnification provided for in this Section 9 is unavailable
or insufficient for any reason whatsoever to an indemnified party under the
first or fourth paragraph hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholder on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and the Selling Shareholder on the one hand
and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholder on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Shareholder bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus; provided
that, in the event that the Underwriters shall have purchased any Additional
Shares hereunder, any determination of the relative benefits received by the
Company and the Selling Shareholder or the Underwriters from the offering of
the Shares shall include the net proceeds (before deducting expenses) received
by the Company, and the underwriting discounts and commissions received by the
Underwriters, from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the Prospectus. The relative fault of the Company and the
Selling Shareholder on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Selling Shareholder on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by a pro rata allocation
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<PAGE> 22
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule I hereto (or such numbers of Firm Shares increased as set forth in
Section 11 hereof) and not joint.
Notwithstanding the second and fifth paragraphs of this Section 9, any
losses, claims, damages, liabilities or expenses for which an indemnified party
is entitled to indemnification or contribution under this Section 9 shall be
paid by the indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. The indemnity, contribution and
reimbursement agreements contained in Section 9 and the representations and
warranties of the Company and the Selling Shareholder, respectively, set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any person controlling the Company or the Selling Shareholder, (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company or the Selling Shareholder, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in the second and fifth paragraphs
of this Section 9, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced
by service of a written demand for arbitration or written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in the second and
fifth paragraphs of this Section 9, and
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<PAGE> 23
would not resolve the ultimate propriety or enforceability of the obligation to
reimburse expenses which is created by the provisions of the second and fifth
paragraphs of this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
a. The Registration Statement shall have become
effective not later than 12:00 noon, New York City time, on the date
hereof, or at such later date and time as shall be consented to in
writing by you, and all filings required by Rules 424(b) and 430A
under the Act shall have been timely made.
b. You shall be reasonably satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock (other than pursuant to the exercise of outstanding
options disclosed in the Prospectus or granted under the stock option
plans described in the Prospectus) of the Company or any of its
Subsidiaries or any material change in the indebtedness (other than in
the ordinary course of business) of the Company or any of its
Subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or
written agreement or other transaction shall have been entered into by
the Company or any of its Subsidiaries, which is not in the ordinary
course of business or which could reasonably be expected to result in
a material reduction in the future earnings of the Company and its
Subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its Subsidiaries shall have been
sustained which materially and adversely affects the condition
(financial or other), business, properties, net worth, results of
operations or prospects of the Company and its Subsidiaries, (iv) no
legal or governmental action, suit or proceeding affecting the Company
or any of its Subsidiaries which is material to the Company and its
Subsidiaries or which affects or could reasonably be expected to
affect the transactions contemplated by this Agreement shall have been
instituted or threatened, and (v) there shall not have been any
material change in the condition (financial or other), business,
management, properties, net worth, results or operations or prospects
of the Company and its Subsidiaries which makes it impractical or
inadvisable in your judgment to proceed with the public offering or
purchase the Shares as contemplated hereby.
c. You shall have received an opinion, which opinion
shall be interpreted in accordance with the Legal Opinion Accord (the
"Accord") of the American Bar Association Section of Business Law
(1991), of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Company and the Selling Shareholder, dated the Closing Date, in form
and substance reasonably satisfactory to you and your counsel, to the
effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation under the laws of the State
of Texas, with full corporate power and
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<PAGE> 24
authority to own, lease and operate its properties and conduct
its business as described in the Prospectus;
(ii) all of the outstanding shares of Common Stock
prior to the issuance of the Shares have been duly and validly
authorized and issued, are fully paid and nonassessable and
free of preemptive rights under the Company's Restated
Articles of Incorporation, or to the Knowledge of such counsel
(as used herein, the term "Knowledge" shall mean the Actual
Knowledge of the Primary Lawyer Group, as those terms are
defined in the Accord) similar rights that entitle or will
entitle any person to acquire any shares upon the issuance
thereof by the Company; the Shares to be issued and sold to
the Underwriters by the Company hereunder have been duly
authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and free
of any preemptive rights under the Company's Restated Articles
of Incorporation, or to the Knowledge of such counsel, similar
rights that entitle or will entitle any person to acquire any
Shares upon the issuance thereof by the Company; and the
authorized capital stock of the Company conforms in all
material respects to the description thereof under the caption
"Description of Capital Stock" in the Prospectus;
(iii) the Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business,
so as to require such qualification, except for those failures
to be so qualified or in good standing which will not in the
aggregate have a Material Adverse Effect;
(iv) (a) the Registration Statement has become
effective under the Act and, to the Knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act; (b) the Registration Statement and the Prospectus and
each amendment or supplement thereto (except for the financial
statements, schedules, and other financial and statistical
data included therein, as to which such counsel need express
no opinion) comply as to form in all material respects with
the requirements of the Act; (c) such counsel has no Knowledge
of any contracts or documents required to be filed as exhibits
to the Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or
described as required, and (d) to the Knowledge of such
counsel, the descriptions in the Prospectus of statutes, legal
and governmental proceedings, and contracts and other
documents present in all material respects the information
required to be shown;
(v) this Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid
and binding agreement of the Company
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<PAGE> 25
enforceable in accordance with its terms, except to the extent
that the enforceability of the indemnification and
contribution provisions of Section 9 hereof may be limited by
securities laws or by public policy considerations as
expressed in such laws as construed by courts of competent
jurisdiction and except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting enforcement of
creditors' rights generally or the availability of equitable
remedies, regardless of whether such enforcement is considered
in a proceeding in equity or at law, and neither the
performance of this Agreement nor consummation of the
transactions contemplated herein (a) will result in any breach
or violation of any of the terms or provisions of, or
constitute a default under, (i) any contract, indenture,
mortgage, deed of trust, voting trust or similar agreement,
note agreement, lease or other agreement or instrument to
which the Company or the Subsidiary is a party or by which the
Company or the Subsidiary or their respective properties are
bound and that is either (x) filed by the Company with the
Commission as an exhibit to the Registration Statement or (y)
material to the Company and the Subsidiary, taken as a whole,
and known to such counsel (collectively, "Material
Agreements"), (ii) the Restated Articles of Incorporation or
bylaws of the Company or (iii) any Law (but excluding Local
Law) applicable to the Company or the Subsidiary or their
respective businesses or properties, the violation of which
would have a Material Adverse Effect, and (b) will not result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiary pursuant to the terms of any Material Agreement;
and, to the Knowledge of such counsel, no consent, approval,
authorization, registration, filing or order of any federal or
Texas State authority has been or is required for the
performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby, except
such as have been obtained under the Act, provided that such
opinion need not extend to consents, approvals, authorizations
or orders required under state or foreign securities or Blue
Sky laws or under NASD rules in connection with the purchase
and distribution of the Shares by the Underwriters;
(vi) to the Knowledge of such counsel, there is not
pending or threatened any action, suit or proceeding before or
by any court or governmental agency or body, to which the
Company or the Subsidiary is a party, or to which any property
of the Company or the Subsidiary is subject, which (a) is not
referred to in the Prospectus and would reasonably be expected
to result in a Material Adverse Effect or (b) is required to
be described in the Prospectus and is not so described;
(vii) the form of certificates for the Shares
conforms in all material respects with the requirements of the
Texas Business Corporation Act;
(viii) to the Knowledge of such counsel, (A) the
Company has such permits, licenses, franchises, authorizations
and approvals (collectively, "permits")
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<PAGE> 26
of federal or Texas State governmental agencies or bodies as
are necessary to own or lease its properties and to conduct
its business in the manner described in the Prospectus, except
where the failure to have obtained any such permit would not
have a Material Adverse Effect, subject in each case to such
qualifications as may be set forth in the Prospectus and (B)
the permits contain no restrictions required to be disclosed
in the Prospectus that are not disclosed therein;
(ix) to the Knowledge of such counsel, neither the
Company nor any of its Subsidiaries is in violation of any Law
(but excluding Local Law) applicable to the Company or the
Subsidiary or of any decree of any court or governmental
agency or body having jurisdiction over the Company or the
Subsidiary except where such violation would not reasonably be
expected to have a Material Adverse Effect;
(x) neither the Company nor the Subsidiary is an
"investment company" or an "affiliated person" of or a
company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940;
(xi) this Agreement and the Power of Attorney have
been duly authorized, executed and delivered by or on behalf
of the Selling Shareholder and constitute binding agreements
of the Selling Shareholder enforceable in accordance with
their terms, except to the extent that the enforceability of
the indemnification and contribution provisions of Section 9
hereof may be limited by securities laws or by public policy
considerations as expressed in such laws as construed by
courts of competent jurisdiction and except as enforceability
may be limited by bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting
enforcement of creditors' rights generally or the availability
of equitable remedies, regardless of whether such enforcement
is considered in a proceeding in equity or at law; and to the
Knowledge of such counsel the performance of this Agreement
and the Power of Attorney and the consummation of the
transactions herein and therein contemplated will not result
in a breach or violation of any of the terms or provisions of,
or constitute a default under, any statute, indenture,
mortgage, deed of trust, voting trust agreement, note
agreement, lease or other agreement or instrument to which the
Selling Shareholder is a party or by which the Selling
Shareholder or its properties are bound, or any Law (but
excluding any Local Law) applicable to the Selling Shareholder
or the business or property of the Selling Shareholder;
(xii) to the Knowledge of such counsel, no consent,
approval, authorization or order of any federal or Texas State
authority has been or is required for the performance of this
Agreement and the Power of Attorney by the Selling Shareholder
or the consummation of the transactions contemplated by this
Agreement and the Power of Attorney in connection with the
Firm Shares to be sold by the Selling Shareholder hereunder,
except consents, approvals,
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<PAGE> 27
sold by the Selling Shareholder hereunder, except consents,
approvals, authorizations or orders that have been duly
obtained and are in full force and effect, such as have been
obtained under the Act and such as may be required under state
securities or Blue Sky laws or NASD rules and regulations in
connection with the purchase and distribution of such Shares by
the Underwriters;
(xiii) to the Knowledge of such counsel, immediately
prior to the Closing Date, the Selling Shareholder has good
and valid title to the Firm Shares to be sold by the Selling
Shareholder under this Agreement, free and clear of all
pledges, liens, security interests, charges, claims, equities
or encumbrances of any kind, and full right, power and
authority to sell, assign, transfer and deliver the Firm
Shares to be sold by the Selling Shareholder hereunder; and
(xiv) by delivery of a certificate or certificates
therefor the Selling Shareholder will transfer to the
Underwriters who have purchased such Firm Shares pursuant to
this Agreement in good faith and without notice of any such
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind or any other adverse claim within the
meaning of the Texas Uniform Commercial Code good and valid
title to such Shares, free and clear of any pledges, liens,
security interests, charges, claims, equities, encumbrances or
other adverse claims (other than those arising by or through
the Underwriters).
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, counsel for the Underwriters, representatives of the independent
public accountants for the Company, and the Underwriters, at which the contents
of the Registration Statement and Prospectus and related matters were discussed
and, although such counsel is not passing upon and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, on the basis of the
foregoing (relying as to materiality upon the statements of officers and other
representatives of the Company), no facts have come to such counsel's attention
which lead such counsel to believe (i) that the Registration Statement or any
amendment or supplement thereto (other than the financial statements, schedules
and reports thereon, and other financial and statistical data included therein,
as to which such counsel need not comment), as of its effective date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) that the Prospectus or any amendment or supplement thereto
(other than financial statements, schedules and reports thereon, and other
financial and statistical data included therein, as to which such counsel need
not comment), as of its issue date and as of the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Such counsel may state that its belief expressed in such statement
is based upon the procedures set forth therein.
27
<PAGE> 28
In rendering their opinion as aforesaid, counsel need only opine as to
the laws of the State of Texas and federal laws, and counsel may (1) rely as to
matters of fact on certificates of responsible officers and other
representatives of the Company, certificates of public officials, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that in each such case, such counsel
shall state that it has no knowledge contrary to the information contained in
such certificates or statements and knows of no reason why you should not
reasonably rely upon the information contained in such certificates or
statements and copies of any such certificates or statements shall be delivered
to Underwriters' counsel; and (2) make such other assumptions, qualifications,
exceptions and limitations applicable to such opinions as shall be contemplated
by the Accord or otherwise reasonably acceptable to Underwriters' counsel.
In rendering such opinion, such counsel may rely upon a certificate of
the Selling Shareholder as to matters of fact (i) with respect to ownership of
and liens, encumbrances, equities or claims on the Shares sold by the Selling
Shareholder, and (ii) with respect to any agreements, mortgages, deeds of
trust, voting trusts, notes, leases or other instruments, provided that such
counsel shall state that it has no knowledge contrary to the information
contained in such certificate and knows of no reason why you should not
reasonably rely upon the information contained in such certificate and a copy
of any such certificate shall be delivered to Underwriters' counsel.
d. You shall have received on the Closing Date an opinion of
Thompson & Knight, a Professional Corporation, as counsel for the Underwriters,
dated the Closing Date with respect to the issuance and sale of the Firm
Shares, the Registration Statement and other related matters as you may
reasonably request, and the Company and its counsel shall have furnished to
your counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
e. You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Deloitte & Touche LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.
f. No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or, to the knowledge of the Company, shall be threatened or
contemplated by the Commission at or prior to the Closing Date; (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending or, to the knowledge of the Company, threatened or contemplated by the
Commission or the authorities of any jurisdiction; (iii) any request for
additional information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff of
the Commission or such authorities; (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to you and you
28
<PAGE> 29
did not object thereto in good faith; and (v) all of the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you) to the effect set forth in this Section 10(f) and in
Sections 10(b) and 10(g) hereof.
g. The Company shall not have failed in any respect at or prior
to the Closing Date to have performed or complied with any of its agreements
herein contained and required to be performed or complied with by it hereunder
at or prior the Closing Date.
h. You shall have received a certificate, dated on and as of the
Closing Date, by or on behalf of the Selling Shareholder to the effect that as
of the Closing Date the Selling Shareholder's representations and warranties in
this Agreement are true and correct as if made on and as of such Closing Date,
and that the Selling Shareholder has performed all its obligations and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date.
i. The Company and the Selling Shareholder shall have furnished
or caused to have been furnished to you such further certificates and documents
as you shall have reasonably requested.
j. At or prior to the Closing Date, you shall have received the
written commitment of each of the Company's officers and directors and certain
of their affiliates and the Selling Shareholder not to sell, offer to sell,
contract to sell, or otherwise dispose of or transfer any shares of Common
Stock or rights to purchase any shares of Common Stock, directly or indirectly,
except to the Underwriters pursuant to this Agreement, for a period of 90 days
after commencement of the public offering of the Shares by the Underwriters
without the prior written consent of Raymond James & Associates, Inc., except
that, beginning 30 days after commencement of such public offering, officers and
directors of the Company, as a group, may sell up to but not more than 100,000
shares of Common Stock, in the aggregate, without such prior written consent.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional
Shares hereunder (if any are purchased) are subject to the satisfaction on and
as of the Additional Closing Date of the conditions set forth in this Section
10, except that, if the Additional Closing Date is other than the Closing Date,
the certificates, opinions and letters referred to in paragraphs (c) through
(i) shall be dated as of the Additional Closing Date and the opinion called for
by paragraph (c) shall be revised to reflect the sale of Additional Shares.
29
<PAGE> 30
If any of the conditions hereinabove provided for in this Section 10
shall not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by you by notifying the Company of such termination
in writing or by telegram at or prior to such Closing Date, but you shall be
entitled to waive any of such conditions.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the later of (a) the execution and delivery hereof by the
parties hereto, and (b) release of notification of the effectiveness of the
Registration Statement by the Commission; provided, however, that the
provisions of Sections 8 and 9 shall at all times be effective.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Firm Shares, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the number
of Firm Shares set forth opposite its name in Schedule I hereto bears to the
aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
the Agreement Among Underwriters, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares
and arrangements satisfactory to you, the Company and the Selling Shareholder
for the purchase of such Firm Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholder. In any
such case which does not result in termination of this Agreement, either you or
the Company and the Selling Shareholder shall have the right to postpone the
Closing Date, but in no event for longer than seven (7) days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default of any such Underwriter under this Agreement.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Shareholder by notice to the Company
and the Selling Shareholder, if prior to the Closing Date or the Additional
Closing Date (if different from the Closing Date and then only as to the
Additional Shares), as the case may be, in your sole judgment, (i) trading in
the Company's Common Stock shall have been suspended by the Commission or the
Nasdaq/NMS, (ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or Nasdaq/NMS shall have been suspended or
materially limited, or minimum or maximum prices shall have been generally
established on such exchange or market, or additional material governmental
restrictions, not in force on the date of this Agreement, shall have been
imposed upon trading in securities generally by any such exchange or market or
by order of the Commission or any court or other governmental authority, (iii)
a general moratorium on
30
<PAGE> 31
commercial banking activities shall have been declared by either federal or New
York State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis
or change in political, financial or economic conditions or other material
event the effect of which on the financial markets of the United States is such
as to make it, in your judgment, impracticable or inadvisable to market the
Shares or to enforce contracts for the sale of the Shares. Notice of such
cancellation shall be promptly given to the Company and its counsel by
telegraph, telecopy or telephone and shall be subsequently confirmed by letter.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company
acknowledges that the statements set forth in footnote (4) on the cover page of
the Prospectus and in the third paragraph under the caption "Underwriting" in
any Prepricing Prospectus and in the Prospectus, constitute the only
information furnished by or on behalf of the Underwriters through you or on
your behalf as such information is referred to in Sections 6(a), 6(b) and 9
hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5 and
12 hereof, notice given pursuant to any of the provisions of this Agreement
shall be in writing and shall be delivered (i) if to the Company or the Selling
Shareholder, to the office of the Company at 300 Burnett Street, Fort Worth,
Texas 76102-2799, Attention: F. George Dunham, III (with a copy to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas
75201-4618, Attention: Terry M. Schpok, P.C.), or (ii) if to you, as
Representatives of the Underwriters, to Raymond James & Associates, Inc., 880
Carillon Parkway, St. Petersburg, Florida 33716, Attention: Charles W. Uhrig
(with copy to Thompson & Knight, A Professional Corporation, 1700 Pacific
Avenue, Suite 3300, Dallas, Texas 75201-4693, Attention: Fred W. Fulton).
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof, the Selling Shareholder
and its respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither of the terms "successor" and "successors and assigns" as
used in this Agreement shall include a purchaser from you of any of the Shares
in his status as such purchaser.
This Agreement constitutes the entire agreement, and supersedes all
other prior agreements and undertakings, both written and oral, among the
parties with respect to the subject matter hereof.
15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas
without reference to choice of law principles thereunder.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE> 32
Subject to Section 11, this Agreement shall be effective when, but
only when, at least one counterpart hereof shall have been executed on behalf
of each party hereto.
The Company, the Selling Shareholder and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect to any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholder and the several Underwriters.
Very truly yours,
INSPIRE INSURANCE SOLUTIONS, INC.
By:
-----------------------------------
Name: F. George Dunham, III
Title: President and
Chief Executive Officer
Selling Shareholder:
THE MILLERS MUTUAL FIRE INSURANCE COMPANY
By:
-----------------------------------
Name: Frank G. Dunham, Jr.
Title: Attorney-in-Fact,
as Attorney-in-Fact acting on behalf of the
Selling Shareholder named
in Schedule II to this Agreement.
32
<PAGE> 33
CONFIRMED as of the date first above mentioned,
on behalf of itself and the other several
Underwriters named in Schedule I hereto.
RAYMOND JAMES & ASSOCIATES, INC.
By:
-----------------------------------
Name: Charles W. Uhrig
Title: Managing Director
33
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
Number
of Firm
Name Shares
- ---- ---------
<S> <C>
Raymond James & Associates, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
NationsBanc Montgomery Securities LLC . . . . . . . . . . . . . . . . . . . . . . . .
Southwest Securities, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
=========
</TABLE>
34
<PAGE> 35
SCHEDULE II
<TABLE>
<CAPTION>
Shares Firm Shares Additional Shares Total
- ------ ----------- ----------------- -----
<S> <C> <C> <C>
Company 1,500,000 300,000 1,800,000
- -------
Selling Shareholder
- -------------------
The Millers Mutual
Fire Insurance
Company 500,000 -0- 500,000
---------- ------------- ----------
TOTAL: 2,000,000 300,000 2,300,000
========== ============= ==========
</TABLE>
35
<PAGE> 1
EXHIBIT 2.3
STOCK PURCHASE AND ASSUMPTION AGREEMENT
THIS STOCK PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement"), dated as
of September 15, 1997 between INSpire Insurance Solutions, Inc., a Texas
corporation ("Seller"), AQS, Inc., a Wisconsin corporation ("Purchaser"), Samuel
J. Fleager ("Fleager") and Applied Quoting Systems, Inc., a Wisconsin
corporation ("AQS").
WHEREAS, AQS was formerly owned by Fleager and other stockholders until AQS
was acquired by Strategic Data Systems, Inc. ("SDS") pursuant to the terms of
that certain Agreement and Plan of Merger dated August 27, 1991 (the "SDS
Agreement") by and among AQS, AQS Acquisition Corp. and SDS; and
WHEREAS, SDS was acquired by Seller and thereafter merged with and into
Seller resulting in AQS becoming a wholly-owned subsidiary of Seller; and
WHEREAS, Seller and Fleager have entered into a letter of intent dated July
1, 1997 contemplating the sale by Seller of all of the issued and outstanding
capital stock of AQS to Fleager, of which Purchaser is the assignee of Fleager;
and
WHEREAS, Seller desires to sell to Purchaser 100 shares of the common stock
par value $.01 per share of AQS (the "Shares") on the terms and conditions set
forth herein, which Shares constitute all of the issued and outstanding shares
of common stock of AQS; and
WHEREAS, Purchaser desires to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, AQS has determined that the sale of the Shares to Purchaser is in
the best interest of AQS and AQS has agreed to assume and perform certain
obligations of Seller as an additional inducement for Seller to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Shares.
(a) Purchase Price. Subject to the terms and conditions hereof, Seller
hereby sells and transfers to Purchaser, and Purchaser hereby purchases
from Seller, the Shares. The aggregate purchase price ("Purchase Price") to
be paid by Purchaser for the Shares shall be $2,500,000. Upon the execution
and delivery of this Agreement, Seller shall deliver to Purchaser a
certificate representing the Shares which shall be accompanied by a duly
executed stock power transferring the Shares to Purchaser. Purchaser hereby
acknowledges receipt of the stock certificate evidencing the Shares.
(b) Payment of Purchase Price. The Purchase Price shall be paid to
Seller by wire transfer to Seller's account upon the execution of this
Agreement. Seller has heretofore delivered wire instructions to Purchaser.
<PAGE> 2
(c) Closing. The closing of the purchase and sale of the Shares shall
take place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Dallas, Texas concurrently with the execution of this Agreement by the
parties hereto.
2. Termination of Employment Contract Guaranty Agreement and Release
by Fleager. Fleager hereby agrees that (i) this Agreement shall terminate
effective July 1, 1997 that certain Employment Contract Guaranty Agreement
between SDS and Purchaser dated as of September 25, 1991 (the "Employment
Contract Agreement") and that certain Employment and Consulting Agreement
between AQS and Fleager dated as of August 29, 1991 (the "Employment
Agreement"); (ii) Seller shall have no further obligation under the Employment
Contract Agreement from and after July 1, 1997, (iii) AQS shall have no further
obligation under the Employment Agreement from and after July 1, 1997, and (iv)
Fleager, for himself, his heirs, personal representatives, successors and
assigns, does hereby release, acquit, discharge and covenant not to sue Seller
and AQS, their officers, directors, agents, attorneys, employees, successors and
assigns, with respect to all past, present and future claims, expenses, losses,
liabilities and obligations of any nature whatsoever, relating to the Employment
Contract Agreement and the Employment Agreement, whether accrued or contingent,
known or unknown, whether sounding in contract, tort or otherwise.
3. Release by AQS. AQS hereby releases, acquits, discharges and
covenants not to sue Seller, its officers, directors, agents attorneys,
employees, successors and assigns with respect to all past, present and future
claims, expenses, losses, liabilities and obligations of any nature whatsoever,
whether accrued or contingent, known or unknown, whether sounding in contract,
tort or otherwise, based in whole or in any material part upon facts and
circumstances in existence as of the Closing Date; provided however, that
nothing herein shall be deemed to release Seller from any breach of any
representation, warranty or express obligation of Seller under this Agreement.
4. Seller's Activities. Purchaser acknowledges that the business of
Seller includes and will continue to include commercial policy processing,
including, but not limited to, quoting, rating and policy issuance and that
Seller may continue to compete with AQS.
5. Indemnification.
(a) Purchaser, AQS and Fleager jointly and severally agree to defend,
indemnify and hold harmless Seller and its affiliates, successors and
assigns (and their respective directors, officers and other employees and
all other persons or entities acting on behalf of or under control of any
of them) from and against any and all (i) liabilities, losses, costs or
damages ("Loss") and (ii) reasonable attorneys' fees and expenses, costs of
investigation and defense, court costs and all other reasonable
out-of-pocket expenses ("Expense") incurred by Seller and its affiliates,
successors and assigns (and their respective directors, officers and other
employees and all other persons or entities acting on behalf of or under
control of any of them) in connection with or arising from any breach by
Purchaser, AQS or Fleager of any of, or any failure of Purchaser, AQS or
Fleager to perform, any of their covenants, agreements or obligations in
this Agreement.
2
<PAGE> 3
(b) Seller agrees to defend, indemnify and hold harmless Purchaser,
AQS and Fleager and their affiliates, successors and assigns (and their
respective directors, officers and other employees and all other persons or
entities acting on behalf of or under control of any of them) from and
against any and all (i) liabilities, losses, costs or damages ("Loss") and
(ii) reasonable attorneys' fees and expenses, costs of investigation and
defense, court costs and all other reasonable out-of-pocket expenses
("Expenses") incurred by Purchaser, AQS and Fleager and their affiliates,
successors and assigns (and their respective directors, officers and other
employees and all other persons or entities acting on behalf of or under
control of any of them) in connection with or arising from any breach by
Seller of any of, or any failure of Seller to perform, any of its
covenants, agreements or obligations in this Agreement.
(c) For purposes of Sections 6 and 7 hereof, the party or parties
against whom a claim for indemnification is made pursuant to Sections 6 and
7 hereof are called the Indemnifying Party and the party or parties
claiming indemnification are called the Indemnified Party.
6. Notice of Claims. If an Indemnified Party believes that it has
suffered or incurred any Loss or Expense and is entitled to indemnity from an
Indemnifying Party under this Agreement, the Indemnified Party shall so notify
the Indemnifying Party promptly in writing describing such Loss or Expense, the
amount thereof, if known, and the method of computation of such Loss or Expense.
If any action at law or suit in equity is instituted by or against a third party
with respect to which any Indemnified Party intends to claim any liability or
expense as Loss or Expense under this Agreement, any such Indemnified Party
shall promptly notify the Indemnifying Party of such action or suit. The amount
to which an Indemnified Party shall be entitled under this Agreement shall be
determined: (i) by the written agreement between the Indemnified Party and the
Indemnifying Party (ii) by a final judgment, decree, decision or award of any
court, arbitration board or administrative agency of competent jurisdiction,
(iii) by a settlement of the claim or (iv) by any other means to which the
Indemnified Party shall agree. The judgment or decree of a court shall be deemed
final when the time for appeal, if any, shall have expired and no appeal shall
have been taken or when all appeals taken have been finally determined. The
Indemnified Party shall have the burden of proof in establishing the amount of
the Loss and Expense suffered by the Indemnified Party.
7. Third Party Claims.
(a) Subject to paragraph (b) of this Section 7, an Indemnifying Party
under this Agreement shall have the right to conduct and control, through
counsel of its choosing reasonably satisfactory to the Indemnified Party
any third party claim, action or suit, and such party may compromise or
settle the same without cost, obligation or liability of the Indemnified
Party. The Indemnifying Party shall permit the Indemnified Party to
participate in the defense of any such action or suit through counsel
chosen by it, provided that the fees and expenses of such counsel shall be
borne by the Indemnified Party unless (i) the Indemnifying Party shall have
failed, within a reasonable time after having been notified by the
Indemnified Party of the existence of such claim as provided in Section 6
hereof, to assume the defense of such claim, (ii) the employment of such
counsel has been specifically authorized by the Indemnifying Party, or
(iii) the named parties to any such action (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party and
such Indemnified Party shall have been advised in writing by such
3
<PAGE> 4
counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Indemnifying
Party.
(b) The Indemnifying Party shall have 15 business days after receipt
of the notice referred to in Section 6 to notify the Indemnified Party that
it elects to conduct and control such action or suit. If the Indemnifying
Party does not give the foregoing notice, the Indemnified Party shall have
the right to defend, contest, settle or compromise such action or suit in
the exercise of its exclusive discretion, and the Indemnifying Party shall,
upon request from the Indemnified Party, promptly pay to such Indemnified
Party in accordance with the other terms of this Agreement the amount of
any Loss resulting from its liability to the third party claimant and all
related Expense. If the Indemnifying Party gives the foregoing notice, the
Indemnifying Party shall have the right to undertake, conduct and control,
through counsel of its own choosing reasonably satisfactory to the
Indemnified Party and at the sole expense of the Indemnifying Party, the
conduct and settlement of such action or suit, and the Indemnified Party
shall cooperate with the Indemnifying Party in connection therewith;
provided that (x) the Indemnifying Party shall not thereby permit to exist
any lien, claim or encumbrance upon any asset or property of Indemnified
Party; (y) the Indemnifying Party shall permit the Indemnified Party to
participate in such conduct or settlement through counsel chosen by the
Indemnified Party, but the fees and expenses of such counsel shall be borne
by the Indemnified Party except as provided in clause (z) below; and (z)
the Indemnifying Party shall agree promptly in writing to reimburse to the
extent required under this Agreement the Indemnified Party for the full
amount of any Loss resulting from such action or suit and all related
Expense incurred by the Indemnified Party, except fees and expenses of
counsel for the Indemnified Party incurred after the assumption of the
conduct and control of such action or suit by the Indemnifying Party unless
otherwise provided under Section 7(a) hereof. So long as the Indemnifying
Party is conducting any such action or suit in good faith and without
increasing the potential liability of the Indemnified Party by more than
$100,000 the Indemnified Party shall not pay or settle any such action or
suit. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any such action or suit, provided that no
Indemnifying Party shall be liable to indemnify any Indemnified Party for
any settlement of any such action or claim effected without the consent of
the Indemnifying Party, but if settled with the written consent of the
Indemnifying Party, or if there be a final judgment for the Plaintiff in
any such action, then the Indemnifying Party shall, indemnify and hold
harmless each Indemnified Party from and against any Loss or Expense by
reason of such settlement of judgment.
8. Representations and Warranties of Seller.
(a) Ownership of Shares. Seller hereby represents and warrants that
Seller is the record and beneficial owner of the Shares free and clear of
all liens, claims and encumbrances.
(b) Seller Authority and Binding Obligation. Seller represents and
warrants that (i) it is a corporation validly existing under the laws of
the State of Texas, (ii) it has the corporate power to execute, deliver and
perform this Agreement, (iii) the execution, delivery and performance by it
of this Agreement has been duly and validly authorized by all necessary
corporate action and (iv) this Agreement constitutes the legal, valid and
binding obligations of Seller, enforceable in accordance with its terms,
except as the same may be limited by
4
<PAGE> 5
bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditor's rights generally.
(c) Liens or Encumbrances. Seller represents and warrants that all of
the properties and assets on the June 30, 1997 balance sheet of AQS (the
"Recent Balance Sheet"), a copy of which has been initialed by Seller and
delivered to Purchaser, and all assets and properties as of the date
hereof, are free and clear of all mortgages, liens, security interests,
claims, pledges, licenses, options, conditional sales contracts,
assessments, levies, covenants, changes or encumbrances of any matter
whatsoever (collectively "Liens"), but only to the extent such Liens were
specifically authorized by Controlling Persons (as hereinafter defined).
For the purposes of this Agreement, "Controlling Persons" shall mean Seller
and the officers and directors of AQS who were not officers, directors or
employees of AQS prior to the acquisition of AQS by Seller.
(d) Absence of Undisclosed Liabilities. Except (i) as disclosed in the
Recent Balance Sheet (ii) as incurred under any contract listed on the
Exhibits hereto and (iii) as may have arisen in the ordinary course of
business to the date hereof, AQS has not incurred liabilities, commitments
or obligations (secured or unsecured, and whether accrued, absolute,
contingent, direct, indirect or otherwise) (herein called "Undisclosed
Liabilities") specifically authorized by Controlling Persons.
(e) AQS Contracts and Commitments. Seller represents and warrants that
it has executed no contracts or other documents, or taken any action or
suffered any inaction, committing AQS to any contracts, agreements,
commitments or obligations, except as set forth on Schedule 10 attached
hereto.
(f) Provision for Taxes. Seller represents and warrants that the
provision made for taxes on the Recent Balance Sheet is sufficient for the
payment of all federal, state, foreign, county, local and other income, ad
valorem, excise, profits, franchise, occupation, property, payroll, sales,
use, gross receipts and other taxes (and any interest and penalties) and
assessments, whether or not disputed, at the date of the Recent Balance
Sheet and for all years and periods prior thereto. Since the date of the
Recent Balance Sheet, AQS has not incurred any taxes other than taxes
incurred in the ordinary course of business consistent in type and amount
with past practices of AQS.
(g) Tax Returns Filed. Seller represents and warrants that all
federal, state, foreign, county, local and other tax returns required to be
filed by or on behalf of AQS have been timely filed and when filed were
true and correct in all material respects, and the taxes shown as due
thereon were paid or adequately accrued. Except as otherwise disclosed
herein, true and complete copies of all tax returns or reports filed by AQS
for each of its five (5) most recent fiscal years have been delivered to
Purchaser. Purchaser acknowledges that the tax returns for the year ended
December 31, 1996 have not been filed and that an extension for filing such
returns has been filed through September 15, 1997. AQS has duly withheld
and paid all taxes which it is required to withhold and pay relating to
salaries and other compensation heretofore paid to the employees of AQS.
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<PAGE> 6
(h) Tax Audits. Seller represents and warrants that to the knowledge
of the Controlling Persons, AQS has not received from the Internal Revenue
Service or from the tax authorities of any state, county, local or other
jurisdiction any notice of underpayment of taxes or other deficiency which
has not been paid nor any objection to any return or report filed by AQS.
There are outstanding no agreements or waivers extending the statutory
period of limitations applicable to any tax return or report.
(i) Consolidated Group. Seller represents and warrants that Schedule
8(i) lists every year after the acquisition of AQS by SDS during which AQS
was a member of an affiliated group of corporations which filed a
consolidated tax return on which the statute of limitations does not bar a
federal tax assessment, and each corporation that has been part of such
group. No affiliated group of corporations of which AQS has been a member
has discontinued filing consolidated returns during the past five years.
Seller represents and warrants that AQS shall not be responsible for any
federal or state income taxes of any other member of the affiliated group
of corporations for any periods ending on the date hereof.
(j) No Changes. Seller represents and warrants that since the date of
the Recent Balance Sheet, there have been no material adverse changes in
the business, operations or financial condition of AQS except as may have
occurred in the ordinary course of business of AQS since such date, but
only to the extent any such changes (other than those made in the ordinary
course of business) were the result of actions specifically authorized by
the Controlling Persons.
9. Representations and Warranties of Purchaser, AQS and Fleager.
(a) Unregistered Shares. Purchaser hereby acknowledges and agrees that
the Shares have not been registered under the Securities Act of 1933, as
amended, and that certain restrictions on their transfer may exist.
(b) Purchaser Binding Obligation. Purchaser hereby represents and
warrants that this Agreement constitutes the legal, valid and binding
obligations of Purchaser enforceable in accordance with its terms, except
as the same may be limited to bankruptcy, insolvency, reorganization or
other laws affecting the enforcement of creditors' rights generally.
(c) AQS Authority and Binding Obligation. AQS represents and warrants
that (i) it is a corporation validly existing under the laws of the State
of Wisconsin, (ii) it has the corporate power to execute, deliver and
perform this Agreement, (iii) the execution, delivery and performance by it
of this Agreement has been duly and validly authorized by all necessary
corporate action and (iv) this Agreement constitutes the legal, valid and
binding obligations of AQS, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization
or other laws affecting the enforcement of creditor's rights generally.
(d) Purchaser Knowledge. Purchaser and Fleager acknowledges that
Fleager has acted as Purchaser's representative in connection with the
negotiation and preparation of this Agreement and Purchaser's review and
investigation of AQS. Purchaser and Fleager
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acknowledge that Fleager has previously owned and managed AQS and is
familiar with the business, contracts, financial condition and prospects of
AQS and possesses all such knowledge and has made all such investigations
of AQS on behalf of Purchaser as Purchaser deems necessary, appropriate and
proper for Purchaser to execute and perform into this Agreement. Purchaser
hereby acknowledges and agrees that Seller makes no representations,
warranties or covenants of any kind or nature other than as expressly set
forth in Section 8 of this Agreement.
10. Continuing Obligations.
(a) Intercompany Payables and Receivables. Within 15 days after the
date of this Agreement, Seller shall pay to AQS, or AQS shall pay to
Seller, as the case may be, the net amount owed, if any, upon settlement as
of the date of this Agreement of all payables and receivables between
Seller and AQS.
(b) Contract with Providence Washington Group. The parties hereto
agree that they shall use their best efforts to separate or split up the
current contract between SDS and the Providence Washington Group into two
separate contracts to provide for the separate obligations and
responsibilities of AQS and SDS. Pending any such split into separate
contracts, Seller agrees to continue to pay $9,416.67 per month to AQS as
its share for services performed by AQS under such contract, provided that
Seller is not required to pay such amount to AQS to the extent Seller has
not received such amount from Providence Washington Group with respect to
any payments otherwise due AQS.
(c) Contracts for AQS Software. As additional consideration to induce
Seller to enter into this Agreement, AQS assumes, guarantees and agrees to
discharge all liabilities and obligations and perform all duties and
responsibilities of SDS or Seller under the contracts executed by SDS and
which provide for the provision of AQS software, a listing of which
contracts is attached hereto as Schedule 10(c), and Seller hereby delivers
assignments of such contracts to AQS. Purchaser agrees to use its best
efforts to cause AQS to enter into new contracts with the opposite parties
to the contracts listed in Schedule 10(c), completely releasing and
replacing SDS as a party to such contracts.
(d) Contracts for SDS and AQS Software. The parties hereto represent
that the contracts listed in as Schedule 10(d)-1 hereto have been executed
by SDS and provide for the supplying of SDS and AQS software to the clients
under such contracts. The parties hereto agree to use their best efforts to
separate or split such contracts to provide for the separate obligations
and responsibilities of AQS and SDS. Pending the separation or split up of
such contracts, (i) AQS agrees to provide a copy of AQS' clients' software
to Seller for testing, (ii) Seller agrees to provide access to SDS'
clients' software to AQS for testing, (iii) Seller and AQS agree to
implement separate contracts at the request of a client under such
contracts, (iv) AQS agrees to hold Seller harmless from and against any and
all liabilities and obligations resulting from the action or inaction of
AQS under such contracts, and (v) Seller agrees to hold AQS harmless from
and against any and all liabilities and obligations result from the action
or inaction of SDS under such contracts. It is specifically agreed between
the parties hereto that the obligations of Seller and AQS in subparagraphs
(i) and (ii) above shall also apply to contracts with clients where there
may be separate agreements between the client and AQS and
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<PAGE> 8
SDS, but where there is a bridge in place for these clients. A listing of
such contracts is contained in Schedule 10(d)-2 attached hereto. Neither
party shall have authority to renew or extend the obligation of the other
party after the date of this Agreement under any of the contracts listed on
Schedule 10 and the obligations of the parties under this Section 10 shall
not apply to any contract (including extensions or renewals of existing
contracts) entered into after the date of this Agreement.
(e) Employee Benefits. Seller and Purchaser shall cooperate to enable
AQS to replace the current employee benefit packages at AQS as quickly as
possible and AQS shall be liable for any premiums or payments from the date
hereof until the respective employee benefit has been replaced.
Notwithstanding the foregoing, all AQS employees shall be terminated from
the Seller's pension, profit-sharing and 401(k) plans as of the date
hereof. Seller shall cooperate to transfer assets in its 401(k) plan to a
separate plan to be implemented by AQS.
(f) Tax Status of AQS. To the extent permitted by applicable tax laws
and regulations, Purchaser shall treat AQS as a new corporate entity for
federal income tax purposes from and after the Closing Date.
(g) Execution of Additional Documents and Access to Records. Each
party hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions as may be
reasonably required in order to effectuate the purposes of this Agreement
and to consummate the transactions contemplated hereby. After the Closing,
and upon reasonable advance notice from Seller, Purchaser and AQS shall
give Seller access to the books and records of AQS relating to periods
prior to the Closing to the extent necessary for Seller to comply with the
requests or orders of governmental authorities or courts, or for any other
valid purpose relating to Seller's ownership of, or the operations of, AQS
prior to the Closing.
(h) Taxes. Seller shall prepare and file final federal income tax
return and annual proportional state tax returns and pay the federal and
state income taxes of AQS from January 1, 1997 through the date hereof.
Seller shall submit its computation of taxes for the period from January 1,
1997 through the date hereof based upon an effective tax rate of 40 percent
of book net income to Purchaser and Seller and Purchaser shall cooperate in
good faith to estimate the amount of such taxes. Purchaser agrees to
promptly pay to Seller the amount of such taxes upon its review of the
computation. Seller has settled all tax years prior to fiscal 1997 as of
the date hereof.
(i) Software Source Code. Neither Seller nor any affiliate of Seller
shall use the AQS software source code for the purpose of developing any
new products.
11. Miscellaneous.
(a) Books and Records. To the extent not in AQS' possession, Seller
shall deliver the AQS minute book and stock record book to Purchaser,
together with all the records,
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accounts and contracts of AQS, including, specifically, the general ledger
and all other accounting records.
(b) Notices. All notices or other communications required or permitted
by this Agreement shall be sufficiently given if in writing and personally
delivered or telecopied and mailed by registered or certified mail, return
receipt requested, to the address of each party set forth below or to such
other addresses as the parties may designate.
If to Purchaser, AQS or Fleager: Applied Quoting Systems, Inc.
625 Walnut Ridge Drive
Hartford, Wisconsin 53029
Telecopy: (414)367-6139
Attention: Samuel J. Fleager
If to Seller: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Telecopy: (800)826-9865
Attention: F. George Dunham, III
(c) Amendment and Waiver. This Agreement shall not be amended, except
pursuant to a written instrument executed by all of the parties hereto. Any
term or provision of this Agreement may be waived pursuant to a written
instrument executed by the party entitled o the benefit hereof.
(d) Severability. If any provision of this Agreement, or the
application of any such provision to any person or circumstance, shall be
held invalid by a court of competent jurisdiction, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected
thereby.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
(f) Entire Agreement. This Agreement sets forth the entire
understanding and agreement between the parties as to the matters covered
herein and supersedes any prior understanding, agreement or statement
(written or oral) of intent. No provision of this Agreement shall be
construed to confer any rights or remedies on any person other than the
Seller, Purchaser or AQS.
(g) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Governing Law. This Agreement shall be construed in accordance
with and governed by, the laws of the State of Texas.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
SELLER
Applied Quoting Systems, Inc. INSpire Insurance Solutions, Inc.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
PURCHASER
AQS, Inc.
By:
- ---------------------------------- -------------------------------
Samuel J. Fleager Name:
-----------------------------
Title:
----------------------------
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<PAGE> 1
EXHIBIT 5
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]
WRITER'S DIRECT DIAL NUMBER (214) 969 - 2800
March 5, 1998
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 2,300,000 shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") and up to 2,300,000 Class A Junior Preferred Stock
Purchase Rights (the "Rights"), as described in the Company's Registration
Statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission on March 5, 1998.
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 and validly authorized by the Company.
<PAGE> 2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
INSpire Insurance Solutions, Inc.
March 5, 1998
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 and validly 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, fully paid and non-assessable.
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 and are
fully paid and non-assessable.
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.
Akin, Gump, Strauss Hauer & Feld, L.L.P.
2
<PAGE> 1
EXHIBIT 10.44
SOFTWARE LICENSE & SUPPORT SERVICES AGREEMENT
This AGREEMENT is made this 29th day of October, 1997 ("the Effective Date") by
and between:
COVER-ALL SYSTEMS, INC. ("CSI")
with offices at: 18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
and: INSPIRE INSURANCE SOLUTIONS, INC. ("INSPIRE")
with offices at: 300 Burnett Street
Fort Worth, Texas 76102
WHEREAS, CSI has developed and owns all rights in, and/or has the
right to license, that certain suite of computer software programs known as and
marketed under the name "Cover-All Classic" Series software programs
(hereinafter defined as the "Licensed Program(s)") which software programs
provide business solutions for use by the insurance industry; and
WHEREAS, Inspire is desirous of marketing the Licensed Programs under
its own "private label" as part of the PC based total solution package product
line which Inspire intends to market directly to end user customers; and
WHEREAS, CSI has agreed to grant Inspire certain licensing rights with
respect to the Licensed Programs and provide Inspire with certain software
support services for the consideration hereinafter stated, and subject to and
in accordance with the terms and conditions hereinafter appearing;
NOW THEREFORE in consideration of the premises and mutual
representations, warranties and covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS
1.1 "DESIGNATED EQUIPMENT" shall mean the equipment configuration
specified in Schedule A to this Agreement including future
additions thereto, as designated in writing by CSI to Inspire,
which equipment configuration(s) has been designated by CSI as
being suitable for the operation of the Licensed Programs.
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1.2 "DERIVATIVE WORK(S)" means any program developed by Inspire,
which is based in whole or in part upon any or all of the
Shell and/or Licensed Programs or any part or portion thereof,
in order to create production level software for use by End
Users.
1.3 "DOCUMENTATION" means all technical and user documentation
(including application description manuals, "ADMs") produced
by CSI in respect of the Shell, the Licensed Programs and any
Update thereto.
1.4 "END USER(S)" means a customer of Inspire.
1.5 "END USER AGREEMENT" means the form of software license
agreement to be entered into by and between Inspire and an End
User with respect to the licensing by Inspire to such End User
of Private Label Licensed Program(s).
1.6 "INFORMATION" means any information (other than the Shell, the
Licensed Programs, Private Label Licensed Programs,
Documentation and Private Label Documentation) including, but
not limited to, specifications, documentation, software
programs, software listings, designs, drawings, data and any
other information, of whatsoever kind whether in machine
readable or visually readable form which is proprietary and/or
confidential to CSI or Inspire.
1.7 "INSPIRE MODIFICATION(S)" shall mean: (1) the source code or
object code version (unless otherwise expressly stipulated by
the language of this Agreement) of the Shell and/or a Licensed
Program(s) which has been modified, adapted, customized or
supplemented by or on behalf of Inspire.
1.8 "LICENSED PROGRAM(S)" shall mean each "Cover-All Classic"
Series software program (excluding the PAR Development Tools
and Shell) as listed in the now current and any future version
of CSI's price book. A copy of the current CSI price book
(excluding confidential information) is attached hereto as
Exhibit B. The term "Licensed Program(s)" shall specifically
include documentation and related materials pertinent to such
program and any Updates and corrections thereto hereinafter
furnished to Inspire by CSI pursuant to the provisions of this
Agreement.
1.9 "OBJECT FORM" shall mean any machine translated version of the
Source Form suitable for execution by computer equipment or
any intermediate form derived from Source Form which can be
made executable by computer equipment (or which can be
embedded in firmware).
1.10 "PAR DEVELOPMENT TOOLS" means that suite of software tools, to
be furnished in both Source Form and Object Form, which
facilitates the generation of modifications and customizations
to the Licensed Programs. The term "PAR Development Tools"
shall specifically include (1) documentation and related
materials pertinent to such tools and any "Updates" and
corrections thereto
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<PAGE> 3
hereinafter furnished to Inspire by CSI pursuant to the
provisions of this Agreement.
1.11 "PRIVATE LABEL" means the mark or trademark under which
Inspire markets the Shell, Licensed Programs, Inspire
Modifications and Derivative Works to End Users.
1.12 "PRIVATE LABEL DOCUMENTATION" means Documentation which is
marketed and sublicensed by Inspire under its Private Label in
accordance with the provisions of Section 10 of this
Agreement.
1.13 "PRIVATE LABEL LICENSED PROGRAM" means collectively (1) the
Shell and any Licensed Program, to include Inspire
Modifications to the Shell and/or any such Licensed Program,
and (2) any. Derivative Work(s), which are marketed and
sublicensed by Inspire under its Private Label as authorized
by and in accordance with the provisions of this Agreement.
1.14 "SHELL" means the software program which serves as the
application platform for the running and execution of the
Licensed Programs. The term "Shell" shall specifically include
(1) documentation and related materials pertinent to such
program and (2) any "Updates" and corrections thereto
hereinafter furnished to Inspire by CSI pursuant to the
provisions of this Agreement.
1.15 "SOURCE FORM" means the unaltered source code version of any
Licensed Program(s), the Shell or PAR Development Tools in
human or machine readable form on the media and in the
language as delivered by CSI to Inspire, or any translation or
modification of such Licensed Program(s), the Shell or PAR
Development Tools which substantially preserves its original
identity and which is capable of being compiled by Inspire to
create an Object Form of the corresponding Licensed Program,
the Shell or PAR Development Tools.
1.16 "TERRITORY" means the United States of America, Canada,
Mexico, Puerto Rico, Brazil, Argentina, Venezuela, Uruguay,
Chile and Colombia. Additional countries may be added to the
territory by mutual agreement of CSI and Inspire.
1.17 "UPDATE" means collectively (1) an error correction, change or
improvement made to an existing item of functionality of the
Licensed Program(s), the Shell or PAR Development Tools and
which is made available as a general release to CSI customers,
and (2) a software release issued from time to time by CSI to
reflect an ordinary and customary published change and/or
addition to those ISO (Insurance Services Organization) and/or
NCCI (National Council of Compensation Insurance) rules which
CSI is obligated to provide as a component of any item of a
Licensed Program. Any such ISO/NCCI update will be based upon
CSI's standard interpretation of ISO/NCCI rule changes.
ISO/NCCI updates also include (1) for the State of Texas only,
any rule, rate or form change issued by
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<PAGE> 4
the Texas Department of Insurance with respect to property or
commercial automobile insurance and (2) for the States of
Texas, Pennsylvania, Michigan and Delaware, any rule, rate or
form change issued by the State Workers' Compensation Bureau
for any such state.
2. LICENSE GRANT
2.1 USE OF SOURCE FORM AND PAR DEVELOPMENT TOOLS
CSI hereby grants to Inspire a personal, non-exclusive,
non-transferable, right and license to use the Source Form of
each of the Licensed Program(s), the Shell, and the PAR
Development Tools, in order to:
[i] modify and adapt the Licensed Programs or Shell
to meet the requirements of Inspire End Users; and
[ii] compile Object Form versions of the Private
Label Licensed Programs; and
[iii] effect error correction and associated software
maintenance services in respect of the Licensed
Programs, the Shell, the PAR Development Tools and
Private Label Licensed Programs; and
[iv] create a Derivative Work which is based in whole
or in part upon any or all of the Shell and/or the
Licensed Programs
2.2 USE OF OBJECT FORM
[i] CSI hereby grants Inspire a personal, non-exclusive,
non-transferable, right and license to use, market, distribute
and copy (in accordance with the provisions of Section 10 of
this Agreement) the Object Form version of the Shell and any
Licensed Program solely in connection with the marketing and
support of the Private Label Licensed Programs;
[ii] CSI hereby grants to Inspire a personal, non-exclusive,
non-transferable, right and license to use (subject to payment
of the license fee described below) the Object Form version of
the Shell, and any Licensed Program for the purpose of
providing " TPA Services- (third party administration
services) to new customers of Inspire. Inspire agrees not to
market or provide such TPA Services to existing customers
and/or prospects of CSI as more particularly described in
Section 25 below. The license fee to be charged and the method
of calculation thereof for use of the Shell and any Licensed
Programs (used to provide such TPA Services) shall be mutually
agreed upon by CSI and Inspire (on a price and payment
schedule basis which is consistent with, the pricing and
payment schedule of Inspire's TPA Services) prior to the date
upon which Inspire first
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<PAGE> 5
commences to provide such TPA Services. Once reached, such
mutual agreement shall be set forth in writing and attached to
this Agreement as Exhibit C.
2.3 RIGHT TO SUB-LICENSE OBJECT FORM
[i] CSI grants to Inspire the non-exclusive, personal,
non-transferable, right to sub-license the Object Form of the
Shell, any Licensed Program, any Inspire Modification and any
Derivative Work under Inspire's Private Label, to End Users
located within the Territory, for use by such End User solely
in connection with such End Users' internal business purposes.
Such sublicense shall be granted to the End Users as a non
exclusive, personal, non transferable license and Inspire may
grant a sublicense term for a fixed number of years or a
perpetual term;
[ii] The grant of any sublicense as contemplated by Sections
2.4[i] above is conditioned upon each End User entering into
an End User Agreement with Inspire, which agreement contains,
amongst other things, terms for the protection and
safeguarding of the sublicensed software, which terms are set
forth in Schedule B to this Agreement.
3. TERM
This Agreement shall commence on the Effective Date and shall continue
thereafter in full force and effect for a term of sixty (60) months (the
"Initial Term") unless sooner terminated in accordance with the provisions of
Section 26 hereof. Termination of this Agreement shall not affect the validity
of: (1) any sublicense granted pursuant to the provisions of Section 2.3 above
or (2) except in the event of termination by CSI for breach of this Agreement
by Inspire, the license in Section 2.2[H] above as to customers of Inspire
receiving TPA services at the time of termination, provided that Inspire
continues to make payments required under Section 2.2(ii) and is and remains
compliant with its obligations under this Agreement to protect and safeguard
CSI intellectual property. In the event that Inspire wishes to extend the term
of this Agreement, it shall give CSI not less than ninety (90) days written
notice thereof prior to the expiration date of the Initial Term. CSI and
Inspire shall negotiate the following terms of such extension term (the
"Extension Term") in good faith and mutually agree upon the same prior to the
expiration date of the Initial Term: (1) duration of, extension term, (2)
Support Services annual fee, and (3) the amount of the "new customer" royalty
(as such royalty is more particularly described in Section 18 below). No
license fee shall be payable by Inspire during the extension term. Except for
the foregoing terms to be agreed upon by the parties, all other terms and
conditions of this Agreement shall remain unmodified and shall continue in full
force and effect throughout the Extension Term.
4. DELIVERABLES
4.1 SOURCE FORM PROGRAMS. CSI will deliver to Inspire one copy of
the Source Form of the Shell, PAR Development Tools and each
Licensed Program.
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4.2 OBJECT FORM PROGRAMS. CSI will deliver to Inspire, three (3)
copies of the Object Form of the Shell, PAR Development Tools
and each Licensed Program.
4.3 DOCUMENTATION. With each Object Form copy of the Shell, PAR
Development Tools and Licensed Program(s), CSI will deliver to
Inspire one (1) set of Documentation. Such documentation shall
be in printed and machine readable form. Inspire acknowledges
and agrees that it shall be responsible for the creation of
all end user and operator documentation with respect to
Private Label Licensed Programs and Inspire Modifications.
4.4 MEDIA. The Media used for delivery of machine readable copies
of the Licensed Programs, Shell and PAR Development Tools
shall be: CD ROM or 3 1/2" Diskette. The format for delivery
of the machine readable source code listings and Documentation
shall be: Word for Windows 6.0 Format.
4.5 DELIVERY. CSI will effect delivery CIF, to the address for
Inspire set forth at page one of this Agreement, within ten
(10) days of the date of this Agreement. CSI will bear all
risk of loss up to the time of delivery to Inspire.
5. TITLE
5.1 CSI warrants that:
[i] it is the owner of and/or licensor of the Shell,
the Licensed Programs and the PAR Development Tools;
[ii] the Shell, the Licensed Programs and the PAR
Development Tools are not in the public domain;
[iii] CSI has the full right and authority to grant
to Inspire the license rights set forth in Section 2
of this Agreement.
5.2 Inspire acknowledges and agrees that title in and to the
Shell, the Licensed Programs the PAR Development Tools,
Private Label Licensed Programs (with the exception of any
Inspire Modifications and/or Derivative Works, which are the
property of Inspire), Documentation and Private Label
Documentation (with the exception of any Inspire Modifications
and/or Derivative Works, which are the property of Inspire)
relating to the Private Label Licensed Programs shall remain
solely in CSI. Except as is expressly provided for by Section
2 and Section 5.3 of this Agreement, Inspire shall have no
rights or interest of whatsoever kind, implied or otherwise in
or with respect to the Shell, the PAR Development Tools,
Licensed Programs, Private Label Licensed Programs (with the
exception of any Inspire Modifications and/or Derivative
Works, which are the property of
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Inspire), Documentation and Private Label Documentation (with
the exception of any Inspire Modifications and/or Derivative
Works, which are the property of Inspire) relating to the
Private Label Licensed Programs.
CSI acknowledges and agrees that title in and to any and all
Inspire Modifications and Derivative Works is vested in and
shall remain solely and exclusively with Inspire. CSI further
acknowledges and agrees that it shall acquire no rights
whatsoever in or to such Inspire Modifications and/or
Derivative Works except as is expressly provided for by the
provisions of Section 5.3 below.
5.3 Inspire agrees to grant to CSI a non-exclusive,
non-transferable, perpetual, right and license to use and
sublicense (pursuant to terms and conditions to be negotiated
in good faith and mutually agreed upon by the parties, which
terms and conditions shall be substantially similar to the
terms and conditions of this Agreement, except for the royalty
payments which shall be agreed upon as set forth below) any
Inspire Modification and/or Derivative Work. CSI shall pay
Inspire a royalty, in amount to be mutually agreed upon by CSI
and Inspire, with respect to each copy of an Inspire
Modification and/or Derivative Work which is sublicensed by
CSI to an end user customer.
6. LICENSE FEES
In consideration of the rights granted to Inspire, pursuant to Section
2 of this Agreement, Inspire hereby agrees to pay CSI a license fee of
One Million Five Hundred Thousand ($1,500,000) Dollars payable by
Inspire to CSI in accordance with the provisions of Section 17 below.
7. TRAINING
CSI will provide, at no charge to Inspire (at a location and upon a
date to be mutually agreed upon by CSI and Inspire within thirty [30]
days of the date of this Agreement) a training course of six (6) weeks
in duration for up to six (6) Inspire personnel. Such training course
shall cover Licensed Programs system overview, file structure, program
overview, menu and set-up, header and transactions, printing,
utilities and accounting, PAR Development Tools, table creation,
rating, source code compilation and Object Form software maintenance
and such other topics as are mutually agreed upon by CSI and Inspire.
Inspire shall be responsible for all travel and subsistence expenses
incurred by its personnel in connection with their attendance at such
training courses, and for all travel and subsistence expenses incurred
by CSI instructors in the event that any such training course is held
at Inspire's facility in Fort Worth, Texas. Any and all travel and
subsistence costs incurred by CSI instructors, pursuant to this
Section 7, shall be in accordance with CSI's travel policy, a copy of
which has been furnished to Inspire by CSI.
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8. SUPPORT OF LICENSED PROGRAMS
8.1 Subject always to the provisions of Section 10 below, CSI will
provide, to Inspire, the support services described below
("Support Services") with respect to the Licensed Programs,
the Shell and the PAR Development Tools. Support Services will
be provided during the Initial Term and any Extension Term
subject to payment by Inspire to CSI of the applicable annual
fee for Support Services (the "Support Fee") as set forth in
Section 9 below. Inspire may elect at any time after the
Initial Term to terminate CSI's obligation to provide Support
Services and Inspire shall have no further payment obligation
in respect of Support Services thereafter. Any prepaid Support
Services fees shall be refunded to Inspire within thirty (30)
days following any such termination.
8.2 Support Services shall consist of
(1) DURING THE FIRST TWELVE (12) MONTHS OF THE INITIAL TERM
ONLY, the provision of telephone support to assist Inspire in
the use of the PAR Development Tools and the maintenance of
the Licensed Programs and the Shell. Such telephone support
shall be made available during the hours of 9:00 AM to 5:00 PM
EST, Monday through Friday, excluding all CSI recognized
national holidays; and
(2) the provision of error correction service with respect to
any material failure (which Inspire personnel are unable to
resolve) of a Licensed Program, the Shell or PAR Development
Tools to perform in accordance with its applicable
Documentation, provided however, that any such program error
has not been introduced through changes to the original Source
Form version (as supplied by CSI) of the affected Licensed
Program(s), the Shell or PAR Development Tools made by
Inspire. In order to receive error correction services,
Inspire shall be responsible to identify and document any
failure of a Licensed Program, the Shell or PAR Development
Tools to conform to the Documentation against an unaltered
version of the Source Form of a Licensed Program, the Shell or
PAR Development Tools. For this purpose Inspire shall use
CSI's standard software error report form ("SPR") a copy of
which has been furnished by CSI to Inspire. If CSI verifies
the documented error it shall correct such error within the
time periods described below, or in the alternative, within
the time periods described below, provide Inspire with a
bypass routine or work around which will enable the Licensed
Program, the Shell or PAR Development Tools to perform
substantially in accordance with the Documentation. Upon
receipt of an SPR from Inspire, CSI will promptly commence
work to verify the error reported by Inspire. Three (3)
classes of program error are provided for by CSI's private
label support services program:
[i] SEVERE - a failure of the Licensed Program, the
Shell or PAR Development Tools to function in
accordance with its applicable
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specifications, such that an End User is unable to
make further use of the software without a fix to the
problem or a bypass routine or workaround solution.
CSI will respond to a Severe category program error
within a maximum of one (1) business day from the
time of notification of such error. CSI shall
dedicate the necessary personnel to address a Severe
category error and work upon such error until such
time that it is resolved.
[ii] MODERATE - Code which contains incorrect logic,
incorrect descriptions, major omissions or functional
problems which an End User is able to work around. CSI
will schedule the appropriate personnel required to
resolve the error and will use all commercially
reasonable efforts to correct and document all
reproducible Moderate category errors within a target
time frame of fifteen (15) days from the date of
CSI's receipt from Inspire of the SPR in respect of
such moderate error.
[iii] MINOR - Code which contains a minor error. CSI
will schedule the appropriate personnel required to
resolve the error and will use all commercially
reasonable efforts to correct and document all
reproducible Minor category errors within a target
time frame of sixty (60) days from the date of CSI's
receipt from Inspire of the SPR in respect of such
minor error.
In the event that CSI cannot reproduce a reported error in its
operating environment it shall so notify Inspire and CSI and Inspire
shall thereafter work together to verify the existence or otherwise of
such reported error.
(3) the provision to Inspire by CSI, of all Updates. Updates shall be
provided to Inspire within ten (10) days of the date of general release
of any Update.
9. SUPPORT FEES
The Support Fee shall be paid annually in advance with respect to each
year of the Initial Term and any Extension Term. The annual Support
Fee applicable to the Initial Term shall be at the fixed rate of Five
Hundred Thousand ($500,000) Dollars per annum. The annual Support Fee
for Support Services with respect to any Extension Term shall be as
agreed upon by the parties in accordance with the provisions of
Section 3 above.
10. "PRIVATE LABEL" RIGHTS AND OBLIGATIONS
10.1 CSI grants to Inspire, subject to the provisions of this
Section 10, the right to:
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[i] market Private Label Licensed Programs to End
Users in Object Form; and,
[ii] copy the Shell and Licensed Programs in order to
create Private Label Licensed Programs for the
purpose of sublicensing such programs to End
Users, all as is authorized by the provisions of
Section 2 above. Inspire shall serialize each
copy of the Private Label Licensed Programs and
shall keep a log which records: (1) the date that
any copy of the Shell and/or a Licensed Program
is made by Inspire and (2) the serial number
allocated to each such copy; and,
[iii] copy the Shell and Licensed Programs in order
to create Private Label Licensed Programs for
the purpose of demonstrating the same to End
Users or prospective End Users and/or providing
a Private Label Licensed Program to an End User
or Prospective End User for an evaluation
period not to exceed sixty (60) days in
duration. Prior to conducting any such
demonstration and/or providing a Private Label
Licensed Program to an End User or prospective
End User for evaluation purposes, Inspire shall
require the End User or Prospective End User to
enter into a non disclosure agreement,
substantially in accordance with the terms of
the non- disclosure agreement attached hereto as
Exhibit A.
10.2 Inspire agrees to label each item of media which contains a
Private Label Licensed Program or any portion thereof with
language which acknowledges CSI's ownership of the Licensed
Program, such language to read as follows: "CONFIDENTIALITY
NOTICE THIS PROGRAM CONTAINS INFORMATION WHICH IS THE PROPERTY
OF AND CONFIDENTIAL TO INSPIRE AND/OR ITS LICENSORS. THIS
PROGRAM IS FOR USE ONLY BY AN AUTHORIZED LICENSEE OF INSPIRE
AND MAY NOT BE TRANSFERRED, COPIED, DISCLOSED OR OTHERWISE
MADE AVAILABLE TO ANY OTHER PERSON OR ENTITY." In addition
Inspire shall cause the preceding confidentiality notice
language to appear on the introductory screen of each Private
Label Licensed Program.
10.3 Inspire agrees (1) to label the cover page of Private Label
Documentation with the following language: "CONFIDENTIALITY
NOTICE THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF AND
CONFIDENTIAL TO INSPIRE AND/OR ITS LICENSORS, AND IS FOR USE
ONLY BY THE INTENDED RECIPIENT THEREOF. IT MAY NOT BE COPIED,
MADE AVAILABLE OR DISCLOSED TO ANY OTHER PERSON OR ENTITY
EXCEPT WITH THE EXPRESS WRITTEN AUTHORIZATION OF INSPIRE." and
(2) to footnote each page (other than the cover page) of
Private Label Documentation with the following language: "THE
INFORMATION CONTAINED HEREIN IS THE PROPERTY OF AND
CONFIDENTIAL TO INSPIRE AND/OR ITS LICENSORS AND IS FOR USE
ONLY BY THE INTENDED RECIPIENT THEREOF. IT MAY NOT BE COPIED
OR MADE AVAILABLE OR DISCLOSED TO ANY PERSON OR ENTITY EXCEPT
WITH THE EXPRESS WRITTEN AUTHORIZATION OF INSPIRE."
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10.4 The End User Agreement shall at a minimum contain language
which obligates the End User to safeguard and protect the
Private Label Licensed Program(s) or any portion thereof,
substantially in accordance with the language set forth in
Schedule B annexed hereto and made a part of this Agreement.
Inspire shall enforce the provisions of the End User Agreement
for the benefit of CSI and Inspire.
10.5 Inspire shall give and make, with respect to its marketing and
licensing of the Private Label Licensed Programs, no other or
different representation(s) or warranty(s) as to quality,
merchantability, fitness for a particular use or purpose or
any other feature of the Private Label Licensed Programs,
other than those given by CSI to Inspire pursuant to this
Agreement.
10.6 Inspire shall be solely responsible for the provision to End
Users of Private Label Documentation and software maintenance
services in respect of the Private Label Licensed Programs. To
assist Inspire with the provision of such software maintenance
services, CSI shall provide Inspire with Support Services in
accordance with the provisions of Section 8 above.
10.7 Inspire shall, prior to using the End User Agreement, submit
the same for review and approval by CSI, which approval shall
not be unreasonably withheld.
10.8 CSI or its duly appointed representative shall have the right
to audit, together with Inspire's designated
representative(s), Inspire's records and the marking of all
Private Label copies of the Licensed Programs, made by
Inspire, to ensure Inspire's compliance with the provisions of
Section 10.1[ii] and 10.2 above. These audits shall occur
during normal business hours at Inspire's place of business,
upon at least three (3) business days advance written notice,
and shall occur no more frequently than twice per year.
11. PROFESSIONAL SERVICES
11.1 In the event that Inspire requires the assistance of CSI
technical personnel to provide services ("Professional
Services") over and above those services expressly provided
for in this Agreement, Inspire may order Professional Services
from CSI by completing CSI's "order for Professional
Services." CSI has furnished Inspire with a supply of such
order forms.
11.2 CSI shall furnish Professional Services to Inspire in
accordance with the then current rate for the applicable
Professional Services skill set which is being provided to
Inspire.
11.3 Inspire shall be responsible to reimburse CSI (in accordance
with CSI's travel policy, as more particularly referenced in
Section 7 hereof), for all travel, lodging
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and subsistence expenses incurred by CSI personnel in the
course of performing Professional Services beyond a thirty
(30) mile radius of CSI's Headquarters' facility in Fair Lawn,
New Jersey, USA.
11.4 CSI will use all commercially reasonable efforts to provide
Professional Services on a timely basis, subject to the
availability of qualified personnel and the difficulty and
scope of the services to be provided.
11.5 Professional Services are provided to assist Inspire. Inspire
is responsible for determining objectives and for obtaining
the desired results from Inspire's use of Professional
Services.
11.6 Inspire acknowledges and agrees that any ideas, concepts, know
how or data processing techniques developed by CSI in the
course of performing Professional Services shall be the
exclusive property of CSI.
12. PROTECTION OF SOFTWARE
12.1 Inspire acknowledges that the Shell, the Licensed Programs,
and Private Label Licensed Programs (in both Source Form and
Object Form) and PAR Development Tools (and all intellectual
property relating to or comprised in the Shell, Licensed
Programs, Private Label Licensed Programs and the PAR
Development Tools, including but not limited to any or all of
the program code, system architecture or design of the Shell,
Licensed Programs and PAR Development Tools) are (with the
exception of any Inspire Modifications and/or Derivative
Works, which are the property of Inspire) valuable proprietary
trade secrets of CSI. Inspire shall maintain the Shell,
Licensed Programs, Private Label Licensed Programs and the PAR
Development Tools in the strictest confidence in accordance
with the stipulations of this Agreement.
12.2 Inspire agrees not to use, copy, provide, sublicense or
otherwise disclose, or make available to any person or entity,
in whole or in part,, any portion of the Shell, Licensed
Programs, Private Label Licensed Programs, PAR Development
Tools, Documentation or Private Label Documentation except as
may be authorized by and subject to the terms of this
Agreement. Inspire agrees not to use the PAR Development Tools
or any of them, or any part or portion thereof, to create or
to attempt to create a derivative work based upon the PAR
Development Tools or any of them, or any part or portion
thereof.
12.3 Inspire agrees to apply the highest standard of care to
protect and safeguard the Shell, the Licensed Programs,
Private Label Licensed Programs and the PAR Development Tools
in accordance with the provisions of this Section 12. Inspire
shall advise all of Inspire's employees having a need to use
the Shell, the Licensed Programs, Private Label Licensed
Programs and/or PAR Development Tools on Inspire's behalf,
for the purposes contemplated by this Agreement, of
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the proprietary and confidential nature of the Shell, the
Licensed Programs, Private Label Licensed Programs and PAR
Development Tools and of all of Inspire's obligations
hereunder with respect to the use and safeguarding of the
Shell, the Licensed Programs, Private Label Licensed Programs
and PAR Development Tools. Each such employee shall be
obligated to protect the Shell, Licensed Programs, Private
Label Licensed Programs and PAR Development Tools from
unauthorized disclosure (as required by the terms of this
Agreement) pursuant to an appropriate written and executed non
disclosure agreement.
12.4 Inspire may copy, in whole or in part, any portion of the
Shell, the PAR Development Tools and/or the Licensed Programs
as required for use by Inspire to effect the purposes of this
Agreement and for use strictly in accordance with the terms
and conditions of this Agreement, provided however that no
more than three (3) copies of the Source Form may be in
existence at any one time and no more than twenty (20) copies
of the Object Form of the PAR Development Tools may be in
existence at any one time. Any and all copies of the Shell,
the PAR Development Tools and/or the Licensed Programs shall
include any and all applicable proprietary, copyright or
similar notices and legends as required by the provisions of
Section 12.6 below and which are displayed or contained in the
original of the item being reproduced.
12.5 Inspire shall serialize each copy of the Shell, the PAR
Development Tools and the Licensed Programs and shall keep a
log which records: (1) the date that any copy of the Shell,
the PAR Development Tools and/or a Licensed Program is made by
Inspire and (2) the serial number allocated to each such copy.
12.6 Inspire shall reproduce on any copy (full or partial) of the
Shell, the PAR Development Tools and/or a Licensed Program:
(1) any and all notices which are embedded in the machine
readable version of the Shell, the PAR Development Tools
and/or Licensed Program being copied, and (2) any and all
notices, including, without limitation, any proprietary
notices, copyright notices, and restricted rights legends,
which appear on the physical media in which the Shell, the PAR
Development Tools and/or Licensed Program is embodied.
Labeling of Private Label Licensed Programs is addressed by
the provisions of Section 10 of this Agreement.
12.7 CSI or its duly appointed representative shall have the right
to audit, together with Inspire's designated
representative(s), Inspire's records and the marking of all
copies of the Shell, the PAR Development Tools and the
Licensed Programs, made by Inspire, to ensure Inspire's
compliance with the provisions of this Section 12. These
audits shall occur during normal business hours at Inspire's
place of business, upon at least three (3) business days
advance written notice, and shall occur no more frequently
than twice per year.
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12.8 Inspire shall specify in writing to CSI the address of those
Inspire facilities at which Inspire will use Source Form
versions of the Shen, the PAR Development Tools and the
Licensed Programs.
13. CSI AND INSPIRE'S INFORMATION
13.1 Each party agrees that any Information that is furnished or
made available or otherwise disclosed to the other party
pursuant to this Agreement shall remain the property of the
disclosing party.
13.2 Each party further acknowledges that any and all Information,
disclosed hereunder, is valuable proprietary and confidential
Information of the disclosing party
13.3 If Information is designated as confidential by an oral
statement, the disclosing party shall confirm such disclosure
in writing to the receiving party no later than ten (10) days
after the oral disclosure and such written confirmation shall
state the date and place of the disclosure, the individuals to
whom the Information was disclosed and the nature of the
Information.
13.4 The parties agree that all such Information shall be kept
strictly confidential and shall be treated by the receiving
party and by any person authorized, pursuant to the terms of
this Agreement, to have access thereto, as being valuable
confidential and proprietary Information of the disclosing
party.
13.5 The receiving party shall not, without the prior written
consent of the disclosing party hereto, disclose, provide or
otherwise make available Information to any person or entity
other than those of its employees, agents or representatives
who have a need to know such Information in order for the
receiving party to carry out its obligations or exercise its
rights hereunder. The receiving party shall require its
employees, agents or representatives who have access to
Information to be made aware of its confidential and/or
proprietary nature and of the applicable requirements relative
to maintaining the confidence of such Information and to be
obligated to adhere to such requirements pursuant to a written
agreement between the receiving party, the employee, agent or
representative, as the case may be. The receiving party shall
enforce these provisions for the benefit of the disclosing
party. The receiving party shall protect the disclosing
party's Information from unauthorized use or disclosure using
the same standard of care which it uses to protect its own
proprietary and/or confidential information. The obligations
of the parties pursuant to this Section 13 shall survive the
termination or cancellation of this Agreement with respect to
each item of Information until the Information comes into the
public domain through no fault of the receiving party, its
employees, representatives or agents.
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A party's obligation of non-disclosure shall not apply to any
Information which is (1) already rightfully in the possession
of such party; (2) independently developed by such party
without reference to Information of the other party; (3)
publicly disclosed by the other party; (4) rightfully received
by the receiving party from a third party without an
obligation of non-disclosure; (5) approved for release by
written agreement with the other party; (6) in the public
domain; or (7) is required to be disclosed pursuant to a valid
and effective order issued by a court of competent
jurisdiction or governmental authority having appropriate
statutory powers or otherwise pursuant to law or regulation
having the force of law, but any such disclosure shall be made
only to the extent so ordered and the receiving party shall
timely notify the disclosing party prior to such disclosure so
that the disclosing party may intervene in response to any
such order for disclosure.
14. LIMITATION OF LIABILITY
14.1 CSI does not assume any liability for the applicability of the
Shell, the Licensed Programs and/or the PAR Development Tools
for Inspire's intended purposes.
14.2 IN NO EVENT SHALL EITHER PARTY BE LIABLE OR RESPONSIBLE TO THE
OTHER FOR ANY LOSS OF, OR DAMAGE TO ANY DATA, INFORMATION OR
SOFTWARE, TO THE EXTENT SUCH LOSS OR DAMAGE IS RELATED TO THE
USE OF THE SHELL, THE LICENSED PROGRAMS, THE PAR DEVELOPMENT
TOOLS, THE PRIVATE LABEL LICENSED PROGRAMS, THE INSPIRE
MODIFICATIONS AND/OR DERIVATIVE WORKS. NEITHER PARTY SHALL BE
LIABLE FOR ANY LOST PROFITS OR REVENUES OR FOR ANY DIRECT,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES SUFFERED
BY THE OTHER RESULTING FROM THE USAGE OF THE SHELL, THE
LICENSED PROGRAMS, THE PAR DEVELOPMENT TOOLS AND/OR THE
PRIVATE LABEL LICENSED PROGRAMS, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
14.3 Each party's entire liability and the other party's sole and
exclusive remedy for damages from any cause related to or
arising out of this Agreement, regardless of the form of
action, whether in contract or in tort, shall not exceed in
the aggregate the sum of One Million Five Hundred Thousand
($1,500,000) Dollars, except that there shall be no limitation
for (1) either party's liability to the other party with
respect to any claim or cause of action with respect to death,
personal injury or damage to tangible property, if and to the
extent that any such injury is determined to have been caused
directly by the negligent act or omission or willful
misconduct of such party, its employees, servants or agents;
(2) any claim for infringement indemnity brought by either
party against the other party pursuant to the provisions of
Section 15 below; (3) any claim brought by either party
against the other party for a breach by such party of its
obligations hereunder (as set forth in Sections 12 and 13
above) to safeguard and protect the
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proprietary and confidential information, including without
limitation the software, of the other party; and (4) any claim
brought by CSI against Inspire with respect to any and all
amounts due and payable under this Agreement pursuant to
Sections 17 and 18.
14.4 Inspire shall indemnify CSI against any third party claim
brought against CSI with respect to the Shell, the Licensed
Programs and/or Private Label Licensed Programs, to the extent
such claim relates to or is based upon any or all Inspire
Modifications and/or Derivative Works.
15. INFRINGEMENT INDEMNITY
15.1 CSI warrants that the Shell, the Licensed Programs and the PAR
Development Tools do not infringe upon or violate any United
States or foreign patent, copyright or trade secret or other
intellectual property right. CSI will defend, at its expense,
any action brought against Inspire to the extent that it is
based on a claim that the Shell or the Licensed Programs
and/or PAR Development Tools infringe any United States or
foreign patent or copyright or constitutes a misappropriation
of trade secrets protected under United States or foreign law,
provided Inspire (1) gives CSI prompt written notice of any
such claim in accordance with the provisions of Section 22
hereof and (2) permits CSI to defend or settle any such claim,
and (3) provides CSI all reasonable assistance in connection
with the defense or settlement of any such claim.
15.2 Should any of the Shell, the Licensed Programs and/or any of
the PAR Development Tools become, or in CSI's opinion be
likely to become, the subject of any claim of infringement or
if the Shell or any Licensed Program or any of the PAR
Development Tools is held to constitute such an infringement
and the use of the Shell or any Licensed Program or any of
the PAR Development Tools is enjoined, CSI shall, at its
expense and at its option, either (1) procure for Inspire the
right to continue using the affected Shell, Licensed
Program(s) and/or PAR Development Tools, or (2) replace or
modify the Shell, Licensed Program(s) and/or PAR Development
Tools to make the same functionally equivalent and non
infringing such that "remedied" Software is functionally
equivalent to the specifications set forth in the applicable
ADM and operates without any degradation in performance. If
neither of the foregoing options (1) or (2) is available on a
commercially reasonable basis, then CSI or Inspire may
terminate this Agreement and CSI shall refund to Inspire all
monies paid to CSI pursuant to this Agreement, with respect to
the affected Shell and Licensed Program(s) and/or affected PAR
Development Tools, less an amount for Inspire's use of the
Shell and such Licensed Program(s) and/or PAR Development
Tools calculated on the basis of a five (5) year straight line
depreciation method.
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15.3 CSI shall have no liability for any claim of infringement
based upon (1) use of other than the most current version of
the Shell, the Licensed Programs and PAR Development Tools
made available to Inspire by CSI (including any and all
Updates thereto as furnished by CSI to Inspire) if such
infringement would have been avoided by the use of such
version of the Shell or Licensed Programs or PAR Development
Tools, or (2) use or combination of the Shell, the Licensed
Programs and/or PAR Development Tools with programs or
products not furnished by CSI, if such infringement would not
have occurred without such use or combination, or (3)
infringement resulting from Inspire's modification,
adaptation, customization or enhancement of the Licensed
Programs.
15.4 The foregoing states the entire liability of CSI with respect
to the infringement of any patents, copyrights, trade secrets
or other intellectual property rights in and to the Shell, the
Licensed Programs and the PAR Development Tools.
15.5 Inspire warrants that the Inspire Modifications and Derivative
Works do not infringe upon or violate any United States or
foreign patent, copyright or trade secret or other
intellectual property right. Inspire will defend, at its
expense, any action brought against CSI to the extent that it
is based on a claim that any Inspire Modification and/or
Derivative Work infringes any United States or foreign patent
or copyright or constitutes a misappropriation of trade
secrets protected under United States or foreign law, provided
CSI (1) gives Inspire prompt written notice of any such claim
in accordance with the provisions of Section 22 hereof and (2)
permits Inspire to defend or settle any such claim, and (3)
provides Inspire all reasonable assistance in connection with
the defense or settlement of any such claim.
15.6 Should any of the Inspire Modifications and/or Derivative
Works become, or in Inspire's opinion be likely to become, the
subject of any claim of infringement or if any of the Inspire
Modifications or Derivative Works is held to constitute such
an infringement and the use of any Inspire Modification or
Derivative Work is enjoined, Inspire shall, at its expense and
at its option, either (1) procure for CSI the right to
continue using the affected Inspire Modification or Derivative
Work, or (2) replace or modify the Inspire Modification or
Derivative Work to make the same functionally equivalent and
non infringing. If neither of the foregoing options (1) or (2)
is available on a commercially reasonable basis, then Inspire
or CSI may terminate this Agreement and Inspire shall refund
to CSI all royalties paid to Inspire in respect of the
affected Inspire Modifications and/or Derivative Works less an
amount for CSI's use of the affected Inspire Modification
and/or Derivative Work calculated on the basis of a five (5)
year straight line depreciation method.
15.7 Inspire shall have no liability for any claim of infringement
based-upon (1) use of other than the most current version of
the Inspire Modification(s) and/or
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Derivative Work(s) made available to CSI by Inspire
(including any and all updates thereto) if such
infringement would have been avoided by the use of
such version of the Inspire Modification(s) and/or
Derivative Work(s), or (2) use or combination of the
Inspire Modifications and/or Derivative Works with
programs or products not furnished by Inspire, if
such infringement would not have occurred without
such use or combination, or (3) infringement
resulting from CSI's modification, adaptation,
customization or enhancement of the Inspire
Modification(s) and or Derivative Work(s).
15.8 The foregoing states the entire liability of Inspire
with respect to the infringement of any patents,
copyrights, trade secrets or other intellectual
property rights in and to the Inspire Modifications
and/or the Derivative Works.
16. WARRANTY AND DISCLAIMER OF WARRANTY
16.1 CSI warrants that the Shell, PAR Development Tools
and each Licensed Program will perform in accordance
with the functional specifications for the Shell, PAR
Development Tools and each such Licensed Program as
documented in the ADM for the Shell, PAR Development
Tools and each such Licensed Program. Inspire
acknowledges that it has been furnished with such
ADMs by CSI prior to the date of this Agreement. CSI
further represents and warrants that the Source Form
of the Shell, PAR Development Tools and each Licensed
Program delivered by CSI to Inspire is the complete
Source Form for such software (including all then
current Updates) which is capable of being compiled
by Inspire to create an Object Form of the
corresponding software. The duration of this
warranty is ninety (90) days from the date of
delivery of the Shell, the PAR Development Tools and
each Licensed Program to Inspire. CSI will promptly
correct any defect, error or deficiency in the Object
Form and the Source Form of the Shell, PAR
Development Tools and/or any Licensed Program which
is reported to CSI by Inspire during the warranty
period.
16.2 EXCEPT AS PROVIDED IN SECTION 15 (INFRINGEMENT
INDEMNITY) AND SECTION 5 TITLE) AND SECTION 16.1
ABOVE, CSI MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, REGARDING THE SHELL, THE LICENSED
PROGRAMS AND/OR THE PAR DEVELOPMENT TOOLS. BY WAY OF
EXAMPLE BUT NOT OF LIMITATION, CSI MAKES NO
REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE.
17. INVOICES AND PAYMENT
17.1 Upon signature of this Agreement by each of CSI and
Inspire, CSI shall submit Inspire an invoice for the
license fee of One Million Five Hundred Thousand
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($1,500,000) Dollars (plus any applicable taxes) due
and payable by Inspire to CSI, pursuant to the
provisions of Section 6 above.
17.2 CSI shall submit to Inspire an annual invoice for
Support Services in the amount of Five Hundred
Thousand ($500,000) Dollars (plus any applicable
taxes) due and payable by Inspire to CSI pursuant to
the provisions of Section 9 above.
17.3 Annual invoices for Support Services during the
Extension Term shall be submitted and due and payable
in accordance with the provisions of Section 9 above.
17.4 CSI shall invoice Inspire on a monthly basis for any
Professional Services provided by CSI to Inspire,
pursuant to the provisions of Section 11 hereof. Each
such invoice shall be issued monthly in arrears and
will be in respect of Professional Services performed
by CSI during the preceding month, plus any
associated amounts relating to travel, lodging and
subsistence.
17.5 All invoices rendered by CSI to Inspire shall be paid
within thirty (30) days after receipt by Inspire.
17.6 Inspire shall be responsible for the payment of all
sales, value added, use and similar taxes payable by
CSI or Inspire in connection with the licensing of
the Shell, PAR Development Tools or Licensed Programs
and/or the provision of Support Services pursuant to
this Agreement other than taxes based upon or related
to the income of CSI, or in lieu thereof, Inspire
shall provide a tax exemption certificate acceptable
to the taxing authorities. On sales outside the
United States, all import/export duties, taxes and
associated fees shall be payable by Inspire.
18. ROYALTY
Inspire shall pay CSI a royalty of One Hundred Thousand ($100,000)
Dollars in respect of the initial "sale" (license) by Inspire to an
End User of one or more Private Label Licensed Programs or any portion
of a Private Label Licensed Program or the sale of any Inspire product
which incorporates a Private Label Licensed Program. Inspire shall
have no obligation to pay royalties to CSI with respect to any and all
subsequent "sales" (licenses) to an End User of (1) Private Label
Licensed Program(s) or (2) any Inspire product which incorporates a
Private Label Licensed Program. Inspire shall furnish to CSI on a
calendar quarter basis, (1) a report which details any and all such
"initial sales," to include the name of the customer and the products
licensed, and (2) a check in the amount of the total royalties (if
any) due for such calendar quarter report period. CSI shall have the
right (to be exercised not more than twice per year) upon reasonable
notice to Inspire, to inspect such of Inspire's records as are
necessary to verify and validate Inspire's compliance with its
obligations pursuant to this Section 18.
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Such inspection shall take place during normal business hours on a
date to be mutually agreed upon by CSI and Inspire.
19. PUBLICITY
The parties shall, within fifteen (15) days of the date of this
Agreement, mutually agree upon a joint press announcement relating to
this Agreement. Except as provided above, each party shall submit to
the other for approval, all press releases, announcements and other
publicity, letters or literature (except for either party's internally
distributed news letters) relating to the subject matter of this
Agreement, and neither party shall publish or otherwise use any such
advertising, sales promotion, press release, announcement or other
publicity material without the express prior written approval of the
other party, which approval shall not be unreasonably withheld.
20. TRADEMARKS
No right or license is granted by CSI to Inspire to use CSI trademarks
or trade names except as authorized by CSI in connection with the
advertising or promoting of the Private Label Licensed Programs. The
Company shall not affix any CSI trademarks, logos or trade names to
any of Inspire's products and will not disturb any legend, notice,
label, plate, designation of any CSI trademark, logo or trade name or
serial numbers on the Licensed Programs and/or PAR Development Tools.
Inspire shall not include CSI trademarks or trade names in any name
under which Inspire does business.
21. MARKETING AND SALES SUPPORT
In the event that Inspire requires marketing and or sales support to
assist it in the marketing of the Private Label Licensed Programs, CSI
is willing to provide such assistance, subject to availability of
personnel, in accordance with its applicable daily rate, plus
reimbursement (in accordance with CSI's travel policy, as more
particularly referenced in Section 7 hereof for any travel, lodging
and subsistence expenses incurred by its personnel in the provision of
such support.
22. RELATIONSHIP OF PARTIES
This is an agreement between separate legal entities which are
independent contractors and neither is the agent or employee of the
other for any purpose whatsoever. The parties do not intend to create
a partnership or joint venture between themselves and the only
relationship intended to be created by the parties hereto is that of
non exclusive licensor and licensee. Neither party shall have the
right to bind the other to any agreement with a third party or to
incur any obligation or liability on behalf of the other party.
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23. NOTICES
Except as otherwise provided in this Agreement, all notices or other
communications hereunder shall be deemed to have been duly given when
made in writing and delivered in person or deposited in the United
States mail, postage prepaid, certified mail, return receipt
requested, and addressed to Inspire at its address as shown on the
cover sheet to this Agreement and to CSI as follows:
Cover-All Systems, Inc.
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
Attention: President
24. ADVERTISING
Inspire (its agents and representatives) will not in any manner make
any statement, use, display, broadcast, or disseminate any sales,
advertising or promotional material which contains (i) any material
misrepresentations, or omits to state a material fact, with regard to
the Licensed Programs, or (ii) any statement in derogation of CSI
and/or CSI products. Inspire (and its agents and representatives)
shall, prior to its proposed use of any advertising or promotional
material referring to CSI and/or CSI products, submit a copy of such
material to CSI for CSI's prior written approval, which approval shall
not be unreasonably withheld. Inspire (and its agents and
representatives) shall not make any claims in the marketing, sale
and/or promotion of the Private label Licensed Programs which exceed,
contradict or conflict with any claims made by CSI with respect to the
Licensed Programs and/or contained in any CSI written or printed
material referring to the Licensed Programs.
25. CHANNEL CONFLICT
Any dispute with respect to channel conflict between sales
representatives of CSI marketing the Licensed Programs and sales
representatives of Inspire marketing the Private Label Licensed
Programs, will be referred for joint resolution by the President of
each of CSI and Inspire. Such dispute will be resolved on an
equitable basis and in good faith. Resolution of any such dispute
shall be effected within five (5) business days of the date that the
dispute was first referred to either of the parties for resolution.
In addition, Inspire acknowledges and agrees that in recognition of
(1) the amount of the consideration for this transaction, and (2) the
substantial value of the goodwill attaching to CSI's customer base,
Inspire will not market the Private Label Licensed Programs to the
customers of CSI. CSI has furnished to Inspire a list of all current
customers (the "Customer List"). CSI will update the Customer List
and furnish the same to Inspire on or before the fifth (5th) day of
each month. For the purposes of this Section 25 the customer list
will identify only those persons or entities which are (1) customers
of CSI pursuant to a written agreement between such customer and CSI
or a
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CSI authorized reseller, or (2) prospects which are currently the
subject of an active CSI direct and specific sales and marketing
effort.
26. TERMINATION
26.1 If either party is in material default of any of its
obligations hereunder and such default continues uncured for
thirty (30) days after written notice to the defaulting party
advising it of the nature of the default, then the
non-defaulting party may give the defaulting party thirty (30)
days written notice of its intention to terminate this
Agreement which termination shall be automatic at the end of
the aforesaid thirty (30) day notice period unless the default
has been cured by the defaulting party. Upon such termination
the non-defaulting party shall be entitled to proceed against
the defaulting party at law or in equity to recover such
damages, subject to the limitations set forth in this
Agreement, as have been suffered by the non-defaulting party
as a result of such breach of this Agreement.
26.2 If termination is due to a material breach by Inspire of any
of its obligations pursuant to Sections 10, or 12 hereof,
(which breach is not cured by Inspire within the period
specified in Section 26.1 above) then upon such termination
Inspire shall forthwith return to CSI any and all copies
(Source Form and/or Object Form) of the Licensed Programs
which are in the possession of Inspire. In addition Inspire
acknowledges and agrees that upon such termination it will
destroy (and an officer of Inspire will certify such
destruction in writing to CSI) any and all copies of the
Private Label Licensed Programs (Source Form and/or Object
Form) which are in the possession of Inspire as of the date of
such termination. All rights granted hereunder to Inspire
shall terminate forthwith upon termination of this Agreement
pursuant to this Section 26.2. However CSI acknowledges that
such termination shall not affect any End User Agreement which
has been entered into by Inspire prior to the date of such
termination, subject to the End User being and remaining
compliant with the End User's obligations to protect and
safeguard CSI intellectual property as such obligations are
set forth in the applicable End User Agreement.
26.3 Inspire may terminate this Agreement by written notice to CSI
in the event that:
[i] CSI files a petition for relief under the US
Bankruptcy Code or similar Federal or state statute
now or hereinafter in effect; or
[ii] a petition for relief, under the US Bankruptcy
Code or similar Federal or state statute now or
hereinafter in effect, is filed against CSI, and such
petition is not dismissed within sixty (60) days of
the date thereof-, or
[iii] a trustee or receiver is appointed, with or
without consent, to manage all or substantially all
of CSI's assets.
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26.4 In the event of a material breach by CSI which remains uncured
for a period of one hundred twenty (120) days after the date
of notice of such breach (given by Inspire to CSI in
accordance with the provisions of Section 26.1 above) or the
occurrence of an event specified in Section 26.3 above, then
Inspire may, in lieu of termination of this Agreement and as
its sole and exclusive remedy for any and all damages
resulting from such breach, retain and use (subject in all
respects to the terms and conditions of this Agreement) the
version of the Licensed Programs, Shell and PAR Development
Tools for which Inspire has paid the applicable License Fees
for such period of time as Inspire may determine. Inspire
shall have no further payment obligations whatsoever under
this Agreement if it elects to retain and use the CSI software
under this Section 26.4, including, without limitation,
Support Services fees and royalties payable under Section 18.
26.5 CSI and Inspire acknowledge and agree that the provisions of
Sections 10, 12, 13 hereof shall survive termination of this
Agreement for whatsoever cause.
27. ETHICAL CONDUCT
Neither party will engage in any deceptive, misleading, unethical or
improper practices which may reflect adversely on the other party or
its products and services.
28. ASSIGNMENT
Neither this Agreement nor any rights granted hereunder, in whole or
in part, shall be assignable or otherwise transferable by Inspire,
provided always that this restriction on assignment shall not apply to
an assignment in connection with the transfer of all or substantially
all of Inspire's assets to an acquiring company, provided always that
such acquiring company agrees to be unconditionally bound by all of
the terms and conditions of this Agreement.
29. NO THIRD PARTY BENEFICIARIES
Except as otherwise expressly provided in this Agreement, the
provisions of this Agreement are for the benefit of the parties hereto
and not for any other person or entity.
30. YEAR 2000 COMPLIANCE
CSI represents and warrants that the Shell and Licensed Programs
(hereinafter collectively referred to as "Software") will be Year 2000
compliant on or before December 31st, 1998. For the purposes of this
Agreement the term "Year 2000 compliant" means the ability of the
Software (when used with the designated equipment and software
configuration specified in Schedule A to this Agreement and in
accordance
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with the Documentation) to provide all of the following functions
(without any decrease in Software functionality or performance as
documented by the applicable ADM):
[i] accurately process date information whether before,
during, or after January 1, 2000, including without
limitation, accepting date input, providing accurate date
output and performing accurate calculations involving dates;
[ii] operate accurately, efficiently and without interruption
before, during and after January 1, 2000, without any change
in program functionality or operation;
[iii] accurately process date input in a way that does not
create any ambiguity as to century;
[iv] accurately store, retrieve and process date information
in a manner that does not create any ambiguity as to century;
and
[v] accurately present all date output information in a manner
that does not create any ambiguity as to century.
In the event that CSI is in breach of the foregoing
representation and warranty then Inspire shall report such
breach in writing to CSI, specifying with particularity the
nature of the breach. In the event that CSI has not remedied
such breach within thirty (30) days of its receipt of such
notice from Inspire, then in addition to any other remedies
available to Inspire under this Agreement or at law, CSI
agrees to immediately assign fully trained senior software
programming personnel to work continuously (at no additional
cost or expense to Inspire) until the Software complies with
the foregoing representation and warranty and without
interruption to Inspire's ongoing business. Under no
circumstances shall CSI be liable for a breach of the
foregoing representation and warranty which is caused by third
party software not provided by CSI to Inspire or which is
caused by electronic transfer of data or information to be
processed by the Software or which is caused by use of the
Software to access or transmit data to third party service
providers.
31. INSURANCE SERVICES ORGANIZATION
Inspire acknowledges and agrees that the Licensed Programs contain
ordinary and customary published changes and/or additions to ISO
(Insurance Services Organization) rating and issuance rules and that
Inspire (as a reseller of the Private Label Licensed Programs) is
required to separately enter into an agreement with ISO to authorize
and establish the terms, conditions and fees applicable to Inspire's
distribution and licensing of the ISO component of the Private Label
Licensed Programs.
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32. CHOICE OF LAW
The construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey. No provision or term of this
Agreement shall be construed against any party because that provision
or term (including any and all amendments thereof) was drafted by or
at the direction of such party.
33. WAIVERS OF DEFAULT
Waiver by either party of any default by the other party shall not be
deemed a continuing waiver of such default or a waiver of any other
default.
34. AMENDMENTS
No provisions of this Agreement shall be deemed waived, amended or
modified by either party, unless such waiver, amendment or
modification is in writing and signed by a duly authorized
representative of each of the parties hereto.
35. SEVERABILITY
35.1 If any provision or any part of a provision of this Agreement
shall be held to be invalid or unenforceable, such invalidity
or unenforceability shall not invalidate or render
unenforceable the entire Agreement, but rather the entire
provision or the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision
or provisions, and the rights and obligations of the parties
shall be construed and enforced accordingly.
35.2 However, in the event that such unenforceable provision is a
basic prerequisite for either party to enter into this
Agreement the aforesaid subsection 35.1 shall not apply, and
the parties agree to promptly meet and negotiate in good faith
to attempt to agree upon a new provision to carry out the
original intent of the parties to the extent that this is
reasonably permitted.
36. FORCE MAJEURE
Notwithstanding anything in this Agreement to the contrary, neither
party shall be held responsible for any delay or failure in
performance hereunder caused by fires, strikes, embargoes,
governmental requirements, civil or military authorities, Act of God
or by public enemy, act or omission of common or private carriers or
other causes beyond such party's reasonable control and without such
party's fault or negligence (each such event being called a
"Contingency"). Each party shall promptly notify the other party in
writing of any Contingency which occurs during the term of this
Agreement and which Contingency impairs such party's ability to
perform its obligations pursuant to this Agreement.
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37. EXPORT REGULATIONS
With respect to exportation or re-exportation of any Private Label
Licensed Program or any portion thereof from the United States,
Inspire agrees not to export or permit exportation outside of the
United States without first (i) obtaining any required written
permission to do so from the United States Office of Export
Administration and other appropriate governmental agencies of the
United States, or (ii) complying fully and strictly with all
requirements of any general license exempting the exportation from the
requirement for that permission.
38. ENTIRE AGREEMENT
This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and supersedes all
prior understandings, agreements, proposals or discussion between
them, and neither of the parties shall be bounded by any conditions,
definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided
herein, or as duly set forth on or subsequent to the effective date
hereof in writing and signed by a duly authorized representative of
each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed by its duly authorized representatives, the day, month and
year first before written.
COVER-ALL SYSTEMS, INC. INSPIRE INSURANCE SOLUTIONS, INC.
By: /s/ PETER C. LYNCH By: /s/ RONALD O. LYNN
----------------------- -----------------------------
Name: Peter C. Lynch Name: Ronald O. Lynn
--------------------- ---------------------------
Title: President Title: E.V.P. - C.I.O.
-------------------- --------------------------
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SCHEDULE A
LISTING OF DESIGNATED EQUIPMENT
SPECIFICATION OF COMPUTER EQUIPMENT (AND ASSOCIATED SOFTWARE) WHICH IS
CAPABLE OF SUPPORTING AND EXECUTING THE LICENSED SOFTWARE:
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SCHEDULE A TO SOFTWARE LICENSE AND SERVICES
AGREEMENT
HARDWARE AND SOFTWARE COMPONENTS ESSENTIAL FOR THE PROPER OPERATION AND
EXECUTION OF THE SOFTWARE LICENSED PURSUANT TO THIS AGREEMENT
PC WORKSTATION
IBM PS-2 MODEL 486/33 OR HIGHER OR A 100% FULLY COMPATIBLE EQUIVALENT MODEL
W/16 Mb RAM
DOS VERSION 6.2
WINDOWS 3.1 (+) or WINDOWS 95(+)
HARD DISK OF MINIMUM 250MB SIZE
SVGA COLOR MONITOR
CD ROM DRIVE
PC FILE SERVER
PENTIUM 1OOMHz OR GREATER
EXTENDED MEMORY OF 48 Mb OR GREATER
DOS 6.2
WINDOWS 3.1 (+) OR WINDOWS 95(+)
NOVELL NETWARE 386 VERSION 3.12
HARD DISK OF 1 GIGABYTE OR GREATER DEPENDENT ON NUMBER AND TYPE OF POLICIES
MONOCHROME OR COLOR MONITOR (VGA)
MODEM WITH BAUD SPEED OF 28,88OKBS OR HIGHER AT EACH SITE
<PAGE> 29
CARBON COPY COMMUNICATIONS SOFTWARE (VERSION 6.1) INSTALLED AT EACH SITE (other
communications software may be used as long as approved in writing by CSI)
HEWLETT PACKARD LASER PRINTERS: MODEL IIISi AND UP
ORACLE DATABASE VERSION 7.3.2.1.0 (or higher)
ORACLE 2000 RUNTIME VERSION 4.5.6.5.5
THE ABOVE HARDWARE AND SOFTWARE SPECIFICATIONS ARE REQUIRED FOR THE CURRENT
VERSION OF THE SOFTWARE. SUBSEQUENT VERSIONS OF THE SOFTWARE MAY REQUIRE
UPGRADE OF THE ABOVE COMPONENTS AND/OR ADDITIONAL COMPONENTS IN ORDER TO
FACILITATE PROPER OPERATION.
THE FOLLOWING ARE OPTIONAL BUT RECOMMENDED
DATABASE SERVER
PENTIUM 100 Mhz OR HIGHER
64 Mb RAM
2 GB HARD DRIVE
NETWORK PRINT SERVERS(S)
PENTIUM 100 Mhz OR HIGHER
32 Mb RAM
1 GB HARD DRIVE
<PAGE> 30
SCHEDULE B
LANGUAGE PROVISIONS TO BE INCORPORATED INTO THE END USER AGREEMENT FOR THE
PROTECTION OF CSI TRADE SECRET AND PROPRIETARY INFORMATION AS PROVIDED FOR BY
THE PROVISIONS OF SECTION 10.4 OF THIS AGREEMENT
DEFINITIONS
"Software" shall mean the object code version of the Inspire software programs
(listed and described in Schedule A hereto) (and any and all Updates, ISO/NCCI
Updates,) for use on the designated computer equipment listed and described in
Exhibit A hereto.
"Proprietary Information" shall mean Software, Updates, ISO/NCCI Updates, all
related documentation, technical and user manuals and any other information
which is confidential to Inspire and/or its licensors.
X. LICENSE
X.l Inspire grants to Customer a personal, non exclusive, non transferable,
license for the duration of the License Term (unless terminated as herein
provided) to use the Software (including any related documentation) furnished
by Inspire to Customer pursuant to this Agreement, solely for Customer's
internal data processing requirements and for use on the Customer's data
processing equipment and at the Customer site or sites more particularly
described in Exhibit A to this Agreement.
X.2 Customer shall not modify, decompile, disassemble or reverse engineer any
Software licensed to Customer pursuant to Section X.1 above and Customer shall
make and maintain no more than one (1) archival copy of each such Software
item. Each such copy shall be marked and contain all notices and legends which
appear on the original thereof and shall in all respects be subject to the same
terms, conditions and restrictions which govern the original thereof.
X.3 If the Customer desires to use the Software at a Customer site or sites
other than those listed in Exhibit A hereto or to execute the Software on data
processing equipment other than that specified in Exhibit A hereto, then
Customer shall request prior written approval thereof from Inspire. Inspire
will then advise Customer whether and under what terms and conditions Inspire
will license the Software with respect to any such Customer request.
X.4 This Agreement does not transfer to the Customer title to any intellectual
property comprised or contained in any Proprietary Information.
Y. PROPRIETARY INFORMATION
Y.1 Customer will keep Proprietary Information in confidence and protect the
same from disclosure to third parties and restrict its use as provided for by
this Agreement. Customer acknowledges that the unauthorized disclosure of
Proprietary Information may cause substantial economic loss to Inspire or its
licensors. All materials containing Proprietary Information shall be marked as
"Proprietary", "Confidential", "Restricted" or in a similar manner which gives
notice of the proprietary nature of the materials. Customer shall not copy
Proprietary Information in whole or in part, except in connection with
Customer's authorized use of Proprietary Information. Customer shall mark each
such copy, including any storage media, with all notices and legends, which
appear on the original.
Y.2 Upon the termination of this Agreement, for whatsoever cause, Customer will
destroy (and provide written certification of such destruction to Inspire) or
return to Inspire all Proprietary Information and any and all copies thereof.
Y.3 Customer shall inform its employees as to the provisions of this Section Y
and of Customers obligations hereunder and instruct its employees so as to
ensure that such obligations are met.
Y.4 The provisions of this Section Y shall survive the termination of this
Agreement for whatsoever cause.
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EXHIBIT A
NON DISCLOSURE AGREEMENT
THIS NON DISCLOSURE AGREEMENT is made as of ____________ (the "Effective Date")
by and between INSPIRE INSURANCE SOLUTIONS, INC. ("INSPIRE") having offices at
______________________________________________ and ___________________________
(the "COMPANY") having offices at ____________________________________________
WHEREAS:
(1) INSPIRE and the Company are desirous of evaluating a possible business
relationship between INSPIRE and the Company (the "Evaluation");
(2) In connection with the conduct of the Evaluation by the parties hereto
it may be necessary for either party to disclose (the "Disclosing Party") to
the other party (the "Receiving Party") certain information which is
proprietary and/or confidential to the Disclosing Party;
(3) INSPIRE and the Company have each acknowledged and agreed that any and
all of their respective proprietary and/or confidential information shall be
made available, used and safeguarded strictly in accordance with and subject to
the terms and conditions hereinafter appearing.
ACCORDINGLY IT IS HEREBY AGREED AS FOLLOWS:
1. INFORMATION
As used in this Agreement the term "Information" shall mean any and all
information of whatsoever kind (whether in machine readable or visually
readable form) which is confidential and/or proprietary to the Disclosing
Party, including, without limitation, all technical specifications, drawings,
schematics, models, computer programs, systems design specifications, systems
architecture specifications and/or business, financial or marketing plans or
data, and any and all copies of Information that are provided by either party
to the other, now or in the future, in accordance with the terms of this
Agreement. If Information is disclosed orally, the Disclosing Party shall
clearly identify the Information as being proprietary and/or confidential at
the time of disclosure and shall reduce such oral disclosure to written
tangible form to be furnished to the Receiving Party within fifteen (15) days
of the date of such oral disclosure. Any tangible material which is derived
from Information shall be deemed to be Information for the purposes of this
Agreement.
2. MARKING OF INFORMATION
All Information (whether machine readable or visually readable) furnished by
either party to the other, pursuant to this Agreement, shall be marked with a
label or legend denoting that it is "Confidential", "Proprietary", "Restricted"
or similarly marked so as to indicate that such Information is not intended to
be, nor is to be, disclosed to any other person or entity.
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3. USE OF INFORMATION
INSPIRE and the Company each acknowledge and agree that they shall not use
Information for any purpose other than the conduct of the Evaluation in
accordance with and subject to the terms and conditions of this Agreement.
Neither party shall disclose, or otherwise make available, Information (whether
in whole or in part) to any third party, except for those employees (of INSPIRE
or Company, as applicable) or to attorneys or consultants (to INSPIRE or
Company, as applicable) who: (1) have a need to know Information for the
purposes of advising the Company in connection with the Evaluation, and (2)
have agreed in writing (prior to the disclosure of any Information):
[i] to be in bound accordance with the terms of this Agreement
with respect to the use and safeguarding of Information; and
[ii] not to disclose or otherwise make Information available
to any other person or entity.
4. COPIES OF INFORMATION
The parties hereto each acknowledge and agree that they will not make copies of
Information (disclosed to either party pursuant to this Agreement) except to
the extent necessary to conduct the Evaluation. Each party shall keep a log
which records: (1) the date that any copy of Information is made, (2) the
nature of the Information copied, (3) the number of copies made, (4) the name
of the person making the copy, and (5) the name of the person(s) to whom the
copy was distributed.
5. RETURN OF INFORMATION
As soon as the Receiving Party no longer has a need to use Information for the
purposes of the Evaluation, or upon the request of the Disclosing Party,
whichever occurs first, the Receiving Party shall:
[i] immediately cease using and promptly return any and all
Information (and any and all copies thereof) to the Disclosing
Party; and
[ii] destroy all writings or other data or materials, of
whatsoever kind, created by the Receiving Party and containing
or based upon or reflecting Information, including, without
limitation, any and all copies thereof, whether in machine
readable or visually readable form.
6. COURT OR GOVERNMENTAL ORDER
The Receiving Party shall not be prohibited from disclosing Information
pursuant to a valid and effective order issued by a court of competent
jurisdiction or governmental authority having appropriate statutory powers, but
any such disclosure shall be made only to the extent so ordered and only if the
Receiving Party timely notified the Disclosing Party prior to such disclosure
so that the Disclosing Party may intervene in response to any such order for
disclosure.
7. NON APPLICABILITY OF OBLIGATIONS
The obligations and limitations set forth in this Agreement shall not apply to
Information which is:
[i] at any time available to the public other than as a
consequence of a breach of this Agreement by the Receiving
Party;
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[ii] at any time rightfully received (by one of the parties
hereto) from a third party which has the right to transmit and
does transmit such Information to INSPIRE or the Company, as
the case may be;
[iii] rightfully known to the party receiving such Information
without any limitation on use or disclosure prior to receipt
of such Information, as substantiated by a writing predating
the date of this Agreement;
[iv] independently developed by personnel of INSPIRE or the
Company, as the case may be, who have not had any access
whatsoever to Information.
8. TITLE
Title and/or the right to possess Information shall remain in the Disclosing
Party, except for the express rights relating to the limited possession of
Information which are granted by this Agreement
9. GENERAL PROVISIONS
(a) This Agreement is not intended to create and shall not be construed as
creating a joint venture, partnership or any other kind of business
relationship between the parties hereto.
(b) No delay on the part of either party in exercising any right under
this Agreement shall operate as a waiver of any such right.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey. No provision or term of this Agreement
shall be construed against any party because that provision or term (including
any and all amendments thereof) was drafted by or at the direction of such
party.
(d) Neither party makes any representation or warranty to the other as to
the accuracy or completeness of any Information furnished to the other party
pursuant to this Agreement and neither party shall have any liability
whatsoever to the other with respect to or resulting from the other party's use
of Information.
(e) In the event that any provision of this Agreement is held to be
invalid, unenforceable or illegal, the validity, enforceability or legality of
the remaining provisions shall not be in any way affected or impaired thereby.
(f) This Agreement sets forth and states the entire agreement between the
parties with respect to the subject matter hereof and supersedes any and all
prior agreements, understandings (whether written or oral) with respect to the
subject matter of this Agreement.
(g) This Agreement may not be amended except by a writing signed by a duly
authorized representative of each of the parties hereto.
INSPIRE INSURANCE SOLUTIONS, INC. THE COMPANY
By: By:
------------------------------ -------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
31
<PAGE> 34
EXHIBIT B
COVER-ALL TECHNOLOGIES INC.
CLASSIC PRICE BOOK
CONFIDENTIAL
<PAGE> 35
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COVER-ALL TECHNOLOGIES INC. COVER-ALL CLASSIC PRODUCT PRICE LIST CONFIDENTIAL**
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT/
PLANNED AVAIL BASE
PRODUCT NAME DESCRIPTION STYLE NO. VERSION DATE DEPENDENCIES LICENSE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Classic Shell Classic Pol. Ad. Shell - DOS or 4.1D or
Windows CSHL01 4.1W Available CTOOLS** Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Classic - GUI CSHL03 5.0G 2Q98 CSHL04 Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Development Tools CTOOLS Available CSHL01 Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
one or more
CTOOLS LOB's listed
Plus Available below Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CPP (PR, GL,
CR & IM) CPP CPP1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
CPP + CA and GA as part of
package CCL001 Available CPP1; CA1; CSHL01 Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
MONOLINES COMMERCIAL PROPERTY PR1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
TEXAS PROPERTY - GBS or ISO PR-TX Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL GENERAL LIABILITY GL1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
CRIME CR1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
INLAND MARINE IM1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
CA W/GARAGE CA1 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
CA TEXAS CA-TX Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION WC01 Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION TEXAS WC-TX Available Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MIN. BASE PER STATE
PRODUCT PER STATE MAX. BASE ANNUAL ANNUAL
NAME LICENSE LICENSE MAINTENANCE MAINTENANCE NOTES:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
"License applies if purchased
Classic Shell for self-development
- ------------------------------------------------------------------------------------------------------------------------------------
Demonstrable with WC & CA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
for up to 3
Development Tools LOB
- ------------------------------------------------------------------------------------------------------------------------------------
for up to 3
LOB
- ------------------------------------------------------------------------------------------------------------------------------------
Per LOB
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CPP (PR, GL,
CR & IM) Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MONOLINES Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
???
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
Confidential Confidential Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 36
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
[ILLEGIBLE] OVERTIME POLICY [ILLEGIBLE]
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BOP BOP01 9/1/97 Confidential Confidential Confidential Confidential
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Auto
- -----------------------------------------------------------------------------------------------------------------------------------
PERS AUTO PA1 tbd Confidential Confidential Confidential Confidential
- -----------------------------------------------------------------------------------------------------------------------------------
PA-NON STAND PANS01 tbd Confidential Confidential Confidential Confidential
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Confidential 7 states available
- -----------------------------------------------------------------------------------------------------------------------------------
50 states available
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Auto
- -----------------------------------------------------------------------------------------------------------------------------------
Confidential Available for PR only
- -----------------------------------------------------------------------------------------------------------------------------------
Confidential
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE> 37
<TABLE>
<CAPTION>
COVER-ALL TECHNOLOGIES INC. COVER-ALL CLASSIC PRODUCT PRICE LIST. **CONFIDENTIAL**
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOMEOWNERS (ISO)
- ------------------------------------------------------------------------------------------------------------------------------------
* HOMEOWNERS HO1 tbd Confidential Confidential Confidential Confidential Confidential Available for
(HO) PR only
- ------------------------------------------------------------------------------------------------------------------------------------
DWELLING FIRE
* Dwelling DF1 tbd Confidential Confidential Confidential Confidential Confidential Available for
Fire (DW) PR only
- ------------------------------------------------------------------------------------------------------------------------------------
RATING ONLY
* All Standard The same pro-
Lines of Style # ducts are used
Business + RO Confidential w/ printing
suppressed.
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-LINE DISCOUNT
* 2 Lines of Business Confidential Confidential
3 Lines of Business Confidential Confidential
4 or more Lines of
Business Confidential Confidential
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRICING NOTES:
1 All Prices in US dollars
2 Per state prices apply to supported states (See supported
states)
3 All prices are for one site
4 Terms of Payment: Read Policy Manual
5 Base License Fee includes 1 day initial installation &
Shell training/setup/1 Day of Train the trainer for most
products; 2 days for CPP
6 Prices are for Rating and Issuance
7 All items (*) are subject to review; new product lines
MAINTENANCE:
Frequency of Bureau changes and complexity of the LOB affect
Maintenance.
The maximum base License reflects a 20% discount off the
maximum number of states.
Included in Maintenance:
ISO/NCCI Rates, Rules & Forms
bug fixes
regular releases on CD
Help Desk - Reporting SPRs and
answering questions
QA of products
LICENSE
The License for the above products include the Shell.
NEEDS TO BE INCLUDED IN PRICE BOOK:
Additional site license
ballparks for custom products
Oracle License; prices based on ISAM
Page 3
<PAGE> 1
EXHIBIT 10.45
INSPIRE INSURANCE SOLUTIONS, INC.
CONTRACT TO PROVIDE SERVICES AND
ACQUIRE LICENSE TO USE SOFTWARE
This Contract is made on the 29th day of December 1997, between Inspire
Insurance Solutions, Inc., a corporation organized and existing under the laws
of the State of Texas, having main place of business at 300 Burnett Street,
Fort Worth, Texas, 76102, United States of America (hereinafter referred to as
"the LICENSOR"), herein represented by Robert K. Agazzi, Executive Vice
President, duly authorized an empowered to sign this Contract in the name and
on behalf of the LICENSOR, and SUL AMERICA CIA NACIONAL D SEGUROS, an insurance
corporation organized and existing under the laws of Brazil, registered with
the General Taxpayers Registry of the Internal Revenue Service (CGC/MF) under
N. 33.041.062/0001-09, having a main place of business at Rua da Quitanda 86,
in the City and State of Rio de Janeiro, 20091-000, Brazil (hereinafter
referred to a "the LICENSEE"), herein represented by Dr. Ivan Hgoncalves Passos
and by Dr. Henrique Zanetti, both Vice-Presidents, duly empowered to sign this
Contract in the name and on behalf of the LICENSEE.
WHERES the LICENSOR is a leader in promoting the development and sale of
software for use by insurance companies;
WHEREAS the LICENSOR has developed in the regular course of its activities a
software for use by insurance companies ("Base System");
WHEREAS the Base System is adapted for use by insurance companies in the United
States and elsewhere throughout the world, in several key areas of the
insurance business, such as that of management of insurance policies and loss
or damage, pricing and issuing of insurance policies, basic directives and
norms, preparation of appropriate clauses, etc.;
WHEREAS the LICENSEE is interested in the Base System only once adapted to the
LICENSEE'S specific characteristics and needs;
WHEREAS the adaptation of the Base System to the specific characteristics and
needs of each licensee is made through a Detailed Study, as defined below, and
which Detailed Study of the LICENSEE has already been conducted by the
LICENSOR;
WHEREAS the LICENSEE wishes to acquire from the LICENSOR the right to the
non-exclusive and non-transferable use of the Base System, with the adaptations
listed in the Detailed Study ("Modified System"), and that the LICENSOR is
willing to grant to the LICENSEE the non-exclusive and non-transferable right
to use the Modified System;
WHEREAS all pertinent aspects have been considered, the parties mutually agree
to the present contract, in accordance with the following clauses and
conditions:
1
<PAGE> 2
1. DEFINITIONS
1. Within this contract, the terms listed below will have the
following meaning:
(a) "Base System" refers to the computer software described in
Appendix 1.1.a, which will serve as a base for the implementation of the
Modified System, and of any upgrade or improvement to said computer software,
which the LICENSOR makes available to the LICENSEE (hereinafter referred to as
"the Base System");
(b) "Modified System" refers to the Base System, once adapted to
the specific characteristics and needs of the LICENSEE, as defined in the
Detailed Study;
(c) "Detailed Study" refers to the study whose results are found
in Appendix 1.1.c, and which was developed by the LICENSOR with a view to
determining the modifications that will have to be introduced by the LICENSOR
in the Base System in order to adapt it to the specific characteristics and
needs of the LICENSEE;
(d) "Acceptance of the Modified System" refers to the test that
will be conducted by the LICENSOR and the LICENSEE in order to evaluate the
performance and functional capacities of the Modified System, once installed by
the LICENSOR, as described in Appendix 1.1.d;
(e) "Hardware Requirements" refers to the hardware needed for the
use and operation of the modified System, as described in Appendix 1.1.e;
(f) "Installation Support" refers to all the technical support
necessary for the proper and successful installation of the Modified System,
which also includes the training of the LICENSEE'S employees as described in
Appendix 1.1.f;
(g) "License" refers to the non-exclusive and non-transferable
right to use the Modified System an its documentation;
(h) "Remuneration of the License" refers to the payments described
in this Contract, which will be due as a result of the use of the Modified
System by the LICENSEE;
(i) "Documentation refers to the manuals and written materials of
the Base system, with the alterations pertinent to the Modified System;
(j) "Specifications of the Modified System" are those appearing in
the detailed Study, as described in Appendix 1.1.c;
(k) "Specifications of the Base System" are registered in the
documentation of the WPC, UES, VR, and PSP Basic Functionality, existing at the
time of signature of this Contract, as described in Appendix 1.1.a;
2
<PAGE> 3
(l) "User Acceptance Test Matrix" refers to the documents to be
provided by the LICENSOR so as to conduct the test of Acceptance of the
Modified System;
2. LICENSE OF USE OF THE MODIFIED SYSTEM
2.1 The LICENSOR hereby grants to the LICENSEE, and the LICENSEE
hereby accepts, as long as this Contract is in force, a non-exclusive and non
transferable right to use the Modified System ("License"), the implementation
of which is stipulated in Appendix 1.1.c.
2.2 The license granted by the LICENSOR allows the LICENSEE to use
the Modified System for data and file processing in any of its branches;
2.2.1. The LICENSEE agrees not to use a network program to copy
(except for backup purposes), translate, modify, adapt, decompile, disassemble,
improve, or reverse engineer the Base System.
2.2.2. The license is granted so that only one copy of the Modified
System is used in production. An additional amount of US $600,000.00 (six
hundred thousand American Dollars) will be payable to the LICENSOR for each
additional copy of the Modified System that the LICENSEE may request for use in
production.
2.3 The rights, benefits, responsibilities, and obligations
granted herein to the LICENSEE are personal, and must not be transferred or
assigned to third parties without the written permission of the LICENSOR. Any
attempt to sell, transfer, or assign without said permission will be null and
void. This clause does not apply to the group of companies of which the
LICENSEE is a part, specially the LICENSEE's parent companies and subsidiaries.
2.4 The LICENSOR will endeavor to ensure that use of the Modified
System by the LICENSEE is made in its best possible form, providing the
LICENSEE with al the necessary support for such purpose.
2.5 Under the terms of this contract, the LICENSOR does not grant
to the LICENSEE any proprietary right subject to registration as patent or
trademark.
2.6 The LICENSEE agrees not to obtain a patent on any software,
source codes, drafts, technical data, or any other technical information that
the LICENSOR may supply to the LICENSEE within the scope of this contract, or
to contribute objectively in a way that a third party may do so, as long as
this Contract is in force, or even subsequent to its termination, without the
written authorization of the LICENSOR.
2.6.1. The LICENSOR must maintain the LICENSEE immune against any
form of litigation that third parties may bring upon the LICENSOR as a result
of any rights that the same may have on the Modified System and any software,
source codes, drafts, technical data, or any
3
<PAGE> 4
other technical information supplied to the LICENSEE by the LICENSOR within the
scope of this Contract.
2.7 Upon delivery of each of the stages of the Modified System, as
stipulated in Appendix 5.2, the License and the LICENSOR will test the
functional capacity and performance of the respective stage, in accordance
with the Acceptance of the Modified System, as described in Appendix 1.1.d.
2.8 The Modified system, must comply with the specifications
contained in the document of Basic Functionality, as described in Appendix
1.1.a to this Contract, with the modifications stipulated in the detailed
Study.
2.9 The LICENSEE will be entitled to obtain the source code of the
Modified System a part of this Contract. A Confidentiality Agreement, however,
acceptable to the LICENSOR in form and substance, will have to be signed by the
LICENSEE, its directors and/or representatives, who may in any form be in
contractor with the Modified System.
3. HARDWARE REQUIREMENTS
3.1 The Modified System requires a Local Access Network (LAN) with
sufficient storage capacity, special functions, and adequate peripheral
equipment for its operation, as described in Appendix 1.1.e, and the Hardware
Requirements for adequate use of the Modified System.
3.2 The LICENSEE will only be responsible for licenses or run time
fees which refer to third party software contained in the configuration of the
Modified System, and which are specified in Appendix 3.2.
4. PAYMENT GENERAL CLAUSE
4.1 All the payments arising from this Contract, and which are due
for remittance to another country, are subject to the Brazilian rules of law
which govern such remittances.
4.2 Unless otherwise stipulated, all the payments in American
Dollars which arise from this Contract must be remitted abroad and deposited in
the LICENSOR's Account N. 1632230027 at the NationsBank, Ft. Worth, Texas,
within 30 days from receipt of the invoice, by electronic transfer, or in any
other account or location which the LICENSOR must designate in writing 2 (two)
days prior to the date of payment. The LICENSEE will be responsible for all of
the bank tariffs and similar charges.
4.3 All the amounts which the LICENSEE is to pay to the LICENSOR
under the terms of this Contract must be exempt from any tax, contribution,
duty, and tariff that may be imposed on the same by any Brazilian authority, be
it federal, state, or municipal.
4
<PAGE> 5
4.3.1. Should the LICENSEE be obliged to retain income tax on the
amounts payable to the LICENSOR, the same will be complemented by the LICENSEE
to extent necessary to meet the values accorded upon in this Contract, without
any reduction whatsoever.
4.3.2. This clause is not applicable to the cases in which the
LICENSOR is entitled to use the values retained in Brazil upon payment as tax
credit. In this case said information must be supplied by the LICENSOR upon
the issuance of any invoice payable by the LICENSEE.
5. IMPLEMENTATION OF THE MODIFIED SYSTEM
5.1 The detailed Study prepared by the LICENSOR and appearing in
Appendix 1.1.c identifies the modifications to be introduced in the Base
System by the LICENSOR, and which are necessary for the adaptation of the Base
System to the operations of the LICENSEE. Said Study is an integral part of
this Contract for all legal purposes, including those which concern the
estimated dates of delivery, the performance and functionality parameters.
5.2 As stipulated in appendix 5.2, the Modified System will be
implemented in three stages ("Stages"), whose dates of delivery to the LICENSEE
are as follows: (i) June 15th 1998, (ii) October 15th 1998, and (iii) February
18th 1999 (all of which are collectively referred to as "Dates of Delivery").
5.2.1. For the purposes of this Clause 5, the term "date of delivery"
must be construed as being that on which each of the Stages of the Modified
system is actually installed on the LICENSEE's computers.
5.3 Once the LICENSOR has delivered to the LICENSEE each of the
stages of the Modified System, the LICENSEE will have a 15-day term within
which to proceed with the Test of Acceptance of each stage, as stipulated in
Appendix 1.1.d. The LICENSEE must, within the same term, communicate to the
LICENSOR the results of said test, always in a clear and justified form.
5.3.1. In case the Test of Acceptance is not satisfactory to the
LICENSEE, the respective Stage of the Modified System will be deemed not
delivered, for all the purposes of this contract.
5.3.2. The Stages of the Modified System whose Test of Acceptance is
negative, will only be considered as delivered to the LICENSEE once the
problems initially indicated by the LICENSEE are totally soled, and the stage
is then delivered free from any new problems that may have arisen, which fact
will be tested by the LICENSEE within up to 15 days from receipt of the
respective Stage of the Modified System. The dispositions of item 5.3.1 are
also applicable to this test.
5.3.3. In case the result of the Test of Acceptance is positive, the
respective Stage of the modified system will be deemed as having been delivered
on the date on which the tested and accepted version is received by the
LICENSEE.
5
<PAGE> 6
5.4 The LICENSOR must have delivered to the LICENSEE, no later
than February 18th 1999, the third Stage of the Modified System, along with the
two prior stages, duly accepted by the LICENSEE.
5.4.1. The stipulations contained in items 5.3.2 and 5.3.3 above are
applicable for the purpose of establishing the date of delivery of the third
Stage of the Modified System.
5.5 In case the LICENSOR does not comply with the stipulations of
item 5.4 above, a fine equivalent to US$ 3,000.00 (three thousand American
dollars) shall be payable by LICENSOR to the LICENSEE for each Day of Delay,
which expression is to be understood as referring to every normal working day
included in the period that begins eighteen days after the Dates of Delivery
and ends in the day of actual delivery of the respective Stages of the Modified
System to the LICENSEE.
5.5.1. Whenever a delay takes place of any of the Date of Delivery as
a result of the LICENSOR's fault, the LICENSEE is to notify the LICENSOR in
writing about said delay.
5.5.2. Should the motive of the delay be the result of the LICENSEE's
fault, the number of days corresponding to said delay must be deducted from the
number of days of delay whose fault is attributable to the LICENSOR.
6. SERVICES AND TRAINING
6.1 The LICENSOR must, whenever requested in writing by the
LICENSEE, make available to the LICENSEE experienced technicians and other of
its professionals to instruct and provide consulting services in respect of the
installation, operation, use, and services relating to the Modified System, at
the location indicated by the LICENSEE. LICENSEE agrees not to make
unreasonable requests.
6.2 Until the beginning of the Implementation of all the Modified
System in any of the LICENSEE's branches, all and any expenses incurred by the
LICENSOR while developing the Modified System (including travel and boarding
expenses of the LICENSOR's personnel) are to be borne by the LICENSOR.
6.3 The LICENSOR will be remunerated by the LICENSEE in accordance
with the stipulations of Appendix 1.1.f, whenever the latter requests from the
former the provision of services not related to the development of the Modified
System.
6.3.1. All the amounts owed to the LICENSOR as a result if item 6.3
above will be paid by the LICENSEE to the LICENSOR in American Dollars, within
a term of 30 days from the date of receipt by the LICENSEE of the respective
invoice issued by the LICENSOR.
6.4 All printed material concerning the Modified System supplied
to the LICENSEE by the LICENSOR must be in English, except for the material
identified per item 59 of the Detailed Study, which must be in Portuguese.
6
<PAGE> 7
7. PAYMENT OF THE LICENSE TO USE THE MODIFIED SYSTEM
7.1 The LICENSEE will pay to LICENSOR the amount of US$
3,700,000.00 (three million seven hundred thousand American dollars) for the
Modified System, in the following way:
(a) US$ 100,000.00 (one hundred thousand American
dollars), already paid, based on the Memorandum of Understandings signed by
both parties;
(b) US$ 50,000.00 (fifth thousand American dollars),
payable on February 2nd 1998;
(c) US$ 1,000,000.00 (one million American dollars),
payable on the date of signature of this Contract;
(d) US$ 700,000.00 (seven hundred thousand American
dollars), payable within a term of up to 30 days from the date of delivery
stipulated in item 5.2(i);
(e) US$ 700,000.00 (seven hundred thousand American
dollars), payable within a term of up to 30 days from the date of delivery
stipulated in item 5.2 (ii); and
(f) US$ 1,150,000.00 (one million one hundred fifty
thousand American dollars), payable within a term of up to 30 day from the date
of delivery stipulated in item 5.2(iii) or 30 days from the date of effective
delivery date, whichever occurs first.
7.1.1. In case of the LICENSEE does not accept one of the stages of
the Modified System, the dates of delivery of which are listed in item 5.2,
payment of the amount owed in relation to this stage will be due only within 30
days, upon receipt by the LICENSEE of an acceptable new version of that stage,
delivered by the LICENSOR.
7.2 The LICENSOR shall at its own expenses provide the LICENSEE
with a performance bond in the value of US$ 3,700,000.00 (three million seven
hundred thousand American dollars), the proceeds of which may be used in the
event that the installation and/or technical performance of the Modified System
do not conform to the parameters of good functionality of the Modified System,
as defined in Appendix 7.2. The terms and conditions of said performance bond
must be approved by the LICENSEE.
7.2.1. All payments stipulated in clause 7.1 are conditioned to the
previous supply of the performance bond by LICENSOR to LICENSE, as contemplated
by clause 7.2 above, not having LICENSEE the obligations of making these
payments until LICENSOR supplies said performance bond.
7
<PAGE> 8
7.3 An interest rate equivalent to LIBOR rates (12 months) plus 1%
(one percent) will be payable to the LICENSOR, should the LICENSEE be at fault
for late payment. Interest shall accrue only 30 days after due date.
8. WARRANTY
8.1 The LICENSOR warrants that the Modified System will confirm to
the functionality and performance technical specifications stipulated in
Appendix 7.2, as well as to the highest standards used in its line of business
in the United States, hereby providing a six-month warranty, which shall
commence on the date of the beginning of the implementation of the Modified
System in any of the branches of the LICENSEE, and which is expected to occur
on May 3rd, 1999, except in the case that eventual problems verified are a
result of improper use of the technical recommendations by the LICENSEE.
8.2 In case the Modified System does not function in accordance
with the technical performance or specifications and/or does not conform to the
standards of good functionality ("Failures"), as described in Appendix 7.2,
during the warranty period, the LICENSOR will, at its own expense, respond
immediately to the requests of the LICENSEE, without substantial interruption
of the utilization of the Modified System, until the problems are solved.
8.2.1. All Failures verified in the warranty period, contemplated by
clause 8.1 above must be informed by LICENSEE to LICENSOR in the form of
written notice, as established by clause 123 below, and the LICENSOR undertakes
the obligation to repair the Failure as soon as possible.
8.3 In case the problem arises from an error made or induced by
the LICENSEE;, the same will pay for the services rendered by the LICENSOR in
connection with the analysis and correction of the problem, as described in
Appendix 1.1.f.
8.3.1. For the purposes established in clause 8.3 above LICENSOR
shall, at its own expenses, prepare an appropriate technical report which
demonstrate, a clear and objective way that the detected Failure in fact
derives from error practiced or induced by LICENSEE.
8.3.1.1. Once the technical report is prepared and presented to
LICENSEE, LICENSOR, jointly with LICENSEE shall make a demonstration in which
LICENSER shall reproduce the Failure, and this reproduction must prove that the
cause indicated in the technical report is effectively derived from an error
practiced or induced by LICENSEE.
8.3.1.2. If by any reason the determination of the cause of the
Failure through the demonstration above mentioned does not succeed, LICENSEE
shall be considered released, and the repaid must be made by LICENSOR without
the LICENSEE incurring any expense sin relation to such repair.,
8.3.1.3. The preparation of the technical report, as well as the
demonstration referred to in item 8.3.1.1 above, must not, in any situation,
interfere in the immediate attendance by
8
<PAGE> 9
LICENSOR to the notification of the LICENSEE, and the repair shall be made as
soon as possible.
8.3.2. The payment referred to in item 8.3 above will be made within
a 30-day term, commencing upon receipt by the LICENSEE of the invoices issued
by the LICENSOR, containing a detailed description of the services rendered.
8.4 Even after this warranty expires, the LICENSOR must correct
any defect, as long as the LICENSEE reimburses the LICENSOR with the expenses
incurred in connection with correcting the defect, as described in item 8.3.2
above.
8.4.1. Charges made to the LICENSEE for services rendered in
connection with the correction of the defect will be based on the time spent
and the materials used, as per the normal work hour cost of the LICENSOR's
professionals on the occasion. Payment, in American Dollars, will be due
within 5 (five) work days from the said correction.
8.5 At no time and under no circumstances, in case of unauthorized
or improper use of the Modified System by the LICENSEE, LICENSOR will not be
liable for the interruption of the LICENSEE's operations, for the loss of
profit or for partial, incidental, or indirect damages.
8.6 The LICENSOR declares that it has developed and is the
proprietor of the Modified System, and thus has the right to license it to the
LICENSEE. The LICENSOR further declares that the Modified System does not
infringe the rights of any third party.
8.7 The LICENSOR hereby undertakes not to allow any other
interested party to possess any version of the Modified System which is
installed and functioning in production during a term of 6 (six) months from
the beginning of the implementation of the Modified System in any of the
LICENSEE's branches.
9. CONFIDENTIALITY
9.1 The LICENSEE acknowledges that the Modified System comprises
confidential information developed by and belonging to the LICENSOR. The
LICENSEE will take all the reasonable precautions necessary to safeguard the
confidentiality of the Modified System, including (i) those taken by the
LICENSEE to protect its own confidential information, data, registers,
materials and processes, and (ii) those which the LICENSOR may request
occasionally.
9.2 The LICENSEE will not, without written permission of the
LICENSOR, disclose the Base System or the Modified System, wholly or in part,
to any individual, entity, or other person, except the LICENSEE's authorized
officers who will operate the Modified System. The LICENSEE further undertakes
to take all precautions suitable and necessary against any unauthorized
disclosure of the Modified System by any employee, director, contracting party,
or agent of the LICENSEE.
9
<PAGE> 10
9.3 If requested by the LICENSOR, all the directors, employees,
contracting parties, and agents of the LICENSEE who have access to all and any
part of the Modified System must sign written agreements, valid and executable
according to the laws of Brazil, as stipulated in item 2.9 above, whereby they
undertake to maintain the Modified System and all related data under strict
confidentiality, and not to reveal any information related to the Modified
System to any unauthorized person, individual, entity, or third party.
9.4 The LICENSOR, its representatives, employees, agents, and
consultants also agree to sign a Confidentiality Agreement, acceptable to the
LICENSEE in form and substance, for the purpose of ensuring the confidentiality
of the modifications, information and data introduced in the Base System as a
result of business and/or operational practices pertaining to the LICENSEE.
9.5 The LICENSEE acknowledges that recession of this Contract will
not extinguish the obligations assumed by the parties in this Clause.
10. NON-HIRING POLICY
10.1 During the term of this Contract, and from the date of its
execution the LICENSEE and the LICENSOR expressly and mutually undertake not to
contract, or cause to contract, directly or indirectly, any employee of the
other party, including those employees who have been, for any reason, ceased to
work for the LICENSOR or LICENSEE, whichever the case, in less than one year
for the LICENSOR or LICENSEE, whichever the case, in less than one year.
11. EFFECTIVE DATE; RESCISSION
11.1 This contract will become valid upon signature by the parties
and will be forced for a period of 5 (five) years.
11.1.1. The term mentioned in item 11.1 above may be renewed for
equal and successive periods of time by means of simple written notice to the
LICENSOR, wherein the LICENSEE requests said renewal, with a minimum precedence
of 30 (thirty) days after the date stipulated in item 11.1 and/or from any of
the subsequent renewal dates, and said renewal shall not generate any cost,
expenses or burden for the LICENSEE.
11.2 This Contract may be rescinded upon completion of any of the
obligations of the LICENSEE, including, but not limited to, the non-disclosure
of any technical datum relating to the Modified System or, even, in the cases
listed in item 11.3.
11.2.1. The LICENSEE's obligations to pay the LICENSOR in the terms of
this Contract will subsist, independently from the rescission of this Contract,
as long as the LICENSOR has performed its obligations derived from this
Contract.
10
<PAGE> 11
11.3 This Contract will be rescinded upon occurrence of any of the
following hypotheses:
(a) failure to perform this Contract by any of the parties, and
failure to take the steps necessary to perform, within a term of 30 (thirty)
days from the date of receipt of written notice to that effect by the other
party;
(b) failure of the LICENSEE to pay the LICENSOR the amounts due,
acknowledged by the LICENSEE upon receipt of the 90-day overdue payment notice,
except in those cases in which the respective remittances to another country
cannot be effected as a result of obedience to applicable Brazilian norms and
rules.
(c) in case the LICENSEE does not abide by the rules of
confidentiality stipulated in Clause 9 of this Contract, in which case
rescission will not affect the right of the LICENSOR to have such
non-performance properly remedied at any time;
(d) upon dissolution or liquidation of any of the parties; upon
appointment of a liquidation to administrate all and any part of its
obligations or property; upon bankruptcy or composition with creditors of any
of the parties; or even upon insolvency of any of the parties.
(e) in the event of intervention, direct or indirect, by any
government or authority that may prevent performance of this Contract as
described herein.
11.4 The LICENSEE is entitled to rescind this Contract in case the
Modified System presents one or more defects which render it useless, and which
are not corrected by the LICENSOR within a term of 90 (ninety) days from the
date of receipt of the pertinent written notice sent by the Licensee, and
provided the fault for said defects is attributable to the LICENSOR, and, in
case they are applicable, the provisions set forth in clauses 8.2 to 8.3.1.1
above shall be observed.
11.4.1. Once the rescission of the contract occurs under the
circumstances referred to in clause 11.4 above, LICENSOR expressly undertakes
to restitute to LICENSEE the total amounts received until the date of
rescission, this restitution being limited to the amount of US$2,000,000.00.
11.5 Rescission of this Contract may also occur at any time, at the
discretion of the LICENSEE, provided that (i) the LICENSEE returns to the
LICENSOR all the documentation and other materials and documents related to the
Modified System; and that (ii) the LICENSEE effects payment of all amounts owed
to the LICENSOR as a result of the stipulations of this Contract.
11.6 Without prejudice of other rights and remedies, when one of
the parties fails to perform, as per the terms of Clause 11, the performing
party may, at its discretion, rescind this Contract by means of written notice
sent to the defaulting party. Non-rescission of this Contract, as per the
established terms, will not constitute waiving, by the performing party, of
rights to
11
<PAGE> 12
claim any other damages, or of the right to rescind this Contract for any other
subsequent non-performance, or any analogous event, which may be similar to the
events herein specified.
12. NOTIFICATIONS
12.1 All notifications must be served through a facsimile or e-mail
transmission, or through registered air mail correspondence, subject to
acknowledgment of receipt, sent to the addresses below:
(i) INSPIRE INSURANCE SOLUTIONS, INC.
615 Pennsylvania Avenue
Sheboygan, Wisconsin 53081
ATTN: Robert K. Agazzi
Telephone: 920-459-7999
Facsimile: 920-459-9123
(ii) SUL AMERICA CIA NACIONAL DE SEGUROS
Rua da Quitanda, 86
Rio de Janeiro, Rio de Janeiro 20091-000
ATTN: Ivan Goncalves Passos
Henrique Zanetti
Telephone: (021) 276-8234
Facsimile: (021) 276-8317
12.2 Copy of the notifications sent by facsimile or e-mail
transmission must be sent by subsequent registered airmail, subject to
acknowledgment of receipt by the addressee. The sender is to verify receipt of
the notification on the first work day subsequent to the date on which the
facsimile or e-mail transmission occurred. Notification sent by registered
airmail subject to acknowledgment of receipt, duly addressed and posted, will
be deemed as received within a maximum term of 7 (seven) work days from the
date of postage.
12.3 Should notification be urgent in nature, no tolerance will be
given to the absence of prior oral communication of its contents. The oral
communication does not exempt the need for subsequent written notification, as
per the terms of item 12.2 above.
13. SEPARABILITY: WAIVER
13.1 Should any of the stipulations of this Contract be considered
invalid, impossible, or null, for any reason, and in any case, as a result of
applicable legislation in force at the time, the other stipulations of the
Contract must remain valid, effective and enforceable, in which case the
parties must substitute the invalid stipulation with a valid and possible
stipulation that corresponds, as much as possible, to the spirit and objective
of the substituted stipulation.
13.2 No fault or delay by any of the parties in performing any
condition of this Contract will affect the right of the respective party to
demand full performance of the Contract
12
<PAGE> 13
at any time. Waiving of any of the stipulations of this Contract, by any of
the parties, in favor of the other party, will only be considered valid if made
in writing.
14. SUCCESSION
14.1 Except for the stipulations of item 2.3 above, this instrument
binds, in all of its terms, clauses and conditions, the parties themselves,
their heirs, and their successors at any title.
15. APPLICABLE LAW
15.1 This Contract is to be analyzed and construed in accordance
with the laws of the Federative Republic of Brazil. Additionally, when
performing their respective obligations, the parties are to respect the laws
and regulations of the United States of America and of the Federative Republic
of Brazil, as well as the international treaties signed by any of the two
countries, as regards the commercialization of products and information, and
the relationship with the government agencies that regulate this Contract.
16. TITLES
16.1 The titles assigned to the clauses, or used in any other
stipulation of this Contract, constitute mere reference, used exclusively for
organization purposes, not integrating nor affecting the meaning or the
interpretation of this Contract.
17. INTEGRAL CONTRACT
17.1 This Contract, including its appendixes, reflects all the
agreements existing between the parties as regards the subject matter contained
herein, and substitutes all previous understandings and documents on the same
subject matter. Neither party may claim to have sustained understandings, or
to have signed agreements that are inconsistent with this Contract. No
alteration to this Contract will be considered effective, unless it is made in
writing, and is signed by both parties.
18. VENUE
18.1 Each of the parties hereto irrevocably elects the jurisdiction
of the courts of the city of Rio de Janeiro, in the State of Rio de Janeiro,
excluding any others, no matter how privileged they may be, to resolve any
disputes arising from this instrument.
Thus, upon reaching this agreement in fairness, the parties hereto
will sign this instrument in 3 (three) copies of identical content and form, in
the presence of the witnesses hereto, who will also sign:
13
<PAGE> 14
INSPIRE INSURANCE SOLUTIONS, SUL AMERICA CIA NACIONAL
INC. DE SEGUROS
- ------------------------------------ ---------------------------------
Name: Robert K. Agassi Name: Ivan Goncalves Pasos
Position: Executive Vice President Position: Vice President
---------------------------------
Name: Henrique Zanetti
Position: Vice President
Witnesses:
1. 2.
---------------------------------- -------------------------------
Name: Name:
CPF: CPF:
14
<PAGE> 1
EXHIBIT 10.46
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement"), dated and entered into
March ____, 1998 and effective as of March 15, 1998 (the "Effective Date"), by
and between INSpire Insurance Solutions, Inc. (the "Company"), a Texas
corporation, and Stuart Warrington ("Consultant").
W I T N E S S E T H:
WHEREAS, Consultant was the founder and chief executive officer of
Strategic Data Systems, Inc. ("SDS"), a company acquired by the Company in
March 1997 and merged with and in to the Company in July, 1997; and
WHEREAS, Consultant has served as a senior executive officer of the
Company pursuant to the terms of a one year employment agreement between
Consultant and SDS dated March 12, 1997 (the "Employment Agreement"); and
WHEREAS, Consultant has elected to retire as a senior executive
officer of the Company; and
WHEREAS, the Company considers the engagement of Consultant pursuant
to the terms of this Agreement to be in the best interests of the Company in
order to facilitate continuity of experienced management; and
WHEREAS, Consultant is willing, on the terms and subject to the
conditions provided in this Agreement, to provide consulting services to the
Company as provided herein.
NOW, THEREFORE, in consideration of the premises, the covenants,
representations and agreements herein contained and other good, valuable and
binding consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Consulting Term. The Company agrees to, and does hereby
retain Consultant as a consultant to the Company to perform the services
specified herein commencing on March 15, 1998 and continuing thereafter until
May 30, 1999 (the "Consulting Term").
2. Services of Consultant. Consultant agrees that while this
Agreement is in effect, he shall use his best efforts to respond to all
reasonable requests by the Company for advice and consultation on any matters
connected with the business of the Company, including but not limited to
customer relations, strategic planning, trade conferences and user group
meetings. In addition, Consultant agrees to perform such other services as the
Company may from time to time reasonably request.
3. Compensation. In payment for the consulting services set
forth in Section 2 above, the Company agrees to pay Consultant a consulting fee
at the rate of two thousand dollars per month ($2,000.00), payable monthly,
during the period that this Agreement is in effect. The Company shall also
reimburse Consultant for any out-of-pocket expenses, including travel expenses,
incurred by Consultant in rendering such services.
<PAGE> 2
4. Deferred Compensation. The Company acknowledges that pursuant
to Section 4.5 of the Employment Agreement, the Company shall pay Deferred
Annual Compensation (as defined in the Employment Agreement) to Consultant or
to Consultant's spouse or designated beneficiaries as provided in Section 4.5
of the Employment Agreement.
5. Medical Benefits. During the Consulting Term, Consultant
shall continue to be covered under the Company's group medical plan at the
expense of the Company and pursuant to the terms and conditions of the
Company's group medical plan in effect from time to time during the Consulting
Term.
6. Stock Options. The Company has previously granted Consultant
stock options under the Company's Amended and Restated 1997 Stock Option Plan
(the "Plan") pursuant to a Stock Option Agreement dated March 12, 1997 (as
amended and restated) granting stock options covering 93,154 shares of Common
Stock at an exercise price of $1.30 per share (the "Pre-IPO Options") and a
Stock Option Agreement dated August 22, 1997 granting stock options covering
65,208 shares of Common Stock at an exercise price of $12.00 per share (the
"IPO Options"). Notwithstanding any provision of the Plan or the applicable
Stock Option Agreement to the contrary, the Company and Consultant hereby agree
that (i) all Pre-IPO Options held by Consultant shall be deemed fully vested
and exercisable as of the date hereof, (ii) IPO Options covering 13, 042 shares
of Common Stock are fully vested and exercisable on the date hereof and (iii)
all non-vested IPO Options covering 52,166 shares of Common Stock are hereby
canceled and no longer outstanding on the date hereof. Consultant agrees to
surrender the Stock Option Agreement for the IPO Options to be amended to
reflect the number of IPO Options held by Consultant after the date hereof.
Except as amended by this Section 6, the Stock Option Agreements covering to
the Pre-IPO Options and the IPO Options shall remain in effect in accordance
with their terms.
7. Termination by the Company Without Cause. The Company shall
have the right to terminate this Agreement at any time, on 30 days' notice,
without Cause (as defined in Section 7 hereof). In the event of termination of
this Agreement by the Company without Cause, (a) Consultant shall be paid the
Compensation payable pursuant to Section 3 hereof until the expiration of the
Consulting Term payable in monthly installments during such period; and (b)
Sections 4, 5 and 6 hereof shall remain in full force and effect.
8. Termination by the Company for Cause. The Company shall be
entitled to terminate this Agreement at any time for Cause, as hereinafter
defined, immediately upon written notice to Consultant. In the event of such
termination for Cause, all of Consultant's rights and benefits provided for in
this Agreement shall then and thereupon terminate, except as expressly provided
in Section 4 hereof. For the purpose of this Agreement, "Cause" shall mean,
(i) the failure by Consultant to remedy a breach of any of Consultant's
material obligations under this Agreement within five business days after
receipt of written notice of such breach from the Chairman of the Board or the
Board of Directors, (ii) the arrest for, or conviction of Consultant of, a
felony, (iii) the abuse of illegal drugs or other controlled substances or the
intoxication of Consultant while performing consulting services hereunder, (iv)
any conduct or activity of Consultant deemed injurious to the Company in the
discretion of the Chairman of the Board or the Board of Directors.
2
<PAGE> 3
9. Disclosure of Information. Consultant hereby acknowledges
that he will have access to certain trade secrets and confidential information
of the Company and of corporations and/or other business enterprises directly
or indirectly owned, controlled and/or operated by the Company ("Affiliates")
and that such information constitutes valuable, special and unique property of
the Company and such corporations. Consultant shall not, during or after the
Consulting Term, disclose any such trade secrets or confidential information to
any person or entity for any reason or purpose whatsoever except as may be
required by law or use such confidential information for any purpose not
authorized by the Chairman of the Board. Confidential information shall
include (i) all information designated as confidential by the Chairman of the
Board and (ii) all information the disclosure of which Consultant knows, or in
the exercise of reasonable care should know, would be damaging to the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by Consultant) or any information not otherwise
considered by the Chairman of the Board or the Board of Directors to be
confidential.
10. Agreement Not to Compete. Consultant agrees that during the
Consulting Term and for a period of 24 months following the termination of the
Consulting Term, he shall not, at any place within the States in which the
Company or its Affiliates is conducting business operations at the time of such
termination, without the prior written consent of the Chairman of the Board,
either in his own behalf or as a partner, officer, director, employee, agent or
shareholder (other than as the holder of less than 10% of the outstanding
capital stock of any corporation whose stock is traded on a national securities
exchange) engage in, be interested in or render services to any business then
competitive with the Company.
11. Agreement Not to Solicit Customers and Employees. Consultant
agrees that during the Consulting Term and for a period of 24 months following
the Consulting Term, he shall not, either alone or on behalf of any business
competing with the Company or any Affiliate, directly or indirectly (i) solicit
or induce, or in any manner attempt to solicit or induce any person employed
by, or an agent of, the Company or any Affiliate to terminate his contract of
employment or agency, as the case may be, with the Company or any Affiliate, as
the case may be, or (ii) solicit, divert, or attempt to solicit or divert, as a
supplier or customer, any person, concern or entity which, as of the date of
termination or during the one year period prior thereto, furnishes products or
services to, or receives products and services from the Company or any
Affiliate, nor will he attempt to induce any such supplier or customer to cease
being (or any prospective supplier or customer not to become) a supplier or
customer of the Company or any Affiliate.
12. Termination of Employment Agreement and Status. Consultant
has no rights, compensation or benefits under any plan, agreement or
arrangement of the Company, except as provided in this Agreement. Any
employment arrangements or agreements between the Company and Consultant that
existed at any time prior to the execution and delivery of this Agreement are
hereby terminated. Consultant acknowledges that Consultant is retained under
this Agreement as an independent contractor and not as an employee of the
Company.
13. Resignation as Officer. By execution of this Agreement,
Consultant resigns as an officer and an employee of the Company effective on
the date hereof.
3
<PAGE> 4
14. Injunctive Relief. In the event of a breach or threatened
breach by Consultant of the provisions of this Agreement, the Company and any
Affiliate shall be entitled to an injunction without bond or security to
prevent irreparable injury to the Company or such Affiliate. Nothing herein
shall be construed as prohibiting the Company or such Affiliate from pursuing
any other remedies available to the Company or such Affiliate for such breach
or threatened breach, including the recovery of damages from the Consultant.
15. Nature of Agreement. No right, title, interest, or benefit
hereunder shall ever be liable for or charged with any of the torts or
obligations of Consultant or of any person claiming under Consultant, or
subject to seizure by any creditor of Consultant or any person claiming under
Consultant . Neither Consultant nor any person claiming under Consultant shall
have the power to anticipate or dispose of any right, title, interest, or
benefit hereunder in any manner until the same shall have been actually
distributed to him free and clear of the terms of this Agreement.
16. Notice. For the purpose of this Agreement, notices and all
other communications to either party hereunder provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person, sent by facsimile with the appropriate mechanical answerback
received, or mailed by first-class mail or airmail, postage prepaid, addressed:
In the case of the Company, to:
INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No. (817) 348-3765
In the case of Consultant, to:
Stuart Warrington
3111 Koning Drive
Sheboygan, Wisconsin 53083
or to such other address as either party shall designate by giving written
notice of such change to the other party.
17. Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto, and shall also bind and inure to the benefit of Consultant's heirs and
legal representatives and any successor or successors of the Company by merger
or consolidation and any assignee of all or substantially all of the Company's
business and properties; except as to any such successor or assignee of the
Company, neither this Agreement nor any duties, rights or benefits hereunder
may be assigned by the Company or by Consultant without the express written
consent of Consultant or the Company, as the case may be.
4
<PAGE> 5
18. Arbitration. Any dispute arising hereunder between Consultant
and the Company which cannot be resolved by them to their mutual satisfaction
within a period of two weeks, unless mutually extended, shall be submitted to
arbitration by a panel of three arbitrators in Chicago, Illinois in accordance
with the rules of the American Arbitration Association then in effect. The
results of such arbitration shall be binding and conclusive upon the parties
hereto, and judgment on the award may be entered at the instance of either
party in any court of competent jurisdiction. The arbitrators shall be
empowered to award interest at "floating" prime rate, retroactive to the date
of breach of this Agreement, upon any award and to award arbitration costs
including reasonable actual legal fees, in their discretion, to the prevailing
party.
19. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of Texas.
20. Modification. No modification or waiver of any provision
hereof shall be made unless it be in writing and signed by both of the parties
hereto.
21. Scope of Agreement. This Agreement constitutes the whole of
the agreement between the parties on the subject matter, superseding all prior
oral and written conversations, negotiations, understandings, and agreements.
22. Severability. To the extent that any provision of this
Agreement may be deemed or determined to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not impair or affect any
other provision, and this Agreement shall be interpreted so as to most fully
give effect to its terms and still be valid and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
March 15, 1998.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
----------------------------------
F. George Dunham, III
Chairman of the Board
----------------------------------
Stuart Warrington
5
<PAGE> 1
EXHIBIT 10.47
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment"), dated
and effective this 1st day of January, 1998, by and between INSpire Insurance
Solutions, Inc., a Texas corporation ("Employer"), and F. George Dunham, III, a
resident of Texas ("Employee").
RECITALS:
A. Employer and Employee are parties to a certain Employment
Agreement dated July 1, 1997 (the "Employment Agreement").
B. Section 3(b) of the Employment Agreement provides for the
payment of a bonus to employee under certain circumstances
described therein.
C. Employer has adopted the INSpire Insurance Solutions, Inc.
1998 Annual Bonus Plan (the "Bonus Plan") to provide bonuses
to certain participants as may be designated by the Board of
Directors of Employer.
D. Employer and Employee have agreed to amend Section 3(b) of the
Employment Agreement as provided herein in order to permit
Employee to participate in the Bonus Plan.
AGREEMENTS:
Accordingly, in consideration of the mutual covenants and obligations
contained herein, Employer and Employee hereby agree as follows:
1. For the year ended December 31, 1997, Employee shall be
entitled to a bonus determined pursuant to Section 3(b) of the
Employment Agreement in effect prior to this Amendment.
2. Section 3(b) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall be entitled to participate
in the Bonus Plan each year during the term of this Agreement.
Employer agrees that the Bonus Plan shall not be terminated by
Employer prior to the termination of this Agreement."
3. Schedule 3(b) to the Employment Agreement is hereby deleted.
1
<PAGE> 2
4. Except as expressly amended hereby, all terms and conditions
of the Employment Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
INSpire Insurance Solutions, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
------------------------------------
F. George Dunham, III
2
<PAGE> 3
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment"), dated
and effective this 1st day of January, 1998, by and between INSpire Insurance
Solutions, Inc., a Texas corporation ("Employer"), and Terry G. Gaines, a
resident of Texas ("Employee").
RECITALS:
A. Employer and Employee are parties to a certain Employment
Agreement dated July 1, 1997 (the "Employment Agreement").
B. Section 3(b) of the Employment Agreement provides for the
payment of a bonus to employee under certain circumstances
described therein.
C. Employer has adopted the INSpire Insurance Solutions, Inc.
1998 Annual Bonus Plan (the "Bonus Plan") to provide bonuses
to certain participants as may be designated by the Board of
Directors of Employer.
D. Employer and Employee have agreed to amend Section 3(b) of the
Employment Agreement as provided herein in order to permit
Employee to participate in the Bonus Plan.
AGREEMENTS:
Accordingly, in consideration of the mutual covenants and obligations
contained herein, Employer and Employee hereby agree as follows:
1. For the year ended December 31, 1997, Employee shall be
entitled to a bonus determined pursuant to Section 3(b) of the
Employment Agreement in effect prior to this Amendment.
2. Section 3(b) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall be entitled to participate
in the Bonus Plan each year during the term of this Agreement.
Employer agrees that the Bonus Plan shall not be terminated by
Employer prior to the termination of this Agreement."
3. Schedule 3(b) to the Employment Agreement is hereby deleted.
1
<PAGE> 4
4. Except as expressly amended hereby, all terms and conditions
of the Employment Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
INSpire Insurance Solutions, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
------------------------------------
Terry G. Gaines
2
<PAGE> 5
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment"), dated
and effective this 1st day of January, 1998, by and between INSpire Insurance
Solutions, Inc., a Texas corporation ("Employer"), and Jeffrey W. Robinson, a
resident of Texas ("Employee").
RECITALS:
A. Employer and Employee are parties to a certain Employment
Agreement dated July 1, 1997 (the "Employment Agreement").
B. Section 3(b) of the Employment Agreement provides for the
payment of a bonus to employee under certain circumstances
described therein.
C. Employer has adopted the INSpire Insurance Solutions, Inc.
1998 Annual Bonus Plan (the "Bonus Plan") to provide bonuses
to certain participants as may be designated by the Board of
Directors of Employer.
D. Employer and Employee have agreed to amend Section 3(b) of the
Employment Agreement as provided herein in order to permit
Employee to participate in the Bonus Plan.
AGREEMENTS:
Accordingly, in consideration of the mutual covenants and obligations
contained herein, Employer and Employee hereby agree as follows:
1. For the year ended December 31, 1997, Employee shall be
entitled to a bonus determined pursuant to Section 3(b) of the
Employment Agreement in effect prior to this Amendment.
2. Section 3(b) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall be entitled to participate
in the Bonus Plan each year during the term of this Agreement.
Employer agrees that the Bonus Plan shall not be terminated by
Employer prior to the termination of this Agreement."
3. Schedule 3(b) to the Employment Agreement is hereby deleted.
1
<PAGE> 6
4. Except as expressly amended hereby, all terms and conditions
of the Employment Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
INSpire Insurance Solutions, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
------------------------------------
Jeffrey W. Robinson
2
<PAGE> 7
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment"), dated
and effective this 1st day of January, 1998, by and between INSpire Insurance
Solutions, Inc., a Texas corporation ("Employer"), and Ronald O. Lynn, a
resident of Texas ("Employee").
RECITALS:
A. Employer and Employee are parties to a certain Employment
Agreement dated July 1, 1997 (the "Employment Agreement").
B. Section 3(b) of the Employment Agreement provides for the
payment of a bonus to employee under certain circumstances
described therein.
C. Employer has adopted the INSpire Insurance Solutions, Inc.
1998 Annual Bonus Plan (the "Bonus Plan") to provide bonuses
to certain participants as may be designated by the Board of
Directors of Employer.
D. Employer and Employee have agreed to amend Section 3(b) of the
Employment Agreement as provided herein in order to permit
Employee to participate in the Bonus Plan.
AGREEMENTS:
Accordingly, in consideration of the mutual covenants and obligations
contained herein, Employer and Employee hereby agree as follows:
1. For the year ended December 31, 1997, Employee shall be
entitled to a bonus determined pursuant to Section 3(b) of the
Employment Agreement in effect prior to this Amendment.
2. Section 3(b) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall be entitled to participate
in the Bonus Plan each year during the term of this Agreement.
Employer agrees that the Bonus Plan shall not be terminated by
Employer prior to the termination of this Agreement."
3. Schedule 3(b) to the Employment Agreement is hereby deleted.
1
<PAGE> 8
4. Except as expressly amended hereby, all terms and conditions
of the Employment Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
INSpire Insurance Solutions, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
------------------------------------
Ronald O. Lynn
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<PAGE> 1
EXHIBIT 10.48
INSPIRE INSURANCE SOLUTIONS, INC.
1998 ANNUAL BONUS PLAN
ARTICLE I
PURPOSES
1.1 Purpose of Plan. The purposes of the INSpire Insurance Solutions, Inc.
1998 Annual Bonus Plan (the "Plan") are to advance the interests of INSpire
Insurance Solutions, Inc. (the "Company") and its shareholders by providing
significant incentives to selected officers and employees of the Company and its
Subsidiaries (as defined herein) and to enhance the interest of such officers
and employees in the Company's success and progress by providing them with an
opportunity to benefit from the profitability of the Company. Further, the Plan
is designed to enhance the Company's ability to attract and retain qualified
management and other personnel necessary for the success and progress of the
Company.
ARTICLE II
DEFINITIONS
2.1 Definitions. Certain terms used herein shall have the meaning below
stated, subject to the provisions of Article IX hereof.
(a) "Award Percentage" means the percentage described in Section 3.2
hereof.
(b) "Base Salary" means regular straight-time earnings of a
Participant in effect at the commencement of the applicable Earnout Period
excluding payments for overtime, shift premium, bonuses, severance pay and
other special payments, commissions, marketing incentive payments, stock
options and Company contributions to pension, profit-sharing, retirement or
similar accounts.
(c) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(d) "Cause" means Cause as defined in any written employment agreement
in effect between the applicable Participant and the Company or a
Subsidiary, or if such Participant is not a party to a written employment
agreement with the Company or a Subsidiary in which Cause is defined, then
Cause shall mean (i) the failure by a Participant to substantially perform
his duties with the Company or a Subsidiary in a manner deemed satisfactory
by the Board, (ii) the abuse of illegal drugs or other controlled
substances or the intoxication of a Participant during working hours, (iii)
the arrest for, or conviction of, a felony, (iv) the unexcused absence by a
Participant from such Participant's regular job location for more than five
consecutive days or for more than the aggregate number of days permitted to
such Participant under Company vacation and sick leave policies applicable
to such Participant, or (v) any conduct or activity of a
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<PAGE> 2
Participant deemed injurious to the Company in the discretion of the Board.
(e) "Change In Control"
(1) Definition of "Change In Control." "Change of Control" for
purposes of the Plan shall mean: (i) the acquisition, by a single
entity (or group of affiliated entities) that is not directly or
indirectly controlled by the existing shareholders, of more than
50% of the common stock of the Company issued and outstanding
immediately prior to such acquisition; or (ii) the dissolution or
liquidation of the Company or the consummation of any merger or
consolidation of the Company or any sale or other disposition of
all or substantially all of its assets, if the shareholders of
the Company immediately before such transaction own directly or
indirectly, immediately after consummation of such transaction,
equity securities (other than options and other rights to acquire
equity securities) possessing less than 50% of the voting power
of the surviving or acquiring corporation.
(2) When a Change In Control is Deemed to Occur. The date or time
a Change In Control shall be deemed to occur (the "Change In Control
Date") shall be:
(A) the date and time of closing for a merger or
consolidation in which the Company participates as described in
Section 2.1(e)(1) herein;
(B) the date and time of closing for a sale of assets as
described in Section 2.1(e)(1) herein;
(C) the date and time of closing of the last transaction
pursuant to which a person or entity acquires common stock of the
Company in an acquisition described in Section 2.1(e)(1) herein;
or
(D) the date and time immediately prior to the effective
date and time of the dissolution or liquidation of the Company as
described in Section 2.1(e)(1) herein.
(f) "Committee" means the Compensation Committee of the Board or any
other committee of directors appointed by the Board to administer the plan
pursuant to Article VII hereof.
(g) "Company" means INSpire Insurance Solutions, Inc., a Texas
corporation.
(h) "Earnout Period" means each Fiscal Year of the Company, over and
within which performance is measured to determine whether any Participant
may be entitled to incentive compensation hereunder.
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<PAGE> 3
(i) "Fiscal Year" means the fiscal year of the Company as established
from time to time.
(j) "Normal Retirement" means the voluntary termination by a
Participant of his employment with the Company or a Subsidiary at such time
when the Participant has attained the age of sixty (60) years or at anytime
thereafter.
(k) "Participant" means any regular full-time executive or managerial
employee of the Company or a Subsidiary who has been designated by the
Committee to participate in the Plan for any Earnout Period, or for
purposes of distributions hereunder following a Participant's death, his
duly designated beneficiary or beneficiaries.
(l) "Performance Goal" means the amount of earnings per share of the
Company after taxes and before bonuses paid under the Plan as designated by
the Committee on Schedule A attached hereto (as such amount may be
re-established by the Committee no later than 90 days after the beginning
of an Earnout Period) for an Earnout Period which amount, in the judgment
of the Committee, provides a suitable goal for measuring the performance of
Participants with respect to the long-term interests of the Company and its
shareholders to determine to what extent, if at all, they may be entitled
to incentive compensation hereunder.
(m) "Performance Award" means the bonus amount designated by the
Committee for the purpose of determining the amount of incentive
compensation to which a Participant may be entitled hereunder. The
Performance Award shall be determined as a multiple of Base Salary and set
forth on Schedule A designated by the Committee for the applicable Earnout
Period.
(n) "Total Disability" means disability as defined in any written
employment agreement in effect between the applicable Participant and the
Company or a Subsidiary, or if such Participant is not a party to a written
employment agreement with the Company or a Subsidiary in which disability
is defined, then Total Disability shall mean a Participant's total
disability as defined in such long-term disability insurance plan for
salaried employees as the Company from time to time may have in effect or,
if at any time no such plan is in effect, it means that a Participant, by
reason of his incapacity due to physical or mental illness, is absent from
the full-time performance of his regular services as an employee of the
Company for a continuous period of six (6) months or for an aggregate of
nine (9) months during any twenty-four month period. For purposes of the
foregoing, such physical or mental incapacity shall be deemed to include
the written direction by a physician that a Participant shall be required
for medical reasons to terminate or substantially reduce his services to
the Company and a Participant's absence by reason of physical or mental
incapacity shall be deemed to be "continuous" unless a Participant performs
his regular services as an employee of the Company for a continuous period
of one (1) month. If there is any dispute as to whether a Participant
suffers or suffered "total disability" (as defined in such disability
insurance plan) or such physical or mental incapacity, such question shall
be submitted to a licensed physician designated by the Company, who shall
make a determination for the purpose of resolving such
3
<PAGE> 4
dispute and the determination of such physician for such purpose shall be
binding and conclusive upon all persons. A Participant shall submit to such
examinations and provide such information as such physician may request.
(o) "Plan" means the INSpire Insurance Solutions, Inc. 1998 Annual
Bonus Plan set forth herein and as from time to time amended.
(p) "Subsidiary" means a wholly-owned subsidiary of the Company or any
wholly-owned subsidiary thereof.
ARTICLE III
DESIGNATION OF EARNOUT PERIODS,
PARTICIPANTS AND PERFORMANCE GOAL, ETC.
3.1 Designation of Earnout Periods. The initial Earnout Period shall be
the Company's 1998 Fiscal Year commencing January 1, 1998 and ending December
31, 1998. Each subsequent Earnout Period shall begin on the first day of a
Fiscal Year and end as of the close of the last day of a Fiscal Year. The Plan
shall remain in effect until terminated pursuant to any applicable provision of
the Plan.
3.2 Designation of Participants, Performance Goal, Etc. The Committee
shall designate (i) the Participants in the Plan for such Earnout Period, (ii)
the Performance Goal for the Company during the Earnout Period, (iii) the
Performance Award designated for each Participant, and (iv) the percentage (the
"Award Percentage") of the Performance Award allocated to the Participants that
shall be considered to have been earned by the Participants for various degrees
of achievement of the Performance Goal designated with respect to the Company,
as determined by the Committee pursuant to Section 4.1 below. Notwithstanding
what is provided in the preceding sentence, the Committee may designate as a
Participant an employee who has been hired or promoted after the beginning of an
Earnout Period, but, in determining the amount of Performance Award allocated to
such Participant, the Committee shall take into consideration the length of the
then unexpired portion of the Earnout Period. The designation of an employee as
a Participant for any one Earnout Period shall not confer upon such employee a
right to be designated as a Participant for any subsequent Earnout Period.
3.3 Notice to Participant. An employee who has been designated by the
Committee as a Participant for an Earnout Period shall be notified of such
designation at or about the time of such designation. Such notification shall
include a copy of Schedule A for the applicable Earnout Period.
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<PAGE> 5
ARTICLE IV
DETERMINATION OF COMPENSATION EARNED
AND MANNER OF PAYOUT
4.1 Determination of Performance Award Earned by Participants. At the end
of each Earnout Period, based on a comparison of the actual performance of the
Company over the Earnout Period to the applicable Performance Goal established
at the beginning of the Earnout Period, the Committee shall determine the
Performance Award for each Participant for such Earnout Period that has been
earned by the Participant (the "Earned Performance Award"). The Earned
Performance Award shall be determined by multiplying the (i) Performance Award
established for such Participant for such Earnout Period times (ii) the Award
Percentage that has been designated by the Committee, pursuant to Section 3.2,
above, as corresponding to the extent to which, as determined by the Committee,
the Performance Goal established for the Earnout Period has been achieved.
4.2 Payment of Compensation. After the Committee shall have certified in
writing the extent to which a Performance Award has been earned by a
Participant, cash compensation in the amount of the Earned Performance Award
shall be paid to the Participant in a lump sum no later than seventy-five (75)
days after the issuance of the audited financial statements of the Company for
the period ending as of the conclusion of the Earnout Period; provided that
subject to section 4.3 and section 5.1 hereof, such Participant is employed by
the Company or a Subsidiary on the date that such payment is to be made to
Participant.
4.3 Termination of Employment Prior to Conclusion of Earnout Period Due to
Death, Total Disability, Normal Retirement or By the Company or a Subsidiary
Without Cause. If a Participant's employment is terminated by reason of the
Participant's death, Total Disability, Normal Retirement or by the Company or a
Subsidiary without Cause prior to the conclusion of an Earnout Period with
respect to which a Performance Award was established for the Participant, at the
conclusion of such Earnout Period the Committee shall determine, pursuant to
Section 4.1 above, the amount of the Earned Performance Award, if any, with
respect to such Earnout Period, which shall be payable to the Participant
hereunder, as if the Participant had remained in the employ of the Company or
Subsidiary through the conclusion of such Earnout Period; provided, however,
that, notwithstanding anything to the contrary provided herein or any
designation to the contrary made by the Committee pursuant to Section 3.2,
above, the amount of any Earned Performance Award shall be reduced, on a
prorated basis, to reflect the number of months of such Participant's employment
with the Company or Subsidiary that actually were completed during such Earnout
Period.
4.4 Other Termination of Employment Prior to Conclusion of Earnout Period.
If a Participant's employment is terminated prior to the date on which an Earned
Performance Award is actually paid to the Participant pursuant to Section 4.2
hereof for any reason other than the Participant's death, Total Disability,
Normal Retirement or by the Company or a Subsidiary without Cause, the
Participant shall forfeit all rights to receive the compensation, if any,
represented by the Performance Award with respect to such Earnout Period and the
Company shall have no obligation to pay any compensation represented thereby
that otherwise might be
5
<PAGE> 6
payable to such Participant under this Plan.
4.5 Change In Control. Notwithstanding the provisions of Sections 4.1
through 4.4, above, or any designation made by the Committee pursuant to Section
3.2, above, to the contrary, in the event that a Change In Control occurs prior
to the conclusion of any Earnout Period, then immediately prior to such Change
In Control (i) such Earnout Period shall be deemed ended and (ii) the Committee
shall determine the Earned Performance Award for each Participant (who is then
in the Company's or Subsidiary's employ) for such Earnout Period, based on a
comparison of the actual performance of the Company over the Earnout Period to
the applicable Performance Goal established at the beginning of the Earnout
Period; provided, however, that, such Performance Goal and the Performance Award
shall be adjusted, on a prorated basis, to reflect the number of whole months of
such Earnout Period that actually were completed immediately prior to the Change
In Control. The Earned Performance Award under this Section 4.5 shall be
calculated by multiplying the (i) Performance Award for the Participant for such
Earnout Period times (ii) the Award Percentage that has been designated by the
Committee, pursuant to Section 3.2, above, as corresponding to the extent to
which, as determined by the Committee, the Performance Goal established for the
Earnout Period (as adjusted under this Section 4.5) has been achieved. Cash
compensation in the amount of the Earned Performance Award calculated pursuant
to the preceding sentence shall be paid to the Participant in a lump sum no
later than thirty (30) days after the Change In Control Date.
ARTICLE V
BENEFICIARY DESIGNATION
AND WITHHOLDING TAXES
5.1 Beneficiary Designation. If a Participant's employment with the Company
or a Subsidiary is terminated by reason of his death or if a Participant dies
after the termination of his employment but prior to the distribution to him of
all amounts payable to him under Sections 4.2, 4.3, or 4.5 above, any amounts
otherwise payable hereunder to him if living shall be distributed to his
designated beneficiary or beneficiaries. All beneficiary designations shall be
made in such form and subject to such limitations as from time to time may be
prescribed by the Committee and shall be delivered to the Secretary of the
Company. A Participant from time to time may revoke or change any beneficiary
designation on file with the Company. If there is no effective beneficiary
designation on file with the Company at the time of a Participant's death,
distribution of amounts otherwise payable to the deceased Participant under this
Plan shall be made to the Participant's estate. If a beneficiary designated by
the Participant to receive his benefits shall survive the Participant but die
before receiving all distributions hereunder, the balance thereof shall be paid
to such deceased beneficiary's estate, unless the deceased Participant's
beneficiary designation provides otherwise. The Company shall have no
responsibility with respect to the validity of any beneficiary designation made
by a Participant and shall be fully protected if it acts thereon in good faith.
5.2 Withholding Taxes. The Company shall deduct from the distributions to
be made to a Participant or his designated beneficiary or beneficiaries under
this Plan any social security taxes, federal, state or local income withholding
or other taxes or charges that the Company
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<PAGE> 7
believes it is required to deduct under applicable law, and all amounts
distributable under this Plan are stated herein before any such deductions.
ARTICLE VI
RIGHTS AND OBLIGATIONS
OF PARTICIPANTS
6.1 Copy of Plan. Each Participant shall be entitled to receive a copy of
the Plan upon his designation as a Participant hereunder. Thereafter, as long as
a Participant remains a Participant, the Participant shall be entitled to
receive copies of each amendment to the Plan within sixty (60) days after its
adoption.
6.2 Information. Each Participant shall provide the Committee with such
documents, evidence, data or other information as it from time to time may deem
necessary, advisable or in its best interests in administering the Plan.
6.3 No Right to Employment . The designation of an employee as a
Participant under this Plan shall not be construed as conferring upon such
employee any right to remain in the employ of the Company or a Subsidiary. The
right of the Company or a Subsidiary to discipline or discharge, or otherwise
change the terms and conditions of the employment of, an employee shall not be
affected in any manner by reason of the designation of the employee as a
Participant under this Plan.
6.4 No Interest in Assets. No Participant nor any other person shall have
any interest in any fund or in any specific asset or assets of the Company or a
Subsidiary by reason of being a Participant under this Plan, or any right to
receive any distribution or payment under the Plan except as, and only to the
extent, expressly provided in the Plan.
6.5 Alienation Prohibited. To the extent permitted by law and except as is
specifically provided otherwise in Section 5.1, above, the right of any
Participant or any beneficiary to receive any payment hereunder shall not be
subject to alienation, transfer, sale, assignment, pledge, attachment,
garnishment or encumbrance of any kind, and no payment due hereunder shall in
any manner be subject to any debts or liabilities of any Participant or
designated beneficiary of a Participant. Any attempt to alienate, sell,
transfer, assign, pledge or otherwise encumber any such payment, whether
presently or thereafter payable, other than as specifically permitted under
Section 5.1, above, shall be null and void and without any legal effect.
6.6 Funding of Plan. The Company shall have the right but shall be under no
obligation to segregate cash or any assets for the benefit of any Participant by
reason of amounts being payable hereunder to the Participant.
6.7 Costs of Legal Proceedings. If any legal proceedings are instituted
with respect to any dispute arising under this Plan or to collect any benefits
due hereunder, the prevailing party in such proceedings shall be entitled to
recover the costs of litigation and reasonable attorneys fees from the other
party; provided, however, that if the Company or a Participant, his
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<PAGE> 8
beneficiary or any other person claiming an interest by or through a Participant
shall commence an action or proceeding, the principal purpose of which is to
effect a division of, or to determine entitlement to, payments hereunder, the
costs of defending or bringing such action shall be charged and offset against
any amounts payable to such Participant, his beneficiaries and/or his or their
successors pursuant hereto.
ARTICLE VII
ADMINISTRATION OF THE PLAN
7.1 Administration of Plan by Committee. The Plan shall be administered by
the Compensation Committee of the Board or such other committee appointed by the
Board all of whom are members of the Board. A majority of the Committee shall
constitute a quorum for the transaction of business and all actions taken by the
Committee at a meeting shall be by the affirmative vote of a majority of the
Committee present at such meeting (provided that a quorum is present), but any
action may be taken by the Committee without a meeting by written consent signed
by all of the members of the Committee. The Compensation Committee shall at all
times constitute a compensation committee of outside directors as described in
Internal Revenue Code Section 162(m).
7.2 Determinations of Committee. The Committee from time to time may
establish rules and regulations for the administration of the Plan and adopt
standard forms for such matters as beneficiary designations and notices,
provided, that such rules and forms shall not be inconsistent with the
provisions hereof. All determinations of the Committee, irrespective of their
character or nature, including, but not limited to, all questions of
construction and interpretation, shall be final, binding and conclusive upon all
parties. Without limiting the generality of the foregoing, the determination of
the Committee as to whether a Participant has terminated his services and the
date and cause thereof shall be final, binding and conclusive upon all parties.
7.3 Accounting Determinations. All accounting determinations and financial
calculations made under this Plan, shall be made in accordance with generally
accepted accounting principles, consistently applied, but adjusted as specified
in this Plan. Any dispute with respect to any accounting determinations or
calculations, including determinations of the balance due to a Participant under
this Plan, at the request of either the Company or the relevant Participant,
shall be submitted to the Company's regular independent accountants and the
decision of such accountants shall be final, binding and conclusive upon all
persons.
7.4 Books and Records. The Chief Financial Officer of the Company shall be
responsible for maintaining books and records for the Plan. Said books and
records shall be open only for examination by a Participant or his duly
designated beneficiary to the extent that they specifically involve the amounts
distributable to him or such beneficiary hereunder. All notices hereunder shall
be filed with the Chief Financial Officer of the Company.
7.5 Advice of Counsel. The Company and/or the Committee may consult with
legal counsel, who may be independent counsel or counsel employed by the
Company, with respect to
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<PAGE> 9
its obligations and duties hereunder or with respect to any action or proceeding
or any other questions of law and shall not be liable for any action taken or
omitted by it in good faith pursuant to the advice of such counsel.
7.6 Competence. Every person receiving or claiming payments under this Plan
shall be conclusively presumed to be mentally competent until the date on which
the Committee receives a written notice in a form and manner acceptable to the
Committee that such person is incompetent and that a guardian, conservator or
other person legally vested with the interest of his estate has been appointed.
In the event that a guardian or conservator of the estate of any person
receiving or claiming payments under the Plan shall be appointed by a court of
competent jurisdiction, payments under this Plan may be made to such guardian or
conservator provided that the proper proof of appointment and continuing
qualification is furnished in a form and manner acceptable to the Committee. Any
such payments so made shall be a complete discharge of any liability therefor.
7.7 Liability. No member of the Committee shall be liable for anything done
or omitted to be done by him or her or by any other member of the Committee in
connection with the Plan, except for his or her own willful misconduct or gross
negligence (unless the Company's Articles of Incorporation or Bylaws, or any
indemnification agreement between the Company and such person, in each case in
accordance with applicable law, provides otherwise). The Committee shall have
power to engage outside consultants, auditors or other professional help to
assist in the fulfillment of the Committee's duties under the Plan at the
Company's expense.
ARTICLE VIII
DISCRETIONARY ADJUSTMENTS
The Committee may make any such adjustments to the Performance Goal for an
Earnout Period to the extent that it, at its sole discretion, deems such
adjustments appropriate to compensate for or to reflect (i) any significant
change which may have occurred during such Earnout Period in accounting
practices, (ii) changes in the capitalization of the Company or (iii) changes in
tax laws or other laws or regulations or any extraordinary compensation expense
accrual or reversal for expense other than that attributable to this Plan and
which change or expense alters or affects any factors involved in the
determination of whether, or the extent to which, such Performance Goal has been
achieved by the Participants; provided, however, that neither the Committee nor
any other person shall have discretion to increase the amount of compensation
payable hereunder in violation of Treasury Regulation Section
1.162-27(e)(2)(iii).
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<PAGE> 10
ARTICLE IX
AMENDMENT, SUSPENSION OR
TERMINATION OF THE PLAN
The Board may amend, suspend, or terminate the Plan at any time; provided,
however, that no such action shall alter any right or obligations hereunder with
respect to any Performance Award then designated for a Participant with respect
to an Earnout Period that commenced prior to the effective time of such action
without the consent of such Participant.
ARTICLE X
MISCELLANEOUS
10.1 Expenses of Plan Administration. All expenses of administering the
Plan shall be paid by the Company except as expressly provided herein to the
contrary.
10.2 Notices. Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company at its principal place of
business, and to the Participant at the Participant's address as reflected in
the Company's records, or to such other address as either party may hereafter
designate in writing by notice similarly given by one party to the others.
10.3 Governing Law. The Plan shall be construed, administered and governed
in all respects by the applicable laws of the State of Texas.
10.4 Construction. Whenever the context so requires, words in the masculine
include the feminine and words in the feminine include the masculine and the
definition of any term in the singular may include the plural.
10.5 Headings. The headings of articles and paragraphs of this Plan are for
convenience of reference only and shall not control or affect the meaning or
construction of any of its provisions.
10.6 Binding Effect. In consideration of the benefits conferred hereunder,
each Participant shall be conclusively presumed to have agreed to be bound by
all of the terms and conditions of this Plan as presently constituted and as it
hereafter from time to time may be amended.
10.7 Severability. If any provision of this Plan is held for any reason to
be invalid or unenforceable by a court of competent jurisdiction, such provision
shall be modified to the extent necessary to render it enforceable with respect
to such adjudication and the remainder of this Plan shall remain in full force
and effect in such jurisdiction.
10.8 Independence of Plan. It is intended that the Plan be construed and
administered independent of any and all other employee benefit plans, fringe
benefit programs or compensation arrangements of the Company. Accordingly,
except as otherwise determined by
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<PAGE> 11
the Committee, neither the Plan nor any of the benefits payable hereunder shall
be construed, administered or considered so as to have any effect on any
existing or future pension, profit sharing, incentive compensation or other
employee benefit program or plan of the Company and no such program or plan of
the Company shall be construed or administered to have any effect on the Plan.
IN WITNESS WHEREOF, upon authorization of the Board of Directors of the
Company, the undersigned has caused the Plan to be executed effective as of the
1st day of January, 1998.
-------------------------------------
F. George Dunham, III
President and Chief Executive Officer
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SCHEDULE A
INSPIRE INSURANCE SOLUTIONS, INC.
1998 ANNUAL BONUS PLAN
1998 PERFORMANCE GOAL
EARNOUT PERIOD: January 1, 1998 - December 31, 1998
PERFORMANCE AWARD: 100% of Base Salary
PERFORMANCE GOAL: Earnings per share after taxes and prior to Bonuses payable
under Plan ("EPS") equal to or greater than $1.34
AWARD PERCENTAGE:
<TABLE>
<CAPTION>
If EPS is equal to or greater than: The Award Percentage shall be:
- ----------------------------------- ------------------------------
<S> <C>
$1.34 100%
$1.29 95%
$1.25 90%
$1.21 85%
$1.16 80%
$1.12 75%
$1.07 70%
$1.03 65%
$0.98 60%
$0.94 55%
$0.91 50%
$0.90 20%
$0.89 10%
$0.88 -0-
</TABLE>
12
<PAGE> 1
EXHIBIT 10.49
CLAIMS ADMINISTRATION
SERVICES AGREEMENT
THIS CLAIMS ADMINISTRATION SERVICES AGREEMENT ("Agreement") dated as of the 1st
day of October, 1997 ("Effective Date"), is made by and between The Millers
Mutual Fire Insurance Company, a Texas mutual insurance company ("MILLERS
MUTUAL"), The Millers Casualty Insurance Company, a Texas insurance company
("MILLERS CASUALTY"), and INSpire Insurance Solutions, Inc., a Texas corporation
("INSPIRE").
Whereas, Millers Mutual and Millers Casualty shall be collectively
referred to as the "CUSTOMER"; and
Whereas, Customer and INSpire are parties to an Amended Service
Contract, effective July 1, 1997, as amended (the "Prior Service
Contract"), pursuant to which INSpire provides certain claims
administration services to Customer; and
Whereas, Customer is desirous of INSpire providing claims
administration services for which Customer is otherwise responsible in
providing insurance to its customers, as set forth in this Agreement;
and
Whereas, INSpire wishes to provide such Services for Customer; and
Whereas, Customer and INSpire desire to amend and restate in its
entirety the Prior Service Contract; and
Whereas, the parties hereto wish to reduce their Agreement to writing;
Now, therefore, for and in consideration of the premises set forth
below and other good and valuable consideration, the receipt and
sufficiency of which is expressly acknowledged, Customer and INSpire
hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by INSpire are set forth in Exhibit I to
this Agreement. All claims adjusting functions shall be performed by properly
trained and licensed insurance adjusters.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective
Date and shall have a "Minimum Term" of 60 full calendar
months unless terminated earlier pursuant to the provisions of
this Agreement. The Agreement shall automatically be renewed
and extended after the conclusion of the Minimum Term for an
additional renewal term or terms of 36 months unless
terminated pursuant to the provisions of Article 8.
<PAGE> 2
ARTICLE 3. DUTIES OF INSPIRE
3.1 INSpire shall dedicate in its discretion the appropriate
human, equipment and computer resources to provide and, during
the term of this Agreement, will provide, Customer with the
Services enumerated in Exhibit I of this Agreement for the
Lines of Business and States specified in Exhibit I.
3.2 INSpire shall investigate, evaluate, and handle each claim
reported within the established authority for claims as set
forth in Exhibit I attached hereto and made part of the
Agreement.
3.3 INSpire will designate an employee to act as liaison with
Customer to facilitate the provision of the Services.
3.4 INSpire shall maintain the confidentiality of data or
information which is the property of Customer and which is
directly accessible to INSpire in the implementation and
performance of the Services.
3.5 INSpire shall maintain complete, accurate and orderly claims
books, files, records and accounts of all transactions in
accordance with generally accepted insurance and accounting
practices.
3.6 INSpire shall maintain permanent copies of all claims and
correspondence related to the claims. INSpire shall not
destroy these permanent copies without the written
permission of the Customer for a period of at least five (5)
years from the date of the last file activity, or the period
specified by the applicable state statute regulating
preservation of records, whichever is longer. At the end of
such five year period, upon INSpire's written request for
instructions, the Customer shall authorize INSpire to either
(a) destroy the closed files or (b) return such files to
Customer at Customer's expense. Notwithstanding the
foregoing, any claim file involving a minor shall be
separately identified and returned to Customer at the end of
such five year period. Claim files shall be the property of
the Customer. Upon an order of liquidation of Customer, the
files shall become the sole property of Customer or
Customer's estate. INSpire may, at its discretion, use
magnetic, optical, and other types of technology to store
such data.
3.7 All claims still open upon termination or cancellation of this
Agreement will require that one of the following to occur:
a. All open claims will be handled on the pre-agreed
monthly fee per claim; or
b. All open claims will be handled on a time and expense
basis at then current prevailing rates; or
c. All claims will be returned to Customer, with any holdover
reverting to a time and expense basis at then current
prevailing rates. INSpire and Customer will mutually agree
on this determination.
3.8 INSpire acknowledges and agrees that Customer, being at risk
and having
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ultimate responsibility for the claims to be administered by
INSpire, shall at all times have ultimate discretion with
respect to all matters pertaining to the claims.
3.9 INSpire will not assume the responsibility for direct
notification to any excess or quota share insurance carrier of
claims; however, reports will be provided as requested by
Customer.
3.10 INSpire and Customer acknowledge that this Agreement does not
apply to policies written by Customer through any managing
general agencies.
ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer agrees that all claims occurring during the term of
this Agreement will be reported to INSpire, unless otherwise
notified by the Customer and approved by INSpire. Customer
will provide all information relevant to particular claims to
INSpire in order for INSpire to fulfill its duties and
obligations as set out in Exhibit I.
4.2 Customer has ultimate authority and responsibility for
authorizing claims payment and settlement.
ARTICLE 5. AUDIT PROVISIONS
INSpire shall maintain records of amounts billable to and payments made on
behalf of Customer. In addition, INSpire shall maintain records of the data
utilized to perform the Services defined in Exhibit I of the Agreement until
five years following the date of last file activity, or the period specified by
the applicable state statute, whichever is the later unless such records are
earlier returned to Customer. INSpire agrees to provide reasonable supporting
documentation concerning any disputed invoice amount to Customer within 15 days
after Customer provides written notification of the dispute to INSpire. Customer
and an auditor selected by Customer shall have access to all such records for
the purposes of audit and verification during normal business hours during the
full term of this Agreement and during the respective periods in which INSpire
is required to maintain such records.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Fees and Rates as specified in
Exhibit II hereto.
6.2 The Services Fees and Rates in Exhibit II hereto may be
increased effective as of each anniversary of the Effective
Date during the existence of this Agreement by the
percentage change in the United States Consumer Price Index
for all Urban Users (CPI-U) published by the United States
Bureau of Labor Statistics, for the immediately preceding
calendar year. In the event a vendor supplying any service
or product to INSpire required for INSpire to provide the
Services to Customer increases its rates charged to INSpire,
INSpire may increase the contracted rates set forth herein
to include such increased costs.
6.3 The Service Fees and Rates may increase by mutual agreement,
if changes in the Services mutually agreed to in writing
substantially alter the servicing personnel,
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equipment, or result in the servicing being done on a
different system.
6.4 When Customer requests INSpire personnel to travel to any
location for the purpose of performing specific claims work
under this Agreement, the Customer will, in addition to the
charges specified for Services, pay INSpire for all reasonable
travel, lodging and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or
may become applicable to the Services rendered hereunder, as
measured by payments made by Customer to INSpire under this
Agreement, or as required to be collected by INSpire or paid
by INSpire to tax authorities based on this Agreement. This
provision includes but is not limited to sales, use, or any
other form of tax based on Services performed, but does not
include taxes based upon the net income of INSpire.
6.6 Service Fees and Rates for Services will be due and payable
15 days after the close of the month in which services are
performed.
6.7 Customer agrees that INSpire will have the right to
renegotiate the Service Fees in the event of statutory,
regulatory, or judicial changes that require additional
activities not contemplated at the inception of this
Agreement.
ARTICLE 7. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although INSpire from time to time may use its own proprietary
computer software products in the performance of the Services
enumerated in Exhibit I of this Agreement, this Agreement does
not grant a license or any other interest to Customer for the
use of any software products.
7.2 This Agreement grants to Customer no right to possess or
reproduce, or any other interest in, the computer software
programs performing all or any part of the Services or their
specifications in any tangible or intangible medium.
Customer may not mortgage, hypothecate, sell, assign,
pledge, lease, transfer, license or sublicense the computer
software programs performing all or any part of the
Services, nor allow any person, firm, or corporation to
transmit, copy or reproduce the computer software programs
performing all or any part of the Services or their
specifications in whole or in part. In the event Customer
shall come into possession of the computer software programs
performing all or any part of the Services, Customer shall
immediately notify INSpire and return the computer software
programs performing the Services and all copies of any kind
thereof to INSpire upon INSpire's request.
7.3 Customer promises and agrees not to disclose or otherwise make
computer software programs performing all or any part of the
Services available to any person other than employees of
Customer required to have such knowledge for normal use of
them. Customer agrees to obligate each such employee to a
level of care sufficient to protect the computer software
programs performing all or any part of the Services from
unauthorized disclosure.
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7.4 INSpire warrants and represents that it owns, or is licensed
with respect to, all software it will employ in the
performance of this Agreement. In the event this Agreement
is terminated, INSpire will grant a license, upon terms and
conditions set forth in a licensing agreement, to Customer
to use the software which INSpire employs in the performance
of this Agreement to the extent INSpire is not otherwise
prohibited from doing so by contract or by operation of law.
INSpire shall use its best efforts to deliver the software,
as well as all necessary manuals, to the Customer
immediately upon delivery of data to the Customer.
7.5 THE OBLIGATION OF CUSTOMER UNDER THIS ARTICLE SHALL CONTINUE
AFTER THIS AGREEMENT IS TERMINATED.
ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement without cause at the
expiration of the Minimum Term set forth in Section 2.1,
provided the other party receives at least six (6) months
prior written notice of termination. Termination without cause
during any renewal term would also require six months notice.
8.2 Either party may terminate this Agreement upon breach by the
other party of any one or more of the terms and conditions of
this Agreement or the related Exhibits, provided that the
party in breach is notified in writing by the other party of
the breach and the breach is not cured or a satisfactory
resolution agreed upon in writing within thirty (30) days of
such written notification, or if such breach is non-monetary
and is of such a nature that it cannot reasonably be cured
within such time commenced to cure same and does not
diligently continue to and actually cure same within a
reasonable period thereafter. The obligation of INSpire
referred to in this Section 8.2 shall include, and shall be
limited to:
(a) the obligation to observe and comply with applicable
laws, regulations, rules and rates affecting the
transaction of business hereunder; and
(b) the obligation to provide Services set forth in
Exhibit I.
8.3 In the event either party makes a general assignment for the
benefit of creditors or files a voluntary petition in
bankruptcy or petitions for reorganization or arrangement
under the bankruptcy laws, or if a petition in bankruptcy is
filed against either party and remains undismissed for a
period of thirty (30) days, or if a receiver or trustee is
appointed for all or any part of the property and assets of
either party, the other party may terminate the Agreement
immediately.
8.4 Rights Upon Termination. Upon expiration or termination of
this Agreement:
(a) The obligations of the Customer and INSpire to the date
of termination shall be discharged promptly;
(b) INSpire shall promptly return to the Customer any forms
or other
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supplies imprinted with the Customer's name, regardless of
who incurred the cost for same.
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in
the Services provided by INSpire, then upon INSpire receiving
notice of such error or defect, INSpire shall reprocess such
data without charge to Customer.
9.2 INSpire shall indemnify, protect, defend and hold Customer,
its officers, directors, shareholders and employees harmless
from and against any and all losses, damages, liabilities,
fines, settlements, penalties and judgments (including
reasonable costs and attorney's fees) (herein "Damages")
arising out of or resulting from the negligent, willful or
intentional acts of INSpire performed in connection with
this Agreement or arising from a breach of this Agreement by
INSpire . Customer shall indemnify, protect, defend and hold
INSpire, its officers, directors, shareholders and employees
harmless from and against any and all Damages arising out of
or resulting from the negligent, willful or intentional acts
of Customer performed in connection with this Agreement or
arising from a breach of this Agreement by Customer. This
indemnity shall survive the earlier expiration or
termination of this Agreement.
9.3 In providing services hereunder, INSpire shall have a duty to
act, and cause its affiliates and designees to act, in a
reasonably prudent manner. Neither INSpire, nor any officer,
director, employee or agent of INSpire shall be liable to
Customer for any error of judgment or for any loss incurred by
Customer in connection with the matters to which this
Agreement relates, except a loss resulting from the gross
negligence or willful misconduct on the part of INSpire.
9.4 Customer's remedies and INSpire's liability for breaches of
this Agreement and errors or defects in the delivery of
Services are limited to the remedies and liabilities set forth
in Sections 8.2, 9. 1, 9.2 and 9.3 of this Agreement.
INSpire's remedies and Customer's liability for breaches of
this Agreement are limited to the remedies and liabilities set
forth in Section 8.2, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default for
any delay or failure in performance under this Agreement or
interruption of Service resulting, directly or indirectly,
from acts of God, civil or military authority, labor disputes,
shortages of suitable parts, materials, labor or
transportation or any similar cause beyond the reasonable
control of the parties.
10.2 All notices which are required to be given or submitted
pursuant to this Agreement shall be in writing and shall be
either delivered in person or sent by certified mail, return
receipt requested, to the address set forth herein or to
such other address as the parties may from time to time
designate in writing for such purposes. Notices shall be
deemed to have been given at the time when personally
delivered or, if mailed in a certified post-paid envelope,
upon the fifth
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day after the date such notice shall be postmarked. All
notices to INSpire shall be addressed to the attention of
the Chief Financial Officer.
10.3 The parties covenant and promise not to disclose the terms and
conditions of this Agreement to any third party unless
expressly agreed to by the parties. Notwithstanding the
foregoing, the parties agree that disclosure may be made to
any auditors, regulators, carriers, or reinsurers on a need to
know basis only without prior consent.
10.4 This Agreement and any Exhibits made a part hereof: (a)
constitute the entire Agreement between the parties and
supersede and merge any and all prior discussions,
representations, negotiations, correspondence, writings and
other Agreements and together state the entire understanding
and agreement between INSpire and Customer with respect to
the Services described; (b) may be amended or modified only
in a written instrument agreed to and signed by INSpire and
Customer; and, (c) shall be deemed to have been entered into
and executed in the State of Texas and shall be construed,
performed and enforced in all respects in accordance with
the laws of that state. For purposes of venue, this
Agreement is performable in Tarrant County, Texas.
10.5 Neither party hereto shall be deemed to have waived any rights
or remedies accruing to it hereunder unless such waiver is in
writing and signed by such party. No delay or omission by
either party hereto in exercising any right shall operate as a
waiver of said right on any future occasion. All rights and
remedies hereunder shall be cumulative and may be exercised
singularly or concurrently.
10.6 The descriptive headings of this Agreement are intended for
reference only and shall not affect the construction or
interpretation of this Agreement.
10.7 Wherever the singular of any term is used herein it shall be
deemed to include the plural wherever the plural thereof may
be applicable.
10.8 The parties shall not assign this Agreement or any of its
rights hereunder without the prior written consent of the
other party which consent shall not be unreasonably withheld
unless the proposed assignment is to a competitor of the other
party.
10.9 If any provision of this Agreement or any Exhibit hereto or
the application thereof to any party or circumstances shall,
to any extent, now or hereafter be or become invalid or
unenforceable, the remainder of this Agreement shall not be
affected thereby and every other provision of this Agreement
shall be valid and enforceable, to the fullest extent
permitted by law.
10.10 In the event of any action between Customer and INSpire
seeking enforcement of any of the terms and conditions of this
Agreement, the prevailing party to such action shall be
awarded its reasonable costs and expenses, including its court
costs and reasonable attorney's fees.
10.11 The parties hereto are independent contractors of one another,
and they should
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not in any instance be construed as partners or joint
ventures.
INSPIRE AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED
AGENTS THAT THEY HAVE READ THIS AGREEMENT, INCLUDING ALL
EXHIBITS HERETO, AND AGREE TO BE BOUND BY ITS TERMS AND
CONDITIONS.
EXECUTED to be effective the ___ day of _________, 19___.
INSpire Insurance Solutions, Inc. The Millers Mutual Fire Insurance Company
BY: BY:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
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EXHIBIT I
CLAIMS ADMINISTRATION SERVICES AGREEMENT
by and between
INSPIRE INSURANCE SOLUTIONS, INC.
and
MILLERS INSURANCE GROUP
A. SERVICES:
During the term of this Agreement INSpire shall provide the Claims
Administration Services defined below for the Lines of Business (Section B of
this Exhibit I) for the States specified (Section C of this Exhibit I) written
by or through Customer. INSpire will, in accordance with guidance and direction
provided by the Customer provide all Clairns Administration Services and general
management of these Services described herein for subject claims as follows:
1. Customer grants INSpire the authority to investigate, evaluate, and handle
each claim reported according to applicable state law, the terms and
conditions of the policy and any written standards provided by Customer.
INSpire shall not have any authority to alter or discharge any policy or
waive any policy provision or condition.
2. INSpire will set up a claims operation center that will function as a
control unit.
3. Coverage will be verified on all cases.
4. INSpire will administer the appraisal/assessment process and will use in
this endeavor a combination of staff, independent appraisers and direct
repair facilities.
5. INSpire will perform all reasonable and necessary administrative and
clerical work in connection with claim or loss reports.
6. INSpire will establish and maintain a claim file for each reported claim or
loss. The claim file will have a daily activity log, which shall be
available for review at any and all reasonable tirnes by the Customer
subject to the provisions of Article 5 of the Agreement.
7. INSpire will record and report each claim promptly to the Customer with a
recommended reserve. INSpire shall consult with Customer with respect to
any of the following:
(a) Any loss or claim resulting in legal action being instituted against
INSpire or the Customer;
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(b) Any loss or claim causing a complaint to be filed with any regulatory
authority;
(c) Any inquiry from any regulatory authority, including but not limited
to any insurance department, with respect to any claim or claims, even
if no complaint causes such inquiry;
(d) Any claim in which INSpire deems appropriate to rescind policy
coverage for material misrepresentation;
(e) Any claim involving an allegation of extra contractual obligations, or
bad faith claim handling;
(f) Any claim involving a fatality, amputation, spinal cord or brain
damage, loss of eyesight, extensive burns, poisoning, or multiple
fractures; or
(g) Any claim that the customer desires to be kept advised of during the
life of the claim;
(h) Any claim where there has been a demand for policy limits and INSpire
does not evaluate the value of the claim to include settlement at that
amount.
8. INSpire will provide monthly and year-to-date reports on all claims
activity including new claims reported, claims pending, claims closed and
reserve changes. The reports will include:
(a) Information and statistical data (i) required by Insurance Services
Office ("ISO"), and (ii) necessary for Customer to prepare any reports
required by the National Association of Insurance Commissioners, or
(iii) other reports reasonably requested by Customer;
(b) Loss Runs with paid claims and outstanding reserves remaining at the
end of each monthly report period, categorized as indemnity, medical
payment, or loss adjustment expense, plus any other information
required by the Annual Statement instructions or state regulatory
agencies;
(c) Check Registers;
(d) Reports needed by Customer for the filing of reinsurance claims or
quarterly reinsurance updates.
9. INSpire will perform a periodic review at mutually agreed upon intervals of
outstanding claim reserves, and recommend changes to outstanding claim
reserves.
10. INSpire will prepare checks and vouchers, compromises, releases, agreements
and any other documents reasonably necessary to finalize and close claims.
INSpire will issue
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payments of claims and allocate loss adjustment expenses only within the
guidelines as authorized by Customer.
For purposes of settling claims and paying claim-related expenses, Customer
has agreed to establish, maintain and fund a separate bank account from
which INSpire may draw against as hereinafter set forth (the "Claim
Account").
Customer agrees to deposit additional funds into the Claims Account on a
weekly basis if necessary to maintain it at a level sufficient to allow
INSpire to carry out its obligations under this Agreement. INSpire shall
regularly provide information and estimates to Customer to enable Customer
to maintain the Claims Account at an appropriate level. Customer shall
provide to INSpire such information as is necessary for INSpire to draw
checks on the Claims Account.
INSpire hereby guarantees that any check it prepares will be signed and
issued only in accordance with the procedures adopted by Customer. Any
check prepared by INSpire on the Claims Account must be signed by two
authorized individuals.
INSpire shall promptly deposit any monies collected through salvage and
subrogation to the Claim Account, and maintain a register of all such
collections and deposits (the "Salvage and Subrogation Register"). The
Salvage and Subrogation Register shall include, but shall not be limited
to, the following information: date of deposit, date of receipt of funds,
the claim number, the payer, and the amount and purpose of such payment.
(The Claim Register shall include, but shall not be limited to, the
following information: claim number, date of check, payee, amount and check
number).
INSpire shall reconcile the Claim Register and the Salvage and Subrogation
Register to the Claim Account on a monthly basis.
11. Service standards and claims documentation will be in accordance with
standards set by Customer and agreed to by INSpire. INSpire will be in
compliance with all state regulations dealing with the adjusting and
handling of claims. INSpire will periodically review the development of the
claims handling procedure with the Customer to identify problems and
recommend corrective action.
12. INSpire will diligently pursue and prosecute Customer's salvage and
subrogation rights relating to any losses. INSpire will use reasonable
efforts to collect and deposit funds arising from the enforcement of such
rights into the Claim Account. INSpire will report monthly on
salvage/subrogation receipts.
13. INSpire will provide Special Investigative Services in accordance with
guidelines agreed to by Customer on a time and expense basis.
14. INSpire will provide Customer claim information to prepare reports (i)
required by the Internal Revenue Service, and (ii) other reports reasonably
requested by Customer.
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B. AUTHORIZED LINES OF BUSINESS:
Private Passenger Automobile, Homeowners, Commercial Casualty Multi-Peril,
Commercial Property, Farm-owners, Umbrella.
C. AUTHORIZED STATES:
Alabama Louisiana Oklahoma
Arizona Michigan Oregon
Arkansas Minnesota South Carolina
California Mississippi South Dakota
Colorado Missouri Tennessee
Florida Montana Texas
Idaho Nebraska Utah
Illinois Nevada Washington
Indiana New Mexico Wisconsin
Iowa North Carolina Wyoming
Kansas North Dakota
Kentucky Ohio
D. LOCATION OF PROVISION OF SERVICES;
INSpire shall provide the Services defined above at an INSpire service
center.
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EXHIBIT II
SERVICE FEES & RATES
CONSULTANTS $125.00 per hour
PROGRAMMERS $125.00 per hour
CLAIMS ADMINISTRATION SERVICES
Fees will be based on a charge per claim as defined below. A claim is
defined as an open feature as shown below. Monthly maintenance fees are for
claims open greater than 31 days at each month end.
<TABLE>
<CAPTION>
FEATURE NEW CLAIM FEE MONTHLY FEE
- ------- ------------- -----------
<S> <C> <C>
Auto BI/UM $450 $100
Auto Non-BI/UM $250 $50
Auto First Party $150 $50
Homeowners $600 $60
Commercial Property $700 $70
Commercial Casualty $1,000 $100
Subrogation 25% of recoveries
Salvage 15% of recoveries
SIU Services $60.00/hr. plus outside fees
</TABLE>
Homeowner, Commercial Property and Commercial Casualty claims with an incurred
loss greater than $100,000 will be billed at "time and expense", rather than the
rates shown on the above schedule. "Time and expense" is defined as $60.00 per
hour plus any outside adjusting fees.
EXPENSES EXCLUDED.
Legal, Reconstruction Experts, Agronomist and Engineers.
SPECIAL FEES
Claim system modifications requested and approved by Customer will be
charged to the Customer on a time and materials basis utilizing the
appropriate mix of service personnel required to perform the modification.
Additional reports or modifications to agreed upon reports will also be
charged to Customer on a time and materials basis utilizing the appropriate
mix of service personnel required to perform the modifications or produce
new reports. Hourly rates for such personnel are listed above.
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EXHIBIT 10.50
POLICY ADMINISTRATION
SERVICES AGREEMENT
This Policy Administration Services Agreement ("Agreement") is effective as
of the 1st day of October, 1997 ("Effective Date"), by and between INSpire
Insurance Solutions, Inc., a Texas corporation with principal offices at 300
Burnett, Fort Worth, Texas 76102 ("INSpire"), and The Millers Mutual Fire
Insurance Company and The Millers Casualty Insurance Company, having their
principal place of business at 300 Burnett Street, Fort Worth, Texas 76102
(collectively, the "Customer").
Whereas, Customer is desirous of INSpire providing Policy Administration
Services for which Customer is otherwise responsible in providing insurance to
its customers, as set forth in this Agreement;
Whereas, INSpire wishes to provide such Services for Customer; and
Whereas, the parties hereto wish to reduce their Agreement to writing; and
Whereas, Customer is comprised of The Millers Mutual Fire Insurance Company
and The Millers Casualty Insurance Company.
Now, therefore, for and in consideration of the premises set forth below
and other good and valuable consideration, the receipt and sufficiency of which
is expressly acknowledged, Customer and INSpire hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by INSpire are set forth in Exhibit I to
this Agreement. INSpire shall not be involved in the production of business
on behalf of Customer other than as set forth in Exhibit I.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective Date and
shall have a "Minimum Term" of 24 full calendar months unless
terminated earlier pursuant to the provisions of this Agreement. The
Agreement shall automatically be renewed and extended after the
conclusion of the Minimum Term for an additional term or terms of 12
months unless terminated pursuant to the provisions of Article 8.
2.2 The "Implementation Period" shall begin on the Effective Date of this
Agreement and shall end on the date INSpire notifies Customer that
INSpire is capable of receiving all future applications on behalf of
Customer. During the
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Implementation Period, INSpire shall prepare an analysis of the lines of
business included within the terms of this Agreement. Customer shall assist
INSpire during such "Implementation Period" with the gathering of
appropriate data information, background, and other facts as needed by
INSpire to enable INSpire to perform the Services enumerated in Exhibit I
of this Agreement.
ARTICLE 3. DUTIES OF INSPIRE
3.1 The Implementation Period will be used to assemble the staff, arrange for
furniture and fixtures, and prepare for the start of business. All
procedures required to conduct business as well as the requisite staff
training will occur during this period.
3.2 INSpire shall, as it shall determine in its discretion, dedicate the
appropriate human, equipment and computer resources to provide and, during
the term of this Agreement, will provide Customer with the Services
enumerated in Exhibit I of this Agreement for the Lines of Business and
States specified in Exhibit I.
3.3 INSpire shall designate an employee to act as liaison with Customer to
facilitate the provision of the Services.
3.4 INSpire shall maintain the confidentiality of data or information which is
the property of Customer and which is directly accessible to INSpire in the
implementation and performance of the Services.
3.5 INSpire shall maintain complete, accurate and orderly files, records and
accounts of all transactions in accordance with generally accepted
insurance and accounting practices. INSpire shall be responsible for the
timely remittance of all premiums due Customer.
3.6 INSpire shall maintain permanent copies of all policies and applications
and correspondence related to the policies. INSpire shall not destroy these
permanent copies without the written permission of the Customer for a
period of at least five (5) years from the termination date of the
applicable policies, or the period specified by the applicable state
statute regulating preservation of records, whichever is longer. INSpire
may, at its discretion, use magnetic, optical, and other types of
technology to store such data.
3.7 INSpire acknowledges and agrees that Customer, being at risk and having
ultimate responsibility for the policies to be administered by INSpire,
shall at all times have ultimate discretion with respect to all matters
pertaining to the policies.
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ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer shall provide the data necessary, in a timely manner and in a
format acceptable to INSpire, for INSpire to perform the Services defined
in Exhibit I of this Agreement. Customer acknowledges that delays in
delivery of required information will result in a similar delay in
fulfilling Services.
4.2 Customer acknowledges that INSpire assumes no risk or responsibility for
Customer's claims administration, claim payments or recovery pursuant to
this Agreement.
4.3 Customer will provide INSpire with the policy jackets and the information
and specifications necessary to perform the Services defined in Exhibit I
of this Agreement, including but not limited to Customer's banking
institution account information, corporate and subsidiary logos (if
applicable), style and specifications of printed documents such as
insurance policies, and all other information and specifications necessary
to perform the Services.
4.4 Customer shall appoint a Project Manager with sufficient authority within
Customer's organization to facilitate Customer's role as INSpire performs
the Services enumerated in Exhibit I of this Agreement.
4.5 Customer will be responsible for and make available to INSpire any software
products, systems and/or licenses to INSpire, necessary to perform the
services enumerated in Exhibit I.
ARTICLE 5. AUDIT PROVISIONS
INSpire shall maintain records of amounts billable to and payments made on
behalf of Customer. In addition, INSpire shall maintain records of the data
utilized to perform the Services defined in Exhibit I of the Agreement until
five years following the termination date of the applicable policies, or the
period specified by the applicable state statute, unless such records are
earlier returned to Customer. INSpire agrees to provide reasonable supporting
documentation concerning any disputed invoice amount to Customer within 15 days
after Customer provides written notification of the dispute to INSpire. Customer
and an auditor selected by Customer shall have access to all such records upon
mutually agreed upon prior notice for the purposes of audit and verification
during normal business hours during the full term of this Agreement and during
the respective periods in which INSpire is required to maintain such records.
INSpire shall provide access to its books, records and bank accounts to the
insurance departments of all applicable jurisdictions in a form usable by the
departments.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Rates as specified in Exhibit II hereto.
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6.2 The Service Rates in Exhibit II hereto may be changed effective as of each
anniversary of the Effective Date during the existence of this Agreement by
the percentage increase in the United States Consumer Price Index for all
Urban Users (CPI-U) published by the United States Bureau of Labor
Statistics, for the immediately preceding calendar year. In the event a
vendor supplying any service or product to INSpire required for INSpire to
provide the Services to Customer increases its rates charged to INSpire,
INSpire may increase the contracted rates set forth herein to include such
increased costs.
6.3 The Service Rates may increase by mutual agreement, if changes in the
Services mutually agreed to in writing substantially alter the servicing
personnel, equipment, or result in the servicing being done on a different
system.
6.4 When Customer requests INSpire personnel to travel to any location for the
purpose of performing policy administration work under this Agreement, the
Customer will, in addition to the charges specified for Services, pay
INSpire for all reasonable travel, lodging and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or may become
applicable to the Services rendered hereunder as measured by payments made
by Customer to INSpire under this Agreement, or as required to be collected
by INSpire or paid by INSpire to tax authorities based on this Agreement.
This provision includes but is not limited to sales, use, or any other form
of tax based on Services performed but does not include taxes based upon
the net income of INSpire.
6.6 Service fees for Services will be due and payable 15 days after the close
of the calendar month for which the Services are provided.
6.7 Customer agrees that INSpire will have the right to renegotiate the Service
Fees in the event of statutory, regulatory, or judicial changes that
require additional activities not contemplated at the inception of this
Agreement.
ARTICLE 7. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although INSpire from time to time may use its own proprietary computer
software products in the performance of the Services enumerated in Exhibit
I of this Agreement, this Agreement does not grant a license, or any other
interest to Customer for the use of any software products.
7.2 This Agreement grants to Customer no right to possess or reproduce, or any
other interest in, the computer software programs performing all or any
part of the Services or their specifications in any tangible or intangible
medium. Customer may not mortgage, hypothecate, sell, assign, pledge,
lease, transfer, license or
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sublicense the computer software programs performing all or any part of the
Services, nor allow any person, firm, or corporation to transmit, copy or
reproduce the computer software programs performing all or any part of the
Services or their specifications in whole or in part. In the event Customer
shall come into possession of the computer software programs performing all
or any part of the Services, Customer shall immediately notify INSpire and
return the computer software programs performing the Services and all
copies of any kind thereof to INSpire upon INSpire's request.
7.3 Customer promises and agrees not to disclose or otherwise make computer
software programs performing all or any part of the Services available to
any person other than employees of Customer required to have such knowledge
for normal use of them. Customer agrees to obligate each such employee to a
level of care sufficient to protect the computer software programs
performing all or any part of the Services from unauthorized disclosure.
7.4 INSpire warrants and represents that it owns, or is licensed with respect
to, all software it will employ in the performance of this Agreement. In
the event this Agreement is terminated, INSpire will grant a license upon
terms and conditions to be set forth in a Licensing Agreement to Customer
to use the software which INSpire employs in the performance of this
Agreement to the extent INSpire is not otherwise prohibited from doing so
by contract or by operation of law. INSpire shall use its best efforts to
deliver the software, as well as all necessary manuals, to the Customer
immediately upon delivery of data to the Customer.
7.5 THE OBLIGATION OF CUSTOMER UNDER THIS ARTICLE SHALL CONTINUE AFTER THIS
AGREEMENT IS TERMINATED.
ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement without cause at the expiration
of the Minimum Term set forth in section 2. 1, provided the other party
receives at least six (6) months prior written notice of termination.
Termination without cause during any renewal term would also require six
months notice prior to the terminations of the renewal term.
8.2 Either party may terminate this Agreement upon breach by the other party of
any one or more of the terms and conditions of this Agreement or the
related Exhibits, provided that the party in breach is notified in writing
by the other party of the breach and the breach is not cured or a
satisfactory resolution agreed upon in writing within thirty (30) days of
such written notification, or if such breach is non-monetary and is of such
a nature that it cannot reasonably be cured within such notice period, if
the breaching party has not within such time commenced to cure same and
does not diligently continue to and actually cure same within
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<PAGE> 6
a reasonable period thereafter. The obligations of INSpire referred to in
this Section 8.2 shall include, but shall not be limited to:
(a) the obligation to deposit, report and remit premiums;
(b) the obligation to remit return premiums to insureds when due;
(c) the obligation to process all policies, endorsements, and notices of
cancellation or non-renewal, pursuant to Customer's underwriting
guidelines or other instructions;
(d) the obligation to observe and comply with applicable laws,
regulations, rules and rates affecting the transaction of business
hereunder; and
(e) the obligation to provide the Services set forth in Exhibit I.
8.3 In the event either party makes a general assignment for the benefit of
creditors or files a voluntary petition in bankruptcy or petitions for
reorganization or arrangement under the bankruptcy laws, or if a petition
in bankruptcy is filed against either party and remains undismissed for a
period of thirty (30) days, or if a receiver or trustee is appointed for
all or any part of the property and assets of either party, the other party
may terminate the Agreement immediately.
8.4 Rights Upon Termination. Upon expiration or termination of this Agreement:
(a) The obligations of the Customer and INSpire to the date of termination
shall be discharged promptly;
(b) INSpire shall promptly return to the Customer any policies, forms or
other supplies imprinted with the Customer's name, regardless of who
incurred the cost for same.
(c) INSpire shall promptly provide the Customer, without charge, with a
tape back-up of all data files (the "Data").
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in the Services
provided by INSpire, then upon INSpire receiving notice of such error or
defect, INSpire shall reprocess such data without charge to Customer.
9.2 INSpire shall indemnify, protect, defend and hold Customer, its officers,
directors, shareholders and employees harmless from and against any and all
losses, damages, liabilities, fines, settlements, penalties and judgments
(including reasonable costs and attorney's fees) (herein "Damages") arising
out of or
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<PAGE> 7
resulting from the negligent, willful or intentional acts of INSpire
performed in connection with this Agreement or arising from a breach of
this Agreement by INSpire. Customer shall indemnify, protect, defend and
hold INSpire, its officers, directors, shareholders and employees harmless
from and against any and all Damages arising out of or resulting from the
negligent, willful or intentional acts of Customer performed in connection
with this Agreement or arising from a breach of this Agreement by Customer.
This indemnity shall survive the earlier expiration or termination of this
Agreement.
9.3 INSpire's liability to Customer for Damages arising from errors and defects
in performing the Services (whether the damage is based in tort or
contract, law or equity) is limited to an amount not to exceed the usual
and customary charges paid to INSpire under this Agreement in any one month
of this Agreement plus costs and attorney's fees as provided in Section
10.11. With respect to breach of this Agreement which does not result in or
constitute a termination or repudiation of this Agreement, Customer's
liability to INSpire for Damages is limited to an amount not to exceed the
usual and customary charges paid to INSpire under this Agreement in any one
month of this Agreement plus costs and attorney's fees as provided in
Section 10.11.
9.4 Customer's remedies and INSpire's liability for breaches of this Agreement
and errors or defects in the delivery of Services are limited to the
remedies and liabilities set forth in section 8.2, 9.1, 9.2 and 9.3 of this
Agreement. INSpire's remedies and Customer's liability for breaches of this
Agreement are limited to the remedies and liabilities set forth in section
8.2, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default for any delay or
failure in performance under this Agreement or interruption of Services
resulting, directly or indirectly, from acts of God, civil or military
authority, labor disputes, shortages of suitable parts, materials, labor or
transportation or any similar cause beyond the reasonable control of the
parties.
10.2 All notices which are required to be given or submitted pursuant to this
Agreement shall be in writing and shall be either delivered in person or
sent by certified mail, return receipt requested, to the address set forth
herein or to such other address as the parties may from time to time
designate in writing for such purposes. Notices shall be deemed to have
been given at the time when personally delivered or, if mailed in a
certified post-paid envelope, upon the fifth day after the date such notice
shall be postmarked. All notices to INSpire shall be addressed to the
attention of the Chief Financial Officer.
10.3 The parties covenant and promise not to disclose the terms and conditions
of this Agreement to any third party unless expressly agreed to by the
parties.
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Notwithstanding the foregoing, the parties agree that disclosure may be
made to any auditors or regulators on a need to know basis only, without
prior consent.
10.4 This Agreement and any Exhibits made a part hereto: (a) constitute the
entire Agreement between the parties and supersede and merge any and all
prior discussions, representations, negotiations, correspondence,
writings and other agreements and together state the entire understanding
and Agreement between INSpire and Customer with respect to the Services
described; (b) may be amended or modified only in a written instrument
agreed to and signed by INSpire and Customer; and, (c) shall be deemed to
have been entered into and executed in the State of Texas and shall be
construed, performed and enforced in all respects in accordance with the
laws of that state. For purposes of venue, this Agreement is performable
in Tarrant County, Texas.
10.5 Neither party hereto shall be deemed to have waived any rights or
remedies accruing to it hereunder unless such waiver is in writing and
signed by such party. No delay or omission by either party hereto in
exercising any right shall operate as a waiver of said right on any
future occasion. All rights and remedies hereunder shall be cumulative
and may be exercised singularly or concurrently.
10.6 The descriptive headings of this Agreement are intended for reference
only and shall not affect the construction or interpretation of this
Agreement.
10.7 Wherever the singular of any term is used herein it shall be deemed to
include the plural wherever the plural thereof may be applicable.
10.8 The parties shall not assign this Agreement or any of its rights
hereunder without the prior written consent of the other party which
consent shall not be unreasonably withhold unless the proposed assignment
is to a competitor of the other party.
10.9 If any provision of this Agreement or any Exhibit hereto or the
application thereof to any party or circumstances shall, to any extent,
now or hereafter be or become invalid or unenforceable, the remainder of
this Agreement shall not be affected thereby and every other provision of
this Agreement shall be valid and enforceable, to the fullest extent
permitted by law.
10.10 In the event of any action between Customer and INSpire seeking
enforcement of any of the terms and conditions of this Agreement, the
prevailing party in such action shall be awarded its reasonable costs and
expenses, including its court costs and reasonable attorney's fees.
10.11 The parties hereto are independent contractors of one another, and they
should not in any instance be construed as partners or joint venturers.
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INSPIRE AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENTS THAT THEY
HAVE READ THIS AGREEMENT, INCLUDING ALL EXHIBITS HERETO, AND AGREE TO BE BOUND
BY ITS TERMS AND CONDITIONS.
EXECUTED to be effective the 1st day of October, 1997 (The "Effective Date").
INSpire Insurance Solutions, Inc. The Millers Mutual Fire Insurance Company
BY: BY:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
---------------------------- ----------------------------
The Millers Casualty Insurance Company
BY:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
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EXHIBIT I
TO THE
POLICY ADMINISTRATION SERVICES AGREEMENT
BY AND BETWEEN
INSPIRE INSURANCE SOLUTIONS
AND
MILLERS INSURANCE GROUP
A. SERVICES
During the term of this Agreement INSpire shall provide the Policy
Administration Services defined below for the Lines of Business (Section B of
this Exhibit I) for the States specified (Section C of this Exhibit I) written
by or through Customer. INSpire will, in accordance with guidance and direction
provided by the Customer provide all Policy Administration Services and general
management of these Services described herein for the subject business as
follows:
1. INSpire will issue the Customer's policies, process renewals,
cancellations, and reinstatements. INSpire will use such non-renewal or
cancellation notices as may be required by Policy wording or regulatory
authority.
2. Invoices will be processed for additional premiums and renewal bills.
3. Refunds will be processed for return premiums.
4. Inquiries from agents, insureds, and other relevant third parties
(mortgagees, lienholders, etc.) will be handled on behalf of the
Customer.
5. The necessary services to insure personnel assigned to support the
Customer are provided with the necessary space, furniture, fixtures,
electrical power, computer connections, telephones, and other required
assets to support the services.
6. The mailing of all necessary policy documents to relevant parties.
7. Customer billing will be supported through direct bill. Direct premiums
will be submitted through lockbox technology.
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8. Accounting services of receiving and distributing premiums, maintaining
trust accounts, accounts and paying agent commissions, in accordance with
the Customer's obligations including but not limited to:
a. Premium Bank Account. Promptly upon receipt thereof, INSpire shall
deposit all premiums and other funds collected for business
written under this Agreement into a deposit-only bank account to
be established and controlled by the Customer (the "Premium Bank
Account"). Until such deposit is made, INSpire shall hold all
premium and return premium in a segregated account and shall be
deemed to have a fiduciary responsibility to the Customer to turn
over such funds to Customer.
b. Operating Account. After Customer has established and funded a
separate bank account which INSpire may draw upon to pay return
premium due policyholders (hereinafter called the "Operating
Account"), INSpire shall reconcile all disbursements from the
Operating Account each month by type and amount of disbursement
(e.g., return premium, commissions due Agents) and furnish a copy
to the Customer.
c. Reports. All reports and reconciliations to be provided to the
Customer under this Agreement (whether in hard copy or maintained
on computers) shall be forwarded within seven (7) business days
after the end of each month.
9. INSpire will provide reports reasonably requested by Customer in the
Customers ordinary course of business.
10. Commission Handling - The INSpire Servicing Office will calculate and pay
commissions to the producer on Customer's behalf, or will invoice and
receive the return of commission from the producer on return premium
transactions; the INSpire servicing office will prepare a magnetic tape
of commission data for Customer to prepare Federal 1099 tax statements
for commission paid to producers.
11. Additional reports or modifications to agreed upon reports will be
charged to the Customer on a time and materials basis utilizing the
appropriate mix of service personnel required to perform the
modifications or produce new reports. Rates for such personnel are listed
in exhibit II.
B. AUTHORIZED LINES OF BUSINESS:
Personal Lines:
Automobile, Dwelling Fire, Homeowners, Inland Marine, Non-Standard Auto,
Umbrella.
C. AUTHORIZED STATES:
Alabama, Idaho, Louisiana, New Mexico, Oregon and Texas and such other
jurisdictions as the parties may from time to time agree upon.
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D. LOCATION OF PROVISION OF SERVICES:
INSpire shall provide the Services defined above at a INSpire service
center designated by INSpire.
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<PAGE> 13
EXHIBIT II
SERVICE RATES
CONSULTANTS $125.00 per hour
PROGRAMMERS $125.00 per hour
POLICY ADMINISTRATION SERVICES
$6.68 per month, per in-force policy.
Policy administration fees are subject to a minimum of $100,000 per
month, during which services are provided.
SPECIAL FEES
When requested and authorized by the Customer, processing system
modifications will be charged to the Customer on a time and materials
basis utilizing the appropriate mix of service personnel required to
perform the modifications. Hourly rates for such personnel are listed
above.
TRAVEL
Customer will reimburse INSpire for all travel necessary for work
performed under this agreement.
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<PAGE> 1
EXHIBIT 10.51
SECOND AMENDED INFORMATION SERVICES CONTRACT
THIS SECOND AMENDED INFORMATION SERVICES CONTRACT ("Agreement") dated
as of October 1, 1997, is made by and between The Millers Mutual Fire Insurance
Company, a Texas mutual insurance company ("Millers Mutual"), The Millers
Casualty Insurance company, a Texas insurance company ("Millers Casualty"), and
INSpire Insurance Solutions, Inc., a Texas corporation formally known as
MiliRisk, Inc. ("INSpire"), and together with Millers Mutual and Millers
Casualty, the ("Parties").
PRELIMINARY STATEMENTS
A. Millers Mutual, INSpire and Millers Casualty are parties to an
Amended Information Services Contract, (the "Prior Services
Contract"), pursuant to which INSpire provides certain
information system services to Millers Mutual and Millers
Casualty.
B. Millers Mutual, INSpire and Millers Casualty desire to amend
in its entirety the Prior Services Contract.
C. Millers Mutual and Millers Casualty desire to procure certain
information system services from INSpire in correction with
the business of Millers Mutual and Millers Casualty and
INSpire is willing to provide such services.
NOW, THEREFORE, in consideration of the foregoing preliminary
statements and the mutual covenants and agreements contained herein, the parties
hereto, intending to be legally bound hereby, agree as follows:
STATEMENT OF AGREEMENT
ARTICLE I.
DEFINITIONS
Unless the context otherwise require, the terms defined in this Article
I shall, for the purpose of this Agreement, have the meanings herein specified:
"Effective Date" means October 1, 1997.
"Fiscal Year" shall mean the period from January 1 through December 31
of each year.
"Terms of Agreement" means the period from the Effective Date until the
Agreement is terminated pursuant to Article 5.
<PAGE> 2
ARTICLE II.
DUTIES AND OBLIGATIONS OF INSPIRE
Section 2.1 Information System Services: INSpire shall provide
information system services for and on behalf of Millers Mutual and Millers
Casualty which shall include, but shall not be limited to:
(a) Telecommunications services;
(b) Hardware services,
(c) Application software services;
(d) System software services;
(e) Network services;
(f) System integration services.
ARTICLE III.
COMPENSATION. EXPENSES AND PAYMENT
Section 3.1 Fees. The compensation due INSpire from Millers Mutual and
Millers Casualty for services provided pursuant to Section 2.1 of this agreement
is as follows:
<TABLE>
<CAPTION>
Category A* Category B**
PERCENT OF DIRECT PERCENT OF NET
CALENDAR YEAR WRITTEN PREMIUM WRITTEN PREMIUM MONTHLY MINIMUM
<S> <C> <C> <C>
1997 6.0% 6.0% $375,000
1998 5.5% 5.5% $300,000
1999-2001 5.0% 5.0% $275,000
</TABLE>
* Category A represents premiums written by Millers Mutual and Millers
Casualty for which Millers Mutual and Millers Casualty utilize the
services provided pursuant to Section 2.1 to process policies and/or
claims.
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<PAGE> 3
** Category B represents premiums written by Millers Mutual and Millers
Casualty for which Millers Mutual and Millers Casualty utilize the
services provided pursuant to Section 2.1 to process management and
bureau report processing only.
At the request and approval of Millers Mutual and Millers Casualty, INSpire will
make modifications to INSpire supplied application software. Work will be done
at a rate of $130.00 per hour. Cost for any modifications required by Millers
Mutual and Millers Casualty of application software licensed by Millers Mutual
or Millers Casualty from sources other than INSpire will be the responsibility
of Millers Mutual and Millers Casualty.
Section 3.2 Invoicing and Payment. INSpire shall bill Millers Mutual
and Millers Casualty monthly for services within 15 days after the end of each
calendar month during the Term of Agreement. Payment shall be made by Millers
Mutual and Millers Casualty within 30 days after the delivery of such invoice.
Section 3.3 Late Payment. Any amount owing from Millers Mutual and/or
Millers Casualty to INSpire that has not been paid by the due date shall be
subject to a late payment charge of 1% per month.
ARTICLE IV.
ACCESS TO INFORMATION, BOOK AND RECORDS
INSpire and its duly authorized representatives shall have access, to
the extent necessary to perform the services pursuant to Section 2.1, to each of
Millers Mutual and Millers Casualty' s offices, facilities, application software
and records wherever located, in order to discharge INSpire's responsibilities
hereunder; provided, however, Millers Mutual and Millers Casualty shall provide
and make available to INSpire and its duly authorized representatives at
INSpire's Fort Worth, Texas, USA offices, at INSpire's request, all such records
required by INSpire to perform its duties pursuant to this Agreement. All
records and materials furnished to INSpire by Millers Mutual and Millers
Casualty in performance of this Agreement shall at all times during the Term of
Agreement remain the property of Millers Mutual and Millers Casualty, as
appropriate.
ARTICLE V.
TERM AND TERMINATION OF THE AGREEMENT
Section 5.1 Initial Term. This Agreement shall be effective from the
Effective Date and shall continue for five years hereafter (the "Initial Term");
subject, however, to the terms of Section 5.2 hereof. At the end of the Initial
Term, this Agreement shall continue in force and effect for subsequent three (3)
year periods unless terminated by any Party by written notice at least 180 days
prior to the anniversary date of the Effective Date.
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<PAGE> 4
Section 5.2 Termination. This Agreement may be sooner terminated on the
first to occur of the following:
a. Termination by Mutual Agreement
In the event the Parties shall mutually agree in writing, this
Agreement may be terminated on the terms and dates stipulated
therein.
b. Uncorrected Material Breach
In the event any Party shall fail to discharge any of its
material obligations hereunder, or shall commit a material
breach of this Agreement, and such default or breach shall
continue for a period of sixty (60) days after any other Party
has served notice of such default, this Agreement may then be
terminated at the option of any nonbreaching Party by notice
thereof to the breaching Party.
Section 5.3 Effects of Termination. Except for covenants or other
provisions herein that, by their terms, expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the Term of
Agreement.
Section 5.4 Reimbursement by INSpire. In the event of termination under
this Agreement, INSpire shall reimburse Millers Mutual and Millers Casualty
within 30 days after such termination for fees paid by Millers Mutual and
Millers Casualty but unearned by INSpire.
Section 5.5 Force Majeure. If any Party shall be prevented from
performing any portion of this Agreement (except the payment of money) by causes
beyond its control, including labor disputes, civil commotion, war, governmental
regulations or controls, casualty, inability to obtain material or services or
acts of God, the defaulting party shall be excused from performance for the
period of the delay and for a reasonable time thereafter.
ARTICLE VI.
INDEMNIFICATION OF INSPIRE
Section 6.1 Limitation of Liability. In providing services hereunder,
INSpire shall have a duty to act and cause its affiliates and designees to act,
in a reasonably prudent manner. Neither INSpire, nor any officer, director,
employee or agent of INSpire shall be liable to Millers Mutual and/or Millers
Casualty for any error of judgement or for any loss incurred by Millers Mutual
and/or Millers Casualty in connection with the matters to which this Agreement
relates, except a loss resulting from the gross negligence or willful misconduct
on the part of INSpire.
Section 6.2 Indemnification. Millers Mutual and Millers Casualty hereby
agree to indemnify and hold harmless INSpire from and against any and all
claims, causes of action, liabilities, damages, costs, charge, fees, expenses
(including reasonable attorney's fees and expenses to be reimbursed as
incurred), suits, orders, judgements, adjudications and losses of
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<PAGE> 5
whatever nature and kind which INSpire or its affiliates or designees or for
which INSpire or its affiliates or designees become liable as the result of the
performance of INSpire's obligations and duties pursuant to this Agreement;
provided, INSpire shall not be indemnified for gross negligence or willful
misconduct on the part of INSpire.
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Relationship of Parties. This Agreement does not create a
partnership, joint venture or association; nor does this Agreement or the
operations hereunder, create the relationship of lessor and lessee or bailor and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever be construed to create a partnership, joint venture or
association, or the relationship of lessor and lessee or bailor and bailee, or
to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the Parties. Specifically, but not by way of
limitation, except as otherwise expressly provided for herein, nothing contained
herein shall be construed as imposing any responsibility on INSpire for the
debts or obligations of Millers Mutual or Millers Casualty or any of its
affiliates. It is hereby expressly understood that INSpire is hereby engaged by
Millers Mutual and Millers Casualty to provide information system services as an
agent of Millers Mutual and Millers Casualty. INSpire, its affiliates and
designees shall have the right to render similar services for other business
entities and persons, including its own, whether or not engaged in the same
business as Miller's Mutual or Millers Casualty, and may enter into such other
business activities as INSpire and its affiliates, in their sole discretion, may
determine.
Section 7.2 No Third Party Beneficiaries. Except to the extent a third
party is expressly given rights herein, any agreement herein contained,
expressed or implied, shall be only for the benefit of the Parties and their
respective legal representatives, successors and assigns, and such agreements or
assumptions shall not inure to the benefit of any other party whomsoever, it
being the intention of the parties hereto that no person or entity shall be
deemed a third party beneficiary of this Agreement except to the extent a third
party is expressly given rights herein.
Section 7.3 General Representations. Each Party represents and warrants
that on the Effective Date: (i) it is a corporation, duly established, validly
existing and in good standing under the laws of its state or jurisdiction on
incorporation, with power and authority to any on the business in which it is
engaged and to perform its respective obligations under this Agreement; (ii) the
execution and delivery of this Agreement have been duly authorized and approved
by all requisite corporate actions; (iii) it has all the requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder; and (iv) the execution and delivery of this Agreement do not, and
consummation of the transactions contemplated herein will not, violate any of
the provisions of its charter or bylaws or any applicable state or federal laws
applicable to them.
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<PAGE> 6
Section 7.4 Assignment. No assignment of this Agreement or any of the
rights or obligations set forth herein by any Party shall be valid without the
specific written consent of the other Parties.
Section 7.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, mailed by first class mail postage prepaid and return receipt
requested or sent by recognized overnight delivery service or facsimile
transmission to the address below indicated:
If to Millers Mutual: The Millers Mutual Fire Insurance Company
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: Joy Keller
Facsimile: 817.348.3765
If to Millers Casualty: The Millers Casualty Insurance Company
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: Joy Keller
Facsimile: 817.348.3765
If to INSpire: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76l02-2799
Attn: Terry G. Gaines
Facsimile: 817.348.3786
Or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Notice
so given shall, in the case of notice so given by mail, be deemed to be given
and received on the fourth calendar day after posting, in the case of notice so
given by recognized overnight delivery service on the date of actual delivery
and, in the case of notice so given by facsimile transmission or personal
delivery, on the date of actual transmission or, as the case may be, personal
delivery.
Section 7.6 Failure to Pursue Remedies. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 7.7 Cumulative Remedies. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights and parties
may have by law, statute, ordinance or otherwise.
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Section 7.8 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
Section 7.9 Interpretation. Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles," "Sections"
and paragraphs shall refer to corresponding provisions of this Agreement.
Section 7.10 Headings. Headings are solely for convenience and ease of
reference and are not to be considered in the construction or interpretation of
any provision of this Agreement.
Section 7.11 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted unless such invalid or unenforceable
provision affects the fundamental purpose of this Agreement.
Section 7.12 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties hereto had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. This Agreement may also be executed and
delivered by exchange of facsimile transmissions of originally executed copies.
Section 7.13 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
Section 7.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF TEXAS.
Section 7.15 Arbitration.
(a) To the fullest extent permitted by law, any controversy or
claim arising out of or relating to any alleged breach shall
be resolved by arbitration by a panel of three (3) arbitrators
under the American Arbitration Association ("AAWA")
Arbitration Rules in force ( the "AAA Rules") in accordance
with the following:
(1) In the event of any conflict between the AAA Rules and the
provisions of this Agreement, the provision of this Agreement
shall prevail.
(2) Either party may refer a matter to arbitration by written
notice to the other party by giving notice as provided in this
Agreement.
7
<PAGE> 8
(3) The place of the arbitration shall be in Fort Worth, Texas.
(4) The claimant party shall appoint one arbitrator and the
respondent party shall appoint one arbitrator and the two
arbitrators so appointed shall appoint the third arbitrator,
in accordance with the AAA Rules. In the event of an inability
to agree on a third arbitrator, the appointing authority shall
be the AAA.
(5) The decision of the arbitrators shall be made by majority
vote and shall be in writing.
(6) The decision of the arbitrators shall be final and binding on
the parties save in the event of fraud, manifest mistake or
failure by any of the arbitrators to disclose any conflict of
interest.
(7) The decision of the arbitrators may be enforced by any court
of competent jurisdiction and may be executed against the
person and assets of the losing party in any jurisdiction.
(b) In the event any dispute is submitted to arbitration pursuant
to Section 7.15(a) above, the panel of arbitrators may, if it
deems such award appropriate, award a party costs and expenses
incurred by such party in enforcing its rights. Except as so
awarded, each party shall bear its own costs and expenses of
enforcing its rights to arbitrate under this Section 7.15.
(c) Except for arbitration proceedings pursuant to Section 7.15(a)
above, no action (other that the enforcement of any
arbitration decision) or lawsuit shall be brought by or
between INSpire and Millers Mutual and Millers Casualty
concerning or arising out of this Agreement.
Section 7.16 Agreement to Perform Necessary Acts. Each party agrees to
perform any further acts and execute and deliver any and all further documents
and/or instruments, which may be reasonable necessary to carry out the
provisions of this Agreement and the transactions contemplated hereby.
(SIGNATURE PAGE TO FOLLOW)
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
THE MILLERS MUTUAL FIRE
INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
THE MILLERS CASUALTY
INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
INSPIRE INSURANCE SOLUTIONS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
S-1
<PAGE> 1
EXHIBIT 10.52
AMENDMENT NO. 1
EFFECTIVE: OCTOBER 1, 1997
to the
POLICY LIFE CYCLE
SERVICES AGREEMENT
(THE "AGREEMENT")
by and between
INSPIRE INSURANCE SOLUTIONS, INC., formally known as
MILLERS INTEGRATED CLAIMS RESOURCES, INC.,
("INSPIRE")
and
THE MILLERS CASUALTY INSURANCE COMPANY
("CUSTOMER")
WHEREAS, INSpire and Customer have entered into the Agreement for the
administration of certain insurance policies to be issued by Customer;
WHEREAS, Customer desires to have INSpire provide additional services;
WHEREAS, the parties, as a result, have agreed to amend the Agreement;
NOW, THEREFORE, Customer and INSpire hereby agree that, effective October 1,
1997, the fees for Policy Life Cycle Services hereunder shall be increased to
6.25% of direct Written Premium subject to a $56.00 INSpire will provide
underwriting processing services for said policies according to Customer's
defined underwriting rules.
The provisions of the Agreement shall remain otherwise unchanged.
INSPIRE AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENT THAT THEY
HAVE READ THIS AMENDMENT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS.
INSPIRE INSURANCE SOLUTIONS, INC. THE MILLERS CASUALTY INSURANCE CO.
By: By:
-------------------------------- -----------------------------------
Name: Name:
------------------------------- ---------------------------------
Title: Title
----------------------------- ---------------------------------
Date: Date:
------------------------------ ---------------------------------
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT TO THE INSPIRE INSURANCE SOLUTIONS, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
This First Amendment to the INSpire Insurance Solutions, Inc. Amended
and Restated 1997 Stock Option Plan (the "Plan") hereby amends the Plan as
follows effective as of July 30, 1997 (the "Effective Date"):
1. Section 5.4(a) of the Plan shall be amended by the addition of the
following language at the end thereof:
The foregoing notwithstanding, the Committee may permit in an Option
Agreement, at the time of the grant of an Option or by later amendment
to an Option Agreement, an alternative exercise of an Option by a
"cashless exercise" with a broker or by the surrender of the Option, if
the Committee so permits, in exchange for an amount, payable in cash or
shares of Common Stock (except for fractional shares which shall be
paid in cash) valued at Fair Market Value as of the date of such
surrender, that is equal to the difference between (i) the aggregate
Fair Market Value of the shares subject to the portion of the Option
being exercised, minus (ii) the total exercise price for the portion of
the Option being exercised. In the applicable Option Agreement the
Committee may require an Optionee to accept either cash or shares in
settlement of any Option so surrendered or may permit the Optionee to
request, subject to Committee approval, cash or shares to be received
in settlement. Withholding upon such an alternative exercise shall be
effected by any lawful means approved by the Committee and agreed to
with Optionee.
2. Section 5.5(a) of the Plan shall be amended in its entirety to
read as follows:
A "Change of Control" for purposes of this Plan shall mean: (i) the
acquisition, by a single entity (or group of affiliated entities) that
is not directly or indirectly controlled by the existing shareholders,
of more than 50% of the Common Stock issued and outstanding immediately
prior to such acquisition; or (ii) the dissolution or liquidation of
the Company or the consummation of any merger or consolidation of the
Company or any sale or other disposition of all or substantially all of
its assets, if the shareholders of the Company immediately before such
transaction own directly or indirectly, immediately after consummation
of such transaction, equity securities (other than options and other
rights to acquire equity securities) possessing less than 50% of the
voting power of the surviving or acquiring corporation. All adjustments
under this Section shall be made by the Committee, whose determination
as to what adjustments shall be made and the extent thereof shall be
final, binding and conclusive for all purposes of the Plan and of each
Option Agreement.
3. The second sentence of Section 2.1(h) of the Plan shall be
amended to read to as follows:
<PAGE> 2
For options approved at such times as the Common Stock is not reported
or quoted by any such organization (including options approved prior to
the initial public stock offering of the Company), the fair market
value of the shares of Common Stock shall be the fair market value
thereof determined in good faith by the Committee.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
-----------------------------------------
F. George Dunham, III
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.54
AMENDED AND RESTATED
BENEFITS ADMINISTRATION CONTRACT
THIS AMENDED AND RESTATED BENEFITS ADMINISTRATION CONTRACT
("Agreement") dated as of January 1, 1998, is made by and between INSpire
Insurance Solutions, Inc. a Texas corporation ("INSpire"), and The Millers
Mutual FIRE Insurance Company, a Texas mutual insurance company ("Millers
Mutual," and together with INSpire, the "Parties").
PRELIMINARY STATEMENTS
A. Millers Mutual and INSpire are parties to a Benefits Administration
Contract, dated as of July 1, 1997 (the "Prior Agreement"), pursuant to which
Millers Mutual performs certain services for and on behalf of INSpire.
B. The employees of Millers Mutual have become employees of INSpire.
C. Millers Mutual and INSpire desire to amend in its entirety the Prior
Agreement.
D. Millers Mutual desires to procure certain services from INSpire in
connection with the business of Millers Mutual and INSpire is willing to
provide such services.
NOW, THEREFORE, in consideration of the foregoing preliminary statements,
the mutual covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree to amend and restate in its
entirety the Prior Agreement as follows:
STATEMENT OF AGREEMENT
ARTICLE I.
DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article I
shall, for the purposes of this Agreement, have the meanings herein specified:
"Effective Date" means January 1, 1998.
"Fiscal Year" shall mean the period from January 1 through December 31 of
each year.
"Term of Agreement" means the period from the Effective Date until the
Agreement is terminated pursuant to Article 5.
1
<PAGE> 2
ARTICLE II.
DUTIES AND OBLIGATIONS OF MILLERS MUTUAL
Section 2.1 Benefits Administration Services. INSpire shall provide
administrative and support services for and on behalf of Millers Mutual and its
subsidiaries which shall include payroll and benefits administration. INSpire
shall make available facilities and equipment as Millers Mutual may determine
to be reasonably necessary in the conduct of its business including, but not
limited to, business property and communications equipment, whether owned or
leased.
ARTICLE III.
COMPENSATION, EXPENSES AND PAYMENT
Section 3.1 Fee. The compensation due INSpire from Millers Mutual for
services provided pursuant to Section 2.1 of this Agreement shall be a monthly
fee of $15,000 (the "Monthly Fee").
Section 3.2 Invoicing and Payment. INSpire shall bill Millers Mutual
monthly for the Monthly Fee within 15 days after the end of each calendar month
during the Term of Agreement. Payment shall be made by Millers Mutual within 30
days after the delivery of such invoice.
Section 3.3 Late Payment. Any amount owing from Millers Mutual to INSpire
that has not been paid by the due date shall be subject to a late payment charge
of 1% per month.
ARTICLE IV.
ACCESS TO INFORMATION, BOOKS AND RECORDS
INSpire and its duly authorized representatives shall have access, to the
extent necessary to perform the services pursuant to Section 2.1, to Millers
Mutual's offices, facilities and records wherever located, in order to
discharge INSpire's responsibilities hereunder; provided, however, Millers
Mutual shall provide and make available to INSpire and its duly authorized
representatives at INSpire's Fort Worth, Texas, USA offices, at INSpire's
request, all such records required by INSpire to perform its duties pursuant to
this Agreement. All records and materials furnished to INSpire by Millers
Mutual in performance of this Agreement shall at all times during the Term of
Agreement remain the property of Millers Mutual.
ARTICLE V.
TERM AND TERMINATION OF THE AGREEMENT
Section 5.1 Initial Term. This agreement shall be effective from the
Effective Date and shall continue for three (3) years thereafter (the "Initial
Term"); subject, however, to the
2
<PAGE> 3
terms of Section 5.2 hereof. At the end of the Initial Term, this Agreement
shall continue in force and effect for subsequent one (1) year periods unless
terminated by either Party by written notice at least sixty (60) days prior to
the anniversary date of the Effective Date.
Section 5.2 Termination. This Agreement may be sooner terminated on the
first to occur of the following:
(a) Termination by Mutual Agreement
In the event the Parties shall mutually agree in writing,
this Agreement may be terminated on the terms and dates
stipulated therein.
(b) Uncorrected Material Breach
In the event either Party shall fail to discharge any of its
material obligations hereunder, or shall commit a material
breach of this Agreement, and such default or breach shall
continue for a period of thirty (30) days after the other
Party has served notice of such default, this Agreement may
then be terminated at the option of the non-breaching Party
by notice thereof to the breaching Party.
Section 5.3 Effects of Termination. Except for covenants or other
provisions herein that, by their terms, expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the Term of
Agreement.
Section 5.4 Reimbursement by INSpire. In the event of termination
under this Agreement, INSpire shall reimburse Millers Mutual within 30 days
after such termination for fees paid by Millers Mutual but unearned by INSpire.
Section 5.5 Force Majeure. If either Party shall be prevented from
performing any portion of this Agreement (except the payment of money) by
causes beyond its control, including labor disputes, civil commotion, war,
governmental regulations or controls, casualty, inability to obtain material
or services or acts of God, the defaulting party shall be excused from
performance for the period of the delay and for a reasonable time thereafter.
ARTICLE VI.
INDEMNIFICATION OF MILLERS MUTUAL
Section 6.1 Limitation of Liability. In providing services hereunder,
INSpire shall have a duty to act, and cause its affiliates and designees to act,
in a reasonably prudent manner. Neither INSpire, nor any officer, director,
employee or agent of INSpire shall be liable to Millers Mutual for any error of
judgment or for any loss incurred by Millers Mutual in connection with the
matters to which this Agreement relates, except a loss resulting from the gross
negligence or willful misconduct on the part of INSpire.
3
<PAGE> 4
Section 6.2 Indemnification. Millers Mutual hereby agrees to indemnify and
hold harmless INSpire from and against any and all claims, causes of action,
liabilities, damages, costs, charges, fees, expenses (including reasonable
attorneys' fees and expenses to be reimbursed as incurred), suits, orders,
judgments, adjudications and losses of whatever nature and kind which INSpire
or its affiliates or designees or for which INSpire or its affiliates or
designees become liable as the result of the performance of INSpire's
obligations and duties pursuant to this Agreement; provided, INSpire shall not
be indemnified for gross negligence or willful misconduct on the part of
INSpire.
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Relationship Of Parties. This Agreement does not create a
partnership, joint venue or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor
and bailee. Nothing contained in this Agreement or in any agreement made
pursuant hereto shall ever be construed to create a partnership, joint venture
or association, or the relationship of lessor and lessee or bailor and bailee,
or to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the Parties. Specifically, but not by way of
limitation, except as otherwise expressly provided for herein, nothing contained
herein shall be construed as imposing any responsibility on INSpire for the
debts or obligations of Millers Mutual or any of its affiliates. It is hereby
expressly understood that INSpire is hereby engaged by Millers Mutual to
provide benefits administration services as an agent of Millers Mutual.
INSpire, its affiliates and designees shall have the right to render similar
services for other business entities and persons, including its own, whether or
not engaged in the same business as Millers Mutual, and may enter into such
other business activities as INSpire and its affiliates, in their sole
discretion, may determine.
Section 7.2 No Third Party Beneficiaries. Except to the extent a third
party is expressly given rights herein, any agreement herein contained,
expressed or implied, shall be only for the benefit of the Parties and their
respective legal representatives, successors and assigns, and such agreements
or assumption shall not inure to the benefit of any other party whomsoever, it
being the intention of the Parties hereto that no person or entity shall be
deemed a third party beneficiary of this Agreement except to the extent a third
party is expressly given rights herein.
Section 7.3 General Representations. Each Party represents and warrants
that on the Effective Date: (i) it is a corporation, duly established, validly
existing and in good standing under the laws of its state or jurisdiction of
incorporation, with power and authority to carry on the business in which it is
engaged and to perform its respective obligations under this Agreement; (ii)
the execution and delivery of this Agreement have been duly authorized and
approved by all requisite corporate action; (iii) it has all the requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder; and (iv) the execution and delivery of this Agreement do
not, and consummation of the transactions contemplated herein will not, violate
any of the provisions of its charter or bylaws or any applicable state or
federal laws applicable to them.
4
<PAGE> 5
Section 7.4 Assignment. No assignment of this Agreement or any of the
rights or obligations set forth herein by either Party shall be valid without
the specific written consent of the other Party.
Section 7.5 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by first class mail postage prepaid and return receipt
requested or sent by recognized overnight delivery service or facsimile
transmission to the address below indicated:
If to INSpire: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: Terry Gaines
Facsimile: (817) 348-3786
If to Millers Mutual: The Millers Mutual, Fire Insurance Company
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: Joy J. Keller
Facsimile: (817) 348-3765
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Notice
so given shall, in the case of notice so given by mail, be deemed to be given
and received on the fourth calendar day after posting, in the case of notice so
given by recognized overnight delivery service, on the date of actual delivery
and, in the case of notice so given by facsimile transmission or personal
delivery, on the date of actual transmission or, as the case may be, personal
delivery.
Section 7.6 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would
have originally constituted a violation, from having the effect of an original
violation.
Section 7.7 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
Section 7.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
Section 7.9 Interpretation. Throughout this Agreement, nouns, pronouns and
verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles," "Sections"
and paragraphs shall refer to
5
<PAGE> 6
corresponding provisions of this Agreement.
SECTION 7.10 HEADINGS. Headings are solely for convenience and ease of
reference and are not to be considered in the construction or interpretation of
any provision of this Agreement.
SECTION 7.11 SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision were omitted unless such invalid or
unenforceable provision affects the fundamental purpose of this Agreement.
SECTION 7.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties hereto had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. This Agreement may also be executed and
delivered by exchange of facsimile transmissions of originally executed copies.
SECTION 7.13 INTEGRATION. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
SECTION 7.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF TEXAS.
SECTION 7.15 ARBITRATION.
(a) To the fullest extent permitted by law, any controversy or claim
arising out of or relating to any alleged breach shall be resolved by
arbitration by a panel of three (3) arbitrators under the American Arbitration
Association ("AAA") Arbitration Rules in force (the "AAA Rules") in accordance
with the following:
(1) In the event of any conflict between the AAA Rules and the
provisions of this Agreement, the provisions of this Agreement shall
prevail.
(2) Either party may refer a matter to arbitration by written notice to
the other party by giving notice as provided in this Agreement.
(3) The place of the arbitration shall be Fort Worth, Texas.
(4) The claimant party shall appoint one arbitrator and the respondent
party shall appoint one arbitrator, and the two arbitrators so
appointed shall appoint the third arbitrator, in accordance with
the AAA Rules. In the event of an inability to agree on a third
arbitrator, the appointing authority shall be the AAA.
(5) The decision of the arbitrators shall be made by majority vote and
shall be in
6
<PAGE> 7
writing.
(6) The decision of the arbitrators shall be final and binding on the
parties save in the event of fraud, manifest mistake or failure by
any of the arbitrators to disclose any conflict of interest.
(7) The decision of the arbitrators may be enforced by any court of
competent jurisdiction and may be executed against the person and
assets of the losing party in any jurisdiction.
(b) In the event any dispute is submitted to arbitration pursuant to
Section 7.15(a) above, the panel of arbitrators may, if it deems such award
appropriate, award a party costs and expenses incurred by such party in
enforcing its rights. Except as so awarded, each party shall bear its own costs
and expenses of enforcing its rights to arbitrate under this Section 7.15.
(c) Except for arbitration proceedings pursuant to Section 7.15(a) above,
no action (other than the enforcement of any arbitration decision) or lawsuit
shall be brought by or between Millers Mutual and INSpire concerning or arising
out of this Agreement.
Section 7.16 Agreement to Perform Necessary Acts. Each party agrees to
perform any further acts and execute and deliver any and all further documents
and/or instruments which may be reasonably necessary to carry out the
provisions of this Agreement and the transactions contemplated hereby.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
INSPIRE INSURANCE SOLUTIONS, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
THE MILLERS MUTUAL FIRE
INSURANCE COMPANY
By: __________________________________
Name: ________________________________
Title: _______________________________
8
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic
Average shares outstanding .................. 7,000 7,000 8,137
---------- ---------- ----------
Total ....................................... 7,000 7,000 8,137
Net income (loss) ........................... $ (1,262) $ (515) 1,716
========== ========== ==========
Per share amount ............................ $ (0.18) $ (0.07) 0.21
========== ========== ==========
Diluted
Average shares outstanding .................. 7,000 7,000 8,137
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 ......................... 749 749 645
---------- ---------- ----------
Total ....................................... 7,749 7,749 8,782
========== ========== ==========
Net income (loss) ........................... $ (1,262) $ (515) 1,716
========== ========== ==========
Per share amount ............................ $ (0.16) $ (0.07) 0.20
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of INSpire Insurance
Solutions, Inc. (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) on Form S-1 of our report dated January 19, 1998 on the
financial statements of INSpire Insurance Solutions, Inc., appearing in the
Prospectus, which is a part of this Registration Statement and we also consent
to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
March 5, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of INSpire Insurance
Solutions, Inc. (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) on Form S-1 of our report dated July 2, 1997 on the
consolidated financial statements of Strategic Data Systems, Inc. and
subsidiary, appearing in the Prospectus, which is a part of this Registration
Statement and we also consent to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
March 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 28,039
<SECURITIES> 0
<RECEIVABLES> 11,353
<ALLOWANCES> 303
<INVENTORY> 0
<CURRENT-ASSETS> 42,327
<PP&E> 14,244
<DEPRECIATION> 8,214
<TOTAL-ASSETS> 65,471
<CURRENT-LIABILITIES> 11,951
<BONDS> 0
0
0
<COMMON> 102
<OTHER-SE> 48,664
<TOTAL-LIABILITY-AND-EQUITY> 65,471
<SALES> 0
<TOTAL-REVENUES> 56,569
<CGS> 0
<TOTAL-COSTS> 56,036
<OTHER-EXPENSES> 1,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348
<INCOME-PRETAX> 2,517
<INCOME-TAX> 801
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,716
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
