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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(3)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INSPIRE INSURANCE SOLUTIONS, INC.
(Name of Registrant As Specified in its Charter)
---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $___________
(4) Proposed maximum aggregate value of transaction: $___________
(5) Total fee paid: $___________
[ ] Fee paid previously with preliminary materials: $_____________
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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INSPIRE INSURANCE SOLUTIONS, INC.
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
NOTICE OF THE 1998 ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD APRIL 21, 1998
To the Shareholders
of INSpire Insurance Solutions, Inc.:
INSpire Insurance Solutions, Inc., a Texas corporation (the "Company"),
cordially invites you to attend the 1998 annual meeting of its shareholders at
the Worthington Hotel, 200 Main Street, Fort Worth, Texas 76102, on April 21,
1998, at 10:00 a.m. local time, for the following purposes:
(1) To elect one director to the class of directors whose
three-year term will expire in 2001;
(2) To consider and vote upon a proposal to approve and
ratify the Company's Second Amended and Restated 1997
Stock Option Plan;
(3) To consider and vote upon a proposal to amend the
Company's 1997 Director Stock Option Plan;
(4) To consider and vote upon a proposal to authorize any
officer or officers of the Company to negotiate, and
to cause the Company to enter into, a lease agreement
with respect to certain office space used by the
Company;
(5) To ratify the appointment of Deloitte & Touche LLP as
the independent auditors of the Company's financial
statements for the year ended December 31, 1998; and
(6) To transact such other business as may properly come
before the Annual Meeting or any adjournments
thereof.
The Board of Directors of the Company has established the close of
business on March 2, 1998 as the record date for determining the shareholders
entitled to notice of and to vote at the annual meeting or any adjournment
thereof. Any shareholder may examine the list of shareholders as of the record
date at the offices of the Company in Fort Worth, Texas, during regular business
hours on any business day prior to the annual meeting or any adjournment
thereof.
A description of certain of the Company's activities during 1997 and
the Company's financial statements for the year ended December 31, 1997 are
contained in the accompanying 1997 Annual Report and Form 10-K. The Annual
Report and Form 10-K do not form any part of the material for solicitation of
proxies.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE ANNUAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED. IF A SHAREHOLDER WHO HAS SUBMITTED A PROXY ATTENDS THE ANNUAL MEETING
IN PERSON, SUCH SHAREHOLDER MAY REVOKE THE PROXY AND VOTE IN PERSON ON ALL
MATTERS SUBMITTED AT THE ANNUAL MEETING.
By Order of the Board of Directors,
F. George Dunham, III
President, Chief Executive Officer
and Chairman of the Board of Directors
April 1, 1998
Fort Worth, Texas
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INSPIRE INSURANCE SOLUTIONS, INC.
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
PROXY STATEMENT
1998 ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD APRIL 21, 1998
INTRODUCTION
The board of directors (the "Board of Directors") of INSpire Insurance
Solutions, Inc., a Texas corporation (the "Company"), hereby solicits your proxy
on behalf of the Company for use at the 1998 annual meeting of the Company's
shareholders and any continuation of such meeting pursuant to any adjournment
thereof (the "Annual Meeting"). The Annual Meeting will be held at the
Worthington Hotel, 200 Main Street, Fort Worth, Texas 76102, on April 21, 1998,
at 10:00 a.m. local time.
The Company's principal executive office is located at 300 Burnett
Street, Fort Worth, Texas 76102-2799. The Company's telephone number is (817)
348-3999.
The Company will mail this proxy statement (this "Proxy Statement") and
the accompanying proxy card (the "Proxy Card") on or about April 1, 1998. The
date of this Proxy Statement is April 1, 1998.
PURPOSES OF THE ANNUAL MEETING
At the Annual Meeting, the holders of record (the "Shareholders") of
shares of common stock, par value $0.01 per share (the "Common Stock"), of the
Company on March 2, 1998 will vote upon the following matters:
(1) The proposal to elect R. Earl Cox, III as director to
the Company's Board of Directors for a term of three
(3) years;
(2) The proposal to approve and ratify the Company's
Second Amended and Restated 1997 Stock Option Plan;
(3) The proposal to amend the Company's 1997 Director
Stock Option Plan;
(4) The proposal to authorize any officer or officers of
the Company to negotiate, and to cause the Company to
enter into, a lease agreement with respect to certain
office space used by the Company;
(5) The ratification of the appointment by the Board of
Directors of Deloitte & Touche LLP as the independent
auditors of the Company's financial statements for
the year ended December 31, 1998; and
(6) The transaction of such other business as may properly
come before the Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that you vote "FOR" each of:
(1) The election of R. Earl Cox, III as director to the
Company's Board of Directors for a term of three (3)
years;
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(2) The approval and ratification of the Company's Second
Amended and Restated 1997 Stock Option Plan;
(3) The amendment of the Company's 1997 Director Stock
Option Plan;
(4) The authorization of any officer or officers of the
Company to negotiate, and to cause the Company to
enter into, a lease agreement with respect to certain
office space used by the Company; and
(5) The ratification of the appointment by the Board of
Directors of Deloitte & Touche LLP as the independent
auditors of the Company's financial statements for
the year ended December 31, 1998.
The Millers Mutual Fire Insurance Company ("Millers Mutual"), which
owned approximately 37.8% of the Common Stock on March 2, 1998, has informed the
Board of Directors that it intends to vote "FOR" each of the proposals.
RECORD DATE AND VOTING
RECORD DATE
The Board of Directors has established the close of business on March
2, 1998 (the "Record Date"), as the record date for determining the Shareholders
entitled to notice of and to vote at the Annual Meeting. On the Record Date, the
Company had 10,224,323 shares of Common Stock outstanding. The Company did not
have any other shares of capital stock outstanding on the Record Date.
QUORUM, REQUIRED VOTE AND VOTING RIGHTS
The presence, in person or by proxy, of the Shareholders holding a
majority of the outstanding shares of Common Stock will constitute a quorum at
the Annual Meeting. Shares represented at the Annual Meeting but abstaining from
voting on any or all matters and "broker non-votes" (shares held by brokers or
nominees as to which they have no discretionary power to vote on a particular
matter and have received no instructions from the beneficial owners thereof or
persons entitled to vote thereon) will be counted for the purpose of determining
the presence of a quorum at the Annual Meeting. The election inspectors
appointed for the Annual Meeting will determine the number of shares of Common
Stock present at the meeting, determine the validity of proxies and ballots,
determine whether or not a quorum is present, and count all votes and ballots.
Unless a quorum is present at the Annual Meeting, no action may be taken at the
meeting except the adjournment thereof until a later time.
A plurality of the votes cast in person or by proxy is required to
elect the nominee for director. Therefore, abstentions will have no effect with
respect to the election of a director. A majority of the votes cast in person or
by proxy is required to: (i) approve and ratify the Company's Second Amended and
Restated 1997 Stock Option Plan; (ii) approve the amendment of the Company's
1997 Director Stock Option Plan; (iii) authorize any officer or officers of the
Company to negotiate, and to cause the Company to enter into, a lease agreement
with respect to certain office space used by the Company; and (iv) ratify the
appointment by the Board of Directors of Deloitte & Touche LLP as the
independent auditors of the Company's financial statements for the year ended
December 31, 1998. Abstentions from voting on any of these proposals will have
the effect of a negative vote with respect to such proposal because each such
proposal requires the affirmative vote of a majority of shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote thereon. Broker non-votes will be treated as not present and not entitled
to vote with respect to each applicable proposal, and therefore will have no
effect on the outcome of any of the proposals, including the election of a
director.
With respect to each proposal, each Shareholder will be entitled to one
vote per share of Common Stock held as of the Record Date by such Shareholder.
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PROXIES
F. George Dunham, III and Terry G. Gaines, the persons named as proxies
on the Proxy Card accompanying this Proxy Statement, were selected by the Board
of Directors to serve in such capacity (collectively, the "Proxyholders").
Messrs. Dunham and Gaines are officers of the Company. Each executed and
returned proxy will be voted in accordance with the directions indicated on such
Proxy Card, or if no direction is indicated, such proxy will be voted in
accordance with the recommendations of the Board of Directors contained in this
Proxy Statement.
The Board of Directors does not intend to present, and has no
information that others will present, any business at the Annual Meeting
requiring a vote on any other matter. If any other matter requiring a vote
properly comes before the Annual Meeting, the Proxyholders will vote the proxies
that they hold in accordance with their best judgment, including voting them to
adjourn the Annual Meeting to another time if a quorum is not present at the
Annual Meeting or if they believe that an adjournment thereof is in the best
interests of the Company.
Each Shareholder giving a proxy has the power to revoke it at any time
before the shares of Common Stock it represents are voted. Revocation of a proxy
is effective upon receipt, at any time before the Annual Meeting is called to
order, by the Secretary of the Company of either (i) an instrument revoking the
proxy or (ii) a duly executed proxy bearing a later date than the preceding
proxy. Additionally, a Shareholder may change or revoke a previously executed
proxy by voting in person at the Annual Meeting.
SHAREHOLDER LIST
A list of Shareholders entitled to vote at the Annual Meeting, arranged
in alphabetical order, showing the address of and number of shares registered in
the name of each Shareholder, will be open to the examination of any Shareholder
for any purpose germane to the Annual Meeting during ordinary business hours
commencing April 1, 1998, and continuing through the date of the Annual Meeting
at the principal office of the Company, 300 Burnett Street, Fort Worth, Texas,
76102-2799.
SOLICITATION AGENT AND CERTAIN REIMBURSEMENTS
The cost of solicitation of proxies will be borne by the Company. The
Company has retained Morrow & Co., Inc. (the "Solicitation Agent") to solicit
proxies in connection with the Annual Meeting. The Solicitation Agent may
solicit proxies from the Shareholders and other persons in person or by mail,
facsimile transmission, telephone, personal interview, or any other means. The
Company will pay the Solicitation Agent a fee of $2,000 and reimburse it for its
out-of-pocket expenses in connection with this solicitation. The Company also
will reimburse banks, brokers, custodians, fiduciaries, nominees, securities
dealers, trust companies, and other persons for the reasonable expenses that
they incur when forwarding this Proxy Statement and the accompanying materials
to the beneficial owners of shares of Common Stock. The directors and officers
of the Company also may solicit proxies from Shareholders and other persons by
any of the means described above. The Company will not pay these individuals any
extra compensation for their participation in this solicitation.
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PROPOSAL 1
ELECTION OF DIRECTOR
GENERAL
The Board of Directors currently consists of four directors. At the
Annual Meeting, one director is to be elected for a term of three (3) years
expiring at the annual meeting of Shareholders to be held in 2001. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEE NAMED IN THIS PROXY STATEMENT TO CONTINUE TO SERVE AS A DIRECTOR OF THE
COMPANY. See "--Nominee" below.
The three directors whose terms of office expire in 1999 and 2000 will
continue to serve after the Annual Meeting until such time as their respective
terms of office expire or their successors are duly elected and qualified. See
"--Other Directors" below.
NOMINEE
R. Earl Cox, III, age 64, has served as a director of the Company since
1996 and his current term as director expires at the 1998 Annual Meeting. Mr.
Cox also served as a director of Millers Mutual and The Millers Casualty
Insurance Company ("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.
OTHER DIRECTORS
The following persons will continue to serve as directors of the
Company after the Annual Meeting until their terms of office expire (as
indicated below) or until their successors are elected and qualified.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR TERM
NAME AGE POSITION WITH COMPANY SINCE EXPIRES
---- --- --------------------- ----- -------
<S> <C> <C> <C> <C>
F. George Dunham, III........ 39 President, Chief Executive 1995 2000
Officer, Chairman and Director
Harry E. Bartel.............. 55 Director 1996 2000
Mitch S. Wynne............... 39 Director 1997 1999
</TABLE>
Mr. Dunham 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. For 1991 to 1992, Mr. Dunham served as
Vice President - Finance of Lindsey Morden Claim Services, Inc., an insurance
claim services and administration company.
Mr. 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.
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Mr. 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.
EXECUTIVE OFFICERS
Set forth below is a table identifying executive officers of the
Company who are not identified herein as a director or nominee for director.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
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
</TABLE>
Mr. 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 Policy Management Systems Corporation ("PMSC").
Mr. 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.
Mr. Agazzi has served as Executive Vice President -- Software and
Systems of the Company since July 1997. Mr. Agazzi served as President of
Strategic Data Systems, Inc. ("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.
Mr. 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.
Mr. 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
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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.
Mr. 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 property and
casualty and life insurance companies. From 1992 to 1996, Mr. Strickland served
as Vice President Outsourcing Services for The Continuum Company, Inc. From 1988
to 1996, Mr. Strickland served as Director of Outsourcing Sales Support for
Electronic Data Systems.
MANAGEMENT
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 1996 and 1995, 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
COMPENSATION
ANNUAL COMPENSATION(1) SECURITIES
--------------------------------- UNDERLYING ALL OTHER
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 "--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.
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(4) Represents salary paid to Mr. Warrington since his employment with the
Company began on March 12, 1997. Effective March 15, 1998, Mr. Warrington
resigned as Executive Vice President--Customer Relations of the Company but
continues 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 $40,000 per year during the 20-year period
commencing on January 1, 1999 and ending on December 31, 2018.
(6) Represents salary paid to Mr. Agazzi since his employment with the Company
began on March 12, 1997.
The following table sets forth certain information concerning the
options granted to the named executive officers during 1997. Since December 31,
1997, the Company has not granted any options to any of the named executive
officers. For additional information on and certain terms of options, see
"Proposal 2--Approval and Ratification of the Second Amended and Restated 1997
Stock Option Plan."
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
% OF VALUE AT
TOTAL ASSUMED ANNUAL
OPTIONS MARKET RATES OF
NUMBER OF GRANTED PRICE STOCK PRICE
SECURITIES TO EMP. ON DATE APPRECIATION
UNDERLYING IN EXERCISE OF FOR OPTION TERM ($)(2)
OPTIONS FISCAL PRICE GRANT EXPIRATION --------------------------------
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) 32 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 Securities and
Exchange Commission (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.
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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 such options, see
"Proposal 2 --Approval and Ratification of the Second Amended and Restated 1997
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 IN-THE-
OPTIONS AT 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
Amended and Restated 1997 Stock Option Plan, as amended by the first amendment
thereto (the "Current 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 "Proposal 2--Approval and Ratification
of the Second Amended and Restated 1997 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 of 1986, as amended. 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 entered into employment agreements with Messrs.
Warrington and Agazzi that terminated in March 1998. Mr. Warrington's agreement
provides for an annual salary of $190,500, options to
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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 retired 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."
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 for 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 and Millers Mutual have reached an
agreement that provides for the assets of this plan attributable to the
Company's employees to be handled in the same manner as those assets
attributable to terminated employees who were 100% vested under such plan. 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, as
amended.
STOCK OPTION PLAN
The Company has in effect the Current Option Plan, pursuant to which
nonqualified stock options and incentive stock options may be granted to
selected officers, directors and employees of the Company. The Board of
Directors has approved, and is submitting to the Shareholders for their approval
and ratification, the Company's Second Amended and Restated 1997 Stock Option
Plan. See "Proposal 2--Approval and Ratification of the Second Amended and
Restated 1997 Stock Option Plan."
EMPLOYEE STOCK PURCHASE PLAN
In July 1997 the Board of Directors adopted the Company's 1997 Employee
Stock Purchase Plan (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
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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.
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.
MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997, the Board of Directors held
eight formal meetings. Each of the directors attended at least 75% of the
meetings of the Board of Directors and the committees of the Board of Directors
on which such director served.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee. The
Company has not established a formal nominating committee. The Audit Committee
currently 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 of
Directors the appointment of the independent certified public accountants and
reviews and approves the Company's financial statements. The Audit Committee
held two formal meetings in 1997. The Compensation Committee currently 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 certain grants of stock options. The
Compensation Committee held six formal meetings in 1997. See "Joint Report of
the Compensation Committee and the Board of Directors on Executive
Compensation."
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.
DIRECTOR COMPENSATION
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
Company's 1997 Director Stock Option Plan. For a description of the 1997
Director Stock Option Plan, and the proposed amendment thereto to be voted on at
the Annual Meeting, see "Proposal 3--Amendment to the 1997 Director Stock Option
Plan."
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JOINT REPORT OF
THE COMPENSATION COMMITTEE
AND
THE BOARD OF DIRECTORS
ON
EXECUTIVE COMPENSATION
JANUARY 29, 1998
GENERAL
Prior to July 1, 1997, the Company did not directly compensate certain
of its executive officers because certain compensation of such persons was paid
by Millers Mutual pursuant to a management agreement between the Company and
Millers Mutual. See "Certain Transactions."
Since August 1997, the date of the Company's initial public offering of
Common Stock, the Compensation Committee has been comprised of Messrs. Bartel,
Cox and Wynne, each of whom is an outside independent director and none of whom
is currently or was formerly an officer or employee of the Company or any of its
affiliates.
The Compensation Committee 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. In 1997, the Board of Directors was responsible for
grants of stock options under the Current Option Plan.
Although the Board of Directors delegated certain responsibilities as
described above to the Compensation Committee, in determining compensation for
directors, officers and other managerial personnel for 1997, the Board of
Directors as a whole either ratified the actions of the Compensation Committee
or acted directly with respect to such decisions. The Board of Directors is
comprised of Messrs. Bartel, Cox, Wynne and Dunham. Mr. Dunham abstained from
all compensation decisions with respect to himself for his service as President,
Chief Executive Officer and Chairman of the Board of Directors.
1997 COMPENSATION
Base Salary. The base salaries of executive officers are established in
consideration of the competitive market for executives of comparable levels at
companies of a comparable stage of development. In establishing base salaries
for the Company's executive officers, the Company has engaged a consulting group
(the "Consultant") to prepare independent job evaluations and market research
reports for the Company. The Consultant uses a formal compensation point factor
system that evaluates appropriate compensation for an executive position based
on the know-how and problem-solving abilities required in connection with, and
the accountability with respect to, such position. The Company obtains a salary
survey from the Consultant at least once each year to ensure that the Company's
executive compensation is competitive in the marketplace.
The Board of Directors caused the Company to enter into employment
agreements with Messrs. Dunham, Lynn, Robinson and Gaines in July 1997, the
terms of which are described above under "Management -- Employment and
Indemnification Agreements." The Board of Directors believed these contracts to
be necessary to ensure the continuation of experienced management familiar with
the Company subsequent to the initial public offering of the Common Stock. In
connection with the Company's acquisition of SDS in March 1997, SDS entered into
employment agreements with Messrs. Warrington and Agazzi. The Board of Directors
believed these contracts were necessary to facilitate the integration of the
operations of SDS with those of the Company. These employment agreements require
certain annual compensation to these individuals, which for Messrs. Dunham,
Warrington, Agazzi, Lynn and Robinson for 1997 are included in the Summary
Compensation Table set forth above. The Board of Directors believes the annual
compensation provided to each of the Company's executive officers, whether
pursuant to an employment agreement or otherwise, is commensurate with the
responsibilities, experience and individual performance of such executive
officer.
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Bonuses. The Board of Directors granted bonuses in 1997 based on the
performance of the Company and the contribution of the particular executive
officer to whom such bonus was paid. Additionally, the employment agreements of
each of Messrs. Dunham, Warrington, Agazzi, Lynn, Robinson and Gaines provide
for the payment of bonuses of up to 50% of his base salary for 1997 based on
criteria established by the Board of Directors. The amount of such bonuses for
Messrs. Dunham, Warrington, Agazzi, Lynn and Robinson for 1997 are included in
the Summary Compensation Table set forth above. The criteria considered by the
Board of Directors in awarding such bonuses included overall performance of the
Company and the individual's contribution to such performance.
Stock Options. The Board of Directors believes that equity ownership in
the Company provides important incentives to the Company's directors, officers
and significant employees to enhance the financial performance of the Company
and encourage the continued creation of shareholder value. The Current Option
Plan is also 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. Stock options are granted to the executive officers on a
discretionary basis based on the Company's performance and the executive
officer's contributions to the Company. The number of stock options granted to
each of the named executive officers in 1997 is set forth under "Management --
Executive Officers -- Option Grants in Last Fiscal Year." These grants were made
prior to or on the date of the Company's initial public offering to reward the
performance of these individuals for their past performance and to encourage
retention of these individuals in a competitive marketplace for such executive
talent. The amounts of the grants were based on each individual's
responsibilities and contributions to the Company without establishing any
specific quantitative formula.
1997 COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Dunham's base salary, bonus and grants of options were determined
in accordance with the same procedures and standards as for other executive
officers of the Company.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Prior to August 22, 1997, the Company was not subject to compliance
with Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section
162(m)"). The Compensation Committee expects all compensation paid to executive
officers subsequent to such date to be tax deductible to the Company. Section
162(m) provides that compensation in excess of $1,000,000 paid to the chief
executive officer of the Company and the four highest compensated officers of
the Company (other than the chief executive officer) cannot be deducted by the
Company for federal income tax purposes unless, in general, such compensation is
performance based, is established by a committee of outside directors, is
objectively determined and the plan or agreement providing for such
performance-based compensation is approved by shareholders. In the future,
however, the Compensation Committee may determine to adopt a compensation
program that does not satisfy the conditions of Section 162(m) if, in its
judgment after considering the additional costs of not satisfying Section
162(m), such program is appropriate.
COMPENSATION COMMITTEE BOARD OF DIRECTORS
R. Earl Cox, III, Chairman F. George Dunham, III, Chairman
Harry E. Bartel R. Earl Cox, III
Mitch S. Wynne Harry E. Bartel
Mitch S. Wynne
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PERFORMANCE GRAPH
The following performance graph sets forth the cumulative total
shareholder return for the Common Stock, the S&P 500 Index and the Nasdaq
Computer & Data Processing Index for the period indicated. The performance graph
assumes $100 invested in the Common Stock at its closing price on August 22,
1997, the date on which the Common Stock commenced trading on the Nasdaq
National Market, and in each of the S&P 500 Index and the Nasdaq Computer & Data
Processing Index on the same date. The Performance Graph also assumes the
reinvestment of all dividends, if any. The dates on the performance graph
represent the last trading day of each month indicated.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, THE S&P 500 INDEX, AND NASDAQ COMPUTER & DATA PROCESSING INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
8/22/97 8/97 9/97 10/97 11/97 12/97
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSPIRE INSURANCE
SOLUTIONS, INC. 100 139 151 154 158 174
- --------------------------------------------------------------------------------------
S&P 500 INDEX 100 97 103 99 104 106
- --------------------------------------------------------------------------------------
NASDAQ COMPUTER
& DATA PROCESSING INDEX 100 97 99 97 99 93
- --------------------------------------------------------------------------------------
</TABLE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 2, 1998, certain
information with respect to the beneficial ownership of the Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each named executive officer as of such date and (iv) all directors and named
executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
- ------------------------------------------------ ------------ ------------
<S> <C> <C>
Millers Mutual ................................ 3,866,250 37.8%(1)
300 Burnett Street
Fort Worth, Texas 76102-2799
F. George Dunham, III ......................... 397,667(2) 3.8%
Ronald O. Lynn ................................ 75,144(3) *
Stuart H. Warrington .......................... 111,498(4) 1.1%
Robert K. Agazzi .............................. 80,405(3) *
Jeffrey W. Robinson ........................... 75,144(3) *
Harry E. Bartel ............................... 5,500(5) *
R. Earl Cox, III .............................. 5,500(5) *
Mitch S. Wynne ................................ 24,500(6) *
All directors and executive officers as a group
(11 individuals) ........................... 811,069(7) 7.4%
</TABLE>
- ----------
* Less than 1%.
(1) Prior to the Company's initial offering of shares of its Common Stock to
the public in August 1997, Millers Mutual owned 100% of the issued and
outstanding Common Stock.
(2) Includes 378,667 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(3) Includes 75,144 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(4) Includes 106,196 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(5) Includes 2,500 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement. Does not
include options covering additional shares expected to be granted following
the Annual Meeting pursuant to the Director Plan. See "Proposal 3 --
Amendment to the 1997 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 Proxy Statement. Does not include options
covering additional shares expected to be granted following the Annual
Meeting pursuant to the Director Plan. See "Proposal 3--Amendment to the
1997 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 Proxy Statement.
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PROPOSAL 2
APPROVAL AND RATIFICATION OF
THE SECOND AMENDED AND RESTATED 1997 STOCK OPTION PLAN
GENERAL
A total of 2,250,000 shares of Common Stock has been reserved for
issuance pursuant to the Current Option Plan. The Current 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. The Current Option Plan was administered by the
Board of Directors during 1997.
PROPOSED AMENDMENT
On February 16, 1998, the Board of Directors approved the Second
Amended and Restated 1997 Stock Option Plan (the "Amended Option Plan"), subject
to Shareholder approval at the Annual Meeting, which amends the Current Option
Plan to (i) provide for a 750,000 share increase in the aggregate number of
shares of Common Stock authorized for issuance under such plan and (ii) clarify
that any committee of the Board of Directors that administers the plan must be
comprised of directors who qualify as "outside directors" for the purposes of
Section 162(m) of the Code. If the Shareholders approve Proposal 2, the
aggregate number of shares of Common Stock available for issuance under the
Amended Option Plan would be 3,000,000, and if all such shares were issued, such
shares would constitute approximately 22.7% of the issued and outstanding Common
Stock on March 2, 1998. The Amended Option Plan integrates such amendment into
the Current Option Plan. The Amended Option Plan will not be implemented if it
is not approved by a majority of the votes cast, in person or by proxy, with
respect to such proposal at the Annual Meeting.
RECOMMENDATION
The Board of Directors believes that the following benefits of the
Amended Option Plan outweigh any burden to the shareholders attendant to the
award of options: (i) providing significant incentives to selected officers,
directors and employees of the Company and its subsidiaries; (ii) enhancing the
interest of such officers, directors and employees in the Company's success and
progress by providing them with an opportunity to become shareholders of the
Company; and (iii) enhancing the Company's ability to attract and retain
qualified management and other personnel necessary for the success and progress
of the Company. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL AND RATIFICATION OF THE AMENDED OPTION PLAN AND BELIEVES THAT
THE AMENDED OPTION PLAN IS APPROPRIATE TO COMPENSATE THE COMPANY'S EMPLOYEES AND
DIRECTORS.
SUMMARY OF THE AMENDED OPTION PLAN
The following summary of certain features of the Amended Option Plan is
qualified in its entirety by reference to the full text of the Amended Option
Plan set forth in Exhibit A. Capitalized terms not defined herein have the
meaning ascribed to them in the Amended Option Plan.
The Amended Option Plan may be administered by the Board of Directors
or a Committee of the Board of Directors. If the Amended Option Plan is
administered by a committee of the Board of Directors, the directors must be
Non-Employee Directors and, pursuant to the clarification contained in the
Amended Option Plan, "outside directors" for purposes of Section 162(m) of the
Code. Both nonqualified stock options and incentive stock options (as defined in
the Internal Revenue Code) may be granted to employees. Only nonqualified stock
options may be granted to nonemployee directors. Incentive stock options granted
under the Amended 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 Amended Option Plan.
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Assuming Shareholder approval and ratification of the Amended Option
Plan, a total of 3,000,000 shares of Common Stock will be reserved for issuance
pursuant to the Amended Option Plan. The number of shares of Common Stock which
may be issued to an Optionee under the Amended Option Plan may not exceed
1,200,000 over the term of the Amended Option Plan. Options under the Amended
Option Plan may be granted to any director or employee of the Company or its
subsidiaries, and the Plan Committee may determine those directors or employees
who will receive options as well as the number of shares of Common Stock subject
to each option. However, no incentive stock options may be granted to any
employee who owns, directly or indirectly, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary, unless at the time the option is granted, the exercise price of the
option is at least 110% of the Fair Market Value of the Common Stock subject to
the option and such option, by its terms, is not exercisable after the
expiration of five years from the date the option is granted.
As of March 2, 1998, the three directors who are not employees of the
Company and approximately 603 employees of the Company, including one director
who is an employee, were eligible to receive options under the Amended Option
Plan. As of March 2, 1998, 2,105,876 options had been granted under the Amended
Option Plan, 33,073 of which had been exercised and 2,045,906 of which remained
outstanding as of such date. Assuming approval by the Shareholders of Proposal
2, options for 921,021 shares of Common Stock remain available for grant as of
March 2, 1998. The closing price for the Common Stock on the Nasdaq National
Market on March 2, 1998 was $28.
The exercise price of each incentive stock option and each nonqualified
option is determined by the Plan Committee. However, the exercise price of each
incentive stock option may not be less than the greater of the par value of the
Common Stock or 100% of the Fair Market Value of the shares of Common Stock
subject to the option on the date the option is granted. Options granted under
the Amended Option Plan may not have a term longer than 10 years from the date
the option is granted. The number of shares of Common Stock authorized for
issuance, as well as the price to be paid and the number of shares issued upon
exercise of outstanding options, is subject to adjustment by the Plan Committee,
in its sole discretion, to reflect certain events including, without limitation,
stock splits, stock dividends, recapitalizations, mergers, consolidations,
reorganizations, combinations or exchanges of shares.
The table above entitled "Option Grants in Last Fiscal Year" sets forth
for each named executive officer the number of shares of Common Stock underlying
the options granted under the Current Option Plan in 1997, and the exercise
price and expiration date for such options. Under the Current Option Plan the
named executive officers were granted options to purchase 1,564,987 shares of
Common Stock, the non-employee directors were granted no options, and employees
other than the named executive officers were granted options to purchase 453,389
shares of Common Stock.
When an employee is terminated for Cause, the options granted to the
employee will terminate immediately upon termination of employment. If an
employee's termination occurs other than for Cause, such employee will have the
right to exercise his or her options at any time within 60 days after such
termination to the extent he or she was entitled to exercise the options
immediately prior to such termination.
Upon a Change of Control, unless otherwise provided for in the option
agreement under the Amended Option Plan, the holder of an option is entitled,
prior to the effective date of such Change of Control, to purchase the full
number of shares not previously exercised under such option if such option has
not expired or been terminated. Unless earlier terminated, the Amended Option
Plan will terminate on February 28, 2007, and no options may be granted after
the Amended Option Plan has terminated.
EFFECT OF FEDERAL INCOME TAXATION ON THE AMENDED OPTION PLAN
Stock options granted under the Amended Option Plan may be either
incentive stock options ("ISOs") intended to qualify under Section 422 of the
Internal Revenue Code, as amended (the "Code") or Nonqualified Stock Options
("NQSOs"). The following summary of tax consequences with respect to the stock
options that may
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be granted under the Amended Option Plan is not comprehensive and is based upon
laws and regulations in effect on March 2, 1998. Such laws and regulations are
subject to change.
There are generally no federal income tax consequences either to the
option holder or to the Company upon the grant of a stock option. Upon exercise
of an ISO, the option holder will not recognize any income and the Company will
not be entitled to a deduction for tax purposes, although such exercise may give
rise to liability for the option holder under the alternative minimum tax
provisions of the Code. Generally, if the option holder disposes of shares
acquired upon exercise of an ISO within two years of the date of grant or one
year of the date of exercise, the option holder will recognize compensation
income and the Company will then be entitled to a deduction for tax purposes in
the amount of the excess of the fair market value of the shares on the date of
exercise over the option exercise price (or the gain on sale, if less).
Otherwise, the Company will not be entitled to any deduction for tax purposes
upon disposition of such shares, and the entire gain for the option holder will
be treated as a capital gain.
On exercise of an NQSO, the amount by which the fair market value of
the shares on the date of exercise exceeds the option exercise price will
generally be taxable to the participant as compensation income and will
generally be deductible for tax purposes by the Company. The dispositions of
shares acquired upon exercise of an NQSO generally will result in a capital gain
or loss for the option holder, but will have no tax consequences for the
Company.
In the event any payments or rights accruing to an option holder upon a
"change in control" constitute "parachute payments" under Section 280G of the
Code, depending upon the amount of such payments or rights accruing and the
other income of the option holder from the Company, the option holder may be
subject to an excise tax (in addition to ordinary income tax) and the Company
may be disallowed a deduction to the extent such payments might constitute
"excess parachute payments" under Section 280G of the Code.
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PROPOSAL 3
AMENDMENT TO
THE 1997 DIRECTOR STOCK OPTION PLAN
GENERAL
The 1997 Director Stock Option Plan (the "Director Plan"), which is
currently administered by the Board of Directors, was adopted in July of 1997 by
the Board of Directors.
PROPOSED AMENDMENT
On February 16, 1998, the Board of Directors approved the First
Amendment to the Director Plan (the "First Amendment"), subject to Shareholder
approval at the Annual Meeting. The First Amendment provides for an increase in
the number of shares underlying options that may be granted annually to each
nonemployee director from 250 to 2,500. The First Amendment will not be
implemented if it is not approved by a majority of the votes cast, in person or
by proxy, with respect to such proposal at the Annual Meeting.
RECOMMENDATION
The Board of Directors believe that the following benefits of the
Director Plan outweigh any burden to the shareholders attendant to the award of
such options: (i) providing an opportunity to nonemployee directors of the
Company to become shareholders of the Company; (ii) encouraging the attraction,
retention and motivation of such nonemployee directors; and (iii) encouraging
nonemployee directors to devote their best efforts to the business and financial
success of the Company. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE AMENDMENT OF THE DIRECTOR PLAN AND BELIEVES THAT SUCH AMENDMENT
IS APPROPRIATE TO COMPENSATE THE COMPANY'S NONEMPLOYEE DIRECTORS.
SUMMARY OF DIRECTOR PLAN AND THE FIRST AMENDMENT
The following summaries of certain features of the Director Plan and
the First Amendment are qualified in their entirety by reference to the full
text of the Director Plan and the full text of the First Amendment, copies of
which will be provided to shareholders or beneficial owners requesting same.
Capitalized terms not defined herein have the meaning ascribed to them in the
Director Plan and the First Amendment.
The Director Plan may be administered by the Board of Directors or a
Plan Committee of the Board of Directors. Pursuant to the Director Plan, each
nonemployee director will automatically receive grants of Nonqualified Options
to purchase 2,500 shares of Common Stock when such director is first elected.
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. If the First Amendment is approved by the Shareholders, such grant will
increase from options to purchase 250 shares of Common Stock to options to
purchase 2,500 shares of Common Stock. The options under the Director Plan vest
and are exercisable as of the date of grant.
A total of 50,000 (which constitutes less than one percent of the
issued and outstanding Common Stock on March 2, 1998) shares of Common Stock has
been reserved for issuance pursuant to the Director Plan. The number of shares
of Common Stock authorized for issuance and the number of shares of Common Stock
subject to unexercised options are subject to adjustment by the Board of
Directors to reflect certain events including, without limitation, stock splits,
stock dividends, recapitalizations, mergers, consolidations, reorganizations,
combinations or exchanges of shares. Nonqualified Options granted under the
Director Plan expire on the earlier of (i) ten years following the date of grant
and (ii) three months after the date on which the Participant ceases to be a
director of the
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Company other than be reason of death or disability, in which case the
Nonqualified Options will expire one year from the date of grant. The exercise
price of the options granted under the Director Plan is the fair market value of
the Nonqualified Options on the date of grant. 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.
Unless earlier terminated, the Director Plan will terminate on December
31, 2007, and no options may be granted after the Director Plan has terminated.
As of March 2, 1998, options to purchase 7,500 shares of Common Stock have been
granted under the terms of the Director Plan, 2,500 to each of Messrs. Bartel,
Cox and Wynne. Assuming approval by the Shareholders of the First Amendment,
each of Messrs. Bartel, Cox and Wynne would receive options to purchase 2,500
shares of Common Stock on the day immediately succeeding the Annual Meeting.
EFFECT OF FEDERAL INCOME TAXATION ON THE DIRECTOR PLAN
Stock options granted under the Director Plan are NQSOs. The following
summary of tax consequences with respect to the stock options that may be
granted under the Director Plan is not comprehensive and is based upon laws and
regulations in effect on March 2, 1998. Such laws and regulations are subject to
change.
There are generally no federal income tax consequences either to the
option holder or to the Company upon the grant of a stock option. On exercise of
an NQSO, the amount by which the fair market value of the shares on the date of
exercise exceeds the option exercise price will generally be taxable to the
participant as compensation income and will generally be deductible for tax
purposes by the Company. The disposition of shares acquired upon exercise of an
NQSO generally will result in a capital gain or loss for the option holder, but
will have no tax consequences for the Company.
In the event any payments or rights accruing to an option holder upon a
"change in control" constitute "parachute payments" under Section 280G of the
Code, depending upon the amount of such payments or rights accruing and the
other income of the option holder from the Company, the option holder may be
subject to an excise tax (in addition to ordinary income tax) and the Company
may be disallowed a deduction to the extent such payments might constitute
"excess parachute payments" under Section 280G of the Code.
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PROPOSAL 4
AUTHORIZATION FOR THE COMPANY TO LEASE CERTAIN OFFICE SPACE
The Board of Directors of Millers Mutual has approved the sale, subject
to the approval of the Texas Department of Insurance, of the building located at
300 Burnett Street, Fort Worth, Texas (the "Property"), in which the Company
headquarters are located, to a limited partnership to be formed by the directors
of the Company (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, subject to receipt of authorization from the
Shareholders pursuant to this proposal, approximately 96,000 square feet of the
building from the Partnership on the following anticipated terms: a ten-year
initial term, 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 Board of Directors believes that the terms of the
proposed lease, including the monthly rental rates, are comparable to those for
leases of office space in Fort Worth, Texas, for similar types of buildings for
similar durations and are at least as favorable as could be obtained from an
unrelated third party.
The Board of Directors is affording to the Shareholders the right to
authorize, or to withhold authorization of, any officer or officers of the
Company to negotiate, and to cause the Company to enter into, a lease agreement
with the Partnership with respect to office space located on the Property. If a
majority of the votes cast, in person or by proxy, are voted "FOR" Proposal 4 at
the Annual Meeting, the Shareholders will have authorized any officer or
officers of the Company to negotiate, and cause the Company to enter into, such
a lease agreement with the Partnership. THE BOARD OF DIRECTORS RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" THE AUTHORIZATION OF ANY OFFICER OR OFFICERS OF THE
COMPANY TO NEGOTIATE, AND CAUSE THE COMPANY TO ENTER INTO, A LEASE AGREEMENT
WITH THE PARTNERSHIP WITH RESPECT TO THE PROPERTY.
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PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed Deloitte & Touche LLP, independent certified public accountants,
as independent auditors of the Company's financial statements for 1998. Deloitte
& Touche LLP has acted as auditors for the Company since 1996.
During 1996, the Company changed its independent auditors from Price
Waterhouse LLP ("Price Waterhouse") to Deloitte & Touche LLP. Price Waterhouse's
reports on the Company's financial statements did not contain an adverse opinion
or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
between the Company and Price Waterhouse on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure that
if not resolved to the satisfaction of Price Waterhouse would have caused such
firm to make reference thereto in connection with its reports on the financial
statements of the Company. The Company's decision to change to Deloitte & Touche
LLP was approved by the Board of Directors of the Company. In 1997, in
connection with the Company's acquisition of SDS, SDS changed its independent
auditors from KPMG Peat Marwick LLP ("KPMG") to Deloitte & Touche LLP, the
Company's independent auditors. KPMG's reports on SDS's financial statements did
not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements between SDS and KPMG on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure that if not resolved to the satisfaction of KPMG would have caused
such firm to make reference thereto in connection with its reports on the
financial statements of SDS. SDS's decision to change its independent auditors
was approved by the Board of Directors of the Company.
The Board of Directors has determined to afford Shareholders the
opportunity to express their opinions on the matter of auditors, and,
accordingly, is submitting to the Shareholders at the Annual Meeting a proposal
to ratify the appointment by the Board of Directors of Deloitte & Touche LLP. If
a majority of the shares voted at the Annual Meeting, in person or by proxy, are
not voted in favor of the ratification of the appointment of Deloitte & Touche
LLP, the Board of Directors will interpret this as an instruction to seek other
auditors. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
OF THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998.
It is expected that representatives of Deloitte & Touche LLP will be
present at the Annual Meeting and will be available to respond to appropriate
questions. These representatives will be given an opportunity to make a
statement if they desire to do so.
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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 the
year ended December 31, 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.
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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. For the year ended December 31, 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.
The Company and the Specialty 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 CONTRACT
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 information technology ("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. For the year ended December 31, 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.
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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
party. For the year ended December 31, 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. For the year ended December 31, 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 Company's acquisition of SDS) $764,000, $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 Building, LLC ("Riverview"), which is controlled by Stuart H.
Warrington, a former executive officer of the Company. The term of the Building
Lease ends February 28, 2007. Pursuant to the Building Lease, Riverview leases
to the Company approximately 28,000 square feet of office space at a monthly
rate of approximately $21,000 for the first four years, $23,000 for the next
five years, and $25,000 for the last year. For the 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 Company proposes to lease its headquarters from the Partnership,
which will be formed by the Company's directors. See "Proposal 4 --
Authorization for the Company to Lease Certain Office Space." 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
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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. 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company, and persons who
own more than 10% of the Common Stock, to file with the Commission initial
reports of Common Stock ownership and reports of changes in such ownership. A
reporting person must file a Form 3 -- Initial Statement of Beneficial Ownership
of Securities within 10 days after such person becomes a reporting person. A
reporting person must file a Form 4 -- Statement of Changes of Beneficial
Ownership of Securities within 10 days after any month in which such person's
beneficial ownership of securities changes, except for certain changes exempt
from the reporting requirements of Form 4. Such exempt changes include stock
options granted under a plan qualifying pursuant to Rule 16b-3 under the
Exchange Act. A reporting person must file a Form 5 -- Annual Statement of
Beneficial Ownership of Securities within 45 days after the end of the issuer's
fiscal year to report any changes in ownership during such year not reported on
a Form 4, including changes exempt from the reporting requirements of Form 4.
The Commission's rules require the Company's reporting persons to
furnish the Company with copies of all Section 16(a) reports that they file.
Based solely upon a review of the copies of such reports furnished to the
Company and written representations that no other reports were required with
respect to the year ended December 31, 1997, the Company believes that the
reporting persons have complied with all applicable Section 16(a) filing
requirements for 1997 on a timely basis.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
To be considered for inclusion in the Company's proxy statement for the
1999 annual meeting, shareholder proposals must be received at the Company's
principal executive office no later than December 2, 1998.
INCORPORATION BY REFERENCE
With respect to any future filings with the Commission into which this
Proxy Statement is incorporated by reference, the material under the headings
"Joint Report of the Compensation Committee and the Board of Directors on
Executive Compensation" and "Performance Graph" shall not be incorporated into
such future filings.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in
this Proxy Statement, including without limitation statements 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 Proxy Statement, 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,
including but not limited to difficulties associated with growth, the Company's
dependence on major customers and limited operating history, technological
change,
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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.
ANNUAL REPORT
Accompanying this Proxy Statement is a copy of the Company's Annual
Report for the year ended December 31, 1997, which contains financial and other
information pertaining to the Company. The Annual Report does not form any part
of the materials for the solicitation of proxies.
FORM 10-K
Accompanying this Proxy Statement is a copy of the Company's Form 10-K
for the year ended December 31, 1997. The Annual Report does not form any part
of the materials for the solicitation of proxies. THE COMPANY WILL MAIL
ADDITIONAL COPIES OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1997 TO EACH SHAREHOLDER OR BENEFICIAL OWNER OF SHARES OF COMMON STOCK
WITHOUT CHARGE UPON SUCH PERSON'S REQUEST.
By Order of the Board of Directors
Brenda Noel
Secretary
Fort Worth, Texas
April 1, 1998
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EXHIBIT A
INSPIRE INSURANCE SOLUTIONS, INC.
SECOND AMENDED AND RESTATED 1997 STOCK OPTION PLAN
[LANGUAGE ADDED TO THE CURRENT OPTION PLAN PURSUANT TO THE
AMENDED OPTION PLAN IS IN BOLDFACE TYPE AND DOUBLE UNDERSCORED
AND LANGUAGE DELETED IS STRUCK THROUGH.]
ARTICLE I.
PURPOSES
1.1 Purpose of Plan. The purposes of the INSpire Insurance Solutions,
Inc. Second Amended and Restated 1997 Stock Option 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,
directors and employees of the Company and its Subsidiaries (as defined herein)
and to enhance the interest of such officers, directors and employees in the
Company's success and progress by providing them with an opportunity to become
shareholders 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. The Plan amends and
restates the Amended and Restated 1997 Stock Option Plan adopted by the Company
effective July 30, 1997 in order to (i) amend the plan by revising Section
5.4(a) to permit the Board or the Committee to include in any Stock Option
Agreement issued under the Plan initially or by amendment, additional
alternative methods of exercising options granted under the Plan; (ii) revise
Section 5.5(a) and Section 2.1(h) to clarify certain provisions in the
definitions of Change of Control and Fair Market Value; (iii) REVISE SECTION 3.2
TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES WHICH MAY BE OPTIONED AND
SOLD UNDER THE PLAN FROM 2,250,000 TO 3,000,000 SHARES OF COMMON STOCK; AND (iv)
REVISE SECTION 7.1 TO CLARIFY BY WHOM THE PLAN SHALL BE ADMINISTERED.
ARTICLE II.
DEFINITIONS
2.1 Definitions. Certain terms used herein shall have the meaning below
stated, subject to the provisions of Section 8.1 hereof.
(a) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee of directors appointed by
the Board to administer the Plan pursuant to Article VII hereof.
(d) "Common Stock" means the authorized common stock of the
Company, par value $.01 per share, as constituted on the date the Plan
becomes effective.
(e) "Company" means INSpire Insurance Solutions, Inc., a Texas
corporation.
(f) "Director" means a member of the Board of Directors of the
Company or a Subsidiary who is not an Employee.
(g) "Employee" means an officer or other employee of the
Company or a Subsidiary, including a member of the Board who is also
such an employee.
(h) "Fair Market Value" on any date for which fair market
value is to be determined hereunder means the reported closing price on
the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading, or, if the shares of
Common Stock are not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automated Quotation National Market (the "NASDAQ National Market"), or,
if the shares of Common Stock are not quoted on the NASDAQ National
Market, the average of the highest reported bid
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and the lowest reported asked prices as furnished by the National Association of
Securities Dealers, Inc. (the "NASD") through NASDAQ, or, if not so reported
through NASDAQ as reported through the National Quotation Bureau, Incorporated
("NQBI") or a similar organization if NASDAQ or NQBI is no longer reporting such
information. 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. In addition to the above rules, Fair Market Value shall
be determined without regard to any restriction other than a restriction which,
by its terms, will never lapse.
(i) "Incentive Option" means an Option intended to qualify as
an incentive option under Section 422 of the Code.
(j) "Nonqualified Option" means an Option that does not
qualify as an Incentive Option.
(k) "Option" means an option to purchase Common Stock granted
by the Company to an Employee or a Director pursuant to Section 5.1
hereof.
(l) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms of an Option granted under the
Plan.
(m) "Optionee" means an Employee or a Director to whom an
Option has been granted under the Plan.
(n) "Plan" means the INSpire Insurance Solutions, Inc. Amended
and Restated 1997 Stock Option Plan, as set forth herein and as from
time to time amended.
(o) "Subsidiary" means a subsidiary of the Company within the
meaning of Section 424(f) of the Code.
ARTICLE III.
SHAREHOLDER APPROVAL; RESERVATION OF SHARES
3.1 Shareholder Approval. The Plan shall become effective only if,
within 12 months from the date the Plan is adopted by the Board, the Plan is
approved by the affirmative vote of the holders of a majority of the shares of
Common Stock of the Company, or by the unanimous written consent of such
holders, in accordance with the applicable provisions of the Articles of
Incorporation and Bylaws of the Company and applicable state law.
3.2 Shares Reserved Under Plan. The aggregate number of shares of
Common Stock which may be issued upon the exercise of Options granted under the
Plan shall not exceed 2,250,000 3,000,000 shares, all or any part of which may
be issued pursuant to Options; provided, however, that the maximum number of
shares of Common Stock which may be issued to an Optionee under the Plan during
the term of the Plan shall not exceed 1,200,000 (as may be adjusted pursuant to
Section 9.4 of the Plan). Shares of Common Stock issued upon the exercise of
Options granted under the Plan may consist of either authorized but unissued
shares or shares which have been issued and which shall have been heretofore or
shall be hereafter reacquired by the Company. The total number of shares
authorized under the Plan shall be subject to increase or decrease in order to
give effect to the provisions of Section 9.4 hereof and to give effect to any
amendment adopted pursuant to Article VIII. If any Option granted under the Plan
shall expire, terminate or be cancelled for any reason without having been
exercised in full, the number of shares as to which such Option was not
exercised shall again be available for purposes of the Plan. The Company shall
at all times while the Plan is in effect reserve such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
ARTICLE IV.
PARTICIPATION IN PLAN
4.1 Eligibility. Options under the Plan may be granted to any Director
or Employee of the Company or a Subsidiary. The Committee shall determine those
Directors or Employees to whom Options shall be granted, and, subject to Section
3.2 hereof, the number of shares of Common Stock subject to each such Option.
Incentive
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Options or Nonqualified Options may be granted to an Employee. Only Nonqualified
Options may be granted to a nonemployee Director.
4.2 Participation Not Guarantee of Employment or Retention. Nothing in
this Plan or in any Option Agreement shall in any manner be construed (i) to
limit in any way the right of the Company or any Subsidiary to terminate an
Employee's employment at any time, without regard to the effect of such
termination on any rights such Employee would otherwise have under this Plan, or
give any right to an Employee to remain employed or retained by the Company or a
Subsidiary thereof in any particular position or at any particular rate of
compensation or (ii) limit in any way the right of the shareholders of the
Company or a Subsidiary or the Board to remove any Director or fail to nominate
any Director for re-election without regard to the effect of such removal or
non-election of a Director on any rights such Director would have under this
Plan, or give any right to a Director to continue to serve as a Director of the
Company or a Subsidiary.
ARTICLE V.
GRANT AND EXERCISE OF OPTIONS
5.1 Grant of Options. The Committee may from time to time in its
discretion grant Options to Employees or Directors. All Options under the Plan
shall be granted within ten years from the date the Plan is adopted by the Board
or the date the Plan is approved by holders of the Common Stock of the Company,
whichever is earlier.
5.2 Option Agreements. Each Option granted under the Plan shall be
evidenced by an Option Agreement between the Company and the Optionee in such
form as the Committee shall approve and containing such provisions and
conditions not inconsistent with the provisions of the Plan, including the term
during which the Option may be exercised and whether in installments or
otherwise, as the Committee shall determine. Each Option Agreement issued under
the Plan shall contain an agreement of the Optionee with respect to
nondisclosure of information, noncompete provisions and nonsolicitation of
customers and employees as shall be required by the Board from each Optionee as
additional consideration for the issuance of Options under the Plan.
5.3 Option Terms. Options granted under the Plan shall be subject to
the following requirements:
(a) Option Price. The exercise price of each Incentive Option
granted under the Plan shall not be less than the higher of the par
value or 100% of the Fair Market Value of the shares of Common Stock
subject to the Option on the date the Option is granted. The exercise
price of any Nonqualified Options granted under the Plan shall be
determined by the Committee. The exercise price of an Option may be
subject to adjustment pursuant to Section 9.4 hereof.
(b) Term of Option. The term during which an Option is
exercisable shall be that period determined by the Committee as set
forth in the applicable Option Agreement, provided that no Option shall
have a term that exceeds a period of ten years from the date of its
grant.
(c) Nontransferability of Incentive Options. No Incentive
Option granted under the Plan shall be transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and
each such Incentive Option shall be exercisable during the Optionee's
lifetime only by him or her. No transfer of an Incentive Option by an
Optionee by will or by the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of the will and/or
such other evidence as the Committee may determine necessary to
establish the validity of the transfer.
(d) Assignability of Nonqualified Options. Nonqualified
Options granted hereunder may be transferred by the Optionee thereof to
one or more permitted transferees; provided that (i) there may be no
consideration for such transfer, (ii) the Optionee (or such Optionee's
estate or representative) shall remain obligated to satisfy all
employment tax and other withholding tax obligations associated with
the exercise of the Options, (iii) the Optionee shall notify the
Company in writing that such transfer has occurred, the identity and
address of the permitted transferee and the relationship of the
permitted transferee to the Optionee and (iv) such transfer shall be
effected pursuant to transfer documents approved from time to time by
the Committee. To the extent a Nonqualified Option transferred pursuant
to this Section 5.3(d) is not fully exercisable as of the date of
transfer thereof, the Optionee shall specify in the transfer document
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whether and to what extent the transferred Options (if less than all of
the Options subject to the applicable Nonqualified Stock Option
Agreement) are exercisable, subject to the limitations on
exercisability contained in the applicable Nonqualified Stock Option
Agreement. Furthermore, to the extent the Optionee transfers Options
that are not exercisable as of the date of transfer and such Options
are less than all of the Options subject to the applicable Nonqualified
Stock Option Agreement, the Optionee shall specify in the transfer
documents, subject to the limitations on exercisability contained in
the applicable Nonqualified Stock Option Agreement, when the
transferred Options become exercisable as Options under the applicable
Nonqualified Stock Option Agreement subsequent to such transfer. No
permitted transferee may further assign or transfer the transferred
Option otherwise than by will or the laws of descent and distribution.
Following any permitted transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately
prior to transfer; provided that for purposes of Sections 5.4(a),
5.4(b), 5.5, 5.6, Article VII, and Article IX hereof the term
"Optionee" shall be deemed to refer also to each permitted transferee.
The events of termination of relationship in Article VI hereof shall
continue to be applied with respect to the original Optionee, following
which the Options shall be exercisable by the transferee only to the
extent, and for the periods specified in Article VI and the shares
issued upon exercise of Options shall be subject to repurchase pursuant
to Section 9.3. The term "permitted transferees" shall mean one or more
of the following: (i) any member of the optionee's immediate family;
(ii) a trust established for the exclusive benefit of one or more
members of such immediate family; or (iii) a partnership in which such
immediate family members are the only partners. The term "immediate
family" is defined for such purpose as spouses, children, stepchildren
and grandchildren, including relationships arising from adoption.
(e) Time and Amount Exercisable. Each Option shall be
exercisable in accordance with the provisions of the Option Agreement
pursuant to which it is granted in whole, or from time to time in part,
subject to any limitations with respect to the number of shares for
which the Option may be exercised at a particular time and to such
other conditions as the Committee in its discretion may specify in the
Option Agreement. Any portion of an Option which has become exercisable
shall remain exercisable until it is exercised in full or it terminates
or expires pursuant to the terms of the Plan or the applicable Option
Agreement.
(f) Options Granted to Ten Percent Stockholders. No Incentive
Option shall be granted to any Employee who owns, directly or
indirectly within the meaning of Section 424(d) of the Code, stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary, unless at the time
the Option is granted, the exercise price of the Option is at least
110% of the Fair Market Value of the Common Stock subject to such
Option and such Option, by its terms, is not exercisable after the
expiration of five years from the date such Option is granted. The
provisions of this Section 5.3(e) shall not apply to the grant of
Nonqualified Options.
5.4 Payment of Exercise Price and Delivery of Shares.
(a) Manner of Exercise. Shares of Common Stock purchased upon
exercise of Options shall at the time of purchase be paid for in full.
The Company shall satisfy its employment tax and other tax withholding
obligations by requiring the Optionee (or such Optionee's estate or
representative) to pay the amount of employment tax and withholding
tax, if any, that must be paid under federal, state and local law due
to the exercise of the Option. To the extent that the right to purchase
shares has accrued hereunder, Options may be exercised from time to
time by written notice to the Company stating the full number of shares
with respect to which the Option is being exercised and the time of
delivery thereof, which shall be at least fifteen days after the giving
of such notice unless an earlier date shall have been mutually agreed
upon by the Optionee (or other person entitled to exercise the Option)
and the Company, accompanied by payment to the Company of the purchase
price in full and the amount of employment tax and withholding tax due,
if any, upon the exercise of the Option. Such payment shall be effected
(i) by certified or official bank check, (ii) if so permitted by the
Company, by the delivery of a number of shares of Common Stock (plus
cash if necessary) having a fair market value equal to the amount of
such purchase price and employment or withholding tax or (iii) by
delivery of the equivalent thereof acceptable to the Company. The
Company will, as soon as reasonably possible notify the Optionee (or
such Optionee's representative) of the amount of employment tax and
other withholding tax that must be paid under federal, state and local
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law due to the exercise of the Option. At the time of delivery, the
Company shall, without transfer or issue tax to the Optionee (or other
person entitled to exercise the Option), deliver to the Optionee (or to
such other person) at the principal office of the Company, or such
other place as shall be mutually agreed upon, a certificate or
certificates for the shares of Common Stock, provided, however, that
the time of delivery may be postponed by the Company for such period as
may be required for it with reasonable diligence to comply with any
requirements of law. 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.
(b) Rights of Optionee in Stock. Neither any Optionee, any
permitted transferee nor the legal representatives, heirs, legatees or
distributees of any Optionee or permitted transferee shall be deemed to
be the holder of, or to have any of the rights of a holder with respect
to, any shares of Common Stock issuable upon exercise of an Option
granted hereunder unless and until such shares are issued to him or her
or them and such person or persons have received a certificate or
certificates therefor. Upon the issuance and receipt of such
certificate or certificates, such Optionee or the legal
representatives, heirs, legatees or distributees of such Optionee shall
have absolute ownership of the shares of Common Stock evidenced
thereby, including the right to vote such shares, to the same extent as
any other owner of shares of Common Stock, and to receive dividends
thereon, subject, however, to the terms, conditions and restrictions of
the Plan.
5.5 Change of Control.
(a) 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.
(b) Change of Control with Provision Being Made Therefor. If
in connection with a Change of Control a written provision is made for
the assumption and continuance of any Option granted under the Plan, or
the substitution for such option of a new Option covering the shares of
the successor employer corporation, with appropriate adjustment as to
the number and kind of shares and prices, the option granted under the
Plan, or the new Option substituted therefor, as the case may be, shall
continue in the manner and under the terms provided.
(c) Change of Control Without Provision Being Made Therefor.
If no written provision is made in connection with a Change of Control
for the continuance and assumption of any Option granted under the Plan
or for the substitution of any Option covering the shares of the
successor employer corporation, then, the holder of any such Option
shall be entitled, prior to the effective date of any such Change of
Control, to purchase the full number of shares not previously exercised
under such Option, without regard to the periods and installments of
exercisability made pursuant to Section 5.3 if (and only if)
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such Option has not at that time expired or been terminated, failing
which purchase, any unexercised portion shall be deemed cancelled as of
the effective date of such Change of Control.
5.6 Dissolution or Liquidation of the Company. In the event of the
proposed dissolution or liquidation of the Company, the Options granted
hereunder shall terminate as of a date to be fixed by the Committee, provided
that not less than 15 days' prior written notice of the date so fixed shall be
given to the Optionee, and the Optionee shall have the right, during the 15-day
period preceding such termination, to exercise his or her Option.
ARTICLE VI.
TERMINATION OF EMPLOYMENT OR DIRECTORSHIP
6.1 Termination of Employment for Cause. In the event that an Optionee
is an Employee and such Optionee's employment by the Company or a Subsidiary
shall terminate for Cause (as hereinafter defined), the Options granted to the
Optionee pursuant to this Plan shall terminate immediately upon termination of
employment. For the purposes of this Plan, the term "Cause" shall mean "Cause"
as defined in any written employment agreement in effect between the applicable
Optionee and the Company or a Subsidiary, or if such Optionee is not a party to
a written employment agreement in which Cause is defined, then Cause shall mean
(i) the failure by such Optionee to substantially perform his or her duties with
the Company or a Subsidiary in a manner reasonably deemed satisfactory by the
Board of Directors, (ii) the abuse of illegal drugs or other controlled
substances or the intoxication of Optionee during working hours, (iii) the
arrest for, or conviction of, a felony, (iv) the unexcused absence by such
Optionee from Optionee's regular job location for more than five consecutive
days or for more than the aggregate number of days permitted to Optionee under
Company vacation and sick leave policies applicable to Optionee or (v) any
conduct or activity of such Optionee deemed injurious to the Company in the
reasonable discretion of the Board of Directors.
6.2 Termination of Directorship. In the event that an Optionee is a
Director and such Optionee fails to be reelected as a Director, resigns as a
Director or is removed as a Director (other than due to Optionee's disability as
defined in Section 6.3 hereof), the Options granted to such Optionee pursuant to
this Plan shall terminate on the date such Optionee ceases to be a Director.
6.3 Death or Disability.
(a) In the event that an Optionee shall die while employed by,
or serving as a Director of, the Company or a Subsidiary or if
Optionee's employment by, or service as a Director of, the Company or a
Subsidiary is terminated because Optionee has become disabled,
Optionee, his or her estate, or beneficiary shall have the right to
exercise his or her Option at any time within 60 days from the date of
death of Optionee or termination of Optionee's employment by, or
service as a Director of, the Company or a Subsidiary due to
disability, as the case may be, only to the extent the Optionee was
entitled to exercise his or her Option immediately prior to such
occurrence. To the extent that the Option is not so exercised, it shall
expire at the end of such 60 day period. For purposes of this Plan,
disability shall be as defined in any written employment agreement in
effect between the applicable Optionee and the Company or a Subsidiary,
or if such Optionee is not a party to a written employment agreement in
which disability is defined, an Optionee shall be considered disabled
if he or she is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that
can be expected to result in death or that has lasted or can be
expected to last for a continuous period of not less than 6 months.
(b) If an Optionee dies during the 60-day period after the
termination of his or her position as an Employee or Director of the
Company or a Subsidiary and at the time of his or her death the
Optionee was entitled to exercise an Option theretofore granted to him
or her, the Option shall, unless the applicable Option Agreement
provides otherwise, expire 60 days after the date on which his or her
position as an Employee or Director of the Company or a Subsidiary
terminated, but in no event, later than the date on which the Option
would have expired if the Optionee had lived. Until the expiration of
such 60-day period, the Option may be exercised by the Optionee's
executor or administrator or by any person or persons who shall have
acquired the Option directly from the Optionee by bequest or
inheritance, but only
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to the extent that the Optionee was entitled to exercise the Option at
the date of his or her death and, to the extent the Option is not so
exercised, it shall expire at the end of such 60-day period.
6.4 Other Terminations. In the event that termination of employment
with the Company occurs other than for Cause or for death or disability pursuant
to Sections 6.1 or 6.3 above, or in the event that the directorship of an
Optionee who is a Director is terminated for reasons other than the removal,
resignation, death or disability of such Director, the applicable Optionee shall
have the right to exercise his or her Option at any time within 60 days after
such termination to the extent he or she was entitled to exercise the same
immediately prior to such termination. To the extent that the Option is not so
exercised, it shall expire at the end of such 60 day period.
6.5 Subject to Repurchase. All shares of Common Stock purchased by an
Optionee or his or her estate or beneficiary shall be subject to repurchase by
the Company pursuant to Section 9.3 of this Plan.
6.6 Alternative Provisions. The provisions of this Article VI shall
apply to all Options granted under the Plan except to the extent expressly
provided otherwise in any Option Agreement.
ARTICLE VII.
ADMINISTRATION OF PLAN
7.1 Administration. The Plan shall be administered by the Board of
Directors or a Committee of the Board of Directors consisting of not less than
three DIRECTORS WHO QUALIFY AS Non-Employee Directors (as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended) AND "OUTSIDE
DIRECTORS" FOR PURPOSES OF SECTION 162(M) OF THE CODE as may be appointed by the
Board of the Company, all of whom are members of the Board. Any such committee
appointed by the Board, or the Board itself during such periods as no such
properly constituted and appointed committee exists, is herein referred to as
the "Committee." A majority of the Committee shall constitute a quorum thereof
and the actions of a majority of the Committee approved at a meeting at which a
quorum is present, or actions unanimously approved in writing by all members of
the Committee, shall be the actions of the Committee. Vacancies occurring on the
Committee shall be filled by the Board. The Committee shall have full and final
authority (i) to interpret the Plan and each of the Option Agreements, (ii) to
prescribe, amend and rescind rules and regulations, if any, relating to the
Plan, (iii) to make all determinations necessary or advisable for the
administration of the Plan and (iv) to correct any defect, supply any omission
and reconcile any inconsistency in the Plan and any Option Agreement. The
determination by the Committee in all matters referred to herein shall be
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Company, the shareholders of the Company, the Committee, and
each of the members thereof and the Optionees and their respective successors in
interest.
7.2 Liability. No member of the Board or any Committee shall be liable
for anything done or omitted to be done by him or her or by any other member of
the Board or any 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 Board and any Committee shall have power to engage outside
consultants, auditors or other professional help to assist in the fulfillment of
the duties or the Board or any Committee under the Plan at the Company's
expense.
7.3 Determinations. In making its determinations concerning the
Optionees who shall receive Options as well as the number of shares to be
covered thereby and the time or times at which they shall be granted, the
Committee shall take into account the nature of the services rendered by the
respective Optionees, their past, present and potential contribution to the
Company's success and such other factors as the Committee may deem relevant. The
Committee shall determine the form of Option Agreements under the Plan and the
terms and conditions to be included therein, provided such terms and conditions
are not inconsistent with the terms of the Plan, the Company's Articles of
Incorporation or Bylaws. The Committee may waive any provisions of any Option
Agreement, provided such waiver is not inconsistent with the terms of the Plan,
the Company's Articles of Incorporation or Bylaws. The determinations of the
Committee under the Plan need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, Options under the Plan,
whether or not such persons are similarly situated.
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ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN
8.1 Amendment of Plan. The Plan may be amended at any time and from
time to time by the Board, but no amendment which (i) increases the aggregate
number of shares of Common Stock which may be issued pursuant to Options granted
under the Plan, (ii) decreases the minimum Option exercise price provided in the
Plan, (iii) extends the period during which Options may be granted pursuant to
the Plan, (iv) changes the class of individuals eligible to be granted Options,
or (v) has the effect of any of the above shall be effective unless and until
the same is approved by the affirmative vote of the holders of a majority of the
shares of Common Stock of the Company, or the unanimous written consent of such
holders, in accordance with the applicable provisions of the Articles of
Incorporation and Bylaws of the Company and applicable state law. No amendment
to the Plan shall, without the consent of an Optionee, affect such Optionee's
rights under an Option previously granted.
8.2 Termination. The Board may, at any time, terminate the Plan as of
any date specified in a resolution adopted by the Board. If not earlier
terminated, the Plan shall terminate on February 28, 2007. No Options may be
granted after the Plan has terminated but the Committee shall continue to
supervise the administration of Options previously granted.
8.3 Tax Status of Options. To the extent applicable, the Plan is
intended to permit the issuance of Options to Employees in accordance with the
provisions of Section 422 of the Code. Subject to the provision of Section 8.1
of the Plan, the Plan and Option Agreements may be modified or amended at any
time, both prospectively and retroactively, and in a manner that may affect
Options previously granted, if such amendment or modification is necessary for
the Plan and Options granted hereunder to qualify under said provision of the
Code. All Options granted under the Plan to Employees shall be intended to
qualify as incentive stock options under Section 422 of the Code to the extent
that any portion of the Options granted meet the requirements of Section 422 of
the Code. To the extent that any portion of the Options granted under the Plan
do not meet the requirements of Section 422 of the Code, such Options shall be
deemed to be Nonqualified Options. Nothing in the Plan shall be deemed to
prohibit the issuance of Nonqualified Options to Employees under the Plan. Any
Options issued to Directors shall be Nonqualified Options.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
9.1 Restrictions Upon Grant of Options. If the listing upon any stock
exchange or the registration or qualification under any federal or state law of
any shares of Common Stock to be issued on the exercise of Options granted under
the Plan (whether to permit the grant of Options the issuance of shares of
Common Stock to any permitted transferee or the resale or other disposition of
any such shares of Common Stock by or on behalf of the Optionees receiving such
shares) should be or become necessary or desirable, the Board in its sole
discretion may determine that delivery of the certificates for such shares of
Common Stock shall not be made until such listing, registration or qualification
shall have been completed. The Company agrees that it will use its reasonable
best efforts to effect any such listing, registration or qualification;
provided, however, that the Company shall not be required to use its reasonable
best efforts to effect such registration under the Securities Act of 1933 other
than on Form S-8 or such other forms as may be in effect from time to time
calling for information comparable to that presently required to be furnished
under Form S-8. In no event shall the Company be required to register shares of
Common Stock for issuance to a permitted transferee and any requested exercise
of Options by a permitted transferee shall be subject to any applicable prior
registration of the shares of Common Stock issuable upon such exercise.
9.2 Restrictions Upon Resale of Unregistered Stock. Each Optionee
shall, if the Company deems it advisable, represent and agree in writing (i)
that any shares of Common Stock acquired by such Optionee pursuant to this Plan
will not be sold except pursuant to an effective registration statement under
the Securities Act of 1933 or pursuant to an exemption from registration under
said Act, (ii) that such Optionee is acquiring such shares of Common Stock for
his or her own account and not with a view to the distribution thereof and (iii)
to such other customary matters as the Company may request. In such case, no
shares of Common Stock shall be issued to such Optionee unless such Optionee
provides such representations and agreements and the Company is reasonably
satisfied that such representations and agreements are correct.
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9.3 Repurchase by the Company.
(a) The Company shall have the right, exercisable within 60
days after the later of (i) the date of Optionee's termination of
employment with the Company or a Subsidiary or termination of service
as a Director or (ii) the date of the exercise by any person other than
Optionee of the Option pursuant to any provision of this Plan, to
purchase any shares of Common Stock (or securities into which any
Common Stock has been converted) that were acquired pursuant to the
exercise of an Option under this Plan ("Option Shares"). To the extent
that an Optionee holds exercisable Options at the time of termination
of employment or termination of service as a Director, the Company may
elect to purchase such exercisable Options in the same manner as the
Option Shares at a price equal to the Repurchase Price (as hereinafter
defined) less the exercise price of such exercisable Options.
(b) The Repurchase Price for the purchase of the Option Shares
shall be determined as follows:
(i) if the Common Stock has been registered pursuant
to a registration statement filed under the Securities Act of
1933, as amended, and the rules and regulations of the
Securities and Exchange Commission thereunder (the "Act"),
then the Repurchase Price per share shall be equal to the
average closing price per share of the Common Stock for the 30
days preceding the date of termination of employment by the
Company or a Subsidiary as published in the Wall Street
Journal; or
(ii) if the Common Stock has not been registered
under the Act, then the price shall be the book value per
share of Common Stock as of the last day of the month during
which termination of employment with the Company or a
Subsidiary (or termination of service as a Director occurs) as
determined by the formula:
P = A-L
---
S
P = the purchase price (book value) per Option Share,
A = the total assets of the Company and its
Subsidiaries (determined pursuant to generally
accepted accounting principles) shown on the
Company's balance sheet for the most recent
fiscal year ended,
L = the total liabilities of the Company and its
Subsidiaries (determined pursuant to generally
accepted accounting principles) shown on the
Company's balance sheet for the most recent
fiscal year ended,
S = the total number of shares of capital stock of
the Company outstanding on a fully diluted basis
as shown on the Company's balance sheet for the
most recent fiscal year ended and as adjusted for
any capital transactions, dividends, or
reclassification of stock subsequent to such date.
(c) To the extent that the Company has the right to purchase
Option Shares, the Company may exercise such right by delivery (upon or
within sixty days after the later of Optionee's termination of
employment with the Company or a Subsidiary (or termination of service
as a Director) or exercise by a person other than Optionee of the
Option) of written notice to the Optionee (or such other person
exercising such Option) stating the full number of Option Shares that
the Company has elected to purchase, the purchase price per Option
Share, and the time of purchase (which time shall not be earlier than 5
days from the date of notice). At the time of purchase, the Optionee
shall deliver the certificate or certificates representing his Option
Shares to the Company at its offices and shall execute any stock powers
or other instruments as may be necessary to transfer full ownership of
the Option Shares to the Company. At the time of purchase, the Company
shall issue its own check within 60 days to the Optionee in an amount
equal to the aggregate purchase price for the Option Shares for which
the Company has exercised its right to purchase, less any amounts
required to be withheld under applicable laws. In the event of
Optionee's
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<PAGE> 39
death or disability, the Company's right to purchase and the manner of
purchase shall apply with regard to the Optionee's estate, beneficiary,
administrator or personal representative.
9.4 Adjustments. The number of shares of Common Stock of the Company
authorized for issuance under the Plan, as well as the price to be paid and the
number of shares issued upon exercise of outstanding Options, shall be subject
to adjustment by the Committee, in its sole discretion, to reflect any stock
split, stock dividend, recapitalization, merger consolidation, reorganization,
combination or exchange of shares or other similar event.
9.5 Use of Proceeds. The proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company and may be used for such corporate purposes as the Company may
determine.
9.6 Substitution of Options.
(a) The Committee may, with the consent of the holder of any
Option granted under the Plan, cancel such Option and grant a new
Option in substitution therefor, provided that the Option as so
substituted shall satisfy all of the requirements of the Plan as of the
date such new Option is granted.
(b) Options may be granted under the Plan in substitution for
options held by individuals who are employees or directors of another
corporation and who become Employees or Directors of the Company or any
Subsidiary of the Company eligible to receive Options pursuant to the
Plan as a result of a merger, consolidation, reorganization or similar
event. The terms and conditions of any Options so granted may vary from
those set forth in the Plan to the extent deemed appropriate by the
Committee in order to conform the provisions of Options granted
pursuant to the Plan to the provisions of the options in substitution
for which they are granted.
9.7 Restrictive Legends.
(a) Certificates representing shares of Common Stock delivered
pursuant to the exercise of Options shall bear an appropriate legend
referring to the terms, conditions and restrictions described in this
Plan. Any attempt to dispose of any such shares of Common Stock in
contravention of the terms, conditions and restrictions described in
the Plan shall be ineffective, null and void, and the Company shall not
effect any such transfer on its books.
(b) Any shares of Common Stock of the Company received by an
Optionee (or his or her heirs, legatees, distributees or
representative) as a stock dividend on, or as a result of a stock
split, combination, exchange of shares, reorganization, merger,
consolidation or otherwise with respect to, shares of Common Stock
received pursuant to the exercise of Options, shall be subject to the
terms and conditions of the Plan and bear the same legend as the shares
received pursuant to the exercise of Options.
9.8 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 Optionee at the address on file with the Company at the
time of grant hereunder, or to such other address as either party may hereafter
designate in writing by notice similarly given by one party to the other.
9.9 Prior Option Agreements. Each Option Agreement entered into prior
to the effective date of this INSpire Insurance Solutions, Inc. Second Amended
and Restated 1997 Stock Option Plan is hereby amended to conform to the
provisions of the Plan.
9.10 Effective Dates. The Plan originally became effective on March 12,
1997. The second amendment and restatement effected hereby is effective July 30,
1997, February 16, 1998, subject to any required shareholder approval.
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PRELIMINARY COPIES
IN WITNESS WHEREOF, upon authorization of the Board of Directors and
the Shareholders of the Company, the undersigned has caused the INSpire
Insurance Solutions, Inc. Second Amended and Restated 1997 Stock Option Plan to
be executed effective as of the 30th day of July 1997 16TH DAY OF FEBRUARY 1998.
-------------------------------------
F. George Dunham, III
President and Chief Executive Officer
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<PAGE> 41
PRELIMINARY COPIES
APPENDIX I
INSPIRE INSURANCE SOLUTIONS, INC.
300 Burnett Street
Fort Worth, Texas 76102-2799
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF INSPIRE INSURANCE SOLUTIONS, INC.
I hereby appoint F. George Dunham, III and Terry G. Gaines, or any one
of them acting in the absence of the other, as proxyholders, each with the power
to appoint his substitute, and hereby authorize them to represent me and to vote
for me as designated below, at the annual meeting (the "Annual Meeting") of
INSpire Insurance Solutions, Inc., a Texas corporation (the "Company"), to be
held on April 21, 1998, at 10:00 a.m., Fort Worth, Texas, time, at the
Worthington Hotel, 200 Main Street, Fort Worth, Texas 76102, and at any
postponement or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
below. This proxy will be voted, in the discretion of the proxyholders, upon
such other business as may properly come before the Annual Meeting or any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:
(1) The proposal to elect R. Earl Cox, III as director to the Company's
Board of Directors for a term of three (3) years:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) The proposal to approve and ratify the Company's Second Amended and
Restated 1997 Stock Option Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) The proposal to amend the Company's 1997 Director Stock Option Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(4) The proposal to authorize any officer or officers of the Company to
negotiate, and cause the Company to enter into, a lease agreement with the
Partnership (as defined in the Proxy Statement) with respect to office
space in building located at 300 Burnett Street, Fort Worth, Texas:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(5) The proposal to ratify the appointment by the Board of Directors of
Deloitte & Touche LLP as the independent auditors of the Company's
financial statements for the year ended December 31, 1998:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned hereby acknowledges receipt of the Proxy Statement
dated April 1, 1998 and hereby revokes any proxy or proxies heretofore given to
vote at said meeting or any adjournment thereof.
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED SELF-ADDRESSED AND
POSTMARKED ENVELOPE)
Signature Date , 1998
------------------------------------ ------------------
Name
------------------------------------------
(Please print)
<PAGE> 42
APENDIX II
INSPIRE INSURANCE SOLUTIONS, INC.
1997 DIRECTOR STOCK OPTION PLAN
Section 1. Purpose. The purpose of the INSpire Insurance
Solutions, Inc. 1997 Director Stock Option Plan (the "Plan") is to promote the
interests of INSpire Insurance Solutions, Inc., a Texas corporation (the
"Company"), and the interests of the Company's shareholders by providing an
opportunity to nonemployee directors of the Company to purchase Common Stock of
the Company. By encouraging such stock ownership, the Company seeks to
attract, retain and motivate such nonemployee directors and to encourage them
to devote their best efforts to the business and financial success of the
Company. Under the Plan, the Committee shall automatically grant
"non-qualified stock options" as described in Treasury Regulation Section
1.83-7 or any successor regulation thereto to each nonemployee director of the
Company under the terms and conditions described below.
Section 2. Definitions. For purposes of the Plan, the following
terms used herein shall have the following meanings, unless a different meaning
is clearly required by the context.
2.1 "Board of Directors" shall mean the Board of Directors of the
Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.3 "Committee" shall mean the committee of the Board of Directors
referred to in Section 5 hereof.
2.4 "Common Stock" shall mean the Common Stock, $.01 par value, of
the Company.
2.5 "Nonemployee Director" shall mean any director of the Company
on the date of an award hereunder who is not an employee of the Company or an
employee of any Parent or Subsidiary of the Company.
2.6 "Non-Qualified Options" or "Options" shall mean options
granted to a Participant pursuant to the Plan that are intended to be, and
qualify as, "nonqualified stock options" as described in Treasury Regulation
Section 1.83-7 or any successor regulation thereto and that shall not
constitute nor be treated as an incentive stock options (as defined in Section
422(b) of the Code).
2.7 "Participant" shall mean any Nonemployee Director to whom any
Non-Qualified Options are granted under the Plan.
2.8 "Parent of the Company" shall have the meaning set forth in
Section 424(e) of the Code.
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2.9 "Subsidiary of the Company" shall have the meaning set forth
in Section 424(f) of the Code.
Section 3. Eligibility. Subject to the share limitations of
Section 4.1 hereof, each Nonemployee Director shall automatically receive
grants of Non-Qualified Options to purchase Common Stock as follows:
(a) each Nonemployee Director who serves as a director on the date
of adoption of the Plan shall be granted Non-Qualified Options
to purchase 2,500 shares of Common Stock on the date of the
initial public offering of the Common Stock at an exercise
price equal to the initial price to the public of the Common
Stock offered and sold by the Company in its initial public
offering;
(b) each Nonemployee Director who is first elected (or appointed
to fill a vacancy) as a director of the Company after the
initial public offering of Common Stock by the Company shall
be granted Non-Qualified Options to purchase 2,500 shares of
Common Stock on the day immediately after the date on which
such Nonemployee Director is first elected (or appointed) as a
director of the Company; and
(c) each Nonemployee Director who has previously been granted
Non-Qualified Options under the Plan shall be granted
additional Non-Qualified Options to purchase 250 shares of
Common Stock on the day immediately after each annual meeting
subsequent to 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.
Section 4. Common Stock Subject to the Plan.
4.1 Number of Shares. The total number of shares of Common Stock
for which Non-Qualified Options may be granted under the Plan shall not exceed
in the aggregate 50,000 shares of Common Stock (subject to adjustment as
provided in section 6 hereof). If on any date upon which Non-Qualified Options
are to be granted hereunder, the number of shares of Common Stock remaining
available for issuance under the Plan is insufficient for the grant of the
total number of Non-Qualified Options to all Nonemployee Directors otherwise
entitled thereto pursuant to Section 3 above, then each Nonemployee Director
shall receive Non-Qualified Options to purchase a proportionate number of the
available number of shares remaining (rounded down to the greatest number of
whole shares of Common Stock available).
4.2 Reissuance. The shares of Common Stock that may be subject to
Non-Qualified Options granted under the Plan may be either authorized and
unissued shares or shares reacquired at any time and now or hereafter held as
treasury stock as the Board of Directors may determine. In the event that any
outstanding Non-Qualified Options expire or are terminated for any reason, the
shares allocable to such Non-Qualified Options may again be subject to
Non-Qualified Options granted under the Plan.
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Section 5. Administration of the Plan
5.1 Administration. The Plan shall be administered by the entire
Board of Directors or by a committee of the Board of Directors (the
"Committee") established by the Board of Directors and consisting of no less
than three Non-Employee Directors (as defined in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended.) Any Committee shall be
appointed from time to time by, and shall serve at the pleasure of, the Board
of Directors. To the extent that the Plan is administered by the entire Board
of Directors, the term "Committee" shall be deemed to refer to the Board of
Directors.
5.2 Grant of Non-Qualified Options. Upon each grant of
Non-Qualified Options hereunder, the Committee, on behalf of the Company, shall
enter into, execute, and deliver to the Participant a stock option agreement
("Non-Qualified Stock Option Agreement") relating to such Non-Qualified
Options, which agreement shall contain the following terms and conditions,
together with such other terms and conditions which are determined by the
Committee and are not inconsistent with any of the following terms and
conditions or with any other provision of the Plan:
(a) Such Non-Qualified Options shall expire on the tenth
anniversary of the date of grant thereof, or, if earlier, three (3) months
after the date the Participant ceases to be a director of the Company other
than by reason of death or disability, in which case the three (3) month period
shall be extended to one (1) year for the Participant or, in the case of his
death, his legal representative, legatee, or distributee.
(b) The exercise price of the Non-Qualified Options granted under
Section 3(a) of the Plan shall be the initial price to public of the Common
Stock sold by the Company in its initial public offering. The exercise price of
all other Non-Qualified Options granted under the Plan shall be equal to the
fair market value on the date of grant of such Non-Qualified Options. For
purposes of the Plan, the fair market value per share of Common Stock as of any
day shall be deemed to be the average of the daily closing prices per share of
Common Stock for the 30 consecutive trading days that such shares were traded
ending on the 15th day before such date. The closing price for each day shall
be the reported closing price on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading, or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automated Quotation National Market (the "NASDAQ National Market"), or, if the
shares of Common Stock are not quoted on the NASDAQ National Market, the
average of the highest reported bid and the lowest reported asked prices as
furnished by the National Association of Securities Dealers, Inc. (the "NASD")
through NASDAQ, or, if not so reported through NASDAQ as reported through the
National Quotation Bureau, Incorporated ("NQBI") or a similar organization if
NASDAQ or NQBI is no longer reporting such information. If the Common Stock is
not reported or quoted by any such organization on any of the 30 consecutive
days ending on the 15th day before the date of grant, the fair market value of
the shares of Common Stock subject to Non-Qualified Options on the date the
Options are granted shall be the fair market value thereof determined in good
faith by the
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Board of Directors. The fair market value of Shares of Common Stock subject to
Options shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(c) The Non-Qualified Options granted hereunder shall be one
hundred percent (100%) vested and exercisable at all times on and after a
Registration Statement on Form S-8 has been filed with the Securities and
Exchange Commission with respect to the Plan and becomes effective.
(d) Subject to the prior consent of the Committee, Options granted
hereunder may be transferred by the Participant thereof to one or more
permitted transferees; provided that (i) there may be no consideration for such
transfer, (ii) the Participant (or such Participant's estate or representative)
shall remain obligated to satisfy all employment tax and other withholding tax
obligations associated with the exercise of the Options, (iii) the Participant
shall notify the Company in writing that such transfer has occurred, the
identity and address of the permitted transferee and the relationship of the
permitted transferee to the Participant and (iv) such transfer shall be
effected pursuant to transfer documents approved from time to time by the
Committee. To the extent an Option transferred pursuant to this Section 5.2(d)
is not fully exercisable as of the date of transfer thereof, the Participant
shall specify in the transfer document whether and to what extent the
transferred Options (if less than all of the options subject to the applicable
Non-Qualified Stock Option Agreement) are exercisable, subject to the
limitations on exercisability contained in the applicable Non-Qualified Stock
Option Agreement. Furthermore, to the extent the Participant transfers Options
that are not exercisable as of the date of transfer and such Options are less
than all of the Options subject to the applicable Non-Qualified Stock Option
Agreement, the Participant shall specify in the transfer documents, subject to
the limitations on exercisability contained in the applicable Non-Qualified
Stock Option Agreement, when the transferred Options become exercisable as
Options under the applicable Non-Qualified Stock Option Agreement generally
become exercisable subsequent to such transfer. Any permitted transferee may
not further assign or transfer the transferred Option otherwise than by will or
the laws of the descent and distribution. Following any permitted transfer,
any such Options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer; provided that for purposes of
Sections 5.2(e) and 8 hereof the term "Participant" shall be deemed to refer
also to each permitted transferee. The events of termination of relationship
in Section 5.2(a) hereof shall continue to be applied with respect to the
Participant, following which the Options shall be exercisable by the transferee
only to the extent, and for the periods specified in Section 5.2(a). The term
"permitted transferees" shall mean one or more of the following: (i) any member
of the Participant's immediate family; (ii) a trust established for the
exclusive benefit of one or more members of such immediate family; or (iii) a
partnership in which such immediate family members are the only partners. The
term "immediate family" is defined for such purpose as spouses, children,
stepchildren and grandchildren, including relationships arising from adoption.
(e) Shares of Common Stock purchased upon exercise of Options
shall at the time of purchase be paid for in full. The Company shall satisfy
its employment tax and other tax withholding obligations by requiring the
Participant (or such Participant's permitted transferee, estate or
representative) to pay the amount of employment tax and withholding tax, if
any, that
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<PAGE> 46
must be paid under federal, state and local law due to the exercise of the
Option. To the extent that the right to purchase shares has accrued hereunder,
Options may be exercised from time to time by written notice to the Company
stating the full number of shares with respect to which the Option is being
exercised and the time of delivery thereof, which shall be at least fifteen
days after the giving of such notice unless an earlier date shall have been
mutually agreed upon by the Participant (or other person entitled to exercise
the Option) and the Company, accompanied by payment to the Company of the
purchase price in full and the amount of employment tax and withholding tax
due, if any, upon the exercise of the Option. Such payment shall be effected
(i) by certified or official bank check, (ii) if so permitted by the Company,
by the delivery of a number of shares of Common Stock (plus cash if necessary)
having a fair market value equal to the amount of such purchase price and
employment or withholding tax, or (iii) by delivery of the equivalent thereof
acceptable to the Company. The Company will, as soon as reasonably possible
notify the Participant (or such Participant's representative) of the amount of
employment tax and other withholding tax that must be paid under federal, state
and local law due to the exercise of the Option. At the time of delivery, the
Company shall, without transfer or issue tax to the Participant (or other
person entitled to exercise the Option), deliver to the Participant (or to such
other person) at the principal office of the Company, or such other place as
shall be mutually agreed upon, a certificate or certificates for the shares of
Common Stock, provided, however, that the time of delivery may be postponed by
the Company for such period as may be required for it with reasonable diligence
to comply with any requirements of law.
5.3 Interpretation. The Committee shall be authorized to
interpret the Plan and may, from time to time, adopt such rules and
regulations, not inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the purposes of the Plan.
5.4 Finality. The interpretation and construction by the
Committee of any provisions of the Plan, any Options granted hereunder or any
agreement evidencing any such Options shall be final and conclusive upon all
parties.
5.5 Voting. Subject to Sections 3 and 5.2 hereof, members of the
Committee may vote on any matter affecting the administration of the Plan or
the granting of Options under the Plan.
5.6 Expenses, Etc. All expenses and liabilities incurred by the
Committee in the administration of the Plan shall be borne by the Company. The
Committee may employ attorneys, consultants, accountants or other persons in
connection with the administration of the Plan. The Company, and its officers
and directors, shall be entitled to rely upon the advice, opinions or
valuations of any such persons.
5.7 Indemnification. Neither the members of the Board of
Directors nor any member of the Committee shall be liable for any act,
omission, or determination taken or made in good faith with respect to the Plan
or any Options granted under it, and members of the Board of Directors and the
Committee shall be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage, or expense (including attorneys' fees,
the costs of settling any suit, provided such settlement is approved by
independent legal counsel selected
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<PAGE> 47
by the Company, and amounts paid in satisfaction of a judgment, except a
judgment based on a finding of bad faith) arising therefrom to the full extent
permitted by law.
Section 6. Adjustments. In the event that, after the adoption
of the Plan by the Board of Directors, the outstanding shares of the Company's
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
through reorganization, merger or consolidation, recapitalization,
reclassification, stock split, split-up, combination or exchange of shares or
increased because of any dividends paid in Common Stock, the Board of Directors
shall appropriately adjust (i) the number of shares of Common Stock (and the
exercise price per share) subject to any unexercised Options (to the nearest
possible full share); and (ii) the number of shares of Common Stock for which
Options may be granted under the Plan, as set forth in Section 4.1 hereof, and
such adjustments shall be effective and binding for all purposes of the Plan.
Section 7. Effect of the Plan on Participant's Relationship with
the Company. Neither the Plan nor any Options granted hereunder to a
Participant shall be construed as conferring upon such Participant any right to
continue to serve as a director of (or otherwise provide services to) the
Company or limit in any respect the right of the Company to terminate such
Participant's relationship with the Company at any time. No person or entity
shall be entitled to vote, receive dividends, or be deemed for any purpose the
holder of any Shares until the Options granted with respect to such Shares
shall have been exercised in accordance with the provisions of the Plan.
Section 8. Amendment of the Plan.
(a) The Board of Directors may amend the Plan from time to time as
it deems desirable; provided, however, that, (1) no such amendment shall
deprive any Participant of any Options theretofore granted under the Plan,
without the consent of such Participant, or of any of his or her rights
thereunder or with respect thereto; and (2) without the approval of the holders
of a majority of the stock of the Company present, or represented, and entitled
to vote thereon at a meeting, the Board of Directors may not amend the Plan (i)
to increase (except for increases due to adjustments in accordance with Section
6 hereof) the aggregate number of shares of Common Stock for which Options may
be granted hereunder, or (ii) to make any other change requiring shareholder
approval under (A) any applicable rule, regulation, or procedure of any
national securities exchange or securities association upon which any
securities of the Company are listed (or any listing agreement with any such
securities exchange or securities association), or (B) Rule 16b-3 promulgated
under the Exchange Act.
(b) Notwithstanding anything to the contrary above, the Plan may
not be amended more than once every six (6) months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974
("ERISA"), or the rules thereunder.
Section 9. Termination of the Plan. The Board of Directors may
terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate on December 31,
2007. No Options may be granted hereunder after
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<PAGE> 48
termination of the Plan. The termination of the Plan shall not alter or impair
any rights or obligations under any Options theretofore granted under the Plan.
Section 10. Effective Date of the Plan. The Plan is effective on
July 30, 1997, which was the date of its adoption by the Board of Directors of
the Company and its approval by the written consent of the sole shareholder of
the Company.
Section 11. Legal Restrictions. Nothing herein, in any agreement
entered into hereunder, or in any Options granted hereunder, shall require the
Company to sell or issue any Common Stock pursuant to an Option if such sale or
issuance would, in the opinion of counsel for the Company, constitute a
violation of the Securities Act of 1933, as amended, or any similar or
superseding statute or statutes, or any other applicable federal or state
statute, rule, or regulation, as then in effect. At the time of any grant or
exercise of any Options, or sale or issuance of common Stock pursuant thereto,
the Company may, as a condition precedent to the sale or issuance of such
Common Stock, require from the holder of the Options (or in the event of his
death, his legal representatives, legatees, or distributees) such written
representations, if any, concerning his (or the transferee's) intentions with
regard to the retention or disposition of the Common Stock being acquired
pursuant to such Options, and such written covenants and agreements, if any, as
to the manner of disposal of such Common Stock as, in the opinion of counsel to
the Company, may be necessary to ensure that any disposition by such holder (or
in the event of his death, his legal representatives, legatees, or
distributees) will not involve a violation of the Securities Act of 1933, as
amended, or any similar or superseding statute or statutes, or any other
applicable federal or state statute, rule, or regulation, as then in effect.
Certificates for Common Stock, when issued, shall have appropriate legends, or
statements of other applicable restrictions, endorsed thereon, and may or may
not be immediately transferable.
Section 12. Governing Law. All questions arising with respect to
the provisions of the Plan or any agreement entered into hereunder or any
Option shall be determined by application of the laws of the State of Texas
except to the extent Texas law is preempted by federal law.
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APPENDIX III
FIRST AMENDMENT
TO
THE INSPIRE INSURANCE SOLUTIONS, INC.
1997 DIRECTOR STOCK OPTION PLAN
This First Amendment to the INSpire Insurance Solutions, Inc. Director
Stock Option Plan (the "Plan") hereby amends the Plan as follows effective as
of February 16, 1998:
1. Section 3(c) of the Plan, which describes the amount of stock
options granted annually to Nonemployee Directors, hereby is amended by
deleting the sentence thereof and inserting in its place the following
sentence:
"each Nonemployee Director who has previously been granted
Non-Qualified Options under the Plan shall be granted additional
Non-Qualified Options to purchase 2,500 shares of Common Stock on the
day immediately after each annual meeting subsequent to 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."
2. As amended by the foregoing, the Plan shall remain in full
force and effect.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
---------------------------------------
F. George Dunham, III
President and Chief Executive Officer
