<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] 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:
- --------------------------------------------------------------------------------
<PAGE> 2
INSPIRE INSURANCE SOLUTIONS, INC.
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
NOTICE OF THE 1999 ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD MAY 12, 1999
To the Shareholders
of INSpire Insurance Solutions, Inc.:
INSpire Insurance Solutions, Inc., a Texas corporation (the "Company" or
"INSpire"), cordially invites you to attend the 1999 annual meeting of its
shareholders at the Worthington Hotel, 200 Main Street, Fort Worth, Texas 76102,
on May 12, 1999, at 10:00 a.m. Fort Worth time, for the following purposes:
(1) To elect three directors to INSpire's Board of Directors;
(2) To consider and vote upon a proposal to approve and ratify INSpire's
Executive Performance Stock Incentive Plan;
(3) To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of INSpire's financial statements for the year ended December
31, 1999; and
(4) To transact such other business as may properly come before the annual
meeting or any adjournments thereof.
The Board of Directors of INSpire has established the close of business on
March 15, 1999 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
INSpire's office in Fort Worth, Texas, during regular business hours on any
business day before the annual meeting or any adjournment thereof.
We have included, along with this notice and Proxy Statement, the 1998
Annual Report and Form 10-K, which describe certain of INSpire's activities
during 1998 and contain INSpire's financial statements for the year ended
December 31, 1998. The Annual Report and Form 10-K do not form any part of the
material for solicitation of proxies.
WE URGE SHAREHOLDERS, 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, THAT SHAREHOLDER MAY REVOKE THE PROXY AND VOTE IN PERSON ON ALL
MATTERS SUBMITTED AT THE ANNUAL MEETING.
By Order of the Board of Directors,
/s/ F. George Dunham, III
F. George Dunham, III
Chief Executive Officer and
Chairman of the Board of Directors
April 1, 1999
Fort Worth, Texas
<PAGE> 3
INSPIRE INSURANCE SOLUTIONS, INC.
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
PROXY STATEMENT
1999 ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD MAY 12, 1999
INTRODUCTION
The board of directors (the "Board of Directors") of INSpire Insurance
Solutions, Inc., a Texas corporation (the "Company" or "INSpire"), hereby
solicits your proxy on behalf of INSpire for use at the 1999 annual meeting of
INSpire's shareholders and any continuation of this 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 May 12,
1999, at 10:00 a.m. Fort Worth time.
INSpire's principal executive office is located at 300 Burnett Street, Fort
Worth, Texas 76102-2799. INSpire's telephone number is (817) 348-3900.
INSpire mailed this proxy statement (this "Proxy Statement") and the
accompanying proxy card (the "Proxy Card") on or about April 1, 1999. The date
of this Proxy Statement is April 1, 1999.
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 INSpire on
March 15, 1999 will vote upon the following matters:
(1) The proposal to elect Daniel E. Berce, William J. Smith, III and Mitch
S. Wynne as directors to INSpire's Board of Directors;
(2) The proposal to approve and ratify INSpire's Executive Performance
Stock Incentive Plan;
(3) The ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as the independent auditors of INSpire's
financial statements for the year ended December 31, 1999; and
(4) 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 Daniel E. Berce, William J. Smith, III and Mitch S.
Wynne as directors to INSpire's Board of Directors;
(2) The approval and ratification of INSpire's Executive Performance Stock
Incentive Plan;
(3) The ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as the independent auditors of INSpire's
financial statements for the year ended December 31, 1999.
The Millers Mutual Fire Insurance Company ("Millers Mutual"), which owned
approximately 24.6% of the Common Stock on March 15, 1999, has informed the
Board of Directors that it will vote "FOR" each of the proposals.
<PAGE> 4
RECORD DATE AND VOTING
RECORD DATE
The Board of Directors has established the close of business on March 15,
1999 (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,
INSpire had 18,763,558 shares of Common Stock outstanding. INSpire did not have
any other shares of capital stock outstanding on the Record Date.
QUORUM, REQUIRED VOTE AND VOTING RIGHTS
Quorum. The presence, in person or by proxy, of Shareholders holding a
majority of the outstanding shares of Common Stock on the Record Date will
constitute a quorum at the Annual Meeting. Shares that are represented at the
Annual Meeting but abstain from voting on any or all matters and shares that are
"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 in determining whether a quorum is present 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.
Required Vote. To elect a nominee for director, a plurality of the votes
cast (in person or by proxy) is required. Therefore, if you abstain from voting
in the election of a director, your abstention will not affect the outcome of
that election. A majority of the shares of Common Stock entitled to vote and
present in person or by proxy is required to: (i) approve and ratify INSpire's
Executive Performance Stock Incentive Plan; and (ii) ratify the appointment by
the Board of Directors of Deloitte & Touche LLP as the independent auditors of
INSpire's financial statements for the year ended December 31, 1999. If you
abstain from voting on any of these proposals, your abstention will have the
effect of a negative vote with respect to these proposals because each of these
proposals requires the affirmative vote of a majority of shares of Common Stock
present in person or 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. Therefore, broker non-votes will
have no effect on the outcome of any of the proposals, including the election of
directors.
Voting Rights. 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.
PROXIES
F. George Dunham, III and William J. Smith, III, the persons named as
proxies on the Proxy Card accompanying this Proxy Statement, were selected by
the Board of Directors to serve as proxies (collectively, the "Proxyholders").
Messrs. Dunham and Smith are officers of INSpire. Each executed and returned
Proxy Card will be voted according to the directions indicated on that Proxy
Card. If no direction is indicated, the proxy will be voted according to the
Board of Directors' recommendations, which are 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 that requires 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 is in the best interests of INSpire.
Each Shareholder giving a proxy has the power to revoke it at any time
before the shares of Common Stock it represents are voted. This revocation is
effective upon receipt, at any time before the Annual Meeting is called to
order, by the Secretary of INSpire of either (i) an instrument revoking the
proxy or (ii) a duly
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<PAGE> 5
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, which will
be arranged in alphabetical order and which will show each Shareholder's address
and the number of shares registered in his or her name, will be open to any
Shareholder to examine for any purpose related to the Annual Meeting. Any
Shareholder may examine this list during ordinary business hours commencing
April 1, 1999, and continuing through the date of the Annual Meeting at the
principal office of INSpire, 300 Burnett Street, Fort Worth, Texas, 76102-2799.
SOLICITATION AGENT AND CERTAIN REIMBURSEMENTS
INSpire will bear the cost to solicit proxies. INSpire has retained Morrow
& Co., Inc. (the "Solicitation Agent") to solicit proxies for 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. INSpire will pay the Solicitation Agent a fee of
$4,000 and reimburse it for its out-of-pocket expenses in connection with this
solicitation. INSpire 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. INSpire's directors and officers also may solicit proxies from
Shareholders and other persons by any of the means described above. INSpire will
not pay these directors and officers any extra compensation for participating in
this solicitation.
3
<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of six directors. At the Annual
Meeting, three directors are to be elected: Daniel E. Berce for a term of two
(2) years that expires at the annual meeting of shareholders to be held in 2001,
and William J. Smith, III and Mitch S. Wynne, each for a term of three (3) years
that expires at the annual meeting of shareholders to be held in 2002. THE BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT TO CONTINUE TO SERVE AS DIRECTORS OF
INSPIRE. See "-- Nominees" below.
The three remaining directors, whose terms of office expire in 2000 and
2001, will continue to serve after the Annual Meeting until their respective
terms of office expire or their successors are duly elected and qualified. See
"-- Other Directors" below.
NOMINEES
Daniel E. Berce, age 45, was appointed as a director by the Board of
Directors on March 29, 1999. If elected as a director at the Annual Meeting, his
term would expire at the 2001 annual meeting of shareholders. Mr. Berce has
served as Vice Chairman and a director of AmeriCredit Corp. a publicly-traded
consumer finance company ("AmeriCredit"), since November 1996. Mr. Berce has
also served as Chief Financial Officer of AmeriCredit since May 1990, and
Treasurer of AmeriCredit from May 1990 to November 1996. Previously, Mr. Berce
was a partner with PricewaterhouseCoopers LLP.
William J. Smith, III, age 40, has served as President, Chief Operating
Officer and a director of INSpire since April 1998. His current term as director
expires at the 1999 Annual Meeting. From December 1997 to April 1998, Mr. Smith
served as Vice President of Sales, Midrange Systems, for IBM North America. From
July 1996 to December 1997, Mr. Smith served as General Manager, RS/6000 Sales
and Services, for IBM North America. From 1992 to July 1996, Mr. Smith served as
a business unit executive and assistant to the President for IBM North America.
Mitch S. Wynne, age 40, has served as a director of INSpire since March
1997 and his current term as director expires at the 1999 Annual Meeting. Mr.
Wynne also served as a director of Millers Mutual and The Millers Casualty
Insurance Company ("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.
OTHER DIRECTORS
The following persons will continue to serve as directors of INSpire 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......... 40 Chief Executive Officer, 1995 2000
Chairman of the Board and
Director
Harry E. Bartel............... 56 Director 1996 2000
R. Earl Cox, III.............. 65 Director 1996 2001
</TABLE>
Mr. Dunham has served as Chief Executive Officer and a director of INSpire
since its inception in 1995. Mr. Dunham has also served as President of INSpire
since inception to April 1998. His current term as director expires in 2000. Mr.
Dunham served from inception to March 1996 as Chairman of the Board of INSpire
and was again elected to that position in June 1997. Mr. Dunham has served as a
director of Millers
4
<PAGE> 7
Mutual and Millers Casualty since 1992. In October 1998, he was elected Chairman
of the Board of Millers Mutual and Millers Casualty. From June 1997 to October
1998, he served as Vice Chairman of the Board of both companies. 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. From 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 INSpire 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.
Mr. Cox has served as a director of INSpire since 1996 and his current term
as director expires in 2001. Mr. Cox also served as a director of Millers Mutual
and Millers Casualty from March 1987 to June 1997. Since 1977, Mr. Cox has
served as president of R.E. Cox Realty Co. and has been a co-owner of OFCO
Office Furniture, Inc. since 1985. Mr. Cox has served as a director of KBK
Capital Corp., a factoring company, since 1995 and a director and Chairman of
the Board of Tandycraft, Inc., a manufacturer and retailer of craft products,
since 1985.
EXECUTIVE OFFICERS
Set forth below is a table identifying executive officers of INSpire who
are not identified herein as a director or nominee for director.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Kenneth J. Meister....... 34 Executive Vice President and Chief Financial Officer
Ronald O. Lynn........... 61 Executive Vice President and Chief Information Officer
Robert K. Agazzi......... 55 Executive Vice President -- Software and Systems
Jeffrey W. Robinson...... 41 Executive Vice President -- Outsourcing
James P. Strickland...... 32 Senior Vice President -- Outsourcing Sales and
Marketing
John C. Aldredge......... 53 Senior Vice President -- Research and Development
B. L. Buatt.............. 60 Senior Vice President -- Professional Services
</TABLE>
Mr. Meister was elected as Executive Vice President and Chief Financial
Officer of INSpire on January 11, 1999. From June 1996 to January 1999, Mr.
Meister served as a Senior Vice President in the Investment Banking Group of
Raymond James & Associates, Inc., a New York Stock Exchange investment banking
firm ("Raymond James"). While at Raymond James, Mr. Meister focused primarily on
public offerings and mergers and acquisitions for information technology
companies. Before joining Raymond James, he was a practicing corporate and
securities attorney for over five years, most recently with Foley & Lardner.
Mr. Lynn has served as Executive Vice President and Chief Information
Officer of INSpire since March 1997 and, from March 1996 to March 1997, as Vice
President of INSpire. 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. Agazzi has served as Executive Vice President -- Software and Systems
of INSpire 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
INSpire since June 1997. From November 1996 to June 1997, Mr. Robinson served as
Vice President -- Policy Life Cycle of INSpire, Millers Mutual and Millers
Casualty. From 1985 to March 1997, Mr. Robinson served in various management
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<PAGE> 8
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. Strickland has served as Senior Vice President -- Outsourcing Sales and
Marketing of INSpire since January 1998. 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.
Mr. Aldredge has served as Senior Vice President -- Research and
Development of INSpire since September 1998. From January 1996 to September
1998, Mr. Aldredge served as Senior Vice President for Technology Services for
Insurance Technology Services Inc., an insurance systems integration and
consulting firm. From 1993 to December 1995, Mr. Aldredge served as the Chief
Information Officer of the Texas Workers Compensation Insurance Fund. Before
1993, he served as an officer of several software companies and Chief
Information Officer of the City of Lubbock, Texas.
Mr. Buatt was elected as Senior Vice President -- Professional Services of
INSpire on February 18, 1999. From October 1997 to February 1999, Mr. Buatt
served as Senior Vice President for Professional Services for the Americas
Banking Division of the Financial Services Group of Computer Sciences
Corporation. From November 1994 to October 1997, he served as Senior Vice
President for Outsourcing for the Americas Banking Division of Computer Sciences
Corporation.
MANAGEMENT
Amounts and prices related to shares of Common Stock have been adjusted to
give effect to a three-for-two stock split of the Common Stock, effected in the
form of a stock dividend, paid on August 17, 1998.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation with
respect to the Chief Executive Officer of INSpire and INSpire's four most highly
compensated executive officers other than the Chief Executive Officer (the
"named executive officers") for services rendered during 1998 and 1997. During
1996, Mr. Dunham was the President and Chief Executive Officer of both INSpire
and Millers Mutual, and Millers Mutual paid all compensation of Mr. Dunham and
certain other officers of INSpire who were also officers of Millers Mutual. In
turn, INSpire paid Millers Mutual a management fee. Accordingly, INSpire did not
pay any compensation during 1996 to any named executive officer. See "Certain
Transactions."
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<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------------- UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. George Dunham, III................ 1998 391,667 -- 270,000 --
Chief Executive Officer 1997 175,000(2) 175,000 1,397,309 --
and Chairman of the Board
William J. Smith, III................ 1998 216,667(3) -- 375,000 199,332(4)
President and Chief Operating
Officer
Robert K. Agazzi..................... 1998 164,325 -- -- --
Executive Vice President -- 1997 136,126(5) 33,448 237,543 --
Software and Systems
Ronald O. Lynn....................... 1998 127,500 -- 9,693 --
Executive Vice President 1997 115,000 57,500 237,543 --
and Chief Information Officer
Jeffrey W. Robinson.................. 1998 127,500 -- 45,000 --
Executive Vice President -- 1997 115,000 57,500 237,543 --
Outsourcing
</TABLE>
- ---------------
(1) Does not include "Other Annual Compensation" because amounts of certain
perquisites and other noncash benefits provided by INSpire did not exceed
the lesser of $50,000 or 10% of the total annual base salary and bonus
disclosed in this table for the respective officer.
(2) Represents salary paid to Mr. Dunham for the six months ended December 31,
1997. Mr. Dunham was compensated by Millers Mutual for the six months ended
June 30, 1997.
(3) Represents salary paid to Mr. Smith during 1998 since his employment with
INSpire began in April 1998.
(4) Represents moving expenses and a one-time bonus paid to Mr. Smith in
connection with his employment with INSpire.
(5) Represents salary paid to Mr. Agazzi during 1997 since his employment with
INSpire began in March 1997.
The following table sets forth certain information concerning the options
granted to the named executive officers during 1998. Since December 31, 1998,
INSpire has not granted any options to any of the named executive officers. For
additional information on and certain terms of options, see "-- Stock Option
Plan."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL MARKET ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE ON PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE DATE OF OPTION TERM($)(2)
OPTIONS EMP. IN PRICE GRANT EXPIRATION -----------------------
GRANTED(#) FISCAL YEAR(1) ($/SH) ($/SH) DATE 5% 10%
---------- -------------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
F. George Dunham, III... 270,000(3) 22 $22.00 $22.00 4/21/04 2,020,168 4,583,072
William J. Smith, III... 375,000(3) 31 22.58 22.58 4/28/04 2,880,181 6,534,148
Ronald O. Lynn.......... 9,693(4) 1 22.17 22.17 7/21/04 73,077 165,786
Jeffrey W. Robinson..... 45,000(3) 4 22.00 22.00 4/21/04 336,695 763,845
</TABLE>
- ---------------
(1) Options to purchase a total of 1,222,365 shares of Common Stock were granted
to employees in 1998.
(2) The amounts under the columns labeled "5%" and "10%" are included by INSpire
pursuant to certain rules promulgated by the Securities and Exchange
Commission (the "Commission") and are not
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<PAGE> 10
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.
(3) Options are subject to a five-year vesting schedule, with one-fifth becoming
exercisable on each of the first five anniversaries of the date of grant.
(4) This grant of options resulted from a repricing of existing options that
were originally granted on March 12, 1997. These options were repriced on
July 21, 1998 from $.87 per share to $22.17 per share. These options are
subject to a two-year vesting schedule, with one-third becoming exercisable
on the date of grant (July 21, 1998) and an additional one-third becoming
exercisable on each of the first two anniversaries of the date of grant.
The following table sets forth certain information concerning options
exercised in 1998 by the named executive officers and all unexercised options
held by the named executive officers as of December 31, 1998. For additional
information on and certain terms of such options, see "-- Stock Option Plan."
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. George Dunham, III..... 354,462 6,634,723 577,076 735,770 5,987,164 5,829,111
William J. Smith, III..... -- -- -- 375,000 -- --
Robert K. Agazzi.......... 58,750 1,302,072 73,530 105,264 1,008,289 1,424,363
Ronald O. Lynn............ 50,000 1,214,166 82,279 105,265 991,768 1,424,373
Jeffrey W. Robinson....... 55,000 1,245,457 77,279 150,265 1,073,935 1,424,373
</TABLE>
- ---------------
(1) Values realized are determined by aggregating for each option exercise in
1998 the amount calculated by multiplying (i) an amount equal to the closing
price of the Common Stock as of the date of each such exercise less the
exercise price paid for such exercise by (ii) the number of shares of Common
Stock acquired upon such exercise.
(2) Based upon the closing price of the Common Stock of $18.375 on December 31,
1998.
EMPLOYMENT AND INDEMNIFICATION AGREEMENTS
In July 1997, INSpire entered into employment agreements, which were
amended in January 1998, with Messrs. Dunham, Lynn and Robinson, 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 and Robinson of $115,000 each.
Pursuant to their employment agreements, Messrs. Dunham, Lynn and Robinson have
been granted options to purchase shares of Common Stock under the Second Amended
and Restated 1997 Stock Option Plan (the "Stock Option Plan"). Each of Messrs.
Dunham, Lynn and Robinson shall be entitled to participate in INSpire's 1998
Annual Bonus Plan during the remainder of the terms of their employment
agreements and is subject to noncompetition and confidentiality provisions. Mr.
Dunham's employment agreement also permits him to serve as Chairman of the Board
of Millers Mutual and Millers Casualty. See "-- Stock Option Plan."
In April 1998, INSpire entered into an employment agreement with Mr. Smith,
which terminates on April 27, 2003 (the "Termination Date") and which provides
for an annual salary of $325,000. Mr. Smith's employment agreement also provides
that: (i) he will be entitled to five equal annual installments of $100,000 in
cash on each April 28 during the term of his employment agreement provided he is
employed on such date, and (ii) in the event his employment agreement is
terminated for any reason other than cause (as defined in his employment
agreement) prior to the Termination Date, he will be entitled to an additional
one-time cash payment, the amount of which depends on the date of such
termination. Also pursuant to his employment agreement, Mr. Smith has been
granted options to purchase shares of Common Stock under the Stock Option
8
<PAGE> 11
Plan. Mr. Smith shall be entitled to participate in INSpire's 1998 Annual Bonus
Plan during the term of his employment agreement.
Each employment agreement with Messrs. Dunham, Smith, Lynn, and Robinson
also provides that if there is a "change of control" of INSpire, 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.
INSpire entered into an employment agreement with Mr. Agazzi that
terminated in March 1998. Mr. Agazzi's agreement provided for an annual salary
of $169,000 and options to purchase shares of Common Stock. Mr. Agazzi is
subject to noncompetition and confidentiality provisions. INSpire has also
entered into employment agreements with Messrs. Meister, Strickland and Aldredge
when such executive officers were elected to their respective positions.
INSpire has entered into indemnification agreements with each of its
directors. Each indemnification agreement provides that INSpire 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 INSpire or by or in the right of INSpire, 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.
EMPLOYEE BENEFIT PLANS
Millers Mutual has a defined benefit pension plan that covered the
employees of INSpire. INSpire and Millers Mutual have reached an agreement that
provides for the assets of this plan attributable to INSpire's employees to be
handled in the same manner as those assets attributable to terminated employees
who were 100% vested under such plan. Under the defined benefit pension plan,
participating employees of INSpire receive benefits as follows. With respect to
normal and late retirement benefits, a participating employee who retires after
age 65 will receive an annuity for life, payable monthly in an amount determined
actuarially on the basis of the participating employee's account balance at age
65. A participant's account balance is equal to the present value of his accrued
benefit on July 1, 1996, calculated using an 8% interest rate plus quarterly
additions to the account equal to 5% of quarterly considered compensation plus
an interest credit equal to the rate on one-year U.S. Treasury securities (but
not greater than 30-year Treasury securities). With respect to early retirement
benefits, a participating employee who retires on or after age 55 and before his
normal retirement age is eligible to receive an annuity for life, commencing at
age 65 and payable monthly in an amount equal to the amount calculated above for
normal retirement benefits, provided, however, that if such employee so elects,
such employee may receive a reduced pension benefit beginning on his elected
retirement date. As of the date of this Proxy Statement, the estimated annual
benefits payable upon retirement at normal retirement age under the defined
benefit pension plan for Messrs. Dunham, Agazzi, and Lynn are expected to be
$10,789, $794, and $5,637, respectively. Messrs. Smith and Robinson were not
participants in the defined benefit pension plan, and therefore will not receive
any payments upon retirement under such plan.
In addition, INSpire maintains a defined contribution plan for its
employees that is qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended.
9
<PAGE> 12
STOCK OPTION PLAN
A total of 4,500,000 shares of Common Stock has been reserved for issuance
pursuant to the Stock Option Plan. The Stock Option Plan was initially adopted
by the Board of Directors in March 1997, amended and restated by the Board of
Directors in July 1997, amended by the Board of Directors effective as of July
30, 1997, and amended and restated by the Board of Directors in February 1998.
The Stock Option Plan was administered by the Board of Directors through January
27, 1998 and thereafter has been administered by the Compensation Committee.
Both nonqualified stock options and incentive stock options (as defined in the
Internal Revenue Code) may be granted under the Stock Option Plan. Incentive
stock options granted under the Stock Option Plan may be exercised solely by the
grantee, or in the case of a grantee's death or incapacity, by the grantee's
executors, administrators, guardians or other legal representatives and are not
assignable or transferable by such grantee. Nonqualified stock options may be
transferred to certain permitted transferees under the Stock Option Plan.
DIRECTOR STOCK OPTION PLAN
In July 1997, the Board of Directors adopted the 1997 Director Stock Option
Plan, which was amended by the Board of Directors in February 1998 (the
"Director Plan"). The Director Plan is administered by the Board of Directors. A
total of 75,000 shares of Common Stock has been reserved for issuance pursuant
to the Director Plan.
Each new nonemployee director who is elected (or appointed to fill any
vacancy) as a director of INSpire will be granted options under the Director
Plan to purchase 3,750 shares of Common Stock at the fair market value of the
Common Stock on the date of grant. Also, each nonemployee director who has
previously been granted options under the Director Plan will be granted
additional options under the Director Plan to purchase 3,750 shares of Common
Stock on the day immediately after each annual meeting of shareholders of
INSpire subsequent to the time at which such nonemployee director is first
elected or appointed as a director of INSpire if such nonemployee director
continues to serve as a director on such date of grant. The options under the
Director Plan will vest and be exercisable as of the date of grant. Options
granted under the Director Plan may be exercised solely by the grantee, or in
the case of a grantee's death or incapacity, by the grantee's executors,
administrators, guardians or other legal representatives, and are not assignable
or transferable by such grantee, except for certain permitted transfers subject
to the prior consent of the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
In July 1997 the Board of Directors adopted INSpire's 1997 Employee Stock
Purchase Plan (the "Stock Purchase Plan"), under which a total of 637,500 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 INSpire for 90 days is eligible to participate in offerings
under the Stock Purchase Plan.
In 1998, INSpire implemented two semiannual offerings of Common Stock,
beginning on January 1 and July 1, of 75,000 shares of Common Stock each.
Pursuant to such offerings, 11,173 and 13,741 shares of Common Stock,
respectively, were purchased by participants under the Stock Purchase Plan.
INSpire anticipates that the Stock Purchase Plan will be further implemented by
six additional semiannual offerings of Common Stock beginning on January 1 and
July 1 for each of the years 1999, 2000 and 2001. The maximum number of shares
issued in each semi-annual offering will be 75,000 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.
10
<PAGE> 13
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 INSpire or (ii) have rights to
purchase stock under all employee stock purchase plans of INSpire that accrue at
a rate in excess of $25,000 in fair market value for any calendar year.
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
INSpire 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 INSpire'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.
EXECUTIVE PERFORMANCE STOCK INCENTIVE PLAN
The Board of Directors has approved, and is submitting to the Shareholders
for approval and ratification, INSpire's Executive Performance Stock Incentive
Plan (the "Performance Plan"). See "Proposal 2 -- Approval and Ratification of
the Executive Performance Stock Incentive Plan."
MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 1998, the Board of Directors held seven
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.
COMMITTEES OF THE BOARD OF DIRECTORS
INSpire has an Audit Committee and a Compensation Committee. INSpire has
not established a formal nominating committee. The Audit Committee currently is
comprised of Messrs. Bartel, Berce, Cox and Wynne and is responsible for
reviewing the independence, qualifications and activities of INSpire's
independent certified accountants and INSpire'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 INSpire's financial statements. The Audit Committee held
one formal meeting in 1998. The Compensation Committee currently is comprised of
Messrs. Bartel, Berce, Cox and Wynne and is responsible for establishing the
compensation of INSpire'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 two formal meetings in 1998. See "Joint Report of the Compensation
Committee and the Board of Directors on Executive Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, Harry E. Bartel, R. Earl Cox, III and Mitch S. Wynne served as
members of the Compensation Committee of INSpire.
DIRECTOR COMPENSATION
Directors who are executive officers or employees of INSpire 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
INSpire receive an annual fee of $15,000, plus $1,000 per meeting of the Board
of Directors attended, $300 per committee meeting attended and reimbursement for
travel expenses to attend such meetings. Directors who serve as chairman of a
committee receive an additional annual fee of $3,000. The nonemployee directors
are also eligible to receive options to purchase Common Stock under the Director
Plan. See "-- Director Stock Option Plan."
11
<PAGE> 14
JOINT REPORT OF
THE COMPENSATION COMMITTEE
AND
THE BOARD OF DIRECTORS
ON
EXECUTIVE COMPENSATION
JANUARY 29, 1999
GENERAL
In 1998, the Compensation Committee was 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 INSpire or any of its
affiliates.
The Compensation Committee is responsible for establishing the compensation
of INSpire's directors, officers and other managerial personnel, including
salaries, bonuses, termination agreements and other executive officer benefits.
In 1998, the Board of Directors was responsible for grants of stock options
under the Stock 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 1998, the Board of
Directors as a whole either ratified the actions of the Compensation Committee
or acted directly with respect to such decisions. As of the date of this joint
report, the Board of Directors is comprised of Messrs. Bartel, Cox, Dunham,
Smith and Wynne. Mr. Dunham abstained from all compensation decisions with
respect to himself for his service as Chief Executive Officer and Chairman of
the Board of Directors. Also, Mr. Smith abstained from all compensation
decisions with respect to himself for his service as President and Chief
Operating Officer.
1998 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 INSpire's executive officers, INSpire has engaged a consulting group (the
"Consultant") to prepare independent job evaluations and market research reports
for INSpire. 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. INSpire obtains a salary survey
from the Consultant at least once each year to ensure that INSpire's executive
compensation is competitive in the marketplace.
The Board of Directors caused INSpire to enter into employment agreements
with Messrs. Dunham, Lynn and Robinson in July 1997. The Board of Directors
believed these contracts to be necessary to ensure the continuation of
experienced management familiar with INSpire after its initial public offering.
The Board of Directors caused INSpire to enter into employment agreements with
Messrs. Smith and Mr. Aldredge in 1998, and Mr. Meister in 1999. The Board of
Directors believed these contracts to be necessary to hire and retain management
that the Board of Directors believes to be vital to INSpire's continued growth,
development and success. All of these employment agreements require certain
annual compensation to these individuals, which for Messrs. Dunham, Smith, Lynn
and Robinson for 1998 are included in the Summary Compensation Table set forth
above. The Board of Directors believes the annual compensation provided to each
of INSpire's executive officers, whether pursuant to an employment agreement or
otherwise, is commensurate with the responsibilities, experience and individual
performance of such executive officer.
Bonuses. The criteria in awarding bonuses to executive officers is
established by the Compensation Committee pursuant to the 1998 Annual Bonus
Plan. If such criteria are not met, no bonuses will be granted to executive
officers.
12
<PAGE> 15
Stock Options. The Board of Directors believes that equity ownership in
INSpire provides important incentives to INSpire's directors, officers and
significant employees to enhance the financial performance of INSpire and
encourage the continued creation of shareholder value. The Stock Option Plan is
also designed to enhance INSpire's ability to attract and retain qualified
management and other personnel necessary for the success and progress of
INSpire. Stock options are granted to the executive officers on a discretionary
basis based on INSpire's performance and the executive officer's contributions
to INSpire. The number of stock options granted to each of the named executive
officers in 1998 is set forth under "Management -- Executive
Compensation -- Option Grants in Last Fiscal Year." These grants were made in
1998 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 INSpire without establishing any specific
quantitative formula.
1998 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 INSpire.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
In 1998, INSpire was subject to compliance with Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"). Section 162(m)
provides that compensation in excess of $1,000,000 paid to the chief executive
officer of INSpire and the four highest compensated officers of INSpire (other
than the chief executive officer) cannot be deducted by INSpire 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. All compensation paid to executive officers during
1998 was tax deductible to INSpire. The Compensation Committee expects all
compensation paid to executive officers during 1999 to be tax deductible to
INSpire. 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.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE BOARD OF DIRECTORS
R. Earl Cox, III, Chairman F. George Dunham, III, Chairman
Harry E. Bartel Harry E. Bartel
Mitch S. Wynne R. Earl Cox, III
William J. Smith, III
Mitch S. Wynne
</TABLE>
13
<PAGE> 16
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
INSPIRE, THE S&P 500 INDEX, AND NASDAQ COMPUTER & DATA PROCESSING INDEX
<TABLE>
<CAPTION>
NASDAQ
INSPIRE COMPUTER &
INSURANCE DATA
MEASUREMENT PERIOD SOLUTIONS, S&P 500 PROCESSING
(PERIOD COVERED) INC. INDEX INDEX
<S> <C> <C> <C>
8/22/97 100 100 100
9/97 151 103 99
12/97 174 106 93
3/98 277 120 123
6/98 277 123 137
9/98 295 111 129
12/98 230 134 167
</TABLE>
<TABLE>
<CAPTION>
8/22/97 9/97 12/97 3/98 6/98 9/98 12/98
------- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INSpire Insurance Solutions, Inc............ 100 151 174 277 277 295 230
S&P 500 Index............................... 100 103 106 120 123 111 134
Nasdaq Computer & Data Processing Index..... 100 99 93 123 137 129 167
</TABLE>
14
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1999, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by INSpire to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of INSpire, (iii) each named executive officer
as of such date and (iv) all directors and named executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------
<S> <C> <C>
Millers Mutual...................................... 4,606,875(1) 24.6%(1)
300 Burnett Street
Fort Worth, Texas 76102-2799
Warburg Pincus Asset Management, Inc. .............. 965,100(2) 5.1
466 Lexington Avenue
New York, New York 10017
F. George Dunham, III............................... 817,619(3) 4.4
William J. Smith, III............................... 75,000(4) *
Ronald O. Lynn...................................... 131,856(5) *
Robert K. Agazzi.................................... 148,483(6) *
Jeffrey W. Robinson................................. 123,856(7) *
Harry E. Bartel..................................... 12,000(8) *
R. Earl Cox, III.................................... 12,000(8) *
Mitch S. Wynne...................................... 36,500(9) *
All directors and executive officers as a group (12
individuals)(10).................................. 1,399,414(11) 7.5
</TABLE>
- ---------------
* Less than 1%.
(1) Based on the Schedule 13G/A filed by Millers Mutual with the Commission on
February 12, 1999.
(2) Based on the Schedule 13G filed by Warburg Pincus Asset Management, Inc.
with the Commission on January 13, 1999.
(3) Includes 5,100 shares of Common Stock held in trusts, of which Mr. Dunham
or a person controlled by Mr. Dunham is trustee, for the benefit of certain
family members of Mr. Dunham, and 716,807 shares of Common Stock issuable
upon exercise of options exercisable within 60 days of the date of this
Proxy Statement.
(4) Represents shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(5) Includes 128,856 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(6) Includes 120,107 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(7) Represents shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
(8) Includes 7,500 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.
(9) Includes 24,000 shares of Common Stock held in trusts, of which Mr. Wynne
or a person controlled by Mr. Wynne is trustee, for the benefit of certain
family members of Mr. Wynne, and 7,500 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.
(10) Does not include Daniel E. Berce, who was appointed as a director of
INSpire by the Board of Directors on March 29, 1999. Pursuant to the
Director Plan, Mr. Berce was granted options to purchase 3,750 shares of
Common Stock, which vested and became exercisable on the date of grant,
March 29, 1999.
(11) Includes 1,262,126 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Proxy Statement.
15
<PAGE> 18
PROPOSAL 2
APPROVAL AND RATIFICATION OF
THE EXECUTIVE PERFORMANCE STOCK INCENTIVE PLAN
GENERAL
The Performance Plan was adopted by the Board of Directors on December 18,
1998. The Performance Plan is administered by the Compensation Committee.
SUMMARY OF THE PERFORMANCE PLAN
This summary addresses only certain features of the Performance Plan.
Please refer to the full text of the Performance Plan included in Exhibit A
attached to this Proxy Statement. Capitalized terms not defined in this summary
have the meanings given to them in the Performance Plan.
The Performance Plan is administered by the Compensation Committee. With
respect to the Performance Plan, the Compensation Committee may establish a
target performance goal for INSpire over a performance period. The Compensation
Committee must establish this performance goal on or before the 90th day of the
performance period, but in no event after 25% of the performance period has
elapsed. The Compensation Committee may base the performance goal on any of the
following business criteria: stock price, market share, sales, earnings per
share, return on equity or costs, return on invested capital or net assets
employed, cumulative total return to shareholders, consolidated pre-tax
earnings, net revenues, net earnings, operating income, earnings before interest
and taxes and cash flow.
Participants in the Performance Plan include directors of INSpire and
employees of INSpire or its subsidiaries if they hold an officer position of
Vice President or higher with INSpire or any of its subsidiaries. A participant
may participate for a specified performance period by timely filing with INSpire
an election to defer base compensation for that performance period. The
participant may elect to forego 10%, 15%, 20%, or 25% of his or her base
compensation (which includes the participant's base salary only without regard
to any bonuses or annual incentive plan compensation), or such other percentage
as the Compensation Committee may permit. The period of time in which a
participant elects to forego base compensation with respect to a performance
period need not coincide with that performance period, but shall begin no
earlier than one month before the beginning, and end no later than one month
after the end, of that performance period. If the participant makes such an
election for a performance period, the participant shall receive the right to an
award of Common Stock subject to the award, issuance and forfeiture provisions
of the Performance Plan.
The amount of performance stock awarded will depend on whether INSpire
achieves the target performance goal designated by the Compensation Committee
for the particular performance period. If the target performance goal is
achieved, each participant will be awarded a number of shares of Common Stock (a
"Success Award") valued at two-times the amount of base compensation the
participant deferred for that performance period, based on the Fair Market Value
(as defined in the Performance Plan) of the Common Stock on the April 1 in or
nearest (in the event a performance period does not span an April 1) that
performance period. If the target performance goal is not achieved, each
participant will be awarded a number of shares of Common Stock (a "Base Award")
valued at 50% of the amount of base compensation the participant deferred for
that performance period, based on the Fair Market Value of the Common Stock on
the April 1 in or nearest that performance period.
Shares of awarded Common Stock shall be paid and transferred to a
participant as follows: (i) for a Base Award, the shares shall be issued and
transferred within five business days after the April 1 immediately following
the related performance period; and (ii) for a Success Award, 50% of the shares
shall be issued and transferred within five business days after the April 1
immediately following the related performance period and the remaining 50% shall
be issued and transferred within five business days after the April 1 of the
next following year.
The maximum number of shares of Common Stock that may be granted to any
participant in any one year shall not exceed 100,000 shares. The shares of
Common Stock awarded under the Performance Plan shall
16
<PAGE> 19
be restricted shares under the Securities Act of 1933, as amended (the
"Securities Act"). INSpire shall register such shares under the Securities Act
before the issuance of those shares under the Performance Plan.
A participant's participation shall terminate before the end of a
performance period in the event of his or her termination of employment with
INSpire for any reason, including death or disability. When a participant's
participation terminates before the end of a performance period due to
involuntary termination of employment, retirement, death or disability, the
amount of any base compensation foregone by that participant shall be reimbursed
by INSpire to that participant or that participant's designated beneficiary.
INSpire may modify, amend, suspend or terminate the Performance Plan at any
time and for any reason; however, no such modification, amendment, suspension or
termination shall reduce the balance of any participant's plan account as of the
date of such action.
RECOMMENDATION
The Board of Directors believes that the following benefits of the
Performance Plan outweigh any burden to the shareholders attendant to the award
of shares of Common Stock: (i) providing significant incentives to selected
officers, directors and employees of INSpire and its subsidiaries; (ii)
enhancing the interest of such officers, directors and employees in INSpire's
success and progress by providing them with an opportunity to become
shareholders of INSpire; and (iii) enhancing INSpire's ability to attract and
retain qualified management and other personnel necessary for the success and
progress of INSpire. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE APPROVAL AND RATIFICATION OF THE PERFORMANCE PLAN AND BELIEVES
THAT THE PERFORMANCE PLAN IS APPROPRIATE TO COMPENSATE INSPIRE'S EMPLOYEES AND
DIRECTORS.
EFFECT OF FEDERAL INCOME TAXATION ON THE PERFORMANCE PLAN
The following summary of tax consequences with respect to the performance
shares that may be awarded under the Performance Plan is not comprehensive and
is based upon laws and regulations in effect on March 15, 1999. These laws and
regulations are subject to change.
Upon the issuance of shares of awarded Common Stock to a participant, the
participant will recognize compensation income and INSpire will then be entitled
to a deduction for tax purposes in the amount of the Fair Market Value of such
shares.
According to the Performance Plan, its terms shall be interpreted in such a
fashion so as to qualify all compensation paid under the Performance Plan as
"qualified performance-based compensation" within the meaning of Section 162(m).
The Board of Directors believes that all compensation paid under the Performance
Plan is performance based and therefore will be deductible for tax purposes by
INSpire under Section 162(m).
17
<PAGE> 20
PROPOSAL 3
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 INSpire's financial statements for 1999. Deloitte &
Touche LLP has acted as auditors for INSpire since 1996.
In 1997, in connection with INSpire's acquisition of SDS, SDS changed its
independent auditors from KPMG Peat Marwick LLP ("KPMG") to Deloitte & Touche
LLP, INSpire'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 INSpire.
The Board of Directors has determined to afford the 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 of Common Stock present, in person or by proxy, and
entitled to vote on this proposal 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 INSPIRE'S FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999.
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.
CERTAIN TRANSACTIONS
BENEFITS ADMINISTRATION CONTRACT
Effective July 1, 1997, INSpire and Millers Mutual entered into a benefits
administration contract (the "Benefits Administration Contract") pursuant to
which Millers Mutual provides INSpire with certain benefits administration
services, including payroll, and INSpire 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, INSpire and Millers Mutual amended the
Benefits Administration Contract to provide that INSpire shall provide Millers
Mutual, rather than Millers Mutual providing to INSpire, the benefits
administration services specified in the Benefits Administration Contract, and
Millers Mutual shall pay INSpire a service fee of $15,000 per month. For the
year ended December 31, 1998, Millers Mutual paid INSpire aggregate service fees
of $180,000 under the Benefits Administration Contract, as amended.
CLAIMS SERVICE CONTRACTS
Effective October 1, 1997, INSpire, Millers Mutual and Millers Casualty
entered into a claims administration services agreement (the "Claims Services
Agreement"), which provides for INSpire 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 Services Agreement is five
years, which automatically shall be renewed and extended for successive terms of
three years, unless earlier terminated. For the year ended
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December 31, 1998, Millers Mutual and Millers Casualty paid INSpire aggregate
service fees of $9.8 million under the Claims Services Agreement.
INSpire and the Specialty Personal Lines Division of Millers Mutual are
parties to a service contract effective as of April 1, 1997 under which INSpire
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 INSpire fees for services related to policies
issued by Sun Coast of $3.1 million in 1998.
During mid-1998, INSpire, Millers Mutual and Millers Casualty agreed to (i)
amend the Claims Services Agreement to provide that INSpire will perform claims
administration services with respect to three general agents that Millers Mutual
or Millers Casualty has entered into agency relationships with during 1998, and
(ii) amend the Sun Coast Service Contract to increase the rate charged by
INSpire for claims administration services. These amendments are subject to the
approval of the Texas Department of Insurance before they can be executed.
POLICY SERVICES CONTRACT
Effective October 1, 1997, INSpire, Millers Mutual and Millers Casualty
entered into a policy administration services agreement (the "Policy Services
Agreement"), which provides for INSpire 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
1998, Millers Mutual and Millers Casualty paid INSpire aggregate service fees of
approximately $2.9 million under the Policy Services Agreement.
INFORMATION SERVICES CONTRACT
Effective October 1, 1997, INSpire, Millers Mutual and Millers Casualty
entered into a second amended information services contract (the "Second Amended
Information Services Contract"), which provides for INSpire 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, subject to a minimum monthly fee. In
addition, each of Millers Mutual and Millers Casualty pays a fee per hour for
modifications by INSpire to INSpire-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, INSpire, Millers Mutual
and Millers Casualty agreed to amend the Second Amended Information Services
Contract to provide that INSpire shall not charge Millers Mutual or Millers
Casualty service fees with respect to policies issued by Millers General Agency,
Inc., which was owned and managed by a former officer of Millers Mutual and
Millers Casualty until Millers Mutual acquired it from such former officer in
June 1998. For the year ended December 31, 1998, Millers Mutual and Millers
Casualty paid INSpire aggregate service fees of $7.6 million under the Second
Amended Information Services Contract.
OUTSOURCING SERVICES CONTRACTS WITH MILLERS CASUALTY
Effective May 1, 1997, INSpire 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 INSpire 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, 1998, Millers Casualty paid INSpire aggregate fees of
approximately $1.2 million under the Policy Administration Services Agreement.
Effective June 1, 1997, INSpire and Millers Casualty entered into a claims
administration services agreement (the "Claims Administration Services
Agreement") pursuant to which INSpire provides claims administration services
for Millers Casualty's homeowners line of business in Florida. The term of the
Claims
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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, 1998, Millers Casualty paid INSpire aggregate fees of
approximately $1.2 million under the Claims Administration Services Agreement.
CONSULTING AGREEMENT
Effective March 15, 1998, INSpire entered into a consulting agreement with
Stuart H. Warrington pursuant to which Mr. Warrington retired as an executive
officer of INSpire. The consulting agreement provides that Mr. Warrington will
serve as a consultant to INSpire until May 30, 1999 for a consulting fee of
$2,000 per month and will be fully vested with respect to options for 139,731
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 19,563 shares of Common Stock. The
consulting agreement also provides for 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. 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 INSpire.
MISCELLANEOUS
INSpire leases its approximately 96,000 square foot headquarters in Fort
Worth, Texas from IIS Realty, Ltd., a Texas limited partnership (the
"Partnership") pursuant to a lease agreement, dated as of November 13, 1998 (the
"Lease Agreement"). F. George Dunham, III owns a 50% interest in the Partnership
and Messrs. Bartel, Cox and Wynne own in equal parts the remaining 50% interest.
The term of the Lease Agreement is ten years, with one renewal option of five
years. The Lease Agreement provides for monthly rental payments as follows:
$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.
For the year ended December 31, 1998, INSpire made rental payments of
approximately $138,000 to the Partnership under the Lease Agreement.
In November 1998, Millers Mutual sold the building located at 300 Burnett
Street, Fort Worth, Texas, in which INSpire's headquarters are located, to the
Partnership. Before that date, INSpire leased its 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 provided for monthly rental
payments of approximately $25,400. For 1998, INSpire paid Millers Mutual
approximately $273,000 under the Lease.
INSpire 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 INSpire. The term of the Building
Lease ends February 28, 2007. Pursuant to the Building Lease, Riverview leases
to INSpire 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, 1998, INSpire
paid Riverview approximately $250,000 under the Building Lease.
INSpire and Millers Mutual are parties to a sublease agreement, dated as of
January 1, 1997, pursuant to which Millers Mutual subleases to INSpire certain
furniture, equipment and other personal property that Millers Mutual has leased
from third parties under various equipment leases for the benefit of INSpire.
The sublease payments by INSpire to Millers Mutual under the sublease equal the
lease payments by Millers Mutual to the lessors under the respective leases.
Prior to INSpire's initial public offering, Millers Mutual, INSpire 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 INSpire an amount equal to any decrease in the income taxes otherwise
payable by the Millers Mutual consolidated tax group attributable to any net
losses of INSpire. Conversely, the Tax Allocation Agreement required INSpire to
pay to Millers Mutual the amount of any income taxes that INSpire would have
paid if it had not been included in the Millers Mutual consolidated tax group.
For the
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period from April 28, 1995 through December 31, 1996, INSpire 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 INSpire due to INSpire leaving the Millers Mutual consolidated tax
group at the time of INSpire's initial public offering. The agreement to
terminate the Tax Allocation Agreement provides that INSpire 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 INSpire and Millers
Mutual will indemnify INSpire for any income taxes and related expenses
attributable to any members of the consolidated tax group other than INSpire.
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 INSpire, 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 INSpire's reporting persons to furnish
INSpire with copies of all Section 16(a) reports that they file. Based solely
upon a review of the copies of such reports furnished to INSpire and written
representations that no other reports were required with respect to the year
ended December 31, 1998, INSpire believes that the reporting persons have
complied with all applicable Section 16(a) filing requirements for 1998 on a
timely basis, except for a Form 3 due in September 1998 with respect to Mr.
Aldredge and a Form 4 due in September 1998 with respect to Mr. Robinson.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
To be considered for inclusion in INSpire's proxy statement for the 2000
annual meeting, shareholder proposals must be received at INSpire's principal
executive office no later than December 2, 1999. Pursuant to Rule 14a-4(c)(1)
under the Exchange Act, if any shareholder proposal intended to be presented at
the 2000 annual meeting without inclusion in INSpire's proxy statement for such
meeting is received at INSpire's principal executive offices after February 15,
2000, then a proxy will have the ability to confer discretionary authority to
vote on such proposal.
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.
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FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Proxy Statement, including without limitation statements regarding INSpire's
financial position, business strategy and plans and objectives of management of
INSpire 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 INSpire or its management,
identify forward-looking statements. Such forward-looking statements are based
on the beliefs of INSpire's management as well as assumptions made by and
information currently available to INSpire'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, INSpire's dependence on major customers and limited operating
history, technological change, competitive factors and pricing pressures,
product development risks, changes in legal and regulatory requirements and
general economic conditions. Such statements reflect the current views of
INSpire 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 INSpire. All subsequent written and oral
forward-looking statements attributable to INSpire 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 INSpire's Annual Report for
the year ended December 31, 1998, which contains financial and other information
pertaining to INSpire. 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 INSpire's Form 10-K for the
year ended December 31, 1998. The Form 10-K does not form any part of the
materials for the solicitation of proxies. INSPIRE WILL MAIL ADDITIONAL COPIES
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 TO EACH
SHAREHOLDER OR BENEFICIAL OWNER OF SHARES OF COMMON STOCK WITHOUT CHARGE UPON
SUCH PERSON'S WRITTEN REQUEST TO THE INVESTOR RELATIONS DEPARTMENT AT INSPIRE'S
EXECUTIVE OFFICES AT 300 BURNETT STREET, FORT WORTH, TEXAS 76102-2799.
By Order of the Board of Directors
/s/ F. George Dunham, III
F. George Dunham, III
Chief Executive Officer and
Chairman of the Board of Directors
Fort Worth, Texas
April 1, 1999
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EXHIBIT A
INSPIRE INSURANCE SOLUTIONS, INC.
EXECUTIVE PERFORMANCE STOCK INCENTIVE PLAN
Section 1. Purposes.
The INSpire Insurance Solutions, Inc. Executive Performance Stock Incentive
Plan (the "Plan") was established by the Board of Directors of INSpire Insurance
Solutions, Inc. (the "Company"), effective as of January 1, 1999, subject to
approval by the shareholders of the Company. The purpose of the Plan is to
provide incentivized, at-risk compensation for a select group of management or
highly compensated employees of the Company or its Subsidiaries whom the Company
believes can contribute materially to the continued growth, development and
success of the Company.
Section 2. Definitions.
As used in this Plan, the following terms shall have the meanings indicated
below:
(a) "Base Award" shall mean a Base Award as described in Section 4
hereto.
(b) "Base Compensation" shall mean the Participant's base salary
payable by the Company or its Subsidiaries, without regard to any bonuses
or incentive plan compensation, and prior to the Elective Deferral the
Participant agrees to the terms of this Plan.
(c) "Committee" shall mean the Compensation Committee of the Company's
Board of Directors.
(d) "Designated Beneficiary" shall mean a beneficiary or beneficiaries
designated by a Participant, in accordance with the terms and conditions of
Section 15 of the Plan, to receive the Participant's Plan Account in the
event of the Participant's death, or in the absence of an effective
designation by the Participant, the Participant's surviving spouse, or if
there is no surviving spouse, the Participant's estate.
(e) "Election to Defer Base Compensation" shall mean that written
election (documented by a form adopted from time-to-time by the Company's
management or the Committee) which documents a Participant's annual and
irrevocable election to participate in the Plan and to defer his or her
Base Compensation in accordance with the terms and conditions of the Plan.
(f) "Elective Deferral" shall mean the portion of a Participant's Base
Compensation that the Participant elects to forego with respect to a
Performance Period in accordance with the terms and conditions of the Plan.
(g) "Fair Market Value" shall mean Fair Market Value as defined in the
Inspire Insurance Solutions, Inc. Second Amended and Restated 1997 Stock
Option Plan.
(h) "Participant" shall mean a participant as described in Section 3
hereof.
(i) "Performance Period" shall mean the period during which the
achievement of the Target Performance Goal(s) selected by the Committee
with respect to any award pursuant to the Plan is to be measured.
(j) "Performance Stock" shall mean shares of Common Stock of the
Company, par value $.01 per share that are awarded pursuant to this Plan.
(k) "Plan Account" shall mean a general ledger account established for
a Participant in accordance with the terms and conditions of Section 11 of
the Plan.
(l) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(m) "Subsidiaries" shall mean those corporations, more than 50% of
whose outstanding voting securities the Company has the right, directly or
indirectly, to vote for the elections of directors, and who are identified
by the Committee to be covered by this Plan.
(n) "Success Award" shall mean a Success Award as described in Section
4 hereto.
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(o) "Target Performance Goal(s)" shall mean a performance goal
established by the Committee, at any time ending on or before the 90th day
of the applicable Performance Period (but in no event after 25% of the
Performance Period has elapsed), based on any or all of the following
business criteria, which may apply to the individual in question, an
identifiable business unit or the Company as a whole: stock price, market
share, sales, earnings per share, return on equity or costs, return on
invested capital or net assets employed, cumulative total return to
shareholders, whether compared to preselected peer groups or not,
consolidated pre-tax earnings, net revenues, net earnings, operating
income, earnings before interest and taxes, and cash flow, for the
applicable performance period, all as computed in accordance with generally
accepted accounting principles as in effect from time to time and as
applied by the Company in the preparation of its financial statements and
subject to such other special rules and conditions as the Committee may
establish at any time ending on or before the deadline described above for
the establishment of the Performance Goal. The foregoing shall constitute
the sole business criteria upon which the performance goals under this Plan
shall be based.
Section 3. Eligibility and Participation.
Participants in the Plan shall include (i) directors of the Company and
(ii) employees of the Company and its Subsidiaries if they hold an officer
position of Vice President or higher in the Company or its Subsidiaries.
Participants may participate in the Plan for a specified Performance Period by
timely filing with the Company an Election to Defer Base Compensation for that
Performance Period.
Section 4. Plan Benefits.
Prior to each Performance Period, each Participant will be given the right
to file an Election to Defer the Base Compensation in which he or she may
designate a percentage of his or her Base Compensation that constitutes his or
her Elective Deferral for that Performance Period. The Participant may elect to
forego 10%, 15%, 20% or 25% of his or her Base Compensation, or such other
percentage as may be permitted by the Committee. The period of time in which the
Participant actually foregoes the designated percentage of his or her Base
Compensation with respect to a Performance Period need not coincide exactly with
the Performance Period, but shall begin no earlier than one month prior to the
beginning, and end no later than one month after the end, of the Performance
Period.
If the Participant makes such an election for a Performance Period, the
Participant shall receive the right to an award of Performance Stock, subject to
the award, vesting and forfeitures provisions of this Plan. The transfer and
issuance of such Performance Stock to a Participant pursuant to the Plan shall
constitute the payment of the Participant's Elective Deferrals relating to the
Performance Period. The amount of Performance Stock awarded will depend on
whether the Company achieves the Target Performance Goal(s) designated by the
Committee for the Performance Period in issue. If the designated Target
Performance Goal(s) is achieved, the Participant will be awarded a number of
shares of Performance Stock (a "Success Award") valued at two-times the amount
of Base Compensation the Participant deferred with respect to that Performance
Period, based on the Fair Market Value of the Company's stock on the April 1 in
or nearest (in the event a Performance Period does not span an April 1) that
Performance Period (to the next full share). If the designated Target
Performance Goal(s) is not achieved, each Participant will be awarded a number
of shares of Performance Stock (a "Base Award") valued at 50% of the amount of
Base Compensation the Participant deferred with respect to that Performance
Period, based on the Fair Market Value of the Company's stock on the April 1 in
or nearest (in the event a Performance Period does not span an April 1) that
Performance Period (to the next full share). Shares of awarded Performance Stock
shall be paid and transferred to a Participant as follows:
(a) Performance Shares comprising a Base Award shall be transferred
and issued to the Participant within five business days of the April 1
immediately following the Performance Period.
(b) 50% of the Performance Shares comprising a Success Award shall be
transferred and issued to a Participant within five business days of the
April 1 immediately following the Performance Period and
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the remaining 50% shall be transferred and issued within five business days
of April 1 of the next following year.
Section 5. Provisions Related to Section 162(m).
(a) The maximum number of shares of Performance Stock which may be
granted to any Participant in any one year shall not exceed 100,000 shares.
(b) The Committee shall designate all Participants for a Performance
Period by the deadline for establishing the Target Performance Goal for
that Performance Period.
(c) Following the close of each Performance Period and prior to the
payment of any amount to any Participant under the Plan, the Committee must
certify in writing as to the attainment of all Target Performance Goals
(including the performance goals for a Participant) upon which any awards
to a Participant for that Performance Period are to be based.
(d) Each of the foregoing provisions and all of the other terms and
conditions of the Plan shall be interpreted in such a fashion so as to
qualify all compensation paid hereunder as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.
(e) No shares of Performance Stock shall be awarded under the Plan and
this Plan shall be null and void and have no effect whatsoever unless the
Plan shall have been approved by the shareholders of the Company at the
1999 annual meeting of shareholders of the Company.
Section 6. Termination of Participation.
A Participant's participation shall terminate before the end of the
Performance Period, in the event of his or her termination of employment with
the Company for any reason, including death or disability. When a Participant's
participation terminates before the end of the Performance Period due to
involuntary termination of employment, retirement, death or disability, the
amount of any Base Compensation foregone by that employee as to such Performance
Period shall be reimbursed by the Company to the Participant or his/her
Designated Beneficiary.
Section 7. Transfer and Issuance of Performance Stock.
When Performance Stock attributable to a Success Award or a Base Award is
transferred and issued pursuant to Section 4 of this Plan, the Committee shall
then cause stock certificates registered in the name of the Participant (or the
Designated Beneficiary) to be issued and delivered to the Participant (or the
Designated Beneficiary) free of any and all restrictions or conditions.
Section 8. SEC Restrictions.
Each certificate representing Performance Stock shall bear such legends as
the Committee determines appropriate under the Securities Act and any related
legislation or regulations. The Company agrees, however, to take those steps
necessary to register such shares under the Securities Act, prior to the
issuance of those shares under the Plan.
Section 9. Plan Account.
A separate Plan Account shall be established on the Company's books for
each Participant for the purpose of accounting for all Elective Deferrals made
and Performance Stock rights earned pursuant to the terms and conditions of this
Plan.
Neither the Plan nor any award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company and a Participant or any other person. To the extent that any person
acquires a right to receive payments of cash or Performance Stock from the
Company or any Subsidiary pursuant to the Plan, such right shall be no greater
than the right of any unsecured general creditor of the Company. None of the
rights or benefits provided under the Plan shall be sold, assigned, transferred,
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pledged, hypothecated or otherwise disposed of during the time in which the
requirement of continued employment or attainment of performance objectives has
not been achieved.
Section 10. Tax Withholding.
Notwithstanding any other provision of the Plan, the Company or a
Subsidiary, as appropriate, shall have the right to deduct from all Success
Awards and Base Awards all federal, state or local taxes as required by law to
be withheld with respect to such awards, and the Participant or other person
receiving such Performance Stock may be required to pay to the Company or a
Subsidiary, as appropriate prior to delivery of such Performance Stock, the
amount of any such taxes which the Company or Subsidiary is required to
withhold, if any, with respect to such Performance Stock. If such payment is not
received, the Company may withhold an appropriate number of shares in payment of
such withholding tax obligations or withhold through any other lawful means.
Section 11. Designation and Change of Designated Beneficiary.
Each Participant may file with the Committee a written designation of one
or more persons as the Designated Beneficiary who shall be entitled to receive
(in the order and/or portions indicated) the Performance Stock, if any, due
under the Plan upon his death. A Participant may, from time to time, revoke or
change his beneficiary designation without the consent of any prior beneficiary
by filing a new designation with the Committee. The last such designation
received by the Committee shall be controlling; provided, however, that no
designation, or change or revocation thereof, shall be effective unless received
by the Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt.
Section 12. No Guarantee of Employment.
Nothing contained in the Plan shall be interpreted as a contract of
employment between the Company, or any of its Subsidiaries, and a Participant,
as establishing the right of a Participant to be continued in the employment of
the Company or any of its Subsidiaries to discharge a Participant, with or
without cause.
Section 13. Other Benefit Programs.
Participation in the Plan is in addition to and not in lieu of any other
qualified or non-qualified employee benefit plans or programs in which a
Participant is or may become eligible to participate by reason of employment
with the Company. Except as otherwise provided herein or in such other plans or
programs, participation in the Plan and receipt of any benefits hereunder shall
be disregarded under such other plans or programs. Notwithstanding the
foregoing, a Participant's benefits under all non-qualified employee benefit
plans or programs maintained by the Company shall be determined as if the
Participant had not made an Election To Defer Base Compensation. With respect to
the Company's qualified retirement plan, in the event that a Participant's
contribution to that plan, or benefits or account balance therein, is affected
in any manner by the Participant having made an Election to Defer Base
Compensation pursuant to the Plan, then such Participant shall receive an
additional current payment in an amount equal to that percentage of the
compensation deferred pursuant to the Participant's Election to Defer Base
Compensation that would have otherwise been taken into account as a contribution
to, benefit or credit to an account balance pursuant to such qualified
retirement plan.
Section 14. Amendment and Termination.
Notwithstanding any provision of the Plan, the Company reserves the right,
in its sole and absolute discretion, to modify, amend, suspend or terminate the
Plan at any time and for any reason, with or without notice; provided, however
that no such modification, amendment, suspension or termination shall reduce the
balance of any Participant's Plan Account determined as of the date any such
action is taken.
A-4
<PAGE> 29
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 William J. Smith, III, 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 on the reverse side, at the annual meeting (the "Annual
Meeting") of INSpire Insurance Solutions, Inc., a Texas corporation ("INSpire"),
to be held on May 12, 1999, 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, OR IF NO DIRECTION IS INDICATED BELOW, IN ACCORDANCE WITH THE
RECOMMENDATION OF THE BOARD OF DIRECTORS ON EACH PROPOSAL. 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 ELECTION OF DIRECTORS:
<TABLE>
<S> <C> <C>
FOR WITHHOLD AUTHORITY *EXCEPTIONS
all nominees listed to the right to vote for all [ ]
[ ] nominees listed to the right
[ ]
</TABLE>
Nominees: Daniel E. Berce, William J. Smith, III and Mitch S. Wynne
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space
provided below.)
*EXCEPTIONS
- --------------------------------------------------------------------------------
2. THE PROPOSAL TO APPROVE AND RATIFY THE EXECUTIVE PERFORMANCE STOCK INCENTIVE
PLAN:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. THE PROPOSAL TO RATIFY THE APPOINTMENT BY THE BOARD OF DIRECTORS OF DELOITTE
& TOUCHE LLP AS THE INDEPENDENT AUDITORS OF INSPIRE'S FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned hereby acknowledges receipt of the Proxy Statement dated
April 1, 1999 and hereby revokes any proxy or proxies heretofore given to vote
at said meeting or any adjournment thereof.
Date , 1999
------------------------
----------------------------------
Signature
----------------------------------
Name (Please print)
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED SELF-ADDRESSED AND
POSTMARKED ENVELOPE)
