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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Proxy Statement RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VESTA INSURANCE GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF VESTA INSURANCE APPEARS HERE]
To the Stockholders of
Vesta Insurance Group, Inc.
You are invited to attend a special meeting of stockholders of Vesta
Insurance Group, Inc. (the "Company") to be held at The Harbert Center, 2019
Fourth Avenue North, Birmingham, Alabama 35203 on , at 2:00
P.M., local time.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve the issuance of 2,950,000 shares of the Company's Series A
Convertible Preferred Stock, having the rights, preferences and privileges
described in the accompanying proxy statement, at a purchase price of $8.50
per share. Each share of Preferred Stock has a cumulative dividend rate of 9%,
compounded semi-annually, and, if issued, will be convertible into two shares
of Common Stock, subject to adjustment. If approved, the Company will issue
and sell the Preferred Stock to the Birmingham Investment Group, LLC for
$25,075,000 in cash. At the special meeting, you will also be asked to vote
upon a proposal to amend the Company's Long Term Incentive Plan to eliminate
the limitation on the total number of shares subject to awards which may be
granted in any one year. More detailed information concerning these proposals
is set forth in the accompanying Notice of Special Meeting of Stockholders and
Proxy Statement.
It is important that your shares be voted at this meeting. Please read the
enclosed Notice of Special Meeting and Proxy Statement so you will be informed
about business to come before the meeting. Please mark, sign, and return your
proxy. If you choose to attend the meeting, you may, of course, revoke your
proxy and personally vote your stock if you desire to do so.
Sincerely,
/s/ Norman W. Gayle, III
-----------------------------------
Norman W. Gayle, III
President and Chief Executive
Officer
Birmingham, Alabama
August , 1999
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-------------------------------
Notice of Special Meeting of Stockholders
to be Held
------------------------------
To the Holders of Common Stock of
Vesta Insurance Group, Inc.
A special meeting of stockholders of Vesta Insurance Group, Inc. will be
held at The Harbert Center, 2019 Fourth Avenue North, Birmingham, Alabama
35203 on , at 2:00 P.M., local time, for the following
purposes:
(1) To consider and vote upon a proposal to approve the issuance of
2,950,000 shares of the Company's Series A Convertible Preferred Stock,
having the rights, preferences and privileges described in the
accompanying Proxy Statement, at a purchase price of $8.50 per share.
Each share of Preferred Stock has a cumulative dividend rate of 9%,
compounded semi-annually, and, if issued, will be convertible into two
shares of Common Stock, subject to adjustment. If approved, the Company
will issue and sell the Preferred Stock to the Birmingham Investment
Group, LLC for $25,075,000 in cash.
(2) To consider and vote upon a proposal to approve an amendment to the
Company's Long Term Incentive Plan to eliminate the limitation on the
total number of shares which may be subject to awards granted in any
one year.
(3) To transact such other business as may properly come before the
meeting.
The proposal described above is more fully discussed in the accompanying
Proxy Statement.
The close of business on August 5, 1999 has been fixed as the date for
determining the stockholders who are entitled to notice of and to vote at the
special meeting. All stockholders, whether or not they expect to attend the
special meeting in person, are requested to mark, date, sign, and return the
enclosed form of proxy in the accompanying envelope. Your proxy may be revoked
at any time before it is voted.
The special meeting for which this notice is given may be adjourned from
time to time without notice other than announcement at the special meeting.
Any business for which notice of the special meeting is hereby given may be
transacted at any such adjournment.
By Order of the Board of Directors
/s/ Donald W. Thornton
----------------------------------
Donald W. Thornton
Senior Vice President--
General Counsel and Secretary
Birmingham, Alabama
August , 1999
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[LOGO OF VESTA INSURANCE APPEARS HERE]
PROXY STATEMENT FOR THE SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD
INTRODUCTION
Solicitation of Proxies
The Board of Directors of Vesta Insurance Group, Inc. (the "Company")
solicits your proxy in the form enclosed with this statement for use at the
special meeting of stockholders to be held at The Harbert Center, 2019 Fourth
Avenue North, Birmingham, Alabama 35203 on , at 2:00 P.M.,
local time, and at any adjournment of such meeting (the "Special Meeting"). At
the Special Meeting, the stockholders of the Company will be asked to (i)
consider and vote upon a proposal to approve the issuance and sale of
2,950,000 shares of the Company's Series A Convertible Preferred Stock (the
"Preferred Stock"), (ii) consider and vote upon a proposal to approve an
amendment to the Company's Long Term Incentive Plan and (iii) transact such
other business as may properly come before the Special Meeting. Although not
required by Delaware law, stockholder approval is sought in order to comply
with certain rules of the New York Stock Exchange relating to issuances of
securities convertible into twenty percent (20%) or more of a listed company's
outstanding voting stock.
Norman W. Gayle, III and Donald W. Thornton are named as proxies in the
enclosed form of proxy and have been designated as the directors' proxies by
the Board of Directors. The Company expects to mail this proxy material to
stockholders on or about August , 1999. When the enclosed form of proxy is
returned, properly executed, and in time for the meeting, the shares
represented thereby will be voted at the Special Meeting. All proxies will be
voted in accordance with the instructions set forth on the form of proxy, but
if proxies which are executed and returned do not specify a vote on the
proposals considered, the proxies will be voted FOR such proposals. Any
stockholder giving a proxy has the right to revoke it by giving written notice
of revocation to the Secretary of the Company at 3760 River Run Drive,
Birmingham, Alabama 35243 at any time before the proxy is voted.
Record Date and Voting Stock
Each stockholder of record at the close of business on August 5, 1999 is
entitled to one vote for each share of common stock held on that date. At the
close of business on August 5, 1999, there were shares of
common stock of the Company outstanding. There is no cumulative voting of the
common stock.
Vote Required
At the Special Meeting, a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum for the
transaction of business. Assuming the presence of a quorum, the proposal must
be approved by the affirmative vote of a majority of the shares of the
Company's common stock represented at the Special Meeting, whether in person
or by proxy, and entitled to vote.
A stockholder may abstain or withhold his vote (collectively, "abstentions")
with respect to each item submitted for stockholder approval. Abstentions will
be counted as present for purposes of determining the existence of a quorum
but will be counted as not voting in favor of the relevant proposal. Since the
proposal will require the affirmative vote of at least a majority of the
shares represented at the meeting and entitled to vote, abstentions will have
the effect of a vote against the proposal.
Generally, a broker is entitled to vote shares held in "street name" on
routine matters without instructions from the beneficial owner. On the other
hand, a broker may not be entitled to vote shares held in "street name" on
certain non-routine items absent customer instructions. If a broker votes
shares held in "street name" on
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some but not all of the proposals submitted for shareholder approval, the
shares so voted will be counted as present for purposes of determining the
existence of a quorum, but they will not be treated as shares entitled to vote
at the meeting on those matters as to which authority to vote is withheld by
the broker (a "broker nonvote").
PROPOSAL TO APPROVE THE TERMS AND ISSUANCE OF THE COMPANY'S
SERIES A CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
Page No.
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<S> <C>
What Is The Company Asking You To Approve?........................... 2
What Are the Terms Of The Preferred Stock?........................... 3
What Are the Reasons For The Issuance Of The Preferred Stock?........ 6
What Is The Background Of The Transaction?........................... 7
What Is The Birmingham Investment Group, LLC?........................ 9
What Are The Major Advantages Of the Transaction With the Birmingham
Investment
Group, LLC?......................................................... 9
Will The Birmingham Investment Group Have Any Other Rights?.......... 9
Can The Birmingham Investment Group Acquire Any More Voting Power?... 9
Did The Board Of Directors Receive A Fairness Opinion With Respect To
This Transaction?................................................... 10
Why Did The Board Of Directors Approve The Issuance Of The Preferred
Stock?.............................................................. 10
How Will The Issuance Of The Preferred Stock Affect The Rights Of The
Existing Common Stock?.............................................. 11
How Will The Issuance Of The Preferred Stock Impact The Company's
Capitalization and Earnings?........................................ 12
Are There Any Risks Or Disadvantages To The Company If The
Stockholders Do Not Approve The Proposal?........................... 14
Does Management Have Any Interest In The Proposed Transaction?....... ?
Are There Any Anti-takeover Implications Of The Issuance Of The
Preferred Stock?.................................................... 14
Why Is Stockholder Approval Sought For The Proposal?................. 14
What Does The Board Of Directors Recommend With Respect To The
Proposal?........................................................... 14
</TABLE>
What Is The Company Asking You To Approve?
You are being asked to approve the issuance and sale of 2,950,000 shares of
the Company's Series A Convertible Preferred Stock (the "Preferred Stock"),
having the rights, privileges and preferences described herein. If you approve
this proposal, and if the Company receives certain required regulatory
approvals, the Company will issue and sell the Preferred Stock to the
Birmingham Investment Group, LLC for $8.50 per share, or an aggregate of
$25,075,000, in cash.
If issued, each share of the Preferred Stock would be convertible into
shares of the Company's common stock at a conversion price of $4.25 per share,
subject to adjustment in certain events. Assuming no adjustments to the
conversion price, each share of Preferred Stock would be convertible into two
shares of common stock, for an aggregate of 5,900,000 shares of common stock.
Each share of Preferred Stock would have the right to one vote for each share
of common stock into which such share of Preferred Stock could then be
converted. Thus, the Preferred Stock initially would be entitled to cast
approximately 24% of the votes which may be cast in all matters which may come
before the Company's stockholders for approval. In addition, the holders of
the Preferred Stock would have the right, voting as a separate class, to elect
certain directors, and will have the other rights, privileges and preferences
described below.
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What Are The Terms Of The Preferred Stock?
The following summarizes certain terms of the Preferred Stock. We have
attached a copy of the form of Certificate of Designation to be filed with the
Secretary of State in Delaware which will establish the Preferred Stock (the
"Certificate of Designation") as APPENDIX A. This discussion is qualified in
its entirety by, and you should read it in conjunction with, the Certificate
of Designation.
Dividends. Dividends shall accrue on the Preferred Stock at the rate of 9%
per annum and will be payable semi-annually in arrears on each January 1 and
July 1, beginning January 1, 2000. If any dividend on the Preferred Stock
shall for any reason not be paid at the time such dividend becomes due, then
dividends shall continue to accrue on the Preferred Stock on a cumulative
basis. In the event that any dividends remain accrued but unpaid at the time
of any conversion of any of the Preferred Stock (as described herein and set
forth in the Certificate of Designation), such accrued but unpaid dividends
shall remain payable, notwithstanding such conversion.
The holders of the Preferred Stock will not be paid any dividends until such
time as the Company resumes the payment of interest on its deferrable
debentures issued to Vesta Capital Trust I, a finance subsidiary formed in
1997 for the purpose of issuing and selling $100,000,000 of its capital
(sometimes called "trust preferred") securities. The Company has deferred the
payment of interest on such debentures until January 15, 2000 and, under the
relevant trust documents, has the right to defer such payments further for a
period of up to ten years. Until the Company resumes the payment of such
interest, dividends on the Preferred Stock will continue to accrue on a
cumulative basis.
General Voting Rights. The holder of each share of Preferred Stock shall
have the right to cast one vote for each share of common stock issuable on
conversion, or two votes per share of Preferred Stock (subject to adjustment
as described herein). As of August 5, 1999, there were 18, , shares of
common stock outstanding, each entitled to one vote. At issuance, the
Preferred Stock will be entitled 5,900,000 votes. Assuming the number of
shares of common stock outstanding stays constant until the date of issuance
of the Preferred Stock, the total number of votes which could be cast
generally would be 24, , , of which 5,900,000, or approximately 24%,
could be cast by the holders of the Preferred Stock. In connection with these
general voting rights, the Preferred Stock will vote with the common stock as
a single class, and the holders of the Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of the holders of
common stock.
Special Voting Rights--Class A Directors. The Preferred Stock, voting as a
separate class, shall have the right to elect a certain number of directors of
the Company (the "Class A Directors"), depending upon the size of the full
board of directors and the number of shares of Preferred Stock outstanding.
The following table indicates the number of Class A Directors which the
holders of the Preferred Stock will be entitled to elect:
<TABLE>
<CAPTION>
# of Shares of Number of
Preferred Outstanding Size of Full Board Class A Directors
----------------------------- -------------------- --------------------
<S> <C> <C>
More than 1,976,500 7 or less 2
8-10 3
11-12 4
Between 973,000 and 1,976,500 7 or less 1
8-10 2
11-12 3
Less than 973,000 No Class A Directors No Class A Directors
</TABLE>
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Upon issuance of the Preferred Stock, the holders of such Preferred Stock
will elect the Class A Directors to serve for an initial term expiring at the
annual meeting of the Company's stockholders to be held in 2002. After the
2002 annual meeting, the Class A Directors shall be divided into three classes
and shall be elected to serve staggered terms of three years, with each class
term expiring every three years. The holders of the common stock will not have
the right to vote for or to remove the Class A Directors.
The Class A Directors elected by the holders of the Preferred Stock shall be
represented proportionately (but shall not be less than one) on all committees
of the Company's board of directors, other than any committee created for the
special purpose of negotiating with the holders of the Preferred Stock or
affiliates thereof.
Redemption. On or after July 1, 2009, the Company shall have the right, at
its option and by resolution of its Board of Directors, at any time it may
lawfully do so, to redeem all or any portion of the outstanding shares of the
Preferred Stock. Each share of Preferred Stock to be so redeemed shall be
redeemed against payment of an amount in cash equal to the following
redemption prices per share (expressed as a percentage of the initial purchase
price of $8.50 per share), plus, in each case, all declared and unpaid
dividends thereon to the date fixed for redemption (the "Redemption Price"):
If redeemed during the twelve-month period beginning July 1:
<TABLE>
<S> <C>
2009 110%
2010 108%
2011 106%
2012 104%
2013 102%
</TABLE>
In the event the Company elects to redeem all or any portion of the
Preferred Stock for cash, the holders of the Preferred Stock may, at their
option, convert each share of their Preferred Stock into two shares of the
Company's common stock (subject to adjustment as described herein and as set
forth in the Certificate of Designations) in lieu of such redemption.
Optional Conversion. The holders of the Preferred Stock will have the right,
at any time, to convert each share of Preferred Stock held into two shares of
the Company's common stock, subject to adjustment as described below under the
heading "Conversion Price" and as more fully set forth in the Certificate of
Designations.
Mandatory Conversion. Each share of the Preferred Stock shall automatically
be converted into two shares of the Company's common stock, subject to
adjustment as described below under the heading "Conversion Price" and as more
fully set forth in the Certificate of Designations, on the earlier of (a) the
date on which the average closing price of Company's common stock for twenty
consecutive trading days is $8.00 or greater or (b) fifteen years from the
date of issuance of the Preferred Stock. If, in the future, the Company
declares a stock split (including a reverse split), a dividend payable in
common stock or any other distribution of securities to the holders of the
Company's common stock with respect to their common stock, then the closing
price of $8.00 per share shall be appropriately adjusted to reflect such stock
split, dividend or other distribution of securities.
Conversion Price. Each share of the Preferred Stock will be convertible into
the number of shares of the Company's common stock which results from dividing
the "Conversion Price" in effect at the time of conversion into $8.50. The
initial "Conversion Price" is $4.25, which divided into $8.50 results in 2
shares of common stock. However, this Conversion Price will be adjusted
automatically in any of the following events:
. the Company issues any common stock (or options, rights, warrants or
other securities convertible into or exchangeable for shares of common
stock) at a price per share less than the Conversion Price in effect on
the date of issuance;
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. the Company (i) declares a stock dividend or other distribution on its
common stock in shares of its common stock, (ii) subdivides or
reclassifies the outstanding shares of its common stock into a greater
number of shares, or (iii) combines or reclassifies the outstanding
shares of its common stock into a smaller number of shares; or
. the Company distributes to all holders of shares of its common stock (i)
any equity security other than common stock, (ii) any debt instruments
(including debt of its subsidiaries), (iii) any other assets (excluding
cash dividends or distributions in shares of its common stock) or (iv)
other rights or warrants (excluding options, rights, warrants or other
securities convertible into or exchangeable for shares of common stock).
Consolidation, Merger, Sale, Lease or Conveyance. If the Company
consolidates with or merges with or into another corporation, or sells, leases
or conveys its assets or property as an entirety or substantially as an
entirety to another corporation, then each share of Preferred Stock shall
thereafter be convertible into the number of shares of stock or other
securities or property (including cash) which the common stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such Preferred Stock would have been entitled upon such
consolidation, merger, sale, lease or conveyance. If necessary, the provisions
set forth in the Certificate of Designations shall be appropriately adjusted
so as to be applicable, as nearly as may reasonably be, to any shares of stock
or other securities or property thereafter deliverable on the conversion of
the shares of Preferred Stock.
Preference on Liquidation. In the event of any liquidation, dissolution,
involuntary or voluntary corporate reorganization under the federal bankruptcy
laws or similar state laws, or winding up of the Company, the holders of the
Preferred Stock then outstanding shall be senior to any other class or series
of capital stock of the Company. Accordingly, the holders of the Preferred
Stock shall be entitled to be paid out of the assets and surplus funds of the
Company available for distribution to its stockholders, and before any payment
shall be made to the holders of any shares of the Company's common stock, an
amount equal to $8.50 per share plus declared and unpaid dividends thereon to
the date fixed for distribution.
Call For Special Meeting. As long as more than 973,500 shares of Preferred
Stock remain outstanding, the Preferred Stock, voting as a separate class,
shall have the right to call special stockholders' meetings upon the minimum
notice required by applicable law or regulation.
Right To Approve Certain Transactions. Without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of the Preferred Stock, voting
together as a separate class, the Company may not:
. sell, convey or otherwise dispose of all or substantially all of its
property or business;
. merge into or consolidate with any other corporation (other than a
wholly owned subsidiary of the Company) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of
the voting power of the Company is disposed of;
. alter or change the rights, preferences or privileges of the Preferred
Stock as to adversely affect such series;
. increase the authorized number of shares of Preferred Stock; or
. create any new class or series of stock having rights, preferences or
privileges superior to the Preferred Stock.
Right To Nominate Directors, Generally. In addition to the right to elect
Class A Directors, the holders of the Preferred Stock, acting through the
Class A Directors, will have the right to nominate additional directors for
general election, if the Class A Directors' proportionate representation on
the full board of directors is less than the proportionate number of votes
which the holders of the Preferred Stock may cast in a general election of
directors (including the votes which may be cast by holders of the Preferred
Stock, the Company's common stock and any other voting securities of the
Company). In such a circumstance, the holders of the Preferred Stock
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will be entitled to nominate a number of nominees which, when added to the
number of Class A Directors and assuming their election, would make their
proportionate representation on the full board of directors equal to or
greater than the proportionate number of votes which the holders of the
Preferred Stock may cast in a general election of directors. The number of
nominees which the holders of the Preferred Stock are entitled to nominate
under this clause shall increase proportionately upon any increase in the
percentage of the total number of votes which the holders of the Preferred
Stock may cast in a general election of directors. The Board of Directors
shall exercise all authority under applicable law to cause the Class A
Director Nominees to be elected as directors of the Company.
What Are The Reasons For The Issuance Of The Preferred Stock ?
Recent Adverse Business Developments. The Company is presently experiencing
a need for additional equity capital and a need to refinance its existing
short-term bank debt, which needs have been precipitated by several adverse
business developments which occurred in 1998 and the first half of 1999. Some
of those developments are summarized below:
. Accounting Irregularities. In June 1998, we discovered certain
accounting irregularities in our reported results for the fourth quarter
of 1997 and the first quarter of 1998. We promptly commenced an internal
investigation which quantified the extent of the irregularities and led
to a reduction of net income of approximately $13.6 million in the
fourth quarter of 1997 and first quarter of 1998.
. Correction of prior accounting method. In 1998, we corrected the
methodology by which we recognized earned premiums in our assumed
reinsurance business. This resulted in a restatement of our historical
financial statements and a decrease in reported net income of
approximately $49 million for the years 1993 through 1997.
. Reduced statutory surplus of lead subsidiary. During 1998, we reduced
the previously reported statutory capital and surplus of Vesta Fire
Insurance Corporation, our lead insurance subsidiary, from $355 million
(as reported in 1997) to $217 million, a reduction of approximately $138
million. This reduction included approximately $125.8 million of
adjustments to the previously reported 1997 amount arising from the
Alabama Department of Insurance examination of Vesta Fire's 1997 annual
statutory statement.
. A.M. Best ratings. On February 24, 1999, A.M. Best Company, which rates
insurance companies based on factors of concern to policyholders,
lowered its rating on our insurance subsidiaries to "B++" (Very Good)
from "A-" (Excellent). On May 3, 1999, A.M. Best lowered our rating to
"B" (Fair).
In light of these developments, the Company analyzed the profitability of
its three lines of business--Reinsurance, Commercial Lines and Personal Lines.
In the course of this analysis, we determined that the corrective actions
necessary to return our Commercial Lines segment to profitability could not be
justified in the current commercial insurance marketplace. We also determined
that we could no longer retain or expand our Reinsurance portfolio. As a
result of these conclusions, we decided to discontinue our Commercial Lines
and Reinsurance segments, which have historically generated the majority of
our premium volume.
Terms Of Existing Amended Credit Facility. The Company is presently indebted
in the principal amount of approximately $56 million under its line of credit
from a group of lenders led by First Union National Bank (collectively, the
"Current Lenders"). As of December 31, 1998, the Company was not in compliance
with certain of its financial covenants contained in the credit agreement
related to this line of credit. Subsequent to December 31, 1998, the Current
Lenders agreed to amend the covenants and waive any event of default arising
from non-compliance with the covenants as of December 31, 1998 pursuant to an
amended credit facility ("the "Amended Facility"). Some of the material terms
of the Amended Facility are summarized below:
. principal amount becomes due July 31, 2000
. interest rate is the prime rate plus 1%, provided that from and after
September 30, 1999 the rate shall be increased to the prime rate plus 3%
if the Company has not reduced the principal balance to $45 million
(which will require prepayment of approximately $11 million)
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. Current Lenders received warrants to acquire approximately 6.6% of the
Company's outstanding shares of common stock, which warrants become
exercisable in the event the Company has not reduced the principal
balance to $45 million (which will require prepayment of approximately
$11 million) by March 15, 2000
. The Company is required to suspend dividends on its common stock and
defer payments of distributions on the Capital Securities issued by
Vesta Capital Trust I unless the Company has reduced the principal
balance to $45 million (which will require prepayment of approximately
$11 million) by March 15, 2000.
The Amended Facility also contains certain covenants that require the
Company to maintain minimum statutory surplus levels, minimum cumulative
statutory net income levels and minimum cumulative GAAP net income levels.
Need to Prepay And/Or Refinance Short-Term Bank Debt. In the absence of
additional equity capital or debt refinancing, we believe the Amended Facility
would compel the Company to take actions which would further limit our
operational capacity to maintain and increase premium volume, including taking
a substantial dividend out of our operating subsidiaries' capital and surplus
or selling profitable assets. In this respect, you should know that the
Company's ability to be paid a dividend from its operating subsidiaries is
limited by state insurance regulatory restrictions, and we do not believe that
our state regulators would permit our insurance subsidiaries to pay the
substantial dividends necessary to repay our existing short-term bank debt.
Management believes that this condition is depressing our rating by A.M. Best
and causing customer and agent uncertainty about our financial condition which
may have an adverse effect on our ability to sell our Personal Lines insurance
products. Accordingly, the Board of Directors determined that it is advisable
and in the Company's best interest to seek additional equity capital or
alternate sources of financing in an effort to prepay or refinance the Amended
Facility with the Current Lenders, thereby improving the Company's capital
structure and enhancing its financial flexibility.
Initially, management pursued a sale of non-core assets to generate cash
proceeds available to prepay the outstanding principal balance owed under the
Amended Facility. On June 29, 1999, the Company announced that it had entered
into a definitive agreement to sell the right to control the affairs of Vesta
County Mutual Insurance Company ("Vesta County Mutual") to Employer
Reinsurance Corporation for approximately $11 million. Assuming the successful
completion of that transaction, the Company expects to apply the proceeds
towards the repayment of the existing indebtedness to the Current Lenders,
which would reduce the outstanding principal balance owed under the Amended
Facility to approximately $45 million.
In addition to the sale of assets, the Company engaged Cochran, Caronia &
Co., an investment banking firm specializing in insurance transactions, to
consider various means of raising additional equity capital and refinancing
the Amended Facility.
What Is The Background Of The Transaction?
On April 28, 1999, the Board of Directors of Vesta received notification
from James A. Taylor, on behalf of himself and other individuals, that he was
entering into an agreement with Torchmark Corporation, our largest
stockholder, for the acquisition of 100% of Torchmark's interest in Vesta,
subject to certain conditions, several of which required the Vesta Board's
action or agreement. Also on April 28, 1999, Donald W. Thornton, Vesta's
general counsel, received notice from Larry Hutchison, Torchmark's Vice
President and General Counsel, that Torchmark was proposing to sell 100% of
its interest in Vesta (represented by 4,450,000 shares, or approximately 24%,
of Vesta's outstanding common stock) to a group of investors, and requesting
Vesta's written waiver of its right of first refusal covering those shares.
After considering each of these notices, the Vesta Board agreed to waive its
right of first refusal covering Torchmark's shares of Vesta common stock, but
it concluded that it could not agree to take the actions or enter into the
agreements which Mr. Taylor had expressed as conditions to his group's
obligation to purchase those shares from Torchmark. The Vesta Board declined
to take such actions or enter into such agreements because they would have
conferred significant rights upon Mr. Taylor and the other
7
<PAGE>
individuals on whose behalf Mr. Taylor was acting, including registration
rights, representation on Vesta's Board of Directors (including the right to
select its Chairman), certain rights relating to Vesta's banking, investment
and lending relationships, and the right to authorize the execution of
employment agreements with certain executive officers, while Vesta would have
received no ascertainable consideration, financial or otherwise, in exchange
for such rights.
On May 17, 1999, Ehney A. Camp, III, Vesta's Chairman of the Board, met with
R. K. Richey, a Director of Torchmark and Chairman of its Executive Committee,
and explained the reasons why the Vesta Board would not take the actions or
enter into the agreements which Mr. Taylor had expressed as conditions to his
obligation to purchase Torchmark's shares of Vesta common stock. Subsequently,
representatives of Vesta's senior management also met with Mr. Taylor and his
representatives for the same purpose, explaining that Vesta would not confer
these extraordinary rights upon Mr. Taylor and his group without receiving any
consideration in exchange. At these meetings, Vesta's senior management
outlined Vesta's need to prepay and refinance its short-term bank debt owing
to its Current Lenders, indicating that Vesta might be willing to issue
additional shares of capital stock in exchange for cash and an ability to
refinance its short-term bank debt.
On May 17, 1999, Leonard S. Caronia and Christopher G. Williams of Cochran,
Caronia & Co. met with a management group and Mr. Camp to review the results
of its previous discussions with prospective investors and to present
strategic and financial alternatives for the Company to consider. Cochran,
Caronia & Co was subsequently engaged to assist the Company in analyzing,
developing and negotiating these alternatives.
On May 28, 1999, Cochran, Caronia & Co. received copies of correspondence
that had been sent to the Company from other investor groups that had
expressed an interest in the Company. This material included correspondence
from Mr. Taylor, on behalf of himself and other individuals.
On June 8, 1999, the Company received a proposal from Mr. Taylor, on behalf
of himself and other individuals, to purchase $25,000,000 of a new issue
Convertible Preferred Stock and to assist in the arrangement of a $20,000,000
bank financing. The Company reviewed and discussed the proposal with its
financial and legal advisors, and asked Cochran, Caronia & Co. to meet with
the investor group to attempt to negotiate a transaction. Cochran, Caronia &
Co. met with James A. Taylor, Jr. on June 16, 1999 to negotiate the terms of
the proposed investment. Negotiation of the terms of both the convertible
preferred stock and the bank financing continued through the next week.
Vesta's Board of Directors met on June 24, 1999 to consider a package of
documents submitted by Mr. Taylor representing a proposed $25,075,000
Preferred Stock investment, coupled with a proposed $20,000,000 commitment
from The Bank, Birmingham, Alabama, to refinance Vesta's short term debt to
its Current Lenders. This package of documents included (i) a Convertible
Preferred Stock Purchase Agreement, (ii) a Certificate of Designations
(establishing the rights and preferences of the to-be-issued Preferred Stock)
and (iii) a draft commitment letter from The Bank. At this meeting, Cochran,
Caronia & Co. made a presentation to the Board of Directors of the Company on
the terms of the proposed Convertible Preferred Stock and bank financing and
discussed other financing and strategic alternatives available to the Company.
At the conclusion of this board meeting, Vesta's Board of Directors directed
management to continue to negotiate with Mr. Taylor and his representatives
and scheduled a meeting for June 27, 1999 for the purpose of considering the
proposed transaction. Between Thursday, June 24, and Sunday, June 27, Vesta's
senior management, with the assistance of its legal and financial advisors,
continued to negotiate the terms of the proposed transaction.
At the board meeting held June 27, 1999, Vesta's senior management and legal
and financial advisors reported that Mr. Taylor had agreed to revise several
terms of the documents in accordance with their requests,
8
<PAGE>
and that the negotiations had concluded. Cochran, Caronia & Co. then orally
advised the Board of Directors that the proposed issuance of the Preferred
Stock, pursuant to the terms of the proposed Convertible Preferred Stock
Purchase Agreement, including the related commitment from The Bank to
refinance up to $20,000,000 of Vesta's existing indebtedness to the Current
Lenders, was fair to Vesta, from a financial point of view. After considering
the advantages and disadvantages of the proposed transaction, and based upon
advice received, the Vesta Board of Directors approved and authorized the
execution of the Convertible Preferred Stock Purchase Agreement and designated
2,950,000 shares of its authorized but unissued Preferred Stock as the Series
A Convertible Preferred Stock to be issued pursuant to that agreement.
What Is The Birmingham Investment Group, LLC?
The Birmingham Investment Group LLC is a single purpose limited liability
company formed under Delaware law to acquire the Preferred Stock or other
equity securities of the Company. James A. Taylor, the Chairman of the Board,
President and Chief Executive Officer of the Banc Corporation, is its
authorized manager. The majority of its members are also original investors in
and directors of the Banc Corporation or its banking subsidiaries. There are
22 individuals and 4 corporate members of the Birmingham Investment Group.
What Are The Major Advantages Of the Transaction With the Birmingham
Investment Group, LLC?
The transaction would provide the Company with over $25 million in equity
capital available for the repayment of the existing indebtedness to the
Current Lenders and is accompanied by a commitment from The Banc Corporation
and The Bank to provide a revolving credit facility of an additional $20
million. When added to the funds received from the successful completion of
the sale of Vesta County Mutual and the issuance of the Preferred Stock on the
terms described above, this $20 million revolving credit facility would be
adequate and available to refinance the entirety of the remaining indebtedness
to the Current Lenders. The closing of this revolving credit facility with The
Bank is a condition to the Company's obligation to issue the Preferred Stock
to the Birmingham Investment Group.
Will The Birmingham Investment Group Have Any Other Rights?
Registration Rights. The Company has agreed to file a registration statement
on Form S-1 or S-3, as appropriate (or any successor form) for a public resale
offering of the Preferred Stock and the Common Stock into which the Preferred
Stock is convertible. The Company will pay all registration expenses.
Can The Birmingham Investment Group Acquire Any More Voting Power?
Standstill Provisions. The Birmingham Investment Group has agreed that it
will not take certain actions which may increase its effective voting power
over the Company. In particular, the Birmingham Investment Group has agreed
that it will not:
. for a period of three years from the closing, acquire, offer to acquire,
or agree to acquire, directly or indirectly, by purchase or otherwise,
any voting securities or direct or indirect rights or options to acquire
any voting securities of the Company if, as a result of such
acquisition, the Birmingham Investment Group or any "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of
which the Birmingham Investment Group is a member would then
beneficially own 40% or more of such outstanding voting securities of
the Company;
. for a period of two years from the closing, (a) make, or in any way
participate, directly or indirectly, in any "solicitation" of proxies to
vote (as such terms are used in the proxy rules of the Commission) or to
seek to advise or influence any person or entity with respect to the
voting of greater than 40% of the voting securities of the Company; or
(b) form, join or in any way participate in a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 with respect
to greater than 40% of the voting securities of the Company; or
9
<PAGE>
. participate in, or encourage the formation of, any "group" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 which
owns or seeks to acquire beneficial ownership of or otherwise act in
respect of, greater than 40% of the voting securities, other than any
such group which is comprised exclusively of the Birmingham Investment
Group and any other permitted transferee or transferee of the Preferred
Stock from the Birmingham Investment Group.
Notwithstanding these agreements, the Birmingham Investment Group may
acquire up to 40% of the voting securities of the Company, subject to prior
receipt of all necessary regulatory approvals and the giving of prior written
notice of its intention to do so to the Company.
Did the Board Receive A Fairness Opinion With Respect To This Transaction?
After considering potentially available capital transactions, Cochran,
Caronia & Co. orally advised the Company's Board of Directors on June 27,
1999, that the proposed issuance of the Preferred Stock to the Birmingham
Investment Group pursuant to the terms of the Preferred Stock Purchase
Agreement, including the related commitment from The Bank to refinance up to
$20 million of the Company's existing indebtedness to the Current Lenders, was
fair to Vesta, from a financial point of view.
In rendering its fairness opinion, Cochran, Caronia & Co., considered, among
other things, the terms of the Preferred Stock and the related financing
transactions, the Company's capitalization and financial condition, financial
and securities data pertinent to the Company, including the recent trading
history of the Company's common stock (which has traded as low as $3 3/8 per
share within six months of the board decision), analysis of recent
transactions relating to the Company's common stock, other financial and
strategic options available to the Company, and other information, financial
studies, analysis and investigations of financial, economic and market
criteria as was considered relevant and appropriate. No single matter
considered was a predominant factor in rendering the fairness opinion.
Cochran, Caronia & Co. was paid a fee of $500,000 for rendering a fairness
opinion relating to the proposed issuance of the Preferred Stock and a monthly
retainer fee for other financial advisory services performed for the Company.
The full text of the written opinion of Cochran, Caronia & Co. dated July
28, 1999, which sets forth the matters considered, the procedures followed,
assumptions made and limitations on the review undertaken in connection with
the opinion is attached to this proxy statement as APPENDIX B and is
incorporated herein by reference.
Why Did The Board Of Directors Approve the Issuance Of The Preferred Stock?
The Board of Directors believes that the Company has a current need for
additional equity capital and a current need to refinance its existing short-
term bank debt. The Board of Directors' decision to approve the issuance of
the Preferred Stock to the Birmingham Investment Group was based upon
balancing the benefits of the proposed transaction against the risk that
alternative financing and strategic alternatives may not be available, in
which case Vesta would operate its business under its existing capital
structure. Some of the major benefits which the Board of Directors considered
were:
. The issuance of the Preferred Stock, coupled with the $20 million
financing from the Bank and the unrelated sale proceeds from the Vesta
County Mutual transaction, will enable the Company to prepay the Current
Lenders under the Amended Facility, which matures on July 31, 2000,
thereby eliminating various onerous and restrictive terms of the Amended
Facility, such as the right of the Current Lenders to receive warrants
to acquire 6.6% of the Company's stock.
. The issuance of the Preferred Stock increases the equity capital of the
Company and reduces the Company's indebtedness.
. The Preferred Stock is not subject to mandatory redemption or any right
of the holders to put the Preferred Stock back to the Company or obtain
prepayment upon the occurrence of a breach of a financial covenant or
any other event.
10
<PAGE>
. If the Company's common stock has a closing price of $8 or more for 20
consecutive trading days, the Preferred Stock is automatically converted
into common stock, thereby eliminating the $2,250,000 in annual
preferred dividends.
. The issuance of the Preferred Stock would enable the Company to obtain a
new $20 million loan from The Bank at more attractive terms, including
maturity, than the Amended Facility with the Current Lenders.
. The issuance of the Preferred Stock with the advantages described above
is, in the Company's opinion, likely to result in the Company's future
financial prospects being more favorably regarded by lenders, credit
rating services, insurance agents, prospective and current policyholders
and investors. On July 14, 1999, following the announcement of the
proposed refinancing, Duff & Phelps Credit Rating Co. placed Vesta's
preferred stock rating on Rating Watch--Up, noting the "increased
flexibility afforded by the new credit facility." This Rating Watch
affects only the "DP" (Dividend Arrearages) rating of the Vesta Trust I
capital securities. Vesta's insurance claims paying ability and senior
debt ratings remained unchanged and on Rating Watch--Down.
In making its decision to authorize the issuance of the Preferred Stock, the
Board of Directors considered that the Preferred Stock to be issued at $8.50
per share was convertible into two shares of common stock (or $4.25 per
share), which was below the current market price of the common stock at the
time of its decision. Before agreeing to the Preferred Stock Purchase
Agreement, the Company had pursued other alternatives which, in the judgment
of the Company, were not as attractive or even likely to be feasible within
the short time frame required. The Company believes that the attractive
conversion feature which permits the conversion of the Preferred Stock
automatically at any time to common stock after the common stock's price
closes at or above $8 for twenty consecutive days and the other benefits
described above outweigh other less desirable features of the proposed
Preferred Stock issuance. Prior to authorizing its issuance of the Preferred
Stock, the Board also received advice as to the fairness of the transaction
from Cochran, Caronia & Co., an investment banking firm specializing in
insurance companies.
How Will The Issuance Of The Preferred Stock Affect The Rights Of The Existing
Common Stock?
The holders of the Preferred Stock will have certain rights which are
superior to those of the holders of the Company's common stock. In addition,
the issuance of the Preferred Stock, and its ability to convert into common
stock, may impact the trading patterns of the Company's common stock.
Stockholders should consider the following factors in determining whether to
vote for the proposal to approve the issuance of the Preferred Stock:
. The Preferred Stock will have a prior claim against the Company's assets
ahead of the common stock in the event of a liquidation or bankruptcy.
. The Preferred Stock will be entitled to be paid dividends out of funds
legally available to do so. The payment of these preferred dividends
will take priority over the payment of dividends, if any, on the
Company's common stock, and may also limit the amount of working capital
which would otherwise be available.
. Current stockholders are subject to the risk of substantial dilution to
their interests which may result from the conversion of the Preferred
Stock. If the Preferred Stock is converted, current stockholders will
own a smaller percentage of the outstanding common stock of the Company.
. The Birmingham Investment Group will have the right to cast
approximately 24% of all votes entitled to be cast in matters submitted
to the stockholders, generally, will be entitled to elect certain
directors (voting as a separate class) and will have other substantial
rights and preferences described in this proxy Statement. See, "What Are
The Terms Of The Preferred Stock?." These rights may give it (or its
transferee, if the shares are sold in a block) the ability to influence
the Company's management. In addition, these rights, when coupled with
the common stock ownership of Torchmark, will result in a
11
<PAGE>
concentration of voting power in two large stockholders in excess of 50%
of the total number of votes which may be cast in an election of
directors, generally.
. The Birmingham Investment Group (or its transferees) will have
registration rights allowing it to sell the shares of Preferred Stock,
or common stock issued upon conversion of any Preferred Stock, in the
market. The Birmingham Investment Group can exercise these rights
immediately after the proposed transaction is closed. Depending on
market conditions, the availability of these shares for potential sale
could affect the trading price of the Company's common stock.
How Will The Issuance Of The Preferred Stock Impact The Company's
Capitalization and Earnings?
If consummated, the issuance and sale of the Preferred Stock will
essentially replace $25 million of the Company's existing short term debt
owing to its Current Lenders with equity. The related revolving credit
facility committed by The Banc Corporation and The Bank will refinance an
additional $20 million of such short term debt on terms which management
believes are more favorable to the Company. Management believes this will have
a positive effect on the Company's capitalization. The following table
reflects what the Company's capitalization would have been as of December 31,
1998 and March 31, 1999, assuming the following events had occurred prior to
such dates: (i) the issuance and sale of $25 million of the Preferred Stock
and (ii) the refinancing of $20 million of short term debt:
Vesta Pro Forma Capitalization
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
<CAPTION>
Three Months Ended March 31,
Year Ended December 31, 1998 1999
------------------------------ ------------------------------
Reported Adjustment Pro Forma Reported Adjustment Pro Forma
Debt Securities -------- ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing Short Term Debt
(1).................... $ 70,000 $(45,075) $ 24,925 $ 70,000 $(60,075) $ 9,925
Proposed Short Term
Debt................... 0 20,000 20,000 0 20,000 20,000
Long Term Debt.......... 98,302 0 98,302 98,314 0 98,314
-------- -------- -------- -------- -------- --------
Total Debt Securities.. $168,302 $(25,075) $143,237 $168,314 $(40,075) $128,239
Deferrable Capital
Securities............. 100,000 0 100,000 100,000 0 100,000
Equity Securities
Series A Convertible
Preferred Stock........ 0 25,075 25,075 0 25,075 25,075
Stockholders' Equity.... 158,027 0 158,027 164,422 0 164,422
-------- -------- -------- -------- -------- --------
Total Equity
Securities............ $158,027 $ 25,075 $183,102 $164,422 $ 25,075 $189,497
-------- -------- -------- -------- -------- --------
Total Capital........... $426,329 $ 0 $426,329 $432,736 $(15,000) $417,736
======== ======== ======== ======== ======== ========
Total Debt & Deferrable
Capital
Securities/Total
Capital Ratio.......... 62.9% 57.1% 62.0% 54.6%
</TABLE>
- --------
(1) The adjustment for the three months ended March 31, 1999 assumes the
application of $15 million in proceeds from the sale of Vesta's
reinsurance business to reduce Existing Short Term Debt. These proceeds
were received during the first quarter of 1999 and applied to reduce
existing short term debt during the second quarter of 1999.
12
<PAGE>
The following table reflects what the Company's earnings per share would
have been as of December 31, 1998 and March 31, 1999, assuming (i) the prior
issuance of the Preferred Stock and the application of the $25,075,000 to
reduce the principal owed under the Company's existing Line of Credit and (ii)
the prior refinancing of $20 million of such debt at 8% per annum:
Vesta Pro Forma Earnings
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
----------------- ------------------
<S> <C> <C>
Reported Net Income....................... $(141,184) $ 8,793
Pro Forma Adjustments to Net Income:
Interest Expense on Line of Credit, net
of taxes (1)........................... $ 1,597 $ 619
--------- -------
Pro Forma Net Income...................... $ 139,587 $ 9,412
Preferred Dividends on Series A
Convertible Preferred Stock (2)........ $ (2,257) $ (564)
--------- -------
Pro Forma Net Income (Loss) Available to
Common Shareholders...................... $ 141,844 $ 8,848
========= =======
Reported Earnings Per Share:
Basic................................... $ (7.61) $ 0.47
Diluted................................. $ (7.61) $ 0.47
Reported Weighted Average Shares:
Basic................................... 18,548 18,691
Diluted................................. 18,548 18,691
Pro Forma Earnings Per Share:
Basic................................... $ (7.65) $ 0.47
Diluted (3)............................. $ (7.65) $ 0.36
Pro Forma Weighted Average Shares:
Basic................................... 18,548 18,691
Diluted (4)............................. 18,548 24,591
</TABLE>
- --------
(1) Interest expense is calculated assuming the proposed Line of Credit for
$20.0 million at a rate of 8.0% was issued on January 1, 1998. The
existing Line of Credit bears interest at 9.0% per annum. The interest
expense is reported net of taxes assuming a tax rate of 35.0%.
(2) Preferred Dividends are calculated on $25,075,000 of Preferred Stock at a
rate of 9.0% per annum. These dividends will not be paid until the Company
resumes payment of distribution on Vesta Capital Trust I's Capital
Securities.
(3) Pro Forma Earnings Per Share for March 31, 1999 on a Diluted basis is
adjusted to reflect the dilutive impact of the Series A Convertible
Preferred Stock. The Pro Forma Earnings Per Share calculation assumes the
2,950,000 Series A shares have been converted into 5,900,000 shares of
Common Stock. For December 31, 1998, the Pro Forma Weighted Average Shares
on a Diluted and Basic basis is held constant due to the anti-dilutive
effect of changing the number of Diluted shares.
(4) Pro Forma Weighted Average Shares assumes the 2,950,000 Series A shares
have been converted to Common stock and these shares have been added to
the existing weighted average shares for that period.
13
<PAGE>
Are There Any Risks Or Disadvantages To The Company If The Stockholders Do Not
Approve The Proposal?
Yes. In the event the proposal is not approved, the Company will remain
subject to the terms and conditions of the Amended Facility with the Current
Lenders, which matures on July 31, 2000. Some disadvantages of a failure to
repay or refinance the Amended Facility include:
. Potential actions which would further limit our operational capacity to
maintain and increase premium volume, including profitable assets;
. Continuing pressure on our rating by A.M. Best in light of the short
term maturity of the Amended facility with the Current Lenders;
. Continuing customer and agent uncertainty about our financial condition
which may have an adverse effect on our ability to sell our Personal
Lines insurance products; and
. Issuance of the warrants to the Current Lenders.
Does Management Have any Interest in the Proposed Transaction?
If Vesta's Stockholders approve the issuance of the Preferred Stock, the
Preferred Stock will be issued pursuant to a Convertible Preferred Stock
Purchase Agreement between Vesta and the Birmingham Investment Group, LLC.
This agreement provides, as a condition to the obligations of the Birmingham
Investment Group, LLC, that Vesta shall have entered into employment
agreements with certain existing senior management in form and substance
mutually satisfactory to both Vesta and the Birmingham Investment Group, LLC.
These employment agreements, which will not become effective unless Vesta's
Stockholders approve the issuance of the Preferred Stock and the proposed
transaction is consummated, will provide for incentive compensation based on
increases in the Company's market capitalization.
Are There Any Anti-takeover Implications Of The Issuance Of The Preferred
Stock?
Yes. As noted above, the holders of the Preferred Stock have the power to
veto any transaction in which the Company would:
. sell, convey or otherwise dispose of all or substantially all of its
property or business; or
. merge into or consolidate with any other corporation (other than a
wholly owned subsidiary of the Company) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of
the voting power of the Company is disposed of.
Section 203 of the Delaware General Corporation Law is generally recognized
as an "anti-takeover" statute which prohibits a corporation from entering into
certain business combinations with any entity which acquires 15% of the
corporation stock, or any affiliate of such entity. The Company's Board of
Directors, as it is empowered to do under the statute, waived the application
of Section 203 to the Birmingham Investment Group.
The rights associated with the Preferred Stock, coupled with the Board's
decision to waive the application of Section 203, may discourage other
potential acquirors from seeking to acquire the Company.
14
<PAGE>
Why Is Stockholder Approval Sought For The Proposal?
Section 312.03 of the New York Stock Exchange Listed Company Manual
generally requires shareholder approval of any issuance of common stock, or
securities convertible into common stock, which will represent twenty percent
(20%) or more of the voting power outstanding (measured by the number of votes
entitled to be cast in a general election of directors) before the issuance of
securities. Because of these NYSE requirements, the Company is seeking the
approval of its stockholders prior to the issuance of the Preferred Stock so
that the common shares issuable upon conversion may be listed for trading on
the NYSE.
What Does The Board Of Directors Recommend With Respect To The Proposal?
THE BOARD BELIEVES THAT THE PROPOSAL IS ADVISABLE AND IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE PROPOSAL.
Principal Stockholders
The following table lists all persons known to be the beneficial owner of
more than five percent of the Company's outstanding common stock as of July 1,
1998.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
---------------- ---------------- ----------------
<S> <C> <C>
Torchmark Corporation(1) 5,130,000 27.46%
2001 Third Avenue South
Birmingham, Alabama 35233
</TABLE>
- --------
(1) Based on Amendment No. 5 to Schedule 13D filed by Torchmark Corporation,
dated July 1, 1999. Prior to the completion of the Company's initial
public offering of common stock on November 18, 1993, the Company was a
wholly owned subsidiary of Torchmark Corporation.
Stock Ownership Of Management
The following table shows certain information about stock ownership of the
directors and each of the named executive officers and all directors and
executive officers as a group, as of December 31, 1998.
<TABLE>
<CAPTION>
Company Common Stock
or Options Beneficially
Owned as of December 31, 1998 Percent of Class(1)
----------------------------- ------------------
Name Directly Indirectly
- ---- --------------- ---------------
<S> <C> <C> <C>
Charles M. Angell....... 4,334(2) 0 *
Walter M. Beale, Jr..... 30,529(3) 0 *
Ehney A. Camp, III...... 29,429(4) 0 *
Norman W. Gayle, III.... 102,190(5) 0 *
Robert A. Hershbarger... 16,427(6) 0 *
Robert Y. Huffman
(resigned 5/31/98)..... 50,399(7) 16,000(7)(8) *
Brian R. Meredith....... 37,438(9) 0 *
Clifford F. Palmer...... 39,779(10) 0 *
Jarvis W. Palmer........ 35,029(11) 3,000(12) *
James E. Tait........... 30,000(13) 0 *
Donald W. Thornton...... 124,637(14) 0 *
All Directors and
Executive Officers as a
group (11 persons):.... 452,232 0 2.4%
</TABLE>
- --------
*Less than one percent
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<PAGE>
(1) A person is deemed to beneficially own securities which he or she has a
right to acquire within sixty (60) days (i.e., through the exercise of
options, warrants, rights or conversion privileges). Any securities which
are not outstanding but deemed to be beneficially owned by a person are
considered outstanding for the purpose of computing such person's
percentage ownership but are not considered outstanding when computing
any other person's percentage ownership.
(2) Consists of 4,334 shares of restricted stock granted under the Company's
Long Term Incentive Plan.
(3) Includes 15,000 shares subject to the exercise of options received in
lieu of the payment of 1994 annual director fee, 3,000 shares subject to
the exercise of options granted pursuant to the Company's Long Term
Incentive Plan and 9,000 shares subject to the exercise of options
granted pursuant to the Company's Non-Employee Director Stock Plan.
(4) Consists of 7,500 shares subject to the exercise of options received in
lieu of the payment of fifty (50) percent of 1994 annual director fee,
3,000 shares subject to the exercise of options granted pursuant to the
Company's Long Term Incentive Plan, 9,000 shares subject to the exercise
of options granted pursuant to the Company's Non-Employee Director Stock
Plan, and 5,150 shares are held in the name of Sterne, Agee & Leach,
Inc., custodian for Ehney A. Camp, III Individual Retirement Account.
(5) Includes 27,298 shares subject to the exercise of options and 71,152
shares of restricted stock granted pursuant to the Company's Long Term
Incentive Plan.
(6) Includes 1,500 shares subject to the exercise of options received in lieu
of the payment of twenty (20) percent of 1994 annual director fee, 3,000
shares subject to the exercise of options granted pursuant to the
Company's Long Term Incentive Plan and 9,000 shares subject to the
exercise of options granted pursuant to the Company's Non-Employee
Director Stock Plan.
(7) To the best of the Company's knowledge, based on an amended Form 4 filed
by Mr. Huffman on July 17, 1998.
(8) These shares are held by Mr. Huffman's spouse either directly or as
custodian for her grandchild.
(9) Includes of 33,237 shares subject to the exercise of options and 4,001
shares of restricted stock granted under the Company's Long Term
Incentive Plan.
(10) Includes 15,000 shares subject to the exercise of options received in
lieu of the payment of 1994 annual director fee, 3,000 shares subject to
the exercise of options granted pursuant to the Company's Long Term
Incentive Plan, 9,000 shares subject to the exercise of options granted
pursuant to the Company's Non-Employee Director Stock Plan, and 9,000
shares held by Corporation of Lloyd's, for the account of Clifford F.
Palmer.
(11) Includes 15,000 shares subject to the exercise of options received in
lieu of the payment of 1994 annual director fee, 3,000 shares subject to
the exercise of options granted pursuant to the Company's Long Term
Incentive Plan, and 9,000 shares subject to the exercise of options
granted pursuant to the Company's Non-Employee Director Stock Plan.
(12) Consists of shares held by Birmingham Insurance Co., Inc., of which Mr.
Palmer is a 98% owner.
(13) Consists of 30,000 shares of restricted stock granted under the Company's
Long Term Incentive Plan.
(14) Consists of 105,128 shares subject to the exercise of options and 19,489
shares of restricted stock granted pursuant to the Company's Long Term
Incentive Plan.
PROPOSAL NUMBER TWO
AMENDMENT OF LONG TERM INCENTIVE PLAN
The Company adopted its Long Term Incentive Plan (the "Incentive Plan") in
1993 in order for the Company to be able to attract, retain and motivate
directors and employees of the Company. The Company amended the Incentive Plan
in 1995 in order to increase the number of shares reserved for issuance
thereunder, to impose a limitation on number of shares which can be subject to
awards in any one year and on the number of shares subject to awards to any
single participant in any one year and to make certain other changes to the
Incentive Plan.
The Company proposes to further amend the Incentive Plan to delete the
limitation on the number of shares subject to awards which may be granted in
any one year, as more specifically described below. The Board of
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Directors of the Company has approved this amendment to the Incentive Plan,
which is more fully described below, subject to the receipt of stockholder
approval.
Amendment Regarding Maximum Number of Options Awarded in any One Year
Currently, the maximum total number of shares subject to awards which may
granted under the Incentive Plan in any one year is 135,675 (adjusted to give
effect to a three-for-two stock dividend effective January 22, 1996) and the
maximum number of shares subject to awards which may be granted under the
Incentive Plan to any single participant in any one year is 135,675 (adjusted
to give effect to a three-for-two stock dividend effective January 22, 1996)
(subject to further adjustment to reflect changes in the capitalization of the
Company). The purpose of the annual limitation for any single participant is
to comply with certain of the provisions of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder
in order that the compensation attributable to stock options granted under the
Incentive Plan will qualify as performance based compensation under Section
162(m) and therefore not be subject to the limit on deductibility of
compensation set forth in Section 162(m).
The Company proposes to amend the Incentive Plan to delete the limitation on
the total number of shares subject to awards which may be granted under the
Incentive Plan in any one year. The limitation on the number of shares subject
to awards to any single participant will not change.
The purpose of the proposed amendment is to make sure there is a sufficient
number of shares available each year for grants to executive officers and key
employees of the Company and to provide the Board and the Compensation
Committee with increased flexibility in establishing and maintaining an
incentive compensation structure that will enable the Company to retain its
current executive officers and key employees and to attract new, highly
qualified executives and managers. Because of the significant decrease in the
market price of the Company's common stock over the past year, a vast majority
of the existing stock option awards to the Company's executives and other key
employees under the Incentive Plan are significantly out-of-the-money (in
other words, the exercise price for these stock options is substantially
higher than the current market prices of the Company's common stock).
Management believes that it is important to provide such holders with the
opportunity to regain meaningful incentive for the purpose of enhancing
stockholder value and that these amendments to the Incentive Plan will benefit
the Company by enabling the Compensation Committee to provide appropriate
incentives to the Company's current and prospective executive officers and key
employees.
Plan Summary and Other Information
The Incentive Plan, which is administered by the Compensation Committee,
provides for the grant of restricted stock awards, stock options (which may be
non-qualified options or incentive stock options for tax purposes), stock
appreciation rights ("SARs") issued in tandem with such options, and deferred
stock awards. Participation in the Incentive Plan is limited to officers and
other key employees of the Company and its subsidiaries and affiliates who are
responsible for the management, growth and profitability of the Company and
its subsidiaries and affiliates. Participants are chosen from this group by
the Compensation Committee. Currently, there are ten individuals, all of whom
are either executive officers or key employees of the Company or one of its
subsidiaries, who participate in the Incentive Plan.
The primary features of the Incentive Plan are summarized below. The Summary
is qualified in its entirety by reference to the specific provisions of the
Incentive Plan, as proposed to be amended, the full text of which (black-lined
to reflect the proposed amendment) is set forth as Appendix C to this Proxy
Statement.
Restricted Stock.
The Compensation Committee will be authorized to award restricted stock
under the Incentive Plan subject to such terms and conditions as the
Compensation Committee may determine. The Compensation Committee will have
authority to determine the number of shares of restricted stock to be awarded,
the price, if any, to be paid by the recipient of the restricted stock, and
the date or dates on which the restricted stock will vest. The
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vesting of restricted stock may be conditioned upon the completion of a
specified period of service with the Company, upon the attainment of specified
performance goals, or upon such other criteria as the Compensation Committee
may determine. The Incentive Plan will give the Compensation Committee
discretion to make loans to the recipients for the purchase price of the
restricted stock and to accelerate the vesting of restricted stock on a case
by case basis at any time.
Stock certificates representing the restricted stock granted to an eligible
employee will be registered in the employee's name. However, no shares of
restricted stock may be sold, transferred, assigned, or pledged by the
employee until such shares have vested in accordance with the terms of the
restricted stock award. In the event of an employee's termination of
employment before all of his restricted stock has vested, or in the event
other conditions to the vesting of restricted stock have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth in the
award, the shares of restricted stock which have not vested will be forfeited,
provided that the participant will be entitled to retain the shares of
Restricted Stock which have been paid for by the participant. At the time
restricted stock vests, a certificate for such vested shares will be delivered
to the employee (or the beneficiary designated by the employee, in the event
of death), free of all restrictions.
Stock Options.
The Compensation Committee will be authorized to determine the terms and
conditions of all option grants, subject to the limitations that the option
price per share may not be less than the fair market value of a share of the
Company's common stock on the date of grant and the term of an option may not
be longer than ten (10) years. Payment of the option price may be made in any
manner specified by the Compensation Committee (which may include payment in
cash or common stock of the Company, or by "cashless exercise").
Stock Appreciation Rights.
The Compensation Committee will be authorized to grant SARs in tandem with
options under the Incentive Plan. A SAR can be exercised only to the extent
the option with respect to which it is granted is not exercised, and is
subject to the same terms and conditions as the option to which it is related.
Upon exercise of a SAR, the holder will be entitled to receive, for each share
with respect to which the SAR is exercised, an amount (the "appreciation")
equal to the difference between the option price of the related option and the
fair market value of a share of common stock of the Company on the date of
exercise of the SAR. The appreciation will be payable in cash or common stock,
at the discretion of the Compensation Committee.
Deferred Stock Awards.
The Compensation Committee will be authorized to make awards of deferred
stock under the Incentive Plan subject to such terms and conditions as the
Compensation Committee may determine. The Compensation Committee will have the
authority to determine the time or times at which deferred stock shall be
awarded, the number of shares to be awarded to any participant and the
duration of the period during which the receipt of the stock will be deferred.
The Compensation Committee may also condition the grant of the deferred stock
upon the attainment of specified performance goals or other criteria as the
Compensation Committee determine.
Change of Control.
Upon the occurrence of a Change of Control or a Potential Change of Control
(as defined in the Incentive Plan), the following shall occur: (i) any SARs
outstanding for at least six months and all unexercised stock options shall
become fully vested and immediately exercisable, and (ii) all restrictions on
the restricted stock and deferral limitations on the deferred stock shall
lapse and such shares shall become full vested. In addition, to the extent
determined by the Compensation Committee, after a potential or actual Change
of Control, a participant shall receive in cash from the Company with respect
to all such previous awards the following amount for each award: (i) the
excess of the Change of Control Price (as defined below) over the exercise
price of the award, multiplied by (ii) the number of shares of the Company's
common stock subject to the award. The "Change of
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<PAGE>
Control Price" means the highest price per share paid in any transaction
reported on the New York Stock Exchange, or paid or offered in any transaction
related to a potential or actual Change of Control of the Company at any time
during the preceding sixty day period as determined by the Compensation
Committee, except that, in the case of incentive stock options, such price
shall be based only on transactions reported for the date on which the
Compensation Committee decides to cash out such options.
Discussion of Federal Income Tax Consequences
The following statements are based on current interpretations of existing
Federal income tax laws. The law is technical and complex and the statements
represent only a general summary of some of the applicable provisions.
Stock Options.
There are generally no Federal income tax consequences either to the
optionee or to the Company upon the grant of a stock option. On exercise of an
incentive stock option, the optionee will not recognize any income and the
Company will not be entitled to a deduction for tax purposes, although such
exercise may give rise to liability for the optionee under the alternative
minimum tax provisions of the Internal Revenue Code of 1986, as amended.
Generally, if the optionee disposes of shares acquired upon exercise of an
incentive stock option within two years of the date of grant or one year of
the date of exercise, the optionee will recognize compensation income and the
Company will be entitled to a deduction for tax purposes in the amount equal
to the excess of the fair market value of the shares on the date of exercise
over the option exercise price (or the gain on sale, if less). Otherwise, the
Company will not be entitled to any deduction for tax purposes upon
disposition of such shares, and the entire gain for the optionee will be
treated as capital gain. On exercise of a non-qualified stock option, the
amount by which the fair market value of the shares on the date of exercise
exceeds the option exercise price will generally be taxable to the optionee as
compensation income and will generally be deductible for tax purposes by the
Company. The disposition of shares acquired upon exercise of a non-qualified
stock option will generally result in a capital gain or loss for the optionee,
but will have not tax consequences for the Company.
Stock Appreciation Rights.
The grant of an SAR would not result in income for the grantee or in a
deduction for the Company. Upon the exercise of an SAR, the grantee would
recognize ordinary income and the Company would be entitled to a deduction
measured by the fair market value of the shares plus any case received.
Restricted Stock.
The grant of restricted stock should not result in income for the grantee or
in a deduction for the Company for Federal income tax purposes, assuming the
shares transferred are subject to a "substantial risk or forfeiture" as
intended by the Company. If there are no such restrictions, the grantee would
recognize ordinary income upon receipt of the shares. Dividends paid to the
grantee while the stock remained subject to restriction would be treated as
compensation for Federal income tax purposes. At the time the restrictions
lapse, the grantee would receive ordinary income, and the Company would be
entitled to a deduction measured by the fair market value of the shares at the
time of lapse.
Deferred Stock.
A recipient of an award of deferred stock will not recognize taxable income
until the applicable deferral period has expired and the recipient is in
receipt of the shares subject to the award or an equivalent amount of cash, at
which time the recipient will recognize compensation income equal to the full
fair market value of the shares on such date or the amount of cash paid to the
recipient. The Company is entitled to a deduction for any compensation income
taxed to the recipient.
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Vote Required and Board of Director Recommendation
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of common stock of the Company is present
and voting, either in person or by proxy, is required for approval of this
proposal. Abstentions will each be counted as present for purposes of
determining the presence of a quorum, but will have the same effect as a
negative vote on this proposal.
The Board believes that the proposed amendments to the Incentive Plan are in
the best interests of the Company and the stockholders for the reasons stated
above. Therefore, the Board of Directors unanimously recommends a vote FOR
approval of this proposal to amend the Incentive Plan.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with the
U.S. Securities and Exchange Commission (the "SEC"). Our SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statement contained in this report which is not a historical fact, or
which might otherwise be considered a statement concerning the management's
plans and/or objectives for future operations or the Company's anticipated
future economic performance, whether expressed or implied, is meant as and
should be considered a forward-looking statement as the term is defined in the
Private Securities Litigation Reform Act of 1995. Any such forward-looking
statements contained in this Proxy Statement are based on the assumption that
the transactions discussed herein will actually be consummated, and a failure
to consummate any of these transaction may cause actual future operations and
results to differ materially from those contemplated by the forward looking
statements. In addition, these forward-looking statements are based on other
assumptions and opinions concerning a variety of known and unknown risks,
including but not necessarily limited to changes in market conditions, natural
disasters and other catastrophic events; increased competition, changes in
availability and costs of reinsurance; changes in governmental regulations, in
general economic conditions, as well as other risks more completely described
in the Company's filings with the Securities and Exchange Commission,
including its most recent annual report on Form 10-K. If any of these
assumptions or opinions prove incorrect, any forward-looking statements made
on such assumptions or opinions may also prove materially incorrect in one or
more respects.
MISCELLANEOUS INFORMATION
Proposals Of Stockholders
In order for a proposal by a stockholder of the Company to be eligible to be
included in the proxy statement and proxy form for the annual meeting of
stockholders in 2000, the proposal must be received by the Company at its home
office, 3760 River Run Drive, Birmingham, Alabama 35243, on or before December
19, 1999.
A stockholder of the Company may wish to have a proposal presented at the
annual meeting of shareholders to be held in 2000, but not to have such
proposal included in the Company's proxy statement and form of proxy relating
to that meeting. If notice of any such proposal is not received by the Company
or the address appearing on the first page of this proxy statement by March 8,
2000, then the Company will not address the proposal in its proxy statement
relating to that meeting, and all proxies solicited and received by the
Company will be deemed to have conferred discretionary authority to vote on
any such proposal.
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Costs Of Solicitation
The cost of this solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, directors, officers and other employees of
the Company may solicit proxies personally or by telephone or other means of
communication. The Company will request certain banking institutions,
brokerage firms, custodians, trustees, nominees, and fiduciaries to forward
solicitation material to the beneficial owners of shares of the Company held
of record by such persons, and the Company will reimburse reasonable
forwarding expenses. The Company has retained Corporate Investor
Communications, Inc., Carlstadt, New Jersey, at an approximate cost of $5,500,
plus out-of-pocket expenses, to assist in the solicitation of proxies by mail,
personally or by telephone or other means of communication.
By Order of the Board of Directors
Donald W. Thornton
Senior Vice President--General
Counsel and Secretary
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APPENDIX A--Certificate of Designations
Certificate of Designation of Preferences and Rights of
Series A Convertible Preferred Stock of Vesta Insurance Group, Inc.
The undersigned, Norman W. Gayle and Donald W. Thornton, the duly elected
and acting President and Secretary, respectively, of Vesta Insurance Group,
Inc., a Delaware corporation (the "Corporation") do hereby certify that,
pursuant to the authority conferred upon the Board of Directors (the "Board of
Directors") by the Restated Certificate of Incorporation (the "Certificate of
Incorporation") of the Corporation, on June 27, 1999, the Board of Directors
adopted the following resolution creating a series of preferred stock
designated as Series A Convertible Preferred Stock:
WHEREAS, pursuant to Article IV of the Certificate of Incorporation of the
Corporation, authority was expressly vested in the Board of Directors pursuant
to Section 151 of the General Corporation Law of the State of Delaware to
authorize preferred stock with such powers, preference and relative
participation, optional or other special rights, classifications, limitations
or restrictions thereof as said Board of Directors may deem appropriate; and
WHEREAS, this Board of Directors now desires to fix and deem such matters
with respect to the Corporation's capital stock classified as Series A
Convertible Preferred Stock consisting of 2,950,000 shares with a $.01 per
share par value;
Now, Therefore Be It Resolved As Follows:
Description of Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock,"
sometimes referred to herein as the "Series A Convertible Preferred Shares")
shall consist of 2,950,000 shares, each share having the par value of $.01 per
share. All shares of each class of Series A Convertible Preferred Stock shall
be identical with each other in all respects.
Section 1. Dividends on Series A Convertible Preferred Stock.
1.1 General Dividend Obligation. The Corporation shall pay to the holders of
the Series A Convertible Preferred Stock, out of the assets of the Corporation
at any time available for the payment of dividends under the provisions of the
General Corporation Law of the State of Delaware (the "DGCL"), preferential
dividends at the times and in the amounts provided for in this Part.
1.2 Accrual of Dividends. Dividends on each Series A Convertible Preferred
Share shall be cumulative from the date of issuance of such Series A
Convertible Preferred Share, whether or not at the time such dividend shall
accrue or become due or at any other time there shall be profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
Dividends shall accrue on each Series A Convertible Preferred Share (at the
rate and in the manner prescribed by Sections 1.2, 1.3, and 1.5) from and
including the date of issuance of such Series A Convertible Preferred Share to
and including the date on which payment equal to the Redemption Price (as
hereinafter defined) of such Series A Convertible Preferred Share shall have
been paid in the manner prescribed in Section 4.3. For purposes of this
Section, the date on which the Corporation shall initially issue any Series A
Convertible Preferred Share shall be deemed to be the "date of issuance" of
such Series A Convertible Preferred Share regardless of how many times
transfer of such Series A Convertible Preferred Share shall be made on stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Series A Convertible
Preferred Share (whether by reason of transfers of such Series A Convertible
Preferred Share or for any other reason).
1.3 Payment of Dividends. Dividends shall accrue on each Series A
Convertible Preferred Share at the rate of 9% per annum of the Purchase Price.
Dividends shall be payable on Series A Preferred Stock on each July 1 and
January 1 beginning January 1, 2000, and each such day is herein called a
"Dividend Payment Date."
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On each Dividend Payment Date all dividends which shall have accrued on each
Series A Convertible Preferred Share then outstanding during the six months
ending upon such Dividend Payment Date shall be deemed to become "due" for all
purposes of this Section 1.3 regardless of whether the Corporation shall be
able or legally permitted to pay such dividend on such Dividend Payment Date.
If any dividend on any Series A Convertible Preferred Stock shall for any
reason not be paid at the time such dividend shall become due, then such
dividend in arrears shall be paid as soon as payments of same shall be
permissible under the provisions of the DGCL and until such time as the Vesta
Capital Trust I, or successor thereto, pays dividends on its 8.525% Capital
Securities. Notwithstanding the foregoing sentence, until such dividend in
arrears is paid, dividends shall continue to accrue on each Series A
Convertible Preferred Share but the percentage rate expressed herein shall be
applied to the Purchase Price thereof plus all dividends in arrears thereon
(including dividends computed pursuant to this sentence). In the event that
any dividends remain accrued but unpaid at the time of any conversion or
redemption of any of the Series A Preferred Stock as set forth herein, such
accrued but unpaid dividends shall be paid in accordance with this paragraph,
notwithstanding such conversion.
1.4 Distribution of Partial Dividend Payments. If at any time the
Corporation shall pay less than the total amount of dividends due on
outstanding Series A Convertible Preferred Stock at the time of such payment,
such payment shall be distributed among the holders of Series A Convertible
Preferred Stock so that an equal amount shall be paid with respect to each
outstanding share of Series A Convertible Preferred Stock.
1.5 Dividends shall not accrue or accumulate on any share of Series A
Convertible Preferred Stock, except to the extent they are declared but
unpaid. Accumulation of declared but unpaid dividends shall bear no interest
other than as set forth in Section 1.3.
Section 2. Redemption.
On or after July 1, 2009, the Corporation shall have the right, at its
option and by resolution of its Board of Directors, at any time it may
lawfully do so, to redeem all or any portion of the outstanding shares of the
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock to be so redeemed shall be redeemed against payment of an
amount in cash equal to the following redemption prices per share, plus, in
each case, all declared and unpaid dividends thereon to the date fixed for
redemption (the "Redemption Price").
If redeemed during the twelve-month period beginning July 1:
<TABLE>
<S> <C> <C> <C>
2009 110% 2012 104%
2010 108% 2013 102%
2011 106%
</TABLE>
In the event the Corporation elects to redeem less than all of the out-
standing shares of the Series A Convertible Preferred Stock, it shall effect
such redemption ratably according to the number of shares of Series A
Convertible Preferred Stock held by each holder of the then outstanding Series
A Convertible Preferred Stock.
Notice of such redemption (the "Redemption Notice") specifying the date
fixed for said redemption (the "Redemption Date"), the redemption price, the
place where the amount to be paid upon redemption is payable and the date on
which such holder's Conversion Rights (as hereinafter defined) as to such
shares terminate and calling upon such holder to surrender his certificate or
certificates representing the shares to be redeemed to the Corporation in the
manner and at the place to be designated in such Redemption Notice, shall be
mailed, postage prepaid, at least forty-five (45) days but not more than
ninety (90) days prior to said Redemption Date to the holders of record of the
Series A Convertible Preferred Stock at their respective addresses as the same
shall appear on the books of the Corporation. On or after the Redemption Date,
each holder of shares of the Series A Convertible Preferred Stock to be
redeemed shall surrender his certificate or certificates representing such
shares to the Corporation in the manner and at the place designated in the
Redemption Notice, and thereupon the amount payable upon redemption shall be
paid to the order of the person whose name appears on such certificate or
certificates as the owner thereof. In the event that less than all of the
shares represented by such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. All shares of redeemed stock
shall be canceled and retired and not reissued.
A-2
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If the Redemption Notice shall have been so mailed, and if, on or before the
Redemption Date specified in such notice, all funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart
from its other funds, in trust for the account of the holders of the shares to
be redeemed, so as to be and continue to be available therefor, then, on and
after said Redemption Date, notwithstanding that any certificate for shares so
called for redemption shall not have been surrendered for cancellation, the
shares represented thereby so called for redemption shall be deemed to be no
longer outstanding, the right to receive dividends thereon shall cease, and
all rights with respect to such shares of Series A Convertible Preferred Stock
so called for redemption shall forthwith cease and terminate, except the right
of the holders thereof to receive out of the funds so set aside in trust the
amount payable on redemption thereof but without any interest.
If the funds of the Corporation legally available for redemption on any
Redemption Date are insufficient to redeem the total number of shares of
Series A Convertible Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of shares ratably among the holders of such shares to be redeemed. The shares
of Series A Convertible Preferred Stock not redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein.
Section 3. Preference on Liquidation.
3.1 Series A Preference. In the event of any liquidation, dissolution,
involuntary or voluntary corporate reorganization under the federal bankruptcy
laws or similar state laws, or winding up of the Corporation, the holders of
shares of the Series A Convertible Preferred Stock then outstanding shall be
senior to any other class or series of capital stock of the Corporation, and
shall be entitled to be paid out of the assets and surplus funds of the
Corporation available for distribution to its shareholders, and before any
payment shall be made to the holders of any shares of Corporation Common Stock
(the "Common Stock"), an amount equal to $8.50 per share plus declared and
unpaid dividends thereon to the date fixed for distribution. If upon any such
liquidation, dissolution, bankruptcy or winding up of the Corporation the
assets and surplus funds of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Series A
Convertible Preferred Stock the full amounts to which they are entitled, the
holders of the Series A Convertible Preferred Stock shall share ratably in the
distribution of such assets and surplus funds in proportion to the full
preferential amounts to which each such holder is otherwise entitled.
3.2 In the event payments provided for in Section 3.1 shall have been made,
the holders of Series A Convertible Preferred Stock shall be entitled to share
pro rata on a per share basis (treating each share of Series A Convertible
Preferred Stock as if converted into Common Stock pursuant to Section 4.6) in
all remaining assets and surplus funds of the Corporation available for
distribution to its shareholders.
3.3 The merger or consolidation of the Corporation into or with another
corporation or other entity or any other corporate reorganization in which the
Corporation shall not be the continuing or surviving entity of such
consolidation, merger or reorganization, the sale of all or substantially all
the assets of the Corporation, or a transaction or series of related
transactions by the Corporation in which in excess of fifty percent (50%) of
the Corporation's voting power is transferred, shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation.
Section 4. Conversion.
The holders of the Series A Convertible Preferred Stock shall have con-
version rights as follows (the "Conversion Rights"):
4.1 Right to Convert. Each share of Series A Convertible Preferred Stock
shall be convertible, at the option of the holder thereof, without payment of
additional consideration, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into fully-paid and nonassessable shares of Common Stock as set forth in
Sections 4.2 and 4.6. Notwithstanding the foregoing, in the event of the
mailing of a notice of redemption of any shares of the Series A Convertible
Preferred Stock
A-3
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pursuant to Section 3 hereof, the Conversion Rights shall terminate as to the
number of shares designated for redemption at the close of business on the
fifth day prior to the Redemption Date, unless default is made in payment of
the redemption price, in which case the Conversion Rights for such shares
shall continue until such default is remedied.
4.2 Conversion Price. The Series A Convertible Preferred Stock shall be
convertible into the number of shares of Common Stock which result from
dividing the Conversion Price, as hereinafter defined, in effect at the time
of conversion into $8.50. The price at which shares of Common Stock shall be
deliverable upon conversion of Series A Convertible Preferred Stock (the
"Conversion Price") shall initially be $4.25 per share of Common Stock. Such
initial Conversion Price shall be subject to adjustment as hereinafter
provided.
4.3 Automatic Conversion. Each share of Series A Convertible Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price, on the date (the "Automatic Conversion Date") that
is the earlier of (a) the date on which the Common Stock of the Corporation
achieves an average closing price of $8.00 per share for twenty consecutive
trading days on which such shares are actually traded (as reported to the
Corporation by the New York Stock Exchange or as reported in The Wall Street
Journal, Eastern Edition, or if not reported there, any other authoritative
source); or (b) the date that is the fifteenth anniversary from the date of
issuance of the Series A Convertible Preferred Stock. If, after the date
hereof, the Corporation shall have declared a stock split (including a reverse
split) of the Common Stock or a dividend payable in Common Stock, or any other
distribution of securities or dividend to holders of Common Stock with respect
to their Common Stock (including, without limitation, such a distribution or
dividend made in connection with a recapitalization, reclassification, merger,
consolidation, reorganization or similar transactions), then the closing price
of $8.00 per share referred to in clause (a) of the preceding sentence shall
be appropriately adjusted to reflect such stock split, dividend or other
distribution of securities. Upon the occurrence of such an event, the
outstanding shares of Series A Convertible Preferred Stock shall be converted
automatically without further action by the holders of said shares and whether
or not the certificates representing said shares are surrendered to the
Corporation or its transfer agent; provided, however, the Corporation shall
not be obligated to issue certificates evidencing the shares of Series A
Convertible Preferred Stock unless certificates evidencing such shares are
either delivered to the Corporation or any transfer agent as hereinafter
provided, or the holder notifies the Corporation that said certificate or
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation, indemnifying the Corporation against any loss
incurred by it in connection therewith. Upon the occurrence of the automatic
conversion of the Series A Convertible Preferred Stock, the holders of the
Series A Convertible Preferred Stock shall surrender the certificate or
certificates representing their shares at the office of the Corporation or
transfer agent for such stock. The Corporation shall, as soon as practicable
thereafter, issue and deliver to such holder, at such office and in his name
as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
the Series A Convertible Preferred Stock, as the case may be, were convertible
on the Automatic Conversion Date.
4.4 Mechanics of Conversion. Before any holder of the Series A Convertible
Preferred Stock shall be entitled to convert the same into full shares of
Common Stock, he shall surrender the certificate or certificates therefore,
duly endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office
that he elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver to such holder, at such office and
in his name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which such converted shares of stock were convertible on the Conversion Date,
as hereinafter defined. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of the Series A Convertible Preferred Stock (the "Conversion
Date"). The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of the Conversion Date.
4.5 Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of Series A Convertible Preferred Stock.
If more than one share of Series A Convertible Preferred Stock
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shall be surrendered for conversion at any one time by the same holder, the
number of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of Series A
Convertible Preferred Stock so surrendered. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Convertible Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then Current Market Price (as hereinafter
defined).
4.6 Conversion Price Adjustments. The Conversion Price shall be subject to
adjustment from time to time as follows:
a. Common Stock Issued at Less Than the Conversion Price. If the Corporation
shall issue any Common Stock other than Excluded Stock (as hereinafter
defined) without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to such issuance, the Conversion
Price in effect immediately prior to each such issuance shall immediately
(except as provided below) be reduced to the price determined by dividing (1)
an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issuance multiplied by the Conversion
Price in effect immediately prior to such issuance and (B) the consideration,
if any, received by the Corporation upon such issuance, by (2) the total
number of shares of Common Stock outstanding immediately after such issuance.
For the purposes of any adjustment of the Conversion Price pursuant to this
clause, the following provisions shall be applicable:
(1) Cash. In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Corporation shall be deemed to
be the amount of the cash proceeds received by the Corporation for such
Common Stock before deducting therefrom any discounts, commissions, taxes
or other expenses allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(2) Consideration Other Than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock
or other securities of the Corporation) for a consideration in whole or in
part other than cash, including securities acquired in exchange therefor
(other than securities by their terms so exchangeable), the consideration
other than cash shall be deemed to be the fair value thereof as determined
by the Board of Directors, irrespective of any accounting treatment;
provided that such fair value as determined by the Board of Directors shall
not exceed the aggregate Current Market Price of the shares of Common Stock
being issued as of the date the Board of Directors authorizes the issuance
of such shares.
(3) Options and Convertible Securities. In the case of the issuance of
(i) options, warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the
time so convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether or not at the
time exercisable):
(a) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to
purchase or acquire Common Stock shall be deemed to have been issued at
the time such options, warrants or rights were issued and for a
consideration equal to the consideration (determined in the manner
provided in subclauses (A) and (B) above), if any, received by the
Corporation upon the issuance of such options, warrants or rights plus
the minimum purchase price provided in such options, warrants or rights
for the Common Stock covered thereby;
(b) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities, or upon the exercise of options, warrants
or other rights to purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange thereof, shall be
deemed to have been issued at the time such securities were issued or
such options, warrants or rights were issued and for a consideration
equal to the consideration, if any, received by the Corporation for any
such securities and related options, warrants or rights (excluding any
cash received on account of accrued interest or accrued dividends),
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plus the additional consideration (determined in the manner provided in
subclauses (A) and (B) above), if any, to be received by the
Corporation upon the conversion or exchange of such securities, or upon
the exercise of any related options, warrants or rights to purchase or
acquire such convertible or exchangeable securities and the subsequent
conversion or exchange thereof;
(c) On any change in the number of shares of Common Stock
deliverable upon exercise of any such options, war-rants or rights or
conversion or exchange of such convertible or exchangeable securities
or any change in the consideration to be received by the Corporation
upon such exercise, conversion or exchange, including, but not limited
to, a change resulting from the antidilution provisions thereof, the
Conversion Price as then in effect shall forth-with be readjusted to
such Conversion Price as would have been obtained had an adjustment
been made upon the issuance of such options, warrants or rights not
exercised prior to such change, or of such convertible or exchangeable
securities not converted or exchanged prior to such change, upon the
basis of such change;
(d) On the expiration or cancellation of any such options, warrants
or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Conversion Price shall
have been adjusted upon the issuance thereof, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
been obtained had an adjustment been made upon the issuance of such
options, warrants, rights or such convertible or exchangeable
securities on the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(e) If the Conversion Price shall have been adjusted upon the
issuance of any such options, warrants, rights or convertible or
exchangeable securities, no further adjustment of the Conversion Price
shall be made for the actual issuance of Common Stock upon the
exercise, conversion or exchange thereof; (provided, however, that no
increase in the Conversion Price shall be made pursuant to sub-clauses
(1) and (2) of this subclause (C)).
(4) Excluded Stock. "Excluded Stock" shall mean (A) shares of Common
Stock issued or reserved for issuance by the Corporation as a stock
dividend payable in shares of Common Stock, or upon any subdivision or
split-up of the outstanding shares of Common Stock or Series A Convertible
Preferred Stock, or upon conversion of shares of Series A Convertible
Preferred Stock and (B) 500,000 shares of Common Stock to be issued to key
employees, consultants, and advisors of the Corporation together with any
such shares that are repurchased by the Corporation and reissued to any
such employee, director, consultant or advisor. All shares of Excluded
Stock which the Corporation has reserved for issuance shall be deemed to be
outstanding for all purposes of computations under Section 4.
(5) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock,
(ii) subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect at the time of the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of any shares of
Series A Convertible Preferred Stock surrendered for conversion after such
date shall be entitled to receive the number of shares of Common Stock
which he would have owned or been entitled to receive had such Series A
Convertible Preferred Stock been converted immediately prior to such date.
Successive adjustments in the Conversion Price shall be made whenever any
event specified above shall occur.
(6) Other Distributions. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its
Common Stock (i) of shares of any class other than its Common Stock or (ii)
of evidence of indebtedness of the Corporation or any Subsidiary or (iii)
of assets (excluding cash dividends or distributions, and dividends of
distributions referred to in subparagraph 4.6(a)(5) above) or (iv) of
rights or warrants (excluding those referred to in subparagraph 4.6(a)(3)
above), in each such case the Conversion Price in effect immediately prior
thereto shall be reduced immediately thereafter to the price determined by
dividing (1) an amount equal to the difference resulting from (A) the
number or shares of
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Common Stock outstanding on such record date multiplied by the Conversion
Price per share on such record date, less (B) the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive) of said shares or evidences of indebtedness or assets or rights
or warrants to be so distributed, by (2) the number of shares of Common
Stock outstanding on such record date. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in effect shall be
readjusted, effective as of the date when the Board of Directors deter-
mines not to distribute such shares, evidence of indebtedness, assets,
rights or warrants, as the case may be, to the Conversion Price which would
then be in effect if such record date had not been fixed.
(7) Consolidation, Merger, Sale, Lease or Conveyance. In case of any
consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or
substantially as an entirety, each share of Series A Convertible Preferred
Stock shall after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable
(at the time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such share of Series A Convertible Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance;
and in any such case, if necessary, the provisions set forth herein with
respect to the rights and interests thereafter of the holders of the shares
of Series A Convertible Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock
or other securities or property thereafter deliverable on the conversion of
the shares of Series A Convertible Preferred Stock.
(8) Rounding of Calculations; Minimum Adjustment. All calculations
under this Section 4 shall be made to the nearest cent or to the nearest
one hundredth ( 1/100th) of a share, as the case may be. Any provision of
this paragraph 4 to the contrary notwithstanding, no adjustment in the
Conversion Price shall be made if the amount of such adjustment would be
less than $0.05, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(9) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 4 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any share of Series A Convertible
Preferred Stock converted after such record date and before the occurrence
of such event the additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and
above the shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount
of cash in lieu of a fractional share of Common Stock pursuant to
subparagraph (e) of this Section 4; provided that the Corporation upon
request shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
4.7 Current Market Price. The Current Market Price at any date shall mean,
in the event the Common Stock is publicly traded, the average of the daily
closing prices per share of Common Stock for thirty (30) consecutive trading
days ending five (5) business days before such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such
thirty (30) business day period) on which such shares are actually traded (as
reported to the Corporation by the New York Stock Exchange or as reported in
The Wall Street Journal, Eastern Edition, or if not reported there, any other
authoritative source).
4.8 Statement Regarding Adjustments. Whenever the Conversion Price shall be
adjusted as provided in subparagraph 4.6, the Corporation shall forthwith
file, at the office of any transfer agent for the Series A Convertible
Preferred Stock and at the principal office of the Corporation, a statement
showing in detail the facts requiring such adjustment and the Conversion Price
that shall be in effect after such adjustment, and the Corporation shall also
cause a copy of such statement to be sent by mail, first class postage
prepaid, to each
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holder of shares of Series A Convertible Preferred Stock at its address
appearing on the Corporation's records. Each such statement shall be signed by
the Corporation's independent public accountants, if applicable.
4.9 Notice to Holders. In the event the Corporation shall propose to take
any action of the type described herein (but only if the action of the type
described would result in an adjustment in the Conversion Price), the
Corporation shall give notice to each holder of shares of Series A Convertible
Preferred Stock, in the manner set forth herein, which notice shall specify
the record date, if any, with respect to any such action and the approximate
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate
the effect of such action (to the extent such effect may be known at the date
of such notice) on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable upon
conversion of shares of Series A Convertible Preferred Stock. In the case of
any action which would require the fixing of a record date, such notice shall
be given at least ten (10) days prior to the date so fixed, and in case of all
other action, such notice shall be given at least fifteen (15) days prior to
the taking of such proposed action; Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
4.10 Treasury Stock. For the purposes of this Section 4, the sale or other
disposition of Common Stock theretofore held in the Corporation's treasury
shall be deemed to be an issuance thereof.
4.11 Costs. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion of any shares of Series A Convertible
Preferred Stock; provided that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series A Convertible Preferred Stock in
respect of which such shares are being issued.
4.12 Reservation of Shares. The Corporation shall reserve at all times so
long as any shares of Series A Convertible Preferred Stock remain outstanding,
free from preemptive rights, out of its treasury stock (if applicable) or its
authorized but unissued shares of Common Stock, or both, solely for the
purpose of effecting the conversion of the shares of Series A Convertible
Preferred Stock, sufficient shares of Common Stock to provide for the con-
version of all outstanding shares of Series A Convertible Preferred Stock.
4.13 Approvals. If any shares of Common Stock to be reserved for the purpose
of conversion of shares of Series A Convertible Preferred Stock require
registration with or approval of any governmental authority under any federal
or state law before such shares may be validly issued or delivered upon
conversion, then the Corporation will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may be.
If, and so long as, any Common Stock into which the shares of Series A
Convertible Preferred Stock are then convertible is listed on any national
securities exchange, the Corporation will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion.
4.14 Valid Issuance. All shares of Common Stock which may be issued upon
conversion of the shares of Series A Convertible Preferred Stock will upon
issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof, and the Corporation shall take no action which will cause a
contrary result (including without limitation, any action which would cause
the Conversion Price to be less than the par value, if any, of the Common
Stock).
Section 5. Voting Rights.
The holder of each share of Series A Convertible Preferred Stock shall have
the right to one vote for each share of Common Stock into which such shares of
Series A Convertible Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to
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vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. In addition, as long as
at least 1,976,500 shares of Series A Convertible Preferred Stock remain
outstanding, the Series A Convertible Preferred Stock, voting as a separate
class, shall have the right to elect members of the Board of Directors (the
"Class A Directors") of the Corporation as follows: a minimum of two members
on the Board of Directors assuming that the total number of members of the
Board of Directors remains at seven; in the event that the number of members
of the Board of Directors increases, the Series A Convertible Preferred Stock,
voting as a separate class, shall have the right to elect three members if the
total number of members on the Board of Directors is eight, nine or ten, or to
elect four members if the total number of members on the Board of Directors is
eleven or twelve.
The Class A Directors shall be elected to serve for an initial term (the
"Initial Term") expiring at the annual meeting of the Corporation's
stockholders to be held in 2002. Beginning with the 2002 annual meeting, the
Class A Directors shall be divided into classes as nearly equal in number as
possible and designated Class I, Class II and Class III. Members of Class I
shall hold office for a term expiring at the 2005 annual meeting of
stockholders. Members of Class II shall hold office for a term expiring at the
2004 annual meeting of stockholders and members of Class III shall hold office
for a term expiring at the 2003 annual meeting of stockholders. Members of
each Class shall hold office until their successors are elected and qualified.
At each succeeding annual meeting of the stockholders of the Corporation, the
successors of the class of Class A Directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast by the holders
of the Series A Convertible Preferred Stock at such meeting to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election, and until their successors are elected
and qualified. Any Class A Director may be removed from office at any time,
but only for cause and only by the affirmative vote of at least 80 percent of
the holders of the Series A Convertible Preferred Stock then outstanding,
voting together as a single class.
In the event that the number of shares of Class A Convertible Preferred
Stock outstanding should be less (other than through an Automatic Conversion
pursuant to Section 4.3(a)) than 1,976,500 shares but more than 973,500
shares, then the number of Class A Directors shall be immediately reduced by
one member through the automatic termination of the seat of the Class A
Director whose term is next scheduled to expire or in the event that this
occurs during the Initial Term, by mutual agreement of the Class A Directors,
of if they are unable to agree, by a majority of the remaining directors. In
the event that the number of shares of Class A Convertible Stock outstanding
should be less (other than through an Automatic Conversion pursuant to Section
4.3(a)) than 973,500 shares, then the number of Class A Directors shall be
immediately reduced by an additional one member through the automatic
termination of the seat of the Class A Director whose term is next scheduled
to expire or in the event that this occurs during the Initial Term, by mutual
agreement of the Class A Directors, of if they are unable to agree, by a
majority of the remaining directors. Notwithstanding anything to the contrary
herein, in the event of an Automatic Conversion pursuant to Section 4.3(a)
hereof during the Initial Term, all Class A Directors shall be entitled to
serve out the unexpired portion of their term.
In the event that less than 1,976,500, but more than 973,500, shares of
Series A Convertible Preferred Stock remain outstanding, the number of Class A
Directors which the Series A Convertible Preferred Stock voting as a separate
class shall have the right to elect, shall be one member if the total number
of the members of the Board of Directors remains at seven, two members if the
total number of members on the Board of Directors is eight, nine or ten, or
three members if the total number of members on the Board of Directors is
eleven or twelve. In the event that less than 973,500 shares of Series A
Convertible Preferred Stock remain outstanding, the holders of the Series A
Convertible Preferred Stock shall not be entitled to vote as a separate class
for the election of directors. The Class A Directors elected by the Series A
Convertible Preferred Stock shall be represented proportionately (but shall
not be less than one) on all committees of the Board of Directors other than
any committee created for the special purpose of negotiating with the holders
of the Series A Convertible Preferred Stock or affiliates thereof. As long as
more than 973,500 shares of Series A Convertible Preferred Stock remain
outstanding, the Series A Convertible Preferred Stock, voting as a separate
class, shall have the right to call special stockholders' meetings upon the
minimum notice required by applicable law or regulation. Other than as
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set forth above, the Series A Convertible Preferred Stock will vote with the
Common Stock as a single class with each share of Series A Convertible
Preferred Stock having the number of votes equal to the number of shares of
Common Stock into which such shares of Series A Convertible Preferred Stock
would have been convertible immediately prior to any vote in which the Common
Stock is entitled to participate.
Additionally, the holders of the Series A Convertible Preferred Stock,
acting through the Class A Directors will have the right to nominate directors
(the "Class A Director Nominees"), in addition to those directors (the "Class
A Directors") elected by the Series A Convertible Preferred Stock voting as a
separate class, if (A) the fraction the numerator of which is (i) the number
of Class A Directors, and (ii) the denominator of which is the total number of
directors, is smaller than (B) the fraction the numerator of which is (i)
voting power for the general election of directors (including Class A
Preferred Stock, Common Stock and any other voting securities of the
Corporation (the "Voting Power") beneficially owned in the aggregate by the
holders of the Class A Preferred Stock and the denominator of which is (ii)
the total Voting Power outstanding. In such a circumstance, the holders of the
Class A Preferred Stock shall be entitled to nominate the smallest number of
Class A Director Nominees which, when added to the number of Class A
Directors, would comprise the numerator of (C) a fraction whose denominator is
(i) the total number of directors and (ii) that is equal to or larger than the
fraction set forth in the preceding clause (B) provided, that prior to the
time, if any, when the holders of the Series A Convertible Preferred Stock own
a majority of the outstanding Corporation Voting Power, a majority of the
Board of Directors shall consist of persons other than Class A Director
Nominees and Class A Directors. The number of Class A Director Nominees under
this clause shall increase proportionately to holders of the Series A
Convertible Preferred Stock ownership of the Corporation Voting Power upon any
increase in holders of the Series A Convertible Preferred Stock percentage of
the Corporation Voting Power. The Class A Director Nominees shall be allocated
as evenly as possible to the respective classes of directors. The Board of
Directors shall exercise all authority under applicable law to cause the Class
A Director Nominees to be elected as directors of the Corporation. "Voting
Securities" shall mean all securities then generally entitled to vote for
directors of the Corporation. Any action required to be taken at any annual or
special meeting of the holders of the Series A Convertible Preferred Stock may
be taken by written consent in lieu of a meeting pursuant to Section 228 of
the Delaware Corporation Laws Annotated.
Section 6. Protective Provisions.
The Corporation may sell, convey or otherwise dispose of all or
substantially all of its property or business or it may merge into or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, only with the approval (by vote or written consent, as provided
by law) of the holders of at least a majority of the outstanding shares of
Series A Convertible Preferred Stock, voting together as a class. So long as
shares of Series A Convertible Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of the Series A Convertible Preferred Stock:
a. alter or change the rights, preferences or privileges of the Series A
Convertible Preferred Stock as to adversely affect such series;
b. increase the authorized number of shares of Series A Convertible
Preferred Stock;
c. create any new class or series of stock having rights, preferences or
privileges superior to the Series A Convertible Preferred Stock.
Nothing herein shall require the consent or approval of the holders of the
Corporation's Common Stock to modify, change, amend or otherwise alter the
provisions of this Certificate of Designation.
Nothing herein shall require the consent or approval of the holders of the
Corporation's Common Stock to modify, change, amend or otherwise alter the
provisions of this Certificate of Designation.
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IN WITNESS WHEREOF, the undersigned have executed this certificate on
, [date].
By __________________________________
President
By __________________________________
Secretary
The undersigned , President of Vesta Insurance
Group, Inc., and , Secretary of Vesta Insurance
Group, Inc., each certify, under penalty of perjury, that the matters set
forth in this certificate are true and correct.
Executed at , on , (date].
By __________________________________
President
By __________________________________
Secretary
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APPENDIX B--Opinion of Cochran, Caronia & Co.
July 28, 1999
Board of Directors
Vesta Insurance Group, Inc.
3760 River Run Drive
Birmingham, AL 35243
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Vesta Insurance Group, Inc. ("Vesta" or the "Company") of the
consideration to be paid by Birmingham Investment Group, LLC ("Investor") in
the proposed acquisition of 2,950,000 shares of the Company's Series A
Convertible Preferred Stock at a price of $8.50 per share or $25,075,000 in
the aggregate (the initial "Conversion Price" is $4.25, which divided into
$8.50 results in two shares of common stock), as set forth in the Convertible
Preferred Stock Purchase Agreement and Certificate of Designation, both dated
June 27, 1999, (collectively, the "Transaction").
In arriving at our opinion we have:
(a) reviewed the Convertible Preferred Stock Purchase Agreement and
Certificate of Designation dated June 27, 1999, by and among the
Company, Investor, Larry D. Striplin, Jr. and James A. Taylor;
(b) reviewed the Commitment Letter dated June 25, 1999, by and among the
Company, The Bank and The Banc Corporation;
(c) reviewed certain GAAP and statutory financial data and other
information relating to the Company that was publicly available or
furnished to us by the Company, including financial forecasts;
(d) met with members of the Company's management to discuss the business,
operations, historical financial results and future prospects of
Company;
(e) considered certain financial and securities data of the Company,
including the Company's capitalization and financial condition, and
compared that data with similar data for other publicly held companies
in businesses similar to those of the Company;
(f) considered the financial terms of certain recent acquisitions of
companies in businesses similar to those of the Company;
(g) considered other financial and strategic options available to the
Company;
(h) performed a discounted cash flow analysis; and
(i) considered such other information, financial studies, analyses, and
investigations and financial, economic and market criteria as we deemed
relevant and appropriate for purposes of this opinion.
The opinion expressed below is subject to the following limitations:
(i) In arriving at our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all
financial and other information that was publicly available or
furnished to us by the Company. With respect to the financial forecasts
used by us, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgement
of the Company's management as to the future financial performance of
the Company.
(ii) Our opinion does not address, and should not be construed to address,
the underlying business decisions to effect the Transaction.
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(iii) Our opinion is based upon business, economic, market and other
conditions as they exist as of the date hereof or as of the date of the
information provided to us.
(iv) Our advisory services and the opinion expressed herein are provided
for the information of the Board of Directors of the Company in its
evaluation of the Transaction, and our opinion is not intended to be
and does not constitute a recommendation to any stockholder as to how
such stockholder should vote on the proposed Transaction.
(v) This opinion is effective as of the date hereof.
Based upon the subject foregoing, it is our opinion that as of the date
hereof, the consideration to be received in the Transaction is fair to the
Company from a financial point of view.
Cochran, Caronia & Co. will receive a fee as compensation for our services
in rendering this opinion. In addition, we provide other financial advisory
services to the Company for which we receive compensation.
This letter is for the information of the Board of Directors in connection
with the Transaction described herein. This opinion may not be quoted or
referred to, in whole or in part, filed with or furnished or disclosed to any
party, or used for any other purpose, without Cochran, Caronia & Co.'s prior
written consent.
Very truly yours,
Cochran, Caronia & Co.
/s/ Len Caronia
By:__________________________________
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Appendix C
VESTA INSURANCE GROUP, INC.
LONG TERM INCENTIVE PLAN
(as amended effective as of May 16, 1995 and as proposed to be amended)
(adjusted to give effect to 3-for-2 stock split
effected January 22, 1996)
Section 1. General Purpose of Plan; Definitions. The name of this plan is
the Vesta Insurance Group, Inc. Long Term Incentive Plan (the "Plan"). The
purpose of the Plan is to enable Vesta Insurance Group, Inc. (the "Company")
and its Subsidiaries to attract and retain employees who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
employees to participate in the long-term success and growth of the Company
through an equity interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a ten percent (10%) beneficial ownership
interest.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's willful
misconduct or dishonesty, any of which is directly and materially harmful to
the business or reputation of the Company or any Subsidiary or Affiliate.
(d) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
(e) "Committee" means the Compensation Committee of the Board of Directors
of the Company. If at any time there is no Committee, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
(f) "Commission" means the Securities and Exchange Commission.
(g) "Company" means Vesta Insurance Group, Inc., a corporation organized
under the laws of the State of Delaware (or any successor corporation).
(h) "Deferred Stock" means an award made pursuant to Section 8 below of the
right to receive Stock at the end of a specified deferral period.
(i) "Disability" means total and permanent disability as determined under
the Company's long term disability program.
(j) "Disinterested Person" shall have the meaning set forth in Rule 16b-
3(d)(3) as promulgated by the Commission under the Securities Exchange Act of
1934, or any successor definition adopted by the Commission.
(k) "Early Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate on or after the date on which a
participant reaches the age of sixty (60) but before the date on which the
participant reaches the age of sixty-five (65).
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
(m) "Fair Market Value" means, as of any given date, the closing price of
the Stock on such date on the New York Stock Exchange Composite Tape.
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(n) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(p) "Normal Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate on or after the date on which a
participant reaches the age of sixty-five (65).
(q) "Plan" means this Long Term Incentive Plan.
(r) "Restricted Stock" means an award of shares of Stock that are subject to
restrictions under Section 7 below.
(s) "Retirement" means Normal or Early Retirement.
(t) "Stock" means the common stock of the Company.
(u) "Stock Appreciation Right" means a right granted under Section 6 below,
to surrender to the Company all or a portion of a Stock Option in exchange for
an amount equal to the difference between (i) the Fair Market Value, as of the
date such Stock Option or such portion thereof is surrendered, of the shares
of Stock covered by such Stock Option or such portion thereof, and (ii) the
aggregate exercise price of such Stock Option, or such portion thereof.
(v) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
(w) "Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in the chain.
(x) "Ten Percent Shareholder" means a person who owns (after taking into
account the attribution rules of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company.
Section 2. Administration. The Plan shall be administered by the Committee
which shall at all times consist of not less than three Disinterested Persons.
The Committee shall have the power and authority to grant to eligible
employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock; or (iv) Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company, its
Subsidiaries, and its Affiliates to whom Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards or a combination of the
foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, any restriction on any Stock Option or other award and/or the
shares of Stock relating thereto based on performance and/or such other
factors as the Committee may determine, in its sole discretion, and any
vesting acceleration features based on performance and/or such other
factors as the Committee may determine, in its sole discretion);
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(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan
shall be deferred either automatically or at the election of a participant,
including providing for and determining the amount (if any) of deemed
earnings on any deferred amount during any deferral period.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of
the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
Section 3. Stock Subject to Plan; Limitations. The total number of shares of
Stock reserved and available for distribution under the Plan shall be
2,221,998. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares. If any shares of Stock that have been
optioned cease to be subject to option, or if any shares subject to any
Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates, such shares shall again be available for
distribution in connection with future awards under the Plan.
The maximum total number of shares subject to awards which may be granted
under the Plan in any one year will be 135,675, and the maximum number of
shares subject to awards which may be granted under the Plan to any individual
in any one year is 135,675 (in both cases, subject to appropriate adjustments
adjustment to reflect changes in the capitalization of the Company).
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options granted under the Plan and in the number
of shares subject to Restricted Stock or Deferred Stock awards granted under
the Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall
always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
Section 4. Eligibility. Officers and other key employees of the Company, its
Subsidiaries or its Affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company,
its Subsidiaries, or its Affiliates are eligible to be granted Stock Options,
Stock Appreciation Rights, Restricted Stock or Deferred Stock awards. The
optionees and participants under the Plan shall be selected from time to time
by the Committee, in its sole discretion, from among those eligible, and the
Committee shall determine, in its sole discretion, the number of shares
covered by each award or grant.
Section 5. Stock Options. Stock Options may be granted either alone or in
addition to other awards granted under the Plan. Any Stock Option granted
under the Plan shall be in such form as the Committee may from time to time
approve, and the provisions of Stock Option awards need not be the same with
respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non- Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options (in each
case with or without Stock Appreciation Rights). To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.
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Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised,
so as to disqualify either the Plan or any Incentive Stock Option under
Section 422 of the Code. Notwithstanding the foregoing, in the event an
optionee voluntarily disqualifies an option as an Incentive Stock Option
within the meaning of Section 422 of the Code, the Committee may, but shall
not be obligated to, make such additional grants, awards or bonuses as the
Committee shall deem appropriate, to reflect the tax savings to the Company
which result from such disqualification.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant but
shall be not less than the Fair Market Value of the Stock on the date of the
grant of the Stock Option; provided, however, if the Option is an Incentive
Stock Option granted to a Ten Percent Shareholder, the option price for each
share of Stock subject to such Incentive Stock Option shall be no less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the date such Incentive Stock Option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date such Stock Option is granted.
(c) Exercisability. Subject to paragraph (j) of this Section 5 with respect
to Incentive Stock Options, Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at grant; provided, however, that, except as provided in paragraphs
(f) and (g) of this Section 5 and Section 12, unless otherwise determined by
the Committee at grant, no Stock Option shall be exercisable prior to the
first anniversary date of the granting of the option. If the Committee
provides, in its discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, in whole or in part, based on performance and/or such other factors
as the Committee may determine in its sole discretion.
(d) Method of Exercise. Stock Options which are then exercisable may be
exercised in whole or in part at any time during the option period by the
optionee, the legal representative of the optionee, or the legatee under the
optionee's will through the giving of written notice of exercise to the
Company specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price, in cash, by check or such other
instrument as may be acceptable to the Committee. As determined by the
Committee, in its sole discretion, at or after grant, payment in full or in
part may also be made in the form of unrestricted Stock already owned by the
optionee or, in the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock or Deferred Stock subject to an award hereunder (based, in
each case, on the Fair Market Value of the Stock on the date the option is
exercised, as determined by the Committee). If payment of the option exercise
price of a Non-Qualified Stock Option is made in whole or in part in the form
of Restricted Stock or Deferred Stock, the shares received upon the exercise
of such Stock Option shall be restricted or deferred, as the case may be, in
accordance with the original term of the Restricted Stock award or Deferred
Stock award in question, except that the Committee may direct that such
restrictions or deferral provisions shall apply to only the number of such
shares equal to the number of shares of Restricted Stock or Deferred Stock
surrendered upon the exercise of such option. No shares of unrestricted Stock
shall be issued until full payment therefor has been made. An optionee shall
have the rights to dividends or other rights of a stockholder with respect to
shares subject to the option when the optionee has given written notice of
exercise and has paid in full for such shares.
(e) Non-transferability of Options. Except as otherwise set forth in this
Section 5(e), no Stock Option shall be transferable by the optionee otherwise
than by will or by the laws of descent and distribution, and all Stock Options
shall be exercisable, during the optionee's lifetime, only by the optionee.
The Committee shall have the discretionary authority, however, to grant Non-
Qualified Stock Options which would be transferable to members of an
optionee's immediate family, including trusts for the benefit of such family
members and
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partnerships in which such family members are the only partners. For purposes
of paragraphs (f), (g), (h) and (i) of this Section 5, a transferred option
may be exercised by the transferee only to the extent that the optionee would
have been entitled had the option not been transferred.
(f) Termination of Employment by Reason of Death. Unless otherwise
determined by the Committee at grant, if an optionee's employment with the
Company, any Subsidiary, or any Affiliate terminates by reason of death, the
Stock Option held by such optionee shall become immediately exercisable and
may thereafter be exercised by the legal representative of the estate or by
the legatee of the optionee under the will of the optionee, for the period
ending on the earlier of: (i) three (3) years from the date of such death or
(ii) the expiration of the stated term of such Stock Option.
(g) Termination of Employment by Reason of Disability. Unless otherwise
determined by the Committee at grant, if an optionee's employment with the
Company, any Subsidiary and any Affiliate terminates by reason of Disability,
any Stock Option held by such optionee shall become immediately exercisable
and may thereafter be exercised for the period ending on the earlier of: (i)
three (3) years from the date of such termination of employment or (ii) the
expiration of the stated term of such Stock Option. In the event of
termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination of Employment by Reason of Retirement. Unless otherwise
determined by the Committee at grant, if an optionee's employment with the
Company, any Subsidiary and any Affiliate terminates by reason of Normal
Retirement or by reason of Early Retirement if such optionee has been an
employee of the Company, any Subsidiary or any Affiliate for a continuous
period of not less than ten (10) years, any Stock Option held by such optionee
shall become immediately exercisable. All Stock Options held by optionees
whose employment has terminated by reason of Normal Retirement or Early
Retirement shall expire at the end of the period ending on the earlier of: (i)
three (3) years from the date of such Retirement or (ii) the expiration of the
stated term of such Stock Option, whichever period is earlier. In the event of
termination of employment by reason of Retirement, if an Incentive Stock
Option is exercised after the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination of Employment. Unless otherwise determined by the
Committee, if an optionee's employment with the Company, any Subsidiary and
any Affiliate terminates for any reason other than death, Disability or
Retirement, or if the optionee's employment is involuntarily terminated by
employer with Cause, the Stock Option shall terminate one (1) month from the
date of termination of employment or the expiration of the Option Period,
whichever is shorter. If the optionee's employment with the Company, any
Subsidiary and any Affiliate is involuntarily terminated by the optionee's
employer without Cause, any Stock Option held by such optionee shall terminate
on the earlier of: (i) three (3) months from the date of such termination of
employment or (ii) the expiration of the stated term of the Stock Option. In
the event of involuntary termination, without Cause or voluntary termination
for any reason, there shall be no acceleration of vesting of the Stock Option
unless otherwise determined by the Committee, and said Stock Option may only
be exercised to the extent it is or becomes exercisable prior to termination
of such Stock Option.
(j) Limit on Value of Incentive Stock Option First Exercisable Annually. The
aggregate Fair Market Value (determined at the time of grant) of the Stock for
which "incentive stock options" within the meaning of Section 422 of the Code
are exercisable for the first time by an optionee during any calendar year
under the Plan (and/or any other stock option plans of the Company, any
Subsidiary and any Affiliate) shall not exceed $100,000.
Section 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Non-Qualified Stock Option, such rights may be granted
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either at or after the time of the grant of such Non-Qualified Stock Option.
In the case of an Incentive Stock Option, such rights may be granted only at
the time of the grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Committee at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the
related Stock Option exceeds the number of shares not covered by the Stock
Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 6, by surrendering the applicable portion
of the related Stock Option. Upon such exercise and surrender, the optionee
shall be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to such
terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall
be exercisable in accordance with the provisions of Section 5 and this
Section 6 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of the Stock
Appreciation Right, except that this additional limitation shall not apply
in the event of death or Disability of the optionee prior to the expiration
of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive up to, but not more than, an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under
paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan.
(v) A Stock Appreciation Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of
such Stock Option.
(vi) In its sole discretion, the Committee may provide, at the time of
grant of a Stock Appreciation Right under this Section 6, that such Stock
Appreciation Right can be exercised only in the event of a "Change of
Control" and/or a "Potential Change of Control" (as defined in Section 12
below).
(vii) The Committee, in its sole discretion, may also provide that in
the event of a "Change of Control" and/or a "Potential Change of Control"
(as defined in Section 12 below) the amount to be paid upon the exercise of
a Stock Appreciation Right shall be based on the "Change of Control Price"
(as defined in Section 12 below).
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Section 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company, its Subsidiaries and
Affiliates to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price, if any, to be
paid by the recipient of Restricted Stock (subject to Section 7(b) hereof),
the time or times within which such awards may be subject to forfeiture, and
all other conditions of the awards. The Committee may also condition the grant
of Restricted Stock upon the attainment of specified performance goals, or
such other criteria as the Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with respect to
each recipient.
(b) Awards and Certificates. The prospective recipient of an award of shares
of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
(a "Restricted Stock Award Agreement") and has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the then applicable
terms and conditions.
(i) Awards of Restricted Stock must be accepted within a period of sixty
(60) days (or such shorter period as the Committee may specify) after the
award date by executing a Restricted Stock Award Agreement and paying
whatever price, if any, is required.
(ii) A stock certificate in respect of shares of Restricted Stock shall
be issued in the name of each participant who is awarded Restricted Stock.
Such certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Vesta Insurance Group, Inc. Long Term Incentive Plan
and a Restricted Stock Award Agreement entered into between the
registered owner and the Company. Copies of such Plan and Agreement are
on file in the offices of the Company, Post Office Box 43360, 3760
River Run Drive, Birmingham, Alabama 35243."
(iii) The Committee shall require that the stock certificates evidencing
such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in
blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the Restricted Stock
Award Agreements, during such period as may be set by the Committee
commencing on the grant date (the "Restriction Period"), the participant
shall not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits, the Committee
may, in its sole discretion, provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions in whole or in
part based on performance and/or such other factors as the Committee may
determine, in its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a stockholder of the Company, including the right to vote
and to receive any dividends. Dividends paid in stock of the Company or
stock received in connection with a stock split with respect to Restricted
Stock shall be subject to the same restrictions as on such Restricted
Stock. Certificates for shares of unrestricted Stock shall be delivered to
the participant promptly after, and only after, the period of forfeiture
shall expire without forfeiture in respect of such shares of Restricted
Stock.
(iii) Subject to the provisions of the Restricted Stock Award Agreement
and this Section 7, upon termination of employment for any reason during
the Restriction Period, all shares still subject to restriction
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shall be forfeited by the participant; provided, however, that the
participant shall be entitled to retain the shares of Restricted Stock
which have been paid for by the participant.
(iv) In the event of Death or Disability or in the event that a
participant's employment is terminated as the result of special hardship
circumstances (other than for Cause), the Committee may, in its sole
discretion, waive in whole or in part any or all remaining restrictions
with respect to such participant's shares of Restricted Stock.
Section 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company, its Subsidiaries and Affiliates
to whom, and the time or times at which, Deferred Stock shall be awarded, the
number of shares of Deferred Stock to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Stock will be deferred, and the terms
and conditions of the award in addition to those set forth in paragraph (b) of
this Section 8. The Committee may also condition the grant of Deferred Stock
upon the attainment of specified performance goals, or such other criteria as
the Committee shall determine, in its sole discretion. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded pursuant to
this Section 8 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during
the Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be: (a) paid to the participant currently; (b)
deferred and deemed to be reinvested; or (c) that such participant has no
rights with respect thereto.
(iii) Subject to the provisions of the award agreement and this Section
8, upon termination of employment for any reason during the Deferral Period
for a given award, the Deferred Stock in question shall be forfeited by the
participant.
(iv) Based on performance and/or such other criteria as the Committee
may determine, the Committee may, at or after grant, accelerate the vesting
of all or any part of any Deferred Stock award and/or waive the deferral
limitations for all or any part of such award.
(v) In the event of special hardship circumstances of a participant
whose employment is involuntarily terminated (other than for Cause), the
Committee may, in its sole discretion, waive in whole or in part any or all
of the remaining deferral limitations imposed hereunder with respect to any
or all of the participant's Deferred Stock.
(vi) A participant may elect to defer further receipt of the award for a
specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made at least six (6) months prior to completion of the
Deferral Period for a Deferred Stock award (or for an installment of such
an award).
(vii) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock award agreement executed by the Company and the participant.
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Section 9. Loan Provisions. With the consent of the Committee, the Company
may make, or arrange for, a loan or loans to an employee with respect to the
exercise of any Stock Option granted under the Plan and/or with respect to the
payment of the purchase price, if any, of any Restricted Stock awarded
hereunder. The Committee shall have full authority to decide whether to make a
loan or loans hereunder and to determine the amount, term and provisions of
any such loan or loans, including the interest rate to be charged in respect
of any such loan or loans, whether the loan or loans are to be with or without
recourse against the borrower, the terms on which the loan is to be repaid,
and the conditions, if any, under which the loan or loans may be forgiven.
Section 10. Amendments and Termination. The Board may amend, alter, or
discontinue the Plan, but no amendment, alteration, or discontinuation shall
be made which would impair the right of an optionee or participant under a
Stock Option, Stock Appreciation Right, Restricted Stock or Deferred Stock
award theretofore granted, without the optionee's or participant's consent, or
which without the approval of the stockholders would:
(a) except as expressly provided in this Plan, increase the total number
of shares reserved for the purpose of the Plan;
(b) decrease the option price of any Stock Option to less than fifty
percent (50%) of the Fair Market Value on the date of the granting of the
option;
(c) change the employees or class of employees eligible to participate
in the Plan; or
(d) extend the maximum option period under paragraph (b) of Section 5 of
the Plan.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but no such amendment shall impair
the rights of any holder without his consent. The Committee may also
substitute new Stock Options for previously granted Stock Options including
options granted under other plans applicable to the participant and previously
granted Stock Options having higher option prices.
Section 11. Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a participant or optionee by the Company, nothing set
forth herein shall give any such participant or optionee any rights that are
greater than those of a general creditor of the Company. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Stock
or payments in lieu of or with respect to awards hereunder, provided, however,
that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
Section 12. Change of Control. The following acceleration and valuation
provisions shall apply in the event of a "Change of Control" or "Potential
Change of Control," as defined in this Section 12:
(a) In the event of a "Change of Control" as defined in paragraph (b) of
this Section 12, unless otherwise determined by the Committee or the Board in
writing at or after grant, but prior to the occurrence of such Change of
Control, or, if and to the extent so determined by the Committee or the Board
in writing at or after grant (subject to any right of approval expressly
reserved by the Committee or the Board at the time of such determination) in
the event of a "Potential Change of Control," as defined in paragraph (c) of
this Section 12:
(i) any Stock Appreciation Rights outstanding for at least six (6)
months and any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(ii) the restrictions and deferral limitations applicable to any
Restricted Stock and Deferred Stock awards under the Plan shall lapse and
such shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock and Deferred Stock awards, shall, to the extent
determined by the Committee at or after grant, be cashed out on the basis
of the "Change of Control Price" (as defined in paragraph (d) of this
Section 12) as of the date
C-9
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the Change of Control occurs or Potential Change of Control is determined
to have occurred, or such other date as the Committee may determine prior
to the Change of Control or Potential Change of Control.
(b) For purposes of paragraph (a) of this Section 12, a "Change of Control"
means the happening of any of the following:
(i) when any "person" as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, (other than the Company, Torchmark Corporation, a
Subsidiary of Torchmark Corporation, or any Company employee benefit plan,
including its trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of securities of
the Company representing twenty percent (20%) or more of the combined
voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the Company
required to be described pursuant to the requirements of Item 6(e) of
Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
(iii) when, during any period of two (2) consecutive years during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board cease, for any reason other than death, to
constitute at least a majority thereof, unless each director who was not a
director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds ( 2/3) of the directors at the
beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company,
Torchmark Corporation, or a Subsidiary of Torchmark Corporation through
purchase of assets, or by merger, or otherwise.
(c) For purposes of paragraph (a) of this Section 12, a "Potential Change of
Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the consummation of
which would result in a Change of Control of the Company as defined in
paragraph (b) of this Section 12; or
(ii) the acquisition of beneficial ownership, directly or indirectly, by
any entity, person or group (other than the Company, Torchmark Corporation,
a Subsidiary of Torchmark Corporation, or any Company employee benefit
plan, including its trustee) of securities of the Company representing five
percent (5%) or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of Directors of a
resolution to the effect that a Potential Change of Control of the Company
has occurred for purposes of this Plan.
(d) For purposes of this Section 12, "Change of Control Price" means the
highest price per share paid in any transaction reported on the New York Stock
Exchange, or paid or offered in any transaction related to a potential or
actual Change of Control of the Company at any time during the preceding sixty
(60) day period as determined by the Committee, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, such price shall be based only on transactions reported for the
date on which the Committee decides to cash out such options.
Section 13. General Provisions.
(a) All certificates for shares of Stock delivered under the Plan shall be
subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
C-10
<PAGE>
(b) Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan
shall not confer upon any employee of the Company, any Subsidiary or any
Affiliate, any right to continued employment with the Company, a Subsidiary or
an Affiliate, as the case may be, nor shall it interfere in any way with the
right of the Company, Subsidiary or an Affiliate to terminate the employment
of any of its employees at any time.
(c) Each participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee, in its sole discretion, regarding payment of,
any Federal, FICA, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements.
Participants subject to the requirements of Section 16 of the Exchange Act
shall satisfy their Federal, and where applicable, FICA, state and local tax
withholding obligations with respect to all awards other than Stock Options
which have related Stock Appreciation Rights by the reduction, in an amount
necessary to pay all said withholding tax obligations, of the number of shares
of Stock or amount of cash otherwise issuable or payable to said participants
upon the issuance of shares or payment of cash in respect of an award.
All participants other than persons subject to the requirements of Section
16 of the Exchange Act may elect, subject to the approval of the Committee, to
satisfy their Federal, and where applicable, FICA, state and local tax
withholding obligations with respect to all awards other than Stock Options
which have related Stock Appreciation Rights by the reduction, in an amount
necessary to pay all said withholding tax obligations, of the number of shares
of Stock or amount of cash otherwise issuable or payable to said participants
upon the issuance of shares or payment of cash in respect of an award. The
Company and, where applicable, its Subsidiaries and Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes owed
hereunder by a participant who is not subject to Section 16 of the Exchange
Act from any payment of any kind otherwise due to said participant.
(d) At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares of
Stock received as a result of such grant or purchase shall be subject to a
right of first refusal, pursuant to which the participant shall be required to
offer to the Company any shares that the participant wishes to sell, with the
price being the then Fair Market Value of the Stock, subject to the provisions
of Section 12 hereof and to such other terms and conditions as the Committee
may specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or employee of
the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or
the Committee and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
Section 14. Effective Date of Plan. The Plan shall be effective on the date
it is approved by a majority vote of the holders of the Companies voting
common stock.
Section 15. Term of Plan. No Stock Option, Stock Appreciation Right,
Restricted Stock or Deferred Stock award shall be granted pursuant to the Plan
on or after the tenth anniversary of the date of stockholder approval, but
awards theretofore granted may extend beyond that date.
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<PAGE>
VESTA INSURANCE GROUP, INC.
This Proxy Is Solicited on behalf of the Board of Directors
for a Special Meeting of Stockholders
to be held on , 1999
P The undersigned hereby constitutes and appoints Norman W. Gayle III and
Donald W. Thornton, or either of them with full power of substitution in
R each, proxies to vote all shares of Common Stock of Vesta Insurance
Group, Inc. (the "Company") which the undersigned may be entitled to
O vote at the Special Meeting of Stockholders to be held at The Harbert
Center, 2019 Fourth Avenue North, Birmingham, Alabama 35203, on
X , 1999, and at all adjournments or postponements thereof,
as follows:
Y
For the proposal to approve the issuance of
2,950,000 shares of the Company's Series A
Convertible Preferred Stock
For the proposal to approve the amendment to
the Company's Long Term Incentive Plan
| This proxy, when properly executed, will be voted in the manner directed
| herein by the undersigned shareholder.
|
| You are encouraged to specify your choices by marking the appropriate
| box (SEE REVERSE SIDE), but you need not mark any box if you wish
| to vote in accordance with the Board of Directors' recommendations. The
proxies cannot vote your shares unless you sign and return this card.
(Continued, and to be Signed, on Reverse Side)
-----------
SEE REVERSE
SIDE
-----------
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FOLD AND DETACH HERE
<PAGE>
|
[X] Please mark your __ | 6648
votes as in this | |______
example.
IF NO PREFERENCE IS INDICATED, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS.
Proposal to approve the issuance of 2,950,000 shares of the Company's Series A
Convertible Preferred Stock.
FOR AGAINST ABSTAIN
[_] [_] [_]
- -----------------------------
Proposal to approve the amendment to the Company's Long Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
IMPORTANT: Please sign exactly as your
name appears hereon. If shares are held
by more than one owner, each must sign.
Executors, administrators, trustees,
guardians, and others signing in a
representative capacity should give
their full titles.
---------------------------------------
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SIGNATURE(S) DATE
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FOLD AND DETACH HERE
