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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Vesta Insurance Group
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO APPEARS HERE]
To the Stockholders of
Vesta Insurance Group, Inc.
You are invited to attend the annual 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 Monday, May 8, 2000, at
10:00 A.M., local time.
Information concerning matters to be considered and acted upon at the
meeting is set forth in the accompanying Notice of Annual Meeting of
Stockholders and Proxy Statement, which you are urged to read.
It is important that your shares be voted at this meeting. Please read the
enclosed Notice of Annual 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
April 11, 2000
<PAGE>
--------------------------------
Notice of Annual Meeting of Stockholders
to be Held May 8, 2000
--------------------------------
To the Holders of Common Stock of
Vesta Insurance Group, Inc.
The annual meeting of stockholders of Vesta Insurance Group, Inc. will be
held at The Harbert Center, 2019 Fourth Avenue North, Birmingham, Alabama
35203 on Monday, May 8, 2000, at 10:00 A.M., local time, for the following
purposes:
(1) To elect two persons to serve as Class I directors for a three-year
term beginning May 8, 2000.
(2) To approve an amendment to the Company's Non-Employee Director Stock
Plan to (i) increase the share reserve by 600,000 shares and (ii) to
permit the Compensation Committee to increase the number of shares of
Common Stock subject to Initial Option grants or Annual Option grants,
in its discretion, subject to certain limitations described herein.
(3) To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the year ending December 31, 2000.
(4) To transact such other business as may properly come before the
meeting.
These matters are more fully discussed in the accompanying Proxy Statement.
The close of business on April 7, 2000 has been fixed as the date for
determining the stockholders who are entitled to notice of and to vote at the
annual meeting. All stockholders, whether or not they expect to attend the
annual 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 annual meeting for which this notice is given may be adjourned from time
to time without notice other than announcement at the annual meeting. Any
business for which notice of the annual 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
April 11, 2000
<PAGE>
PROXY STATEMENT FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MAY 8, 1999
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
annual meeting of stockholders to be held at The Harbert Center, 2019 Fourth
Avenue North, Birmingham, Alabama 35203 on Monday, May 8, 2000, at 10:00 A.M.,
local time, and at any adjournment of such meeting. 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 April
11, 2000.
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 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 common stockholder of record at the close of business on April 7, 2000
(the "record date") is entitled to one vote for each share of common stock
held on that date. There is no cumulative voting of the common stock. At the
close of business on April 7, 2000, there were 18,825,832 shares of common
capital stock of the Company outstanding. In addition, the Birmingham
Investment Group, LLC, as the sole stockholder of the Company's Series A
Convertible Preferred Stock (the "Preferred Stock") on the record date, is
entitled to one vote for each share of the 5,900,000 shares of common stock
into which its shares of Preferred Stock may be converted. On all matters
proposed for approval at the annual meeting, the Preferred Stock will vote
with the common stock as a single class.
Vote Required
At the 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, directors shall be elected at the meeting
by a plurality of the votes cast, whether in person or by proxy. The proposal
to approve the amendment to the Non-Employee Director Stock Plan will require
the affirmative vote of at least a majority of the shares represented at the
meeting (in person or by proxy) and entitled to vote.
A stockholder may abstain or withhold his vote (collectively, "abstentions")
with respect to each proposal submitted for stockholder approval. Abstentions
will be counted as present (for purposes of determining the existence of a
quorum) and entitled to vote on the relevant proposal, but they will be
counted as not voting in favor of such proposal. Since the election of
directors is determined by a plurality of the votes actually cast at the
meeting, abstentions will not affect such election. An abstention on the
proposal to approve the amendment to the Non-Employee Director Stock Plan,
however, will have the effect of a vote against such 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 vote shares held in "street name" on
certain non-routine items absent customer instructions. If a broker votes
shares held in "street name" on some but not all of the proposals submitted
for stockholder approval, then all shares so voted will be counted as present
(for purposes of determining the existence of a quorum), but will not be
considered entitled to vote on those matters as to which authority to vote is
withheld by the broker (a "broker nonvote"). Generally, there can be no
"broker nonvotes" in the election of directors, because the election of
directors is a matter for which a broker may exercise its discretion. If any
broker nonvotes are received on the proposal to approve the amendment to the
Non-Employee Director Stock Plan, they will be disregarded (as not entitled to
vote) and will have no affect on such proposal.
1
<PAGE>
Principal Stockholders
The Company has outstanding two classes of voting securities--its common
stock and its Preferred Stock. The following table lists all persons known to
be the beneficial owner of more than five percent of either of these classes
of securities as of December 31, 1999.
<TABLE>
<CAPTION>
Name and Address Title of Class Number of Shares Percent of Class(1)
---------------- -------------- ---------------- -------------------
<S> <C> <C> <C>
Torchmark Corporation Common Stock 5,130,000(2) 27%
2001 Third Avenue South
Birmingham, Alabama
35233
Dimensional Fund
Advisors, Inc. Common Stock 1,009,050(3) 5%
1299 Ocean Avenue
Santa Monica, CA 90401
Birmingham Investment
Group, LLC Common Stock 5,900,000(1) 24%
17 North 20th Street
Birmingham, Alabama
35203
Birmingham Investment
Group, LLC Series A Convertible 2,950,000(4) 100%
17 North 20th Street Preferred Stock
Birmingham, Alabama
35203
</TABLE>
- --------
(1) 5,900,000 shares of common stock are deemed to be beneficially owned by
the Birmingham Investment Group, LLC, even though such shares are not
actually outstanding. See note 4, below. These shares are deemed to be
outstanding for the purpose of computing the Birmingham Investment Group,
LLC's percentage ownership of common stock, but they are not deemed to be
outstanding for the purpose of computing any other person's percentage
ownership of common stock.
(2) Based on Amendment No. 5 to Schedule 13D, dated July 1, 1999, filed by
Torchmark Corporation ("TMK") and its affiliate, United Investors Life
Insurance Company ("UILIC"), which reported: "TMK is the record owner of
4,450,000 shares of Vesta's common stock, and the deemed beneficial owner
of an additional 680,000 shares of Vesta common stock held of record by
its subsidiary, UILIC (total of 27.46%). UILIC is the record owner of
680,000 shares (3.64%) of Vesta common stock.. TMK has sole voting and
dispositive power over the Vesta shares it holds of record and no voting
or dispositive power over the Vesta shares owned by UILIC. UILIC has sole
voting and dispositive power over the Vesta shares it holds of record."
(3) Based on Schedule 13G filed February 3, 2000 by Dimensional Fund Advisors
Inc. ("Dimensional"), which reported "Dimensional, an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the Funds'. In its role as
investment adviser or manager, Dimensional possesses voting and/or
investment power over the securities of the Issuer described in this
schedule that are owned the Funds. All securities reported in this
schedule are owned by the Funds. Dimensional disclaims beneficial
ownership of such securities."
(4) Based on Schedule 13D filed October 12, 1999 by The Birmingham Investment
Group, LLC (the "Reporting Person"), which reported "The Reporting Person
beneficially owns 5,900,000 shares of Common Stock, or approximately 24%
of the outstanding shares of Common Stock of the Issuer, which are
issuable upon conversion of the 2,950,000 shares of Series A Convertible
Preferred Stock, or 100% of the outstanding shares of the Series A
Convertible Preferred Stock, of the Issuer ...... Prior to conversion, each
share of Series A Convertible Preferred Stock of the Issuer has the right
to one vote for each share of Common Stock of the Issuer into which the
Series A Convertible Preferred Stock of the Issuer can be converted. Upon
conversion the Reporting Person will have sole power to dispose of
5,900,000 shares of Common Stock of the Issuer."
2
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
Board of Directors
The Company's Restated Certificate of Incorporation, as amended and
supplemented by a certificate of designation relating to the Company's
Preferred Stock, provides for two classes of directors--those elected by the
holders of the Company's common stock (the "Common Directors") and those
elected by the holders of the Preferred Stock, voting as a separate class (the
"Preferred Stock Directors"). The number of Preferred Stock Directors may vary
depending on the number of Common Directors serving from time to time.
The Company's Bylaws provide that, subject to the rights of the holders of
any series of Preferred Stock, the number of directors shall be not less than
two nor more than twelve, with the exact number to be fixed by the Board of
Directors. The board presently consists of six (6) Common Directors and three
(3) Preferred Stock Directors. The Common Directors of the Company are divided
into three classes and are elected to hold office for a three-year term and
until their successors are elected and qualified at the annual meeting of
stockholders held in the year in which their term expires. The election of
each class of Common Directors is staggered over each three-year period.
Walter M. Beale, Jr. and the Honorable Stephen R. Windom are currently
serving as Class I directors whose terms will expire at the annual meeting.
The Board of Directors proposes the re-election of Messrs. Beale and Windom as
Class I directors, to hold office for a term of three years, expiring at the
close of the annual meeting of stockholders to be held in 2003 and until their
successors are elected and qualified.
If any of the nominees becomes unavailable for election, which is not
anticipated, the directors' proxies will vote for the election of such other
person as the Board of Directors may recommend unless the Board reduces the
number of directors.
The Board recommends that the stockholders vote FOR the nominees
Profiles of Nominees
Walter M. Beale, Jr. (age 54) has been a director of the Company since 1993.
Principal occupation: Partner in the law firm of Balch & Bingham LLP since
prior to 1995.
Stephen R. Windom (age 50) was elected by the Board of Directors effective
January 31, 2000 to fill the vacancy created by the resignation of Jarvis W.
Palmer. Principal occupation: Partner in the law firm of Sirote & Permutt,
P.C. since prior to 1995. Currently Lieutenant Governor of the State of
Alabama. Prior to becoming Lieutenant Governor, Mr. Windom served as the
Chairman of the Alabama Senate Committee overseeing banking and insurance.
Profiles of Common Directors Whose Terms Have Not Expired
Ehney A. Camp, III (age 57) has been a director of the Company since 1993.
His term expires in 2001 (Class II). Principal occupation: Principal, Addison
Investments, L.L.C. (private investments) since 1996. From 1975 until 1996,
Mr. Camp was the President and Chief Executive Officer of Camp & Company, a
mortgage banking company located in Birmingham, Alabama.
Norman W. Gayle, III, (age 46) has been a director of the Company since
1998. His term expires in 2002 (Class III). Principal occupation: President
and Chief Executive Officer of the Company since 1998. Executive Vice
President and Chief Operating Officer of the Company from 1995 to 1998.
Clifford F. Palmer (age 51) has been a director of the Company since 1993.
His term expires in 2001 (Class II). Principal occupation: Insurance
Consultant with Pilgrim Managers Limited since 1997. From 1979 until 1997, Mr.
Palmer was the named underwriter for Lloyd's Syndicate 314 and was a principal
in the managing agency, Ashley Palmer Syndicates, Ltd.
3
<PAGE>
James E. Tait (age 50), Chairman, has been a director of the Company since
1998. His term expires in 2002. Principal occupation: Executive Vice President
and Chief Financial Officer of the Company since 1998; President, Tait
Advisory Services, LLC, 1996--present; President of Inex Insurance Exchange,
1996--1999; Partner, Coopers & Lybrand, 1980-1996.
Profiles of Preferred Stock Directors
Robert B.D. Batlivala, PhD. (age 60) was elected as a Preferred Stock
Director effective October 19, 1999. Retired October 1, 1999 from the position
of Director, Regulatory Economics and Corporate Strategic Planning for BP
Amoco, where he has served in various capacities since 1964.
Larry D. Striplin, Jr. (age 70) was elected as a Preferred Stock Director
effective September 30, 1999. Principal occupation: Chairman and Chief
Executive Officer of Nelson-Brantley Glass Contractors, Inc. and Chairman and
Chief Executive Officer of Clearview Properties, Inc. since 1995. Mr. Striplin
is also Vice Chairman of The Banc Corporation, a director of HEALTHSOUTH
Corporation and a director of Kulicke & Soffa Industries, Inc.
James A. Taylor (age 58) was elected as a Preferred Stock Director effective
September 30, 1999. Principal occupation: Chairman and Chief Executive Officer
of The Banc Corporation (or its predecessor, Warrior Capital Corporation), a
bank holding company headquartered in Birmingham, Alabama, since 1997;
Founder, Chairman and Chief Executive Officer of Alabama National
BancCorporation, a bank holding company headquartered in Birmingham, Alabama,
from its incorporation in 1986 until 1996.
Profiles of Executive Officers Who Are Not Directors
The following table shows certain information concerning each person deemed
to be an executive officer of the Company on December 31, 1999, except Norman
W. Gayle, III and James E. Tait, who also serve as a directors. Each executive
officer and key employee is elected by the Board of Directors of the Company
annually and serves at the pleasure of the Board. There are no arrangements or
understandings between any executive officer and any other person pursuant to
which the officer was selected.
<TABLE>
<CAPTION>
Principal Occupation and Business Experience
Name Age for the Past Five Years
---- --- --------------------------------------------
<C> <C> <S>
Charles M. Angell 53 Senior Vice President--Claims of Vesta Fire Insurance
Corporation since 1999. From 1995 to 1999, Mr. Angell
was Senior Vice President--Insurance Operations of
Vesta Fire Insurance Corporation.
K. Gerald Barron 50 Senior Vice President--Personal Lines Underwriting
Operations of Vesta Fire Insurance Corporation since
1999. From March 1997 to October 1999, Mr. Barron was
Executive Vice President of Audubon Insurance Group,
Baton Rouge, Louisiana. From March of 1993 to March of
1997, Mr. Barron was Vice President of Hanover
Insurance Company, Worcester, Massachusetts.
William P. Cronin 40 Senior Vice President--Controller of the Company since
1998; Vice President, Audit and Regulatory Affairs of
Tait Advisory Services, LLC, 1997-present; Senior
Manager, Ernst & Young, LLP, 1993-1997.
Donald W. Thornton 53 Senior Vice President--General Counsel and Secretary
of the Company since 1995.
William B. Naff 36 Vice President--Financial Reporting of Vesta Fire
Insurance Corporation since 1997. From 1995 to 1997,
Mr. Naff was a manager of Pearce, Bevill, Leesburg &
Moore, certified public accountants.
Stephen P. Russell 40 Vice President--Actuarial of Vesta Fire Insurance
Corporation since 1998. From 1982 to 1998, Mr. Russell
was director and senior actuary of Allstate Insurance
Company, Northbrook, Illinois.
Stephen P. Solimine Vice President--Marketing of Vesta Fire Insurance
49 Corporation since 1995.
</TABLE>
4
<PAGE>
Stock Ownership of Management
The following table reflects certain information about the equity ownership
of the directors and each of the executive officers named in the Summary
Compensation Table herein, and all directors and executive officers as a
group, as of December 31, 1999.
<TABLE>
<CAPTION>
Common % of Preferred % of
Name Stock Common(1) Stock Preferred
- ---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Charles M. Angell................... 14,334(2) * --0-- --0--
Robert B. D. Batlivala.............. --0-- * --0-- --0--
Walter M. Beale, Jr. ............... 39,499(3) * --0-- --0--
Ehney A. Camp, III.................. 42,449(4) * --0-- --0--
William P. Cronin................... 250 * --0-- --0--
Norman W. Gayle, III................ 304,303(5) 1.6% --0-- --0--
Clifford F. Palmer.................. 48,749(6) * --0-- --0--
Larry D. Striplin, Jr. ............. 546,030(7) 2.2% 270,515 9.17%
James E. Tait....................... 202,500(8) 1.0% --0-- --0--
James A. Taylor..................... 549,570(9) 2.2% 272,285 9.23%
Donald W. Thornton.................. 200,467(10) 1.0% --0-- --0--
All Directors and Executive
Officers as a group (15 persons):... 1,949,392 9.5% 542,800 18.40%
</TABLE>
- --------
(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 10,000 shares subject to the exercise of options granted
under, and 4,334 shares of restricted stock awarded 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 12,000 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, 12,000 shares subject to the exercise
of options granted pursuant to the Company's Non-Employee Director Stock
Plan, and 9,200 shares are held in the name of Sterne, Agee & Leach,
Inc., custodian for Ehney A. Camp, III Individual Retirement Account.
(5) Includes 148,564 shares subject to the exercise of options granted under,
and 146,152 shares of restricted stock awarded under, the Company's Long
Term Incentive Plan and 5,837 shares allocated to Mr. Gayle's 401(k) plan
account.
(6) 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, 12,000 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.
(7) Includes 5,000 shares subject to the exercise of options granted pursuant
to the Company's Non-Employee Director Stock Plan and 541,030, or 9.17%,
of the 5,900,000 shares of common stock issuable upon conversion of the
Company's Series A Convertible Preferred Stock held by the Birmingham
Investment Group, LLC, in which Mr. Striplin holds a 9.17% ownership
interest. Mr. Striplin disclaims ownership of all but 9.17%, or 270,515
shares, of the 2,950,000 shares of such Preferred Stock held by the
Birmingham Investment Group, LLC.
(8) Consists of 97,500 shares subject to the exercise of options granted
under, and 105,000 shares of restricted stock awarded under, the
Company's Long Term Incentive Plan.
(9) Includes 5,000 shares subject to the exercise of options granted pursuant
to the Company's Non-Employee Director Stock Plan and 544,570, or 9.23%,
of the 5,900,000 shares of common stock issuable upon conversion of the
Company's Series A Convertible Preferred Stock held by the Birmingham
Investment Group, LLC, in which Mr. Taylor holds a 9.23% ownership
interest. Mr. Taylor disclaims ownership of all but 9.23%, or 272,285
shares, of the 2,950,000 shares of such Preferred Stock held by the
Birmingham Investment Group, LLC.
(10) Consists of 174,457 shares subject to the exercise of options granted
under, and 19,489 shares of restricted stock awarded under, the
Company's Long Term Incentive Plan and 6,521 shares allocated to
Mr. Thornton's 401(k) plan account.
5
<PAGE>
Meetings of the Board of Directors and Committees
During 1999, the Board of Directors met 15 times. In 1999, all of the
directors attended more than 75% of the meetings of the Board and the
committees on which they served.
Committees of the Board of Directors
The Company's Board of Directors (the "Board") has established an Executive
Committee, an Audit Committee and a Compensation Committee.
The Executive Committee possesses all the powers and authority of the
Company's Board between the meetings of the full Board, except as limited by
applicable law. The members of the Executive Committee are Messrs. Camp,
Chairman, Gayle, Tait and Taylor. The Executive Committee met 2 times in 1999.
The duties of the Audit Committee are to recommend to the Board the
selection of independent certified public accountants to audit annually the
books and records of the Company, to review the activities and the reports of
the independent certified public accountants, and to report the results of
such review to the Board. The Audit Committee also monitors the activities of
the Company's audit staff and the adequacy of the Company's internal controls.
The members of the Audit Committee are Messrs. Batlivala, Camp and Windom. The
Audit Committee met 4 times in 1999.
The duties of the Compensation Committee are to make recommendations and
reports to the Board with respect to the salaries, bonuses and other
compensation to be paid to the Company's officers and to administer all plans
relating to the compensation of such officers. The members of the Compensation
Committee are Messrs. Camp, Striplin and Batlivala. The Compensation Committee
met 3 times in 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that executive
officers and directors of the Company file reports of stock ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC")
on Form 3 (initial statement of ownership), Form 4 (monthly report), and
Form 5 (annual report). Based solely upon a review of copies of such reports
or representations that no annual reports on Form 5 for the 1999 fiscal year
were required to be filed by officers or directors, the Company believes that
Section 16(a) filing requirements applicable to its officers and directors
were complied with during fiscal year 1999.
6
<PAGE>
COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Information
The following table sets forth certain information regarding compensation
paid by the Company and its subsidiaries during the fiscal years 1997, 1998
and 1999 for services rendered to the Company and its subsidiaries during such
years by the Chief Executive Officer during 1999 and the four other most
highly compensated executive officers serving at the end of 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation Long Term Compensation
---------------- ---------------------------------------------
Awards Payouts
--------------------- ----------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus(1) Compensation(2) Awards(3) Options Payouts(4) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------- -------- --------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Norman W. Gayle, III 1999 420,097 --0-- 23,562 337,500 52,500 217,022 3,446(5)
Chief Executive Officer 1998 438,269 --0-- --0-- --0-- --0-- 181,022 6,998(5)
since June 1, 1998 1997 365,000 365,000 --0-- 126,629 30,803 181,022 5,480(5)
James E. Tait 1999 512,948 --0-- 62,708 337,500 52,500 --0-- 7,737(6)
Executive Vice President 1998 212,019 --0-- --0-- 286,800 45,000 --0-- 6,797(6)
and Chief Financial
Officer
Donald W. Thornton 1999 226,462 --0-- 10,832 --0-- 102,500 42,220 10,350(7)
Senior Vice 1998 234,423 --0-- --0-- --0-- --0-- 40,610 7,440(7)
President--General 1997 210,000 210,000 --0-- 73,344 17,113 40,610 5,170(7)
Counsel and Secretary
Charles M. Angell 1999 205,000 --0-- 4,476 --0-- --0-- --0-- 7,524(8)
Senior Vice 1998 208,942 --0-- --0-- --0-- 10,000 --0-- 6,581(8)
President--Claims 1997 195,000 195,000 --0-- 64,640 --0-- --0-- 5,140(8)
William P. Cronin, 1999 150,000 --0-- --0-- --0-- 50,000 --0-- 4,718(9)
Senior Vice President--
Controller
</TABLE>
- --------
(1) Consists of payments under the Company's Cash Bonus Plan for 1997
performance. The bonus amounts shown in this column were paid based on
performance rendered during the years indicated, but the bonuses were paid
during the fiscal years immediately following the years indicated.
(2) Consists of amounts paid during 1999 to compensate the executive officers
for taxes incurred upon the lapse of restrictions applicable to previously
awarded restricted stock.
(3) No part of the restricted stock awards reflected above will vest in under
three years from the date of the grant. Dividends will be paid on the
restricted stock prior to vesting. The value of the restricted stock
awards shown above reflects the number of shares awarded during the year
indicated multiplied by the closing market price of the Company's
unrestricted common stock on the date of the award. The following table
shows the aggregate number and value of all shares of restricted stock
held by the persons identified in the table above as of December 31, 1999:
<TABLE>
<CAPTION>
Number of Shares Market Value on 12/31/99
---------------- ------------------------
<S> <C> <C>
Norman W. Gayle, III 75,000 $290,625
James E. Tait 75,000 $290,625
Donald W. Thornton --0-- --0--
Charles M. Angell --0-- --0--
William P. Cronin --0-- --0--
</TABLE>
7
<PAGE>
(4) Consists of payments with respect to the repayment of loans made to enable
certain executive officers to purchase restricted stock of the Company.
(5) Consists of the payment by the Company of premiums under the Company's
group term life insurance plan of $1,754 in 1999, $860 in 1998 and $730 in
1997, and contributions by the Company under the Company's 401(k) plan of
$6,692 in 1999, $6,138 in 1998 and 4,750 in 1997.
(6) Consists of the payment by the Company of premiums under the Company's
group term life insurance plan of $969 in 1999 and $437 in 1998, and
contributions by the Company under the Company's 401(k) plan of $6,768 in
1999 and $6,360 in 1998.
(7) Consists of the payment by the Company of premiums under the Company's
group term life insurance plan of $938 in 1999, $460 in 1998 and $420 in
1997, and contributions by the Company under the Company's 401(k) plan of
$9,412 in 1999, $6,980 in 1998 and $4,750 in 1997.
(8) Consists of the payment by the Company of premiums under the Company's
group term life insurance plan of $836 in 1999, $410 in 1998 and $390 in
1997, and contributions by the Company under the Company's 401(k) plan of
$6,688 in 1999, $6,171 in 1998 and $4,750 in 1997.
(9) Consists of the payment by the Company of premiums under the Company's
group term life insurance plan of $612, and contributions by the Company
under the Company's 401(k) plan of $4,106, in 1999.
Compensation Pursuant to Plans
The Company maintains certain compensation plans, described below, pursuant
to which benefits may be provided to the Company's executive officers.
Long Term Incentive Plan
The Company's stockholders have approved the Company's Long Term Incentive
Plan, as amended (the "Incentive Plan"), which is designed to enable the
Company to attract, retain and motivate directors and employees of the Company
through equity (common stock) based compensatory awards. Currently, the
Incentive Plan provides that the maximum number of shares of the Company's
common stock which may be made the subject of such awards (in the aggregate)
is 2,221,998* shares, of which 1,565,447 shares have been made the subject of
previous awards and 656,551 shares remain available for future awards. The
maximum number of shares of the Company's common stock which may be made the
subject of awards granted to any single participant in any one year is
135,675.*
In 1999, the Compensation Committee utilized the Incentive Plan to award
75,000 shares of restricted stock to each of Mr. Gayle and Mr. Tait. 50% of
the restricted stock awarded in 1999 to these executives will vest on November
18, 2003, and the remaining 50% will vest on November 18, 2004. In addition,
the Compensation Committee utilized the Incentive Plan to grant stock options
to several key employees. The following table reflects the options granted
during 1999 to the Company's executive officers named in the Summary
Compensation Table above.
- --------
* Adjusted to give effect to a three-for-two stock dividend effective January
22, 1996, and subject to further adjustment to reflect changes in the
capitalization of the Company.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Pre-Tax Value
at Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
------------------------------------------------ --------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees Price Expiration
Name Granted(#)(1) In Fiscal Year ($/Sh) Date 5%($)(2) 10%($)(2)
---- ------------- -------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Norman W. Gayle, III.... 52,500 11% $4.44 3/23/09 146,475 371,175
James E. Tait........... 52,500 11% $4.44 3/23/09 146,475 371,175
Donald W. Thornton...... 27,500 6% $4.44 3/23/09 76,725 194,425
75,000(3) 16% $4.50 11/18/09 211,500 537,750
Charles M. Angell....... --0-- N/A N/A N/A N/A N/A
William P. Cronin....... 50,000(3) 11% 4.50 11/18/09 141,000 358,500
</TABLE>
- --------
(1) All options granted during 1999 are non-qualified stock options which have
a ten year term, and all such options have an exercise price equal to the
closing price of the Company's common stock on the grant date. These
options were granted pursuant to the Incentive Plan, and, except as noted
below, became exercisable on September 30, 1999 upon the occurrence of a
"change of control" of the Company (defined as the acquisition by any
person of 20% or more of the combined voting power of the Company's
outstanding securities) in connection with sale to the Birmingham
Investment Group, LLC. of 2,950,000 shares of the Company's Series A
Convertible Preferred Stock, which are convertible into 5,900,000 shares
of the Company's common stock.
(2) The dollar amounts shown are based on certain assumed rates of
appreciation and the assumption that the options will not be exercised
until the end of the expiration periods applicable to the options. Actual
realizable values, if any, on stock option exercises and common stock
holdings are dependent on the future performance of the Company's common
stock and overall stock market conditions. There can be no assurance that
the amounts reflected will be achieved.
(3) 50% of these options vest on the fourth anniversary of the grant date of
November 18, 1999, and the remaining 50% vest on the fifth anniversary of
the grant date.
The following table presents certain information with respect to the value
of options held by the executive officers of the Company named in the Summary
Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of unexercised
Number of unexercised in-the-money options
options at year-end(#) at fiscal year-end ($)
Shares acquired Value ------------------------- -------------------------
Name on exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman W. Gayle, III.... --0-- --0-- 148,564 --0-- --0-- N/A
James E. Tait........... --0-- --0-- 97,500 --0-- --0-- N/A
Donald W. Thornton...... --0-- --0-- 174,457 75,000 --0-- --0--
Charles M. Angell....... --0-- --0-- 10,000 --0-- --0-- N/A
William P. Cronin....... --0-- --0-- --0-- 50,000 N/A --0--
</TABLE>
9
<PAGE>
Post Retirement Benefits Plan
The J. Gordon Gaines, Inc. Post Retirement Benefits Plan (the "Retirement
Plan") is an unfunded, deferred compensation plan for officers and other key
employees of J. Gordon Gaines, Inc., the Company's wholly owned management
subsidiary which employs all of the Company's employees. The Retirement Plan
is administered by the Executive Committee of J. Gordon Gaines, Inc., and the
Executive Committee is authorized to determine eligibility for participation
in the Retirement Plan. Under the Retirement Plan, upon normal retirement,
which is defined for purposes of the Retirement Plan as retirement for
participants who either are age 65 or older or who have completed not less
than 20 years of continuous service, a participant will be entitled to receive
an amount equal to twice the participant's current annual base salary. Upon
early retirement, which is defined for purposes of the Retirement Plan as
retirement between the ages of 60 and 65 who have completed not less than ten
years of service with the Company and its affiliates, a participant will be
entitled to receive the amount which has been accrued as a liability on the
Company's balance sheet as of the most recent fiscal year with respect to such
participant.
To qualify for benefits under the Retirement Plan, a participant must
continue as an employee until age 60 or have completed not less than 20 years
of continuous service. No benefits will be paid if employment is terminated
earlier, regardless of the reason, except if a participant's employment is
terminated by the Company for reasons other than "cause," or by the
participant for a "stated good reason," within two years after a "change of
control" of the Company (as those terms are defined in the Retirement Plan).
In that case, the participant will be entitled to receive the amount which has
been accrued as a liability on the Company's balance sheet as of the most
recent fiscal year with respect to such participant. In addition, if there is
a change of control during the period in which a participant would be eligible
for early retirement under the Retirement Plan, any benefits payable to such
participant under the Retirement Plan upon early retirement will become fully
vested.
Each year the Company records as a liability on its balance sheet an amount
(based on an established formula) which will be sufficient, together with
amounts recorded as a liability for previous years, to cover the payment of
the projected benefit amounts for each participant upon such participant's
normal retirement. As of December 31, 1999, the Company had recorded a total
of $1,097,795 as a liability on its balance sheet to cover projected benefits
under the Retirement Plan. Assuming Messrs. Gayle, Tait, Thornton, Angell and
Cronin retire from the Company after reaching normal retirement age and
assuming their 1999 salary levels remain the same, they will be entitled under
the Retirement Plan to receive $860,000, $1,050,000, $460,000, $410,000 and
$300,000, respectively, upon their retirement.
Payments to Directors
For 1999, directors who were not executive officers or employees of the
Company received an annual retainer fee of $28,000, payable in equal quarterly
installments. They did not receive fees for the execution of written consents
in lieu of board meetings and attending board or committee meetings. Directors
also receive an allowance for their travel and lodging expenses if they do not
live in the area where the meeting is held.
At the annual meeting of stockholders of the Company held on May 16, 1995,
the stockholders approved the Company's Non-Employee Director Stock Plan (the
"Director Plan"). Under the Director Plan, each eligible director may elect,
pursuant to an advance written election, to receive shares of the Company's
common stock ("Restricted Stock") in lieu of part or all of such director's
annual director fee. The number of shares of Restricted Stock which an
eligible director will be entitled to receive will be equal to the dollar
amount of director fees which such director has elected not to receive,
divided by seventy-five percent (75%) of the fair market value of the
Company's common stock on the date on which such fees would otherwise become
payable. Shares of Restricted Stock may not be sold, transferred, pledged or
assigned for a period of two years following the effective date of the
issuance thereof. Directors electing to receive Restricted Stock will be
entitled, with respect to such shares, to all rights of a stockholder,
including the right to vote and to receive dividends on the shares. However,
certificates for the shares of Restricted Stock shall be delivered only after
the period of forfeiture has expired. For 1999, all eligible directors elected
to receive Restricted Stock in lieu of all of their annual director fee.
10
<PAGE>
In addition, the Director Plan provides that, on the first trading day of
each calendar year, each non-employee director will be granted a nonqualified
stock option to purchase 3,000 shares (increased to 5,000 shares by Board
resolution effective January 1, 2000) of the Company's common stock at a
purchase price equal to the fair market value per share of the common stock on
such grant date. Each option granted under the 1995 Director Plan is
exercisable for a period of ten years beginning on the date of its grant. An
option may not be exercised during the first six months after grant, except in
the event of the death or disability of the director.
Currently, the Director Plan provides that the maximum number of shares of
the Company's common stock which may be made the subject of awards made
thereunder (in the aggregate) is 180,000,* of which 158,455 shares have been
made the subject of previous awards (20,154 of which were subsequently
forfeited upon the resignation of former directors) and 41,699 shares remain
available for future awards. In order to continue to attract and retain highly
qualified directors, the Board of Directors has proposed for stockholder
approval an amendment to the Company's Director Plan to (i) increase the
maximum number of shares that may be issued under the Director Plan by 600,000
shares, from 180,000 to 780,000 shares, and (ii) to permit the Compensation
Committee to increase the number of options which may be granted to Non-
Employee Directors, See "PROPOSAL TO APPROVE AMENDMENT TO DIRECTOR STOCK
PLAN."
Indebtedness of Directors, Nominees and Executive Officers
On September 13, 1993, the Company entered into separate restricted stock
agreements with each of the executive officers of the Company pursuant to
which it sold to such executive officers at total of 153,500 shares of Common
Stock. Pursuant to these restricted stock agreements, Mr. Thornton purchased
14,307 shares for a purchase price of $10.26 per share. On July 18, 1994, the
Company entered into a restricted stock agreement with Mr. Gayle pursuant to
which it sold to Mr. Gayle 60,000 shares of Common Stock (together with shares
sold to the other executive officers, the "Restricted Shares") for a purchase
price of $18.92 per share. Each of these executive officers has executed a
promissory note in favor of the Company representing the obligation to repay a
loan from the Company for the purchase price of each of their Restricted
Shares, and the Restricted Shares are being held by the Company as security
for the repayment of such promissory notes. The largest aggregate amount of
indebtedness under the loans to each of Messrs. Gayle and Thornton during 1999
was $664,464 and $69,560, respectively, and the outstanding balance under
these loans as of December 31, 1999 was $515,434 and $49,552, respectively.
The promissory notes have a term of nine years and bear interest at a rate of
5.22% per annum. The Restricted Shares may not be sold or otherwise disposed
of by the executive officers prior to the repayment in full of their
promissory note or the termination of their employment. All dividends payable
on the Restricted Shares have been assigned to the Company to be applied
toward the repayment of the promissory notes.
The Company intends to pay cash bonuses each year in amounts sufficient,
after the payment of taxes due with respect to such bonus, to reduce the
promissory notes by the amount of the purchase price for the Restricted Shares
which vests in that year, so long as the executive officer remains in the
employ of the Company. In 1999, the Company paid bonuses for this purpose to
Mr. Gayle of $217,022 and to Mr. Thornton of $42,220.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") during 1999 included Robert B. D.
Batlivala, Ehney A. Camp, III, Clifford F. Palmer, Jarvis W. Palmer (resigned)
and Larry D. Striplin, Jr. No present or former officer of the Company or its
subsidiaries serves as a member of the Compensation Committee. During 1999,
there were no interlocking relationships between any executive officers of the
Company and any entity whose directors or executive officers serve on the
Company's Board of Directors and/or Compensation Committee.
- --------
* Adjusted to give effect to a three-for-two stock dividend effective January
22, 1996, and subject to further adjustment to reflect changes in the
capitalization of the Company.
11
<PAGE>
Report of the Compensation Committee
The Compensation Committee is comprised of non-employee directors. The
primary function of the Compensation Committee is to make recommendations and
reports to the Board of Directors with respect to salaries, bonuses and other
compensation to be paid to the Company's officers with a base salary of more
than $150,000 annually and to administer all plans relating to the
compensation of such officers.
The Company's total compensation structure is comprised of annual base
salary, annual cash bonus payments under the Company's Cash Bonus Plan, and
long term equity based compensation granted pursuant to the Incentive Plan.
The Company's overall compensation program has been designed to attract and
retain key executives and to provide appropriate incentives to these
executives to maximize the Company's long term financial results for the
benefit of the stockholders. A significant portion of the executive
compensation package is comprised of equity based compensation in order to
align the interests of management with those of the stockholders. Individual
compensation levels are based not only upon the relative success of the
Company, but also upon the duties and responsibilities assumed by each
officer, the performance of their individual business units, their attainment
of individual and business unit goals, and their participation and
contribution to specific Company projects.
The salary levels for the Company's executive officers for 1999, including
the salary of Mr. Gayle as Chief Executive Officer, were based upon the salary
levels paid by other similarly situated property and casualty insurance and
reinsurance companies, as well as upon individual performance and
responsibility. The Compensation Committee believes that the base salary
levels paid to the Company's executive officers are comparable with the
average salary levels of similarly situated property and casualty insurers and
reinsurers.
The Company's Cash Bonus Plan is designed to provide short-term incentive
compensation to the Company's executive officers based upon pre-established
performance goals for both the Company and each executive officer. Bonuses
under the Cash Bonus Plan are paid out of a bonus fund, the amount of which is
based on a percentage of the Company's net income from operations. The actual
amount to be contributed to the bonus fund each year is based upon the
Company's profitability, which is measured by comparing the Company's GAAP
combined ratio (the generally accepted industry measure) for the year with a
benchmark ratio. The Compensation Committee determines the amounts of annual
bonus awards for each executive officer granted under the Cash Bonus Plan up
to 100% of the executive officer's annual salary. In 1999, the Compensation
Committee did not approve the payment of any cash bonuses to executive
officers of the Company under the Cash Bonus Plan.
The Incentive Plan provides for grants to the Company's executive officers
of restricted stock, stock options, stock appreciation rights, and deferred
stock awards. The payment of equity based compensation to the Company's
executive officers under the Incentive Plan is designed to focus their
attention on the enhancement of stockholder value. In 1999, the Company
granted options to purchase a total of 432,500 shares of the Company's common
stock under the Incentive Plan to 13 employees of the Company, including
grants to Messrs. Gayle, Tait, Thornton and Cronin of options to purchase
52,500, 52,500, 102,500 and 50,000, respectively. In 1999, the Company also
granted restricted stock awards of 75,000 to each of Mr. Gayle and Mr. Tait
under the Incentive Plan.
The awards granted to the Company's executive officers in 1999 represent the
Compensation Committee's continued emphasis on incentive based compensation
and are intended to provide further incentives to these individuals to sustain
the Company's growth and success and to further align their interests of the
Company's stockholders. The size of the awards to individual executive
officers was determined by the Compensation Committee and approved by the
Board of Directors based upon a subjective assessment of each executive
officer's performance and individual contribution to the Company, his position
and level of responsibility, and other factors.
The Compensation Committee is aware of the provisions of Section 162(m) of
the Internal Revenue Code and the related regulations of the Internal Revenue
Service ("Section 162(m)") which restrict deductibility of
12
<PAGE>
executive compensation paid to the CEO and the four highest paid executive
officers other than the CEO at the end of any fiscal year to the extent such
compensation exceeds $1,000,000 in any year and does not qualify as
performance based compensation as defined by Section 162(m). Should annual
compensation of any executive officer exceed $1,000,000, the Compensation
Committee will evaluate the advisability of structuring such compensation as
qualified performance based compensation within the meaning of Section 162(m).
In this respect, the Compensation Committee believes that any compensation
attributable to the grant of stock options pursuant to the Incentive Plan,
which must be granted with an exercise price at least equal to the fair market
value of the underlying stock on the date of the grant, will be excepted from
the limitations on deductibility imposed by Section 162(m).
Compensation Committee
Ehney A. Camp, III
Larry D. Striplin, Jr.
Robert B. D. Batlivala
Performance Graph
The following graph compares the cumulative total stockholder return
(including the reinvestment of dividends) on the common stock of the Company
with that of the Standard & Poor's 500 Stock Index and the Standard & Poor's
Property/Casualty Index. The comparison for the period assumes that $100 was
invested in each index on December 31, 1994.
[Performance Graph Appears Here]
12/94 12/95 12/96 12/97 12/98 12/99
------- ------- ------- ------- ------- -------
Vesta $100.00 $192.00 $167.00 $317.00 $ 32.00 $ 21.00
S&P 500 $100.00 $138.00 $169.00 $226.00 $290.00 $351.00
S&P Ins. $100.00 $135.00 $165.00 $239.00 $223.00 $166.00
13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jarvis W. Palmer, a former director of the Company who resigned effective
December 15, 1999, was, until September of 1999, a fifty-one percent (51%)
owner of the Caribou Insurance Agency, Inc. ("Caribou"), an independent
insurance agency which represents, among others, one or more of the Company's
insurance subsidiaries. Of the gross premiums written by the Company's
insurance subsidiaries in 1997, 1998 and 1999, $500,811, $623,621 and
$305,700, respectively, were attributable to insurance contracts sold by
Caribou, for which the Company paid commissions to Caribou of $96,104,
$118,796 and $58,620, respectively.
Prior to October 1, 1999, the Company leased its offices at 3760 River Run
Drive in Birmingham, Alabama from Torchmark Development Corporation, a wholly
owned subsidiary of Torchmark, pursuant to an Office Lease. During 1999, the
Company paid $1,096,416 in rent to Torchmark under this Office Lease,
$1,155,000 in 1998 and $717,875 in 1997.
On September 13, 1993, the Company entered into an Investment Services
Agreement with Waddell & Reed Asset Management Company, an affiliate of
Torchmark, pursuant to which Waddell & Reed provides investment advice and
services to the Company and its subsidiaries in connection with the management
of their respective portfolios. Waddell & Reed receives an annual fee based on
the amount of the Company's average assets under management, as determined by
the following formula: 1/4 of 1% on the first $25 million of the Company's
average assets under management, 1/5 of 1% of the next $25 million, 3/20 of 1%
of the next $150 million, 1/10 of 1% of the next $200 million and 1/20 of 1%
in excess of $400 million. The Company paid $.6 million, $.6 million and $.4
million in fees to Waddell & Reed pursuant to the Investment Services
Agreement in 1999, 1998 and 1997, respectively. In 1999, the Company canceled
the Investment Services Agreement with Waddell & Reed.
On September 13, 1993, Vesta Fire Insurance Corporation, a wholly owned
subsidiary of the Company ("Vesta Fire"), and Liberty National Life Insurance
Company ("Liberty National"), a wholly owned subsidiary of Torchmark, entered
into a Marketing and Administrative Services Agreement, pursuant to which
Vesta Fire markets certain of its industrial fire insurance products through
agents of Liberty National. Under this agreement, Liberty National pays to
Vesta Fire an amount equal to all premiums collected by Liberty National after
deducting all expenses incurred by Liberty National which are directly
attributable to the industrial fire insurance products and after deducting a
fee for administrative services. Such fee for 1999, 1998 and 1997 was
$1 thousand, $.9 million and $1.4 million, respectively. Sales under this
agreement were terminated effective April 30, 1995, and these products are no
longer marketed through Liberty National agents.
James A. Taylor, Sr., a Preferred Stock Director, is the Chairman and Chief
Executive Officer of the Banc Corporation and the Chairman of The Bank. Larry
D. Striplin, Jr., also a Preferred Stock Director, is Vice Chairman of the
board of directors of the Banc Corporation. Effective September 30, 1999, the
Company established secured revolving credit facilities with The Banc
Corporation and its wholly owned subsidiary, The Bank, in the aggregate amount
of $20 million. Loans under these facilities bore interest rates varying from
The Banks's Prime Rate to 2% over the interest rate earned on a certificate of
deposit provided by Vesta as collateral. On December 30, 1999, the Company
repaid $15 million of the principal amount outstanding under the credit
facilities established on September 30, 1999. In connection with the repayment
of this debt, the Company restructured our commercial credit facility to
consist of the following lines of credit, each of which is provided by The
Bank:
. a $5 million unsecured line, all of which was outstanding as of December
31, 1999;
. a $10 million secured line of credit, none of which was outstanding as
of December 31, 1999.
Loans under each of these newly established credit facilities bore interest at
The Bank's Prime Rate and were to mature on December 29, 2001. As of December
31, 1999, the Company had borrowed all $5 million available under the
unsecured line, and the Company had not borrowed any amounts under the $10
million secured line. Subsequent to December 31, 1999, the Company repaid the
$5 million outstanding on the unsecured line of
14
<PAGE>
credit, and the Company canceled the credit agreements related to both lines
of credit effective February 29, 2000 in conjunction with establishment of a
new revolving credit facility with First Commercial Bank, Birmingham, Alabama.
During 1999, James A. Taylor, Jr., the son of James A. Taylor, Sr., a
Preferred Stock Director, was employed as Senior Vice President of J. Gordon
Gaines, Inc., a subsidiary of the Company, at an annual base salary of
$140,000. During 1999, Mr. Taylor, Jr. received options under the Company's
Long Term Incentive Plan to acquire 50,000 shares of the Company's common
stock and received a restricted stock award of 25,000 shares of the Company's
common stock.
During 1998, the Company engaged Tait Advisory Services, L.L.C., an
affiliate of James E. Tait, to perform advisory services to the Company on
financial and accounting matters, for which the Company paid approximately
$60,500. This engagement terminated upon the appointment of Mr. Tait as
Executive Vice President and Chief Financial Officer of the Company in July of
1998. In 1999, the Company acquired Tait Advisory Services, L.L.C., for
$1,250,000.
During 1999, 1998 and 1997, the law firm of Balch & Bingham LLP, of which
Walter M. Beale, Jr., a director of the Company, is a partner, rendered
various legal services to the Company and certain of its subsidiaries.
PROPOSAL NUMBER 2
APPROVAL OF AN AMENDMENT TO THE DIRECTOR STOCK PLAN
On March 23, 2000, the Company's Board of Directors adopted, subject to
stockholder approval, an amendment to the Company's Director Plan to:
(i) increase the maximum number of shares that may be issued under the
Director Plan by 600,000 shares, from 180,000 to 780,000 shares; and
(ii) reserve to the Compensation Committee the discretion to increase or
decrease the number of shares of Common Stock subject to Initial
Options or Annual Options (as those terms are defined below) granted
under the Director Plan, subject to certain limitations.
The following summary of the Director Plan, as amended subject to
stockholder approval (the "Amended Director Plan"), is qualified in its
entirety by the specific language of the Amended Director Plan, a copy of
which will be available to any stockholder upon written request.
Summary of the Amended Director Plan
Participation in the Amended Director Plan is limited to Company directors
who are not employees of the Company or any of its subsidiaries. There are
currently six eligible directors. An aggregate of 780,000 shares of Company
common stock is reserved for issuance under the Amended Director Plan. Such
number of shares may be appropriately adjusted in the event of certain changes
in the Company's capitalization, such as stock dividends, stock splits or
recapitalizations. Shares of common stock issuable under the Amended Director
Plan may be authorized and unissued shares, shares held in treasury, or any
combination thereof.
Options
Under the Amended Director Plan, on the first trading day of each calendar
year, each non-employee director will be granted a nonqualified stock option
to purchase 5,000 shares of the Company's common stock at a purchase price
equal to the fair market value per share of the common stock on such grant
date ("Annual Option").
15
<PAGE>
Also under the Amended Director Plan, the Committee may grant a non-
qualified stock option to purchase 5,000 shares of the Company's common stock
to a new eligible director upon his or her election or appointment to the
Board of Directors (an "Initial Option").
The Committee may, in its sole discretion, increase or decrease the number
of shares of the Company's common stock subject to an Initial Option or an
Annual Option. In order to ensure the Committee's ability to attract highly
qualified persons to serve as directors, the Committee may increase the number
of shares of the Company's Common Stock which may be subject to an Initial
Option without limitation. In order to safeguard against potentially self-
interested transactions, however, the Committee may not increase the number of
shares of the Company's common stock which may be subject to Annual Options
above 10,000 shares.
Each option granted under the Director Plan is exercisable for a period of
ten years beginning on the date of its grant. An option may not be exercised
during the first six months after grant, except in the event of the death or
disability of the director.
The option exercise price is payable (i) in cash or check; (ii) in shares of
common stock of the Company based on the fair market value of the Company's
common stock on the date the option is exercised; or (iii) by such other
instrument as may be acceptable to the Compensation Committee.
Restricted Stock
Under the Amended Director Plan, each eligible director may elect, pursuant
to an advance written election, to receive shares of the Company's common
stock ("Restricted Stock") in lieu of part or all of such director's annual
retainer or meeting attendance fees. The number of shares of Restricted Stock
which an eligible director will be entitled to receive will be equal to the
dollar amount of retainer and attendance fees which such director has elected
not to receive, divided by seventy-five percent (75%) of the fair market value
of the Company's common stock on the date on which such fees would otherwise
become payable.
Shares of Restricted Stock may not be sold, transferred, pledged or assigned
for a period of two years following the effective date of the issuance
thereof. Directors electing to receive Restricted Stock will be entitled, with
respect to such shares, to all rights of a stockholder, including the right to
vote and to receive dividends on the shares. However, certificates for the
shares of Restricted Stock shall be delivered only after the period of
forfeiture has expired.
New Plan Benefits
The issuance of Restricted Stock to eligible directors is based solely on
the voluntary election by such directors, and the number of shares of
Restricted Stock which may be awarded to eligible directors making such
elections will vary depending on the number of meetings such electing
directors attend. Accordingly, the benefits payable under the Amended Director
Plan with respect to Restricted Stock are not currently determinable.
The number of shares of the Company's common stock which may be subject to
Initial Options or Annual Options under the Amended Director Plan may vary, in
the Committee's discretion, subject to certain limitations. The table below
sets forth, to the extent determinable, the options that will be received by
the Non-Employee Directors, as a group, in the year following approval of the
Amended Director Plan.
16
<PAGE>
NEW PLAN BENEFITS
VESTA INSURANCE GROUP, INC. NON-EMPLOYEE DIRECTOR STOCK PLAN
<TABLE>
<CAPTION>
Number of Shares
Name and Position Dollar Value Underlying Options
- ----------------- ------------------- ------------------
<S> <C> <C>
Non-Employee Director Group (six
persons)............................... Not Determinable(1) 30,000(2)
</TABLE>
- --------
(1) The dollar value of options granted under the Amended Director Plan will
depend on the spread between the exercise price of the options and the
value of the Common Stock on the date of exercise of the options.
(2) Includes (i) the aggregate Annual Options awarded to five (5) eligible
Non-Employee Directors under the Amended Director Plan on January 3, 2000
and (ii) the Initial Options granted to one (1) new director on January
31, 2000. Number may vary from year to year depending upon the number of
new directors who may receive Initial Options and the Committee's
determination of whether to increase or decrease the number of shares of
common stock made subject to Initial Options or Annual Options.
Change of Control
Upon the occurrence of a Change of Control or a Potential Change of Control
(as defined in the Amended Director Plan), the following shall occur: (i) all
unexercised stock options shall become fully vested immediately exercisable,
and (ii) all restrictions on the restricted stock shall lapse. In addition, to
the extent determined by the Compensation Committee, after an actual or
potential Change in Control, a participant shall receive in cash from the
Company with respect to previous awards under the Amended Director Plan the
following amount for such awards: (i) the excess of the Change in Control
Price (as defined below) over the exercise price of the award, multiplied by
(ii) the number of shares of the common stock subject to the award. The
"Change in 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.
Certain Federal Income Tax Consequence
The following statements are based on current interpretations of existing
federal income tax law. The law is technical and complex and the statements
represent only a general summary of some of the applicable provisions.
Options
While there are no federal income tax consequences to either the director or
the Company on the grant of an option, the director will have taxable ordinary
income on the exercise of a nonqualified option equal to the excess of the
fair market value of the shares on the exercise date over the option price.
The Company is entitled to a corresponding deduction.
Restricted Stock
Unless a director elects to be taxed at the time of grant, the director will
not realize taxable income, and the Company will not be entitled to a
deduction, until termination of the restrictions. Upon termination of the
restrictions, the director will realize taxable ordinary income in an amount
equal to the fair market value of the Company's common stock at that time, and
the Company will be entitled to a deduction in the same amount. If a director
elects to be taxed at the time of grant, the director will realize taxable
ordinary income in an amount equal to the fair market value of the Restricted
Stock at that time, the Company will be entitled to a deduction in the same
amount, and any gain or loss realized by the director upon disposition of the
common stock will be capital gain or loss.
Board of Director Recommendation
The Board unanimously recommends that the stockholders vote FOR the proposal
to approve the Amendment to the Director Plan.
17
<PAGE>
PROPOSAL NUMBER 3
APPROVAL OF AUDITORS
A proposal to approve the appointment of the firm of PricewaterhouseCoopers
LLP as the principal independent accountants of the Company to audit the
financial statements of the Company and its subsidiaries for the year ending
December 31, 2000, will be presented to the stockholders at the annual
meeting. The audit committee of the Board recommends the appointment of
PricewaterhouseCoopers LLP. A representative of PricewaterhouseCoopers LLP is
expected to be present at the meeting to answer appropriate questions. They
will have the opportunity to make a statement if they desire, although they
have informed us they do not plan to make a statement.
If the stockholders do not approve the appointment of PricewaterhouseCoopers
LLP, the selection of independent auditors will be reconsidered by the Board
of Directors.
The Board recommends that stockholders vote FOR the proposal.
OTHER BUSINESS
As of March 8, 2000, the Corporation had not received notice of any matters
to be presented at the annual meeting, other than as described in this Proxy
Statement. However, if any other proper matters are brought before the
meeting, the persons named in the enclosed proxy, or in the event no person is
named, Norman W. Gayle, III and Donald W. Thornton, will vote in accordance
with their best judgment on such matters.
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 2001, the proposal must be received by the Company at its home
office, 3760 River Run Drive, Birmingham, Alabama 35243, on or before December
13, 2000.
A stockholder of the Corporation may wish to have a proposal presented at
the annual meeting of shareholders to be held in 2001, but not to have such
proposal included in the Corporation's proxy statement and form of proxy
relating to that meeting. If notice of any such proposal is not received by
the Corporation at the address appearing on the first page of this proxy
statement by February 25, 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.
General
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 provided to its stockholders a copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission, and the Company's financial statements and
schedules thereto. Upon request and payment of the cost of reproduction, the
exhibits to the Form 10-K will be furnished. Such written request should be
directed to the Company at its address stated herein.
18
<PAGE>
VESTA INSURANCE GROUP, INC.
This Proxy is Solicited on behalf of the Board of Directors
for the Annual Meeting of Stockholders
to be held on May 8, 2000
P The undersigned hereby constitutes and appoints Norman W. Gayle III and
R Donald W. Thornton, or either of them with full power of substitution in
O each, proxies to vote all shares of Common Stock of Vesta Insurance Group,
X Inc. (the "Company") which the undersigned may be entitled to vote at the
Y Annual Meeting of Stockholders to be held at The Harbert Center, 2019
Fourth Avenue North, Birmingham, Alabama 35203, on Monday, May 8, 2000, and
at all adjournments or postponements thereof as follows:
Election of Directors, Nominees:
For Class I, to serve until the 2002 Annual Meeting
Walter M. Beale, Jr. and Stephen R. Windom
For approval of an amendment to the Company's Non-Employee
Director Stock Plan.
Ratification of the appointment of the firm of PricewaterhouseCoopers
LLP as the principal independent accountants of the Company.
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 boxes (SEE
REVERSE SIDE), but you need not mark any boxes 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 |
-------------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your
[X] votes as in this
example.
IF NO PREFERENCE IS INDICATED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES AND
"FOR" PROPOSALS #2 AND #3.
In accordance with their best judgment the proxies are authorized to vote upon
such other matters as may properly come before the meeting.
FOR WITHHELD
1. Election or
Directors [_] [_]
(See Reverse)
For, except vote withheld from the following nominee(s).
- -------------------------------------
FOR AGAINST ABSTAIN
2. Approval of an amendment to the Company's
Non-Employee Director Stock Plan. [_] [_] [_]
3. Ratification of the appointment of the
firm of PricewaterhouseCoopers LLP as the [_] [_] [_]
principal independent accountants of the
Company.
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.
-------------------------------------------
-------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
