sec document
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant /_/
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/_/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Under Rule 14a-12
VESTA INSURANCE GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
NEWCASTLE PARTNERS, L.P.
NEWCASTLE CAPITAL MANAGEMENT, L.P.
NEWCASTLE CAPITAL GROUP, L.L.C.
MARK E. SCHWARZ
JAMES C. EPSTEIN
MARK J. MORRISON
STEVEN J. PULLY
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(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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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:
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/_/ 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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PRELIMINARY COPY SUBJECT TO COMPLETION
DATED OCTOBER 3, 2005
NEWCASTLE PARTNERS, L.P.
OCTOBER __, 2005
Fellow Stockholders:
Newcastle Partners, L.P. ("Newcastle Partners") is the beneficial
owner of an aggregate of 3,050,700 shares of Common Stock of Vesta Insurance
Group, Inc. ("Vesta" or the "Company"), representing approximately 8.5% of the
outstanding Common Stock of the Company. Newcastle Partners does not believe the
current Board of Directors is acting in your best interests, and is therefore
seeking your support for the election of its nominees to the Board of Directors
of the Company at the annual meeting of stockholders scheduled to be held at
___________________, Birmingham, Alabama on Thursday, November 17, 2005, at
______ __.M.
Newcastle Partners urges you to carefully consider the information
contained in the attached Proxy Statement and then support its efforts by
signing, dating and returning the enclosed GOLD proxy card today. The attached
Proxy Statement and the enclosed GOLD proxy card are first being furnished to
the stockholders on or about October __, 2005.
If you have already voted for the incumbent management slate you
have every right to change your vote by signing, dating and returning a later
dated proxy card.
If you have any questions or require any assistance with your vote
please contact MacKenzie Partners, Inc., which is assisting us, at their address
and toll-free numbers listed on the following page.
Thank you for your support,
Mark E. Schwarz
Newcastle Partners, L.P.
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IF YOU HAVE ANY QUESTIONS, REQUIRE ASSISTANCE IN VOTING YOUR GOLD PROXY CARD,
OR NEED ADDITIONAL COPIES OF NEWCASTLE PARTNERS' PROXY MATERIALS, PLEASE CALL
MACKENZIE PARTNERS AT THE PHONE NUMBERS LISTED BELOW.
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, NY 10016
proxy@mackenziepartners.com
---------------------------
(212) 929-5500 (Call Collect)
or
TOLL-FREE (800) 322-2885
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ANNUAL MEETING OF STOCKHOLDERS
OF
VESTA INSURANCE GROUP, INC.
-------------------------
PROXY STATEMENT
OF
NEWCASTLE PARTNERS, L.P.
-------------------------
PLEASE SIGN, DATE AND MAIL THE ENCLOSED GOLD PROXY CARD TODAY
Newcastle Partners, L.P., a Texas limited partnership ("Newcastle
Partners" or "we"), is one of the largest stockholders of Vesta Insurance Group,
Inc., a Delaware corporation ("Vesta" or the "Company"). Newcastle Partners is
writing to you in connection with the election of three nominees to the Board of
Directors of Vesta (the "Vesta Board") at the annual meeting of stockholders
scheduled to be held at ___________________, Birmingham, Alabama on Thursday,
November 17, 2005, at ______ __.M., including any adjournments or postponements
thereof and any meeting which may be called in lieu thereof (the "Annual
Meeting"). Newcastle Partners has nominated three Class III directors for
election at the Annual Meeting in opposition to three incumbent directors whose
terms expire at the Annual Meeting.
This proxy statement (the "Proxy Statement") and the enclosed GOLD
proxy card are being furnished to stockholders of Vesta by Newcastle Partners in
connection with the solicitation of proxies from Vesta's stockholders to be used
at the Annual Meeting (i) to elect Newcastle Partners' nominees, James C.
Epstein, Mark J. Morrison and Steven J. Pully (the "Nominees"), to the Vesta
Board and (ii) to adopt a resolution recommending to the Vesta Board that Vesta
reimburse Newcastle Partners for all expenses it incurs in connection with this
proxy solicitation. Please note that the proposal with respect to reimbursement
of Newcastle Partners for its expenses in connection with this proxy
solicitation is not binding on the Vesta Board. Newcastle Partners, Newcastle
Capital Management, L.P. ("Newcastle Management"), Newcastle Capital Group,
L.L.C. ("Newcastle Group"), Mark E. Schwarz, James C. Epstein, Mark J. Morrison
and Steven J. Pully are members of a group (the "Group") formed in connection
with this proxy solicitation and are deemed participants in this proxy
solicitation. See "Other Participant Information." This Proxy Statement and the
GOLD proxy card are first being furnished to Vesta's stockholders on or about
_______, 2005.
Vesta has set the record date for determining stockholders entitled
to notice of and to vote at the Annual Meeting as September 30, 2005 (the
"Record Date"). The principal executive offices of Vesta are located at 3760
River Run Drive, Birmingham, Alabama 35243. Stockholders of record at the close
of business on the Record Date will be entitled to vote at the Annual Meeting.
According to Vesta, as of the Record Date, there were _______ shares of common
stock, $.01 par value per share (the "Shares"), outstanding and entitled to vote
at the Annual Meeting. Newcastle Partners, along with all of the participants in
this solicitation, are the beneficial owners of an aggregate of 3,050,700
Shares, which represents approximately 8.5% of the Shares outstanding (based on
information publicly disclosed by Vesta). The participants in this solicitation
intend to vote such Shares for the election of the Nominees.
THIS SOLICITATION IS BEING MADE BY NEWCASTLE PARTNERS AND NOT ON BEHALF OF THE
BOARD OF DIRECTORS OR MANAGEMENT OF VESTA. NEWCASTLE PARTNERS IS NOT AWARE OF
ANY OTHER MATTERS TO BE BROUGHT BEFORE THE ANNUAL MEETING. SHOULD OTHER MATTERS,
WHICH NEWCASTLE PARTNERS IS NOT AWARE OF A REASONABLE TIME BEFORE THIS
SOLICITATION, BE BROUGHT BEFORE THE ANNUAL MEETING, THE PERSONS NAMED AS PROXIES
IN THE ENCLOSED GOLD PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION.
NEWCASTLE PARTNERS URGES YOU TO SIGN, DATE AND RETURN THE GOLD PROXY CARD IN
FAVOR OF THE ELECTION OF ITS NOMINEES AND FOR THE ADOPTION OF THE RESOLUTION
RECOMMENDING TO THE VESTA BOARD THAT VESTA REIMBURSE NEWCASTLE PARTNERS FOR ALL
PROXY SOLICITATION EXPENSES, BOTH AS MORE FULLY DESCRIBED IN THIS PROXY
STATEMENT.
IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY VESTA MANAGEMENT TO THE VESTA
BOARD, YOU MAY REVOKE THAT PROXY AND VOTE FOR THE ELECTION OF NEWCASTLE
PARTNERS' NOMINEES BY SIGNING, DATING AND RETURNING THE ENCLOSED GOLD PROXY
CARD. THE LATEST DATED PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE ANNUAL MEETING BY DELIVERING A WRITTEN NOTICE
OF REVOCATION OR A LATER DATED PROXY FOR THE ANNUAL MEETING TO NEWCASTLE
PARTNERS, C/O MACKENZIE PARTNERS, INC. WHICH IS ASSISTING IN THIS SOLICITATION,
OR TO THE SECRETARY OF VESTA, OR BY VOTING IN PERSON AT THE ANNUAL MEETING.
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IMPORTANT
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU
OWN. NEWCASTLE PARTNERS URGES YOU TO SIGN, DATE, AND RETURN THE ENCLOSED GOLD
PROXY CARD TODAY TO VOTE FOR THE ELECTION OF NEWCASTLE PARTNERS' NOMINEES AND
FOR THE APPROVAL OF THE RESOLUTION RECOMMENDING TO THE VESTA BOARD THAT VESTA
REIMBURSE NEWCASTLE PARTNERS FOR ALL EXPENSES IT INCURS IN CONNECTION WITH THIS
PROXY SOLICITATION.
The Nominees are committed, subject to their fiduciary duties, to
giving all of Vesta's stockholders the opportunity to achieve the maximum value
for their Shares. A vote FOR the Nominees will enable you - as the owners of
Vesta - to send a message to the Vesta Board that you are committed to
maximizing the value of your Shares.
o If your Shares are registered in your own name, please sign and date
the enclosed GOLD proxy card and return it to Newcastle Partners,
c/o MacKenzie Partners, Inc., in the enclosed envelope today.
o If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution on the Record Date, only it
can vote such Shares and only upon receipt of your specific
instructions. Accordingly, please contact the person responsible for
your account and instruct that person to execute on your behalf the
GOLD proxy card. Newcastle Partners urges you to confirm your
instructions in writing to the person responsible for your account
and to provide a copy of such instructions to Newcastle Partners,
c/o MacKenzie Partners, Inc., who is assisting in this solicitation,
at the address and telephone numbers set forth below, and on the
back cover of this Proxy Statement, so that we may be aware of all
instructions and can attempt to ensure that such instructions are
followed.
If you have any questions regarding your proxy,
or need assistance in voting your Shares, please call:
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
proxy@mackenziepartners.com
---------------------------
or
CALL TOLL FREE (800) 322-2885
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Vesta Board is currently composed of eight directors divided
into three classes serving staggered three-year terms. It is Newcastle Partners'
understanding that the terms of three Class III directors of the Vesta Board -
Tambra L. G. Bailie, Norman W. Gayle, III and Michael J. Gough - expire at the
Annual Meeting. Newcastle Partners expects that the Vesta Board will nominate
these incumbent directors for re-election at the Annual Meeting. Newcastle
Partners is seeking your support at the Annual Meeting to elect its Nominees in
opposition to Vesta's director nominees.
REASONS WHY NEWCASTLE PARTNERS IS CHALLENGING THE INCUMBENT DIRECTORS.
Newcastle Partners believes the election of the Nominees represents
the best means for Vesta's stockholders to maximize the value of their Shares.
Newcastle Partners, one of the largest stockholders of Vesta, has a vested
interest in the maximization of the value of the Shares. Additionally, Newcastle
Partners' Nominees have extensive experience in private and public investment,
corporate governance and business management. Specifically, James Epstein and
Mark Morrison are seasoned insurance industry executives as further discussed in
their biographical extracts below. If elected to the Vesta Board, the Nominees
will use their best efforts to cause the Company to adopt and implement a
business plan with the goal of achieving consistent profitability. The Nominees
will also seek to implement corporate governance reform while exploring all
available alternatives to maximize stockholder value. There can be no assurance
that the election of our nominees will maximize or otherwise enhance stockholder
value or improve corporate governance. If elected, the Nominees will represent a
minority of the members of the Vesta Board.
WE BELIEVE VESTA HAS BEEN SLOW TO IMPLEMENT FUNDAMENTAL CORPORATE GOVERNANCE
PRACTICES.
We believe that proper corporate governance procedures and practices
and the level of management accountability that the Vesta Board imposes are
highly relevant to Vesta's Share price and financial performance. In view of
sweeping legislation enacted by Congress including the Sarbanes-Oxley Act of
2002 and the rules being adopted by the major stock exchanges which are
promoting greater accountability to stockholders, we believe the state of
Vesta's corporate governance is inadequate. The Company has been slow to
implement the most basic corporate governance practices, as set forth below.
VESTA HAS NOT HELD AN ANNUAL MEETING OF STOCKHOLDERS IN OVER 13 MONTHS.
As of July 7, 2005, Vesta had not held an annual meeting of
stockholders in over 13 months. Accordingly, on such date, Newcastle Partners
filed a complaint with the Delaware Court of Chancery to enforce its right as a
stockholder of Vesta, pursuant to Section 211 of the Delaware General
Corporation Law ("DGCL"), to compel Vesta to hold an annual meeting of
stockholders for the purpose of electing directors. Since each of the directors
of Vesta serves a staggered three year term, Norman Gayle, one of the incumbent
directors up for election at the Annual Meeting, was last elected by the
stockholders to serve on the Vesta Board over 37 months ago. Remarkably, Tambra
Bailie and Michael Gough, the other two incumbent directors up for election at
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the Annual Meeting, have served on the Vesta Board for over 29 and 31 months,
respectively, without ever being elected by the stockholders. Rather, Messrs.
Bailie and Gough were appointed by the Vesta Board. We believe the stockholders,
the true owners of the Company, should have the opportunity to exercise their
right to democratically install all directors on an annual basis. For this
reason, we also believe the Vesta Board should be destaggered.
VESTA'S STAGGERED, THREE-TIERED BOARD LIMITS ACCOUNTABILITY TO STOCKHOLDERS.
Vesta's Bylaws provide that the Vesta Board shall be divided into
three classes as nearly equal in number as possible, and designated as Class I,
Class II and Class III. We believe Vesta's classified board structure is not in
the best interests of the stockholders because it reduces the accountability of
the Vesta Board and, in our view, only serves to entrench current management. We
believe that all stockholders should have the opportunity to vote to elect all
directors annually, not just once every three years. We believe that such annual
accountability would enable stockholders to have their views reflected currently
and on a broader basis and create an environment that encourages directors to
consider new and innovative ways to positively impact stockholder value. A
classified board of directors on the other hand has the effect of making it more
difficult for stockholders to change a majority of directors even where a
majority of stockholders are dissatisfied with the performance of incumbent
directors.
If elected, the Nominees will, subject to their fiduciary duties,
petition the Vesta Board to take the necessary steps to destagger the Vesta
Board so that all directors are elected on an annual basis as soon as possible.
VESTA HAS NOT RESOLVED AN ACCOUNTING ERROR OR FILED QUARTERLY AND ANNUAL REPORTS
WITH THE SEC IN THE PAST 9 MONTHS.
The last Form 10-Q filed by Vesta was for the quarter ended June 30,
2004. Since then, the Company has failed to comply with SEC reporting
requirements since the Company has not filed its Form 10-Q for the quarter ended
September 30, 2004 (the " 2004 Q3 Form 10-Q"), the Form 10-K for the year ended
December 31, 2004 (the "2004 Form 10-K"), the Form 10-Q for the quarter ended
March 31, 2005 (the "2005 Q1 Form 10-Q") and the Form 10-Q for the quarter ended
June 30, 2005 (the "2005 Q2 Form 10-Q"). Even more alarming is the fact that
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Vesta has failed to resolve an accounting error that was first announced by the
Company in November 2004. The following is a chronology of public statements
made by Vesta regarding the accounting error and filing delinquencies since
November 2004:
November 8, 2004 Vesta issued a press release announcing that
the filing of the 2004 Q3 Form 10-Q would be
delayed until November 16, 2004 in order for
the Company to estimate the potential impact
of an unfavorable jury verdict.
November 15, 2004 Vesta issued a press release announcing that
the filing of the 2004 Q3 Form 10-Q would be
delayed due to a $1.8 million error in the
balance sheet that occurred prior to 2003
and Vesta would "immediately begin the
process to pinpoint the period and the
nature of the error."
November 24, 2004 Vesta filed a Form 8-K reporting that
documentation and testing to date identified
internal control weaknesses in the
documentation, design and effectiveness of
internal controls over financial reporting
and that the Company also identified a
material weakness in the effectiveness in
internal controls over financial reporting
as it related to the Company's consolidation
process.
March 11, 2005 Vesta issued a press release announcing that
the filing of the 2004 Q3 Form 10-Q would be
further delayed. Vesta also announced that
the filing of the 2004 Form 10-K would be
delayed since the Company had not finalized
the resolution of the error it disclosed in
November 2004 and had not completed the
assessment of the effectiveness of its
internal controls. Vesta disclosed that it
anticipated that the Form 10-K would be
filed on or before April 1, 2005.
March 31, 2005 Vesta issued a press release announcing that
the filing of the 2004 Form 10-K would be
delayed beyond April 1, 2005 in order to
provide additional time to finalize the
assessment of the effectiveness of its
internal controls and to conclude the
resolution of the error disclosed in
November 2004. Vesta disclosed that it now
anticipated that the 2004 Form 10-K would be
filed on or before April 30, 2005.
April 20, 2005 Vesta filed a Form 8-K announcing that
Vesta's compensation committee approved the
payment of bonuses to its 5 highest paid
executives, including Norman Gayle,
consisting of an aggregate of over $500,000
in cash and 325,000 options.
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May 11, 2005 Vesta filed a notification with the SEC that
the Company is diligently working to prepare
the 2004 Q3 Form 10-Q and 2004 Form 10-K and
as long as such filings were delinquent, it
would also be unable to timely file the 2005
Q1 Form 10-Q.
June 3, 2005 Vesta issued a press release announcing a
revised estimate of the accounting error.
Vesta stated that in the process of
pinpointing the period and nature of the
previously disclosed error, the Company
discovered additional errors and now
believed the cumulative total impact of
correcting all errors discovered to date
will reduce GAAP stockholders' equity by a
total of $11.6 million instead of the
previously reported $1.8 million, but that
these estimates were subject to change. The
Company also stated that the Company has
identified material weaknesses in ceded
reinsurance and financial management and may
identify additional material weaknesses as
the internal control assessments are
completed.
August 10, 2005 Vesta filed a notification with the SEC that
the Company is diligently working to prepare
the 2004 Q3 Form 10-Q, 2004 Form 10-K and
the 2005 Q1 Form 10-Q and as long as such
filings were delinquent, it would also be
unable to timely file the 2005 Q2 Form 10-Q.
We are extremely disappointed that Vesta has not filed quarterly or
annual reports or resolved the accounting error for nine (9) months prior to
September 30, 2005, despite public announcements that these issues would be
resolved sooner. We are extremely concerned that the Company keeps changing its
position on the timing of its ability to file its delinquent SEC reports and
that the scope of the accounting error has substantially increased from what was
initially identified by the Company. We are worried that final resolution of the
error, rectifying material weaknesses in the effectiveness of internal controls
over financial reporting and filing of the quarterly and annual reports are not
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high enough priorities of the Company, especially after, to our surprise, the
Vesta Board found the time to award bonuses to its executives in May 2005. We
are also concerned that the NYSE could seek to delist the Shares if Vesta does
not file its delinquent reports.
VESTA'S POISON PILL ENTRENCHES THE VESTA BOARD AND MANAGEMENT.
In June 2000, the Vesta Board adopted, without stockholder approval,
a rights agreement or "poison pill" purportedly to encourage persons who may
seek to acquire control of the Company to initiate such an acquisition through
negotiations with the Board of Directors. We believe the poison pill has the
effect of entrenching the Vesta Board and management. In our opinion, this lack
of management accountability to stockholders adversely affects stockholder
value. If the Nominees are elected, they will use their best efforts to cause
the Vesta Board to terminate Vesta's poison pill by redeeming all of the
outstanding rights. Historically, proponents of poison pills have asserted that
they enable a board of directors to respond in an orderly fashion to unsolicited
takeover bids by providing sufficient time to carefully evaluate the fairness of
such a bid. We oppose Vesta's poison pill because we believe that it places such
an effective obstacle to a takeover bid that it serves to entrench the Vesta
Board and management. We believe that Vesta's poison pill forces a would-be
acquirer to negotiate its bid for Vesta with management, instead of making its
offer directly to the stockholders of Vesta. In our opinion, the power of the
Vesta Board and management to block any bid that does not leave them in control
adversely affects stockholder value. We further believe that the effect of their
poison pill is to insulate management from the most fundamental accountability
to stockholders by providing management and the Vesta Board with a veto over
takeover bids, even when stockholders might favorably view such bids.
If elected, the Nominees will, subject to their fiduciary duties,
press the Vesta Board to repeal the poison pill.
VESTA'S CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN NUMEROUS ANTI-TAKEOVER
PROVISIONS.
Vesta's Certificate of Incorporation ("Charter") and Bylaws contain
numerous anti-takeover provisions that we believe infringe on the stockholders'
rights to determine what is best for the Company and serve to entrench current
management. These anti-takeover provisions include, but are not limited to, the
following:
o Charter and Bylaw provisions allowing stockholders to remove
directors, but only for cause and only by the affirmative vote
of at least 80% of the voting power of the outstanding voting
stock.
o Charter provision prohibiting stockholders from taking action
by written consent in lieu of a meeting.
o Charter provision authorizing Vesta Board to create and issue
rights entitling stockholders to purchase from Vesta securities
of the Company "recognizing that, under certain circumstances,
the creation and issuance of such rights could have the effect
of discouraging third parties from seeking, or impairing their
ability to seek, to acquire a significant portion of the
outstanding securities of the Corporation, to engage in any
transaction which might result in a change of control of the
Corporation or to enter into any agreement, arrangement or
understanding with another party to accomplish the foregoing .
. ."
o Bylaws do not permit stockholders to call special meetings of
stockholders.
o The anti-takeover provisions above, as well as all other Bylaw
provisions, may be amended or repealed by the stockholders, but
only by the affirmative vote of 80% of the voting power of the
outstanding voting stock.
We believe the foregoing anti-takeover provisions are intended to
disenfranchise stockholders and strip away any semblance of management
accountability which Vesta's stockholders deserve. If elected, the Nominees
will, subject to their fiduciary duties, lobby the Vesta Board to eliminate the
Company's remaining anti-takeover provisions.
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WE BELIEVE VESTA'S DISMAL FINANCIAL PERFORMANCE DEMONSTRATES THE
VESTA BOARD'S FAILURE TO CREATE VALUE FOR ITS STOCKHOLDERS.
Vesta's financial results over the past several years have been a
disappointment to Newcastle Partners, and it believes, to many other Vesta
stockholders. Vesta has sustained net losses during fiscal 2001, 2002 and 2003
which losses have increased from year to year. The financial results for fiscal
2004 are unknown as the Company has not yet filed its Form 10-K for that period.
o In fiscal 2001, Vesta sustained a net loss of $29,330,000.
o In fiscal 2002, Vesta's net loss increased by approximately 10%
from the prior year to $32,211,000.
o In fiscal 2003, Vesta's net loss ballooned by approximately
272% from the prior year to $119,985,000.
o During this three year period, expenses have increased by
approximately 82%, from $361,870,000 in fiscal 2001 to
$657,361,000 in fiscal 2003.
We believe the Vesta Board should be held accountable for these
sustained losses and inability to control expenses.
WE BELIEVE VESTA'S SHARE PRICE HAS SUFFERED AS A RESULT OF CONTINUED LOSSES.
We believe the net losses sustained by Vesta from 2001 to 2003 and
Vesta's failure to report its financial results for 2004 has had a significant
negative impact on the Company's Share price performance during this period.
o According to information contained in management's proxy
statement for the 2004 annual meeting of stockholders (the
"Management Proxy Statement"), during the period from December
31, 1998 through December 31, 2003, Vesta's Share price
performance trailed the S&P Property & Casualty Index by a
significant margin.
o According to the Management Proxy Statement, during this period
an investment in Vesta would have lost over 35% of its value
compared to a loss of just over 11% had the same investment
been made in the S&P Property & Casualty Index and a loss of
just over 3% had the investment been made in the S&P 500 Index.
o Since the Management Proxy Statement, Vesta has not mailed
proxy materials reporting comparisons of its Share price with
its peer group indexes due to Vesta's failure to hold an annual
meeting of stockholders in over 13 months.
o On December 31, 2003, the date on which Vesta last compared its
Share price to its peer group indexes as described above, the
Share price closed at $3.79 per Share. On October 3, 2005, the
Share price closed at $2.00 per Share, representing a
substantial 47% decrease since the beginning of 2004.
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THE NOMINEES
The following information sets forth the name, business address,
present principal occupation, and employment and material occupations,
positions, offices, or employments for the past five years of each of the
Nominees. This information has been furnished to Newcastle Partners by the
Nominees. The Nominees are citizens of the United States of America.
JAMES C. EPSTEIN (Age 46) has served as Chief Risk Officer of
Contran Corporation, a diversified holding company with controlling interests in
public and private companies, since January 2005. He has served as Chairman of
the Board and Chief Executive Officer of EWI RE, Inc., an insurance and
reinsurance brokerage and consulting firm and Contran Corporation affiliate,
since November 2004, and as its President from 1995 to December 2000. He has
served as Chairman of the Board of Tall Pines Insurance Company, a Vermont
captive insurer and Contran Corporation affiliate, since November 2004. Mr.
Epstein has been a director of Hallmark Financial Services, Inc., a property and
casualty insurance holding company, since May 2003. Certain relatives of Mr.
Epstein are investors in Newcastle Partners. The business address of Mr. Epstein
is 5400 LBJ Freeway, Suite 1060, Dallas, Texas 75240. As of the date hereof, Mr.
Epstein did not beneficially own any securities of Vesta other than the Shares
held by Newcastle Partners that Mr. Epstein may be deemed to beneficially own by
virtue of being a member of the Group. Mr. Epstein has not purchased or sold any
securities of Vesta during the past two years.
MARK J. MORRISON (Age 45) has served as Chief Operating Officer
since April 2005 and as Executive Vice President and Chief Financial Officer
since March 2004 of Hallmark Financial Services, Inc., a property and casualty
insurance holding company. From January 2001 to March 2004, he served as
President of Associates Insurance Group, a subsidiary of St. Paul Travelers, a
national provider of property casualty insurance and asset management services.
From 1996 to 2000, he served as Senior Vice President and Chief Financial
Officer of Associates Insurance Group, the insurance division of Associates
First Capital Corporation, an international provider of finance and insurance
products. The business address of Mr. Morrison is 777 Main Street, Suite 100,
Fort Worth, Texas 76102. As of the date hereof, Mr. Morrison did not
beneficially own any securities of Vesta other than the Shares held by Newcastle
Partners that Mr. Morrison may be deemed to beneficially own by virtue of being
a member of the Group. Mr. Morrison has not purchased or sold any securities of
Vesta during the past two years.
STEVEN J. PULLY (Age 45) has served as the President of Newcastle
Management, the general partner of Newcastle Partners, a private investment
partnership, since January 2003 and has been with Newcastle Partners since
December 2001. Mr. Pully has served as a director of Whitehall Jewellers, Inc.,
a specialty retailer of fine jewelry, since June 22, 2005 and as Chairman of the
Board since July 5, 2005. He has served as Chief Executive Officer and a
director of New Century Equity Holdings Corp., a company formerly engaged in
investing in high-growth companies, since June 2004. He has served as a director
of Pizza Inn, Inc., a franchisor and operator of pizza restaurants, since
December 2002. From January 2003 to June 2004, he served as Chief Executive
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Officer of privately-held Pinnacle Frames and Accents, Inc., a domestic picture
frame manufacturer. Prior to joining Newcastle Management, from May 2000 to
December 2001, he served as a managing director in the mergers and acquisitions
department of Banc of America Securities, Inc. and from January 1997 to May 2000
he was a member of the investment banking department of Bear Stearns where he
became a senior managing director in 1999. Mr. Pully is a CPA, a CFA, and a
member of the Texas Bar. The business address of Mr. Pully is c/o Newcastle
Capital Management, L.P., 300 Crescent Court, Suite 1110, Dallas, Texas 75201.
As of the date hereof, Mr. Pully did not beneficially own any securities of
Vesta other than the Shares held by Newcastle Partners that Mr. Pully may be
deemed to beneficially own by virtue of being a member of the Group. Mr. Pully
has not purchased or sold any securities of Vesta during the past two years.
There can be no assurance that the actions our Nominees intend to
take as described above will be implemented if they are elected or that the
election of our Nominees will improve the Company's business or otherwise
enhance stockholder value. Your vote to elect the Nominees does not constitute a
vote in favor of our value enhancing plans for Vesta. Your vote to elect the
Nominees will have the legal effect of replacing three incumbent directors of
Vesta with our Nominees. Neither we (nor to our knowledge, any other person on
our behalf) has made or undertaken any analysis or reports as to whether
stockholder value will be maximized as a result of this solicitation or obtained
reports from consultants or other outside parties as to whether the proposals
presented herein would have an effect on stockholder value. There can be no
assurance that stockholder value will be maximized as a result of this
solicitation or the election of the Nominees. If elected to the Vesta Board, the
Nominees will use their best efforts to cause the Company to take all necessary
action to improve the Company's operating results and to otherwise enhance
stockholder value. Each of the Nominees have consented to be named in this Proxy
Statement and to serve as directors of the Company if elected as the Annual
Meeting.
The Nominees will not receive any compensation from Newcastle
Partners for their services as directors of Vesta other than the normal
compensation Steven J. Pully receives for his services as President of Newcastle
Management. Other than as stated herein, there are no arrangements or
understandings between Newcastle Partners and any of the Nominees or any other
person or persons pursuant to which the nomination described herein is to be
made, other than the consent by each of the nominees to be named in this Proxy
Statement and to serve as a director of Vesta if elected as such at the Annual
Meeting. Except as provided under the Section entitled "Legal Proceedings"
herein, none of the Nominees is a party adverse to Vesta or any of its
subsidiaries or has a material interest adverse to Vesta or any of its
subsidiaries in any material pending legal proceedings.
Newcastle Partners does not expect that the Nominees will be unable
to stand for election, but, in the event that such persons are unable to serve
or for good cause will not serve, the Shares represented by the enclosed GOLD
proxy card will be voted for substitute nominees. In addition, Newcastle
Partners reserves the right to nominate substitute persons if Vesta makes or
announces any changes to its Bylaws or takes or announces any other action that
has, or if consummated would have, the effect of disqualifying the Nominees. In
any such case, Shares represented by the enclosed GOLD proxy card will be voted
for such substitute nominees. Newcastle Partners reserves the right to nominate
-11-
additional persons if Vesta increases the size of the Vesta Board above its
existing size or increases the number of directors serving as Class III
directors above three. Additional nominations made pursuant to the preceding
sentence are without prejudice to the position of Newcastle Partners that any
attempt to increase the size of the current Vesta Board or to increase the
number of directors serving as Class III directors constitutes an unlawful
manipulation of Vesta's corporate machinery.
YOU ARE URGED TO VOTE FOR THE ELECTION OF THE NOMINEES ON THE ENCLOSED GOLD
PROXY CARD.
PROPOSAL NO. 2
REIMBURSEMENT OF PROXY SOLICITATION EXPENSES OF
NEWCASTLE PARTNERS
Newcastle Partners is incurring significant expenses in connection
with this solicitation. Newcastle Partners is requesting that Vesta reimburse it
for all expenses it incurs in connection with this solicitation, including, but
not limited to, all litigation resulting therefrom, and is seeking approval from
the stockholders to authorize such reimbursement. To date, Newcastle Partners
has incurred expenses of approximately $___________. Newcastle Partners
estimates that its expenses will total approximately $_____________, although
such amount could increase. Newcastle Partners is seeking reimbursement of its
expenses from Vesta because it believes that the solicitation will benefit all
stockholders of Vesta.
Although Newcastle Partners is expending its own working capital to
finance this solicitation while Vesta management is paying for its solicitation
with Vesta's cash, the Nominees, if elected, will not seek reimbursement if
Vesta's stockholders do not approve this proposal.
Accordingly, the stockholders are being asked to adopt the following
resolution recommending to the Vesta Board that Vesta reimburse Newcastle
Partners for its expenses incurred in connection with this proxy solicitation:
"Resolved, that the stockholders recommend to the Board of Directors
that Vesta Insurance Group, Inc. reimburse Newcastle Partners, L.P.
for all expenses it incurs in connection with its solicitation of
proxies for the annual meeting of stockholders scheduled to be held on
November 17, 2005, or any advancements, postponements, rescheduling or
continuation thereof, including, but not limited to, all litigation
expenses resulting therefrom."
Please note that the approval of this proposal is not binding on
the Vesta Board.
YOU ARE URGED TO VOTE FOR THE APPROVAL TO REIMBURSE NEWCASTLE PARTNERS FOR ITS
PROXY SOLICITATION EXPENSES ON THE ENCLOSED GOLD PROXY CARD.
-12-
VOTING AND PROXY PROCEDURES
Only stockholders of record on the Record Date will be entitled to
notice of and to vote at the Annual Meeting. Each Share is entitled to one vote.
Stockholders who sell Shares before the Record Date (or acquire them without
voting rights after the Record Date) may not vote such Shares. Stockholders of
record on the Record Date will retain their voting rights in connection with the
Annual Meeting even if they sell such Shares after the Record Date. Based on
publicly available information, Newcastle Partners believes that the only
outstanding class of securities of Vesta entitled to vote at the Annual Meeting
is the Shares.
Shares represented by properly executed GOLD proxy cards will be
voted at the Annual Meeting as marked and, in the absence of specific
instructions, will be voted FOR the election of the Nominees to the Vesta Board,
FOR the proposal to reimburse Newcastle Partners for all expenses it incurs in
connection with this solicitation and, in the discretion of the persons named as
proxies, on all other matters as may properly come before the Annual Meeting.
We are asking you to elect our Nominees. The enclosed GOLD proxy
card may only be voted for our Nominees and does not confer voting power with
respect to the Company's nominees. Accordingly, you will not have the
opportunity to vote for any of Vesta's nominees. You can only vote for Vesta's
nominees by signing and returning a proxy card provided by Vesta. Stockholders
should refer to the Company's proxy statement for the names, backgrounds,
qualifications and other information concerning Vesta's nominees. The
participants in this solicitation intend to vote all of their Shares in favor of
the Nominees and will not vote their Shares in favor of any of Vesta's nominees.
QUORUM
In order to conduct any business at the Annual Meeting, a quorum
must be present in person or represented by valid proxies. Although Delaware law
requires that a quorum consists of a majority of the Shares issued and
outstanding on the Record Date, the Delaware Court of Chancery has ordered that
all Shares represented at the Annual Meeting ("Votes Present"), either in person
or by proxy and whether they voted "FOR", "AGAINST" or "ABSTAIN" (or "WITHHOLD"
in the case of election of directors), and entitled to vote thereat, shall
constitute a quorum, notwithstanding any provision of Vesta's certificate of
incorporation or bylaws to the contrary.
VOTES REQUIRED FOR APPROVAL
A plurality of the total votes cast ("Votes Cast") by holders of the
Shares for the Nominees is required for the election of directors and the three
nominees who receive the most votes will be elected. A vote to "WITHHOLD" for
any nominee for director will be counted for purposes of determining the Votes
Present, but will have no other effect on the outcome of the vote on the
election of directors. A Stockholder may cast such votes for the Nominees either
by so marking the ballot at the meeting or by specific voting instructions sent
with a signed proxy to either Newcastle Partners in care of MacKenzie Partners,
-13-
Inc. at the address set forth on the back cover of this Proxy Statement or to
Vesta at 3760 River Run Drive, Birmingham, Alabama 35243 or any other address
provided by Vesta.
Other Proposals. Other than the election of directors, the vote
required for all other business matters set forth in this Proxy Statement is the
affirmative vote of a majority of the Votes Present.
-14-
ABSTENTIONS
Abstentions will count as Votes Present for the purpose of
determining whether a quorum is present. Abstentions will not be counted as
Votes Cast in the election of directors. Abstentions will have the same effect
as a vote against the proposal to approve the reimbursement of proxy
solicitation expenses of Newcastle Partners.
BROKER NON-VOTES
With regard to certain proposals, the holder of record of Shares
held in street name is permitted to vote as it determines, in its discretion, in
the absence of direction from the beneficial holder of the Shares.
The term "broker non-vote" refers to shares held in street name that
are not voted with respect to a particular matter, generally because the
beneficial owner did not give any instructions to the broker as to how to vote
such shares on that matter and the broker is not permitted under applicable
rules to vote such shares in its discretion because of the subject matter of the
proposal, but whose shares are present on at least one matter. Broker non-votes
will not be counted as Votes Present with respect to matters as to which the
record holder has expressly not voted. Accordingly, Newcastle Partners believes
that broker non-votes will have no effect upon the outcome of voting on the
election of directors and the proposal to reimburse proxy solicitation expenses
of Newcastle Partners.
REVOCATION OF PROXIES
Stockholders of Vesta may revoke their proxies at any time prior to
exercise by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy) or by delivering a written notice of revocation. The delivery of a
subsequently dated proxy which is properly completed will constitute a
revocation of any earlier proxy. The revocation may be delivered either to
Newcastle Partners in care of MacKenzie Partners, Inc. at the address set forth
on the back cover of this Proxy Statement or to Vesta at 3760 River Run Drive,
Birmingham, Alabama 35243 or any other address provided by Vesta. Although a
revocation is effective if delivered to Vesta, Newcastle Partners requests that
either the original or photostatic copies of all revocations be mailed to
Newcastle Partners in care of MacKenzie Partners, Inc. at the address set forth
on the back cover of this Proxy Statement so that Newcastle Partners will be
aware of all revocations and can more accurately determine if and when proxies
have been received from the holders of record on the Record Date of a majority
of the outstanding Shares. Additionally, MacKenzie Partners, Inc. may use this
information to contact stockholders who have revoked their proxies in order to
solicit later dated proxies for the election of the Nominees.
IF YOU WISH TO VOTE FOR THE ELECTION OF THE NOMINEES TO THE VESTA BOARD AND FOR
THE PROPOSAL TO REIMBURSE NEWCASTLE PARTNERS FOR ALL EXPENSES IT INCURS IN
CONNECTION WITH THIS PROXY SOLICITATION, PLEASE SIGN, DATE AND RETURN PROMPTLY
THE ENCLOSED GOLD PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
-15-
SOLICITATION OF PROXIES
The solicitation of proxies pursuant to this Proxy Statement is
being made by Newcastle Partners. Proxies may be solicited by mail, facsimile,
telephone, telegraph, in person and by advertisements. Newcastle Partners will
not solicit proxies via the Internet.
Newcastle Partners has entered into an agreement with MacKenzie
Partners, Inc. for solicitation and advisory services in connection with this
solicitation, for which MacKenzie Partners, Inc. will receive a fee not to
exceed $50,000.00, together with reimbursement for its reasonable out-of-pocket
expenses, and will be indemnified against certain liabilities and expenses,
including certain liabilities under the federal securities laws. MacKenzie
Partners, Inc. will solicit proxies from individuals, brokers, banks, bank
nominees and other institutional holders. Newcastle Partners has requested
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward all solicitation materials to the beneficial owners of the Shares they
hold of record. Newcastle Partners will reimburse these record holders for their
reasonable out-of-pocket expenses in so doing. It is anticipated that MacKenzie
Partners, Inc. will employ approximately 25 persons to solicit Vesta's
stockholders for the Annual Meeting.
The entire expense of soliciting proxies is being borne by Newcastle
Partners pursuant to the terms of the Joint Filing and Solicitation Agreement
(as defined below). Costs of this solicitation of proxies are currently
estimated to be approximately $___,000.00. Newcastle Partners estimates that
through the date hereof, its expenses in connection with this solicitation are
approximately $___,000.00.
OTHER PARTICIPANT INFORMATION
Each member of the Group is a participant in this solicitation. Mark
E. Schwarz is the managing member of Newcastle Group, a Texas limited liability
company, which is the general partner of Newcastle Management, a Texas limited
partnership, which in turn is the general partner of Newcastle Partners, a Texas
limited partnership. The principal occupation of Mr. Schwarz is serving as the
managing member of Newcastle Group. The principal business of Newcastle Group is
acting as the general partner of Newcastle Management. The principal business of
Newcastle Management is acting as the general partner of Newcastle Partners. The
principal business of Newcastle Partners is investing in securities. The
principal business address of Mr. Schwarz, Newcastle Partners, Newcastle
Management and Newcastle Group is 300 Crescent Court, Suite 1110, Dallas, Texas
75201. As of the date hereof, Newcastle Partners is the beneficial owner of
3,050,700 Shares. Mark Schwarz, Newcastle Management and Newcastle Group may be
deemed to beneficially own the Shares held by Newcastle Partners by virtue of
their affiliation with Newcastle Partners and each disclaims beneficial
ownership of such Shares except to the extent of their pecuniary interest
therein. For information regarding purchases and sales of securities of Vesta
during the past two years by Newcastle Partners, see Schedule I.
-16-
On March 21, 2005, Newcastle Partners, Newcastle Management,
Newcastle Group, Mark E. Schwarz and each of the Nominees (collectively, the
"Group") entered into a Joint Filing and Solicitation Agreement in which, among
other things, (a) the parties agreed to the joint filing on behalf of each of
them of statements on Schedule 13D with respect to the securities of Vesta to
the extent required under applicable securities laws, (b) the parties agreed to
solicit proxies or written consents for the election of the Nominees, or any
other person(s) nominated by Newcastle Partners, to the Vesta Board at the
Annual Meeting (the "Solicitation"), and (c) Newcastle Partners agreed to bear
all expenses incurred in connection with the Group's activities, including
approved expenses incurred by any of the parties in connection with the
Solicitation, subject to certain limitations. Newcastle Partners is seeking
reimbursement from Vesta of all expenses it incurs in connection with the
Solicitation as set forth in Proposal No. 2. Pursuant to letter agreements dated
March 21, 2005, Newcastle Partners agreed to indemnify each of Messrs. Epstein,
Morrison and Pully against any and all claims of any nature arising from the
solicitation of proxies from Vesta's stockholders at the Annual Meeting and any
related transactions.
Except as set forth in this Proxy Statement (including the Schedules
hereto), (i) during the past 10 years, no participant in this solicitation has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors); (ii) no participant in this solicitation directly or indirectly
beneficially owns any securities of Vesta; (iii) no participant in this
solicitation owns any securities of Vesta which are owned of record but not
beneficially; (iv) no participant in this solicitation has purchased or sold any
securities of Vesta during the past two years; (v) no part of the purchase price
or market value of the securities of Vesta owned by any participant in this
solicitation is represented by funds borrowed or otherwise obtained for the
purpose of acquiring or holding such securities; (vi) no participant in this
solicitation is, or within the past year was, a party to any contract,
arrangements or understandings with any person with respect to any securities of
Vesta, including, but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of proxies; (vii) no
associate of any participant in this solicitation owns beneficially, directly or
indirectly, any securities of Vesta; (viii) no participant in this solicitation
owns beneficially, directly or indirectly, any securities of any parent or
subsidiary of Vesta; (ix) no participant in this solicitation or any of his/its
associates was a party to any transaction, or series of similar transactions,
since the beginning of Vesta's last fiscal year, or is a party to any currently
proposed transaction, or series of similar transactions, to which Vesta or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000; (x) no participant in this solicitation or any of his/its
associates has any arrangement or understanding with any person with respect to
any future employment by Vesta or its affiliates, or with respect to any future
transactions to which Vesta or any of its affiliates will or may be a party; and
(xi) no person, including the participants in this solicitation, who is a party
to an arrangement or understanding pursuant to which the Nominees are proposed
to be elected has a substantial interest, direct or indirect, by security
holdings or otherwise in any matter to be acted on at the Annual Meeting.
-17-
LEGAL PROCEEDINGS
On July 7, 2005, Newcastle Partners filed a complaint with the
Delaware Court of Chancery, New Castle County, to enforce its right as a
stockholder of Vesta, pursuant to Section 211 of the DGCL, to compel Vesta to
hold an annual meeting of stockholders for the purpose of electing directors.
Section 211 of the DGCL permits the Court of Chancery to compel an annual
meeting of stockholders upon application of any stockholder if there is a
failure to hold an annual meeting of stockholders for a period of 13 months
after the corporation's last annual meeting. Newcastle Partners believes that
Vesta has not held or scheduled an annual meeting of stockholders since June 1,
2004, more than 13 months ago, and believes that no action has been taken within
the last 13 months to elect directors by written consent of the stockholders of
Vesta in lieu of an annual meeting.
On August 19, 2005, the Court of Chancery held a one-day trial in
the case. After hearing testimony from four witnesses, including Norman Gayle,
Vesta's CEO, Hopson Nance, Vesta's CFO, and Michael Gough, a director and chair
of Vesta's Audit Committee, the Court of Chancery ruled that the November 22,
2005 date selected by the Vesta Board was not the most promptly practicable
date, and ordered that the meeting instead be held no later than November 17,
2005, a date chosen in order to give Vesta an opportunity to complete and
distribute its annual report to the stockholders in advance of the meeting. On
September 20, 2005, Vesta publicly announced that its Board of Directors has set
November 17, 2005 as the date for its annual meeting of stockholders to be held
in Birmingham, Alabama, with a record date of September 30, 2005. The Court of
Chancery also ordered that the shares of stock represented at the annual
meeting, either in person or by proxy, and entitled to vote at the meeting, will
constitute a quorum for the purpose of conducting business at the meeting,
whether or not such shares would constitute a quorum under Vesta's certificate
of incorporation or bylaws. The Court of Chancery also awarded Newcastle
Partners its costs as the prevailing party in the case.
On or about August 15, 2005, Vesta sued Newcastle Partners in
Florida Circuit Court in Sarasota, Florida, where Florida Select, a subsidiary
of Vesta, maintains an office, although Florida Select is not a party to the
proceeding. Vesta seeks declaratory and injunctive relief. In its Complaint,
Vesta alleges that Newcastle Partners violated a Florida insurance statute and
rule by acquiring more than five percent (5.0%) of Vesta's outstanding voting
stock without filing an application with the Florida Office of Insurance
Regulation ("FOIR") as the statute requires. The Complaint refers to Newcastle
Partners Schedule 13D filings and preliminary proxy statement and alleges that
Newcastle Partners intends to take control of Vesta. It also refers to Vesta's
written demand that FOIR issue an order directing Newcastle Partners to cease
acquiring Vesta stock and to divest all Vesta securities Newcastle Partners
owns. The Complaint asks the Court to issue an order (a) enjoining Newcastle
Partners from acquiring Vesta shares and from exercising any rights associated
with such shares acquired in alleged violation of Florida insurance law, (b)
enjoining Newcastle Partners from alleged continued violation of that law, (c)
declaring that Newcastle Partners' prior acquisition of Vesta shares is "void",
and (d) awarding other relief, including Vesta's costs of bringing its suit.
-18-
With its Complaint, Vesta also filed a motion for emergency hearing
and temporary injunctive relief. That motion repeated certain allegations in
Vesta's Complaint and asked the Court to conduct a hearing on its request for
temporary injunctive relief before the hearing then set (and in fact conducted)
on August 19, 2005, in the Delaware Court of Chancery on Newcastle Partners'
action pending against Vesta there. On August 18, 2005, the Florida Circuit
Court denied Vesta's request for an emergency hearing. Vesta has scheduled a
hearing on its motion for temporary injunctive relief on September 14, 2005, to
be continued if necessary on September 28, 2005; hearing dates are subject to
change. Vesta's suit remains in its very early stages, and its course and
outcome cannot be predicted.
Newcastle Partners denies that Vesta is entitled to any of the relief
requested in its Complaint or motion for temporary injunction and intends to
defend this action vigorously. On August 5, 2005, Newcastle Partners filed its
application with FOIR for that agency's approval of its acquisition of Vesta
stock. FOIR has stated that it will review Newcastle Partners' application, will
not now issue an order of the kind Vesta demanded, and will conduct a hearing on
Newcastle Partners' application, as Vesta and Florida Select also requested, in
accordance with the insurance statute in question. The date of that hearing and
of FOIR's final action thereafter on Newcastle Partners' application are not yet
known. On September 8, 2005, pursuant to a Notice of Removal, the proceeding was
moved from Florida Circuit Court in Sarasota, Florida to the U.S. District
Court, Middle District of Florida. On September 15, 2005, Newcastle Partners
moved to dismiss Vesta's Complaint, or in the alternative to stay all
proceedings in this case until final action by the Florida Office of Insurance
Regulation on Newcastle Partners' application.
PROPOSALS FOR STOCKHOLDERS
In order for a proposal by a stockholder to be eligible to be
included in Vesta's proxy statement and proxy form for its annual meeting of
stockholders in 2006 in accordance with the SEC's "stockholder proposal" rules,
the proposal must be received by Vesta at its home office, 3760 River Run Drive,
Birmingham, Alabama 35243, not less than 120 calendar days before the date of
the Company's proxy statement released to stockholders in connection with the
2005 annual meeting of stockholders. However, if the Company did not hold an
annual meeting of stockholders the previous year, or if the date of the annual
meeting of stockholders has been changed by more than 30 days from the date of
the previous year's meeting, then the deadline is a reasonable time before the
Company begins to print and mail its proxy materials.
A stockholder may also propose a matter for action, including
director nominations, at Vesta's annual meeting of stockholders to be held in
2006 outside of the SEC's "stockholder proposal" rules. Stockholders wishing to
nominate candidates or submit other matters for action must comply with certain
procedures required by the Company's bylaws. In general, a stockholder must give
notice in writing of the matter or nomination to the Corporate Secretary of
Vesta Insurance Group, Inc., 3760 River Run Drive, Birmingham, Alabama 35243,
-19-
not later than the close of business on the 70th day, nor earlier than the 90th
day, prior to the first anniversary of the preceding year's annual meeting of
stockholders. In addition, the stockholder proposing the matter or making the
nomination must be a stockholder of record at the time the notice is given and
otherwise entitled to vote at the annual meeting. The notice must set forth (a)
as to each nominee, all information relating to that person that is required to
be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, and Rule 14a-11
thereunder (including the nominee's written consent to being named in the Proxy
Statement as a nominee and to serving as a director if elected) and (b) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination is made (i) the name and address of the stockholder, as
they appear on the Company's books, and of such beneficial owner and (ii) the
number and class of shares of the Company owned of record and beneficially by
such stockholder and such beneficial owner. If a vote is ultimately taken on an
untimely proposal for any reason, the proxies solicited and received by Vesta's
Board will be deemed to have conferred discretionary authority to vote on such
untimely proposal.
OTHER MATTERS AND ADDITIONAL INFORMATION
Newcastle Partners is unaware of any other matters to be considered
at the Annual Meeting. However, should other matters, which Newcastle Partners
is not aware of a reasonable time before this solicitation, be brought before
the Annual Meeting, the persons named as proxies on the enclosed GOLD proxy card
will vote on such matters in their discretion.
Newcastle Partners has omitted from this Proxy Statement certain
disclosure required by applicable law that is already included in the Company's
proxy statement. This disclosure includes, among other things, biographical
information on Vesta's directors and executive officers, information concerning
executive compensation, an analysis of cumulative total returns on an investment
in Shares during the past five years and procedures for submitting proposals for
inclusion in Vesta's proxy statement at the next annual meeting. Stockholders
should refer to the Company's proxy statement in order to review this
disclosure.
See Schedule II for information regarding persons who beneficially
own more than 5% of the Shares and the ownership of the Shares by the management
of Vesta.
The information concerning Vesta contained in this Proxy Statement
and the Schedules attached hereto has been taken from, or is based upon,
publicly available information.
NEWCASTLE PARTNERS, L.P.
_____, 2005
-20-
SCHEDULE I
----------
TRANSACTIONS IN THE SECURITIES OF VESTA INSURANCE GROUP, INC.
BY NEWCASTLE PARTNERS, L.P. DURING THE PAST TWO YEARS
CLASS QUANTITY PRICE PER DATE OF
OF SECURITY PURCHASED UNIT ($) PURCHASE
--------------------------------------------------------------------------------
NEWCASTLE PARTNERS, L.P.
--------------------------------------------------------------------------------
Common Stock 31,300 3.45 3/08/05
Common Stock 62,900 3.46 3/09/05
Common Stock 10,500 3.49 3/10/05
Common Stock 52,700 3.56 3/11/05
Common Stock 49,400 3.59 3/14/05
Common Stock 1,600 3.51 3/16/05
Common Stock 13,100 3.50 3/17/05
Common Stock 2,900 3.51 3/18/05
Common Stock 31,800 3.47 3/21/05
Common Stock 24,300 3.49 3/22/05
Common Stock 15,900 3.55 3/28/05
Common Stock 38,400 3.51 3/29/05
Common Stock 13,400 3.52 3/30/05
Common Stock 86,800 3.50 3/31/05
Common Stock 28,200 3.50 4/01/05
Common Stock 15,100 3.54 4/04/05
Common Stock 2,900 3.56 4/07/05
Common Stock 18,800 3.53 4/08/05
Common Stock 34,200 3.49 4/11/05
Common Stock 90,600 3.51 4/12/05
Common Stock 78,600 3.48 4/13/05
Common Stock 62,300 3.53 4/14/05
Common Stock 53,200 3.44 4/15/05
Common Stock 395,400 3.40 4/18/05
Common Stock 397,200 3.37 4/19/05
Common Stock 52,900 3.32 4/20/05
Common Stock 136,600 3.36 4/21/05
Common Stock 10,000 2.70 4/26/05
Common Stock 74,100 2.60 4/27/05
Common Stock 129,000 2.43 4/28/05
Common Stock 53,100 2.50 4/29/05
Common Stock 17,900 2.38 5/02/05
Common Stock 25,600 2.23 5/03/05
Common Stock 65,700 2.24 5/04/05
Common Stock 24,400 2.19 5/05/05
Common Stock 200,500 2.28 5/06/05
-21-
CLASS QUANTITY PRICE PER DATE OF
OF SECURITY PURCHASED UNIT ($) PURCHASE
--------------------------------------------------------------------------------
Common Stock 76,600 2.22 5/10/05
Common Stock 42,300 2.22 5/11/05
Common Stock 83,600 2.25 5/12/05
Common Stock 42,200 2.19 5/13/05
Common Stock 29,400 2.29 5/16/05
Common Stock 22,200 2.29 5/17/05
Common Stock 10,300 2.38 5/18/05
Common Stock 22,000 2.48 5/19/05
Common Stock 400 2.54 5/20/05
Common Stock 15,000 2.50 5/23/05
Common Stock 18,200 2.47 5/24/05
Common Stock 10,900 2.46 5/25/05
Common Stock 17,000 2.50 5/26/05
Common Stock 12,500 2.50 5/27/05
Common Stock 19,100 2.51 6/01/05
Common Stock 220,800 2.52 6/02/05
Common Stock 6,600 2.55 6/03/05
Common Stock 300 2.60 6/08/05
-22-
SCHEDULE II
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
-23-
IMPORTANT
Tell your Board what you think! Your vote is important. No matter
how many Shares you own, please give Newcastle Partners your proxy FOR the
election of the Nominees by taking three steps:
o SIGNING the enclosed GOLD proxy card,
o DATING the enclosed GOLD proxy card, and
o MAILING the enclosed GOLD proxy card TODAY in the envelope
provided (no postage is required if mailed in the United
States).
If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution, only it can vote such Shares and only
upon receipt of your specific instructions. Accordingly, please contact the
person responsible for your account and instruct that person to execute the GOLD
proxy card representing your Shares. Newcastle Partners urges you to confirm in
writing your instructions to Newcastle Partners in care of MacKenzie Partners,
Inc. at the address provided below so that Newcastle Partners will be aware of
all instructions given and can attempt to ensure that such instructions are
followed.
If you have any questions or require any additional information
concerning this Proxy Statement, please contact MacKenzie Partners, Inc. at the
address set forth below.
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
proxy@mackenziepartners.com
---------------------------
or
CALL TOLL FREE (800) 322-2885
PRELIMINARY COPY SUBJECT TO COMPLETION
DATED OCTOBER 3, 2005
VESTA INSURANCE GROUP, INC.
2005 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF NEWCASTLE PARTNERS, L.P.
THE BOARD OF DIRECTORS OF VESTA INSURANCE GROUP, INC.
IS NOT SOLICITING THIS PROXY
P R O X Y
The undersigned appoints Mark E. Schwarz and Steven J. Pully, and each of them,
attorneys and agents with full power of substitution to vote all shares of
common stock of Vesta Insurance Group, Inc. (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company, and including at any adjournments or
postponements thereof and at any meeting called in lieu thereof.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to the shares of common stock of the Company held by
the undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. If properly executed, this Proxy will be voted as directed on the
reverse and in their discretion with respect to any other matters as may
properly come before the Annual Meeting that are unknown to Newcastle Partners,
L.P. a reasonable time before this solicitation.
IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 AND PROPOSAL 2.
This Proxy will be valid until the sooner of one year from the date indicated on
the reverse side and the completion of the Annual Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE
1. ELECTION OF DIRECTORS:
FOR ALL
WITHHOLD EXCEPT
AUTHORITY TO NOMINEE(S)
FOR ALL VOTE FOR ALL WRITTEN
NOMINEES NOMINEES BELOW
Nominees: James C. Epstein [ ] [ ] [ ]
Mark J. Morrison __________
Steven J. Pully __________
2. REIMBURSEMENT OF PROXY SOLICITATION EXPENSES OF NEWCASTLE PARTNERS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED: ____________________________
____________________________________
(Signature)
____________________________________
(Signature, if held jointly)
____________________________________
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY IN WHICH SIGNING.
PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY.