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
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(Name of Registrant as Specified In Its Charter)
VESTA INSURANCE GROUP, INC
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] 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
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[VESTA LOGO]
To the Stockholders of
Vesta Insurance Group, Inc.
You are invited to attend our annual meeting of stockholders to be held at
The Harbert Center, 2019 Fourth Avenue North, Birmingham, Alabama 35203 on
Monday, May 7, 2001, 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
Birmingham, Alabama
April 9, 2001
--------------------------------
Notice of Annual Meeting of Stockholders
to be Held May 7, 2001
--------------------------------
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 7, 2001, at 10:00 A.M., local time, for the following
purposes:
(1) To elect two persons to serve as Class II directors for a three-year
term beginning May 8, 2001.
(2) To ratify our 2001 Incentive Compensation Plan.
(3) To ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the year ending December 31, 2001.
(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 March 30, 2001 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 9, 2001
PROXY STATEMENT FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MAY 7, 2001
Solicitation of Proxies
The Board of Directors of Vesta Insurance Group, Inc. solicits your proxy
in the form enclosed with this proxy statement for use at our annual meeting
of stockholders to be held at The Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203 on Monday, May 7, 2001, at 10:00 A.M., local time,
and at any adjournment or postponement 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 our board of directors. We
expect to mail this proxy material to stockholders on or about April 9, 2001.
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 our Secretary (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 March 30,
2001 (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 March 30, 2001, there were 24,427,946 shares of our
common stock outstanding.
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 2001
Incentive Compensation 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 ratify the 2001 Incentive Compensation 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 to vote shares held in "street name" on
certain non-routine items absent customer instructions. If a broker votes
shares held in "street name" on 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 ratify the 2001 Incentive
Compensation Plan, they will be disregarded (as not entitled to vote) and will
have no affect on such proposal.
1
Principal Stockholders
The following table lists all persons known to be the beneficial owner of
more than five percent of our common stock as of March 30, 2001.
Title of
Name and Address Class Number of Shares Percent of Class
---------------- ------------ ---------------- ----------------
Wellington Management
Company, LLP Common Stock 2,000,000(1) 8.2%
75 State Street
Boston, MA 02109
R.K. Carvill (International
Holdings), Ltd. Common Stock 1,380,000(2) 5.6%
Peerman Holdings, Ltd.
Clarendon House
2 Church Street
Hamilton HMCX, Bermuda
Dimensional Fund Advisors,
Inc. Common Stock 1,309,650(3) 5.4%
1299 Ocean Avenue
Santa Monica, CA 90401
--------
(1) Wellington Management Company, LLP, acting as investment adviser on behalf
of several accounts, acquired these shares of our common stock directly
from us in March of 2001.
(2) Based on Schedule 13D/A, filed January 30, 2001 by R.K. Carvill
(International Holdings), Ltd., and Peerman Holdings, Ltd.
(3) Based on Schedule 13G filed February 2, 2001 by Dimensional Fund Advisors
Inc.
2
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
Board of Directors
Our restated certificate of incorporation provides that our directors are
divided into three classes, with the members of each class to be elected to
hold office for a three-year term and until their successors are elected and
qualified. Our 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 our board of
directors. Our board of directors has fixed this number at eight (8)
directors.
At this year's annual meeting, our board of directors is proposing the re-
election of Ehney A. Camp, III and Dr. Robert B.D. Batlivala, Ph.D. to serve
as Class II Common Directors, to hold office for a term of three years,
expiring at the close of the annual meeting of stockholders to be held in 2004
and until their successors are elected and qualified. The current terms of
Messrs. Batlivala and Camp expire at the annual meeting of stockholders for
2001.
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 our board of directors may recommend, unless our board of directors
resolves to reduce the number of directors.
The Board of Directors recommends that the stockholders vote FOR the
nominees
Profiles of Nominees
Robert B.D. Batlivala, Ph.D. (age 61) was elected as a Preferred Stock
Director effective October 19, 1999. Principal occupation: 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.
Ehney A. Camp, III (age 58) has been a director of Vesta 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.
Profiles of Common Directors Whose Terms Have Not Expired
Walter M. Beale, Jr. (age 55) has been a director of Vesta since 1993. His
term expires in 2003 (Class I). Principal occupation: Partner in the law firm
of Balch & Bingham LLP since prior to 1995.
Alan S. Farrior (age 47) has been a director of Vesta since 2000. His term
expires in 2003 (Class I). Principal occupation: President of Lowder New
Homes/Colonial Homes since 1978.
Norman W. Gayle, III, (age 47) has been a director of Vesta since 1998. His
term expires in 2002 (Class III). Principal occupation: President of Vesta
since 1998. Executive Vice President and Chief Operating Officer of Vesta from
1995 to 1998.
James E. Tait (age 51), Chairman, has been a director of Vesta since 1998.
His term expires in 2002 (Class III). Principal occupation: Chairman of Vesta
since 2000; Executive Vice President and Chief Financial Officer of Vesta from
1998-2000; Chairman, Tait Advisory Services (acquired by Vesta in 1999) since
March, 2001; President of Tait Advisory Services 1996-2001; 1996-- President
of Inex Insurance Exchange, 1996-1999; Partner, Coopers & Lybrand, 1980-1996.
Stephen R. Windom (age 51) has been a director of Vesta since 2000. His
term expires in 2003 (Class I). 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.
3
Profiles of Executive Officers Who Are Not Directors
The following table shows certain information concerning each person deemed
to be an executive officer of Vesta on December 31, 2000, except Norman W.
Gayle, III and James E. Tait, who also serve as a directors. Each executive
officer and key employee is elected by our board of directors of Vesta
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.
Principal Occupation and Business Experience
Name Age for the Past Five Years
---- --- --------------------------------------------
K. Gerald Barron 51 Senior Vice President--Insurance 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 41 Senior Vice President--Chief Financial Officer of
Vesta since 2000; Senior Vice president--Controller of
Vesta since 1998; President of Tait Advisory Services
(acquired by Vesta in 1999), since March 2001. Vice
President Audit and Regulatory Affairs of Tait
Advisory Services, 1997-2001. Senior Manager, Ernst &
Young, LLP, 1993-1997.
John W. McCullough 34 Vice President--Associate General Counsel of Vesta
since 2000; associate and partner with Balch & Bingham
LLP from 1996-2000.
Hopson Nance 30 Vice President and Controller of Vesta since 2000;
audit manager and other positions with
PricewaterhouseCoopers LLP from 1996-2000.
Stephen P. Russell 41 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 50 Senior Vice President--Marketing of Vesta Fire
Insurance Corporation since 2000. From 1995 to 2000,
Mr. Solimine was Vice President--Marketing of Vesta
Fire Insurance Corporation.
Donald W. Thornton 53 Senior Vice President--General Counsel and Secretary
of Vesta since 1995.
4
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, 2000:
% of
Common Common
Name Stock Stock
---- ------- ------
K. Gerald Barron........................................... --0-- *
Robert B.D. Batlivala...................................... 5,000(1) *
Walter M. Beale, Jr. ...................................... 45,499(2) *
Ehney A. Camp, III......................................... 44,505(3) *
William P. Cronin.......................................... 2,806(4) *
Alan S. Farrior............................................ 5,000(5) *
Norman W. Gayle, III....................................... 270,514(6) 1.0%
Clifford F. Palmer......................................... 53,749(7) *
James E. Tait.............................................. 218,835(8) *
Donald W. Thornton......................................... 131,085(9) *
Stephen R. Windom.......................................... 5,000(10) *
All Directors and Executive Officers as a Group (16
persons).................................................. 815,203 3.3%
--------
* less than 1%
--------
(1) Includes 5,000 shares subject to the exercise of options exercisable on
or prior to June 30, 2001 granted pursuant to our Non-Employee Director
Stock Plan.
(2) Includes (i) 5,000 shares subject to the exercise of options exercisable
on or prior to June 30, 2001, granted pursuant to our Non-Employee
Director Stock Plan, and (ii) 30,000 shares of restricted stock awarded
to Mr. Beale pursuant to an agreement by which Mr. Beale returned, for
cancellation, 30,000 stock options that were previously granted to Mr.
Beale.
(3) Includes (i) 5,000 shares subject to the exercise of options exercisable
on or prior to June 30, 2001, granted pursuant to our Non-Employee
Director Stock Plan, (ii) 5,150 shares held in the name of Sterne, Agee
& Leach, Inc., custodian for Ehney A. Camp, III Individual Retirement
Account, and (iii) 22,500 shares of restricted stock awarded to Mr. Camp
pursuant to an agreement by which Mr. Camp returned, for cancellation,
22,500 stock options that were previously granted to Mr. Camp.
(4) Includes 1,556 shares allocated to Mr. Cronin's 401(k) plan account.
(5) Includes 5,000 shares subject to the exercise of options exercisable on
or prior to June 30, 2001 granted pursuant to our Non-Employee Director
Stock Plan.
(6) Includes (i) 52,500 shares subject to the exercise of options
exercisable on or prior to June 30, 2001 granted under, and 123,032
shares of restricted stock awarded under our Long Term Incentive Plan
and (ii) 10,080 shares allocated to Mr. Gayle's 401(k) plan account.
(7) Includes (i) 5,000 shares subject to the exercise of options exercisable
on or prior to June 30, 2001, granted pursuant to our Non-Employee
Director Stock Plan, and (ii) 30,000 shares of restricted stock awarded
to Mr. Palmer pursuant to an agreement by which Mr. Palmer returned, for
cancellation, 30,000 stock options that were previously granted to Mr.
Palmer.
(8) Includes (i) 52,500 shares subject to the exercise of options
exercisable on or prior to June 30, 2001 granted under, and 120,000
shares of restricted stock awarded under, our Long Term Incentive Plan,
and (ii) 11,279 shares allocated to Mr. Tait's 401(k) plan account.
(9) Includes (i) 27,500 shares subject to the exercise of options
exercisable on or prior to June 30, 2001 granted under, and 73,479
shares of restricted stock awarded under our Long Term Incentive Plan
and (ii) 10,617 shares allocated to Mr. Thornton's 401(k) plan account.
(10) Includes 5,000 shares subject to the exercise of options exercisable on
or prior to June 30, 2001 granted pursuant to our Non-Employee Director
Stock Plan.
Meetings of the Board of Directors and Committees
During 2000, our board of directors met 12 times. In 2000, 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
Our board of directors has a standing Audit Committee and a standing
Compensation Committee.
5
The Audit Committee operates under a written charter adopted by our board
of directors, a copy of which is attached as Exhibit A to this proxy
Statement. The duties of the Audit Committee are to recommend to our board of
directors the selection of independent certified public accountants to audit
annually the books and records of Vesta, to review the activities and the
reports of the independent certified public accountants, and to report the
results of such review to our board of directors. The Audit Committee also
monitors the activities of our audit staff and the adequacy of our internal
controls. The members of the standing Audit Committee are Messrs. Batlivala,
Camp and Windom, each of whom is "independent" as defined by the listing
standards of the New York Stock Exchange. The Audit Committee met four times
in 2000.
The duties of the Compensation Committee are to make recommendations and
reports to our board of directors with respect to the salaries, bonuses and
other compensation to be paid to our officers and to administer all plans
relating to the compensation of such officers. The members of the standing
Compensation Committee are Messrs. Batlivala, Farrior and Windom. The
Compensation Committee met five times in 2000.
Our board of directors does not have a standing nominating committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that
executive officers and directors of Vesta 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 2000 fiscal year were
required to be filed by officers or directors, Vesta believes that Section
16(a) filing requirements applicable to its officers and directors were
complied with during fiscal year 2000, except that Mr. Thomas J. Chana, Senior
Vice President of a subsidiary, failed to timely report his purchase of 4,627
shares of our common stock in September, 2000. Mr. Chana reported this
transaction in November, 2000.
6
COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Information
The following table sets forth certain information regarding compensation
paid during the last three fiscal years to our President and the four other
most highly compensated executive officers serving at the end of 2000.
SUMMARY COMPENSATION TABLE
Annual
Compensation Long Term Compensation
------------------ ---------------------------------------------
Awards Payouts
--------------------- ----------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation(1) Awards(2) Options Payouts(3) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------- ------- --------------- ---------- ---------- ---------- ------------
Norman W. Gayle, III 2000 430,000 430,000 --0-- 231,178 --0-- 229,022 11,693(4)
President 1999 420,097 --0-- 23,562 337,500 52,500 217,022 8,446(4)
1998 438,269 --0-- --0-- --0-- --0-- 181,022 6,998(4)
James E. Tait 2000 525,000 525,000 --0-- 216,585 --0-- --0-- 11,956(5)
Chairman 1999 512,948 --0-- 62,708 337,500 52,500 --0-- 7,737(5)
1998 212,019 --0-- --0-- 286,800 45,000 --0-- 6,797(5)
Donald W. Thornton 2000 230,000 230,000 --0-- 353,654 --0-- 42,756 9,797(6)
Senior Vice 1999 226,462 --0-- 10,832 --0-- 102,500 42,220 10,350(6)
President--General 1998 234,423 --0-- --0-- --0-- --0-- 40,610 7,440(6)
Counsel and Secretary
William P. Cronin 2000 200,000 150,000 192,000 --0-- --0-- --0-- 7,074(7)
Senior Vice 1999 150,000 --0-- --0-- --0-- 50,000 --0-- 4,718(7)
President--Chief
Financial Officer
K. Gerald Barron 2000 175,000 25,000 --0-- --0-- --0-- --0-- 7,752(8)
Senior Vice President-- 1999 31,635(8) --0-- --0-- --0-- --0-- --0-- 714(8)
Insurance Operations
--------
(1) Includes amounts paid (i) during 1999 to compensate the executive officers
for taxes incurred upon the lapse of restrictions applicable to previously
awarded restricted stock and (ii) during 2000 to reimburse the executive
officers for relocation expenses.
(2) No part of the restricted stock awards reflected above will vest in under
three years other than those noted below. 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 our 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 Summary Compensation Table above as of December
31, 2000:
Number of Shares Market Value on 12/31/00
---------------- ------------------------
Norman W. Gayle, III............. 123,032 $622,911
James E. Tait.................... 120,000 $607,560
Donald W. Thornton............... 73,479 $372,025
William P. Cronin................ --0-- --0--
K. Gerald Barron................. --0-- --0--
On December 19, 2000, Messrs. Gayle, Tait and Thornton received 48,032,
45,000 and 73,479 shares of restricted stock, respectively, in exchange for
the return, for cancellation, of 96,064, 45,000 and 146,957 stock options,
respectively, that were previously granted to them. These shares of
restricted stock will vest on December 19, 2002. These shares of restricted
stock are included in the table immediately above. The value of these
restricted stock awards are $231,178, $216,585 and $353,654, respectively,
for Messrs. Gayle, Tait and Thornton, and are included in the "Summary
Compensation Table" above.
(3) Consists of payments with respect to the repayment of loans made to enable
certain executive officers to purchase restricted stock.
(4) Consists of the payment of premiums under our group term life insurance
plan of $1,755 in 2000, $1,754 in 1999 and $860 in 1998, and
contributions under our 401(k) plan of $9,938 in 2000, $6,692 in 1999 and
$6,138 in 1998.
(5) Consists of the payment of premiums under our group term life insurance
plan of $2,142 in 2000, $969 in 1999 and $437 in 1998, and contributions
under our 401(k) plan of $9,814 in 2000, $6,768 in 1999 and $6,360 in
1998.
7
(6) Consists of the payment of premiums under our group term life insurance
plan of $938 in 2000, $938 in 1999 and $460 in 1998, and contributions
under the our 401(k) plan of $8,859 in 2000, $9,412 in 1999 and $6,980 in
1998.
(7) Consists of the payment of premiums under our group term life insurance
plan of $612 in 2000 and $612 in 1999, and contributions under our 401(k)
plan of $6,462 in 2000 and $4,106 in 1999.
(8) Consists of the payment of premiums under our group term life insurance
plan of $714 in 2000, $714 in 1999 and contributions under our 401(k) plan
of $7,038 in 2000. Mr. Barron was employed for only a portion of 1999, his
employment becoming effective October 28, 1999.
Employment Agreements
We have entered into employment agreements with Norman W. Gayle, III, James
E. Tait, Donald W. Thornton and W. Perry Cronin (the "Executives"). Under
these employment agreements, the Executives will continue to serve in their
current capacities, for which they will receive a base salary subject to
annual adjustment, and may receive additional amounts as bonus compensation in
accordance with our regular compensation practices. The agreements also
provide that each of the Executives are entitled to receive other perquisites,
including a car allowance and country club or dining club dues, and that
Messrs. Gayle, Tait and Thornton shall participate in the "Executive Officer
Incentive Compensation Plan" (described below).
If Vesta terminates an Executive's employment without "cause" (as defined
in the agreement), or if the Executive terminates his employment for "good
reason" following a "change of control" (as those terms are defined in the
agreements), the Executive shall be entitled to receive the equivalent of
three years' salary and bonus (in lump sum or in thirty-six monthly
installments), continued health benefits until the age of 65 and immediate
vesting or lapse of restrictions of any stock options or shares of restricted
stock awarded to him. The term of each of the agreements is three years, and
the agreements will be automatically extended for one year on each anniversary
of their effective date, unless written notice of non-extension is provided by
Vesta or the Executive at least ninety (90) days prior to such an anniversary
date.
Compensation Pursuant to Plans
We maintain certain compensation plans, described below, pursuant to which
benefits may be provided to our executive officers.
Executive Officer Incentive Compensation Plan
Messrs. Gayle, Tait and Thornton also participate in the Executive Officer
Incentive Compensation Plan, which is designed to motivate these Executives by
providing them with the opportunity to earn a one-time cash bonus based on the
increase in our market capitalization measured over a three year period. These
Executives may elect additional executive officers to participate in the plan
by unanimous written consent. Under the plan, Vesta shall pay to the
participants in the plan, in the aggregate, a one-time cash bonus equal to
five percent (5%) of the amount by which its total market capitalization (as
defined in the plan) on the earlier of (i) September 29, 2002 or (ii) the date
Vesta ceases to be publicly traded exceeds our total market capitalization on
September 29, 1999. As of March 30, 2001, the participants in the plan were
Messrs. Gayle (allocable share--40%), Tait (allocable share--40%) and Thornton
(allocable share--20%).
Long Term Incentive Plan
Our stockholders have approved the Vesta Insurance Group, Inc. Long Term
Incentive Plan, as amended (the "Incentive Plan"), which is designed to enable
us to attract, retain and motivate directors and employees through equity
(common stock) based compensatory awards. Currently, the Incentive Plan
provides that the maximum number of shares of our common stock which may be
made the subject of such awards (in the aggregate) is 2,221,998* shares, of
which 1,899,937 shares have been made the subject of previous awards that
--------
* 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 Vesta.
8
have not been forfeited or cancelled and 322,061 shares remain available for
future awards. Of the 1,899,937 shares that have been made subject to awards,
479,587 were subject to options which have been exercised and 175,465 were in
the form of restricted stock which has vested. Accordingly, we consider
1,244,885 shares subject to currently outstanding awards under the Incentive
Plan.
The Incentive Plan provides for various types of awards, including stock
options, restricted stock, stock appreciation rights and deferred stock
awards. In 2000, the Compensation Committee did not grant any awards under the
Incentive Plan to the executive officers named in the Summary Compensation
Table above other than the restricted stock awards described in footnote 2 to
that table.
The following table presents certain information with respect to the value
of options held by the executive officers named in the Summary Compensation
Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of securities
underlying unexercised Value of unexercised
options at fiscal year- in-the-money options
end at fiscal year-end
Shares acquired Value ------------------------- -------------------------
Name on exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
Norman W. Gayle, III.... --0-- $--0-- 52,500 --0-- $32,681 $ --0--
James E. Tait........... --0-- --0-- 52,500 --0-- 32,681 --0--
Donald W. Thornton...... --0-- --0-- 27,500 75,000 17,119 42,188
William P. Cronin....... --0-- --0-- --0-- 50,000 --0-- 28,125
K. Gerald Barron........ --0-- --0-- --0-- 25,000 --0-- 14,063
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., our wholly owned management subsidiary
which employs all of Vesta'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 Vesta and
its affiliates, a participant will be entitled to receive the amount which has
been accrued as a liability on our 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 Vesta for reasons other than "cause," or by the participant for
a "stated good reason," within two years after a "change of control" of Vesta
(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 our 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 Vesta 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
9
December 31, 2000, Vesta had recorded a total of $942,870 as a liability on
its balance sheet to cover projected benefits under the Retirement Plan.
Assuming Messrs. Gayle, Tait, Thornton, Cronin and Barron retire from Vesta
after reaching normal retirement age and assuming their 2000 salary levels
remain the same, they will be entitled under the Retirement Plan to receive
$860,000, $1,050,000, $460,000, $300,000 and $350,000, respectively, upon
their retirement.
Payments to Directors
For 2000, directors who are not executive officers or employees of Vesta
received an annual retainer fee of $12,000, payable in equal quarterly
installments. Directors also receive $2,000 for each board meeting attended
and $1,000 for each committee meeting attended, including meetings of a
special committee established to consider a potential transaction involving a
related party. 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 our annual meeting of stockholders held on May 16, 1995, our
stockholders approved our Non-Employee Director Stock Plan, which was
subsequently amended and ratified by our stockholders at our annual meeting
held May 8, 2000 (the "Director Plan"). Under the Director Plan, each eligible
director may elect, pursuant to an advance written election, to receive shares
of our 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 director fees which such director has elected
not to receive, divided by seventy-five percent (75%) of the fair market value
of our 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 2000, there were no directors who
elected to receive Restricted Stock in lieu of their annual retainer or
meeting attendance fees.
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 5,000 shares of our 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 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. An aggregate of 780,000 shares of our
common stock have been reserved for issuance under the Director Plan, subject
to adjustment for changes in our capital structure, of which 198,455 shares
have made the subject of previous awards (20,154 of which were subsequently
forfeited upon the resignation of former directors) and 637,699 shares remain
available for future awards.
Certain Relationships and Related Transactions
In August 2000, Mr. William P. Cronin, Senior Vice President and Chief
Financial Officer, became indebted to us in connection with a loan to purchase
his residential property in Birmingham. The amount of the loan was $250,000
and was non-interest bearing. This loan was paid in full in October 2000.
In August 2000, Mr. James E. Tait, Chairman, became indebted to us in
connection with a loan related to his residential property in Alabama. The
amount of the loan was $250,000 and was non-interest bearing. The outstanding
balance under this loan as of December 31, 2000 was $250,000.
On September 13, 1993, we entered into separate restricted stock agreements
with each of our executive officers pursuant to which we sold to such
executive officers a total of 153,500 shares of our 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, we entered into a
restricted stock agreement with Mr. Gayle pursuant to which we sold to Mr.
Gayle 60,000 shares of common stock (together with shares sold to Mr.
Thornton, the
10
"Restricted Shares") for a purchase price of $18.92 per share. Each of these
executive officers has executed a promissory note representing the obligation
to repay a loan from Vesta for the purchase price of each of their Restricted
Shares, and the Restricted Shares are being held by us 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 2000
was $537,845 and $52,312, respectively, and the outstanding balance under
these loans as of December 31, 2000 was $404,486 and $34,147, 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 Vesta to be applied toward the
repayment of the promissory notes.
We intend 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 our employ. In
2000, we paid bonuses for this purpose to Mr. Gayle of $229,022 and to Mr.
Thornton of $42,756.
During 2000, the law firm of Balch & Bingham LLP, of which Walter M. Beale,
Jr., one of our directors, is a partner, rendered various legal services to
Vesta and certain of its subsidiaries.
During 2000, the law firm of Sirote & Permutt, P.C., of which Stephen R.
Windom, one of our directors, is a partner, rendered various legal services to
Vesta and certain of its subsidiaries.
Compensation Committee Interlocks and Insider Participation
During 2000, there were no interlocking relationships between any of our
executive officers and any entity whose directors or executive officers serve
on our board of directors and/or Compensation Committee.
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 our board of directors with respect to salaries, bonuses and other
compensation to be paid to our officers with a base salary of more than
$225,000 annually and to administer all plans relating to the compensation of
such officers.
Our total compensation structure is comprised of annual base salary, annual
cash bonus payments and long term equity based compensation granted pursuant
to the Incentive Plan. Our overall compensation program has been designed to
attract and retain key executives and to provide appropriate incentives to
these executives to maximize our 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 our relative success, 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
projects.
The salary levels for our executive officers for 2000, including the
salaries of Mr. Gayle and Mr. Tait as occupants of the office of the Chairman,
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 our executive officers are comparable with the
average salary levels of similarly situated property and casualty insurers and
reinsurers.
The Incentive Plan provides for grants to our executive officers of
restricted stock, stock options, stock appreciation rights, and deferred stock
awards. The payment of equity based compensation to our executive officers
under the Incentive Plan is designed to focus their attention on the
enhancement of stockholder value. In 2000, the Compensation Committee did not
grant any awards under the Incentive Plan to the executive officers named in
the Summary Compensation Table above other than the restricted stock awards
discussed below.
11
In December 2000, the Compensation Committee reviewed the outstanding stock
options of certain key employees and non-employee directors and determined
that these individuals held options at exercise prices that limited their
effectiveness as a tool for retention and as a long-term incentive. To address
this concern, the Compensation Committee, after considering various options
available to it, recommended to our board of directors that (i) Messrs. Beale,
Camp, Palmer and Tait be permitted to exchange all of their outstanding stock
options with an exercise price greater than $4.813 (the closing market price
of our unrestricted common stock on December 19, 2000) on a one-for-one basis
for restricted stock vesting on December 19, 2002, and (ii) Messrs. Gayle and
Thornton be permitted to exchange all of their outstanding stock options with
an exercise price greater than $4.813 (the closing market price of our
unrestricted common stock on December 19, 2000) on a two-for-one basis for
restricted stock vesting on December 19, 2002. Accordingly, on December 19,
2000, Messrs. Gayle, Tait and Thornton received 48,032, 45,000 and 73,479
shares of restricted stock, respectively, in exchange for the return, for
cancellation, of 96,064, 45,000 and 146,957 stock options, respectively, that
were previously granted to them. These shares of restricted stock will vest on
December 19, 2002.
The awards granted to our executive officers in 2000 represent the
Compensation Committee's continued emphasis on incentive based compensation
and are intended to provide further incentives to these individuals to sustain
our growth and success and to further align their interests of our
stockholders. The size of the awards to individual executive officers was
determined by the Compensation Committee and approved by our board of
directors based upon a subjective assessment of each executive officer's
performance and individual contribution to Vesta, 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 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
Robert B. D. Batlivala
Alan S. Farrior
Stephen R. Windom
12
Report of the Audit Committee
The Audit Committee has met and held discussions with Vesta's management
and Vesta's independent accountants, PricewaterhouseCoopers LLP. Management
represented to the Audit Committee that Vesta's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the
consolidated financial statements with management and the independent
accountants. The Audit Committee discussed with the independent accountants
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees."
Our independent accountants also provided to the Audit Committee the
written disclosures and the letter required by Independent Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and the
Audit Committee discussed with PricewaterhouseCoopers LLP that firm's
independence.
Based upon the Audit Committee's discussions with management and the
independent accountants and the Audit Committee's review of the
representations of management, and the report of the independent accountants
to the Audit Committee, the Audit Committee recommended that our board of
directors include the audited consolidated financial statements in Vesta's
Annual Report on Form 10-K for the year ended December 31, 2000, as filed with
the Securities and Exchange Commission.
This report is submitted by the Audit Committee.
Robert B. D. Batlivala
Ehney A. Camp, III
Stephen R. Windom
Audit and Related Fees
Audit Fees. The aggregate fees and expenses billed or to be billed by
PricewaterhouseCoopers LLP for professional services for the audit of Vesta's
annual consolidated financial statements for fiscal 2000, including subsidiary
audits and audits reviewed by insurance regulatory authorities, and the review
of the consolidated financial statements included in Vesta's Forms 10-Q for
fiscal 2000 were $1,206,500.
Financial Information Systems Design and Implementation Fees. There were no
fees billed by PricewaterhouseCoopers LLP to Vesta for financial information
systems design and implementation fees for fiscal 2000.
All Other Fees. The aggregate fees billed to Vesta for all other services
rendered by PricewaterhouseCoopers LLP for fiscal 2000, including fees for
audits of the financial statements prepared for our insurance subsidiaries
applying statutory accounting principles, were $876,393.
The Audit Committee has determined that the provision of services rendered
above for (a) financial information systems design and implementation fees,
and (b) all other fees, is compatible with maintaining PricewaterhouseCoopers
LLP's independence.
13
Performance Graph
The following graph compares the cumulative total stockholder return
(including the reinvestment of dividends) on our common stock 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, 1995.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG VESTA INSURANCE GROUP, INC., STANDARD & POOR'S 500 INDEX AND
STANDARD AND POOR'S PROPERTY/CASUALTY INSURANCE INDEX
[CUMULATIVE TOTAL RETURN CHART]
Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00
------ ------ ------ ------ ------ ------
Vesta Insurance
Group Inc. $100.00 $ 87 $165 $ 17 $ 11 $ 14
S&P 500(R) $100.00 $123 $164 $211 $255 $232
S&P(R) Insurance
(Property-Casualty
Index $100.00 $122 $177 $164 $123 $181
PROPOSAL NUMBER 2
APPROVAL OF 2001 INCENTIVE COMPENSATION PLAN
As of March 30, 2001, under our current Long Term Incentive Plan, 1,899,937
shares have been made subject to awards that have not been forfeited or
cancelled, and 322,061 shares remained available for awards. Of the 1,899,937
shares that have been made subject to awards, 479,587 were subject to options
which have been exercised and 175,465 were in the form of restricted stock
which has vested. Accordingly, we consider 1,244,885 shares subject to
currently outstanding awards under the Incentive Plan. Recognizing the value
of stock based awards, our board of directors adopted our 2001 Incentive
Compensation Plan (the "Plan") on March 20, 2001 as a means of continuing to
provide management with equity based incentives. In addition, our board of
directors believes that rewarding managers based upon the attainment of
performance based goals during relevant performance cycles is an essential
element of an effective management incentive program. Accordingly, the Plan
provides for (i) the grant of future stock based awards to officers and key
employees of Vesta and its subsidiaries and (ii) the payment of performance
based compensation upon the attainment of certain performance goals to be
established periodically by the Compensation Committee.
14
Certain provisions of the Internal Revenue Code of 1986 and the regulations
promulgated thereunder (the "Code") require shareholder approval of any plan
pursuant to which "incentive stock options" (within the meaning of Section 422
of the Code) may be granted or "qualified performance based compensation"
(within the meaning of Section 162(m) of the Code) may be paid. Our board of
directors is submitting the Plan for ratification at our 2001 annual meeting
of shareholders in order to comply with these provisions of the Code.
Material Terms
The primary features of the Plan are summarized below. This summary is
qualified in its entirety by reference to the specific provisions of the Plan,
as proposed, the full text of which is set forth as Exhibit B to this Proxy
Statement.
Administration. The Plan will be administered by the Compensation Committee
of the board of directors. The Compensation Committee consists of two or more
members of the Board of Directors who qualify both as "outside directors"
within the meaning of Section 162(m) of the Code and "disinterested persons"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934.
Shares Reserved for Issuance. The aggregate number of shares of Vesta
common stock which may be issued under the Plan may not exceed two million
(2,000,000); provided, however, that no more than seven hundred fifty thousand
(750,000) shares may be awarded under the Plan in the form of awards other
than Options. Shares subject to options granted under the Plan which expire
unexercised, or shares subject to awards which are otherwise forfeited or
canceled, shall again be available for awards under the Plan and shall not
count against this limit. The maximum number of shares with respect to which
awards may be granted to any individual in any one year under the Plan is
three hundred fifty thousand (350,000).
Eligibility. Persons eligible to participate in the Plan shall be those
officers and key employees of Vesta and its subsidiaries who are in positions
in which their decisions, actions and counsel significantly impact the
performance of Vesta or its subsidiaries. Participants are chosen from this
group by the Compensation Committee, at its discretion.
Types of Stock Awards. Under the Plan, the Compensation Committee has the
discretion to issue the following types of awards with such terms and
conditions (including vesting schedules) as the Administrator may from time to
time determine: (i) stock options (both incentive stock options and non-
qualified stock options under Section 422 of the Code) containing a maximum
terms of ten years from the date of grant; (ii) restricted stock awards which
may require the attainment of certain performance goals and/or continued
employment (or other business relationship) in order for vesting to occur; and
(iii) unrestricted stock awards in recognition of past services or other valid
consideration.
Performance Based Awards. The Compensation Committee may award performance
based awards (which may be denominated in either shares of stock or cash)
under which payment may be made to the participant upon the attainment of
specific performance goals. If the performance based award is denominated in
shares of stock, the shares underlying such award will be issued only upon
attainment of the relevant performance goal. If the performance based award is
denominated in cash, it will be paid in cash only upon attainment of the
relevant performance goal.
Performance goals will be established by the Compensation Committee and
will relate to a specified performance period (for example, a fiscal year of
Vesta). The performance goals may be based on any business criteria deemed
appropriate by the Compensation Committee, including objective and subjective
criteria. These performance goals may be designed to measure corporate
performance under any standards as may be determined by the Compensation
Committee, including the absolute performance of Vesta or its subsidiaries
relative to prior periods, the performance of Vesta or its subsidiaries
relative to other companies, or the performance of the departments or
divisions of Vesta or its subsidiaries with respect to which the recipient has
supervisory responsibility. Multiple performance goals may be established and
may have the same or different weighting.
15
As an element of each performance goal, the Compensation Committee may
establish a principal performance target and a minimum performance target.
These targets may be adjusted at any time prior to payment of the performance
based award to reflect major unforeseen events such as changes in laws,
regulations or accounting procedures, mergers, acquisitions or divestitures or
extraordinary, unusual or nonrecurring items or events, subject to the
limitations of Section 162(m) of the Code discussed below. If the principal
performance target is attained, the participant will be entitled to receive
100% of the value of the performance based award. If the minimum performance
target is attained, but not the principal performance target, the participant
will be entitled to receive a lesser percentage of the value of the
performance based award, as determined by the Compensation Committee. The
Compensation Committee shall determine the extent to which the performance
targets have been attained, and what, if any, payment is due the participant
on the performance based award.
Qualifying Performance Based Awards. Section 162(m) of the Code and the
regulations thereunder generally would disallow a federal income tax deduction
to Vesta for compensation in excess of $1 million paid in any year to any of
those Executive Officers included in the Summary Compensation Table. However,
this limitation on compensation expense does not apply to payments of
"performance-based compensation," the material terms of which have been
approved by Vesta's stockholders. The Plan permits the Committee to award
performance based awards that are intended to result in "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code (a "Qualifying Performance Based Award").
The performance goals relating to any Qualifying Performance Based Award
must be "pre-established" and "objective" within the meaning of Section
162(m). Generally, this means that the performance goal must be established
within the first ninety (90) days of the performance period (or such earlier
or later date as may be required or permitted by Section 162(m)), and it must
be based on objective, not subjective, criteria. If the Compensation Committee
determines to grant any Qualifying Performance Based Awards to its most highly
compensated officers, the related performance goals will be based on one or
more of the following objective criteria:
. earnings per share;
. return on equity, assets, capital or investments;
. pre-tax or after-tax profit levels of the Company or any subsidiary,
division, operating unit or business segment thereof, or any combination
of the foregoing;
. the ratio of loss and loss adjustment expenses to premiums earned;
. the ratio of underwriting expenses to premiums written;
. the ratio of operating expenses to total revenue;
. changes in the market price of the Company's common stock;
. changes in the total market capitalization of the Company; or
. adjustments to the ratings assigned to the Company and its Subsidiaries
by rating agencies.
At the expiration of the performance period, the Compensation Committee will
certify in writing the extent to which the performance goals have been
attained and the amounts to be paid out.
Qualifying Performance Based Awards denominated in shares of Vesta common
stock awarded to any single officer with respect to any given performance
period are subject to a maximum limitation of three hundred fifty thousand
(350,000) shares. Qualifying Performance Based Awards denominated in cash
awarded to any single officer with respect to any given performance period are
subject to a maximum cash denomination of three million dollars ($3,000,000).
Change of Control. Upon the occurrence of a Change of, the following shall
occur: (i) all unexercised stock options shall become fully vested immediately
exercisable, (ii) all restrictions on the restricted stock shall lapse and
(iii) any amounts that might have been paid out under outstanding performance
based awards at the
16
end of the relevant performance periods shall be paid out assuming attainment
of the principal performance goal. In addition, a participant may, to the
extent determined by the Compensation Committee, receive in cash from Vesta
with respect to previous awards under the 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, if any, 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.
Term of the Plan. The effective date of the Plan, subject to the approval
by our stockholders, will be March 20, 2001, the date it was adopted by the
Board of Directors. The Plan shall continue in effect until all awards under
the plan have been satisfied by the issuance of shares or the payment of cash,
but no award may be granted after the expiration of ten (10) years following
such effective date.
Amendments. The Board of Directors may at any time amend or discontinue the
Plan and the Compensation Committee may at any time amend or cancel any
outstanding award for the purpose of satisfying changes in law or for any
other lawful purpose, but no such action may be taken that would adversely
affect the rights of a holder under an outstanding award without the holder's
consent. To the extent required by the Code to ensure that options granted
under the Plan qualify as incentive options, and to ensure that compensation
earned under certain awards qualifies as performance-based compensation under
Section 162(m) of the Code, certain amendments to the Plan are subject to
shareholder approval.
New Plan Benefits
Future grants under the Plan will be made at the discretion of the
Compensation Committee and, accordingly, are not yet determinable. In
addition, benefits under the Plan will depend on a number of factors,
including the fair market value of our common stock on future dates and the
exercise decisions made by optionees. Consequently, it is not possible to
determine the benefits that might be received by participants under the Plan.
Certain Federal Income Tax Consequences
The following summary is intended as a general guide to the United States
federal income tax consequences relating to the issuance and exercise of stock
options granted under the Plan. This summary does not attempt to describe all
possible federal or other tax consequences of such grants or tax consequences
based on particular circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under Section 422 of the Internal Revenue
Code (unless the optionee is subject to the alternative minimum tax).
Optionees who neither dispose of their shares acquired upon the exercise of an
incentive stock option ("iso shares") within two years after the stock option
grant date nor within one year after the exercise date normally will recognize
a long-term capital gain or loss equal to the difference, if any, between the
sale price and the amount paid for the iso shares. If an optionee disposes of
the iso shares within two years after the stock option grant date or within
one year after the exercise date (each a "disqualifying disposition"), the
optionee will realize ordinary income at the time of the disposition in an
amount equal to the excess, if any, of the fair market value of the iso shares
at the time of exercise (or, if less, the amount realized on such
disqualifying disposition) over the exercise price of the iso shares being
purchased. Any additional gain will be capital gain, taxed at a rate that
depends upon the amount of time the iso shares were held by the optionee. A
capital gain will be long-term if the optionee's holding period is more than
12 months. Vesta will be entitled to a deduction in connection with the
disposition of the iso shares only to the extent that the optionee recognizes
ordinary income on a disqualifying disposition of the iso shares.
17
Nonqualified Stock Options. An optionee generally recognizes no taxable
income as the result of the grant of a nonqualified stock option. Upon the
exercise of a nonqualified stock option, the optionee normally recognizes
ordinary income equal to the difference between the stock option exercise
price and the fair market value of the shares on the exercise date. If the
optionee is a Vesta employee, such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of stock acquired by
the exercise of a nonqualified stock option, any subsequent gain or loss,
generally based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period is more than
12 months. Vesta generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the
exercise of a nonqualified stock option, except to the extent such deduction
is limited by applicable provisions of the Internal Revenue Code.
The Board of Directors recommends that stockholders vote FOR the proposal
to ratify the Plan.
PROPOSAL NUMBER 3
APPROVAL OF AUDITORS
A proposal to approve the appointment of the firm of PricewaterhouseCoopers
LLP as our principal independent accountants to audit our financial statements
for the year ending December 31, 2001, will be presented to the stockholders
at the annual meeting. The Audit Committee of our board of Directors
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 that they do not plan to make a
statement.
If our stockholders do not approve the appointment of
PricewaterhouseCoopers LLP, the selection of independent auditors will be
reconsidered by our board of directors.
The Board of Directors recommends that stockholders vote FOR the proposal
to ratify the appointment of auditors.
OTHER BUSINESS
As of February 25, 2001, 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 to be eligible to be included in
our proxy statement and proxy form for our annual meeting of stockholders in
2002, the proposal must be received by Vesta at its home office, 3760 River
Run Drive, Birmingham, Alabama 35243, on or before December 7, 2001.
A stockholder of the Corporation may wish to have a proposal presented at
our annual meeting of shareholders to be held in 2002, but not to have such
proposal included in our proxy statement and form of proxy relating to that
meeting. If notice of any such proposal is not received by us at the address
appearing on the first page of this proxy statement by February 23, 2002, then
we will not address the proposal in our proxy statement relating to that
meeting, and all proxies solicited and received by our board of directors will
be deemed to have conferred discretionary authority to vote on any such
proposal.
18
General
The cost of this solicitation of proxies will be borne by Vesta. Corporate
Investor Communications will serve as our proxy solicitation agent, will
coordinate the distribution of proxy materials, and will oversee the return of
Proxy Cards. We estimate the fee for these services will be approximately
$6,000. In addition to solicitation by mail, our directors, officers and other
Vesta employees may solicit proxies personally or by telephone or other means
of communication. We will request certain banking institutions, brokerage
firms, custodians, trustees, nominees, and fiduciaries to forward solicitation
material to the beneficial owners of shares held of record by such persons,
and we will reimburse reasonable forwarding expenses.
We have provided to our stockholders a copy of our Annual Report on Form
10-K for the year ended December 31, 2000, as filed with the Securities and
Exchange Commission, and our 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 Vesta at its
address stated herein.
19
EXHIBIT A
AUDIT COMMITTEE CHARTER
Purpose:
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its responsibility to
oversee management's conduct of the Company's financial reporting process,
including by overviewing the financial reports and other financial information
provided by the Company to any governmental or regulatory body, the public or
other users thereof, the Company's systems of internal accounting and
financial controls and the annual independent audit of the Company's financial
statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain
outside counsel, auditors or other experts for this purpose. The Board and the
Committee are in place to represent the Company's shareholders; accordingly,
the outside auditor is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis.
Membership:
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition will meet the requirements of the Audit
Committee Policy of the New York Stock, Exchange.
Accordingly, all the members will be directors:
. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
. Who are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee will have accounting or
related financial management expertise.
Key Responsibilities:
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that financial
management including the internal audit staff, as well as the outside
auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set
forth as a guide with the understanding that the Committee may diverge from
this guide as appropriate given the circumstances.
. The Committee shall review with management and the outside auditors the
audited financial statements to be included in the Company's Annual
Report on Form 10-K (for the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K) and review and consider
with the outside auditors the matters required to be discussed by
Statement of Auditing Standards ("SAS") No. 61.
. As a whole, or through the Committee chair, the Committee shall review
with the independent auditors any matters identified during the interim
review which would need to be communicated by the independent auditors.
This review will occur prior to the Company's filing of the Form 10-Q.
A-1
. The committee shall discuss with management and the outside auditors the
quality and adequacy of the Company's internal controls.
. The Committee shall:
. request from the outside auditors annually, a formal written
statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board Standard Number
1;
. discuss with the outside auditors any such disclosed relationships
and their impact on the outside auditors independence; and
. recommend that the Board take appropriate action in response to the
outside auditor's report to satisfy itself of the auditor's
independence.
. The Committee, subject to any action that may be taken by the full
Board, shall have the ultimate authority and responsibility to select
(or nominate for shareholder approval, evaluate and, where appropriate,
replace the outside auditor.
A-2
EXHIBIT B
VESTA INSURANCE GROUP, INC.
2001 INCENTIVE COMPENSATION PLAN
Section 1. Purpose of the Plan; Definitions. The purpose of the Vesta
Insurance Group, Inc. 2001 Incentive Compensation Plan (the "Plan") is to
further the growth in earnings and market appreciation of Vesta Insurance
Group, Inc. (the "Company"). The Plan provides long-term incentives to those
officers and key employees of the Company or its subsidiaries who make
substantial contributions to the Company through their ability, loyalty,
industry and invention. The Company intends that the Plan will thereby
facilitate securing, retaining and motivating officers and key employees of
high caliber and good potential.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (i) a willful and material violation of applicable laws
and regulations, (ii) dishonesty, (iii) theft, (iv) fraud, (v) embezzlement,
(vi) commission of a felony or a crime involving moral turpitude, (vii)
substantial dependence or addiction to alcohol or any drug, (viii) conduct
disloyal to the Company or its Subsidiaries, or (ix) willful dereliction of
duties or disregard of lawful instructions or directions of the officers or
directors of the Company or its Subsidiaries relating to a material matter.
(c) "Code" means the Internal Revenue Code of 1986, as amended, or any
successors thereto.
(d) "Committee" means the Compensation Committee of the Board.
(e) "Common Stock" means the common stock, par value $0.01 per share, of
the Company.
(f) "Company" means Vesta Insurance Group, Inc., a Delaware Company.
(g) "Disability" means total and permanent disability as determined under
the Company's long-term disability plan.
(h) "Disinterested Person" shall mean an individual who qualifies as a
"non-employee director" within the meaning set forth in Rule 16b-3(b)(3) as
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, or any successor definition adopted by
the Commission, and who qualifies as an "outside director" within the meaning
set forth in Section 162(m) of the Code and the regulations promulgated
thereunder, or any successor definition thereto.
(i) "Fair Market Value" means, as of any given date, the closing price of
the Common Stock (or if no transactions were reported on such date on the next
preceding date on which transactions were reported) in the principal market in
which such Common Stock is traded on such date.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(l) "Performance Based Awards" means an award granted to a participant
pursuant to Section 9 hereof contingent upon achieving certain performance
targets.
(m) "Plan" means the Vesta Insurance Group, Inc. 2001 Incentive
Compensation Plan.
(n) "Restricted Stock" means an award of shares of Common Stock granted to
a participant pursuant to and subject to the restrictions set forth in Section
7 hereof.
B-1
(o) "Retirement" means Early Retirement or Normal Retirement, as such terms
are defined in the J. Gordon Gaines, Inc. Retirement Savings Plan.
(p) "Stock Option" means any option to purchase shares of Common Stock
granted pursuant to Section 6 hereof.
(q) "Subsidiary" means any direct or indirect subsidiary of the Company.
(r) "Ten Percent Shareholder" means a person who owns (after taking into
account the attribution rules of Code Section 424(b)) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company.
Section 2. Administration.
(a) The Plan shall be administered by the Committee which shall at all times
consist of not less than two (2) Disinterested Persons. The Committee shall
have the power and authority to grant to eligible employees, pursuant to
the terms of the Plan: (i) Stock Options; (ii) Restricted Stock; (iii)
Unrestricted Stock or (iv) Performance Based Awards. In connection with
such awards, the Committee shall have full and final authority in its
discretion:
1. to interpret the provisions of the Plan (and any agreements relating
thereto) and to decide all questions of fact arising in its application;
2. to determine the employees to whom awards shall be made under the Plan;
3. to determine the type of award to be made and the amount, size, terms
and conditions of each such award;
4. to determine and establish additional terms and conditions not
inconsistent with the Plan for any agreements entered into with
participants in connection with the Plan;
5. to determine the time when awards will be granted and when rights may be
exercised, which may be after termination of employment; and
6. to determine whether, to what extent and under what circumstances Common
Stock and other amounts payable with respect to an award under this Plan
shall be deferred either automatically or at the election of a
participant.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
(b) The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable and to otherwise supervise the
administration of the Plan.
Section 3. Stock Subject to Plan; Limitations.
(a) The total number of shares of Common Stock reserved and available for
distribution under the Plan shall be two million (2,000,000); provided,
however, that no more than seven hundred fifty thousand (750,000) shares may
be awarded under the Plan in the form of awards other than Options. Such
shares may consist, in whole or in part, of authorized and unissued shares or
shares previously issued but which have been repurchased by the Company.
Except as otherwise provided herein, any shares subject to an Option which for
any reason expires or is terminated unexercised as to such shares and any
shares of Restricted Stock which are forfeited by the Participant or otherwise
reacquired by the Company shall again be available for awards under the Plan.
B-2
(b) The maximum number of shares which may be made the subject of awards of
any type made under the Plan to any individual in any one year is three
hundred fifty thousand (350,000) (subject to appropriate adjustments to
reflect changes in the capitalization of the Company); provided, however, that
no more than one hundred fifty thousand (150,000) shares may be awarded under
the Plan to any individual in any one year in the form of awards other than
Options.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, Common Stock dividend, or other change in corporate
structure affecting the Common Stock, a substitution or adjustment shall be
made in the aggregate number of shares reserved for issuance under the Plan,
in the number and option price of shares subject to outstanding Stock Options
granted under the Plan and in the number of shares subject to Restricted Stock
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject
to any award shall always be a whole number.
Section 4. Eligibility. Officers and other key employees of the Company and
its Subsidiaries (but excluding members of the Committee and any person who
serves only as a director) who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
Subsidiaries are eligible to participate in the Plan. The participants in the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in
its sole discretion, the number of shares of Common Stock or other amounts
covered by each award or grant.
Section 5. Effective Date. The effective date of this Plan shall be the
date it is adopted by the Board, subject to approval by the stockholders of
the Company in accordance with Section 162(m) of the Code and the shareholder
approval policy of the New York Stock Exchange and, to the extent this Plan
provides for the issuance of Incentive Stock Options, the stockholders of the
Company shall approve those portions of this Plan related to the granting of
Incentive Stock Options within twelve (12) months after the date of adoption.
Section 6. Stock Options. Stock Options may be granted either alone or in
addition to other awards granted under the Plan. Any Stock Option granted
under the Plan shall be in such form as the Committee may from time to time
approve, and the provisions of Stock Option awards need not be the same with
respect to each optionee. Each Stock Option shall be evidenced by a written
option agreement that shall specify, among other things, the type of Stock
Option granted, the option price, the duration of the Stock Option, the number
of shares of Common Stock to which the Stock Option pertains, and the schedule
on which such Stock Options become exercisable.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. The Committee shall have
the authority to grant any optionee Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options (in each case with or without
Stock Appreciation Rights). To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a separate Non-
Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised,
so as to disqualify either the Plan or any Incentive Stock Option under
Section 422 of the Code. Notwithstanding the foregoing, in the event an
optionee voluntarily disqualifies a Stock Option as an Incentive Stock Option
within the meaning of Section 422 of the Code, the Committee may, but shall
not be obligated to, make such additional grants, awards or bonuses as the
Committee shall deem appropriate, to reflect the tax savings to the Company
which result from such disqualification.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
B-3
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant
but shall be not less than the Fair Market Value of the Common Stock on the
date of the grant of the Stock Option; provided, however, if the Stock Option
is an Incentive Stock Option granted to a Ten Percent Shareholder, the option
price for each share of Common Stock subject to such Incentive Stock Option
shall be no less than one hundred ten percent (110%) of the Fair Market Value
of a share of Common Stock on the date such Incentive Stock Option is granted.
Notwithstanding the foregoing and except as permitted by the provisions of
Sections 3(c) and 11(c) hereof, the Committee shall not have the power to (i)
amend the terms of previously granted Stock Options to reduce the option price
per shares subject to such Stock Options, or (ii) cancel such Stock Options
and grant substitute Stock Options with a lower option price per share than
the cancelled Stock Options.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date such Stock Option is granted.
(c) Exercisability. Subject to Section 6(i) hereof with respect to
Incentive Stock Options, Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at grant. If the Committee provides, in its discretion, that any
Stock Option is exercisable only in installments, the Committee may waive such
installment exercise provisions at any time, in whole or in part, based on
performance and/or such other factors as the Committee may determine in its
sole discretion.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
at any time during the option period, by giving written notice of exercise to
the Company specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price, in cash, by check or such other
instrument as may be acceptable to the Committee. Payment of the purchase
price may be made by one or more of the following methods unless otherwise
specified in the Stock Option award agreement:
1. In cash, by certified or bank check or other instrument acceptable to
the Committee;
2. Through the delivery (or attestation to the ownership) of shares of
Common Stock that have been purchased by the optionee on the open market
or that have been beneficially owned by the optionee for at least six
months and are not then subject to restrictions under any Company plan.
Such surrendered shares shall be valued at Fair Market Value on the
exercise date;
3. By the optionee delivering to the Company a properly executed exercise
notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable to the Company for the
purchase price; provided that in the event the optionee chooses to pay
the purchase price in this fashion, the optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of
such payment procedure; or
4. By the optionee delivering to the Company a promissory note, if the
Committee consents to such form of payment; provided that at least so
much of the exercise price as represents the par value of the Stock
shall be paid in cash.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Common Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the provisions
of the Stock Option) by the Company of the full purchase price for such shares
and the fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws. In the event an optionee chooses to pay the
purchase price by previously-owned shares of Common Stock through the
attestation method, the number of shares of Common Stock transferred to the
optionee upon the exercise of the Stock Option shall be net of the number of
shares attested to.
(e) Termination Upon Death, Disability or Retirement. Unless otherwise
determined by the Committee at grant, if any participant's employment is
terminated prior to the vesting of any Stock Option granted pursuant to this
Section 6 (a) as a result of the participant's death or Disability, or (b) by
reason of Retirement, then such
B-4
participant's Stock Options shall become immediately exercisable and may
thereafter be exercised by the participant (or, in the event of death, the
legal representative of the estate or by the legatee of the optionee under the
will of the optionee) for a period of three (3) years from the date of such
death, Disability or Retirement or until the expiration of the stated term of
such Stock Option, whichever period is the shorter. If the termination results
from a participant's Disability, and the participant dies within such three
year period, any unexercised Stock Option held by such participant shall
thereafter be exercisable for a period of twelve (12) months from the date of
such death or for the stated term of such Stock Option, whichever period is
the shorter. In the event of termination of employment by reason of death,
Disability or Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(f) Involuntary Termination by the Company Without Cause. Unless otherwise
determined by the Committee at grant, if the Company terminates the optionee's
employment without Cause, then such participant's Stock Options shall become
immediately exercisable and may thereafter be exercised by the participant
(or, in the event of death, the legal representative of the estate or by the
legatee of the optionee under the will of the optionee) for a period of twelve
(12) months from the date of such termination or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(g) Voluntary Termination by Employee. Unless otherwise determined by the
Committee at grant, if a participant voluntarily terminates his or her
employment for any reason other than death, Disability or Retirement, any
Stock Option held by such optionee may be exercised by the optionee, but only
to the extent exercisable on the date of termination, for a period of six (6)
months from the date of termination or until the expiration of the stated term
of such Stock Option, whichever period is the shorter. Any portion of this
Stock Option that is not exercisable at such time shall terminate immediately
and be of no further force or effect.
(h) Termination by the Company for Cause. Unless otherwise determined by
the Committee at grant, if the Company terminates the optionee's employment
for Cause, any Stock Option held by such optionee may be exercised by the
optionee, but only to the extent exercisable on the date of termination, for a
period of thirty (30) days from the date of termination or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. Any portion of any Stock Option that is not exercisable at such time
shall terminate immediately and be of no further force or effect.
(i) Limit on Value of Incentive Stock Option First Exercisable
Annually. The aggregate Fair Market Value (determined at the time of grant) of
the Common Stock for which Incentive Stock Options are exercisable for the
first time by an optionee during any calendar year under the Plan (and/or any
other stock option plans of the Company or any Subsidiary) shall not exceed
$100,000.
(j) No Rights as Stockholder. An optionee shall not have the rights to
dividends or other rights of a stockholder with respect to shares subject to a
Stock Option until such time as the optionee has given written notice of
exercise and has paid in full for such shares.
Section 7. Restricted Stock Awards.
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and its Subsidiaries
to whom, and the time or times at which, grants of Restricted Stock will be
made, the number of shares to be awarded, the price to be paid by the
recipient of Restricted Stock, if any, the period of time during which the
transfer of such shares is restricted, and all other conditions of the awards.
The provisions of Restricted Stock awards need not be the same with respect to
each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement evidencing
the award (a "Restricted Stock Award Agreement") and has delivered a fully
executed copy thereof to the Company, and has otherwise complied with the then
applicable terms and conditions.
B-5
1. Awards of Restricted Stock must be accepted within a period of ninety
(90) days (or such shorter period as the Committee may specify) after
the award date by executing a Restricted Stock Award Agreement and
paying whatever price is required.
2. A stock certificate in respect of shares of Restricted Stock shall be
issued in the name of each participant who is awarded Restricted Stock.
Such certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following
form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Vesta Insurance Group, Inc. 2001 Incentive
Compensation Plan and a Restricted Stock Award Agreement entered into
between the registered owner and the Company. Copies of such Plan and
Agreement are on file in the offices of the Company, 3760 River Run
Drive, Birmingham, Alabama 35243."
3. The Committee shall require that the stock certificates evidencing such
shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in
blank, relating to the Common Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
1. Subject to the provisions of this Plan and the Restricted Stock Award
Agreements, during such period as may be set by the Committee commencing
on the grant date (the "Restriction Period"), the participant shall not
be permitted to sell, transfer, pledge or assign shares of Restricted
Stock awarded under the Plan. The Committee may, in its sole discretion,
provide for the lapse of such restrictions at one time ("cliff vesting")
or may provide for the lapse of such restrictions in installments
("graded vesting").
2. If a participant's employment (or other business relationship) with the
Company and its Subsidiaries terminates for any reason, the Company
shall have the right to repurchase Restricted Stock that has not vested
at the time of termination at its original cash purchase price from the
participant or the participant's legal representative. If the
participant paid no cash purchase price for the Restricted Stock when
originally awarded, then the shares of Restricted Stock that have not
vested shall be forfeited without any payment therefor.
3. In the event a participant's employment is terminated for any reason
other than for Cause, the Committee may, in its sole discretion, waive
in whole or in part any or all remaining restrictions with respect to
such participant's shares of Restricted Stock.
4. Except as provided in paragraph (c)(1) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company, including the right
to vote and to receive any dividends. Dividends paid in stock of the
Company or stock received in connection with a stock split with respect
to Restricted Stock shall be subject to the same restrictions as on such
Restricted Stock. Certificates for shares of unrestricted Stock shall be
delivered to the participant promptly after, and only after, the
Restriction Period shall expire in respect of such shares of Restricted
Stock.
Section 8. Unrestricted Stock Awards. The Committee, in its sole
discretion, may grant (or sell at par value or such higher purchase price
determined by the Committee) an Unrestricted Stock Award to any participant
pursuant to which such participant may receive shares of Stock free of any
restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards
may be granted or sold as described in the preceding sentence in respect of
past services or other valid consideration, or in lieu of cash compensation
due to such participant.
B-6
Section 9. Performance Based Awards. The Committee may award Performance
Based Awards (which may be denominated in either shares of stock or cash)
under which payment may be made to the participant upon the attainment of
specific performance goals. If the Performance Based Award is denominated in
shares of Common Stock, the shares underlying such award will be issued only
upon attainment of the relevant performance goal. If the Performance Based
Award is denominated in cash, that amount of cash will be paid in cash only
upon attainment of the relevant performance goal. Performance Based Awards
shall be evidenced by Performance Based Award agreements in such form not
inconsistent with the Plan as the Committee shall approve from time to time.
Such agreements shall contain in substance the following terms and conditions:
(a) Performance Period. The performance period for a Performance Based
Award shall be established by the Committee.
(b) Performance Goals. The Committee may establish performance goals based
on any business criteria deemed appropriate by the Committee, including
objective and subjective criteria. These performance goals may be designed to
measure corporate performance under any standards as may be determined by the
Committee, including the absolute performance of the Company or its
Subsidiaries relative to prior periods, the performance of the Company or its
Subsidiaries relative to other companies, or the performance of the
departments or divisions of the Company or its Subsidiaries with respect to
which the recipient has supervisory responsibility. Multiple performance goals
may be established and may have the same or different weighting.
(c) Principal and Minimum Performance Targets. As an element of each
performance goal, the Committee may establish a principal performance target
and a minimum performance target. If the principal performance target is
attained, the participant will be entitled to receive 100% of the value of the
performance based award. If the minimum performance target is attained, but
not the principal performance target, the participant will be entitled to
receive a lesser percentage of the value of the performance based award, as
determined by the Compensation Committee. The Compensation Committee shall
determine the extent to which the performance targets have been attained, and
what, if any, payment is due the participant on the performance unit.
(d) Adjustments. At any time prior to payout of any Performance Based
Awards, the Committee may adjust previously established performance goals and
other terms and conditions to reflect major unforeseen events such as changes
in laws, regulations or accounting policies or procedures, mergers,
acquisitions or divestitures or extraordinary, unusual or nonrecurring items
or events, subject to the limitations of Section 162(m) of the Code with
respect to those Performance Based Awards which are structured to qualify for
an exception to the limitations on deductibility imposed by Section 162(m) (as
discussed below).
(e) Payouts of Performance Based Awards. Following the conclusion of each
performance period, the Committee shall determine the extent to which
performance goals have been attained for such period and what, if any, payment
is due on the Performance Based Awards. Payments shall be made as promptly as
practicable following the end of the performance period.
(f) Termination for any Reason Other Than Cause. Any participant granted a
Performance Based Award pursuant to this Section 9, whose employment is
terminated before the end of the performance period for any reason other than
for Cause may be entitled to receive a portion of any amounts that might have
been paid out under his or her Performance Based Award at the end of the
relevant performance periods. The Committee, in its discretion, will determine
the amount, if any, of the amounts to be paid out under these circumstances
and the time at which payment will be made.
(g) Termination by the Company for Cause. A participant whose employment is
terminated involuntarily for Cause will forfeit all rights under his or her
Performance Based Awards.
(h) Section 162(m) Provisions. The Committee may award Performance Based
Awards that are intended to result in "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code (a "Qualifying
Performance Based Award"). The performance goals relating to any Qualifying
Performance Based
B-7
Award will be "pre-established" and "objective" within the meaning of Section
162(m). Accordingly, the performance goal will be established within the first
ninety (90) days of the performance period (or such earlier or later date as
may be required or permitted by Section 162(m)), and it will be based on one
or more of the following objective criteria:
1. earnings per share;
2. return on equity, assets, capital or investments;
3. pre-tax or after-tax profit levels of the Company or any subsidiary,
division, operating unit or business segment thereof, or any combination
of the foregoing;
4. the ratio of loss and loss adjustment expenses to premiums earned;
5. the ratio of underwriting expenses to premiums written;
6. the ratio of operating expenses to total revenue;
7. changes in the market price of the Company's common stock;
8. changes in the total market capitalization of the Company; or
9. adjustments to the ratings assigned to the Company and its Subsidiaries
by rating agencies.
At the expiration of the performance period, which for Qualifying Performance
Based Awards must be at least one year, the Committee will certify in writing
the extent to which the performance goals have been attained and the amounts
to be paid out.
Qualifying Performance Based Awards denominated in shares of Common Stock
awarded to any single officer with respect to any given performance period are
subject to the limitation stated in Section 3(b). Qualifying Performance Based
Awards denominated in cash awarded to any single officer with respect to any
given performance period are subject to a maximum cash denomination of three
million dollars ($3,000,000).
Section 10. Loan Provisions. With the consent of the Committee, the Company
may make, or arrange for, a loan or loans to an employee with respect to the
exercise of any Stock Option granted under the Plan and/or with respect to the
payment of the purchase price, if any, of any Restricted Stock awarded
hereunder. The Committee shall have full authority to decide whether to make a
loan or loans hereunder and to determine the amount, term and provisions of
any such loan or loans, including the interest rate to be charged in respect
of any such loan or loans, whether the loan or loans are to be with or without
recourse against the borrower, the terms on which the loan is to be repaid,
and the conditions, if any, under which the loan or loans may be forgiven.
Section 11. Change of Control. The following acceleration and valuation
provisions shall apply in the event of a "Change of Control" or "Potential
Change of Control," as defined in this Section 11:
(a) Effect of Change of Control. In the event of a "Change of Control" as
defined in paragraph (b) of this Section 11:
1. any Stock Options awarded under the Plan not previously exercisable and
vested shall become fully exercisable and vested;
2. the restrictions applicable to any Restricted Stock awards under the
Plan shall lapse and such shares and awards shall be deemed fully
vested;
3. any amounts that might have been paid out under outstanding Performance
Based Awards at the end of the relevant performance periods shall be
paid out assuming attainment of the principal performance goal; and
B-8
4. the value of all outstanding Stock Options and Restricted Stock may, to
the extent determined by the Committee, be cashed out on the basis of
the "Change of Control Price" (as defined in paragraph (c) of this
Section 11) as of the date the Change of Control occurs, or such other
date as the Committee may determine prior to the Change of Control.
(b) Change of Control. For purposes of paragraph (a) of this Section 11, a
"Change of Control" means the happening of any of the following:
1. when any "person" as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, (other than the Company or any Company employee
benefit plan, including its trustee) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding securities;
2. the occurrence of any transaction or event relating to the Company
required to be described pursuant to the requirements of Item 6(e) of
Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
3. when, during any period of two (2) consecutive years during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board cease, for any reason other than death, to
constitute at least a majority thereof, unless each director who was not
a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds (2/3) of the directors at the
beginning of such period; or
4. the occurrence of a transaction requiring stockholder approval for the
acquisition of the Company by an entity other than the Company through
purchase of assets, or by merger, or otherwise.
(c) Change of Control Price. For purposes of this Section 11, "Change of
Control Price" means the highest price per share paid in any transaction
reported on the New York Stock Exchange, or paid or offered in any transaction
related to a potential or actual Change of Control of the Company at any time
during the preceding sixty (60) day period as determined by the Committee,
except that, in the case of Incentive Stock Options, such price shall be based
only on transactions reported for the date on which the Committee decides to
cash out such options.
Section 12. General Provisions.
(a) Amendment or Termination. The Board may, at any time, amend or
discontinue the Plan and the Committee may, at any time, amend or cancel any
outstanding award for the purpose of satisfying changes in law or for any
other lawful purpose, but no such action shall adversely affect rights under
any outstanding award without the holder's consent. Plan amendments shall be
subject to approval by the Company stockholders entitled to vote at a meeting
of stockholders if and to the extent the Committee determines such approval is
required (i) by the Code to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code, (ii) by the Code to
ensure that compensation earned under Qualifying Performance Based Awards
qualifies as performance-based compensation under Section 162(m) of the Code
or (iii) by the shareholder approval policy of the New York Stock Exchange.
(b) No Additional Rights. Nothing set forth in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company, any
Subsidiary or any Affiliate, any right to continued employment with the
Company, a Subsidiary or an Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company, Subsidiary or an Affiliate
to terminate the employment of any of its employees at any time.
B-9
(c) Withholding. Each participant shall, no later than the date as of which
the value of an award first becomes includible in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee, in its sole discretion, regarding
payment of, any Federal, FICA, state, or local taxes of any kind required by
law to be withheld with respect to the award. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements and the
Company (and, where applicable, its Subsidiaries) shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
Subject to applicable laws and regulations regarding transactions in Common
Stock by persons who are deemed insiders, a participant may elect to have the
withholding tax obligations satisfied by (i) having the Company withhold
shares of Common Stock otherwise deliverable to the participant with respect
to an award or (ii) delivering to the Company shares of unrestricted Common
Stock. In either case, if the participant is subject to Section 16 of the
Securities and Exchange Act of 1934, such election shall be effected so as to
satisfy the conditions to the exemption under Rule 16b-3 thereunder.
(d) Right of First Refusal. At the time of grant or purchase, the Committee
may provide in connection with any grant or purchase made under this Plan that
the shares of Stock received as a result of such grant or purchase shall be
subject to a right of first refusal, pursuant to which the participant shall
be required to offer to the Company any shares that the participant wishes to
sell, with the price being the then Fair Market Value of the Stock, subject to
the provisions of Section 11 hereof and to such other terms and conditions as
the Committee may specify at the time of grant.
(e) Indemnification. No member of the Board or the Committee, nor any
officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(f) Non-Assignability. Unless otherwise established by the Committee at
grant, no award under the Plan shall be assignable or transferable by the
participant except by will or by the laws of descent and distribution, and,
during the lifetime of the participant, such awards shall be exercisable only
by the participant or by the participant's legal guardian. If the Committee
makes an option or other awards transferable or assignable, such option or
other awards shall be subject to such additional terms and conditions as the
Committee deems appropriate.
(g) Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a participant or optionee by the Corporation, nothing
set forth herein shall give any such participant or optionee any rights that
are greater than those of a general creditor of the Corporation. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or payments in lieu of or with respect to awards hereunder; provided,
however, that the existence of such trusts or other arrangements is consistent
with the unfunded status of the Plan.
(h) Governmental or Other Regulations. Each award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (a) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or federal law, or (b) the consent or approval of any government
regulatory authority, or (c) an agreement by the recipient of an award with
respect to the disposition of shares of Common Stock, is necessary or
desirable as a condition of, or in connection with, the granting of such award
or the issue or purchase of shares of Common Stock thereunder, such award may
not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the
B-10
Committee. A participant shall agree, as a condition of receiving any award
under the Plan, to execute any documents, make any representations, agree to
restrictions on stock transferability and take any actions which in the
opinion of legal counsel to the Corporation is required by any applicable law,
ruling or regulation.
(i) Construction of Plan. The validity, interpretation, and administration
of the Plan and of any rules, regulations, determinations, or decisions made
thereunder, and the rights of any and all persons having or claiming to have
any interest therein or thereunder, shall be determined exclusively in
accordance with the laws of the State of Alabama.
(j) Term of Plan and Awards. No award shall be granted pursuant to the Plan
on or after the tenth anniversary of the date of stockholder approval, but
awards theretofore granted may extend beyond that date.
B-11
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 7, 2001
The undersigned hereby constitutes and appoints Norman W. Gayle III and Donald
W. Thornton, or either of them with full power of substitution in each, proxies
to vote all shares of Common Stock of Vesta Insurance Group, Inc. (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders to be held at The Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203, on Monday, May 7, 2001, and at all adjournments or
postponements thereof as follows:
Election of Directors, Nominees:
For Class II, to serve until the 2004 Annual Meeting
Robert B.D. Bativala, Ph.D. and Ehney A. Camp III
Ratification of the Company's 2001 Incentive Compensation Plan.
Ratification of the appointment of the firm of
PricewaterhouseCoopers LLP as the Company's independent auditors
for the year ending December 31, 2001.
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
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6648
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.
1. Election of Directors FOR [ ] WITHHELD [ ]
(See Reverse)
For, except vote withheld
from the following nominee(s):
-----------------------------
2. Ratification of the Company's 2001
Incentive Compensation Plan. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of the appointment of
the firm of PricewaterhouseCoopers
LLP as the Company's independent
auditors for the year ending
December 31, 2001. FOR [ ] AGAINST [ ] ABSTAIN [ ]
IMPORTANT: Please sign exactly as your name appears
hereon. If shares are held by more than one owner,
each must sign. Executors, administrators, trustees,
guardians, and others signing in a representative
capacity should give their full titles.
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SIGNATURE(S) DATE
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