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. )
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[X] Definitive Proxy Statement
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Vesta Insurance Group, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(3) Per unit price or other underlying value of transaction computed
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO] VESTA
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
Tuesday, May 28, 2002, 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 25, 2002
--------------------------------
Notice Of Annual Meeting Of Stockholders
To Be Held May 28, 2002
--------------------------------
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 Tuesday, May 28, 2002, at 10:00 A.M., local time, for the following purposes:
(1) To elect two persons to serve as Class III directors for a three-year
term beginning May 28, 2002.
(2) To ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the year ending December 31, 2002.
(3) To transact such other business as may properly come before the meeting.
These matters are more fully discussed in the accompanying Proxy Statement.
The close of business on April 1, 2002 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 25, 2002
PROXY STATEMENT FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MAY 28, 2002
INFORMATION ABOUT THE MEETING
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 Tuesday, May 28, 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 25, 2002.
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 April 1, 2002
(the "record date") is entitled to one vote for each share of common stock held
on that date. There is no cumulative voting of the common stock. At the close
of business on April 1, 2002, there were 36,473,394 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.
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.
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 routine
matter for which a broker may exercise its discretion.
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 December 31, 2001.
Name and Address Title of Class Number of Shares Percent of Class
---------------- -------------- ---------------- ----------------
Franklin Resources, Inc. (1) Common Stock 2,136,900 6.1%
One Franklin Parkway
San Mateo, California 94403
Becker Capital Management (2) Common Stock 2,085,250 6.0%
1211 SW Fifth Avenue, Suite 2185
Portland, Oregon 97204
Capital Z Partners, Ltd. (3) Common Stock 2,044,875 5.67%
One Chase Manhattan Plaza
New York, New York 10005
Wellington Management Company, LLP (4) Common Stock 1,871,900 5.39%
75 State Street
Boston, MA 02109
--------
(1) Based on Schedule 13G, filed February 14, 2002 by Franklin Resources, Inc.
(2) Based on Schedule 13G, filed February 7, 2002 by Becker Capital Management.
(3) Based on Schedule 13D, filed January 10, 2002 by Capital Z Partners, Ltd.
and affiliates.
(4) Based on Schedule 13G, filed February 12, 2002 by Wellington Management
Company, LLP.
2
PROPOSAL NUMBER 1
ELECTION 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, the nominating committee nominated, and our
board of directors is proposing the re-election of Norman W. Gayle, III and
James E. Tait to serve as Class III directors, to hold office for a term of
three years, expiring at the close of the annual meeting of stockholders to be
held in 2005 and until their successors are elected and qualified. The current
terms of Messrs. Gayle and Tait expire at the annual meeting of stockholders
for 2002.
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.
INFORMATION ABOUT OUR BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Profiles of Nominees
Norman W. Gayle, III, (age 47) has been a director of Vesta since 1998.
Principal occupation: President of Vesta since 1998; Executive Vice President
and Chief Operating Officer of Vesta from 1995 to 1998.
James E. Tait (age 52), Chairman, has been a director of Vesta since 1998.
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; President of Inex Insurance Exchange, 1996-1999;
Partner, Coopers & Lybrand, 1980-1996.
Profiles of Common Directors Whose Terms Have Not Expired
Robert B.D. Batlivala, Ph.D. (age 63) was elected as a Preferred Stock
Director effective October 19, 1999, and was elected as a director by our
common stockholders in 2001. His term expires in 2004 (Class II). 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.
Walter M. Beale, Jr. (age 56) 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 1996.
Ehney A. Camp, III (age 59) has been a director of Vesta since 1993. His
term expires in 2004 (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.
Alan S. Farrior (age 48) 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.
3
T. Owen Vickers, Sr. (age 52) has been a director of Vesta since 2001. His
term expires in 2004 (Class II). Principal occupation: Chairman, CEO and
President of Birmingham Hide and Tallow Co., Inc., a diversified private
company, since prior to 1996.
Stephen R. Windom (age 52) 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 1996. 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.
Meetings of the Board of Directors and Committees
During 2001, our board of directors met eight times. In 2001, 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 established an Audit Committee, a Compensation
Committee and a Nominating Committee.
The Audit Committee operates under a written charter adopted by our board of
directors. 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 six times in
2001.
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 three times in 2001.
The Nominating Committee recommends to the Board the number and names of
persons to be proposed by the Board for election as directors at the annual
general meetings of stockholders. It may also recommend to the Board persons to
be appointed by the Board or to be elected by the stockholders to fill any
vacancies which occur on the Board. The Nominating Committee consists of
Messrs. Camp, Farrior and Vickers. The Nominating Committee, which was
established in October, 2001, did not meet in 2001. The Nominating Committee
will consider nominees recommended by stockholders who may submit nominations
to the Nominating Committee, care of the Secretary, Vesta Insurance Group,
Inc., 3760 River Run Drive, Birmingham, Alabama 35243.
Payments to Directors
For 2001, 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. Directors also receive
reimbursement for their travel and lodging expenses if they do not live in the
area where the meeting is held. Audit Committee members also receive an annual
retainer fee of $10,000, payable in equal quarterly installments.
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 on 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 restricted stock
in lieu of part or all of such director's annual
4
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. During 2001, Mr. Camp and Mr. Farrior elected to receive restricted
stock in lieu of their annual retainers, and Mr. Farrior also elected to
receive restricted stock in lieu of his 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 238,569 shares have made the
subject of previous awards (20,154 of which were subsequently forfeited upon
the resignation of former directors) and 597,585 shares remain available for
future awards.
Compensation Committee Interlocks and Insider Participation
During 2001, 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.
5
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, 2001, except Norman W.
Gayle, III and James E. Tait, who also serve as 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 52 President, Standard Auto Division of Vesta since 2001; Senior Vice
President--Insurance Operations of Vesta Fire Insurance Corporation 1999-
2001. Executive Vice President of Audubon Insurance Group, Baton Rouge,
Louisiana, from March 1997 to October 1999. Vice President of Hanover
Insurance Company, Worcester, Massachusetts from March of 1993 to March
of 1997.
Thomas J. Chana 54 Treasurer of Vesta since 2001. Senior Vice President of subsidiary company
responsible for a bank acquisition and affiliate marketing programs from
2000-2001. Senior Vice President at Banc One Securities Corporation
responsible for the Illinois market from 1998-2000. Senior Vice President and
member of the Senior Management Council for First Chicago NBD
Corporation responsible for sales management for the Wealth Management
Group from 1995-1998.
William P. Cronin 42 Senior Vice President--Chief Financial Officer of Vesta since 2000; Senior
Vice President--Controller of Vesta 1998-2000; 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.
Ernest H. Fukeda, Jr. 52 President of The Hawaiian Insurance and Guaranty Company, Ltd. since
2000. Member of Senior Staff of First Insurance Company of Hawaii, Ltd.,
the largest P&C carrier in Hawaii, from 1995-2000, with responsibilities
including Commercial Lines Underwriting, Premium Audit, Marketing,
Excess & Surplus Lines, Customers Service and Mergers & Acquisitions.
Stephen A. Korducki 50 President of the Residential Property Division of Vesta since 2001. President
and Chief Executive Officer of Florida Select, a Vesta subsidiary, from 1998
to present. Prior to joining Florida Select, Mr. Korducki worked for E.W.
Blanch Holdings, an international reinsurance intermediary, from 1993 to
1998, where he served as President and Founder of E.W. Blanch Capital
Markets and Senior Vice President of E.W. Blanch Company.
Thomas E. Mangold 47 Chairman of the Non Standard Auto Agency Segment of Vesta since 2001.
Chief Executive Officer of Instant Insurance Holdings, Inc., our non standard
auto agency operating subsidiary, since 2000. Chief Executive Officer of
Bristol West Insurance Group from 1999-2000. Chief Operating Officer,
President and director of Titan Holdings, Inc and its main operating
subsidiary, Titan Auto, from 1996-1998.
6
Principal Occupation and Business Experience
Name Age for the Past Five Years
---- --- --------------------------------------------
John W. McCullough 36 Vice President--Associate General Counsel of Vesta since 2000. Associate
and partner with Balch & Bingham LLP from 1996-2000.
Hopson Nance 32 Vice President and Controller of Vesta since 2000. Audit manager and other
positions with PricewaterhouseCoopers LLP from 1996-2000.
Kenneth W. Phillips 61 Chairman of the Life and Health Insurance Segment of Vesta since 2001;
Chairman and CEO of American Founders Financial Corp. since April 1999;
Chairman of American Founders Life Insurance Company since December
1997; Chairman and CEO of IFS Insurance Holdings from July 1997 to
January 2000; Merger and Acquisition Consultant, IFS Insurance Holdings--
January 1996-July 1997.
Stephen P. Russell 43 Senior Vice President and Chief Actuary of Vesta Fire Insurance Corporation
since 1998. From 1982 to 1998, Mr. Russell was director and senior actuary
of Allstate Insurance Company, Northbrook, Illinois.
Wayne A. Schreck 45 President of American Founders Life Insurance Company since 1996.
Donald W. Thornton 54 Senior Vice President--General Counsel and Secretary of Vesta since 1995.
Stock Ownership of Directors and Executive Officers
The following table reflects certain information about the equity ownership
of the directors and each of the "named executive officers" shown in the
Summary Compensation Table herein, and all directors and executive officers as
a group, as of December 31, 2001:
% of
Common Common
Name Stock+ Stock
---- --------- ------
Robert B.D. Batlivala (1)................................... 10,000 *
Walter M. Beale, Jr. (2).................................... 49,499 *
Ehney A. Camp, III (3)...................................... 52,830 *
Alan S. Farrior (4)......................................... 15,789 *
Norman W. Gayle, III (5).................................... 948,133 2.7%
Kenneth W. Phillips......................................... --0-- *
Wayne A. Schreck............................................ --0-- *
James E. Tait (6)........................................... 818,457 2.3%
Donald W. Thornton (7)...................................... 443,573 1.3%
T. Owen Vickers, Sr......................................... 10,100 *
Stephen R. Windom (8)....................................... 20,000 *
All Directors and Executive Officers as a Group (20 persons) 2,431,927 7%
--------
+ Amounts shown include options that were vested as of March 1, 2002.
* less than 1%
--------
(1) Includes 10,000 shares subject to the exercise of options granted pursuant
to our Non-Employee Director Stock Plan.
(2) Includes (i) 10,000 shares subject to the exercise of options 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) 10,000 shares subject to the exercise of options and 3,325
shares of restricted stock granted pursuant to our Non-Employee Director
Stock Plan, (ii) 9,200 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.
7
(4) Includes 10,000 shares subject to the exercise of options and 1,789 shares
of restricted stock granted pursuant to our Non-Employee Director Stock
Plan.
(5) Includes (i) 52,500 shares subject to the exercise of options granted
under, and 198,032 shares of restricted stock awarded under our Long Term
Incentive Plan, (ii) 500,000 shares of restricted stock in connection with
the settlement of the Executive Officer Incentive Compensation Plan
discussed below (See, Compensation Pursuant to Plans), (iii) 5,750 shares
held in Mr. Gayle's Individual Retirement Account, and (iv) 12,699 shares
allocated to Mr. Gayle's 401(k) plan account.
(6) Includes (i) 52,500 shares subject to the exercise of options granted
under, and 195,000 shares of restricted stock awarded under, our Long Term
Incentive Plan; (ii) 500,000 shares of restricted stock awarded stock in
connection with the settlement of the Executive Officer Incentive
Compensation Plan discussed below (See, Compensation Pursuant to Plans);
(iii) 10,000 shares held indirectly in an individual retirement account,
10,000 shares held indirectly as Trustee of Family Trust where Mr. Tait has
a one-third remainder interest, and 400 shares held indirectly in an
individual retirement account for the benefit of Mr. Tait's wife, Gail P.
Tait; and (iv) 13,957 shares allocated to Mr. Tait's 401(k) plan account.
(7) Includes (i) 27,500 shares subject to the exercise of options granted
under, and 123,479 shares of restricted stock awarded under our Long Term
Incentive Plan, (ii) 250,000 shares of restricted stock awarded in
connection with the settlement of the Executive Officer Incentive
Compensation Plan discussed below (See, Compensation Pursuant to Plans) and
(iii) 13,105 shares allocated to Mr. Thornton's 401(k) plan account.
(8) Includes 10,000 shares subject to the exercise of options granted pursuant
to our Non-Employee Director Stock Plan.
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 2001 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 2001.
8
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, 2001, 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
9
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 receiving in excess of stated levels
determined by the Compensation Committee from time to time, and to administer
all plans relating to the compensation of such officers. For 2001, the
Compensation Committee reviewed the compensation of Messrs. Tait, Gayle,
Thornton and Cronin, the only executive officers of Vesta with a base salary of
more than $225,000 annually. The Compensation Committee did not review the
compensation of executive officers of our subsidiaries, including Mesrs.
Phillips and Schreck, because such persons were not deemed to be executive
officers of Vesta until after their base salaries had been determined and their
bonuses had been awarded by the boards of the subsidiaries. For 2002, the
Compensation Committee has determined to review and reserve the authority to
approve the compensation paid to any executive officer of Vesta or its
subsidiaries earning salary and bonus, in the aggregate, in excess of
$250,000.
Our total compensation structure is comprised of annual base salary, annual
cash bonus payments and long term equity based compensation granted pursuant to
our equity based incentive plans. 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.
Salary. The salary levels for our executive officers for 2001, including
the salaries of Mr. Gayle and Mr. Tait as occupants of the office of the
Chairman, are 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. In addition, each of Messrs. Tait, Gayle, Thornton and Cronin
are parties to employment contracts that provide for minimum annual base
salaries to be reviewed at least annually by the Compensation Committee for
consideration of appropriate merit increases and, once established, their base
salaries shall not be decreased during the employment period.
Bonuses. The Compensation Committee has the discretion to award annual cash
bonuses. The amount of cash bonuses paid, if any, typically are not directly
related to any specific or objective measures of corporate performance. Rather,
the Compensation Committee evaluates the performance of the executive officers
by considering a variety of factors and criteria that may vary from year to
year and applying their collective judgment and experience in determining the
amount of bonus that is appropriate under the totality of the circumstances
existing at the time the determination is made. In 2001, the Compensation
Committee awarded cash bonuses to Messrs. Gayle, Tait, Thornton and Cronin in
amounts equal to 100% of their annual salary based upon, among other things,
these executive officers' continuing contributions towards the successful
strategic repositioning of our company and the development of new business
opportunities.
Equity based compensation. The payment of equity based compensation to our
executive officers under our incentive plans is intended to (i) highlight and
reinforce the mutuality of long-term interests between employees and the
stockholders and (ii) to assist in the attraction and retention of key
executives, managers and individual contributors who are essential to the
Company's growth and development. In January of 2001, the Compensation
Committee granted shares of restricted stock that will fully vest on January
23, 2003 as follows: Gayle-75,000; Tait-75,000; Thornton-50,000; Cronin-50,000.
10
The awards granted to our executive officers in 2001 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.
Settlement of Executive Officer Incentive Compensation Plan. In 2001, three
executive officers received substantial awards of restricted stock that vest
over a ten year period (1/10 annually) and loans that are to be forgiven over a
ten year period (1/10 annually) pursuant to a settlement of the previously
adopted Executive Officer Incentive Compensation Plan. See, "Executive Officer
Incentive Compensation Plan," discussed elsewhere in this proxy statement. The
decision to settle this plan in 2001 was a business judgment made by the board
of directors related to a pre-existing contract and did not reflect a current
compensatory decision of the Compensation Committee.
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 $1,000,000 in any year and does not qualify as "performance based
compensation" as defined by Section 162(m). In 2001, Vesta's stockholders
approved a plan that allows the Compensation Committee to award performance
based compensation, which is generally compensation payable only upon the
attainment of a performance goal that is both (i) based on objective, not
subjective, criteria and (ii) established early in the performance period while
attainment of the goal is still uncertain. None of the compensation paid to the
executive officers in 2001 qualified as performance based compensation under
Section 162(m).
Compensation Committee
Robert B. D. Batlivala
Alan S. Farrior
Stephen R. Windom
11
COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Information
The following table sets forth certain information regarding compensation
paid during the last three fiscal years to our President and the four other
most highly compensated executive officers serving at the end of 2001.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------------- ------------------------------------------
Awards Payouts
--------------------- ----------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options Payouts(3) Compensation
Principal Position Year ($) ($) (1) (2) (#) ($) ($)
------------------ ---- ------- ------- ------------ ---------- ---------- ---------- ------------
Norman W. Gayle, III, 2001 471,538 430,000 * 6,013,125 --0-- 229,022 11,773(4)
President 2000 430,000 430,000 * 231,178 --0-- 229,022 11,693(4)
1999 420,097 --0-- 23,562 337,500 52,500 217,022 8,446(4)
James E. Tait, 2001 552,692 525,000 * 6,013,125 --0-- --0-- 12,056(5)
Chairman 2001 525,000 525,000 * 216,585 --0-- --0-- 11,956(5)
1999 512,948 --0-- 62,708 337,500 52,500 --0-- 7,737(5)
Kenneth W. Phillips 2001 338,335 275,000 * --0-- 15,000 --0-- 4,582(7)
Chairman, American 2000 163,215 --0-- * --0-- --0-- --0 -- 357(7)
Founders Life Insurance
Company (6)
Wayne A. Schreck 2001 361,725 275,000 * --0-- 15,000 --0-- 4,624(9)
President, American 2000 169,215 --0-- * --0-- --0-- --0-- 358(9)
Founders Life Insurance
Company (8)
Donald W. Thornton, 2001 248,461 230,000 * 3,098,750 --0-- 42,756 9,912(10)
Senior Vice 2000 230,000 230,000 * 353,654 --0-- 42,756 9,797(10)
President--General 1999 226,462 --0-- 10,832 --0-- 102,500 42,220 10,350(10)
Counsel and Secretary
--------
(1) Includes amounts paid during 1999 to compensate the executive officers for
taxes incurred upon the lapse of restrictions applicable to
previously awarded restricted stock. An asterisk (*) indicates
that the total amount of perquisites or personal benefits paid to
an executive officer during the referenced year was less than
$50,000, the minimum, under SEC rules, an executive must have
received before any amount is required to be shown in this column.
(2) Includes grants of restricted stock under our LTIP on January 23, 2001 that
will fully vest on January 23, 2003 as follows: Gayle - 75,000; Tait -
75,000; Thornton - 50,000. Also includes grants of restricted stock on
August 7, 2001 made pursuant to a Settlement Agreement between Vesta and
Messrs. Gayle, Tait and Thornton by which we settled our contingent
obligations to Messrs. Gayle, Tait and Thornton under the Executive Officer
Incentive Compensation Plan originally adopted on September 30, 1999. This
Settlement Agreement provides that restricted stock would be granted as
follows: Gayle - 500,000; Tait - 500,000; Thornton - 250,000, and that such
shares of restricted stock will vest over a ten-year period (ten percent
annually). These latter grants were made outside of our LTIP or Incentive
Compensation Plan. See, "Executive Officer Incentive Compensation Plan,"
discussed below.
12
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 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, 2001:
Number of Shares Market Value on 12/31/01
- ---------------- ------------------------
Norman W. Gayle, III 698,032 $ 5,584,256
James E. Tait....... 695,000 $5,560,000
Donald W. Thornton.. 373,479 $2,987,832
(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 $1,935 in 2001, $1,755 in 2000, and $1,754 in 1999, and
contributions under our 401(k) plan of $9,838 In 2001, $9,938 in 2000, and
$6,692 in 1999. /
/(5) Consists of the payment of premiums under our group term life insurance
plan of $2,363 in 2001, $2,142 in 2000, and $969 in 1999, and
contributions under our 401(k) plan of $9,693 in 2001, $9,814 in 2000, and
$6,768 in 1999. /
(6) We acquired our interest in American Founders Financial Corporation through
a transaction that closed on June 30, 2000. Accordingly, Mr. Phillips'
compensation is reported from June 30, 2000 forward.
(7) Consists of the payment of premiums under the American Founders Long Term
Disability plan of $357 in the second half of 2000 and $1,432 in 2001, and
employer contributions under the American Founders 401(k) plan of $3,150 in
2001
(8) We acquired our interest in American Founders Financial Corporation through
a transaction that closed on June 30, 2000. Accordingly, Mr. Schreck's
compensation is reported from June 30, 2000 forward. / /
(9) Consists of the payment of premiums under the American Founders Long Term
Disability plan of $358 in the second half of 2000 and $1,474 in 2001, and
employer contributions under the American Founders 401(k) plan of $3,150 in
2001
(10) Consists of the payment of premiums under our group term life insurance
plan of $1,035 in 2001, $938 in 2000, and $938 in 1999, and contributions
under the our 401(k) plan of $8,877 in 2001, $8,859 in 2000, and $9,412 in
1999.
Employment Agreements
Each of the executive officers named in the summary compensation table above
is a party to an employment agreement with either Vesta Insurance Group, Inc.
(in the case of Messrs. Gayle, Tait and Thornton) or our subsidiary American
Founders Financial Corporation (in the case of Messrs. Phillips and Schreck).
Under these employment agreements, which are all substantially similar, the
executive officers 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 executive
officers 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 or American Founders, as the case may be, terminates an executive
officer's employment without "cause" (as defined in the agreement), or if the
executive officer terminates his employment for "good reason" following a
"change of control" (as those terms are defined in the agreements), the
executive officer 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 officer at least ninety (90) days prior to such an anniversary date.
Executive Officer Incentive Compensation Plan
We established the Executive Officer Incentive Compensation Plan in
September, 1999 to motivate certain executive officers by providing them with
the opportunity to earn a one-time cash bonus based on the increase in our
total market capitalization measured over a three year period. Under this plan,
we were required to 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 our total
market capitalization (as defined in the plan) on the earlier of (i) September
29, 2002 or (ii) the date we ceased to be publicly traded, exceeded 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%).
13
In June of 2001, after considering the recent increase in our total market
capitalization and the significant one-time cash payments that could reasonably
be anticipated under the terms of this plan, our board of directors determined
that it was advisable and in the best interest of Vesta to settle our
obligations to these executive officers in a manner that would minimize future
salary expense and further align the interests of these executive officers with
those of Vesta over a period extending beyond September 29, 2002. Accordingly,
the board authorized Vesta to provide the executive officers, and the executive
officers agreed to accept, the following settlement in exchange for the
executive officers' full release of their right to receive a one-time cash
payment on September 30, 2002:
Name of Executive Restricted Stock Grant Loan Amount
----------------- ---------------------- -----------
Tait......... 500,000 Shares $2,000,000
Gayle........ 500,000 Shares $2,000,000
Thornton..... 250,000 Shares $1,000,000
The making of these loans and the granting of this restricted stock was
pursuant to a settlement agreement and release between Vesta and the executive
officers (the "Settlement Agreement") that provides that the restricted stock
will vest over a ten-year period (ten percent annually) and that we (Vesta)
will forgive ten percent of the loans annually. In addition, Vesta shall pay
these executive officers, in the form of cash bonuses, such additional amounts
as are necessary to provide for the payment of any and all taxes that may
become payable by them as a result of (i) the issuance or vesting of the
restricted stock, (ii) the making of the loans or the forgiveness thereof and
(iii) the payment of cash bonuses contemplated by (i) or (ii) (i.e., such
bonuses will be grossed-up to take into account taxes payable as a result of
such bonuses).
The Settlement Agreement provides for the forfeiture of all unvested
restricted stock and repayment of all loan proceeds in the event an executive's
employment is terminated under certain circumstances, including voluntary
termination by the executive or termination by Vesta "for cause." The
Settlement Agreement also provides for accelerated vesting of the restricted
stock and accelerated forgiveness of the loans upon a "change of control" of
Vesta or termination of an executive's employment under certain other
circumstances, including termination by Vesta without cause or termination upon
death, disability or retirement.
Compensation Pursuant to Plans
We maintain long term incentive compensation plans, described below,
pursuant to which benefits may be provided to our executive officers.
Long Term Incentive Plan
Our stockholders have approved the Vesta Insurance Group, Inc. Long Term
Incentive Plan, as amended (the "LTIP"), which is designed to enable us to
attract, retain and motivate directors and employees through equity (common
stock) based compensatory awards. The LTIP provides for various types of
awards, including stock options, restricted stock, stock appreciation rights
and deferred stock awards. The LTIP 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. As of March 1, 2002, 1,884,937 shares have
been made the subject of previous awards that have not been forfeited or
cancelled, and 337,061 shares remain available for future awards.
Incentive Compensation Plan
In 2001, our stockholders approved the 2001 Incentive Compensation Plan (the
"Incentive Compensation Plan") as a means of continuing our ability to attract,
retain and motivate directors and employees through equity (common stock) based
compensatory awards. Under the Incentive Compensation Plan, the Compensation
Committee has the discretion to issue: (i) stock options, (ii) restricted stock
awards and (iii) unrestricted stock awards in recognition of past services or
other valid consideration. The aggregate number of shares of Vesta common stock
which may be issued under the Incentive Compensation Plan may not exceed two
million
--------
* Adjusted to give effect to a three-for-two dividend effective January 22,
1996, and subject to further adjustment to reflect changes in the
capitalization of Vesta.
14
(2,000,000); provided, however, that no more than seven hundred fifty thousand
(750,000) shares may be awarded under the Incentive Compensation Plan in the
form of awards other than options. 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). As of March 1, 2002, 195,000 shares had
been made the subject of awards under the Incentive Compensation Plan that have
not been forfeited or cancelled, and 1,805,000 shares remain available for
future awards.
No awards were made under the Incentive Compensation Plan in 2001. In 2001,
the Compensation Committee granted shares of restricted stock under the LTIP to
Messrs. Tait, Gayle and Thornton in the amounts reflected in footnote 2 to the
Summary Compensation Table above. The following table reflects the options
granted during 2001 to our executive officers named in the Summary Compensation
Table above.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
--------------------------- ----------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees Price Expiration
Name Granted(#)(1) In Fiscal Year (S/Sh) Date 5%($)(2) 10%($)(2)
---- ------------- -------------- -------- ---------- -------- ---------
Norman W. Gayle, III --0--
James E. Tait....... --0--
Donald W. Thornton.. --0--
Kenneth W. Phillips. 15,000 15% $6.28 2/23/11 $59,250 $150,150
Wayne A. Schreck.... 15,000 15% $6.28 2/23/11 $59,250 $150,150
--------
(1) All options granted during 2001 are non-qualified stock options which have
a ten year term, and all such options have an exercise price equal to the
closing price of the Company's common stock on the grant date. These
options were granted pursuant to the LTIP. 50% of these options vest on the
fourth anniversary of the grant date, and the remaining 50% vest on the
fifth anniversary of the grant date.
(2) The dollar amounts shown are based on certain assumed rates of appreciation
and the assumption that the options will not be exercised until the end of
the expiration periods applicable to the options. Actual realizable values,
if any, on stock option exercises and common stock holdings are dependent
on the future performance of the Company's common stock and overall stock
market conditions. There can be no assurance that the amounts reflected
will be achieved.
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 Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at Fiscal Year End at Fiscal Year End
acquired Value -------------------------- -------------------------
Name on exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Norman W. Gayle, III --0-- $--0-- 52,500 --0-- $186,900 $ --0--
James E. Tait....... --0-- --0-- 52,500 --0-- $186,900 $ --0--
Donald W. Thornton.. --0-- --0-- 27,500 75,000 $ 97,900 $262,500
Kenneth W. Phillips. --0-- --0-- --0-- 15,000 $ --0-- $ 25,800
Wayne A. Schreck.... --0-- --0-- --0-- 15,000 $ --0-- $ 25,800
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
15
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 for participants 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 December 31, 2001, Vesta had recorded a total of $1,305,368
as a liability on its balance sheet to cover projected benefits under the
Retirement Plan. Assuming Messrs. Gayle, Tait, and Thornton retire from Vesta
after reaching normal retirement age and assuming their 2001 salary levels
remain the same, they will be entitled under the Retirement Plan to receive
$950,000, $1,110,000, and $500,000, respectively, upon their retirement.
Messrs. Phillips and Schreck do not participate in this Retirement Plan.
Certain Relationships and Related Transactions
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, 2001 was $250,000.
In 2001, Mr. James E. Tait, Chairman, became indebted to us in the principal
amount of $2 million, Mr. Norman W. Gayle, III, President, became indebted to
us in the principal amount of $2 million, and Mr. Donald W. Thornton, Senior
Vice President and General Counsel, became indebted to us in the principal
amount of $1 million. Each of these loans is represented by promissory notes
made in connection with the settlement of the Executive Officer Incentive
Compensation Plan discussed above (See, Executive Officer Incentive
Compensation Plan, above). These notes require the repayment of principal and
interest (which accrues at the rate of 6.5% per annum) over a ten year period;
however, the related Settlement Agreement requires Vesta to forgive the
principal and interest payments as they become due each year at October 1,
subject to certain limitations. The Settlement Agreement also provides for the
payment, in the form of cash bonuses, of such additional amounts as are
necessary to pay any and all taxes that may become payable as a result of the
forgiveness of the principal and interest owing on these loans, and that such
bonuses will themselves be "grossed-up" to cover additional taxes payable as a
result of such bonuses. The outstanding balance under Mr. Tait's loan as of
December 31, 2001 was $2,032,500, the outstanding balance under Mr. Gayle's
loan as of December 31, 2001 was $2,032,500 and the outstanding balance under
Mr. Thornton's loan as of December 31, 2001 was $1,016,250.
16
Pursuant to Delaware law and our by-laws, we are obligated to indemnify our
current and former officers and directors for certain liabilities, including
legal expenses incurred in connection with lawsuits arising from their
employment with or services to us, provided that their conduct complied with
certain requirements. Pursuant to these obligations, we advanced Mr. Gayle
approximately $123,757 of legal expenses, and we advanced Mr. Thornton
approximately $349,383 of legal expenses, during 2001.
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 "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 2001
was $370,052 and $29,456, respectively, and the outstanding balance under these
loans as of December 31, 2001 was $264,029 and $15,014, 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 2001, we paid bonuses for this purpose to Mr. Gayle
of $229,022 and to Mr. Thornton of $42,756.
During 2001, 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 2001, 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.
17
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, 1996.
[CHART]
CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 1996
with dividends reinvested
Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01
------ ------ ------ ------ ------ ------
Vesta Insurance Group Inc. $100 $190 $ 19 $ 13 $ 17 $ 27
S&P 500(R) $100 $133 $171 $207 $189 $166
S&P(R) Insurance (Property-
Casualty) Index $100 $145 $135 $101 $149 $137
PROPOSAL NUMBER 2
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, 2002, 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.
18
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 2001 and its limited
reviews of the consolidated interim financial statements were $645,000.
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 2001.
All Other Fees. The aggregate fees billed to Vesta for all other services
rendered by PricewaterhouseCoopers LLP for fiscal 2001 were $716,319. This
amount is comprised of $634,281 for audit related services including issuance
of consents and comfort letters, audits of our insurance subsidiaries'
statutory basis financial statements and employee benefit plans and assistance
with registration documents, $72,536 for income tax compliance and related tax
services and $9,502 for other.
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.
OTHER BUSINESS
As of February 23, 2002, 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
2003 in accordance with the SEC's "stockholder proposal" rules, the proposal
must be received by Vesta at its home office, 3760 River Run Drive, Birmingham,
Alabama 35243, on or before December 23, 2002.
A stockholder may also wish to propose a matter for action at our annual
meeting of shareholders to be held in 2003 outside of the SEC's "stockholder
proposal" rules. Our bylaws require any stockholder to provide timely notice of
any business to be brought before the annual meeting of stockholders, together
with other information as set forth in the bylaw. Assuming the annual meeting
in 2003 is neither advanced by more than twenty days nor delayed more than
seventy days from the anniversary date of the 2002 meeting (May 28), such
notice must be received by us between February 27, 2003 and March 19, 2003 to
be considered timely. If a vote is ultimately taken on an untimely proposal for
any reason, the proxies solicited and received by our board of directors will
be deemed to have conferred discretionary authority to vote on such untimely
proposal.
Costs of Solicitation
The cost of this solicitation of proxies will be borne by Vesta. Georgeson
Shareholder Services 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
19
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.
Annual Report on Form 10-K
We have provided to our stockholders a copy of our Annual Report on Form
10-K for the year ended December 31, 2001, 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.
20
PROXY
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 28, 2002
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 Tuesday, May 28, 2002, and at all adjournments or
postponements thereof as follows:
Election of Directors, Nominees:
For Class III, to serve until the 2005 Annual Meeting
Norman W. Gayle III and James E. Tait
Ratification of the appointment of the firm of PricewaterhouseCoopers
LLP as the Company's independent auditors for the year ending
December 31, 2002.
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
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
IF NO PREFERENCE IS INDICATED, THIS PROXY WILL BE VOTED "FOR"THE NOMINEES AND
"FOR" PROPOSAL #2. In accordance with their best judgement the proxies are
authorized to vote upon such other matters as my properly come before the
meeting.
FOR [ ] WITHHELD [ ]
1. Election of Directors (See Reverse)
For, except vote withheld from the following nominee(s):
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FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Ratification of the appointment of the firm of PricewaterhouseCoopers LLP as
the Company's independent auditors for the year ending December 31, 2002.
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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