OLSHAN
OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP
PARK AVENUE TOWER
65 EAST 55TH STREET
NEW YORK, NEW YORK 10022
TELEPHONE: 212.451.2300
September 20, 2005 FACSIMILE: 212.451.2222
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EMAIL: SWOLOSKY@OLSHANLAW.COM
BY FEDERAL EXPRESS
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attn: Abby Adams
Re: VESTA INSURANCE GROUP, INC. (THE "COMPANY")
PRELIMINARY SCHEDULE 14A FILED ON JULY 14, 2005
FILED BY NEWCASTLE PARTNERS, L.P., NEWCASTLE CAPITAL
MANAGEMENT, L.P., NEWCASTLE CAPITAL GROUP, L.L.C.,
MARK E. SCHWARZ, JAMES C. EPSTEIN, MARK J. MORRISON
AND STEVEN J. PULLY (THE "NEWCASTLE GROUP")
-----------------------------------------------------
Dear Ms. Adams:
We acknowledge receipt of the letter of comment dated July 22, 2005
from the Staff (the "Comment Letter") with regard to the above-referenced
matter. We have reviewed the Comment Letter with the Newcastle Group and provide
the following supplemental response on its behalf. Unless otherwise indicated,
the page references below are to the marked version of the enclosed paper copy
of the Preliminary Schedule 14A filed on the date hereof. Capitalized terms used
herein and not separately defined have the meanings given to them in the
Preliminary Schedule 14A. Our responses are numbered to correspond to your
comments.
GENERAL
1. The Staff has asked the Newcastle Group to provide copies of
additional material filings in connection with the suit filed by
Newcastle Partners in the Delaware Court of Chancery (the "Delaware
Court"). On August 19, 2005, the Court of Chancery held a one-day
trial in the case. After hearing testimony from four witnesses,
including Norman Gayle, Vesta's CEO, Hopson Nance, Vesta's CFO, and
Michael Gough, a director and chair of Vesta's Audit Committee, the
Court of Chancery gave an oral ruling that the November 22, 2005 date
selected by the Board of Directors of Vesta was not the most promptly
practicable date, and ordered that the meeting instead be held no
NEW JERSEY OFFICE
2001 ROUTE 46 / SUITE 202
PARSIPPANY, NEW JERSEY 07054
TELEPHONE: 973.335.7400
FACSIMILE: 973.335.8018
September 20, 2005
Page 2
later than November 17, 2005, a date chosen in order to give Vesta an
opportunity to complete and distribute its annual report to the
stockholders in advance of the meeting. The Delaware Court also
ordered that the shares of stock represented at the annual meeting,
either in person or by proxy, and entitled to vote at the meeting,
will constitute a quorum for the purpose of conducting business at the
meeting, whether or not such shares would constitute a quorum under
Vesta's certificate of incorporation or bylaws. The Delaware Court
further ordered that Vesta must provide notice of the annual meeting
date at least 45 days prior to the date of the annual meeting chosen
by the Board of Directors of Vesta. The Delaware Court also awarded
the Newcastle Group its costs as the prevailing party in the case. In
response to your request for additional material filings in connection
with the case, attached please find Exhibit 1 hereto, which is a copy
of the Order and Final Judgment as signed by the Delaware Court on
September 1, 2005.
The Newcastle Group will provide the Staff with any additional
material court filings as they become available.
2. In connection with Newcastle Partners' suit in the Delaware Court, the
Delaware Court has ordered that Vesta hold its annual meeting no later
than November 17, 2005 and has ordered that Vesta to give notice of
the annual meeting date at least 45 days prior to the annual meeting
date chosen by the Board of Directors of Vesta. Accordingly, the
Newcastle Group does not believe there will be any issues with respect
to distributing the proxy statement from this standpoint.
3. The disclosure has been revised as requested. See page 11 of Proxy
Statement.
4. The Staff has asked the Newcastle Group to provide support for the
chronology of company statements on pages 5-7 and any statements
relating to the Company's financial and market performances. The
paragraphs below identify the sources supporting such statements.
Annotated copies of the sources are enclosed herewith and provided to
the Staff on a supplemental basis.
(a) "VESTA ISSUED A PRESS RELEASE ANNOUNCING THAT THE FILING OF THE
2004 Q3 FORM 10-Q WOULD BE DELAYED UNTIL NOVEMBER 16, 2004 IN
ORDER FOR THE COMPANY TO ESTIMATE THE POTENTIAL IMPACT OF AN
UNFAVORABLE JURY VERDICT."
See enclosed Exhibit 4(a), press release issued by the Company
on November 8, 2004.
(b) "VESTA ISSUED A PRESS RELEASE ANNOUNCING THAT THE FILING OF THE
2004 Q3 FORM 10-Q WOULD BE DELAYED DUE TO A $1.8 MILLION ERROR
IN THE BALANCE SHEET THAT OCCURRED PRIOR TO 2003 AND WOULD
`IMMEDIATELY BEGIN THE PROCESS TO PINPOINT THE PERIOD AND THE
NATURE OF THE ERROR.'"
See enclosed Exhibit 4(b), press release issued by the Company
on November 15, 2004.
(c) "VESTA FILED A FORM 8-K REPORTING THAT DOCUMENTATION AND TESTING
TO DATE IDENTIFIED INTERNAL CONTROL WEAKNESSES IN THE
DOCUMENTATION, DESIGN AND EFFECTIVENESS OF INTERNAL CONTROLS
September 20, 2005
Page 3
OVER FINANCIAL REPORTING AND THAT THE COMPANY ALSO IDENTIFIED A
MATERIAL WEAKNESS IN THE EFFECTIVENESS IN INTERNAL CONTROLS OVER
FINANCIAL REPORTING AS IT RELATED TO THE COMPANY'S CONSOLIDATION
PROCESS."
See enclosed Exhibit 4(c), Form 8-K filed by the Company on
November 24, 2004.
(d) "VESTA ISSUED A PRESS RELEASE ANNOUNCING THAT THE FILING OF THE
2004 Q3 FORM 10-Q WOULD BE FURTHER DELAYED. VESTA ALSO ANNOUNCED
THAT THE FILING OF THE 2004 FORM 10-K WOULD BE DELAYED SINCE THE
COMPANY HAD NOT FINALIZED THE RESOLUTION OF THE ERROR IT
DISCLOSED IN NOVEMBER 2004 AND HAD NOT COMPLETED THE ASSESSMENT
OF THE EFFECTIVENESS OF ITS INTERNAL CONTROLS. VESTA DISCLOSED
THAT IT ANTICIPATED THAT THE FORM 10-K WOULD BE FILED ON OR
BEFORE APRIL 1, 2005."
See enclosed Exhibit 4(d), press release issued by the Company
on March 11, 2005.
(e) "VESTA ISSUED A PRESS RELEASE ANNOUNCING THAT THE FILING OF THE
2004 FORM 10-K WOULD BE DELAYED BEYOND APRIL 1, 2005 IN ORDER TO
PROVIDE ADDITIONAL TIME TO FINALIZE THE ASSESSMENT OF THE
EFFECTIVENESS OF ITS INTERNAL CONTROLS AND TO CONCLUDE THE
RESOLUTION OF THE ERROR DISCLOSED IN NOVEMBER 2004. VESTA
DISCLOSED THAT IT NOW ANTICIPATED THAT THE 2004 FORM 10-K WOULD
BE FILED ON OR BEFORE APRIL 30, 2005."
See enclosed Exhibit 4(e), press release issued by the Company
on March 31, 2005.
(f) "VESTA FILED A FORM 8-K ANNOUNCING THAT VESTA'S COMPENSATION
COMMITTEE APPROVED THE PAYMENT OF BONUSES TO ITS 5 HIGHEST PAID
EXECUTIVES, INCLUDING NORMAN GAYLE, CONSISTING OF AN AGGREGATE
OF OVER $500,000 IN CASH AND 325,000 OPTIONS."
See enclosed Exhibit 4(f), Form 8-K filed by the Company on
April 20, 2005.
(g) "VESTA FILED A NOTIFICATION WITH THE SEC THAT THE COMPANY IS
DILIGENTLY WORKING TO PREPARE THE 2004 Q3 FORM 10-Q AND 2004
FORM 10-K AND AS LONG AS SUCH FILINGS WERE DELINQUENT, IT WOULD
ALSO BE UNABLE TO TIMELY FILE THE 2005 Q1 FORM 10-Q."
See enclosed Exhibit 4(g), Form 12b-25 filed by the Company on
May 11, 2005.
(h) "VESTA ISSUED A PRESS RELEASE ANNOUNCING A REVISED ESTIMATE OF
THE ACCOUNTING ERROR. VESTA STATED THAT IN THE PROCESS OF
PINPOINTING THE PERIOD AND NATURE OF THE PREVIOUSLY DISCLOSED
ERROR, THE COMPANY DISCOVERED ADDITIONAL ERRORS AND NOW BELIEVED
THE CUMULATIVE TOTAL IMPACT OF CORRECTING ALL ERRORS DISCOVERED
TO DATE WILL REDUCE GAAP STOCKHOLDERS' EQUITY BY A TOTAL OF
$11.6 MILLION INSTEAD OF THE PREVIOUSLY REPORTED $1.8 MILLION,
BUT THAT THESE ESTIMATES WERE SUBJECT TO CHANGE. THE COMPANY
ALSO STATED THAT THE COMPANY HAS IDENTIFIED MATERIAL WEAKNESSES
September 20, 2005
Page 4
IN CEDED REINSURANCE AND FINANCIAL MANAGEMENT AND MAY IDENTIFY
ADDITIONAL MATERIAL WEAKNESSES AS THE INTERNAL CONTROL
ASSESSMENTS ARE COMPLETED."
See enclosed Exhibit 4(h), press release issued by the Company
on June 3, 2005.
(i) "VESTA FILED A NOTIFICATION WITH THE SEC THAT THE COMPANY IS
DILIGENTLY WORKING TO PREPARE THE 2004 Q3 FORM 10-Q, 2004 FORM
10-K AND THE 2005 Q1 FORM 10-Q AND AS LONG AS SUCH FILINGS WERE
DELINQUENT, IT WOULD ALSO BE UNABLE TO TIMELY FILE THE 2005 Q2
FORM 10-Q."
See enclosed Exhibit 4(i), Form 12b-25 filed by the Company on
August 10, 2005.
(j) "IN FISCAL 2001, VESTA SUSTAINED A NET LOSS OF $29,330,000."
See enclosed Exhibit 4(j), (k), (l), excerpt from the Form 10-K
filed by the Company on March 15, 2004.
(k) "IN FISCAL 2002, VESTA'S NET LOSS INCREASED BY APPROXIMATELY 10%
FROM THE PRIOR YEAR TO $32,211,000."
See enclosed Exhibit 4(j), (k), (l), excerpt from the Form 10-K
filed by the Company on March 15, 2004.
(l) "IN FISCAL 2003, VESTA'S NET LOSS BALLOONED BY APPROXIMATELY
272% FROM THE PRIOR YEAR TO $119,985,000."
See enclosed Exhibit 4(j), (k), (l), excerpt from the Form 10-K
filed by the Company on March 15, 2004.
(m) "DURING THIS THREE YEAR PERIOD, EXPENSES HAVE INCREASED BY
APPROXIMATELY 82%, FROM $361,870,000 IN FISCAL 2001 TO
$657,361,000 IN FISCAL 2003."
See enclosed Exhibit 4(m), excerpt from the Form 10-K filed by
the Company on March 15, 2004.
(n) "ACCORDING TO INFORMATION CONTAINED IN MANAGEMENT'S PROXY
STATEMENT FOR THE 2004 ANNUAL MEETING OF STOCKHOLDERS (THE
"MANAGEMENT PROXY STATEMENT"), DURING THE PERIOD FROM DECEMBER
31, 1998 THROUGH DECEMBER 31, 2003, VESTA'S SHARE PRICE
PERFORMANCE TRAILED THE S&P Property & Casualty Index by a
significant margin."
See enclosed Exhibit 4(n) and (o), excerpt from the Schedule 14A
filed by the Company on April 29, 2004.
(o) "ACCORDING TO THE MANAGEMENT PROXY STATEMENT, DURING THIS PERIOD
AN INVESTMENT IN VESTA WOULD HAVE LOST OVER 35% OF ITS VALUE
COMPARED TO A LOSS OF JUST OVER 11% HAD THE SAME INVESTMENT BEEN
MADE IN THE S&P Property & Casualty Index and a loss of just
over 3% had the investment been made in the S&P 500 Index."
September 20, 2005
Page 5
See enclosed Exhibit 4(n) and (o), excerpt from the Schedule 14A
filed by the Company on April 29, 2004.
(p) "ON DECEMBER 31, 2003, THE DATE ON WHICH VESTA LAST COMPARED ITS
SHARE PRICE TO ITS PEER GROUP INDEXES AS DESCRIBED ABOVE, THE
SHARE PRICE CLOSED AT $3.79 PER SHARE. ON SEPTEMBER ___, 2005,
THE SHARE PRICE CLOSED AT $_______ PER SHARE, REPRESENTING A
SUBSTANTIAL ___% DECREASE SINCE THE BEGINNING OF 2004."
See enclosed Exhibit 4(p), historical quotes available on AMEX
web site.
5. The disclosure has been revised as requested. See page 18 of Proxy
Statement.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
6. The disclosure has been revised as requested. See page 5 of Proxy
Statement.
7. The disclosure has been revised as requested. See page 10-11 of Proxy
Statement. The Schedule 13D has also been amended in response to this
comment.
* * * * *
In connection with responding to the Staff's comments, attached please
find a certificate signed by each of the participants containing the three
acknowledgments requested by the Staff.
The Staff is invited to contact the undersigned with any comments or
questions it may have. We would appreciate your prompt advice as to whether the
Staff has any further comments.
Very truly yours,
/s/ Steven Wolosky
------------------
Steven Wolosky
Enclosures (sent via overnight mail)
cc: Mark E. Schwarz
ACKNOWLEDGMENT
In connection with responding to the comments of the Staff of the
Securities and Exchange Commission ("SEC") relating to the preliminary proxy
statement on Schedule 14A (the "Proxy Statement") filed by Newcastle Partners,
L.P., Newcastle Capital Management, L.P., Newcastle Capital Group, L.L.C., Mark
E. Schwarz, James C. Epstein, Mark J. Morrison and Steven J. Pully on July 14,
2005, each of the undersigned acknowledges the following that:
o it or he, as the case may be, is responsible for the adequacy
and accuracy of the disclosure in the Proxy Statement.
o the Staff's comments or changes to disclosure in response to
Staff comments do not foreclose the SEC from taking any action
with respect to the Proxy Statement.
o It or he, as the case may be, may not assert Staff comments as a
defense in any proceeding initiated by the SEC or any person
under the federal securities laws of the United States.
Dated: September 20, 2005 NEWCASTLE PARTNERS, L.P.
By: Newcastle Capital Management, L.P.,
its General Partner
By: Newcastle Capital Group, L.L.C.,
its General Partner
By: /s/ Mark E. Schwarz
-------------------------------------
Mark E. Schwarz, Managing Member
NEWCASTLE CAPITAL MANAGEMENT, L.P.
By: Newcastle Capital Group, L.L.C.,
its General Partner
By: /s/ Mark E. Schwarz
-------------------------------------
Mark E. Schwarz, Managing Member
NEWCASTLE CAPITAL GROUP, L.L.C.
By: /s/ Mark E. Schwarz
-------------------------------------
Mark E. Schwarz, Managing Member
[Signature Page of Acknowledgement]
/s/ Mark E. Schwarz
-------------------------------------
MARK E. SCHWARZ
/s/ James C. Epstein
-------------------------------------
JAMES C. EPSTEIN
/s/ Mark J. Morrison
-------------------------------------
MARK J. MORRISON
/s/ Steven J. Pully
-------------------------------------
STEVEN J. PULLY
Newcastle Partners L P
Filed: 20 Sep 05, 12:00am