<PAGE>
 
================================================================================


                       AMENDED AND RESTATED DECLARATION

                                   OF TRUST

                                      OF

                             VESTA CAPITAL TRUST I


                               January 31, 1997


================================================================================
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
                                   ARTICLE I
                        INTERPRETATION AND DEFINITIONS
     <S>                                                                    <C>
     SECTION 1.1    Definitions.............................................  2

                                  ARTICLE II
                              TRUST INDENTURE ACT



     SECTION 2.1    Trust Indenture Act; Application........................  9
     SECTION 2.2    Lists of Holders of Securities.......................... 10
     SECTION 2.3    Reports by the Property Trustee......................... 10
     SECTION 2.4    Periodic Reports to Property Trustee.................... 10
     SECTION 2.5    Evidence of Compliance with Conditions
                    Precedent............................................... 11
     SECTION 2.6    Events of Default; Waiver............................... 11
     SECTION 2.7    Event of Default; Notice................................ 13

                                  ARTICLE III
                                 ORGANIZATION

     SECTION 3.1    Name.................................................... 14
     SECTION 3.2    Office.................................................. 14
     SECTION 3.3    Purpose................................................. 14
     SECTION 3.4    Authority............................................... 14
     SECTION 3.5    Title to Property of the Trust.......................... 15
     SECTION 3.6    Powers and Duties of the Administrative
                    Trustees................................................ 15
     SECTION 3.7    Prohibition of Actions by the Trust and
                    the Trustees............................................ 18
     SECTION 3.8    Powers and Duties of the Property
                    Trustee................................................. 19
     SECTION 3.9    Certain Duties and Responsibilities of
                    the Property Trustee.................................... 21
     SECTION 3.10   Certain Rights of Property Trustee...................... 23
     SECTION 3.11   Delaware Trustee........................................ 26
     SECTION 3.12   Execution of Documents.................................. 26
     SECTION 3.13   Not Responsible for Recitals or Issuance
                    of Securities........................................... 27
     SECTION 3.14   Duration of Trust....................................... 27
     SECTION 3.15   Mergers................................................. 27

                                  ARTICLE IV
                                    SPONSOR

     SECTION 4.1    Sponsor's Purchase of Common Securities................. 29
     SECTION 4.2    Responsibilities of the Sponsor......................... 29
     SECTION 4.3    Right to Proceed........................................ 30
</TABLE>

                                     (i) 
<PAGE>
 
<TABLE>
<CAPTION>
                                   ARTICLE V
                                   TRUSTEES
     <S>                                                                   <C>
     SECTION 5.1    Number of Trustees: Appointment of
                    Co-Trustee............................................. 30
     SECTION 5.2    Delaware Trustee....................................... 31
     SECTION 5.3    Property Trustee; Eligibility.......................... 31
     SECTION 5.4    Certain Qualifications of Administrative
                    Trustees and Delaware Trustee Generally................ 32
     SECTION 5.5    Administrative Trustees................................ 32
     SECTION 5.6    Delaware Trustee....................................... 33
     SECTION 5.7    Appointment, Removal and Resignation of
                    Trustees............................................... 33
     SECTION 5.8    Vacancies Among Trustees............................... 35
     SECTION 5.9    Effect of Vacancies.................................... 35
     SECTION 5.10   Meetings............................................... 36
     SECTION 5.11   Delegation of Power.................................... 36
     Section 5.12   Merger, Conversion, Consolidation or
                    Succession to Business................................. 37

                                  ARTICLE VI
                                 DISTRIBUTIONS

     SECTION 6.1    Distributions.......................................... 37

                                  ARTICLE VII
                            ISSUANCE OF SECURITIES

     SECTION 7.1    General Provisions Regarding Securities................ 37
     SECTION 7.2    Execution and Authentication........................... 38
     SECTION 7.3    Form and Dating........................................ 39
     SECTION 7.4    Registrar and Paying Agent............................. 41
     SECTION 7.5    Paying Agent to Hold Money in Trust.................... 42
     SECTION 7.6    Replacement Securities................................. 42
     SECTION 7.7    Outstanding Capital Securities......................... 42
     SECTION 7.8    Capital Securities in Treasury......................... 43
     SECTION 7.9    Temporary Securities................................... 43
     SECTION 7.10   Cancellation........................................... 44
     SECTION 7.11   CUSIP Numbers.......................................... 44

                                 ARTICLE VIII
                             TERMINATION OF TRUST

     SECTION 8.1    Termination of Trust................................... 45

                                  ARTICLE IX
                             TRANSFER OF INTERESTS

     SECTION 9.1    Transfer of Securities................................. 46
     SECTION 9.2    Transfer Procedures and Restrictions................... 46
     SECTION 9.3    Deemed Security Holders................................ 55
     SECTION 9.4    Book Entry Interests................................... 55
</TABLE>

                                     (ii)
<PAGE>
 
<TABLE>
     <S>                                                                   <C>
     SECTION 9.5    Notices to Clearing Agency............................. 56
     SECTION 9.6    Appointment of Successor Clearing
                    Agency................................................. 56

                                   ARTICLE X
                          LIMITATION OF LIABILITY OF
                   HOLDERS OF SECURITIES, TRUSTEES OR OTHERS

     SECTION 10.1   Liability.............................................. 56
     SECTION 10.2   Exculpation............................................ 57
     SECTION 10.3   Fiduciary Duty......................................... 57
     SECTION 10.4   Indemnification........................................ 58
     SECTION 10.5   Outside Businesses..................................... 62

                                  ARTICLE XI
                                  ACCOUNTING

     SECTION 11.1   Fiscal Year............................................ 63
     SECTION 11.2   Certain Accounting Matters............................. 63
     SECTION 11.3   Banking................................................ 64
     SECTION 11.4   Withholding............................................ 64

                                  ARTICLE XII
                            AMENDMENTS AND MEETINGS

     SECTION 12.1   Amendments............................................. 64
     SECTION 12.2   Meetings of the Holders of Securities; Action by
                    Written Consent........................................ 66

                                 ARTICLE XIII
                      REPRESENTATIONS OF PROPERTY TRUSTEE
                             AND DELAWARE TRUSTEE

     SECTION 13.1   Representations and Warranties of Property Trustee..... 68
     SECTION 13.2   Representations and Warranties of Delaware Trustee..... 69

                                  ARTICLE XIV
                                 MISCELLANEOUS

     SECTION 14.1   Notices................................................ 70
     SECTION 14.2   Governing Law.......................................... 71
     SECTION 14.3   Intention of the Parties............................... 71
     SECTION 14.4   Headings............................................... 71
     SECTION 14.5   Successors and Assigns................................. 71
     SECTION 14.6   Partial Enforceability................................. 72
     SECTION 14.7   Counterparts........................................... 72
</TABLE>

                                     (iii)
<PAGE>
 
<TABLE>
<CAPTION> 
                                                                           Page
                                                                           ----
     <S>                                                                   <C>
     ANNEX I        Terms of 8.525% Capital Securities
                    8.525% Common Securities...............................I-1

     EXHIBIT A-1    Form of Capital Security Certificate...................A1-1
     EXHIBIT A-2    Form of Common Security Certificate....................A2-1
</TABLE>

                                     (iv)
<PAGE>
 
                             AMENDED AND RESTATED
                             DECLARATION OF TRUST
                                      OF
                             VESTA CAPITAL TRUST I

                               January 31, 1997

          AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of January 31, 1997, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the Holders (as defined herein), from time to
time, of undivided beneficial interests in the Trust to be issued pursuant to
this Declaration;

          WHEREAS, the Delaware Trustee and the Sponsor established Vesta
Capital Trust I (the "Trust"), a trust created under the Delaware Business Trust
Act pursuant to a Declaration of Trust dated as of January 27, 1997 (the
"Original Declaration"), and a Certificate of Trust filed with the Secretary of
State of the State of Delaware on January 27, 1997, for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer (each as hereinafter defined);

          WHEREAS, prior to the date hereof, no Trust Securities have been
issued;

          WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
and

          NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act (as defined
herein) and that this Declaration constitute the governing instrument of such
business trust, the Trustees declare that all assets contributed to the Trust
will be held in trust for the benefit of the Holders (as defined herein), from
time to time, of the securities representing undivided beneficial interests in
the assets of the Trust issued hereunder, subject to the provisions of this
Declaration.

                                       1

<PAGE>
 
                                   ARTICLE I
                        INTERPRETATION AND DEFINITIONS

SECTION 1.1    Definitions.
               ----------- 

          Unless the context otherwise requires:

          (a)  Capitalized terms used in this Declaration but not defined in the
     preamble above or elsewhere herein have the respective meanings assigned to
     them in this Section 1.1;

          (b)  a term defined anywhere in this Declaration has the same meaning
     throughout;

          (c)  all references to "the Declaration" or "this Declaration" are to
     this Declaration (including Appendix I hereto and Exhibit A hereto) as
     modified, supplemented or amended from time to time;

          (d)  all references in this Declaration to Articles and Sections and
     Annexes and Exhibits are to Articles and Sections of and Annexes and
     Exhibits to this Declaration unless otherwise specified;

          (e)  a term defined in the Trust Indenture Act has the same meaning
     when used in this Declaration unless otherwise defined in this Declaration
     or unless the context otherwise requires;

          (f)  a term defined in the Indenture (as defined herein) has the same
     meaning when used in this Declaration unless otherwise defined in this
     Declaration or the context otherwise requires; and

          (g)  a reference to the singular includes the plural and vice versa.

          "Administrative Trustee" has the meaning set forth in Section 5.1.
           ----------------------                                           

          "Affiliate" has the same meaning as given to that term in Rule 405
           ---------                                                        
under the Securities Act or any successor rule thereunder.

          "Agent" means any Paying Agent or Registrar.
           -----                                      

          "Authorized Officer" of a Person means any other Person that is
           ------------------                                            
authorized to legally bind such former Person.

          "Book Entry Interest" means a beneficial interest in a Global
           -------------------                                         
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained

                                       2
<PAGE>
 
and made through book entries by a Clearing Agency as described in Section 9.4.

          "Business Day" means any day other than a Saturday or a Sunday or a
           ------------                                                      
day on which banking institutions in The City of New York are authorized or
required by law or executive order to close.

          "Business Trust Act" means Chapter 38 of Title 12 of the Delaware
           ------------------                                              
Code, 12 Del. Code (S)3801 et seq., as it may be amended from time to time or
any successor legislation.

          "Capital Securities" has the meaning specified in Section 7.1(a).
           ------------------                                              

          "Capital Securities Guarantee" means the guarantee agreement dated as
           ----------------------------                                        
of January 31, 1997 of the Guarantor in respect of the Capital Securities.

          "Capital Security Beneficial Owner" means, with respect to a Book
           ---------------------------------                               
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).

          "Clearing Agency" means an organization registered as a "Clearing
           ---------------                                                 
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Capital Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Capital Securities.

          "Clearing Agency Participant" means a broker, dealer, bank, other
           ---------------------------                                     
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.

          "Closing Time" means the "Closing Time" under the Purchase Agreement.
           ------------                                                        

          "Code" means the Internal Revenue Code of 1986, as amended from time
           ----                                                               
to time, or any successor legislation.

          "Commission" means the United States Securities and Exchange
           ----------                                                 
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.

                                       3

<PAGE>
 
          "Common Securities" has the meaning specified in Section 7.1(a).
           -----------------                                              

          "Common Securities Guarantee" means the guarantee agreement dated as
           ---------------------------                                        
of January 31, 1997 of the Guarantor in respect of the Common Securities.

          "Company Indemnified Person" means (a) any Administrative Trustee; (b)
           --------------------------                                           
any Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.

          "Corporate Trust Office" means the office of the Property Trustee at
           ----------------------                                             
which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at 230 South Tryon Street, 9th Floor,
Charlotte, North Carolina 28288-1179.

          "Covered Person" means: (a) any officer, director, shareholder,
           --------------                                                
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holders of Securities.

          "Debenture Issuer" means Vesta Insurance Group, Inc., a Delaware
           ----------------                                               
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.

          "Debenture Trustee" means First Union National Bank of North Carolina,
           -----------------                                                    
a national banking association, as trustee under the Indenture until a successor
is appointed thereunder, and thereafter means such successor trustee.

          "Debentures" means the 8.525% Junior Subordinated Deferrable Interest
           ----------                                                          
Debentures due January 15, 2027 of the Debenture Issuer issued pursuant to the
Indenture.

          "Default" means an event, act or condition that with notice or lapse
           -------                                                            
of time, or both, would constitute an Event of Default.

          "Definitive Capital Securities" shall have the meaning set forth in
           -----------------------------                                     
Section 7.3(c).

          "Delaware Trustee" has the meaning set forth in Section 5.2.
           ----------------                                           

                                       4

<PAGE>
 
          "Direct Action" shall have the meaning set forth in Section 3.8(e).
           -------------                                                     

          "Distribution" means a distribution payable to Holders of Securities
           ------------                                                       
in accordance with Section 6.1.

          "DTC" means The Depository Trust Company, the initial Clearing Agency.
           ---                                                                  

          "Event of Default" in respect of the Securities means an Event of
           ----------------                                                
Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended
           ------------                                                       
from time to time, or any successor legislation.

          "Fiduciary Indemnified Person" has the meaning set forth in Section
           ----------------------------                                      
10.4(b).

          "Global Capital Securities" has the meaning set forth in Section
           -------------------------                                      
7.3(a).

          "Guarantor" means Vesta Insurance Group, Inc., a Delaware corporation,
           ---------                                                            
or any successor entity resulting from any consolidation, amalgamation, merger
or other business combination in its capacity as guarantor under each of the
Securities Guarantees, as the case may be.

          "Holder" means a Person in whose name a Security is registered, such
           ------                                                             
Person being a beneficial owner within the meaning of the Business Trust Act.

          "Indemnified Person" means a Company Indemnified Person or a Fiduciary
           ------------------                                                   
Indemnified Person.

          "Indenture" means the Indenture dated as of January 31, 1997, among
           ---------                                                         
the Debenture Issuer and the Debenture Trustee, as amended from time to time.

          "Initial Optional Redemption Date" has the meaning set forth in
           --------------------------------                              
Section 4(b) of Annex I hereto.

          "Investment Company" means an investment company as defined in the
           ------------------                                               
Investment Company Act.

          "Investment Company Act" means the Investment Company Act of 1940, as
           ----------------------                                              
amended from time to time, or any successor legislation.

          "Legal Action" has the meaning set forth in Section 3.6(g).
           ------------                                              

                                       5

<PAGE>
 
          "Liquidation Amount" with respect to any Security means the amount
           ------------------                                               
designated as such with respect thereto in Annex I hereto.

          "Majority in Liquidation Amount" means, with respect to the Trust
           ------------------------------                                  
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate Liquidation
Amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.

          "Ministerial Action" has the meaning set forth in Annex I hereto.
           ------------------                                              

          "Offering Memorandum" has the meaning set forth in Section 3.6(b).
           -------------------                                              

          "Officers' Certificate" means, with respect to any Person, a
           ---------------------                                      
certificate signed by two of the following: the Chief Executive Officer, the
President, a Vice President, the Controller or the Secretary or an Assistant
Secretary, the Treasurer or an Assistant Treasurer of such Person.  Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Declaration shall include:

          (a) a statement that each officer signing the Certificate has read the
covenant or condition and the definitions relating thereto;

          (b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;

          (c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

          (d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.

          "Opinion of Counsel" shall mean a written opinion of counsel, who may
           ------------------                                                  
be an employee of the Sponsor, and who shall be acceptable to the Property
Trustee.

                                       6

<PAGE>
 
          "Paying Agent" has the meaning specified in Section 7.4.
           ------------                                           

          "Person" means a legal person, including any individual, corporation,
           ------                                                              
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

          "Property Trustee" has the meaning set forth in Section 5.3(a).
           ----------------                                              

          "Property Trustee Account" has the meaning set forth in Section
           ------------------------                                      
3.8(c).

          "Purchase Agreement" means the Purchase Agreement for the initial
           ------------------                                              
offering and sale of Capital Securities in the form of Exhibit C.

          "QIBs" shall mean qualified institutional buyers as defined in Rule
           ----                                                              
144A.

          "Quorum" means a majority of the Administrative Trustees or, if there
           ------                                                              
are only two Administrative Trustees, both of them.

          "Registrar" has the meaning set forth in Section 7.4.
           ---------                                           

          "Regulation S" means Regulation S under the Securities Act, as such
           ------------                                                      
regulation may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.

          "Regulation S Global Capital Security" has the meaning set forth in
           ------------------------------------                              
Section 7.3(a).

          "Related Party" means, with respect to the Sponsor, any direct or
           -------------                                                   
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.

          "Responsible Officer" means, with respect to the Property Trustee, any
           -------------------                                                  
officer within the Corporate Trust Office of the Property Trustee with
responsibility for the administration of this Declaration and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.

          "Restricted Definitive Capital Securities" has the meaning set forth
           ----------------------------------------                           
in Section 7.3(c).

                                       7

<PAGE>
 
          "Restricted Capital Security" means a Capital Security required by
           ---------------------------                                      
Section 9.2 to contain a Restricted Securities Legend.

          "Restricted Securities Legend" has the meaning set forth in Section
           ----------------------------                                      
9.2.

          "Rule 3a-5" means Rule 3a-5 under the Investment Company Act, or any
           ---------                                                          
successor rule or regulation.

          "Rule 144" means Rule 144 under the Securities Act, as such rule may
           --------                                                           
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.

          "Rule 144A" means Rule 144A under the Securities Act, as such rule may
           ---------                                                            
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.

          "Rule 144A Global Capital Security" has the meaning set forth in
           ---------------------------------                              
Section 7.3(a).

          "Securities" or "Trust Securities" means the Common Securities and the
           ----------      ----------------                                     
Capital Securities.

          "Securities Act" means the Securities Act of 1933, as amended from
           --------------                                                   
time to time, or any successor legislation.

          "Securities Guarantees" means the Common Securities Guarantee and the
           ---------------------                                               
Capital Securities Guarantee.

          "Special Event" has the meaning set forth in Section 4(c) of Annex I
           -------------                                                      
hereto.

          "Special Event Redemption Price" has the meaning set forth in Section
           ------------------------------                                      
4(c) of Annex I hereto.

          "Sponsor" means Vesta Insurance Group, Inc., a Delaware corporation,
           -------                                                            
or any successor entity resulting from any merger, consolidation, amalgamation
or other business combination, in its capacity as sponsor of the Trust.

          "Successor Entity" has the meaning specified in Section 3.15(b).
           -----------------                                              

          "Successor Delaware Trustee" has the meaning specified in Section
           --------------------------                                      
5.7(b)(ii).

          "Successor Property Trustee" has the meaning specified in Section
           --------------------------                                      
5.7(b)(i).

          "Successor Securities" has the meaning specified in Section 3.15(b).
           --------------------                                               

                                       8

<PAGE>
 
          "Super Majority" has the meaning set forth in Section 2.6(a)(ii).
           --------------                                                  

          "10% in Liquidation Amount" means, with respect to the Trust
           -------------------------                                  
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% or more of the aggregate Liquidation
Amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.

          "Treasury Regulations" means the income tax regulations, including
           --------------------                                             
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

          "Trustee" or "Trustees" means each Person who has signed this
           -------      --------                                       
Declaration as a trustee (including the Property Trustee, the Delaware Trustee
and the Administrative Trustees), so long as such Person shall continue as a
trustee of the Trust in accordance with the terms hereof, and all other Persons
who may from time to time be duly appointed, qualified and serving as Trustees
in accordance with the provisions hereof, and references herein to a Trustee or
the Trustees shall refer to such Person or Persons solely in their capacity as
trustees hereunder.

          "Trust Indenture Act" means the Trust Indenture Act of 1939, as
           -------------------                                           
amended from time to time, or any successor legislation.

          "Unrestricted Global Capital Security" has the meaning set forth in
           ------------------------------------                              
Section 9.2(b).

                                  ARTICLE II
                              TRUST INDENTURE ACT

SECTION 2.1    Trust Indenture Act; Application.
               -------------------------------- 

          (a)  This Declaration is subject to the provisions of the Trust
Indenture Act that would be required to be part of this Declaration if this
Declaration were a qualified indenture under the Trust Indenture Act and shall,
to the extent applicable, be governed by such provisions.

          (b)  The Property Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.

                                       9
<PAGE>
 
          (c)  If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.

          (d)  The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.

SECTION 2.2    Lists of Holders of Securities.
               ------------------------------ 

          (a)  Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee, unless the Property Trustee is
Registrar for the Securities, (i) within 5 days after each record date for
payment of Distributions, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Administrative Trustees on behalf of the Trust shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee.  The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.

          (b)  The Property Trustee shall comply with its obligations under
(S)(S) 311(a), 311(b) and 312(b) of the Trust Indenture Act.

SECTION 2.3    Reports by the Property Trustee.
               ------------------------------- 

          Within 60 days after May 15 of each year, commencing May 15, 1997, the
Property Trustee shall provide to the Holders of the Capital Securities such
reports as are required by (S) 313 of the Trust Indenture Act, if any, in the
form and in the manner provided by (S) 313 of the Trust Indenture Act.  The
Property Trustee shall also comply with the requirements of (S) 313(d) of the
Trust Indenture Act.

SECTION 2.4    Periodic Reports to Property Trustee.
               ------------------------------------ 

                                      10
<PAGE>
 
          Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such documents, reports and
information as are required by (S) 314 (if any) and the compliance certificate
required by (S) 314 of the Trust Indenture Act in the form, in the manner and at
the times required by (S) 314 of the Trust Indenture Act.

SECTION 2.5    Evidence of Compliance with Conditions Precedent.
               ------------------------------------------------ 

          Each of the Sponsor and an Administrative Trustee on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in (S) 314(c) of the Trust Indenture Act.  Any certificate or
opinion required to be given by an officer pursuant to (S) 314(c)(1) of the
Trust Indenture Act may be given in the form of an Officers' Certificate.

SECTION 2.6    Events of Default; Waiver.
               ------------------------- 

          (a)  The Holders of a Majority in Liquidation Amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
                      -------- ----                                          
the Indenture:

               (i) is not waivable under the Indenture, the Event of Default
     under the Declaration shall also not be waivable; or

               (ii) requires the consent or vote of greater than a majority in
     aggregate principal amount of the holders of the Debentures (a "Super
     Majority") to be waived under the Indenture, the Event of Default under the
     Declaration may only be waived by the vote of the Holders of at least the
     proportion in aggregate Liquidation Amount of the Capital Securities that
     the relevant Super Majority represents of the aggregate principal amount of
     the Debentures outstanding.

The foregoing provisions of this Section 2.6(a) shall be in lieu of (S)
316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.  Upon such waiver, any such
Default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other Default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon.  Any waiver by the Holders of
the Capital Securities of an Event of Default with respect to the

                                       11
<PAGE>
 
Capital Securities shall also be deemed to constitute a waiver by the Holders of
the Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.

          (b)  The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
                                 -------- ----                            
Default under the Indenture:

               (i) is not waivable under the Indenture, except where the Holders
     of the Common Securities are deemed to have waived such Event of Default
     under the Declaration as provided below in this Section 2.6(b), the Event
     of Default under the Declaration shall also not be waivable; or

               (ii) requires the consent or vote of a Super Majority to be
     waived, except where the Holders of the Common Securities are deemed to
     have waived such Event of Default under the Declaration as provided below
     in this Section 2.6(b), the Event of Default under the Declaration may only
     be waived by the vote of the Holders of at least the proportion in
     aggregate Liquidation Amount of the Common Securities that the relevant
     Super Majority represents of the aggregate principal amount of the
     Debentures outstanding;

provided further, that each Holder of Common Securities will be deemed to have
-------- -------                                                              
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences if all Events of Default with respect to
the Capital Securities have been cured, waived or otherwise eliminated, and
until such Events of Default have been so cured, waived or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the Holders
of the Capital Securities and only the Holders of the Capital Securities will
have the right to direct the Property Trustee in accordance with the terms of
the Securities.  The foregoing provisions of this Section 2.6(b) shall be in
lieu of (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
(S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby
expressly excluded from this Declaration and the Securities, as permitted by the
Trust Indenture Act.  Subject to the foregoing provisions of this Section
2.6(b), upon such waiver, any such Default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom shall be deemed
to have been cured for every purpose of this Declaration, but no such waiver
shall extend to any subsequent or other Default or Event of Default

                                       12
<PAGE>
 
with respect to the Common Securities or impair any right consequent thereon.

          (c)  A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration.  The foregoing provisions of this Section 2.6(c) shall be in lieu
of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.

SECTION 2.7    Event of Default; Notice.
               ------------------------ 

          (a)  The Property Trustee shall, within 90 days after a Responsible
Officer of the Property Trustee obtains knowledge of the occurrence of an Event
of Default, transmit by mail, first class postage prepaid, to the Holders of the
Securities, notices of all Defaults with respect to the Securities actually
known to a Responsible Officer of the Property Trustee, unless such Defaults
have been cured before the giving of such notice; provided that, except for a
Default in the payment of principal of (or premium, if any) or interest on any
of the Debentures, the Property Trustee shall be protected in withholding such
notice if and so long as a Responsible Officer of the Property Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Securities.

          (b)  The Property Trustee shall not be deemed to have knowledge of any
Default or Event of Default except:

               (i) Default or Event of Default under Sections 5.01(a) and
     5.01(b) of the Indenture; or

               (ii) any Default or Event of Default as to which the Property
     Trustee shall have received written notice or of which a Responsible
     Officer of the Property Trustee charged with the administration of the
     Declaration shall have actual knowledge.

          (c)  Within five Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the Holders of the Capital
Securities, the Administrative Trustees and the Sponsor, unless such Event of
Default shall have been cured or waived.  The Sponsor and the Administrative
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Declaration.

                                       13
<PAGE>
 
                                  ARTICLE III
                                 ORGANIZATION

SECTION 3.1    Name.
               ---- 

          The Trust is named "Vesta Capital Trust I" as such name may be
modified from time to time by the Administrative Trustees following written
notice to the Property Trustee, the Delaware Trustee and the Holders of
Securities. The Trust's activities may be conducted under the name of the Trust
or any other name deemed advisable by the Administrative Trustees.

SECTION 3.2    Office.
               ------ 

          The address of the principal office of the Trust is c/o Vesta
Insurance Group, Inc., 3760 River Run Drive, Birmingham, Alabama 35243.  On ten
Business Days written notice to the Property Trustee, the Delaware Trustee and
the Holders of Securities, the Administrative Trustees may designate another
principal office.

SECTION 3.3    Purpose.
               ------- 

          The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities, (b) to use the gross proceeds from the sale of the Securities
to acquire the Debentures, and (c) except as otherwise limited herein, to engage
in only those other activities necessary, advisable or incidental thereto.  The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, mortgage or pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be
classified for United States federal income tax purposes as a grantor trust.

SECTION 3.4    Authority.
               --------- 

          Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Administrative Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust.  An
action taken by the Administrative Trustees in accordance with their powers
shall constitute the act of and serve to bind the Trust and an action taken by
the Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust.  In dealing with the Trustees
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of the Trustees to bind the Trust.  Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.

                                       14
<PAGE>
 
SECTION 3.5    Title to Property of the Trust.
               ------------------------------ 

          Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust.  The Holders
shall not have legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.

SECTION 3.6    Powers and Duties of the Administrative Trustees.
               ------------------------------------------------ 

          The Administrative Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:

          (a)  to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that except,
in the case of (i) and (ii), as contemplated in Section 7.1(a), (i) the Trust
may issue no more than one series of Capital Securities and no more than one
series of Common Securities, (ii) there shall be no interests in the Trust other
than the Securities, and (iii) the issuance of Securities shall be limited to a
simultaneous issuance of both Capital Securities and Common Securities at any
Closing Time;

          (b)  in connection with the issue and sale of the Capital Securities,
at the direction of the Sponsor, to:

               (i) execute, if necessary, an offering memorandum (the "Offering
     Memorandum") in preliminary and final form, including any amendments or
     supplements thereto, prepared by the Sponsor, in relation to the offering
     and sale of Capital Securities to qualified institutional buyers in
     reliance on Rule 144A under the Securities Act, to institutional
     "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
     the Securities Act) and outside the United States to non-U.S. persons in
     offshore transactions in reliance on Regulation S under the Securities Act;

               (ii) execute and file any documents prepared by the Sponsor, or
     take any acts as determined by the Sponsor to be necessary in order to
     qualify or register all or part of the Capital Securities in any State in
     which the Sponsor has determined to qualify or register such Capital
     Securities for sale;

               (iii)  at the direction of the Sponsor, execute and file an
     application, prepared by the Sponsor, to the New York Stock Exchange or any
     other national stock exchange or the Nasdaq Stock Market's National Market
     for listing or quotation of the Capital Securities;

                                       15
<PAGE>
 
               (iv) execute and deliver letters, documents, or instruments with
     DTC and other Clearing Agencies relating to the Capital Securities;

               (v) if required, execute and file with the Commission a
     registration statement on Form 8-A, including any amendments thereto,
     prepared by the Sponsor, relating to the registration of the Capital
     Securities under Section 12(b) of the Exchange Act; and

               (vi) execute and enter into the Purchase Agreement providing for
     the sale of the Capital Securities.

          (c)  to acquire the Debentures with the proceeds of the sale of the
Capital Securities and the Common Securities; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Capital Securities and the Holders of Common Securities;

          (d)  to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event;

          (e)  to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of (S) 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;

          (f)  to take all actions and perform such duties as may be required of
the Administrative Trustees pursuant to the terms of the Securities;

          (g)  to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;

          (h)  to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;

          (i)  to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;

          (j)  to give the certificate required by (S)314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;

                                       16
<PAGE>
 
          (k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;

          (l) to act as, or appoint another Person to act as, Registrar for the
Securities or to appoint a Paying Agent for the Securities as provided in
Section 7.4 except for such time as such power to appoint a Paying Agent is
vested in the Property Trustee;

          (m) to give prompt written notice to the Property Trustee and to
Holders of the Securities of any notice received from the Debenture Issuer of
its election to defer payments of interest on the Debentures by extending the
interest payment period under the Indenture;

          (n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;

          (o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;

          (p) to take any action, not inconsistent with this Declaration or with
applicable law, that the Administrative Trustees determine in their discretion
to be necessary or desirable in carrying out the activities of the Trust as set
out in this Section 3.6, including, but not limited to:

               (i) causing the Trust not to be deemed to be an Investment
     Company required to be registered under the Investment Company Act;

               (ii) causing the Trust to be classified for United States federal
     income tax purposes as a grantor trust; and

               (iii)  cooperating with the Debenture Issuer to ensure that the
     Debentures will be treated as indebtedness of the Debenture Issuer for
     United States federal income tax purposes; and

          (q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Administrative Trustees, on behalf of
the Trust.

                                       17
<PAGE>
 
          The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Administrative Trustees shall not take
any action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.

          Subject to this Section 3.6, the Administrative Trustees shall have
none of the powers or the authority of the Property Trustee set forth in Section
3.8.

          Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be reimbursed by the Sponsor.

SECTION 3.7    Prohibition of Actions by the Trust and the Trustees.
               ---------------------------------------------------- 

          The Trust shall not, and the Trustees (including the Property Trustee)
shall not cause the Trust to, engage in any activity other than as required or
authorized by this Declaration.  The Trust shall not:

               (a) invest any proceeds received by the Trust from holding the
     Debentures, but shall distribute all such proceeds to Holders of Securities
     pursuant to the terms of this Declaration and of the Securities;

               (b) acquire any assets other than as expressly provided herein;

               (c) possess Trust property for other than a Trust purpose;

               (d) make any loans or incur any indebtedness other than loans
     represented by the Debentures;

               (e) possess any power or otherwise act in such a way as to vary
     the Trust assets or the terms of the Securities in any way whatsoever;

               (f) issue any securities or other evidences of beneficial
     ownership of, or beneficial interest in, the Trust other than the
     Securities; or

               (g) other than as provided in this Declaration or Annex I, (A)
     direct the time, method and place of conducting any proceeding with respect
     to any remedy available to the Debenture Trustee, or exercising any trust
     or power conferred upon the Debenture Trustee with respect to the
     Debentures, (B) waive any past default that is waivable under the
     Indenture, (C) exercise any right to rescind or annul any declaration that
     the principal of all the

                                       18
<PAGE>
 
     Debentures shall be due and payable, or (D) consent to any amendment,
     modification or termination of the Indenture or the Debentures where such
     consent shall be required unless the Trust shall have received an opinion
     of a nationally recognized independent tax counsel experienced in such
     matters to the effect that such amendment, modification or termination will
     not cause more than an insubstantial risk that, for United States federal
     income tax purposes, the Trust will not be classified as a grantor trust.

SECTION 3.8    Powers and Duties of the Property Trustee.
               ----------------------------------------- 

          (a)  The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders of the Securities.  The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.7.  Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.

          (b)  The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).

          (c)  The Property Trustee shall:

               (i) establish and maintain a segregated non-interest bearing
     trust account (the "Property Trustee Account") in the name of and under the
     exclusive control of the Property Trustee on behalf of the Holders of the
     Securities and, upon the receipt of payments of funds made in respect of
     the Debentures held by the Property Trustee, deposit such funds into the
     Property Trustee Account and make, or cause any Paying Agent to make,
     payments to the Holders of the Capital Securities and Holders of the Common
     Securities from the Property Trustee Account in accordance with Section
     6.1.  Funds in the Property Trustee Account shall be held uninvested until
     disbursed in accordance with this Declaration.  The Property Trustee
     Account shall be an account that is maintained with a banking institution
     the rating on whose long-term unsecured indebtedness is at least equal to
     the rating assigned to the Capital Securities by a "nationally recognized
     statistical rating organization", as that term is defined for purposes of
     Rule 436(g)(2) under the Securities Act;

               (ii) engage in such ministerial activities as shall be necessary
     or appropriate to effect the redemption

                                       19
<PAGE>
 
     of the Capital Securities and the Common Securities to the extent the
     Debentures are redeemed or mature; and

               (iii)  upon written notice of distribution issued by the
     Administrative Trustees in accordance with the terms of the Securities,
     engage in such ministerial activities as shall be necessary or appropriate
     to effect the distribution of the Debentures to Holders of Securities upon
     the occurrence of certain events.

          (d)  The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of this Declaration and the Securities.

          (e)  Subject to Section 3.9(a), the Property Trustee shall take any
Legal Action which arises out of or in connection with an Event of Default of
which a Responsible Officer of the Property Trustee has actual knowledge or the
Property Trustee's duties and obligations under this Declaration or the Trust
Indenture Act and if the Property Trustee shall have failed to take such Legal
Action, the Holders of the Capital Securities may take such Legal Action, to the
same extent as if such Holders of Capital Securities held an aggregate principal
amount of Debentures equal to the aggregate Liquidation Amount of such Capital
Securities, without first proceeding against the Property Trustee or the Trust;
provided, however, that if an Event of Default has occurred and is continuing
--------  -------                                                            
and such event is attributable to the failure of the Debenture Issuer to pay the
principal of or premium, if any, or interest on the Debentures on the date such
principal, premium, if any, or interest is otherwise payable (or in the case of
redemption, on the redemption date), then a Holder of Capital Securities may
directly institute a proceeding for enforcement of payment to such Holder of the
principal of or premium, if any, or interest on the Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Capital
Securities of such Holder (a "Direct Action") on or after the respective due
date specified in the Debentures.  In connection with such Direct Action, the
rights of the Holders of the Common Securities will be subrogated to the rights
of such Holder of Capital Securities to the extent of any payment made by the
Debenture Issuer to such Holder of Capital Securities in such Direct Action.
Except as provided in the preceding sentences, the Holders of Capital Securities
will not be able to exercise directly any other remedy available to the holders
of the Debentures.

          (f)  The Property Trustee shall continue to serve as a Trustee until
either:

                                       20
<PAGE>
 
               (i) the Trust has been completely liquidated and the proceeds of
     the liquidation distributed to the Holders of Securities pursuant to the
     terms of the Securities; or

               (ii) a Successor Property Trustee has been appointed and has
     accepted that appointment in accordance with Section 5.7(b).

          (g)  The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders of the Securities, enforce its rights as holder of the
Debentures subject to the rights of the Holders pursuant to this Declaration and
the terms of the Securities. The Property Trustee must exercise the powers set
forth in this Section 3.8 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Property Trustee shall
not take any action that is inconsistent with the purposes and functions of the
Trust set out in Section 3.3.

          (h)  The Property Trustee shall be authorized to undertake any actions
set forth in (S)317(a) of the Trust Indenture Act.

          (i)  For such time as the Property Trustee is the Paying Agent, the
Property Trustee may authorize one or more Persons to act as additional Paying
Agents and to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to all securities and any such Paying Agent
shall comply with (S)317(b) of the Trust Indenture Act.  Any such additional
Paying Agent may be removed by the Property Trustee at any time the Property
Trustee remains as Paying Agent and a successor Paying Agent or additional
Paying Agents may be (but are not required to be) appointed at any time by the
Property Trustee.

          (j)  Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.

          The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.

SECTION 3.9    Certain Duties and Responsibilities of the Property Trustee.
               ----------------------------------------------------------- 

                                       21
<PAGE>
 
          (a)  The Property Trustee, before the occurrence of any Event of
Default and after the curing or waiving of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Declaration and in the Securities and no implied covenants shall
be read into this Declaration against the Property Trustee.  In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section 2.6)
of which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration, and use the same degree of care and skill in their exercise,
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.

          (b)  No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:

              (i)  prior to the occurrence of an Event of Default and after the
     curing or waiving of all such Events of Default that may have occurred:

               (A) the duties and obligations of the Property Trustee shall be
          determined solely by the express provisions of this Declaration and in
          the Securities and the Property Trustee shall not be liable except for
          the performance of such duties and obligations as are specifically set
          forth in this Declaration and in the Securities, and no implied
          covenants or obligations shall be read into this Declaration against
          the Property Trustee; and

               (B) in the absence of bad faith on the part of the Property
          Trustee, the Property Trustee may conclusively rely, as to the truth
          of the statements and the correctness of the opinions expressed
          therein, upon any certificates or opinions furnished to the Property
          Trustee and conforming to the requirements of this Declaration;
          provided, however, that in the case of any such certificates or
          opinions that by any provision hereof are specifically required to be
          furnished to the Property Trustee, the Property Trustee shall be under
          a duty to examine the same to determine whether or not they conform to
          the requirements of this Declaration;

               (ii) the Property Trustee shall not be liable for any error of
     judgment made in good faith by a Responsible Officer of the Property
     Trustee, unless it shall be proved that the Property Trustee was negligent
     in ascertaining the pertinent facts;

                                       22
<PAGE>
 
          (iii)  the Property Trustee shall not be liable with respect to any
     action taken or omitted to be taken by it in good faith in accordance with
     the direction of the Holders of not less than a Majority in Liquidation
     Amount of the Securities relating to the time, method and place of
     conducting any proceeding for any remedy available to the Property Trustee,
     or exercising any trust or power conferred upon the Property Trustee under
     this Declaration;

           (iv) no provision of this Declaration shall require the Property
     Trustee to expend or risk its own funds or otherwise incur personal
     financial liability in the performance of any of its duties or in the
     exercise of any of its rights or powers, if it shall have reasonable
     grounds for believing that the repayment of such funds or liability is not
     reasonably assured to it under the terms of this Declaration or indemnity
     reasonably satisfactory to the Property Trustee against such risk or
     liability is not reasonably assured to it;

            (v) the Property Trustee's sole duty with respect to the custody,
     safe keeping and physical preservation of the Debentures and the Property
     Trustee Account shall be to deal with such property in a similar manner as
     the Property Trustee deals with similar property for its own account,
     subject to the protections and limitations on liability afforded to the
     Property Trustee under this Declaration and the Trust Indenture Act;

           (vi) the Property Trustee shall have no duty or liability for or with
     respect to the value, genuineness, existence or sufficiency of the
     Debentures or the payment of any taxes or assessments levied thereon or in
     connection therewith;

          (vii)  the Property Trustee shall not be liable for any interest on
     any money received by it except as it may otherwise agree in writing with
     the Sponsor. Money held by the Property Trustee need not be segregated from
     other funds held by it except in relation to the Property Trustee Account
     maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except
     to the extent otherwise required by law; and

         (viii)  the Property Trustee shall not be responsible for monitoring
     the compliance by the Administrative Trustees or the Sponsor with their
     respective duties under this Declaration, nor shall the Property Trustee be
     liable for any default or misconduct of the Administrative Trustees or the
     Sponsor.

SECTION 3.10   Certain Rights of Property Trustee.
               ---------------------------------- 

                                       23
<PAGE>
 
          (a)  Subject to the provisions of Section 3.9:

               (i) the Property Trustee may conclusively rely and shall be fully
     protected in acting or refraining from acting upon any resolution,
     certificate, statement, instrument, opinion, report, notice, request,
     direction, consent, order, bond, debenture, note, other evidence of
     indebtedness or other paper or document believed by it to be genuine and to
     have been signed, sent or presented by the proper party or parties;

              (ii) any direction or act of the Sponsor or the Administrative
     Trustees contemplated by this Declaration may be sufficiently evidenced by
     an Officers' Certificate;

             (iii) whenever in the administration of this Declaration, the
     Property Trustee shall deem it desirable that a matter be proved or
     established before taking, suffering or omitting any action hereunder, the
     Property Trustee (unless other evidence is herein specifically prescribed)
     may, in the absence of bad faith on its part, request and conclusively rely
     upon an Officers' Certificate which, upon receipt of such request, shall be
     promptly delivered by the Sponsor or the Administrative Trustees;

              (iv) the Property Trustee shall have no duty to see to any
     recording, filing or registration of any instrument (including any
     financing or continuation statement or any filing under tax or securities
     laws) or any rerecording, refiling or reregistration thereof;

               (v) the Property Trustee may consult with counsel or other
     experts of its selection and the advice or opinion of such counsel and
     experts with respect to legal matters or advice within the scope of such
     experts' area of expertise shall be full and complete authorization and
     protection in respect of any action taken, suffered or omitted by it
     hereunder in good faith and in accordance with such advice or opinion, such
     counsel may be counsel to the Sponsor or any of its Affiliates, and may
     include any of its employees. The Property Trustee shall have the right at
     any time to seek instructions concerning the administration of this
     Declaration from any court of competent jurisdiction;

              (vi) the Property Trustee shall be under no obligation to
     exercise any of the rights or powers vested in it by this Declaration at
     the request or direction of any Holder, unless such Holder shall have
     provided to the Property Trustee security and indemnity, reasonably
     satisfactory to the Property Trustee, against the costs, expenses
     (including reasonable attorneys' fees and expenses and the expenses of the
     Property Trustee's agents, nominees

                                       24
<PAGE>
 
     or custodians) and liabilities that might be incurred by it in complying
     with such request or direction, including such reasonable advances as may
     be requested by the Property Trustee; provided, that, nothing contained in
     this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee,
     upon the occurrence of an Event of Default, of its obligation to exercise
     the rights and powers vested in it by this Declaration;

               (vii) the Property Trustee shall not be bound to make any
     investigation into the facts or matters stated in any resolution,
     certificate, statement, instrument, opinion, report, notice, request,
     direction, consent, order, bond, debenture, note, other evidence of
     indebtedness or other paper or document, but the Property Trustee, in its
     discretion, may make such further inquiry or investigation into such facts
     or matters as it may see fit;

              (viii) the Property Trustee may execute any of the trusts or
     powers hereunder or perform any duties hereunder either directly or by or
     through agents, custodians, nominees or attorneys and the Property Trustee
     shall not be responsible for any misconduct or negligence on the part of
     any agent or attorney appointed with due care by it hereunder;

                (ix) any action taken by the Property Trustee or its agents
     hereunder shall bind the Trust and the Holders of the Securities, and the
     signature of the Property Trustee or its agents alone shall be sufficient
     and effective to perform any such action and no third party shall be
     required to inquire as to the authority of the Property Trustee to so act
     or as to its compliance with any of the terms and provisions of this
     Declaration, both of which shall be conclusively evidenced by the Property
     Trustee's or its agent's taking such action;

                 (x) whenever in the administration of this Declaration the
     Property Trustee shall deem it desirable to receive instructions with
     respect to enforcing any remedy or right or taking any other action
     hereunder, the Property Trustee (i) may request instructions from the
     Holders of the Securities which instructions may only be given by the
     Holders of the same proportion in Liquidation Amount of the Securities as
     would be entitled to direct the Property Trustee under the terms of the
     Securities in respect of such remedy, right or action, (ii) may refrain
     from enforcing such remedy or right or taking such other action until such
     instructions are received, and (iii) shall be protected in conclusively
     relying on or acting in or accordance with such instructions;

                                       25
<PAGE>
 
               (xi)  except as otherwise expressly provided by this Declaration,
     the Property Trustee shall not be under any obligation to take any action
     that is discretionary under the provisions of this Declaration; and

              (xii)  the Property Trustee shall not be liable for any action
     taken, suffered, or omitted to be taken by it in good faith, without
     negligence, and reasonably believed by it to be authorized or within the
     discretion or rights or powers conferred upon it by this Declaration.

          (b)  No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation.  No permissive power or authority available to the Property Trustee
shall be construed to be a duty.

SECTION 3.11   Delaware Trustee.
               ---------------- 

          Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Administrative Trustees or the Property Trustee described in this
Declaration.  Except as set forth in Section 5.2, the Delaware Trustee shall be
a Trustee for the sole and limited purpose of fulfilling the requirements of
(S)3807 of the Business Trust Act and taking such actions as are required to be
taken by the Delaware Trustee under the Business Trust Act.  In the event the
Delaware Trustee shall at any time be required to take any action or perform any
duty hereunder, the Delaware Trustee shall be entitled to the benefits of
Section 3.9(b)(ii) through (vii) and Section 3.10.  No implied covenants or
obligations shall be read into this Declaration against the Delaware Trustee.

SECTION 3.12   Execution of Documents.
               ---------------------- 

          Unless otherwise determined by the Administrative Trustees, and except
as otherwise required by the Business Trust Act, any Administrative Trustee is
authorized to execute on behalf of the Trust any documents that the
Administrative Trustees have the power and authority to execute pursuant to
Section 3.6; provided that, the registration statement referred to in Section
3.6(b)(i), including any amendments thereto, shall be signed by all of the
Administrative Trustees.

                                       26
<PAGE>
 
SECTION 3.13   Not Responsible for Recitals or Issuance of Securities.
               ------------------------------------------------------ 

          The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness.  The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof.  The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.

SECTION 3.14   Duration of Trust.
               ----------------- 

          The Trust, unless terminated pursuant to the provisions of Article
VIII hereof, shall have existence up to January 31, 2038.

SECTION 3.15   Mergers.
               ------- 

          (a)  The Trust may not merge or convert with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, except as described in
Section 3.15(b) and (c).

          (b)  The Trust may, at the request of the Sponsor, with the consent of
the Administrative Trustees or, if there are more than two, a majority of the
Administrative Trustees and without the consent of the Holders of the
Securities, the Delaware Trustee or the Property Trustee, merge or convert with
or into, consolidate, amalgamate, or be replaced by, or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to, a trust organized as such under the laws of any State; provided that:

               (i)       such successor entity (the "Successor Entity") either:

                    (A)  expressly assumes all of the obligations of the Trust
          under the Securities; or

                    (B)  substitutes for the Securities other securities having
          substantially the same terms as the Securities (the "Successor
          Securities") so long as the Successor Securities rank the same as the
          Securities rank with respect to Distributions and payments upon
          liquidation, redemption and otherwise;

               (ii) the Sponsor expressly appoints a trustee of the Successor
     Entity that possesses the same powers and duties as the Property Trustee as
     the holder of the Debentures;

                                       27
<PAGE>
 
          (iii)  the Successor Securities are listed or quoted, or any Successor
     Securities will be listed or quoted upon notification of issuance, on any
     national securities exchange or with another organization on which the
     Capital Securities are then listed or quoted, if any;

           (iv)  such merger, conversion, consolidation, amalgamation,
     replacement, conveyance, transfer or lease does not cause the Capital
     Securities (including any Successor Securities) to be downgraded by any
     nationally recognized statistical rating organization;

            (v)  such merger, conversion, consolidation, amalgamation,
     replacement, conveyance, transfer or lease does not adversely affect the
     rights, preferences and privileges of the Holders of the Securities
     (including any Successor Securities) in any material respect (other than
     with respect to any dilution of such Holders' interests in the new entity);

           (vi)  such Successor Entity has a purpose identical to that of the
     Trust;

          (vii)  prior to such merger, conversion, consolidation, amalgamation,
     replacement, conveyance, transfer or lease, the Sponsor has received an
     opinion of an independent counsel to the Trust experienced in such matters
     to the effect that:

               (A)    such merger, conversion, consolidation, amalgamation,
          replacement, conveyance, transfer or lease does not adversely affect
          the rights, preferences and privileges of the Holders of the
          Securities (including any Successor Securities) in any material
          respect (other than with respect to any dilution of the Holders'
          interest in the new entity);

               (B)    following such merger, conversion, consolidation,
          amalgamation, replacement, conveyance, transfer or lease, neither the
          Trust nor the Successor Entity will be required to register as an
          Investment Company under the Investment Company Act; and

               (C)    following such merger, conversion, consolidation,
          amalgamation, replacement, conveyance, transfer, or lease, the Trust
          (or the Successor Entity) will continue to be classified as a grantor
          trust for United States federal income tax purposes; and

         (viii)  the Sponsor or any permitted successor or assignee owns all of
     the common securities of such Successor Entity and guarantees the
     obligations of such Successor

                                       28
<PAGE>
 
     Entity under the Successor Securities at least to the extent provided by
     the Capital Securities Guarantee and the Common Securities Guarantee.

          (c)  Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of all Holders of the Securities in liquidation amount of the
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any other Person or permit any
other Person to consolidate, amalgamate, merge or convert with or into, or
replace it if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the Successor Entity not
to be classified as a grantor trust for United States federal income tax
purposes.

          (d)  The Administrative Trustees shall furnish to the Delaware Trustee
at least five Business Days prior notice of the consummation of any merger,
consolidation, amalgamation, or replacement; provided, however, that failure to
provide such notice shall not effect the validity of any such transaction.

                                   ARTICLE IV
                                    SPONSOR

SECTION 4.1    Sponsor's Purchase of Common Securities.
               --------------------------------------- 

          At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in an amount at least equal to 3% of the
capital of the Trust, at the same time as the Capital Securities are issued and
sold.

SECTION 4.2    Responsibilities of the Sponsor.
               ------------------------------- 

          In connection with the issue and sale of the Capital Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:

          (a)  to prepare the Offering Memorandum, including any amendments or
supplements thereto;

          (b)  to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Capital Securities and to do any
and all such acts, other than actions which must be taken by the Trust, and
advise the Trust of actions it must take, and prepare for execution and filing
any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;

          (c)  if deemed necessary or advisable by the Sponsor, to prepare for
filing by the Trust an application to the New York

                                       29
<PAGE>
 
Stock Exchange or any other national stock exchange or the Nasdaq National
Market for listing or quotation of the Capital Securities;

          (d)  if required, to prepare for filing by the Trust with the
Commission a registration statement on Form 8-A relating to the registration of
the Capital Securities under Section 12(b) of the Exchange Act, including any
amendments thereto; and

          (e)  to negotiate the terms of the Purchase Agreement providing for
the sale of the Capital Securities.

SECTION 4.3    Right to Proceed.
               ---------------- 

          The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Company to pay interest
or principal on the Debentures, to institute Direct Actions against the
Debenture Issuer for enforcement of its payment obligations on the Debentures.

                                   ARTICLE V
                                    TRUSTEES

SECTION 5.1    Number of Trustees: Appointment of Co-Trustee.
               --------------------------------------------- 

          The number of Trustees initially shall be six (6), and:

          (a)  at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and

          (b)  after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that, the number of Trustees shall in
                       --------  -------                                       
no event be less than two (2); provided further, that (1) one Trustee shall be
                               -------- -------                               
the Delaware Trustee; (2) there shall be at least one Trustee who is an employee
or officer of, or is affiliated with the Sponsor (an "Administrative Trustee");
and (3) one Trustee shall be the Property Trustee for so long as this
Declaration is required to qualify as an indenture under the Trust Indenture
Act, and such Trustee may also serve as Delaware Trustee if it meets the
applicable requirements.  Notwithstanding the above, unless an Event of Default
shall have occurred and be continuing, at any time or times, for the purpose of
meeting the legal requirements of the Trust Indenture Act or of any jurisdiction
in which any part of the Trust's property may at the time be located, the
Holders of a Majority in Liquidation Amount of the Common Securities acting as a
class at a meeting of the

                                       30
<PAGE>
 
Holders of the Common Securities, and the Administrative Trustees shall have
power to appoint one or more Persons either to act as a co-trustee, jointly with
the Property Trustee, of all or any part of the Trust's property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of this Declaration.  In case an Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make any such appointment of a co-trustee.

SECTION 5.2    Delaware Trustee.
               ---------------- 

          If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:

          (a)  a natural person who is a resident of the State of Delaware; or

          (b)  if not a natural person, an entity which has its principal place
of business in the State of Delaware, and otherwise meets the requirements of
applicable law,

provided that, if the Property Trustee has its principal place of business in
-------- ----                                                                
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application to the Property Trustee in its capacity as Property
Trustee.

SECTION 5.3    Property Trustee; Eligibility.
               ----------------------------- 

          (a)  There shall at all times be one Trustee (the "Property Trustee")
which shall act as Property Trustee and which shall:

               (i)  not be an Affiliate of the Sponsor; and

               (ii) be a corporation or national banking association organized
     and doing business under the laws of the United States of America or any
     State or Territory thereof or of the District of Columbia, or a corporation
     or Person permitted by the Commission to act as an institutional trustee
     under the Trust Indenture Act, authorized under such laws to exercise
     corporate trust powers, having a combined capital and surplus of at least
     50 million U.S. dollars ($50,000,000), and subject to supervision or
     examination by federal, state, territorial or District of Columbia
     authority.  If such corporation or national banking association publishes
     reports of condition at least annually, pursuant to law or to the
     requirements of

                                       31
<PAGE>
 
     the supervising or examining authority referred to above, then for the
     purposes of this Section 5.3(a)(ii), the combined capital and surplus of
     such corporation or national banking association shall be deemed to be its
     combined capital and surplus as set forth in its most recent report of
     condition so published.

          (b)  If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.7(c).

          (c)  If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of (S)310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in (S)310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of (S) 310(b) of the Trust Indenture Act.

          (d)  The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in (S)310(b) of the Trust Indenture Act.

          (e)  The initial Property Trustee shall be:

               First Union National Bank of North Carolina
               230 South Tryon Street, 9th Floor
               Charlotte, North Carolina 28288-1179
               Attention: Bond Administration

SECTION 5.4    Certain Qualifications of Administrative Trustees and Delaware
               --------------------------------------------------------------
               Trustee Generally.
               ----------------- 

          Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural person
who is at least 21 years of age or a legal entity that shall act through one or
more Authorized Officers.

SECTION 5.5    Administrative Trustees.
               ----------------------- 

          (a)  The initial Administrative Trustees shall be:

                    Robert Y. Huffman
                    c/o Vesta Insurance Group, Inc.
                    3760 River Run Drive
                    Birmingham, Alabama 35243

                    Barry A. Patrick
                    c/o Vesta Insurance Group, Inc.
                    3760 River Run Drive

                                       32
<PAGE>
 
                    Birmingham, Alabama 35243

                    Donald W. Thornton
                    c/o Vesta Insurance Group, Inc.
                    3760 River Run Drive
                    Birmingham, Alabama 35243

                    Brian R. Meredith
                    c/o Vesta Insurance Group, Inc.
                    3760 River Run Drive
                    Birmingham, Alabama 35243

          (b)  Except as expressly set forth in this Declaration and except if a
meeting of the Administrative Trustees is called with respect to any matter over
which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.

          (c)  Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 3.6, provided, that, the
registration statement referred to in Section 3.6, including any amendments
thereto, shall be signed by all of the Administrative Trustees; and

          (d)  An Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.6.

SECTION 5.6    Delaware Trustee.
               ---------------- 

          The initial Delaware Trustee shall be:

               First Union Bank of Delaware
               One Rodney Square, 1st Floor
               920 King Street
               Wilmington, Delaware 19801
               Attention:  Corporate Trustee
                           Administration

SECTION 5.7    Appointment, Removal and Resignation of Trustees.
               ------------------------------------------------ 

          (a)  Subject to Section 5.7(b), any Trustee may be appointed or
removed without cause at any time:

                                       33
<PAGE>
 
               (i)    until the issuance of any Securities, by written
     instrument executed by the Sponsor;

               (ii)   in the case of Administrative Trustees, after the issuance
     of any Securities, by vote of the Holders of a Majority in Liquidation
     Amount of the Common Securities voting as a class at a meeting of the
     Holders of the Common Securities;

               (iii)  in the case of the Property Trustee and the Delaware
     Trustee, unless an Event of Default shall have occurred and be continuing
     after the issuance of any Securities, by vote of the Holders of a Majority
     in Liquidation Amount of the Common Securities voting as a class at a
     meeting of the Holders of the Common Securities; and

               (iv)   in the case of the Property Trustee and the Delaware
     Trustee, if an Event of Default shall have occurred and be continuing after
     the issuance of the Securities, by vote of Holders of a Majority in
     Liquidation Amount of the Capital Securities voting as a class at a meeting
     of Holders of the Capital Securities.

          (b)  (i)    The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.7(a) until a successor Trustee possessing
the qualifications to act as Property Trustee under Section 5.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the removed Property Trustee, the Administrative Trustees and the Sponsor; and

               (ii)   the Trustee that acts as Delaware Trustee shall not be
     removed in accordance with this Section 5.7(a) until a successor Trustee
     possessing the qualifications to act as Delaware Trustee under Sections 5.2
     and 5.4 (a "Successor Delaware Trustee") has been appointed and has
     accepted such appointment by written instrument executed by such Successor
     Delaware Trustee and delivered to the removed Delaware Trustee, the
     Administrative Trustees and the Sponsor.

          (c)  A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:

                                       34
<PAGE>
 
               (i)    No such resignation of the Trustee that acts as the
     Property Trustee shall be effective:

                    (A)  until a Successor Property Trustee has been appointed
          and has accepted such appointment by instrument executed by such
          Successor Property Trustee and delivered to the Administrative
          Trustees, the Sponsor and the resigning Property Trustee; or

                    (B)  until the assets of the Trust have been completely
          liquidated and the proceeds thereof distributed to the Holders of the
          Securities; and

              (ii)  no such resignation of the Trustee that acts as the
     Delaware Trustee shall be effective until a Successor Delaware Trustee has
     been appointed and has accepted such appointment by instrument executed by
     such Successor Delaware Trustee and delivered to the Administrative
     Trustees, the Sponsor and the resigning Delaware Trustee.

          (d)  The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.7.

          (e)  If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 60 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee.  Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.

          (f)  No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.

SECTION 5.8    Vacancies Among Trustees.
               ------------------------ 

          If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur.  A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees, shall be
conclusive evidence of the existence of such vacancy.  The

                                       35
<PAGE>
 
vacancy shall be filled with a Trustee appointed in accordance with Section 5.7.

SECTION 5.9    Effect of Vacancies.
               ------------------- 

          The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust.  Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.7, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.

SECTION 5.10   Meetings.
               -------- 

          If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee.  Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting.  Notice
of any telephonic meetings of the Administrative Trustees or any committee
thereof shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting.  Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting.  The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened.  Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the written consent of the Administrative Trustees.  In the event there is
only one Administrative Trustee, any and all action of such Administrative
Trustee shall be evidenced by a written consent of such Administrative Trustee.

SECTION 5.11   Delegation of Power.
               ------------------- 

          (a)  Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other

                                       36
<PAGE>
 
natural person over the age of 21 his or her power for the purpose of executing
any documents contemplated in Section 3.6, including any registration statement
or amendment thereto filed with the Commission, or making any other governmental
filing; and

          (b)  The Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as set
forth herein.

Section 5.12  Merger, Conversion, Consolidation or Succession to Business.
              ----------------------------------------------------------- 

          Any Person into which the Property Trustee or the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any Person succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such Trustee
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided such Person shall be otherwise
qualified and eligible under this Article.

                                   ARTICLE VI
                                 DISTRIBUTIONS

SECTION 6.1    Distributions.
               ------------- 

          Each Holder shall receive Distributions in accordance with the
applicable terms of such Holder's Securities.  If and to the extent that the
Debenture Issuer makes a payment of interest (including Compounded Interest (as
defined in the Indenture) and Additional Sums (as defined in the Indenture)),
premium and/or principal or any other payments on the Debentures held by the
Property Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders in accordance with the respective terms of the Securities held by them.

                                  ARTICLE VII
                            ISSUANCE OF SECURITIES

SECTION 7.1    General Provisions Regarding Securities.
               --------------------------------------- 

                                       37
<PAGE>
 
          (a)  The Administrative Trustees shall on behalf of the Trust issue
one class of capital securities representing undivided beneficial interests in
the assets of the Trust having such terms as are set forth in Annex I (the
"Capital Securities") and one class of common securities representing undivided
beneficial interests in the assets of the Trust having such terms as are set
forth in Annex I (the "Common Securities"). The Trust shall issue no securities
or other interests in the assets of the Trust other than the Capital Securities
and the Common Securities.

          (b)  The Capital Securities rank pari passu and payment thereon shall
be made Pro Rata (as defined in Annex I hereto) with the Common Securities
except that, where an Event of Default has occurred and is continuing, the
rights of Holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights to payment of the Holders of the Capital Securities.

          (c)  The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.

          (d)  Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.

          (e)  Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.

SECTION 7.2    Execution and Authentication.
               ---------------------------- 

          The Securities shall be signed on behalf of the Trust by an
Administrative Trustee.  Such signature may be by manual or facsimile signature.
Typographical and other minor errors or defects in any reproduction of any such
signature shall not affect the validity of any Security.  In case any
Administrative Trustee who shall have signed any of the Securities shall cease
to be such Administrative Trustee before the Securities so signed shall be
delivered by the Trust, such Securities nevertheless may be delivered as though
the Person who signed such Securities had not ceased to be such Administrative
Trustee; and any Securities may be signed on behalf of the Trust by such Persons
who, at the actual date of execution of such Security, shall be the
Administrative Trustees of the Trust, although at the date of the execution and
delivery of the

                                       38
<PAGE>
 
Declaration any such Person was not such an Administrative Trustee.

          A Common Security shall be valid upon execution by an Administrative
Trustee without any act of the Property Trustee.  A Capital Security shall not
be valid until authenticated by the manual signature of an authorized officer of
the Property Trustee.  The signature shall be conclusive evidence that the
Capital Security has been authenticated under this Declaration.

          Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in the Terms in Annex I hereto except
as provided in Section 7.6.

          The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Capital Securities. An authenticating agent may
authenticate Capital Securities whenever the Property Trustee may do so.  Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent.  An authenticating agent has the same rights as
the Property Trustee to deal with the Sponsor or an Affiliate.

SECTION 7.3    Form and Dating.
               --------------- 

          The Capital Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof.  The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Administration Trustees, as evidenced by their execution thereof).  The
Trust at the direction of the Sponsor shall furnish any such legend not
contained in Exhibit A-1 to the Property Trustee in writing.  Each Capital
Security shall be dated the date of its authentication.  The terms and
provisions of the Securities set forth in Annex I and the forms of Securities
set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and
to the extent applicable, the Property Trustee and the Sponsor, by their
execution and delivery of this Declaration,

                                       39
<PAGE>
 
expressly agree to such terms and provisions and to be bound thereby.

          (a)  Global Securities.  The Capital Securities offered and sold to
               -----------------                                             
QIBs in reliance on Rule 144A or offered and sold outside the United States to
non-U.S. persons in offshore transactions in reliance on Regulation S, as
provided in the Purchase Agreement, shall be issued in the form of one or more,
permanent global Securities in definitive, fully registered form without
Distribution coupons with the appropriate global legends and the Restricted
Securities Legend set forth in Exhibit A-1 hereto (respectively, a "Rule 144A
Global Capital Security" or "Regulation S Global Capital Security"), which shall
be deposited on behalf of the purchasers of the Capital Securities represented
thereby with the Property Trustee or the Registrar, as custodian for the
Clearing Agency, and registered in the name of the Clearing Agency or a nominee
of the Clearing Agency, duly executed by the Trust and authenticated by the
Property Trustee as hereinafter provided.  The number of Capital Securities
represented by the Rule 144A Global Capital Security and the Regulation S Global
Capital Security may from time to time be increased or decreased by adjustments
made on the records of the Property Trustee and the Clearing Agency or its
nominee as hereinafter provided.

          (b)  Book-Entry Provisions.  This Section 7.3(b) shall apply only to
               ---------------------                                          
the Rule 144A Global Capital Securities, the Regulation S Global Capital
Securities and such other Capital Securities in global form as may be authorized
by the Trust to be deposited with or on behalf of the Clearing Agency.

          The Administrative Trustees shall execute and the Property Trustee
shall, in accordance with this Section 7.3, authenticate and make available for
delivery initially one or more Rule 144A Global Capital Securities and one or
more Regulation S Global Capital Securities that (i) shall be registered in the
name of Cede & Co. or other nominee of such Clearing Agency and (ii) shall be
delivered by the Trustee to such Clearing Agency or pursuant to such Clearing
Agency's written instructions or held by the Property Trustee or the Registrar
as custodian for the Clearing Agency.

          Members of, or participants in, the Clearing Agency ("Participants")
shall have no rights under this Declaration with respect to any Rule 144A Global
Capital Security or any Regulation S Global Capital Security held on their
behalf by the Clearing Agency or by the Property Trustee or the Registrar as the
custodian of the Clearing Agency or under such Rule 144A Global Capital Security
or such Regulation S Global Capital Security, and the Clearing Agency may be
treated by the Trust, the Property Trustee and any agent of the Trust or the
Property Trustee as the absolute owner of such Rule 144A Global Capital

                                       40
<PAGE>
 
Security or such Regulation S Global Capital Security for all purposes
whatsoever.  Notwithstanding the foregoing, nothing herein shall prevent the
Trust, the Property Trustee or any agent of the Trust or the Property Trustee
from giving effect to any written certification, proxy or other authorization
furnished by the Clearing Agency or impair, as between the Clearing Agency and
its Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Rule 144A Global Capital Security or any Regulation S Global Capital Security.

          (c)  Definitive Capital Securities. Except as provided in Section 7.9,
               -----------------------------    
owners of beneficial interests in a Rule 144A Global Capital Security or a
Regulation S Global Capital Security will not be entitled to receive physical
delivery of certificated Capital Securities ("Definitive Capital Securities").
Purchasers of Securities who are "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and did not purchase
Capital Securities in reliance on Regulation S will receive Capital Securities
in the form of individual certificates in definitive, fully registered form
without distribution coupons and with the Restricted Securities Legend set forth
in Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided,
                                                                    -------- 
however, that upon registration of transfer of such Restricted Definitive
-------                                                                  
Capital Securities to a QIB, such Restricted Definitive Capital Securities will,
unless the Rule 144A Global Capital Security has previously been exchanged, be
exchanged for an interest in a Rule 144A Global Capital Security pursuant to the
provisions of Section 9.2. Restricted Definitive Capital Securities will bear
the Restricted Securities Legend set forth on Exhibit A-1 unless removed in
accordance with this Section 7.3 or Section 9.2.

SECTION 7.4    Registrar and Paying Agent.
               -------------------------- 

          The Trust shall maintain in the Borough of Manhattan, The City of New
York, (i) an office or agency where Capital Securities may be presented for
registration of transfer ("Registrar") and (ii) an office or agency where
Capital Securities may be presented for payment ("Paying Agent").  The Registrar
shall keep a register of the Capital Securities and of their transfer.  The
Trust may appoint the Registrar and the Paying Agent and may appoint one or more
co-registrars, one or more additional paying agents in such other locations as
it shall determine.  The term "Registrar" includes any additional registrar and
the term "Paying Agent" includes any additional paying agent.  The Trust may
change any Paying Agent, Registrar or co-registrar without prior notice to any
Holder.  The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Property Trustee and the Sponsor.  The Trust shall
notify the Property Trustee of the name and address of any Agent not a party to
this Declaration.  If the Trust fails

                                       41
<PAGE>
 
to appoint or maintain another entity as Registrar or Paying Agent, the Property
Trustee shall act as such.  The Trust or any of its Affiliates may act as Paying
Agent or Registrar. The Property Trustee shall act as Paying Agent and Registrar
for the Common Securities.

          The Trust initially appoints the Property Trustee as Registrar and
Paying Agent for the Capital Securities.

SECTION 7.5    Paying Agent to Hold Money in Trust.
               ----------------------------------- 

          The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of Liquidation Amounts or Distributions on the Securities, and
will notify the Property Trustee if there are insufficient funds for such
purpose.  While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee.  The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it.  Upon payment
over to the Property Trustee the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money.  If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.

SECTION 7.6    Replacement Securities.
               ---------------------- 

          If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Administrative Trustees shall execute and the Property
Trustee shall authenticate a replacement Security if the Property Trustee's and
the Administrative Trustees' requirements, as the case may be, are met.  An
indemnity bond must be provided by the Holder which, in the judgment of the
Property Trustee, is sufficient to protect the Trustees, the Sponsor or any
authenticating agent from any loss which any of them may suffer if a Security is
replaced.  The Trust may charge such Holder for its expenses in replacing a
Security.

          Every replacement Security is an additional beneficial interest in the
Trust.

SECTION 7.7    Outstanding Capital Securities.
               ------------------------------ 

          The Capital Securities outstanding at any time are all the Capital
Securities authenticated by the Property Trustee

                                       42
<PAGE>
 
except for those cancelled by it, those delivered to it for cancellation, and
those described in this Section as not outstanding.

          If a Capital Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.

          If Capital Securities are considered paid in accordance with the terms
of this Declaration, they cease to be outstanding and Distributions on them
shall cease to accumulate.

          Except as otherwise provided herein, a Capital Security does not cease
to be outstanding because one of the Trustees, the Sponsor or an Affiliate of
the Sponsor holds the Security.

SECTION 7.8    Capital Securities in Treasury.
               ------------------------------ 

          In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Capital
Securities which a Responsible Officer of the Property Trustee actually knows
are so owned shall be so disregarded.

SECTION 7.9    Temporary Securities.
               -------------------- 

          (a)  Until Definitive Securities are ready for delivery, the Trust may
prepare and, in the case of the Capital Securities, the Property Trustee shall
authenticate temporary Securities.  Temporary Securities shall be substantially
in the form of Definitive Securities but may have variations that the Trust
considers appropriate for temporary Securities.  Without unreasonable delay, the
Trust shall prepare and, in the case of the Capital Securities, the Property
Trustee shall authenticate Definitive Securities in exchange for temporary
Securities.

          (b)  A Global Capital Security deposited with the Clearing Agency or
with the Property Trustee as custodian for the Clearing Agency pursuant to
Section 7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Capital Securities only if such transfer complies with Section 9.2
and (i) the Clearing Agency notifies the Company that it is unwilling or unable
to continue as Clearing Agency for such Global Capital Security or if at any
time such Clearing Agency ceases to be a "clearing agency" registered under the
Exchange Act and a

                                       43
<PAGE>
 
clearing agency is not appointed by the Sponsor within 90 days of such notice,
(ii) a Default or an Event of Default has occurred and is continuing or (iii)
the Trust at its sole discretion elects to cause the issuance of certificated
Capital Securities.

          (c)  Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in the Borough of Manhattan, The City of New York, to
be so transferred, in whole or from time to time in part, without charge, and
the Property Trustee shall authenticate and make available for delivery, upon
such transfer of each portion of such Global Capital Security, an equal
aggregate Liquidation Amount of Securities of authorized denominations in the
form of certificated Capital Securities. Any portion of a Global Capital
Security transferred pursuant to this Section shall be registered in such names
as the Clearing Agency shall direct. Any Capital Security in the form of
certificated Capital Securities delivered in exchange for an interest in the
Restricted Global Capital Security shall, except as otherwise provided by
Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit
A-1 hereto.

          (d)  Subject to the provisions of Section 7.9(c), the Holder of a
Global Capital Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Declaration
or the Securities.

          (e)  In the event of the occurrence of any of the events specified in
Section 7.9(b), the Trust will promptly make available to the Property Trustee a
reasonable supply of certificated Capital Securities in fully registered form
without Distribution coupons.

SECTION 7.10   Cancellation.
               ------------ 

          The Trust at any time may deliver Capital Securities to the Property
Trustee for cancellation.  The Registrar and Paying Agent shall forward to the
Property Trustee any Capital Securities surrendered to them for registration of
transfer, redemption, exchange or payment.  The Property Trustee shall promptly
cancel all Capital Securities surrendered for registration of transfer,
redemption, exchange, payment, replacement or cancellation and shall dispose of
canceled Capital Securities in accordance with its customary procedures unless
any Administrative Trustee otherwise directs the Property Trustee in writing.
The Trust may not issue new Capital Securities to replace Capital Securities
that it has paid or that have been

                                       44
<PAGE>
 
delivered to the Property Trustee for cancellation or that any Holder has
exchanged.

SECTION 7.11   CUSIP Numbers.
               ------------- 

          The Trust in issuing the Capital Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the  Property Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.  The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.


                                 ARTICLE VIII
                             TERMINATION OF TRUST

SECTION 8.1    Termination of Trust.
               -------------------- 

     (a)  The Trust shall automatically be terminated and dissolved and its
affairs wound up upon the earliest to occur of the following events:

               (i)    upon the bankruptcy of the Sponsor;

               (ii)   upon the filing of a certificate of dissolution or
     liquidation or its equivalent with respect to the Sponsor, or the
     revocation of the Sponsor's charter and the expiration of 90 days after the
     date of revocation without a reinstatement thereof;

               (iii)  following the distribution of a Like Amount of the
     Debentures to the Holders of the Securities, provided that, the Property
     Trustee has received written notice from the Sponsor directing the Property
     Trustee to terminate the Trust (which direction is optional and within the
     discretion of the Sponsor);

               (iv)   upon the entry of a decree of judicial dissolution of the
     Trust by a court of competent jurisdiction;

               (v)    when all of the Securities shall have been called for
     redemption and the amounts necessary for redemption thereof shall have been
     paid to the Holders in accordance with the terms of the Securities; or

                                       45
<PAGE>
 
               (vi)   the expiration of the term of the Trust provided in
     Section 3.14.

          (b)  As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a) and the completion of the winding up of the Trust
and after satisfaction of all liabilities of the Trust (whether by payment or by
making reasonable provision for payment thereof), the Administrative Trustees
shall file a certificate of cancellation with the Secretary of State of the
State of Delaware.

          (c)  The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.

                                  ARTICLE IX
                             TRANSFER OF INTERESTS

SECTION 9.1    Transfer of Securities.
               ---------------------- 

          (a)  Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities.  Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.

          (b)  Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration.  Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.

          (c)  Subject to Section 3.15, the Sponsor and any Related Party may
only transfer the Common Securities to the Sponsor or a Related Party after the
delivery to the Property Trustee of an Officers' Certificate certifying that the
transferee is either the Sponsor or a Related Party.

          (d)  The Property Trustee shall provide for the registration of
Securities and of the transfer of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Property Trustee may
require) in respect of any tax or other governmental charges that may be imposed
in relation to it.  Upon surrender for registration of transfer of any
Securities, the Administrative Trustees shall execute and the Property Trustee
shall cause one or more new Securities to be issued in the name of the
designated transferee or transferees.  Every Security surrendered for
registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Property Trustee duly executed by the
Holder or such Holder's attorney duly authorized in writing.  Each Security
surrendered for registration of transfer shall be delivered to the Property
Trustee and canceled in accordance with

                                       46
<PAGE>
 
Section 7.10.  A transferee of a Security shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Security.  By acceptance of a Security, each transferee shall be
deemed to have agreed to be bound by this Declaration.

SECTION 9.2    Transfer Procedures and Restrictions.
               ------------------------------------ 

          (a)  General.  Except as otherwise provided in Section 9.2(b), if
               -------                                                     
Capital Securities are issued upon the registration of transfer, exchange or
replacement of Capital Securities bearing the Restricted Securities Legend set
forth in Exhibit A-1 hereto, or if a request is made to remove such Restricted
Securities Legend on Capital Securities, the Capital Securities so issued shall
bear the Restricted Securities Legend, or the Restricted Securities Legend shall
not be removed, as the case may be, unless there is delivered to the Sponsor and
the Property Trustee such satisfactory evidence, which shall include an Opinion
of Counsel, as may be reasonably required by the Sponsor and the Property
Trustee, that neither the legend nor the restrictions on transfer set forth
therein are required to ensure that transfers thereof are made pursuant to an
exception from the registration requirements of the Securities Act or, with
respect to Restricted Securities, that such Securities are not "restricted"
within the meaning of Rule 144.  Upon provision of such satisfactory evidence,
the Property Trustee, at the written direction of the Sponsor, shall
authenticate and deliver Capital Securities that do not bear the legend.

          (b)  Transfer and Exchange of Definitive Capital Securities.  When
               ------------------------------------------------------       
Definitive Capital Securities are presented to the Registrar or co-Registrar:

          (x)  to register the transfer of such Definitive Capital Securities,
     or

          (y)  to exchange such Definitive Capital Securities which became
     mutilated, destroyed, defaced, stolen or lost, for an equal number of
     Definitive Capital Securities,

the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
registration of transfer or exchange:

               (i)    shall be duly endorsed or accompanied by a written
     instrument of transfer in form reasonably satisfactory to the Trust and the
     Registrar or co-Registrar, duly executed by the Holder thereof or his
     attorney duly authorized in writing; and

                                       47
<PAGE>
 
               (ii)   in the case of Definitive Capital Securities that are
     Restricted Definitive Capital Securities:

                    (A)  if such Restricted Capital Securities are being
          delivered to the Registrar by a Holder for registration in the name of
          such Holder, without transfer, a certification from such Holder to
          that effect; or

                    (B)  if such Restricted Capital Securities are being
          transferred: (i) a certification from the transferor in a form
          substantially similar to that attached hereto as the "Form of
          Assignment" in Exhibit A-1, and (ii) if the Trust or the Registrar so
          requests, evidence reasonably satisfactory to them as to the
          compliance with the restrictions set forth in the Restricted
          Securities Legend.

          (c)  Restrictions on Transfer of a Definitive Capital Security for a
               ---------------------------------------------------------------
Beneficial Interest in a Global Capital Security.  A Definitive Capital Security
------------------------------------------------                                
may not be exchanged for a beneficial interest in a Global Capital Security
except upon satisfaction of the requirements set forth below.  Upon receipt by
the Property Trustee of a Definitive Capital Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Property Trustee, together with:

               (i)    if such Definitive Capital Security is a Restricted
     Capital Security, certification from the transferor in a form substantially
     similar to that attached hereto as the "Form of Assignment" in Exhibit A-1;
     provided, however, that such Definitive Capital Security may only be
     exchanged for an interest in a Regulation S Global Security where such
     Definitive Capital Security is being transferred pursuant to Regulation S
     or Rule 144 (if available); and

               (ii)   whether or not such Definitive Capital Security is a
     Restricted Capital Security, written instructions directing the Property
     Trustee to make, or to direct the Clearing Agency to make, an adjustment on
     its books and records with respect to the appropriate Global Capital
     Security to reflect an increase in the number of the Capital Securities
     represented by such Global Capital Security,

then the Property Trustee shall cancel such Definitive Capital Security and
cause, or direct the Clearing Agency to cause, the aggregate number of Capital
Securities represented by the appropriate Global Capital Security to be
increased accordingly. If no Global Capital Securities are then outstanding, the
Trust shall issue and the Property Trustee shall authenticate, upon

                                       48
<PAGE>
 
written order of any Administrative Trustee, an appropriate number of Capital
Securities in global form.

          (d)  Transfer and Exchange of Global Capital Securities.  Subject to
               --------------------------------------------------             
Section 9.2(e), the transfer and exchange of Global Capital Securities or
beneficial interests therein shall be effected through the Clearing Agency, in
accordance with this Declaration (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Clearing Agency therefor.

          (e)  Transfer of a Beneficial Interest in a Global Capital Security 
               --------------------------------------------------------------
for a Definitive Capital Security.
--------------------------------- 

               (i)    Any Person having a beneficial interest in a Global
     Capital Security may upon request, but only upon 20 days prior notice to
     the Property Trustee, and if accompanied by the information specified
     below, exchange such beneficial interest for a Definitive Capital Security
     representing the same number of Capital Securities. Upon receipt by the
     Property Trustee from the Clearing Agency or its nominee on behalf of any
     Person having a beneficial interest in a Global Capital Security of written
     instructions or such other form of instructions as is customary for the
     Clearing Agency or the Person designated by the Clearing Agency as having
     such a beneficial interest in a Restricted Capital Security and a
     certification from the transferor (in a form substantially similar to that
     attached hereto as the "Form of Assignment" in Exhibit A-1), which may be
     submitted by facsimile, then the Property Trustee will cause the aggregate
     number of Capital Securities represented by Global Capital Securities to be
     reduced on its books and records and, following such reduction, the Trust
     will execute and the Property Trustee will authenticate and make available
     for delivery to the transferee a Definitive Capital Security;

               (ii)   Definitive Capital Securities issued in exchange for a
     beneficial interest in a Global Capital Security pursuant to this Section
     9.2(e) shall be registered in such names and in such authorized
     denominations as the Clearing Agency, pursuant to instructions from its
     Participants or indirect participants or otherwise, shall instruct the
     Property Trustee in writing.  The Property Trustee shall deliver such
     Capital Securities to the Persons in whose names such Capital Securities
     are so registered in accordance with such instructions of the Clearing
     Agency.

          (f)  Restrictions on Transfer and Exchange of Global Capital
               -------------------------------------------------------
Securities.  Notwithstanding any other provisions of this Declaration (other
----------
than the provisions set forth in subsection (g) of this Section 9.2), a Global
Capital Security may not be

                                       49
<PAGE>
 
transferred as a whole except by the Clearing Agency to a nominee of the
Clearing Agency or another nominee of the Clearing Agency or by the Clearing
Agency or any such nominee to a successor Clearing Agency or a nominee of such
successor Clearing Agency.

          Prior to the expiration of the restricted period, as contemplated by
Regulation S, beneficial interests in the Regulation S Global Capital Security
may be exchanged for beneficial interests in the Rule 144A Global Capital
Security only if such exchange occurs in connection with a transfer of the
Capital Securities pursuant to Rule 144A and the transferor first delivers to
the Property Trustee a written certificate (in a form substantially similar to
that attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect
that the Capital Securities are being transferred to a person who the transferor
reasonably believes is a QIB, purchasing for its own account or the account of a
QIB in a transaction meeting the requirements of Rule 144A and in accordance
with all applicable securities laws of the states of the United States and other
jurisdictions.

          Beneficial interests in the Rule 144A Global Capital Security may be
transferred to a person who takes delivery in the form of an interest in the
Regulation S Global Capital Security, whether before or after the expiration of
such restricted period, as contemplated by Regulation S, only if the transferor
first delivers to the Property Trustee a written certificate (in a form
substantially similar to that attached hereto as the "Form of Assignments" in
Exhibit A-1) to the effect that such transfer is being made in accordance with
Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such
transfer occurs prior to the expiration of such restricted period, the interest
transferred will be held immediately thereafter through Euroclear or CEDEL.

          (g)  Authentication of Definitive Capital Securities. If at any time
               -----------------------------------------------                
Global Capital Securities are outstanding:

               (i)    there occurs a Default or an Event of Default which is
     continuing,

               (ii)   the Trust, in its sole discretion, notifies the Property
     Trustee in writing that it elects to cause the issuance of Definitive
     Capital Securities under this Declaration, or

               (iii)  the Trust is required to exchange such Global Capital
     Securities for Definitive Capital Securities as described in Section
     7.9(b),

then the Trust will execute, and the Property Trustee, upon receipt of a written
order of the Trust signed by one Administrative Trustee requesting the
authentication and delivery

                                       50
<PAGE>
 
of Definitive Capital Securities to the Persons designated by the Trust, will
authenticate and make available for delivery Definitive Capital Securities,
equal in number to the number of Capital Securities represented by the Global
Capital Securities, in exchange for such Global Capital Securities.

          (h)  Legend.
               ------ 

               (i)    Except as permitted by the following paragraph (ii), each
     Capital Security certificate evidencing the Global Capital Securities and
     the Definitive Capital Securities (and all Capital Securities issued in
     exchange therefor or substitution thereof) shall bear a legend (the
     "Restricted Securities Legend") in substantially the following form:

          THE CAPITAL SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
          (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR
          ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS
          CAPITAL SECURITY NOR ANY INTEREST OR PARTICIPATION
          HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
          PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
          ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
          IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

          THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE
          HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS
          CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE
          RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS
          AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF
          AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE
          OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY
          (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A)
          TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
          STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
          SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS
          ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
          SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
          BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
          DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
          ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
          BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
          BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
          OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR

                                       51
<PAGE>
 
          OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
          REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
          INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
          OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501
          UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL
          SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
          SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR
          INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
          OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
          VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY
          OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
          REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE
          RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH
          OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E)
          OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
          COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
          SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO
          CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO
          THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN
          THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED
          JANUARY __, 1997. SUCH HOLDER FURTHER AGREES THAT IT
          WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL
          SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
          EFFECT OF THIS LEGEND.

          THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE
          HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT (A)
          IS NOT ITSELF, AND IS NOT ACQUIRING CAPITAL SECURITIES
          WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR OTHER
          PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
          INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
          SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
          AMENDED (THE "CODE") (EACH, A "PLAN"), OR AN ENTITY
          WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON
          OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET
          ENTITY"), OR (B) IS ACQUIRING AND HOLDING THE CAPITAL
          SECURITIES IN A TRANSACTION THAT IS NOT OTHERWISE
          PROHIBITED BY EITHER ERISA OR THE CODE.

and in the case of the Regulation S Global Capital Security the following
additional legend:

          THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT AND MAY NOT BE

                                       52
<PAGE>
 
          OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
          ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER
          THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION
          REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.

          (ii) Upon any sale or transfer of a Restricted Capital Security
     (including any Restricted Capital Security represented by a Global Capital
     Security) pursuant to an effective registration statement under the
     Securities Act or pursuant to Rule 144 under the Securities Act after such
     registration statement ceases to be effective:

               (A) in the case of any Restricted Capital Security that is a
          Definitive Capital Security, the Registrar shall permit the Holder
          thereof to exchange such Restricted Capital Security for a Definitive
          Capital Security that does not bear the Restricted Securities Legend
          and rescind any restriction on the transfer of such Restricted Capital
          Security; and

               (B) in the case of any Restricted Capital Security that is
          represented by a Global Capital Security, the Registrar shall permit
          the Holder of such Global Capital Security to exchange such Global
          Capital Security for another Global Capital Security that does not
          bear the Restricted Securities Legend.

          (i)  Cancellation or Adjustment of Global Capital Security.  At such
               -----------------------------------------------------          
time as all beneficial interests in a Global Capital Security have either been
exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be canceled by the Property
Trustee.  At any time prior to such cancellation, if any beneficial interest in
a Global Capital Security is exchanged for Definitive Capital Securities,
Capital Securities represented by such Global Capital Security shall be reduced
and an adjustment shall be made on the books and records of the Property Trustee
(if it is then the custodian for such Global Capital Security) with respect to
such Global Capital Security, by the Property Trustee or the Securities
custodian, to reflect such reduction.

          (j) Obligations with Respect to Transfers and Ex-changes of Capital
              ---------------------------------------------------------------
Securities.
---------- 

               (i) To permit registrations of transfers and exchanges, the Trust
     shall execute and the Property Trustee shall authenticate Definitive
     Capital Securities and Global

                                       53
<PAGE>
 
     Capital Securities at the Registrar's or co-Registrar's request in
     accordance with the terms of this Declaration.

               (ii)    Registrations of transfers or exchanges will be effected
     without charge, but only upon payment (with such indemnity as the Trust,
     the Property Trustee or the Sponsor may require) in respect of any tax or
     other governmental charge that may be imposed in relation to it.

               (iii)   The Registrar or co-registrar shall not be required to
     register the transfer of or exchange (a) Capital Securities during a period
     beginning at the opening of business 15 days before the day of mailing of a
     notice of redemption or any notice of selection of Capital Securities for
     redemption and ending at the close of business on the day of such mailing;
     or (b) any Capital Security so selected for redemption in whole or in part,
     except the unredeemed portion of any Capital Security being redeemed in
     part.

               (iv)    Prior to the due presentation for registrations of
     transfer of any Capital Security, the Trust, the Property Trustee, the
     Paying Agent, the Registrar or any co-registrar may deem and treat the
     Person in whose name a Capital Security is registered as the absolute owner
     of such Capital Security for the purpose of receiving Distributions on such
     Capital Security and for all other purposes whatsoever, and none of the
     Trust, the Property Trustee, the Paying Agent, the Registrar or any co-
     registrar shall be affected by notice to the contrary.

               (v)     All Capital Securities issued upon any registration of
     transfer or exchange pursuant to the terms of this Declaration shall
     evidence the same security and shall be entitled to the same benefits under
     this Declaration as the Capital Securities surrendered upon such
     registration of transfer or exchange.

          (k) No Obligation of the Property Trustee.
              ------------------------------------- 

               (i)     The Property Trustee shall have no responsibility or
     obligation to any beneficial owner of a Global Capital Security, a
     Participant in the Clearing Agency or other Person with respect to the
     accuracy of the records of the Clearing Agency or its nominee or of any
     Participant thereof, with respect to any ownership interest in the Capital
     Securities or with respect to the delivery to any Participant, beneficial
     owner or other Person (other than the Clearing Agency) of any notice
     (including any notice of redemption) or the payment of any amount, under or
     with respect to such Capital Securities.  All notices and communications to
     be given to the Holders and all payments to be made to Holders under the
     Capital Securities shall be

                                       54
<PAGE>
 
     given or made only to or upon the order of the registered Holders (which
     shall be the Clearing Agency or its nominee in the case of a Global Capital
     Security).  The rights of beneficial owners in any Global Capital Security
     shall be exercised only through the Clearing Agency subject to the
     applicable rules and procedures of the Clearing Agency.  The Property
     Trustee may conclusively rely and shall be fully protected in relying upon
     information furnished by the Clearing Agency or any agent thereof with
     respect to its Participants and any beneficial owners.

               (ii)    The Property Trustee and Registrar shall have no
     obligation or duty to monitor, determine or inquire as to compliance with
     any restrictions on transfer imposed under this Declaration or under
     applicable law with respect to any transfer of any interest in any Capital
     Security (including any transfers between or among Clearing Agency
     Participants or beneficial owners in any Global Capital Security) other
     than to require delivery of such certificates and other documentation or
     evidence as are expressly required by, and to do so if and when expressly
     required by, the terms of this Declaration, and to examine the same to
     determine substantial compliance as to form with the express requirements
     hereof.

          (l) Minimum Transfers.  Capital Securities shall be subject to the
              -----------------                                             
transfer restrictions described in the Offering Memorandum and may only be
transferred in minimum blocks of $100,000 aggregate Liquidation Amount until
such Capital Securities are registered pursuant to an effective registration
statement filed under the Securities Act or "unrestricted" pursuant to Rule 144
under the Securities Act.

SECTION 9.3  Deemed Security Holders.
             ----------------------- 

          The Trustees may treat the Person in whose name any Security shall be
registered on the books and records of the Trust as the sole owner of such
Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trustees shall have actual or other notice thereof.

SECTION 9.4  Book Entry Interests.
             -------------------- 

          Global Capital Securities shall initially be registered on the books
and records of the Trust in the name of Cede & Co., the nominee of the Clearing
Agency, and no Capital Security Beneficial Owner will receive a definitive
Capital Security certificate (a "Capital Security Certificate") representing
such Capital Security Beneficial Owner's interests in such Global

                                       55
<PAGE>
 
Capital Securities, except as provided in Section 9.2.  Unless and until
definitive, fully registered Capital Securities certificates have been issued to
the Capital Security Beneficial Owners pursuant to Section 9.2:

          (a) the provisions of this Section 9.4 shall be in full force and
effect;

          (b) the Trust and the Property Trustee and the Administrative Trustees
shall be entitled to deal with the Clearing Agency for all purposes of this
Declaration (including the payment of Distributions on the Global Capital
Securities and receiving approvals, votes or consents hereunder) as the Holder
of the Capital Securities and the sole holder of the Global Certificates and
shall have no obligation to the Capital Security Beneficial Owners;

          (c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this Section
9.4 shall control; and

          (d) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants.  DTC will make book entry transfers among the
Clearing Agency Participants.

SECTION 9.5  Notices to Clearing Agency.
             -------------------------- 

          Whenever a notice or other communication to the Capital Security
Holders is required under this Declaration, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Capital Security to the Clearing Agency, and shall have no notice obligations to
the Capital Security Beneficial Owners.

SECTION 9.6  Appointment of Successor Clearing Agency.
             ---------------------------------------- 

          If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities, the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.

                                   ARTICLE X
                           LIMITATION OF LIABILITY OF
                   HOLDERS OF SECURITIES, TRUSTEES OR OTHERS

SECTION 10.1  Liability.
              --------- 

                                       56
<PAGE>
 
          (a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:

               (i)    personally liable for the return of any portion of the
     capital contributions (or any return thereon) of the Holders of the
     Securities which shall be made solely from assets of the Trust; and

               (ii)   be required to pay to the Trust or to any Holder of
     Securities any deficit upon dissolution of the Trust or otherwise.

          (b) The Sponsor shall be liable for all of the fees, expenses, debts
and obligations of the Trust (other than with respect to the Securities) to the
extent not satisfied out of the Trust's assets.

          (c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of
the Capital Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.

SECTION 10.2  Exculpation.
              ----------- 

          (a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.

          (b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.

SECTION 10.3  Fiduciary Duty.
              -------------- 

                                       57
<PAGE>
 
          (a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration.  The provisions
of this Declaration, to the extent that they restrict the duties and liabilities
of an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.

          (b) Unless otherwise expressly provided herein:

               (i)   whenever a conflict of interest exists or arises between
     any Covered Persons; or

               (ii)  whenever this Declaration or any other agreement
     contemplated herein or therein provides that an Indemnified Person shall
     act in a manner that is, or provides terms that are, fair and reasonable to
     the Trust or any Holder of Securities,

each Covered Person or Indemnified Person shall resolve such conflict of
interest, take such action or provide such terms, considering in each case the
relative interest of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles.  In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.

          (c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:

               (i)   in its "discretion" or under a grant of similar authority,
     the Indemnified Person shall be entitled to consider such interests and
     factors as it desires, including its own interests, and shall have no duty
     or obligation to give any consideration to any interest of or factors
     affecting the Trust or any other Person; or

               (ii)  in its "good faith" or under another express standard, the
     Indemnified Person shall act under such express standard and shall not be
     subject to any other or

                                       58
<PAGE>
 
     different standard imposed by this Declaration or by applicable law.

SECTION 10.4  Indemnification.
              --------------- 

               (a)  (i)  The Sponsor shall indemnify, to the full extent
     permitted by law, any Company Indemnified Person who was or is a party or
     is threatened to be made a party to any threatened, pending or completed
     action, suit or proceeding, whether civil, criminal, administrative or
     investigative (other than an action by or in the right of the Trust) by
     reason of the fact that he is or was a Company Indemnified Person against
     expenses (including attorneys' fees and expenses), judgments, fines and
     amounts paid in settlement actually and reasonably incurred by him in
     connection with such action, suit or proceeding if he acted in good faith
     and in a manner he reasonably believed to be in or not opposed to the best
     interests of the Trust, and, with respect to any criminal action or
     proceeding, had no reasonable cause to believe his conduct was unlawful.
     The termination of any action, suit or proceeding by judgment, order,
     settlement, conviction, or upon a plea of nolo contendere or its
     equivalent, shall not, of itself, create a presumption that the Company
     Indemnified Person did not act in good faith and in a manner which he
     reasonably believed to be in or not opposed to the best interests of the
     Trust, and with respect to any criminal action or proceeding, had
     reasonable cause to believe that his conduct was unlawful.

               (ii) The Sponsor shall indemnify, to the full extent permitted by
     law, any Company Indemnified Person who was or is a party or is threatened
     to be made a party to any threatened, pending or completed action or suit
     by or in the right of the Trust to procure a judgment in its favor by
     reason of the fact that he is or was a Company Indemnified Person against
     expenses (including attorneys' fees and expenses) actually and reasonably
     incurred by him in connection with the defense or settlement of such action
     or suit if he acted in good faith and in a manner he reasonably believed to
     be in or not opposed to the best interests of the Trust and except that no
     such indemnification shall be made in respect of any claim, issue or matter
     as to which such Company Indemnified Person shall have been adjudged to be
     liable to the Trust unless and only to the extent that the Court of
     Chancery of Delaware or the court in which such action or suit was brought
     shall determine upon application that, despite the adjudication of
     liability but in view of all the circumstances of the case, such Person is
     fairly and reasonably entitled to indemnity for such expenses which such
     Court of Chancery or such other court shall deem proper.

                                       59
<PAGE>
 
               (iii)  To the extent that a Company Indemnified Person shall be
     successful on the merits or otherwise (including dismissal of an action
     without prejudice or the settlement of an action without admission of
     liability) in defense of any action, suit or proceeding referred to in
     paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
     claim, issue or matter therein, he shall be indemnified, to the full extent
     permitted by law, against expenses (including attorneys' fees) actually and
     reasonably incurred by him in connection therewith.

               (iv)   Any indemnification under paragraphs (i) and (ii) of this
     Section 10.4(a) (unless ordered by a court) shall be made by the Sponsor
     only as authorized in the specific case upon a determination that
     indemnification of the Company Indemnified Person is proper in the
     circumstances because he has met the applicable standard of conduct set
     forth in paragraphs (i) and (ii).  Such determination shall be made (1) by
     the Administrative Trustees by a majority vote of a quorum consisting of
     such Administrative Trustees who were not parties to such action, suit or
     proceeding, (2) if such a quorum is not obtainable, or, even if obtainable,
     if a quorum of disinterested Administrative Trustees so directs, by
     independent legal counsel in a written opinion, or (3) by the Common
     Security Holder of the Trust.

               (v)    Expenses (including attorneys' fees and expenses) incurred
     by a Company Indemnified Person in defending a civil, criminal,
     administrative or investigative action, suit or proceeding referred to in
     paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
     Sponsor in advance of the final disposition of such action, suit or
     proceeding upon receipt of an undertaking by or on behalf of such Company
     Indemnified Person to repay such amount if it shall ultimately be
     determined that he is not entitled to be indemnified by the Sponsor as
     authorized in this Section 10.4(a). Notwithstanding the foregoing, no
     advance shall be made by the Sponsor if a determination is reasonably and
     promptly made (i) by the Administrative Trustees by a majority vote of a
     quorum of disinterested Administrative Trustees, (ii) if such a quorum is
     not obtainable, or, even if obtainable, if a quorum of disinterested
     Administrative Trustees so directs, by independent legal counsel in a
     written opinion or (iii) the Common Security Holder of the Trust, that,
     based upon the facts known to the Administrative Trustees, counsel or the
     Common Security Holder at the time such determination is made, such Company
     Indemnified Person acted in bad faith or in a manner that such Person did
     not believe to be in or not opposed to the best interests of the Trust, or,
     with respect to any criminal proceeding, that such Company Indemnified
     Person

                                       60
<PAGE>
 
     believed or had reasonable cause to believe his conduct was unlawful.  In
     no event shall any advance be made in instances where the Administrative
     Trustees, independent legal counsel or Common Security Holder reasonably
     determine that such Person deliberately breached his duty to the Trust or
     its Common or Capital Security Holders.

               (vi)    The indemnification and advancement of expenses provided
     by, or granted pursuant to, the other paragraphs of this Section 10.4(a)
     shall not be deemed exclusive of any other rights to which those seeking
     indemnification and advancement of expenses may be entitled under any
     agreement, vote of stockholders or disinterested directors of the Sponsor
     or Capital Security Holders of the Trust or otherwise, both as to action in
     his official capacity and as to action in another capacity while holding
     such office. All rights to indemnification under this Section 10.4(a) shall
     be deemed to be provided by a contract between the Sponsor and each Company
     Indemnified Person who serves in such capacity at any time while this
     Section 10.4(a) is in effect. Any repeal or modification of this Section
     10.4(a) shall not affect any rights or obligations then existing.

               (vii)   The Sponsor or the Trust may purchase and maintain
     insurance on behalf of any Person who is or was a Company Indemnified
     Person against any liability asserted against him and incurred by him in
     any such capacity, or arising out of his status as such, whether or not the
     Sponsor would have the power to indemnify him against such liability under
     the provisions of this Section 10.4(a).

               (viii)  For purposes of this Section 10.4(a), references to "the
     Trust" shall include, in addition to the resulting or surviving entity, any
     constituent entity (including any constituent of a constituent) absorbed in
     a consolidation or merger, so that any Person who is or was a director,
     trustee, officer or employee of such constituent entity, or is or was
     serving at the request of such constituent entity as a director, trustee,
     officer, employee or agent of another entity, shall stand in the same
     position under the provisions of this Section 10.4(a) with respect to the
     resulting or surviving entity as he would have with respect to such
     constituent entity if its separate existence had continued.

               (ix)    The indemnification and advancement of expenses provided
     by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise
     provided when authorized or ratified, continue as to a Person who has
     ceased to be a Company Indemnified Person and shall inure to the benefit of
     the heirs, executors and administrators of such a Person.

                                       61
<PAGE>
 
          (b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the
Delaware Trustee, (iii) any Affiliate of the Property Trustee or the Delaware
Trustee, and (iv) any officers, directors, shareholders, members, partners,
employees, representatives, custodians, nominees or agents of the Property
Trustee or the Delaware Trustee (each of the Persons in (i) through (iv) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any and all loss, liability, damage, claim
or expense including taxes (other than taxes based on the income of such
Fiduciary Indemnified Person) incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.  The obligation to indemnify as set forth in
this Section 10.4(b) shall survive the resignation or removal of the Property
Trustee or the Delaware Trustee and the satisfaction and discharge of this
Declaration.

          (c) The Sponsor agrees to pay the Property Trustee and the Delaware
Trustee, from time to time, such compensation for all services rendered by the
Property Trustee and the Delaware Trustee hereunder as may be mutually agreed
upon in writing by the Sponsor and the Property Trustee or the Delaware Trustee,
as the case may be, and, except as otherwise expressly provided herein, to
reimburse the Property Trustee and the Delaware Trustee upon its or their
request for all reasonable expenses, disbursements and advances incurred or made
by the Property Trustee or the Delaware Trustee, as the case may be, in
accordance with the provisions of this Declaration, except any such expense,
disbursement or advance as may be attributable to its or their negligence or bad
faith.

SECTION 10.5  Outside Businesses.
              ------------------ 

          Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders of Securities shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper.  No Covered Person, the Sponsor, the Delaware Trustee, or the
Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Delaware Trustee and the

                                       62
<PAGE>
 
Property Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity.  Any Covered Person, the Delaware Trustee and
the Property Trustee may engage or be interested in any financial or other
transaction with the Sponsor or any Affiliate of the Sponsor, or may act as
depositary for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Sponsor or its Affiliates.

                                   ARTICLE XI
                                   ACCOUNTING

SECTION 11.1  Fiscal Year.
              ----------- 

          The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.

SECTION 11.2  Certain Accounting Matters.
              -------------------------- 

          (a) At all times during the existence of the Trust, the Administrative
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust.  The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied.  The Trust shall use the accrual method of accounting for
United States federal income tax purposes.  The books of account and the records
of the Trust shall be examined by and reported upon as of the end of each Fiscal
Year of the Trust by a firm of independent certified public accountants selected
by the Administrative Trustees.

          (b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss.

          (c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations.  Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such information statements within 30 days after the end
of each Fiscal Year of the Trust.

                                       63
<PAGE>
 
          (d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.

SECTION 11.3  Banking.
              ------- 

          The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account.  The sole signatories for such accounts shall
be designated by the Administrative Trustees; provided, however, that the
Property Trustee shall designate the signatories for the Property Trustee
Account.

SECTION 11.4  Withholding.
              ----------- 

          The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law.  The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions.  To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount withheld shall
be deemed to be a Distribution in the amount of the withholding to the Holder.
In the event of any claimed over withholding, Holders shall be limited to an
action against the applicable jurisdiction.  If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.

                                  ARTICLE XII
                            AMENDMENTS AND MEETINGS

SECTION 12.1  Amendments.
              ---------- 

          (a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration

                                       64
<PAGE>
 
may only be amended by a written instrument approved and executed by:

               (i)    the Administrative Trustees (or if there are more than two
     Administrative Trustees a majority of the Administrative Trustees);

               (ii)   if the amendment affects the rights, powers, duties,
     obligations or immunities of the Property Trustee, the Property Trustee;
     and

               (iii)  if the amendment affects the rights, powers, duties,
     obligations or immunities of the Delaware Trustee, the Delaware Trustee.

          (b) No amendment shall be made, and any such purported amendment shall
be void and ineffective:

               (i)    unless, in the case of any proposed amendment, the
     Property Trustee shall have first received an Officers' Certificate from
     each of the Trust and the Sponsor that such amendment is permitted by, and
     conforms to, the terms of this Declaration (including the terms of the
     Securities);

               (ii)   unless, in the case of any proposed amendment which
     affects the rights, powers, duties, obligations or immunities of the
     Property Trustee, the Property Trustee shall have first received:

                    (A)  an Officers' Certificate from each of the Trust and the
               Sponsor that such amendment is permitted by, and conforms to, the
               terms of this Declaration (including the terms of the
               Securities); and

                    (B)  an opinion of counsel (who may be counsel to the
               Sponsor or the Trust) that (x) such amendment is permitted by,
               and conforms to, the terms of this Declaration (including the
               terms of the Securities) and (y) all conditions precedent to the
               execution and delivery of such amendment have been satisfied,

     provided, however, that the Property Trustee shall not be required to sign
     --------  -------                                                         
any such amendment, and

               (iii)  to the extent the result of such amendment would be to:

                    (A) cause the Trust to fail to continue to be classified for
               purposes of United States federal income taxation as a grantor
               trust;

                                       65
<PAGE>
 
               (B) reduce or otherwise adversely affect the powers of the
          Property Trustee in contravention of the Trust Indenture Act; or

               (C) cause the Trust to be deemed to be an Investment Company
          required to be registered under the Investment Company Act;

          (c) At such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;

          (d) Section 10.1(c) and this Section 12.1 shall not be amended without
the consent of all of the Holders of the Securities;

          (e) Article IV shall not be amended without the consent of the Holders
of a Majority in Liquidation Amount of the Common Securities;

          (f) The rights of the Holders of the Common Securities under Article V
to increase or decrease the number of, and appoint and remove Trustees shall not
be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities; and

          (g) Notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:

               (i)   cure any ambiguity, correct or supplement any provision in
     this Declaration that may be inconsistent with any other provision of this
     Declaration or to make any other provisions with respect to matters or
     questions arising under this Declaration which shall not be inconsistent
     with the other provisions of the Declaration; and

               (ii)  to modify, eliminate or add to any provisions of the
     Declaration to such extent as shall be necessary to ensure that the Trust
     will be classified for United States federal income tax purposes as a
     grantor trust at all times that any Securities are outstanding or to ensure
     that the Trust will not be required to register as an Investment Company
     under the Investment Company Act;

provided, however, that in the case of clause (i), such action shall not
--------  -------                                                       
adversely affect in any material respect the interests of the Holders of the
Securities, and any amendments of this Declaration shall become effective when
notice thereof is given to the Holders of the Securities.

                                       66
<PAGE>
 
 SECTION 12.2  Meetings of the Holders of Securities; Action by Written Consent.
               ----------------------------------------------------------------

           (a) Meetings of the Holders of any class of Securities may be called
at any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading.  The Administrative Trustees
shall call a meeting of the Holders of such class if directed to do so by the
Holders of at least 10% in Liquidation Amount of such class of Securities.  Such
direction shall be given by delivering to the Administrative Trustees one or
more notices in a writing stating that the signing Holders of Securities wish to
call a meeting and indicating the general or specific purpose for which the
meeting is to be called.  Any Holders of Securities calling a meeting shall
specify in writing the Security Certificates held by the Holders of Securities
exercising the right to call a meeting and only those Securities specified shall
be counted for purposes of determining whether the required percentage set forth
in the second sentence of this paragraph has been met.

           (b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:

               (i)    notice of any such meeting shall be given to all the
     Holders of Securities having a right to vote thereat at least seven days
     and not more than 60 days before the date of such meeting. Whenever a vote,
     consent or approval of the Holders of Securities is permitted or required
     under this Declaration or the rules of any stock exchange on which the
     Capital Securities are listed or admitted for trading, such vote, consent
     or approval may be given at a meeting of the Holders of Securities. Any
     action that may be taken at a meeting of the Holders of Securities may be
     taken without a meeting if a consent in writing setting forth the action so
     taken is signed by the Holders of Securities owning not less than the
     minimum amount of Securities in Liquidation Amount that would be necessary
     to authorize or take such action at a meeting at which all Holders of
     Securities having a right to vote thereon were present and voting. Prompt
     notice of the taking of action without a meeting shall be given to the
     Holders of Securities entitled to vote who have not consented in writing.
     The Administrative Trustees may specify that any written ballot submitted
     to the Security Holder for the purpose of taking any action without a
     meeting shall be returned to the Trust within the time specified by the
     Administrative Trustees;

                                       67
<PAGE>
 
               (ii)   each Holder of a Security may authorize any Person to act
     for it by proxy on all matters in which a Holder of Securities is entitled
     to participate, including waiving notice of any meeting, or voting or
     participating at a meeting.  No proxy shall be valid after the expiration
     of 11 months from the date thereof unless otherwise provided in the proxy.
     Every proxy shall be revocable at the pleasure of the Holder of Securities
     executing it.  Except as otherwise provided herein, all matters relating to
     the giving, voting or validity of proxies shall be governed by the General
     Corporation Law of the State of Delaware relating to proxies, and judicial
     interpretations thereunder, as if the Trust were a Delaware corporation and
     the Holders of the Securities were stockholders of a Delaware corporation;

               (iii)  each meeting of the Holders of the Securities shall be
     conducted by the Administrative Trustees or by such other Person that the
     Administrative Trustees may designate; and

               (iv)   unless the Business Trust Act, this Declaration, the terms
     of the Securities, the Trust Indenture Act or the listing rules of any
     stock exchange on which the Capital Securities are then listed or trading,
     otherwise provides, the Administrative Trustees, in their sole discretion,
     shall establish all other provisions relating to meetings of Holders of
     Securities, including notice of the time, place or purpose of any meeting
     at which any matter is to be voted on by any Holders of Securities, waiver
     of any such notice, action by consent without a meeting, the establishment
     of a record date, quorum requirements, voting in person or by proxy or any
     other matter with respect to the exercise of any such right to vote.

                                  ARTICLE XIII
                      REPRESENTATIONS OF PROPERTY TRUSTEE
                              AND DELAWARE TRUSTEE

SECTION 13.1  Representations and Warranties of Property Trustee.
              -------------------------------------------------- 

          The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:

          (a) The Property Trustee is a national banking association with trust
powers and authority to execute and

                                       68
<PAGE>
 
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;

          (b) The execution, delivery and performance by the Property Trustee of
this Declaration has been duly authorized by the Property Trustee.  This
Declaration has been duly executed and delivered by the Property Trustee and
constitutes a legal, valid and binding obligation of the Property Trustee,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, reorganization, moratorium, insolvency, and other similar laws
affecting creditors' rights generally and to general principles of equity and
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law);

          (c) The execution, delivery and performance of this Declaration by the
Property Trustee does not conflict with or constitute a breach of the charter or
by-laws of the Property Trustee; and

          (d) No consent, approval or authorization of, or registration with or
notice to, any North Carolina State or federal banking authority is required for
the execution, delivery or performance by the Property Trustee of this
Declaration.

SECTION 13.2  Representations and Warranties of Delaware Trustee.
              -------------------------------------------------- 

          The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:

          (a) The Delaware Trustee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, or is a
national banking association, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;

          (b) The execution, delivery and performance by the Delaware Trustee of
this Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee and does not conflict with or constitute a
breach of the charter or by-laws of the Delaware Trustee.  This Declaration has
been duly executed and delivered by the Delaware Trustee and constitutes a
legal, valid and binding obligation of the Delaware Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights

                                       69
<PAGE>
 
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);

          (c) No consent, approval or authorization of, or registration with or
notice to, any federal or Delaware banking authority is required for the
execution, delivery or performance by the Delaware Trustee of this Declaration;
and

          (d) The Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware.

                                  ARTICLE XIV
                                 MISCELLANEOUS

SECTION 14.1  Notices.
              ------- 

          All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:

          (a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders of the Securities):

              Vesta Capital Trust I
              c/o Vesta Insurance Group, Inc.
              3760 River Run Drive
              Birmingham, Alabama 35243
              Attention:  Donald W. Thornton
              Telecopy:  (205) 970-7150

          (b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):

              First Union Bank of Delaware
              One Rodney Square, 1st Floor
              920 King Street
              Wilmington, Delaware 19801
              Attention:  Corporate Trust Administration
              Telecopy:  (302) 888-7544

          (c) if given to the Property Trustee, at the Property Trustee's
mailing address set forth below (or such other address as the Property Trustee
may give notice of to the Holders of the Securities):

                                       70
<PAGE>
 
              First Union National Bank
              of North Carolina
              230 South Tryon Street
              Charlotte, North Carolina 28288-1179
              Attention:  Bond Administration
              Telecopy:  (704) 383-7316

          (d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):

              Vesta Insurance Group, Inc.
              3760 River Run Drive
              Birmingham, Alabama 35243
              Attention:  Donald W. Thornton
              Telecopy:  (205) 970-7150

          (e) if given to any other Holder, at the address set forth on the
books and records of the Trust.

          All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

SECTION 14.2  Governing Law.
              ------------- 

          This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.

SECTION 14.3  Intention of the Parties.
              ------------------------ 

          It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust.  The
provisions of this Declaration shall be interpreted to further this intention of
the parties.

SECTION 14.4  Headings.
              -------- 

          Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.

SECTION 14.5  Successors and Assigns.
              ---------------------- 

                                       71
<PAGE>
 
          Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether or not so expressed.

SECTION 14.6  Partial Enforceability.
              ---------------------- 

          If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.

SECTION 14.7  Counterparts.
              ------------ 

          This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.

                                       72
<PAGE>
 
          IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.

                              /s/ Robert Y. Huffman
                              ----------------------------------------------
                              Robert Y. Huffman, solely in his capacity as
                              Administrative Trustee

                             
                              /s/ Barry A. Patrick
                              ----------------------------------------------
                              Barry A. Patrick, solely in his capacity as
                              Administrative Trustee


                              /s/ Donald W. Thornton
                              ----------------------------------------------
                              Donald W. Thornton, solely in his capacity as
                              Administrative Trustee

                             
                              /s/ Brian R. Meredith
                              ----------------------------------------------
                              Brian R. Meredith, solely in his capacity as
                              Administrative Trustee


                              FIRST UNION BANK OF DELAWARE,
                              solely in its capacity as Delaware Trustee


                              By: _________________________________________
                                 Name:
                                 Title:


                              FIRST UNION NATIONAL BANK
                              OF NORTH CAROLINA,
                              solely in its capacity as Property Trustee


                              By: _________________________________________
                                 Name:
                                 Title:


                              VESTA INSURANCE GROUP, INC.
                              as Sponsor


                                  /s/ Robert Y. Huffman
                              By: _________________________________________
                                     Robert Y. Huffman
                                     Its President and Chief
                                       Executive Officer

                                       73
<PAGE>
 
          IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.


                              __________________________________________________
                              Robert Y. Huffman, solely in his capacity as
                              Administrative Trustee


                              __________________________________________________
                              Barry A. Patrick, solely in his capacity as
                              Administrative Trustee


                              __________________________________________________
                              Donald W. Thornton, solely in his capacity as
                              Administrative Trustee


                              __________________________________________________
                              Brian R. Meredith, solely in his capacity as
                              Administrative Trustee


                              FIRST UNION BANK OF DELAWARE,
                              solely in its capacity as Delaware Trustee


                              By: Stephen J. Kaba
                                  ----------------------------------------------
                                  Name: STEPHEN J. KABA
                                  Title: VICE PRESIDENT


                              FIRST UNION NATIONAL BANK
                              OF NORTH CAROLINA,
                              solely in its capacity as Property Trustee


                              By: Thomas J. Brett
                                  ----------------------------------------------
                                  Name: THOMAS J. BRETT
                                  Title: CORPORATE TRUST OFFICER


                              VESTA INSURANCE GROUP, INC.
                              as Sponsor


                              By:_______________________________________________
                                  Name:
                                  Title:
<PAGE>
 
                                    ANNEX I

                                   TERMS OF
                           8.525% CAPITAL SECURITIES
                           8.525% COMMON SECURITIES

          Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of January 31, 1997 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities and the Common
Securities (collectively, the "Securities") are set out below (each capitalized
term used but not defined herein has the meaning set forth in the Declaration
or, if not defined in such Declaration, as defined in the Offering Memorandum
referred to below in Section 2(c) of this Annex I):

          1.       Designation and Number.
                   ---------------------- 

          (a)      Capital Securities.  100,000 Capital Securities of the Trust
                   ------------------
with an aggregate liquidation amount with respect to the assets of the Trust of
One Hundred Million dollars ($100,000,000) and each with a liquidation amount
with respect to the assets of the Trust of $1,000 per security, are hereby
designated for the purposes of identification only as "8.525% Capital
Securities" (the "Capital Securities"). The certificates evidencing the Capital
Securities shall be substantially in the form of Exhibit A-1 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice or to conform to the rules of any
stock exchange or quotation system on which the Capital Securities are listed or
quoted.

          (b)      Common Securities.  3,093 Common Securities of the Trust with
                   -----------------
an aggregate liquidation amount with respect to the assets of the Trust of Three
Million Ninety-Three Thousand dollars ($3,093,000) and a liquidation amount with
respect to the assets of the Trust of $1,000 per security, are hereby designated
for the purposes of identification only as "8.525% Common Securities" (the
"Common Securities"). The certificates evidencing the Common Securities shall be
substantially in the form of Exhibit A-2 to the Declaration, with such changes
and additions thereto or deletions therefrom as may be required by ordinary
usage, custom or practice.

          2.       Distributions.
                   ------------- 

          (a)      Distributions payable on each Security will be fixed at a
rate per annum of 8.525% (the "Coupon Rate") of the liquidation amount of $1,000
per Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in

                                      I-1
<PAGE>
 
arrears for more than one semi-annual period will bear additional distributions
thereon compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law).  The term "Distributions", as used herein, includes
distributions of any such interest payable unless otherwise stated.  A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.

          (b)      Distributions on the Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from January 31, 1997, and will be payable
semi-annually in arrears on January 15 and July 15 of each year, commencing on
July 15, 1997, except as otherwise described below.  The amount of Distributions
payable for any period will be computed on the basis of a 360-day year
consisting of twelve 30-day months and for any period less than a full calendar
month on the basis of the actual number of days elapsed in such month.  If any
date on which Distributions are payable on the Securities is not a Business Day,
then payment of the Distribution payable on such date shall be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date").  As long as no Event of Default has occurred
and is continuing under the Indenture, the Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the interest payment
period at any time and from time to time on the Debentures for a period not
exceeding 10 consecutive semi-annual periods, including the first such semi-
annual period during such period (each an "Extension Period"), provided that no
Extension Period shall extend beyond the Maturity Date of the Debentures.  Upon
any such election, distributions will be deferred during such Extension Period.
Notwithstanding such deferral, Distributions to which Holders of Securities are
entitled shall continue to accumulate with additional Distributions thereon (to
the extent permitted by applicable law but not at a rate greater than the rate
at which interest is then accruing on the Debentures) at the Coupon Rate
compounded semi-annually from the relevant Distribution Date, during any such
Extension Period.  Prior to the expiration of any such Extension Period, the
Debenture Issuer may further defer payments of interest by further extending
such Extension Period; provided that such Extension Period, together with all
such previous and further extensions within such Extension Period, may not
exceed 10 consecutive semi-annual periods, including the first semi-annual
period during such Extension Period, or extend beyond the Maturity Date of the
Debentures.  Upon the expiration of any Extension Period and the payment of all
amounts then due, the Debenture Issuer may commence a new Extension Period,
subject to the above requirements.

                                      I-2
<PAGE>
 
          (c)      Distributions on the Securities will be payable to the
Holders thereof as they appear on the books and records of the Trust at the
close of business on the first day of the month in which the relevant
Distribution Date falls, which Distribution Dates correspond to the interest
payment dates on the Debentures. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment in respect of the
Capital Securities will be made as follows: (i) if the Capital Securities are
held in global form by a Clearing Agency (or its nominee), in accordance with
the procedures of the Clearing Agency; and (ii) if the Capital Securities are
held in definitive form by check mailed to the address of the Holder thereof as
reflected in the records of the Registrar unless otherwise agreed by the Trust.
The relevant record dates for the Common Securities shall be the same as the
record dates for the Capital Securities. Distributions payable on any Securities
that are not punctually paid on any Distribution Date, as a result of the
Debenture Issuer having failed to make a payment under the Debentures, will
cease to be payable to the Holder on the relevant record date, and such
defaulted Distribution will instead be payable to the Person in whose name such
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture.

          (d)      In the event that there is any money or other property held
by or for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) pursuant to Section 8 among the Holders
of the Securities.

          3.       Liquidation Distribution Upon Dissolution.
                   ----------------------------------------- 

          In the event of any termination of the Trust or the Sponsor otherwise
gives notice of its election to liquidate the Trust pursuant to Section
8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the   Holders of the
Securities a Like Amount (as defined below) of the Debentures, unless such
distribution is determined by the Property Trustee not to be practicable, in
which event such Holders will be entitled to receive out of the assets of the
Trust legally available for distribution to Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an amount
equal to the aggregate of the Liquidation Amount of $1,000 per Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution").

          "Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to

                                      I-3
<PAGE>
 
the principal amount of Debentures to be paid in accordance with their terms and
(ii) with respect to a distribution of Debentures upon the liquidation of the
Trust, Debentures having a principal amount equal to the Liquidation Amount of
the Securities of the Holder to whom such Debentures are distributed.

          If, upon any such liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a Pro
Rata basis as set forth in Section 8.

          4.       Redemption and Distribution.
                   --------------------------- 

          (a)      Upon the repayment of the Debentures on the Maturity Date
thereof or prepayment thereof prior thereto in accordance with the terms
thereof, the proceeds from such repayment or prepayment shall be simultaneously
applied by the Property Trustee (subject to the Property Trustee having received
notice no later than 45 days prior to such repayment or prepayment) to redeem a
Like Amount of the Securities at a redemption price equal to (i) in the case of
the repayment of the Debentures on the Maturity Date, the Maturity Redemption
Price (as defined below) and (ii) in the case of the optional prepayment of the
Debentures upon the occurrence and continuation of a Special Event, the Special
Event Redemption Price (as defined below). The Maturity Redemption Price and the
Special Event Redemption Price are referred to collectively as the "Redemption
Price." Holders will be given not less than 30 nor more than 60 days notice of
such redemption.

          (b)      (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued interest on the Debentures as of the Maturity Date thereof.

          (c)      If at any time a Tax Event or an Investment Company Event
(each as defined below, and each a "Special Event") occurs, the Debenture Issuer
shall have the right (subject to the conditions set forth in the Indenture),
upon not less than 30 nor more than 60 days notice, to prepay the Debentures in
whole, but not in part, within the 90 days following the occurrence of such
Special Event (the "90 Day Period"), and, simultaneous with such redemption, to
cause a Like Amount of the Securities to be redeemed by the Trust at the Special
Event Redemption Price on a Pro Rata basis.

          "Tax Event" shall mean the receipt by the Sponsor and the Trust of an
Opinion of Counsel, requested by the Sponsor, (a "Tax Event Opinion")
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any

                                      I-4
<PAGE>
 
announced prospective change) in, the laws or any regulations thereunder of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative written decision or
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is made on or after January 31, 1997, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Debentures, (ii) interest payable by the
Debenture Issuer on the Debentures is not, or within 90 days of the date of such
opinion, will not be, deductible by the Debenture Issuer, in whole or in part,
for United States federal income tax purposes, or (iii) the Trust is, or will be
within 90 days of the date of such opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.

          "Investment Company Event" means the Sponsor and the Trust shall have
received an opinion, requested by the Sponsor of counsel experienced in practice
under the Investment Company Act, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), there
is more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, which Change in Investment Company Act Law becomes effective on or
after January 31, 1997.

          "Special Event Redemption Price" shall mean an amount in cash equal to
the greater of (i) 100% of the Liquidation Amount of the Securities and (ii) the
sum, as determined by a Quotation Agent (as defined in the Indenture), of the
present values of the remaining scheduled payments of principal and discounted
to the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in
the Indenture), plus, in each case, accumulated and unpaid Distributions
thereon, if any, to the date of such redemption.

          (d)      On and from the date fixed by the Administrative Trustees for
any distribution of Debentures and liquidation of the Trust: (i) the Securities
will no longer be deemed to be outstanding, (ii) the Clearing Agency or its
nominee (or any successor Clearing Agency or its nominee), as the Holder of the
Capital Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution and (iii) any
certificates representing Securities not held by the Clearing Agency or its
nominee (or any

                                      I-5
<PAGE>
 
successor Clearing Agency or its nominee) will be deemed to represent beneficial
interests in a Like Amount of Debentures until such certificates are presented
to the Administrative Trustees or their agent for cancellation, whereupon the
Debenture Issuer will issue to such holder, and the Debenture Trustee will
authenticate, a certificate representing such Debentures.

          (e)  The procedure with respect to redemptions or distributions of
Debentures shall be as follows:

          (i)  Notice of any redemption of, or notice of distribution of
    Debentures in exchange for, the Securities (a "Redemption/Distribution
    Notice") will be given by the Trust by mail to each Holder of Securities to
    be redeemed or exchanged not fewer than 30 nor more than 60 days before the
    date fixed for redemption or exchange thereof which, in the case of a
    redemption, will be the date fixed for repayment or prepayment of the
    Debentures.  For purposes of the calculation of the date of redemption or
    exchange and the dates on which notices are given pursuant to this Section
    4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the
    day such notice is first mailed by first-class mail, postage prepaid, to
    Holders of Securities. Each Redemption/Distribution Notice shall be
    addressed to the Holders of Securities at the address of each such Holder
    appearing in the books and records of the Trust.  No defect in the
    Redemption/Distribution Notice or in the mailing of either thereof with
    respect to any Holder shall affect the validity of the redemption or
    exchange proceedings with respect to any other Holder.

          (ii) If Securities are to be redeemed and the Trust gives a
    Redemption/Distribution Notice, (which notice will be irrevocable), then (A)
    with respect to Capital Securities registered in the name of or held of
    record by a Clearing Agency or its nominee, by 12:00 noon, New York City
    time, on the redemption date, provided that the Debenture Issuer has paid
    the Property Trustee a sufficient amount of cash in connection with the
    related maturity or prepayment of the Debentures by 10:00 a.m., New York
    City time, on the Maturity Date or the date of prepayment, as the case may
    be, the Property Trustee will deposit irrevocably with the Clearing Agency
    or its nominee (or successor Clearing Agency or its nominee) funds
    sufficient to pay the applicable Redemption Price with respect to such
    Capital Securities and will give the Clearing Agency irrevocable
    instructions and authority to pay the Redemption Price to the relevant
    Clearing Agency Participants, and (B) with respect to Capital Securities
    issued in certificated form and Common Securities, provided that the
    Debenture Issuer has paid the Property Trustee a sufficient amount of cash
    in connection with the related maturity or prepayment of the Debentures,

                                      I-6
<PAGE>
 
    the Property Trustee will pay the relevant Redemption Price to the Holders
    of such Securities by check mailed to the address of the relevant Holder
    appearing on the books and records of the Trust on the redemption date.  If
    a Redemption/Distribution Notice shall have been given and funds deposited
    as required, if applicable, then immediately prior to the close of business
    on the date of such deposit, or on the redemption date, as applicable,
    Distributions will cease to accumulate on the Securities so called for
    redemption and all rights of Holders of such Securities so called for
    redemption will cease, except the right of the Holders of such Securities to
    receive the Redemption Price, but without interest on such Redemption Price,
    and such Securities shall cease to be outstanding.

        (iii)  Payment of accumulated and unpaid Distributions on the
    Redemption Date of the Securities will be subject to the rights of Holders
    of Securities on the close of business on a regular record date in respect
    of a Distribution Date occurring on or prior to such Redemption Date.

        (iv)   Neither the Administrative Trustees nor the Trust shall be
    required to register or cause to be registered the transfer of (i) any
    Securities beginning on the opening of business 15 days before the day of
    mailing of a notice of redemption or any notice of selection of Securities
    for redemption or (ii) any Securities selected for redemption.  If any date
    fixed for redemption of Securities is not a Business Day, then payment of
    the Redemption Price payable on such date will be made on the next
    succeeding day that is a Business Day (and without any interest or other
    payment in respect of any such delay), with the same force and effect as if
    made on such date fixed for redemption.  If payment of the Redemption Price
    in respect of any Securities is improperly withheld or refused and not paid
    either by the Property Trustee or the Paying Agent or by the Sponsor as
    guarantor pursuant to the relevant Securities Guarantee, Distributions on
    such Securities will continue to accumulate from the original redemption
    date to the actual date of payment, in which case the actual payment date
    will be considered the date fixed for redemption for purposes of calculating
    the Redemption Price.

       (v)     Redemption/Distribution Notices shall be sent by the
    Property Trustee on behalf of the Trust to (A) in respect of the Capital
    Securities, the Clearing Agency or its nominee (or any successor Clearing
    Agency or its nominee) if the Global Certificates have been issued or, if
    Definitive Capital Security Certificates have been issued, to the Holder
    thereof, and (B) in respect of the Common Securities to the Holder thereof.

                                      I-7
<PAGE>
 
       (vi)    Subject to the foregoing and applicable law (including, without
    limitation, United States federal securities laws and banking laws),
    provided the acquiror is not the Holder of the Common Securities or the
    obligor under the Indenture, the Sponsor or any of its Affiliates may at any
    time and from time to time purchase outstanding Capital Securities by
    tender, in the open market or by private agreement.

          5.   Voting Rights - Capital Securities.
               ---------------------------------- 

          (a)  Except as provided under Sections 5(b) and 7 and as otherwise
required by law and the Declaration, the Holders of the Capital Securities will
have no voting rights.

          (b)  So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in Liquidation Amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Capital Securities except by subsequent vote of such Holders. The
Property Trustee shall notify each Holder of Capital Securities of any notice of
default with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.

          If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on any due
date (including any Interest Payment Date or prepayment date or Maturity Date),
then a Holder of Capital Securities may directly institute a proceeding for
enforcement of payment to such Holder of the principal of or premium, if any, or
interest on a Like Amount of

                                      I-8
<PAGE>
 
Debentures (a "Direct Action") on or after the respective due date specified in
the Debentures.  In connection with such Direct Action, the rights of the Common
Securities Holder will be subrogated to the rights of such Holder of Capital
Securities to the extent of any payment made by the Debenture Issuer to such
Holder of Capital Securities in such Direct Action.  Except as provided in the
second preceding sentence, the Holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.

          Any approval or direction of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent.  The Property Trustee will cause a notice of any
meeting at which Holders of Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Capital Securities.  Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consent.

          No vote or consent of the Holders of the Capital Securities will be
required for the Trust to redeem and cancel Capital Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.

          Notwithstanding that Holders of Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.

          6.   Voting Rights - Common Securities.
               --------------------------------- 

          (a)  Except as provided under Sections 6(b), 6(c), and 7 as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.

          (b)  Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the Holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a Majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the Holders of the Capital Securities have the
right to vote to appoint, remove

                                      I-9
<PAGE>
 
or replace the Administrative Trustees, which voting rights are vested
exclusively in the Sponsor as the holder of the Common Securities. No
resignation or removal of a Trustee and no appointment of a successor trustee
shall be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the Declaration.

          (c)  So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in Liquidation Amount
of all outstanding Common Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Common Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Common Securities except by subsequent vote of such Holders. The Property
Trustee shall notify each Holder of Common Securities of any notice of default
with respect to the Debentures. In addition to obtaining the foregoing approvals
of such Holders of the Common Securities, prior to taking any of the foregoing
actions, the Trustees shall obtain an Opinion of Counsel experienced in such
matters to the effect that the Trust will not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.

          If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (including any Interest Payment Date or prepayment date or Maturity Date)
(or in the case of redemption, on the redemption date), then a Holder of Common
Securities may institute a Direct Action for enforcement of payment to such
Holder of the principal of or premium, if any, or interest on a Like Amount of
Debentures on or after the respective due date specified in the Debentures.  In
connection with Direct Action, the rights of the Holders of Capital Securities
will be subrogated to the rights of such Holder of Common Securities to the
extent of any payment made by the Debenture Issuer to such Holder of Common
Securities in such Direct Action.  Except as provided in the second preceding
sentence, the Holders of Common Securities will not be able to

                                     I-10
<PAGE>
 
exercise directly any other remedy available to the holders of the Debentures.

          Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent.  The Administrative Trustees will cause a notice of any meeting
at which Holders of Common Securities are entitled to vote, or of any matter
upon which action by written consent of such Holders is to be taken, to be
mailed to each Holder of record of Common Securities.  Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.

          No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.

          7.   Amendments to Declaration and Indenture.
               --------------------------------------- 

          In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor and
the Trustees, without the consent of the Holders of the Securities (i) to cure
any ambiguity, correct or supplement any provisions in the Declaration that may
be inconsistent with any other provisions, or to make any other provisions with
respect to matters or questions arising under the Declaration which shall not be
inconsistent with the other provisions of the Declaration, or (ii) to modify,
eliminate or add to any provisions of the Declaration to such extent as shall be
necessary to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust at all times that any Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
                                                       --------  -------      
in the case of clause (i), such action shall not adversely affect in any
material respect the interests of any Holder of Securities.  Any amendments of
the Declaration pursuant to the foregoing shall become effective when notice
thereof is given to the holders of the Securities.  The Declaration also may be
amended by the Trustees and the Sponsor with (i) the consent of Holders
representing a Majority in Liquidation Amount of all outstanding Securities, and
(ii) receipt by the Trustees of an Opinion of Counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the Trust's status as a grantor

                                     I-11
<PAGE>
 
trust for United States federal income tax purposes or the Trust's exemption
from status as an investment company under the Investment Company Act, provided
                                                                       --------
that, without the consent of each Holder of Trust Securities, the Declaration
----                                                                         
may not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.

          8.   Pro Rata.
               -------- 

          A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate Liquidation Amount of the Securities
held by the relevant Holder in relation to the aggregate Liquidation Amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate Liquidation Amount of Capital
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate liquidation amount of Common
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Common Securities outstanding.

          9.   Ranking.
               ------- 

          The Capital Securities rank pari passu with the Common Securities and
payment thereon shall be made Pro Rata with the Common Securities, except that,
if an Event of Default under the Declaration occurs and is continuing, no
payments in respect of Distributions on, or payments upon liquidation,
redemption or otherwise with respect to, the Common Securities shall be made
until the Holders of the Capital Securities shall be paid in full the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.

          10.  Acceptance of Securities Guarantee and Indenture.
               ------------------------------------------------ 

          Each Holder of Capital Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Capital Securities Guarantee
and the Common Securities Guarantee, respectively, including the subordination
provisions therein and to the provisions of the Indenture.

                                     I-12
<PAGE>
 
          11.  No Preemptive Rights.
               -------------------- 

          The Holders of the Securities shall have no preemptive rights or
similar rights to subscribe for any additional securities.

          12.  Miscellaneous.
               ------------- 

          These terms constitute a part of the Declaration.

          The Sponsor will provide a copy of the Declaration, the Capital
Securities Guarantee or the Common Securities Guarantee (as may be appropriate)
and the Indenture (including any supplemental indenture) to a Holder without
charge on written request to the Sponsor at its principal place of business.

                                     I-13
<PAGE>
 
                                  EXHIBIT A-1

                     FORM OF CAPITAL SECURITY CERTIFICATE

                          [FORM OF FACE OF SECURITY]

          [IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS
CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY.  THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]

          [IF THIS GLOBAL SECURITY IS A RULE 144A GLOBAL SECURITY, INSERT:
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

          THE CAPITAL SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS
CAPITAL SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION.

          THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH VESTA INSURANCE
GROUP, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF
THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS

                                     A1-1
<PAGE>
 
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")
TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT,
SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER
TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A
TO THE OFFERING MEMORANDUM DATED JANUARY 29, 1997.  SUCH HOLDER FURTHER AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

          THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT IT (A) IS NOT ITSELF, AND IS NOT ACQUIRING
CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR OTHER PLAN
SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") (EACH, A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS
INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN
ASSET ENTITY"), OR (B) IS ACQUIRING AND HOLDING THE CAPITAL SECURITIES IN A
TRANSACTION THAT IS NOT OTHERWISE PROHIBITED BY EITHER ERISA OR THE CODE.

          [IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY, INSERT:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE.]

                                     A1-2
<PAGE>
 
Certificate Number                                  Number of Capital Securities

                                                                       CUSIP NO.

                   Certificate Evidencing Capital Securities
                                      of
                             VESTA CAPITAL TRUST I

                           8.525% Capital Securities
               (Liquidation Amount $1,000 per Capital Security)

          VESTA CAPITAL TRUST I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
______________________ (the "Holder") is the registered owner of
___________________ capital securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 8.525% Capital
Securities (Liquidation Amount $1,000 per Capital Security) (the "Capital
Securities").  The Capital Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer.  The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Capital Securities represented hereby are issued and shall in all respects
be subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of January 31, 1997, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the Capital
Securities as set forth in Annex I to the Declaration.  Capitalized terms used
but not defined herein shall have the meaning given them in the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital Securities
Guarantee and the Indenture to a Holder without charge upon written request to
the Trust at its principal place of business.

          Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.

          By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Capital Securities as evidence of indirect beneficial ownership in the
Debentures.

                                     A1-3
<PAGE>
 
          IN WITNESS WHEREOF, an Administrative Trustee on behalf of the Trust
has duly executed this certificate.

Date:_________________


                                             VESTA CAPITAL TRUST I


                                             By:  ______________________

                                                  Name:
                                                  Administrative Trustee



          PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION

          This is one of the Capital Securities referred to in the within-
mentioned Declaration.



                                             FIRST UNION NATIONAL BANK
                                             OF NORTH CAROLINA,
                                             as Property Trustee



                                             By: _________________________
                                                 Authorized Officer

                                     A1-4
<PAGE>
 
                         [FORM OF REVERSE OF SECURITY]

          Distributions payable on each Capital Security will be fixed at a rate
per annum of 8.525% (the "Coupon Rate") of the Liquidation Amount of $1,000 per
Capital Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee.  Distributions in arrears for more than one
semi-annual period will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law).  The term
"Distributions", as used herein, includes such cash distributions and any such
interest payable unless otherwise stated.  A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds on hand legally
available therefor.

          Distributions on the Capital Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if any Distributions have been paid, from January 31, 1997 and will be payable
semi-annually in arrears, on January 15 and July 15 of each year, commencing on
July 15, 1997, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30-day months and, for any period less than a full calendar month, the
number of days elapsed in such month.  As long as no Event of Default has
occurred and is continuing under the Indenture, the Debenture Issuer has the
right under the Indenture to defer payments of interest by extending the
interest payment period at any time and from time to time on the Debentures for
a period not exceeding 10 consecutive calendar semi-annual periods, including
the first such semi-annual period during such extension period (each an
"Extension Period"), provided that no Extension Period shall extend beyond the
Maturity Date of the Debentures.  As a consequence of such deferral,
Distributions will also be deferred.  Despite such deferral, semi-annual
Distributions will continue to accumulate with interest thereon (to the extent
permitted by applicable law, but not at a rate exceeding the rate of interest
then accruing on the Debentures) at the Coupon Rate compounded semi-annually
during any such Extension Period.  Prior to the termination of any such
Extension Period, the Debenture Issuer may further defer payments of interest by
further extending such Extension Period; provided that such Extension Period,
together with all such previous and further extensions within such Extension
Period, may not exceed 10 consecutive semi-annual periods, including the first
semi-annual period during such Extension Period, or extend beyond the Maturity
Date of the Debentures.  Payments of Distributions that have accumulated but not
been paid during any Extension Period will be payable to Holders as they appear
on the books and records of the Trust on the records of the Trust on the record
date for the first scheduled Distribution payment date following the

                                     A1-5
<PAGE>
 
expiration of such first record date after the end of the Extension Period.
Upon the expiration of any Extension Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.

          Subject to certain conditions set forth in the Declaration and the
Indenture, the Property Trustee shall, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.

          The Capital Securities shall be redeemable as provided in the
Declaration.

                                     A1-6
<PAGE>
 
                           _________________________

                                  ASSIGNMENT

          FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital
Security Certificate to:

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)

and irrevocably appoints

________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________ agent to
transfer this Capital Security Certificate on the books of the Trust.  The agent
may substitute another to act for him or her.

Date:  _______________________

Signature:  ______________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)

Signature Guarantee*:____________________________



__________________________

*    Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.

                                     A1-7
<PAGE>
 
[Include the following if the Capital Security bears a Restricted Capital
Securities Legend --

In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:

CHECK ONE BOX BELOW
 
    (1)  [_]    exchanged for the undersigned's own account
                without transfer; or
 
    (2)  [_]    transferred pursuant to and in compliance with
                Rule 144A under the Securities Act of 1933, as
                amended; or
 
    (3)  [_]    transferred pursuant to and in compliance with
                Regulation S under the Securities Act of 1933, as
                amended; or

    (4)  [_]    to an institutional "accredited investor" within the meaning of
                subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
                Securities Act of 1933, as amended, that is acquiring the
                Capital Securities for its own account, or for the account of
                such an institutional "accredited investor," for investment
                purposes and not with a view to, or for offer or sale in
                connection with, any distribution in violation of the Securities
                Act of 1933, as amended; or

    (5)  [_]    transferred pursuant to another available exemption from the
                registration requirements of the Securities Act of 1933, as
                amended; or

    (6)  [_]    transferred pursuant to an effective registration statement.

Unless one of the boxes is checked, the Registrar will refuse to register any of
the Capital Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
                                          --------  -------                  
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Capital Securities such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, as amended, such as
the exemption provided by Rule 144 under such

                                     A1-8
<PAGE>
 
Act; provided, further, that (i) if box 2 is checked, the transferee must also
     --------  -------                                                        
certify that it is a qualified institutional buyer as defined in Rule 144A or
(ii) if box (4) is checked, the transferee must also provide to the Registrar a
Transferee Letter of Representation in the form attached to the Offering
Memorandum of the Trust dated January 29, 1997.


Date:                         __________________________________________________
                              Signature
                              (Sign exactly as you name appears on the other
                              side of this Capital Security Certificate)

                                     A1-9
<PAGE>
 
                                  EXHIBIT A-2

                      FORM OF COMMON SECURITY CERTIFICATE

          THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW.

          THIS COMMON SECURITY MAY NOT BE TRANSFERRED EXCEPT TO VESTA INSURANCE
GROUP, INC. OR A RELATED PARTY (AS DEFINED IN THE DECLARATION).

                                     A2-1
<PAGE>
 
Certificate Number                                   Number of Common Securities


                   Certificate Evidencing Common Securities
                                      of
                            Vesta Corporate Trust I

                           8.525% Common Securities
                (Liquidation Amount $1,000 per Common Security)

          VESTA CAPITAL TRUST I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Vesta
Insurance Group, Inc. (the "Holder") is the registered owner of
__________________ common securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 8.525% Common
Securities (liquidation amount $1,000 per Common Security) (the "Common
Securities").  The Common Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer.  The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of January 31, 1997, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the Common
Securities as set forth in Annex I to the Declaration.  Capitalized terms used
but not defined herein shall have the meaning given them in the Declaration.
The Sponsor will provide a copy of the Declaration, the Common Securities
Guarantee and the Indenture (including any supplemental indenture) to a Holder
without charge upon written request to the Sponsor at its principal place of
business.

          Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.

          By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.

                                     A2-2
<PAGE>
 
          IN WITNESS WHEREOF, the Trust has executed this certificate this
________ day of January, 1997.

                                            VESTA CAPITAL TRUST I

                                            By:  ___________________________
                                                 Name:
                                                 Administrative Trustee

                                     A2-3
<PAGE>
 
                         [FORM OF REVERSE OF SECURITY]

          Distributions payable on each Common Security will be fixed at a rate
per annum of 8.525% (the "Coupon Rate") of the liquidation amount of $1,000 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee.  Distributions in arrears for more than one
semi-annual period will bear interest thereon compounded semiannually at the
Coupon Rate (to the extent permitted by applicable law).  he term
"Distributions", as used herein, includes such cash distributions and any such
interest payable unless otherwise stated.  A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available therefor.

          Distributions on the Common Securities will be cumulative, will accrue
from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from January 31, 1997 and will be payable semi-
annually in arrears, on January 15 and July 15 of each year, commencing on July
15, 1997, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30 day months and, for any period less than a full calendar month, the
number of days elapsed in such month.  As long as no Event of Default has
occurred and is continuing under the Indenture, the Debenture Issuer has the
right under the Indenture to defer payments of interest by extending the
interest payment period at any time and from time to time on the Debentures for
a period not exceeding 10 consecutive calendar semi-annual periods, including
the first such semi-annual period during such extension period (each an
"Extension Period"), provided that no Extension Period shall extend beyond the
Maturity Date of the Debentures.  As a consequence of such deferral,
Distributions will also be deferred.  Despite such deferral, Distributions will
continue to accumulate with interest thereon (to the extent permitted by
applicable law, but not at a rate exceeding the rate of interest then accruing
on the Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period.  Prior to the termination of any such Extension Period, the
Debenture Issuer may further defer payments of interest by further extending
such Extension Period; provided that such Extension Period, together with all
such previous and further extensions within such Extension Period, may not
exceed 10 consecutive semi-annual periods, including the first semi-annual
period during such Extension Period, or extend beyond the Maturity Date of the
Debentures.  Payments of Distributions that have accumulated will be payable to
Holders as they appear on the books and records of the Trust on the record date
for the first Distribution Date following the expiration of such Extension
Period.  Upon the expiration of any Extension Period and the payment of all
amounts

                                     A2-4

<PAGE>
 
then due, the Debenture Issuer may commence a new Extension Period, subject to
the above requirements.

          Subject to certain conditions set forth in the Declaration and the
Indenture, the Property Trustee shall, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders to the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.

          The Common Securities shall be redeemable as provided in the
Declaration.

                                     A2-5
<PAGE>
 
                            ______________________

                                  ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)

and irrevocably appoints _______________________________________________________
________________________________________________________________________________
________________________________ agent to transfer this Common
Security Certificate on the books of the Trust.  The agent may substitute
another to act for him or her.

Date: ____________________________

Signature: __________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)

Signature Guarantee*:  _______________________________________



_____________________
*   Signature must be guaranteed by an "eligible guarantor institution" that is
    a bank, stockbroker, savings and loan association or credit union meeting
    the requirements of the Registrar, which requirements include membership or
    participation in the Securities Transfer Agents Medallion Program ("STAMP")
    or such other "signature guarantee program" as may be determined by the
    Registrar in addition to, or in substitution for, STAMP, all in accordance
    with the Securities and Exchange Act of 1934. as amended.

                                     A2-6
<PAGE>
 
[Include the following if the Common Security bears a Restricted Common
Securities Legend -

In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:

CHECK ONE BOX BELOW
 
    (1)   [_]   exchanged for the undersigned's own account
                without transfer; or
 
    (2)   [_]   transferred pursuant to and in compliance with
                Rule 144A under the Securities Act of 1933, as
                amended; or
 
    (3)   [_]   transferred pursuant to and in compliance with Regulation S
                under the Securities Act of 1933, as amended; or

    (4)   [_]   to an institutional "accredited investor" within the meaning of
                subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
                Securities Act of 1933, as amended that is acquiring the
                Preferred Security for its own account, or for the account of
                such an institutional "accredited investor," for investment
                purposes and not with a view to, or for offer or sale in
                connection with, any distribution in violation of the Securities
                Act of 1933, as amended; or

    (5)   [_]   transferred pursuant to another available exemption from the
                registration requirements of the Securities Act of 1933; or

    (6)   [_]   transferred pursuant to an effective registration statement

Unless one of the boxes is checked, the Registrar will refuse to register any of
the Common Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
                                          --------  -------                  
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Preferred Securities such legal opinions, certifications and
other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended, such as the exemption provided by Rule 144 under such

                                     A2-7
<PAGE>
 
Act; provided, further, that (i) if box 2 is checked, the transferee must also
     --------                                                                 
certify that it is a qualified institutional buyer as defined in Rule 144A or
(ii) if box 4 is checked, the transferee must also provide a Transferee
Representation Letter in the form attached to the Offering Memorandum of the
Trust, dated January 29, 1997.



Date:                         ____________________________________________
                                              Signature
                              (Sign exactly as your name appears on the other
                              side of this Common Security Certificate)


                                     A2-8