<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-33159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PAULA FINANCIAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6331 95-4640368
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
GATEWAY PLAZA
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CALIFORNIA 91101
(626) 304-0401
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
MR. BRADLEY K. SERWIN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
PAULA FINANCIAL
GATEWAY PLAZA
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CALIFORNIA 91101
(626) 304-0401
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
----------------
Copies to:
<TABLE>
<S> <C>
RICHARD A. STRONG, ESQ. JOHN L. SAVVA, ESQ.
GIBSON, DUNN & CRUTCHER LLP SULLIVAN & CROMWELL
333 SOUTH GRAND AVENUE 444 SOUTH FLOWER STREET
LOS ANGELES, CA 90071 LOS ANGELES, CA 90071
(213) 229-7000 (213) 955-8000
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
listing fee.
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............. $ 14,812
Filing Fee--National Association of Securities Dealers, Inc...... 5,000
Nasdaq Listing Fee............................................... 33,750
Legal Fees and Expenses (other than Blue Sky).................... 170,000
Accounting Fees and Expenses..................................... 225,000
Blue Sky Fees and Expenses, including Legal Fees................. 10,000
Printing, including Registration Statement, Prospectus, etc...... 200,000
Transfer Agent and Registrar Fees................................ 15,000
Miscellaneous Expenses........................................... 198,825
---------
Total........................................................ $ 872,387
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL makes provision for the indemnification of officers
and directors in terms sufficiently broad to indemnify officers and directors of
Company under certain circumstances from liabilities (including reimbursement
for expenses incurred) arising under the Securities Act. The Certificate of
Incorporation and Bylaws of the Company provide, in effect, that, to the fullest
extent and under the circumstances permitted by Section 145 of the DGCL, the
Company will indemnify any 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, by reason of the fact
that he or she is a director or officer of the Company or is or was serving at
the request of the Company as a director or officer of another corporation or
enterprise. In addition, the Company has entered into indemnification agreements
with its directors and officers providing, subject to the terms therein, that
the Company will indemnify such individuals for damages suffered by reason of
the fact that any such individual is a director or officer of the Company or is
or was serving at the request of the Company as a director or officer of another
corporation or enterprise. The Certificate of Incorporation and Bylaws of the
Company, together with such indemnification agreements, relieve its directors
from monetary damages for breach of such director's fiduciary duty as directors
to the fullest extent permitted by the DGCL. Consequently, a director or officer
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of their fiduciary duty as directors except (i) for a
breach of the duty of loyalty, (ii) for failure to act in good faith, (iii) for
intentional misconduct or knowing violation of law, (iv) for willful or
negligent violation of certain provisions in the DGCL imposing certain
requirements with respect to stock repurchases, redemption and dividends, or (v)
for any transactions from which the director derived an improper personal
benefit. Depending upon the character of the proceeding, under Delaware law, the
Company may indemnify against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any action, suit or proceeding if the person indemnified acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interest of the Company and, with respect to any criminal
action or proceeding, had no cause to believe his or her conduct was unlawful.
To the extent that a director or officer of the Company has been successful in
the defense of any action, suit or proceeding referred to above, the
II-1
<PAGE>
Company will be obligated to indemnify him or her against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
Pursuant to the Underwriting Agreement, a copy of which is filed as Exhibit
1 to this Registration Statement, the Company has agreed to indemnify the
Underwriters against certain liabilities which may be incurred in connection
with the offering made by the Prospectus forming a part of the Registration
Statement, including liabilities under the Securities Act, and the Underwriters
have agreed to indemnify the Company and their officers and directors against
certain similar liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant issued 1,899,978 shares of Common Stock and 941,177 shares of
Preferred Stock upon the reincorporation. The predecessor of the Registrant did
not issue any securities during the past three years other than (i) warrants to
purchase an aggregate of 164,706 shares of Common Stock for $8.50 per share
issued to the Preferred Stock placement agents in August 1994; (ii) 941,177
shares of Preferred Stock issued to the Preferred Stockholders in August 1994
for $17.00 per share; (iii) 60,000 shares of Common Stock issued to the current
Chief Executive Officer of the Company in August 1994 for $8.50 per share; (iv)
options to purchase an aggregate of 487,600 shares of Common Stock at exercise
prices ranging from $7.88 to $9.50 issued under the 1994 Plan between August 28,
1993 and October 25, 1996; (v) an aggregate of 51,200 shares of restricted
Common Stock issued under the 1994 Plan between December 31, 1994 and February
1, 1996 with fair market values determined by the Executive Compensation
Committee between $7.88 and $9.03; (vi) options to purchase an aggregate of
376,000 shares of Common Stock at exercise prices ranging from $8.50 to $9.50
issued to Company officers and directors other than under the Plans between July
26, 1994 and October 25, 1996; (vii) 300 and 256 shares of Common Stock issued
to Company employees as compensation bonuses in 1996 and 1997, respectively,
with fair market values determined by the Executive Compensation Committee of
$7.88 and $9.50, respectively; (viii) 68,526 shares of Common Stock issued in
connection with an acquisition in November 1995 with a fair market value
determined by the Board of Directors of $7.88 per share; (ix) 11,764 shares of
Common Stock issued in connection with an acquisition in September 1996 with an
agreed upon value of $15.00 per share; and (x) 1,000 shares of Common Stock
issued to an unaffiliated consultant to the Company in January 1997 with a fair
market value determined by the Board of Directors of $10.83 per share. Such
issuances were exempt from registration under Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement dated December 8, 1994 by and between Registrant,
Oregon Ag Insurance Services, Inc., Agri-Comp. Inc., Oregon-Comp. Inc.
and Oregon Risk Management, Inc.**
2.2 Asset Purchase Agreement dated November 10, 1995 by and between Pan
American Underwriters, Inc. (PAU), Desert Benefits, Inc., Employee
Benefits & Insurance Services, Fredric J. Klicka and Fredric J. Klicka
II.**
2.3 Agreement dated July 25, 1996 by and among Registrant, PAULA Insurance
Company (PICO), James G. Parker Insurance Associates (Parker) and
certain individual stockholders of Parker.**
2.4 Asset Purchase Agreement dated August 23, 1996 by and among PAU, Guinn
Sinclair Insurance Services, Margaret Funnell and Yolanda Ibarrez.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.5 Series A Preferred Stock Purchase Agreement dated March 11, 1997 by and
between PICO and CAPAX Management & Insurance Services (CAPAX).**
3.1 Certificate of Incorporation of Registrant.**
3.2 Certificate of Designation of Series A Preferred Stock of PAULA Financial,
as amended.**
3.3 Bylaws of Registrant.**
4.2 Specimen certificate of Common Stock.**
5 Opinion of Gibson, Dunn & Crutcher LLP.
10.1 Lease for Registrant's Pasadena, California office, between Pasadena
Gateway Plaza, as Lessor, and PAU, as Lessee, dated January 1, 1989 and
last amended May 12, 1995 and the Assignment and Assumption of Lease and
Consent between LACERA Gateway Property, Inc., PAU and PICO.**
10.2 Lease for Registrant's Lake Oswego, Oregon office, dated September 23,
1996 and amended May 13, 1997 between WCB Thirty-Two Limited
Partnership, as Lessor, and PICO, as Lessee.**
10.3 Lease for Registrant's Fresno, California office dated October 18, 1994
and amended January 10, 1997 between Altaffer Survivor Trust, as Lessor,
and PAU, as Lessee.**
10.4 Agreement of Reinsurance, No. 7448, dated February 16, 1990 and last
amended July 1, 1996 between General Reinsurance Corporation and PICO.**
10.5 Workers' Compensation and Employers' Liability Excess of Loss Reinsurance
Agreement, No. 380, dated July 1, 1995 and last amended July 1, 1996
between PICO and certain reinsurers named therein.**
10.6 PAULA Financial and Subsidiaries 1994 Stock Incentive Plan.**
10.7 PAULA Financial and Subsidiaries 1997 Stock Incentive Plan.**
10.8 Form of Stock Option Agreement (Immediate Vesting - Non-Plan) issued in
connection with the grant of stock options under the 1994 Plan.**
10.9 Form of Stock Option Agreement (Executive - Non-Plan) issued in connection
with the grant of stock options other than under the 1994 Plan.**
10.10 Form of Stock Option Agreement (Immediate Vesting) issued under the 1994
Plan.**
10.11 Form of Stock Option Agreement (Executive) issued under the 1994 Plan.**
10.12 Form of Stock Option Agreement (Stepped Vesting) issued under the 1994
Plan.**
10.13 Form of Indemnification Agreement between Registrant and each of its
directors.**
10.14 Convertible Revolving Loan Note dated March 31, 1997 made by Registrant in
favor of Sanwa Bank California.**
10.15 Credit Agreement dated March 31, 1997 between Registrant and Sanwa Bank
California.**
10.16 Form of Credit Guaranty dated March 31, 1997 made by each of PAU, Pan
American Underwriters Insurance Agents & Brokers, Inc. (PAUIAB),
Agri-Comp Insurance Agency, Inc. and Pan Pacific Benefit Administrators,
Inc. (PPBA).**
10.17 Series A Preferred Stock Purchase Agreement dated August 3, 1994 between
Registrant and certain purchasers of Series A Preferred Stock.**
10.18 Form of Warrant Agreement dated August 3, 1994 between Registrant and
Prudential Securities Incorporated and Conning & Company (Conning).**
10.19 Warrant Certificates dated August 3, 1994 in the name of Prudential
Securities and Conning.**
10.20 Voting Agreement dated August 3, 1994 between Registrant, certain
stockholders and certain purchasers of Series A Preferred Stock.**
10.21 Asset Management Agreement dated February 1, 1995 between PICO and
Conning.**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.22 Agency and Affiliates Cost Allocation and Reimbursement Agreement dated
March 1, 1992 and last amended December 1, 1996 between PAU and PAUIAB,
as Agency, and PICO, PACO and PPBA, as Affiliates.**
10.23 PAULA Insurance Company Insurance Carrier and Affiliates Cost Allocation
and Reimbursement Agreement dated March 1, 1992 and last amended
December 9, 1994 between PICO, as Carrier, and PACO, PAU, PAUIAB and
PPBA, as Affiliates.**
10.24 PAULA Financial Parent and Affiliates Cost Allocation and Reimbursement
Agreement dated January 1, 1993 and last amended December 9, 1994
between Registrant, as Parent, and PICO, PACO, PAU, PAUIAB and PPBA, as
Affiliates.**
10.25 Managing Agreement dated January 1, 1993 and last amended April 28, 1995
between PACO and PPBA, as Manager.**
10.26 Federal Income Tax Allocation Agreement dated April 10, 1997 between
Registrant and its subsidiaries.**
10.27 Agency Agreement dated March 1, 1992 and last amended April 1, 1997
between PAU and PICO.**
10.28 Agency Agreement dated March 1, 1992 and last amended April 1, 1997
between PAUIAB and PICO.**
10.29 Agency Agreement dated December 8, 1994 and last amended April 1, 1997
among Agri-Comp Insurance Agency, Inc. and PICO.**
10.30 Purchase Option dated March 11, 1997 between Registrant and CAPAX.**
10.31 Plan of Reorganization and Agreement of Merger dated September 22, 1997
between PAULA Financial (Delaware) and PAULA Financial (California)**.
11 Statement re computation of per share earnings.**
19 1997 Proxy Statement of PAULA Financial.**
20 PAULA Financial and Subsidiaries Stockholder Report for the Twelve Months
Ended December 31, 1996.**
21 List of subsidiaries of PAULA Financial.**
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP (included in S-1).
24 Power of Attorney.**
27 Financial Data Schedule.**
28.1 Schedule P to 1996 Annual Statement of PICO.**
28.2 Schedule O to 1996 Annual Statement of PACO.**
</TABLE>
- --------------
** Previously filed.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
I Summary of Investments
II Condensed Financial Information of Registrant
III Supplementary Insurance Information
IV Reinsurance
V Valuation and Qualifying Accounts and Reserves
VI Supplemental Property and Casualty Insurance Information
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities rising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrants hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on the 22nd day of October 1997.
PAULA FINANCIAL
By /s/ BRADLEY K. SERWIN
-----------------------------------------
Bradley K. Serwin
SENIOR VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
* President and Chief
- ------------------------------ Executive Officer October 22, 1997
Jeffrey A. Snider (Principal Executive
Officer)
Senior Vice President and
* Chief Financial Officer
- ------------------------------ (Principal Financial and October 22, 1997
James A. Nicholson Principal Accounting
Officer)
*
- ------------------------------ Director October 22, 1997
Andrew M. Slavitt
/s/ BRADLEY K. SERWIN
- ------------------------------ Director October 22, 1997
Bradley K. Serwin
*
- ------------------------------ Director October 22, 1997
Jerry M. Miller
*
- ------------------------------ Director October 22, 1997
Ronald W. Waisner
*
- ------------------------------ Director October 22, 1997
John B. Clinton
*
- ------------------------------ Director October 22, 1997
Gerard Vecchio
*
- ------------------------------ Director October 22, 1997
Owen S. Crihfield
*By: /s/ BRADLEY K.
SERWIN
- ------------------------------
Bradley K. Serwin
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT AND CONSENT
The audits referred to in our report dated August 25, 1997, except as to
Note 13 which is as of September 30, 1997, included the related financial
statement schedules as of December 31, 1995 and 1996 and June 30, 1997 and for
each of the years in the three-year period ended December 31, 1996 and the
six-month period ended June 30, 1997 included in the registration statement.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements, taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein (including that
appearing on page F-2 of the prospectus) and to the reference to our firm under
the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
October 22, 1997
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
1 Form of Underwriting Agreement...........................................................
2.1 Asset Purchase Agreement dated December 8, 1994 by and between Registrant, Oregon Ag
Insurance Services, Inc., Agri-Comp. Inc., Oregon-Comp. Inc. and Oregon Risk
Management, Inc.**
2.2 Asset Purchase Agreement dated November 10, 1995 by and between Pan American
Underwriters, Inc. (PAU), Desert Benefits, Inc., Employee Benefits & Insurance
Services, Fredric J. Klicka and Fredric J. Klicka II.**
2.3 Agreement dated July 25, 1996 by and among Registrant, PAULA Insurance Company (PICO),
James G. Parker Insurance Associates (Parker) and certain individual stockholders of
Parker.**
2.4 Asset Purchase Agreement dated August 23, 1996 by and among PAU, Guinn Sinclair Insurance
Services, Margaret Funnell and Yolanda Ibarrez.**
2.5 Series A Preferred Stock Purchase Agreement dated March 11, 1997 by and between PICO and
CAPAX Management & Insurance Services (CAPAX).**
3.1 Certificate of Incorporation of Registrant.**
3.2 Certificate of Designation of Series A Preferred Stock of PAULA Financial, as amended.**
3.3 Bylaws of Registrant.**
4.2 Specimen certificate of Common Stock.**
5 Opinion of Gibson, Dunn & Crutcher LLP...................................................
10.1 Lease for Registrant's Pasadena, California office, between Pasadena Gateway Plaza, as
Lessor, and PAU, as Lessee, dated January 1, 1989 and last amended May 12, 1995 and the
Assignment and Assumption of Lease and Consent between LACERA Gateway Property, Inc.,
PAU and PICO.**
10.2 Lease for Registrant's Lake Oswego, Oregon office, dated September 23, 1996 and amended
May 13, 1997 between WCB Thirty-Two Limited Partnership, as Lessor, and PICO, as
Lessee.**
10.3 Lease for Registrant's Fresno, California office dated October 18, 1994 and amended
January 10, 1997 between Altaffer Survivor Trust, as Lessor, and PAU, as Lessee.**
10.4 Agreement of Reinsurance, No. 7448, dated February 16, 1990 and last amended July 1, 1996
between General Reinsurance Corporation and PICO.**
10.5 Workers' Compensation and Employers' Liability Excess of Loss Reinsurance Agreement, No.
380, dated July 1, 1995 and last amended July 1, 1996 between PICO and certain
reinsurers named therein.**
10.6 PAULA Financial and Subsidiaries 1994 Stock Incentive Plan.**
10.7 PAULA Financial and Subsidiaries 1997 Stock Incentive Plan.**
10.8 Form of Stock Option Agreement (Immediate Vesting - Non-Plan) issued in connection with
the grant of stock options under the 1994 Plan.**
10.9 Form of Stock Option Agreement (Executive - Non-Plan) issued in connection with the grant
of stock options other than under the 1994 Plan.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
10.10 Form of Stock Option Agreement (Immediate Vesting) issued under the 1994 Plan.**
10.11 Form of Stock Option Agreement (Executive) issued under the 1994 Plan.**
10.12 Form of Stock Option Agreement (Stepped Vesting) issued under the 1994 Plan.**
10.13 Form of Indemnification Agreement between Registrant and each of its directors.**
10.14 Convertible Revolving Loan Note dated March 31, 1997 made by Registrant in favor of Sanwa
Bank California.**
10.15 Credit Agreement dated March 31, 1997 between Registrant and Sanwa Bank California.**
10.16 Form of Credit Guaranty dated March 31, 1997 made by each of PAU, Pan American
Underwriters Insurance Agents & Brokers, Inc. (PAUIAB), Agri-Comp Insurance Agency,
Inc. and Pan Pacific Benefit Administrators, Inc. (PPBA).**
10.17 Series A Preferred Stock Purchase Agreement dated August 3, 1994 between Registrant and
certain purchasers of Series A Preferred Stock.**
10.18 Form of Warrant Agreement dated August 3, 1994 between Registrant and Prudential
Securities Incorporated and Conning & Company (Conning).**
10.19 Warrant Certificates dated August 3, 1994 in the name of Prudential Securities and
Conning.**
10.20 Voting Agreement dated August 3, 1994 between Registrant, certain stockholders and
certain purchasers of Series A Preferred Stock.**
10.21 Asset Management Agreement dated February 1, 1995 between PICO and Conning.**
10.22 Agency and Affiliates Cost Allocation and Reimbursement Agreement dated March 1, 1992 and
last amended December 1, 1996 between PAU and PAUIAB, as Agency, and PICO, PACO and
PPBA, as Affiliates.**
10.23 PAULA Insurance Company Insurance Carrier and Affiliates Cost Allocation and
Reimbursement Agreement dated March 1, 1992 and last amended December 9, 1994 between
PICO, as Carrier, and PACO, PAU, PAUIAB and PPBA, as Affiliates.**
10.24 PAULA Financial Parent and Affiliates Cost Allocation and Reimbursement Agreement dated
January 1, 1993 and last amended December 9, 1994 between Registrant, as Parent, and
PICO, PACO, PAU, PAUIAB and PPBA, as Affiliates.**
10.25 Managing Agreement dated January 1, 1993 and last amended April 28, 1995 between PACO and
PPBA, as Manager.**
10.26 Federal Income Tax Allocation Agreement dated April 10, 1997 between Registrant and its
subsidiaries.**
10.27 Agency Agreement dated March 1, 1992 and last amended April 1, 1997 between PAU and
PICO.**
10.28 Agency Agreement dated March 1, 1992 and last amended April 1, 1997 between PAUIAB and
PICO.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
10.29 Agency Agreement dated December 8, 1994 and last amended April 1, 1997 among Agri-Comp
Insurance Agency, Inc. and PICO.**
10.30 Purchase Option dated March 11, 1997 between Registrant and CAPAX.**
10.31 Plan of Reorganization and Agreement of Merger dated September 22, 1997 between PAULA
Financial (Delaware) and PAULA Financial (California).**
11 Statement re Computation of per share earnings
19 1997 Proxy Statement of PAULA Financial.**
20 PAULA Financial and Subsidiaries Stockholder Report for the Twelve Months Ended December
31, 1996.**
21 List of subsidiaries of PAULA Financial.**
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5)...........................
23.2 Consent of KPMG Peat Marwick LLP (included in S-1).......................................
24 Power of Attorney.**
27 Financial Data Schedule.**
28.1 Schedule P to 1996 Annual Statement of PICO.**
28.2 Schedule O to 1996 Annual Statement of PACO.**
</TABLE>
- --------------
** Previously filed.
<PAGE>
PAULA FINANCIAL
COMMON STOCK
(PAR VALUE $ .01 PER SHARE)
UNDERWRITING AGREEMENT
October __, 1997
Goldman, Sachs & Co.,
Conning & Company,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
PAULA Financial, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
2,212,814 shares of common stock, par value $.01 per share ("Stock"), of the
Company and, at the election of the Underwriters, up to 187,500 additional
shares of Stock and the stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") propose, subject to the terms and
conditions stated herein, to sell to the Underwriters an aggregate of 287,186
shares and, at the election of the Underwriters, up to 187,500 additional
shares of Stock. The aggregate of 2,500,000 shares to be sold by the Company
and the Selling Stockholders is herein called the "Firm Shares" and the
aggregate of 375,000 additional shares to be sold by the Company and the
Selling Stockholders is herein called the "Optional Shares". The Firm Shares
and the Optional Shares that the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "Shares". The merger of
Paula Financial, a California corporation and the predecessor corporation of
the Company, with and into the Company is herein referred to as the
"Reincorporation Merger".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-33159) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under
<PAGE>
the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"); the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 6(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, each as amended at the time such part of the registration
statement became effective, is hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the
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respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been (x) any material addition,
or any development involving a prospective material addition, to the
Company's consolidated reserve for unpaid losses and loss adjustment
expenses, (y) any change in the capital stock of the Company or any of its
subsidiaries or any increase in the short-term or long-term debt of the
Company or any of its subsidiaries (except for the retirement of 1,499
shares of Stock in July 1997) or (z) any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations (in the case of financial
position, stockholders' equity and results of operations considered on
either a statutory or generally accepted accounting principles ("GAAP")
basis) of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus;
(v) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business or
licensed as an insurance company and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification or license, or is subject
to no material liability or disability by reason of the failure to be so
qualified or licensed in any such jurisdiction; and each subsidiary of the
Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus, and has been duly qualified
for the transaction of business or licensed as an insurance company under
the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification or license,
or is subject to no material liability or disability by reason of the
failure to be so qualified or licensed in any such jurisdiction;
(vii) Each subsidiary of the Company is duly licensed or
authorized as an insurer or insurance agency or third-party administrator
in each jurisdiction where it is required to be so licensed or authorized
to conduct its business as described in the Prospectus, or is subject to no
material liability or disability by reason of the failure to be so licensed
or authorized in any such jurisdiction; the Company and each of its
subsidiaries have made all required filings under applicable insurance
holding company statutes; the Company and each of its subsidiaries have all
other necessary authorizations, approvals, orders, consents, certificates,
permits, registrations or qualifications of and from all insurance
regulatory authorities to conduct its businesses as described in the
Prospectus, or is
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subject to no material liability or disability by reason of the failure
to have such authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations or qualifications; and none of the
Company or any of its subsidiaries has received any notification from any
insurance regulatory authority to the effect that any additional
authorization, approval, order, consent, license, certificate, permit,
registration or qualification from such insurance regulatory authority is
needed to be obtained by any of the Company or its subsidiaries in any
case where it could be reasonably expected that (x) the Company or its
subsidiaries would in fact be required either to obtain any such
additional authorization, approval, order, consent, license, certificate,
permit, registration or qualification, or cease or otherwise limit
writing certain business and (y) the failure to obtain such
authorization, approval, order, consent, license, certificate, permit,
registration or qualification or the limiting of such business would have
a material adverse effect on the business, financial position or results
of operations of the Company and its subsidiaries;
(viii) Otherwise than as set forth in the Prospectus, each
subsidiary of the Company is in compliance with the requirements of the
insurance laws and regulations of its state of incorporation and the
insurance laws and regulations of other jurisdictions which are applicable
to such subsidiary, and has filed all notices, reports, documents or other
information required to be filed thereunder, except where the failure to so
comply or file would not have a material adverse effect on the Company and
its subsidiaries;
(ix) Without limitation of the foregoing, the Company and its
subsidiaries, as applicable, have filed all notices, reports, documents or
other information required to be filed pursuant to, and have obtained all
authorizations, approvals, orders, consents, licenses, certificates,
permits, registrations or qualifications required to be obtained under, and
have otherwise complied with all requirements of, all insurance laws and
regulations applicable to the Company and its subsidiaries in connection
with the Reincorporation Merger and the issuance and sale by the Company of
the Shares and the other transactions herein contemplated, in each case
other than such filings, authorizations, approvals, orders, consents,
licenses, certificates, permits, registrations or qualifications which
(individually or in the aggregate) the failure to make, obtain or comply
with (x) would not have a material adverse effect on the Company and its
subsidiaries and (y) would not affect the validity, performance or
consummation of the transactions contemplated by this Agreement or the
Reincorporation Merger;
(x) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(xi) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
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(xii) The Reincorporation Merger, the issue and sale of the Shares
by the Company and the compliance by the Company with all of the provisions
of this Agreement and the consummation of the transactions herein
contemplated did not or will not, as applicable, conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of the
Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or insurance regulatory authority or other
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, license, certificate, permit, registration or
qualification of or with any such court or insurance regulatory authority
or other governmental agency or body is or was required for the
Reincorporation Merger, the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except (w) those which have been obtained; (x) the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters; (y) those relating to the acquisition of 10% or
more of the aggregate number of shares of Stock to be outstanding upon the
consummation of the transactions contemplated by this Agreement by any
person or affiliated persons (other than the purchase and sale of the
shares of Stock by the Underwriters pursuant to this Agreement); or (z)
such consents, approvals, authorizations, orders, licenses, certificates,
permits, registrations or qualifications which (individually or in the
aggregate) the failure to make, obtain or comply with (A) would not have a
material adverse effect on the Company and its subsidiaries and (B) would
not affect the validity, performance or consummation of the transactions
contemplated by this Agreement or the Reincorporation Merger;
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate or Articles of Incorporation or By-laws or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(xiv) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(xv) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to
5
<PAGE>
the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(xvi) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
and
(xvii) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement,
and the Election, the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares to be
sold by such Selling Stockholder hereunder, have been obtained; and such
Selling Stockholder has full right, power and authority to enter into this
Agreement, the Election, the Power-of-Attorney and the Custody Agreement
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Election, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iii) Such Selling Stockholder has good and valid title to the
Shares to be sold by such Selling Stockholder hereunder or the Warrant
hereinafter referred to, free and clear of all liens, encumbrances,
equities or claims; immediately prior to each Time of Delivery (as defined
in Section 5 hereof) such Selling Stockholder will have good and valid
title to the Shares to be sold by such Selling Stockholder hereunder, free
and clear of all liens, encumbrances, equities or claims; and, upon
delivery of such Shares and payment therefor pursuant hereto, good and
valid title to such Shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters;
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected
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<PAGE>
to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares;
(v) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vi) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(vii) Certificates, in negotiable form representing all of the
Shares to be sold by such Selling Stockholder, or a Warrant Certificate of
the Company (the "Warrant") exercisable for all of the Shares to be sold by
such Selling Stockholder hereunder and an Election to Purchase (the
"Election") designating the number of Shares as to which the Warrant is to
be exercised duly executed by the Selling Stockholder, have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to Chase Trust Company of California, as custodian (the
"Custodian"), and such Selling Stockholder has duly executed and delivered
a Power of Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to such Selling Stockholder as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(viii) The Shares represented by the certificates held in custody
for such Selling Stockholder or the Warrant, the Election and the Shares to
be issued upon the exercise of the Warrant held in custody for such
Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination
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of such estate or trust, or in the case of a partnership or corporation,
by the dissolution of such partnership or corporation, or by the
occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if
any such estate or trust should be terminated, or if any such partnership
or corporation should be dissolved, of if any other such event should
occur, before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of such
Selling Stockholder in accordance with the terms and conditions of this
Agreement and of the Custody Agreement; and actions taken by the
Attorneys-in-Fact pursuant to the Power of Attorney shall be as valid as
if such death, incapacity, termination, dissolution or other event had
not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not
jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and the
Selling Stockholders, at a purchase price per share of $_______, the number
of Firm Shares (to be adjusted by you so as to eliminate fractional shares )
determined by multiplying the aggregate number of Shares to be sold by the
Company and the Selling Stockholders as set forth opposite their respective
names in Schedule II hereto by a fraction, the number of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares by all of the
Underwriters from the Company and the Selling Stockholders hereunder and (b)
in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company and each
of the Selling Stockholders agree, severally and not jointly, to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and each of the Selling Stockholders,
at the purchase price per share set forth in clause (a) of this Section 2,
that portion of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying such number of Optional Shares by a
fraction, the numerator of which is the maximum number of Optional Shares
which such Underwriter is entitled to purchase as set forth opposite the name
of such Underwriter in Schedule I hereto and the denominator of which is the
maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent indicated
in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to 375,000 Optional
Shares, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares.
Any such election to purchase Optional Shares shall be made in proportion to
the maximum number of Optional Shares to be sold by the Company and each
Selling Stockholder as set forth in Schedule II hereto. Any such election
to purchase Optional Shares may be exercised only by written notice from you
to the Company and the Attorneys-in-Fact, given within a period of 30
calendar days after the date of this Agreement, setting forth the aggregate
number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by you but in no event earlier than
the First Time of Delivery (as defined in Section 5 hereof) or, unless you
and the Company and the Attorneys-in-Fact otherwise agree in writing, earlier
than two or later than ten business days after the date of such notice.
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3. The Company hereby confirms its engagement of Goldman, Sachs & Co.
as, and Goldman, Sachs & Co. hereby confirms its agreement with the Company
to render services as, a "qualified independent underwriter" within the
meaning of Rule 2720 of the National Association of Securities Dealers, Inc.
(the "NASD") with respect to the offering and sale of the Shares. Goldman,
Sachs & Co., in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU". As compensation for the
services of the QIU hereunder, the Company agrees to pay the QIU $10,000 at
the First Time of Delivery.
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company and the Selling Stockholders shall be delivered
by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs
& Co., through the facilities of the Depository Trust Company ("DTC"), for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of same day
funds. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
DTC or its designated custodian (the "Designated Office"). The time and date
of such delivery and payment shall be, with respect to the Firm Shares, 7:00
a.m., Los Angeles time, on October _____, 1997 or such other time and date as
Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon
in writing, and, with respect to the Optional Shares, 7:00 a.m., Los Angeles
time, on the date specified by Goldman, Sachs & Co. in the written notice
given by Goldman, Sachs & Co. of the Underwriters' election to purchase such
Optional Shares, or such other time and date as Goldman, Sachs & Co., the
Company and the Selling Stockholders may agree upon in writing. Such time
and date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 8 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 8(m) hereof, will be delivered at the
offices of Sullivan & Cromwell, 444 South Flower Street, Los Angeles,
California, 90071 (the "Closing Location"), and the Shares will be delivered
at the Designated Office, all at such Time of Delivery. A meeting will be
held at the Closing Location at 4:00 p.m., Los Angeles time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 5, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
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6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to
advise you, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective
or any supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order
or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus, of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws
of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) Prior to 10:00 a.m. New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of
nine months after the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as you may reasonably request of an amended Prospectus or a supplement
to the Prospectus which will correct such statement or omission or effect
such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your request
but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earning statement of the Company and its subsidiaries
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(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, or file or cause to be
filed with the Commission a registration statement (other than a registration
statement on Form S-8) with respect to, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities or exercise of warrants outstanding as of, the
date of this Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three quarters
of each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary financial
information of the Company and its subsidiaries for such quarter in
reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on The
Nasdaq National Market ("Nasdaq"); and
(j) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
7. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several
Underwriters that (a) the Company will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any
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Preliminary Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters
and dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection
with the offering, purchase, sale and delivery of the Shares; (iii) all
expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 6(b) hereof,
including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the
Nasdaq; (v) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the
sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; (viii) any fees and
expenses of one counsel for the Selling Stockholders, (ix) fees and expenses
of the Attorneys-in-Fact and the Custodian, and (x) all other costs and
expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section; and (b) such Selling
Stockholder will pay or cause to be paid all costs and expenses incident to
the performance of the Selling Stockholders' obligations hereunder which are
not otherwise specifically provided for in this Section, including all
expenses and taxes incident to the sale and delivery of the Shares to be sold
by the Selling Stockholders to the Underwriters hereunder. In connection
with the preceding sentence, Goldman, Sachs & Co. agrees to pay New York
State stock transfer tax, and the Selling Stockholders agree to reimburse
Goldman, Sachs & Co. for associated carrying costs if such tax payment is not
rebated on the day of payment and for any portion of such tax payment not
rebated. It is understood, however, that the Company shall bear, and the
Selling Stockholders shall not be required to pay or to reimburse the Company
for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as
provided in this Section, and Sections 10 and 13 hereof, the Underwriters
will pay all of their own costs and expenses, including the fees of their
counsel, stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements
of the Company and of the Selling Stockholders herein are, at and as of such
Time of Delivery, true and correct, the condition that each of the Company,
and the Selling Stockholder shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
6(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
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(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect
to the incorporation of the Company, the validity of the Shares being
delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Gibson, Dunn & Crutcher LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) This Agreement has been duly authorized, executed
and delivered by the Company;
(iv) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated (including
consummation of the Reincorporation Merger) will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of
any court or regulatory authority or other governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their properties (other than those made or
established by any insurance official or regulatory authority as
to which no opinion need be given), in each case other than such
conflicts, breaches, violations or defaults which, individually
or in the aggregate, (x) would not have a material adverse effect
on the Company and its subsidiaries and (y) would not affect the
validity, performance or consummation of the transactions
contemplated by this Agreement or the Reincorporation Merger, nor
will such actions result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the Company (such
counsel being entitled to rely in respect of the opinion in this
clause upon a certificate of an officer of the Company in respect
of matters of fact,
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provided that such counsel shall state that both you and they
are justified in relying upon such certificate);
(v) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body (other than any insurance regulatory
authority, as to which no opinion need be given) is required for
the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(vi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in
default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which
it or any of its properties may be bound, in each case other than
such violations or defaults which, individually or in the
aggregate, (x) would not have a material adverse effect on the
Company and its subsidiaries and (y) would not affect the
validity, performance or consummation of the transactions
contemplated by this Agreement or the Reincorporation Merger, nor
will such actions result in any violation of the provisions of
the Certificate of Incorporation or By-Laws of the Company;
(vii) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock, and
under the caption "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(viii) The Company is not an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(ix) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need not comment) comply as to form in all material
respects with the requirements of the Act and the rules and
regulations thereunder; and
Such counsel shall also state that although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (vii) of this Section 8(c), they
have no reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need not comment) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial
14
<PAGE>
statements and related schedules therein, as to which such counsel need
not comment) contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or
that, as of such Time of Delivery, either the Registration Statement or
the Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
not comment) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or
the Prospectus which are not filed or described as required;
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their
written opinion (drafts of which are attached as Annex II(c) hereto) with
respect to each of the Selling Stockholders for whom they are acting as
counsel, dated such Time of Delivery, in form and substance satisfactory to
you, to the effect that:
(i) A Power-of-Attorney, a Custody Agreement and, if
applicable, an Election have been duly authorized, executed and
delivered such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder in accordance with
their terms;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder; and the
sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all
of the provisions of this Agreement, the Election (if
applicable), the Power-of-Attorney and the Custody Agreement and
the consummation of the transactions herein and therein
contemplated will not result in any violation of the provisions
of the Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation or the
Partnership Agreement if such Selling Stockholder is a
partnership;
(iii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body (other than any insurance regulatory
authority, as to which no opinion need be given) is required for
the consummation by such Selling Stockholder of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery, such
Selling Stockholder had good and valid title to the Shares to be
sold at the First Time of Delivery by such Selling Stockholder
under this Agreement, free and clear of all liens, encumbrances,
equities or claims, and full right, power and authority to sell,
assign, transfer and deliver the Shares to be sold by such
Selling Stockholder hereunder (such counsel
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<PAGE>
being entitled to rely in respect of the opinion in this clause
without independent investigation upon a certificate of such
Selling Stockholder in respect of matters of fact as to the
ownership of, and liens, encumbrances, equities or claims on
the Shares sold by such Selling Stockholder); and
(v) Good and valid title to such Shares, free and clear of
all liens, encumbrances, equities or claims, has been transferred
to each of the several Underwriters who have purchased such
Shares in good faith and without notice of any such lien,
encumbrance, equity or claim or any other adverse claim within
the meaning of the Uniform Commercial Code;
(e) Bradley K. Serwin, Senior Vice President and General Counsel of
the Company, shall have furnished to you his written opinion (a draft of
such opinion is attached as Annex II(d) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each of Paula Insurance Company ("PICO"), Paula
Assurance Company, Pan American Underwriters, Inc., Pan American
Underwriters Insurance Agents & Brokers, Inc., Pan Pacific
Benefit Administrators, Inc. and Paula Trading Company Insurance
Agents & Brokers, Inc. has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares) are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims (such counsel being
entitled to advise you that his opinion in this clause with
respect to matters pertaining to state laws other than those of
California is based upon examinations of applicable statutes and
the published rules and regulations, if any, of governmental
authorities administering such laws, as reported in the
unofficial compilations thereof available to him, and such
counsel has not obtained any special ruling with regard to such
matters from any governmental authority);
(ii) The Company has been duly qualified as a foreign
corporation for the transaction of business or is licensed as an
insurance company and is in good standing under the laws of each
jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification or license or is
subject to no material liability or disability by reason of
failure to be so qualified or licensed in any such jurisdiction
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that he believes that both
you and he are justified in relying upon such opinions and
certificates);
(iii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by
them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company
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<PAGE>
and its subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material
and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such
counsel may state that no examination of record titles for the
purpose of such opinion has been made, and that he is relying
upon a general review of the titles of the Company and its
subsidiaries, upon opinions of local counsel and abstracts,
reports and policies of title companies rendered or issued at
or subsequent to the time of acquisition of such property by
the Company or its subsidiaries, upon opinions of counsel to
the lessors of such property and, in respect to matters of
fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that he
believes that both you and he are justified in relying upon
such opinions, abstracts, reports, policies and certificates);
(iv) Each subsidiary of the Company is duly licensed or
authorized as an insurer or insurance agent or third-party
administrator in each jurisdiction where it is required to be so
licensed or authorized to conduct its business as described in
the Prospectus, or is subject to no material liability or
disability by reason of the failure to be so licensed or
authorized in any such jurisdiction; the Company and each of its
subsidiaries have made all required filings under applicable
insurance holding company statutes; each of the Company and each
of its subsidiaries has all other necessary authorizations,
approvals, orders, consents, licenses, certificates, permits,
registrations or qualifications of and from all insurance
regulatory authorities to conduct their respective businesses as
described in the Prospectus, or is subject to no material
liability or disability by reason of the failure to have such
authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations or qualifications; and to
the best of such counsel's knowledge, none of the Company or any
of its subsidiaries has received any notification from any
insurance regulatory authority to the effect that any additional
authorization, approval, order, consent, license, certificate,
permit, registration or qualification from such insurance
regulatory authority is needed to be obtained by any of the
Company or any of its subsidiaries in any case where it could be
reasonably expected that (x) the Company or any of its
subsidiaries would in fact be required either to obtain any such
additional authorization, approval, order, consent, license,
certificate, permit, registration or qualification or cease or
otherwise limit writing certain business and (y) the failure to
obtain such authorization, approval, order, consent, license,
certificate, permit, registration or qualification or limiting
such business would have a material adverse effect on the
business, financial position or results of operations of the
Company and its subsidiaries;
(v) To the best of such counsel's knowledge, each
subsidiary of the Company is in compliance with the requirements
of the insurance laws and regulations of its state of
incorporation and the insurance laws and regulations of other
jurisdictions which are applicable to such subsidiary, and has
filed all notices, reports, documents or other information
required to be filed thereunder, or is subject to no material
liability or disability by reason of the failure to so comply or
file (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company, provided that
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such counsel shall state that he believes that both you and he
are justified in relying upon such opinions and certificates);
(vi) All statements made in the Prospectus with respect to
existing and proposed federal and state statutes, regulations and
rules, and, to the best of such counsel's knowledge, with respect
to regulatory policies and practices, fairly and accurately
present the information set forth therein in all material
respects and the statements in the Prospectus under the caption
"Management -- Employee Stock Ownership Plan", insofar as they
purport to describe the provisions of the laws and documents
referred to therein and the PAULA Financial and Subsidiaries
Employee Stock Ownership Plan (the "ESOP") and the PAULA
Financial and Subsidiaries Employee Stock Ownership Trust, fairly
and accurately present the information set forth therein in all
material respects (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of regulatory
counsel, provided that such counsel shall state that he believes
that both you and he are justified in relying upon such
opinions);
(vii) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(viii) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the Reincorporation Merger and the other
transactions herein contemplated did not or will not, as
applicable, conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, and such action did not or will not, as applicable,
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
insurance regulatory authority or other governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, in each case other than
such conflicts, breaches, violations or defaults which,
individually or in the aggregate, (x) would not have a material
adverse effect on the Company and its subsidiaries and (y) would
not affect the validity, performance or consummation of the
transactions contemplated by this Agreement or the
Reincorporation Merger, nor will such actions result in any
violation of the provisions of the Certificate of Incorporation
or By-laws of the Company; and
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(ix) The Company and its subsidiaries, as applicable, have
filed all notices, reports, documents or other information
required to be filed pursuant to, and have obtained all
authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations or qualifications required
to be obtained by the Company and its subsidiaries under, and
have otherwise complied with all requirements of, all insurance
laws and regulations applicable to the Company and its
subsidiaries in connection with the Reincorporation Merger and
the issuance and sale by the Company of the Shares; and, except
as have been obtained pursuant to the foregoing clause, no
filing, authorization, approval, order, consent, license,
certificate, permit, registration or qualification of or with any
court, insurance regulatory agency or other governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, is required for the
issuance and sale by the Company of the Shares, the
Reincorporation Merger or the consummation of the other
transactions contemplated by this Agreement, except (x) the
registration under the Act of the Shares, and such consents,
approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws (other than
state insurance securities laws of the state of California) in
connection with the purchase and distribution of the Shares by
the Underwriters; (y) those relating to the acquisition of 10% or
more of the aggregate number of shares of Stock to be outstanding
upon the consummation of the transactions contemplated by this
Agreement by any person or affiliated persons (other than the
purchase and sale of the shares of Stock by the Underwriters
pursuant to this Agreement) or (z) such filings, authorizations,
approvals, orders, consents, licenses, certificates, permits,
registrations or qualifications which (individually or in the
aggregate) the failure to make, obtain or comply with (A) would
not have a material adverse effect on the Company and its
subsidiaries and (B) would not affect the validity, performance
or consummation of the transactions contemplated by this
Agreement or the Reincorporation Merger.
Such counsel shall also state that although he does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (vi) of this Section 8(e), he has
no reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need not comment) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need not comment) contained an untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need not comment) contains an untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
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they were made, not misleading; and he does not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as required;
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, KPMG Peat
Marwick LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been (x) any addition, or
any development involving a prospective addition, to the Company's
consolidated reserve for unpaid losses and loss adjustment expenses, (y)
any change in the capital stock of the Company or any of its subsidiaries
or any increase in short-term or long-term debt of the Company or any of
its subsidiaries or (z) any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations (in the
case of financial position, stockholders' equity and results of
operations considered on either a statutory or GAAP basis) of the Company
and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded PICO's financial strength or claims paying
ability by A.M. Best Company and (ii) A.M. Best Company shall not have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of PICO's financial strength or claims
paying ability;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on Nasdaq; (ii) a
suspension or material limitation in trading in the Company's securities on
Nasdaq; (iii) a general moratorium on commercial banking activities
declared by Federal or New York or California State authorities; or (iv)
the outbreak or escalation of hostilities involving the United States or
the declaration by the
20
<PAGE>
United States of a national emergency or war, if the effect of any such
event specified in this Clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been
duly admitted for quotation on Nasdaq;
(k) On or prior to the date hereof, each executive officer and each
director of the Company, the ESOP and each person or entity set forth in
Schedule III hereto shall have furnished to you his or its executed written
agreement, in form and substance satisfactory to you, that, during the
period beginning from the date hereof and continuing to and including the
date 180 days after the date of the Prospectus, not to offer, sell,
contract to sell or otherwise dispose of, or file or cause to be filed with
the Commission a registration statement (other than a registration
statement on Form S-8) with respect to, shares of Stock or any securities
of the Company that are substantially similar to the Shares, including but
not limited to any securities convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities, without your prior written consent, except that the ESOP may
distribute shares of Stock to participants in the ESOP upon termination of
such participants employment with the Company;
(l) The Company shall have complied with the provisions of Section
6(c) hereof with respect to the furnishing of Prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(m) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (g) of this Section and as to such other matters as
you may reasonably request.
9. (a) The Company will indemnify and hold harmless Goldman, Sachs &
Co., in its capacity as QIU, against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the QIU for any legal
or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein;
21
<PAGE>
(b) Promptly after receipt by the QIU under subsection (a) above of notice
of the commencement of any action, the QIU shall, if a claim in respect thereof
is to be made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to the QIU otherwise than under such subjection. In case any such
action shall be brought against the QIU and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to the QIU (who shall not, except with the consent of the
QIU, be counsel to the indemnifying party), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense thereof,
the indemnifying party shall not be liable to the QIU under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by the QIU, in connection with the defense thereof other
than reasonable costs of investigation. The indemnifying party shall not,
without the written consent of the QIU, effect the settlement or compromise of,
or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the QIU is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the QIU from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of QIU.
(c) If the indemnification provided for in this Section 9 is unavailable
to or insufficient to hold harmless Goldman, Sachs & Co., in its capacity as
QIU, under subsection (a) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then the
indemnifying party shall contribute to the amount paid or payable by the QIU as
a result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the QIU on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the QIU failed to
give the notice required under subsection (b) above, then the Company shall
contribute to such amount paid or payable by the QIU in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the QIU on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the QIU on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company, as set forth in the table on the cover page of the Prospectus,
bear to the fee payable to the QIU pursuant to Section 3 hereof. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the QIU on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the QIU agree that it would not be just
and equitable if contributions pursuant to this subsection (c) were determined
by PRO RATA allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this subsection
(c). The amount paid or payable by the QIU as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (c) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent
22
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the QIU
within the meaning of the Act.
10. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Selling Stockholder, severally and not jointly, will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Each Underwriter will indemnify and hold harmless the Company and each
of the Selling Stockholders against any losses, claims, damages or liabilities
to which the Company or the Selling Stockholders may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
23
<PAGE>
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman,
Sachs & Co. expressly for use therein; and will reimburse the Company and
each of the Selling Stockholders for any legal or other expenses reasonably
incurred by the Company or such Selling Stockholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and
24
<PAGE>
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this subsection
(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 10 shall be in addition to any liability which the Company and
the respective Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 10 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each officer and director of the Company
and to each person, if any, who controls the Company or any Selling
Stockholders within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any
25
<PAGE>
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh
of the aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right
to require each non-defaulting Underwriter to purchase the number of shares
which such Underwriter agreed to purchase hereunder at such Time of Delivery
and, in addition, to require each non-defaulting Underwriter to purchase its
pro rata share (based on the number of Shares which such Underwriter agreed
to purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the obligations
of the Underwriters to purchase and of the Company to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders, except
for the expenses to be borne by the Company and the Selling Stockholders and
the Underwriters as provided in Section 7 hereof and the indemnity and
contribution agreements in Section 10 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
12. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any Selling Stockholder, or any officer or
director or controlling person of the Company, or any controlling person of any
Selling Stockholder, and shall survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity agreement of
the Company in subsection (a) of Section 10 hereof, the representations and
warranties in subsections (b) and (c) of Section 1 hereof and any
representation or warranty as to the accuracy of the Registration Statement or
the Prospectus contained in any certificate furnished by the Company pursuant to
Section 8 hereof, insofar as they may constitute a basis for indemnification for
liabilities (other than payment by the Company of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the Act,
shall not extend to the extent of any interest therein of a controlling person
or partner of an Underwriter who is a director, officer or controlling person of
the Company when the Registration Statement has become effective, except in each
case to the extent that an interest of such character shall have been determined
by a court of appropriate jurisdiction as not against public policy as expressed
in the Act. Unless in the opinion of counsel for the
26
<PAGE>
Company the matter has been settled by controlling precedent, the Company
will, if a claim for such indemnification is asserted, submit to a court of
appropriate jurisdiction the question of whether such interest is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
13. If this Agreement shall be terminated pursuant to Section 11 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 7 and 10 hereof;
but, if for any other reason, any Shares are not delivered by or on behalf of
the Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
and the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 7 and 10 hereof.
14. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to rely upon any statement, request,
notice or agreement on behalf of the Selling Stockholders made or given by
any or all of the Attorneys-in-Fact for the Selling Stockholders.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholders shall be delivered or sent by mail,
telex or facsimile transmission to counsel for the Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 10(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling
Stockholders by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
15. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and,
to the extent provided in Sections 10 and 12 hereof, the officers and
directors of the Company and each person who controls the Company, any
Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser
of any of the Shares from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
16. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
27
<PAGE>
18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
28
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and each of the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholders pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
PAULA Financial
By:
------------------------------
Name:
Title:
Prudential Securities Incorporated
Conning Insurance Capital Limited
Partnership II
Conning Insurance Capital International
Partners II
Conning Insurance Capital Limited
Partnership III
Conning Insurance Capital International
Partners III, L.P.
RFE Investment Partners IV, L.P.
Saugatuck Capital Company
Barkley Family Trust DTD 12/14/93
Barkley Charitable Remainder Unitrust
DTD 12/16/96
Smith Barney Inc., Trustee for the benefit
of Alben F. Barkley IRA
By:
------------------------------
Name:
As Attorney-in-Fact acting on behalf of
the Selling Stockholders
29
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.
Conning & Company
By:
-------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
30
<PAGE>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ------------------
Goldman, Sachs & Co. . . . . . . .
Conning & Company. . . . . . . . .
Total . . . . . . . . . . --------------- ------------------
2,500,000 375,000
--------------- ------------------
--------------- ------------------
31
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Total Number of Shares to be Sold if
Firm Shares Maximum Option
to be Sold Exercised
--------------- --------------------
<S> <C> <C>
The Company . . . . . . . . . . . . . . . . 2,212,814 187,500
Prudential Securities Incorporated (a). . . 109,804 ----
Conning Insurance Capital Limited
Partnership II (b). . . . . . . . . . . . ---- 11,016
Conning Insurance Capital International
Partners II (b) . . . . . . . . . . . . . ---- 12,422
Conning Insurance Capital Limited
Partnership III (b) . . . . . . . . . . . ---- 19,252
Conning Insurance Capital International
Partners III, L.P. (b). . . . . . . . . . ---- 4,185
RFE Investment Partners IV, L.P. (b). . . . ---- 46,875
Saugatuck Capital Company (b) . . . . . . . ---- 46,875
Barkley Family Trust DTD 12/14/93 (a) . . . 5,152 ----
Barkley Charitable Remainder Unitrust
DTD 12/16/96 (a). . . . . . . . . . . . . 106,000 ----
Smith Barney Inc., Trustee for the benefit
of Alben F. Barkley IRA (a) . . . . . . . 66,230 ----
--------------- --------------------
Total. . . . . . . . . . . . . . . 2,500,000 375,000
--------------- --------------------
--------------- --------------------
</TABLE>
- ------------------------------
(a) Such Selling Stockholder is represented by Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, California 90071, and has appointed
Bradley K. Serwin and James A. Nicholson, and each of them, as the
Attorneys-in-Fact, for each Selling Stockholder.
(b) Such Selling Stockholder is represented by LeBoeuf, Lamb, Green & MacCrae,
LLP, Goodwin Square, 225 Asylum Street, Hartford, Connecticut 06103, and
has appointed Bradley K. Serwin and James A. Nicholson, and each of them,
as the Attorneys-in-Fact, for each Selling Stockholder
32
<PAGE>
SCHEDULE III
Conning Insurance Capital Limited Partnership II
Conning Insurance Capital International Partners II
Conning Insurance Capital Limited Partnership III
Conning Insurance Capital International Partners III, L.P.
Conning Corporation
RFE Investment Partners IV, L.P.
Saugatuck Capital Company
33
<PAGE>
ANNEX I
Pursuant to Section 8(h) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been separately furnished to the Representatives and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations, nothing came to their
attention that cause them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
Company's audited consolidated financial statements for such five fiscal
years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
34
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated
short-term or long-term debt or consolidated reserve for unpaid losses
and loss adjustment expenses, or any decreases in consolidated fixed
income securities available for sale, consolidated total investments
or stockholders' equity, or any decrease in the unassigned funds
(surplus) or statutory capital of Paula Insurance Company, or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts
35
<PAGE>
shown in the latest balance sheet included in the Prospectus, except
in each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
36
<PAGE>
EXHIBIT 5
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
October 22, 1997
(213) 229-7000 C 70231-00013
PAULA Financial
300 North Lake Avenue, Suite 300
Pasadena, CA 91101
Re: PAULA Financial - Form S-1 Registration Statement (No. 333-33159)
Gentlemen:
We have acted as counsel for PAULA Financial, a Delaware corporation (the
"Company"), in connection with the registration by the Company of 2,875,000
shares of the Company's Common Stock, $.01 par value (the "Shares"), on Form S-1
Registration Statement No. 333-33159 (the "Registration Statement") under the
Securities Act of 1933, as amended. Of the 2,875,000 Shares, 2,212,814 Shares
are being sold by the Company, 287,186 Shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"), and 375,000 Shares are
subject to an option granted to the Underwriters (as defined below) by the
Company and the Selling Stockholders to cover over-allotments. We understand
that the Company proposes to sell the Shares to a group of underwriters (the
"Underwriters") represented by Goldman, Sachs & Co. and Conning & Company for
offering to the public.
On the basis of such investigation as we have deemed necessary, we are of
the opinion that the Shares have been duly authorized, and when issued and sold
in accordance with the terms of the Registration Statement and an underwriting
agreement between the Company and the Underwriters substantially in the form
filed as an exhibit to the Registration Statement, will be legally issued, fully
paid and nonassessable.
<PAGE>
PAULA Financial
October 22, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Validity of Common Stock" contained in the prospectus that forms a part of the
Registration Statement.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER
GIBSON, DUNN & CRUTCHER LLP
RAS:JDG:RAN
LC972940.060
