<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PAULA FINANCIAL
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PAULA FINANCIAL
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CALIFORNIA 91101
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1998
------------------------
To The Stockholders of
PAULA Financial:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of PAULA
Financial, a Delaware corporation (the "Company"), will be held at The Pasadena
Hilton Hotel, 150 S. Los Robles Avenue, Pasadena, California 91101 on May 27,
1998, at 10:00 a.m., local time, for the purpose of considering and acting upon
the following:
1. The election of four directors, one to hold office until the 1999 Annual
Meeting of Stockholders and three to hold office until the 2001 Annual
Meeting of Stockholders, and in each case thereafter until their
successors are elected and qualified; and
2. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 10, 1998 will
be entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors,
JEFFREY A. SNIDER
CHAIRMAN OF THE BOARD
Dated: April 24, 1998
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PAULA FINANCIAL
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CALIFORNIA 91101
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 27, 1998
------------------------
This Proxy Statement is being mailed on or about April 24, 1998 to
stockholders of PAULA Financial (the "Company") in connection with the
solicitation of proxies by the Board of Directors for use at the Annual Meeting
of Stockholders to be held on May 27, 1998, or any postponements or adjournments
thereof, for the purposes set forth in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Stockholders.
When a proxy in the form enclosed with this Proxy Statement is returned
properly executed, the shares represented thereby will be voted at the Annual
Meeting in accordance with the directions indicated thereon or, if no direction
is indicated, the shares will be voted in accordance with the recommendations of
the Board of Directors and in the discretion of the Proxies. A stockholder who
executes and returns the enclosed proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Chairman of the
Board of the Company, at the address of the Company, or by revoking it in person
at the Annual Meeting. Attendance at the Annual Meeting by a stockholder who has
executed and returned the enclosed proxy does not alone revoke the proxy.
The costs of preparing and mailing this Notice and Proxy Statement and the
enclosed form of proxy will be paid by the Company. In addition to soliciting
proxies by mail, officers and regular employees of the Company may, at the
Company's expense, solicit proxies in person and by telephone or telegraph. The
Company has retained ChaseMellon Shareholder Services to assist in the
solicitation of proxies. The Company will pay reasonable out-of-pocket expenses
incurred by them. The Company will pay brokers, nominees, fiduciaries and other
custodians their reasonable fees and expenses for forwarding solicitation
material to principals and for obtaining their instructions.
VOTING SECURITIES
As of the close of business on April 10, 1998, 6,326,777 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding and held of record by 182 stockholders, each of which shares is
entitled to one vote at the Annual Meeting. The Company has no other class of
voting securities outstanding.
A majority of the shares entitled to vote, present in person or represented
by proxy, will constitute a quorum at the meeting. In matters other than the
election of directors, the affirmative vote of a majority of shares of Common
Stock present in person or represented by proxy at the meeting and entitled to
vote on the subject matter will be the act of the stockholders, except for those
specific matters for which a super majority vote is required under the Company's
Bylaws. Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy and entitled to vote on
the election of directors. Abstentions will be treated as the equivalent of a
negative vote for the purpose of determining whether a proposal has been adopted
and will have no effect for the purpose of determining whether a director has
been elected. As to certain matters other than the election of directors, the
Nasdaq Stock Market rules generally require when shares are registered in street
or nominee name that their
1
<PAGE>
member brokers receive specific instructions from the beneficial owners in order
to vote on such a proposal. If a member broker indicates on the proxy that such
broker does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
ITEM 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a three-tiered
classified Board of Directors with staggered terms of office. The Board of
Directors consists of three classes, designated as Class I, Class II and Class
III. Pursuant to the Certificate of Incorporation, the term of Class I directors
expires at the 1998 Annual Meeting, the term of Class II directors expires at
the 1999 Annual Meeting, and the term of Class III directors expires at the 2000
Annual Meeting. Pursuant to the Bylaws, at each Annual Meeting, only one class
of directors will be elected, and each class of directors will serve a
three-year term and until their successors are elected and qualified. During
January 1998, a vacancy on the Board of Directors constituting a Class II
director was filled by the Board of Directors. Although the term of the Class II
directors will not expire until the 1999 Annual Meeting of Stockholders, the
director elected to the Board in January 1998 will stand for reelection at the
1998 Annual Meeting of Stockholders.
INFORMATION CONCERNING NOMINEES
The nominees for election as Class I directors and the new Class II director
standing for reelection are set forth below along with certain information
regarding the nominees. Unless marked to the contrary, proxies received will be
voted for the election of Bradley K. Serwin, Gerard Vecchio and Ronald W.
Waisner, each of whom currently serves as a Class I Director of the Company, to
serve until the 2001 Annual Meeting and until his successor is elected and
qualified. In addition, unless marked to the contrary, proxies will be voted for
the election of Robert A. Puccinelli, who currently serves as a Class II
Director of the Company to serve until the 1999 Annual Meeting of Stockholders
and until his successor is elected and qualified. If for any reason any nominee
should not be available for election or be unable to serve as a Director, the
accompanying proxy will be voted for the election of such other person, if any,
as the Board of Directors may designate. The Board has no reason to believe that
any nominee will be unavailable for election or unable to serve.
1998 NOMINEES
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- ------------
<S> <C> <C> <C>
BRADLEY K. SERWIN(1)--CLASS I................................................... 37 1995 None
Mr. Serwin has served as General Counsel, Senior Vice President, Secretary and
Director of the Company since March 1995 when he joined the Company. Prior to
joining the Company, Mr. Serwin practiced law for nine years with Gibson, Dunn
& Crutcher LLP, a nationwide law firm.
GERARD VECCHIO(2)--CLASS I...................................................... 36 1994 None
Mr. Vecchio has served as a Director of the Company since August 1994 as a
representative of Conning & Company, a stockholder and the general partner of
four partnerships, each of which is a stockholder. Mr. Vecchio is a Senior
Vice President of Conning & Company, an insurance asset management and
research firm, where he has worked since October 1992.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- ------------
<S> <C> <C> <C>
RONALD W. WAISNER(3)--CLASS I................................................... 60 1992 None
Mr. Waisner has served as a Director of the Company since his election to the
Board of Directors in November 1992. Prior to his retirement in 1991, Mr.
Waisner worked for Continental Insurance Company beginning in 1959. His last
position with Continental prior to retirement was Senior Vice President and
Regional Manager of the Pacific Region responsible for insurance operations
and marketing.
ROBERT A. PUCCINELLI(1)(3)--CLASS II............................................ 60 1998 None
Mr. Puccinelli has served as a Director of the Company since his election to
the Board of Directors in January 1998. Prior to his retirement in 1997, Mr.
Puccinelli worked for Industrial Indemnity Company since 1961. Mr. Puccinelli
was Chairman and Chief Executive Officer from 1985 to 1995 and served as
Chairman of the Excutive Committee until he retired in 1997.
</TABLE>
- ------------------------
(1) Member of the Governance and Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Compensation Committee.
The proposed nominees are not related by blood or marriage to any executive
officer of the Company. Mr. Serwin is an executive officer of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.
INFORMATION CONCERNING DIRECTORS
Set forth below are the Class II and Class III Directors whose terms do not
expire this year, along with certain information regarding these Directors.
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- ------------
<S> <C> <C> <C>
JEFFREY A. SNIDER--CLASS III.................................................... 46 1992 None
Mr. Snider has been Chairman of the Board of Directors, President and Chief
Executive Officer of the Company since December 1994. Mr. Snider joined the
Company in 1975 and served as President and Chief Executive Officer of the
Company and a member of its Board of Directors from 1984 to 1988. Mr. Snider
resigned from the Company and its Board of Directors in June 1988. From
January 1989 until July 1990, Mr. Snider served as director of the Jimmy
Carter Work Project of Habitat for Humanity International Inc. in San Diego,
California and Tijuana, Mexico. In July 1990, Mr. Snider accepted a position
as the first Executive Vice President and Chief Operating Officer of Habitat,
serving in that position until December 1993, when he returned as President
and Chief Executive Officer of the Company's insurance subsidiaries. Mr.
Snider was re-elected to the Company's Board of Directors in November 1992.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- ------------
<S> <C> <C> <C>
ANDREW M. SLAVITT--CLASS III.................................................... 31 1995 None
Mr. Slavitt has served as the Chief Operating Officer, Senior Vice President
and Director of the Company since July 1995 when he joined the Company. Prior
to joining the Company, Mr. Slavitt served as a consultant with McKinsey &
Company, an international management consulting firm, for two years and prior
to that time attended the Harvard Business School where he received an M.B.A.
degree in 1993. From 1988 to 1991, Mr. Slavitt worked for Goldman, Sachs & Co.
as an investment banker.
JAMES A. NICHOLSON--CLASS II.................................................... 53 1986 None
Mr. Nicholson has served as a Senior Vice President and Chief Financial
Officer of the Company since April 1988. He was first elected to the Company's
Board of Directors in 1986. Mr. Nicholson has been with the Company since
1972.
JOHN B. CLINTON(1)--CLASS III................................................... 43 1994 None
Mr. Clinton has served as a Director of the Company since August 1994 as a
representative of Conning & Company, a stockholder and the general partner of
four partnerships, each of which is a stockholder. Mr. Clinton has been a
Senior Vice President of Conning & Company, an insurance asset management and
research firm, since February 1992.
JERRY M. MILLER(2)--CLASS II.................................................... 57 1992 None
Mr. Miller has served as a Director of the Company since his election to the
Board of Directors in November 1992. Mr. Miller is a Certified Public
Accountant and was an audit partner with KPMG Peat Marwick LLP from 1974 until
his retirement in 1991.
</TABLE>
- ------------------------
(1) Member of the Executive Compensation Committee.
(2) Member of the Audit and Governance and Nominating Committees.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee, Capital
Planning/Investment Policy Committee, Committee of the Chair, Executive
Compensation Committee, Executive Committee and a Governance and Nominating
Committee.
The current members of the Audit Committee, which held two meetings during
fiscal year 1997, are Messrs. Miller and Vecchio. Its functions include
recommending to the Board of Directors the selection of the Company's
independent public accountants and reviewing with such accountants the plan and
results of their audit and the adequacy of the Company's systems of internal
accounting controls. In addition, the Audit Committee reviews the independence
of the independent public accountants and reviews the fees for audit and
non-audit services rendered to the Company by its independent public
accountants.
The current members of the Executive Compensation Committee are Messrs.
Clinton, Puccinelli and Waisner. Messrs. Clinton and Puccinelli joined the
Committee in January 1998. The prior members of the Committee held three
meetings during fiscal year 1997. The Committee's functions include recommending
to the Board of Directors the compensation and benefits for senior management,
including the grant of stock options and other stock based awards.
4
<PAGE>
The Governance and Nominating Committee will only consider nominations for
election to the Board of Directors recommended by stockholders if notice of such
recommendation is timely provided to the Company in accordance with the
Company's Bylaws. The Bylaws require that a stockholder notify the Company of
the stockholder's intent to nominate a person for election as a director at a
meeting of the stockholders not later than 90 days in advance of such a meeting
or, if later, the seventh day following the first public announcement of the
date of such meeting. Such notice must include specific information concerning
the proposed nominee. Stockholders considering proposing nominees for election
to the Board of Directors can contact Bradley K. Serwin, the Company's Corporate
Secretary, to obtain a copy of the Company's Bylaws.
During fiscal year 1997, the Board of Directors met six times. No director
attended less than 75% of the meetings of the Board and the committees of the
Board on which he served.
COMPENSATION OF DIRECTORS
Each member of the Company's Board of Directors who is not an employee of
the Company or any of its subsidiaries receives a director fee of $10,000 per
year, plus a $500 fee per meeting, has received a grant of stock options and is
eligible for further grants under the Company's 1997 Stock Incentive Plan. These
Directors are reimbursed for out-of-pocket expenses reasonably incurred for
attending meetings. It is expected that at least four board meetings will be
held during each calendar year. Pursuant to the Company's 1994 Stock Incentive
Plan, on January 1, 1995 and February 1, 1996, Messrs. Miller and Waisner were
each granted options to purchase 5,500 shares of the Company's Common Stock at
an exercise price of $9.03 and $7.88 per share, respectively (the fair market
value of the Common Stock as determined by an independent appraisal on such
dates) and on October 26, 1996 each was granted options to purchase 4,000 shares
at an exercise price of $9.50 (the fair market value of the Common Stock as
determined by the Board of Directors on such date). The January 1995 and
February 1996 options have a term of five years and the October 1996 options
have a term of ten years. All such options vested immediately. On October 26,
1996, Messrs. Clinton and Vecchio were each granted options to purchase 4,000
shares of Common Stock at an exercise price of $9.50 (the fair market value of
the Common Stock as determined by the Board of Directors on such date). Such
options have a term of ten years and vested immediately. On April 1, 1998, Mr.
Puccinelli was granted options to purchase 10,000 shares of Common Stock at an
exercise price of $23.125 (the closing price of the Common Stock on such date).
Such options have a term of ten years and vest 40% upon grant, and 20% on each
anniversary of the date of grant.
5
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 10, 1998, the record date for the
Annual Meeting, information as to the ownership of the Company's Common Stock by
(i) each person who is known to the Company to own beneficially more than 5% of
the outstanding shares of the Common Stock of the Company, (ii) each Director,
(iii) each Executive Officer of the Company named below and (iv) all named
Executive Officers and Directors as a group.
Each such holder directly or indirectly has sole voting and investment power
with respect to the shares listed except for shares allocated to Executive
Officers of the Company in the Company's employee stock ownership plan ("ESOP")
pursuant to the last allocation of shares in the ESOP which was on December 31,
1997 and as otherwise described below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS OUTSTANDING
- ------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Jeffrey A. Snider(2)..................................................... 462,146(3) 6.9
Andrew M. Slavitt(2)..................................................... 137,830(4) 2.1
James A. Nicholson(2).................................................... 190,693(5) 3.0
Bradley K Serwin(2)...................................................... 61,078(6) 1.0
Victor Gloria, III(2).................................................... 112,019(7) 1.8
John B. Clinton ......................................................... 4,000(8) *
c/o Conning & Company
185 Asylum Street
Hartford, CT 06103
Jerry M. Miller ......................................................... 17,000(9) *
2068 Musket Street
Eugene, OR 97401
Robert A. Puccinelli .................................................... 10,000(10) *
116 Silverwood Drive
LaFayette, CA 94549
Gerard Vecchio .......................................................... 4,000(8) *
c/o Conning & Company
185 Asylum Street
Hartford, CT 06103
Ronald W. Waisner ....................................................... 15,000(9) *
113 Patton Court
Folsom, CA 95630
All Executive Officers and Directors as a group (10 persons)............. 1,013,766(11) 14.4
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS OUTSTANDING
- ------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
OTHER BENEFICIAL OWNERS:
Conning & Company ....................................................... 877,095(12) 13.9
185 Asylum Street
Hartford, CT 06103
FMR Corp. ............................................................... 611,600(13) 9.7
82 Devonshire Street
Boston, MA 02109
PAULA Financial and Subsidiaries Employee Stock Ownership Plan(2)(14).... 929,446 14.7
RFE Management Corporation .............................................. 423,713(15) 6.7
36 Grove Street
New Canaan, CT 06840
Saugatuck Capital Company Limited Partnership III ....................... 423,713(16) 6.7
One Canterbury Green
Stamford, CT 06901
</TABLE>
- ------------------------
* Less than 1%
(1) Such holder directly or indirectly has sole voting and investment power
with respect to the shares listed except as described below.
(2) Such person's address is 300 N. Lake Avenue, Suite, 300, Pasadena, CA
91101.
(3) Includes (i) options to purchase 400,000 shares of Common Stock and (ii)
1,746 shares of Common Stock allocated to Mr. Snider in the ESOP with
respect to which he has sole voting power and shared investment power.
(4) Includes (i) options to purchase 134,000 shares of Common Stock and (ii)
830 shares of Common Stock allocated to Mr. Slavitt in the ESOP with
respect to which he has sole voting power and shared investment power.
(5) Includes (i) options to purchase 63,000 shares of Common Stock and (ii)
63,333 shares of Common Stock allocated to Mr. Nicholson in the ESOP with
respect to which he has sole voting power and shared investment power.
(6) Includes (i) options to purchase 57,000 shares of Common Stock, (ii) 830
shares of Common Stock allocated to Mr. Serwin in the ESOP with respect to
which he has sole voting power and shared investment power and (iii) 1,000
shares of Common Stock beneficially held by Mr. Serwin which are held of
record by Kenneth Serwin, Mr. Serwin's brother.
(7) Includes (i) options to purchase 27,200 shares of Common Stock and (ii)
46,947 shares of Common Stock allocated to Mr. Gloria in the ESOP with
respect to which he has sole voting power and shared investment power.
(8) Includes options to purchase 4,000 shares of Common Stock.
(9) Includes options to purchase 15,000 shares of Common Stock.
(10) Includes options to purchase 10,000 shares of Common Stock.
(11) Includes options to purchase 729,200 shares of Common Stock and 113,686
shares of Common Stock allocated to such Executive Officers and Directors
in the ESOP with respect to which such holders have sole voting power and
shared investment power.
7
<PAGE>
(12) Based on information contained in a Schedule 13G filed with the Company on
February 17, 1998. Includes 29,677 shares of Common Stock held by Conning
& Company, and shares held by the following entities, each of which is an
affiliate of Conning & Company: Conning Insurance Capital Limited
Partnership II is the owner of 199,144 shares of Common Stock, Conning
Insurance Capital International Partners II is the owner of 224,568 shares
of Common Stock, Conning Insurance Capital Limited Partnership III is the
owner of 348,038 shares of Common Stock and Conning Insurance Capital
International Partners III, L.P. is the owner of 75,678 shares of Common
Stock. All such entities hold shared voting and investment power over the
shares. General American Life Insurance Company and certain of its
subsidiaries may be deemed to control such entities and therefore may be
deemed to possess indirect beneficial ownership of all shares held by such
entities.
(13) Based on information provided to the Company as of March 6, 1998. Includes
509,000 shares beneficially owned by Fidelity Management & Research
Company as investment adviser to various registered investment companies;
97,100 shares beneficially owned by Fidelity Management Trust Company as
trustee or managing agent for various private investment accounts; and
5,500 shares beneficially owned by Fidelity International Limited as
investment adviser to various non-U.S. investment companies. FMR Corp. has
sole voting power and sole investment power over 33,100 shares; shared
voting and sole investment power over 509,000 shares and no voting and
sole investment power over 69,500 shares.
(14) Pursuant to the terms of the ESOP, shares held by the ESOP are voted by
the ESOP Trustee pursuant to instructions from the participants with
respect to allocated shares and from the ESOP Administrative Committee
with respect to unallocated shares.
(15) Based on information contained in a Schedule 13G filed with the Company on
February 17, 1998. Includes 423,713 shares and options to purchase 4,000
shares held by RFE Investment Partners IV, L.P., a limited partnership,
controlled by Messrs. Robert M. Williams, Howard C. Landis, Michael J.
Foster, James A. Parson and A. Dean Davis. Each such person has shared
voting and investment power over the shares.
(16) Based on information contained in a Schedule 13G filed with the Company on
February 17, 1998. Includes options to purchase 4,000 shares. The holder
is controlled by Greyrock Partners Limited Partnership. The holder and
Greyrock each have shared voting and investment power over the shares.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Executive Officers and Directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC").
Executive Officers, Directors and ten percent stockholders are required by the
SEC to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file a Form 5 for specified fiscal years, the Company
believes that all of its Executive Officers, Directors and greater than ten
percent beneficial owners complied with all the filing requirements applicable
to them with respect to transactions during fiscal year 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Directors was composed
of three members, Messrs. Miller, Waisner and O. Stevenson Crihfield during
1997. Upon Mr. Crihfield's resignation from the Board in January 1998, the
Committee was restructured to include Messrs. Clinton and Puccinelli in
8
<PAGE>
addition to Mr. Waisner. None of the past or current members of the Committee is
or has been an employee or officer of the Company. No Executive Officer of the
Company has served as a member of the board of directors or compensation
committee of any company in which any of the past or current members of the
Committee is an executive officer.
During 1997, the Company's investment portfolio manager was Conning Asset
Management, an affiliate of Conning & Company. The Company paid Conning Asset
Management its usual and customary fees for such services. In addition, Conning
& Company acted as a co-manager and as a representative of the several
underwriters of the Company's initial public offering in October 1997, for which
it received customary underwriting discounts and commissions. Each of Messrs.
Clinton and Vecchio are officers of Conning & Company.
The Company believes that the terms of the transactions described above are
no less favorable to the Company than terms that could have been obtained from
unaffiliated third parties.
EXECUTIVE OFFICERS
The following table sets forth the current Executive Officers of the
Company:
<TABLE>
<CAPTION>
NAME CAPACITIES IN WHICH SERVED AGE
- ------------------------------------------------------------------------- --------------------------------- ---
<S> <C> <C>
JEFFREY A. SNIDER........................................................ Chairman, Chief Executive 46
Mr. Snider has been Chairman of the Board of Directors, President and Officer and President
Chief Executive Officer of the Company since December 1994. Mr. Snider
joined the Company in 1975 and served as President and Chief Executive
Officer of the Company and a member of its Board of Directors from 1984
to 1988. Mr. Snider resigned from the Company and its Board of
Directors in June 1988. From January 1989 until July 1990, Mr. Snider
served as director of the Jimmy Carter Work Project of Habitat for
Humanity International Inc. in San Diego, California and Tijuana,
Mexico. In July 1990, Mr. Snider accepted a position as the first
Executive Vice President and Chief Operating Officer of Habitat,
serving in that position until December 1993, when he returned as
President and Chief Executive Officer of the Company's insurance
subsidiaries, Mr. Snider was re-elected to the Company's Board of
Directors in November 1992.
ANDREW M. SLAVITT........................................................ Chief Operating Officer and 31
Mr. Slavitt has served as the Chief Operating Officer, Senior Vice Senior Vice President
President and Director of the Company since July 1995 when he joined
the Company. Prior to joining the Company, Mr. Slavitt served as a
consultant with McKinsey & Company, an international management
consulting firm, for two years and prior to that time attended the
Harvard Business School where he received an M.B.A. degree in 1993.
From 1988 to 1991, Mr. Slavitt worked for Goldman, Sachs & Co. as an
investment banker.
JAMES A. NICHOLSON....................................................... Chief Financial Officer and 53
Mr. Nicholson has served as a Senior Vice President and Chief Financial Senior Vice President
Officer of the Company since April 1988. He was first elected to the
Company's Board of Directors in 1986. Mr. Nicholson has been with the
Company since 1972.
</TABLE>
9
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<TABLE>
<CAPTION>
NAME CAPACITIES IN WHICH SERVED AGE
- ------------------------------------------------------------------------- --------------------------------- ---
<S> <C> <C>
BRADLEY K. SERWIN........................................................ General Counsel, Senior Vice 37
Mr. Serwin has served as General Counsel, Senior Vice President and President and Secretary
Secretary and Director of the Company since March 1995 when he joined
the Company. Prior to joining the Company, Mr. Serwin practiced law for
nine years with Gibson, Dunn & Crutcher LLP, a nationwide law firm.
VICTOR GLORIA III........................................................ Senior Vice President 43
Mr. Gloria has been with the Company since 1972 and has served in the
Workers' Compensation Claims Department of PAULA Insurance Company, the
Company's workers' compensation insurance subsidiary ("PICO") for the
majority of that time. He has served as Manager of that Department
since 1987 and was appointed Senior Vice President of PICO in 1987. Mr.
Gloria has obtained the certificated designation of Associate in
Claims. Mr. Gloria was first elected to the PICO Board of Directors in
April 1987
JAMES M. HANNAH.......................................................... Senior Vice President 49
Mr. Hannah joined the Company in March 1995, assuming the position of
Vice President and Chief Underwriting Officer of PICO. Mr. Hannah
became a Senior Vice President of PICO in March 1998. Prior to joining
the Company, Mr. Hannah served as Vice President of American Home
Assurance Co., a property and casualty insurance company, Manager of
New Hampshire Insurance Co. from January 1993 to November 1993 and as
Vice President of SAIF Corporation, the Oregon state insurance fund,
for nine years prior to that time. Mr. Hannah was first elected to the
PICO Board of Directors in April 1995.
</TABLE>
10
<PAGE>
EXECUTIVE COMPENSATION AND RELATED MATTERS
COMPENSATION
The following table sets forth summary information regarding the annual and
long-term compensation for services in all capacities to the Company for the
three years ended December 31, 1997 for those persons who were, as of December
31, 1997, the Chief Executive Officer and the four other most highly compensated
named officers of the Company who received in excess of $100,000 for the year
ended December 31, 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS($) OPTIONS(#) COMPENSATION(2)
- ---------------------------------------- ---- -------- -------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Snider ...................... 1997 $310,000(5) $175,000 -- -- $30,421
Chairman of the Board, Chief Executive 1996 250,000 25,000 -- 300,000 25,347
Officer and President 1995 250,000 -- -- -- 24,440
Andrew M. Slavitt ...................... 1997 $160,000 $ 80,000 -- -- $ 8,496
Chief Operating Officer(3) 1996 145,000 10,000 23,640 114,000 5,050
1995 73,000 31,000 -- 20,000 --
James A. Nicholson ..................... 1997 $180,000 $ 50,000 -- -- $11,149
Chief Financial Officer 1996 180,000 10,000 -- 23,000 8,190
1995 180,000 -- -- -- 7,469
Bradley K. Serwin ...................... 1997 $144,000 $ 45,000 -- -- $ 9,768
General Counsel(4) 1996 135,000 10,000 15,760 57,000 5,936
1995 102,500 27,000 -- -- --
Victor Gloria III ...................... 1997 $126,000 $ 60,000 -- -- $11,480
Senior Vice President--Claims 1996 126,000 40,000 15,760 26,000 7,590
Administration 1995 123,500 25,000 -- -- 5,939
</TABLE>
- ------------------------
(1) Since January 1, 1996, the annual bonuses paid to Messrs. Snider, Slavitt,
Nicholson and Serwin have been determined and paid early in the year
following the year to which the bonus relates since the bonus is based on
company-wide results for the previous year. Bonuses paid in 1997 related to
1996 results and those paid in 1996 related to 1995 results. Bonuses paid to
such persons in 1998 were $250,000, $120,000, $100,000 and $100,000,
respectively.
(2) Amounts in this column consist of one or more of the following:
contributions by the Company to the ESOP, matching contributions to the
PAULA Financial and Subsidiaries 401(k) Retirement Savings Plan and split
dollar life insurance premiums paid by the Company on behalf of the Named
Executive Officers.
(3) Mr. Slavitt joined the Company in July 1995.
(4) Mr. Serwin joined the Company in March 1995.
(5) Mr. Snider's salary increased to $360,000 per year in November 1997.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted during the year ended December 31, 1997 to the
Named Executive Officers.
11
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 1997 by each of the
Named Executive Officers. None of such Named Executive Officers exercised
options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Jeffrey A. Snider.................... 275,000 125,000 $ 4,477,875 $ 1,953,125
Andrew M. Slavitt.................... 87,000 47,000 1,401,175 734,375
James A. Nicholson................... 59,000 4,000 986,175 62,500
Bradley K. Serwin.................... 36,000 21,000 586,800 328,125
Victor Gloria III.................... 18,000 9,200 297,450 144,314
</TABLE>
- ------------------------
(1) Based upon the closing price on the Nasdaq Stock Market of the Common Stock
on April 10, 1998 ($25.125 per share).
EMPLOYMENT AGREEMENTS
The Company (acting through the Executive Compensation Committee) and Mr.
Snider are currently negotiating a Change in Control Agreement. The Agreement,
once finalized, will set forth the severance arrangements for Mr. Snider in the
event that his employment with the Company is terminated by the Company
following a change of control of the Company. The Company believes that
providing an Agreement of this nature to Mr. Snider is appropriate and standard
practice. The Company is not currently involved in discussions with respect to
any transactions which could cause the provisions of the proposed Agreement to
be triggered. There can be no assurance that Mr. Snider and the Company will
finalize the proposed Agreement.
No Named Executive Officer (as defined above under "Executive Compensation
and Related Matters") is a party to an employment agreement with the Company.
12
<PAGE>
PERFORMANCE GRAPH
The performance graph shown below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts. The graph shows the Company's total return to
stockholders compared to the Nasdaq Stock Market Index(1) and a peer group
index(2) over the period from October 24, 1997 (the day the Common Stock
commenced trading on the Nasdaq Stock Market) to December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN OF PAULA FINANCIAL, NASDAQ STOCK
MARKET INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ STOCK S&P INSURANCE (PROPERTY-
PAULA FINANCIAL MARKET (U.S.) CASUALTY) INDEX
<S> <C> <C> <C>
10/24/97 $100 $100 $100
10/31/97 136 97 99
11/30/97 120 97 101
12/31/97 124 96 108
</TABLE>
The cumulative total return shown on the stock performance graph indicates
historical results only and is not necessarily indicative of future results.
Each line on the stock performance graph assumes that $100 was invested in
the Company's Common Stock and the Nasdaq Stock Market on October 24, 1997 and
in the S&P Insurance (Property & Casualty) index on September 30, 1997 (the best
information available for that index). The graph then tracks the value of these
investments, assuming reinvestment of dividends, through December 31, 1997.
- ------------------------
(1) Includes all issues trading over the Nasdaq Stock Market during the period
from October 24, 1997 through December 31, 1997, weighted annually by market
capitalization (shares outstanding multiplied by stock price).
(2) An index compiled and published by Standard & Poors Corporation comprised of
the eight property- casualty insurance companies included in the S&P 500 at
December 31, 1997, weighted annually by market capitalization (shares
outstanding multiplied by stock price).
13
<PAGE>
EXECUTIVE COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS ON EXECUTIVE
COMPENSATION
The report of the Executive Compensation Committee given below shall not be
deemed incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933
or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
The Executive Compensation Committee of the Board of Directors (the
"Executive Compensation Committee"), comprised of three non-employee Directors,
is responsible for establishing the base salary and other compensation of the
Company's Chief Executive Officer and for approving and monitoring the criteria
used in establishing the base salaries and other compensation of the Company's
other executive officers. Set forth below is a report, submitted by Messrs.
Clinton, Puccinelli and Waisner in their capacity as the Board's Executive
Compensation Committee, addressing the Company's compensation policies for
fiscal year 1997 as they affected Mr. Snider and the other officers named in the
Summary Compensation Table appearing elsewhere herein (collectively, the
"Executive Officers").
COMPENSATION POLICIES TOWARDS EXECUTIVE OFFICERS
The Executive Compensation Committee believes that the most effective
executive compensation program is one that provides incentives to achieve both
current and long-term strategic management goals of the Company, with the
ultimate objective of enhancing stockholder value primarily through increasing
earnings per share. In this regard, the Executive Compensation Committee
believes executive compensation should be comprised of cash as well as
equity-based and other incentive programs. With respect to equity-based
compensation, the Executive Compensation Committee believes that an integral
part of the Company's compensation program is the ownership and retention of the
Company's Common Stock by its Executive Officers. By providing Executive
Officers with a meaningful stake in the Company, the value of which is dependent
on the Company's long-term success, a commonality of interests between the
Company's Executive Officers and its stockholders is fostered.
SALARIES AWARDED TO THE CHIEF EXECUTIVE OFFICER AND OTHER EXECUTIVE OFFICERS
The Board of Directors has delegated to the Executive Compensation Committee
the authority to establish compensation levels for the Company's Executive
Officers. The Executive Compensation Committee has established a policy of
setting the salary of Mr. Snider while reviewing the base salaries of the other
Executive Officers as determined by Mr. Snider.
In evaluating the performance, and setting the compensation, of Mr. Snider
and approving the compensation of the other Executive Officers in fiscal 1997,
the Executive Compensation Committee considered management's continued success
in increasing (i) earnings per share, (ii) operating income and (iii) the
Company's earned premiums, while maintaining the Company's return on equity. The
Executive Compensation Committee also considered management's success in guiding
the Company to a successful initial public offering of its common stock ("IPO").
The Executive Compensation Committee views increasing earnings per share,
operating income and earned premiums while maintaining the Company's return on
equity as very significant indicators of executive performance, and believes in
utilizing variable measures of compensation (through bonuses and stock options)
to provide proper management incentives and reward such performance. The
Executive Compensation Committee also views successful implementation of
material capital raising projects, such as the IPO, as worthy of special
consideration.
In setting Mr. Snider's compensation, the Executive Compensation Committee
also took into account its subjective evaluation of his performance during 1997.
In setting Mr. Snider's salary and awarding his year-end bonus for 1997, the
Executive Compensation Committee considered the Company's overall financial
performance and the fact that Mr. Snider has a significant equity interest in
the Company.
14
<PAGE>
Mr. Snider determines the base salaries for each of the other Executive
Officers based, in part, on his subjective understanding of competitive
conditions and the respective Executive Officers contributions to the Company.
In general, Mr. Snider, with the approval of the Executive Compensation
Committee, has chosen to increase the portion of each Executive Officer's total
compensation which is contingent upon the Company's annual results.
The bonuses awarded to each of the Executive Officers other than Mr. Snider
for 1997 were based, in part, on the overall financial performance of the
Company during the year, and in part on each Executive Officer's contribution to
the Company's successful IPO. Although a significant amount of stock options
were granted to each of the Executive Officers during 1996, no stock options or
other stock based awards were granted to the Executive Officers, including Mr.
Snider, during 1997.
THE EXECUTIVE COMPENSATION COMMITTEE
John B. Clinton
Robert A. Puccinelli
Ronald W. Waisner
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP has been selected as the Company's independent public
accountants for fiscal year 1998. A representative of KPMG Peat Marwick will be
present at the Annual Meeting and such representative will have an opportunity
to make a statement if he or she so desires. Further, such representative will
be available to respond to appropriate stockholder questions.
STOCKHOLDER PROPOSALS
Any stockholder wishing to submit a proposal to be presented to all
stockholders at the Company's 1999 Annual Meeting must submit such proposal to
the Company so that it is received by the Company at its principal executive
offices no later than December 25, 1998.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 1997 is being
mailed to stockholders with this Proxy Statement. The Annual Report does not
form part of the material for solicitation of proxies. If you do not receive the
1997 Annual Report, which includes financial statements, please contact PAULA
Financial Investor Relations, 300 North Lake Avenue, Suite 300, Pasadena,
California 91101, and a copy will be promptly sent to you.
MISCELLANEOUS
The Board of Directors knows of no other matters that are likely to come
before the meeting. If any other matter, of which the Board is not now aware,
should properly come before the meeting, it is intended that the persons named
in the accompanying form of proxy will vote such proxy in accordance with their
best judgment on such matters.
By the order of the Board of
Directors,
Jeffrey A. Snider
Chairman of the Board
Pasadena, California
April 24, 1998
15
<PAGE>
- -------------------------------------------------------------------------------
PAULA FINANCIAL
300 North Lake Avenue, Suite 300
Pasadena, California 91101
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PAULA FINANCIAL
The undersigned hereby appoints James A. Nicholson and Bradley K.
Serwin, and each of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and vote as
designated below, all the shares of Common Stock of PAULA Financial held of
record by the undersigned on April 10, 1998, at the Annual Meeting of
Stockholders to be held on May 27, 1998 and any postponements or adjournments
thereof.
PLEASE DATE, SIGN ON THE REVERSE SIDE AND RETURN IN THE ACCOMPANYING
ENVELOPE. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXIES WILL VOTE THE
SHARES FOR EACH OF THE NOMINEES FOR DIRECTOR LISTED IN ITEM 1 AND IN THEIR
DISCRETION ON THE MATTERS DESCRIBED IN ITEM 2.
- -------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
Please mark
your votes as /X/
indicated in
this example
FOR each nominee listed WITHHOLD AUTHORITY
below (except as marked to to vote for all
the contrary below). nominees listed below.
1. Election of Directors: / / / /
INSTRUCTION: To withhold authority to vote for any individual
nominee strike a line through the nominees name in the list below.
ROBERT A. PUCCINELL BRADLEY K. SERWIN
RONALD W. WAISNER GERARD VECCHIO
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before such meeting and any and all
postponements or adjournments thereof.
THIS PROXY when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
for each of the nominees listed in Item 1 and in their discretion on the matters
described in Item 2.
Yes No
Do you plan to attend the meeting? / / / /
Please sign exactly as your name appears on the stock
certificate(s). When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title as such. If a
corporation, please sign in full corporate name by the
president or other authorized officer. If a partnership or
limited liability company, please sign in the partnership's or
limited liability company's name by an authorized person.
DATED: , 1998
----------------------
-------------------------------------
Signature
-------------------------------------
Signature if held jointly
- -------------------------------------------------------------------------------
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