<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.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[LOGO]
PAULA FINANCIAL
300 NORTH LAKE AVE., SUITE 300
PASADENA, CA 91101
Jeffrey A. Snider
Chairman, President and
Chief Executive Officer
April 23, 1999
Dear Fellow Stockholder:
It is my pleasure to invite you to attend the PAULA Financial 1999 Annual
Meeting of Stockholders. The meeting will be held on Wednesday, May 26, 1999 at
10:00 a.m. local time at the Double Tree Hotel located at 191 N. Los Robles
Avenue, Pasadena, California.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be dealt with at the meeting. At the conclusion of the
formal part of the meeting, we will present a brief report on the Company's
business and respond to your questions.
Whether or not you plan to attend the meeting, your vote is very important.
Please cast your vote regardless of the number of shares you hold. I urge you to
take a moment to sign, date, and promptly return the enclosed proxy card in the
enclosed envelope, in order to be certain your shares are represented at the
meeting.
I look forward to seeing you on May 26(th).
Sincerely,
[SIGNATURE]
<PAGE>
PAULA FINANCIAL
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CALIFORNIA 91101
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999
------------------------
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 Double
Tree Hotel, 191 N. Los Robles Avenue, Pasadena, California 91101, on May 26,
1999, at 10:00 a.m., local time, for the purpose of considering and acting upon
the following:
1. The election of three directors to hold office until the 2002 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 9, 1999 will
be entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors,
[SIGNATURE]
Jeffrey A. Snider
Chairman of the Board
Dated: April 23, 1999
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 26, 1999
---------------------
This Proxy Statement is being mailed on or about April 23, 1999 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 26, 1999, or any adjournment 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 9, 1999, 5,928,967 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding and held of record by approximately 215 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 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.
<PAGE>
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 II
directors expires at the 1999 Annual Meeting, the term of Class III directors
expires at the 2000 Annual Meeting, and the term of Class I directors expires at
the 2001 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.
INFORMATION CONCERNING NOMINEES
The nominees for election as Class II directors 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 Jerry M. Miller, James. A.
Nicholson and Robert A. Puccinelli, each of whom currently serves as a Class II
Director of the Company, to serve until the 2002 Annual Meeting 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.
1999 NOMINEES
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- -------------
<S> <C> <C> <C>
JERRY M. MILLER (1)(2)--CLASS II 58 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 LLP from 1974 until his
retirement in 1991.
JAMES A. NICHOLSON--CLASS II 54 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.
ROBERT A. PUCCINELLI (2)(3)--CLASS II 61 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 Executive Committee until he retired in 1997.
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Governance and Nominating Committee.
(3) Member of the Executive Compensation Committee.
2
<PAGE>
The proposed nominees are not related by blood or marriage to any executive
officer of the Company. Mr. Nicholson 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 I 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 47 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.
ANDREW M. SLAVITT--CLASS III 32 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.
BRADLEY K. SERWIN (1)--CLASS I 38 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.
JOHN B. CLINTON (2)--CLASS III 44 1994 None
Mr. Clinton has served as director of the Company since August 1994. Mr.
Clinton has been an Executive Vice President of Conning & Company, an
insurance asset management and research firm, since February 1992.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------- --- ------------- -------------
<S> <C> <C> <C>
GERARD VECCHIO (3)--CLASS I 37 1994 None
Mr. Vecchio has served as a director of the Company since August 1994. Mr.
Vecchio is a Senior Vice President of Conning & Company, an insurance asset
management and research firm, where he has worked since October 1992.
RONALD W. WAISNER (2)--CLASS I 61 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.
</TABLE>
- ------------------------
(1) Member of the Governance and Nominating Committee.
(2) Member of the Executive Compensation Committee.
(3) Member of the Audit Committee.
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 1998, are Messrs. Miller and Vecchio. The Audit Committee's
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, which held two
meetings during fiscal year 1998, are Messrs. Clinton, Puccinelli and Waisner.
Its 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.
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 1998, the Board of Directors met eight times. No director
attended less than 75% of the meetings of the Board and the committees of the
Board on which he served.
4
<PAGE>
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 and has received a grant of stock options and
is eligible for 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.
On January 1, 1995, 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 per share (the fair market value of the Common Stock as determined by an
independent appraisal). On February 1, 1996, Messrs. Miller and Waisner were
each granted options to purchase 5,500 shares at an exercise price of $7.88 per
share (the fair market value as determined by an independent appraisal). The
January 1995 and February 1996 option grants were made pursuant to the Company's
1994 Stock Incentive Plan. On October 26, 1996, Messrs. Miller and Waisner were
each 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 October options were granted independent of the 1994 Stock
Incentive Plan. The first two option grants have a term of five years and vested
immediately. The third option grant has a term of ten years and 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 10 years and vested immediately. The October
options were granted independent of the 1994 Stock Incentive Plan. 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
the date of grant). Such options had a term of 10 years and vested 40% upon
grant, and 20% on each anniversary of the date of grant. On October 29, 1998,
the Executive Compensation Committee (with Mr. Puccinelli abstaining) canceled
the prior grant to Mr. Puccinelli and approved a new option grant to Mr.
Puccinelli with the same terms as the prior grant, except that the exercise
price was made $13.50 per share and the vesting dates were delayed six months.
All of Mr. Puccinelli's options were granted under the Company's 1994 Stock
Incentive Plan.
5
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 9, 1999, 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,
1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Jeffrey A. Snider (2).................................................... 505,207(3) 7.9
Andrew M. Slavitt (2).................................................... 164,533(4) 2.7
James A. Nicholson (2)................................................... 212,379(5) 3.5
Bradley K Serwin (2)..................................................... 77,019(6) 1.3
Victor Gloria, III (2)................................................... 116,613(7) 2.0
John B. Clinton ......................................................... 4,000(8) *
c/o Conning & Company
185 Asylum Street
Hartford, CT 06103
Jerry M. Miller ......................................................... 23,000(9) *
2068 Musket Street
Eugene, OR 97401
Robert A. Puccinelli .................................................... 20,000(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 ....................................................... 17,000(9) *
113 Patton Court
Folsom, CA 95630
All executive officers and directors as a group (10 persons)............. 1,143,751(11) 17.0
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
OTHER BENEFICIAL OWNERS:
Commercial Union Insurance Company ...................................... 423,712(12) 7.1
One Beacon Street
Boston, MA 02108
FMR Corp. ............................................................... 612,600(13) 10.3
82 Devonshire Street
Boston, MA 02109
General American Mutual Holding Company ................................. 453,393(14) 7.6
(Conning & Company)
700 Market Street
St. Louis, MO 63101
Gilder Gagnon Howe & Co. LLC ............................................ 389,713(15) 6.6
1775 Broadway, 26(th) Floor
New York, NY 10019
PAULA Financial and Subsidiaries Employee Stock Ownership Plan (2)....... 827,223(16) 14.0
Philo Smith ............................................................. 599,700(17) 10.1
695 East Main Street
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 438,000 shares of Common Stock and (ii)
1,807 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 150,500 shares of Common Stock and (ii)
883 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 79,500 shares of Common Stock, (ii) 63,444
shares of Common Stock allocated to Mr. Nicholson in the ESOP with respect
to which he has sole voting power and shared investment power and (iii) 125
shares held by Mr. Nicholson's son.
(6) Includes (i) options to purchase 73,500 shares of Common Stock, (ii) 883
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) 500
shares of Common Stock beneficially held by Mr. Serwin which are held of
record by Kenneth Serwin, Mr. Serwin's brother and (iv) 1,136 shares which
are held in the Company's 401(k) plan over which Mr. Serwin has shared
voting and sole dispositive power.
(7) Includes (i) options to purchase 31,700 shares of Common Stock and (ii)
47,041 shares of Common Stock allocated to Mr. Gloria in the ESOP with
respect to which he has sole voting power and shared investment power.
7
<PAGE>
(8) Includes options to purchase 4,000 shares of Common Stock. Messrs. Clinton
and Vecchio disclaim beneficial ownership of all securities beneficially
owned by General American Mutual Holding Company by virtue of their
position with Conning & Company.
(9) Includes options to purchase 15,000 shares of Common Stock.
(10) Includes options to purchase 10,000 shares of Common Stock and 10,000
shares held indirectly as trustee of the Robert A. and Carol A. Puccinelli
Family Revocable Intervivos Trust U/T/D 11/15/93.
(11) Includes options to purchase 817,200 shares of Common Stock and 114,058
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.
(12) Based on information contained in a Schedule 13G filed with the Company on
February 16, 1998. The holder has shared voting and dispositive power over
all of the shares.
(13) Based on information provided to the Company as of December 15, 1998.
Includes 512,000 shares beneficially owned by Fidelity Management &
Research Company as investment adviser to various registered investment
companies; and 100,600 shares beneficially owned by Fidelity Management
Trust Company as investment manager of various private investment accounts.
FMR Corp. has sole voting power and sole investment power over 100,600
shares; and no voting and sole investment power over 512,000 shares.
(14) Based on information contained in a Schedule 13G filed with the Company on
February 16, 1998. Includes all shares of Common Stock held by Conning &
Company, a subsidiary, and shares held by the following entities each of
which is an affiliate of Conning & Company: Conning Insurance Capital
Limited Partnership III and Conning Insurance Capital International
Partners III. Such entities hold shared voting and investment power over
the shares.
(15) Based on information contained in a Schedule 13G filed with the Company on
February 23, 1999. Includes 385,363 shares beneficially owned which are
held in customer accounts. The holder has sole voting power and shared
dispositive power over 1,350 shares and no voting power but shared
dispositive power over 388,363 shares.
(16) Pursuant to the terms of the ESOP, shares of 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.
(17) Based on information contained in a Schedule 13D filed with the Company on
October 27, 1998. Includes shares held by various investment companies and
partnerships in which Mr. Smith has an ownership interest. Mr. Smith has
shared voting and dispositive power with respect to 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 1998, except that Mr.
Puccinelli filed a Form 4 for the month of October, 1998, in December, 1998, 22
days late.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Directors is composed
of three members, Messrs. Clinton, Puccinelli and 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 1998, one of the Company's investment portfolio managers 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. 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 Officer and 47
Mr. Snider has been Chairman of the Board of Directors, President
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.
ANDREW M. SLAVITT Chief Operating Officer and Senior Vice 32
Mr. Slavitt has served as the Chief Operating Officer of the President
Company since November 1995 and as a 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.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME CAPACITIES IN WHICH SERVED AGE
- ------------------------------------------------------------------ --------------------------------------- ---
<S> <C> <C>
JAMES A. NICHOLSON Chief Financial Officer and Senior Vice 54
Mr. Nicholson has served as a Senior Vice President and Chief President
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.
BRADLEY K. SERWIN General Counsel, Senior Vice President 38
Mr. Serwin has served as General Counsel, Senior Vice President and Secretary
and 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, PICO 44
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, PICO 50
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 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, from November 1993 to March 1995, as
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.
JAMES J. MUZA Vice President, PICO, Chief Actuary 46
Mr. Muza joined the Company in July, 1998, assuming the position
of Vice President and Chief Actuary of PICO. Prior to joining
the Company, Mr. Muza served as Senior Vice President- Actuarial
& Product Development of California Casualty Management Company
for over 14 years. Mr. Muza is a Fellow of the Casualty
Actuarial Society and a Member of the American Academy of
Actuaries.
</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, 1998 for those persons who were, as of December
31, 1998, the Chief Executive Officer and the four other most highly compensated
named officers of the Company who received in excess of $100,000 for the year
ended December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS($) OPTIONS(#) COMPENSATION(2)
- ------------------------------------- --------- ---------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Snider 1998 $ 360,000 $ 250,000 -- -- $ 22,797
Chairman of the Board, 1997 310,000 175,000 -- -- 30,421
Chief Executive Officer 1996 250,000 25,000 -- 300,000 25,347
and President
Andrew M. Slavitt 1998 $ 160,000 $ 120,000 -- -- $ 4,498
Chief Operating Officer 1997 160,000 80,000 -- -- 8,496
1996 145,000 10,000 $ 23,640(3) 114,000 5,050
James A. Nicholson 1998 $ 180,000 $ 100,000 -- -- $ 6,094
Chief Financial Officer 1997 180,000 50,000 -- -- 11,149
1996 180,000 10,000 -- 23,000 8,190
Bradley K. Serwin 1998 $ 144,000 $ 100,000 -- -- $ 4,578
General Counsel 1997 144,000 45,000 -- -- 9,768
1996 135,000 10,000 $ 15,760(3) 57,000 5,936
Victor Gloria III 1998 $ 126,000 $ 10,000 -- -- $ 4,286
Senior Vice President--Claims 1997 126,000 60,000 -- -- 11,480
Administration 1996 126,000 40,000 $ 15,760(3) 26,000 7,590
</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 1998 related to
1997 results and those paid in 1997 related to 1996 results. No bonuses were
paid to such persons in 1999 relating to 1998 results.
(2) Amounts in this column consist of one or more of the following:
contributions by the Company to the ESOP and increases in ESOP allocations,
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) As of December 31, 1998, 1,500, 1,000 and 2,200 shares of unvested
restricted stock were outstanding to Messrs. Slavitt, Serwin and Gloria,
respectively with a value of $10,218, $6,812 and $14,986 based on the
closing price of the Company's common stock on April 9, 1999. The recipients
of this restricted stock are entitled to receive dividends with respect to
such shares prior to vesting.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted during the year ended December 31, 1998 to the
Named Executive Officers. None of the Named Executive Officers exercised options
during 1998.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 1998 by each of the
Named Executive Officers. None of such Named Executive Officers exercised
options during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
-------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Jeffrey A. Snider......................................... 337,500 62,500 $ 0 $ 0
Andrew M. Slavitt......................................... 110,500 23,500 0 0
James A. Nicholson........................................ 61,000 2,000 0 0
Bradley K. Serwin......................................... 46,500 10,500 0 0
Victor Gloria III......................................... 22,000 5,200 0 0
</TABLE>
- ------------------------
(1) Based upon the closing price on the Nasdaq Stock Market of the Common Stock
on April 9, 1999 ($6.812 per share) which is less than the exercise price of
all noted options.
EMPLOYMENT/CHANGE OF CONTROL AGREEMENTS
The Company (acting through the Executive Compensation Committee) and Mr.
Snider have entered into a Change of Control Agreement. The Agreement sets forth
the severance arrangements for Mr. Snider in the event that his employment with
the Company is terminated by the Company without cause within 24 months of a
change of control of the Company. In such event, Mr. Snider will receive a
lump-sum payment equal to the sum of (i) three times his annual salary plus (ii)
his target bonus for the year in which the termination occurs. This payment will
be increased to cover excise (but not income) taxes which are incurred by Mr.
Snider as a result of the payment. In addition, upon such event, Mr. Snider's
then unvested stock options will become fully vested and he will receive
continuation of certain employee benefits for three years after the termination
date. The Company believes that providing an agreement of this nature to Mr.
Snider is appropriate and standard practice.
No Named Executive Officer is a party to an employment agreement with the
Company.
LOAN PROGRAM
The Company has implemented a key employee/consultant loan program which
provides funds exclusively for the borrowers' purchase of Company stock. The
Company has authorized loans of up to $1,000,000 in the aggregate. The loans are
full recourse, bear interest at the rate of 8 1/2% per annum payable quarterly,
have a three year maturity and are secured by the stock purchased. The loan
program was reviewed and approved by the Executive Compensation Committee of the
Board of Directors. As of December 31, 1998, among others, Messrs. Slavitt and
Nicholson were indebted to the Company in the amount of $100,000 and $50,000,
respectively, for loans made under the program.
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 of the
Company commenced trading on the Nasdaq Stock Market) to December 31, 1998.
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>
PAULA FINANCIAL NASDAQ STOCK MARKET (U.S.) S & P INSURANCE (PROPERTY-CASUALTY)
<S> <C> <C> <C>
10/24/1997 $100 $100 $100
12/97 124 94 108
3/98 129 110 112
6/98 109 113 113
9/98 53 102 96
12/98 51 132 101
</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, 1998.
- ------------------------
1 Includes all issues trading over the Nasdaq Stock Market during the period
from October 24, 1997 through December 31, 1998, 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, 1998, 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 1998 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 AND OTHER COMPENSATION 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. The Executive Compensation
Committee has also established a policy of paying annual bonuses to the
Company's senior executive officers, including Mr. Snider, early in the year
following the year to which the bonuses relate since the bonus is determined in
large part upon company-wide results for the previous year.
In evaluating the performance, and setting the compensation, of Mr. Snider
and approving the compensation of the other Executive Officers based on results
for fiscal 1998, the Executive Compensation Committee's primary consideration
was the Company's disappointing financial results for the year. The Executive
Compensation Committee views increasing earnings per share, operating income and
earned premiums while maintaining or improving 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
transactions, such as mergers and acquisitions, as worthy of special
consideration. However, in light of the Company's 1998 results, the Executive
Compensation Committee chose to award no annual bonus to Mr. Snider and to not
increase any other form of compensation to Mr. Snider for 1998.
Mr. Snider determines the base salaries and annual bonuses for each of the
other Executive Officers based, in part, on his subjective understanding of
competitive conditions, the respective Executive Officers
14
<PAGE>
contributions to the Company and any bonus pool established for this purpose by
the Executive Compensation Committee. 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. In light of the Company's 1998 results, at the
direction of the Executive Compensation Committee, no annual bonuses or
increases in any other form of compensation were provided to any of the
Company's senior executive officers for 1998.
Although no stock options or other stock based awards were granted to the
Executive Officers, including Mr. Snider, during 1998, the Company expects to
utilize additional stock based awards for the Executive Officers as a key
component of their total compensation packages in the future.
THE EXECUTIVE COMPENSATION COMMITTEE
John B. Clinton
Robert A. Puccinelli
Ronald W. Waisner
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has been selected as the Company's independent public accountants
for fiscal year 1999. A representative of KPMG LLP 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 2000 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 10, 1999.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 1998 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
1998 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 23, 1999
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 9, 1999, at the Annual Meeting of Stockholders to be held on May 26,
1999 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
<TABLE>
<S> <C> <C>
FOR each nominee listed
below (except as marked to WITHHOLD AUTHORITY to vote
the contrary below). for all nominees listed below.
1. Election of Directors: / / / /
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominees name in the list below.
JERRY M. MILLER JAMES A. NICHOLSON
ROBERT A. PUCCINELLI
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:__________________________, 1999
______________________________________
Signature
______________________________________
Signature if held jointly
- -------------------------------------------------------------------------------
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