FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 30, 1998
To the Stockholders of
FIRST SIERRA FINANCIAL, INC.
The Annual Meeting of Stockholders of First Sierra Financial, Inc., a
Delaware corporation, will be held at The Four Seasons Hotel, 1300 Lamar
Street, Houston, Texas on Thursday, April 30, 1998 at 10:00 a.m. Central
Daylight Time for the following purposes:
1. To elect two Class I directors;
2. To consider and vote upon a proposal to approve an amendment to
the Company's 1997 Stock Option Plan to increase the number of shares
authorized for issuance thereunder; and
3. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 6, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting.
By Order of the Board of Directors
/s/SANDY B. HO
Sandy B. Ho
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
April 1, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE DATE, SIGN AND MAIL
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE FOR
MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
<PAGE>
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
-------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 30, 1998
-------------------
This Proxy Statement is being mailed to stockholders on or about April 1,
1998 and is furnished in connection with the solicitation by the Board of
Directors of First Sierra Financial, Inc., a Delaware corporation (the
"Company"), of proxies for the Annual Meeting of Stockholders to be held on
April 30, 1998 for the purpose of considering and acting upon the matters
specified in the Notice of Annual Meeting of Stockholders accompanying this
Proxy Statement. If the form of Proxy which accompanies this Proxy Statement is
executed and returned, it will be voted. A Proxy may be revoked at any time
prior to the voting thereof by written notice to the Secretary of the Company.
A majority of the outstanding shares entitled to vote at this meeting and
represented in person or by proxy will constitute a quorum. With regard to the
election of directors, approval requires the affirmative vote of a plurality of
the shares entitled to vote and represented in person or by proxy at this
meeting. With respect to the proposal to approve an amendment to the Company's
1997 Stock Option Plan and any other proposal which may be submitted to a vote,
approval requires the affirmative vote of a majority of the shares entitled to
vote and represented in person or by proxy at the meeting. Shares represented by
proxies which are marked "abstain" or to deny discretionary authority on any
matter will be treated as shares present and entitled to vote, which will have
the same effect as a vote against any such matters. Broker "non-votes" will not
affect the determination of the outcome of the vote on any proposal to be
decided at the meeting.
Expenses incurred in the solicitation of proxies will be borne by the
Company. Officers of the Company may make additional solicitations in person or
by telephone.
The Annual Report to Stockholders for fiscal year 1997 accompanies this
Proxy Statement. If you did not receive a copy of the report, you may obtain one
by writing to the Secretary of the Company.
As of March 6, 1998, the Company had outstanding 11,972,516 shares of
Common Stock and such shares are the only shares entitled to vote at the Annual
Meeting. Each share is entitled to one vote on each matter to be voted upon at
the Annual Meeting.
<PAGE>
SECURITIES BENEFICIALLY OWNED BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 6, 1998 by (i) each stockholder known by the Company to
be the beneficial owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director or nominee, (iii) each executive officer named in the
Summary Compensation Table, and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each such person (alone or with family
members) has sole voting and dispositive power with respect to the shares listed
opposite such person's name. The address of Redstone Group, Ltd. ("Redstone")
and Messrs. Shindeldecker and Solomon is 5847 San Felipe Road, Suite 320,
Houston, Texas 77057. The address of all other named individuals is c/o First
Sierra Financial, Inc., 600 Travis Street, Suite 7050, Houston, Texas 77002.
NUMBER OF
BENEFICIALLY PERCENT
NAME OWNED SHARES OF CLASS(1)
- ------------------------------------ ------------ -----------
Thomas J. Depping 1,605,800 13.4%
Redstone Group, Ltd.(2) 1,423,151 11.9%
David C. Shindeldecker(3) 1,530,518 12.8%
David L. Solomon(3) 2,135,000 17.8%
Oren M. Hall 450,000 3.8%
Sandy B. Ho 220,790 1.8%
Robert H. Quinn, Jr. 210,790 1.8%
Richard J. Campo 20,000 *
Norman J. Metcalfe 20,000 *
Craig M. Spencer __ *
All directors and executive
officers as a group
(10 persons) 4,769,747 39.8%
- -----------------------
* Less than one percent
(1) The applicable percentage of ownership is based upon 11,972,516 shares of
Common Stock outstanding as of March 6, 1998.
(2) Redston is a Texas limited partnership, of which Redstone, Inc. is the
general partner.
(3) Includes 1,423,151 shares which are owned of record by Redstone.
Messrs. Shindeldecker and Solomon are Co-Chief Executive Officers of
Redstone, Inc., the general partner of Redstone.
2
<PAGE>
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
Board of Directors of the Company shall be divided into three classes, as nearly
equal in number as possible, with one class being elected each year for a
three-year term.
At the Annual Meeting, two Class I directors are to be elected to serve
until the Company's annual meeting of stockholders in 2001 and three directors
will continue to serve in accordance with their prior election or appointment.
It is intended that the proxies (except proxies marked to the contrary)
will be voted for the Class I nominees listed below, all of whom are members of
the present Board of Directors. It is expected that the nominees will serve, but
if any nominee declines or is unable to serve for any unforeseen cause, the
proxies will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxies.
The Board of Directors recommends a vote FOR each of the Class I nominees.
NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to the
nominees and the continuing directors:
NAME, AGE AND YEAR
FIRST ELECTED DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION
CLASS I NOMINEES FOR ELECTION WITH TERMS EXPIRING IN 2001
Richard J. Campo Mr. Campo has been Chairman of the Board
Age 43 1997 and Chief Executive Officer of Camden
Property Trust, a self-administered,
self-managed real estate investment trust
based in Houston, Texas, since May 1993.
From 1986 to May 1993, Mr. Campo was
Chairman of the Board and Chief Executive
Officer of Centeq Holdings, Inc., a
predecessor company of Camden Property
Trust. Mr. Campo has over 20 years of
experience in the real estate industry.
David C. Shindeldecker Mr. Shindeldecker has been Chairman and
Age 49 1994 Chief Executive Officer of Northwest
Bancorporation Inc. since June 1988. He
was Chief Executive Officer of Northwest
Bank, N.A., a subsidiary of Northwest
Bancorporation Inc., from 1988 to 1993,
and currently serves on the Board of
Directors of Northwest Bank, N.A. In
addition, he currently serves as
President and Co-Chief Executive Officer
of Redstone, Inc., general partner of
Redstone, and has served as an executive
officer and director of Redstone, Inc.
since 1994. Redstone is an investment
company with investments and operations,
either directly or through various
affiliates, in hotels, restaurants and
real estate. Redstone and Northwest
Bancorporation Inc. are affiliates of
each other. Mr. Shindeldecker has also
served as an executive officer and
director of numerous entities that are
affiliated with Redstone and/or its
predecessor entities since 1989.
3
<PAGE>
CLASS II DIRECTOR WITH TERM EXPIRING IN 1999
Norman J. Metcalfe Mr. Metcalfe is the managing director of
Age 55 1997 a private investment and consulting
firm. From February 1993 to December
1996, Mr. Metcalfe served as Vice
Chairman and Chief Financial Officer for
The Irvine Company. From 1989 to 1992,
Mr. Metcalfe served as President of
SunAmerica Investments as well as Chief
Investment Officer for SunAmerica
Investments' $10 billion insurance
investment portfolio. Mr. Metcalfe
serves as a director of Tejon Ranch Co.
In the past, Mr. Metcalfe has served on
the Board of Directors of SunAmerica,
Inc., Kaufman and Broad Home Corporation
and Irvine Apartment Communities.
CLASS III DIRECTORS WITH TERMS EXPIRING IN 2000
Thomas J. Depping Mr. Depping has served as Chairman of the
Age 39 1994 Board, President and Chief Executive
Officer of the Company since its
inception in June 1994. Mr. Depping has
over 15 years of experience in the
equipment leasing industry, including 11
years with SunAmerica Financial Resources
and its predecessor company (which was
acquired by SunAmerica, Inc. in 1991).
From 1991 to May 1994, Mr. Depping served
as President of SunAmerica Financial
Resources, the equipment leasing and
financial division of SunAmerica, Inc.
David L. Solomon Mr. Solomon has served as Chairman and
Age 44 1994 Co-Chief Executive Officer of Redstone,
Inc., general partner of Redstone, since
1996. Mr. Solomon has also served as an
executive officer and director of
numerous entities that are affiliated
with Redstone and/or its predecessor
entities since 1989. Mr. Solomon serves
on the Board of Directors of Northwest
Bank, N.A. and L.B. Simmons Energy, Inc.
Mr. Solomon also has served on the Board
of Directors of TeleServe, Inc., an
affiliate of Camden Property Trust, since
1995. Mr. Solomon has been a Senior Vice
President with Paine Webber since August
1994. From May 1985 to August 1994, Mr.
Solomon was a Senior Vice President of
Kidder, Peabody & Co.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table presents summary information concerning compensation
awarded or paid to, or earned by, the Chief Executive Officer and each of the
other four most highly compensated executive officers at December 31, 1997
(together, the "Named Executive Officers") during the periods indicated for
services rendered to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C>
Thomas J. Depping .................................. 1997 $239,250 -- 587,536(1) $12,750(2)
President and Chief Executive Officer 1996 200,000 (3) -- 2,000
Oren M. Hall (4) ................................... 1997 173,250 $ 150,000(5) -- 30,563(6)
Executive Vice President and Chief
Operating Officer
Sandy B. Ho ........................................ 1997 160,000 -- 178,941(7) 4,750(8)
Executive Vice President and Chief 1996 131,250 100,000(9) -- 1,500
Financial Officer
Robert H. Quinn, Jr ................................ 1997 160,000 -- 168,941(10) 4,750(8)
Executive Vice President and Chief 1996 145,417 100,000 -- 1,000
Credit Officer
Craig M. Spencer(12) ............................... 1997 125,000 -- 31,250 4,750(8)
Senior Vice President and Chief
Accounting Officer
</TABLE>
- ----------------------------
(1) Includes 220,000 options that were granted in 1998 based upon Mr.
Depping's performance during 1997 and in lieu of a cash bonus pursuant to
the Company's Executive Incentive Compensation Plan. See "Reports on
Executive Compensation - Compensation Committee Report on Executive
Compensation - Compensation of the President and Chief Executive Officer."
(2) Consists of amounts contributed by the Company on behalf of Mr. Depping to
the Company's 401(k) plan and an automobile allowance.
(3) Mr. Depping was paid a bonus of $100,000 in 1996 based upon his
performance during 1995. Mr. Depping did not receive a bonus for his
performance in 1996.
(4) Mr. Hall's employment with the Company began on May 20, 1997.
(5) This amount will be paid in 1998 based upon Mr. Hall's performance
during 1997.
(6) Consists of a transitional moving allowance and amounts contributed on
behalf of Mr. Hall to the Company's 401(k) plan.
(7) Includes 50,000 options that were granted in 1998 based upon Ms. Ho's
performance during 1997 and in lieu of a cash bonus pursuant to the
Company's Executive Incentive Compensation Plan.
(8) Consists of amounts contributed by the Company on behalf of the Named
Executive Officer to the Company's 401(k) plan.
(9) This amount was paid in 1997 based upon Ms. Ho's performance during 1996.
A bonus of $110,000 was paid in 1996 based upon
Ms. Ho's performance during 1995.
(10) Includes 40,000 options that were granted in 1998 based upon Mr. Quinn's
performance during 1997 and in lieu of a cash bonus pursuant to the
Company's Executive Incentive Compensation Plan.
(11) This amount was paid in 1997 based upon Mr. Quinn's performance during
1996. A bonus of $120,000 was paid in 1996 based upon Mr. Quinn's
performance during 1995.
(12) Mr. Spencer's employment with the Company began on November 16, 1996.
The following table sets forth information concerning the grant of stock
options during 1997 to the Named Executive Officers:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
PERCENTAGE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATE OF STOCK
SHARES OPTIONS PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN PRICE EXPIRATION TERM(2)
NAME GRANTED(1) FISCAL 1997 (PER SHARE) DATE 5% 10%
---- ---------- ----------- ----------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Depping.......... 367,536 35.6% $8.00 5/15/2007 $1,848,706 $4,686,084
Oren M. Hall............... - - - - - -
Sandy B. Ho................ 128,941 12.5 8.00 5/15/2007 648,573 1,643,998
Robert H. Quinn............ 128,941 12.5 8.00 5/15/2007 648,573 1,643,998
Craig M. Spencer........... 31,250 3.0 8.00 5/15/2007 157,187 398,437
</TABLE>
- --------------------
(1) All of such options were granted pursuant to the Company's 1997 Stock
Option Plan and vest in increments of 20% per year over a period of five
years beginning on the first anniversary of the date of grant. In
addition, each of such options will vest immediately in the event that the
Named Executive Officers' employment with the Company terminates by reason
of death or upon the occurrence of a "Corporate Change" (as defined in the
1997 Stock Option Plan) while the Named Executive Officer is employed by
the Company.
(2) Represents the potential realizable value of each grant of options
assuming that the market price of the underlying security appreciates in
value from the date of grant to the end of the option term at the rates of
5% and 10% compounded annually.
6
<PAGE>
The following table sets forth information concerning fiscal year-end
option values. No options were exercised by the Named Executive Officers during
1997.
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF IN-THE-MONEY
UNDERLYING OPTIONS AT OPTIONS AT DECEMBER 31,
DECEMBER 31, 1997 1997(1)
------------------------------------ -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C>
Thomas J. Depping............ - 367,536 - $3,583,476
Oren M. Hall................. - - - -
Sandy B. Ho.................. - 128,941 - 1,257,175
Robert H. Quinn.............. - 128,941 - 1,257,175
Craig M. Spencer............. - 31,250 - 304,687
</TABLE>
- --------------------
(1) Calculated as the difference between the aggregate fair market value of
such options based on the last reported sale price of the Common Stock on
December 31, 1997 ($17.75 per share) and the aggregate exercise price.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Thomas J. Depping effective
May 20, 1997. Mr. Depping's employment agreement has an initial term of three
years with an evergreen three year extension continuing after the initial term
unless either the Company or the employee gives 90 days' notice of termination.
Pursuant to his employment agreement, Mr. Depping is entitled to receive an
annual salary of not less than $250,000. In addition, if the agreement is
terminated without cause by the Company, or with cause (including certain
changes in control of the Company) by Mr. Depping, the Company is obligated to
pay Mr. Depping a termination fee equal to three times the amount of Mr.
Depping's then current annual rate of total compensation. In addition, the
agreement contains a covenant prohibiting Mr. Depping from competing with the
Company for a period of one year following termination of his employment with
the Company. The agreement also provides for customary benefits and perquisites.
The Company also has separate employment agreements with each of Sandy B.
Ho and Robert H. Quinn effective May 20, 1997. The employment agreements have an
initial term of three years. Pursuant to these agreements, Ms. Ho and Mr. Quinn
are each entitled to receive an annual salary of not less that $160,000. In
addition, these agreements contain a covenant prohibiting the employee from
competing with the Company for a period of one year following termination of his
or her employment with the Company. The agreements with Ms. Ho and Mr. Quinn
also provide for customary benefits and perquisites.
In addition, the Company has an employment agreement with Oren M. Hall
effective May 20, 1997. Mr. Hall's employment agreement has a term of three
years and provides for an annual salary of not less than $195,000. The agreement
contains a provision which requires the Company to pay Mr. Hall at least 12
months of base salary if the agreement is terminated without cause by the
Company or with cause by Mr. Hall. In addition, the agreement contains a
covenant prohibiting Mr. Hall from competing with the Company for a period of
one year following termination of his employment with the Company. The Agreement
also provides for customary benefits and perquisites.
7
<PAGE>
REPORTS ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The following is a report from the Compensation Committee describing the
policies pursuant to which compensation was paid to executive officers of the
Company during 1997.
COMPENSATION PHILOSOPHY AND APPROACH
Generally, the Company seeks to attract, retain and motivate its officers
through a combination of base salary, performance-based awards under its
Executive Incentive Compensation Plan (the "Incentive Plan") and stock option
awards. The Compensation Committee believes that a substantial portion of the
annual compensation of each officer should be influenced by the performance of
the Company, as well as the individual contribution of each officer.
BASE SALARIES
The Company's base salary levels are reviewed by the Compensation
Committee annually. The base salaries of the Company's executive officers are
typically below those for other comparable positions within the financial
services industry. The Company places significant emphasis on incentive awards
under the Incentive Plan and stock option grants as a means of motivating and
rewarding its management. The Compensation Committee believes that this strategy
provides optimal incentives for management to create long-term shareholder
value.
INCENTIVE COMPENSATION PAYMENTS
In addition to base pay, the Company's senior executives (including the
Company's President and Chief Executive Officer) are eligible to receive
incentive compensation awards under the Company's Incentive Plan and the 1997
Stock Option Plan. (See "Stock Option Committee Report on Executive
Compensation" with respect to grants thereunder). The Incentive Plan provides
for the payment of incentive awards for a fiscal year only if the Company's
after-tax earnings for such fiscal year (determined without regard to payments
under the Incentive Plan) exceed 20% of the Company's Average Common Equity (as
defined below) for such fiscal year. In the event that such threshold is
satisfied for a fiscal year, 12% of the excess, if any, of the Company's pre-tax
earnings for such fiscal year (determined without regard to payments under the
Incentive Plan) over 20% of the Company's Average Common Equity for such fiscal
year (the "Incentive Pool") is required to be paid to executives under the
Incentive Plan for such fiscal year. The Average Common Equity for a fiscal year
is the average of the balance of equity attributable to the outstanding Common
Stock of the Company (including par value, additional paid-in capital and
retained earnings), as reflected in the financial statements of the Company at
the end of each month during the fiscal year. At least 85% of each Incentive
Pool is required to be paid to the Chief Executive Officer and the Executive
Vice Presidents of the Company, with each such individual's share of such
aggregate amount determined by the Chief Executive Officer, subject to the
approval of the Compensation Committee. The balance of the Incentive Pool is
required to be paid to other senior management employees of the Company. Such
other employees, and the amount paid to each such individual, is determined by
the Chief Executive Officer, subject to the approval of the Compensation
Committee.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The compensation policies applicable to Mr. Depping, Chairman of the
Board, President and Chief Executive Officer of the Company, are similar to
those applicable to the Company's other executive officers. The Compensation
Committee considers Mr. Depping's knowledge and experience in the lease finance
business (which consists of over 15 years of experience in the equipment leasing
industry, including 11 years with SunAmerica Financial Resources and its
predecessor company), to be important to the Company's continued growth and
prosperity. For fiscal 1996, Mr. Depping received a base salary of $200,000. In
connection with the Company's initial public offering in May 1997, the Company
entered into a new employment agreement with Mr. Depping. Pursuant to such
employment agreement,
8
<PAGE>
Mr. Depping received a base salary of $250,000 for 1997. At such time, Mr.
Depping was granted options to purchase 367,536 shares of Common Stock at an
exercise price of $8.00 per share, which was the fair market value of the Common
Stock on the date of grant. Mr. Depping was also eligible to receive a
performance-based bonus for 1997 under the Incentive Plan if the Company
satisfied the earnings threshold set forth above. In March 1998, Mr. Depping
agreed to forego his 1997 cash bonus under the Incentive Plan in return for the
grant of options to purchase 220,000 shares of Common Stock at an exercise price
of $18.375 per share, which was the fair market value of the Common Stock on the
date of grant. All of such options vest in increments of 20% per year over a
five year period beginning on the first anniversary of the date of grant. Mr.
Depping's stock option awards were based upon the Stock Option Committee's
subjective assessment of Mr. Depping's contribution to the Company's success in
1997. See "Stock Option Committee Report on Executive Compensation."
The Compensation Committee believes that Mr. Depping's base salary and
overall compensation package are at the lower end of the financial services
industry's range for similar positions. However, stock option grants provide a
mechanism for the Chief Executive Officer, along with the other senior officers,
to benefit directly from strong management performance. In addition, Mr. Depping
holds a substantial equity participation in the Company as a result of being a
founding stockholder. Thus, a substantial portion of Mr. Depping's total
compensation is tied directly to creation of shareholder value.
This report by the Compensation Committee shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities and Exchange Act of
1933 or the Exchange Act and shall not otherwise be deemed filed under such
Acts.
Respectfully Submitted By:
THE COMPENSATION COMMITTEE
Thomas J. Depping
David L. Solomon
STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Stock Option Committee administers the Company's 1997 Stock Option
Plan (the "1997 Stock Option Plan") and grants awards of stock options
thereunder based upon a compensation philosophy similar to the philosophy
utilized by the Compensation Committee. The Stock Option Committee believes that
stock options are an important tool to reward management in a way that
encourages the creation of shareholder value.
All officers, consultants and employees of the Company are eligible to
participate in the 1997 Stock Option Plan. The purpose of the plan is to provide
incentives to the Company's employees to maximize shareholder value by providing
them with opportunities to acquire shares of the Company's Common Stock. The
Stock Option Committee selects the employees to whom options will be granted,
and determines the number of shares covered by each grant and the exercise price
and vesting period for each grant. Stock options are typically granted with
exercise prices equal to the fair market value of the Common Stock on the date
of grant and with relatively long vesting periods, creating strong incentives
for recipients of stock option grants to remain with the Company. The number of
options granted to each executive is based on a subjective evaluation of such
executive's performance without regard to the number of options previously
granted to such executive.
During 1997, Mr. Depping was granted options to purchase 367,536 shares of
Common Stock at an exercise price of $8.00 per share, which was the fair market
value of the Common Stock on the date of grant. In addition, in March 1998, Mr.
Depping agreed to forego his 1997 cash bonus under the Incentive Plan in return
for the grant of options to purchase 220,000 shares of Common Stock at an
exercise price of $18.375 per share, which was the fair market value of the
Common Stock on the date of grant. All of such options are vest in increments of
20% per year over a five year period beginning on the first anniversary of the
date of grant. Mr. Depping's stock option grants were
9
<PAGE>
based on a subjective evaluation by the Stock Option Committee which considered,
in part, the Company's financial performance to date and Mr. Depping's
leadership in achieving the Company's short-term and long-term business and
financial goals.
This report by the Stock Option Committee shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities and Exchange Act of
1933 or the Exchange Act and shall not otherwise be deemed filed under such
Acts.
Respectively Submitted By:
THE STOCK OPTION COMMITTEE
Richard J. Campo
Norman J. Metcalfe
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Depping and Solomon are members of the Compensation Committee
of the Board of Directors. Messrs. Campo and Metcalfe are members of the
Stock Option Committee of the Board of Directors. Mr. Depping is President
and Chief Executive Officer of the Company and receives compensation from the
Company for his service as such. None of Mr. Solomon, Mr. Campo or Mr.
Metcalfe is an officer of the Company. No member of the Company's
Compensation or Stock Option Committees served as a director or member of the
Compensation or Stock Option Committees of another entity, one of whose
executive officers served as a director or member of the Compensation or
Stock Option Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Redstone and the Company were parties to a Loan Agreement dated June 8,
1994 pursuant to which Redstone loaned to the Company $9.0 million on a
subordinated basis (the "Subordinated Note"). David L. Solomon, Chairman and
Co-Chief Executive Officer of Redstone, Inc., general partner of Redstone, is a
director of the Company and its largest beneficial stockholder. David C.
Shindeldecker, President and Co-Chief Executive Officer of Redstone, Inc., is
also a director of the Company and one of its largest beneficial stockholders.
The Subordinated Note bore interest at a rate of 11.00% per annum. Interest on
the Subordinated Note was payable monthly and such note matured on June 6, 2004.
All amounts outstanding under the Subordinated Note were repaid with proceeds of
the Company's initial public offering in May 1997.
Upon completion of the initial public offering, the Company entered into a
new $5.0 million Subordinated Revolving Credit Facility with Redstone, with the
commitment level thereunder decreasing by $1.0 million per year. Advances under
the Subordinated Revolving Credit Facility bear interest at 11.00% per annum. As
of December 31, 1997, $5.0 million was outstanding under the Subordinated
Revolving Credit Facility.
The Company and an affiliate of Redstone (the "Affiliate") are parties to
an agreement dated December 20, 1996 (the "Referral Agreement") whereby the
Affiliate may introduce potential lease customers or vendors of equipment to the
Company. Pursuant to this agreement, the Company is required to pay a referral
fee to the Affiliate equal to 5.0% of the total equipment cost funded for each
lease the Company enters into with a customer referred to it by the Affiliate,
which fee is consistent with referral fees paid by the Company to other referral
sources. As of December 31, 1997, the Company had paid less than $ 1,000 to the
Affiliate pursuant to the Referral Agreement.
The Company believes that the terms of the foregoing transactions are no
less favorable to the Company than the terms of any similar transaction that
could have been obtained through arms-length negotiations with an unaffiliated
third party.
10
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total shareholder return on its Common Stock for the period during
which the Common Stock was registered under Section 12 of the Securities and
Exchange Act of 1934 (the "Exchange Act") against the cumulative total return of
the Nasdaq Total Return (U.S.) Index (the "Nasdaq Index") and the cumulative
total return of the Nasdaq Financial Index (the "Nasdaq Financial Index") for
the same period. The graph assumes an investment of $100 on May 15, 1997* in
each of the Common Stock and the stocks comprising the Nasdaq Index and the
Nasdaq Financial Index, and assumes reinvestment of dividends, if any.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
5/15/97 12/31/97
------- --------
First Sierra Financial, Inc. 100 222
Nasdaq Index 100 118
Nasdaq Financial Index 100 139
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders also
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that are filed with the SEC.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with.
- --------------------------
* The Company's Common Stock began trading on the Nasdaq National Market on
May 15, 1997. Prior to May 15, 1997, the Common Stock was not publicly
traded. Comparative data is presented for the period beginning on May 15,
1997 and ending on December 31, 1997.
11
<PAGE>
ORGANIZATION AND REMUNERATION OF BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, a Compensation
Committee, and a Stock Option Committee.
The Audit Committee reviews with the Company's independent auditors
the scope of their annual and interim examinations and consults with the
auditors during any audit when appropriate. The Audit Committee is also
responsible for appraising the effectiveness of the audit effort, determining
that no restrictions were placed by management on the scope of the examination
or its implementation, inquiring into the effectiveness of the Company's
accounting and internal control functions, exercising supervision over the
Company's policies that permit improper or illegal payments, reporting to the
Board of Directors on the results of the Committee's activities and recommending
any changes in the appointment of the independent auditors which the Committee
deems to be in the best interests of the Company and its stockholders. The Audit
Committee held one meeting during the fiscal year ended December 31, 1997. The
current members of the Audit Committee are Mr. Campo and Mr. Metcalfe.
The Compensation Committee determines the cash compensation of the
officers of the Company. The Compensation Committee members communicate with
each other from time to time in person and by telephone and act on matters by
way of a formal meeting or by unanimous written consent. The Compensation
Committee did not hold any formal meetings during the fiscal year ended December
31, 1997. The current members of the Compensation Committee are Mr. Depping and
Mr. Solomon.
The Stock Option Committee administers the Company's 1997 Stock
Option Plan. Members of the Stock Option Committee communicate with each other
from time to time in person or by telephone and act on matters by way of a
formal meeting or by unanimous written consent. The Stock Option Committee did
not hold any formal meetings during the fiscal year ended December 31, 1997. The
current members of the Stock Option Committee are Mr. Campo and Mr. Metcalfe.
The Company's Board of Directors held two meetings during the fiscal
year ended December 31, 1997, and also acted from time to time by unanimous
written consent. Each director attended all meetings of the entire Board and the
committees on which he served.
As compensation for service as director during the period from the
date of the Company's initial public offering to the date of the 1998 Annual
Meeting of Stockholders, and giving consideration to the extra effort and time
commitment required during the Company's first year as a public company, each
director who was not an officer or employee of the Company or any of its
subsidiaries or affiliated with Redstone (the "Outside Directors") was granted
on March 2, 1998, options to purchase 7,178 shares of Common Stock with an
exercise price equal to the fair market value of the Common Stock on the date of
grant. For services on and after the 1998 Annual Meeting of Stockholders, each
Outside Director will be entitled to receive (i) a cash retainer of $25, 000 and
(ii) options to purchase 2,500 shares of Common Stock with an exercise price
equal to the fair market value of the Common Stock on the date of grant. In
addition, directors are reimbursed for their out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors and committees
thereof.
Concurrently with the Company's initial public offering, David C.
Shindeldecker and David L. Solomon each received a one-time option grant to
purchase 137,826 shares of Common Stock having an exercise price equal to the
initial public offering price and vesting over a five year period at the rate of
20% per year beginning on the first anniversary of the date of grant.
12
<PAGE>
PROPOSAL NO. 2: APPROVAL OF AMENDMENT TO THE COMPANY'S
1997 STOCK OPTION PLAN
GENERAL
Stockholders are being asked to approve an amendment to the Company's
1997 Stock Option Plan which increases the number of shares of Common Stock
authorized for issuance pursuant to the plan. The 1997 Stock Option Plan
originally adopted and approved by the Company's stockholders provides that the
number of shares of Common Stock that may be issued under the plan may not
exceed 1,800,000 shares. The Board of Directors has amended the 1997 Stock
Option Plan to provide for the issuance of options to acquire an additional
700,000 shares of Common Stock (for an aggregate of 2,500,000 shares of Common
Stock) and directed that such amendment be submitted to the stockholders of the
Company for their approval. Since inception of the 1997 Stock Option Plan in May
1997 and through March 31, 1998, options to purchase 1,735,476 shares of Common
Stock have been granted (net of cancellations), no shares have been issued upon
exercise of options and 1,735,476 shares are reserved for issuance upon exercise
of currently outstanding options.
The Board of Directors believes that the Company's continued success
depends upon its ability to attract and retain highly competent persons as
directors, consultants, advisors and employees. The Board of Directors believes
that one of the best ways to attain these objectives is to give directors,
consultants, advisors and employees an opportunity to acquire a proprietary
interest in the Company by purchasing shares of Common Stock through the
exercise of options granted under the 1997 Stock Option Plan.
Approval of the amendment, which will be submitted at the Annual
Meeting in the form of the following resolution, will require the affirmative
vote of a majority of the shares of Common Stock outstanding and entitled to
vote and represented in person or by proxy at the Annual Meeting:
"RESOLVED, that the second sentence of Section 5(a) of the 1997
Stock Option Plan be amended and restated in its entirety to provide as follows:
Subject to adjustment in the same manner as provided in Paragraph
VIII with respect to shares of Common Stock subject to Options then
outstanding, the aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed 2,500,000 shares."
SUMMARY OF 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan is intended to provide incentives which
will attract and retain able persons to serve as directors, consultants,
advisors or employees of the Company and to provide a means whereby those
individuals upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company. A
further purpose of the plan is to provide such individuals with additional
incentive and reward opportunities designed to enhance the profitable growth of
the Company.
The 1997 Stock Option Plan provides for administration by a committee
of the Board of Directors comprised solely of two or more outside directors. The
Stock Option Committee (the "Committee") currently consists of Mr. Campo and Mr.
Metcalfe. Among the Committee's powers are the authority to construe the 1997
Stock Option Plan, prescribe rules and regulations relating to the plan,
determine which employees, consultants, advisors or directors of the Company
shall receive grants of options and determine the amount and other terms and
conditions of such grants.
Employees, consultants, advisors and directors of the Company or any
of its subsidiaries are eligible to participate in the 1997 Stock Option Plan.
As of March 15, 1998, there were approximately 258 employees and five directors
who were eligible to participate in the 1997 Stock Option Plan.
13
<PAGE>
Under the 1997 Stock Option Plan, the Company may grant both
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code ("Incentive Stock Options") and options that are not intended to
qualify as incentive stock options ("Non-Qualified Stock Options"). Incentive
Stock Options may be granted only to individuals who are employees of the
Company or a subsidiary on the date of grant. Non-Qualified Stock Options may be
granted to directors, consultants, advisors and employees of the Company and its
subsidiaries. The exercise price of a stock option is determined by the
Committee and, with respect to any given option, will not be less than the fair
market value of the Common Stock on the date the option is granted. Subject to
the terms of the 1997 Stock Option Plan, the Committee is authorized to select
the recipients of options from among those eligible and to establish the
exercise price, vesting schedule, term of each option and the number of shares
that may be issued under each option. Under the terms of the 1997 Stock Option
Plan, the exercise price of an option may be paid in cash, in shares of Common
Stock (valued at fair market value on the date of exercise) or by a combination
of such means of payment, as may be determined by the Committee.
The maximum number of shares that may be subject to options granted
to any one individual during any calendar year may not exceed 500,000 shares of
Common Stock, subject to adjustment in the event of certain changes in the
Company's capital structure. To the extent that an option lapses or the rights
of an optionee terminate, any shares of Common Stock subject to such option may
again be used for new awards under the 1997 Stock Option Plan.
The 1997 Stock Option Plan provides that the total number of shares
covered by such plan, the number of shares covered by each option, and the
exercise price per share under each option will be proportionately adjusted in
the event of a stock split, stock dividend, or similar capital adjustment
effected without receipt of consideration by the Company.
Pursuant to the 1997 Stock Option Plan, Non-Qualified Stock Options
are not transferable otherwise than by will or the laws of descent and
distribution, pursuant to a qualified domestic relations order or with the
unanimous consent of the Board of Directors. Incentive Stock Options are not
transferable otherwise than by will or the laws of descent and distribution.
The Board of Directors reserves the right to alter, amend or
terminate the 1997 Stock Option Plan at any time, provided that no change in any
option theretofore granted may be made which would impair the rights of the
optionee without the consent of the optionee and provided further that the Board
may not, without the approval of the Company's stockholders, (i) increase the
maximum aggregate number of shares that may be issued under the 1997 Stock
Option Plan, or (ii) change the class of individuals eligible to receive options
under the plan.
14
<PAGE>
OPTIONS GRANTED IN 1997 UNDER THE 1997 STOCK OPTION PLAN
The following table sets forth options granted in 1997 to (i) the
Named Executive Officers, (ii) all executive officers as a group, (iii) all
non-employee directors and (iv) all employees, including all current officers
who were not executive officers, as a group, under the 1997 Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING
OPTIONS
NAME AND POSITION GRANTED(1)
<S> <C>
Thomas J. Depping......................................................... 367,536
President and Chief Executive Officer
Oren M. Hall.............................................................. --
Executive Vice President and Chief Operating Officer
Sandy B. Ho............................................................... 128,941
Executive Vice President and Chief Financial Officer
Robert H. Quinn, Jr. ..................................................... 128,941
Executive Vice President and Chief Credit Officer
Craig M. Spencer.......................................................... 31,250
Senior Vice President and Chief Accounting Officer
All executive officers as a group (5 persons)............................. 656,668
All directors who were not executive officers as a group (4 persons)...... 275,652
All employees who were not executive officers as a group)................. 100,000
</TABLE>
- ------------------------------
(1) All options to purchase Common Stock were issued at 100% of their
fair market value on the date of grant and expire ten years from the
date of grant. See "Executive Compensation".
On March 27, 1998, the last reported sale price of the Common Stock
on the Nasdaq National Market was $25.00 per share.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. INCENTIVE STOCK OPTIONS. The following general rules are applicable
to holders of Incentive Stock Options and to the Company for Federal
income tax purposes under existing law:
1. Generally, no taxable income results to the optionee upon
the grant or exercise of an Incentive Stock Option and no
tax deduction is allowed to the Company.
2. If shares acquired upon exercise of an Incentive Stock
Option are held for: (i) two years following the date the
Incentive Stock Option was granted; and (ii) one year
following the date the shares are transferred to the
optionee pursuant to the exercise of the Incentive Stock
Option, the difference between the amount realized on any
subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the
optionee.
15
<PAGE>
3. If shares acquired upon exercise of an Incentive Stock
Option are disposed of before the expiration of one or both
of the requisite holding periods (a "disqualifying
disposition"), then in most cases the lesser of: (i) any
excess of the fair market value of the shares at the time
of exercise of the Incentive Stock Option over the exercise
price; or (ii) the actual gain on disposition, will be
taxed as ordinary income in the year of such disposition
and the Company will generally be entitled to a
corresponding deduction for income tax purposes.
4. Any excess of the amount realized by the optionee as the
result of a disqualifying disposition over the sum of: (i)
the exercise price; and (ii) the amount of ordinary income
recognized under the above rules, will be treated as
capital gain.
5. The amount by which the fair market value of the Common
Stock acquired upon exercise of the Incentive Stock Option
exceeds the exercise price, may be taxable to the optionee
under the "alternative minimum tax" provisions of the Code.
B. NON-QUALIFIED OPTIONS. The following general rules are applicable to
holders of Non-Qualified Stock Options and to the Company for Federal
income tax purposes under existing law:
1. The optionee does not realize any taxable income upon the
grant of a Non-Qualified Stock Option, and the Company is
not allowed a tax deduction by reason of such grant.
2. The optionee will recognize ordinary income at the time of
exercise of a Non-Qualified Stock Option in an amount equal
to the excess, if any, of the fair market value of the
shares on the date of exercise over the exercise price and
the Company will be entitled to a corresponding deduction.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1997 STOCK OPTION PLAN. UNLESS MARKED TO THE
CONTRARY, PROXIES RECEIVED BY THE COMPANY WILL BE VOTED IN FAVOR OF THE
AMENDMENT TO THE COMPANY'S 1997 STOCK OPTION PLAN.
AUDITORS
Arthur Andersen LLP has been selected as the Company's independent
auditors for the 1998 fiscal year. Representatives of Arthur Andersen LLP will
be present at the Annual Meeting with the opportunity to respond to appropriate
questions and to make a statement if they desire to do so.
PROPOSALS OF SECURITY HOLDERS
A shareholder proposal to be presented at the 1999 Annual Meeting
must be received at the Company's executive offices by no later than December 2,
1998, for evaluation as to inclusion in the Proxy Statement in connection with
such meeting.
In order for a shareholder to nominate a candidate for director,
under the Company's Bylaws, timely notice of the nomination must be given in
writing to the Secretary of the Company. To be timely, such notice must be
received at the principal executive offices of the Company not less than ninety
days prior to the anniversary date of the immediately preceding annual meeting
of stockholders. Such notice must describe various matters regarding the nominee
and the shareholder giving the notice, including such information as name,
address, occupation and shares held.
16
<PAGE>
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no other business
which may come before the Annual Meeting. However, if any other matters are
properly presented to the Meeting, the persons named in the proxies will vote
upon them in accordance with their best judgment.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN
THE PROXY AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE.
By Order of the Board of Directors
/s/SANDY B. HO
Sandy B. Ho
Executive Vice President,
Chief Financial Officer and
Secretary
Date: April 1, 1998
<PAGE>
FRONT SIDE OF PROXY
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET, SUITE 7050
HOUSTON, TEXAS 77002
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST SIERRA
FINANCIAL, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 30, 1998
The undersigned hereby appoint(s) Thomas J. Depping and Sandy B. Ho and
each of them, as proxies to represent and vote the shares held by the
undersigned at the Annual Meeting of Stockholders of First Sierra Financial,
Inc. (the "Company") to be held April 30, 1998, or at the adjournment
thereof as follows:
DIRECTORS RECOMMEND: A vote FOR election of two class I directors for the
terms expiring 2001 (proposal 1), and a vote FOR the
proposed amendment to the Company's 1997 Stock Option
Plan (proposal 2), all of which have been proposed by
the Board of Directors.
1. ELECTION OF CLASS I DIRECTORS FOR TERMS EXPIRING IN 2001:
[ ] For all nominees [ ] Withhold all nominees
(1) Richard J. Campo (2) David C. Shindeldecker
INSTRUCTION: To withhold authority to vote for any individual nominee
place an "X" in this box and strike a line through the
nominees name listed above.
2. APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN: The approval of an
amendment to the Company's 1997 Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance thereunder from 1,800,000
to 2,500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
BACK SIDE OF PROXY
(CONTINUED FROM OTHER SIDE)
o NOTE: If any other matters properly come before the meeting or any
adjournment thereof, this proxy will be voted according to the
judgment of the persons named above as proxies.
All of the above matters are more particularly described in the Company's
Proxy Statement dated April 1, 1998, relating to such annual meeting to be
held on April 30, 1998, receipt of which is hereby acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THE
PROXY WILL BE VOTED "FOR" ALL CLASS I NOMINEES FOR DIRECTOR AND "FOR"
PROPOSAL 2 AND IN THE PROXY'S DISCRETION ON ANY OTHER MATTERS TO COME BEFORE
THE MEETING. Dated _______________, 1998
___________________________
SIGNATURE
___________________________
SIGNATURE IF HELD JOINTLY
Signature(s) should
correspond with the name
appearing on the label
hereon. When signing in a
fiduciary or representative
capacity, give full title
as such. Where more than
one owner, each should
sign.
