<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 sec. 240.14a-11(c) or sec. 240.14a-12
First Sierra Financial, Inc.
- --------------------------------------------------------------------------------
(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)(l) 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:
- --------------------------------------------------------------------------------
<PAGE> 2
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 3, 1999
To the Stockholders of FIRST SIERRA FINANCIAL, INC.
The Annual Meeting of Stockholders (the "Annual Meeting") of First
Sierra Financial, Inc., a Delaware corporation (the "Company"), will be held at
the Chase Center Auditorium at 601 Travis Street, Houston, Texas on May 3, 1999
at 10:00 A.M. Central Daylight Time for the following purposes:
1. To elect three Class II directors; and
2. 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 11,
1999 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
Sandy B. Ho
Executive Vice President,
Chief Financial Officer and Secretary
March 31, 1999
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> 3
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
-------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 3, 1999
-------------------
This Proxy Statement is being mailed to stockholders on or about March
31, 1999 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 May
3, 1999 (the "Annual Meeting") for the purpose of considering and acting upon
the following proposals:
1. To elect three Class II directors; and
2. To consider and transact such other business as may properly
come before the Annual Meeting or any adjournment thereof.
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 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 1998 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.
<PAGE> 4
As of March 11, 1999, the Company had outstanding 14,223,915 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.
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 11, 1999 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 and former 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, Inc. and Messrs.
Shindeldecker and Solomon is 5847 San Felipe Road, Suite 320, Houston, Texas
77057. Except as otherwise indicated, the address of all other named
individuals is c/o First Sierra Financial, Inc., 600 Travis Street, Suite 7050,
Houston, Texas 77002.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIALLY-OWNED PERCENT
SHARES OF CLASS(1)
------------------ ------------
<S> <C> <C>
Thomas J. Depping(2) 1,790,907 12.5%
Redstone Group, Ltd.(3) 1,408,151 9.9%
David L. Solomon(4) 2,165,565 15.2%
David C. Shindeldecker(4) 1,545,583 10.8%
Oren M. Hall 455,500 3.2%
Sandy B. Ho(5) 271,778 1.9%
Robert H. Quinn, Jr 236,578 1.6%
Richard J. Campo(6) 73,978 *
Norman J. Metcalfe(6) 42,178 *
Michael A. Sabel(7) 157,824 1.1%
Robert Ted Enloe, III(8) 2,500 *
Brian E. McManus(8) 2,500 *
Portfolio LL Investors, L.P.(9) 1,536,700 10.80%
Becker Capital Management, Inc.(10) 780,900 5.4%
All directors and executive officers as a group
(10 persons)(11) 4,644,762 40.0%
</TABLE>
- ------------------
* Less than one percent
-2-
<PAGE> 5
(1) The applicable percentage of ownership is based upon 14,223,915 shares of
Common Stock outstanding as of March 11, 1999.
(2) Includes 117,507 shares issuable pursuant to options exercisable within
sixty days.
(3) According to an amended Schedule 13G filed as of February 16, 1999,
Redstone Group Ltd. ("Redstone") is a Texas limited partnership, of which
Redstone, Inc., a Texas corporation ("Redstone, Inc."), is the general
partner.
(4) Includes 27,565 shares issuable pursuant to options exercisable within
sixty days and 1,408,151 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.
(5) Includes 25,788 shares issuable pursuant to options exercisable within
sixty days.
(6) Includes 12,178 shares issuable pursuant to options exercisable within
sixty days.
(7) Includes 77,824 shares issuable pursuant to options exercisable within
sixty days.
(8) Consists entirely of shares issuable pursuant to options exercisable
within sixty days.
(9) According to information furnished to the Company, Portfolio LL
Investors, L.P. ("PLL") is a Delaware limited partnership. The sole
general partner of PLL is Portfolio Genpar, L.L.C., a Delaware limited
liability company which is controlled by Messrs. Thomas M. Taylor and W.
R. Cotham. Mr. Taylor is also the President of Taylor & Co. Mr. Brian E.
McManus, a Director of the Company, serves as an investment manager for
Taylor & Co. The address of PLL is 210 Main Street, Suite 3200, Fort
Worth, Texas 76102.
(10) According to a Schedule 13G filed as of February 11, 1999, Becker Capital
Management, Inc. ("Becker") is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, as amended. All
securities reported on said Schedule 13G are owned by advisory clients of
Becker, and Becker disclaims beneficial ownership of all such securities.
Becker's address is 1211 SW Fifth Avenue, Suite 2185, Portland, Oregon
97204.
(11) Includes 305,605 shares issuable pursuant to options exercisable within
sixty days.
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. There are currently seven members of the Company's Board of
Directors.
At the Annual Meeting, three Class II directors are to be elected to
serve until the Company's annual meeting in 2002 and the four remaining
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 nominees listed below, who are members of the
present Board of Directors. It is expected that the nominees will serve, but if
they decline or are 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.
-3-
<PAGE> 6
The Board of Directors recommends a vote FOR each of the Class II
nominees.
NOMINEE 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 II NOMINEES FOR ELECTION WITH TERMS EXPIRING IN 2002
Robert Ted Enloe, III Mr. Enloe has served as Managing General
Age 60 1998 Partner of Balquita Partners, Ltd., a
real estate and securities investment
firm, since 1996. From 1975 to 1986, he
served as President, and from 1992 to
1996 as Chief Executive Officer, of
Liberte Investors. Mr. Enloe currently
serves as a director of Compaq Computer
Corporation, a manufacturer of personal
computers and servers, Leggett & Platt,
Inc., a diversified manufacturer of
foam, plastic, steel and wire components
for the automotive, home furnishings and
office equipment industries, SIXX
Holdings, Incorporated, a restaurant
company that operates the Patrizio
Italian restaurants in Dallas, Texas and
Liberte Investors, Inc. Mr. Enloe was
initially elected as a director of the
Company by the Board of Directors on
April 30, 1998.
Brian E. McManus Mr. McManus is an investment manager for
Age 59 1998 Taylor & Co., an investment consulting
firm that provides services to entities
associated with the Bass Family of Fort
Worth, Texas, including Portfolio LL
Investors, L.P. ("PLL"), which is a
stockholder of the Company. Mr. McManus
joined Taylor & Co. in 1990. Mr. McManus
was initially elected as a director of
the Company by the Board of Directors on
September 11, 1998.
Norman J. Metcalfe Mr. Metcalfe has served as managing
Age 56 1997 director of a private investment and
consulting firm since January 1977. From
February 1993 to December 1996, Mr.
Metcalfe served as Vice Chairman and
Chief Financial Officer for The Irvine
Company. Mr. Metcalfe serves as a
director of Tejon Ranch Co.
-4-
<PAGE> 7
NAME, AGE AND YEAR
FIRST ELECTED DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ---------------------- ------------------------------------------
CLASS III DIRECTORS WITH TERMS EXPIRING IN 2000
Thomas J. Depping Mr. Depping has served as Chairman of the
Age 40 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 45 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
was a Senior Vice President with Paine Webber
from August 1994 through October 1998. From
May 1985 to August 1994, Mr. Solomon was a
Senior Vice President of Kidder, Peabody &
Co. Mr. Solomon serves on the Board of
Directors of TeleServe, Inc., an affiliate of
Camden Property Trust.
CLASS I DIRECTORS WITH TERMS EXPIRING IN 2001
Richard J. Campo Mr. Campo has been Chairman of the Board and
Age 44 1997 Chief Executive Officer of Camden Property
Trust, a self-administered, self-managed real
estate investment trust based in Houston,
Texas, since May 1993. Mr. Campo has over
twenty years of experience in the real estate
industry.
David C. Shindeldecker Mr. Shindeldecker has been Chairman and Chief
Age 50 1994 Executive Officer of Northwest Bancorporation
Inc. since June 1988. He 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
-5-
<PAGE> 8
NAME, AGE AND YEAR
FIRST ELECTED DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ---------------------- ------------------------------------------
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.
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 two meetings during the fiscal year
ended December 31, 1998. 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 held two meetings during
the fiscal year ended December 31, 1998. The current members of the
Compensation Committee are Messrs. Campo, McManus and Metcalfe.
The Stock Option Committee administers the Company's 1997 Stock Option
Plan. The Stock Option Committee held two meetings during the fiscal year ended
December 31, 1998, and also acted from time to time by unanimous written
consent. The current members of the Stock Option Committee are Messrs. Campo,
McManus and Metcalfe.
The Board of Directors held three meetings during the fiscal year
ended December 31, 1998, 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.
Each director who is not an officer or employee of the Company or any
of its subsidiaries or affiliated with Redstone (each, an "Outside Director")
is eligible to receive, (i) as of the date of each annual meeting of
stockholders, at the election of the Outside Director either (a) a cash
retainer of $25,000 or (b) options to purchase (at an exercise price equal to
the fair market value of the Common Stock on the date of grant) a number of
shares of Common Stock equal to $25,000 divided by one-half of the closing
price of the Common Stock on the date of grant, and (ii) at the time that the
Company grants annual stock options to
-6-
<PAGE> 9
its employees, options to purchase 2,500 shares of Common Stock at 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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents summary information concerning
compensation of the Chief Executive Officer and each of the other four most
highly compensated executive officers as of December 31, 1998 (together, the
"Named Executive Officers") for the periods indicated for services rendered to
the Company and its subsidiaries.
<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> <C>
Thomas J. Depping .............................. 1998 $250,000 $350,000(1) -- $5,000(2)
President, Chairman of the Board and 1997 239,250 -- 587,536(3) 12,750
Chief Executive Officer 1996 200,000 -- (4) -- 2,000
Oren M. Hall(5) ................................ 1998 220,000 -- -- 41,000(6)
Executive Vice President and Chief 1997 173,250 150,000(7) -- 30,563
Operating Officer
Sandy B. Ho .................................... 1998 185,000 100,000(1) 60,000(8) 5,000(9)
Executive Vice President, Chief 1997 160,000 -- 178,941(10) 4,750
Financial Officer and Secretary 1996 131,250 100,000(11) -- 1,500
Michael A. Sabel(12) ........................... 1998 148,437 -- 804,521(13) --
Executive Vice President - Business
Development for the Company and President of
First Sierra International
Robert H. Quinn, Jr.(14) ....................... 1998 160,000 -- -- 4,000(15)
Executive Vice President and Chief 1997 160,000 -- 168,941(16) 4,750
Credit Officer 1996 145,417 100,000(17) -- 1,000
</TABLE>
- ---------------------------------
(1) This amount was paid during 1999 based upon the Named Executive Officer's
performance during 1998.
(2) Consists of amounts contributed by the Company on behalf of Mr. Depping
to the Company's 401(k) plan.
(3) Includes 220,000 options that were granted in 1998 based upon Mr.
Depping's performance during 1997 and in lieu of a cash bonus.
(4) 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.
-7-
<PAGE> 10
(5) Mr. Hall's employment with the Company began as of May 20, 1997. Mr. Hall
retired from the Company effective as of December 31, 1998.
(6) Consists of amounts contributed by the Company on behalf of Mr. Hall to
the Company's 401(k) plan ($3,317) and a housing allowance ($36,000).
(7) This amount was paid in 1998 based upon Mr. Hall's performance in 1997.
(8) Includes 50,000 replacement options granted in November 1998 upon
cancellation of 50,000 options previously granted in March 1998. See
"Report on Executive Compensation - Stock Option Repricing."
(9) Consists of amounts contributed by the Company on behalf of Ms. Ho to the
Company's 401(k) plan.
(10) Includes 50,000 options that were granted in 1998 based upon Ms. Ho's
performance during 1997 and in lieu of a cash bonus. Such options were
subsequently cancelled and replaced. See footnote (8) above.
(11) This amount was paid in 1997 based upon Ms. Ho's performance in 1996. A
bonus of $110,000 was paid in 1996 based upon Ms. Ho's performance in
1995.
(12) Mr. Sabel's employment with the Company began as of May 27, 1998.
(13) Includes 500,000 options granted upon commencement of Mr. Sabel's
employment with the Company in May 1998. Also includes 304,521
replacement options granted in November 1998 upon cancellation of 449,041
of the options granted in May 1998. See "Report on Executive Compensation
- Stock Option Repricing."
(14) Mr. Quinn resigned from the Company effective as of January 28, 1999 to
pursue other interests.
(15) Consists of amounts contributed by the Company on behalf of Mr. Quinn to
the Company's 401(k) plan.
(16) Includes 40,000 options that were granted in 1998 based upon Mr. Quinn's
performance during 1997 and in lieu of a cash bonus.
(17) 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 in 1995.
-8-
<PAGE> 11
OPTION GRANTS IN 1998
The following table sets forth information concerning the grant of
stock options during 1998 to the Named Executive Officers:
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE VALUE AT
NUMBER OF OF TOTAL ASSUMED ANNUAL RATE OF
SHARES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED(1) FISCAL 1998 (PER SHARE) DATE 5% 10%
----- ----------- ------------ ----------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Depping 220,000(3) 14.1% $ 18.375 03/02/2008 $ 2,542,342 $ 6,442,766
Oren M. Hall -- -- -- -- -- --
Sandy B. Ho 50,000(4) 3.2% 18.375 03/02/2008 283,003(4) 717,184(4)
50,000(5) 3.2% 11.25 11/30/2008
10,000 0.6% 9.00 11/30/2008 353,755 896,480
56,600 143,438
Michael A. Sabel(6) 500,000(7) -- 23.9375 05/27/2008 767,142(7) 1,944,106(7)
304,521(8) 19.4 11.25 11/30/2008
1,723,605 4,367,952
Robert H. Quinn 40,000(9) 2.6 18.375 03/02/2008 462,238 1,171,412
</TABLE>
- -------------------------
(1) All of such options were granted pursuant to the Company's 1997 Stock
Option Plan and, except as noted for Mr. Sabel, vest in increments of 20%
per year over a period of five years beginning on the first anniversary
of the date of grant.
(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.
(3) These options were granted on March 2, 1998 based upon Mr. Depping's
performance during 1997.
(4) These options were granted on March 2, 1998 based upon Ms. Ho's
performance during 1997. All of such options were canceled and replaced
with new options in connection with the Company's repricing of stock
options on November 30, 1998. See "Report on Executive Compensation -
Stock Option Repricing."
(5) These options were granted on November 30, 1998 as replacement options in
connection with the repricing of options described in footnote (4) above.
(6) Mr. Sabel's options vest pro rata on a daily basis over a period of five
years, beginning on the first day after the date of grant.
(7) These options were granted on May 27, 1998. 449,041 of such options were
canceled and replaced with new options in connection with the Company's
repricing of stock options as of November 30, 1998. Potential Realizable
Value is calculated for the 50,959 options which were not repriced. See
"Report on Executive Compensation - Stock Option Repricing."
(8) These options were granted on November 30, 1998 as replacement options in
connection with the repricing of options described in footnote (7) above.
(9) These options were granted on March 2, 1998 based upon Mr. Quinn's
performance during 1997.
-9-
<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information concerning fiscal year-end
option values:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(2)
----------------- --------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas J. Depping -- -- 73,507 514,029 $ 312,405 $1,249,623
Oren M. Hall -- -- -- -- -- --
Sandy B. Ho -- -- 25,788 163,153 109,599 520,900
Michael A. Sabel -- -- 56,132 299,348 5,173 299,348
Robert H. Quinn 25,788 483,525 -- 143,153 -- 438,400
- ---------------
</TABLE>
(1) Calculated by subtracting the exercise price per share from the fair
market value per share on the date of exercise, and multiplying the
result by the number of shares subject to the option exercised.
(2) Calculated as the difference between the aggregate fair market value of
such options based on the last reported sale price of the Common Stock as
of December 31, 1998 ($12.25 per share) and the aggregate exercise price.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Thomas J. Depping
effective as of 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 Mr. Depping 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 by Mr.
Depping (including certain changes in control of the Company), 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 has an employment agreement with Ms. Sandy B. Ho effective
as of April 1, 1998. The 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 Ms. Ho gives 90 days' notice of termination.
Pursuant to the agreement, Ms. Ho is entitled to receive an annual base salary
of not less than $185,000. If the agreement is terminated without cause by the
Company, the Company is obligated to pay Ms. Ho termination fees equal to the
aggregate of three times her annual salary and three times the bonus received
by Ms. Ho for the year immediately preceding such termination (each paid over a
period of 36 months), and an additional lump sum equal to the bonus received by
Ms. Ho for the year immediately preceding her termination as prorated for the
number of days in the year prior to such termination. In the event of a "Change
in Control" of the Company, Ms. Ho may terminate the agreement and receive an
amount equal to her annual salary
-10-
<PAGE> 13
plus a bonus equal to the bonus she received for the year immediately preceding
such termination or the bonus she received in the year immediately preceding
the change in control, whichever is greater. The agreement contains covenants
prohibiting Ms. Ho from competing with the Company for a period of one year
following the termination of her employment with the Company. The agreement
also provides for customary benefits and perquisites.
The Company has an employment agreement with Mr. Michael A. Sabel
effective as of May 27, 1998. Mr. Sabel's employment agreement has a term of
five years. Pursuant to his employment agreement, Mr. Sabel is entitled to
receive an annual salary of not less than $249,999. If the agreement is
terminated without cause by the Company, the Company is obligated to pay Mr.
Sabel a termination fee (over a period of twelve months) equal to the aggregate
of Mr. Sabel's annual salary plus the bonus he received for the year
immediately preceding such termination. In the event of a "Change in Control"
of the Company, the Company is obligated to pay Mr. Sabel an amount equal to
2.99 times the amount of cash compensation paid to Mr. Sabel for the year
immediately preceding the Change in Control, subject to certain adjustments. In
addition, the agreement contains a covenant prohibiting Mr. Sabel 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 had employment agreements with Messrs. Hall and Quinn,
both of which were effective as of May 20, 1997. Mr. Hall's agreement provided
for a term of three years and a base salary of not less than $195,000. Mr.
Hall's agreement also contained a provision which required the Company to pay
Mr. Hall at least twelve months of base salary in the event that the agreement
was terminated without cause by the Company or with cause by Mr. Hall. Mr.
Quinn's agreement provided for a term of three years and a base salary of not
less than $160,000. Both agreements contained covenants prohibiting the
employee from competing with the Company for a period of one year following
termination of the agreement. Messrs. Hall and Quinn terminated their
employment agreements as of December 31, 1998 and January 28, 1999,
respectively.
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Company's Board of Directors has established a Compensation
Committee (the "Compensation Committee") and a Stock Option Committee (the
"Stock Option Committee" and together with the Compensation Committee, the
"Committees"), each of which is currently comprised of the same three outside
directors named below. The Compensation Committee is generally responsible for
considering and approving compensation arrangements for the Company's senior
management, including its executive officers. The Stock Option Committee is
responsible for administering the Company's 1997 Stock Option Plan. The
Committees' principal objectives in establishing compensation arrangements for
senior management are to: (i) attract, retain and motivate key executives who
are important to the continued success of the Company and the accomplishment of
its business objectives, and (ii) provide strong financial incentives for
executives to enhance shareholder value.
-11-
<PAGE> 14
The primary components of the Company's executive compensation program
for 1998 were annual cash compensation, consisting of base salary and possible
cash bonus awards, and stock options.
Base Salaries. The minimum base salary of each executive officer is
provided for in such officer's employment agreement. During 1998 each executive
officer received the minimum base salary set forth in their respective
employment agreements. In the future, the Compensation Committee will consider
appropriate increases in base salaries of the Company's executive officers
based on individual performance, comparative industry compensation levels and
other relevant considerations. The Compensation Committee believes that the
base salaries of its executive officers are generally below those of comparable
executive positions in the financial services industry.
Cash Bonus Awards. Each executive officer is eligible to receive a
cash bonus based upon the Compensation Committee's assessment of the
performance and contributions of the officer and such officer's role in helping
the Company achieve its business objectives. The Compensation Committee
believes that the use of cash bonus awards provides executive officers the
opportunity to earn a significant part of their annual cash compensation in the
form of incentive compensation.
Stock Options. All executive officers are eligible to participate in
the Company's Stock Option Plan. The purpose of the Stock Option Plan is to
provide long-term equity incentives to participants to maximize shareholder
value. The Committees believe that equity ownership by executive officers
provides a strong incentive to maximize shareholder value and thereby aligns
the interests of such officers with those of the shareholders.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
During 1998, Mr. Depping received a base salary of $250,000 as
provided for in his employment agreement. In addition, Mr. Depping received a
cash bonus of $350,000. In determining the amount of such bonus, the
Compensation Committee considered Mr. Depping's leadership role in the
Company's achievement of numerous key business objectives in 1998, including:
the acquisition and successful integration of eleven leasing companies; the
profitable growth of the Company's lease portfolio while maintaining credit
quality; the consolidation of the Company's operations center in Houston; the
implementation of an e-commerce strategy; and the successful completion of a
secondary common stock offering and the Company's fourth public securitization.
Mr. Depping was not awarded any stock options in 1998 other than those received
in March 1998 in lieu of his 1997 incentive bonus.
In addition, Mr. Depping requested that he not be included in the
stock option repricing program described below.
DEDUCTIBILITY OF COMPENSATION IN EXCESS OF $1 MILLION PER YEAR
Internal Revenue Code section 162(m), in general, precludes a public
corporation from claiming a tax deduction for compensation in excess of $1
million in any taxable year for any
-12-
<PAGE> 15
executive officer named in the summary compensation table in such corporation's
proxy statement. Certain performance-based compensation is exempt from this tax
deduction limitation. The Compensation Committee's policy is to structure
executive compensation in order to maximize the amount of the Company's tax
deduction. However, the Compensation Committee reserves the right to deviate
from that policy to the extent it is deemed necessary to serve the best
interests of the Company and its stockholders.
STOCK OPTION REPRICING
In November 1998, upon the recommendation of the full Board of
Directors, the Stock Option Committee considered and approved a repricing
program with respect to stock options granted in 1998. In doing so, the Stock
Option Committee determined that because of the significant decline in the
market price of the Company's common stock during the preceding months, such
options had lost much of their incentive value. Because stock options
constitute a major component of overall compensation for executive officers and
other key employees, the Stock Option Committee concluded that it was in the
best interests of the Company and its stockholders to restore such incentive
value. In authorizing the stock option repricing program, the Stock Option
Committee also concluded that the decline in the Company's stock price was
principally a result of the general decline in prices of small capitalization
stocks, including in particular those in the specialty finance sector which
utilized gain-on-sale accounting.
Under the repricing program, electing option holders were allowed to
exchange existing unvested 1998 options for new options with an exercise price
of $11.25, which was 25% above the $9.00 price of the Company's common stock on
the November 30, 1998 grant date. As a condition of participation in the
repricing program, option holders were required to exchange existing options
for a lesser number of new options (1 for 0.85 in the case of non-executive
officers; 1 for 0.5 in the case of executive officers). Executive officers were
also permitted, as an alternative, to participate in the repricing based upon
open market purchases of Company common stock, with two options repriced for
each share purchased in the open market. Information concerning the repricing
of options held by executive officers is set forth in the "Option Repricings"
table below.
Respectfully Submitted:
The Compensation Committee
and
The Stock Option Committee
Richard J. Campo
Brian E. McManus
Norman J. Metcalfe
-13-
<PAGE> 16
OPTION REPRICINGS
The following table provides certain information with respect to the
repricing of the stock options of the Company's executive officers:
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK PRICE NEW REMAINING
OPTIONS AT TIME OF AT TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
- ---- ---- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Ho(1) 11/30/98 50,000 $9.00 $ 18.375 $11.25 9.3 years
Sabel(2) 11/30/98 304,521(3) 9.00 23.9375 11.25 9.5 years
</TABLE>
- -------------------
(1) Ms. Sandy B. Ho is Executive Vice President and Chief Financial Officer
of the Company.
(2) Mr. Michael A. Sabel is Executive Vice President - Business Development
of the Company and President of First Sierra International.
(3) Represents a replacement grant for 449,041 options which were cancelled.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Campo, McManus and Metcalfe are the members of the
Compensation and Stock Option Committees of the Board of Directors. No member
of the Company's Compensation Committee or Stock Option Committee is an officer
of the Company. No member of the Company's Compensation Committee or Stock
Option Committee served as a director or member of the Compensation Committee
or Stock Option Committee of another entity, one of whose executive officers
served as a director or member of the Compensation Committee or Stock Option
Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon completion of the Company's initial public offering in May 1997,
the Company entered into a $5 million Subordinated Revolving Credit Facility
with Redstone, with the commitment level thereunder decreasing by $1 million
per year. Advances under the Subordinated Revolving Credit Facility bear
interest at 11.00% per annum. As of December 31, 1998, no advances were
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, 1998, the Company had paid less than
$1,000 to the Affiliate pursuant to the Referral Agreement.
-14-
<PAGE> 17
During 1998, in the ordinary course of business, the Company entered
into lease financing agreements with Augusta Foods, LLC ("Augusta Foods"), the
sole owner of Cafe Express Holdings ("Cafe Express"), which operates
restaurants, for the financing of restaurant equipment. Augusta Foods and Cafe
Express are affiliates of Redstone. Pursuant to Guaranty Agreements entered
into in connection with these transactions, Redstone guaranteed payment of
Augusta Foods' and Cafe Express' obligations under the leases. The aggregate
amount of equipment financed pursuant to such leases during 1998 was $6.2
million.
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.
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total stockholder return on its Common Stock for the period during
which the Common Stock was registered under Section 12 of 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.
<TABLE>
<CAPTION>
5/15/97* 12/31/97 12/31/98
-------- -------- --------
<S> <C> <C> <C>
First Sierra Financial, Inc. 100 222 153
Nasdaq Index 100 118 162
Nasdaq Financial Index 100 139 136
</TABLE>
* The Company's Common Stock began trading publicly on May 15, 1997.
-15-
<PAGE> 18
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, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater
than ten percent beneficial owners were complied with, except that Mr.
Shindeldecker filed a late Form 4 with respect to one transaction.
AUDITORS
Arthur Andersen LLP has been selected as the Company's independent
auditors for the 1999 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 stockholder proposal to be presented at the 2000 Annual Meeting must
be received at the Company's executive offices by no later than December 2,
1999, for evaluation as to inclusion in the Proxy Statement in connection with
such meeting.
Under the Company's Restated Certificate of Incorporation, in order
for a stockholder to propose business (including to nominate a candidate for
director) to be considered at the 2000 Annual Meeting, timely notice 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 no later
than 10 days after the notice of the meeting is sent to stockholders. Such
notice must provide certain information as specified in the Restated
Certificate of Incorporation regarding the stockholder giving the notice and
the nature of the business to be proposed. Such notice is separate from and in
addition to the requirements a stockholder must meet to have a proposal
included in the Company's proxy statement.
-16-
<PAGE> 19
OTHER MATTERS TO COME BEFORE THE 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 MEETING, PLEASE SIGN THE PROXY
AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE.
By Order of the Board of Directors
Sandy B. Ho
Executive Vice President,
Chief Financial Officer and
Secretary
Date: March 31, 1999
-17-
<PAGE> 20
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET, SUITE 7050
HOUSTON, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST SIERRA
FINANCIAL, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 3, 1999
The undersigned stockholder(s) of First Sierra Financial, Inc. ("First
Sierra") hereby constitute(s) and appoint(s) Thomas J. Depping and Sandy B. Ho
and each of them acting individually, with full power of substitution and
revocation, the true and lawful attorneys and proxies of the undersigned to vote
all shares of the common stock, par value $.01 per share, of First Sierra (the
"First Sierra Common Stock") owned by or of record in the name of the
undersigned, at the Annual Meeting of the Stockholders of First Sierra to be
held on May 3, 1999 at the Chase Center Auditorium at 601 Travis Street,
Houston, Texas (the "Annual Meeting"), or at any adjournments or postponements
thereof, for the purposes listed on the reverse side hereof.
This Proxy, when properly executed, will be voted in the manner directed on
the reverse side by the undersigned stockholder(s). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THE REVERSE SIDE OF THIS
PROXY. This Proxy may be revoked at any time before it is voted at the Annual
Meeting by (i) executing and returning a proxy bearing a later date, (ii) filing
written notice of such revocation with First Sierra at 600 Travis Street, Suite
7050, Houston, TX 77002, Fax Number: (713) 221-1818, Attention: Sandy B. Ho, or
(iii) attending the Annual Meeting and voting in person.
Continued and to be signed on the reverse side
THE BOARD OF DIRECTORS OF FIRST SIERRA UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1.
(1) Election of Directors:
Three Class II directors are to be elected to serve until First Sierra's
annual meeting in 2002. The nominees are Robert Ted Enloe, III, Brian E.
McManus, and Norman J. Metcalfe.
[ ] Vote FOR all nominees [ ] Vote WITHHELD from all
nominees
(Except as directed to the contrary below)
INSTRUCTIONS: To withhold vote for any individual nominee, write that nominee's
name in the space provided below:
Should any other matters requiring a vote of the stockholders arise, the
attorneys above are authorized to vote the same in accordance with their best
judgment in the best interest of First Sierra. Management is not aware of any
matter which is to be presented for action at the meeting other than the
Election of Directors as set forth herein.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
Please mark, date and sign
exactly as your name(s)
appear(s) at left and return in
the enclosed envelope. If
acting as attorney, executor,
administrator, trustee,
guardian, etc., please give
full title. If the signer is a
corporation, please sign the
full corporate name, by fully
authorized officer. If shares
are held jointly, each
stockholder named should sign.
Signature:
-------------------------------
Date:
-------------------------------
Signature:
-------------------------------
Date:
-------------------------------
