FIRST SIERRA FINANCIAL INC, S-1/A, 1998-01-15

FIRST SIERRA FINANCIAL INC
S-1/A, 1998-01-15
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998

REGISTRATION NO. 333-41833

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 1 TO

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
FIRST SIERRA FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<C> <C> <C>
DELAWARE 6159 76-0438432
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
TEXAS COMMERCE TOWER, SUITE 7050 THOMAS J. DEPPING
600 TRAVIS STREET PRESIDENT
HOUSTON, TEXAS 77002 TEXAS COMMERCE TOWER, SUITE 7050
(713) 221-8822 600 TRAVIS STREET
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, HOUSTON, TX 77002
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL (713) 229-6800
EXECUTIVE OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>

Copies to:

<TABLE>
<C> <C>
T. MARK KELLY SCOTT N. GIERKE
VINSON & ELKINS L.L.P. MCDERMOTT, WILL & EMERY
2300 FIRST CITY TOWER, 1001 FANNIN 227 W. MONROE
HOUSTON, TX 77002-6760 CHICAGO, IL 60606
(713) 758-4592 (312) 984-7521
(713) 615-5531(FAX)
</TABLE>

---------------------

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JANUARY 15, 1998

PROSPECTUS

FIRST SIERRA FINANCIAL, INC.

3,400,000 Shares of Common Stock

Of the 3,400,000 shares of Common Stock offered hereby, 2,083,334 shares
are being issued and sold by First Sierra Financial, Inc. (the "Company") and
1,316,666 shares are being sold by the Selling Stockholders. The Company will
not receive any part of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."

The Common Stock is included for quotation in the Nasdaq National Market
under the symbol "FSFH." On January 13, 1998, the last reported sale price of
the Common Stock was $17.87 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total (3)............... $ $ $ $
==================================================================================================================
</TABLE>

(1) See "Underwriting" for information regarding indemnification of the
Underwriters.

(2) Before deducting expenses payable by the Company estimated to be $500,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 510,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Principal and Selling Stockholders" and
"Underwriting."

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998 against payment therefor in immediately available funds.

---------------------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC. PIPER JAFFRAY INC.

The date of this Prospectus is , 1998.

<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
material and other information concerning the Company can be inspected and
copied at the Public Reference Facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company's Common
Stock is listed on the Nasdaq National Market, and such reports, proxy material
and other information can also be inspected at the offices of the Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20549.

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and to the exhibits and schedules filed as part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; reference is
made in each instance to the copy of such contract or document filed as an
exhibit to the Registration Statement. Each such statement is qualified in all
respects by such reference to such exhibit. Copies of the Registration Statement
and the exhibits and schedules thereto may be inspected without charge at the
public reference facilities maintained by the Commission, and copies of all or
any part thereof may be obtained from the Commission, as described in "Available
Information." The Registration Statement, including the exhibits and schedules
thereto, are also available on the Commission's web site at http://www.sec.gov.

This Prospectus contains certain forward-looking statements which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified as such because the context of the statement includes
words such as the Company "believes," "anticipates," "expects," "estimates,"
"intends," or other words of similar intent. Similarly, statements that describe
the Company's future plans, objectives and goals are also forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from those expressed or implied in these forward-looking
statements as a result of certain factors, including those set forth in "Risk
Factors" and elsewhere in this Prospectus.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE
PURCHASERS OF SHARES OF COMMON STOCK OFFERED HEREBY SHOULD CAREFULLY CONSIDER
THE FACTORS SET FORTH UNDER "RISK FACTORS." UNLESS OTHERWISE SPECIFIED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THE
OVER-ALLOTMENT OPTION DESCRIBED HEREIN UNDER "UNDERWRITING." AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERMS "FIRST SIERRA" AND
THE "COMPANY" REFER TO FIRST SIERRA FINANCIAL, INC. AND ITS CONSOLIDATED
SUBSIDIARIES.

THE COMPANY

The Company is a specialized finance company that acquires and originates,
sells and services equipment leases. The underlying leases financed by the
Company relate to a wide range of equipment, including computers and
peripherals, computer software, medical, dental and diagnostic,
telecommunications, office, automotive servicing, hotel security, food services,
tree service and industrial, as well as specialty vehicles. The equipment
generally has a purchase price of less than $250,000 (with an average of
approximately $18,000 as of September 30, 1997), and thus the Company's leases
are commonly referred to as "small ticket leases." The Company initially funds
the acquisition or origination of its leases through its warehouse facilities or
from working capital and, upon achieving a sufficient portfolio size, sells such
receivables in the public and private markets, principally through its
securitization program. The Company focuses on maximizing the spread between the
yield received on its leases and its cost of funds by obtaining favorable terms
on its warehouse facilities, securitizations and other structured finance
transactions.

The Company has established strategic alliances with a network of
independent leasing companies, lease brokers and equipment vendors, each of
which acts as a source from which the Company obtains access to equipment leases
(collectively, "Sources"). The Company customizes lease financing products to
meet the specific equipment financing needs of its Sources and in many cases
provides such Sources with servicing and technological support via on-line
connections to the Company's state-of-the-art computer system.

The Company views acquisitions of equipment leasing companies as a
fundamental part of its growth strategy. Since the Company's initial public
offering in May 1997, the Company has completed six acquisitions of equipment
leasing companies. See "Business -- Recent Acquisitions." The Company's recent
acquisitions have substantially increased the Company's ability to generate
lease origination volume and have allowed it to introduce new programs and enter
new markets. As of November 30, 1997, the Company had 17 offices in ten states.
The Company intends to continue to seek acquisition opportunities in additional
markets to further expand its business.

The Company commenced operations in June 1994 and initially developed a
program to purchase leases from leasing companies which had the ability to
originate significant lease volumes and were willing and able to provide credit
protection to the Company (through recourse and purchase price holdback
features) and perform certain servicing functions on an ongoing basis with
respect to such leases. This program, referred to by the Company as its "Private
Label" program, was designed to provide the Company with access to high volumes
of leases eligible for the securitization market, while minimizing the risk of
loss to the Company. The Company has experienced significant growth in its
Private Label program since inception. The volume of leases purchased by the
Company pursuant to its Private Label program was $4.5 million in 1994, $65.2
million in 1995, $161.1 million in 1996 and $149.0 million in the nine months
ended September 30, 1997.

("Heritage") in May 1997, together with the six acquisitions completed since the
Company's initial public offering, have provided the Company with significant
additional broker and vendor lease volume. See "Business -- Recent
Acquisitions." During the year ended December 31, 1996 and the nine months ended
September 30, 1997, the volume of leases originated by the Company pursuant to
its Broker program was $10.5 million and $50.0 million, respectively, and the
weighted average yield on such leases (net of brokers' fees) was 14.07% and
13.40%, respectively. During the year ended December 31, 1996 and the nine
months ended September 30, 1997, the volume of leases originated by the Company
pursuant to its Vendor program was $7.5 million and $50.2 million, respectively,
and the weighted average yield on such leases was 16.09% and 16.20%,
respectively. Management intends to continue to pursue opportunities to acquire
additional small ticket leasing companies with broker and vendor operations and
believes that a larger percentage of the Company's revenues in the future will
be derived from broker and vendor Sources.

In addition to its Private Label, Broker and Vendor programs, the Company
has in the past generated, and may in the future generate, gain on sale income
through the acquisition of lease portfolios and the subsequent sale of such
portfolios at a premium. The Company also generates gain on sale income from the
sale of leases to third party financing sources for cash.

The Company's management team has extensive experience in lease financing
and in securitizations and other structured finance transactions. Thomas J.
Depping, Chief Executive Officer of the Company, has over 15 years of experience
in the leasing and structured finance industries, including 11 years with
SunAmerica Financial Resources and its predecessor company (which was acquired
by SunAmerica, Inc. in 1991). Prior to founding the Company, Mr. Depping was
President of SunAmerica Financial Resources, the equipment leasing and financial
division of SunAmerica, Inc. Oren M. Hall, Executive Vice President and Chief
Operating Officer of the Company, has 23 years of experience in the leasing
industry and during 1996 served as President of the United Association of
Equipment Lessors. Sandy B. Ho, Executive Vice President and Chief Financial
Officer of the Company, has over 15 years of experience in the leasing and
structured finance industries, most recently as Managing Director of SunAmerica
Corporate Finance. Robert H. Quinn, Jr., Executive Vice President and Chief
Credit Officer of the Company, has over 23 years of leasing experience, most
recently as Manager of AT&T Capital's private label program.

STRATEGY

The Company's business strategy is to continue to significantly expand its
business through internal growth as well as selective acquisitions of equipment
leasing companies and to sell the leases it acquires or originates through
securitizations and other structured finance techniques as well as portfolio
sales and sales to third party financing sources. Key elements of this strategy
include:

Pursuing Acquisitions. The Company believes that significant opportunities
exist to acquire leasing companies at prices the Company considers attractive.
The Company seeks to identify and acquire leasing companies in key geographic
regions that can be integrated into the Company's existing operations to expand
its business with minimal incremental expense. By acquiring and consolidating
these companies, the Company believes it can significantly increase revenues and
profit margins, utilizing the Company's relatively low cost of funds and
advanced technological capabilities.

Expanding its Existing Business. The Company intends to continue to rely on
the sophisticated skills of its management team to develop new products with
customized terms to increase volumes from existing and new Sources of equipment
leases. The Company also intends to expand its existing sales force of
approximately 100 persons by attracting qualified and experienced individuals
who can identify Sources on a regional and national basis. The Company will
continue to seek to differentiate itself from its competition by emphasizing
high levels of customer service and technological support to its Sources.

that its significant experience in asset-backed securitization transactions and
extensive relationships with financing sources will allow the Company to
continue to achieve a low cost of funds and increased profitability upon
securitization of its equipment leases.

Utilizing its Advanced Technology and Servicing Capabilities. The Company
intends to continue to utilize and further enhance its state-of-the-art data
processing systems to manage the high volume of information associated with
originating and servicing its leases. Management believes it has developed a
technologically advanced servicing system with excess system capacity which it
intends to utilize to decrease the Company's per lease servicing cost as its
lease volume and number of Sources increase.

Employing Conservative Credit Guidelines. Management believes that its low
level of credit losses since inception is due primarily to its credit
enhancement arrangements with its Private Label Sources and its conservative
underwriting guidelines which apply to all of its lease funding programs. The
Company intends to continue to monitor the credit quality of its portfolio and
apply its conservative underwriting standards to minimize credit risk.

The Company was incorporated in Delaware on June 3, 1994. Its principal
executive office is located at 600 Travis Street, Suite 7050, Houston, Texas
77002, and its telephone number is (713) 221-8822.

THE OFFERING

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<S> <C> <C>
Common Stock offered by the Company............. 2,083,334 shares

Common Stock offered by the Selling
Stockholders.................................. 1,316,666 shares

Total Common Stock offered...................... 3,400,000 shares

Common Stock to be outstanding after the
Offering...................................... 11,488,766 shares(1)

Use of Proceeds................................. To repay borrowings under certain of the Company's
credit facilities, to fund possible future
acquisitions and for general corporate purposes. See
"Use of Proceeds."

Common Stock Nasdaq National Market symbol...... FSFH
</TABLE>

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(1) Assumes the conversion of 18,281 shares of the Company's Series A Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock") into
100,000 shares of Common Stock prior to consummation of the Offering.
Excludes (i) 1,032,320 shares of Common Stock issuable upon exercise of
options granted under the Company's 1997 Stock Option Plan (as defined
herein), and (ii) 210,248 shares of Common Stock (subject to adjustment for
stock dividends, subdivisions or split-ups, or reclassifications) issuable
upon conversion of 38,437 shares of Series A Preferred Stock to be
outstanding following consummation of the Offering. See "Management -- Stock
Option Plan" and "Description of Capital Stock."

RISK FACTORS

Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events which could adversely affect the Company's business. See "Risk Factors."
5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth summary consolidated financial and operating
data of the Company as of the dates and for the periods indicated. The summary
consolidated financial data, as of December 31, 1994 and for the period from
inception (June 3, 1994) to December 31, 1994 and as of and for the years ended
December 31, 1995 and 1996, have been derived from financial statements audited
by Arthur Andersen LLP, independent public accountants. The summary consolidated
financial data as of and for the nine months ended September 30, 1996 and 1997
are unaudited but, in the opinion of management, contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The summary consolidated financial and
operating data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements of the Company and related notes thereto, the
Unaudited Pro Forma Consolidated Financial Statements of the Company and related
notes thereto and the financial statements of Heritage and CCL and related notes
thereto included elsewhere herein. The summary consolidated financial and
operating data for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year or in the future.

<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM YEAR ENDED ENDED
INCEPTION TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- ------------------
1994 1995 1996 1996 1997
------------ ------- ------- ------ -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income....................................... $ 181 $ 3,053 $ 6,323 $4,755 $ 7,661
Gain on sale of lease financing receivables........... -- 3,259(1) 3,456(2) 1,933(2) 12,625(2)
Servicing income...................................... 6 323 1,050 611 2,048
Other income.......................................... -- 16 535 322 1,363
------- ------- ------- ------ -------
Total revenues.................................. 187 6,651 11,364 7,621 23,697
Expenses:
Interest expense...................................... 157 2,616 5,014 3,775 4,402
Salaries and benefits................................. 312 1,346 1,987 1,151 4,730
Provision for credit losses........................... 28 392 537 280 1,414
Depreciation and amortization......................... 6 100 286 168 742
Other general and administrative...................... 522 803 1,531 928 3,586
------- ------- ------- ------ -------
Total expenses.................................. 1,025 5,257 9,355 6,302 14,874
------- ------- ------- ------ -------
Net income (loss) before provision (benefit) for income
taxes................................................. (838) 1,394 2,009 1,319 8,823
Provision (benefit) for income taxes.................... (323) 569 792 520 3,529
------- ------- ------- ------ -------
Net income (loss)....................................... $ (515) $ 825 $ 1,217 $ 799 $ 5,294
======= ======= ======= ====== =======
Net income (loss) per common share and common equivalent
shares................................................ $ (.08) $ .13 $ .19 $ .13 $ .67
======= ======= ======= ====== =======
Shares used in computing net income (loss) per common
share(3).............................................. 6,308 6,436 5,991 6,115 7,850
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Lease financing receivables, net.......................... $29,856 $67,322 $61,270 $37,467
Investment in trust certificates.......................... -- -- 9,534 9,773
Cash and cash equivalents................................. 2,305 876 2,598 7,118
Goodwill and other intangible assets, net................. -- -- 3,615 17,461
Marketable security....................................... -- -- -- 4,053
Furniture and equipment, net.............................. 130 262 1,049 3,033
Other assets.............................................. 1,261 884 1,276 2,067
------- ------- ------- -------
Total assets........................................ $33,552 $69,344 $79,342 $80,972
------- ------- ------- -------
Liabilities and Stockholders' Equity:
Warehouse credit facilities............................... $23,437 $55,827 $52,380 $21,706
Subordinated note payable................................. 9,000 9,000 9,000 1,000
Other liabilities......................................... 630 3,207 11,818 22,780
------- ------- ------- -------
Total liabilities................................... 33,067 68,034 73,198 45,486
Redeemable preferred stock................................ -- -- 3,890 3,890
Stockholders' equity...................................... 485 1,310 2,254 31,596
------- ------- ------- -------
Total liabilities and stockholders' equity.......... $33,552 $69,344 $79,342 $80,972
------- ------- ------- -------
</TABLE>

(Footnotes on following page)
6
<PAGE> 8

<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED NINE MONTHS ENDED
INCEPTION TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- --------------------
1994 1995 1996 1996 1997(4)
------------ ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:

Lease financing receivables acquired and originated:
Private Label
Number.............................................. 123 2,733 10,988 5,422 8,676
Average Interest Rate............................... 9.92% 9.78% 9.45% 9.46% 9.36%
Principal Amount.................................... $ 4,492 $65,244 $161,137 $109,074 $148,956
Broker
Number(5)........................................... -- -- 371 15 1,791
Average Interest Rate............................... --% --% 14.07% 14.81% 13.40%
Principal Amount.................................... $ -- $ -- $ 10,543 $ 1,075 $ 50,008
Vendor
Number(5)........................................... -- -- 203 105 1,331
Average Interest Rate............................... --% --% 16.09% 15.04% 16.20%
Principal Amount.................................... $ -- $ -- $ 7,526 $ 4,630 $ 50,158
Total
Number.............................................. 123 2,733 11,562 5,542 11,798
Average Interest Rate............................... 9.92% 9.78% 10.00% 9.60% 11.20%
Principal Amount.................................... $ 4,492 $65,244 $179,206 $114,779 $249,122
Lease Financing receivables sold:
Leases Sold in Securitizations........................ $ -- $ -- $152,000 $ 88,957 $288,159
Leases Sold to Third Parties(6)....................... $ -- $24,400 $ 7,501 $ 2,758 $ 22,343
Leases Portfolio Serviced(7):
Leases Serviced for Others
Number.............................................. 153 159 8,476 3,939 24,879
Principal Amount.................................... $10,687 $ 9,675 $157,078 $ 82,357 $395,354
Servicing Fee Income................................ $ 6 $ 323 $ 1,050 $ 611 $ 2,048
Total Leases Serviced
Number.............................................. 1,551 3,026 13,967 7,990 26,349
Principal Amount.................................... $40,543 $77,204 $217,283 $160,345 $428,567
Credit Quality Statistics:
Delinquencies (at period end)
Gross Lease Receivables Serviced and Owned.......... $ 5,784 $83,687 $257,234 $192,945 $526,489
31-60 days.......................................... --% 2.53% 2.40% 2.21% 1.85%
61-90 days.......................................... --% 0.45% 0.78% 0.83% 0.49%
91+ days............................................ --% 0.08% 0.33% 0.36% 0.47%
------- ------- -------- -------- --------
Total delinquencies............................. --% 3.06% 3.51% 3.40% 2.81%
Net Charge-offs
Private Label
Principal Amount.................................. $ -- $ -- $ 25 $ -- $ 99
Net Charge-offs as a % of average receivables
outstanding..................................... --% --% 0.02% --% 0.04%
Broker and Vendor (5)
Principal Amount.................................. $ -- $ -- $ -- $ -- $ 73
Net Charge-offs as a % of average receivables
outstanding..................................... --% --% --% --% 0.11%
</TABLE>

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(1) The gain on sale of lease financing receivables in 1995 related to the sale
of a portfolio of leases which was purchased in December 1994. The aggregate
book value of the leases sold was $24.4 million.
(2) The gain on sale of lease financing receivables in 1996 and 1997 related to
leases sold in connection with the Company's securitization program.
(3) Net income (loss) per common share amounts are calculated based on net
income (loss) allocated to common stockholders after preferred dividends
divided by the weighted average number of shares of common stock and common
stock equivalents outstanding, as adjusted for stock splits. Supplemental
net income per share for the year ended December 31, 1996, was $.24, while
supplemental net income per share for the nine months ended September 30,
1996 and 1997 was $.17 and $.64, respectively. The supplemental net income
per share calculation gives effect to the issuance of 1,806,452 shares of
Common Stock in the Company's initial public offering as if such issuance
had occurred as of the beginning of the applicable period and the
elimination of interest expense associated with repayment of outstanding
debt with proceeds from the initial public offering, net of the income tax
effect computed at the Company's effective income tax rate.
(4) Lease financing receivables acquired or originated during the nine months
ended September 30, 1997 do not include approximately $44.6 million of
leases acquired in connection with the Heritage acquisition. See
"Business -- Recent Acquisitions."
(5) The Company established its Broker and Vendor programs in 1996 through the
acquisitions of GIC in July 1996 and CCL in October 1996.
(6) Represents total leases sold to third parties outside the Company's
securitization program. Leases sold to third parties in the year ended
December 31, 1995 includes $24.4 million of leases sold through portfolio
sales. See "Business -- Portfolio Acquisitions and Sales and Lease Sales to
Third Parties."
(7) The number and principal amount of leases serviced for others and total
leases serviced reflect period end statistics. The Company began servicing
leases for others in December 1994. Accordingly, servicing fee income for
the period from inception (June 3, 1994) through December 31, 1994 reflects
limited servicing activity. The number and principal amount of leases
serviced for others, and thus the Company's servicing fee income, increased
significantly during 1996 and the nine months ended September 30, 1997 due
to the Company's servicing responsibilities under its securitization
program.
7
<PAGE> 9

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK
OFFERED HEREBY. EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.

DEPENDENCE ON SECURITIZATION TRANSACTIONS

The Company sells a large percentage of the equipment leases it acquires
and originates through the issuance of securities backed by such leases in
securitization transactions or other structured finance techniques. In a
securitization transaction, the Company sells and transfers a pool of leases to
a wholly-owned, special purpose subsidiary of the Company. The special purpose
subsidiary simultaneously sells and transfers an interest in the leases to a
trust, which issues beneficial interests in the leases in the form of senior and
subordinated securities and sells such securities through public offerings and
private placement transactions. The Company generally retains the right to
receive any excess cash flows of the trust, which right is represented by a
trust certificate (the "Trust Certificate"). The gain on sale of leases sold
through securitization transactions represented approximately 30% of the
Company's revenues in 1996, and approximately 53% of the Company's revenues in
the nine months ended September 30, 1997, and is expected to comprise a
significant portion of the Company's revenues in future periods.

The Company is dependent on securitizations for refinancing of amounts
outstanding under its warehouse facilities, which the Company utilizes to
acquire and originate additional leases. Several factors affect the Company's
ability to complete securitizations, including conditions in the securities
markets generally, conditions in the asset-backed securities markets, the credit
quality of the Company's lease portfolio, compliance of the Company's leases
with the eligibility requirements established in connection with the
securitizations, the Company's ability to obtain third-party credit enhancement,
the ability of the Company to adequately service its lease portfolio, and the
absence of any material downgrading or withdrawal of ratings given to securities
previously issued in the Company's securitizations. Any substantial reduction in
the availability of the securitization market for the Company's leases or any
adverse change in the terms of such securitizations could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "-- Liquidity and Capital
Resources -- Securitization Transactions."

NON-REALIZATION OF INVESTMENT IN TRUST CERTIFICATES

The cash flows available to the Trust Certificates are calculated as the
difference between (a) cash flows received from the leases and (b) the sum of
(i) interest and principal payable to the holders of the senior and subordinated
securities, (ii) trustee fees, (iii) third party credit enhancement fees, (iv)
service fees, and (v) backup service fees. The Company's right to receive this
excess cash flow is subject to certain conditions specified in the related trust
documents designed to provide additional credit enhancement to holders of the
senior and subordinated securities issued in the securitization. The Company
estimates the expected levels of cash flows available to the Trust Certificate
taking into consideration estimated prepayments, defaults, recoveries and other
factors which may affect the cash flows available to the holder of the Trust
Certificate. The cash flows ultimately available to the Trust Certificate are
largely dependent upon the actual default rates and recovery levels experienced
on the leases sold to the Trust. Losses incurred on leases held by the Trust are
borne solely by the holder of the Trust Certificate. Because the Company, as
holder of the Trust Certificates issued in its securitization transactions, is
typically entitled to receive from 2.0% to 6.5% of the cash flows of the Trust
yet bears the risk of loss on the entire portfolio of leases held by the Trust,
relatively small fluctuations in default rates, recovery levels and other
factors impacting cash flows of the leases could have a material adverse effect
on the Company's ability to realize its recorded basis in the Trust Certificate.
In such

8
<PAGE> 10

event, the Company would be required to reduce the carrying amount of its Trust
Certificate and record a charge to earnings in the period in which the event
occurred or became known to management.

ACQUISITION RISKS

A key component of the Company's growth strategy is the acquisition of
other equipment leasing companies. The inability of the Company to identify
suitable acquisition candidates or to complete acquisitions on reasonable terms
could adversely affect the Company's ability to grow its business. In addition,
any acquisition made by the Company may result in potentially dilutive issuances
of equity securities, the incurrence of additional debt and the amortization of
expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the Company's financial condition and results
of operations. The Company also may experience difficulties in the assimilation
of the operations, services, products and personnel of acquired companies, an
inability to sustain or improve the historical revenue levels of acquired
companies, the diversion of management's attention from ongoing business
operations, and the potential loss of key employees of such acquired companies.
There can be no assurance that any future acquisitions will be consummated.

DEPENDENCE ON EXTERNAL FINANCING

The Company funds a large percentage of the equipment leases that it
acquires or originates through its warehouse facilities. The warehouse
facilities are available to fund leases which satisfy eligibility criteria for
inclusion in the Company's securitizations. Borrowings under the warehouse
facilities are repaid with the proceeds received by the Company from
securitization transactions. Any adverse impact on the Company's ability to
complete securitizations could have a material adverse effect on the Company's
ability to obtain or maintain warehouse facilities or the amount available under
such facilities. Any failure by the Company to renew its existing warehouse
facilities or obtain additional warehouse facilities or other financings with
pricing, advance rates and other terms consistent with its existing facilities
could have a material adverse effect on the Company's financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

RISK OF NEED FOR ADDITIONAL CAPITAL

The structure of the Company's lease funding programs, along with the
structure of the Company's warehouse facilities and securitization program,
enabled the Company to generate positive cash flow from operations in 1996 and
the nine months ended September 30, 1997. In the event that future market
conditions adversely affect the terms of the Company's warehouse facilities or
the structure of its securitization transactions, the Company may require
additional capital to fund its operations. The Company also may require
additional capital to finance future acquisitions.

INTEREST RATE RISKS

Leases underwritten by the Company are non-cancelable and require payments
to be made by the lessee at fixed rates for specified terms. The rates charged
by the Company are based on interest rates prevailing in the market at the time
of lease approval. Until the Company's leases are securitized or otherwise sold,
the Company generally funds such leases under its warehouse facilities or from
working capital. Should the Company be unable to securitize or otherwise sell
leases with fixed rates within a reasonable period of time after funding, the
Company's operating margins could be adversely affected by increases in interest
rates. Moreover, increases in interest rates which cause the Company to raise
the implicit rate charged to its customers could cause a reduction in demand for
the Company's lease funding. The Company generally undertakes to hedge against
the risk of interest rate increases when its equipment lease portfolio exceeds
$10.0 million. Such hedging activities limit the Company's ability to
participate in the benefits of lower interest rates with respect to the hedged
portfolio of leases. In addition, there can be no assurance that the Company's
hedging activities will adequately insulate the Company from interest rate
risks. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

9
<PAGE> 11

DEPENDENCE ON CREDITWORTHINESS OF LESSEES

The Company specializes in acquiring and originating equipment leases with
a purchase price of less than $250,000, generally involving small and mid-size
commercial businesses located throughout the United States. Small business
leases generally entail a greater risk of non-performance and higher
delinquencies and losses than leases entered into with larger, more creditworthy
lessees. Because of the Company's short operating history, only limited
performance data is available with respect to leases funded by the Company.
Thus, historical delinquency and loss statistics are not necessarily indicative
of future performance. In addition, the vast majority of leases acquired or
originated by the Company through December 31, 1996 were funded through the
Company's Private Label program under which Sources provide the Company with
credit protection through a combination of recourse and purchase price holdback
features. During the nine months ended September 30, 1997, approximately 40% of
the leases acquired or originated by the Company were funded through the
Company's Broker and Vendor programs under which the Sources do not provide any
credit protection to the Company. Management believes that increasingly larger
percentages of the Company's lease originations in the future will be derived
through its Broker and Vendor programs. The failure of the Company's lessees to
comply with the terms of their leases will result in the inability of such
leases to qualify to serve as collateral under the Company's warehouse
facilities and securitization program and may have a material adverse effect on
the Company's liquidity. Additionally, delinquencies and defaults experienced in
excess of levels estimated by management in determining the Company's allowance
for credit losses and in valuing the Company's right to receive excess cash
flows under its securitization program could have a material adverse effect on
the Company's ability to obtain financing and effect securitization transactions
which may, in turn, have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

FLUCTUATIONS IN QUARTERLY RESULTS

The Company experiences significant fluctuations in quarterly operating
results due to a number of factors, including, among others, the interest rate
on the securities issued in connection with the Company's securitization
transactions, variations in the volume of leases funded by the Company,
differences between the Company's cost of funds and the average implicit yield
to the Company on its leases prior to being securitized or otherwise sold, the
effectiveness of the Company's hedging strategy, the degree to which the Company
encounters competition in its markets and general economic conditions. As a
result of these fluctuations, results for any one quarter should not be relied
upon as being indicative of performance in future quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ABILITY TO SUSTAIN INCREASING VOLUMES OF RECEIVABLES

The Company's ability to sustain continued growth is dependent on its
capacity to attract, evaluate, finance and service increasing volumes of leases
of suitable yield and credit quality. Accomplishing this on a cost-effective
basis is largely a function of the Company's ability to market its products
effectively, to manage the credit evaluation process to assure adequate
portfolio quality, to provide competent, attentive and efficient servicing and
to maintain access to institutional financing sources to achieve an acceptable
cost of funds for its financing programs. Any failure by the Company to market
its products effectively, to maintain its portfolio quality, to effectively
service its leases or to obtain institutional financing at reasonable rates
would have a material adverse effect on the Company's financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Business -- Credit Policies and Procedures" and "Business -- Servicing and
Administration."

DEPENDENCE UPON KEY PERSONNEL

The Company depends to a large extent upon the experience, abilities and
continued efforts of its senior management, including the management of
companies it has acquired. The Company has entered into employment agreements
with its principal executive officers. The loss of the services of one or more
of the key members of the Company's senior management could have a material
adverse effect on the Company's

10
<PAGE> 12

financial condition and results of operations. The Company's future success also
will depend upon its ability to attract and retain additional skilled management
personnel necessary to support anticipated future growth. See "Management."

COMPETITION

The financing of small ticket equipment is highly competitive. The Company
competes for customers with a number of national, regional and local finance
companies. In addition, the Company's competitors include those equipment
manufacturers that finance the sale or lease of their products themselves and
other traditional types of financial services companies, such as commercial
banks and savings and loan associations, all of which provide financing for the
purchase of equipment. Many of the Company's competitors and potential
competitors possess substantially greater financial, marketing and operational
resources than the Company. The Company's competitors and potential competitors
include many larger, more established companies which may have a lower cost of
funds than the Company and access to capital markets and to other funding
sources which may be unavailable to the Company. See "Business -- Competition."

CONCENTRATION OF LEASE SOURCES AND CREDIT RISKS

Although the Company's portfolio of leases includes lessees located
throughout the United States, the Company acquires or originates a majority of
its leases from Sources operating in five states: Texas, Florida, New York, New
Jersey and California. The ability of the Company's lessees to honor their
contracts may be substantially dependent on economic conditions in these states.
All such leases are collateralized by the related equipment. The recourse and
holdback provisions of the Private Label program mitigate, but do not eliminate,
a significant portion of any economic risk not recoverable through the sale of
the related equipment.

Additionally, a substantial portion of the Company's leases are
concentrated in certain industries, including the medical industry, the dental
industry and the veterinary industry. To the extent that the economic or
regulatory conditions prevalent in such industries change, the ability of the
Company's lessees to honor their lease obligations may be adversely impacted.

In the event that the Company's significant Sources were to substantially
reduce the number of leases sold to the Company, and the Company was not able to
replace the lost lease volume, such reduction could have a material adverse
effect on the Company's financial condition and results of operations.

MANAGEMENT OF GROWTH

The Company has grown dramatically since its inception in June 1994. The
volume of leases acquired or originated by the Company was $4.5 million for the
period from inception to December 31, 1994, $65.2 million for the year ended
December 31, 1995, $179.2 million for the year ended December 31, 1996, and
$249.1 million for the nine months ended September 30, 1997. This significant
growth has placed, and if sustained will continue to place, a burden on the
administrative and financial resources of the Company. Accordingly, the
Company's future financial condition and results of operations will depend on
management's ability to effectively manage future growth, the success of which
cannot be assured. See "Business."

RESIDUAL VALUE RISK

The Company retains a residual interest in the equipment covered by certain
of its leases. The estimated fair market value of the equipment at the end of
the contract term of the lease, if any, is reflected as an asset on the
Company's balance sheet. The Company's results of operations depend, to some
degree, upon its ability to realize these residual values. Realization of
residual values depends on many factors, several of which are outside the
Company's control, including general market conditions at the time of expiration
of the lease, whether there has been unusual wear and tear on, or use of, the
equipment, the cost of comparable new equipment, the extent, if any, to which
the equipment has become technologically or economically obsolete during the
contract term and the effects of any additional or amended government
regulations. If, upon the expiration of a lease, the Company sells or refinances
the underlying equipment and the amount realized is less than the recorded value
of the residual interest in such equipment, a loss reflecting the difference
will be

11
<PAGE> 13

recognized. Any failure by the Company to realize aggregate recorded residual
values could have a material adverse effect on its financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Residual Interests in
Underlying Equipment."

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation ("Charter") and Amended
and Restated Bylaws ("Bylaws") contain certain provisions that may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable, including provisions authorizing the issuance of "blank check"
preferred stock, providing for a Board of Directors with staggered, three-year
terms, requiring super-majority or class voting to effect certain amendments to
the Charter and Bylaws and to approve certain business combinations, limiting
the persons who may call special stockholders' meetings, and establishing
advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted upon at stockholders'
meetings. In addition, certain provisions of Delaware law may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals. See "Description of Capital Stock -- Delaware
Law and Certain Charter Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 11,488,766 shares of
Common Stock outstanding. The 2,300,000 shares of Common Stock issued in the
Company's initial public offering are, and the 3,400,000 shares of Common Stock
offered hereby will be, freely tradeable without restriction or further
registration under the Securities Act, except for shares sold by persons deemed
to be "affiliates" of the Company or acting as "underwriters," as those terms
are defined in the Securities Act. Following the expiration of the lock-up
period described below, all of the remaining outstanding shares of Common Stock
(other than approximately 715,115 shares of Common Stock issued in connection
with acquisitions completed in the past 12 months) and the shares of Common
Stock issuable upon conversion of the outstanding Series A Preferred Stock will
be freely tradeable subject to the restrictions on resale imposed upon
"affiliates" by Rule 144 under the Securities Act. The Company, its executive
officers and directors, the Selling Stockholders and certain other stockholders
of the Company have agreed not to sell, offer to sell, contract to sell, pledge
or otherwise dispose of or transfer any shares of Common Stock, or any
securities convertible into or exchangeable or exercisable for, or any rights to
purchase or acquire, Common Stock for a period of 90 days commencing on the date
of this Prospectus without the prior written consent of Friedman, Billings,
Ramsey & Co., Inc., other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof in connection with
the Company's stock option plans, provided that such options shall not vest or
such shares shall not be transferable prior to the end of the 90-day period, and
the issuance by the Company of capital stock in connection with acquisitions of
lease finance companies, provided that such shares shall not be transferable
prior to the end of the 90-day period. See "Shares Eligible for Future Sale" and
"Underwriting."

LIMITED TRADING HISTORY OF COMMON STOCK; STOCK PRICE VOLATILITY

The Common Stock was first publicly traded on May 15, 1997 after the
Company's initial public offering of Common Stock to the public at $8.00 per
share. Between May 15, 1997 and January 13, 1998, the sale price has ranged from
a low of $8.38 per share to a high of $20.50 per share. The market price of the
Common Stock may fluctuate substantially due to a variety of factors, including
quarterly fluctuations in results of operations, the liquidity of the market for
the Common Stock, investor perceptions of the Company and the equipment
financing industry in general, changes in earnings estimates by analysts, sales
of Common Stock by existing holders, loss of key personnel, general economic
conditions and other factors. The market price for the Company's Common Stock
may also be affected by the Company's ability to meet analysts' expectations,
and any failure to meet such expectations, even if minor, could have a material
adverse effect on the market price of the Company's Common Stock. In addition,
the stock market is subject to extreme price and volume

12
<PAGE> 14

fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's financial condition and results of operations. See "Price Range
of Common Stock."

ABSENCE OF DIVIDENDS

The Company intends to retain earnings to finance the growth and
development of its business. Additionally, provisions in certain of the
Company's credit facilities and the terms of the Preferred Stock contain certain
restrictions on the Company's ability to pay dividends on its Common Stock.
Accordingly, the Company does not anticipate paying cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $34.9 million ($43.5 million if the
Underwriters' over-allotment option is exercised in full), based upon the last
reported sale price of the Common Stock on January 13, 1998 as reported by
Nasdaq after deducting underwriting discounts and commissions and estimated
offering expenses. Of these net proceeds, approximately $5.0 million will be
used to repay the outstanding balance under the Subordinated Revolving Credit
Facility (as defined herein). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The remaining net proceeds will be used to fund possible future
acquisitions and for general corporate purposes, including repayment of amounts
then outstanding under the Prudential On-Balance Sheet Facility (as defined
herein) and the Company's lines of credit (the "Lines of Credit").

The Subordinated Revolving Credit Facility bears interest at 11.00% per
annum and expires in 2002. The Prudential On-Balance Sheet Facility bears
interest at a floating rate equal to the 30-day LIBOR plus .80% and matures on
October 31, 1998. The Lines of Credit bear interest at varying rates ranging
from 8.25% to 12.50% and mature at varying dates from 1998 to 2002. Amounts
borrowed under the Subordinated Revolving Credit Facility, the Prudential
On-Balance Sheet Facility and the Lines of Credit were used to fund lease
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

13
<PAGE> 15

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain earnings to finance the growth
and development of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. In addition, provisions
in certain of the Company's credit facilities and the terms of the Series A
Preferred Stock contain certain restrictions on the payment of dividends on the
Common Stock. Holders of shares of Series A Preferred Stock are entitled to
receive annual cash dividends of $1.86 per share, such dividends being payable
annually as declared by the Board of Directors. See "Description of Capital
Stock -- Series A Preferred Stock." Any future change in the Company's dividend
policy will be made at the discretion of the Company's Board of Directors in
light of the financial condition, capital requirements, earnings and prospects
of the Company and any restrictions under the Company's credit agreements or
rights of the Series A Preferred Stock, as well as other factors the Board of
Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

PRICE RANGE OF COMMON STOCK

The Common Stock began trading on the Nasdaq National Market on May 15,
1997 under the symbol "FSFH." The following table sets forth the high and low
sale prices of the Common Stock for the periods indicated, as reported by
Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Second Quarter (beginning May 15)........................... $11.25 $ 8.38
Third Quarter............................................... 20.25 10.50
Fourth Quarter.............................................. 20.50 17.75
1998
First Quarter (through January 13).......................... 18.25 17.25
</TABLE>

On January 13, 1998, the last reported sale price of the Common Stock was
$17.87 per share. As of October 31, 1997, there were approximately 25 holders of
record of the Common Stock.

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<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1997, and on an as adjusted basis to give effect to the sale of
the shares of Common Stock offered hereby. The table should be read in
conjunction with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and related notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes.......................................... $ 1,000 $ 1,000
Redeemable preferred stock(1)............................... 3,890 1,789
Stockholders' equity:
Common Stock, $.01 par value per share, 25,000,000 shares
authorized; 9,038,550 shares issued and outstanding;
and 11,460,873 shares issued and outstanding, as
adjusted(2)............................................ 90 115
Additional paid-in capital................................ 24,862 62,754
Retained earnings......................................... 6,644 6,644
------- -------
Total stockholders' equity........................ 31,596 69,513
------- -------
Total capitalization.............................. $36,486 $72,302
======= =======
</TABLE>

- ---------------

(1) The Series A Preferred Stock is convertible at the holder's option into
Common Stock at a conversion rate of 5.47 shares of Common Stock for each
share of such Preferred Stock, such rate being subject to adjustment for
stock dividends, subdivisions or split-ups, or reclassifications. On
December 31, 2001 the Company must redeem all shares of Series A Preferred
Stock then outstanding at a redemption price of $46.55 per share, together
with all accrued and unpaid dividends. Assumes that 18,281 shares of Series
A Preferred Stock have been converted into 100,000 shares of Common Stock
prior to consummation of the Offering. See "Description of Capital
Stock -- Series A Preferred Stock."

In December 1997, all outstanding shares of the Company's Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock" and together with the Series A Preferred Stock, the
"Preferred Stock") were converted into 238,989 shares of Common Stock. The
Series B Preferred Stock was convertible at the holder's option into Common
Stock at a conversion rate of 5.47 shares of Common Stock for each share of
such Preferred Stock, such rate being subject to adjustment for stock
dividends, subdivisions or split-ups, or reclassifications. The Series B
Preferred Stock was subject to mandatory redemption by the Company on
December 31, 2001 at a redemption price ranging from $57.22 to $28.61 per
share, depending on how many shares of Series B Preferred Stock were
released from escrow (subject to adjustment for any stock dividend,
subdivision or split-up, or reverse stock split), together with all accrued
and unpaid dividends. See "Description of Capital Stock -- Series B
Preferred Stock."

(2) Excludes 1,032,320 shares of Common Stock issuable upon exercise of options
granted under the Company's 1997 Stock Option Plan. See "Management -- Stock
Option Plan." Also excludes 27,893 shares of Common Stock issued in
connection with the acquisitions of Heritage Credit Services of Oregon, Inc.
and All American Financial Services, Inc. in November 1997. See
"Business -- Recent Acquisitions."

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and
operating data of the Company as of the dates and for the periods indicated. The
selected consolidated financial data, as of December 31, 1994 and for the period
from inception (June 3, 1994) to December 31, 1994 and as of and for the years
ended December 31, 1995 and 1996, have been derived from financial statements
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated financial data as of and for the nine months ended September 30,
1996 and 1997 are unaudited but, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The selected consolidated
financial and operating data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of the Company and related
notes thereto, the Unaudited Pro Forma Consolidated Financial Statements of the
Company and related notes thereto and the financial statements of Heritage and
CCL and related notes thereto included elsewhere herein. The selected
consolidated financial and operating data for the nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full year or in the future.

<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM YEAR ENDED ENDED
INCEPTION TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- ------------------
1994 1995 1996 1996 1997
------------ ------- ------- ------ -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income.......................................... $ 181 $ 3,053 $ 6,323 $4,755 $ 7,661
Gain on sale of lease financing receivables.............. -- 3,259(1) 3,456(2) 1,933(2) 12,625(2)
Servicing income......................................... 6 323 1,050 611 2,048
Other income............................................. -- 16 535 322 1,363
------- ------- ------- ------ -------
Total revenues..................................... 187 6,651 11,364 7,621 23,697
Expenses:
Interest expense......................................... 157 2,616 5,014 3,775 4,402
Salaries and benefits.................................... 312 1,346 1,987 1,151 4,730
Provision for credit losses.............................. 28 392 537 280 1,414
Depreciation and amortization............................ 6 100 286 168 742
Other general and administrative......................... 522 803 1,531 928 3,586
------- ------- ------- ------ -------
Total expenses..................................... 1,025 5,257 9,355 6,302 14,874
------- ------- ------- ------ -------
Net income (loss) before provision (benefit) for income
taxes.................................................... (838) 1,394 2,009 1,319 8,823
Provision (benefit) for income taxes....................... (323) 569 792 520 3,529
------- ------- ------- ------ -------
Net income (loss).......................................... $ (515) $ 825 $ 1,217 $ 799 $ 5,294
======= ======= ======= ====== =======
Net income (loss) per common share and common equivalent
shares................................................... $ (.08) $ .13 $ .19 $ .13 $ .67
======= ======= ======= ====== =======
Shares used in computing net income (loss) per common
share(3)................................................. 6,308 6,436 5,991 6,115 7,850
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Assets:
Lease financing receivables, net......................... $29,856 $67,322 $61,270 $37,467
Investment in Trust Certificates......................... -- -- 9,534 9,773
Cash and cash equivalents................................ 2,305 876 2,598 7,118
Goodwill and other intangible assets, net................ -- -- 3,615 17,461
Marketable security...................................... -- -- -- 4,053
Furniture and equipment, net............................. 130 262 1,049 3,033
Other assets............................................. 1,261 884 1,276 2,067
------- ------- ------- -------
Total assets....................................... $33,552 $69,344 $79,342 $80,972
======= ======= ======= =======
Liabilities and Stockholders' Equity:
Warehouse credit facilities.............................. $23,437 $55,827 $52,380 $21,706
Subordinated note payable................................ 9,000 9,000 9,000 1,000
Other liabilities........................................ 630 3,207 11,818 22,780
------- ------- ------- -------
Total liabilities.................................. 33,067 68,034 73,198 45,486
Redeemable preferred stock............................... -- -- 3,890 3,890
Stockholders' equity..................................... 485 1,310 2,254 31,596
------- ------- ------- -------
Total liabilities and stockholders' equity......... $33,552 $69,344 $79,342 $80,972
======= ======= ======= =======
</TABLE>

(Footnotes on following page)

16
<PAGE> 18

Lease financing receivables acquired and originated:
Private Label
Number.............................................. 123 2,733 10,988 5,422 8,676
Average Interest Rate............................... 9.92% 9.78% 9.45% 9.46% 9.36%
Principal Amount.................................... $ 4,492 $65,244 $161,137 $109,074 $148,956
Broker
Number(5)........................................... -- -- 371 15 1,791
Average Interest Rate............................... --% --% 14.07% 14.81% 13.40%
Principal Amount.................................... $ -- $ -- $ 10,543 $ 1,075 $ 50,008
Vendor
Number(5)........................................... -- -- 203 105 1,331
Average Interest Rate............................... --% --% 16.09% 15.04% 16.20%
Principal Amount.................................... $ -- $ -- $ 7,526 $ 4,630 $ 50,158
Total
Number.............................................. 123 2,733 11,562 5,542 11,798
Average Interest Rate............................... 9.92% 9.78% 10.00% 9.60% 11.20%
Principal Amount.................................... $ 4,492 $65,244 $179,206 $114,779 $249,122
Lease Financing receivables sold:
Leases Sold in Securitizations...................... $ -- $ -- $152,000 $ 88,957 $288,159
Leases Sold to Third Parties(6)..................... $ -- $24,400 $ 7,501 $ 2,758 $ 22,343
Leases Portfolio Serviced(7):
Leases Serviced for Others
Number.............................................. 153 159 8,476 3,939 24,879
Principal Amount.................................... $10,687 $ 9,675 $157,078 $ 82,357 $395,354
Servicing Fee Income................................ $ 6 $ 323 $ 1,050 $ 611 $ 2,048
Total Leases Serviced
Number.............................................. 1,551 3,026 13,967 7,990 26,349
Principal Amount.................................... $40,543 $77,204 $217,283 $160,345 $428,567
Credit Quality Statistics:
Delinquencies (at period end)
Gross Lease Receivables Serviced and Owned.......... $ 5,784 $83,687 $257,234 $192,945 $526,489
31-60 days.......................................... --% 2.53% 2.40% 2.21% 1.85%
61-90 days.......................................... --% 0.45% 0.78% 0.83% 0.49%
91+ days............................................ --% 0.08% 0.33% 0.36% 0.47%
------- ------- -------- -------- --------
Total delinquencies............................. --% 3.06% 3.51% 3.40% 2.81%
Net Charge-offs
Private Label
Principal Amount.................................. $ -- $ -- $ 25 $ -- $ 99
Net Charge-offs as a % of average receivables
outstanding..................................... --% --% 0.02% --% 0.04%
Broker and Vendor (5)
Principal Amount.................................. $ -- $ -- $ -- $ -- $ 73
Net Charge-offs as a % of average receivables
outstanding..................................... --% --% --% --% 0.11%
</TABLE>

- ---------------

17
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is a specialized finance company that acquires and originates,
sells and services equipment leases. The Company initially funds the acquisition
or origination of its leases through its warehouse credit facilities or from
working capital and, upon achieving a sufficient portfolio size, sells such
receivables in the public and private markets, principally through its
securitization program. Management believes that its significant experience in
asset-backed securitization transactions and extensive relationships with
financing sources has allowed the Company to achieve a lower cost of funds and
ultimately a wider spread upon securitization of its equipment leases than many
of its competitors. The structure of the Company's lease funding programs
(including the recourse and purchase price holdback features of the Private
Label program described below), along with the structure of the Company's
warehouse facilities and securitization program, enabled the Company to generate
positive cash flow from operations in 1996 and the nine months ended September
30, 1997.

The Company commenced operations in June 1994 and initially developed a
program to purchase leases from leasing companies which had the ability to
originate significant lease volume and were willing and able to provide credit
protection to the Company and perform certain servicing functions on an ongoing
basis with respect to such leases. This program, referred to by the Company as
its "Private Label" program, was designed to provide the Company with access to
high volumes of leases eligible for the securitization market, while minimizing
the risk of loss to the Company. In a typical Private Label transaction, the
Company purchases leases from the Private Label Source and receives a security
interest in the underlying equipment. Each Private Label Source provides credit
protection to the Company through a combination of recourse and purchase price
holdback features and performs certain labor-intensive servicing functions with
respect to the leases sold to the Company, such as credit collection, equipment
repossession and liquidation functions. Generally, the Company receives and
processes all lease payments on leases purchased by it under the Private Label
program. See "Business -- Lease Funding Programs -- Private Label."

The Company's yields generated under the Private Label program are
generally lower than those generated under the Company's Broker and Vendor
programs because of the credit protection afforded the Company and the reduced
level of servicing required of the Company. The weighted average yield to the
Company on leases funded through the Private Label program from inception
through September 30, 1997 was 9.48%. The Company has experienced significant
growth in its Private Label program. The volume of leases purchased by the
Company pursuant to its Private Label program was $4.5 million in 1994, $65.2
million in 1995, $161.1 million in 1996 and $149.0 million in the nine months
ended September 30, 1997.

In 1996, as part of its growth strategy, the Company began targeting
additional sources of lease volume from small ticket lease brokers which were
unable or unwilling to provide the credit protection or perform the servicing
functions required under the Private Label program and through relationships
with vendors of equipment. The Company established its Broker and Vendor
programs in 1996 through the strategic acquisitions of GIC in July 1996 and CCL
in October 1996. In a typical Broker or Vendor arrangement, leases are
originated by the Company without recourse to the Source. The Company also
performs all servicing functions on leases acquired or originated under its
Broker and Vendor programs. As a result, the Company's yields are higher than
those on its Private Label leases. The weighted average yields to the Company on
leases funded pursuant to its Broker and Vendor programs were 14.07% and 16.09%,
respectively, in 1996 and 13.40% and 16.20%, respectively, in the nine months
ended September 30, 1997.

The volume of leases funded by the Company pursuant to its Broker and
Vendor programs was $10.5 million and $7.5 million, respectively, in 1996 and
$50.0 million and $50.2 million, respectively, in the nine months ended
September 30, 1997. Management intends to continue to pursue opportunities to
acquire additional small ticket leasing companies with broker and vendor
operations and believes that a larger percentage of the Company's revenues in
the future will be derived from such broker and vendor Sources.

18
<PAGE> 20

In addition to its Private Label, Broker and Vendor programs, the Company
has in the past generated, and may in the future generate, gain on sale income
through the acquisition of lease portfolios and the subsequent sale of such
portfolios at a premium. In December 1994, the Company acquired a portfolio of
leases for $25.4 million. In February 1995, the Company sold the majority of the
leases in such portfolio for total consideration of $27.7 million. The Company
realized a pre-tax gain on sale of portfolio leases of $3.3 million in
connection with such sale, net of related closing expenses. No portfolio sales
were made in 1996. See "Business -- Portfolio Acquisitions and Sales."

The Company also generates gain on sale income from the sale of leases to
third party financing sources for cash. During the nine months ended September
30, 1997, the Company sold leases to third parties for aggregate consideration
of $22.3 million. The Company realized an aggregate pre-tax gain on sale of $1.0
million in connection with such sales.

The leases acquired or originated by the Company are non-cancelable for a
specified term during which the Company generally receives scheduled payments
sufficient, in the aggregate, to cover the Company's borrowing costs and the
costs of the underlying equipment, and to provide the Company with an
appropriate profit margin. The non-cancelable term of each lease is equal to or
less than the equipment's estimated economic life. Initial terms of the leases
in the Company's portfolio generally range from 12 to 84 months, with a weighted
average initial term of 56 months as of September 30, 1997. Certain of the
leases acquired or originated by the Company carry a $1.00 buy-out provision
upon maturity of the lease.

As a fundamental part of its business and financing strategy, the Company
sells the leases it acquires or originates through securitization transactions
and other structured finance transactions. In a securitization transaction, the
Company sells and transfers a pool of leases to a wholly-owned, special purpose
subsidiary of the Company. The special purpose subsidiary simultaneously sells
and transfers an interest in the leases to a trust, which issues beneficial
interests in the leases in the form of senior securities (the "Class A
Certificates") and subordinated securities (the "Class B-1 Certificates" and
"Class B-2 Certificates") and sells such senior and subordinated securities in
the public and private markets. The Company generally retains the right to
receive any excess cash flows of the trust, which right is represented by the
Trust Certificate.

Securities issued by the Company in its securitization transactions are
credit enhanced through a combination of (i) a financial guaranty insurance
policy which guarantees the holders of Class A Certificates the timely payment
of interest and the payment of principal at maturity; (ii) the terms of the
subordinated securities which provide that, in certain default and performance
deficiency situations, cash flows that would otherwise be allocated to holders
of Class B-1 Certificates and Class B-2 Certificates will be allocated to
holders of Class A Certificates; and (iii) the terms of the Trust Certificate,
which provide that in certain default and performance deficiency situations,
excess cash flows that would otherwise be allocated to the Company will be
allocated to the holders of Class A Certificates, Class B-1 Certificates and
Class B-2 Certificates.

The Company funds the initial acquisition and origination of a large
percentage of its leases through its warehouse facilities. Each such facility
contemplates that the lease receivables financed thereunder will be refinanced
through the Company's securitization program or other structured finance
transactions.

Relocation of Operations Center

In order to consolidate its operations and maximize administrative
efficiencies, the Company intends to relocate its operations center from
Jupiter, Florida to its headquarters in Houston, Texas beginning in the fourth
quarter of 1997. In connection therewith, the Company expects to incur a
one-time pre-tax restructuring charge of approximately $1.5 million, primarily
attributable to personnel related costs.

Certain Accounting Considerations

Substantially all of the leases acquired or originated by the Company are
"direct financing" leases in that they transfer substantially all of the
benefits and risks of equipment ownership to the lessee. A lease is classified
as a direct financing lease if the collection of the minimum lease payments is
reasonably predictable, no significant uncertainties exist relating to
unreimbursable costs yet to be incurred by the lessor under the lease and the
lease meets one of the following criteria: (i) ownership of the property is
transferred to the lessee

19
<PAGE> 21

at the end of the lease term; (ii) the lease contains a bargain purchase option;
(iii) the term of the lease is at least equal to 75% of the estimated economic
life of the leased equipment; or (iv) the present value of the minimum lease
payments is at least equal to 90% of the fair value of the leased equipment at
the inception of the lease. Because the Company's leases are classified as
direct financing leases, the Company records total lease rentals, estimated
unguaranteed residual value and initial direct costs as the gross investment in
the lease. The difference between the gross investment in the lease and the cost
of the leased equipment is defined as "unearned income." Interest income is
recognized over the term of the lease by amortizing the unearned income and
deferred initial direct costs using the interest method.

Management evaluates the collectibility of its leases based on the level of
recourse provided, if any, delinquency statistics, historical loss experience,
current economic conditions and other relevant factors. The Company provides an
allowance for credit losses for leases which are considered impaired during the
period from the funding of the leases through the date such leases are sold
through the Company's securitization program. Estimated losses on leases that
are considered impaired and have been sold through the Company's securitization
program are taken into consideration in the valuation of the Company's
investment in the Trust Certificate retained in the securitization transaction.
See "Business -- Exposure to Credit Losses."

As previously discussed, the Company sells a large percentage of the leases
it acquires or originates through securitization transactions and other
structured finance techniques. In a securitization transaction, the Company
sells and transfers a pool of leases to a wholly-owned, bankruptcy remote
special purpose subsidiary of the Company. This subsidiary in turn
simultaneously sells and transfers its interest in the leases to a trust which
issues beneficial interests in the leases in the form of senior and subordinated
securities. The Company generally retains the right to receive the Trust
Certificate.

Gain on sale of leases sold through securitization transactions is recorded
as the difference between the proceeds received from the sale of senior and
subordinated securities, net of related issuance expenses, and the cost basis of
the leases allocated to the securities sold. The cost basis of the leases is
allocated to the senior and subordinated securities and the Trust Certificate on
a relative fair value basis on the date of sale. The fair value of the senior
and subordinated securities is based on the price at which such securities are
sold through public offerings and private placement transactions, while the fair
value of the Trust Certificate is based on the Company's estimate of its fair
value using a discounted cash flow approach.

The cash flows available to the Trust Certificates are calculated as the
difference between (a) cash flows received from the leases and (b) the sum of
(i) interest and principal payable to the holders of the senior and subordinated
securities, (ii) trustee fees, (iii) third party credit enhancement fees, (iv)
service fees, and (v) backup service fees. The Company's right to receive this
excess cash flow is subject to certain conditions specified in the related trust
documents designed to provide additional credit enhancement to holders of the
senior and subordinated securities issued in the securitization. The Company
estimates the expected levels of cash flows available to the Trust Certificate
taking into consideration estimated prepayments, defaults, recoveries and other
factors which may affect the cash flows available to the holder of the Trust
Certificate. The cash flows ultimately available to the Trust Certificate are
largely dependent upon the actual default rates and recovery levels experienced
on the leases sold to the Trust. Losses incurred on leases held by the Trust are
borne solely by the holder of the Trust Certificate to the extent of the
holder's investment in the Trust Certificate. Because the Company, as holder of
the Trust Certificates issued in its securitization transactions, is typically
entitled to receive from 2.0% to 6.5% of the cash flows of the Trust yet bears
the risk of loss on the entire portfolio of leases held by the Trust, relatively
small fluctuations in default rates, recovery levels and other factors impacting
cash flows of the leases could have a material adverse effect on the Company's
ability to realize its recorded basis in the Trust Certificate. In such event,
the Company would be required to reduce the carrying amount of its Trust
Certificates and record a charge to earnings in the period in which the event
occurred or became known to management.

Gain on sale of leases is calculated as the difference between the proceeds
received, net of related selling expenses, and the carrying amount of the
related leases, adjusted for ongoing recourse obligations of the Company, if
any.

20
<PAGE> 22

The Company generally retains the right to service the leases it sells
through securitization transactions and receives a fee for performing such
services, as well as late charges applicable to the leases.

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective, and the Company adopted its provisions, for transactions occurring
after December 31, 1996. Among other things, SFAS No. 125 requires that
servicing assets and other retained interests in transferred assets be measured
by allocating the previous carrying amount between the assets sold, if any, and
retained interests, if any, based on relative fair values at the date of
transfer. Under SFAS No. 125, the Company records a servicing asset representing
the excess of estimated fees to be received over expenses to be incurred in
servicing leases sold through the Company's securitization program. The effect
in 1997 compared with the prior accounting method used has been to decrease the
cost basis allocable to the senior and subordinated securities and the Trust
Certificate issued in connection with the Company's securitization transactions.
The reduced basis allocated to the senior and subordinated securities has
resulted in greater gains being recorded upon sale of the leases than was
provided for under accounting pronouncements applicable through December 31,
1996, as well as reduced servicing income generated from leases sold after
December 31, 1996 as a result of the amortization of the servicing asset
recorded upon the sale.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996

During the nine months ended September 30, 1997 and 1996, the Company sold
leases with an aggregate principal balance of $288.2 million and $89.0 million,
respectively, net of unearned income, through the Company's securitization
program. The Company recognized gains of $12.6 million and $1.9 million,
respectively, upon such sales and retained Trust Certificates in the related
trusts with an allocated cost basis of $3.0 million and $4.7 million,
respectively. Gains recognized upon sales of leases increased as a percentage of
leases sold from 2.1% for the nine months ended September 30, 1996, to 4.4% for
the nine months ended September 30, 1997. The increase was directly attributable
to an increase in the weighted average interest rate of leases sold as a result
of the inclusion of higher yielding leases acquired pursuant to the Company's
Broker and Vendor programs and a decrease in the level of Trust Certificates the
Company was required to retain in the securitization trusts.

Interest income increased $2.9 million, or 61%, from $4.8 million for the
nine months ended September 30, 1996 to $7.7 million for the nine months ended
September 30, 1997. The increase was primarily related to $1.8 million of
interest income recognized during the nine months ended September 30, 1997 on
Trust Certificates retained by the Company in securitization transactions. The
remaining difference was the result of a 25% increase in the average rate earned
on the leases, partially offset by a 6% decrease in the average lease receivable
balance outstanding during the period. The increase in the average rate earned
on the leases was directly attributable to the formation of the Company's Broker
and Vendor programs in July 1996.

Servicing income increased $1.4 million, or 235%, from $611,000 for the
nine months ended September 30, 1996 to $2.0 million for the nine months ended
September 30, 1997. Such increase was primarily attributable to servicing fees
received from the Company's securitization transactions, the first of which took
place in May 1996. Total assets serviced rose to $395.0 million as of September
30, 1997, compared with $82.0 million as of September 30, 1996.

Interest expense increased $627,000, or 17%, from $3.8 million for the nine
months ended September 30, 1996 to $4.4 million for the nine months ended
September 30, 1997. Such increase was primarily due to a 23% increase in the
average balance outstanding under the Company's warehouse facilities.

Salaries and benefits increased $3.5 million, or 311%, from $1.2 million
for the nine months ended September 30, 1996 to $4.7 million for the nine months
ended September 30, 1997. Such increase was primarily related to a 420% increase
in the number of people employed by the Company from September 30, 1996 to
September 30, 1997. The increase in the number of employees was directly related
to the acquisitions of nine companies from July 1996 through September 1997. In
addition, salaries and benefits have increased

21
<PAGE> 23

due to the higher level of servicing required as a result of the formation of
the Company's Broker and Vendor programs in July 1996.

Provision for credit losses increased $1.1 million, or 405%, from $280,000
for the nine months ended September 30, 1996 to $1.4 million for the nine months
ended September 30, 1997. The increase was primarily due to the origination of
$100.2 million of leases under the Company's Broker and Vendor programs during
the nine months ended September 30, 1997, which have a greater exposure to
credit losses than leases originated under the Company's Private Label program,
which provide for recourse to the Private Label Source. To a lesser extent, the
increase in the provision for credit losses was also attributable to a 37%
increase in leases originated under the Private Label program from $109.1
million for the nine months ended September 30, 1996 to $149.0 million for the
nine months ended September 30, 1997.

Depreciation and amortization increased $574,000, from $168,000 for the
nine months ended September 30, 1996 to $742,000 for the nine months ended
September 30, 1997. Such increase was primarily attributable to a 585% increase
in goodwill and other intangible assets resulting from the acquisitions referred
to above as well as a 360% increase in fixed assets owned at September 30, 1997.

Other general and administrative expenses increased $2.7 million, or 286%,
from $900,000 for the nine months ended September 30, 1996 to $3.6 million for
the nine months ended September 30, 1997. Such increase was primarily
attributable to the general expansion of the Company's business and the
acquisitions referred to above.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1996

Interest income increased $3.3 million, or 107%, from $3.1 million for the
year ended December 31, 1995 to $6.3 million for the year ended December 31,
1996. The increase was primarily attributable to a 90% increase in average lease
receivable balance outstanding ($659,000 of interest income was recognized on
higher yielding leases originated under the Company's Broker and Vendor programs
which began in July 1996) and $573,000 recognized on subordinated securities
retained by the Company in its May and November 1996 securitization
transactions.

Gain on sale of lease financing receivables increased $197,000, or 6%, from
$3.3 million for the year ended December 31, 1995 to $3.5 million for the year
ended December 31, 1996. The gain on sale of lease financing receivables
recognized in 1996 reflects the net profit resulting from the Company's two 1996
securitization transactions. The leases securitized in 1996 were acquired
through the Company's Private Label program. The $3.3 million gain on sale of
lease financing receivables recognized in 1995 resulted from the sale of a lease
portfolio acquired at a discount from a third party in 1994.

Servicing income increased $727,000, or 225%, from $323,000 for the year
ended December 31, 1995 to $1.1 million for the year ended December 31, 1996.
Such increase was primarily attributable to servicing fees received from the
Company's two 1996 securitization transactions. At December 31, 1995, the
Company serviced 159 leases for others with an aggregate principal amount of
$9.7 million. At December 31, 1996, the Company serviced 8,476 leases with an
aggregate principal amount of $157.1 million.

Other income increased $519,000 from $16,000 for the year ended December
31, 1995 to $535,000 for the year ended December 31, 1996. Such increase was
primarily attributable to brokerage fees received on transactions brokered to
third parties by the Company subsequent to its acquisition of GIC in fulfillment
of an existing contractual obligation of GIC.

Interest expense increased $2.4 million, or 92%, from $2.6 million for the
year ended December 31, 1995 to $5.0 million for the year ended December 31,
1996. Such increase was due to an increase in the average balance outstanding
under the Company's warehouse facilities, which borrowings were used to finance
the significant increase in leases acquired or originated by the Company in
1996. In 1996, the Company acquired or originated $179.2 million of leases, as
compared to $65.2 million in 1995.

22
<PAGE> 24

Salaries and benefits increased $641,000, or 48%, from $1.3 million for the
year ended December 31, 1995 to $2.0 million for the year ended December 31,
1996. Such increase was primarily attributable to a general expansion of the
Company's business and an increase in the number of employees resulting from the
acquisitions of GIC and CCL. In addition, due to the higher level of servicing
responsibility assumed by the Company in connection with its Broker and Vendor
programs, salaries and benefits are higher as a percentage of lease volumes than
under the Company's Private Label program.

Provision for credit losses increased $145,000, or 37%, from $392,000 for
the year ended December 31, 1995 to $537,000 for the year ended December 31,
1996. Such increase was primarily attributable to the increase in the amount of
leases acquired or originated by the Company in 1996.

Depreciation and amortization increased $186,000, or 186%, from $100,000
for the year ended December 31, 1995 to $286,000 for the year ended December 31,
1996. Such increase was primarily attributable to a 300% increase in fixed
assets owned during 1996, as well as amortization of goodwill and other
intangible assets resulting from the acquisitions of GIC and CCL.

Other general and administrative expenses increased $728,000, or 91%, from
$803,000 for the year ended December 31, 1995 to $1.5 million for the year ended
December 31, 1996. Such increase was primarily attributable to the general
expansion of the Company's business and the acquisitions of GIC and CCL.

Period from Inception, June 3, 1994, through December 31, 1994
Compared to Year Ended December 31, 1995

Operations of the Company for the period from inception, June 3, 1994,
through December 31, 1994, were limited and primarily focused on establishing
the Company's Private Label program, developing its lease accounting and
servicing system, establishing its warehouse facilities to be used to finance
the acquisition or origination of leases and developing its overall corporate
infrastructure. The only significant activity which occurred in 1994 was the
acquisition of a lease portfolio for $25.4 million in December 1994 at a
discount. In January 1995, the Company sold such portfolio and recognized a gain
on sale of $3.3 million. Total revenues for the period ended December 31, 1994
were only $187,000. The Company had total assets of $33.5 million and four
employees at December 31, 1994. Accordingly, management believes that further
comparison of 1994 results with results for the year ended December 31, 1995 is
not meaningful.

LIQUIDITY AND CAPITAL RESOURCES

The Company's lease finance business is capital intensive and requires
access to substantial short-term and long-term credit to fund new equipment
leases. Since inception, the Company has funded its operations primarily through
sales of leases, borrowings under its warehouse facilities, sales of equity to
the Company's existing stockholders and through its three securitization
transactions completed in 1996 and 1997. The Company expects to continue to
require access to significant additional capital to maintain and expand its
volume of leases funded. The Company also expects to require additional capital
to continue its acquisitions of equipment leasing companies.

The Company's uses of cash include the acquisition and origination of
equipment leases, payment of interest expenses, repayment of borrowings under
its warehouse facilities, operating and administrative expenses, income taxes
and capital expenditures. The structure of the Company's lease funding programs
(including the holdback and recourse features of the Private Label program
described under "Business -- Exposure to Credit Losses"), along with the
structure of the Company's warehouse facilities and securitization program,
enabled the Company to generate positive cash flow from operations in 1996 and
the nine months ended September 30, 1997.

The Company utilizes both on-balance sheet and securitized warehouse
facilities (described below) to fund the acquisition and origination of leases
that satisfy the eligibility requirements established pursuant to each facility.
The Company maintains four warehouse facilities, two with Prudential Securities
Credit Corp. ("Prudential") and two with First Union National Bank of North
Carolina ("First Union"). As of December 30, 1997, the total capacity under such
facilities was $305.0 million, with $144.0 million

23
<PAGE> 25

outstanding. However, the Company has received a commitment letter from First
Union that would increase the aggregate capacity under such facilities to $400.0
million. The Company's warehouse facilities provide the Company with advance
rates that generally do not require the Company to utilize its capital during
the period that lease receivables are financed under such facilities. The
liquidity provided under each warehouse facility is interim in nature and lease
receivables funded thereunder are generally refinanced or resold through the
Company's securitization program within six to twelve months.

To date, proceeds received by the Company in its securitization
transactions have generally been sufficient to repay amounts financed under the
warehouse facilities, as well as issuance expenses. In addition to the proceeds
received upon closing of the sale of the securitized leases, securitization
transactions generate cash flow from ongoing servicing and other fees, including
late charges on securitized equipment leases, and excess cash flow distributions
from the Trust Certificates retained by the Company and other assets of the
trust once the securities are retired. The Company structures its securitization
transactions to qualify as financings for income tax purposes. Therefore, no
income tax is payable in the current period on the gain recognized. The Company
anticipates that future sales of its equipment leases will be principally
through securitization transactions or other structured finance techniques and,
to a lesser extent, through portfolio sales and sales to third party financing
sources.

The Company believes that existing cash and investment balances, cash flow
from its operations, the net proceeds of the Offering, the net proceeds from
future securitization transactions and amounts available under its warehouse
facilities will be sufficient to fund the Company's operations for the
foreseeable future.

Warehouse Facilities

Securitized Warehouse Facilities

The Company currently maintains three securitized warehouse facilities. In
March 1997 the Company entered into a facility with Prudential (the "Prudential
Securitized Warehouse Facility") and in June 1997 the Company entered into two
separate facilities with First Union (the "First Union Securitized Warehouse
Facilities"). As of December 30, 1997, the total amount available under the
Prudential Securitized Warehouse Facility was $150.0 million. As of December 30,
1997, the total amount available under the First Union Securitized Warehouse
Facilities was $105.0 million. However, the Company has received a commitment
letter from First Union to increase the total amount available under the First
Union Securitized Warehouse Facilities to $200.0 million. The structure of all
of the facilities is essentially the same. The facilities allow the Company to
transfer and sell equipment lease receivables to a trust. The trust issues two
certificates of beneficial interest: a senior certificate which is owned by
either Prudential or First Union, as the case may be, and a residual certificate
which is owned by the Company's special purpose subsidiary.

As of December 30, 1997, the amount of Prudential's investment in the
senior certificate was $3.3 million and the amount of First Union's investment
in senior certificates was $94.3 million. The Prudential certificate had a
stated return equal to the 30 day LIBOR plus .75% and the First Union
certificates had a stated return equal to the 30 day LIBOR or the Commercial
Paper rate plus .74%.

The Prudential Securitized Warehouse Facility and the First Union
Securitized Warehouse Facilities provide several significant advantages to the
Company, including (i) favorable interest rates, (ii) allowing the Company to
recognize gain on sale of lease receivables on an on-going basis, at the time
such receivables are transferred to such facility, rather than at the time of
permanent securitization, thus reducing the degree to which the Company's
quarterly results might fluctuate due to the timing of permanent securitizations
and (iii) providing greater flexibility with respect to the timing and size of
permanent securitizations, thereby reducing related transaction costs.

The equipment lease receivables included in the Prudential Securitized
Warehouse Facility and the First Union Securitized Facilities may be transferred
by the trust to other trusts in which the Company has a minority interest.

On September 10, 1997, substantially all of the amounts then outstanding on
the certificates issued under the Prudential Securitized Warehouse Facility and
the First Union Securitized Warehouse Facilities were sold

24
<PAGE> 26

by the Trusts as the equipment lease receivables included in these facilities
were transferred to the First Sierra Equipment Contract Trust 1997-1 in
conjunction with the Company's public securitization transaction.

On-Balance Sheet Warehouse Facilities

On September 30, 1997, the Company entered into an on-balance sheet
warehouse facility with Prudential (the "Prudential On-Balance Sheet Facility")
which currently provides for $50.0 million of additional warehouse funding. As
of December 30, 1997, $49.7 million was outstanding under the Prudential
On-Balance Sheet Facility. The Prudential On-Balance Sheet Facility bears
interest at a floating rate equal to the 30-day LIBOR plus .80% and matures on
October 31, 1998.

On June 1, 1997, the Company entered into a warehouse facility with
Dresdner Bank AG, New York Branch and ContiFinancial Corporation (the "Dresdner
On-Balance Sheet Facility") that provided the Company with up to $50.0 million
of additional warehouse funding. The Company borrowed $48.2 million under the
Dresdner On-Balance Sheet Facility. All amounts outstanding under the Dresdner
On-Balance Sheet Facility were repaid with funds received from the
securitization transaction completed by the Company on September 10, 1997 and
the facility terminated on that date. Borrowings under the Dresdner On-Balance
Sheet Facility bore interest at a floating rate equal to the 30-day LIBOR plus
1.25%.

Securitization Transactions

As of December 30, 1997, the Company had completed three securitization
transactions involving lease receivables aggregating $378.0 million. The Series
1996-1 and 1996-2 transactions were completed in 1996 and the Series 1997-1
transaction was completed in September 1997. In connection with the Series
1996-1 and 1996-2 transactions, Class A certificates, rated AAA by Standard and
Poor's, Aaa by Moody's Investor Services and AAA by Duff & Phelps Credit Rating
Co., were sold in the public market. The Class B-1 and Class B-2 Certificates
were rated BBB and BB, respectively, by Duff & Phelps Credit Rating Co., and
were sold on a non-recourse basis in the private market. In connection with the
Series 1997-1 transaction, four tranches of Class A Notes, rated AAA by Standard
and Poor's, Aaa by Moody's Investor Services, Inc. and AAA by Duff & Phelps
Credit Rating Co., were sold in the public market. The Class B-1 and Class B-2
Notes were rated BBB and AA, respectively, by Duff & Phelps Credit Rating Co.,
and were sold on a non-recourse basis in the private market. The Class B-2 Note
was enhanced through a letter of credit with Dresdner Bank AG, which resulted in
the higher ratings. A Class B-3 Note was rated B by Duff and Phelps Credit
Rating Co., and was retained by the Company for future sale in the private
market. Due to the Company's ability to structure and sell Class B-1 and Class
B-2 rated components of its securitizations, the remaining interest retained by
the Company was reduced, thereby allowing the Company to maximize the cash
proceeds generated from each transaction. The Company was able to realize
approximately 94.0% of the present value of the remaining scheduled payments of
the equipment leases included in its Series 1996-1 and 1996-2 securitizations,
and approximately 96.0% of the present value of the remaining scheduled payments
of the equipment leases included in its Series 1997-1 securitization.

The Company continually seeks to improve the efficiency and execution of
its securitization transactions. In the Company's Series 1997-1 securitization
transaction, which was completed in September 1997, the Company was able to
reduce the level of subordination required for the Class A Notes from 12.0% to
8.0%, thereby increasing the size of the Class A Notes, which carry the lowest
coupon rate, from 88.0% to 92.0% of the present value of the remaining scheduled
lease payments under securitization. Furthermore, the spread over comparable
Treasury securities on the Class A Notes was reduced from .51% to .43%, and the
spread on the Class B-1 Notes was reduced to 1.10%. The Class B-2 Notes carried
a spread of .65%. The effect of these reduced subordination levels and the lower
spreads has been to decrease the effective cost of the transaction to the
Company and thus increase the gains realized in the securitization transaction.

25
<PAGE> 27

The table below sets forth certain information related to the three
securitization transactions completed by the Company to date:

SECURITIZATION TRANSACTIONS

<TABLE>
<CAPTION>
FIRST SIERRA
FIRST SIERRA FIRST SIERRA EQUIPMENT
EQUIPMENT LEASE EQUIPMENT LEASE CONTRACT
TRUST 1996-1 TRUST 1996-2 TRUST 1997-1
--------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Closing Date............................ May 1996 November 1996 September 1997
SENIOR SECURITIES:
Class A Certificates Rating:
S & P.............................. AAA AAA AAA
Moody's............................ Aaa Aaa Aaa
Duff & Phelps...................... AAA AAA AAA
Principal Amount...................... $73,780 $63,382 $208,242
% of Total............................ 86.0% 88.0% 92.0%
Subordination Level................... 14.0% 12.0% 8.0%
Spread over Treasury (Semi Bond)...... 64 51 43
SUBORDINATED SECURITIES:
Class B-1 Certificates Rating:
Duff & Phelps...................... BBB BBB BBB
Principal Amount...................... $3,432 $2,161 $4,527
% of Total............................ 4.0% 3.0% 2.0%
Subordination Level................... 10.0% 9.0% 6.0%
Spread over Treasury (Semi Bond)...... 144 125 110
Class B-2 Certificates Rating:
Duff & Phelps...................... BB BB AA(1)
Amount................................ $3,432 $1,801 $4,527
% of Total............................ 4.0% 2.5% 2.0%
Subordination Level................... 6.0% 6.5% 4.0%
Spread over Treasury (Semi Bond)...... 250 250 55
Class B-3 Notes Ratings:(2)
Duff & Phelps...................... -- -- B
Amount................................ -- -- $4,053
% of Total............................ -- -- 2.0%
Subordination Level................... -- -- 2.0%
TRUST CERTIFICATES:
Rating................................ Unrated Unrated Unrated
Amount................................ $4,451 $4,913 $1,826
% of Total............................ 6.0% 6.5% 2.0%
</TABLE>

- ---------------

(1) The Class B-2 Certificate was credit-enhanced with a letter of credit with
Dresdner Bank AG.

(2) The Series 1997-1 transaction utilized a Note structure.

Subordinated Revolving Credit Facility

On May 20, 1997, the Company entered into a $5.0 million subordinated
revolving credit facility (the "Subordinated Revolving Credit Facility") with
Redstone Group, Ltd., ("Redstone"), with the commitment level thereunder
decreasing by $1.0 million per year. Advances under the facility bear interest
at 11.00% per annum. As of December 30, 1997, $5.0 million was outstanding under
the Subordinated Revolving Credit Facility.

Hedging Strategy

The implicit yield to the Company on all its leases is on a fixed interest
rate basis due to the leases having scheduled payments that are fixed at the
time of origination of the leases. When the Company acquires or originates
leases, it bases its pricing on the "spread" it expects to achieve between the
implicit yield rate to the Company on each lease and the effective interest cost
it will pay when it sells such lease through

26
<PAGE> 28

securitization. Increases in interest rates between the time the leases are
acquired or originated by the Company and the time they are securitized could
narrow or eliminate the spread, or result in a negative spread. It is the
Company's policy to generally mitigate the risk on changes in interest rates.
The Company mitigates the volatility of interest rate movement between the time
the Company acquires or originates a lease and the time such lease is sold
through a securitization by hedging movements in interest rates using interest
rate swap derivatives which match the underlying cashflow associated with the
leases originated. Under these swap agreements, the Company receives interest on
the notional amount at either the 30-day LIBOR or the 30-day AA Corporate
Commercial Paper Index, in the case of leases funded through the First Union
Commercial Paper program, and the Company pays a fixed rate which is equal to a
spread over the yield to maturity of U.S. Treasury securities similar to the
maturities of the specific leases being held for securitization. Such hedging
arrangements are generally implemented when the Company's portfolio of unhedged
leases reaches $10.0 million. At certain times, changes in the interest rate
market present favorable conditions to hedge against future rate movement. The
Company may, from time to time, enter into hedges against interest rate movement
in anticipation of future origination volume in order to take advantage of
unique market conditions, but this activity is generally limited to levels where
the Company is confident of origination in the near term.

27
<PAGE> 29

BUSINESS
GENERAL

The Company has established strategic alliances with a network of
independent leasing companies, lease brokers and equipment vendors, each of
which acts as a Source from which the Company obtains access to equipment
leases. The Company customizes lease financing products to meet the specific
equipment financing needs of its Sources and in many cases provides such Sources
with servicing and technological support via on-line connections to the
Company's state-of-the-art computer system.

The Company views acquisitions of equipment leasing companies as a
fundamental part of its growth strategy. Since the Company's initial public
offering in May 1997, the Company has completed six acquisitions of equipment
leasing companies. See "-- Recent Acquisitions." The Company's recent
acquisitions have substantially increased the Company's ability to generate
lease origination volume and have allowed it to introduce new programs and enter
new markets. As of November 30, 1997, the Company had 17 offices in ten states.
The Company intends to continue to seek acquisition opportunities in additional
markets to further expand its business.

The Company commenced operations in June 1994 and initially developed a
program to purchase leases from leasing companies which had the ability to
originate significant lease volumes and were willing and able to provide credit
protection to the Company and perform certain servicing functions on an ongoing
basis with respect to such leases. This program, referred to by the Company as
its "Private Label" program, was designed to provide the Company with access to
high volumes of leases eligible for the securitization market, while minimizing
the risk of loss to the Company. The Company has experienced significant growth
in its Private Label program since inception. The volume of leases purchased by
the Company pursuant to its Private Label Program was $4.5 million in 1994,
$65.2 million in 1995, $161.1 million in 1996 and $149.0 million in the nine
months ended September 30, 1997.

In 1996, as part of its growth strategy, the Company began targeting
additional sources of lease volume from small ticket lease brokers which were
unwilling or unable to provide the credit protection or perform the servicing
functions required under the Private Label program and through relationships
with equipment vendors. The Company established its Broker and Vendor programs
in 1996 through the strategic acquisitions of GIC and CCL. The acquisitions of
Lease Pro in February 1997 and Heritage in May 1997, together with the six
acquisitions completed since the Company's initial public offering, have
provided the Company with significant additional broker and vendor lease volume.
During the year ended December 31, 1996 and the nine months ended September 30,
1997, the volume of leases originated by the Company pursuant to its Broker
program was $10.5 million and $50.0 million, respectively, and the weighted
average yield on such leases (net of brokers' fees) was 14.07% and 13.40%,
respectively. During the year ended December 31, 1996 and the nine months ended
September 30, 1997, the volume of leases originated by the Company pursuant to
its Vendor program was $7.5 million and $50.2 million, respectively, and the
weighted average yield on such leases was 16.09% and 16.20%, respectively.
Management intends to continue to pursue opportunities to acquire additional
small ticket leasing companies with broker and vendor operations and believes
that a larger percentage of the Company's revenues in the future will be derived
from broker and vendor Sources.

28
<PAGE> 30

INDUSTRY OVERVIEW

The equipment financing industry in the United States has grown rapidly
during the last decade and includes a wide range of entities that provide
funding for the purchase of equipment. The equipment leasing industry in the
United States is a significant factor in financing capital expenditures of
businesses. According to research by the Equipment Leasing Association of
America ("ELA"), using United States Department of Commerce data, approximately
$160.7 billion of the $571.0 billion spent on productive assets in 1995 was
financed by means of leasing. The ELA estimates that 80% of all U.S. businesses
use leasing or financing to acquire capital assets.

The Company believes that the small ticket segment of the equipment leasing
industry is one of the most rapidly growing segments of the industry in part due
to: (i) the consolidation of the banking industry, which has eliminated many of
the smaller community banks that traditionally provided equipment financing for
small to mid-size businesses, forcing these businesses to seek alternative
financing rather than deal with the approval process of large commercial banks;
(ii) stricter lending requirements of commercial banks; (iii) a trend toward
instant approvals at the point of sale made possible by improved technology;
(iv) the decline in the price of computer hardware and software and increasing
demand therefor; and (v) the adoption of accounting pronouncements concerning
the accounting treatment of transactions with captive finance company
subsidiaries, which has caused a number of manufacturers to eliminate their
finance companies, resulting in an increased demand for independent financing.

STRATEGY

29
<PAGE> 31

new Sources of equipment leases. The Company also intends to expand its existing
sales force of approximately 100 persons by attracting qualified and experienced
individuals who can identify Sources on a regional and national basis. The
Company will continue to seek to differentiate itself from its competition by
emphasizing high levels of customer service and technological support to its
Sources.

Focusing on Structured Finance Transactions. The Company intends to
continue to focus on securitizations and other similar structured finance
transactions as the principal vehicles for sale of the Company's leases.
Management's objective is to continue to improve the efficiency and execution of
these transactions by minimizing the Company's cost of funds and capital outlay
associated with financing its leases, while maximizing the number of leases that
qualify for funding and subsequent securitization. Management believes that its
significant experience in asset-backed securitization transactions and extensive
relationships with financing sources will allow the Company to continue to
achieve a low cost of funds and increased profitability upon securitization of
its equipment leases.

LEASE FUNDING PROGRAMS

The Company provides lease financing to different participants in the small
ticket equipment leasing industry through three general lease funding programs,
referred to as its Private Label, Broker and Vendor programs. While the terms of
the underlying leases are similar in all of the Company's lease funding
programs, the financing arrangement offered by the Company varies depending on
the size and servicing capabilities of the Source.

The Company initially developed its Private Label program to target leasing
companies which had the ability to originate significant lease volumes and were
willing and able to provide credit protection to the Company and perform certain
servicing functions on an ongoing basis with respect to such leases. The Company
subsequently developed its Broker and Vendor programs to increase its level of
lease volume through the acquisition or origination of leases from lease brokers
which were unwilling or unable to provide the credit protection and perform
certain servicing functions required by the Private Label program and through
relationships with equipment vendors.

Private Label

The Company's Private Label program is designed to provide financing to
established leasing companies which have demonstrated the ability to originate a
significant level of lease volume, follow prudent underwriting guidelines
established by the Company and undertake certain labor-intensive aspects of
lease servicing on an ongoing basis. Such leasing companies typically rely on
commercial loans from local banks to fund their leases. The loans are generally
secured by a specific pledge of the lease receivable and the underlying
equipment as well as recourse back to the leasing company. Financing available
to these companies under typical commercial lending arrangements is generally
limited and the Private Label program offers an attractive alternative to meet
their financing needs. This program also offers an alternative source of
financing to companies whose volume of leases may be too small to economically
securitize such leases. The Private Label program is designed to provide the
economic advantages of securitized financings, namely enhanced liquidity at
relatively low rates, without the administrative and financial burdens common to
issuers of asset-backed securities.

30
<PAGE> 32

Under the Private Label program, participating leasing companies identify,
document and evaluate potential leases in accordance with the Company's
underwriting guidelines. Completed application packages for potential leases are
submitted to the Company for review prior to acquisition by the Company. Because
of the leasing companies' familiarity with the Company's guidelines, acceptance
by the Company of leases submitted by Private Label Sources is generally in
excess of 90%.

In a typical Private Label transaction, the Company purchases leases from a
Private Label Source and receives a security interest in the underlying
equipment. The Private Label Source typically retains ownership of the leased
equipment and is responsible for paying applicable property taxes. Leases
acquired pursuant to the Private Label program generally carry a $1.00 buyout
provision upon maturity. Payments on the leases are received directly by the
Company in a lockbox account. The Private Label Source is responsible for
monitoring the payment activity of the lessees and performing collection
activities as necessary. To facilitate the Sources's collection efforts, the
Company provides the Source with on-line access to the Company's servicing
system.

The terms of the lease purchase agreements under the Company's Private
Label program provide the Company protection from losses on defaulted leases
through a first lien security interest in the underlying equipment, recourse to
the Source, holdbacks from amounts paid to the Source upon purchase, or a
combination of the above. Under the recourse provisions, the Source is generally
required to repurchase a lease from the Company in the event that it becomes 90
days past due. Such recourse is typically limited to 10% to 20% of the aggregate
amount of leases funded from each Source. Holdback amounts generally range from
1% to 10% of the purchase price of the related leases. See "-- Delinquency and
Losses." Through September 30, 1997, the Company had incurred losses of $124,000
from leases funded pursuant to the Private Label program. There can be no
assurance that the Company's Private Label Sources will continue to meet their
repurchase obligations or that the amounts withheld under the purchase price
holdback feature of the Private Label program, together with any amounts
realized upon disposal of the underlying equipment, will be sufficient to fully
offset any losses which might be incurred upon default of lessees in the future.

In the event that the Company's significant Private Label Sources were to
substantially reduce the number of leases sold to the Company, and the Company
was not able to replace the lost lease volume, such reduction could have a
material adverse effect on the Company's financial condition and results of
operations.

Broker

The Company's Broker program is designed to fund equipment leases from
small ticket lease brokers that are unwilling or unable to provide the credit
protection and perform the servicing functions necessary to participate in the
Company's Private Label program. In a typical Broker transaction, the Company
originates leases referred to it by the broker Source and pays the Source a
referral fee. Leases originated under the Broker program are structured on a
non-recourse basis, with risk of loss in the event of default by the lessee
residing with the Company. The Company owns the underlying equipment covered by
a broker lease and, in certain cases, retains a residual interest in such
underlying equipment. All servicing functions are performed by the Company.

The Company also provides a variety of value-added services to participants
in its Broker program, including consulting on the structuring of financing
transactions with equipment purchasers, timely and efficient credit approvals
and preparation and completion of standardized lease documents. Although the
Company enters into a brokerage agreement with each of the participants in its
Broker program, such agreements are not exclusive and can be terminated by
either party.

The Company's yields on leases originated under its Broker program are
higher than those acquired under its Private Label program because of the risk
of loss and servicing responsibilities assumed by the Company in the Broker
program.

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<PAGE> 33

Vendor

The Company's Vendor program focuses on establishing formal and informal
relationships with equipment vendors in order to establish the Company as the
provider of financing recommended by such vendors to their equipment purchasers.
By assisting such vendors in providing timely, convenient and competitive
financing for their equipment sales and offering vendors a variety of
value-added services, the Company simultaneously promotes the vendor's equipment
sales and the utilization of the Company as the equipment finance provider.

In a typical vendor arrangement, the Company originates all leases referred
to it by the vendor Source. Leases originated under the Vendor program are
structured on a non-recourse basis, with risk of loss in the event of a default
by the lessee residing with the Company. The Company owns the underlying
equipment covered by a vendor lease and, in certain cases, retains a residual
interest in such equipment. All servicing functions are performed by the Company
under the Vendor program.

The Vendor program provides for customized lease finance arrangements to
respond to the needs of a particular vendor and its equipment purchasers. The
value-added services offered by the Company to participants in its Vendor
program include consulting with vendors on structuring financing transactions
with equipment purchasers, training the vendor's sales and management staffs to
understand and market the Company's various financing alternatives, customizing
financial products to encourage product sales and preparation and completion of
standardized lease documents. In most cases, the Company's sales representatives
also work directly with the vendor's equipment purchasers, providing them with
the guidance necessary to complete the equipment financing transaction. The
Company also may participate actively in the vendor's sales and marketing
efforts, including advertising, promotions, trade show activities and sales
meetings.

The Company generally obtains higher yields on leases funded under the
Vendor program than those in the Broker program due to additional services
provided by the Company under the Vendor program.

PORTFOLIO ACQUISITIONS AND SALES AND LEASE SALES TO THIRD PARTIES

In addition to its Private Label, Broker and Vendor programs, the Company
has in the past generated, and may from time to time in the future generate,
gain on sale income through the acquisition of lease portfolios and the
subsequent sale of such portfolios at a premium. Such leases typically do not
fit within the eligibility criteria established pursuant to the Company's
warehouse facilities and thus will be sold outside the Company's securitization
program. In general, the Company seeks to acquire portfolios of equipment leases
from finance companies exiting the business, independent companies seeking a
financial partner or companies with businesses complementary to the Company.
Prior to the acquisition of a portfolio of leases under its portfolio
acquisition program, the Company performs due diligence procedures, including
review of a sample of the lease files included in such portfolio, loss and
delinquency experience of such portfolio and such other factors as may be
appropriate.

In December 1994, the Company purchased a portfolio of leases for $25.4
million. These leases were sold in February 1995, and the Company realized a
gain on sale of $3.3 million. No portfolio sales were made in 1996 or the nine
months ended September 30, 1997.

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<PAGE> 34

RECENT ACQUISITIONS

Since July 1996, the Company has completed ten acquisitions, each of which
is summarized in the following table. The text that follows the table describes
each acquisition in more detail.

COMPLETED ACQUISITIONS

<TABLE>
<CAPTION>
DATE NAME PRINCIPAL LOCATION PRIMARY LEASE SOURCE
---- ---- ------------------ --------------------
<C> <S> <C> <C>
07/11/96 General Interlease Corporation Fort Lauderdale, FL Broker/Vendor
10/31/96 Corporate Capital Leasing Group Westchester, PA Broker/Vendor
02/04/97 Lease Pro, Inc. Atlanta, GA Vendor
05/20/97 Heritage Credit Services, Inc. Sacramento, CA Broker/Vendor
05/30/97 Universal Fleet Leasing, Inc. Houston, TX Vendor
06/30/97 Public Funding Corporation Chicago, IL Vendor
09/02/97 Northcoast Capital Leasing Company Cleveland, OH Vendor
09/12/97 Financial Management Services, Inc. Wenatchee, WA Vendor
d/b/a Cascade
11/06/97 Heritage Credit Services of Oregon, Inc. Portland, OR Vendor
11/26/97 All American Financial Services, Inc. Conyers, GA Vendor
</TABLE>

On July 11, 1996, the Company acquired certain assets and liabilities of
GIC, including its key personnel. GIC is located in Fort Lauderdale, Florida and
primarily focuses on the small ticket broker and vendor markets in the
southeastern region of the United States. From January 1 through July 11, 1996,
GIC generated equipment leases of $19.4 million. By virtue of the GIC
acquisition, the Company was able to enter the lease broker market and gained a
geographic presence in the Florida vendor market, the fourth largest vendor
market in the United States based on a study by the Foundation for Leasing
Education. In addition, the Company gained a presence in several national vendor
markets, including hotel security, food services, industrial and automotive
servicing equipment.

On October 31, 1996, the Company acquired the outstanding capital stock of
CCL. CCL is located in Westchester, Pennsylvania and focuses primarily on the
broker market in the mid-Atlantic region of the United States. By virtue of the
CCL acquisition, the Company gained a geographic presence in the mid-Atlantic
broker market, as well as a presence in the national market for vendors of arbor
(tree service) equipment. See "-- Sales and Marketing." For the ten months ended
October 31, 1996, CCL generated equipment leases of $31.4 million.

On February 4, 1997, the Company acquired certain assets and liabilities of
Lease Pro. Lease Pro is located in Atlanta, Georgia and has a significant
presence in the national market for veterinary equipment financing. Since
October 1986, Lease Pro has generated over 5,000 veterinarian leases. For the
year ended December 31, 1996, Lease Pro generated equipment leases of
approximately $12.6 million.

On May 20, 1997, the Company acquired the outstanding capital stock of
Heritage. Heritage is located near Sacramento, California and maintains sales
offices in Bellevue, Washington, Miami, Florida, Los Angeles, California and
Prescott, Arizona. Heritage is primarily involved in the broker market on the
U.S. west coast and has a significant vendor base in California, the largest
market in the United States, based on a study by the Foundation for Leasing
Education. For the year ended December 31, 1996, Heritage generated equipment
leases of approximately $48.9 million. Upon completion of the Heritage
acquisition, Oren M. Hall, the founder and President of Heritage, became
Executive Vice President and Chief Operating Officer of the Company, and Greg E.
McIntosh, Executive Vice President and Chief Operating Officer of Heritage,
became a Senior Vice President of the Company. Charles E. Brazier, Executive
Vice President and Chief Operating Officer of Oakmont Financial, a division of
Heritage, also became a Senior Vice President of the Company upon completion of
the Heritage acquisition.

On May 30, 1997, the Company acquired certain assets and liabilities of
Universal Fleet Leasing, Inc. ("UFL"). UFL is located in Houston, Texas and
focuses primarily on the small ticket vendor market in the southwestern region
of the United States. For the year ended December 31, 1996, UFL generated
equipment leases of approximately $15.0 million.

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<PAGE> 35

On June 30, 1997, the Company acquired certain assets and liabilities of
Public Funding Corporation ("Public Funding"). Public Funding is located in
Chicago, Illinois. Public Funding specializes in leasing equipment to municipal
and other governmental entities.

Effective as of September 2, 1997, the Company acquired the outstanding
capital stock of Northcoast Capital Leasing Company ("Northcoast"). Northcoast
is located in Cleveland, Ohio and focuses primarily on the tree service and
construction equipment markets in the midwest region of the United States. For
the year ended December 31, 1996, Northcoast generated equipment leases of
approximately $30.0 million.

On September 12, 1997, the Company acquired the outstanding capital stock
of Financial Management Services, Inc., which does business under the name
Cascade. Cascade is located near Seattle, Washington and focuses primarily on
the agricultural equipment market in the northwest region of the United States.
For the year ended December 31, 1996, Cascade generated equipment leases of
approximately $33.6 million.

On November 6, 1997, the Company acquired the outstanding capital stock of
Heritage Credit Services of Oregon, Inc. ("Heritage Credit"). Heritage Credit is
located in Portland, Oregon and focuses primarily on the small ticket vendor
market in the northwestern region of the United States.

On November 26, 1997, the Company acquired the outstanding capital stock of
All American Financial Services, Inc. ("All American"). All American is located
in Conyers, Georgia and focuses primarily on leasing to the retail petroleum and
convenience store industries.

CREDIT POLICIES AND PROCEDURES

The Company has developed credit underwriting policies and procedures that
management believes have been effective in the selection of creditworthy
equipment lessees and in minimizing the risks of delinquencies and credit
losses. The nature of the Company's business requires two levels of review, the
first focused on the qualification of the Source and the second focused on the
lessee or ultimate end-user of the equipment.

Source Qualification

The Company performs a background investigation on all potential Sources.
This investigation may include verification of bank and trade references and a
review of financial statements, past credit history and the business and
industry in which the Source operates. The Company performs additional
procedures to evaluate the credit worthiness of its Private Label Sources
because of the credit protection provided by such Sources under the Private
Label program. Such additional procedures may include an examination of the
Source's management team, staffing and servicing infrastructure, as well as a
review of ongoing support capabilities in credit, documentation, customer
service and collections.

Lease Underwriting

In each of the Company's lease funding programs, the Company reviews
individual leases for compliance with underwriting guidelines prepared by the
Company's Credit Policy Committee. The Company's underwriting guidelines
generally require a credit investigation of an equipment lessee, including an
analysis of the personal credit of the owner who typically guarantees the lease,
verification of time in business and corporate name, and bank and trade
references. Under the Private Label program, certain of these functions are
performed by the Source.

The lease approval process begins with the submission by facsimile or
electronic transmission of a credit application by the lease originator, at
which time the Company conducts its own independent credit investigation through
recognized commercial credit reporting agencies such as Dun & Bradstreet,
Equifax, Inc. and TRW, Inc. The credit application is then forwarded to the
Company's operations center for review and approval by a senior credit officer.
The time required for an underwriting decision varies according to the nature,
size and complexity of each transaction, but approval is generally accomplished
within one day.

Once a determination to fund has been made, the Company requires receipt of
signed lease documentation on the Company's standard lease forms, or other
pre-approved lease forms, before funding. Once the

34
<PAGE> 36

equipment is shipped and installed, the vendor invoices the Company, and
thereafter the Company verifies that the lessee has received and accepted the
equipment. Upon the lessee authorizing payment to the vendor, the lease is
forwarded to the Company's funding and documentation department for funding,
transaction accounting and billing procedures.

In connection with the Company's securitization program, extensive reviews
of the Company's underwriting standards and procedures are conducted by
financial guaranty insurers and rating agencies.

SERVICING AND ADMINISTRATION

The Company's servicing responsibilities with respect to any lease vary
depending on the program under which the lease was acquired or originated. Such
servicing responsibilities generally include billing, processing payments,
remitting payments to Sources and investors, preparing investor reports, paying
taxes and insurance and performing collection and liquidation functions. For
equipment leases funded under the Private Label program, the collection and
customer service functions are performed by the Source, while the Company
performs other servicing functions, including billing and cash receipt. This
arrangement allows the Source to maintain close relationships with lessees and
reduces the Company's servicing costs. Under its Broker and Vendor programs, the
Company is normally responsible for all servicing functions.

The Company retains the right to service leases sold through its
securitization transactions. In return, the Company receives a servicing fee of
0.50% per annum on the outstanding principal balance of all securitized leases
plus late fees, which are collected out of monthly lease payments. Management
believes that the Company's performance of servicing functions on its
securitized leases enhances certain operating efficiencies and provides an
additional revenue stream. As of September 30, 1997, the Company had a servicing
portfolio of $395.4 million.

The small ticket leasing industry is operationally intensive due, in part,
to the small average lease size. Accordingly, state-of-the-art technology is
critical in keeping servicing costs to a minimum and providing quality customer
service. Recognizing the importance of servicing, the Company utilizes a lease
administration system tailored to support the Company's technological needs. The
system handles application tracking, invoicing, payment processing, automated
collection queuing, portfolio evaluation, cash forecasting and report writing.
The system is linked with a lockbox bank account for payment processing and
provides for direct withdrawal of lease payments. The system also allows users
to view all lease documents on-line.

Since inception, the Company's underwriting, customer service and
collection staff have been located in its Jupiter, Florida office. In order to
consolidate the Company's operations and maximize administrative efficiencies,
beginning in the fourth quarter of 1997, the operations center will be relocated
to the Company's headquarters in Houston, Texas. The operations center is
managed by Robert H. Quinn, Jr., Executive Vice President and Chief Credit
Officer of the Company, who has over 23 years of experience in the lease finance
industry. Payment processing, accounting and reporting are performed in Houston,
Texas and are managed by Sandy B. Ho, Executive Vice President and Chief
Financial Officer of the Company, and Craig M. Spencer, Senior Vice President
and Chief Accounting Officer of the Company, who together have in excess of 28
years of experience in financial services and reporting. See "Management."

Collection functions (other than receipt of cash) for leases acquired under
the Company's Private Label program are performed by the Source. Many of the
Company's Private Label Sources have direct access to the Company's lease
administration system to assist them in servicing and collecting the leases sold
to the Company. Delinquency information with respect to leases from each Private
Label Source is closely monitored by the Company's management. In the event of a
lessee default (typically when an account is 90 days past due), the Company
sends a notice to the Source stating that the Source is obligated to repurchase
the lease or cure the delinquency within 60 days. For leases acquired or
originated under the Company's Broker and Vendor programs, the Company's
collections policy is designed to identify payment problems sufficiently early
to permit the Company to quickly address delinquencies and, when necessary, to
act to preserve equity in the equipment leased. Collection procedures commence
immediately upon payments becoming 10 days past due.

35
<PAGE> 37

TERMS OF EQUIPMENT LEASES

Substantially all equipment leases acquired or originated by the Company
are non-cancelable. During the term of the lease, the Company generally receives
scheduled payments sufficient, in the aggregate, to cover the Company's
borrowing costs and the costs of the underlying equipment, and to provide the
Company with an appropriate profit margin. The initial non-cancelable term of
the lease is equal to or less than the equipment's estimated economic life and a
small portion of the Company's leases provide the Company with additional
revenues based on the residual value of the equipment financed at the end of the
initial term of the lease. Initial terms of the leases in the Company's
portfolio generally range from 12 to 84 months, with a weighted average initial
term of 56 months as of September 30, 1997.

The terms and conditions of all of the Company's leases are substantially
similar. In most cases, the lessees contractually are required to: (i) maintain,
service and operate the equipment in accordance with the manufacturer's and
government-mandated procedures; (ii) insure the equipment against property and
casualty loss; (iii) pay all taxes associated with the equipment; and (iv) make
all scheduled contract payments regardless of the performance of the equipment.
The Company's standard forms of leases provide that in the event of a default by
the lessee, the Company can require payment of liquidated damages and can seize
and remove the equipment for subsequent sale, refinancing or other disposal at
its discretion. Any additions, modifications or upgrades to the equipment,
regardless of the source of payment, are automatically incorporated into and
deemed a part of the equipment financed.

RESIDUAL INTERESTS IN UNDERLYING EQUIPMENT

Under its Broker and Vendor programs, the Company may own a residual
interest in the equipment covered by the lease. The Company records the residual
value of a lease on its books when there is no obligation on the part of the
lessee to purchase the equipment at the expiration of the lease term. Of the
leases acquired or originated by the Company under its Broker and Vendor
programs through September 30, 1997, approximately 71% of such leases (as
measured by net investment) had no residual value on the Company's books,
generally because the lessee was granted an option to purchase the equipment at
the end of the term for a nominal price or the lessee was required to purchase
the equipment at the end of the term at a fixed price. The Company's investment
in residual values with respect to equipment underlying leases acquired and
originated by the Company under its Broker and Vendor programs through September
30, 1997 was approximately $1.5 million in the aggregate, representing less than
2% of the Company's total investment in such leases through September 30, 1997.
In the future, the Company may consider acquiring or originating leases that are
classified as operating leases for financial accounting purposes, which would
require the Company to record substantially higher residual values than it
records on direct financing leases. See "Management's Discussion and Analysis of
Financial Condition and Result of Operations -- Overview -- Certain Accounting
Considerations." With respect to equipment in which the Company owns a residual
interest, the Company generally seeks to determine the best remarketing plan for
such equipment prior to the expiration of the lease covering such equipment. In
many cases, such remarketing plan provides for the continuation of the lease on
a month to month or other basis or the negotiated sale of the equipment to the
lessee through equipment brokers and remarketers, rather than the Company's
employees, in order to maximize the net proceeds from such sale.

EXPOSURE TO CREDIT LOSSES

The Company manages its risk of credit losses through adherence to
conservative underwriting guidelines, providing for recourse to Private Label
Sources and prompt and diligent collection procedures. Management evaluates the
collectibility of leases acquired or originated based on the level of recourse
provided, if any, delinquency statistics, historical loss experience, current
economic conditions and other relevant factors. The Company provides an
allowance for credit losses for leases which are considered impaired during the
period from the funding of the leases through the date such leases are sold
through the Company's securitization program. Estimated losses on leases that
are considered impaired and have been sold through the Company's securitization
program are taken into consideration in the valuation of the Company's
investment in the Trust Certificates retained in the securitization transaction.

36
<PAGE> 38

The following table sets forth certain information as of December 31, 1996
and September 30, 1997, with respect to leases which were held by the Company in
its portfolio or serviced by the Company pursuant to its securitization program
(dollars in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF SEPTEMBER 30, 1997(1)
----------------------------- ------------------------------
PRIVATE BROKER/ PRIVATE BROKER/
LABEL VENDOR TOTAL LABEL VENDOR TOTAL
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross leases
outstanding........... $244,049 $13,185 $257,234 $354,632 $171,857 $526,489
31-60 days past due..... 2.46% 1.25% 2.40% 1.64% 2.29% 1.85%
61-90 days past due..... 0.81% 0.21% 0.78% 0.48% 0.53% 0.49%
Over 90 days past due... 0.35% --% 0.33% 0.42% 0.57% 0.47%
-------- ------- -------- -------- -------- --------
Total past due........ 3.62% 1.46% 3.51% 2.54% 3.39% 2.81%
</TABLE>

- ---------------

(1) The Broker/Vendor amounts as of September 30, 1997 include, and the Private
Label amounts as of September 30, 1997 exclude, approximately $16.9 million
of leases that were purchased by the Company pursuant to its Private Label
program from Lease Pro and Heritage. Such companies were formerly Private
Label Sources until their acquisition by the Company in February 1997 and
May 1997, respectively.

In assessing the Company's exposure to credit losses, management generally
segregates the leases acquired under its Private Label program from those
acquired or originated under its Broker and Vendor programs due to the differing
levels of credit protection available to the Company under the various lease
funding programs.

The following table sets forth the Company's allowance for credit losses
for its Private Label program and its Broker and Vendor programs for the nine
months ended September 30, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
PRIVATE BROKER AND
LABEL VENDOR
PROGRAM PROGRAMS(1) TOTAL
------- ----------- -----
<S> <C> <C> <C>
Balance at December 31, 1995........................ $ 420 -- $ 420
Provision for credit losses......................... 165 115 280
Reduction of allowance related to leases sold....... (71) (49) (120)
----- ------- -------
Balance at September 30, 1996....................... $ 514 $ 66 $ 580
----- ------- -------
Balance at December 31, 1996........................ $ 314 $ 211 $ 525
Provision for credit losses......................... 209 1,205 1,414
Charge-offs, net of recoveries...................... (99) (73) (172)
Reduction of allowance related to leases sold....... (385) (1,545) (1,930)
Additional allowance related to leases acquired
through business combinations..................... -- 841 841
----- ------- -------
Balance at September 30, 1997....................... $ 39 $ 639 $ 678
===== ======= =======
</TABLE>

- ---------------

(1) The Company established its Broker and Vendor programs in July 1996.

Under the Private Label program, the Company seeks to minimize its losses
through a first lien security interest in the equipment funded, recourse to the
Private Label Source, holdback reserves withheld from the Private Label Source
upon purchase of the lease, or a combination of the above. The recourse
provisions generally require the Private Label Source to repurchase a receivable
when it becomes 90 days past due. The recourse commitment generally ranges from
10% to 20% of the aggregate purchase price of all leases acquired from a Private
Label Source. Holdback reserves withheld from the purchase price generally range
from 1% to 10% of the aggregate purchase price of the leases acquired from the
Private Label Source. In determining whether a lease acquired pursuant to the
Private Label program which is considered impaired will result in a loss to the
Company, management takes into consideration the ability of the Private Label
Source to honor its

37
<PAGE> 39

recourse commitments, the holdback reserves withheld from the Private Label
Source upon purchase of the lease, as well as the credit quality of the
underlying lessee and the related equipment value. At December 31, 1996 and
September 30, 1997, the Company had holdback reserves of $6.5 million and $9.5
million, respectively, relating to leases acquired pursuant to the Private Label
program. Such amounts have been classified as liabilities in the accompanying
financial statements.

The following table sets forth certain aggregate information regarding the
level of credit protection afforded the Company pursuant to the recourse and
holdback provisions of the Private Label program as of December 31, 1996 and
September 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Leases outstanding under the Private Label program(1)...... $202,523 $291,160
======== ========
Recourse to Sources available.............................. $ 19,480 $ 31,055
Holdback reserves outstanding.............................. 6,523 9,534
-------- --------
Total recourse and holdback reserves available............. $ 26,003 $ 40,589
======== ========
Ratio of recourse and holdback reserves outstanding to
total leases outstanding under the Private Label
program(2)............................................... 12.84% 13.94%
======== ========
</TABLE>

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio, as well as leases serviced by the Company pursuant to its
securitization program.

(2) The specific level of credit protection varies for each Private Label
Source. Specific levels of credit protection by Source are considered by
management in determining the allowance for credit losses and the valuation
of the Company's investment in Trust Certificates retained in securitization
transactions.

The following table sets forth the experience of the Company with respect
to leases acquired pursuant to the Private Label program for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1996 1997
------------------ ------------------
<S> <C> <C>
Average balance of leases acquired pursuant to the
Private Label program outstanding during the
period(1)........................................ $111,333 $252,685
======== ========
Total amount of leases triggering action under
recourse and holdback provisions during the
period........................................... $ 980 $ 3,731
Amounts recovered under recourse provisions........ 900 3,366
Amounts recovered pursuant to holdback reserves.... 80 266
-------- --------
Total amounts recovered............................ $ 980 $ 3,632
-------- --------
Net loss experienced on leases acquired pursuant to
the Private Label program........................ $ -- $ 99
======== ========
Net default ratio.................................. --% 0.04%
======== ========
</TABLE>

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio, as well as leases serviced by the Company pursuant to its
securitization program.

At September 30, 1997, the Company's outstanding net principal balance of
leases acquired or originated under its Broker and Vendor programs (including
leases acquired in connection with the acquisition of Heritage) was $23.8
million. Management analyzes the collectibility of leases acquired or originated
pursuant to its Broker and Vendor programs based on its underwriting criteria,
delinquency statistics, historical loss experience, current economic conditions
and other relevant factors. While the Company has a first lien security interest
in the underlying equipment, it does not have any recourse or holdback reserves
with respect to any leases acquired or originated under its Broker and Vendor
programs. Management believes, however,

38
<PAGE> 40

that the relatively short holding period between the time that leases are
acquired or originated under these programs and the time that such leases are
sold minimizes the Company's exposure to credit losses. Accordingly, management
believes that an allowance for credit losses of $639,000 is adequate to cover
estimated losses incurred on Broker or Vendor leases considered to be impaired
as of September 30, 1997.

The Company's allowance for credit losses and its valuation of the Trust
Certificates retained in its securitization transactions are based on estimates
and qualitative evaluations, and ultimate losses will vary from current
estimates. These estimates are reviewed periodically and, as adjustments, either
positive or negative, become necessary, they are reported in the Company's
results of operations for the period in which they become known.

SALES AND MARKETING

The Company's marketing strategy is to increase its volume of lease funding
by (i) maintaining, selectively expanding and supporting its network of lease
Sources, (ii) developing programs for specific vendor or customer groups, (iii)
developing and introducing complementary lease finance products that can be
marketed and sold through its existing network of lease Sources, and (iv)
selectively acquiring leasing companies with origination capabilities that are
complementary to the Company.

As of October 31, 1997, the Company employed a sales force of approximately
100 employees. These employees are responsible for implementing marketing plans
and coordinating marketing activities with the Company's lease Sources, as well
as providing customer service and participating in the Company's attendance at
industry conventions and trade shows.

The Company has established a substantial network of independent leasing
companies, brokers and vendors. The Company developed its network of Sources as
a result of the industry knowledge and experience of its management. In
conjunction with the Company's sales force, the Company's management maintains
close contact with these Sources. Many of these Sources have had a prior
relationship with the management or sales force of the Company and have, in
management's opinion, shown an ability to generate significant volumes of leases
with a credit quality that meets the Company's conservative underwriting
guidelines.

The Company's sales force has developed several convenience-oriented
speciality lease finance programs designed to enhance lease volume in specific
industries. For example, the Company provides financing to the arbor (tree
service) industry and provides business operators within this industry with a
pre-approved credit line, referred to by the Company as an "Arbor Card," which
can be used with various vendors of arbor equipment, enabling the business
operator to obtain quick and efficient financing. The Company intends to
continue to grow its business by offering specialized finance products to both
existing and new Sources.

The Company is represented at major equipment leasing conventions and trade
shows held each year, and several officers of the Company are active in the
Equipment Leasing Association, the United Association of Equipment Lessors and
the Eastern Association of Equipment Lessors, all well-recognized trade
associations.

COMPETITION

The Company competes in the equipment financing market with a number of
national, regional and local finance companies. In addition, the Company's
competitors include those equipment manufacturers that finance the sale or lease
of their products themselves and other traditional types of financial services
companies, such as commercial banks and savings and loan associations, all of
which provide financing for the purchase of equipment. The Company's competitors
include many larger, more established companies that may have access to capital
markets and to other funding sources which may not be available to the Company.
Many of the Company's competitors have substantially greater financial,
marketing and operational resources and longer operating histories than the
Company.

The Company believes that the structure of its warehouse facilities and its
securitization program provide it with access to capital on terms comparable to
those of its larger, more established competitors. The Company believes that its
experienced management team and sales force, its advanced technology and
servicing capacity and its significant broker and vendor base allows the Company
to aggressively compete with larger, more established companies.

39
<PAGE> 41

FACILITIES

The Company's corporate headquarters are located in leased space of 9,114
square feet at 600 Travis Street, Suite 7050, Houston, Texas 77002. Beginning in
the fourth quarter of 1997, the Company's operations center will be relocated
from Jupiter, Florida to Houston, Texas. The Company is in the process of
negotiating the lease of approximately 14,000 additional square feet in the
building where its corporate headquarters are located in Houston, Texas. The
Company also leases office space for its regional offices in Prescott, Arizona;
Rancho Cordova and Los Angeles, California; Fort Lauderdale and Miami, Florida;
Conyers and Marietta, Georgia; Chicago, Illinois; Cleveland, Ohio; Portland,
Oregon; Westchester, Pennsylvania; Dallas and Houston, Texas; and Bellevue and
Wenatchee, Washington. As of September 30, 1997, the aggregate monthly rent
under all of the Company's office leases was approximately $60,000. The Company
believes that its current facilities are adequate for its existing needs and
that suitable space will be available as required.

EMPLOYEES

As of October 31, 1997, the Company had 205 full time employees, of which
22 were engaged in credit and collection activities, 82 were engaged in
servicing and general administration activities and 101 were engaged in
marketing activities. Management believes that its relationship with its
employees is good. No employees of the Company are members of a collective
bargaining unit.

LEGAL PROCEEDINGS

From time to time, the Company and its subsidiaries are parties to various
claims, lawsuits and administrative proceedings arising in the ordinary course
of business. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect such matters to have a material adverse
effect on the financial condition or results of operations of the Company.

40
<PAGE> 42

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's Board of Directors currently consists of five members. The
Company's Charter provides that the Company's Board of Directors be divided into
three classes of directors, as nearly equal in number as possible. At each
annual meeting of the stockholders, one class of directors is elected for a
three-year term. The terms of the Class I directors expire at the annual meeting
of the stockholders of the Company to be held in 1998, the terms of the Class II
directors expire at the annual meeting of the stockholders of the Company to be
held in 1999, and the terms of the Class III directors expire at the annual
meeting of the stockholders of the Company to be held in 2000.

Messrs. Depping, Solomon and Shindeldecker were elected to the Company's
Board of Directors pursuant to the terms of a Stockholders Agreement dated as of
June 3, 1994 (the "Stockholders Agreement") that was terminated prior to
completion of the Company's initial public offering.

The following table sets forth the name, age and position with the Company
of each of the directors and executive officers of the Company:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS
---- --- -------- --------
<S> <C> <C> <C>
Thomas J. Depping(1)....... 39 Chairman of the Board, President and Chief III
Executive Officer
Richard J. Campo(2)........ 43 Director I
Norman J. Metcalfe(2)...... 55 Director II
David C. Shindeldecker..... 48 Director I
David L. Solomon(1)........ 44 Director III
E. Roger Gebhart........... 41 Senior Vice President and Treasurer
Oren M. Hall............... 61 Executive Vice President and Chief Operating
Officer
Sandy B. Ho................ 38 Executive Vice President and Chief Financial
Officer
Robert H. Quinn, Jr........ 43 Executive Vice President and Chief Credit
Officer
Craig M. Spencer........... 36 Senior Vice President and Chief Accounting
Officer
</TABLE>

- ---------------

(1) Member of Compensation Committee.

(2) Member of Audit and Stock Option Committees.

Set forth below is a brief description of the business experience of the
executive officers and directors of the Company.

Thomas J. Depping has served as Chairman of the 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.

Richard J. Campo has been a director of the Company since May 1997. Mr.
Campo has been Chairman of the Board 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.

Norman J. Metcalfe has been a director of the Company since May 1997. Mr.
Metcalfe is the managing director of 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

41
<PAGE> 43

SunAmerica Investments' $10 billion insurance investment portfolio. In the past,
Mr. Metcalfe has served on the Board of Directors of SunAmerica, Inc., Kaufman
and Broad Home Corporation and Irvine Apartment Communities.

David C. Shindeldecker has been a director of the Company since June 1994.
Mr. Shindeldecker has been Chairman and 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.

David L. Solomon has been a director of the Company since June 1994. Mr.
Solomon has served as Chairman and 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 PaineWebber since August 1994. From May 1985 to August 1994,
Mr. Solomon was a Senior Vice President of Kidder, Peabody & Co.

E. Roger Gebhart has served as Senior Vice President and Treasurer of the
Company since May 1997. Mr. Gebhart has over 11 years of experience in the
commercial banking and equipment leasing and financial services industries. From
1986 to May 1997, Mr. Gebhart was employed by First Union Capital Markets
Corporation as a vice president, where he specialized in providing financing to
equipment leasing and finance companies which included public, private and
commercial paper-funded asset backed securitization programs.

Oren M. Hall has served as Executive Vice President and Chief Operating
Officer of the Company since the Company's acquisition of Heritage in May 1997.
Mr. Hall was the founder of Heritage and its sole shareholder and President from
1986 until the date of the Heritage acquisition. Mr. Hall is responsible for the
overall management of the Company's acquisition and origination of leases. Mr.
Hall has 23 years of experience in the leasing industry. Mr. Hall was President
of the United Association of Equipment Lessors during 1996.

Sandy B. Ho has served as Executive Vice President and Chief Financial
Officer of the Company since January 1995. Ms. Ho has over 15 years of
experience in the equipment leasing and financial services industries, including
10 years with SunAmerica Financial Resources and its predecessor company. From
1991 through 1994, Ms. Ho served as Vice President of SunAmerica Financial
Resources and Managing Director of SunAmerica Corporate Finance. Ms. Ho is a
licensed Certified Public Accountant in the State of Texas.

Robert H. Quinn, Jr. has served as Executive Vice President and Chief
Credit Officer of the Company since August 1994. Mr. Quinn has over 23 years of
experience in the commercial banking and lease finance industries. From December
1992 through July 1994, Mr. Quinn managed the private label division of AT&T
Capital. In such capacity, Mr. Quinn was directly responsible for generating new
private label transactions for AT&T Capital and managing its sales force,
credit, documentation and funding, as well as portfolio quality. Prior to his
employment at AT&T, Mr. Quinn was employed by Bank of New England for 18 years,
most recently as a senior credit officer.

Craig M. Spencer has served as Senior Vice President and Chief Accounting
Officer of the Company since November 1996. From 1984 until 1996, Mr. Spencer
was employed by Arthur Andersen LLP as a senior manager specializing in
financial services companies and asset securitization transactions. Immediately
prior to joining the Company, Mr. Spencer was a Director of Portfolio Management
with Enron Capital & Trade Resources, Inc. Mr. Spencer is a licensed Certified
Public Accountant in the State of Texas.

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<PAGE> 44

EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth certain information
concerning the compensation payable by the Company to its Chief Executive
Officer and its four other most highly compensated executive officers (each a
"Named Executive Officer") for the years ended December 31, 1996 and 1997.

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> <C>
Thomas J. Depping.................. 1997 $239,250 (1) 367,536 $12,750(2)
President and Chief Executive 1996 200,000 $100,000(3) -- 2,000
Officer
Oren M. Hall(4).................... 1997 173,250 (1) -- 30,563(5)
Executive Vice President and
Chief Operating Officer
Sandy B. Ho........................ 1997 160,000 100,000(6) 128,941 4,750(7)
Executive Vice President and 1996 131,250 110,000(3) -- 1,500
Chief Financial Officer
Robert H. Quinn, Jr................ 1997 160,000 100,000(6) 128,941 4,750(7)
Executive Vice President and 1996 145,417 120,000(3) -- 1,000
Chief Credit Officer
Craig M. Spencer(8)................ 1997 125,000 (1) 31,250 4,750(7)
Senior Vice President and Chief
Accounting Officer
</TABLE>

- ---------------

(1) Bonuses to be paid during 1998 based upon performance during 1997 are not
calculable as of the date of this Prospectus.

(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) Consists of amounts paid during 1996 based upon performance during 1995.

(4) Mr. Hall's employment with the Company began on May 20, 1997.

(5) Consists of a transitional moving allowance and amounts contributed on
behalf of Mr. Hall to the Company's 401(k) plan.

(6) Consists of amounts paid during 1997 based upon performance during 1996.

(7) Consists of amounts contributed by the Company on behalf of the Named
Executive Officer to the Company's 401(k) plan.

(8) Mr. Spencer's employment with the Company began on November 16, 1996.

43
<PAGE> 45

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 REALIZABLE VALUE
AT ASSUMED
PERCENTAGE ANNUAL RATE OF STOCK
NUMBER OF OF TOTAL PRICE
SHARES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
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 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, all 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.

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> <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 (of $17.75 per share) and the aggregate exercise price.

44
<PAGE> 46

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 entitled to receive an annual salary of not less than $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.

COMPENSATION OF DIRECTORS

Each outside director of the Company who is not an officer or employee of
the Company or any of its subsidiaries or affiliated with Redstone has the
option to receive, as of the date of each annual meeting of stockholders of the
Company, a cash retainer of $25,000 or a number of shares of Common Stock of the
Company valued at $25,000 (based on the closing price of the Common Stock on the
date of the annual meeting of stockholders). In addition, all directors of the
Company are reimbursed for expenses incurred in attending meetings of the Board
of Directors and committees thereof.

STOCK OPTION PLAN

The Company has adopted a stock option plan (the "1997 Stock Option Plan")
to align the interests of the directors, executives, consultants, and employees
of the Company with those of its stockholders. A total of 1,800,000 shares of
Common Stock have been reserved for issuance pursuant to the 1997 Stock Option
Plan. As of September 30, 1997, 1,032,320 options were outstanding with a
weighted average exercise price of $8.00 per share. As of September 30, 1997,
Mr. Depping, Ms. Ho, Mr. Quinn and Mr. Spencer had been granted options to
purchase 367,536, 128,941, 128,941 and 31,250 shares of Common Stock,
respectively, under the 1997 Stock Option Plan.

The 1997 Stock Option Plan is administered by the Stock Option Committee of
the Board of Directors. 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 and options that are not qualified as incentive stock
options ("non-qualified stock options"). Non-qualified stock options may be
granted to directors, executives, consultants and employees of the Company and
its subsidiaries. The exercise price of non-qualified stock options is
determined by the Board of Directors or a committee thereof and may not be less
than the fair market value of the Common Stock on the date the option is
granted. Incentive stock options may be granted only to individuals who are
employees of the Company or a subsidiary on the date of grant. The exercise
price of incentive stock options is determined by the Board of Directors or a
committee thereof and may not be less

45
<PAGE> 47

than the fair market value of the Common Stock on the date the incentive stock
option is granted. Subject to the terms of the 1997 Stock Option Plan, the Board
of Directors or a committee thereof is authorized to select the recipients of
options from among those eligible and to establish the exercise price and the
number of shares that may be issued under each option. The maximum number of
shares of Common Stock that may be subject to options granted to any one
individual under the 1997 Stock Option Plan during any calendar year may not
exceed 500,000 shares. 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 Board of Directors or a
committee thereof.

The 1997 Stock Option Plan provides that the total number of shares covered
by such plan, the maximum number of shares which may be the subject of options
awarded to any one individual in a calendar year, 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, reverse stock split,
stock dividend, or similar capital adjustment effected without receipt of
consideration by the Company.

46
<PAGE> 48

EXECUTIVE INCENTIVE COMPENSATION PLAN

The Board of Directors has adopted an Executive Incentive Compensation Plan
(the "Incentive Plan"). 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)
exceeds 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,
then the aggregate incentive compensation that will be paid under the Incentive
Plan for a fiscal year (the "Incentive Pool") will be equal to 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 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. The entire amount in
each Incentive Pool will be paid in cash to the Incentive Plan participants
within two and one-half months after the last day of the fiscal year to which
such Incentive Pool relates. At least 85% of each Incentive Pool will 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 to be determined by
the Chief Executive Officer, subject to the approval of the Compensation
Committee. The balance of the Incentive Pool will be paid to other senior
management employees of the Company. Such other employees, and the amount paid
to each such individual, will be determined by the Chief Executive Officer,
subject to the approval of the Compensation Committee.

47
<PAGE> 49

CERTAIN TRANSACTIONS

Prior to completion of the Company's initial public offering in May 1997,
the Company and the holders of 100% of the Common Stock then outstanding entered
into a Registration Rights Agreement (the "Registration Rights Agreement.") The
Registration Rights Agreement provides each of Redstone and its affiliates and
Thomas J. Depping with the right on two occasions to require the Company to
register all or part of their registrable shares under the Securities Act,
provided that at least 400,000 shares of Common Stock are registered in such
offering, and the Company is required to use its diligent good faith efforts to
effect such registration, subject to certain conditions and limitations. The
Registration Rights Agreement also provides all parties to the Registration
Rights Agreement with piggyback registration rights on any underwritten offering
by the Company of any of its securities, either for its own account or the
account of a selling stockholder, except for certain types of registrations, and
with piggyback registration rights on a registration pursuant to the demand
rights described in the previous sentence. The Company is required to bear the
expenses of all registrations under the Registration Rights Agreement other than
the underwriting discounts and commissions. The parties to the Registration
Rights Agreement have waived their rights to include their shares in the
Offering, other than with respect to shares being sold by them as Selling
Stockholders.

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. 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 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.

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 30, 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 September 30, 1997, the Company had paid less than $1,000 to the
Affiliate pursuant to the Referral Agreement.

In June 1994, the Company entered into a two-year consulting agreement with
Roy H. Trice, Jr., one of the Company's stockholders, which terminated in June
1996. Pursuant to this agreement, Mr. Trice provided the Company with certain
consulting services and received an annual fee of $75,000 plus expenses. In May
1996, the Company acquired 628,426 shares of Common Stock from Mr. Trice for
$360,000.

In connection with the acquisition of GIC, irrevocable standby letters of
credit were issued by a financial institution in favor of Eric Barash and Daniel
Dengate in the amounts of $2.2 million and $396,000, respectively (the "GIC
Letters of Credit"). In connection with the acquisition of CCL, an irrevocable
standby letter of credit was issued by a financial institution in favor of
Valerie Hayes in the amount of $2.5 million (the "CCL Letter of Credit"). See
"Business -- Recent Acquisitions." In December 1997, the Company and Ms. Hayes
entered into an amendment to the Agreement and Plan of Reorganization executed
by the Company and Ms. Hayes in connection with the CCL acquisition (the
"Reorganization Agreement" and as amended, the "Amended Reorganization
Agreement") in order to provide for the conversion into Common Stock of all
43,691 shares of Series B Preferred Stock issued to Ms. Hayes in the CCL
acquisition, the release of all such shares to Ms. Hayes from the escrow created
in connection with the CCL acquisition, the payment to Ms. Hayes of a cumulative
dividend of $29,000 on the Series B Preferred Stock, the return and cancellation
of the CCL Letter of Credit and certain restrictions on transfer of the Common
Stock owned by Ms. Hayes.

48
<PAGE> 50

Ms. Hayes' employment agreement was also amended to provide for a five year term
ending on November 1, 2001 and to provide for certain payments in the event of
termination.

The GIC Letters of Credit were guaranteed by Redstone and could be drawn
upon if certain events occur, including the failure of the Company to pay
dividends when due on the Series A Preferred Stock, the failure of the Company
to redeem the Series A Preferred Stock when required or the occurrence of a
liquidation, dissolution or winding up of the Company. The Company agreed to
reimburse Redstone for any amounts required to be paid by Redstone pursuant to
its guarantee of the letters of credit. The GIC Letters of Credit have been
returned and cancelled.

49
<PAGE> 51

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with regard to the beneficial
ownership of Common Stock as of November 30, 1997, and as adjusted to reflect
the sale of the Common Stock offered hereby, of (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers, (iv) all directors and executive officers of the Company as a group,
and (v) the Selling Stockholders. Each person named has sole voting and
investment power with respect to the shares indicated, except as otherwise
stated in the notes to the table. The address of 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.

<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------- NUMBER OF --------------------
NUMBER OF SHARES BEING NUMBER
SHARES PERCENT OFFERED OF SHARES PERCENT
---------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Thomas J. Depping...................... 1,805,800 19.9% 200,000 1,605,800 14.0%
Redstone Group, Ltd.(2)................ 1,823,151 20.1% 400,000 1,423,151 12.4%
David C. Shindeldecker(3).............. 1,970,518 21.7% 440,000(4) 1,530,518 13.3%
David L. Solomon(3).................... 2,735,000 30.2% 600,000(4) 2,135,000 18.6%
Oren M. Hall........................... 500,000 5.5% 150,000 350,000 3.0%
Sandy B. Ho............................ 240,790 2.7% 20,000 220,790 1.9%
Robert H. Quinn, Jr.................... 235,790 2.6% 50,000 185,790 1.6%
Richard J. Campo....................... 20,000 * -- 20,000 *
Norman J. Metcalfe..................... 20,000 * -- 20,000 *
Craig M. Spencer....................... -- * -- -- *
Valerie Hayes(5)....................... 238,989 2.6% 102,000 136,989 1.2%
Roy Trice.............................. 283,423 3.1% 50,000 233,423 2.0%
Eric Barash(6)......................... 263,711 2.8% 85,000 178,711 1.5%
Daniel Dengate(6)...................... 46,537 * 15,000 31,537 *
Pat Kistler............................ 8,888 * 4,444 4,444 *
Daniel Fritz........................... 4,444 * 2,222 2,222 *
All directors and executive officers as
a group (10 persons)................. 5,704,747 62.9% 1,060,000 4,644,747 40.4%
</TABLE>

- ---------------

* Less than one percent

(1) The applicable percentage of ownership as of November 30, 1997 is based upon
9,066,443 shares of Common Stock outstanding. The applicable percentage of
ownership after the Offering is based upon 11,488,766 shares of Common Stock
outstanding after the Offering.

(2) Redstone is a Texas limited partnership, of which Redstone, Inc. is the
general partner.

(3) Includes 1,823,151 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.

(4) Includes 400,000 shares being offered hereby by Redstone.

(5) Assumes that the conversion of 43,691 shares of Series B Preferred Stock
into 238,989 shares of Common Stock had occurred as of November 30, 1997.
See "Description of Capital Stock -- Series B Preferred Stock."

(6) Consists of shares of Common Stock which may be acquired within 60 days upon
the conversion of outstanding Series A Preferred Stock. See "Description of
Capital Stock -- Preferred Stock."

50
<PAGE> 52

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares
of common stock, par value $.01 per share ("Common Stock"), and 1,000,000 shares
of preferred stock, par value $.01 per share ("Preferred Stock").

COMMON STOCK

As of November 30, 1997, 9,066,443 shares of Common Stock were outstanding
and held of record by 25 persons. Upon completion of the Offering, 11,488,766
shares of Common Stock will be outstanding, including 100,000 shares of Common
Stock to be issued upon conversion of a total of 18,281 shares of Series A
Preferred Stock prior to consummation of the Offering and excluding 1,032,320
shares of Common Stock issuable upon exercise of options outstanding under the
1997 Stock Option Plan and 210,250 shares of Common Stock issuable upon the
conversion of Series A Preferred Stock to be outstanding following the Offering.

The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of holders of Common Stock. The Common Stock
does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding are able to
elect all the directors and the holders of the remaining shares are not able to
elect any directors. Each share of Common Stock is entitled to participate
equally in dividends, if, as and when declared by the Company's Board of
Directors, and in the distribution of assets in the event of liquidation,
subject in all cases to any prior rights of outstanding shares of Preferred
Stock. The Company has never declared or paid cash dividends on its Common
Stock. The shares of Common Stock have no preemptive rights, redemption rights,
or sinking fund provisions. The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby upon issuance and sale will be, duly
authorized, validly issued, fully paid and nonassessable.

PREFERRED STOCK

The Company's Board of Directors may establish, without stockholder
approval, one or more classes or series of Preferred Stock having the number of
shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences, and limitations that the Board of Directors may
designate. The Company believes that this power to issue Preferred Stock will
provide flexibility in connection with possible corporate transactions. The
issuance of Preferred Stock, however, could adversely affect the voting power of
holders of Common Stock and restrict their rights to receive payments upon
liquidation of the Company. It could also have the effect of delaying, deferring
or preventing a change in control of the Company. As of November 30, 1997, the
Company's authorized and outstanding Preferred Stock consisted of 56,718 shares
of Series A Preferred Stock and 43,691 shares of Series B Preferred Stock. In
December 1997, all outstanding shares of Series B Preferred Stock were converted
into 238,989 shares of Common Stock. See "Certain Transactions."

SERIES A PREFERRED STOCK

As of November 30, 1997, the Company had issued 56,718 shares of Series A
Preferred Stock, 18,281 of which will be converted into Common Stock prior to
consummation of the Offering, leaving 38,437 shares of Series A Preferred Stock
outstanding. The following description is a summary of the Certificate of
Designation for the Series A Preferred Stock, and is qualified in its entirety
by reference to that document.

Dividends. The Series A Preferred Stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to the Common
Stock and junior to, or on parity with, as the case may be, any other stock of
the Company designated as senior to, or on parity with, as the case may be,
Series A Preferred Stock. Prior to the conversion of all outstanding shares of
Series B Preferred Stock into Common Stock in December 1997, the Series A
Preferred Stock ranked on parity with the Series B Preferred Stock. Holders of
Series A Preferred Stock are entitled to receive non-cumulative annual cash
dividends of $1.86 per share payable annually when declared by the Board of
Directors. Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of Series A Preferred Stock then outstanding will
be

51
<PAGE> 53

entitled to receive an amount of cash per share equal to $46.54607 before any
distribution is made on the Common Stock. As long as any shares of Series A
Preferred Stock are outstanding, the Company may not pay, declare or set apart a
dividend or distribution on the Common Stock (other than stock dividends or
distributions payable in Common Stock).

Redemption. The Series A Preferred Stock is mandatorily redeemable by the
Company on December 31, 2001 (subject to conversion rights at any time on or
prior to November 30, 2001) at a redemption price of $46.54607 per share.

Conversion. The Series A Preferred Stock is convertible, at the option of
the holder thereof, at any time into Common Stock at a conversion rate of 5.47
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment for stock dividends, stock splits and combinations. A total of 18,281
shares of Series A Preferred Stock will be converted into 100,000 shares of
Common Stock prior to consummation of the Offering.

Voting Rights. The shares of Series A Preferred Stock have general voting
rights on all issues submitted to the stockholders. Each share of Series A
Preferred Stock entitles the holder thereof to such number of votes per share as
shall equal the number of shares of Common Stock into which such shares of
Series A Preferred Stock are convertible.

Registration Rights. Until the earlier of December 31, 2001 or, as to any
holder of Series A Preferred Stock, (a) the date such holder owns less than the
equivalent of 5,000 shares of fully diluted Common Stock, or (b) the date on
which such holder is able to dispose of all shares of Common Stock issuable upon
conversion of the Series A Preferred Stock under Rule 144, the holders of Series
A Preferred Stock have piggyback registration rights with respect to any
offering by the Company or a stockholder of the Company of Common Stock to the
public for cash except for (i) offerings of shares issuable by the Company upon
the exercise of employee or director stock options, or (ii) offerings of shares
issued in mergers wherein the Company is the surviving corporation. The Company
is required to give holders of Series A Preferred Stock at least 30 days' prior
written notice of the filing of any registration statement, specifying the
estimated price range of the offering covered thereby. The holders of the Series
A Preferred Stock have waived their registration rights with respect to the
Offering, other than with respect to shares being sold by them as Selling
Stockholders.

SERIES B PREFERRED STOCK

As of November 30, 1997, the Company had issued 43,691 shares of Series B
Preferred Stock. In December 1997, all outstanding shares of Series B Preferred
Stock were converted into 238,989 shares of Common Stock and a cumulative
dividend of $29,000 was paid on the Series B Preferred Stock so converted. See
"Certain Transactions." The following description is a summary of the
Certificate of Designation that applied to the Series B Preferred Stock, and is
qualified in its entirety by reference to that document.

Dividends. Prior to its conversion into Common Stock, the Series B
Preferred Stock ranked, with respect to dividend rights and distribution of
assets on liquidation, senior and prior to the Common Stock, on parity with the
Series A Preferred Stock and junior to, or on parity with, as the case may be,
any other stock of the Company designated as senior to, or on parity with, as
the case may be, the Series B Preferred Stock. Holders of Series B Preferred
Stock were entitled to receive cumulative annual cash dividends ranging from
$1.14 to $2.29 per share, depending upon the number of shares of Series B
Preferred Stock which had then been released from escrow pursuant to an escrow
agreement between the Company and Ms. Hayes (the "Escrow"). Prior to
effectiveness of the Amended Reorganization Agreement, 21,845 shares of the
Series B Preferred Stock issued to Ms. Hayes on October 31, 1996 in connection
with the acquisition of CCL were held pursuant to the Escrow. The earnout
covered an aggregate period of approximately 39 months from the date of
acquisition (with the first earnings period being approximately 15 months and
the two succeeding earnings periods being 12 months each) and provided that
approximately 7,281 shares of such Series B Preferred Stock were to be released
from the Escrow per earnings period if the Corporate Capital Leasing division of
the Company met or exceeded an income amount determined pursuant to a formula.
If the Corporate Capital Leasing division of the Company did not meet or exceed
the required income amount in any earnings period,

52
<PAGE> 54

then approximately 7,281 shares of such Series B Preferred Stock were required
to be cancelled. Pursuant to the Amended Reorganization Agreement, all shares of
Series B Preferred Stock were released from the Escrow. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, except a
Redemption Acceleration Event (as defined below), the holders of Series B
Preferred Stock then outstanding were entitled to receive an amount of cash per
share ranging from $28.61 to $57.22, depending upon the number of shares of
Series B Preferred Stock which had then been released from the Escrow, before
any distribution was made on the Common Stock. As of November 30, 1997, the
dissolution rate in effect for the Series B Preferred Stock was $28.61. As long
as dividends on the Series B Preferred Stock were in arrears or the Company was
obligated to, and had failed to redeem, any shares of Series B Preferred Stock
which were mandatorily redeemable or optionally redeemable following a
Redemption Acceleration Event, the Company could not pay or declare a dividend
on the Common Stock (other than distributions payable in Common Stock).

Redemption. Prior to conversion, the Series B Preferred Stock was
mandatorily redeemable by the Company on December 31, 2001 (subject to
conversion rights at any time on or prior to November 30, 2001) at a redemption
price ranging from $28.61 to $57.22 per share, depending upon the number of
shares of Series B Preferred Stock which had then been released from the Escrow
(the "Redemption Price"). As of November 30, 1997, the Redemption Price in
effect for the Series B Preferred Stock was $28.61. In addition, if the Company
filed for bankruptcy, a bankruptcy petition was filed against the Company, the
Company instituted insolvency proceedings, failed to renew or extend the CCL
Letter of Credit, or failed to pay any dividends on the Series B Preferred Stock
when required pursuant to the Reorganization Agreement (each, a "Redemption
Acceleration Event"), then each holder of Series B Preferred Stock could, at
such holder's option, require the Company to redeem all of the shares of Series
B Preferred Stock held by such holder at the Redemption Price then in effect.

Conversion. The Series B Preferred Stock was convertible at any time, at
the option of the holder thereof, into Common Stock at a conversion rate of 5.47
shares of Common Stock for each share of Series B Preferred Stock. In addition,
shares of Series B Preferred Stock were automatically convertible into shares of
Common Stock at a conversion rate of 5.47 shares of Common Stock for each share
of Series B Preferred Stock if the Common Stock traded at or above $12.33 per
share (subject to adjustment for stock dividends, subdivisions or split-ups, and
reverse stock splits) for twenty consecutive trading days and there was then in
effect a registration statement and prospectus covering the resale of the shares
of Common Stock into which such shares of Series B Preferred Stock were
convertible.

Voting Rights. Prior to conversion, the shares of Series B Preferred Stock
had general voting rights on all issues submitted to stockholders. Each share of
Series B Preferred Stock entitled the holder thereof to such number of votes per
share as equaled the number of shares of Common Stock into which such shares of
Series B Preferred Stock were convertible.

Registration Rights. The Amended Reorganization Agreement provides that the
Common Stock issued to Ms. Hayes upon conversion of the Series B Preferred Stock
shall be entitled to the same registration rights as applied to the Series B
Preferred Stock. Accordingly, unless waived by written consent, Ms. Hayes has
piggyback registration rights on any offering by the Company or by a stockholder
of the Company of Common Stock to the public for cash except for (i) offerings
of shares issuable by the Company upon the exercise of employee or director
stock options, or (ii) offerings of shares issued in mergers wherein the Company
is the surviving corporation. The Company is required to give Ms. Hayes at least
15 days prior written notice of the filing of a registration statement,
specifying the estimated price range of the offering covered thereby. Ms. Hayes
has waived her piggyback registration rights with respect to the Offering, other
than with respect to shares being sold by her as a Selling Stockholder. In
addition, during the period beginning on the 12-month anniversary of the
completion of the Company's initial public offering and ending 48 months
thereafter, Ms. Hayes can demand, on one occasion, registration of the shares of
Common Stock issued upon conversion of the Series B Preferred Stock, provided
that the number of shares proposed to be sold shall be at least equal to 25% of
the aggregate number of shares of Common Stock issuable upon conversion of all
of the Series B Preferred Stock. If a demand is made pursuant to the previous
sentence, then the Company is required to prepare and file a continuous or
"shelf" registration statement pursuant to Rule 415 under the Securities Act

53
<PAGE> 55

respecting the sale from time to time of all of the shares of Common Stock
issued upon conversion of the Series B Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (c) following the transaction in which that person became an
interested stockholder, the business combination is approved by the Company's
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.

Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.

The Company's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the
three classes staggered so that directors from a single class are elected at
each annual meeting of stockholders. Stockholders may remove a director only for
cause upon the vote of at least 80% of the then outstanding shares of capital
stock entitled to vote upon the election of directors ("Voting Stock"). In
general, the Board of Directors, not the stockholders, has the right to appoint
persons to fill vacancies on the Board of Directors.

The Charter provides that special meetings of holders of Common Stock may
be called only by the Company's Board of Directors and that only business
proposed by the Board of Directors may be considered at special meetings of
holders of Common Stock.

The Charter provides that the only business (including election of
directors) that may be considered at an annual meeting of holders of Common
Stock, in addition to business proposed (or persons nominated to be directors)
by the directors of the Company, is business proposed (or persons nominated to
be directors) by holders of Common Stock who comply with the notice and
disclosure requirements set forth in the Charter. In general, the Charter
requires that a stockholder give the Company notice of proposed business or
nominations no later than 60 days before the annual meeting of holders of Common
Stock (meaning the date on which the meeting is first scheduled and not
postponements or adjournments thereof) or (if later) ten days after the first
public notice of the annual meeting is sent to holders of Common Stock. In
general, the notice must also contain information about the stockholder
proposing the business or nomination, the stockholder's interest in the
business, and (with respect to nominations for director) information about the
nominee of the nature ordinarily required to be disclosed in public proxy
statements. The stockholder also must submit a notarized letter from each of the
stockholder's nominees stating the nominee's acceptance of the nomination and
indicating the nominee's intention to serve as a director if elected.

The Charter provides that the affirmative vote of at least two-thirds of
the Voting Stock shall be required to approve any of the following proposed
transactions: (i) a merger or consolidation in which the Company

54
<PAGE> 56

shall not be the surviving entity or shall survive only as a subsidiary of an
entity; (ii) a sale, lease or exchange or an agreement to sell, lease or
exchange all or substantially all of the assets of the Company to any other
person or entity; or (iii) the dissolution or liquidation of the Company.

The Charter authorizes the Board of Directors, without any action by the
stockholders of the Company, to issue up to 1,000,000 shares of Preferred Stock,
in one or more series and to determine the voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and in
liquidation and the conversion and other rights of each such series. Because the
terms of the preferred stock may be fixed by the Board of Directors without
stockholder action, the preferred stock could be issued quickly with terms
designed to make more difficult a proposed takeover of the Company or the
removal of its management, thus affecting the market price of the Common Stock
and preventing stockholders from obtaining any premium offered by the potential
buyer. The Board of Directors will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its
stockholders.

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws requires a greater
percentage. The Charter provides that approval by the holders of at least 80% of
the Voting Stock is required to amend the provisions of the Charter previously
discussed and certain other provisions.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.

SHARES ELIGIBLE FOR FUTURE SALE

In general, under Rule 144 a person (or persons whose shares are required
to be aggregated) who has beneficially owned, for at least one year, shares of
Common Stock that have not been registered under the Securities Act or that were
acquired from an "affiliate" of the Company is entitled to sell within any
three-month period the number of shares of Common Stock which does not exceed
the greater of one percent of the number of then outstanding shares or the
average weekly reported trading volume during the four calendar weeks preceding
the sale. Sales under Rule 144 are also subject to certain notice requirements
and to the availability of current public information about the Company and must
be made in unsolicited brokers' transactions or to a market maker. A person (or
persons whose shares are aggregated) who was not an "affiliate" of the Company
under the Securities Act during the three months preceding a sale and who has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume, notice, information and
manner of sale provisions of such Rule.

An aggregate of 1,800,000 shares of Common Stock are reserved for issuance
to directors, executives, consultants and employees of the Company pursuant to
the 1997 Stock Option Plan. The Company has an effective registration statement
on Form S-8 covering the issuance of shares of Common Stock pursuant to the 1997
Stock Option Plan. Accordingly, shares issued pursuant to the 1997 Stock Option
Plan are freely tradeable, except for any shares held by an "affiliate" of the
Company.

55
<PAGE> 57

Certain stockholders of the Company have been granted certain demand and
"piggy-back" registration rights if the Company proposes to undertake a public
offering and have waived their registration rights in connection with the
Offering, other than with respect to the shares being sold by them as Selling
Stockholders.

The Company, its executive officers and directors, the Selling Stockholders
and other certain stockholders of the Company, have agreed not to sell, offer to
sell, contract to sell, pledge or otherwise dispose of or transfer any shares of
Common Stock, or any securities convertible into or exchangeable or exercisable
for, or any rights to purchase or acquire, Common Stock for a period of 90 days
commencing on the date of this Prospectus without the prior written consent of
Friedman, Billings, Ramsey & Co., Inc., other than the issuance of options to
purchase Common Stock or shares of Common Stock issuable upon the exercise
thereof in connection with the Company's stock option plans, provided that such
options shall not vest or such shares shall not be transferable prior to the end
of the 90-day period, and the issuance by the Company of capital stock in
connection with acquisitions of lease finance companies, provided that such
shares shall not be transferable prior to the end of the 90-day period.

No predictions can be made of the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
significant amounts of Common Stock could adversely affect the prevailing market
price of the Common Stock, as well as impair the ability of the Company to raise
capital through the issuance of additional equity securities.

56
<PAGE> 58

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement
dated , 1998 (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") who are represented by Friedman, Billings, Ramsey &
Co., Inc. and Piper Jaffray Inc. (the "Representatives"), have severally agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.......................
Piper Jaffray Inc...........................................

---------
Total............................................. 3,400,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby
if any of such shares of Common Stock are purchased.

The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price, concession, allowance and reallowance may
be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 510,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,400,000 and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If the option is
exercised, the Underwriters will offer such additional shares on the same terms
as those on which the 3,400,000 shares of Common Stock are being offered.

The Company, its executive officers and directors, the Selling Stockholders
and certain other stockholders of the Company, have agreed not to sell, offer to
sell, contract to sell, pledge or otherwise dispose of or transfer any shares of
Common Stock, or any securities convertible into or exchangeable or exercisable
for, or any rights to purchase or acquire, Common Stock for a period of 90 days
commencing on the date of this Prospectus without the prior written consent of
Friedman, Billings, Ramsey & Co., Inc., other than the issuance of options to
purchase Common Stock or shares of Common Stock issuable upon the exercise
thereof in connection with the Company's stock option plans, provided that such
options shall not vest or such shares shall not be transferable prior to the end
of the 90-day period, and the issuance by the Company of capital stock in
connection with acquisitions of lease finance companies, provided that such
shares shall not be transferable prior to the end of the 90-day period.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain losses, claims, damages or liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.

57
<PAGE> 59

In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Such transactions may include stabilization transactions
pursuant to which the Representatives may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering than they are committed to purchase from the
Company and the Selling Stockholders, and in such case the Representatives may
purchase Common Stock in the open market following completion of the Offering to
cover all or a portion of such short position. The Underwriters may also cover
all or a portion of such short position by exercising the Underwriters'
over-allotment option referred to above. In addition, the Representatives, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby they may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid
might also affect the price of the Common Stock to the extent that it could
discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.

The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters relating to the Common Stock offered hereby will be passed
upon for the Underwriters by McDermott, Will & Emery, Chicago, Illinois.

EXPERTS

The Audited Consolidated Financial Statements of the Company included in
this Prospectus and Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The Audited Financial Statements of Heritage Credit Services, Inc. included
in this Prospectus and Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting.

The Audited Financial Statements of Corporate Capital Leasing Group, Inc.
included in this Prospectus and Registration Statement have been audited by
MacDade Abbott LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.

58
<PAGE> 60

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
FIRST SIERRA FINANCIAL, INC. -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-3
Consolidated Statements of Operations for the Period from
Inception (June 3, 1994) through December 31, 1994 and
for the Years Ended December 31, 1995 and 1996......... F-4
Consolidated Statements of Stockholders' Equity for the
Period from Inception (June 3, 1994) through December
31, 1994 and for the Years Ended December 31, 1995 and
1996................................................... F-5
Consolidated Statements of Cash Flows for the Period from
Inception (June 3, 1994) through December 31, 1994 and
for the Years Ended December 31, 1995 and 1996......... F-6
Notes to Consolidated Financial Statements................ F-7
FIRST SIERRA FINANCIAL, INC. -- UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS......................................
Consolidated Balance Sheet as of December 31, 1996 and
September 30, 1997 (unaudited)......................... F-23
Consolidated Statement of Operations for the Nine Month
Periods Ended September 30, 1996 and 1997
(unaudited)............................................ F-24
Consolidated Statement of Stockholders' Equity for the
Nine Month Period Ended September 30, 1997
(unaudited)............................................ F-25
Consolidated Statement of Cash Flows for the Nine Month
Periods Ended September 30, 1996 and 1997
(unaudited)............................................ F-26
Notes to Unaudited Consolidated Financial Statements...... F-27
FIRST SIERRA FINANCIAL, INC. -- UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS......................... F-34
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended
December 31, 1996...................................... F-35
Unaudited Pro Forma Consolidated Statement of Operations
for the Nine Months Ended September 30, 1997........... F-36
Notes to Unaudited Pro Forma Consolidated Financial
Statements............................................. F-37
CORPORATE CAPITAL LEASING GROUP, INC. -- FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................. F-40
Balance Sheets as of December 31, 1995 and October 31,
1996................................................... F-41
Statements of Income for the Year Ended December 31, 1995
and the Ten Months Ended October 31, 1996.............. F-42
Statements of Stockholder's Equity for the Year Ended
December 31, 1995 and the Ten Months Ended October 31,
1996................................................... F-43
Statements of Cash Flows for the Year Ended December 31,
1995 and the Ten Months Ended October 31, 1996......... F-44
Notes to Financial Statements............................. F-45
HERITAGE CREDIT SERVICES, INC. -- FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ F-49
Balance Sheets as of September 30, 1995 and 1996.......... F-50
Statements of Operations and Retained Earnings for the
Years Ended September 30, 1994, 1995 and 1996 and the
period ended May 20, 1997 (unaudited).................. F-51
Statements of Cash Flows for the Years Ended September 30,
1994, 1995 and 1996 and the period ended May 20, 1997
(unaudited)............................................ F-52
Notes to Financial Statements............................. F-53
</TABLE>

F-1
<PAGE> 61

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To First Sierra Financial, Inc.:

We have audited the accompanying consolidated balance sheets of First
Sierra Financial, Inc., and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the period from inception (June 3, 1994) through December 31, 1994 and
for the years ended December 31, 1995 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Sierra Financial,
Inc., and subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for the period from inception (June 3,
1994) through December 31, 1994, and for the years ended December 31, 1995 and
1996, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
February 27, 1997

F-2
<PAGE> 62

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
LEASE FINANCING RECEIVABLES, net........ $67,322 $61,270
INVESTMENT IN TRUST CERTIFICATES........ -- 9,534
GOODWILL AND OTHER INTANGIBLE ASSETS,
net................................... -- 3,615
CASH AND CASH EQUIVALENTS............... 876 2,598
FURNITURE AND EQUIPMENT, net............ 262 1,049
OTHER ASSETS............................ 884 1,276
------- -------
Total assets.................. $69,344 $79,342
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

DEBT:
Warehouse credit facilities........... $55,827 $52,380
Subordinated note payable............. 9,000 9,000
OTHER LIABILITIES:
Holdback reserve payable.............. 1,969 6,523
Accounts payable and accrued
liabilities........................ 1,238 3,929
Deferred income taxes................. -- 1,366
------- -------
Total liabilities............. 68,034 73,198
------- -------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. -- 3,890
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
25,000,000 shares authorized,
5,470,000 shares and 5,696,310
shares issued and outstanding,
respectively....................... 55 57
Additional paid-in capital............ 945 730
Retained earnings..................... 310 1,467
------- -------
Total stockholders' equity.... 1,310 2,254
------- -------
Total liabilities and
stockholders' equity......... $69,344 $79,342
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 63

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 3, 1994) YEAR ENDED
THROUGH DECEMBER 31
DECEMBER 31, --------------------
1994 1995 1996
-------------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME......................... $ 181 $3,053 $6,323
GAIN ON SALE OF LEASE FINANCING
RECEIVABLES........................... -- 3,259 3,456
SERVICING INCOME........................ 6 323 1,050
OTHER INCOME............................ -- 16 535
------- ------ ------
Total revenues................ 187 6,651 11,364
------- ------ ------
INTEREST EXPENSE........................ 157 2,616 5,014
SALARIES AND BENEFITS................... 312 1,346 1,987
PROVISION FOR CREDIT LOSSES............. 28 392 537
DEPRECIATION AND AMORTIZATION........... 6 100 286
OTHER GENERAL AND ADMINISTRATIVE........ 522 803 1,531
------- ------ ------
Total expenses................ 1,025 5,257 9,355
------- ------ ------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES...................... (838) 1,394 2,009
PROVISION (BENEFIT) FOR INCOME TAXES.... (323) 569 792
------- ------ ------
NET INCOME (LOSS)....................... (515) 825 1,217
PREFERRED STOCK DIVIDENDS............... -- -- 60
------- ------ ------
NET INCOME (LOSS) ALLOCATED TO COMMON
STOCKHOLDERS.......................... $ (515) $ 825 $1,157
======= ====== ======
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE...................... $ (0.08) $ 0.13 $ 0.19
======= ====== ======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 64

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL RETAINED TOTAL
NUMBER PAID-IN (DEFICIT) STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK, June
3, 1994............................. 5,470,000 $55 $945 $ -- $1,000
Net loss............................ -- -- -- (515) (515)
--------- --- ---- ------ ------
BALANCE, December 31, 1994............ 5,470,000 55 945 (515) 485
Net income.......................... -- -- -- 825 825
--------- --- ---- ------ ------
BALANCE, December 31, 1995............ 5,470,000 55 945 310 1,310
Net income.......................... -- -- -- 1,217 1,217
Issuance of common stock............ 854,736 8 139 -- 147
Repurchase and retirement of common
stock............................ (628,426) (6) (354) -- (360)
Preferred stock dividends........... -- -- -- (60) (60)
--------- --- ---- ------ ------
BALANCE, December 31, 1996............ 5,696,310 $57 $730 $1,467 $2,254
========= === ==== ====== ======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 65

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 3,
1994) YEAR ENDED
THROUGH DECEMBER 31
DECEMBER 31, ---------------------
1994 1995 1996
------------ --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss)..................................... $ (515) $ 825 $ 1,217
Reconciliation of net income (loss) to cash provided
by (used in) operations --
Depreciation and amortization...................... 6 100 286
Provision for credit losses........................ 28 392 537
Gain on sale of lease financing receivables........ -- (3,259) (3,456)
Decrease (increase) in other assets................ (938) 233 (273)
Increase in accounts payable and accrued
liabilities...................................... 510 728 1,964
Increase in holdback reserve payable............... 120 1,850 4,554
Deferred income tax provision (benefit)............ (323) 144 792
-------- --------- --------
Net cash provided by (used in) operations..... (1,112) 1,013 5,621
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Funding of lease financing receivables................ (4,520) (66,390) (172,740)
Principal payments received on lease financing
receivables........................................ -- 3,167 13,977
Proceeds from sales of lease financing receivables,
net of trust certificates retained................. -- 28,623 159,354
Purchase of VGC lease portfolio....................... (25,364) -- --
Additions to furniture and equipment.................. (136) (231) (761)
Cash used in acquisitions, net of cash acquired....... -- -- (69)
-------- --------- --------
Net cash used in investing activities......... (30,020) (34,831) (239)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) warehouse credit
facilities, net.................................... 23,437 32,389 (3,447)
Proceeds from issuance of subordinated note payable... 9,000 -- --
Proceeds from initial issuance of common stock........ 1,000 -- --
Proceeds from issuance of common stock................ -- -- 147
Repurchase of common stock............................ -- -- (360)
-------- --------- --------
Net cash provided by (used in) financing
activities.................................. 33,437 32,389 (3,660)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 2,305 (1,429) 1,722
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ -- 2,305 876
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 2,305 $ 876 $ 2,598
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid.................................. $ -- $ 357 $ 10
======== ========= ========
Interest paid...................................... $ 35 $ 2,736 $ 4,763
======== ========= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 66

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Organization

First Sierra Financial, Inc. ("First Sierra" or the "Company") is a
specialized finance company that was formed in June 1994 to acquire and
originate, sell and service equipment leases. The underlying leases financed by
the Company relate to a wide range of equipment, including computers and
peripherals, computer software, medical, dental and diagnostic,
telecommunications, office, automotive servicing, hotel security, food services,
tree service and industrial, as well as specialty vehicles. The equipment
generally has a purchase price of less than $250,000 (with an average of
approximately $17,000.) The Company initially funds the acquisition or
origination of its leases through its warehouse credit facilities and, upon
achieving a sufficient portfolio size, sells such receivables in the public and
private markets, principally through its securitization program.

The Company acquires and originates leases primarily through its Private
Label, Broker and Vendor programs. Under the Private Label program, the Company
is provided protection from credit losses on defaulted leases through a first
lien security interest in the underlying equipment, recourse to the source of
the lease (the "Source"), holdback reserves withheld from amounts paid to the
Source upon purchase of the lease, or a combination of the above. Leases
acquired through the Broker and Vendor programs are originated through
relationships with vendors, manufacturers, brokers and dealers of equipment. In
addition, the Company has in the past generated, and may in the future generate,
gain on sale income through the acquisition of lease portfolios and the
subsequent sale of such portfolios at a premium.

Initial Public Offering

The Company is in the process of filing a registration statement on Form
S-1 with the Securities and Exchange Commission ("SEC") for an initial public
offering of its common stock (the "Offering"). Proceeds of the Offering,
assuming an issuance price of $9.00 per share and net of underwriters' discounts
and commissions and estimated offering expenses, will be approximately $16.0
million. The Company intends to use the proceeds from the Offering to repay all
outstanding indebtedness under a $9.0 million subordinated note and a portion of
the amounts outstanding under the Company's warehouse facilities and to fund the
cash portion of the consideration in a pending acquisition as further described
in Note 12.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of First Sierra
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and conform to practices within the equipment leasing industry.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Lease Financing Receivables

The Company records the sum of the future minimum lease payments,
unguaranteed residual value and initial direct costs as the gross investment in
the lease. The difference between gross investment in the lease

F-7
<PAGE> 67

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and the cost of the lease is defined as "unearned income." Unearned income and
initial direct costs incurred in connection with the acquisition or origination
of the lease are amortized over the related lease term using the interest
method. Amortization of unearned income and initial direct costs is suspended
if, in the opinion of management, full payment of the contractual amount due
under the lease agreement is doubtful, typically upon a payment becoming 90 days
past due, unless such payment is guaranteed pursuant to recourse or holdback
provisions of the lease acquisition agreements.

In conjunction with the acquisition and origination of leases, the Company
may retain a residual interest in the underlying equipment upon termination of
the lease. The value of such interests is estimated at inception of the lease
and evaluated periodically for impairment.

Gain on Sale of Lease Financing Receivables

The Company generally sells the leases it acquires or originates through
securitization transactions and other structured finance techniques. In a
securitization transaction, the Company sells and transfers a pool of leases to
a wholly-owned, bankruptcy remote, special purpose subsidiary. This subsidiary
in turn simultaneously sells and transfers its interest in the leases to a trust
which issues beneficial interests in the leases in the form of senior and
subordinated securities. The Company generally retains the right to receive any
excess cash flows of the trust (the "Trust Certificate").

Gain on sale of leases sold through securitization transactions is recorded
as the difference between the proceeds received from the sale of senior and
subordinated securities, net of related issuance expenses, and the cost basis of
the leases allocated to the securities sold. The cost basis of the leases is
allocated to the senior and subordinated securities and the Trust Certificate on
a relative fair value basis on the date of sale. The fair value of the senior
and subordinated securities is based on the price at which such securities are
sold through public issuances and private placement transactions, while the fair
value of the Trust Certificate is based on the Company's estimate of its fair
value using a discounted cash flow approach.

Gain on portfolio sales of leases is calculated as the difference between
the proceeds received, net of related selling expenses, and the carrying amount
of the related leases adjusted for ongoing recourse obligations of the Company,
if any. At December 31, 1996, the Company has no recourse obligations related to
receivables sold through portfolio sales.

Investment in Trust Certificates

Trust Certificates are initially recorded based upon the allocated cost
basis of the leases sold through securitization transactions as discussed above.
The Company's investment in Trust Certificates is amortized over the estimated
lives of the underlying leases using the interest method. The cash flows
allocable to the Trust Certificate are calculated as the difference between (a)
cash flows received from the leases and (b) the sum of (i) interest and
principal payable to the holders of the senior and subordinated securities, (ii)
trustee fees, (iii) third party credit enhancement fees, (iv) service fees, and
(v) backup service fees. The Company's right to receive this excess cash flow is
subject to certain conditions specified in the related trust documents designed
to provide additional credit enhancement to holders of the senior and
subordinated securities. The Company estimates the expected levels of cash flows
to the Trust Certificate taking into consideration estimated prepayments,
defaults, recoveries and other factors which may affect the cash flows to the
holder of the Trust Certificate. The cash flows ultimately available to the
Trust Certificate are largely dependent upon the actual default rates and
recoveries experienced on the leases held by the Trust. Increases in default
rates above, or reduction in recoveries below, the Company's estimates could
materially reduce the cash flows available to the Trust Certificate. To the
extent events occur which cause actual Trust Certificate cash flows to be
materially below those originally estimated, the Company would be required to
reduce the carrying amount of its Trust Certificates and record a charge to
earnings. Such charge would be recorded in the period in which the event
occurred or became known to management.

F-8
<PAGE> 68

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Exposure to Credit Losses

Management evaluates the collectibility of leases acquired or originated
based on the level of recourse provided, if any, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors. The Company provides an allowance for credit losses for leases which
are considered impaired during the period from the funding of the leases through
the date such leases are sold through the Company's securitization program.
Estimated losses on leases that are considered impaired and have been sold
through the Company's securitization program are taken into consideration in the
valuation of the Company's investment in the Trust Certificates retained in the
securitization transaction.

The following table sets forth certain information as of December 31, 1995
and 1996, with respect to leases which were held by the Company in its portfolio
or serviced by the Company pursuant to its securitization program (dollars in
thousands):

<TABLE>
<CAPTION>
1996
---------------------------------------
PRIVATE
1995 LABEL BROKER VENDOR
TOTAL(1) PROGRAM PROGRAM PROGRAM TOTAL
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Gross leases outstanding............. $83,687 $244,049 $9,715 $3,470 $257,234
31 - 60 days past due................ 2.53% 2.46% 1.69% 0.00% 2.40%
61 - 90 days past due................ 0.45% 0.81% 0.29% 0.00% 0.78%
Over 90 days past due................ 0.08% 0.35% 0.00% 0.00% 0.33%
------- -------- ------ ------ --------
Total past due............. 3.06% 3.62% 1.98% 0.00% 3.51%
</TABLE>

- ---------------

(1) All leases outstanding at December 31, 1995 were acquired or originated
under the Company's Private Label program.

The following table sets forth the Company's allowance for credit losses
for its Private Label program and its Broker and Vendor programs as of December
31, 1994 and for the years ended December 31, 1995 and 1996 (in thousands):

<TABLE>
<CAPTION>
BROKER
PRIVATE AND
LABEL VENDOR
PROGRAM PROGRAMS(1) TOTAL
------- ----------- -----
<S> <C> <C> <C>
Balance at December 31, 1994.................... $ 28 $ -- $ 28
Provision for credit losses..................... 392 -- 392
Charge-offs, net of recoveries.................. -- -- --
----- ---- -----
Balance at December 31, 1995.................... 420 -- 420
Provision for credit losses..................... 326 211 537
Charge-offs, net of recoveries.................. (25) -- (25)
Reduction of allowance for leases sold.......... (407) -- (407)
----- ---- -----
Balance at December 31, 1996.................... $ 314 $211 $ 525
===== ==== =====
</TABLE>

- ---------------
(1) The Company established its Broker and Vendor programs in 1996 through the
acquisitions of GIC in July 1996 and CCL in October 1996.

F-9
<PAGE> 69

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the Private Label program, the Company seeks to minimize its losses
through a first lien security interest in the equipment funded, recourse to the
Private Label source, holdback reserves withheld from the Private Label Source
upon purchase of the lease, or a combination of the above. The recourse
provisions generally require the Private Label Source to repurchase a receivable
when it becomes 90 days past due. The recourse commitment generally ranges from
10% to 20% of the aggregate purchase price of all leases acquired from the
Private Label Source. Holdback reserves withheld from the purchase price
generally range from 1% to 10% of the aggregate purchase price of the leases
acquired from the Private Label Source. In determining whether a lease acquired
pursuant to the Private Label program which is considered impaired will result
in a loss to the Company, management takes into consideration the ability of the
Private Label Source to honor its recourse commitments and the holdback reserves
withheld from the Private Label Source upon purchase of the lease, as well as
the credit quality of the underlying lessee and the related equipment value. At
December 31, 1995 and 1996, the Company had holdback reserves of $2.0 million
and $6.5 million, respectively, relating to leases, acquired pursuant to the
Private Label program. Such amounts have been classified as liabilities in the
accompanying financial statements.

<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Leases outstanding under the Private Label program (1)...... $67,322 $202,523
======= ========

Recourse to Sources available............................... $ 5,744 $ 19,480
Holdback reserves outstanding............................... 1,969 6,523
------- --------
Total recourse and holdback reserves available.............. $ 7,713 $ 26,003
======= ========
Ratio of recourse and holdback reserves outstanding to total
leases outstanding under the Private Label program(2)..... 11.46% 12.84%
======= ========
</TABLE>

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio as well as leases serviced by the Company pursuant to its
securitization program.

F-10
<PAGE> 70

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the experience of the Company with respect
to leases acquired pursuant to the Private Label program for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1994 1995 1996
------------ -------- ---------
<S> <C> <C> <C>
Average balance of leases acquired pursuant to the Private
Label program outstanding during the period(1).......... $ 1,442 $30,561 $124,592
======= ======= ========
Total amount of leases triggering action under recourse
and holdback provisions during the period............... $ -- $ 266 $ 1,855
Amounts recovered under recourse provisions............... -- 238 1,694
Amounts recovered pursuant to holdback reserves........... -- 28 136
------- ------- --------
Total amounts recovered................................... -- 266 1,830
------- ------- --------
Net loss experienced on leases acquired pursuant to the
Private Label program................................... $ -- $ -- $ 25
======= ======= ========
Net default ratio......................................... --% 0.00% 0.02%
======= ======= ========
</TABLE>

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio as well as leases serviced by the Company pursuant to its
securitization program.

At December 31, 1996, the Company's outstanding net principal balance of
leases acquired or originated under its Broker and Vendor programs was $10.5
million. Such leases had been outstanding for less than two months on a weighted
average basis as of such date. Management analyzes the collectibility of leases
acquired or originated pursuant to its Broker and Vendor programs based on its
underwriting criteria, delinquency statistics, historical loss experience,
current economic conditions and other relevant factors. While the Company owns
the underlying equipment, it does not have any recourse or holdback reserves
with respect to any leases acquired or originated pursuant to its Broker and
Vendor programs. Management believes however, that the relatively short holding
period between the time that leases are acquired or originated and the time that
such leases are sold minimizes the Company's exposure to credit losses.
Accordingly, management believes that an allowance for credit losses of $211,000
is adequate to cover estimated losses incurred on leases considered to be
impaired as of December 31, 1996.

The Company's allowance for credit losses and its valuation of the Trust
Certificates retained in its securitization transactions are based on estimates
and qualitative evaluations, and ultimate losses will vary from current
estimates. These estimates are reviewed periodically and as adjustments, either
positive or negative, become necessary, they are reported in earnings in the
period in which they become known.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the period in which the change is enacted.

F-11
<PAGE> 71

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the fair value of
identifiable net assets of businesses acquired and is amortized on a straight
line basis over 20 years. The Company periodically assesses the recoverability
of goodwill by evaluating whether the future cash flows expected to be generated
from the businesses acquired are greater than the carrying amount of the related
goodwill. If such future cash flows are not expected to exceed the carrying
amount of the related goodwill, an impairment is deemed to have occurred and a
write down would be recorded currently in earnings. At December 31, 1996, no
impairment was deemed to have occurred. Other intangible assets consist of
amounts paid for noncompete agreements which are amortized on a straight line
basis over the term of the agreement. At December 31, 1996, accumulated
amortization related to amounts recorded for goodwill and amounts paid pursuant
to noncompete agreements was approximately $92,000.

Furniture and Equipment

Furniture and equipment are carried at cost, less accumulated depreciation.
Such assets are depreciated using accelerated and straight line methods over the
estimated useful lives of the respective assets.

Cash and Cash Equivalents

The Company considers all significant investments which mature within three
months of the date of purchase to be cash equivalents.

Interest Rate Management Activities

Leases acquired and originated by the Company require payments to be made
by the lessee at fixed rates for specified terms. The rates charged by the
Company are based on interest rates prevailing in the market at the time of
lease approval. Because the Company generally finances its acquisition or
origination of leases through its warehouse credit facilities which bear
interest at floating rates, the Company is exposed to risk of loss from adverse
interest rate movements during the period from the date of acquisition or
origination of the leases until the leases are securitized or otherwise sold.
The Company seeks to minimize its exposure to adverse interest rate movements
during this period through entering into amortizing swap transactions under
which the notional amount of the contract changes monthly to match the
anticipated amortization of the underlying leases. Settlements with
counterparties are accrued at period-end and either increase or decrease
interest expense reported in the statement of operations.

Earnings Per Share

Earnings per share amounts are calculated based on the net income (loss)
allocated to common stockholders after preferred dividends divided by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period, adjusted for a 5.47 to 1 stock split (see Note
9). Common stock equivalents consist of shares subject to stock options and
warrants and convertible preferred stock.

The weighted average number of common shares used for computing earnings or
loss per share was 6,308,410 for the period from June 3, 1994 (inception)
through December 31, 1994, and 6,436,324 and 5,991,127 for the years ended
December 31, 1995 and 1996, respectively,.

Supplemental net income per share for the year ended December 31, 1996, was
$.26. The calculation assumes the issuance of an adequate number of shares at
$9.00 per share such that the net proceeds therefrom, after payment of estimated
expenses incurred in connection with the Offering and underwriting discounts and
commissions, will be sufficient to repay in full the $9.0 million subordinated
note and to repay $5.6 million of the outstanding balance under the Company's
warehouse facilities. The calculation assumes the issuance of 1,832,736 shares
of Common Stock on January 1, 1996 and that the net income allocated to Common

F-12
<PAGE> 72

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stockholders has been adjusted to give effect to the elimination of interest
expense of the debt repaid, net of the income tax effect computed at the
Company's effective income tax rate.

Recent Accounting Pronouncement

In June 1996, the Financial Accounting Standards Board adopted SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under SFAS No. 125, an entity will recognize
the financial and servicing assets it controls and the liabilities it has
incurred, derecognize financial assets when control has been surrendered and
derecognize liabilities when extinguished. Additionally, SFAS No. 125 requires
that servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets sold, if
any, and retained interests, if any, based on relative fair values at the date
of transfer. SFAS No. 125 is effective for transactions occurring after December
31, 1996, and earlier or retroactive application is not permitted. If SFAS No.
125 were effective for fiscal 1996 transactions, the effect would have been to
record a servicing asset in conjunction with transactions conducted through the
Company's securitization program, decrease the allocated cost attributable to
the residual interest in securitized assets retained by the Company, and
increase retained earnings as a result of recording a larger gain on sale of
lease financing receivables through the Company's securitization program.

Reclassifications

Certain reclassifications have been made to conform with the current period
presentation.

3. ACQUISITIONS

On July 11, 1996, the Company acquired certain assets and liabilities of
General Interlease Corporation ("GIC") for an aggregate purchase price of $2.64
million. Consideration for the acquisition was effected through the issuance of
56,718 shares of Series A Preferred Stock (see Note 8). GIC is located in Fort
Lauderdale, Florida and primarily focuses on the lease broker and equipment
vendor markets in the southeastern region of the United States.

On October 31, 1996, the Company acquired the outstanding common stock of
Corporate Capital Leasing Group, Inc. ("CCL") for an aggregate purchase price of
$2.5 million. Consideration for the acquisition was effected through the
issuance of 43,691 shares of Series B Preferred Stock, 21,845 of which are held
pursuant to an escrow agreement between the former owner of CCL and the Company
(See Note 8). The escrow agreement covers an aggregate period of approximately
39 months and provides that 7,281 shares of Series B Preferred Stock will be
released from escrow per period if the CCL division of the Company meets or
exceeds a targeted income amount determined in accordance with the escrow
agreement. At December 31, 1996, no shares had been released from escrow and the
CCL acquisition has been recorded at $1.25 million, such amount representing the
number of shares not subject to the escrow agreement at such date. CCL is
located in West Chester, Pennsylvania and primarily focuses on the broker market
in the mid-Atlantic region of the United States.

The above acquisitions have been accounted for using the purchase method of
accounting. Under the purchase method of accounting, the results of acquired
businesses are included in the Company's results from their respective
acquisition dates. The allocations of the purchase price to the fair market
value of the net assets acquired is based on preliminary estimates of fair
market value and may be revised when additional information concerning asset and
liability valuations is obtained.

F-13
<PAGE> 73

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired for the years ended
December 31, 1995 and 1996 as if the acquisitions had taken place at the
beginning of 1995 and 1996, respectively. Appropriate adjustments have been made
to reflect the cost basis used in recording these acquisitions. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of the results of operations that would have resulted had the
combinations been in effect on the dates referred to above, that have resulted
since the dates of the acquisitions or that may result in the future (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Revenues................................................... $13,870 $14,314
Net income before income taxes............................. 2,812 2,325
Net income allocated to common stockholders................ 1,800 1,120
Income per common and common equivalent share.............. .26 .19
</TABLE>

4. LEASE FINANCING RECEIVABLES

The Company's lease financing receivable balance at December 31, 1995 and
1996, consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Minimum lease payments..................................... $ 83,373 $ 75,945
Estimated unguaranteed residual value...................... -- 1,044
Initial direct costs....................................... 733 895
Unearned income............................................ (16,364) (16,089)
Allowance for credit losses................................ (420) (525)
-------- --------
Lease financing receivables, net......................... $ 67,322 $ 61,270
======== ========
</TABLE>

Future scheduled minimum payments on the Company's lease portfolio as of
December 31, 1996, are as follows (in thousands):

<TABLE>
<S> <C>
1997........................................................ $15,735
1998........................................................ 17,210
1999........................................................ 15,904
2000........................................................ 11,812
2001........................................................ 9,079
Thereafter.................................................. 6,205
-------
Total minimum payments............................ $75,945
=======
</TABLE>

At December 31, 1996, the weighted average remaining life of leases in the
Company's lease portfolio is 34 months and the implicit rate of interest is
10.23%. While contractual payments on the leases extend through 2004, management
believes that substantially all currently outstanding leases will be sold within
the next year through the Company's securitization program.

Sales of Leases

During the year ended December 31, 1996, leases with an aggregate principal
balance of $152.0 million, net of unearned income, were sold through the
Company's securitization program. Senior and subordinated certificates with an
aggregate principal balance of $148.0 million were sold in such securitization
transactions,

F-14
<PAGE> 74

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

while the Trust Certificates were retained by the Company. Gains of $2.8 million
were recognized upon sale of the senior and subordinated securities sold by the
Company.

The terms of the Company's securitization program generally provide for a
revolving period during which additional leases are sold to the securitization
trusts in amounts sufficient to maintain the collateral value, as calculated
pursuant to the trust agreements, at levels consistent with such balance as of
closing. Such additional leases are sold at prices equivalent to the present
value of the scheduled monthly payments of the additional leases contributed,
discounted at specified rates set forth in the Pooling and Servicing Agreement
for the related transaction. Gains of $633,000 have been recognized in the
accompanying financial statements relating to such additional sales of leases
subsequent to closing.

In December 1994, the Company purchased a portfolio of leases for $25.4
million. In February 1995, after receiving $2.4 million of collections, the
Company sold the majority of the leases in such portfolio for total
consideration of $27.7 million. The Company recorded a pretax gain on sale of
portfolio leases of $3.3 million in connection with such sale, net of related
closing expenses.

5. DEBT

Debt consisted of the following as of December 31, 1995 and 1996 (in
thousands):

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Warehouse credit facilities --
Prudential Securities Credit Corporation.................. $ 9,894 $40,142
First Union National Bank of North Carolina............... 45,933 12,238
------- -------
Total warehouse credit facilities........................... 55,827 52,380
Subordinated note payable................................... 9,000 9,000
------- -------
$64,827 $61,380
======= =======
</TABLE>

Warehouse Credit Facilities

The Company finances the acquisition or origination of its leases primarily
through its warehouse credit facilities. Funds borrowed through these facilities
are repaid when the Company sells its receivables through its securitization
program. Substantially all leases held by the Company are pledged as collateral
for the warehouse credit facilities. As of December 31, 1996, borrowings under
the Company's warehouse credit facilities bore interest at a weighted average
interest rate, including the effect of interest rate swap agreements, of 6.76%.

In May 1995, the Company's wholly owned subsidiary, First Sierra
Receivables, Inc., entered into a $50.0 million revolving credit and term loan
agreement with First Union National Bank of North Carolina (the "First Union
Credit Facility"). The First Union Credit Facility was subsequently increased to
$75.0 million. The First Union Credit Facility bore interest at a floating rate
equal to the 30-day LIBOR plus 1.25% at December 31, 1996. The First Union
Credit Facility also provides $25.0 million of financing available to fund the
purchase of subordinated securities issued through the Company's securitization
program, with any advances utilized for that purpose reducing the amount
available under such facility. Such advances bear interest at a floating rate
equal to the 30-day LIBOR plus 1.50%. The First Union Credit Facility is
recourse to First Sierra Receivables, Inc., but non-recourse to First Sierra
Financial, Inc. The First Union Credit Facility matures on May 1, 1997, if not
previously renewed, at which time all amounts outstanding convert to a term loan
which matures on the tenth day of the month following the date on which the last
scheduled payment on the leases pledged is due. Under the terms of the First
Union Credit Facility, the Company is required to maintain certain minimum
financial ratios. As of December 31, 1996, the Company was in compliance with
such requirements.

F-15
<PAGE> 75

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In September 1996, the Company entered into a $75.0 million warehouse
facility with Prudential Securities Credit Corporation (the "Prudential
Facility"). Borrowings under the Prudential Facility bear interest at a floating
rate of 30-day LIBOR plus 0.95%. The Prudential Facility matures on March 31,
1997. In connection with the Prudential Facility, the Company received an
engagement letter from Prudential Securities Incorporated ("Prudential
Securities") under which Prudential Securities agreed to guarantee the purchase
of the BB rated subordinated securities issued in connection with
securitizations of leases acquired or originated by the Company which would
reduce the total commitment under the Prudential Facility. The purchase price is
based on a spread over the rate on comparable term U.S. Treasury securities as
of the date of the securitization. The Company is required to maintain certain
minimum financial ratios pursuant to the terms of the Prudential Facility. As of
December 31, 1996, the Company was in compliance with such requirements.

The Company is currently negotiating the renewal and/or restructuring of
its existing warehouse credit facilities and believes such actions will be
completed on terms at least as favorable as those under its existing agreements
prior to their maturity.

The Company currently is in negotiations with two lending institutions for
an additional facility (the "Supplemental Warehouse Facility") that would
provide the Company with up to $50.0 million of additional warehouse funding.
Borrowings under the Supplemental Warehouse Facility are expected to bear
interest at a floating rate equal to 30-day LIBOR plus 1.25%. The Supplemental
Warehouse Facility would provide for the issuance of a letter of credit for the
purpose of providing credit enhancement at securitization, which would allow the
Company to issue one senior class of securities rated AAA/Aaa in an amount which
would be at least 94.0% of the present value of the remaining scheduled payments
due on the leases included in the securitization. This securitization structure
would not require the Company to obtain credit ratings on the subordinated
securities issued in the transaction and would allow the Company to enhance the
level of cash proceeds realized at securitization. There can be no assurance
that the Company will be able to complete the Supplemental Warehouse Facility.

Subordinated Note Payable

In 1994, the Company issued a $9.0 million, unsecured subordinated note due
June 6, 2004 (the "Subordinated Note") to an entity controlled by one of the
Company's stockholders. Interest on the Subordinated Note is payable monthly at
a rate of 11.00%. The Company intends to utilize a portion of the proceeds of
the Offering to repay the Subordinated Note. Upon completion of the Offering,
the Company intends to enter into a new $5.0 million subordinated revolving
credit facility with the same entity, with the commitment level thereunder
decreasing by $1.0 million per year. Advances under the facility will bear
interest at 11.00% per annum.

Interest Rate Swap Agreements

The Company is required pursuant to the terms of the First Union Credit
Facility to enter into interest rate swap agreements in amounts equal to at
least 60% of the amount of borrowings outstanding under such facility. At
December 31, 1996 and 1995, the Company had entered into amortizing swap
agreements with notional amounts of $33.9 million and $40.5 million,
respectively. These agreements effectively modified amounts outstanding under
the LIBOR-based revolving lines to fixed rate debt at rates ranging from 5.83%
to 6.29% at December 31, 1996, and at rates ranging from 5.85% to 6.60% at
December 31, 1995. The counterparties to the Company's swap agreements at
December 31, 1996 were Prudential Global Funding, Inc., an affiliate of
Prudential Securities Credit Corporation, and First Union National Bank of North
Carolina.

F-16
<PAGE> 76

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. FURNITURE AND EQUIPMENT

The following is a summary of furniture and equipment as of December 31,
1995 and 1996 (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
1995 1996 USEFUL LIFE
----------- ----------- -----------
<S> <C> <C> <C>
Furniture and fixtures................................. $ 104 $ 406 7 years
Computer and office equipment.......................... 237 885 5 years
Leasehold improvements and other....................... 26 57 3 years
------ ------
367 1,348
Accumulated depreciation............................... (105) (299)
------ ------
$ 262 $1,049
====== ======
</TABLE>

7. INCOME TAXES

The temporary differences which give rise to net deferred tax assets and
liabilities are as follows at December 31, 1995 and 1996, respectively (in
thousands):

<TABLE>
<CAPTION>
1995 1996
---- -------
<S> <C> <C>
Accruals and reserves not deductible until paid............. $ -- $ 111
Depreciation and amortization............................... 34 (6)
Cash to accrual adjustment.................................. 180 (604)
Net operating loss carryforward............................. -- 59
Equipment lease securitization.............................. (57) (1,074)
Other....................................................... 22 148
---- -------
Total deferred income tax assets/(liabilities).... $179 $(1,366)
==== =======
</TABLE>

The provision (benefit) for income taxes for the period from inception
through December 31, 1994 and for the years ended December 31, 1995 and 1996
were as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Current --
Federal................................................... $ -- $376 $ --
State..................................................... -- 49 --
----- ---- ----
$ -- $425 $ --
===== ==== ====
Deferred --
Federal................................................... $(285) $111 $722
State..................................................... (38) 33 70
----- ---- ----
$(323) $144 $792
===== ==== ====
Total provision (benefit)......................... $(323) $569 $792
===== ==== ====
</TABLE>

F-17
<PAGE> 77

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes. The sources of these temporary differences and
related tax effects were as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Equipment lease securitizations............................. $ -- $ -- $993
Accruals not deductible until paid.......................... (34) (12) 111
Cash to accrual adjustment.................................. (145) 12 (56)
Net operating loss carryforward............................. (144) 144 (59)
Other....................................................... -- -- (197)
----- ---- ----
Total deferred provision (benefits)............... $(323) $144 $792
===== ==== ====
</TABLE>

The following is a reconciliation between the effective income tax rate and
the applicable statutory federal income tax rate for the period from inception
through December 31, 1994 and for the years ended December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... (34)% 34% 34%
State income taxes, net of federal benefit.................. (4.5) 3.2 3.2
Non-deductible expenses and other........................... -- 3.6 2.2
----- ---- ----
Effective income tax rate................................. 38.5% 40.8% 39.4%
===== ==== ====
</TABLE>

8. REDEEMABLE PREFERRED STOCK

As of December 31, 1996, the Company was authorized to issue 1,000,000
shares of preferred stock. The number of shares to be issued, classes
designated, voting rights, dividend rates, liquidation and other rights,
preferences and limitations may be set by the Company's Board of Directors
without stockholder approval.

At December 31, 1996, 56,718 shares of Series A Preferred Stock (the
"Series A Preferred Stock") were issued and outstanding. Each share of the
Series A Preferred Stock is convertible at the holder's option at any time into
5.47 shares of the Company's common stock. Holders of the Series A Preferred
Stock are entitled to an annual, non-cumulative dividend of $1.86 per share.
Each outstanding share of Series A Preferred Stock entitles the holder thereof
to 5.47 votes on any matter submitted to a vote of the stockholders. If not
previously converted, the Company is required to redeem all outstanding Series A
Preferred Stock on December 31, 2001, at an aggregate redemption price of $2.6
million.

At December 31, 1996, 43,691 shares of Series B Convertible Preferred Stock
(the "Series B Preferred Stock") were outstanding. Each share of Series B
Preferred Stock is convertible, at the option of the holder, at any time into
5.47 shares of the Company's common stock. In addition, shares of Series B
Preferred Stock will be automatically converted by the Company into Common Stock
if the Company's common stock trades at or above $12.33 per share for twenty
consecutive trading days in a public market and certain other conditions are
met. Each share of the Series B Preferred Stock entitles the holder thereof to
5.47 votes on all matters submitted to a vote of stockholders. Holders of the
Series B Preferred Stock are entitled to receive annual, cumulative dividends
ranging from $1.14 to $2.29 per share based on criteria set forth in an escrow
agreement between the Company and the holder of such stock (the "Escrow
Agreement"). If not previously converted, the Series B Preferred Stock is
mandatorily redeemable on December 31, 2001, at an aggregate redemption price
ranging from $1.3 million to $2.5 million based on criteria set forth in the
Escrow Agreement. At December 31, 1996, holders of the Series B Preferred Stock
were entitled to receive dividends at the rate of $1.14 per share and the
aggregate redemption value was $1.3 million.

Concurrent with the issuance of the Series A Preferred Stock and the Series
B Preferred Stock, irrevocable standby letters of credit, issued by a financial
institution and guaranteed by an affiliate of the

F-18
<PAGE> 78

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company, were given to the holders of the preferred stock and can be drawn upon
if certain events occur, including the failure of the Company to pay dividends
when due, the failure of the Company to redeem the shares on the designated
mandatory redemption date or the occurrence of a liquidation, dissolution or
winding up of the Company. As of December 31, 1996, letters of credit of
approximately $5.1 million were outstanding.

The Company may issue one or more series of preferred stock in the future
in conjunction with its acquisition strategy or otherwise. Any such issuances
may adversely affect, among other things, the voting power of holders of the
Company's common stock and then outstanding preferred stock. The Series A
Preferred Stock and the Series B Preferred Stock have been reflected as
Redeemable Preferred Stock in the accompanying financial statements.

9. STOCKHOLDERS' EQUITY

Common Stock

In February 1997, the Company increased the authorized shares of common
stock of the Company to 25.0 million shares. On February 27, 1997, the Board of
Directors of the Company approved a stock split whereby 5.47 shares of common
stock were issued for each outstanding share of common stock. All share and per
share amounts included in the accompanying financial statements and footnotes
have been restated to reflect the stock split.

From June 1994 through January 1995, options to purchase common stock of
the Company at the estimated fair value on the date of the grant were offered to
certain key officers and a director of the Company in conjunction with the
formation of the Company and pursuant to the employees' respective employment
agreements. During the year ended December 31, 1996, such employees and the
director exercised these options and acquired 854,736 shares of common stock of
the Company for $146,941.

In May 1996, the Company acquired 628,426 shares of its common stock from a
stockholder for $360,000. Additionally, the Company had entered into a two year
consulting agreement for $75,000 per year with such shareholder in conjunction
with the formation of the Company. Such consulting agreement terminated in June
1996.

Each of the stockholders of the Company is party to a stockholders
agreement dated as of June 3, 1994 (the "Stockholders Agreement"), which
contains provisions for, among other things, voting of shares, election of
directors, restrictions on transfer of shares and certain demand and piggyback
registration rights. The Stockholders Agreement is expected to be terminated
prior to completion of the Offering. Upon completion of the Offering, the
Company and the holders of 100% of the Common Stock outstanding prior to the
Offering will enter into a Registration Rights Agreement providing such
stockholders with certain demand and piggyback registration rights.

Warrants

In May 1995, the Company issued warrants to purchase a total of 198,397
shares of the Company's common stock at a price of $.0018 per share, which
approximated the estimated fair value of the underlying stock to one of its
lenders, First Union National Bank of North Carolina (see Note 5). The warrants
are currently exercisable and have an expiration date of May 8, 2005. The
Company has a right of first refusal to purchase the warrants should the holder
thereof wish to dispose of such warrants. The Company has the option to purchase
the warrants at the fair value of the Company's common stock upon the occurrence
of certain events including an event of default under the First Union Credit
Facility or May 8, 2001. At December 31, 1996, no warrants had been exercised.

F-19
<PAGE> 79

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Options

At December 31, 1996, the Company did not have any outstanding options, nor
were there any stock option plans in place.

10. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has entered into various operating lease agreements, primarily
for office space. Rent expense under all operating leases for the period from
inception through December 31, 1994 and for the years ended December 31, 1995
and 1996 was $19,000, $162,000 and $246,000, respectively. For the subsequent
five years, minimum annual rental payments under noncancelable operating leases
are as follows (in thousands):

<TABLE>
<S> <C>
1997.................................... $354
1998.................................... 238
1999.................................... 172
2000.................................... 88
2001.................................... 64
----
Total minimum payments........ $916
====
</TABLE>

Concentration of Credit Risks

The Company acquires or originates a majority of its leases from lease
origination Sources operating in five states: Texas, Florida, New York, New
Jersey and California. Although the Company's portfolio of leases includes
lessees located throughout the United States, such lessees' ability to honor
their contracts may be substantially dependent on economic conditions in these
states. All such contracts are collateralized by the related equipment. The
recourse and holdback provisions of the Private Label program mitigate, but do
not eliminate, a significant portion of any economic risk not recoverable
through the sale of the related equipment.

On a pro forma basis after giving effect to the acquisitions of GIC, CCL,
Heritage and Lease Pro, two of the Company's Private Label Sources accounted for
12.5% and 9.8%, respectively, of all equipment leases acquired or originated by
the Company during 1996. No other Source accounted for more than 5% of the
equipment leases acquired or originated by the Company during 1996. In the event
that the Company's significant Private Label Sources were to substantially
reduce the number of leases sold to the Company, and the Company was not able to
replace the lost lease volume, such reduction could have a material adverse
effect on the Company's financial condition and results of operations.

Additionally, a substantial portion of the Company's leases are
concentrated in certain industries, including, the medical industry, the dental
industry and the veterinary industry. To the extent that the economic or
regulatory conditions prevalent in such industries change, the lessees' ability
to honor their lease obligations may be adversely impacted.

Employee Benefit Plan

The Company established a 401(k) defined contribution plan in October 1996
which is generally available to everyone who was employed by the Company as of
October 1, 1996. Employees may generally contribute up to 15 percent of their
salary each year; and the Company, at its discretion, may match up to 50% of the
first 8% contributed by the employee. During the year ended December 31, 1996,
the Company recognized $5,000 of expense related to the 401(k) plan. The Company
does not offer any other post-employment or post-retirement benefits.

F-20
<PAGE> 80

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employment Agreements

The Company has entered into employment agreements with certain key members
of management. The terms of such agreements provide for salaries and bonuses as
set forth in the agreements and upon achieving certain performance objectives.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Much of the information used to determine fair value is highly subjective and
judgmental in nature and, therefore, may not be precise. Because the fair value
is estimated as of the balance sheet date, the amounts which will actually be
realized or paid upon settlement or maturity of the various instruments could be
significantly different. The following table summarizes the carrying amounts and
estimated fair values of the Company's financial instruments at December 31,
1995 and 1996 (in thousands):

<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets --
Lease financing receivables, net............. $67,322 $71,724 $61,270 $64,417
Investment in Trust Certificates............. -- -- 9,534 9,778
Cash and cash equivalents.................... 876 876 2,598 2,598
Financial liabilities --
Warehouse credit facilities.................. 55,827 55,827 52,380 52,380
Subordinated note payable.................... 9,000 9,000 9,000 9,000
Off balance sheet instruments --
Interest rate swap agreements................ -- 719 -- 96
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
such value.

Lease Financing Receivables. The fair value was estimated by discounting
expected future cash flows at a risk adjusted rate of return deemed to be
appropriate for investors in such instruments. Expected cash flows take into
consideration management's estimates of prepayments, defaults and recoveries.

Investment in Trust Certificates. The fair value was estimated by discounting
expected future cash flows allocable to the holder of the Trust Certificate at a
risk adjusted rate of return deemed to be appropriate for investors in such
investment. Expected cash flows take into consideration management's estimates
of prepayments, defaults and recoveries.

Cash and Cash Equivalents. The carrying amounts approximate fair value because
of the short maturity and market interest rates of those instruments.

Warehouse Credit Facilities. The carrying amounts approximate fair value due to
the floating rate nature of the credit facilities.

Subordinated Note Payable. The carrying amount of the subordinated note payable
approximates its fair value based on estimated yields which would be required
for similar types of debt instruments.

Interest Rate Swap Agreements. The fair value represents the payment the Company
would have made to the swap counterparties to terminate the swap agreements on
the indicated dates.

F-21
<PAGE> 81

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SUBSEQUENT EVENTS:

On February 4, 1997, the Company acquired certain assets and liabilities of
Lease Pro, Incorporated ("Lease Pro") for approximately $900,000 in cash. Lease
Pro is located in Atlanta, Georgia and has a significant presence in the
national market for veterinary equipment financing.

In February 1997, the Company signed a letter of intent to acquire the
outstanding common stock of Heritage Credit Services, Inc. ("Heritage") in
exchange for $6.4 million, consisting of $1.4 million in cash, the issuance of a
$1.0 million subordinated note bearing interest at 9.00% per annum and 444,444
shares of Common Stock (assuming an initial public offering price of $9.00 per
share). Such acquisition is contingent upon, and will close simultaneously with,
the Offering. Heritage is located near Sacramento, California and is principally
involved in the broker market on the U.S. west coast and has a significant
vendor base in California.

F-22
<PAGE> 82

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Lease financing receivables, net............................ $61,270 $37,467
Goodwill and other intangible assets, net................... 3,615 17,461
Investment in trust certificates............................ 9,534 9,773
Cash and cash equivalents................................... 2,598 7,118
Marketable security......................................... -- 4,053
Furniture and equipment, net................................ 1,049 3,033
Other assets................................................ 1,276 2,067
------- -------
Total assets...................................... $79,342 $80,972
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Warehouse credit facilities............................... $52,380 $21,706
Subordinated note payable................................. 9,000 1,000
Other liabilities:
Holdback reserve payable.................................. 6,523 9,534
Accounts payable and accrued liabilities.................. 3,929 9,834
Deferred income taxes..................................... 1,366 3,412
------- -------
Total liabilities................................. 73,198 45,486
------- -------
Commitments and contingencies
Redeemable preferred stock.................................. 3,890 3,890
Stockholders' equity:
Common stock, $.01 par value, 25,000,000 shares
authorized, 5,696,310 and 9,038,550 shares,
respectively, issued and outstanding................... 57 90
Additional paid-in capital................................ 730 24,862
Retained earnings......................................... 1,467 6,644
------- -------
Total stockholders' equity........................ 2,254 31,596
------- -------
Total liabilities and stockholders' equity........ $79,342 $80,972
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-23
<PAGE> 83

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996 1997
------- --------
<S> <C> <C>
Gain on sale of lease financing receivables................. $1,933 $12,625
Interest income............................................. 4,755 7,661
Servicing income............................................ 611 2,048
Other income................................................ 322 1,363
------ -------
Total revenues.................................... 7,621 23,697
------ -------
Salaries and benefits....................................... 1,151 4,730
Interest expense............................................ 3,775 4,402
Provision for credit losses................................. 280 1,414
Depreciation and amortization............................... 168 742
Other general and administrative............................ 928 3,586
------ -------
Total expenses.................................... 6,302 14,874
------ -------
Income (loss) before provision (benefit) for income taxes... 1,319 8,823
------ -------
Provision (benefit) for income taxes........................ 520 3,529
------ -------
Net income (loss)........................................... 799 5,294
====== =======
Net income (loss) per common and common equivalent Share.... $ 0.13 $ 0.67
====== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-24
<PAGE> 84

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL RETAINED TOTAL
NUMBER PAID-IN (DEFICIT) STOCKHOLDER'S
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............ 5,696,310 $57 $ 730 $1,467 $ 2,254
Net income.......................... -- -- -- 5,294 5,294
Preferred stock dividends........... -- -- -- (117) (117)
Initial public offering of common
stock............................ 2,300,000 23 16,183 -- 16,206
Issuance of common stock in
connection with purchase business
combinations..................... 843,888 8 7,949 -- 7,957
Issuance of common stock in exchange
for convertible warrants......... 198,352 2 -- -- 2
--------- --- ------- ------ -------
Balance, September 30, 1997........... 9,038,550 $90 $24,862 $6,644 $31,596
========= === ======= ====== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-25
<PAGE> 85

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net income................................................ $ 799 $ 5,294
Reconciliation of net income to cash provided by
operations --
Depreciation and amortization.......................... 168 742
Provision for credit losses............................ 280 1,414
Gain on sale of lease financing receivables............ (1,933) (12,625)
Decrease in other assets............................... 356 5,137
(Decrease) increase in accounts payable and accrued
liabilities........................................... (592) 1,134
Increase in holdback reserve payable................... 2,798 4,483
Deferred income tax provision.......................... 520 3,529
--------- ---------
Net cash provided by operations................... 2,396 9,108
--------- ---------
Cash flows from investing activities:
Funding of lease financing receivables.................... (112,075) (226,779)
Principal payments received on lease financing
receivables............................................ 7,090 8,373
Proceeds from sales of lease financing receivables, net of
trust certificates retained............................ 86,327 288,324
Additions to furniture and equipment...................... (428) (1,177)
Cash used in acquisitions, net of cash acquired........... (80) (4,627)
--------- ---------
Net cash (used in) provided by investing
activities...................................... (19,166) 64,114
--------- ---------
Cash flows from financing activities:
Borrowings (repayments) of warehouse credit facilities,
net of repayments (borrowings)......................... 18,482 (75,910)
Proceeds from issuance of common stock.................... 147 16,206
Proceeds from exercise of convertible warrants............ -- 2
Repayment of subordinated note payable.................... -- (9,000)
Repurchase of common stock................................ (360) --
--------- ---------
Net cash provided by (used in) financing
activities...................................... 18,269 (68,702)
--------- ---------
Net increase in cash and cash equivalents................... 1,499 4,520
Cash and cash equivalents at beginning of period............ 876 2,598
--------- ---------
Cash and cash equivalents at end of period.................. $ 2,375 $ 7,118
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid......................................... $ -- $ --
========= =========
Interest paid............................................. $ 3,128 $ 4,404
========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-26
<PAGE> 86

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. THE COMPANY

First Sierra Financial, Inc. ("First Sierra" or the "Company") is a
specialized finance company that was formed in June 1994 to acquire and
originate, sell and service equipment leases. The underlying leases financed by
the Company relate to a wide range of equipment, including computers and
peripherals, computer software, medical, dental and diagnostic,
telecommunications, office, automotive servicing, hotel security, food services,
tree service and industrial, as well as specialty vehicles. The equipment
generally has a purchase price of less than $250,000 (with an average of
approximately $18,000 as of September 30, 1997.) The Company initially funds the
acquisition or origination of its leases through its warehouse credit facilities
or from working capital and, upon achieving a sufficient portfolio size, sells
such receivables in the public and private markets, principally through its
securitization program.

On February 27, 1997, the Board of Directors of the Company approved a
stock split whereby 5.47 shares of Common Stock were issued for each outstanding
share of Common Stock. All share and per share amounts included in the
accompanying financial statements and footnotes have been restated to reflect
the stock split.

On May 20, 1997, the Company consummated its initial public offering of
common stock through the sale of 2,000,000 shares of common stock (the "Initial
Public Offering"). In June 1997, the underwriters of the Initial Public Offering
exercised their overallotment option and purchased an additional 300,000 shares
of Common Stock of the Company. The Company received net proceeds of
approximately $16.4 million from the Initial Public Offering and the exercise of
the underwriters' option related thereto.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosures required for annual financial statements. In the
opinion of the Company's management, all adjustments (consisting solely of
adjustments of a normal recurring nature) necessary for a fair presentation of
these interim results have been included. Intercompany accounts and transactions
have been eliminated. These financial statements and related notes should be
read in conjunction with the audited financial statements and notes thereto
included herein. The results for the interim periods are not necessarily
indicative of the results to be expected for the entire year.

EARNINGS PER SHARE

Earnings per share amounts are calculated based on the net income (loss)
divided by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Common stock equivalents
consist of options, warrants and convertible redeemable preferred stock.

The weighted average number of shares of common stock and common stock
equivalents outstanding used for computing earnings or loss per share for the
nine months ended September 30, 1996 and 1997 was 6,114,545 and 7,850,020,
respectively. Primary and fully diluted earnings per share are the same for each
period presented.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the

F-27
<PAGE> 87

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

fourth quarter of 1997 and will restate at that time earnings per share ("EPS")
data for prior periods to conform with SFAS 128. Earlier application is not
permitted.

SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the weighted
average number of shares of Common Stock outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into common stock.

If SFAS 128 had been in effect during the current and prior year periods,
basic EPS for the nine months ended September 30, 1996 and 1997 would have been
$.14 and $.72, respectively, while diluted EPS would have been $.13 and $.66,
respectively.

EXPOSURE TO CREDIT LOSSES

The Company provides an allowance for credit losses for leases which are
considered impaired during the period from the funding of the leases through the
date such leases are sold through the Company's securitization program.
Estimated losses on leases that are considered impaired and have been sold
through the Company's securitization program are taken into consideration in the
valuation of the Company's investment in Trust Certificates retained in
securitization transactions.

The following table sets forth certain information as of December 31, 1996,
and September 30, 1997, with respect to leases which were held by the Company in
its portfolio or serviced by the Company pursuant to its securitization program
(dollars in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF SEPTEMBER 30, 1997(1)
------------------------------ -------------------------------
PRIVATE BROKER/ PRIVATE BROKER/
LABEL VENDOR TOTAL LABEL VENDOR TOTAL
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross leases outstanding.... $244,049 $ 13,185 $257,234 $354,632 $171,857 $ 526,489
31 -- 60 days past due...... 2.46% 1.25% 2.40% 1.64% 2.29% 1.85%
61 -- 90 days past due...... 0.81% 0.21% 0.78% 0.48% 0.53% 0.49%
Over 90 days past due....... 0.35% 0.00% 0.33% 0.42% 0.57% 0.47%
-------- -------- -------- -------- -------- ---------
Total past due............ 3.62% 1.46% 3.51% 2.54% 3.39% 2.81%
</TABLE>

- ---------------

(1) The Broker/Vendor amounts include, and the Private Label amounts as of
September 30, 1997 exclude, approximately $16.9 million of leases which were
purchased by the Company pursuant to its Private Label program from Lease
Pro, Inc. and Heritage Credit Services, Inc. Such companies were formerly
Private Label Sources until their acquisition by the Company in February
1997 and May 1997, respectively.

F-28
<PAGE> 88

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

<TABLE>
<CAPTION>
PRIVATE BROKER AND
LABEL VENDOR
PROGRAM PROGRAMS(1) TOTAL
------- ----------- -------
<S> <C> <C> <C>
Balance at December 31, 1995........................ $ 420 $ -- $ 420
Provision for credit losses......................... 165 115 280
Reduction of allowance related to leases sold....... (71) (49) (120)
----- ------- -------
Balance at September 30, 1996....................... $ 514 $ 66 $ 580
===== ======= =======
Balance at December 31, 1996........................ $ 314 $ 211 $ 525
Provision for credit losses......................... 209 1,205 1,414
Charge-offs, net of recoveries...................... (99) (73) (172)
Reduction of allowance for leases sold.............. (385) (1,545) (1,930)
Additional allowance related to leases acquired
through business combinations..................... -- 841 841
----- ------- -------
Balance at September 30, 1997....................... $ 39 $ 639 $ 678
===== ======= =======
</TABLE>

- ---------------

(1) The Company established its Broker and Vendor programs in July 1996.

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio as well as leases serviced by the Company pursuant to its
securitization program.

F-29
<PAGE> 89

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The following table sets forth the experience of the Company with respect
to leases acquired pursuant to the Private Label program for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
SEPTEMBER 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Average balance of leases acquired pursuant to the Private
Label program outstanding during the period(1)............ $111,333 $252,685
======== ========
Total amount of leases triggering action under recourse and
holdback provisions during the period..................... $ 980 $ 3,731
Amounts recovered under recourse provisions................. 900 3,366
Amounts recovered pursuant to holdback reserves............. 80 266
-------- --------
Total amounts recovered..................................... 980 3,632
-------- --------
Net loss experienced on leases acquired pursuant to the
Private Label program..................................... $ -- $ 99
======== ========
Net default ratio........................................... --% 0.04%
======== ========
</TABLE>

- ---------------

(1) Represents net principal balance of leases held by the Company in its
portfolio as well as leases serviced by the Company pursuant to its
securitization program.

Interest Rate Management Activities

Leases acquired and originated by the Company require payments to be made
by the lessee at fixed rates for specified terms. The rates charged by the
Company are based on interest rates prevailing in the market at the time of
lease approval. Because the Company finances the acquisition or origination of a
large percentage of its leases through its warehouse credit facilities which
bear interest at floating rates, the Company is exposed to risk of loss from
adverse interest rate movements during the period from the date of acquisition
or origination of the leases until the leases are securitized or otherwise sold.
The Company seeks to minimize its exposure to adverse interest rate movements
during this period through entering into amortizing swap transactions under
which the notional amount of the contract changes monthly to match the
anticipated amortization of the underlying leases. Settlements with
counterparties are accrued at period-end and either increase or decrease
interest expense reported in the statement of operations. Upon the sale of
leases through securitization transactions or otherwise, the swap agreements
related to such leases are either terminated or transferred to the special
purpose trusts to which the leases have been sold. The amount received by or
paid upon such termination or transfer is included in the determination of the
gain to be recognized upon the sale of the leases.

3. ACQUISITIONS

F-30
<PAGE> 90

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Effective September 2, 1997, the Company acquired the outstanding capital
stock of Northcoast Capital Leasing Company ("Northcoast"). Northcoast is
located in Cleveland, Ohio and focuses primarily on the arbor and construction
equipment markets in the mid-western region of the United States. By virtue of
the Northcoast acquisition, the Company gained a geographic presence in the
mid-western market.

On September 12, 1997, the Company acquired the outstanding capital stock
of Financial Management Services, Inc., commonly referred to as Cascade. Cascade
is located near Seattle, Washington and focuses primarily on the agricultural
equipment market in the Northwestern region of the United States.

4. LEASE FINANCING RECEIVABLES

The Company's lease financing receivable balance at December 31, 1996 and
September 30, 1997, consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Minimum lease payments..................................... $ 75,945 $ 46,607
Estimated unguaranteed residual value...................... 1,044 3,572
Initial direct costs....................................... 895 259
Unearned income............................................ (16,089) (12,293)
Allowance for credit losses................................ (525) (678)
-------- --------
Lease financing receivables, net......................... $ 61,270 $ 37,467
======== ========
</TABLE>

Sales of Leases

The Company has three securitized warehouse facilities. In March 1997, the
Company entered into a facility with Prudential Securities Credit Corporation
("Prudential") (the "Prudential Securitized Credit Facility") and in June 1997,
the Company entered into two separate securitized warehouse facilities with
First Union National Bank of North Carolina (the "First Union Securitized
Warehouse Facilities" and together with the Prudential Securitized Credit
Facility, the "Securitized Warehouse Facilities") ). The structure of each of
the facilities is essentially the same. The facilities allow the Company on an
ongoing basis to transfer and sell lease receivables to a wholly-owned,
bankruptcy remote special purpose subsidiary, which will sell such receivables
to one or more trusts. Each trust is structured such that it will issue two
classes of certificates of beneficial ownership, a senior certificate, and a
residual interest which will be owned by the Company's subsidiary. As of
November 30, 1997, the total amount available under the Prudential Securitized
Warehouse Facility was equal to the amount outstanding. However, the Company has
received a commitment letter from Prudential to increase the total amount
available under the Prudential Securitized Warehouse Facility to $150.0 million.
As of November 30, the total amount available under the First Union Securitized
Warehouse Facilities was $90.0 million. However, the Company has received a
commitment letter from First Union to increase the total amount available under
the First Union Securitized Warehouse Facilities to $200.0 million. Transfers
and sales of lease receivables pursuant to the facilities are accounted for as
sales under generally accepted accounting principles and the related gains on
sale are recognized on the date of such transfers. The senior certificates
issued pursuant to the First Union Securitized Warehouse Facilities earn a
stated return of either the 30-day LIBOR plus 0.74%, or the Commercial Paper
index rate plus 0.74%, while the senior certificate issued by the Prudential
Securitized Warehouse Facility earn a stated rate of return of the 30-day LIBOR
plus .90%.

During the nine months ended September 30, 1997, the Company transferred
and sold leases with an aggregate principal balance of $215.9 million, net of
unearned income, initial direct costs and allowance for

F-31
<PAGE> 91

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

credit losses, to the Securitized Warehouse Facilities. Senior certificates with
an aggregate principal balance of $210.5 million were issued by the trusts,
while residual interests in the trusts were retained by the Company. The Company
recognized a gain of $9.1 million upon transfer and sale of the leases to the
trusts.

Additionally, during the nine months ended September 30, 1997, the Company
sold leases with an aggregate principal balance of $17.9 million, net of
unearned income, capitalized initial direct costs and allowance for credit
losses, to existing securitization trusts pursuant to the terms of outstanding
trust agreements which provide for the Company to sell additional leases to the
securitization trusts during a revolving period subsequent to closing. The
Company recognized gains of $1.1 million in conjunction with such sales.

On September 10, 1997, substantially all the amounts then outstanding under
the Prudential Securitized Warehouse Facility and the First Union Securitized
Warehouse Facilities were repaid as the equipment lease receivables included in
these facilities were transferred to the First Sierra Equipment Contract Trust
1997-1 in conjunction with the Company's public securitization transaction. In
connection with this transaction, the Company exchanged its related residual
interest in the underlying Securitized Warehouse Facilities and sold additional
leases with an aggregate principal balance of $54.4 million, net of unearned
income to the trust. Gains of $2.5 million were recognized by the Company in
connection with the sale of the leases and the exchange of the residual
interest.

5. DEBT

Debt consisted of the following as of December 31, 1996 and September 30,
1997 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Warehouse Credit Facilities:
Various financial institutions under recourse and
non-recourse agreements................................... $ -- $16,706
Prudential Securities Credit Corporation.................... 40,142 5,000
First Union National Bank of North Carolina................. 12,238 --
------- -------
Total warehouse credit facilities................. 52,380 21,706
Subordinated note payable................................... 9,000 1,000
------- -------
$61,380 $22,706
======= =======
</TABLE>

On June 1, 1997, the Company entered into a warehouse facility with
Dresdner Bank AG, New York Branch and ContiFinancial Corporation (the "Dresdner
On-Balance Sheet Facility") that provided the Company with up to $50.0 million
of additional warehouse funding. The Company borrowed $48.2 million under the
Dresdner On-Balance Sheet Facility and paid off such borrowings on September 10,
1997 with funds received from the securitization transaction completed by the
Company in September 1997. Borrowings under the Dresdner On-Balance Sheet
Facility bore interest at a floating rate equal to the 30-day LIBOR plus 1.25%.

In September 1997, the Company entered into an on-balance sheet warehouse
facility with Prudential which currently provides for $50.0 million of
additional warehouse funding capacity.

In May 1997, the Company used a portion of the proceeds of the Initial
Public Offering to repay a $9 million Subordinated Note with a stockholder. In
June 1997, the Company entered into a new $5 million subordinated revolving
credit facility with such stockholder, with the commitment level decreasing by
$1 million per year. Advances under this facility will bear interest at $11.00%
per annum. No advances were outstanding under this facility at September 30,
1997.

In conjunction with the acquisition of Heritage, the Company issued a $1
million subordinated note payable to the former owner of Heritage. Such note
bears interest at 9.00% per annum, with principal payable semi-annually over
five years. Additionally, the Company assumed approximately $32 million of notes
payable

F-32
<PAGE> 92

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

which had been used by Heritage to finance its purchases of leases. The Company
intends to refinance such notes with existing or new credit facilities with
terms consistent with the Company's existing warehouse facilities.

6. SUBSEQUENT EVENT

In order to consolidate its operations and maximize administrative
efficiencies, the Company intends to relocate its operations center from
Jupiter, Florida to its headquarters in Houston, Texas in the fourth quarter of
1997. In connection therewith, the Company expects to incur a one-time pre-tax
restructuring charge of approximately $1.5 million, primarily attributable to
personnel related costs.

In December 1997, the Company and the former owner of Corporate Capital
Leasing Group, Inc. ("CCL") amended the Agreement and Plan of Reorganization
executed in connection with the acquisition of CCL. The amendment provides for
the conversion into Common Stock of all 43,691 shares of Series B Preferred
Stock issued to the former owner of CCL, the release of all shares which were
held pursuant to an escrow created in connection with the CCL acquisition, the
return and cancellation of a letter of credit issued in connection with the CCL
acquisition and the payment of a cumulative dividend of $29,000. In connection
with the release of shares from the escrow, the Company will record an
additional amount of goodwill of $938,000 related to the acquisition of CCL.

F-33
<PAGE> 93

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the unaudited pro forma consolidated
statement of operations of the Company for the year ended December 31, 1996, and
for the nine months ended September 30, 1997, after giving effect to the
acquisitions of General Interlease Corporation ("GIC") and Corporate Capital
Leasing Group, Inc. ("CCL")) made during 1996 and the acquisition of Heritage
Credit Services, Inc. ("Heritage") made during 1997, (collectively the
"Acquisitions"). The unaudited pro forma financial statements present a subtotal
column which reflects the effect of the Acquisitions. In addition, the unaudited
pro forma financial statements reflect certain adjustments (the "IPO
Adjustments") which give effect to transactions related to the initial public
offering of the Company's Common Stock in May 1997 (the "IPO") and the
application of the net proceeds therefrom. The "as adjusted" columns in the
unaudited pro forma consolidated financial statements include the effects of the
Acquisitions and the IPO Adjustments. The unaudited pro forma consolidated
statement of operations for the year ended December 31, 1996 assumes that these
transactions occurred as of January 1, 1996 while the unaudited pro forma
consolidated statement of operations for the nine months ended September 30,
1997 assumes that these transactions occurred as of January 1, 1997. The pro
forma adjustments assume that the cash, debt, Common Stock and/or Preferred
Stock used as consideration to effect the Acquisitions was outstanding as of the
beginning of the applicable period.

The following unaudited pro forma consolidated financial statements should
be read in conjunction with the consolidated financial statements of the Company
and the related notes thereto, and the financial statements of Heritage and CCL
and the related notes thereto included elsewhere herein. Such pro forma
information is based on historical data with respect to the Company and the
acquired businesses. The pro forma information is not necessarily indicative of
the results that might have occurred had such transactions actually taken place
as of January 1, 1996 and 1997, as applicable, and is not intended to be a
projection of future results. The pro forma information presented herein is
provided to comply with the requirements of the Securities and Exchange
Commission ("Commission"). The information reflects the historical operations of
each acquired entity, as adjusted to reflect certain adjustments, primarily
relating to: (i) amortization of non-compete agreements and goodwill arising in
connection with the Acquisitions, (ii) interest expense related to debt incurred
to fund the Acquisitions and (iii) preferred stock dividends related to the
Acquisitions.

The unaudited pro forma consolidated statements of operations do not assume
any additional profitability resulting from the application of the Company's
revenue or yield enhancement measures or cost containment programs to the
historical results of the acquired businesses, nor does it assume increases in
corporate general and administrative expenses which may have resulted from the
Company managing the acquired businesses for the year ended December 31, 1996
and the nine months ended September 30, 1997. The unaudited pro forma
consolidated financial statements are based on management's estimates, available
information and certain assumptions that management deems appropriate. The pro
forma information does not reflect any adjustments to reflect the manner in
which the acquired entities are being or will be operated under the control of
the Company.

F-34
<PAGE> 94

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
---------------------------------------------------------
IPO
FIRST SIERRA ACQUISITIONS SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------ ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest Income................ $ 6,323 $ 2,593(A) $ 8,916 $ -- $ 8,916
Gain on Sale of Lease Financing
Receivables.................. 3,456 3,275(A) 6,731 -- 6,731
Servicing Income............... 1,050 -- 1,050 -- 1,050
Other Income................... 535 7,589(A) 8,124 -- 8,124
------- ------- ------- ------- -------
Total Revenues....... 11,364 13,457 24,821 -- 24,821
------- ------- ------- ------- -------
Interest Expense............... 5,014 1,610(A)(C) 6,624 (1,514)(F) 5,110
Salaries and Benefits.......... 1,987 3,426(A) 5,413 -- 5,413
Provision for Credit Losses.... 537 646(A) 1,183 -- 1,183
Depreciation and
Amortization................. 286 768(A)(B) 1,054 -- 1,054
Other General and
Administrative............... 1,531 6,211(A) 7,742 -- 7,742
------- ------- ------- ------- -------
Total Expenses....... 9,355 12,661 22,016 (1,514) 20,502
------- ------- ------- ------- -------
Income Before Income Taxes..... 2,009 796 2,805 1,514 4,319
Provision for Income Taxes..... 792 315(A)(E) 1,107 606(G) 1,713
------- ------- ------- ------- -------
Net Income (Loss)............ 1,217 481 1,698 908 2,606
Preferred Stock Dividends.... (60) (92)(D) (152) -- (152)
------- ------- ------- ------- -------
Net Income Allocable to
Shareholders................. $ 1,157 $ 389 $ 1,546 $ 908 $ 2,454
======= ======= ======= ======= =======
Earnings per Common Share...... $ .28
=======
Weighted Average Number of
Common and Common Equivalent
Shares....................... 8,791(H)
=======
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.

F-35
<PAGE> 95

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
-------------------------------------------------------------
IPO
FIRST SIERRA ACQUISITIONS SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------ ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest Income............ $ 7,661 $ 2,673(AA) $10,334 $ -- $10,334
Gain on Sale of Lease
Financing Receivables.... 12,625 552(AA) 13,177 -- 13,177
Servicing Income........... 2,048 -- 2,048 -- 2,048
Other Income............... 1,363 674(AA) 2,037 -- 2,037
------- ------- ------- ----- -------
Total Revenues... 23,697 3,899 27,596 -- 27,596
------- ------- ------- ----- -------
Interest Expense........... 4,402 1,071(AA)(CC) 5,473 (584) (EE) 4,889
Salaries and Benefits...... 4,730 643(AA) 5,373 -- 5,373
Provision for Credit
Losses................... 1,414 2,194(AA) 3,608 -- 3,608
Depreciation and
Amortization............. 742 169(AA)(BB) 911 -- 911
Other General and
Administrative........... 3,586 1,948(AA) 5,534 -- 5,534
------- ------- ------- ----- -------
Total Expenses... 14,874 6,025 20,899 (584) 20,315
------- ------- ------- ----- -------
Income (Loss) Before
Income Taxes............. 8,823 (2,126) 6,697 584 7,281
Provision (Benefit) for
Income Taxes............. 3,529 (850) (AA)(DD) 2,679 234(FF) 2,913
------- ------- ------- ----- -------
Net Income (Loss).......... $ 5,294 $(1,276) $ 4,018 $ 350 $ 4,368
======= ======= ======= ===== =======
Earnings per Common Share.. $ .46
=======
Weighted Average Number of
Common and Common
Equivalent Shares........ 9,405(GG)
=======
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.

F-36
<PAGE> 96

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS

The accompanying unaudited pro forma consolidated statements of operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 give effect to the Acquisitions and the IPO Adjustments. The results of
operations for Heritage for the year ended September 30, 1996 and the period
from January 1, 1997 to the date of acquisition of Heritage by the Company, May
20, 1997, have been included in the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively. In addition, the pre-acquisition results of
operations for GIC for the period from January 1, 1996 to the date of
acquisition of GIC by the Company, July 11, 1996, and CCL for the ten month
period ended October 31, 1996 (the date of the acquisition of CCL by the
Company) have been included in the unaudited pro forma consolidated statement of
operations.

(i) Notes (A)-(E) represent adjustments made relating to the acquisitions
which took place subsequent to January 1, 1996.

(A) Reflects the combined results of operations, prior to acquisition,
of the businesses acquired by the Company, subsequent to January 1, 1996,
in transactions accounted for as purchases, as if the business had been
acquired as of January 1, 1996.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Interest income............................................. $ 2,593
Gain on sale of lease financing receivables................. 3,275
Other income................................................ 7,589
Interest expense............................................ 1,334
Salaries and benefits....................................... 3,426
Provision for credit losses................................. 646
Depreciation and amortization............................... 186
Other general and administrative expenses................... 6,211
Provision (benefit) for income taxes........................ (103)
</TABLE>

(B) Reflects adjustments for increased depreciation and amortization
expense relative to the Company's new basis in the net assets of businesses
acquired after January 1, 1996, as if such acquisitions had taken place as
of January 1, 1996. Pro forma depreciation has been recorded using the
depreciable lives and methods utilized by the Company. Pro forma
amortization has been recorded using the contract lives to reflect the
expense related to non-compete agreements and a 20 year life to amortize
goodwill associated with such acquisitions (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED
DESCRIPTION DECEMBER 31, 1996
----------- -----------------
<S> <C>
Additional depreciation..................................... $ 11
Additional amortization..................................... 571
-------
Total depreciation and amortization adjustment.............. $ 582
=======
</TABLE>

(C) Reflects additional interest expense of $276,000 for the year
ended December 31, 1996, which would have been incurred by the Company
assuming the acquisitions made by the Company subsequent to January 1, 1996
had been made as of January 1, 1996.

(D) Reflects pro forma dividends on the Company's Series A Preferred
Stock and Series B Preferred Stock actually issued in connection with
certain acquisitions completed subsequent to January 1, 1996 as if the
related stock issuances had occurred on January 1, 1996. A total of $5.1
million

F-37
<PAGE> 97

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

of Series A Preferred Stock and Series B Preferred Stock has been utilized
to fund acquisitions subsequent to January 1, 1996, and such shares would
have required additional preferred stock dividends of $92,000 for the year
ended December 31, 1996, had such acquisitions been completed on January 1,
1996. The Series A Preferred Stock and Series B Preferred Stock are common
stock equivalents.

(E) Reflects an adjustment to the tax provision of $418,000 for the
year ended December 31, 1996 which has been made to reflect a normal
effective tax rate for the Company of approximately 40% for federal and
state taxes that the Company estimates it would have incurred on January 1,
1996. Management has not considered the use of any available net operating
loss carryforwards in this unaudited pro forma consolidated statement of
operations.

(ii) Notes (F)-(H) represent the IPO Adjustments.

(F) Reflects the elimination of $1.5 million of interest expense for
1996 related to the application of the estimated net proceeds of the IPO to
retire the $9.0 million subordinated note, the elimination of pro forma
interest expense relative to an aggregate of $3.7 million of debt which
would have been incurred as of January 1, 1996, had the acquisitions
described above been completed as of January 1, 1996, and the application
of $3.5 million to reduce amounts outstanding under warehouse credit
facilities.

(G) Reflects the provision of $606,000 of federal and state income
taxes at an effective rate of 40% on IPO Adjustments consistent with
management's assumption that this rate would be indicative of the Company's
tax position assuming the Acquisitions and the IPO were completed as of the
beginning of the period.

(H) Pro forma earnings per share is computed based on the weighted
average number of common and common equivalent shares outstanding as if the
Acquisitions and IPO had occurred as of January 1, 1996. Weighted average
common and common equivalent shares are calculated as more fully discussed
in Note 2 of the Company's Consolidated Financial Statements.

(iii) Notes (AA)-(DD) represent adjustments made relating to the
acquisition which took place subsequent to January 1, 1997.

(AA) Reflects the combined results of operations, prior to
acquisition, of the business acquired by the Company, subsequent to January
1, 1997, in a transaction accounted for as a purchase, as if the business
had been acquired as of January 1, 1997.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Interest income............................................. $ 2,673
Gain on sale of lease financing receivables................. 552
Other income................................................ 674
Interest expense............................................ 997
Salaries and benefits....................................... 643
Provision for credit losses................................. 2,194
Depreciation and amortization............................... 36
Other general and administrative expenses................... 1,948
</TABLE>

F-38
<PAGE> 98

FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

(BB) Reflects adjustment of $133,000 for increased amortization
expense relative to the Company's new basis in the net assets of the
business acquired after January 1, 1997, as if such acquisition had taken
place as of January 1, 1997. Pro forma amortization has been recorded using
a 20 year life to amortize goodwill associated with such acquisition.

(CC) Reflects additional interest expense of $74,000 for the nine
months ended September 30, 1997, which would have been incurred by the
Company assuming the acquisition made by the Company subsequent to January
1, 1997 had been made as of January 1, 1997.

(DD) Reflects an adjustment to the tax provision of $850,000 for the
nine months ended September 30, 1997 which has been made to reflect a
normal effective tax rate for the Company of approximately 40% for federal
and state taxes that the Company estimates it would have incurred on
January 1, 1997. Management has not considered the use of any available net
operating loss carryforwards in this unaudited pro forma consolidated
statement of operations.

(iv) Notes (EE)-(HH) represent the IPO Adjustments.

(EE) Reflects the elimination of $584,000 of interest expense for 1997
related to the application of the estimated net proceeds of the IPO to
retire the $9.0 million subordinated note, the elimination of pro forma
interest expense relative to an aggregate of $2.4 million of debt which
would have been incurred as of January 1, 1997, had the acquisition
described above been completed as of January 1, 1997, and the application
of $4.8 million to reduce amounts outstanding under warehouse credit
facilities.

(FF) Reflects the provision of $234,000 of federal and state income
taxes at an effective rate of 40% on IPO Adjustments consistent with
management's assumption that this rate would be indicative of the Company's
tax position assuming the Acquisitions and the IPO were completed as of the
beginning of the period.

(GG) Pro forma earnings per share is computed based on the weighted
average number of common and common equivalent shares outstanding as if the
Acquisitions and IPO had occurred as of January 1, 1997. Weighted average
common and common equivalent shares are calculated as more fully discussed
in Note 2 of the Company's Consolidated Financial Statements.

F-39
<PAGE> 99

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Stockholder
Corporate Capital Leasing Group, Inc.
West Chester, Pennsylvania

We have audited the accompanying balance sheets of Corporate Capital
Leasing Group, Inc. as of December 31, 1995 and October 31, 1996, and the
related statements of income, stockholder's equity, and cash flows for the
periods then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Corporate Capital Leasing
Group, Inc. as of December 31, 1995 and October 31, 1996, and the results of its
operations and its cash flows for the periods then ended in conformity with
generally accepted accounting principles.

/s/ MacDade Abbott LLP

Paoli, Pennsylvania
November 20, 1996

F-40
<PAGE> 100

CORPORATE CAPITAL LEASING GROUP, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 637,921 $ 10,852
Broker receivables........................................ -- 9,696
Residual receivable....................................... 12,215 --
Commissions receivable.................................... 139,823 60,787
Leases funded............................................. 247,060 344,500
Net investment in direct financial leases................. 13,022 4,528
---------- --------
1,050,041 430,363
Non-current Assets
Deposits.................................................. 2,430 2,430
Net investment in direct financing leases................. -- 2,098
Property and equipment, net of accumulated depreciation..... 137,161 105,090
---------- --------
$1,189,632 $539,981
========== ========

LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities
Note payable.............................................. $ -- $200,000
Current maturities of long-term liabilities............... 64,029 63,673
Accounts payable.......................................... 42,203 46,046
Accrued expenses.......................................... 63,065 31,428
Accrued compensation and related taxes.................... 15,823 15,605
Advance payments.......................................... 102,677 151,877
---------- --------
287,797 508,629
Long-term Liabilities
Notes payable............................................. 26,951 --
Capital lease obligations................................. 56,759 30,671
---------- --------
83,710 30,671
Stockholder's Equity
Common stock, $1 par value, authorized 1,000 shares;
issued and outstanding 100 shares...................... 100 100
Additional paid-in capital................................ 26,143 26,143
Retained earnings (deficit)............................... 791,882 (25,652)
---------- --------
818,125 591
---------- --------
$1,189,632 $539,891
========== ========
</TABLE>

See notes to financial statements.

F-41
<PAGE> 101

CORPORATE CAPITAL LEASING GROUP, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE FOR THE TEN
YEAR ENDED MONTHS ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Gross Revenues.............................................. $4,853,621 $4,062,479
Cost of Leases.............................................. 2,462,944 2,195,257
---------- ----------
Gross Profit...................................... 2,390,677 1,867,222
Expenses
Salaries and employee benefit............................. 743,438 587,363
Depreciation.............................................. 30,163 42,252
Other selling, general and administrative................. 610,956 481,798
Interest.................................................. 4,655 11,683
---------- ----------
1,389,212 1,123,096
---------- ----------
Net income........................................ $1,001,465 $ 744,126
========== ==========
Earnings per Share:
Net income per share of common stock...................... $10,014.65 $ 7,441.26
========== ==========
</TABLE>

See notes to financial statements.

F-42
<PAGE> 102

CORPORATE CAPITAL LEASING GROUP, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995........................ $100 $26,143 $ 216,334 $ 242,577
Net income...................................... -- -- 1,001,465 1,001,465
Cash dividends declared at $4,259.17 per
share......................................... -- -- (425,917) (425,917)
---- ------- ----------- ----------
Balance, December 31, 1995...................... 100 26,143 791,882 818,125
Net income...................................... -- -- 744,126 744,126
Cash dividends declared at $15,616.60 per
share......................................... -- -- (1,561,660) (1,561,660)
---- ------- ----------- ----------
Balance, October 31, 1996....................... $100 $26,143 $ (25,652) $ 591
==== ======= =========== ==========
</TABLE>

See notes to financial statements.

F-43
<PAGE> 103

CORPORATE CAPITAL LEASING GROUP, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE TEN
YEAR ENDED MONTHS ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $1,001,465 $ 744,126
Adjustments to reconcile net income to net cash provided
by operations
Depreciation........................................... 30,163 42,252
Amortization........................................... 4,545 2,074
Changes in current assets and liabilities:
Broker receivables................................... -- (9,696)
Commission receivable................................ (139,823) 79,036
Accounts payable..................................... 41,722 3,843
Accrued expenses..................................... 28,628 (31,637)
Accrued compensation and related taxes............... 4,977 (218)
Advance payments..................................... (26,550) 49,200
---------- -----------
Cash Provided by Operating Activities....................... 945,127 878,980
Cash Flows from Investing Activities
Lease payments collected.................................. 26,845 16,537
Purchase of equipment for leases.......................... (104,802) (97,440)
Purchase of property and equipment........................ (59,037) (10,181)
---------- -----------
Cash Used in Investing Activities........................... (136,994) (91,084)
Cash Flows from Financing Activities
Payment of notes payable.................................. (65,210) (30,268)
Proceeds from note payable................................ -- 200,000
Payment of capital lease obligations...................... (6,153) (23,037)
Dividends paid............................................ (425,917) (1,561,660)
---------- -----------
Cash Used in Financing Activities........................... (497,280) (1,414,965)
---------- -----------
Net (decrease) increase in cash............................. 310,853 (627,069)
Cash, beginning of period................................... 327,068 637,921
---------- -----------
Cash, end of period......................................... $ 637,921 $ 10,852
========== ===========
</TABLE>

See notes to financial statements.

F-44
<PAGE> 104

CORPORATE CAPITAL LEASING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Corporate Capital Leasing Group, Inc. (the "Company") was incorporated in
the Commonwealth of Pennsylvania on December 20, 1990. The Company is an
equipment leasing broker to a wide range of customers in various industries in
North America.

Revenue Recognition

The Company's primary revenue is from brokers' fees. Revenue is recognized
when the fee is earned.

Property and Equipment

Property and equipment are carried at cost and include expenditures for new
facilities and those which substantially increase the life of existing property
and equipment. Maintenance, repairs and minor renewals are expensed as incurred.
When properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective accounts and any profit
or loss on disposition is credited or charged to income.

The Company provides for depreciation of property and equipment at rates
designed to allocate the cost over the estimated useful lives of the assets.
Depreciation is computed principally on accelerated methods using lives of 3 to
7 years.

Advance Payments

Advance payments represent payments on deposits pending approval of lease
commitment.

Income Taxes

The Company, with the consent of its shareholder, is taxed as an S
Corporation under provisions of the Internal Revenue Code, and the Commonwealth
of Pennsylvania tax laws. In lieu of Federal and state corporation income tax,
the shareholders of an S Corporation are taxed on their proportionate share of
the Company's taxable income. Therefore, Federal and state income taxes are not
provided for in the financial statements.

Fair Value of Financial Instruments

The Financial Accounting Standards Board has issued FAS No. 107 Disclosures
About Fair Value of Financial Instruments, which requires disclosure of the fair
value of financial instruments. The fair value of the Company's assets and
liabilities which qualify as financial instruments under FAS No. 107 approximate
the carrying amounts presented in the balance sheet.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-45
<PAGE> 105
CORPORATE CAPITAL LEASING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES

The detail of the components of the net investment in direct financing
leases are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Total minimum lease payments receivable..................... $ 18,282 $ 9,287
Less unearned income........................................ (5,260) (2,661)
-------- -------
13,022 6,626
Less current portion........................................ (13,022) (4,528)
-------- -------
Net investment in direct financing leases......... $ -- $ 2,098
======== =======
</TABLE>

NOTE C -- FUTURE MINIMUM LEASE PAYMENTS RECEIVABLE

The maturities of the future minimum lease payments receivable under direct
financing leases are as follows:

<TABLE>
<S> <C>
Years ending:
For the two month period ending December 31, 1996......... $1,107
December 31, 1997......................................... 6,263
December 31, 1998......................................... 1,917
------
$9,287
======
</TABLE>

NOTE D -- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Furniture and fixtures...................................... $ 73,870 $ 74,938
Office equipment............................................ 143,308 152,421
Accumulated depreciation.................................... (80,017) (122,269)
-------- ---------
$137,161 $ 105,090
======== =========
</TABLE>

NOTE E -- LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Note payable to bank secured by certain equipment with
monthly payments of $391, including interest at 12.00% to
June 1996................................................. $ 2,307 $ --
Note payable to an individual secured by certain equipment
with monthly payments of $3,199, including interest at
10.00% to July 1997....................................... 60,788 32,828
-------- --------
63,095 32,828
Amounts classified as current liabilities................... (36,144) (32,828)
-------- --------
$ 26,951 $ --
======== ========
</TABLE>

F-46
<PAGE> 106

CORPORATE CAPITAL LEASING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Line of Credit

The Company has a line of credit, payable on demand and guaranteed by the
sole stockholder of the Company, totaling $500,000 for use as working capital.
At December 31, 1995 and October 31, 1996, $500,000 and $300,000 was available,
respectively. Interest is at the bank's prime lending rate plus 1.25% and was
9.75% at December 31, 1995 and October 31, 1996.

Letter of Credit

At October 31, 1996, the Company had a standby letter of credit in the
amount of $57,200. Fees are charged based on credit issuance.

NOTE F -- LEASES

Capital Leases

The Company leases computer and office furniture under capital leases. The
leased assets are capitalized using interest rates appropriate at the inception
of each lease. Future minimum payments, by year and in the aggregate, are as
follows:

<TABLE>
<S> <C>
For the two month period ending December 31, 1996........... $ 5,885
December 31, 1997........................................... 35,311
December 31, 1998........................................... 27,004
--------
Total minimum lease payments................................ 68,200
Less amount representing interest........................... 6,684
--------
Present value of net minimum lease payments................. 61,516
Less current maturities..................................... (30,845)
--------
Long-term obligation under capital lease.................... $ 30,671
========
</TABLE>

At December 31, 1995 and October 31, 1996 equipment under capital leases
was $90,797, and accumulated depreciation was $4,526 and $30,923, respectively.

Operating Leases

The Company leases office facilities under non-cancelable operating leases.
Future minimum payments, by period and in the aggregate, under all
non-cancelable operating leases with initial or remaining terms of one year or
more consisted of the following:

<TABLE>
<S> <C>
For the two month period ending December 31, 1996........... $13,500
October 31, 1997............................................ $67,500
</TABLE>

NOTE G -- PENSION PLAN

The Company has a Salary Reduction/Simplified Employee Pension Plan
covering substantially all employees. Under the provision of the plan, the
Company makes contributions based upon a percentage of each qualified
participant's salary to their respective account. Employees become eligible for
participation when they meet certain requirements, which include attainment of
age 21 and one year of full time service. For the periods ended December 31,
1995 and October 31, 1996, the Company incurred pension expense of $23,491 and
$-0-, respectively.

F-47
<PAGE> 107

CORPORATE CAPITAL LEASING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid during the periods ended December 31, 1995 and October 31,
1996 was $15,541 and $10,829, respectively.

Non-cash investing and financing activities consisted of capital lease
obligations of $90,797 incurred in the acquisition of computer equipment and
office furniture during the period ended December 31, 1995.

NOTE I -- LITIGATION

The Company is a defendant in a complaint based on an alleged breach of
contract for broker fees and other amounts. Management, after consultation with
legal counsel, believes the ultimate liability, if any, arising from such
complaint would not have a materially adverse effect on the Company's financial
position or results of operations.

NOTE J -- SUBSEQUENT EVENT

Effective November 1, 1996, 100% of the Company's common stock was acquired
by First Sierra Financial, Inc. of Houston, Texas.

F-48
<PAGE> 108

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Director and Shareholder of
Heritage Credit Services, Inc.

We have audited the accompanying balance sheets of Heritage Credit
Services, Inc. (the "Company") as of September 30, 1995 and 1996 and the related
statements of operations and retained earnings, and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heritage Credit Services,
Inc. at September 30, 1995 and 1996, and the results of its operations and cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.

/s/ BDO SEIDMAN, LLP

BDO SEIDMAN, LLP

November 27, 1996
Seattle, Washington

F-49
<PAGE> 109
HERITAGE CREDIT SERVICES, INC.

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 462 $ 251
Net investment in leases and equipment financing
agreements (Notes 2 and 3)............................. 17,036 20,986
Other receivables......................................... 390 743
Furniture, equipment and vehicles, net of accumulated
depreciation of $84 and $141........................... 205 245
Restricted cash (Note 3).................................. 293 746
Other assets.............................................. 161 176
------- -------
Total assets...................................... $18,547 $23,147
======= =======
LIABILITIES
Checks issued in excess of deposits....................... $ 743 $ 693
Accrued liabilities....................................... 61 237
Vendor payables........................................... 388 633
Notes payable -- recourse (Note 3)........................ 7,808 7,632
Notes payable -- non-recourse (Note 3).................... 6,857 9,803
Security deposits......................................... 294 625
------- -------
Total liabilities................................. 16,151 19,623
------- -------
SHAREHOLDER'S EQUITY
Common stock, no par value, 100,000 shares authorized,
7,975 shares issued and outstanding.................... 25 25
Retained earnings......................................... 2,371 3,499
------- -------
Total shareholder's equity........................ 2,396 3,524
------- -------
Total liabilities and shareholder's equity........ $18,547 $23,147
======= =======
</TABLE>

See accompanying notes to financial statements.

F-50
<PAGE> 110

HERITAGE CREDIT SERVICES, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1,
YEARS ENDED SEPTEMBER 30, 1996 TO
-------------------------- MAY 20,
1994 1995 1996 1997
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Lease revenue from discounting.................... $1,931 $2,475 $2,543 $ 1,377
Equipment finance income.......................... 821 1,975 3,275 3,517
Residual income................................... 572 684 949 589
Broker fee income................................. 207 288 565 573
Other income...................................... 127 174 423 167
------ ------ ------ -------
Total revenues............................ 3,658 5,596 7,755 6,223
------ ------ ------ -------
Salaries and related expenses....................... 609 900 1,262 995
Commission and broker fees.......................... 1,323 2,023 1,954 1,368
Provision for credit losses......................... 103 279 646 2,819
Depreciation and amortization....................... 20 35 58 50
Other selling, general and administrative
expenses.......................................... 778 1,216 1,407 1,784
------ ------ ------ -------
Total expenses............................ 2,833 4,453 5,327 7,016
------ ------ ------ -------
Earnings (loss) before interest and tax............. 825 1,143 2,428 (793)
Interest expense.................................... 399 1,136 1,300 1,437
------ ------ ------ -------
Earnings (loss) before income tax................... 426 7 1,128 (2,230)
Income tax provision (benefit) (Note 4)............. 98 (255) -- --
------ ------ ------ -------
Net income (loss)................................... 328 262 1,128 (2,230)

RETAINED EARNINGS --
Beginning of period............................... 1,781 2,109 2,371 3,499
------ ------ ------ -------
End of period..................................... $2,109 $2,371 $3,499 $ 1,269
====== ====== ====== =======
</TABLE>

See accompanying notes to financial statements.

F-51
<PAGE> 111

HERITAGE CREDIT SERVICES, INC.

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1,
YEARS ENDED SEPTEMBER 30, 1996 TO
------------------------------ MAY 20,
1994 1995 1996 1997
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................ $ 328 $ 262 $ 1,128 $ (2,230)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Lease revenue from discounting............ (1,931) (2,475) (2,543) (1,372)
Amortization of initial direct costs...... 296 1,062 1,126 2,016
Provision for credit losses............... 103 279 646 2,819
Depreciation.............................. 20 35 58 39
Deferred income tax provision (benefit)... 98 (255) -- --
Change in operating assets and
liabilities:
Checks issued in excess of deposits..... 162 581 (50) 709
Restricted cash......................... -- (293) (453) 51
Other................................... (68) (68) 178 51
-------- -------- -------- --------
Net Cash Provided by (Used in) Operating
Activities................................... (992) (872) 90 2,083
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment for lease.............. (22,383) (37,811) (36,762) (43,023)
Proceeds from discounting of leases.......... 16,005 23,262 24,229 7,886
Lease payments received...................... 4,743 9,850 8,378 9,299
Initial direct costs incurred................ (505) (2,734) (2,707) (3,454)
Purchase of furniture, equipment and
vehicles.................................. (54) (147) (101) (191)
Other........................................ -- (20) (42) (272)
-------- -------- -------- --------
Net Cash Used in Investing Activities.......... (2,194) (7,600) (7,005) (29,755)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on lines of
credit.................................... 17,921 37,841 32,673 58,366
Repayments on lines of credit................ (14,726) (29,122) (26,306) (30,318)
Increase in security deposits................ 10 84 331 255
Other........................................ 23 (36) 6 --
-------- -------- -------- --------
Net Cash Provided by Financing Activities...... 3,228 8,767 6,704 28,303
-------- -------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. 42 295 (211) 631
Cash and Cash Equivalents, beginning of
period....................................... 125 167 462 251
-------- -------- -------- --------
Cash and Cash Equivalents, end of period....... $ 167 $ 462 $ 251 $ 882
======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest....................... $ 399 $ 1,136 $ 1,280 $ 1,437
======== ======== ======== ========
</TABLE>

See accompanying notes to financial statements.

F-52
<PAGE> 112

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Heritage Credit Services, Inc. (the "Company"), incorporated in 1988, is a
California corporation owned by an individual. The Company's operations consist
primarily of obtaining and writing leases on various types of business equipment
and providing equipment financing arrangements for commercial entities. The
Company conducts its operations under the names Heritage Financial Services,
Oakmont Financial Services and Heritage Software Finance, with the majority of
business activities concentrated in the Western United States and Florida. The
Company's headquarters are located in Rancho Cordova, California.

Concentration of Credit and Financial Instrument Risk -- The Company
controls its credit risk through credit standards, limits on exposure, and by
monitoring the financial condition of its lessees. The Company uses a credit
scoring system in evaluating the credit risk of applicants. The Company
generally requires the leased assets to serve as collateral for the leases and
requires all lessees to provide adequate collateral protection and liability
insurance throughout the lease contract term. Additionally, the Company controls
its credit exposure to any one client or industry through the sale of leases.

Inherent to leasing is the residual value risk associated with lease
contracts. The Company manages this residual risk through adherence to a
residual valuation procedure at lease inception.

Cash Equivalents -- The Company considers all short-term investments with
an initial maturity of three months or less to be cash equivalents.

Furniture, Equipment and Vehicles -- Furniture, equipment, and vehicles are
stated at cost. Depreciation is computed using accelerated methods over
estimated useful lives of the related assets ranging from three to seven years.

Use of Estimates -- The financial statements are prepared in conformity
with generally accepted accounting principles which requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the financial statement
date, and of revenue and expenses during the reporting period. Actual results
could differ from these estimates.

Fair Value of Financial Instruments -- The Company's financial instruments
include cash and cash equivalents, net investment in leases and equipment
financing agreements, and notes payable. Amounts recorded for these instruments
approximate fair value due to either their maturity or the nature of these
instruments.

Lease Accounting and Revenue Recognition -- The Company's leases are
classified and accounted for as direct financing leases. Under this accounting
method, the total minimum lease rentals to be received and the estimated
residual value of equipment at lease end are recorded as assets. The excess of
these assets over the related equipment cost is recorded as unearned revenue,
which is recognized as equipment finance income over the lease term utilizing
the interest method of accounting, such method resulting in a constant rate of
return on the Company's net investment in the lease. The allowance method is
used to account for uncollectible lease receivables.

The Company has discounted certain of its lease transactions, which
involves the assignment of minimum lease payments with a retention of residual
value rights. Retained residual value property rights are recognized over the
underlying lease contract term utilizing the interest method. The assignee
typically has no recourse against the Company. Proceeds received from the
assignee are not recorded as a liability of the Company, but rather as an offset
to the assignment of minimum lease payments. The Company accounts for these
discounted lease transactions, pursuant to which control of future economic
benefits have been surrendered to the assignee, in accordance with Statement of
Financial Accounting Standards No. 77, "Reporting by Transferors for Transfers
of Receivables with Recourse," and records the difference between proceeds and
the Company's net investment in the lease as lease revenue from discounting upon
receipt.

F-53
<PAGE> 113

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company also engages in transactions involving the assignment of
minimum lease payments, pursuant to which the Company does not surrender control
of future economic benefits. These transactions are accounted for as borrowings.
These transactions also involve the assignment of minimum lease payments with a
retention of the residual value rights. The assignee typically has no recourse
against the Company. Retained residual value property rights are recognized over
the underlying lease contract term utilizing the interest method. These
non-recourse borrowings and the related minimum lease payments receivable are
recorded on the balance sheet.

In some of the transactions involving the assignment of minimum lease
payments, the assignee retains a portion of the proceeds in a reserve account as
a credit enhancement. This cash is restricted as to withdrawal and has been
presented as restricted cash in the accompanying balance sheet.

The Company also is involved in transactions in which it serves as broker
relating to leasing transactions. In these transactions the Company prepares
required lease documentation and then refers the transaction to another leasing
Company in exchange for a fee. During the years ended September 30, 1994, 1995
and 1996, the Company received approximately $207,000, $288,000 and $565,000,
respectively, in commissions for brokering leases of approximately $2.5 million,
$4.0 million and $5.0 million, respectively.

Initial Direct Costs -- Initial direct costs of acquiring a lease are
capitalized and amortized over the life of the lease utilizing the interest
method.

Income Taxes -- The Company accounts for income taxes utilizing the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in financial statements or tax returns. Deferred taxes are determined
on the difference between the financial statement and tax bases of assets and
liabilities as measured by applying current statutory tax rates to the period in
which the differences are expected to reverse and by giving effect to available
net operating loss carryforwards. The Company has established a valuation
allowance against its deferred tax assets where there is uncertainty as to
whether such benefits will be utilizable.

Effects of Recently Issued Accounting Standards -- Recently issued
accounting standards having relevant applicability to the Company consist
primarily of Statement of Financial Accounting Standards No. 125 ("FASB No.
125") "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," which is to be effective for transactions
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application is not permitted. This standard establishes
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Company does not expect
the adoption of FASB No. 125 to have a material effect on the Company's
financial condition or results of operation.

Reclassifications -- Certain prior year financial statement amounts have
been reclassified to conform with current year classifications.

Interim Financial Statements -- The interim financial data for the period
from October 1, 1996 to May 20, 1997 is unaudited; however, in the opinion of
Company management, the interim data includes all adjustments necessary for a
fair presentation of the results of operations for the interim period presented.
The interim period results of operations are not necessarily indicative of
results for an entire year or any future period.

F-54
<PAGE> 114

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2: NET INVESTMENT IN LEASES AND EQUIPMENT FINANCING AGREEMENTS

The Company's net investments in leases and equipment financing agreements
have been pledged as collateral for certain recourse or non-recourse notes
payable borrowings. The net investment in leases and equipment financing
agreements presented on a basis by type of borrowing for which the investment is
pledged as collateral, is summarized as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
------- -------
<S> <C> <C>
Recourse
Minimum lease and equipment financing receivables......... $10,977 $ 9,990
Estimated residual value.................................. 356 292
Unearned revenue.......................................... (3,004) (2,489)
------- -------
Total Recourse.................................... 8,329 7,793
------- -------
Non-Recourse
Minimum lease and equipment financing receivables......... 8,280 13,880
Estimated residual value.................................. 2,627 3,007
Unearned revenue.......................................... (3,412) (4,809)
------- -------
Total Non-Recourse................................ 7,495 12,078
------- -------
15,824 19,871
Allowance for uncollectible accounts........................ (178) (352)
Initial direct costs, net................................... 1,390 1,467
------- -------
$17,036 $20,986
======= =======
</TABLE>

Accumulated amortization of initial direct costs was $1,141,000, and
$1,834,000 at September 30, 1995 and 1996, respectively.

Allowance for uncollectible accounts activity is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
BALANCE, beginning of year.................................. $ 50 $ 70 $ 178
Provision for credit losses............................... 103 279 646
Charge-offs............................................... (83) (176) (554)
Recoveries................................................ - 5 82
---- ----- -----
BALANCE, end of year........................................ $ 70 $ 178 $ 352
==== ===== =====
</TABLE>

At September 30, 1996, minimum lease payments receivables are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
1997.................................................... $ 8,200
1998.................................................... 7,002
1999.................................................... 4,917
2000.................................................... 2,836
2001.................................................... 915
-------
$23,870
=======
</TABLE>

F-55
<PAGE> 115

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3: NOTES PAYABLE

Notes payable are collateralized by leased equipment, generally due as
collateralized lease payments are scheduled to be received and, for certain
recourse notes, guaranteed by the Company's shareholder. Notes payable for which
the lender has recourse against the Company are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
------ ------
<S> <C> <C>
Recourse:
Notes payable with interest at rates ranging from prime
(8.25% at September 30, 1996) plus 1.25% to prime plus
2.25%.................................................. $2,836 $4,591
Note payable drawn on a $10 million credit line; interest
at the bank's reference rate (8.25% at September 30,
1996) plus 3.00% (increasing to 4.50% beginning 300
days after borrowing).................................. 2,437 16
Notes payable with interest at 11.0%...................... 839 1,346
Notes payable with interest at rates ranging from 8.60% to
10.70%................................................. 420 272
Notes payable drawn on 6 separate warehouse lines of
credit totaling $2.7 million; interest at prime plus
.50% to 2.00%.......................................... 1,243 1,403
Other..................................................... 33 4
------ ------
Total Recourse Notes Payable...................... $7,808 $7,632
====== ======
</TABLE>

Notes payable for which the lender has no recourse against the Company are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
------ ------
<S> <C> <C>
Non-Recourse:
Notes payable with interest at the two year T-bill rate
plus 2.25% to 3.50% (rates ranging from 8.40% to
9.40%)................................................. $6,770 $ --
Notes payable with interest at 8.25% and 8.50%............ 87 9,803
Notes payable with interest at 8.75%...................... -- --
Lease-backed floating rate revolving note with interest at
LIBOR plus .375%....................................... -- --
------ ------
Total Non-Recourse Notes Payable.................. $6,857 $9,803
====== ======
</TABLE>

The $10.0 million credit line is available through March 1997. The other
credit lines are generally available from March through June 1997. Terms of
certain credit agreements require, among other things, that the Company maintain
certain financial ratios and net worth, as defined. The Company was in
compliance with these restrictive covenants at September 30, 1996.

F-56
<PAGE> 116
HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Annual principal payments (on both recourse and non-recourse debt) during
future years are estimated as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING NON-
SEPTEMBER 30, RECOURSE RECOURSE TOTAL
- ------------- -------- -------- -------
<S> <C> <C> <C>
1997................................................. $3,124 $ 3,696 $ 6,820
1998................................................. 2,856 1,804 4,660
1999................................................. 2,084 1,257 3,341
2000................................................. 1,328 745 2,073
2001................................................. 411 130 541
------ -------- -------
$9,803 $ 7,632 $17,435
====== ======== =======
</TABLE>

Information concerning borrowings on both recourse and non-recourse debt is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Average balance........................................ $4,222 $10,406 $13,305
Average interest rate.................................. 9.50% 10.9% 9.80%
Maximum month-end balance.............................. $7,553 $14,665 $17,435
</TABLE>

NOTE 4: INCOME TAXES

The provision (benefit) for federal and state income taxes consists of the
following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
----- ------ -----
<S> <C> <C> <C>
Deferred tax provision...................................... $168 $ -- $ --
Deferred tax benefit........................................ (70) (255) --
---- ----- ----
$ 98 $(255) $ --
==== ===== ====
</TABLE>

During fiscal year 1995, the Company recorded a net deferred tax benefit of
$255,000 due to the recognition of tax operating loss carryforwards in an amount
sufficient to fully offset deferred tax liabilities recorded in prior years. As
a result of the recognition of deferred tax assets relating to tax operating
loss carryforwards, the Company recorded no net tax provision or benefit for
income taxes during fiscal year 1996. The tax provision or benefit differs from
that computed by applying the statutory corporate tax rate due primarily to the
recognition of operating loss carryforwards to the extent not reduced by a
valuation allowance.

F-57
<PAGE> 117

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets relate primarily to operating loss carryforwards and
deferred tax liabilities relate primarily to accounting for certain leases as
true leases for tax which results in additional deductions, primarily
depreciation, as compared to direct financing leases for financial reporting.
Deferred tax assets and liabilities are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax liabilities:
True lease deductions..................................... $ 914 $1,235
------ ------
914 1,235
------ ------
Deferred tax assets:
Net operating loss carryovers............................. 1,015 1,297
Allowance for credit losses............................... 72 141
------ ------
1,087 1,438
------ ------
Valuation allowance......................................... (173) (203)
------ ------
Total....................................................... $ -- $ --
====== ======
</TABLE>

At September 30, 1996, the Company, for income tax purposes, had net
operating loss carryforwards approximating $3 million available to offset future
taxable income. The loss carryforwards begin to expire in 2009.

NOTE 5: RELATED PARTY TRANSACTIONS

The Company's shareholder is a 50% owner of another business in the
equipment leasing industry. During the years ended September 30, 1994, 1995 and
1996, the Company paid broker fees to this related party of approximately
$60,000, $163,000 and $109,000, respectively.

NOTE 6: LEASE COMMITMENT

The Company occupies a facility pursuant to an operating lease agreement,
providing for monthly rents of approximately $3,800. The Company occupies
another facility under an operating lease agreement expiring December 31, 1998,
providing for monthly rents of $1,150. In July 1996, the Company began occupying
a third facility pursuant to an operating lease agreement, providing for monthly
rents of $2,000. Rent expense for the years ended September 30, 1994, 1995 and
1996 approximated $51,000, $68,000 and $74,000, respectively. All leases are
month to month and can be terminated with written notice.

NOTE 7: STOCK PURCHASE AND EMPLOYEE BENEFIT PLANS

In February 1995, the Company adopted a stock purchase plan to offer
selected employees an opportunity to acquire an interest in the Company by
purchasing shares of stock. The plan provides for the direct award or sale of
shares and for the grant of options to purchase shares. During the year ended
September 30, 1995, the Company granted stock options for the purchase of 1,600
shares at an exercise price of $827 per share, an amount determined by the
Company's Board of Directors to not be less than the estimated fair value per
share at date of grant. Options have a term of 10 years, vesting 20% per year.
There were no grants, exercises or cancellations of stock options during the
year ended September 30, 1996.

The Company maintains an employee benefit plan pursuant to Section 401(k)
of the Internal Revenue Code. The Plan covers all eligible employees and has a
salary deferral feature and an employer matching component. The matching
contribution is discretionary and determined annually by the Company's Board of

F-58
<PAGE> 118

HERITAGE CREDIT SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Directors. Company contributions for the years ended September 30, 1994, 1995
and 1996 approximated $21,000, $24,000 and $33,000, respectively.

NOTE 8: SUBSEQUENT EVENT

The Company has entered into a financing arrangement providing for, among
other things, the issuance of up to $25 million of lease backed notes and the
related securitization of underlying lease collateral. In connection with the
financing arrangement, in November 1996, the Company entered into an asset
securitization transaction pursuant to which certain lease contracts and related
assets were contributed, transferred and assigned by the Company to a newly
formed subsidiary, Heritage Finance Corp. I ("HFC"). These lease assets were
then together collateralized as a separate pool as security for non-recourse
debt issued by HFC. Proceeds of the borrowing approximated $10.8 million and
were utilized to pay approximately $10.5 million of non-recourse debt and to pay
certain transactional expenses. The underlying collateral for such debt are
lease contracts representing interests in lease receivables of approximately $13
million and related equipment. The initial interest rate on this borrowing is
approximately 6.7%. The assets of HFC are not available to pay creditors of the
Company and the Company has also pledged all of its interests in HFC as security
for the borrowings.

NOTE 9: EVENT (UNAUDITED) SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

In May 1997, the Company's sole shareholder sold all of the Company's
issued and outstanding common stock to First Sierra Financial, Inc. ("FSFI"),
concurrent with an initial public offering by FSFI. The sale price totalled
approximately $6.4 million, consisting of $1.4 million in cash (including the
repurchase of all of the Company's outstanding stock options for approximately
$400,000), a $1 million subordinated promissory note bearing interest at 9% per
annum and 500,000 shares of FSFI Common Stock (valued at the initial public
offering price of $8.00 per share). In connection with the sale, certain
officers of the Company became officers of FSFI.

F-59
<PAGE> 119

======================================================

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.

---------------------

TABLE OF CONTENTS
---------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 14
Price Range of Common Stock........... 14
Capitalization........................ 15
Selected Consolidated Financial and
Operating Data...................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 28
Management............................ 41
Certain Transactions.................. 48
Principal and Selling Stockholders.... 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 55
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Index to Financial Statements......... F-1
</TABLE>

---------------------

======================================================

3,400,000 SHARES

FIRST SIERRA FINANCIAL, INC.
COMMON STOCK
------------------------------

PROSPECTUS
------------------------------
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.

PIPER JAFFRAY INC.

, 1998

======================================================
<PAGE> 120

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses of the offering are estimated to be as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 21,339
NASD filing fee............................................. 7,734
Legal fees and expenses..................................... 75,000*
Accounting fees and expenses................................ 200,000*
Printing expenses........................................... 50,000*
Miscellaneous............................................... 145,927*
--------
TOTAL............................................. $500,000*
========
</TABLE>

- ---------------

* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation
or other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Company is required by Section 145 to indemnify any
person against reasonable expenses (including attorneys' fees) actually incurred
by him in connection with an action, suit or proceeding in which he is a party
because he is or was a director, officer, employee or agent of the Company or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation or other enterprise, if he has been successful, on
the merits or otherwise, in the defense of the action, suit or proceeding.
Section 145 also allows a corporation to purchase and maintain insurance on
behalf of any such person against any liability asserted against him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145. In addition, Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise.

Article XI of the Company's Restated Certificate of Incorporation (the
"Charter") provides that the Company shall indemnify and hold harmless any
person who was, is, or is threatened to be made a party to a proceeding by
reason of the fact that he or she (i) is or was a director or officer of the
Company or (ii) while a director or officer of the Company, is or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the DGCL. The right to indemnification under Article XI of the Charter is
a contract right which includes, with respect to directors and officers, the
right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its disposition.

II-1
<PAGE> 121
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On June 3, 1994, the Company sold an aggregate of 5,470,000 shares of
Common Stock to the four stockholders of the Company for $0.18 per share in
connection with the initial capitalization of the Company.

On March 31, 1996, pursuant to employment agreements dated as of January
1995, the Company completed the previously committed sale of an aggregate of
707,369 shares of Common Stock to three employees of the Company for $0.17 per
share.

On April 15, 1996, the Company sold 147,367 shares of Common Stock pursuant
to an option agreement dated as of June 1994 to a stockholder of the Company for
$0.18 per share.

On July 11, 1996, the Company sold 56,718 shares of Series A Preferred
Stock, valued at $46.55 per share, to the former owners of GIC as part of the
consideration for the acquisition of GIC.

On October 31, 1996, the Company sold 43,691 shares of Series B Preferred
Stock, valued at $57.22 per share, to the former owner of CCL as part of the
consideration for the acquisition of CCL.

On May 20, 1997, the Company sold 500,000 shares of Common Stock, valued at
$8.00 per share, to the former owner of Heritage as part of the consideration
for the acquisition of Heritage.

On May 30, 1997 the Company sold 22,222 shares of Common Stock, valued at
$9.00 per share, to the former owners of UFL as part of the consideration for
the acquisition of UFL.

On September 2, 1997, the Company sold 255,000 shares of Common Stock,
valued at $14.50 per share, to the former owners of Northcoast as part of the
consideration for the acquisition of Northcoast.

On September 12, 1997, the Company sold 66,666 shares of Common Stock,
valued at $15.00 per share, to the former owners of Cascade as part of the
consideration for the acquisition of Cascade.

On November 6, 1997, the Company sold 12,104 shares of Common Stock, valued
at $19.00 per share, to the former owners of Heritage Credit as part of the
consideration for the acquisition of Heritage Credit.

On November 26, 1997, the Company sold 15,789 shares of Common Stock,
valued at $19.00 per share, to the former owner of All American as part of the
consideration for the acquisition of All American.

The Company relied on an exemption under Section 4(2) of the Securities Act
in effecting each of the transactions described above.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<S> <C>
*1.1 -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to Amendment
No. 3 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
3.2 -- Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to Registrant's Form S-1
Registration Statement (Registration No. 333-22629).
4.1 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
*5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- 1997 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to Amendment No. 2 to Registrant's Form S-1
Registration Statement (Registration No. 333-22629).
</TABLE>

II-2
<PAGE> 122

<TABLE>
<S> <C>
10.2 -- Executive Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.3 -- Form of Registration Rights Agreement (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.4 -- Asset Purchase Agreement dated June 28, 1996 between the
Company, First Sierra Acquisition, Inc. and General
Interlease Corporation and Eric Barash and Daniel Dengate
(incorporated by reference to Exhibit 10.4 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.5 -- Agreement and Plan of Reorganization dated October 15,
1996 among Valerie A. Hayes, Corporate Capital Leasing
Group, Inc., the Company and First Sierra Pennsylvania,
Inc. (incorporated by reference to Exhibit 10.5 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.6 -- Asset Purchase Agreement, dated February 4, 1997, between
Lease Pro, Inc., Charles E. Lester and the Company
(incorporated by reference to Exhibit 10.6 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.7 -- First Amendment to Agreement and Plan of Reorganization
dated February 27, 1997 among Valerie A. Hayes, Corporate
Capital Leasing Group, Inc., the Company and First Sierra
Pennsylvania, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.8 -- Agreement and Plan of Merger between Oren M. Hall,
Charles E. Brazier, Greg E. McIntosh, Brent M. Hall,
Heritage Credit Services, Inc., the Company and First
Sierra California, Inc. dated as of February 1, 1997
(incorporated by reference to Exhibit 10.8 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.9 -- Form of Registration Rights Agreement between the Company
and Oren M. Hall (incorporated by reference to Exhibit
10.9 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.10 -- Employment Agreement between Thomas J. Depping and the
Company (incorporated by reference to Exhibit 10.10 to
Amendment No. 2 to Registrant's Form S-1 Registration
Statement (Registration No. 333-22629).
10.11 -- Employment Agreement between Sandy B. Ho and the Company
(incorporated by reference to Exhibit 10.11 to Amendment
No. 2 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.12 -- Employment Agreement between Robert H. Quinn, Jr. and the
Company (incorporated by reference to Exhibit 10.12 to
Amendment No. 2 to Registrant's Form S-1 Registration
Statement (Registration No. 333-22629).
*10.13 -- Employment Agreement between Oren M. Hall and the
Company.
*21.1 -- Subsidiaries of the Company
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of BDO Seidman, LLP
*23.3 -- Consent of MacDade Abbott LLP
23.4 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
</TABLE>

- ---------------

* Filed herewith.

II-3
<PAGE> 123

(b) Consolidated Financial Statement Schedules

All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 124
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 13th day of January, 1998.

FIRST SIERRA FINANCIAL, INC.

By /s/ THOMAS J. DEPPING
-----------------------------------
Thomas J. Depping
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ THOMAS J. DEPPING President, Chief Executive January 13, 1998
- ----------------------------------------------------- Officer and Chairman of
(Thomas J. Depping) the Board of Directors
(principal executive
officer)

/s/ SANDY B. HO Executive Vice President and January 13, 1998
- ----------------------------------------------------- Chief Financial Officer
(Sandy B. Ho) (principal financial
officer)

/s/ CRAIG M. SPENCER Senior Vice President and January 13, 1998
- ----------------------------------------------------- Chief Accounting Officer
(Craig M. Spencer) (principal accounting
officer)

/s/ DAVID C. SHINDELDECKER* Director January 13, 1998
- -----------------------------------------------------
(David C. Shindeldecker)

/s/ DAVID L. SOLOMON* Director January 13, 1998
- -----------------------------------------------------
(David L. Solomon)

/s/ RICHARD J. CAMPO* Director January 13, 1998
- -----------------------------------------------------
(Richard J. Campo)

/s/ NORMAN J. METCALFE* Director January 13, 1998
- -----------------------------------------------------
(Norman J. Metcalfe)

*By: /s/ SANDY B. HO
------------------------------------------------
Sandy B. Ho
Attorney-in-fact
</TABLE>

II-5
<PAGE> 125
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*1.1 -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to Amendment
No. 3 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
3.2 -- Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to Registrant's Form S-1
Registration Statement (Registration 333-2629).
4.1 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
*5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- 1997 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to Amendment No. 2 to Registrant's Form S-1
Registration Statement (Registration No. 333-22629).
10.2 -- Executive Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.3 -- Form of Registration Rights Agreement (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.4 -- Asset Purchase Agreement dated June 28, 1996 between the
Company, First Sierra Acquisition, Inc. and General
Interlease Corporation and Eric Barash and Daniel Dengate
(incorporated by reference to Exhibit 10.4 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.5 -- Agreement and Plan of Reorganization dated October 15,
1996 among Valerie A. Hayes, Corporate Capital Leasing
Group, Inc., the Company and First Sierra Pennsylvania,
Inc. (incorporated by reference to Exhibit 10.5 to
Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.6 -- Asset Purchase Agreement, dated February 4, 1997, between
Lease Pro, Inc., Charles E. Lester and the Company
(incorporated by reference to Exhibit 10.6 to
Registrant's Form S-1 Registration Statement
(Registration 333-2629).
10.7 -- First Amendment to Agreement and Plan of Reorganization
dated February 27, 1997 among Valerie A. Hayes, Corporate
Capital Leasing Group, Inc., the Company and First Sierra
Pennsylvania, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Form S-1 Registration Statement
(Registration 333-2629).
10.8 -- Agreement and Plan of Merger between Oren M. Hall,
Charles E. Brazier, Greg E. McIntosh, Brent M. Hall,
Heritage Credit Services, Inc., the Company and First
Sierra California, Inc. dated as of February 1, 1997
(incorporated by reference to Exhibit 10.8 to
Registrant's Form S-1 Registration Statement
(Registration 333-2629).
10.9 -- Form of Registration Rights Agreement between the Company
and Oren M. Hall (incorporated by reference to Exhibit
10.9 to Registrant's Form S-1 Registration Statement
(Registration 333-2629).
</TABLE>
<PAGE> 126

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.10 -- Employment Agreement between Thomas J. Depping and the
Company (incorporated by reference to Exhibit 10.10 to
Amendment No. 2 to Registrant's Form S-1 Registration
Statement (Registration No. 333-22629).
10.11 -- Employment Agreement between Sandy B. Ho and the Company
(incorporated by reference to Exhibit 10.11 to Amendment
No. 2 to Registrant's Form S-1 Registration Statement
(Registration No. 333-22629).
10.12 -- Employment Agreement between Robert H. Quinn, Jr. and the
Company (incorporated by reference to Exhibit 10.12 to
Amendment No. 2 to Registrant's Form S-1 Registration
Statement (Registration No. 333-22629).
*10.13 -- Employment Agreement between Oren M. Hall and the
Company.
*21.1 -- Subsidiaries of the Company
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of BDO Seidman, LLP
*23.3 -- Consent of MacDade Abbott LLP
23.4 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
</TABLE>

- ---------------

* Filed herewith.

<PAGE> 1
EXHIBIT 1.1

FIRST SIERRA FINANCIAL, INC.

3,400,000 SHARES1

COMMON STOCK

UNDERWRITING AGREEMENT

January __, 1998

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PIPER JAFFRAY INC.
c/o Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209

As Representatives of the Several Underwriters

Dear Sirs:

First Sierra Financial, Inc., a Delaware corporation (the "Company")
and the stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") hereby confirm their agreement with the several underwriters
named in Schedule I hereto (the "Underwriters"), for whom you have been duly
authorized to act as representatives (in such capacity, the "Representatives"),
as set forth below. If you are the only Underwriters, all references herein to
the Representatives shall be deemed to be to the Underwriters.

1. Securities. Subject to the terms and conditions herein
contained, the Company and the Selling Stockholders propose to issue and sell
to the several Underwriters an aggregate of 3,400,000 shares (the "Firm
Securities") of the Company's Common Stock, $0.01 par value per share (the
"Common Stock"), of which 2,083,334 Firm Securities are to be issued and sold
by the Company and 1,316,666 Firm Securities are to be sold by the Selling
Stockholders, with each Selling Stockholder selling the number of Firm
Securities set forth opposite such Selling Stockholder's name in Schedule II
hereto. The Company also proposes to issue and sell to the several
Underwriters not more than 510,000 additional shares of Common Stock if
requested by the Representatives as provided in Section 3 of this Agreement.
Any and all shares of Common Stock to

_________________________

1 Plus an option to purchase from First Sierra Financial, Inc. up to
510,000 additional shares to cover over-allotments.
<PAGE> 2
be purchased by the Underwriters pursuant to such option are referred to herein
as the "Option Securities." The Firm Securities and any Option Securities are
collectively referred to herein as the "Securities."

2. Representations and Warranties.

(a) The Company represents and warrants to, and agrees
with, each of the several Underwriters that:

(i) A registration statement on Form S-1
(Reg. No. 333 - 41833) with respect to the Securities, including a
prospectus subject to completion, has been filed by the Company with
the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed.
After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have
been amended, has been declared by the Commission to be effective
under the Act, either (A) if the Company relies on Rule 434 under the
Act, a Term Sheet (as hereinafter defined) relating to the Securities,
that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or
(B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been
filed, in such registration statement), with such changes or
insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or
(i)(B) of this sentence, as have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if
such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. The Company
may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering
certain additional Securities, which registration statement shall be
effective upon filing with the Commission. As used in this Agreement,
the term "Original Registration Statement" means the registration
statement initially filed with the Commission relating to the
Securities, as amended at the time when it was or is declared
effective, including any financial schedules and all exhibits thereto
and including any information omitted

-2-
<PAGE> 3
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined). The term "Rule 462(b)
Registration Statement" means any registration statement filed with
the Commission pursuant to Rule 462(b) under the Act (including the
Original Registration Statement and any Preliminary Prospectus or
Prospectus incorporated therein at the time such registration
statement becomes effective). The term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
registration statement. The term "Preliminary Prospectus" means each
prospectus subject to completion filed with any Registration Statement
or any amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective). The
term "Prospectus" means: (A) if the Company relies on Rule 434 under
the Act, the Term Sheet relating to the Securities that is first filed
with the Commission pursuant to Rule 424(b)(7) under the Act, together
with the Preliminary Prospectus identified therein that such Term
Sheet supplements; (B) if the Company does not rely on Rule 434 under
the Act, the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act; or (C) if the Company does not rely on Rule
434 under the Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus included in the
Registration Statement. The term "Term Sheet" means any term sheet
that satisfies the requirements of Rule 434 under the Act. Any
reference herein to the "date" of a Prospectus that includes a Term
Sheet shall mean the date of such Term Sheet.

(ii) The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
When the Preliminary Prospectus included in the Registration Statement
at the time it was or is declared effective was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared effective, it
(A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not

-3-
<PAGE> 4
misleading. When the Prospectus or any Term Sheet that is a part
thereof or any amendment or supplement to the Prospectus is filed with
the Commission pursuant to Rule 424(b) (or, if the Prospectus or any
Term Sheet that is a part thereof or such amendment or supplement is
not required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and on the Firm Closing Date
and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) do not apply to statements
or omissions made in any Preliminary Prospectus, the Registration
Statement or any amendment thereto or the Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.

(iii) If the Company has elected to rely
on Rule 462(b) and the Rule 462(b) Registration Statement has not been
declared effective (i) the Company will prepare and file with the
Commission a Rule 462(b) Registration Statement in compliance with,
and that is effective upon filing pursuant to, Rule 462(b) and (ii)
the Company has paid or will give irrevocable instructions for
transmission of the applicable filing fee in connection with the
filing of the Rule 462(b) Registration Statement, in compliance with
Rule 111 promulgated under the Act.

(iv) The Company does not own or control,
directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 21.1 to the Registration
Statement. The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and
are duly qualified to transact business as foreign corporations and
are in good standing under the laws of all other jurisdictions where
the ownership or leasing of their respective properties or the conduct
of their respective businesses requires such qualification, except
where the failure to be so qualified would not result in a material
adverse change in the financial

-4-
<PAGE> 5
condition, business, net worth or results of operations of the Company
and its subsidiaries considered as one enterprise (a "Material Adverse
Effect").

(v) The Company and each of its
subsidiaries have corporate power to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus, and the Company has
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by it.

(vi) The issued shares of capital stock
of each of the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable and are owned
beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.

(vii) The Company has an authorized,
issued and outstanding capitalization as set forth in the Prospectus.
All of the issued shares of capital stock of the Company (including
the Firm Securities to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been
duly authorized and at the Firm Closing Date or the Option Closing
Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. At
the Firm Closing Date or the Option Closing Date, no holders of
outstanding shares of capital stock of the Company will be entitled as
such to any preemptive or other rights to subscribe for any Common
Stock, and no holder of securities of the Company has any right which
has not been fully exercised or waived to require the Company to
register the offer or sale of any securities owned by such holder
under the Act in the public offering contemplated by this Agreement.

(viii) The capital stock of the Company
conforms in all material respects to the description thereof contained
in the Prospectus.

(ix) Except as disclosed in the
Prospectus, there are no outstanding (A) securities or obligations of
the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any such
subsidiary, (B) warrants, rights or options to subscribe for or
purchase from the Company or any such subsidiary any such capital
stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary
to issue any shares of capital stock,

-5-
<PAGE> 6
any such convertible or exchangeable securities or obligations, or any
such warrants, rights or options.

(x) The consolidated financial
statements and schedules of the Company and the financial statements
of Heritage Credit Services, Inc. ("Heritage") and Corporate Capital
Leasing Group, Inc. ("CCL") included in the Registration Statement and
the Prospectus fairly present the financial position of the Company
and its consolidated subsidiaries and, to the Company's knowledge,
Heritage and CCL, respectively, and the results of operations and cash
flows of the Company and its consolidated subsidiaries and, to the
Company's knowledge, Heritage and CCL as of the dates and periods
therein specified. Such financial statements and schedules of the
Company, and to the Company's knowledge, such financial statements of
Heritage and CCL, have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied
throughout the periods involved (except as otherwise noted therein).
The pro forma financial statements of the Company and its subsidiaries
and the related notes set forth in the Registration Statement and the
Prospectus present fairly in all material respects the information
shown therein, have been prepared in accordance with the applicable
requirements of Rule 11-02 of Regulation S-X promulgated by the
Commission, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the proposed
transactions referred to therein. The selected financial data set
forth under the captions "Capitalization" and "Selected Consolidated
Financial Data" in the Prospectus fairly present, in accordance with
GAAP on the basis stated in the Prospectus (or such Preliminary
Prospectus), the information included therein.

(xi) Arthur Andersen LLP, BDO Seidman,
LLP and MacDade Abbott LLP, who have audited certain financial
statements of the Company and its consolidated subsidiaries and
Heritage and CCL, respectively, and delivered their reports with
respect to the audited consolidated financial statements included in
the Registration Statement and the Prospectus, are independent public
accountants as required by the Act and the applicable rules and
regulations thereunder.

(xii) The execution and delivery of this
Agreement have been duly authorized by the Company and this Agreement
has been duly executed and delivered by the Company.

-6-
<PAGE> 7
(xiii) No legal or governmental proceedings
are pending to which the Company or any of its subsidiaries is a party
or to which the property of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein, and to the
Company's knowledge, no such proceedings have been threatened against
the Company or any of its subsidiaries or with respect to any of their
respective properties; and no contract or other document is required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not
described therein or filed as required.

(xiv) The issuance, offering and sale of
the Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws, such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") and, if the
Registration Statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (B) conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the
charter documents or bylaws of the Company or any of its subsidiaries,
or any statute or any judgment, decree, order, rule or regulation of
any court or other governmental authority or any arbitrator applicable
to the Company or any of its subsidiaries.

(xv) Subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries has
sustained any loss or interference with its business or properties
which is reasonably likely to have or result in a Material Adverse
Effect from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding and there has not been any event,
circumstance, or development that results in, or that the Company
believes is reasonably likely to result in, a Material

-7-
<PAGE> 8
Adverse Effect, except in each case as described in or contemplated by
the Prospectus.

(xvi) The Company has not, directly or

indirectly (except for the sale of Securities under this Agreement)
(i) taken any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities, or (ii)
since the filing of the Registration Statement (A) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of,
the Securities or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company.

(xvii) Neither the Company nor any of its
subsidiaries nor, to the Company's knowledge, any employee of the
Company or its subsidiaries has made any payment of funds of the
Company or its subsidiaries prohibited by law and no funds of the
Company or its subsidiaries have been set aside to be used for any
payment prohibited by law.

(xviii) (a) The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses except where the failure to
possess any such item is not reasonably likely to have a Material
Adverse Effect, and (b) neither the Company nor any such subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit that,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, is reasonably likely to have a Material Adverse
Effect, except as described in or contemplated by the Prospectus.

(xix) The Company is not an investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and this transaction will not cause the Company to become
an investment company subject to registration under the 1940 Act.

(xx) The Company and each of its
subsidiaries has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file is not
reasonably likely to have a Material Adverse Effect) and has paid all
taxes required to be paid by it and any other assessment, fine or
penalty levied against it, to the extent

-8-
<PAGE> 9
that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good
faith or as described in or contemplated by the Prospectus or which
would not result in a Material Adverse Effect.

(xxi) The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

(xxii) Except as described in the
Registration Statement and the Prospectus, no default exists,
and no event has occurred that, with notice or lapse of time or both,
is reasonably likely to constitute a default, in the due performance
and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which
the Company, any of its subsidiaries or any of their respective
properties is bound or may be affected, in any respect that would have
a Material Adverse Effect.

(xxiii) The Company has not distributed and,
prior to the later of (A)the Firm Closing Date or any Option Closing
Date and (B) the completion of the distribution of the Securities,
will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or Term Sheet or any amendment or supplement thereto, or
other materials, if any, permitted by the Act.

(xxiv) Neither the Company nor any of its
subsidiaries owns any items of real property, and each of them has
marketable title to all personal property owned by it, in each case
free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except as shown on the financial
statements set forth in the Registration Statement and which do not
interfere with the use made or proposed to be made of such property by
the Company or such subsidiary, and any real property and buildings
held

-9-
<PAGE> 10
under lease by the Company or any such subsidiary are held under
valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or such subsidiary,
in each case except as described in or contemplated by the Prospectus.

(xxv) No labor dispute with the employees
of the Company or any of its subsidiaries exists or, to the Company's
knowledge, is threatened or imminent that is reasonably likely to
result in a Material Adverse Effect, except as described in or
contemplated by the Prospectus.

(xxvi) The Company and its subsidiaries own
or possess, or can acquire on reasonable terms, all material
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by
them in connection with their respective businesses, and neither the
Company nor any such subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling, or
finding, is reasonably likely to have a Material Adverse Effect,
except as described in or contemplated by the Prospectus.

(xxvii) The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged;
and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that is not reasonably likely to have a Material
Adverse Effect, except as described in or contemplated by the
Prospectus.

(xxviii) Neither the Company nor any of its
subsidiaries has violated any foreign, Federal, state or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants, nor any Federal or state law relating to discrimination
in the hiring, promotion or pay of employees nor any applicable
Federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act or the rules and regulations
promulgated thereunder except where any such violations would not,
singly or in the aggregate, have a Material Adverse Effect.

-10-
<PAGE> 11
(xxix) Subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, (A) neither the Company nor any of its subsidiaries has
incurred any material liability or obligation, direct or contingent,
or entered into any material transaction not in the ordinary course of
business; and (B) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, except in each case as
described in or contemplated by the Prospectus;

(b) Any certificate signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall
be deemed a representation and warranty by the Company to each Underwriter, as
to the matters covered thereby.

(i) Such Selling Stockholder has, and on the Firm
Closing Date hereinafter mentioned will have, good and valid title to
the Firm Securities proposed to be sold by such Selling Stockholder
hereunder on such Firm Closing Date and full right, power and
authority to enter into this Agreement and to sell, assign, transfer
and deliver such Firm Securities hereunder, free and clear of all
voting trust arrangements, liens, encumbrances, equities, security
interests, restrictions and claims whatsoever, and upon delivery of
and payment for such Firm Securities hereunder, such Selling
Stockholder will convey to the Underwriters good and valid title
thereto, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects of
title whatsoever.

(ii) Such Selling Stockholder has executed and
delivered a Power of Attorney and caused to be executed and delivered
on its behalf a Custody Agreement (hereinafter collectively referred
to as the "Stockholders Agreement," and in connection herewith such
Selling Stockholder further represents, warrants and agrees that such
Selling Stockholder has deposited in custody, under the Stockholders
Agreement, with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Firm Securities to be sold
hereunder by such Selling Stockholder, for the purpose of further
delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Firm Securities to be sold by such Selling Stockholder on
deposit with the Agent are subject to the interests of the Company and
the Underwriters to the extent set forth herein and in the
Stockholders Agreement, that the arrangements made for such custody
are to that extent

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<PAGE> 12
irrevocable, and that the obligations of such Selling Stockholder
hereunder shall not be terminated, except as provided in this
Agreement or in the Stockholders Agreement, by any act of such Selling
Stockholder, by operation of law, by the termination or revocation of
the trust agreement or other governing documents of such Selling
Stockholder or by the occurrence of any other event. If the trust
agreement or other governing documents of such Selling Stockholder
should be terminated or revoked before the delivery of the Firm
Securities hereunder, the documents evidencing the Firm Securities
then on deposit with the Agent shall be delivered by the Agent in
accordance with the terms and conditions of this Agreement and the
Stockholders Agreement as if such termination, revocation or other
event had not occurred, regardless of whether or not the Agent shall
have received notice thereof. This Agreement and the Stockholders
Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of the Stockholders Agreement
has been delivered to you.

(iii) The performance of this Agreement and the
Stockholders Agreement and the consummation of the transactions
contemplated hereby and by the Stockholders Agreement will not result
in a breach or violation by such Selling Stockholder of any of the
terms or provisions of, or constitute a default by such Selling
Stockholder under any material indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of
its properties is bound, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties, except (x) for any
violation, breach, or default that could not have an adverse effect on
such Selling Stockholder's sale of the Firm Securities to be sold
hereunder or such Selling Stockholder's performance of any of its
other obligations hereunder or under the Stockholders Agreement and
(y) that the Selling Stockholder makes no representation or warranty
hereunder with respect to federal or state securities or "blue sky"
laws or any similar laws in applicable foreign jurisdictions.

(iv) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock of the Company to
facilitate the sale or resale of the Securities.

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<PAGE> 13
(v) Each Preliminary Prospectus that has been
distributed by the Underwriters or the Company to prospective
investors and the Prospectus, insofar as they include or reflect
information with respect to such Selling Stockholder, has conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and has not included any
untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; and neither the
Registration Statement nor the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), nor any
amendment or supplement thereto, insofar as they include or reflect
information with respect to such Selling Stockholder, will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading.

(vi) Such Selling Stockholder is not aware that any
of the representations or warranties of the Company set forth in
Section 2(a) above is untrue or inaccurate in any material respect.

(vii) All stock transfer or other taxes (other than
income taxes), if any, that are required to be paid in connection with
the sale and transfer of the Firm Securities proposed to be sold by
such Selling Stockholder to the several Underwriters pursuant to this
Agreement will be fully paid or provided for by such Selling
Stockholder.

(viii) No consent, approval, authorization or order
of, or any filing with, any court or governmental agency or body is
required for the consummation by such Selling Stockholder of the
transactions on its part contemplated in this Agreement, the Power of
Attorney or the Custody Agreement, except as may be required under the
Act or state securities or "blue sky" laws or similar laws in
applicable foreign jurisdictions or by the NASD.

(ix) Other than as permitted by the Act and the
rules and regulations of the Commission thereunder, such Selling
Stockholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material
in connection with the offering and sale of the Firm Securities
proposed to be sold by the Selling Stockholder.

(d) Each Selling Stockholder agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or

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<PAGE> 14
otherwise dispose of any shares of Common Stock or securities convertible into
or exchangeable for any shares of Common Stock in accordance with the terms of
a separate letter agreement between such Selling Stockholder and the
Representatives as provided in Section 7(e) hereof.

(e) Any certificate signed by or on behalf of a Selling
Stockholder and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Selling
Stockholder, to each Underwriter, as to the matters covered thereby.

3. Purchase, Sale and Delivery of the Securities.

(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, (i) the Company agrees to sell 2,083,334 Firm
Securities to the Underwriters, (ii) each Selling Stockholder agrees, severally
and not jointly, to sell the number of Firm Securities set forth opposite such
Selling Stockholder's name in Schedule II hereto, and (iii) each of the
Underwriters, severally and not jointly, agrees to purchase from the Company
and the respective Selling Stockholders, at a purchase price of $_____ per
share, the number of Firm Securities (subject to such adjustment to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Firm Securities to be sold by the Company and each of the
Selling Stockholders, respectively, as the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule 1 hereto bears to the total
number of Firm Securities. Certificates in definitive form for the Firm
Securities that the several Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Representatives request upon notice to the Company and the Agent at least
48 hours prior to the Firm Closing Date, shall be delivered by or on behalf of
the Company and the Selling Stockholders to the Representatives for the
respective accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the aggregate purchase price therefor by wire transfers in same
day funds (the "Wired Funds") to accounts specified by the Company and the
Agent, respectively. Documents required to be delivered pursuant to this
Agreement in connection with such delivery of and payment for the Firm
Securities shall be made at the offices of Vinson & Elkins L.L.P., 2300 First
City Tower, 1001 Fannin, Houston, Texas 77002-6760 at 9:00 a.m., Central time,
on ____________, 1998, or at such other place, time or date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, such time and date of delivery against
payment being herein referred to

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<PAGE> 15
as the "Firm Closing Date." The Company and the Selling Stockholders will make
such certificates for the Firm Securities available for checking and packaging
by the Representatives at the location in New York, New York specified by the
Representatives at least 24 hours prior to the Firm Closing Date.

(b) For the sole purpose of covering any over-allotments
in connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the several
Underwriters an option to purchase, severally and not jointly, the Option
Securities. The purchase price to be paid for any Option Securities shall be
the same price per share as the price per share for the Firm Securities set
forth above in paragraph (a) of this Section 3. The option granted hereby may
be exercised as to all or any part of the Option Securities from time to time
within thirty days after the date of the Prospectus (or, if such 30th day shall
be a Saturday or Sunday or a holiday, on the next business day thereafter when
the Nasdaq National Market is open for trading). The Underwriters shall not be
under any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Representatives may from time to time exercise
the option granted hereby by giving notice in writing or by telephone
(confirmed within 24 hours in writing) to the Company setting forth the
aggregate number of Option Securities as to which the several Underwriters are
then exercising the option and the date and time for delivery of and payment
for such Option Securities. Any such date of delivery shall be determined by
the Representatives but shall not be earlier than two business days or later
than five business days after such exercise of the option and, in any event,
shall not be earlier than the Firm Closing Date. The time and date set forth
in such notice, or such other time on such other date as the Representatives
and the Company may agree upon or as the Representatives may determine pursuant
to Section 9 hereof, is herein called the "Option Closing Date" with respect to
such Option Securities. Upon exercise of the option as provided herein, the
Company shall become obligated to sell to each of the several Underwriters,
and, subject to the terms and conditions herein set forth, each of the
Underwriters (severally and not jointly) shall become obligated to purchase
from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as it deems
advisable to avoid fractional shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on
the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3, except that reference
therein to the Firm Securities and the Firm Closing

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<PAGE> 16
Date shall be deemed, for purposes of this paragraph 3(b), to refer to such
Option Securities and Option Closing Date, respectively.

(c) It is understood that you, individually and not as
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.

(d) The Company and the Selling Stockholders hereby
acknowledge that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Securities does not constitute closing of a purchase and
sale of the Securities. Only execution and delivery of a receipt (by facsimile
or otherwise) for the Securities by the Underwriters indicates completion of
the closing of a purchase of the Securities from the Company and the Selling
Stockholders. Furthermore, in the event that the Underwriters wired funds to
the Company and the Selling Stockholders prior to the completion of the closing
of a purchase of Securities, the Company and the Selling Stockholders hereby
acknowledge that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company and the Selling Stockholders
will not be entitled to the Wired Funds and shall return the Wired Funds to the
Underwriters as soon as practicable (by wire transfer of same-day funds) upon
demand. In the event that the closing of a purchase of Securities is not
completed and the Wired Funds are not returned by the Company and the Selling
Stockholders to the Underwriters on the same day the Wired Funds were received
by the Company and the Selling Stockholders, the Company and the Selling
Stockholders agree to pay to the Underwriters, pro rata in proportion to the
number of Securities being sold by the Company and each of the respective
Selling Stockholders, in respect of each day the Wired Funds are not returned
by it, in same-day funds, interest at the Prime Rate as stated in the Wall
Street Journal on the date hereof on the amount of such Wired Funds.

4. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.

5. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:

(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet

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<PAGE> 17
that constitutes a part thereof and any amendment or supplement thereto with
the Commission in the manner and within the time period required by Rules 434
and 424(b) under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission the Prospectus, Term Sheet or the
amendment referred to in the second sentence of Section 2(a) hereof, any
amendment or supplement to such Prospectus, Term Sheet or any amendment to the
Registration Statement of which the Representatives shall not previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representatives shall reasonably
object. The Company will prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Securities
by the several Underwriters, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide to the Representatives copies of each such filing.

(b) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, (iii) the institution, threatening or
contemplation of any proceeding for any such purpose, or (iv) any request made
by the Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order and, if any
such stop order is issued, to obtain the withdrawal thereof as promptly as
possible.

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<PAGE> 18
(c) If, at any time prior to the later of (i) the final
date when a prospectus relating to the Securities is required to be delivered
under the Act or (ii) the Option Closing Date, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with the
Act or the rules or regulations of the Commission thereunder, the Company will
promptly notify the Representatives thereof and, subject to Section 5(a)
hereof, will prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance.

(d) The Company will, without charge, provide (i) to each
of the Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) and any Rule 462(b)
Registration Statement, (ii) to each other Underwriter, a conformed copy of
such registration statement and any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as
a prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably request;
without limiting the application of clause (iii) of this sentence, the Company,
not later than the business day following the date of determination of the
public offering price, will deliver to the Underwriters, without charge, as
many copies of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle on the Firm Closing Date.

(e) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay or make arrangements for the
payment of the applicable fees in accordance with Rule 111 promulgated under
the Act not later than 10:00 P.M., Eastern Time on the date of this Agreement.

(f) The Company, as soon as practicable, will make
generally available to its securityholders and to the Representatives a
consolidated earnings statement of the Company and its subsidiaries that
satisfies the provisions of Section 11(a) of the Act and Rule 158 thereunder.

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<PAGE> 19
(g) The Company will apply the net proceeds from the sale
of the Securities as set forth under "Use of Proceeds" in the Prospectus.

(h) The Company will not, directly or indirectly, without
the prior written consent of Friedman, Billings, Ramsey & Co., Inc., on behalf
of the Underwriters, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 90 days after the date hereof, except shares
issued pursuant to this Agreement, shares issued pursuant to the exercise of
conversion rights or warrants, or employee stock options outstanding on the
date hereof, options granted or shares issued pursuant to existing stock option
plans, and shares issued in connection with any acquisition, provided the
persons acquiring shares in any such acquisition may not sell such shares
during such 90 day period.

(i) The Company will not, directly or indirectly, (i)
take any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or (ii)(A) sell, bid for, purchase, or pay anyone
any compensation for soliciting purchases of, the Securities or (B) pay or
agree to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.

(j) The Company will obtain the lockup agreements
described in Section 7(e) hereof prior to the Firm Closing Date.

(k) The Company will, for a period of five (5) years from
the date hereof, deliver to the Underwriters copies of annual reports and all
other definitive documents, reports and information furnished by the Company to
its securityholders or filed with any securities exchange or automated
quotation system pursuant to the requirements of such exchange or automated
quotation system or filed with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company will
deliver to the Underwriters similar reports with respect to "significant
subsidiaries," as that term is defined in the rules and regulations of the
Commission, which are not consolidated in the Company's financial statements.

(l) The Company will cause the Securities to be duly
included for quotation on the Nasdaq National Market prior to the Firm Closing
Date. The Company will use its best efforts to ensure

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<PAGE> 20
that the Securities remain included for quotation on the Nasdaq National Market
following the Firm Closing Date.

6. Expenses. The Company will pay all costs and expenses
incident to the performance of its and the Selling Stockholders obligations
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs
of printing the Registration Statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) the filing of the
Registration Statement with the Commission, including filing fees and other
fees and expenses incident thereto, (v) preparation, issuance and delivery to
the Underwriters of any certificates evidencing the Securities, including
transfer agent's and registrar's fees, (vi) the qualification of the Securities
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vii) the
filing of the Registration Statement and Prospectus with the National
Association of Securities Dealers, Inc. relating to the Securities, including
the fees and disbursements of counsel for the Underwriters relating to such
filing, and (viii) the quotation of the Securities on the Nasdaq National
Market. If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11(a)(i) hereof or because of any failure, refusal or
inability on the part of the Company or any Selling Stockholder to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder other than by reason of a default by any of the Underwriters, the
Company will reimburse the Representatives upon demand for all reasonable
out-of-pocket expenses (including counsel fees and disbursements) that shall
have been incurred by it in connection with the proposed purchase and sale of
the Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.

The provisions of this Section shall not affect any agreement
which the Company and the respective Selling Stockholders may make for the
allocation or sharing of the expenses and costs referred to above.

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<PAGE> 21
7. Conditions of the Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the Firm Securities shall
be subject to the accuracy of the representations and warranties of the Company
and the Selling Stockholders contained herein as of the date hereof, and as of
the Firm Closing Date, as if made on and as of the Firm Closing Date, the
accuracy of the statements of the Company's officers made pursuant to the
provisions hereof, the performance by the Company of its covenants and
agreements hereunder and the following additional conditions:

(a) If the Original Registration Statement has not been
declared effective as of the time of execution hereof, the Original
Registration Statement shall have been declared effective not later than 11:00
A.M., Eastern Time, on the business day after the date hereof, or such later
time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission
in the manner and within the time period required by Rules 434 and 424(b) under
the Act; no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or, to the knowledge
of the Company or the Representatives, shall be contemplated by the Commission;
and the Company shall have complied with any request of the Commission for
additional information to be included in the Registration Statement or the
Prospectus or otherwise.

(b) The Representatives shall have received an opinion,
dated the Firm Closing Date, of Vinson & Elkins L.L.P., counsel for the Company
and the Selling Stockholders, to the effect that:

(i) the Company and each of its
subsidiaries (the "Subsidiaries") have been duly incorporated and are
validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified is not reasonably likely to have a Material
Adverse Effect;

(ii) the Company and each of the
Subsidiaries have the corporate power to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus, and the Company has the
corporate power to enter into this

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<PAGE> 22
Agreement and to carry out all the terms and provisions hereof to be
carried out by it;

(iii) the issued and outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by
the Company free and clear of any security interests, liens,
encumbrances or claims;

(iv) the Company has an authorized,
issued and outstanding capitalization as set forth in the Prospectus;
all of the issued shares of capital stock of the Company (including
the Firm Securities to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid and
nonassessable, and, to the knowledge of such counsel, were not issued
in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities; the Firm Securities to be sold
by the Company hereunder have been duly authorized by all necessary
corporate action of the Company and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be
validly issued, fully paid and nonassessable; to the knowledge of such
counsel, no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Securities; and, to the knowledge of such
counsel, no holders of securities of the Company have any rights which
have not been fully exercised or waived to have such securities
registered under the Registration Statement;

(v) the statements set forth under the
headings "Management - Stock Option Plan," and "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to
summarize certain documents or matters of law, are accurate in all
material respects;

(vi) the execution and delivery of this
Agreement have been duly authorized by all necessary corporate action
of the Company and by all necessary action of each Selling Stockholder
and this Agreement has been duly executed and delivered by the Company
and by or on behalf of each Selling Stockholder;

(vii) to the knowledge of such counsel,
(A) no legal or governmental proceedings are pending to which the
Company or any of the Subsidiaries is a party or to which the property
of the Company or any of the Subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not described therein and no such proceedings have been threatened
against the Company

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<PAGE> 23
or any of the Subsidiaries or with respect to any of their respective
properties and (B) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement that is not
described therein or filed as required;

(viii) the issuance, offering and sale of the
Securities to the Underwriters by the Company and the Selling
Stockholders pursuant to this Agreement, the compliance by the Company
and the Selling Stockholders with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws and by the NASD, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument known to such
counsel to which the Company or any of the Subsidiaries or any Selling
Stockholder is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or bylaws of the Company or any of the Subsidiaries,
or the organizational documents or any trust agreement of any Selling
Stockholder or, so far as it is known to such counsel, any statute or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator having jurisdiction over the
Company or any of the Subsidiaries or any Selling Stockholder, except,
in the case of the Company, in each case, where such conflict, breach,
violation or default is not reasonably likely to have a Material
Adverse Effect and other than Federal or state securities or blue sky
laws, as to which such counsel need not express an opinion in this
paragraph;

(ix) the Registration Statement is
effective under the Act; any required filing of the Prospectus, or any
Term Sheet that constitutes a part thereof, pursuant to Rules 434 and
424(b) has been made in the manner and within the time period required
by Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto
has been issued, and no proceedings for that purpose have been
instituted or threatened or are contemplated by the Commission;

(x) the Company is not, and the
transactions contemplated by this Agreement will not cause the Company
to become, an investment company subject to registration under the
1940 Act; and

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<PAGE> 24
(xi) the specimen stock certificate of the
Company filed as an exhibit to the Registration Statement is in due
and proper form to evidence shares of Common Stock, has been duly
authorized and approved by the Board of Directors of the Company and
complies with all legal requirements applicable under the Delaware
General Corporation Law.

(xii) the Stockholders Agreement of each
Selling Stockholder has been duly authorized, executed and delivered
by such Selling Stockholder.

(xiii) Upon delivery of certificates for the
Firm Securities to be sold by the Selling Stockholders pursuant to the
Underwriting Agreement, as evidenced by the executed receipt for such
securities by the Underwriters, and payment for such Firm Securities
as provided therein, valid title to such Securities shall pass to the
Underwriters, severally, free and clear of any adverse claim within
the meaning of the Uniform Commercial Code, provided that the
Underwriters are without notice of any defect in the title of such
Securities and take such Securities in good faith.

In addition, such counsel shall state that such counsel is of the
opinion that the Registration Statement and the Prospectus (except the
financial statements and notes thereto, supporting schedules and other
information of a financial or statistical nature included therein, as to which
such counsel need not express any opinion) comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder. In passing upon the form of the Registration Statement
and the Prospectus, such counsel may state that such counsel has necessarily
assumed the correctness and completeness of the statements made therein; that
such counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except to the extent set forth in
subparagraph (v) above); and that such counsel has not independently verified
the accuracy, completeness or fairness of such statements (except as
aforesaid). Without limiting the foregoing, such counsel may state that such
counsel assumes no responsibility for and has not independently verified the
accuracy, completeness or fairness of the financial statements and notes
thereto and other financial and statistical data included in the Registration
Statement and has not examined the financial records from which such statements
and data are derived. Such counsel may note that, although certain portions of
the Registration Statement have been included therein on the authority of
"experts" within the meaning of the Act, such counsel is not an expert with
respect to any portion of the Registration Statement. However, such counsel
shall state that such counsel has participated in conferences with

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<PAGE> 25
officers and other representatives of the Company, representatives of the
independent accountants of the Company, and with the underwriters'
representatives and counsel, at which the contents of the Registration
Statement and Prospectus and related matters were discussed, and that such
counsel has also reviewed certain corporate documents furnished to them by the
Company. Such counsel shall state that based on such participation and review
(relying as to materiality to a certain extent upon the officers and the other
representatives of the Company), and subject to the limitations described
above, no information has come to such counsel's attention that causes them to
believe that the Registration Statement, at the time it became effective or as
of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein no misleading, or that the
Prospectus, as of its date or as of the Closing Date, included or includes an
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

Such counsel may also state that the opinions of such counsel relate
solely to, are based solely upon and are limited exclusively to the laws of the
State of Delaware and the federal laws of the United States of America, to the
extent applicable.

In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem(s) proper, on certificates of the Selling
Stockholders and of responsible officers of the Company and public officials
and opinions of such other counsel as are reasonably acceptable to the
Representatives.

References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.

(c) The Representative shall have received from Arthur
Andersen LLP, BDO Seidman, LLP and MacDade Abbott LLP a letter or letters
dated, respectively, the date hereof and the Firm Closing Date, in form and
substance reasonably satisfactory to the Representatives.

In the event that the letters referred to above set forth any such
changes, decreases or increases which, in the reasonable discretion of the
Representatives, are reasonably likely to result in a Material Adverse Effect,
it shall be a further condition to the obligations of the Underwriters that
such letters shall be accompanied by a written explanation of the Company as to
the significance thereof, unless the Representatives deem such explanation
unnecessary.

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<PAGE> 26
References to the Registration Statement and the Prospectus in this
paragraph (c) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.

(d) The Representatives shall have received a
certificate, dated the Firm Closing Date, of Thomas J. Depping and Sandy B. Ho
in their capacities as the principal executive officer and the principal
financial officer, respectively, of the Company to the effect that:

(i) the representations and warranties
of the Company in this Agreement are true and correct in all material
respects as if made on and as of the Firm Closing Date; the
Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;

(ii) no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto
has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge,
are contemplated by the Commission;

(iii) subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries has
sustained any loss or interference with their respective businesses or
properties reasonably likely to have or result in a Material Adverse
Effect from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any event,
circumstance, or development that has resulted in, or that the Company
believes is reasonably likely to result in, a Material Adverse Effect,
except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto); and

(iv) subsequent to the respective dates
as of which information is given in the Registration Statement and

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<PAGE> 27
the Prospectus, (A) neither the Company, nor any of its Subsidiaries
has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction not in the
ordinary course of business; and (B) the Company has not purchased any
of its outstanding capital stock, nor declared, paid or otherwise made
any dividend or distribution of any kind on its capital stock, except
in each case as described in or contemplated by the Prospectus.

(e) The Representatives shall have received from each
person who is a director or officer of the Company and from each Selling
Stockholder an agreement to the effect that such person will not directly or
indirectly, without the prior written consent of the Representatives, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge,grant of an option to purchase or other sale or disposition) of
any shares of Common Stock or any securities convertible into, or exchangeable
or exercisable for, shares of Common Stock for a period of 90 days after the
date of this Agreement.

(f) On or before the Firm Closing Date, the
Representatives and counsel for the Underwriters shall have received such
further certificates, documents or other information as they may have
reasonably requested from the Company.

(g) Prior to the commencement of the offering of the
Securities, the Securities shall have been included for trading on the Nasdaq
National Market.

(h) The Representatives shall have received an opinion,
dated the Firm Closing Date, of McDermott, Will & Emery, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities by
the Company, the Registration Statement and Prospectus, and such other related
matters as the Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they may reasonably request
for the purpose of enabling them to pass upon such matters.

(i) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct in all
material respects on the Firm Closing Date with the same force and effect as if
made on and as of the Firm Closing Date and you shall have received on the Firm
Closing Date a certificate dated the Closing Date from or on behalf of each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied

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<PAGE> 28
with or satisfied by such Selling Stockholder on or prior to the Firm Closing
Date.

All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.

The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.

8. Indemnification and Contribution.

(a) The Company and each Selling Stockholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which such Underwriter or such controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or the omission or alleged omission to state in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse,
as incurred, each Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that neither the Company nor any Selling
Stockholder will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon

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<PAGE> 29
and in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein; and
provided, further that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Preliminary Prospectus the
indemnity agreement contained in this Section 8(a) shall not inure to the
benefit of any such indemnified Underwriter or its respective officers,
shareholders, employees, directors and agents, and neither the Company nor any
Selling Stockholder shall be liable to any such indemnified Underwriter or its
respective officers, shareholders, employees, directors and agents, from whom
the person asserting any such losses, claims, expense, damage or liabilities
purchased the Securities concerned, to the extent that any such loss, claim,
expense, damage or liability of such indemnified Underwriter or its respective
officers, shareholders, employees, directors and agents results from the fact
that there was not sent or given to such person at or prior to the written
confirmation of the sale of such securities to such person, a copy of the
Prospectus, as the same may be amended or supplemented, and the untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact in such Preliminary Prospectus was corrected
in such Prospectus and the Company had previously furnished copies thereof to
such indemnified Underwriter on a timely basis to permit the Prospectus (as the
same may be amended or supplemented) to be sent or given. This indemnity
agreement will be in addition to any liability that the Company or any Selling
Stockholder may otherwise have. Neither the Company nor any Selling
Stockholder will, without the prior written consent of the Representatives,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Underwriter or any
person who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.

(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or any such director, officer of
the Company, or controlling person of the Company or any Selling Stockholder
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue

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<PAGE> 30
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through the Representatives specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person or any Selling
Stockholder in connection with investigating or defending any such loss, claim,
damage, liability or any action in respect thereof. This indemnity agreement
will be in addition to any liability which such Underwriter may otherwise have.

(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded or
shall have been advised by its counsel that there may be one or more legal
defenses available to it and/or other indemnified parties that conflict with
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal

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<PAGE> 31
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representative in the case of
paragraph (a) of this Section 8, representing the indemnified parties under
such paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
consent of the indemnifying party.

(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this Section 8 is unavailable or
insufficient, for any reason, to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other hand from the offering of the
Securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other hand in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Stockholders and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Securities, in each case as set forth on the cover of the Prospectus.
The relative fault of the parties shall be determined

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<PAGE> 32
by reference to, among, other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company, the
Selling Stockholders and the Underwriters agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total underwriting commission received by such Underwriter hereunder in
connection with the Securities underwritten by it and distributed to the
public, less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint, and contributions
among Underwriters shall be governed by the provisions of the Agreement Among
Underwriters. For the purposes of this paragraph 8(d), each person, if any,
who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.

(e) Each Selling Stockholder shall be liable under this
Section 8 only for an amount not exceeding the net proceeds received by such
Selling Stockholder from the sale of Firm Securities hereunder.

9. Default of Underwriters. If one or more Underwriters default
in their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, then the other Underwriters may
make arrangements satisfactory to the Representatives for the

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<PAGE> 33
purchase of such Securities by other persons (who may include one or more of
the nondefaulting Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally
in proportion to their respective commitments hereunder to purchase the Firm
Securities or Option Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option Securities, as the
case may be, to be purchased by all of the Underwriters at such time hereunder,
and if arrangements satisfactory to the Representatives are not made within 36
hours after such default for the purchase by other persons (who may include one
or more of the nondefaulting Underwriters, including the Representatives) of
the Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company other than as provided in Section 10 hereof. In the event of any
default by one or more Underwriters as described in this Section 9, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 9. Nothing herein shall relieve any
defaulting Underwriter from liability for its default.

10. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and its
officers, the Selling Stockholders and the several Underwriters set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Stockholders, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.

11. Termination.

(a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Agent given

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<PAGE> 34
prior to the Firm Closing Date or the related Option Closing Date,
respectively, in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Firm Closing Date or such Option Closing Date, respectively,

(i) the Company or any of its
subsidiaries shall have, in the sole judgment of the Representatives,
sustained any loss or interference with their respective businesses or
properties having or resulting in a Material Adverse Effect from fire,
flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any event, circumstance of
development that results in, or that the Company believes would result
in, a Material Adverse Effect, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);

(ii) trading in the Common Stock shall
have been suspended by the Commission or the Nasdaq National Market or
trading in securities generally on the New York Stock Exchange or
Nasdaq National Market shall have been suspended or minimum or maximum
prices shall have been established on either such exchange or market
system;

(iii) a banking moratorium shall have been
declared by New York or United States authorities; or

(iv) there shall have been (A) an
outbreak or escalation of hostilities between the United States and
any foreign power, (B) an outbreak or escalation of any other
insurrection or armed conflict involving the United States or (C) any
other calamity or crisis or material adverse change in general
economic, political or financial conditions having an effect on the
U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated
by the Registration Statement, as amended as of the date hereof.

(b) Termination of this Agreement pursuant to this
Section 11 shall be without liability of any party to any other party except as
provided in Section 10 hereof.

12. Information Supplied by Underwriters. The statements set
forth in (i) the last paragraph on the front cover page, (ii) under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus and (iii) on
page 2 in any Preliminary Prospectus or the

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<PAGE> 35
Prospectus pertaining to stabilization (to the extent such statements relate to
the Underwriters) constitute the only information furnished by any Underwriter
through the Representatives to the Company for the purposes of Sections 2(b)
and 8 hereof. The Underwriters confirm that such statements (to such extent)
are correct.

13. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to Friedman, Billings,
Ramsey & Co., Inc., Potomac Tower, 1001 Nineteenth Street North, Arlington,
Virginia 22209, Attention: James Kleeblatt; and if sent to the Company, shall
be delivered or sent by mail, telex or facsimile, transmission and confirmed in
writing to the Company at Texas Commerce Tower, Suite 7050, 600 Travis Street,
Houston, Texas 77002, Attention: Thomas J. Depping; and, if sent to the Selling
Stockholders shall be sent to the Agent, c/o the Company.

14. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company and their
respective successors and legal representatives, and the Selling Stockholders,
and their respective successors and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company, the
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.

15. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia,
without giving effect to any provisions relating to conflicts of laws.

16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent

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<PAGE> 36
jurisdiction in the Commonwealth of Virginia, and by execution and delivery of
this Agreement, the Company and each Selling Stockholder accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. The Company and each
Selling Stockholder designates and appoints Thomas J. Depping and such other
persons as may hereafter be selected by the Company irrevocably agreeing in
writing to so serve, as its agent to receive on its behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by the Company and each Selling Stockholder to be effective and
binding service in every respect. A copy of any such process so served shall
be mailed by registered mail to the Company at its address provided in Section
13 hereof, provided, however, that, unless otherwise provided by applicable
law, any failure to mail such copy shall not affect the validity of service of
such process. If any agent appointed by the Company refuses to accept service,
the Company hereby agrees that service of process sufficient for personal
jurisdiction in any action against the Company in the Commonwealth of Virginia
may be made by registered or certified mail, return receipt requested, to the
Company at its address provided in Section 13 hereof, and the Company hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Company in the courts of any other jurisdiction.

17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

-36-
<PAGE> 37
If the foregoing correctly sets forth our understanding please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
each of the several Underwriters.

Very truly yours,

FIRST SIERRA FINANCIAL, INC.

By: ___________________________________
Thomas J. Depping
President and Chief Executive
Officer

The foregoing Agreement is hereby confirmed and accepted as of the date first
above written

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PIPER JAFFRAY INC.
By: Friedman, Billings, Ramsey & Co., Inc.

By:_________________________________
Name:
Title:

For themselves and as the Representatives.

-37-
<PAGE> 38
Schedule I

UNDERWRITERS

<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- -------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Piper Jaffray Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

____________

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
============
</TABLE>

-38-
<PAGE> 39
Schedule II

<TABLE>
<CAPTION>
Number of
Firm Securities
Selling Stockholders Being Sold
- -------------------- ---------------
<S> <C>

-------------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
=============
</TABLE>

-39-

<PAGE> 1

EXHIBIT 5.1

[Letterhead of Vinson & Elkins]

(713) 758-2222 (713) 758-2346

January 14, 1998

First Sierra Financial, Inc.
Texas Commerce Tower, Suite 7050
600 Travis Street
Houston, Texas 77002

Ladies and Gentlemen:

We are acting as counsel for First Sierra Financial, Inc., a Delaware
corporation (the "Company"), in connection with the proposed offer and sale by
the Company and certain stockholders of the Company (the "Selling Stockholders")
to the Underwriters (the "Underwriters"), pursuant to the prospectus forming a
part of a Registration Statement on Form S-1, File No. 333-41833, originally
filed with the Securities and Exchange Commission (the "S.E.C.") on December 10,
1997 (such Registration Statement, as amended at the effective date thereof
being referred to herein as the "Registration Statement"), of an aggregate of
3,400,000 shares of Common Stock, par value $.01 per share ("Common Stock"), of
the Company, together with a maximum of 510,000 shares of Common Stock which may
be sold to the Underwriters pursuant to the over-allotment option provided in
the Underwriting Agreement and such additional shares of Common Stock,
representing up to 20% of the maximum aggregate offering price set forth in the
Registration Statement, which may be sold to the Underwriters and which would be
registered with the S.E.C. pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Capitalized terms
used but not defined herein have the meanings set forth in the Registration
Statement.

We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the Securities Act.

In connection with the opinion expressed herein, we have examined, among
other things, the Restated Certificate of Incorporation and the Amended and
Restated Bylaws of the Company, the records of corporate proceedings that have
occurred prior to the date hereof with respect to such offering, the
Registration Statement and the form of Underwriting Agreement to be executed
among the Company and Friedman, Billings, Ramsey & Co., Inc. and Piper Jaffray
Inc., as Representatives of the several Underwriters. We have also reviewed such
questions of law as we have deemed necessary or appropriate.
<PAGE> 2

First Sierra Financial, Inc.

Page 2

January 14, 1998

Based upon the foregoing, we are of the opinion that (i) the shares of
common stock proposed to be sold by the Company to the Underwriters have been
validly authorized for issuance and, upon the issuance and delivery thereof in
accordance with the provisions of the Underwriting Agreement (assuming that it
is executed in the form reviewed by us) and as set forth in the Registration
Statement, will be validly issued, fully paid and nonassessable, and (ii) the
shares of common stock proposed to be sold by the Selling Stockholders to the
Underwriters have been validly authorized for issuance, were validly issued and
fully paid and are nonassessable.

This opinion is limited in all respects to the General Corporation Law of
the State of Delaware.

We hereby consent to the statements with respect to us under the heading
"Legal Matters" in the prospectus forming a part of the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement
and the incorporation by reference of this opinion and consent in a registration
statement filed to register additional shares of Common Stock pursuant to Rule
462(b) promulgated under the Securities Act, but we do not thereby admit that we
are within the class of persons whose consent is required under the provisions
of the Securities Act of 1933, as amended, or the rules and regulations of the
S.E.C. issued thereunder.

Very truly yours,

/s/ Vinson & Elkins

<PAGE> 1
EXHIBIT 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of
February, 1997, by and between First Sierra Financial, Inc., a Delaware
corporation (the "Employer" or "Company"), and Oren M. Hall (the "Employee").
Employer and Employee may be referred to herein collectively as the "Parties"
and individually as a "Party."

ARTICLE I

TERM

Employer hereby agrees to employ Employee and Employee hereby agrees to
accept employment with Employer for a period beginning on the day when the
Effective Time occurs (the "Effective Date") and ending on the third anniversary
of the Effective Date (the "Term"). Any capitalized term used but not defined
herein shall have the meaning ascribed to such term in that certain Agreement
and Plan of Merger dated February 1, 1997, among Employer, Employee and certain
other parties.

ARTICLE II

DUTIES OF EMPLOYEE

2.01 Duties. Employee is engaged to be an Executive Vice President of
Employer and the President of Employer's wholly owned subsidiary, Heritage
Credit Services, Inc. (the "Subsidiary"). Employee's duties and powers shall be
determined from time to time by the President of Employer. Employee shall
perform and discharge such duties in a businesslike manner and in accordance
with the credit/underwriting guidelines of Employer in effect from time to
time, and faithfully as an officer of Employer, and shall be subject to the
supervision and direction of the President of Employer and Employer's Board of
Directors. Employee will conduct his duties as an Executive Vice President of
the Company principally from the Company's Houston, Texas office; provided,
Employee may elect to conduct such duties outside of Houston, Texas during the
months of July, August and September.

2.02 Full Time Employment. Except as otherwise permitted by the
following sentence, Employee shall devote his business time, ability and
attention to the business of Employer during the Term. Employee shall not,
directly or indirectly, during the Term render any services of a business,
commercial or professional nature to any other person, corporation, form or
organization, whether for compensation or otherwise, without the prior written
consent of Employer; provided, Employee may maintain an ownership interest not
in excess of 50% in, and devote a not substantial amount of time and attention
to, Heritage Credit Services, Inc.-Oregon, so long as such time and attention
devoted to such entity shall not interfere with Employee carrying out his
duties pursuant to this Agreement, and Employee may fulfill his remaining
<PAGE> 2

commitment to, and thereafter participate in the usual activities of a member
of, the United Association of Equipment Leasing.

ARTICLE III

COMPENSATION AND BENEFITS

3.01 Base Compensation. As compensation for services rendered and
Employee's covenants and agreements under this Agreement, during the Term
Employee shall be entitled to receive from Employer a base salary of $195,000
per year, payable in equal semi-monthly installments, subject to withholding and
similar taxes. Employee's base salary will be reviewed on an annual basis by the
Compensation Committee of Employer's Board of Directors to determine (in the
discretion of such committee) whether any increase will be granted.

3.02 Senior Management Incentive Compensation Programs. Employee shall
be entitled to participate in all Senior Management Incentive Compensation
Programs of Employer from time to time in effect and as adopted by the
Compensation Committee of Employer's Board of Directors, as the terms of such
programs may be modified, amended or terminated from time to time by and at the
sole discretion of such Compensation Committee. To the extent any such programs
are in effect during 1997, for the year 1997 such compensation shall be based
upon the time from the date of this Agreement through December 31, 1997.

3.03 Benefit Plans. During the Term, and thereafter, to the extent
provided in the applicable plan, Employer agrees to include Employee in any
retirement, insurance or health benefit plans adopted by Employer for the
general benefit of the employees of Employer.

3.04 Expenses.

(a) Employer, in accordance with the rules and regulations that the
Board of Directors shall issue and revise from time to time, shall reimburse
Employee for business expenses directly and reasonably incurred in the
performance of his duties.

(b) In consideration for Employee conducting principally all of his
duties from the Company's Houston, Texas office, commencing as of the Effective
Date, Employee shall be given a $3,000 per month allowance during the Term
(including each July, August and September occurring during the Term) for
Houston housing, transportation, and other related additional non-business
expenses and for travel between Houston, Texas and Sacramento, California
(excluding travel to Sacramento, California principally for the purpose of
conducting business activities out of Employer's Sacramento division office
that are not customarily conducted or coordinated out of Employer's Houston,
Texas office). The aforesaid allowance shall be paid to Employee monthly in
advance on the first business day of each calendar month or the Effective Date,
as appropriate.

3.05 Vacations. Employee shall have the right to take vacations at such
times as are consistent with Employee's past practice as President of Heritage
Credit Services, Inc.; provided, Employee shall make himself available during
such vacations on (if needed) each business day.

2
<PAGE> 3

<PAGE> 4
for the purpose of handling any material matters that arise and are within the
scope of Employee's duties.

ARTICLE IV

TERMINATION

This Agreement shall terminate prior to the expiration of its Term upon
the occurrence of any one of the following events:

4.01 Disability. If Employee is unable fully to perform his duties and
responsibilities hereunder to the full extent required by the Board of
Directors of Employer by reason of illness, injury or incapacity for 60
consecutive days (during such 60 day period Employee shall continue to be
compensated as provided in Section 3.01), this Agreement may be terminated by
Employer, and Employer and Employee shall have no further liability or
obligations hereunder other than Employer's obligation to pay Employee amounts
that may have accrued (if any) under Section 3.02 (to the extent under a plan
where benefits accrue and have in fact accrued) and Section 3.04 through the
date of such termination and not been previously paid to Employee and any rights
of Employee with respect to the plans described in Section 3.03 that, in
accordance with the terms of the applicable plan, provide for benefits to
Employee beyond such termination date. In the event of any dispute under this
Section 4.01, Employee shall submit to a physical examination by a licensed
physician selected by Employer.

4.02. Death. If Employee dies during the Term Employer shall pay to
Employee's executors, legal representatives or administrators the base
compensation specified in Section 3.01 hereof in respect of the period through
the date of such death together with any amount that may have accrued (if any)
under Section 3.02 (to the extent under a plan where benefits accrue and have
in fact accrued) and Section 3.04 through the date of such death and not been
previously paid to Employee.

4.03. Cause. Nothing in this Agreement shall be construed to prevent the
termination of this Agreement by Employer at any time for "cause." For purposes
of this Agreement, "cause" shall mean Employee (i) shall commit an act of theft
or embezzlement from or fraud on Employer, (ii) shall consistently neglect his
duties while employed by Employer, (iii) shall fail materially to comply with
Employer's policies, (iv) shall be in material breach or default of this
Agreement, or (v) shall commit an act of moral turpitude or illegality that
brings the reputation of the Company into public disrepute or causes Employer to
be viewed unfavorably by customers or suppliers. Upon termination for cause,
Employer shall pay to Employee all sums due to Employee through the date of such
termination under Section 3.01 and under Section 3.02 (to the extent under a
plan where benefits accrue and have in fact accrued) and Section 3.04 through
the date of such termination and not previously paid to Employee. Following such
termination and payment as described in the preceding sentence, Employer shall
have no further duties or obligations to Employee. Employee will also have all
rights with respect to the plans described in Section 3.03 that in accordance
with the terms of the applicable plan provide for benefits to Employee beyond
such termination date.

-3-
<PAGE> 5
4.04 Termination Without Cause by Employer. Employer, in its discretion
and for any reason, may terminate this Agreement at any time by delivering 30
days' prior written notice to Employee prior to such intended termination
("Termination Date"). This Agreement shall terminate on the Termination Date
and, except as provided under this Section 4.04, the Parties shall have no
further duties or obligations to each other. Employer shall pay to Employee all
amounts that may have accrued under Section 3.01 and 3.02 through the date of
such termination but not been previously paid to Employee, and Employer shall
also pay an amount equal to 12 months of the base compensation at the rate
effective as of the Termination Date provided under Section 3.01 and the
benefits under Section 3.03 during the same period, and, if Employer so elects,
an amount equal to an additional 12 months of such base compensation and the
benefits under Section 3.03 during the same period and thereafter to the extent
provided in the applicable plan. In the event of termination without cause
hereunder, Employee's covenants under Section 5.01 hereunder shall continue for
the period through which Employer pays Employee under this Section 4.04.

4.05 Termination by Employee.

(a) Employee may terminate this Agreement at any time by delivering
written notice to Employer of Employee's intent to terminate at least 30 days
prior to such intended termination ("Departure Date"). This Agreement shall
terminate on the Departure Date and the parties shall have no further duties or
obligations to each other, provided, Employee shall remain subject to all of
the provisions of Article V and Employer shall pay to Employee all sums due to
Employee under Sections 3.01 through the Departure Date and all amounts that
have accrued (if any) through the Departure Date under Section 3.02 (to the
extent under a plan where benefits accrue and have in fact accrued) and Section
3.04 through the date of such termination and not been previously paid to
Employee and any rights of Employee with respect to the plans described in
Section 3.03 that, in accordance with the terms of the applicable plan, provide
for benefits to Employee beyond such termination date.

(b) Employee may further terminate this Agreement for "Good Reason"
by delivering written notice to Employer of Employee's intent to terminate and
stating the Good Reason therefore at least 30 days prior to such intended
termination (also referred to herein as the "Departure Date"). In the event of a
termination for Good Reason this Agreement shall terminate on the Departure Date
and Employee shall have the rights and Employer shall have the duties specified
in Section 4.04 to apply where Employer terminates this Agreement without cause.
"Good Reason" means a material breach by Employer of the provisions of this
Agreement, an adverse change in Employee's job title not resulting from a
failure by Employee to satisfy his obligations in his current position with
Employer, a material adverse change in Employee's job responsibilities not
resulting from a failure by Employee to satisfy his obligations in his current
position with Employer, the change of Employer's principal place of business to
a location more than 50 miles from the airport of a major metropolitan area
located west of the Mississippi River which has direct flight service with
Sacramento, California Metro Airport, or the bankruptcy or insolvency of
Employer.
<PAGE> 6

ARTICLE V

PROPERTY RIGHTS

5.01 Scope of Protection. During the period that Employee is employed
hereunder, Employee shall use his best efforts to promote the interests of
Employer consistent with his normal duties. During Employee's employment with
Employer and (to the extent applicable to periods of time following Employee no
longer being employed by Employer) during the period commencing as of the date
hereof and ending upon the earliest to occur of (a) the effective date of
termination of Employee's employment under Section 4.01, (b) the expiration of
one year or two year period, as applicable, that Employer agrees to pay Employee
following a termination pursuant to Section 4.04 or 4.05(b), and (c) the
expiration of four years from the Effective Date. Employee hereby agrees that he
shall not, directly or indirectly, either through any form of ownership, or as a
director, officer, principal, agent, employee, employer, advisor, consultant,
partner or in any individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity, without the
prior written consent of the Board of Directors of Employer, within any
geographic area that Employer does business during the Term, engage in any of
the following acts, which acts shall be considered violations of this Agreement:
(i) engage in any equipment or software lease or financing business in which the
Company or any of its subsidiaries engages during the Term except as
contemplated by Section 2.02; (ii) canvas, solicit, accept or perform any type
of work performed by Employer for any of its customers; (iii) request or advise
any customer of Employer to withdraw, curtail or cancel any of its business with
Employer; (iv) induce or attempt to influence any employee of Employer to
terminate his or her employment with Employer; (v) disclose or communicate to
any other person or entity the names of any customers of Employer or other
knowledge of the operations and business of Employer (excluding any of the same
that is public knowledge other than as a result of a breach of this Agreement by
Employee or other than, to Employee's knowledge, the breach of a nondisclosure
or confidentiality agreement by another party, that is required to be disclosed
by Employee pursuant to legal process, or that is known to Employee prior to the
Effective Date and is not covered by a disclosure or confidentiality obligation
owed by Employee or Heritage Credit Services, Inc. to Employer pursuant to a
written agreement entered into by either such party prior to the Effective
Date); (vi) employ or cause to be employed any individual employed by Employer
at any time during such period who does not first request employment by
Employee; (vii) request, advise or attempt to influence any person or entity
which is a source of materials, supplies, personnel, services, funds or
information for Employer to withdraw, cancel or curtail the sale or furnishing
of such items to Employer; or (viii) use for his own benefit or otherwise, or
communicate to, divulge to, or use for the benefit of, any other person or
entity confidential information and/or trade secrets disclosed to, discovered by
or otherwise known by Employee through his employment and/or association with
Employer (excluding any of the same that is public knowledge other than as a
result of a breach of this Agreement by Employee or other than, to Employee's
knowledge, the breach of a nondisclosure or confidentiality agreement by another
party, that is required to be disclosed by Employee pursuant to legal process,
or that is known to Employee prior to the Effective Date and is not covered by a
disclosure or confidentiality obligation owed by Employee or Heritage Credit
Services, Inc. to Employer pursuant to a written agreement entered into by
either such party prior to the Effective Date), it being the intent of the
parties that Employee will honor such
<PAGE> 7
confidential information and will not, directly or indirectly, use the
confidential information in such a way as to adversely effect Employer or
Employer's business relations.

5.02 Reasonableness of Restrictions. Insofar as the covenants set forth
in this Agreement are concerned, Employee specifically acknowledges and agrees
as follows: (i) the covenants are reasonable and necessary to protect the
goodwill and the operations and business of Employer: (ii) the time duration of
the covenants are reasonable and necessary to protect the goodwill and the
operations and business of Employer; (iii) the geographical area limitations of
the covenants are reasonable and necessary to protect the goodwill and the
operations and business of Employer; and (iv) the covenants are not oppressive
to Employee and do not impose a greater restraint on Employee than is necessary
to protect the goodwill and the operations and business of Employer.

5.03 Enforcement. If Employee violates any of the covenants set forth in
this Agreement, Employer may suffer irreparable damage and shall be entitled
where appropriate to full injunctive relief or such other relief against
Employee as may be provided by law or in equity together with such damages as
may be provided at law or in equity. Employer shall be entitled where provided
under applicable law to specific performance of the requirements of this
Agreement or to temporary or permanent injunctive relief against any breach of
any provision of this Agreement by Employee. If either party files a lawsuit
seeking specific performance of injunctive against, or damages for, any breach
of this Agreement, the party substantially prevailing in such lawsuit shall be
entitled to recover from the other party all court costs and reasonable
attorney's fees incurred by the prevailing party in connection with such
lawsuit.

5.04 Reformation It is the express intention of the Employer and Employee
to comply with all laws which may be applicable to the covenants contained in
this Agreement. Therefore, Employer and Employee have attempted to limit
Employee's right to compete only to the extent necessary to protect (i) Employer
from unfair competition, and (ii) Employer's goodwill and its operations and
business. Employer and Employee recognize, however, that reasonable people may
differ in making such a determination. Consequently, Employer and Employee
hereby specifically agree that, in the event that any covenant contained in this
Agreement shall be determined by any court or other constituted legal authority
to be effective in any particular area or jurisdiction only if such covenant is
modified to limit its duration or scope, such covenant may be reformed or
modified by the judgment or order of such court or authority to reflect a lawful
and enforceable duration or scope. Such covenant shall automatically be deemed
to be amended and modified with respect to that particular area or jurisdiction
so as to comply with the judgment or order of such court or authority and, as to
all other areas and jurisdictions covered by this Agreement, the terms and
provisions hereof shall remain in full force and effect as originally written.
If any covenants contained in this Agreement shall be held by any court or other
constituted legal authority to be void or otherwise unenforceable in any
particular area or jurisdiction notwithstanding the operation of this Section
5.04, such covenant automatically shall be deemed to be amended so as to
eliminate therefrom that particular area or jurisdiction as to which such
covenant is so held void or otherwise enforceable and, as to all other areas and
jurisdictions covered by this Agreement, the terms and provisions hereof shall
remain in full force and effect as originally written.
<PAGE> 8
ARTICLE VI

GENERAL PROVISIONS

6.01 Notices. Any notices to be given hereunder by either Party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested:

If to Employer:

First Sierra Financial, Inc.
Texas Commerce Tower, Suite 7050
600 Travis Street
Houston, TX 77002
Attention: President

If to Employee:

Oren M. Hall
6445 Chesbro Court
Rancho Murieta, California 95683

Mailed notices shall be addressed to the Parties at the addresses set forth
above, but each Party may change his/her address by written notice in
accordance with this Section 6.01. Notices delivered personally shall be deemed
communicated as of actual receipt, and mailed notices shall be deemed
communicated as of the earlier of the date of receipt or five days after
deposit in the U.S. mail.

6.02 Entire Agreement. This Agreement supersedes any and all other
agreements, letters of intent, statements, understandings, representations and
warranties (if any), whether oral or in writing, between the Parties solely
with respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect to such employment.

6.03 Certain Acknowledgments. Employee by his execution and delivery of
this Agreement represents to Employer as follows:

(i) Employee has been advised by Employer to have this Agreement
reviewed by an attorney representing Employee, and Employee has
had this Agreement reviewed by such attorney.

(ii) Employee either on his own or with the assistance and advice of
his attorney has in particular reviewed Article V and
understands and accepts (a) the restrictions imposed by Article
V and (b) the restrictions imposed upon Employee pursuant to
these sections are reasonable and necessary for the protection
of the rights of the Employer and its affiliates.
<PAGE> 9
6.04 Headings. The headings or titles to Sections or Articles in this
Agreement are intended solely for convenience of the Parties and no provision
of this Agreement is to be construed by reference to the heading or title of
any section.

6.05 Amendment or Modification: Waiver. No provision of this Agreement
may be amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing, signed by Employee and by an officer of
Employer thereunto duly authorized. Except as otherwise specifically provided
in this Agreement, no waiver by any Party hereto of any breach by any other
party hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or at any prior or subsequent time; nor shall the
receipt or acceptance of Employee's employment be deemed a waiver of any
condition or provision hereof.

6.06 Assignability. Employee shall not assign, pledge or encumber any
interest in this Agreement or any part thereof without the express written
consent of Employer, this Agreement being personal to Employee. This Agreement,
shall, however, inure to the benefit of Employee's estate, dependents,
beneficiaries and legal representatives. This Agreement shall not be assignable
by Employer without the written consent of Employee, but if Employer shall
merge or consolidate with or into, or transfer substantially all of its assets
to, another corporation or other form of business organization, then this
Agreement shall bind the successor of Employer resulting from such merger,
consolidation or transfer. No such merger, consolidation or transfer, however,
shall relieve Employer of Employee from liability and responsibility for the
performance of their respective duties and obligations hereunder.

6.07 Governing Law. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND
DELIVERED IN THE STATE OF TEXAS, AND SHALL IN ALL RESPECTS BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS.
Nothing in this Agreement shall limit the right of Employer or Employee to
bring proceedings against the other in the courts of any jurisdiction.

6.08 Severability. Each provision of this Agreement constitutes a
separate and distinct undertaking, covenant and/or provision hereof. In the
event that any provision of this Agreement shall finally be determined to be
unlawful, such provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect, and
in substitution for any such provision held unlawful, there shall be
substituted a provision of similar import reflecting the original intent of the
Parties hereto to the maximum extent permissible under law.

6.09 No Duress. Employee acknowledges that no force, fear or threats or
duress of any kind have used to obtain the agreements and covenants contained
in this Agreement.
<PAGE> 10
EXECUTED as of the day and year first above written.

EMPLOYER:

First Sierra Financial, Inc.

By: /s/ Thomas J. Depping
--------------------------------------
Thomas J. Depping, President

EMPLOYEE:

/s/ Oren M. Hall
------------------------------------------
OREN M. HALL

-9-

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF FIRST SIERRA FINANCIAL, INC.

Heritage Credit Services, Inc., a Delaware corporation
Corporate Capital Leasing, Group, Inc., a Pennsylvania corporation
Heritage Credit Services of Oregon, Inc., an Oregon corporation
Financial Management Services, Inc. a Washington corporation
Northcoast Capital Leasing Company, an Ohio corporation
First Sierra Northcoast, Inc., a Delaware corporation
All American Financial Services, Inc. a Georgia corporation
First Sierra Acquisition, Inc., a Delaware corporation
First Sierra Receivables, Inc., a Delaware corporation
First Sierra Receivables II, Inc., a Delaware corporation
First Sierra Receivables III, Inc., a Delaware corporation
First Sierra Receivables IV, Inc., a Delaware corporation

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As Independent Public Accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
January 14, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated November 27, 1996,
relating to the financial statements of Heritage Credit Services, Inc., which is
contained in that Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP

Seattle, Washington

January 14, 1998

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As Independent Public Accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

/s/ MACDADE ABBOT LLP

Paoli, Pennsylvania
January 14, 1998