FIRST SIERRA FINANCIAL INC, 424B5, 1999-06-18

FIRST SIERRA FINANCIAL INC
424B5, 1999-06-18
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-77079

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 13, 1999)

4,000,000 SHARES

FIRST SIERRA FINANCIAL, INC.

COMMON STOCK

This is a public offering of shares of common stock of First Sierra
Financial, Inc. All of the shares of common stock offered for sale in this
prospectus supplement are being issued and sold by First Sierra Financial, Inc.

Our common stock is traded on the Nasdaq National Market under the symbol
"BTOB." On June 16, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $18.50 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE S-11 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------------
Public offering price........................... $ 18.25 $ 73,000,000
<S> <C> <C>
Underwriting discounts.......................... $ 0.9125 $ 3,650,000
Proceeds, before expenses, to us................ $ 17.3375 $ 69,350,000
</TABLE>

The underwriters may, under certain circumstances, purchase up to an
additional 600,000 shares of our common stock from us at the public offering
price less the underwriting discount.

The underwriters expect to deliver the shares against payment in Newport
Beach, California on June 22, 1999.

[LOGO]

PROSPECTUS SUPPLEMENT DATED JUNE 16, 1999
<PAGE>

FIRST SIERRA'S SMALL BUSINESS
ELECTRONIC COMMERCE NETWORK

SMALL BUSINESS CUSTOMERS

VENDORS TELEPHONE FAX

FINANCIAL ONLINE REGIONAL FIRST
INSTITUTIONS VENDORS VENDORS SIERRA LEASING ONLINE.COM
CALL CENTER

LEASING ONLINE

FIRST SIERRA TECHNOLOGY PLATFORM
--------------------------------

CREDIT PROCESSING SERVICING
MODULE MODULE
(DATA GATHERING, (ACCOUNTING,
CREDIT SCORING COLLECTION AND
AND UNDERWRITING) CUSTOMER SERVICE)

DATA WAREHOUSE
(MARKETING AND CROSS-SELLING)

<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE
ARE OFFERING TO SELL THE COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS IS ACCURATE ONLY AS OF THE RESPECTIVE DATES OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUPPLEMENT

Prospectus Supplement Summary.............................................................................. S-4
Risk Factors............................................................................................... S-11
Use of Proceeds............................................................................................ S-15
Dividend Policy............................................................................................ S-15
Price Range of Common Stock................................................................................ S-15
Capitalization............................................................................................. S-16
Selected Consolidated Financial and Operating Data......................................................... S-17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... S-20
Business................................................................................................... S-28
Management................................................................................................. S-37
Underwriting............................................................................................... S-40
Legal Matters.............................................................................................. S-41
Experts.................................................................................................... S-41
Index to Financial Statements.............................................................................. F-1

PROSPECTUS

About This Prospectus...................................................................................... 2
Where You Can Find More Information........................................................................ 2
Special Note Regarding Forward-Looking Information......................................................... 3
First Sierra Financial, Inc................................................................................ 3
Risk Factors............................................................................................... 5
Use of Proceeds............................................................................................ 9
Dividend Policy............................................................................................ 9
Ratio of Earnings to Fixed Charges......................................................................... 10
Description of Debt Securities............................................................................. 10
Description of Capital Stock............................................................................... 15
Plan of Distribution....................................................................................... 18
Legal Matters.............................................................................................. 20
Experts.................................................................................................... 20
</TABLE>

S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY

THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
WE ENCOURAGE YOU TO READ THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AS WELL
AS THE INFORMATION WHICH IS INCORPORATED BY REFERENCE IN THE PROSPECTUS, IN
THEIR ENTIRETIES. YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS." UNLESS OTHERWISE SPECIFIED, THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THE OVER-ALLOTMENT
OPTION DESCRIBED HEREIN UNDER "UNDERWRITING."

THE COMPANY

First Sierra Financial, Inc. provides small business financing solutions
utilizing an Internet-based technology platform. Our scaleable technology allows
small businesses nationwide to finance equipment and software purchases through
our Internet-based service, LeasingOnline. We have automated and integrated the
financing process, including the application, data-gathering, underwriting,
credit-scoring, funding, servicing and administration functions. Our technology
approach allows us to aggregate a large number of small business customers in a
highly efficient and cost-effective manner. We currently have approximately
59,000 small business customers throughout the United States and the United
Kingdom. Since our inception in 1994 to date, we have processed and received
data from approximately 150,000 small business applications and funded more than
78,000 small business financing transactions with a total volume in excess of
$1.8 billion. The total principal amount of assets under management has grown
from approximately $5.8 million as of December 31, 1994 to approximately $1.0
billion as of March 31, 1999.

We have formed an electronic commerce network through a combination of our
strategic alliances with equipment vendors, independent finance companies and
lease brokers, and our automation technology. With our recent introduction of
LeasingOnline.com, small business customers can now obtain financing directly
from us via this web browser product instead of accessing our technology through
one of our vendor or broker partners. We believe that LeasingOnline.com will
enhance our ability to directly support small businesses with the financing they
need to grow, while providing us with additional direct links with our business
customers. Our electronic commerce network enables us to efficiently offer
financing solutions to a broad base of small business customers, while at the
same time providing us with a means of gathering valuable financial and
demographic data about these customers. We store this information in a data
warehouse, which includes detailed information on approximately 150,000 small
businesses. This allows us to mine the data and provides us with the opportunity
to cross-sell additional products and services to our small business customers.

We are actively pursuing opportunities to expand our e-commerce product and
service offerings to the small business market. In April 1999, we announced that
we will offer accounts receivable financing to our small business customers via
e-commerce channels beginning in the second half of 1999. Also in April 1999, we
announced our intention to establish the first Internet-based
business-to-business bank, which will be devoted exclusively to the banking and
financing needs of our small business customers. The bank will diversify our
funding sources, lower our cost of funds and allow us to offer additional
e-commerce products to our extensive customer base. In May 1999, we announced
the launch of LeasingOnline.com, enabling business customers to obtain financing
directly from us via the Internet. This new business origination channel expands
our successful on-line capabilities and allows businesses to receive approval
for credit via the Internet prior to making a purchasing decision.

S-4
<PAGE>
KEY OPERATING DATA

<TABLE>
<S> <C>
SMALL BUSINESS APPLICATIONS RECEIVED

1994 338
1995 5,124
1996 16,117
1997 38,622
1998 47,263
3 Months 3/31/1998 10,162
3 Months 3/31/1999 19,321

TRANSACTION VOLUME
Dollars in Millions

1994 $4
1995 $65
1996 $179
1997 $383
1998 $897
3 Months 3/31/1998 $192
3 Months 3/31/1999 $273

ACTIVE CUSTOMERS (at period end)

1994 336
1995 3,453
1996 14,294
1997 30,675
1998 43,649
3 Months 3/31/1998 32,770
3 Months 3/31/1999 49,956

MANAGED ASSETS (at period end)
Dollars in Millions

1994 $41
1995 $77
1996 $217
1997 $504
1998 $893
3 Months 3/31/1998 $611
3 Months 3/31/1999 $1,041
</TABLE>

ON-LINE FINANCIAL SERVICES FOR SMALL BUSINESS

The Internet has become a significant marketplace for buying and selling
goods and services. The volume of electronic commerce has increased dramatically
in the past two years and is expected to continue to experience rapid growth.
According to Forrester Research, Inc., the total value of goods and services
purchased over the Internet is projected to increase from approximately $43.0
billion in 1998 to approximately $1.3 trillion by 2003. Additionally, the
Internet has rapidly emerged as a means of providing on-line business services
directly to the customer. Forrester estimates that the on-line business services
market will grow from $22.1 billion in 1999 to $220.0 billion in 2003. Of this
total on-line business services market, Forrester estimates that the market for
on-line financial services will grow at an annual rate of 82%, from $7.3 billion
in 1999 to $80.0 billion in 2003.

We focus on the market for on-line financial services directed at small
businesses. The U.S. Small Business Administration, or SBA, estimates that there
are approximately 23 million small businesses in the United States, which it
defines as privately-owned companies with less than 500 employees. According to
the SBA, these businesses employ 53% of the private work force and are
responsible for 51% of the gross domestic product. We believe that small
businesses represent a large and growing segment of the e-commerce market.
According to the SBA, commercial banks represent the largest source of credit
for small businesses, with $184 billion in loans outstanding in June 1997, an
increase of approximately 25%

S-5
<PAGE>
from June 1996. We believe the majority of these loans were procured through
traditional costly and inefficient lending channels.

As technology solutions become an integral part of competing in today's
global markets, small businesses are increasingly using the Internet for
day-to-day business transactions. According to a 1997 survey conducted by Access
Media International, or AMI, more than half of the small businesses in the
United States, which it defines as companies with less than 100 employees, use
the Internet. The AMI survey also finds that, of small business Internet users,
72% reported using the Internet to distribute company and product information,
65% to sell products and services and 34% to provide customer service and
support. In addition, over 60% of the sales of small businesses engaged in
electronic commerce occur outside their local area, compared to approximately
40% by companies not engaged in electronic commerce.

One of the principal concerns of small businesses is accessing capital and
other financial services. We believe that the financial services needs of small
business customers have been underserved because banks and other traditional
financial service providers have been unable to profitably access and service
the diverse and highly fragmented small business market. Consolidation in the
banking industry has exacerbated this problem by eroding the base of community
banks that cater to the small business customer. We believe that, prior to the
development of our technology platform, a technology solution has not existed
that efficiently automates the financing of this segment of the market as well
as aggregates a large number of small business customers.

STRATEGY

Our objective is to use the power of the Internet to deliver an increasing
number of financial and e-commerce services to small business customers. We
believe that the combination of our advanced technology, our access to a large
and growing customer base and our ability to electronically gather, store and
mine detailed financial and demographic data on these customers positions us to
capitalize on the high volume of repeat transactions that businesses conduct
every day. Our strategy consists of the following key elements:

UTILIZE OUR TECHNOLOGY PLATFORM TO PROVIDE ON-LINE FINANCING SOLUTIONS. We
have developed a proprietary technology platform that is scaleable and highly
efficient, enabling us to profitably serve the small business customer. Our
technology allows small businesses nationwide to finance equipment and software
purchases through our Internet-based service, LeasingOnline. Through
LeasingOnline, small businesses can complete an application and receive credit
approval on-line in as little as two minutes. We have automated and integrated
the financing process, including the application, data-gathering, underwriting,
credit-scoring, funding, service and administration functions. Our technology
also allows us to take advantage of the valuable information we collect in
connection with our financing programs to develop and market additional products
and services that are tailored to the specific needs of our customers.

EXPAND OUR SMALL BUSINESS ELECTRONIC COMMERCE NETWORK. Unlike many
providers of financial services, we are able to aggregate a large number of
small business customers in an efficient and cost-effective manner. Currently,
we have active customer relationships with approximately 59,000 small businesses
throughout the United States and in the United Kingdom. Since inception, we have
received financing applications from over 150,000 small businesses from which we
have gathered extensive financial and other information. We intend to continue
to expand our small business electronic commerce network by marketing automated
financing solutions to additional software and equipment vendors, independent
finance companies and lease brokers, each of whom acts as a source from which we
obtain access to small business customers and financing transactions. We also
plan to expand the marketing of our on-line financing solutions directly to
small business customers.

S-6
<PAGE>
BROADEN OUR FINANCIAL PRODUCT OFFERINGS AND INCREASE CROSS-SELLING
OPPORTUNITIES. Capitalizing on our small business electronic commerce network
and our scaleable technology, we intend to broaden the range of financial
products and services that we offer to the small business market. We currently
plan to offer the following:

- WORKING CAPITAL FINANCING. In April 1999, we announced that we will offer
accounts receivable financing on-line to our small business customers via
our existing e-commerce channels beginning in the second half of 1999.

- INTERNET BANKING. Also in April 1999, we announced that we intend to
establish the first Internet-based business-to-business bank, which will
be devoted exclusively to the banking and financing needs of small
business customers. We believe that our electronic commerce network will
provide the bank with immediate, low-cost access to a pool of small
business customers. The bank will also allow us to diversify our funding
sources and lower our cost of funds. We have selected Security First
Technologies Corporation, or S1, as our technology partner in developing
our Internet bank.

- INFORMATION SERVICES. In May 1999, we announced a further expansion of our
e-commerce offerings through a new partnership with Stax, Inc., a firm
dedicated to increasing the efficiency with which small businesses develop
and acquire intellectual capital. Through this partnership, we will offer
three new on-line services to our small business customers, consisting of
electronic data gathering, business research and professional staffing
services.

EXTEND OUR TECHNOLOGY ADVANTAGE. We believe that our technology capabilities
provide us with a competitive advantage in the small business marketplace. We
intend to continue to invest in our technology platform to extend and strengthen
our technology capabilities and product offerings.

In the future, we intend to continue to pursue opportunities to expand the
range of e-commerce products and services we offer to small businesses, with the
goal of becoming a leading Internet-based business destination. These products
and services may include inventory financing, insurance products, payroll
management and bill payment. We believe that such additional products and
services will enable us to increase revenues through cross-selling opportunities
to our existing customer base as well as acquiring new customers.

S-7
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common stock offered by us.............................. 4,000,000 shares
Common stock to be outstanding
after the offering.................................... 18,359,615 shares
Use of proceeds......................................... General corporate purposes, including working capital.
See "Use of Proceeds."
Nasdaq National Market symbol........................... BTOB
</TABLE>

RISK FACTORS

You should carefully consider all of the information set forth in this
prospectus supplement and in the accompanying prospectus. In particular, you
should evaluate the risk factors involved in connection with an investment in
our common stock and the impact from various events that could adversely affect
our business. See "Risk Factors" in this prospectus supplement and the
prospectus.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this prospectus supplement, the
prospectus and in the information incorporated by reference in this prospectus
supplement and the prospectus may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
information may involve known and unknown risks, uncertainties and other
factors, including those set forth under the caption "Risk Factors" in this
prospectus supplement and the accompanying prospectus, that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.

S-8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables set forth our summary consolidated financial and
operating data as of the dates and for the periods indicated. The summary
consolidated financial data, as of December 31, 1994 and for the period from our
inception (June 3, 1994) through December 31, 1994 and as of and for the years
ended December 31, 1995, 1996, 1997 and 1998, have been derived from financial
statements audited by Arthur Andersen LLP, independent public accountants. The
summary consolidated financial and operating data as of and for the three months
ended March 31, 1998 and 1999 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" and our consolidated financial statements and related
notes included elsewhere in this prospectus supplement. The summary consolidated
financial and operating data for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year or in the
future. The summary consolidated financial and operating data have been restated
to include the financial position and results of operations of all material
acquired companies that were accounted for as poolings of interest.

Total expenses, less one-time expenses.......... 3,556 10,436 19,176 35,955 63,825 9,476 19,080
One-time expenses(3)............................ -- -- -- -- 5,885 885 --
--------- --------- --------- --------- --------- --------- ---------
Total expenses.................................. 3,556 10,436 19,176 35,955 69,710 10,361 19,080

Income (loss) before provision (benefit) for
income taxes.................................. (847) 2,099 4,195 15,644 (8,567) 4,368 288
Provision (benefit) for income taxes............ (317) 720 932 5,107 (2,665) 1,608 257
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ (530) $ 1,379 $ 3,263 $ 10,537 $ (5,902) $ 2,760 $ 31
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per common share, diluted(4).... $ (0.07) $ 0.17 $ 0.41 $ 1.03 $ (0.43) $ 0.21 $ 0.00
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares used in computing
earnings (loss) per common share, diluted..... 7,235 8,074 7,923 10,185 13,725 13,178 14,438
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

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

(1) We made a strategic decision, effective July 1, 1998, to alter the structure
of our securitization transactions to retain leases on our balance sheet. As
a result, 1998 total revenues included securitized gain on sale only from
January 1, 1998 through June 30, 1998, whereas 1997 total revenue included
securitized gain on sale for the entire year.

(2) As a result of our strategic decision, effective July 1, 1998, to alter the
structure of our securitization transactions to retain leases on our balance
sheet, total revenue for the first quarter of 1999 does not include any
securitized gain on sale, whereas we recognized $6.6 million of securitized
gain on sale in the first quarter of 1998.

(3) Consists of one-time expenses for research and development relating to the
acquisition of Nexsoft, Inc., merger and acquisitions expenses incurred in
connection with the acquisition or proposed acquisition of companies
accounted for as poolings of interest and relocation of operations center
during 1998.

(4) See Note 2 to our consolidated financial statements for a description of the
computation of earnings (loss) per common share.

S-9
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF MARCH
1994 1995 1996 1997 1998 31, 1999
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:

Assets:
Lease financing receivables, net.................... $ 29,961 $ 67,945 $ 62,769 $ 27,675 $ 337,162 $ 540,668
Cash and cash equivalents........................... 2,502 1,265 3,793 14,569 7,928 24,318
Goodwill and other intangible assets, net........... -- 732 2,003 20,162 39,202 38,925
Other assets........................................ 1,717 1,367 15,189 30,552 44,001 36,909
--------- --------- --------- --------- --------- -----------
Total assets.................................. $ 34,180 $ 71,309 $ 83,754 $ 92,958 $ 428,293 $ 640,820
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------

Liabilities and stockholders' equity:
Nonrecourse debt.................................... $ -- $ -- $ -- $ -- $ 276,511 $ 484,035
Debt................................................ 23,539 56,166 53,153 14,937 23,026 27,284
Subordinated notes payable.......................... 9,000 9,000 9,000 6,000 3,250 3,250
Other liabilities................................... 1,223 4,300 13,374 28,794 40,989 41,667
--------- --------- --------- --------- --------- -----------
Total liabilities............................. $ 33,762 $ 69,466 $ 75,527 $ 49,731 $ 343,776 $ 556,236
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Redeemable preferred stock.......................... -- -- 3,890 2,640 469 469
Stockholders' equity................................ 418 1,843 4,337 40,587 84,048 84,115
--------- --------- --------- --------- --------- -----------
Total liabilities and stockholders' equity.... $ 34,180 $ 71,309 $ 83,754 $ 92,958 $ 428,293 $ 640,820
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>

Lease financing receivables acquired
and originated(1):
Average interest rate................ 9.92% 9.78% 10.00% 11.66% 12.94% 11.82% 12.91%
Principal amount..................... $ 4,492 $ 65,244 $ 179,206 $ 383,123 $ 897,131 $ 191,873 $ 272,663
Total principal amount adjusted for
poolings of interests................ $ 74,824 $ 168,035 $ 352,203 $ 640,359 $ 897,131 $ 206,163 $ 272,663
Total leases serviced(2)
Principal amount..................... $ 40,543 $ 77,204 $ 217,283 $ 504,387 $ 892,929 $ 610,944 $1,041,097
Electronic commerce network activity:
Active customers (at period end)..... 336 3,453 14,294 30,675 43,649 32,770 49,956
Financing applications............... 338 5,124 16,117 38,622 47,263 10,162 19,321
Credit quality statistics:
Delinquencies (at period end)
Gross lease receivables serviced
and owned(2)..................... $ 5,784 $ 83,687 $ 257,234 $ 611,358 $1,070,574 $ 718,669 $1,221,867
31-60 days......................... 0.00% 2.53% 2.40% 1.87% 1.33% 1.66% 1.18%
61-90 days......................... 0.00% 0.45% 0.78% 0.57% 0.65% 0.61% 0.53%
91+ days........................... 0.00% 0.08% 0.33% 0.37% 0.58% 0.61% 0.67%
--------- --------- --------- --------- --------- --------- ---------
Total delinquencies.............. 0.00% 3.06% 3.51% 2.81% 2.56% 2.88% 2.38%
Net charge-offs
Principal amount(2)................ $ -- $ -- $ 25 $ 584 $ 4,281 $ 410 $ 2,436
Net charge-offs as % of average
receivables outstanding.......... -- -- -- 0.18% 0.65% 0.07% 0.27%
</TABLE>

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

(1) Lease financing receivables acquired or originated during the year ended
December 31, 1997 do not include approximately $44.6 million of leases
acquired in connection with our acquisition of Heritage Credit Services,
Inc. Lease financing receivables acquired or originated during the year
ended December 31, 1998 do not include approximately $17.9 million of leases
acquired in connection with our acquisitions of three leasing companies
located in the United Kingdom.

(2) Excludes lease receivables and losses on lease receivables acquired through
business combinations.

S-10
<PAGE>
RISK FACTORS

IN ADDITION TO THE RISK FACTORS SET FORTH IN THE ACCOMPANYING PROSPECTUS AND
THE OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING ADDITIONAL FACTORS IN EVALUATING OUR
BUSINESS BEFORE PURCHASING SHARES OF OUR COMMON STOCK. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SUPPLEMENT SHOULD BE READ AS BEING
APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN
THIS PROSPECTUS SUPPLEMENT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THIS PROSPECTUS SUPPLEMENT. THE FACTORS DISCUSSED BELOW AND
THOSE DISCUSSED ELSEWHERE COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES.

RISKS ASSOCIATED WITH OUR RELIANCE ON EMERGING TECHNOLOGIES

WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR E-COMMERCE GROWTH STRATEGY

Our e-commerce strategy depends on continued growth in the use by small
businesses of the Internet and similar forms of electronic communication as a
means for conducting commercial and financial services transactions. Small
businesses may elect not to conduct Internet banking or e-commerce transactions
because of issues such as cost, reliability, security, quality of service and
ease of use. If continued growth in the use of the Internet for such
transactions does not occur, it could have a material adverse effect on our
business, financial condition and results of operations.

OUR INTELLECTUAL PROPERTY RIGHTS COULD BE MISAPPROPRIATED OR INFRINGED

The growth of our business depends in large part on the continued
development and customer acceptance of our proprietary technology platform. It
may be possible for a third party to copy or otherwise obtain unauthorized
access to our database or our other intellectual property. There can be no
assurance that we will be able to prevent misappropriation or infringement of
our intellectual property. A failure to protect our intellectual property in a
meaningful manner could have a material adverse effect on our business,
operating results and financial condition. Moreover, we may need to engage in
litigation in order to enforce our intellectual property rights in the future or
to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and the diversion of management and
other resources, either of which could have a material adverse effect on our
business, operating results and financial condition.

OUR COMPUTER SYSTEMS COULD SUFFER SECURITY BREACHES

We have received and will continue to receive highly confidential and
sensitive financial information from our customers, which information is
maintained on our computer systems and may be accessed through the Internet. Our
systems, like those of other Internet-based entities, are vulnerable to
break-ins, security breaches and similar problems. While we make commercially
reasonably efforts to protect our computer systems against such security
breaches, we cannot provide any assurance that such efforts will ultimately be
successful. Any such security breach may subject us to litigation and may result
in our inability to attract and retain customers. In addition, if the computer
systems of another company suffer a security breach or if public concern
regarding Internet security generally worsens, our customers may choose to
conduct business with non-Internet based financial service providers. Any such
event could have a material adverse effect on our business, financial condition
and results of operations.

GOVERNMENT REGULATION OF THE INTERNET COULD ADVERSELY AFFECT OUR E-COMMERCE
INITIATIVES

Certain local, state, federal and foreign governments are now considering
proposals to regulate aspects of the Internet, on-line communication and
e-commerce, such as the privacy of consumer financial information, user
identification and other information, telecommunication access charges, on-line
content,

S-11
<PAGE>
liability and jurisdictional issues and the taxation of e-commerce. In addition,
the manner in which existing laws will be applied to e-commerce transactions is
uncertain. Increased costs or delays in connection with e-commerce transactions
may deter businesses from conducting such transactions, which could have a
material adverse effect on our business, financial condition and results of
operations.

OUR COMPUTER SYSTEMS AND THOSE OF THIRD PARTIES ON WHOM WE RELY COULD FAIL OR BE
COMPROMISED

Our computer systems may fail or the operation thereof become substantially
delayed or limited because of computer viruses, telecommunications interruption,
human error, mechanical breakdown, Year 2000 problems, power loss, fire, water
or storm damage or other causes. In addition, we outsource certain critical
functions to third-party technical and customer service providers and our
operations could be disrupted if these third parties experience technological or
other difficulties or terminate their relationship with us. Any such events
could have a material adverse effect on our business, financial condition and
results of operations.

THE INTERNET INFRASTRUCTURE MAY NOT SUPPORT HIGH VOLUME BUSINESS-TO-BUSINESS
TRANSACTIONS

The Internet has undergone a period of dramatic growth during the 1990s. If
general and commercial use of the Internet continues to grow, the Internet's
technical infrastructure may not be able to consistently support the increasing
volume of data placed on it. Transactional delays and aborted transactions may
result from the increasing amount of electronic data transmissions, the failure
of national and international organizations to establish universal standards and
protocols for data transmission and e-commerce, technological difficulties and
the Year 2000 problem. If the Internet is ultimately proven not to be
commercially viable or falls into general or commercial disuse for any of the
foregoing reasons or otherwise, our business, financial condition and results of
operations could be adversely affected.

WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM

The "Year 2000 problem" exists because many computer programs, embedded
systems and components were designed to refer to a year by the last two digits
of the year, such as "99" for "1999." As a result, some of these systems may not
properly recognize that the year that follows "1999" is "2000" and not "1900."
If those problems are not corrected, the systems could fail or produce erroneous
results. Such an event could result in disruptions in our operations, including
a temporary inability to process transactions or engage in similar day-to-day
business activities, any of which could have a material adverse effect on our
business, financial condition and results of operations.

RISKS ASSOCIATED WITH OUR PROPOSED INTERNET BANKING OPERATIONS

WE MAY NOT RECEIVE REGULATORY APPROVAL OF OUR BANK CHARTER APPLICATION

In connection with the formation of our Internet bank, we intend to file an
application with the Office of the Comptroller of Currency ("OCC") for a
national bank charter. In addition, we intend to file an application with the
Board of Governors of the Federal Reserve System (the "FRB") to register First
Sierra Financial, Inc. as a bank holding company. There can be no assurance that
the OCC will approve our application for a national bank charter for our
Internet bank or that the FRB will approve our application to be registered as a
bank holding company. These OCC and FRB approvals are required for us to operate
our Internet bank as currently planned. Our inability to conduct certain of our
operations through our planned Internet bank would limit our proposed e-commerce
product and service offerings and could have a material adverse effect on our
business, financial condition and results of operations.

S-12
<PAGE>
OUR ACTIVITIES AS A BANK HOLDING COMPANY AND THE ACTIVITIES OF THE BANK WILL BE
SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

If our application to be registered as a bank holding company is approved,
we will be regulated by the FRB under the Bank Holding Company Act of 1956, as
amended. We will be required to: (i) file annual and other reports and
information with the FRB, (ii) submit to periodic regulatory examination by the
FRB, (iii) receive FRB approval prior to engaging in certain acquisitions of
control of other entities and (iv) comply with FRB restrictions on nonbanking
activities.

If our application for a national bank charter is approved, our Internet
bank will be regulated by the OCC under the National Bank Act of 1864, as
amended, and by the Federal Deposit Insurance Corporation under the Federal
Deposit Insurance Act of 1950, as amended. The bank will be required to: (i)
submit annual and other reports and information to the OCC, (ii) receive OCC
approval prior to establishing branches or conducting certain acquisitions or
changes in control, (iii) submit to periodic OCC examination, (iv) comply with
the provisions of the Community Reinvestment Act of 1977, as amended, and (v)
comply with OCC regulations with respect to minimum capital requirements,
restrictions on lending and payments of dividends and other provisions.

We have not previously been required to comply with the statutes and
regulations generally applicable to bank holding companies and national banks.
Such statutes and regulations restrict the manner in which we could otherwise
use our capital, including restrictions on the payment of dividends to
stockholders. We may incur significant expenses in establishing any internal
structures and systems that we deem necessary in order to comply with such
statutes and regulations and we may ultimately not be able to comply with such
statutes and regulations. In addition, government regulators may impose
sanctions and additional requirements and restrictions on us. Any of the
foregoing could have a material adverse effect on our business, financial
condition and results of operations.

OUR INTERNET BANK MAY ULTIMATELY BE UNSUCCESSFUL

The formation and operation of our Internet bank will subject us to certain
expenses and incremental costs that we do not currently incur. These expenses,
together with the regulatory requirements generally applicable to banks and bank
holding companies and the uncertainty of customer demand for on-line banking
services, among other factors, may result in our inability to operate the bank
profitably, which could have a material adverse effect on our business,
financial condition and results of operations.

WE MAY BE ADVERSELY AFFECTED BY COMPETITION IN THE FINANCIAL SERVICES MARKET

The market for financial services is extremely competitive. This competition
is based primarily on service fees, interest rates and other product terms.
Although we believe that our technology and e-commerce strategy will enable us
to compete successfully, there can be no assurance that this will be the case.

We will compete against other Internet-based financial institutions,
companies marketing financial products directly to small businesses, traditional
"brick and mortar" financial institutions operating on a national, regional or
local basis and equipment manufacturers and retailers providing direct financing
for the products they sell. Because establishing a business on the Internet is
relatively easy and there are few barriers to entry for existing financial
institutions, there is a substantial number of businesses which could compete
directly with us by implementing a business strategy similar to ours. Any of
these competitors may have greater capital and marketing resources, lower
overhead structures, more experienced management, larger customer bases and
longer operating histories than we do. Any such competition could affect our
ability to attract and retain customers, could cause us to deem it necessary to
discount interest rates or other product terms or incur additional expenses to
acquire and retain customers and could otherwise have a material adverse effect
on our business, financial condition and results of operations.

S-13
<PAGE>
WE WILL RELY ON KEY EMPLOYEES TO OPERATE OUR INTERNET BANK AND EXECUTE OTHER
E-COMMERCE INITIATIVES

The success of our Internet bank and other e-commerce initiatives will
depend upon our ability to recruit and retain appropriate employees and
executives. Our senior management has no experience operating a national bank or
a bank holding company and may not be able to conduct the bank's operations
successfully, respond effectively to changes in the banking industry or hire and
retain banking executives to operate the bank. We will depend to a large extent
upon the experience, abilities and continued efforts of executives and other
employees to maintain the consistent operation of our technology and conduct our
e-commerce initiatives and banking operations. The loss of the services of one
or more of these individuals could have a material adverse effect on our
business, financial condition and results of operations.

WE MAY EXPERIENCE DELAYS IN INTRODUCING NEW PRODUCTS AND SERVICES

We intend to offer a variety of banking products and services to our small
business customers, including savings and checking accounts, loans, certificates
of deposit and other traditional banking products and services. In the event
that our development or introduction of these products and services is delayed
or if we fail to recognize and respond to the new product or service demands of
our customers, our customers may purchase these products and services from our
competitors.

S-14
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the shares of our common stock
offered by this prospectus supplement are estimated to be $68.4 million ($78.8
million if the underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and estimated offering
expenses. We will use these net proceeds for general corporate purposes,
including to fund new asset originations and for other working capital needs.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain earnings to finance the growth and development of our
business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. In addition, provisions in certain of our credit
facilities and the terms of our Series A preferred stock contain certain
restrictions on the payment of dividends on our 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 cumulative and payable annually as
declared by our Board of Directors. See "Description of Capital Stock--Series A
Preferred Stock" in the prospectus.

Any future change in our dividend policy will be made at the discretion of
our Board of Directors in light of our financial condition, capital
requirements, earnings and prospects, restrictions under our credit agreements,
the rights of the holders of shares of our Series A preferred stock and any
other factors that our 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

Our common stock began trading on the Nasdaq National Market on May 15, 1997
under the symbol "FSFH." As of April 19, 1999, we changed our trading symbol
from "FSFH" to "BTOB" in recognition of our continuing business-to-business
e-commerce initiatives.

The following table sets forth the high and low sale prices of our 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............................................................. 20.25 17.75

1998
First Quarter.............................................................. 27.00 16.00
Second Quarter............................................................. 31.00 23.75
Third Quarter.............................................................. 32.63 6.38
Fourth Quarter............................................................. 13.13 5.75

1999
First Quarter.............................................................. 12.38 8.13
Second Quarter (through June 16)........................................... 30.13 8.88
</TABLE>

On June 16, 1999, the last reported sale price of our common stock was
$18.50 per share. As of May 12, 1999, there were approximately 57 holders of
record of our common stock.

S-15
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999, on
an actual and as adjusted basis to give effect to the sale of the shares of
common stock offered by this prospectus supplement. You should read this table
in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus supplement.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes........................................................................ $ 3,250 $ 3,250
Redeemable preferred stock(1)............................................................. 469 469
Stockholders' equity:
Common stock, $.01 par value per share, 100,000,000 shares authorized; 14,243,915 shares
issued and outstanding; and 18,243,915 shares issued and outstanding, as
adjusted(2)........................................................................... 142 182
Additional paid-in capital.............................................................. 77,101 145,411
Retained earnings....................................................................... 6,890 6,890
Accumulated other comprehensive income.................................................. (18) (18)
--------- -----------
Total stockholders' equity............................................................ 84,115 152,465
--------- -----------
Total capitalization.................................................................. $ 87,834 156,184
--------- -----------
--------- -----------
</TABLE>

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

(1) The Series A preferred stock is convertible at the holder's option into our
common stock at a conversion rate of 5.47 shares of our 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 we must redeem all of the shares of our Series A preferred
stock then outstanding at a redemption price of $46.55 per share, together
with all accrued and unpaid dividends. See "Description of Capital
Stock--Series A Preferred Stock" in the prospectus.

(2) Excludes 2,174,603 shares of our common stock issuable upon the exercise of
options granted under our 1997 Stock Option Plan and 112,500 shares of our
common stock issuable upon the conversion of subordinated notes.

S-16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables set forth our selected consolidated financial and
operating data as of the dates and for the periods indicated. The selected
consolidated financial data, as of December 31, 1994 and for the period from our
inception (June 3, 1994) through December 31, 1994 and as of and for the years
ended December 31, 1995, 1996, 1997 and 1998, have been derived from financial
statements audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial and operating data as of and for the three
months ended March 31, 1998 and 1999 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" and our consolidated financial statements
and related notes included elsewhere in this prospectus supplement. The selected
consolidated financial and operating data for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the full
year or in the future. The selected consolidated financial and operating data
have been restated to include the financial position and results of operations
of all material acquired companies that were accounted for as poolings of
interest.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ---------
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenues:
Gain on sale of lease financing receivables through
securitized transactions.......................... $ -- $ 3,259 $ 3,456 $ 18,164 $ 16,291 $ 6,550
Gains from direct sales of lease financing
receivables....................................... 1,565 4,926 9,755 17,095 18,434 4,336
Interest income..................................... 183 3,069 6,387 9,193 17,315 1,607
Servicing income.................................... 6 323 1,053 3,095 5,112 1,207
Other income........................................ 955 958 2,720 4,052 3,991 1,029
--------- --------- --------- --------- ----------- ---------
Total revenues.................................... $ 2,709 $ 12,535 $ 23,371 $ 51,599 $ 61,143(1) $ 14,729

Expenses:
Salaries and benefits............................... $ 1,999 $ 2,235 $ 6,799 $ 15,554 $ 29,509 $ 5,638
Interest expense.................................... 163 2,632 5,049 5,180 6,027 399
Provision for credit losses on lease financing
receivables and investment in trust
certificates...................................... 28 392 605 2,101 10,364 729
Depreciation and amortization....................... 46 179 469 1,525 3,752 683
Other general and administrative.................... 1,320 4,998 6,254 11,595 14,173 2,027
Research and development costs of acquired
companies......................................... -- -- -- -- 2,550 --
Merger and acquisition expenses..................... -- -- -- -- 1,742 --
Relocation of operations center..................... -- -- -- -- 1,593 885
--------- --------- --------- --------- ----------- ---------
Total expenses.................................... $ 3,556 $ 10,436 $ 19,176 $ 35,955 $ 69,710 $ 10,361

Income (loss) before provision (benefit) for income
taxes............................................... $ (847) $ 2,099 $ 4,195 $ 15,644 $ (8,567) $ 4,368
Provision (benefit) for income taxes.................. (317) 720 932 5,107 (2,665) 1,608
--------- --------- --------- --------- ----------- ---------
Net income (loss)..................................... $ (530) $ 1,379 $ 3,263 $ 10,537 $ (5,902) $ 2,760
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
Earnings (loss) per common share, diluted(3).......... $ (0.07) $ 0.17 $ 0.41 $ 1.03 $ (0.43) $ 0.21
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
Weighted average shares used in computing earnings
(loss) per common share, diluted.................... 7,235 8,074 7,923 10,185 13,725 13,178
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------

1999
-----------

<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of lease financing receivables through
securitized transactions.......................... $ --
Gains from direct sales of lease financing
receivables....................................... 3,170
Interest income..................................... 13,165
Servicing income.................................... 1,647
Other income........................................ 1,386
-----------
Total revenues.................................... $ 19,368(2)
Expenses:
Salaries and benefits............................... $ 6,479
Interest expense.................................... 6,320
Provision for credit losses on lease financing
receivables and investment in trust
certificates...................................... 2,087
Depreciation and amortization....................... 1,260
Other general and administrative.................... 2,934
Research and development costs of acquired
companies......................................... --
Merger and acquisition expenses..................... --
Relocation of operations center..................... --
-----------
Total expenses.................................... $ 19,080
Income (loss) before provision (benefit) for income
taxes............................................... $ 288
Provision (benefit) for income taxes.................. 257
-----------
Net income (loss)..................................... $ 31
-----------
-----------
Earnings (loss) per common share, diluted(3).......... $ 0.00
-----------
-----------
Weighted average shares used in computing earnings
(loss) per common share, diluted.................... 14,438
-----------
-----------
</TABLE>

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

(3) See Note 2 to our consolidated financial statements for a description of the
computation of earnings (loss) per common share.

S-17
<PAGE>

Assets:
Lease financing receivables, net.................... $ 29,961 $ 67,945 $ 62,769 $ 27,675 $ 337,162 $ 540,668
Cash and cash equivalents........................... 2,502 1,265 3,793 14,569 7,928 24,318
Other receivables................................... -- -- -- 4,087 11,596 5,880
Investment in trust certificates.................... -- -- 9,534 12,512 7,288 7,458
Marketable securities............................... -- -- -- 4,223 5,042 4,631
Goodwill and other intangible assets, net........... -- 732 2,003 20,162 39,202 38,925
Furniture and equipment, net........................ 393 -- 3,615 5,801 9,909 10,360
Other assets........................................ 1,324 1,367 2,040 3,929 6,923 7,191
Current tax receivables............................. -- -- -- -- 3,243 1,389
--------- --------- --------- --------- --------- -----------
Total assets.................................. $ 34,180 $ 71,309 $ 83,754 $ 92,958 $ 428,293 $ 640,820
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------

Redeemable preferred stock.......................... -- -- 3,890 2,640 469 469
Stockholders' equity................................ 418 1,843 4,337 40,587 84,048 84,115
--------- --------- --------- --------- --------- -----------
Total liabilities and stockholders' equity.... $ 34,180 $ 71,309 $ 83,754 $ 92,958 $ 428,293 $ 640,820
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>

S-18
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Lease financing receivables acquired
and originated(1):
Private Label
Average interest rate.............. 9.92% 9.78% 9.45% 9.14% 7.53% 7.65% 7.40%
Principal amount................... $ 4,492 $ 65,244 $ 161,137 $ 210,113 $ 249,327 $ 55,768 $ 80,013
Wholesale(2)
Average interest rate.............. -- -- 14.07% 13.32% 12.47% 13.16% 11.22%
Principal amount................... $ -- $ -- $ 10,543 $ 74,781 $ 106,215 $ 28,812 $ 24,088
Retail(2)
Average interest rate.............. 16.09% 15.79% 16.60% 15.19% 16.93%
Principal amount................... $ -- $ -- $ 7,526 $ 98,229 $ 377,299 $ 57,540 $ 120,118
Captive Finance(3)
Principal amount................... $ -- -- -- -- $ 164,290 $ 49,753 $ 48,445
--------- --------- --------- --------- --------- --------- ---------
Total
Average interest rate........ 9.92% 9.78% 10.00% 11.66% 12.94% 11.82% 12.91%
Principal amount............. $ 4,492 $ 65,244 $ 179,206 $ 383,123 $ 897,131 $ 191,873 $ 272,663
Total principal amount adjusted for
poolings of interests................ $ 74,824 $ 168,035 $ 352,203 $ 640,359 $ 897,131 $ 206,163 $ 272,663
Total leases serviced(4)
Principal amount..................... $ 40,543 $ 77,204 $ 217,283 $ 504,387 $ 892,929 $ 610,944 $1,041,097
Electronic commerce network activity:
Active customers (at period end)..... 336 3,453 14,294 30,675 43,649 32,770 49,956
Financing applications............... 338 5,124 16,117 38,622 47,263 10,162 19,321
Credit quality statistics:
Delinquencies (at period end)
Gross lease receivables serviced
and owned(4)..................... $ 5,784 $ 83,687 $ 257,234 $ 611,358 $1,070,574 $ 718,669 $1,221,867
31-60 days......................... 0.00% 2.53% 2.40% 1.87% 1.33% 1.66% 1.18%
61-90 days......................... 0.00% 0.45% 0.78% 0.57% 0.65% 0.61% 0.53%
91+ days........................... 0.00% 0.08% 0.33% 0.37% 0.58% 0.61% 0.67%
--------- --------- --------- --------- --------- --------- ---------
Total delinquencies............ 0.00% 3.06% 3.51% 2.81% 2.56% 2.88% 2.38%
Net charge-offs
Private Label(4)
Principal amount................. $ -- $ -- $ 25 $ 222 $ 505 $ 100 $ 438
Wholesale and Retail(4)
Principal amount................. $ -- $ -- -- $ 362 $ 3,776 $ 310 $ 1,998
Net charge-offs as % of average
receivables outstanding.......... -- -- -- 0.18% 0.65% 0.07% 0.27%
</TABLE>

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

(2) We established our Wholesale and Retail programs in July 1996.

(3) We established our Captive Finance program in March 1998. During 1998 and
the first quarter of 1999, we did not retain on our balance sheet any of the
leases we originated under our Captive Finance program.

(4) Excludes lease receivables and losses on lease receivables acquired through
business combinations.

S-19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

First Sierra provides small business financing solutions utilizing an
Internet-based technology platform. Since our inception, our primary financing
product has been equipment leases. We acquire, originate, sell and service
equipment leases relating to a wide range of equipment, including computers and
peripherals, software, medical, dental, diagnostic, telecommunications, office,
automotive servicing, hotel security, food services, tree service and
industrial. The equipment we finance generally has a purchase price of less than
$250,000, with an average of approximately $20,000 for leases originated in
1997, $31,000 for leases originated in 1998 and $24,000 for leases originated in
the first quarter of 1999. Because of their relatively small size, the leases we
finance are commonly referred to in the finance industry as "small ticket
leases."

We fund the acquisition or origination of our leases from working capital or
through our securitized funding facilities. From time to time, depending on
market conditions, we securitize the leases in our portfolio that meet
pre-established eligibility criteria by packaging them into a pool and selling
beneficial interests in the leases through public offerings and private
placement transactions. From time to time, we also generate income by acquiring
lease portfolios and then reselling these portfolios at a premium. Our goal is
to maximize the spread between the yield received on our leases and our cost of
funds by obtaining favorable terms on our securitized funding facilities, our
securitizations and our portfolio sales.

Prior to July 1, 1998, we structured our securitization transactions to meet
the criteria for sales of lease financing receivables under generally accepted
accounting principles. Thus, for all securitizations completed prior to this
date, we recorded a gain on sale of lease financing receivables when we included
the receivables in a securitization. Effective as of July 1, 1998, we made a
strategic decision to alter the structure of our future securitization
transactions so as to retain the leases we acquire and originate on our balance
sheet and earn an interest margin on those assets over the life of the leases.
This decision has not had a significant impact on our cash flow, but it has
negatively affected our earnings per share in the period since the change.

We began operations in June 1994 and initially developed a program to
purchase leases from leasing companies that had the ability to originate
significant lease volume and were willing and able to provide us with credit
protection and perform some of the more labor-intensive servicing functions on
an ongoing basis with respect to the leases sold to us. This program, referred
to as our "Private Label" program, was designed to provide us with access to
high volumes of leases eligible for the securitization market, while minimizing
our risk of loss. We have experienced significant growth in our Private Label
program since its inception. Under this program, we purchased $4.5 million of
leases in 1994, $65.2 million of leases in 1995, $161.1 million of leases in
1996, $210.1 million of leases in 1997, $249.3 million of leases in 1998 and
$80.0 million of leases in the first quarter of 1999.

In 1996, as part of our growth strategy, we established our Wholesale and
Retail programs (formerly known as our "Broker" and "Vendor" programs,
respectively) through two strategic acquisitions and we expanded these programs
through additional acquisitions in 1997 and 1998. Through our Wholesale program,
we receive lease volume from small ticket lease brokers who are unable or
unwilling to provide the credit protection or perform the servicing functions
required under our Private Label program, and through our Retail program we
develop relationships with manufacturers, dealers and other vendors of equipment
who refer their small business customers to us for equipment financing. Under
our Wholesale program, we funded $10.5 million of leases in 1996, $74.8 million
of leases in 1997, $106.2 million of leases in 1998 and $24.1 million of leases
in the first quarter of 1999. Under our Retail program, we funded $7.5 million
of leases in 1996, $98.2 million of leases in 1997, $377.3 million of leases in
1998 and $120.1 million of leases in the first quarter of 1999.

S-20
<PAGE>
We established our Captive Finance program with our acquisition of
Integrated Lease Management, Inc. in March 1998. We funded $164.3 million of
leases under our Captive Finance program during 1998 and $48 million during the
first quarter of 1999, all of which we subsequently sold to third parties. As a
result, substantially all of the revenue we generated under this program during
1998 and the first quarter of 1999 was from gain from selling these leases
rather than yield income. In the future, we intend to retain a portion of leases
funded under our Captive Finance program in our lease portfolio until they can
be financed, securitized or otherwise sold.

RESULTS OF OPERATIONS

FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998

Revenue increased $4.6 million, or 31%, from $14.7 million for the three
months ended March 31, 1998 to $19.4 million for the three months ended March
31, 1999, due to strong originations which generated higher interest income and
other income. The $4.6 million increase in revenue in the first quarter of 1999
was net of a $6.6 million decrease in gain on sale of lease financing
receivables from the first quarter of 1998 as a result of our strategic decision
to alter the structure of our securitization transactions, effective July 1,
1998, so as to retain the leases on our balance sheet. With this change in the
structure of our securitization transactions, we did not recognize any gain on
sale of lease financing receivables during the first quarter of 1999.

Gains from direct sales of lease financing receivables decreased $1.1
million, or 27%, from $4.3 million for the three months ended March 31, 1998 to
$3.2 million for the three months ended March 31, 1999. The decrease was related
to a decrease in the volume of leases sold to third parties.

Interest income increased $11.6 million, or 719%, from $1.6 million for the
three months ended March 31, 1998 to $13.2 million for the three months ended
March 31, 1999. The increase was primarily related to a 60% increase in our
balance of lease receivables outstanding during the first quarter of 1999 as a
result of our decision, effective July 1, 1998, to retain lease receivables on
our balance sheet after securitization. The increase was also related to an
increase in the weighted average yield of lease receivables due to the fact that
leases acquired under our Retail program, which are higher yielding, represented
a larger percentage of our lease receivables outstanding in the first quarter of
1999 than in the first quarter of 1998.

Servicing income increased $0.4 million, or 36%, from $1.2 million for the
three months ended March 31, 1998 to $1.6 million for the three months ended
March 31, 1999. Servicing income consists of late charge income collected on
leases owned and serviced and servicing income earned on leases sold under our
securitization programs. This increase was primarily due to a 60% increase in
late charges collected which resulted from a 66% increase in the average balance
of leases owned and serviced. This increase in late charges was partially offset
by a decrease in the late fees collected to total assets owned and serviced due
to lower delinquencies. The increase in servicing income was partially offset by
the change which was made to the structure of our securitization transactions.
Effective July 1, 1998, we began retaining leases on our balance sheet after
securitization. Servicing fees related to lease receivables securitized after
such date were recorded as reduction of interest expense rather than servicing
income.

Other income increased $0.4 million, or 35%, from $1.0 million for the three
months ended March 31, 1998 to $1.4 million for the three months ended March 31,
1999. The increase was primarily attributable to documentation fees and other
fees collected in connection with the origination and administration of the
leases due to the overall expansion of our business.

Salaries and benefits increased $0.9 million, or 15%, from $5.6 million for
the three months ended March 31, 1998 to $6.5 million for the three months ended
March 31, 1999. Such increase was primarily related to a 19% increase in the
number of people employed by us during the same periods. The increase in
headcount and salaries and benefits is directly related to increased origination
activities and the overall expansion of our business. Lease originations
increased 42% from the first quarter of 1998 to the first

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<PAGE>
quarter of 1999. Average leases owned and serviced increased 66% from the first
quarter of 1998 to the first quarter of 1999. Due to continued enhancements made
to our e-commerce technology platform, we were able to increase efficiency and
reduce the level of increase in salaries and benefits.

Provision for credit losses increased $1.4 million, or 186%, from $0.7
million for the three months ended March 31, 1998 to $2.1 million for the three
months ended March 31, 1999. The increase is primarily due to an increase in
lease receivables retained on our balance sheet during the first quarter of
1999, which also resulted from our decision to retain leases on our balance
sheet effective July 1, 1998.

Depreciation and amortization increased $0.6 million, or 84%, from $0.7
million for the three months ended March 31, 1998 to $1.3 million for the three
months ended March 31, 1999. Such increase was primarily attributable to a 100%
increase in goodwill and other intangible assets from March 1998 to March 1999
that resulted from acquisitions made in 1998. Additionally, we experienced a 61%
increase in fixed assets from March 1998 to March 1999 as a result of our
acquisitions of leasing companies and the overall expansion of our business.

Interest expense increased $5.9 million, or 1,484%, from $0.4 million for
the three months ended March 31, 1998 to $6.3 million for the three months ended
March 31, 1999. The increase primarily related to an increase in outstanding
borrowings as a result of our decision, effective July 1, 1998, to retain lease
receivables and the related borrowings on our balance sheet after
securitization. The increase was partially offset by the servicing fees and cash
flows allocable to trust certificates that we received from lease receivables
securitized after July 1, 1998. As we retain lease receivables on our balance
sheet, the related servicing fees and cash flows allocable to the trust
certificates are recorded as a reduction of interest expense.

Other general and administrative expenses increased $0.9 million, or 45%,
from $2.0 million for the three months ended March 31, 1998 to $2.9 million for
the three months ended March 31, 1999. Such increase was attributable to the
general expansion of our business.

1998 COMPARED TO 1997

Gain on sale of lease receivables decreased $1.9 million, or 10%, from $18.2
million for the year ended December 31, 1997 to $16.3 million for the year ended
December 31, 1998. This decrease in leases sold was largely the result of our
strategic decision, effective July 1, 1998, to alter the structure of our
securitization transactions so as to retain our lease financing receivables on
our balance sheet after securitization and recognize interest income over the
life of the leases, rather than recognizing gain on sale at the time of
securitization. Because of this decision, the volume of lease receivables
securitized that met the criteria for sales of lease financing receivables under
generally accepted accounting principles decreased from $395.7 million in 1997
to $265.0 million in 1998.

Gains from direct sales of lease financing receivables increased $1.3
million, or 8%, from $17.1 million for the year ended December 31, 1997 to $18.4
million for the year ended December 31, 1998. This increase directly resulted
from an increase in volumes of leases brokered or discounted to third parties.

Interest income increased $8.1 million, or 88%, from $9.2 million for the
year ended December 31, 1997 to $17.3 million for the year ended December 31,
1998. This increase primarily related to a 78% increase in our average balance
of lease receivables outstanding during 1998 as a result of our decision to
retain lease receivables on our balance sheet after securitization. An increase
in our weighted average yield of lease receivables, resulting from the fact that
leases acquired under our Retail program, which are higher yielding, represented
a larger percentage of our total originations in 1998 than in 1997, also
contributed to the overall increase in interest income.

Servicing income increased $2.0 million, or 65%, from $3.1 million for the
year ended December 31, 1997, to $5.1 million for the year ended December 31,
1998. This increase primarily resulted from a 100% increase in the weighted
average balance of lease receivables serviced under our securitization program,
which was partially offset by a decrease in the ratio of late fees collected to
total assets owned and serviced.

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<PAGE>
The ratio of late fees collected to total assets owned and serviced decreased
because of lower delinquencies in our portfolio of owned and serviced leases.
The change in the structure of our securitization transactions also served to
offset the increase in servicing income. Effective July 1, 1998, when we began
retaining lease receivables on our balance sheet after securitization, servicing
fees related to lease receivables securitized after such date were recorded as
reduction of interest expense rather than as servicing income.

Other income decreased $0.1 million, or 2%, from $4.1 million for the year
ended December 31, 1997, to $4.0 million for the year ended December 31, 1998.
Other income consists of miscellaneous income items and documentation and other
fees we collect in connection with our origination and administration of leases.
Although documentation and administration fees increased by $300,000 in 1998 due
to the overall expansion of our business, other miscellaneous income items
decreased by $400,000 in 1998.

Salaries and benefits increased $13.9 million, or 89%, from $15.6 million
for the year ended December 31, 1997 to $29.5 million for the year ended
December 31, 1998. This increase was primarily related to a 154% increase in the
number of people we employed from December 31, 1997 to December 31, 1998. The
number of employees increased because of our acquisitions as well as the general
expansion of our business. During the fourth quarter 1998 as a part of our
ongoing effort to increase the efficiency of our operations, we eliminated
certain administrative positions and underperforming sales people thereby
reducing our work force by 103 people, or 17%, from 597 people on September 30,
1998.

Interest expense increased $0.8 million, or 16%, from $5.2 million for the
year ended December 31, 1997 to $6.0 million for the year ended December 31,
1998. The increase primarily related to a 20% increase in outstanding borrowings
as a result of our decision, effective July 1, 1998, to retain lease receivables
and the related borrowings on our balance sheet after securitization. The
increase was partially offset by the servicing fees and cash flows allocable to
trust certificates that we received from lease receivables securitized after
July 1, 1998. As we retain lease receivables on our balance sheet, the related
servicing fees and cash flows allocable to the trust certificates are recorded
as a reduction of interest expense.

Provision for credit losses increased $8.3 million, or 393%, from $2.1
million for the year ended December 31, 1997 to $10.4 million for the year ended
December 31, 1998. This increase was primarily due to a $6.0 million charge to
write down the carrying value of our investment in trust certificates as a
result of the widening of the spread over Treasuries paid to investors in
securitization transactions from the time we initially securitized our leases in
our securitized funding facilities to the time we permanently securitized our
leases in December 1998. The widening of spreads was due to economic turmoil in
Russia and Asia and other economic factors. In December 1998, we were successful
in completing a public securitization in a difficult market. This write-down
affects only the lease receivables we securitized prior to July 1, 1998. As for
leases securitized after July 1, 1998, we no longer record an investment in
trust certificate and gain on sale related to such securitizations. The increase
in provision for credit losses was also the result of an increase in lease
receivables retained on our balance sheet during 1998, which also resulted from
our decision to retain leases on balance sheet effective July 1, 1998.

Depreciation and amortization increased $2.3 million, or 146%, from $1.5
million for the year ended December 31, 1997, to $3.8 million for the year ended
December 31, 1998. This increase was primarily attributable to an 88% increase
in goodwill and other intangible assets during 1998, due to our acquisition of
five businesses from April 1998 through October 1998 that were accounted for
using the purchase method of accounting. A 71% increase in our fixed assets from
December 1997 to December 1998 also contributed to the increase in deprecation
and amortization.

Other general and administrative expenses increased $2.6 million, or 22%,
from $11.6 million for the year ended December 31, 1997 to $14.2 million for the
year ended December 31, 1998. This increase resulted from the general expansion
of our business.

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<PAGE>
In April 1998, we acquired Nexsoft, Inc. of Denver, Colorado. Nexsoft is a
software development firm specializing in software for the equipment leasing
industry. We accounted for this transaction using the purchase method of
accounting. We allocated the purchase price to the net assets acquired and to
purchased in-process research and development. Purchased in-process research and
development includes the value of products in the development stage which were
not considered to have reached technological feasibility. As a result, we
expensed $2.6 million of acquisition costs during the year ended December 31,
1998.

During the year ended December 31, 1998, we incurred approximately $1.7
million of expenses in connection with the acquisition or proposed acquisition
of companies accounted for as poolings of interests. Approximately $559,000 of
this amount related to our proposed merger with the Oliver-Allen Corporation,
which we mutually agreed to terminate in August 1998. We did not incur any of
these acquisition costs during the year ended December 31, 1997.

During the year ended December 31, 1998, we incurred approximately $1.6
million of costs in connection with the relocation of our operations center from
Jupiter, Florida to Houston, Texas. We did not incur any of these relocation
costs during the year ended December 31, 1997.

1997 COMPARED TO 1996

During the years ended December 31, 1996 and 1997, we sold leases with an
aggregate principal balance of $152.0 million and $395.7 million, respectively,
net of unearned income, through our securitization program. We recognized gains
of $3.5 million and $18.2 million, respectively, as a result of these sales and
retained trust certificates in the related trusts. The gains we recognized upon
sales of leases through securitization transactions increased as a percentage of
leases sold through securitization transactions from 2.3% for the year ended
December 31, 1996, to 4.6% for the year ended December 31, 1997. This increase
was directly attributable to an increase in the weighted average interest rate
of leases we sold as a result of the inclusion of higher yielding leases
acquired under our Wholesale and Retail programs and a decrease in the level of
trust certificates we were required to retain in the securitization trusts.

Additionally, we recognized gains of $17.1 million on leases we sold or
discounted to third parties during the year ended December 31, 1997, an increase
of $7.3 million from the previous year. We also recognized a gain of $853,000
upon the sale of a portfolio of lease receivables with an aggregate principal
balance of $7.6 million to a third party during 1997.

Interest income increased $2.8 million, or 44%, from $6.4 million for the
year ended December 31, 1996 to $9.2 million for the year ended December 31,
1997. This increase primarily related to an increase of $1.0 million during 1997
of interest income recognized on trust certificates we retained in our
securitization transactions. The remaining difference resulted from a 17%
increase in the average rate earned on the leases. The increase in the average
rate earned on the leases was directly attributable to the formation of our
Wholesale and Retail programs in July 1996.

Servicing income increased $2.0 million, or 194%, from $1.1 million for the
year ended December 31, 1996 to $3.1 million for the year ended December 31,
1997. This increase was primarily attributable to a 207% increase in leases
serviced for others from December 31, 1996 to December 31, 1997.

Other income increased $1.3 million, or 49%, from $2.7 million for the year
ended December 31, 1996 to $4.1 million for the year ended December 31, 1997.
This increase primarily related to an increase in documentation and other fees
we collected in connection with our origination and administration of leases due
to the expansion of our Retail and Wholesale originations.

Salaries and benefits increased $8.8 million, or 129%, from $6.8 million for
the year ended December 31, 1996 to $15.6 million for the year ended December
31, 1997. This increase was primarily attributable to an increase in the number
of people we employed. The number of employees increased because we acquired ten
companies from July 1996 through November 1997. In addition, salaries and

S-24
<PAGE>
benefits increased due to the higher level of servicing required as a result of
the formation of our Wholesale and Retail programs in July 1996.

Interest expense increased $131,000, or 3%, from $5.0 million for the year
ended December 31, 1996 to $5.2 million for the year ended December 31, 1997.
This increase related to additional indebtedness we assumed in connection with
acquisitions at higher interest rates than those under our existing warehouse
facilities, which were substantially offset by shorter periods that we held
leases prior to securitization due to the formation of our securitized funding
facilities, and reduced amounts of subordinated notes payable outstanding due to
our repayment of one note with proceeds from our initial public offering in May
1997.

Provision for credit losses increased $1.5 million, or 247%, from $605,000
for the year ended December 31, 1996 to $2.1 million for the year ended December
31, 1997. This increase was primarily due to the origination of $173.0 million
of leases under our Wholesale and Retail programs during the year ended December
31, 1997, which have a greater exposure to credit losses than leases originated
under our Private Label program.

Depreciation and amortization increased $1.1 million, or 225%, from $469,000
for the year ended December 31, 1996 to $1.5 million for the year ended December
31, 1997. This increase was attributable to a 696% increase in amortization of
goodwill and other intangible assets resulting from the acquisitions referred to
above as well as a 168% increase in depreciation of fixed assets owned at
December 31, 1997.

Other general and administrative expenses increased $5.3 million, or 85%,
from $6.3 million for the year ended December 31, 1996 to $11.6 million for the
year ended December 31, 1997. This increase was primarily attributable to the
general expansion of our business and our acquisition of eight businesses in
1997.

LIQUIDITY AND CAPITAL RESOURCES

Our equipment finance business is capital intensive and requires access to
substantial short-term and long-term credit to fund the acquisition and
origination of equipment leases. Since inception, we have funded our operations
primarily through borrowings under our funding facilities, sales of our common
stock and by including certain of our leases in public and private
securitization transactions. We expect to continue to require access to large
amounts of capital to maintain and expand our volume of equipment leases and,
depending upon market conditions, to complete acquisitions of additional
equipment finance businesses.

We use capital to acquire and originate leases and to pay interest expenses,
obligations in connection with borrowings under our securitized funding
facilities, operating and administrative expenses, income taxes and capital
expenditures. The structure of our funding programs and our securitized funding
facilities and public securitization transactions enabled us to generate
positive cash flow from operations in 1996, 1997, 1998 and the first quarter of
1999.

We use our securitized funding facilities to fund the acquisition and
origination of leases that satisfy the eligibility requirements established
under each funding facility. These funding facilities provide us with advance
rates that generally do not require us to utilize our capital during the period
that lease receivables are financed under such facilities. The liquidity
provided under certain of the funding facilities is generally interim in nature
and we seek to refinance or resell the lease receivables that were funded under
these interim facilities through our public securitization program within three
to twelve months.

We have an effective shelf registration statement which permits us to sell
from time to time debt securities, shares of our common stock or any combination
thereof, in one or more offerings, including this offering, up to an aggregate
amount of $300 million. We expect to use the proceeds from these sales for
general corporate purposes, including working capital.

S-25
<PAGE>
We believe that our existing cash and investment balances, cash flow from
operations, net proceeds from future securitization transactions, amounts
available under our securitized funding facilities and proceeds from our
securities offerings will be sufficient to fund our operations for the
foreseeable future.

SECURITIZED FUNDING FACILITIES

As of March 31, 1999, our five securitized funding facilities had an
aggregate funding capacity of $545 million. As of April 30, 1999, $210 million
was available under these facilities.

Through June 30, 1998, our securitized funding facilities were structured so
that transfers to those facilities were considered sales under generally
accepted accounting principles. Effective July 1, 1998, concurrent with our
strategic decision to retain our lease receivables on our balance sheet as
long-term investments, we modified the structure of our securitized funding
facilities so that advances under the facilities would be considered debt under
generally accepted accounting principles. The cash flows available to us, which
are generally based on the advance rates and discount rates set forth in the
facility agreements, were generally unaffected by the modifications to the
agreements.

PUBLIC SECURITIZATION TRANSACTIONS

To date, the proceeds that we have received in our public securitization
transactions have generally been sufficient to repay the amounts that we
borrowed under our securitized funding facilities, as well as issuance expenses
related to each securitization. We generally structure our securitization
transactions to qualify as financings for income tax purposes. Therefore, no
income tax is payable in the current period on the gain recognized. We
anticipate that our future financings of equipment leases will be principally
through securitization transactions and, to a lesser extent, through portfolio
sales and sales to third-party financing sources.

As of April 30, 1999, we have completed five public securitization
transactions involving the issuance of $896 million of senior and subordinated
securities. We completed the Series 1996-1 and 1996-2 transactions in 1996, the
Series 1997-1 transaction in September 1997, the Series 1998-1 transaction in
December 1998 and the Series 1999-1 transaction in April 1999.

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. We retained a Class B-3 Note,
which was rated B by Duff & Phelps Credit Rating Co., for future sale in the
private market.

In connection with the Series 1998-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch IBCA, Inc. were sold in
the public market. The Class B-1 and Class B-2 notes were rated BBB and BB by
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., and were sold and financed
on a non-recourse basis in the private market. A Class B-3 Note was rated B by
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., which we retained for
future sale in the private market.

In connection with the Series 1999-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch IBCA, Inc. were sold in
the public market. The Class B-1 and Class B-2 notes were

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<PAGE>
rated BBB and BB by Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., and
were sold and financed on a non-recourse basis in the private market. A Class
B-3 Note was rated B by Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc.,
which we retained for future sale in the private market.

Due to our ability to structure and sell Class B-1 and Class B-2 rated
components of our securitizations, the remaining interest retained by us was
reduced, which allowed us to maximize the cash proceeds generated from each
transaction.

We were able to realize approximately 94% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1996-1 and 1996-2 securitizations, approximately 96% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1997-1 securitization and approximately 95% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1998-1 and Series 1999-1 securitizations.

SUBORDINATED NOTES

In May 1997, we entered into a $5.0 million subordinated revolving credit
facility with an affiliate. The commitment level on this facility is scheduled
to decrease by $1.0 million per year. Advances under this facility bear interest
at 11% per annum. As of March 31, 1999, we had not borrowed any money under this
facility.

In connection with our acquisition of Heritage Credit Services, Inc.
("Heritage") in May 1997, we issued a $1.0 million subordinated note payable to
the former owner of Heritage. This note bears interest at 9% per annum, with
principal payable semi-annually over 5 years.

On October 1, 1998, we acquired all of the outstanding shares of capital
stock of Titan Finance, Limited, a company incorporated in England and Wales, in
exchange for $2,250,000 in cash and $2,250,000 in convertible subordinated
promissory notes. The notes were converted into 112,500 shares of our common
stock in May 1999 in accordance with their terms. Prior to their conversion, the
promissory notes bore interest at a rate of 6% per annum, payable semi-annually,
with the outstanding principal amount due October 1, 2003.

INTEREST RATE MANAGEMENT ACTIVITIES

The implicit yield to us on all of our leases is on a fixed interest rate
basis because the leases have scheduled payments that are fixed at the time the
leases are originated. When we acquire or originate leases, we base our pricing
on the "spread" we expect to achieve between the implicit yield to us on each
lease and the effective interest cost we will pay when we sell or refinance such
lease through a public securitization transaction. Increases in interest rates
between the time the leases are acquired or originated by us and the time they
are sold or refinanced through a public securitization transaction could narrow
or eliminate the spread, or result in a negative spread.

We mitigate the volatility of interest rate movement between the time we
acquire or originate a lease and the time such lease is sold or refinanced
through a public securitization transaction by hedging movements in interest
rates using interest rate swap derivatives which match the underlying cash flow
associated with the leases originated. Under these swap agreements, we receive
interest on the notional amount at either the 30-day LIBOR or the 30-day AA
Corporate Commercial Paper Index, as applicable, and we pay 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 our 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. We 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 we are confident of
origination in the near term.

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<PAGE>
BUSINESS

OVERVIEW

First Sierra Financial, Inc. provides small business financing solutions
utilizing an Internet-based technology platform. Our scaleable technology allows
small businesses nationwide to finance equipment and software purchases through
our Internet-based service, LeasingOnline. We have automated and integrated the
financing process, including the application, data-gathering, underwriting,
credit-scoring, funding, servicing and administration functions. Our technology
approach allows us to aggregate a large number of small business customers in a
highly efficient and cost-effective manner. We have approximately 59,000 active
small business customers throughout the United States and the United Kingdom.
Since our inception in 1994 to date, we have processed and received data from
approximately 150,000 small business applications and funded more than 78,000
small business financing transactions with a total volume in excess of $1.8
billion. The total principal amount of assets under management has grown from
approximately $5.8 million as of December 31, 1994 to approximately $1.0 billion
as of March 31, 1999.

KEY OPERATING DATA

<TABLE>
<S> <C>
SMALL BUSINESS APPLICATIONS RECEIVED

1994 338
1995 5,124
1996 16,117
1997 38,622
1998 47,263
3 Months 3/31/1998 10,162
3 Months 3/31/1999 19,321

TRANSACTION VOLUME
Dollars in Millions

1994 $4
1995 $65
1996 $179
1997 $383
1998 $897
3 Months 3/31/1998 $192
3 Months 3/31/1999 $273

ACTIVE CUSTOMERS (at period end)

1994 336
1995 3,453
1996 14,294
1997 30,675
1998 43,649
3 Months 3/31/1998 32,770
3 Months 3/31/1999 49,956

MANAGED ASSETS (at period end)
Dollars in Millions

1994 $41
1995 $77
1996 $217
1997 $504
1998 $893
3 Months 3/31/1998 $611
3 Months 3/31/1999 $1,041
</TABLE>

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<PAGE>
We have formed an electronic commerce network through a combination of our
strategic alliances with equipment vendors, independent finance companies and
lease brokers, and our automation technology. With our recent introduction of
LeasingOnline.com, small business customers can now obtain financing directly
from us via this web browser product instead of accessing our technology through
one of our vendor or broker partners. We believe that LeasingOnline.com will
enhance our ability to directly support small businesses with the financing they
need to grow, while providing us with additional direct links with our business
customers. Our electronic commerce network enables us to efficiently offer
financing solutions to a broad base of small business customers, while at the
same time providing us with a means of gathering valuable financial and
demographic data about these customers. We store this information in a data
warehouse, which includes detailed information on approximately 150,000 small
businesses. This allows us to mine the data and provides us with the opportunity
to cross-sell additional products and services to our small business customers.

ON-LINE FINANCIAL SERVICES FOR SMALL BUSINESSES

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<PAGE>
outside their local area, compared to approximately 40% by companies not engaged
in electronic commerce.

STRATEGY

UTILIZE OUR TECHNOLOGY PLATFORM TO PROVIDE ON-LINE FINANCING SOLUTIONS. We
have developed a proprietary technology platform that is scaleable and highly
efficient, enabling us to profitably serve the small business customer. Our
technology allows small businesses nationwide to finance equipment and software
purchases through our Internet-based service, LeasingOnline. Through
LeasingOnline, small businesses can complete an application and receive credit
approval on-line in as little as two minutes. We have automated and integrated
the financing process, including the application, data-gathering, underwriting,
credit-scoring, funding, service and administration functions. Our technology
also allows us to take advantage of the valuable information that we collect in
connection with our financing programs to develop and market additional products
and services that are tailored to the specific needs of our customers.

EXPAND OUR SMALL BUSINESS ELECTRONIC COMMERCE NETWORK. Unlike many
providers of financial services, we are able to aggregate a large number of
small business customers in an efficient and cost-effective manner. Currently,
we have customer relationships with approximately 59,000 small businesses
throughout the United States and in the United Kingdom. Since inception, we have
received financing applications from over 150,000 small businesses from which we
have gathered extensive financial and other information. We intend to continue
to expand our small business electronic commerce network by marketing automated
financing solutions to additional software and equipment vendors, independent
finance companies and lease brokers, each of whom acts as a source from which we
obtain access to small business customers and financing transactions. We also
plan to expand the marketing of our on-line financing solutions directly to
small business customers.

BROADEN OUR FINANCIAL PRODUCT OFFERINGS AND INCREASE CROSS-SELLING
OPPORTUNITIES. Capitalizing on our small business electronic commerce network
and our scaleable technology, we intend to broaden the range of financial
products and services that we offer to the small business market. We currently
plan to offer the following:

<TABLE>
<S> <C>
- - WORKING CAPITAL FINANCING. In April 1999, we announced that we will offer accounts
receivable financing on-line to our small business customers via our existing
e-commerce channels beginning in the second half of 1999.
</TABLE>

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<PAGE>
<TABLE>
<S> <C>
- - INTERNET BANKING. Also in April 1999, we announced that we intend to establish the
first Internet-based business-to-business bank, which will be devoted exclusively to
the banking and financing needs of small business customers. We believe that our
electronic commerce network will provide the bank with immediate, low-cost access to
a pool of small business customers. The bank will also allow us to diversify our
funding sources and lower our cost of funds. We have selected Security First
Technologies Corporation, or S1, as our technology partner in developing our Internet
bank.

- - INFORMATION SERVICES. In May 1999, we announced a further expansion of our
e-commerce offerings through a new partnership with Stax, Inc., a firm dedicated to
increasing the efficiency with which small businesses develop and acquire
intellectual capital. Through this partnership, we will offer three new on-line
services to our small business customers, consisting of electronic data gathering,
business research and professional staffing services.
</TABLE>

EXTEND OUR TECHNOLOGY ADVANTAGE. We believe that our technology
capabilities provide us with a competitive advantage in the small business
marketplace. We intend to continue to invest in our technology platform to
extend and strengthen our technology capabilities and product offerings.

In the future, we intend to continue to pursue opportunities to expand the
range of e-commerce products and services that we offer to small businesses,
with the goal of becoming a leading Internet-based business destination. These
products and services may include inventory financing, insurance products,
payroll management and bill payment. We believe that such additional products
and services will enable us to increase revenues through cross-selling
opportunities to our existing customer base as well as acquiring new customers.

END-TO-END AUTOMATION

Our system is a fully integrated solution that picks up a transaction at the
time it is initially submitted and fully automates each aspect of the process.
LeasingOnline is the entry point into our system. It includes an interactive
application process that provides our vendors and direct customers with a method
of electronically submitting lease transactions to us. It also provides our
vendors and direct customers with access to our data warehouse through the use
of web browser tools. Applications come from a variety of sources, including
directly from customers via our web site, LeasingOnline.com, extranet
connections with our vendor, broker and financial institution sources and
intranet connections to our sales offices.

Our credit processing module handles the transactional flow from the point
an application is entered into the system until it is funded. Once an
application enters the system through LeasingOnline, the credit processing
module automatically organizes the incoming data and pulls third-party data from
sources such as Dun & Bradstreet reports, state business listings and customer
credit reports. Using the collected information, the system automatically credit
scores the application. Applications satisfying prescribed credit-scoring
requirements are automatically approved for funding by the system in as little
as two minutes. Other applications are automatically forwarded for review and
approval by a credit officer. The time required for an underwriting decision
reviewed by a credit officer varies according to the nature, size and complexity
of each transaction, but approval is generally accomplished within one day.

Once funding is approved, the required financing documents are automatically
generated and delivered to the customer for signature. The signed agreement and
all related documents are scanned into our computer system. After the vendor has
verified to us that the financed equipment has been shipped and installed, our
technology automatically completes the funding, transaction accounting and
billing procedures. The resulting data is then archived in our data warehouse
and is available for future use and retrieval.

Our servicing module is the back-end servicing system that takes over the
processing of the financing contract once it is funded. Our servicing module
handles all aspects of accounting, document imaging, collections, customer
service invoicing and payment processing. Our servicing module also deposits
information into our data warehouse for future use and produces management
reports used in our day-to-

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<PAGE>
day operations. It is important to note that our servicing module is a paperless
system. All documents involved in the initial approval process are scanned and
held in our database and all reports produced by the system are deposited on a
server for use by the appropriate manager.

PROPRIETARY SMALL BUSINESS INFORMATION DATABASE

Small businesses that apply for financing provide us with a significant
amount of valuable financial and demographic data, which typically includes
personal identification information, personal and business credit reports,
business information including contact information (increasingly including
e-mail addresses), number of employees, industry, credit status and history,
financial information including bank accounts, deposit balances and revolving
lines of credit, invoices of products to be purchased, payment histories,
credit-risk scoring results and other information. We collect this data without
significant cost as a byproduct of the requests for financing that we receive
from small businesses. Since our inception in 1994, we have captured this
information in an electronic database which currently houses data on more than
150,000 small businesses. Our database allows us to sort and analyze data on our
small business customers. As a result, we have the ability to efficiently
cross-sell additional products and services to our customer base by analyzing
historical financial, purchasing and demographic data.

TECHNOLOGY

We believe that our state-of-the-art technology gives us a distinct
competitive advantage in serving the needs of small business customers. Our
software engineering team consists of 31 people with an average of over 8 years
of programming experience and a strong focus on web development. We combine our
internal expertise with advanced software and hardware and other
industry-standard technology to create a proprietary infrastructure that is
tailored to fit the needs of the small business market.

Our proprietary system provides the following benefits:

<TABLE>
<S> <C>
- - STATE-OF-THE-ART DESIGN METHODOLOGIES AND SYSTEM ARCHITECTURE. Our systems have been
built using an n-tier, component-driven architecture on a homogeneous platform. Our
applications utilize the best available current technologies which allow integration
with back-office systems. We deploy these applications across separate servers,
resulting in reduced application maintenance, improved access speeds and a high level
of scalability and application fail-over.

- - FLEXIBLE, COMPONENT-DRIVEN SYSTEMS. We use flexible, component-driven systems built
on an object-oriented and data-driven design. This gives us the ability to design and
easily integrate new products and services into our current systems. We have the
capability to develop and deploy modules that can be accessed from a variety of user
interfaces. This enables us to offer the same functionality to our customers through
our web interface as we offer our employees through in-house software systems.

- - HOMOGENOUS INFRASTRUCTURE. By using a homogenous infrastructure, we base our
products on standardized development tools to ensure interoperability between our
products and reduce the chance of incompatibilities. Our system architecture is
openly extensible and flexible, offering easy integration between our back-office
systems and the web store fronts of our national accounts.

- - INFORMATION-RICH ENVIRONMENT. Our sophisticated transaction monitoring tools give
our business partners and individual customers secure, real-time access to their
account information through our on-line systems. Our proprietary Internet
technologies create a direct link between our customers and our internal database,
giving us the ability to offer services that otherwise do not exist in our market.
</TABLE>

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<PAGE>
LEASINGONLINE.COM

We refer to the entry point to our end-to-end, fully automated technology
platform as LeasingOnline. In May 1999, we formally launched a customer
origination channel called LeasingOnline.com, our Internet site on the World
Wide Web dedicated to providing financing solutions to small businesses. Through
LeasingOnline.com, our small business customers can access our technology
platform through the Internet directly, instead of through one of our vendor or
broker partners. We believe that LeasingOnline.com will significantly accelerate
our customer growth.

Through LeasingOnline.com, our small business customers can become
"pre-approved" for a designated amount before making equipment purchases.
LeasingOnline.com is Internet-based and available to participants at any time.
Participants access LeasingOnline.com with a standard Internet connection, and
no special software or equipment is required. LeasingOnline.com automatically
generates a password for each participant to protect the sensitivity of the data
on the system.

CUSTOMERS

We currently have approximately 59,000 small business customers. Our
customers are typically privately-owned small businesses with total assets of
less than $20 million, and have generally been in business for at least two
years. They operate in a diverse range of industries including health care,
business services, restaurant, and auto services. Our customers are located in
all 50 states and in the United Kingdom, with concentrations in California,
Texas, Florida, New York and New Jersey. No other state or the United Kingdom
represents more than 5% of the total leases outstanding.

CUSTOMIZED FINANCING PROGRAMS

We provide customized financing programs designed to meet the differing
needs of the various equipment and software vendors, manufacturers, dealers,
financial institutions, independent lease brokers and end-user customers that
make up our small business electronic commerce network.

Our RETAIL PROGRAM focuses on developing formal and informal relationships
with manufacturers, dealers and other equipment vendors. Our network of vendors
is primarily made up of equipment retailers that refer to us their customers who
need financing to purchase equipment. As of March 31, 1999, we had active
relationships with approximately 2,800 vendors throughout the United States and
the United Kingdom. In addition, through our Retail program we provide small
business financing services directly to equipment users in conjunction with our
sales force or, increasingly in the future, through the Internet at
www.LeasingOnline.com.

Our PRIVATE LABEL PROGRAM is designed to provide lease financing to
established financing companies that have demonstrated the ability to originate
a large volume of financing transactions. These companies also follow prudent
underwriting guidelines established pursuant to our credit policy, provide us
with credit protection and provide servicing on an ongoing basis. The Private
Label program was developed to provide us with access to high volumes of small
business financing transactions eligible for the securitization market, while
minimizing our risk of loss. Our Private Label partners typically have included
middle-sized commercial banks and smaller finance companies.

Under our CAPTIVE FINANCE PROGRAM, we focus on cultivating partnerships with
large equipment vendors to help them develop, implement and administer a
customized, sales-oriented equipment lease financing program. In addition to
offering financing, we provide the training, sales tools, management, and often,
personnel, necessary to support a financing program. To make customer finance an
effective part of the vendors' sales efforts, our Captive Finance program helps
vendors build systems that are tailored to their specific business and their
customers. Our sales consultants with backgrounds in software and communications
technology help the vendors' sales representatives achieve their companies'
financial objectives.

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<PAGE>
Under our WHOLESALE PROGRAM, we finance equipment leases from brokers that
are unwilling or unable to provide the credit protection and perform the
servicing functions necessary to participate in our Private Label program. In a
typical Wholesale transaction, we originate transactions referred to us by a
broker and pay the broker a referral fee. We do not have recourse to the broker
on our Wholesale financing contracts, which means that we assume the risk of
loss in the event of default by the lessee. We perform all servicing functions
on our wholesale leases.

SALES AND MARKETING

Our marketing program includes the following key elements:

- Our vendor sales force consists of 226 people located in 25 regional sales
offices. This sales force markets automated financing solutions to
equipment and software vendors, manufacturers, retailers and financial
institutions that have access to large numbers of small business
customers, allowing us to leverage those vendors' branding and marketing
investments;

- Our direct sales force consists of approximately 112 people located in a
call center in California. This direct sales force targets our current
small business customers for additional business as well as new customers;
and

- In the future, we expect to increasingly target on-line portals, service
providers and retailers, through which we will make our services available
to their on-line base of small business customers.

FINANCING TERMS

The structure of our financing instruments and our credit policies and
procedures are designed to minimize risk. Substantially all of the equipment
leases that we acquire or originate are non-cancelable. During the term of the
lease, we generally receive scheduled payments sufficient, in the aggregate, to
cover our borrowing costs and the costs of the underlying equipment, and to
provide us with an appropriate profit margin. The initial non-cancelable term of
the lease is generally equal to or less than the equipment's estimated economic
life. A small portion of our leases provide us with additional revenues based on
the residual value of the equipment financed at the end of the initial term of
the lease. The initial terms of the leases in our portfolio generally range from
1 to 120 months, with a weighted average initial term of 61 months as of March
31, 1999.

The terms and conditions of all of our leases are substantially similar. In
most cases, the lessees are contractually 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.
Our standard lease forms provide that in the event of a default by the lessee,
we can require payment of liquidated damages and can seize and remove the
equipment for subsequent sale, refinancing or other disposal at our 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.

CREDIT POLICIES AND PROCEDURES

We believe our underwriting policies and procedures enable us to select
creditworthy small business customers and minimize the risks of delinquencies
and credit losses. We believe that our automated technology provides us with a
competitive advantage by enhancing the accuracy and consistency of our credit
decisions and lowering our costs in connection with such decisions. The nature
of our business requires two levels of review, the first focused on the
qualification of the financing source and the second focused on the small
business customer or ultimate end user of the financed equipment.

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<PAGE>
SOURCE QUALIFICATION. We perform a background investigation on the finance
company, financial institution or other financing source prior to accepting
financing applications through the source. This investigation includes
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.
Because participants in our Private Label program are required to provide us
with credit protection, we perform additional procedures to evaluate the
creditworthiness of our Private Label sources. These additional procedures may
include an examination of the source's financial statements and liquidity,
management team, staffing and servicing infrastructure and a review of the
source's ongoing support capabilities with respect to credit, documentation,
customer service and collections.

UNDERWRITING. Our credit processing module reviews the documents gathered
in connection with financing applications to confirm compliance with
underwriting guidelines pursuant to our credit policy. These underwriting
guidelines generally require a credit investigation of the small business
customer, including an analysis of the personal credit of the owner who
typically guarantees the financing arrangement, verification of time in business
and corporate name, Dun & Bradstreet reports if available and comparable bank
and trade references on larger exposures. Except for our Private Label program,
wherein the Private Label source performs some of these functions, all of these
functions are automated through our technology. See "End-to-End Automation."

In connection with our securitization program, financial guaranty insurers
and rating agencies perform extensive reviews of our underwriting standards and
procedures.

SERVICING AND ADMINISTRATION

The financial services market for small businesses is operationally
intensive due, in part, to the small average financing 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,
we utilize an administration system that is tailored to support our operational
needs. Our system handles application tracking, invoicing, payment processing,
automated collection queuing, portfolio evaluation, cash forecasting and report
preparation. The system is linked with a lockbox bank account for payment
processing and provides for direct withdrawal of payments as they become due.
Our technology also allows us to offer all of our customers direct access to
their account information and related documents over the Internet. The system's
paperless environment substantially enhances the efficiency with which we can
offer financing to our customers.

We retain the right to service all of the small business financing contracts
included in our securitization transactions. In return, we generally receive a
servicing fee of 0.50% per year on the outstanding principal balance of all
securitized financing contracts plus late fees, which we collect out of the
customers' monthly payments. We believe that by performing servicing functions
on our securitized financing contracts, we enhance our operating efficiencies
and provide an additional revenue stream. As of March 31, 1999, we serviced
financing contracts with an aggregate principal amount of $1.0 billion,
including $534.0 million aggregate principal amount of financing contracts
serviced for others.

COMPETITION

We compete in the small business financing market with a number of national,
regional and local finance companies. Our competitors also include those
equipment manufacturers that finance the sale or lease of their own products and
other traditional types of financial services companies, such as commercial
banks and savings and loan associations, all of which may provide financing for
equipment purchases. Our competitors include many larger, more established
companies that may have access to capital markets and to other funding sources
that may not be available to us or on better terms than we could receive. Many
of our competitors have substantially greater financial, marketing and
operational resources and longer operating histories than we do.

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<PAGE>
We believe that our experienced management team and sales force, our
advanced technology and our significant customer base allow us to aggressively
compete with larger, more established companies. We believe that the combination
of our advanced technology, our direct access to a large and growing customer
base and our ability to electronically gather, store and mine detailed financial
and demographic data on these customers, positions us to capitalize on the high
volume of repeat transactions that businesses conduct every day.

EMPLOYEES

As of March 31, 1999, we had 536 full time employees, of which 77 were
engaged in credit, collection and customer service activities, 89 were engaged
in general administration activities and 370 were engaged in marketing
activities. We believe that our relationship with our employees is good. None of
our employees are members of a collective bargaining unit.

In late 1997 and early 1998, in order to maximize administrative
efficiencies, we consolidated our underwriting, customer service and collection
operations at our headquarters in Houston, Texas. The technology enhancements we
gained from our acquisition of Nexsoft in April 1998 also allowed us to increase
the efficiency of our operations. The administrative efficiencies resulting from
these events have allowed us to reduce our workforce by approximately 19% since
September 30, 1998.

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<PAGE>
MANAGEMENT

Our Board of Directors currently consists of seven members. Our Restated
Certificate of Incorporation, as amended, divides our Board of Directors into
three classes of directors, as nearly equal in number as possible. At each
annual meeting of our 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 our stockholders to be held in 2001, the terms of the Class II directors
expire at the annual meeting of our stockholders to be held in 2002 and the
terms of the Class III directors expire at the annual meeting of our
stockholders to be held in 2000.

The following table sets forth the name, age and position(s) held with us of
each of our senior officers and directors:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) CLASS
- ------------------------------------ --- ----------------------------------------------------------- -------------
<S> <C> <C> <C>
Thomas J. Depping................... 41 Chairman of the Board, President and Chief Executive III
Officer

Sandy B. Ho......................... 40 Executive Vice President and Chief Financial Officer

Michael A. Sabel.................... 32 Executive Vice President-Business Development

David L. Pederson................... 40 Executive Vice President and Chief Information Officer

Greg E. McIntosh.................... 36 Executive Vice President of the Retail Division

Frederick M. Van Etten.............. 45 Executive Vice President of Marketing and Sales

Michael D. Wing..................... 46 Executive Vice President of Operations and Administration

Richard J. Campo(1)(2).............. 44 Director I

Robert Ted Enloe, III............... 60 Director II

Brian E. McManus(1)................. 59 Director II

Norman J. Metcalfe(1)(2)............ 56 Director II

David C. Shindeldecker.............. 50 Director I

David L. Solomon.................... 45 Director III
</TABLE>

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

(1) Member of the Compensation and Stock Option Committees of the Board of
Directors.

(2) Member of the Audit Committee of the Board of Directors.

Set forth below is a brief description of the business experience of our
senior officers and directors:

THOMAS J. DEPPING has served as our Chairman of the Board, President and
Chief Executive Officer since our inception in June 1994. Mr. Depping has over
17 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.

SANDY B. HO has served as our Executive Vice President, Chief Financial
Officer and Secretary 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 (which was
acquired by SunAmerica, Inc. in 1991). From 1991 through 1994, Ms. Ho served as
Vice President of SunAmerica Financial Resources and Managing Director of
SunAmerica Corporate Finance.

MICHAEL A. SABEL has served as our Executive Vice President-Business
Development since January 1999. From May 1998 through December 1998, Mr. Sabel
served as our Executive Vice President-

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<PAGE>
Global Mergers and Acquisitions. Since joining us in May 1998, Mr. Sabel has
also served as President of First Sierra International. From September 1994
until May 1998, Mr. Sabel was a member of the Investment Banking Group at
Friedman, Billings Ramsey & Co., Inc., most recently serving as a Managing
Director. From August 1991 until August 1994, Mr. Sabel was a member of Sandler,
O'Neil and Partners' Corporate Strategies Group, most recently as a Vice
President.

DAVID L. PEDERSON has served as our Executive Vice President and Chief
Information Officer since April 1998. Prior to joining us, Mr. Pederson was
President of Nexsoft, Inc., which he founded in 1993. Nexsoft designed and
developed our systems and communications network. Mr. Pederson has over 15 years
of experience in directing technology initiatives in the equipment leasing
industry.

GREG E. MCINTOSH has served as our Executive Vice President of the Retail
Division since September 1998. Mr. McIntosh was Senior Vice President of our
Retail Western Region from May 1997 to September 1998. From 1990 to May 1997,
Mr. McIntosh held various positions, including Chief Operating Officer, with
Heritage Credit Services, Inc., which we acquired in May of 1997.

FREDERICK M. VAN ETTEN has served as our Executive Vice President of
Marketing since September 1998. From January 1995 through August 1998, Mr. Van
Etten served as our Senior Vice President of Marketing. Mr. Van Etten has been
involved in all aspects of the commercial finance and equipment leasing business
for over 20 years. Prior to joining us, Mr. Van Etten was Managing Director of
SunAmerica Corporate Finance, a division of SunAmerica, Inc.

MICHAEL D. WING has served as our Executive Vice President of Operations and
Administration since September 1998. From May 1998 through August 1998, Mr. Wing
served us as a Senior Vice President. From March 1993 until April 1998, Mr. Wing
was the Founder and President of Oakmont Financial Services. Mr. Wing has over
26 years of experience in the financial services industry and 10 years
experience in the equipment leasing industry.

RICHARD J. CAMPO has served as a member of our Board of Directors since
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. Mr. Campo has over twenty years
of experience in the real estate industry.

ROBERT TED ENLOE, III has served as a member of our Board of Directors since
1998. Mr. Enloe has been Vice Chairman and a member of the Office of Chief
Executive of Compaq Computer Corporation since April 1999 and Managing General
Partner of Balquita Partners, Ltd., a real estate and securities investment
firm, since 1996. From 1975 to 1989, he served as President, and from 1992 to
1996 as Chief Executive Officer, of Liberte Investors. Mr. Enloe currently
serves as a director of Compaq Computer Corporation, a manufacturer of personal
computers and servers, Leggett & Platt, Inc., a diversified manufacturer of
foam, plastic, steel and wire components for the automotive, home furnishings
and office equipment industries and SIXX Holdings, Incorporated, a restaurant
company that operates the Patrizio Italian restaurants in Dallas, Texas and
Liberte Investors, Inc.

BRIAN E. MCMANUS has served as a member of our Board of Directors since
1998. Mr. McManus is an investment manager for Taylor & Co., an investment
consulting firm that provides services to entities associated with the Bass
Family of Fort Worth, Texas, including Portfolio LL Investors, L.P. ("PLL"),
which is a stockholder of the Company. Mr. McManus joined Taylor & Co. in 1990.

NORMAN J. METCALFE has served as a member of our Board of Directors since
1997. Mr. Metcalfe has been managing director of a private investment and
consulting firm since January 1977. From February 1993 to December 1996, Mr.
Metcalfe served as Vice Chairman and Chief Financial Officer for The Irvine
Company. Mr. Metcalfe serves as a director of Tejon Ranch Co.

DAVID C. SHINDELDECKER has served as a member of our Board of Directors
since 1994. Mr. Shindeldecker has been Chairman and Chief Executive Officer of
Northwest Bancorporation Inc.

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<PAGE>
since June 1988. He currently serves on the Board of Directors of Northwest
Bank, N.A. In addition, he currently serves as President and Co-Chief Executive
Officer of Redstone, Inc., general partner of Redstone Group, Ltd. ("Redstone"),
and has served as an executive officer and director of Redstone, Inc. since
1994.

DAVID L. SOLOMON has served as a member of our Board of Directors since
1994. Mr. Solomon has been 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 was a Senior
Vice President with Paine Webber from August 1994 through October 1998. From May
1985 to August 1994, Mr. Solomon was a Senior Vice President of Kidder, Peabody
& Co. Mr. Solomon serves on the Board of Directors of TeleServe, Inc., an
affiliate of Camden Property Trust.

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<PAGE>
UNDERWRITING

E*OFFERING Corp. is acting as representative of the underwriters. Subject to
the terms and conditions contained in a purchase agreement, we have agreed to
sell to each underwriter, and each underwriter severally has agreed to purchase
from us, the number of shares set forth opposite its name below. The
underwriters are committed to purchase and pay for all such shares if any are
purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
E*OFFERING Corp................................................................. 3,790,000
Allen & Company Incorporated.................................................... 45,000
PaineWebber Incorporated........................................................ 45,000
Prudential Securities Incorporated.............................................. 45,000
SG Cowen Securities Corporation................................................. 45,000
Brean Murray & Co., Inc......................................................... 10,000
Southwest Securities, Inc....................................................... 10,000
WR Hambrecht LLC................................................................ 10,000
------------
Total....................................................................... 4,000,000
------------
------------
</TABLE>

The representative has advised us that the underwriters propose to offer the
common stock to the public at the public offering price set forth on the cover
of this prospectus and to certain dealers at such price less a concession of not
in excess of $0.50 per share. The underwriters may allow, and such dealers may
reallow, a discount not in excess of $0.10 per share to certain other dealers.
After this offering, the public offering price, concession and discount may
change. No such change shall reduce the amount of proceeds to be received by us
as set forth on the cover page of this prospectus.

We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the price set forth on the cover page of this
prospectus, less the underwriting discount. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase from us approximately the same percentage of such additional shares
that the number of shares of common stock to be purchased by such underwriter as
shown in the above table represents as a percentage of the 4,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 4,000,000 shares are being
sold.

The underwriting agreement contains covenants of indemnity between the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

The following table shows the per share and total underwriting discount that
we will pay to the underwriters. The amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase 600,000 additional
shares of common stock.

<TABLE>
<CAPTION>
TOTAL
WITHOUT TOTAL
PER SHARE OPTION WITH OPTION
---------- ------------- -------------
<S> <C> <C> <C>
Public offering price.............................. $ 18.25 $ 73,000,000 $ 83,950,000
Underwriting discounts............................. $ 0.9125 $ 3,650,000 $ 4,197,500
Proceeds, before expenses, to us................... $ 17.3375 $ 69,350,000 $ 79,752,500
</TABLE>

We expect to incur expenses of approximately $1,000,000 in connection with
this offering.

The common stock is being offered by the underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain conditions by counsel to the underwriters and certain

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<PAGE>
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

Each of our senior officers and directors has agreed with the
representative, for a period of 90 days after the date of this prospectus (the
"Lock-Up Period"), subject to certain exceptions, not to sell any shares of
common stock or any securities convertible into or exchangeable for shares of
common stock owned by such holders, without the prior written consent of the
representative. However, the representative may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. We have agreed that during the Lock-Up Period, we will not,
subject to certain exceptions, without the prior written consent of the
representative, issue, sell, contract to sell or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable or exchangeable for shares
of common stock, other than the sale of our shares in this offering, the
issuance of common stock upon the exercise of outstanding options and warrants
and our issuance of options and stock under our 1997 Stock Option Plan.

The representative has advised us that, pursuant to Regulation M under the
Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representative to reclaim the selling concession otherwise accrued to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representative in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representative has advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

E*OFFERING Corp. was organized in January 1999. This offering represents the
first public offering of securities in which E*OFFERING Corp. has served as a
managing underwriter. Notwithstanding, the officers of E*OFFERING Corp. have
significant underwriting and public offering experience. E*OFFERING Corp. does
not have any material relationship with us or any of our officers, directors or
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered hereby
will be passed upon for us by the international law firm of McDermott, Will &
Emery. Certain legal matters relating to the shares of our common stock offered
hereby will be passed upon for the underwriters by Brobeck, Phleger & Harrison
LLP, Austin, Texas. Certain partners in the firm of McDermott, Will & Emery own
shares of our common stock.

EXPERTS

Our audited consolidated financial statements included in this prospectus
supplement and in the 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.

S-41
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FIRST SIERRA FINANCIAL, INC.--CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants................................................................. F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998............................................. F-3

Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998............... F-4

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1996, 1997 and 1998..... F-5

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998..... F-6

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998............... F-7

Notes to Consolidated Financial Statements............................................................... F-8

FIRST SIERRA FINANCIAL, INC.--UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet as of December 31, 1998 and March 31, 1999 (unaudited)........................ F-39

Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1999 (unaudited)..... F-40

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 1998 and 1999
(unaudited)............................................................................................ F-41

Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1999 (unaudited).... F-42

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1999 (unaudited)..... F-43

Notes to Unaudited Consolidated Financial Statements..................................................... F-44
</TABLE>

F-1
<PAGE>
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, 1997 and 1998, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
February 17, 1999

F-2
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
RESTATED
Lease financing receivables, net........................................................... $ 27,675 $ 337,162
Cash and cash equivalents.................................................................. 14,569 7,928
Other receivables.......................................................................... 4,087 11,596
Investment in trust certificates........................................................... 12,512 7,288
Marketable securities...................................................................... 4,223 5,042
Goodwill and other intangible assets, net.................................................. 20,162 39,202
Furniture and equipment, net............................................................... 5,801 9,909
Other assets............................................................................... 3,929 6,923
Current tax receivables.................................................................... -- 3,243
--------- ----------
Total assets........................................................................... $ 92,958 $ 428,293
--------- ----------
--------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Debt:
Nonrecourse debt......................................................................... $ -- $ 276,511
Other debt............................................................................... 14,937 23,026
Subordinated notes payable............................................................... 6,000 3,250
Other liabilities:
Accounts payable and accrued liabilities................................................. 12,670 23,283
Holdback reserve payable................................................................. 11,334 16,682
Income taxes payable..................................................................... 1,176 523
Deferred income taxes.................................................................... 3,614 501
--------- ----------
Total liabilities...................................................................... 49,731 343,776
--------- ----------
Redeemable preferred stock................................................................. 2,640 469

Stockholders' equity:
Common stock, $.01 par value, 25,000,000 and 100,000,000 shares authorized, respectively,
11,070,921 shares and 14,223,915 shares issued and outstanding, respectively........... 110 142
Additional paid-in capital............................................................... 27,543 76,855
Retained earnings........................................................................ 12,934 6,859
Accumulated other comprehensive income................................................... -- 192
--------- ----------
Total stockholders' equity............................................................. 40,587 84,048
--------- ----------
Total liabilities and stockholders' equity............................................. $ 92,958 $ 428,293
--------- ----------
--------- ----------
</TABLE>

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

F-3
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
RESTATED RESTATED
Gain on sale of lease financing receivables through securitization
transactions................................................................... $ 3,456 $ 18,164 $ 16,291
Gains from direct sales of lease financing receivables........................... 9,755 17,095 18,434
Interest income.................................................................. 6,387 9,193 17,315
Servicing income................................................................. 1,053 3,095 5,112
Other income..................................................................... 2,720 4,052 3,991
--------- --------- ---------
Total revenues................................................................. 23,371 51,599 61,143
--------- --------- ---------
Salaries and benefits............................................................ 6,799 15,554 29,509
Interest expense................................................................. 5,049 5,180 6,027
Provision for credit losses on lease financing receivables and investment in
trust certificates............................................................. 605 2,101 10,364
Depreciation and amortization.................................................... 469 1,525 3,752
Other general and administrative................................................. 6,254 11,595 14,173
Research and development costs of acquired companies............................. -- -- 2,550
Merger and acquisition expenses.................................................. -- -- 1,742
Relocation of operations center.................................................. -- -- 1,593
--------- --------- ---------
Total expenses................................................................. 19,176 35,955 69,710
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes........................ 4,195 15,644 (8,567)
Provision (benefit) for income taxes............................................. 932 5,107 (2,665)
--------- --------- ---------
Net income (loss)................................................................ $ 3,263 $ 10,537 $ (5,902)
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per common share, basic.......................................... $ 0.44 $ 1.11 $ (0.43)
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per common share, diluted........................................ $ 0.41 $ 1.03 $ (0.43)
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

F-4
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
RESTATED RESTATED
Net income (loss)................................................................. $ 3,263 $ 10,537 $ (5,902)
Other comprehensive income
Foreign currency translation adjustment, net of tax............................. -- -- 192
----------- --------- ---------
Comprehensive income (loss)....................................................... $ 3,263 $ 10,537 $ (5,710)
----------- --------- ---------
----------- --------- ---------
</TABLE>

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

F-5
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMU-
LATED
COMMON STOCK OTHER
------------------------- ADDITIONAL RETAINED COMPRE- TOTAL
NUMBER PAID-IN (DEFICIT) HENSIVE STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 (restated)........ 7,235,489 $ 72 $ 1,017 $ 754 $ -- $ 1,843
Net income................................. -- -- -- 3,263 -- 3,263
Issuance of common stock................... 854,736 8 139 -- -- 147
Repurchase and retirement of common
stock.................................... (628,426) (6) (354) -- -- (360)
Distribution to stockholders (Note 3)...... -- -- -- (496) -- (496)
Preferred stock dividends.................. -- -- -- (60) -- (60)
------------ ----- ----------- ----------- ----- ------------
Balance, December 31, 1996 (restated)........ 7,461,799 74 802 3,461 -- 4,337
Net income................................. -- -- -- 10,537 -- 10,537
Initial public offering of common stock.... 2,300,000 23 16,183 -- -- 16,206
Issuance of common stock in connection with
purchase business combinations........... 871,781 9 8,373 -- -- 8,382
Issuance of common stock in exchange for
warrants................................. 198,352 2 -- -- -- 2
Issuance of common stock in exchange for
preferred stock.......................... 238,989 2 2,185 -- -- 2,187
Distribution to stockholders (Note 3)...... (944) -- (944)
Preferred stock dividends.................. -- -- -- (120) -- (120)
------------ ----- ----------- ----------- ----- ------------
Balance, December 31, 1997 (restated)........ 11,070,921 110 27,543 12,934 -- 40,587
Net loss................................... -- -- -- (5,902) -- (5,902)
Public offering of common stock............ 2,567,084 26 39,644 -- -- 39,670
Issuance of common stock in exchange for
preferred stock.......................... 255,123 3 2,168 -- -- 2,171
Issuance of common stock for business
combinations............................. 293,949 3 7,205 148 -- 7,356
Exercise of options to purchase common
stock.................................... 36,838 -- 295 -- -- 295
Distribution to stockholders (Note 3)...... -- -- -- (255) -- (255)
Preferred stock dividends.................. -- -- -- (66) -- (66)
Foreign currency translation adjustment.... -- -- -- -- 192 192
------------ ----- ----------- ----------- ----- ------------
Balance, December 31, 1998................... 14,223,915 $ 142 $ 76,855 $ 6,859 $ 192 $ 84,048
------------ ----- ----------- ----------- ----- ------------
------------ ----- ----------- ----------- ----- ------------
</TABLE>

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

F-6
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
RESTATED RESTATED
Cash flows from operations:
Net income (loss)........................................................... $ 3,263 $ 10,537 $ (5,902)
Reconciliation of net income (loss) to cash provided by operations--
Depreciation and amortization............................................. 469 1,525 3,752
Provision for credit losses on lease financing receivables and investment
in trust certificates................................................... 605 2,101 10,364
Gain on sale of lease financing receivables............................... (13,211) (35,259) (34,725)
Funding of lease financing receivables.................................... (198,887) (398,833) (422,495)
Research and development costs of acquired companies...................... -- -- 2,550
Merger and acquisition expenses........................................... -- -- 1,742
Principal payments received on lease financing receivables................ 41,467 55,944 7,624
Proceeds from sales of lease financing receivables, net of trust
certificates and marketable securities retained......................... 167,234 442,707 446,496
Proceeds from (repayments of) warehouse credit facilities, net of
repayments (borrowings)................................................. (3,097) (83,775) (6,118)
Deferred income tax provision (benefit)................................... 792 3,923 (2,194)
Accumulated translation adjustment........................................ -- -- 192
Changes in assets and liabilities, net of effects from acquisitions:
Increase in other receivables......................................... -- -- (7,509)
Increase in other assets.............................................. (1,096) (519) (1,006)
Increase in accounts payable and accrued liabilities.................. 2,547 2,188 8,809
Increase in holdback reserve payable.................................. 4,554 6,283 5,348
Increase (decrease) in income taxes payable........................... -- 1,176 (5,616)
---------- ---------- ----------
Net cash provided by operations..................................... 4,640 7,998 1,312
---------- ---------- ----------
Cash flows from investing activities:
Funding of lease financing receivables, net of repayments................... -- -- (295,206)
Additions to furniture and equipment........................................ (1,334) (3,712) (5,292)
Cash used in acquisitions, net of cash acquired............................. (69) (4,535) (20,926)
Available-for-sale securities, net.......................................... -- (239) --
---------- ---------- ----------
Net cash used in investing activities............................... (1,403) (8,486) (321,424)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from (repayments of) warehouse credit facilities, net of
repayments (borrowings)............................................. -- -- 276,511
Repayment of subordinated notes payable, net of issuances............. -- (9,000) (2,750)
Advances under subordinated revolving credit facility................. -- 5,000 --
Proceeds from issuance of common stock and exercise of convertible
warrants............................................................ 147 16,208 39,965
Repurchase of common stock............................................ (360) -- --
Distributions to stockholders......................................... (496) (944) (255)
---------- ---------- ----------
Net cash provided by (used in) financing activities................... (709) 11,264 313,471
Net increase (decrease) in cash and cash equivalents.......................... 2,528 10,776 (6,641)
Cash and cash equivalents at beginning of period.............................. 1,265 3,793 14,569
---------- ---------- ----------
Cash and cash equivalents at end of period.................................... $ 3,793 $ 14,569 $ 7,928
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Income taxes paid........................................................... $ 27 $ 25 $ 2,727
---------- ---------- ----------
---------- ---------- ----------
Interest paid............................................................... $ 4,818 $ 4,916 $ 6,027
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

F-7
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

ORGANIZATION

First Sierra Financial, Inc. ("First Sierra" or the "Company") customizes
lease financing products and offers servicing, consulting and technology
solutions for commercial customers. The Company was formed in June 1994 to
acquire, originate, sell and service equipment leases. The underlying leases
financed by the Company relate to a wide range of equipment, including computers
and peripherals, software, medical, dental, diagnostic, telecommunications,
office, automotive servicing, hotel security, food services, tree service and
industrial. The equipment generally has a purchase price of less than $250,000
(with an average of approximately $20,000 for leases originated in 1997 and
$31,000 for leases originated in 1998). The Company initially funds the
acquisition or origination of its leases through its securitized funding
facilities and, from time to time depending on market conditions, securitizes
the leases in its portfolio that meet pre-established eligibility criteria by
packaging them into a pool and selling beneficial interests in the leases
through public offerings and private placement transactions.

Prior to July 1, 1998 the Company structured its securitization transactions
to meet the criteria for sales of lease financing receivables under generally
accepted accounting principles. Thus, for all securitizations completed prior to
such date, the Company recorded a gain on sale of lease financing receivables
when it included the receivables in a securitization. Effective as of July 1,
1998, the Company made a strategic decision to alter the structure of its future
securitization transactions so as to retain leases acquired and originated as
long-term investments on its balance sheet rather than selling such leases
through securitization transactions. As discussed further in Note 5, the Company
also modified the structure of its securitized funding facilities such that they
would be considered debt under generally accepted accounting principles. The
cash flows available to the Company, which are generally based on the advance
rates and discount rates set forth in the agreements, were unaffected by these
modifications. The primary effect from this move to emphasize portfolio lending
is a shift from the recognition of an immediate gain upon sale of the lease
receivables to the recognition of net interest margin over the lives of the
receivables.

The Company acquires and originates leases primarily through its Private
Label, Wholesale (formerly known as the Broker program), Retail (formerly known
as the Vendor program) and Captive Finance 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"), which is generally supported
by holdback reserves withheld from amounts paid to the Source upon purchase of
the lease, or a combination of the above. Leases acquired through the Wholesale,
Retail and Captive Finance programs are originated through relationships with
lease brokers, equipment vendors and individual lessees. In addition, the
Company has in the past generated, and may in the future generate, income
through the acquisition of lease portfolios and the subsequent sale of such
portfolios at a premium.

Since inception, the Company's underwriting, customer service and collection
staff had been located in its Jupiter, Florida office. In order to consolidate
its operations and maximize administrative efficiencies, the Company relocated
its operations center from Jupiter, Florida to its headquarters in Houston,
Texas. The relocation was commenced in late 1997 and completed in the first half
of 1998. The Company incurred approximately $1.6 million, or $.12 per diluted
share, of expenses in the year ended December 31, 1998, related to the
relocation.

F-8
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

During 1998, the Company consummated mergers with Independent Capital
Corporation, Integrated Lease Management, Inc., Vendor Leasing, Inc., TFS, Inc.,
21st Century Credit Leasing Services, Inc., and the Republic Group, Inc. which
were accounted for as poolings of interests (See Note 3). The accompanying
financial statements and the related footnotes for the years ended December 31,
1996 and 1997 have been restated to include the financial position and results
of operations of all material acquired companies.

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 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

On January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Under SFAS
No. 125, the Company recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes 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. 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

F-9
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
program and to decrease the allocated cost attributable to the residual interest
in securitized assets retained by the Company.

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, the trust certificate (as
defined herein) and the servicing asset on a relative fair value basis on the
date of sale. The fair value of the senior and subordinated securities which
have been sold 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, the subordinated securities which have been retained and the
servicing asset 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, 1998, the Company believes that it does not have any
material recourse obligations related to receivables sold through portfolio
sales.

MARKETABLE SECURITIES

The Company considers rated subordinated securities retained in
securitization transactions as trading securities under the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and
unrealized holding gains and losses are reflected currently in earnings. During
the years ended December 31, 1997 and 1998, the Company recognized gains of
$183,000 and $0, respectively, representing estimated appreciation in
subordinated securities held.

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. Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. The Company provided an allowance for
credit losses for leases which were considered impaired during the period from
the funding of the leases through the date such leases were sold through the
Company's securitization program. When the securitizations took place, the
Company reduced the allowance for credit losses for any provision previously
recorded for such leases. Any losses expected to be incurred on leases sold were
taken into consideration in determining the fair value of any Trust Certificates
retained and recourse obligations accrued, if any. Effective as of July 1, 1998,
the Company made a strategic decision to retain its leases as long-term
investments on its balance sheet. As a result, the Company now provides an
allowance for credit losses for leases which the Company considers impaired
based on management's assessment of the risks inherent in the lease receivables.
Management monitors the allowance on an ongoing basis based on its current
assessment of the risks and losses identified in the portfolio.

F-10
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
channels, and other factors. These estimates are reviewed periodically and as
write-downs become necessary, they are reported as reduction of earnings in the
period in which they become known.

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 Wholesale and Retail 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 Wholesale and Retail
programs for the years ended December 31, 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
PRIVATE WHOLESALE/
LABEL RETAIL(1) TOTAL(2)
----------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1996............................................ $ 314 $ 783 $ 1,097
Provision for credit losses........................................... 236 1,865 2,101
Charge-offs, net of recoveries on leases acquired or originated by the
Company............................................................. (99) (73) (172)
Reduction of allowance for leases sold(1)............................. (415) (2,178) (2,593)
Additional allowance related to leases acquired through business
combinations........................................................ -- 841 841
Charge-offs, net of recoveries on leases acquired through business
combinations........................................................ -- (293) (293)
----- ----------- ---------
Balance at December 31, 1997............................................ $ 36 $ 945 $ 981
----- ----------- ---------
----- ----------- ---------
Provision for credit losses........................................... 117 4,247 4,364
Charge-offs, net of recoveries on leases acquired or originated by the
Company............................................................. (29) (452) (481)
Reduction of allowance for leases sold(1)............................. (41) (1,590) (1,631)
Additional allowance related to leases acquired through business
combinations........................................................ -- 1,130 1,130
Recoveries, net of charge-offs, on leases acquired through business
combinations........................................................ -- 400 400
----- ----------- ---------
Balance at December 31, 1998............................................ $ 83 $ 4,680 $ 4,763
----- ----------- ---------
----- ----------- ---------
</TABLE>

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

(1) In connection with the sales of leases, the Company reduces the allowance
for credit losses for any provision previously recorded for such leases. Any
losses expected to be incurred on leases sold, as previously evidenced by
the allowance for credit losses, are taken into consideration in determining
the fair value of any Trust Certificates retained and recourse obligations
accrued, if any.

(2) The Company began its Captive Finance program in March 1998 through the
acquisition of Independent Lease Management, Inc. During 1998, the Company
originated $164.3 million of leases through its Captive Finance program, all
of which were sold to third parties at the time of originations, therefore
no allowance for credit losses were provided for leases originated under the
Captive Finance program

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 which is generally

F-11
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collateralized by 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, 1997 and 1998, the Company had holdback reserves of $11.3 million and $16.7
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, 1997 and
1998 (dollars in thousands):

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Leases outstanding under the Private Label program(1)................................ $ 331,219 $ 477,138
------------ ------------
------------ ------------
Recourse to Sources available........................................................ $ 33,351 $ 52,518
Ratio of recourse to total leases outstanding under the Private Label program(2)..... 10.07% 11.01%
------------ ------------
------------ ------------
Holdback reserves outstanding........................................................ $ 11,334 $ 16,682
------------ ------------
------------ ------------
Ratio of holdback reserves outstanding to total Leases outstanding under the Private
Label program(2)................................................................... 3.42% 3.50%
------------ ------------
------------ ------------
</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.

Management analyzes the collectibility of leases acquired or originated
pursuant to its Wholesale and Retail 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 Wholesale and Retail programs.
The Company began its Captive Finance program in March 1998 through the
acquisition of Independent Lease Management, Inc. During 1998, the Company
originated $164.3 million of leases through its Captive Finance program, all of
which were subsequently sold to third parties. In the future, the Company
intends to retain the majority of leases funded under its Captive Finance
program in its lease portfolio until they can be financed, securitized or
otherwise sold.

F-12
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following tables set forth certain information as of December 31, 1997
and 1998, 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>
1997(1)(2) 1998
---------------------------------------- ------------------------------------------
PRIVATE WHOLESALE/ PRIVATE WHOLESALE/
LABEL RETAIL TOTAL LABEL RETAIL TOTAL
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Gross leases
outstanding...... $ 422,290 $ 189,068 $ 611,358 $ 592,435 $ 478,139 $ 1,070,574
31-60 days past
due.............. 1.86% 1.90% 1.87% 1.36% 1.30% 1.33%
61-90 days past
due.............. 0.60% 0.50% 0.57% 0.63% 0.69% 0.65%
Over 90 days past
due.............. 0.38% 0.36% 0.37% 0.40% 0.81% 0.58%
------------ ------------ ------------ ------------ ------------ --------------
Total past due... 2.84% 2.76% 2.81% 2.39% 2.80% 2.56%
</TABLE>

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

(1) The Wholesale/Retail amounts as of December 31, 1997 include, and the
Private Label amounts as of December 31, 1997 exclude, approximately $14.9
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.

(2) The information with respect to leases held by the Company in its portfolio
or serviced by the Company as of December 31, 1997 excludes leases acquired
in connection with business combinations accounted for as poolings of
interests.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
-------- --------
<S> <C> <C>
Average balance of lease acquired outstanding during the
period(1)(2).............................................. $321,965 $653,852
-------- --------
-------- --------
Net losses experienced on leases acquired Private Label
program................................................... 222 505
Wholesale and Retail program................................ 362 3,776
-------- --------
Total..................................................... $ 584 $ 4,281
-------- --------
-------- --------
Net Loss Ratio as a percentage of average balance of leases
acquired outstanding...................................... 0.18% 0.65%
-------- --------
-------- --------
</TABLE>

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

(1) Excludes lease receivables and losses on lease receivables acquired through
business combinations.

(2) 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.

The Company may also acquire leases in conjunction with the acquisition of
other leasing companies. For acquisitions accounted for as purchases, management
initially records lease receivables at their estimated fair value at date of
acquisition. In determining such amount, management performs certain due

F-13
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
diligence procedures on the underwriting, collections and servicing functions of
the acquired company as well as evaluates the estimated realizability of the
portfolio of leases itself. During the years ended December 31, 1997 and 1998,
the Company acquired approximately $44.6 million and $17.9 million,
respectively, of leases through purchase business combinations. Such leases may
be retained by the Company, sold through its securitization program or sold
through portfolio sales. In conjunction with such sales, management takes into
consideration estimated losses to be incurred on these leases in determining the
estimated fair value of Trust Certificates retained in the securitization
transactions or recourse obligations assumed in portfolio sales, if any.

INCOME TAXES

The Company files a consolidated U.S. federal income tax return. The Company
recognizes deferred tax assets and liabilities 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.

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, 1998, 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, 1997 and 1998, accumulated
amortization related to amounts recorded for goodwill and amounts paid pursuant
to noncompete agreements was approximately $825,000 and $2.5 million,
respectively.

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. The Company generally obtains funding for lease acquisitions and
originations through borrowings from its warehouse credit facilities or sales to
its securitized funding facilities. Because the securitized funding facilities
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 borrowing
through

F-14
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the date the underlying 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 interest rates 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 an increase or a decrease in
interest expense is reported in the statement of operations. The terms of the
securitized funding facilities require the trust to enter into amortizing swap
transactions with notional principal amounts of at least 90% of the aggregate
principal amount of the senior certificates issued by the trust.

EARNINGS PER SHARE

Earnings per share are presented for all periods in accordance with SFAS No.
128, "Earnings per Share." SFAS No. 128 requires a dual presentation of basic
and diluted earnings per share. Basic earnings per share excludes dilution and
is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.

In periods where there exist a net loss rather than income available to
common shareholders, potentially dilutive securities or contracts are
antidilutive and, therefore, should not be considered. Accordingly, the Company
has not presented diluted loss per share for the year ended December 31, 1998.
Following is a reconciliation of the numerators and denominators used in
calculating basic and diluted earnings (loss) per share for the years ended
December 31, 1996, 1997 and 1998 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Earnings (loss) per common share, basic
Net income (loss)...................................................... $ 3,263 $ 10,537 $ (5,902)
Preferred stock dividends.............................................. 60 120 66
---------- ------------ ------------
Net income (loss) available to common stockholders..................... $ 3,203 $ 10,417 $ (5,968)
---------- ------------ ------------
---------- ------------ ------------
Weighted average shares outstanding.................................... 7,315,556 9,427,042 13,724,695
---------- ------------ ------------
---------- ------------ ------------
Earnings (loss) per common share, basic................................ $ .44 $ 1.11 $ (0.43)
---------- ------------ ------------
---------- ------------ ------------
Earnings (loss) per common share, diluted
Net income (loss)...................................................... $ 3,263 $ 10,537 $ (5,968)
---------- ------------ ------------
---------- ------------ ------------
Weighted average shares outstanding.................................... 7,315,556 9,427,042 13,724,695
Dilutive securities--
Options.............................................................. 243,558 249,943 --
Warrants............................................................. 198,307 78,452 --
Redeemable preferred stock........................................... 165,333 429,418 --
---------- ------------ ------------
Weighted average shares outstanding, diluted............................. 7,922,754 10,184,855 13,724,695
---------- ------------ ------------
---------- ------------ ------------
Earnings (loss) per common share, diluted................................ $ .41 $ 1.03 $ (0.43)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

F-15
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME

In January, 1998, the Company adopted the provision of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards of
reporting and display of comprehensive income and its components of net income
and "other comprehensive income" in a full set of general-purpose financial
statements. "Other comprehensive income" refers to revenues, expenses, gains and
losses that are not included in net income but rather are recorded directly in
stockholders' equity. The only component of comprehensive income other than net
income was foreign currency translation adjustments that commenced with the
acquisition of the Company's first foreign subsidiary in July 1998 (see Note 3).

FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's foreign subsidiaries were prepared
in their local currency and translated into U.S. dollars based on the current
exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations. Balance
sheet translation adjustments, net of related deferred taxes, are reflected as
other comprehensive income in the stockholders' equity section of the Company's
balance sheet and accordingly, have no impact on net income or loss.

STOCK COMPENSATION PLAN

SFAS No. 123, "Accounting for Stock Based Compensation", encourages
companies to adopt a fair value approach to valuing stock options that would
require compensation cost to be recognized based on the fair value of stock
options granted. The Company has elected, as permitted under SFAS No. 123, to
continue to follow the intrinsic value based method of accounting for stock
options consistent with Accounting Principles Board Opinion No. 25 (APB 25) and
to provide the pro forma net income and pro forma earnings per share disclosures
as if the fair value based method defined in SFAS No. 123 had been applied (see
Note 10). Under the intrinsic method, compensation expense is recorded on the
date of grant only if the market price of the underlying stock at such date
exceeded the exercise price.

RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
certain derivative instruments imbedded in other contracts, and hedging
activities. In particular, SFAS No. 133 requires a company to record every
derivative instrument on the company's balance sheet as either an asset or
liability measured at fair value. In addition, SFAS No. 133 requires that
changes in the fair value of a derivative be recognized currently in earnings
unless specific hedge accounting criteria are satisfied. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. Management has not quantified the effect that
SFAS No. 133 will have on the Company's financial statements, however, the
Statement could increase volatility in earnings and other comprehensive income.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
companies may adopt it on a going-forward basis as of the start of any fiscal
quarter beginning on or after June 16, 1998. SFAS No. 133 cannot be applied
retroactively. It must be applied to (a) derivative financial instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and at the
Company's election, before January 1, 1998). The

F-16
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company expects to adopt SFAS No. 133 on January 1, 2000 and is currently
evaluating the impact of such adoption on the consolidated financial statements.

RECLASSIFICATIONS

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

3. ACQUISITIONS

During the year ended December 31, 1997, the Company completed eight
acquisitions. Each of these has 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. The aggregate consideration for the eight
acquisitions completed in 1997 consisted of the payment of approximately $4.5
million in cash, net of cash acquired, the issuance of a subordinated note
payable in the amount of $1.0 million and the issuance of 871,781 shares of
common stock of the Company valued at approximately $8.4 million. Following is a
brief description of each acquisition consummated in 1997:

In February 1997, the Company acquired certain assets and liabilities of
Lease Pro, Inc. ("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.

In May 1997, the Company acquired the outstanding capital stock of Heritage
Credit Services, Inc. ("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.

In May 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.

In June 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.

In September 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.

In September 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.

In November 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.

F-17
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
In November 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.

During the year ended December 31, 1998, the Company completed eleven
acquisitions. Five of these acquisitions were accounted for using the purchase
method of accounting. The aggregate consideration in 1998 for acquisitions
accounted for as purchases consisted of approximately $15.8 million in cash, a
$2.3 million subordinated note payable and 293,949 shares of common stock of the
Company valued at approximately $6.5 million. Following is a brief description
of each purchase method acquisition completed in 1998:

In April 1998, the Company acquired OMNI Leasing, Inc. ("OMNI"). OMNI is
located in Hatfield, Pennsylvania and is active in the arbor, landscaping,
trucking, sanitation and automotive industries in the greater Pennsylvania area.

The Company also acquired Nexsoft, Inc. ("Nexsoft") of Denver, Colorado in
April 1998. Nexsoft is a software development firm specializing in software of
the equipment leasing industry. In connection with the acquisition of Nexsoft,
the purchase price was allocated to the net assets acquired and to purchased in-
process research and development (R&D). Purchased in-process R&D includes the
value of products in the development stage and not considered to have reached
technological feasibility. Accordingly, $2.6 million of the acquisition cost was
expensed during the quarter ended June 30, 1998.

In July 1998, the Company acquired Suffolk Street Group, PLC ("Suffolk") of
Devon, England. The acquisition of Suffolk provided the Company with its entry
into the European leasing market.

In August 1998, the Company acquired Booker Montague Leasing Limited
("Booker Montague") in Manchester, England. Booker Montague specializes in the
leasing of computers, telecommunications systems and other office equipment.

In October 1998, the Company acquired Titan Finance Limited ("Titan") of
Kent, England. Titan specializes in leasing computer hardware and software and
other information technology equipment.

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the significant businesses acquired during the
years ended December 31, 1997 and 1998 and accounted for the purchase method as
if the acquisitions had taken place at the beginning of 1997. Appropriate pro
forma 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>
UNAUDITED
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Revenues................................................................ $ 69,132 $ 68,448
Net income (loss) before income taxes................................... 14,789 (8,707)
Net income (loss)....................................................... 10,412 (6,204)
Earnings (loss) per common share, basic................................. 1.04 (0.45)
Earnings (loss) per common share, diluted............................... 1.00 (0.45)
</TABLE>

The six remaining acquisitions have been accounted for as poolings of
interests. The consolidated financial statements for the periods presented have
been restated to include the affects of all material

F-18
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
acquisitions accounted for as poolings of interests. The merger and acquisition
expenses reflected on the Consolidated Statement of Operations represent costs
incurred in connection with the acquisitions of the companies which were
accounted for as poolings of interests. Additionally, merger and acquisition
expenses include approximately $559,000 incurred in connection with the
terminated merger with Oliver-Allen Corporation. Distributions to stockholders
reflected on the Consolidated Statement of Stockholders' Equity represent
distributions to stockholders of the pooled companies for taxes due.

Acquisitions that have been accounted for as poolings of interests include
Independent Capital Corporation ("ICC"), Integrated Lease Management, Inc.
("ILM"), The Republic Group, Inc. ("Republic"), Vendor Leasing, Inc. ("Vendor
Leasing"), TFS, Inc. dba The Money Source and 21st Century Credit Leasing
Services, Inc. ("21st Century"). Following is a brief description of each
acquisition accounted for as a pooling of interest:

In March 1998, the Company completed its merger with ICC. ICC focuses on the
small ticket broker market in the northeastern region of the United States and
has offices in Bridgewater and Rutherford, New Jersey. Consideration consisted
of 272,727 shares of the Company's common stock.

In March 1998, the Company completed its merger with ILM. ILM is based in
San Jose, California and specializes in independent lease origination and
consulting services in the technology marketplace. Consideration consisted of
313,722 shares of the Company's common stock.

In April 1998, the Company completed its merger with Vendor Leasing. Vendor
Leasing is located in Roswell, Georgia and provides the Company with greater
penetration in the eastern United States. Consideration consisted of 18,954
shares of the Company's common stock.

In June 1998, the Company completed its merger with TFS, Inc. dba The Money
Source, a Redmond, Washington-based small ticket equipment leasing company.
Consideration consisted of 53,707 shares of the Company's common stock.

Also in June 1998, the Company completed its merger with 21st Century. 21st
Century is located in Naples, Florida and will be operated as a satellite office
of the Company's Ft. Lauderdale office. Consideration consisted of 6,060 shares
of the Company's common stock.

In July 1998, the Company completed its merger with Republic, an Anaheim,
California-based private company that originates leases of equipment for small
businesses in a broad range of industries. Republic has a specialization in
small business-direct telemarketing and a well-developed sales recruiting and
training program. Consideration for the transaction consisted of the issuance of
approximately 1.1 million shares of the Company's common stock. For additional
information regarding the Company's merger with Republic, reference is made to
the Company's Form 8-K as filed with the Securities and Exchange Commission on
August 10, 1998.

F-19
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
The separate results of First Sierra and each of the merged companies
through the date that the combinations were consummated is set forth in the
following table (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues
First Sierra................................................................... $ 11,364 $ 34,457 $ 53,216
ICC............................................................................ 2,431 3,484 664
ILM............................................................................ 2,415 3,182 899
TFS............................................................................ 767 829 --
Republic....................................................................... 6,394 9,647 6,364
--------- --------- ---------
Restated revenues............................................................ $ 23,371 $ 51,599 $ 61,143

Net income (loss)
First Sierra................................................................... $ 1,217 $ 7,655 $ (6,195)
ICC............................................................................ 436 931 176
ILM............................................................................ 191 (12) 106
TFS............................................................................ 56 1 --
Republic....................................................................... 1,363 1,962 11
--------- --------- ---------
Restated net income (loss)................................................... $ 3,263 $ 10,537 $ (5,902)
</TABLE>

4. LEASE FINANCING RECEIVABLES

The Company's lease financing receivable balance at December 31, 1997 and
1998, consists of the following (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Minimum lease payments................................................. $ 30,515 $ 417,116
Estimated unguaranteed residual value.................................. 6,270 4,120
Initial direct costs................................................... 131 6,729
Unearned income........................................................ (8,260) (86,040)
Allowance for credit losses............................................ (981) (4,763)
--------- ----------
Lease financing receivables, net..................................... $ 27,675 $ 337,162
--------- ----------
--------- ----------
</TABLE>

Future scheduled minimum payments on the Company's lease portfolio as of
December 31, 1998, are as follows (in thousands):

<TABLE>
<S> <C>
1999.............................................................. $ 115,134
2000.............................................................. 82,782
2001.............................................................. 75,201
2002.............................................................. 57,512
2003.............................................................. 43,689
Thereafter........................................................ 42,798
---------
Total minimum payments.......................................... $ 417,116
---------
---------
</TABLE>

F-20
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LEASE FINANCING RECEIVABLES (CONTINUED)
At December 31, 1998, the weighted average remaining life of leases in the
Company's lease portfolio is 29 months and the weighted average implicit rate of
interest is 11.05%.

5. SECURITIZATION PROGRAM

The Company initially funds the acquisition or origination of its leases
from working capital or through its securitized funding facilities. From time to
time, depending on market conditions, the Company securitized the leases in its
portfolio that meet pre-established eligibility criteria by packaging them into
a pool and selling beneficial interests in the leases through public offerings
and private placement transactions.

In these securitization transactions, the Company transfers a pool of leases
to a wholly-owned, bankruptcy remote, special purpose subsidiary. This
subsidiary in turn simultaneously transfers its interest in the leases to a
trust, or trusts, which issues beneficial interests in the leases in the form of
senior and subordinated securities which may include certificates of beneficial
interest or notes. These securitization transactions typically employ a
multi-tranched structure of either beneficial interests or notes. The Company
generally retains the right to receive any excess cash flows of the trust (the
"Trust Certificate"). The Company also retains the right to service leases sold
through its securitization program and receives a fee for doing so.

Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. Gain on sale of lease receivables was
recorded based upon the excess of the sales proceeds received on the
certificates or notes over the book balance calculated based on the relative
fair value discussed in Note 2. The Company recorded a servicing asset
representing the excess of the estimated servicing revenues to be received over
the Company's costs to be incurred. As of December 31, 1997 and 1998, the
balances of servicing assets outstanding were $0.8 million and $1.3 million,
respectively. The amount of the Trust Certificates was amortized over the
estimated lives of the underlying leases using the interest method. The cash
flows allocable to the Trust Certificate were calculated as the difference
between (a) cash flows received from the leases and (b) the sum, as applicable,
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, as the case may be. 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 defaults, recoveries and other
factors which may affect the cash flows to the holder of the Trust Certificate.
For purposes of calculating the estimated fair value of the Trust Certificates
as of the date of sale or transfer of the leases to the trusts, and on an
ongoing basis, management has used a discount rate of 11%. Management has also
used a range of expected losses arising from defaults, net of recoveries, of
0.00% to 9.00% per annum depending on the level of recourse available, if any,
from the lease sources, and the program under which the lease was acquired or
originated. Other factors, such as prepayments, do not have a significant impact
on the gain on sale calculation due to the non-cancelable and full-payout nature
of the underlying leases. 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 reductions in recoveries below, the Company's estimates could 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

F-21
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. SECURITIZATION PROGRAM (CONTINUED)
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.

Effective as of July 1, 1998, the Company made a strategic decision to alter
the structure of its future securitization transactions so as to retain the
leases on its balance sheet. With respect to all securitization transactions
completed subsequent to such change, the Company finances leases through
beneficial interests or notes issued by the trust, retains the right to receive
any excess cash flows allocable to the Trust Certificates, and continues to
retain the right to service leases financed through its securitization program
and receive a servicing fee for doing so. As these securitization transactions
meet the criteria for financing of lease receivables under generally accepted
accounting principles, the Company records as financings the amount of proceeds
received related to the issuance of beneficial interests or notes by the trust.
Interest expense is recorded based on interest accrued on each class of
certificates or notes financed by the Company. Any cash flow allocable to the
Trust Certificates and servicing fees received are recorded as reduction of
interest expense.

These securitization transactions are structured such that once the leases
are transferred from the Company to the special purpose subsidiary and
ultimately to the trust, the amount of the certificates of beneficial interest
or notes purchased or financed by investors in such securities is nonrecourse to
the Company. Investors purchasing the certificates of beneficial interests or
notes look solely to the defined cash flow from leases included in the special
purpose entity for repayment of principal and interest associated with their
particular investment.

SECURITIZED FUNDING FACILITIES

As of December 31, 1998, the Company maintained five securitized funding
facilities (the "Securitized Funding Facilities"). In March 1997, the Company
entered into a facility with Prudential (the "Prudential Facility"), in June
1997 the Company entered into two separate facilities with First Union (the
"First Union Facilities"), in March 1998 the Company entered into a facility
with PNC Bank (the "PNC Facility"), and in December 1998 the Company entered
into a facility with Bank of Montreal (the "Bank of Montreal Facility"). As of
December 31, 1998, the total amount available under the Prudential Facility was
$36.6 million which was the amount outstanding, the total amount available under
the First Union Facilities was $200 million, the total amount available under
the PNC Facility was $200 million, and the total amount available under the Bank
of Montreal Facility was $150 million. The structure of all of the facilities is
essentially the same. The facilities allow the Company to transfer and sell
equipment lease receivables first to a bankruptcy remote special purpose entity
and then to a trust. The trust issues either certificates or notes to the senior
investor, and a Certificate of Seller's Interest, which represents a subordinate
beneficial interest in the Trust, to the bankruptcy remote special purpose
entity. The senior certificate or note is owned by either Prudential, First
Union, PNC, or Bank of Montreal, or its assignees, as the case may be, and the
residual certificate, or Certificate of Seller's Interest, is owned by the
Company's special purpose subsidiary. Prior to July 1, 1998, the Company
structured securitization transactions under its securitized funding facilities
as sales of lease financing receivables. Effective July 1, 1998, the Company
made a strategic decision to alter the structure of its securitized funding
facilities so as to retain its lease receivables on balance sheet and record the
amount of certificates or notes issued to senior investors as financings.

The amount outstanding at any time on any of the certificates or notes
issued to senior investors in the securitized funding facilities is nonrecourse
to Company. Principal and interest which is due any investor

F-22
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. SECURITIZATION PROGRAM (CONTINUED)
under the certificates or notes is paid to them based on the available cashflow
from only the leases included in the particular facility. The Company has no
obligation to ensure that the investor who holds the certificate or note
receives the full amount of principal and interest due.

As of December 31, 1998, the amount of Prudential's investment in the senior
certificate was $36.6 million, of which $4.6 million was financed after July 1,
1998 under the revised structure and thus was recorded as non-recourse debt; the
amount of First Union's investment in the senior certificate was $128.8 million,
of which $86.5 million was financed after July 1, 1998 and thus was recorded as
non-recourse debt. The amount of PNC's investment was $200 million, of which
$82.7 million was financed after July 1, 1998 and thus was recorded as
non-recourse debt; the amount of Bank of Montreal's investment was $0.

The Securitized Funding Facilities provide several significant advantages to
the Company, including favorable interest rates and 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 Securitized Funding
Facilities may be transferred by the trust to other trusts in which the Company
has a minority interest.

SECURITIZATION TRANSACTIONS

As of December 31, 1998 the Company had completed four permanent
securitization transactions involving the issuance of $627 million of senior and
subordinate securities. The Series 1996-1 and 1996-2 transactions were completed
in 1996, the Series 1997-1 transaction was completed in September 1997 and the
Series 1998-1 transaction was completed in December 1998. 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 & Phelps Credit Rating Co., and was retained by the Company for future sale
in the private market.

In connection with the Series 1998-1 transaction, four tranches of Class A
notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch IBCA, Inc. were sold in
the public market. The Class B-1 and Class B-2 notes were rated BBB and BB by
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., and were sold and financed
on a non-recourse basis in the private market. A Class B note was rated B by
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc. and was retained by the
Company for future sale in the private market.

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, approximately 96.0% of the present value of
the remaining scheduled payments of the equipment leases

F-23
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. SECURITIZATION PROGRAM (CONTINUED)
included in its Series 1997-1 securitization, and 95.0% of the present value of
the remaining scheduled payments in its Series 1998-1 securitization.

Prior to July 1, 1998, the Company structured its securitization
transactions as sales of lease financing receivables. Consistent with the
Company's decision, effective July 1, 1998 to retain securitized leases on its
balance sheet, the Series 1998-1 securitization was structured so that all lease
receivables sold or financed in this series which were originated after July 1,
1998 were retained on the Company's balance sheet and the related senior and
subordinated notes financed were recorded as nonrecourse debt. As of December
31, 1998, the amount of nonrecourse debt outstanding under the Series 1998-1
securitization was $101.2 million.

HEDGING STRATEGY

The implicit yield to the Company on all of 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 lease. When the Company acquires or originates
leases, it bases its pricing in part 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 leases through securitization or
otherwise. Increases in interest rates between the time the leases are acquired
or originated by the Company and the time they are securitized or otherwise sold
could narrow or eliminate the spread, or result in a negative spread. The
Company has adopted a policy that is designed to provide a level of protection
against the volatility of interest rate movement between the time the Company
acquires or originates a lease and the time such lease is sold or financed
through a securitization or otherwise sold. Such hedging arrangements generally
are implemented when the Company's portfolio of unhedged leases reaches $10.0
million. Such hedges typically match the amount of debt the Company anticipates
it will fund with respect to such leases. At certain times, changes in the
interest rate market present favorable conditions to hedge against future
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.

F-24
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT

Total Debt consisted of the following as of December 31, 1997 and 1998 (in
thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Nonrecourse Debt:
Securitized Warehouse Facilities:
First Union National Bank.......................................... -- $ 86,467
PNC Bank........................................................... -- 82,720
Prudential Securities Credit Corporation........................... -- 4,580
--------- ----------
Total Securitized Warehouse Facilities............................... -- 173,767
Securitized Transactions:
Series 1998-1 securitization....................................... -- 101,247
Other nonrecourse Debt............................................... -- 1,497
--------- ----------
Total Nonrecourse Debt................................................. -- 276,511
Other Debt:............................................................ 14,937 23,026
--------- ----------
Total Debt............................................................. 14,937 299,537
Subordinated Notes Payable............................................. 6,000 3,250
--------- ----------
Total Debt............................................................. $ 20,937 $ 302,787
--------- ----------
--------- ----------
</TABLE>

The Company classifies its indebtedness as either nonrecourse debt or debt
based on the structure of the debt instrument that defines the Company's
obligations. Nonrecourse debt includes amounts outstanding related to leases
included in Securitized Funding Facilities, securitized transactions, or
individual or groups of leases funded under nonrecourse funding arrangements
with specific financing sources. Amounts outstanding in these instances are
classified as nonrecourse debt because the Company has no obligation to ensure
that investors or funding sources receive the full amount of principal and
interest which may be due to them under their funding arrangement. In these
instances, the investors or financing sources may only look to specific leases
and the associated cashflows for the ultimate repayment of amounts due to them.
In the event the cashflow associated with specific leases funded under
circumstances are insufficient to fully repay amounts due, the investor or
financing source withstands the full risk of loss. Debt includes amounts due to
financing sources for which the Company is responsible for full repayment of
principal and interest.

SECURITIZED FUNDING FACILITIES

As of December 31, 1998, the Company maintained five securitized warehouse
facilities. In March 1997 the Company entered into the Prudential Facility, in
June 1997 the Company entered into two First Union Facilities, in March 1998 the
Company entered into the PNC Facility, and in December 1998 the Company entered
into the Bank of Montreal Facility. As of December 31, 1998, the total amount
available under the Prudential Facility was equal to the amount outstanding, the
total amount available under the First Union Facilities was $200 million, the
total amount available under the PNC Facility was $200 million, and the total
amount available under the Bank of Montreal Facility was $150 million.

As of December 31, 1998, the amount of nonrecourse debt outstanding under
the First Union, PNC, Prudential and Bank of Montreal facilities was $86.5
million, $82.7 million, $4.6 million and $0 respectively.

F-25
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)
SECURITIZATION TRANSACTIONS

Effective July 1, 1998, consistent with the Company's strategy to retain its
leases on balance sheet, senior and subordinated notes financed related to lease
receivables originated after July 1, 1998 under the Company's Series 1998-1
securitization were recorded as nonrecourse debts. As of December 31, 1998, the
amount of nonrecourse debt outstanding under the Series 1998-1 securitization
was $101.2 million.

SUBORDINATED NOTES

In May 1997, the Company entered into a $5.0 million subordinated revolving
credit facility. Advances under the facility bear interest at 11.00% per annum.
As of December 31, 1998, no advances were outstanding under such facility.

In connection with the acquisition of Heritage in May 1997, the Company
issued a $1.0 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 5 years.

In connection with the acquisition of Titan in October 1998, the Company
issued $2.3 million in subordinated notes payable as consideration for the
transaction. The notes bear interest at 6.0% payable semi-annually and mature
October 1, 2003. The notes will automatically convert into shares of the
Company's common stock when the average trading price of the common stock for
the twenty days preceding conversion equals or exceeds $20.00. Upon conversion,
the Company will issue one share of common stock for each $20.00 of outstanding
principal amount of the notes.

INTEREST RATE SWAP AGREEMENTS

Pursuant to the terms and conditions of the Company's Securitized Funding
Facilities, the Company is required to maintain a specified level of interest
rate swaps relative to the amount outstanding under the facility. The hedged
amount, or notional amount of the hedge, is required to be no less than 90% but
no greater than 100% of the amount outstanding. As of December 31, 1998, the
Company was in compliance with such hedging requirement.

At December 31, 1997 and 1998, the Company had entered into interest rate
swap agreements with aggregate notional amounts of $9.8 million and $166.2
million, respectively. These interest rate swap agreements effectively modify
the interest rate specific to each facility from a floating rate of LIBOR or
Commercial Paper rates, as the case may be, to a fixed rate and the notional
amount amortizes in proportion to the leases included in each facility. The
fixed rates associated with these interest rate swap agreements as of December
31, 1997 and 1998 range from 5.83% to 6.29% and 4.79% to 6.135%, respectively.
The counterparties to the Company's swap agreements were First Union National
Bank of North Carolina, Prudential Global Funding, Inc., and Merrill Lynch.

F-26
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. FURNITURE AND EQUIPMENT

The following is a summary of furniture and equipment as of December 31,
1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1997 1998 LIFE
--------- --------- ----------
<S> <C> <C> <C>
Buildings................................................... $ 1,102 $ 1,929 26 years
Furniture and fixtures...................................... 1,992 3,115 7 years
Computer and office equipment............................... 3,380 6,126 3-5 years
Leasehold improvements and other............................ 700 1,910 3 years
--------- ---------
7,174 13,080
Accumulated depreciation.................................... (1,373) (3,171)
--------- ---------
$ 5,801 $ 9,909
--------- ---------
--------- ---------
</TABLE>

8. INCOME TAXES

The temporary differences, which give rise to net deferred tax assets and
liabilities are as follows at December 31, 1997 and 1998, respectively (in
thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Accruals and reserves not yet deductible................................. $ 2,702 $ 202
Depreciation and amortization............................................ (414) (6,892)
Cash to accrual adjustment............................................... 220 120
Net operating loss carryforward.......................................... 605 1,030
Securitization transactions.............................................. (6,593) 6,290
Other.................................................................... (134) (1,251)
--------- ---------
Total deferred income tax assets (liabilities)......................... $ (3,614) $ (501)
--------- ---------
--------- ---------
</TABLE>

F-27
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes for the years ended December 31,
1996, 1997 and 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current--
Federal......................................................... $ 107 $ 1,080 $ (751)
State........................................................... 33 134 (77)
Foreign......................................................... -- -- 357
--------- --------- ---------
$ 140 $ 1,214 $ (471)
--------- --------- ---------
--------- --------- ---------

Deferred--
Federal......................................................... $ 722 $ 3,581 $ (1,950)
State........................................................... 70 312 (201)
Foreign......................................................... -- -- (43)
--------- --------- ---------
$ 792 $ 3,893 $ (2,194)
--------- --------- ---------
--------- --------- ---------
Total provision (benefit)..................................... $ 932 $ 5,107 $ (2,665)
--------- --------- ---------
--------- --------- ---------
</TABLE>

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $0.7 million at December 31, 1998. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the foreign country.

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>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Securitization transactions....................................... $ 993 $ 3,830 $ (7,246)
Accruals not deductible until paid................................ 111 (615) 618
Depreciation and amortization..................................... -- 437 5,161
Cash to accrual adjustment........................................ (56) 110 106
Net operating loss carryforward................................... (59) 131 (1,030)
Other............................................................. (197) -- 197
--------- --------- ---------
Total deferred provision (benefit).............................. $ 792 $ 3,893 $ (2,194)
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-28
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)
The following is a reconciliation between the effective income tax rate and
the applicable statutory federal income tax rate for the years ended December
31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate...................................... 34.0% 34.0% (34.0)%
State income taxes, net of federal benefit.................. 3.2 3.2 (3.5)%
Earnings of subsidiary not subject to federal income
tax(1).................................................... (16.9) (7.2) --
Foreign taxes............................................... -- -- 1.0%
Non-deductible expenses and other........................... 1.9 2.6 5.4%
----- --- -----
Effective income tax (benefit) rate....................... 22.2% 32.6% (31.1)%
----- --- -----
----- --- -----
</TABLE>

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

(1) The Company acquired one company in March 1998 which has been accounted for
as a pooling of interest which is not subject to federal income taxes. As
discussed in Note 2, these financial statements have been restated to
reflect the results of operations of the merged companies.

9. REDEEMABLE PREFERRED STOCK

As of December 31, 1998, 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, 1997, 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 a redemption price of $46.54607 per
share.

During 1998, 46,640 shares of Series A Preferred Stock were converted into
255,123 shares of Common Stock. Consequently, at December 31, 1998, 10,078
shares of Series A Preferred Stock were outstanding.

At December 31, 1996, 43,691 shares of Series B Convertible Preferred Stock
(the "Series B Preferred Stock") were issued. The Series B Preferred Stock was
subject to an escrow agreement which provided that 21,845 shares would be
released if the CCL division of the Company met or exceeded certain targeted
income amounts set forth in the escrow agreement. In connection with a
restructuring of the Company's operational divisions during 1997, the shares
previously held under escrow were released and the Company recorded an
adjustment to the purchase price of CCL of $937,000 in 1997. In December 1997,
all outstanding shares of the Series B Preferred Stock were converted into
238,989 shares of Common Stock and a cumulative dividend of $29,000 was paid to
the holder of such stock.

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 Company, were given to the
holders of the preferred stock and could be drawn upon if certain events

F-29
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. REDEEMABLE PREFERRED STOCK (CONTINUED)
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, 1997, all letters of credit had been returned to
the financial institution and cancelled.

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 the then outstanding preferred stock. The Series A
Preferred Stock has been reflected as Redeemable Preferred Stock in the
accompanying financial statements.

STOCKHOLDER RIGHTS PLAN

On December 15, 1998, the Company's Board of Directors declared a dividend
distribution of one preferred stock purchase right (a "Right") for each share of
the Company's Common Stock. The dividend was payable on December 30, 1998 to
stockholders of record at the close of business on December 28, 1998 (the
"Record Date"). Each Right generally entitles the registered holder to purchase
from the Company one one-hundredth of a share of the Company's Junior Preferred
Stock, Series C, par value $0.01 per share (the "Preferred Stock"), at a
purchase price of $65.25 per one one-hundredth of a share (the "Purchase
Price"). The description and terms of the Rights are set forth in the Rights
Agreement, dated as of December 30, 1998 (the "Rights Agreement"), between the
Company and Harris Trust and Savings Bank as Rights Agent.

The Rights will be evidenced by Common Stock certificates and not separate
certificates until the earliest of (i) ten days following the date of public
disclosure that a person or group (the "Acquiring Person") has acquired or
obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of the Common Stock, or (ii) ten business days following the
commencement or disclosure of an intention to commence a tender offer or
exchange offer by a person or group other than the Company and certain related
entities if, upon consummation of such offer, such person or group would
beneficially own 15% or more of the outstanding shares of Common Stock (the
earlier of such dates being the "Distribution Date"). Until the Distribution
Date (or earlier redemption or expiration of the Rights), the transfer of Common
Stock will also constitute transfer of the associated Rights. The Rights will
expire at the close of business on December 30, 2008, unless earlier redeemed by
the Company.

If a person acquires beneficial ownership of 20% or more of the Common
Stock, or if the Company is the surviving corporation in a merger with an
Acquiring Person and the Common Stock remains outstanding and unchanged, the
Rights will "flip in" and entitle each holder of a Right, with certain
exceptions, to purchase (upon exercise at the then-current market price) that
number of shares of Common Stock having a market value of two times the Purchase
Price.

In the event that, following the Distribution Date, the Company is acquired
in a merger or other business combination in which the Common Stock does not
remain outstanding or is changed or 50% or more of the Company's consolidated
assets or earning power is sold, leased, exchanged, or otherwise transferred or
disposed of (whether in one transaction or a series of related transactions),
the Rights will "flip over" and entitle each holder of a Right to purchase, upon
the exercise of the Right at the then-current Purchase Price, that number of
shares of common stock of the acquiring company (or, in certain circumstances,
one of its affiliates) which at the time of the transaction would have a market
value of two times the Purchase Price.

F-30
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. REDEEMABLE PREFERRED STOCK (CONTINUED)
Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share, but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Common
Stock, if greater. In the event of liquidation, the holders of the Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100 per
share, but will be entitled to an aggregate payment of 100 times the payment
made per share of Common Stock, if greater. In the event of any merger or other
business combination in which Common Stock is exchanged, each share of Preferred
Stock will be entitled to receive 100 times the amount received per share of
Common Stock. Customary anti-dilution provisions protect these rights.

10. STOCKHOLDERS' EQUITY

COMMON STOCK

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 1995, the Company issued warrants to purchase a total of 198,397
shares of the Company's common stock to First Union in connection with a
warehouse credit facility entered into with First Union at such time. The
exercise price of the warrants was $.0018 per share which approximated the
estimated fair value of the underlying common stock at the date of issuance of
the warrants. All warrants were exercised in May 1997.

In May 1996, the Company acquired 628,426 shares of its common stock from a
stockholder for $360,000. Additionally, the Company 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.

In February 1997, the Company increased the authorized shares of common
stock of the Company to 25,000,000 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.

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
Offering"). In June 1997, the underwriters of the Company's offering exercised
their over-allotment option and purchased an additional 300,000 shares of Common
Stock of the Company. The Company received net proceeds of approximately $16.2
million from the Offering and the exercise of the underwriters' option related
thereto. The proceeds therefrom were used to partially fund an acquisition which
closed concurrently with the Offering, to repay in full a subordinated note
payable outstanding at such time and for general corporate purposes.

In February and March 1998, the Company sold an aggregate amount of
2,567,084 shares of its Common Stock, including the exercise of the
underwriters' over-allotment option, in a secondary public offering raising net
proceeds to the Company of approximately $39.7 million, after deducting
underwriting discounts and commissions and offering expenses. Approximately $5.0
million of the net proceeds were

F-31
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCKHOLDERS' EQUITY (CONTINUED)
used to repay the outstanding balance under the Subordinated Revolving Credit
Facility, while the remaining funds have been or will be used for other general
corporate purposes, including acquisitions and the repayment of other borrowings
of the Company.

In August 1998, the Company increased the authorized shares of Common Stock
of the Company to 100,000,000 shares.

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 and
2,844,783 shares, respectively of Common Stock have been reserved for issuance
pursuant to the 1997 Stock Option Plan as of December 31, 1997 and 1998,
respectively.

As permitted by SFAS No. 123, the Company accounts for the 1997 Stock Option
Plan under APB Opinion No. 25, under which no compensation cost has been
recognized. The Company has elected to provide the pro forma disclosures, as
permitted under the provisions of SFAS No. 123. Had the Company determined
compensation costs based on the fair value at the grant dates for its stock
options under SFAS No. 123, the Company's net income (loss) would have been
reduced to the following pro forma amounts (dollars in thousands, except per
share amounts):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net income (loss)
As reported............................................................ $ 10,537 $ (5,902)
Pro forma.............................................................. 10,204 (8,489)

Net income (loss) per common share:
As reported--basic..................................................... $ 1.11 $ (0.43)
As reported--diluted................................................... $ 1.03 $ (0.43)
Pro forma--basic....................................................... $ 1.07 $ (0.62)
Pro forma--diluted..................................................... $ 1.00 $ (0.62)
</TABLE>

The fair value of each option granted included in the above calculations is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for the years ended December 31,
1997 and 1998:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate............................................ 5.62% 4.79%
Expected life...................................................... 6.0 years 6.0 years
Expected volatility................................................ 22% 70%
Dividend yield..................................................... 0% 0%
</TABLE>

F-32
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCKHOLDERS' EQUITY (CONTINUED)
Additional information relating to the Stock Option Plan are as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER OF OPTIONS PER SHARE
------------------ -----------------
<S> <C> <C>
Outstanding at:
December 31, 1997..................................... 1,032,320 $ 8.00
Options granted....................................... 1,032,320 8.00

Outstanding at:
December 31, 1998..................................... 2,356,644 $ 10.61
Options granted....................................... 2,245,753 16.12
Options exercised..................................... 36,838 8.00
Options forfeited..................................... 887,591 20.95

Exercisable at:
December 31,
1997................................................ 0 $ 8.00
1998................................................ 249,114 11.92
</TABLE>

Options granted for 1998 include 682,597 options which were cancelled and
repriced on November 30, 1998. Options forfeited in 1998 include 835,541 options
that were cancelled related to repricing of which 682,597 options were repriced.
The options which were repriced were originally granted between March 2, 1998
and May 27, 1998 with original exercise prices between $18.375 and $23.9375.
These options were cancelled on November 30, 1998 and reissued at an exercise
price of $11.25 per share, which represented 125% of the fair market value of
Common Stock on that day, with a new five year vesting period.

The weighted average fair value of options granted during 1997 and 1998 was
$2.47 and $13.19 per option, respectively.

As of December 31, 1998, the options outstanding under the 1997 Stock Option
Plan had exercise prices between $8.00 and $23.9375 and a weighted average
remaining contractual life of 9.43 years.

11. 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 years ended
December 31, 1996, 1997 and 1998 was $535,000, $1,083,000, and $1,971,000,
respectively. For the subsequent five years, minimum annual rental payments
under non-cancelable operating leases are as follows (in thousands):

<TABLE>
<S> <C>
1999................................................................ $ 1,630
2000................................................................ 1,272
2001................................................................ 1,029
2002................................................................ 870
2003................................................................ 594
---------
Total minimum payments............................................ $ 5,395
---------
---------
</TABLE>

F-33
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONCENTRATION OF CREDIT RISKS

At December 31, 1998, leases aggregating approximately 24% of the net
principal balance of leases owned and serviced by the Company pursuant to its
securitization program were located in California. No other state accounted for
more than 10% of the net principal balance of leases owned and serviced by the
Company as of such date. 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.

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 all employees. In 1998, employees could
generally contribute up to 15% of their salary each year, and the Company, at
its discretion, may match up to 50% of the first 8% of salary contributed by the
employee. During the years ended December 31, 1997 and 1998, the Company
recognized $157,000 and $551,000, respectively, of expenses related to the
401(k) plan.

On January 1, 1999, the Company changed the matching contribution
calculations of the plan to take advantage of IRS safe-harbor matching
provision. As of that date, the Company, at its discretion, may match up to 100%
of the first 3% of salary and 50% of the next 2% of salary contributed by the
employee. The Company does not offer any other post-employment or
post-retirement benefits.

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.

12. 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

F-34
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
and estimated fair values of the Company's financial instruments at December 31,
1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
1997 1998
-------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets--
Lease financing receivables, net....................... $ 27,675 $ 29,289 $ 337,162 $ 346,355
Investment in trust certificates....................... 12,512 16,541 7,288 7,288
Marketable securities.................................. 4,223 4,223 5,042 5,042
Cash and cash equivalents.............................. 14,569 14,569 7,928 7,928

Financial liabilities--
Nonrecourse debt....................................... -- -- 276,511 276,511
Other debt............................................. 14,937 14,937 23,026 23,026
Subordinated notes payable........................... 6,000 6,000 3,250 3,250
Off balance sheet instruments--
Interest rate swap agreements.......................... -- (60) -- (4,467)
</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 defaults, recoveries and other factors.

Marketable Securities--The fair value was estimated by discounting expected
future cash flows allocable to the holder of the Marketable Securities at a risk
adjusted rate of return deemed to be appropriate for investors in such
investment.

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

Nonrecourse Debt--The carrying amounts approximate fair value due to the
short-term nature of the credit facilities.

Other Debt--The carrying amounts approximate fair value due to the
short-term nature of the credit facilities.

Subordinated Notes 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 or received from the swap counterparties to terminate
the swap agreements on the indicated dates.

F-35
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SEGMENT INFORMATION

The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" on January 1, 1998. SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.

The Company acquires and originates leases primarily through its Private
Label, Wholesale/Retail, and Captive Finance programs. Additionally, First
Sierra conducts business in the continental United

F-36
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SEGMENT INFORMATION (CONTINUED)
States (U.S.) and the United Kingdom (U.K.). Segment data for the years ended
December 31, 1996, 1997 and 1998 for these three lease programs are as follows
(dollars in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Revenue by business segment:
Private Label....................................................... $ 10,477 $ 13,460 $ 11,917
Wholesale/Retail.................................................... 10,478 34,957 46,014
Captive Finance..................................................... 2,416 3,182 3,212
Corporate........................................................... 0 0 0
--------- --------- ----------
Total............................................................. $ 23,371 $ 51,599 $ 61,143
Revenue by geographic area:
Revenue generated from business within US........................... $ 23,371 $ 51,599 $ 56,429
Revenue generated from UK operation................................. 0 0 4,714
--------- --------- ----------
Total............................................................. $ 23,371 $ 51,599 $ 61,143
Depreciation and amortization:
Private Label....................................................... $ 5 $ 9 $ 18
Wholesale/Retail.................................................... 305 1,202 2,979
Captive Finance..................................................... 45 83 121
Corporate........................................................... 114 231 634
--------- --------- ----------
Total............................................................. $ 469 $ 1,525 $ 3,752
Pre-tax operating profit (loss):
Private Label....................................................... $ 5,437 $ 10,120 $ 9,158
Wholesale/Retail.................................................... 1,283 11,741 7,275
Captive Finance..................................................... 318 (7) 95
Corporate........................................................... (2,843) (6,210) (25,095)
--------- --------- ----------
Total............................................................. $ 4,195 $ 15,644 $ (8,567)
Interest expenses:
Private Label....................................................... $ 3,664 $ 1,993 $ 1,929
Wholesale/Retail.................................................... 162 2,495 3,915
Captive Finance..................................................... 0 0 0
Corporate........................................................... 1,223 692 183
--------- --------- ----------
Total............................................................. $ 5,049 $ 5,180 $ 6,027
Total assets:
Private Label....................................................... $ 61,435 $ 17,116 $ 158,446
Wholesale/Retail.................................................... 17,917 60,606 255,146
Captive Finance..................................................... 1,231 1,005 120
Corporate........................................................... 3,171 14,231 14,581
--------- --------- ----------
Total............................................................. $ 83,754 $ 92,958 $ 428,293
Total assets:
Total U.S. assets................................................... $ 83,754 $ 92,958 $ 388,149
Total U.K. assets................................................... 0 0 40,144
--------- --------- ----------
Total............................................................. $ 83,754 $ 92,958 $ 428,293
</TABLE>

F-37
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

The quarterly financial data presented below has been restated to include
the results of operations of acquired companies accounted for as poolings of
interests.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Revenues............................................................ $ 14,729 $ 19,057 $ 12,000 $ 15,357
Income (loss) before provision (benefit) for income taxes........... 4,368 2,933 (8,150) (7,718)
Net income (loss)................................................... 2,760 1,674 (4,949) (5,387)
Earnings (loss) per common share, basic............................. .22 .12 (.35) (.38)
Earnings (loss) per common share, diluted........................... .21 .11 (.35) (.38)

1997
Revenues............................................................ $ 8,872 $ 11,781 $ 14,572 $ 16,374
Income before provision for income taxes............................ 2,823 3,475 4,326 5,020
Net income.......................................................... 1,940 2,284 2,762 3,551
Earnings per common share, basic.................................... .26 .26 .26 .33
Earnings per common share, diluted.................................. .24 .24 .24 .30
</TABLE>

F-38
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
(UNAUDITED)
Lease financing receivables, net...................................................... $ 337,162 $ 540,668
Cash and cash equivalents............................................................. 7,928 24,318
Other receivables..................................................................... 11,596 5,880
Investment in trust certificates...................................................... 7,288 7,458
Marketable securities................................................................. 5,042 4,631
Goodwill and other intangible assets, net............................................. 39,202 38,925
Furniture and equipment, net.......................................................... 9,909 10,360
Other assets.......................................................................... 6,923 7,191
Current tax receivables............................................................... 3,243 1,389
------------ -----------
Total assets...................................................................... $ 428,293 $ 640,820
------------ -----------
------------ -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Debt:
Nonrecourse debt.................................................................... $ 276,511 $ 484,035
Other debt.......................................................................... 23,026 27,284
Subordinated notes payable.......................................................... 3,250 3,250
Other liabilities:
Accounts payable and accrued liabilities............................................ 23,283 24,101
Holdback reserves payable........................................................... 16,682 16,840
Income taxes payable................................................................ 523 225
Deferred income taxes............................................................... 501 501
------------ -----------
Total liabilities................................................................. 343,776 556,236
------------ -----------

Redeemable preferred stock............................................................ 469 469

Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 14,223,915 shares and
14,243,915 shares issued and outstanding as of 12/31/98 and 3/31/99, respectively... 142 142
Additional paid-in capital............................................................ 76,855 77,101
Retained earnings..................................................................... 6,859 6,890
Accumulated other comprehensive income................................................ 192 (18)
------------ -----------
Total stockholders' equity........................................................ 84,048 84,115
------------ -----------
Total liabilities and stockholders' equity........................................ $ 428,293 $ 640,820
------------ -----------
------------ -----------
</TABLE>

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

F-39
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1998
(RESTATED) 1999
----------- ---------
<S> <C> <C>
Gain on sale of lease financing receivables through securitization transactions............ $ 6,550 $ --
Gains from direct sales of lease financing receivables..................................... 4,336 3,170
Interest income............................................................................ 1,607 13,165
Servicing income........................................................................... 1,207 1,647
Other income............................................................................... 1,029 1,386
----------- ---------
Total revenues........................................................................... 14,729 19,368
----------- ---------

Salaries and benefits...................................................................... 5,638 6,479
Interest expense........................................................................... 399 6,320
Provision for credit losses on lease financing receivables................................. 729 2,087
Depreciation and amortization.............................................................. 683 1,260
Other general and administrative........................................................... 2,027 2,934
Relocation of operations center............................................................ 885 --
----------- ---------
Total expenses........................................................................... 10,361 19,080
----------- ---------

Income before provision for income taxes................................................... 4,368 288
Provision for income taxes................................................................. 1,608 257
----------- ---------
Net income................................................................................. $ 2,760 $ 31
----------- ---------
----------- ---------
Earnings per common share, basic........................................................... $ 0.22 $ 0.00
----------- ---------
----------- ---------
Earnings per common share, diluted......................................................... $ 0.21 $ 0.00
----------- ---------
----------- ---------
</TABLE>

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

F-40
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1998
(RESTATED) 1999
----------- ---------
<S> <C> <C>
Net income.................................................................................... $ 2,760 $ 31
Other comprehensive income:
Foreign currency translation adjustment, net of tax......................................... -- (210)
----------- ---------
Comprehensive income (loss)................................................................... $ 2,760 $ (179)
----------- ---------
----------- ---------
</TABLE>

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

F-41
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------ ADDITIONAL OTHER TOTAL
NUMBER OF PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
---------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998........................ 14,223,915 $142 $76,855 $6,859 $ 192 $84,048

Net income...................................... 31 -- 31
Issuance of common stock in connection with
prior business combinations................... 20,000 -- 246 -- -- 246
Foreign currency translation adjustment......... -- -- -- -- (210) (210)
---------- ------ ---------- -------- ----- -------------
Balance, March 31, 1999........................... 14,243,915 $142 $77,101 $6,890 $ (18) $84,115
---------- ------ ---------- -------- ----- -------------
---------- ------ ---------- -------- ----- -------------
</TABLE>

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

F-42
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1998
(RESTATED) 1999
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net income........................................................................................ $ 2,760 $ 31
Reconciliation of net income to cash provided by operations--
Depreciation and amortization................................................................... 683 1,260
Provision for credit losses on lease financing receivables...................................... 729 2,087
Gain on sale of lease financing receivables..................................................... (10,886) (3,170)
Funding of lease financing receivables, held for sale........................................... (206,164) (76,981)
Principal payments received on lease financing receivables, held for sale....................... 1,942 18,174
Proceeds from sales of lease financing receivables, net of trust certificates and marketable
securities retained........................................................................... 221,024 80,732
Proceeds from (repayments of) warehouse credit facilities, net of repayments (borrowings)....... (9,195) --
Accumulated translation adjustment.............................................................. -- (209)
Changes in assets and liabilities, net of effects from acquisitions:
Decrease (increase) in other receivables.......................................................... (1,289) 5,715
Decrease (increase) in other assets............................................................... 2,328 (268)
Increase (decrease) in accounts payable and accrued liabilities................................... (2,635) 819
Increase in holdback reserve payable.............................................................. 1,108 157
Decrease in current income tax receivable, net of decrease in income tax payable.................. 53 1,556
----------- -----------
Net cash provided by operations............................................................... 458 29,903
----------- -----------
Cash flows from investing activities:
Funding of lease financing receivables, net of repayments, held for investment.................... -- (220,441)
Additions to furniture and equipment.............................................................. (1,708) (1,141)
Cash used in acquisitions, net of cash acquired................................................... (169) (45)
----------- -----------
Net cash used in investing activities......................................................... (1,877) (221,627)
----------- -----------
Cash flows from financing activities:
Proceeds from (repayments of) warehouse credit facilities, net of repayments (borrowings)......... -- 208,114
Repayment of subordinated notes payable, net of issuances......................................... (5,000) --
Proceeds from issuance of common stock and exercise of convertible warrants....................... 39,670 --
Distributions to stockholders..................................................................... (255) --
----------- -----------
Net cash provided by financing activities..................................................... 34,415 208,114
----------- -----------
Net increase in cash and cash equivalents........................................................... 32,996 16,390
Cash and cash equivalents at beginning of period.................................................... 14,569 7,928
----------- -----------
Cash and cash equivalents at end of period.......................................................... $ 47,565 $ 24,318
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Income tax payments (refunds), net................................................................ $ 1,369 $ (1,854)
----------- -----------
----------- -----------
Interest paid..................................................................................... $ 430 $ 5,813
----------- -----------
----------- -----------
</TABLE>

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

F-43
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE COMPANY

ORGANIZATION

First Sierra Financial, Inc. ("First Sierra" or the "Company") customizes
lease financing products and offers servicing, consulting and technology
solutions for commercial customers. The Company was formed in June 1994 to
acquire, originate, sell and service equipment leases. The underlying leases
financed by the Company relate to a wide range of equipment, including computers
and peripherals, software, medical, dental, diagnostic, telecommunications,
office, automotive servicing, hotel security, food services, tree service and
industrial. The equipment generally has a purchase price of less than $250,000
(with an average of approximately $31,000 for leases originated in 1998 and
$24,000 for leases originated during the first quarter of 1999). The Company
initially funds the acquisition or origination of its leases through its
securitized funding facilities and, from time to time depending on market
conditions, securitizes the leases in its portfolio that meet pre-established
eligibility criteria by packaging them into a pool and selling beneficial
interests in the leases through public offerings and private placement
transactions.

Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. Thus, for all securitizations
completed prior to such date, the Company recorded a gain on sale of lease
financing receivables when it included the receivables in a securitization.
Effective as of July 1, 1998, the Company made a strategic decision to alter the
structure of its future securitization transactions so as to retain leases
acquired and originated as long-term investments on its balance sheet rather
than selling such leases through securitization transactions. The Company also
modified the structure of its securitized funding facilities such that they
would be considered debt under generally accepted accounting principles. The
cash flows available to the Company, which are generally based on the advance
rates and discount rates set forth in the agreements, were unaffected by these
modifications. The primary effect from this move to emphasize portfolio lending
is a shift from the recognition of an immediate gain upon sale of the lease
receivables to the recognition of net interest margin over the lives of the
receivables.

The Company acquires and originates leases primarily through its Private
Label, Wholesale, Retail, and Captive Finance 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"), which is generally supported
by holdback reserves withheld from amounts paid to the Source upon purchase of
the lease, or a combination of the above. Leases acquired through the Wholesale,
Retail and Captive Finance programs are originated through relationships with
lease brokers, equipment vendors and individual lessees. In addition, the
Company has in the past generated, and may in the future generate, income
through the acquisition of lease portfolios and the subsequent sale of such
portfolios at a premium.

Since inception, the Company's underwriting, customer service and collection
staff had been located in its Jupiter, Florida office. In order to consolidate
its operations and maximize administrative efficiencies, the Company relocated
its operations center from Jupiter, Florida to its headquarters in Houston,
Texas. The relocation was commenced in late 1997 and completed in the first half
of 1998. The Company incurred approximately $885,000, or $0.04 per diluted
share, of expenses in the quarter ended March 31, 1998, related to the
relocation.

F-44
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. All significant intercompany accounts
and transactions have been eliminated in consolidation. These financial
statements and related notes should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K. The results for the interim periods are not necessarily indicative
of the results to be expected for the entire year.

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 March 31, 1999, the Company believes that it does not have any
material recourse obligations related to receivables sold through portfolio
sales.

EXPOSURE TO CREDIT LOSSES

Management evaluates the collectibility of leases acquired or originated
based on the level or recourse provided, if any, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors. Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. The Company provided an allowance for
credit losses for leases which were considered impaired during the period from
the funding of the leases through the date such leases were sold through the
Company's securitization program. When the securitizations took place, the
Company reduced the allowance for credit losses for any provision previously
recorded for such leases. Any losses expected to be incurred on leases sold were
taken into consideration in determining the fair value of any Trust Certificates
retained and recourse obligations accrued, if any. Effective as of July 1, 1998,
the Company made a strategic decision to retain its leases as long-term
investments on its balance sheet. As a result, the Company now provides an
allowance for credit losses for leases which the Company considers impaired
based on management's assessment of the risks inherent in the lease receivables.
Management monitors the allowance on an ongoing basis based on its current
assessment of the risks and losses identified in the portfolio.

The Company's allowance for credit losses on lease receivables and its
valuation of the Trust Certificates retained in its securitization transactions
are based on management's current assessment of the risks inherent in the
Company's lease receivables from national and regional economic conditions,
industry conditions, concentrations, financial conditions of the obligors,
historical experience of certain origination channels, and other factors. These
estimates are reviewed periodically and as write-downs become necessary, they
are reported as reduction of earnings in the period in which they become known.

F-45
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Private Label program and its Wholesale and Retail programs for the quarters
ended March 31, 1998 and 1999 (dollars in thousands):

<TABLE>
<CAPTION>
PRIVATE WHOLESALE/
LABEL RETAIL (1) TOTAL (2)
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1997...................................................... $ 36 $ 945 $ 981
Provision for credit losses..................................................... 17 712 729
Charge-offs, net of recoveries, on leases acquired or originated by the
Company....................................................................... -- -- --
Reduction of allowance for leases sold (1)...................................... (19) (723) (742)
----- ----------- -----------
Balance at March 31, 1998....................................................... $ 34 $ 934 $ 968
----- ----------- -----------
----- ----------- -----------
Balance at December 31, 1998...................................................... $ 83 $ 4,680 $ 4,763
Provision for credit losses..................................................... 74 2,013 2,087
Charge-offs, net of recoveries, on leases acquired or originated by the
Company....................................................................... 5 (84) (79)
Reduction of allowance for leases sold (1)...................................... -- (155) (155)
Charge-offs, net of recoveries, on leases acquired through business
combinations.................................................................. -- (314) (314)
----- ----------- -----------
Balance at March 31, 1999......................................................... $ 162 $ 6,140 $ 6,302
----- ----------- -----------
----- ----------- -----------
</TABLE>

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

(2) The Company began its Captive Finance program in March 1998 through the
acquisition of Integrated Lease Management, Inc. During the quarters ended
March 31, 1998 and 1999, leases originated through its Captive Finance
program were $50 million and $48 million, respectively, all of which were
sold to, or financed through, third parties at the time of originations
without recourse to the Company. Therefore no allowance for credit losses
were provided for leases originated under the Captive Finance program.

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 which is generally collateralized by 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, 1998 and March 31, 1999,
the Company had holdback reserves of $16.7 million and

F-46
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$16.8 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>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Leases outstanding under the Private Label program (1)....................... $ 477,138 $ 534,122
------------ ----------
------------ ----------

Recourse to Sources available................................................ $ 52,518 $ 58,323
Ratio of recourse to total leases outstanding under the Private Label program
(2)........................................................................ 11.01% 10.92%
------------ ----------
------------ ----------
Holdback reserves outstanding................................................ $ 16,682 $ 16,840
Ratio of holdback reserves outstanding to total leases outstanding under the
Private Label program (2).................................................. 3.50% 3.15%
------------ ----------
------------ ----------
</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.

Management analyzes the collectibility of leases acquired or originated
pursuant to its Wholesale and Retail 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 Wholesale and Retail programs.
The Company began its Captive Finance program in March 1998 through the
acquisition of Integrated Lease Management, Inc. During 1998 and the first
quarter of 1999, leases originated through the Company's Captive Finance program
were $164 million and $48 million, respectively, all of which were subsequently
sold to or financed through third parties without recourse to the Company.

The following tables set forth certain information as of December 31, 1998
and March 31, 1999, with respect to leases which were held by the Company in its
portfolio or serviced by the Company pursuant to its securitization programs
(dollars in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF MARCH 31, 1999
--------------------------------- ---------------------------------
PRIVATE WHOLESALE/ PRIVATE WHOLESALE/
LABEL RETAIL TOTAL LABEL RETAIL TOTAL
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross leases outstanding..................... $ 592,435 $ 478,139 $1,070,574 $ 648,955 $ 572,912 $1,221,867
31-60 days past due.......................... 1.36% 1.30% 1.33% 1.10% 1.28% 1.18%
61-90 days past due.......................... 0.63% 0.69% 0.65% 0.63% 0.40% 0.53%
Over 90 days past due........................ 0.40% 0.81% 0.58% 0.49% 0.88% 0.67%
--------- ----------- --------- --------- ----------- ---------
Total past due............................. 2.39% 2.80% 2.56% 2.22% 2.56% 2.38%
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>

F-47
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the experience of the Company with respect to
leases acquired for the periods indicated (dollars in thousands):

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Average balance of leases acquired outstanding during the period (1)(2)................... $ 551,828 $ 917,372
---------- ----------
---------- ----------
Net losses experienced on leases acquired:
Private Label program................................................................... $ 100 438
Wholesale and Retail programs........................................................... 310 1,998
---------- ----------
Total................................................................................. $ 410 $ 2,436
---------- ----------
---------- ----------
Net Loss Ratio as a percentage of average balance of leases acquired outstanding.......... 0.07% 0.27%
---------- ----------
---------- ----------
</TABLE>

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

(1) Excludes lease receivables and losses on lease receivables acquired through
business combinations.

(2) Represents net principal balance of leases held by the Company in its
portfolio as well as leases serviced by the Company pursuant to its
securitized programs.

EARNINGS PER SHARE

F-48
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Following is a reconciliation of the numerators and denominators used in
calculating basic and diluted earnings per share for the three months ended
March 31, 1998 and 1999 (dollars in thousands, except per share amounts):

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Earnings per common share, basic:
Net income............................................................... $ 2,760 $ 31
Preferred stock dividends.............................................. 22 --
------------- -------------
Net income available to common stockholders............................ $ 2,738 $ 31
------------- -------------
------------- -------------
Weighted average shares outstanding.................................... 12,429,010 14,226,138
------------- -------------
------------- -------------
Earnings per common share, basic....................................... $ 0.22 $ 0.00
------------- -------------
------------- -------------

Earnings per common share, diluted:
Net income............................................................. $ 2,760 $ 31
------------- -------------
------------- -------------
Weighted average shares outstanding.................................... 12,429,010 14,226,138
Dilutive securities:
Options................................................................ 494,611 157,085
Warrants............................................................... -- --
Redeemable preferred stock............................................. 254,692 55,124
------------- -------------
Weighted average shares outstanding, diluted............................. 13,178,313 14,438,347
------------- -------------
------------- -------------
Earnings per common share, diluted....................................... $ 0.21 $ 0.00
------------- -------------
------------- -------------
</TABLE>

COMPREHENSIVE INCOME

FOREIGN CURRENCY TRANSLATION

F-49
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
certain derivative instruments imbedded in other contracts, and hedging
activities. In particular, SFAS No. 133 requires a company to record every
derivative instrument on the company's balance sheet as either an asset or
liability measured at fair value. In addition, SFAS No. 133 requires that
changes in the fair value of a derivative be recognized currently in earnings
unless specific hedge accounting criteria are satisfied. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effect the effectiveness of
transactions that receive hedge accounting. Management has not quantified the
effect that SFAS No. 133 will have on the Company's financial statements,
however, the Statement could increase volatility in earnings and other
comprehensive income. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999, but companies may adopt it on a going-forward basis as of the
start of any fiscal quarter beginning on or after June 16, 1998. SFAS No. 133
cannot be applied retroactively. It must be applied to (a) derivative financial
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and at the Company's election, before January 1, 1998). The Company expects to
adopt SFAS No. 133 on January 1, 2000 and is currently evaluating the impact of
such adoption on the consolidated financial statements.

RECLASSIFICATIONS

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

3. LEASE FINANCING RECEIVABLES

The Company's lease financing receivables balance at December 31, 1998 and
March 31, 1999, consists of the following (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Minimum lease payments...................................................... $ 417,116 $ 653,687
Estimated unguaranteed residual value....................................... 4,120 10,785
Initial direct costs........................................................ 6,729 11,367
Unearned income............................................................. (86,040) (128,869)
Allowance for credit losses................................................. (4,763) (6,302)
------------ -----------
Lease financing receivables, net.......................................... $ 337,162 $ 540,668
------------ -----------
------------ -----------
</TABLE>

F-50
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. DEBT

Total debt consisted of the following as of December 31, 1998 and March 31,
1999 (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Nonrecourse Debt:
Securitized Warehouse Facilities........................................... $ 173,767 $ 385,710
Securitized Transactions:
Series 1998-1 securitization............................................. 101,247 93,463
Other nonrecourse debt..................................................... 1,497 4,862
------------ ----------
Total Nonrecourse Debt....................................................... 276,511 484,035
Other Debt................................................................... 23,026 27,284
------------ ----------
Total Debt................................................................... 299,537 511,319
Subordinated Notes Payable................................................... 3,250 3,250
------------ ----------
Total........................................................................ $ 302,787 $ 514,569
------------ ----------
------------ ----------
</TABLE>

5. SEGMENT INFORMATION

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" on January 1, 1998. SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.

The Company acquires and originates leases primarily through its Private
Label, Wholesale/Retail, and Captive Finance programs. Additionally, the Company
conducts business in the continental United States (U.S.) and the United Kingdom
(U.K.). Segment and geographic data for the periods indicated are as follows
(dollars in thousands):

F-51
<PAGE>
FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1998 1999
------------ ----------
<S> <C> <C>
Revenue by business segment:
Private Label.............................................................. $ 3,191 $ 3,815
Wholesale/Retail........................................................... 10,639 14,887
Captive Finance............................................................ 899 666
Corporate.................................................................. -- --
------------ ----------
Total...................................................................... $ 14,729 $ 19,368
Revenue by geographic area:
Revenue generated from business within U.S................................. $ 14,729 $ 17,099
Revenue generated from U.K. operation...................................... -- 2,269
------------ ----------
Total...................................................................... $ 14,729 $ 19,368
Depreciation and amortization:
Private Label.............................................................. $ 5 $ 6
Wholesale/Retail........................................................... 469 897
Captive Finance............................................................ 27 17
Corporate.................................................................. 182 340
------------ ----------
Total...................................................................... $ 683 $ 1,260
Pre-tax operating profit (loss):
Private Label.............................................................. $ 2,668 $ 1,003
Wholesale/Retail........................................................... 3,853 3,264
Captive Finance............................................................ 103 (99)
Corporate.................................................................. (2,256) (3,880)
------------ ----------
Total...................................................................... $ 4,368 $ 288
Interest expense:
Private Label.............................................................. $ 25 $ 2,723
Wholesale/Retail........................................................... 355 3,594
Captive Finance............................................................ 19 3
Corporate.................................................................. -- --
------------ ----------
Total...................................................................... $ 399 $ 6,320

AS OF
------------------------
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Total assets:
Private Label.............................................................. $ 158,446 $ 255,710
Wholesale/Retail........................................................... 255,146 355,595
Captive Finance............................................................ 120 550
Corporate.................................................................. 14,581 28,965
------------ ----------
Total...................................................................... $ 428,293 $ 640,820
Total assets:
Total U.S. assets.......................................................... $ 388,149 $ 594,506
Total U.K. assets.......................................................... 40,144 46,314
------------ ----------
Total...................................................................... $ 428,293 $ 640,820
</TABLE>

F-52
<PAGE>
PROSPECTUS

$300,000,000

FIRST SIERRA FINANCIAL, INC.

DEBT SECURITIES AND COMMON STOCK

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

We may sell from time to time for proceeds of up to $300,000,000:

- our debt securities;

- shares of our Common Stock; or

- any combination of the foregoing.

We will provide specific terms of the securities which we may offer in
supplements to this prospectus. You should read this prospectus and any
supplement carefully before you invest.

Our Common Stock is quoted on the NASDAQ National Market under the symbol
"BTOB".

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE PURCHASING ANY SECURITIES.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.

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

The date of this Prospectus is May 13, 1999.
<PAGE>
ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this process, we may sell any
combination of the securities described in this prospectus in one or more
offerings up to a total dollar amount of $300,000,000. This prospectus provides
you with a general description of the securities we may offer. Each time we
offer to sell securities, we will provide a supplement to this prospectus that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update, or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information described under the heading
WHERE YOU CAN FIND MORE INFORMATION, below.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy reports, statements or other
information at the SEC's public reference rooms in Washington, D.C., New York,
New York or Chicago, Illinois. You can call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http:// www.sec.gov."

As noted above, we have filed with the SEC a registration statement on Form
S-3 to register the securities. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all the
information set forth in the registration statement. For further information you
should refer to the registration statement and to the exhibits and schedules
filed as part of the registration statement. You can review and copy the
registration statement and its exhibits and schedules at the public reference
facilities maintained by the SEC as described above. The registration statement,
including its exhibits and schedules, is also available on SEC's web site.

The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and the
information that we file with the SEC later will automatically update and
supersede this information. We incorporate by reference in this prospectus the
following:

- our Form 10-K Annual Report for the year ended December 31, 1998;

- our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;

- the description of our Common Stock included in our Form 8-A Registration
Statement;

- the description of our Rights to Purchase Shares of Junior Preferred
Stock, Series C, included in our Form 8-A Registration Statement; and

- any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, until we sell all of the
securities.

You may request a copy of these filings, at no cost, by writing or
telephoning us at First Sierra Financial, Inc., 600 Travis Street, Houston, TX
77002, Attention: Secretary; telephone no. (713) 229-6801.

YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.

2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this prospectus and any prospectus
supplement or in the information incorporated by reference may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such information may involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.

FIRST SIERRA FINANCIAL, INC.

First Sierra Financial, Inc. is a leading provider of equipment lease
financing products and services. We acquire and originate equipment leases and
offer servicing, consulting and technology solutions to our lease financing
customers. The leases we finance relate to a wide range of equipment, including
computers and peripherals, software, medical, dental, diagnostic,
telecommunications, office, automotive servicing, hotel security, food services,
tree service and industrial. The underlying equipment generally has a purchase
price of less than $250,000 with an average of approximately $31,000 for leases
financed in 1998.

We have established strategic alliances with a network of independent
leasing companies, lease brokers and equipment vendors, each of which acts as a
source from which we obtain access to equipment leases. We customize lease
financing products to meet the specific needs of our lease sources, including
automation and integration.

Since 1996, we have provided on-line financing products to our larger
customers. Through our April 1998 acquisition of Nexsoft, Inc., we greatly
expanded our ability to offer electronic commerce solutions to our customers'
lease financing needs. In February 1999, we announced the formation of a new
strategic services group called B2B Solutions, which is dedicated to providing
e-commerce technology solutions and on-line financing products for commercial
customers.

Our e-commerce technology enables us to make direct originations or
acquisitions of leases over the internet through an on-line application process
that provides customers with immediate access to our credit department and lease
documents. Our lease processing systems are linked directly to the vendor's
systems through our internet browser, allowing us to interface with the vendor's
web site, sales force and customers and providing customers with real-time
access to application status reports and portfolio and customer performance
data. We are also able to develop functional web sites for our vendors to
facilitate business-to-business e-commerce and offer maintenance and training
support.

We provide lease financing to different participants in the small ticket
equipment leasing industry through four general lease funding programs, referred
to as our Private Label, Wholesale, Retail and Captive Finance programs. While
the terms of the underlying leases are similar in all these lease funding
programs, the financing arrangement we offer varies depending on the size and
servicing capabilities of the lease source.

Our Private Label program is designed to provide financing to established
leasing companies that have demonstrated the ability to originate a larger
volume of leases, follow prudent underwriting guidelines that we have
established and undertake some of the more labor-intensive aspects of lease
servicing on an ongoing basis. Participants in our Private Label program also
provide us with protection from credit losses on the leases we acquire from
them. Through our Wholesale program, we finance equipment leases from small
ticket lease brokers who are unwilling or unable to provide the credit
protection and perform the servicing functions necessary to participate in our
Private Label program. Our Retail program focuses on providing lease financing
services directly to equipment lessees and on establishing formal and informal
relationships with manufacturers, dealers and other equipment vendors who are in
a position to recommend us to their customers as a preferred provider of lease
financing. Through our Captive Finance program, we focus on cultivating
partnerships with large equipment vendors

3
<PAGE>
to help them develop, implement and administer a customized, sales-oriented
lease finance program. In addition to offering lease financing, we provide the
training, sales tools, management and, in some cases, personnel, necessary to
support a dedicated lease finance program.

We initially fund the acquisition or origination of our leases from working
capital or through our securitized funding facilities. From time to time,
depending on market conditions, we securitize the leases in our portfolio that
meet pre-established eligibility criteria by packaging them in to a pool and
selling beneficial interests in the leases through public offerings and private
placement transactions. From time to time, we also generate income by acquiring
lease portfolios and then reselling these portfolios at a premium. Our goal is
to maximize the spread between the yield received on our leases and our cost of
funds by obtaining favorable terms on our securitized funding facilities, our
securizations and our portfolio sales.

RECENT DEVELOPMENTS

As part of our strategy to become a leading provider of e-commerce financial
products and services to the small business market, we plan to begin offering
accounts receivable financing to our business customers in the second half of
1999.

We also intend to apply for regulatory approval to establish the first
internet-based business-to-business bank. Our internet bank will be devoted
exclusively to the banking and financing needs of small business customers. Our
goal in establishing the bank is to diversify our funding sources, lower our
cost of funds, and allow us to offer additional e-commerce products to our base
of business customers.

4
<PAGE>
RISK FACTORS

BEFORE YOU BUY ANY SECURITIES OFFERED BY THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW AND THOSE WHICH MAY BE SET FORTH IN ANY
PROSPECTUS SUPPLEMENT. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS,
TOGETHER WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS, ANY PROSPECTUS
SUPPLEMENT AND THE DOCUMENTS THAT ARE INCORPORATED BY REFERENCE BEFORE YOU
DECIDE TO ACQUIRE ANY SECURITIES.

WE DEPEND ON THE SECURITIZATION MARKET TO FINANCE OUR LEASES

From time to time, depending on market conditions, we securitize the leases
in our portfolio that meet pre-established eligibility criteria by packaging
them into a pool and selling beneficial interests in the leases through public
offerings and private placement transactions. In a securitization transaction,
we transfer a pool of leases to a wholly owned, special purpose subsidiary of
First Sierra. The special purpose subsidiary simultaneously 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. We
generally retain the right to receive any excess cash flows of the trust, which
right is represented by a trust certificate.

Gain on sale of securitized leases represented approximately 15% of our
revenues in 1996, approximately 35% of our revenues in 1997, and approximately
48% of our revenues during the period from January 1, 1998 through June 30,
1998. As a result of our decision to emphasize portfolio lending, effective July
1, 1998, we altered the structure of our securitizations so that we no longer
record an immediate gain on sale when we securitize lease financing receivables.
Rather, we will recognize net interest margin over the life of each of our
leases. Thus, we expect that our earnings per share will be negatively affected
until the interest income and other revenue generated from leases held on our
balance sheet exceed our operating expenses.

We depend on securitizations for refinancing of amounts outstanding under
our securitized funding facilities, which we utilize to acquire and originate
additional leases. Several factors affect our ability to complete
securitizations, including conditions in the securities markets generally,
conditions in the asset-backed securities markets, the credit quality of our
lease portfolio, compliance of our leases with the eligibility requirements
established in connection with the securitizations, our ability to obtain
third-party credit enhancement, our ability to adequately service our lease
portfolio, and the absence of any material downgrading or withdrawal of ratings
given to securities previously issued in our securitizations. Any substantial
reduction in the availability of the securitization market for our leases or any
adverse change in the terms of our securitizations could have a material adverse
effect on our business, financial condition and results to operations.

IF THE CASH FLOWS FROM OUR SECURITIZATION TRANSACTIONS ARE LESS THAN WE EXPECT,
IT WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

The cash flows available to the trust certificates which we retain in our
securitization transactions are calculated as the difference between cash flows
received from the leases and the sum of interest and principal payable to the
holders of the senior and subordinated securities, trustee fees, third-party
credit enhancement fees, service fees, and backup service fees. Our 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.

We estimate the expected levels of cash flows available to the trust
certificate taking into consideration anticipated 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
largely depend upon the actual default rates and recovery levels experienced on
the leases sold to the trust. Losses

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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 we are typically entitled to receive, as holder of the trust
certificates issued in our securitization transactions, from 2.0% to 6.5% of the
cash flows of the trust yet we bear the risk of loss based upon the performance
of 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 our ability to
realize our recorded basis in the trust certificates. If any of these
fluctuations were to occur, we would be required to reduce the carrying amount
of our trust certificates and record a charge to earnings in the period in which
the event occurred or became known to management.

OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL

A key component of our growth strategy has been to acquire other equipment
leasing companies in strategic markets and locations. In the past, we have
financed these acquisitions by using a combination of common stock, cash and
debt. During 1998, we experienced a significant decline in the market price of
our common stock. As a result, our ability to complete acquisitions using our
Common Stock as currency, in a manner that was not dilutive to current
stockholders, was adversely affected. If our common stock does not maintain a
sufficient market value in the future, or if the owners of businesses we wish to
acquire are unwilling to accept common stock as part of the purchase price, we
may be required to use more of our cash resources, or seek additional capital,
in order to complete acquisitions. It is possible that we will not be able to
successfully consummate acquisitions in the future. If we are unable to pursue
an acquisition strategy in the future, we will be required to rely on internal
growth to expand our business.

Any acquisition we make 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 asses, any of which could have
a material adverse effect on our business, financial condition and results of
operations. We 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 operations and the potential
loss of key employees of such acquired companies.

WE DEPEND ON EXTERNAL FINANCING TO FUND OUR LEASES

We fund a large percentage of the equipment leases we acquire or originate
through our securitized funding facilities. The securitized funding facilities
are available to fund leases which satisfy eligibility criteria for inclusion in
our public securitizations. We repay borrowings under our securitized funding
facilities with the proceeds we receive from our public securitization
transactions. Any adverse impact on our ability to complete public
securitization transactions could have a material adverse effect on our ability
to obtain or maintain securitized funding facilities or the amount available
under such facilities. Any failure to renew our existing securitized funding
facilities or obtain additional facilities or other financings with pricing,
advance rates and other terms consistent with our existing facilities could have
a material adverse effect on our business, financial condition and results of
operations.

WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR OPERATIONS

Our lease financing business is capital intensive and requires access to
substantial short-term and long-term credit to fund new equipment leases. We
expect to continue to require access to a large amount of capital to maintain
and expand our volume of leases funded. If future market conditions adversely
affect our ability to finance leases, we may require additional capital to fund
our operations.

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INCREASES IN INTEREST RATES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

The leases we finance are non-cancelable and require payments to be made by
the lessee at fixed rates for specified terms. The rates we charge are based on
interest rates prevailing in the market at the time of lease approval. Until we
securitize or otherwise sell our leases, we generally fund the leases under our
securitized funding facilities or from working capital. If we were to become
unable to securitize or otherwise sell leases with fixed rates within a
reasonable period of time after funding, our operating margins could be
adversely affected by increases in interest rates. Moreover, increases in
interest rates which cause us to raise the implicit rate we charge to our
customers could cause a reduction in demand for our lease financing. We
generally undertake to hedge against the risk of interest rate increases when
our equipment lease portfolio exceeds $10.0 million. These hedging activities
limit our ability to participate in the benefits of lower interest rates with
respect to our hedged portfolio of leases. In addition, our hedging activities
may not adequately insulate us from interest rate risks.

INCREASE IN LESSEE DEFAULTS COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL
CONDITION

We specialize 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 our
short operating history, we have limited performance data with respect to leases
we finance. Thus, our historical delinquency and loss statistics do not
necessarily predict our future performance.

We funded the vast majority of the leases we acquired or originated through
December 31, 1996 through a combination of the recourse and purchase price
holdback features of our Private Label program. During the year ended December
31, 1998, we funded approximately 54% of the leases that we acquired or
originated through our Wholesale and Retail programs, which do not have these
credit protections. We believe that we will generate increasingly larger
percentages of our lease originations in the future through lease funding
programs that do not provide us with credit protection.

The failure of our lessees to comply with the terms of their leases will
result in the inability of these leases to qualify to serve as collateral under
our securitized funding facilities and securitization program and may have a
material adverse effect on our liquidity. Also, delinquencies and defaults in
excess of levels estimated by our management in determining our allowance for
credit losses and in valuing our right to receive excess cash flows under our
securitization program could have a material adverse effect on our ability to
obtain financing and effect public securitization transactions. Our inability to
effect public securitization transactions could, in turn, have a material
adverse effect on our business, financial condition and results of operations.

OUR QUARTERLY RESULTS MAY FLUCTUATE

We may experience 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 our securitization transactions, variations
in the volume of leases we finance, differences between our cost of funds and
the average implicit yield we receive on our leases prior to their being
securitized or otherwise sold, the effectiveness of our hedging strategy, the
degree to which we encounter competition in our markets and general economic
conditions. As a result of these fluctuations, you should not rely on our
results for any one quarter as predicting or guaranteeing our performance in
future quarters.

WE MAY BE UNABLE TO CONTINUE OUR GROWTH IN VOLUME OF LEASE FINANCING RECEIVABLES

Our ability to sustain continued growth depends upon our capacity to
attract, evaluate, finance and service increasing volumes of leases of suitable
yield and credit quality. Our ability to accomplish this on a cost-effective
basis is largely a function of our ability to market our products effectively,
to manage our

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<PAGE>
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 our
financing programs. Any failure to market our products effectively, to maintain
our portfolio quality, to effectively service our leases or to obtain
institutional financing at reasonable rates would have a material adverse effect
on business, financial condition and results of operations.

WE RELY ON KEY EMPLOYEES WHOSE ABSENCE COULD ADVERSELY AFFECT OUR BUSINESS

We depend to a large extent upon the experience, abilities and continued
efforts of our senior management, including the management of companies we have
acquired. We have entered into employment agreements with our principal
executive officers. The loss of the services of one or more of the key members
of our senior management could have a material adverse effect on our business,
financial condition and results of operations. Our future success also will
depend upon our ability to attract and retain additional skilled management
personnel necessary to support anticipated future growth.

COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS

The financing of small ticket equipment is highly competitive. We compete
for customers with a number of national, regional and local finance companies.
Our competitors also include those equipment manufacturers that finance the sale
of 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 our competitors and potential competitors possess substantially greater
financial, marketing and operational resources than we do. Our competitors and
potential competitors include many larger, more established companies that may
have a lower cost of funds than we do and access to capital markets and to other
funding sources that may be unavailable to us.

OUR LEASES ARE CONCENTRATED IN A SMALL NUMBER OF STATES AND INDUSTRIES; ADVERSE
ECONOMIC OR REGULATORY CONDITIONS IN THOSE STATES OR INDUSTRIES COULD
ADVERSELY AFFECT OUR BUSINESS

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

Also, a substantial portion of our leases are concentrated in certain
industries, including the medical industry, the dental industry and the
veterinary industry. If the economic or regulatory conditions prevalent in such
industries were to change, our lessees may not be able to honor their lease
obligations.

If our major lease sources were to substantially reduce the number of leases
sold to us, and we were not able to replace the lost lease volume, this
reduction could have a material adverse effect on our business, financial
condition and results of operations.

WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH

We have grown dramatically since our inception in June 1994. The volume of
leases we acquired or originated 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, $383.1 million for the year ended
December 31, 1997, and $897.1 million for the year ended December 31, 1998. This
growth has placed, and if sustained will continue to place, a burden on our
administrative and financial resources. If our management is unable to
effectively manage our future growth, this could have a material adverse effect
on our business, financial condition and results of operations.

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<PAGE>
IF WE ARE UNABLE TO REALIZE THE RECORDED RESIDUAL VALUES ON OUR EQUIPMENT, THIS
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We retain a residual interest in the equipment covered by some of our
leases. We reflect the estimated fair market value of the equipment at the end
of the contract term of the lease as an asset on our balance sheet. Our results
of operations depend, to some degree, upon our ability to realize these residual
values. Realization of residual values depends on many factors, several of which
are outside our 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, we sell or refinance the
underlying equipment and the amount realized is less than the recorded value of
the residual interest in the equipment, we realize a loss reflecting the
difference. If we were to fail to realize aggregate recorded residual values,
this could have a material adverse effect on our business, financial condition
and results of operations.

USE OF PROCEEDS

Except as we may otherwise specify in a prospectus supplement, we will use
the net proceeds from the sale of the securities offered by this prospectus for
working capital and general corporate purposes.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our Common Stock. We
currently intend to retain our earnings to finance the growth and development of
our business and we do not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. In addition, provisions in certain of our
credit facilities and the terms of our 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 our Board
of Directors. See "Description of Capital Stock--Series A Preferred Stock." Any
future change in our dividend policy will be made at the discretion of our Board
of Directors in light of our financial condition, capital requirements, earnings
and prospects and any restrictions under our credit agreements or rights of the
Series A Preferred Stock, as well as other factors our Board of Directors may
deem relevant.

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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES

Our ratio of earnings to fixed charges for the periods indicated below was
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996 1995
----- --------- --------- ---------
<S> <C> <C> <C> <C>
The Company and subsidiaries.................................................. * 3.90 1.82 1.78

1994
-----
<S> <C>
The Company and subsidiaries.................................................. *
</TABLE>

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

* The ratio is less than one-to-one. The coverage deficiency was as follows:
1998--$8.6 million; and 1994--$.8 million.

For purposes of calculating the ratio, earnings consist of income from
continuing operations to which has been added income taxes and fixed charges.
Fixed charges consist of interest on all indebtedness and one-third of rental
expense (approximate portion representing interest).

DESCRIPTION OF DEBT SECURITIES

We may offer debt securities under this prospectus, any of which may be
issued as convertible and/or exchangeable debt securities. The following
description of the terms of the debt securities sets forth certain general terms
and provisions of the debt securities to which any prospectus supplement may
relate. We will set forth the particular terms of the debt securities we offer
in a prospectus supplement. The extent, if any, to which the following general
provisions apply to particular debt securities, will be described in the
applicable prospectus supplement. The following description of general terms
relating to the debt securities and the Indenture (as defined below) are
summaries only and therefore are not complete. You should read the Indenture and
the prospectus supplement regarding any particular issuance of debt securities.

The debt securities will represent our unsecured general obligations, unless
otherwise provided in the prospectus supplement.

Our ability to service our indebtedness, including the debt securities, is
dependent to some extent upon the receipt of funds from our subsidiaries. The
payment of dividends or the making of loans and advances to us by our
subsidiaries are subject to contractual, statutory or regulatory restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business considerations. Further, any right we may have to receive
assets of any of our subsidiaries upon liquidation or recapitalization of any
such subsidiaries (and the consequent right of the holders of debt securities to
participate in those assets) will be subject to the claims of our subsidiaries'
creditors. Even in the event that we are recognized as a creditor of a
subsidiary, our claims would still be subject to any security interest in the
assets of such subsidiary and any indebtedness of such subsidiary senior to our
claim.

The debt securities will be issued under an Indenture (the "Indenture") that
we will enter into with an indenture trustee (the "Trustee"). A copy of the form
of Indenture has been filed as an exhibit to the Registration Statement of which
this prospectus is a part, and is available as described above under "Where You
Can Find More Information." The Indenture is subject to, and is governed by, the
Trust Indenture Act of 1939, as amended.

Except as may be set forth in a prospectus supplement, the Indenture does
not contain any covenants or restrictions that afford holders of the debt
securities special protection in the event of a change of control or highly
leveraged transaction.

The following summary of certain provisions of the debt securities and the
Indenture is not complete. You should read carefully the provisions of
particular debt securities we may issue and the Indenture, including the
definitions in those documents of certain terms and of those terms made a part
of those

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documents by the Trust Indenture Act. All capitalized terms used but not defined
below have the meanings set forth in the Indenture.

GENERAL

The Indenture does not limit the aggregate principal amount of debt
securities which may be issued under it and provides that debt securities may be
issued in one or more series, in such form or forms, with such terms and up to
the aggregate principal amount that we may authorize from time to time. We will
establish the terms of each series of debt securities and such terms will be set
forth or determined in the manner provided in an officers' certificate or by a
supplemental indenture. The particular terms of the debt securities offered
pursuant to any prospectus supplement will be described in such prospectus
supplement. All debt securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened, without the
consent of any holder, for issuances of additional debt securities of that
series.

Unless otherwise provided in the prospectus supplement, debt securities may
be presented for registration of transfer and exchange and for payment or, if
applicable, for conversion and/or exchange at the office of the applicable
Trustee. At our option, the payment of interest may also be made by check mailed
to the address of the person entitled to such payment as it appears in the debt
security register.

The applicable prospectus supplement will describe the following terms of
any debt securities (the "Offered Debt Securities") in respect of which this
prospectus is being delivered (to the extent applicable to the Offered Debt
Securities):

- the designation (including whether they are senior debt securities, senior
subordinated debt securities or subordinated debt securities and whether
such debt securities are convertible and/or exchangeable) and aggregate
principal amount of the Offered Debt Securities;

- the percentage of the principal amount at which such Offered Debt
Securities will be issued;

- the date or dates (and whether fixed or extendable) on which the principal
of the Offered Debt Securities is payable or the method of determination
thereof;

- the rate or rates (which may be fixed, floating or adjustable) at which
the Offered Debt Securities will bear interest, if any, the method of
calculating such rates, the date or dates from which such interest will
accrue or the manner of determining such dates, the interest payment dates
on which such interest shall be payable and the record dates for the
determination of the holders of debt securities to whom interest will be
payable;

- the place where the principal of, premium, if any, and interest, if any,
on the Offered Debt Securities will be payable;

- any provisions relating to the issuance of the Offered Debt Securities at
an original issue discount;

- the terms and conditions upon which the Offered Debt Securities may be
redeemed (including the form or method of payment if other than in cash,
which may include securities of other issuers);

- the obligation, if any, that we may have to redeem, purchase or repay the
Offered Debt Securities pursuant to any mandatory redemption, sinking fund
or analogous provisions or at the option of the holder of any debt
securities and the terms and conditions of such redemption, purchase or
repayment (including the form or method of payment if other than in cash,
which may include securities of other issuers), and any provisions for the
remarketing of such debt securities;

- if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which the Offered Debt Securities shall be issuable;

11
<PAGE>
- if other than the principal amount thereof, the portion of the principal
amount of the Offered Debt Securities which will be payable upon
declaration of acceleration of the maturity thereof or in bankruptcy;

- any Events of Default in lieu of or in addition to those described in this
prospectus and remedies relating to such Events of Default;

- whether the Offered Debt Securities are convertible or exchangeable and,
if so, the securities or rights into which they are convertible or
exchangeable and the terms and conditions upon which such conversion or
exchange will be effected;

- any trustees, authenticating or paying agents, transfer agents or
registrars or any other agents with respect to the Offered Debt
Securities;

- the currency or currencies, including composite currencies, in which the
Offered Debt Securities will be denominated if other than the currency of
the United States of America;

- if other than the coin or currency in which the Offered Debt Securities
are denominated, the coin or currency in which payment of the principal
of, premium, if any, or interest on the Offered Debt Securities will be
payable (and the manner in which the equivalent of the principal amount
thereof in the currency of the United States is to be determined for any
purpose, including for determining the principal amount outstanding);

- if the principal of, premium, if any, or interest on the Offered Debt
Securities will be payable, at our election or the election of a holder
thereof, in a coin or currency other than that in which the Offered Debt
Securities are denominated and terms and conditions upon which, such
election may be made;

- if the amount of payments of principal of, premium, if any, and interest
on the Offered Debt Securities may be determined with reference to the
value, rate or price of one or more specified commodities, currencies or
indices, the manner in which such amounts shall be determined;

- whether and under what circumstances we will pay additional amounts on the
Offered Debt Securities held by a person who is not a United States of
America person in respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether we will have the option to redeem
such debt securities rather than pay such additional amounts;

- if receipt of certain certificates or other documents or satisfaction of
other conditions will be necessary for any purpose, including, without
limitation, as a condition to the issuance of the Offered Debt Securities
in definitive form (whether upon original issue or upon exchange of a
temporary Debt Security), the form and terms of such certificates,
documents or conditions;

- any other affirmative or negative covenants with respect to the Offered
Debt Securities;

- whether the Offered Debt Securities will be issued in whole or in part in
the form of one or more global securities and, in such case, the
depositary for such a global security and the circumstances under which
any global security may be exchanged for Offered Debt Securities
registered in the name of, and under which any transfer of such global
security may be registered in the name of, any person other than the
depositary;

- whether the debt securities are defeasible; and

- any other specific terms of the Offered Debt Securities.

Unless otherwise indicated in the prospectus supplement relating to the debt
securities, principal of and any premium or interest on the debt securities will
be payable, and the debt securities will be exchangeable and transfers thereof
will be registrable, at the office of the Trustee at its principal executive

12
<PAGE>
offices. However, at our option, payment of interest may be made by check mailed
to the address of the person entitled thereto as it appears in the debt security
register. Any payment of principal and any premium or interest required to be
made on an interest payment date, redemption date or at maturity which is not a
business day need not be made on such date, but may be made on the next
succeeding business day with the same force and effect as if made on the
applicable date, and no interest shall accrue for the period from and after such
date.

Unless otherwise indicated in the applicable prospectus supplement relating
to Offered Debt Securities, the debt securities will be issued only in fully
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof. No service charge will be made for any transfer or exchange of
the debt securities, but we may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection with a transfer or
exchange.

Debt securities may be issued under the Indenture as Original Issue Discount
Securities (as defined below) to be offered and sold at a substantial discount
from their stated principal amount. In addition, under Treasury Regulations it
is possible that the debt securities which are offered and sold at their stated
principal amount would, under certain circumstances, be treated as issued at an
original issue discount for federal income tax purposes, federal income tax
consequences and other special considerations applicable to any such Original
Issue Discount Securities (or other debt securities treated as issued at an
original issue discount) will be described in the prospectus supplement relating
to such securities. "Original Issue Discount Security" means any debt security
that does not provide for the payment of interest prior to maturity or which is
issued at a price lower than its principal amount and which provides that upon
redemption or acceleration of its stated maturity an amount less than its
principal amount shall become due and payable.

GLOBAL SECURITIES

Unless otherwise specified in the applicable Prospectus Supplement, the debt
securities of a series will be issued in the form of one or more global
securities that will be deposited with a depositary or its nominees identified
in the prospectus supplement relating to the debt securities. In such a case,
one or more global securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding debt securities of the series to be represented by such global
security or securities.

Unless and until it is exchanged in whole or in part for debt securities in
definitive registered form, a global security may not be registered for transfer
or exchange except as a whole by the depositary for such global security to a
nominee of the depositary and except in the circumstances described in the
prospectus supplement relating to the Offered Debt Securities. The specific
terms of the depositary arrangement with respect to a series of debt securities
will be described in the prospectus supplement relating to such series.

MODIFICATION OF THE INDENTURE

We and the Trustee may modify the Indenture with respect to the debt
securities of any series, with or without the consent of the holders of debt
securities, under certain circumstances to be described in a prospectus
supplement.

DEFEASANCE; SATISFACTION AND DISCHARGE

The prospectus supplement will outline the conditions under which we may
elect to have certain of our obligations under the Indenture discharged and
under which the Indenture obligations will be deemed satisfied.

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<PAGE>
DEFAULTS AND NOTICE

The debt securities will contain Events of Default to be specified in the
applicable prospectus supplement, including, without limitation:

- failure to pay the principal of, or premium, if any, on any debt security
of such series when due and payable (whether at maturity, by call for
redemption, through any mandatory sinking fund, by redemption at the
option of the holder, by declaration or acceleration or otherwise);

- failure to make a payment of any interest on any debt security of such
series when due;

- failure to perform or observe any other covenants or agreements in the
Indenture or in the debt securities of such series;

- certain events of bankruptcy, insolvency or reorganization with respect to
us; and

- certain cross defaults.

If an Event of Default with respect to debt securities of any series shall
occur and be continuing, the Trustee or the holders of not less than 25% in
aggregate principal amount of the then outstanding debt securities of such
series may declare the principal amount (or, if the debt securities of such
series are issued at an original issue discount, such portion of the principal
amount as may be specified in the terms of the debt securities of such series)
of all debt securities of such series and/or such other amount or amounts as the
debt securities or supplemental indenture with respect to such series may
provide, to be due and payable immediately.

The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give to holders of debt securities of any series notice
of all uncured defaults with respect to such series known to it. However, in the
case of a default that results from the failure to make any payment of the
principal of, premium, if any, or interest on the debt securities of any series,
or in the payment of any mandatory sinking fund installment with respect to debt
securities of such series, the Trustee may withhold such notice if it in good
faith determines that the withholding of such notice is in the interest of the
holders of debt securities of such series.

The Indenture contains a provision entitling the Trustee to be indemnified
by holders of debt securities before proceeding to exercise any trust or power
under the Indenture at the request of such holders. The Indenture provides that
the holders of a majority in aggregate principal amount of the then outstanding
debt securities of any series may direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, or of
exercising any trust or power conferred upon the Trustee with respect to the
debt securities of such series. However, the Trustee may decline to follow any
such direction if, among other reasons, the Trustee determines in good faith
that the actions or proceedings as directed may not lawfully be taken, would
involve the Trustee in personal liability or would be unduly prejudicial to the
holders of the debt securities of such series not joining in such direction.

The right of a holder to institute a proceeding with respect to the
Indenture is subject to certain conditions including, that the holders of a
majority in aggregate principal amount of the debt securities of such series
then outstanding make a written request upon the Trustee to exercise its power
under the Indenture, indemnify the Trustee and afford the Trustee reasonable
opportunity to act. Even so, the holder has an absolute right to receipt of the
principal of, premium, if any, and interest when due, to require conversion or
exchange of debt securities if the Indenture provides for convertibility or
exchangeability at the option of the holder and to institute suit for the
enforcement of such rights.

CONCERNING THE TRUSTEES

The prospectus supplement with respect to particular debt securities will
describe any relationship that we may have with the Trustee for such debt
securities.

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REPORTS TO HOLDERS OF DEBT SECURITIES

We intend to furnish to holders of debt securities all quarterly and annual
reports which we furnish to holders of our Common Stock.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 share 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 March 11, 1999, 14,223,915 shares of Common Stock were outstanding and
held of record by 57 holders of record.

The holders of our 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 our 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. We have never
declared or paid cash dividends on our 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 any shares of Common Stock which may
be offered by this prospectus and a related prospectus supplement will be upon
issuance and sale, duly authorized, validly issued, fully paid and
nonassessable.

PREFERRED STOCK

Our 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 they may designate. We believe 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 our 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 March 11, 1999, our authorized and outstanding Preferred Stock
consisted of 10,078 shares of Series A Preferred Stock. In addition, 300,000
shares of Junior Preferred Stock, Series C are authorized and reserved for
issuance in connection with our Stockholder Rights Plan which is described
below.

SERIES A PREFERRED STOCK

As of March 11, 1999, 10,078 shares of Series A Preferred Stock were issued
and 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. 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 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

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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 us 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 respective holders, 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.

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.

STOCKHOLDER RIGHTS PLAN

On December 15, 1998, our Board of Directors declared a dividend
distribution of one preferred stock purchase right (a "Right") for each share of
our Common Stock. The dividend was payable on December 30, 1998 to stockholders
of record at the close of business on December 28, 1998 (the "Record Date").
Each Right generally entitles the registered holder to purchase from us one
one-hundredth of a share of our Junior Preferred Stock, Series C, par value
$0.01 per share (the "Series C Preferred Stock"), at a purchase price of $65.25
per one one-hundredth of a share (the "Purchase Price"). The description and
terms of the Rights are set forth in the Rights Agreement (the "Rights
Agreement") between the Company and Harris Trust and Savings Bank as Rights
Agent.

The Rights will be evidenced by Common Stock certificates and not separate
certificates until the earliest of (I) ten days following the date of public
disclosure that a person or group (the "Acquiring Person") has acquired or
obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of the Common Stock, or (ii) ten business days following the
commencement or disclosure of an intention to commence a tender offer or
exchange offer by a person or group other than the Company and certain related
entities if, upon consummation of such offer, such person or group would
beneficially own 15% or more of the outstanding shares of Common Stock (the
earlier of such dates being the "Distribution Date"). Until the Distribution
Date (or earlier redemption or expiration of the Rights), the transfer of Common
Stock will also constitute transfer of the associated Rights. The Rights will
expire at the close of business on December 30, 2008, unless earlier redeemed by
the Company.

If a person acquires beneficial ownership of 20% or more of our Common
Stock, or if we are the surviving corporation in a merger with an Acquiring
Person and the Common Stock remains outstanding and unchanged, the Rights will
"flip in" and entitle each holder of a Right, with certain exceptions, to
purchase (upon exercise at the then-current market price) that number of shares
of Common Stock having a market value of two times the Purchase Price.

In the event that, following the Distribution Date, we are acquired in a
merger or other business combination in which the Common Stock does not remain
outstanding or is changed or 50% or more of the Company's consolidated assets or
earning power is sold, leased, exchanged, or otherwise transferred or disposed
of (whether in one transaction or a series of related transactions), the Rights
will "flip over" and entitle each holder of a Right to purchase, upon the
exercise of the Right at the then-current Purchase Price, that number of shares
of common stock of the acquiring company (or, in certain circumstances, one of
its affiliates) which at the time of the transaction would have a market value
of two times the Purchase Price.

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Series C Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Series C Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share, but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Common
Stock, if greater. In the event of liquidation, the holders of the Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100 per
share, but will be entitled to an aggregate payment of 100 times the payment
made per share of Common Stock, if greater. In the event of any merger or other
business combination in which Common Stock is exchanged, each share of Preferred
Stock will be entitled to receive 100 times the amount received per share of
Common Stock. Customary anti-dilution provisions protect these rights.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

We are a Delaware corporation and are 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 our
outstanding voting stock) from engaging in a "business combination" (as defined
in Section 203) with us for three years following the date that person becomes
an interested stockholder unless (a) before that person became an interested
stockholder, our 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 our 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 us 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 our
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.

Our 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 our 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 any 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

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(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 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 our assets 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 our
stockholders 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 grater
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.

PLAN OF DISTRIBUTION

We may sell securities on a negotiated or competitive bid basis to or
through one or more underwriters or dealers. We may also sell securities
directly to institutional investors or other purchasers or through agents. Any
underwriter, dealer or agent involved in the offer and sale of securities, and
any applicable commissions, discounts and other items constituting compensation
to such underwriters, dealers or agents, will be set forth in the prospectus
supplement.

We may effect distribution of securities from time to time in one or more
transactions at a fixed price or prices (which may be changed) or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.

Unless otherwise indicated in a prospectus supplement, the obligations of
any underwriters to purchase securities will be subject to certain conditions
and the underwriters will be obligated to purchase all of the applicable
securities if any are purchased. If a dealer is used in a sale, we may sell the
securities to the dealer as principal. The dealer may then resell the securities
to the public at varying prices to be determined by the dealer at the time of
resale.

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We or our agents may solicit offers to purchase securities from time to
time. Unless otherwise indicated in a prospectus supplement, any agent will be
acting on a best efforts basis for the period of its appointment.

In connection with the sale of securities, underwriters or agents may
receive compensation (in the form of discounts, concessions or commissions) from
us or from purchasers of securities for whom they may act as agents.
Underwriters may sell securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
securities may be deemed to be underwriters as that term is defined in the
Securities Act of 1933, and any discounts or commissions received by them from
us and any profits on the resale of the securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. Any
such underwriter or agent will be identified, and any such compensation received
from us will be described, in the related prospectus supplement.

Underwriters, dealers and agents may be entitled, under agreements with us,
to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.

If so indicated in the prospectus supplement, we will authorize agents and
underwriters to solicit offers by certain specified institutions to purchase
securities at the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Institutions with whom such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions but shall in all cases be subject to our approval. Such contracts
will be subject only to those conditions set forth in the prospectus supplement
and the prospectus supplement will set forth the commission payable for
solicitation of such contracts. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the securities
shall not be prohibited at the time of delivery under the laws of the
jurisdiction to which the purchaser is subject. The underwriters and other
agents will not have any responsibility in respect of the validity or
performance of such contracts.

Certain of the underwriters or agents and their associates may engage in
transactions with and perform services for us or our affiliates in the ordinary
course of their respective businesses.

The securities may or may not be listed on a national securities exchange or
traded in the over-the-counter market (other than the Common Stock, which is
quoted in the NASDAQ National Market). No assurance can be given as to the
liquidity of the trading market for any such securities.

If underwriters or dealers are used in the sale, until the distribution of
the securities is completed, SEC rules may limit the ability of any such
underwriters and selling group members to bid for and purchase the securities.
As an exception to these rules, representatives of any underwriters are
permitted to engage in certain transactions that stabilize the price of the
securities. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the securities. If the
underwriters create a short position in the securities in connection with the
offerings (i.e., if they sell more securities than are set forth on the cover
page of the prospectus supplement) the representatives of the underwriters may
reduce that short position by purchasing securities in the open market. The
representatives of the underwriters may also elect to reduce any short position
by exercising all or part of any over-allotment option described in the
prospectus supplement. The representatives of the underwriters may also impose a
penalty bid on certain underwriters and selling group members. This means that
if the representatives purchase securities in the open market to reduce the
underwriters' short position or to stabilize the price of the securities, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering. In general,
purchases of a security for the purpose of stabilization or to reduce a short
position could cause the price of the security to be higher than it might be in
the absence of such purchases. The imposition of a penalty bid might also have
an effect on the price of the securities to the extent that it discourages
resales of the

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securities. We make no representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the securities. In addition, the representatives of any underwriters
may determine not to engage in such transactions or that such transactions, once
commenced, may be discontinued without notice.

LEGAL MATTERS

McDermott, Will & Emery, Chicago, Illinois, will pass upon the legality of
the securities offered by this prospectus.

EXPERTS

The audited consolidated financial statements incorporated by reference in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.

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$73,000,000

FIRST SIERRA FINANCIAL, INC.

4,000,000 SHARES

COMMON STOCK

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PROSPECTUS SUPPLEMENT

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JUNE 16, 1999

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