* * * Sierra Cities Special Report * * *

by Charlie Lester and Kit Menkin

On the block with a hoped sale date before October 1, 2000, this company joined Leasing News "list" due to its Second Quarter loss and the many rumors from reliable sources that the company is about to be sold. Chairman Tom Depping has told his employees there will be an announcement before September 30th.

Reportedly the man who originated the First Sierra concept was Bob Quinn, not Tom Depping. Bob Quinn approached Tom Depping in 1993 after Denrich was purchased by ATT Capital in December, 1992. Bob did not feel ATT was dedicated to their Private Label Program so he approached Tom Depping as an old friend and business acquaintance about forming a new company to do nothing but Private Label.

From that meeting in 1993 to April 1994, Tom Depping sold some movers and shakers in Houston (check the Board of Directors for names) to raise the capital to start First Sierra. When Bob Quinn left ATT in May, 1994, he and Tom along with Fred Van Etten, Pete Smith and Sandy Ho actually began the operations at First Sierra.

"SierraCities.com (NASDAQ:BTOB) has harnessed the power of the Internet to create a totally new way for small business owners to get the funding they need. The leader in online banking and financing, we've automated the funding process to offer quick and convenient access to loans, leases, and a full range of comprehensive banking services. Since 1994, SierraCities.com has funded over $2.5 billion in small business loans."

The above is http://www.sierracities.com/about_us.asp

The company was basically started by Thomas J. Depping. 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, Executive Vice-President and Chief Financial Officer has been with the company since 1995. David L. Pederson joined in 1998 and is Executive Vice-President and Chief Financial Officer. The company has had many other vice-presidents, according to listings in past United Association of Equipment Leasing Membership Directories.

"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. It basically had a "private label" and "wholesale/retail" approach to equipment leasing." This information is from 8/13/99 security filings.

The company in 1999 was First Sierra Financial, Inc., Houston, Texas and on January 26,2000 "merged" and changed its name to SierraCities.com, Inc., a Delaware Corporation with corporate address in Houston, Texas.

HOUSTON--(BUSINESS WIRE)--July 3, 2000--SierraCities.com Inc. (Nasdaq:BTOB), an innovator of technology solutions for online B2B financing, today announced that it has withdrawn its recently approved application to become a bank holding company. In April, the Company announced that its application was approved by the board of governors of the Federal Reserve.

Thomas Depping, president and CEO, said, "Although our application with the Federal Reserve was approved in April, we have decided not to implement the banking strategy at this time as we are in the process of potentially splitting our technology and finance operations." On April 24, SierraCities.com announced that it retained Donaldson, Lufkin & Jenrette to advise on the potential division of the Company's technology and finance operations.

SierraCities reports $7.7 million loss for second quarter

"The Company reported a net loss of $7.7 million for the second quarter, including non-recurring pre-tax charges of $6.9 million. On an operating basis, the Company reported a loss of $3.4 million compared to net income of $252,000 in the second quarter of 1999. Second quarter operating results were largely impacted by reduced gains from asset sales resulting from a poor secondary asset market during the quarter. The asset sales completed during the quarter resulted in gains of $957,000 compared to $3.5 million in the second quarter of 1999.

"The Company incurred a one-time $6.0 million pre-tax charge in the second quarter related to the restructuring or elimination of underperforming operations." Sierra Cities Press Release

First Sierra changed its name this year to migrate from purchasing smaller leasing companies with the small leasing company methods and sales forces, from utilizing lease brokers then to inside salesmen to an internet aimed company, securizing leases and "selling off" or "brokering" leases to other funders in a lesser extent. The company changed its major direction in the last twelve months to become a "dot.com," if you will accept this idiom.

Sales were originally generated with the purchase of the smaller leasing company, who joined the parent with funds available often a lower rate and supposedly less rules and regulations than the small leasing companies funding sources. This type of sales generation series appeared to generate more sales, but in affect, these smaller leasing companies had discounted, brokered, or borrowed for most of their business and the asset was the management and sales niche of the smaller leasing company. The concept was for sales from the new company generated sales for the larger company and as long as new companies were being added, sales appeared to grow. In effect, many of the smaller companies sales diminished with the original principal leaving or the entrepreneurial spirit changing in the operation of gathering business.

As lease matured, or defaulted, or brought up heavy servicing problems, the concepts begins to collapse.

General Interlease Corporation (GIC) 6/96
( a Florida, Colonial Pacific Pegasus Lease Dealer )
Corporate Leasing Group 9/96
Lease Pro, Inc. 2/97
Heritage Credit Services, Inc. 5/97
Universal Fleet Leasing 5/97
Public Funding Corporation 6/97
Northcoast Capital Leasing Company 9/97
Financial Management Services dba Cascade Leasing 9/97
Heritage Credit Services of Oregon 11/97
All American Financial Services 11/97
Independent Capital Corporation (ICC) 3/98
Integrated Lease Management (ILM) 3/98
OMNI Leasing 4/98
Vendor Leasing Services 4/98
TFS, Inc. dba The Money Source 6/98
21st Century 6/98 Republic Group, Inc. ( Anaheim ) 7/98
Suffolk Street Group ( England ) 7/98
Brooker Montague Leasing Limited 8/98
Titan Finance Limited 10/98
Fifth Third Leasing 6/99
Capital Alliance Financial 12/99

Bruce Kropshot arranged the first three acquisitions as the investment banker. He would make no comment for the record or off the record.

Many of the principals of these companies are now either retired or started their business financial companies such as Charlie Lester, Don Zaretsky, Brent Hall ( son of Oren Hall ).

Some believe the company changed with the acquisition of Republic Group, Anaheim, California

All did not want to speak on the record for the fear of being sued for their opinion by Sierra Cities. If there is a sale, they may comment afterwards. Several did not take stock with the sale, but others did, so they would prefer to wait until the announcement.

Five possibilities:
1. Sell the finance division.
2. Sell the technology division.
3. Sell both the finance and technology divisions.
4. Enter into a joint venture with a stronger company that would relieve the need for securitization.
5. Keep doing business as usual.

These comments are from many of them and others in the industry:

Bob Quinn was a Sr. VP and Chief Credit Officer who ran the Jupiter operations until he and Tom had a falling out when Tom moved the credit function to Houston in 1998. From that point on, he and Tom fought like cats and dogs until Bob was finally kicked out in early 1999. Pete Smith left First Sierra in late 1999 as did Charlie Lester. Peter Smith says he plans to join Bob in his new company that will be announced soon.

Charlie Lester believes", the acquisition of the Republic Group was the downfall of First Sierra. They took the "hard sell telemarketing techniques" of Republic Group and tried to make the other companies who had tried and profitable sales techniques adjust to the Republic Group methods. High yields, but questionable sales techniques."

"I agree with Charlie Lester since he does not want to be associated with the criminal element that Republic Group in California brought to First Sierra.... "
name with held

"If you go back to their securitization issues and review all the conditions, reserves, letters of credit issued and factor in attorneys' & credit rating fees their cost of funds was much higher than expected in light of the losses encountered. Whether it was to the point where they had low spreads, no spreads or it was costing them money to do deals."
name with held

Another theory is they paid too much for the operations they bought, which were little more than brokerage offices and continued to pay the officers of these firms high salaries, in addition to the cash and stock given for these operations."
name with held

Leasing News has attempted to obtain verification of our list, to learn any reaction or comment from various officers or spokesmen at Sierra Cities, but has been unsuccessful.

VerticalNet to Acquire SierraCities For $133 Million came the annoucement in November, 2000

The setting in May 1997--GIC, Corporate Capital, Lease Pro, Heritage Credit and Universal Fleet Leasing had been acquired, but there was no Houston sales management team in place.

In May 1997, Tom Depping called a summit meeting of the top 25 previous owners, key salespeople and HQ management in Houston to lay out a new organizational structure for the company. Under this structure the branches expanded and grew the sales volume. Unfortunately, the acquisition of the Republic Group took place in mid-1998 and Depping fell in love with the 20-35% yields that they were realizing. When people like Eric Barash, Mike Wing, Tom Madonna, Oren Hall and I told Depping how they were screwing the customers with borderline and flat out illegal tactics, he blew us off as being sour grapes.

At the Chairman's Club in Los Cabos, Mexico in February 1999, several of the "kids" from Republic bragged about the tactics they used such as transposing payment amounts. If the payment was quoted at $314.57, they would doc the deal at $341.57. If the customer should catch it, they would say it was a typo and re-doc. Most of the time, the customer did not catch it or they would play guts ball with the customer and tell him that he wrote the payment down wrong.

One side note---the "kids" from Republic got into a food fight after the dinner buffet and the hotel management threatened to call the police to make them stop, but almost everything on the buffet table had been thrown by that time. Later at the Giggling Marlin, they got drunk and raised hell with Depping, Jim Raeder and Mark McQuitty present. Great image for a publicity held company.

In my opinion, the meeting in Los Cabos was the beginning of the end for First Sierra. Depping and Raeder became best buddies and Depping made Raeder the VP in charge of the branches. At age 33, Raeder wanted young studs to take over the acquired companies so he could make the companies over in the image of Republic. He spent money like it was water to have walls taken down and cubicles installed since he felt that opened cubes made for a more energetic office. He ignored the proven salespeople and ordered the branches to hire new telemarketers. The trend towards high-pressure telemarketing chased away many established salespeople with vendor relationships. In addition to wasting money remodeling the branches and losing established salespeople, they found that telemarketing approach did not work without a large staff that was constantly coached and encouraged by a sales manager on a daily basis.

Then came the charter to become a bank. It did not take long before people like Bob Henchey realized they could not use the Republic approach if they were to meet federal guidelines. The last I heard, Bob Henchey is still the President of the FSF (SierraCities.com) Operating Company. Changes were made and the yields at Republic dropped almost overnight. The emphasis on telemarketing was reduced in the branches and volume continued to drop like a rock.

In June 2000, Depping fired Jim Raeder for "cause" with no severance package. Mark McQuitty was fired at the same time with a severance package. The word is that spent over $1,000,000 for a May meeting of all the salespeople in San Antonio. If the money had not been spent for that meeting, First Sierra would have shown an operating profit for the quarter.

Back tracking a little. Two other negatives hit First Sierra in late 1999 and into 2000.
1. The securitization market went to hell in a hand basket and First Sierra was married to that market.
2. The name was changed from First Sierra to SierraCities.com in an attempt to capitalize on the dot.com trend. Unfortunately, the timing of the name change took place within weeks of the dot.com collapse. Depping did not realize that dot.com is a website address, not a company name.

Couple the Republic debacle with the securitization and dot.com issues and the failure of First Sierra became eminent.

Other failure reasons:

-Depping's ego and lack of loyalty. The best line I have heard about Tom is "He has no old friends, just new friends and wannabes".
-Company game plans developed in resort locations where more emphasis was placed on expensive rooms, golf and booze instead of work. That is why the plans changed so often.
-Changing game plans caused confusion and lack of direction in the branches and Houston.
-The ethics of First Sierra management was questioned by people like Oren Hall from the very git-go.
-The loss of experienced executives like Bob Quinn, Mike Wing, Oren Hall, Tom Madonna, Valerie Hayes Jester, Fred Van Etten, Danny Fritz, Pete Smith, Helen Darrington, Dennis Meyer, Don Zaretsky, Bill Stauder, Ruth Spiers (Tom's AA for 15 years at First Sierra and previous companies) and the list goes on and on. You can't lose this many top people without the troops losing confidence in their own futures.
-Lavish spending for suites, booze and golf outings for the top guys. My room at the Chairman's Club in Los Cabos was over $500 per night. My room for the prior manager's meeting in Scottsdale was over $500 also. I don't know what the cost of the suites for Depping and others cost, but they had to be extremely expensive. At the same time money was being spent like this, the branches were being hit with major cost cutting programs. Go figure!!

Take care and keep up the good work for the industry.

Charlie Lester

At American Leasing, I interviewed two ex-Republic Leasing, Anaheim Sales people.

They told me how they were trained to make switches, just as Charlie Lester explained. Or bid for a lease, using a very low 36 month lease, but when they went to sign it, change the term to 48 months or 60 months. They were taught how to sell in this manner. Many lessees did not catch the change, or if they did, they convinced the sales people were taught tactics to do this.

Another was the weekly contest of who could charge the highest documentation fee. It was not uncommon to get $1,000 on a $25,000 lease. The winner not only got a percentage, but won the contest for a large television set or a monthly contest top prize of a trip to Cabo San Lucas or Hawaii. The salesman I interviewed told me he once charge $800 documentation fee on a $5800 lease...but he didn't win the prize as one salesman got $950 on a $4,000 lease ( I know this is hard to believe, but that is what he told me and how they would quote on partial equipment or partial orders, take the deal away with a low rate, but when they had the full list, they would change the rate and rarely were they "caught" and when they were, the sales techniques and procedures of how to close the sale...so What Charlie Lester reports, I can tell you was verified personally from these two interviews with former Republic Leasing of Anaheim salesmen ).

VerticalNet, the Internet's leading business-to-business e-commerce enabler, announced that it has entered into an agreement to acquire SierraCities.com, which offers one of the Internet's fastest and most comprehensive business credit solutions, for $7.00 per SierraCities share, or an aggregate of $133 million, payable in VerticalNet stock and subject to a collar provision described below. The acquired business, which will operate as VerticalNet Credit, will add the key functionality of enabling credit and financing solutions to the B2B company's horizontal offerings across its 57 industry-specific online marketplaces and will be leveraged throughout its three strategic business units: VerticalNet Markets, VerticalNet Solutions, and VerticalNet Exchanges.
Since its founding in 1994, SierraCities has leveraged its proprietary technology and the Internet to build a leading business in originating and servicing small business equipment leases and term loans of principal amounts less than $100,000. SierraCities' solution allows an applicant to apply online, receive final approval in less than two minutes and receive funding in as little as 24 hours. The company has processed more than 300,000 applications and originated more than $3 billion of loans and leases. With more than 95,000 active business customers and an excellent credit quality track record, SierraCities has strong core competencies in small business finance.
Through its experience in originating business credit, SierraCities has developed a core competency in automating credit risk assessment of small to medium sized businesses. Capitalizing on that core strength, SierraCities has developed solutions that allow it to facilitate the extension of trade credit by providing suppliers with real time credit scoring of their buyers. This automated Web-based solution is faster, less expensive and more accurate in terms of assessing credit risk than traditional offline methods. SierraCities gives VerticalNet an ideal platform for providing Web-based credit solutions to its target markets.
"Some of the barriers to conducting business online are assessing the creditworthiness of your trading partners, establishing credit and financing terms and providing a mechanism for payment," said VerticalNet's President and CEO, Joe Galli. "This is why credit assessment, payment and financing services are key elements of our strategy of providing a broad range of business-to-business e-commerce enablement solutions to our customers. SierraCities' product offerings will enhance the features and functionality of VerticalNet's online marketplaces. These improved product offerings should drive customer satisfaction and usage and result in higher and recurring e-commerce revenue streams. VerticalNet has two types of customers - buyers and suppliers. SierraCities' credit solutions will afford buyers the liquidity to make online purchases and will allow suppliers to manage credit decisions more effectively."
"This merger will benefit our customers and shareholders," said SierraCities' President and CEO, Thomas Depping. "We have a great deal of respect and appreciation for VerticalNet's vision and commitment to success, all in a corporate culture that fits well with ours. Together, we'll be able to leverage one another's technologies and customer bases to create a business that is much stronger than what either of us has on a stand-alone basis. With VerticalNet as our partner, we are more confident than ever that we will capitalize on our position as the Internet's leading provider of real time, comprehensive credit solutions for small to medium sized businesses and will continue to grow our vendor relationships."
VerticalNet will leverage and tightly integrate SierraCities'offerings throughout its three business units by implementing the following:
VerticalNet Markets expects to market trade credit services as well as financing solutions throughout its 57 online marketplaces. Furthermore, VerticalNet Markets will make available the SierraCities solutions to its business partners. In addition, VerticalNet will market its e-commerce enablement services to SierraCities' customer base and vendor network.
VerticalNet Solutions plans to integrate SierraCities' business credit offering into its solutions stack, increasing the division's e-commerce enablement capabilities.
VerticalNet Exchange intends to use SierraCities' credit decisioning tools to qualify the market participants of NECX and future exchanges.
"We expect that the SierraCities acquisition will be accretive to VerticalNet's 2001 cash earnings and 2001 revenues on a per share basis," said VerticalNet's Executive Vice President and CFO, Gene S. Godick. "In addition, we believe that we can realize synergies from this acquisition and expect that it will strengthen our cash position."
Godick continued, "We are confident that we will be able to integrate SierraCities effectively. As a condition to closing, SierraCities will move substantially all of its loan and lease portfolio off balance sheet. We also plan to rearrange SierraCities' funding strategy so as to minimize the size of the balance sheet associated with the SierraCities business and to significantly reduce our exposure to credit risk. Currently, SierraCities funds loans and leases with equity, then moves them into a warehouse facility provided by one of its credit sources and from time to time effects a securitization of these assets. Going forward, VerticalNet intends to establish flow arrangements with selected financial institution partners pursuant to which loans and leases will be originated by SierraCities and immediately sold for a fee to flow partners. Given SierraCities' excellent credit history, we are confident that we will be able to arrange flow agreements with financial institution partners on a timely basis." The transaction will take the form of an exchange offer in which VerticalNet will offer to exchange VerticalNet shares with a value of $7.00 for each SierraCities share, subject to a collar. The number of VerticalNet shares to be delivered will be based on the average closing price of VerticalNet's stock over the ten trading days ending two days before the closing of the offer. The collar functions as follows: if the average price is (1) less than $21, the SierraCities shareholders shall receive 0.3333 shares for each SierraCities share, (2) between $21 and $35, SierraCities shareholders shall receive a number of VerticalNet shares equal to $7.00 divided by the average price, (3) between $35 and $51, the SierraCities shareholders shall receive 0.2 VerticalNet shares for each SierraCities share, and (4) greater than $51, the exchange ratio shall be $10.20 divided by the average price. SierraCities will have the right to terminate the merger agreement if the average price is less than $15. The exchange offer will be followed by a merger in which VerticalNet stock will be issued at the same exchange ratio paid in the exchange offer.
The offer is subject to the tender of two-thirds of the outstanding SierraCities shares and other customary conditions. Holders of approximately 20% of the outstanding SierraCities shares have agreed to tender their shares into the exchange offer. The parties have agreed to commence the offer no later than November 17. The parties hope to close the transaction by the end of the year. The transaction will be accounted for using the purchase method and is expected to be tax-free to SierraCities stockholders.

VerticalNet (www.verticalnet.com) provides end-to-end e-commerce solutions targeted at distinct business segments through three strategic business units: VerticalNet Markets includes 57 industry-specific web sites designed as online vertical trading communities and provides hosted e-commerce and community capabilities for corporate divisions and mid-size businesses; VerticalNet Exchanges focuses on direct material open and spot markets; VerticalNet Solutions builds digital marketplaces for global 2000 customers, consortia and neutral Net market makers. VerticalNet International leverages the Company's three strategic business units to create global Internet B2B marketplaces, offering products and services internationally and partnering with companies that have strong local presence and domain expertise.