What it Takes to Build a New Leasing Company Today

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1 What it Takes to Build a New Leasing Company Today Presented by Laird M. Boulden President Lombard US Equipment Finance Corporation October 14, A member of The Royal Bank of Scotland Group

2 The Royal Bank of Scotland Founded in 1727 $600 billion in total assets (as of 12/31/01) Enjoys a Lead Position in the UK #1 in corporate and commercial banking #2 in retail banking #1 top service provider (rated by customers in 2000) #1 in offshore banking #1 in private banking #1 in asset financing #5 largest bank in the world by market capitalization (as of 1/31/02) #8 Fortune Global Most Admired Companies (April 2002) Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

3 Lombard Overview The asset finance arm of The Royal Bank of Scotland Group One of the top asset finance companies in the world More than $8.6 billion lent in 2001 Assets exceed $26 billion More than 2,100 staff worldwide At Lombard, we specialize in solutions. We take a consultative approach to your business: simply put, we believe in relationships first and satisfaction always. Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

4 A Brief History of Lombard 1861: founded as the North Central Wagon and Finance Company 1947: Eric Lombard Knight purchased a small finance company called Lombard banking 1958: The North Central Wagon Co. was acquired by National Provision Bank (later to become part of NatWest), which went on to purchase Lombard Banking in s: growth of asset-based financing in all ticket sizes, quickly becomes one of Europe s leading finance companies : expansion within the large-ticket leasing market in the UK, Europe and the US 2000: joined The Royal Bank of Scotland as part of the merger with NatWest 2002: formed Lombard US Equipment Finance Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

5 Lombard US Equipment Finance 40 asset finance professionals 10 offices across the US Services include: Equipment financing loans & leases, ranging from simple to complex structures Turnkey financing for land, buildings and equipment Transactions from $5 million - $250 million Terms from 2-10 years Lombard US Equipment Finance is a secured lender providing structured financial products to meet the equipment and growth needs of mid-sized and large businesses throughout the US. We are a premier capital provider with the strength, the reputation and the make it happen attitude you won t find anywhere else. Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

6 Background Lombard US Equipment Finance Corporation A member of The Royal Bank of Scotland Group Inception Timeline Decision To Proceed With US Initiative Q Strategic Plan Approved Q Mgmt Team in Place Dec Execution of Implementation Plan Q Open For Business 3/15/02 Fundings Through 9/02 $600 million Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

7 Decision Making Process Business Need: Incremental Growth Opportunity Why the US Leasing Market? Limited domestic UK growth prospects Lombard UK Market Share is approximately 26% US Leasing Market accounts for 50% of Global leasing market* (source: World Leasing Yearbook 2001) Leasing projected to reach $280 bn in 2001** Approximately 80% projected to arise from US Leasing Well placed to compete effectively * Source: World Leasing Yearbook 2001 ** Source: US Dept. of Commerce, Economics & Statistics Administration and ELA Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

8 Decision Making Process Build vs. Buy? High purchase price for franchise positions Portfolio quality Attract management / recruit team Execution Risk Build Buy Pro Con Low Upfront Cost No Hidden Portfolio Surprises Less Integration Risk Execution Risk Short Term Losses Ability to Attract Talent Market presence Track record Instant Profitability High Upfront Cost Potential portfolio issues Integration Risk Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

9 Timing Is Right Industry consolidations have Narrowed the competitive playing field Forced customers to seek alternative sources for funding Portfolio Concentrations Competitive Dynamics / Advantage Multinational Bank Access to low cost of funds (AA Rating) On equal footing with key competitors Minimal exposure to market No credit quality issues Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

10 Business Approach / Strategy Accelerated Organic Growth Seek best available talent to build a team Utilize known best practices to build a solid foundation Direct Marketing approach Partnering approach with customers Disciplined credit standards Indirect complement Leverage existing support services Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

11 Implementation Pre - Launch Strategic Plan Organizational Structure Project Management Team Implementation Plan Timelines Allocation of Resources Issues to be Addressed Regulatory Requirements Marketing / Sales Requirements Credit Requirements Transaction Processing & Management Finance / Accounting Legal (Transactional and Organizational) Systems Outsourcing Facilities Business Launch Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

12 Post Business Launch Continue to Monitor implementation progress Revisit priorities Re-allocate resources Stay focused Outsource as required Legal Appraisals Recruiting Tax Expertise Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

13 Key Success Factors Leadership Strong Backing / Source of Funds Development of Clear Vision & Strategy Experienced Team with Expertise across all areas of the business Realistic / Detailed Implementation Plan Systems / Procedures Lombard US Equipment Finance A member of The Royal Bank of Scotland Group

14 What it Takes to Build a Leasing Company Today Presented by Don Campbell President Commerce Commercial Leasing

15 Agenda Must Haves Decision Making Timing Business Approach Implementation Success Factors

16 ! Equity! Debt Must Haves Capital Management Team! Proven Track Record! Synergies Stream of Business! Vendors! End Customers! Captive

17 The Decision Making Process "Your Strategy " Your Niche " Void in a Given Market " Are Your Backers / Owners Committed

18 Is The Timing Right "Funding " Your Niche " Passion " Team in Place

19 Business Approach Strategy "Vendor " Direct " Captive " Broker "Experience

20 Implementation IS EVERYTHING! " Write the Plan " Implement the Plan " Manage the Process " Get the Team Aligned

21 Critical Success Factors "1st 90 Days " Volume " Profit " Controls

22 What it Takes to Build a Leasing Company Today Presentation to the 41 st Annual Convention of the Equipment Leasing Association October 14, 2002 Robert E. Radway President, Merrill Lynch Capital Commercial financing is generally offered through Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc. California loans made pursuant to a Department of Corporations California Finance Lenders License. Equity products are offered through other affiliates of Merrill Lynch Capital. Certain conditions, restrictions and costs may apply to the products and programs described, which are subject to change.

23 MERRILL LYNCH CAPITAL Business Overview Corporate Finance Equipment Finance Real Estate Finance Industry and product specialty teams Products: Cash Flow Based Senior Debt Asset Based Senior Debt Term Loan Finance Lease Low Leverage Senior Debt High Leverage Senior Debt Mezzanine Tax Lease Mezzanine Equity Co-Investment Equity/JV Entity Finance Transaction Range: Average Hold Size: $10 - $250MM (Asset Based) $10 - $200MM (Cash Flow) $2 - $10MM (Mezzanine) $.5 - $5MM (Co-investment) $25MM (Asset Based) $15MM (Cash Flow) $3 - $40MM $8MM $5 - $30MM (LL Senior Debt) $5 - $20MM (HL Senior Debt) $2 - $15MM (Mezzanine) $2- $10MM (Equity/JV) $10MM (Senior Debt) $5MM (Mezzanine/Equity) 2

24 MERRILL LYNCH CAPITAL Decision Making Process Strategic fit - Desire to make long-term commitment to middle-market - Market and operational synergies with existing activities - Diversification benefits Market and competitive dynamics - Mid-size companies represent a large and growing sector of the economy - Financing opportunities are numerous and constantly regenerating - Favorable competitive landscape Execution capabilities - Sufficient liquidity and a competitive cost of funding - Ability to attract talent - Use of existing infrastructure Financial profile - Stable, predictable earnings profile - Attractive risk adjusted returns 3

25 MERRILL LYNCH CAPITAL Business Plan Highlights Build market leading franchise within commercial finance - National coverage in each business segment - Leverage Merrill Lynch brand while creating separate commercial finance identity Equipment Finance will represent +/- 25% of the business - Focused on providing structured finance solutions around essential use/revenue generating assets - Public and private companies with revenues of $25-$500 million and higher - Broad cross-section of industries and equipment types Build infrastructure capable of supporting large, diversified business with multiple business units and broad product capabilities - Centralized operating platform - Shared technology 4

26 MERRILL LYNCH CAPITAL Business Plan Highlights Focus on complex non-commodity transaction opportunities - Offer attractive risk/reward characteristics - Require well-established underwriting and risk management expertise Adopt well-defined, thoroughly vetted risk management strategies - Achieve superior portfolio performance throughout the economic cycle Attract and retain top talent - Culture and compensation system that promote the achievement of both near- and longer-term financial and strategic objectives - Insist on the highest levels of integrity, accountability and mutual respect within a team oriented environment 5

27 MERRILL LYNCH CAPITAL Implementation Streamlined, predictable credit process - Must be able to deliver on value proposition National scope/rapid achievement of critical mass - Reduce risk of adverse portfolio selection - Full range of products Centralized credit, documentation and servicing - Tight control environment - Hands-on credit approval process - Consistent adoption of risk management strategies Deployment of proven loan and lease accounting systems Recruitment of experienced professionals 6

28 MERRILL LYNCH CAPITAL Is the Timing Right? Competitive dynamics are attractive - Consolidation among commercial finance companies - Bank retrenchment - Publicized failure of several independent finance companies has curtailed access to the capital markets Attractive market fundamentals - More conservative lending structures - Improved pricing Results to date are encouraging - All major recruiting needs have been met - New business activity has been strong since opening our doors in June - Backlog continues to grow Strong corporate support 7