THE LEASE VERSUS BUY DECISION

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1 Over the past thirty years, U.S. Bancorp Equipment Finance has grown into one of the largest bank affiliated industrial finance companies in the nation. With total assets in excess of $8 Billion and offices across the country, U.S. Bancorp Equipment Finance is a major national funding source for companies in almost every market sector. US Bank has over 160 Billion in total assets and we are now one of the largest bank backed leasing companies in America. Our transactions range in size from $5,000 to $25,000,000 and our products range from traditional loans to a variety of lease oriented products. Our Machine Tool Finance Group is devoted exclusively to providing quality financial solutions for customers interested in acquiring metal cutting, fabrication or plastics equipment. We understand the equipment and the general profile of the businesses who use it. We use this expertise to structure transactions which are more competitively priced and which offer our customers a greater degree of flexibility than traditional bank loans. We believe that our flexibility and creativity are our greatest strengths. As a result, we look forward to customizing financing alternatives which make good business sense for our customers and which help us to establish long term relationships. For customers which currently bank with U. S. Bank, we work closely with account officers to establish the most beneficial financing structure. THE LEASE VERSUS BUY DECISION Leasing an asset offers significant potential advantages over purchasing that same asset. It conserves working capital, liquidity and credit lines and offers 100% financing. A "true" lease (as more fully described below) offers "off balance sheet" treatment and is treated as a monthly expense. As a result, the entire lease payment is tax deductible. Because the lessor becomes the owner of the asset, it can depreciate that asset. These depreciation benefits allow that lessor to lower the lessee's monthly lease payments. Outlined below are a few issues that may be factors in determining whether to purchase an asset for cash, borrow the funds to acquire the asset or lease that asset

2 Pricing: Depending upon the ultimate structure of the lease, it is very likely that the overall cost of leasing an asset may be less than the cost of borrowing funds to purchase that asset. Many first time leasing customers do not realize this until we have an opportunity to present our lease proposal. Even the largest, most financially sophisticated, corporations lease capital equipment (including rail cars, aircraft, marine vessels, machine tools, rolling stock, communications equipment, construction equipment, medical equipment, food processing equipment, etc.). Alternative Minimum Tax ("AMT"): The basic concept of AMT is to ensure that all corporations pay a certain minimum amount of tax regardless of the fact that their tax obligation might be reduced below that amount by deductions such as accelerated depreciation. It was designed to address situations in which profitable corporations eliminated a substantial portion of their tax liability by deducting depreciation and other non-cash "expenses." In essence, because of AMT, it is possible for a company to generate more depreciation than it is permitted to deduct. In such situations, leasing may be an excellent option because the Lessor would be able to take full advantage of the depreciation benefits and could pass these benefits along to the Lessee in the form of lower lease payments. In addition, most true lease payments would still be a deductible expense. It's important to understand that not every lease fits this category. Our leasing professionals can assist our customers and their accountants in creating a leasing structure which minimizes the impact of AMT. Mid-Quarter Convention - 40% Rule: It is no longer possible to buy equipment on the last day of a fiscal year and receive depreciation benefits for a full (or even one half ) year. The Mid-Quarter Convention - 40% Rule states that if an entity purchases more that 40% of its total capital expenditures in the last quarter of its fiscal year, then depreciation benefits for all assets acquired during that fiscal year must be recalculated using the mid-quarter (not half year) convention. The mid-quarter convention provides that the appropriate amount of depreciation available is dependent upon the quarter in which the asset was purchased. Violating the 40% rule may substantially reduce initial useable depreciation. Leasing assets could prove to be the ideal alternative. Sales Tax: Leasing is sometimes used as a way to defer payment of sales tax. Sales tax is calculated on the base lease payment and included in the total monthly payment. This will make the initial expense of a purchase lower (in many states the tax is 7%-10%). Initial Cash Outlay: Normally, leasing involves a lower initial cash outlay than would ordinarily be required in a loan. The classic lease would require only first and last payments in advance, which is usually far less than a typical down payment of 10%-25% of the cost of the asset. In addition, freight and installation costs can usually be financed within the lease structure. Balance Sheet Item or Footnote: Equipment purchases often cause a company to be out of compliance with the ratios outlined in loan covenants (liquidity, debt-to-worth, etc.). In some kinds of leasing, neither the asset nor the corresponding liability are reflected on the company's balance sheet. The monthly lease expense is reflected solely on the income and cash flow statements. The lease obligation is described in a footnote to the company's financial statements. Risk of Equipment Obsolescence: Companies in highly competitive environments often need the most technologically advanced equipment available and cannot afford to be burdened with out dated or obsolete equipment. Leasing transfers the risk of equipment obsolescence from the customer to - 2 -

3 the Lessor. In addition, at the end of the lease term, the equipment can usually be returned to the Lessor without penalty. As a result, the customer is then able to acquire new equipment which is faster and more efficient. US Bancorp Equipment Finance Lease Products TAX LEASE PURCHASE ("TLP") A TLP is a tax lease designed to allow for the ultimate purchase of the equipment at a pre-agreed date (window) for a stated value by the Lessee. In many ways, it's the best of both worlds. Typically, high value equipment fits best into this kind of lease. A careful balance must be maintained to comply with both Tax and Accounting rules. A normal circumstance would involve equipment with a 60 month depreciable life but a value at 60 months of 25% or more. The "window" would allow for purchase of the equipment by the Lessee during the 48th month for an amount agreed upon at the onset of the lease (approximately 40% of initial cost). Up to that point, the depreciation would be declared by the Lessor and the lease should be able to be carried off-balance sheet by the Lessee. If the Lessee decides not to purchase the equipment at the "window", then the lease continues to maturity. At that time, the Lessee may elect to purchase the equipment for its then fair market value or may simply "walk away." If the sum of the lease payments, up to and including the purchase amount at the window, are used to calculate the effective interest cost, it will be found to be very competitive. TRUE/OPERATING LEASE A True Lease is a "walk away" tax lease. The Lessor buys the equipment and leases it to the Lessee for an agreed upon term and then sells the equipment for fair market value at the end of the lease. This kind of lease is most popular for equipment with low future value due to use or technological change. True Leases enable companies to acquire the most technologically up-to-date equipment with fixed monthly payments, but also enables them to pass on the risk of obsolescence to the Lessor. The Lessor has all the rights to the depreciation and bears the risk of residual value. A True Lease is usually an off balance sheet lease. Typically this lease will meet FASB 13 accounting rules. RENTAL PROGRAM Our rental program is designed for a short-term 12 or 24 month rental contract on known commodity type equipment. At the end of the term, the customer has the option to purchase the equipment for a pre-determined amount or renew the rental for another 12 to 24 months or return the equipment to the lessor with no further obligation. If the customer elects to purchase the equipment, generally we will credit up to 60% of the rental payments made towards the purchase price. Customer can also convert this purchase into a long term lease or loan at that time. This is a true rental so the customer can expense this monthly payment through their operating budget. This product is excellent for companies who have a short-term contract that may or may not renew or for larger companies who have to expense the purchase through their operating budget. Similar to a tax/operating leases

4 LEASE PURCHASE A Lease Purchase is designed for ultimate ownership by the Lessee. Because the residual is a specific dollar amount (typically a nominal figure when compared with the actual value of the equipment at the time of exercise of the option) this is not a tax-oriented lease. All depreciation belongs to the Lessee and the asset must be shown on the Lessee's balance sheet. Advantages of a Lease Purchase include paying sales tax over time and a low initial "down payment." Lease Purchase transactions are flexible by design and can usually be tailored to suit the special needs of the Lessee. LOAN PRODUCTS We offer a variety of loan products which can be tailored to meet the specific needs of our customers. These products include: Fixed Rate: A classic loan with a fixed rate for the entire term. Fixed/Floating Rate: This option gives the borrower a fixed option for their desired term and then guarantees a float rate for the remaining term. Most popular when short-term fixed rates are exceptionally low relative to long term rates. Floating Rate: This is a loan in which the interest rate floats over LIBOR (London Interbank Offered Rate) or Prime for the entire term. (Monthly or annually.) Section 1031 ("Like Kind") Exchanges: This tax planning device can serve as a mechanism to defer large capital gain tax assessments. USBLF will serve as a "Qualified Intermediary" to assist customers with this process. Basically, we facilitate the purchase of the "replacement" asset and the sale of the existing asset. Our Legal Division works directly with our customer's legal and tax advisors to guide the transaction. On all of our products, payment amounts and frequency can be tailored to meet our customer's projected cash flow. Options include quarterly, semi-annual, seasonal, graduated and skip payments. SUMMARY U.S. Bancorp Equipment Finance offers a wide variety of leasing alternatives. Each is designed to suit the particular needs and conditions of the customer. With the advent of the Alternative Minimum Tax, capital budgeting is a very relevant factor in considering the timing of equipment purchases and the ultimate ability to use the tax benefits for the useful life of that equipment. Leasing can provide a means of maximizing cash flows by keeping initial outlays and monthly payments low. Some leases provide for the ultimate ownership of the equipment by the Lessee while allowing for off balance sheet accounting during the lease period

5 There are numerous considerations when determining the best method of acquiring additional equipment for a business. To assist our customers with their decisions, U.S. Bancorp Equipment Finance offers sound professional advice and aggressively priced alternatives. As set forth in our corporate mission statement which is printed below, Customer Service is our first priority. We look forward to the opportunity to prove that our mission statement is more than just a series of well drafted phrases. IT IS THE MISSION OF U. S. BANCORP EQUIPMENT FINANCE TO BE THE LEADING BANK LEASING COMPANY IN AMERICA, SETTING INDUSTRY STANDARDS FOR CUSTOMER SERVICE AND EMPLOYEE SATISFACTION WHILE CONSISTENTLY EXCEEDING OVERALL CORPORATE PROFITABILITY OBJECTIVES. CUSTOMER SERVICE * EMPLOYEE SATISFACTION * PROFITABILITY Call Jim for more information Visit us on the WEB

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