Bioprocess Equipment Leasing ASPEN BROOK CONSULTING, INC.

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1 Bioprocess Equipment Leasing BY ASPEN BROOK CONSULTING, INC.

2 Introduction Equipment Leasing in the U.S. alone is a $650 Billion dollar a year business. Until Q4 of 2008 spending on capital equipment had not slowed in the U.S. Spending dropped 17% in Q4 of 2008 In Q1 of 2009 spending on capital equipment dropped 31% compared to the same time in % of companies which seek the leasing option have been approved in In % were approved.

3 Leasing Defined What is an Equipment Lease? Lease (les), n. [origin French. lais, lays, lees, a thing left by will, to let go, to lease] A contract by which one party (lessor) gives to another (lessee) the use and possession of equipment for a specified time and for fixed payments. The document in which this contract is written.

4 Eligible Equipment Below is a brief listing of the bioprocess equipment which can be leased; Buffer Prep Vessels Bioreactors/Fermentors Centrifuges Filtration Systems Chromatography Columns Process Instruments Process Equipment And more

5 Vendors Offering Leases

6 Types of Leases Operating Finance Capital Direct Financing First Amendment Full Payout Leveraged Net Open-end

7 Most Common Leases Operating Lease Particularly attractive to companies that continually update or replace equipment and want to use equipment without ownership, but also want to return equipment at lease-end so as to avoid technological obsolescence. These usually result in the lowest payment of any financing alternatives. Finance Lease Involves a full-payout, non-cancellable agreement, in which the lessee is responsible for maintenance, taxes and insurance. Most often of interest for the tax benefits of ownership and the expectation of the equipment having a high residual value.

8 Most Common Leases Capital Lease Classified as a purchase by the lessee and a sale by the lessor. Involves a transfer of ownership at the end of the lease for a pre-arranged heavily discounted price. First Amendment Lease Provides the lessee a purchase option at one or more defined points. Requires that the lease continue if the purchase option is not exercised.

9 Preferred Leases Operating Lease You're not considered the owner of the equipment, so you're not allowed the tax benefit of depreciation. The lessor will depreciate the equipment which may lower your monthly payments. When the lease ends, you can return the equipment, continue to lease month by month, or purchase it at fair market value. Often requires the purchase of an associated preventative maintenance program for the equipment being leased.

10 Preferred Leases Capital Lease Similar to a loan, you are considered the owner of the equipment, make monthly payments, and may be able to take advantage of tax benefits such as interest deductions and depreciation. Also known as the $1 purchase option lease

11 Six Months Same as Cash It is becoming increasingly common in equipment leasing to have an option in the lease to pay for the equipment in full within the first six months of the lease without incurring payments. Advantages Conserves Capital Stretches Budgets Disadvantages Often Requires Additional Fees Tax Implications

12 Sample of Leasing Rates Leasing - Including 6 Month Same as Cash Length (Term) Type Rate 12 mon Capital mon Capital mon Capital mon Captial mon Capital mon Operational mon Operational mon Operational mon Operational To Be Negotiated 60 mon Operational To Be Negotiated

13 Advantages of Leasing Most lease types require only first and last payments paid in advance and a modest documentation fee. The leasing company pays the supplier in full for the equipment, installation, delivery, taxes, etc. Leasing Preserves Corporate Credit Lines These difficult to obtain resources can be better used for raw materials, inventory Leasing Increases Purchasing Power If the equipment you need is $50K and your budget is $35K you can still purchase the equipment while remaining within your budget.

14 Advantages of Leasing Leasing Balances Usage and Cost The cost can be structured to be offset by the savings derived from usage. Leasing Provides Fixed Rate Financing Monthly payments are not subject to fluctuations of interest rates. Your payment remains constant over the term of the lease. Leasing Conserves Working Capital This allows the use of this capital to finance the general operation of the business most effectively.

15 Advantages of Leasing Leasing Offers Tax Benefits Certain lease types lend themselves to being structured so as to have tax benefits to you the lessee.

16 Disadvantages of Leasing Overall cost The biggest disadvantage of leasing is that your costs over the life of the asset are generally going to be higher than if you purchased the asset. Your rental payments compensate the lessor not only for acquisition and financing costs, but also for the lessor's retained risk of continuing ownership. You must also pay for the insurance and taxes on the asset which increases the installment payments and overall cost of the equipment.

17 Disadvantages of Leasing No ownership interest Your lease payments generally do not establish any equity in your leased equipment. At the end of the lease you won't have a tangible asset to show for your payments. This can be especially painful if you've grossly underestimated what the equipment would be worth at the end of the lease. Negotiating a purchase option under which a portion of your lease payments are credited to the purchase price is one way to effectively create equity in leased property.

18 Disadvantages of Leasing Lost tax benefits Assuming that the IRS doesn't recharacterize your lease as a purchase for tax purposes, a potential disadvantage of leasing is losing the tax benefits of depreciation deductions that come with ownership. This disadvantage may be insignificant, however, if the "lost" benefits are offset by your ability to deduct your rental payments or if you have insufficient income or tax liability to be offset by the lost deductions and credits.

19 Disadvantages of Leasing Commitment to property Once you sign a lease agreement, you're generally committed to making payments for the entire lease period even if you stop using the property. Most equipment leases are either non-cancelable or impose a stiff penalty for early termination.

20 The Leasing Process Most leases involve a 7 step process The supplier presents a formal quote which includes the desired lease options. A lease application is completed by the customer. The leasing company reviews the application and makes a determination. Customer signs the lease documentation and submits it to the leasing company along with the initial payment. The leasing company notifies the supplier that the leasing documentation is in place and equipment may ship. A telephone audit of the customer by the leasing company confirms receipt of the equipment The leasing company pays the supplier within 48 hours.

21 Leasing Companies

22 Summary Requests by end users for their suppliers to offer bioprocess equipment leasing options has risen dramatically in the last 12 months. Equipment leasing is the rule and not the exception in the healthcare industry. Equipment leases can be structured so as to be favorable to the lessee both in the near and long term. Our industry is experiencing increased pressure to limit capital spending and conserve cash flow which can be addressed by equipment leasing.

23 Conclusion Larry West Principal Aspen Brook Consulting, Inc. (888)