1. Value Chain Analysis Gemini ConsultingSeptember 1993

2. A00309 vcaSep93v3.0- 2 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Purpose Introduce value chain concept Breakdown XXXX Leasing value chain into its component parts Summarize XXXX Leasing’s current value chain strategy Examine implications of strategic shifts

3. Value Chain Analysis

4. A00309 vcaSep93v3.0- 4 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Value Chain Analysis Provides a Useful Tool for Understanding the Key Activities of a Business Confirm our understanding of the core business processes of XXXX Leasing Illustrate how these core processes cut across XXXX Leasing’s organizational structure Develop an understanding of revenue and cost drivers: -Cash inflows -Cash outflows -Risks Determine how strategic change in one area of the value chain will affect other areas VALUE CHAIN ANALYSIS

5. Breaking Down the Value Chain

6. A00309 vcaSep93v3.0- 6 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX Leasing’s Value Chain Focuses on the Provision of Capital Equipment Leases Underwrite Lease Service Lease Fund Lease Source Lease BREAKING DOWN THE VALUE CHAIN This kind of value chain strategy can be referred to as a product- focused strategy. Until application is sent to XXXX Everything done after a lease is booked Until lease is booked

7. A00309 vcaSep93v3.0- 7 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Sourcing Includes Everything XXXX Does to Get the End User to Send in an Application Underwrite Lease Service Lease Fund Lease Source Lease MarketOriginateTarget Identify end user Identify vendors: -OEMs -Wholesalers Market to end user: -Telemarketing -Direct mail Market to vendors: -Telemarketing -Direct mail Market to brokers Originate application BREAKING DOWN THE VALUE CHAIN

8. A00309 vcaSep93v3.0- 8 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX Goes through Various Channels to Source Its End User BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease MarketOriginateTarget 1.XXXX Direct Customer Marketing identifies potential end user: -Direct mail (list experimentation) -Telemarketing -Affinity groups XXXX to Small Optician (End User) XXXX to Broker 1.XXXX Broker Group identifies potential brokers: -Advertising -Trade shows -Referrals -Calling program -Limited direct mail 2.Direct Customer Marketing contacts end user: -Calls direct mail respondents -Calls existing lessees -Calls trade show attendees/participants -Cold calls 3.End user signs up/fills out application 4.End user sends application to XXXX 2.Broker Group makes contact with broker: -Responds to any contact 3.Broker establishes relationship with Broker Group 4.Broker seeks out end user: -Directly -Indirectly via unaffiliated dealers and sometimes (though very infrequently) OEM and large chain stores 5.End user signs up/fills out application 6.Broker sends application to XXXX

9. A00309 vcaSep93v3.0- 9 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX Goes through Various Channels to Source Its End User (cont.) BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease MarketOriginateTarget 1.XXXX Vendor Services identifies potential ‘mom & pop’ dealer: -Direct mail -Associations -Trade show lists -Cold calling XXXX to ‘Mom & Pop’ Dealer XXXX to OEM/National Account (Sonitrol) 1.XXXX National Accounts identifies potential participants: -Trade shows -Associations 2.Vendor Services makes contact with dealer: -Responds to any inquiry 3.Vendor Services makes agreement with dealer official: -Exclusive or non-exclusive -Negotiates rates, commission 4.Dealer offers XXXX Leasing program to end user 5.End user signs up/fills out application 6.Dealer sends application to XXXX 2.National Accounts calls corporate offices to set up appointment 3.Salesperson pays visit to corporate offices 4.OEM signs exclusive agreement with salesperson: -Private label -Gives XXXX dealer list 5.National Accounts gives list to Vendor Services 6.Vendor Services representative sign up dealers: -Calls dealers 7.Dealer offers XXXX Leasing program (private label) to end user 8.End user signs up/fills out application 9.Dealer sends application to XXXX

10. A00309 vcaSep93v3.0- 10 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX Goes through Various Channels to Source Its End User (cont.) BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease MarketOriginateTarget 1.XXXX National Accounts identifies potential chain stores: -Referral from sales -Trade shows -Trade magazines, journals, etc. XXXX to Computerware (Large Chain) 2.National Accounts sets up appointment 3.Salesperson pays visit 4.Salesperson sets up either exclusive or non-exclusive agreement: -Private label 5.National Accounts obtains store list and gives to Vendor Services 6.Vendor Services representatives signs up chain stores: -Telemarketing 7.Chain stores offer XXXX Leasing program to end user: -Direct mail -In store sales 8.End user signs up/fills out application 9.Chain store sends application to XXXX

11. A00309 vcaSep93v3.0- 11 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Underwriting Refers to How XXXX Books a Lease Receive application Review credit records Investigate if necessary Approve/reject application Give to origination to notify: -Broker -Vendor -End user Receive documentation Re-work documentation Approve documentation Send advance check to vendor Underwrite Lease Service Lease Fund Lease Source Lease Approve/ Reject Application Approve/ Reject Documentation Review Application BREAKING DOWN THE VALUE CHAIN

12. A00309 vcaSep93v3.0- 12 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX’s Underwriting Process Is Highly Standardized for Most Leases BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease Approve/ Reject Application Approve/ Reject Documentation Review Application Pull up credit information: Dun and Bradstreet Three consumer bureaus Receive fax from: Broker Vendor End user Credit Analyst Reviews Application Credit Investigation Credit Analyst More Information Decision 50% Notification of Rejection: Broker Vendor End user Receive Documentation: Signed lease Advance check (=security deposit) Other documentation Notification of Approval: Broker Vendor End user Book Lease Send Advance Check to Vendor Reject ­ 33% ­ 67% Additional Information Documentation Group Makes Decision ­ 80% ­ 20% ­ 1% End User

13. A00309 vcaSep93v3.0- 13 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Servicing Is What XXXX Does for the Customer after a Lease Has Been Booked Send invoice Track payment Service Notify delinquents Start collection proceedings Call delinquents Start collection proceedings Re-possess Re-market Underwrite Lease Service Lease Fund Lease Source Lease Collect Manage Defaults Bill BREAKING DOWN THE VALUE CHAIN

14. A00309 vcaSep93v3.0- 14 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Servicing Is Also Highly Standardized for XXXX’s End Users Collect Manage Defaults Bill BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease Assign Booked Lease to Billing Cycle: Four cycles per month Colonial National Receives Payment At 14 and 28 Days Delinquent: Send dunning letter Yes Legal Decides Merit of Suit After 120 Days or Bankruptcy, Classify as a Default Work Case No Internal Collection Repossess/ Re-sell Court Case Send Bill: 90–95% receive one bill per month Receipt of Payments Updated Daily > $2,500< $2,500 Service Account: Inquiries/referrals If 31–60 Days Delinquent: Divide into alphabetical groups Call by Jr. collectors Take Off List When Payment Received If 61–90 Days Delinquent: Divide into alpha. groups/> $5,000 Call by Sr. collectors If 91–120 Days Delinquent: Hand over to workout group

15. A00309 vcaSep93v3.0- 15 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Funding Is How XXXX Funds the Lease Securitize: -Execute and manage -Fund credit enhancements Maintain owned assets: -Fund non- securitizable assets Underwrite Lease Service Lease Fund Lease Source Lease Establish Interim Funding Securitize Provide Initial Credit BREAKING DOWN THE VALUE CHAIN Maintain Owned Assets Establish credit availability Manage liquidity risks Establish interim credit lines Manage interest rate exposure

16. A00309 vcaSep93v3.0- 16 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. All of XXXX’s Leases Are Funded through a Similar Process Establish Interim Funding Securitize Provide Initial Credit BREAKING DOWN THE VALUE CHAIN Underwrite Lease Service Lease Fund Lease Source Lease Package Leases for Custodian: 75 leases/batch ­ $500k Maintain Owned Assets Fund Initial Payment to Vendor: Cash flows from: -Non-securitized leases -Service fees -Excess funds from credit enhancements* -Investment income Credit facilities from XXXX parent: -$15mm on a working capital basis -$35mm tactical opportunities (e.g., portfolio purchase) Establish Interim Funding: Commercial banks: -Short term warehousing lines -Secured lines -Floating rate -Short money market rate Investment banks: -Bridge financing specifically negotiated Notify Custodian to Transfer Custody to Funding Source Amass Leases for Securitization: ­ $30mm minimum Securitize: Private placements Public market (not yet done) Fund Credit Enhancement: Cash and leases held as collateral by investors Fund Non-Securitizable Leases: Severe delinquencies Too small Too few payments Seasonal leases Step payments Use Batches of Leases as Collateral *Most securitizations require a credit enhancement to be held in cash and leases equal to a fixed percent of bonds outstanding. As the bonds are paid down, cash and leases are released from this requirement proportionately.

17. Current Value Chain Strategy

18. A00309 vcaSep93v3.0- 18 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX Has Successfully Pursued a Strategy Focused on Capital Equipment Leases 1.Organization structured around key business activities 2.Active management of key revenue drivers 3.Active management of key activity cost drivers 4.Minimization of overhead costs 5.Ability to manage risks in capital equipment lease market 6.Widespread management understanding of profit drivers CURRENT VALUE CHAIN STRATEGY Underwrite Lease Service Lease Fund Lease Source Lease

19. A00309 vcaSep93v3.0- 19 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 1. Organization Structured Around Key Business Activities Underwrite Lease Service Lease Fund Lease Source Lease Units with Direct Involvement Units with Support Involvement Senior management Financial control Systems CURRENT VALUE CHAIN STRATEGY Sales Marketing Brokers Portfolio Credit & Operations Recoveries Workouts Customer Service Collections Resell Treasury Portfolio Management

20. A00309 vcaSep93v3.0- 20 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 2. Active Management of Key Revenue Drivers Underwrite Lease Service Lease Fund Lease Source Lease Revenue Strategy Revenues Net Interest Income: $4,331.7M Fee Income: $9,160.3M CURRENT VALUE CHAIN STRATEGY Increase profitable volumes: -New channels -New products -New markets Increase profitable hit rates: -Approvals -Booked/approv ed ratio Improve collections: -Bill -Collect -Resell Manage portfolio: -Treasury management a. Includes accounting adjustments. a

21. A00309 vcaSep93v3.0- 21 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 3. Active Management of Key Activity Cost Drivers Underwrite Lease Service Lease Fund Lease Source Lease Activity Strategy Activity Costs Cost breakdown: ($3,779M) 34.4% Cost breakdown: ($729M) 6.6% Cost breakdown: ($812M) 7.4% Cost breakdown: ($253M) 2.3% Find low-cost distribution: -Telemarketing -Brokers -Affinity groups -End user direct Streamline key processes: -Approval time -Credit scoring -Investigation Streamline key processes: -Billing -Collections Reduce funding costs: -Securitization -Risk management CURRENT VALUE CHAIN STRATEGY

22. A00309 vcaSep93v3.0- 22 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Suburban location Few executives in overhead positions System costs centered around business activities 4. Minimization of Overhead Costs Underwrite Lease Service Lease Fund Lease Source Lease Support Strategy Business Sustaining ($5,407M) 49.2% CURRENT VALUE CHAIN STRATEGY

23. A00309 vcaSep93v3.0- 23 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 5.Ability to Manage Risks in Capital Equipment Lease Market Underwrite Lease Service Lease Fund Lease Source Lease Risk Management Strategy Risk Exposures Market segmentation: -No tanning beds -Technology Credit scoring: -Modeling -Asset quality -Statistics -Judgment Management of delinquencies: -Calling -Collecting -Reselling Liquidity risk management: Interest risk management CURRENT VALUE CHAIN STRATEGY Market risk exposure Economic risk exposure Credit risk exposure Delinquency risk exposure Liquidity exposures Interest rate exposures

24. A00309 vcaSep93v3.0- 24 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 6.Widespread Management Understanding of the Interaction of Profit Drivers Underwrite Lease Service Lease Fund Lease Source Lease CURRENT VALUE CHAIN STRATEGY Increase Profitable Volume Increase Hit Rates Improve Collections Manage Portfolio Interest/Fee Revenue Decrease Origination Costs Streamline Processes Streamline Processes Streamline Processes Operating Costs Manage Funding Costs/Risks Funding Costs Manage Market Risks Manage Credit Risk Manage Collections Default Costs MINUS PROFIT Revenue Drivers Cost Drivers

25. Implications of Strategic Shifts

26. A00309 vcaSep93v3.0- 26 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. Changes in XXXX Leasing’s Strategy Will Affect Its Value Chain Examples of potential strategies that you suggested: 1.Exhaust growth opportunities in the technology sector of the small-ticket capital equipment leasing market: -Improve delivery capabilities through better understanding of third-party channels and end-users 2.Sell other kinds of leases to small business market: -High risk, operating, industrial equipment, etc. 3.Develop a relationship strategy targeted at specific kinds of end users, vendors, and brokers: -Cross-sell products and services within current target market: insurance, financing, cash management, 401(K), etc. 4.Move into middle market leasing 5.Move into consumer leasing IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease

27. A00309 vcaSep93v3.0- 27 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 1.Exhaust Growth Opportunities in the Technology Sector of the Small-Ticket Capital Equipment Leasing Market Improve understanding of needs: -End users -Vendors -Brokers Focus on taking cost out of industry value chain Improve credit scoring Build economies of scale IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease How much growth would this strategy offer? Build economies of scale Implications: “Market Penetration Strategy”

28. A00309 vcaSep93v3.0- 28 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 2.Sell Other Kinds of Leases to Small Business Market Develop new relationships: -End users -Vendors -Brokers Develop residual value analysis capabilities Develop risk/return analysis capabilities Develop re-posessing capabilities IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease Could XXXX Leasing handle other small-ticket leases as efficiently as it does capital equipment leases? Develop funding capabilities for higher risk leases “Product-Line Extension Strategy” Implications:

29. A00309 vcaSep93v3.0- 29 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 3.Develop a Relationship Strategy Targeted at Specific Kinds of End Users, Vendors, and Brokers Multiple sales skills: -Insurance -Services -Financing Understanding of customer needs Average exposure may increase Ability to handle multiple services/product s Ability to service multiple products IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease How would these changes affect XXXX Leasing’s economics? Ability to fund multiple products Set-Up Relationship Service Relationship Fund Relationship Source Relationship “Product-Focus Strategy” Implications: “Share-of-Wallet Strategy”

30. A00309 vcaSep93v3.0- 30 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 4.Move into Middle Market Leasing Develop personal/hands-on sales skills Develop risk/return analysis capabilities Develop high differentiation servicing capabilities IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease Could middle market leasing and small-ticket leasing be handled efficiently through the same value chain? Handle funding of larger lease size “Up-Market Strategy” Implications:

31. A00309 vcaSep93v3.0- 31 - © 1993 Gemini Consulting. Reproduction with Express Permission Only. 5.Move into Consumer Leasing Develop channels to reach consumers: -Vendors -Direct Develop credit modeling capabilities Develop consumer service capabilities IMPLICATIONS OF STRATEGIC SHIFTS Underwrite Lease Service Lease Fund Lease Source Lease Could small business leasing and consumer leasing be handled efficiently through the same value chain? Develop securitization process for consumer loans “Down-Market Strategy” Implications: