WARRANTY & INDEMNITY INSURANCE FOR FINANCIAL SPONSORS

1. WARRANTY & INDEMNITY INSURANCE FOR FINANCIAL SPONSORS 8 October 2010

3. Buyers enhance their bidder status by accepting lower warranty caps and providing a clean exit

4. Sellers can distribute proceeds rather than be subject to an escrow.

5. Increased usage and acceptance as a result of competition and development of the product:

6. reduced pricing – premiums of 1.5%- 2.5% of limit purchased;

7. simplified underwriting – Minimal effort required from the deal team.

8. enhanced coverage – able to mirror SPA.

9. Mega Capital is one of the leading advisor and arranger of W&I (and other transactional) Insurance in Australia and has access to markets globally.

11. Available for off market transactions only

12. Applies to sale of company or asset sale

13. Can only be based on Warranties in the SPA including, e.g.

14. undertakings for the future

16. Reluctance of sellers to retain proceeds in escrow, optimising a clean exit

17. Seller able to enhance auction sale process by offering more wholesome warranties

18. Mismatch in expectations relating to contractual recourse

19. Insure up to warranty cap

20. Enhancing bidder status e.g. by accepting lower warranty cap, offering ‘clean’ exit for seller

21. Investing in new or unfamiliar jurisdictions / industry sectors or acquisition from distressed seller

22. Alternative to contractual recourse for a particular issue

23. Best practice risk management / corporate governance

25. Objective: To provide coverage in the event that the buyer sues the seller for a breach of warranty or indemnity

26. Structure: Can insure up to the warranty cap as defined by the sale document

27. Policy of indemnity: Seller still retains liability under sale document, therefore is liable for any breach not picked up by the insurance policySale & Purchase Agreement Transaction value Limitation of liability for breach of warranty under the SPA Policy limit Insurance policy Policy of indemnity

29. Objective: To provide coverage against financial loss suffered as a result of a breach of the seller’s warranties

31. Appendix A Illustrative Claim Examples

32. 2010 Mega Capital W&I Transactions See appendix for more detail *Non Mega Capital Transaction

33. W&I EXAMPLES – Sell Side A Driver of Insurance Sellers representative able to distribute funds rather than having an escrow Warranty Cap: $40m Tipping Retention : $2m Total W&I program $40m Price $500K (1.25% of limit purchased or 0.5% of transaction value) Highlights Insurance mirrored SPA tipping retention eliminating the need for an escrow. Insurance included cover for Tax Claims from $0. Included coverage for environmental exposures. $100m $40 m Sell-side W&I policy $2 m Policy Covers Retention

34. W&I EXAMPLES – Sell Side B $26m Driver of insurance Seller was a private equity fund wanting to distribute the funds Warranty Cap: $24m Tipping Retention : $0.5m Total W&I program $24m Price $275K (1.14% of limit purchased) Highlights Insurance mirrored SPA tipping retention eliminating the need for an escrow. Insurance included cover for Tax Claims from $0. $24m Sell-side W&I policy $0.5 m Policy Covers Retention

35. W&I EXAMPLES – Buy Side A Driver of Insurance Oversees Vendor selling an AUS subsidiary and unable to provide financial support behind the warranties . Buy Side policy paid for by the seller Purchase Price: $6m Warranty Cap: $6m Retention: $100K Total W&I program: $6m Price $120K (2% of limit purchased) Highlights Insurance mirrored SPA tipping retention eliminating the need for an escrow. Insurance included cover for Tax Claims however the retention applied and the insurer was not willing to agree to tipping on tax claims. $6 m Buy-side W&I Policy $0.1m Policy partially covers retention

36. W&I EXAMPLES – Buy Side B Driver of Insurance Trade seller with several silent shareholders who were uncomfortable to have their proceeds subject to warranties and an escrow period. Seller paid for a buy side policy Purchase Price: $12.5m Warranty Cap: $12.5m Retention: $250K Total W&I program: $12.5m Price $206K (1.65% of limit purchased and deal value) Highlights Insurance mirrored SPA tipping retention eliminating the need for an escrow. Split limit for Title Warranties and Business Warranties Insurance included cover for Title Warranties with no retention or threshold to mirror the SPA. $12.5m Title Warranties insured to 100% of transaction value Business Warranties insured to 50% of purchase price $0.25m Policy partially covers retention

38. 1st Quarter of 2009 saw significant increase in claims notifications

39. Underwriter experience suggests < 5% of claims made fall outside of scope of cover of W&I1.1Claims data provided by Chartis

40. W&I AND CLAIMS – CHARTIS CLAIMS STUDY2 2Chartis Global (ex US) Claims Study 2000-2008

41. ANY QUESTIONS? Please contact Mega Capital Michael GottliebGavin Donner +612 9326 1171 +613 9500 2857 +61 403 735 349 +61 413 575 994 michaelg@megacapital.com.augavind@megacapital.com.au