Confidential Discussion Paper

Confidential Discussion Paper JEE, please note: In this document Private Equity (PE) stands for 3i Group plc and Mezzanine Fund (MEZ) stands for Intermediate Capital Group plc The structure is just an idea and your input required !! September 2010 EFTA00780284 PE can apply its proven asset management expertise to grow outside Private Equity and Europe ♦ PE has restructured its balance sheet and is now in a position to modify its strategic direction • The Private Equity industry is affected by current low credit supply and the multiplication of failed past transactions consumed in the boom years ♦ PE has exposure to Asia and North America but is still heavily skewed towards Europe • PE has proven areas of expertise and strong brand that could be used to reinforce its presence outside Private Equity and Europe — Brand — Sector expertise — Business line expertise — Contacts and relationships ♦ PE has declared its strategic interest in broadening its activities to become an asset manager capable of attracting third parties fund Pi Group Buyout Asset under management £5,227m Growth Capital Asset under management £2,sssnt Infrastructure Asset under management £1,627m Diversify source of funding Declared strategic interest in acting as asset manager, broadening activities Exposure to Asia and North America % Grow third party funds under management 2 EFTA00780285 Organic growth will not be fast enough to meet PE's objectives Choices between setting up a greenfield JV or buying an existing Fund Management Company Strategic decision Market research Entry options Representative office Greenfield JV FMC Buy into an existing FMC I II Greenfield JV FMC J Buy into an existing FMC Partner search Target search Partner search Target search I CSRC authorisation for JV FM & fund launch Negotiate & invest CSRC authorisation for JV FM & fund launch Negotiate & invest I Incorporate JV FMC Launch funds Incorporate JV FMC Launch funds 3 EFTA00780286 What class of assets to choose from when becoming an asset manager? Standard Asset Management ♦ Increasing competition • Lack of opportunities at the top end of the LBO market is driving traditional large cap players to consider large mid- market, minority interest and international (in particular Asian transactions) more actively • Overhang of un-invested capital (total global Private Equity commitments are in the region of $400bn) forces large cap players down in size ♦ Increasing interest from Private Equity players in minority interest investments where PE's Growth Capital business has enjoyed a lower level of competition Mezzanine Funds • Add product and revenue diversification and broaden business mix • Less sophisticated, younger market, especially in Asia, and therefore might be easier to create a strong market position • Channel to attract third-party funds seeking Western expertise • To some extent counter cyclical industry less affected by volatility • Lack of current bank financing favours hybrid equity products, therefore creating a larger market 4 EFTA00780287 Invests in Mezzanine Group ("MEZ") with INVESTOR Transaction Structure • PE acquires Mezzanine Group ("MEZ") at a premium to MEZ current share price through cash and share offer • £300 million cash underwritten by INVESTOR — Option one: INVESTOR puts money in in form of convertible loan note, 4% coupon o Notes can be convened at takeover premium plus 10% within 24 months — Option two: INVESTOR puts money in in form of equity with share price at takeover premium Shareholding Structure MEZ PE+MEZ Sea= likomling INVESTOR (minority) • PE Share offer O00m Convenible loan note or equity ,C300m cash offer MEZ (shares with premium) INVESTOR As a minority investor, INVESTOR's potential benefits include: • Co-investment rights along with MEZ funds • Insight and expertise • Understanding of development of joint financial products • Joint new funds 5 EFTA00780288 Invests in MEZ with INVESTOR (Cont'd) Acquisition Shareholding Structure (pre & post conversion) - Option One Current share price: MEZ £2.98, PE £2.87 100% Purchase premium 15% • Purchase price: /3.43 • Conversion price: D.77 Pre-conversion Post-conversion 27% 80% — 60% — 40% — 20% — 0% 26% Purchase premium 20% • Purchase price: /3.58 • Conversion price: /3.93 Pre-conversion Post-conversion 72Vo 27% • PE MEZ • PARTNER Purchase premium 30% • Purchase price: /3.87 • Conversion price: /4.26 Pre-conversion Post-conversion 30% 29% 6 EFTA00780289 Invests in MEZ with INVESTOR (Cont'd) Acquisition Shareholding Structure (pre & post conversion) - Option Two Current share price: MEZ £2.98, PE £2.87 Purchase premium 15% Purchase premium 20% Purchase premium 30% • Purchase price: £3.43 • Purchase price: £3.58 • Purchase price: £3.87 100% 80% 25% 27% 29% 60% 40% 20% 0% • PE MEZ • PARTNER 7 EFTA00780290 Mezzanine Group ("MEZ") PLC I EFTA00780291 Mezzanine Group ("MEZ") PLC Overview — • Mezzanine Group ("MEZ") PLC ("MEZ") is a UK based private equity firm specialising in mezzanine financing • Investment criteria: — Geography: European Union, Bulgaria, Romania, North America, and Asia Pacific, including Hong Kong, South Korea, Singapore, Taiwan, Japan, Australia, and New Zealand — Investment size: €15 million — €500 million — Form of financing: subordinated loan with equity warrants, as preference shares, convertible loan, leveraged loans, mezzanine loans, and CDOs — Maturity period: between seven years and ten years with repayments to be made in one payment at final maturity — Investment cash yield: 3%- 4% • Total funds under management: O0bn (Mar 2010) • MEZ was founded in 1989 and is based in London with additional offices across Europe, North America, and Asia Seam: Compare:. Partin Financials Income Statement F17E - JI Mar (Is .6 es) 200M 2009A 2010A 2011E 2012E Interest Income Q37 QO4 Q74 a 82 1;97 Gin on Invesaneno 135 31 99 64 75 Fee Income 57 60 52 49 55 Total Income 029 395 425 396 027 Growth % NA (8.0%) 7.6% (6.9%) 7.9% BST 72.0 -67 106 122 162 14a gia % 53.5% NM 24.9% 30.9% 38.0% Net Income 155 -73 82 84 112 Lfogia % 36.1% NM 19.2% 21.3% 26.2% Portfolio Breakdown (2010A) • F. umpt Funds Under Management Breakdown (2010A) 57°A. • Mezzanine and 'dated funds t:rudit Fund Management Ownership & Management Ownership and Management ONtt tet..hip Aviva Plc BladcRodc Inc Baillic Gifford Isdlirabaud Investment Management Amcriprisc Financial Inc Board of Directors 2°/o Justin Dowley, C..biumum 6% Christophe Evain, CEO 6% Francois De de Mitty, Managing Director 5% Tom Attwood, Managing Director 5% Philip H. Keller, Finance Director 9 EFTA00780292 The attraction of MEZ • Income / product and geographic diversification; limited overlap PE Status Quo 8% 0% 46% 38% • Buyouts ■ Growth Capital • Infrastructure Non-core activities • UK • Continental Europe • Asia • North America Rest of World Acquisition of Mezzanine Group ("MEZ") 29% 38% 12% 4% 2% 58% • Buyouts • Growth Capital • Infrastructure Non-core activities • Fund Management Max Financing • UK • Continental Europe • Asia • North America Rest of World 10 EFTA00780293 The attraction of MEZ (cont.) • Limited income volatility 200% 150% 100% 50% 0% (500/n) (100%) (150%) (200%) (250%) • Add different asset class O,000 L2,500 O,000 £1,500 L1,000 O00 0 .00 laconic Stability 2005 2006 2007 2008 MEZ. Mezzanine Fund 2003 PE Eun)fund 111 Mtn:mint MF.7. find 3)30 Mezzanine Fund 1990 ■ 1 Pacific PE ME/. PE+MEZ 1998 2000 2003 2004 2005 I'E Eurofund V MEZ European I .44121tr, MEZ Aria Picific Fund 2. MEZ. Minority Pinner' Fund 2008. MEZ Recovery Fund 2008 2006 2007 2008 • PE ■NIF.Z 11 EFTA00780294 The attraction of MEZ (cont.) ♦ Attractive valuation and propitious timing for acquisition Share Price and P/E Multiple rn 180 160 140 120 100 80 60 40 20 -MEZ Share Price tMEZ P/E multiple • 0/1 • 6FQ0 Ice Shan prier at f27 Stpiratinv; 2010 Somme: Moine% Cal>dallQ 14 12 10 6 4 2 0 12 EFTA00780295 The attraction of MEZ (cont.) • Lean cost structure Operating Expenses / Management Fees 800% 700% 600% 500% 400% 300% 200% 100% 0% 1 2007 • Higher growth potential ♦ Debt expertise 1 2008 2009 2010 ■PE • MEZ Operating Expenses / NAV 16% 14% 12% 4 10% 8% L4 6% et 4% C 2.4 a%) 2007 2008 • PE • 3.1EZ 2009 2010 13 EFTA00780296 Mezzanine Group ("MEZ") PLC vs. PE's Share Price Performance Share Price — Past Five Years (Rebased) PE / MEZ Share Price Graphs (Rebased) 180 160 140 120 100 80 60 40 20 0 r4 y 00 4, cae Not Shan price as 127 September, 2010 .Team: Bloomer% CapialIQ PE Current share price O.87 Market Cap (m): /C2,780 52 wk low/ high GO: 147/ 3.10 MEZ Current share pricca98 Market Cap (m): DJ 61.1 52 wk low / high (Q 234/3.08 —PE —MEZ 14 EFTA00780297 Pro forma PE and Mezzanine Group ("MEZ") PE Status Quo 45% 5% ■ PE Eurofund III ■ PE Eurofund IV ■ PE Eurofund V PE India Infrastructure Fund PE Infrastructure Acquisition of Mezzanine Group ("MEZ") PE Eurofund III ■ PE Eurofund IV • PE Eurofund V ■ PE India Infrastructure Fund ■ PEInfrastructure ■ ME7-7- Mezzanine Fund 1998 ■ ME7-7. Mezzanine Fund 2000 ■ ME7-7. Mezzanine Fund 2003 ■ ME7-7- Mia Pacific Mezzanine Fund 2005 • ME7-7- European Fund 2006 ■ ME7-7- Mia Pacific Fund 2008 • MF:7-7- Minority Partners Fund 2008 • MEZZ Recovery Fund 2008 15 EFTA00780298 Pro forma PE and Mezzanine Group ("MEZ") (cont.) Pro Forma — Key Financial Data 31-Mar-I0 30-Sep-09 31-Mar-09 (‘ millions, exre• rther) PE MEZ Combined PE MEZ Combined PE MEZ Combined Returns (iross Portfolio Return 843 99 942 316 44.4 360 (7,704) 32 (2,174) Profit before Tax 159 106 265 (57) 8.1 (49) (1,944) (67) (2,011) Portfolio & Assets Under Management Own Balance Sheet 17/ 5,787 2,684 8,471 3,780 2,851 6,631 6,909 2,923 9,832 External Funds 3,846 7,340 11,186 3,445 7,789 11,234 3,871 8,497 12,368 Total Assets Under Management 9,633 10,024 19,657 7,225 10,640 17,865 10,780 11,420 22,200 Balance Sheet Net Debt 258 1,504 1,762 854 1,609 2,463 1,912 2,053 3,965 Net Asset Value 3,068 1,184 4,252 2,746 1,112 3,858 1,862 776 2,638 Diluted Net Asset Value Per Share 3.19 2.99 2.86 2.81 2.81 3.72 Discount to Share Price 0.84x 0.95x 0.94x 1.01x 0.96x 0.77x Diluted Shares Outstanding 899.4 326.6 960.4 395.5 662.8 208.4 Share Price 2.69 2.85 2.69 2.85 2.69 2.85 Not (1)1ff 2010 Pf1 apialed its dOthiot ofarsetr sratkr . mamosemrst. Ibis, mithittg it: &Orr oaw Mame Ara barthand fig:cm (both Mani 2009 aid Moab 2010 ;umbers are Ian /ram the met a:ovum:rat) Somme: Compar9: ReseamS 16 EFTA00780299