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Deal or Bad Deal

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Deal or Bad Deal

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    1. Washington, D.C. ~ November 7-9, 2007 Deal or Bad Deal? M & A Q & A

    2. Deal or Bad Deal? Panel Members MODERATOR: James M. Fasone, Division Senior Vice President Arthur J. Gallagher Risk Management Services Simon Hodge, Managing Director Wachovia Insurance Services William Monat, President and CEO Transactions Risk Solutions Miles D. Scully, Managing Partner Gordon & Rees LLP Kim Patlis Walsh, Managing Director Corporate Risk Solutions Chris Warrior, Underwriter, Specialty Lines Beazley Group plc

    3. Overview Exposures Created from Mergers and Acquisitions Insurance Coverage Implications Underwriting Issues and Concerns Emerging M&A Trends Product Solutions

    4. Overview of PE Market

    5. Transaction Structures Degree of successor liability depends upon the type of transaction Three Primary Types: Merger Stock Acquisition Asset Acquisition

    6. M&A Challenges Data Access Needed Purchase Agreement Due Diligence Information Pro Forma Financials Insurance Policies

    7. M&A Challenges (contd) Understanding Insurance and Indemnification Agreements Understanding Change in Control Provisions Interfacing With Other Deal Pros Managing the Politics Meeting Expectations

    8. Deal Killers Bank write-downs Lack of financing / fundraising Valuations, inability to exit and profit quickly Buyer/Seller cant agree on liabilities, indemnification language, R&Ws, covenants

    9. Deal Killers (contd) Purchase price adjustments Other Scrutiny from legislative bodies Certain Industry developments

    10. Making It A Better Deal Assist Negotiation of Transaction Documents / Indemnity Agreements Identification of Transactional Risk Protections R&W insurance, tax liability, litigation buyouts Purchase price adjustments due to accruals / reserve practices Deal protection / failed deal insurance Successor liability

    11. Making It A Better Deal (contd) Other Insurance Protections D&O runoff / tail, ongoing Address international exposures Surety / alternative collateral Environmental Products liability Political risk insurance

    12. State of Transactional Insurance Market Maturing marketplace for transactional products U.S. product experience 10 plus years Building acceptance in deal community steady process Underwriting methodology Significant opportunity to grow products

    13. Liquidity Crisis Impact on M&A and PE Markets Financing for mega deals difficult Higher debt costs driving down EBITDA Multiples that PE firms can pay Re-focusing of PE capital Targeted funds infrastructure, foreign, etc.

    14. Liquidity Crisis Impact on M&A and PE Markets (contd) Smaller buyouts with more PE equity vs. debt Distressed buyouts Strategic deals Foreign acquisition of U.S. companies

    15. Product Innovations New Product Innovations Private Equity Product that addresses contingency exposures faced by PE firms at fund close to enable distributions without risk of claw backs indemnity obligations or contingencies Adapt products to changing deal environments as new issues arise

    16. Emerging Trends in M&A Deal Boom: 2006 and 2007 Leading to U.S. Sub-Prime Crisis Mega-deals closed by private equity groups, incredible valuations Movement from publicly traded firms in hands of shareholders to PEGs IPOs of PE/Alternative Investment Firms Continued boom of restructurings / refinancing

    17. Emerging Trends in M&A (contd) Impact of Post-Debt / Credit Crunch Private equity investment slowdown Debt financing and tax benefits more expensive and difficult to secure Deal valuations significantly reduced Overleveraged debt lenders, fragility of certain hedge funds Outside U.S. investors cautious; European banks hit hard due to mortgage-backed products Continued regulatory scrutiny, SEC watchdog investigates deeper into banks, investment firms, alternative investment firms

    18. Takeaways M&A Market Highly Complex Product Solutions Very Deal Specific Still Relatively New Market Deal Slowdown Predicted Market Ripe for Product Development

    19. Audience Q & A

    20. Many thanks to . . . James M. Fasone Simon Hodge William Monat Miles D. Scully Kim Patlis Walsh Chris Warrior

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