1. Private Equity Europe Vittorio Pignatti Morano, Vice Chairman
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Confidential
Presentation to:
Private Equity Europe
Vittorio Pignatti Morano, Vice Chairman
26 September 2007

2. 4/19/2017 9:42 PM
What is Private Equity?
Private Equity funds are pools of capital managed by professional investors who make equity investments in private companies
Private Equity funds align the economic interests of three key players:
Investors looking for higher risk / return equity exposure
Companies seeking financing to complement or replace traditional sources of capital
The investment professionals / venture capitalists
Types of Private Equity
Corporate Buyouts
Merchant Banking
Co-Investment
Infrastructure
Venture Capital
Fund of Funds
Real Estate
Mezzanine Products
The performance of the fund is defined by the investment’s internal rate of return (“IRR”); the IRR of a fund is the return on the investment 1

3. Private Equity Returns
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Private Equity Returns
Private Equity has outperformed public equity over the last 10 and 20 years
Net IRRs Ending 31 December 2006
20-Year
10-Year
(1)
(2)
(1)
(2)
___________________________
Historical trends do not imply, forecast or guarantee future results. Thomson Venture Economics’ US Private Equity Performance Index is based on the latest (31 December 2006) quarterly statistics from Thomson Venture Economics’ Private Equity Performance Database analysing the cash flows and returns for 1,860 US venture capital and private equity partnerships with a capitalisation of over $679bn. Sources are financial documents and schedules from limited partner investors and general partners. All returns are calculated by Thomson Venture Economics from the underlying financial cash flows. Returns are net to investors after management fees and carried interest.
Source: Bloomberg, LP. Represents quarterly total returns for the period. S&P 500 & Dow Jones exclude dividend reinvestment. NASDAQ and Russell 2000 exclude dividends. 2

4. Strong Industry Growth
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Strong Industry Growth
The market for LBOs has increased more than ten times in the last five years
Total US Leveraged Buyout Volume
___________________________
Source: S&P Global Leveraged Loan Review 4Q06. Historical trends do not imply, forecast or guarantee future results. 3

5. 4/19/2017 9:42 PM
Increasing Deal Sizes
The average size of an LBO reached over $1bn in 2006
Average LBO Size
___________________________
Source: S&P Global Leveraged Loan Review 4Q06. Historical trends do not imply, forecast or guarantee future results. 4

6. Globalisation of Private Equity
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Globalisation of Private Equity
The industry has expanded outside the US
Funds Raised
Investments
___________________________
Source: International Financial Services London (ESFL) estimates based on Thomsan, PwC and EVCA data. 5

7. Global Fundraising Environment
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Global Fundraising Environment
Rapid growth of private equity in recent years is capturing the attention of many investors who have never invested in the asset class
Commitments to Global Private Equity Partnerships
___________________________
Source: Thomson Financial, through December 31, Includes Buyout and Mezzanine funds. 6

8. European Fundraising Environment
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European Fundraising Environment
As in the U.S., 2006 was a record year for private equity fundraising in Europe
Observations
Commitments to Asian Private Equity Partnerships1
Fundraising has predominately been in the buyout space as traditional venture capital investing is relatively less important
The list of the largest funds raised in Europe in 2006 is dominated by:
Pan-European funds, headquartered in London; or
Nordic funds headquartered in Stockholm
Many investors believe middle-market European funds, which tend to be most often country-specific, are more likely to generate outsized returns
10 Largest European Funds Ever Raised
Fund Name
Location
Year
Amount (€mm)
Permira IV
London
2006
11,000
Cinven IV
6,500
3i Europe Partners V
5,000
EQT V
Stockholm
4,250
CVC European Equity Partners IV
4,200
Charterhouse Capital Partners VIII
4,000
Terra Firma Capital Partners III
In Market
Nordic Capital Fund VI
1,900
TDR Capital Fund II
1,750
Altor Equity Partners II
1,150
{PRIVATE EQUITY}\MARKETING GROUP\THIRD PARTY FUNDS\PFMG QUALS\FINAL\CHARTS AND TABLES XLS!COMMITMENTS
___________________________
Source: Thomson VenturExpert. 7

9. Evolution of the Buyout Market
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Evolution of the Buyout Market
Resurgence
Growing Level of Sophistication
Robust Credit Market
Growing
Bull Market
Club Deals
Developing
HY Market
Non US Buyouts
Sarbanes-Oxley
Overheated Stock Market
More Sophisticated Financial Engineering
Recession
Recession
Mega Buyouts
Recapitalisation Through Equity Markets
Valuation Decline
Developing
Tech / Telecom Bubble
Low Interest Rates
Loan Market
Increasing Deal Size
Focus on Growth Investments
Tight Credit
Multiple Contraction
Strategic Buyers Less Relevant
Under Exploited Balance Sheets
Growing M&A
Abundant Fundraising
Management Focus
Underperforming Economy
Limited Equity
HLT Regulation
Globalisation of Business
Economic Boom
Increased Equity
Vintage
Performance
Early to Mid ’80s
Late ’80s
Early ’90s
Late ’90s
2000–2002
2003–2007
Excellent
Strong
Good
Poor
Good
Strong 8

10. Lehman Brothers Private Equity Fund Performance
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Lehman Brothers Private Equity Fund Performance
First quartile performance in aggregate since inception of each asset class
Fund Performance1
Asset Class
Invested Capital
Period
Gross IRR
Merchant Banking
$3.5 billion
1989 – 2007
37%
Venture Capital
$699 million
1996 – 2007
28%
Real Estate
$4.7 billion
2000 – 2007
33%
European Mezzanine
$1.2 billion
2002 – 2007
17%
CDO Opportunity
$556 million
25%
Fund of Fund Investments
$2.9 billion
1997 – 2006
32%
___________________________
Source; Lehman Brothers Inc. Past performance is not necessarily indicative of future results. There can be no assurance that future funds will achieve comparable results.
Returns are expressed in US Dollars. All returns are as of March 31, 2007 except for the Fund of Fund Investments return, which is as of 12/31/2006. Gross internal rates of return (IRRs) do not reflect the management fees, carried interest, taxes, transaction costs and other expenses to be borne by investors in each fund, which in the aggregate are expected to be substantial. 9

11. Current Areas of Interest in Private Equity
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Current Areas of Interest in Private Equity
Secondary Investments
Purchase of limited partnership interests from original investors
Access to relatively mature private equity investments often at favorable prices
Reduces the J-curve effect by hastening the time until portfolio investment gains are realized
Improved visibility pertaining to the underlying partnership portfolio companies
Co-Investment
Direct investment in private equity transactions
Selectivity in deals
Reduced GP fees
Lower fees and the immediacy of capital calls contribute to truncation of the J-curve
Beneficiary of limited “club deals”
Mezzanine
Through mezzanine debt, investors can acquire buyout equity exposure without paying high premiums
Historically, mezzanine debt has offered equity-like returns with fixed-income-like risk levels
Mezzanine also offers good diversification benefits vs. high yield (i.e., historical correlation = zero) 10

12. Current Areas of Interest in Private Equity (cont’d)
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Current Areas of Interest in Private Equity (cont’d)
Large Cap Buyouts
Mega cap deals (greater than $5 billion) can have less competition than the middle market and small market
This is largely an historically untapped market
Resale of subsidiaries to strategic buyers
Strategic buyers emerging in Asia and the Persian Gulf
Infrastructure
Hybrid investment between private equity and fixed income
Illiquidity risk premium plus long duration
Long-dated contracts
Inelastic demand
Municipalities, electric utilities
Distressed Debt in private equity
Slow deployment of capital from date of subscription
Opportunistic investment as distressed situations arise
Effective counterbalance and diversification to LBO equity investments 11

13. 2008 – 2010 Opportunities Real Estate – Asia, Emerging Europe
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2008 – 2010 Opportunities
Real Estate – Asia, Emerging Europe
Mezzanine – Europe, U.S.
Buyouts – mid-cap globally
Secondary investments
Infrastructure investments – globally 12

14. Mega Caps And Mezzanine
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Mega Caps And Mezzanine
LBOs: EBITDA Multiples
___________________________
Source: Factset, Lehman Brothers
Attractive Risk Adjusted Performance Of Mezzanine Investing
Source: Thomson, Bloomberg, Lehman; As of 12/06; Mezzanine data represents 25th %ile returns 13

15. Impact of Recent Credit Market Repricing Favours Mid-Cap
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Impact of Recent Credit Market Repricing Favours Mid-Cap
The mezzanine market has experienced a widening of spreads. Current all-in new issue spreads are around bps, versus 700 bps at the lowest point during Q2 2007, and 850 bps on average for H
In addition, the market for leveraged dividend recapitalizations is shut, which leads to higher expected duration (from 2 years to 3 years).
As a result, on a Fund basis, projected Net Returns to investors are higher by 3% - 5% and Net Multiple of Cash by up to 0.2x.
Returns on Invesments(1)
Multiple of Capital Invested(1)(3)
Lowest spread in Q (700bps)
Average spread in H (850 bps)
Current spread in Q ( bps)
Average duration in H1 2007
Expected duration as of Q3 2007
___________________________
Source:
Based on the assumption of Euribor of 4.75% and using the fund modelling assumptions for LBEMP II L.P. The base margin (from which the incremental margin is calculated) is 700 bps
Assumes all-in Margin of 850 bps over Euribor 14

16. 4/19/2017 9:42 PM
Disclaimer
This presentation (the "Presentation") is being furnished on a confidential basis to a limited number of sophisticated institutions on a "one-on-one" basis for informational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security in Lehman Brothers European Mezzanine Partners II ("Fund II"). Any such offer or solicitation shall be made only pursuant to the confidential private placement memorandum relating to Fund II, as amended or supplemented from time to time (the "Memorandum"), which describes the risks relating to an investment in Fund II as well as other important information about Fund II and Lehman Brothers.
This Presentation is qualified in its entirety by all of the information set forth in the Memorandum, including without limitation the notice to investors set out at the front of the Memorandum and the section headed "Risk Factors and Conflicts of Interest". The Memorandum must be read carefully in its entirety prior to investing in Fund II. This Presentation does not constitute a part of the Memorandum.
This Presentation is based on or derived from information which is believed to be reliable and no representation is made that it is accurate or complete. Past performance is no indication of future results. No reliance should be placed on the contents of this Presentation by any person who may subsequently decide to enter into a transaction with Lehman Brothers.
Investors should determine for themselves the relevance of the information contained in this Presentation and any subsequent decision to invest in Fund II should be based on such investigation as they themselves deem necessary. An investment in Fund II is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in such a transaction.
The distribution of this Presentation in certain jurisdictions may be restricted by law. This Presentation is only directed at persons to whom it may lawfully be distributed and any investment activity to which this Presentation relates will only be available to such persons. It is the responsibility of any potential investor to satisfy itself as to the full compliance of the applicable laws and regulations of any relevant jurisdiction, including obtaining any governmental or other consent and observing any other formality prescribed in such jurisdiction.
This Presentation is proprietary to Lehman Brothers and may not be disclosed to any third party or used for any purpose without the prior written consent of Lehman Brothers. 15