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Background

Background. In July 2006 SPT and Veronis Suhler Stevenson (VSS) acquired ITN at a total value of $156MM 78% acquired by VSS for $43.7MM 15% acquired by SPT for $8.4MM 5% allocated to ITN management 2% allocated to Zelnick Media $100MM of debt ($80MM term, $20MM subordinated)

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Background

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  1. Background • In July 2006 SPT and Veronis Suhler Stevenson (VSS) acquired ITN at a total value of $156MM • 78% acquired by VSS for $43.7MM • 15% acquired by SPT for $8.4MM • 5% allocated to ITN management • 2% allocated to Zelnick Media • $100MM of debt ($80MM term, $20MM subordinated) • Since acquisition, we have been evaluating the feasibility and potential timing for SPE to buy-out VSS’s stake in ITN • In order for an acquisition to be justified, ITN needed to successfully navigate a downturn in the business and return to growth • In the last six months, ITN has strengthened the business and dramatically increased profitability • Acquisition case anticipated a decline from historic profitability due to the loss of Procter and Gamble, one ITN’s largest buyers • This decline was initially greater than anticipated, but the businesses has since rebounded and is now expected to outperform projections in 2008 • With the businesses on an upswing, we recommend the following next steps to determine the feasibility of a full acquisition of ITN by SPE • Validate VSS likely value expectations (preliminary analysis implies a minimum price of $185-$215MM) • Conduct financial diligence, confirming if profits will continue to trend upward • If the results of this analysis are positive, formally exercise our right of first negotiation

  2. As ITN Navigated a Downturn, Projections Were Increasingly Conservative and the Multiple Required to Meet VSS Minimum Price appeared Prohibitive • 2006 actual EBITDA missed bank case projections by 16% • 2007 Actual missed target by 27% • Given this underperformance, acquiring ITN at the end 2007 would have required paying 10.9x EBITDA--more than twice the original acquisition multiple Note: IRR figures calculated based on 12/31/07 transaction close

  3. If Recent Profit Improvements Signal Further Growth, This May be an Appropriate Time to Buy-out VSS at a Reasonable Multiple • Revised ITN Q1 ’08 forecast suggests 2008 EBITDA will outperform bank case projections by 9% • Projected 2008 EBITDA reduces the EBITDA multiple required to ensure a 30% IRR for VSS from 10.9x to 7.2x • VSS may view current performance improvement as an opportunity to exit a business with inconsistent cash flows at an attractive IRR Note: IRR figures calculated based on 6/30/08 transaction close

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