Cathay Capital NA LLC

Item 5. Fees and Compensation
As compensation for investment advisory services provided to the Cathay Fund
(collectively with the Morpheus Fund, the “Funds”).

Cathay Capital bills the Cathay Fund and receives an annual investment management fee
payable quarterly in advance. Management fees paid by the Cathay Fund are indirectly
borne by the investors in the Fund.

The precise amount, and the manner and calculation of, the management fee for the Cathay
Fund is established by Cathay Capital and set forth in the applicable advisory agreement,
limited partnership agreement (or analogous organizational document) and/or other
documentation received by each investor prior to investing in the Cathay Fund.

Prospective investors should review in the private placement memorandum, the Advisory
Agreement, limited partnership agreement (or analogous organization document) and/or
other documentation carefully before investing.

Cathay Capital may waive all or a portion of a future installment of the management fee.
Any waived amount may (a) reduce, on a dollar-for-dollar basis, the amount of capital
contributions that the General Partner would otherwise be required to make in respect of
its commitment and the limited partners will be required to make additional capital
contributions to satisfy such shortfall, pro rata, in accordance with their respective
commitments, up to the amount of the waived amount or (b) increase the allocation of
profits to the General Partner. Cathay Capital (or an affiliate thereof) will be entitled to any
distributions otherwise distributable to the limited partners in respect of the waived
amount, but solely out of profits from investments.

Cathay Capital or its affiliates will occasionally earn break-up fees, transaction fees, deal
monitoring fees, consulting fees, managing fees, directors' fees or other similar fees in
connection with investments by the Cathay Fund. To the extent provided in the
organizational and offering documents of the Cathay Fund, such fees will be applied by the
General Partner to offset, pay or reserve for the payment of expenses (or to repay any
credit facility drawdowns used to pay the same) or, if paid to the General Partner or its
affiliates, to offset the management fee payable by the Cathay Fund, with any balance
distributed in accordance with the distribution procedures; provided, that any fees or
carried interest distributions received by the General Partner or its affiliates in connection
with a co-investment opportunity shall be for the account of the General Partner or such
affiliate and shall not reduce the management fee. If an alternative investment vehicle,
successor fund or other person or entity co-invests in the Cathay Fund’s investments, or
would have co-invested in an unconsummated investment, then the Cathay Fund is only
entitled to the portion of such fees from the co-investment equal to the Fund’s share of the
proportionate amount that the Fund has or would have invested therein.

The Funds bear all of the legal and other organizational expenses incurred in forming the
partnerships, General Partner and related investment advisory entities and obtaining
commitments from the investors ("Organizational Expenses"). Cathay Capital’s
management fee is reduced by (a) all amounts paid by the Cathay Fund to any placement
agent or financial advisor relating to the raising of capital from the limited partners and (b)
Organizational Expenses paid by the Cathay Fund in excess of $1.5 million.

To the extent provided in the Advisory Agreement and the partnership agreements (or
other organizational documents), Cathay Capital is responsible for costs and expenses
relating to its own operations, including rent, salary, furniture and fixtures and all other
office equipment. The Funds generally bear other expenses relating to them, to the extent
not borne by the underling companies in which they invest. Generally, each Fund bears all
costs and expenses relating to the Fund’s operations, including, but not limited to: (a) legal,
auditing, consulting, banking, third party administration and accounting fees and expenses
(including costs of reports to the investors, financial statements, K-1s, data services, and
financial modeling software and services); (b) printing and translation costs; (c) expenses

of the Advisory Committee [See Item 11 below for more information] and meetings of
limited partners; (d) all expenses associated with the consideration, acquisition, holding
and disposition of its proposed or actual investments (including proposed or actual
warehoused investments), including, without limitation, hedging activities and temporary
investments, appraisal and valuation expenses, finders' fees, listing fees,
underwriting/syndication fees, any and all costs associated with alternative investment
vehicles and any holding vehicles, indemnification and other unreimbursed expenses; (e)
insurance covering directors and employees of Cathay Capital or third parties appointed as
manager, director, member or equivalent positions of portfolio companies and all
extraordinary expenses (such as litigation); (f) interest on and fees and expenses arising
out of all permitted borrowings made by the Funds; (g) all third party expenses relating to
unconsummated transactions including break-up fees; (h) all expenses of liquidating the
investment vehicle; and (i) any registration expenses or taxes, fees or other governmental
charges levied against the investment vehicle and all expenses incurred in connection with
any tax audit, investigation, settlement or review of the Funds. There may be other fees and
expenses as well depending upon the particular investments of the Funds.

The appropriate allocation between the Cathay Fund and any co-investment vehicles of
expenses and fees generated in the course of evaluating potential investments which are
not consummated, such as out-of-pocket fees associated with due diligence, attorney fees
...

Item 7. Types of Clients
Cathay Capital provides investment advisory services directly to the Cathay Fund and
Morpheus Fund, subject to the direction and control of the General Partner of the Fund and
not individually to the limited partners of the Fund.

The Cathay Fund and Morpheus Fund are not required to register as an investment
company pursuant to the 1940 Act in reliance on Sections 3(c)(1) and 3(c)(7). Section
3(c)(1) excepts from the definition of investment company any issuer whose outstanding
securities (other than short-term paper) are beneficially owned by not more than one
hundred persons and that is not making and does not at that time propose to make a public
offering of such securities.

Section 3(c)(7) excepts from the definition of investment company any issuer whose
outstanding securities are owned exclusively by persons who, at the time of acquisition of
such securities, are qualified purchasers and that is not making and does not at that time
propose to make a public offering of such securities. The term “qualified purchaser” is
defined in Section 2(a)(51) of the Investment Company Act., in which case each prospective
U.S. investor must be either a "qualified purchaser" within the meaning of Section 2(a)(51)
of the 1940 Act or a "knowledgeable employee" of the Fund as defined in Rule 3c-5(a)(4) of
the Investment Company Act, or, if the exclusion under Section 3(c)(7) is not available,
another exclusion or exemption under the 1940 Act.

Minimum investment commitments may be established for investors in the Cathay Fund
and Morpheus Fund, which will be set forth in the relevant offering documents. The
General Partners of the Cathay Fund and Morpheus Fund, in their sole discretion, may
permit investments that are less than the minimum investment commitment set forth in
the applicable Fund offering documents.

Item 8. Method of Analysis, Investment Strategies and Risk of
Loss
Investment Strategy
Cathay Capital partners with management teams to invest in growing companies in North
America and China that it believes can benefit from international expansion and/or a more
sophisticated distribution approach. Cathay Capital attempts to accelerate its investment
portfolio companies’ access to Chinese markets for Western companies via its networks,
ecosystem, operating capabilities, local presence in China and deep knowledge of Chinese
legal, regulatory and governance frameworks. Additionally, Cathay Capital will, as deemed
appropriate, introduce sophisticated product branding, distribution techniques, new
technologies and Western best practices and transparency to Chinese companies to help
these entities seek to generate sustainable growth with a goal of achieving higher
valuations upon exit. Cathay Capital will typically seek to invest on a noncompetitive basis
by proposing growth plans to companies that are not necessarily seeking investments or
acquisitions.

Prior to making an investment, Cathay Capital will typically seek to establish a relationship
of trust with company management teams. Cathay Capital will generally initiate such
relationships through value added proposals to company management teams, whose trust
it considers essential to a business plan’s successful implementation.

In addition, Cathay Capital leverages the expertise of investment and industry leaders and
executives to assist the investment team in seeking non-competitive investment
opportunities, make introductions to potential strategic partners, evaluate new
opportunities and provide value added direction and assistance.

Cathay Capital seeks to identify lower middle market companies with leading brands,
leadership in their sectors, or both. Cathay Capital works closely with management teams
to evaluate and execute new market entries, introduce Western portfolio companies to
decision makers at major Chinese companies and assist Chinese companies in securing new
contracts with Western counterparts. Cathay Capital seeks to strengthen its portfolio
company brands by focusing on quality and service perceptions on a local basis, often
increasing marketing budgets. Cathay Capital’s access to business partners and knowledge
of regulations and corporate cultures in multiple jurisdictions may help accelerate the
process of efficiently integrating its portfolio companies into local markets.

Cathay Capital tailors its investment to the specifics of each opportunity, which results in a
variety of deal structures:
   • Capital increases through the issuance of new equity (common or preferred stock)
       or quasi-equity (straight or convertible debt);
   • Buyouts, including acting in concert with management by facilitating management
       buyouts or buy ins;
   • Minority and majority transactions periodically with other financial sponsors or
       public companies where Cathay Capital would play the role of local partner in either
       North America or China;
   • Partial exits by owner-managers or shareholder restructurings (e.g., exits of
       minority shareholders); and,
   • Take privates and negotiated capital increases with public companies.

Risks
The purchase of limited partnership interests in the Cathay Fund involves significant risks
relating to investments in limited partnerships generally, and to the structure and
investment objectives of the Cathay Fund in particular. The following are the risks related
to the Cathay Fund’s investment objective and Cathay Capital’s investment activities. The
risks particular to the Cathay Fund, such as dependence on key personnel, default by
limited partners, and restrictions on transfer, are detailed in the Fund’s offering
documents.

Reliance on Management of the Investment Adviser
Decisions with respect to the management of the Funds may be made by the respective
General Partners of each Fund, with the advice of Cathay Capital. The success of the Funds
depends on the ability of their respective General Partners and Cathay Capital to identify
...