Harbour Group Industries Inc

Item 5. Fees and Compensation

Management Fees

Each General Partner receives an annual management fee equal to 1.5%-2.0% based on
commitments of each Fund for a period of generally up to five or six years and thereafter
ranging from 1.0% to 2.0% on the total capital contributions made to the applicable Fund less
distributions to the limited partners constituting return of capital (the “Management Fee”).
Such fees are payable quarterly in advance from the applicable Harbour Group Fund. Upon
termination of an advisory agreement, appropriate treatment will be given to all Management
Fees collected in advance. As compensation for investment advisory services rendered to the
Harbour Group Funds, Harbour Group is compensated by the applicable General Partner from
such Management Fees. As described below, the Management Fee may be reduced or waived
in some circumstances in connection with the receipt by Harbour Group or its affiliates of
various fees paid by actual or prospective portfolio companies. The Management Fee is

generally subject to waiver or reduction by Harbour Group, in its sole discretion, including in
connection with investments made by the General Partner or its affiliates, such waiver or
reduction is typically in the form of reimbursement by the General Partner.

If any assets remain in a Fund following its term, the assets are managed in the dissolved Fund
partnership for a time, and then any remaining assets are transferred to a liquidating trust for
the benefit of the limited partners. Pending the final liquidation of the Fund and the liquidating
trust, no management fees are charged; however, Harbour Group may be reimbursed
for its expenses (including the cost of Harbour Group personnel) incurred in connection with
the administration and liquidation of the trust.

Transaction Fees and Break-up Fees

A fee of 1% of the total transaction value for each completed acquisition of a portfolio company
and divestiture, subject to a minimum amount of $250,000, will be payable (unless waived by
the General Partner) to the General Partner or an affiliate thereof by the portfolio company.
Such fees will offset and reduce the aggregate Management Fee payable by the Fund. The
General Partner has routinely waived such transaction fees. Any break-up fee received on
terminated transactions will be credited against unconsummated transaction expenses paid by
the applicable Harbour Group Fund.

Other Fees

Portfolio companies pay fees and expenses of third parties (e.g., accountants, attorneys,
consultants or intermediaries) relating to the completion of a transaction. Out-of-pocket
expenses incurred by Harbour Group on behalf of a portfolio company in connection with its
acquisition and thereafter are also reimbursed by such portfolio company. No directors' fees
are paid by portfolio companies to executives of Harbour Group or any of its affiliates.

Harbour Group and certain of its and its affiliates’ employees are allowed to (and routinely do)
purchase securities in companies in which a Harbour Group Fund has an investment. Subject
to limitations set forth in the operative agreements of the Harbour Group Funds, the amounts
and terms, which may include deferred payment arrangements or options (and such deferred
payment arrangements or options have been routinely offered in pooled investment funds
affiliated with Harbour Group), are determined by the General Partner in its sole and absolute
discretion. The costs of such deferred payment arrangements may be (and routinely are) paid
directly or indirectly by the Harbour Group Fund portfolio companies, the payment of which
may occur at the time of divestiture of a portfolio company. Limitations on the terms and
amounts are detailed in the agreement of limited partnership that each limited partner signs
prior to investing in a Harbour Group Fund. Such arrangements create an incentive which
may cause us to recommend strategies regarding the portfolio companies which are riskier or
more speculative than those that would be recommended if such arrangements did not exist.

Certain supervised persons receive bonus compensation upon the acquisition or divestiture of a
Harbour Group Fund investment. This practice could present a conflict of interest between the
employee and the applicable Harbour Group Fund. All investments and divestitures must be

approved by the investment committee, the majority of which is comprised of individuals who
do not receive such compensation.

The General Partner of a Harbour Group Fund pays all ordinary administrative and overhead
expenses incurred in managing the Fund and originating and making investments out of the
Management Fee and carried interest paid to the General Partner (generally those expenses
relate to compensation of employees and travel expenses, and an allocation of other expenses,
including rent, utilities and office expenses, etc.). Such expenses include reimbursing Harbour
Group and its affiliates for corporate development personnel associated with identifying,
evaluating and acquiring core companies. However, fees for services of Harbour Group and its
affiliates’ personnel engaged in line or staff functions (including management, advisory,
corporate development/acquisitions, operations, production planning, systems implementation
or modification, sourcing, transaction, financial advisory, refinancing, and other services)
relating specifically to portfolio companies (including complementary acquisitions, refinancings
and similar transactions) are paid by the portfolio companies at an hourly rate specific to the
person performing the function. Fees for such line or staff functions are also charged at an
hourly rate (specific to the person performing the function) performed for a portfolio company
prior to its acquisition, but only after an exclusivity agreement has been reached between the
parties. The hourly rate for a person is based on the direct cost of the person performing the
...

Item 7. Types of Clients

Harbour Group currently provides investment advisory services to the applicable General
Partner of each Harbour Group Fund, and not individually to the limited partner investors in
such Harbour Group Fund. Harbour Group also provides investment advisory services to
affiliated investment entities.

Interests in the Harbour Group Funds are offered pursuant to applicable exemptions from
registration under the Securities Act and the 1940 Act. Investors in Harbour Group Funds
include high net worth individuals, banks, thrift institutions, pension and profit-sharing plans,
insurance companies, foreign investors, trusts, estates, charitable organizations, corporations,
limited partnerships and limited liability companies or other business entities, including funds
of funds.

Minimum investment commitments may be established for limited partners in Harbour Group
Funds. The General Partner of each Harbour Group Fund, in its sole discretion, may permit
investments that are less than the required minimum investment commitment set forth in the
applicable fund documents of such Harbour Group Fund.