Kestrel Investment Management Corp

Item 5 – Fees and Compensation

A. Separate Accounts: Fees paid by Separate Account clients are based on a percentage of assets
   under management based on the following basic schedule:

    Annual Fee Rate
                                   Institutional Clients         Non-Institutional Clients
        First 3,000,000                    1.00%                       1.25%
        On balance of assets               1.00%                       1.00%

    All Separate Account fees are subject to negotiation. Kestrel may change the fees upon thirty (30)
    days prior written notice.

    The Fund: The Fund pays Kestrel a management fee for managing the Fund’s investment
    portfolio and for administering some of the Fund’s operations. The management fee is calculated
    at a rate of 1.0% per annum of each limited partner’s capital account balance. The Fund may vary
    the management fee as to particular limited partners by separate agreement.

B. Separate Accounts: Kestrel generally bills its fees for managing Separate Accounts on a quarterly
   basis in advance, although this is negotiable. Clients are billed directly for fees and Kestrel will not
   directly deduct fees from Separate Accounts.

    The Fund: The Fund pays Kestrel the management fee quarterly in advance based on the value
    of each limited partner’s capital account as of the beginning of the quarter. Each limited partner’s
    capital account in the Fund is decreased by the applicable portion of the management fee.

C. Separate Accounts: The fees that Kestrel charges its Separate Account clients are exclusive of
   charges imposed by custodians, brokers, and other third parties, such as custodial fees, markups
   and markdowns on principal transactions, brokerage commissions, transactions fees, sales charges,
   odd-lot differentials, transfer taxes, wire transfer and electronic fund fees, and other fees and taxes
   on brokerage accounts and securities transactions. Kestrel does not receive any portion of these
   charges.

    The Fund: The Fund bears all of its ongoing operating costs. These include, among other things,
    brokerage commissions on portfolio transactions, interest on margin and other borrowings;
    borrowing charges on securities sold short; custodial fees; bookkeeping, accounting, audit and
    other professional fees and expenses; legal fees (including fees paid to Kestrel’s counsel for
    services for the benefit of the Fund); expenses Kestrel, as general partner of the Fund, incurs for
    investment research and due diligence; governmental fees and taxes; telephone expenses; costs of
    reporting to partners; cost of governance activities (such as obtaining partner consents); fees paid
    to a third-party administrator to perform, among other things, some of the services and functions
    described above; and all other reasonable expenses related to the management and operation of
    the Fund or the purchase, sale or transmittal of Fund assets, all as Kestrel determines in its sole
    discretion. Kestrel may cause some or all of those costs to be paid using “soft dollars”—i.e., paid
    by securities brokerage firms in recognition of commissions or other compensation paid on
    securities transactions the Fund executes through those firms (including markups and markdowns
    on principal transactions).

    As to any subscription to the Fund, the subscribing limited partner may be subject to a
    subscription fee of up to 1.0% of the gross subscription amount, to cover the Fund’s costs of
    establishing portfolio exposure for the subscription, which otherwise would be borne by all of the
    partners. In addition, the Fund may charge transaction costs incurred in funding a withdrawal to
    the withdrawing limited partner.

    As noted above, clients will bear brokerage and other transaction costs. See Item 12 of this
    Brochure for a description of Kestrel’s brokerage practices.

D. Separate Accounts: Management fees on Separate Accounts are prorated for each contribution
   and withdrawal made during the calendar quarter. Accounts initiated or terminated during a
   calendar quarter will be charged a prorated fee. Upon termination of any account, any prepaid,
   unearned fees will be refunded, and any earned, unpaid fees will be due and payable.

    The Fund: Kestrel is paid a prorated management fee as to capital contributed to the Fund on a
    date other than the first day of a quarter. If a limited partner were to be permitted to withdraw
    capital on a date other than the end of a quarter, he or she would not receive any refund of any
    management fee as to the remaining portion of that quarter.

E. Kestrel does not accept compensation for the sale of securities or other investment products.

Item 7 – Types of Clients

Separate Accounts: Kestrel provides portfolio management services to individuals, corporate pension
and profit-sharing plans, Taft-Hartley plans, charitable institutions, foundations, endowments,
municipalities and other U.S. and international institutions. The minimum Separate Account size is
generally $10 million, although Kestrel may waive this requirement in its sole discretion.

The Fund: Kestrel serves as investment adviser to the Fund in its capacity as the Fund’s general
partner. The minimum investment in the Fund by a limited partner is generally $1,000,000, although
Kestrel may waive this requirement in its sole discretion. The Fund is not required to have a minimum
asset level for operation.