Prospect Partners LLC

FEES AND COMPENSATION

        In general, the General Partner receives a management fee and a carried interest in
connection with the provision of advisory services to its clients. The General Partner or other
Prospect entities or affiliates receive additional compensation in connection with management and
other services performed for portfolio companies (e.g., monitoring and other fees) of the Fund and
such additional compensation may offset in whole or in part the Management Fees (as defined
below) otherwise payable to Prospect, as described in the Governing Documents. Investors in the
Fund also bear certain fund expenses, as described below.

Management Fees

During the Fund’s commitment period, the Fund generally will pay the relevant General Partner
an annual management fee (the “Management Fee”), payable quarterly in advance, equal to 2.5%
of aggregate commitments. Generally, commencing with the first Management Fee due date
after the expiration of the commitment period or earlier upon the occurrence of certain events as
set forth in the applicable Governing Documents until the tenth anniversary of the date set forth in
the applicable Limited Partnership Agreement, the Management Fee will generally equal 2.5% of
(i) the aggregate funded commitments, less (ii) an amount equal to the cost basis of investments
that have been disposed of or completely written off (such amount of (i) less (ii), “Remaining
Capital”). Thereafter, the Management Fee generally will be equal to the lesser of 1.5% of
aggregate commitments and 2.5% of Remaining Capital. In addition, the Management Fee
generally will be reduced by all or a portion of any transaction fees, directors’ fees, financial
consulting fees or advisory fees paid to, or earned by, the relevant General Partner or its affiliate
with respect to any Fund investment and any break-up fees with respect to Fund transactions not
completed that are paid to the relevant General Partner. The General Partner generally are
permitted to elect to waive a portion of the Management Fee in exchange for a reduction in the
General Partner’s capital contribution obligation and/or a corresponding interest in Fund profits.
The limited partners of a Fund may be required to make a pro rata contribution according to their
respective commitments to fund any contribution that would otherwise be required of the General
Partner in connection with any such waiver or reduction as described above and, as a result, the
exercise of such waiver or reduction may result in an acceleration (or delay) of investor capital
contributions. Waived or reduced Management Fees are not subject to the Management Fee offsets
described above, and the amount of such waived or reduced Management Fees has the potential to
be significant.

        Generally, the Management Fee for a Fund will commence as of the date such Fund went
effective based on aggregate commitments, regardless of when a limited partner is actually
admitted. The Management Fee will be paid out of current income and disposition proceeds of
the Fund and, in the General Partner’s discretion, from drawdowns that will reduce unfunded
commitments. Where the Governing Documents calculate Management Fees based on the amount
of commitments or the amount of investment contributions, the amount of Management Fees
generally will not be reduced based on reductions in investment value, except where specified by
the relevant Governing Documents. As a general matter, Management Fees will be payable during
term extensions unless otherwise agreed with investors.

        Prospect and/or its affiliates generally have discretion over whether to charge transaction
fees to a portfolio company and, if so, the fee rate, method and/or amount of such compensation.
In most circumstances, such compensation is not reviewed or approved by an independent third
party. The receipt of transaction fees generally will give rise to potential conflicts of interest
between the Fund, on the one hand, and Prospect and/or its affiliates on the other hand. Portfolio
company-related fees may include amounts prepaid in anticipation of future services, which will
be offset against the applicable Management Fee to the extent set forth in the relevant Limited
Partnership Agreement. Transaction fee offsets generally are performed on a net basis, after giving
effect to taxes and other expenses in connection with the receipt of such fees or the provision of
related services.

        Additionally, as further described below and in the applicable Memorandum and/or
Partnership Agreement of each Fund, Prospect is permitted to use or retain certain operating
partners to provide services to (or with respect to) certain portfolio companies in which one or
more Fund invest. Such operating partners generally receive compensation and other amounts
described herein from the relevant portfolio companies or Fund to which they provide services,
but no such amounts will result in additional offsets to the Management Fee.

Carried Interest

         Each General Partner generally will be entitled to a carried interest with respect to the
relevant Fund equal to 20% of all realized profits, subject to a specified preferred return and a
related General Partner catch-up provision, as more fully described in the Governing Documents.
The carried interest distributed to a General Partner is subject to a potential giveback at the end of
the life of a Fund if the relevant General Partner has received excess cumulative distributions or at
certain interim intervals to the extent provided in the applicable Governing Documents.

Other Information

       The Fund generally invests on a long-term basis. Accordingly, investment advisory and
other fees are expected to be paid, except as otherwise described in the Limited Partnership
Agreement, over the term of the Fund and investors generally are not permitted to withdraw or
redeem interests in the Fund.
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TYPES OF CLIENTS

        Prospect provides investment advice solely to its Fund clients, and references throughout
this Brochure to “clients” and to prospect’s related duties to and practices on behalf of its clients
and/or investors should be construed accordingly. The Fund generally include investment
partnerships or other investment entities formed under domestic or foreign laws and operated as
exempt investment pools under the Investment Company Act of 1940, as amended. The investors
participating in Fund generally include individuals, banks or thrift institutions, other investment
entities, pension and profit-sharing plans, trusts, estates or charitable organizations or other
corporations or business entities and from time to time include, directly or indirectly, principals or
other employees of Prospect and its affiliates and members of their families, operating partners or
other service providers retained by Prospect, as well as executives of portfolio companies.

        The relevant General Partner also generally is permitted from time to time to establish Fund
that are alternative investment vehicles in order to permit certain investors to participate in one or
more particular investment opportunities in a manner desirable for tax, regulatory or other reasons.
Alternative investment vehicle sponsors generally have limited discretion to invest the assets of
these vehicles independent of limitations or other procedures set forth in the organizational
documents of such vehicles and the Governing Documents of the related Fund.

        The Fund generally have minimum investment amounts between $1 million and $10
million for third-party investors. Generally, investors must be “accredited investors” as defined
under Regulation D of the Securities Act of 1933, as amended, and may also be required to be
either “qualified purchasers” or “knowledgeable employees” as defined under the Investment
Company Act of 1940, as amended. The General Partner generally are permitted to waive such
minimum investment amounts and qualification requirements.

             METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS

General

        Each active Fund is principally focused on management-led leveraged buyouts and
recapitalizations of smaller lower middle-market companies.

        The following is a summary of the investment strategies and methods of analysis generally
employed by Prospect on behalf of the Fund. There can be no assurance that Prospect will achieve
the investment objectives of the Fund and a loss of investment is possible.

Investment and Operating Strategy

        Prospect seeks smaller lower middle-market companies operating in a niche. Within this
diverse marketplace, Prospect partners with management teams to acquire and to seek to build
small niche leaders with revenues typically between $10 million and $75 million. In addition, for
the active Fund, Prospect is permitted to pursue acquisitions of add-on companies with as little as
$2 million in revenue.

       Generally, Prospect follows the below criteria when evaluating potential investments:

       Types of Companies. Prospect seeks to partner with management teams to acquire and help
build companies that occupy the smaller end of the lower middle-market. Prospect focuses on a
market segment comprised of companies with revenues between $10 million and $75 million and
EBITDA up to $8 million at the time of a Fund’s investment.

        Prospect generally seeks to invest in smaller companies in a broad range of industries that
it believes have growth potential. Prospect is also interested in smaller companies in a leadership
position that can be built upon, as well as in those that have the potential to become niche market
leaders.

       Prospect seeks companies that it believes:

               are small and growth-ready;

               are in a niche market;

               have a strong and defensible market position;

               are in any of a broad range of markets, including consumer, commercial,
                manufacturing, distribution, and specialty business and consumer services; and

               are located in the United States.

       Types of Investments. Prospect seeks to build companies from a platform business.

       Prospect’s primary focus is on building growing companies through fostering internal
growth and participating in selective add-on acquisitions. In conjunction with strong, industry-
knowledgeable management teams seeking an experienced financial partner, Prospect also pursues
under-managed companies and leveraged recapitalizations.

       Prospect has focused its efforts on the following six types of private equity investments in
which it has extensive expertise, interest, and success:

       1.       Leveraged Recapitalizations
       2.       Industry Consolidations
       3.       Corporate Orphans
       4.       Transitional Sales
       5.       Under-Managed Companies

       6.      Backing Independent Equity Sponsors and Outside Operating Executives

       Types of Situations. Over the past 25 years, the principals of Prospect have worked closely
with business owners to help transition their businesses to the next phase. Prospect understands
how important a closely held business is to its owner. Prospect has found three common themes
encompassing the types of situations an owner may be in when seeking to transition his or her
company to the next phase. The three themes are as follows:

       1.      Owners Seeking Retirement & Liquidity
       2.      Owner-Managers Seeking Some Liquidity & Capital for Expansion
       3.      Manager-Led Acquisitions

Risks of Investment

        The Fund and their investors bear the risk of loss that Prospect’s investment strategy
entails. Although the following risk factors are generally applicable to Prospect’s Fund, investors
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