Spell Capital Partners LLC

FEES AND COMPENSATION

General

Spell Capital typically receives a management fee (the “Management Fee”) based upon a percentage
of the assets under management, and the applicable General Partner receives a carried interest in
connection with advisory services provided to the Funds. Spell Capital or other related entities or
affiliates receive additional compensation in connection with management and other services
performed for portfolio companies of Private Investment Funds (a “Portfolio Company Management
Fee”) and the Portfolio Company Management Fee generally offsets Management Fees otherwise
payable to Spell Capital. Spell Capital also generally receives a transaction fee for providing
investment advice and services in connection with locating, evaluating, negotiating, and structuring
completed Fund transactions. The fees payable to Spell Capital and the General Partners are fully
described in the applicable Fund’s Partnership Agreement which provides details regarding the fee
structures summarized below. Terms not defined herein are defined in the applicable Partnership
Agreement.

Fund Fees (Except Mezzanine SBIC Fund)

Management Fee

Spell Capital receives Management Fees from the Funds in an annual amount equal to two percent of
the excess of: (i) the aggregate Capital Commitment over (ii) the amount of any Capital
Contributions applied toward the purchase of any Portfolio Company that has been wholly sold;
provided, however, that Spell Capital reserves the right to waive or reduce Management Fees for
certain investors, including affiliates of Spell Capital. Management Fees are paid quarterly in
advance, with the first payment being made on the date of the Initial Closing and thereafter, at the
beginning of each succeeding fiscal quarter. Spell Capital deducts the Management Fees from the
Fund accounts. Installments of the management fee payable for any period other than a full three-
month period are adjusted on a pro rata basis according to the actual number of days in such period.
As set forth in each Management Agreement, the Management Fee due to Spell Capital is reduced by
all Portfolio Company Management Fees received.

Carried Interest

The General Partners are entitled to receive a carried interest with respect to the Fund equal to 20%
of all realized profits in excess of an 8% simple preferred return, as more fully described in each
Fund’s Partnership Agreement. The General Partner may agree to waive or reduce the carried interest
paid in respect of all or a portion of the Capital Commitments of one or more Partners, including the
General Partners.

Other Fees Earned by Spell Capital

Spell Capital and its affiliates may also receive fee income paid by Portfolio Companies or other
third parties, including advisory fees, directors’ fees, monitoring fees, transaction fees or other
similar fees received with respect to investments or proposed investments by Spell Capital
(collectively, “Other Fees”). The Portfolio Company Management Fee shall offset Management
Fees otherwise payable from the Funds to Spell Capital. These Other Fees (not including the
Portfolio Company Management Fee) shall not offset or otherwise reduce the Management Fee.

Mezzanine SBIC Fund Fees

Management Fee

During the five-year period that began on the Initial Closing date (Investment Period), Mezzanine
SBIC Fund will pay Spell Capital an annual Management Fee, payable quarterly in advance, equal to
two percent of total investment capital (Unreduced Regulatory Capital and Assumed Leverage.)
After the Investment Period, the Management Fee shall be equal to two percent of Mezzanine SBIC
Fund's aggregate cost basis of investments in active Portfolio Companies. The Management Fee is
reduced by the amount of any consulting, director or other fees paid to the General Partner or its
affiliates. Spell Capital reserves the right to waive or reduce the Management Fees paid under the
Management Agreement in respect of all or a portion of the Capital Commitments of one or more

Partners (including the General Partner). Spell Capital deducts the Management Fees from the
Mezzanine SBIC Fund account. Installments of the Management Fee payable for any period other
than a full three-month period are adjusted on a pro rata basis according to the actual number of days
in such period.

Carried Interest

SCMP is entitled to receive a carried interest with respect to Mezzanine SBIC Fund equal to 20% of
all realized profits in excess of an 8% per annum simple return, as more fully described in Mezzanine
SBIC’s Partnership Agreement. The General Partner may agree to waive or reduce the carried
interest paid in respect of all or a portion of the Capital Commitments of one or more Partners,
including the General Partners.

Other Information

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

Principals or other employees of the Advisers may receive a portion of the Management Fee, carried
interest, or other compensation received by the Advisers or their affiliates. Spell Capital may exempt
certain Fund investors, including the Advisers and their affiliates, from payment of all or a portion of
Management Fees and/or carried interest.

In addition to the Management Fee and carried interest, each Fund is responsible for the
organizational and startup expenses of such Fund, as further described in each Fund’s Partnership
Agreement. The Funds will generally directly pay or reimburse the Advisers for all expenses relating
to the Fund’s activities, investments and business (to the extent not borne or reimbursed by a
Portfolio Company), including, without limitation, (i) costs, expenses, liabilities and obligations
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TYPES OF CLIENTS

Spell Capital provides investment advice to Private Investment Funds. Private Investment Funds may
include investment partnerships or other investment entities formed under domestic or non-U.S. laws
and operated as exempt investment pools under the Investment Company Act of 1940, as amended.
The investors participating in Private Investment Funds may include high net worth individuals,
banks or thrift institutions, insurance companies, pension and profit-sharing plans, trusts, estates or
charitable organizations, corporations or other business entities or other investment entities and may
include, directly or indirectly, the Principals, General Partner members or other employees of the
Management Company and its affiliates.

Fund III, Fund III QP, and Mezzanine Fund are closed to new investors but generally required a
minimum investment amount of $125,000. Fund IV is closed to new investors but generally required
a minimum investment amount of $200,000. Mezzanine SBIC Fund is closed to new investors, and
generally accepted subscribers with a minimum capital commitment of $200,000. The applicable
General Partner has waived or may waive such minimum investment amount at its discretion.

In most circumstances, investors in the Funds must meet certain suitability and net worth
qualifications prior to making an investment. Investors are (i) “accredited investors” as defined
under Regulation D of the Securities Act of 1933, as amended, and frequently are (ii) either
“qualified purchasers” or “knowledgeable employees” as defined under the Investment Company Act
of 1940.

      METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS

General

Spell Capital provides day-to-day investment advisory services to the Funds, subject to the
supervision of the applicable General Partner. The General Partners for each Fund are affiliated
advisers of Spell Capital.

The Advisers’ have ultimate decision-making authority for each Fund. The Advisers have common
owners and personnel. Accordingly, the Advisers’ general investment methodology is described
below. Investors should refer to the applicable Fund Documents for investment strategies employed
specifically for that Fund.

Investing in securities involves risk of loss that clients and investors should be prepared to bear.
There can be no assurance that the Advisers will achieve the investment objectives of each Fund and
a loss of investment is possible.

Fund Investment Strategy and Process (Except Mezzanine SBIC Fund)

The Advisers’ investment strategy is to provide returns to Fund investors by generally focusing on
the acquisition of controlling interests in well-managed, historically profitable niche industrial
manufacturing businesses at the lower end of the middle market based in the United States. The
Advisers have extensive experience investing in the lower middle market, which they believe
provides attractive investment opportunities.

The Advisers target manufacturing companies that they believe have a history of proven sales and
earnings, and cash flows. The Advisers seek to pursue investments in industries or industry segments
that are fragmented and offer potential for growth and economic synergies through add-on
acquisitions.

The following description of the Advisers’ investment process is a general description and individual
processes may vary in some respects. More detailed descriptions of the Funds’ investment strategies
and methods of analysis are included in the applicable partnership agreement and private placement
memorandum for each Fund.

The Advisers’ process begins with identification of investment opportunities generally received from
its extensive network of formal and informal deal referral relationships. These referral source
relationships provide for access to investment opportunities for platform and add-on acquisitions and
allow for flexible transaction structures. If the Advisers approve a preliminary indication of interest,
and the prospect invites the Adviser to conduct further inquiries, the Adviser will typically engage
counsel, and other experts as appropriate, such as accountants, environmental engineers and industry
consultants, to assist in a “due diligence” investigation of the prospect and the proposed transaction.
Third party financing sources will be secured to finance the purchase price required to complete the
acquisition. Discussions with the owners and managers of the prospect will be conducted along with
plant visits.

The Advisers will review the business financial statements, due diligence reports and conduct in-
depth discussions regarding the prospect with the Advisers’ team members. If the Advisers decide to
proceed with the investment, the team is authorized to negotiate definitive arrangements for the
acquisition and, if such negotiations are successful, the acquisition is consummated.

The Advisers seek to be actively involved in managing its portfolio company investments post-close.
The Advisers provide supervision and advice on both policy and management matters in an effort to
assist the portfolio companies in maximizing the company’s potential.

Dispositions of Fund investments are actively managed and an important element of the investment
strategy. The Advisers expect to divest a Fund investment when a satisfactory rate of return has been
achieved and continued retention of the investment is not expected to materially enhance such rate of
return, there is no longer a favorable risk/reward ratio for the investment, or the Fund’s term is
drawing to a close. A competitive process is established, sometimes through the selection of an
investment bank to assist with the sale. A strategy is then carefully crafted with the sell-side
investment banker, the Advisers and portfolio company management in order to create the maximum
investment realization.

Fund Risks of Investment (Except Mezzanine SBIC Fund)
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