Stone Arch Capital LLC

FEES AND COMPENSATION

        In general, the General Partners receive a Management Fee (as defined below) and a carried
interest in connection with the provision of advisory services to its clients. The General Partners
or other Stone Arch entities or affiliates receive additional compensation in connection with
management and other services performed for portfolio companies (e.g., monitoring and other
fees) of Partnerships and a portion of such additional compensation will generally offset in part
the Management Fee otherwise payable to the applicable General Partner to the extent provided
by the Partnership Agreements. Investors in the Partnerships also bear certain Partnership
expenses.

Management Fee

        Each Partnership pays its General Partner a management fee (the “Management Fee”)
equal to 2% on an annual basis of aggregate Partnership investor capital commitments
(“Commitments”) through the Partnership’s investment period and 2% of outstanding capital
invested thereafter. Payment of the Management Fee is made semi-annually, 30 days in arrears
and in advance with respect to the remainder of the period. Most of the Management Fee is
ultimately received by the Management Company pursuant to a management agreement. Investors
participating in a closing after the initial closing or effective date, as applicable, of a Partnership
bear the Management Fee from the date of the initial closing or effective date, as applicable, of
such Partnership plus interest. The Management Fee is subject to reduction where the term of a
Partnership is extended pursuant to the Partnership’s Partnership Agreement or where a particular
subsequent Partnership is formed or upon the occurrence of certain other events as described in
the applicable Partnership Agreement. The Management Fee is generally payable until all
portfolio investments are realized and/or distributed. Installments of the Management Fee payable
for any period other than a full six-month period are generally adjusted on a pro rata basis
according to the actual number of days in such period. Where the Partnership Agreements
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 Partnership Agreements, which
generally require an investment to have permanently declined in value and be written-off as
determined by the General Partner. As a general matter, Management Fees will be payable during
term extensions unless otherwise agreed with investors. After a date specified in the Partnership
Agreement (generally after the relevant Partnership’s investment period) (the “Stepdown Date”),
the Management Fee will be calculated as a percentage of outstanding investment contributions
on unrealized investments. Investment contributions are capital contributions used to make an
investment or to pay transaction-specific fees and expenses of investments, including certain fees
(such as Supplemental Fees) and expenses paid to third parties, Stone Arch or its affiliates.

       To the extent specified in the Partnership Agreement for the applicable Private Investment
Fund, Stone Arch or another Stone Arch entity will be permitted to receive certain supplemental
fees and other amounts (“Supplemental Fees”) such as: directors’ fees, professional services fees,
monitoring fees, breakup fees and other similar fees paid by portfolio companies to a General
Partner, the Management Company or their affiliates, partners, members, officers or employees.
The applicable Partnership Agreement generally will provide that Supplemental Fees received by
the Advisers will be credited against the Management Fee otherwise owed to the Advisers in a

specified percentage (65%). The remaining amount of such Supplemental Fees will be retained
by Stone Arch. The Management Fee will also be reduced by all placement fees and any
organizational expenses paid by a Partnership in excess of the expense cap specified in the
Partnership Agreement. To the extent that such an offset credit would reduce the Management
Fee for the relevant period below zero, the credit will be carried forward for future application
against payable Management Fees. To the extent any such excess remains unapplied upon
dissolution of a Partnership, each partner of such Partnership will receive its share of such
unapplied excess, unless such partner elects not to receive its share. To the extent that any other
Private Investment Fund or any other entity or individual co-invests alongside the Partnership in
any portfolio company investment, any Supplemental Fees are typically, but not necessarily,
allocated pro rata among the Partnership and the co-investors in proportion to the cost of the
investment in the portfolio company borne by each or in such manner as approved by (i) the
General Partner and the governing body of such entity and (ii) the limited partners’ committee of
the Partnership (the “Limited Partner Committee”). As a result, a Partnership will, in most cases,
only benefit with respect to its allocable portion of any such fee and not the portion of any fee that
relates to such co-investors or potential co-investors (which could include co-investment vehicles
managed by an Adviser, third parties, portfolio company management or employees and/or others),
which has the potential to be significant. Unless otherwise agreed with investors, Supplemental
Fees generally will be payable during term extensions, even if Management Fees are reduced or
eliminated during the extended term, thus reducing the amounts of Management Fees actually
offset. Supplemental Fees will be offset only to the extent they are paid during the holding period
of the relevant Partnership, and investors generally will not receive the benefit of Supplemental
Fees paid prior to the Partnership’s acquisition of the relevant investment.
...

TYPES OF CLIENTS

        The Advisers provide investment advice to Private Investment Funds, including the
Partnerships, and references throughout this Brochure to “clients” and to Stone Arch’s related
duties to and practices on behalf of its clients and/or investors should be construed accordingly.
Private Investment Funds are investment partnerships or other investment entities formed under
U.S. or non-U.S. laws and operated as exempt investment pools under the Investment Company
Act of 1940, as amended (the “Investment Company Act”). The investors participating in Private
Investment Funds generally include individuals, banks or thrift institutions, other investment
entities, university endowments, sovereign wealth funds, family offices, pension and profit-sharing

plans, trusts, estates or charitable organizations or other corporations or business entities and
include, directly or indirectly, principals or other employees of the Advisers and their affiliates
and members of their families, operating partners or other service providers retained by the
Advisers, as well as executives of portfolio companies.

       The relevant General Partner also generally is permitted to establish Private Investment
Funds 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 of the related Partnership.

        Each Partnership has a minimum investment amount of $5 million for third-party investors.
The applicable General Partner generally is permitted to waive such minimum investment amount.
In most circumstances, investors in the Partnerships must meet certain suitability and net worth
qualifications prior to making an investment. Generally, investors must be (i) “accredited
investors” as defined under Regulation D of the Securities Act of 1933, as amended and (ii) either
“qualified purchasers” or “knowledgeable employees” as defined under the Investment Company
Act.

        In certain circumstances, certain affiliates and personnel of Stone Arch and other third
party investors are likely to be permitted to co-invest directly in a particular portfolio company or
in a holding company which holds the equity in the portfolio company directly. The Advisers will
select which investors are permitted to participate in such co-invest opportunities based on various
factors, including the sophistication of the investor, the ability of the investor to fund and complete
the investment on a timely basis and for strategic or other reasons as may be more fully described
in the applicable Partnership’s Partnership Agreement. The Advisers are not obligated to make
co-investment opportunities available to any particular investors or limited partners.

             METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS

General

        The principal investment strategy of Stone Arch is to achieve long-term capital
appreciation, primarily by acquiring equity and equity-related securities and certain debt
instruments in private growth-oriented companies. Stone Arch generally targets lower middle
market companies primarily located in the Midwest region of North America, although the
Advisers may make investments outside of the Midwest if they locate an investment opportunity
which they believe presents a high likelihood of closing an attractively priced and structured
investment. Stone Arch seeks to make investments of between $10 million and $25 million in
family-owned companies that have $5 million to $25 million in EBITDA. Investments are
predominantly of non-public companies, although investments in public companies are permitted,
subject to certain restrictions in the applicable Partnership Agreement.

       The following is a summary of the investment strategies and methods of analysis generally
employed by the Advisers on behalf of the Partnerships. More detailed descriptions of the
Partnerships’ investment strategies and methods of analysis are included in the applicable

Memorandum and Partnership Agreement for each Partnership. There can be no assurance that
the Advisers will achieve the investment objectives of any of the Partnerships, and a loss of
investment is possible.

Investment and Operating Strategy

        The Advisers seek to provide returns to investors by (i) using research and contacts to
identify investments that the Advisers believe are attractive, (ii) performing rigorous analysis and
due diligence to select and structure investments, and (iii) providing significant resources to
portfolio companies.

        Identification of Investment Opportunities. The Advisers’ origination strategy includes
leveraging a network of relationships in the Midwest, including corporate executives, investment
bankers, lawyers, accountants, brokers and other financial intermediaries that provide the
Partnerships with consistent deal flow. Through this network, the Advisers seek to identify sound,
profitable businesses that can be grown and improved to “institutional quality” companies that will
be more attractive to future strategic and private equity buyers.

       Rigorous Analysis and Due Diligence. With respect to the investment opportunities that
the Advisers pursue actively, the Advisers engage in in-depth discussions with management and
conduct rigorous due diligence, arriving at a limited number of investments that become portfolio
companies of the Partnerships. As part of the due diligence process, the Advisers carefully analyze
the cash flow dynamics and numerous other key attributes of each investment opportunity,
including potential areas of growth, profit optimization, capital requirements, competitive threats
...