Water Street Healthcare Partners LLC

Item 5 – Fees and Compensation

Water Street and its affiliated General Partners receive fees and compensation in exchange for advisory
services provided to the Funds, including a management fee and a carried interest in connection with
the provision of advisory services to the Funds and reimbursements from portfolio companies for
certain expenses advanced on their behalf. Water Street and its affiliates are also entitled to receive
additional compensation in connection with management and other services performed for portfolio
companies of the Funds. Investors in the Funds also bear certain Fund expenses. The following is a
general description of the fees, compensation and expenses of the Funds. Differences exist from
Fund to Fund, and certain Funds do not charge certain fees, compensation or expenses that other
Funds charge. The following is a general description of fees, compensation and expenses of the
Funds. Limited partners should refer to the Governing Documents of the applicable Fund for a
complete understanding of how Water Street is compensated for its advisory services; the information
contained herein is a summary only and is qualified in its entirety by such documents.

Management Fee

Each Fund will pay the applicable General Partner a management fee (the “Management Fee”),
partially in advance and partially in arrears, generally up to (i) 2.0% on an annual basis of aggregate
Fund investor investment contributions or capital commitments or (ii) as provided in certain Funds’
Governing Documents, the aggregate Fund investor investment contributions less the aggregate
amount of distributions and the aggregate amount of investment contributions used to fund
investments that have been fully written off (“Commitments”), subject to reductions at the end of the
investment period and in certain other circumstances, in each case, as specified in the Governing
Documents. A Fund’s borrowings are generally taken into account for purposes of calculating the
Management Fee, as provided in each Fund’s Governing Documents. The Management Fee will be
payable until proceeds from all portfolio investments are distributed or until a General Partner’s
relationship with the Fund is terminated for other reasons (as described in the Governing Documents).
Installments of the Management Fee payable for any period other than a full Management Fee period
are adjusted on a pro rata basis according to the actual number of days in such period. As a general
matter, Management Fees will be payable during term extensions unless otherwise notified to investors.

Water Street is permitted to exempt certain investors in the Funds from payment of all or a portion
of the Management Fee and/or carried interest, such as business executives with strategic relationships
with the Firm. The relevant General Partner reserves the right to make any such exemption from
Management Fees and/or carried interest by a direct exemption, a rebate by Water Street and/or its
affiliates, or through other vehicles which co-invest with a Fund.

As permitted under the Governing Documents, the applicable General Partner is permitted to waive
or agree to reduce the Management Fee. Certain waived portions of the Management Fee are treated
by the Governing Documents as a deemed capital contribution by the relevant General Partner, which
is effectively invested in the relevant Fund on such General Partner’s behalf, and operate to reduce the
amount of capital such General Partner would otherwise be required to contribute to the Fund. The
limited partners of the Fund would, in such circumstances, 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 may result in an acceleration (or delay) of investor capital
contributions. Waived or reduced Management Fees are applied prior to the Management Fee offsets
described above, and the amount of such waived or reduced Management Fees has the potential to be
significant. Due to waived or reduced Management Fees by a General Partner and/or timing of receipt
of compensation subject to offsets (as described above), it is possible that Management Fee offsets
will be delayed (e.g., during periods when Water Street no longer receives Management Fees and
receives compensation that would otherwise be subject to offset, Water Street, depending on certain
elections made by Fund limited partners, can be entitled to retain such compensation without
remitting any such amounts to the applicable Fund or its investments).

Subject to the relevant Governing Documents, from the effective date of the relevant Fund until a
date specified in the Governing Documents (generally representing the earlier of the end of the Fund’s
defined investment period and a specified cessation or dissolution event) (the “Stepdown Date”),
Management Fees generally will be charged based on a formula tied to the amount of the relevant
Fund’s aggregate Commitments or investment contributions. Further, after the Stepdown Date,
Management Fees generally will be charged and calculated based on a formula tied to the amount of
investment contributions (including, where applicable, a Fund borrowing component) made by the
relevant Fund relating to investments that have not been realized, disposed of or completely written
off (such investments, “Impaired Value Investments”). As is generally the case in private equity funds,
the Governing Documents provide that a Fund’s Management Fees will be calculated and charged on
a basis that generally is not tied to the then-current net asset value of individual investments, aggregate
investments in a portfolio company or of a Fund, including following the Stepdown Date, and will
not be reduced in connection with any write-downs, except in the case of investments that have been
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Item 7 – Types of Clients

Water Street provides investment advice to its Fund clients, which are operated as exempt investment
pools under the Investment Company Act. Investors in the Funds must meet certain suitability and
net worth qualifications prior to making an investment. 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. The
Funds typically require capital commitments from each limited partner as specified in each Fund’s
Governing Documents, although the applicable Fund’s General Partner has, in its sole discretion,
accepted lesser amounts.

The investors participating in 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 often include, directly or indirectly, principals or other personnel of Water Street and their
affiliates and members of their families, Operating Partners, Executive Advisors or other service
providers retained by Water Street or a Fund, as well as executives of portfolio companies.

The Funds include alternative investment vehicles established from time to time 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 related Fund.

Water Street expects to provide (or agree to provide) certain current or prospective investors, portfolio
company management or personnel, third-party investors or other persons, including Water Street
personnel and/or certain other persons associated with Water Street and/or its affiliates (to the extent
not prohibited by the Governing Documents), co-investment opportunities (including the
opportunity to participate in Co-Investment Funds) that will invest in certain portfolio companies
alongside a Fund. Co-investment opportunities are also expected to be presented to certain affiliates
of Water Street, as well as third-party investors and other persons, and such co-investments may be
effected through co-investment vehicles or directly in a particular portfolio company. In certain cases,
determinations to allocate such amounts or investment opportunities to vendors or service providers
will be made prior to the determination of the availability of opportunity for other co-investors, and
as such generally will decrease the amount of co-investment opportunities available. The Funds are
permitted to invest together with other investment vehicles advised by Water Street or an affiliate in
the manner set forth in the Governing Documents. In addition, certain Operating Partners, Executive
Advisors, consultants, other personnel of Water Street that are not partners of the General Partner
and members of the Strategic Value Team are on occasion offered the opportunity to co-invest in a
portfolio company investment of the Funds. Water Street will determine allocation of investment
opportunities in a manner that it believes is fair and equitable under the circumstances over time,
consistent with Water Street’s fiduciary obligations and Water Street’s Investment Allocations/Co-
Investment Policy

Such co-investments typically involve investment and disposal of interests in the applicable portfolio
company at the substantially same time and on substantially the same terms as the Fund making the
investment. However, for strategic and other reasons, a co-investor or co-invest vehicle (including a
Co-Investment Fund) purchases a portion of an investment from one or more Funds after such Funds
have consummated their investment in the portfolio company (also known as a post-closing sell down
or transfer), which generally will have been funded through Fund investor capital contributions and/or
use of a Fund credit facility. Any such purchase from a Fund by a co-investor or co-invest vehicle
generally occurs shortly after the Fund’s completion of the investment to avoid any changes in
valuation of the investment, but in certain instances could be well after the Fund’s initial purchase.
When co-investors purchase their interest from a Fund after the Fund has consummated the
investment, the price paid by co-investors is typically determined by the Fund’s General Partner in its
sole discretion, which has the potential to result in a conflict of interest. The Funds will bear the risk
that any co-investors acquiring an interest in an investment after the closing of such investment will
acquire such interest on terms that do not reflect the then-current value of such investment. Where
appropriate, and in Water Street’s sole discretion, the Firm is authorized to charge interest on the
purchase to the co-investor or co-invest vehicle, and to seek reimbursement to the relevant Fund for
related costs. However, to the extent that any such amounts are not so charged or reimbursed

(including charges or reimbursements required pursuant to applicable law), they generally will be borne
by the relevant Fund. The price reimbursed to the Fund may not reflect the full cost incurred by the
Fund in connection with the investment, any interest charge on the co-investment amount, the cost
of establishing the credit facility utilized to acquire the portfolio company (if applicable) or the risk
borne by the Fund in connection with purchasing and warehousing the investment.