Item 5. Fees and Compensation
Management Fees
Heartland receives a management fee (the “Management Fee”) from HIPLP, HIPC1 and HIPIA.
Each Management Fee is generally payable quarterly in advance and is prorated for the actual
number of days in such period for periods of less than a full quarter at the beginning or end of
Heartland’s provision of investment advisory services. Heartland does not currently receive a
Management Fee from HIPFF, HIPSXS or CVCPHSPV.
HIPLP and HIPC1 each pay Heartland, quarterly in advance, a Management Fee equal to 1.0%
per annum (.25% per fiscal quarter) of capital contributions made with respect to investments
that have not been subject to a disposition as of the first day of such period (including any
amounts reserved for specific follow-on investments). HIPIA pays Heartland, quarterly in
advance, a flat fee as reimbursement for certain overhead expenses of Heartland (the “HIPIA
Fee”).
Heartland or an affiliate thereof may also receive customary monitoring fees, termination fees,
financing, divestment and other similar transaction fees, as well as commitment fees, director
fees and other fees from portfolio companies of the HIG Funds. The aggregate Management Fee
payable by HIPLP and HIPC1 in any fiscal year will be reduced by 50% of any fees earned by
the active senior members, directors and officers of Heartland, the General Partner or any of their
respective affiliates in connection with portfolio investments and from such funds’
unconsummated transactions (to the extent that such fees exceed the reasonable out-of-pocket
expenses of Heartland, the General Partner or their respective affiliates in connection with
portfolio investments and from such funds’ consummated and unconsummated transactions),
including break-up and topping fees, monitoring and directors’ fees, organization fees, set-up
fees, advisory fees, consulting fees, management fees, investment banking fees, closing and
transaction fees and other similar fees. With respect to certain investors in these funds who so
elected pursuant to an amendment to the governing agreements of HIPLP and HIPC1, the
percentage used in calculating their pro rata share of the offset amounts is 75% rather than 50%.
As noted above, Heartland currently does not receive a Management Fee from HIPFF or
HIPSXS and HIPIA is charged a flat quarterly fee which is not offset by the portfolio company
related fees described above. In addition to the foregoing, Heartland and its affiliates are
prohibited from receiving (i) monitoring fees in excess of $4 million per annum and (ii) other
fees in excess of $10 million in the aggregate, respectively, from each portfolio company for the
period from January 1, 2006 and the end of the term of the applicable fund.
Carried Interest
An affiliate of Heartland will receive a carried interest with respect to each HIG Fund equal to
15% of all realized profits, subject to a 6% compounded preferred return, as more fully described
in the governing agreement of the applicable HIG Fund. CVCPHSPV will receive a carried
interest of up to 20% in certain circumstances and as more fully described in the governing
agreement of CVCPHSPV.
Other Information
Certain employees of the General Partner and its affiliates, or entities in which substantially all
of the equity is held by such persons or their family members, will not be charged a Management
Fee, and will not be subject to the carried interest, to the extent agreed in writing by the General
Partner.
In addition to the Management Fees, the HIPIA Fee in the case of HIPIA and the carried interest
payable to an affiliate of Heartland, the HIG Funds bear certain expenses. As set forth in the
governing agreement of the applicable HIG Fund, the HIG Funds bear all expenses to the extent
not paid by portfolio companies, including fees and expenses for tax advisors, attorneys,
consultants and auditors; all out-of-pocket costs and expenses, if any, incurred in developing,
negotiating, evaluating, structuring, and disposing of actual portfolio investments, including
without limitation any financing, legal, accounting, advisory and consulting expenses in
connection therewith; all out-of-pocket costs and expenses, if any, incurred by or on behalf of the
funds in developing, negotiating, evaluating and structuring prospective or potential portfolio
investments that are not ultimately made, including without limitation any legal, accounting,
advisory, financing and consulting costs and expenses in connection therewith; brokerage
commissions, custodial expenses and other investment costs actually incurred in connection with
actual portfolio investments; interest on and fees and expenses arising out of all borrowings
made by the funds, including, but not limited to, the arranging thereof; the costs of any
litigation, D&O liability or other insurance and indemnification or extraordinary expense or
liability relating to the affairs of the funds; expenses of liquidating the funds; any taxes, fees or
other governmental charges levied against the funds and all expenses incurred in connection with
any tax audit, investigation, settlement or review of the funds; and, with respect to each HIG
Fund where this is applicable, the expenses of the limited partner advisory committee. In
addition, CVCPHSPV bears certain out-of-pocket expenses as more fully described in the
governing agreement of CVCPHSPV.
A description of the brokerage and other transaction costs that will be borne by the funds and
separate accounts are described in more detail in Item 12 (Brokerage Practices) in this Brochure.