Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018 OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-35107
APOLLO GLOBAL MANAGEMENT, LLC
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
20-8880053
9 West 57th Street, 43rd Floor
New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 515-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A shares representing limited liability company interests
6.375% Series A Preferred shares
6.375% Series B Preferred shares
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities.
Yes x
No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨
No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will
not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
x
o
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No T
o
o
o
o
The aggregate market value of the Class A shares of the Registrant held by non-affiliates as of June 30, 2018 was approximately $6,349.1 million, which
includes non-voting Class A shares with a value of approximately $557.7 million.
As of February 26, 2019 there were 202,398,070 Class A shares and 1 Class B share outstanding.
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1.
BUSINESS
ITEM 1A.
RISK FACTORS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4.
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8A.
UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION
ITEM 9.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
ITEM 9B.
OTHER INFORMATION
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16.
FORM 10-K SUMMARY
SIGNATURES
- 2 -
Page
8
32
88
88
88
88
88
90
92
144
149
213
215
215
216
217
222
233
235
241
242
251
252
Table of Contents
Forward-Looking Statements
This report may contain forward-looking statements that are within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, discussions related to
Apollo’s expectations regarding the performance of its business, liquidity and capital resources and the other non-historical statements in the discussion and
analysis. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to,
management. When used in this report , the words “believe,” “anticipate,” “estimate,” “expect,” “intend” and similar expressions are intended to identify forward-
looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that
these expectations will prove to have been correct. These statements are subject to certain risks, uncertainties and assumptions, including risks relating to our
dependence on certain key personnel, our ability to raise new credit, private equity, or real assets funds, market conditions generally, our ability to manage our
growth, fund performance, changes in our regulatory environment and tax status, the variability of our revenues, net income and cash flow, our use of leverage to
finance our businesses and investments by our funds and litigation risks, among others. We believe these factors include but are not limited to those described
under the section entitled “Risk Factors” in this report; as such factors may be updated from time to time in our periodic filings with the United States Securities
and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and
should be read in conjunction with the other cautionary statements that are included in this report and in our other filings. We undertake no obligation to publicly
update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Terms Used in This Report
In this report , references to “Apollo,” “we,” “us,” “our” and the “Company” refer collectively to Apollo Global Management, LLC, a Delaware limited liability
company, and its subsidiaries, including the Apollo Operating Group and all of its subsidiaries, or as the context may otherwise require;
“AMH” refers to Apollo Management Holdings, L.P., a Delaware limited partnership, that is an indirect subsidiary of Apollo Global Management, LLC;
“Apollo funds”, “our funds” and references to the “funds” we manage, refer to the funds (including the parallel funds and alternative investment vehicles of such
funds), partnerships, accounts, including strategic investment accounts or “SIAs,” alternative asset companies and other entities for which subsidiaries of the
Apollo Operating Group provide investment management or advisory services;
“Apollo Operating Group” refers to (i) the limited partnerships and limited liability companies through which our Managing Partners currently operate our
businesses and (ii) one or more limited partnerships or limited liability companies formed for the purpose of, among other activities, holding certain of our gains or
losses on our principal investments in the funds, which we refer to as our “principal investments”;
“Assets Under Management”, or “AUM”, refers to the assets of the funds, partnerships and accounts to which we provide investment management, advisory, or
certain other investment-related services, including, without limitation, capital that such funds, partnerships and accounts have the right to call from investors
pursuant to capital commitments. Our AUM equals the sum of:
(i)
(ii)
(iii)
(iv)
the fair value of the investments of the private equity funds, partnerships and accounts we manage or advise plus the
capital that such funds, partnerships and accounts are entitled to call from investors pursuant to capital commitments;
the net asset value, or “NAV”, of the credit funds, partnerships and accounts for which we provide investment
management or advisory services, other than certain collateralized loan obligations (“CLOs”) and collateralized debt
obligations (“CDOs”), which have a fee-generating basis other than the mark-to-market value of the underlying assets,
plus used or available leverage and/or capital commitments;
the gross asset value or net asset value of the real assets funds, partnerships and accounts we manage, and the structured
portfolio company investments of the funds, partnerships and accounts we manage or advise, which includes the leverage
used by such structured portfolio company investments;
the incremental value associated with the reinsurance investments of the portfolio company assets we manage or advise;
and
- 3 -
Table of Contents
(v)
the fair value of any other assets that we manage or advise for the funds, partnerships and accounts to which we provide
investment management, advisory, or certain other investment-related services, plus unused credit facilities, including
capital commitments to such funds, partnerships and accounts for investments that may require pre-qualification or other
conditions before investment plus any other capital commitments to such funds, partnerships and accounts available for
investment that are not otherwise included in the clauses above.
Our AUM measure includes Assets Under Management for which we charge either nominal or zero fees. Our AUM measure also includes assets for which we do
not have investment discretion, including certain assets for which we earn only investment-related service fees, rather than management or advisory fees. Our
definition of AUM is not based on any definition of Assets Under Management contained in our operating agreement or in any of our Apollo fund management
agreements. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to (1) our
ability to influence the investment decisions for existing and available assets; (2) our ability to generate income from the underlying assets in our funds; and (3) the
AUM measures that we use internally or believe are used by other investment managers. Given the differences in the investment strategies and structures among
other alternative investment managers, our calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this
measure may not be directly comparable to similar measures presented by other investment managers. Our calculation also differs from the manner in which our
affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways;
“Fee-Generating AUM” consists of assets of the funds, partnerships and accounts to which we provide investment management, advisory, or certain other
investment-related services and on which we earn management fees, monitoring fees or other investment-related fees pursuant to management or other fee
agreements on a basis that varies among the Apollo funds, partnerships and accounts. Management fees are normally based on “net asset value,” “gross assets,”
“adjusted par asset value,” “adjusted cost of all unrealized portfolio investments,” “capital commitments,” “adjusted assets,” “stockholders’ equity,” “invested
capital” or “capital contributions,” each as defined in the applicable management agreement. Monitoring fees, also referred to as advisory fees, with respect to the
structured portfolio company investments of the funds, partnerships and accounts we manage or advise, are generally based on the total value of such structured
portfolio company investments, which normally includes leverage, less any portion of such total value that is already considered in Fee-Generating AUM;
“Non-Fee-Generating AUM” refers to AUM that does not produce management fees or monitoring fees. This measure generally includes the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
fair value above invested capital for those funds that earn management fees based on invested capital;
net asset values related to general partner and co-investment interests;
unused credit facilities;
available commitments on those funds that generate management fees on invested capital;
structured portfolio company investments that do not generate monitoring fees; and
the difference between gross asset and net asset value for those funds that earn management fees based on net asset value.
“Performance Fee-Eligible AUM” refers to the AUM that may eventually produce performance fees. All funds for which we are entitled to receive a performance
fee allocation or incentive fee are included in Performance Fee-Eligible AUM, which consists of the following:
(i)
(ii)
“Performance Fee-Generating AUM”, which refers to invested capital of the funds, partnerships and accounts we manage,
advise, or to which we provide certain other investment-related services, that is currently above its hurdle rate or preferred
return, and profit of such funds, partnerships and accounts is being allocated to, or earned by, the general partner in
accordance with the applicable limited partnership agreements or other governing agreements;
“AUM Not Currently Generating Performance Fees”, which refers to invested capital of the funds, partnerships and
accounts we manage, advise, or to which we provide certain other investment-related services, that is currently below its
hurdle rate or preferred return; and
- 4 -
Table of Contents
(iii)
“Uninvested Performance Fee-Eligible AUM”, which refers to capital of the funds, partnerships and accounts we manage,
advise, or to which we provide certain other investment-related services, that is available for investment or reinvestment
subject to the provisions of applicable limited partnership agreements or other governing agreements, which capital is not
currently part of the NAV or fair value of investments that may eventually produce performance fees allocable to, or
earned by, the general partner.
“AUM with Future Management Fee Potential” refers to the committed uninvested capital portion of total AUM not
currently earning management fees. The amount depends on the specific terms and conditions of each fund;
We use AUM as a performance measure of our funds’ investment activities, as well as to monitor fund size in relation to professional resource and infrastructure
needs. Non-Fee-Generating AUM includes assets on which we could earn performance fees;
“Advisory” refers to certain assets advised by Apollo Asset Management Europe PC LLP, a wholly-owned subsidiary of Apollo Asset Management Europe LLP
(collectively, “AAME”). The AAME entities are subsidiaries of Apollo;
“capital deployed” or “deployment” is the aggregate amount of capital that has been invested during a given period (which may, in certain cases, include leverage)
by (i) our drawdown funds, (ii) SIAs that have a defined maturity date and (iii) funds and SIAs in our real estate debt strategy;
“Contributing Partners” refer to those of our partners and their related parties (other than our Managing Partners) who indirectly beneficially own (through
Holdings) Apollo Operating Group units;
“drawdown” refers to commitment-based funds and certain SIAs in which investors make a commitment to provide capital at the formation of such funds and SIAs
and deliver capital when called as investment opportunities become available. It includes assets of Athene Holding Ltd. (“Athene Holding”) and its subsidiaries
(collectively “Athene”) managed by Athene Asset Management LLC (“Athene Asset Management” or “AAM”) that are invested in commitment-based funds;
“gross IRR” of a credit fund represents the annualized return of a fund based on the actual timing of all cumulative fund cash flows before management fees,
performance fees allocated to the general partner and certain other expenses. Calculations may include certain investors that do not pay fees. The terminal value is
the net asset value as of the reporting date. Non-U.S. dollar denominated (“USD”) fund cash flows and residual values are converted to USD using the spot rate as
of the reporting date. In addition, gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of
investor-level inflows and outflows. Gross IRR does not represent the return to any fund investor;
“gross IRR” of a private equity fund represents the cumulative investment-related cash flows (i) for a given investment for the fund or funds which made such
investment, and (ii) for a given fund, in the relevant fund itself (and not any one investor in the fund), in each case, on the basis of the actual timing of investment
inflows and outflows (for unrealized investments assuming disposition on December 31, 2018 or other date specified) aggregated on a gross basis quarterly, and
the return is annualized and compounded before management fees, performance fees and certain other expenses (including interest incurred by the fund itself) and
measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors. In
addition, gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of investor-level inflows and
outflows. Gross IRR does not represent the return to any fund investor;
“gross IRR” of a real assets fund represents the cumulative investment-related cash flows in the fund itself (and not any one investor in the fund), on the basis of
the actual timing of cash inflows and outflows (for unrealized investments assuming disposition on December 31, 2018 or other date specified) starting on the date
that each investment closes, and the return is annualized and compounded before management fees, performance fees, and certain other expenses (including
interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed,
be payable to the fund’s investors. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date. In addition,
gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of investor-level inflows and
outflows. Gross IRR does not represent the return to any fund investor;
“gross return” of a credit or real assets fund is the monthly or quarterly time-weighted return that is equal to the percentage change in the value of a fund’s
portfolio, adjusted for all contributions and withdrawals (cash flows) before the effects of management fees, performance fees allocated to the general partner, or
other fees and expenses. Returns of Athene sub-advised portfolios and CLOs represent the gross returns on invested assets, which exclude cash. Returns over
multiple periods are calculated by geometrically linking each period’s return over time;
- 5 -
Table of Contents
“Holdings” means AP Professional Holdings, L.P., a Cayman Islands exempted limited partnership through which our Managing Partners and Contributing
Partners indirectly beneficially own their interests in the Apollo Operating Group units;
“inflows” represents (i) at the individual segment level, subscriptions, commitments, and other increases in available capital, such as acquisitions or leverage, net
of inter-segment transfers, and (ii) on an aggregate basis, the sum of inflows across the credit, private equity and real assets segments;
“IRS” refers to the Internal Revenue Service;
“liquid/performing” includes CLOs and other performing credit vehicles, hedge fund style credit funds, structured credit funds and SIAs, as well as sub-advised
managed accounts owned by or related to Athene. Certain commitment-based SIAs are included as the underlying assets are liquid;
“Managing Partners” refer to Messrs. Leon Black, Joshua Harris and Marc Rowan collectively and, when used in reference to holdings of interests in Apollo or
Holdings, includes certain related parties of such individuals;
“net IRR” of a credit fund represents the annualized return of a fund after management fees, performance fees allocated to the general partner and certain other
expenses, calculated on investors that pay such fees. The terminal value is the net asset value as of the reporting date. Non-USD fund cash flows and residual
values are converted to USD using the spot rate as of the reporting date. In addition, net IRR at the fund level will differ from that at the individual investor level as
a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund investor;
“net IRR” of a private equity fund means the gross IRR applicable to a fund, including returns for related parties which may not pay fees or performance fees, net
of management fees, certain expenses (including interest incurred or earned by the fund itself) and realized performance fees all offset to the extent of interest
income, and measures returns at the fund level on amounts that, if distributed, would be paid to investors of the fund. The timing of cash flows applicable to
investments, management fees and certain expenses, may be adjusted for the usage of a fund’s subscription facility. To the extent that a fund exceeds all
requirements detailed within the applicable fund agreement, the estimated unrealized value is adjusted such that a percentage of up to 20.0% of the unrealized gain
is allocated to the general partner of such fund, thereby reducing the balance attributable to fund investors. In addition, net IRR at the fund level will differ from
that at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any
fund investor;
“net IRR” of a real assets fund represents the cumulative cash flows in the fund (and not any one investor in the fund), on the basis of the actual timing of cash
inflows received from and outflows paid to investors of the fund (assuming the ending net asset value as of December 31, 2018 or other date specified is paid to
investors), excluding certain non-fee and non-performance fee bearing parties, and the return is annualized and compounded after management fees, performance
fees, and certain other expenses (including interest incurred by the fund itself) and measures the returns to investors of the fund as a whole. Non-USD fund cash
flows and residual values are converted to USD using the spot rate as of the reporting date. In addition, net IRR at the fund level will differ from that at the
individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund
investor;
“net return” of a credit or real assets fund represents the gross return after management fees, performance fees allocated to the general partner, or other fees and
expenses. Returns of Athene sub-advised portfolios and CLOs represent the gross or net returns on invested assets, which exclude cash. Returns over multiple
periods are calculated by geometrically linking each period’s return over time;
“our manager” means AGM Management, LLC, a Delaware limited liability company that is controlled by our Managing Partners;
“performance allocations”, “performance fees”, “performance revenues”, “incentive fees” and “incentive income” refer to interests granted to Apollo by an Apollo
fund that entitle Apollo to receive allocations, distributions or fees which are based on the performance of such fund or its underlying investments;
“permanent capital vehicles” refers to (a) assets that are owned by or related to Athene or Athora Holding Ltd. (“Athora Holding” and together with its
subsidiaries, “Athora”), (b) assets that are owned by or related to MidCap FinCo Designated Activity Company (“MidCap”) and managed by Apollo, (c) assets of
publicly traded vehicles managed by Apollo such as Apollo Investment Corporation (“AINV”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Apollo
Tactical Income Fund Inc. (“AIF”), and Apollo Senior Floating Rate Fund Inc. (“AFT”), in each case that do not have redemption provisions or a requirement to
return capital to investors upon exiting the investments made with such capital, except as required by applicable law and (d) a non-traded business development
company from which Apollo earns certain investment-related service fees. The investment management agreements of AINV, AIF and AFT have one year terms,
are reviewed annually and remain in effect only if approved by the boards of directors of such companies or by the affirmative vote of the holders of a majority of
the outstanding voting shares of such
- 6 -
Table of Contents
companies, including in either case, approval by a majority of the directors who are not “interested persons” as defined in the Investment Company Act of 1940. In
addition, the investment management agreements of AINV, AIF and AFT may be terminated in certain circumstances upon 60 days’ written notice. The
investment management agreement of ARI has a one year term and is reviewed annually by ARI’s board of directors and may be terminated under certain
circumstances by an affirmative vote of at least two-thirds of ARI’s independent directors. The investment management or advisory arrangements between MidCap
and Apollo, as well as between Athene and Apollo, may also be terminated under certain circumstances. The agreement pursuant to which Apollo earns certain
investment-related service fees from a non-traded business development company may be terminated under certain limited circumstances;
“private equity fund appreciation (depreciation)” refers to gain (loss) and income for the traditional private equity funds (as defined below), Apollo Natural
Resources Partners, L.P. (“ANRP I”), Apollo Natural Resources Partners II, L.P. (“ANRP II”), Apollo Special Situations Fund, L.P., AION Capital Partners
Limited (“AION”) and Apollo Hybrid Value Fund, L.P. (together with its parallel funds and alternative investment vehicles,“Hybrid Value Fund”) for the periods
presented on a total return basis before giving effect to fees and expenses. The performance percentage is determined by dividing (a) the change in the fair value of
investments over the period presented, minus the change in invested capital over the period presented, plus the realized value for the period presented, by (b) the
beginning unrealized value for the period presented plus the change in invested capital for the period presented. Returns over multiple periods are calculated by
geometrically linking each period’s return over time;
“private equity investments” refer to (i) direct or indirect investments in existing and future private equity funds managed or sponsored by Apollo, (ii) direct or
indirect co-investments with existing and future private equity funds managed or sponsored by Apollo, (iii) direct or indirect investments in securities which are
not immediately capable of resale in a public market that Apollo identifies but does not pursue through its private equity funds, and (iv) investments of the type
described in (i) through (iii) above made by Apollo funds;
“Realized Value” refers to all cash investment proceeds received by the relevant Apollo fund, including interest and dividends, but does not give effect to
management fees, expenses, incentive compensation or performance fees to be paid by such Apollo fund;
“Redding Ridge” refers to Redding Ridge Asset Management, LLC and its subsidiaries, which is a standalone, self-managed asset management business
established in connection with risk retention rules that manages CLOs and retains the required risk retention interests;
“Remaining Cost” represents the initial investment of the fund in a portfolio investment, reduced for any return of capital distributed to date on such portfolio
investment;
“Strategic Investor” refers to the California Public Employees’ Retirement System, or “CalPERS”;
“Total Invested Capital” refers to the aggregate cash invested by the relevant Apollo fund and includes capitalized costs relating to investment activities, if any, but
does not give effect to cash pending investment or available for reserves;
“Total Value” represents the sum of the total Realized Value and Unrealized Value of investments;
“traditional private equity funds” refers to Apollo Investment Fund I, L.P. (“Fund I”), AIF II, L.P. (“Fund II”), a mirrored investment account established to mirror
Fund I and Fund II for investments in debt securities (“MIA”), Apollo Investment Fund III, L.P. (together with its parallel funds, “Fund III”), Apollo Investment
Fund IV, L.P. (together with its parallel fund, “Fund IV”), Apollo Investment Fund V, L.P. (together with its parallel funds and alternative investment vehicles,
“Fund V”), Apollo Investment Fund VI, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VI”), Apollo Investment Fund VII, L.P.
(together with its parallel funds and alternative investment vehicles, “Fund VII”), Apollo Investment Fund VIII, L.P. (together with its parallel funds and
alternative investment vehicles, “Fund VIII”) and Apollo Investment Fund IX, L.P. (together with its parallel funds and alternative investment vehicles, “Fund
IX”);
“Unrealized Value” refers to the fair value consistent with valuations determined in accordance with generally accepted accounting principles in the United States
of America (“U.S. GAAP”), for investments not yet realized and may include payments in kind, accrued interest and dividends receivable, if any, and before the
effect of certain taxes. In addition, amounts include committed and funded amounts for certain investments; and
“Vintage Year” refers to the year in which a fund’s final capital raise occurred, or, for certain funds, the year in which a fund’s investment period commences
pursuant to its governing agreements.
- 7 -
Table of Contents
ITEM 1. BUSINESS
Overview
PART I
Founded in 1990, Apollo is a leading global alternative investment manager. We are a contrarian, value-oriented investment manager in credit, private
equity and real assets, with significant distressed investment expertise. We have a flexible mandate in many of the funds we manage which enables our funds to
invest opportunistically across a company’s capital structure. We raise, invest and manage funds on behalf of some of the world’s most prominent pension,
endowment and sovereign wealth funds, as well as other institutional and individual investors. As of December 31, 2018 , we had total AUM of $280 billion ,
including approximately $193 billion in credit, $69 billion in private equity and $18 billion in real assets. We have consistently produced attractive long-term
investment returns in our traditional private equity funds, generating a 39% gross IRR and a 25% net IRR on a compound annual basis from inception through
December 31, 2018 .
Apollo is led by our Managing Partners, Leon Black, Joshua Harris and Marc Rowan, who have worked together for more than 32 years and lead a team
of 1,143 employees, including 410 investment professionals, as of December 31, 2018 . This team possesses a broad range of transaction, financial, managerial and
investment skills. We have offices in New York, Los Angeles, San Diego, Houston, Bethesda, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi,
Singapore, Hong Kong, Shanghai and Tokyo. We operate our credit, private equity and real assets investment management businesses in a highly integrated
manner, which we believe distinguishes us from other alternative investment managers. Our investment professionals frequently collaborate across disciplines. We
believe that this collaboration, including market insight, management, banking and consultant contacts, and investment opportunities, enables the funds we manage
to more successfully invest across a company’s capital structure. This platform and the depth and experience of our investment team have enabled us to deliver
strong long-term investment performance for our funds throughout a range of economic cycles.
Our objective is to achieve superior long-term risk-adjusted returns for our fund investors. The majority of the investment funds we manage are designed
to invest capital over periods of seven or more years from inception, thereby allowing us to generate attractive long-term returns throughout economic cycles. Our
investment approach is value-oriented, focusing on nine core industries in which we have considerable knowledge and experience, and emphasizing downside
protection and the preservation of capital. Our core industry sectors include chemicals, manufacturing and industrial, natural resources, consumer and retail,
consumer services, business services, financial services, leisure, and media and telecom and technology. Our contrarian investment management approach is
reflected in a number of ways, including:
•
•
•
•
•
our willingness to pursue investments in industries that our competitors typically avoid;
the often complex structures employed in some of the investments of our funds, including our willingness to pursue difficult corporate carve-out
transactions;
our experience investing during periods of uncertainty or distress in the economy or financial markets when many of our competitors simply reduce
their investment activity;
our orientation towards sole sponsored transactions when other firms have opted to partner with others; and
our willingness to undertake transactions that have substantial business, regulatory or legal complexity.
We have applied this investment philosophy to identify what we believe are attractive investment opportunities, deploy capital across the balance sheet of
industry leading, or “franchise,” businesses and create value throughout economic cycles.
We rely on our deep industry, credit and financial structuring experience, coupled with our strengths as a value-oriented, distressed investment manager,
to deploy significant amounts of new capital within challenging economic environments. Our approach towards investing in distressed situations often requires our
funds to purchase particular debt securities as prices are declining, since this allows us both to reduce our funds’ average cost and accumulate sizable positions
which may enhance our ability to influence any restructuring plans and maximize the value of our funds’ distressed investments. As a result, our investment
approach may produce negative short-term unrealized returns in certain of the funds we manage. However, we concentrate on generating attractive, long-term,
risk-adjusted realized returns for our fund investors, and we therefore do not overly depend on short-term results and quarterly fluctuations in the unrealized fair
value of the holdings in our funds.
In addition to deploying capital in new investments, we seek to enhance value in the investment portfolios of the funds we manage. We have relied on our
transaction, restructuring and credit experience to work proactively with our private equity funds’ portfolio company management teams to identify and execute
strategic acquisitions, joint ventures, and other transactions, generate cost and working capital savings, reduce capital expenditures, and optimize capital structures
through several means such as debt exchange offers and the purchase of portfolio company debt at discounts to par value.
- 8 -
Table of Contents
We have grown our total AUM at a 20% compound annual growth rate from December 31, 2008 to December 31, 2018 . In addition, we benefit from
mandates with long-term capital commitments in our credit, private equity and real assets businesses. Our long-lived capital base allows us to invest our funds'
assets with a long-term focus, which is an important component in generating attractive returns for our fund investors. We believe the long-term capital we manage
also leaves us well-positioned during economic downturns, when the fundraising environment for alternative assets has historically been more challenging than
during periods of economic expansion. As of December 31, 2018 , more than 90% of our AUM was in funds with a contractual life at inception of seven years or
more, and 49% of our AUM was in permanent capital vehicles.
We expect our growth in AUM to continue over time by seeking to create value in our funds’ existing credit, private equity and real assets investments,
continuing to deploy our funds’ available capital in what we believe are attractive investment opportunities, and raising new funds and investment vehicles as
market opportunities present themselves. See “Item 1A. Risk Factors—Risks Related to Our Businesses—We may not be successful in raising new funds or in
raising more capital for certain of our existing funds and may face pressure on performance fees and fee arrangements of our future funds.”
Our financial results are highly variable, since performance fees (which generally constitute a large portion of the income that we receive from the funds
we manage), and the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. We manage our business and
monitor our performance with a focus on long-term performance, an approach that is generally consistent with the investment horizons of the funds we manage and
is driven by the investment returns of our funds.
Our Businesses
We have three business segments: credit, private equity and real assets. The diagram below summarizes our businesses as of December 31, 2018:
Apollo Global Management, LLC
Credit
Private Equity
Real Assets
Liquid/Performing
Drawdown
Permanent Capital Vehicles -
•
•
•
MidCap, AINV, AFT, AIF
Athene and Athora
•
•
Athene and Athora Non-Sub-
Advised
•
Advisory
AUM: $193.2 billion (1)(2)(3)(4)
Distressed Buyouts, Debt and
•
Other Investments
•
•
•
•
Corporate Carve-outs
Opportunistic Buyouts
Hybrid Capital
Natural Resources
Opportunistic equity investing in
•
real estate and infrastructure assets,
portfolios, companies and platforms
Commercial real estate and
•
infrastructure debt investments
including first mortgage and
mezzanine loans and commercial
mortgage backed securities
AUM: $69.1 billion (1)
AUM: $17.9 billion (1)(2)(3)
Strategic Investment Accounts
Generally invest in or alongside certain Apollo funds
and other Apollo-sponsored transactions
(1)
(2)
(3)
(4)
See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.
Includes funds that are denominated in Euros and translated into U.S. dollars at an exchange rate of €1.00 to $1.15 as of December 31, 2018 .
Includes funds that are denominated in pound sterling and translated into U.S. dollars at an exchange rate of £1.00 to $1.28 as of December 31, 2018 .
Includes funds that are denominated in yen and translated into U.S. dollars at an exchange rate of ¥1.00 to $0.0091 as of December 31, 2018 .
Credit
Since Apollo’s founding in 1990, we believe our expertise in credit has served as an integral component of our company’s growth and success. Our
credit-oriented approach to investing commenced in 1990 with the management of a high-yield bond and
- 9 -
Table of Contents
leveraged loan portfolio. Since that time, our credit activities have grown significantly, through both organic growth and strategic acquisitions. As of December 31,
2018 , Apollo’s credit segment had total AUM and Fee-Generating AUM of $193.2 billion and $158.0 billion , respectively, across a diverse range of credit-
oriented investments that utilize the same disciplined, value-oriented investment philosophy that we employ with respect to our private equity funds. Apollo’s
broad credit platform, which we believe is adaptable to evolving market conditions and different risk tolerances, is categorized as follows:
Credit AUM as of December 31, 2018 (1)
(in billions)
(1) AUM components may not sum due to rounding.
Liquid/Performing
Our liquid/performing category within the credit segment generally includes funds and accounts where the underlying assets are liquid in nature.
These funds and accounts may have some form of periodic redemption right. Liquid/performing includes a variety of hedge funds, CLOs and SIAs that utilize a
range of investment strategies including performing credit, structured credit, and liquid opportunistic credit. Performing credit strategies focus on income-oriented,
senior loan and bond investment strategies that target issuers primarily domiciled in the U.S. and in Europe. Structured credit strategies target multiple tranches of
structured securities with favorable and protective lending terms, predictable payment schedules, well diversified portfolios and low default rates. Liquid
opportunistic strategies primarily focus on credit investments that are generally liquid in nature and that utilize a similar value-oriented investment philosophy as
our private equity business. This includes investments by our credit funds in a broad array of primary and secondary opportunities encompassing stressed and
distressed public and private securities primarily within corporate credit, including senior loans (secured and unsecured), high yield, mezzanine, derivative
securities, debtor in possession financings, rescue or bridge financings, and other debt investments. In aggregate, our AUM and Fee-Generating AUM within the
liquid/performing category totaled $54.8 billion and $40.3 billion , respectively, as of December 31, 2018 .
Hedge Funds
Hedge Funds primarily includes Apollo Credit Strategies Master Fund Ltd. and Apollo Credit Master Fund Ltd. Collectively, our hedge fund AUM and
Fee-Generating AUM totaled $7.2 billion and $2.9 billion , respectively, as of December 31, 2018 . Our hedge funds may utilize a mix of the investment strategies
outlined above. Investments in these funds may be made on a long or short basis and employ leverage to finance the acquisition of various credit investments.
Accordingly, the difference between AUM and Fee-Generating AUM for hedge funds is driven by non-fee paying leverage.
CLOs
In aggregate, our AUM and Fee-Generating AUM in CLOs totaled $14.4 billion and $8.9 billion , respectively, as of December 31, 2018 . Through their
lifecycle, CLOs employ structured credit and performing credit strategies with the goal of providing investors with competitive yields achieved through highly
diversified pools of historically low defaulting assets. Included within total AUM of CLOs is $5.5 billion of AUM related to Redding Ridge.
- 10 -
Table of Contents
SIAs / Other
SIAs / Other includes a diverse group of separately managed accounts and certain commitment-based funds where the underlying assets are liquid and
generally employ a mix of performing credit, structured credit, and liquid opportunistic credit investment strategies. In aggregate, our AUM and Fee-Generating
AUM in SIAs and other accounts totaled $33.3 billion and $28.6 billion as of December 31, 2018 , respectively. The managed accounts comprising the majority of
AUM and Fee-Generating AUM within this subcategory are customized according to an investor’s specified risk and target return preferences.
Drawdown
Our drawdown category within the credit segment generally includes commitment-based funds and certain SIAs in which investors make a commitment
to provide capital at the formation of such funds and deliver capital when called as investment opportunities become available. Drawdown comprises our fund
series’ including Credit Opportunity Funds, European Principal Finance Funds, and Structured Credit Funds, including Financial Credit Investment Funds and
Structured Credit Recovery Funds, as well as other commitment-based funds not included within a series of funds and certain SIAs. Drawdown funds and SIAs
utilize a range of investment strategies including illiquid opportunistic, principal finance, and structured credit strategies. In aggregate, our AUM and Fee-
Generating AUM within the drawdown category totaled $26.0 billion and $14.1 billion , respectively, as of December 31, 2018 .
Credit Opportunity Funds
The Credit Opportunity Fund (“COF”) series primarily employs our illiquid opportunistic investment strategy, which focuses on credit investments that
are less liquid in nature and that utilize a similar value-oriented investment philosophy as our private equity business. This includes investments in a broad array of
primary and secondary opportunities encompassing stressed and distressed public and private securities primarily within corporate credit, including senior loans
(secured and unsecured), high yield, mezzanine, debtor in possession financings, rescue or bridge financings, and other debt investments. Additionally, for certain
illiquid opportunistic investments our underwriting process may result in selective and at times concentrated investments by the funds in the various industries on
which we focus. In certain cases, leverage can be employed in connection with this strategy by having fund subsidiaries or special-purpose vehicles incur debt or
by entering into credit facilities or other debt transactions to finance the acquisition of various credit investments. Our AUM and Fee-Generating AUM within the
Credit Opportunity Funds totaled $2.0 billion and $1.2 billion , respectively, as of December 31, 2018 .
European Principal Finance Funds
The European Principal Finance Fund (“EPF”) series primarily employs our principal finance investment strategy, which is utilized to invest in European
commercial and residential real estate, performing loans, non-performing loans, and unsecured consumer loans, as well as acquiring assets as a result of distressed
market situations. Certain of the EPF investment vehicles we manage own captive pan-European financial institutions, loan servicing and property management
platforms. These entities perform banking and lending activities and manage and service consumer credit receivables and loans secured by commercial and
residential properties. In aggregate, these financial institutions, loan servicing, and property management platforms operate in five European countries and
employed approximately 1,450 individuals as of December 31, 2018 . We believe the post-investment loan servicing and real estate asset management
requirements, combined with the illiquid nature of these investments, limits participation by traditional long-only investors, hedge funds, and private equity funds,
resulting in what we believe to be an opportunity for our credit business. Our AUM and Fee-Generating AUM within the European Principal Finance Funds totaled
$7.1 billion and $5.5 billion , respectively, as of December 31, 2018 .
Structured Credit Funds - FCI and SCRF
Our Structured Credit Funds include the Financial Credit Investment Fund series (“FCI”) and the Structured Credit Recovery Fund series (“SCRF”) .
Collectively, the Structured Credit Funds employ our structured credit investing strategy, which targets multiple tranches of less liquid structured securities with
favorable and protective lending terms, predictable payment schedules, well-diversified portfolios and low default rates. Our SCRF series recently expanded as we
held a final closing for our fourth Structured Credit Recovery Fund series during the year ended December 31, 2018. Our AUM and Fee-Generating AUM within
Structured Credit Funds totaled $8.1 billion and $4.3 billion , respectively, as of December 31, 2018 .
Permanent Capital Vehicles - Credit
Our permanent capital vehicles category within the credit segment generally includes pools of assets which are not subject to redemption and are
generally associated with long term asset management or advisory contracts. This category is comprised of (a) Athene assets managed or advised by Apollo; (b)
Athora assets managed or advised by Apollo; (c) assets that are owned by or related to MidCap and managed by Apollo; (d) assets of certain publicly traded
vehicles managed by Apollo such as AINV, AIF,
- 11 -
Table of Contents
and AFT and (e) a non-traded business development company from which Apollo earns certain investment-related service fees. The permanent capital vehicles
within credit utilize a range of investment strategies including performing credit and structured credit as described previously, as well as directly originated credit.
Direct origination generally relates to the sourcing of senior credit assets, both secured and unsecured, including asset-backed loans, leveraged loans, mezzanine
debt, real estate loans, re-discount loans and venture loans. Directly originated credit is primarily employed by Midcap, AINV, and a non-traded business
development company from which Apollo earns certain investment-related service fees. In aggregate, our AUM and Fee-Generating AUM within our credit
permanent capital vehicles totaled $131.6 billion and $129.8 billion , respectively, as of December 31, 2018 .
Permanent Capital Vehicles - MidCap, AINV, AFT, AIF
The AUM and Fee-Generating AUM we managed within MidCap, AINV, AFT and AIF totaled $14.8 billion and $13.5 billion , respectively, as of
December 31, 2018 .
MidCap is a middle market-focused specialty finance firm that provides senior debt solutions to companies across all industries. Our AUM and Fee-
Generating AUM within MidCap totaled $8.8 billion and $8.6 billion , respectively, as of December 31, 2018 .
Athene
Athene Holding was founded in 2009 to capitalize on favorable market conditions in the dislocated life insurance sector. Athene Holding, through its
subsidiaries, is a leading retirement services company that issues, reinsures and acquires retirement savings products designed for the increasing number of
individuals and institutions seeking to fund retirement needs. The products and services offered by Athene include fixed and fixed indexed annuity products,
reinsurance services offered to third-party annuity providers and institutional products, such as funding agreements. Athene Holding is a registrant under the
Exchange Act and is currently listed on the New York Stock Exchange (NYSE) under the symbol “ATH”.
The Company, through its consolidated subsidiary AAM, provides asset management and advisory services to Athene, including asset allocation services,
direct asset management services, asset and liability matching management, mergers and acquisitions, asset diligence hedging and other asset management
services. Additionally, the Company, through AAM, provides sub-advisory services with respect to a portion of the assets that it manages in accounts owned by
Athene in the U.S. and Bermuda or in accounts supporting reinsurance ceded to U.S. and Bermuda subsidiaries of Athene Holding by third-party insurers
(collectively, the “Athene North American Accounts”). As of December 31, 2018 , Apollo managed or advised $108.8 billion of AUM, all of which was Fee-
Generating AUM, in accounts owned by or related to Athene (the “Athene Accounts”). See note 14 to our consolidated financial statements for details regarding
the fee arrangements between the Company and Athene.
Athene Non-Sub-Advised Assets
This category includes the Athene assets which are managed by Apollo but not sub-advised by Apollo nor invested in Apollo funds or investment
vehicles. We refer to these assets collectively as “Athene Non-Sub-Advised Assets”. Our AUM within the Athene Non-Sub-Advised category totaled $85.6 billion
as of December 31, 2018 , all of which was Fee-Generating AUM.
Athora
The Company, through its consolidated subsidiary, AAME, provides investment advisory services to certain portfolio companies of Apollo funds and
Athora, a strategic platform established to acquire or reinsure blocks of insurance business in the German and broader European life insurance market (collectively,
the “Athora Accounts”). As of December 31, 2018 , Apollo, through its subsidiaries, managed or advised $8.0 billion of AUM and $5.8 billion of Fee-Generating
AUM in accounts owned by or related to Athora. See note 14 to our consolidated financial statements for details regarding the fee arrangements between the
Company and Athora.
Athora Non-Sub-Advised Assets
This category includes the Athora assets which are managed by Apollo but not sub-advised by Apollo nor invested in Apollo funds or investment
vehicles. We refer to these assets collectively as “Athora Non-Sub-Advised Assets”. Our AUM within the Athora Non-Sub-Advised category totaled $5.0 billion
as of December 31, 2018 , of which $4.5 billion was Fee-Generating AUM.
Advisory
Advisory refers to certain assets advised by AAME. AAME is a subsidiary of Apollo which provides asset allocation and risk management advisory
services principally to certain of the insurance and bank institutions acquired by Apollo managed funds. Our AUM as of December 31, 2018 within the Advisory
category totaled $7.1 billion .
- 12 -
Table of Contents
Private Equity
As a result of our long history of private equity investing across market cycles, we believe we have developed a unique set of skills on which we rely to
make new investments and to maximize the value of our existing investments. As an example, through our experience with traditional private equity buyouts,
which we also refer to herein as buyout equity, we apply a highly disciplined approach towards structuring and executing transactions, the key tenets of which
include seeking to acquire companies at below industry average purchase price multiples, and establishing flexible capital structures with long-term debt maturities
and few, if any, financial maintenance covenants.
We believe we have a demonstrated ability to adapt quickly to changing market environments and capitalize on market dislocations through our
traditional, distressed and corporate buyout approach. In prior periods of strained financial liquidity and economic recession, our private equity funds have made
attractive investments by buying the debt of quality businesses (which we refer to as “classic” distressed debt), converting that debt to equity, seeking to create
value through active participation with management and ultimately monetizing the investment. This combination of traditional and corporate buyout investing with
a “distressed option” has been deployed through prior economic cycles and has allowed our funds to achieve attractive long-term rates of return in different
economic and market environments. In addition, during prior economic downturns we have relied on our restructuring experience and worked closely with our
funds’ portfolio companies to seek to maximize the value of our funds’ investments.
We seek to focus on investment opportunities where competition is limited or non-existent. We believe we are often sought out early in the investment
process because of our industry expertise, sizable amounts of available long-term capital, willingness to pursue investments in complicated situations and ability to
provide value-added advice to portfolio companies regarding operational improvements, acquisitions and strategic direction. We generally prefer sole sponsored
transactions and since inception through December 31, 2018 , approximately 68% of the investments made by our private equity funds have been proprietary in
nature. We believe that by emphasizing our proprietary sources of deal flow, our private equity funds will be able to acquire businesses at more compelling
valuations which will ultimately create a more attractive risk/reward proposition. As of December 31, 2018 , our private equity segment had total and Fee-
Generating AUM of approximately $69.1 billion and $44.0 billion , respectively.
Distressed Buyouts, Debt and Other Investments
During periods of market dislocation and volatility, we rely on our credit and capital markets expertise to build positions in distressed debt. We target
assets with what we believe are high-quality operating businesses but low-quality balance sheets, consistent with our traditional buyout strategies. The distressed
securities our funds purchase include bank debt, public high-yield debt and privately held instruments, often with significant downside protection in the form of a
senior position in the capital structure, and in certain situations our funds also provide debtor-in-possession financing to companies in bankruptcy. Our investment
professionals generate these distressed buyout and debt investment opportunities based on their many years of experience in the debt markets, and as such they are
generally proprietary in nature.
We believe distressed buyouts and debt investments represent a highly attractive risk/reward profile. Our funds’ investments in debt securities have
generally resulted in two outcomes. The first and preferred potential outcome, which we refer to as a distressed for control investment, is when our funds are
successful in taking control of a company through its investment in the distressed debt. By working proactively through the restructuring process, we are often able
to equitize the debt position of our funds to create a well-financed buyout which would then typically be held by the fund for a three-to-five year period, similar to
other traditional leveraged buyout transactions. The second potential outcome, which we refer to as a non-control distressed investment is when our funds do not
gain control of the company. This typically occurs as a result of an increase in the price of the debt investments to levels which are higher than what we consider to
be an attractive acquisition valuation. In these instances, we may forgo seeking control, and instead our funds may seek to sell the debt investments over time,
typically generating a higher short-term IRR with a lower multiple of invested capital than in the case of a typical distressed for control transaction. We believe that
we are a market leader in distressed investing and that this is one of the key areas that differentiates us from our peers.
We also maintain the flexibility to deploy capital of our private equity funds in other types of investments such as the creation of new companies, which
allows us to leverage our deep industry and distressed expertise and collaborate with experienced management teams to seek to capitalize on market opportunities
that we have identified, particularly in asset-intensive industries that are in distress. In these types of situations, we have the ability to establish new entities that can
acquire distressed assets at what we believe are attractive valuations without the burden of managing an existing portfolio of legacy assets. Other investments, such
as the creation of new companies, historically have not represented a large portion of our overall investment activities, although our private equity funds do make
these types of investments selectively.
- 13 -
Table of Contents
Corporate Carve-outs
Corporate carve-outs are less market-dependent than distressed investing, but are equally complicated. In these transactions, our funds seek to extract a
business that is highly integrated within a larger corporate parent to create a stand-alone business. These are labor-intensive transactions, which we believe require
deep industry knowledge, patience and creativity, to unlock value that has largely been overlooked or undermanaged. Importantly, because of the highly negotiated
nature of many of these transactions, Apollo believes it is often difficult for the seller to run a competitive process, which ultimately allows our funds to achieve
compelling purchase prices.
Opportunistic Buyouts
We have extensive experience completing leveraged buyouts across various market cycles. We take an opportunistic and disciplined approach to these
transactions, generally avoiding highly competitive situations in favor of proprietary transactions where there may be opportunities to purchase a company at a
discount to prevailing market averages. Oftentimes, we will focus on complex situations such as out-of-favor industries or “broken” (or discontinued) sales
processes where the inherent value may be less obvious to potential acquirers. In the case of more conventional buyouts, we seek investment opportunities where
we believe our focus on complexity and sector expertise will provide us with a significant competitive advantage, whereby we can leverage our knowledge and
experience from the nine core industries in which our investment professionals have historically invested private equity capital. We believe such knowledge and
experience can result in our ability to find attractive opportunities for our funds to acquire portfolio company investments at lower purchase price multiples.
To further alter the risk/reward profile in our funds’ favor, we often focus on certain types of buyouts such as physical asset acquisitions and investments
in non-correlated assets where underlying values tend to change in a manner that is independent of broader market movements In the case of physical asset
acquisitions, our private equity funds seek to acquire physical assets at discounts to where those assets trade in the financial markets, and to lock in that value
arbitrage through comprehensive hedging and structural enhancements.
We believe buyouts of non-correlated assets or businesses also represent attractive investments since they are generally less correlated to the broader
economy and provide an element of diversification to our funds' overall portfolio of private equity investments.
Hybrid Capital
During 2018, we launched our hybrid value strategy which pursues the provision to companies of, among other things, rescue financing or customized
capital solutions, including senior secured and unsecured debt or preferred equity securities, often with equity-linked or equity-like upside. The strategy also
focuses on structured equity investments, which are non-control or control equity opportunities with enhanced protection through structural components or a
fundamental characteristic of the business, such as long-term supply agreements. Typically, in these scenarios, companies are looking for an equity partner to fund
initiatives such as organic growth, acquisitions, deleveraging or build-ups. We believe Apollo’s strategic relationships with industry executives and experience in
business repositioning, platform build-ups and complex integration provide a benefit to companies seeking a capital partner, especially in situations that have an
element of complexity.
Natural Resources
In addition to our traditional private equity funds which pursue opportunities in nine core industries, one of which is natural resources, we have three
dedicated private equity natural resources funds. In 2011, we established our first dedicated private equity natural resources fund, Apollo Natural Resources
Partners, L.P. (together with its alternative investment vehicles, “ANRP I”) and assembled a team of dedicated investment professionals to capitalize on private
equity investment opportunities in the natural resources industry, principally in the metals and mining, energy and select other natural resources sectors. In 2015
and 2018, we launched our second and third natural resources funds, Apollo Natural Resources Partners II, L.P. (together with its alternative investment vehicles,
“ANRP II”) and Apollo Natural Resources Partners III, L.P. (together with its parallel vehicles and alternative investment vehicles, “ANRP III”), respectively. We
believe we can source and execute compelling, value-oriented investment opportunities for our funds irrespective of the commodity price environment.
AP Alternative Assets, L.P. (“AAA”)
We also manage AAA, a publicly listed permanent capital vehicle. The sole investment held by AAA is its investment in AAA Investments, L.P. (“AAA
Investments”).
AAA is a Guernsey limited partnership whose partners are comprised of (i) AAA Guernsey Limited (“AAA Guernsey”), which holds 100% of the general
partner interests in AAA, and (ii) the holders of common units representing limited partner interests in AAA. The common units are non-voting and are listed on
Euronext in Amsterdam under the symbol “AAA”. AAA
- 14 -
Table of Contents
Guernsey is a Guernsey limited company and is owned 55% by an individual who is not an affiliate of Apollo and 45% by Apollo Principal Holdings III, L.P., an
indirect subsidiary of Apollo. AAA Guernsey is responsible for managing the business and affairs of AAA. AAA generally makes all of its investments through
AAA Investments, of which AAA is the sole limited partner. AAA Investments’ portfolio consists of a single opportunistic investment in Athene Holding.
Building Value in Portfolio Companies
We are a “hands-on” investor organized around nine core industries where we believe we have significant knowledge and expertise, and we remain
actively engaged with the management teams of the portfolio companies of our private equity funds. We have established relationships with operating executives
that assist in the diligence review of new opportunities and provide strategic and operational oversight for portfolio investments. We actively work with the
management of each of the portfolio companies of the funds we manage to maximize the underlying value of the business. To achieve this, we take a holistic
approach to value-creation, concentrating on both the asset side and liability side of the balance sheet of a company. On the asset side of the balance sheet, Apollo
works with management of the portfolio companies to enhance the operations of such companies. Our investment professionals assist portfolio companies in
rationalizing non-core and underperforming assets, generating cost and working capital savings, and maximizing liquidity. On the liability side of the balance
sheet, Apollo relies on its deep credit structuring experience and works with management of the portfolio companies to help optimize the capital structure of such
companies through proactive restructuring of the balance sheet to address near-term debt maturities. The companies in which our private equity funds invest also
seek to capture discounts on publicly traded debt securities through exchange offers and potential debt buybacks. In addition, we have established a group
purchasing program to help our funds' portfolio companies leverage the combined corporate spending among Apollo and portfolio companies of the funds it
manages in order to seek to reduce costs, optimize payment terms and improve service levels for all program participants.
Exiting Investments
The value of the investments that have been made by our funds are typically realized through either an initial public offering of common stock on a
nationally recognized exchange or through the private sale of the companies in which our funds have invested. We believe the advantage of having long-lived
funds and investment discretion is that we are able to time our funds’ exit to maximize value.
- 15 -
Table of Contents
Private Equity Fund Holdings
The following table presents a list of certain significant portfolio companies of our private equity funds as of December 31, 2018 :
Company
Year of Initial
Investment
OneMain Financial
Northwoods Energy
West Corporation
Chisholm Oil & Gas
ClubCorp
Double Eagle Energy III
Apollo Education Group
Lumileds
Rackspace
Diamond Resorts
Outerwall
Maxim Crane Works
Vistra Energy
Nova KBM
Pegasus
Constellis
ADT
LifePoint Health
Verallia
Presidio
Tranquilidade
Amissima
American Petroleum Partners
CEC Entertainment
Jupiter Resources
McGraw Hill Education
Watches of Switzerland (f/k/a Aurum)
PlayAGS
Talos Energy
Endemol Shine Group
Caesars Entertainment
Momentive Performance Materials
2018
2018
2017
2017
2017
2017
2017
2017
2016
2016
2016
2016
2016
2016
2016
2016
2015
2015
2015
2015
2015
2015
2015
2014
2014
2013
2013
2013
2012
2011
2008
2006
Fund(s)
Fund VIII
Buyout Type
Industry
Region
Opportunistic Buyout
Financial Services
North America
Fund VIII & ANRP II
Corporate Carve-Out
Fund VIII
Opportunistic Buyout
Natural Resources
Media, Telecom, Technology
North America
North America
Fund VIII & ANRP II
Opportunistic Buyout
Natural Resources
North America
Fund VIII
Opportunistic Buyout
Leisure
North America
Fund VIII & ANRP II
Opportunistic Buyout
Natural Resources
North America
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Opportunistic Buyout
Consumer Services
Corporate Carve-Out
Opportunistic Buyout
Opportunistic Buyout
Manufacturing & Industrial
Media, Telecom, Technology
Leisure
Global
Global
North America
North America
Opportunistic Buyout
Consumer Services
North America
Opportunistic Buyout
Manufacturing & Industrial
North America
Fund VII & ANRP II
Distressed buyout
Natural Resources
North America
Western Europe
Opportunistic Buyout
Financial Services
Opportunistic Buyout
Natural Resources
North America
Opportunistic Buyout
Business Services
North America
Opportunistic Buyout
Consumer Services
North America
Opportunistic Buyout
Consumer Services
Corporate Carve-Out
Manufacturing & Industrial
Opportunistic Buyout
Business Services
Corporate Carve-Out
Financial Services
Corporate Carve-Out
Financial Services
North America
Western Europe
North America
Western Europe
Western Europe
Fund VIII & ANRP II
Opportunistic Buyout
Natural Resources
North America
Fund VIII
Opportunistic Buyout
Leisure
North America
Fund VIII & ANRP I
Corporate Carve-Out
Natural Resources
North America
Corporate Carve-Out
Consumer Services
Opportunistic Buyout
Consumer & Retail
North America
Western Europe
Opportunistic Buyout
Leisure
Fund VII & ANRP I
Opportunistic Buyout
Fund VII
Fund VI
Fund VI
Distressed buyout
Opportunistic Buyout
Corporate Carve-Out
Natural Resources
Media, Telecom, Technology
Leisure
Chemicals
North America
North America
Global
North America
North America
Fund VIII
ANRP II
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VIII
Fund VII
Fund VII
Fund VIII
Note: The table above includes portfolio companies of Fund VI, Fund VII, Fund VIII, ANRP I and ANRP II with a remaining value greater than $250 million, excluding the
value associated with any portion of such private equity funds' portfolio company investments held by co-investment vehicles.
Real Assets
Our real assets group has a dedicated team of multi-disciplinary real estate and infrastructure professionals whose investment activities are integrated and
coordinated with our credit and private equity business segments. We take a broad view of markets and property types in targeting debt and equity investment
opportunities, including the acquisition and recapitalization of real estate portfolios, platforms and operating companies and distressed for control situations, as
well as infrastructure equity and debt assets. As of December 31, 2018 , our real assets business had total and fee generating AUM of approximately $17.9 billion
and $12.4 billion , respectively, through a combination of investment funds, SIAs and Apollo Commercial Real Estate Finance, Inc. (“ARI”), a publicly-traded
commercial mortgage real estate investment trust managed by Apollo.
- 16 -
Table of Contents
Real Assets AUM as of December 31, 2018
(in billions)
With respect to our real assets funds' equity investments, we take a value-oriented approach and our funds will invest in assets located in primary,
secondary and tertiary markets across North America and Asia. The U.S. real estate equity funds we manage pursue opportunistic investments in various real estate
asset classes, which historically have included hospitality, office, industrial, retail, healthcare, residential and non-performing loans. The Asia real estate equity
funds we manage have a primary focus on investing in China, India and Southeast Asia, while executing Apollo’s strategy of opportunistic value investing in real
estate related assets, portfolios, companies, operating platforms, and structured finance. Our real estate equity funds under management currently include (i) AGRE
U.S. Real Estate Fund, L.P. (“U.S. RE Fund I”) and Apollo U.S. Real Estate Fund II, L.P. (“U.S. RE Fund II”), our U.S. focused opportunistic funds, and their
related co-investment vehicles, (ii) Apollo Asia Real Estate Fund, L.P. (“Asia RE Fund”), our Asia-focused opportunistic fund, and its related co-investment
vehicles and (iii) our legacy Citi Property Investors (“CPI”) business, the real estate investment management business we acquired from Citigroup in November
2010.
With respect to our real estate debt activities, our real assets funds and accounts offer financing across a broad spectrum of property types and at various
points within a property’s capital structure, including first mortgage and mezzanine financing and preferred equity. In addition to ARI, we also manage strategic
accounts focused on investing in commercial mortgage-backed securities and other commercial real estate loans.
With respect to our infrastructure equity strategy, during 2018 we established our first vehicles dedicated to investing primarily in infrastructure assets.
These vehicles are expected to invest in a broad range of asset types, including renewables, thermal power generation, and oil and gas midstream and we seek to
target long-lived assets with stable, contracted cash flows and structural downside protection. Our infrastructure debt vehicles target similar asset types as the
infrastructure equity strategy with a heightened focus on the investment’s position in the capital structure and current yield.
Strategic Investment Accounts
We manage SIAs established to facilitate investments by third-party investors directly in Apollo funds and other securities. Institutional investors are
expressing increasing levels of interest in SIAs since these accounts can provide investors with greater levels of transparency, liquidity and control over their
investments as compared to more traditional investment funds. Based on the trends we are currently witnessing among a select group of large institutional
investors, we expect our AUM that is managed through SIAs to continue to grow over time. As of December 31, 2018 , approximately $24 billion of our total
AUM was managed through SIAs.
Recent Developments
Subsequent to December 31, 2018, the Company determined to change the business segment in which it reports certain funds and accounts to align its
segment reporting with the manner in which such funds and accounts were managed subsequent to December 31, 2018. Effective January 1, 2019, the European
Principal Fund series which the Company has historically reported in the credit segment, moved to the Company’s real assets segment. In addition, one of the
fund’s in the Company’s Credit
- 17 -
Table of Contents
Opportunity Fund series as well as several other funds and accounts that generally invest in illiquid opportunistic investments, which the Company historically
reported within its credit segment, moved to the Company’s private equity segment.
Fundraising and Investor Relations
We believe our performance track record across our funds and our focus on client service have resulted in strong relationships with our fund investors.
Our fund investors include many of the world’s most prominent pension and sovereign wealth funds, university endowments and financial institutions, as well as
individuals. We maintain an internal team dedicated to investor relations across our credit, private equity and real assets businesses.
In our credit business, we have raised private capital from prominent institutional investors and have also raised capital from public market investors, as in
the case of AINV, AFT and AIF. AINV is listed on the NASDAQ Global Select Market and complies with the reporting requirements of that exchange. ATH, AFT
and AIF are listed on the NYSE and comply with the reporting requirements of that exchange.
In our private equity business, fundraising activities for new funds begin once the investor capital commitments for the current fund are largely invested
or committed to be invested. The investor base of our private equity funds includes both investors from prior funds and new investors. In many instances, investors
in our private equity funds have increased their commitments to subsequent funds as our private equity funds have increased in size. During the fundraising effort
for Fund IX, investors representing over 85% of Fund VIII’s third party capital committed to Fund IX. The single largest unaffiliated investor in Fund IX
represents 4% of Fund IX’s total fund size. In addition, many of our investment professionals commit their own capital to each private equity fund.
During the management of a private equity fund, we maintain an active dialogue with the fund's investors. We host quarterly webcasts that are led by
members of our senior management team and we provide quarterly reports to the investors detailing recent performance by investment. We also organize an annual
meeting for our private equity funds' investors that consists of detailed presentations by the senior management teams of many of our funds' current investments.
From time to time, we also hold meetings for the advisory board members of our private equity funds.
In our real assets business, we have raised capital from prominent institutional investors and we have also raised capital from public market investors, as
in the case of ARI. ARI is currently listed on the NYSE under the symbol “ARI.”
Investment Process
We maintain a rigorous investment process and a comprehensive due diligence approach across all of our funds. We have developed policies and
procedures, the adequacy of which are reviewed annually, that govern the investment practices of our funds. Moreover, each fund is subject to certain investment
criteria set forth in its governing documents that generally contain requirements and limitations for investments, such as limitations relating to the amount that will
be invested in any one company and the geographic regions in which the fund will invest. Our investment professionals are familiar with our investment policies
and procedures and the investment criteria applicable to the funds that they manage. Our investment professionals interact frequently across our businesses on a
formal and informal basis.
We have in place certain procedures to allocate investment opportunities among our funds. These procedures are meant to ensure that each fund is treated
fairly and that transactions are allocated in a way that is equitable, fair and in the best interests of each fund, subject to the terms of the governing agreements of
such funds.
Private Equity Investment Process
Our private equity investment professionals are responsible for selecting, evaluating, structuring, due diligence, negotiating, executing, monitoring and
exiting investments for our traditional private equity funds, as well as pursuing operational improvements in our funds’ portfolio companies through management
consulting arrangements. These investment professionals perform significant research into each prospective investment, including a review of the company’s
financial statements, comparisons with other public and private companies and relevant industry data. The due diligence effort will also typically include:
•
•
•
•
on-site visits;
interviews with management, employees, customers and vendors of the potential portfolio company;
research relating to the company’s management, industry, markets, products and services, and competitors; and
background checks.
- 18 -
Table of Contents
After an initial selection, evaluation and diligence process, the relevant team of investment professionals will prepare a detailed analysis of the investment
opportunity for our private equity investment committee. Our private equity investment committee generally meets weekly to review the investment activity and
performance of our private equity funds.
After discussing the proposed transaction with the deal team, the investment committee will decide whether to give its preliminary approval to the deal
team to continue the selection, evaluation, diligence and negotiation process. The investment committee will typically conduct several meetings to consider a
particular investment before finally approving that investment and its terms. Both at such meetings and in other discussions with the deal team, our Managing
Partners and other investment professionals will provide guidance to the deal team on strategy, process and other pertinent considerations. Every private equity
investment of our traditional private equity funds requires the approval of our Managing Partners.
Our private equity investment professionals are responsible for monitoring an investment once it is made and for making recommendations with respect to
exiting an investment. Disposition decisions made on behalf of our private equity funds are subject to review and approval by the private equity investment
committee, including our Managing Partners.
Credit and Real Assets Investment Process
Our credit and real assets investment professionals are responsible for selecting, evaluating, structuring, due diligence, negotiating, executing, monitoring
and exiting investments for our credit funds and real assets funds, respectively. The investment professionals perform significant research into and due diligence of
each prospective investment, and prepare analyses of recommended investments for the investment committee of the relevant fund.
Investment decisions are scrutinized by the investment committees where applicable, who review potential transactions, provide input regarding the scope
of due diligence and approve recommended investments and dispositions. Close attention is given to how well a proposed investment is aligned with the distinct
investment objectives of the fund in question, which in many cases have specific geographic or other focuses. The investment committee of each of our credit
funds and real assets funds generally is provided with a summary of the investment activity and performance of the relevant funds on at least a monthly basis.
Overview of Fund Operations
Investors in our private equity funds and certain of our credit and real assets funds make commitments to provide capital at the outset of a fund and
deliver capital when called by us as investment opportunities become available. We determine the amount of initial capital commitments for such funds by taking
into account current market opportunities and conditions, as well as investor expectations. The general partner’s capital commitment is determined through
negotiation with the fund’s underlying investor base. The commitments are generally available for approximately six years during what we call the investment
period. We have typically invested the capital committed to such funds over a three to four year period. Generally, as each investment is realized, these funds first
return the capital and expenses related to that investment and any previously realized investments to fund investors and then distribute any profits. These profits are
typically shared 80% to the investors in our private equity funds and 20% to us so long as the investors receive at least an 8% compounded annual return on their
investment, which we refer to as a “preferred return” or “hurdle.” Allocation of profits between fund investors and us, as well as the amount of the preferred return,
among other provisions, varies for our real estate equity and many of our credit funds. Our private equity funds typically terminate ten years after the final closing,
subject to the potential for two one-year extensions. Dissolution of those funds can be accelerated upon a majority vote of investors not affiliated with us and, in
any case, all of our funds also may be terminated upon the occurrence of certain other events. Ownership interests in our private equity funds and certain of our
credit and real assets funds are not, however, subject to redemption prior to termination of the funds.
The processes by which our credit and real assets funds receive and invest capital vary by type of fund. As noted above, certain of our credit and real
assets funds have drawdown structures where investors made a commitment to provide capital at the formation of such funds and deliver capital when called by us
as investment opportunities become available. In addition, we have several permanent capital vehicles with unlimited duration. Each of these publicly traded
vehicles raises capital by selling shares in the public markets and these vehicles can also issue debt. We also have several credit funds which continuously offer and
sell shares or limited partner interests via private placements through monthly subscriptions, which are payable in full upon a fund’s acceptance of an investor’s
subscription. These hedge fund style credit funds have customary redemption rights (in many cases subject to the expiration of an initial lock-up period), and are
generally structured as limited partnerships, the terms of which are determined through negotiation with the funds' underlying investor base. Management fees and
performance fees that we earn for management of these credit funds and from their performance as well as the terms governing their operation vary across our
credit funds.
We conduct the management of our credit, private equity and real assets funds primarily through a partnership structure, in which partnerships organized
by us accept commitments and/or funds for investment from investors. Funds are generally organized as limited partnerships with respect to private equity funds
and other U.S. domiciled vehicles and limited partnership
- 19 -
Table of Contents
and limited liability (and other similar) companies with respect to non-U.S. domiciled vehicles. Typically, each fund has an investment adviser registered under the
Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”). Responsibility for the day-to-day operations of the funds is typically delegated to
the funds’ respective investment managers pursuant to an investment management (or similar) agreement. Generally, the material terms of our investment
management agreements relate to the scope of services to be rendered by the investment manager to the applicable funds, certain rights of termination in respect of
our investment management agreements and, generally, with respect to certain of our credit and real assets funds (as these matters are covered in the limited
partnership agreements of the private equity funds), the calculation of management fees to be borne by investors in such funds, as well as the calculation of the
manner and extent to which other fees received by the investment manager from fund portfolio companies serve to offset or reduce the management fees payable
by investors in our funds. The funds themselves generally do not register as investment companies under the Investment Company Act of 1940, as amended (the
“Investment Company Act”), generally in reliance on Section 3(c)(7) or Section 7(d) thereof or, typically in the case of funds formed prior to 1997, Section 3(c)(1)
thereof. Section 3(c)(7) of the Investment Company Act excepts from its registration requirements funds privately placed in the United States whose securities are
owned exclusively by persons who, at the time of acquisition of such securities, are “qualified purchasers” or “knowledgeable employees” for purposes of the
Investment Company Act. Section 3(c)(1) of the Investment Company Act exempts from its registration requirements privately placed funds whose securities are
beneficially owned by not more than 100 persons. In addition, under current interpretations of the SEC, Section 7(d) of the Investment Company Act exempts from
registration any non-U.S. fund all of whose outstanding securities are beneficially owned either by non-U.S. residents or by U.S. residents that are qualified
purchasers.
In addition to having an investment manager, each fund that is a limited partnership also has a general partner that makes all policy and investment
decisions relating to the conduct of the fund’s business. The general partner is responsible for all decisions concerning the making, monitoring and disposing of
investments, but such responsibilities are typically delegated to the fund’s investment manager pursuant to an investment management (or similar) agreement. The
limited partners of the funds take no part in the conduct or control of the business of the funds, have no right or authority to act for or bind the funds and have no
influence over the voting or disposition of the securities or other assets held by the funds. These decisions are made by the fund’s general partner in its sole
discretion, subject to the investment limitations set forth in the agreements governing each fund. The limited partners often have the right to remove the general
partner or investment manager for cause or cause an early dissolution by a simple majority vote. In connection with the private offering transactions that occurred
in 2007 pursuant to which we sold shares of Apollo Global Management, LLC to certain initial purchasers and accredited investors in transactions exempt from the
registration requirements of the Securities Act (“Private Offering Transactions”) and the reorganization of the Company’s predecessor business (the “2007
Reorganization”), we deconsolidated certain of our credit and private equity funds that have historically been consolidated in our financial statements and amended
the governing agreements of those funds to provide that a simple majority of a fund’s investors have the right to accelerate the dissolution date of the fund.
In addition, the governing agreements of our private equity funds and certain of our credit and real assets funds enable the limited partners holding a
specified percentage of the interests entitled to vote, to elect not to continue the limited partners’ capital commitments for new portfolio investments in the event
certain of our Managing Partners do not devote the requisite time to managing the fund or in connection with certain triggering events (as defined in the applicable
governing agreements). In addition to having a significant, immeasurable negative impact on our revenue, net income and cash flow, the occurrence of such an
event with respect to any of our funds would likely result in significant reputational damage to us. The loss of the services of any of our Managing Partners would
have a material adverse effect on us, including our ability to retain and attract investors and raise new funds, and the performance of our funds. We do not carry
any “key man” insurance that would provide us with proceeds in the event of the death or disability of any of our Managing Partners.
Fees and Performance Fees
Our revenues and other income consist principally of (i) management fees, which may be based upon a percentage of the committed or invested capital,
adjusted assets, gross invested capital, fund net asset value, stockholders' equity or the capital accounts of the limited partners of the funds, and may be subject to
offset as discussed in note 2 to the consolidated financial statements, (ii) advisory and transaction fees, net relating to certain actual and potential credit, private
equity and real assets investments as more fully discussed in note 2 to the consolidated financial statements, (iii) income based on the performance of our funds,
which consists of allocations, distributions or fees from our credit, private equity and real assets funds, and (iv) investment income from our investments as general
partner in the form of principal investment income and income from other direct investments primarily in the form of net gains from investment activities as well
as interest and dividend income.
The composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate. Our funds’
returns are driven by investment opportunities and general market conditions, including the availability of debt capital on attractive terms and the availability of
distressed debt opportunities. Our funds initially record fund investments at cost and then such investments are subsequently recorded at fair value. Fair values are
affected by changes in the fundamentals
- 20 -
Table of Contents
of the underlying portfolio company investments of the funds, the industries in which the portfolio companies operate, the overall economy as well as other market
conditions.
General Partner and Professionals Investments and Co-Investments
General Partner Investments
Certain of our management companies, general partners and co-invest vehicles are committed to contribute to our funds and affiliates. As a limited
partner, general partner and manager of the Apollo funds, Apollo had unfunded capital commitments as of December 31, 2018 of $1.2 billion .
Managing Partners and Other Professionals Investments
To further align our interests with those of investors in our funds, our Managing Partners and other professionals have invested their own capital in our
funds. Our Managing Partners and other professionals will either re-invest their performance fees to fund these investments or use cash on hand or funds borrowed
from third parties. We generally have not historically charged management fees or performance fees on capital invested by our Managing Partners and other
professionals directly in our credit, private equity and real assets funds.
Co-Investments
Investors in many of our funds, as well as certain other investors, may have the opportunity to make co-investments with the funds. Co-investments are
investments in portfolio companies or other fund assets generally on the same terms and conditions as those to which the applicable fund is subject.
Competition
The investment management industry is intensely competitive, and we expect it to remain so. We compete globally and on a regional, industry and niche
basis.
We face competition both in the pursuit of outside investors for our funds and in our funds acquiring investments in attractive portfolio companies and
making other fund investments. We compete for outside investors for our funds based on a variety of factors, including:
•
•
•
•
•
investment performance;
investor perception of investment managers’ drive, focus and alignment of interest;
quality of service provided to and duration of relationship with investors;
business reputation; and
the level of fees and expenses charged for services.
Competition is also intense for the attraction and retention of qualified employees. Our ability to continue to compete effectively in our businesses will
depend upon our ability to attract new employees and retain and motivate our existing employees.
For additional information concerning the competitive risks that we face, see “Item 1A. Risk Factors—Risks Related to Our Businesses—The investment
management business is intensely competitive, which could have a material adverse impact on us.”
Regulatory and Compliance Matters
Our businesses, as well as the financial services industry generally, are subject to extensive regulation in the United States and elsewhere.
Regulation under the Investment Advisers Act. All of the investment advisers of our funds are registered as investment advisers either directly or as a
“relying adviser” with the SEC. A “relying adviser” is an investment adviser that relies on the investment adviser registration of a directly registered investment
adviser. Registered investment advisers are subject to the requirements and regulations of the Investment Advisers Act. Such requirements relate to, among other
things, fiduciary duties to clients, maintaining an effective compliance program, managing conflicts of interest and general anti-fraud prohibitions. Each “relying
adviser” is an investment adviser registered with the SEC and, as such, is required to comply with all of the provisions of the Investment Advisers Act and the rules
thereunder that apply to registered advisers.
Regulation under the Investment Company Act. Each of AFT and AIF is a registered management investment company under the Investment Company
Act. AINV is an investment company that has elected to be treated as a business development company under the Investment Company Act. Each of AFT, AIF and
AINV has elected for U.S. Federal tax purposes to be treated
- 21 -
Table of Contents
as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As such, each of AFT,
AIF and AINV is required to distribute during each taxable year at least 90% of its ordinary income and realized, net short-term capital gains in excess of realized
net long-term capital losses, if any, to its shareholders. In addition, in order to avoid excise tax, each needs to distribute during each calendar year at least 98% of
its ordinary income and 98.2% of its capital gains net income for the one-year period ended on October 31st of such calendar year, plus any shortfalls from any
prior year's distribution, which would take into account short-term and long-term capital gains and losses. In addition, as a business development company, AINV
must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of
AINV’s total assets are qualifying assets (with certain limited exceptions).
Real Estate Investment Trust. ARI has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code. To maintain its
qualification as a REIT, ARI must distribute at least 90% of its taxable income to its shareholders and meet, on a continuing basis, certain other complex
requirements under the Internal Revenue Code.
Regulation as a Broker-Dealer. Apollo Global Securities, LLC (“AGS”) is a registered broker dealer with the SEC and is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”). From time to time, this entity is involved in transactions with affiliates of Apollo, including portfolio companies of
the funds we manage, whereby AGS will earn fees for its services.
Broker-dealers are subject to regulations that cover all aspects of the securities business. In particular, as a registered broker-dealer and member of a self-
regulatory organization, AGS is subject to the SEC’s uniform net capital rule, Rule 15c3-1. Rule 15c3-1 specifies the minimum level of net capital a broker-dealer
must maintain and also requires that a significant part of a broker-dealer’s assets be kept in relatively liquid form. The SEC and various self-regulatory
organizations impose rules that require notification when net capital falls below certain predefined criteria, limit the ratio of subordinated debt to equity in the
regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the
SEC’s uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and
requiring prior notice to the SEC for certain withdrawals of capital.
Regulation as a Commodity Pool Operator and Commodity Trading Advisor . Certain investment activities entered into by Apollo managers may
subject those managers to provisions of the Commodities Exchange Act and oversight by the Commodities Futures Trading Commission (the “CFTC”), including
registration as a commodity pool operator (“CPO”). Apollo intends to rely on exemptions from registration when available. Certain Apollo funds are deemed to be
CPOs or commodity trading advisors (“CTAs”) as a result of trading commodity interests. These CPOs and CTAs are regulated by the CFTC and National Futures
Association and subject to registration and periodic reporting requirements.
United States Insurance Regulation. We are subject to insurance holding company system laws and regulations in the states of domicile of certain
insurance companies for which we are (or, with respect to certain pending transactions, will be) deemed to be a control person for purposes of such laws.
Specifically, under state insurance laws, we are deemed to be the ultimate parent of (i) Athene Holding’s insurance company subsidiaries, which are domiciled in
Delaware, Iowa and New York, (ii) Catalina Holdings (Bermuda) Ltd.’s (“Catalina’s”) insurance company subsidiaries, which are domiciled in California,
Colorado, Connecticut, the District of Columbia and New York, (iii) OneMain Holdings, Inc.’s (“OneMain’s”) insurance company subsidiaries, which are
domiciled in Indiana and Texas, (iv) Venerable Holdings, Inc.’s (“Venerable’s”) insurance company subsidiary, which is domiciled in Iowa and (v) LifePoint
Health, Inc.’s (f/k/a RegionalCare Hospital Partners Holdings, Inc.) (“LifePoint’s”), health maintenance organization subsidiary, which is domiciled in Michigan
and (vi) Aspen Insurance Holdings Limited’s (“Aspen’s”) insurance company subsidiaries, which are domiciled in North Dakota and Texas. Each of California,
Colorado, Connecticut, Delaware, the District of Columbia, Indiana, Iowa, Michigan, New York, North Dakota and Texas is a “Domiciliary State”.
The insurance holding company system laws and regulations in the Domiciliary States generally require each insurance company subsidiary to register
with the insurance department in its Domiciliary State and to furnish financial and other information about the operations of companies within its holding company
system. These regulations also impose restrictions and limitations on the ability of an insurance company subsidiary to pay dividends and make other distributions
to its parent company. In addition, transactions between an insurance company and other companies within its holding company system, including sales, loans,
investments, reinsurance agreements, management agreements and service agreements, must be on terms that are fair and reasonable and, if material or within a
specified category, require prior notice and approval or non-disapproval by the applicable Domiciliary State insurance department.
The insurance laws of each of the Domiciliary States prohibit any person from acquiring direct or indirect control of a domestic insurance company or its
parent company unless that person has filed a notification with specified information with that state’s Commissioner or Superintendent of Insurance (the
“Commissioner”) and has obtained the Commissioner’s prior approval. Under applicable statutes in each of the Domiciliary States, the acquisition of 10% or more
of the voting securities of an insurance company or its parent company is presumptively considered an acquisition of control of the insurance company, although
such
- 22 -
Table of Contents
presumption may be rebutted. Accordingly, subject to the Apollo control condition (as defined below), any person or entity that acquires, directly or indirectly,
10% or more of the voting securities of Apollo without the requisite prior approvals will be in violation of these laws and may be subject to injunctive action
requiring the disposition or seizure of those securities or prohibiting the voting of those securities, or to other actions that may be taken by the applicable state
insurance regulators.
The New York State Department of Financial Services (the “NYSDFS”) adopted an amendment to its holding company system regulations which
requires prospective acquirers of New York domiciled insurers to provide greater disclosure with respect to intended changes to the business operations of the
insurer, and which expressly authorizes the NYSDFS to impose additional conditions on such an acquisition and limit changes that the acquirer may make to the
insurer’s business operations for a specified period of time following the acquisition without the NYSDFS’ prior approval. In particular, the amendment provides
the NYSDFS with the specific authority to require acquirers of New York domiciled life insurers to post assets in a trust account for the benefit of the target
company’s policyholders. In making such determination, the NYSDFS may consider whether the acquirer is, or is controlled by or under common control with, an
investment manager such as Apollo. The National Association of Insurance Commissioners (the “NAIC”) has also published in its Financial Analysis Handbook
specific narrative guidance for state insurance examiners to consider in reviewing applications for an acquisition of an insurer by a private equity firm.
In addition, many U.S. state insurance laws require prior notification to state insurance departments of an acquisition of control of a non-domiciliary
insurance company doing business in that state if the acquisition would result in specified levels of market concentration. While these pre-acquisition notification
statutes do not authorize the state insurance departments to disapprove the acquisition of control, they authorize regulatory action in the affected state, including
requiring the insurance company to cease and desist from doing certain types of business in the affected state or denying a license to do business in the affected
state, if particular conditions exist, such as substantially lessening competition in any line of business in such state. Any transactions that would constitute an
acquisition of control of Apollo may require prior notification in those states that have adopted pre-acquisition notification laws. These laws may discourage
potential acquisition proposals and may delay, deter or prevent an acquisition of control of Apollo (in particular through an unsolicited transaction), even if Apollo
might consider such transaction to be desirable for its shareholders.
Currently, there are proposals to increase the scope of regulation of insurance holding companies in both the United States and internationally. The NAIC has
adopted amendments to the Holding Company Model Act that introduced the concept of “enterprise risk” within an insurance holding company system and
imposed more extensive informational reporting regarding parents and other affiliates of insurance companies, with the purpose of protecting domestic insurers
from enterprise risk, including requiring an annual enterprise risk report by the ultimate controlling person identifying the material risks within the insurance
holding company system that could pose enterprise risk to domestic insurers. Changes to existing NAIC model laws or regulations must be adopted by individual
states or foreign jurisdictions before they will become effective. To date, each of the Domiciliary States has enacted laws to adopt such amendments.
Internationally, the International Association of Insurance Supervisors (the “IAIS”) is in the process of adopting a Common Framework for the
Supervision of Internationally Active Insurance Groups (“ComFrame”). ComFrame will be applicable to entities which meet the IAIS’ criteria for internationally
active insurance groups (or "IAIGs") and are designated as such. Under the current draft of ComFrame, an IAIG is defined as an insurance group which has (i)
premiums written in three or more jurisdictions, with the percentage of gross premiums written outside the home jurisdiction comprising at least 10% of the group's
total gross written premium, and (ii) based on a rolling three-year average, total assets of at least $50 billion, or gross written premiums of at least $10 billion.
ComFrame is expected to include measures such as group supervision, group capital requirements, uniform standards for insurer corporate governance, enterprise
risk management and other control functions and resolution planning. In 2016 the IAIS released a public consultation requesting comments on their risk-based
global insurance capital standard (“ICS”) which is the group capital component of ComFrame. The current version of the ICS is in the extended field testing stage.
When field testing is completed in 2019, the ICS will be implemented in the following two phases: In the first phase, which will last for five years and which is
referred to as the “monitoring period,” the ICS will be used for confidential reporting to group-wide supervisors and discussion in supervisory colleges, and the
ICS will not be used as a prescribed capital requirement. After the monitoring period, the ICS will be implemented as a group-wide prescribed capital standard. In
addition, in the United States, the NAIC and the Federal Reserve Board are developing an aggregation method to a group capital calculation. The NAIC has stated
that the group capital calculation will be a regulatory tool and will not constitute a requirement or standard; however, it is currently expected that the calculation
methodology will incorporate existing risk-based capital concepts. In the United States, the NAIC has also promulgated additional amendments to its insurance
holding company system model law that address “group wide” supervision of internationally active insurance groups. To date, each of the Domiciliary States
(except for Colorado, the District of Columbia, Michigan and New York) has adopted a form of these provisions. The NAIC has made these amendments to the
insurance holding company system model law a part of its accreditation standards for state solvency regulation beginning January 1, 2020, which is likely to
motivate the remaining Domiciliary States to adopt the amendments. We cannot predict with any degree of certainty the additional capital requirements,
compliance costs or other burdens these requirements may impose on us and our insurance company affiliates.
- 23 -
Table of Contents
In addition, state insurance departments also have broad administrative powers over the insurance business of our insurance company affiliates, including
insurance company licensing and examination, agent licensing, establishment of reserve requirements and solvency standards, premium rate regulation,
admissibility of assets, policy form approval, unfair trade and claims practices and other matters. State regulators regularly review and update these and other
requirements.
Although the federal government does not directly regulate the insurance business, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services regulation, securities regulation and federal taxation, can significantly affect the
insurance business. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Federal Insurance Office (the
“FIO”) within the U.S. Department of the Treasury headed by a Director appointed by the Treasury Secretary. While currently not having a general supervisory or
regulatory authority over the business of insurance, the Director of the FIO performs various functions with respect to insurance, including serving as a non-voting
member of the Financial Stability Oversight Council (“FSOC”) and making recommendations to the FSOC regarding non-bank financial companies to be
designated as systemically important financial institutions (“SIFIs”). The Director of the FIO has also submitted reports to the U.S. Congress on (i) modernization
of U.S. insurance regulation (provided in December 2013) and (ii) the U.S. and global reinsurance market (provided in November 2013 and January 2015,
respectively). Such reports could ultimately lead to changes in the regulation of insurers and reinsurers in the U.S.
In addition, the Dodd-Frank Act authorized the Treasury Secretary and the Office of the U.S. Trade Representative to negotiate covered agreements. A
covered agreement is an agreement between the United States and one or more foreign governments, authorities or regulatory entities, regarding prudential
measures with respect to insurance or reinsurance. Pursuant to this authority, in September 2017, the U.S. and the EU signed a covered agreement to address,
among other things, group supervision and reinsurance collateral requirements (the “EU Covered Agreement”). In addition, on December 11, 2018, the U.S.
Department of the Treasury and the Office of the U.S. Trade Representative announced their intent to sign a Bilateral Agreement between the U.S. and the United
Kingdom on Prudential Measures Regarding Insurance and Reinsurance in anticipation of the United Kingdom’s exit from the European Union in March 2019 (the
“U.K. Covered Agreement”). The U.K. Covered Agreement is subject to a 90-day notification period to the U.S. Congress before it can be signed and come into
effect. U.S. state regulators have 60 months, or five years, to adopt reinsurance reforms removing reinsurance collateral requirements for EU and U.K. reinsurers
that meet the prescribed minimum conditions set forth in the EU Covered Agreement and U.K. Covered Agreement or else state laws imposing such reinsurance
collateral requirements may be subject to federal preemption. The NAIC is currently working to adopt amendments to the Credit for Reinsurance Model Law and
Regulation to conform to the requirements of the EU Covered Agreement and U.K. Covered Agreement. The reinsurance collateral provisions of the EU Covered
Agreement or U.K. Covered Agreement may increase competition, in particular with respect to pricing for reinsurance transactions, by lowering the cost at which
competitors of the reinsurance subsidiaries of our insurance company affiliates, such as Athene Holding’s direct, wholly owned subsidiary, Athene Life Re Ltd.
(“ALRe”), are able to provide reinsurance to U.S. insurers.
Bermuda Insurance Regulation. We are subject to certain insurance laws and regulations in Bermuda, where Athene Holding’s direct, wholly owned
subsidiary, ALRe, is registered as a Class E insurer. ALRe is subject to regulation and supervision by the Bermuda Monetary Authority (“BMA”) and compliance
with all applicable Bermuda law and Bermuda insurance statutes and regulations, including but not limited to the Insurance Act of 1978 (Bermuda) and the rules
and regulations promulgated thereunder (the “Bermuda Insurance Act”).
Under the Bermuda Insurance Act, the BMA maintains supervision over the “controllers” of all registered insurers in Bermuda. For these purposes, a
“controller” includes a “shareholder controller.” The definition of shareholder controller is set out in the Bermuda Insurance Act but generally refers to (a) a person
who holds 10% or more of the shares carrying rights to vote at a shareholders’ meeting of the registered insurer or its parent company, (b) a person who is entitled
to exercise 10% or more of the voting power at any shareholders’ meeting of such registered insurer or its parent company or (c) a person who is able to exercise
significant influence over the management of the registered insurer or its parent company by virtue of its shareholding or its entitlement to exercise, or control the
exercise of, the voting power at any shareholders’ meeting.
Apollo is a shareholder controller as defined above of (a) ALRe, a Bermuda Class E insurance company and a wholly owned subsidiary of Athene
Holding, a company listed on the New York Stock Exchange, (b) Athora Life Re Ltd., a Bermuda Class E insurance company and a wholly owned subsidiary of
Athora, a Bermuda private company, (c) Catalina General Insurance Ltd, a Bermuda Class 3A and Class C insurer and a wholly owned subsidiary of Catalina and
(d) Aspen Bermuda Limited, a Class 4 insurer, and wholly owned subsidiary of Aspen.
The Bermuda Insurance Act imposes certain notice requirements upon any person that has become, or as a result of a disposition ceased to be, a
shareholder controller, and failure to comply with such requirements is an offense punishable by a fine or imprisonment or both. Where the shares of a registered
insurer, or the shares of its parent company, are traded on a recognized stock exchange, the required notices must be given to the BMA within 45 days after such
person becomes, or as a result of a disposition ceases to be, a shareholder controller. Where neither the shares of a registered insurer nor the shares of its parent
- 24 -
Table of Contents
company are traded on a recognized stock exchange (i.e., private companies), the required notices must be given to the BMA (1) without objection from the BMA,
at least 45 days before such person becomes a shareholder controller and (2) before such person, as a result of a disposition, ceases to be a shareholder controller.
In addition, the BMA may file a notice of objection to any person or entity who has become a controller of any description where it appears that such
person or entity is not, or is no longer, fit and proper to be a controller of the registered insurer. Any person or entity who continues to be a controller of any
description after having received a notice of objection is guilty of an offense and liable on summary conviction to a fine or imprisonment or both.
The BMA may, in accordance with the Bermuda Insurance Act and in respect of an insurance group, determine whether it is appropriate for it to act as its
group supervisor. The BMA has not yet designated ALRe for group supervision; accordingly, our insurance company affiliates are not currently subject to group
supervision by the BMA. The BMA may, however, exercise its authority to act as group supervisor for our insurance company affiliates in the future. We cannot
predict with any degree of certainty the additional capital requirements, compliance costs or other burdens that such a determination may impose on us and our
insurance company affiliates.
European Insurance Regulation. Apollo is considered the parent of certain European insurance companies and insurance intermediaries for purposes of
certain European insurance laws. A new European solvency framework and prudential regime for insurers and reinsurers, under the Solvency II Directive
2009/138/EC (“Solvency II”), took effect in full on January 1, 2016. Solvency II is a regulatory regime which imposes economic risk-based solvency requirements
across all EU Member States and consists of three pillars: Pillar I-quantitative capital requirements, based on a valuation of the entire balance sheet; Pillar II-
qualitative regulatory review, which includes governance, internal controls, enterprise risk management and supervisory review process; and Pillar III-market
discipline, which is accomplished through reporting of the insurer’s financial condition to regulators and the public. Solvency II is supplemented by European
Commission Delegated Regulation (E.U.) 2015/35 (the “Delegated Regulation”), other European Commission “delegated acts” and binding technical standards,
and guidelines issued by the European Insurance and Occupational Pensions Authority (“EIOPA”). The Delegated Regulation sets out detailed requirements for
individual insurance and reinsurance undertakings, as well as for groups, based on the overarching provisions of Solvency II, which together make up the core of
the single prudential rulebook for insurance and reinsurance undertakings in the EU.
The Insurance Distribution Directive 2016/97 (“IDD”) came into force on October 1, 2018 and replaced the Insurance Mediation Directive 2002/92/EC. It
aims to enhance consumer protection when buying insurance and to support competition between insurance distributors by creating a level playing field. In
addition, the IDD aims to ensure consistent prudential standards for insurance intermediaries, through enhanced conduct standards, thereby improving consumer
protection and effective competition.
Following the implementation of Solvency II and the IDD, regulators may continue to issue guidance and other interpretations of applicable requirements,
which could ultimately require our EU insurance company affiliates or our EU insurance intermediary affiliates (respectively) to make adjustments, which could
impact their businesses.
Insurers and reinsurers established in a Member State of the EU have the freedom to establish branches in, and provide services to, all European
Economic Area (“EEA”) states through “passporting” rights. This right currently applies to the U.K. Regulated Entities (defined below). However, following the
U.K. referendum on June 23, 2016 in which a majority of the voting U.K. citizens voted in favor of the U.K. leaving the EU (“Brexit”), the U.K. withdrawal from
the EU on March 29, 2019 (unless an extension to this deadline is agreed between the U.K. government and the EU) will lead to a loss of passporting rights for
financial institutions in the U.K., except to the extent that any aspect of the regime is preserved in a separate agreement between the EU and the U.K. Following the
House of Commons vote on January 15, 2019, rejecting the U.K. government’s withdrawal from the EU and pending agreement on an alternative solution, there
remains considerable uncertainty as to exactly when Brexit will take effect; the extent of any transitional period allowing a continuation of passporting; and the
ultimate structure of the U.K.’s future relationship in the EU, creating continuing uncertainty as to the full extent to which the businesses of the U.K. Regulated
Entities could be adversely affected by Brexit. See “Item 1A. Risk Factors—Risks Related to Our Businesses— Difficult
market
or
economic
conditions
may
adversely
affect
our
businesses
in
many
ways,
including
by
reducing
the
value
or
hampering
the
performance
of
the
investments
made
by
our
funds
or
reducing
the
ability
of
our
funds
to
raise
or
deploy
capital,
each
of
which
could
materially
reduce
our
revenue,
net
income
and
cash
flow
and
adversely
affect
our
financial
prospects
and
condition.”
United Kingdom Insurance Regulation. Apollo is considered the parent of certain insurance company subsidiaries of Catalina and Aspen, including
Aspen Insurance U.K. Limited (“Aspen U.K.”), which is domiciled in the United Kingdom and operates branch jurisdictions in Ireland and Switzerland, and Aspen
Managing Agency Limited (“AMAL” and together with Aspen U.K., the “U.K. Insurance Entities”). AMAL is a managing agent of Aspen’s Lloyd’s Syndicate
Services Limited (“AUSSL”) and Aspen Risk Management Limited (“ARML”), each of which are also domiciled in the United Kingdom (together the “U.K.
Intermediary Entities” and together with the U.K. Insurance Entities the “U.K. Regulated Entities”) for purposes of certain U.K.
- 25 -
Table of Contents
insurance regulations. The U.K. Insurance Entities are each authorized by the Prudential Regulation Authority (“PRA”) and regulated by both the PRA and the
Financial Conduct Authority (“FCA”). The U.K. Intermediary Entities are only authorized and regulated by the FCA. In addition, AMAL is a Lloyd’s managing
agent and is therefore also regulated by Lloyd’s, as is AUSSL, which is a Lloyd’s corporate member.
The objectives of the PRA are to promote the safety and soundness of all firms it supervises and to secure an appropriate degree of protection for
policyholders. The objectives of the FCA are to ensure customers receive financial services and products that meet their needs, to promote sound financial systems
and markets and to ensure that firms are stable and resilient with transparent pricing information, compete effectively, have the interests of their customers and the
integrity of the market at the heart of how they run their business. The PRA has responsibility for the prudential regulation of banks and insurers, while the FCA
has responsibility for the conduct of business regulation in the wholesale and retail markets. The PRA and the FCA adopt separate methods of assessing regulated
firms on a periodic basis. Each of the PRA and FCA apply rules to support their statutory and operational objectives. PRA rules are maintained in a PRA
Rulebook, which includes rules for Solvency II insurance firms (and, also, for insurers that do not fall within Solvency II) that closely reflect the provisions of
Solvency II, including requirements for Solvency II insurance firms to meet economic risk-based solvency requirements and to adhere to governance and risk
management requirements and reporting and disclosure requirements. In addition to Solvency II requirements, the PRA Rulebook contains Fundamental Rules
(high-level principles), relating to individuals in senior management and general provisions relating to the supervision of U.K. insurance firms. The FCA
Handbook contains rules that concern the conduct of firms including the scope of systems and controls and conduct of business requirements.
Further, as AMAL is regulated by Lloyd’s as a Lloyd’s Managing Agent, it is also subject to the Lloyd’s Minimum Standards, which contain
requirements representing the minimum level of performance required by Lloyd’s entities, the Lloyd’s By-Laws and other Lloyd’s rules and requirements (together
the “Lloyd’s Rules”). AUSSL, as a Lloyd’s corporate member, is also subject to the Lloyd’s Rules.
In addition, in certain situations, subject to the required application of, as appropriate, the U.K. Covered Agreement, Solvency II and other applicable law
and regulation, there may also be scope for elements of group supervision to be exercised by the PRA (or other relevant EEA Member State or non-EEA regulator,
such as the BMA).
Under the Financial Services and Markets Act 2000 (the “FSMA”), the prior consent of the PRA and/or FCA, as applicable (depending on the regulated
entity), is required, before any person can be become a “controller” or increase its control over any regulated company, including the U.K. Regulated Entities, or
over the parent undertaking of any regulated company. No prior approval for reducing control below one of the thresholds referred to below is needed, though
notification must still be given to the appropriate regulator of the relevant transaction. In addition, the authorized firm itself is expected to discuss any prospective
changes of which it is aware with the appropriate regulator, regardless of whether the controller or the proposed controller proposes to submit a change in control
application. A proposed “controller” for the purposes of the PRA controller regime, which is applicable to the U.K. Insurance Entities, is any natural or legal
person who holds (either alone or in concert with others) 10% or more of the shares or voting power in the relevant company or its parent undertaking. In respect of
increases and decreases, the relevant thresholds are 20%, 30% and 50% or an acquired insurance company becoming (or ceasing to be) a subsidiary undertaking of
the acquirer. However, a proposed “controller” for the purposes of the FCA controller regime, which is applicable to the U.K. Intermediary Entities, is any natural
or legal person who holds (either alone or in concert with others) 20% or more of the shares or voting power in the relevant company or its parent undertaking.
This 20% threshold is the only threshold that is applicable to the Insurance Intermediary Entities. In both cases, the appropriate regulator has 60 working days from
the day on which it acknowledges the receipt of a complete notice of control to determine whether to approve the new controller or object to the transaction,
although if the regulator requires further information to be provided in order to complete its review this period will be interrupted for up to 30 working days while
the regulator is awaiting the provision of that further information. If the approval is given, it may be given unconditionally or subject to conditions. Breach of the
requirement to notify the regulator of a decision to acquire or increase control, or of the requirement to obtain approval before completing the relevant control
transaction is a criminal offense attracting potentially unlimited fines. The relevant regulator can also seek other remedies, including suspension of voting rights or
a forced disposition of shares acquired without prior approval. As a result of the above requirements, direct controllers, and holding companies who indirectly
acquire control of the U.K. Regulated Entities are required to apply for PRA and/or FCA approval prior to acquiring such entities. In addition, a similar process
also applies for Lloyd’s Managing Agents and Lloyd’s Corporate Members, therefore the acquisition of control of these types of entities will also require separate
Lloyd’s approval. The “controller” thresholds for such entities are the same as the thresholds that are applicable to the U.K. Insurance Entities.
Under English law, all companies are restricted from declaring a dividend to their shareholders unless they have “profits available for distribution”. The
calculation as to whether a company has sufficient profits is based on its accumulated realized profits minus its accumulated realized losses. U.K. insurance
regulatory rules do not prohibit the payment of dividends, but the PRA requires that insurance companies maintain certain solvency margins and may restrict the
payment of a dividend by any of the U.K. Insurance Entities.
- 26 -
Table of Contents
Irish Insurance Regulation. Apollo is deemed to hold an indirect qualifying holding in (i) Catalina Insurance Ireland DAC, which is Catalina’s wholly-
owned Irish subsidiary insurance undertaking, and (ii) Athora Ireland plc, which is a direct wholly-owned subsidiary of ALRe, each of which are authorized and
regulated by the Central Bank of Ireland (the “CBI”). In addition, Apollo will be deemed to hold an indirect qualifying holding in Aspen Insurance Ireland
Designated Activity Company, which is currently pending authorization by the CBI, and upon such authorization, will be Aspen’s wholly-owned Irish subsidiary.
Pursuant to Solvency II, and related law and regulation of Ireland, in regard to an Irish authorized and regulated insurance undertaking, such as Catalina
Insurance Ireland DAC or Aegon Ireland plc, the CBI has broad supervisory and administrative powers. The CBI has power over such matters as scope of
authorized activity, standards of solvency, investments, reporting requirements relating to capital structure, ownership, financial condition and general business
operations, special reporting and prior approval requirements with respect to certain transactions, reserves for unpaid losses and related matters, reinsurance,
minimum capital and surplus requirements, dividends and other distributions to shareholders, periodic examinations and annual and other report filings. In relevant
prescribed scenarios, subject to the required application of, as appropriate, the EU Covered Agreement, Solvency II and other applicable law and regulation, there
may also be scope for elements of group supervision to be exercised by the CBI (or other EEA Member State or non-EEA regulator, such as the BMA).
For the purposes of Solvency II, as implemented in Ireland, a “qualifying holding” means a direct or indirect holding in an insurance company which
represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the company.
With respect to each of Catalina Insurance Ireland DAC and Athora Ireland plc, Solvency II, as implemented in Ireland, prohibits any person from acquiring,
directly or indirectly, such a qualifying holding unless: (a) the proposed acquirer has notified the CBI of the acquisition; (b) the CBI has acknowledged receipt of
that notification and; (c) either the statutory assessment period in relation to the acquisition has ended and the CBI has not notified the proposed acquirer that it
opposes the acquisition, or the CBI has notified the proposed acquirer that it does not oppose the acquisition. If a proposed acquirer purports to complete a
proposed acquisition in contravention of the aforementioned, as matter of Irish law: (i) the purported acquisition is not effective to pass title to any share or any
other interest; and (ii) any exercise of powers based on the purported acquisition of the holding concerned is void.
Italian Insurance Regulation . Apollo is deemed to be the holder of an indirect qualifying holding in (i) Amissima Assicurazioni S.p.A. and (ii)
Amissima Vita S.p.A., which are Italian insurance undertakings, duly authorized and regulated by the Italian insurance regulator (“Istituto per la vigilanza sulle
Assicurazioni” or “IVASS”). The two Italian insurance companies belong to the Amissima Italian insurance group, whose parent undertaking is Amissima Holding
S.r.l..
Pursuant to Solvency II, as implemented within the Italian legal framework, Italian insurance undertakings (such as Amissima Assicurazioni S.p.A. and
Amissima Vita S.p.A.) are subject to extensive supervisory powers of IVASS on a broad array of matters including calculation of technical provisions, own funds
requirements, solvency capital requirements, ownership structure, internal governance and organizational requirements, reporting obligations and extraordinary
transactions. Moreover, in accordance with the provisions set forth under the EU Covered Agreement, Solvency II and other relevant provisions of law and
regulation, supervision at a group level may be exercised by IVASS or by regulator of a EEA or non-EEA State.
With particular regard to the ownership structure of Italian insurance undertakings, in accordance with Solvency II regime, IVASS must authorize, in
advance any acquisition of participations in an insurance undertaking amounting to a controlling interest or the acquisition of a qualifying holding; for such
purpose, a “qualifying holding” means a direct or indirect holding in an insurance undertaking which represents 10% or more of the capital or of the voting rights
or which makes it possible to exercise a significant influence over the management of that undertaking.
IVASS must issue the authorization for acquiring qualifying holdings in Italian insurance companies when the conditions for the sound and prudent
management of the undertaking are met. The voting rights and the other rights which make it possible to exercise an influence over the insurance undertaking may
not be exercised when they pertain to participations for which the IVASS authorization has not been obtained, or has been suspended or withdrawn, and the
participation shall be transferred within the deadline established by IVASS.
IVASS may ask insurance undertakings as well as companies and bodies of any nature which own participations in said undertakings to indicate the
names of the holders of participations as they are recorded in the share register. To verify all financial interrelationships between insurance undertakings and their
parent companies, subsidiaries and affiliated companies, IVASS may require that such companies produce information and records and make checks.
Portuguese Insurance Regulation. Apollo is deemed to hold an indirect qualifying holding in Seguradoras Unidas, which is authorized and regulated by
the Portuguese Insurance Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões or the “ASF”).
- 27 -
Table of Contents
Pursuant to Solvency II, and Portuguese related laws and regulations applicable to a Portuguese authorized and regulated insurance undertaking, such as
Seguradoras Unidas, ASF has broad supervisory and administrative powers over such matters as scope of authorized activity, standards of solvency, investments,
reporting requirements relating to capital structure and the existence of shareholders agreements, ownership, pledge over shares, financial condition and general
business operations, special reporting and prior approval requirements with respect to certain amendments to Seguradoras Unidas’ bylaws, certain transactions
(including but not limited to intra-group transactions which may, in certain cases, be subject to prior approval of ASF), reserves for unpaid losses and related
matters, reinsurance, minimum capital and surplus requirements, reimbursement of supplementary capital, dividends and other distributions to shareholders,
periodic examinations and other report filings. According to Solvency II and other applicable law and regulation, ASF may also exercise its supervision powers
over the Apollo group. In fact, currently, ASF supervision at group level also includes the following Seguradoras Unidas’ holding companies: Calm Eagle
Holdings, S.à.r.l (Luxembourg), Calm Eagle Intermediate Holdings, S.à.r.l. (Luxembourg), Calm Eagle Parent Holdings, SCA (Luxembourg) and AP VIII Calm
Eagle Holdings, SCA (Luxembourg).
For the purposes of Solvency II, as implemented in Portugal, a “qualifying holding” means a direct or indirect holding in an insurance company which
represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the company.
With respect to Seguradoras Unidas, Solvency II, as implemented in Portugal, prohibits any person from acquiring, directly or indirectly, such a qualifying holding
(or a part of it, to the extent the relevant acquirer becomes the owner of a stake higher than 20%, one third or 50%) unless: (a) the proposed acquirer and seller has
notified ASF of the acquisition; (b) ASF has acknowledged receipt of that notification and; (c) either (i) ASF has notified the proposed acquirer that it does not
oppose the acquisition or (ii) the statutory assessment period in relation to the acquisition has ended and ASF has not notified the proposed acquirer that it opposes
the acquisition. If a proposed acquirer purports to complete a proposed acquisition in contravention of the aforementioned, as a matter of Portuguese law ASF may,
without prejudice of other applicable sanctions (including requesting the annulment of the transaction or determining the suspension of the voting rights in the part
exceeding the above-mentioned thresholds (20%, one third or 50%)).
Swiss Insurance Regulation. Apollo is considered an indirect qualified participant of Glacier Reinsurance Ltd. (“Glacier Re”) for purposes of certain
Swiss insurance laws. As a qualified indirect participant of Glacier Re, a reinsurance company domiciled in Switzerland holding a license for the operation of a
reinsurance business in the insurance class C1 “Reinsurance by insurance companies that conduct solely reinsurance business,” Apollo is subject to certain
provisions of Swiss insurance supervisory laws and regulations. Glacier Re is subject to regulation and supervision by the Swiss Financial Market Supervisory
Authority FINMA (“FINMA”) and compliance with all applicable laws and regulations of Switzerland, including but not limited to the Swiss Federal Act of 17
December 2004 on the Supervision of Insurance Companies (“ISA”), its implementing ordinances as well as circulars and guidelines of FINMA.
Any person who intends to directly or indirectly participate in a Swiss domiciled insurance or reinsurance undertaking is required to notify FINMA of
such intent if the participation reaches or exceeds the thresholds of 10%, 20%, 33% or 50% of the capital or voting rights of the insurance or reinsurance
undertaking. Similarly, any person who intends to decrease its direct or indirect participation in an insurance undertaking domiciled in Switzerland below the
thresholds of 10%, 20%, 33% or 50% of the capital or voting rights or to change the participation in a way that the insurance or reinsurance undertaking is no
longer a subsidiary must notify FINMA. Consequently, although indirect shareholders of Glacier Re are not directly supervised by FINMA, an intended change of
the qualified direct or indirect participation in Glacier Re may require a notification to FINMA. FINMA may disapprove such change in qualified participation or
subject the change to certain conditions, if the nature or scope of the participation potentially jeopardizes the interests of the Swiss domiciled reinsurance company
or the insured. Failure to comply with such notification is punishable by a fine of up to CHF 500,000 in case of intent and up to CHF 150,000 in case of
negligence. In addition, if a change of persons who directly or indirectly hold a participation of 10% of the capital or voting rights or who may otherwise materially
influence the business conduct of Glacier Re has occurred, Glacier Re is required to file a submission to seek for FINMA’s approval of the relevant change of its
regulatory business plan under art. 4 para. 2 lit. f ISA (business plan form F) within 14 days upon the occurrence of the event.
Furthermore, a substantial dividend distribution or other form of profit repatriation from Glacier Re to its shareholders may potentially qualify as a change
of the regulatory business plan of Glacier Re under art. 4 para. 2 lit. d ISA, if such substantial dividend distribution would be considered as a relevant change of the
financial resources and reserves of Glacier Re. Such change of the business plan must be notified to FINMA no later than 14 days after the occurrence of the event
and is subject to FINMA’s approval. To this extent, future dividend distributions or other forms of profit repatriation might be subject to FINMA’s approval.
Apollo is also considered the parent or qualified participant of Aspen U.K. Aspen U.K. holds a FINMA license for a Swiss branch of a foreign insurance
undertaking for its Swiss insurance branch Aspen Insurance UK Limited, London, Zurich Insurance Branch. Furthermore, Aspen U.K. holds a reinsurance branch
in Switzerland, Aspen Insurance UK Limited, London, Zurich Branch. A change of a direct or indirect participation in a foreign insurance undertaking (in the
present case Aspen U.K.) that holds a Swiss insurance branch license does not, in principle, trigger any Swiss insurance regulatory notification or approval
requirements. However, Aspen U.K. might notify FINMA out of courtesy of such changes.
- 28 -
Table of Contents
German Insurance Regulation. Apollo is deemed to hold an indirect qualifying holding in German (i) Athora Deutschland Verwaltungs GmbH, (ii)
Athora Deutschland Holding GmbH & Co. KG, (iii) Athora Deutschland GmbH, (iv) Athora Lebensversicherung AG and (v) Athora Pensionskasse AG, which are
either German regulated insurance undertakings or German insurance holding companies (together the “Regulated German Entities”). The indirect qualifying
holding in the Regulated German Entities is attributed to Apollo via its indirect interest in Athora Holding Ltd. (“Athora”), which is the 100% indirect parent
company of the Regulated German Entities. The Regulated German Entities are subject to the relevant laws and regulations applicable to insurers or insurance
holding companies in Germany which regulate and mandate, among other things, eligibility criteria for investments, policyholder participation in income,
accounting principles, corporate governance requirements, regulatory capital, reporting, insurance contracts, insurance distribution requirements, consumer
protection laws, data protection requirements (including GDPR) and anti-money-laundering requirements. The Regulated German Entities are subject to
supervision by the German Federal Financial Supervisory Authority, Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”). BaFin is the central financial
regulatory authority for Germany and has wide powers to interpret and execute the insurance supervisory law in Germany, in particular via issuing regulatory
ordinances and guidelines as well as orders and decisions with a view to individual insurance undertakings or insurance holding companies.
Pursuant to German regulatory law, the direct or indirect acquisition of a qualified participating interest in a German insurance undertaking or the increase
of a qualified participating interest in a German insurance undertaking exceeding certain thresholds is subject to BaFin approval or the expiration of a statutory
non-objection period. Generally, indirectly or directly acquiring a 10% or greater capital or voting interest in an insurance undertaking or otherwise obtaining the
ability to significantly influence the management of the insurance undertaking is considered a qualified participating interest under German insurance regulatory
laws. Laws such as these prevent any person from directly or indirectly acquiring qualified participating interests in any of the German insurance undertakings
unless that person has filed a notification requiring specified information with BaFin and has obtained BaFin’s prior approval or waited for the expiration of a
statutory non-objection period after having filed a formally complete notification. Since Apollo is holding indirectly a significant interest in the German insurance
undertakings the acquisition of an interest in Apollo could qualify as an acquisition of an indirect qualified participating interest in German insurance undertakings
on a look through basis.
Additional Insurance Regulated Jurisdictions. Aspen also carries on insurance business in jurisdictions located outside of the EU, U.K., Switzerland and
the U.S. through its Jersey-domiciled insurance company subsidiary and its Singapore Lloyd’s service company, the branch locations of Aspen U.K., which
operate in Australia, Canada, Singapore, in addition to its European branches located in Ireland and Switzerland and the branch location of AUSSL, which operates
in Dubai. The operations of these subsidiaries and branches are subject to the local regulatory and supervisory schemes in the jurisdictions in which they operate,
which vary widely from country to country; however, regulators typically grant licenses to operate and control an insurance business in that jurisdiction. In general,
insurance regulators in these jurisdictions have the administrative power to supervise the registration of agents, regulation of product features and product
approvals, asset allocation, minimum capital requirements, solvency and reserves, policyholder liabilities, and investments. Regulatory authorities may also
regulate affiliations with other financial institutions, shareholder structures and may impose restrictions on declaring dividends and the ability to effect certain
capital transactions, and many jurisdictions require insurance companies to participate in policyholder protection schemes.
German Banking Regulation. Apollo is deemed to be the holder an indirect qualifying (but not controlling) interest in the German bank Oldenburgische
Landesbank AG (“OLB”) and, following the completion of the pending acquisition of Wüstenrot Bank AG Pfandbriefbank (“WRB”) by OLB, also of WRB.
While the holder of a qualifying interest in a bank is not subject to the full scope of European and German financial regulatory supervision, certain limited
requirements set out in, among others, the German Banking Act (Kreditwesengesetz) apply. Compliance with these rules is supervised by the German Federal
Financial Services Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), the German Central Bank (Deutsche Bundesbank) and the European Central Bank
(the “ECB”). Under these requirements, holders of qualifying interest must, among others, (i) make certain notifications to the competent authorities (e.g., of the
intention to reduce or increase the interest below or above certain thresholds, of the appointment of new authorized representatives or general partners, and in case
control is obtained over certain other EEA regulated entities such as credit institutions or insurance companies), and (ii) maintain certain standards of reliability,
transparency (enabling effective supervision), and financial stability.
Noncompliance with the aforementioned requirements may result in, among others, administrative fines or administrative measures such as a prohibition
of the intended increase of a qualifying holding, a prohibition to exercise the voting rights in the bank, or mandatory divestment of the qualifying interest.
Slovenian Banking Regulation. Funds managed by Apollo hold a controlling stake in NOVA KREDITNA BANKA MARIBOR d.d. (“NKBM”), a
Slovenian banking institution. As such, Apollo is considered to be a holder an indirect qualifying interest in NKBM. NKBM is a significant supervised entity
subject to direct supervision of the ECB. Under Regulation (EU) No
- 29 -
Table of Contents
575/ 2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (“CRR”), NKBM
is also required to disclose relevant information and data on the consolidated situation at the level of Biser Topco S.a r.l., the indirect sole owner of NKBM (as the
EU financial parent holding company).
While Apollo, as a holder of a qualifying interest in NKBM, is not subject to the full scope of the European and the Slovenian financial regulatory
supervision, certain limited requirements set out in, among others, the Slovenian Banking Act (Zakon o bančništvu – “ZBan-2”) apply to Apollo. Compliance with
these rules is supervised by the Bank of Slovenia (“BSI”) and the ECB. Under these requirements, holders of qualifying interest must make certain notifications to
the competent authorities (i) of the intention to reduce the interest such that they would no longer hold a qualifying holding or their holding would fall below the
lower limit of the range for which authorization applies, (ii) on any merger or demerger in which they participate, (iii) on any material corporate change, and (iv)
on any change which could affect the fulfilment of the requirements with respect to suitability of the qualifying holder.
Qualifying holders must obtain a new authorization to acquire a qualifying holding prior to any further acquisition of shares, directly or indirectly, based
on which they would exceed the range to which a previously issued authorization to acquire a qualifying holding relates.
Noncompliance with the aforementioned requirements may result in, among others, administrative fines or administrative measures such as withdrawal of
the authorization for the qualifying holding, rejection of a request to obtain or increase a qualifying holding, a prohibition to exercise the voting rights in the bank,
a prohibition to exercise any rights from the shares in the bank, or mandatory disposal of the qualifying interest.
Spanish Banking Regulation. Smart Holdco, S. à r.l., an entity wholly-owned by funds managed by Apollo, is the sole shareholder of EVO Banco, S.A.
(“EVO Banco”), a bank incorporated under the laws of Spain which, in turn, owns the entire share capital in Evofinance, Establecimiento Financiero de Crédito,
S.A. (“Evofinance”), a regulated financial institution, incorporated in Spain and authorized as a consumer finance institution. Both EVO Banco and Evofinance
operate under regulations applicable to credit instititions in Spain which, regulations are largely based on EU rules. As such, both EVO Banco and Evofinance are
subject to prudential and conduct rules generally in line with banking regulations elsewhere in the EU and are under the supervision of the Bank of Spain and, as
far as EVO Banco is concerned, the ECB, which, among other matters, must authorize any direct or indirect transfers of significant holdings in the capital of the
aforementioned institutions.
Regulated Entities Outside of the U.S. Apollo Management International LLP (“AMI”), registered in England and Wales, is authorized and regulated by
the FCA in the United Kingdom under the FSMA and the rules promulgated thereunder. AMI has permission to engage in certain specified regulated activities,
including providing investment advice, undertaking discretionary investment management, trade execution, dealing as agent and arranging deals in relation to
certain types of investments. Most aspects of AMI’s investment business are governed by the FSMA and related rules, including sales, research, trading practices,
provision of investment advice, corporate finance, regulatory capital, record keeping, approval standards for individuals, anti-money laundering and periodic
reporting and settlement procedures. The FCA is responsible for administering these requirements and supervising AMI’s compliance with the FSMA and related
rules.
Apollo Credit Management International Limited ("ACMI"), registered in England and Wales, is a subsidiary of Apollo whose primary purpose is to act
as a sub-adviser to certain of Apollo's credit funds. As an appointed representative of AMI, ACMI can undertake certain activities that are regulated under the
FSMA, including all relevant sub-advisory activities, without a separate FCA authorization.
Apollo Asset Management Europe LLP and its subsidiary Apollo Asset Management Europe PC LLP (together "AAME") are each registered in England
and Wales and are authorized and regulated by the FCA in the United Kingdom under the FSMA and the rules promulgated thereunder for the primary purpose of
providing a centralized asset management and risk function to European clients in the financial services and insurance sectors. AAME has permission to engage in
certain specified regulated activities including providing investment advice, undertaking discretionary investment management and arranging deals in relation to
certain types of investment. As is the position for AMI, most aspects of AAME's investment business are governed by the FSMA and related rules, with the FCA
responsible for administering those requirements and supervising AAME's compliance with the FSMA and related rules.
Apollo Investment Management Europe LLP (“AIME”), registered in England and Wales, is authorized and regulated by the FCA in the United Kingdom
as an alternative investment fund manager, with permission to manage and market alternative investment funds (“AIFs”), such as, among others, certain private
equity funds, credit funds and real estate funds. AIME markets and distributes certain EEA AIFs to institutional investors in the EEA and has overall responsibility
for risk and portfolio management in relation to those AIFs. The FCA is responsible for supervising AIME’s compliance with the FSMA, in particular with the
Alternative Investment Fund Managers Regulations 2013 which were implemented into U.K. law because of the EU Alternative Investment Fund Managers
Directive (the “AIFMD”), and related rules. Apollo Investment Management Europe
- 30 -
Table of Contents
(Luxembourg) S.à r.l. ("AIME Lux") was incorporated by Apollo in Luxembourg on January 2, 2019 and has received approval from Commission de Surveillance
du Secteur Financier ("CSSF") to carry out certain activities regulated by the CSSF (including managing and marketing AIFs), with registration effective from
such date. AIME Lux will be subject to the regulatory requirements imposed by the AIFMD, including with respect to conduct of business, regulatory capital,
valuations, disclosures and marketing and rules on the structure of remuneration for certain personnel.
AAA is regulated under the Authorized Closed-ended Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (“GFSC”)
with effect from December 15, 2008 under The Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended (the “New Rules”). AAA is deemed to be
an authorized closed-ended investment scheme under the New Rules.
Apollo Advisors (Mauritius) Ltd (“Apollo Mauritius”), one of our subsidiaries, and AION Capital Management Limited (“AION Manager”), one of our
joint venture investments, are licensed providers of investment management services in the Republic of Mauritius and are subject to applicable Mauritian securities
laws and the oversight of the Financial Services Commission (Mauritius) (the “FSC”). Each of Apollo Mauritius and AION Manager is subject to limited
regulatory requirements under the Mauritian Securities Act 2005, Mauritian Financial Services Act 2007 and relevant ancillary regulations, including ongoing
reporting and record keeping requirements, anti-money laundering obligations, obligations to ensure that it and its directors, key officers and representatives are fit
and proper and requirements to maintain positive shareholders’ equity. The FSC is responsible for administering these requirements and ensuring the compliance
of Apollo Mauritius and AION Manager with them. If Apollo Mauritius or AION Manager contravenes any such requirements, such entities and/or their officers or
representatives may be subject to a fine, reprimand, prohibition order or other regulatory sanctions.
AGM India Advisors Private Limited is a private company incorporated in India under the Companies Act, 1956 and is regulated by the Ministry of
Corporate Affairs. Additionally, since there are foreign investments in the company, AGM India Advisors Private Limited is also subject to the Foreign Exchange
Management Act, 1999 (and rules and regulations made thereunder) which falls within the purview of Reserve Bank of India.
Apollo Management Singapore Pte Ltd. was granted a Capital Markets Service License with the Monetary Authority of Singapore in October 2013. In
addition, Apollo Capital Management, L.P. is registered with the Securities and Exchange Board of India as a foreign portfolio investor. Investments by Apollo
Capital Management, L.P. in any Indian entity will also be subject to the rules and regulations applicable under the Foreign Exchange Management Act, 1999
which falls within the purview of Reserve Bank of India.
ARCION Revitalization Private Limited is a private company incorporated in India under the Companies Act, 2013 and is regulated by the Ministry of
Corporate Affairs. ARCION Revitalization Private Limited is registered with the Reserve Bank of India to operate as an asset reconstruction company and is
subject to the directions and regulations issued by the Reserve Bank of India in relation to asset reconstruction activities in India. Such regulations and directions
primarily stipulate minimum capital requirements, conditions for reconstruction activities, fit and proper governance norms and reporting requirements for such
entities. If ARCION Revitalization Private Limited contravenes any such requirements, it and/or its directors (as may be applicable) may be subject to a penalty,
prohibition order or other regulatory sanctions. Additionally, since there are foreign investments in the company, ARCION Revitalization Private Limited is also
subject to the Foreign Exchange Management Act, 1999 (and rules and regulations made thereunder) which falls within the purview of Reserve Bank of India.
AION India Opportunities Trust is a trust organized in India and registered with the Securities and Exchange Board of India as a Category II Alternative
Investment Fund. AION India Opportunities Trust is subject to the regulatory requirements under the Securities and Exchange Board of India Act, 1992 and the
regulations issued thereunder governing alternative investment funds in India. Such regulations primarily govern the permitted investment activities, concentration
and governance norms and reporting requirements for alternative investment funds. If AION India Opportunities Trust contravenes any such requirements, it (as
may be applicable) may be subject to a penalty, prohibition order or other regulatory sanctions. Additionally, since there are foreign investments in the trust, AION
India Opportunities Trust is also subject to the Foreign Exchange Management Act, 1999 (and rules and regulations made thereunder) which falls within the
purview of Reserve Bank of India.
Apollo Management Hong Kong Limited was granted a Type 1: Dealing in Securities license by the Hong Kong Securities and Futures Commission
(“SFC”) in November 2018 and is therefore subject to oversight by the SFC.
Other Regulatory Considerations. Certain of our businesses are subject to compliance with laws and regulations of U.S. Federal and state governments,
non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to, among other things, the privacy of client
information, and any failure to comply with these regulations could expose us to liability and/or reputational damage. Our businesses have operated for many years
within a legal framework that requires our being able to monitor and comply with a broad range of legal and regulatory developments that affect our activities.
- 31 -
Table of Contents
However, additional legislation, changes in rules promulgated by self-regulatory organizations or changes in the interpretation or enforcement of existing
laws and rules, either in the United States or elsewhere, may directly affect our mode of operation and profitability. For additional information concerning the
regulatory environment in which we operate, see “Item 1A. Risk Factors—Risks Related to Our Businesses— Extensive
regulation
of
our
businesses
affects
our
activities
and
creates
the
potential
for
significant
liabilities
and
penalties.
The
possibility
of
increased
regulatory
focus
could
result
in
additional
burdens
on
our
businesses.
”
Rigorous legal and compliance analysis of our businesses and investments is important to our culture. We strive to maintain a culture of compliance
through the use of policies and procedures, such as our code of ethics, compliance systems, communication of compliance guidance and employee education and
training. We have a compliance group that monitors our compliance with the regulatory requirements to which we are subject and manages our compliance policies
and procedures. Our Chief Compliance Officer supervises our compliance group, which is responsible for addressing all regulatory and compliance matters that
affect our activities. Our compliance policies and procedures address a variety of regulatory and compliance risks such as the handling of material non-public
information, personal securities trading, valuation of investments on a fund-specific basis, document retention, potential conflicts of interest and the allocation of
investment opportunities.
We generally operate without information barriers between our businesses. In an effort to manage possible risks resulting from our decision not to
implement these barriers, our compliance personnel maintain a list of issuers for which we have access to material, non-public information and whose securities
our funds and investment professionals are not permitted to trade. We could in the future decide that it is advisable to establish information barriers, particularly as
our business expands and diversifies. In such event our ability to operate as an integrated platform will be restricted. See “Item 1A. Risk Factors—Risks Related to
Our Businesses—Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our businesses.”
Available Information
Apollo Global Management, LLC is a Delaware limited liability company that was formed on July 3, 2007. Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made
available free of charge on or through our website at www.apollo.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.
The information on our website is not, and shall not be deemed to be, part of this report or incorporated into any other filings we make with the SEC. The reports
and the other documents we file with the SEC are available on the SEC’s website at www.sec.gov.
From time to time, we may use our website as a channel of distribution of material information. Financial and other material information regarding the
Company is routinely posted on and accessible at www.apollo.com.
ITEM 1A . RISK FACTORS
Risks Related to Our Businesses
Poor performance of the funds we manage would cause a decline in our revenue and results of operations, may obligate us to repay performance fees
previously paid to us and would adversely affect our ability to raise capital for future funds.
We derive revenues in part from:
• management fees, which are based generally on the amount of capital committed or invested in our funds;
•
•
•
transaction and advisory fees relating to the investments our funds make;
performance fees, based on the performance of our funds; and
investment income from our investments as general partner.
If a fund performs poorly, we will receive little or no performance fees with regard to the fund and little income or possibly losses from any principal
investment in the fund. Furthermore, if, as a result of poor performance of later investments in a fund’s life, the fund does not achieve total investment returns that
exceed a specified investment return threshold for the life of the fund, we may be obligated to repay the amount by which performance fees that was previously
distributed to us exceeds amounts to which we are ultimately entitled. Our fund investors and potential fund investors continually assess our funds’ performance
and our ability to raise capital. Accordingly, poor fund performance may deter future investment in our funds and thereby decrease the capital committed or
invested in our funds and ultimately, our management fee income.
- 32 -
Table of Contents
We depend on Leon Black, Joshua Harris and Marc Rowan, and other key personnel, including Scott Kleinman and James Zelter, and the loss of their
services would have a material adverse effect on us.
The success of our businesses depends on the efforts, judgment and personal reputations of our Managing Partners, Leon Black, Joshua Harris and Marc
Rowan, and other key personnel, including Scott Kleinman and James Zelter. Their reputations, expertise in investing, relationships with our fund investors and
relationships with members of the business community on whom our funds depend for investment opportunities and financing are each critical elements in
operating and expanding our businesses. We believe our performance is strongly correlated to the performance of these individuals. Accordingly, our retention of
our Managing Partners and other key personnel is crucial to our success. Our Managing Partners and other key personnel may resign, join our competitors or form
a competing firm. If our Managing Partners or other key personnel were to join or form a competitor, some of our fund investors could choose to invest with that
competitor, another competitor or not at all, rather than in our funds. The loss of the services of our Managing Partners and other key personnel would have a
material adverse effect on us, including our ability to retain and attract investors and raise new funds, and the performance of our funds. We do not carry any “key
man” insurance that would provide us with proceeds in the event of the death or disability of any of our Managing Partners or other key personnel. In addition, the
loss of two or more of our Managing Partners or certain other key personnel may result in the termination of our role as general partner of certain of our funds and
the termination of the commitment periods of certain of our funds. See “—If
two
or
more
of
our
Managing
Partners
or
certain
other
investment
professionals
leave
our
company,
the
commitment
periods
of
certain
of
our
funds
may
be
terminated,
and
we
may
be
in
default
under
the
governing
documents
of
certain
of
our
funds
.”
Changes in the debt financing markets may negatively impact the ability of our funds and their portfolio companies to obtain attractive financing for their
investments and may increase the cost of such financing if it is obtained, which could lead to lower-yielding investments and potentially decrease our net
income.
In the event that our funds are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at an increased interest rate or
on unfavorable terms, our funds may have difficulty completing otherwise profitable acquisitions or may generate profits that are lower than would otherwise be
the case, either of which could lead to a decrease in the investment income earned by us. Any failure by lenders to provide previously committed financing can also
expose us to potential claims by sellers of businesses which our funds may have contracted to purchase. Our funds’ portfolio companies regularly utilize the
corporate debt and securitization markets in order to obtain financing for their operations. To the extent that the current credit markets and/or regulatory changes
have rendered financing difficult to obtain or more expensive, this may negatively impact the operating performance of such portfolio companies and funds, and
lead to lower-yielding investments with respect to such funds and, therefore, the investment returns on our funds. Conversely, certain of the strategies pursued by
funds we manage benefit from higher interest rates, and a sustained low interest rate environment may negatively impact expected returns for these funds. In
addition, to the extent that the current markets make it difficult or impossible to refinance debt that is maturing in the near term, a relevant portfolio company may
face substantial doubt as to its status as a going concern (which may result in an event of default under various agreements) or be unable to repay such debt at
maturity and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection.
Changes in the U.S. political environment and the potential for governmental policy changes and regulatory reform by the Trump administration and the U.S.
Congress could negatively impact our business.
Governmental policy changes and regulatory reform could have a material impact on our business. Uncertainty with respect to legislation, regulation and
government policy at the federal level, as well as the state and local levels have introduced new and difficult-to-quantify macroeconomic and political risks with
potentially far-reaching implications. There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange
rates, trade volumes and fiscal and monetary policy. New legislative, regulatory or policy changes could significantly impact our business and the business of
portfolio companies of funds we manage, as well as the markets in which we compete. In addition, disagreements over the federal budget have led to the shutdown
of the U.S. federal government for periods of time and may recur in the future. Each federal shutdown may have a negative impact on the operations and business
of certain of our funds’ portfolio companies. To the extent changes in the political environment have a negative impact on us or portfolio companies of funds we
manage, or on the markets in which we operate, our business, results of operations and financial condition could be materially and adversely impacted in the future.
Difficult market or economic conditions may adversely affect our businesses in many ways, including by reducing the value or hampering the performance of
the investments made by our funds or reducing the ability of our funds to raise or deploy capital, each of which could materially reduce our revenue, net
income and cash flow and adversely affect our financial prospects and condition.
Our businesses and the businesses of the companies in which our funds invest are materially affected by conditions in the global financial markets and
economic conditions throughout the world, such as interest rates, availability of credit, inflation
- 33 -
Table of Contents
rates, economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls and
national and international political circumstances (including wars, terrorist acts or security operations). Recently, markets have been affected by increases in
interest rates in the U.S., uncertainty about the consequences of the U.S. and other governments withdrawing monetary stimulus measures, imposition of trade
barriers, ongoing trade negotiations with major U.S. trading partners and changes in the U.S. tax regulations. Additionally, operating outside the United States may
also expose us to increased compliance risks, as well as higher compliance costs to comply with U.S. and non-U.S. anti-corruption, anti-money laundering and
sanctions laws and regulations. These factors are outside our control and may affect the level and volatility of securities prices and the liquidity and the value of
investments, and we may not be able to or may choose not to manage our exposure to these conditions.
Volatility in the financial markets can materially hinder the initiation of new, large-sized transactions for our private equity segment and, together with
volatility in valuations of equity and debt securities, may adversely impact our operating results. During 2018 the markets experienced a heightened level of
volatility, as well as declines in market indices in the fourth quarter. If market conditions deteriorate, our businesses could be affected in different ways. In
addition, these events and general economic trends are likely to impact the performance of portfolio companies in many industries, particularly industries that are
more affected by changes in consumer demand, such as the packaging, manufacturing, chemical and refining industries, as well as travel and leisure, gaming and
real estate industries. The performance of our funds and our performance may be adversely affected to the extent our fund portfolio companies in these industries
experience adverse performance or additional pressure due to downward trends. There is also a risk of both sector-specific and broad-based corrections and/or
downturns in the equity and credit markets. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale
back other costs, within a time frame sufficient to match any further decreases in net income or increases in net losses relating to changes in market and economic
conditions.
A financial downturn could adversely affect our operating results in a number of ways, and if the economy was to enter a recessionary or inflationary
period, it may cause our revenue and results of operations to decline by causing:
•
•
•
our AUM to decrease, lowering management fees and other income from our funds;
increases in costs of financial instruments;
adverse conditions for the portfolio companies of our funds (e.g., decreased revenues, liquidity pressures, limits on interest deductibility, increased
difficulty in obtaining access to financing and complying with the terms of existing financings as well as increased financing costs);
lower investment returns, reducing performance fees;
higher interest rates, which could increase the cost of the debt capital our funds use to acquire companies in our private equity business; and
•
•
• material reductions in the value of our fund investments, affecting our ability to realize performance fees from these investments.
Lower investment returns and such material reductions in value may result because, among other reasons, during periods of difficult market conditions or
slowdowns (which may be across one or more industries, sectors or geographies), companies in which our funds invest may experience decreased revenues,
financial losses, difficulty in obtaining access to financing and increased funding costs. During such periods, these companies may also have difficulty in
expanding their businesses and operations and be unable to meet their debt service obligations or other expenses as they become due, including expenses payable
to us. In addition, during periods of adverse economic conditions, our funds and their portfolio companies may have difficulty accessing financial markets, which
could make it more difficult or impossible to obtain funding for additional investments and harm our AUM and operating results. Furthermore, such conditions
would also increase the risk of default with respect to debt investments made by our funds, which could have a negative impact on our funds with significant debt
investments, such as our credit funds. Our funds may be affected by reduced opportunities to exit and realize value from their investments, by lower than expected
returns on investments made prior to the deterioration of the credit markets, and by the fact that we may not be able to find suitable investments for the funds to
effectively deploy capital, which could adversely affect our ability to raise new funds and thus adversely impact our prospects for future growth.
To the extent the uncertainty in the market prompts sellers to readjust their valuations, attractive investment opportunities may present themselves. On the
other hand, the reduction in the availability of credit financing and limits on interest deductibility could impact our funds’ ability to consummate transactions,
particularly larger transactions. In the event that our investment pace slows, it could have an adverse impact on our ability to generate future performance fees and
fully invest the capital in our funds. Our funds may also be affected by reduced opportunities to exit and realize value from their investments via a sale or merger
upon a general slowdown in corporate mergers and acquisitions activity. Additionally, we may not be able to find suitable investments for the funds to effectively
deploy capital and these factors could adversely affect the timing of and our ability to raise new funds.
- 34 -
Table of Contents
In addition, many other economies continue to experience weakness, tighter credit conditions and a decreased availability of foreign capital. Further, there
is concern that the favorability of conditions in certain markets may be dependent on continued monetary policy accommodation from central banks, especially the
Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the European Central Bank (“ECB”). Since the most recent recession, the Federal
Reserve has taken actions which have resulted in low interest rates prevailing in the marketplace for a historically long period of time. The Federal Reserve raised
its benchmark interest rate by a quarter of a percentage point in 2016, three quarters of a percentage point in 2017 and one percentage point in 2018, and indicated
it may continue raising interest rates in the coming twelve months. Higher interest rates generally impact the investment management industry by making it harder
to obtain financing for new investments, refinance existing investments or liquidate debt investments, which can lead to reduced investment returns and missed
investment opportunities. Consequently, such increases in interest rates may have an adverse impact on our business.
Changing political environments, regulatory restrictions and changes in government institutions and policies outside of the U.S. could adversely affect our
businesses.
Our businesses may be adversely affected by the planned exit of the U.K. from the EU. The U.K. held a referendum on June 23, 2016 at which the
electorate voted to leave the EU. On March 29, 2017, the government of the U.K. invoked article 50 of the Treaty on the European Union (which has the effect of
formally initiating the withdrawal of the U.K. from the EU) and subsequently entered into withdrawal negotiations with the EU. The Treaty on the European Union
provides for a period of up to two years for negotiation of withdrawal arrangements, at the end of which (whether or not agreement has been reached) EU treaties
cease to apply to the withdrawing member state unless the European Council, in agreement with the member state concerned, unanimously decides to extend this
period. Negotiations between the government of the U.K. and the EU Council began on June 19, 2017. The negotiations resulted in (a) an Agreement on the
withdrawal of the U.K. from the EU and (b) a Political Declaration setting out the framework for the future relationship between the EU and the U.K. (together, the
"Withdrawal Proposal"). The Withdrawal Proposal was subject to political agreement and ratification and on January 15, 2019, the U.K. Parliament voted to reject
the Withdrawal Proposal. It is unclear whether it will be possible for the U.K. Government to obtain further concessions from the EU in order for the U.K.
Parliament to vote to approve a revised withdrawal proposal. While there is much that could still happen, including an extension to the exit timeline, inroads to an
alternative withdrawal proposal, a change of U.K. Government or even political support for a second referendum, there is a risk that no withdrawal proposal
between the U.K. and the EU will be reached concerning the U.K.’s departure from the EU. Notwithstanding any withdrawal proposal that may be put in place,
there is likely to be considerable uncertainty as to the position of the U.K. and the arrangement which will apply to its relationships with the EU and other countries
following its withdrawal (including in the event that no withdrawal proposal is ratified and the U.K. leaves without agreeing transitional arrangements with the EU,
which cannot currently be ruled out). Such positions and anticipated arrangements may be subject to change and/or develop at short notice. This uncertainty may
affect other countries in the EU, or elsewhere. Additionally, political parties in several other EU member states have proposed that a similar referendum be held on
their country’s membership in the EU. It is unclear whether any other EU member states will hold such referendums, but such referendums could result in one or
more other countries leaving the EU or in major reforms being made to the EU or to the eurozone. The nature and extent of the impact of such events on our
businesses is difficult to predict but they may adversely affect the operations of the portfolio companies of our funds, the availability of credit and liquidity for our
businesses and the return on our funds and their investments. There may be detrimental implications, e.g., for the value of certain of our funds’ investments, their
ability to enter into transactions or to value or realize such investments or otherwise to implement their investment program. This may be due to, among other
things:
•
•
•
•
•
•
•
•
•
increased uncertainty and volatility in the U.K. and EU financial markets;
fluctuations in the market value of British Pounds and of U.K. and EU assets;
fluctuations in exchange rates between British Pounds, the Euro and other currencies;
increased illiquidity of investments located or listed within the U.K. or the EU;
lower economic growth in various markets in the U.K., Europe, and globally;
disruption of the free movement of goods, services (right of establishment), capital, and people between the U.K. and the EU (including the potential
loss of passporting rights for financial institutions in the U.K. and for EU financial institutions passporting into the U.K., which broadly facilitates
mutual access to markets among EU member states) and the effectiveness of steps taken to mitigate that disruption at the point at which the U.K.
leaves the EU;
disruption to mutual recognition arrangements between the U.K. and the EU (e.g. cross-border insolvency and other regimes) and access to market
infrastructure in other EU regions;
changes in the willingness or ability of financial and other counterparties to enter into transactions, or the price at which and terms on which they are
prepared to transact; and/or
changes in legal and regulatory regimes to which we, our funds, and/or certain of our funds’ assets and portfolio companies are, or become, subject.
- 35 -
Table of Contents
Once the position of the U.K. and the arrangements which will apply to its relationships with the EU and other countries have been established, or if the
U.K. ceases to be a member of the EU without having agreed on such arrangements or before such arrangements become effective, it is possible that certain of our
funds’ investments may need to be restructured to enable their objectives fully to be pursued (e.g. because of a loss of passporting rights for U.K. financial
institutions or the failure to put equally effective arrangements in place). This may increase costs or make it more difficult for us to pursue our objectives.
The U.K.’s decision to leave the EU may bring an extended period of uncertainty and regulatory change in the EEA, in the U.K. and in the way in which
Apollo is able to operate from the U.K. into the remainder of the EEA (and, vice versa, in relation to any new Apollo entities established and licensed in a
remaining EEA territory). This may have an impact on Apollo including the cost of, risk to, manner of conducting, and location of, its European business and its
ability to hire and retain key staff in Europe. This may also impact the markets in which Apollo operates; the funds managed or advised by Apollo; Apollo’s fund
investors and Apollo’s ability to raise capital from them; and ultimately the returns which may be achieved. In this connection, there can be no guarantee that plans
to deal with, or mitigate adverse consequences of, various Brexit outcomes following the U.K.'s departure from the EU will perfectly or efficiently replicate current
arrangements available to Apollo while the U.K. is a member of the EU.
Our operating results will most likely continue to be affected by ongoing economic, fiscal, and political conditions in eurozone countries and
developments relating to the Euro. The deterioration of the sovereign debt of several eurozone countries together with the risk of contagion to other more stable
economies exacerbated the global economic crisis. This situation raised a number of uncertainties regarding the stability and overall standing of the EU. Economic,
political or other factors could still result in changes to the composition of the EU and the eurozone and its participating members. The risk that other eurozone
countries could be subject to higher borrowing costs and face further deterioration in their economies, together with the risk that some countries could withdraw
from the eurozone, could have a negative impact on our funds’ investment activities. A reintroduction of national currencies in one or more eurozone countries or,
in more extreme circumstances, the possible dissolution of the EU cannot be ruled out. The departure or risk of departure from the EU by one or more eurozone
countries and/or the abandonment of the Euro as a currency could have major negative effects on our business. These potential developments, or market
perceptions concerning these and related issues, could adversely affect our businesses.
A decline in the pace of investment in our funds, an increase in the pace of sales of investments in our funds or an increase in the amount of transaction and
advisory fees we share with our fund investors would result in our receiving less revenue from fees.
A variety of fees that we earn, such as transaction and advisory fees, are driven in part by the pace at which our funds make investments. Many factors
could cause a decline in the pace of investment, including the inability of our investment professionals to identify attractive investment opportunities, competition
for such opportunities, decreased availability of capital on attractive terms and our failure to consummate identified investment opportunities because of business,
regulatory or legal complexities and adverse developments in the U.S. or global economy or financial markets. Any decline in the pace at which our funds make
investments would reduce our transaction and advisory fees and could make it more difficult for us to raise capital. Likewise, during attractive selling
environments, our funds may capitalize on increased opportunities to exit investments. Any increase in the pace at which our funds exit investments would reduce
transaction and advisory fees. In addition, some of our fund investors have requested, and we expect to continue to receive requests from fund investors, that we
share with them a larger portion, or all, of the transaction and advisory fees generated by our funds’ investments. To the extent we accommodate such requests, it
would result in a decrease in the amount of fee revenue we could earn. For example, in Fund VIII and Fund IX we agreed that 100% of certain transaction and
advisory fees will be shared with the management fee paying investors in the fund through a management fee offset mechanism, whereas the percentage was 68%
in Fund VII.
If two or more of our Managing Partners or certain other investment professionals leave our company, the commitment periods of certain of our funds may be
terminated, and we may be in default under the governing documents of certain of our funds.
The governing agreements of certain of our funds provide that in the event certain “key persons” (such as two or more of Messrs. Black, Harris and
Rowan and/or certain other of our investment professionals) fail to devote the requisite time to our businesses, the commitment period will terminate if a certain
percentage in interest of the fund investors do not vote to continue the commitment period, or the commitment period may terminate for a variety of other reasons.
This is true for example of Fund VI, Fund VII, Fund VIII and Fund IX. Certain of our other funds have similar provisions. In addition to having a significant
negative impact on our revenue, net income and cash flow, the occurrence of such an event with respect to any of our funds would likely result in significant
reputational damage to us.
Messrs. Black, Harris and Rowan and other key personnel may terminate their employment with us at any time.
- 36 -
Table of Contents
We may not be successful in raising new funds or in raising more capital for certain of our existing funds and may face pressure on performance fees and fee
arrangements of our future funds.
Our funds may not be successful in consummating their current capital-raising efforts or others that they may undertake, or they may consummate them at
investment levels lower than those currently anticipated. Any capital raising that our funds undertake may be on terms that are unfavorable to us or that are
otherwise different from the terms that we have been able to obtain in the past. These risks could occur for reasons beyond our control, including general economic
or market conditions, regulatory changes or increased competition.
Certain institutional investors have also publicly criticized certain fund fee and expense structures, including management, transaction and advisory fees.
The Institutional Limited Partners Association, or “ILPA,” published a set of Private Equity Principles, or the “Principles,” which called for enhanced “alignment
of interests” between general partners and limited partners through modifications of some of the terms of fund arrangements, including proposed guidelines for
fees and performance fees structures. We provided ILPA our endorsement of the Principles, representing an indication of our general support for the efforts of
ILPA. Although we have no obligation to modify any of our fees with respect to our existing funds, we may experience pressure to do so.
In addition, certain institutional investors, including sovereign wealth funds and public pension funds, have demonstrated an increased preference for
alternatives to the traditional investment fund structure, such as managed accounts, specialized funds and co-investment vehicles. We also have entered into
strategic partnerships with individual investors whereby we manage that investor’s capital across a variety of our products on separately negotiated terms. There
can be no assurance that such alternatives will be as profitable to us as traditional investment fund structures, and the impact such a trend could have on our results
of operations, if widely implemented, is unclear. Moreover, certain institutional investors are demonstrating a preference to in-source their own investment
professionals and to make direct investments in alternative assets without the assistance of investment advisors like us. Such institutional investors may become
our competitors and could cease to be our clients. Further, certain investors have implemented or may implement restrictions against investing in certain types of
asset classes such as fossil fuels, which would affect our ability to raise new funds focused on those asset classes, such as funds focused on energy or natural
resources. Finally, the ability of our funds to raise capital from certain investors may also be adversely impacted as a result of countries implementing certain tax
avoidance measures as part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project if these investors decide to invest on their own or only in funds with
similarly situated investors. See “—Some
of
our
funds
invest
in
foreign
countries
and
securities
of
issuers
located
outside
the
U.S.,
which
may
involve
foreign
exchange,
political,
social,
economic
and
tax
uncertainties
and
risks
.”
The failure of our funds to raise capital in sufficient amounts and on satisfactory terms could result in a decrease in AUM, performance fees and/or fee
revenue or could result in us being unable to achieve an increase in AUM, performance fees and/or fee revenue, and could have a material adverse effect on our
financial condition and results of operations. Similarly, any modification of our existing fee arrangements or the fee structures for new funds could adversely affect
our results of operations.
Investors in our funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could
adversely affect a fund’s operations and performance.
Investors in all of our private equity and certain of our credit and real assets funds make capital commitments to those funds that we are entitled to call
from those investors at any time during prescribed periods. We depend on fund investors fulfilling their commitments when we call capital from them in order for
those funds to consummate investments and otherwise pay their obligations when due. Any investor that does not fund a capital call would be subject to several
possible penalties, including forfeiting a significant amount of its existing investment in that fund. However, the impact of the penalty is directly correlated to the
amount of capital previously invested, and if an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may
not be as meaningful. If investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, the operation and performance of
those funds could be materially and adversely affected.
We may not have sufficient cash to satisfy general partner obligations to return performance fees if and when they are triggered under the governing
agreements with our fund investors.
Performance fees from our private equity funds and certain of our credit and real assets funds is subject to contingent repayment by the general partner if,
upon the final distribution, the relevant fund’s general partner has received cumulative performance fees on individual portfolio investments in excess of the
amount of performance fees it would be entitled to from the profits calculated for all portfolio investments in the aggregate. Adverse economic conditions may
increase the likelihood of triggering these general partner obligations. The Managing Partners, Contributing Partners and certain other investment professionals
have personally guaranteed, subject to certain limitations, these general partner obligations. We have agreed to indemnify the Managing Partners and certain
Contributing Partners against all amounts that they pay pursuant to any of these
- 37 -
Table of Contents
personal guarantees in favor of certain funds that we manage (including costs and expenses related to investigating the basis for or objecting to any claims made in
respect of the guarantees) for all interests that the Managing Partners and Contributing Partners have contributed or sold to the Apollo Operating Group. To the
extent one or more such general partner obligations were to be triggered, we might not have available cash to repay the performance fees and satisfy such
obligations, or if applicable, to reimburse the Managing Partners and certain Contributing Partners for the indemnifiable percentage of amounts that they are
required to pay under their guarantees. If we were unable to repay such performance fees, we would be in breach of the relevant governing agreements with our
fund investors and could be subject to liability.
The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any
returns expected on an investment in our Class A shares and our Preferred shares.
We have presented in this report the returns relating to the historical performance of our private equity, credit and real assets funds. The returns are
relevant to us primarily insofar as they are indicative of performance fees we have earned in the past and may earn in the future, our reputation and our ability to
raise new funds. The returns of the funds we manage are not, however, directly linked to returns on our Class A shares, our 6.375% Series A Preferred Shares (the
“Series A Preferred shares”) or our 6.375% Series B Preferred Shares (the “Series B Preferred shares” and collectively with the Series A Preferred shares, the
“Preferred shares”). Therefore, you should not conclude that any continued positive performance of the funds we manage will necessarily result in positive returns
on an investment in Class A shares or Preferred shares. However, poor performance of the funds we manage will cause a decline in our revenue from such funds,
and would therefore have a negative effect on our performance and the value of our Class A shares and our Preferred shares. An investment in our Class A shares
or our Preferred shares is not an investment in any of the Apollo funds.
Moreover, the historical returns of our funds should not be considered indicative of the future returns of such funds or any future funds we may raise, in
part because:
• market conditions during previous periods may have been significantly more favorable for generating positive performance, particularly in our
•
•
•
•
•
•
•
private equity business, than the market conditions we may experience in the future;
our private equity funds’ and certain other funds’ rates of return, which are calculated on the basis of net asset value of the funds’ investments, reflect
unrealized gains, which may never be realized;
our funds’ returns have benefited from investment opportunities and general market conditions that may not repeat themselves, including the
availability of debt financing on attractive terms and the availability of distressed debt opportunities, and we may not be able to achieve the same
returns or secure the same profitable investment opportunities or deploy capital as quickly;
the historical returns that we present in this report derive largely from the performance of our existing funds, whereas future fund returns will depend
increasingly on the performance of our newer funds or funds not yet formed, which may have little or no realized investment track record and may
have lower target returns than our existing funds;
the attractive returns of certain of our funds have been driven by the rapid return of invested capital, which has not occurred with respect to all of our
funds and we believe is less likely to occur in the future;
in recent years, there has been increased competition for private equity investment opportunities resulting from, among other things, the increased
amount of capital invested in private equity funds and high liquidity in debt markets;
our newly established funds may generate lower returns during the period that they take to deploy their capital; and
we may create new funds in the future that reflect a different asset mix, investment strategy, and/or geographic and industry exposure, as well as
target returns and economic terms, compared to our current funds, and any such new funds could have different returns from our existing or previous
funds.
Finally, the IRR of our funds has historically varied greatly from fund to fund. Accordingly, you should realize that the IRR going forward for any current
or future fund may vary considerably from the historical IRR generated by any particular fund, or for our funds as a whole. Future returns will also be affected by
the risks described elsewhere in this report and risks of the industries and businesses in which a particular fund invests. See “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations-The Historical Investment Performance of Our Funds.”
Our funds’ reported net asset values, rates of return and the performance fees we receive are subject to a number of factors beyond our control and are based
in large part upon estimates of the fair value of our funds’ investments, which are based on subjective standards that may prove to be incorrect.
A large number of investments held by our funds are illiquid and thus have no readily ascertainable market prices. We value these investments based on
our estimate of their fair value as of the date of determination. We estimate the fair value of our funds’ investments based on third-party models, or models
developed by us, which include discounted cash flow analyses and other techniques and may be based, at least in part, on independently sourced market
parameters. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount
rates
- 38 -
Table of Contents
used, and, in some cases, the ability to execute, the timing of and the estimated proceeds from expected financings. The actual results related to any particular
investment often vary materially as a result of the inaccuracy of these estimates and assumptions.
In addition, because many of the illiquid investments held by our funds are in industries or sectors that are unstable, in distress, or undergoing some
uncertainty, such investments are subject to rapid changes in value caused by sudden company-specific or industry-wide developments.
We include the fair value of illiquid assets in the calculations of net asset values, returns of our funds and our AUM. Furthermore, we recognize
performance fees based in part on these estimated fair values. Because these valuations are inherently uncertain, they may fluctuate greatly from period to period.
Also, they may vary greatly from the prices that would be obtained if the assets were to be liquidated on the date of the valuation and often do vary greatly from the
prices our funds eventually realize. See note 2 to our consolidated financial statements for more detail.
In addition, the values of our funds’ investments in publicly traded assets are subject to significant volatility due to a number of factors beyond our
control. These include actual or anticipated fluctuations in the quarterly and annual results of these companies or other companies in their industries, market
perceptions concerning the availability of additional securities for sale, general economic, social or political developments, changes in industry conditions or
government regulations, changes in management or capital structure and significant acquisitions and dispositions. Because the market prices of these securities can
be volatile, the valuation of these assets may change from period to period, and the valuation for any particular period may not be realized at the time of
disposition. In addition, because our private equity funds often hold very large amounts of the securities of their portfolio companies, the disposition of these
securities often takes place over a long period of time, which can further expose us to volatility risk. Even if our funds hold a quantity of public securities that may
be difficult to sell in a single transaction, we do not discount the market price of the security for purposes of our valuations.
If a fund realizes value on an investment that is significantly lower than the value at which it was reflected in a fund’s net asset values, the fund would
suffer losses. This could in turn lead to a decline in our management fees and a loss equal to the portion of the performance fees reported in prior periods that was
not actually realized upon disposition. These effects could become applicable to a large number of our funds’ investments if our funds’ current valuations differ
from future valuations due to market developments or other factors that are beyond our control. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations-Segment Analysis” for information related to fund activity that is no longer consolidated. If asset values turn out to be
materially different than values reflected in fund net asset values, fund investors could lose confidence which could, in turn, result in redemptions from our funds
that permit redemptions or difficulties in raising additional capital.
We have experienced rapid growth, which may be difficult to sustain and which may place significant demands on our administrative, operational and
financial resources.
Our AUM has grown significantly in the past and we are pursuing further growth in the near future. Our rapid growth has caused, and planned growth, if
successful, will continue to cause, significant demands on our legal, regulatory, accounting and operational infrastructure, and increased expenses. The complexity
of these demands, and the expense required to address them, is a function not simply of the amount by which our AUM has grown, but also of the growth in the
variety, including the differences in strategy among, and complexity of, our different funds. In addition, we are required to continuously develop our systems and
infrastructure in response to the increasing complexity of the investment management market and legal, accounting, regulatory and tax developments.
Our future growth will depend in part on our ability to maintain an operating platform, infrastructure and management system sufficient to address our
growth and will require us to incur significant additional expenses and to commit additional senior management and operational resources. As a result, we face
significant challenges:
•
•
•
in maintaining adequate financial, regulatory and business controls;
in implementing new or updated information and financial systems and procedures; and
in training, managing and appropriately sizing our work force and other components of our businesses in a timely and cost-effective manner.
We may not be able to manage our expanding operations effectively or be able to continue to grow, and any failure to do so could adversely affect our
ability to generate revenue and control our expenses.
- 39 -
Table of Contents
Changes to the method of determining the London Interbank Offered Rate (“LIBOR”) or the selection of a replacement for LIBOR may affect the value of
investments held by or due to our funds and could affect our results of operations and financial results.
In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop collecting LIBOR rates from banks after 2021. The announcement
indicates that LIBOR will not continue to exist on the current basis. We are unable to predict the effect of any changes to LIBOR, the establishment and success of
any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the U.K. or elsewhere. Such changes, reforms
or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial
instruments or extensions of credit held by or due to us or our funds. Furthermore, a significant number of our funds’ portfolio companies are borrowers of LIBOR-
linked debt obligations, such as LIBOR-based credit agreements and floating rate notes, and may be negatively impacted by any changes to LIBOR and the
uncertainty relating thereto. As such, LIBOR-related changes could affect our overall results of operations and financial condition.
Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties . The possibility of increased
regulatory focus could result in additional burdens on our businesses.
Overview of Our Regulatory Environment . We are subject to extensive regulation, including periodic examinations, by governmental and self-regulatory
organizations in the jurisdictions in which we operate around the world. Many of these regulators, including U.S. and foreign government agencies and self-
regulatory organizations, as well as state securities commissions in the U.S., are empowered to conduct investigations and administrative proceedings that can
result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of an
investment advisor from registration or memberships. Even if an investigation or proceeding does not result in a sanction or the sanction imposed against us or our
personnel by a regulator is small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm
our reputation and cause us to lose existing investors or fail to gain new investors. These requirements imposed by our regulators are designed primarily to ensure
the integrity of the financial markets and to protect investors in our funds and may not necessarily be designed to protect our shareholders. Other regulations, such
as those promulgated by the Committee on Foreign Investment in the United States (“CFIUS”), may impair our ability to invest our funds and/or for our funds to
realize investments in certain industries. Consequently, these regulations often limit our activities.
Our businesses may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, U.S. Department of Treasury or
other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected
by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations.
Regulatory changes in the U.S. could adversely affect our business .
Federal regulation . The Dodd-Frank Act continues to impose significant regulations on almost every aspect of the U.S. financial services industry,
including aspects of our businesses and the markets in which we operate. Among other things, the Dodd-Frank Act includes the following provisions that could
have an adverse impact on our ability to continue to operate our businesses.
Dodd-Frank Act
•
•
The Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which is comprised of representatives of all the major U.S.
financial regulators, to act as the financial system’s systemic risk regulator. FSOC has the authority to designate non-bank financial companies as
“systemically important” in certain circumstances, including where material financial distress of the company could pose risk to the financial stability
of the U.S. Designation as a systemically important non-bank financial company would subject a company to heightened prudential standards and
Federal Reserve regulation. In 2016, under the prior administration, the FSOC released an update on its multi-year review of asset management
products and activities and created an interagency working group to assess potential risks associated with certain leveraged funds. To date, the FSOC
has not designated any investment management firms, including us, as systemically important financial institutions. While we believe it is unlikely
that we would be designated as systemically important, if such designation were to occur, we would be subject to significantly increased levels of
regulation, including heightened standards relating to capital, leverage, liquidity, risk management, credit exposure reporting and concentration
limits, restrictions on acquisitions and being subject to annual stress tests by the Federal Reserve.
The Dodd-Frank Act requires many private equity and hedge fund advisers to register with the SEC under the Investment Advisers Act, to maintain
extensive records and to file reports if deemed necessary for purposes of systemic risk assessment by certain governmental bodies. As described
elsewhere in this Form 10-K, all of the investment
- 40 -
Table of Contents
•
advisers of our funds operated in the U.S. are registered as investment advisers either directly or as a “relying advisor” with the SEC.
The Dodd-Frank Act amends the Exchange Act to compensate and protect whistleblowers who voluntarily provide original information to the SEC
and establishes a fund to be used to pay whistleblowers who will be entitled to receive a payment equal to between 10% and 30% of certain monetary
sanctions imposed in a successful government action resulting from the information provided by the whistleblower. A similar whistleblower program
was also established with the CFTC under the direction of the Dodd-Frank Act. We expect that these whistleblower programs will result in a
significant increase in whistleblower claims across our industry, and investigating such claims could generate significant expenses and take up
significant management time, even for frivolous and non-meritorious claims.
Many of these provisions are subject to further rulemaking and to the discretion of regulatory bodies, such as the FSOC, the Federal Reserve and the SEC.
The current administration’s legislative agenda may include certain modifications to the Dodd-Frank Act and other potentially deregulatory measures affecting the
financial services industry. For example, in May 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the
“EGRRCPA”), which amended certain provisions of the Dodd-Frank Act. Some of these provisions are subject to further rulemaking and regulatory discretion.
The prospects for further legislative reform are uncertain. As the impact of these rules required by the Dodd-Frank Act and the EGRRCPA will become evident
over time, it is not yet possible to predict the ultimate effects that these laws or subsequent implementing regulations and decisions will have on us. Any changes in
the regulatory framework applicable to our business may impose additional costs, require attention from our senior management, result in limitations on the
conduct of our business, or affect how we compete with other financial services organizations.
Foreign Investment Risk Review Modernization Act (“FIRRMA”) –
In August 2018, the U.S. Congress passed FIRRMA, which included enhancements to the oversight by CFIUS of U.S. cross-border investment. Given our
funds’ diverse investor base, these additional restrictions on foreign ownership and investments may delay or prevent transactions that might otherwise be in our
funds’ interests. Additionally, FIRRMA provides CFIUS with the authority to review and potentially block both controlling and certain non-controlling
investments in critical infrastructure and technology companies and other transactions, which may limit the number of potential buyers for our funds’ investments
in various portfolio companies. We may have greater difficulty in realizing value from these portfolio companies through sales to non-U.S. buyers.
State regulation . A number of our investing activities, such as our lending business, are also subject to regulation by various U.S. state regulators.
Moreover, regulations enacted by various U.S. state regulators could impact us indirectly. For example, the State of California has enacted a law that will require
California pension plans to disclose fee and expense information in relation to investments in alternative investment vehicles. This new legislation may impact our
contractual arrangements with such investors and increase the costs and risks to us in maintaining relationships with such investors.
It is impossible to determine the full extent of the impact on us of existing regulation or any other new laws, regulations or initiatives that may be
proposed or whether any of the proposals will become law. Any changes in the regulatory framework applicable to our businesses, including the changes described
above, may impose additional costs on us, require the attention of our senior management or result in limitations on the manner in which we conduct our business.
Moreover, as calls for additional regulation have increased, there may be a related increase in regulatory investigations of the trading and other investment
activities of alternative investment management funds, including our funds. Complying with any new laws or regulations could be more difficult and expensive,
affect the manner in which we conduct our businesses and adversely affect our profitability.
Regulatory changes in jurisdictions outside of the U.S. could adversely affect our business . Apollo provides investment management services in
various jurisdictions around the world. Investment advisers are subject to extensive regulation not only in the U.S., but also in the other countries in which our
investment activities occur. In the U.K., we are subject to regulation by the U.K. Financial Conduct Authority. Our other European operations, and our investment
activities around the globe, are subject to a variety of regulatory regimes that vary country by country. A failure to comply with the obligations imposed by the
regulatory regimes to which we are subject, could result in investigations, sanctions and/or reputational damage.
The EU Alternative Investment Fund Managers Directive (“AIFMD”) came into force on July 22, 2013. The AIFMD imposes significant regulatory
requirements on fund managers operating within the EEA, including with respect to conduct of business, regulatory capital, valuations, disclosures and marketing,
and rules on the structure of remuneration for certain personnel. Compliance with the AIFMD has also increased the cost and complexity of raising capital for our
funds and consequently may also slow the pace of fundraising. Alternative investment funds (i) organized outside of the EEA and (ii) in which interests are
marketed to investors who are registered or domiciled in the EEA are also subject to significant compliance requirements. For example, currently such funds may
only be marketed in EEA jurisdictions in compliance with certain requirements under the AIFMD, for example, to register the fund for marketing in each relevant
jurisdiction and to undertake periodic investor and
- 41 -
Table of Contents
regulatory reporting. In some countries, additional obligations are imposed: for example, in Germany, marketing of a non-EEA fund also requires the appointment
of one or more depositaries (with cost implications for the fund). In order to manage and market EEA alternative investment funds more broadly for and to EEA
investors, two new entities have been created: (i) Apollo Investment Management Europe LLP (“AIME”), was incorporated by Apollo in the U.K. on March 31,
2016, and obtained authorization from the FCA on October 28, 2016 to carry out activities regulated by the FCA (including managing and marketing alternative
investment funds); and (ii) Apollo Investment Management Europe (Luxembourg) S.à r.l. ("AIME Lux") was incorporated by Apollo in Luxembourg on January 2,
2019 and has received approval from Commission de Surveillance du Secteur Financier ("CSSF") to carry out certain activities regulated by the CSSF (including
managing and marketing alternative investment funds), with registration effective from such date. AIME and AIME Lux are or will be subject to significant
regulatory requirements imposed by the AIFMD, including with respect to conduct of business, regulatory capital, valuations, disclosures and marketing and rules
on the structure of remuneration for certain personnel. From January 2017, certain European fund structures have been managed by AIME and marketed by
AIME’s European FCA regulated affiliate, Apollo Management International LLP (“AMI”), as permitted under the AIFMD. Going forward, some European funds
may be managed by AIME Lux and marketed by it or its regulated affiliates, as permitted under the AIFMD. The European fund structures are subject to ongoing
full compliance with all the requirements of the AIFMD, which include (among other things) investor and regulatory disclosures and reporting; satisfying the
competent authority of the robustness of internal arrangements with respect to risk management, in particular liquidity risks and additional operational and
counterparty risks associated with short selling; the management and disclosure of conflicts of interest; the fair valuation of assets; and the security of
depository/custodial arrangements. Additional requirements and restrictions apply where funds invest in an EEA portfolio company, including restrictions that may
impose limits on certain investment and realization strategies, such as dividend recapitalizations and reorganizations. Such rules could potentially impose
significant additional costs on the operation of our businesses or investments in the EEA and could limit our operating flexibility within the relevant jurisdictions.
Some changes to the AIFMD are yet to come; others are under negotiation; and a wider review has commenced which may lead to further changes possibly leading
to increased costs and/or burdens and more limit operational flexibility within the EEA and access to EEA investors.
On January 3, 2018, the EU introduced significant changes to the EU Markets in Financial Instruments Directive (Directive 2004/39/EC) (“MiFID”), in
the form of the recast Markets in Financial Instruments Directive (Directive 2014/65/EU) (which, along with its relevant EU delegated and implementing
legislation and guidance, is collectively referred as “MiFID II”). The original MiFID, which came into force in 2007, is the foundational piece of legislation for
financial services firms operating in the EU. Many aspects of MiFID II imposed significant new organizational, conduct, governance and reporting requirements,
including new requirements around the receipt of inducements and the use of soft dollars / dealing commissions, enhanced transaction reporting and post-trade
transparency requirements, formal telephone taping and communication recording requirements, and new best execution rules. Further, new rules in MiFID II may
restrict the ability of entities domiciled outside of the EU (known as “third-country firms”) to provide services to clients domiciled in the EU. MiFID II includes
research unbundling rules requiring firms subject to MiFID II to be charged and pay for research independently of dealing commissions. The U.S. SEC has issued
temporary no-action relief that, among other things, enables U.S. broker-dealers, on a temporary basis, to receive research payments from money managers in hard
dollars without breaching U.S. federal securities laws, where such payment is necessary for the money manager to comply with MiFID II. If such no-action relief is
discontinued or withdrawn, this may limit the ability of Apollo’s U.K. MiFID firms to access research from U.S. broker-dealers. Other changes resulting from
MiFID II may have an impact (indirectly) on any entity or client that trades on EU markets or trading venues, or does business with EU-regulated banks or brokers.
This may include venue trading requirements for certain categories of shares and derivatives, product banning powers, algorithmic trading restrictions, and
enhanced requirements around the provision of direct market access services. Such new compliance requirements on our European operations increase our
compliance costs. We may be required to invest significant additional management time and resources as market practice relating to the new requirements
continues to settle and if additional regulatory guidance is published. Failure to comply with MiFID II and its implementing provisions, as interpreted from time to
time, could have a number of serious consequences, including, but not limited to, sanctions from the relevant regulator, inability to access some markets and
liquidity sources and a more limited selection of counterparties and providers from which to source services. Sanctions from regulators can include, but are not
limited to, public censure (with related reputational damage), significant fines, remediation and withdrawal of license to operate.
The European Parliament has adopted the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories, known as “EMIR.” EMIR and
the implementing rules thereunder have come into force in stages and implement requirements similar to, but not the same as, those in Title VII of the Dodd-Frank
Act, in particular requiring reporting of most derivative transactions, record keeping, risk mitigation (in particular mandatory initial and variation margin
requirements for uncleared OTC derivative transactions entered into by certain market participants) and centralized clearing of certain OTC derivative transactions
entered into by certain market participants. EMIR does not have a direct material impact on Apollo’s non-European funds at present, but (i) it impacts funds
managed by Apollo’s AIFMs, and (ii) it affects Apollo’s non-European funds indirectly as a result of its impact on many of the Apollo funds’ counterparties to
OTC derivatives. Compliance with the relevant requirements is likely to continue to increase the burdens and costs of doing business.
- 42 -
Table of Contents
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 (the “EU Securitization Regulation”) is a new
framework for European securitizations which came into effect January 1, 2019. There is a risk that a non-EU alternative investment fund manager (a “non-EU
AIFM”), such as the Company that markets an alternative investment fund in the EU which invests in securitization positions could be caught within scope of
certain requirements under the EU Securitization Regulation when investing in such positions. To the extent a non-EU AIFM is within the scope of the EU
Securitization Regulation it could only hold a securitization exposure where the originator, sponsor or original lender retains 5% of the securitization. There are
certain other requirements with which the non-EU AIFM would also need to comply.
The U.K. has implemented transparency legislation that requires many large businesses to publish their U.K. tax strategies on their websites before the
end of each financial year. Apollo’s U.K. business is required to comply with these rules. As part of the requirement, organizations must publish information on tax
risk management and governance, tax planning, tax risk appetite and their approach to HMRC. Apollo’s refreshed ‘tax strategy’ is published on our website.
During the course of 2017, the U.K. implemented a new corporate criminal offense for the failure to prevent the facilitation of tax evasion. The scope of the law
and guidance is extremely wide and covers tax evasion committed both in the U.K. and abroad and so could have a global impact for Apollo’s businesses. Criminal
liability can be mitigated where a relevant business has proportionate policies and procedures in place to manage the risk. These changes illustrate an evolving
approach from HMRC and bring tax matters further into the public domain. As such, tax matters may now be seen to pose a greater reputational risk to the
business.
Additional laws and regulations will come into force in the EU in coming years. In addition, pan-EU and European national regulators may also issue
extra-statutory guidance. These are expected to (or in the case of new guidance, could) have an impact on Apollo including the costs of, risk to and manner of
conducting its business; the markets in which Apollo operates; the assets managed or advised by Apollo; Apollo’s ability to raise capital from investors; and
ultimately there may be an impact on the returns which can be achieved. Examples include requirements under the new regulation relating to securities financing
transactions (including recently finalized reporting requirements); further changes to or reviews of the extent and interpretation of pay regulation (which may have
an impact on the retention and recruitment of key personnel); proposals relating to re-designing the prudential rules applicable to EU investment firms and
potentially changes to existing rules in the interim (covering, e.g., revised pay regulation and disclosure requirements and changes to regulatory capital, liquidity,
and governance rules); proposals for enhanced regulation of loan origination, servicing of credit agreements and the secondary loan markets; and significant focus
on entities considered to be “shadow banks.” In the U.K., there will be additional changes (effective in 2019) to the rules concerning the approval of certain Apollo
U.K. professionals to work in the regulated financial services sector. Assessing the impact and implementing these new rules may create additional compliance
burden and cost for Apollo. Regulations affecting specific investor types, such as insurance companies, may impact their businesses; their ability to invest and the
assets in which they are permitted to invest; and the requirements which their investments place on us, such as extensive disclosure and reporting obligations. The
regulation of some institutions has an effect on their ability and willingness to extend credit and the costs of credit. This has, and is likely to continue to have, an
impact on the price and availability of credit. Changes to the regulation of benchmarks, such as LIBOR, may affect the way in which those benchmarks are
calculated, with commercial implications, including on the stability of the benchmark and returns.
Recent changes to regulations regarding derivatives and commodity interest transactions could adversely impact various aspects of our business.
Derivatives rules and regulations promulgated under the Dodd-Frank Act have become effective over time and comprehensively regulate the “over the counter”
(“OTC”) derivatives markets. The Dodd-Frank Act and the regulations promulgated thereunder require mandatory clearing and execution on a swap execution
facility of certain swaps and derivative transactions (including formerly unregulated OTC derivatives). The CFTC currently requires that certain interest rate and
credit default index swaps be centrally cleared and executed through a swap execution facility. Additional standardized swap contracts are expected to be subject to
the clearing and execution requirements in the future. OTC derivatives submitted for clearing are subject to minimum initial and variation margin requirements set
by the relevant clearinghouse, as well as margin requirements imposed by the clearing brokers. For swaps that are cleared through a clearinghouse, the funds face
the clearinghouse as legal counterparty and are exposed to clearinghouse performance and credit risks. Clearinghouse collateral requirements may differ from and
be greater than the collateral terms negotiated with derivatives counterparties in the OTC market. Such increased collateral requirements may increase a fund’s cost
in entering into certain products and impact its ability to pursue certain investment strategies. Moreover, OTC derivative dealers are also required to post margin to
the clearinghouses through which their customers’ trades are cleared, instead of using such margin in their operations. This will increase the OTC derivative
dealers’ costs and such increased costs are expected to be passed through to other market participants in the form of higher upfront and mark-to-market margin,
less favorable trade pricing, and possibly new or increased fees. In addition, our derivatives and commodity interest transactions may be subject to similar laws and
regulations imposed by non-U.S. jurisdictions and regulators, which may further increase such costs.
OTC trades not cleared through a registered clearinghouse may not be subject to the protections afforded to participants in cleared swaps (for example,
centralized counterparty, customer asset segregation and clearinghouse-imposed margin
- 43 -
Table of Contents
requirements). The CFTC and various prudential regulators’ final rules on margin requirements for certain uncleared swaps recently went into effect. The final
rules generally require banks and dealers, subject to thresholds and certain limited exemptions, to collect and post margin in respect of uncleared swaps. Variation
margin requirements for uncleared swaps became effective in 2017, and initial margin requirements for uncleared swaps are expected to phase in through 2020,
depending on the aggregate notional amount of over-the-counter swaps traded by a fund. These newly adopted rules on margin requirements for uncleared swaps
could adversely affect our businesses, including our ability to enter such swaps or our available liquidity. Although the Dodd-Frank Act includes limited
exemptions from the clearing and margin requirements for so-called “end-users,” our funds and portfolio companies may not be able to rely on such exemptions.
The Dodd-Frank Act also creates new categories of regulated market participants, such as “swap-dealers,” “security-based swap dealers,” “major swap
participants” and “major security-based swap participants” who will be subject to significant new capital, registration, recordkeeping, reporting, disclosure,
business conduct and other regulatory requirements, which will give rise to new administrative costs. Even if certain new requirements are not directly applicable
to us, they may still increase our costs of entering into transactions with the parties to whom the requirements are directly applicable.
Position limits imposed by various regulators, self-regulatory organizations or trading facilities on derivatives may also limit our ability to effect desired
trades. Position limits are the maximum amounts of net long or net short positions that any one person or entity may own or control in a particular financial
instrument. For example, the CFTC, on December 5, 2016, voted to re-propose rules that would establish specific limits on positions in 25 physical commodity
futures and option contracts as well as swaps that are economically equivalent to such contracts. In addition, the Dodd-Frank Act requires the SEC to set position
limits on security-based swaps. If such proposed rules are adopted, we may be required to aggregate the positions of our various investment funds and the positions
of our funds’ portfolio companies. It is possible that trading decisions may have to be modified and that positions held may have to be liquidated in order to avoid
exceeding such limits. Such modification or liquidation, if required, could adversely affect our operations and profitability.
Effective 2019, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have issued
regulations, which impose requirements on certain financial contracts of global systemically important banking organizations (“G-SIBs”) to expressly recognize
limits on the exercise of default remedies (such as temporary suspension and transfer) by their trading counterparties in the event such G-SIB enters into insolvency
proceedings. Regulators in other G20 jurisdictions have implemented, or are in the process of implementing, similar rules regarding the recognition of the
application of temporary stay or overrides of certain termination rights under the relevant home-country special resolution regime. These regulations aim to
achieve the same policy goal of an orderly resolution of systemically important financial institutions in the event of insolvency. The application of such regulations
could adversely impact the exercise of the funds’ contractual rights in the event of an insolvency of a G-SIB trading counterparty.
Risk retention rules could adversely affect our CLO business . Effective as of December 24, 2016, “risk retention” rules promulgated by U.S. Federal
regulators under the Dodd-Frank Act require a “securitizer” or “sponsor” of a collateralized loan obligation, or “CLO”, to retain at least 5% of the credit risk of the
securitized assets, either directly or through a majority-owned affiliate (the “U.S. Risk Retention Rules”). The EU has in place similar 5% risk retention rules (the
“EU Risk Retention Rules”, and together with the U.S. Risk Retention Rules, the “Risk Retention Rules”) that apply to certain EU investors such as credit
institutions (including banks), investment firms, authorized investment fund managers and insurance and reorganization undertakings. In instances in which any
such entities subject to the EU Risk Retention Rules invest in a CLO (as a noteholder or otherwise), such investors must ensure that the CLO satisfies the EU Risk
Retention Rules.
The U.S. Risk Retention Rules became effective December 24, 2016. Thus, to the extent they continue to remain in effect, any CLO issued after such date
is required to satisfy the U.S. Risk Retention Rules, and any existing CLO issued prior to December 24, 2016 may be structured to satisfy the U.S. Risk Retention
Rules to facilitate the later refinancing, re-pricing or material amendment thereof. The EU Risk Retention rules became effective January 1, 2011.
On February 9, 2018, the United States Court of Appeals for the District of Columbia (the “DC Circuit Court”) ruled in favor of an appeal brought by the
Loan Syndications and Trading Association (the “LSTA”) from a district court (“District Court”) ruling granting summary judgment to the SEC and the Board of
Governors of the Federal Reserve System on the issue of whether the U.S. Risk Retention Rules apply to collateral managers of “open market” CLOs under
Section 941 of the Dodd-Frank Act (the “DC Circuit Court Decision”). The District Court entered summary judgment in favor of the LSTA on April 5, 2018. As of
the date hereof, CLO managers of “open-market CLOs” (as defined in the DC Circuit Court Decision) will no longer be required to comply with the U.S. Risk
Retention Rules. It should be noted, however, that the DC Circuit Court Decision would not apply with respect to any “balance sheet CLOs” (such as middle
market CLOs).
The Risk Retention Rules have caused, and are expected to continue to cause, significant changes to the CLO business generally, and to our CLO business
specifically. In connection with the Risk Retention Rules, we established Redding Ridge,
- 44 -
Table of Contents
which manages CLOs and retains the required risk retention interests. Investors in Redding Ridge include certain of our affiliates as well as accounts and/or funds
managed by our affiliates. There can be no assurance that the applicable governmental authorities will agree that Redding Ridge or any CLO it manages will satisfy
the requirements of the Risk Retention Rules, which could have an adverse effect on us and/or Redding Ridge.
Redding Ridge has various service arrangements in place with certain of our affiliates pursuant to which such affiliates provide administrative and credit
research related services as well as access to certain shared employees. The fees earned by our affiliates under such service arrangements may be less than the fees
such affiliates would have otherwise earned as a CLO manager. In addition, to the extent any of our affiliates (and accounts and/or funds managed by our affiliates)
invests in Redding Ridge, there is no guarantee that such deployment of capital will generate positive returns or any returns at all. Furthermore, the relationship of
our affiliates with Redding Ridge will subject us to various conflicts of interest.
Given that the DC Circuit Court Decision discussed above would not apply with respect to any “balance sheet CLOs” (such as middle market CLOs)
undertaken by us or Redding Ridge, such “balance sheet CLOs” would remain subject to the requirements of the U.S. Risk Retention Rules. In addition, the DC
Circuit Court Decision would have no applicability with respect to compliance with the EU Risk Retention rules, which continue to remain in effect. Thus, to the
extent that we or Redding Ridge were managing a U.S. CLO that was structured to comply with the EU Risk Retention rules (which is done to expand the potential
universe of investors for such U.S. CLO) or an European CLO, then we or Redding Ridge, as applicable, would continue to have to comply with the EU Risk
Retention rules. Finally, the DC Circuit Court decision would not impact any letter or other contractual agreements (“Risk Retention Undertakings”) that we or
Redding Ridge may have or will in the future enter into with investors or other third parties designed to ensure such CLOs comply with the Risk Retention Rules.
Depending on the terms of such Risk Retention Undertakings, there may be an ongoing obligation to continue to comply with the U.S. Risk Retention Rules for
some period, which if breached could result in claims by investors or third parties.
No assurance can be made that in the future any governmental authority will not take further legislative, regulatory or judicial action with respect to the
Risk Retention Rules, and the effect of any such action cannot be known or predicted.
The Risk Retention Rules are also subject to varying interpretations, and one or more agencies or governmental officials could take positions regarding
such matters that differ from the approach taken or embodied in the Risk Retention Undertakings, which position could be informed by varying regulatory
considerations as well as differing legal analyses. Available interpretive authority to date addressing the Risk Retention Rules applicable to CLOs is limited.
Accordingly, no assurance can be made that the currently applicable rules and regulations will not be interpreted differently in the future by any applicable
authority, or that there will not be a change in applicable law or rules and regulations in the future that could adversely affect us or the CLOs we manage.
No assurance can be given as to whether the Risk Retention Rules will have a future material adverse effect on our business. The Risk Retention Rules
also may have an adverse effect on the leveraged loan market generally, which may adversely affect our CLO management business or the CLO management
business of Redding Ridge. As a result of the launch of Redding Ridge, it is less likely that we will manage new CLOs.
Exemptions from certain laws . In conducting our activities, we regularly rely on exemptions from various requirements of law or regulation in the
United States and other jurisdictions, including the Securities Act, the Exchange Act, the Investment Company Act, the Commodity Exchange Act of 1936 and the
Employment Retirement Income Securities Act of 1974, each as amended, and the regulations promulgated under each of them. These exemptions are sometimes
highly complex.
In certain circumstances we depend on compliance by third parties whom we do not control. For example, in raising new funds, we typically rely on
Regulation D for exemption from registration under the Security Act, which was amended in 2013 to prohibit issuers (including our funds) from relying on certain
of the exemptions from registration if the fund or any of its “covered persons” (including certain officers and directors, but also including certain third parties
including, among others, promoters, placement agents and beneficial owners of 20% of outstanding voting securities of the fund) has been the subject of a
“disqualifying event,” or constitutes a “bad actor,” which can result from a variety of criminal, regulatory and civil matters. If any of the covered persons
associated with our funds is subject to a disqualifying event, one or more of our funds could lose the ability to raise capital in a Rule 506 private offering for a
significant period of time, which could significantly impair our ability to raise new funds, and, therefore, could materially adversely affect our businesses, financial
condition and results of operations. In addition, if certain of our employees or any potential significant fund investor has been the subject of a disqualifying event,
we could be required to reassign or terminate such an employee or we could be required to refuse the investment of such an investor, which could impair our
relationships with investors, harm our reputation, or make it more difficult to raise new funds.
Certain other exemptions require monitoring of ongoing compliance with the applicable requirements throughout the life of the applicable fund. For
example, with respect to certain of our funds we rely on the so-called “de minimis” exemption from
- 45 -
Table of Contents
commodity pool operator registration, codified in CFTC Rule 4.13(a)(3). If any of those funds cease to qualify for this (or another applicable) exemption, certain
Apollo entities associated with and/or affiliated with those funds will be required to register with the CFTC as commodity pool operators. This exemption requires
that the amount of commodities interest positions in the applicable commodity pool remain below specified thresholds; in the event that those thresholds are
crossed, registration is required and the commodity pool operator may be out of compliance with the applicable regulations until registration is complete. Several
Apollo entities are already registered with the CFTC as commodity pool operators. However, registration entails several potentially costly and time-consuming
requirements, including, without limitation, membership with the National Futures Association, a self-regulatory organization for the U.S. derivatives industry, and
compliance with the regulatory framework applicable to registered commodity pool operators. Certain of our investment management entities are registered as a
commodity pool operator. The increased costs associated with such registration may affect the manner in which the funds managed by such investment
management entity conducts its business and may adversely affect such fund’s and our profitability. If for any reason any of these exemptions were to become
unavailable to us, we could become subject to regulatory action, third-party claims or be required to register under certain regulatory regimes, and our businesses
could be materially and adversely affected. See, for example, “—Risks
Related
to
Our
Organization
and
Structure-If
we
were
deemed
an
investment
company
under
the
Investment
Company
Act,
applicable
restrictions
could
make
it
impractical
for
us
to
continue
our
businesses
as
contemplated
and
could
have
a
material
adverse
effect
on
our
businesses
and
the
price
of
our
Class
A
shares
and
our
Preferred
shares
.”
Regulatory environment of our funds and portfolio companies of our funds . The regulatory environment in which our funds and portfolio companies of
our funds operate may affect our businesses. Certain laws, such as environmental laws, insurance regulations, gaming laws, takeover laws, anti-bribery and other
anti-corruption laws, sanctions laws, escheat or abandoned property laws, CIFIUS review and antitrust laws, may impose requirements on us, our funds and
portfolio companies of our funds. For example, certain of our funds or vehicles may invest in the manufacturing sector, natural resources industry or own real
assets where environmental laws, regulations and regulatory initiatives and various zoning laws can play a significant role and can have a substantial effect on
investments in the industry. Such investments or assets may increase our exposure to regulatory compliance expense and risk of liability under environmental laws
that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages. In addition, changes in
environmental laws or regulations or the environmental condition of an investment may create liabilities that did not exist at the time of acquisition. Even in cases
where our funds are indemnified by a seller against liabilities arising out of violations of environmental laws and regulations, there can be no assurance as to the
financial viability of the seller or its insurers to satisfy such indemnities or our ability to achieve enforcement of such indemnities. Additionally, changes in
antitrust laws or the enforcement of antitrust laws could affect the level of mergers and acquisitions activity, and changes in state laws may limit investment
activities of state pension plans. See for additional examples “— Insurance
regulation”
and
“U.S.
and
foreign
anti-corruption,
sanctions
and
export
control
laws
applicable
to
us
and
our
funds
and
portfolio
companies
create
the
potential
for
significant
liabilities
and
penalties
and
reputational
harm
.” See “Item 1. Business-
Regulatory and Compliance Matters” for a further discussion of the regulatory environment in which we conduct our businesses.
Certain of the funds and accounts we manage or advise as well as certain of our funds’ portfolio companies that engage in originating, lending and/or
servicing loans may be subject to state and federal regulation, borrower disclosure requirements, limits on fees and interest rates on some loans, state lender
licensing requirements and other regulatory requirements in the conduct of their business. These funds and accounts may also be subject to consumer disclosures
and substantive requirements on consumer loan terms and other federal regulatory requirements applicable to consumer lending that are administered by the
Consumer Financial Protection Bureau. These state and federal regulatory programs are designed to protect borrowers. For example, OneMain’s subsidiaries
include consumer finance companies operating in the U.S. The consumer finance business is subject to federal and state laws, and failure to comply with applicable
laws and regulations could result in regulatory actions, including substantial fines or penalties, lawsuits and damage to our reputation. In addition, certain of the
states in which OneMain is licensed to originate loans have laws or regulations which require regulatory approval for the acquisition of “control” of regulated
entities. Therefore, any person acquiring directly or indirectly 10% or more of a licensed entity’s common stock may need the prior approval of licensing
regulators, or a determination from such regulators that “control” has not been acquired, which could significantly delay or otherwise impede our ability to
complete a transaction.
State and federal regulators and other governmental entities have authority to bring administrative enforcement actions or litigation to enforce compliance
with applicable lending or consumer protection laws, with remedies that can include fines and monetary penalties, restitution of borrowers, injunctions to conform
to law, or limitation or revocation of licenses and other remedies and penalties. In addition, lenders and servicers may be subject to litigation brought by or on
behalf of borrowers for violations of laws or unfair or deceptive practices. Failure to conform to applicable regulatory and legal requirements could be costly and
have a detrimental impact on certain of our funds or our funds’ portfolio companies and ultimately on Apollo.
Our funds along with their affiliates may obtain a controlling interest (e.g., 80% or more voting control) in certain portfolio companies which may impose
risks of liability to such funds under ERISA for a portfolio company’s underfunded pension plans,
- 46 -
Table of Contents
including withdrawal liability under any multiemployer plans in which such portfolio company contributes or previously contributed. Such liabilities might arise if
any fund (or its general partner or management company, on behalf of such fund) were deemed to be engaged in a “trade or business” under ERISA. The
determination of whether an investment fund is engaged in a trade or business under ERISA is uncertain and could depend upon which U.S. Federal Circuit has
jurisdiction over the matter. At least one Circuit Court has held that an investment fund was in a “trade or business” for this purpose. Activities that may indicate
the existence of a trade or business rather than a passive investment include, but are not limited to, involvement in the management of a portfolio company’s
operations, exercising authority with respect to the hiring, termination and compensation of such portfolio company’s employees and agents and receiving fees or
other compensation that offset the management fee for services provided to such portfolio company by the relevant fund manager or its affiliates. If any of our
funds (along with its affiliates) were treated as engaged in a trade or business for purposes of ERISA and own together with related funds, 80% or more voting
control of a portfolio company, then that fund (and certain affiliates of such fund in the same ERISA controlled group (e.g., other controlled portfolio companies))
could be jointly and severally liable to satisfy the liabilities of a specific portfolio company to an ERISA pension plan (i.e., one of our funds might suffer a loss that
is greater than its actual investment in a specific portfolio company to the extent that such portfolio company becomes insolvent and is unable to satisfy its own
obligations). It should be noted that the test as to whether a fund is engaged in a trade or business for purposes of ERISA may not necessarily be the same as the
test that would be used for U.S. Federal income tax purposes.
In addition, regulators may scrutinize, investigate or take action against us as a result of actions or inactions by portfolio companies operating in a
regulated industry if such a regulator were to deem, or potentially deem, such portfolio company to be under our control. For example, based on positions taken by
European governmental authorities, we or certain of our investment funds potentially could be liable for fines if portfolio companies deemed to be under our
control are found to have violated European antitrust laws. Such potential, or future, liability may materially affect our business.
Regulatory environment for control persons . We could become jointly and severally liable for all or part of fines imposed on portfolio companies of our
funds or be fined directly for violations committed by portfolio companies, and such fines imposed directly on us could be greater than those imposed on the
portfolio company. The fact that we or one of our funds exercises control or exerts influence (or merely has the ability to exercise control or exert influence) over a
company may impose risks of liability (including under various theories of parental liability and piercing the corporate veil doctrines) to us and our funds for,
among other things, environmental damage, product defects, employee benefits (including pension and other fringe benefits), failure to supervise management,
violation of laws and governmental regulations (including securities laws, anti-trust laws, employment laws, and anti-bribery and other anti-corruption laws) and
other types of liability for which the limited liability characteristic of business ownership and the relevant fund itself (and the limited liability structures that may
be utilized by such fund in connection with its ownership of our portfolio companies or otherwise) may be ignored or pierced, as if such limited liability
characteristics or structures did not exist for purposes of the application of such laws, rules regulations and court decisions. Under certain circumstances, we could
also be held liable under federal securities or state common law for statements made by or on behalf of portfolio companies of our funds. These risks of liability
may arise pursuant to U.S. and non-U.S. laws, rules, regulations, court decisions or otherwise (including the laws, rules, regulations and court decisions that apply
in jurisdictions in which our funds’ portfolio companies or their subsidiaries are organized, headquartered or conduct business). Such liabilities may also arise to
the extent that any such laws, rules, regulations or court decisions are interpreted or applied in a manner that imposes liability on all persons that stand to
economically benefit (directly or indirectly) from ownership of portfolio companies, even if such persons do not exercise control or otherwise exert influence over
such portfolio companies (e.g., limited partners). Lawmakers, regulators and plaintiffs have recently made (and may continue to make) claims along the lines of the
foregoing, some of which have been successful. If these liabilities were to arise with respect to any of our funds or portfolio companies of our funds, the fund or
portfolio company might suffer significant losses and incur significant liabilities and obligations that may, in turn, affect our results of operations. The possession
or exercise of control or influence over a portfolio company could expose our assets and those of our relevant fund, its partners, general partner, management
company and their respective affiliates to claims by such portfolio company, its security holders and its creditors and regulatory authorities or other bodies. While
we intend to manage our operations to minimize exposure to these risks, the possibility of successful claims cannot be precluded, nor can there be any assurance to
whether such laws, rules, regulations and court decisions will be expanded or otherwise applied in a manner that is adverse to us. Moreover, it is possible that,
when evaluating a potential portfolio investment, we, as manager of our funds, funds may choose not to pursue or consummate such portfolio investment, if any of
the foregoing risks may create liabilities or other obligations for us, any of our funds or any of their respective affiliates.
Insurance regulation . State insurance departments in the U.S. have broad administrative powers over the insurance business of our U.S. insurance
company affiliates, including insurance company licensing and examination, agent licensing, establishment of reserve requirements and solvency standards,
premium rate regulation, admissibility of assets, policy form approval, unfair trade and claims practices, marketing practices, advertising, maintaining policyholder
privacy, payment of dividends and distributions to shareholders, investments, review and/or approval of transactions with affiliates, reinsurance, acquisitions,
mergers and other matters. State regulators regularly review and update these and other requirements.
- 47 -
Table of Contents
We are subject to insurance holding company system laws and regulations in the states of domicile of certain insurance companies for which we are (or,
with respect to certain pending transactions, will be) deemed to be a control person for purposes of such laws. Specifically, under state insurance laws, we are
deemed to be the ultimate parent of (i) Athene Holding’s insurance company subsidiaries, which are domiciled in Delaware, Iowa and New York, (ii) Catalina’s
insurance company subsidiaries, which are domiciled in California, Colorado, Connecticut, the District of Columbia and New York, (iii) OneMain’s insurance
company subsidiaries, which are domiciled in Indiana and Texas, (iv) Venerable’s insurance subsidiary, which is domiciled in Iowa, (v) LifePoint’s health
maintenance organization subsidiary, which is domiciled in Michigan and (vi) Aspen’s insurance company subsidiaries domiciled in North Dakota and Texas for
purposes of such laws. Each of California, Colorado, Connecticut, Delaware, the District of Columbia, Indiana, Iowa, Michigan, New York, North Dakota and
Texas is a “Domiciliary State”.
Currently, there are proposals to increase the scope of regulation of insurance holding companies in both the U.S. and internationally. The National
Association of Insurance Commissioners (the “NAIC”) adopted amendments to the Holding Company Model Act that introduced the concept of “enterprise risk”
within an insurance holding company system and imposed more extensive informational reporting regarding parents and other affiliates of insurance companies,
with the purpose of protecting domestic insurers from enterprise risk, including requiring an annual enterprise risk report by the ultimate controlling person
identifying the material risks within the insurance holding company system that could pose enterprise risk to domestic insurers. Changes to existing NAIC model
laws or regulations must be adopted by individual states or foreign jurisdictions before they will become effective. To date, each of the Domiciliary States has
enacted laws to adopt such amendments.
Internationally, the International Association of Insurance Supervisors (the “IAIS”) is in the process of adopting a framework for the “group wide”
supervision of internationally active insurance groups, including the development of a risk-based global insurance capital standard (“ICS”). The current version of
the ICS is in the extended field testing stage. When field testing is completed in 2019, the ICS will be implemented in the following two phases: In the first phase,
which will last for five years and which is referred to as the “monitoring period,” the ICS will be used for confidential reporting to group-wide supervisors and
discussion in supervisory colleges, and the ICS will not be used as a prescribed capital requirement. After the monitoring period, the ICS will be implemented as a
group-wide prescribed capital standard. In addition, in the U.S., the NAIC and the Federal Reserve Board are developing an aggregation method for a group capital
calculation. The NAIC has stated that the group capital calculation will be a regulatory tool and will not constitute a requirement or standard; however, it is
currently expected that the calculation methodology will incorporate existing risk-based capital concepts. In the U.S., the NAIC has promulgated additional
amendments to its insurance holding company system model law that address “group wide” supervision of internationally active insurance groups. To date, each of
the Domiciliary States (except for Colorado, the District of Columbia, Michigan and New York) has adopted a form of these provisions. The NAIC has made these
amendments to the insurance holding company system model law a part of its accreditation standards for state solvency regulation beginning January 1, 2020,
which is likely to motivate the remaining Domiciliary States to adopt the amendments. We cannot predict with any degree of certainty the additional capital
requirements, compliance costs or other burdens these requirements may impose on us and our insurance company affiliates.
The Dodd-Frank Act established the Federal Insurance Office (the “FIO”) within the U.S. Department of the Treasury headed by a Director appointed by
the Treasury Secretary. While currently not having a general supervisory or regulatory authority over the business of insurance, the Director of the FIO performs
various functions with respect to insurance, including serving as a non-voting member of the FSOC and making recommendations to the FSOC regarding non-bank
financial companies to be designated as SIFIs. The Director of the FIO has also submitted reports to the U.S. Congress on (i) modernization of U.S. insurance
regulation (provided in December 2013) and (ii) the U.S. and global reinsurance market (provided in November 2013 and January 2015, respectively). Such reports
could ultimately lead to changes in the regulation of insurers and reinsurers in the U.S.
In addition, the Dodd-Frank Act authorized the Treasury Secretary and the Office of the U.S. Trade Representative to negotiate covered agreements. A
covered agreement is an agreement between the U.S. and one or more foreign governments, authorities or regulatory entities, regarding prudential measures with
respect to insurance or reinsurance. Pursuant to this authority, in September 2017, the U.S. and the EU signed a covered agreement (the “EU Covered Agreement”)
to address, among other things, group supervision and reinsurance collateral requirements. In addition, on December 11, 2018, the U.S. Department of the Treasury
and the Office of the U.S. Trade Representative announced their intent to sign a Bilateral Agreement between the U.S. and the U.K. on Prudential Measures
Regarding Insurance and Reinsurance in anticipation of the U.K.’s exit from the EU in March 2019 (the “U.K. Covered Agreement”). The U.K. Covered
Agreement is subject to a 90-day notification period to the U.S. Congress before it can be signed and come into effect. The NAIC is currently working to adopt
amendments to the Credit for Reinsurance Model Law and Regulation to conform to the requirements of the EU Covered Agreement and U.K. Covered
Agreement. The reinsurance collateral provisions of the EU Covered Agreement and the U.K. Covered Agreement may increase competition, in particular with
respect to pricing for reinsurance transactions, by lowering the cost at which competitors of reinsurance subsidiaries of companies of which Apollo may be deemed
to be the ultimate parent pursuant to applicable insurance laws, such as Athene Life Re Ltd. (“ALRe”), are able to provide reinsurance to U.S. insurers. We cannot
predict with any degree
- 48 -
Table of Contents
of certainty what impact this increased competition will have on the business of such reinsurance subsidiaries, whether the EU Covered Agreement will be
implemented or what the impact of such implementation will be on Apollo.
As the ultimate parent of the general partner or manager of certain shareholders of Athene Holding, we are subject to certain insurance laws and
regulations in Bermuda, where Apollo is considered a “shareholder controller” of (a) ALRe, a Bermuda Class E insurance company and a wholly owned subsidiary
of Athene Holding, a company listed on the New York Stock Exchange, (b) Athora Life Re Ltd., a Bermuda Class E insurance company and a wholly owned
subsidiary of Athora Holding Ltd., a Bermuda private company, (c) Catalina General Insurance Ltd, a Bermuda Class 3A and Class C insurer and a wholly owned
subsidiary of Catalina Holding (Bermuda) Ltd., and (d) Aspen Bermuda Limited, a Class 4 insurer and a wholly-owned subsidiary of Aspen. Each of ALRe,
Athora Life Re Ltd., Catalina General Insurance Ltd and Aspen Bermuda Limited is subject to regulation and supervision by the BMA and compliance with all
applicable Bermuda law and Bermuda insurance statutes and regulations, including but not limited to the Bermuda Insurance Act. Under the Bermuda Insurance
Act, the BMA maintains supervision over the “controllers” of all registered insurers in Bermuda. For these purposes, a “controller” includes a shareholder
controller (as defined in the Bermuda Insurance Act). The Bermuda Insurance Act imposes certain notice requirements upon any person that has become, or as a
result of a disposition ceased to be, a shareholder controller, and failure to comply with such requirements is punishable by a fine or imprisonment or both. In
addition, the BMA may file a notice of objection to any person or entity who has become a controller of any description where it appears that such person or entity
is not, or is no longer, fit and proper to be a controller of the registered insurer, and such person or entity can be subject to fines or imprisonment or both. These
laws may discourage potential acquisition proposals and may delay, deter or prevent an acquisition of controllers of Bermuda insurers.
In addition, for purposes of insurance laws Apollo is considered to be the parent of certain European insurance companies domiciled in Belgium,
Germany, Ireland, Italy, Switzerland and the U.K. See “Business-Regulatory and Compliance Matters.” These laws and regulations may discourage potential
acquisition offers and may delay, deter or prevent the acquisition of qualifying holdings as these affect insurance undertakings in such countries.
Future regulatory changes could adversely affect our businesses. The regulatory environment in which we operate both in the U.S. and outside the U.S.
may be subject to changes in regulation. There have been active debates both nationally and internationally over the appropriate extent of regulation and oversight
in a number of areas which are or may be relevant to us, including private investment funds and their managers and the so-called “shadow banking” sector.
The regulatory and legal requirements that apply to our activities are subject to change from time to time and may become more restrictive, which may
impose additional expenses on us, make compliance with applicable requirements more difficult, require attention of senior management, or otherwise restrict our
ability to conduct our business activities in the manner in which they are now conducted. They also may result in fines or other sanctions if we or any of our funds
are deemed to have violated any law or regulations. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules.
Changes in applicable regulatory and legal requirements, including changes in their enforcement, could materially and adversely affect our businesses and our
financial condition and results of operations.
Investment advisors have come under increased scrutiny from regulators, including the SEC and other government and self-regulatory organizations, with
a particular focus on fees, allocation of expenses to funds, valuation practices, and related disclosures to fund investors. Public statements by regulators, in
particular the SEC, indicate increased enforcement attention will continue to be focused on investment advisors, which has the potential to affect us. We also may
be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory
organizations.
Regulatory investigations and enforcement actions may adversely affect our operations and create the potential for significant liabilities, penalties and
reputational harm.
There can be no assurance that we or our affiliates will avoid regulatory examination and possibly enforcement actions. SEC enforcement actions and
settlements involving U.S.-based private fund advisors have involved a number of issues, including the undisclosed allocation of the fees, costs and expenses
related to unconsummated co-investment transactions (i.e., the allocation of broken deal expenses), undisclosed legal fee arrangements affording the applicable
advisor with greater discounts than those afforded to funds advised by such advisor and the undisclosed acceleration of certain special fees. Recent SEC focus
areas have also included the use and compensation of, and disclosure regarding, operating partners or consultants, outside business activities of firm principals and
employees, group purchasing arrangements and general conflicts of interest disclosures.
If the SEC or any other governmental authority, regulatory agency or similar body takes issue with our past practices, we will be at risk for regulatory
sanction. Even if an investigation or proceeding does not result in a sanction or the sanction imposed is small in monetary amount, the adverse publicity relating to
the investigation, proceeding or imposition of these sanctions could harm us and our reputation which may adversely affect our results of operations.
- 49 -
Table of Contents
U.S. and foreign anti-corruption, sanctions and export control laws applicable to us and our funds and portfolio companies create the potential for significant
liabilities and penalties and reputational harm.
We are subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictions
imposed by the U.S. Foreign Corrupt Practices Act (“FCPA”), as well as trade sanctions and export control laws administered by the Office of Foreign Assets
Control, or OFAC, the U.S. Department of Commerce and the U.S. Department of State. The FCPA is intended to prohibit bribery of foreign governments and
their employees and political parties, and requires public companies in the U.S. to keep books and records that accurately and fairly reflect their transactions.
OFAC, the U.S. Department of Commerce and the U.S. Department of State administer and enforce various export control laws and regulations, including
economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. These laws and
regulations relate to a number of aspects of our businesses, including servicing existing fund investors, finding new fund investors, and sourcing new investments,
as well as activities by the portfolio companies of our funds. In recent years, the U.S. Department of Justice and the SEC have devoted greater resources to
enforcement of the FCPA. In addition, the U.K. has significantly expanded the reach of its anti-bribery laws. While we have developed and implemented policies
and procedures designed to ensure compliance by us and our personnel with the FCPA and other applicable anti-bribery laws, such policies and procedures may
not be effective in all instances to prevent violations. Any determination that we have violated the FCPA or other applicable anticorruption laws or anti-bribery
laws could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation
and a general loss of investor confidence, any one of which could adversely affect our business prospects and/or financial position.
In addition, we may also be adversely affected if there is misconduct by personnel of portfolio companies in which our funds invest. For example, failures
by personnel at our funds’ portfolio companies to comply with anti-bribery or trade sanctions requirements could cause significant reputational and business harm
to us. Such misconduct may undermine our due diligence efforts with respect to such portfolio companies and could negatively affect the valuations of a fund’s
investments.
The SEC, the Financial Industry Regulatory Authority (“FINRA”), as well as certain U.S. states, localities, and public instrumentalities, have adopted
‘‘pay-to-play’’ laws, rules, regulations and/or policies which restrict the political activities of investment managers that seek investment from or manage funds on
behalf of state and local government entities. Such restrictions can include limits on the ability of the managers covered investment advisors, certain covered
employees of the advisor or covered political action committees controlled by the advisor or its employees to make political contributions to or fundraise for
certain state and local candidates, officials, and political organizations, as well as obligations to make regular disclosures about such political activities to federal,
state, or local regulators. In addition, many pay-to-play regimes (including the SEC pay-to-play rule for investment advisors) impute the personal political
activities of certain executives and employees, and in some instances their spouses and family members, to the covered advisor for purposes of potential pay-to-
play liability. Violation of pay-to-play laws can lead to the loss of management fees, rescission of current commitments to our funds, and a loss of future
investment opportunities, and issues involving pay-to-play violations and alleged pay-to-play violations often receive substantial media coverage. Any failure on
our part or a party acting on our behalf to comply with applicable pay-to-play laws, regulations or policies could expose us to significant penalties and reputational
damage, and could have a material adverse impact on us.
The Iran Threat Reduction and Syrian Human Rights Act of 2012 (“ITRA”) expanded the scope of U.S. sanctions against Iran. Notably, ITRA generally
prohibits foreign entities that are majority owned or controlled by U.S. persons from engaging in transactions with Iran. This restriction was alleviated by the Joint
Comprehensive Plan of Action (the “JCPOA”), which was implemented on January 16, 2016 and authorized foreign entities with U.S. ownership to engage in
certain Iran-related transactions under OFAC’s General License H. However, on November 4, 2018, the JCPOA and General License H were terminated by the
U.S. government, reverting to pre-JCPOA restrictions for U.S.-owned foreign entities. In addition, Section 219 of ITRA amended the Exchange Act to require
public reporting companies to disclose in their annual or quarterly reports certain dealings or transactions the company or its affiliates engaged in during the
previous reporting period involving Iran or other individuals and entities targeted by certain OFAC sanctions. In some cases, ITRA requires companies to disclose
these types of transactions even if they were permissible under U.S. law or were conducted outside of the U.S. by a non-U.S. entity. Companies that may be
considered our affiliates have publicly filed and/or provided to us the disclosures reproduced in each of the Company’s Annual Reports on Form 10-K filed on
March 3, 2014 and March 1, 2013 and the Company’s Quarterly Report on Form 10-Q filed on November 12, 2013. We have not independently verified or
participated in the preparation of these disclosures. We are required to separately file, concurrently with our annual report, a notice that such activities have been
disclosed in our annual report. The SEC is required to post this notice of disclosure on its website and send the report to the U.S. President and certain U.S.
Congressional committees. Disclosure of such activity, even if such activity is not subject to penalties or sanctions under applicable law, and any penalties or
sanctions actually imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business.
- 50 -
Table of Contents
Differences between U.S. and foreign anti-corruption, sanctions and export control laws increase the risks and complexities of compliance, and sometimes
present actual conflicts of law (especially in the sanctions area). If we fail to comply with this multitude of laws and regulations, even where conflicts of law arise,
we could be exposed to claims for damages, civil or criminal penalties, reputational harm, incarceration of our employees, restrictions on our operations and other
liabilities, which could negatively affect our businesses, operating results and financial condition. In addition, depending on the circumstances, we could be subject
to liability for violations of applicable anti-corruption, sanctions or export control laws committed by companies in which we or our funds invest or which we or
our funds acquire.
A portion of our revenues, earnings and cash flow is highly variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis,
and we do not intend to regularly provide comprehensive earnings guidance, which may cause the price of our Class A shares and our Preferred shares to be
volatile.
A portion of our revenues, earnings and cash flow is highly variable, primarily due to the fact that performance fees from our private equity funds and
certain of our credit and real assets funds, which constitutes the largest portion of income from our combined businesses, and the transaction and advisory fees that
we receive, can vary significantly from quarter to quarter and year to year. In addition, the investment returns of most of our funds are volatile. We may also
experience fluctuations in our results from quarter to quarter and year to year due to a number of other factors, including changes in the values of our funds’
investments, changes in the amount of distributions, dividends or interest paid in respect of investments, changes in our operating expenses, the degree to which we
encounter competition and general economic and market conditions. Our future results will also be significantly dependent on the success of our larger funds (e.g.,
Fund VIII and Fund IX), changes in the value of which may result in fluctuations in our results. In addition, performance fees from our private equity funds and
certain of our credit and real assets funds is subject to contingent repayment by the general partner if, upon the final distribution, the relevant fund’s general partner
has received cumulative performance fees on individual portfolio investments in excess of the amount of performance fees it would be entitled to from the profits
calculated for all portfolio investments in the aggregate. See “—Poor
performance
of
our
funds
would
cause
a
decline
in
our
revenue
and
results
of
operations,
may
obligate
us
to
repay
performance
fees
previously
paid
to
us
and
would
adversely
affect
our
ability
to
raise
capital
for
future
funds
.” Such variability may lead
to volatility in the trading price of our Class A shares and our Preferred shares and cause our results for a particular period not to be indicative of our performance
in a future period. It may be difficult for us to achieve steady growth in earnings and cash flow on a quarterly basis, which could in turn lead to large adverse
movements in the price of our Class A shares and our Preferred shares or increased volatility in the price of our Class A shares and our Preferred shares in general.
The timing of performance fees generated by our funds is uncertain and will contribute to the volatility of our results. Performance fees depends on our
funds’ performance. It takes a substantial period of time to identify attractive investment opportunities, to raise all the funds needed to make an investment and
then to realize the cash value or other proceeds of an investment through a sale, public offering, recapitalization or other exit. Even if an investment proves to be
profitable, it may be several years before any profits can be realized in cash or other proceeds. We cannot predict when, or if, any realization of investments will
occur. Generally, with respect to our private equity funds, although we recognize performance fees on an accrual basis, we receive private equity performance fees
payments only upon disposition of an investment by the relevant fund, which contributes to the volatility of our cash flow. If our funds were to have a realization
event in a particular quarter or year, it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent
periods. We recognize revenue on investments in our funds based on our allocable share of realized and unrealized gains (or losses) reported by such funds, and a
decline in realized or unrealized gains, or an increase in realized or unrealized losses, would adversely affect our revenue, which could further increase the
volatility of our results. With respect to a number of our credit funds, our performance fees is generally paid annually, semi-annually or quarterly, and the varying
frequency of these payments will contribute to the volatility of our revenues and cash flow. Furthermore, we earn this performance fees only if the net asset value
of a fund has increased or, in the case of certain funds, increased beyond a particular threshold. The general partners of certain of our credit funds accrue certain
performance fees when the fair value of investments exceeds the cost basis of the individual investor’s investments in the fund, including any allocable share of
expenses incurred in connection with such investment, which is referred to as a “high water mark.” The general partners for the remainder of our credit funds
generally defer such performance fees until the fees are crystallized or are no longer subject to clawback or reversal. For certain performance fee arrangements,
high water marks are applied on an individual investor basis. If the high water mark for a particular investor is not surpassed, we would not earn such performance
fees with respect to such investor during a particular period even though such investor had positive returns in such period as a result of losses in prior periods. If
such an investor experiences losses, we will not be able to earn such performance fees from such investor until it surpasses the previous high water mark. Such
performance fees we earn are therefore dependent on the net asset value of investors’ investments in the fund, which could lead to significant volatility in our
results.
Because a portion of our revenue, earnings and cash flow can be highly variable from quarter to quarter and year to year, we do not plan to provide any
comprehensive guidance regarding our expected quarterly and annual revenues, earnings and cash
- 51 -
Table of Contents
flow. The lack of comprehensive guidance on a regular and consistent basis may affect the expectations of public market investors and could cause increased
volatility in the price of our Class A shares and our Preferred shares.
The investment management business is intensely competitive, which could have a material adverse impact on us.
The investment management business is intensely competitive. We face competition both in the pursuit of outside investors for our funds and in acquiring
investments in attractive portfolio companies and making other investments. It is possible that it will become increasingly difficult for our funds to raise capital as
funds compete for investments from a limited number of qualified investors.
Competition among funds is based on a variety of factors, including:
•
•
•
•
•
•
investment performance;
investor liquidity and willingness to invest;
investor perception of investment managers’ drive, focus and alignment of interest;
quality of service provided to and duration of relationship with investors;
business reputation; and
the level of fees and expenses charged for services.
We compete in all aspects of our businesses with a large number of investment management firms, private equity, credit and real assets fund sponsors and
other financial institutions. A number of factors serve to increase our competitive risks:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fund investors may develop concerns that we will allow a business to grow to the detriment of its performance;
investors may reduce their investments in our funds or not make additional investments in our funds based upon current market conditions, their
available capital or their perception of the health of our businesses;
the attractiveness of our funds relative to investments in other investment products could change depending on economic and market conditions;
some of our competitors have greater capital, lower targeted returns or greater sector or investment strategy-specific expertise than we do, which
creates competitive disadvantages with respect to investment opportunities;
some of our competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create
competitive disadvantages for us with respect to investment opportunities;
some of our competitors may perceive risk differently than we do, which could allow them either to outbid us for investments in particular sectors or,
generally, to consider a wider variety of investments;
some of our funds may not perform as well as competitors’ funds or other available investment products;
our funds’ competitors that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them
with a competitive advantage in bidding for an investment;
our competitors have instituted or may institute low cost, high speed financial applications and services based on artificial intelligence and new
competitors may enter the investment management space using new investment platforms based on artificial intelligence;
developments in financial technology (or fintech), such as a distributed ledger technology (or blockchain), have the potential to disrupt the financial
industry and change the way financial institutions, as well as investment managers, do business, and could exacerbate these competitive pressures;
some fund investors may prefer to invest with an investment manager that is not publicly traded;
the successful efforts of new entrants into our various businesses, including former “star” portfolio managers at large diversified financial institutions
as well as such institutions themselves, may result in increased competition;
there are relatively few barriers to entry impeding other alternative investment management firms from implementing an integrated platform similar
to ours or the strategies that we deploy at our funds, such as distressed investing, which we believe are competitive strengths of ours; and
other industry participants continuously seek to recruit our investment professionals away from us.
These and other factors could reduce our earnings and revenues and have a material adverse effect on our businesses. In addition, if we are forced to
compete with other alternative investment managers on the basis of price, we may not be able to maintain our current management fee and performance fees
structures. We have historically competed primarily on the performance of our funds, and not on the level of our fees or performance fees relative to those of our
competitors. However, there is a risk that fees and performance fees in the alternative investment management industry will decline, without regard to the historical
performance of a manager. Fee or performance fees reductions on existing or future funds, without corresponding decreases in our cost structure, would adversely
affect our revenues and profitability.
- 52 -
Table of Contents
Our ability to retain our investment professionals is critical to our success and our ability to grow depends on our ability to attract and retain key personnel.
Our success depends on our ability to retain our investment professionals and recruit additional qualified personnel. We anticipate that it will be necessary
for us to add investment professionals as we pursue our growth strategy. However, we may not succeed in recruiting additional personnel or retaining current
personnel, as the market for qualified investment professionals is extremely competitive. Our investment professionals possess substantial experience and expertise
in investing, are responsible for locating and executing our funds’ investments, have significant relationships with the institutions that are the source of many of
our funds’ investment opportunities, and in certain cases have key relationships with our fund investors. Therefore, if our investment professionals join competitors
or form competing companies it could result in the loss of significant investment opportunities and certain existing fund investors. Additionally, recent changes in
law in the U.S. and U.K. have increased the tax rate on various income streams used to compensate investment professionals. More specifically, in December
2017, President Trump signed into law Public Law Number 115-97, formerly known as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA changed the holding
period requirement for investment professionals to receive long-term capital gain treatment on performance fees for taxable years beginning after December 31,
2017. Going forward, performance fees attributable to gains with respect to assets held for three years or less will be treated as short-term capital gains and taxed at
ordinary income rates. There remains uncertainty as to whether these rules may be further modified in the future to be even broader in scope. States and other
jurisdictions in the past have also considered legislation to increase taxes with respect to performance fees. For example, New York has periodically considered
legislation under which non-residents of New York could be subject to New York state income tax on income in respect of our Class A shares as a result of certain
activities of our affiliates in New York, and recently Governor Cuomo, as a response to certain aspects of the TCJA, proposed legislation to reform the treatment of
incentive income in New York to tax such income at higher rates. Additional details of Governor Cuomo’s proposal remain unclear, and it is uncertain when or
whether such legislation would be enacted. Legislation similar to Governor Cuomo’s proposal in New York has been considered in California and Connecticut
(and passed in New Jersey although it is not currently effective), where a significant portion of our employees reside and could impact our ability to recruit
investment professionals. In addition, the U.K. implemented legislation effective from April 2015 that changed the scope and tax rate for performance fees,
particularly for individuals who have immigrated to the U.K., so called “non-domiciled individuals.” Further, from 2016, legislation that taxes performance fees as
deemed trading income has come into force affecting partners of Apollo Management International LLP who have an interest in funds that have a weighted
average holding period of fewer than 40 months. Because a portion of certain investment professionals’ compensation arises from equity interests in our businesses
or a right to receive performance fees, the potentially less favorable tax treatment of performance fees in the U.S. or the U.K. could adversely affect our ability to
recruit, retain and motivate our current and future investment professionals or require us to alter our approach to compensating investment professionals.
Fluctuations in the distributions to investment professionals generated from performance fees could also impair our ability to attract and retain qualified personnel.
Furthermore, the SEC has proposed mandatory clawback rules that would require listed companies to adopt a clawback policy providing for recovery of
incentive-based compensation awarded to executive officers if the company is required to prepare an accounting restatement resulting from material
noncompliance with financial reporting requirements. However, these proposals have not yet been finalized and the specific long-term impact on us is not yet clear.
There is the potential that new compensation rules will make it more difficult for us to attract and retain investment professionals by capping the amount of
variable compensation compared to fixed pay, requiring the deferral of certain types of compensation over time, implementing “clawback” requirements, or
making other changes deemed onerous by such investment professionals.
Amounts earned by our employees who participate in performance fees will vary year-to-year depending on the overall realized performance of the
Company. As a result, there may be periods when the executive committee of the Company’s manager determines that allocations of realized performance fees are
not sufficient to compensate individuals, which may result in an increase in salary, bonus and benefits, the modification of existing programs or the use of new
remuneration programs, which may increase our overall compensation costs. Reductions in performance fee revenues could also make it harder to retain employees
and cause employees to seek other employment opportunities.
The loss of even a small number of our investment professionals could jeopardize the performance of our funds, which would have a material adverse
effect on our results of operations. Efforts to retain or attract investment professionals and other personnel may result in significant additional expenses, which
could adversely affect our profitability.
We strive to maintain a work environment that promotes our culture of collaboration, motivation and alignment of interests with our fund investors and
shareholders. If we do not continue to develop and implement effective processes and tools to manage growth and reinforce this vision, our ability to compete
successfully and achieve our business objectives could be impaired, which could negatively affect our businesses, financial condition and results of operations.
- 53 -
Table of Contents
We may not be successful in expanding into new investment strategies, markets and businesses.
We actively consider the opportunistic expansion of our businesses, both geographically and into complementary new investment strategies. We may not
be successful in any such attempted expansion. Attempts to expand our businesses involve a number of special risks, including some or all of the following:
•
•
•
•
•
•
the diversion of management’s attention from our core businesses;
the disruption of our ongoing businesses;
entry into markets or businesses in which we may have limited or no experience;
increasing demands on our operational systems and infrastructure;
potential increase in investor concentration; and
the broadening of our geographic footprint, increasing the risks associated with conducting operations in foreign jurisdictions (including regulatory,
tax, legal and reputational consequences).
Additionally, any expansion of our businesses could result in significant increases in our outstanding indebtedness and debt service requirements, which
would increase the risks of investing in our Class A shares and our Preferred shares, and may adversely impact our results of operations and financial condition.
We also may not be successful in identifying new investment strategies or geographic markets that increase our profitability, or in identifying and
acquiring new businesses that increase our profitability. Because we have not yet identified these potential new investment strategies, geographic markets or
businesses, we cannot identify for you all the risks we may face and the potential adverse consequences on us and your investment that may result from our
attempted expansion. We also do not know how long it may take for us to expand, if we do so at all. We have also entered into strategic partnerships, separately
managed accounts and sub-advisory arrangements, which lack the scale of our traditional funds and are more costly to administer. The prevalence of these
accounts may also present conflicts and introduce complexity in the deployment of capital. We have total discretion, at the direction of our manager, without
needing to seek approval from our board of directors or shareholders, to enter into new investment strategies, geographic markets and businesses, other than
expansions involving transactions with affiliates which may require board approval.
Many of our funds invest in relatively high-risk, illiquid assets and we may fail to realize any profits from these activities for a considerable period of time or
lose some or all of the principal amount we invest in these activities.
Many of our funds invest in securities that are not publicly traded. In many cases, our funds may be prohibited by contract or by applicable securities laws
from selling such securities for a period of time. Our funds will generally not be able to sell these securities publicly unless their sale is registered under applicable
securities laws, or unless an exemption from such registration requirements is available. The ability of many of our funds, particularly our private equity funds, to
dispose of investments is heavily dependent on the public equity markets, inasmuch as the ability to realize value from an investment may depend upon the ability
to complete an IPO of the portfolio company in which such investment is held. Furthermore, large holdings even of publicly traded equity securities can often be
disposed of only over a substantial period of time, exposing the investment returns to risks of downward movement in market prices during the disposition period.
Moreover, because the investment strategy of many of our funds often entails our having representation on public portfolio company boards of our funds, our funds
may be restricted in their ability to affect such sales during certain time periods. Accordingly, our funds may be forced, under certain conditions, to sell securities
at a loss.
Dependence on significant leverage in investments by our funds could adversely affect our ability to achieve attractive rates of return on those investments.
Because certain of our funds’ investments rely heavily on the use of leverage, our ability to achieve attractive rates of return on investments will depend
on our continued ability to access sufficient sources of indebtedness at attractive rates. For example, in many of our private equity fund investments, indebtedness
may constitute 70% or more of a portfolio company’s total debt and equity capitalization, including debt that may be incurred in connection with the investment,
and a portfolio company’s leverage may increase as a result of recapitalization transactions subsequent to the company’s acquisition by a private equity fund. The
absence of available sources of senior debt financing for extended periods of time could therefore materially and adversely affect our funds. An increase in either
the general levels of interest rates or in the risk spread demanded by sources of indebtedness would make it more expensive to finance those investments. Increases
in interest rates could also make it more difficult to locate and consummate private equity investments because other potential buyers, including operating
companies acting as strategic buyers, may be able to bid for an asset at a higher price due to a lower overall cost of capital. Conversely, certain of the strategies
pursued by funds we manage benefit from higher interest rates, and a sustained low interest rate environment may negatively impact expected returns for these
funds. The TCJA also introduced a new limitation on the deductibility of interest for U.S. Federal income tax purposes for corporations and pass-through entities.
For taxable years beginning after December 31, 2017, taxpayers
- 54 -
Table of Contents
may no longer deduct business interest expense in excess of the sum of (i) business interest income and (ii) 30% of “adjusted taxable income” (which is similar to
EBITDA for taxable years beginning before January 1, 2022, and similar to EBIT for taxable years beginning thereafter). Notably these limitations apply to
existing debt and there are no transitional rules. Although the impact of this limitation will vary across our funds’ portfolio companies, it is possible that we may
not be able to utilize the same amount of leverage to finance investments going forward or that a material amount of interest expense may not be deductible for
U.S. Federal income tax purposes by our portfolio companies, both of which may have a material impact on our rates of return on investments. See “— Recently
enacted
U.S.
tax
legislation
may
materially
adversely
affect
our
results
of
operation
and
cash
flows
and
may
have
adverse
tax
consequences
for
certain
of
our
Class
A
shareholders
.”
In addition, a portion of the indebtedness used to finance certain of our fund investments often includes high-yield debt securities. Availability of capital
from the high-yield debt markets is subject to significant volatility, and there may be times when we might not be able to access those markets at attractive rates, or
at all. To the extent that there are limits the amount or cost of financing our funds are able to obtain, the returns on our funds’ investments may suffer.
Investments in highly leveraged entities are inherently more sensitive to declines in revenues, increases in expenses and interest rates and adverse
economic, market and industry developments. The incurrence of a significant amount of indebtedness by an entity could, among other things:
•
•
•
•
•
give rise to an obligation to make mandatory prepayments of debt using excess cash flow, which might limit the entity’s ability to respond to
changing industry conditions to the extent additional cash is needed for the response, to make unplanned but necessary capital expenditures or to take
advantage of growth opportunities;
allow even moderate reductions in operating cash flow to render it unable to service its indebtedness, leading to a bankruptcy or other reorganization
of the entity and a loss of part or all of the equity investment in it;
limit the entity’s ability to adjust to changing market conditions, thereby placing it at a competitive disadvantage compared to its competitors who
have relatively less debt;
limit the entity’s ability to engage in strategic acquisitions that might be necessary to generate attractive returns or further growth; and
limit the entity’s ability to obtain additional financing or increase the cost of obtaining such financing, including for capital expenditures, working
capital or general corporate purposes.
As a result, the risk of loss associated with a leveraged entity is generally greater than for companies with comparatively less debt. For example, many
investments consummated by private equity sponsors during 2005, 2006 and 2007 that utilized significant amounts of leverage subsequently experienced severe
economic stress and in certain cases defaulted on their debt obligations due to a decrease in revenues and cash flow precipitated by the economic downturn.
When certain of our funds’ existing portfolio investments reach the point when debt incurred to finance those investments matures in significant amounts
and must be either repaid or refinanced, those investments may materially suffer if they have generated insufficient cash flow to repay maturing debt and there is
insufficient capacity and availability in the financing markets to permit them to refinance maturing debt on satisfactory terms, or at all. If a limited availability of
financing for such purposes were to persist for an extended period of time, when significant amounts of the debt incurred to finance these funds’ existing portfolio
investments came due, these funds could be materially and adversely affected. Additionally, if such limited availability of financing persists, our funds may also
not be able to recoup their investments, as issuers of debt become unable to repay their borrowings.
In addition to our private equity funds, many of our other funds may choose to use leverage as part of their respective investment programs and regularly
borrow a substantial amount of their capital. The use of leverage poses a significant degree of risk and enhances the possibility of a significant loss in the value of
the investment portfolio. Our credit and real assets funds may borrow money from time to time to purchase or carry securities. The interest expense and other costs
incurred in connection with such borrowing may not be recovered by appreciation in the securities purchased or carried, and will be lost-and the timing and
magnitude of such losses may be accelerated or exacerbated-in the event of a decline in the market value of such securities. Gains realized with borrowed funds
may cause the fund’s net asset value to increase at a faster rate than would be the case without borrowings. However, if investment results fail to cover the cost of
borrowings, the fund’s net asset value could also decrease faster than if there had been no borrowings. The inability to obtain such financing on attractive terms
may impact our funds’ ability to achieve targeted rates of return.
In addition, under the provisions of the Investment Company Act, AINV is permitted, as a business development company, to issue senior securities in
amounts such that its asset coverage, as defined in the Investment Company Act, equals at least 200% after each issuance of senior securities. Effective April 4,
2019, AINV will be permitted to decrease its asset coverage to 150%. Further, AFT and AIF, as registered investment companies, are restricted in the (i) issuance
of preferred shares to amounts such that their respective asset coverage (as defined in Section 18 of the Investment Company Act) equals at least 200% after
issuance
- 55 -
Table of Contents
and (ii) incurrence of indebtedness, including through the issuance of debt securities, such that, immediately after issuance the fund will have an asset coverage (as
defined in the Investment Company Act) of at least 300%. The ability of AFT and AIF to pay dividends on their common stock may be restricted if the asset
coverage of their indebtedness falls below 300% and if the asset coverage on their preferred stock falls below 200% (150% effective April 4, 2019). AINV will be
restricted if its asset coverage ratio falls below 200% and any amounts that it uses to service its indebtedness are not available for dividends to its common
shareholders. An increase in interest rates could also decrease the value of fixed-rate debt investments that our funds make. Any of the foregoing circumstances
could have a material adverse effect on our financial condition, results of operations and cash flow.
Certain of our funds may invest in high-yield, below investment grade or unrated debt, or securities of companies that are experiencing significant
financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Such investments are subject to
a greater risk of poor performance or loss.
Certain of our funds, especially our credit funds, may invest in below investment grade or unrated debt, including corporate loans and bonds, each of
which generally involves a higher degree of risk than investment grade rated debt, and may be less liquid. Issuers of high yield or unrated debt may be highly
leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their debt
obligations. As a result, high yield or unrated debt is often less liquid than investment grade rated debt. Also, investments may be made in loans and other forms of
debt that are not marketable securities and therefore are not liquid. In the absence of hedging measures, changes in interest rates generally will also cause the value
of debt investments to vary inversely to such changes. The obligor of a debt security or instrument may not be able or willing to pay interest or to repay principal
when due in accordance with the terms of the associated agreement and collateral may not be available or sufficient to cover such liabilities. Commercial bank
lenders and other creditors may be able to contest payments to the holders of other debt obligations of the same obligor in the event of default under their
commercial bank loan agreements. Sub-participation interests in syndicated debt may be subject to certain risks as a result of having no direct contractual
relationship with underlying borrowers. Debt securities and instruments may be rated below investment grade by recognized rating agencies or unrated and face
ongoing uncertainties and exposure to adverse business, financial or economic conditions and the issuer’s failure to make timely interest and principal payments.
Certain of our funds, especially our credit funds, may invest in business enterprises that are or may become involved in work-outs, liquidations, spin-offs,
reorganizations, bankruptcies and similar transactions, and may purchase non-performing loans or other high-risk receivables. An investment in such a business
enterprise entails the risk that the transaction in which such business enterprise is involved either will be unsuccessful, will take considerable time or will result in a
distribution of cash or a new security the value of which will be less than the purchase price to the fund of the security or other financial instrument in respect of
which such distribution is received. In addition, if an anticipated transaction does not in fact occur, the fund may be required to sell its investment at a loss.
Investments in troubled companies may also be adversely affected by U.S. Federal and state laws relating to, among other things, fraudulent conveyances, voidable
preferences, lender liability and a bankruptcy court’s discretionary power to disallow, subordinate or disenfranchise particular claims. Investments in securities and
private claims of troubled companies made in connection with an attempt to influence a restructuring proposal or plan of reorganization in a bankruptcy case may
also involve substantial litigation. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies, there
is a potential risk of loss by a fund of its entire investment in such company. Moreover, a major economic recession could have a materially adverse impact on the
value of such securities.
Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the value and liquidity of securities rated
below investment grade or otherwise adversely affect our reputation. For example, certain of our funds, especially our credit funds, may receive equity in exchange
for debt securities of troubled companies in which they have invested, and thus become equity owners of business enterprises that have not been subject to the
same level or kind of due diligence investigation that our funds would typically conduct in connection with an equity investment. This could result in adverse
publicity, reputational harm, and possibly control person liability in certain circumstances depending on the size of the funds’ equity stake and other factors.
We rely on technology and information systems to conduct our businesses, and any failures and interruptions of these systems could adversely affect our
businesses and results of operations. Additionally, we face operational risks in the execution, confirmation or settlement of transactions and our dependence
on our New York-based offices and third-party providers.
We rely on a host of computer software and hardware systems, all of which are vulnerable to an increasing number of data security threats. We further
rely on financial, accounting and other data processing systems to mitigate the risk of errors in the execution, confirmation or settlement of transactions. As we
depend on our New York-based offices and third-party service providers for hosting solutions and technologies, a disaster or disruption in the related infrastructure
could impair our operations and could impact our reputation, adversely affect our businesses and limit our ability to grow. The materialization of one or more of
these risks is likely to have a material adverse effect on us.
- 56 -
Table of Contents
Reliance on computer hardware and software systems . There has been an increase in the frequency and sophistication of the data security threats we
face, with attacks ranging from those common to businesses generally to those that are more advanced and persistent, which may target us because, as an
alternative investment management firm, we hold a significant amount of confidential and sensitive information about, among other things, our investors, the
portfolio companies of our funds and potential fund investments. As a result, we may face a heightened risk of a security breach or disruption with respect to this
information resulting from an attack by computer hackers, foreign governments or cyber terrorists. For example, we and our employees may be the target of
fraudulent emails or other targeted attempts to gain unauthorized access to proprietary or sensitive information. If successful, these types of attacks on our network
or other systems could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data,
interruptions or delays in our business and damage to our reputation.
Although we are not currently aware of any cyberattacks or other incidents that, individually or in the aggregate, have materially affected, or would
reasonably be expected to materially affect, our operations or financial condition, there can be no assurance that the various procedures and controls we utilize to
mitigate these threats will be sufficient to prevent disruptions to our systems, especially because the cyberattack techniques used change frequently and are not
recognized until launched, the full scope of a cyberattack may not be realized until an investigation has been performed and cyberattacks can originate from a wide
variety of sources. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our
information systems. Although we take protective measures and endeavors to strengthen our computer systems, software, technology assets and networks to
prevent and address potential cyberattacks, there can be no assurance that any of these measures prove effective. Moreover, due to the complexity and
interconnectedness of our systems, the process of upgrading or patching the Company’s protective measures could itself create a risk of security issues or system
disruptions for the Company, as well as for clients who rely upon, or have exposure to, our systems.
In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our
businesses and could result in decreased performance and increased operating costs, causing our businesses and results of operations to suffer. Any significant
interruption or failure of our information systems or any significant breach of security could have a material effect on our businesses and results of operations due
to, among other things, the loss of investor or proprietary data, interruptions or delays in our business and damage to our reputation. If our systems are
compromised, do not operate properly or are disabled, or we fail to provide the appropriate regulatory or other notifications in a timely manner, we could suffer a
financial loss, a disruption of our businesses, liability to our investment funds, regulatory intervention or reputational damage. Our funds’ portfolio companies also
rely on data processing systems and the secure processing, storage and transmission of information, including payment and health information. A disruption or
compromise of these systems could have a material adverse effect on the value of these businesses. Breaches in security could potentially jeopardize our, our
employees’ or our fund investors’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and
networks, or otherwise cause interruptions or malfunctions in our, our employees’, our fund investors’, our counterparties’ or third parties’ operations, which could
result in significant losses, increased costs, disruption of our business, liability to our fund investors and other counterparties, regulatory intervention or
reputational damage.
The costs related to data security threats or disruptions may not be fully insured or indemnified by other means. In addition, data security has become a
top priority for regulators around the world. For example, one of the 2018 examination priorities identified by the SEC’s Office of Compliance Inspections and
Examinations’ (OCIE) was to continue to examine for data security compliance procedures and controls, including testing the implementation of those procedures
and controls. Additionally, any jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal
information, including the General Data Protection Regulation in the European Union that went into effect in May 2018. Some jurisdictions have also enacted laws
requiring companies to notify individuals of data security breaches involving certain types of personal data. If we fail to comply with the relevant laws and
regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our fund investors and clients to lose
confidence in the effectiveness of our security measures.
Errors made in the execution, confirmation or settlement of transactions . We face operational risk from errors made in the execution, confirmation or
settlement of transactions. We also face operational risk from transactions not being properly recorded, evaluated or accounted for in our funds. In particular, our
credit business is highly dependent on our ability to process and evaluate, on a daily basis, transactions across markets and geographies in a time-sensitive, efficient
and accurate manner. New investment products we may introduce could create a significant risk that our existing systems may not be adequate to identify or
control the relevant risks in the investment strategies employed by such new investment products. In addition, our and our third party service providers’
information systems and technology might not be able to accommodate our growth, may not be suitable for new products and strategies and may be subject to
security risks, and the cost of maintaining such systems and technology might increase from its current level. These risks could cause us to suffer financial loss, a
disruption of our businesses, liability to our funds, regulatory intervention and reputational damage.
- 57 -
Table of Contents
Dependence on our New York based offices and third-party vendors . Much of our operational personnel and our information system and technology
infrastructure are located in our New York City offices, and any disruption in the operation of, or inability to access, our New York City offices could have a
significant impact on our business. We are also dependent on an increasingly concentrated group of third party vendors that we do not control for hosting solutions
and technologies. We also rely on third-party service providers for certain aspects of our businesses, including for certain information systems, technology and
administration of our funds and compliance matters. A disaster, disruption or compromise in technology or infrastructure that supports our businesses, including a
disruption involving electronic communications or other services used by us, our vendors or third parties with whom we conduct business, or directly affecting our
New York based offices, may have an adverse impact on our ability to continue to operate our businesses without interruption which could have a material adverse
effect on us. These risks could increase as vendors increasingly offer cloud-based software services rather than software services that can be operated within our
own data centers. We also rely on data processing systems and the secure processing, storage and transmission of information, including payment and health
information. A disruption or compromise of these systems could have a material adverse effect on our business. Our disaster recovery and business continuity
programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only
partially reimburse us for our losses, if at all.
Failure to maintain the security of our information and technology networks, including personally identifiable and investor information, intellectual property
and proprietary business information could have a material adverse effect on us.
We are subject to various risks and costs associated with the collection, handling, storage and transmission of sensitive information, including those
related to compliance with U.S. and foreign data collection and privacy laws and other contractual obligations, as well as those associated with the compromise of
our systems collecting such information. In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information
and intellectual property, and personally identifiable information of our employees and our investors, in our data centers and on our networks. The secure
processing, maintenance and transmission of this information are critical to our operations. Although we take various measures and have made, and expect to
continue to make, significant investments to ensure the integrity of our systems and to safeguard against such failures or security breaches, there can be no
assurance that these measures and investments will provide protection.
These risks are exacerbated by the rapidly increasing volume of highly sensitive data, including our proprietary business information and intellectual
property, and personally identifiable information of our employees and our fund investors, that we collect and store in our data centers and on our networks. The
secure processing, maintenance and transmission of this information are critical to our operations.
A significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of investor, employee or other personally identifiable or
proprietary business data, whether by third parties or as a result of employee malfeasance or otherwise, non-compliance with our contractual or other legal
obligations regarding such data or intellectual property or a violation of our privacy and security policies with respect to such data could result in significant
remediation and other costs, fines, litigation or regulatory actions against us by the U.S. Federal and state governments, the EU or other jurisdictions or by various
regulatory organizations or exchanges, in addition to significant reputational harm. Many jurisdictions in which we operate have laws and regulations related to
data privacy, cyber security and protection of personal information, including the EU General Data Protection Regulation (“GDPR”) adopted by the EU in May
2016, which provides for significant penalties for noncompliance beginning in May 2018. The GDPR introduces new obligations and expands its territorial reach.
It applies to all organizations processing or holding personal data of EU data subjects (regardless of the organization’s location) as well as to organizations outside
the EU that offer goods or services in the EU, or that monitor the behavior of EU data subjects. The GDPR defines personal data as information that can be used to
identify a natural person, including a name, a photo, an email address, or a computer IP address. Compliance with the GDPR requires companies to analyze and
evaluate how they handle data in the ordinary course of their business, from processes to technology. It imposes a prescriptive approach to compliance requiring
organizations to demonstrate and record compliance and to provide much more detailed information to data subjects regarding processing. EU data subjects need to
be given full disclosure about how their personal data is used and stored. In that connection, consent must be explicit, and companies must be in a position to delete
information from their global systems permanently if consent were withdrawn. As with any other organization that holds personal data of EU data subjects, we
have to comply with the GDPR because, among other things, we process European individuals’ personal data in the U.S. via our global technology systems.
Financial regulators and data protection authorities throughout the EU have significantly increased audit and investigatory powers under GDPR to probe how
personal data is being used and processed. Penalties for non-compliance are substantial. Serious breaches of GDPR include fines on companies of up to the greater
of €20 million or 4% of global group turnover (revenue) in the preceding year, regulatory action and reputational risk.
Any inability, or perceived inability, to adequately address privacy and data protection concerns, or comply with applicable laws, regulations, policies,
industry standards, contractual obligations, or other legal obligations, even if unfounded, could result
- 58 -
Table of Contents
in additional cost and liability, disrupt our operations and the services we provide to investors, damage our reputation, result in a loss of a competitive advantage,
impact our ability to provide timely and accurate financial data, and cause a loss of confidence in our services and financial reporting, which could adversely affect
our businesses, revenues, competitive position and investor confidence.
We derive a substantial portion of our revenues from funds managed pursuant to management agreements that may be terminated or fund partnership
agreements that permit fund investors to request liquidation of investments in our funds on short notice.
The terms of our funds generally give either the general partner of the fund, the fund’s board of directors or the third-party advisor the right to terminate
our investment management agreement with the fund. However, insofar as we control the general partner of our funds that are limited partnerships, the risk of
termination of investment management agreement for such funds is limited, subject to our fiduciary or contractual duties as general partner. This risk is more
significant for certain of our funds which have independent boards of directors.
With respect to our funds that are subject to the Investment Company Act, following the initial two years of operation, each fund’s investment
management agreement must be approved annually by (i) such fund’s board of directors or by the vote of a majority of the funds’ shareholders and (ii) in each
case, also by a majority of the independent members of such fund’s board of directors. Each investment management agreement for such funds can also be
terminated on not more than 60 days’ notice by the funds’ board of directors or by a vote of a majority of the outstanding shares. Currently, AFT and AIF, each a
closed-end management investment company, registered investment company under the Investment Company Act, and AINV, a closed-end management
investment company that has elected to be treated as a business development company under the Investment Company Act, are subject to these provisions of the
Investment Company Act. We have also been engaged as a sub-advisor for funds that are subject to the Investment Company Act, and those sub-advisory
agreements contain, among other things, renewal and termination provisions that are substantially similar to the investment management agreements for each of
AFT, AIF and AINV. Termination of these agreements would reduce the fees we earn from the relevant funds, which could have a material adverse effect on our
results of operations.
The governing documents of certain of our funds provide that a simple majority of a fund’s unaffiliated investors have the right to liquidate that fund,
which would cause management fees and performance fees to terminate. Our ability to realize performance fees from such funds also would be adversely affected
if we are required to liquidate fund investments at a time when market conditions result in our obtaining less for investments than could be obtained at later times.
We do not know whether, and under what circumstances, the investors in our funds are likely to exercise such right.
In addition, the management agreements of our funds would terminate if we were to experience a change of control without obtaining fund investor
consent. Such a change of control could be deemed to occur in the event our Managing Partners exchange enough of their interests in the Apollo Operating Group
into our Class A shares such that our Managing Partners no longer own a controlling interest in us. We cannot be certain that consents required for the assignment
of our management agreements will be obtained if such a deemed change of control occurs. Termination of these agreements would affect the fees we earn from
the relevant funds and the transaction and advisory fees we earn from the underlying portfolio companies, which could have a material adverse effect on our results
of operations.
Our use of leverage to finance our businesses will expose us to substantial risks, which are exacerbated by our funds’ use of leverage to finance investments.
We have senior notes and loans outstanding and an undrawn revolving credit facility described in note 10 to our consolidated financial statements. We
may choose to finance our business operations through further borrowings. Our existing and future indebtedness exposes us to the typical risks associated with the
use of leverage, including those discussed above under “— Dependence
on
significant
leverage
in
investments
by
our
funds
could
adversely
affect
our
ability
to
achieve
attractive
rates
of
return
on
those
investments
.” These risks are exacerbated by certain of our funds’ use of leverage to finance investments and, if they
were to occur, could cause us to incur additional cash taxes due to limits on interest deductibility or to suffer a decline in the credit ratings assigned to our debt by
rating agencies, if any, which might result in an increase in our borrowing costs or result in other material adverse effects on our businesses.
As these borrowings, notes and other indebtedness mature (or are otherwise repaid prior to their scheduled maturities), we may be required to either
refinance them by entering into new facilities or issuing new notes, which could result in higher borrowing costs, or issuing equity, which would dilute existing
shareholders. We could also repay them by using cash on hand or cash from the sale of our assets. We could have difficulty entering into new facilities, issuing
new notes or issuing equity in the future on attractive terms, or at all.
- 59 -
Table of Contents
Additionally, our credit rating outlook suffered a decline in connection with the issuance of our 4.872% Senior Notes due 2029. Our credit rating outlook
may not improve or may continue to decline, whether or not we incur additional indebtedness, which, in each case, might result in an increase in our borrowing
costs or result in other material adverse effects on our business.
We are subject to third-party litigation from time to time that could result in significant liabilities and reputational harm, which could have a material adverse
effect on our results of operations, financial condition and liquidity.
In general, we will be exposed to risk of litigation by our investors if our management of any fund is alleged to constitute bad faith, gross negligence,
willful misconduct, fraud, willful or reckless disregard for our duties to the fund or other forms of misconduct. Fund investors could sue us to recover amounts lost
by our funds due to our alleged misconduct, up to the entire amount of loss. Further, we may be subject to litigation arising from investor dissatisfaction with the
performance of our funds or from third-party allegations that we (i) improperly exercised control or influence over companies in which our funds have large
investments or (ii) are liable for actions or inactions taken by portfolio companies that such third parties argue we control. By way of example, we, our funds and
certain of our employees are each exposed to the risks of litigation relating to investment activities in our funds and actions taken by the officers and directors
(some of whom may be Apollo employees) of portfolio companies, such as the risk of shareholder litigation by other shareholders of public companies in which
our funds have large investments. As an additional example, we are sometimes listed as a co-defendant in actions against portfolio companies on the theory that we
control such portfolio companies. We are also exposed to risks of litigation or investigation relating to transactions that presented conflicts of interest that were not
properly addressed. See “— Our
failure
to
deal
appropriately
with
conflicts
of
interest
could
damage
our
reputation
and
adversely
affect
our
businesses
.” In
addition, our rights to indemnification by the funds we manage may not be upheld if challenged, and our indemnification rights generally do not cover bad faith,
gross negligence, willful misconduct, fraud, willful or reckless disregard for our duties to the fund or other forms of misconduct. If we are required to incur all or a
portion of the costs arising out of litigation or investigations as a result of inadequate insurance proceeds or failure to obtain indemnification from our funds, our
results of operations, financial condition and liquidity could be materially adversely affected.
In addition, with many highly paid investment professionals and complex compensation and incentive arrangements, we face the risk of lawsuits relating
to claims for compensation, which may individually or in the aggregate be significant in amount. Such claims are more likely to occur in situations where
individual employees may experience significant volatility in their year-to-year compensation due to company performance or other issues and in situations where
previously highly compensated employees were terminated for performance or efficiency reasons. The cost of settling such claims could adversely affect our
results of operations.
If any civil or criminal litigation brought against us were to result in a finding of substantial legal liability or culpability, the litigation could, in addition to
any financial damage, cause significant reputational harm to us, which could seriously harm our business. We depend to a large extent on our business
relationships and our reputation for integrity and high-caliber professional services to attract and retain investors and qualified professionals and to pursue
investment opportunities for our funds. As a result, allegations of improper conduct by private litigants or regulators, whether the ultimate outcome is favorable or
unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the private equity industry in general, whether or not
valid, may harm our reputation, which may be more damaging to our businesses than to other types of businesses. See “Item 3. Legal Proceedings.”
In addition, we may not be able to obtain or maintain sufficient insurance on commercially reasonable terms or with adequate coverage levels against
potential liabilities we may face in connection with potential claims, which could have a material adverse affect on our business. We may face a risk of loss from a
variety of claims, including related to securities, antitrust, contracts, fraud and various other potential claims, whether or not such claims are valid. Insurance and
other safeguards might only partially reimburse us for our losses, if at all, and if a claim is successful and exceeds or is not covered by our insurance policies, we
may be required to pay a substantial amount in respect of such successful claim. Certain losses of a catastrophic nature, such as wars, earthquakes, typhoons,
terrorist attacks or other similar events, may be uninsurable or may only be insurable at rates that are so high that maintaining coverage would cause an adverse
impact on our business, our investment funds and their portfolio companies. In general, losses related to terrorism are becoming harder and more expensive to
insure against. Some insurers are excluding terrorism coverage from their all-risk policies. In some cases, insurers are offering significantly limited coverage
against terrorist acts for additional premiums, which can greatly increase the total cost of casualty insurance for a property. As a result, we, our investment funds
and their portfolio companies may not be insured against terrorism or certain other catastrophic losses.
Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our businesses.
As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest
relating to our funds’ investment activities. Certain of our funds have overlapping investment
- 60 -
Table of Contents
objectives, including funds that have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment
opportunities among those funds. For example, a decision to acquire material non-public information about a company while pursuing an investment opportunity
for a particular fund gives rise to a potential conflict of interest when it results in our having to restrict the ability of other funds to take any action. Conflicts of
interest may also exist in the valuation of our investments and regarding decisions about the allocation of specific investment opportunities among us and our funds
and the allocation of fees and costs among us, our funds and portfolio companies of our funds. In addition, fund investors (or holders of Class A shares or Preferred
shares) may perceive conflicts of interest regarding investment decisions for funds in which our Managing Partners, who have and may continue to make
significant personal investments in a variety of Apollo funds, are personally invested. Similarly, conflicts of interest may exist with our manager, which is allowed
under our organizational documents to manage our actions as it desires, without considering the interests of our shareholders. Finally, due to recent changes in the
tax treatment of performance fees introduced by the TCJA in the U.S. and various Finance Acts in the U.K., conflicts of interest may arise with investors in certain
of our funds in connection with the general partner’s decisions with respect to investments of our funds.
Allocation of investment opportunities . Certain inherent conflicts of interest arise from the fact that (i) we provide investment management services to
more than one fund, and (ii) our funds often have one or more overlapping investment strategies. Also, the investment strategies employed by us for current and
future clients could conflict with each other, and may adversely affect the prices and availability of other securities or instruments held by, or potentially
considered for, one or more clients. If participation in specific investment opportunities is appropriate for more than one of our funds, participation in such
opportunities will be allocated pursuant to our allocation policies and procedures, which include the relevant partnership or investment management agreement as
well as the decisions of our allocations committee. While we have established policies and procedures to guide the determination of such allocations, there can be
no assurance that we will be successful in avoiding all conflicts of interest in allocating investment opportunities.
Certain of the funds we manage also have overlapping investment strategies with other funds we manage that are registered under the Investment
Company Act, and the Investment Company Act prohibits registered funds from co-investing with non-registered funds where non-price terms are negotiated (such
as financial and negative covenants, guarantees and collateral packages and indemnification provisions), unless an exception or exemption applies. Certain of the
funds we manage that are registered under the Investment Company Act, including Apollo Investment Corporation and certain of its related entities, received an
exemptive order from the SEC (the “Co-Investment Order”) (Company Act Release No. 32057) permitting Apollo to negotiate, among other things, these types of
provisions for co-investment opportunities that involve the participation of both non-registered and registered funds managed by Apollo. As a result, to the extent
specific investment opportunities are appropriate for a non-registered fund and one or more registered funds, in addition to being subject to our allocation policies
and procedures, the opportunity will also be subject to the conditions of the Co-Investment Order. There can be no assurance that the Co-Investment Order will
facilitate the successful consummation of investment opportunities that Apollo believes are now available to funds it manages as a result of the Co-Investment
Order, or that each fund will be able to participate in investment opportunities pursued under the Co-Investment Order that are within its investment objectives.
In addition to the potential for conflict among our funds, we face the potential for conflict between us and our funds or clients. These conflicts may
include: (i) the allocation of investment opportunities between Apollo and Apollo’s funds; (ii) the allocation of investment opportunities among funds with
different incentive fee structures, or where our personnel have invested more heavily in one fund than another; and (iii) the determination of what constitutes fund-
related expenses and the allocation of such expenses between our advised funds and us.
Restrictions on transactions due to other Apollo businesses . Our funds engage in a broad range of business activities and invest in portfolio companies
whose operations may be substantially similar to and/or competitive with the portfolio companies in which our other funds have invested. The performance and
operation of such competing businesses could conflict with and adversely affect the performance and operation of our funds’ portfolio companies, and may
adversely affect the prices and availability of business opportunities or transactions available to such portfolio companies. In addition, we may give advice, or take
action with respect to, the investments of one or more of our funds that may not be given or taken with respect to other of our funds with similar investment
programs, objectives or strategies. Accordingly, some of our funds with similar strategies may not hold the same securities or instruments or achieve the same
performance. For example, one of our private equity funds could have an interest in pursuing an acquisition, divestiture or other transaction that, in its judgment,
could enhance the value of the private equity investment, even though the proposed transaction would subject one of our credit fund’s debt investments to
additional or increased risks. We may also advise clients with conflicting investment objectives or strategies. These activities also may adversely affect the prices
and availability of other securities or instruments held by, or potentially considered for, one or more funds. We, our funds or our funds’ portfolio companies may
also have ongoing relationships with issuers whose securities have been acquired by, or are being considered for investment by us.
- 61 -
Table of Contents
Investing throughout the corporate capital structure . Our funds invest in a broad range of asset classes throughout the corporate capital structure. These
investments include investments in corporate loans and debt securities, preferred equity securities and common equity securities. In certain cases, we may manage
separate funds that invest in different parts of the same company’s capital structure. For example, our credit funds may invest in different classes of the same
company’s debt. In those cases, the interests of our funds may not always be aligned, which could create actual or potential conflicts of interest or the appearance
of such conflicts.
Information barriers . We currently operate without information barriers that some other investment management firms implement to separate business
units and/or to separate persons who make investment decisions from others who might possess material non-public information that could influence such
decisions. Our Managing Partners, investment professionals or other employees may acquire confidential or material non-public information and, as a result, be
restricted from initiating transactions in certain securities. In an effort to manage possible risks arising from our decision not to implement such screens, we
maintain a code of ethics and provide training to relevant personnel. In addition, our compliance department maintains a list of restricted securities with respect to
which we may have access to material non-public information and in which our funds may be subject to trading restrictions. In the event that any of our employees
obtains such material non-public information, we may be restricted in acquiring or disposing of investments on behalf of our funds, which could impact the returns
generated for such funds. Notwithstanding the maintenance of restricted securities lists and other internal controls, it is possible that the internal controls relating to
the management of material non-public information could fail and result in us, or one of our investment professionals, buying or selling a security while, at least
constructively, in possession of material non-public information. Inadvertent trading on material non-public information could have adverse effects on our
reputation, result in the imposition of regulatory or financial sanctions and, as a consequence, negatively impact our ability to provide our investment management
services to our funds and clients. While we currently operate without information barriers on an integrated basis, we could be required by certain regulations, or
decide that it is advisable, to establish information barriers. In such event, our ability to operate as an integrated platform could also be impaired, which would limit
management’s access to our personnel and impair its ability to manage our investments. The establishment of such information barriers may also lead to
operational disruptions and result in restructuring costs, including costs related to hiring additional personnel as existing investment professionals are allocated to
either side of such barriers, which may adversely affect our business.
Broker-dealer . AGS, an affiliate of ours, which is a broker-dealer registered with the SEC and a member of FINRA, is authorized to perform services
relating to, among other things, the placement of debt and securities. AGS also provides advisory services to portfolio companies and our funds in connection with
corporate transactions. Additionally, certain of our affiliates and/or our funds’ portfolio companies are engaged in the loan origination and/or servicing businesses,
and may originate, structure, arrange and/or place loans to our funds and portfolio companies. In connection with their services to our funds and fund portfolio
companies, such affiliates and/or our funds’ portfolio companies may receive transaction and other fees from our funds and/or portfolio companies of our funds.
Consequently, our relationship with these entities may give rise to conflicts of interest between us and portfolio companies of our funds.
Potential conflicts of interest with our Managing Partners or our directors . Pursuant to the terms of our operating agreement, whenever a potential
conflict of interest exists or arises between any of the Managing Partners, one or more directors or their respective affiliates, on the one hand, and us, any of our
subsidiaries or any shareholder other than a Managing Partner, on the other, any resolution or course of action by our board of directors shall be permitted and
deemed approved by all shareholders if the resolution or course of action (i) has been specifically approved by a majority of the voting power of our outstanding
voting shares (excluding voting shares owned by our manager or its affiliates) or by a conflicts committee of the board of directors composed entirely of one or
more independent directors, (ii) is on terms no less favorable to us or our shareholders (other than a Managing Partner) than those generally being provided to or
available from unrelated third parties or (iii) it is fair and reasonable to us and our shareholders taking into account the totality of the relationships between the
parties involved. All conflicts of interest described in this report will be deemed to have been specifically approved by all shareholders. Notwithstanding the
foregoing, it is possible that potential or perceived conflicts could give rise to investor dissatisfaction or litigation or regulatory enforcement actions.
Our Managing Partners have established family offices to provide investment advisory, accounting, administrative and other services to their respective
family accounts (including certain charitable accounts) in connection with their personal investment activities unrelated to their investments in Apollo entities. The
investment activities of the family offices, and the involvement of the Managing Partners in these activities, could give rise to potential conflicts between the
personal financial interests of the Managing Partners and the interests of us, any of our subsidiaries or any shareholder other than a Managing Partner.
Potential conflicts of interest with our manager . Our operating agreement contains provisions that waive or consent to conduct by our manager and its
affiliates that might otherwise raise issues about compliance with fiduciary duties or applicable law. For example, our operating agreement provides that when our
manager is acting in its individual capacity, as opposed to in
- 62 -
Table of Contents
its capacity as our manager, it may act without any fiduciary obligations to us or our shareholders whatsoever. When our manager, in its capacity as our manager,
is permitted to or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable,” then
our manager will be entitled to consider only such interests and factors as it desires, including its own interests, and will have no duty or obligation (fiduciary or
otherwise) to give any consideration to any interest of or factors affecting us or any of our shareholders and will not be subject to any different standards imposed
by our operating agreement, the Delaware Limited Liability Company Act or under any other law, rule or regulation or in equity.
Whenever a potential conflict of interest exists between us and our manager, our manager shall resolve such conflict of interest. If our manager
determines that its resolution of the conflict of interest is on terms no less favorable to us than those generally being provided to or available from unrelated third
parties or is fair and reasonable to us, taking into account the totality of the relationships between us and our manager, then it will be presumed that in making this
determination, our manager acted in good faith. A shareholder seeking to challenge this resolution of the conflict of interest would bear the burden of overcoming
such presumption. This is different from the situation with Delaware corporations, where a conflict resolution by an interested party would be presumed to be
unfair and the interested party would have the burden of demonstrating that the resolution was fair. Such modifications of fiduciary duties are expressly permitted
by Delaware law. Hence, we and our shareholders would have recourse and be able to seek remedies against our manager only if our manager breaches its
obligations pursuant to our operating agreement. Unless our manager breaches its obligations pursuant to our operating agreement, we and our shareholders would
not have any recourse against our manager even if our manager were to act in a manner that was inconsistent with traditional fiduciary duties. Furthermore, even if
there has been a breach of the obligations set forth in our operating agreement, our operating agreement provides that our manager and its officers and directors
would not be liable to us or our shareholders for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a
court of competent jurisdiction determining that the manager or its officers and directors acted in bad faith or engaged in fraud or willful misconduct. These
provisions are detrimental to the shareholders because they restrict the remedies available to them for actions that without those limitations might constitute
breaches of duty, including fiduciary duties.
Also, if our manager obtains the approval of the conflicts committee of the Company’s board of directors, the resolution will be conclusively deemed to
be fair and reasonable to us and not a breach by our manager of any duties it may owe to us or our shareholders. This is different from the situation with Delaware
corporations, where a conflict resolution by a committee consisting solely of independent directors may, in certain circumstances, merely shift the burden of
demonstrating unfairness to the plaintiff. If you purchase a Class A share or a Preferred share, you will be treated as having consented to the provisions set forth in
the operating agreement, including provisions regarding conflicts of interest situations that, in the absence of such provisions, might be considered a breach of
fiduciary or other duties under applicable state law. As a result, shareholders will, as a practical matter, not be able to successfully challenge an informed decision
by the conflicts committee.
Potential performance fee related conflicts with investors in our funds . Under recently enacted amendments to U.S. tax law pursuant to the TCJA,
capital gain in respect of a general partner’s distributions of performance fees from certain of our funds will be treated as short-term capital gain unless the fund
holds the relevant investment for more than three years, as opposed to the general rule that capital gain from the disposition of investments held for more than one
year is treated as long-term capital gain. Similar rules introduced in the U.K. applying to partners of our U.K. LLPs tax as ordinary income returns from certain
funds that have a weighted average holding period of fewer than 40 months (with transitional rules applying between 36-40 months). As a consequence, conflicts
of interest may arise in connection with a general partner’s investment decisions, including regarding the identification, making, management, disposition and, in
each case, timing of a fund’s investments, and we may not realize the most tax efficient treatment of our performance fees in all of our funds going forward.
Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal
appropriately with one or more potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a
material adverse effect on our reputation which would materially adversely affect our businesses in a number of ways, including as a result of redemptions by our
investors from our funds, an inability to raise additional funds and a reluctance of counterparties to do business with us. See “— Extensive
regulation
of
our
businesses
affects
our
activities
and
creates
the
potential
for
significant
liabilities
and
penalties.
The
possibility
of
increased
regulatory
focus
could
result
in
additional
burdens
on
our
businesses
.”
Use of subscription line facilities by our funds may give rise to conflicts of interests. Certain of our investment funds obtain subscription line facilities to
facilitate investments, support ongoing operations and activities of the funds’ and their respective portfolio companies and/or investments and to enable the funds
to pay management fees, expenses and other liabilities. Subscription line facilities may be entered into on a cross-collateralized basis with the assets of any other
fund, alternative investment vehicle, portfolio company or investment, and such entities may be held jointly and severally liable for the full amount of the
obligations arising out of such subscription line facility. If an investment fund obtains a subscription line facility, the fund’s interim capital needs will in most
instances be satisfied through borrowings by the fund under the subscription line facility, and, less so, drawdowns
- 63 -
Table of Contents
of capital contributions by the fund, which capital calls would generally be expected to be conducted in larger, less frequent capital calls in order to, among other
things, repay borrowings and related interest expenses made under such subscription line facilities.
Where an investment fund uses borrowings under a subscription line facility in advance or in lieu of receiving capital contributions from investors to
repay any such borrowings and related interest expenses, the use of such facility will result in a different (and perhaps higher) reported internal rate of return than if
the facility had not been utilized and instead capital contributions from investors had been contributed at the inception of an investment. This may present conflicts
of interest, including the interest rate on such borrowings which may be less than the rate of the preferred return and the fact that the preferred return of investment
funds typically does not accrue on such borrowings, but rather only accrues on capital contributions when made. As a result, use of such subscription line facilities
may reduce or eliminate the preferred return received by the investors and accelerate or increase distributions of performance-based allocation to the relevant
general partner, providing the general partner with an economic incentive to fund investments through such facilities in lieu of capital contributions. However,
since interest expense and other costs of borrowings under subscription lines of credit are an expense of the investment fund, the investment fund’s net multiple of
invested capital will be reduced, as will the amount of performance fees generated by the fund. Any material reduction in the amount of performance fees
generated by a fund will adversely affect our revenues.
Our organizational documents do not limit our ability to enter into new lines of businesses, and we may expand into new investment strategies, geographic
markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
We intend, to the extent that market conditions warrant, to grow our businesses by increasing AUM in existing businesses and expanding into new
investment strategies, geographic markets, businesses and distribution channels, including the retail channel. Our organizational documents, however, do not limit
us to the investment management business. Accordingly, we may pursue growth through acquisitions of other investment management companies, acquisitions of
critical business partners or other strategic initiatives, which may include entering into new lines of business, such as the insurance, broker-dealer or financial
advisory industries. In addition, we expect opportunities will arise to acquire other alternative or traditional asset managers. To the extent we make strategic
investments or acquisitions, undertake other strategic initiatives or enter into a new line of business, we will face numerous risks and uncertainties, including risks
associated with (i) the required investment of capital and other resources, (ii) the possibility that we have insufficient expertise to engage in such activities
profitably or without incurring inappropriate amounts of risk, (iii) the diversion of management’s attention from our core businesses, (iv) assumption of liabilities
of any acquired business, (v) the disruption of our ongoing businesses, (vi) combining or integrating operational and management systems and controls and
(vii) the broadening of our geographic footprint, including the risks associated with conducting operations in foreign jurisdictions. Entry into certain lines of
business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation
and regulatory risk. For example, our planned business initiatives include offering additional registered investment products and creating investment products open
to retail investors. These products may have different economic structures than our traditional investment funds and may require a different marketing approach. In
addition, to the extent we distribute products through new channels, including through unaffiliated firms, we may not be able to effectively monitor or control the
manner of their distribution. These activities also will impose additional compliance burdens on us, subject us to enhanced regulatory scrutiny and expose us to
greater reputation and litigation risk. Further, these activities may give rise to conflicts of interest, related party transaction risks and may lead to litigation or
regulatory scrutiny. If a new business generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations
will be adversely affected. Our strategic initiatives may include joint ventures, in which case we will be subject to additional risks and uncertainties in that we may
be dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control.
Employee misconduct or misconduct by our advisors or third party-service providers could harm us by impairing our ability to attract and retain investors and
by subjecting us to significant legal liability, regulatory scrutiny and reputational harm.
Our reputation is critical to maintaining and developing relationships with the investors in our funds, potential fund investors and third parties with whom
we do business, and there is a risk that our employees, advisors or third party-service providers could engage, deliberately or recklessly, in misconduct or fraud that
creates legal exposure for us and adversely affects our businesses. In recent years, there have been a number of highly publicized cases involving fraud, conflicts of
interest or other misconduct by individuals in the financial services industry. Employee misconduct or fraud could include, among other things, binding our funds
to transactions that exceed authorized limits or present unacceptable risks and other unauthorized activities or concealing unsuccessful investments (which, in
either case, may result in unknown and unmanaged risks or losses), or otherwise charging (or seeking to charge) inappropriate expenses. If an employee were to
engage in illegal or suspicious activities, we could be subject to penalties or sanctions and suffer serious harm to our reputation, financial position, investor
relationships and ability to attract future investors. For example, we could lose our ability to raise new investment funds if any of our “covered persons” is the
subject of a criminal, regulatory or court order or other “disqualifying event.” See “— Recent
changes
to
regulations
regarding
- 64 -
Table of Contents
derivatives
and
commodity
interest
transactions
could
adversely
impact
various
aspects
of
our
business—Exemption
from
certain
laws.
” Additionally, our current
and former employees, consultants or sub-contractors and those of our funds’ portfolio companies becoming subject to allegations of sexual harassment, racial and
gender discrimination or other similar misconduct, could, regardless of the ultimate outcome, result in adverse publicity that could significantly harm our and such
portfolio company's brand and reputation. Furthermore, our business often requires that we deal with confidential matters of great significance to us, our funds and
companies in which our funds may invest, as well as trade secrets. If our employees, consultants or sub-contractors were improperly to use or disclose confidential
information, we could suffer serious harm to our reputation, financial position and current and future business relationships, as well as face potentially significant
litigation or investigation. It is not always possible to deter misconduct or fraud by employees or service providers, and the precautions we take to detect and
prevent this activity may not be effective in all cases. Misconduct or fraud by our employees, advisors, third-party service providers, or those of our funds’
portfolio companies, or even unsubstantiated allegations, could result in a material adverse effect on our reputation and our businesses.
Fraud, payment or solicitation of bribes and other deceptive practices or other misconduct at our funds’ portfolio companies could similarly subject us to
liability and reputational damage and also harm our performance. For example, failures by personnel, or individuals acting on behalf, of our funds’ portfolio
companies to comply with anti-bribery, sanctions or other legal and regulatory requirements could adversely affect our businesses and reputation. There are a
number of grounds upon which such misconduct at a portfolio company could subject us to criminal and/or civil liability, including on the basis of actual
knowledge, willful blindness, or control person liability. Such misconduct might also undermine our funds’ due diligence efforts with respect to such companies
and could negatively affect the valuation of a fund’s investments.
Underwriting activities expose us to risks.
AGS may act as an underwriter in securities offerings. We may incur losses and be subject to reputational harm to the extent that, for any reason, AGS is
unable to sell securities or indebtedness that it purchased as an underwriter at the anticipated price levels. As an underwriter, AGS is also subject to potential
liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings that AGS underwrites.
The due diligence process that we undertake in connection with investments by our funds may not reveal all facts that may be relevant in connection with an
investment.
Before making fund investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to
each investment. When conducting due diligence, we may be required to evaluate important and complex business, financial, tax, accounting, environmental and
legal issues. Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending on
the type of investment. Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on the resources available to us,
including information provided by the target of the investment and, in some circumstances, third-party investigations. The due diligence investigation that we will
carry out with respect to any fund investment opportunity may not reveal or highlight all relevant facts (including fraud) or issues that may be necessary or helpful
in evaluating such investment opportunity, including past or current violations of law and related legal exposure, and we may not identify or foresee future
developments that could have a material adverse effect on an investment (e.g., technological disruption across an industry). Moreover, such an investigation will
not necessarily result in the investment being successful.
Certain of our funds utilize special situation and distressed debt investment strategies that involve significant risks.
Our funds often invest in companies with weak financial conditions, poor operating results, substantial financial needs, negative net worth and/or special
competitive or regulatory problems. These funds also invest in companies that are or are anticipated to be involved in bankruptcy or reorganization proceedings. In
such situations, it may be difficult to obtain full information as to the exact financial and operating conditions of these companies. Additionally, the fair values of
such investments are subject to abrupt and erratic market movements and significant price volatility if they are publicly traded securities, and are subject to
significant uncertainty in general if they are not publicly traded securities. Furthermore, some of our funds’ distressed investments may not be widely traded or
may have no recognized market. A fund’s exposure to such investments may be substantial in relation to the market for those investments, and the assets are likely
to be illiquid and difficult to sell or transfer. As a result, it may take a number of years for the market value of such investments to ultimately reflect their intrinsic
value as perceived by us, if at all.
Our distressed investment strategies depend in part on our ability to successfully predict the occurrence of certain corporate events, such as debt and/or
equity offerings, restructurings, reorganizations, mergers, takeover offers and other transactions, that we believe will improve the condition of the business. If the
corporate event we predict is delayed, changed or never completed, the market price and value of the applicable fund’s investment could decline sharply.
- 65 -
Table of Contents
In addition, these investments could subject us to certain potential additional liabilities that may exceed the value of our original investment. Under
certain circumstances, payments or distributions on certain investments may be reclaimed if any such payment or distribution is later determined to have been a
fraudulent conveyance, a preferential payment or similar transaction under applicable bankruptcy and insolvency laws. In addition, under certain circumstances, a
lender that has inappropriately exercised control of the management and policies of a debtor may have its claims subordinated or disallowed, or may be found
liable for damages suffered by parties as a result of such actions. In the case where the investment in securities of troubled companies is made in connection with
an attempt to influence a restructuring proposal or plan of reorganization in bankruptcy, our funds and/or we may become involved in substantial litigation.
Risk management activities may adversely affect the return on our funds’ investments.
When managing our exposure to market risks, we may (on our own behalf or on behalf of our funds) from time to time use forward contracts, options,
swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments (OTC and otherwise) to limit our exposure to changes in the
relative values of investments that may result from market developments, including changes in prevailing interest rates, currency exchange rates and commodity
prices. The scope of risk management activities undertaken by us varies based on the level and volatility of interest rates, prevailing foreign currency exchange
rates, the types of investments that are made and other changing market conditions. The use of hedging transactions and other derivative instruments to reduce the
effects of a decline in the value of a position does not eliminate the possibility of fluctuations in the value of the position or prevent losses if the value of the
position declines. Such transactions may also limit the opportunity for gain if the value of a position increases. Moreover, it may not be possible to limit the
exposure to a market development that is so generally anticipated that a hedging or other derivative transaction cannot be entered into at an acceptable price. The
success of any hedging or other derivative transaction generally will depend on our ability to correctly predict market changes, the degree of correlation between
price movements of a derivative instrument and the position being hedged, the creditworthiness of the counterparty and other factors. As a result, while we may
enter into such a transaction in order to reduce our exposure to market risks, the transaction may result in poorer overall investment performance than if it had not
been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position increases.
While such hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks. These arrangements may require
the posting of cash collateral at a time when a fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale
of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, including potential
tax costs, that reduce the returns generated by a fund. In addition, the expected phase out of LIBOR in the next few years may adversely affect the effectiveness of
certain interest rate hedging arrangements and create economic uncertainties in the relevant market. Finally, the CFTC has made several public statements that it
may soon issue a proposal for certain foreign exchange products to be subject to mandatory clearing, which could increase the cost of entering into currency
hedges. Similar developments abroad may indirectly affect our funds as a result of their direct impact on our trading counterparties.
We often pursue investment opportunities that involve business, regulatory, legal or other complexities.
As an element of our investment style, we often pursue unusually complex investment opportunities. This can often take the form of substantial business,
regulatory or legal complexity that we believe may deter other investment managers. Our tolerance for complexity presents risks, as such transactions can be more
difficult, expensive and time-consuming to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions;
and such transactions sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could harm the
performance of our funds.
Funds we manage may invest in assets denominated in currencies that differ from the currency in which the fund is denominated.
When our funds invest in assets denominated in currencies that differ from the currency that the relevant fund is denominated in, fluctuations in currency
rates could impact fund performance. We also manage a number of funds which are denominated in U.S. Dollars but invest primarily or exclusively in assets
denominated in foreign currencies and therefore whose performance can be negatively impacted by strengthening of the U.S. Dollar even if the underlying
investments perform well in local currency.
Our funds may employ hedging techniques to minimize these risks, but we can offer no assurance that such strategies will be effective or tax-efficient. If
our funds engage in hedging transactions, we may be exposed to additional risks associated with such transactions.
- 66 -
Table of Contents
Certain of our funds make investments in companies that we do not control.
Investments by certain of our funds include debt instruments, equity securities, and other financial instruments of companies that our funds do not control.
Such investments may be acquired by our funds through trading activities or through purchases of securities or other financial instruments from the issuer. In
addition, in the future, our funds may seek to acquire minority equity interests more frequently and may also dispose of a portion of their majority equity
investments in portfolio companies over time in a manner that results in the funds retaining a minority investment. Those investments will be subject to the risk
that the company in which the investment is made may make business, financial or management decisions with which we do not agree or that the majority
stakeholders or the management of the company may take risks or otherwise act in a manner that does not serve our funds’ interests. If any of the foregoing were to
occur, the values of investments by our funds could decrease, we could be exposed to increased legal risk related to compliance failures by such company, and our
financial condition, results of operations and cash flow could suffer as a result.
Our funds may face risks relating to undiversified investments.
While diversification is generally an objective of many of our funds, we cannot give assurance as to the degree of diversification that will actually be
achieved in any fund investments. Because a significant portion or all of a fund’s capital may be invested in a single investment or portfolio company, a loss with
respect to such an investment or portfolio company could have a significant adverse impact on such fund’s capital. Accordingly, a lack of diversification on the
part of a fund could adversely affect its performance, which could have a material adverse effect on our business, financial condition and results of operations.
We have a strategic relationship with Athene and Athora from which we derive a significant contribution to our revenue and that could give rise to real or
apparent conflicts of interest.
We currently derive a significant contribution to our revenue across our business segments from our investment in and strategic relationship with Athene
and Athora. Certain of our subsidiaries receive investment management and advisory fees from Athene or Athora in exchange for a suite of services for their
investment portfolio. Through its subsidiaries, Apollo managed or advised $116.8 billion of AUM in accounts owned by or related to Athene and Athora as of
December 31, 2018 . Our investment management and advisory agreements with Athene and Athora are terminable under certain circumstances. If such investment
management and advisory agreements were terminated or fees lowered or changed further it could have a material adverse effect on our business, results of
operations and financial condition. In addition, Apollo had an approximate 10.2% economic ownership interest in Athene Holding as of December 31, 2018 .
Fluctuations in the value of Athene and Athora, including as a result of changes in taxation of Athene introduced by the TCJA, could have an adverse effect on our
results and financial condition. See “— Recently
enacted
U.S.
tax
legislation
may
materially
adversely
affect
our
results
of
operation
and
cash
flows
and
may
have
adverse
tax
consequences
for
certain
of
our
Class
A
shareholders
.”
A number of Apollo entities receive management fees and performance fees from Athene and Athora, have investments in Athene and Athora, and
manage funds or accounts with investments in Athene and Athora from which performance fees may be earned. Athene also invests directly in various Apollo-
managed funds and entities and we earn fees in respect of such investments. The Chairman, Chief Executive Officer and Chief Investment Officer of Athene is also
an employee of Athene Asset Management LLC and six of Athene’s 15 directors are employees of, or consultants to, Apollo. These persons have fiduciary duties
to Athene in addition to the duties that they have to Apollo. As a result, there may be real or apparent conflicts of interest with respect to matters affecting Apollo,
Apollo-managed funds and their portfolio companies and Athene and Athora. In addition, conflicts of interest could arise with respect to transactions involving
business dealings between Apollo, Athene and Athora and their respective affiliates.
While we expect our strategic relationship with Athene and Athora to continue for the foreseeable future, there can be no assurance that the benefit we
receive from Athene and Athora will not decline due to a disruption or decline in Athene’s or Athora’s business or a change in our relationship with Athene and
Athora, including our investment management agreements with Athene and Athora. Moreover, Athene and Athora are subject to significant regulatory oversight,
changes to which may adversely affect either of their performance. We may be unable to replace a decline in the revenue that we derive from our investment in,
and strategic relationship with, Athene and Athora on a timely basis or at all if our relationship with Athene and Athora were to change or if Athene or Athora were
to experience a material adverse impact to their businesses.
Our funds’ investments in infrastructure assets may expose us and our funds to increased risks and liabilities and may expose our shareholders to adverse tax
consequences .
Investments in infrastructure assets may expose us and our funds to increased risks and liabilities that are inherent in the ownership of real assets. For
example:
- 67 -
Table of Contents
•
•
•
•
Ownership of infrastructure assets may also present additional risk of liability for personal and property injury or impose significant operating
challenges and costs with respect to, for example, compliance with zoning, environmental, anti-financial fraud or other applicable laws.
Infrastructure asset investments may face construction risks including, without limitation: (a) labor disputes, shortages of material and skilled labor,
or work stoppages, (b) slower than projected construction progress and the unavailability or late delivery of necessary equipment, (c) less than
optimal coordination with public utilities in the relocation of their facilities, (d) adverse weather conditions and unexpected construction conditions,
(e) accidents or the breakdown or failure of construction equipment or processes; and (f) catastrophic events such as explosions, fires, terrorist
activities and other similar events. These risks could result in substantial unanticipated delays or expenses (which may exceed expected or forecasted
budgets) and, under certain circumstances, could prevent completion of construction activities once undertaken. Certain infrastructure asset
investments may remain in construction phases for a prolonged period and, accordingly, may not be cash generative for a prolonged period. Recourse
against the contractor may be subject to liability caps or may be subject to default or insolvency on the part of the contractor.
The operation of infrastructure assets is exposed to potential unplanned interruptions caused by significant catastrophic or force majeure events.
These risks could, among other effects, adversely impact the cash flows available from investments in infrastructure assets, cause personal injury or
loss of life, damage property, or instigate disruptions of service. In addition, the cost of repairing or replacing damaged assets could be considerable.
Repeated or prolonged service interruptions may result in permanent loss of customers, litigation, or penalties for regulatory or contractual
noncompliance. Force majeure events that are incapable of, or too costly to, cure may also have a permanent adverse effect on an investment.
The management of the business or operations of an infrastructure asset may be contracted to a third-party management company unaffiliated with
us. Although it would be possible to replace any such operator, the failure of such an operator to adequately perform its duties or to act in ways that
are in our or our funds’ best interest, or the breach by an operator of applicable agreements or laws, rules and regulations, could have an adverse
effect on the investment’s financial condition or results of operations. Infrastructure investments may involve the subcontracting of design and
construction activities in respect of projects, and as a result our investments are subject to the risks that contractual provisions passing liabilities to a
subcontractor could be ineffective, the subcontractor fails to perform services which it has agreed to perform and the subcontractor becomes
insolvent.
Infrastructure investments often involve an ongoing commitment to a municipal, state, federal or foreign government or regulatory agencies. The nature
of these obligations expose us to a higher level of regulatory oversight than typically imposed on other businesses and may require us to rely on complex
government licenses, concessions, leases or contracts, which may be difficult to obtain or maintain. Infrastructure investments may require operators to manage
such investments and such operators’ failure to comply with laws, including prohibitions against bribing of government officials, may adversely affect the value of
such investments and cause us serious reputational and legal harm. Revenues for such investments may rely on contractual agreements for the provision of services
with a limited number of counterparties, and are consequently subject to counterparty default risk. The operations and cash flow of infrastructure investments are
also more sensitive to inflation and, in certain cases, commodity price risk. Furthermore, services provided by infrastructure investments may be subject to rate
regulations by government entities that determine or limit prices that may be charged. Similarly, users of applicable services or government entities in response to
such users may react negatively to any adjustments in rates and thus reduce the profitability of such infrastructure investments.
In addition, investments in infrastructure assets may cause adverse tax consequences for certain non-U.S. shareholders regarding income effectively
connected with the conduct of a U.S. trade or business and the imposition of certain tax withholding. See — Risks Related to Taxation — “ Non-U.S.
persons
face
unique
U.S.
tax
issues
from
owning
Class
A
shares
that
may
result
in
adverse
tax
consequences
to
them
.” Moreover, investments in infrastructure assets may also
require all our shareholders to file tax returns and pay taxes in various state and local jurisdictions in the U.S. and abroad where these infrastructure assets are
located. See — Risks Related to Taxation — “ Class
A
shareholders
may
be
subject
to
foreign,
state
and
local
taxes
and
return
filing
requirements
as
a
result
of
investing
in
our
Class
A
shares
.”
Some of our funds invest in foreign countries and securities of issuers located outside of the U.S., which may involve foreign exchange, political, social,
economic and tax uncertainties and risks.
Some of our funds invest all or a portion of their assets in the equity, debt, loans or other securities of issuers located outside the U.S. In addition to
business uncertainties, such investments may be affected by changes in exchange rates as well as political, social and economic uncertainty affecting a country or
region. Many financial markets are not as developed or as efficient as those in the U.S., and as a result, liquidity may be reduced and price volatility may be higher.
The legal and regulatory environment may also be different, particularly with respect to bankruptcy and reorganization. Financial accounting standards and
practices may differ, and there may be less publicly available information in respect of such companies.
- 68 -
Table of Contents
Restrictions imposed or actions taken by foreign governments may adversely impact the value of our funds’ investments. Such restrictions or actions
could include exchange controls, seizure or nationalization of foreign deposits or other assets and adoption of other governmental restrictions that adversely affect
the prices of securities or the ability to repatriate profits on investments or the capital invested itself. Income received by our funds from sources in some countries
may be reduced by withholding and other taxes. Any such taxes paid by a fund will reduce the net income or return from such investments. Our fund investments
could also expose us to risks associated with trade and economic sanctions prohibitions or other restrictions imposed by the U.S. or other governments or
organizations, including the United Nations, the EU and its member countries, such as the sanctions against certain Russian entities and individuals. While our
funds will take these factors into consideration in making investment decisions, including when hedging positions, our funds may not be able to fully avoid these
risks or generate targeted risk-adjusted returns.
The Organization for Economic Co-operation and Development (“OECD”) and other government agencies in jurisdictions where we and our affiliates
invest or conduct business have continued to recommend and implement changes related to the taxation of multinational companies.
In the United Kingdom, the U.K. Criminal Finances Act 2017 creates two new separate corporate criminal offences: failure to prevent facilitation of U.K.
tax evasion and failure to prevent facilitation of overseas tax evasion. The scope of the new law and guidance is extremely wide and could have an impact on
Apollo’s global businesses. Separately, the United Kingdom has implemented transparency legislation that will require many large businesses to publish their U.K.
tax strategies on their websites. As part of the publication requirement, organizations must disclose information on tax risk management and governance, tax
planning, tax risk appetite and their approach to Her Majesty’s Revenue and Customs. These developments show that the United Kingdom is seeking to bring
corporate tax matters further into the public domain. As a result, tax matters may pose an increased reputational risk to our business.
On October 5, 2015 the OECD published 13 final reports and an explanatory statement outlining consensus actions under the BEPS project. This project
involves a coordinated multijurisdictional approach to increase transparency and exchange of information in tax matters, and to address weaknesses of the
international tax system that create opportunities for BEPS by multinational companies. The reports cover measures such as new minimum standards, the revision
of existing standards, common approaches which will facilitate the convergence of national practices, and guidance drawing on best practices. The outcome of the
BEPS project, including limiting interest deductibility, changes in transfer pricing, new rules around hybrid instruments or entities, and loss of eligibility for
benefits of double tax treaties could increase tax uncertainty and impact the tax treatments of funds’ earnings and adversely impact the investment returns of funds
or limit future investment opportunities due to potential withholding tax leakage or non-resident capital gain taxes.
Implementation into domestic legislation may not be uniform across the participating states; certain actions give states options for implementation, certain
actions are recommendations only and other jurisdictions may elect to only partially implement rules where it is in the state’s interest. On November 24, 2016, the
OECD published the text of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, which is intended to expedite the interaction
of the tax treaty changes of the BEPS project. Several of the proposed measures, including measures covering treaty abuse, the deductibility of interest expense,
local nexus requirements, transfer pricing and hybrid mismatch arrangements are potentially relevant to some of our fund structures and could have an adverse tax
impact on our funds, investors and/or our portfolio companies. On June 7, 2017, the first wave of countries (68 in total) participated in the signing ceremony of the
multilateral instrument (“MLI”). As of December 4, 2018, 17 other countries have signed the MLI. The MLI went into effect on July 1, 2018 with the intention to
override and complement certain provisions in existing bilateral Tax Treaties. The MLI may not have immediate effect but, rather, when it applies will depend on a
number of factors, including further steps required to ratify changes to treaties according to the local law of the signatory countries. As of January 2019, 86
countries have signed the MLI meanwhile only 18 have ratified it. Therefore, there is a lack of certainty as to how the majority of the signatories will apply the
MLI and from when. Luxembourg recently ratified the MLI, but there are some important countries that have not yet signed including the US and Brazil. As a
result, significant uncertainty remains around the access to tax treaties for the investments’ holding patterns, which could create situations of double taxation and
adversely impact the investment returns of our funds.
It should be noted that Luxembourg opted for the application of a principal purpose test (“PPT”) clause being included in all the treaties in force as part of
the anti-treaty abuse provisions (“BEPS Action 6”). The purpose of the PPT is in essence to deny treaty relief where broadly it is reasonable to conclude that
obtaining the benefit of the treaty was one of the principal purposes of the arrangement or transaction leading to such benefit. Limitation on benefits (“LOB”)
provisions have historically been used as anti-avoidance measures in tax treaties, and certain countries, including the U.S. and China, continue to opt for LOB
provisions. The PPT will be a consideration for the relevant underlying countries and there is no current consistent interpretative view, thus posing a risk that our
investment structures may be challenged and additional taxes and penalties imposed.
- 69 -
Table of Contents
In addition, there are additional transfer pricing and standardized country by country (“CbC”) reporting requirements being implemented under the BEPS
actions which may place additional administrative burden on our management team or portfolio company management and ultimately could lead to increased cost
which could adversely affect profitability. For example, Luxembourg has introduced additional transfer pricing regulations as from January 1, 2017, that apply to
intragroup financing activities and that are in line with the recommendations with the BEPS Action Plan. This has not significantly impacted our investments to
date but has required some actions and adjustments in the structuring of our investments and in the maintenance and documentation of our investments. Additional
information from these sources and other documentation held by tax authorities is expected to be subject to greater information sharing under Automatic Exchange
of Information provisions under BEPS and specific local arrangements such as the EU’s automatic exchange of cross-border rulings directive, or the mandatory
disclosure of certain cross-border transactions (“DAC6”). There is significant uncertainty regarding how the provisions of DAC6 will be applied and interpreted,
and failure to comply can result in fines and penalties. Many tax authorities are unfamiliar with asset management businesses and dealing with challenges from tax
authorities reviewing such information may also place additional administrative burden on our management team or portfolio company management and ultimately
could lead to increased cost which could adversely affect profitability.
Countries including various EU countries have been moving forward on the BEPS agenda independent of agreement and finalization of the BEPS action
items and currently are in the process of adapting and introducing the necessary legislation. Certain European jurisdictions have adopted legislation that may limit
deductibility of interest and other financing expenses in companies in which our funds have invested or may invest in the future. For example, under the German
interest barrier rule, the tax deduction available to a company in respect of a net interest expense (interest expense less interest income) is limited to 30% of
EBITDA. Interest expense in excess of the interest deduction limitation may be carried forward indefinitely (subject to change in ownership restrictions) and used
in future periods against all profits and gains (again subject to the interest barrier rule in the respective year in the future). France has also introduced similar limits
on interest deductibility. Our businesses are subject to the risk that similar measures will be introduced in other EU countries in which they currently have
investments or plan to invest in the future as a result of the Anti-Tax Avoidance Directive issued by the European Council on July 12, 2016 (“ATAD”), and
amended on February 28, 2017 and on May 12, 2017 (“ATAD II”), or that other legislative or regulatory measures might be promulgated in any of the countries in
which we operate that adversely affect our businesses.
Similarly, the U.K. introduced Anti-Hybrid provisions with effect from 1 January 2017. The scope of these rules is wide-reaching, in certain instances
beyond the scope proposed by the BEPS initiative, and can apply to disallow certain payments or ‘quasi-payments’ for U.K. corporation tax purposes involving
U.K. or non-U.K. hybrid entities. Where hybrid entities exist within a portfolio company structure, this may place additional administrative burden on our
management team or portfolio company management to assess the impact of the rules and potentially create additional tax costs.
The European Union has taken steps to implement a consistent application of BEPS project type principles between Member States through the ATAD
and ATAD II. The Directive should be transcribed in local law and applicable as from January 1, 2019 and January 1, 2020 for some provisions (exit taxation and
anti-hybrid rules). This would result in the introduction into the tax laws of EU Member States, of interest limitation rules similar to the German interest barrier
rules described above but also controlled foreign company rules, a general anti-abusive provision, an exit taxation provision and some anti-hybrid rules impacting
the transactions between EU Member States but also between EU Member States and third countries. The ATAD rules may place additional administrative burden
on our management team or portfolio company management to assess the impact of such rules on the investments of our funds and ultimately could lead to
increased cost which could adversely affect profitability. The ATAD rules may also impact the investment returns of our funds.
For example, as a result of ATAD, as of January 2019, the Netherlands has adopted interest deductibility rules similar to Germany (30% of Fiscal
EBITDA limitation) and CFC-rules, and a consultation document has been published by the Dutch government containing legislative proposals to implement the
ATAD II directive measures aimed at preventing hybrid mismatch structures and abuse of reversed hybrid entities. Luxembourg has similarly adopted interest
deductibility rules and CFC rules with proposals affecting hybrid entities and transactions to come in the future. For both the Netherlands and Luxembourg, the
rules regarding hybrid payments should be implemented before January 1, 2020 while the rules with regard to reversed hybrid entities should be implemented
before January 1, 2022. The Netherlands has also announced that it intends to implement a withholding tax on certain interest and royalty payments to entities
located in certain selected jurisdictions with a low statutory tax rate (less than 9%) or on the EU blacklist of non-cooperative countries. The announced withholding
tax is intended to be applicable from 2021 and should be equal to the Dutch corporate income tax rate at that time. However, no law proposal has been adopted
(nor published) yet.
Separately, as a result of the complexity of, and lack of clear precedent or authority with respect to, the application of various income tax laws to our
structures, the application of rules governing how transactions and structures should be reported is also subject to differing interpretations. Certain jurisdictions
where our funds have made investments, have sought to tax
- 70 -
Table of Contents
investment gains or other returns (including those from real estate) derived by nonresident investors, including private equity funds, from the disposition of the
equity in companies operating in those jurisdictions. In some cases this development is the result of new legislation or changes in the interpretation of existing
legislation and local authority assertions that investors have a local taxable presence or are holding companies for trading purposes rather than for capital purposes,
or are not otherwise entitled to treaty benefits. In addition, the tax authorities in certain jurisdictions have sought to deny the benefits of income tax treaties for
withholding taxes on interest and dividends of nonresident entities, if the entity is not the beneficial owner of the income but rather a mere conduit company
inserted primarily to access treaty benefits.
The Netherlands recently changed its domestic dividend withholding rules effective as of January 1, 2018. Distributions by a Dutch Cooperative after
such date are in principle subject to 15% Dutch dividend withholding tax if the Cooperative’s main function is that of holding certain equity investments of 5% or
more (so-called “Holding Cooperatives”). Depending on the investment structure utilized, however, this withholding tax may be reduced or eliminated under
application of a domestic dividend withholding tax exemption or applicable tax treaties. Depending on the specific investment structure utilized, the new rules may
require investment structures used by our funds to have additional substance in the entity holding the Dutch entity in order to apply the domestic dividend
withholding tax exemption with respect to distributions from certain Dutch entities. If such exemption is not available, reduced rates of withholding under
applicable tax treaties may be available (whereby the impact of the MLI should be considered, possibly requiring ‘additional’ substance in the entity holding the
Dutch entity), and there may be alternatives to repatriate funds out of the Netherlands in a way that does not trigger a dividend distribution subject to withholding
tax, but there is no guarantee our investment structures would qualify for such reduced rates or be able to repatriate funds without Dutch withholding tax in the
future. If these reduced treaty rates or other alternatives are not available, the returns on certain investments made by our funds may be adversely impacted due to
the imposition of this Dutch withholding tax.
In December 2018, the Cayman Islands Legislative Assembly passed The International Tax Co-Operation (Economic Substance) Law, 2018 (the “CI
Law”) and the Bermuda House of Assembly passed a bill entitled the Economic Substance Act 2018 (the “Bermuda Act”). Effective as of January 1, 2019, the CI
Law and the Bermuda Act require every Cayman Islands or Bermuda relevant entity engaging in a relevant activity to maintain a substantial economic presence in
the Cayman Islands or Bermuda. Outside of the BEPS agenda countries continue to develop their own domestic anti-avoidance provisions. Such provisions can be
general or targeted in nature. For example, India has introduced General Anti-Avoidance Rule (“GAAR”) provisions in its tax law in 2012 that have become
effective as of April 1, 2017. The objective of GAAR is to deny tax benefit in an arrangement which has been entered into with the main purpose to obtain tax
benefit and which lacks commercial substance or creates rights and obligations which are not at arm’s length principle or results in misuse or abuse of tax law
provisions or is carried out by means or in a manner which are not ordinarily employed for bona fide purposes. Such an arrangement is termed in the GAAR
provisions as “impermissible avoidance agreement”. As regards foreign investors, GAAR provisions would mainly impact those investors who claim treaty
benefits to eliminate or minimize tax outlay in India. Acceding to the representations made by the foreign investors and other stakeholders, the Indian government
has clarified that GAAR provisions would not apply in the following cases:
•
•
•
•
an arrangement where tax benefit in a fiscal year in aggregate to all the concerned parties does not exceed INR 30 million;
investments made by Foreign Portfolio Investors (“FPIs”) in India on which no treaty benefits have been claimed;
investments made by non-resident investors in the FPIs by way of offshore derivative instruments or any other way; or
investments made by any investor prior to April 2017.
Outside of GAAR, there are certain exemptions available to foreign investors in specified circumstances, including where the non-resident investors have
invested directly or indirectly in specified FPIs registered in India. Accordingly, Indian taxation of the capital gains of a foreign investor, upon a direct or indirect
transfer sale of an Indian company, remains uncertain.
The U.K. has also enacted legislation that may affect our funds’ investments. The U.K. Diverted Profits Tax (“DPT”) regime was introduced with effect
from April 1, 2015 as a tax separate from the U.K.’s existing Corporate Income Tax regime. DPT charges a rate of 25% on profits that, under the terms of the
legislation, are considered to have been eroded from the U.K. tax base. The DPT legislation is intended to counteract and deter contrived arrangements used by
multinational corporate groups which, it is argued, have resulted in the erosion of the U.K. tax base. DPT operates through two main rules: (i) the first rule aims to
prevent U.K. tax resident companies (“U.K. PEs”) from creating tax advantages through transacting with entities that lack economic substance; and (ii) the second
rule aims to counteract arrangements by which foreign companies sell into the U.K. while avoiding the creation of a U.K. PE. The legislation is worded so that
where it is “reasonable to assume” a U.K. company is party to an arrangement that lacks economic substance and which results in a tax advantage in the U.K., or
where it is “reasonable to assume” the activity of the involved parties is designed in such a way as to avoid a U.K. PE, DPT could apply.
In many jurisdictions, there is an increasing political, legislative and regulatory focus on identifying the ultimate beneficial owners of corporate entities.
The need to provide beneficial ownership information when forming new corporate
- 71 -
Table of Contents
entities or when seeking regulatory consents in relation to prospective transactions may in certain cases require the disclosure of additional information relating to
Apollo or its investors, and the need to obtain and verify such information may potentially have an impact on transaction costs and timelines.
Third-party investors in our funds have the right under certain circumstances to terminate commitment periods or to dissolve the funds, and investors in some
of our credit funds may redeem their investments in such funds at any time after an initial holding period. These events would lead to a decrease in our
revenues, which could be substantial.
The governing agreements of certain of our funds allow the investors of those funds to, among other things, (i) terminate the commitment period of the
fund in the event that certain “key persons” (for example, one or more of our Managing Partners and/or certain other investment professionals) fail to devote the
requisite time to managing the fund, (ii) (depending on the fund) terminate the commitment period, dissolve the fund or remove the general partner if we, as
general partner or manager, or certain “key persons” engage in certain forms of misconduct, or (iii) dissolve the fund or terminate the commitment period upon the
affirmative vote of a specified percentage of limited partner interests entitled to vote. Each of Fund VI, Fund VII, Fund VIII and Fund IX, on which our near-to
medium-term performance will heavily depend, include a number of such provisions. HVF, EPF II, EPF III and certain other funds have similar provisions. Also,
after undergoing the 2007 Reorganization, subsequent to which we deconsolidated certain funds that had historically been consolidated in our financial statements,
we amended the governing documents of our funds at that time to provide that a simple majority of a fund’s unaffiliated investors have the right to liquidate that
fund. In addition to having a significant negative impact on our revenue, net income and cash flow, the occurrence of such an event with respect to any of our funds
would likely result in significant reputational damage to us.
Investors in some of our credit funds may also generally redeem their investments on an annual, semiannual or quarterly basis following the expiration of
a specified period of time when capital may not be redeemed (typically between one and five years). Fund investors may decide to move their capital away from us
to other investments for any number of reasons in addition to poor investment performance. Factors which could result in investors leaving our funds include
changes in interest rates that make other investments more attractive, poor investment performance, changes in investor perception regarding our focus or
alignment of interest, unhappiness with changes in or broadening of a fund’s investment strategy, changes in our reputation and departures or changes in
responsibilities of key investment professionals. In a declining market, the pace of redemptions and consequent reduction in our AUM could accelerate. The
decrease in revenues that would result from significant redemptions in these funds could have a material adverse effect on our businesses, revenues, net income and
cash flows.
In addition, the management agreements of all of our funds would be terminated upon an “assignment,” without the requisite consent, of these
agreements, which may be deemed to occur in the event the investment advisors of our funds were to experience a change of control. We cannot be certain that
consents required to assign our investment management agreements will be obtained if a change of control occurs. In addition, with respect to our publicly traded
closed-end funds, each fund’s investment management agreement must be approved annually by the independent members of such fund’s board of directors and, in
certain cases, by its shareholders, as required by law. Termination of these agreements would cause us to lose the fees we earn from such funds.
Our financial projections for portfolio companies and other fund investments could prove inaccurate.
Our funds generally establish the capital structure of portfolio companies and certain other fund investments, including real estate investments, on the
basis of financial projections for such investments. These projected operating results will normally be based primarily on management judgments. In all cases,
projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed. General economic conditions,
which are not predictable, along with other factors may cause actual performance to fall short of the financial projections we used to establish a given investment’s
capital structure. Because of the leverage we typically employ in our fund investments, this could cause a substantial decrease in the value of the equity holdings of
our funds in such investments. The inaccuracy of financial projections could thus cause our funds’ performance to fall short of our expectations.
Our funds’ performance, and our performance, may be adversely affected by the financial performance of our funds’ portfolio companies and the industries in
which our funds invest.
Our performance and the performance of our private equity funds, as well as many of our credit and real assets funds, are significantly affected by the
value of the companies in which our funds have invested. Our funds invest in companies in many different industries, each of which is subject to volatility based
upon a variety of factors, including economic and market factors. The credit crisis caused significant fluctuations in the value of securities held by our funds, and
the global economic recession had a significant impact on the performance of the portfolio companies owned by the funds we manage. Although the U.S. economy
has improved, conditions in economies outside the U.S. have generally improved at a less rapid pace (and in some cases have deteriorated), and there remain many
obstacles to continued growth in the economy such as global geopolitical events, risks of
- 72 -
Table of Contents
inflation and high deficit levels for governments in the U.S. and abroad. These factors and other general economic trends may impact the performance of portfolio
companies in many industries and in particular, industries that are more impacted by changes in consumer demand, such as the packaging, manufacturing, energy,
chemical and refining industries, as well as travel and leisure, gaming, financial services and real estate industries. The performance of our funds, and our
performance, may be adversely affected to the extent our fund portfolio companies in these industries experience adverse performance or additional pressure due to
downward trends. For example, the performance of certain of the portfolio companies of our funds in the packaging, manufacturing, energy, chemical and refining
industries is subject to the cyclical and volatile nature of the supply-demand balance in these industries. These industries historically have experienced alternating
periods of capacity shortages leading to tight supply conditions, causing prices and profit margins to increase, followed by periods when substantial capacity is
added, resulting in oversupply, declining capacity utilization rates and declining prices and profit margins. In addition to changes in the supply and demand for
products, the volatility these industries experience occurs as a result of changes in energy prices, costs of raw materials and changes in various other economic
conditions around the world.
The performance of our funds’ investments in the commodities markets is also subject to a high degree of business and market risk, as it is substantially
dependent upon prevailing prices of oil and natural gas. Certain of our funds have investments in businesses involved in oil and gas exploration and development,
which can be a speculative business involving a high degree of risk, including: the volatility of oil and natural gas prices; the use of new technologies; reliance on
estimates of oil and gas reserves in the evaluation of available geological, geophysical, engineering and economic data; and encountering unexpected formations or
pressures, premature declines of reservoirs, blow-outs, equipment failures and other accidents in completing wells and otherwise, cratering, sour gas releases,
uncontrollable flows of oil, natural gas or well fluids, adverse weather conditions, pollution, fires, spills and other environmental risks. Prices for oil and natural
gas have not fully recovered since their significant decrease in the latter part of 2014 and throughout 2015, and there can be no assurance that prices will fully
recover. If prices remain at their current level for an extended period of time, there could be an adverse impact on the performance of certain of our funds, and this
impact may be material. These prices are also subject to wide fluctuation in response to relatively minor changes in the supply and demand for oil and natural gas,
market uncertainty and a variety of additional factors that are beyond our control, such as level of consumer product demand, the refining capacity of oil
purchasers, weather conditions, government regulations, the price and availability of alternative fuels, political conditions, foreign supply of such commodities and
overall economic conditions. It is common in making investments in the commodities markets to deploy hedging strategies to protect against pricing fluctuations
but such strategies may or may not be employed by us or our funds’ portfolio companies, and even when they are employed they may not protect our funds’
investments.
Our funds’ investments in companies in the financial services sector are subject to a variety of factors, such as market uncertainty, additional government
regulations, disclosure requirements, limits on fees, increasing borrowing costs or limits on the terms or availability of credit to such portfolio companies, and other
regulatory requirements each of which may impact the conduct of such portfolio companies. Compliance with changing regulatory requirements will likely impose
staffing, legal, compliance and other costs and administrative burdens upon our funds’ investments in financial services. Various sectors of the global financial
markets have been experiencing an extended period of adverse conditions.
In respect of real estate, even though the U.S. residential real estate market remains stable after recovering from a lengthy and deep downturn, various
factors could halt or limit a recovery in the housing market and have an adverse effect on the performance of certain of our funds’ investments, including, but not
limited to, rising mortgage interest rates and a low level of consumer confidence in the economy and/or the residential real estate market.
In addition, our funds’ investments in commercial mortgage loans and other commercial real-estate related loans are subject to risks of delinquency and
foreclosure, and risks of loss that are greater than similar risks associated with mortgage loans made on the security of residential properties. If the net operating
income of the commercial property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of a commercial property can be
affected by various factors, such as success of tenant businesses, property management decisions, competition from comparable types of properties and declines in
regional or local real estate values and rental or occupancy rates.
Our credit funds are subject to numerous additional risks.
Our credit funds are subject to numerous additional risks, including the risks set forth below.
•
Generally, there may be few limitations on the execution of these funds’ investment strategies, which are in many cases subject to the sole discretion
of the management company or the general partner of such funds, or there may be numerous investment limitations or restrictions that require
monitoring, compliance and maintenance.
• While we monitor the concentration of the portfolios of our credit funds, concentration in any one borrower or other issuer, product category,
industry, region or country may arise from time to time.
- 73 -
Table of Contents
•
•
•
•
•
•
•
•
Given the flexibility and overlapping nature of the mandates and investment strategies of our credit funds, situations arise where certain of these
funds hold (including outright positions in issuers and exposure to such issuers derived through any synthetic and/or derivative instrument) in
multiple tranches of securities of an issuer (or other interests of an issuer) or multiple funds having interests in the same tranche of an issuer.
Certain of these funds may engage in short-selling, which is subject to a theoretically unlimited risk of loss.
These funds are exposed to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute
over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the fund to suffer a loss.
Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their respective liquidity or
operational needs, so that a default by one institution causes a series of defaults by the other institutions.
The efficacy of the investment and trading strategies of certain credit funds may depend largely on the ability to establish and maintain an overall
market position in a combination of different financial instruments, which can be difficult to execute.
These funds may make investments or hold trading positions in markets that are volatile and which are or may become illiquid.
Certain of these funds may seek to originate loans, including, but not limited to, secured and unsecured notes, senior and second lien loans,
mezzanine loans, and other similar investments.
These funds’ investments are subject to risks relating to investments in commodities, swaps, futures, options and other derivatives, the prices of
which are highly volatile and may be subject to a theoretically unlimited risk of loss in certain circumstances.
Fraud and other deceptive practices could harm fund performance and our performance.
Instances of bribery, fraud and other deceptive practices committed by senior management of portfolio companies in which an Apollo fund invests may
undermine our due diligence efforts with respect to such companies, and if such fraud is discovered, negatively affect the valuation of a fund’s investments. Fraud
or other deceptive practices by our own employees or advisors could have a similar effect on fund performance and our performance. In addition, when discovered,
financial fraud may create legal exposure and may contribute to reputational harm and overall market volatility that can negatively impact an Apollo fund’s
investment program. As a result, instances of bribery, fraud and other deceptive practices could result in performance that is poorer than expected.
Contingent liabilities could harm fund performance.
We may cause our funds to acquire an investment that is subject to contingent liabilities. Such contingent liabilities could be unknown to us at the time of
acquisition or, if they are known to us, we may not accurately assess or protect against the risks that they present. Acquired contingent liabilities could thus result
in unforeseen losses for our funds. In addition, in connection with the disposition of an investment in a portfolio company, a fund may be required to make
representations about the business and financial affairs of such portfolio company typical of those made in connection with the sale of a business. A fund may also
be required to indemnify the purchasers of such investment to the extent that any such representations are inaccurate. These arrangements may result in the
incurrence of contingent liabilities by a fund, even after the disposition of an investment. Accordingly, the inaccuracy of representations and warranties made by a
fund could harm such fund’s performance.
Our funds may be forced to dispose of investments at a disadvantageous time.
Our funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved, either by expiration of such
fund’s term or otherwise. Although we generally expect that investments will be disposed of prior to dissolution or be suitable for in-kind distribution at
dissolution, and the general partners of the funds generally have a limited ability to extend the term of the fund with the consent of fund investors or the advisory
board of the fund, as applicable, our funds may have to sell, distribute or otherwise dispose of investments at a disadvantageous time as a result of dissolution. This
would result in a lower than expected return on the investments and, perhaps, on the fund itself.
Regulations governing AINV’s operation as a business development company, and AINV’s tax status, affect its ability to raise, and the way in which it raises,
additional capital.
As a business development company under the Investment Company Act, AINV may issue debt securities or preferred stock and/or borrow money from
banks or other financial institutions (referred to collectively as “senior securities”) up to the maximum amount permitted by the Investment Company Act. As a
business development company, AINV is generally required to meet an asset coverage ratio of total assets to total borrowings and other senior securities, which
include all of its borrowings and any preferred stock it may issue in the future, of at least 200%. If this ratio declines below 200%, the contractual arrangements
- 74 -
Table of Contents
governing these securities may require AINV to sell a portion of its investments and, depending on the nature of its leverage, repay a portion of its indebtedness at
a time when such sales may be disadvantageous. On March 23, 2018, the President signed into law the Small Business Credit Availability Act (the “SBCAA”),
which included various changes to regulations under the federal securities laws that impact business development companies, including changes to the Investment
Company Act to allow business development companies to decrease their asset coverage requirement to 150% from 200% under certain circumstances. On April 4,
2018, the board of directors of AINV approved the application of the modified asset coverage requirements for AINV. Accordingly, effective April 4, 2019, for
every $100 of net assets, AINV may raise $200 from senior securities, such as borrowings or issuing preferred stock. After April 4, 2019, if the asset coverage ratio
declines below 150%, the contractual arrangements governing these securities may require AINV to sell a portion of its investments and, depending on the nature
of its leverage, repay a portion of its indebtedness at a time when such sales may be disadvantageous.
Business development companies may issue and sell common stock at a price below net asset value per share only in limited circumstances, one of which
is during the one-year period after shareholder approval. In the past, AINV’s shareholders have approved a plan so that during the subsequent 12-month period,
AINV could, in one or more public or private offerings of its common stock, sell or otherwise issue shares of its common stock at a price below the then current net
asset value per share, subject to certain conditions including parameters on the level of permissible dilution, approval of the sale by a majority of its independent
directors and a requirement that the sale price be not less than approximately the market price of the shares of its common stock at specified times, less the
expenses of the sale. Although AINV currently does not have such authority, it may in the future seek to receive such authority on terms and conditions set forth in
the corresponding proxy statement. There is no assurance such approvals will be obtained.
In the event AINV sells, or otherwise issues, shares of its common stock at a price below net asset value per share, existing AINV stockholders will
experience net asset value dilution and the investors who acquire shares in such offering may thereafter experience the same type of dilution from subsequent
offerings at a discount. For example, if AINV sells an additional 10% of its common shares at a 5% discount from net asset value, an AINV stockholder who does
not participate in that offering for its proportionate interest will suffer net asset value dilution of up to 0.5% or $5 per $1,000 of net asset value.
In addition to issuing securities to raise capital as described above, AINV may in the future securitize its loans to generate cash for funding new
investments. To securitize loans, it may create a wholly-owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily
investment grade debt securities to purchasers who it would expect would be willing to accept a substantially lower interest rate than the loans earn. AINV would
retain all or a portion of the equity in the securitized pool of loans. AINV’s retained equity would be exposed to any losses on the portfolio of loans before any of
the debt securities would be exposed to such losses. An inability to successfully securitize its loan portfolio could limit its ability to grow its business and fully
execute its business strategy and adversely affect its earnings, if any. Moreover, the successful securitization of its loan portfolio might expose it to losses as the
residual loans in which it does not sell interests will tend to be those that are riskier and more apt to generate losses.
Regulations governing AFT’s and AIF’s operation affect their ability to raise, and the way in which they raise, additional capital.
As investment companies registered under the Investment Company Act, AFT and AIF may issue debt securities or preferred stock and/or borrow money
from banks or other lenders, up to the maximum amount permitted by the Investment Company Act. Under the provisions of the Investment Company Act, AFT
and AIF are restricted in the (i) issuance of preferred shares to amounts such that their respective asset coverage (as defined in the Investment Company Act)
equals at least 200% after issuance and (ii) incurrence of indebtedness, including through the issuance of debt securities, such that immediately after issuance the
fund will have an asset coverage (as defined in the Investment Company Act) of at least 300%. Lenders to the funds may demand higher asset coverage ratios.
Further, if the value of a funds’ assets declines, such fund may be unable to satisfy its asset coverage requirements. If that happens, such fund, in order to pay
dividends or repurchase its stock or to satisfy the requirements of its lenders, may be required to sell a portion of its investments and, depending on the nature of its
leverage, repay a portion of its indebtedness at a time when such sales may be disadvantageous. Further, AFT and AIF may raise capital by issuing common shares,
however, the offering price per common share generally must equal or exceed the net asset value per share, exclusive of any underwriting commissions or
discounts, of the funds’ shares.
Risks Related to Our Class A Shares and Our Preferred Shares
The market price and trading volume of our Class A shares and our Preferred shares may be volatile, which could result in rapid and substantial losses for our
shareholders.
The market price of our Class A shares and our Preferred shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading
volume in our Class A shares and our Preferred shares may fluctuate and cause significant
- 75 -
Table of Contents
price variations to occur. You may be unable to resell your Class A shares and Preferred shares at or above your purchase price, if at all. The market price of our
Class A shares and our Preferred shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our Class A
shares and our Preferred shares or result in fluctuations in the price or trading volume of our Class A shares and our Preferred shares include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
variations in our quarterly operating results or distributions, which variations we expect will be substantial;
our policy of taking a long-term perspective on making investment, operational and strategic decisions, which is expected to result in significant and
unpredictable variations in our quarterly returns;
our creditworthiness, results of operations and financial condition;
the credit ratings of the Preferred shares;
the prevailing interest rates or rates of return being paid by other companies similar to us and the market for similar securities;
failure to meet analysts’ earnings estimates;
publication of research reports about us or the investment management industry or the failure of securities analysts to cover our Class A shares and
our Preferred shares;
additions or departures of our Managing Partners and other key management personnel;
adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
actions by shareholders;
changes in market valuations of similar companies;
speculation in the press or investment community;
changes or proposed changes in laws or regulations or differing interpretations thereof affecting our businesses or enforcement of these laws and
regulations, or announcements relating to these matters;
a lack of liquidity in the trading of our Class A shares and our Preferred shares;
adverse publicity about the investment management industry generally or individual scandals, specifically;
a breach of our computer systems, software or networks, or misappropriation of our proprietary information;
the fact that we do not provide comprehensive guidance regarding our expected quarterly and annual revenues, earnings and cash flow; and
economic, financial, geopolitical, regulatory or judicial events or conditions that affect us or the financial markets.
In addition, from time to time, we may also declare special quarterly distributions based on investment realizations. Volatility in the market price of our
Class A shares may be heightened at or around times of investment realizations as well as following such realizations, as a result of speculation as to whether such
a distribution may be declared.
Our performance, market conditions and prevailing interest rates have fluctuated in the past and can be expected to fluctuate in the future. Fluctuations in
these factors could have an adverse effect on the price and liquidity of the Preferred shares. In general, as market interest rates rise, securities with fixed interest
rates or fixed distribution rates, such as the Preferred shares, decline in value. Consequently, if you purchase the Preferred shares and market interest rates increase,
the market price of the Preferred shares may decline. We cannot predict the future level of market interest rates.
Our ability to pay quarterly distributions on the Preferred shares will be subject to, among other things, general business conditions, our financial results,
restrictions under the terms of our existing and future indebtedness, and our liquidity needs. Any reduction or discontinuation of quarterly distributions could cause
the market price of the Preferred shares to decline significantly. Accordingly, the Preferred shares may trade at a discount to their purchase price.
An investment in Class A shares and our Preferred shares is not an investment in any of our funds, and the assets and revenues of our funds are not directly
available to us.
Class A shares and our Preferred shares are securities of Apollo Global Management, LLC only. While our historical consolidated and combined financial
information includes financial information, including assets and revenues of certain Apollo funds on a consolidated basis, and our future financial information will
continue to consolidate certain of these funds, such assets and revenues are available to the fund, and not to us except through management fees, performance fees,
distributions and other proceeds arising from agreements with funds, as discussed in more detail in this report.
Our Class A share price may decline due to the large number of shares eligible for future sale and for exchange into Class A shares.
The market price of our Class A shares could decline as a result of sales of a large number of our Class A shares or the perception that such sales could
occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that
we deem appropriate. As of December 31, 2018 , we had 201,400,500 Class A shares outstanding. The Class A shares reserved under our equity incentive plan are
increased on the first
- 76 -
Table of Contents
day of each fiscal year by (i) the amount (if any) by which (a) 15% of the number of outstanding Class A shares and Apollo Operating Group units (“AOG Units”)
exchangeable for Class A shares on a fully converted and diluted basis on the last day of the immediately preceding fiscal year exceeds (b) the number of shares
then reserved and available for issuance under the Equity Plan, or (ii) such lesser amount by which the administrator may decide to increase the number of Class A
shares. Taking into account grants of restricted share units (“RSUs”) and options made through December 31, 2018 , 45,978,889 Class A shares remained available
for future grant under our equity incentive plan. In addition, as of December 31, 2018 , Holdings could at any time exchange its AOG Units for up to 202,345,561
Class A shares on behalf of our Managing Partners and Contributing Partners subject to the Amended and Restated Exchange Agreement. See “Item 13. Certain
Relationships and Related Party Transactions-Amended and Restated Exchange Agreement.” We may also elect to sell additional Class A shares in one or more
future primary offerings.
Our Managing Partners and Contributing Partners, through their partnership interests in Holdings, owned an aggregate of 50.1% of the AOG Units as of
December 31, 2018 . Subject to certain prior notice provisions and other procedures and restrictions (including any transfer restrictions and lock-up agreements
applicable to our Managing Partners and Contributing Partners), each Managing Partner and Contributing Partner has the right to exchange the AOG Units for
Class A shares. These Class A shares are eligible for resale from time to time, subject to certain contractual restrictions and applicable securities laws.
Our Managing Partners and Contributing Partners (through Holdings) have the ability to cause us to register the Class A shares they acquire upon
exchange of their AOG Units, as was done in connection with the Company’s Secondary Offering in May 2013. See “Item 13. Certain Relationships and Related
Party Transactions-Managing Partner Shareholders Agreement- Registration Rights.”
The Strategic Investor has the ability to cause us to register its non-voting Class A shares, as was done in connection with the Company’s Secondary
Offering in May 2013. See “Item 13. Certain Relationships and Related Party Transactions-Lenders Rights Agreement.”
We have on file with the SEC a registration statement on Form S-8 covering the shares issuable under our equity incentive plan. Subject to vesting and
contractual lock-up arrangements, such shares will be freely tradable.
We cannot assure you that our intended quarterly distributions will be paid each quarter or at all.
Our intention is to distribute to the holders of our Class A shares and our Preferred shares on a quarterly basis substantially all of our net after-tax cash
flow from operations in excess of amounts determined by our manager to be necessary or appropriate to provide for the conduct of our businesses, to make
appropriate investments in our businesses and our funds, to comply with applicable laws and regulations, to service our indebtedness or to provide for future
distributions to the holders of our Class A shares and our Preferred shares for any ensuing quarter. The declaration, payment and determination of the amount of
our quarterly distribution, if any, will be at the sole discretion of our manager, who may change our distribution policy at any time. We cannot assure you that any
distributions, whether quarterly or otherwise, will or can be paid. In making decisions regarding our quarterly distribution, our manager considers general
economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results,
working capital requirements and anticipated cash needs, contractual restrictions and obligations, legal, tax, regulatory and other restrictions that may have
implications on the payment of distributions by us to the holders of our Class A shares and our Preferred shares or by our subsidiaries to us, and such other factors
as our manager may deem relevant.
Our Preferred shares rank senior to our Class A shares with respect to the payment of distributions. Subject to certain exceptions, unless distributions have
been declared and paid or declared and set apart for payment on the Preferred shares for a quarterly distribution period, during the remainder of that distribution
period, we may not declare or pay or set apart payment for distributions on any Class A shares and any other equity securities that the Company may issue in the
future ranking, as to the payment of distributions, junior to our Preferred shares and we may not repurchase any such junior shares. Distributions on the Preferred
shares are discretionary and non-cumulative.
If distributions on a series of the Preferred shares have not been declared and paid for the equivalent of six or more quarterly distribution periods, whether
or not consecutive, holders of the Preferred shares, together as a class with holders of any other series of parity shares with like voting rights, will be entitled to
vote for the election of two additional directors to the board of directors. When quarterly distributions have been declared and paid on such series of the Preferred
shares for four consecutive quarters following such a nonpayment event, the right of the holders of the Preferred shares and such parity shares to elect these two
additional directors will cease, the terms of office of these two directors will forthwith terminate and the number of directors constituting the board of directors will
be reduced accordingly.
- 77 -
Table of Contents
Our Managing Partners’ beneficial ownership of interests in the Class B share that we have issued to BRH Holdings GP, Ltd. (“BRH”), the control exercised
by our manager and anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control.
Our Managing Partners, through their ownership of BRH, beneficially own the Class B share that we have issued to BRH. The Managing Partners
interests in such Class B share represented 52.4% of the total combined voting power of our shares entitled to vote as of December 31, 2018 . As a result, they are
able to exercise control over all matters requiring the approval of shareholders and are able to prevent a change in control of our company. In addition, our
operating agreement provides that so long as the Apollo control condition (as described in “Item 10. Directors, Executive Officers and Corporate Governance-Our
Manager”) is satisfied, our manager, which is owned and controlled by our Managing Partners, manages all of our operations and activities. The control of our
manager will make it more difficult for a potential acquirer to assume control of our Company. Other provisions in our operating agreement may also make it more
difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example,
our operating agreement requires advance notice for proposals by shareholders and nominations, places limitations on convening shareholder meetings, and
authorizes the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. In addition, certain provisions of Delaware
law give us the ability to delay or prevent a transaction that could cause a change in our control. The market price of our Class A shares and our Preferred shares
could be adversely affected to the extent that our Managing Partners’ control over our Company, the control exercised by our manager as well as provisions of our
operating agreement discourage potential takeover attempts that our shareholders may favor.
We are a Delaware limited liability company, and there are certain provisions in our operating agreement regarding exculpation and indemnification of our
officers and directors that differ from the Delaware General Corporation Law ( the “DGCL”) in a manner that may be less protective of the interests of the
holders of our Class A shares and our Preferred shares.
Our operating agreement provides that to the fullest extent permitted by applicable law our directors or officers will not be liable to us. However, under
the DGCL, a director or officer would be liable to us for (i) breach of duty of loyalty to us or our shareholders, (ii) intentional misconduct or knowing violations of
the law that are not done in good faith, (iii) improper redemption of shares or declaration of dividend, or (iv) a transaction from which the director derived an
improper personal benefit. In addition, our operating agreement provides that we indemnify our directors and officers for acts or omissions to the fullest extent
provided by law. However, under the DGCL, a corporation can indemnify directors and officers for acts or omissions only if the director or officer acted in good
faith, in a manner he reasonably believed to be in the best interests of the corporation, and, in criminal action, if the officer or director had no reasonable cause to
believe his conduct was unlawful. Accordingly, our operating agreement may be less protective of the interests of the holders of our Class A shares and our
Preferred shares, when compared to the DGCL, insofar as it relates to the exculpation and indemnification of our officers and directors.
Awards of our Class A shares may increase shareholder dilution and reduce profitability.
We grant Class A restricted share units to certain of our investment professionals and other personnel, both when hired and as a portion of the
discretionary annual compensation they may receive. We require that a portion of the performance fees distributions payable by the general partners of certain of
the funds we manage be used by the recipients of those distributions to purchase restricted Class A shares issued under our equity incentive plan. While this
practice promotes alignment with shareholders and encourages investment professionals to maximize the success of the Company as a whole, these equity awards,
if fulfilled by issuances of new shares by us rather than by open market purchases (which do not cause any dilution), may increase personnel-related shareholder
dilution. In addition, volatility in the price of our Class A shares could adversely affect our ability to attract and retain our investment professionals and other
personnel. To recruit and retain existing and future investment professionals, we may need to increase the level of compensation that we pay to them, which may
cause a higher percentage of our revenue to be paid out in the form of compensation, which would have an adverse impact on our profit margins.
Purchases of our Class A shares pursuant to our share repurchase program may affect the value of our Class A shares, and there can be no assurance that our
share repurchase program will enhance shareholder value.
Pursuant to our publicly announced share repurchase program, we are authorized to repurchase up to $500 million in the aggregate of our Class A shares,
including through the repurchase of our outstanding Class A shares through a share repurchase program and through a reduction of Class A shares to be issued to
employees to satisfy associated tax obligations in connection with the settlement of equity-based awards granted under the 2007 Equity Plan (and any successor
equity plan thereto). The timing and amount of any share repurchases will be determined based on legal requirements, price, market and economic conditions and
other factors. This activity could increase (or reduce the size of any decrease in) the market price of our Class A shares at that time. Additionally, repurchases
under our share repurchase program have and will continue to diminish our cash reserves, which could impact our ability to pursue possible strategic opportunities
and acquisitions and could result in lower overall returns on our cash balances. There can be no assurance that any share repurchases will enhance shareholder
value because the market price of
- 78 -
Table of Contents
our Class A shares could decline. Although our share repurchase program is intended to enhance long-term shareholder value, short-term share price fluctuations
could reduce the program’s effectiveness.
Risks Related to Our Organization and Structure
Our shareholders do not elect our manager and have limited ability to influence decisions regarding our businesses.
So long as the Apollo control condition is satisfied, our manager, AGM Management, LLC, which is owned and controlled by our Managing Partners,
will manage all of our operations and activities. AGM Management, LLC is managed by BRH, a Cayman Islands limited company owned by our Managing
Partners and managed by an executive committee composed of our Managing Partners. Our shareholders do not elect our manager, its manager or its manager’s
executive committee and, unlike the holders of common stock in a corporation, have only limited voting rights on matters affecting our businesses and therefore
limited ability to influence decisions regarding our businesses. Furthermore, if our shareholders are dissatisfied with the performance of our manager, they will
have little ability to remove our manager. As discussed below, the Managing Partners collectively had 52.4% of the voting power of Apollo Global Management,
LLC as of December 31, 2018 . Therefore, they have the ability to control any shareholder vote that occurs, including any vote regarding the removal of our
manager.
In addition, holders of the Preferred shares generally have no voting rights and have none of the voting rights given to holders of our Class A shares,
subject to certain exceptions.
Our board of directors has no authority over our operations other than that which our manager has chosen to delegate to it.
For so long as the Apollo control condition is satisfied, our manager, which is owned and controlled by our Managing Partners, manages all of our
operations and activities, and our board of directors has no authority other than that which our manager chooses to delegate to it. In the event that the Apollo
control condition is not satisfied, our board of directors will manage all of our operations and activities.
For so long as the Apollo control condition is satisfied, our manager (i) nominates and elects all directors to our board of directors, (ii) sets the number of
directors of our board of directors and (iii) fills any vacancies on our board of directors. After the Apollo control condition is no longer satisfied, each of our
directors will be elected by the vote of a plurality of our shares entitled to vote, voting as a single class, to serve until his or her successor is duly elected or
appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal.
Control by our Managing Partners of the combined voting power of our shares and holding their economic interests through the Apollo Operating Group may
give rise to conflicts of interests.
Our Managing Partners controlled 52.4% of the combined voting power of our shares entitled to vote as of December 31, 2018 . Accordingly, our
Managing Partners have the ability to control our management and affairs to the extent not controlled by our manager. In addition, they are able to determine the
outcome of all matters requiring shareholder approval (such as a proposed sale of all or substantially of our assets, the approval of a merger or consolidation
involving the company, and an election by our manager to dissolve the company) and are able to cause or prevent a change of control of our company and could
preclude any unsolicited acquisition of our company. The control of voting power by our Managing Partners could deprive Class A shareholders of an opportunity
to receive a premium for their Class A shares as part of a sale of our company, and might ultimately affect the market price of the Class A shares.
In addition, our Managing Partners and Contributing Partners, through their beneficial ownership of partnership interests in Holdings, were entitled to
50.1% of Apollo Operating Group’s economic returns through the AOG Units owned by Holdings as of December 31, 2018 . Because they hold their economic
interest in our businesses directly through the Apollo Operating Group, rather than through the issuer of the Class A shares, our Managing Partners and
Contributing Partners may have conflicting interests with holders of Class A shares including relating to the selection, structuring, and disposition of investments
and any decision to alter our structure, including a decision to convert us to an entity taxed as a corporation for U.S. Federal income tax purposes. For example, our
Managing Partners and Contributing Partners may have different tax positions from us, in part because our Managing Partners and Contributing Partners hold their
AOG Units through entities that are not subject to corporate income taxation and we hold the AOG Units in part through a wholly-owned subsidiary that is subject
to corporate income taxation. In addition, the earlier taxable disposition of assets following an exchange transaction by a Managing Partner or Contributing Partner
may accelerate payments under the tax receivable agreement and increase the present value of such payments, and the taxable disposition of assets before an
exchange or transaction by a Managing Partner or Contributing Partner may increase the tax liability of a Managing Partner or Contributing Partner without giving
rise to any rights to such Managing Partner or Contributing Partner to receive payments under the tax receivable agreement. For a description of the tax receivable
agreement, see “Item 13. Certain Relationships and Related Party Transactions-Amended and Restated Tax Receivable Agreement.” Additionally, as a result of the
- 79 -
Table of Contents
reduction in the corporate tax rate to 21%, there is a significant differential in tax rates that apply to our wholly-owned corporate subsidiary and our Managing
Partners and Contributing Partners, which may influence when and to what extent our manager decides to cause the Apollo Operating Group to make distributions
to Holdings, which is 100% beneficially owned, directly and indirectly, by our Managing Partners and our Contributing Partners, and the five intermediate holding
companies, which are 100% owned by us. In addition, the structuring of future transactions may take into consideration the Managing Partners’ and Contributing
Partners’ tax considerations even where no similar benefit would accrue to us.
We qualify for, and rely on, exceptions from certain corporate governance and other requirements under the rules of the NYSE.
We qualify for exceptions from certain corporate governance and other requirements under the rules of the NYSE. Pursuant to these exceptions, we may
elect not to comply with certain corporate governance requirements of the NYSE, including the requirements (i) that a majority of our board of directors consist of
independent directors, (ii) that we have a nominating/corporate governance committee that is composed entirely of independent directors and (iii) that we have a
compensation committee that is composed entirely of independent directors. In addition, we are not required to hold annual meetings of our shareholders. Pursuant
to the exceptions available to a controlled company under the rules of the NYSE, we have elected not to have a nominating and corporate governance committee
comprised entirely of independent directors, nor a compensation committee comprised entirely of independent directors. Although we currently have a board of
directors comprised of a majority of independent directors, we plan to continue to avail ourselves of these exceptions. Accordingly, you will not have the same
protections afforded to equity holders of entities that are subject to all of the corporate governance requirements of the NYSE.
Potential conflicts of interest may arise among our manager, on the one hand, and us and our shareholders on the other hand. Our manager and its affiliates
have limited fiduciary duties to us and our shareholders, which may permit them to favor their own interests to the detriment of us and our shareholders.
Conflicts of interest may arise among our manager, on the one hand, and us and our shareholders, on the other hand. As a result of these conflicts, our
manager may favor its own interests and the interests of its affiliates over the interests of us and our shareholders. These conflicts include, among others, the
conflicts described below.
•
•
•
•
•
•
•
•
•
Our manager determines the amount and timing of our investments and dispositions, indebtedness, issuances of additional shares and amounts of
reserves, each of which can affect the amount of cash that is available for distribution to you.
Our manager is allowed to take into account the interests of parties other than us in resolving conflicts of interest, which has the effect of limiting its
duties (including fiduciary duties) to our shareholders; for example, our affiliates that serve as general partners of our funds have fiduciary and
contractual obligations to our fund investors, and such obligations may cause such affiliates to regularly take actions that might adversely affect our
near-term results of operations or cash flow; our manager has no obligation to intervene in, or to notify our shareholders of, such actions by such
affiliates.
Other than as provided in the non-competition, non-solicitation and confidentiality obligations to which our Managing Partners and other
professionals are subject, which may not be enforceable or may involve costly litigation, affiliates of our manager and existing and former personnel
employed by our manager are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with
us.
Our manager has limited its liability and reduced or eliminated its duties (including fiduciary duties) under our operating agreement, while also
restricting the remedies available to our shareholders for actions that, without these limitations, might constitute breaches of duty (including fiduciary
duty). In addition, we have agreed to indemnify our manager and its affiliates to the fullest extent permitted by law, except with respect to conduct
involving bad faith, fraud or willful misconduct. By purchasing our Class A shares or our Preferred shares, you have agreed and consented to the
provisions set forth in our operating agreement, including the provisions regarding conflicts of interest situations that, in the absence of such
provisions, might constitute a breach of fiduciary or other duties under applicable state law.
Our operating agreement does not restrict our manager from causing us to pay it or its affiliates for any services rendered, or from entering into
additional contractual arrangements with any of these entities on our behalf, so long as the terms of any such additional contractual arrangements are
fair and reasonable to us as determined under the operating agreement.
Our manager determines how much debt we incur and that decision may adversely affect our credit ratings.
Our manager determines which costs incurred by it and its affiliates are reimbursable by us.
Our manager controls the enforcement of obligations owed to us by it and its affiliates.
Our manager decides whether to retain separate counsel, accountants or others to perform services for us.
See “Item 13. Certain Relationships and Related Party Transactions” for a more detailed discussion of these conflicts.
- 80 -
Table of Contents
The control of our manager may be transferred to a third-party without shareholder consent.
Our manager may transfer its manager interest to a third-party in a merger or consolidation or in a transfer of all or substantially all of its assets without
the consent of our shareholders. Furthermore, at any time, the members of our manager may sell or transfer all or part of their membership interests in our manager
without the approval of the shareholders, subject to certain restrictions as described elsewhere in this report. A new manager may not be willing or able to form
new funds and could form funds that have investment objectives and governing terms that differ materially from those of our current funds. A new owner could
also have a different investment philosophy, employ investment professionals who are less experienced, be unsuccessful in identifying investment opportunities or
have a track record that is not as successful as Apollo’s track record. If any of the foregoing were to occur, our funds could experience difficulty in making new
investments, and the value of our funds’ existing investments, our businesses, our results of operations and our financial condition could materially suffer.
Our ability to pay regular distributions may be limited by our holding company structure. We are dependent on distributions from the Apollo Operating Group
to pay distributions, taxes and other expenses.
As a holding company, our ability to pay distributions will be subject to the ability of our subsidiaries to provide cash to us. We intend to make quarterly
distributions to the holders of our Class A shares and our Preferred shares. Accordingly, we expect to cause the Apollo Operating Group to make distributions to its
shareholders (Holdings, which is 100% beneficially owned, directly and indirectly, by our Managing Partners and our Contributing Partners, and the intermediate
holding companies, which are 100% owned by us), pro rata in an amount sufficient to enable us to pay such distributions to the holders of our Class A shares and
our Preferred shares; however, such distributions may not be made. In addition, our manager can reduce or eliminate our distributions at any time, in its discretion.
There may be circumstances under which we are restricted from paying distributions under applicable law or regulation (for example, due to Delaware
limited partnership or limited liability company act limitations on making distributions if liabilities of the entity after the distribution would exceed the value of the
entity’s assets).
We are required to pay our Managing Partners and Contributing Partners for most of the actual tax benefits we realize as a result of the tax basis step-up we
receive in connection with our acquisitions of units from our Managing Partners and Contributing Partners.
Subject to certain restrictions, each Managing Partner and Contributing Partner has the right to exchange the AOG Units that he holds through his
partnership interest in Holdings for our Class A shares in a taxable transaction. These exchanges, as well as our acquisitions of units from our Managing Partners or
Contributing Partners, may result in increases in the tax basis of the intangible assets of the Apollo Operating Group that otherwise would not have been available.
Any such increases may reduce the amount of tax that APO Corp., a wholly owned subsidiary of Apollo Global Management, LLC, would otherwise be required to
pay in the future.
We have entered into a tax receivable agreement with our Managing Partners and Contributing Partners that provides for the payment by APO Corp., to
our Managing Partners and Contributing Partners of 85% of the amount of actual tax savings, if any, that APO Corp. realizes (or is deemed to realize in the case of
an early termination payment by APO Corp. or a change of control, as discussed below) as a result of these increases in tax deductions and tax basis and certain
other tax benefits, including imputed interest expense, related to entering into the tax receivable agreement. Future payments that APO Corp. may make to our
Managing Partners and Contributing Partners could be material in amount. In the event that any other of our current or future U.S. subsidiaries become taxable as
corporations and acquire AOG Units in the future, or if we become taxable as a corporation for U.S. Federal income tax purposes, we expect, and have agreed that,
each U.S corporation will become subject to a tax receivable agreement with substantially similar terms.
The IRS could challenge our claim to any increase in the tax basis of the assets owned by the Apollo Operating Group that results from the exchanges
entered into by the Managing Partners or Contributing Partners. The IRS could also challenge any additional tax depreciation and amortization deductions or other
tax benefits (including deductions for imputed interest expense associated with payments made under the tax receivable agreement) we claim as a result of, or in
connection with, such increases in the tax basis of such assets. If the IRS were to successfully challenge a tax basis increase or tax benefits we previously claimed
from a tax basis increase, Holdings would not be obligated under the tax receivable agreement to reimburse APO Corp. for any payments previously made to them
(although any future payments would be adjusted to reflect the result of such challenge). As a result, in certain circumstances, payments could be made to our
Managing Partners and Contributing Partners under the tax receivable agreement in excess of 85% of the actual aggregate cash tax savings of APO Corp. APO
Corp.’s ability to achieve benefits from any tax basis increase and the payments to be made under this agreement will depend upon a number of factors, including
the timing and amount of its future income.
- 81 -
Table of Contents
In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certain other changes of
control, APO Corp.’s (or its successor’s) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of
control) would be based on certain assumptions, including that APO Corp. would have sufficient taxable income to fully utilize the deductions arising from the
increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. See “Item 13. Certain Relationships and Related
Party Transactions-Amended and Restated Tax Receivable Agreement.”
If we were deemed an investment company under the Investment Company Act, applicable restrictions could make it impractical for us to continue our
businesses as contemplated and could have a material adverse effect on our businesses and the price of our Class A shares and our Preferred shares.
We do not believe that we are an “investment company” under the Investment Company Act because the nature of our assets and the income derived from
those assets allow us to rely on the exception provided by Rule 3a-1 issued under the Investment Company Act. In addition, we believe we are not an investment
company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in non-investment company businesses. We intend to conduct
our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, we would be taxed as a
corporation and other restrictions imposed by the Investment Company Act, including limitations on our capital structure and our ability to transact with affiliates,
could make it impractical for us to continue our businesses as contemplated and would have a material adverse effect on our businesses and the price of our Class
A shares and our Preferred shares.
Risks Related to Taxation
Recently enacted U.S. tax legislation may adversely affect our results of operations and cash flows and may have adverse tax consequences for certain of our
Class A shareholders.
The TCJA is the most comprehensive tax legislation passed in decades and contains many significant changes to the U.S. Federal income tax laws, the
consequences of which have not yet been fully determined. In particular, the TCJA makes various changes to the U.S. Federal income tax laws that significantly
impact the taxation of individuals, corporations and the taxation of taxpayers with overseas assets and operations. The TCJA, among other things, reduces the
corporate income tax rate from 35% to 21%, limits the deductibility of net business interest expense for most businesses to 30% of “adjusted taxable income”
(which is similar to EBITDA for taxable years beginning before January 1, 2022, and similar to EBIT for taxable years beginning thereafter), limits the deduction
for net operating losses generated after 2017 to 80% of taxable income, eliminates the corporate alternative minimum tax, provides for immediate deductions for
certain investments instead of deductions for depreciation expense over time, changes the timing of certain income recognition, introduces a longer holding period
requirement for performance fees to receive long-term capital gain treatment, denies dividends received deductions for hybrid dividends and certain interest or
royalty deductions involving hybrid transactions or hybrid entities, creates a new minimum tax on certain foreign income and combats base erosion in the U.S.
through a new alternative tax.
Although we expect that the reduction in the corporate tax rate from 35% to 21%, the immediate expensing of certain capital expenditures, and certain
other changes introduced by the TCJA will be beneficial to us and the portfolio companies of our funds, other changes introduced by the TCJA are expected to
have an adverse effect. In particular, the new provisions addressing interest deductibility may limit the amount of interest expense that is deductible for U.S.
Federal income tax purposes by certain of our funds’ portfolio companies and thus increase taxes paid by such portfolio companies. In addition, introduction of the
new “base erosion and anti-abuse tax” or “BEAT,” which imposes a minimum tax on certain entities that make significant deductible payments to related foreign
entities may result in a material additional tax burden for certain portfolio companies owned by our funds and Athene, which may reduce cash flow and make these
investments less valuable over time.
To date, the IRS has issued several notices and proposed regulations with respect to certain provisions of the TCJA, however there remains limited
guidance. There are numerous interpretive issues and ambiguities that will require guidance and that are not clearly addressed in the Conference Report that
accompanied the TCJA or guidance produced by the IRS to date. Technical corrections legislation will likely be needed to clarify certain of the new provisions and
give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or other legislative changes that may be needed to
prevent unintended or unforeseen adverse tax consequences will be enacted by Congress. We continue to examine the impact of the TCJA, but the compliance
costs for us to ensure proper compliance with changes introduced by the TCJA may prove burdensome in the future and the TCJA may adversely affect our results
of operations and cash flows. The impact of the TCJA on our Class A shareholders also remains uncertain but may cause adverse tax consequences for certain of
our Class A shareholders.
- 82 -
Table of Contents
We may hold or acquire certain investments in or through entities classified as PFICs or CFCs for U.S. Federal income tax purposes, which may have adverse
U.S. tax consequences for certain Class A shareholders.
Certain of our investments may be in foreign corporations or may be acquired through foreign subsidiaries that would be classified as corporations for
U.S. Federal income tax purposes. Such entities may be passive foreign investment companies, or “PFICs,” or controlled foreign corporations, or “CFCs,” for U.S.
Federal income tax purposes. For example, APO (FC), LLC, APO (FC II), LLC and certain portfolio companies owned by our funds are considered to be CFCs for
U.S. Federal income tax purposes. Class A shareholders otherwise subject to U.S. tax that indirectly own an interest in a PFIC or a CFC may experience adverse
U.S. tax consequences, including the recognition of taxable income prior to the receipt of cash relating to such income. In addition, gain on the sale of a PFIC or
CFC, including certain non-U.S. portfolio companies owned by our funds may be taxable at ordinary income tax rates.
The TCJA also introduced changes to the determination of when a foreign corporation is treated as a CFC and whether a U.S. shareholder of a CFC is
required to include its pro rata share of certain income generated by the CFC into income currently regardless of whether the shareholder receives any related
distributions of cash. Although aspects of these changes are uncertain and may be modified by regulations issued by the U.S. Treasury Department, Class A
shareholders may experience adverse U.S. tax consequences as a result of our ownership of non-U.S. companies, including the recognition of taxable income
attributable to such companies’ non-U.S. operations at applicable ordinary income tax rates prior to the receipt of cash relating to such income. In addition, gain
generated by our sale of shares of such companies may be taxable at ordinary income tax rates rather than preferential capital gains tax rates.
As described above, the TCJA introduced a new minimum tax on “Global Intangible Low-Taxed Income” or “GILTI,” which may require certain Class A
shareholders to pay tax at the highest rates applicable to ordinary income on their pro rata share of GILTI generated by certain CFCs that we own directly or
indirectly prior to the receipt of cash relating to such income. Although we are still evaluating the new minimum tax imposed on GILTI and the full impact of such
tax is unclear at this point, it is possible that certain Class A shareholders may be required to recognize income without the receipt of cash relating to such income.
You may be subject to U.S. Federal income tax on your share of our taxable income, regardless of whether you receive any cash distributions from us.
Under current law, so long as we are not required to register as an investment company under the Investment Company Act and 90% of our gross income
for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code on a continuing basis, we currently expect that we will be
treated, for U.S. Federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. As described
above, you may be subject to U.S. Federal, state, local and possibly, in some cases, foreign income taxation on your allocable share of our items of income, gain,
loss, deduction and credit for each of our taxable years ending with or within your taxable year, regardless of whether or not you receive cash distributions from us.
Accordingly, you may be required to make tax payments in connection with your ownership of Class A shares that significantly exceed your cash distributions in
any specific year.
If we are treated as a corporation for U.S. Federal income tax purposes or state tax purposes, the impact on the value of our Class A shares is uncertain.
The value of your investment may depend in part on our company being treated as a partnership for U.S. Federal income tax purposes, which requires that
90% or more of our gross income for every taxable year consist of qualifying income, as defined in Section 7704 of the Internal Revenue Code, and that we are not
required to register as an investment company under the Investment Company Act and related rules. Although we currently intend to manage our affairs so that our
partnership will meet the 90% test described above in each taxable year, we may not meet these requirements or our manager may determine it is prudent to change
our structure. In either case, we may be treated as a corporation for U.S. Federal income tax purposes in the future. If we were treated as a corporation for U.S.
Federal income tax purposes, (i) we would become subject to corporate income tax, currently at the recently reduced rate of 21% and (ii) distributions to
shareholders would be taxable as dividends for U.S. Federal income tax purposes to the extent of our earnings and profits. While our effective tax rate would likely
increase and the amount of distributions to our shareholders would likely decrease as a result of our conversion to be treated as a corporation for U.S. federal
income tax purposes, it is possible that the value of our Class A shares may go up as a result of our Class A shares becoming available to a more diverse investor
base and being included on major stock market indices and in certain sector groupings.
Separately, because of widespread state budget deficits, several states have in the past evaluated ways to subject partnerships to entity level taxation
through the imposition of state income, franchise or other forms of taxation. If any state were to impose a tax upon us as an entity, our distributions to you may be
reduced and the value of our Class A shares may be affected.
- 83 -
Table of Contents
Our structure involves complex provisions of U.S. Federal income tax law for which no clear precedent or authority may be available . Our structure is also
subject to on-going future potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.
The U.S. Federal income tax treatment of holders of Class A shares depends in some instances on determinations of fact and interpretations of complex
provisions of U.S. Federal income tax law for which no clear precedent or authority may be available. In particular, there is limited guidance regarding the
application and interpretation of the TCJA, as discussed above under “— Risks
Related
to
Taxation-Recently
enacted
U.S.
tax
legislation
may
materially
adversely
affect
our
results
of
operations
and
cash
flows
and
may
have
adverse
tax
consequences
for
certain
of
our
Class
A
shareholders
.” As a result, there is significant
uncertainty regarding how the provisions of the TCJA will be interpreted, and guidance may not be forthcoming from the government. To date, the IRS has issued
several notices and proposed regulations with respect to certain provisions of the TCJA, however there remains limited guidance. There can be no assurance that
technical clarifications or other legislative changes that may be needed to prevent unintended or unforeseen adverse tax consequences will be enacted by Congress.
Any changes to, clarifications of, or guidance under the TCJA could have an adverse effect on our results of operations or the value of our Class A shares.
You should also be aware that the U.S. Federal income tax rules are constantly under review by persons involved in the legislative process, the IRS and
the U.S. Department of the Treasury, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other
modifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships and entities taxed as partnerships. The present
U.S. Federal income tax treatment of an investment in our Class A shares may be modified by administrative, legislative or judicial interpretation at any time, and
any such action may affect investments and commitments previously made. Changes to the U.S. Federal income tax laws and interpretations thereof could make it
more difficult or impossible to meet the exception for us to be treated as a partnership for U.S. Federal income tax purposes that is not taxable as a corporation,
affect or cause us to change our investments and commitments, affect the tax considerations of an investment in us, change the character or treatment of portions of
our income (including, for instance, the treatment of performance fees short-term capital gain or as ordinary income rather than long-term capital gain) and
adversely affect an investment in our Class A shares. In addition, it is possible that future legislation increases the U.S. federal income tax rates applicable to
corporations again. No prediction can be made as to whether any particular proposed legislation will be enacted or, if enacted, what the specific provisions or the
effective date of any such legislation would be, or whether it would have any effect on us. As such, we cannot assure you that future legislative, administrative or
judicial developments will not result in an increase in the amount of U.S. tax payable by us, our funds, portfolio companies owned by our funds or by investors in
our Class A shares. If any such developments occur, our business, results of operation and cash flows could be adversely affected and such developments could
have an adverse effect on your investment in our Class A shares.
Our operating agreement permits our manager to modify our operating agreement from time to time, without the consent of the holders of Class A shares,
to address certain changes in U.S. Federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have an adverse impact
on some or all holders of Class A shares. For instance, as discussed above, our manager could elect at some point to treat us as an association taxable as a
corporation for U.S. Federal (and applicable state) income tax purposes. If our manager were to do this, the U.S. Federal income tax consequences of owning our
Class A shares would be materially different. Moreover, we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to
report income, gain, deduction, loss and credit to holders of Class A shares in a manner that reflects such beneficial ownership of items by holders of Class A
shares, taking into account variation in ownership interests during each taxable year because of trading activity. However, those assumptions and conventions may
not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used
by us do not satisfy the technical requirements of the Internal Revenue Code and/or U.S. Department of the Treasury regulations and could require that items of
income, gain, deductions, loss or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects holders of Class A
shares.
Our interests in certain of our businesses are held through entities that are treated as corporations for U.S. Federal income tax purposes; such corporations
may be liable for significant taxes and may create other adverse tax consequences, which could potentially adversely affect the value of your investment.
In light of the publicly traded partnership rules under U.S. Federal income tax law and other requirements, we currently hold our interests in certain of our
businesses through entities that are treated as corporations for U.S. Federal income tax purposes. Each such corporation could be liable for significant U.S. Federal
income taxes and applicable state, local and other taxes that would not otherwise be incurred, which could adversely affect the value of your investment.
Furthermore, it is possible that the IRS could challenge the manner in which such corporation’s taxable income is computed by us.
- 84 -
Table of Contents
Changes in U.S. and foreign tax law could adversely affect our ability to raise funds from certain investors.
Under the Foreign Account Tax Compliance Act, or “FATCA”, certain U.S. withholding agents, or USWAs, foreign financial institutions, or “FFIs”, and
non-financial foreign entities, or “NFFEs”, are required to report information about offshore accounts and investments to the U.S. or their local taxing authorities
annually. In response to this legislation, various foreign governments have entered into Intergovernmental Agreements, or “IGAs”, with the U.S. Government and
some have enacted similar legislation.
In order to meet these regulatory obligations, Apollo is required to register FFIs with the IRS, evaluate internal FATCA procedures, expand the review of
investor Anti-Money Laundering/Know Your Customer requirements and tax forms, evaluate the FATCA offerings by third-party administrators and ensure that
Apollo is prepared for the new global tax and information reporting requirements created under the U.S. and Non-U.S. FATCA regimes like the Common
Reporting Standards (“CRS”).
Further, FATCA as well as Chapters 3 and 61 of the Internal Revenue Code, require Apollo to collect new IRS Tax Forms (W-9 and W-8 series), and, in
some cases, Cayman Self-Certifications and other supporting documentation from their investors. Similarly, CRS requires Apollo to collect CRS Self-
Certifications. Apollo has undertaken efforts to re-paper their pre-existing investors and new investors.
Failure to meet these regulatory requirements could expose Apollo and/or its investors to a punitive withholding tax of 30% on certain U.S. payments and
possibly limit their ability to open bank accounts and secure funding the global capital markets. Beginning in 2019, a 30% withholding tax applies to the gross
proceeds from the sale of U.S. stocks and securities. Recently proposed regulations were issued eliminating withholding on the payments of gross proceeds and
further delaying the effective date of foreign pass-thru payment withholding, however aspects of these changes are uncertain and may be modified by regulations
issued by the U.S. Treasury Department. The reporting obligations imposed under FATCA require FFIs to comply with agreements with the IRS to obtain and
disclose information about certain investors to the IRS. The administrative and economic costs of compliance with FATCA may discourage some investors from
investing in U.S. funds, which could adversely affect our ability to raise funds from these investors. Like FATCA, CRS imposes reporting obligations on Financial
Institutions (“FIs”) not residents in the United States, but CRS does not impose withholding tax obligations. Compliance with CRS and other similar regimes could
result in increased administrative and compliance costs and could subject our investment entities to increased non-U.S. withholding taxes.
Complying with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities or enter into acquisitions,
borrowings, financings or arrangements we may not have otherwise entered into.
In order for us to be treated as a partnership for U.S. Federal income tax purposes, and not as an association or publicly traded partnership taxable as a
corporation, we must meet the qualifying income exception discussed above on a continuing basis and we must not be required to register as an investment
company under the Investment Company Act. In order to effect such treatment we (or our subsidiaries) may be required to invest through foreign or domestic
corporations, forego attractive business or investment opportunities or enter into borrowings or financings we may not have otherwise entered into. This may cause
us to incur additional tax liability and/or adversely affect our ability to operate solely to maximize our cash flow. Our structure also may impede our ability to
engage in certain corporate acquisitive transactions because we generally intend to hold all of our assets through the Apollo Operating Group. In addition, we may
be unable to participate in certain corporate reorganization transactions that would be tax free to our holders if we were a corporation. To the extent we hold assets
other than through the Apollo Operating Group, we will make appropriate adjustments to the Apollo Operating Group agreements so that distributions to Holdings
and us would be the same as if such assets were held at that level.
Tax gain or loss on disposition of our Class A shares could be more or less than expected.
If you sell your Class A shares, you will recognize a gain or loss equal to the difference between the amount realized and your adjusted tax basis allocated
to those Class A shares. Prior distributions to you in excess of the total net taxable income allocated to you will have decreased the tax basis in your Class A shares.
Therefore, such excess distributions will increase your taxable gain, or decrease your taxable loss, when the Class A shares are sold and may result in a taxable
gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing a gain, may be ordinary income to you.
We cannot match transferors and transferees of Class A shares, and we have therefore adopted certain income tax accounting conventions that may not
conform with all aspects of applicable tax requirements . The IRS may challenge this treatment, which could adversely affect the value of our Class A shares.
Because we cannot match transferors and transferees of Class A shares, we have adopted depreciation, amortization and other tax accounting positions
that may not conform with all aspects of existing U.S. Department of the Treasury regulations. A
- 85 -
Table of Contents
successful IRS challenge to those positions could adversely affect the amount of tax benefits available to holders of Class A shares. It also could affect the timing
of these tax benefits or the amount of gain on the sale of Class A shares and could have a negative impact on the value of Class A shares or result in audits of and
adjustments to the tax returns of holders of Class A shares.
In addition, our taxable income and losses will be determined and apportioned among investors using conventions we regard as consistent with applicable
law. As a result, if you transfer your Class A shares, you may be allocated income, gain, loss and deduction realized by us after the date of transfer. Similarly, a
transferee may be allocated income, gain, loss and deduction realized by us prior to the date of the transferee’s acquisition of our Class A shares. A transferee may
also bear the cost of withholding tax imposed with respect to income allocated to a transferor through a reduction in the cash distributed to the transferee.
Non-U.S. persons face unique U.S. tax issues from owning Class A shares that may result in adverse tax consequences to them.
In light of our investment activities, we may be, or may become, engaged in a U.S. trade or business for U.S. Federal income tax purposes, in which case
some portion of our income would be treated as effectively connected income with respect to non-U.S. holders of our Class A shares, or “ECI.” Moreover,
dividends paid by an investment that we make in a real estate investment trust, or “REIT,” that are attributable to gains from the sale of U.S. real property interests
and sales of certain investments in interests in U.S. real property, including stock of certain U.S. corporations owning significant U.S. real property, may be treated
as ECI with respect to non-U.S. holders of our Class A shares. In addition, certain income of non-U.S. holders from U.S. sources not connected to any U.S. trade or
business conducted by us could be treated as ECI. To the extent our income is treated as ECI, each non-U.S. holder generally would be subject to withholding tax
on its allocable share of such income, would be required to file a U.S. Federal income tax return for such year reporting its allocable share of income effectively
connected with such trade or business and any other income treated as ECI, and would be subject to U.S. Federal income tax at regular U.S. tax rates on any such
income (state and local income taxes and filings may also apply in that event). Non-U.S. holders that are corporations may also be subject to a 30% branch profits
tax on their allocable share of such income. In addition, certain income from U.S. sources that is not ECI allocable to non-U.S. holders may be reduced by
withholding taxes imposed at the highest effective applicable tax rate.
As a result of new rules introduced by the TCJA, if we are treated as engaged (directly or indirectly) in a trade or business within the United States, any
gain realized by a non-U.S. holder from the sale or exchange of Class A shares would constitute ECI to the extent such holder’s distributive share of the amount of
gain would have been treated as ECI if we had sold all of our assets at their fair market value as of the date of the sale or exchange of such Class A share.
Furthermore, the transferee of such Class A shares may be required to deduct and withhold a tax equal to 10% of the amount realized (or deemed realized) on the
sale or exchange such Class A shares. If the transferee fails to withhold the required amount, we may be required to deduct and withhold from distributions to the
transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest on such amount). Even if a non-U.S. holder disposes of its Class A
shares in a transaction that otherwise qualifies as a non-recognition transaction, such non-U.S. holder may recognize gain and be subject to the withholding if we
are treated as engaged in a U.S. trade or business. The TCJA provides that the U.S. Treasury Department has the regulatory authority to prescribe circumstances in
which certain non-recognition provisions will continue to apply to defer the recognition of gain. In addition, the IRS recently released a notice suspending the
withholding requirements described above for shares of publicly traded partnerships, such as us, and providing several exceptions to this 10% withholding tax that
may or may not apply with respect to a non-U.S. holder’s transfer of its Class A shares, until such time as regulations or other guidance have been issued. As a
result, it is unclear how this provision may impact transfers of Class A shares in the future.
An investment in Class A shares will give rise to UBTI to certain tax-exempt holders.
We will not make investments through taxable U.S. corporations solely for the purpose of limiting unrelated business taxable income (“UBTI”) from
“debt-financed” property and, thus, an investment in Class A shares will give rise to UBTI to tax-exempt holders of Class A shares. For example, APO Asset Co.,
LLC will hold interests in entities treated as partnerships, or otherwise subject to tax on a flow-through basis, that will incur indebtedness. Moreover, if the IRS
successfully asserts that we are engaged in a trade or business, then additional amounts of income could be treated as UBTI.
Under new rules introduced by the TCJA, a tax-exempt holder will be required to calculate UBTI separately with respect to each trade or business in
which it has an interest and will not be able to use a net operating loss from one trade or business to offset UBTI from another trade or business. Accordingly,
losses generated by one operating pass-through entity, in which such tax-exempt holder has an interest, may not be used to reduce UBTI generated by another
operating pass-through entity in which such tax-exempt holder has an interest, and such loss must instead be carried forward to subsequent years to offset UBTI
generated by the same operating pass-through entity. The use of a net operating loss arising in a taxable year beginning before January 1, 2018, is not subject to
such limitation. For these purposes, the IRS recently issued a notice that permits tax-exempt organizations to aggregate their investments in partnerships and treat
them as one trade or business if certain de minimis or control requirements are satisfied with respect to the relevant partnership.
- 86 -
Table of Contents
We do not intend to make, or cause to be made, an election under Section 754 of the Internal Revenue Code to adjust our asset basis or the asset basis of
certain of the Apollo Operating Group Partnerships . Thus, a holder of Class A shares could be allocated more taxable income in respect of those Class A
shares prior to disposition than if such an election were made.
We did not make and currently do not intend to make, or cause to be made, an election to adjust asset basis under Section 754 of the Internal Revenue
Code with respect to Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings III, L.P., Apollo Principal Holdings IV, L.P.,
Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal
Holdings IX, L.P., Apollo Principal Holdings X, L.P., Apollo Principal Holdings XI, LLC and Apollo Principal Holdings XII, L.P. If no such election is made,
there will generally be no adjustment for a transferee of Class A shares even if the purchase price of those Class A shares is higher than the Class A shares’ share
of the aggregate tax basis of our assets immediately prior to the transfer. In that case, on a sale of an asset, gain allocable to a transferee could include built-in gain
allocable to the transferor at the time of the transfer, which built-in gain would otherwise generally be eliminated if a Section 754 election had been made.
Class A shareholders may be subject to foreign, state and local taxes and return filing requirements as a result of investing in our Class A shares.
In addition to U.S. Federal income taxes, our Class A shareholders may be subject to other taxes, including foreign, state and local taxes, unincorporated
business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property now or in the
future, even if our Class A shareholders do not reside in any of those jurisdictions. Our Class A shareholders may also be required to file foreign, state and local
income tax returns and pay state and local income taxes in some or all of these jurisdictions. As a result of the TCJA, for Class A shareholders that are non-
corporate U.S. shareholders, the deductibility of foreign, state and local taxes will be subject to substantial limitations for taxable years 2018 through 2025. Further,
Class A shareholders may be subject to penalties for failure to comply with those requirements. It is the responsibility of each Class A shareholder to file all U.S.
Federal, foreign, state and local tax returns that may be required of such Class A shareholder.
We may not be able to furnish to each Class A shareholder specific tax information within 90 days after the close of each calendar year, which means that
holders of Class A shares who are U.S. taxpayers should anticipate the need to file annually a request for an extension of the due date of their income tax
return . In addition, it is possible that Class A shareholders may be required to file amended income tax returns.
As a publicly traded partnership, our operating results, including distributions of income, dividends, gains, losses or deductions and adjustments to
carrying basis, will be reported on Schedule K-1 and distributed to each Class A shareholder annually. It may require longer than 90 days after the end of our fiscal
year to obtain the requisite information from all lower-tier entities so that K-1s may be prepared for us. For this reason, Class A shareholders who are U.S.
taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past April 15 or the otherwise applicable due date
of their income tax return for the taxable year.
In addition, it is possible that a Class A shareholder will be required to file amended income tax returns as a result of adjustments to items on the
corresponding income tax returns of the partnership. Any obligation for a Class A shareholder to file amended income tax returns for that or any other reason,
including any costs incurred in the preparation or filing of such returns, are the responsibility of each Class A shareholder.
You may be subject to an additional U.S. Federal income tax on net investment income allocated to you by us and on gain on the sale of the Class A shares.
Individuals, estates and trusts are currently subject to an additional 3.8% tax on “net investment income” (or undistributed “net investment income,” in the
case of estates and trusts) for each taxable year, with such tax applying to the lesser of such income or the excess of such person’s adjusted gross income (with
certain adjustments) over a specified amount. Net investment income includes net income from interest, dividends, annuities, royalties and rents and net gain
attributable to the disposition of investment property. It is anticipated that net income and gain attributable to an investment in us will be included in a holder of the
Class A share’s “net investment income” subject to this additional tax.
We may be liable for adjustments to our tax returns as a result of partnership audit legislation that has recently become effective.
Legislation enacted in 2015 and effective the 2018 taxable year significantly changes the rules for U.S. Federal income tax audits of partnerships. Such
audits will continue to be conducted at the partnership level, but with respect to tax returns for taxable years beginning after December 31, 2017, any adjustments
to the amount of tax due (including interest and penalties) will be payable by the partnership rather than the partners of such partnership unless the partnership
qualifies for and affirmatively
- 87 -
Table of Contents
elects an alternative procedure. In general, under the default procedures, taxes imposed on us would be assessed at the highest rate of tax applicable for the
reviewed year and determined without regard to the character of the income or gain, the tax status of our shareholders or the benefit of any shareholder-level tax
attributes (that could otherwise reduce any tax due).
Under the elective alternative procedure, we would issue information returns to persons who were shareholders in the audited year, who would then be
required to take the adjustments into account in calculating their own tax liability, and we would not be liable for the adjustments to the amount of tax due
(including interest and penalties). The Treasury recently released final regulations relating to the elective alternative procedure mechanics, which resolved several
uncertain aspects of these mechanics, however aspects of these changes remain unclear. Our manager has discretion whether or not to make use of this elective
alternative procedure and has not yet determined whether or to what extent the election will be available or appropriate.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive offices are located in leased office space at 9 West 57th Street, New York, New York 10019. We also lease the space for our
offices in New York, Los Angeles, San Diego, Houston, Bethesda, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai
and Tokyo. We do not own any real property. We consider these facilities to be suitable and adequate for the management and operation of our businesses.
ITEM 3.
LEGAL PROCEEDINGS
See note 15 to our consolidated financial statements for a summary of the Company’s legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 .
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our Class A shares are traded on the NYSE under the symbol “APO.” Our Class A shares began trading on the NYSE on March 30, 2011.
The number of holders of record of our Class A shares as of February 26, 2019 was 142 . This does not include the number of shareholders that hold
shares in “street name” through banks or broker-dealers. As of February 26, 2019 , there was 1 holder of our Class B share.
Cash Distribution Policy
The quarterly cash distributions paid to our Class A shareholders can be found in note 13 to our consolidated financial statements. We have declared
an additional cash distribution of $0.56 per Class A share in respect of the fourth quarter of 2018 which will be paid on February 28, 2019 to holders of record of
Class A shares at the close of business on February 21, 2019 .
Distributable Earnings (“DE”), as well as DE After Taxes and Related Payables are derived from our segment reported results, and are supplemental
non-U.S. GAAP measures to assess performance and the amount of earnings available for distribution to Class A shareholders, holders of RSUs that participate in
distributions and holders of AOG Units. DE represents the amount of net realized earnings without the effects of the consolidation of any of the related funds. DE,
which is a component of Economic Income (“EI”), is the sum across all segments of (i) total management fees and advisory and transaction fees, (ii) other income
(loss), (iii) realized performance fees, excluding realizations received in the form of shares and (iv) realized investment income, less (x) compensation expense,
excluding the expense related to equity-based awards, (y) realized profit sharing expense, and (z) non-compensation expenses, excluding depreciation and
amortization expense. DE After Taxes and Related Payables represents DE less estimated current corporate, local and non-U.S. taxes as well as the payable under
Apollo’s tax receivable agreement. DE After Taxes and Related Payables is net of preferred distributions, if any, to Series A and Series B Preferred shareholders.
- 88 -
Table of Contents
Subject to certain exceptions, unless distributions have been declared and paid or declared and set apart for payment on the Series A Preferred shares
for a quarterly distribution period, during the remainder of that distribution period, we may not declare or pay or set apart payment for distributions on any Class A
shares and any other equity securities that the Company may issue in the future ranking, as to the payment of distributions, junior to our Series A Preferred shares
and we may not repurchase any such junior shares. See “Risk Factors—Risks Related to Our Class A Shares and Our Preferred Shares—We cannot assure you that
our intended quarterly distributions will be paid such quarter or at all.”
Our current intention is to distribute to our Class A shareholders on a quarterly basis substantially all of our Distributable Earnings attributable to
Class A shareholders, in excess of amounts determined by our manager to be necessary or appropriate to provide for the conduct of our businesses, to make
appropriate investments in our businesses and our funds, to comply with applicable law, any of our debt instruments or other agreements, or to provide for future
distributions to our Class A shareholders for any ensuing quarter. Because we will not know what our actual available cash flow from operations will be for any
year until sometime after the end of such year, our fourth quarter distribution may be adjusted to take into account actual net after-tax cash flow from operations
for that year.
The declaration, payment and determination of the amount of our quarterly distribution will be at the sole discretion of our manager, which may
change our cash distribution policy at any time. We cannot assure you that any distributions, whether quarterly or otherwise, will or can be paid. In making
decisions regarding our quarterly distribution, our manager will take into account general economic and business conditions, our strategic plans and prospects, our
businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual
restrictions and obligations, legal, tax and regulatory restrictions, restrictions and other implications on the payment of distributions by us to our common
shareholders or by our subsidiaries to us and such other factors as our manager may deem relevant.
Because we are a holding company that owns intermediate holding companies, the funding of each distribution, if declared, will occur in three steps,
as follows.
•
•
•
First , we will cause one or more entities in the Apollo Operating Group to make a distribution to all of its partners or members (as
applicable), including our wholly-owned subsidiaries APO Corp., APO Asset Co., LLC, APO (FC), LLC, APO (FC II), LLC, APO UK
(FC), Limited and APO (FC III), LLC (as applicable), and Holdings, on a pro rata basis;
Second , we will cause our intermediate holding companies, APO Corp., APO Asset Co., LLC, APO (FC), LLC, APO (FC II), LLC, APO
UK (FC), Limited and APO (FC III), LLC (as applicable), to distribute to us, from their net after-tax proceeds, amounts equal to the
aggregate distribution we have declared; and
Third , we will distribute the proceeds received by us to our Class A shareholders on a pro rata basis.
Payments that any of our intermediate holding companies make under the tax receivable agreement will reduce amounts that would otherwise be
available for distribution by us on our Class A shares. See note 14 to our consolidated financial statements for information regarding the tax receivable agreement.
Under Delaware law we are prohibited from making a distribution to the extent that our liabilities, after such distribution, exceed the fair value of our
assets. Our operating agreement does not contain any restrictions on our ability to make distributions, except that we may only distribute Class A shares to holders
of Class A shares. The debt arrangements, as described in note 10 to our consolidated financial statements, do not contain restrictions on our or our subsidiaries'
ability to pay distributions; however, instruments governing indebtedness that we or our subsidiaries incur in the future may contain restrictions on our or our
subsidiaries' ability to pay distributions or make other cash distributions to equity holders.
In addition, the Apollo Operating Group’s cash flow from operations may be insufficient to enable it to make tax distributions to its partners, in which
case the Apollo Operating Group may have to borrow funds or sell assets, and thus our liquidity and financial condition could be materially adversely affected.
Furthermore, by paying cash distributions rather than investing that cash in our businesses, we might risk slowing the pace of our growth, or not having a sufficient
amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise.
Our cash distribution policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay distributions according
to our cash distribution policy, we may not pay distributions according to our policy, or at all, if, among other things, we do not have the cash necessary to pay the
intended distributions.
As of December 31, 2018 , approximately 9.8 million RSUs granted to Apollo employees (net of forfeited awards) were entitled to distribution
equivalents, which are paid in cash.
- 89 -
Table of Contents
Securities Authorized for Issuance Under Equity Compensation Plans
See the table under “Securities Authorized for Issuance Under Equity Compensation Plans” set forth in “Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.”
Unregistered Sale of Equity Securities
On November 2, 2018 , November 15, 2018 , November 16, 2018 and November 29, 2018 , we issued 156,907 , 253,694 , 10,833 , and 758 Class A
shares, respectively, net of taxes to Apollo Management Holdings, L.P., a subsidiary of Apollo Global Management, LLC, in connection with issuances of shares
to participants in the 2007 Equity Plan for an aggregate purchase price of $4.8 million , $7.6 million , $0.3 million and $21.5 thousand , respectively. The issuance
was exempt from registration under the Securities Act in accordance with Section 4(a)(2) and Rule 506(b) thereof, as transactions by the issuer not involving a
public offering. We determined that the purchaser of Class A shares in the transactions, Apollo Management Holdings, L.P., was an accredited investor.
Issuer Purchases of Equity Securities
The following table sets forth purchases of our Class A shares made by us or on our behalf during the fiscal quarter ended December 31, 2018 .
Period
October 1, 2018 through October 31, 2018
November 1, 2018 through November 30, 2018
December 1, 2018 through December 31, 2018
Total
Number of Class A
Shares Purchased (1)
Average Price
Paid per Share
Class A Shares
Purchased as Part of
Publicly Announced
Plans or Programs (2)
Approximate Dollar Value
of Class A Shares that May
be Purchased Under the
Plan or Programs
— $
300,000
—
300,000
—
30.17
—
— $
36,571
—
36,571
76,007,061
74,903,714
74,903,714
(2)
(1) Certain Apollo employees receive a portion of the profit sharing proceeds of certain funds in the form of (a) restricted Class A shares of AGM that they are required to
purchase with such proceeds or (b) RSUs, in each case which equity-based awards generally vest over three years. These equity-based awards are granted under the
Company's 2007 Equity Plan. To prevent dilution on account of these awards, Apollo may, in its discretion, repurchase Class A shares on the open market and retire them.
During the three months ended December 31, 2018 , we repurchased 263,429 Class A shares at an average price paid per share of $30.17 in open-market transactions not
pursuant to a publicly-announced repurchase plan or program on account of these awards. See note 13 for further information on Class A shares.
Pursuant to a publicly announced share repurchase program, the Company is authorized to repurchase up to $500 million in the aggregate of its Class A shares, including
through the repurchase of outstanding Class A shares and through a reduction of Class A shares to be issued to employees to satisfy associated tax obligations in
connection with the settlement of equity-based awards granted under the 2007 Equity Plan (or any successor equity plan thereto). Class A shares may be repurchased from
time to time in open market transactions, in privately negotiated transactions, pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act, or
otherwise, with the size and timing of these repurchases depending on legal requirements, price, market and economic conditions and other factors. The Company is not
obligated under the terms of the program to repurchase any of its Class A shares. The repurchase program has no expiration date and may be suspended or terminated by
the Company at any time without prior notice. Class A shares repurchased as part of this program are canceled by the Company. Reductions of Class A shares issued to
employees to satisfy associated tax obligations in connection with the settlement of equity-based awards granted under the 2007 Equity Plan are not included in the table.
ITEM 6.
SELECTED FINANCIAL DATA
The following selected historical consolidated and other data of Apollo Global Management, LLC should be read together with “Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included in
“Item 8 . Financial Statements and Supplementary Data.”
The selected historical consolidated statements of operations data of Apollo Global Management, LLC for each of the years ended December 31, 2018
, 2017 and 2016 and the selected historical consolidated statements of financial condition data as of December 31, 2018 and 2017 have been derived from our
audited consolidated financial statements which are included in “Item 8 . Financial Statements and Supplementary Data.”
We derived the selected historical consolidated statements of operations data of Apollo Global Management, LLC for the years ended December 31,
2015 and 2014 and the selected consolidated statements of financial condition data as of December 31, 2016 , 2015 and 2014 from our audited consolidated
financial statements which are not included in this report.
- 90 -
Table of Contents
Statement of Operations Data
Revenues:
Management fees
Advisory and transaction fees, net
Investment income (loss):
Performance allocations
Principal investment income
Total investment income (loss)
Incentive fees
Total Revenues
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense
Total compensation and benefits
Interest expense
General, administrative and other
Placement fees
Total Expenses
Other Income (Loss):
Net gains (losses) from investment activities
Net gains from investment activities of consolidated variable interest
entities
Interest income
Other income, net
Total Other Income (Loss)
Income before income tax provision
Income tax provision
Net Income
Net income attributable to Non-Controlling Interests
Net Income (Loss) Attributable to Apollo Global Management,
LLC
Net income attributable to Series A Preferred Shareholders
Net income attributable to Series B Preferred Shareholders
Net Income (Loss) Attributable to Apollo Global Management,
LLC Class A Shareholders
Distributions Declared per Class A Share
Net Income (Loss) Available to Class A Share – Basic
Net Income (Loss) Available to Class A Share – Diluted
$
$
$
$
For the Years Ended December 31,
2018
2017 (1)
2016 (1)
2015 (1)
2014 (1)
(in thousands, except per share data)
$
1,345,252
$
1,154,925
$
1,043,513
$
112,278
117,624
146,665
(400,305)
5,122
(395,183)
30,718
1,093,065
459,604
173,228
(57,833)
574,999
59,374
266,444
2,122
902,939
(186,449)
45,112
20,654
35,829
(84,854)
105,272
(86,021)
19,251
(29,627)
(10,376)
(17,531)
(14,131)
(42,038)
1.93
(0.30)
(0.30)
$
$
$
$
1,306,193
161,630
1,467,823
31,431
2,771,803
428,882
91,450
515,073
1,035,405
52,873
257,858
13,913
712,865
103,178
816,043
67,341
2,073,562
389,130
102,983
357,074
849,187
43,482
247,000
26,249
1,360,049
1,165,918
95,104
10,665
6,421
245,640
357,830
1,769,584
(325,945)
1,443,639
(814,535)
629,104
(13,538)
—
615,566
1.85
3.12
3.10
$
$
$
$
139,721
5,015
4,072
4,562
153,370
1,061,014
(90,707)
970,307
(567,457)
402,850
—
—
402,850
1.25
2.11
2.11
$
$
$
$
930,194 $
14,186
45,079
14,855
59,934
52,211
1,056,525
354,524
97,676
85,229
537,429
30,071
255,061
8,414
830,975
121,723
19,050
3,232
7,673
151,678
377,228
(26,733)
350,495
(215,998)
134,497
—
—
134,497 $
1.96 $
0.61 $
0.61 $
850,441
315,587
365,399
53,856
419,255
28,656
1,613,939
338,049
126,320
276,190
740,559
22,393
265,189
15,422
1,043,563
213,243
22,564
10,392
60,592
306,791
877,167
(147,245)
729,922
(561,693)
168,229
—
—
168,229
3.11
0.62
0.62
Statement of Financial Condition Data
Total assets
Debt (excluding obligations of consolidated variable interest entities)
Debt obligations of consolidated variable interest entities
Total shareholders’ equity
Total Non-Controlling Interests
For the Years Ended December 31,
2018
2017 (1)
2016 (1)
(in thousands)
2015 (1)
2014 (1)
$
5,991,654
$
6,991,070
$
5,629,553
$
1,362,402
1,002,063
2,897,796
1,434,870
1,352,447
786,545
1,867,528
1,032,412
1,360,448
855,461
2,451,840
1,075,644
- 91 -
4,559,808 $
1,025,255
801,270
1,388,981
739,476
23,172,788
1,027,965
14,123,100
5,943,461
4,156,979
Table of Contents
(1)
Apollo adopted new revenue recognition accounting guidance during the year ended December 31, 2018 on a modified retrospective basis. The adoption did not impact periods prior to
2018. However, in conjunction with the adoption of the new revenue recognition accounting guidance, the Company implemented a change in accounting principle for performance
allocations on a full retrospective basis which did impact presentation of various line items within the statements of operations and financial condition in all periods presented. See note 2
to the consolidated financial statements for details regarding the Company’s adoption of the new revenue recognition accounting guidance and change in accounting principle.
ITEM 7 .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Apollo Global Management, LLC’s consolidated financial statements and the related notes as of
December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016. This discussion contains forward-looking statements that are subject
to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such
forward-looking statements due to a number of factors, including those included in the section of this report entitled “Item 1A. Risk Factors.” The highlights
listed below have had significant effects on many items within our consolidated financial statements and affect the comparison of the current period’s activity
with those of prior periods.
General
Our Businesses
Founded in 1990, Apollo is a leading global alternative investment manager. We are a contrarian, value-oriented investment manager in credit, private
equity and real assets with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically
across a company’s capital structure. We raise, invest and manage funds on behalf of some of the world’s most prominent pension, endowment and sovereign
wealth funds as well as other institutional and individual investors. Apollo is led by our Managing Partners, Leon Black, Joshua Harris and Marc Rowan, who have
worked together for more than 32 years and lead a team of 1,143 employees, including 410 investment professionals, as of December 31, 2018 .
Apollo conducts its business primarily in the United States and substantially all of its revenues are generated domestically. These businesses are
conducted through the following three reportable segments:
(i)
(ii)
(iii)
Credit —primarily invests in non-control corporate and structured debt instruments including performing, stressed and
distressed instruments across the capital structure;
Private equity —primarily invests in control equity and related debt instruments, convertible securities and distressed debt
instruments; and
Real assets —primarily invests in real estate equity and infrastructure equity for the acquisition and recapitalization of real
estate and infrastructure assets, portfolios, platforms and operating companies, and real estate and infrastructure debt including
first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities.
These business segments are differentiated based on the varying investment strategies. The performance is measured by management on an
unconsolidated basis because management makes operating decisions and assesses the performance of each of Apollo’s business segments based on financial and
operating metrics and data that exclude the effects of consolidation of any of the managed funds.
Our financial results vary since performance fees, which generally constitute a large portion of the income we receive from the funds that we manage,
as well as the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. As a result, we emphasize long-term
financial growth and profitability to manage our business.
In addition, the growth in our Fee-Generating AUM during the last year has primarily been in our credit segment. The average management fee rate
for these new credit products is at market rates for such products and in certain cases is below our historical rates. Also, due to the complexity of these new product
offerings, the Company has incurred and will continue to incur additional costs associated with managing these products. To date, these additional costs have been
offset by realized economies of scale and ongoing cost management.
As of December 31, 2018 , we had total AUM of $280.3 billion across all of our businesses. More than 90% of our total AUM was in funds with a
contractual life at inception of seven years or more, and 49% of such AUM was in permanent capital vehicles. For our credit segment, total gross and net returns,
excluding Athene and Athora assets that are managed or advised
- 92 -
Table of Contents
by Apollo but not directly invested in Apollo funds and investment vehicles or sub-advised by Apollo, were 2.2% and 1.2% , respectively, for the year ended
December 31, 2018 .
As of December 31, 2017, Fund IX held its final closing, raising a total of $23.5 billion in third-party capital and approximately $1.2 billion of
additional capital from Apollo and affiliated investors for total commitments of $24.7 billion . On December 31, 2013, Fund VIII held a final closing raising a total
of $17.5 billion in third-party capital and approximately $880 million of additional capital from Apollo and affiliated investors, and as of December 31, 2018 ,
Fund VIII had $3.4 billion of uncalled commitments remaining. Additionally, Fund VII held a final closing in December 2008, raising a total of $14.7 billion , and
as of December 31, 2018 , Fund VII had $2.0 billion of uncalled commitments remaining. We have consistently produced attractive long-term investment returns
in our traditional private equity funds, generating a 39% gross IRR and a 25% net IRR on a compound annual basis from inception through December 31, 2018 .
Apollo’s private equity fund depreciation was (9.8)% for the year ended December 31, 2018 .
For our real assets segment, total combined gross and net returns for U.S. RE Fund I and U.S. RE Fund II including co-investment capital were 10.2%
and 8.8% , respectively, for the year ended December 31, 2018 .
For further detail related to fund performance metrics across all of our businesses, see “—The Historical Investment Performance of Our Funds.”
Subsequent to December 31, 2018, the Company determined to change the business segment in which it reports certain funds and accounts to align its
segment reporting with the manner in which such funds and accounts were managed subsequent to December 31, 2018. Effective January 1, 2019, the European
Principal Fund series which the Company has historically reported in the credit segment, moved to the Company’s real assets segment. In addition, one of the
fund’s in the Company’s Credit Opportunity Fund series as well as several other funds and accounts that generally invest in illiquid opportunistic investments,
which the Company historically reported within its credit segment, moved to the Company’s private equity segment.
- 93 -
Table of Contents
Holding Company Structure
The diagram below depicts our current organizational structure:
Note: The organizational structure chart above depicts a simplified version of the Apollo structure. It does not include all legal entities in the structure. Ownership percentages
are as of February 26, 2019 .
(1) Based on a Form 13F for the quarter ended December 31, 2018 filed with the SEC on February 8, 2019 by the Strategic Investor, the Strategic Investor holds 8.8% of the
Class A shares outstanding and 4.4% of the economic interests in the Apollo Operating Group. The Class A shares held by investors other than the Strategic Investor
represent 47.7% of the total voting power of our shares entitled to vote and 45.6% of the economic interests in the Apollo Operating Group. Class A shares held by the
Strategic Investor do not have voting rights. However, such Class A shares will become entitled to vote upon transfers by the Strategic Investor in accordance with the
agreements entered into in connection with the investments made by the Strategic Investor.
(2) Our Managing Partners own BRH Holdings GP, Ltd., which in turn holds our only outstanding Class B share. The Class B share represents 52.3% of the total voting
power of our shares entitled to vote but no economic interest in Apollo Global Management, LLC. Our Managing Partners’ economic interests are instead represented by
their indirect beneficial ownership, through Holdings, of 45.4% of the limited partner interests in the Apollo Operating Group.
Through BRH Holdings, L.P., our Managing Partners indirectly beneficially own through estate planning vehicles, limited partner interests in Holdings.
(3)
(4) Holdings owns 50.0% of the limited partner interests in each Apollo Operating Group entity. The AOG Units held by Holdings are exchangeable for Class A shares. Our
Managing Partners, through their interests in BRH and Holdings, beneficially own 45.4% of the AOG Units. Our Contributing Partners, through their ownership interests
in Holdings, beneficially own 4.6% of the AOG Units.
(5) BRH Holdings GP, Ltd. is the sole member of AGM Management, LLC, our manager. The management of Apollo Global Management, LLC is vested in our manager as
provided in our operating agreement.
(6) Represents 50.0% of the limited partner interests in each Apollo Operating Group entity, held through the intermediate holding companies. Apollo Global Management,
LLC, also indirectly owns 100% of the general partner interests in each Apollo Operating Group entity.
Each of the Apollo Operating Group entities holds interests in different businesses or entities organized in different jurisdictions.
Our structure is designed to accomplish a number of objectives, the most important of which are as follows:
- 94 -
Table of Contents
• We are a holding company that is qualified as a partnership for U.S. federal income tax purposes. Our intermediate holding
companies enable us to maintain our partnership status and to meet the qualifying income exception.
• We have historically used multiple management companies to segregate operations for business, financial and other reasons. Going
forward, we may increase or decrease the number of our management companies, partnerships or other entities within the Apollo
Operating Group based on our views regarding the appropriate balance between (a) administrative convenience and (b) continued
business, financial, tax and other optimization.
Business Environment
As a global investment manager, we are affected by numerous factors, including the condition of financial markets and the economy. Price
fluctuations within equity, credit, commodity, foreign exchange markets, as well as interest rates, which may be volatile and mixed across geographies, can
significantly impact the valuation of our funds' portfolio companies and related income we may recognize.
In the U.S., the S&P 500 Index decreased by 6.2% during 2018, following an increase of 19.4% in 2017. Outside the U.S., global equity markets
depreciated during 2018, with the MSCI All Country World ex USA Index decreasing 14.4% following an increase of 25.9% in 2017.
Conditions in the credit markets also have a significant impact on our business, and in 2018, indices posted mixed returns. The BofAML HY Master II
Index fell 2.3% in 2018, following an increase of 7.5% in 2017. The S&P/LSTA Leveraged Loan Index increased 0.4% in 2018, following an increase of 4.1% in
2017. Benchmark interest rates finished the year higher from where they were at the end of 2017, as the Federal Reserve raised the target rate four times during the
year and nine times since December 2015. The U.S. 10-year Treasury yield rose slightly to finish the year at 2.7%.
Foreign exchange rates can materially impact the valuations of our investments and those of our funds that are denominated in currencies other than
the U.S. dollar. Relative to the U.S. dollar, the Euro depreciated 4.5% during the year after appreciating 14.1% in 2017, and the British pound depreciated 5.6% in
2018, after appreciating 9.5% in 2017. Commodities generally depreciated in 2018, with gold, copper, natural gas and sugar decreasing, while wheat appreciated.
The price of crude oil decreased by 24.8% during the year ended December 31, 2018.
In terms of economic conditions in the U.S., the Bureau of Economic Analysis reported real GDP increased at an annual rate of 2.6% in 2018, higher
than the 2.3% growth experienced in 2017. As of January 2019, the International Monetary Fund estimated that the U.S. economy will expand by 2.5% in 2019 and
1.8% in 2020. Additionally, the U.S. unemployment rate stood at 3.9% as of December 31, 2018.
Regardless of the market or economic environment at any given time, Apollo relies on its contrarian, value-oriented approach to consistently invest
capital on behalf of its fund investors by focusing on opportunities that management believes are often overlooked by other investors. As such, Apollo’s global
integrated investment platform deployed $16.1 billion of capital through the funds it manages during the year ended December 31, 2018 . We believe Apollo’s
expertise in credit and its focus on nine core industry sectors, combined with more than 28 years of investment experience, has allowed Apollo to respond quickly
to changing environments. Apollo’s core industry sectors include chemicals, manufacturing and industrial, natural resources, consumer and retail, consumer
services, business services, financial services, leisure, and media/telecom/technology. Apollo believes that these attributes have contributed to the success of its
private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods.
In general, institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low
interest rate environment, and we believe the business environment remains generally accommodative to raise larger successor funds, launch new products, and
pursue attractive strategic growth opportunities, such as continuing to grow the assets of our permanent capital vehicles. As such, Apollo had $60.0 billion of
capital inflows during the year ended December 31, 2018 . While Apollo continues to attract capital inflows, it also continues to generate realizations for fund
investors. Apollo returned $11.1 billion of capital and realized gains to the investors in the funds it manages during the year ended December 31, 2018 .
Managing Business Performance
We believe that the presentation of Economic Income, or “EI”, supplements a reader’s understanding of the economic operating performance of each
of our segments.
- 95 -
Table of Contents
Economic Income (Loss)
EI has certain limitations in that it does not take into account certain items included under U.S. GAAP. EI represents segment income before income
tax provision excluding transaction-related charges arising from the 2007 private placement, and any acquisitions. Transaction-related charges includes equity-
based compensation charges, the amortization of intangible assets, contingent consideration and certain other charges associated with acquisitions. In addition, EI
excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the Company, compensation and
administrative related expense reimbursements, as well as the assets, liabilities and operating results of the funds and variable interest entities (“VIEs”) that are
included in the consolidated financial statements. We believe the exclusion of the non-cash charges related to the 2007 Reorganization for equity-based
compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not
our core operating performance. EI also excludes impacts of the remeasurement of the tax receivable agreement which arises from changes in the associated
deferred tax balance, including the impacts related to the Tax Cuts and Jobs Act (the “TCJA”).
Economic Net Income (“ENI”) represents EI adjusted to reflect income tax provision on EI that has been calculated assuming that all income is
allocated to Apollo Global Management, LLC, which would occur following an exchange of all AOG Units for Class A shares of Apollo Global Management,
LLC. ENI excludes the impacts of the remeasurement of deferred tax assets and liabilities which arises from changes in estimated future tax rates, including
impacts related to the TCJA. The economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and
certain assumptions used in calculating the income tax provision for Apollo’s consolidated statements of operations under U.S. GAAP. ENI is net of preferred
distributions, if any, to Series A and Series B Preferred shareholders.
We believe that EI is helpful for an understanding of our business and that investors should review the same supplemental financial measure that
management uses to analyze our segment performance. This measure supplements and should be considered in addition to and not in lieu of the results of
operations discussed below in “—Overview of Results of Operations” that have been prepared in accordance with U.S. GAAP. See note 16 to the consolidated
financial statements for more details regarding management’s consideration of EI.
EI may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with
U.S. GAAP. We use EI as a measure of operating performance, not as a measure of liquidity. EI should not be considered in isolation or as a substitute for net
income or other income data prepared in accordance with U.S. GAAP. The use of EI without consideration of related U.S. GAAP measures is not adequate due to
the adjustments described above. Management compensates for these limitations by using EI as a supplemental measure to U.S. GAAP results, to provide a more
complete understanding of our performance as management measures it. A reconciliation of EI to its most directly comparable U.S. GAAP measure of income
before income tax provision can be found in the notes to our consolidated financial statements.
Management believes that excluding the remeasurement of the tax receivable agreement and deferred taxes from EI and ENI, respectively, is
meaningful as it increases comparability between periods. Remeasurement of the tax receivable agreement and deferred taxes are estimates, and may change due to
changes in interpretations and assumptions based on additional guidance that may be issued pertaining to the TCJA.
Fee Related Earnings
Fee Related Earnings (“FRE”) is derived from our segment reported results and refers to a component of EI that is used as a supplemental
performance measure to assess whether revenues that we believe are generally more stable and predictable in nature, primarily consisting of management fees, are
sufficient to cover associated operating expenses and generate profits. FRE is the sum across all segments of (i) management fees, (ii) advisory and transaction
fees, (iii) performance fees earned from business development companies and Redding Ridge Holdings and (iv) other income, net, less (x) salary, bonus and
benefits, excluding equity-based compensation, (y) other associated operating expenses and (z) non-controlling interests in the management companies of certain
funds the Company manages.
Distributable Earnings
Distributable Earnings (“DE”), as well as DE After Taxes and Related Payables are derived from our segment reported results, and are supplemental
non-U.S. GAAP measures to assess performance and the amount of earnings available for distribution to Class A shareholders, holders of RSUs that participate in
distributions and holders of AOG Units. DE represents the amount of net realized earnings without the effects of the consolidation of any of the related funds. DE,
which is a component of EI, is the sum across all segments of (i) total management fees and advisory and transaction fees, (ii) other income (loss), (iii) realized
performance fees, excluding realizations received in the form of shares and (iv) realized investment income, less (x) compensation expense, excluding the expense
related to equity-based awards, (y) realized profit sharing expense, and (z) non-compensation
- 96 -
Table of Contents
expenses, excluding depreciation and amortization expense. DE After Taxes and Related Payables represents DE less estimated current corporate, local and non-
U.S. taxes as well as the payable under Apollo’s tax receivable agreement. DE After Taxes and Related Payables is net of preferred distributions, if any, to Series
A and Series B Preferred shareholders. A reconciliation of DE and EI to their most directly comparable U.S. GAAP measure of income before income tax
provision can be found in “—Summary of Non-U.S. GAAP Measures”.
Fee Related EBITDA
Fee related EBITDA is a non-U.S. GAAP measure derived from our segment reported results and is used to assess the performance of our operations
as well as our ability to service current and future borrowings. Fee related EBITDA represents FRE plus amounts for depreciation and amortization. “Fee related
EBITDA +100% of net realized performance fees” represents fee-related EBITDA plus realized performance fees less realized profit sharing.
We use FRE, DE and Fee related EBITDA as measures of operating performance, not as measures of liquidity. These measures should not be
considered in isolation or as a substitute for net income or other income data prepared in accordance with U.S. GAAP. The use of these measures without
consideration of their related U.S. GAAP measures is not adequate due to the adjustments described above.
Operating Metrics
We monitor certain operating metrics that are common to the alternative investment management industry. These operating metrics include Assets
Under Management, capital deployed and uncalled commitments.
Assets Under Management
The table below presents Fee-Generating and Non-Fee-Generating AUM by segment:
As of December 31, 2018
Credit
Private
Equity
Real Assets
Total
Credit
(in millions)
As of December 31, 2017
Private
Equity
Real Assets
Total
(in millions)
Fee-Generating AUM
Non-Fee-Generating AUM
Total AUM
$
$
158,031 $
43,951 $
12,385 $
214,367 $
130,150 $
29,792 $
9,023 $
168,965
35,205
25,137
5,550
65,892
33,963
42,640
3,360
79,963
193,236 $
69,088 $
17,935 $
280,259 $
164,113 $
72,432 $
12,383 $
248,928
The table below presents AUM with Future Management Fee Potential, which is a component of Non-Fee-Generating AUM, for each of Apollo’s
three segments.
Credit
Private Equity
Real Assets
Total AUM with Future Management Fee Potential
As of
December 31, 2018
As of
December 31, 2017
(in millions)
10,603 $
8,677
2,097
21,377 $
10,057
25,912
464
36,433
$
$
- 97 -
Table of Contents
The following tables present the components of Performance Fee-Eligible AUM for each of Apollo’s three segments:
As of December 31, 2018
As of December 31, 2017
Credit
Private
Equity
Real Assets
Total
Credit
(in millions)
Private
Equity
Real Assets
Total
(in millions)
Performance Fee-Generating AUM (1)
$
25,053 $
22,848 $
666 $
48,567 $
25,814 $
26,775 $
694 $
53,283
AUM Not Currently Generating Performance
Fees
Uninvested Performance Fee-Eligible AUM
21,414
12,627
1,620
34,478
1,335
1,786
24,369
48,891
17,901
11,607
494
33,412
437
923
18,832
45,942
Total Performance Fee-Eligible AUM
$
59,094 $
58,946 $
3,787 $
121,827 $
55,322 $
60,681 $
2,054 $ 118,057
(1) As of December 31, 2018 , $0.2 billion of the Performance Fee-Generating AUM is currently above its hurdle rate or preferred return, but in accordance with the adoption
of the revenue recognition standard effective January 1, 2018, recognition of performance fees associated with such Performance Fee-Generating AUM has been deferred
to future periods when the fees are probable to not be significantly reversed.
The following table presents AUM Not Currently Generating Performance Fees for funds that have commenced investing capital for more than 24
months as of December 31, 2018 and the corresponding appreciation required to reach the preferred return or high watermark in order to generate performance
fees:
Category / Fund
Credit:
Drawdown
Liquid/Performing
Athora Non-Sub-Advised
Total Credit
Private Equity:
ANRP I
Other PE
Total Private Equity
Real Assets:
Total Real Assets
Total
Invested AUM Not
Currently Generating
Performance Fees
Investment Period Active >
24 Months
Appreciation Required to
Achieve Performance Fees
(1)
(in millions)
$
5,109 $
16,002
303
21,414
389
1,231
1,620
1,335
24,369 $
$
2,875
3,002
10,545
1,613
—
18,035
389
224
613
55%
< 250bps
250-500bps
> 500bps
< 250bps
12%
58%
66%
61%
404
19,052
> 250bps
(1) All investors in a given fund are considered in aggregate when calculating the appreciation required to achieve performance fees presented above. Appreciation required to
achieve performance fees may vary by individual investor.
- 98 -
Table of Contents
The components of Fee-Generating AUM by segment are presented below:
Fee-Generating AUM based on capital commitments
Fee-Generating AUM based on invested capital
Fee-Generating AUM based on gross/adjusted assets
Fee-Generating AUM based on NAV
Total Fee-Generating AUM
Credit
As of December 31, 2018
Private
Equity
Real
Assets
(in millions)
$
$
8,037
$
26,849
$
784
$
4,128
125,335
20,531
16,326
776
—
5,825
5,625
151
158,031
$
43,951 (1) $
12,385
$
(1)
The weighted average remaining life of the private equity funds excluding permanent capital vehicles at December 31, 2018 was 79 months.
Fee-Generating AUM based on capital commitments
Fee-Generating AUM based on invested capital
Fee-Generating AUM based on gross/adjusted assets
Fee-Generating AUM based on NAV
Total Fee-Generating AUM
Credit
As of December 31, 2017
Private
Equity
Real
Assets
(in millions)
$
$
8,771
$
21,803
$
784
$
6,186
97,514
17,679
7,197
792
—
4,535
3,658
46
130,150
$
29,792 (1) $
9,023
$
(1)
The weighted average remaining life of the private equity funds excluding permanent capital vehicles at December 31, 2017 was 57 months.
The following table presents total AUM and Fee-Generating AUM amounts for our credit segment by category type:
Total
35,670
26,279
131,736
20,682
214,367
Total
31,358
17,918
101,964
17,725
168,965
Liquid/Performing
Drawdown
MidCap, AINV, AFT, AIF
Athene Non-Sub-Advised (1)
Athora Non-Sub-Advised (1)
Advisory
Total
Total AUM
As of December 31,
Fee-Generating AUM
As of December 31,
2018
2017
2018
2017
54,825 $
43,306 $
40,323 $
(in millions)
25,988
14,831
85,575
4,952
7,065
28,468
13,428
59,670
6,719
12,522
14,124
13,524
85,575
4,485
—
36,863
16,778
12,623
59,670
4,216
—
193,236 $
164,113 $
158,031 $
130,150
$
$
(1)
The Company refers to the portion of the AUM related to Athora that is not sub-advised by Apollo or invested in funds and or investment vehicles managed by Apollo as
“Athora Non-Sub-Advised” AUM. Athene Non-Sub-Advised AUM and Athora Non-Sub-Advised AUM reflects total combined Athene and Athora AUM of $116.8
billion less $26.2 billion of assets that were either sub-advised by Apollo or invested in funds and investment vehicles managed by Apollo included within other asset
categories.
Investment Management and Sub-Advisory Agreements - AAM
Apollo, through its consolidated subsidiary, AAM, provides asset management services to Athene with respect to assets in the Athene Accounts,
including asset allocation services, direct asset management services, asset and liability matching management, mergers and acquisitions, asset diligence, hedging
and other asset management services and receives management fees for providing these services. The Company, through AAM, also provides sub-advisory
services with respect to a portion of the assets in the Athene Accounts. From time to time, Athene also invests in funds and investment vehicles that Apollo
manages. The Company refers to such assets which are invested directly as “Athene Assets Directly Invested.” The Company broadly refers to “Athene Sub-
Advised” assets as those assets in the Athene Accounts which the Company explicitly sub-advises as well as Athene Assets Directly Invested. See note 14 to the
consolidated financial statements for more details regarding the fee rates of the investment management, sub-advisory and other fee arrangements with respect to
the assets in the Athene Accounts.
- 99 -
Table of Contents
Investment Advisory and Sub-Advisory Agreements - AAME
Apollo, through AAME, provides investment advisory services with respect to certain assets in certain portfolio companies of Apollo funds and the
Athora Accounts and sub-advises certain assets in certain portfolio companies of Apollo funds and the Athora Accounts. From time to time, Athora also invests in
funds and investment vehicles Apollo manages. The Company broadly refers to “Athora Sub-Advised” assets as those assets in the Athora Accounts which the
Company explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages. See
note 14 to the consolidated financial statements for more details regarding the fee rates of the investment advisory, sub-advisory and other fee arrangements with
respect to the assets in the Athora Accounts.
The following table presents the aggregate Athene Sub-Advised AUM and Athora Sub-Advised AUM by segment:
Total AUM
As of December 31,
2018
2017
(in millions)
Credit
Liquid/Performing
$
15,150 $
Drawdown
Total Credit
Private Equity
Real Assets
Debt
Equity
Total Real Assets
Total
1,264
16,414
1,617
7,046
1,170
8,216
$
26,247 $
10,986
1,327
12,313
1,121
4,509
488
4,997
18,431
Athene and Athora Non-Sub-Advised AUM
The Company refers to the portion of the AUM in the Athene North American Accounts that is not Athene Sub-Advised AUM as “Athene Non-Sub-
Advised” AUM. The Company refers to the portion of the Athora AUM that is not Athora Sub-Advised AUM as “Athora Non-Sub-Advised” AUM.
The following table presents the AUM for Athene and Athora:
As of December 31, 2018
As of December 31, 2017
Sub-Advised AUM
(1)
Non-Sub-Advised
AUM
Total AUM
Sub-Advised AUM
(1)
Non-Sub-Advised
AUM
Total AUM
Athene
Athora
Total
$
$
23,215 $
3,032
26,247 $
85,575 $
4,952
90,527 $
(in millions)
108,790 $
7,984
116,774 $
17,241 $
1,190
18,431 $
59,670 $
6,719
66,389 $
76,911
7,909
84,820
(1) Of the total Athene Sub-Advised AUM and Athora Sub-Advised AUM, $4.3 billion and $3.0 billion , respectively, were Athene Assets Directly Invested as of
December 31, 2018 and 2017 , respectively.
The following table presents total AUM and Fee-Generating AUM amounts for our private equity segment:
Traditional Private Equity Funds
Natural Resources
Other (1)
Total
Total AUM
As of December 31,
Fee-Generating AUM
As of December 31,
2018
2017
2018
2017
$
$
50,758 $
5,034
13,296
69,088 $
- 100 -
(in millions)
57,250 $
4,709
10,473
72,432 $
38,345 $
3,981
1,625
43,951 $
23,580
4,058
2,154
29,792
Table of Contents
(1)
Includes co-investments and other private equity vehicles.
The following table presents total AUM and Fee-Generating AUM amounts for our real assets segment:
Total AUM
As of December 31,
Fee-Generating AUM
As of December 31,
2018
2017
2018
2017
Debt
Equity
Total
$
$
13,186 $
4,749
17,935 $
(in millions)
9,965 $
2,418
12,383 $
9,398 $
2,987
12,385 $
7,451
1,572
9,023
The following tables summarize changes in total AUM for each of Apollo’s three segments:
For the Years Ended December 31,
2018
Credit
Private
Equity
Real Assets
Total
Credit
(in millions)
2017
Private
Equity
Real Assets
Total
Change in Total AUM (1) :
Beginning of Period
$
164,113 $
72,432 $
12,383 $
248,928 $
136,607 $
43,628 $
11,453 $
191,688
Inflows
Outflows (2)
Net Flows
Realizations
Market Activity (3)
46,806
(11,758)
35,048
(5,312)
(613)
6,642
(209)
6,433
(4,466)
(5,311)
6,514
—
6,514
(1,275)
313
59,962
(11,967)
47,995
(11,053)
(5,611)
28,242
(3,730)
24,512
(4,048)
7,042
25,179
(83)
25,096
(4,568)
8,276
3,099
(489)
2,610
(2,075)
395
56,520
(4,302)
52,218
(10,691)
15,713
End of Period
$
193,236 $
69,088 $
17,935 $
280,259 $
164,113 $
72,432 $
12,383 $
248,928
(1) At the individual segment level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio
company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions
of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Total AUM include redemptions of $2.0 billion and $1.1 billion during the years ended December 31, 2018 and 2017 , respectively.
(3)
Includes foreign exchange impacts of $(1.5) billion , $(73.8) million and $(22.5) million for credit, private equity and real assets, respectively, during the year ended
December 31, 2018 , and foreign exchange impacts of $3.3 billion , $249.1 million and $146.1 million for credit, private equity and real assets, respectively, during the
year ended December 31, 2017 .
Total AUM was $280.3 billion at December 31, 2018 , an increase of $31.3 billion , or 12.6% , compared to $248.9 billion at December 31, 2017 . The
net increase was primarily due to:
Net flows of $48.0 billion primarily related to:
•
•
•
a $35.0 billion increase related to funds we manage in the credit segment primarily consisting of an increase in AUM relating to Athene of $33.2 billion
as a result of its completion of the reinsurance transactions relating to Lincoln Financial Group and the fixed annuity business of Voya Financial and
subscriptions of $8.5 billion, offset by net segment transfers of $5.5 billion and a decrease in AUM relating to Advisory assets of $3.9 billion driven by
portfolio company activity;
a $6.5 billion increase related to funds we manage in the real assets segment primarily consisting of net segment transfers of $3.6 billion, subscriptions of
$1.6 billion and an increase in net leverage of $1.0 billion; and
a $6.4 billion increase related to funds we manage in the private equity segment consisting of subscriptions of $5.3 billion primarily related to Hybrid
Value Fund and co-investments for Fund VIII transactions of $2.8 billion and $0.8 billion, respectively, and net segment transfers of $0.9 billion.
Offsetting these increases were:
Realizations of $11.1 billion primarily related to:
- 101 -
Table of Contents
•
•
•
$5.3 billion related to funds we manage in the credit segment primarily consisting of distributions of $1.4 billion, $1.3 billion, $1.2 billion and $1.0 billion
from certain drawdown funds, Apollo Credit Opportunity Fund III, L.P. (“COF III”), certain liquid/performing funds and Apollo European Principal
Finance Fund II, L.P. (“EPF II”), respectively;
$4.5 billion related to funds we manage in the private equity segment primarily consisting of distributions of $1.7 billion, $1.3 billion, $0.6 billion and
$0.5 billion from Fund VIII, Fund VI, Fund VII and certain natural resources funds, respectively; and
$1.3 billion related to funds we manage in the real assets segment primarily consisting of distributions of $1.0 billion from our real estate debt funds.
Market activity of $5.6 billion primarily related to:
•
a $5.3 billion decrease related to funds we manage in the private equity segment as a result of depreciation in Fund VIII and co-investment vehicles.
The following tables summarize changes in Fee-Generating AUM for each of Apollo’s three segments:
For the Years Ended December 31,
2018
Credit
Private
Equity
Real Assets
Total
Credit
(in millions)
2017
Private
Equity
Real Assets
Total
Change in Fee-Generating AUM (1) :
Beginning of Period
$
130,150 $
29,792 $
9,023 $
168,965 $
111,781 $
30,722 $
8,295 $
150,798
Inflows
Outflows (2)
Net Flows
Realizations
Market Activity (3)
43,816
(12,974)
30,842
(2,618)
(343)
25,616
(10,552)
15,064
(937)
32
4,745
(792)
3,953
(779)
188
74,177
(24,318)
49,859
(4,334)
(123)
23,469
(6,503)
16,966
(1,946)
3,349
428
(590)
(162)
(874)
106
2,249
(417)
1,832
(1,328)
224
26,146
(7,510)
18,636
(4,148)
3,679
End of Period
$
158,031 $
43,951 $
12,385 $
214,367 $
130,150 $
29,792 $
9,023 $
168,965
(1) At the individual segment level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio
company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions
of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Fee-Generating AUM include redemptions of $2.0 billion and $840.0 million during the years ended December 31, 2018 and 2017 , respectively.
(3)
Includes foreign exchange impacts of $(861.6) million , $(2.6) million and $(27.9) million for credit, private equity and real assets, respectively, during the year ended
December 31, 2018 , and foreign exchange impacts of $1.5 billion and $78.5 million for credit and real assets, respectively, during the year ended December 31, 2017 .
Total Fee-Generating AUM was $214.4 billion at December 31, 2018 , an increase of $45.4 billion or 26.9% , compared to $169.0 billion at
December 31, 2017 . The net increase was primarily due to:
Net flows of $49.9 billion primarily related to:
•
•
•
a $30.8 billion increase related to funds we manage in the credit segment primarily consisting of an increase in AUM relating to Athene of $33.2 billion
as a result of its completion of the reinsurance transactions relating to Lincoln Financial Group and the fixed annuity business of Voya Financial and
subscriptions of $4.0 billion related to our liquid/performing funds, offset by fee-generating capital reduction of $5.2 billion;
a $15.1 billion increase related to funds we manage in the private equity segment primarily consisting of an increase of $23.5 billion relating to the
commencement of Fund IX’s investment period, offset by a fee basis adjustment of $5.0 billion in Fund VIII related to the commencement of Fund IX’s
investment period and a decrease of $2.8 billion relating to the termination of the management fee with respect to Fund VI; and
a $4.0 billion increase related to funds we manage in the real assets segment primarily consisting of net segment transfers of $2.5 billion, $0.6 billion of
capital raised for real estate equity funds and $0.4 billion of capital raised for Infrastructure Equity Fund.
Offsetting these increases were:
Realizations of $4.3 billion primarily related to:
- 102 -
Table of Contents
•
•
•
$2.6 billion related to funds we manage in the credit segment primarily driven by distributions from EPF II, a strategic investment account and certain
liquid/performing funds of $1.1 billion, $0.8 billion and $0.3 billion, respectively;
$0.9 billion related to funds we manage in the private equity segment driven by distributions from Fund VIII and Fund VII of $0.4 billion and $0.4
billion, respectively; and
$0.8 billion related to funds we manage in the real assets segment primarily consisting of distributions of $0.6 billion from our real estate debt funds.
Capital Deployed and Uncalled Commitments
Capital deployed is the aggregate amount of capital that has been invested during a given period by our drawdown funds, SIAs that have a defined
maturity date and funds and SIAs in our real estate debt strategy. Uncalled commitments, by contrast, represents unfunded capital commitments that certain of
Apollo’s funds and SIAs have received from fund investors to fund future or current fund investments and expenses.
Capital deployed and uncalled commitments are indicative of the pace and magnitude of fund capital that is deployed or will be deployed, and which
therefore could result in future revenues that include management fees, transaction fees and performance fees to the extent they are fee-generating. Capital
deployed and uncalled commitments can also give rise to future costs that are related to the hiring of additional resources to manage and account for the additional
capital that is deployed or will be deployed. Management uses capital deployed and uncalled commitments as key operating metrics since we believe the results
measure our fund’s investment activities.
Capital
Deployed
The following table summarizes by segment the capital deployed for funds and SIAs with a defined maturity date and certain funds and SIAs in
Apollo’s real estate debt strategy:
For the Years Ended December 31,
2018
2017
(in millions)
2016
Credit
Private Equity
Real Assets (1)
Total capital deployed
$
$
4,318 $
5,505
6,255
16,078 $
6,279 $
5,029
3,505
14,813 $
3,713
9,582
2,638
15,933
(1)
Included in capital deployed is $4.8 billion , $3.2 billion and $2.5 billion for the years ended December 31, 2018, 2017 and 2016 , respectively, related to funds in Apollo’s
real estate debt strategy.
Uncalled
Commitments
The following table summarizes the uncalled commitments by segment:
Credit
Private Equity
Real Assets
Total uncalled commitments (1)
As of
December 31, 2018
As of
December 31, 2017
$
$
(in millions)
15,797 $
37,950
1,884
55,631 $
15,225
36,810
1,074
53,109
(1) As of December 31, 2018 and December 31, 2017 , $48.5 billion and $47.6 billion , respectively, represented the amount of capital available for investment or
reinvestment subject to the provisions of the applicable limited partnership agreements or other governing agreements of the funds, partnerships and accounts we manage.
These amounts exclude uncalled commitments which can only be called for fund fees and expenses.
The Historical Investment Performance of Our Funds
Below we present information relating to the historical performance of our funds, including certain legacy Apollo funds that do not have a meaningful
amount of unrealized investments, and in respect of which the general partner interest has not been contributed to us.
- 103 -
Table of Contents
When considering the data presented below, you should note that the historical results of our funds are not indicative of the future results that you
should expect from such funds, from any future funds we may raise or from your investment in our Class A shares.
An investment in our Class A shares is not an investment in any of the Apollo funds, and the assets and revenues of our funds are not directly available
to us. The historical and potential future returns of the funds we manage are not directly linked to returns on our Class A shares. Therefore, you should not
conclude that continued positive performance of the funds we manage will necessarily result in positive returns on an investment in our Class A shares. However,
poor performance of the funds that we manage would cause a decline in our revenue from such funds, and would therefore have a negative effect on our
performance and in all likelihood the value of our Class A shares.
Moreover, the historical returns of our funds should not be considered indicative of the future results you should expect from such funds or from any
future funds we may raise. There can be no assurance that any Apollo fund will continue to achieve the same results in the future.
Finally, our private equity IRRs have historically varied greatly from fund to fund. For example, Fund IV generated a 12% gross IRR and a 9% net
IRR since its inception through December 31, 2018 , while Fund V generated a 61% gross IRR and a 44% net IRR since its inception through December 31, 2018 .
Accordingly, the IRR going forward for any current or future fund may vary considerably from the historical IRR generated by any particular fund, or for our
private equity funds as a whole. Future returns will also be affected by the applicable risks, including risks of the industries and businesses in which a particular
fund invests. See “Item 1A . Risk Factors—Risks Related to Our Businesses—The historical returns attributable to our funds should not be considered as indicative
of the future results of our funds or of our future results or of any returns expected on an investment in our Class A shares and our Preferred shares.”
- 104 -
Table of Contents
Investment Record
The following table summarizes the investment record by segment of Apollo’s significant drawdown funds and SIAs that have a defined maturity date
in which investors make a commitment to provide capital at the formation of such funds and deliver capital when called as investment opportunities become
available. The funds included in the investment record table below have greater than $500 million of AUM and/or form part of a flagship series of funds. The SIAs
included in the investment record table below have greater than $200 million of AUM and did not predominantly invest in other Apollo funds or SIAs.
All amounts are as of December 31, 2018 , unless otherwise noted:
Vintage
Year (1)
Total AUM
Committed
Capital
Total
Invested
Capital (1)
Realized
Value (1)
Remaining Cost
(1)
Unrealized
Value (1)
Total Value
(1)
Gross
IRR (1)
Net
IRR (1)
($
in
millions)
Private Equity:
Fund IX
Fund VIII
Fund VII
Fund VI
Fund V
$
2018
2013
2008
2006
2001
$
24,769
19,518
4,573
1,618
267
13
24,729
18,377
14,677
10,136
3,742
7,320
NM (2)
NM (2)
NM (2)
NM (2)
NM (2)
$
15,370
$
5,227
$
12,686
$
15,864
$
21,091
NM (2)
17%
NM (2)
11%
16,233
12,457
5,192
8,753
30,797
19,983
12,715
17,400
2,975
1,523
120
—
2,330
1,007
12
—
33,127
20,990
12,727
17,400
Fund I, II, III, IV & MIA (3)
Various
Traditional Private Equity Funds (4)
$
50,758
$
78,981
$
58,005
$
86,122
$
17,304
$
19,213
$
105,335
3,363
672
740
2,814
3,454
1,323
826
2,822
1,884
1,118
634
114
818
936
272
3
1,525
1,763
650
448
114
417
565
112
2,581
1,353
837
115
$
58,347
$
87,406
$
61,755
$
88,151
$
20,041
$
22,070
$
110,221
$
4,159
$
1,194
$
1,012
$
5,171
ANRP II
ANRP I
AION
Hybrid Value Fund
Total Private Equity (9)
Credit:
Credit
Opportunity
Funds
COF III
COF II
COF I
European
Principal
Finance
Funds
EPF III (5)
EPF II (5)
EPF I (5)
Structured
Credit
Funds
FCI III
FCI II
FCI I
SCRF IV (12)
SCRF III
SCRF II
SCRF I
2016
2012
2013
N/A
2014
2008
2008
2017
2012
2007
2017
2013
2012
2017
2015
2012
2008
$
1,679
$
42
308
4,466
2,155
251
2,729
2,229
802
2,339
—
—
—
$
3,426
1,583
1,485
4,543
3,462
1,485
1,906
1,555
559
2,502
1,238
104
118
5,076
2,176
1,611
1,455
3,468
1,952
1,751
2,511
1,506
1,750
2,110
467
240
3,142
4,355
13
3,821
3,268
612
1,399
1,391
447
2,428
528
357
Other Drawdown Funds & SIAs (6)
Various
6,766
10,083
10,348
10,301
Total Credit (10)
Real Assets:
U.S. RE Fund II (7)
U.S. RE Fund I (7)
AGRE Debt Fund I (13)
CPI Funds (8)
Asia RE Fund (7)
Infrastructure Equity Fund
Total Real Assets (11)
$
23,766
$
34,049
$
36,421
$
36,221
2016
2012
2011
Various
2017
2018
$
1,328
$
1,233
$
418
664
364
624
893
651
2,278
4,947
709
897
710
633
2,283
2,561
303
620
$
349
668
1,836
2,640
199
—
$
$
32
25
1,443
1,013
—
1,454
1,705
707
1,730
—
—
—
2,280
11,583
498
238
670
259
150
620
32
39
1,478
1,354
13
1,603
1,636
658
1,613
—
—
—
3,174
4,394
1,491
5,175
3,281
2,215
3,035
2,049
2,060
2,428
528
357
$
$
2,162
12,463
11,600
$
47,821
620
279
656
48
177
620
$
969
947
2,492
2,688
376
620
$
4,291
$
10,715
$
7,110
$
5,692
$
2,435
$
2,400
$
8,092
(1)
(2)
(3)
(4)
Refer to the definitions of Vintage Year, Total Invested Capital, Realized Value, Remaining Cost, Unrealized Value, Total Value, Gross IRR and Net IRR described elsewhere in this
report.
Data has not been presented as the fund commenced investing capital less than 24 months prior to the period indicated and such information was deemed not meaningful.
The general partners and managers of Funds I, II and MIA, as well as the general partner of Fund III, were excluded assets in connection with the 2007 Reorganization. As a result,
Apollo did not receive the economics associated with these entities. The investment performance of these funds, combined with Fund IV, is presented to illustrate fund performance
associated with Apollo’s Managing Partners and other investment professionals.
Total IRR is calculated based on total cash flows for all funds presented.
34
12
61
39
39%
32
6
19
25
9
44
26
25%
18
2
9
NM (2)
NM (2)
1%
—%
14
30
11
27
NM (2)
NM (2)
17
23
10
17
NM (2)
NM (2)
9
14
6
11
NM (2)
NM (2)
18
15
33
9
14
12
26
6
19%
16%
15
9
14
18
11
7
11
15
NM (2)
NM (2)
- 105 -
Table of Contents
(5)
(6)
(7)
(8)
(9)
Funds are denominated in Euros and historical figures are translated into U.S. dollars at an exchange rate of €1.00 to $1.15 as of December 31, 2018 .
Amounts presented have been aggregated for (i) drawdown funds with AUM greater than $500 million that do not form part of a flagship series of funds and (ii) SIAs with AUM greater
than $200 million that do not predominantly invest in other Apollo funds or SIAs. Certain SIAs’ historical figures are denominated in Euros and translated into U.S. dollars at an
exchange rate of €1.00 to $1.15 as of December 31, 2018 . Additionally, certain SIAs totaling $1.7 billion of AUM have been excluded from Total Invested Capital, Realized Value,
Remaining Cost, Unrealized Value and Total Value. These SIAs have an open ended life and a significant turnover in their portfolio assets due to the ability to recycle capital. These SIAs
had $10.7 billion of Total Invested Capital through December 31, 2018 .
U.S. RE Fund I, U.S. RE Fund II and Asia RE Fund had $155 million , $761 million and $366 million of co-investment commitments as of December 31, 2018 , respectively, which are
included in the figures in the table. A co-invest entity within U.S. RE Fund I is denominated in pound sterling and translated into U.S. dollars at an exchange rate of £1.00 to $1.28 as of
December 31, 2018 .
As part of the acquisition of CPI, Apollo acquired general partner interests in fully invested funds. CPI Funds refers to CPI Capital Partners North America, CPI Capital Partners Asia
Pacific, CPI Capital Partners Europe and other CPI funds or individual investments of which Apollo is not the general partner or manager and only receives fees pursuant to either a sub-
advisory agreement or an investment management and administrative agreement. For CPI Capital Partners North America, CPI Capital Partners Asia Pacific and CPI Capital Partners
Europe, the gross and net IRRs are presented in the investment record table since acquisition on November 12, 2010. The aggregate net IRR for these funds from their inception to
December 31, 2018 was (2)% . This net IRR was primarily achieved during a period in which Apollo did not make the initial investment decisions and Apollo only became the general
partner or manager of these funds upon completing the acquisition on November 12, 2010.
Private equity co-investment vehicles, funds with AUM less than $500 million and certain vehicles through which Apollo and certain funds and accounts managed or advised by Apollo
hold an investment in a single asset, have been excluded. These vehicles and funds had $10.7 billion of aggregate AUM as of December 31, 2018 .
(10) Certain credit funds and SIAs with AUM less than $500 million and $200 million, respectively, have been excluded. These funds and SIAs had $2.2 billion of aggregate AUM as of
December 31, 2018 .
(11) Certain accounts owned by or related to Athene, certain co-investment vehicles and certain funds with AUM less than $500 million have been excluded. These accounts, co-investment
vehicles and funds had $8.1 billion of aggregate AUM as of December 31, 2018 .
(12) Remaining cost for certain of our credit funds may include physical cash called, invested or reserved for certain levered investments.
(13) The investor in this U.S. Dollar denominated fund has chosen to make contributions and receive distributions in the local currency of each underlying investment. As a result, Apollo has
not entered into foreign currency hedges for this fund and the returns presented include the impact of foreign currency gains or losses. The investor’s gross and net IRR, before the impact
of foreign currency gains or losses, from the fund’s inception to December 31, 2018 was 10% and 9% , respectively.
Private
Equity
The following table summarizes the investment record for distressed investments made in our traditional private equity fund portfolios, since the
Company’s inception. All amounts are as of December 31, 2018 :
Distressed for Control
Non-Control Distressed
Total
Corporate Carve-outs, Opportunistic Buyouts and Other Credit (1)
Total
Total Invested
Capital
Total Value
Gross IRR
$
$
(in millions)
7,890 $
5,416
13,306
44,699
19,072
8,399
27,471
77,864
58,005 $
105,335
29%
71
49
21
39%
(1) Other Credit is defined as investments in debt securities of issuers other than portfolio companies that are not considered to be distressed.
The following tables provide additional detail on the composition of the Fund VIII, Fund VII and Fund VI private equity portfolios based on
investment strategy. Amounts for Fund I, II, III, IV and V are included in the table above but not presented below as their remaining value is less than $100 million
or the fund has been liquidated. All amounts are as of December 31, 2018 :
Fund VIII (1)
Corporate Carve-outs
Opportunistic Buyouts
Distressed
Total
Total Invested
Capital
Total Value
$
$
(in millions)
2,673
$
12,177
520
15,370 $
5,037
15,231
823
21,091
- 106 -
Table of Contents
Fund VII (1)
Corporate Carve-outs
Opportunistic Buyouts
Distressed/Other Credit (2)
Total
Fund VI
Corporate Carve-outs
Opportunistic Buyouts
Distressed/Other Credit (2)
Total
Total Invested
Capital
Total Value
(in millions)
$
2,312
4,338
9,583
16,233 $
4,079
10,353
18,695
33,127
Total Invested
Capital
Total Value
(in millions)
$
3,397
6,374
2,686
12,457 $
5,828
10,188
4,974
20,990
$
$
$
$
(1) Committed capital less unfunded capital commitments for Fund VIII and Fund VII was $15.0 billion and $14.1 billion , respectively, which represents capital
commitments from limited partners to invest in such funds less capital that is available for investment or reinvestment subject to the provisions of the applicable limited
partnership agreement or other governing agreements.
The distressed investment strategy includes distressed for control, non-control distressed and other credit.
(2)
During the recovery and expansionary periods of 1994 through 2000 and late 2003 through the first half of 2007, our private equity funds invested or
committed to invest approximately $13.7 billion primarily in traditional and corporate partner buyouts. During the recessionary periods of 1990 through 1993,
2001 through late 2003 and the recessionary and post recessionary periods (beginning the second half of 2007 through December 31, 2018 ), our private equity
funds have invested $49.9 billion , of which $19.1 billion was in distressed buyouts and debt investments when the debt securities of quality companies traded at
deep discounts to par value. Our average entry multiple for Fund VIII, VII and VI was 5.7x , 6.1x and 7.7x , respectively, as of December 31, 2018 . Our average
entry multiple for a private equity fund is the average of the total enterprise value over an applicable adjusted earnings before interest, taxes, depreciation and
amortization which may incorporate certain adjustments based on the investment team’s estimate and we believe captures the true economics of our funds’
investments in portfolio companies. The average entry multiple of actively investing funds may include committed investments not yet closed.
Credit
The following table presents the AUM and gross and net returns information for Apollo’s credit segment by category type:
As of December 31, 2018
Gross Returns (1)
Net Returns (1)
AUM
Fee-Generating
AUM
Performance Fee-
Eligible AUM
Performance Fee-
Generating AUM (2)
For the Year Ended
December 31, 2018
For the Year Ended
December 31, 2018
Category
Liquid/Performing (3)
Drawdown (4)
Permanent capital vehicles ex Athene
Non-Sub-Advised (5)
Athene Non-Sub-Advised (5)
Athora Non-Sub-Advised (5)
Advisory
Total Credit
$
$
54,825 $
25,988
14,831
85,575
4,952
7,065
193,236 $
(in millions)
40,323 $
14,124
13,524
85,575
4,485
—
158,031 $
25,481 $
19,603
12,151
—
1,859
—
59,094 $
7,979
6,164
10,910
—
—
—
25,053
1.2%
1.7
13.3
N/A
N/A
N/A
0.8%
(0.1)
8.8
N/A
N/A
N/A
2.2%
(2.2)%
(1)
The gross and net returns for the year ended December 31, 2018 for total credit excludes assets managed by AAM that are not directly invested in Apollo funds and
investment vehicles or sub-advised by Apollo.
(2) As of December 31, 2018 , $0.2 billion of the Performance Fee-Generating AUM is currently above its hurdle rate or preferred return, but in accordance with the adoption
of the revenue recognition standard effective January 1, 2018, recognition of performance fees associated with such Performance Fee-Generating AUM has been deferred
to future periods when the fees are probable to not be significantly reversed.
- 107 -
Table of Contents
(3)
(4)
Liquid/Performing AUM includes $14.4 billion of CLOs, $8.9 billion of which Apollo earns fees based on gross assets and $5.5 billion of which Apollo earns fees based
on net equity.
Significant drawdown funds and SIAs had inception-to-date gross and net IRRs of 15.0% and 11.2% , respectively, as of December 31, 2018 . Significant drawdown funds
and SIAs include funds and SIAs with AUM greater than $200 million that do not predominantly invest in other Apollo funds or SIAs.
(5) Athene Non-Sub-Advised and Athora Non-Sub Advised reflects total combined AUM of $116.8 billion less $26.2 billion of assets that were either sub-advised by Apollo
or invested in funds and investment vehicles managed by Apollo included within other asset categories.
Liquid/Performing
The following table summarizes the investment record for funds in the liquid/performing category within Apollo’s credit segment. The significant
funds included in the investment record table below have greater than $200 million of AUM and do not predominantly invest in other Apollo funds or SIAs.
Total AUM
Net Returns
Vintage
Year
As of December 31,
2018
For the Year Ended
December 31, 2018
For the Year Ended
December 31, 2017
Credit:
Hedge Funds (1)
CLOs (2)
SIAs / Other
Total
Various
Various
Various
$
$
(in millions)
7,159
14,371
33,295
54,825
1%
1
1%
5%
4
7%
(1) Hedge Funds primarily includes Apollo Credit Strategies Master Fund Ltd. and Apollo Credit Master Fund Ltd.
(2) CLO returns are calculated based on gross return on invested assets, which excludes cash. Included within Total AUM of CLOs is $5.5 billion of AUM related to Redding
Ridge, from which Apollo earns investment-related service fees, but for which Apollo does not provide management or advisory services. CLO returns exclude
performance related to this AUM.
Permanent
Capital
The following table summarizes the investment record for our permanent capital vehicles by segment, excluding Athene-related and Athora-related
assets managed or advised by Athene Asset Management and AAME:
Credit:
MidCap (3)
AIF
AFT
AINV/Other (4)
Real Assets:
ARI (5)
Total
Total AUM
Total Returns (1)
IPO Year (2)
As of December 31,
2018
For the Year Ended
December 31, 2018
For the Year Ended
December 31, 2017
N/A
2013
2011
2004
2009
$
$
(in millions)
8,771
365
404
4,503
5,224
19,267
19 %
(5)
(4)
(18)
— %
12 %
10
—
6
22 %
(1)
Total returns are based on the change in closing trading prices during the respective periods presented taking into account dividends and distributions, if any, as if they
were reinvested without regard to commission.
(2) An IPO year represents the year in which the vehicle commenced trading on a national securities exchange.
(3) MidCap is not a publicly traded vehicle and therefore IPO year is not applicable. The returns presented are a gross return based on NAV. The net returns based on NAV
(4)
were 14% and 8% for the years ended December 31, 2018 and December 31, 2017 , respectively.
Included within Total AUM of AINV/Other is $2.0 billion of AUM related to a non-traded business development company from which Apollo earns investment-related
service fees, but for which Apollo does not provide management or advisory services. Net returns exclude performance related to this AUM.
(5) Amounts are as of September 30, 2018 . Refer to www.apolloreit.com for the most recent financial information on ARI. The information contained on ARI’s website is
not part of this presentation.
Athene,
Athora
and
SIAs
As of December 31, 2018 , Apollo managed or advised $116.8 billion of total AUM in accounts owned by or related to Athene and Athora, of which
approximately $26.2 billion was either sub-advised by Apollo or invested in Apollo funds and
- 108 -
Table of Contents
investment vehicles managed by Apollo. Of the approximately $26.2 billion of AUM, the vast majority were in sub-advisory managed accounts that manage high
grade credit asset classes, such as CLO debt, commercial mortgage backed securities, and insurance-linked securities.
As of December 31, 2018 , Apollo managed approximately $24 billion of total AUM in SIAs, which include certain SIAs in the investment record
tables above and capital deployed from certain SIAs across Apollo’s credit, private equity and real assets funds.
Overview of Results of Operations
Revenues
Advisory and Transaction Fees, Net. As a result of providing advisory services with respect to actual and potential credit, private equity, and real
assets investments, we are entitled to receive fees for transactions related to the acquisition and, in certain instances, disposition of portfolio companies as well as
fees for ongoing monitoring of portfolio company operations and directors’ fees. We also receive advisory fees for advisory services provided to certain credit
funds. In addition, monitoring fees are generated on certain structured portfolio company investments. Under the terms of the limited partnership agreements for
certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of
applicable broken deal costs (“Management Fee Offset”). Such amounts are presented as a reduction to advisory and transaction fees, net, in the consolidated
statements of operations (see note 2 to our consolidated financial statements for more detail on advisory and transaction fees, net).
The Management Fee Offsets are calculated for each fund as follows:
•
•
•
65%-100% for certain credit funds, gross advisory, transaction and other special fees;
65%-100% for private equity funds, gross advisory, transaction and other special fees; and
100% for certain real assets funds, gross advisory, transaction and other special fees.
Management Fees. The significant growth of the assets we manage has had a positive effect on our revenues. Management fees are typically
calculated based upon any of “net asset value,” “gross assets,” “adjusted par asset value,” “adjusted costs of all unrealized portfolio investments,” “capital
commitments,” “invested capital,” “adjusted assets,” “capital contributions,” or “stockholders’ equity,” each as defined in the applicable limited partnership
agreement and/or management agreement of the unconsolidated funds.
Performance Fees. The general partners of our funds are entitled to an incentive return of normally up to 20% of the total returns of a fund’s capital,
depending upon performance of the underlying funds and subject to preferred returns and high water marks, as applicable. Performance fees, categorized as
performance allocations, are accounted for as an equity method investment, and effectively, the performance fees for any period are based upon an assumed
liquidation of the funds’ assets at the reporting date, and distribution of the net proceeds in accordance with the funds’ allocation provisions. Performance fees
categorized as incentive fees, which are not accounted as an equity method investment, are deferred until fees are probable to not be significantly reversed. Prior to
the adoption of the new revenue recognition guidance, incentive fees were recognized on an assumed liquidation basis.The majority of performance fees are
comprised of performance allocations.
As of December 31, 2018 , approximately 55% of the value of our funds’ investments on a gross basis was determined using market-based valuation
methods (i.e., reliance on broker or listed exchange quotes) and the remaining 45% was determined primarily by comparable company and industry multiples or
discounted cash flow models. For our credit, private equity and real assets segments, the percentage determined using market-based valuation methods as of
December 31, 2018 was 71% , 20% and 35% , respectively. See “Item 1A . Risk Factors—Risks Related to Our Businesses—Our funds’ performance, and our
performance, may be adversely affected by the financial performance of our funds’ portfolio companies and the industries in which our funds invest” for a
discussion regarding certain industry-specific risks that could affect the fair value of our private equity funds’ portfolio company investments.
In our private equity funds, the Company does not earn performance fees until the investors in the fund have achieved cumulative investment returns
on invested capital (including management fees and expenses) in excess of an 8% hurdle rate. Additionally, certain of our credit and real assets funds have various
performance fee rates and hurdle rates. Certain of our credit and real assets funds allocate performance fees to the general partner in a similar manner as the private
equity funds. In our private equity, certain credit and real assets funds, so long as the investors achieve their priority returns, there is a catch-up formula whereby
the Company earns a priority return for a portion of the return until the Company’s performance fees equate to its incentive fee rate for that fund; thereafter, the
Company participates in returns from the fund at the performance fee rate. Performance fees,
- 109 -
Table of Contents
categorized as performance allocations, are subject to reversal to the extent that the performance fees distributed exceed the amount due to the general partner
based on a fund’s cumulative investment returns. The Company recognizes potential repayment of previously received performance fees as a general partner
obligation representing all amounts previously distributed to the general partner that would need to be repaid to the Apollo funds if these funds were to be
liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual general partner obligation, however, would not
become payable or realized until the end of a fund’s life or as otherwise set forth in the respective limited partnership agreement of the fund.
The table below presents an analysis of Apollo’s (i) performance fees receivable on an unconsolidated basis and (ii) realized and unrealized
performance fees for Apollo’s combined segments:
As of December 31,
2018
2017
For the Year Ended December 31, 2018
For the Year Ended December 31, 2017
For the Year Ended December 31, 2016
Performance Fees Receivable on an
Unconsolidated Basis
Unrealized
Performance Fees
Realized
Performance Fees
Total
Performance Fees
Unrealized
Performance Fees
(in thousands)
Realized
Performance Fees
Total
Performance Fees
Unrealized
Performance Fees
Realized
Performance Fees
Total
Performance Fees
$
253,525
$
323,860
$
(57,536)
$
$
35,493
$
137,786
$
173,279
$
119,925
$
Credit:
Drawdown (1)
Liquid/Performing
Permanent capital vehicles
16,505
111,303
52,803
63,588
Total Credit
381,333
440,251
Total Credit, net of profit share
141,808
174,461
$
80,435
25,400
24,644
130,479
59,859
22,899
25,836
74,833
123,568
53,471
436
50,189
(6,911)
(6,388)
(12,103)
27,835
51,225
32,957
41,521
17,666
196,973
119,172
29,418
45,501
248,198
152,129
$
65,047
92,041
22,941
(3,197)
20,546
137,274
180,029
74,261
95,315
441,736
1,017,000
(575,264)
213,549
(361,715)
693,772
206,393
900,165
323,228
Private Equity:
Fund VIII (2)
Fund VII (1)(2)
Fund VI (1)(2)
Fund IV and V (1)
ANRP I and II (1)(2)
AAA/Other (3)
214
312
—
34,017
46,328
70,499
38,758
—
34,710
(108,938)
(51,851)
(4,459)
(3,325)
243,809
(197,853)
Total Private Equity
522,607
1,404,776
(941,690)
Total Private Equity, net of profit
share
321,001
929,220
(621,751)
Real Assets Funds:
U.S. RE Fund I & II
Other (3)
Total Real Assets
16,158
7,133
23,291
Total Real Assets, net of profit share
12,281
18,311
10,499
28,810
17,882
(1,137)
(3,031)
(4,168)
(3,195)
7,350
3,338
—
11,612
205,514
441,363
243,490
1,448
5,169
6,617
2,858
(101,588)
(48,513)
(4,459)
8,287
7,661
(500,327)
(378,261)
311
2,138
2,449
(337)
(4,156)
80,996
(13,775)
(52,167)
19,817
—
—
59,519
(62,544)
148,254
15,661
80,996
5,922
(94,798)
(13,775)
(6,442)
7,352
85,710
642,126
430,150
433,983
1,076,109
242,413
672,563
(2,968)
(1,818)
(4,786)
(859)
11,925
6,144
18,069
8,600
8,957
4,326
13,283
7,741
80,924
59,973
368,807
254,163
1,268
3,650
4,918
2,717
Total
Total, net of profit share (4)
$
$
927,231
475,090
$
$
1,873,837
1,121,563
$
$
(952,769)
(631,334)
$
$
578,459
306,207
$
$
(374,310)
(325,127)
$
$
688,565
462,248
$
$
649,025
370,185
$
$
1,337,590
832,433
$
$
510,999
331,141
$
$
274,887
138,096
$
$
(1) As of December 31, 2018 , certain credit funds and certain private equity funds had $44.1 million and $93.0 million , respectively, in general partner obligations to return
previously distributed performance fees. The fair value gain on investments and income at the fund level needed to reverse the general partner obligations for certain credit
funds and certain private equity funds was $355.2 million and $723.2 million , respectively, as of December 31, 2018 .
(2) As of December 31, 2018 , the remaining investments and escrow cash of Fund VIII were valued at 118% of the fund’s unreturned capital, which was above the required
escrow ratio of 115%. As of December 31, 2018 , the remaining investments and escrow cash of Fund VII, Fund VI, ANRP and ANRP II were valued at 77% , 73% , 63%
and 107% of the fund’s unreturned capital, respectively, which were below the required escrow ratio of 115%. As a result, these funds are required to place in escrow
current and future performance fee distributions to the general partner until the specified return ratio of 115% is met (at the time of a future distribution) or upon
liquidation. As of December 31, 2018 , Fund VII had $128.5 million of gross performance fees, or $73.1 million net of profit sharing, in escrow. As of December 31, 2018
, Fund VI had $167.6 million of gross performance fees, or $112.4 million net of profit sharing, in escrow. As of December 31, 2018 , ANRP had $38.7 million of gross
performance fees, or $24.3 million net of profit sharing, in escrow. As of December 31, 2018 , ANRP II had $ 18.4 million of gross performance fees, or $ 12.5 million net
of profit sharing, in escrow. With respect to Fund VII, Fund VI, ANRP II and ANRP I, realized performance fees currently distributed to the general partner are limited to
potential tax distributions and interest on escrow balances per the funds’ partnership agreements. Performance fees receivable as of December 31, 2018 includes interest
earned on escrow balances that is not subject to contingent repayment.
The year ended December 31, 2018 includes realized performance fees of $169.9 million ( $123.3 million net of profit sharing expense) from AAA, settled in the form of
shares of Athene Holding. Other includes certain SIAs.
There was a corresponding profit sharing payable of $452.1 million as of December 31, 2018 , including profit sharing payable related to amounts in escrow and
contingent consideration obligations of $74.5 million .
(3)
(4)
The general partners of certain of our credit funds accrue performance fees, categorized as performance allocations, when the fair value of investments
exceeds the cost basis of the individual investors’ investments in the fund, including any allocable share of expenses incurred in connection with such investments,
which we refer to as “high water marks.” These high water marks
- 110 -
184,972
88,844
43,487
317,303
169,576
333,881
15,766
(94,798)
(6,176)
94,250
108,176
451,099
292,562
9,428
8,056
17,484
7,099
785,886
469,237
10,653
9,844
—
266
13,326
48,203
82,292
38,399
8,160
4,406
12,566
4,382
Table of Contents
are applied on an individual investor basis. Certain of our credit funds have investors with various high water marks, the achievement of which is subject to market
conditions and investment performance.
Performance fees from our private equity funds and certain credit and real assets funds are subject to contingent repayment by the general partner in
the event of future losses to the extent that the cumulative performance fees distributed from inception to date exceeds the amount computed as due to the general
partner at the final distribution. These general partner obligations, if applicable, are included in due to related parties on the consolidated statements of financial
condition.
The following table summarizes our performance fees since inception for our combined segments through December 31, 2018 :
Undistributed by
Fund and Recognized
Distributed by Fund
and Recognized (2)
Total Undistributed
and Distributed by
Fund and Recognized (3)
General Partner
Obligation as of
December 31, 2018 (3)
Maximum Performance
Fees Subject to
Potential Reversal (4)
Performance Fees Since Inception (1)
(in millions)
$
249.8 $
1,160.7 $
1,410.5 $
16.5
102.1
368.4
441.7
0.2
0.3
—
34.0
46.3
522.5
16.2
7.1
23.3
546.3
—
1,707.0
430.6
3,128.8
1,662.0
2,053.1
90.6
564.7
7,929.8
26.2
25.9
52.1
562.8
102.1
2,075.4
872.3
3,129.0
1,662.3
2,053.1
124.6
611.0
8,452.3
42.4
33.0
75.4
42.7 $
1.4
—
44.1
—
38.7
13.1
29.2
12.0
93.0
—
—
—
425.6
20.5
102.1
548.2
692.1
454.4
482.1
2.4
53.9
89.2
1,774.1
36.1
25.6
61.7
$
914.2 $
9,688.9 $
10,603.1 $
137.1 $
2,384.0
Credit (5) :
Drawdown
Liquid/Performing
Permanent capital vehicles
Total Credit
Private Equity:
Fund VIII
Fund VII
Fund VI
Fund IV and V
ANRP I and II
AAA/Other (5)
Total Private Equity
Real Assets:
U.S. RE Fund I and II
Other (6)
Total Real Assets
Total
(1) Certain funds are denominated in Euros and historical figures are translated into U.S. dollars at an exchange rate of €1.00 to $1.15 as of December 31, 2018 . Certain funds
are denominated in pound sterling and translated into U.S. dollars at an exchange rate of £1.00 to $1.28 as of December 31, 2018 .
(2) Amounts in “Distributed by Fund and Recognized” for the CPI, Gulf Stream Asset Management, LLC (“Gulf Stream”) and Stone Tower funds and SIAs are presented for
activity subsequent to the respective acquisition dates.
(3) Amounts were computed based on the fair value of fund investments on December 31, 2018 . Performance fees have been allocated to and recognized by the general
partner. Based on the amount allocated, a portion is subject to potential reversal or, to the extent applicable, has been reduced by the general partner obligation to return
previously distributed performance fees at December 31, 2018 . The actual determination and any required payment of any such general partner obligation would not take
place until the final disposition of the fund’s investments based on contractual termination of the fund.
(4) Represents the amount of performance fees that would be reversed if remaining fund investments became worthless on December 31, 2018 . Amounts subject to potential
reversal of performance fees include amounts undistributed by a fund (i.e., the performance fees receivable), as well as a portion of the amounts that have been distributed
by a fund, net of taxes not subject to a general partner obligation to return previously distributed performance fees, except for those funds that are gross of taxes as defined
in the respective funds’ governing documents.
(5) Amounts exclude certain performance fees from business development companies and Redding Ridge Holdings.
(6) Other includes certain SIAs.
- 111 -
Table of Contents
Expenses
Compensation and Benefits. Our most significant expense is compensation and benefits expense. This consists of fixed salary, discretionary and non-
discretionary bonuses, profit sharing expense associated with the performance fees earned from credit, private equity, and real assets funds and compensation
expense associated with the vesting of non-cash equity-based awards.
Our compensation arrangements with certain partners and employees contain a significant performance-based incentive component. Therefore, as our
net revenues increase, our compensation costs rise. Our compensation costs also reflect the increased investment in people as we expand geographically and create
new funds.
In addition, certain professionals and selected other individuals have a profit sharing interest in the performance fees earned in relation to our private
equity, certain credit and real assets funds in order to better align their interests with our own and with those of the investors in these funds. Profit sharing expense
is part of our compensation and benefits expense and is generally based upon a fixed percentage of credit, private equity and real assets performance fees. Profit
sharing expense can reverse during periods when there is a decline in performance fees that were previously recognized. Profit sharing amounts are normally
distributed to employees after the corresponding investment gains have been realized and generally before preferred returns are achieved for the investors.
Therefore, changes in our unrealized performance fees have the same effect on our profit sharing expense. Profit sharing expense increases when unrealized
performance fees increases. Realizations only impact profit sharing expense to the extent that the effects on investments have not been recognized previously. If
losses on other investments within a fund are subsequently realized, the profit sharing amounts previously distributed are normally subject to a general partner
obligation to return performance fees previously distributed back to the funds. This general partner obligation due to the funds would be realized only when the
fund is liquidated, which generally occurs at the end of the fund’s term. However, indemnification obligations also exist for realized gains with respect to Fund IV,
Fund V and Fund VI, which, although our Managing Partners and Contributing Partners would remain personally liable, may indemnify our Managing Partners
and Contributing Partners for 17.5% to 100% of the previously distributed profits regardless of the fund’s future performance. See note 14 to our consolidated
financial statements for further information regarding the Company’s indemnification liability.
Each Managing Partner receives $100,000 per year in base salary for services rendered to us. Additionally, our Managing Partners can receive other
forms of compensation. In addition, AHL Awards (as defined in note 12 to our consolidated financial statements) and other equity-based compensation awards
have been granted to the Company and certain employees, which amortize over the respective vesting periods. The Company grants equity awards to certain
employees, including RSUs, restricted Class A shares and options, that generally vest and become exercisable in quarterly installments or annual installments
depending on the contract terms over a period of three to six years. In some instances, vesting of an RSU is also subject to the Company’s receipt of performance
fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense. See note 12 to our consolidated financial statements for
further discussion of equity-based compensation.
Other Expenses. The balance of our other expenses includes interest, placement fees, and general, administrative and other operating expenses.
Interest expense consists primarily of interest related to the 2013 AMH Credit Facilities, the 2018 AMH Credit Facility, the 2024 Senior Notes, the 2026 Senior
Notes and the 2048 Senior Notes as discussed in note 10 to our consolidated financial statements. Placement fees are incurred in connection with our capital raising
activities. General, administrative and other expenses includes occupancy expense, depreciation and amortization, professional fees and costs related to travel,
information technology and administration. Occupancy expense represents charges related to office leases and associated expenses, such as utilities and
maintenance fees. Depreciation and amortization of fixed assets is normally calculated using the straight-line method over their estimated useful lives, ranging
from two to sixteen years, taking into consideration any residual value. Leasehold improvements are amortized over the shorter of the useful life of the asset or the
expected term of the lease. Intangible assets are amortized based on the future cash flows over the expected useful lives of the assets.
Other Income (Loss)
Net Gains (Losses) from Investment Activities. Net gains (losses) from investment activities include both realized gains and losses and the change in
unrealized gains and losses in our investment portfolio between the opening reporting date and the closing reporting date. Net unrealized gains (losses) are a result
of changes in the fair value of unrealized investments and reversal of unrealized gains (losses) due to dispositions of investments during the reporting period.
Significant judgment and estimation goes into the assumptions that drive these models and the actual values realized with respect to investments could be
materially different from values obtained based on the use of those models. The valuation methodologies applied impact the reported value of investment company
holdings and their underlying portfolios in our consolidated financial statements.
Net Gains (Losses) from Investment Activities of Consolidated Variable Interest Entities. Changes in the fair value of the consolidated VIEs’ assets
and liabilities and related interest, dividend and other income and expenses subsequent to
- 112 -
Table of Contents
consolidation are presented within net gains (losses) from investment activities of consolidated variable interest entities and are attributable to Non-Controlling
Interests in the consolidated statements of operations.
Other Income (Losses), Net. Other income (losses), net includes gains (losses) arising from the remeasurement of foreign currency denominated
assets and liabilities, remeasurement of the tax receivable agreement liability related to the TCJA and other miscellaneous non-operating income and expenses.
Income Taxes . The Apollo Operating Group and its subsidiaries generally operate as partnerships for U.S. federal income tax purposes. As a result,
except as described below, the Apollo Operating Group has not been subject to U.S. income taxes. However, the U.S. entities, in some cases, are subject to New
York City unincorporated business tax (“NYC UBT”), and non-U.S. entities, in some cases, are subject to non-U.S. corporate income taxes. In addition, certain
consolidated entities are, or are treated as, corporations for U.S. and non-U.S. tax purposes and therefore subject to federal, state, local and foreign corporate
income tax. The Company's provision for income taxes is accounted for in accordance with U.S. GAAP.
Significant judgment is required in determining the provision for income taxes and in evaluating income tax positions, including evaluating
uncertainties. We recognize the income tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained upon examination,
including resolutions of any related appeals or litigation, based on the technical merits of the positions. The tax benefit is measured as the largest amount of benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. If a tax position is not considered more likely than not to be sustained, then no
benefits of the position are recognized. The Company’s income tax positions are reviewed and evaluated quarterly to determine whether or not we have uncertain
tax positions that require financial statement recognition or de-recognition.
Deferred tax assets and liabilities are recognized for the expected future tax consequences, using currently enacted tax rates, of differences between the
carrying amount of assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
Non-Controlling Interests
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than
Apollo. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included in Non-Controlling Interests in the
consolidated financial statements. The Non-Controlling Interests relating to Apollo Global Management, LLC primarily include the 50.1% and 51.5% ownership
interest in the Apollo Operating Group held by the Managing Partners and Contributing Partners through their limited partner interests in Holdings as of
December 31, 2018 and 2017 , respectively. Non-Controlling Interests also include limited partner interests in certain consolidated funds and VIEs.
The authoritative guidance for Non-Controlling Interests in the consolidated financial statements requires reporting entities to present Non-Controlling
Interest as equity and provides guidance on the accounting for transactions between an entity and Non-Controlling Interests. According to the guidance, (1) Non-
Controlling Interests are presented as a separate component of shareholders’ equity on the Company’s consolidated statements of financial condition, (2) net
income (loss) includes the net income (loss) attributable to the Non-Controlling Interest holders on the Company’s consolidated statements of operations, (3) the
primary components of Non-Controlling Interest are separately presented in the Company’s consolidated statements of changes in shareholders’ equity to clearly
distinguish the interests in the Apollo Operating Group and other ownership interests in the consolidated entities and (4) profits and losses are allocated to Non-
Controlling Interests in proportion to their ownership interests regardless of their basis.
- 113 -
Table of Contents
Results of Operations
Below is a discussion of our consolidated results of operations for the years ended December 31, 2018, 2017 and 2016 . For additional analysis of the
factors that affected our results at the segment level, see “—Segment Analysis” below:
For the Years Ended December
31,
For the Years Ended December
31,
2018
2017
Amount
Change
Percentage
Change
2017
2016
Amount
Change
Percentage
Change
(in thousands)
(in thousands)
Revenues:
Management fees
$ 1,345,252
$ 1,154,925
$
Advisory and transaction fees, net
112,278
117,624
190,327
(5,346)
16.5 % $ 1,154,925
$ 1,043,513
$
(4.5)
117,624
146,665
Investment income (loss):
Performance allocations
Principal investment income
(400,305)
1,306,193
(1,706,498)
5,122
161,630
(156,508)
Total investment income (loss)
(395,183)
1,467,823
(1,863,006)
Incentive fees
30,718
31,431
(713)
NM
(96.8)
NM
(2.3)
1,306,193
161,630
1,467,823
31,431
712,865
103,178
816,043
67,341
Total Revenues
1,093,065
2,771,803
(1,678,738)
(60.6)
2,771,803
2,073,562
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense
459,604
173,228
428,882
91,450
30,722
81,778
(57,833)
515,073
(572,906)
7.2
89.4
NM
428,882
91,450
515,073
Total compensation and benefits
574,999
1,035,405
(460,406)
(44.5)
1,035,405
111,412
(29,041)
593,328
58,452
651,780
(35,910)
698,241
39,752
(11,533)
157,999
186,218
9,391
10,858
(12,336)
194,131
10.7 %
(19.8)
83.2
56.7
79.9
(53.3)
33.7
10.2
(11.2)
44.2
21.9
21.6
4.4
(47.0)
16.7
389,130
102,983
357,074
849,187
43,482
52,873
257,858
247,000
13,913
26,249
1,360,049
1,165,918
Interest expense
General, administrative and other
Placement fees
59,374
52,873
266,444
257,858
6,501
8,586
2,122
13,913
(11,791)
Total Expenses
902,939
1,360,049
(457,110)
Other Income (Loss):
Net gains (losses) from investment activities
(186,449)
95,104
(281,553)
Net gains from investment activities of consolidated variable interest
entities
Interest income
Other income, net
45,112
20,654
35,829
10,665
6,421
34,447
14,233
245,640
(209,811)
Total Other Income (Loss)
(84,854)
357,830
(442,684)
Income before income tax provision
105,272
1,769,584
(1,664,312)
Income tax provision
Net Income
(86,021)
(325,945)
239,924
19,251
1,443,639
(1,424,388)
Net income attributable to Non-Controlling Interests
(29,627)
(814,535)
784,908
Net Income (Loss) Attributable to Apollo Global
Management, LLC
(10,376)
629,104
(639,480)
Net income attributable to Series A Preferred Shareholders
(17,531)
(13,538)
Net income attributable to Series B Preferred Shareholders
(14,131)
—
(3,993)
(14,131)
Net Income (Loss) Attributable to Apollo Global
Management, LLC Class A Shareholders
$
(42,038)
$
615,566
$
(657,604)
12.3
3.3
(84.7)
(33.6)
NM
323.0
221.7
(85.4)
NM
(94.1)
(73.6)
(98.7)
(96.4)
NM
29.5
NM
NM
95,104
139,721
(44,617)
(31.9)
10,665
6,421
245,640
357,830
5,015
4,072
4,562
153,370
1,769,584
1,061,014
5,650
2,349
241,078
204,460
708,570
(325,945)
(90,707)
(235,238)
1,443,639
970,307
473,332
(814,535)
(567,457)
(247,078)
629,104
402,850
(13,538)
—
—
—
226,254
(13,538)
—
112.7
57.7
NM
133.3
66.8
259.3
48.8
43.5
56.2
NM
NM
$
615,566
$
402,850
$
212,716
52.8 %
Note: “NM” denotes not meaningful. Changes from negative to positive amounts and positive to negative amounts are not considered meaningful. Increases or decreases from
zero and changes greater than 500% are also not considered meaningful.
Revenues
Our revenues and other income include fixed components that result from measures of capital and asset valuations and variable components that result
from realized and unrealized investment performance, as well as the value of successfully completed transactions.
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Management fees increase d by $190.3 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017 . This change
was primarily attributable to the commencement of Fund IX’s investment period in April 2018, resulting in $240.3 million in management fees during the year
ended December 31, 2018 and an increase in management fees earned from Athene of $62.1 million primarily due to its completion of the reinsurance transaction
relating to the fixed annuity
- 114 -
Table of Contents
business of VA Capital Company, L.P. (“VA Capital”) during 2018. This increase in management fees was partially offset by decreased management fees earned
from Fund VIII and Fund VI of $79.5 million and $23.0 million, respectively, during the year ended December 31, 2018 as compared to the year ended December
31, 2017 . The decrease in management fees earned from Fund VIII was the result of a change in the basis upon which management fees are earned from capital
commitments to invested capital. The decrease in management fees earned from Fund VI resulted from the termination of the fund’s management fee.
Advisory and transaction fees, net, decrease d by $5.3 million for the year ended December 31, 2018 as compared to the year ended December 31,
2017 . This change was primarily attributable to a decrease in net advisory and transaction fees earned with respect to FCI III of $20.3 million, partially offset by
an increase in net advisory and transaction fees earned with respect to a managed account of $16.7 million during the year ended December 31, 2018 as compared
to the same period during 2017 .
Performance allocations were $(400.3) million for the year ended December 31, 2018 as compared to performance allocations of $1.3 billion for the
year ended December 31, 2017 . This change was primarily attributable to decrease d performance allocations earned from our private equity funds and our credit
funds of $1.6 billion and $124.6 million , respectively, during the year ended December 31, 2018 as compared to the same period in 2017 . For additional details
regarding changes in performance allocations in each segment, see “—Segment Analysis” below.
Principal investment income decrease d by $156.5 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .
This change was primarily driven by a decrease in the value of investments held by certain Apollo funds and other entities in which the Company has a direct
interest, mainly with respect to Fund VIII and AAA of $153.5 million and $10.0 million, respectively, which was partially offset by an increase in income from
Apollo’s equity ownership interest in VA Capital of $16.8 million during the year ended December 31, 2018 , as compared to the same period in 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Management fees increased by $111.4 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This change
was primarily attributable to increased management fees earned from EPF III, Athene and FCI III of $59.3 million, $33.9 million and $11.9 million, respectively,
during the year ended December 31, 2017 as compared to the same period during 2016. Management fees earned from EPF III and FCI III increased as a result of
capital raises that occurred after December 31, 2016, as well as a one-time catch-up of management fees during the year ended December 31, 2017 of $15.1 million
and $7.0 million from EPF III and FCI III, respectively.
Advisory and transaction fees, net, decreased by $29.0 million for the year ended December 31, 2017 as compared to the year ended December 31,
2016. This change was primarily attributable to a decrease in net advisory and transaction fees earned with respect to Fund VIII’s portfolio companies of $46.2
million, partially offset by an increase in net advisory and transaction fees earned with respect to FCI III of $20.3 million during the year ended December 31, 2017
as compared to the same period during 2016.
Performance allocations increased by $593.3 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This
change was primarily attributable to increased performance fees earned from our private equity funds of $625.0 million , offset by decreased performance fees
earned from our credit funds of $69.1 million during the year ended December 31, 2017 as compared to the same period in 2016. For additional details regarding
changes in performance fees in each segment, see “—Segment Analysis” below.
Principal investment income increased by $58.5 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016.
This change was primarily driven by increases in the value of investments held by certain Apollo funds and other entities in which the Company has a direct
interest, mainly with respect to Fund VIII of $64.5 million, which was partially offset by a decrease in Apollo Energy Opportunity Fund, L.P. (“AEOF”) of $6.8
million during the year ended December 31, 2017, as compared to the same period in 2016.
Incentive fees decreased by $35.9 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This change was
primarily attributable to a decrease in incentive fees recognized from CLOs of $24.4 million during the year ended December 31, 2017 as compared to the same
period in 2016.
Expenses
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Compensation and benefits decrease d by $460.4 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .
This change was primarily attributable to a decrease in profit sharing expense of $572.9 million due to decrease d performance allocations during the year ended
December 31, 2018 , as compared to the same period in 2017 . In
- 115 -
Table of Contents
any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance allocations in the period.
This decrease was partially offset by an increase in equity-based compensation of $81.8 million , primarily attributable to increased amortization expense relating
to grants of RSUs to certain employees under the 2007 Equity Plan during 2018. In addition, salary, bonus and benefits increased $30.7 million during the year
ended December 31, 2018 , as compared to the same period in 2017 , primarily due to increased headcount.
Included in profit sharing expense is $62.0 million and $62.3 million for the years ended December 31, 2018 and 2017 , respectively, related to a
performance based incentive arrangement for certain Apollo partners and employees designed to more closely align compensation on an annual basis with the
overall realized performance of the Company (referred to herein as the “Incentive Pool”). Allocations to participants in the Incentive Pool contain both a
mandatory component and a discretionary component, each of which may vary year to year. The Incentive Pool is separate from the fund related profit sharing
expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. See
“—Profit Sharing Expense” in the Critical Accounting Policies section for an overview of the Incentive Pool.
Interest expense increase d by $6.5 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 as a result of
additional interest expense incurred due to the issuance of the 2048 Senior Notes in March 2018, partially offset by a decrease in interest expense as a result of the
repayment of the remaining amount of the Term Facility, as described in note 10 to our consolidated financial statements.
General, administrative and other expenses increase d by $8.6 million for the year ended December 31, 2018 , as compared to the year ended
December 31, 2017 . This change was primarily driven by an increase in professional fees during the year ended December 31, 2018 as compared to the same
period in 2017 .
Placement fees decrease d by $11.8 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This change
was primarily driven by placement fees incurred in connection with capital raising activities relating to EPF III and Fund IX of $8.5 million and $3.5 million,
respectively, during the year ended December 31, 2017 . Placement fees are normally payable to placement agents, who are third parties that assist in identifying
potential investors, securing commitments to invest from such potential investors, preparing or revising offering marketing materials, developing strategies for
attempting to secure investments by potential investors and/or providing feedback and insight regarding issues and concerns of potential investors.
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Compensation and benefits increased by $186.2 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016.
This change was primarily attributable to an increase in profit sharing expense of $158.0 million due to increased performance allocations during the year ended
December 31, 2017, as compared to the same period in 2016. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios
of the funds generating performance allocations in the period.
Included in profit sharing expense is $62.3 million and $62.1 million for the years ended December 31, 2017 and 2016, respectively, related to the
Incentive Pool. See “—Profit Sharing Expense” in the Critical Accounting Policies section for an overview of the Incentive Pool.
Interest expense increased by $9.4 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016 primarily as a
result of the issuance of the 2026 Senior Notes in May 2016, as described in note 10 to our consolidated financial statements.
Placement fees decreased by $12.3 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily driven by a decrease in placement fees incurred in connection with capital raising activity relating to EPF III of $10.8 million during the year ended
December 31, 2017, as compared to the year ended December 31, 2016.
Other Income (Loss)
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Net losses from investment activities were $186.4 million for the year ended December 31, 2018 , as compared to net gains from investment activities
of $95.1 million for the year ended December 31, 2017 . This change was primarily attributable to a loss on the Company’s investment in Athene Holding during
the year ended December 31, 2018 as compared to a gain on the
- 116 -
Table of Contents
Company’s investment in Athene Holding during the year ended December 31, 2017. See note 7 to the consolidated financial statements for further information
regarding the Company’s investment in Athene Holding.
Net gains from investment activities of consolidated VIEs increase d by $34.4 million for the year ended December 31, 2018 , as compared to the year
ended December 31, 2017 , primarily driven by increases in net gains from Champ, L.P. during the year ended December 31, 2018 . See note 6 to the consolidated
financial statements for details regarding net gains from investment activities of consolidated VIEs.
Interest income increase d by $14.2 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 primarily due
to additional interest income earned from money market funds and U.S. Treasury securities held after December 31, 2017 .
Other income, net decrease d by $209.8 million during the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily attributable to a $35.4 million gain from remeasurement of the tax receivable agreement liability due to a decrease in state tax rates during
the year ended December 31, 2018, compared to a $200.2 million gain from remeasurement of the tax receivable agreement liability due to changes in estimated
tax rates resulting from legislative reforms in the TCJA during the year ended December 31, 2017. The decrease was also attributable to $19.0 million in proceeds
recognized in connection with the Company’s early termination of a lease during the year ended December 31, 2017 and $17.5 million in insurance proceeds
recognized during the year ended December 31, 2017 in connection with fees and expenses relating to a legal proceeding which did not recur in 2018.
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Net gains from investment activities decreased by $44.6 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016. This change was primarily attributable to reduced gains on the Company’s investment in Athene Holding during the year ended December 31, 2017, as
compared to the same period in 2016. See note 7 to the consolidated financial statements for further information regarding the Company’s investment in Athene
Holding.
Net gains from investment activities of consolidated VIEs increased by $5.7 million for the year ended December 31, 2017, as compared to the year
ended December 31, 2016. See note 6 to the consolidated financial statements for details regarding net gains from investment activities of consolidated VIEs.
Other income, net increased by $241.1 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016 primarily
attributable to $200.2 million related to the gain from remeasurement of the tax receivable agreement liability due to changes in estimated tax rates resulting from
legislative reforms in the TCJA during the year ended December 31, 2017, $19.0 million in proceeds recognized in connection with the Company’s early
termination of a lease during the year ended December 31, 2017, $17.5 million in insurance proceeds recognized during the year ended December 31, 2017 in
connection with fees and expenses relating to a legal proceeding and $6.2 million from the assignment of a CLO collateral management agreement during the year
ended December 31, 2017.
Net Income Attributable to Non-Controlling Interests and Series A and Series B Preferred Shareholders
For information related to net income attributable to Non-Controlling Interests and net income attributable to Series A and Series B Preferred
shareholders, see note 13 to the consolidated financial statements.
Income Tax Provision
The Apollo Operating Group and its subsidiaries generally operate as partnerships for U.S. federal income tax purposes. As a result, only a portion of
the income we earn is subject to corporate-level tax in the United States and foreign jurisdictions. The provision for income taxes includes federal, state and local
income taxes in the United States and foreign income taxes.
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
The income tax provision decrease d by $239.9 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .
The decrease was due to the following: i) additional tax expense recorded in 2017 for the remeasurement of deferred taxes as a result of legislative reforms in the
TCJA enacted during the year ended December 31, 2017, ii) a decrease in pre-tax GAAP net income during the year ended December 31, 2018 as compared to the
year ended December 31, 2017 and iii) an overall change in the mix of earnings when comparing the amount of earnings that are subject to corporate-level tax to
those earnings that are not subject to corporate-level tax as these earnings are passed through to Non-Controlling Interests and Class A shareholders. The provision
for income taxes includes federal, state, local and foreign income taxes resulting in an effective income tax rate of 81.7% and 18.4% for the years ended
December 31, 2018 and 2017 , respectively. The most
- 117 -
Table of Contents
significant reconciling items between our U.S. federal statutory income tax rate and our effective income tax rate were due to the following: (i) income passed
through to Non-Controlling Interests; (ii) income passed through to Class A shareholders; (iii) state and local income taxes including NYC UBT and (iv) the
remeasurement of income taxes due to state tax planning (see note 9 to the consolidated financial statements for further details regarding the Company’s income
tax provision).
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
The income tax provision increased by $235.2 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. The
increase was primarily due to the remeasurement of deferred taxes as a result of legislative reforms in the TCJA enacted on December 22, 2017 as well as an
overall change in the mix of earnings when comparing the amount of earnings that are subject to corporate-level taxation to those earnings that are not subject to
corporate-level tax as these earnings are passed through to Non-Controlling Interests and Class A shareholders. The provision for income taxes includes federal,
state, local and foreign income taxes resulting in an effective income tax rate of 18.4% and 8.5% for the years ended December 31, 2017 and 2016, respectively.
The most significant reconciling items between our U.S. federal statutory income tax rate and our effective income tax rate were due to the following: (i) income
passed through to Non-Controlling Interests; (ii) income passed through to Class A shareholders; (iii) state and local income taxes including NYC UBT; and (iv)
impact of U.S. tax reform legislation (see note 9 to the consolidated financial statements for further details regarding the Company’s income tax provision).
Segment Analysis
Discussed below are our results of operations for each of our reportable segments. They represent the segment information available and utilized by
our executive management, which consists of our Managing Partners, who operate collectively as our chief operating decision maker, to assess performance and to
allocate resources. Management divides its operations into three reportable segments: credit, private equity and real assets. These segments were established based
on the nature of investment activities in each underlying fund, including the specific type of investment made and the level of control over the investment. Segment
results represent segment income (loss) before income tax provision excluding transaction-related charges arising from the 2007 private placement, and any
acquisitions. Transaction-related charges include equity-based compensation charges, the amortization of intangible assets and contingent consideration and certain
other charges associated with acquisitions. In addition, segment results exclude non-cash revenue and expense related to equity awards granted by unconsolidated
related parties to employees of the Company, as well as the assets, liabilities and operating results of the funds and VIEs that are included in the consolidated
financial statements.
Our financial results vary, since performance fees, which generally constitute a large portion of the income from the funds that we manage, as well as
the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. As a result, we emphasize long-term financial
growth and profitability to manage our business.
- 118 -
Table of Contents
Credit
The following table sets forth our segment statement of operations information and our supplemental performance measure, EI, within our credit
For the Years Ended December 31,
For the Years Ended December 31,
2018
2017
Total Change
Percentage
Change
2017
2016
Total Change
Percentage
Change
(in thousands)
(in thousands)
segment.
Credit:
Revenues:
Management fees
$
763,958
$
702,191
$
Advisory and transaction fees, net
9,530
30,733
Performance fees (1) :
Unrealized
Realized
Total performance fees
Principal investment income
Total Revenues
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Equity-based
Total profit sharing expense
(6,911)
130,479
123,568
44,976
51,225
196,973
248,198
27,718
942,032
1,008,840
232,751
37,132
(523)
70,620
11,100
81,197
231,592
37,453
18,268
77,801
1,876
97,945
Total compensation and benefits
351,080
366,990
Non-compensation expenses
General, administrative and other
Placement fees
Total non-compensation expenses
Total Expenses
Other Income (Loss):
145,691
1,530
147,221
498,301
139,374
10,130
149,504
516,494
61,767
(21,203)
(58,136)
(66,494)
(124,630)
17,258
(66,808)
1,159
(321)
(18,791)
(7,181)
9,224
(16,748)
(15,910)
6,317
(8,600)
(2,283)
(18,193)
Net gains (losses) from investment activities
(135,285)
85,135
(220,420)
Net interest loss
Other income (loss), net
Total Other Income (Loss)
Non-Controlling Interest
Economic Income
(18,778)
(23,709)
4,931
2,071
(151,992)
(5,008)
17,037
78,463
(4,379)
(14,966)
(230,455)
(629)
$
286,731
$
566,430
$
(279,699)
(1)
Performance fees includes performance allocations and incentive fees.
Revenues
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
8.8 % $
702,191
$
596,709
$
(69.0)
30,733
12,533
NM
(33.8)
(50.2)
62.3
(6.6)
0.5
(0.9)
NM
(9.2)
491.7
(17.1)
(4.3)
4.5
(84.9)
(1.5)
(3.5)
NM
(20.8)
(87.8)
NM
14.4
(49.4)% $
51,225
196,973
248,198
27,718
1,008,840
231,592
37,453
18,268
77,801
1,876
97,945
366,990
139,374
10,130
149,504
516,494
85,135
(23,709)
17,037
78,463
(4,379)
137,274
180,029
317,303
33,290
959,835
209,256
34,185
63,012
84,715
—
147,727
391,168
125,639
22,047
147,686
538,854
127,229
(20,669)
(4,500)
102,060
(7,464)
566,430
$
515,577
$
105,482
18,200
(86,049)
16,944
(69,105)
(5,572)
49,005
22,336
3,268
(44,744)
(6,914)
1,876
(49,782)
(24,178)
13,735
(11,917)
1,818
(22,360)
(42,094)
(3,040)
21,537
(23,597)
3,085
50,853
17.7 %
145.2
(62.7)
9.4
(21.8)
(16.7)
5.1
10.7
9.6
(71.0)
(8.2)
NM
(33.7)
(6.2)
10.9
(54.1)
1.2
(4.1)
(33.1)
14.7
NM
(23.1)
(41.3)
9.9 %
Management fees increase d by $61.8 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This change
was primarily attributable to increase s in management fees earned from Athene and Apollo Total Return Fund L.P. of $62.1 million and $9.8 million, respectively,
during the year ended December 31, 2018 , as compared to the same period during 2017 . The increase in management fees earned from Athene was primarily
attributable to its completion of the reinsurance transaction relating to the fixed annuity business of VA Capital in 2018. These increases were partially offset by a
decrease in management fees earned from EPF II of $12.2 million during the year ended December 31, 2018, as compared to the same period during 2017.
Advisory and transaction fees, net decrease d by $21.2 million during the year ended December 31, 2018 , as compared to the year ended December
31, 2017 . This decrease was primarily driven by a decrease in net advisory and transaction fees earned with respect to FCI III of $20.3 million during the year
ended December 31, 2018 , as compared to the same period during 2017 .
- 119 -
Table of Contents
Performance fees decrease d by $124.6 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily attributable to decrease s in performance fees earned from EPF II, FCI III, FCI II and Apollo Structured Credit Recovery Master Fund III,
L.P. (“SCRF III”) of $92.5 million, $21.8 million, $13.7 million and $12.8 million, respectively, during the year ended December 31, 2018 , as compared to the
same period during 2017 . The decrease was partially offset by increases in performance fees earned from MidCap and Redding Ridge of $20.8 million and $17.0
million, respectively.
The decrease in performance fees from EPF II was primarily attributable to a loss in connection with the partial sale of a Spanish financial services
investment during the year ended December 31, 2018, as well as lower appreciation of a German commercial real estate investment in the fund’s portfolio for the
year ended December 31, 2018 as compared to the same period in 2017 . The decrease in performance fees from FCI III was primarily attributable due to a
decrease in the valuation of the fund’s life settlements portfolio for the year ended December 31, 2018 as compared to the same period in 2017 . The decrease in
performance fees from FCI II was primarily attributable due to a decrease in the valuation of the fund’s life settlements portfolio, lower realized gains and an
increase in interest expense for the year ended December 31, 2018 as compared to the same period in 2017 . The decrease in performance fees earned from SCRF
III was attributable to performance fees being generated at a slower rate compared to the same period in 2017 as the fund has unwound its portfolio.
The increase in performance fees earned from MidCap was a result of stronger loan portfolio returns and fee income during the year ended December
31, 2018 , as compared to the same period in 2017 . The increase in performance fees from Redding Ridge was primarily due to an increase in fair value from CLO
issuances during the year ended December 31, 2018 as compared to the same period in 2017 .
Principal investment income increase d by $17.3 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .
This change was primarily driven by increase s in income from Apollo’s equity ownership interest in VA Capital and Redding Ridge of $16.8 million and $13.2
million, respectively, during the year ended December 31, 2018 , as compared to the same period in 2017 . This increase in principal investment income was
partially offset by a decrease in income from Apollo’s equity ownership interest in EPF II of $7.7 million during the year ended December 31, 2018 , as compared
to the same period in 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Management fees increased by $105.5 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to increases in management fees earned from EPF III, Athene, FCI III and Apollo Total Return Fund L.P. of $59.3 million, $33.9
million, $11.9 million and $9.9 million, respectively, during the year ended December 31, 2017, as compared to the same period during 2016. Management fees
earned from EPF III and FCI III increased as a result of capital raises that occurred after December 31, 2016, as well as a one-time catch-up of management fees
during the year ended December 31, 2017 of $15.1 million and $7.0 million from EPF III and FCI III, respectively. These increases were partially offset by a
decrease in management fees earned from EPF II of $23.0 million during the year ended December 31, 2017, as compared to the same period during 2016,
primarily resulting from a step down in fee basis from committed capital to invested capital during the year ended December 31, 2017.
Advisory and transaction fees, net, increased by $18.2 million during the year ended December 31, 2017, as compared to the year ended December 31,
2016. The change was primarily driven by increases in net advisory and transaction fees from FCI III of $20.3 million during the year ended December 31, 2017,
as compared to the same period during 2016.
Performance fees decreased by $69.1 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to decreases in performance fees earned from Apollo Credit Master Fund Ltd, CLOs, SCRF III and AEOF of $29.3 million, $27.1
million, $16.3 million and $14.2 million, respectively, partially offset by an increase in performance fees earned from FCI III of $28.4 million during the year
ended December 31, 2017, as compared to the same period during 2016.
The decrease in performance fees related to Apollo Credit Master Fund Ltd. was due to under-performance relative to the fund’s hurdle rate during the
year ended December 31, 2017, as compared to the same period in 2016 as a result of lower appreciation on investments in the financial and technology sectors
during the year ended December 31, 2017. The decrease in performance fees earned from the CLOs was due to under-performance relative to each respective CLO
hurdle rate and lower appreciation from the leveraged loan assets during the year ended December 31, 2017 as compared to the same period in 2016. The decrease
in performance fees related to SCRF III was attributable to performance fees being generated at a slower rate as the fund unwound its portfolio during the year
ended December 31, 2017. The decrease in performance fees earned from AEOF was primarily due to lower mark-to-market performance on energy positions
during the year ended December 31, 2017, as compared
- 120 -
Table of Contents
to the same period in 2016. FCI III was in its first year of its investment cycle and the increase in performance fees earned from FCI III was due to higher
valuations of the fund’s life settlements portfolio during the year ended December 31, 2017.
Principal investment income decreased by $5.6 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016.
This change was primarily driven by a decrease in income from Apollo’s equity ownership interest in AEOF, EPF II and Apollo Senior Loan Fund, L.P. of $6.8
million, $1.7 million and $1.3 million, respectively, partially offset by an increase in income from Apollo’s equity ownership interest in AINV of $5.0 million
during the year ended December 31, 2017, as compared to the same period in 2016.
Expenses
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Compensation and benefits expense decrease d by $15.9 million for the year ended December 31, 2018 , as compared to the year ended December 31,
2017 . This change was primarily attributable to a decrease in total profit sharing expense of $16.7 million during the year ended December 31, 2018 , as compared
to the same period in 2017 . Profit sharing expense decrease d as a result of a corresponding decrease in performance fees as described above. In any period the
blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Equity-based profit
sharing expense increased as a result of grants under the 2007 Equity Plan during the year ended December 31, 2018 (see note 12 to the consolidated financial
statements).
Included in profit sharing expense is $13.0 million and $16.3 million related to the Incentive Pool for the years ended December 31, 2018 and 2017 ,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
General, administrative and other increase d by $6.3 million during the year ended December 31, 2018 , as compared to the year ended December 31,
2017 . The change was primarily driven by an increase in professional fees, partially offset by a decrease in fund organizational expenses related to EPF III during
the year ended December 31, 2018 , as compared to the same period in 2017 .
Placement fees decrease d by $8.6 million during the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily driven by placement fees incurred in connection with capital raising activity relating to EPF III of $8.5 million during the year ended
December 31, 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Compensation and benefits expense decreased by $24.2 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016. This change was primarily attributable to a decrease in profit sharing expense of $49.8 million during the year ended December 31, 2017, as compared to the
year ended December 31, 2016 as a result of a corresponding decrease in performance fees as described above. In any period the blended profit sharing percentage
is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. The decrease in profit sharing expense was partially offset
by an increase in salary, bonus and benefits of $22.3 million during the year ended December 31, 2017, as compared to the year ended December 31, 2016
primarily due to increased headcount.
Included in profit sharing expense is $16.3 million and $38.0 million related to the Incentive Pool for the years ended December 31, 2017 and 2016,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
General, administrative and other increased by $13.7 million during the year ended December 31, 2017, as compared to the year ended December 31,
2016. The change was primarily driven by an increase in fund organizational expenses related to the launch of EPF III as well as an increase in professional fees
during the year ended December 31, 2017, as compared to the same period in 2016.
Placement fees decreased by $11.9 million during the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily driven by a decrease in placement fees incurred in connection with capital raising activity relating to EPF III of $10.8 million during the year ended
December 31, 2017, as compared to the year ended December 31, 2016.
- 121 -
Table of Contents
Other Income (Loss)
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Net losses from investment activities were $135.3 million for the year ended December 31, 2018 , as compared to net gains from investment activities
of $85.1 million for the year ended December 31, 2017 . This change was primarily attributable to a loss on the Company’s investment in Athene Holding during
the year ended December 31, 2018 as compared to a gain on the Company’s investment in Athene Holding during the year ended December 31, 2017. See note 7 to
the consolidated financial statements for further information regarding the Company’s investment in Athene Holding.
Net interest loss decrease d by $4.9 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 , primarily due
to additional interest income earned from money market funds and U.S. Treasury securities held after December 31, 2017 . Interest income was partially offset by
additional interest expense incurred during the year ended December 31, 2018 as a result of the issuance of the 2048 Senior Notes in March 2018, as described in
note 10 to our consolidated financial statements.
Other income (loss), net decrease d by $15.0 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily attributable to proceeds received in connection with the Company’s early termination of a lease and the Company’s recognition of $6.2
million of other income from the assignment of a CLO collateral management agreement during the year ended December 31, 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Net gains from investment activities decreased by $42.1 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016, due to reduced gains on the Company’s investment in Athene Holding during the year ended December 31, 2017, as compared to the year ended December
31, 2016. See note 7 to the consolidated financial statements for further information regarding the Company’s investment in Athene Holding.
Net interest loss increased by $3.0 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to
additional interest expense incurred during the year ended December 31, 2017 as a result of the issuance of the 2026 Senior Notes in May 2016, as described in
note 10 to our consolidated financial statements.
Other income (loss), net increased by $21.5 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This
change was primarily attributable to proceeds recognized in connection with the Company’s early termination of a lease and proceeds recognized from the
assignment of a CLO collateral management agreement during the year ended December 31, 2017.
Non-Controlling Interests
For information related to Non-Controlling Interests, see note 13 to the consolidated financial statements.
- 122 -
Table of Contents
Private Equity
The following table sets forth our segment statement of operations information and our supplemental performance measure, EI, within our private
equity segment.
Private Equity:
Revenues:
Management fees
For the Years Ended December 31,
For the Years Ended December 31,
2018
2017
Total Change
Percentage
Change
2017
2016
Total Change
Percentage
Change
(in thousands)
(in thousands)
$
440,719
$
306,734
$
43.7 % $
306,734
$
321,995
$
133,985
5,322
Advisory and transaction fees, net
89,385
84,063
Performance fees (1) :
Unrealized
Realized
(941,690)
441,363
642,126
433,983
(1,583,816)
7,380
Total performance fees
(500,327)
1,076,109
(1,576,436)
Principal investment income (loss)
(39,382)
132,376
(171,758)
Total Revenues
(9,605)
1,599,282
(1,608,887)
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Equity-based
Total profit sharing expense
Total compensation and benefits
Non-compensation expenses:
General, administrative and other
Placement fees
Total non-compensation expenses
Total Expenses
Other Income (Loss):
Net gains (losses) from investment activities
Net interest loss
Other income (loss), net
Total Other Income (Loss)
Economic Income (Loss)
138,855
29,021
(319,939)
197,873
76,906
(45,160)
122,716
67,423
585
68,008
190,724
(51,185)
(14,694)
(2,053)
(67,932)
123,095
27,516
211,976
191,569
2,184
405,729
556,340
68,504
3,783
72,287
15,760
1,505
(531,915)
6,304
74,722
(450,889)
(433,624)
(1,081)
(3,198)
(4,279)
628,627
(437,903)
9,652
(60,837)
(16,597)
26,299
19,354
1,903
(28,352)
(87,286)
$
(268,261)
$
990,009
$
(1,258,270)
(1)
Performance fees includes performance allocations and incentive fees.
Revenues
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
84,063
128,675
642,126
433,983
1,076,109
132,376
1,599,282
123,095
27,516
211,976
191,569
2,184
405,729
556,340
68,504
3,783
72,287
368,807
82,292
451,099
66,281
968,050
124,463
27,549
114,643
43,893
—
158,536
310,548
71,323
2,297
73,620
(15,261)
(44,612)
273,319
351,691
625,010
66,095
631,232
(1,368)
(33)
97,333
147,676
2,184
247,193
245,792
(2,819)
1,486
(1,333)
628,627
384,168
244,459
9,652
(16,597)
26,299
19,354
11,379
(14,187)
1,650
(1,158)
$
990,009
$
582,724
$
(1,727)
(2,410)
24,649
20,512
407,285
6.3
NM
1.7
NM
NM
NM
12.8
5.5
NM
3.3
NM
NM
(77.9)
(1.6)
(84.5)
(5.9)
(69.7)
NM
(11.5)
NM
NM
NM
(4.7)%
(34.7)
74.1
427.4
138.6
99.7
65.2
(1.1)
(0.1)
84.9
336.4
NM
155.9
79.1
(4.0)
64.7
(1.8)
63.6
(15.2)
17.0
NM
NM
69.9 %
Management fees increase d by $134.0 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily attributable to the commencement of Fund IX’s investment period in April 2018, resulting in $240.3 million in management fees during the
year ended December 31, 2018 . The increase in management fees was partially offset by decreased management fees earned from Fund VIII and Fund VI of $79.5
million and $23.0 million, respectively, during the year ended December 31, 2018 as compared to the year ended December 31, 2017 . The decrease in
management fees earned from Fund VIII was the result of a change in the basis upon which management fees are earned from capital commitments to invested
capital. The decrease in management fees earned from Fund VI resulted from the termination of the fund’s management fee.
Advisory and transaction fees, net increase d by $5.3 million for the year ended December 31, 2018 , as compared to the year ended December 31,
2017 . This change was primarily attributable to an increase in net advisory and transaction fees earned as a result of the Catalina Holdings transaction of $16.7
million, partially offset by a decrease in net advisory and transaction
- 123 -
Table of Contents
fees earned with respect to Fund VIII’s portfolio companies of $13.7 million during the year ended December 31, 2018 , as compared to the same period during
2017 .
Performance fees were $(500.3) million for the year ended December 31, 2018 , as compared to performance fees of $1.1 billion for the year ended
December 31, 2017 . This change was primarily attributable to decreases in performance fees earned from Fund VIII, Fund VI and Fund VII of $1.3 billion, $129.5
million and $117.2 million, respectively, during the year ended December 31, 2018 as compared to the year ended December 31, 2017 . The decrease in
performance fees from Fund VIII was primarily driven by depreciation of the fund’s public and private portfolio companies primarily in the consumer services,
business services and leisure sectors and lower appreciation in the manufacturing and industrial sector. The decrease in performance fees from Fund VI was
primarily driven by depreciation of the fund’s public portfolio companies primarily in the leisure sector. The decrease in performance fees from Fund VII was
primarily driven by depreciation of the fund’s private portfolio companies primarily in the consumer services, media, telecom and technology, leisure and business
services sectors.
Principal investment loss was $39.4 million for the year ended December 31, 2018 , as compared to principal investment income of $132.4 million for
the year ended December 31, 2017 . This change was primarily attributable to decreases in income from Apollo’s equity ownership interest in Fund VIII and AAA
of $153.5 million and $10.0 million, respectively, during the year ended December 31, 2018 , as compared to the same period in 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Management fees decreased by $15.3 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to decreases in management fees earned with respect to ANRP II, AION and Fund VI of $7.9 million, $4.2 million and $2.1 million,
respectively, during the year ended December 31, 2017 as compared to the year ended December 31, 2016. The decrease in management fees earned from ANRP
II was primarily due to catch-up of management fees in connection with capital raised during the year ended December 31, 2016. The decrease in management fees
earned from AION and Fund VI primarily resulted from a reduction in fee basis after December 31, 2016.
Advisory and transaction fees, net decreased by $44.6 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016. This change was primarily attributable to a decrease in net advisory and transaction fees earned with respect to Fund VIII’s portfolio companies of $46.2
million during the year ended December 31, 2017 as compared to the year ended December 31, 2016.
Performance fees increased by $625.0 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to increases in performance fees earned from Fund VIII and Fund VI of $566.3 million and $175.8 million, respectively, offset by
decreases in performance fees earned from ANRP I of $67.3 million during the year ended December 31, 2017 as compared to the year ended December 31, 2016.
The increase in performance fees earned from Fund VIII was primarily driven by appreciation in value in the fund’s private portfolio companies. The increase in
performance fees earned from Fund VI was primarily driven by appreciation in value in the fund’s public portfolio companies. The decrease in performance fees
earned from ANRP I was primarily driven by lower appreciation in value in the fund’s private portfolio companies.
Principal investment income increased by $66.1 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016.
This change was primarily attributable to increases in income from Apollo’s equity ownership interest in Fund VIII of $64.5 million during the year ended
December 31, 2017, as compared to the same period in 2016.
Expenses
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Compensation and benefits expense decrease d by $433.6 million for the year ended December 31, 2018 as compared to the year ended December 31,
2017 . This change was primarily attributable to a decrease in total profit sharing expense of $450.9 million during the year ended December 31, 2018 , as
compared to the same period in 2017 , as a result of a corresponding decrease in performance fees as described above. In any period the blended profit sharing
percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Equity-based profit sharing expense increased
as a result of grants under the 2007 Equity Plan during the year ended December 31, 2018 (see note 12 to the consolidated financial statements).
Included in profit sharing expense is $47.7 million and $44.4 million related to the Incentive Pool for the years ended December 31, 2018 and 2017 ,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
- 124 -
Table of Contents
Placement fees decrease d by $3.2 million during the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This
change was primarily driven by placement fees incurred in connection with capital raising activity relating to Fund IX of $3.5 million during the year ended
December 31, 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Compensation and benefits expense increased by $245.8 million for the year ended December 31, 2017 as compared to the year ended December 31,
2016. This change was primarily attributable to an increase in profit sharing expense of $247.2 million as a result of a corresponding increase in performance fees
as described above. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees
in the period.
Included in profit sharing expense is $44.4 million and $20.6 million related to the Incentive Pool for the years ended December 31, 2017 and 2016,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
General, administrative and other decreased by $2.8 million during the year ended December 31, 2017, as compared to the year ended December 31,
2016. The change was primarily driven by a decrease in professional fees during the year ended December 31, 2017, as compared to the same period in 2016.
Placement fees increased by $1.5 million during the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily driven by placement fees incurred during the year ended December 31, 2017 of $3.5 million in connection with capital raising activity relating to
Fund IX. Placement fees during the year ended December 31, 2016 were primarily incurred in connection with capital raising activity relating to ANRP II of $2.0
million.
Other Income (Loss)
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Net losses from investment activities were $51.2 million for the year ended December 31, 2018 , as compared to net gains from investment activities
of $9.7 million for the year ended December 31, 2017 . This change was primarily attributable to a loss on the Company’s investment in Athene Holding during the
year ended December 31, 2018 as compared to a gain on the Company’s investment in Athene Holding during the year ended December 31, 2017. See note 7 to the
consolidated financial statements for further information regarding the Company’s investment in Athene Holding.
Net interest loss decrease d by $1.9 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 , primarily due
to additional interest income earned from money market funds and U.S. Treasury securities held after December 31, 2017 . Interest income was partially offset by
additional interest expense incurred during the year ended December 31, 2018 as a result of the issuance of the 2048 Senior Notes in March 2018, as described in
note 10 to our consolidated financial statements.
Other loss, net was $2.1 million for the year ended December 31, 2018 , as compared to other income, net of $26.3 million for the year ended
December 31, 2017 . This change was primarily attributable to proceeds received in connection with the Company’s early termination of a lease during the year
ended December 31, 2017 , in addition to insurance proceeds of $17.5 million received during the year ended December 31, 2017 in connection with fees and
expenses relating to a legal proceeding.
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Net gains from investment activities decreased by $1.7 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016, due to reduced gains on the Company’s investment in Athene Holding during the year ended December 31, 2017, as compared to the year ended December
31, 2016. See note 7 to the consolidated financial statements for further information regarding the Company’s investment in Athene Holding.
Net interest loss increased by $2.4 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to
additional interest expense incurred during the year ended December 31, 2017 as a result of the issuance of the 2026 Senior Notes in May 2016, as described in
note 10 to our consolidated financial statements.
Other income, net increased by $24.6 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to proceeds recognized in connection with the Company’s early termination of a lease which occurred during the year ended December
31, 2017, in addition to $17.5 million in insurance proceeds recognized during the year ended December 31, 2017 in connection with fees and expenses relating to
a legal proceeding.
- 125 -
segment.
Real Assets:
Revenues:
Management fees
Table of Contents
Real Assets
The following table sets forth our segment statement of operations information and our supplemental performance measure, EI, within our real assets
For the Years Ended December 31,
For the Years Ended December 31,
2018
2017
Total Change
Percentage
Change
2017
2016
Total Change
Percentage
Change
(in thousands)
(in thousands)
$
78,011
$
73,390
$
Advisory and transaction fees, net
12,652
2,828
Performance fees (1) :
Unrealized
Realized
Total performance fees
Principal investment income
Total Revenues
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Equity-based
Total profit sharing expense
Total compensation and benefits
Non-compensation expenses:
(4,168)
(4,786)
6,617
2,449
2,020
95,132
43,356
3,617
(973)
3,759
1,504
4,290
51,263
18,069
13,283
2,857
92,358
39,468
2,905
(3,925)
9,468
—
5,543
47,916
General, administrative and other
26,177
20,701
Placement fees
Total non-compensation expenses
Total Expenses
Other Loss:
Net gains (losses) from investment activities
Net interest loss
Other income, net
Total Other Loss
Economic Income
7
26,184
77,447
44
(4,101)
490
(3,567)
—
20,701
68,617
(13)
(4,678)
2,460
(2,231)
$
14,118
$
21,510
$
4,621
9,824
618
(11,452)
(10,834)
(837)
2,774
3,888
712
2,952
(5,709)
1,504
(1,253)
3,347
5,476
7
5,483
8,830
57
577
(1,970)
(1,336)
(7,392)
6.3 % $
73,390
$
58,945
$
347.4
2,828
5,907
(12.9)
(63.4)
(81.6)
(29.3)
3.0
9.9
24.5
(75.2)
(60.3)
NM
(22.6)
7.0
26.5
NM
26.5
12.9
NM
(12.3)
(80.1)
59.9
(34.4)% $
(4,786)
18,069
13,283
2,857
92,358
39,468
2,905
(3,925)
9,468
—
5,543
47,916
20,701
—
20,701
68,617
(13)
(4,678)
2,460
(2,231)
4,918
12,566
17,484
3,010
85,346
33,171
2,734
2,202
8,185
—
10,387
46,292
21,528
89
21,617
67,909
—
(4,163)
692
(3,471)
21,510
$
13,966
$
14,445
(3,079)
(9,704)
5,503
(4,201)
(153)
7,012
6,297
171
(6,127)
1,283
—
(4,844)
1,624
(827)
(89)
(916)
708
(13)
(515)
1,768
1,240
7,544
24.5 %
(52.1)
NM
43.8
(24.0)
(5.1)
8.2
19.0
6.3
NM
15.7
NM
(46.6)
3.5
(3.8)
(100.0)
(4.2)
1.0
NM
12.4
255.5
(35.7)
54.0 %
(1)
Performance fees includes performance allocations and incentive fees.
Revenues
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Management fees increase d by $4.6 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . This change
was primarily attributable to increases in management fees earned from ARI and real estate debt managed accounts of $5.0 million and $3.0 million, respectively,
during the year ended December 31, 2018 , as compared to the same period during 2017 . The increase in management fees was partially offset by a decrease in
management fees earned from Trophy Property Development Fund, L.P. of $3.3 million during the year ended December 31, 2018 , as compared to the same
period during 2017 .
Advisory and transaction fees, net, increase d by $9.8 million for the year ended December 31, 2018 , as compared to the year ended December 31,
2017 . This change was primarily attributable to an increase in net advisory and transaction fees earned with respect to Apollo Infrastructure Equity Fund and the
acquisition of management contracts for India-based funds of $6.0 million and $3.5 million, respectively, during the year ended December 31, 2018 .
Performance fees decrease d by $10.8 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .
Performance fees earned from certain funds, including U.S. RE Fund I and U.S. RE Fund II, includes an
- 126 -
Table of Contents
allocation of performance fees from a strategic investment account that invests in the funds. The decrease in performance fees was primarily attributable to
decreases in performance fees earned from strategic investment accounts, U.S. RE Fund I and U.S. RE Fund II of $4.5 million, $4.5 million and $4.2 million,
respectively, during the year ended December 31, 2018 , as compared to the year ended December 31, 2017 . The decrease in performance fees earned from
strategic investment accounts is primarily due to the reversal of cumulative unrealized performance fees for one of our strategic investment accounts that invests in
Asia and lower appreciation of several of U.S. RE Fund II’s investments during the year ended December 31, 2018. Performance fees earned from U.S. RE Fund I
decreased primarily due to unrealized depreciation on several of the fund’s investments during the year ended December 31, 2018, as compared to the year ended
December 31, 2017. Performance fees earned from U.S. RE Fund II decreased primarily due to lower appreciation of several of the fund’s real estate investments
during the year ended December 31, 2018, as compared to the year ended December 31, 2017.
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Management fees increased by $14.4 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This change
was primarily attributable to increases in management fees earned with respect to ARI and Asia RE Fund of $8.2 million and $3.3 million, respectively, during the
year ended December 31, 2017, as compared to the year ended December 31, 2016, in connection with capital raises for the funds during 2017.
Advisory and transaction fees, net, decreased by $3.1 million for the year ended December 31, 2017, as compared to the year ended December 31,
2016. This change was primarily attributable to decreases in net advisory and transaction fees earned with respect to AGRE Debt Fund I and U.S. RE Fund II of
$2.4 million and $0.4 million, respectively, during the year ended December 31, 2017, as compared to the year ended December 31, 2016.
Performance fees decreased by $4.2 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. Performance
fees earned from certain funds, including U.S. RE Fund I and II, includes an allocation of performance fees from a strategic investment account that invests in the
funds. This change was primarily attributable to decreases in performance fees earned from strategic investment accounts of $4.3 million during the year ended
December 31, 2017, as compared to the same period during 2016. In addition, U.S. RE Fund I had a decrease of $2.4 million during the year ended December 31,
2017, as compared to the year ended December 31, 2016. The decrease in performance fees earned from U.S. RE Fund I was primarily due to lower appreciation of
several investments during the year ended December 31, 2017, as compared to the same period during 2016. The decrease was partially offset by an increase in
performance fees earned from U.S. RE Fund II of $1.9 million. The increase in performance fees earned from U.S. RE Fund II was primarily due to strong
operating performance across many of the fund’s underlying properties and appreciation of several real estate investments during the year ended December 31,
2017.
Expenses
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Compensation and benefits increase d by $3.3 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .
Salary, bonus and benefits increased by $3.9 million during the year ended December 31, 2018 , as compared to the same period during 2017 primarily due to
increased headcount. The increase was partially offset by a decrease in total profit sharing expense of $1.3 million during the year ended December 31, 2018 , as
compared to the same period in 2017 , as a result of a corresponding decrease in performance fees as described above. In any period the blended profit sharing
percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Equity-based profit sharing expense increased
as a result of grants under the 2007 Equity Plan during the year ended December 31, 2018 (see note 12 to the consolidated financial statements).
Included in profit sharing expense is $1.3 million and $1.6 million related to the Incentive Pool for the years ended December 31, 2018 and 2017 ,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
General, administrative and other increase d by $5.5 million during the year ended December 31, 2018 , as compared to the year ended December 31,
2017 . This change was primarily attributable to increase s in professional fees during the year ended December 31, 2018 , as compared to the same period in 2017
.
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Compensation and benefits increased by $1.6 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This
change was primarily attributable to an increase in salary, bonus and benefits of $6.3 million
- 127 -
Table of Contents
during the year ended December 31, 2017, as compared to the same period during 2016 primarily due to increased headcount. The increase in salary, bonus and
benefits was partially offset by a decrease in profit sharing expense of $4.8 million during the year ended December 31, 2017 as compared to the year ended
December 31, 2016 as a result of a corresponding decrease in performance fees as described above. In any period the blended profit sharing percentage is impacted
by the respective profit sharing ratios of the funds generating performance fees in the period.
Included in profit sharing expense is $1.6 million and $3.5 million related to the Incentive Pool for the years ended December 31, 2017 and 2016,
respectively. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable
impact on the blended profit sharing percentage during a particular period.
Other Income (Loss)
Year
Ended
December
31,
2018
Compared
to
Year
Ended
December
31,
2017
Other income, net decrease d by $2.0 million for the year ended December 31, 2018 , as compared to the year ended December 31, 2017 , primarily
attributable to proceeds received in connection with the Company’s early termination of a lease during the year ended December 31, 2017 .
Year
Ended
December
31,
2017
Compared
to
Year
Ended
December
31,
2016
Other income, net increased by $1.8 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily
attributable to proceeds recognized in connection with the Company’s early termination of a lease during the year ended December 31, 2017.
Summary of Fee Related Earnings
The following table is a summary of Fee Related Earnings.
Management Fees
Advisory and Transaction Fees, net
Performance fees (1)
Salary, Bonus and Benefits
Non-compensation Expenses
Other Income (Loss) attributable to Fee Related Earnings (2)
Non-Controlling Interest
Fee Related Earnings
For the Years Ended December 31,
2018
2017
(in thousands)
2016
$
1,282,688
$
1,082,315
$
111,567
28,390
(414,962)
(241,413)
9,977
(5,008)
117,624
17,666
(394,155)
(242,492)
47,834
(4,379)
$
771,239
$
624,413
$
977,649
147,115
22,941
(366,890)
(242,923)
(554)
(7,464)
529,874
(1) Represents certain performance fees earned from business development companies and Redding Ridge Holdings.
(2)
Includes $19.0 million in proceeds received in connection with the Company’s early termination of a lease and $17.5 million in insurance proceeds received in connection
with fees and expenses relating to a legal proceeding during the year ended December 31, 2017 .
- 128 -
Table of Contents
Summary of Distributable Earnings
The following table is a reconciliation of Distributable Earnings per share of common and equivalents to net distribution per share of common and
equivalent.
Distributable Earnings
Taxes and related payables (1)
Preferred distributions
Distributable Earnings After Taxes and Related Payables
Add back: Tax and related payables attributable to common and equivalents
Distributable Earnings before certain payables (2)
Percent to common and equivalents
Distributable Earnings before other payables attributable to common and equivalents
Less: Taxes and related payables attributable to common and equivalents
Distributable Earnings attributable to common and equivalents
Distributable Earnings per share of common and equivalent (3)
Retained capital per share of common and equivalent (3)(4)
Net distribution per share of common and equivalent (3)
For the Years Ended December 31,
2018
2017
2016
(in thousands, except per share data)
$
963,707
$
1,010,002
$
(44,215)
(31,662)
887,830
36,645
924,475
(26,337)
(13,538)
970,127
18,213
988,340
51%
49%
472,095
(36,645)
435,450
2.15
(0.32)
$
$
486,799
(18,213)
468,586
2.37
(0.31)
$
$
1.83
$
2.06
$
$
$
$
647,932
(9,635)
—
638,297
110
638,407
47%
302,899
(110)
302,789
1.56
(0.14)
1.42
(1) Represents the estimated current corporate, local and non-U.S. taxes as well as the payable under Apollo’s tax receivable agreement. DE After Taxes and Related Payables
is calculated after current taxes and the impact of the tax receivable agreement (“TRA”). The TRA component of taxes used in calculating DE After Taxes was previously
estimated based on the tax asset used to reduce the prior year’s tax liability. In 2018, the DE effective tax rate, using this estimation methodology, results in an increase in
the tax rate despite the significantly reduced federal tax rate under tax reform. We believe it is more meaningful to estimate the current year impact of the TRA component
of taxes when calculating DE After Taxes. The impact of this change is not significant to DE After Taxes and Related Payables as previously reported; giving effect to this
change, DE After Taxes and Related Payables would have been $937.8 million and $620.4 million for the years ended December 31, 2017 and 2016 , respectively.
(2) Distributable earnings before certain payables represents Distributable Earnings before the deduction for the estimated current corporate taxes and the payable under
(3)
Apollo’s TRA.
Per share calculations are based on end of period Distributable Earnings Shares Outstanding, which consists of total Class A shares outstanding, AOG Units and RSUs that
participate in distributions (collectively referred to as “common and equivalents”).
(4) Retained capital is withheld pro-rata from common and equivalent holders.
- 129 -
Table of Contents
Summary of Non-U.S. GAAP Measures
The table below sets forth a reconciliation of net income attributable Apollo Global Management, LLC Class A Shareholders to our non-U.S. GAAP
performance measures:
Net Income (Loss) Attributable to Apollo Global Management, LLC Class A Shareholders
Preferred distributions
Net income attributable to Non-Controlling Interests in consolidated entities
Net income (loss) attributable to Non-Controlling Interests in the Apollo Operating Group
Net Income
Income tax provision
Income Before Income Tax Provision
Transaction-related charges and equity-based compensation
Gain from remeasurement of tax receivable agreement liability
Net income attributable to Non-Controlling Interests in consolidated entities
Economic Income (1)
Income tax provision on Economic Income
Preferred distributions
Economic Net Income (Loss)
Preferred distributions
Income tax provision on Economic Income
Performance fees (2)
Profit sharing expense
Equity-based compensation (3)
Principal investment income
Net (gains) losses from investment activities
Net interest loss
Other
Fee Related Earnings
Gain from remeasurement of tax receivable agreement liability
Depreciation, amortization and other, net
Fee Related EBITDA
Realized performance fees (4)
Realized profit sharing expense (4)
Fee Related EBITDA + 100% of Net Realized Performance Fees
Non-cash revenues
Realized principal investment income
Net interest loss
Gain from remeasurement of tax receivable agreement liability
Other
Distributable Earnings
Taxes and related payables
Preferred distributions
Distributable Earnings After Taxes and Related Payables
(1)
(2)
See note 16 for more details regarding Economic Income for the combined segments.
Excludes certain performance fees from business development companies and Redding Ridge Holdings.
- 130 -
For the Years Ended December 31,
2018
2017
2016
(in thousands)
(42,038) $
615,566 $
402,850
31,662
31,648
(2,021)
13,538
8,891
805,644
19,251 $
1,443,639 $
86,021
325,945
—
5,789
561,668
970,307
90,707
105,272 $
1,769,584 $
1,061,014
(5,631)
(35,405)
(31,648)
17,496
(200,240)
(8,891)
57,042
—
(5,789)
32,588 $
1,577,949 $
1,112,267
(85,513)
(31,662)
(127,280)
(13,538)
(165,522)
—
(84,587) $
1,437,131 $
946,745
31,662
85,513
13,538
127,280
402,700
(1,319,924)
40,327
69,770
(7,614)
186,426
37,573
9,469
509,217
67,874
(162,951)
(94,774)
44,984
2,038
771,239 $
624,413 $
—
9,140
—
13,179
780,379 $
637,592 $
380,188
(225,629)
631,359
(278,838)
934,938 $
990,113 $
(3,369)
69,711
(37,573)
—
—
(3,369)
68,242
(44,984)
—
—
963,707 $
1,010,002 $
(44,215)
(31,662)
(26,337)
(13,538)
—
165,522
(762,945)
316,650
64,468
(102,581)
(138,608)
39,019
1,604
529,874
3,208
9,928
543,010
251,946
(136,793)
658,163
(3,369)
37,180
(39,019)
(3,208)
(1,815)
647,932
(9,635)
—
887,830 $
970,127 $
638,297
$
$
$
$
$
$
$
$
$
$
Table of Contents
(3)
(4)
Includes equity-based compensation related to RSUs (excluding RSUs granted in connection with the 2007 private placement), share options and restricted share awards.
Excludes realized performance fees and realized profit sharing expense in the form of Athene shares.
Liquidity and Capital Resources
Overview
Apollo’s business model primarily derives revenues and cash flows from the assets it manages. Apollo targets operating expense levels such that fee
income exceeds total operating expenses each period. The company intends to distribute to its shareholders on a quarterly basis substantially all of its distributable
earnings after taxes and related payables in excess of amounts determined to be necessary or appropriate to provide for the conduct of the business. As a result, the
Company requires limited capital resources to support the working capital or operating needs of the business. While primarily met by cash flows generated through
fee income received, liquidity needs are also met (to a limited extent) through proceeds from borrowings and equity issuances as described in notes 10 and 13 to
the consolidated financial statements, respectively. The Company had cash and cash equivalents of $609.7 million at December 31, 2018 .
Primary Sources and Uses of Cash
The Company has multiple sources of short-term liquidity to meet its capital needs, including cash on hand, annual cash flows from its activities, and
available funds from the Company’s $750 million revolving credit facility as of December 31, 2018 . The Company believes these sources will be sufficient to
fund our capital needs for at least the next twelve months. If the Company determines that market conditions are favorable after taking into account our liquidity
requirements, we may seek to issue additional senior notes, preferred equity, or other financing instruments.
The section below discusses in more detail the Company’s primary sources and uses of cash and the primary drivers of cash flows within the
Company’s consolidated statements of cash flows:
Operating Activities
Investing Activities
Financing Activities
For the Years Ended December 31,
2018
2017
(in thousands)
2016
$
814,259 $
859,852 $
(247,260)
(752,184)
(417,819)
(453,635)
599,785
(183,781)
(236,157)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated
Variable Interest Entities
$
(185,185) $
(11,602) $
179,847
Operating
Activities
The Company’s operating activities support its investment management activities. The primary sources of cash within the operating activities section
include: (a) management fees, (b) advisory and transaction fees, (c) realized performance revenues, and (d) realized principal investment income. The primary uses
of cash within the operating activities section include: (a) compensation and non-compensation related expenses, (b) placement fees, and (c) interest and taxes.
•
During the years ended December 31, 2018, 2017 and 2016 , cash provided by operating activities primarily includes cash inflows from the
receipt of management fees, advisory and transaction fees, realized performance revenues, and realized principal investment income, offset by
cash outflows for compensation, general, administrative, and other expenses. Net cash provided by operating activities also reflects the operating
activity of our consolidated funds and VIEs, which primarily include cash inflows from the sale of investments offset by cash outflows for
purchases of investments.
Investing
Activities
The Company’s investing activities support growth of its business. The primary sources of cash within the investing activities section include
distributions from investments. The primary uses of cash within the investing activities section include: (a) capital expenditures, (b) investment purchases,
including purchases of U.S. Treasury securities, and (c) equity method investments in the funds we manage.
•
During the year ended December 31, 2018 , cash used by investing activities primarily reflects purchases of U.S. Treasury securities and other
investments and net contributions to equity method investments, offset by proceeds from maturities of U.S. Treasury securities.
- 131 -
Table of Contents
•
•
During the year ended December 31, 2017 , cash used by investing activities primarily reflects purchases of U.S. Treasury securities and net
contributions to equity method investments, offset by repayment of related party loans.
During the year ended December 31, 2016 , cash used by investing activities primarily reflects purchases of other investments and net
contributions to equity method investments.
Financing
Activities
The Company’s financing activities reflect its capital market transactions and transactions with owners. The primary sources of cash within the
financing activities section includes proceeds from debt and preferred equity issuances. The primary uses of cash within the financing activities section include: (a)
distributions, (b) TRA payments, (c) share repurchases, (d) cash paid to settle tax withholding obligations in connection with net share settlements of equity-based
awards, and (e) repayments of debt.
•
•
•
During the year ended December 31, 2018 , cash used by financing activities primarily reflects repayments on the Term Facility and
distributions to Class A shareholders and Non-Controlling interest holders, partially offset by proceeds from the issuance of the Series B
Preferred shares and the 2048 Senior Notes.
During the year ended December 31, 2017 , cash used by financing activities primarily reflects distributions to Class A shareholders and Non-
Controlling interest holders, offset by proceeds from the issuance of Series A Preferred shares. Net cash provided by financing activities also
reflects the financing activity of our consolidated funds and VIEs, which primarily include cash inflows from the issuance of debt offset by cash
outflows for the principal repayment of debt.
During the year ended December 31, 2016 , cash used by financing activities primarily reflects repayments on the Term Facility, distributions to
Class A shareholders and Non-Controlling interest holders, offset by proceeds from the issuance of the 2026 Senior Notes.
Future Debt Obligations
The Company had long-term debt of $1.4 billion at December 31, 2018 , which includes $1.3 billion of senior notes with maturities in 2024, 2026 and
2048. See note 10 to the consolidated financial statements for further information regarding the Company’s debt arrangements. Additionally, see note 17 to the
consolidated financial statements for information regarding the 2029 Senior Notes.
Contractual Obligations, Commitments and Contingencies
The Company had unfunded general partner commitments of $1.2 billion at December 31, 2018 , of which $469 million related to Fund IX. For a
summary and a description of the nature of the Company’s commitments, contingencies and contractual obligations, see note 15 to the consolidated financial
statements and “—Contractual Obligations, Commitments and Contingencies”. The Company’s commitments are primarily fulfilled through cash flows from
operations and (to a limited extent) through borrowings and equity issuances as described in notes 10 and 13 to the consolidated financial statements, respectively.
Consolidated Funds and VIEs
The Company manages its liquidity needs by evaluating unconsolidated cash flows; however, the Company’s financial statements reflect the financial
position of Apollo as well as Apollo’s consolidated funds and VIEs. The primary sources and uses of cash at Apollo’s consolidated funds and VIEs include: (a)
raising capital from their investors, which have been reflected historically as Non-Controlling Interests of the consolidated subsidiaries in our financial statements,
(b) using capital to make investments, (c) generating cash flows from operations through distributions, interest and the realization of investments, (d) distributing
cash flow to investors, and (e) issuing debt to finance investments (CLOs).
Other Liquidity and Capital Resource Considerations
Future
Cash
Flows
Our ability to execute our business strategy, particularly our ability to increase our AUM, depends on our ability to establish new funds and to raise
additional investor capital within such funds. Our liquidity will depend on a number of factors, such as our ability to project our financial performance, which is
highly dependent on our funds and our ability to manage our projected costs, fund performance, access to credit facilities, compliance with existing credit
agreements, as well as industry and market trends. Also during economic downturns the funds we manage might experience cash flow issues or liquidate entirely.
In these situations we might be asked to reduce or eliminate the management fee and performance fees we charge, which could adversely impact our cash flow in
the future.
- 132 -
Table of Contents
An increase in the fair value of our funds’ investments, by contrast, could favorably impact our liquidity through higher management fees where the
management fees are calculated based on the net asset value, gross assets or adjusted assets. Additionally, higher performance fees not yet realized would generally
result when investments appreciate over their cost basis which would not have an impact on the Company’s cash flow until realized.
Consideration
of
Financing
Arrangements
As noted above, in limited circumstances, the Company may issue debt or equity to supplement its liquidity. The decision to enter into a particular
financing arrangement is made after careful consideration of various factors including the Company’s cash flows from operations, future cash needs, current
sources of liquidity, demand for the Company’s debt or equity, and prevailing interest rates.
Revolver
Facility
As further described in note 10 to the consolidated financial statements, the 2013 AMH Credit Facilities and all related loan documents were
terminated as of July 11, 2018. Under the Company’s 2018 AMH Credit Facility, the Company may borrow in an aggregate amount not to exceed $750 million
and may incur incremental facilities in an aggregate amount not to exceed $250 million plus additional amounts so long as the Borrower is in compliance with a
net leverage ratio not to exceed 4.00 to 1.00. Borrowings under the 2018 AMH Credit Facility may be used for working capital and general corporate purposes,
including without limitation, permitted acquisitions. As of December 31, 2018 , the 2018 AMH Credit Facility was undrawn.
Distributions
For information regarding the quarterly distributions which were made at the sole discretion of the Company’s manager during 2018 and 2017 to Class
A shareholders, Non-Controlling Interest holders in the Apollo Operating Group and participating securities, see note 13 to the consolidated financial statements.
Although the Company expects to pay distributions according to our distribution policy, we may not pay distributions according to our policy, or at
all, if, among other things, we do not have the cash necessary to pay the intended distributions. To the extent we do not have cash on hand sufficient to pay
distributions, we may have to borrow funds to pay distributions, or we may determine not to pay distributions. The declaration, payment and determination of the
amount of our quarterly distributions are at the sole discretion of our manager.
On January 31, 2019 , the Company declared a cash distribution of $0.56 per Class A share, which will be paid on February 28, 2019 to holders of
record on February 21, 2019 . Also, the Company declared a cash distribution of $0.398438 per Series A Preferred share and Series B Preferred share which will
be paid on March 15, 2019 to holders of record on March 1, 2019 .
Tax
Receivable
Agreement
The tax receivable agreement provides for the payment to the Managing Partners and Contributing Partners of 85% of the amount of cash savings, if
any, in U.S. federal, state, local and foreign income taxes that APO Corp. realizes subject to the agreement. For more information regarding the tax receivable
agreement, see note 14 to the consolidated financial statements.
APO
Share
Repurchases
In February 2016, Apollo announced its adoption of a program to repurchase up to $250 million in the aggregate of its Class A shares. In January
2019, the Company increased its authorized share repurchase amount by $250 million bringing the total share repurchase plan authorization to $500 million ,
which may be used to repurchase outstanding Class A shares as well as to reduce Class A shares to be issued to employees to satisfy associated tax obligations in
connection with the settlement of equity-based awards granted under the Company’s 2007 Equity Plan (and any successor equity plan thereto). Under the share
repurchase program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions, pursuant to a trading plan
adopted in accordance with Rule 10b5-1 of the Exchange Act, or otherwise, with the size and timing of these repurchases depending on legal requirements, price,
market and economic conditions and other factors. Apollo is not obligated under the terms of the share repurchase program to repurchase any of its Class A shares.
The repurchase program has no expiration date and may be suspended or terminated by the Company at any time without prior notice. Class A shares repurchased
as part of the program will be canceled by the Company.
AINV
Share
Purchases
On March 11, 2016, it was announced that Apollo intended to embark on a program to purchase $50 million of AINV’s common stock, subject to
certain regulatory approvals. Under the program, shares may be purchased from time to time in open
- 133 -
Table of Contents
market transactions and in accordance with applicable law. As of December 31, 2018 , Apollo had purchased approximately 871 thousand shares, or approximately
$4.9 million of AINV’s common stock.
Athora
On April 14, 2017, Apollo made an unfunded commitment of €125 million to purchase new Class B-1 equity interests in Athora, a strategic platform
established to acquire traditional closed life insurance policies and provide capital and reinsurance solutions to insurers in Europe. In January 2018, Apollo
purchased Class C-1 equity interests in Athora that represent a profits interest in Athora which, upon meeting certain vesting triggers, will be convertible by Apollo
into additional Class B-1 equity interests in Athora. Apollo and Athene are minority investors in Athora and long term strategic partners with aggregate voting
power of 35% and 10%, respectively. For more information regarding unfunded general partner commitments, see “—Contractual Obligations, Commitments and
Contingencies”.
Fund
VIII,
Fund
VII,
Fund
VI,
ANRP
I
and
ANRP
II
Escrow
As of December 31, 2018 , the remaining investments and escrow cash of Fund VIII were valued at 118% of the fund’s unreturned capital, which was
above the required escrow ratio of 115%. As of December 31, 2018 , the remaining investments and escrow cash of Fund VII, Fund VI, ANRP I and ANRP II were
valued at 77% , 73% , 63% and 107% of the fund’s unreturned capital, respectively, which were below the required escrow ratio of 115%. As a result, these funds
are required to place in escrow current and future performance fee distributions to the general partner until the specified return ratio of 115% is met (at the time of
a future distribution) or upon liquidation.
Clawback
Performance fees from our private equity funds and certain credit and real assets funds are subject to contingent repayment by the general partner in
the event of future losses to the extent that the cumulative performance fees distributed from inception to date exceeds the amount computed as due to the general
partner at the final distribution. See “—Overview of Results of Operations—Performance Fees” for the maximum performance fees subject to potential reversal by
each fund.
Indemnification
Liability
The Company recorded an indemnification liability in the event that our Managing Partners, Contributing Partners and certain investment
professionals are required to pay amounts in connection with a general partner obligation to return previously distributed performance fees. See note 14 to the
consolidated financial statements for further information regarding the Company’s indemnification liability.
Investment
Management
Agreements
-
Athene
Asset
Management
On September 20, 2018, a subsidiary of Apollo Global Management, LLC entered into a letter agreement (the “Letter Agreement”) with Athene
Holding Ltd. In the Letter Agreement, each of the Company and Athene agreed that, if the shareholders of Athene approve an amendment and restatement of the
bye-laws of Athene (further described below), it will execute the amendment and restatement of the Sixth Amended and Restated Fee Agreement, dated June 7,
2018, between the Company and Athene (the “Existing Fee Agreement”) in substantially the form attached as an exhibit to the Letter Agreement (the “Proposed
Amended Fee Agreement”).
The Proposed Amended Fee Agreement provides for a monthly fee to be payable by Athene to the Company in arrears, with retroactive effect to the
month beginning on January 1, 2019, in an amount equal to the following, to the extent not otherwise payable to the Company pursuant to any one or more
investment management or sub-advisory agreements or arrangements:
(1)
a base management fee equal to the sum of (i) 0.225% per annum of the lesser of (A) the aggregate market value of substantially all of the
assets in substantially all of the investment accounts of or relating to Athene (collectively, the “Accounts”) on December 31, 2018 (the “Backbook Value”)
and (B) the aggregate market value of substantially all of the assets in the Accounts at the end of the respective month, plus
(ii) 0.15% per annum of the
amount, if any (the “Incremental Value”), by which the aggregate market value of substantially all of the assets in the Accounts at the end of the respective
month exceeds the Backbook Value; plus
(2)
with respect to each asset in an Account, subject to certain exceptions, that is managed by the Company and that belongs to a specified asset
class tier (“core,” “core plus,” “yield,” and “high alpha”), a sub-allocation fee as follows, which will, in the case of assets acquired after January 1, 2019, be
subject to a cap of 10% of the applicable asset’s gross book yield:
- 134 -
Table of Contents
(i)
0.065% of the market value of “core assets,” which include public investment grade corporate bonds, municipal securities, and
agency residential mortgage backed securities (“RMBS”);
(ii)
0.13% of the market value of “core plus assets,” which include private investment grade corporate bonds, first lien commercial
mortgage loans (“CML”), and long-term fixed rate mortgages;
(iii)
0.375% of the market value of “yield assets,” which include non-agency RMBS, investment grade CLOs, commercial mortgage
backed securities and other asset-backed securities (other than RMBS), emerging market investments, below investment grade corporate bonds,
residential mortgage loans, triple net leases, bank loans, investment grade infrastructure debt, and lower yielding floating rate mortgages;
(iv)
0.70% of the market value of “high alpha assets,” which include mezzanine CMLs, below investment grade CLOs, preferred
equity, assets originated by MidCap, higher yielding mortgages and below investment grade infrastructure debt; and
(v)
0.00% of the market value of cash, treasuries, equities and alternatives.
The base management fee covers a range of investment services that Athene receives from the Company, including investment management, asset
allocation, mergers and acquisition asset diligence and certain operational support services such as investment compliance, tax, legal and risk management support,
among others. Additionally, the Proposed Amended Fee Agreement provides for a possible payment by the Company to Athene, or a possible payment by Athene
to the Company, equal to 0.025% of the Incremental Value as of the end of each year, beginning on December 31, 2019, depending upon the percentage of
Athene’s investments that consist of core assets and core plus assets. In furtherance of yield support for Athene, if more than 60% of Athene’s invested assets
which are subject to the sub-allocation fees are invested in core and core plus assets, Athene will receive a 0.025% fee reduction on the Incremental Value. As an
incentive for differentiated asset management, if less than 50% of Athene’s invested assets which are subject to the sub-allocation fee are invested in core and core
plus assets, thereby reflecting a higher allocation toward assets with the highest alpha-generating abilities, Athene will pay an additional fee of 0.025% on
Incremental Value.
The Proposed Amended Fee Agreement is intended to provide for further alignment of interests between Athene and the Company. On the Backbook
Value, assuming constant portfolio allocations, the near-term impact of the Proposed Amended Fee Agreement is anticipated to be immaterial. On the Incremental
Value, assuming the same allocations as the Backbook Value, total fees paid by Athene to the Company are expected to be marginally lower than fees paid by
Athene to the Company would be under the Existing Fee Agreement. If invested asset allocations are more heavily weighted to assets with lower alpha-generating
abilities than Athene’s current investment portfolio, the fees that Athene pays to the Company under the Proposed Amended Fee Agreement would be expected to
decline relative to the Existing Fee Agreement. Conversely, if a greater proportion of Athene’s investment portfolio is allocated to differentiated assets with higher
alpha-generating abilities, Athene’s net investment earned rates would be expected to increase, and so would the fees Athene pays to the Company relative to the
Existing Fee Agreement.
To incentivize the Company to make long-term investments that enhances its ability to continue to provide Athene with differentiated asset
management, Athene has proposed changes to its existing Bye-Laws (the “Existing Bye-Laws”) set forth in an amendment and restatement of the Existing Bye-
Laws in substantially the form attached as an exhibit to the Letter Agreement (the “Proposed Bye-Laws”). Specifically, the Proposed Bye-Laws, if adopted as the
Bye-Laws of Athene, will (1) provide for the IMA and each New IMA (each such term as defined in the Existing Bye-Laws) to have initial terms of four years,
beginning on the date on which the Proposed Bye-Laws are adopted as the Bye-Laws of Athene (the “Adoption Date”), that extend automatically for successive
two-year periods unless otherwise terminated (with any such termination being effective no earlier than two years after the end of the then existing term), and (2)
reflect conforming amendments, including by amending the IMA Termination Election Date (as defined in the Existing Bye-Laws) to be the fourth anniversary of
the Adoption Date and each two-year anniversary of the Adoption Date. The Proposed Bye-Laws, if adopted as the Bye-Laws of Athene, will continue to permit
Athene to terminate the IMA, or any New IMA, for cause. In the Letter Agreement, Athene (1) confirmed that its board of directors approved, and recommended
that its shareholders approve, the Proposed Bye-Laws and (2) agreed that it will seek the approval of its shareholders of the Proposed Bye-Laws at the next annual
general meeting of its shareholders.
Equity-Based
Profit
Sharing
Expense
Profit sharing amounts are generally not paid until the related performance fees are distributed to the general partner upon realization of the fund’s
investments. Under certain profit sharing arrangements, a portion of the performance fees distributed to the general partner is allocated by issuance of equity-based
awards, rather than cash, to employees. See note 2 to the consolidated financial statements for further information regarding the accounting for the Company’s
profit sharing arrangements.
- 135 -
Table of Contents
Strategic
Relationship
Agreement
with
CalPERS
On April 20, 2010, the Company announced that it entered into a strategic relationship agreement with CalPERS. The strategic relationship agreement
provides that Apollo will reduce fees charged to CalPERS on funds it manages, or in the future will manage, solely for CalPERS by $125 million over a five-year
period or as close a period as required to provide CalPERS with that benefit. The agreement further provides that Apollo will not use a placement agent in
connection with securing any future capital commitments from CalPERS. As of December 31, 2018 , the Company had reduced fees charged to CalPERS on the
funds it manages by approximately $107.8 million .
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and
assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues
and expenses. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in note 2 to our consolidated financial
statements. The following is a summary of our accounting policies that are affected most by judgments, estimates and assumptions.
Consolidation
The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on the specific facts and
circumstances surrounding each entity. Pursuant to the consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. Apollo
factors in all economic interests including proportionate interests through related parties, to determine if such interests are to be considered a variable interest. As
Apollo’s interest in many of these entities is solely through market rate fees and/or insignificant indirect interests through related parties, Apollo is generally not
considered to have a variable interest in many of these entities under the guidance and no further consolidation analysis is performed. For entities where the
Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a VIE.
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of
Apollo’s funds may qualify as VIEs under the variable interest model whereas others may qualify as voting interest entities (“VOEs”) under the voting interest
model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not
that entity should be consolidated.
Under the voting interest model, Apollo consolidates those entities it controls through a majority voting interest. Apollo does not consolidate those
VOEs in which substantive kick-out rights have been granted to the unaffiliated investors to either dissolve the fund or remove the general partner.
Under the variable interest model, Apollo consolidates those entities where it is determined that the Company is the primary beneficiary of the entity.
The Company is determined to be the primary beneficiary if it holds a controlling financial interest in the VIE defined as possessing both (i) the power to direct the
activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive
benefits from the VIE that could potentially be significant to the VIE. If Apollo alone is not considered to have a controlling financial interest in the VIE but
Apollo and its related parties under common control in the aggregate have a controlling financial interest in the VIE, Apollo will still be deemed to be the primary
beneficiary if it is the party within the related party group that is most closely associated with the VIE. If Apollo and its related parties not under common control
in the aggregate have a controlling financial interest in a VIE, then Apollo is deemed to be the primary beneficiary if substantially all the activities of the entity are
performed on behalf of Apollo. Apollo determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and
reconsiders that conclusion continuously. Investments and redemptions (either by Apollo, related parties of Apollo or third parties) or amendments to the
governing documents of the respective entity may affect an entity’s status as a VIE or the determination of the primary beneficiary.
The assessment of whether an entity is a VIE and the determination of whether Apollo should consolidate such VIE requires judgment by our
management. Those judgments include, but are not limited to: (i) determining whether the total equity investment at risk is sufficient to permit the entity to finance
its activities without additional subordinated financial support, (ii) evaluating whether the holders of equity investment at risk, as a group, can make decisions that
have a significant effect on the success of the entity, (iii) determining whether the equity investors have proportionate voting rights to their obligations to absorb
losses or rights to receive the expected residual returns from an entity and (iv) evaluating the nature of the relationship and activities of those related parties with
shared power or under common control for purposes of determining which party within the
- 136 -
Table of Contents
related-party group is most closely associated with the VIE. Judgments are also made in determining whether a member in the equity group has a controlling
financial interest including power to direct activities that most significantly impact the VIE’s economic performance and rights to receive benefits or obligations to
absorb losses that could be potentially significant to the VIE. This analysis considers all relevant economic interests including proportionate interests held through
related parties.
Revenue Recognition
Performance Fees. We earn performance fees from our funds as a result of such funds achieving specified performance criteria. Such performance
fees generally are earned based upon a fixed percentage of realized and unrealized gains of various funds after meeting any applicable hurdle rate or threshold
minimum.
Performance allocations are performance fees that are generally structured from a legal standpoint as an allocation of capital to the Company.
Performance allocations from certain of the funds that we manage are subject to contingent repayment and is generally paid to us as particular investments made by
the funds are realized. If, however, upon liquidation of a fund, the aggregate amount paid to us as performance fees exceeds the amount actually due to us based
upon the aggregate performance of the fund, the excess (in certain cases net of taxes) is required to be returned by us to that fund. We account for performance
allocations as an equity method investment, and accordingly, we accrue performance allocations quarterly based on fair value of the underlying investments and
separately assess if contingent repayment is necessary. The determination of performance allocations and contingent repayment considers both the terms of the
respective partnership agreements and the current fair value of the underlying investments within the funds. Estimates and assumptions are made when determining
the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used. See “Investments, at Fair Value”
below for further discussion related to significant estimates and assumptions used for determining fair value of the underlying investments in our credit, private
equity and real assets funds.
Incentive fees are performance fees structured as a contractual fee arrangement rather than a capital allocation. Incentive fees are generally received
from the management of CLOs, managed accounts and AINV. For a majority of our incentive fees, once the quarterly or annual incentive fees have been
determined, there is no look-back to prior periods for a potential contingent repayment, however, certain other incentive fees can be subject to contingent
repayment at the end of the life of the entity. In accordance with the new revenue recognition standard, certain incentive fees are considered a form of variable
consideration and therefore are deferred until fees are probable to not be significantly reversed. There is significant judgment involved in determining if the
incentive fees are probable to not be significantly reversed, but generally the Company will defer the revenue until the fees are crystallized or are no longer subject
to clawback or reversal. Prior to the adoption of the new revenue recognition guidance, incentive fees were recognized on an assumed liquidation basis.
Management Fees. Management fees related to our credit funds, can be based on net asset value, gross assets, adjusted cost of all unrealized portfolio
investments, capital commitments, adjusted assets, capital contributions, or stockholders’ equity all as defined in the respective partnership agreements. The credit
management fee calculations that consider net asset value, gross assets, adjusted cost of all unrealized portfolio investments and adjusted assets are normally based
on the terms of the respective partnership agreements and the current fair value of the underlying investments within the funds. Estimates and assumptions are
made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used. The
management fees related to our private equity funds, by contrast, are generally based on a fixed percentage of the committed capital or invested capital. The
corresponding fee calculations that consider committed capital or invested capital are both objective in nature and therefore do not require the use of significant
estimates or assumptions. The management fees related to our real assets funds are generally based on a specific percentage of the funds’ stockholders’ equity or
committed or net invested capital or the capital accounts of the limited partners. See “Investments, at Fair Value” below for further discussion related to significant
estimates and assumptions used for determining fair value of the underlying investments in our credit, private equity and real assets funds.
Investments, at Fair Value
On a quarterly basis, Apollo utilizes valuation committees consisting of members from senior management, to review and approve the valuation
results related to the investments of the funds it manages. For certain publicly traded vehicles managed by Apollo, a review is performed by an independent board
of directors. The Company also retains independent valuation firms to provide third-party valuation consulting services to Apollo, which consist of certain limited
procedures that management identifies and requests them to perform. The limited procedures provided by the independent valuation firms assist management with
validating their valuation results or determining fair value. The Company performs various back-testing procedures to validate their valuation approaches,
including comparisons between expected and observed outcomes, forecast evaluations and variance analyses. However, because of the inherent uncertainty of
valuation, the estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the
differences could be material.
- 137 -
Table of Contents
The fair values of the investments in our funds can be impacted by changes to the assumptions used in the underlying valuation models. For further
discussion on the impact of changes to valuation assumptions see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Sensitivity” in this
Annual Report on Form 10-K. There have been no material changes to the valuation approaches utilized during the periods that our financial results are presented
in this report.
Fair Value of Financial Instruments
Except for the Company’s debt obligations (each as defined in note 10 to our consolidated financial statements), Apollo’s financial instruments are
recorded at fair value or at amounts whose carrying values approximate fair value. See “—Investments, at Fair Value” above. While Apollo’s valuations of
portfolio investments are based on assumptions that Apollo believes are reasonable under the circumstances, the actual realized gains or losses will depend on,
among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing
and manner of sale, all of which may ultimately differ significantly from the assumptions on which the valuations were based. Financial instruments’ carrying
values generally approximate fair value because of the short-term nature of those instruments or variable interest rates related to the borrowings.
Profit Sharing Expense. Profit sharing expense is primarily a result of agreements with our Contributing Partners and employees to compensate them
based on the ownership interest they have in the general partners of the Apollo funds. Therefore, changes in the fair value of the underlying investments in the
funds we manage and advise affect profit sharing expense. The Contributing Partners and employees are allocated approximately 30% to 50%, of the total
performance fees which is driven primarily by changes in fair value of the underlying fund’s investments and is treated as compensation expense. Additionally,
profit sharing expenses paid may be subject to clawback from employees, former employees and Contributing Partners to the extent not indemnified. When
applicable, the accrual for potential clawback of previously distributed profit sharing amounts, which is a component of due from related parties on the
consolidated statements of financial condition, represents all amounts previously distributed to employees, former employees and Contributing Partners that would
need to be returned to the general partner if the Apollo funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the
reporting date. The actual general partner receivable, however, would not become realized until the end of a fund’s life.
Several of the Company’s employee remuneration programs are dependent upon performance fee realizations, including the Incentive Pool, dedicated
performance fee rights and certain RSU awards for which vesting is contingent, in part, on the realization of performance fees in a specified period. The Company
established these programs to attract and retain, and provide incentive to, partners and employees of the Company and to more closely align the overall
compensation of partners and employees with the overall realized performance of the Company. Dedicated performance fee rights entitle their holders to payments
arising from performance fee realizations. The Incentive Pool enables certain partners and employees to earn discretionary compensation based on realized
performance fees in a given year, which amounts are reflected in profit sharing expense in the Company’s consolidated financial statements. Amounts earned by
participants as a result of their performance fee rights (whether dedicated or Incentive Pool) will vary year-to-year depending on the overall realized performance
of the Company (and, in the case of the Incentive Pool, on their individual performance). There is no assurance that the Company will continue to compensate
individuals through the same types of arrangements in the future and there may be periods when the executive committee of the Company’s manager determines
that allocations of realized performance fees are not sufficient to compensate individuals, which may result in an increase in salary, bonus and benefits, the
modification of existing programs or the use of new remuneration programs. Reductions in performance fee revenues could also make it harder to retain
employees and cause employees to seek other employment opportunities.
Fair Value Option. Apollo has elected the fair value option for the Company’s investment in Athene Holding, the assets and liabilities of certain of its
consolidated VIEs (including CLOs), the Company’s U.S. Treasury securities with original maturities greater than three months when purchased and certain of the
Company’s other investments. Such election is irrevocable and is applied to financial instruments on an individual basis at initial recognition. See notes 4 , 6 , and
7 to the consolidated financial statements for further disclosure.
Equity-Based Compensation. Equity-based compensation is accounted for in accordance with U.S. GAAP, which requires that the cost of employee
services received in exchange for an award is generally measured based on the grant date fair value of the award. Equity-based awards that do not require future
service (i.e., vested awards) are expensed immediately. Equity-based employee awards that require future service are recognized over the relevant service period.
In addition, certain RSUs granted by the Company vest subject to continued employment and the Company’s receipt of performance fees, within prescribed
periods, sufficient to cover the associated equity-based compensation expense. In accordance with U.S. GAAP, equity-based compensation expense for such
awards, if and when granted, will be recognized on an accelerated recognition method over the requisite service period to the extent the performance fee metrics
are met or deemed probable. The addition of these performance measures helps to promote the interests of our Class A shareholders and fund investors by making
RSU vesting contingent on the realization and distribution of profits on our funds. In connection with the adoption of new share-based payment guidance during
the quarter ended
- 138 -
Table of Contents
March 31, 2017, the Company made an accounting policy election to no longer estimate forfeitures in determining the number of equity-based awards that are
expected to vest. Under the Company’s new policy, which was applied prospectively as of January 1, 2017, forfeitures are accounted for when they occur. Apollo’s
equity-based awards consist of, or provide rights with respect to, AOG Units, RSUs, share options, restricted shares, AHL Awards and other equity-based
compensation awards. For more information regarding Apollo’s equity-based compensation awards, see note 12 to our consolidated financial statements. The
Company’s assumptions made to determine the fair value on grant date are embodied in the calculations of compensation expense.
A significant part of our compensation expense is derived from amortization of RSUs. The fair value of all RSU grants after March 29, 2011 is based
on the grant date fair value, which considers the public share price of the Company. The Company has three types of RSU grants, which we refer to as Plan Grants,
Bonus Grants, and Performance Grants. Plan Grants may or may not provide the right to receive distribution equivalents until the RSUs vest and, for grants made
after 2011, the underlying shares are generally issued by March 15th after the year in which they vest. For Plan Grants, the grant date fair value is based on the
public share price of the Company, and is discounted for transfer restrictions and lack of distributions until vested if applicable. Bonus Grants provide the right to
receive distribution equivalents on both vested and unvested RSUs and Performance Grants provide the right to receive distribution equivalents on vested RSUs
and may also provide the right to receive distribution equivalents on unvested RSUs. Both Bonus Grants and Performance Grants are generally issued by March
15th of the year following the year in which they vest. For Bonus Grants and Performance Grants, the grant date fair value for the periods presented is based on the
public share price of the Company, and is discounted for transfer restrictions.
We utilized the present value of a growing annuity formula to calculate a discount for the lack of pre-vesting distributions on certain Plan Grant and
Performance Grant RSUs. The weighted average for the inputs utilized for the shares granted are presented in the table below for Plan Grants and Performance
Grants:
Plan Grants:
Distribution Yield (1)
Cost of Equity Capital Rate (3)
Performance Grants:
Distribution Yield (2)
Cost of Equity Capital Rate (3)
For the Years Ended December 31,
2018
2017
2016
5.7%
10.8%
6.8%
10.8%
6.1%
11.0%
N/A
N/A
6.6%
11.3%
N/A
N/A
(1) Calculated based on the historical distributions paid during the year ended December 31, 2018 and the Company’s Class A share price as of the measurement date of the
grant on a weighted average basis.
(2) Calculated based on the historical distributions paid during the three months ended December 31, 2018 and the Company’s Class A share price as of the measurement date
of the grant on a weighted average basis.
(3) Assumes a discount rate that was equivalent to the opportunity cost of foregoing distributions on unvested Plan Grant and Performance Grant RSUs as of the valuation
date, based on the Capital Asset Pricing Model (“CAPM”). CAPM is a commonly used mathematical model for developing expected returns.
The following table summarizes the weighted average discounts for certain Plan Grants and Performance Grants:
Plan Grants:
Discount for the lack of distributions until vested (1)
Performance Grants:
Discount for the lack of distributions until vested (1)
(1) Based on the present value of a growing annuity calculation.
For the Years Ended December 31,
2018
2017
2016
12.0%
12.8%
11.8%
14.0%
N/A
N/A
We utilize the Finnerty Model to calculate a marketability discount on the Plan Grant, Bonus Grant and Performance Grant RSUs to account for the
lag between vesting and issuance. The Finnerty Model provides for a valuation discount reflecting the holding period restriction embedded in a restricted security
preventing its sale over a certain period of time.
The Finnerty Model proposes to estimate a discount for lack of marketability such as transfer restrictions by using an option pricing theory. This
model has gained recognition through its ability to address the magnitude of the discount by considering the volatility of a company’s stock price and the length of
restriction. The concept underpinning the Finnerty Model is that a restricted security cannot be sold over a certain period of time. Further simplified, a restricted
share of equity in a company can
- 139 -
Table of Contents
be viewed as having forfeited a put on the average price of the marketable equity over the restriction period (also known as an “Asian Put Option”). If we price an
Asian Put Option and compare this value to that of the assumed fully marketable underlying security, we can effectively estimate the marketability discount.
The inputs utilized in the Finnerty Model are (i) length of holding period, (ii) volatility and (iii) distribution yield. The weighted average for the inputs
utilized for the shares granted are presented in the table below for Plan Grants, Bonus Grants and Performance Grants:
Plan Grants:
Holding Period Restriction (in years)
Volatility (1)
Distribution Yield (2)
Bonus Grants:
Holding Period Restriction (in years)
Volatility (1)
Distribution Yield (2)
Performance Grants:
Holding Period Restriction (in years)
Volatility (1)
Distribution Yield (2)
For the Years Ended December 31,
2018
2017
2016
0.8
24.9%
5.7%
0.2
22.5%
5.3%
1.2
23.9%
5.7%
0.6
22.1%
6.1%
0.2
22.6%
5.4%
N/A
N/A
N/A
0.5
24.7%
6.6%
0.2
20.6%
6.5%
N/A
N/A
N/A
(1)
The Company determined the expected volatility based on the volatility of the Company’s Class A share price as of the grant date with consideration to comparable
companies.
(2) Calculated based on the historical distributions paid during the years ended December 31, 2018, 2017 and 2016 and the Company’s Class A share price as of the
measurement date of the grant on a weighted average basis.
The following table summarizes the weighted average marketability discounts for Plan Grants, Bonus Grants and Performance Grants:
Plan Grants:
Marketability discount for transfer restrictions (1)
Bonus Grants:
Marketability discount for transfer restrictions (1)
Performance Grants:
Marketability discount for transfer restrictions (1)
(1) Based on the Finnerty Model calculation.
For the Years Ended December 31,
2018
4.7%
2.3%
5.6%
2017
3.6%
2.3%
N/A
2016
3.8%
2.1%
N/A
For awards granted prior to the adoption of the new share-based payment guidance, which was applied prospectively as of January 1, 2017, after the
grant date fair value was determined, an estimated forfeiture rate was applied. The estimated fair value was determined and recognized over the vesting period on a
straight-line basis and a 4.0% forfeiture rate was estimated for RSUs, based on the Company’s historical attrition rate as well as industry comparable rates. If award
recipients were no longer associated with Apollo or if there were no turnover, we would revise the estimated compensation expense to the actual amount of
expense based on the RSUs vested at the reporting date in accordance with U.S. GAAP.
Bonus Grants constitute a component of the discretionary annual compensation awarded to certain of our professionals. During 2016, the Company
increased the default portion of annual compensation to be awarded as a discretionary Bonus Grant relative to the portion awarded in previous years. The increase
in the proportion of discretionary annual compensation awarded as a Bonus Grant has generally been offset by a decrease in discretionary annual cash bonuses.
These changes are intended to further align the interests of Apollo’s employees and stakeholders and strengthen the long-term commitment of our partners and
employees.
- 140 -
Table of Contents
Fair Value Measurements
See note 7 to our consolidated financial statements for a discussion of the Company’s fair value measurements.
Recent Accounting Pronouncements
A list of recent accounting pronouncements that are relevant to Apollo and its industry is included in note 2 to our consolidated financial statements.
Off-Balance Sheet Arrangements
In the normal course of business, we engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments,
indemnifications and potential contingent repayment obligations. See note 15 to our consolidated financial statements for a discussion of guarantees and contingent
obligations.
Contractual Obligations, Commitments and Contingencies
The Company’s material contractual obligations consisted of lease obligations, contractual commitments as part of the ongoing operations of the funds
and debt obligations. Fixed and determinable payments due in connection with these obligations are as follows as of December 31, 2018 :
Operating lease obligations
Other long-term obligations (1)
2018 AMH Credit Facility (2)
2024 Senior Notes (3)
2026 Senior Notes (4)
2048 Senior Notes (5)
2014 AMI Term Facility I
2014 AMI Term Facility II
2016 AMI Term Facility I
2016 AMI Term Facility II
Obligations
2019
2020
2021
2022
2023
Thereafter
Total
(in thousands)
$
39,970 $
25,923 $
33,022 $
36,243 $
35,231 $
400,889 $
571,278
21,677
675
20,000
22,000
15,000
313
309
252
262
1,761
675
20,000
22,000
15,000
313
309
252
262
1,511
675
20,000
22,000
15,000
15,885
309
252
262
927
675
20,000
22,000
15,000
—
17,737
252
262
688
358
20,000
22,000
15,000
—
—
252
18,845
688
—
508,333
552,983
663,750
—
—
19,633
—
27,252
3,058
608,333
662,983
738,750
16,511
18,664
20,893
19,893
$
120,458 $
86,495 $
108,916 $
113,096 $
112,374 $ 2,146,276 $ 2,687,615
(1)
(2)
(3)
(4)
(5)
Includes (i) payments on management service agreements related to certain assets and (ii) payments with respect to certain consulting agreements entered into by the
Company. Note that a significant portion of these costs are reimbursable by funds.
The commitment fee as of December 31, 2018 on the $750 million undrawn 2018 AMH Credit Facility was 0.09% . See note 10 of the consolidated financial statements
for further discussion of the 2018 AMH Credit Facility.
$500 million of the 2024 Senior Notes matures in May 2024. The interest rate on the 2024 Senior Notes as of December 31, 2018 was 4.00% . See note 10 of the
consolidated financial statements for further discussion of the 2024 Senior Notes.
$500 million of the 2026 Senior Notes matures in May 2026. The interest rate on the 2026 Senior Notes as of December 31, 2018 was 4.40% . See note 10 of the
consolidated financial statements for further discussion of the 2026 Senior Notes.
$300 million of the 2048 Senior Notes matures in March 2048. The interest rate on the 2048 Senior Notes as of December 31, 2018 was 5.00% . See note 10 of the
consolidated financial statements for further discussion of the 2048 Senior Notes.
Note: Due to the fact that the timing of certain amounts to be paid cannot be determined or for other reasons discussed below, the following contractual commitments have not
(i)
been presented in the table above.
As noted previously, we have entered into a tax receivable agreement with our Managing Partners and Contributing Partners which requires us to pay to our Managing
Partners and Contributing Partners 85% of any tax savings received by APO Corp. from our step-up in tax basis. The tax savings achieved may not ensure that we have
sufficient cash available to pay this liability and we might be required to incur additional debt to satisfy this liability.
(ii) Debt amounts related to the consolidated VIEs are not presented in the table above as the Company is not a guarantor of these non-recourse liabilities.
(iii)
In connection with the Stone Tower acquisition, the Company agreed to pay the former owners of Stone Tower a specified percentage of any future performance fees
earned from certain of the Stone Tower funds, CLOs and strategic investment accounts. This contingent consideration liability is remeasured to fair value at each reporting
period until the obligations are satisfied. See note 15 to the consolidated financial statements for further information regarding the contingent consideration liability.
(iv) Commitments from certain of our subsidiaries to contribute to the funds we manage and certain related parties.
- 141 -
Table of Contents
Commitments
Certain of our management companies and general partners are committed to contribute to the funds we manage and certain related parties. While a
small percentage of these amounts are funded by us, the majority of these amounts have historically been funded by our related parties, including certain of our
employees and certain Apollo funds. The table below presents the commitment and remaining commitment amounts of Apollo and its related parties, the
percentage of total fund commitments of Apollo and its related parties, the commitment and remaining commitment amounts of Apollo only (excluding related
parties), and the percentage of total fund commitments of Apollo only (excluding related parties) for each credit, private equity and real assets fund as of
December 31, 2018 as follows ($ in millions):
- 142 -
Table of Contents
Fund
Credit:
COF III
Apollo Credit Opportunity Fund II, L.P. (“COF II”)
Apollo Credit Opportunity Fund I, L.P. (“COF I”)
Apollo European Principal Finance Fund III, L.P. (“EPF III”)
(1)
EPF II (1)
Apollo European Principal Finance Fund, L.P. (“EPF I”) (1)
Financial Credit Investment III, L.P. (“FCI III”)
Financial Credit Investment II, L.P. (“FCI II”)
Financial Credit Investment I, L.P. (“FCI I”)
Apollo Structured Credit Recovery Master Fund IV, L.P.
(“SCRF IV”)
MidCap
Apollo Moultrie Credit Fund, L.P.
Apollo/Palmetto Short-Maturity Loan Portfolio, L.P.
Apollo Asia Private Credit Fund, L.P. (“APC”)
AEOF
Apollo Accord Master Fund II, L.P.
Athora (1)
Other Credit
Private Equity:
Fund IX
Fund VIII
Fund VII
Fund VI
Fund V
Fund IV
AION
ANRP I
ANRP II
ANRP III
A.A. Mortgage Opportunities, L.P.
Apollo Rose, L.P.
Apollo Rose II, L.P.
Champ, L.P.
Apollo Royalties Management, LLC
Apollo Hybrid Value Fund, L.P.
Other Private Equity
Real Assets:
U.S. RE Fund II (2)
U.S. RE Fund I (2)
CPI Capital Partners Europe, L.P. (1)
CPI Capital Partners Asia Pacific, L.P.
Asia RE Fund (2)
Apollo Infrastructure Equity Fund (3)
Other Real Assets
Other:
Apollo SPN Investments I, L.P.
Total
Apollo and Related
Party Commitments
% of Total Fund
Commitments
Apollo Only
(Excluding Related
Party) Commitments
Apollo Only
(Excluding Related
Party) % of Total
Fund Commitments
Apollo and Related
Party Remaining
Commitments
Apollo Only
(Excluding Related
Party) Remaining
Commitments
$
358.1
30.5
449.2
609.4
411.4
308.1
224.3
244.6
151.3
416.1
1,672.6
400.0
300.0
126.5
125.5
274.7
679.4
10.45%
$
1.93
30.26
13.41
11.88
20.74
11.76
15.72
27.07
16.63
80.23
100.00
100.00
55.12
12.01
35.17
27.37
2,679.1
Various
1,849.5
1,543.5
467.2
246.3
100.0
100.0
151.5
426.1
561.2
640.7
625.0
299.1
887.1
193.2
108.6
821.9
369.6
693.8
434.4
6.3
6.9
376.9
246.1
365.3
12.5
7.48
8.40
3.18
2.43
2.67
2.78
18.34
32.21
16.25
64.11
80.31
100.00
51.07
78.25
100.00
29.13
Various
56.26
66.76
0.47
0.53
53.12
27.43
Various
0.27
$
20,993.5
$
83.1
23.4
29.7
93.2
60.2
20.3
0.1
—
—
33.1
110.9
—
—
0.1
25.5
11.6
143.3
259.9
468.7
396.4
178.1
6.1
0.5
0.2
50.0
10.1
25.9
20.7
—
—
33.0
26.7
—
76.9
6.3
4.7
16.5
—
0.5
8.4
13.1
1.7
12.5
2,251.4
2.43%
$
1.48
2.00
2.05
1.74
1.37
0.01
—
—
1.32
5.32
—
—
$
82.0
0.8
237.1
407.8
99.2
50.1
142.8
115.9
76.8
180.5
169.0
220.0
—
0.04
2.44
1.49
5.77
Various
1.90
2.16
1.21
0.06
0.01
0.01
6.05
0.76
0.75
2.07
—
—
1.9
10.8
—
2.73
Various
0.39
2.53
—
0.04
1.18
1.46
Various
0.27
32.0
92.7
233.5
530.5
974.4
1,849.5
292.6
66.3
9.7
6.2
0.5
30.3
68.0
256.3
640.7
200.0
—
439.7
7.2
—
787.4
126.4
435.0
120.2
—
0.1
250.8
59.7
63.3
7.2
20.1
0.6
4.2
64.2
18.9
4.7
0.1
—
—
14.4
31.0
—
—
—
18.8
9.9
119.7
129.4
468.7
76.3
24.9
0.2
—
—
9.8
1.3
11.6
20.7
—
—
16.6
1.1
—
73.6
1.9
3.0
2.7
—
—
5.9
2.7
0.1
7.2
$
9,362.2
$
1,164.3
(1)
Apollo’s commitment in these funds is denominated in Euros and translated into U.S. dollars at an exchange rate of €1.00 to $1.15 as of December 31, 2018 .
- 143 -
Table of Contents
(2)
(3)
Figures for U.S. RE Fund I include base, additional, and co-investment commitments. A co-investment vehicle within U.S. RE Fund I is denominated in pound sterling and translated into
U.S. dollars at an exchange rate of £1.00 to $1.28 as of December 31, 2018 . Figures for U.S. RE Fund II and Asia RE Fund include co-investment commitments.
Figures for Apollo Infrastructure Equity Fund include Apollo Infra Equity US Fund, L.P. and Apollo Infra Equity International Fund, L.P. commitments.
On April 30, 2015, Apollo entered into the AAA Investments Credit Agreement (see note 14 of our consolidated financial statements for further
disclosure regarding this facility). The 2018 AMH Credit Facility, 2024 Senior Notes, 2026 Senior Notes, 2048 Senior Notes, and 2029 Senior Notes will have
future impacts on our cash uses. See note 10 of our consolidated financial statements for information regarding the Company’s debt arrangements. Additionally,
see note 17 to the consolidated financial statements for information regarding the 2029 Senior Notes.
Contingent Obligation— Performance fees with respect to certain credit and private equity funds and real assets funds is subject to reversal in the event
of future losses to the extent of the cumulative performance fees recognized in income to date. See note 15 of our consolidated financial statements for a
description of our contingent obligation.
One of the Company’s subsidiaries, AGS, provides underwriting commitments in connection with securities offerings to the portfolio companies of
the funds Apollo manages. As of December 31, 2018 , there were no underwriting commitments outstanding related to such offerings.
As of December 31, 2018 , one of the Company’s subsidiaries had unfunded contingent commitments of $32.0 million , to facilitate fundings at
closing by lead arrangers for syndicated term loans issued by portfolio companies of funds managed by Apollo. The commitments expire by March 31, 2019 . As
of March 1, 2019 , the unfunded commitments were approximately $5.3 million .
ITEM 7A .
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our predominant exposure to market risk is related to our role as investment manager and general partner for our funds and the sensitivity to
movements in the fair value of their investments and resulting impact on performance fees and management fee revenues. Our direct investments in the funds also
expose us to market risk whereby movements in the fair values of the underlying investments will increase or decrease both net gains (losses) from investment
activities and income (loss) from equity method investments. For a discussion of the impact of market risk factors on our financial instruments see “Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Investments, at Fair Value.”
The fair value of our financial assets and liabilities of our funds may fluctuate in response to changes in the value of investments, foreign exchange,
commodities and interest rates. The net effect of these fair value changes impacts the gains and losses from investments in our consolidated statements of
operations. However, the majority of these fair value changes are absorbed by the Non-Controlling Interests.
The Company is subject to a concentration risk related to the investors in its funds. Although there are more than 1,000 investors in Apollo’s active
credit, private equity and real assets funds, no individual investor accounts for more than 10% of the total committed capital to Apollo’s active funds.
Risks are analyzed across funds from the “bottom up” and from the “top down” with a particular focus on asymmetric risk. We gather and analyze
data, monitor investments and markets in detail, and constantly strive to better quantify, qualify and circumscribe relevant risks.
Each risk management process is subject to our overall risk tolerance and philosophy and our enterprise-wide risk management framework. This
framework includes identifying, measuring and managing market, credit and operational risks at each segment, as well as at the fund and Company level.
Each segment runs its own investment and risk management process subject to our overall risk tolerance and philosophy:
•
•
Our credit funds continuously monitor a variety of markets for attractive trading opportunities, applying a number of traditional
and customized risk management metrics to analyze risk related to specific assets or portfolios, as well as, fund-wide risks.
The investment process of our private equity funds involves a detailed analysis of potential acquisitions, and investment
management teams assigned to monitor the strategic development, financing and capital deployment decisions of each portfolio
investment.
- 144 -
Table of Contents
At the direction of the Company’s manager, the Company has established a risk committee comprised of various members of senior management
including the Company’s Chief Financial Officer, Chief Legal Officer, and the Company’s Chief Risk Officer. The risk committee is tasked with assisting the
Company’s manager in monitoring and managing enterprise-wide risk. The risk committee generally meets on a quarterly basis and reports to senior management
of the Company’s manager at such times as the committee deems appropriate and at least on an annual basis.
On at least a monthly basis, the Company’s risk department provides a summary analysis of fund level market and credit risk to the portfolio managers
of the Company’s funds and the heads of the various business segments. On a periodic basis, the Company’s risk department presents a consolidated summary
analysis of fund level market and credit risk to the Company’s risk committee. In addition, the Company’s Chief Risk Officer reviews specific investments from
the perspective of risk mitigation and discusses such analysis with the Company’s risk committee and/or the executive committee of the Company’s manager at
such times as the Company’s Chief Risk Officer determines such discussions are warranted. On an annual basis, the Company’s Chief Risk Officer provides senior
management of the Company’s manager with a comprehensive overview of risk management along with an update on current and future risk initiatives.
Impact on Management Fees —Our management fees are based on one of the following:
•
•
•
•
capital commitments to an Apollo fund;
capital invested in an Apollo fund;
the gross, net or adjusted asset value of an Apollo fund, as defined; or
as otherwise defined in the respective agreements.
Management fees could be impacted by changes in market risk factors and management could consider an investment permanently impaired as a result
of (i) such market risk factors causing changes in invested capital or in market values to below cost, in the case of certain credit funds and our private equity funds
or (ii) such market risk factors causing changes in gross or net asset value, for the credit funds. The proportion of our management fees that are based on NAV is
dependent on the number and types of our funds in existence and the current stage of each fund’s life cycle.
Impact on Advisory and Transaction Fees —We earn transaction fees relating to the negotiation of credit, private equity and real assets transactions
and may obtain reimbursement for certain out-of-pocket expenses incurred. Subsequently, on a quarterly or annual basis, ongoing advisory fees, and additional
transaction fees in connection with additional purchases, dispositions, or follow-on transactions, may be earned. Management Fee Offsets and any broken deal
costs, if applicable, are reflected as a reduction to advisory and transaction fees. Advisory and transaction fees will be impacted by changes in market risk factors to
the extent that they limit our opportunities to engage in credit, private equity and real assets transactions or impair our ability to consummate such transactions. The
impact of changes in market risk factors on advisory and transaction fees is not readily predicted or estimated.
Impact on Performance Fees —We earn performance fees from our funds as a result of such funds achieving specified performance criteria. Our
performance fees will be impacted by changes in market risk factors. However, several major factors will influence the degree of impact:
•
•
•
•
the performance criteria for each individual fund in relation to how that fund’s results of operations are impacted by
changes in market risk factors;
whether such performance criteria are annual or over the life of the fund;
to the extent applicable, the previous performance of each fund in relation to its performance criteria; and
whether each funds’ performance fee distributions are subject to contingent repayment.
As a result, the impact of changes in market risk factors on performance fees will vary widely from fund to fund. The impact is heavily dependent on
the prior and future performance of each fund, and therefore is not readily predicted or estimated.
Market Risk —We are directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets
and liabilities or revenues and expenses will be adversely affected by changes in market conditions. Market risk is inherent in each of our investments and
activities, including equity investments, loans, short-term borrowings, long-term debt, hedging instruments, credit default swaps and derivatives. Just a few of the
market conditions that may shift from time to time, thereby exposing us to market risk, include fluctuations in interest and currency exchange rates, equity prices,
changes in the implied volatility of interest rates and price deterioration. Volatility in debt and equity markets can impact our pace of capital deployment, the
timing of receipt of transaction fee revenues and the timing of realizations. These market conditions could have
- 145 -
Table of Contents
an impact on the value of fund investments and rates of return. Accordingly, depending on the instruments or activities impacted, market risks can have wide
ranging, complex adverse effects on our results from operations and our overall financial condition. We monitor market risk using certain strategies and
methodologies which management evaluates periodically for appropriateness. We intend to continue to monitor this risk going forward and continue to monitor our
exposure to all market factors.
Interest Rate Risk— Interest rate risk represents exposure we and our funds have to instruments whose values vary with the change in interest rates.
These instruments include, but are not limited to, loans, borrowings, investments in interest bearing securities and derivative instruments. We may seek to mitigate
risks associated with the exposures by having our funds take offsetting positions in derivative contracts. Hedging instruments allow us to seek to mitigate risks by
reducing the effect of movements in the level of interest rates, changes in the shape of the yield curve, as well as, changes in interest rate volatility. Hedging
instruments used to mitigate these risks may include related derivatives such as options, futures and swaps.
Credit Risk— Certain of our funds are subject to certain inherent risks through their investments.
Certain of our entities invest substantially all of their excess cash in open-end money market funds and money market demand accounts, which are
included in cash and cash equivalents. The money market funds invest primarily in government securities and other short-term, highly liquid instruments with a
low risk of loss. We continually monitor the funds’ performance in order to manage any risk associated with these investments.
Certain of our funds hold derivative instruments that contain an element of risk in the event that the counterparties may be unable to meet the terms of
such agreements. We seek to minimize our risk exposure by limiting the counterparties with which our funds enter into contracts to banks and investment banks
who meet established credit and capital guidelines. As of December 31, 2018 , we do not expect any counterparty to default on its obligations and therefore do not
expect to incur any loss due to counterparty default.
Foreign Exchange Risk— Foreign exchange risk represents exposures our funds have to changes in the values of current fund holdings and future
cash flows denominated in other currencies and investments in non-U.S. companies. The types of investments exposed to this risk include investments in foreign
subsidiaries, foreign currency-denominated loans, foreign currency-denominated transactions, and various foreign exchange derivative instruments whose values
fluctuate with changes in currency exchange rates or foreign interest rates. Instruments used to mitigate this risk are foreign exchange options, currency swaps,
futures and forwards. These instruments may be used to help insulate our funds against losses that may arise due to volatile movements in foreign exchange rates
and/or interest rates.
In our capacity as investment manager of the funds we manage, we continuously monitor a variety of markets for attractive opportunities for managing
risk. For example, certain of the funds we manage may put in place foreign exchange hedges or borrowings with respect to certain foreign currency denominated
investments to provide a hedge against foreign exchange exposure.
Non-U.S. Operations— We conduct business throughout the world and are continuing to expand into foreign markets. We currently have offices
outside the U.S. in Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai and Tokyo and have been strategically
growing our international presence. Our fund investments and our revenues are primarily derived from our U.S. operations. With respect to our non-U.S.
operations, we are subject to risk of loss from currency fluctuations, social instability, changes in governmental policies or policies of central banks, expropriation,
nationalization, unfavorable political and diplomatic developments and changes in legislation relating to non-U.S. ownership. Our funds also invest in the securities
of companies which are located in non-U.S. jurisdictions. As we continue to expand globally, we will continue to focus on monitoring and managing these risk
factors as they relate to specific non-U.S. investments.
Sensitivity
Interest Rate Risk— Apollo has debt obligations that accrue interest at variable rates. Interest rate changes may therefore affect the amount of our
interest payments, future earnings and cash flows. Based on our debt obligations payable as of December 31, 2018 and 2017 , we estimate that interest expense
would increase on an annual basis, in the event interest rates were to increase by one percentage point, by approximately $0.7 million and $3.7 million ,
respectively.
In addition to our debt obligations, we are also subject to interest rate risk through the investments of our funds. For funds that pay management fees
based on NAV or other bases that are sensitive to market value fluctuations, we anticipate our management fees would change consistent with the increase or
decrease experienced by the underlying funds’ portfolios. In the event that interest rates were to increase by one percentage point, we estimate that management
fees earned on a segment basis that were dependent upon estimated fair value would decrease by approximately $26.6 million and $18.4 million during the years
ended December 31, 2018 and 2017 , respectively.
- 146 -
Table of Contents
Credit Risk— Similar to interest rate risk, we are also subject to credit risk through the investments of our funds. In the event that credit spreads were to
increase by one percentage point, we estimate that management fees earned on a segment basis that were dependent upon estimated fair value would decrease by
approximately $37.5 million and $26.6 million during the years ended December 31, 2018 and 2017 , respectively.
Foreign Exchange Risk— We estimate for the years ended December 31, 2018 and 2017 , a 10% decline in the rate of exchange of all foreign
currencies against the U.S. dollar would result in the following declines in management fees, performance fees and principal investment income:
Management fees
Performance fees
Principal investment income
$
For the Years Ended December 31,
2018
2017
(in thousands)
8,406
$
)
)
— (1
— (1
7,600
3,021
109
(1) We estimate a 10% decline in the rate of exchange of all foreign currencies against the U.S. dollar would result in increases in performance fees and principal investment
income as a result of losses incurred during the year ended December 31, 2018.
Net Gains from Investment Activities and Principal Investment Income— Our assets and unrealized gains, and our related equity and net income are
sensitive to changes in the valuations of our funds’ underlying investments and could vary materially as a result of changes in our valuation assumptions and
estimates. See “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Critical Accounting Policies—Investments, at
Fair Value” for details related to the valuation methods that are used and the key assumptions and estimates employed by such methods. We also quantify the
Level III investments that are included on our consolidated statements of financial condition by valuation methodology in note 7 to the consolidated financial
statements. We employ a variety of valuation methods. Furthermore, the investments that we manage but are not on our consolidated statements of financial
condition, and therefore impact performance fees, also employ a variety of valuation methods of which no single methodology is used more than any other.
Management Fees— Management fees from the funds in our credit segment are based on the net asset value of the relevant fund, gross assets, capital
commitments or invested capital, each as defined in the respective management agreements. Changes in the fair values of the investments in credit funds that earn
management fees based on net asset value or gross assets will have a direct impact on the amount of management fees that are earned. Management fees earned
from our credit segment on a segment basis that were dependent upon estimated fair value during the years ended December 31, 2018 and 2017 would decrease by
approximately $62.6 million and $50.0 million , respectively, if the fair values of the investments held by such funds were 10% lower during the same respective
periods.
Management fees for our private equity, real assets and certain credit funds are generally charged on either (a) a fixed percentage of committed capital
over a stated investment period or (b) a fixed percentage of invested capital of unrealized portfolio investments. Changes in values of investments could indirectly
affect future management fees from private equity funds by, among other things, reducing the funds’ access to capital or liquidity and their ability to currently pay
the management fees or if such change resulted in a write-down of investments below their associated invested capital.
Performance Fees— Performance fees from most of our credit, private equity and real assets funds generally is earned based on achieving specified
performance criteria and is impacted directly by changes in the fair value of the funds’ investments. We anticipate that a 10% decline in the fair values of
investments held by all of the credit, private equity and real assets funds at December 31, 2018 and 2017 would decrease performance fees on a segment basis as
presented in the table below:
10% Decline in Fair Value of Investments Held
Credit
Private Equity
Real Assets
For the Years Ended December 31,
2018
2017
(in thousands)
$
165,184 $
776,461
26,162
186,692
505,297
14,271
Net Gains From Investment Activities— Net gains from investment activities related to the Company's investment in Athene Holding would decrease
by approximately $76.1 million and $80.2 million for the years ended December 31, 2018 and
- 147 -
Table of Contents
2017 , respectively, if the fair value of the Company's investment in Athene Holding decreased by 10% during the same respective periods.
Principal Investment Income— For select Apollo funds, our share of income from equity method investments as a general partner in such funds is
derived from unrealized gains or losses on investments in funds included in the consolidated financial statements. For funds in which we have an interest, but are
not consolidated, our share of investment income is limited to our direct investments in the funds.
We anticipate that a 10% decline in the fair value of investments at December 31, 2018 and 2017 would result in an approximate $105.6 million and
$93.6 million decrease in principal investment income in our consolidated financial statements, respectively.
- 148 -
Table of Contents
ITEM 8 .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
- 149 -
Page
150
152
153
154
155
156
157
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Apollo Global Management, LLC
New York, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Apollo Global Management, LLC and subsidiaries (the “Company”) as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the
three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the
Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control-Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control-Integrated
Framework
(2013)
issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate
- 150 -
Table of Contents
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
March 1, 2019
We have served as the Company's auditor since 2007.
- 151 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2018 AND DECEMBER 31, 2017
(dollars in thousands, except share data)
Assets:
Cash and cash equivalents
Restricted cash
U.S. Treasury securities, at fair value
Investments (includes performance allocations of $912,182 and $1,828,930 as of December 31, 2018
and December 31, 2017, respectively)
Assets of consolidated variable interest entities:
Cash and cash equivalents
Investments, at fair value
Other assets
Incentive fees receivable
Due from related parties
Deferred tax assets, net
Other assets
Goodwill
Intangible assets, net
Total Assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and accrued expenses
Accrued compensation and benefits
Deferred revenue
Due to related parties
Profit sharing payable
Debt
Liabilities of consolidated variable interest entities:
Debt, at fair value
Other liabilities
Other liabilities
Total Liabilities
Commitments and Contingencies (see note 15)
Shareholders’ Equity:
Apollo Global Management, LLC shareholders’ equity:
Series A Preferred shares, 11,000,000 shares issued and outstanding as of December 31, 2018 and
December 31, 2017
Series B Preferred shares, 12,000,000 and 0 shares issued and outstanding as of December 31, 2018 and
December 31, 2017, respectively
Class A shares, no par value, unlimited shares authorized, 201,400,500 and 195,267,669 shares issued
and outstanding as of December 31, 2018 and December 31, 2017, respectively
Class B shares, no par value, unlimited shares authorized, 1 share issued and outstanding as of
December 31, 2018 and December 31, 2017
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Apollo Global Management, LLC shareholders’ equity
Non-Controlling Interests in consolidated entities
Non-Controlling Interests in Apollo Operating Group
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
As of
December 31, 2018
As of
December 31, 2017
609,747 $
3,457
392,932
751,273
3,875
364,649
2,722,612
3,559,834
49,671
1,175,677
65,543
6,792
378,108
306,094
173,270
88,852
18,899
92,912
1,196,190
39,484
43,176
262,588
337,638
231,757
88,852
18,842
5,991,654 $
6,991,070
70,878 $
73,583
111,097
425,435
452,141
1,360,448
855,461
78,977
111,794
3,539,814
264,398
289,815
—
—
1,299,418
(473,276)
(4,159)
1,376,196
271,522
804,122
2,451,840
5,991,654 $
68,873
62,474
128,146
428,013
752,276
1,362,402
1,002,063
115,658
173,369
4,093,274
264,398
—
—
—
1,579,797
(379,460)
(1,809)
1,462,926
140,086
1,294,784
2,897,796
6,991,070
$
$
$
$
See
accompanying
notes
to
consolidated
financial
statements.
- 152 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 , 2017 AND 2016
(dollars in thousands, except share data)
For the Years Ended
December 31,
2018
2017
2016
$
1,345,252 $
1,154,925 $
112,278
117,624
Revenues:
Management fees
Advisory and transaction fees, net
Investment income (loss):
Performance allocations
Principal investment income
Total investment income (loss)
Incentive fees
Total Revenues
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense
Total compensation and benefits
Interest expense
General, administrative and other
Placement fees
Total Expenses
Other Income (Loss):
Net gains (losses) from investment activities
Net gains from investment activities of consolidated variable interest entities
Interest income
Other income, net
Total Other Income (Loss)
Income before income tax provision
Income tax provision
Net Income
Net income attributable to Non-Controlling Interests
Net Income (Loss) Attributable to Apollo Global Management, LLC
Net income attributable to Series A Preferred Shareholders
Net income attributable to Series B Preferred Shareholders
Net Income (Loss) Attributable to Apollo Global Management, LLC Class A
Shareholders
Distributions Declared per Class A Share
Net Income (Loss) Per Class A Share:
Net Income (Loss) Available to Class A Share – Basic
Net Income (Loss) Available to Class A Share – Diluted
Weighted Average Number of Class A Shares Outstanding – Basic
Weighted Average Number of Class A Shares Outstanding – Diluted
$
$
$
$
See
accompanying
notes
to
consolidated
financial
statements.
- 153 -
(400,305)
5,122
(395,183)
30,718
1,093,065
459,604
173,228
(57,833)
574,999
59,374
266,444
2,122
902,939
(186,449)
45,112
20,654
35,829
(84,854)
105,272
(86,021)
19,251
(29,627)
(10,376)
(17,531)
(14,131)
1,306,193
161,630
1,467,823
31,431
2,771,803
428,882
91,450
515,073
1,035,405
52,873
257,858
13,913
95,104
10,665
6,421
245,640
357,830
1,769,584
(325,945)
1,443,639
(814,535)
629,104
(13,538)
—
1,360,049
1,165,918
1,043,513
146,665
712,865
103,178
816,043
67,341
2,073,562
389,130
102,983
357,074
849,187
43,482
247,000
26,249
139,721
5,015
4,072
4,562
153,370
1,061,014
(90,707)
970,307
(567,457)
402,850
—
—
402,850
1.25
(42,038) $
615,566 $
1.93 $
1.85 $
(0.30) $
(0.30) $
3.12 $
3.10 $
2.11
2.11
199,946,632
190,931,743
199,946,632
192,581,693
183,998,080
183,998,080
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2018 , 2017 AND 2016
(dollars in thousands, except share data)
Net Income
Other Comprehensive Income (Loss), net of tax:
Currency translation adjustments, net of tax
Net gain from change in fair value of cash flow hedge instruments
Net gain (loss) on available-for-sale securities
Total Other Comprehensive Income (Loss), net of tax
Comprehensive Income (Loss)
Comprehensive Income attributable to Non-Controlling Interests
Comprehensive Income (Loss) Attributable to Apollo Global Management, LLC
$
(12,726) $
636,018 $
See
accompanying
notes
to
consolidated
financial
statements.
- 154 -
For the Years Ended
December 31,
2018
2017
2016
$
19,251 $
1,443,639 $
970,307
(19,078)
13,953
(4,214)
105
(786)
(19,759)
(508)
(12,218)
105
36
14,094
1,457,733
(821,715)
106
418
(3,690)
966,617
(564,870)
401,747
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018 , 2017 AND 2016
(dollars in thousands, except share data)
Apollo Global Management, LLC Shareholders
Class A
Shares
Class B
Shares
Series A
Preferred
Shares
Balance at January 1, 2016
181,078,937
$
1
— $
Dilution impact of issuance of
Class A shares
Capital increase related to equity-
based compensation
Capital contributions
Distributions
—
—
—
—
Issuances of Class A shares for
equity-based awards
4,623,187
Repurchase of Class A shares
(954,447)
Exchange of AOG Units for Class
A shares
712,617
Net income
Currency translation adjustments,
net of tax
Net gain from change in fair value
of cash flow hedge instruments
Net income on available-for-sale
securities
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at December 31, 2016
185,460,294
1
$
Adoption of new accounting
guidance
Dilution impact of issuance of
Class A shares
Equity issued in connection with
Preferred shares offering
Capital increase related to equity-
based compensation
Capital contributions
Distributions
—
—
—
—
—
—
Issuances of Class A shares for
equity-based awards
2,323,205
Repurchase of Class A shares
(233,248)
Exchange of AOG Units for Class
A shares
7,717,418
Net income
Currency translation adjustments,
net of tax
Net gain from change in fair value
of cash flow hedge instruments
Net income on available-for-sale
securities
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
264,398
—
—
(13,538)
—
—
—
13,538
—
—
—
Balance at December 31, 2017
195,267,669
1
$
264,398
$
Series B
Preferred
Shares
Additional
Paid in
Capital
— $ 2,005,509
Accumulated
Deficit
$ (1,348,384)
Accumulated
Other
Comprehensive
Loss
Total Apollo
Global
Management,
LLC
Shareholders’
Equity
Non-
Controlling
Interests in
Consolidated
Entities
Non-
Controlling
Interests in
Apollo
Operating
Group
$
(7,620)
$
649,505
$
86,561
$
652,915
Total
Shareholders’
Equity
$ 1,388,981
(1,571)
(1,571)
(2,746)
50
418
50
418
—
—
103
56
(4,214)
106
—
418
$ 1,867,528
$
(986,186)
$
(8,723)
$
835,116
$
90,063
$
942,349
—
— $ 1,830,025
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
388
69,587
—
(239,109)
—
—
—
—
186
(40,652)
(12,902)
6,366
—
—
—
—
—
402,850
—
—
—
—
22,901
(344)
—
72,174
—
(366,700)
—
—
—
—
—
—
(31,741)
(6,903)
51,545
—
—
—
—
—
615,566
—
—
—
—
— $ 1,579,797
—
$
(379,460)
$
(1,809)
—
—
—
—
—
—
—
—
388
69,587
—
—
—
13,236
—
—
—
388
69,587
13,236
(239,109)
(12,777)
(269,781)
(521,667)
(40,466)
(12,902)
6,366
402,850
—
—
—
—
—
(40,466)
(12,902)
(2,612)
3,754
5,789
561,668
970,307
—
—
—
—
—
—
—
—
—
—
22,901
(344)
264,398
72,174
—
—
—
—
—
47,455
—
—
—
—
—
22,901
(344)
264,398
72,174
47,455
(380,238)
(16,327)
(410,776)
(807,341)
(31,741)
(6,903)
51,545
629,104
—
—
—
—
—
(31,741)
(6,903)
(39,609)
11,936
8,891
805,644
1,443,639
6,579
6,579
10,004
(2,630)
13,953
50
285
50
—
55
105
285
$ 1,462,926
—
(249)
$ 1,294,784
36
$ 2,897,796
$
140,086
Apollo Global Management, LLC Shareholders
Class A
Shares
Class B
Shares
Series A
Preferred
Shares
Balance at December 31, 2017
195,267,669
1
$
264,398
$
Series B
Preferred
Shares
Additional
Paid in
Capital
— $ 1,579,797
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Apollo
Global
Management,
LLC
Shareholders’
Equity
Non-
Controlling
Interests in
Consolidated
Entities
Non-
Controlling
Interests in
Apollo
Operating
Group
Total
Shareholders’
Equity
$
(379,460)
$
(1,809)
$ 1,462,926
$
140,086
$ 1,294,784
$ 2,897,796
Adoption of new accounting
guidance
Dilution impact of issuance of
Class A shares
Equity issued in connection with
Preferred shares offering
—
—
—
—
—
—
—
—
—
—
—
289,815
(34)
113
—
(8,116)
—
—
—
—
—
(8,150)
113
289,815
—
—
—
(11,210)
(19,360)
—
—
113
289,815
Capital increase related to equity-
based compensation
Capital contributions
Distributions
—
—
—
Issuances of Class A shares for
equity-based awards
3,440,447
Repurchase of Class A shares
(2,701,876)
Exchange of AOG Units for Class
A shares
5,394,260
Net income (loss)
Currency translation adjustments,
net of tax
Net gain from change in fair value
of cash flow hedge instruments
Net loss on available-for-sale
securities
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
147,537
—
(17,531)
(14,131)
(406,863)
—
—
—
—
—
—
—
—
—
17,531
14,131
—
—
—
—
—
—
28,740
(43,662)
(90,908)
41,036
—
—
—
—
—
—
(42,038)
—
—
—
Balance at December 31, 2018
201,400,500
1
$
264,398
$
289,815
$ 1,299,418
$
(473,276)
$
—
—
—
—
—
—
—
147,537
—
—
146,465
—
—
147,537
146,465
(438,525)
(31,434)
(441,355)
(911,314)
(14,922)
(90,908)
41,036
—
—
—
—
—
(33,910)
(10,376)
31,648
(2,021)
(14,922)
(90,908)
7,126
19,251
(2,010)
(2,010)
(15,243)
(1,825)
(19,078)
52
52
(392)
(4,159)
(392)
$ 1,376,196
—
—
53
(394)
$
271,522
$
804,122
105
(786)
$ 2,451,840
See
accompanying
notes
to
consolidated
financial
statements.
- 155 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 , 2017 AND 2016
(dollars in thousands, except share data)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity-based compensation
Depreciation and amortization
Unrealized (gains) losses from investment activities
Principal investment income
Performance allocations
Change in fair value of contingent obligations
Gain from remeasurements of tax receivable agreement liability
Deferred taxes, net
Other non-cash amounts included in net income, net
Cash flows due to changes in operating assets and liabilities:
Incentive fees receivable
Due from related parties
Accounts payable and accrued expenses
Accrued compensation and benefits
Deferred revenue
Due to related parties
Profit sharing payable
Other assets and other liabilities, net
Cash distributions of earnings from principal investments
Cash distributions of earnings from performance allocations
Satisfaction of contingent obligations
Apollo Fund and VIE related:
Net realized and unrealized gains from investing activities and debt
Purchases of investments
Proceeds from sale of investments
Changes in other assets and other liabilities, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of fixed assets
Proceeds from sale of investments
Purchase of investments
Purchase of U.S. Treasury securities
Proceeds from maturities of U.S. Treasury securities
Cash contributions to principal investments
Cash distributions from principal investments
Issuance of related party loans
Repayment of related party loans
Other investing activities
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Principal repayments of debt
Issuance of Preferred shares, net of issuance costs
Distributions to Preferred Shareholders
Issuance of debt
Satisfaction of tax receivable agreement
For the Years Ended
December 31,
2018
2017
2016
$
19,251 $
1,443,639 $
970,307
173,228
15,233
191,896
(5,122)
91,450
18,379
(99,376)
(161,630)
400,305
(1,306,193)
(11,166)
(35,405)
79,188
(18,363)
660
(108,684)
2,005
11,109
(13,680)
(5,668)
(224,796)
3,677
66,860
397,432
(6,947)
9,916
(200,240)
314,127
(42)
5,674
(23,184)
11,408
9,720
(43,378)
(6,949)
215,809
(16,543)
65,448
650,457
(23,597)
(40,850)
(9,773)
(479,674)
(709,928)
467,367
(63,597)
562,150
62,508
102,983
18,735
(136,417)
(103,178)
(712,865)
40,424
(3,208)
81,880
(20,989)
6,173
(4,084)
(34,360)
(1,651)
387
(4,281)
227,771
1,250
33,909
142,077
(13,721)
(572)
(581,226)
592,941
(2,500)
$
$
$
$
814,259 $
859,852 $
599,785
(14,741) $
(8,529) $
(6,356)
49,239
(104,786)
(449,865)
423,342
(268,933)
121,555
(3,295)
—
224
—
(12,711)
(363,812)
—
(153,309)
117,577
(6,114)
17,700
(8,621)
—
(46,880)
—
—
(224,946)
102,768
(8,648)
—
281
(247,260) $
(417,819) $
(183,781)
(300,000) $
— $
(200,000)
289,815
(31,662)
303,267
(50,267)
264,398
(13,538)
—
—
—
532,706
(17,895)
—
Purchase of Class A shares
Payments related to deliveries of Class A shares for RSUs
Distributions paid
Distributions paid to Non-Controlling Interests in Apollo Operating Group
Other financing activities
Apollo Fund and VIE related:
Issuance of debt
Principal repayment of debt
Distributions paid to Non-Controlling Interests in consolidated entities
Contributions from Non-Controlling Interests in consolidated entities
(90,908)
(43,662)
(406,863)
(441,355)
(9,637)
—
(92,153)
(25,948)
147,189
(18,463)
(31,741)
(366,700)
(410,776)
(3,471)
553,034
(443,082)
(10,776)
45,375
(13,377)
(40,652)
(239,109)
(269,781)
(13,809)
396,266
(397,275)
(4,326)
13,200
Net Cash Used in Financing Activities
$
(752,184) $
(453,635) $
(236,157)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable
Interest Entities
(185,185)
(11,602)
179,847
Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities,
Beginning of Period
Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities, End of
Period
Supplemental Disclosure of Cash Flow Information:
Interest paid
Interest paid by consolidated variable interest entities
Income taxes paid
Supplemental Disclosure of Non-Cash Investing Activities:
Non-cash contributions to principal investments
Non-cash distributions from principal investments
Non-cash purchases of other investments, at fair value
Non-cash sales of other investments, at fair value
Supplemental Disclosure of Non-Cash Financing Activities:
Capital increases related to equity-based compensation
Issuance of restricted shares
Other non-cash financing activities
Adjustments related to exchange of Apollo Operating Group units:
Deferred tax assets
Due to related parties
Additional paid in capital
Non-Controlling Interest in Apollo Operating Group
Reconciliation of Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest
Entities to the Consolidated Statements of Financial Condition:
Cash and cash equivalents
Restricted cash
Cash held at consolidated variable interest entities
Total Cash and Cash Equivalents, Restricted Cash and Cash and Cash Equivalents Held at Consolidated
Variable Interest Entities
See
accompanying
notes
to
consolidated
financial
statements.
- 156 -
848,060
859,662
679,815
662,875 $
848,060 $
859,662
55,135 $
57,310 $
16,553
10,220
13,207
13,624
— $
— $
(26,465)
194,003
(48,587)
(52,683)
51,248
—
44,524
18,208
8,353
1,231
(13,433)
8,937
—
147,537 $
72,174 $
69,587
28,740
113
—
(345)
45,017 $
56,908 $
(37,891)
(7,126)
33,910
(44,972)
(11,936)
39,609
—
559
7,342
(3,588)
(3,754)
2,612
609,747 $
751,273 $
813,664
3,457
49,671
3,875
92,912
4,680
41,318
662,875 $
848,060 $
859,662
$
$
$
$
$
$
$
Table of Contents
1 . ORGANIZATION
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Apollo Global Management, LLC (“AGM”, together with its consolidated subsidiaries, the “Company” or “Apollo”) is a global alternative investment
manager whose predecessor was founded in 1990. Its primary business is to raise, invest and manage credit, private equity and real assets funds as well as strategic
investment accounts, on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. For these investment
management services, Apollo receives management fees generally related to the amount of assets managed, transaction and advisory fees, incentive fees and
performance allocations related to the performance of the respective funds that it manages. Apollo has three primary business segments:
•
•
•
Credit —primarily invests in non-control corporate and structured debt instruments including performing, stressed and distressed
investments across the capital structure;
Private equity —primarily invests in control equity and related debt instruments, convertible securities and distressed debt
investments; and
Real assets —primarily invests in real estate equity and infrastructure equity for the acquisition and recapitalization of real estate and
infrastructure assets, portfolios, platforms and operating companies, and real estate and infrastructure debt including first mortgage
and mezzanine loans, preferred equity and commercial mortgage backed securities.
Organization of the Company
The Company was formed as a Delaware limited liability company on July 3, 2007 and completed a reorganization of its predecessor businesses on
July 13, 2007 (the “2007 Reorganization”). The Company is managed and operated by its manager, AGM Management, LLC, which in turn is indirectly wholly-
owned and controlled by Leon Black, Joshua Harris and Marc Rowan, its Managing Partners.
As of December 31, 2018 , the Company owned, through six intermediate holding companies that include APO Corp., a Delaware corporation that is a
domestic corporation for U.S. federal income tax purposes, APO Asset Co., LLC, a Delaware limited liability company that is a disregarded entity for U.S. federal
income tax purposes, APO (FC), LLC, an Anguilla limited liability company that is treated as a corporation for U.S. federal income tax purposes, APO (FC II),
LLC, an Anguilla limited liability company that is treated as a corporation for U.S. federal income tax purposes, APO UK (FC), Limited, a United Kingdom
incorporated company that is treated as a corporation for U.S. federal income tax purposes, and APO (FC III), LLC, a Cayman Islands limited liability company
(collectively, the “Intermediate Holding Companies”), 49.9% of the economic interests of, and operated and controlled all of the businesses and affairs of, the
Apollo Operating Group through its wholly-owned subsidiaries.
AP Professional Holdings, L.P., a Cayman Islands exempted limited partnership (“Holdings”), is the entity through which the Managing Partners and
certain of the Company’s other partners (the “Contributing Partners”) indirectly beneficially own interests in each of the entities that comprise the Apollo
Operating Group (“AOG Units”). As of December 31, 2018 , Holdings owned the remaining 50.1% of the economic interests in the Apollo Operating Group. The
Company consolidates the financial results of the Apollo Operating Group and its consolidated subsidiaries. Holdings’ ownership interest in the Apollo Operating
Group is reflected as a Non-Controlling Interest in the accompanying consolidated financial statements.
2 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of
America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries, the
consolidated entities which are considered to be variable interest entities (“VIEs”) and for which the Company is considered the primary beneficiary, and certain
entities which are not considered VIEs but which the Company controls through a majority voting interest. Intercompany accounts and transactions, if any, have
been eliminated upon consolidation.
Certain reclassifications, when applicable, have been made to the prior periods’ consolidated financial statements and notes to conform to the current
period’s presentation and are disclosed accordingly.
- 157 -
Table of Contents
Consolidation
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The types of entities with which Apollo is involved generally include subsidiaries (e.g., general partners and management companies related to the
funds the Company manages), entities that have all the attributes of an investment company (e.g., funds) and securitization vehicles (e.g., CLOs). Each of these
entities is assessed for consolidation on a case by case basis depending on the specific facts and circumstances surrounding that entity.
Pursuant to the consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. Fees that are customary and
commensurate with the level of services provided, and where the Company does not hold other economic interests in the entity that would absorb more than an
insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. Apollo factors in all economic interests including
proportionate interests through related parties, to determine if such interests are considered a variable interest. As Apollo’s interests in many of these entities are
solely through market rate fees and/or insignificant indirect interests through related parties, Apollo is not considered to have a variable interest in many of these
entities and no further consolidation analysis is performed. For entities where the Company has determined that it does hold a variable interest, the Company
performs an assessment to determine whether each of those entities qualify as a VIE.
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of
Apollo’s funds may qualify as VIEs under the variable interest model whereas others may qualify as voting interest entities (“VOEs”) under the voting interest
model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not
that entity should be consolidated.
Under the variable interest model, Apollo consolidates those entities where it is determined that the Company is the primary beneficiary of the entity.
The Company is determined to be the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power
to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to
receive benefits from the VIE that could potentially be significant to the VIE. When Apollo alone is not considered to have a controlling financial interest in the
VIE but Apollo and its related parties under common control in the aggregate have a controlling financial interest in the VIE, Apollo will be deemed the primary
beneficiary if it is the party that is most closely associated with the VIE. When Apollo and its related parties not under common control in the aggregate have a
controlling financial interest in the VIE, Apollo would be deemed to be the primary beneficiary if substantially all the activities of the entity are performed on
behalf of Apollo.
Apollo determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion
continuously. Investments and redemptions (either by Apollo, related parties of Apollo or third parties) or amendments to the governing documents of the
respective entity may affect an entity’s status as a VIE or the determination of the primary beneficiary.
Assets and liabilities of the consolidated VIEs are primarily shown in separate sections within the consolidated statements of financial condition.
Changes in the fair value of the consolidated VIEs’ assets and liabilities and related interest, dividend and other income and expenses are presented within net gains
from investment activities of consolidated variable interest entities in the consolidated statements of operations. The portion attributable to Non-Controlling
Interests is reported within net income attributable to Non-Controlling Interests in the consolidated statements of operations. For additional disclosures regarding
VIEs, see note 6 .
Under the voting interest model, Apollo consolidates those entities it controls through a majority voting interest. Apollo does not consolidate those
VOEs in which substantive kick-out rights have been granted to the unrelated investors to either dissolve the fund or remove the general partner.
Cash and Cash Equivalents
Apollo considers all highly liquid short-term investments with original maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents include money market funds and U.S. Treasury securities with original maturities of three months or less when purchased. Interest income
from cash and cash equivalents is recorded in interest income in the consolidated statements of operations. The carrying values of the money market funds and U.S.
Treasury securities were $231.8 million and $404.7 million as of December 31, 2018 and 2017 , respectively, which approximate their fair values due to their
short-term nature and are categorized as Level I within the fair value hierarchy. Substantially all of the Company’s cash on deposit is in interest bearing accounts
with major financial institutions and exceed insured limits.
- 158 -
Table of Contents
Restricted Cash
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Restricted Cash represents cash deposited at a bank, which is pledged as collateral in connection with leased premises.
U.S. Treasury securities, at fair value
U.S. Treasury securities, at fair value includes U.S. Treasury bills with original maturities greater than three months when purchased. These securities
are recorded at fair value. Interest income on such securities is separately presented from the overall change in fair value and is recognized in interest income in the
consolidated statements of operations. Any remaining change in fair value of such securities, that is not recognized as interest income, is recognized in net gains
(losses) from investment activities in the consolidated statements of operations.
Fair Value of Financial Instruments
Apollo has elected the fair value option for the Company’s investment in Athene Holding, the assets and liabilities of certain of its consolidated VIEs
(including CLOs), the Company’s U.S. Treasury securities with original maturities greater than three months when purchased, and certain of the Company’s other
investments. Such election is irrevocable and is applied to financial instruments on an individual basis at initial recognition.
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date under current market conditions.
Except for the Company’s debt obligations, financial instruments are generally recorded at fair value or at amounts whose carrying values approximate
fair value. The actual realized gains or losses will depend on, among other factors, future operating results, the value of the assets and market conditions at the time
of disposition, any related transaction costs and the timing and manner of sale, all of which may ultimately differ significantly from the assumptions on which the
valuations were based.
Fair Value Hierarchy
U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring
financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics
specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial
instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment
used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of
fair values, as follows:
Level
I
- Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial
instruments included in Level I include listed equities and debt. The Company does not adjust the quoted price for these financial instruments, even in
situations where the Company holds a large position and the sale of such position would likely deviate from the quoted price.
Level
II
- Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date,
and fair value is determined through the use of models or other valuation methodologies. Financial instruments that are generally included in this category
include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives where the fair value is based on
observable inputs. These financial instruments exhibit higher levels of liquid market observability as compared to Level III financial instruments.
Level
III
- Pricing inputs are unobservable for the financial instrument and includes situations where there is little observable market activity for
the financial instrument. The inputs into the determination of fair value may require significant management judgment or estimation. Financial
instruments that are included in this category generally include general and limited partner interests in corporate private equity and real assets funds,
opportunistic credit funds, distressed debt and non-investment grade residual interests in securitizations and CDOs and CLOs where the fair value is based
on observable inputs as well as unobservable inputs.
- 159 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
When a security is valued based on broker quotes, the Company subjects those quotes to various criteria in making the determination as to whether a
particular financial instrument would qualify for classification as Level II or Level III. These criteria include, but are not limited to, the number and quality of the
broker quotes, the standard deviations of the observed broker quotes, and the percentage deviation from independent pricing services.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s
level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument when the
fair value is based on unobservable inputs.
Equity Method Investments
For investments in entities over which the Company exercises significant influence but which do not meet the requirements for consolidation and for
which the Company has not elected the fair value option, the Company uses the equity method of accounting, whereby the Company records its share of the
underlying income or loss of such entities. The Company’s share of the underlying net income or loss of such entities is recorded in principal investment income in
the consolidated statements of operations.
The carrying amounts of equity method investments are recorded in investments in the consolidated statements of financial condition. As the
underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at
estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value.
Financial Instruments held by Consolidated VIEs
The Company measures both the financial assets and financial liabilities of the consolidated CLOs in its consolidated financial statements using the
fair value of the financial assets of the consolidated CLOs, which are more observable than the fair value of the financial liabilities of the consolidated CLOs. As a
result, the financial assets of the consolidated CLOs are measured at fair value and the financial liabilities are measured in consolidation as: (i) the sum of the fair
value of the financial assets and the carrying value of any non-financial assets that are incidental to the operations of the CLOs less (ii) the sum of the fair value of
any beneficial interests retained by the Company (other than those that represent compensation for services) and the Company’s carrying value of any beneficial
interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interest retained
by the Company) using a reasonable and consistent methodology. Under the measurement alternative, net income attributable to Apollo Global Management, LLC
reflects the Company’s own economic interests in the consolidated CLOs including (i) changes in the fair value of the beneficial interests retained by the Company
and (ii) beneficial interests that represent compensation for collateral management services.
The consolidated VIEs hold investments that could be traded over-the-counter. Investments in securities that are traded on a securities exchange or
comparable over-the-counter quotation systems are valued based on the last reported sale price at that date. If no sales of such investments are reported on such
date, and in the case of over-the-counter securities or other investments for which the last sale date is not available, valuations are based on independent market
quotations obtained from market participants, recognized pricing services or other sources deemed relevant, and the prices are based on the average of the “bid”
and “ask” prices, or at ascertainable prices at the close of business on such day. Market quotations are generally based on valuation pricing models or market
transactions of similar securities adjusted for security-specific factors such as relative capital structure priority and interest and yield risks, among other factors.
When market quotations are not available, a model based approach is used to determine fair value.
Due from/to Related Parties
Due from/to related parties includes Apollo’s existing partners, employees, certain former employees, portfolio companies of the funds and
nonconsolidated credit, private equity and real assets funds. See note 14 for further disclosure of transactions with related parties.
Fixed Assets
Fixed assets consist primarily of leasehold improvements, furniture, fixtures, equipment, and computer hardware and are recorded at cost, net of
accumulated depreciation and amortization. Depreciation and amortization is calculated using the
- 160 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
straight-line method over the assets’ estimated useful lives and in the case of leasehold improvements the lesser of the useful life or the term of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred. The Company evaluates long-lived assets for impairment periodically and
whenever events or changes in circumstances indicate the carrying amounts of the assets may be impaired.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is
allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration
obligations that are elements of the consideration transferred are recognized as of the acquisition date as part of the fair value transferred in exchange for the
acquired business. Acquisition-related costs incurred in connection with a business combination are expensed as incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of identifiable net assets of an acquired business. Goodwill and other indefinite lived
intangible assets are tested annually for impairment or more frequently if circumstances indicate impairment may have occurred.
The Company performed its annual goodwill impairment test as of October 1, 2018 and 2017 and did not identify any impairment.
Finite-lived intangible assets such as contractual rights to earn future management fees and incentive fees acquired in business combinations are
amortized over their estimated useful lives, which are periodically re-evaluated for impairment or when circumstances indicate an impairment may have occurred.
Apollo amortizes its identifiable finite-lived intangible assets using a method of amortization reflecting the pattern in which the economic benefits of the finite-
lived intangible assets are consumed or otherwise used up. If that pattern cannot be reliably determined, Apollo uses the straight-line method of amortization.
Deferred Revenue
Apollo records deferred revenue, which is a type of contract liability, when consideration is received in advance of management services provided.
Apollo also earns management fees subject to the Management Fee Offset (described below). When advisory and transaction fees are earned by the
management company, the Management Fee Offset reduces the management fee obligation of the fund. When the Company receives cash for advisory and
transaction fees, a certain percentage of such advisory and/or transaction fees, as applicable, is allocated as a credit to reduce future management fees, otherwise
payable by such fund. Such credit is recorded as deferred revenue in the consolidated statements of financial condition. A portion of any excess advisory and
transaction fees may be required to be returned to the limited partners of certain funds upon such fund’s liquidation. As the management fees earned by the
Company are presented on a gross basis, any Management Fee Offsets calculated are presented as a reduction to advisory and transaction fees in the consolidated
statements of operations.
Additionally, Apollo earns advisory fees pursuant to the terms of the advisory agreements with certain of the portfolio companies that are owned by
the funds Apollo manages. When Apollo receives a payment from a portfolio company that exceeds the advisory fees earned at that point in time, the excess
payment is recorded as deferred revenue in the consolidated statements of financial condition. The advisory agreements with the portfolio companies vary in
duration and the associated fees are received monthly, quarterly or annually. Deferred revenue is reversed and recognized as revenue over the period that the
agreed upon services are performed. There was $121.4 million of revenue recognized during the year ended December 31, 2018 that was previously deferred as of
January 1, 2018.
Under the terms of the funds’ partnership agreements, Apollo is normally required to bear organizational expenses over a set dollar amount and
placement fees or costs in connection with the offering and sale of interests in the funds it manages to investors. The placement fees are payable to placement
agents, who are independent third parties that assist in identifying potential investors, securing commitments to invest from such potential investors, preparing or
revising offering and marketing materials, developing strategies for attempting to secure investments by potential investors and/or providing feedback and insight
regarding issues and concerns of potential investors, when a limited partner either commits or funds a commitment to a fund. In certain instances the placement
fees are paid over a period of time. Based on the management agreements with the funds, Apollo considers placement fees and organizational costs paid in
determining if cash has been received in excess of the management fees
- 161 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
earned. Placement fees and organizational costs are normally the obligation of Apollo but can be paid for by the funds. When these costs are paid by the fund, the
resulting obligations are included within deferred revenue. The deferred revenue balance will also be reduced during future periods when management fees are
earned but not paid.
Debt Issuance Costs
Debt issuance costs consist of costs incurred in obtaining financing and are amortized over the term of the financing using the effective interest
method. These costs are generally recorded as a direct deduction from the carrying amount of the related debt liability on the consolidated statements of financial
condition.
Foreign Currency
The Company may, from time to time, hold foreign currency denominated assets and liabilities. The functional currency of the Company’s
international subsidiaries is generally the U.S. Dollar, as their operations are considered an extension of U.S. parent operations. Nonmonetary assets and liabilities
of the Company’s international subsidiaries are remeasured into the functional currency using historical exchange rates specific to each asset and liability, the
exchange rates prevailing at the end of each reporting period is used for all others. The results of the Company’s foreign operations are normally remeasured using
an average exchange rate for the respective reporting period. Currency remeasurement adjustments are included within other income, net in the consolidated
statements of operations. Gains and losses on the settlement of foreign currency transactions are also included within other income, net in the consolidated
statements of operations. Foreign currency denominated assets and liabilities are translated into the reporting currency using the exchange rates prevailing at the
end of each reporting period. The results of the Company’s foreign operations are normally translated using an average exchange rate for the respective reporting
period. Currency translation adjustments are included within other comprehensive income (loss), net of tax within the consolidated statements of comprehensive
income.
Revenues
The Company’s revenues are reported in four separate categories that include (i) management fees; (ii) advisory and transaction fees, net; (iii)
investment income, which is comprised of performance allocations and principal investment income; and (iv) incentive fees.
On January 1, 2018, the Company adopted new revenue guidance issued by the FASB for recognizing revenue from contracts with customers. The
new revenue guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services (i.e., the transaction price). When determining the transaction
price under the new revenue guidance, an entity may recognize variable consideration only to the extent that it is probable to not be significantly reversed. The new
revenue guidance also requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue
that is recognized.
The Company has concluded that its management fees, advisory and transaction fees, and incentive fees are within the scope of the new revenue
guidance. For incentive fees, the new revenue guidance delays the timing of certain revenues compared to the prior accounting treatment. These amounts were
previously recognized in carried interest income in the consolidated statements of operations and are now recognized within a separate line, incentive fees.
Effective January 1, 2018, the Company implemented a change in accounting principle for performance allocations to be accounted for under guidance
applicable to equity method investments, and therefore not within the scope of the new revenue guidance. The accounting change does not change the timing or
amount of revenue recognized related to performance allocation arrangements. These amounts were previously recognized within carried interest income in the
consolidated statements of operations and carried interest receivable within the consolidated statements of financial condition. As a result of the change in
accounting principle, the Company recognizes performance allocations within investment income along with the related principal investment income (as further
described below) in the consolidated statements of operations and within the investments line in the consolidated statements of financial condition. The Company
applied this change in accounting principle on a full retrospective basis.
The new revenue guidance was adopted on a modified retrospective basis. The adoption of the new revenue guidance did not have a material impact
on the Company. In connection with the adoption of the new revenue guidance, the Company recorded a cumulative effect adjustment to total shareholders’ equity
as of January 1, 2018 in the amount of $19.4 million net of taxes. Prior periods have not been recast to reflect the new revenue guidance. Accordingly, prior
periods reflect recognition under
- 162 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
the previous guidance whereby incentive fees were recorded on an assumed liquidation basis at each reporting date. Refer to disclosures below for additional
information on each of the Company’s revenue streams.
Management Fees
Management fees are recognized over time during the periods in which the related services are performed in accordance with the contractual terms of
the related agreement. Management fees are generally based on (1) a percentage of the capital committed during the commitment period, and thereafter based on
the remaining invested capital of unrealized investments, or (2) net asset value, gross assets or as otherwise defined in the respective agreements. Included in
management fees are certain expense reimbursements where the Company is considered the principal under the agreements and is required to record the expense
and related reimbursement revenue on a gross basis.
Advisory and Transaction Fees, Net
Advisory fees, including management consulting fees and directors’ fees, are generally recognized over time as the underlying services are provided in
accordance with the contractual terms of the related agreement. The Company receives such fees in exchange for ongoing management consulting services
provided to portfolio companies of funds it manages. Transaction fees, including structuring fees and arranging fees are generally recognized at a point in time
when the underlying services rendered are complete.
The amounts due from fund portfolio companies are recorded in due from related parties, which is discussed further in note 14 . Under the terms of the
limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such
advisory and transaction fees, net of applicable broken deal costs (“Management Fee Offset”). Advisory and transaction fees are presented net of the Management
Fee Offset in the consolidated statements of operations.
Underwriting fees, which are also included within advisory and transaction fees, net, include gains, losses and fees, arising from securities offerings in
which one of the Company’s subsidiaries participates in the underwriter syndicate. Underwriting fees are recognized at a point in time when the underwriting is
completed. Underwriting fees recognized but not received are recorded in other assets on the consolidated statements of financial condition.
During the normal course of business, the Company incurs certain costs related to certain transactions that are not consummated (“broken deal costs”).
These costs (e.g., research costs, due diligence costs, professional fees, legal fees and other related items) are determined to be broken deal costs upon
management’s decision to no longer pursue the transaction. In accordance with the related fund agreement, in the event the deal is deemed broken, all of the costs
are reimbursed by the funds and then included as a component of the calculation of the Management Fee Offset. If a deal is successfully completed, Apollo is
reimbursed by the fund or fund’s portfolio company for all costs incurred and no offset is generated. As the Company acts as an agent for the funds it manages, any
transaction costs incurred and paid by the Company on behalf of the respective funds relating to successful or broken deals are recorded net on the Company’s
consolidated statements of operations, and any receivable from the respective funds is recorded in due from related parties on the consolidated statements of
financial condition.
Investment Income
Investment income is comprised of performance allocations and principal investment income.
Performance Allocations
Performance allocations are a type of performance revenue (i.e., income earned based on the extent to which an entity’s performance exceeds
predetermined thresholds). Performance allocations are generally structured from a legal standpoint as an allocation of capital in which the Company’s capital
account receives allocations of the returns of an entity when those returns exceed predetermined thresholds. The determination of which performance revenues are
considered performance allocations is primarily based on the terms of an agreement with the entity.
As noted above, as a result of a change in accounting principle, the Company recognizes performance allocations within investment income along with
the related principal investment income (as described further below) in the consolidated statements of operations and within the investments line in the
consolidated statements of financial condition.
- 163 -
Table of Contents
Principal Investment Income
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Principal investment income includes the Company’s income or loss from equity method investments and certain other investments in entities in which
the Company is generally eligible to receive performance allocations. Income from equity method investments includes the Company’s share of net income or loss
generated from its investments, which are not consolidated, but in which the Company exerts significant influence. Prior to the change in accounting principle
noted above, income from equity method investments was included within other income (loss) in the consolidated statements of operations. All prior periods have
been conformed to reflect this change in presentation.
Incentive Fees
Incentive fees are a type of performance revenue. Incentive fees differ from performance allocations in that incentive fees do not represent an
allocation of capital but rather a contractual fee arrangement with the entity.
Incentive fees are considered a form of variable consideration under the new revenue recognition guidance as they are subject to clawback or reversal
and therefore must be deferred until the fees are probable to not be significantly reversed. Accrued but unpaid incentive fees are reported within incentive fees
receivable in the Company’s consolidated statements of financial condition. As noted earlier, prior to the adoption of the new revenue recognition guidance,
incentive fees were recognized on an assumed liquidation basis. The Company’s incentive fees primarily relate to the credit segment and are generally received
from CLOs, managed accounts and AINV.
Compensation and Benefits
Salaries, Bonus and Benefits
Salaries, bonus and benefits include base salaries, discretionary and non-discretionary bonuses, severance and employee benefits. Bonuses are
generally accrued over the related service period.
Equity-Based Compensation
Equity-based awards granted to employees and non-employees as compensation are measured based on the grant date fair value of the award. Equity-
based awards that do not require future service (i.e., vested awards) are expensed immediately. Equity-based employee awards that require future service are
expensed over the relevant service period. In addition, certain restricted share units (“RSUs”) granted by the Company vest based on both continued service and the
Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-based compensation expense. In accordance with
U.S. GAAP, equity-based compensation expense for such awards, if and when granted, will be recognized on an accelerated recognition method over the requisite
service period to the extent the performance revenue metrics are met or deemed probable. The Company accounts for forfeitures of equity-based awards when they
occur.
Profit Sharing
Profit sharing expense and profit sharing payable primarily consist of a portion of performance revenues earned from certain funds that are allocated to
employees, former employees and Contributing Partners. Profit sharing amounts are recognized as the related performance revenues are earned. Accordingly,
profit sharing amounts can be reversed during periods when there is a decline in performance revenues that were previously recognized.
Profit sharing amounts are generally not paid until the related performance revenue is distributed to the general partner upon realization of the fund’s
investments. Under certain profit sharing arrangements, the Company requires that a portion of certain of the performance revenues distributed to our employees be
used to purchase Class A restricted shares issued under the Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Equity Plan”). Prior to distribution of the
performance revenue, the Company records the value of the equity-based awards expected to be granted in other assets and other liabilities within the consolidated
statements of financial condition. Such equity-based awards are recorded as equity-based compensation expense over the relevant service period once granted.
Additionally, profit sharing amounts previously distributed may be subject to clawback from employees, former employees and Contributing Partners.
When applicable, the accrual for potential clawback of previously distributed profit sharing amounts, which is a component of due from related parties on the
consolidated statements of financial condition, represents all amounts previously distributed to employees, former employees and Contributing Partners that would
need to be returned to the
- 164 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
general partner if the Apollo funds were to be liquidated based on the fair value of the underlying funds’ investments as of the reporting date. The actual general
partner receivable, however, would not become realized until the end of a fund’s life.
Profit sharing payable also includes contingent consideration obligations that were recognized in connection with certain Apollo acquisitions. Changes
in the fair value of the contingent consideration obligations are reflected in the Company’s consolidated statements of operations as profit sharing expense.
The Company has a performance-based incentive arrangement for certain Apollo partners and employees designed to more closely align compensation
on an annual basis with the overall realized performance of the Company. This arrangement enables certain partners and employees to earn discretionary
compensation based on performance revenue earned by the Company in a given year, which amounts are reflected in profit sharing expense in the accompanying
consolidated financial statements.
401(k) Savings Plan
The Company sponsors a 401(k) savings plan (the “401(k) Plan”) whereby U.S.-based employees are entitled to participate in the 401(k) Plan based
upon satisfying certain eligibility requirements. The Company matches 50% of eligible annual employee contributions up to 3% of the eligible employees’ annual
compensation. Matching contributions vest after three years of service.
General, Administrative and Other
General, administrative and other primarily includes professional fees, occupancy, depreciation and amortization, travel, information technology and
administration expenses. For the year ended December 31, 2016, presentation of professional fees, occupancy, and depreciation and amortization was combined
with general, administrative and other on the consolidated statements of operations.
Other Income (Loss)
Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities include both realized gains and losses and the change in unrealized gains and losses in the Company’s
investments, at fair value between the opening reporting date and the closing reporting date.
Net Gains from Investment Activities of Consolidated Variable Interest Entities
Changes in the fair value of the consolidated VIEs’ assets and liabilities and related interest, dividend and other income and expenses are presented
within net gains from investment activities of consolidated variable interest entities and are attributable to Non-Controlling Interests in the consolidated statements
of operations.
Other Income, Net
Other income, net includes the recognition of gains (losses) arising from the remeasurement of foreign currency denominated assets and liabilities,
gains arising from the remeasurement of the tax receivable agreement liability (see note 14 ), and other miscellaneous non-operating income and expenses.
Income Taxes
The Apollo Operating Group and its subsidiaries generally operate as partnerships for U.S. Federal income tax purposes. As a result, except as
described below, the Apollo Operating Group has not been subject to U.S. income taxes. However, certain of these entities are subject to New York City
unincorporated business taxes (“NYC UBT”) and certain non-U.S. entities are subject to non-U.S. corporate income taxes. In addition, certain consolidated entities
are corporations for U.S. and non-U.S. tax purposes and therefore subject to U.S. federal, state and local corporate income tax.
Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties. The Company
recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on the technical merits of the position. The tax benefit is measured as the largest amount of benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement. If a tax position is not considered more likely than not to be sustained, then no benefits of
the
- 165 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
position are recognized. The Company’s tax positions are reviewed and evaluated quarterly to determine whether or not the Company has uncertain tax positions
that require financial statement recognition.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amount of assets and
liabilities and their respective tax basis using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
Non-Controlling Interests
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than
Apollo. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included in Non-Controlling Interests in the
consolidated financial statements. The Non-Controlling Interests relating to Apollo Global Management, LLC primarily include the ownership interest in the
Apollo Operating Group held by the Managing Partners and Contributing Partners through their limited partner interests in Holdings and other ownership interests
in consolidated entities. Non-Controlling Interests also include limited partner interests of Apollo managed funds in certain consolidated VIEs.
Non-Controlling Interests are presented as a separate component of shareholders’ equity on the Company’s consolidated statements of financial
condition. The primary components of Non-Controlling Interests are separately presented in the Company’s consolidated statements of changes in shareholders’
equity to clearly distinguish the interest in the Apollo Operating Group and other ownership interests in the consolidated entities. Net income includes the net
income attributable to the holders of Non-Controlling Interests on the Company’s consolidated statements of operations. Profits and losses are allocated to Non-
Controlling Interests in proportion to their relative ownership interests regardless of their basis.
Net Income Per Class A Share
As Apollo has issued participating securities, U.S. GAAP requires use of the two-class method of computing earnings per share for all periods
presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during
periods of net income, the net income is first reduced for distributions declared on all classes of securities to arrive at undistributed earnings. During periods of net
losses, the net loss is reduced for distributions declared on participating securities only if the security has the right to participate in the earnings of the entity and an
objectively determinable contractual obligation to share in net losses of the entity. Participating securities include vested and unvested RSUs that participate in
distributions, as well as unvested restricted shares.
Whether during a period of net income or net loss, under the two-class method the remaining earnings are allocated to Class A shares and participating
securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Earnings or losses allocated to each class of
security are then divided by the applicable weighted average outstanding shares to arrive at basic earnings per share. For the diluted earnings, the denominator
includes all outstanding Class A shares and includes the number of additional Class A shares that would have been outstanding if the dilutive potential Class A
shares had been issued. The numerator is adjusted for any changes in income or loss that would result from the issuance of these potential Class A shares.
Comprehensive Income (Loss)
U.S. GAAP guidance establishes standards for reporting comprehensive income and its components in a financial statement that is displayed with the
same prominence as other financial statements. U.S. GAAP requires that the Company classify items of other comprehensive income (loss) (“OCI”) by their nature
in the financial statements and display the accumulated balance of OCI separately in the shareholders’ equity section of the Company’s consolidated statements of
financial condition. Comprehensive income (loss) consists of net income and OCI. Apollo’s OCI is primarily comprised of foreign currency translation adjustments
associated with the Company's non-U.S. dollar denominated subsidiaries.
Use of Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting periods. Apollo’s most significant estimates include goodwill, intangible assets,
income taxes,
- 166 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
performance allocations, incentive fees, contingent consideration obligation related to an acquisition, non-cash compensation, and fair value of investments and
debt. Actual results could differ materially from those estimates.
Recent Accounting Pronouncements
Recently Issued Accounting Standards Adopted in 2018
In November 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to reduce diversity in practice in the classification and
presentation of changes in restricted cash on the statements of cash flows. The new guidance requires that a statement of cash flows explain the change during the
period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Entities are also required to reconcile such total to amounts on the
Company’s consolidated statements of financial condition and disclose the nature of the restrictions. The Company adopted the standard beginning January 1, 2018
using a retrospective transition method to each period presented. Upon adoption of this standard restricted, cash and cash and cash equivalents held at consolidated
VIEs are included within the beginning of period and end of period balances in the Company’s consolidated statements of cash flows. Refer to the Company’s
consolidated statements of cash flows for the impact of this standard.
In January 2017, the FASB issued guidance that changes the definition of a business with the objective of adding guidance to assist companies with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted the standard beginning
January 1, 2018. The adoption of this standard did not have an impact on the consolidated financial statements of the Company.
In June 2018, the FASB issued guidance which generally aligns the measurement and classification for share-based payments to non-employees with
the accounting guidance for share-based payments to employees. Among other requirements, the new guidance requires equity-classified non-employee share-
based payment awards to be measured at the grant date, rather than remeasured to fair value at the end of each reporting period. The guidance is effective for public
business entities on January 1, 2019, however early adoption is permitted. The Company early adopted this standard retroactive to January 1, 2018 and the impact
of this guidance was not material to the consolidated financial statements.
In August 2018, the FASB issued guidance which changes the fair value disclosure requirements. The guidance includes new fair value disclosure
requirements and eliminates and modifies certain other fair value disclosure requirements. Among other requirements, the guidance requires the following new
disclosures: (i) disclosure of changes in unrealized gains or losses included in other comprehensive income for recurring Level III fair value measurements held at
the end of the reporting period and (ii) a description of how the weighted average used to develop significant unobservable inputs for Level III fair value
measurements was calculated. The guidance eliminates the following disclosure requirements: (i) disclosure of the amount and reason for transfers between Level I
and Level II and (ii) disclosure of the policy for timing of transfers between levels of the fair value hierarchy. The guidance is effective for all entities for interim
and annual periods beginning after December 15, 2019. Early adoption is permitted for any eliminated or modified disclosure requirements upon issuance of the
guidance. The Company early adopted the eliminated and modified disclosure requirements upon issuance of the guidance during the three month period ended
September 30, 2018 and will adopt the new disclosure requirements upon their effective date. Eliminated disclosures have been applied retroactively to all periods
presented.
Recently Issued Accounting Standards Effective on January 1, 2019
In February 2016, the FASB issued guidance that amends the accounting for leases. The amended guidance requires recognition of a right-of-use lease
asset and a lease liability by lessees for leases classified as operating leases. The lease liability represents the aggregate discounted amount of the Company’s
minimum future lease payments under lease obligations. The right-of-use asset represents the right to use the underlying asset over the lease term. The Company
will adopt the guidance in the first quarter of 2019 under the simplified transition method. The simplified transition method allows companies to forgo the
comparative reporting requirements initially required under the modified retrospective transition approach and apply the new guidance prospectively. The
Company expects to elect to use the practical expedients under which the Company would not need to reassess whether an arrangement is or contains a lease, lease
classification, and the accounting for initial direct costs. The Company does not expect the adoption to have a material impact on the consolidated statements of
operations because the Company’s leases are classified as operating leases, which under the guidance will continue to be recognized as expense on a straight-line
basis. The adoption, however, will result in an increase in total assets and total liabilities on the consolidated statements of financial condition. As of December 31,
2018, the lease liability is estimated to be between approximately $110 million to $125 million which is the primary determinant of the right-of-use lease asset. The
Company also has additional operating leases for office space that have not yet commenced as of December 31, 2018, which include additional undiscounted
minimum future lease payments of
- 167 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
approximately $331 million . These operating leases are expected to commence between fiscal year 2019 and fiscal year 2021 with lease terms of approximately 15
years .
Recently Issued Accounting Standards Effective on January 1, 2020
In January 2017, the FASB issued guidance to simplify the test for goodwill impairment. The new guidance removes the requirement to perform a
hypothetical purchase price allocation to measure goodwill impairment (Step 2). Under the new guidance, a goodwill impairment is calculated as the amount by
which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in the reporting unit. The guidance is effective for
annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be performed prospectively. Early adoption is
permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The guidance is not expected to have a material impact on the
consolidated financial statements of the Company.
3 . GOODWILL AND INTANGIBLE ASSETS
The carrying value of goodwill was $88.9 million as of December 31, 2018 and 2017 . Goodwill primarily relates to the 2007 Reorganization and the
Company’s acquisition of Stone Tower Capital LLC and its related management companies (“Stone Tower”) in 2012. As of December 31, 2018 and 2017 , there
was, $64.8 million , $23.1 million and $1.0 million of goodwill related to the credit, private equity and real asset segments, respectively.
Intangible assets, net consists of the following:
Finite-lived intangible assets/management contracts
Accumulated amortization
Intangible assets, net
As of December 31,
2018
2017
$
$
254,295 $
(235,396)
18,899 $
248,609
(229,767)
18,842
The changes in intangible assets, net consist of the following and includes approximately $1.0 million of indefinite-lived intangible assets as of both
December 31, 2018 and 2017 .
Balance, beginning of year
Amortization expense
Acquisitions / additions
Balance, end of year
For the Years Ended December 31,
2018
2017
2016
$
$
18,842 $
(5,629)
5,686
18,899 $
22,721 $
(6,428)
2,549
18,842 $
28,620
(9,095)
3,196
22,721
Expected amortization of these intangible assets for each of the next 5 years and thereafter is as follows:
Amortization of intangible assets
$
6,507 $
6,174 $
3,976 $
1,103 $
108 $
71 $
17,939
2019
2020
2021
2022
2023
Thereafter
Total
There was no impairment of indefinite lived intangible assets as of December 31, 2018 and 2017 .
4 . INVESTMENTS
The following table represents Apollo’s investments:
Investments, at fair value
Equity method investments
Performance allocations
Total Investments
As of
December 31, 2018
As of
December 31, 2017
900,959 $
909,471
912,182
2,722,612 $
866,998
863,906
1,828,930
3,559,834
$
$
- 168 -
Table of Contents
Investments, at Fair Value
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Investments, at fair value, consist of investments for which the fair value option has been elected and primarily include the Company’s investment in
Athene Holding and investments in debt of unconsolidated CLOs. Changes in the fair value related to these investments are presented in net gains (losses) from
investment activities except for certain investments for which the Company is entitled to receive performance allocations. For those investments, changes in fair
value are presented in principal investment income.
The Company’s equity investment in Athene Holding, for which the fair value option was elected, met the significance criteria as defined by the SEC
as of December 31, 2018 and 2017 . As such, the following tables present summarized financial information of Athene Holding:
Statements of Financial Condition
Investments
Assets
Liabilities
Equity
Statements of Operations
Revenues
Expenses
Income before income tax provision (benefit)
Income tax provision (benefit)
Net income
Net Gains (Losses) from Investment Activities
As of December 31,
2018
2017
(in millions)
$
89,340 $
125,505
117,229
8,276
For the Years Ended December 31,
2018
2017
2016
$
$
6,543 $
5,368
1,175
122
1,053 $
8,727 $
7,263
1,464
106
1,358 $
82,062
100,161
90,985
9,176
4,105
3,393
712
(61)
773
The following table presents the realized and net change in unrealized gains (losses) reported in net gains (losses) from investment activities:
Realized gains on sales of investments, net
Net change in unrealized gains (losses) due to changes in fair value
Net gains (losses) from investment activities
$
$
67 $
(186,516)
(186,449) $
103 $
95,001
95,104 $
400
139,321
139,721
For the Years Ended December 31,
2018
2017
2016
Equity Method Investments
Apollo’s equity method investments include its investments in the credit, private equity and real assets funds it manages, which are not consolidated,
but in which the Company exerts significant influence. Apollo’s share of net income generated by these investments is recorded in principal investment income in
the consolidated statements of operations.
- 169 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Equity method investments consisted of the following:
Credit (2)
Private Equity (1)
Real Assets
Total equity method investments (3)
Equity Held as of
December 31, 2018
December 31, 2017
(4)
(4)
$
$
396,384
$
473,657
39,430
909,471
$
325,267
509,707
28,932
863,906
(1)
(2)
The equity method investment in Fund VIII was $356.6 million and $385.7 million as of December 31, 2018 and 2017 , respectively, representing an ownership
percentage of 2.2% and 2.2% as of December 31, 2018 and 2017 , respectively.
The equity method investment in AINV was $53.9 million and $56.5 million as of December 31, 2018 and 2017 , respectively. The value of the Company’s investment in
AINV was $36.7 million and $50.2 million based on the quoted market price of AINV as of December 31, 2018 and 2017 , respectively.
(3) Certain funds invest across multiple segments. The presentation in the table above is based on the classification of the majority of such funds’ investments.
(4)
Some amounts included are a quarter in arrears.
The tables below present summarized financial information of the Company’s equity method investments in aggregate:
Credit
As of
December 31,
Private Equity
As of
December 31,
Real Assets
As of
December 31,
Aggregate Totals
As of
December 31,
Statement of Financial Condition
Investments
Assets
Liabilities
Equity
$
2018 (1)
35,114,212 $
38,570,948
18,583,397
19,987,551
2017 (1)
22,829,749 $
25,300,139
5,819,426
19,480,713
2018 (1)
2017 (1)
23,479,794
$
26,967,402
$
24,498,401
27,936,030
524,846
133,870
23,973,555
27,802,160
Credit
For the Years Ended
December 31,
Private Equity
For the Years Ended
December 31,
2018 (1)
6,247,916 $
6,640,389
2,723,138
3,917,251
Real Assets
For the Years Ended
December 31,
2017 (1)
2018 (1)
2017 (1)
4,676,444 $ 64,841,922 $ 54,473,595
69,709,738
4,854,334
21,831,381
2,066,612
47,878,357
2,787,722
50,070,595
58,090,503
8,019,908
Aggregate Totals
For the Years Ended
December 31,
Statement of Operations
2018 (1)
Revenues/Investment Income
$
1,546,880
2017 (1)
$ 1,774,987
2016 (1)
$ 1,384,414
2018 (1)
2017 (1)
2016 (1)
2018 (1)
2017 (1)
2016 (1)
2018 (1)
$
445,249
$
726,464
$
235,231
$
414,313
$
280,440
$
215,738
$
2,406,442
2017 (1)
$ 2,781,891
2016 (1)
$ 1,835,383
Expenses
1,351,556
700,660
483,335
571,689
311,171
298,705
221,908
65,141
66,869
2,145,153
1,076,972
848,909
Net Investment Income (Loss)
195,324
1,074,327
901,079
(126,440)
415,293
(63,474)
192,405
215,299
148,869
261,289
1,704,919
986,474
Net Realized and Unrealized
Gain (Loss)
(179,024)
Net Income (Loss)
$
16,300
1,000,922
$ 2,075,249
1,033,550
$ 1,934,629
(2,990,133)
$
(3,116,573)
5,728,099
$ 6,143,392
2,999,627
$ 2,936,153
38,694
45,455
21,193
(3,130,463)
$
231,099
$
260,754
$
170,062
$
(2,869,174)
6,774,476
$ 8,479,395
4,054,370
$ 5,040,844
(1)
Certain credit, private equity and real assets fund amounts are as of and for the twelve months ended September 30, 2018 , 2017 and 2016 and exclude amounts related to Athene Holding.
Performance Allocations
Performance allocations from credit, private equity and real assets funds consisted of the following:
Credit
Private Equity
Real Assets
Total performance allocations
As of December 31, 2018
As of December 31, 2017
374,541 $
514,350
23,291
912,182 $
395,340
1,404,777
28,813
1,828,930
$
$
- 170 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The table below provides a roll forward of the performance allocations balance:
Performance allocations, January 1, 2017
Change in fair value of funds
Fund distributions to the Company
Performance allocations, December 31, 2017
Change in fair value of funds
Fund distributions to the Company
Performance allocations, December 31, 2018
Credit
Private Equity
Real Assets
Total
$
$
$
372,205 $
212,768
(189,633)
395,340 $
93,312
(114,111)
374,541 $
798,465
1,050,141
(443,829)
1,404,777
(444,476)
(445,951) (1)
514,350
$
$
$
32,526 $
13,283
(16,996)
28,813 $
1,730
(7,252)
23,291 $
1,203,196
1,276,192
(650,458)
1,828,930
(349,434)
(567,314)
912,182
(1)
Includes realized performance allocations of $169.9 million from AP Alternative Assets, L.P. (“AAA”), settled in the form of shares of Athene Holding.
The change in fair value of funds excludes the reversal of previously realized performance allocations due to the general partner obligation to return
previously distributed performance allocations, which is recorded in due to related parties in the consolidated statements of financial condition. See note 14 for
further disclosure regarding the general partner obligation.
The timing of the payment of performance allocations due to the general partner or investment manager varies depending on the terms of the
applicable fund agreements. Generally, performance allocations with respect to the private equity funds and certain credit and real assets funds are payable and are
distributed to the fund’s general partner upon realization of an investment if the fund’s cumulative returns are in excess of the preferred return.
5 . PROFIT SHARING PAYABLE
Profit sharing payable consisted of the following:
Credit
Private Equity
Real Assets
Total profit sharing payable
As of December 31, 2018
As of December 31, 2017
$
$
239,525 $
201,607
11,009
452,141 $
265,791
475,556
10,929
752,276
The table below provides a roll forward of the profit sharing payable balance:
Profit sharing payable, January 1, 2017
Profit sharing expense
Payments/other
Profit sharing payable, December 31, 2017
Profit sharing expense
Payments/other (1)
Profit sharing payable, December 31, 2018
Credit
Private Equity
Real Assets
Total
$
$
$
268,855 $
104,475
(107,539)
265,791 $
60,279
(86,545)
239,525 $
268,170
402,963
(195,577)
475,556
(91,088)
(182,861) (2)
201,607
$
$
$
13,123 $
5,544
(7,738)
10,929 $
2,785
(2,705)
11,009 $
550,148
512,982
(310,854)
752,276
(28,024)
(272,111)
452,141
(1)
(2)
Includes $10.6 million associated with the adoption of new revenue recognition accounting guidance, as discussed in note 2 .
Includes $46.6 million associated with profit sharing expense related to AAA that was settled in the form of shares of Athene Holding.
Profit sharing expense includes (i) changes in amounts payable to employees and former employees entitled to a share of performance revenues in
Apollo’s funds and (ii) changes to the fair value of the contingent consideration obligations recognized in connection with certain Apollo acquisitions. Profit
sharing expense excludes the potential return of profit sharing distributions that would be due if certain funds were liquidated, which is recorded in due from
related parties in the consolidated statements of financial condition. See note 14 for further disclosure regarding the potential return of profit sharing distributions.
- 171 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
As discussed in note 2 , under certain profit sharing arrangements, the Company requires that a portion of certain of the performance revenues
distributed to its employees be used to purchase Class A restricted shares issued under its 2007 Equity Plan. Prior to distribution of the performance revenues, the
Company records the value of the equity-based awards expected to be granted in other assets and other liabilities within the consolidated statements of financial
condition. See note 8 for further disclosure regarding deferred equity-based compensation.
6 . VARIABLE INTEREST ENTITIES
As described in note 2 , the Company consolidates entities that are VIEs for which the Company has been designated as the primary beneficiary. There
is no recourse to the Company for the consolidated VIEs’ liabilities.
Consolidated Variable Interest Entities
Apollo has consolidated VIEs in accordance with the policy described in note 2 . Through its role as investment manager of these VIEs, the Company
determined that Apollo has the power to direct the activities that most significantly impact the economic performance of these VIEs. Additionally, Apollo
determined that its interests, both directly and indirectly from these VIEs, represent rights to returns that could potentially be significant to such VIEs. As a result,
Apollo determined that it is the primary beneficiary and therefore should consolidate the VIEs.
Certain CLOs are consolidated by Apollo as the Company is considered to hold a controlling financial interest through direct and indirect interests in
these CLOs exclusive of management and performance-based fees received. Through its role as collateral manager of these VIEs, the Company determined that
Apollo has the power to direct the activities that most significantly impact the economic performance of these VIEs. These CLOs were formed for the sole purpose
of issuing collateralized notes to investors. The assets of these VIEs are primarily comprised of senior secured loans and the liabilities are primarily comprised of
debt.
The assets of consolidated CLOs are not available to creditors of the Company. In addition, the investors in these consolidated CLOs have no recourse
against the assets of the Company. The Company measures both the financial assets and the financial liabilities of the CLOs using the fair value of the financial
assets as further described in note 2 . The Company has elected the fair value option for financial instruments held by its consolidated CLOs, which includes
investments in loans and corporate bonds, as well as debt obligations and contingent obligations held by such consolidated CLOs. Other assets include amounts
due from brokers and interest receivables. Other liabilities include payables for securities purchased, which represent open trades within the consolidated CLOs
and primarily relate to corporate loans that are expected to settle within 60 days . As of December 31, 2018 and December 31, 2017 , the Company held
investments of $44.2 million and $47.2 million , respectively, in consolidated foreign currency denominated CLOs, which eliminate in consolidation.
Net Gains from Investment Activities of Consolidated Variable Interest Entities
The following table presents net gains from investment activities of the consolidated VIEs:
Net gains from investment activities
Net gains (losses) from debt
Interest and other income
Interest and other expenses
Net gains from investment activities of consolidated
variable interest entities
$
$
(1) Amounts reflect consolidation eliminations.
For the Years Ended December 31,
2018
(1)
2017
(1)
2016
(1)
23,922
$
7,960
$
16,875
35,612
(31,297)
6,416
35,154
(38,865)
10,334
(11,921)
41,791
(35,189)
45,112
$
10,665
$
5,015
- 172 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Senior Secured Notes, Subordinated Notes and Secured Borrowings
Included within debt are amounts due to third-party institutions by the consolidated VIEs. The following table summarizes the principal provisions of
the debt of the consolidated VIEs:
As of December 31, 2018
As of December 31, 2017
Senior Secured Notes (2)
Subordinated Notes (2)
Secured Borrowings (2)(3)
Total
Principal
Outstanding
Weighted Average
Interest Rate
$
$
768,860
95,686
18,976
883,522
1.67%
N/A
(1)
3.42%
Weighted
Average
Remaining
Maturity in
Years
Principal
Outstanding
Weighted Average
Interest Rate
Weighted
Average
Remaining
Maturity in
Years
11.2 $
21.4
8.8
806,603
100,188
109,438
$
1,016,229
1.68%
N/A
(1)
2.70%
12.2
22.4
9.3
(1)
(2)
The subordinated notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the VIEs.
The debt of the consolidated VIEs is collateralized by assets of the consolidated VIEs and assets of one vehicle may not be used to satisfy the liabilities of another vehicle.
The fair value of the debt and collateralized assets of the Senior Secured Notes, Subordinated Notes and Secured Borrowings are presented below:
Debt, at fair value
Collateralized assets
As of December 31, 2018 As of December 31, 2017
$
$
855,461 $
1,290,891 $
1,002,063
1,328,586
(3)
Secured borrowings consist of a consolidated VIE’s obligation through a repurchase agreement redeemable at maturity with a third party lender. The fair value of the
secured borrowings as of December 31, 2018 and December 31, 2017 was $19.0 million and $109.4 million , respectively.
The consolidated VIEs’ debt obligations contain various customary loan covenants. As of December 31, 2018 , the Company was not aware of any
instances of non-compliance with any of these covenants.
As of December 31, 2018 , the contractual maturities for debt of the consolidated VIEs is greater than 5 years.
Variable Interest Entities Which are Not Consolidated
The Company holds variable interests in certain VIEs which are not consolidated, as it has been determined that Apollo is not the primary beneficiary.
- 173 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following table presents the carrying amounts of the assets and liabilities of the VIEs for which Apollo has concluded that it holds a significant
variable interest, but that it is not the primary beneficiary. In addition, the table presents the maximum exposure to losses relating to these VIEs.
Assets:
Cash
Investments
Receivables
Total Assets
Liabilities:
Debt and other payables
Total Liabilities
Apollo Exposure (1)
As of
December 31, 2018
As of
December 31, 2017
$
$
$
$
$
404,660 $
4,919,118
126,873
5,450,651 $
3,673,219 $
3,673,219 $
254,791
6,230,397
36,601
6,521,789
3,285,263
3,285,263
244,894 $
252,605
(1) Represents Apollo’s direct investment in those entities in which Apollo holds a significant variable interest and certain other investments. Additionally, cumulative
performance allocations are subject to reversal in the event of future losses, as discussed in note 15 .
7 . FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
The following tables summarize the Company’s financial assets and financial liabilities recorded at fair value by fair value hierarchy level:
Assets
U.S. Treasury securities, at fair value
Investments, at fair value:
Investment in Athene Holding
Other investments
Total investments, at fair value
Investments of VIEs, at fair value
Investments of VIEs, valued using NAV
Total investments of VIEs, at fair value
Derivative assets (2)
Total Assets
Liabilities
Liabilities of VIEs, at fair value
Contingent consideration obligations (3)
Derivative liabilities (2)
Total Liabilities
Level I
Level II
Level III
Total
Cost
As of December 31, 2018
$
392,932
$
— $
—
$
392,932 $
390,336
592,572
124,379
716,951
761,807
—
761,807
—
—
—
—
1,154,739
$
— $
—
—
— $
- 174 -
$
$
$
—
42,782
42,782
877,427
—
877,427
388
920,597 $
855,461 $
—
681
856,142 $
—
96,370 (1)
96,370
295,987
—
295,987
—
392,357
—
74,487
—
74,487
$
$
$
761,807
139,152
900,959
1,173,414
2,263
1,175,677
388
2,469,956
855,461
74,487
681
930,629
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Assets
U.S. Treasury securities, at fair value
Investments, at fair value:
Investment in Athene Holding
Other investments
Total investments, at fair value
Investments of VIEs, at fair value
Investments of VIEs, valued using NAV
Total investments of VIEs, at fair value
Derivative assets (2)
Total Assets
Liabilities
Liabilities of VIEs, at fair value
Contingent consideration obligations (3)
Derivative liabilities (2)
Total Liabilities
Level I
Level II
Level III
Total
Cost
As of December 31, 2017
$
364,649
$
— $
— $
364,649 $
363,812
—
205
205
—
—
—
—
802,985
28,107
831,092
1,058,999
—
1,058,999
478
364,854
$
1,890,569 $
—
35,701
35,701
132,348
—
132,348
—
168,049 $
802,985
64,013
866,998
1,191,347
4,843
1,196,190
478
2,428,315
387,526
61,179
448,705
— $
—
—
— $
1,002,063 $
—
1,537
1,003,600 $
12,620 $
92,600
—
105,220 $
1,014,683
92,600
1,537
1,108,820
$
$
$
(1) Other investments excludes $17.0 million of performance allocations classified as Level III related to certain investments for which the Company has elected the fair value
option. The Company’s policy is to account for performance allocations as investments.
(2) Derivative assets and derivative liabilities are presented as a component of Other assets and Other liabilities, respectively, in the consolidated statements of financial
condition.
Profit sharing payable includes contingent obligations classified as Level III.
(3)
The following tables summarize the changes in financial assets measured at fair value for which Level III inputs have been used to determine fair
value:
Balance, Beginning of Period
Purchases
Sale of investments/distributions
Net realized losses
Changes in net unrealized gains
Cumulative translation adjustment
Transfer into Level III (1)
Transfer out of Level III (1)
Balance, End of Period
Change in net unrealized gains included in principal investment income related to investments still held at
reporting date
Change in net unrealized gains included in net gains from investment activities of consolidated VIEs related to
investments still held at reporting date
- 175 -
For the Year Ended December 31, 2018
Other Investments
Investments of
Consolidated VIEs
Total
$
$
$
35,701
$
112,645
(49,288)
(106)
12,683
(591)
4,682
(19,356)
96,370
12,618
$
$
132,348 $
151,877
(17,000)
(1,084)
45,506
(16,787)
18,783
(17,656)
295,987 $
— $
—
44,350
168,049
264,522
(66,288)
(1,190)
58,189
(17,378)
23,465
(37,012)
392,357
12,618
44,350
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Balance, Beginning of Period
Purchases
Sale of investments/distributions
Net realized gains (losses)
Changes in net unrealized gains (losses)
Cumulative translation adjustment
Transfer into Level III (1)
Transfer out of Level III (1)
Balance, End of Period
Change in net unrealized losses included in principal investment income related to investments still held at
reporting date
Change in net unrealized gains included in net gains from investment activities of consolidated VIEs related to
investments still held at reporting date
For the Year Ended December 31, 2017
Other Investments
Investments of
Consolidated VIEs
Total
$
$
$
45,721
$
12,760
—
(5)
(607)
5,939
—
(28,107)
35,701
$
(614)
$
—
92,474 $
116,674
(70,740)
6,986
4,592
6,759
16,392
(40,789)
132,348 $
— $
3,638
138,195
129,434
(70,740)
6,981
3,985
12,698
16,392
(68,896)
168,049
(614)
3,638
(1)
Transfers between Level II and III were a result of subjecting the broker quotes on these financial assets to various criteria which include the number and quality of broker
quotes, the standard deviation of obtained broker quotes and the percentage deviation from independent pricing services.
The following table summarizes the changes in fair value in financial liabilities measured at fair value for which Level III inputs have been used to
determine fair value:
Balance, Beginning of Period
Additions
Payments
Net realized gains
Changes in net unrealized (gains) losses (1)
Balance, End of Period
Change in net unrealized losses included in net gains from investment activities of
consolidated VIEs related to liabilities still held at reporting date
$
$
$
—
—
— $
— $
For the Years Ended December 31,
Liabilities of
Consolidated VIEs
& Apollo Funds
2018
Contingent
Consideration
Obligations
Total
Liabilities of
Consolidated VIEs
& Apollo Funds
2017
Contingent
Consideration
Obligations
105,220
$
11,055
$
106,282
$
12,620
$
—
92,600
$
—
—
(12,620)
(6,947)
(19,567)
—
—
(97)
94
10
(11,166)
74,487
$
(11,166)
74,487
— $
—
$
$
1,558
12,620
1,565
$
$
Total
117,337
(97)
—
(23,597)
(23,503)
—
9,915
92,600
$
— $
10
11,473
105,220
1,565
(1) Changes in fair value of contingent consideration obligations are recorded in profit sharing expense in the consolidated statements of operations.
- 176 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following tables summarize the quantitative inputs and assumptions used for financial assets and liabilities categorized as Level III under the fair
Fair Value
Valuation Techniques
Unobservable Inputs
Ranges
As of December 31, 2018
6,901
89,469
Third Party Pricing
Discounted cash flow
N/A
Discount rate
N/A
15.0% - 16.0%
4,116
Third party pricing
N/A
Book value multiple
Book value multiple
Discounted cash flow
Discount rate
Discounted cash flow
Discount rate
17.0%
17.0%
Fair Value
Valuation Techniques
Unobservable Inputs
Ranges
As of December 31, 2017
20,641
15,060
Third party pricing
Cost (1)
6,824
Third party pricing
N/A
N/A
N/A
Book value multiple
Book value multiple
Discounted cash flow
Discount rate
Weighted
Average
N/A
15.5%
N/A
0.65x
15.2%
Weighted
Average
N/A
N/A
N/A
0.71x
13.4%
N/A
0.65x
15.2%
N/A
N/A
N/A
0.71x
13.4%
value hierarchy:
Financial Assets
Other investments
Investments of consolidated VIEs:
Corporate loans/bonds/CLO notes
Equity securities
Total investments of consolidated VIEs
Total Financial Assets
Financial Liabilities
Contingent consideration obligation
Total Financial Liabilities
Financial Assets
Other investments
Investments of consolidated VIEs:
Corporate loans/bonds/CLO notes
Equity securities
Total investments of consolidated VIEs
Total Financial Assets
Financial Liabilities
Liabilities of consolidated VIEs
Contingent consideration obligation
Total Financial Liabilities
$
$
$
$
$
$
$
$
291,871
295,987
392,357
74,487
74,487
125,524
132,348
168,049
12,620
92,600
105,220
Other
Discounted cash flow
N/A
Discount rate
N/A
17.3%
N/A
17.3%
(1) The valuation technique used is cost as it approximates the fair value of the investment.
Fair Value Measurement of Investment in Athene Holding
As of December 31, 2018 , the fair value of Apollo’s Level I investment in Athene Holding was calculated using the closing market price of Athene
Holding shares of $39.83 . As of December 31, 2017 , the fair value of Apollo’s Level II investment in Athene Holding was estimated using the closing market
price of Athene Holding shares of $51.71 less a discount due to a lack of marketability (“DLOM”) of 4.0% , as applicable. The DLOM was derived based on the
average remaining lock up restrictions on the shares of Athene Holding held by Apollo ( 11.3 months as of December 31, 2017 ) and the estimated volatility in
such shares of Athene Holding. Due to the limited trading history in Athene Holding shares, the historical share price volatility of a representative set of Athene
Holding’s publicly traded insurance peers was calculated over a period equivalent to the remaining average lock up on the shares of Athene Holding held by
Apollo and used as a proxy to estimate the projected volatility in Athene Holding’s shares.
Discounted Cash Flow Model
When a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to
present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment and the contingent consideration
obligations; conversely decreases in the discount rate can significantly increase the fair value of an investment and the contingent consideration obligations.
- 177 -
Table of Contents
Consolidated VIEs
Investments
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
As of December 31, 2018 and 2017 , the significant unobservable inputs used in the fair value measurement of the equity securities include the
discount rate applied and the book value multiples applied in the valuation models. These unobservable inputs in isolation can cause significant increases or
decreases in fair value. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks. When a
comparable multiple model is used to determine fair value, the comparable multiples are generally multiplied by the underlying companies’ earnings before
interest, taxes, depreciation and amortization (“EBITDA”) to establish the total enterprise value of the company. The comparable multiple is determined based on
the implied trading multiple of public industry peers.
Liabilities
As of December 31, 2018 and 2017 , the debt obligations of the consolidated CLOs were measured on the basis of the fair value of the financial assets
of the CLOs as the financial assets were determined to be more observable and, as a result, categorized as Level II in the fair value hierarchy.
Contingent Consideration Obligations
The significant unobservable input used in the fair value measurement of the contingent consideration obligations is the discount rate applied in the
valuation models. This input in isolation can cause significant increases or decreases in fair value. The discount rate was based on the hypothetical cost of equity in
connection with the acquisition of Stone Tower. See note 15 for further discussion of the contingent consideration obligations.
Valuation of Underlying Investments of Equity Method Investees
As discussed previously, the underlying entities that the Company manages and invests in are primarily investment companies which account for their
investments at estimated fair value.
On a quarterly basis, Apollo utilizes valuation committees consisting of members from senior management, to review and approve the valuation
results related to the investments of the funds it manages. For certain publicly traded vehicles managed by the Company, a review is performed by an independent
board of directors. The Company also retains independent valuation firms to provide third-party valuation consulting services to Apollo, which consist of certain
limited procedures that management identifies and requests them to perform. The limited procedures provided by the independent valuation firms assist
management with validating their valuation results or determining fair value. The Company performs various back-testing procedures to validate their valuation
approaches, including comparisons between expected and observed outcomes, forecast evaluations and variance analyses. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed,
and the differences could be material.
Credit Investments
The majority of investments in Apollo’s credit funds are valued based on quoted market prices and valuation models. Quoted market prices are valued
based on the average of the “bid” and the “ask” quotes provided by multiple brokers wherever possible without any adjustments. Apollo will designate certain
brokers to use to value specific securities. In order to determine the designated brokers, Apollo considers the following: (i) brokers with which Apollo has
previously transacted, (ii) the underwriter of the security and (iii) active brokers indicating executable quotes. In addition, when valuing a security based on broker
quotes wherever possible Apollo tests the standard deviation amongst the quotes received and the variance between the concluded fair value and the value provided
by a pricing service. When broker quotes are not available Apollo considers the use of pricing service quotes or other sources to mark a position. When relying on
a pricing service as a primary source, Apollo (i) analyzes how the price has moved over the measurement period, (ii) reviews the number of brokers included in the
pricing service’s population and (iii) validates the valuation levels with Apollo’s pricing team and traders.
Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value utilizing a model based
approach to determine fair value. Valuation approaches used to estimate the fair value of illiquid credit investments also may include the market approach and the
income approach, as previously described above. The valuation approaches used consider, as applicable, market risks, credit risks, counterparty risks and foreign
currency risks.
- 178 -
Table of Contents
Private Equity Investments
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The majority of the illiquid investments within our private equity funds are valued using the market approach, which provides an indication of fair
value based on a comparison of the subject company to comparable publicly traded companies and transactions in the industry.
Market Approach
The market approach is driven by current market conditions, including actual trading levels of similar companies and, to the extent available, actual
transaction data of similar companies. Judgment is required by management when assessing which companies are similar to the subject company being valued.
Consideration may also be given to any of the following factors: (1) the subject company’s historical and projected financial data; (2) valuations given to
comparable companies; (3) the size and scope of the subject company’s operations; (4) the subject company’s individual strengths and weaknesses;
(5) expectations relating to the market’s receptivity to an offering of the subject company’s securities; (6) applicable restrictions on transfer; (7) industry and
market information; (8) general economic and market conditions; and (9) other factors deemed relevant. Market approach valuation models typically employ a
multiple that is based on one or more of the factors described above. Enterprise value as a multiple of EBITDA is common and relevant for most companies and
industries, however, other industry specific multiples are employed where available and appropriate. Sources for gaining additional knowledge related to
comparable companies include public filings, annual reports, analyst research reports, and press releases. Once a comparable company set is determined, we review
certain aspects of the subject company’s performance and determine how its performance compares to the group and to certain individuals in the group. We
compare certain measurements such as EBITDA margins, revenue growth over certain time periods, leverage ratios and growth opportunities. In addition, we
compare our entry multiple and its relation to the comparable set at the time of acquisition to understand its relation to the comparable set on each measurement
date.
Income Approach
For investments where the market approach does not provide adequate fair value information, we rely on the income approach. The income approach
is also used to validate the market approach within our private equity funds. The income approach provides an indication of fair value based on the present value of
cash flows that a business or security is expected to generate in the future. The most widely used methodology for the income approach is a discounted cash flow
method. Inherent in the discounted cash flow method are significant assumptions related to the subject company’s expected results, the determination of a terminal
value and a calculated discount rate, which is normally based on the subject company’s weighted average cost of capital, or “WACC.” The WACC represents the
required rate of return on total capitalization, which is comprised of a required rate of return on equity, plus the current tax-effected rate of return on debt, weighted
by the relative percentages of equity and debt that are typical in the industry. The most critical step in determining the appropriate WACC for each subject
company is to select companies that are comparable in nature to the subject company and the credit quality of the subject company. Sources for gaining additional
knowledge about the comparable companies include public filings, annual reports, analyst research reports, and press releases. The general formula then used for
calculating the WACC considers the after-tax rate of return on debt capital and the rate of return on common equity capital, which further considers the risk-free
rate of return, market beta, market risk premium and small stock premium, if applicable. The variables used in the WACC formula are inferred from the
comparable market data obtained. The Company evaluates the comparable companies selected and concludes on WACC inputs based on the most comparable
company or analyzes the range of data for the investment.
The value of liquid investments, where the primary market is an exchange (whether foreign or domestic), is determined using period end market
prices. Such prices are generally based on the close price on the date of determination.
Real Assets Investments
The estimated fair value of commercial mortgage-backed securities (“CMBS”) in Apollo’s real assets funds is determined by reference to market
prices provided by certain dealers who make a market in these financial instruments. Broker quotes are only indicative of fair value and may not necessarily
represent what the funds would receive in an actual trade for the applicable instrument. Additionally, the loans held-for-investment are stated at the principal
amount outstanding, net of deferred loan fees and costs for certain investments. The loans in Apollo’s real assets funds are evaluated for possible impairment on a
quarterly basis. For Apollo’s real assets funds, valuations of non-marketable underlying investments are determined using methods that include, but are not limited
to (i) discounted cash flow estimates or comparable analysis prepared internally, (ii) third party appraisals or valuations by qualified real estate appraisers and
(iii) contractual sales value of investments/properties subject to
- 179 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
bona fide purchase contracts. Methods (i) and (ii) also incorporate consideration of the use of the income, cost, or sales comparison approaches of estimating
property values.
Certain of the credit, private equity, and real assets funds may also enter into foreign currency exchange contracts, total return swap contracts, credit
default swap contracts, and other derivative contracts, which may include options, caps, collars and floors. Foreign currency exchange contracts are marked-to-
market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. If securities are
held at the end of the period, the changes in value are recorded in income as unrealized. Realized gains or losses are recognized when contracts are settled. Total
return swap and credit default swap contracts are recorded at fair value as an asset or liability with changes in fair value recorded as unrealized appreciation or
depreciation. Realized gains or losses are recognized at the termination of the contract based on the difference between the close-out price of the total return or
credit default swap contract and the original contract price. Forward contracts are valued based on market rates obtained from counterparties or prices obtained
from recognized financial data service providers.
8 . OTHER ASSETS
Other assets consisted of the following:
Fixed assets
Less: Accumulated depreciation and amortization
Fixed assets, net
Prepaid expenses
Tax receivables
Other
Total Other Assets
As of
December 31, 2018
As of
December 31, 2017
$
$
109,039 $
(89,049)
19,990
130,091
10,464
12,725
173,270 $
102,694
(83,510)
19,184
189,542
9,236
13,795
231,757
Prepaid expenses includes $80.4 million and $135.0 million as of December 31, 2018 and 2017 , respectively, of deferred equity-based compensation
related to the value of the equity-based awards that have been or are expected to be granted in connection with the settlement of certain profit sharing
arrangements. A corresponding amount for awards expected to be granted of $54.5 million and $124.3 million , as of December 31, 2018 and 2017 , respectively,
is included in other liabilities on the consolidated statements of financial condition.
Depreciation expense was $8.5 million , $12.1 million and $9.6 million for the years ended December 31, 2018, 2017 and 2016 , respectively, and is
presented as a component of general, administrative and other expense in the consolidated statements of operations.
9 . INCOME TAXES
The Company’s income tax provision totaled $86.0 million , $325.9 million and $90.7 million for the years ended December 31, 2018, 2017 and 2016
, respectively. The Company’s effective income tax rate was 81.7% , 18.4% and 8.5% for the years ended December 31, 2018, 2017 and 2016 , respectively. The
Company’s high effective income tax rate for the year ended December 31, 2018 results primarily from a significant portion of the losses from performance
allocations and investment activities that are not subject to U.S. income taxes. As a result, these losses have reduced the Company’s net income, but do not
generate a tax benefit. The Company’s effective income tax rate was also impacted by the remeasurement of income taxes due to state tax planning.
- 180 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The provision for income taxes is presented in the following table:
Current:
Federal income tax
Foreign income tax (1)
State and local income tax
Subtotal
Deferred:
Federal income tax
Foreign income tax (1)
State and local income tax
Subtotal
Total Income Tax Provision
For the Years Ended December 31,
2018
2017
2016
$
— $
3,314 $
4,208
1,633
5,841
33,936
—
46,244
80,180
3,271
6,364
12,949
290,213
—
22,783
312,996
$
86,021 $
325,945 $
—
5,843
2,847
8,690
66,567
(16)
15,466
82,017
90,707
(1)
The foreign income tax provision was calculated on $41.8 million , $24.0 million and $38.8 million of pre-tax income generated in foreign jurisdictions for the years
ended December 31, 2018, 2017 and 2016 , respectively.
The following table reconciles the U.S. Federal statutory tax rate to the effective income tax rate:
U.S. Federal Statutory Tax Rate
Income Passed Through to Non-Controlling Interests
(Income) Loss Passed Through to Class A Shareholders
State and Local Income Taxes (net of Federal Benefit)
Impact of Federal Tax Reform
Other
Effective Income Tax Rate
For the Years Ended December 31,
2018
2017
2016
21.0 %
35.0 %
(24.2)
53.8
29.8
—
1.3
81.7 %
(16.3)
(10.4)
1.2
9.7
(0.8)
18.4 %
35.0 %
(18.9)
(9.2)
1.4
—
0.2
8.5 %
Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the
consolidated statements of financial condition. These temporary differences result in taxable or deductible amounts in future years.
Existing accounting rules require the effect of a change in tax law or rates to be recognized in income as a component of the income tax provision on
the date a bill is signed into law. Existing accounting rules also require deferred tax assets and liabilities to be measured at the enacted rate. The Tax Cuts and Jobs
Act (the “TCJA”) was signed into law on December 22, 2017 and includes a broad range of tax reforms including a reduction in the corporate income tax rate to
21% from 35% effective January 1, 2018. As of December 31, 2017, the rate change resulted in a reduction of our net deferred tax assets of $254.3 million ,
resulting primarily from the remeasurement of tax assets arising from the exchanges of AOG units for Class A shares.
As existing accounting rules do not address all circumstances that may arise for companies in accounting for the income tax effects of the TCJA, the
SEC staff issued guidance on December 22, 2017 to clarify the application of existing rules in situations where an entity did not have the necessary information
available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for the income tax effects of the TCJA in the period the
TCJA was enacted.
During the year ended December 31, 2018, the Company completed its analysis based on available guidance and no material adjustments were made
to the provisional amounts previously recorded. The allowable measurement period is now closed.
- 181 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The Company’s deferred tax assets and liabilities in the consolidated statements of financial condition consist of the following:
Deferred Tax Assets:
Depreciation and amortization
Net operating loss carryforwards
Deferred revenue
Equity-based compensation
Foreign tax credit
Other
Total Deferred Tax Assets
Deferred Tax Liabilities:
Unrealized gains from investments
Other
Total Deferred Tax Liabilities
Total Deferred Tax Assets, Net
As of December 31,
2018
2017
$
275,793 $
16,039
6,469
3,849
15,563
7,174
324,887
18,108
685
18,793
$
306,094 $
300,882
21,091
14,652
3,196
13,338
3,030
356,189
17,818
733
18,551
337,638
As of December 31, 2018 , the Company had approximately $48.7 million of federal net operating loss (“NOL”) carryforwards and $85.7 million of
state and local net operating loss carryforwards that will begin to expire after 2035. In addition, the Company’s foreign tax credit carryforwards will begin to expire
after 2021.
The Company considered its historical and current year earnings, current utilization of existing deferred tax assets and deferred tax liabilities, the 15
year amortization periods of the tax basis of its intangible assets, the 20 year carry forward periods of any NOLs, short and long term business forecasts and the
impact of the TCJA on future earnings in evaluating whether it should establish a valuation allowance. The Company concluded it is more likely than not that the
deferred tax assets will be realized and that no valuation allowance was needed at December 31, 2018 .
Under U.S. GAAP, a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained
upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Based upon the Company’s
review of its federal, state, local and foreign income tax returns and tax filing positions, the Company determined that no unrecognized tax benefits for uncertain
tax positions were required to be recorded. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be
required to record significant amounts of unrecognized tax benefits within the next twelve months.
The Company’s primary jurisdictions in which it operates are the United States, New York State, New York City, California and the United Kingdom.
There are no unremitted earnings with respect to the United Kingdom and other foreign entities due to the flow-through nature of these entities.
In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax authorities. With a few
exceptions, as of December 31, 2018 , the Company’s U.S. federal, state, local and foreign income tax returns for the years 2015 through 2018 are open under the
general statute of limitations provisions and therefore subject to examination. Currently, the Internal Revenue Service is examining the tax return of a subsidiary
for the 2011 tax year. The State and City of New York are examining certain subsidiaries’ tax returns for tax years 2011 to 2018.
The Company has recorded a deferred tax asset for the future amortization of tax basis intangibles as a result of the 2007 Reorganization. The
Company recorded additional deferred tax assets as a result of the step-up in tax basis of intangibles from subsequent exchanges of AOG Units for Class A shares.
A related tax receivable agreement liability is recorded in due to related parties in the consolidated statements of financial condition for the expected payments
under the tax receivable agreement entered into by and among APO Corp., the Managing Partners, the Contributing Partners, and other parties thereto (as amended,
the “tax receivable agreement”) (see note 14 ). The benefit the Company obtains from the difference in the tax asset recognized and the related liability results in an
increase to additional paid in capital. The amortization period for these tax basis intangibles is 15 years and the deferred tax assets will reverse over the same
period.
- 182 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The table below presents the impact to the deferred tax asset, tax receivable agreement liability and additional paid in capital related to the exchange of
AOG Units for Class A shares.
Exchange of AOG Units
for Class A shares
Increase in Deferred Tax
Asset
Increase in Tax Receivable
Agreement Liability
Increase to Additional Paid
In Capital
For the Year Ended December 31, 2018
For the Year Ended December 31, 2017
For the Year Ended December 31, 2016
10 . DEBT
Debt consisted of the following:
$
$
$
45,017 $
56,908 $
7,342 $
37,891 $
44,972 $
6,187 $
7,126
11,936
1,155
As of December 31, 2018
As of December 31, 2017
Outstanding
Balance
Fair Value
Annualized
Weighted
Average
Interest Rate
Outstanding
Balance
Fair Value
Annualized
Weighted
Average
Interest Rate
2013 AMH Credit Facilities - Term
Facility (1)
$
— $
—
N/A
$
299,655 $
2024 Senior Notes (1)
2026 Senior Notes (1)
2048 Senior Notes (1)
2014 AMI Term Facility I (2)
2014 AMI Term Facility II (2)
2016 AMI Term Facility I (2)
2016 AMI Term Facility II (2)
496,512
496,191
296,386
15,633
17,657
19,371
18,698
498,736 (4)
502,107 (4)
290,714 (4)
15,633 (3)
17,657 (3)
19,371 (3)
18,698 (3)
4.00%
4.40
5.00
2.00
1.75
1.32
1.70
495,860
495,678
—
16,399
18,548
20,372
15,890
298,875 (3)
511,096 (4)
525,273 (4)
—
16,482 (3)
18,605 (3)
20,372 (3)
15,931 (3)
2.33%
4.00
4.40
—
2.00
1.75
1.75
2.00
Total Debt
$
1,360,448 $
1,362,916
$
1,362,402 $
1,406,634
(1)
Includes amortization of note discount, as applicable. Outstanding balance is presented net of unamortized debt issuance costs:
As of December 31, 2018
As of December 31, 2017
2013 AMH Credit Facilities - Term Facility
$
2024 Senior Notes
2026 Senior Notes
2048 Senior Notes
— $
2,946
3,483
3,298
345
3,498
3,951
—
(2) Apollo Management International LLP (“AMI”), a subsidiary of the Company, entered into several five year credit facilities (collectively referred to as the “AMI
Facilities”) to fund the Company’s investment in certain European CLOs it manages.
Facility
2014 AMI Term Facility I
2014 AMI Term Facility II
2016 AMI Term Facility I
2016 AMI Term Facility II
Date
July 3, 2014
December 9, 2014
January 18, 2016
June 22, 2016
€
€
€
€
Loan Amount
13,636
15,400
16,895
16,308
(3)
(4)
Fair value is based on obtained broker quotes. These notes are classified as a Level III liability within the fair value hierarchy based on the number and quality of broker
quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from independent pricing services. For instances where broker quotes
are not available, a discounted cash flow method is used to obtain a fair value.
Fair value is based on obtained broker quotes. These notes are classified as a Level II liability within the fair value hierarchy based on the number and quality of broker
quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from independent pricing services.
- 183 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
2013 AMH Credit Facilities —On December 18, 2013, AMH and its subsidiaries and certain other subsidiaries of the Company entered into credit
facilities (the “2013 AMH Credit Facilities”) with the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the
lenders. The 2013 AMH Credit Facilities provided for (i) a term loan facility to AMH (the “Term Facility”) that included $750 million of term loan from third-
party lenders and $271.7 million of term loan held by a subsidiary of the Company and (ii) a $500 million revolving credit facility (the “Revolver Facility”), in
each case, with an original maturity date of January 18, 2019. On March 11, 2016, the maturity date of both the Term Facility and the Revolver Facility was
extended by two years to January 18, 2021. The extension was determined to be a modification of the 2013 AMH Credit Facilities in accordance with U.S. GAAP.
In connection with the issuance of the 2024 Senior Notes, the 2026 Senior Notes and the 2048 Senior Notes (as described below), $250 million , $200
million and $300 million of the proceeds, respectively, were used to repay the entire remaining amount of both the term loan from third-party lenders and the term
loan held by a subsidiary of the Company as of March 15, 2018. The Revolver Facility was replaced as of July 11, 2018 by the 2018 AMH Credit Facility, as
described below. The 2013 AMH Credit Facilities and all related loan documents were terminated as of July 11, 2018.
2018 AMH Credit Facility —On July 11, 2018, AMH as borrower (the “Borrower”) entered into a new credit agreement (the “2018 AMH Credit
Facility”) with the lenders and issuing banks party thereto and Citibank, N.A., as administrative agent for the lenders. The 2018 AMH Credit Facility provides for a
$750 million revolving credit facility to the Borrower with a final maturity date of July 11, 2023. The 2018 AMH Credit Facility is to remain available until its
maturity, and any undrawn revolving commitments bear a commitment fee. The interest rate on the 2018 AMH Credit Facility is based on adjusted LIBOR and the
applicable margin as of December 31, 2018 was 1.00% . The commitment fee on the $750 million undrawn 2018 AMH Credit Facility as of December 31, 2018
was 0.09% .
Borrowings under the 2018 AMH Credit Facility may be used for working capital and general corporate purposes, including, without limitation,
permitted acquisitions. The Borrower may incur incremental facilities in respect of the 2018 AMH Credit Facility in an aggregate amount not to exceed $250
million plus additional amounts so long as the Borrower is in compliance with a net leverage ratio not to exceed 4.00 to 1.00 . As of December 31, 2018 , the 2018
AMH Credit Facility was undrawn.
2024 Senior Notes —On May 30, 2014, AMH issued $500 million in aggregate principal amount of its 4.000% Senior Notes due 2024 (the “2024
Senior Notes”), at an issue price of 99.722% of par. Interest on the 2024 Senior Notes is payable semi-annually in arrears on May 30 and November 30 of each
year. The 2024 Senior Notes will mature on May 30, 2024. The discount is amortized into interest expense on the consolidated statements of operations over the
term of the 2024 Senior Notes. The face amount of $500 million related to the 2024 Senior Notes is the amount for which the Company is obligated to settle the
2024 Senior Notes.
2026 Senior Notes —On May 27, 2016, AMH issued $500 million in aggregate principal amount of its 4.400% Senior Notes due 2026 (the “2026
Senior Notes”), at an issue price of 99.912% of par. Interest on the 2026 Senior Notes is payable semi-annually in arrears on May 27 and November 27 of each
year. The 2026 Senior Notes will mature on May 27, 2026. The discount is amortized into interest expense on the consolidated statements of operations over the
term of the 2026 Senior Notes. The face amount of $500 million related to the 2026 Senior Notes is the amount for which the Company is obligated to settle the
2026 Senior Notes.
2048 Senior Notes —On March 15, 2018, AMH issued $300 million in aggregate principal amount of its 5.000% Senior Notes due 2048 (the “2048
Senior Notes”), at an issue price of 99.892% of par. Interest on the 2048 Senior Notes is payable semi-annually in arrears on March 15 and September 15 of each
year. The 2048 Senior Notes will mature on March 15, 2048. The discount is amortized into interest expense on the consolidated statements of operations over the
term of the 2048 Senior Notes. The face amount of $300 million related to the 2048 Senior Notes is the amount for which the Company is obligated to settle the
2048 Senior Notes.
As of December 31, 2018 , the 2026 Senior Notes, the 2024 Senior Notes and the 2048 Senior Notes were guaranteed by Apollo Principal Holdings I,
L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo
Principal Holdings VI, L.P., Apollo Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P., Apollo Principal
Holdings X, L.P., Apollo Principal Holdings XI, LLC, Apollo Principal Holdings XII, L.P., AMH Holdings (Cayman), L.P. and any other entity that is required to
become a guarantor of the notes under the terms of the indentures governing the 2026 Senior Notes, the 2024 Senior Notes and the 2048 Senior Notes (the
“Indentures”). The Indentures include covenants that restrict the ability of AMH and, as applicable,
- 184 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
the guarantors to incur indebtedness secured by liens on voting stock or profit participating equity interests of their respective subsidiaries or merge, consolidate or
sell, transfer or lease assets. The Indentures also provide for customary events of default.
The following table presents the interest expense incurred related to the Company’s debt:
Interest Expense: (1)
2013 AMH Credit Facilities
2018 AMH Credit Facility
2024 Senior Notes
2026 Senior Notes
2048 Senior Notes
AMI Term Facilities
Total Interest Expense
For the Years Ended December 31,
2018
2017
2016
$
$
2,387 $
8,328 $
489
20,652
22,513
12,009
1,324
—
20,652
22,513
—
1,380
59,374 $
52,873 $
8,253
—
20,652
13,372
—
1,205
43,482
(1) Debt issuance costs incurred in connection with the 2013 AMH Credit Facilities, the 2018 AMH Credit Facility, the 2024 Senior Notes, the 2026 Senior Notes and the
2048 Senior Notes are amortized into interest expense over the term of the debt arrangement.
The table below presents the contractual maturities for the Company's debt arrangements as of December 31, 2018 :
2019
2020
2021
2022
2023
Thereafter
Total
2024 Senior Notes
$
— $
— $
— $
— $
500,000 $
2026 Senior Notes
2048 Senior Notes
2014 AMI Term
Facility I
2014 AMI Term
Facility II
2016 AMI Term
Facility I
2016 AMI Term
Facility II
Total Obligations as of
December 31, 2018
$
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
15,633
—
—
—
—
—
—
17,657
—
—
500,000
300,000
—
—
500,000
500,000
300,000
15,633
17,657
19,371
19,371
—
—
—
—
—
18,698
—
18,698
— $
— $
15,633 $
17,657 $
18,698 $
1,319,371 $
1,371,359
- 185 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
11 . NET INCOME PER CLASS A SHARE
The table below presents basic and diluted net income per Class A share using the two-class method:
Numerator:
Net Income (Loss) Attributable to Apollo Global Management, LLC Class A Shareholders
Distributions declared on Class A shares (1)
Distributions on participating securities (2)
Earnings allocable to participating securities
Undistributed income (loss) attributable to Class A shareholders: Basic
Dilution effect on distributable income attributable to unvested RSUs
Undistributed income (loss) attributable to Class A shareholders: Diluted
Denominator:
Weighted average number of Class A shares outstanding: Basic
Dilution effect of unvested RSUs
Weighted average number of Class A shares outstanding: Diluted
Net Income per Class A Share: Basic
Distributed Income
Undistributed Income (Loss)
Net Income (Loss) per Class A Share: Basic
Net Income (Loss) per Class A Share: Diluted (4)
Distributed Income
Undistributed Income (Loss)
Net Income (Loss) per Class A Share: Diluted
Basic and Diluted
For the Years Ended December 31,
2018
2017
2016
$
$
$
$
$
$
$
(42,038)
$
615,566
$
(388,744)
(18,119)
— (3)
(448,901)
—
(448,901)
199,946,632
—
199,946,632
1.93
(2.23)
(0.30)
1.93
(2.23)
(0.30)
$
$
$
$
$
$
(354,878)
(11,822)
(8,828)
240,038
2,706
242,744
190,931,743
1,649,950
192,581,693
1.85
1.27
3.12
1.84
1.26
3.10
$
$
$
$
$
$
402,850
(230,713)
(8,396)
(6,430)
157,311
—
157,311
183,998,080
—
183,998,080
1.25
0.86
2.11
1.25
0.86
2.11
See note 13 for information regarding the quarterly distributions declared and paid during 2018 , 2017 and 2016 .
Participating securities consist of vested and unvested RSUs that have rights to distributions and unvested restricted shares.
(1)
(2)
(3) No allocation of undistributed losses was made to the participating securities as the holders do not have a contractual obligation to share in the losses of the Company with
(4)
Class A shareholders.
For the year ended December 31, 2017, unvested RSUs were determined to be dilutive, and were accordingly included in the diluted earnings per share calculation. For the
year ended December 31, 2017, the share options, AOG Units and participating securities were determined to be anti-dilutive and were accordingly excluded from the
diluted earnings per share calculation. For the years ended December 31, 2018 and 2016, all of the classes of securities were determined to be anti-dilutive.
The Company has granted RSUs that provide the right to receive, subject to vesting during continued employment, Class A shares pursuant to the
2007 Equity Plan. The Company has three types of RSU grants, which we refer to as Plan Grants, Bonus Grants and Performance Grants. “Plan Grants” vest over
time (generally one to six years ) and may or may not provide the right to receive distribution equivalents on vested RSUs on an equal basis with the Class A
shareholders any time a distribution is declared. “Bonus Grants” vest over time (generally three years ) and generally provide the right to receive distribution
equivalents on both vested and unvested RSUs on an equal basis with the Class A shareholders any time a distribution is declared. “Performance Grants” generally
vest over time ( three to five years ), subject to the Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-
based compensation expense. Performance Grants provide the right to receive distribution equivalents on vested RSUs and may also provide the right to receive
distribution equivalents on unvested RSUs.
Any distribution equivalent paid to an employee will not be returned to the Company upon forfeiture of the award by the employee. Vested and
unvested RSUs that are entitled to non-forfeitable distribution equivalents qualify as participating securities and are included in the Company’s basic and diluted
earnings per share computations using the two-class method. The holder of an RSU participating security would have a contractual obligation to share in the losses
of the entity if the holder is obligated to fund the losses of the issuing entity or if the contractual principal or mandatory redemption amount of the participating
- 186 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
security is reduced as a result of losses incurred by the issuing entity. The RSU participating securities do not have a mandatory redemption amount and the holders
of the participating securities are not obligated to fund losses, therefore, neither the vested RSUs nor the unvested RSUs are subject to any contractual obligation to
share in losses of the Company.
Holders of AOG Units are subject to the transfer restrictions set forth in the agreements with the respective holders and may, a limited number of
times each year, upon notice (subject to the terms of the Exchange Agreement), exchange their AOG Units for Class A shares on a one -for- one basis. An AOG
Unit holder must exchange one unit in each of the Apollo Operating Group partnerships to effectuate an exchange for one Class A share.
Apollo Global Management, LLC has one Class B share outstanding, which is held by BRH Holdings GP, Ltd. (“BRH”). The voting power of the
Class B share is reduced on a one vote per one AOG Unit basis in the event of an exchange of AOG Units for Class A shares, as discussed above. The Class B
share has no net income (loss) per share as it does not participate in Apollo’s earnings (losses) or distributions. The Class B share has no distribution or liquidation
rights. The Class B share has voting rights on a pari passu basis with the Class A shares. The Class B share represented 52.4% , 53.9% and 60.5% of the total
voting power of the Company’s shares entitled to vote as of December 31, 2018, 2017 and 2016 , respectively.
The following table summarizes the anti-dilutive securities.
Weighted average vested RSUs
Weighted average unvested RSUs
Weighted average unexercised options
Weighted average AOG Units outstanding
Weighted average unvested restricted shares
12 . EQUITY-BASED COMPENSATION
For the Years Ended December 31,
2018
2017
2016
384,592
8,850,291
204,167
454,929
N/A
213,545
1,466,803
5,975,293
222,920
203,019,177
211,360,975
215,917,462
872,252
300,921
82,301
Equity-based awards granted to employees and non-employees as compensation are measured based on the grant date fair value of the award. Equity-
based awards that do not require future service (i.e., vested awards) are expensed immediately. Equity-based employee awards that require future service are
expensed over the relevant service period. Equity-based awards that require performance metrics to be met are expensed only when the performance metric is met
or deemed probable.
RSUs
The Company grants RSUs under the 2007 Equity Plan. The fair value of all grants is based on the grant date fair value, which considers the public
share price of the Company’s Class A shares subject to certain discounts, as applicable. The following table summarizes the weighted average discounts for Plan
Grants, Bonus Grants and Performance Grants.
For the Years Ended December 31,
2018
2017
2016
Plan Grants:
Discount for the lack of distributions until vested (1)
Marketability discount for transfer restrictions (2)
12.0%
4.7%
11.8%
3.6%
Bonus Grants:
Marketability discount for transfer restrictions (2)
2.3%
2.3%
Performance Grants:
Discount for the lack of distributions until vested (1)
Marketability discount for transfer restrictions (2)
12.8%
5.6%
N/A
N/A
14.0%
3.8%
2.1%
N/A
N/A
(1) Based on the present value of a growing annuity calculation.
(2) Based on the Finnerty Model calculation.
- 187 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The estimated total grant date fair value for Plan Grants and Bonus Grants is charged to compensation expense on a straight-line basis over the vesting
period, which for Plan Grants is generally one to six years, with the first installment vesting one year after grant and quarterly vesting thereafter, and for Bonus
Grants is generally annual vesting over three years.
During the year ended December 31, 2018 , the Company awarded Performance Grants of 5.6 million RSUs to certain employees with a grant date fair
value of $171.7 million , which vest over time (generally 3 to 5 years) subject to the receipt of performance revenues, within prescribed periods, sufficient to cover
the associated equity-based compensation expense. In accordance with U.S. GAAP, equity-based compensation expense for such awards will be recognized on an
accelerated recognition method over the requisite service period to the extent the performance revenue metrics are met or deemed probable. Accordingly, for the
year ended December 31, 2018 , equity-based compensation expense of $75.2 million was recognized relating to these Performance Grants.
Additionally, the Company entered into an agreement in 2018 with several employees under which it expects to grant them RSUs beginning in 2020 if
year-over-year growth in certain discretionary earnings metrics is attained prior to grant and they remain employed at the grant date. Once granted, these RSUs will
vest based on both continued service and the Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-based
compensation expense. In accordance with U.S. GAAP, equity-based compensation expense for such awards, if and when granted, will be recognized on an
accelerated recognition method over the requisite service period to the extent the performance revenue metrics are met or deemed probable. No equity-based
compensation expense was recognized related to these RSUs for the year ended December 31, 2018.
The fair value of all RSU grants made during the years ended December 31, 2018, 2017 and 2016 was $256.1 million , $33.2 million and $62.6
million , respectively.
The following table presents the actual forfeiture rates and equity-based compensation expense recognized:
Actual forfeiture rate
Equity-based compensation
The following table summarizes RSU activity:
For the Years Ended December 31,
2018
2017
2016
7.8%
9.8%
$
146,708
$
68,225
$
8.8%
67,958
Balance at January 1, 2018
Granted
Forfeited
Vested
Issued
Balance at December 31, 2018
Unvested
Weighted Average Grant
Date Fair Value
6,262,288
$
8,143,541
(1,127,396)
(3,438,465)
—
9,839,968 (2)
$
15.58
31.45
19.74
20.48
18.63
26.52
Vested
2,802,277
—
—
3,438,465
(3,859,959)
2,380,783
Total Number of RSUs
Outstanding
9,064,565 (1)
8,143,541
(1,127,396)
—
(3,859,959)
12,220,751 (1)
(1) Amount excludes RSUs which have vested and have been issued in the form of Class A shares.
(2) RSUs were expected to vest over the weighted average period of 3.3 years.
- 188 -
Table of Contents
Restricted Share Awards
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The Company has granted restricted share awards under the 2007 Equity Plan primarily in connection with certain profit sharing arrangements. The
fair value of restricted share grants is the public share price of the Company’s Class A shares on the grant date. The grant date fair value of these awards is
recognized as equity-based compensation expense on a straight-line basis over the vesting period.
The fair value of restricted share award grants made during the years ended December 31, 2018, 2017 and 2016 was $30.2 million , $13.9 million and
$0.5 million , respectively.
The following table presents the actual forfeiture rates and equity-based compensation expense recognized:
Actual forfeiture rate
Equity-based compensation
The following table summarizes the restricted share award activity:
For the Years Ended December 31,
2018
2017
2016
2.9%
$
13,515
$
0.8%
5,064
$
1.6%
3,478
Balance at January 1, 2018
Granted
Forfeited
Issued
Vested
Balance at December 31, 2018
Unvested
Weighted Average Grant
Date Fair Value
Vested
Total Number of
Restricted Share Awards
Outstanding
508,202
$
927,020
(41,674)
—
(304,565)
1,088,983 (1)
$
27.21
32.57
30.16
29.74
29.74
30.96
—
—
—
(304,565)
304,565
—
508,202
927,020
(41,674)
(304,565)
—
1,088,983
(1) Restricted share awards were expected to vest over the next 1.9 years.
Restricted Stock and Restricted Stock Unit Awards—ARI and AMTG
ARI granted restricted stock awards and restricted stock unit awards ("ARI Awards") and Apollo Residential Mortgage, Inc. (“AMTG”) granted
restricted stock unit awards (“AMTG RSUs”) to the Company and certain employees of the Company. These awards generally vest over three years , either
quarterly or annually.
The awards granted to the Company are recorded as investments under the equity method of accounting and deferred revenue in the consolidated
statements of financial condition. As these awards vest, the deferred revenue is recognized as management fees.
The awards granted to the Company’s employees are recorded in other assets and other liabilities in the consolidated statements of financial condition.
The grant date fair value of the asset is amortized through equity-based compensation on a straight-line basis over the vesting period. The fair value of the liability
is remeasured each period with any changes in fair value recorded in compensation expense in the consolidated statements of operations. Compensation expense is
offset by related management fees earned by the Company from ARI and AMTG, respectively.
The grant date fair value of the employees’ awards is based on the then public share price of ARI and AMTG at grant, less discounts for transfer
restrictions, and has been categorized as Level II within the fair value hierarchy as a result.
The following table summarizes the management fees, compensation expense, and actual forfeiture rates for the AMTG RSUs.
- 189 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Management fees
Equity-based compensation
Actual forfeiture rate
$
2,478
2,478
0.1%
For the Year Ended December 31, 2016
During the year ended December 31, 2016, AMTG merged with and into ARI, with ARI continuing as the surviving entity in the merger. The
following table summarizes the management fees, equity-based compensation expense, and actual forfeiture rates for the ARI Awards:
Management fees
Equity-based compensation
Actual forfeiture rate
For the Years Ended December 31,
2018
2017
2016
$
11,952
$
11,952
2.6%
11,120
$
11,120
2.5%
6,643
6,643
3.8%
The following tables summarize activity for the ARI Awards that were granted to certain of the Company’s employees:
Balance at January 1, 2018
Granted
Forfeited
Delivered
Vested
Balance at December 31, 2018
ARI Awards Unvested
Grant Date Fair Value ARI Awards Vested
Weighted Average
Total Number of ARI
Awards Outstanding
1,202,365
$
1,006,800
(56,552)
—
(737,999)
1,414,614 (1)
$
17.09
16.35
18.01
18.29
16.35
16.91
1,040,711
—
—
(610,959)
737,999
1,167,751
2,243,076
1,006,800
(56,552)
(610,959)
—
2,582,365
(1) ARI Awards were expected to vest over the next 2.4 years.
Athene Holding
The Company has granted Athene Holding restricted share awards to certain employees of the Company. Separately, Athene Holding has also granted
restricted share awards to certain employees of the Company. Both awards are collectively referred to as the “AHL Awards.” Certain of the AHL Awards function
similarly to options as they are exchangeable for Class A shares of Athene Holding upon payment of a conversion price and the satisfaction of certain other
conditions. The awards granted are either subject to time-based vesting conditions that generally vest over three to five years or vest upon achieving certain
metrics, such as attainment of certain rates of return and realized cash received by certain investors in Athene Holding upon sale of their shares.
The Company records the AHL Awards in other assets and other liabilities in the consolidated statements of financial condition. The fair value of the
asset is amortized through equity-based compensation over the vesting period. The fair value of the liability is remeasured each period, with any changes in fair
value recorded in compensation expense in the consolidated statements of operations. For AHL Awards granted by Athene Holding, compensation expense related
to amortization of the asset is offset, with certain exceptions, by related management fees earned by the Company from Athene.
The grant date fair value of the AHL Awards is based on the share price of Athene Holding, less discounts for transfer restrictions, and has been
categorized as Level II within the fair value hierarchy as a result. The AHL Awards that function similarly to options were valued using a multiple-scenario model,
which considers the price volatility of the underlying share price of Athene Holding, time to expiration and the risk-free rate, while the other awards were valued
using the share price of Athene Holding less any discounts for transfer restrictions.
- 190 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following table summarizes the management fees, equity-based compensation expense and actual forfeiture rates for the AHL Awards:
For the Years Ended December 31,
2018
2017
2016
Management fees
Equity-based compensation
Actual forfeiture rate
$
(2,743)
$
(2,136)
3.6%
4,058
$
6,913
0.1%
19,173
20,560
3.2%
The following table summarizes activity for the AHL Awards that were granted to certain employees of the Company:
Balance at January 1, 2018
Granted
Vested
Forfeited
Delivered
Balance at December 31, 2018
AHL Awards Unvested
Weighted Average
Grant Date Fair Value
AHL Awards Vested
Total Number of AHL
Awards Outstanding
334,791
$
843
(180,275)
(11,960)
—
143,399 (1)
$
16.45
44.74
11.83
24.66
10.68
21.75
632,290
—
180,275
—
(206,214)
606,351
967,081
843
—
(11,960)
(206,214)
749,750
(1)
135,649 AHL Awards are expected to vest over the next 1.1 years and 7,750 AHL Awards may vest if certain performance metrics are achieved.
Equity-Based Compensation Allocation
Equity-based compensation is allocated based on ownership interests. Therefore, the amortization of equity-based compensation is allocated to
shareholders’ equity attributable to AGM and the Non-Controlling Interests, which results in a difference in the amounts charged to equity-based compensation
expense and the amounts credited to shareholders’ equity attributable to AGM in the Company’s consolidated financial statements.
Below is a reconciliation of the equity-based compensation allocated to Apollo Global Management, LLC:
RSUs, share options and restricted share awards
AHL Awards
Other equity-based compensation awards
Total equity-based compensation
Less other equity-based compensation awards (2)
Capital increase related to equity-based compensation
For the Year Ended December 31, 2018
Non-Controlling
Interest % in Apollo
Operating Group
Allocated to Non-
Controlling Interest in
Apollo Operating
Group (1)
Allocated to Apollo
Global Management,
LLC
—% $
— $
50.1
50.1
(1,070)
7,913
6,843
(6,843)
$
— $
159,575
(1,066)
7,876
166,385
(18,848)
147,537
Total Amount
$
$
159,575
(2,136)
15,789
173,228
- 191 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
RSUs, share options and restricted share awards
AHL Awards
Other equity-based compensation awards
Total equity-based compensation
Less other equity-based compensation awards (2)
Capital increase related to equity-based compensation
RSUs, share options and restricted share awards
AHL Awards
Other equity-based compensation awards
Total equity-based compensation
Less other equity-based compensation awards (2)
Capital increase related to equity-based compensation
Total Amount
73,352
6,913
11,185
91,450
Total Amount
71,562
20,560
10,861
102,983
$
$
$
$
For the Year Ended December 31, 2017
Non-Controlling
Interest % in Apollo
Operating Group
Allocated to Non-
Controlling Interest in
Apollo Operating
Group (1)
Allocated to Apollo
Global Management,
LLC
—% $
— $
51.5
51.5
3,560
5,760
9,320
(9,320)
$
— $
73,352
3,353
5,425
82,130
(9,956)
72,174
For the Year Ended December 31, 2016
Non-Controlling
Interest % in Apollo
Operating Group
Allocated to Non-
Controlling Interest in
Apollo Operating
Group (1)
Allocated to Apollo
Global Management,
LLC
—% $
— $
53.7
53.7
11,049
5,837
16,886
(16,886)
$
— $
71,562
9,511
5,024
86,097
(16,510)
69,587
(1) Calculated based on average ownership percentage for the period considering Class A share issuances during the period.
(2)
Includes equity-based compensation reimbursable by certain funds.
13 . EQUITY
Class A Shares
Class A shares represent limited liability company interests in the Company. Holders of Class A shares are entitled to participate in distributions from
the Company on a pro rata basis. Class A shareholders do not elect the Company’s manager or the manager’s executive committee and have limited voting rights.
During the years ended December 31, 2018, 2017 and 2016 , the Company issued Class A shares in settlement of vested RSUs. The Company has
generally allowed holders of vested RSUs and exercised share options to settle their tax liabilities by reducing the number of Class A shares issued to them, which
the Company refers to as “net share settlement.” Additionally, the Company has generally allowed holders of share options to settle their exercise price by reducing
the number of Class A shares issued to them at the time of exercise by an amount sufficient to cover the exercise price. The net share settlement results in a liability
for the Company and a corresponding accumulated deficit adjustment.
In February 2016, Apollo announced its adoption of a program to repurchase up to $250 million in the aggregate of its Class A shares, including up to
$150 million in the aggregate of its outstanding Class A shares through a share repurchase program and up to $100 million through net share settlement of equity-
based awards granted under the 2007 Equity Plan. In January 2019, Apollo increased its authorized share repurchase amount (see note 17 for details).
- 192 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The table below summarizes the issuance of Class A shares for equity-based awards:
Class A shares issued in settlement of vested RSUs and share options exercised (1)
Reduction of Class A shares issued (2)
Class A shares purchased related to share issuances and forfeitures (3)
Issuance of Class A shares for equity-based awards
For the Years Ended December 31,
2018
2017
2016
3,866,209
(1,311,108)
(208,521)
2,346,580
3,565,098
(1,318,632)
76,739
2,323,205
7,325,834
(2,700,530)
(2,117)
4,623,187
(1)
The gross value of shares issued was $129.0 million , $85.1 million and $108.7 million for the years ended December 31, 2018, 2017 and 2016 , respectively, based on the
closing price of a Class A share at the time of issuance.
(2) Cash paid for tax liabilities associated with net share settlement was $43.7 million , $31.7 million and $40.7 million for the years ended December 31, 2018, 2017 and
2016 , respectively.
(3) Certain Apollo employees receive a portion of the profit sharing proceeds of certain funds in the form of (a) restricted Class A shares of AGM that they are required to
purchase with such proceeds or (b) RSUs, in each case which equity-based awards generally vest over three years. These equity-based awards are granted under the
Company's 2007 Equity Plan. To prevent dilution on account of these awards, Apollo may, in its discretion, repurchase Class A shares on the open market and retire them.
During the years ended December 31, 2018, 2017 and 2016 , we issued 927,020 , 495,326 and 27,151 of such restricted shares and 85,371 , zero and zero of such RSUs
under the 2007 Equity Plan, respectively, and repurchased 1,093,867 , 413,850 and 27,151 Class A shares in open-market transactions not pursuant to a publicly-
announced repurchase plan or program, respectively. In addition, there were 41,674 , 4,737 and 2,117 restricted shares forfeited during the years ended December 31,
2018, 2017 and 2016 , respectively.
Additionally, during the years ended December 31, 2018, 2017 and 2016 , 1,608,009 , 233,248 and 954,447 Class A shares were repurchased in open
market transactions as part of the publicly announced share repurchase program adopted in February 2016, respectively, and such shares were subsequently
canceled by the Company. The Company paid $55.4 million , $6.9 million and $12.9 million for these open market share repurchases during the years ended
December 31, 2018, 2017 and 2016 , respectively.
Preferred Share Issuance
On March 7, 2017, Apollo issued 11,000,000 6.375% Series A Preferred shares (the “Series A Preferred shares”) for gross proceeds of $275.0 million
, or $264.4 million net of issuance costs and on March 19, 2018, Apollo issued 12,000,000 6.375% Series B Preferred shares (the “Series B Preferred shares” and
collectively with the Series A Preferred shares, the “Preferred shares”) for gross proceeds of $300.0 million , or $289.8 million net of issuance costs. When, as and
if declared by the manager of Apollo, distributions on the Preferred shares will be payable quarterly on March 15, June 15, September 15 and December 15 of each
year, beginning on June 15, 2018 for the Series B Preferred shares, at a rate per annum equal to 6.375% . Distributions on the Preferred shares are discretionary and
non-cumulative.
Subject to certain exceptions, unless distributions have been declared and paid or declared and set apart for payment on the Preferred shares for a
quarterly distribution period, during the remainder of that distribution period Apollo may not declare or pay or set apart payment for distributions on any Class A
shares or any other equity securities that the Company may issue in the future ranking as to the payment of distributions, junior to the Preferred shares (“Junior
Shares”) and Apollo may not repurchase any Junior Shares. These restrictions were not applicable during the initial distribution period, which was the period from
March 19, 2018 to but excluding June 15, 2018 for the Series B Preferred shares.
The Series A Preferred shares and the Series B Preferred shares may be redeemed at Apollo’s option, in whole or in part, at any time on or after
March 15, 2022 and March 15, 2023, respectively, at a price of $25.00 per Preferred share, plus declared and unpaid distributions to, but excluding, the redemption
date, without payment of any undeclared distributions. Holders of the Preferred shares will have no right to require the redemption of the Preferred shares and there
is no maturity date.
If a certain change of control event or a certain tax redemption event occurs prior to March 15, 2022 and March 15, 2023 for the Series A Preferred
shares and the Series B Preferred shares, respectively, the Preferred shares may be redeemed at Apollo’s option, in whole but not in part, upon at least 30 days’
notice, within 60 days of the occurrence of such change of control event or such tax redemption event, as applicable, at a price of $25.25 per Preferred share, plus
declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. If a certain rating agency event occurs
prior to March 15, 2023, the Series B Preferred shares may be redeemed at Apollo’s option, in whole but not in part, upon at least 30 days’ notice, within 60 days
of the occurrence of such rating agency event, at a price of $25.50 per Series B Preferred share,
- 193 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. If (i) a change of control event
occurs (whether before, on or after March 15, 2022 and March 15, 2023 for the Series A Preferred shares and the Series B Preferred shares, respectively) and
(ii) Apollo does not give notice prior to the 31st day following the change of control event to redeem all the outstanding Preferred shares, the distribution rate per
annum on the Preferred shares will increase by 5.00% , beginning on the 31st day following such change of control event.
The Preferred shares are not convertible into Class A shares and have no voting rights, except in limited circumstances as provided in the Company’s
limited liability company agreement. In connection with the issuance of the Preferred shares, certain Apollo Operating Group entities issued for the benefit of
Apollo a series of preferred units with economic terms that mirror those of the Preferred shares.
The table below summarizes the distributions on the Preferred shares:
Series A Preferred Shares total distribution
$
Series B Preferred Shares total distribution
17,531 $
14,131
13,538
—
—
—
For the Years Ended December 31,
2018
2017
2016
Distributions
The table below presents information regarding the quarterly distributions which were made at the sole discretion of the manager of the Company (in
millions, except per share data). Certain subsidiaries of AGM may be subject to U.S. federal, state, local and non-U.S. income taxes at the entity level and may pay
taxes and/or make payments under the tax receivable agreement in a given fiscal year; therefore, the net amounts ultimately distributed by AGM to its Class A
shareholders in respect of each fiscal year are generally expected to be less than the net amounts distributed to AOG Unitholders.
Distribution Declaration
Date
Distribution per
Class A Share
Distribution
Payment Date
Distribution to
Class A
Shareholders
Distribution to Non-
Controlling Interest
Holders in the Apollo
Operating Group
Total
Distributions
from Apollo
Operating Group
Distribution
Equivalents on
Participating
Securities
February 3, 2016
$
February 29, 2016
$
51.4 $
60.5
$
111.9 $
0.28
0.25
0.37
May 31, 2016
August 31, 2016
$
$
$
$
0.35 November 30, 2016
1.25
0.45
February 28, 2017
—
0.49
0.52
April 13, 2017
May 31, 2017
August 31, 2017
0.39 November 30, 2017
1.85
0.66
February 28, 2018
—
0.38
0.43
April 12, 2018
May 31, 2018
August 31, 2018
0.46 November 30, 2018
$
$
$
$
46.0
68.4
64.9
230.7 $
84.2 $
—
94.5
100.6
75.6
354.9 $
133.0 $
—
76.6
86.5
92.6
54.0
79.9
75.4
269.8
97.0
$
$
20.5 (1)
102.9
108.8
81.6
410.8
133.7
$
$
50.5 (1)
77.0
87.1
93.0
100.0
148.3
140.3
500.5 $
181.2 $
20.5
197.4
209.4
157.2
765.7 $
266.7 $
50.5
153.6
173.6
185.6
May 6, 2016
August 3, 2016
October 28, 2016
For the year ended
December 31, 2016
February 3, 2017
April 13, 2017
April 28, 2017
August 2, 2017
November 1, 2017
For the year ended
December 31, 2017
February 1, 2018
April 12, 2018
May 03, 2018
August 2, 2018
November 1, 2018
For the year ended
December 31, 2018
$
1.93
$
388.7 $
441.3
$
830.0 $
(1) On April 13, 2017 and April 12, 2018, the Company made a $0.10 and $0.25 per AOG Unit pro rata distribution, respectively, to the Non-Controlling Interest holders in
the Apollo Operating Group, in connection with taxes and payments made under the tax receivable agreement. See note 14 for more information regarding the tax
receivable agreement.
- 194 -
2.1
1.8
2.4
2.1
8.4
2.9
—
3.3
3.2
2.4
11.8
5.4
—
4.1
4.2
4.4
18.1
Table of Contents
Non-Controlling Interests
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The table below presents equity interests in Apollo’s consolidated, but not wholly-owned, subsidiaries and funds. Net income and comprehensive
income attributable to Non-Controlling Interests consisted of the following:
Net income attributable to Non-Controlling Interests in consolidated entities:
Interest in management companies and a co-investment vehicle (1)
Other consolidated entities
Net income attributable to Non-Controlling Interests in consolidated entities
Net income attributable to Non-Controlling Interests in the Apollo Operating Group:
Net income
Net income attributable to Non-Controlling Interests in consolidated entities
Net income (loss) after Non-Controlling Interests in consolidated entities
Adjustments:
Income tax provision (2)
NYC UBT and foreign tax benefit (3)
Net loss in non-Apollo Operating Group entities
Net income attributable to Series A Preferred Shareholders
Net income attributable to Series B Preferred Shareholders
Total adjustments
Net income (loss) after adjustments
Weighted average ownership percentage of Apollo Operating Group
Net income (loss) attributable to Non-Controlling Interests in Apollo Operating Group
Net income attributable to Non-Controlling Interests
Other comprehensive income (loss) attributable to Non-Controlling Interests
Comprehensive Income Attributable to Non-Controlling Interests
For the Years Ended December 31,
2018
2017
2016
4,176
$
4,415
$
27,472
31,648
$
4,476
8,891
$
7,403
(1,614)
5,789
19,251
$
1,443,639
$
(31,648)
(12,397)
86,021
(9,764)
(35,072)
(17,531)
(14,131)
9,523
(2,874)
(8,891)
1,434,748
325,945
(9,798)
(200,225)
(13,538)
—
102,384
1,537,132
970,307
(5,789)
964,518
90,707
(9,899)
(3,156)
—
—
77,652
1,042,170
50.3%
52.5%
54.0%
(2,021)
$
805,644
$
561,668
29,627
$
814,535
$
(17,409)
7,180
12,218
$
821,715
$
567,457
(2,587)
564,870
$
$
$
$
$
$
(1) Reflects the remaining interest held by certain individuals who receive an allocation of income from certain of the credit funds managed by Apollo.
(2) Reflects all taxes recorded in our consolidated statements of operations. Of this amount, U.S. federal, state, and local corporate income taxes attributable to APO Corp. are
added back to income of the Apollo Operating Group before calculating Non-Controlling Interests as the income allocable to the Apollo Operating Group is not subject to
such taxes.
(3) Reflects New York City Unincorporated Business Tax (“NYC UBT”) and foreign taxes that are attributable to the Apollo Operating Group and its subsidiaries related to
its operations in the U.S. as partnerships and in non-U.S. jurisdictions as corporations. As such, these amounts are considered in the income attributable to the Apollo
Operating Group.
14 . RELATED PARTY TRANSACTIONS AND INTERESTS IN CONSOLIDATED ENTITIES
Management fees, transaction and advisory fees and reimbursable expenses from the funds the Company manages and their portfolio companies are
included in due from related parties in the consolidated statements of financial condition. The Company also typically facilitates the payment of certain operating
costs incurred by the funds that it manages as well as their related parties. These costs are normally reimbursed by such funds and are included in due from related
parties. Other related party transactions include loans to employees and periodic sales of ownership interests in Apollo funds to employees. Due from related
parties and due to related parties are comprised of the following:
- 195 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Due from Related Parties:
Due from credit funds
Due from private equity funds
Due from real assets funds
Due from portfolio companies
Due from Contributing Partners, employees and former employees
Total Due from Related Parties
Due to Related Parties:
Due to Managing Partners and Contributing Partners
Due to credit funds
Due to private equity funds
Due to real assets funds
Distributions payable to employees
Total Due to Related Parties
Tax Receivable Agreement and Other
As of
December 31, 2018
As of
December 31, 2017
$
$
$
$
175,562 $
14,526
26,063
67,740
94,217
378,108 $
285,598 $
46,554
92,968
315
—
425,435 $
128,198
18,120
20,105
37,366
58,799
262,588
333,379
63,491
30,848
283
12
428,013
Subject to certain restrictions, each of the Managing Partners and Contributing Partners has the right to exchange their vested AOG Units for the
Company’s Class A shares. Certain Apollo Operating Group entities have made an election under Section 754 of the U.S. Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”), which will result in an adjustment to the tax basis of the assets owned by the Apollo Operating Group at the time of the
exchange. These exchanges will result in increases in tax deductions that will reduce the amount of tax that APO Corp. will otherwise be required to pay in the
future.
The tax receivable agreement provides for the payment to the Managing Partners and Contributing Partners of 85% of the amount of cash savings, if
any, in U.S. federal, state, local and foreign income taxes that APO Corp. would realize as a result of the increases in tax basis of assets that resulted from the 2007
Reorganization and exchanges of AOG Units for Class A shares. APO Corp. retains the benefit from the remaining 15% of actual cash tax savings. If the Company
does not make the required annual payment on a timely basis as outlined in the tax receivable agreement, interest is accrued on the balance until the payment date.
These payments are expected to occur approximately over the next 15 years .
As a result of the exchanges of AOG Units for Class A shares during the years ended December 31, 2018, 2017 and 2016 , a $37.9 million , $45.0
million and $6.2 million liability was recorded, respectively, to estimate the amount of the future expected payments to be made by APO Corp. to the Managing
Partners and Contributing Partners pursuant to the tax receivable agreement.
In April 2018, Apollo made a $50.3 million cash payment pursuant to the tax receivable agreement resulting from the realized tax benefit for the
2017 tax year. Additionally, in connection with this payment, the Company made a corresponding pro rata distribution of $50.5 million ( $0.25 per AOG Unit) to
the Non-Controlling Interest holders in the Apollo Operating Group. In April 2017, Apollo made a $17.9 million cash payment pursuant to the tax receivable
agreement resulting from the realized tax benefit for the 2016 tax year. Additionally, in connection with this payment, the Company made a corresponding pro rata
distribution of $20.5 million ( $0.10 per AOG Unit) to the Non-Controlling Interest holders in the Apollo Operating Group.
During the year ended December 31, 2018 , the Company remeasured the tax receivable agreement liability and recorded $35.4 million in other
income, net in the consolidated statements of operations due to a change in estimated state tax rates during the year. During the year ended December 31, 2017 ,
the Company remeasured the tax receivable agreement liability and recorded $200.2 million in other income, net in the consolidated statements of operations due
to changes in estimated tax rates resulting from legislative reforms in the TCJA. During the year ended December 31, 2016 , Company remeasured the tax
receivable agreement liability and recorded $3.2 million in other income, net in the consolidated statements of operations due to changes in estimated tax rates.
- 196 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Due from Contributing Partners, Employees and Former Employees
As of December 31, 2018 and December 31, 2017 , due from Contributing Partners, Employees and Former Employees includes various amounts due
to the Company including employee loans and return of profit sharing distributions. As of December 31, 2018 and December 31, 2017 , the balance included
interest-bearing employee loans receivable of $16.8 million and $15.3 million , respectively. The outstanding principal amount of the loans as well as all accrued
and unpaid interest is required to be repaid at the earlier of the eighth anniversary of the date of the relevant loan or at the date of the relevant employee’s
resignation from the Company.
The Company recorded a receivable from the Contributing Partners and certain employees and former employees for the potential return of profit
sharing distributions that would be due if certain funds were liquidated as of December 31, 2018 and December 31, 2017 of $66.3 million and $36.4 million ,
respectively.
Indemnity
Performance revenues from certain funds can be distributed to the Company on a current basis, but is subject to repayment by the subsidiaries of the
Apollo Operating Group that act as general partners of the funds in the event that certain specified return thresholds are not ultimately achieved. The Managing
Partners, Contributing Partners and certain other investment professionals have personally guaranteed, subject to certain limitations, the obligations of these
subsidiaries in respect of this general partner obligation. Such guarantees are several and not joint and are limited to a particular Managing Partner’s or
Contributing Partner’s distributions. Pursuant to an existing shareholders agreement, the Company has agreed to indemnify each of the Company’s Managing
Partners and certain Contributing Partners against all amounts that they pay pursuant to any of these personal guarantees in favor of certain funds that the Company
manages (including costs and expenses related to investigating the basis for or objecting to any claims made in respect of the guarantees) for all interests that the
Company’s Managing Partners and Contributing Partners have contributed or sold to the Apollo Operating Group.
Accordingly, in the event that the Company’s Managing Partners, Contributing Partners and certain investment professionals are required to pay
amounts in connection with a general partner obligation for the return of previously made distributions with respect to Fund IV, Fund V and Fund VI, the Company
will be obligated to reimburse the Company’s Managing Partners and certain Contributing Partners for the indemnifiable percentage of amounts that they are
required to pay even though the Company did not receive the certain distribution to which that general partner obligation related. The Company recorded an
indemnification liability of $12.2 million and $10.5 million as of December 31, 2018 and December 31, 2017 , respectively.
Due to Credit and Private Equity Funds
Based upon an assumed liquidation of certain of the credit and private equity funds the Company manages, the Company has recorded a general
partner obligation to return previously distributed performance allocations, which represents amounts due to these funds. The general partner obligation is
recognized based upon an assumed liquidation of a fund’s net assets as of the reporting date. The actual determination and any required payment of any such
general partner obligation would not take place until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise
set forth in the respective limited partnership agreement or other governing document of the fund.
There was a general partner obligation to return previously distributed performance allocations related to certain private equity funds of $93.0 million
and $30.1 million accrued as of December 31, 2018 and December 31, 2017 , respectively. There was a general partner obligation to return previously distributed
performance allocations related to certain credit funds of $44.1 million and $56.1 million accrued as of December 31, 2018 and December 31, 2017 , respectively.
Athene
Athene Holding was founded in 2009 to capitalize on favorable market conditions in the dislocated life insurance sector. Athene Holding, through its
subsidiaries, is a leading retirement services company that issues, reinsures and acquires retirement savings products designed for the increasing number of
individuals and institutions seeking to fund retirement needs. The products and services offered by Athene include fixed and fixed indexed annuity products,
reinsurance services offered to third-party annuity providers; and institutional products, such as funding agreements. Athene Holding became an effective registrant
under the Exchange Act on December 9, 2016. Athene Holding is currently listed on the New York Stock Exchange (NYSE) under the symbol “ATH”.
- 197 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The Company provides asset management and advisory services to Athene, including asset allocation services, direct asset management services, asset
and liability matching management, mergers and acquisitions, asset diligence hedging and other asset management services.
The Company, through its consolidated subsidiary Athene Asset Management, or AAM, earns management fees of 0.40% per year on all assets that it
manages in accounts owned by Athene in the U.S. and Bermuda or in accounts supporting reinsurance ceded to U.S. and Bermuda subsidiaries of Athene Holding
by third-party insurers (collectively, the “Athene Accounts”) up to $65.846 billion (the level of assets in the Athene North American Accounts as of December 31,
2016) and 0.30% per year on all assets in excess of $65.846 billion , respectively, subject to certain discounts and exceptions.
Athora
The Company, through its consolidated subsidiary, AAME, provides investment advisory services to certain portfolio companies of Apollo funds and
Athora, a strategic platform established to acquire or reinsure blocks of insurance business in the German and broader European life insurance market (collectively,
the “Athora Accounts”).
Athene and Athora Sub-Advised
The Company, through AAM, provides sub-advisory services with respect to a portion of the assets in the Athene Accounts. In addition, Apollo,
through AAME, provides sub-advisory services with respect to a portion of the assets in certain portfolio companies of Apollo funds and the Athora Accounts.
From time to time, Athene also invests in funds and investment vehicles that Apollo manages. The Company refers to such assets which are invested
directly as “Athene Assets Directly Invested.”
The Company broadly refers to “Athene Sub-Advised” assets as those assets in the Athene Accounts which the Company explicitly sub-advises as
well as Athene Assets Directly Invested. The Company broadly refers to “Athora Sub-Advised” assets as those assets in the Athora Accounts which the Company
explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages.
With limited exceptions, the sub-advisory fee arrangements between the Company, Athene, Athora and the fee arrangements with respect to Athene
Assets Directly Invested are presented in the following table:
Athene Accounts sub-advised by AAM (1) :
Assets up to $10.0 billion
Assets between $10.0 billion to $12.4 billion
Assets between $12.4 billion to $16.0 billion
Assets in excess of $16.0 billion
Athora Accounts sub-advised by AAME
As of
December 31, 2018
0.40%
0.35%
0.40%
0.35%
0.35%
Athene Assets Directly Invested (2)
0% to 1.75%
The sub-advisory fees with respect to the assets in the Athene North American Accounts are in addition to the management fee earned by the Company described above.
(1)
(2) With respect to Athene Assets Directly Invested, Apollo earns performance revenues of 0% to 20% in addition to the fees presented above. The fees set forth above with
respect to the Athene Assets Directly Invested, and the performance revenues that Apollo earns on such assets, are in addition to the fees described above, with certain
limited exceptions.
Investment Management Agreement Proposed Amendments - Athene Asset Management
On September 20, 2018, Athene and Apollo agreed to revise the existing fee arrangements between Athene and Apollo (the “proposed amended fee
agreement”). The proposed amended fee agreement remains subject to approval by Athene’s shareholders in 2019 of a bye-law amendment providing that Athene
will not elect to terminate the investment management arrangement between Athene and Apollo, except for cause, for a period of four years from the date of the
bye-law amendment and
- 198 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
thereafter only on each successive two -year anniversary of the expiration of the initial four -year period. Following the approval by Athene’s shareholders, the
proposed amended fee agreement would have retroactive effect to the month beginning January 1, 2019. The proposed amended fee agreement amends the existing
management fee and sub-advisory terms described above and provides for sub-allocation fees which vary based on portfolio allocation differentiation.
AAA Investments
Apollo, as general partner of AAA Investments, is generally entitled to performance allocations equal to 20% of the realized returns (net of related
expenses, including borrowing costs) on AAA Investments’ investment in Athene Holding, except that Apollo is not entitled to receive any performance
allocations with respect to the shares of Athene Holding that were acquired (and not in satisfaction of prior commitments to buy such shares) by AAA Investments
in the contribution of certain assets by AAA to Athene in October 2012.
The following table presents the performance allocations earned from AAA Investments:
Performance Allocations from AAA Investments, net (1)
$
(5,158) $
23,119 $
47,785
(1) Net of related profit sharing expense.
The following table presents the revenues earned in aggregate from Athene, Athora and AAA Investments:
For the Years Ended December 31,
2018
2017
2016
For the Years Ended December 31,
2018
2017
2016
Revenues earned in aggregate from Athene, Athora and AAA Investments, net
(1)(2)
$
310,412 $
529,150 $
547,031
(1) Consisting of management fees, sub-advisory fees, performance revenues from Athene, Athora and AAA Investments, as applicable (net of related profit sharing expense)
and changes in the market value of the Athene Holding shares owned directly by Apollo. These amounts exclude the deferred revenue recognized as management fees
associated with the vesting of AHL Awards granted to employees of Apollo as further described in note 12 .
(2) Gains (losses) on the market value of the shares of Athene Holding owned directly by Apollo were $(186.6) million , $95.5 million and $138.5 million for the years ended
December 31, 2018, 2017 and 2016 , respectively.
During the year ended December 31, 2018 , the Company received performance allocations of $169.9 million and settled $46.6 million of profit
sharing expense in the form of Athene Holding shares. The following table presents performance allocations and profit sharing payable from AAA Investments:
Performance allocations
Profit sharing payable
As of
December 31, 2018
As of
December 31, 2017
$
1,611 $
442
178,600
49,038
The Company’s economic ownership interest in Athene Holding is comprised of the following:
Indirect interest in Athene Holding:
Interest in AAA
Plus: Interest in AAA Investments
Total Interest in AAA and AAA Investments
Multiplied by: AAA Investments’ interest in Athene Holding
Indirect interest in Athene Holding
Plus: Direct interest in Athene Holding
Total interest in Athene Holding
- 199 -
As of
December 31, 2018
(1)
As of
December 31, 2017
(1)
2.2%
0.1%
2.3%
—%
—%
10.2%
10.2%
2.2%
0.1%
2.3%
14.0%
0.3%
8.5%
8.8%
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
(1) Ownership interest percentages are based on approximate share count as of the reporting date.
AAA Investments Credit Agreement
On April 30, 2015, Apollo entered into a revolving credit agreement with AAA Investments (“AAA Investments Credit Agreement”). Under the terms
of the AAA Investments Credit Agreement, the Company shall make available to AAA Investments one or more advances at the discretion of AAA Investments in
the aggregate amount not to exceed a balance of $10.0 million at an applicable rate of LIBOR plus 1.5% . The Company receives an annual commitment fee of
0.125% on the unused portion of the loan. As of December 31, 2018 and December 31, 2017 , $6.7 million and $4.5 million , respectively, had been advanced by
the Company and remained outstanding on the AAA Investments Credit Agreement. AAA Investments was obligated to pay the aggregate borrowings plus accrued
interest at the earlier of (a) the third anniversary of the closing date, or (b) the date that was fifteen months following the initial public offering of shares of Athene
Holding Ltd. (the “Maturity Date”). On January 30, 2019, the Company and AAA agreed to extend the maturity date of the AAA Investments Credit Agreement to
April 30, 2020. See note 17 for more information regarding the AAA Investments Credit Agreement.
AINV Amended and Restated Investment Advisory Management Agreement
On May 17, 2018, the board of directors of AINV approved an amended and restated investment advisory management agreement with Apollo
Investment Management, L.P., the Company’s consolidated subsidiary, which reduced the base management fee and revised the incentive fee on income to include
a total return requirement. Effective April 1, 2018, the base management fee was reduced from 2.0% to 1.5% of the average value of AINV’s gross assets
(excluding cash or cash equivalents but including other assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar
quarters; provided, however, the base management fee would be 1.0% of the average value of AINV’s gross assets (excluding cash or cash equivalents but
including other assets purchased with borrowed amounts) that exceeds the product of (i) 200% and (ii) the value of AINV’s net asset value at the end of the most
recently completed calendar quarter. In addition, beginning January 1, 2019, the incentive fee on income calculation included a total return requirement with a
rolling twelve quarter look-back starting from April 1, 2018. The incentive fee rate remained 20% and the performance threshold remained 1.75% per quarter ( 7%
annualized).
Regulated Entities
Apollo Global Securities, LLC (“AGS”) is a registered broker dealer with the SEC and is a member of the Financial Industry Regulatory Authority,
subject to the minimum net capital requirements of the SEC. AGS was in compliance with these requirements at December 31, 2018 . From time to time, this entity
is involved in transactions with related parties of Apollo, including portfolio companies of the funds Apollo manages, whereby AGS earns underwriting and
transaction fees for its services.
Other Transactions
The Company recognized $3.8 million and $6.2 million of other income in the consolidated statements of operations from the assignment of a CLO
collateral management agreement to a related party during the years ended December 31, 2018 and 2017 , respectively.
15 . COMMITMENTS AND CONTINGENCIES
Investment Commitments— As a limited partner, general partner and manager of the Apollo funds, Apollo had unfunded capital commitments as of
December 31, 2018 and December 31, 2017 of $1.2 billion and $1.7 billion , respectively, of which $469 million and $823 million related to Fund IX as of
December 31, 2018 and December 31, 2017 , respectively.
Debt Covenants— Apollo’s debt obligations contain various customary loan covenants. As of December 31, 2018 , the Company was not aware of
any instances of non-compliance with the financial covenants contained in the documents governing the Company’s debt obligations.
Litigation and Contingencies— Apollo is, from time to time, party to various legal actions arising in the ordinary course of business including claims
and lawsuits, reviews, investigations or proceedings by governmental and self-regulatory agencies regarding its business.
On April 15, 2013, Alfred J. Villalobos, the former principal of Arvco Capital Research (“Arvco”), a placement agent firm that Apollo at one time
used, and related entities (the “Arvco Debtors”) brought a civil action in the United States Bankruptcy Court for the District of Nevada against Apollo. This action
sought to recover purported fees the Arvco Debtors claimed Apollo
- 200 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
had not paid them for a portion of Arvco’s alleged placement agent services in connection with certain funds managed by Apollo. Subsequently, a Chapter 7
Trustee was appointed for the Arvco Debtors, and after a lengthy stay in light of a criminal case against Mr. Villalobos, and Mr. Villalobos’s death, the Trustee
filed an amended complaint, and Apollo asserted counterclaims for indemnification. On March 20, 2017, the court granted Apollo’s motion to dismiss certain
claims, leaving two breach of contract claims remaining. On October 20, 2017, the court granted summary judgment in favor of Apollo as to part of the remaining
claims, and on August 2, 2018, the court granted summary judgment for Apollo on the remaining claims. On November 13, 2018, Apollo and the Trustee entered
into a settlement agreement in which, in exchange for releases, the Trustee agreed not to appeal the grant of summary judgment in Apollo’s favor, and Apollo
agreed to withdraw its counterclaims. The Court approved the settlement on January 3, 2019.
On June 18, 2014, BOKF N.A. (the “First Lien Trustee”), the successor indenture trustee under the indenture governing the First Lien Notes issued by
Momentive Performance Materials, Inc. (“Momentive”), commenced a lawsuit in the Supreme Court for the State of New York, New York County against AGM
and members of an ad hoc group of Second Lien Noteholders (including, but not limited to, Euro VI (BC) S.a.r.l.). The First Lien Trustee amended its complaint
on July 2, 2014 (the “First Lien Intercreditor Action”). In the First Lien Intercreditor Action, the First Lien Trustee sought, among other things, a declaration that
the defendants violated an intercreditor agreement entered into between holders of the First Lien Notes and holders of the second lien notes. On July 16, 2014, the
successor indenture trustee under the indenture governing the 1.5 Lien Notes (the “1.5 Lien Trustee,” and, together with the First Lien Trustee, the “Indenture
Trustees”) filed an action in the Supreme Court of the State of New York, New York County that was substantially similar to the First Lien Intercreditor Action
(the “1.5 Lien Intercreditor Action,” and, together with the First Lien Intercreditor Action, the “Intercreditor Actions”). AGM subsequently removed the
Intercreditor Actions to federal district court, and the Intercreditor Actions were automatically referred to the Bankruptcy Court adjudicating the Momentive
chapter 11 bankruptcy cases. On August 15, 2014, the defendants in the Intercreditor Actions (including AGM) filed a motion to dismiss the 1.5 Lien Intercreditor
Action and a motion for judgment on the pleadings in the First Lien Intercreditor Action (the “Dismissal Motions”). On September 30, 2014, the Bankruptcy Court
granted the Dismissal Motions. Following the Bankruptcy Court’s denial of the Indenture Trustees’ attempts to amend their respective complaints, the Indenture
Trustees appealed the orders issued by the Bankruptcy Court. The federal district court consolidated those appeals. On November 30, 2018, the federal district
court issued its opinion affirming the Bankruptcy Court’s orders in their entirety.
On March 4, 2016, the Public Employees Retirement System of Mississippi filed a putative securities class action against Sprouts Farmers Market,
Inc. (“SFM”), several SFM directors (including Andrew Jhawar, an Apollo partner), AP Sprouts Holdings, LLC and AP Sprouts Holdings (Overseas), L.P. (the
“AP Entities”), which are controlled by entities managed by Apollo affiliates, and two underwriters of a March 2015 secondary offering of SFM common stock.
The AP Entities sold SFM common stock in the March 2015 secondary offering. The complaint, filed in Arizona Superior Court and captioned Public Employees
Retirement System of Mississippi v. Sprouts Farmers Market, Inc. (CV2016-050480), alleges that SFM filed a materially misleading registration statement for the
secondary offering that incorporated alleged misrepresentations in SFM’s 2014 annual report regarding SFM’s business prospects, and failed to disclose alleged
accelerating produce deflation. Plaintiff alleged causes of action against the AP Entities for violations of Sections 11 and 15 of the Securities Act of 1933, seeking
compensatory damages for alleged losses sustained from a decline in SFM’s stock price. Defendants moved to dismiss the action, and the court dismissed the
Section 11 claim against the AP Entities but not the Section 15 claim. On December 27, 2018, the parties executed a settlement agreement, and on December 28,
2018, the parties filed a motion for preliminary approval of the settlement.
On June 20, 2016 Banca Carige S.p.A. (“Carige”) commenced a lawsuit in the Court of Genoa (Italy) (No. 8965/2016), against its former Chairman,
its former Chief Executive Officer, AGM and certain entities (the “Apollo Entities”) organized and owned by investment funds managed by affiliates of AGM. The
complaint alleged that AGM and the Apollo Entities (i) aided and abetted breaches of fiduciary duty to Carige allegedly committed by Carige’s former Chairman
and former CEO in connection with the sale to the Apollo Entities of Carige subsidiaries engaged in the insurance business; and (ii) took wrongful actions aimed at
weakening Banca Carige’s financial condition supposedly to facilitate an eventual acquisition of Carige. The causes of action were based in tort under Italian law.
Carige purportedly seeks damages of €450 million in connection with the sale of the insurance businesses and €800 million for other losses. With judgment no.
3118/2018 published on December 6, 2018, the Court of Genoa fully rejected all the claims raised by Carige against AGM and the Apollo Entities, also awarding
attorneys' fees in their favor for an amount of €428,996.10 . Carige filed an appeal on January 3, 2019. A hearing before the Court of Appeals of Genoa is
scheduled for April 30, 2019. Although the case appears to be in its final stages, no reasonable estimate of possible loss, if any, can be made at this time.
- 201 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
On December 12, 2016, the CORE Litigation Trust (the “Trust”), which was created under the Chapter 11 reorganization plan for CORE Media and
other affiliated entities, including CORE Entertainment, Inc. (“CORE”), commenced an action in California Superior Court for Los Angeles County, captioned
Core Litigation Trust v. Apollo Global Management, LLC, et al., Case No. BC 643732, that was stayed on October 3, 2017, in favor of litigating in New York state
court. On November 9, 2017, the Trust commenced an action in the Supreme Court of the State of New York, captioned Core Litigation Trust v. Apollo Global
Management, LLC, et al., Index No. 656856/2017. The complaint names as defendants: (i) AGM and certain AGM affiliates including the Apollo-managed funds
that were CORE’s beneficial owners (the “CORE Funds”), (ii) Twenty-First Century Fox, Inc. (“Fox”) and certain Fox affiliates, (iii) Endemol USA Holding, Inc.
(“Endemol”) and certain Endemol-affiliated entities, and (iv) the joint venture through which the CORE Funds and Fox beneficially owned CORE Media and
Endemol Shine (the “JV”). The Trust asserts claims against (i) all defendants for tortiously interfering with $360 million in loans under the 2011 loan agreements
entered into between CORE and certain Lenders, and (ii) certain defendants for alter-ego and de-facto merger. The Trust seeks $240 million in compensatory,
unspecified punitive damages, pre-judgment interests, and costs and expenses. The Court has scheduled further oral argument on Defendants’ motions to dismiss
the complaint for May 6, 2019. On April 27, 2018, the Trust filed an adversary complaint in the Southern District of New York Bankruptcy Court captioned Core
Litigation Trust v. Apollo Global Management, LLC, et al., Adv. Pro. No. 18-01539. The complaint names as defendants (i) AGM and certain AGM affiliates
including the CORE Funds, (iii) certain former CORE directors who are current or former employees of AGM subsidiaries (the “Directors”), (iv) CORE
Entertainment Holdings (CORE’s direct parent), and (v) the JV (which the Trust voluntarily dismissed on August 24, 2018). The Trust asserts (i) fiduciary-duty
breach claims against the Directors and an aiding-and-abetting claim against AGM for allegedly preventing CORE Media from investing in the JV, and (ii)
fiduciary-duty breach claims against the Directors and Apollo CORE Holdings, aiding-and-abetting claims against all defendants, and a fraudulent conveyance
claim against AGM related to CORE Media paying $93 million to satisfy a legal judgment in March 2015. The Trust seeks unspecified compensatory damages, to
avoid and recover the $93 million judgment payment, pre-judgment interest, and costs and fees. Defendants’ motion to abstain or, in the alternative, to dismiss,
which was argued on December 11, 2018, is pending. Apollo believes the claims in each action are without merit. Because the actions are in their early stages, no
reasonable estimate of possible loss, if any, can be made at this time.
On August 3, 2017, a complaint was filed in the United States District Court for the Middle District of Florida against AGM, a senior partner of
Apollo and a former principal of Apollo by Michael McEvoy on behalf of a purported class of employees of subsidiaries of CEVA Group, LLC (“CEVA Group”)
who purchased shares in CEVA Investment Limited (“CIL”), the former parent company of CEVA Group. The complaint alleged that the defendants breached
fiduciary duties to and defrauded the plaintiffs by inducing them to purchase shares in CIL and subsequently participating in a debt restructuring of CEVA Group
in which shareholders of CIL did not receive a recovery. On February 9, 2018, the Bankruptcy Court for the Southern District of New York held that the claims
asserted in the complaint were assets of CIL, which is a chapter 7 debtor, and that the complaint was null and void as a violation of the automatic stay. McEvoy
subsequently revised his complaint to attempt to assert claims that do not belong to CIL. The amended complaint no longer names any individual defendants, but
Apollo Management VI, L.P. and CEVA Group have been added as defendants. The amended complaint purports to seek damages of approximately €30 million
and asserts, among other things, claims for violations of the Investment Advisers Act of 1940, breach of fiduciary duties, and breach of contract. On December 7,
2018, after receiving permission from the Bankruptcy Court, McEvoy filed his amended complaint in the District Court in Florida. Apollo is currently seeking
dismissal of this action and believes that there is no merit to the claims. Additionally, as the case is in its early stages, no reasonable estimate of possible loss, if
any, can be made at this time.
On December 21, 2017, Harbinger Capital Partners II, LP, Harbinger Capital Partners Master Fund I, Ltd., Harbinger Capital Partners Special
Situations Fund, L.P., Harbinger Capital Partners Special Situations GP, LLC, Harbinger Capital Partners Offshore Manager, L.L.C., Global Opportunities
Breakaway Ltd. (in voluntary liquidation), and Credit Distressed Blue Line Master Fund, Ltd. (collectively, “Harbinger”) commenced an action in New York
Supreme Court captioned Harbinger Capital Partners II LP et al. v. Apollo Global Management LLC, et al. (No. 657515/2017). The complaint names as defendants
(i) AGM, (ii) the funds managed by Apollo that invested in SkyTerra Communications, Inc. (“SkyTerra”) equity before selling their interests to Harbinger under an
April 2008 agreement that closed in 2010, and (iii) six former SkyTerra directors, five of whom are current or former Apollo employees. The complaint alleges
that during the period of Harbinger’s various equity and debt investments in SkyTerra, from 2004 to 2010, Defendants concealed from Harbinger material defects
in SkyTerra technology that was to be used to create a new mobile wi-fi network. The complaint alleges that Harbinger would not have made investments in
SkyTerra totaling approximately $1.9 billion had it known of the defects, and that the public disclosure of these defects ultimately led to SkyTerra filing for
bankruptcy in 2012 (after it had been renamed LightSquared). The complaint asserts claims against (i) all defendants for fraud, civil conspiracy, and negligent
misrepresentation, (ii) AGM and the Apollo-managed funds only for breach of fiduciary duty, breach of contract, and unjust enrichment, and (iii) the SkyTerra
director defendants only for aiding and abetting breach of
- 202 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
fiduciary duty. The complaint seeks $1.9 billion in damages, as well as punitive damages, interest, costs, and fees. On February 14, 2018, the parties filed a
stipulation in the state court to stay the state court action until December 31, 2018. The Court entered the stay on February 21, 2018. On February 14, 2018,
Defendants moved the United States Bankruptcy Court for the Southern District of New York to reopen the LightSquared bankruptcy proceeding for the limited
purpose of enforcing Harbinger’s assignment and release in that bankruptcy of the claims that it asserts in the New York state court action. On February 23, 2018,
Apollo filed a Notice of Adjournment on behalf of all parties that adjourned without date the hearing on the motion to reopen, to be rescheduled to a new date and
time following the expiration of the state-court stay. On January 4, 2019, the state court entered a stipulation submitted by the parties extending the stay until April
3, 2019. On January 11, 2019, Apollo filed a Notice of Adjournment in the Bankruptcy Court on behalf of all parties that adjourned the hearing on the motion to
reopen to May 29, 2019. Apollo believes these claims are without merit. Because this action is in its early stages, no reasonable estimate of possible loss, if any,
can be made at this time.
On February 9, 2018, plaintiffs Joseph M. Dropp, Mary E. Dropp, Robert Levine, Susan Levine, and Kaarina Pakka filed a complaint in the United
States District Court for the District of Nevada (the “Nevada Court”) against Apollo Management VIII, L.P. (“Management VIII”), AGM and Diamond Resorts
International, Inc. (“Diamond”) and several of its affiliates and executives. Plaintiffs, who allege that they bought vacation interest points from Diamond, allege
that the points are securities and that defendants violated federal securities laws by selling the points without registering them as securities. Plaintiffs also assert a
“control person” claim against Management VIII and AGM. Plaintiffs assert their claims on their own behalf and on behalf of a purported class of Diamond
customers who bought vacation interest points over a certain period of time. They seek injunctive relief prohibiting defendants from continuing to market and sell
unregistered securities, the right to rescind their purchases, and unspecified compensatory damages. On April 11, 2018, Defendants filed motions to sever Ms.
Pakka's claims from the claims of the other plaintiffs and to transfer those claims to the United States District Court for the District of Hawaii. On January 25,
2019, the Nevada Court entered an order granting defendants’ motion to compel the Dropps and Levines to arbitrate their claims individually and dismissing their
claims without prejudice to pursue them in arbitration. The Nevada Court also severed Ms. Pakka’s claims and transferred the complaint as to Ms. Pakka only to
the United States District Court for the District of Hawaii (the “Hawaii Court”). On January 28, 2019, the Hawaii Court entered an order directing Ms. Pakka to
file an amended complaint to reflect only the claims that were transferred to that Court, after she obtains Hawaii counsel. Ms. Pakka has not yet filed an amended
complaint. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can
be made at this time.
Five shareholders filed substantially similar putative class action lawsuits in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida in March, April, and May 2018, alleging violations of the Securities Act in connection with the January 19, 2018 IPO of ADT Inc. common stock.
The actions were consolidated on July 10, 2018, and the case was re-captioned In re ADT Inc. Shareholder Litigation. On August 24, 2018, the state-court
plaintiffs filed a consolidated complaint naming as defendants ADT Inc., several ADT officers and directors, the IPO underwriters (including Apollo Global
Securities, LLC), AGM and certain other Apollo affiliates. Plaintiffs generally allege that the registration statement and prospectus for the IPO contained false and
misleading statements and failed to disclose material information about certain litigation in which ADT was involved, ADT’s efforts to protect its intellectual
property, and competitive pressures ADT faced. Defendants filed motions to dismiss the consolidated complaint on October 23, 2018, and those motions are fully
briefed. On May 21, 2018, a similar shareholder class action lawsuit was filed in the United States District Court for the Southern District of Florida, naming as
defendants ADT, several officers and directors, and AGM. The federal action, captioned Perdomo v. ADT Inc., generally alleges that the registration statement was
materially misleading because it failed to disclose ongoing deterioration in ADT’s financial results, along with certain customer and business metrics. On July 20,
2018, several alleged ADT shareholders filed competing motions to be named lead plaintiff in the federal action. On November 20, 2018, the court appointed a
lead plaintiff, and on January 15, 2019, the lead plaintiff filed an amended complaint. The amended complaint names the same Apollo-affiliated defendants as the
state-court action, along with three new Apollo entities. The defendants’ deadline to respond to the complaint is March 29, 2019. In September and October 2018,
four shareholder derivative actions were also filed in the United States District Court for the Southern District of Florida. On November 19, 2018, the court
consolidated the derivative actions, and on November 26, 2018, plaintiffs filed a notice of voluntary dismissal without prejudice. Based on the allegations in the
complaints, Apollo believes that there is no merit to any of the claims against AGM or the other Apollo defendants. Thus, no reasonable estimate of possible loss,
if any, can be made at this time.
On May 3, 2018, Caldera Holdings Ltd, Caldera Life Reinsurance Company, and Caldera Shareholder, L.P. (collectively, “Caldera”) filed a summons
with notice in the Supreme Court of the State of New York, New York County, naming as defendants AGM, Apollo Management, L.P., Apollo Advisors VIII,
L.P., Apollo Capital Management VIII, LLC, Athene Asset
- 203 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Management, L.P., Athene Holding, Ltd., and Leon Black (collectively, “Defendants” and all but Athene Holding, Ltd., the “Apollo Defendants”). On July 12,
2018, Caldera filed a complaint, Index No. 652175/2018 (the “Complaint”), alleging three causes of action: (1) tortious interference with prospective business
relations/prospective economic advantage; (2) defamation/trade disparagement/injurious falsehood; and (3) unfair competition. The Complaint seeks damages of
no less than $1.5 billion , as well as exemplary and punitive damages, attorneys’ fees, interest, and an injunction. D efendants moved to dismiss the Complaint on
September 21, 2018 and Caldera filed an amended complaint on January 21, 2019. The Apollo Defendants believe that the claims contained in the Complaint lack
merit and intend to defend the case vigorously. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
Commitments and Contingencies— Apollo leases office space and certain office equipment under various lease and sublease arrangements, which
expire on various dates through 2036. As these leases expire, it can be expected that in the normal course of business, they will be renewed or replaced. Certain
lease agreements contain renewal options, rent escalation provisions based on certain costs incurred by the landlord or other inducements provided by the landlord.
Rent expense is accrued to recognize lease escalation provisions and inducements provided by the landlord, if any, on a straight-line basis over the lease term and
renewal periods where applicable. Apollo has entered into various operating lease service agreements in respect of certain assets.
As of December 31, 2018 , the approximate aggregate minimum future payments required for operating leases were as follows:
Aggregate minimum future
payments
$
39,970 $
25,923 $
33,022 $
36,243 $
35,231 $
400,889 $
571,278
2019
2020
2021
2022
2023
Thereafter
Total
The Company received $19.0 million in proceeds in connection with the early termination of a lease during the year ended December 31, 2017 which
was recorded in other income, net on the consolidated statements of operations.
Expenses related to non-cancellable contractual obligations for premises, equipment, auto and other assets were $40.4 million , $38.2 million and
$40.5 million for the years ended December 31, 2018, 2017 and 2016 , respectively, and are included in general, administrative and other on the consolidated
statements of operations.
Other long-term obligations relate to payments with respect to certain consulting agreements entered into by Apollo Investment Consulting LLC, a
subsidiary of Apollo, as well as long-term service contracts. A significant portion of these costs are reimbursable by funds or portfolio companies. As of
December 31, 2018 , fixed and determinable payments due in connection with these obligations were as follows:
Other long-term obligations
$
21,677 $
1,761 $
1,511 $
927 $
688 $
688 $
27,252
2019
2020
2021
2022
2023
Thereafter
Total
Contingent Obligations— Performance allocations with respect to certain funds are subject to reversal in the event of future losses to the extent of the
cumulative revenues recognized in income to date. If all of the existing investments became worthless, the amount of cumulative revenues that have been
recognized by Apollo through December 31, 2018 and that would be reversed approximates $2.4 billion . Management views the possibility of all of the
investments becoming worthless as remote. Performance allocations are affected by changes in the fair values of the underlying investments in the funds that
Apollo manages. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and
industry trading multiples. Movements in these items can affect valuations quarter to quarter even if the underlying business fundamentals remain stable.
Additionally, at the end of the life of certain funds that the Company manages, there could be a payment due to a fund by the Company if the
Company, as general partner, has received more performance allocations than was ultimately earned. The general partner obligation amount, if any, will depend on
final realized values of investments at the end of the life of each fund or as otherwise set forth in the respective limited partnership agreement of the fund. See note
14 to our consolidated financial statements for further details regarding the general partner obligation.
Certain funds may not generate performance allocations as a result of unrealized and realized losses that are recognized in the current and prior
reporting period. In certain cases, performance allocations will not be generated until additional unrealized
- 204 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
and realized gains occur. Any appreciation would first cover the deductions for invested capital, unreturned organizational expenses, operating expenses,
management fees and priority returns based on the terms of the respective fund agreements.
One of the Company’s subsidiaries, AGS, provides underwriting commitments in connection with securities offerings to the portfolio companies of
the funds Apollo manages. As of December 31, 2018 , there were no underwriting commitments outstanding related to such offerings.
As of December 31, 2018 , one of the Company’s subsidiaries had unfunded contingent commitments of $32.0 million , to facilitate fundings at
closing by lead arrangers for syndicated term loans issued by portfolio companies of funds managed by Apollo. The commitments expire by March 31, 2019 . As
of March 1, 2019 , the unfunded commitments were approximately $5.3 million .
Contingent Consideration— In connection with the acquisition of Stone Tower in April 2012, the Company agreed to pay the former owners of Stone
Tower a specified percentage of any future performance revenues earned from certain of the Stone Tower funds, CLOs, and strategic investment accounts. This
contingent consideration liability was determined based on the present value of estimated future performance revenue payments, and is recorded in profit sharing
payable in the consolidated statements of financial condition. The fair value of the remaining contingent obligation was $74.5 million and $92.6 million as of
December 31, 2018 and December 31, 2017 , respectively.
The contingent consideration obligations will be remeasured to fair value at each reporting period until the obligations are satisfied and are
characterized as Level III liabilities. The changes in the fair value of the contingent consideration obligations is reflected in profit sharing expense in the
consolidated statements of operations. See note 7 for further information regarding fair value measurements.
16 . SEGMENT REPORTING
Apollo conducts its business primarily in the United States and substantially all of its revenues are generated domestically. Apollo’s business is
conducted through three reportable segments: credit, private equity and real assets. Segment information is utilized by our Managing Partners, who operate
collectively as our chief operating decision maker, to assess performance and to allocate resources. These segments were established based on the nature of
investment activities in each underlying fund, including the specific type of investment made and the level of control over the investment.
The performance is measured by the Company’s chief operating decision maker on an unconsolidated basis because management makes operating
decisions and assesses the performance of each of Apollo’s business segments based on financial and operating metrics and data that exclude the effects of
consolidation of any of the affiliated funds.
Economic Income (Loss)
Economic Income (Loss), or “EI”, is a key performance measure used by management in evaluating the performance of Apollo’s credit, private equity
and real assets segments. Management believes the components of EI, such as the amount of management fees, advisory and transaction fees and performance fees,
are indicative of the Company’s performance. Management uses EI in making key operating decisions such as the following:
•
•
•
Decisions related to the allocation of resources such as staffing decisions including hiring and locations for deployment of the new
hires;
Decisions related to capital deployment such as providing capital to facilitate growth for the business and/or to facilitate expansion
into new businesses; and
Decisions related to expenses, such as determining annual discretionary bonuses and equity-based compensation awards to its
employees. With respect to compensation, management seeks to align the interests of certain professionals and selected other
individuals with those of the investors in such funds and those of the Company’s shareholders by providing such individuals a profit
sharing interest in the performance fees earned in relation to the funds. To achieve that objective, a certain amount of compensation
is based on the Company’s performance and growth for the year.
EI is a measure of profitability and has certain limitations in that it does not take into account certain items included under U.S. GAAP. EI represents
segment income (loss) before income tax provision excluding transaction-related charges arising from the 2007 private placement, and any acquisitions.
Transaction-related charges includes equity-based compensation charges,
- 205 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
the amortization of intangible assets, contingent consideration and certain other charges associated with acquisitions. In addition, EI excludes non-cash revenue
and expense related to equity awards granted by unconsolidated related parties to employees of the Company, compensation and administrative related expense
reimbursements, as well as the assets, liabilities and operating results of the funds and VIEs that are included in the consolidated financial statements. We believe
the exclusion of the non-cash charges related to the 2007 Reorganization for equity-based compensation provides investors with a meaningful indication of our
performance because these charges relate to the equity portion of our capital structure and not our core operating performance. EI also excludes impacts of the
remeasurement of the tax receivable agreement recorded in other income, which arises from changes in the associated deferred tax balance, including the impacts
related to the TCJA.
Management believes that excluding the remeasurement of the tax receivable agreement from EI is meaningful as it increases comparability between
periods. Remeasurement of the tax receivable agreement is an estimate, and may change due to changes in interpretations and assumptions based on additional
guidance that may be issued pertaining to the TCJA.
- 206 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following tables present financial data for Apollo’s reportable segments.
Revenues:
Management fees
Advisory and transaction fees, net
Performance fees (1) :
Unrealized (2)
Realized
Total performance fees
Principal investment income (loss)
Total Revenues (3)
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Equity-based (4)
Total profit sharing expense
Total compensation and benefits
Non-compensation expenses:
General, administrative and other
Placement fees
Total non-compensation expenses
Total Expenses (3)
Other Loss:
Net gains (losses) from investment activities
Net interest loss
Other income (loss), net
Total Other Loss (3)
Non-Controlling Interests
Economic Income (Loss) (3)
Total Assets (3)
As of and for the Year Ended December 31, 2018
Credit
Segment
Private Equity
Segment
Real Assets
Segment
Total Reportable
Segments
$
763,958 $
440,719 $
9,530
89,385
78,011 $
12,652
1,282,688
111,567
(6,911)
130,479
123,568
44,976
942,032
232,751
37,132
(523)
70,620
11,100
81,197
351,080
145,691
1,530
147,221
498,301
(135,285)
(18,778)
2,071
(151,992)
(5,008)
(941,690)
441,363
(500,327)
(39,382)
(9,605)
138,855
29,021
(319,939)
197,873
76,906
(45,160)
122,716
67,423
585
68,008
190,724
(51,185)
(14,694)
(2,053)
(67,932)
—
(4,168)
6,617
2,449
2,020
95,132
43,356
3,617
(973)
3,759
1,504
4,290
51,263
26,177
7
26,184
77,447
44
(4,101)
490
(3,567)
—
286,731 $
(268,261) $
14,118 $
(952,769)
578,459
(374,310)
7,614
1,027,559
414,962
69,770
(321,435)
272,252
89,510
40,327
525,059
239,291
2,122
241,413
766,472
(186,426)
(37,573)
508
(223,491)
(5,008)
32,588
2,569,872 $
1,982,553 $
239,221 $
4,791,646
$
$
- 207 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
(1)
(2)
Performance fees includes performance allocations and incentive fees.
Included in unrealized performance fees for the year ended December 31, 2018 was a reversal of previously realized performance fees due to the general partner obligation
to return previously distributed performance fees.
(3) Refer below for a reconciliation of total revenues, total expenses, other loss and total assets for Apollo’s total reportable segments to total consolidated revenues, total
consolidated expenses, total consolidated other income (loss) and total assets.
(4) Relates to amortization of equity-based awards granted under certain profit sharing arrangements.
Revenues:
Management fees
Advisory and transaction fees, net
Performance fees (1) :
Unrealized (2)
Realized
Total performance fees
Principal investment income
Total Revenues (3)
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Equity-based (4)
Total profit sharing expense
Total compensation and benefits
Non-compensation expenses:
General, administrative and other
Placement fees
Total non-compensation expenses
Total Expenses (3)
Other Income (Loss):
Net gains (losses) from investment activities
Net interest loss
Other income, net
Total Other Income (Loss) (3)
Non-Controlling Interests
Economic Income (3)
Total Assets (3)
As of and for the Year Ended December 31, 2017
Credit
Segment
Private Equity
Segment
Real Assets
Segment
Total Reportable
Segments
$
702,191 $
306,734 $
30,733
84,063
73,390 $
2,828
1,082,315
117,624
51,225
196,973
248,198
27,718
1,008,840
642,126
433,983
1,076,109
132,376
1,599,282
231,592
37,453
18,268
77,801
1,876
97,945
366,990
139,374
10,130
149,504
516,494
85,135
(23,709)
17,037
78,463
(4,379)
123,095
27,516
211,976
191,569
2,184
405,729
556,340
68,504
3,783
72,287
628,627
9,652
(16,597)
26,299
19,354
—
(4,786)
18,069
13,283
2,857
92,358
39,468
2,905
(3,925)
9,468
—
5,543
47,916
20,701
—
20,701
68,617
(13)
(4,678)
2,460
(2,231)
—
566,430 $
990,009 $
21,510 $
2,640,014 $
2,880,922 $
220,007 $
$
$
- 208 -
688,565
649,025
1,337,590
162,951
2,700,480
394,155
67,874
226,319
278,838
4,060
509,217
971,246
228,579
13,913
242,492
1,213,738
94,774
(44,984)
45,796
95,586
(4,379)
1,577,949
5,740,943
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
(1)
(2)
Performance fees includes performance allocations and incentive fees.
Included in unrealized performance fees for the year ended December 31, 2017 was a reversal of previously realized performance fees due to the general partner obligation
to return previously distributed performance fees.
(3) Refer below for a reconciliation of total revenues, total expenses and other income (loss) for Apollo’s total reportable segments to total consolidated revenues, total
consolidated expenses and total consolidated other income (loss) and total assets.
(4) Relates to amortization of equity-based awards granted under certain profit sharing arrangements.
For the Year Ended December 31, 2016
Credit Segment
Private Equity
Segment
Real Assets
Segment
Total Reportable
Segments
Revenues:
Management fees
Advisory and transaction fees, net
Performance fees (1) :
Unrealized (2)
Realized
Total performance fees
Principal investment income
Total Revenues (3)
Expenses:
Compensation and benefits:
Salary, bonus and benefits
Equity-based compensation
Profit sharing expense:
Unrealized
Realized
Total profit sharing expense
Total compensation and benefits
Non-compensation expenses:
General, administrative and other
Placement fees
Total non-compensation expenses
Total Expenses (2)
Other Income (Loss):
Net gains from investment activities
Net interest loss
Other income, net
Total Other Income (Loss) (2)
Non-Controlling Interests
Economic Income (2)
$
596,709 $
12,533
137,274
180,029
317,303
33,290
959,835
209,256
34,185
63,012
84,715
147,727
391,168
125,639
22,047
147,686
538,854
127,229
(20,669)
(4,500)
102,060
(7,464)
321,995 $
128,675
58,945 $
5,907
977,649
147,115
368,807
82,292
451,099
66,281
968,050
124,463
27,549
114,643
43,893
158,536
310,548
71,323
2,297
73,620
384,168
11,379
(14,187)
1,650
(1,158)
—
4,918
12,566
17,484
3,010
85,346
33,171
2,734
2,202
8,185
10,387
46,292
21,528
89
21,617
67,909
—
(4,163)
692
(3,471)
—
510,999
274,887
785,886
102,581
2,013,231
366,890
64,468
179,857
136,793
316,650
748,008
218,490
24,433
242,923
990,931
138,608
(39,019)
(2,158)
97,431
(7,464)
$
515,577 $
582,724 $
13,966 $
1,112,267
(1)
(2)
Performance fees includes performance allocations and incentive fees.
Included in unrealized performance fees from related parties for the year ended December 31, 2016 was a reversal of previously realized performance fees due to the
general partner obligation to return previously distributed performance fees. See note 14 for further details regarding the general partner obligation.
(3) Refer below for a reconciliation of total revenues, total expenses and other income (loss) for Apollo’s total reportable segments to total consolidated revenues, total
consolidated expenses and total consolidated other income (loss).
- 209 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following table reconciles total consolidated revenues to total revenues for Apollo’s reportable segments:
Total Consolidated Revenues
Equity awards granted by unconsolidated related parties, reimbursable expenses and other (1)
Adjustments related to consolidated funds and VIEs (1)
Total Reportable Segments Revenues
For the Years Ended December 31,
2018
2017
2016
$
$
1,093,065 $
2,771,803 $
(81,892)
16,386
(75,940)
4,617
1,027,559 $
2,700,480 $
2,073,562
(73,913)
13,582
2,013,231
(1) Represents advisory fees, management fees and performance fees earned from consolidated VIEs which are eliminated in consolidation. Includes non-cash revenues
related to equity awards granted by unconsolidated related parties to employees of the Company and certain compensation and administrative related expense
reimbursements.
The following table reconciles total consolidated expenses to total expenses for Apollo’s reportable segments:
Total Consolidated Expenses
Equity awards granted by unconsolidated related parties, reimbursable expenses and other (1)
Transaction-related compensation charges, net (1)
Reclassification of interest expenses
Amortization of transaction-related intangibles (1)
Total Reportable Segments Expenses
For the Years Ended December 31,
2018
2017
2016
902,939 $
1,360,049 $
1,165,918
(82,724)
9,558
(59,374)
(3,927)
(75,940)
(12,169)
(52,873)
(5,329)
766,472 $
1,213,738 $
(75,653)
(46,293)
(43,482)
(9,559)
990,931
$
$
(1) Represents the addition of expenses of consolidated funds and VIEs, transaction-related charges, non-cash expenses related to equity awards granted by unconsolidated
related parties to employees of the Company and certain compensation and administrative expenses. Transaction-related charges include equity-based compensation
charges, the amortization of intangible assets, contingent consideration and certain other charges associated with acquisitions.
The following table reconciles total consolidated other income (loss) to total other income (loss) for Apollo’s reportable segments:
Total Consolidated Other Income (Loss)
Reclassification of interest expense
Adjustments related to consolidated funds and VIEs (1)
Gain from remeasurement of tax receivable agreement liability
Total Reportable Segments Other Income (Loss)
(1) Represents the addition of other income of consolidated funds and VIEs.
$
$
- 210 -
For the Years Ended December 31,
2018
2017
2016
(84,854) $
357,830 $
(59,374)
(43,858)
(35,405)
(52,873)
(9,131)
(200,240)
(223,491) $
95,586 $
153,370
(43,482)
(12,457)
—
97,431
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following table presents the reconciliation of income before income tax provision reported in the consolidated statements of operations to
Economic Income:
Income before income tax provision
Adjustments:
Transaction-related charges (1)
Gain from remeasurement of tax receivable agreement liability
Net income attributable to Non-Controlling Interests in consolidated entities and
appropriated partners’ capital
Total consolidation adjustments and other
Economic Income
For the Years Ended December 31,
2018
2017
2016
105,272 $
1,769,584 $
1,061,014
(5,631)
(35,405)
(31,648)
(72,684)
17,496
(200,240)
(8,891)
(191,635)
57,042
—
(5,789)
51,253
32,588 $
1,577,949 $
1,112,267
$
$
(1)
Transaction-related charges include equity-based compensation charges, the amortization of intangible assets, contingent consideration and certain other charges
associated with acquisitions.
The following table presents the reconciliation of Apollo’s total reportable segment assets to total assets:
Total reportable segment assets
Adjustments (1)
Total assets
As of
December 31, 2018
As of
December 31, 2017
$
$
4,791,646 $
1,200,008
5,991,654 $
5,740,943
1,250,127
6,991,070
(1) Represents the addition of assets of consolidated funds and VIEs and consolidation elimination adjustments.
17 . SUBSEQUENT EVENTS
On January 31, 2019 , the Company declared a cash distribution of $0.56 per Class A share, which will be paid on February 28, 2019 to holders of
record on February 21, 2019 .
On January 31, 2019 , the Company declared a cash distribution of $0.398438 per Series A Preferred share and Series B Preferred share which will be
paid on March 15, 2019 to holders of record on March 1, 2019 .
On January 30, 2019, the Company and AAA agreed to extend the maturity date of the AAA Investments Credit Agreement to December 31, 2020.
See note 14 for information regarding the terms of the agreement.
In January 2019, Apollo increased its authorized share repurchase amount by $250 million bringing the total authorized repurchase amount to $500
million , which may be used to repurchase outstanding Class A shares as well as to reduce Class A shares to be issued to employees to satisfy associated tax
obligations in connection with the settlement of equity-based awards granted under the Company’s 2007 Omnibus Equity Incentive Plan (and any successor equity
plan thereto). Class A shares may be repurchased from time to time in open market transactions, in privately negotiated transactions, pursuant to a trading plan
adopted in accordance with Rule 10b5-1 of the Exchange Act, or otherwise, with the size and timing of these repurchases depending on legal requirements, price,
market and economic conditions and other factors. Apollo is not obligated under the terms of the program to repurchase any of its Class A shares. The repurchase
program has no expiration date and may be suspended or terminated by the Company at any time without prior notice. Class A shares repurchased as part of this
program will be canceled by the Company.
On February 7, 2019, AMH (the “Issuer”) issued $550 million in aggregate principal amount of its 4.872% Senior Notes due 2029 (the “2029 Senior
Notes”), at an issue price of 99.999% of par. The notes are fully and unconditionally guaranteed by Apollo’s indirect subsidiaries, Apollo Principal Holdings I,
L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo
Principal Holdings VI, L.P., Apollo Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P., Apollo Principal
Holdings X, L.P., Apollo Principal Holdings XI, LLC, Apollo Principal Holdings XII, L.P. and AMH Holdings (Cayman), L.P. Interest on the 2029 Senior Notes
is payable semi-annually in arrears on February 15 and August 15 of each year. The 2029 Senior Notes will mature
- 211 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
on February 15, 2029 unless earlier redeemed or repurchased. Net proceeds from the sale of the Notes will be used for general corporate purposes, including, at the
Issuer’s option, to be held in a custody account managed by Bank of America, National Association Holdings, L.P. as custodian and invested in U.S. Treasury
securities and money market funds (collectively, all such investments, the “Eligible Assets”). At the Issuer’s discretion, from time to time, the Issuer may
(i) remove all or any portion of the Eligible Assets from the custody account or (ii) add Eligible Assets to the custody account.
18 . QUARTERLY FINANCIAL DATA (UNAUDITED)
Revenues
Expenses
Other Income (Loss)
Income (Loss) Before Provision for Taxes
Net Income (Loss)
Net Income (Loss) Attributable to Apollo Global Management, LLC Class A
Shareholders
Net Income (Loss) per Class A Share - Basic
Net Income (Loss) per Class A Share - Diluted
Revenues
Expenses
Other Income
Income Before Provision for Taxes
Net Income
Net Income Attributable to Apollo Global Management, LLC Class A Shareholders
Net Income per Class A Share - Basic
Net Income per Class A Share - Diluted
For the Three Months Ended
March 31,
2018
June 30,
2018
September 30,
2018
December 31, 2018
166,903 $
523,316 $
517,731 $
214,875
(52,796)
(100,768) $
(109,348) $
301,394
(59,188)
162,734 $
143,810 $
312,727
176,780
381,784 $
362,692 $
(114,885)
73,943
(149,650)
(338,478)
(377,903)
(62,645) $
54,658 $
162,357 $
(196,408)
(0.34) $
(0.34) $
0.25 $
0.25 $
0.77 $
0.77 $
(1.00)
(1.00)
For the Three Months Ended
March 31,
2017
June 30,
2017
September 30,
2017
December 31, 2017
682,104 $
449,708 $
711,720 $
345,988
58,075
394,191 $
355,030 $
145,196 $
0.75 $
0.75 $
264,526
6,983
192,165 $
192,942 $
86,908 $
0.44 $
0.44 $
357,483
96,668
450,905 $
434,363 $
198,569 $
1.00 $
1.00 $
928,271
392,052
196,104
732,323
461,304
184,893
0.92
0.92
$
$
$
$
$
$
$
$
$
$
$
$
- 212 -
Table of Contents
ITEM 8A . UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS
OF FINANCIAL CONDITION
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(dollars in thousands, except share data)
As of December 31, 2018
Apollo Global
Management, LLC and
Consolidated Subsidiaries
Consolidated Funds
and VIEs
Eliminations
Consolidated
Assets:
Cash and cash equivalents
Restricted cash
U.S. Treasury securities, at fair value
Investments
Assets of consolidated variable interest entities:
Cash and cash equivalents
Investments, at fair value
Other assets
Incentive fees receivable
Due from related parties
Deferred tax assets, net
Other assets
Goodwill
Intangible assets, net
Total Assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and accrued expenses
Accrued compensation and benefits
Deferred revenue
Due to related parties
Profit sharing payable
Debt
Liabilities of consolidated variable interest entities:
Debt, at fair value
Other liabilities
Due to related parties
Other liabilities
Total Liabilities
Shareholders’ Equity:
Apollo Global Management, LLC shareholders’ equity:
Series A Preferred shares
Series B Preferred shares
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Apollo Global Management, LLC shareholders’ equity
Non-Controlling Interests in consolidated entities
Non-Controlling Interests in Apollo Operating Group
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
609,743 $
3,457
392,932
2,811,445
—
—
—
6,792
379,525
306,094
173,907
88,852
18,899
4,791,646 $
70,878 $
73,583
111,097
425,435
452,141
1,360,448
—
—
—
111,794
2,605,376
264,398
289,815
1,299,418
(473,275)
(3,925)
1,376,431
5,717
804,122
2,186,270
4,791,646 $
4 $
—
—
558
— $
—
—
609,747
3,457
392,932
(89,391)
2,722,612
49,671
1,175,985
65,543
—
—
—
—
—
—
—
(308)
—
—
(1,417)
—
(637)
—
—
49,671
1,175,677
65,543
6,792
378,108
306,094
173,270
88,852
18,899
1,291,761 $
(91,753)
$
5,991,654
— $
—
—
—
—
—
899,651
79,244
1,787
—
980,682
—
—
—
17,673
(2,479)
15,194
295,885
—
311,079
1,291,761 $
— $
—
—
—
—
—
(44,190)
(267)
(1,787)
—
(46,244)
—
—
—
(17,674)
2,245
(15,429)
(30,080)
—
(45,509)
(91,753)
$
70,878
73,583
111,097
425,435
452,141
1,360,448
855,461
78,977
—
111,794
3,539,814
264,398
289,815
1,299,418
(473,276)
(4,159)
1,376,196
271,522
804,122
2,451,840
5,991,654
$
$
$
$
- 213 -
Table of Contents
APOLLO GLOBAL MANAGEMENT, LLC
CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(dollars in thousands, except share data)
Assets:
Cash and cash equivalents
Restricted cash
U.S. Treasury securities, at fair value
Investments
Assets of consolidated variable interest entities:
Cash and cash equivalents
Investments, at fair value
Other assets
Incentive fees receivable
Due from related parties
Deferred tax assets
Other assets
Goodwill
Intangible assets, net
Total Assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and accrued expenses
Accrued compensation and benefits
Deferred revenue
Due to related parties
Profit sharing payable
Debt
Liabilities of consolidated variable interest entities:
Debt, at fair value
Other liabilities
Due to related parties
Other liabilities
Total Liabilities
Shareholders’ Equity:
Apollo Global Management, LLC shareholders’ equity:
Series A Preferred shares
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Apollo Global Management, LLC shareholders’ equity
Non-Controlling Interests in consolidated entities
Non-Controlling Interests in Apollo Operating Group
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
As of December 31, 2017
Apollo Global
Management, LLC and
Consolidated Subsidiaries
Consolidated Funds
and VIEs
Eliminations
Consolidated
751,252 $
3,875
364,649
3,637,042
—
—
—
43,176
263,572
337,638
232,045
88,852
18,842
5,740,943 $
68,873 $
62,474
128,146
428,013
752,276
1,362,402
—
—
—
173,369
2,975,553
264,398
1,579,797
(379,461)
(1,878)
1,462,856
7,750
1,294,784
2,765,390
5,740,943 $
21 $
—
—
854
— $
—
—
751,273
3,875
364,649
(78,062)
3,559,834
92,912
1,196,512
39,484
—
—
—
5
—
—
—
(322)
—
—
(984)
—
(293)
—
—
92,912
1,196,190
39,484
43,176
262,588
337,638
231,757
88,852
18,842
1,329,788 $
(79,661)
$
6,991,070
— $
—
—
—
—
—
1,049,235
115,951
2,719
—
1,167,905
—
—
9,037
(381)
8,656
153,227
—
161,883
1,329,788 $
— $
—
—
—
—
—
(47,172)
(293)
(2,719)
—
(50,184)
—
—
(9,036)
450
(8,586)
(20,891)
—
(29,477)
(79,661)
$
68,873
62,474
128,146
428,013
752,276
1,362,402
1,002,063
115,658
—
173,369
4,093,274
264,398
1,579,797
(379,460)
(1,809)
1,462,926
140,086
1,294,784
2,897,796
6,991,070
$
$
$
$
- 214 -
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A .
CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are
designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required
to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities
and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
No changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act)
occurred during our most recent quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of Apollo is responsible for establishing and maintaining adequate internal control over financial reporting. Apollo’s internal control
over financial reporting is a process designed under the supervision of its principal executive and principal financial officers to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America.
Apollo’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Apollo’s assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of Apollo’s internal control over financial reporting as of December 31, 2018 based on the
framework established in Internal
Control
-
Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has determined that Apollo’s internal control over financial reporting as of December 31, 2018 was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited Apollo’s financial statements included in this annual report on
Form 10-K and issued its report on the effectiveness of Apollo’s internal control over financial reporting as of December 31, 2018 , which is included herein.
- 215 -
Table of Contents
ITEM 9B .
OTHER INFORMATION
None.
- 216 -
Table of Contents
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table presents certain information concerning our board of directors and executive officers:
Name
Age
Position(s)
Leon Black
Joshua Harris
Marc Rowan
Anthony Civale
Martin Kelly
Scott Kleinman
John Suydam
James Zelter
Michael Ducey
Robert Kraft
A.B. Krongard
Pauline Richards
67
54
56
44
51
46
59
56
70
77
82
70
Chairman, Chief Executive Officer and Director
Senior Managing Director and Director
Senior Managing Director and Director
Co-Chief Operating Officer
Chief Financial Officer and Co-Chief Operating Officer
Co-President
Chief Legal Officer
Co-President
Director
Director
Director
Director
Leon Black. Mr. Black is the Chairman of the board of directors and Chief Executive Officer of Apollo and a Managing Partner of Apollo
Management, L.P. In 1990, Mr. Black founded Apollo Management, L.P. and Lion Advisors, L.P. to manage investment capital on behalf of a group of
institutional investors, focusing on corporate restructuring, leveraged buyouts and taking minority positions in growth-oriented companies. From 1977 to 1990,
Mr. Black worked at Drexel Burnham Lambert Incorporated, where he served as a Managing Director, head of the Mergers & Acquisitions Group, and co-head of
the Corporate Finance Department. Mr. Black previously served on the boards of directors of the general partner of AAA and of Sirius XM Radio Inc. Mr. Black is
a Co-Chairman of The Museum of Modern Art and a trustee of The Mount Sinai Medical Center and The Asia Society. He is also a member of The Council on
Foreign Relations and The Partnership for New York City. He is also a member of the board of directors of FasterCures. Mr. Black graduated summa cum laude
from Dartmouth College in 1973 with a major in Philosophy and History and received an MBA from Harvard Business School in 1975. Mr. Black has significant
experience making and managing private equity investments on behalf of Apollo and has over 39 years’ experience financing, analyzing and investing in public
and private companies. In his prior positions with Drexel and in his positions at Apollo, Mr. Black is responsible for leading and overseeing teams of professionals.
His extensive experience allows Mr. Black to provide insight into various aspects of Apollo’s business and is of significant value to the board of directors.
Joshua Harris. Mr. Harris is a Senior Managing Director and a member of the board of directors of Apollo and a Managing Partner of Apollo
Management, L.P., which he co-founded in 1990. Prior to 1990, Mr. Harris was a member of the Mergers and Acquisitions group of Drexel Burnham Lambert
Incorporated. Mr. Harris is a member of the Federal Reserve Bank of New York’s Investor Advisory Committee on Financial Markets and the Council of Foreign
Relations. He is a Managing Partner of the Philadelphia 76ers, Managing Member of the New Jersey Devils, a General Partner of the Crystal Palace Football Club
and a member of the Board of Governors of the National Basketball Association. Mr. Harris also serves on the Board of Trustees of Mount Sinai Medical Center,
Harvard Business School and the Wharton School at the University of Pennsylvania. Mr. Harris has previously served on the board of directors of Berry Plastics
Group Inc., EP Energy Corporation, EPE Acquisition, LLC, CEVA Logistics, Constellium N.V., and LyondellBasell Industries B.V. Mr. Harris graduated summa
cum laude and Beta Gamma Sigma from the University of Pennsylvania’s Wharton School of Business with a B.S. in Economics and received his M.B.A. from the
Harvard Business School, where he graduated as a Baker and Loeb Scholar. Mr. Harris has significant experience in making and managing private equity
investments on behalf of Apollo and has over 29 years’ experience in financing, analyzing and investing in public and private companies. Mr. Harris’s extensive
knowledge of Apollo’s business and experience in a variety of senior leadership roles enhance the breadth of experience of the board of directors.
Marc Rowan. Mr. Rowan is a Senior Managing Director and member of the board of directors of Apollo and a Managing Partner of Apollo
Management, L.P., which he co-founded in 1990. Prior to 1990, Mr. Rowan was a member of the Mergers & Acquisitions Group of Drexel Burnham Lambert
Incorporated, with responsibilities in high yield financing, transaction idea generation and merger structure negotiation. Mr. Rowan currently serves on the boards
of directors of, inter alia, Athene Holding Ltd, Athora Holding Ltd. and VA Capital. He has previously served on the boards of directors of, inter alia, the general
- 217 -
Table of Contents
partner of AAA, AMC Entertainment, Inc., Cablecom GmbH, Caesars Acquisition Co., Caesars Entertainment Corporation, Caesars Entertainment Operating Co.,
Culligan Water Technologies, Inc., Countrywide Holdings Limited, Furniture Brands International Inc., Mobile Satellite Ventures, LLC, National Cinemedia, Inc.,
National Financial Partners, Inc., New World Communications, Inc., the New York City Police Foundation, Norwegian Cruise Lines, Quality Distribution, Inc.,
Samsonite Corporation, SkyTerra Communications Inc., Unity Media SCA, Vail Resorts, Inc. and Wyndham International, Inc. Mr. Rowan is also active in
charitable activities. He is a founding member and Chairman of the Youth Renewal Fund, is Chair of the Board of Overseers of the University of Pennsylvania’s
Wharton School of Business and is a member of the Board of Trustees of the University of Pennsylvania. Mr. Rowan also serves on the boards of directors of
Jerusalem U, Tapd, Inc. and Penthera Partners, Inc. Mr. Rowan graduated summa cum laude from the University of Pennsylvania’s Wharton School of Business
with a B.S. and an M.B.A. in Finance. Mr. Rowan has significant experience making and managing private equity investments on behalf of Apollo and has over 30
years’ experience financing, analyzing and investing in public and private companies. Mr. Rowan’s extensive financial background and expertise in private equity
investments enhance the breadth of experience of the board of directors.
Anthony Civale. Mr. Civale joined Apollo in 1999 and serves as Co-Chief Operating Officer of Apollo. Prior to his recent appointment, Mr. Civale
served as Lead Partner and Chief Operating Officer of Apollo’s credit business since 2011. Prior to 2011, Mr. Civale was a Senior Partner in Apollo's private
equity business and served on the Board of Directors of Berry Plastics Group, Goodman Global, Harrah's Entertainment, HFA Holdings Limited, and Prestige
Cruises. Mr. Civale has also been involved in charitable endeavors including his service on the Board of Trustees of Middlebury College and the Board of
Directors of both Youth, I.N.C. and Focus For a Future. Before joining Apollo, Mr. Civale was employed by Deutsche Bank Securities, Inc. and Bankers Trust
Company within the Corporate Finance division responsible for sourcing, structuring and executing financing and merger and acquisition advice for the firm's
private equity clients. Mr. Civale graduated from Middlebury College with a B.A. in Political Science.
Martin Kelly . Mr. Kelly joined Apollo in 2012 as Chief Financial Officer and now also serves as Co-Chief Operating Officer of Apollo. From 2008
to 2012, Mr. Kelly was with Barclays Capital and, from 2000 to 2008, Mr. Kelly was with Lehman Brothers Holdings Inc. Prior to departing Barclays Capital, Mr.
Kelly served as Managing Director, CFO of the Americas, and Global Head of Financial Control for their Corporate and Investment Bank. Prior to joining Lehman
Brothers in 2000, Mr. Kelly spent 13 years with PricewaterhouseCoopers LLP, including serving in the Financial Services Group in New York from 1994 to 2000.
Mr. Kelly was appointed a Partner of the firm in 1999. Mr. Kelly received a degree in Commerce, majoring in Finance and Accounting, from the University of
New South Wales in 1989.
Scott Kleinman. Mr. Kleinman joined Apollo in 1996 and serves as Co-President of Apollo and Lead Partner for Apollo’s private equity business. Mr.
Kleinman has served as Lead Partner for Apollo’s private equity business since 2009 and became Co-President in January 2018. Prior to 1996, Mr. Kleinman was a
member of the Investment Banking division at Smith Barney Inc. from 1994 to 1996. Mr. Kleinman serves on the board of directors of Constellis Holdings and
Momentive Performance Materials Holdings, Inc. In 2014, he founded the Kleinman Center for Energy Policy at the University of Pennsylvania. He is a member
of the Board of Overseers at the University of Pennsylvania School of Design. Mr. Kleinman received a B.A. and B.S. from the University of Pennsylvania and the
Wharton School of Business, respectively, graduating magna cum laude, Phi Beta Kappa.
John Suydam. Mr. Suydam joined Apollo in 2006 and serves as Apollo’s Chief Legal Officer. From 2002 to 2006, Mr. Suydam was a partner at
O’Melveny & Myers LLP where he served as head of Mergers and Acquisitions and co-head of the Corporate Department. Prior to that time, Mr. Suydam served
as Chairman of the law firm O’Sullivan, LLP which specialized in representing private equity investors. Mr. Suydam serves on the boards of The Legal Action
Center, Environmental Solutions Worldwide, Inc. and New York University School of Law, and is a member of the Department of Medicine Advisory Board of
the Mount Sinai Medical Center. Mr. Suydam received his J.D. from New York University and graduated magna cum laude with a B.A. in History from the State
University of New York at Albany.
James Zelter. Mr. Zelter joined Apollo in 2006 and serves as Co-President of Apollo and Chief Investment Officer of Apollo’s credit business. Mr.
Zelter has served as Chief Investment Officer of Apollo’s credit business since 2006 and became Co-President in January 2018. Since 2006, Mr. Zelter has also
served in several senior roles at Apollo Investment Corporation, a publicly traded vehicle managed by Apollo, and remains a director on its board of directors.
Prior to joining Apollo, Mr. Zelter was with Citigroup Inc. and its predecessor companies from 1994 to 2006. From 2003 to 2005, Mr. Zelter was Chief Investment
Officer of Citigroup Alternative Investments, and prior to that he was responsible for Citigroup’s Global High Yield franchise. Prior to joining Citigroup in 1994,
Mr. Zelter was a High Yield Trader at Goldman, Sachs & Co. Mr. Zelter has significant experience in global credit markets and has overseen the broad expansion
of Apollo’s credit platform. He is a board member of DUMAC, the investment management company that oversees both Duke University’s endowment and the
Duke Endowment. Mr. Zelter has a B.A. in Economics from Duke University.
- 218 -
Table of Contents
Michael Ducey. Mr. Ducey has served as an independent director of Apollo and a member of the audit committee and as Chairman of the conflicts
committee of our board of directors since 2011. Mr. Ducey was with Compass Minerals International, Inc., from March 2002 to May 2006, where he served in a
variety of roles, including as President, Chief Executive Officer and Director prior to his retirement in May 2006. Prior to joining Compass Minerals International,
Inc., Mr. Ducey worked for nearly 30 years at Borden Chemical, Inc., in various management, sales, marketing, planning and commercial development positions,
and ultimately as President, Chief Executive Officer and Director. Mr. Ducey joined Ciner Resources Corporation (formerly OCI Resources LP) as an independent
member of the board of directors in September 2014, where he serves on the audit committee and the conflicts committee. From May 2006 to July 2016, Mr.
Ducey was a member of the board of directors of Verso Paper Holdings, Inc. and served as Chairman of the audit committee. From September 2009 to December
2012, Mr. Ducey was the non-executive Chairman of TPC Group, Inc. and served on the audit committee and the environmental health and safety
committee. From June 2006 to May 2008, Mr. Ducey served on the board of directors of and as a member of the governance and compensation committee of the
board of directors of UAP Holdings Corporation. From July 2010 to May 2011, Mr. Ducey was a member of the board of directors and served on the audit
committee of Smurfit-Stone Container Corporation. From October 2010 to April 2017, Mr. Ducey served as the Chairman of the compliance and governance
committee and the nominations committee of the board of directors of HaloSource, Inc. Mr. Ducey graduated from Otterbein University with a degree in
Economics and an M.B.A. in finance from the University of Dayton. Mr. Ducey’s comprehensive corporate background and his experience serving on various
boards and committees add significant value to the board of directors.
Robert Kraft. Mr. Kraft has served as an independent director of Apollo since 2014. Mr. Kraft is Chairman and Chief Executive Officer of The Kraft
Group, which includes the New England Patriots, New England Revolution, Gillette Stadium, Rand-Whitney Group and International Forest Products Corporation.
Mr. Kraft serves on a number of NFL Committees, including the Executive Committee, Finance Committee and Broadcast Committee (Chairman). He also serves
as Chairman for both the New England Patriots Charitable Foundation and the Kraft Family Foundation, Inc., and is a Trustee of the Dana-Farber Cancer Institute.
He is a member of the executive committee of the Massachusetts Competitive Partnership. From 2006 to 2015, Mr. Kraft served as a member of the board of
directors of Viacom Inc. Mr. Kraft’s corporate strategic and operational experience combined with his strong relationships in the business community make him a
valuable board member of the board of directors.
A.B. Krongard. Mr. Krongard has served as an independent director of Apollo and as a member of the audit committee of our board of directors since
2011. Mr. Krongard also became a member of the conflicts committee of our board of directors in January 2019. From 2001 to 2004, Mr. Krongard served as
Executive Director of the Central Intelligence Agency. From 1998 to 2001, Mr. Krongard served as Counselor to the Director of Central Intelligence. Prior to
1998, Mr. Krongard served in various capacities at Alex Brown, Incorporated, including serving as Chief Executive Officer beginning in 1991 and assuming
additional duties as Chairman of the board of directors in 1994. Upon the merger of Alex Brown, Incorporated with Bankers Trust Corporation in 1997, Mr.
Krongard served as Vice-Chairman of the Board of Bankers Trust Corporation and served in such capacity until assuming his position at the Central Intelligence
Agency. Mr. Krongard serves as the Lead Director and chairman of the audit committee of Under Armour, Inc., and also serves as chairman of the nominating and
corporate governance committee and a member of the compensation committee of Iridium Communications Inc. Mr. Krongard also serves on the board of trustees
of In-Q-Tel, Inc. Mr. Krongard graduated with honors from Princeton University and received a J.D. from the University of Maryland School of Law, where he
also graduated with honors. Mr. Krongard’s comprehensive corporate background contributes to the range of experience of the board of directors.
Pauline Richards. Ms. Richards has served as an independent director of Apollo and as Chairman of the audit committee of our board of directors
since 2011. Ms. Richards currently serves as Chief Operating Officer of Armour Group Holdings Limited, a position she has held since 2008. Ms. Richards also
serves as a member of the Audit and Governance Committees of the board of directors of Wyndham Hotels and Resorts. Prior to mid-2018, Ms. Richards served
on the board of Wyndham Worldwide, a position she held since 2006; is a director of Hamilton Insurance Group, serving on the audit and investment committees,
a position she has held since 2013; and is the Treasurer of the board of directors of PRIDE Bermuda, a drug prevention organization of which she has been a
member for over 20 years. Prior to 2008, Ms. Richards served as Director of Development of Saltus Grammar School from 2003 to 2008, as Chief Financial
Officer of Lombard Odier Darier Hentsch (Bermuda) Limited from 2001 to 2003, and as Treasurer of Gulf Stream Financial Limited from 1999 to 2000. Ms.
Richards also served as a member of the Audit Committee and chair of the Corporate Governance Committee of the board of directors of Butterfield Bank from
2006 to 2013. Ms. Richards graduated from Queen’s University, Ontario, Canada, with a BA in psychology and has obtained certification as a CPA, CMA.
Ms. Richards’ extensive finance experience and her service on the boards of other public companies add significant value to the board of directors.
Our Manager
Our operating agreement provides that so long as the Apollo Group beneficially owns at least 10% of the aggregate number of votes that may be cast
by holders of outstanding voting shares, our manager, which is owned and controlled by our Managing Partners, will manage all of our operations and activities
and will have discretion over significant corporate actions,
- 219 -
Table of Contents
such as the issuance of securities, payment of distributions, sales of assets, making certain amendments to our operating agreement and other matters, and our
board of directors will have no authority other than that which our manager chooses to delegate to it. We refer to the Apollo Group’s beneficial ownership of at
least 10% of such voting power as the “Apollo control condition.” For purposes of our operating agreement, the “Apollo Group” means (i) our manager and its
affiliates, including their respective general partners, members and limited partners, (ii) Holdings and its affiliates, including their respective general partners,
members and limited partners, (iii) with respect to each Managing Partner, such Managing Partner and such Managing Partner’s “group” (as defined in Section
13(d) of the Exchange Act), (iv) any former or current investment professional of or other employee of an “Apollo employer” (as defined below) or the Apollo
Operating Group (or such other entity controlled by a member of the Apollo Operating Group), (v) any former or current executive officer of an Apollo employer
or the Apollo Operating Group (or such other entity controlled by a member of the Apollo Operating Group); and (vi) any former or current director of an Apollo
employer or the Apollo Operating Group (or such other entity controlled by a member of the Apollo Operating Group). With respect to any person, “Apollo
employer” means Apollo Global Management, LLC or such other entity controlled by Apollo Global Management, LLC or its successor as may be such person’s
employer but does not include any portfolio companies.
Decisions by our manager are made by its executive committee, the only voting members of which are our three Managing Partners. Each Managing
Partner will remain on the executive committee for so long as he is employed by us, provided that Mr. Black, upon his retirement, may at his option remain on the
executive committee until his death or disability or any commission of an act that would constitute cause if Mr. Black had still been employed by us. Other than
those actions that require unanimous consent, actions by the executive committee are determined by majority vote of its voting members, except as to the following
matters, as to which Mr. Black will have the right of veto: (i) the designations of directors to our board, or (ii) a sale or other disposition of the Apollo Operating
Group and/or its subsidiaries or any portion thereof, through a merger, recapitalization, stock sale, asset sale or otherwise, to an unaffiliated third party (other than
through an exchange of Apollo Operating Group units, transfers by a Managing Partner or a permitted transferee to another permitted transferee, or the issuance of
bona fide equity incentives to any of our non-Managing Partner employees) that constitutes (x) a direct or indirect sale of a ratable interest (or substantially ratable
interest) in each entity that constitutes the Apollo Operating Group or (y) a sale of all or substantially all of the assets of Apollo (this clause (ii), an “LB Approval
Event”). Exchanges of Apollo Operating Group units for Class A shares that are not pro rata among our Managing Partners or in which each Managing Partner has
the option not to participate are not subject to Mr. Black’s right of veto.
Subject to limited exceptions described in our operating agreement, our manager may not sell, exchange or otherwise dispose of all or substantially all
of our assets and those of our subsidiaries, taken as a whole, in a single transaction or a series of related transactions without the approval of holders of a majority
of the aggregate number of voting shares outstanding; provided, however, that this does not preclude or limit our manager’s ability, in its sole discretion, to
mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets and those of our subsidiaries (including for the benefit of persons
other than us or our subsidiaries, including affiliates of our manager) and does not apply to any forced sale of any or all of our assets pursuant to the foreclosure of,
or other realization upon, any such encumbrance.
We will reimburse our manager and its affiliates for all costs incurred in managing and operating us, and our operating agreement provides that our
manager will determine the expenses that are allocable to us. The agreement does not limit the amount of expenses for which we will reimburse our manager and
its affiliates.
Board Composition and Limited Powers of Our Board of Directors
For so long as the Apollo control condition is satisfied, our manager shall (i) nominate and elect all directors to our board of directors, (ii) set the
number of directors of our board of directors and (iii) fill any vacancies on our board of directors. After the Apollo control condition is no longer satisfied, each of
our directors will be elected by the vote of a plurality of our shares entitled to vote, voting as a single class, to serve until his or her successor is duly elected or
appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal. Our board currently consists of seven members. For so
long as the Apollo control condition is satisfied, our manager may remove any director, with or without cause, at any time. After such condition is no longer
satisfied, a director or the entire board of directors may be removed by the affirmative vote of holders of 50% or more of the total voting power of our shares.
As noted, so long as the Apollo control condition is satisfied, our manager will manage all of our operations and activities, and our board of directors
will have no authority other than that which our manager chooses to delegate to it. In the event that the Apollo control condition is not satisfied, our board of
directors will manage all of our operations and activities.
Pursuant to a delegation of authority from our manager, which may be revoked, our board of directors has established and at all times will maintain
audit and conflicts committees of the board of directors that have the responsibilities described below under “—Committees of the Board of Directors—Audit
Committee” and “—Committees of the Board of Directors—Conflicts Committee.”
- 220 -
Table of Contents
Where action is required or permitted to be taken by our board of directors or a committee thereof, a majority of the directors or committee members
present at any meeting of our board of directors or any committee thereof at which there is a quorum shall be the act of our board or such committee, as the case
may be. Our board of directors or any committee thereof may also act by unanimous written consent.
Under the Agreement Among Managing Partners (as described under “Item 13. Certain Relationships and Related Transactions—Lenders Rights
Agreement—Amendments to Managing Partner Transfer Restrictions”), the vote of a majority of the independent members of our board of directors will decide
the following: (i) in the event that a vacancy exists on the executive committee of our manager and the remaining members of the executive committee cannot
agree on a replacement (other than a replacement for Mr. Black nominated by Mr. Black or his representative, which requires the approval of only one member of
the executive committee), the independent members of our board of directors shall select one of the two nominees to the executive committee of our manager
presented to them by the remaining members of such executive committee to fill the vacancy on such executive committee and (ii) in the event that Mr. Black
wishes to exercise his ability to cause an LB Approval Event, the affirmative vote of the majority of the independent members of our board of directors shall be
required to approve such a transaction. We are not a party to the Agreement Among Managing Partners, and neither we nor our shareholders (other than our
Strategic Investor, as described under “Item 13. Certain Relationships and Related Transactions—Lenders Rights Agreement—Amendments to Managing Partner
Transfer Restrictions”) have any right to enforce the provisions described above. Such provisions can be amended or waived upon agreement of our Managing
Partners at any time.
Committees of the Board of Directors
We have established an audit committee as well as a conflicts committee. Our audit committee has adopted a charter that complies with current SEC
and NYSE rules relating to corporate governance matters. Our board of directors may from time to time establish other committees of our board of directors.
Audit Committee
The primary purpose of our audit committee is to assist our manager in overseeing and monitoring (i) the quality and integrity of our financial
statements, (ii) our compliance with legal and regulatory requirements, (iii) our independent registered public accounting firm’s qualifications and independence
and (iv) the performance of our independent registered public accounting firm.
The current members of our audit committee are Messrs. Ducey and Krongard and Ms. Richards. Ms. Richards currently serves as Chairperson of the
committee. Each of the members of our audit committee meets the independence standards and financial literacy requirements for service on an audit committee of
a board of directors pursuant to the Exchange Act and NYSE rules applicable to audit committees and corporate governance. Furthermore, our manager has
determined that Ms. Richards is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. Our audit committee has a charter
which is available on our website at www.apollo.com under the “Shareholders/Corporate Governance” section.
Conflicts Committee
The current members of our conflicts committee are Messrs. Ducey and Krongard. Mr. Ducey currently serves as Chairman of the committee. Mr.
Krongard became a member of the conflicts committee in January 2019. The purpose of the conflicts committee is to review specific matters that our manager
believes may involve conflicts of interest. The conflicts committee will determine whether the resolution of any conflict of interest submitted to it is fair and
reasonable to us. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us and not a breach by us of any duties
that we may owe to our shareholders. In addition, the conflicts committee may review and approve any related person transactions, other than those that are
approved pursuant to our related person policy, as described under “Item 13. Certain Relationships and Related Party Transactions—Statement of Policy Regarding
Transactions with Related Persons,” and may establish guidelines or rules to cover specific categories of transactions.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics, which applies to, among others, our principal executive officer, principal financial officer and
principal accounting officer. A copy of our Code of Business Conduct and Ethics is available on our website at www.apollo.com under the
“Shareholders/Corporate Governance” section. We intend to disclose any amendment to or waiver of the Code of Business Conduct and Ethics on behalf of an
executive officer or director either on our website or in an 8-K filing.
- 221 -
Table of Contents
Corporate Governance Guidelines
We have Corporate Governance Guidelines that address significant issues of corporate governance and set forth procedures by which our manager and
board of directors carry out their respective responsibilities. The guidelines are available for viewing on our website at www.apollo.com under the
“Shareholders/Corporate Governance” section. We will also provide the guidelines, free of charge, to shareholders who request them. Requests should be directed
to our Secretary at Apollo Global Management, LLC, 9 West 57th Street, 43rd Floor, New York, New York 10019.
Communications with the Board of Directors
A shareholder or other interested party who wishes to communicate with our directors, a committee of our board of directors, our independent
directors as a group or our board of directors generally may do so in writing. Any such communications may be sent to our board of directors by U.S. mail or
overnight delivery and should be directed to our Secretary at Apollo Global Management, LLC, 9 West 57th Street, 43rd Floor, New York, New York 10019, who
will forward them to the intended recipient(s). Any such communications may be made anonymously. Unsolicited advertisements, invitations to conferences or
promotional materials, in the discretion of our Secretary, are not required, however, to be forwarded to the directors.
Executive Sessions of Independent Directors
The independent directors serving on our board of directors meet periodically in executive sessions during the year at regularly scheduled meetings of
our board of directors. These executive sessions will be presided over by one of the independent directors serving on our board of directors selected on an ad-hoc
basis.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of the
Company’s equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and furnish us with copies of all Section 16(a)
forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us or written representations from such persons that they
were not required to file a Form 5 to report previously unreported ownership or changes in ownership, we believe that, with respect to the fiscal year ended
December 31, 2018 , such persons complied with all such filing requirements, with the exception of a Form 4 for Mr. Zelter reporting one transaction which was
inadvertently filed late through no fault of the reporting person.
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Philosophy
Alignment of Interests with Investors and Shareholders. Our principal compensation philosophy is to align the interests of our Managing Partners
and other senior professionals with those of our Class A shareholders and fund investors. This alignment, which we believe is a key driver of our success, has been
achieved principally by our Managing Partners’ and other investment professionals’ direct beneficial ownership of equity in our business in the form of AOG Units
and Class A shares, their rights to receive a portion of the performance fees earned from our funds or to receive compensation based on the level of performance
fees earned, the direct investment by our Managing Partners and other investment professionals in our funds, and our practice of paying annual compensation
partly in the form of equity-based grants that are subject to vesting. As a result of this alignment, the compensation of our professionals is closely tied to the
performance of our businesses.
Significant Personal Investment. Our investment professionals generally make significant personal investments in our funds (as more fully described
under “Item 13. Certain Relationships and Related Party Transactions”), directly or indirectly, and our professionals who receive rights to performance fees
(excluding rights in respect of non-drawdown-style funds and certain pooled performance fee vehicles) from our funds are generally required to invest their own
capital in the funds on which they work in amounts that are proportionate to the size of their participation in performance fees. We believe that these investments
help to ensure that our professionals have capital at risk and reinforce the linkage between the success of the funds we manage, the success of the Company and the
compensation paid to our professionals. Our eligible professionals are generally permitted to invest in our funds free of management fees, and in certain instances,
performance fees. These opportunities further align our employees with our fund investors and Class A shareholders, encourage our professionals to work across
our integrated platform, and bolster links among our various businesses.
Long-Term Performance and Commitment. Most of our professionals have been issued RSUs, which provide rights to receive Class A shares and, in
some instances, distribution equivalents on those shares. The vesting requirements and minimum
- 222 -
Table of Contents
retained ownership requirements for these awards contribute to our professionals’ focus on long-term performance while enhancing retention of these
professionals. In 2018, we introduced grants of RSUs to certain professionals that vest based on both continued service and the Company’s receipt of performance
fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense. We believe that the addition of these performance measures
helps to promote the interests of our Class A shareholders and fund investors by making RSU vesting contingent on the realization and distribution of profits on
our funds. RSUs are not awarded to our Managing Partners, whose beneficial ownership of equity interests in the Company is generally in the form of AOG Units,
as discussed below under “—Note on Distributions on Apollo Operating Group Units.” By requiring our named executive officers to be subject to non-
competition, confidentiality and other limitations on behavior described below under “—Potential Payments upon Termination or Change in Control,” we further
reinforce our culture of fiduciary protection of our fund investors and shareholders.
Discouragement of Excessive Risk-Taking. Although investments in alternative assets can pose risks, we believe that our compensation program
includes significant elements that discourage excessive risk-taking while aligning the compensation of our professionals with our long-term performance. For
example, notwithstanding that we accrue compensation for our performance fee programs (described below) as increases in the value of the portfolio investments
are recorded in the related funds, we generally make payments in respect of performance fee allocations to our employees only after profitable investments have
actually been realized. Similarly, for our funds that pay incentive fees, employees receive distributions of such fees only after the fund has appreciated in value
(typically above a specified level) during the applicable period. This helps to ensure that our professionals take a long-term view that is consistent with the interests
of the Company, our shareholders and the investors in our funds. Moreover, if a drawdown-style fund fails to achieve specified investment returns due to
diminished performance of later investments, our performance fee program relating to that fund generally permits, for the benefit of the limited partner investors in
that fund, the return of performance fee distributions (generally net of tax) previously made to us or our employees. These provisions discourage excessive risk-
taking and promote a long-term view that is consistent with the interests of our fund investors and shareholders. Our general requirement that our professionals
who hold direct performance fee rights in our drawdown-style funds, invest in those funds, further aligns the interests of our professionals, fund investors and Class
A shareholders. Finally, the minimum retained ownership requirements of our RSUs, as well as a requirement that a portion of the performance fee rights of certain
investment professionals be settled either in the form of RSUs or by using a portion of the amounts received to purchase Class A restricted shares, discourage
excessive risk-taking because the value of these interests is tied directly to the long-term performance of our Class A shares.
Note on Distributions on Apollo Operating Group Units
We note that all of our Managing Partners, as well as Scott Kleinman and James Zelter, beneficially own AOG Units that they received in 2007 in
anticipation of our 2011 initial public offering, in exchange for contributing certain partnership interests they then held in the Company. As of December 31, 2018 ,
the Managing Partners and Messrs. Kleinman and Zelter beneficially owned, through their interest in Holdings, approximately 47% of the total limited partner
interests in the Apollo Operating Group. When made, distributions on these units are in the same amount per unit as distributions made to us in respect of the AOG
Units we hold. Although distributions on AOG Units are distributions on equity rather than compensation, they play a central role in aligning their holders’
interests with those of our Class A shareholders, which is consistent with our compensation philosophy.
Compensation Elements for Named Executive Officers
Consistent with our emphasis on alignment of interests with our fund investors and Class A shareholders, compensation elements tied to the
profitability of our different businesses and that of the funds that we manage are the primary means of compensating our five executive officers listed in the tables
below, or the “named executive officers.” The key elements of the compensation of our named executive officers during fiscal year 2018 are described below. We
distinguish among the compensation components applicable to our named executive officers as appropriate in the below summary. Messrs. Black, Harris and
Rowan are the three members of the group referred to elsewhere in this report as the “Managing Partners.” In 2018 we promoted two of our investment
professionals, Scott Kleinman and James Zelter, to the position of Co-President, causing them to become executive officers.
Annual Salary . Each of our named executive officers receives an annual salary. We believe that the compensation of our investment professionals,
including Messrs. Kleinman and Zelter, should primarily be tied to the profitability of our different businesses and managed funds, and accordingly annual salaries
constitute a relatively small component of the overall compensation of our named executive officers who are investment professionals. The base salaries of our
named executive officers are set forth in the Summary Compensation Table below, and those base salaries were set by our Managing Partners in their judgment
after considering the historic compensation levels of the officer, competitive market dynamics, and each officer’s level of responsibility and anticipated
contributions to our overall success.
- 223 -
Table of Contents
RSUs. While we historically granted RSUs that constitute a portion of annual compensation (which we refer to as Bonus Grants) in the same year that
the services to which they relate were provided, for services provided in 2017 and 2018, our Managing Partners determined that, for administrative convenience at
year-end, such RSUs would instead be awarded in the following January. This change in the timing of the grant date does not affect the vesting terms or dates that
the RSUs, upon issuance of the underlying class A shares, are treated as income to the named executive officers or the dates that we are able to deduct the
associated compensation expense. The Bonus Grants are generally subject to three-year vesting and minimum retained ownership requirements. All named
executive officers who receive RSUs are required to retain at least 50% of any Class A shares issued to them pursuant to Bonus Grants granted prior to September
1, 2016, and 25% of any Class A Shares issued to them pursuant to all other RSU awards (including Bonus Grants), in each case net of the number of gross shares
sold or netted to pay applicable income or employment taxes. Because the Summary Compensation Table and Grant of Plan-Based Awards Table below properly
list only those stock awards that were granted in 2018, those tables do not include Bonus Grants for services provided in 2018. The 2018 RSU awards made to
Messrs. Zelter and Kleinman in connection with their promotions to Co-President vest based on both continued service and the Company’s receipt of performance
fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense. This feature conditions the RSU vesting on the realization
and distribution of profits on our funds. Mr. Kelly received in 2018 a grant of 9,719 restricted stock units (having a grant date fair value of $158,680) in respect of
shares of ARI, the publicly traded REIT that we manage, pursuant to an approval by its compensation committee consistent with a recommendation it received
from us. That grant from ARI is properly not included in the Summary Compensation Table and Grant of Plan-Based Awards Table below.
Performance Fees. Performance fee entitlements with respect to our funds confer rights to participate in distributions made to investors following the
realization of an investment or receipt of operating profit from an investment by the fund, provided the fund has attained a specified performance return.
Distributions of performance fees from limited life funds generally are subject to contingent repayment (generally net of tax) if the fund fails to achieve specified
investment returns due to diminished performance of later investments, while distributions of operating profit earned from funds that are not designed to have a
limited life are generally not subject to contingent repayment. The actual gross amount of performance fees available for distribution are a function of the
performance of the applicable fund. For these reasons, we believe that participation in performance fees generated by our funds aligns the interests of our
participating named executive officers with those of our Class A shareholders and fund investors.
We currently have two principal types of performance fee programs, which we refer to as dedicated and incentive pool. Messrs. Kelly, Kleinman,
Suydam and Zelter have been awarded rights to participate in a dedicated percentage of the performance fee income earned by the general partners of certain of our
funds and were awarded additional performance fee rights in 2018. Dedicated performance fee rights in our private equity funds are typically subject to vesting,
which rewards long-term commitment to the firm and thereby enhances the alignment of participants’ interests with the Company. As with amounts distributed in
respect of other performance fees, our financial statements characterize performance fee income allocated to participating professionals in respect of their
dedicated performance fee rights as compensation. Amounts paid in respect of dedicated performance fees are included in the “All Other Compensation” column
of the summary compensation table.
Our performance-based incentive arrangement referred to as the incentive pool further aligns the overall compensation of certain of our professionals
to the realized performance of our business. The incentive pool provides for compensation based on realized performance fees and enhances our capacity to offer
competitive compensation opportunities to our professionals. “Realized performance fees” means performance fees earned by the general partners of our funds
under the applicable fund limited partnership agreements based upon transactions that have closed or other rights to cash that have become fixed in the applicable
calendar year period. Under this arrangement, Messrs. Kelly and Kleinman, among other of our professionals, received incentive pool performance fees earned
during 2018 . Allocations to participants in the incentive pool contain both a mandatory component and a discretionary component, both of which may vary year-
to-year, including as a result of our overall realized performance and the contributions and performance of each participant. The Managing Partners determine the
amount of the realized performance fees to place into the incentive pool in their discretion after considering various factors, including Company profitability,
management company cash requirements and anticipated future costs, provided that the incentive pool consists of an amount equal to at least one percent (1%) of
the realized performance fees attributable to profits generated after creation of the incentive pool that were taxable in the applicable year and not allocable to
dedicated performance fee entitlements. Each participant in the incentive pool is entitled to receive, as a mandatory component of participation in the incentive
pool, his or her pro rata share of this 1% amount each year, provided the participant remains employed by us at the time of allocation. Our financial statements
characterize the performance fee income allocated to participating professionals in respect of incentive pool interests as compensation. The “All Other
Compensation” column of the summary compensation table includes actual distributions paid from the incentive pool.
Performance Fee Restricted Shares and RSUs . We require that a portion of the performance fees distributed by certain of the investment funds we
manage be used by our employees who participate in those amounts to purchase Class A restricted shares, or that a portion is delivered to them as a grant of RSUs,
in each case that are issued under our 2007 Omnibus Equity Incentive Plan. This practice further promotes alignment with our Class A shareholders and motivates
participating professionals to maximize the success of the Company as a whole. Like our Bonus Grant RSUs, these restricted shares and RSUs
- 224 -
Table of Contents
are generally subject to three-year vesting, which fosters retention. In accordance with applicable rules, the Summary Compensation Table and Grants of Plan-
Based Awards Table include the restricted shares and RSUs they acquired by our named executive officers in 2018 in respect of performance fee amounts
received.
Determination of Compensation of Named Executive Officers
Our Managing Partners make all final determinations regarding named executive officer compensation. Decisions about the variable elements of a
named executive officer’s compensation, including participation in our performance fee programs, discretionary bonuses (if any) and grants of equity-based
awards, are based primarily on our Managing Partners’ assessment of such named executive officer’s individual performance, operational performance for the
department or division in which the officer (other than a Managing Partner) serves, and the officer’s impact on our overall operating performance and potential to
contribute to long-term shareholder value. In evaluating these factors, our Managing Partners do not utilize quantitative performance targets but rather rely upon
their judgment about each named executive officer’s performance to determine an appropriate reward for the current year’s performance. The determinations by
our Managing Partners are ultimately subjective, are not tied to specified annual, qualitative or individual objectives or performance factors, and reflect discussions
among the Managing Partners. Factors that our Managing Partners typically consider in making such determinations include the named executive officer’s type,
scope and level of responsibilities, active participation in managing a team of professionals, corporate citizenship and the named executive officer’s overall
contributions to our success. Our Managing Partners also consider each named executive officer’s prior-year compensation, the appropriate balance between
incentives for long-term and short-term performance, competitive market dynamics, compensation provided to the named executive officer by other entities, and
the compensation paid to the named executive officer’s peers within the Company.
We believe that the compensation of our investment professionals should primarily be tied to the profitability of our different businesses and managed
funds. Consistent with past years, our Managing Partners in 2018 provided that annual salaries constituted a relatively small component of the overall
compensation of our named executive officers who are investment professionals. The Managing Partners determined that it was appropriate for Messrs. Kleinman
and Zelter, in connection with their promotions to the role of Co-President, to receive up-front RSU awards. Each such RSU is subject to five-year vesting and the
Company’s receipt of performance fees, within prescribed periods, sufficient to cover its associated equity-based compensation expense. This requirement
enhances alignment with the interests of our Class A shareholders and fund investors. The Managing Partners considered our Co-Presidents’ historical role, the
particulars of the business units on which they focus, their capital contribution obligations and their performance fee entitlements when determining their
individual compensation terms. The Managing Partners determined that, based on the above factors, including the named executive officers’ overall compensation
levels, discretionary cash bonuses would not be awarded to any named executive officer for 2018 . For a discussion of our Managing Partners’ determinations in
respect of our RSU program, see below under “—Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table-Awards of
Restricted Share Units Under the Equity Plan.”
Compensation Committee Interlocks and Insider Participation
Our board of directors does not have a compensation committee. Our Managing Partners make all compensation determinations with respect to
executive officer compensation. For a description of certain transactions between us and the Managing Partners, see “Item 13. Certain Relationships and Related
Party Transactions.”
Compensation Committee Report
As noted above, our board of directors does not have a compensation committee. The executive committee of our manager identified below has
reviewed and discussed with management the foregoing Compensation Discussion and Analysis and, based on such review and discussion, has determined that the
Compensation Discussion and Analysis should be included in this Annual Report on Form 10-K.
Leon
Black
Joshua
Harris
Marc
Rowan
Summary Compensation Table
The following summary compensation table sets forth information concerning the compensation earned by, awarded to or paid to our principal
executive officer, our principal financial officer, and our three other most highly compensated executive officers for the fiscal year ended December 31, 2018 . The
earnings of Mr. Black, a Managing Partner and our chief executive officer, derive predominantly from distributions he receives as a result of his indirect beneficial
ownership of AOG Units and his rights under the tax receivable agreement (described elsewhere in this report, including above under “Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Cash Distribution Policy”), rather than from compensation,
and accordingly are not included in the tables below. The earnings of Messrs. Zelter and Kleinman from their
- 225 -
Table of Contents
AOG Units and tax receivable agreement rights also do not appear in the tables below. The executive officers named in the table are referred to as the named
executive officers.
Name and Principal Position
Leon Black,
Chairman, Chief Executive Officer
and Director
Martin Kelly,
Chief Financial Officer and (effective
January
15,
2019)
Co-Chief Operating
Officer
James Zelter,
Co-President
Scott Kleinman,
Co-President
John Suydam,
Chief Legal Officer
Year
2018
2017
2016
2018
2017
2016
2018
2018
2018
2017
2016
Salary
($)
Stock Awards
($) (1)
All Other
Compensation
($) (2)
100,000
100,000
100,000
1,000,000
1,000,000
1,000,000
—
—
—
533,079
19,183
1,897,640
152,617
151,888
150,622
1,519,014
1,499,776
1,050,000
Total
($)
252,617
251,888
250,622
3,052,093
2,518,959
3,947,640
100,000
82,582,612
2,706,864
85,389,476
1,200,000
30,151,932
13,964,975
45,316,907
2,000,000
2,000,000
2,500,000
726,338
49,430
498,260
1,688,644
1,283,090
668,934
4,414,982
3,332,520
3,667,194
(1)
For Messrs. Kelly, Kleinman, Suydam and Zelter, represents the aggregate grant date fair value of stock awards granted, as applicable, computed in accordance with
FASB ASC Topic 718. The amounts shown do not reflect compensation actually received by the named executive officers, but instead represent the aggregate grant date
fair value of the awards. See note 12 to our consolidated financial statements for further information concerning the assumptions made in valuing our RSU awards.
(2) Amounts included for 2018 represent, in part, actual cash distributions in respect of dedicated performance fee rights for Mr. Kleinman of $6,703,711, for Mr. Suydam of
$1,008,980 and for Mr. Kelly of $434,014. The 2018 amounts also include actual incentive pool cash distributions of $1,085,000 for Mr. Kelly, $2,589,526 for Mr.
Kleinman and $21,821 for Mr. Suydam. In addition to the cash distributions Messrs. Kleinman and Suydam received in respect of their dedicated performance fees, in
2018 those interests also caused them to receive in-kind distributions of Athene Holding shares that had been held by AAA, the value of which shares upon delivery
($4,671,738 and $637,055, respectively) is included in this column. For Mr. Zelter, the amounts include $2,706,864 in cash he received in respect of dedicated
performance fee rights. The “All Other Compensation” column for 2018 also includes costs relating to Company-provided cars and drivers for the business and personal
use of Messrs. Black and Suydam. We provide this benefit because we believe that its cost is outweighed by the convenience, increased efficiency and added security and
confidentiality that it offers. The personal use cost was approximately $136,592 for Mr. Black and $18,788 for Mr. Suydam. For Mr. Black, this amount includes both
fixed and variable costs, including lease costs, driver compensation, driver meals, fuel, parking, tolls, repairs, maintenance and insurance. For Mr. Suydam, this amount
includes the costs to the Company associated with his use of a car service. Except as discussed in this paragraph, no 2018 perquisites or personal benefits individually
exceeded the greater of $25,000 or 10% of the total amount of all perquisites and other personal benefits reported for the named executive officer. The cost of excess
liability insurance provided to our named executive officers falls below this threshold. Mr. Kleinman, Mr. Zelter and Mr. Kelly did not receive perquisites or personal
benefits in 2018, except for incidental benefits having an aggregate value of less than $10,000. Our named executive officers also receive secretarial support with respect
to personal matters. We incur no incremental cost for the provision of such additional benefits. Accordingly, no such amount is included in the Summary Compensation
Table.
Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table
Employment, Non-Competition and Non-Solicitation Agreement with Chairman and Chief Executive Officer
On January 4, 2017, we entered into an employment, non-competition and non-solicitation agreement with Leon Black, our chairman and chief
executive officer and a member of our manager’s executive committee. This agreement, which provides for an annual salary of $100,000 and the right to
participate in our employee benefit plans as in effect from time to time, has a three-year term.
Employment, Non-Competition and Non-Solicitation Agreement with Chief Financial Officer and Co-Chief Operating Officer
On July 2, 2012, we entered into an employment, non-competition and non-solicitation agreement with Martin Kelly, our chief financial officer and
co-chief operating officer. His annual base salary is $1,000,000. Mr. Kelly is eligible for an annual bonus in an amount to be determined by the Managing Partners
in their discretion. As provided in the agreement, Mr. Kelly participates in the incentive pool and is eligible to receive distributions thereunder.
Employment, Non-Competition and Non-Solicitation Agreement with Co-President, James Zelter
We entered into an amended and restated employment agreement with James Zelter on June 20, 2014, and further amended
- 226 -
Table of Contents
that agreement on November 12, 2017 in connection with his promotion to Co-President. As amended, the agreement provides for base pay of $100,000 per year
and a grant to Mr. Zelter of 2,500,000 RSUs. Pursuant to the agreement, Mr. Zelter holds dedicated performance fee rights in respect of our credit funds. These
interests are subject to vesting or to the right to retain such interests for a limited period following his employment termination. As required by the terms of his
performance fee arrangements, Mr. Zelter has made investments of his own capital in various of our funds.
Employment, Non-Competition and Non-Solicitation Agreement with Co-President, Scott Kleinman
On November 12, 2017, in connection with his promotion to Co-President, we entered into an employment agreement with Scott Kleinman that provided
for a grant to him of 800,000 RSUs. On July 3, 2018, we entered into a letter agreement with Mr. Kleinman, effective as of January 1, 2018. The letter agreement
provides that Mr. Kleinman is entitled to base pay of $1,200,000 per year and to distributions from our incentive pool or other amounts totaling at least $3,300,000
annually, a portion of which is provided in the form of Bonus Grant RSUs. Mr. Kleinman holds dedicated performance fee rights in respect of various of our funds.
These interests are generally subject to vesting. As required by the terms of his performance fee arrangements, Mr. Kleinman has made investments of his own
capital in various of our funds.
Employment Agreement with Chief Legal Officer
On July 19, 2017, we entered into an employment, non-competition and non-solicitation agreement with John Suydam, our chief legal officer.
Pursuant to the agreement, Mr. Suydam is entitled to an annual base salary of $2,000,000 and an annual equity-based award that has an aggregate value of
$500,000 and vests in three equal annual installments. On November 7, 2018, we entered into a letter agreement with Mr. Suydam regarding the vesting of his
equity awards. Subject to his continued compliance with the non-competition and other obligations under his employment agreement, upon the earlier of (1) our
termination of his employment without cause, and (2) January 1, 2020 (provided he has not terminated his employment or engaged in conduct constituting cause
before such date), if Mr. Suydam agrees to be reasonably available to consult with us for two years, he will vest in all unvested RSUs and restricted shares then
outstanding. RSUs and restricted shares that vest under the letter agreement are subject to forfeiture in the event of a breach of his noncompetition obligations.
Awards of Restricted Shares Under the Equity Plan
Our equity plan, known as the 2007 Omnibus Equity Incentive Plan, was last approved by our shareholders on March 10, 2011. Grants of restricted
Class A shares under the plan have been made to Messrs. Zelter, Kleinman, Kelly and Suydam as a result of their participation in performance fee programs that
require that a portion of the performance fee amounts be used to purchase restricted Class A shares, or is settled in the form of a grant of RSUs. The restricted
Class A shares vest in three equal annual installments from a vesting date specified at the time of the award. The restricted Class A shares participate in any
distributions made on our Class A shares and are not subject to our minimum retained share ownership requirements. The number of restricted Class A shares that
were granted in 2018 was determined pursuant to the formula prescribed by the applicable performance fee program, which converts the specified portion of the
carry to be distributed into a number of shares based on the volume weighted average price as of a prescribed date in the applicable calendar quarter.
Grants of Plan-Based Awards
The following table presents information regarding RSUs and restricted Class A shares granted to Messrs. Zelter, Kleinman, Kelly and Suydam under
our 2007 Omnibus Equity Incentive Plan in 2018 . No options were granted to a named executive officer in 2018.
- 227 -
Table of Contents
Name
Leon Black
Martin Kelly
James Zelter
Scott Kleinman
John Suydam
All Other Stock
Awards:
Number of Shares of
Stock or Units
(#) (1)
Grant Date Fair Value or
Modification Date Incremental
Fair Value of Stock and Option
Awards
($) (2)
—
14,049
532
547
167
415
2,500,000
254
800,000
38,791
33,559
12,182
30,244
14,788
2,585
1,408
699
2,134
—
479,211
18,359
17,258
5,813
12,438
82,575,000
7,612
26,424,000
1,338,677
1,058,786
424,055
906,413
504,419
89,208
44,422
24,332
63,956
Grant Date
—
January 8, 2018
February 5, 2018
May 4, 2018
August 15, 2018
November 15, 2018
January 8, 2018
November 15, 2018
January 8, 2018
February 5, 2018
May 4, 2018
August 15, 2018
November 15, 2018
January 8, 2018
February 5, 2018
May 4, 2018
August 15, 2018
November 15, 2018
(1) Represents the number of RSUs and restricted Class A shares granted, as applicable. RSUs and Restricted shares are discussed above under “—Compensation Elements
for Named Executive Officers—RSUs” and “—Compensation Elements for Named Executive Officers—Restricted Shares,” respectively.
(2) Represents the aggregate grant date fair value of the RSUs and restricted Class A shares granted in 2018 , computed in accordance with FASB ASC Topic 718. The
amounts shown do not reflect compensation actually received, but instead represent the aggregate grant date fair value of the award.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding unvested RSU and restricted Class A share awards made by us to our named executive officers
under our 2007 Omnibus Equity Incentive Plan that were outstanding at December 31, 2018 . Our named executive officers did not hold any options at fiscal year-
end.
- 228 -
Table of Contents
Name
Date of Grant
Stock Awards
Number of Unearned Shares,
Units or Other Rights That
Have Not Vested
(#)
Market or Payout
Value of Unearned Shares, Units
or Other Rights That Have Not
Vested
($) (16)
Leon Black
Martin Kelly
James Zelter
—
November 15, 2018
August 15, 2018
May 4, 2018
February 5, 2018
January 8, 2018
November 17, 2017
November 17, 2017
August 3, 2017
May 1, 2017
May 1, 2017
December 29, 2016
December 29, 2016
November 15, 2018
January 8, 2018
August 3, 2017
May 1, 2017
May 1, 2017
March 1, 2017
December 29, 2016
October 31, 2016
October 31, 2016
August 5, 2016
May 6, 2016
May 6, 2016
Scott Kleinman
November 15, 2018
August 15, 2018
May 4, 2018
February 5, 2018
January 8, 2018
November 17, 2017
November 17, 2017
August 3, 2017
May 1, 2017
May 1, 2017
John Suydam
November 15, 2018
August 15, 2018
May 4, 2018
February 5, 2018
January 8, 2018
August 3, 2017
May 1, 2017
May 1, 2017
November 17, 2017
November 17, 2017
December 29, 2016
—
415
167
547
355
9,366
21
65
81
23
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(6)
(8)
253
(9)
23,993 (10)
12,211 (11)
254
(1)
2,500,000 (12)
1,585
(8)
17,821
2,417
(9)
(8)
682
(8)
14,910 (11)
93 (13)
1,892 (13)
37 (14)
284 (15)
392 (15)
30,244
12,182
33,559
(1)
(2)
(3)
25,861
(4)
800,000 (12)
4,717
1,538
5,909
566
13,425
2,134
699
1,408
1,724
9,859
208
60
650
54
(7)
(6)
(6)
(8)
(9)
(1)
(2)
(3)
(4)
(5)
(6)
(8)
(9)
(6)
166
(7)
8,783 (11)
—
10,184
4,098
13,423
8,712
229,842
515
1,595
1,988
564
6,209
588,788
299,658
6,233
61,350,003
38,896
437,327
59,313
16,736
365,891
2,282
46,430
908
6,969
9,620
742,188
298,946
823,538
634,629
19,632,001
115,755
37,743
145,007
13,890
329,450
52,368
17,153
34,552
42,307
241,940
5,104
1,472
15,951
1,325
4,074
215,535
(1) Restricted Class A shares that vest in substantially equal annual installments on August 15 of each of 2019, 2020 and 2021.
(2) Restricted Class A shares that vest in substantially equal annual installments on May 15 of each of 2019, 2020 and 2021.
(3) Restricted Class A shares that vest in substantially equal annual installments on February 15 of each of 2019, 2020 and 2021.
- 229 -
Table of Contents
(4) Restricted Class A shares that vest in substantially equal annual installments on November 15 of each of 2019 and 2020.
(5) Bonus Grant RSUs that vest in substantially equal annual installments on December 31 of each of 2019 and 2020.
(6) Restricted Class A shares that vest on May 15 of each of 2019 and 2020.
(7) Restricted Class A shares that vest on August 15 of each of 2019 and 2020.
(8) Restricted Class A shares that vest on November 15, 2019.
(9) Restricted Class A shares that vest on February 15 of each of 2019 and 2020.
(10) RSUs that vest in substantially equal quarterly installments on March 31, 2019 and on the last day of each of the next three calendar quarters.
(11) Bonus Grant RSUs that vest on December 31, 2019.
(12) Performance RSUs that vest in substantially equal annual installments on January 1 of each of 2019, 2020, 2021, 2022 and 2023, subject to the availability of sufficient net
cash incentive income to the Company as of such date.
(13) Restricted Class A shares that vest on August 15, 2019.
(14) Restricted Class A shares that vest on May 15, 2019.
(15) Restricted Class A shares that vest on February 15, 2019.
(16) Amounts calculated by multiplying the number of unvested RSUs held by the named executive officer by the closing price of $24.54 per Class A share on December 31,
2018.
Option Exercises and Stock Vested
The following table presents information regarding the number of outstanding initially unvested RSUs and restricted Class A shares held by our
named executive officers that vested during 2018 and the number of options exercised by our named executive officers in 2018 . The amounts shown below do not
reflect compensation actually received by the named executive officers, but instead are calculations of the number of RSUs and restricted Class A shares that
vested during 2018 based on the closing price of our Class A shares on the date of vesting. Shares received by our named executive officers in respect of vested
RSUs are subject to our retained ownership requirements. No options were exercised by our named executive officers in 2018 .
Name
Type of Award
Stock Awards
Number of Shares Acquired
on Vesting
(#)
Value Realized on Vesting
($) (1)
Leon Black
Martin Kelly
James Zelter
Scott Kleinman
John Suydam
—
RSUs
Restricted Shares
RSUs
Restricted Shares
Restricted Shares
RSUs
Restricted Shares
—
103,053
408
54,181
22,068
26,288
24,907
1,460
—
3,013,708
13,093
1,467,841
730,054
841,701
611,218
46,466
(1) Amounts calculated by multiplying the number of RSUs or restricted Class A shares held by the named executive officer that vested on each applicable vesting date in
2018 by the closing price per Class A share on that date. Class A shares underlying the vested RSUs were issued to the named executive officer shortly after they vested.
Potential Payments upon Termination or Change in Control
None of the named executive officers is entitled to payment or other benefits in connection with a change in control.
Mr. Black is not entitled to severance or other payments or benefits in connection with an employment termination. Mr. Black is required to protect
the confidential information of Apollo both during and after employment. In addition, until one year after employment termination, he is required to refrain from
soliciting employees under specified circumstances or interfering with our relationships with investors and to refrain from competing with us in a business that
involves primarily (i.e., more than 50%) third-party capital. These post-termination covenants survive any termination or expiration of the Agreement Among
Managing Partners (described elsewhere in this report under “Item 13. Certain Relationships and Related Party Transactions—Agreement Among Managing
Partners”). If Mr. Black becomes subject to a potential termination for cause or by reason of disability, our manager may appoint an investment professional to
perform his functional responsibilities and duties until cause or disability definitively results in his termination or is determined not to have occurred, but the
manager may so appoint an investment professional only if he is unable to perform his responsibilities and duties or, as a matter of fiduciary duty, should be
prohibited from doing so. During any such period, Mr. Black shall continue to serve on the executive committee of our manager unless otherwise prohibited from
doing so pursuant to the Agreement Among Managing Partners.
If Mr. Kelly’s employment is terminated by us without cause or he resigns for good reason, he will be entitled to
- 230 -
Table of Contents
severance of six months’ base pay and reimbursement of health insurance premiums paid in the six months following his employment termination. If his
employment is terminated by us without cause, he will vest in 50% of any unvested portion of his restricted shares. If Mr. Kelly’s employment is terminated by
reason of death or disability, he will vest in 50% of any unvested portion of his Plan Grant RSUs, Bonus Grant RSUs, restricted shares and dedicated performance
fee rights that are subject to vesting. If Mr. Kelly’s employment is terminated without cause, or he resigns, he will also be entitled to retain his dedicated
performance fee rights that are subject to vesting to the extent then vested. We may terminate Mr. Kelly’s employment with or without cause, and we will provide
90 days’ notice (or payment in lieu of such period of notice) prior to a termination without cause. Mr. Kelly is required to give us 90 days’ notice prior to a
resignation for any reason. He is required to protect the confidential information of Apollo both during and after employment. In addition, during employment and
for 12 months after employment, Mr. Kelly is also obligated to refrain from soliciting our employees, interfering with our relationships with investors or other
business relations, and competing with us in a business that manages or invests in assets substantially similar to those managed or invested in by Apollo or its
affiliates.
We may terminate Mr. Zelter’s employment with or without cause, and we will provide 90 days’ notice (or payment in lieu of such period of notice)
prior to a termination without cause. Mr. Zelter is required to provide 90 days’ notice prior to a resignation for any reason. Upon his termination of employment by
reason of death or disability, Mr. Zelter will vest in 50% of his then unvested RSUs, restricted shares and performance fee rights that are subject to vesting. Upon
his termination by the Company other than for cause, Mr. Zelter will vest in 50% of his then unvested restricted shares. If Mr. Zelter’s employment is terminated
without cause or he resigns, he will also be entitled to retain his dedicated performance fee rights that are subject to vesting to the extent then vested. During his
employment and for 12 months thereafter, he is also obligated to refrain from soliciting our employees, interfering with our relationships with investors or other
business relations, and competing with us in a business that manages or invests in assets substantially similar to those invested in or managed by Apollo or its
affiliates.
We may terminate Mr. Kleinman’s employment with or without cause, and we will provide 90 days’ notice (or payment in lieu of such period of
notice) prior to a termination without cause. Mr. Kleinman is required to provide 90 days’ notice prior to a resignation for any reason. Upon his termination of
employment by reason of death or disability, Mr. Kleinman will vest in 50% of his then unvested RSUs, restricted shares and dedicated performance fee interests
that are subject to vesting. If Mr. Kleinman’s employment is terminated without cause, or he resigns, he will also be entitled to retain his dedicated performance fee
rights that are subject to vesting to the extent then vested. If Mr. Kleinman’s employment with us terminates for any reason other than in circumstances in which he
could have been terminated for cause, he will receive the cash portion of his incentive pool or annual bonus amount on a prorated basis through the last day of his
full-time employment. Mr. Kleinman is required to protect the confidential information of Apollo both during and after employment. In addition, during
employment and for 12 months after employment, he is obligated to refrain from soliciting our employees, interfering with our relationships with investors or other
business relations, and competing with us in a business that manages or invests in assets substantially similar to those managed or invested in by Apollo or its
affiliates.
We may terminate Mr. Suydam’s employment with or without cause, and we will provide 90 days’ notice (or payment in lieu of such period of notice)
prior to a termination without cause. If Mr. Suydam’s employment is terminated by us without cause or he resigns for good reason, he will be entitled to severance
of six months’ base pay and reimbursement of health insurance premiums paid in the six months following his employment termination. If his employment is
terminated by reason of death, he will vest in 50% of his then unvested RSUs, restricted shares and dedicated performance fee rights that are subject to vesting. If
Mr. Suydam’s employment is terminated without cause, or he resigns, he will also be entitled to retain his dedicated performance fee rights that are subject to
vesting to the extent then vested. If Mr. Suydam’s employment is terminated by us without cause or by reason of disability, he will vest in 100% of this then
unvested RSUs and restricted shares, provided he complies with his restrictive covenants and agrees to be available to consult with us from time to time for two
years from his employment termination date. Mr. Suydam is required to protect our confidential information at all times. During his employment and for 12
months thereafter, Mr. Suydam is also obligated to refrain from soliciting our employees, interfering with our relationships with investors or other business
relations, and competing with us in a business that manages or invests in assets substantially similar to those invested in or managed by Apollo or its affiliates. Mr.
Suydam is required to provide 90 days’ notice prior to a resignation for any reason.
The named executive officers’ obligations during and after employment were considered by the Managing Partners in determining appropriate post-
employment payments and benefits for the named executive officers.
The following table lists the estimated amounts that would have been payable to each of our named executive officers in connection with a termination
that occurred on the last day of our last completed fiscal year and the value of any additional equity that would vest upon such termination. When listing the
potential payments to named executive officers under the plans and agreements described above, we have assumed that the applicable triggering event occurred on
December 31, 2018 and that the price per share of our Class A shares was $24.54, which is equal to the closing price on such date. For purposes of this table, RSU
values are based on the $24.54 closing price.
- 231 -
Table of Contents
Name
Reason for Employment Termination
Leon Black
Cause
Martin Kelly
James Zelter
Scott Kleinman
John Suydam
Death, disability
Without cause
By executive for good reason
Death, disability
Without cause
Death, disability
Without cause
Death, disability
Without cause
By executive for good reason
Disability
Death
Estimated Value of Cash
Payments
($) (1)
Estimated Value of Equity
Acceleration
($) (2)
—
—
516,659
516,659
—
—
—
—
—
1,016,659
1,016,659
—
—
—
—
23,644
—
582,788
312,357
31,170,304
1,570,572
11,386,573
174,308
—
631,782
315,891
(1) This amount would have been payable to the named executive officer had his employment been terminated by the Company without cause (and other than by reason of
death or disability) or for good reason on December 31, 2018
(2) This amount represents the additional equity vesting that the named executive officer would have received had his employment terminated in the circumstances described in
the column, “Reason for Employment Termination,” on December 31, 2018 , based on the closing price of a Class A share on such date. Please see our “Outstanding Equity
Awards at Fiscal Year-End” table above for information regarding the named executive officer’s unvested equity as of December 31, 2018 .
CEO to Median Employee Pay Ratio
SEC rules require companies to disclose the ratio of the total annual compensation of the principal executive officer (“PEO”) to the total annual
compensation of the median employee (calculated excluding the PEO). Our PEO is Mr. Black and our ratio is as follows:
Mr. Black’s total annual compensation: $252,617
Median employee total annual compensation: $235,000
Ratio of PEO to median employee total annual compensation: 1.1:1
In determining the median employee, we prepared a list of all employees as of December 31, 2018. Consistent with applicable rules, we used
reasonable estimates both in the methodology used to identify the median employee and in calculating the annual total compensation for employees other than the
PEO. In measuring our employees’ total compensation, for employees other than the PEO, we used their base salary paid in 2018, their annual cash bonus paid in
2018 and the value of the equity awards they received in 2018 (unless they received an equity award in January 2019 for services provided in 2018, in which case
we included the value of that January 2019 equity award). As noted above under “—Note on Distributions on Apollo Operating Group Units,” Mr. Black receives
distributions on his AOG Units that are distributions on equity rather than compensation, and accordingly are not included here.
Director Compensation
We do not pay additional remuneration to Messrs. Black, Harris and Rowan, our employee directors, for their service on our board of directors. The
2018 compensation of Mr. Black is set forth above on the Summary Compensation Table. Messrs. Harris and Rowan are not named executive officers.
During 2018 , each independent director received (1) a base annual director fee of $125,000, (2) an additional annual director fee of $25,000 if he or
she was a member of the audit committee, (3) an additional annual director fee of $10,000 if he or she was a member of the conflicts committee, (4) an additional
annual director fee of $25,000 (incremental to the fee described in (2)) if he or she served as the chairperson of the audit committee, and (5) an additional annual
director fee of $15,000 (incremental to the fee described in (3)) if he or she served as the chairperson of the conflicts committee. In addition, independent directors
were reimbursed for reasonable expenses incurred in attending board meetings.
Currently, upon initial election to the board of directors, an independent director receives a grant of RSUs with a value of $300,000 that vests in equal
annual installments on June 30 of each of the first, second and third years following the year that the grant is made. Incumbent independent directors who have
fully vested in their initial RSU award receive an annual RSU award
- 232 -
Table of Contents
with a value of $125,000 that vests on June 30 of the year following the year that the grant is made, and the directors listed on the below table received that award
on July 31, 2018.
The following table provides the compensation for our independent directors during the year ended December 31, 2018 . Paul Fribourg resigned from
the board of directors on November 30, 2018.
Name
Michael Ducey
Paul Fribourg
Robert Kraft
A. B. Krongard
Pauline Richards
Fees Earned or Paid in
Cash
($)
Stock Awards
($) (1)
Total
($)
175,000
135,000
125,000
150,000
175,000
129,484
129,484
129,484
129,484
129,484
304,484
264,484
254,484
279,484
304,484
(1) Represents the aggregate grant date fair value of stock awards granted, as applicable, computed in accordance with FASB ASC Topic 718. See note 12 to our consolidated
financial statements for further information concerning the assumptions made in valuing our RSU awards. The amounts shown do not reflect compensation actually
received by the independent directors, but instead represent the aggregate grant date fair value of the awards. Unvested director RSUs are not entitled to distributions or
distribution equivalents. As of December 31, 2018, each of our independent directors, other than Mr. Fribourg (who forfeited his July 31, 2018 RSU award when he
resigned before the vesting date), held 3,978 RSUs that were unvested and outstanding.
ITEM 12 .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth information regarding the beneficial ownership of our Class A shares as of February 26, 2019 by (i) each person known
to us to beneficially own more than 5% of the voting Class A shares of Apollo Global Management, LLC, (ii) each of our directors, (iii) each person who is a
named executive officer for 2018 and (iv) all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each person named in the table below has sole voting
and investment power with respect to all of the Class A shares and interests in our Class B share shown as beneficially owned by such person, except as otherwise
set forth in the notes to the table and pursuant to applicable community property laws. Unless otherwise indicated, the address of each person named in the table is
c/o Apollo Global Management, LLC, 9 West 57th Street, New York, NY 10019.
In respect of our Class A shares, the table set forth below assumes the exchange by Holdings of all AOG Units for our Class A shares with respect to
which the person listed below has the right to direct such exchange pursuant to the Amended and Restated Exchange Agreement described under “Item 13. Certain
Relationships and Related Party Transactions—Amended and Restated Exchange Agreement,” and the distribution of such shares to such person as a limited
partner of Holdings.
- 233 -
Table of Contents
Class A Shares Beneficially Owned
Class B Share Beneficially Owned
Number of
Shares
Percent (1)
Total Percentage
of Voting Power (2)
Number of
Shares
Percent
Total Percentage
of Voting Power (2)
Directors and Executive Officers:
Leon Black (3)(4)
Joshua Harris (3)(4)
Marc Rowan (3)(4)
Pauline Richards
Alvin Bernard Krongard (5)
Michael Ducey (6)
Robert Kraft (7)
Martin Kelly
John Suydam (8)
James Zelter (9)
Scott Kleinman (10)
All directors and executive officers as a
group (twelve persons) (11)
BRH (4)
AP Professional Holdings, L.P. (12)
5% Stockholders:
Tiger Global Management, LLC (13)
Capital World Investors (14)
92,727,166
48,432,643
42,481,402
47,669
299,442
47,036
344,567
206,999
594,082
3,001,906
3,375,819
192,812,794
—
202,245,561
37,663,500
10,657,700
31.4%
19.3%
17.3%
52.3%
52.3%
52.3%
*
*
*
*
*
*
1.5%
1.6%
49.3%
—
50.0%
18.6%
5.3%
*
*
*
*
*
*
*
*
49.8%
—
52.3%
9.7%
2.8%
1
1
1
—
—
—
—
—
—
—
—
1
1
—
—
100%
100%
100%
—
—
—
—
—
—
—
—
100%
100%
—
—
52.3%
52.3%
52.3%
—
—
—
—
—
—
—
—
52.3%
52.3%
—
—
*Represents less than 1%.
(1)
(2)
(3)
The percentage of beneficial ownership of our Class A shares is based on voting and non-voting Class A shares outstanding.
The total percentage of voting power is based on voting Class A shares and the Class B share. The voting power calculations assume 17,710,039 Class A shares held by
the Strategic Investor based on a Form 13F for the quarter ended December 31, 2018, filed with the SEC on February 8, 2019 by the Strategic Investor. Class A shares
held by the Strategic Investor do not have voting rights.
The number of Class A shares presented are held by estate planning vehicles, for which this individual disclaims beneficial ownership except to the extent of his pecuniary
interest therein. The number of Class A shares presented do not include any Class A shares owned by Holdings with respect to which this individual, as one of the three
owners of all of the interests in BRH, the general partner of Holdings, or as a party to the Agreement Among Managing Partners described under “Item 13. Certain
Relationships and Related Party Transactions—Agreement Among Managing Partners” or the Managing Partner Shareholders Agreement described under “Item 13.
Certain Relationships and Related Party Transactions—Managing Partner Shareholders Agreement,” may be deemed to have shared voting or dispositive power. Each of
these individuals disclaims any beneficial ownership of these shares, except to the extent of his pecuniary interest therein.
(6)
(5)
(4) BRH, the holder of the Class B share, is one third owned by Mr. Black, one third owned by Mr. Harris and one third owned by Mr. Rowan. Pursuant to the Agreement
Among Managing Partners, the Class B share is to be voted and disposed of by BRH based on the determination of at least two of the three Managing Partners; as such,
they share voting and dispositive power with respect to the Class B share.
Includes 250,000 Class A shares held by a trust for the benefit of Mr. Krongard’s children, for which Mr. Krongard’s children are the trustees. Mr. Krongard disclaims
beneficial ownership with respect to such shares, except to the extent of his pecuniary interest therein.
Includes 2,616 Class A shares held by two trusts for the benefit of Mr. Ducey’s grandchildren, for which Mr. Ducey and several of Mr. Ducey’s immediate family
members are trustees and have shared investment power. Mr. Ducey disclaims beneficial ownership of the Class A shares held in the trusts, except to the extent of his
pecuniary interest therein.
Includes 330,000 Class A shares held by two entities, which are under the sole control of Mr. Kraft, and may be deemed to be beneficially owned by Mr. Kraft.
Includes 64,260 Class A shares held by a trust for the benefit of Mr. Suydam’s spouse and children, for which Mr. Suydam’s spouse is the trustee. Mr. Suydam disclaims
beneficial ownership with respect to such shares, except to the extent of his pecuniary interest therein.
Includes 469,741 Class A shares held by two entities, over which Mr. Zelter exercises voting and investment control, and may be deemed to be beneficially owned by Mr.
Zelter.
Includes 289,209 Class A shares held by six entities, over which Mr. Kleinman exercises voting and investment control, and may be deemed to be beneficially owned by
Mr. Kleinman.
(7)
(8)
(10)
(9)
(11) Refers to shares beneficially owned by the individuals who were directors and executive officers as of February 26, 2019.
(12) Assumes that no Class A shares are distributed to the limited partners of Holdings. The general partner of Holdings is BRH, which is one third owned by Mr. Black, one
third owned by Mr. Harris and one third owned by Mr. Rowan. BRH is also the general partner of BRH Holdings, L.P., the limited partnership through which Messrs.
Black, Harris and Rowan indirectly beneficially own (through estate planning vehicles) their limited partner interests in Holdings. These individuals disclaim any
beneficial ownership of these Class A shares, except to the extent of their pecuniary interest therein.
- 234 -
Table of Contents
(13) Based on a Schedule 13G filed with the SEC on February 14, 2019, by Tiger Global Management, LLC. The address of Tiger Global Management, LLC is 9 West 57 th
Street, 35 th Floor, New York, New York. Pursuant to an irrevocable proxy, all voting rights attaching to the shares held by Tiger Global Management, LLC are exercisable
by Apollo Global Management, LLC.
(14) Based on a Schedule 13G filed with the SEC on February 14, 2019, by Capital World Investors, a division of Capital Research and Management Company. The address of
Capital World Investors is 333 South Hope Street, Los Angeles, California.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreement Among Managing Partners
Our Managing Partners have entered into the Agreement Among Managing Partners. The Managing Partners beneficially own Holdings in accordance
with their respective sharing percentages, or “Sharing Percentages,” as set forth in the Agreement Among Managing Partners. For the purposes of the Agreement
Among Managing Partners, “Pecuniary Interest” means, with respect to each Managing Partner, the number of AOG Units that would be distributable to him
assuming that Holdings was liquidated and its assets distributed in accordance with its governing agreements.
Pursuant to the Agreement Among Managing Partners, each Managing Partner is vested in full in his respective AOG Units. We may not terminate a
Managing Partner except for cause or by reason of disability.
The transfer by a Managing Partner of any portion of his Pecuniary Interest to a permitted transferee will in no way affect any of his obligations under
the Agreement Among Managing Partners; provided, that all permitted transferees are required to sign a joinder to the Agreement Among Managing Partners.
The Managing Partners’ respective Pecuniary Interests in certain funds, or the “Heritage Funds,” within the Apollo Operating Group are not held in
accordance with the Managing Partners’ respective Sharing Percentages. Instead, each Managing Partner’s Pecuniary Interest in such Heritage Funds is held in
accordance with the historic ownership arrangements among the Managing Partners, and the Managing Partners continue to share the operating income in such
Heritage Funds in accordance with their historic ownership arrangement with respect to such Heritage Funds.
The Agreement Among Managing Partners may be amended and the terms and conditions of the Agreement Among Managing Partners may be
changed or modified upon the unanimous approval of the Managing Partners. We, our shareholders (other than the Strategic Investors, as set forth under “—
Lenders Rights Agreement—Amendments to Managing Partner Transfer Restrictions”) and the Apollo Operating Group have no ability to enforce any provision of
the Agreement Among Managing Partners or to prevent the Managing Partners from amending it.
Managing Partner Shareholders Agreement
We have entered into the Managing Partner Shareholders Agreement with our Managing Partners. The Managing Partner Shareholders Agreement
provides the Managing Partners with certain rights with respect to the approval of certain matters and the designation of nominees to serve on our board of
directors, as well as registration rights for our securities that they own.
Board Representation
The Managing Partner Shareholders Agreement requires our board of directors, so long as the Apollo control condition is satisfied, to nominate
individuals designated by our manager such that our manager will have a majority of the designees on our board.
Transfers
The Managing Partner Shareholders Agreement provides that each Managing Partner and his permitted transferees may transfer all of the Pecuniary
Interests (as defined in the Managing Partner Shareholders Agreement) of such Managing Partner to any person or entity in accordance with Rule 144, in a
registered public offering or in a transaction exempt from the registration requirements of the Securities Act. The above transfer restrictions will lapse with respect
to a Managing Partner if he dies or becomes disabled.
Indemnity
Realized performance fees from certain of our funds can be distributed to us on a current basis but are subject to repayment by the subsidiaries of the
Apollo Operating Group that act as general partners of the funds in the event that certain specified return thresholds are not ultimately achieved. The Managing
Partners, Contributing Partners and certain other investment professionals have personally guaranteed, subject to certain limitations, the obligations of these
subsidiaries in respect of this general partner obligation. Such guarantees are several and not joint and are limited to a particular Managing Partner’s, Contributing
- 235 -
Table of Contents
Partner’s or other investment professional’s distributions. Pursuant to the Managing Partner Shareholders Agreement, we agreed to indemnify each of our
Managing Partners and certain Contributing Partners against all amounts that they pay pursuant to any of these personal guarantees in favor of Fund IV, Fund V
and Fund VI (including costs and expenses related to investigating the basis for or objecting to any claims made in respect of the guarantees) for all interests that
our Managing Partners and Contributing Partners have contributed or sold to the Apollo Operating Group.
Accordingly, in the event that our Managing Partners, Contributing Partners and certain other investment professionals are required to pay amounts in
connection with a general partner obligation for the return of previously made distributions with respect to Fund IV, Fund V and Fund VI, we will be obligated to
reimburse our Managing Partners and certain Contributing Partners for the indemnifiable percentage of amounts that they are required to pay even though we did
not receive the distribution to which that general partner obligation related.
Registration Rights
Pursuant to the Managing Partner Shareholders Agreement, we have granted Holdings, an entity through which our Managing Partners and
Contributing Partners beneficially own their AOG Units, and its permitted transferees the right, under certain circumstances and subject to certain restrictions, to
require us to register under the Securities Act our Class A shares held or acquired by them. Under the Managing Partner Shareholders Agreement, the registration
rights holders (i) have “demand” registration rights that require us to register under the Securities Act the Class A shares that they hold or acquire, (ii) may require
us to make available registration statements permitting sales of Class A shares they hold or acquire in the market from time to time over an extended period and
(iii) have the ability to exercise certain piggyback registration rights in connection with registered offerings requested by other registration rights holders or
initiated by us. We have agreed to indemnify each registration rights holder and certain related parties against any losses or damages resulting from any untrue
statement or omission of material fact in any registration statement or prospectus pursuant to which such holder sells our shares, unless such liability arose from the
holder’s misstatement or omission, and each registration rights holder has agreed to indemnify us against all losses caused by his misstatements or omissions. We
have filed a shelf registration statement in connection with the rights described above.
Roll-Up Agreements
Pursuant to the Roll-Up Agreements, the Contributing Partners received interests in Holdings, which we refer to as AOG Units, in exchange for their
contribution of assets to the Apollo Operating Group. The AOG Units received by our Contributing Partners and any units into which they have been exchanged
are fully vested and tradable. Our Contributing Partners have the ability to direct Holdings to exercise Holdings’ registration rights described above under “—
Managing Partner Shareholders Agreement—Registration Rights.”
Under their Roll-Up Agreements or other agreements, each of our Contributing Partners is subject to a noncompetition provision until the first
anniversary of the date of termination of his service as a partner to us. During that period, our Contributing Partners are prohibited from (i) engaging in any
business activity in which we operate, (ii) rendering any services to any alternative asset management business (other than that of us or our affiliates) that involves
primarily (i.e., more than 50%) third-party capital or (iii) acquiring a financial interest in, or becoming actively involved with, any competitive business (other than
as a passive holding of a specified percentage of publicly traded companies). In addition, our Contributing Partners are subject to non-solicitation, non-hire and
noninterference covenants during employment and for at least 12 months thereafter. Our Contributing Partners are also bound to a non-disparagement covenant
with respect to us and our Contributing Partners and to confidentiality restrictions. Resignation by any of our Contributing Partners shall require ninety days’
notice. Any restricted period applicable to a Contributing Partner will commence after the ninety-day notice of termination period.
Amended and Restated Exchange Agreement
We have entered into an exchange agreement with Holdings under which, subject to certain procedures and restrictions (including any applicable
transfer restrictions and lock-up agreements described above) upon 60 days’ written notice prior to a designated quarterly date, each Managing Partner and
Contributing Partner (or certain transferees thereof) has the right to cause Holdings to exchange the AOG Units that he owns through Holdings for our Class A
shares and to sell such Class A shares at the prevailing market price (or at a lower price that such Managing Partner or Contributing Partner is willing to accept).
To affect the exchange, Holdings distributes the AOG Units to be exchanged to the applicable Managing Partner or Contributing Partner. Under the exchange
agreement, the Managing Partner or Contributing Partner must then simultaneously exchange one AOG Unit (being an equal limited partner or limited liability
company interest in each Apollo Operating Group entity) for each Class A share received from our intermediate holding companies. As a Managing Partner or
Contributing Partner exchanges his AOG Units, our interest in the AOG Units will be correspondingly increased and the voting power of the Class B share will be
correspondingly decreased.
The exchange agreement was amended and restated on May 6, 2013, and further amended and restated on each of March 5, 2014, May 5, 2016 and
April 28, 2017. The amendments to the original exchange agreement (i) permit exchanging
- 236 -
Table of Contents
holders certain rights to revoke exchanges of their AOG Units in whole, but not in part, in certain circumstances; (ii) permit transfers of a holder’s exchanged
shares to a qualifying entity that can sell them under a Rule 10b5-1 trading plan; (iii) require the Company to use its commercially reasonable efforts to file and
keep effective a shelf registration statement relating to the exchange of Class A shares received upon an exchange of AOG Units; (iv) modify the exchange
mechanics to address certain tax considerations of an exchange for exchanging holders; and (v) require exchanging holders to reimburse APO Corp. for any
incremental U.S. federal income tax incurred by APO Corp. as a result of the modification of the exchange mechanics.
Amended and Restated Tax Receivable Agreement
As a result of each of AMH Holdings (Cayman), L.P. and the Apollo Operating Group entities controlled by it or Apollo Management Holdings, L.P.
having made an election under Section 754 of the Internal Revenue Code, any exchanges by a Managing Partner or Contributing Partner of AOG Units that he
owns through Holdings (together with the corresponding interest in our Class B share) for our Class A shares in a taxable transaction may result in an adjustment to
the tax basis of a portion of the assets owned by the Apollo Operating Group at the time of the exchange. The taxable exchanges may result in increases in the tax
depreciation and amortization deductions from depreciable and amortizable assets, as well as an increase in the tax basis of other assets, of the Apollo Operating
Group that otherwise would not have been available. A portion of these increases in tax depreciation and amortization deductions, as well as the increase in the tax
basis of such other assets, will reduce the amount of tax that APO Corp. would otherwise be required to pay in the future. Additionally, our acquisition of AOG
Units from the Managing Partners or Contributing Partners, such as our acquisition of AOG Units from the Managing Partners in the Strategic Investors
Transaction, have resulted, and may continue to result, in increases in tax deductions and tax basis that reduces the amount of tax that APO Corp. would otherwise
be required to pay in the future.
APO Corp. has entered into a tax receivable agreement with our Managing Partners and Contributing Partners that provides for the payment by APO
Corp. to an exchanging or selling Managing Partner or Contributing Partner of 85% of the amount of actual cash savings, if any, in U.S. Federal, state, local and
foreign income tax that APO Corp. realizes (or is deemed to realize in the case of an early termination payment by APO Corp. or a change of control, as discussed
below) as a result of these increases in tax deductions and tax basis, and certain other tax benefits, including imputed interest expense, related to payments pursuant
to the tax receivable agreement. APO Corp. expects to benefit from the remaining 15% of actual cash savings, if any, in income tax that it realizes. For purposes of
the tax receivable agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that APO
Corp. would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of the applicable Apollo Operating Group
entity as a result of the transaction and had APO Corp. not entered into the tax receivable agreement. The tax savings achieved may not ensure that we have
sufficient cash available to pay our tax liability or generate additional distributions to our investors. Also, we may need to incur additional debt to repay the tax
receivable agreement if our cash flow needs are not met. The term of the tax receivable agreement will continue until all such tax benefits have been utilized or
expired, unless APO Corp. exercises the right to terminate the tax receivable agreement by paying an amount based on the present value of payments remaining to
be made under the agreement with respect to units that have been exchanged or sold and units which have not yet been exchanged or sold. Such present value will
be determined based on certain assumptions, including that APO Corp. would have sufficient taxable income to fully utilize the deductions that would have arisen
from the increased tax deductions and tax basis and other benefits related to the tax receivable agreement. In the event that other of our current or future U.S.
subsidiaries become taxable as corporations and acquire AOG Units in the future, or if we become taxable as a corporation for U.S. Federal income tax purposes,
each U.S. corporation will become subject to a tax receivable agreement with substantially similar terms.
The IRS could challenge our claim to any increase in the tax basis of the assets owned by the Apollo Operating Group that results from the exchanges
entered into by the Managing Partners or Contributing Partners. The IRS could also challenge any additional tax depreciation and amortization deductions or other
tax benefits we claim as a result of such increase in the tax basis of such assets. If the IRS were to successfully challenge a tax basis increase or tax benefits we
previously claimed from a tax basis increase, our Managing Partners and Contributing Partners would not be obligated under the tax receivable agreement to
reimburse APO Corp. for any payments previously made to it (although future payments would be adjusted to reflect the result of such challenge). As a result, in
certain circumstances, payments could be made to our Managing Partners and Contributing Partners under the tax receivable agreement in excess of 85% of APO
Corp.’s actual cash tax savings. In general, estimating the amount of payments that may be made to our Managing Partners and Contributing Partners under the tax
receivable agreement is by its nature, imprecise, in the absence of an actual transaction, insofar as the calculation of amounts payable depends on a variety of
factors. The actual increase in tax basis and the amount and timing of any payments under the tax receivable agreement will vary depending upon a number of
factors, including:
•
the timing of the transactions-for instance, the increase in any tax deductions will vary depending on the fair market value, which may
fluctuate over time, of the depreciable or amortizable assets of the Apollo Operating Group entities at the time of the transaction;
- 237 -
Table of Contents
•
•
•
the price of our Class A shares at the time of the transaction-the increase in any tax deductions, as well as tax basis increase in other assets,
of the Apollo Operating Group entities, is directly proportional to the price of the Class A shares at the time of the transaction;
the taxability of exchanges–to the extent an exchange is not taxable for any reason, increased deductions will not be available; and
the amount and timing of our income–APO Corp. will be required to pay 85% of the tax savings as and when realized, if any. If APO Corp.
does not have taxable income, it is not required to make payments under the tax receivable agreement for that taxable year because no tax
savings were actually realized.
For the year ended December 31, 2018, we made payments totaling $46 million to our Managing Partners and executive officer Contributing Partners
(or to their estate planning vehicles) pursuant to the tax receivable agreement, related to tax benefits treated as realized thereunder by APO Corp. in 2017. Those
payments included the following amounts: $15,461,024 for Mr. Black, $13,103,457 for Mr. Harris, $16,620,168 for Mr. Rowan, $602,753 for Mr. Kleinman and
$271,529 for Mr. Zelter. In connection with these payments, the Company made a pro rata distribution to APO Corp. and the Non-Controlling Interest Holders in
the Apollo Operating Group, which resulted in Messrs. Black, Harris, Rowan, Kleinman and Zelter (or their estate planning vehicles) ultimately receiving the
following additional amounts: $23,126,099, $12,079,072, $10,594,836, $759,093 and $543,760, respectively.
In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certain other changes of
control, APO Corp.’s (or its successor’s) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of
control) would be based on certain assumptions, including that APO Corp. would have sufficient taxable income to fully utilize the deductions arising from the
increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. As noted above, no payments will be made if a
Managing Partner or Contributing Partner elects to exchange his or her AOG Units in a tax-free transaction.
In connection with the first amendment and restatement of the exchange agreement, the tax receivable agreement was amended and restated on May 6,
2013 to conform the agreement to the amended and restated exchange agreement, particularly to address the modified exchange mechanics, and to make non-
substantive updates to recognize certain additional Apollo Operating Group entities that have been formed since the original tax receivable agreement was entered
into in 2007.
Strategic Relationship Agreement
On April 20, 2010, we announced a strategic relationship agreement with CalPERS, whereby we agreed to reduce management fees and other fees
charged to CalPERS on funds we manage, or in the future will manage, solely for CalPERS by $125 million over a five-year period or as close a period as required
to provide CalPERS with that benefit. The agreement further provides that we will not use a placement agent in connection with securing any future capital
commitments from CalPERS. Through December 31, 2018 , the Company had reduced fees charged to CalPERS on the funds it manages by approximately $107.8
million .
Strategic Investors Transaction
On July 13, 2007, we sold securities to two strategic investors in return for a total investment of $1.2 billion. Through our intermediate holding
companies, we used all of the proceeds from the issuance of such securities to purchase AOG Units from our Managing Partners, and to purchase from our
Contributing Partners a portion of their points. As of December 31, 2018, one of the strategic investors, the California Public Employees’ Retirement System, or
“CalPERS”, which we refer to herein as the “Strategic Investor”, continued to hold such securities. The securities held by the Strategic Investor are non-voting
Class A shares. Based on a Form 13F for the quarter ended December 31, 2018 filed with the SEC on February 8, 2019 by the Strategic Investor, the Strategic
Investor held 8.8% of our issued and outstanding Class A shares and 4.4% of the economic interest in the Apollo Operating Group, in each case as of
December 31, 2018 .
Lenders Rights Agreement
In connection with the Strategic Investors Transaction, we entered into a shareholders agreement, or the “Lenders Rights Agreement,” with the
strategic investors.
Transfer Restrictions
The Strategic Investor may transfer 100% of its non-voting Class A shares at any time.
Notwithstanding the foregoing, at no time following the registration effectiveness date may the Strategic Investor make a transfer representing 2% or
more of our total Class A shares to any one person or group of related persons.
- 238 -
Table of Contents
Registration Rights
Pursuant to the Lenders Rights Agreement, the Strategic Investor is afforded four demand registrations with respect to its non-voting Class A shares,
covering offerings of at least 2.5% of our total equity ownership and customary piggyback registration rights. All cutbacks between the Strategic Investor and
Holdings (or its partners) in any such demand registration shall be pro rata based upon the number of shares available for sale at such time (regardless of which
party exercises a demand).
Amendments to Managing Partner Transfer Restrictions
The Strategic Investor has a consent right with respect to any amendment or waiver of any transfer restrictions that apply to our Managing Partners.
Apollo Operating Group Governing Agreements
Pursuant to the governing agreements of the Apollo Operating Group entities, the indirect wholly-owned subsidiaries of Apollo Global Management,
LLC that are the general partners or managers of those entities have the right to determine when distributions will be made to the partners or members of the
Apollo Operating Group and the amount of any such distributions. If a distribution is authorized, such distribution will be made to the partners or members of the
Apollo Operating Group pro rata in accordance with their respective ownership interests.
The governing agreements of the Apollo Operating Group entities also provide that substantially all of our expenses, including substantially all
expenses solely incurred by or attributable to Apollo Global Management, LLC, will be borne by the Apollo Operating Group; provided that obligations incurred
under the tax receivable agreement by Apollo Global Management, LLC and its wholly-owned subsidiaries, income tax expenses of Apollo Global Management,
LLC and its wholly-owned subsidiaries and indebtedness incurred by Apollo Global Management, LLC and its wholly-owned subsidiaries shall be borne solely by
Apollo Global Management, LLC and its wholly-owned subsidiaries.
Employment Arrangements
Please see the section entitled “Item 11. Executive Compensation—Narrative Disclosure to the Summary Compensation Table and Grants of Plan—
Based Awards Table” and “—Potential Payments upon Termination or Change in Control” for a description of the employment agreements of our named executive
officers who have employment agreements.
In addition, Joshua Black a son of Leon Black, is currently employed by the Company as a Principal in the Company’s private equity business. He is
entitled to receive a base salary, incentive compensation and employee benefits comparable to those offered to similarly situated employees of the Company. He is
also eligible to receive an annual performance-based bonus in an amount determined by the Company in its discretion.
Firm Use of Private Aircraft
In the normal course of business, our personnel have made use of aircraft owned as personal assets by entities controlled by Messrs. Black, Rowan and
Harris. Messrs. Black, Rowan and Harris paid for their respective purchases of the aircraft and bear all operating, personnel and maintenance costs associated with
their operation for personal use. Payments by us for the business use of these aircraft by Messrs. Black, Rowan and Harris and other of our personnel are
determined based on a specified hourly market rate. In 2018 , we made payments of $1,438,042, $780,949 and $673,446 for the use of such aircraft owned by
entities controlled by Messrs. Black, Rowan and Harris, respectively.
Investments In Apollo Funds
Our directors and executive officers are generally permitted to invest their own capital (or capital of estate planning vehicles that they control) directly
in our funds and affiliated entities. In general, such investments are not subject to management fees, and in certain instances, may not be subject to performance
fees. The opportunity to invest in our funds in the same manner is available to all of the senior Apollo professionals and to those of our employees whom we have
determined to have a status that reasonably permits us to offer them these types of investments in compliance with applicable laws. From our inception through
December 31, 2018 , our professionals have committed or invested approximately $1.8 billion of their own capital to our funds.
The amount invested in our investment funds by our directors and executive officers (and in some cases, certain estate planning vehicles controlled by
them or their immediate family members) during 2018 was $1,166,292, $6,917,902, $9,124,889, $4,457,091, $4,629,572, $1,056,836, $316,401, $392,992
and $1,445,073 for Messrs. Black, Harris, Rowan, Kleinman, Zelter, Suydam, Kelly, Ducey, and Kraft, respectively. The amount of distributions on their fund
investments, including profits and return of capital to our directors and executive officers (and in some cases, certain estate planning vehicles controlled by them or
their immediate family members) during 2018 was $34,711,789, $27,713,994, $38,528,656, $6,591,705, $7,465,459, $2,804,475,
- 239 -
Table of Contents
$147,871, $262,666, $1,645,214 and $1,096 for Messrs. Black, Harris, Rowan, Kleinman, Zelter, Suydam, Kelly, Ducey, Kraft, and Krongard, respectively.
Sub-Advisory Arrangements and Strategic Investment Accounts
From time to time, we have entered into sub-advisory arrangements with, or established strategic investment accounts for, certain of our directors and
executive officers or vehicles they manage. Such arrangements have been approved in advance in accordance with our policy regarding transactions with related
persons. In addition, such sub-advisory arrangements or strategic investment accounts have been entered into with, or advised by, an Apollo entity serving as
investment advisor registered under the Investment Advisers Act, and any fee arrangements, if applicable, have been on an arms-length basis. The amount of such
fees paid by our directors and executive officers or vehicles they manage to the Company during 2018 was $143,341 for Mr. Harris and $132,471 for Mr. Rowan.
Irrevocable Proxy with Tiger Global Management
The Class A shares beneficially owned (the “Subject Shares”) by advisory clients of Tiger Global Management, LLC and/or its related persons’
proprietary accounts (“Tiger”), as disclosed in “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”, are
subject to an irrevocable proxy pursuant to which our manager has the right to vote all of such Subject Shares at any meeting of our shareholders and in connection
with any written consent of our shareholders as determined in the sole discretion of our manager. Upon the sale by Tiger of the Subject Shares to a person or entity
that is not an affiliate of Tiger, such portion of Subject Shares that are sold will be released from the proxy. The proxy terminates on the earlier of (x) May 5, 2020
and (y) the first date Tiger does not own more than 10% of our outstanding Class A shares.
Indemnification of Directors, Officers and Others
Under our operating agreement, in most circumstances we will indemnify the following persons, to the fullest extent permitted by law, from and
against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts: our manager; any departing manager; any person who is or was an affiliate of our manager or any departing manager; any person who is or was a
member, partner, tax matters partner, officer, director, employee, agent, fiduciary or trustee of us or our subsidiaries, our manager or any departing manager or any
affiliate of us or our subsidiaries, our manager or any departing manager; any person who is or was serving at the request of our manager or any departing manager
or any affiliate of our manager or any departing manager as an officer, director, employee, member, partner, agent, fiduciary or trustee of another person; or any
person designated by our manager. We have agreed to provide this indemnification unless there has been a final and non-appealable judgment by a court of
competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. We have also agreed to provide this
indemnification for criminal proceedings. Any indemnification under these provisions will only be out of our assets. We may purchase insurance against liabilities
asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities
under our operating agreement.
We have entered into indemnification agreements with each of our directors, executive officers and certain of our employees which set forth the
obligations described above.
We have also agreed to indemnify each of our Managing Partners and certain Contributing Partners against certain amounts that they are required to
pay in connection with a general partner obligation for the return of previously made performance fee distributions in respect of Fund IV, Fund V and Fund VI. See
the above description of the indemnity provisions of the Managing Partner Shareholders Agreement.
Statement of Policy Regarding Transactions with Related Persons
Our board of directors has adopted a written statement of policy regarding transactions with related persons, which we refer to as our “related person
policy.” Our related person policy requires that a “related person” (as defined in paragraph (a) of Item 404 of Regulation S-K) must promptly disclose to our Chief
Legal Officer any “related person transaction” (defined as any transaction that is reportable by us under Item 404(a) of Regulation S-K in which we were or are to
be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material
facts with respect thereto. Our Chief Legal Officer will then promptly communicate that information to our manager. No related person transaction will be
consummated without the approval or ratification of the executive committee of our manager or any committee of our board of directors consisting exclusively of
disinterested directors. It is our policy that persons interested in a related person transaction will recuse themselves from any vote of a related person transaction in
which they have an interest.
- 240 -
Table of Contents
Director Independence
For so long as the Apollo control condition is satisfied (as described in “Item 10. Directors, Executive Officers and Corporate Governance—Our
Manager”), we are considered a “controlled company” as defined in the listing standards of the NYSE and we are exempt from the NYSE rules that require that:
•
•
•
our board of directors be comprised of a majority of independent directors;
we establish a compensation committee composed solely of independent directors; and
we establish a nominating and corporate governance committee composed solely of independent directors.
While our board of directors is currently comprised of a majority of independent directors, we plan on availing ourselves of the controlled company
exceptions. We have elected not to have a nominating and corporate governance committee comprised entirely of independent directors, nor a compensation
committee comprised entirely of independent directors. Our board of directors has determined that four of our seven directors meet the independence standards
under the NYSE and the SEC. These directors are Messrs. Ducey, Kraft and Krongard and Ms. Richards.
At such time that we are no longer deemed a controlled company, our board of directors will take all action necessary to comply with all applicable
rules within the applicable time period under the NYSE listing standards.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table summarizes the aggregate fees for professional services provided by Deloitte & Touche LLP, the member firms of Deloitte
Touche Tohmatsu, and their respective affiliates (collectively, the "Deloitte Entities").
Audit fees
Audit fees for Apollo fund entities
Audit-related fees
Tax fees
Tax fees for Apollo fund entities
$
For the Years Ended December 31,
2018
2017
(in thousands)
$
7,127 (1)
16,198 (2)
1,635 (3)(4)
7,019 (5)
28,436 (2)
7,010 (1)
14,374 (2)
1,161 (3)(4)
6,047 (5)
20,740 (2)
(1) Audit fees consisted of fees for (a) the audits of our consolidated financial statements in our Annual Report on Form 10-K and services attendant to, or required by, statute
or regulation; (b) reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q.
(2) Audit and Tax fees for Apollo fund entities consisted of services to investment funds managed by Apollo in its capacity as the general partner and/or manager of such
entities.
(3) Audit-related fees consisted of comfort letters, consents and other services related to SEC and other regulatory filings.
(4)
(5)
Includes audit-related fees for Apollo fund entities of $0.9 million and $0.3 million for the years ended December 31, 2018 and 2017 , respectively.
Tax fees consisted of fees for services rendered for tax compliance and tax planning and advisory services.
Our audit committee charter requires the audit committee of our board of directors to approve in advance all audit and non-audit related services to be
provided by our independent registered public accounting firm. All services reported in the Audit, Audit-related, Tax and Other categories above were approved by
the committee.
- 241 -
Table of Contents
ITEM 15 .
EXHIBITS
Exhibit
Number
PART IV
Exhibit Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Certificate of Formation of Apollo Global Management, LLC (incorporated by reference to Exhibit 3.1 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-150141)).
Third Amended and Restated Limited Liability Company Agreement of Apollo Global Management, LLC dated March 19,
2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on March 19, 2018 (File No. 001-35107)).
Specimen Certificate evidencing the Registrant’s Class A shares (incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-150141)).
Indenture dated as of May 30, 2014, among Apollo Management Holdings, L.P., the Guarantors party thereto and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed with
the Securities and Exchange Commission on May 30, 2014 (File No. 001-35107)).
First Supplemental Indenture dated as of May 30, 2014, among Apollo Management Holdings, L.P., the Guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s
Form 8-K filed with the Securities and Exchange Commission on May 30, 2014 (File No. 001-35107)).
Form of 4.000% Senior Note due 2024 (included in Exhibit 4.2 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on May 30, 2014 (File No. 001-35107), which is incorporated by reference).
Second Supplemental Indenture dated as of January 30, 2015, among Apollo Management Holdings, L.P., the Guarantors
party thereto, Apollo Principal Holdings X, L.P. and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.5 to the Registrant’s Form 10-K for the period ended December 31, 2014 (File No. 001-35107)).
Third Supplemental Indenture dated as of February 1, 2016, among Apollo Management Holdings, L.P., the Guarantors party
thereto, Apollo Principal Holdings XI, LLC and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.6 to the Registrant’s Form 10-Q for the period ended March 31, 2016 (File No. 001-35107)).
Fourth Supplemental Indenture dated as of May 27, 2016, among Apollo Management Holdings, L.P., the Guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s
Form 8-K filed with the Securities and Exchange Commission on May 27, 2016 (File No. 001-35107)).
Form of 4.400% Senior Note due 2026 (included in Exhibit 4.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on May 27, 2016 (File No. 001-35107), which is incorporated by reference).
Fifth Supplemental Indenture dated as of April 13, 2017, among Apollo Management Holdings, L.P., the Guarantors party
thereto, Apollo Principal Holdings XII, L.P. and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.8 to the Registrant’s Form 10-Q for the period ended March 31, 2017 (File No. 001-35107)).
- 242 -
Table of Contents
Exhibit
Number
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.3
10.4
10.5
Exhibit Description
Sixth Supplemental Indenture dated as of March 15, 2018, among Apollo Management Holdings, L.P., the Guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the registrant’s
Form 8-K filed with the Securities and Exchange Commission on March 15, 2018 (File No. 001-35107)).
Form of 5.000% Senior Note due 2048 (included in Exhibit 4.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on March 15, 2018 (File No. 001-35107), which is incorporated by reference).
Seventh Supplemental Indenture dated as of February 7, 2019, among Apollo Management Holdings, L.P., the Guarantors
party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the
registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2019 (File No. 001-35107)).
Form of 4.872% Senior Note due 2029 (included in Exhibit 4.1 to Registrant’s Form 8-K filed with the Securities and
Exchange Commission on February 7, 2019 (File No. 001-35107), which is incorporated by reference).
Form of 6.375% Series A Preferred Shares Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K
filed with the Securities and Exchange Commission on March 7, 2017 (File No. 001-35107)).
Form of 6.375% Series B Preferred Shares Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K
filed with the Securities and Exchange Commission on March 19, 2018 (File No. 001-35107)).
Amended and Restated Limited Liability Company Operating Agreement of AGM Management, LLC dated as of July 10,
2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
150141)).
Sixth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings I, L.P. dated as of June
21, 2018 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the period ended June 30, 2018 (File
No. 001-35107)).
Sixth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings II, L.P. dated as of June
21, 2018 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the period ended June 30, 2018 (File
No. 001-35107)).
Fifth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings III, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Fifth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings IV, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
+10.6
Apollo Global Management, LLC 2007 Omnibus Equity Incentive Plan, as amended and restated (incorporated by reference
to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-150141)).
- 243 -
Table of Contents
Exhibit
Number
10.7
10.8
10.9
10.10
+10.11
+10.12
+10.13
10.14
10.15
10.16
10.17
Exhibit Description
Agreement Among Principals, dated as of July 13, 2007, by and among Leon D. Black, Marc J. Rowan, Joshua J. Harris,
Black Family Partners, L.P., MJR Foundation LLC, AP Professional Holdings, L.P. and BRH Holdings, L.P. (incorporated by
reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-150141)).
Shareholders Agreement, dated as of July 13, 2007, by and among Apollo Global Management, LLC, AP Professional
Holdings, L.P., BRH Holdings, L.P., Black Family Partners, L.P., MJR Foundation LLC, Leon D. Black, Marc J. Rowan and
Joshua J. Harris (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No.
333-150141)).
Fifth Amended and Restated Exchange Agreement, dated as of April 28, 2017, by and among Apollo Global Management,
LLC, Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings III, L.P., Apollo
Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo Principal
Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P., Apollo Principal Holdings X,
L.P., Apollo Principal Holdings XI, LLC, Apollo Principal Holdings XII, L.P., AMH Holdings (Cayman), L.P. and the Apollo
Principal Holders (as defined therein) from time to time party thereto (incorporated by reference to Exhibit 10.9 to the
Registrant’s Form 10-Q for the period ended March 31, 2017 (File No. 001-35107)).
Amended and Restated Tax Receivable Agreement, dated as of May 6, 2013, by and among APO Corp., Apollo Principal
Holdings II, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings VI, Apollo Principal Holdings VIII, L.P.,
AMH Holdings (Cayman), L.P. and each Holder defined therein. (incorporated by reference to Exhibit 10.10 to the
Registrant’s Form 10-Q for the period ended June 30, 2016 (File No. 001-35107)).
Employment Agreement with Leon D. Black dated January 4, 2017 (incorporated by reference to Exhibit 10.11 to the
Registrant’s Form 10-K for the period ended December 31, 2016 (File No. 001-35107)).
Employment Agreement with Marc J. Rowan dated January 4, 2017 (incorporated by reference to Exhibit 10.12 to the
Registrant’s Form 10-K for the period ended December 31, 2016 (File No. 001-35107)).
Employment Agreement with Joshua J. Harris dated January 4, 2017 (incorporated by reference to Exhibit 10.13 to the
Registrant’s Form 10-K for the period ended December 31, 2016 (File No. 001-35107)).
Fifth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings V, L.P. dated as of June
21, 2018 (incorporated by reference to Exhibit 10.14 to the Registrant’s Form 10-Q for the period ended June 30, 2018 (File
No. 001-35107)).
Fifth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings VI, L.P. dated as of
June 21, 2018 (incorporated by reference to Exhibit 10.15 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Fourth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings VII, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.16 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Fourth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings VIII, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.17 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
- 244 -
Table of Contents
Exhibit
Number
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Exhibit Description
Fourth Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings IX, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.18 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Third Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings X, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.19 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Third Amended and Restated Limited Liability Company Agreement of Apollo Principal Holdings XI, LLC dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Third Amended and Restated Exempted Limited Partnership Agreement of Apollo Principal Holdings XII, L.P. dated as of
March 19, 2018 (incorporated by reference to Exhibit 10.21 to the Registrant’s Form 10-Q for the period ended June 30, 2018
(File No. 001-35107)).
Fourth Amended and Restated Limited Partnership Agreement of Apollo Management Holdings, L.P. dated as of October 30,
2012 (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-Q for the period ended March 31, 2013 (File
No. 001-35107)).
Settlement Agreement, dated December 14, 2008, by and among Huntsman Corporation, Jon M. Huntsman, Peter R.
Huntsman, Hexion Specialty Chemicals, Inc., Hexion LLC, Nimbus Merger Sub, Inc., Craig O. Morrison, Leon Black, Joshua
J. Harris and Apollo Global Management, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.26 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-150141)).
First Amendment and Joinder, dated as of August 18, 2009, to the Shareholders Agreement, dated as of July 13, 2007, by and
among Apollo Global Management, LLC, AP Professional Holdings, L.P., BRH Holdings, L.P., Black Family Partners, L.P.,
MJR Foundation LLC, Leon D. Black, Marc J. Rowan and Joshua J. Harris (incorporated by reference to Exhibit 10.27 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-150141)).
Joinder, dated as of May 5, 2016, to the Shareholders Agreement, dated as of July 13, 2007, as amended by the First
Amendment and Joinder dated as of August 18, 2009, by and among Apollo Global Management, LLC, AP Professional
Holdings, L.P., BRH Holdings, L.P., Black Family Partners, L.P., MJR Foundation LLC, MJH Partners, L.P., Leon D. Black,
Marc J. Rowan and Joshua J. Harris, and, solely in connection with Article VII of the Agreement, APO Corp., APO Asset
Co., LLC, APO (FC), LLC, Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings
III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo
Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P. and Apollo
Management Holdings, L.P. (incorporated by reference to Exhibit 10.24 to the Registrant’s Form 10-Q for the period ended
March 31, 2016 (File No. 001-35107)).
Joinder, dated as of May 3, 2017, to the Shareholders Agreement, dated as of July 13, 2007, as amended by the First
Amendment and Joinder dated as of August 18, 2009, by and among Apollo Global Management, LLC, AP Professional
Holdings, L.P., BRH Holdings, L.P., Black Family Partners, L.P., MJR Foundation LLC, MJH Partners, L.P., Leon D. Black,
Marc J. Rowan and Joshua J. Harris, and, solely in connection with Article VII of the Agreement, APO Corp., APO Asset
Co., LLC, APO (FC), LLC, Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings
III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo
Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P. and Apollo
Management Holdings, L.P. and as supplemented by the Joinder dated as of May 5, 2016, by and among Apollo Principal
Holdings X, L.P., AMH Holdings (Cayman), L.P., Apollo Principal Holdings XI, LLC, APO (FC II), LLC and APO UK
(FC), Limited (incorporated by reference to Exhibit 10.26 to the Registrant’s Form 10-Q for the period ended March 31, 2017
(File No. 001-35107)).
- 245 -
Table of Contents
Exhibit
Number
Exhibit Description
10.27
+10.28
+10.29
*+10.30
+10.31
+10.32
+10.33
+10.34
+10.35
+10.36
10.37
10.38
+10.39
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-150141)).
Form of Restricted Share Unit Award Agreement under the Apollo Global Management, LLC 2007 Omnibus Equity
Incentive Plan (for Plan Grants) (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-150141)).
Form of Restricted Share Unit Award Agreement under the Apollo Global Management, LLC 2007 Omnibus Equity
Incentive Plan (for Bonus Grants) (incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-150141)).
Form of Restricted Share Unit Award Agreement under the Apollo Global Management, LLC 2007 Omnibus Equity
Incentive Plan (for Performance Grants).
Form of Restricted Share Unit Award Agreement under the Apollo Global Management, LLC 2007 Omnibus Equity
Incentive Plan (for new independent directors) (incorporated by reference to Exhibit 10.31 to the Registrant’s Form 10-Q for
the period ended June 30, 2014 (File No. 001-35107)).
Form of Restricted Share Unit Award Agreement under the Apollo Global Management, LLC 2007 Omnibus Equity
Incentive Plan (for continuing independent directors) (incorporated by reference to Exhibit 10.32 to the Registrant’s Form 10-
Q for the period ended June 30, 2014 (File No. 001-35107)).
Form of Restricted Share Award Grant Notice and Restricted Share Award Agreement under the Apollo Global Management,
LLC 2007 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to the Registrant’s Form 10-Q for the
period ended June 30, 2014 (File No. 001-35107)).
Form of Share Award Grant Notice and Share Award Agreement under the Apollo Global Management, LLC 2007 Omnibus
Equity Incentive Plan (for Retired Partners) (incorporated by reference to Exhibit 10.34 to the Registrant’s Form 10-Q for the
period ended June 30, 2014 (File No. 001-35107)).
Apollo Management Companies AAA Unit Plan (incorporated by reference to Exhibit 10.34 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-150141)).
Non-Qualified Share Option Agreement pursuant to the Apollo Global Management, LLC 2007 Omnibus Equity Incentive
Plan with Marc Spilker dated December 2, 2010 (incorporated by reference to Exhibit 10.40 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-150141)).
Amended Form of Independent Director Engagement Letter (incorporated by reference to Exhibit 10.38 to the Registrant’s
Form 10-Q for the period ended March 31, 2014 (File No. 001-35107)).
Form of Amendment to Independent Director Engagement Letter (incorporated by reference to Exhibit 10.37 to the
Registrant’s Form 10-Q for the period ended September 30, 2018 (File No. 001-35107)).
Employment Agreement with Martin Kelly, dated July 2, 2012 (incorporated by reference to Exhibit 10.42 to the Registrant’s
Form 10-Q for the period ended June 30, 2012 (File No. 001-35107)).
- 246 -
Table of Contents
Exhibit
Number
Exhibit Description
+10.40
*+10.41
*+10.42
*+10.43
*+10.44
+10.45
*+10.46
+10.47
10.48
+10.49
+10.50
+10.51
+10.52
+10.53
Employment Agreement with John Suydam, dated July 19, 2017 (incorporated by reference to Exhibit 10.38 to the
Registrant’s Form 10-Q for the period ended September 30, 2017 (File No. 001-35107))
Letter Agreement with John Suydam, dated November 7, 2018.
Letter Agreement with Scott Kleinman, dated November 12, 2017.
Letter Agreement with Scott Kleinman, dated July 3, 2018 and effective as of January 1, 2018.
Roll-Up Agreement with Scott Kleinman, dated as of July 13, 2007.
Amended and Restated Employment Agreement with James Zelter dated June 20, 2014 (incorporated by reference to Exhibit
10.27 to the Form 10-Q for the period ended June 30, 2014 (File No. 001-35107)).
Employment Agreement Amendment with James C. Zelter, dated November 12, 2017.
Roll-Up Agreement with James Zelter, dated as of July 13, 2007 (incorporated by reference to Exhibit 10.30 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-150141)).
Fourth Amended and Restated Exempted Limited Partnership Agreement of AMH Holdings (Cayman), L.P., dated March 19,
2018 (incorporated by reference to Exhibit 10.39 to the Registrant’s Form 10-Q for the period ended June 30, 2018 (File No.
001-35107).
Amended and Restated Limited Partnership Agreement of Apollo Advisors VI, L.P., dated as of April 14, 2005 and amended
as of August 26, 2005 (incorporated by reference to Exhibit 10.41 to the Registrant’s Form 10-K for the period ended
December 31, 2013 (File No. 001-35107)).
Third Amended and Restated Limited Partnership Agreement of Apollo Advisors VII, L.P. dated as of July 1, 2008 and
effective as of August 30, 2007 (incorporated by reference to Exhibit 10.42 to the Registrant’s Form 10-K for the period
ended December 31, 2013 (File No. 001-35107)).
Third Amended and Restated Limited Partnership Agreement of Apollo Credit Opportunity Advisors I, L.P., dated January
12, 2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.43 to the Registrant’s Form 10-K for
the period ended December 31, 2013 (File No. 001-35107)).
Third Amended and Restated Limited Partnership Agreement of Apollo Credit Opportunity Advisors II, L.P., dated January
12, 2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.44 to the Registrant’s Form 10-K for
the period ended December 31, 2013 (File No. 001-35107)).
Third Amended and Restated Limited Partnership Agreement of Apollo Credit Liquidity Advisors, L.P., dated January 12,
2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.45 to the Registrant’s Form 10-K for the
period ended December 31, 2013 (File No. 001-35107)).
- 247 -
Table of Contents
Exhibit
Number
+10.54
+10.55
+10.56
+10.57
10.58
10.59
10.60
10.61
Exhibit Description
Second Amended and Restated Limited Partnership Agreement of Apollo Credit Liquidity CM Executive Carry, L.P., dated
January 12, 2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.46 to the Registrant’s Form
10-K for the period ended December 31, 2013 (File No. 001-35107)).
Second Amended and Restated Limited Partnership Agreement Apollo Credit Opportunity CM Executive Carry I, L.P. dated
January 12, 2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.47 to the Registrant’s Form
10-K for the period ended December 31, 2013 (File No. 001-35107)).
Second Amended and Restated Limited Partnership Agreement of Apollo Credit Opportunity CM Executive Carry II, L.P.
dated January 12, 2011 and made effective as of July 14, 2009 (incorporated by reference to Exhibit 10.48 to the Registrant’s
Form 10-K for the period ended December 31, 2013 (File No. 001-35107)).
Second Amended and Restated Exempted Limited Partnership Agreement of AGM Incentive Pool, L.P., dated June 29, 2012
(incorporated by reference to Exhibit 10.49 to the Registrant’s Form 10-K for the period ended December 31, 2013 (File No.
001-35107)).
Credit Agreement, dated as of July 11, 2018, by and among Apollo Management Holdings, L.P., as the Revolving Facility
Borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, the issuing banks party
thereto from time to time and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.49 to the
Registrant’s Form 10-Q for the period ended June 30, 2018 (File No. 001-35107).
Credit Agreement, dated as of December 18, 2013, by and among Apollo Management Holdings, L.P., as the Term Facility
Borrower and a Revolving Facility Borrower, the other Revolving Facility Borrowers party thereto, the other guarantors party
thereto from time to time, the lenders party thereto from time to time, the issuing banks party thereto from time to time and
JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.50 to the Registrant’s Form 10-
K for the period ended December 31, 2013 (File No. 001-35107)).
Guarantor Joinder Agreement, dated as of January 30, 2015, by Apollo Principal Holdings X, L.P. to the Credit Agreement,
dated as of December 18, 2013, by and among Apollo Management Holdings, L.P., as the Term Facility Borrower and a
Revolving Facility Borrower, the other Revolving Facility Borrowers party thereto, the existing guarantors party thereto, the
lenders party thereto from time to time, the issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated by reference to Exhibit 10.49 to the Registrant’s Form 10-Q for the period ended March
31, 2015 (File No. 001-35107)).
Guarantor Joinder Agreement, dated as of February 1, 2016, by Apollo Principal Holdings XI, LLC to the Credit Agreement,
dated as of December 18, 2013, by and among Apollo Management Holdings, L.P., as the Term Facility Borrower and a
Revolving Facility Borrower, the other Revolving Facility Borrowers party thereto, the existing guarantors party thereto, the
lenders party thereto from time to time, the issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated by reference to Exhibit 10.48 to the Registrant’s Form 10-Q for the period ended March
31, 2016 (File No. 001-35107)).
- 248 -
Table of Contents
Exhibit
Number
10.62
10.63
+10.64
+10.65
+10.66
+10.67
+10.68
+10.69
+10.70
+10.71
Exhibit Description
Amendment No. 1, dated as of March 11, 2016, to the Credit Agreement, dated as of December 18, 2013, among Apollo
Management Holdings, L.P., Apollo Management, L.P., Apollo Capital Management, L.P., Apollo International Management,
L.P., AAA Holdings, L.P., Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings
III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo
Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX L.P., Apollo Principal
Holdings X, L.P., Apollo Principal Holdings XI, LLC, ST Holdings GP, LLC and ST Management Holdings, LLC, the
guarantors party thereto, the lenders party thereto, the issuing banks party thereto, and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on March 15, 2016 (File No. 001-35107)).
Guarantor Joinder Agreement, dated as of April 13, 2017, by Apollo Principal Holdings XII, L.P. to the Credit Agreement,
dated as of December 18, 2013, as supplemented and as amended by Amendment No. 1 to the Credit Agreement dated as of
March 11, 2016, among Apollo Management Holdings, L.P., as the Term Facility Borrower and a Revolving Facility
Borrower, the other Revolving Facility Borrowers thereto, the existing guarantors party thereto, the lenders party thereto from
time to time, the issuing banks party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.52 to the Registrant’s Form 10-Q for the period ended March 31, 2017 (File No. 001-
35107)).
Form of Letter Agreement under the Amended and Restated Limited Partnership Agreement of Apollo Advisors VIII, L.P.
effective as of January 1, 2014 (incorporated by reference to Exhibit 10.56 to the Registrant’s Form 10-Q for the period ended
June 30, 2014 (File No. 001-35107)).
Form of Award Letter under the Amended and Restated Limited Partnership Agreement of Apollo Advisors VIII, L.P.
effective as of January 1, 2014 (incorporated by reference to Exhibit 10.57 to the Registrant’s Form 10-Q for the period ended
June 30, 2014 (File No. 001-35107)).
Amended and Restated Limited Partnership Agreement of Apollo EPF Advisors, L.P., dated as of February 3, 2011
(incorporated by reference to Exhibit 10.52 to the Registrant’s Form 10-K for the period ended December 31, 2014 (File No.
001-35107)).
First Amended and Restated Exempted Limited Partnership Agreement of Apollo EPF Advisors II, L.P. dated as of April 9,
2012 (incorporated by reference to Exhibit 10.53 to the Registrant’s Form 10-K for the period ended December 31, 2014 (File
No. 001-35107)).
Amended and Restated Agreement of Exempted Limited Partnership of Apollo CIP Partner Pool, L.P., dated as of December
18, 2014 (incorporated by reference to Exhibit 10.54 to the Registrant’s Form 10-K for the period ended December 31, 2014
(File No. 001-35107)).
Form of Award Letter under the Amended and Restated Agreement of Exempted Limited Partnership Agreement of Apollo
CIP Partner Pool, L.P. (incorporated by reference to Exhibit 10.55 to the Registrant’s Form 10-K for the period ended
December 31, 2014 (File No. 001-35107)).
Second Amended and Restated Agreement of Limited Partnership of Apollo Credit Opportunity Advisors III (APO FC), L.P.,
dated as of December 18, 2014 (incorporated by reference to Exhibit 10.56 to the Registrant’s Form 10-K for the period
ended December 31, 2014 (File No. 001-35107)).
Form of Award Letter under Second Amended and Restated Agreement of Limited Partnership of Apollo Credit Opportunity
Advisors III (APO FC), L.P. (incorporated by reference to Exhibit 10.57 to the Registrant’s Form 10-K for the period ended
December 31, 2014 (File No. 001-35107)).
- 249 -
Table of Contents
Exhibit
Number
+10.72
+10.73
+10.74
+10.75
+10.76
+10.77
+10.78
+10.79
*+10.80
*+10.81
*+10.82
Exhibit Description
Amended and Restated Agreement of Limited Partnership of Apollo Global Carry Pool Aggregator, L.P., dated May 4, 2017
and effective as of July 1, 2016 (incorporated by reference to Exhibit 10.61 to the Registrant’s Form 10-Q for the period
ended March 31, 2017 (File No. 001-35107)).
Form of Award Agreement for Apollo Global Carry Pool Aggregator, L.P. (incorporated by reference to Exhibit 10.62 to the
Registrant’s Form 10-Q for the period ended March 31, 2017 (File No. 001-35107))
Form of Letter Agreement under the Amended and Restated Limited Partnership Agreement of Apollo ANRP Advisors II,
L.P. dated March 2, 2017 and effective as of August 21, 2015 (incorporated by reference to Exhibit 10.63 to the Registrant’s
Form 10-Q for the period ended June 30, 2017 (File No. 001-35107)).
Form of Award Letter under the Amended and Restated Limited Partnership Agreement of Apollo ANRP Advisors II, L.P.
dated March 2, 2017 and effective as of August 21, 2015 (incorporated by reference to Exhibit 10.64 to the Registrant’s Form
10-Q for the period ended June 30, 2017 (File No. 001-35107)).
Amended and Restated Agreement of Exempted Limited Partnership of Apollo Global Carry Pool Aggregator II, L.P., dated
June 26, 2018 (incorporated by reference to Exhibit 10.68 to the Registrant’s Form 10-Q for the period ended September 30,
2018 (File No. 001-35107)).
Form of Award Agreement for Apollo Global Carry Pool Aggregator II, L.P. (incorporated by reference to Exhibit 10.69 to
the Registrant’s Form 10-Q for the period ended September 30, 2018 (File No. 001-35107)).
Fourth Amended and Restated Exempted Limited Partnership Agreement of Apollo Advisors IX, L.P., dated August 8, 2018
and effective as of June 29, 2018 (incorporated by reference to Exhibit 10.70 to the Registrant’s Form 10-Q for the period
ended September 30, 2018 (File No. 001-35107)).
Form of Award Letter for Apollo Advisors IX, L.P. (incorporated by reference to Exhibit 10.71 to the Registrant’s Form 10-Q
for the period ended September 30, 2018 (File No. 001-35107)).
Amended and Restated Limited Partnership Agreement of Apollo Special Situations Advisors, L.P., dated as of February 15,
2017 and effective as of March 18, 2016.
First Amended and Restated Agreement of Exempted Limited Partnership of Financial Credit Investment Advisors I, L.P.,
dated as of March 13, 2013 and effective as of January 7, 2011.
Amended and Restated Agreement of Exempted Limited Partnership of Financial Credit Investment Advisors II, L.P., dated
as of June 12, 2014 and effective as of January 1, 2014.
*+10.83
Amended and Restated Limited Partnership Agreement of AAA Life Re Carry, L.P., dated as of October 15, 2009.
*21.1
*23.1
*31.1
Subsidiaries of Apollo Global Management, LLC.
Consent of Deloitte & Touche, LLP.
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).
- 250 -
Table of Contents
Exhibit
Number
*31.2
*32.1
*32.2
99.1
*101.INS
*101.SCH
*101.CAL
*101.DEF
Exhibit Description
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
Audited Consolidated Financial Statements of Athene Holding, Ltd. (included in the Annual Report on Form 10-K of Athene
Holding, Ltd. for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission on February
27, 2019).
XBRL Instance Document
XBRL Taxonomy Extension Scheme Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB
XBRL Taxonomy Extension Label Linkbase Document
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
+ Management contract or compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with
respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and
warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not
describe the actual state of affairs as of the date they were made or at any other time.
ITEM 16 .
FORM 10-K SUMMARY
Not applicable.
- 251 -
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Apollo Global Management, LLC
(Registrant)
Date: March 1, 2019
By:
/s/ Martin Kelly
Name:
Martin Kelly
Title:
Chief Financial Officer and Co-Chief Operating Officer
(principal financial officer and authorized signatory)
- 252 -
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Name
/s/ Leon Black
Leon Black
/s/ Martin Kelly
Martin Kelly
/s/ Robert MacGoey
Robert MacGoey
/s/ Joshua Harris
Joshua Harris
/s/ Marc Rowan
Marc Rowan
/s/ Michael Ducey
Michael Ducey
/s/ Robert Kraft
Robert Kraft
/s/ AB Krongard
AB Krongard
/s/ Pauline Richards
Pauline Richards
Title
Date
Chairman and Chief Executive Officer and Director
March 1, 2019
(principal executive officer)
Chief Financial Officer and Co-Chief Operating Officer
March 1, 2019
(principal financial officer)
Chief Accounting Officer
(principal accounting officer)
March 1, 2019
Senior Managing Director and Director
March 1, 2019
Senior Managing Director and Director
March 1, 2019
Director
Director
Director
Director
- 253 -
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
Exhibit 10.30
CONFIDENTIAL
FORM OF PERFORMANCE RESTRICTED SHARE UNIT AWARD AGREEMENT
UNDER THE APOLLO GLOBAL MANAGEMENT, LLC
2007 OMNIBUS EQUITY INCENTIVE PLAN
This Award Agreement (this “ RSU Award Agreement ”), dated as of [ ] (the “ Date of Grant ”), is made by and between Apollo
Global Management, LLC, a Delaware limited liability company (the “ Company ”), and [ ] (the “ Participant ”). Capitalized terms not
defined herein shall have the meaning ascribed to them in the Apollo Global Management, LLC 2007 Omnibus Equity Incentive Plan, as the
same may be amended, modified or supplemented from time to time (the “ Plan ”). Where the context permits, references to the Company
shall include any successor to the Company. If this RSU Award Agreement is not executed and returned to the Company by [ ] , and
such failure continues for five business days after notice thereof, this Award will be null and void ab initio and the Participant will
have no rights hereunder.
1. Grant of Restricted Share Units . The Company hereby grants to the Participant [ ].00 restricted share units (the “ RSUs ”),
subject to all of the terms and conditions of this RSU Award Agreement and the Plan.
2. Form, Manner and Timing of Payment . Except as otherwise provided in the Plan, each RSU granted hereunder shall represent
the right to receive one (1) Share provided that the RSU becomes vested in accordance with Section 3(b) (Shares subject to RSUs covered by
this Award, “ RSU Shares ”). Subject to the terms of the Plan, for each RSU that does not terminate prior to the vesting date shown on
Exhibit A hereto pursuant to Section 3(c) , the Company, or its Subsidiaries or Affiliates, shall issue to the Participant, on the applicable
issuance date set forth on Exhibit A (each, an “ Issuance Date ”), one (1) RSU Share (either by delivering one or more certificates for such
shares or by entering such shares in book-entry form, as determined by the Company in its discretion). Such issuance shall constitute payment
of the RSU. References herein to issuances to the Participant shall include issuances to any Beneficial Owner or other Person to whom (or to
which) the RSU Shares are issued. The Company’s obligation to issue RSU Shares or otherwise make any payment with respect to vested
RSUs is subject to the condition precedent that the Participant or other Person entitled under the Plan to receive any RSU Shares with respect
to the vested RSUs deliver to the Company any representations or other documents or assurances required pursuant to Section 13 and the
Company may meet any obligation to issue RSU Shares by having one or more of its Subsidiaries or Affiliates issue the RSU Shares. The
Participant shall have no further rights with respect to any RSUs that are paid or that terminate pursuant to Section 3(c) .
3. Restrictions .
(a) The RSUs may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered. The transfer
restrictions contained in the preceding sentence shall not apply to (a) transfers to the Company, or (b) transfers of vested RSUs by will or the
laws of descent and distribution, or (c) if approved by the Administrator in its sole discretion, transfers of RSUs in accordance with the
requirements of Instruction A.1.(a)(5) of Form S-8 under the Securities Act or other applicable law. The approval contemplated by clause (c)
of the immediately preceding sentence shall not be unreasonably withheld by the Administrator with respect to a transfer of RSUs by the
Participant to a Related Party (as defined in the Amended and Restated Limited Partnership Agreement of Apollo Advisors VIII, L.P. (the “
Carry Plan ”)) if such transfer is otherwise permitted under applicable laws and regulations (which transfer may occur only with the prior
written approval of the Administrator), it being understood that the Related Party shall be required to agree to be bound by the transfer
restrictions contained in the Plan, the Carry Plan and this RSU Award Agreement. The RSUs shall be subject to a risk of forfeiture as
described in Section 3(c) until the lapse of the Restricted Period (as defined below).
(b) Subject to Section 3(c) , the RSU Shares subject to the RSUs shall become vested hereunder in accordance with the vesting
schedule set forth on Exhibit A hereto (the “ Restricted Period ”).
(c) Except as otherwise provided under the terms of the Plan, or in the vesting schedule set forth on Exhibit A hereto, if the
Participant’s employment or service terminates (a “ Termination ”) for any reason, then all rights of the Participant with respect to RSUs that
have not vested shall immediately be forfeited without payment of any consideration, and neither the Participant nor any of his or her
successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such RSUs. Employment or
service for only a portion of a vesting period, even if a substantial portion, will not entitle the Participant to any proportionate vesting or avoid
or mitigate a termination of rights and benefits upon a Termination.
4. Voting and Other Rights; Distribution Equivalents . The Participant shall have no rights of a shareholder (including voting rights
and the right to distributions or dividends), and will not be treated as an owner of Shares for tax purposes, except with respect to RSU Shares
that have been issued. Notwithstanding the foregoing, the Participant shall accrue rights to distribution equivalents from the Company or its
Subsidiaries or Affiliates on the RSUs, whether or not vested, at the time of an ordinary cash distribution on Shares. Any distribution
equivalent so accrued in respect of a RSU shall have the same value as the ordinary cash distribution on an outstanding Share that gave rise to
the distribution equivalent, and shall be paid not later than 30 days after such ordinary cash distribution is paid to the holders of Shares.
Rights to distribution equivalents on an RSU shall terminate upon the issuance or forfeiture of the underlying RSU Share. Under no
circumstances shall the Participant be entitled to receive (a) both a distribution and a distribution equivalent with respect to an RSU (or its
associated RSU Share) or (b) any distribution or distribution equivalent with respect to a forfeited or fractional RSU.
5. RSU Award Agreement Subject to Plan . This RSU Award Agreement is made pursuant to all of the provisions of the Plan,
which is incorporated herein by this reference, and is intended, and shall be interpreted in a manner, to comply therewith. If the Plan is
amended after the date hereof in a manner that conflicts with this RSU Award Agreement, the terms of this RSU Award Agreement shall
control with respect to such conflicting provision, it being understood that the application of a specific provision of the Plan that is not
directly addressed in this RSU Award Agreement shall not be deemed to conflict with this RSU Award Agreement unless such application in
fact conflicts with a specific provision of this RSU Award Agreement.
6. No Rights to Continuation of Employment or Service . Nothing in the Plan or this RSU Award Agreement shall confer upon the
Participant any right to continue in the employ or service of the Company or any Subsidiary thereof or shall interfere with or restrict the right
of the Company (or a Subsidiary or Affiliate or its shareholders, as the case may be) to terminate the Participant’s employment or service any
time for any reason whatsoever, with or without Cause (subject to compliance with all terms and conditions required in connection
therewith). The Plan and this RSU Award Agreement shall not (a) form any part of any contract of employment or contract for services
between the Company or any past or present Subsidiary thereof and any directors, officers or employees of those companies, (b) confer any
legal or equitable rights (other than those constituting the Awards themselves) against the Company or any past or present Subsidiary thereof,
directly or indirectly, or (c) give rise to any cause of action in law or in equity against the Company or any past or present Subsidiary thereof.
7. Restrictive Covenants . Nothing contained herein shall reduce or limit the application or scope of any restrictive covenants in
favor of the Company or any of its Subsidiaries or Affiliates (for example, with respect to competition, solicitation, confidentiality,
intellectual property, subsequent engagement, interference or disparagement) to which the Participant is otherwise subject, including, without
limitation, any covenants set forth in [ ]. The Participant acknowledges that the Company would not have granted this Award if the
Participant had not agreed to be bound by such restrictive covenants. Nothing in this RSU Award Agreement or any other agreement or
arrangement of the Company or any of its Affiliates to which the Participant is subject will (a) prohibit the Participant from making reports of
possible violations of U.S. federal law or regulation to any governmental agency or entity in accordance with Section 21F of the Securities
Exchange Act of 1934, Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of U.S. federal law
or regulation, or (b) require notification or prior approval by the Company or any of its Affiliates of any such reporting.
8. Tax Withholding . The Participant is responsible for all taxes and any tax-related penalties the Participant incurs in connection
with the Award. The Company or its Subsidiaries or Affiliates shall be entitled to require a cash payment by or on behalf of the Participant
and/or to deduct, from other compensation payable to the Participant, any sums required by U.S. federal, state or local law (or by any tax
authority outside of the United States) to be withheld or accounted for by the Company or its Subsidiaries or Affiliates with respect to any
RSU. The Company in its discretion may alternatively reduce the number of shares to be issued by the appropriate number of whole Shares,
valued at their then Fair Market Value, or require any other available method to satisfy any withholding or tax obligations of the Company or
its Subsidiaries or Affiliates with respect to the RSUs at the minimum applicable rates.
9. Section 409A Compliance . This Award is intended to be exempt from, or comply with, Section 409A and to be interpreted in a
manner consistent therewith. Notwithstanding anything to the contrary contained in this RSU Award Agreement, to the extent that the
Administrator determines that the Plan or an RSU is subject to Section 409A and fails to comply with the requirements of Section 409A, the
Administrator reserves the right (without any obligation to do so or to indemnify the Participant for failure to do so), without the consent of
the Participant, to amend or terminate the Plan and RSU Award Agreement and/or to amend, restructure, terminate or replace the RSU in
order to cause the RSU to either not be subject to Section 409A or to comply with the applicable provisions of such section. To the extent
necessary to avoid the imposition of tax or penalty under Section 409A, any payment by the Company or any Subsidiary or Affiliate to the
Participant (if the Participant is then a “specified employee” as defined in Code Section 409A(a)(2)(B)(i) and Treasury Regulation §1.409A-
1(i)(1)) of “deferred compensation,” whether pursuant to the Plan or otherwise, arising solely due to a “separation from service” (and not by
reason of the lapse of a “substantial risk of forfeiture”), as such terms are used in Section 409A, shall be delayed (to the extent otherwise
payable prior to such date) and paid on the first day following the six-month period beginning on the date of the Participant’s separation from
service under Section 409A (or, if earlier, upon the Participant’s death). Each payment or installment due to the Participant from the
Company or any of its Affiliates, whether under this RSU Award Agreement or otherwise, is intended to constitute a “separate payment” for
purposes of Section 409A. In no event shall the Company or any Subsidiary or Affiliate (or any agent thereof) have any liability to the
Participant or any other Person due to the failure of the Award to satisfy the requirements of Section 409A.
10. Governing Law; Arbitration; Waiver of Jury Trial .
(a) This RSU Award Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws
of the State of Delaware (without regard to any conflicts of laws principles thereof that would give effect to the laws of another jurisdiction),
and any dispute, controversy, suit, action or proceeding (“ Proceeding ”) arising out of or relating to this Award or any other Award, other
than the injunctive relief described below in this paragraph, will, notwithstanding anything to the contrary contained in Section 14(e) of the
Plan, be settled exclusively by arbitration, conducted before a single arbitrator in New York County, New York (applying Delaware law) in
accordance with, and pursuant to, the Employment Arbitration Rules and Procedures of JAMS (“ JAMS ”). The decision of the arbitrator will
be final and binding upon the parties hereto. Any arbitral award may be entered as a judgment or order in any court of competent jurisdiction.
Either party may commence litigation in court to obtain injunctive relief in aid of arbitration, to compel arbitration, or to confirm or vacate an
award, to the extent authorized by the U.S. Federal Arbitration Act or the New York Arbitration Act. The arbitrator may grant interim
injunctive relief and the Company or its successors or assigns may commence litigation in court to obtain injunctive relief or an order
requiring specific performance to enforce, or prevent any violations of, the covenants referenced in Section 7 . The Company and the
Participant will share the JAMS administrative fees, the arbitrator’s fee and expenses. Each party shall be responsible for such party’s
attorneys’ fees.
(b) IF THIS AGREEMENT TO ARBITRATE IS HELD INVALID OR UNENFORCEABLE THEN, TO THE EXTENT
NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTICIPANT AND THE COMPANY
WAIVE AND COVENANT THAT THE PARTICIPANT AND THE COMPANY WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR
IN PART UNDER OR IN CONNECTION WITH AN AWARD UNDER THE PLAN OR ANY MATTERS CONTEMPLATED
THEREBY, WHETHER NOW OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AND AGREE THAT ANY OF THE COMPANY OR ANY OF ITS AFFILIATES OR THE PARTICIPANT MAY
FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY
AND BARGAINED-FOR AGREEMENT AMONG THE COMPANY AND ITS AFFILIATES, ON THE ONE HAND, AND THE
PARTICIPANT, ON THE OTHER HAND, IRREVOCABLY TO WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING WHATSOEVER BETWEEN SUCH PARTIES ARISING OUT OF OR RELATING TO AN AWARD UNDER THE
PLAN AND THAT ANY PROCEEDING PROPERLY HEARD BY A COURT UNDER AN AWARD AGREEMENT UNDER THE
PLAN WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A
JURY .
11. RSU Award Agreement Binding on Successors . The terms of this RSU Award Agreement shall be binding upon the
Participant and upon the Participant’s heirs, executors, administrators, personal representatives, transferees, assignees and successors in
interest and upon the Company, its Affiliates and its and their successors and assignees, subject to the terms of the Plan.
12. No Assignment . Subject to the second sentence of Section 3(a) , neither this RSU Award Agreement nor any rights granted
herein shall be assignable by the Participant other than (with respect to any rights that survive the Participant’s death) by will or the laws of
descent and distribution. No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting
or other) or other disposition of, or creation of a security interest in or lien on, any RSUs or RSU Shares by any holder thereof in violation of
the provisions of this RSU Award Agreement or the Plan will be valid, and the Company will not transfer any of said RSUs or RSU Shares
on its books nor will any RSU Shares be entitled to vote, nor will any distributions be paid thereon, unless and until there has been full
compliance with said provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other
remedies, legal or equitable, available to enforce said provisions.
13. Necessary Acts . The Participant hereby agrees to perform all acts, and to execute and deliver any documents, that may be
reasonably necessary to carry out the provisions of this RSU Award Agreement, including but not limited to all acts and documents related to
compliance with securities, tax and other applicable laws and regulations.
14. Limitation on the Participant’s Rights; Not a Trust . Participation in the Plan confers no rights or interests other than as herein
provided. This RSU Award Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not
be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets, and the RSUs shall not be
treated as property or as a trust fund of any kind. The RSUs shall be used solely as a device for the determination of the payments to
eventually be made to the Participant if the RSUs vest pursuant to Section 3 . The Participant shall have only the rights of a general unsecured
creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs, and rights no greater than
the right to receive the RSU Shares as a general unsecured creditor with respect to RSUs, as and when payable hereunder.
15. Severability . Should any provision of this RSU Award Agreement be held by an arbitrator or court of competent jurisdiction
to be unenforceable, or enforceable only if modified, such holding shall not affect the validity of the remainder of this RSU Award
Agreement, the balance of which shall continue to be binding upon the parties hereto with any such modification (if any) to become a part
hereof and treated as though contained in this original RSU Award Agreement. Moreover, if one or more of the provisions contained in this
RSU Award Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be
unenforceable, then in lieu of severing such unenforceable provision or provisions, it or they shall be construed by the appropriate judicial
body or arbitral tribunal by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law
as it shall then appear, and such determination by a judicial body or arbitral tribunal shall not affect the enforceability of such provisions or
provisions in any other jurisdiction.
16. Failure to Enforce Not a Waiver . The failure of the Company to enforce at any time any provision of this RSU Award
Agreement shall in no way be construed to be a waiver of that provision or of any other provision hereof.
17. Entire Agreement . This RSU Award Agreement and the Plan contain the entire agreement and understanding among the
parties as to the subject matter hereof and supersede all prior writings or understandings with respect to the grant of RSUs covered by this
Award. The Participant acknowledges that any summary of the Plan or this RSU Award Agreement provided by the Company is subject in its
entirety to the terms of the Plan and this RSU Award Agreement. References herein or in the Plan to this RSU Award Agreement include
references to its Exhibits.
18. Headings . Headings are used solely for the convenience of the parties and shall not be deemed to be a limitation upon or
description of the contents of any Section.
19. Counterparts . This RSU Award Agreement may be executed in any number of counterparts, including via facsimile or PDF,
each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.
20. Amendment . Except as otherwise provided in the Plan or Section 9 , no amendment or modification hereof shall be valid
unless it shall be in writing and signed by all parties hereto.
21. Disposition of Shares Issued . Subject to applicable law, the Participant may dispose of vested RSU Shares granted under this
Award during any “window period” in which sales by Company personnel are permitted, or otherwise pursuant to the terms of a 10b5-1 plan
on the same terms as apply to the use of such plans by other Company personnel, subject to approval by the Company’s compliance
department. All dispositions of RSU Shares are subject to compliance with the Company’s Share Ownership Policy as in effect from time to
time.
22. Acknowledgements and Representations . The Participant is acquiring the RSUs and, if and when the RSUs vest, will acquire
the RSU Shares covered thereby solely for the Participant’s own account, for investment purposes only, and not with a view to or an intent to
sell or distribute, or to offer for resale in connection with any unregistered distribution, all or any portion of the RSUs or RSU Shares within
the meaning of the Securities Act and/or any applicable state securities laws. The Participant has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the Award and the restrictions imposed on the RSUs and the RSU
Shares. The Participant has been furnished with, and/or has access to, such information as he or she considers necessary or appropriate for
deciding whether to accept the Award. However, in evaluating the merits and risks of an investment in the Company, the Participant has and
will rely upon the advice of his/her own legal counsel, tax advisors, and/or investment advisors. The Participant is aware that RSU Shares
may be of no practical value. The Participant has read and understands the restrictions and limitations set forth in the Plan and this RSU
Award Agreement, which are imposed on the RSUs and the RSU Shares. The Participant confirms that the Participant has not relied on any
warranty, representation, assurance or promise of any kind whatsoever in entering into this RSU Award Agreement other than as expressly
set out in this RSU Award Agreement or in the Plan.
23. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award (or future
Awards that may be granted under the Plan) and participation in the Plan by electronic means or to request the Participant’s consent to
participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and, if
requested, to agree to participate in the Plan through an online or electronic system established and maintained by the Company or a third
party designated by the Company.
24. Recoupment . The Participant, by accepting the Award, hereby acknowledges and agrees that, to the extent mandated by
applicable law and/or as set forth in a written clawback policy, the RSUs and the RSU Shares and amounts distributed with respect thereto
(whether or not vested) may be subject to such policy, unless otherwise required by law, to the extent such policy was in effect on and as of
the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this RSU Award Agreement as of the date set forth above.
APOLLO GLOBAL MANAGEMENT, LLC
[Signature
Page
Follows]
By
Name:
Title:
The undersigned hereby accepts and agrees to all of the terms and provisions of this RSU Award Agreement, including its
Exhibits.
PARTICIPANT
By
Print Name: [ ]
Vesting Schedule
EXHIBIT A
Subject to the terms of the Plan and this RSU Award Agreement, the Restricted Period will lapse as follows: the RSUs shall vest (and
the Restricted Period will lapse) with respect to [ ] of the Award on [ ] of each of [ ], [ ], [ ], [ ] and [ ] (the “ Time Test ”), but only to the
extent that available net cash incentive income to the Company, for the [one-year period ended one day before such date], equals or exceeds
the life-to-date accounting expense attributable to such RSUs, and to the extent the accounting expense attributable to any such RSU exceeds
such net cash incentive income, such RSU that shall not have vested due to the insufficiency of such net cash incentive income shall instead
vest on the [ ] day of the next calendar quarter that net cash incentive income to the Company equals or exceeds the life-to-date accounting
expense attributable to such RSU (the “ Cash Income Test ”), subject, in all cases, to the Participant’s continuous employment or service with
the Company and its Affiliates through each such vesting date.
For purposes of applying the Cash Income Test on any given vesting date, the lowest-accounting cost RSUs [that have satisfied the
Time Test] shall vest, to the extent of available net cash incentive income to the Company, and “available net cash incentive income” with
respect to any given RSU shall mean net cash incentive income remaining after reduction for the accounting cost attributable to other vested
RSUs.
Notwithstanding the foregoing, upon the Participant’s Termination (i) due to death or (ii) by the Company and its Affiliates by reason
of Disability, the Participant shall also vest in 50% of the unvested RSUs that remain subject to the Award as of such Termination date,
subject to attainment of the Cash Income Test within [ ]. For purposes of the Award, the Participant shall be deemed to be in continuous
employment or service (and not to have experienced a Termination) until such time as the Participant dies or otherwise experiences a
“separation from service” as such term is defined in Treasury Regulation §1.409A-1(h)(1) (without regard to the optional alternative
definitions available thereunder) or, if earlier, upon providing or receiving notice that his or her employment or service with the Company
and its Affiliates will terminate. Notwithstanding the foregoing, fractional RSUs shall not be deemed vested until they accumulate to equal
one whole Share.
One (1) RSU Share shall be issued in payment of each vested RSU on or about the same date that RSU Shares are issued to other
Participants generally in respect of their RSUs that vest contemporaneously with such vested RSU, but not later than the 15th day of the third
month after the later of the last day of the Participant’s or the Company’s fiscal year in which the RSU vests, consistent with Treasury
Regulation §1.409A-1(b)(4). Fractional RSU Shares shall not be issued (or any consideration provided therefor) but shall accumulate.
Issuance Dates
1
Exhibit 10.41
APOLLO ADVISORS IX, L.P.
APOLLO CAPITAL MANAGEMENT IX, L.P.
APOLLO ADVISORS VIII, L.P.
APOLLO CAPITAL MANAGEMENT VIII, LLC
APOLLO MANAGEMENT HOLDINGS, L.P.
9 WEST 57 TH STREET 43 RD FLOOR
NEW YORK, NY 10019
November 7, 2018
Personal and Confidential
John Suydam
[Home Address]
Re: Accelerated Equity Vesting
Dear John:
This letter confirms our understanding regarding the vesting of restricted share units (“ RSUs ”) and restricted Class A Shares of
Apollo Global Management, LLC awarded to you or your estate planning vehicle. In the event of a conflict between this letter and any RSU
or restricted share award agreement, this letter shall govern. So long as you
(i)
comply with your confidentiality, non-competition, and non-solicitation obligations under your employment letter dated
July 19, 2017 (the “ Employment Letter ”), and
(ii)
upon the earlier to occur of
(a) the termination by Apollo Management Holdings, L.P (“ AMH ”) and its Affiliates of your full-time employment for
any reason other than Cause (as defined in the AGM 2007 Omnibus Equity Incentive Plan) at any time, and
(b) January 1, 2020, provided that you have not experienced a separation from service with AMH and its Affiliates (or
engaged in conduct constituting Cause) before such date (the earlier of (a) or (b), the “ Vesting Date ”),
inform AGM that you will be reasonably available for two years to consult with AGM from time to time,
you shall vest in full in all unvested RSUs or shares outstanding under RSU or stock awards (whether granted before or after the date hereof);
provided,
however,
that if you breach the “No Competition” paragraph of the Employment Letter following the Vesting Date, then, following
written notice and a 20-day remediation period after which the breach remains ongoing, you will immediately forfeit any restricted shares or
RSU shares that would have vested under the applicable award agreement (if your employment had continued and the accelerated vesting
provided in this letter had not applied) after the date of such breach and you hereby agree to pay to AGM the value of any net profits realized
on the disposition of such shares.
[ Signature
page
follows
]
truly yours,
Very
APOLLO ADVISORS IX, L.P.
By: Apollo Capital Management IX, LLC,
its general partner
By: /s/ Laurie
Medley________________
Name: Laurie Medley
Title: Vice President
APOLLO CAPITAL MANAGEMENT IX, L.P.
By: /s/ Laurie
Medley________________
Name: Laurie Medley
Title: Vice President
APOLLO ADVISORS VIII, L.P.
By: Apollo Capital Management VIII, LLC,
its general partner
By: /s/ Laurie
Medley________________
Name: Laurie Medley
Title: Vice President
APOLLO CAPITAL MANAGEMENT VIII, LLC
By: /s/ Laurie
Medley________________
Name: Laurie Medley
Title: Vice President
APOLLO MANAGEMENT HOLDINGS, L.P.
By: Apollo Management Holdings GP, LLC,
By: /s/ Lisa
Bernstein________________
Name: Lisa Bernstein
Title: Vice President
its general partner
[Suydam Accelerated Equity Vesting Side Letter Signature Page]
Exhibit 10.42
Apollo Global Management, LLC
9 West 57th Street
New York, NY 10019
November 12, 2017
Personal and Confidential
Mr. Scott Kleinman
[address on file with the Company]
Dear Scott:
We are pleased to confirm the following modifications to certain terms of your employment with Apollo Management Holdings, L.P., a
subsidiary of Apollo Global Management, LLC (“ Apollo ” or “ AGM ,” and, together with AMH and AGM’s other subsidiaries, the “
Company ”), in connection with your appointment as Co-President effective January 1, 2018.
1. Position and Reporting. Effective January 1, 2018, you shall serve as Co-President, with responsibility for Apollo’s opportunistic
businesses, and shall report to Joshua Harris or his successor. As Co-President, you will be the most senior executive of Apollo’s
opportunistic businesses. You shall be a nonvoting member of the Executive Committee, including any successor or equivalent
committee thereof.
2. AGM Restricted Share Units. In the first quarter of 2018, you shall receive a one-time grant of 800,000 AGM restricted share units (“
RSUs ”). Such RSUs shall vest on the first five anniversaries of January 1, 2018, subject to your continued employment on each such
date and the terms of an RSU award agreement under AGM’s omnibus equity incentive plan in the form previously provided to you.
Such executed award agreement shall evidence the grant. Such RSUs shall accrue distribution equivalents from the date of grant,
whether or not such RSUs have vested.
3. Coordination with Other Arrangements. You acknowledge that the modifications to your compensation, role and reporting reflected
in this letter shall not be construed as providing a basis for a Good Reason termination under any written arrangement of the Company.
4.
Section 409A. This letter is intended to be exempt from, or comply with, Section 409A and to be interpreted in a manner consistent
therewith. To the extent necessary to avoid the imposition of tax or penalty under Section 409A, any payment by the Company or
affiliate to you (if you are then a “specified employee” as defined in Code Section 409A(a)(2)(B)(i) and Treasury Regulation §1.409A-
1(i)(1)) of “deferred compensation,” whether pursuant to this letter or otherwise, arising solely due to a “separation from service” (and
not by reason of the lapse of a “substantial risk of forfeiture”), as such terms are used in Section 409A, shall be delayed (to the extent
otherwise payable prior to such date) and paid on the first day following the six-month period beginning on the date of your separation
from service under Section 409A (or, if earlier, upon your death). Each payment or installment due under this letter is intended to
constitute a “separate payment” for purposes of Section 409A. In no event shall the Company or any affiliate (or any agent thereof) have
any liability to you or any other person due to the failure of this letter to satisfy the requirements of Section 409A.
1
5. Counterparts. This letter may be executed through the use of separate signature pages or in any number of counterparts, including via
facsimile or pdf, with the same effect as if the parties executing such counterparts had executed one counterpart.
Read, Accepted and Agreed to:
/s/ Scott Kleinman
Scott Kleinman
Dated: November 12, 2017
Sincerely,
/s/ Lisa Barse Bernstein
Lisa Barse Bernstein
Senior Partner, Global Head of Human Capital
2
Exhibit 10.43
CONFIDENTIAL AND PROPRIETARY
APOLLO MANAGEMENT HOLDINGS, L.P.
9 West 57 th Street, 43 rd Floor
New York, New York 10019
July 3, 2018 (effective as of January 1, 2018)
Scott Kleinman
Apollo Management Holdings, L.P.
9 West 57 th Street, 43 rd Floor
New York, NY 10019
Re: Salary, Bonus. and Other Terms
Dear Mr. Kleinman:
This letter sets forth your entitlement to compensation from Apollo Management Holdings, L.P. (the “ Company ”) during
your period of employment with the Company commencing January 1, 2018. Capitalized terms used but not defined in this letter
shall have the meanings provided in the limited partnership agreement of Apollo Advisors IX, L.P. (“ Advisors IX ”) (as in effect
from time to time, the “ LPA ”) or the Advisors IX Award Letter.
Monthly Salary
During your employment with Apollo Global Management, LLC (“ AGM ”) or an Affiliate thereof, you will be entitled to a
salary from the Company in a monthly amount of $100,000, to be paid in cash in accordance with standard payroll practices.
Annual Bonus
You shall be entitled to receive a non-discretionary bonus from the Company during each year equal to the amount by which
$3,300,000 exceeds the sum of any distributions received by you from the AGM Incentive Pool, L.P. or a successor with respect to
such year; provided, however, that for calendar year 2018 the sum of such non-discretionary bonus and any distributions to be
received by you from the AGM Incentive Pool, L.P. or a successor shall be prorated from April 1, 2018. The cash portion of any
such bonus shall be paid at the same time cash bonuses are paid to AGM employees generally , but in any event not later than
January 31 of the year following the year to which it relates. A portion of any such bonus shall be paid in the form of AGM
restricted share units (“ RSUs ”) or restricted shares or the equity (or awards relating to the equity) of another entity approved by the
Co-President with responsibility for opportunistic businesses (your “ Equity Component” ) in accordance with AGM’s broad-based
incentive program, which awards shall vest in equal annual installments on December 31 of each of the first three years following
the year to which the award relates (with shares underlying RSUs issued by March 15 of the following year), provided your service
with AGM and its Affiliates has not terminated prior to the vesting date. Such bonus shall accrue ratably on a monthly basis, with
the noncash portion of the bonus subject to the
Scott Kleinman
July 3, 2018 (effective as of January 1, 2018)
Page 2
above-mentioned vesting terms. For purposes of determining the portion of such bonus that will constitute your Equity Component
under the incentive program for services provided in a given calendar year, your aggregate annual compensation (as well as any
amounts received by you as distributions from the AGM Incentive Pool, L.P. or a successor) taken into account under the incentive
program shall be reduced, dollar-for-dollar (but not below zero), by the amount due to be contributed in cash by you in such calendar
year pursuant to one or more capital demand notices in satisfaction of your required capital commitment to Apollo Co-Investors VIII
(A), L.P. or Apollo Co-Investors IX (A), L.P., provided such amounts have in fact been contributed by you or credited as having
been satisfied by you (your “ Reference Amount ”). Each year, the schedule used to calculate your Equity Component shall be the
same schedule as in effect under AGM’s broad-based incentive program for services provided in calendar year 2017, as shown
below, unless Apollo elects, for services provided in a given calendar year, to pay a greater percentage of your Reference Amount
currently and in cash:
•
•
•
•
•
15% of annual compensation from $0 to $500,000;
25% of annual compensation from in excess of $500,000 to $1,000,000;
35% of annual compensation from in excess of $1,000,000 to $2,000,000;
40% of annual compensation from in excess of $2,000,000 to $3,000,000; and
50% of annual compensation in excess of $3,000,000.
The RSU Award Agreement used under the incentive program shall be substantially in the form used for incentive program
RSU Award grants that relate to services provided in calendar year 2017, and the form of restricted share award agreement under the
incentive program shall be substantially in the form set forth as Annex A to your Award Letter issued under the LPA (provided that
incentive program equity awards shall (i) not provide for additional vesting upon a termination of employment or service except by
reason of death or Disability and (ii) be subject to AGM’s share ownership policy as in effect from time to time). Vested RSUs and
vested restricted shares shall not be subject to forfeiture except in the limited circumstances provided in the third paragraph
(beginning “You agree and acknowledge that…”) of Annex D of your Advisors IX Award Letter.
Withholding
All bonus and salary payments to you will be subject to withholding in accordance with applicable law, and will be paid to
you net of such withholding amounts.
Effect of Termination
If you cease to perform services on a full-time basis for AGM or its Affiliated fund management entities as of a date other
than December 31 for any reason (including death, disability, termination with or without cause or resignation), your salary and
bonus shall be prorated to the last day of your full-time association (with the amount of the bonus subject to the broad-based
incentive program, and therefore to immediate forfeiture upon termination, calculated based on capital demand notices due and paid
on or prior to your termination date); provided , however , that you shall not receive a prorated bonus if your termination is in
connection with a “ Bad Act ” or “ Designated Act ” (as defined in Annex C and Annex D , respectively, of your Advisors IX Award
Scott Kleinman
July 3, 2018 (effective as of January 1, 2018)
Page 3
Letter) or in circumstances in which you could have been terminated for Cause (as defined in the AGM 2007 Omnibus Equity
Incentive Plan).
Advisors IX Coordination
We confirm that your salary and bonus entitlements set forth in this letter do not include, and this agreement does not affect
in any way, your share of any carried interest that you are entitled to receive from the general partner of Apollo Investment Fund IX,
L.P. or any predecessor fund.
Expense Policies
During your employment with the Company or an Affiliate thereof, you will be subject to the same AGM expense policy that
applies to members of the Executive Committee rather than the expense policy that applies to other employees of the Company.
Miscellaneous
This agreement and the rights of the parties shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflict of laws rules thereof. Any dispute, controversy, suit, action or proceeding arising out of or
relating to this agreement, other than injunctive relief to enforce the Restrictive Covenants set forth in Annex D of your Advisors IX
Award Letter, will be settled exclusively by arbitration, conducted before a single arbitrator in New York County, New York in
accordance with, and pursuant to, the Employment Arbitration Rules and Procedures of JAMS (“ JAMS ”). The arbitration shall be
conducted on a strictly confidential basis, and none of the parties shall disclose the existence of a claim, the nature of a claim, any
documents, exhibits, or information exchanged or presented in connection with such a claim, or the result of any action, to any third
party, except as required by law, with the sole exception of their legal counsel and parties engaged by that counsel to assist in the
arbitration process, who also shall be bound by these confidentiality terms. The decision of the arbitrator will be final and binding
upon the parties hereto. Any arbitral award may be entered as a judgment or order in any court of competent jurisdiction. Either
party may commence litigation in court to obtain injunctive relief in aid of arbitration, to compel arbitration, or to confirm or vacate
an award, to the extent authorized by the U.S. Federal Arbitration Act or the New York Arbitration Act. The party that is determined
by the arbitrator not to be the prevailing party will pay all of the JAMS administrative fees, the arbitrator’s fee and expenses. If
neither party is so determined, such fees shall be shared. Each party shall be responsible for such party’s attorneys’ fees. IF THIS
AGREEMENT TO ARBITRATE IS HELD INVALID OR UNENFORCEABLE THEN, TO THE EXTENT NOT PROHIBITED
BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY WAIVES AND COVENANTS THAT IT WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT, WHETHER NOW OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND AGREES THAT ANY
PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY AND BARGAINED-FOR AGREEMENT OF EACH PARTY IRREVOCABLY TO WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN SUCH PARTIES
Scott Kleinman
July 3, 2018 (effective as of January 1, 2018)
Page 4
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THAT ANY PROCEEDING PROPERLY HEARD BY A
COURT UNDER THIS AGREEMENT WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.
This agreement may not be modified, amended or waived unless in a writing signed by you and the Company. Any notice
required hereunder shall be made in writing, as applicable, to the Company in care of its general counsel at his principal office
location, with a copy to AGM’s Senior Partner, Global Head of Human Capital, or to you at your principal office location or home
address most recently on file with the Company, such notice to be deemed effective on the earlier of receipt or the scheduled date of
delivery if sent via overnight mail with a nationally recognized courier. This agreement may not be assigned by you. This agreement
may be executed through the use of separate signature pages or in multiple counterparts, including via facsimile or PDF, with the
same effect as if the parties executing such counterparts had executed one counterpart. No provision of this agreement or any related
document will be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have structured or drafted such provision. This letter supersedes
and replaces all prior agreements and understandings regarding its subject matter, including, without limitation, your letter with
Apollo Management, L.P., regarding your salary, bonus and other terms dated as of January 1, 2014, except that it does not
supersede or replace your letter agreement effective as of January 1, 2018 relating to your Co-President role and RSU award.
Scott Kleinman
July 3, 2018 (effective as of January 1, 2018)
Page 5
Kindly confirm your acceptance of the terms set forth in this agreement by signing a copy of this letter as indicated below.
Very truly yours,
/s/ Lisa Bernstein
Lisa Bernstein
Vice President and Senior Partner, Global Head of Human Capital and
Administration
Apollo Management Holdings GP, LLC, the general partner of
Apollo Management Holdings, L.P.
Confirmed:
/s/ Scott Kleinman
Scott Kleinman
Exhibit 10.44
ROLL-UP AGREEMENT
dated as of
July 13, 2007
among
SCOTT M. KLEINMAN,
BRH HOLDINGS, L.P.,
AP PROFESSIONAL HOLDINGS, L.P.,
APO ASSET CO., LLC,
APO CORP.,
AND
APOLLO GLOBAL MANAGEMENT, LLC
TABLE OF CONTENTS
Page
Article I DEFINITIONS 2
Section 1.1 DEFINITIONS 2
Section 1.2 GENDER 13
Article II SALE, ASSIGNMENT AND ASSUMPTION 13
Section 2.1 SALE 13
Section 2.2 ASSIGNMENT 13
Section 2.3 ASSUMPTION 14
Section 2.4 CONTRIBUTION 14
Section 2.5 INTEREST RECEIVED 14
Section 2.6 ACKNOWLEDGEMENTS 14
Section 2.7 2007 PROFITS 15
Section 2.8 FUND VII 15
Section 2.9 AAA UNITS 15
Article III OWNERSHIP, REGISTRATION RIGHTS, TAG ALONG RIGHTS AND PREEMPTIVE RIGHTS 16
Section 3.1 OWNERSHIP 16
Section 3.2 OWNERSHIP PERCENTAGE ADJUSTMENTS 16
Section 3.3 TRANSFERS AND EXCHANGES 16
Section 3.4 ALLOCATION OF ADJUSTMENTS 18
Section 3.5 REGISTRATION RIGHTS 18
Section 3.6 TAG ALONG RIGHTS 19
Section 3.7 PREEMPTIVE RIGHTS 20
Section 3.8 CERTAIN COVENANTS WITH RESPECT TO PRINCIPALS 20
Article IV VESTING; FORFEITURE; TRANSFER RESTRICTIONS 21
Section 4.1 VESTING 21
Section 4.2 FORFEITURE 22
Section 4.3 TRANSFER RESTRICTIONS 23
Article V GOVERNANCE; CERTAIN RIGHTS AND OBLIGATIONS 24
Section 5.1 GOVERNANCE OF HOLDINGS 24
i
TABLE OF CONTENTS
(continued)
Page
Section 5.2 REQUIRED PARTICIPATION IN APPROVED SALES 24
Section 5.3 OUTSIDE ACTIVITIES 25
Section 5.4 ACCESS TO BOOKS, RECORDS AND FINANCIAL INFORMATION 26
Section 5.5 CONFIDENTIAL INFORMATION 27
Section 5.6 RESTRICTIVE COVENANTS 28
Article VI MISCELLANEOUS 30
Section 6.1 NOTICES 30
Section 6.2 INTERPRETATION 30
Section 6.3 SEVERABILITY 30
Section 6.4 COUNTERPARTS 30
Section 6.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES 30
Section 6.6 FURTHER ASSURANCES 31
Section 6.7 GOVERNING LAW; EQUITABLE REMEDIES 31
Section 6.8 CONSENT TO JURISDICTION 31
Section 6.9 ARBITRATION 32
Section 6.10 AMENDMENTS; WAIVERS; NO DISCRIMINATORY ACTION 34
Section 6.11 ASSIGNMENT 35
Section 6.12 SPOUSAL CONSENT 35
Section 6.13 NOTICES AND INSTRUCTIONS TO SENIOR MANAGER GROUP 35
ii
ROLL-UP AGREEMENT (this “ Agreement ”), dated as of July 13, 2007, by and among Scott M. Kleinman (the “ Senior
Manager ”), the Transferor(s) (as defined in Section 1.1 ) (if any), AP Professional Holdings, L.P., a Cayman Islands exempted
limited partnership (“ Holdings ”), BRH Holdings, L.P., a Cayman Islands exempted limited partnership and limited partner of
Holdings (“ BRH ”), Apollo Global Management, LLC, a Delaware limited liability company (“ Apollo ”), and solely with respect to
Section 2.1 , APO Asset Co., LLC, a Delaware limited liability company (“ APO Asset Co. ”), and APO Corp., a Delaware
corporation (“ APO Corp. ”).
WHEREAS, the Principals (as hereinafter defined), the Senior Manager and the Transferor(s) and certain other executives
(the Senior Manager together with such other executives, the “ Senior Executives ”) immediately prior to the effectiveness of this
Agreement own various interests in the carried interests, management fees, management companies, the general partners of the
various Funds (as hereinafter defined) and other economic and ownership interests in the various asset management businesses that
operate under the “Apollo” name and which were founded by Leon Black and the other Principals (such interests collectively, the “
Apollo Interests ”);
WHEREAS, the Principals, the Senior Executives and the Transferor(s) desire to reorganize and combine their Apollo
Interests in the Apollo Operating Group (as hereinafter defined);
WHEREAS, the Principals have formed two entities, BRH and BRH Holdings GP, Ltd, a Cayman Islands exempted
company (“ BRH GP ”), whereby BRH and BRH GP will hold all of the indirect interests in the Apollo Operating Group held by
each Principal Group (as hereinafter defined), and other than Excluded Assets (as hereinafter defined), all Apollo Interests held by
the Principal Groups will be contributed to the Apollo Operating Group;
WHEREAS, the Principals have formed Holdings, with BRH GP acting as the general partner of Holdings and BRH acting
as a limited partner of Holdings;
WHEREAS, the Senior Manager , the Transferor(s) and other Senior Executives desire to contribute certain interests to
Holdings for the purpose of becoming a limited partner thereof;
WHEREAS, Holdings will hold all of BRH’s interests in the Apollo Operating Group and a portion of the Senior Executives’
and the Transferor(s)’s interests in the Apollo Operating Group and BRH GP will not hold any economic interest in the Apollo
Operating Group;
WHEREAS, the Senior Manager and the Transferor(s) currently hold rights to certain interests in Subsidiaries of the Apollo
Operating Group with respect to the Funds set forth in Column A on Annex A (collectively, the “ Senior Manager Points ”);
WHEREAS, the Senior Manager and each Transferor desire to (a) sell and transfer the portion of the Senior Manager Points
described in Item II(a) on Annex A (the “ Transferred Points ”) to APO Corp. and APO Asset Co., and (b) set over, assign and
transfer the portion of the Senior Manager Points described in Item II(b) on Annex A (the “ Contributed Points ” and each, a “
Contributed Point ”) to Holdings; and
WHEREAS, the general partners and management companies of the applicable Funds have consented to the assignment and
assumption effected by this instrument.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Article I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
“ 40 Act ” means the Investment Company Act of 1940, as amended, including the rules and regulations promulgated
thereunder.
“ AAA ” has the meaning set forth in Section 6.9(b) .
“ AAA Unit ” shall mean a restricted depositary unit representing one common unit of AP Alternative or the right to receive
such a restricted depositary unit.
“ Affiliate ” of any Person means any other Person that, directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such first Person. As used in this definition, the term “control,” including the
correlative terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or
other ownership interest, by contract or otherwise) of a Person.
“ Agreement ” has the meaning set forth in the recitals to this Agreement.
“ Agreement Among Principals ” means the Agreement Among Principals, dated as of the date hereof, by and among Leon
D. Black, Marc J. Rowan, Joshua J. Harris, Black Family Partners, L.P., MJR Foundation LLC, BRH and Holdings.
“ AOG Unit ” refers to a unit in the Apollo Operating Group, which represents one limited partnership interest in each of the
limited partnerships that comprise the Apollo Operating Group and any securities issued or issuable in exchange for or with respect
to such AOG Units (i) by way of a dividend, split or combination of shares or (ii) in connection with a reclassification,
recapitalization, merger, consolidation or other reorganization.
“ AP Alternative ” shall mean AP Alternative Assets, L.P., a Guernsey limited partnership, or, with respect to its investment
activities, AAA Investments, L.P., a Guernsey limited partnership.
“ Applicable Fraction ” means a fraction (not to exceed 1) the numerator of which is the number of whole months elapsed
from July 1, 2007 until the date of the Senior Manager’s termination of service as a partner to an Apollo Service Recipient for any
reason and the denominator of which is 72.
“ APO Asset Co. ” has the meaning set forth in the recitals to this Agreement.
“ APO Corp. ” has the meaning set forth in the recitals to this Agreement.
“ Apollo ” has the meaning set forth in the recitals to this Agreement.
“ Apollo Operating Group ” means (i) Apollo Management Holdings, L.P., a Delaware limited partnership, Apollo Principal
Holdings I, L.P., a Delaware limited partnership, Apollo Principal Holdings II, L.P., a Delaware limited partnership, Apollo
Principal Holdings III, L.P., a Cayman Islands exempted limited partnership, Apollo Principal Holdings IV, L.P., a Cayman Islands
exempted limited partnership, and any successors thereto or other entities formed to serve as holding vehicles for Apollo carry
vehicles, management companies or other entities formed to engage in the asset management business (including alternative asset
management) and (ii) any such Apollo carry vehicles, management companies or other entities formed to engage in the asset
management business (including alternative asset management) and receiving management fees, incentive fees, fees paid by
Portfolio Companies, carry or other remuneration which are not Subsidiaries of the Persons described in clause (i), excluding any
Funds and any Portfolio Companies.
“ Apollo Securities ” means Class A Shares and AOG Units.
“ Apollo Service Recipient ” means Apollo (or such successor thereto or such other entity controlled by Apollo or its
successor as may be the recipient of the Senior Manager’s services at such time). Service to a Portfolio Company shall not be
deemed service as a partner to, or employment by, an Apollo Service Recipient, and Portfolio Companies shall not be considered
Apollo Service Recipients.
“ Approved Sale ” has the meaning set forth in Section 5.2 .
“ Bankruptcy ” shall have the meaning set forth in the Fund limited partnership agreements.
“ Base Amount ” has the meaning set forth in Section 4.1 .
“ BRH ” has the meaning set forth in the recitals to this Agreement.
“ Board ” means (i) if prior to the consummation of an Initial Offering, the Manager and (ii) if following the consummation
of an Initial Offering, the board of directors of Apollo or any duly authorized committee thereof.
“ Business Day ” means Monday through Friday of each week, except that a legal holiday recognized as such by the
government of the United States of America or the State of New York shall not be regarded as a Business Day.
“ Capital Account ” has the meaning set forth in the Holdings LPA.
“ Capital Account Percentage ” has the meaning set forth in the Holdings LPA.
“ Cause ” means a termination of the Senior Manager’s service as a partner based upon a finding by an Apollo Service
Recipient, acting in good faith, that any of the following events has occurred:
(a) the Senior Manager’s conviction of a felony or plea of no contest to a felony charge;
(b) the Senior Manager’s knowing and intentional violation of law in connection with any transaction involving the
purchase, sale, loan or other disposition of, or the rendering of investment advice with respect to, any security, futures or forward
contract, insurance contract, debt instrument or currency;
(c) the Senior Manager’s dishonesty, bad faith, gross negligence, willful misconduct, fraud or willful or reckless disregard
of duties in connection with the performance of any services on behalf of an Apollo Service Recipient or any of its Affiliates;
(d) the Senior Manager’s intentional failure to comply with any reasonable directive by a supervisor in connection with the
performance of any services on behalf of an Apollo Service Recipient;
(e) the Senior Manager’s intentional breach of any material provision of this Agreement or any other limited partnership,
limited liability or other equivalent agreement of any Apollo Service Recipient and its Affiliates;
(f) the Senior Manager’s intentional violation of any material written policies adopted by an Apollo Service Recipient or its
Affiliates (excluding Portfolio Companies) governing the conduct of Persons performing services on behalf of such Apollo Service
Recipient or such Affiliate (excluding, however, any policy, procedure or manual adopted or amended after the date hereof with the
primary purpose of finding or creating “Cause” for the termination of the Senior Manager);
(g) the taking of or omission to take any action that has caused or substantially contributed to a material deterioration in the
business or reputation of Apollo or any of its Affiliates, or that was otherwise materially disruptive of their business or affairs;
provided , however , that the term Cause shall not include for this purpose (i) any mistake of judgment made in good faith or (ii) a
communication to the Principals or other Senior Executives, in a professional and business like manner, of any bona fide
disagreement or suggestion concerning a proposed action by an Apollo Service Recipient or its Affiliate;
(h) the failure by the Senior Manager to devote a significant portion of time to performing services as an agent of Apollo
without the prior written consent of Apollo, other than by reason of death or Disability;
(i) the obtaining by the Senior Manager of any material improper personal benefit as a result of a breach by the Senior
Manager of any covenant or agreement (including, without limitation, a breach by the Senior Manager of Apollo’s code of ethics or
a material breach by the Senior Manager of other written policies furnished to the Senior Manager relating to personal investment
transactions or of any covenant, agreement, representation or warranty contained in any limited partnership agreement of any Fund);
or
(j) the declaration of Bankruptcy by the Senior Manager, while the Senior Manager is on the investment committee of
Apollo;
provided , however , that if a failure, breach, violation or action or omission described in any of clauses (d) through (h) is capable of
being cured, the Senior Manager has failed to do so after being given notice and a reasonable opportunity to cure.
“ Charitable Institution ” means an organization described in Section 501(c)(3) of the Code (or any corresponding provision
of a future United State Internal Revenue law) which is exempt from income taxation under Section 501(a) thereof.
“ Class A Shares ” means the Class A Shares of Apollo representing Class A limited liability company interests of Apollo
and any equity securities issued or issuable in exchange for or with respect to such Class A Shares (i) by way of a dividend, split or
combination of shares or (ii) in connection with a reclassification, recapitalization, merger, consolidation or other reorganization.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Competing Business ” means any alternative asset management business (other than the business of Apollo, its successors
or assigns or Affiliates), in which more than 50% of the total capital committed is third party capital, that advises, manages or
invests the assets of and/or makes investments in private equity funds, hedge funds, collateralized debt obligation funds, business
development corporations, special purpose acquisition companies or other alternative asset investment vehicles, or the Persons who
manage, advise or own such investment vehicles. As used in this definition, “third party” means any Person other than the Senior
Manager and any member of his Wider Group.
“ Confidential Information ” means information that is not generally known to the public and that is or was used, developed
or obtained by Holdings or any member of the Apollo Operating Group, their respective Subsidiaries or any Fund or Portfolio
Company, including but not limited to, (i) information, observations, procedures and data obtained by the Senior Manager while
providing services to an Apollo Service Recipient or while a Limited Partner, or in connection with being a partner of any business
or predecessor of the Apollo Operating Group or its Subsidiaries, concerning the business or affairs of Holdings, Apollo, the Apollo
Operating Group and their respective Subsidiaries, any Fund or any Portfolio Companies, (ii) products or services, (iii) costs and
pricing structures, (iv) analyses, (v) performance data (vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix) accounting and business methods, (x) inventions,
devices, new developments, methods and processes, whether patentable or unpatentable and whether or not reduced to practice, (xi)
investors, customers, vendors, suppliers and investor, customer, vendor and supplier lists, (xii) other copyrightable works, (xiii) all
production methods, processes, technology and trade secrets, (xiv) this Agreement and the governing agreements of Apollo or any of
its Subsidiaries, (xv) investment memoranda and investment documentation concerning any potential, actual or aborted Investments,
and (xvi) all similar and related information in whatever form. Confidential Information will not include any information that is
generally available to the public prior to the time the Senior Manager proposes to disclose or use such information. For the
avoidance of doubt, Confidential Information does not include information concerning non-proprietary business or investment
practices, methods or relationships customarily employed or entered into by comparable business enterprises.
“ Contributed Points ” has the meaning set forth in the recitals to this Agreement.
“ Covered Investment ” means (i) a private equity or equity-linked investment in a (x) leveraged buy-out, management buy-
out, leveraged recapitalization or other substantially similar transaction or (y) a private equity growth investment or other
substantially similar transaction; (ii) an investment in any Person who raises, manages or advises private equity funds, hedge funds,
collateralized debt obligation funds, business development companies (as defined in the 40 Act), other publicly traded alternative
investment vehicles, managed accounts or other alternative asset investment vehicles; or (iii) any other investment that is consistent
with the investment focus of any Fund that is not fully invested.
“ Disability ” means, with respect to the Senior Manager, any physical or mental illness, disability or incapacity that prevents
the Senior Manager from, performing substantially all of the duties delegated to him as an agent of an Apollo Service Recipient.
“ Dispute ” has the meaning set forth in Section 6.9(a) .
“ Employment Agreement ” means, with respect to each Principal, his employment agreement with Apollo dated as of the
date hereof.
“ Exchange ” means (i) the exchange by Holdings of an AOG Unit for a Class A Share pursuant to the Exchange Agreement
and the subsequent sale of such Class A Share, at prevailing market prices for a Class A Share (unless the Person requesting such
Exchange is willing to accept a lower price, e.g.,
to effect a block trade), (ii) a redemption of AOG Units initiated by Apollo or any
of its Subsidiaries, solely upon Apollo’s election, in which the Senior Manager Group elects to participate, (iii) a sale by Holdings of
AOG Units in an Approved Sale or in another transaction approved by the Limited Partners participating therein, or (iv) at the option
of the General Partner, in the event of a Pro Rata Exchange or a request by a limited partner of Holdings for a Non-Pro Rata
Exchange, an In-Kind Exchange Distribution.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time and
any successor to such statute, and the rules and regulations promulgated thereunder.
“ Exchange Agreement ” means the Exchange Agreement, dated as of the date hereof by and among Apollo, each member of
the Apollo Operating Group, Holdings and the other parties thereto.
“ Excluded Assets ” means any direct or indirect (i) personal investment or co-investment in any Fund or co-investment
vehicle by any Principal or other member of his Principal Group (including future personal investments or co-investments and
investments funded through any Apollo fee waiver program, provided that in connection with the Apollo fee waiver program a
Principal may only waive compensation or distributions that would otherwise be paid to such Principal (directly or indirectly) from
the members of the Apollo Operating Group consistent with the terms of the Reorganization Documents (as such term is defined in
the Strategic Agreement)), (ii) any amounts owed to any Subsidiary of Apollo by a Fund pursuant to a fee deferral arrangement in an
investment management agreement with respect to any periods ending on or prior to the date hereof (which amount includes
deferred fees and earnings thereon), which for this purpose shall include with respect to fees deferred for 2007, the portion of such
fees that bears the same relationship to the total deferred fees as the number of days from January 1, 2007 through the date of this
agreement bears to 365 days, (iii) interest in any of the entities set forth on Schedule II hereto (including any indirect interest in the
profits, losses and returns of capital associated with a Fund’s general partner making capital commitments to such Fund, as described
on Schedule II) , (iv) amounts owed to any Principal or other member of his Principal Group pursuant to any escrow of carried
interest earned that has been escrowed to secure the clawback obligation of the general partner of any Fund pursuant to its
organizational documents, (v) compensation and benefits paid or given to a Principal, (vi) director options issued prior to the date
hereof by any Portfolio Company and (vii) an entity formed (without any material economics) to control the investment in Harrah’s
Entertainment, Inc. and (viii) interest in the Gulfstream IV aircraft and any associated purchase debt.
“ Financial Interest ” has the meaning set forth in Section 5.3(a) .
“ Forfeited Interests ” shall have the meaning set forth in Section 4.2(a) .
“ Forfeiting Senior Manager ” shall have the meaning set forth in Section 4.2(a) .
“ Forfeiture Date ” means, as to the Forfeited Interests to be forfeited within Holdings for the benefit of BRH, the date which
is the earlier of (i) the date that is six (6) months after the applicable date of termination of services and (ii) the date on or after such
termination date that is six (6) months after the date of the latest publicly-reported disposition (or deemed disposition subject to
Section 16 of the Exchange Act) of equity securities of Apollo by BRH or any partner of BRH who will receive such Forfeited
Interests pursuant to Section 4.2 of the Agreement Among Principals.
“ FRCP ” has the meaning set forth in Section 6.9(a) .
“ Fund ” means any pooled investment vehicle or similar entity sponsored or managed by Apollo or any of its Subsidiaries.
“ Fund VI GP ” means Apollo Advisors VI, L.P., a Delaware limited partnership.
“ Fund VII ” means Apollo Investment Fund VII, L.P. and its parallel investment vehicles.
“ Fund VII GP ” means Apollo Advisors VII, L.P., a Delaware limited partnership.
“ General Partner ” means BRH Holdings GP, Ltd., a Cayman Islands exempted company, in its capacity as general partner
of Holdings or any successor to the business of the General Partner in its capacity as general partner of Holdings.
“ Good Reason ” means (i) the Senior Manager is notified that he will no longer play a senior role in originating or executing
private equity transactions (which notification, if orally delivered, shall be followed by a demonstrable pattern of objective conduct
by one or more senior executives consistent with such verbal notice), (ii) a requirement to relocate the Senior Manager’s office to a
location outside of the metropolitan area in which he is located on the date hereof, provided that the Senior Manager objects to such
relocation in writing to the Apollo Service Recipient within thirty (30) days, or (iii) a reduction of points (not contributed or
transferred hereunder) in contravention of the Senior Manager’s existing letter agreements or in contravention of any future letter
agreements with respect to Fund VII or any other Fund established after the date hereof as to which the Senior Manager may be
granted points; provided , however , that if an event described in any of clauses (i) through (iii) is capable of being cured, the Apollo
Service Recipient has failed to do so after being given notice and a reasonable opportunity to cure.
“ Group ” shall mean, with respect to the Senior Manager, the Senior Manager and (i) the Senior Manager’s spouse, (ii) a
lineal descendant of the Senior Manager’s parents, the spouse of any such descendant or a lineal descendent of (a) any such spouse
or (b) any such spouse’s parents, (iii) a Charitable Institution solely controlled by the Senior Manager and other members of his
Group, (iv) a trustee of a trust (whether inter
vivos
or testamentary), all of the current beneficiaries and presumptive remaindermen
of which are one or more of the Senior Manager and Persons described in clauses (i) through (iii) of this definition, (v) a corporation,
limited liability company or partnership, of which all of the outstanding shares of capital stock or interests therein are owned by one
or more of the Senior Manager and Persons described in clauses (i) through (iv) of this definition, (vi) an individual mandated under
a qualified domestic relations order or (vii) a legal or personal representative of the Senior Manager in the event of his death or
Disability. For purposes of this definition, (x) “lineal descendants” shall not include individuals adopted after attaining the age of
eighteen (18) years and such adopted Person’s descendants; and (y) “presumptive remaindermen” shall refer to those Persons
entitled to a share of a trust’s assets if it were then to terminate. No Senior Manager shall ever be a member of the Group of another
Senior Executive or any Principal. Each Transferor that is a party to this Agreement and any other Person listed on Schedule I as a
member of the Senior Manager’s Group shall also constitute a member of the Senior Manager’s Group.
“ Holdings ” has the meaning set forth in the recitals to this Agreement.
“ Holdings LPA ” means that certain Second Amended and Restated Exempted Limited Partnership Agreement, dated as of
the date hereof, by and among Holdings, the General Partner, BRH, the Senior Manager and any other Limited Partners from time to
time party thereto.
“ Initial Offering ” means the earlier to occur of a Private Placement or an IPO.
“ In-Kind Exchange Distribution ” means a Pro Rata Exchange or a Non-Pro Rata Exchange accomplished by the distribution
of AOG Units to all the Partners in the case of a Pro Rata Exchange or, in the case of a Non-Pro Rata Exchange, to those Partners
directing such Non-Pro Rata Exchange.
“ Interested Party ” has the meaning set forth in Section 5.3(a) .
“ Investment ” shall mean any investment (or similar term describing the results of the deployment of capital) as defined in
the governing document of any Fund managed (directly or indirectly) by a member of the Apollo Operating Group.
“ IPO ” means the earlier of (i) the consummation of an underwritten public offering of Class A Shares pursuant to an
effective registration statement (other than on Forms S-4 or S-8 or successors and/or equivalents to such forms), with the Class A
Shares sold representing at least 10% of the then outstanding Class A Shares of Apollo (to be determined assuming that all
outstanding AOG Units have been exchanged for Class A Shares pursuant to the Exchange Agreement) and (ii) the effectiveness of
the shelf registration statement to be filed by Apollo in respect of the Class A Shares to be sold in the Private Placement and other
Class A Shares, if any; provided , that in the case of clauses (i) and (ii) above, such registration statement is to be filed by Apollo
with the SEC or (in connection with a listing on the London Stock Exchange) with the Financial Services Authority of the United
Kingdom.
“ Limited Partners ” means any Person admitted as a limited partner of Holdings in accordance with the Holdings LPA, until
such Person withdraws entirely as a limited partner of Holdings, in his capacity as a limited partner of Holdings. Unless the context
otherwise requires, all references herein to a Limited Partner shall be construed as referring collectively to such Limited Partner and
to each member of his Group that also is a Limited Partner.
“ Manager ” means AGM Management, LLC, a Delaware limited liability company and the manager of Apollo.
“ New Issuance ” has the meaning set forth in Section 3.7(a) .
“ New Securities ” means Apollo Securities other than securities issued in connection with any of the following: (i) pursuant
to an equity incentive plan or other compensation arrangements of Apollo or any member of the Apollo Operating Group for the
benefit of the employees, directors or consultants of Apollo or any of its Affiliates; (ii) issued upon the exercise, conversion or
exchange of any options, warrants or any other derivative or convertible securities of Apollo or the Apollo Operating Group
(including, Class A Shares issuable upon the exchange of AOG Units) that were issued in compliance with this Agreement or on or
prior to the date hereof; or (iii) issued in connection with a stock dividend or upon a stock split, recapitalization or other subdivision
of equity securities.
“ Non-Pro Rata Exchange ” means an Exchange the proceeds of which (including, in the case of an In-Kind Exchange
Distribution, the AOG Units) will be distributed to (or otherwise benefit) the Limited Partners in any manner other than a Pro Rata
Exchange.
“ Notes ” shall have the meaning ascribed to such term in the Strategic Agreement.
“ Ownership Percentage ” means, with respect to any Limited Partner, the amount, expressed as a percentage, obtained by
dividing (i) the Pecuniary Interest of such Limited Partner in AOG Units by (ii) the Pecuniary Interest of all Partners in AOG Units.
For the avoidance of doubt, Persons other than the Limited Partners own interests, directly or indirectly, in the Apollo Operating
Group and related management companies, and therefore, a Limited Partner’s Ownership Percentage will be greater than his
ownership percentage in any particular entity within the Apollo Operating Group.
“ Partial Vested Amount ” has the meaning set forth in Section 4.2 .
“ Partner ” means the General Partner or any of the Limited Partners, and “ Partners ” means the General Partner and all of
the Limited Partners.
“ Pecuniary Interest ” means, with respect to a Limited Partner, the number of AOG Units that would be distributable to such
Limited Partner assuming that Holdings and any other Person that holds AOG Units in which Holdings has a direct or indirect
interest were liquidated and Holdings and such other Person distributed their respective assets in accordance with their respective
governing agreements (assuming the interests held by the Limited Partners were fully vested, even if such interests are not then fully
vested) and further assuming that the limitations set forth in the provisos to Sections 4.1(b) and 7.1(a)(ii) of the Holdings LPA do not
apply).
“ Permitted Transferee ” means with respect to the Senior Manager, (i) BRH or (ii) another Person in his Group.
“ Person ” shall be construed broadly and includes any individual, corporation, firm, partnership, joint venture, limited
liability company, estate, trust, business association, organization, governmental entity or other entity.
“ Portfolio Company ” means any Person in which any Fund owns an Investment.
“ Preemptive Offer ” shall have the meaning set forth in Section 3.7(a) .
“ Preemptive Offer Period ” shall have the meaning set forth in Section 3.7(a) .
“ Principal ” means any of Leon D. Black, Marc J. Rowan or Joshua J. Harris.
“ Principal Group ” means, with respect to each Principal, such Principal and his “Group,” as such term is defined in the
Shareholders Agreement.
“ Principal Sellers ” shall have the meaning set forth in Section 3.6(a) .
“ Private Placement ” means a private placement of Class A Shares by Apollo pursuant to Rule 144A, Regulation D and
Regulation S under the Securities Act of 1933, in an offering (i) to at least 15 purchasers and (ii) that requires Apollo to file with the
SEC a shelf registration statement permitting registered resales of the Class A Shares, with the shares sold representing at least 10%
of the outstanding Class A Shares (to be determined assuming that all outstanding AOG Units have been exchanged for Class A
Shares pursuant to the Exchange Agreement).
“ Pro Rata Exchange ” means an Exchange the proceeds of which (including, in the case of an In-Kind Exchange
Distribution, the AOG Units) will be distributed to (or otherwise benefit) the Limited Partners pro rata in accordance with their
respective Ownership Percentages.
“ Proceeding ” shall have the meaning set forth in Section 6.8 .
“ Proportionate Percentage ” shall have the meaning set forth in Section 3.6(c) .
“ Preemptive Proportionate Percentage ” shall have the meaning set forth in Section 3.7(a) .
“ Purchase Notice ” shall have the meaning set forth in Section 3.7(b) .
“ Restricted Period ” means (i) if the Senior Manager is still providing services as a partner to an Apollo Service Recipient on
the fifth anniversary of the date hereof, the first anniversary of the date of termination of the Senior Manager’s service as a partner to
an Apollo Service Recipient for any reason such that he is no providing services to an Apollo Service Recipient or (ii) if the Senior
Manager is terminated for any reason such that he is no longer providing services to any Apollo Service Recipient prior to the fifth
anniversary of the date hereof, the earlier to occur of (A) the second anniversary of such date of termination and (B) the sixth
anniversary of the date hereof.
“ Retained Points ” shall mean, with respect to the Senior Manager Group, the excess, if any, of the Senior Manager Points
over the sum of (i) the Transferred Points and (ii) the Contributed Points.
“ SEC ” means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to
enforce the Securities Act.
“ Securities Act ” means the Securities Act of 1933, as amended, supplemented or restated from time to time and any
successor to such statute, and the rules and regulations promulgated thereunder.
“ Selected Courts ” shall have the meaning set forth in Section 6.8 .
“ Senior Executives ” has the meaning set forth in the recitals to this Agreement.
“ Senior Manager ” has the meaning set forth in the recitals to this Agreement.
“ Senior Manager Group ” shall refer to the Senior Manager and his Group, collectively.
“ Senior Manager New Securities ” shall have the meaning set forth in Section 3.7(a) .
“ Senior Manager Points ” has the meaning set forth in the recitals to this Agreement.
“ Shareholders ” shall have the meaning ascribed to such term in the Shareholders Agreement.
“ Shareholders Agreement ” shall mean the Shareholders Agreement by and among Apollo, BRH, Holdings, and the other
parties thereto dated the date hereof.
“ Spousal Consent ” shall have the meaning set forth in Section 6.12 .
“ Strategic Agreement ” means the Strategic Agreement, dated as of the date hereof, by and among Apollo, APOC Holdings
Ltd., a subsidiary of the Abu Dhabi Investment Authority, and California Public Employees’ Retirement System, as it may be
amended, supplemented or restated from time to time.
“ Subsidiary ” or “ Subsidiaries ” means, with respect to any Person, as of any date of determination, any other Person as to
which such Person owns, directly or indirectly, or otherwise controls, more than 50% of the voting shares or other similar interests or
the sole general partner interest or managing member or similar interest of such Person.
“ Tag Along Acceptance Notice ” shall have the meaning set forth in Section 3.6(b) .
“ Tag Along Notice ” shall have the meaning set forth in Section 3.6(a) .
“ Tag Along Purchaser ” shall have the meaning set forth in Section 3.6(a) .
“ Tag Along Transaction ” means any transaction resulting in the direct or indirect Transfer (other than a bona fide pledge,
hypothecation, mortgage or encumbrance) of any Apollo Securities (or any Pecuniary Interest therein) held by any Principal Group
(whether held through BRH or otherwise) in a transaction exempt from registration under the Securities Act and any similar
applicable state securities laws, except for (i) Transfers to or among a Principal’s Group, (ii) Transfers to employees or other service
providers (whose primary occupation is as a service provider to Apollo or the Apollo Operating Group) of either Apollo or the
Apollo Operating Group, (iii) Transfers pursuant to an Approved Sale in which the Senior Manager is obligated to participate
pursuant to Section 5.2 , and (iv) Transfers to the extent necessary to generate sufficient revenues to cover taxes to which a Principal
or his Group is subject as a result of a forfeiture by a Senior Executive Group or another Principal Group.
“ Transfer ” means a direct or indirect sale, assignment, gift, exchange or any other disposition by law or otherwise, including
any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.
“ Transferor ” means any member of the Senior Manager Group (other than the Senior Manager) that or who is both (i) listed
on Schedule I and (ii) a signatory to this Agreement.
“ Transferred Interests ” has the meaning set forth in Section 3.2(b) .
“ Transferred Points ” has the meaning set forth in the recitals.
“ Underwritten Offering ” means a sale of securities of Apollo to an underwriter or underwriters for reoffering to the public.
“ Wider Group ” shall mean, with respect to the Senior Manager, the Senior Manager and (i) the Senior Manager’s spouse,
(ii) any lineal descendant of the Senior Manager’s grandparents or of the Senior Manager’s spouse’s grandparents, the spouse of any
such descendant or a lineal descendent of (a) any such spouse or (b) any such spouse’s parents, (iii) a Charitable Institution solely
controlled by the Senior Manager and other members of his Wider Group, (iv) a trustee of a trust (whether inter vivos or
testamentary), all of the current beneficiaries and presumptive remaindermen of which are one or more of the Senior Manager and
Persons described in clauses (i) through (iii) of this definition, (v) a corporation, limited liability company or partnership, of which
all of the outstanding shares of capital stock or interests therein are owned by one or more of the Senior Manager and Persons
described in clauses (i) through (iv) of this definition, (vi) an individual mandated under a qualified domestic relations order or (vii)
a legal or personal representative of the Senior Manager in the event of his death or Disability. For purposes of this definition, (x)
“lineal descendants” shall not include individuals adopted after attaining the age of eighteen (18) years and such adopted Person’s
descendants; and (y) “presumptive remaindermen” shall refer to those Persons entitled to a share of a trust’s assets if it were then to
terminate. Each Transferor that is a party to this Agreement and any other Person listed in Schedule I as a member of the Senior
Manager’s Group shall also constitute a member of the Senior Manager’s Wider Group.
SECTION 1.2 GENDER. For the purposes of this Agreement, the words “he,” “his” or “himself” shall be interpreted to
include the masculine, feminine and corporate, other entity or trust form.
ARTICLE II
SALE, ASSIGNMENT AND ASSUMPTION
SECTION 2.1 SALE.
(a) The Senior Manager and/or Transferor, as applicable, hereby sells and transfers to APO Corp. and APO Asset
Co., free and clear of any liens, claims or encumbrances, the Transferred Points, it being understood that the Transferred Points
relating to general partner carried interests in private equity Funds will be purchased by APO Asset Co. and the remaining
Transferred Points will be purchased by APO Corp.
(b) Concurrently with the delivery of this Agreement to the Senior Manager, each of APO Corp. and APO Asset
Co. shall pay the Senior Manager and/or Transferor, as applicable, the total purchase price for the Transferred Points set forth in
Item II(a) on Annex A hereto by wire transfer in immediately available funds to an account designated by the Senior Manager and/or
Transferor, as applicable.
SECTION 2.2 ASSIGNMENT. The Senior Manager and/or Transferor, as applicable, hereby assigns, transfers, conveys
and delivers to Holdings each of the Senior Manager’s Contributed Points, together with all associated rights, privileges, restrictions
and obligations related to the Contributed Points, with effect as of the Effective Date. Each Contributed Point is transferred and
assigned to Holdings, free and clear of any liens, claims or encumbrances. Each of the Senior Manager and Holdings acknowledges
and agrees that upon such event, a member of the Apollo Operating Group shall be substituted in place of the Senior Manager and/or
the Transferor(s), as applicable, as a limited partner of the applicable management company or general partner of the Fund with
respect to each Contributed Point, and such member of the Apollo Operating Group shall be recorded on the books and records of
the applicable management company or general partner of the Funds as the owner of such Contributed Points with effect as of the
Effective Date, and the Senior Manager and/or the Transferor(s), as applicable, shall thereafter be released from all obligations
arising in respect of such Contributed Points.
SECTION 2.3 ASSUMPTION. Holdings hereby accepts the assignment of the Contributed Points and hereby agrees to
assign such Contributed Points to a member of the Apollo Operating Group and cause a member of the Apollo Operating Group to
(a) become a substitute limited partner in the applicable management company or general partner of the Funds with respect to the
Contributed Points in the place and instead of the Senior Manager and/or the Transferor(s), as applicable, and to join in and be bound
by all of the terms of the applicable governing documents, and (b) undertake and agree to comply with and be bound by all of the
obligations associated with each Contributed Point from and after the Effective Date.
SECTION 2.4 CONTRIBUTION. The transfer of the Contributed Points shall be deemed a contribution of capital to
Holdings by the Senior Manager and/or the Transferor(s), as applicable, with respect to the Senior Manager’s and/or any
Transferor’s (as applicable) resulting limited partner interest in Holdings.
SECTION 2.5 INTEREST RECEIVED. In exchange for the Senior Manager’s and/or any Transferor’s (as applicable)
contribution of the Contributed Points to Holdings, the Senior Manager and each Transferor shall become a Limited Partner and
receive a limited partnership interest in Holdings. A portion of such limited partnership shall be a capital interest and a portion of it
shall be a profits interest (within the meaning of IRS Revenue Procedures 93-27 and 2001-43), as set forth in the Holdings LPA. The
Senior Manager’s and the Transferor(s)’s, as applicable, initial Ownership Percentage is set forth on Annex A .
SECTION 2.6 ACKNOWLEDGEMENTS.
(a) The terms of this Agreement shall not in any way affect the ownership of interests in any Subsidiary or with
respect to any Fund that are not Contributed Points or Transferred Points, and the Senior Manager and/or the Transferor(s), as
applicable, shall continue to receive the benefits and burdens of ownership in the manner provided for in the existing arrangements
without regard to the terms of this Agreement. In addition, the terms of this Agreement shall not affect or alter the terms of the
existing letter agreements of the Senior Manager and the general partners of the Funds and the management companies with respect
to the Retained Points (including, without limitation, with respect to the Retained Points, the terms of vesting and acceleration of
vesting, definitions of “net management fee income” and “cause” and rights upon retirement without cause, breaches of Fund VI
carry vehicle or management company agreements or policies and any remedies therefor) or the provisions regarding monthly draw
or office location. However, this Agreement will supersede any “existing” letter agreements with respect to the Contributed Points
and the Transferred Points, and the Senior Manager acknowledges that (i) he and his Group no longer have any interests with respect
to the Contributed Points (other than through their ownership interests in Holdings and in accordance with Section 2.7 below) or the
Transferred Points, (ii) he and his Group do not, and will not, have (other than through their ownership interests in Holdings and in
accordance with Section 2.7 below) any carried interest, performance interest or management fee interest in the Funds identified on
Annex A except as set forth in Column B on Annex A and (iii) he and his Group do not, and will not, have any interest in the capital
markets Funds going forward (other than through their ownership interests in Holdings). Furthermore, the Senior Manager hereby
acknowledges that he and his Group will continue to honor any and all capital commitments made to any Fund or co-investment
vehicle formed to invest in any Fund.
(b) The number of Retained Points that have time vested as of the date hereof shall be proportional to the number
of total points held by the Senior Manager and his Group that have vested as of the date hereof. For example, if immediately prior to
this Agreement, the Senior Manager was 36 months vested in his Fund VI GP “points,” then the Senior Manager and his Group shall
be 36 months vested in their Retained Points in Fund VI GP. Vesting of Retained Points will continue pursuant to the existing
agreements.
SECTION 2.7 2007 PROFITS. The total income earned with respect to 2007, will be apportioned for various periods and
paid in the same manner as such income is apportioned and paid with respect to the Principals in accordance with the Strategic
Agreement.
SECTION 2.8 FUND VII. The Senior Manager (and certain members of his Group designated by the Senior Manager)
will be issued the points in the Fund VII GP as set forth on Annex A . The Senior Manager’s mandatory capital commitment (which
may be shared with other members of his Group) to the Fund VII co-investment vehicle (which will be substantially the same as a
Fund VI co-investment vehicle) shall be determined by Apollo and shall not exceed the product of (x) the total capital commitment
required to be made by the general partner of Fund VII and its Affiliates and (y) a fraction, the numerator being the points issued to
the Senior Manager and his Group in the Fund VII GP (as shown on Annex A ) and the denominator being two thousand (2000). The
Senior Manager will have a letter agreement with respect to Fund VII substantially similar to his Fund VI letter agreement,
including, among other things, that the Senior Manager’s share of Fund VII net management fee income will be equal to the product
of (x) the amount of such net management fee income available for distribution, as determined by Apollo in good faith, and (y) a
fraction, the numerator of which is the number of points issued to the Senior Manager and his Group in the Fund VII GP (as shown
on Annex A) and the denominator of which is two thousand (2000). To the extent that AP Alternative co-invests with Fund VII or is
an investor in Fund VII, the Senior Manager (and certain members of his Group designated by the Senior Manager) will also be
entitled to a pro rata portion of the carried interest of AP Alternative in a manner economically consistent with the arrangements in
Fund VI. To the extent practicable, the arrangements with the Senior Manager with respect to Fund VII shall be made such that the
Senior Manager would be able to make, under current law, and, at his election, a Section 83(b) election under the Code. The Senior
Manager understands and assumes the risk that (x) changes to the Code are currently being contemplated that may adversely affect
the Senior Manager’s interests in Apollo and (y) existing tax laws may change or be interpreted or enforced differently in the future.
SECTION 2.9 AAA UNITS. Without the prior written consent of the Senior Manager, for any given year, the Senior
Manager and his Group will not receive a greater percentage of their net management fee income in the form of AAA Units than the
percentage of their net management fee income that the other Senior Executives and their Groups and the Principals and their
Groups receive in the form of AAA Units either through distributions or purchases of such units. Each Person’s share of net
management fee income shall equal his direct interest (based upon points in the most current principal private equity fund) and
indirect interest (based upon his AOG Units and Class A Shares and the amount of net management fee income payable to the
Apollo Operating Group).
ARTICLE III
OWNERSHIP, REGISTRATION RIGHTS, TAG ALONG RIGHTS
AND PREEMPTIVE RIGHTS
SECTION 3.1 OWNERSHIP
(a) Holdings may hold interests in AOG Units or other securities indirectly through other Persons. In such instance,
this Agreement will be construed as if Holdings held such securities directly and Holdings shall cause such other Persons to take any
actions necessary to carry out the transactions contemplated herein.
SECTION 3.2 OWNERSHIP PERCENTAGE ADJUSTMENTS
(a) Upon the occurrence of an Exchange directed (or in the case of an Approved Sale, deemed to be directed) by
the Senior Manager pursuant to Section 3.3 hereof, the Pecuniary Interest in AOG Units owned by the Senior Manager and his
Group shall be decreased by the number of AOG Units Exchanged. Upon the occurrence of an Exchange directed by BRH or any
other Limited Partner, BRH’s or such other Limited Partner’s Pecuniary Interest in AOG Units shall be decreased by the number of
AOG Units Exchanged.
(b) Holdings shall track all transfers (including transfers that constitute Exchanges) of AOG Units by the Senior
Manager and his Group to any Person that is not the Senior Manager or a member of his Group in a tracking account and the total
sum of such transfers for the Senior Manager and his Group at any given time shall be hereinafter referred to as the “Transferred
Interests”. Any transfer under an Approved Sale under Section 5.2 shall not be included as a Transferred Interest.
(c) Upon the termination of the Senior Manager’s service as a partner by an Apollo Service Recipient (such that he
is no longer providing services as a partner to, or employed by, any Apollo Service Recipient), the Ownership Percentage of the
Senior Manager and his Group shall be adjusted in accordance with Article IV .
SECTION 3.3 TRANSFERS AND EXCHANGES
(a) Subject to the limitations set forth in this Agreement (including with respect to vesting), the Holdings LPA, the
Shareholders Agreement, the Exchange Agreement, any applicable lock-up agreement (provided that any applicable lock-up
agreement shall not be any more restrictive on the Senior Manager and his Group than it is on the Principals and other Senior
Executives and their Groups) and applicable law, the Senior Manager shall have the right to cause Holdings to effect, at any time and
from time to time, on one or more occasions, an Exchange with respect to all or a portion of the Pecuniary Interest in AOG Units
owned by the Senior Manager or members of his Group; provided , however , that any Exchange at the direction of the Senior
Manager must be for at least the lesser of (1) AOG Units with an aggregate market price of at least $25,000, or (2) all AOG Units
owned by the Senior Manager and his Group. The proceeds from any Exchange by the Senior Manager and/or the other members of
his Group, net of all selling expenses (other than selling expenses borne by Apollo pursuant to the Shareholders Agreement), shall be
distributed by Holdings to the Senior Manager and/or the other members of his Group, depending on whose Pecuniary Interest in
AOG Units was so exchanged. Upon the direction by the Senior Manager to effect an Exchange in compliance with this Agreement,
Holdings shall be required to undertake an exchange, on a one-for-one basis (or at such other ratio as may be in effect under the
Exchange Agreement), of an AOG Unit, on the one hand, for a Class A Share, on the other hand, and shall use commercially
reasonable efforts to promptly consummate such Exchange; provided , however , that the parties acknowledge that one or more
events, such as an underwriter cutback, the unavailability of a registration, the possession of material non-public information, or
general market dislocation may affect the timing of a proposed sale or disposition of Class A Shares following an exchange, and
accordingly, any Person that receives Class A Shares shall sell or dispose of such shares as promptly as practicable upon receipt
thereof. taking into account the circumstances surrounding such proposed sale or disposition. Anything herein to the contrary
notwithstanding, at the option of the General Partner, in lieu of an Exchange, Holdings will make an In-Kind Exchange Distribution.
No In-Kind Exchange Distribution may be made unless the recipient is already a party to the Exchange Agreement as an “Apollo
Principal Holder” and a party to the Shareholders Agreement as a Shareholder (or becomes so upon or substantially simultaneous
with such In-Kind Exchange Distribution). In addition, upon an In-Kind Exchange Distribution, the recipient shall exchange the
AOG Units received for Class A Shares, as soon as possible, pursuant to the Exchange Agreement by the next Quarterly Exchange
Date thereafter (as defined in the Exchange Agreement). The Senior Manager and his Group shall indemnify and hold harmless
Holdings and the other Limited Partners from any liabilities or expenses (other than selling expenses borne by Apollo pursuant to the
Shareholders Agreement) incurred in connection with such Exchange, other than with respect to any taxable income realized by such
other Limited Partners as a result of the Exchange, or, in the case of a Pro Rata Exchange, to the extent attributable to the Senior
Manager or a member of his Group. If the Senior Manager or a member of his Group requests an Exchange at least 60 days prior to
the next Quarterly Exchange Date, then Holdings shall request an Exchange under the Exchange Agreement to cover such
Exchange; provided , that if the General Partner elects to make an In-Kind Exchange Distribution in lieu of such Exchange, then the
General Partner shall make such election and cause such In-Kind Exchange Distribution to occur in a manner that would permit the
applicable notice provisions under the Exchange Agreement to be met in order for the Exchange to occur on the next Quarterly
Exchange Date. In the event that Holdings is offered a “Sale Transaction” under Section 2.8 of the Exchange Agreement, Holdings
will make available to the Senior Manager and his Group the opportunity to participate on a pro rata basis. Pro rata basis for this
purpose shall mean pro rata in accordance with the Ownership Percentage of the Senior Manager and his Group.
(b) Notwithstanding the foregoing, Holdings may not undertake an Exchange at the direction of the Senior
Manager unless the vested portion of the Pecuniary Interest of the Senior Manager and his Group in AOG Units (calculated on a pro-
forma basis assuming the Senior Manager voluntarily resigned immediately prior to such Exchange and such resignation constitutes
a resignation under Section 4.1 hereof) is sufficient to cover the number of AOG Units proposed to be Exchanged; provided however
, notwithstanding anything else in this Agreement, unvested portions of Pecuniary Interests may be exchanged in connection with a
transfer permitted pursuant to clauses (w), (y) or (z) of Section 4.3 or to permit the Senior Manager or a member of his Group to
participate in a sale of Class A Shares issuable upon the Exchange in which a Principal (or a member of his Group) is selling and in
which the Senior Manager (or a member of his Group) has rights to participate pursuant to the registration rights under Section 3.5 ,
solely to the extent the vested portions have been exhausted and unvested Pecuniary Interests would be required to be exchanged in
order for the Senior Manager and his Group to participate in a pro rata manner with such Principal and his Group.
(c) Neither the Senior Manager nor any Person controlled by the Senior Manager’s Group, shall own any Class A
Shares other than (x) the Class A Shares received in an Exchange and then only to the extent provided in the Exchange Agreement,
(y) Class A Shares issued to such Persons pursuant to equity incentive plans of Apollo and its Subsidiaries and (z) other Class A
Shares acquired by such Persons with the prior written approval of the General Counsel of Apollo.
(d) Notwithstanding anything else contained herein to the contrary, the Senior Manager shall not direct Holdings to
undertake an Exchange in violation of this Agreement or if such Exchange would violate Section 16 of the Exchange Act.
(e) Any redemption of AOG Units shall be offered to all Limited Partners and their Groups on a pro rata basis
based on Ownership Percentages. A Limited Partner may request a Non-Pro Rata Exchange but may not request a Pro Rata
Exchange.
(f) The Senior Manager shall cause his Group to take any action (or refrain from taking any action) reasonably
necessary to carry out the intent of this Agreement.
SECTION 3.4 ALLOCATION OF ADJUSTMENTS. The members of the Senior Manager’s Group as of the date hereof
(other than any such members described in clauses (i) through (vii) of the definition of “Group” in Section 1.1 who or which are not
Transferors) are set forth on Schedule I hereto, which may be updated from time to time to reflect additional transfers to a Permitted
Transferee that is a member of the Senior Manager’s Group. Any adjustment to the Senior Manager’s Pecuniary Interest in AOG
Units pursuant to this Agreement shall be allocated among the members of the Senior Manager’s Group in a manner directed by the
Senior Manager or absent such instructions, pro rata among the members of his Group based upon their relative interests in
Holdings.
SECTION 3.5 REGISTRATION RIGHTS. In connection with the registration rights provided in the Shareholders
Agreement, the Senior Manager and his Group will have the right to direct Holdings to exercise any of its rights under Article V of
the Shareholders Agreement for the benefit of the Senior Manager or any member of his Group as if such Person were a Shareholder
thereunder holding Registrable Securities then held by them or acquirable by them upon Exchange of their Pecuniary Interests. Any
cutbacks shall be determined as provided in the Shareholders Agreement. If Holdings is the Selling Shareholder thereunder, cutbacks
among the partners of Holdings (whether selling directly or indirectly through Holdings) will be determined pro rata as if each
partner of Holdings participating in the applicable registration were a separate Selling Shareholder thereunder. Decisions to be made
under such Article V by a percentage of Shareholders or Selling Shareholders, including without limitation, any consent to the grant
of preferential registration rights, will also be determined pro rata as if each partner of Holdings (and, with respect to BRH, each
partner of BRH) were a separate Shareholder or Selling Shareholder, as applicable thereunder. Holdings agrees to give notification
to the Senior Manager and member of his Group of the availability of any demand registrations, piggyback rights or other matters
under Article V of the Shareholders Agreement in order to participate in a registration thereunder. References in such Article V to
Section 2.2 of the Shareholders Agreement shall, with respect to the Senior Manager’s Group, refer to Section 4.3 of this Agreement.
SECTION 3.6 TAG ALONG RIGHTS.
(a) If any Principal Group (whether directly or through BRH) proposes to effect a Tag Along Transaction (the “
Principal Sellers ”), then at least fifteen (15) days prior to the anticipated date of consummation of such proposed Transfer, Apollo
shall give written notice to the Senior Manager of such proposed Transfer setting forth a description of the material terms and
conditions of the proposed Tag Along Transaction, including (i) the identity of the purchaser (such purchaser, the “ Tag Along
Purchaser ”), (ii) the number and type of Apollo Securities the Principal Sellers propose to sell in the Tag Along Transaction and (iii)
a description of the form and amount of consideration proposed to be paid for the Apollo Securities (or any Pecuniary Interest
therein) in the Tag Along Transaction (the “ Tag Along Notice ”). If it is anticipated that the Senior Manager will participate in an
Exchange pursuant to the Exchange Agreement at the time of a Tag Along Transaction, then the timing of the Tag Along Notice
shall be equitably adjusted in a manner reasonably intended to afford the Senior Manager sufficient time to both exercise his rights
under the Exchange Agreement and participate in the Tag Along Transaction.
(b) The Senior Manager may, by written notice to Apollo (“ Tag Along Acceptance Notice ”) delivered within ten
(10) days after the date of the Tag Along Notice, elect to sell in such Tag Along Transaction the Apollo Securities held (directly or
indirectly through their Pecuniary Interest) by the Senior Manager and his Group; provided , that the number of the Apollo Securities
elected to be sold by the Senior Manager and his Group will not exceed the Senior Manager’s Proportionate Percentage (as
calculated in accordance with Section 3.6(c) below) of the Apollo Securities proposed to be transferred by such Principal Sellers,
after giving effect to any proposed reduction in the Apollo Securities to be Transferred by such Principal Sellers as a result of the
exercise of tag along rights by the holders of the Notes (or Class A Shares issuable upon conversion of the Notes). The failure of the
Senior Manager to respond within such ten (10) day period shall be deemed to be a waiver of the Senior Manager’s rights under this
Section 3.6 .
(c) For purposes of this Section 3.6 , “ Proportionate Percentage ” means with respect to the Senior Manager, a
fraction (expressed as a percentage), (i) the numerator of which is the number of Apollo Securities held (directly or indirectly
through their Pecuniary Interests) by the Senior Manager and his Group immediately prior to the consummation of the Tag Along
Transaction; and (ii) the denominator of which is the aggregate number of Apollo Securities held (directly or indirectly through their
Pecuniary Interests) by the Principal Groups and all other Persons entitled to participate in the Tag Along Transaction (such as other
Senior Executives, but excluding the holders of the Notes (or Class A Shares issuable upon conversion of the Notes)) immediately
prior to the consummation of the Tag Along Transaction. Transfers pursuant to this Section 3.6 shall first be satisfied with vested
Apollo Securities but if all such Apollo Securities are to be sold in the Tag Along Transaction, may be satisfied with unvested
Apollo Securities.
(d) If the Senior Manager or any members of his Group participates in the Tag Along Transaction, such
participating Persons shall agree to be bound by substantially the same terms and conditions as the participating Principal Sellers,
including making substantially the same representations and warranties, covenants, agreements and indemnities that the Principal
Sellers agree to make.
SECTION 3.7 PREEMPTIVE RIGHTS.
(a) If Apollo or any of its Subsidiaries offers New Securities to a Principal Group or to any of its Affiliates (the
aggregate number of New Securities being offered, the “ New Issuance ”) then, subject to the terms hereof, Apollo shall, before any
sale of New Securities pursuant to such offer, deliver to the Senior Manager an offer (the “ Preemptive Offer ”) to issue to the Senior
Manager, at the Senior Manager’s election, up to such number of New Securities equal to its Preemptive Proportionate Percentage of
the New Issuance upon the terms set forth in this Section 3.7 (such New Securities, the “ Senior Manager New Securities ”), it being
understood that if the Senior Manager accepts a Preemptive Offer in accordance with Section 3.7(b) , the number of New Securities
ultimately issued to the Principal Group or any of its Affiliates under this Section 3.7 shall equal the New Issuance less the
applicable number of Senior Manager New Securities and other Apollo Securities issued pursuant to similar preemptive rights. The
Preemptive Offer shall state (i) that Apollo proposes to issue the New Issuance and specify their number and terms (including the
purchase price per New Security) and (ii) the Senior Manager’s Preemptive Proportionate Percentage. The Preemptive Offer shall
remain open and be irrevocable for a period of fifteen (15) days from the date of its delivery (the “ Preemptive Offer Period ”). For
purposes of this Section 3.7 , “ Preemptive Proportionate Percentage ” means, with respect to the Senior Manager, a fraction
(expressed as a percentage), (x) the numerator of which is the number of Class A Shares held by the Senior Manager’s Group
immediately prior to the consummation of the New Issuance (calculated on an as-converted basis assuming all AOG Units covered
by the Pecuniary Interest of the Senior Manager or his Group have been exchanged for Class A Shares irrespective of vesting) and
(y) the denominator of which is the aggregate number of Class A Shares outstanding immediately prior to the consummation of the
New Issuance (calculated on a fully-diluted basis and assuming all AOG Units have been exchanged for Class A Shares).
(b) The Senior Manager (and/or members of his Group designated by the Senior Manager) may accept the
Preemptive Offer by delivering to Apollo a notice (the “ Purchase Notice ”) within the Preemptive Offer Period. The Purchase
Notice shall state the number of New Securities the Senior Manager desires to purchase which in no event may exceed its number of
Senior Manager New Securities. The Purchase Notice shall be irrevocable, and the Senior Manager (and/or members of his Group
designated by the Senior Manager) shall purchase the New Securities at the same time as the Principal Group(s) acquire the New
Issuance less any portion of the New Issuance which the Senior Manager agreed to purchase pursuant to this Section 3.7 or other
Persons agreed to acquire pursuant to other rights similar to those set forth in this Section 3.7 .
SECTION 3.8 CERTAIN COVENANTS WITH RESPECT TO PRINCIPALS. Holdings and BRH agree that, unless the
Senior Manager and his Group are given equivalent provisions, no modifications, waivers or additional agreements shall be made
that benefit any Principal or a member of his Group (or in the case of clauses (iv) and (v), all Principals) (i) to Section 2.2 of the
Shareholders Agreement that would permit Pecuniary Interests to be transferred at an earlier time or in a greater amount than would
otherwise be permitted (including any change to the definition of IPO or the equivalent triggering event for the timing thereunder),
(ii) to the terms of the Exchange Agreement that would permit more AOG Units to be exchanged or to be exchanged at an earlier
time or that would permit AOG Units that were otherwise not exchangeable to be exchanged (including any change to the definition
of IPO or the equivalent triggering event for the exchange right) or to permit more Class A Shares to be sold or to be sold at an
earlier time or to permit Class A Shares to be sold that would otherwise not be permitted to be sold, (iii) to the registration rights
provisions of Article V of the Shareholders Agreement, (iv) to the vesting provisions of the Pecuniary Interests of all of the
Principals (and their respective Groups) that either accelerated vesting of Pecuniary Interests all of the Principals while they continue
full time employment with Apollo or accelerated vesting upon death or disability, (v) to the restrictive covenants and limitations on
outside activities (contained in Sections 1 and Section 6 of each Principal’s Employment Agreement) applicable to all of the
Principals with respect to the scope of such covenants or limitations or the reduction of the restrictive period (but only if the
reduction results in a restrictive period shorter than the restrictive period applicable to the Senior Manager), or (vi) to the Tax
Receivables Agreement. Prior to the earlier of an IPO or the time as such Principal is no longer providing services as a partner to, or
employed by, an Apollo Service Recipient, Apollo shall not, and shall not permit any Apollo Service Recipient to, amend or waive
(a) the restrictive covenants and limitations on outside activities applicable to any Principal (as set forth in Sections 1 and 6 of such
Principal’s Employment Agreement), or (b) the ownership restrictions in Section 2.3 of the Shareholders Agreement. The Senior
Manager shall have the right, on his behalf and on behalf of his Group, to waive the rights afforded pursuant to this Section 3.8 .
ARTICLE IV
VESTING; FORFEITURE; TRANSFER RESTRICTIONS
SECTION 4.1 VESTING.
(a) The Pecuniary Interest in AOG Units owned by the Senior Manager and his Group shall be subject to vesting as
provided in this Section 4.1 .
(b) Upon the Senior Manager’s termination by an Apollo Service Recipient for Cause, or upon the Senior
Manager’s resignation without Good Reason or retirement, the vested portion of the Pecuniary Interest in AOG Units owned by the
Senior Manager and his Group shall equal (i) (x) the Senior Manager Group’s then current Pecuniary Interest in AOG Units plus the
Senior Manager Group’s Transferred Interests (if any) multiplied by (y) the Senior Manager’s Applicable Fraction; minus (ii) the
Senior Manager Group’s Transferred Interests; provided , however , that the vested portion shall not be less than zero.
(c) Upon a termination of the Senior Manager for death, by the Apollo Service Recipient due to Disability, by the
Apollo Service Recipient without Cause (such that he is no longer providing services as a partner to, or employed by, any Apollo
Service Recipient) or resignation by the Senior Manager for Good Reason, the vested portion of the Pecuniary Interest in AOG Units
owned by the Senior Manager and his Group shall equal: (i) the product (such product, the “ Partial Vested Amount ”) of (x) the sum
(such sum, the “ Base Amount ”) of the Senior Manager and his Group’s then-current Pecuniary Interest in AOG Units plus the
Senior Manager Group’s Transferred Interests (if any), multiplied by (y) the Senior Manager’s Applicable Fraction; plus (ii) fifty
percent (50%) of the difference between (x) the Base Amount and (y) the Partial Vested Amount; minus (iii) the Senior Manager
Group’s Transferred Interests; provided , however , that the vested portion shall not be less than zero. For the avoidance of doubt, if
the Senior Manger retires at a time that he could have resigned for Good Reason, he shall be deemed to have resigned for Good
Reason for the purposes of this Section 4.1 .
(d) In the event of: any reclassification, recapitalization, stock split or reverse stock split; any merger, combination,
consolidation, or other reorganization; any split-up, spinoff, or similar extraordinary dividend distribution in respect of the Class A
Shares; or any similar extraordinary transaction, in each case that affects the AOG Units, the Board shall equitably and
proportionately adjust the AOG Units to the extent necessary to preserve (but not increase) the Senior Manager Group’s rights with
respect to such AOG Units immediately prior to such transaction or event. Any good faith determination by the Board as to whether
an adjustment is required in the circumstances pursuant to this Section 4.1(d) , and the extent and nature of any such adjustment,
shall be conclusive and binding on all Persons.
(e) Nothing contained in this Agreement constitutes a service commitment by the Senior Manager, affects the
Senior Manager’s status as a service provider to Apollo Service Recipients who is subject to termination without Cause, confers
upon the Senior Manager any right to remain in service to any Apollo Service Recipient or any of their respective Affiliates,
interferes in any way with the right of any Apollo Service Recipient or any of their respective Affiliates at any time to terminate such
services, or affects the right of any Apollo Service Recipient or any of their respective Affiliates to increase or decrease the Senior
Manager’s other compensation or benefits. Nothing in this paragraph, however, is intended to adversely affect any independent
contractual right of the Senior Manager without his consent thereto.
SECTION 4.2 FORFEITURE.
(a) Upon the Senior Manager’s (the “ Forfeiting Senior Manager ”) termination of services (such that he is no
longer providing services as a partner to, or employed by, any Apollo Service Recipient) for any reason, the Pecuniary Interest in
AOG Units then held by such Forfeiting Senior Manager and his Group pursuant to this Agreement that has not vested in accordance
with Section 4.1 shall be forfeited (the “ Forfeited Interests ”) as of the applicable Forfeiture Date to BRH (or, at BRH’s discretion,
the Apollo Operating Group). Upon the forfeiture of the Forfeited Interests, Pecuniary Interest in AOG Units of the Senior Manager
and his Group shall be decreased by the Pecuniary Interest forfeited and, at BRH’s discretion, either (i) BRH’s Pecuniary Interest in
AOG Units shall be increased by the Forfeited Interests received or (ii) the Forfeited Interests will be transferred to the member of
the Apollo. Operating Group that issued such interests for cancellation. For avoidance of doubt, the Forfeited Interests shall not
include any AOG Units that have been sold to a Person outside the Forfeiting Senior Manager’s Group in accordance with the terms
of this Agreement and any other agreement referenced herein.
(b) All credits and debits to the Capital Account of the Forfeiting Senior Manager and his Group shall, from the
date of termination of such Forfeiting Senior Manager until the applicable Forfeiture Date, be computed on a pro-forma basis
assuming the Ownership Percentage of such Forfeiting Senior Manager and his Group had been adjusted on the date of termination
to give effect to the forfeiture to occur on the Forfeiture Date. Amounts that would, but for the preceding sentence, be debited or
credited to the Capital Account of such Forfeiting Senior Manager and his Group shall, on the applicable Forfeiture Date, be debited
or credited to the Capital Account of BRH.
(c) Notwithstanding anything to the contrary herein, no interests in Holdings shall be issued if such issuance will
change the Pecuniary Interest of the Senior Manager or a member of his Group in AOG Units, unless the Senior Manager (or his
legal representative) consents to such issuance.
SECTION 4.3 TRANSFER RESTRICTIONS. The Senior Manager, whether on his own behalf or on behalf of his Group,
shall not, directly or indirectly, voluntarily effect cumulative transfers of his Pecuniary Interests representing more than (the
percentages set forth in this Section 4.3 , in each case, shall be determined based on the aggregate amount of Pecuniary Interests held
by the Senior Manager and his Group as of the date hereof):
(a) 0% of his Pecuniary Interests at any time prior to the second anniversary of the closing date of the IPO;
(b) 7.5% of his Pecuniary Interests at any time after the second anniversary and prior to the third anniversary of the
closing date of the IPO;
(c) 15% of his Pecuniary Interests at any time after the third anniversary and prior to the fourth anniversary of the
closing date of the IPO;
(d) 22.5% of his Pecuniary Interests at any time after the fourth anniversary and prior to the fifth anniversary of the
closing date of the IPO;
(e) 30% of his Pecuniary Interests at any time after the fifth anniversary and prior to the sixth anniversary of the
closing date of the IPO; and
(f) 100% of his Pecuniary Interests, solely to the extent then vested, at any time after the sixth anniversary of the
closing date of the IPO.
Notwithstanding anything contained to the contrary in this Section 4.3 , the Senior Manager or any member of his Group may
transfer any of his or its Pecuniary Interests: (w) with the consent of the General Partner, (x) to any Permitted Transferee; provided ,
that neither the Senior Manager nor any member of his Group may transfer any of his or its interests in Holdings to a Permitted
Transferee unless such Permitted Transferee becomes a party to this Agreement by executing a joinder in the form attached as
Exhibit A hereto, (y) in connection with (i) an Approved Sale pursuant to Section 5.2 or (ii) a Tag Along Transaction pursuant to
Section 3.6 , or (iii) a Sale Transaction, and (z) in connection with a Private Placement or IPO, as long as such sale is pro rata with
such similar sales by any of the Principal Groups or BRH. Any transfers permitted pursuant to the preceding sentence shall not count
for purposes of calculating whether the total amount of Pecuniary Interests transferred by a Senior Manager or his Group is below
the percentages set forth in clauses (a) through (f) above. Notwithstanding anything in this Agreement to the contrary, if BRH or any
Principal or his Group sells in a Private Placement or IPO, the Senior Manager’s Group shall have the right to make an Exchange
and sell a pro rata amount, based on ownership of Class A Shares (assuming that all Pecuniary Interests were Exchanged for Class A
Shares) of Class A Shares in such Private Placement or IPO.
ARTICLE V
GOVERNANCE; CERTAIN RIGHTS AND OBLIGATIONS
SECTION 5.1 GOVERNANCE OF HOLDINGS. Except as expressly provided herein or as otherwise delegated to
another Person by the General Partner, Holdings will be governed by, and the business and affairs of Holdings shall be managed by
or under the direction of the General Partner.
SECTION 5.2 REQUIRED PARTICIPATION IN APPROVED SALES. At any time that BRH proposes a sale or other
disposition of Holdings or any portion thereof, through a merger, reorganization, sale of limited partnership interests, asset sale or
otherwise, to an unaffiliated third party (an “ Approved Sale ”), the Senior Manager and each member of his Group shall (i) consent
to and raise no objections against the Approved Sale, (ii) if the Approved Sale is structured as a sale, contribution and/or exchange or
issuance of the limited partnership interests of Holdings (whether by merger, recapitalization, consolidation, transfer of limited
partnership interests, or otherwise, as applicable), then the Senior Manager and each member of his Group shall waive any dissenters
rights, appraisal rights or similar rights in connection with such Approved Sale and hereby agrees to vote in favor of such Approved
Sale (as applicable), and (iii) the Senior Manager and each member of his Group shall agree to transfer his, her or its limited
partnership interests on terms and conditions approved by BRH (subject to the provisos below), and hereby waives preemptive or
other similar rights with respect to any issuance of limited partnership interests to be effected in connection herewith. The Senior
Manager and each member of his Group shall take all necessary and desirable actions in connection with the consummation of the
Approved Sale, including the execution of such agreements, including such instruments and other actions reasonably necessary to
(1) provide the representations, warranties, indemnities, covenants, conditions, escrow agreements and other provisions and
agreements relating to such Approved Sale and (2) if applicable, to effectuate the allocation and distribution of the aggregate
consideration upon any Approved Sale as set forth below. Holdings shall provide the Senior Manager with written notice of any
Approved Sale at least ten (10) days prior to the consummation thereof and the Senior Manager shall be obligated to participate in
the Approved Sale with respect to the same percentage of his Pecuniary Interest as the Principal Groups collectively are participating
with respect to their direct or indirect Pecuniary Interests in such Approved Sale. Notwithstanding the foregoing, the obligation of
the Senior Manager and each member of his Group to participate in any Approved Sale pursuant to this Section 5.2 is subject to the
satisfaction of the following conditions: (i) the Senior Manager and the other Limited Partners (including, indirectly, the Principals
and the Principal Groups through their participation in BRH) shall be treated ratably with respect to the Pecuniary Interests so
transferred, proceeds or other consideration of such Approved Sale, any hold-backs, and any related matters based upon Ownership
Percentages, subject to any limitations set forth in the Holdings LPA, and (ii) in the event that the Limited Partners are required to
provide any representations, warranties or indemnities in connection with an Approved Sale (other than representations, warranties
and indemnities made on a several basis concerning each Limited Partner’s valid ownership of limited partnership interests, free of
all liens and encumbrances, enforceability of transaction documents, and each Limited Partner’s authority, power, and right to enter
into and consummate agreements relating to such Approved Sale without violating applicable law or any other agreement), then the
Senior Manager and his Group shall not be liable for more than its pro rata amount (based upon Ownership Percentages) of any
liability for misrepresentation or indemnity (except in respect of such several representations and warranties) and such liability shall
not exceed the total purchase price received by the Senior Manager and his Group from such purchaser.
SECTION 5.3 OUTSIDE ACTIVITIES.
(a) While providing services to an Apollo Service Recipient, substantially all of the Senior Manager’s working
time will be dedicated to Apollo and its Affiliates and the Senior Manager shall not provide business services to, or become
employed by, a Person other than Apollo and its Subsidiaries without the prior written approval of the General Partner (other than
activities that have been specifically approved by one or more of the Principals prior to the date hereof and other than business
services provided to Portfolio Companies as a representative of Apollo or its Subsidiaries). Without the approval of the General
Partner, the Senior Manager (an “ Interested Party ”) shall not at any time prior to the Senior Manager’s termination of with an
Apollo Service Recipient, acquire a Financial Interest (as defined below) in (i) any Person in which any member of the Apollo
Operating Group or any Subsidiary of the Apollo Operating Group holds an Investment or (ii) any potential Investment actively
under consideration by any member of the Apollo Operating Group or any Subsidiary of the Apollo Operating Group. This provision
shall not apply to any directors’ and other fees or equity incentives from or in a Portfolio Company that became a Portfolio Company
as a result of an Investment made by any Fund prior to January 1, 2007 or to any other Financial Interest acquired prior to the date
hereof or the date such Investment is first described by clauses (i) or (ii) of the preceding sentence, provided , that the Senior
Manager shall promptly disclose in writing such Financial Interests to Apollo and the General Partner. “ Financial Interest ” means
the ownership of securities or rights to acquire securities or the right to receive compensation as an officer, partner or employee in or
from a Person. The foregoing limitation shall not apply to investments described in clause (ii) of Section 5.3(b ), even if such funds
or accounts invest in (i) any Person in which Apollo or any of its Subsidiaries or any Fund holds an investment interest or (ii) any
potential investment actively under consideration by any member of the Apollo Operating Group or any Subsidiary of the Apollo
Operating Group. Without the approval of the General Partner, prior to the Senior Manager’s termination of service as a partner with
an Apollo Service Recipient, the Senior Manager shall not actively participate in the management of any business, other than (i) a
business of the Apollo Operating Group or a member or Subsidiary thereof or any Person in which a member or Subsidiary of the
Apollo Operating Group holds an Investment on behalf of the Apollo Operating Group, (ii) a business described in clause (i) of
Section 5.3(b) , (iii) board level participation in a business described in clause (iv) of Section 5.3(b) and (iv) activities that have been
specifically approved by one or more of the Principals prior to the date hereof. For avoidance of doubt, a “business” in the preceding
sentence and the first sentence of this Section 5.3(a) shall not include volunteer work for any charitable, cultural, educational or
philanthropic organization.
(b) At all times prior to the date that the Senior Manager is no longer serving as a partner or employee of any
Apollo Service Recipient, the Senior Manager shall not make any personal investment in a Covered Investment other than:
(i) investments which are either (x) investments made (or legally committed to be made) on or prior to the
date hereof without violating any existing duty to Apollo and its Affiliates or (y) follow-on investments to the investments
described in clause (x) or investments made to refinance the investments described in clause (x);
(ii) passive investments in private equity funds, mutual funds, hedge funds and other managed accounts (but
not investments in the manager of such funds or accounts) in which the Interested Party does not influence or control or have
advance or contemporaneous knowledge of investment recommendations or decisions, even if such funds or accounts make
investments similar to the Investments made by any Fund;
(iii) passive ownership of less than 5% of the outstanding publicly traded equity securities of any issuer;
(iv) investments in private companies equal to the lesser of (x) 10% of the outstanding equity securities of
such private company and (y) $30 million per company or group of affiliated companies operating as part of one business;
(v) any other investment so long as (x) such investment has been previously disclosed to the General
Partner, (y) the General Partner determines that the consummation of such investment by the Senior Manager is not
prohibited by the governing documents of any Fund, and (z) the General Partner determines that (A) it is not advisable for
any Fund to make such investment or (B) the investment does not comport with the intent of any Fund, and accordingly, the
Senior Manager’s consummation of the investment does not raise any appearance of impropriety;
provided , however , that in no event shall the Senior Manager make any investment that conflicts with Apollo’s then-current code of
ethics or any trading policies of Apollo (it being understood that the terms and restrictions of any such policy may be more
restrictive than required by applicable law). Compliance with the code of ethics and any trading policy of Apollo will generally
require disclosure of such potential personal investment to the general counsel of Apollo or his designee. Nothing contained in this
Section 5.3 or elsewhere in this Agreement shall restrict or diminish (x) the Senior Manager’s disclosure obligations pursuant to the
code of ethics of Apollo or as may otherwise be required to comply with applicable laws or (y) the Senior Manager’s obligations
pursuant to any employment or service agreement with Apollo or its Subsidiaries.
(c) The Senior Manager hereby agrees to promptly disclose to Apollo and the General Partner any potential conflict
of interest (as set forth in this Section 5.3 ) upon becoming consciously aware of such conflict or potential conflict.
(d) All directors’ and other fees or equity incentives payable to the Senior Manager by a Portfolio Company that
became a Portfolio Company as a result of an Investment made by any Fund on or after January 1, 2007 (net of applicable taxes, if
any) shall be transferred to Apollo or its designee without any additional consideration therefor.
SECTION 5.4 ACCESS TO BOOKS, RECORDS AND FINANCIAL INFORMATION. The Senior Manager shall have
the right, upon reasonable request for purposes reasonably related to the interest of the Senior Manager as a partner of Holdings, to
inspect, during normal business hours, Holdings’ books and records (including such financial and other information relating to
Holdings or any other Person in which Holdings directly or indirectly owns an interest) for so long as the Senior Manager is a
partner of Holdings; provided , however , that the General Partner shall have the right to keep confidential from the Senior Manager,
for such period of time as the General Partner deems reasonable, any information which the General Partner reasonably believes to
be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the
best interest of Holdings or could damage Holdings or its business or which Holdings is required by law or by agreement with a third
party to keep confidential; provided , further , that the Senior Manager shall not have any right to inspect or review the Agreement
Among Principals, any other Limited Partner’s roll-up agreement or similar agreement, or the Ownership Percentages of any other
Limited Partner. All requests for information or access shall be made in writing and shall specify the reasons for such request.
Holdings shall have twenty (20) Business Days to respond to such request (or such longer period as may be reasonable under the
circumstances given the volume or complexity of the request). The Senior Manager shall reimburse Holdings for all reasonable
expenses incurred by it in order to provide such information or access (including expenses necessary to provide such information or
access in a manner that is prudent in order to protect the interests of Holdings and its Affiliates). Holdings shall have no obligation to
generate information that does not exist nor organize information in a format that does not exist. Holdings shall not have to respond
to more than one request in any thirty (30) day period made by the Senior Manager, provided that one request may include more than
one deliverable. The rights of the Senior Manager pursuant to this Section 5.4 shall expire when the Senior Manager no longer owns
an interest in Holdings. The Senior Manager acknowledges and agrees that he has bargained for and agreed to the provisions of this
Section 5.4 and any other provisions of this Agreement which restrict access to information, that such provisions constitute a
fundamental element of their agreement relating to the affairs of Holdings, that such provisions limit rights of inspection otherwise
available to them and that such provisions are intended to be enforceable notwithstanding any rights of inspection otherwise
available at law or in equity.
SECTION 5.5 CONFIDENTIAL INFORMATION.
(a) The Senior Manager will not disclose or use at any time, either prior to his termination or thereafter, any
Confidential Information of which he is or becomes aware, whether or not such information is authored or developed by him, except
to the extent that (i) such disclosure or use is directly related to and required by his performance of duties to Apollo or any of its
Subsidiaries or any Portfolio Company, (ii) subject to Sections 6.8 and 6.9 , to the extent that such disclosure is required in
connection with any action by the Senior Manager to enforce rights under this Agreement or any other agreement with Holdings,
Apollo or any of its Subsidiaries or any Portfolio Company, (iii) such disclosure is expressly permitted by the terms of this
Agreement or the Senior Manager has obtained the prior written consent of the General Partner (which consent may be granted or
withheld by the General Partner), or (iv) such disclosure is legally required to be made; provided , in the case of clause (iv), that the
Senior Manager shall provide ten (10) days prior written notice, if practicable, to Holdings of such disclosure so that Holdings may
seek a protective order or similar remedy; and, provided , further , that, in each case set forth above, the Senior Manager informs the
recipients that such information or communication is confidential in nature. The Senior Manager acknowledges and agrees that this
Agreement and the provisions hereof constitute confidential information of Holdings and its Affiliates and that any documents,
information or reports received by the Senior Manager from Holdings shall be treated as confidential and proprietary information of
Holdings. The Senior Manager acknowledges that he has no right to information about a particular Portfolio Company or Fund
except in his capacity as an investor in such Fund or director of such Portfolio Company.
(b) Any trade secrets of Holdings, Apollo or any of its Subsidiaries or any Portfolio Company will be entitled to all
of the protections and benefits under any applicable law. If any information that Holdings deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement. The Senior Manager hereby waives any requirement that
Holdings submit proof of the economic value of any trade secret or post a bond or other security.
SECTION 5.6 RESTRICTIVE COVENANTS.
(a) Prior to resigning from his partnership with any Apollo Service Recipient, the Senior Manager shall provide
ninety (90) days notice to such Apollo Service Recipient.
(b) The Senior Manager agrees that during the period of his service as a partner to an Apollo Service Recipient and
during the Restricted Period, the Senior Manager shall not, directly or indirectly, either as a principal, agent, employee, employer,
consultant, partner, member, shareholder of a closely held corporation or shareholder in excess of five percent of a publicly traded
corporation, corporate officer or director, or in any other individual or representative capacity, engage or otherwise participate in any
manner or fashion in any business that is a Competing Business, either in the United States or in any other place in the world where
Apollo or any of its Affiliates, successors or assigns engages in the business. Notwithstanding anything to the contrary contained in
this Section 5.6(b) , investments described in Section 5.3(b) are permitted.
(c) The Senior Manager agrees that during the period of his service as a partner to an Apollo Service Recipient and
for two years after he is no longer providing services to an Apollo Service Recipient, the Senior Manager shall not, directly or
indirectly, (i) solicit or induce any officer, director, employee, agent or consultant of Apollo or any of its successors, assigns or
Affiliates to terminate his, her or its employment or other relationship with Apollo or its successors, assigns or Affiliates for the
purpose of associating with any Competing Business, or otherwise encourage any such Person to leave or sever his, her or its
employment or other relationship with Apollo or its successors, assigns or Affiliates, for any other reason, or (ii) hire any such
individual whom the Senior Manager knows left the employ of (or service as a partner to) Apollo or any of its Affiliates during the
immediately preceding twelve (12) months. This provision shall not prohibit the Senior Manager from soliciting or hiring his
personal assistant or assistants at the time of his departure. For purposes of this Section 5.6(c) and Section 5.6(d) , “ Affiliates ” shall
not include any Portfolio Company.
(d) The Senior Manager agrees that during the period of his service as a partner to an Apollo Service Recipient and
for two years after he is no longer providing any services as a partner to, or employed by, any Apollo Service Recipient, the Senior
Manager shall not, directly or indirectly, (i) solicit or induce any investors, financing sources or capital market intermediaries of
Apollo or its successors, assigns or Affiliates to terminate (or diminish in any respect) his, her or its relationship with Apollo or its
successors, assigns or Affiliates, or (ii) otherwise interfere with or damage (or attempt to impede or otherwise interfere with or
damage) any business relationship and/or agreement to which any Apollo Service Recipient or any Affiliate thereof is a party.
Nothing in this paragraph applies to those investors, financing sources, capital market intermediaries or business relations who did
not conduct business with Apollo, or its successors, assigns or Affiliates during the Senior Manager’s service as a partner to, or
employment with, or the period in which the Senior Manager held, directly or indirectly, an ownership interest in, an Apollo Service
Recipient, Holdings or any of their respective Affiliates. For avoidance of doubt, identification of limited partners of any Fund with
regard to activity that is not prohibited by Section 5.6(b) shall not be deemed to be a breach of this Section 5.6(d) or Section 5.5 .
(e) The Senior Manager agrees that he shall not, whether during his service as partner or employment or thereafter,
directly or indirectly, make or ratify any statement, public or private, oral or written, to any Person that disparages, either
professionally or personally, Apollo or any of its Affiliates, past and present, and each of them, as well as its and their trustees,
directors, officers, members, managers, partners, agents, attorneys, insurers, employees, stockholders, representatives, assigns, and
successors, past and present, and each of them. Apollo agrees that it shall not, and it shall ensure that any Principal shall not, directly
or indirectly, make or ratify any statement, public or private, oral or written, to any person that disparages the Senior Manager, either
professionally or personally. The obligations under this paragraph shall not apply to disclosures compelled by applicable law or
order of any court.
(f) The Senior Manager agrees and acknowledges that each restrictive covenant contained in this Section 5.6 is
reasonable as to duration, terms and geographical area and that the same protects the legitimate interests of Holdings, Apollo and
their respective Affiliates, imposes no undue hardship on the Senior Manager, is not injurious to the public, and that any violation of
any of the restrictive covenants contained in this Section 5.6 shall be specifically enforceable in any court with jurisdiction upon
short notice. The Senior Manager agrees and acknowledges that his ownership interests in Holdings is in consideration of the
covenants contained in this Section 5.6 , the sufficiency of which consideration is hereby acknowledged. If any provision of this
Section 5.6 as applied to the Senior Manager or to any circumstance is adjudged by a court to be invalid or unenforceable, the same
shall in no way affect any other circumstance or the validity or enforceability of any other provision of this Section 5.6 . If the scope
of any such provision, or any part thereof, is too broad to permit enforcement of such provision to its full extent, the Senior Manager
agrees that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to
delete specific words or phrases, to the extent necessary to permit enforcement, and, in its reduced form, such provision shall then be
enforceable and shall be enforced. The Senior Manager agrees and acknowledges that any such breach of any provision of this
Section 5.6 will cause irreparable injury to Holdings, Apollo and their respective Affiliates and upon breach of any provision of this
Section 5.6 , Holdings or Apollo shall be entitled to injunctive relief, specific performance or other equitable relief; provided ,
however , that this shall in no way limit any other remedies which Holdings or Apollo may have (including, without limitation, the
right to seek monetary damages). Each of the covenants in this Section 5.6 shall be construed as an agreement independent of any
other provisions in the Agreement to which it is attached, other than the consideration for such covenant provided in the Agreement.
(g) The Senior Manager will cooperate in all reasonable respects with Apollo and its Affiliates in connection with
any and all existing or future litigation, actions or proceedings (whether civil, criminal, administrative, regulatory or otherwise)
brought by or against Apollo or any of its Affiliates, to the extent that Apollo reasonably deems the Senior Manager’s cooperation
necessary. The Senior Manager shall be reimbursed for all out-of-pocket expenses incurred by him as a result of such cooperation.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 NOTICES. All notices, requests, consents and other communications hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person or sent by facsimile (provided a copy is thereafter
promptly delivered as provided in this Section 6.1) or nationally recognized overnight courier, addressed to such party at the address
and facsimile number set forth on Schedule III .
SECTION 6.2 INTERPRETATION. In the event of any inconsistency between this Agreement and the annexes hereto,
such annexes shall govern. The headings contained in this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words “included”, “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation.”
SECTION 6.3 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this
Agreement, or the application thereof to any Person or any circumstance, is found to be invalid or unenforceable in any jurisdiction,
(a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
SECTION 6.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, including via facsimile,
each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement, it being
understood that both parties need not sign the same counterpart.
SECTION 6.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the Holdings LPA (a)
constitute the entire agreement and (except with respect to any agreements entered into contemporaneously herewith or as otherwise
expressly provided herein) supersede all other prior agreements, both written and oral, among the parties with respect to the subject
matter hereof, and (b) are not intended to confer upon any Person, other than the parties hereto and (i) the General Partner, (ii) the
Persons that issued the Senior Manager Points and the general partners of such Persons, and (iii) the Principals (each of whom the
Senior Manager, on his own behalf and on behalf of his Group, expressly agrees, acknowledges and confirms is intended to be, and
will be, a third party beneficiary of any and all undertakings, agreements, and representations made herein by the Senior Manager as
if he or it were a party hereto, notwithstanding that he or it are not a party to this Agreement) any rights or remedies hereunder. In
the event of any inconsistency between this Agreement and Annex A hereto, Annex A shall govern.
SECTION 6.6 FURTHER ASSURANCES. Each party shall execute, deliver, acknowledge and file such other documents
and take such further actions as may be reasonably requested from time to time by the other party hereto to give effect to and carry
out the transactions contemplated herein.
SECTION 6.7 GOVERNING LAW; EQUITABLE REMEDIES. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF). The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It
is accordingly agreed that in the event that (a) arbitration pursuant to Section 6.9 is not available or (b) circumstances exist such that
immediate action must be taken to preserve the intent of this Agreement pending an arbitration in accordance with Section 6.9 , the
parties hereto shall be entitled to an injunction or injunctions and other equitable remedies to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof in the Selected Courts (as defined below), this being in addition to any other
remedy to which they are entitled at law or in equity. In such event, any requirements for the securing or posting of any bond with
respect to such remedy are hereby waived by each of the parties hereto. Each party further agrees that, in the event of any action for
an injunction or other equitable remedy in respect of such breach or enforcement of specific performance pursuant to this Section 6.7
, it will not assert the defense that a remedy at law would be adequate.
SECTION 6.8 CONSENT TO JURISDICTION. It is the desire and intent of the parties hereto that any disputes or
controversies arising under or in connection with this Agreement be resolved pursuant to arbitration in accordance with Section 6.9 ;
provided , however , that, to the extent that Section 6.9 is held to be invalid or unenforceable for any reason, and the result is that the
parties hereto are precluded from resolving any claim arising under or in connection with this Agreement pursuant to the terms of
Section 6.9 (after giving effect to the terms of Section 6.3) , the following provisions of this Section 6.8 shall govern the resolution
of all disputes or controversies arising under this Agreement. With respect to any suit, action or proceeding (“ Proceeding ”) arising
out of or relating to this Agreement or any transaction contemplated hereby each of the parties hereto hereby irrevocably (a) submits
to the exclusive jurisdiction of (A) the United States District Court for the Southern District of New York or (B) in the event that
such court lacks jurisdiction to hear the claim, the state courts of New York located in the borough of Manhattan, New York City
(the “ Selected Courts ”) and waives any objection to venue being laid in the Selected Courts whether based on the grounds of forum
non conveniens or otherwise and hereby agrees not to commence any such Proceeding other than before one of the Selected Courts;
provided , however , that a party may commence any Proceeding in a court other than a Selected Court solely for the purpose of
enforcing an order or judgment issued by one of the Selected Courts; (b) consents to service of process in any Proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, or by recognized international express carrier or delivery
service, to the party at his or her respective address referred to in Section 6.1 hereof; provided , however , that nothing herein shall
affect the right of any party hereto to serve process in any other manner permitted by law; and (c) TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, WAIVES, AND COVENANTS THAT IT WILL
NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND AGREES THAT ANY OF THEM MAY FILE
A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY
AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL
BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY
OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
SECTION 6.9 ARBITRATION.
(a) Except as provided in Section 5.6(f) and Section 6.7 , the parties hereto agree that any dispute, controversy or
claim arising out of or relating to this Agreement, whether based on contract, tort, statute or other legal or equitable theory (including
without limitation, any claim of fraud, intentional misconduct, misrepresentation or fraudulent inducement or any question of
validity or effect of this Agreement including this clause) or the breach or termination hereof (the “ Dispute ”), shall be resolved in
binding arbitration in accordance with the following provisions:
(i) Such dispute shall be resolved by binding arbitration to be conducted before JAMS in accordance with
the provisions of JAMS’ Comprehensive Arbitration Rules and Procedures as in effect at the time of the arbitration.
(ii) The arbitration shall be held before a panel of three arbitrators appointed by JAMS, in accordance with
its rules, who are not Affiliates of any party to such arbitration and do not have any potential for bias or conflict of interest
with respect any of the parties hereto, directly or indirectly, by virtue of any direct or indirect financial interest, family
relationship or close friendship.
(iii) Such arbitration shall be held at such place as the arbitrators appointed by JAMS may determine within
New York, New York, or such other location to which the parties hereto may agree.
(iv) The arbitrators shall have the authority, taking into account the parties’ desire that any arbitration
proceeding hereunder be reasonably expedited and efficient, to permit the parties hereto to conduct discovery. Any such
discovery shall be (i) guided generally by but be no broader than permitted under the United States Federal Rules of Civil
Procedure (the “ FRCP ”), and (ii) subject to the arbitrators and the parties hereto entering into a mutually acceptable
confidentiality agreement.
(v) The arbitrators shall have the authority to issue subpoenas for the attendance of witnesses and for the
production of records and other evidence at any hearing and may administer oaths. Any such subpoena must be served in the
manner for service of subpoenas under the FRCP and enforced in the manner for enforcement of subpoenas under the FRCP.
(vi) The arbitrators’ decision and award in any such arbitration shall be made by majority vote and
delivered within thirty (30) calendar days of the conclusion of the evidentiary hearings. In addition, the arbitrators shall have
the authority to award injunctive relief to any of the parties.
(vii) The arbitrators’ decision shall be in writing and shall be as brief as possible and will include the basis
for the arbitrators’ decision. A record of the arbitration proceeding shall be kept.
(viii) Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
(ix) The parties shall share equally all expenses of JAMS (including those of the arbitrators) incurred in
connection with any arbitration. Notwithstanding the foregoing, if the arbitrators determine that any party’s claim or position
was frivolous, such party shall reimburse the other parties to such arbitration for all reasonable expenses incurred (including
reasonable legal fees and expenses) in connection with such arbitration.
(x) The parties hereto agree to participate in any arbitration in good faith.
(b) If JAMS is unable or unwilling to commence arbitration with regard to any such Dispute within thirty (30)
calendar days after the parties have met the requirements for commencement as set forth in Rule 5 of the JAMS Comprehensive
Arbitration Rules and Procedures, then the Disputes shall be resolved by binding arbitration, in accordance with the International
Arbitration Rules of the American Arbitration Association (the “ AAA ”), before a panel of three arbitrators who shall be selected
jointly by the parties involved in such Dispute, or if the parties cannot agree on the selection of the arbitrators, shall be selected by
the AAA (provided that any arbitrators selected by the AAA shall meet the requirements of subparagraph (a)(ii) above). Any such
arbitration shall be subject to the provisions of subparagraphs (a)(iii) through (a)(x) above (as if the AAA were JAMS). If the AAA
is unable or unwilling to commence such arbitration within thirty (30) calendar days after the parties have met the requirements for
such commencement set forth in the aforementioned rules, then either party may seek resolution of such Dispute through litigation in
accordance with Sections 6.7 and 6.8 .
(c) Except as may be necessary to enter judgment upon the award or to the extent required by applicable Law, all
claims, defenses and proceedings (including, without limiting the generality of the foregoing, the existence of the controversy and
the fact that there is an arbitration proceeding) shall be treated in a confidential manner by the arbitrators, the parties and their
counsel, and each of their agents, and employees and all others acting on behalf of or in concert with them. Without limiting the
generality of the foregoing, no one shall divulge to any Person not directly involved in the arbitration the contents of the pleadings,
papers, orders, hearings, trials, or awards in the arbitration, except as may be necessary to enter judgment upon an award or as
required by applicable law. Any court proceedings relating to the arbitration hereunder, including, without limiting the generality of
the foregoing, to prevent or compel arbitration or to confirm, correct, vacate or otherwise enforce an arbitration award, shall be filed
under seal with the court, to the extent permitted by law.
SECTION 6.10 AMENDMENTS; WAIVERS; NO DISCRIMINATORY ACTION.
(a) The Agreement may be amended and the terms and conditions of the Agreement may be changed or modified at
any time upon the approval, in writing, of the parties hereto (or their legal representative, if applicable); provided , however , that in
the event that BRH or Holdings is liquidated or dissolved, the provisions hereof may be amended by the General Partner to account
for such liquidation or dissolution without the consent of the Senior Manager or any member of his Group, so long as (i) such
amended provisions are on substantially similar terms to those included herein and (ii) there is no adverse economic or tax
consequence to the Senior Manager or any member of his Group. For all purposes of this Agreement, the consent of the Senior
Manager (or his legal representative) shall be sufficient to bind the Senior Manager and all members of his Group.
(b) In addition to the provisions of Section 3.8 , Apollo shall not permit the Shareholders Agreement or the
Exchange Agreement to be amended in a manner that discriminates against the Senior Manager or his Group relative to the
Principals and their Groups or the other Senior Executives and their Groups without first obtaining the consent of the Senior
Manager (or his legal representative). Without limiting the generality of the foregoing, Apollo acknowledges that the Senior
Manager and his Group are third party beneficiaries of Section 7.2 of the Shareholders Agreement and such Section may not be
amended or terminated in a manner that would adversely affect the Senior Manager and his Group without the prior consent of the
Senior Manager (or his legal representative).
(c) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as waiver
thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(d) The Senior Manager, whether on his own behalf or on behalf of his Group, will not take any action as a
stockholder, director, partner, member, officer or otherwise except in a manner that is consistent with the terms of this Agreement,
and the Senior Manager shall not enter into any agreement or arrangement of any kind with any Person on terms inconsistent with
the provisions of this Agreement (whether or not such agreement or arrangement is with other Limited Partners, Permitted
Transferees or with Persons that are not party to this Agreement). Each Permitted Transferee will not take any action as a
stockholder, director, partner, member, officer or otherwise except in a manner that is consistent with the terms of this Agreement,
and no Permitted Transferee shall enter into any agreement or arrangement of any kind with any Person on terms inconsistent with
the provisions of this Agreement (whether or not such agreement or arrangement is with a Limited Partner, any other Permitted
Transferee or with Persons that are not party to this Agreement).
SECTION 6.11 ASSIGNMENT. Except as expressly provided herein, neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties; provided ,
that BRH may assign its rights and obligations hereunder to its limited partners at any time. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and
permitted assigns.
SECTION 6.12 SPOUSAL CONSENT. If requested by Holdings, each Senior Manager or Permitted Transferee who is an
individual shall cause his or her spouse, as applicable, to execute and deliver a separate consent and agreement in form and
substance reasonably acceptable to Holdings (a “ Spousal Consent ”). The signature of a spouse on a spousal consent shall not be
construed as making, and shall not have the effect of making, such spouse a partner of Holdings or a party to this Agreement, except
as expressly set forth in such consent. Each Senior Manager or Permitted Transferee who is an individual will certify his or her
marital status to Holdings at Holdings’ request, and promptly notify Holdings of any change in his or her marital status.
SECTION 6.13 NOTICES AND INSTRUCTIONS TO SENIOR MANAGER GROUP. The parties hereto acknowledge
and agree that for purposes of administrative convenience and providing clear and non-conflicting instructions to Holdings, the
Senior Manager was given certain rights under this Agreement to give notices and to give instructions that would be binding upon
the Senior Manager and his Group. The parties agree that while Holdings shall be entitled to rely on such notices and instructions as
being binding on the Senior Manager and his Group, such provisions are not intended to convey or transfer any right or authority
from a member of the Senior Manager’s Group to the Senior Manager, and that as between the Senior Manager and members of his
Group, it is the Senior Manager’s obligation to obtain appropriate instruction, consent or authority to give such notices or
instructions from a member of his Group that affect such member of his Group.
* * * * *
2
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first
set forth above.
AP PROFESSIONAL HOLDINGS, L.P.
By: BRH Holdings GP, Ltd.
its General Partner
By: /s/ John J. Suydam
John J. Suydam
Vice President
BRH HOLDINGS, L.P.
By: BRH Holdings GP, Ltd.
its General Partner
By: /s/ John J. Suydam
John J. Suydam
Vice President
APOLLO GLOBAL MANAGEMENT, LLC
By: AGM Management, LLC
its Manager
By: BRH Holdings GP, Ltd.
its Sole Member
By: /s/ John J. Suydam
John J. Suydam
Vice President
[Roll Up Agreement — Kleinman]
SOLELY IN CONNECTION WITH SECTION 2.1 :
APO CORP.
By:/s/ John J. Suydam
John J. Suydam
Vice President and Secretary
APO ASSET CO., LLC
By:/s/ John J. Suydam
John J. Suydam
Vice President and Secretary
[Roll Up Agreement — Kleinman]
/s/ Scott M. Kleinman
Scott M. Kleinman
[Roll Up Agreement — Kleinman]
TRANSFEROR
THE KLEINMAN CHILDREN’S TRUST,
U/A/D OCTOBER 30, 2006
By: /s/ Alan Kleinman
Alan Kleinman
Trustee
FORM OF JOINDER TO
ROLL-UP AGREEMENT
EXHIBIT A
[THIS JOINDER (this “ Joinder ”) to that certain Roll-up Agreement (the “ Agreement ”) dated as of July 13, 2007, by and
among Scott M. Kleinman (the “ Senior Manager ”), AP Professional Holdings, L.P., a Cayman Islands exempted limited
partnership (“ Holdings ”), and BRH Holdings, L.P., a Cayman Islands exempted limited partnership (“ BRH ”), is made and entered
into as of July 13, 2007 by and between the Senior Manager, Holdings, BRH and [NAME OF PERMITTED TRANSFEREE] (the “
Transferee ”). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Agreement.
WHEREAS, the Transferee has acquired an ownership interest in Holdings, and the Agreement requires the Transferee to
become a party to the Agreement, and Transferee agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound . The Transferee hereby agrees that upon execution of this Joinder, [he, she or it] shall become a party
to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though
an original party thereto.
2. Successors and Assigns . Except as otherwise provided herein, this Joinder shall bind and inure to the benefit of and be
enforceable by the Senior Manager, Holdings and BRH, and the General Partner and each Principal (as a third party beneficiary to
the Agreement), and their respective successors and assigns so long as the Transferee holds any ownership interest in Holdings.
3. Counterparts . This Joinder may be executed in separate counterparts, including by facsimile, each of which shall be an original
and all of which taken together shall constitute one and the same agreement.
4. Notices . For purposes of Section 6.1 of the Agreement, all notices, demands or other communications to the Holder shall be
directed to:
[Name]
[Address]
[Attention]
[Facsimile Number]
5. Governing Law . THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF).
6. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of
this Joinder.]
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the date first above written.
AP PROFESSIONAL HOLDINGS, L.P.
By:
Name:
Title:
BRH HOLDINGS, L.P.
By:
Name:
Title:
/s/ Scott M. Kleinman
Scott M. Kleinman
[TRANSFEREE]
By:
Name:
Title:
[Roll Up Agreement — Kleinman]
Exhibit 10.46
Apollo Global Management, LLC
9 West 57th Street
New York, NY 10019
November 12, 2017
Personal and Confidential
Mr. James C. Zelter
[address on file with the Company]
Dear Jim:
We refer to the letter agreement (the “ Agreement ”) between you and Apollo Global Management, LLC (“ Apollo ” or “ AGM ”) and
its subsidiaries (collectively, the “ Company ”), dated June 20, 2014, regarding the terms of your employment. This letter (this “
Amendment ”) effects certain changes to the Agreement, as mutually agreed, in connection with your appointment as Co-President effective
January 1, 2018. Capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement.
1. Position and Reporting. Effective January 1, 2018, you shall serve as Co-President, with responsibility for Apollo’s credit business,
and shall report to Joshua Harris or his successor. As Co-President, you will be the most senior executive of Apollo’s credit business,
provided that Apollo subsidiary Athene Asset Management, L.P. shall be co-managed by you and James R. Belardi or his successor.
You shall be a nonvoting member of the Executive Committee, including any successor or equivalent committee thereof.
2. Annual Base Pay. During your employment with the Company, your base salary from and after January 1, 2018 shall be at the rate of
$100,000, which amount shall be paid in monthly installments. All amounts payable under the Agreement (as modified by this
Amendment) are subject to withholding, if applicable, in accordance with law. You shall no longer be entitled to receive a non-
discretionary Annual Bonus or amounts in respect thereof but shall be eligible to receive a discretionary annual bonus.
3. AGM Restricted Share Units. In the first quarter of 2018, you shall receive a one-time grant of 2,500,000 AGM restricted share units
(“ RSUs ”). Such RSUs shall vest on the first five anniversaries of January 1, 2018, subject to your continued employment on each such
date and the terms of an RSU award agreement under AGM’s omnibus equity incentive plan in the form previously provided to you.
Such executed award agreement shall evidence the grant. Such RSUs shall accrue distribution equivalents from the date of grant,
whether or not such RSUs have vested.
4. Carry Points and Profits Interests. All existing points and interests in respect of carried interest or other incentive income vehicles
managed, sponsored or advised by the Company or any of its affiliates that were previously awarded to you (including, without
limitation, all CIP Points, EPF II Points, COF III Points, profits interests, other carry points, incentive income rights and Tail Rate rights)
shall terminate effective after the close of business on December 31, 2017, and you shall forfeit any right to distributions (except for any
distributions that may be made to you in respect of an existing tax capital account balance) that otherwise would have been made after
such date in respect of such points or interests.
Effective as of January 1, 2018, you shall receive, without duplication, 50 points that entitle you to participate, directly or indirectly, in
the incentive income distributions made by all Credit funds (a current list of which has been separately communicated to you), with the
same vesting terms as apply to investment professionals who hold such points generally. Except as provided in the next sentence, such
points may be notional points that entitle you to receive W-2 income on the same terms as apply to other senior employees in the credit
business. Your points in the general partners of funds that have been separately communicated to you shall relate to actual limited
partner (or similar) interests you will hold in such general partners. The vesting commencement date for your points that are subject to
vesting shall be January 1, 2018.
Other than as specifically set forth above, you and the Company acknowledge and agree that, as of the close of business on December
31, 2017 (or such earlier date as you may separately agree in conjunction with your participation in credit business compensation
programs), you shall have no right, contractual, contingent, or otherwise, to receive any incentive fees, management fees, or carried
interest points, payments or distributions in respect of any of the foregoing from the Company or any of its affiliates.
For purposes of clarity, your existing capital commitment obligations are unchanged by this Amendment and shall continue to subsist in
accordance with the applicable documentation governing such capital commitments.
5. Coordination with Agreement. Except as otherwise set forth above, the Agreement remains in full force and effect in accordance with
its terms. The Agreement, except as modified by this Amendment, shall be treated as if incorporated by reference into this Amendment.
You acknowledge that the modifications to your compensation, role and reporting reflected in this Amendment shall not be construed as
providing a basis for a Good Reason termination under any written arrangement of the Company.
6.
Section 409A. The Agreement (as modified by this Amendment) is intended to be exempt from, or comply with, Section 409A and to be
interpreted in a manner consistent therewith. To the extent necessary to avoid the imposition of tax or penalty under Section 409A, any
payment by the Company or affiliate to you (if you are then a “specified employee” as defined in Code Section 409A(a)(2)(B)(i) and
Treasury Regulation §1.409A-1(i)(1)) of “deferred compensation,” whether pursuant to the Agreement (as modified by this
Amendment) or otherwise, arising solely due to a “separation from service” (and not by reason of the lapse of a “substantial risk of
forfeiture”), as such terms are used in Section 409A, shall be delayed (to the extent otherwise payable prior to such date) and paid on the
first day following the six-month period beginning on the date of your separation from service under Section 409A (or, if earlier, upon
your death). Each payment or installment due under the Agreement (as modified by this Amendment) is intended to constitute a
“separate payment” for purposes of Section 409A. In no event shall the Company or any affiliate (or any agent thereof) have any
liability to you or any other person due to the failure of the Agreement (as modified by this Amendment) to satisfy the requirements of
Section 409A.
7. Counterparts. This Amendment may be executed through the use of separate signature pages or in any number of counterparts,
including via facsimile or pdf, with the same effect as if the parties executing such counterparts had executed one counterpart.
Sincerely,
/s/ Lisa Barse Bernstein
Lisa Barse Bernstein
Senior Partner, Global Head of Human Capital
Read, Accepted and Agreed to:
/s/ James C. Zelter
James C. Zelter
Dated: November 12, 2017
Exhibit 10.80
CONFIDENTIAL & PROPRIETARY
EXECUTION COPY
This limited partnership is the general partner of Apollo Special
Situations Fund, L.P. and its parallel funds, if any, and earns the
“carried interest” on ASSF profits.
Apollo Special Situations Advisors, L.P.
Amended and Restated
Limited Partnership Agreement
Dated February 15, 2017 and effective as of March 18, 2016
ORGANIZATION 11
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II FORMATION AND
Section 2.1 Formation 11
Section 2.2 Name 11
Section 2.3 Offices 11
Section 2.4 Term of Partnership 11
Section 2.5 Purpose of the Partnership 12
Section 2.6 Actions by Partnership 12
Section 2.7 Admission of Limited Partners 12
Section 2.8 Points; Plan Years 12
ARTICLE III CAPITAL 14
Section 3.1 Contributions to Capital 14
Section 3.2 Rights of Partners in Capital 14
Section 3.3 Capital Accounts 15
Section 3.4 Allocation of Profit and Loss 16
Section 3.5 Tax Allocations 17
Section 3.6 Reserves; Adjustments for Certain Future Events 17
Section 3.7 Finality and Binding Effect of General Partner’s Determinations 18
Section 3.8 AEOI 19
Section 3.9 Alternative GP Vehicles 20
20
ARTICLE IV DISTRIBUTIONS
Section 4.1 Distributions 20
Section 4.2 Retained Amounts 22
Section 4.3 Withholding of Certain Amounts 22
Section 4.4 Limitation on Distributions 23
Section 4.5 Distributions in Excess of Basis 23
ARTICLE V MANAGEMENT 24
Section 5.1 Rights and Powers of the General Partner 24
Section 5.2 Delegation of Duties 25
Section 5.3 Transactions with Affiliates 26
Section 5.4 Expenses 27
Section 5.5 Rights of Limited Partners 27
Section 5.6 Other Activities of General Partner 27
Section 5.7 Duty of Care; Indemnification 27
TRANSFERS AND WITHDRAWALS 29
ARTICLE VI ADMISSIONS,
Section 6.1 Admission of Additional Limited Partners; Effect on Points 29
Section 6.2 Admission of Additional General Partner 29
Section 6.3 Transfer of Interests of Limited Partners 29
Section 6.4 Withdrawal of Partners 31
Section 6.5 Pledges 31
ARTICLE VII ALLOCATION OF
POINTS; ADJUSTMENTS OF POINTS AND RETIREMENT OF PARTNERS 33
AND LIQUIDATION 35
PROVISIONS 36
Agreement 37
Section 7.1 Allocation of Points 33
Section 7.2 Retirement of Partner 34
Section 7.3 Effect of Retirement on Points 35
ARTICLE VIII DISSOLUTION
Section 8.1 Dissolution and Liquidation of Partnership 35
ARTICLE IX GENERAL
Section 9.1 Restrictive Covenants of Limited Partners 36
Section 9.2 Strategic Partnership Carried Interest related to the Fund 37
Section 9.3 Amendment of Partnership Agreement and Co-Investors (A) Partnership
Section 9.4 Special Power-of-Attorney 39
Section 9.5 Good Faith; Discretion 41
Section 9.6 Notices 41
Section 9.7 Agreement Binding Upon Successors and Assigns 41
Section 9.8 Merger, Consolidation, Etc. 41
Section 9.9 Governing Law; Dispute Resolution 42
Section 9.10 Termination of Right of Action 43
Section 9.11 Not for Benefit of Creditors 43
Section 9.12 Reports 43
Section 9.13 Filings 44
Section 9.14 Headings, Gender, Etc. 44
Section 9.15 Corporate Clawback 44
APOLLO SPECIAL SITUATIONS ADVISORS, L.P.
A Delaware Limited Partnership
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of APOLLO SPECIAL SITUATIONS
ADVISORS, L.P. dated February 15, 2017 and effective as of March 18, 2016, by and among Apollo Special Situations Advisors
GP, LLC, a Delaware limited liability company, as the sole general partner, and the persons whose names and addresses are set forth
in the Schedule of Partners under the caption “Limited Partners” as the limited partners.
W I T N E S S E T H :
WHEREAS, on February 23, 2016, Apollo Special Situations Management, L.P. filed with the Secretary of State of
the State of Delaware a Certificate of Limited Partnership to form Apollo Special Situations Advisors, L.P. as a limited partnership
under the Delaware Revised Uniform Limited Partnership Act, pursuant to an agreement among Apollo Special Situations Advisors
GP, LLC, as sole general partner, and APH Holdings, L.P., as initial limited partner (the “ Original Agreement ”); and
WHEREAS, the parties wish to amend and restate the Original Agreement in its entirety.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used but not otherwise defined herein have the following meanings:
“ Account Points ” has the meaning ascribed to that term in Section 2.8(a)(i) .
“ Act ” means the Delaware Revised Uniform Limited Partnership Act, as in effect on the date hereof and as amended
from time to time, or any successor law.
“ AEOI ” means (a) legislation known as the U.S. Foreign Account Tax Compliance Act, sections 1471 through 1474
of the Code and any associated legislation, regulations (whether proposed, temporary or final) or guidance, any applicable
intergovernmental agreement and related statutes, regulations or rules, and other guidance thereunder, (b) any other similar
legislation, regulations, or guidance enacted in any other jurisdiction which seeks to implement similar financial account information
reporting and/or withholding tax regimes, including the OECD Standard for Automatic Exchange of Financial Account Information
in Tax Matters – the Common Reporting Standard and any associated guidance, (c) any other intergovernmental agreement, treaty,
regulation, guidance, standard or other agreement entered into in order to comply with, facilitate, supplement or implement the
legislation, regulations, guidance or standards described in clauses (a) and (b) of this definition, and (d) any legislation, regulations
or guidance in any jurisdiction that give effect to the matters outlined in the preceding clauses of this definition.
“ Administrative Committee ” means a committee of the General Partner initially composed of Marc Becker, Scott
Kleinman, Jim Zelter, Sanjay Patel and Lisa Bernstein and any successor, substitute or additional member appointed thereto.
“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or
under common control with such Person. Except as the context otherwise requires, the term “Affiliate” in relation to AGM includes
each collective investment fund and account sponsored, managed or advised by AGM or its affiliated asset management entities, but,
in each case, does not include Portfolio Companies except with respect to Bad Acts and the Restrictive Covenants.
“ AGM ” means Apollo Global Management, LLC, a Delaware limited liability company.
“ Agreement ” means this Amended and Restated Limited Partnership Agreement, as amended or supplemented from
time to time.
“ Alternative GP Vehicle ” has the meaning ascribed to that term in Section 3.9 .
“ APH ” means (a) APH Holdings, L.P., a Cayman Islands exempted limited partnership, and (b) any other entity
formed by AGM or its Affiliates that holds Points, in its capacity as a Limited Partner, for the benefit (directly or indirectly) of
(i) AGM, (ii) AP Professional Holdings,
2
L.P., a Cayman Islands exempted limited partnership, or (iii) employees or other service providers of AGM Affiliates, in its capacity
as a Limited Partner.
“ Applicable Tax Representative ” means, with respect to a tax matter, the General Partner, the Tax Matters Partner or
the Partnership Representative (each in its capacity as such), as applicable.
“ ASSF ” means Apollo Special Situations Fund, L.P., a limited partnership formed under the Act.
“ Bad Act ” means a Limited Partner’s:
(a) commission of an intentional violation of a material law or regulation in connection with any transaction
involving the purchase, sale, loan, pledge or other disposition of, or the rendering of investment advice with respect to, any
security, asset, futures or forward contract, insurance contract, debt instrument or currency, in each case, that has a significant
adverse effect on the Limited Partner’s ability to perform his or her services to AGM or any of its Affiliates;
(b) commission of an intentional and material breach of a material provision of a written AGM Code of
Conduct (other than any AGM Code of Conduct adopted after the date of such Limited Partner’s admission to the Partnership
with the primary purpose of creating or finding “Bad Acts”);
(c) commission of intentional misconduct in connection with the performance by the Limited Partner of his
or her services for AGM or any of its Affiliates;
(d) commission of any misconduct that, individually or in the aggregate, has caused or substantially
contributed to, or is reasonably likely to cause or substantially contribute to, material economic or reputational harm to AGM
or any of its Affiliates (excluding any mistake of judgment made in good faith with respect to a portfolio investment or
account managed by AGM or its Affiliates, or a communication made to the principals or other partners, in a professional
manner, of a good faith disagreement with a proposed action by AGM or any of its Affiliates);
(e) conviction of a felony or plea of no contest to a felony charge, in each case if such felony relates to AGM
or any of its Affiliates;
(f) fraud in connection with the performance by the Limited Partner of his or her services for AGM or any of
its Affiliates; or
(g) embezzlement from AGM or any of its Affiliates or interest holders;
3
provided , that
(i) with respect to the items set forth in clauses (b) and (d), the Limited Partner has failed to cure within fifteen
Business Days after notice thereof, to the extent such occurrence is susceptible to cure, and
(ii) during the pendency of any felony charge under clause (e), AGM and its Affiliates may suspend payment of any
distributions in respect of the Limited Partner’s Points, and if (A) the Limited Partner is later acquitted or otherwise
exonerated from such charge, or (B) the employment or service of such Limited Partner with AGM or its applicable Affiliate
does not terminate, then (1) AGM or its applicable Affiliate shall pay to the Limited Partner all such accrued but unpaid
distributions with respect to vested Points, with interest calculated from the date such distributions were suspended at the
prime lending rate in effect on the date of such suspension, and (2) throughout the period of suspension (or until the date of
termination of employment or service, if earlier), distributions with respect to unvested Points shall continue to accrue, and
Points shall continue to vest, in accordance with the terms and conditions set forth herein.
“ BBA Audit Rules ” means Subchapter C of Chapter 63 of the Code (sections 6221 through 6241 of the Code), as
enacted by the United States Bipartisan Budget Act of 2015, Pub. L. No. 114-74, as amended from time to time, and the Treasury
Regulations (whether proposed, temporary or final), including any subsequent amendments and administrative guidance,
promulgated thereunder (or which may be promulgated in the future), together with any similar United States state, local or non-U.S.
law.
“ Book-Tax Difference ” means the difference between the Carrying Value of a Partnership asset and its adjusted tax
basis for United States federal income tax purposes, as determined at the time of any of the events described in the definition of
Carrying Value, which for purposes of this Agreement shall include any accrued income in respect of securities contributed to or
held (directly or indirectly) by the Partnership as of the date of any such event. The General Partner shall maintain an account in the
name of each Limited Partner from whom or from which any Points are reallocated to a Newly-Admitted Limited Partner that
reflects such Limited Partner’s share of any Book-Tax Difference.
“ Business Day ” means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking
institutions in New York, New York are authorized or obligated by law or executive order to close.
“ Capital Account ” means, with respect to each Partner, the capital account established and maintained on behalf of
such Partner as described in Section 3.3 .
“ Capital Loss ” means, for each Fund with respect to any Fiscal Year, the portion of any Net Loss and any Portfolio
Investment Loss allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership in
proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
4
“ Capital Profit ” means, for each Fund with respect to any Fiscal Year, the portion of any Net Income and any
Portfolio Investment Gain allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership
in proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
“ Carrying Value ” means, with respect to any Partnership asset, the asset’s adjusted basis for United States federal
income tax purposes, except that the Carrying Values of all Partnership assets shall be adjusted to equal their respective fair market
values (as determined by the General Partner), in accordance with the rules set forth in Treasury Regulations section 1.704-1(b)(2)
(iv)(f), except as otherwise provided herein, immediately prior to: (a) the date of the acquisition of any interests in the Partnership by
any new Partner or of any additional interests by any existing Partner in exchange for more than a de
minimis
capital contribution;
(b) the date of the distribution of more than a de
minimis
amount of any Partnership asset to a Partner, including cash as
consideration for an interest in the Partnership; (c) the date of the grant of more than a de
minimis
profits interest in the Partnership
as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner, or by a new Partner
acting in his capacity as a Partner or in anticipation of becoming a Partner; or (d) the liquidation of the Partnership within the
meaning of Treasury Regulations section 1.704-l(b)(2)(ii)(g); provided , that any adjustment pursuant to clauses (a), (b) and
(c) above shall be made only if the General Partner reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners. The Carrying Value of any Partnership asset distributed to any Partner shall be
adjusted immediately prior to such distribution to equal its fair market value (as determined by the General Partner). The Carrying
Value of any asset contributed by a Partner to the Partnership shall be the fair market value (as determined by the General Partner) of
the asset at the date of its contribution.
“ Catch Up Amount ” means the product derived by multiplying (a) the amount of any Book-Tax Difference arising
on the admission to the Partnership of a Newly-Admitted Limited Partner by (b) the percentage derived by dividing the number of
Points issued to the Newly-Admitted Limited Partner, by the aggregate number of Points on the date the Newly-Admitted Limited
Partner is admitted to the Partnership. The General Partner shall maintain an account in the name of each Newly-Admitted Limited
Partner that reflects such Limited Partner’s Catch Up Amount, which shall be adjusted as necessary to reflect any subsequent
reduction in such Book-Tax Difference corresponding to any subsequent negative adjustments to the Carrying Value of the
Partnership’s assets that relate to such Book-Tax Difference, and which may be further adjusted to the extent the General Partner
determines in its sole discretion is necessary to cause the Catch Up Amount to be equal to the amount necessary to provide such
Limited Partner with a requisite share of Partnership capital based on such Limited Partner’s Points in accordance with the terms of
this Agreement and such Limited Partner’s Points Award Memo.
“ Certificate ” means the Certificate of Limited Partnership of the Partnership and any amendments thereto as filed
with the office of the Secretary of State of the State of Delaware.
“ Clawback Payment ” means any payment required to be made by the Partnership to any Fund pursuant to section
10.3 of the Fund LP Agreement of ASSF or its equivalent in the Fund LP Agreement of any other Fund.
5
“ Clawback Share ” means, as of the time of determination, with respect to any Limited Partner and any Clawback
Payment, a portion of such Clawback Payment equal to (a) the cumulative amount distributed to such Limited Partner of Operating
Profit attributable to the Portfolio Investments determined by the General Partner to give rise to the Clawback Payment, divided by
(b) the cumulative amount so distributed to all Partners with respect to such Operating Profit attributable to such Fund.
“ Co-Investors (A) ” means Apollo Special Situations Co-Investors (A), L.P., a Delaware limited partnership.
“ Co-Investors (A) Partnership Agreement ” means the amended and restated limited partnership agreement of Co-
Investors (A), as amended from time to time.
“ Code ” means the United States Internal Revenue Code of 1986, as amended and as hereafter amended, or any
successor law.
“ Covered Person ” has the meaning ascribed to that term in Section 5.7 .
“ DEUCC ” has the meaning ascribed to that term in Section 6.5(c) .
“ Disability ” has the meaning ascribed to that term in the AGM 2007 Omnibus Equity Incentive Plan.
“ Discretionary Points ” has the meaning ascribed to that term in Section 2.8(a)(ii).
“ Escrow Account ” has the meaning ascribed to that term in the Fund LP Agreement of ASSF or its equivalent in the
Fund LP Agreement of any other Fund.
“ Execution Page ” means the counterpart signature document so titled, pursuant to which the Limited Partners, other
than APH, have agreed to become party to each of this Agreement and the Co-Investors (A) Partnership Agreement.
“ Executive Committee ” means the Executive Committee of the Board of Managers of AGM as in effect from time
to time.
“ Final Adjudication ” has the meaning ascribed to that term in Section 5.7 .
“ Final Distribution ” has the meaning ascribed to that term in the Fund LP Agreement of ASSF or its equivalent in
the Fund LP Agreement of any other Fund.
“ Fiscal Year ” means, with respect to a year, the period commencing on January 1 of such year and ending on
December 31 of such year (or on the date of a final distribution pursuant to Section 8.1(a) , unless the General Partner shall elect
another fiscal year for the Partnership which is a permissible taxable year under the Code.
6
“ Founder Partner ” means each of Leon Black, Joshua Harris, Marc Rowan and any Limited Partner that holds Points
by reason of being a Related Party of one of the foregoing individuals.
“ Fund ” means each of ASSF and each “Parallel Fund” within the meaning of the Fund LP Agreement of ASSF.
Such term also includes each alternative investment vehicle of ASSF, and/or any such Parallel Fund and/or managed account, “fund
of one” or other similar product that invests alongside ASSF in the ordinary course (for the avoidance of doubt, excluding any other
investment fund sponsored by AGM or its Affiliates and investing alongside ASSF on a one-off basis), to the extent the context so
requires. As of March 18, 2016, the “ Fund ” refers to ASSF.
“ Fund General Partner ” means the Partnership in its capacity as a general partner of any of the Funds pursuant to the
Fund LP Agreements.
“ Fund LP Agreement ” means the limited partnership agreement of any of the Funds, as amended from time to time,
and, to the extent the context so requires, the corresponding constituent agreement, certificate or other document governing each
such Fund.
“ General Partner ” means Apollo Special Situations Advisors GP, LLC, a Delaware limited liability company, in its
capacity as general partner of the Partnership or any successor to the business of the General Partner in its capacity as general partner
of the Partnership.
“ Governmental Authority ” has the meaning ascribed to that term in each of the Fund LP Agreements.
“ Home Address ” has the meaning ascribed to such term in Section 9.6 .
“ Investment Manager ” has the meaning ascribed to that term in each of the Fund LP Agreements.
“ JAMS ” has the meaning ascribed to that term in Section 9.9(b) .
“ Limited Partner ” means any Person admitted as a limited partner to the Partnership in accordance with this
Agreement, including any Retired Partner, until such Person withdraws entirely as a limited partner of the Partnership, in his
capacity as a limited partner of the Partnership. All references herein to a Limited Partner shall be construed as referring collectively
to such Limited Partner and to each Related Party of such Limited Partner (and to each Person of which such Limited Partner is a
Related Party) that also is or that previously was a Limited Partner, except to the extent that the General Partner determines that the
context does not require such interpretation as between such Limited Partner and his Related Parties.
“ Net Income ” has the meaning ascribed to that term in each of the Fund LP Agreements.
“ Net Loss ” has the meaning ascribed to that term in each of the Fund LP Agreements.
7
“ Newly-Admitted Limited Partner ” has the meaning ascribed to that term in Section 4.1(d)(i) .
“ Operating Loss ” means, with respect to any Fiscal Year, any net loss of the Partnership, adjusted to exclude (a) any
Capital Profit or Capital Loss, and (b) the effect of any reorganization, restructuring or other capital transaction proceeds derived by
the Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be determined in
accordance with the same accounting policies, principles and procedures applicable to the determination by the relevant Fund, and
any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and procedures used by
the Partnership for United States federal income tax purposes. Operating Loss shall not include any loss attributable to a Book-Tax
Difference.
“ Operating Profit ” means, with respect to any Fiscal Year, any net income of the Partnership, adjusted to exclude
(a) any Capital Profit or Capital Loss, and (b) the effect of any reorganization, restructuring or other capital transaction proceeds
derived by the Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be
determined in accordance with the same accounting policies, principles and procedures applicable to the determination by the
relevant Fund, and any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and
procedures used by the Partnership for United States federal income tax purposes. Operating Profit shall not include any income or
gain attributable to a Book-Tax Difference.
“ Partner ” means the General Partner or any of the Limited Partners, and “ Partners ” means the General Partner and
all of the Limited Partners.
“ Partnership ” means the limited partnership continued pursuant to this Agreement.
“ Partnership Representative ” means for any relevant taxable year of the Partnership to which the BBA Audit Rules
apply, the General Partner acting in the capacity of the “partnership representative” (as such term is defined under the BBA Audit
Rules) or such other Person as is appointed to be the “partnership representative” by the General Partner from time to time.
“ Person ” means any individual, partnership (whether or not having separate legal personality), corporation, limited
liability company, joint venture, joint stock company, unincorporated organization or association, trust (including the trustees
thereof, in their capacity as such), government, governmental agency, political subdivision of any government, or other entity.
“ Plan Year ” means, with respect to a year, the period commencing on January 1 of such year and ending on
December 31 of such year, or such other period as determined by the General Partner; provided , that the first Plan Year shall be
deemed to begin on March 18, 2016 and the final Plan Year shall be deemed to end on the date on which a Dissolution Event (as
defined in the Fund LP Agreement of ASSF) occurs.
“ Point ” means a share of Operating Profit or Operating Loss, net of amounts distributed (or reserved) as Priority
Distributions. Points shall include both Account Points and
8
Discretionary Points. The aggregate number of Points available for assignment to all Partners with respect to each Plan Year shall be
[ ].
“ Points Award Memo ” means each notice delivered to each Limited Partner setting forth the award of Points to such
Limited Partner.
“ Portfolio Company ” has the meaning ascribed to that term in each of the Fund LP Agreements.
“ Portfolio Investment ” has the meaning ascribed to that term in each of the Fund LP Agreements.
“ Portfolio Investment Gain ” means the income and gains described in section 3.4(a)(i) of the Fund LP Agreement of
ASSF or its equivalent in the Fund LP Agreement of any other Fund.
“ Portfolio Investment Loss ” means the losses and deductions described in section 3.4(a)(ii) of the Fund LP
Agreement of ASSF or its equivalent in the Fund LP Agreement of any other Fund.
“ Priority Distribution ” has the meaning ascribed to that term in Section 7.1(e) .
“ Reference Rate ” means the interest rate announced publicly from time to time by JPMorgan Chase Bank in
New York, New York as such bank’s prime rate.
“ Related Party ” means, with respect to any Limited Partner:
(a) any spouse, child, parent or other lineal descendant of such Limited Partner or such Limited Partner’s
parent, or any natural Person who occupies the same principal residence as the Limited Partner;
(b) any trust or estate in which the Limited Partner and any Related Party or Related Parties of such Limited
Partner (other than such trust or estate) collectively have more than 80 percent of the beneficial interests (excluding
contingent and charitable interests);
(c) any entity of which the Limited Partner and any Related Party or Related Parties (other than such entity)
of such Limited Partner collectively are beneficial owners of more than 80 percent of the equity interest; and
(d) any Person with respect to whom such Limited Partner is a Related Party.
“ Required Voting Partners ” means, at any time, at least a majority by number of Limited Partners who are Voting
Partners at such time.
9
“ Reserved Team Points ” means [ ] Points, [ ] of which shall be Account Points and [ ] of which shall be
Discretionary Points; provided , that, the Administrative Committee, in its discretion, may increase the amount of Account Points
outstanding at any time and from time to time by up to 10%, in which case the number of Discretionary Points outstanding shall be
correspondingly reduced for so long as such additional Account Points remain outstanding.
“ Restrictive Covenants ” means the restrictive covenants contained or referenced in the admission document or
Points Award Memo of a Limited Partner (as the same may be modified, amended or supplemented from time to time).
“ Retained Amount ” has the meaning ascribed to that term in Section 4.2 .
“ Retired Partner ” means any Limited Partner who has become a retired partner in accordance with or pursuant to
Section 7.2 .
Partner.
“ Retirement Date ” means, with respect to any Limited Partner, the date as of which such Person becomes a Retired
“ Schedule of Partners ” means a schedule to be maintained by the General Partner showing the following information
with respect to each Partner: name, address, date of admission and retirement and required capital contribution.
“ Strategic Partnership ” has the meaning ascribed to that term in Section 9.2 .
“ Tax Obligation ” has the meaning ascribed to that term in Section 4.3(a) .
“ Tax Matters Partner ” means for any taxable year of the Partnership subject to the TEFRA Audit Rules, the General
Partner acting in the capacity of the “tax matters partner” of the Partnership (as such term was defined in section 6231(a)(7) of the
Code under the TEFRA Audit Rules) or such other Person as may be appointed to be the “tax matters partner” by the General
Partner from time to time.
“ Team Member ” means (a) a natural person who provides substantial services to the private equity, natural
resources or credit business of AGM or its Affiliates, (b) a natural person who, following the date hereof, becomes a Retired Partner
and who, on or following the date hereof, held Points in his capacity as a Team Member, or (c) a Related Party of any of the
foregoing. Notwithstanding the foregoing, none of the Founder Partners shall be considered a Team Member.
“ TEFRA Audit Rules ” means Subchapter C of Chapter 63 of the Code (sections 6221 through 6234 of the Code), as
enacted by the United States Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324, as amended from
time to time, and the Treasury Regulations (whether proposed, temporary or final), including any subsequent amendments and
administrative guidance, promulgated thereunder (or which may be promulgated in the future), together with any similar United
States state, local or non-U.S. law, but excluding the BBA Audit Rules.
10
“ Transfer ” means any direct or indirect sale, exchange, transfer, assignment or other disposition by a Partner of any
or all of his interest in the Partnership (whether respecting, for example, economic rights only or all the rights associated with the
interest) to another Person, whether voluntary or involuntary.
“ Treasury Regulations ” shall mean the United States Treasury regulations promulgated under the Code.
“ Vested Account Points ” means the Vested Points of any Limited Partner that are Account Points.
“ Vested Points ” means, with respect to each Retired Partner and each Portfolio Investment, the sum of (x) his Points
with respect to such Portfolio Investment, in each case, multiplied by (y) the Vesting Percentage applicable to each such Point as of
his Retirement Date.
“ Vesting Commencement Date ” means, with respect to each Limited Partner other than APH, the commencement
date of the vesting period with respect to each Point assigned to such Limited Partner, which, unless otherwise specified by the
General Partner in a Points Award Memo, shall be (a) with respect to Account Points, the later of (i) the date of such Limited
Partner’s admission to the Partnership, (ii) the date of the closing of the Fund’s first Portfolio Investment, as determined by the
General Partner (which, for the avoidance of doubt, may be a date proceeding or following the date on which such Limited Partner
was admitted to the Partnership) and (iii) if such Account Points are additional to Account Points previously allocated to such
Limited Partner, a date specified by the General Partner in a Points Award Memo, and (b) with respect to each Discretionary Point,
July 1 of the Plan Year to which such Discretionary Point relates.
“ Vesting Percentage ” means, with respect to any Retired Partner: [ ].
“ Voting Affiliated Feeder Fund ” has the meaning ascribed to such term in each of the Fund LP Agreements.
“ Voting Partner ” means each individual set forth on Exhibit A , so long as he has not become a Retired Partner. All
references herein to a Voting Partner (except in the definition of Required Voting Partners) shall be construed as referring
collectively to such Voting Partner and to each Related Party of such Voting Partner that is or that previously was a Limited Partner
(unless such Limited Partner is a Retired Partner), except to the extent that the General Partner determines in good faith that the
context does not require such interpretation as between such Voting Partner and his Related Parties.
ARTICLE II
FORMATION AND ORGANIZATION
Section 2.1 Formation .
The Partnership was formed and is hereby continued as a limited partnership under and pursuant to the Act. The
Certificate was filed on February 23, 2016. The General Partner shall execute, acknowledge and file any amendments to the
Certificate as may be required by the Act and any other instruments, documents and certificates which, in the opinion of the
Partnership’s legal counsel, may from time to time be required by the laws of the United States of America, the State of Delaware or
any other jurisdiction in which the Partnership shall determine to do business, or any political subdivision or agency thereof, or
which such legal counsel may deem necessary or appropriate to effectuate, implement and continue the valid and subsisting
existence and business of the Partnership.
Section 2.2 Name .
The name of the Partnership shall be “Apollo Special Situations Advisors, L.P.” or such other name as the General
Partner hereafter may adopt upon causing an appropriate amendment to be made to this Agreement and to the Certificate to be filed
in accordance with the Act. Promptly thereafter, the General Partner shall send notice thereof to each Limited Partner.
Section 2.3 Offices .
such place or places as the General Partner may from time to time determine.
(a) The Partnership shall maintain its principal office, and may maintain one or more additional offices, at
(b) The General Partner shall arrange for the Partnership to have and maintain in the State of Delaware, at
the expense of the Partnership, a registered office and registered agent for service of process on the Partnership as required by the
Act.
11
Section 2.4 Term of Partnership .
or the earlier of:
(a) The term of the Partnership shall continue until the dissolution (without continuation) of all of the Funds
accordance with the Act;
(i) at any time there are no Limited Partners, unless the business of the Partnership is continued in
(ii) any event that results in the General Partner ceasing to be a general partner of the Partnership
under the Act, provided , that the Partnership shall not be dissolved and required to be wound up in connection with any such
event if (A) at the time of the occurrence of such event there is at least one remaining general partner of the Partnership who
is hereby authorized to and does carry on the business of the Partnership, or (B) within 90 days after the occurrence of such
event, a majority of the Limited Partners agree in writing or vote to continue the business of the Partnership and to the
appointment, effective as of the date of such event, if required, of one or more additional general partners of the Partnership;
and
(iii) the entry of a decree of judicial dissolution under section 17-802 of the Act.
(b) The parties agree that irreparable damage would be done to the goodwill and reputation of the Partners
if any Limited Partner should bring an action to dissolve the Partnership. Care has been taken in this Agreement to provide for fair
and just payment in liquidation of the interests of all Partners. Accordingly, to the fullest extent permitted by law, each Limited
Partner hereby waives and renounces his right to such a decree of dissolution or to seek the appointment of a liquidator for the
Partnership, except as provided herein.
Section 2.5 Purpose of the Partnership .
The principal purpose of the Partnership is to act as the sole general partner or as the managing general partner (as the
case may be) of each of the Funds and certain Voting Affiliated Feeder Funds pursuant to their respective Fund LP Agreements or
governing documents of such Voting Affiliated Feeder Funds and to undertake such related and incidental activities and execute and
deliver such related documents necessary or incidental thereto. The purpose of the Partnership shall be limited to serving as a general
partner of certain of the Funds, including any of their Affiliates, and the provision of investment management and advisory services.
Section 2.6 Actions by Partnership .
The Partnership may execute, deliver and perform, and the General Partner may execute and deliver, all contracts,
agreements and other undertakings, and engage in all activities and transactions as may in the opinion of the General Partner be
necessary or advisable to carry out the objects and purposes of the Partnership, without the approval or vote of any Limited Partner.
Section 2.7 Admission of Limited Partners .
On the date hereof, the Persons whose names are set forth in the Schedule of Partners under the caption “Limited
Partners” shall be admitted to the Partnership or shall continue, as the case may be, as limited partners of the Partnership upon their
execution of a counterpart of this Agreement or such other instrument evidencing, to the satisfaction of the General Partner, such
Limited Partner’s intent to become a Limited Partner. Additional Limited Partners may be admitted to the Partnership in accordance
with Section 6.1 .
Section 2.8 Points; Plan Years .
represented by two types of Points to be allocated to Limited Partners: Account Points and Discretionary Points.
(a) A Limited Partner’s right to participate in the Operating Profits and Operating Losses shall be
(i) “ Account Points ” shall relate to all Portfolio Investments that are consummated on or after, or
appreciation of Portfolio Investments that are outstanding at, the date such Account Points are awarded. Each Account Point
shall provide the right to participate in the Operating Profits and Operating Losses related to the Fund’s Portfolio Investments
arising after the date such Account Point was awarded, irrespective of the Plan Year in which the underlying Portfolio
Investments were made.
(ii) “ Discretionary Points ” shall be awarded on a Plan Year-by-Plan Year basis and relate to all
Portfolio Investments consummated during the applicable Plan Year. Each Discretionary Point shall provide the right to
participate in the Operating Profit or Operating Loss related to the Fund’s Portfolio Investments consummated in the
applicable Plan Year. Discretionary Points shall be allocated at the direction of the Administrative Committee, subject to the
approval of the Executive Committee, at the end of each Plan Year.
(b) A Limited Partner’s Points with respect to any Portfolio Investment shall equal the sum of (i) such
Limited Partner’s Account Points at the time such Portfolio Investment is consummated, if any, and (ii) such Limited Partner’s
Discretionary Points with respect to the Plan Year in which such Portfolio Investment was consummated, if any. If the General
Partner determines in its sole discretion that a Portfolio Investment is an additional or follow-on investment that relates to a pre-
existing Portfolio Investment, the General Partner may, in its sole discretion, elect to treat such additional or follow-on investment as
part of the initial Portfolio Investment to which it relates (in which case, participation in the Operating Profits and Operating Losses
with respect thereto shall be determined in accordance with the Points of the Limited Partners with respect to such initial Portfolio
Investment) or may elect to treat such additional or follow-on investment as a separate Portfolio Investment (in which case,
participation in the Operating Profits and Operating Losses with respect thereto shall be determined in accordance with the Points of
the Limited Partners with respect to the Plan Year in which such additional or follow-on investment is made). The General Partner’s
determinations with respect to follow-on investments shall be final and binding on the Partnership and all of its Partners. Except as
otherwise determined by the General Partner, Reserved Team Points shall be allocated to APH at any time that they are not allocated
to a Team Member.
(c) Notwithstanding any other provision of this Agreement, the General Partner shall establish a special
notional or bookkeeping account for each Limited Partner to provide for the equitable disposition or adjustment of the allocation of
Operating Profit and Operating Losses such that the Partners ultimately receive distributions and bear any Clawback Payments in a
manner that the General Partner in good faith determines to equitably reflect their respective Points relating to the relevant Portfolio
Investments giving rise to such Operating Profit or Operating Loss notwithstanding any aggregating effects of the distribution
provisions of Fund LP Agreements. The General Partner’s determinations with respect to such allocations shall be final and binding
on the Partnership and all of its Partners.
Section 3.1 Contributions to Capital .
ARTICLE III
CAPITAL
(a) Subject to the remaining provisions of this Section 3.1 , (i) any required contribution of a Limited
Partner to the capital of the Partnership shall be as set forth in the Schedule of Partners, and (ii) any such contributions to the capital
of the Partnership shall be made as of the date of admission of such Limited Partner as a limited partner of the Partnership and as of
each such other date as may be specified by the General Partner. Except as otherwise permitted by the General Partner, all
contributions to the capital of the Partnership by each Limited Partner shall be payable exclusively in cash.
Partnership meets its obligations to make contributions of capital to each of the Funds.
(b) APH shall make capital contributions from time to time to the extent necessary to ensure that the
(c) No Partner shall be obligated, nor shall any Partner have any right, to make any contribution to the
capital of the Partnership other than as specified in this Section 3.1 . No Limited Partner shall be obligated to restore any deficit
balance in his Capital Account.
(d) To the extent, if any, that at the time of the Final Distribution, it is determined that the Partnership, as a
general partner of each of the Funds, is required to make any Clawback Payment with respect to any of the Funds, each Limited
Partner shall be required to participate in such payment and contribute to the Partnership for ultimate distribution to the limited
partners of the relevant Fund an amount equal to such Limited Partner’s Clawback Share of any Clawback Payment, but not in any
event in excess of the cumulative amount theretofore distributed to such Limited Partner with respect to the Operating Profit
attributable to such Fund. Any such obligation shall first be satisfied by application of the Retained Amount and each Limited
Partner shall be obligated to return amounts actually distributed to such Limited Partner only after his or her share of the Retained
Amount has been exhausted. For purposes of determining each Limited Partner’s required contribution, each Limited Partner’s
allocable share of any Escrow Account and each Limited Partner’s allocable share of the Retained Amount, to the extent applied to
satisfy any portion of a Clawback Payment, shall be treated as if it had been distributed to such Limited Partner and re-contributed
by such Limited Partner pursuant to this Section 3.1(d) at the time of such application.
Section 3.2 Rights of Partners in Capital .
(a) No Partner shall be entitled to interest on his capital contributions to the Partnership.
(b) No Partner shall have the right to distributions or the return of any contribution to the capital of the
Partnership except (i) for distributions in accordance with Section 4.1 , or (ii) upon dissolution of the Partnership. The entitlement to
any such return at such time shall be limited to the value of the Capital Account of the Partner. The General Partner shall not be
liable for the return of any such amounts.
Section 3.3 Capital Accounts .
(a) The Partnership shall maintain for each Partner a separate Capital Account.
value of any securities or other property constituting such Partner’s initial contribution to the capital of the Partnership.
(b) Each Partner’s Capital Account shall have an initial balance equal to the amount of cash and the net
(c) Each Partner’s Capital Account shall be increased by the sum of:
contributions by such Partner to the capital of the Partnership permitted pursuant to Section 3.1 , plus
(i) the amount of cash and the net value of any securities or other property constituting additional
(ii) in the case of APH, any Capital Profit allocated to such Partner’s Capital Account pursuant to
Section 3.4 , plus
Section 3.4 , plus
(iii) the portion of any Operating Profit allocated to such Partner’s Capital Account pursuant to
(iv) such Partner’s allocable share of any decreases in any reserves recorded by the Partnership
pursuant to Section 3.6 and any receipts determined to be applicable to a prior period pursuant to Section 3.6(b) , to the
extent the General Partner determines that, pursuant to any provision of this Agreement, such item is to be credited to such
Partner’s Capital Account on a basis which is not in accordance with the current respective Points of all Partners with respect
to the applicable Portfolio Investment, plus
(v) such Partner’s allocable share of any increase in Book-Tax Difference.
(d) Each Partner’s Capital Account shall be reduced by the sum of (without duplication):
(i) in the case of APH, any Capital Loss allocated to such Partner’s Capital Account pursuant to
Section 3.4 , plus
Section 3.4 , plus
(ii) the portion of any Operating Loss allocated to such Partner’s Capital Account pursuant to
(iii) the amount of any cash and the net value of any property distributed to such Partner pursuant to
Section 4.1 or Section 8.1 including any amount deducted pursuant to Section 4.3 or Section 5.4 from any such amount
distributed, plus
(iv) any withholding taxes or other items payable by the Partnership and allocated to such Partner
pursuant to Section 5.4(b) , any increases in any reserves recorded by the Partnership pursuant to Section 3.6 and any
payments determined to be applicable to a prior period pursuant to Section 3.6(b) , to the extent the General Partner
determines that, pursuant to any provision of this Agreement, such item is to be charged to such Partner’s Capital Account on
a basis which is not in accordance with the current respective Points of all Partners with respect to the applicable Portfolio
Investment, plus
(v) such Partner’s allocable share of any decrease in Book-Tax Difference.
(e) If securities and/or other property are to be distributed in kind to the Partners or Retired Partners,
including in connection with a liquidation pursuant to Section 8.1 , they shall first be written up or down to their fair market value as
of the date of such distribution, thus creating gain or loss for the Partnership, and the value of the securities and/or other property
received by each Partner and each Retired Partner as so determined shall be debited against such Person’s Capital Account at the
time of distribution.
Section 3.4 Allocation of Profit and Loss .
(a) Capital Profit and Operating Profit or Capital Loss and Operating Loss for any Fiscal Year shall be
allocated to the Partners so as to produce Capital Accounts (computed after taking into account any other Capital Profit and
Operating Profit or Capital Loss and Operating Loss for the Fiscal Year in which such event occurred and all distributions pursuant
to Article IV with respect to such Fiscal Year and after adding back each Partner’s share, if any, of Partner Nonrecourse Debt
Minimum Gain, as defined in Treasury Regulations sections 1.704 - 2(b)(2) and 1.704 - 2(i), or Partnership Minimum Gain, as
defined in Treasury Regulations sections 1.704 - 2(b)(2) and 1.704 - 2(d)) for the Partners such that a distribution of an amount of
cash equal to such Capital Account balances in accordance with such Capital Account balances would be in the amounts, sequence
and priority set forth in Article IV ; provided , that the General Partner may allocate Operating Profit and Operating Loss and items
thereof in such other manner as it determines in its sole discretion to be appropriate to reflect the Partners’ interests in the
Partnership. Income, gains and loss associated with a Book-Tax Difference shall be allocated to the Limited Partners that are entitled
to a share of such Book-Tax Difference consistent with the account maintained by the General Partner pursuant to the definition of
“Book-Tax Difference” and in the manner in which cash or property associated with such Book-Tax Difference is required to be
distributed pursuant to the proviso of Section 4.1(b)(i) .
(b) To the extent that the allocations of Capital Loss or Operating Loss contemplated by Section 3.4(a)
would cause the Capital Account of any Limited Partner to be less than zero, such Capital Loss or Operating Loss shall to that extent
instead be allocated to and debited against the Capital Account of the General Partner (or, at the direction of the General Partner, to
those Limited Partners who are members of the General Partner in proportion to their limited liability company interests in the
General Partner). Following any such adjustment pursuant to this Section 3.4(b) with respect to any Limited Partner, any Capital
Profit or Operating Profit for any subsequent Fiscal Year which would otherwise be credited to the Capital Account of such Limited
Partner pursuant to Section 3.4(a) shall instead be credited to the Capital Account of the General Partner (or relevant Limited
Partners) until the cumulative amounts so credited to the Capital Account of the General Partner (or relevant Limited Partners) with
respect to such Limited Partner pursuant to this Section 3.4(b) is equal to the cumulative amount debited against the Capital Account
of the General Partner (or relevant Limited Partners) with respect to such Limited Partner pursuant to this Section 3.4(b) .
(c) Each Limited Partner’s rights and entitlements as a Limited Partner are limited to the rights to receive
allocations and distributions of Capital Profit and Operating Profit expressly conferred by this Agreement and any side letter or
similar agreement entered into pursuant to Section 9.3(b) and the other rights expressly conferred by this Agreement and any such
side letter or similar agreement or required by the Act, and a Limited Partner shall not be entitled to any other allocations,
distributions or payments in respect of his interest, or to have or exercise any other rights, privileges or powers.
(d) For purposes of Section 3.4(a) , the General Partner may determine, in its sole discretion, to allocate any
increase in value of the Partnership’s assets pursuant to the definition of “Carrying Value” solely to the Limited Partners that are
entitled to a Catch Up Amount ( pro
rata
based on any method the General Partner determines is reasonable), or to specially allocate
Operating Profit to such Limited Partners, or a combination thereof, until such Limited Partners have received an allocation equal to
the Catch Up Amount.
Section 3.5 Tax Allocations .
(a) For United States federal, state and local income tax purposes, Partnership income, gain, loss, deduction
or credit (or any item thereof) for each Fiscal Year shall be allocated to and among the Partners in order to reflect the allocations of
Capital Profit, Capital Loss, Operating Profit and Operating Loss pursuant to the provisions of Section 3.4 for such Fiscal Year,
taking into account any variation between the adjusted tax basis and book value of Partnership property in accordance with the
principles of section 704(c) of the Code; provided that any taxable income or loss associated with any Book-Tax Difference shall be
allocated for tax purposes in accordance with the principles of section 704(c) of the Code in any such manner (as is permitted under
that section of the Code and the Treasury Regulations promulgated thereunder) as determined by the General Partner in its sole
discretion.
(b) If any Partner or Partners are treated for United States federal income tax purposes as realizing ordinary
income because of receiving interests in the Partnership (whether under section 83 of the Code or under any similar provision of any
law, rule or regulation) and the Partnership is entitled to any offsetting deduction (net of any income realized by the Partnership as a
result of such receipt), the Partnership’s net deduction shall be allocated to and among the Partners in such manner as to offset, as
nearly as possible, the ordinary income realized by such Partner or Partners.
Section 3.6 Reserves; Adjustments for Certain Future Events .
(a) Appropriate reserves may be created, accrued and charged against the Operating Profit or Operating
Loss for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner or as of each
other date as the General Partner deems appropriate, such reserves to be in the amounts which the General Partner deems necessary
or appropriate. The General Partner may increase or reduce any such reserve from time to time by such amounts as the General
Partner deems necessary or appropriate. The amount of any such reserve, or any increase or decrease therein, shall be
proportionately charged or credited, as appropriate, to the Capital Accounts of those parties who are Partners at the time when such
reserve is created, increased or decreased, as the case may be, in proportion to their respective Points with respect to the applicable
Portfolio Investment at such time; provided , that, if any individual reserve item, as adjusted by any increase therein, exceeds the
lesser of $500,000 or one percent of the aggregate value of the Capital Accounts of all such Partners, the amount of such reserve,
increase or decrease shall instead be charged or credited to those Partners who held Points with respect to the applicable Portfolio
Investment at the time, as determined by the General Partner, of the act or omission giving rise to the contingent liability for which
the reserve item was established in proportion to their respective Points with respect to the applicable Portfolio Investment at that
time. The amount of any such reserve charged against the Capital Account of a Partner shall reduce the distributions such Partner
would otherwise be entitled to under Section 4.1 or Section 8.1 hereof; and the amount of any such reserve credited to the Capital
Account of a Partner shall increase the distributions such Partner would otherwise be entitled to under Section 4.1 or Section 8.1
hereof
(b) If at any time an amount is paid or received by the Partnership and such amount exceeds the lesser of
$500,000 or one percent of the aggregate Capital Accounts of all Partners at the time of payment or receipt, and such amount was
not accrued or reserved for but would nevertheless, in accordance with the Partnership’s accounting practices, be treated as
applicable to one or more prior periods, then such amount may be proportionately charged or credited by the General Partner, as
appropriate, to those parties who were Partners during such prior period or periods, based on each such Person’s Points with respect
to the applicable Portfolio Investment for such applicable period.
(c) If any amount is required by Section 3.6(a) or (b) to be credited to a Person who is no longer a Partner,
such amount shall be paid to such Person in cash, with interest from the date on which the General Partner determines that such
credit is required at the Reference Rate in effect on that date. Any amount required to be charged pursuant to Section 3.6(a) or (b)
shall be debited against the current balance in the Capital Account of the affected Partners. To the extent that the aggregate current
Capital Account balances of such affected Partners are insufficient to cover the full amount of the required charge, the deficiency
shall be debited against the Capital Accounts of the other Partners in proportion to their respective Capital Account balances at such
time; provided , that each such other Partner shall be entitled to a preferential allocation, in proportion to and to the extent of such
other Partner’s share of any such deficiency, together with a carrying charge at a rate equal to the Reference Rate, of any Operating
Profit that would otherwise have been allocable after the date of such charge to the Capital Accounts of the affected Partners whose
Capital Accounts were insufficient to cover the full amount of the required charge. In no event shall a current or former Partner be
obligated to satisfy any amount required to be charged pursuant to Section 3.6(a) or (b) other than by means of a debit against such
Partner’s Capital Account.
Section 3.7 Finality and Binding Effect of General Partner’s Determinations . All matters concerning the
determination, valuation and allocation among the Partners with respect to any profit or loss of the Partnership and any associated
items of income, gain, deduction, loss and credit, pursuant to any provision of this Article III , including any accounting procedures
applicable thereto, shall be determined by the General Partner unless specifically and expressly otherwise provided for by the
provisions of this Agreement, and such determinations and allocations shall be final and binding on all the Partners.
Section 3.8 AEOI .
(a) Each Limited Partner:
(i) shall provide, in a timely manner, such information regarding the Limited Partner and its
beneficial owners and/or controlling persons and such forms or documentation as may be requested from time to time by the
General Partner or the Partnership to enable the Partnership to comply with the requirements and obligations imposed on it
pursuant to AEOI and shall update such information as necessary;
(ii) acknowledges that any such forms or documentation provided to the Partnership or its agents
pursuant to clause (i), or any financial or account information with respect to the Limited Partner’s investment in the
Partnership, may be disclosed to any Governmental Authority which collects information in accordance with AEOI and to
any withholding agent where the provision of that information is required by such agent to avoid the application of any
withholding tax on any payments to the Partnership;
(iii) shall waive, and/or shall cooperate with the Partnership to obtain a waiver of, the provisions of
any law which prohibits the disclosure by the Partnership, or by any of its agents, of the information or documentation
requested from the Limited Partner pursuant to clause (i), prohibits the reporting of financial or account information by the
Partnership or its agents required pursuant to AEOI or otherwise prevents compliance by the Partnership with its obligations
under AEOI;
(iv) acknowledges that, if it provides information and documentation that is in anyway misleading,
or it fails to provide and/or update the Partnership or its agents with the requested information and documentation necessary,
in either case, to satisfy the Partnership’s obligations under AEOI, the Partnership may (whether or not such action or
inaction leads to compliance failures by the Partnership, or a risk of the Partnership or its investors being subject to
withholding tax or other penalties under AEOI) take any action and/or pursue all remedies at its disposal, including
compulsory withdrawal of the Limited Partner, and may hold back from any withdrawal proceeds, or deduct from the
Limited Partner’s Capital Account, any liabilities, costs, expenses or taxes caused (directly or indirectly) by the Limited
Partner’s action or inaction; and
a result of actions taken or remedies pursued by or on behalf of the Partnership in order to comply with AEOI.
(v) shall have no claim against the Partnership, or its agents, for any form of damages or liability as
(b) The Limited Partner hereby indemnifies the General Partner and the Partnership and each of their
respective partners, members, managers, officers, directors, employees and agents and holds them harmless from and against any
AEOI-related liability, action, proceeding, claim, demand, costs, damages, expenses (including legal expenses), penalties or taxes
whatsoever which such Person may incur as a result of any action or inaction (directly or indirectly) of such Limited Partner (or any
Related Party) described in Section 3.8(a)(i) through (iv) . This indemnification shall survive the Limited Partner’s death or
disposition of its interests in the Partnership.
Section 3.9 Alternative GP Vehicles . If the General Partner determines that for legal, tax, regulatory or other
reasons (a) any investment or other activities of the Fund should be conducted through one or more parallel funds or other alternative
investment vehicles as contemplated by the Fund LP Agreement, (b) any of such separate entities comprising the Fund should be
managed or controlled by one or more separate entities serving as a general partner or in a similar capacity (each, an “ Alternative
GP Vehicle ”), and (c) some or all of the Partners should participate through any such Alternative GP Vehicle, the General Partner
may require any or all of the Partners, as determined by the General Partner, to participate directly or indirectly through any such
Alternative GP Vehicle and to undertake such related and incidental activities and execute and deliver such related documents
necessary or incidental thereto with and/or in lieu of the Partnership, and the General Partner shall have all necessary authority to
implement such Alternative GP Vehicle; provided , that to the maximum extent practicable and subject to applicable legal, tax,
regulatory or similar technical reasons, each Partner shall have the same economic interest in all material respects in an Alternative
GP Vehicle formed pursuant to this Section 3.9 as such Partner would have had if it had participated in all Portfolio Investments
through the Partnership, and the terms of such Alternative GP Vehicle shall be substantially the same in all material respects to those
of the Partnership and this Agreement. Each Partner shall take such actions and execute such documents as the General Partner
determines are reasonably needed to accomplish the foregoing.
ARTICLE IV
DISTRIBUTIONS
Section 4.1 Distributions .
(a) Any amount of cash or property received as a distribution from any of the Funds by the Partnership in
its capacity as a partner, to the extent such amount is determined by reference to the capital commitment of the Partnership in, or the
capital contributions of the Partnership to, any of the Funds, shall be promptly distributed by the Partnership to APH.
(b) The General Partner shall use reasonable efforts to cause the Partnership to distribute, as promptly as
practicable after receipt by the Partnership, any available cash or property attributable to items included in the determination of
Operating Profit and Book-Tax Difference, subject to the provisions of section 10.3 of the Fund LP Agreement of ASSF or its
equivalent in the Fund LP Agreement of any other Fund and subject to the retention of such reserves as the General Partner
considers appropriate for purposes of the prudent and efficient financial operation of the Partnership’s business including in
accordance with Section 3.6 . Any such distributions (before adjustment for Retained Amounts) shall be made to Partners in
proportion to their respective Points with respect to such Portfolio Investment relates, determined:
(i) in the case of any amount of cash or property received from any of the Funds that is attributable
to the disposition of a Portfolio Investment by such Fund, as of the date of such disposition by such Fund; provided ,
however , that any cash or other property that the General Partner determines is attributable to a Book-Tax Difference shall
be distributed to the Limited Partners that are entitled to a share of such Book-Tax Difference pursuant to the definition of
“Book-Tax Difference,” with any such distribution to be in the proportion that each such Limited Partner’s allocated share of
the applicable Book-Tax Difference bears to the total Book-Tax Difference of the asset giving rise to the cash or property;
(ii) in any other case, as of the date of receipt of such cash or property by the Partnership.
Notwithstanding the foregoing, the General Partner shall retain from the distribution amount apportioned to each Limited Partner
other than APH any Retained Amount with respect to such Limited Partner, determined in accordance with Section 4.2 . Any such
Retained Amount shall be maintained in accordance with Section 4.2 .
(c) Any distributions or payments in respect of the interests of Limited Partners unrelated to Capital Profit,
Operating Profit or Book-Tax Difference shall be made at such time, in such manner and to such Limited Partners as the General
Partner shall determine.
(d) (%3) Except as the General Partner otherwise may determine, any Limited Partner whose admission
to the Partnership or receipt of additional Points causes an adjustment to Carrying Values pursuant to the definition of “Carrying
Value” (a “ Newly-Admitted Limited Partner ”) shall have the right to receive a special distribution of the Catch Up Amount (before
adjustment for Retained Amounts).
(i) Any such special distribution of the Catch Up Amount shall be in addition to the distributions to
which the Newly-Admitted Limited Partner is entitled pursuant to Section 4.1(b)(ii) and shall be made to the Newly-
Admitted Limited Partner (or, if there is more than one such Newly-Admitted Limited Partner, pro
rata
to all such Newly-
Admitted Limited Partners based on the aggregate amount of such distributions each such Newly-Admitted Limited Partner
has not yet received), after the distribution of any amounts attributable to Book-Tax Differences pursuant to the proviso of
Section 4.1(b)(ii) , from amounts otherwise distributable to the other Limited Partners to whom or from whom the Points
allocated to such Newly-Admitted Limited Partner(s) were reallocated, and shall reduce the amounts distributable to such
other Limited Partners pursuant to Section 4.1(b)(ii) , until each applicable Newly-Admitted Limited Partner has received an
amount equal to the applicable Catch Up Amount (before adjustment for Retained Amounts).
(ii) The General Partner may determine to provide for a special distribution of a Catch Up Amount
in connection with a reallocation of Points pursuant to Article VII other than in connection with the admission to the
Partnership of a Newly-Admitted Limited Partner if the General Partner reasonably believes such an adjustment to Carrying
Values is required in order for the reallocated Points to be treated as profits interests for United States federal income tax
purposes or would otherwise be equitable under the circumstances.
(iii) Any reallocation of Points to a Limited Partner who is not a Newly-Admitted Limited Partner
pursuant to Article VII shall include the right to receive any Catch Up Amount associated with such Points, except to the
extent that the General Partner determines that the inclusion of such right would be inconsistent with the treatment of the
reallocation of Points to such Limited Partner as a “profits interest” for income tax purposes.
Section 4.2 Retained Amounts .
Notwithstanding anything to the contrary herein and without limitation to (and in addition to) Escrow Accounts, the
General Partner shall retain the Retained Amount from each distribution amount apportioned to each Limited Partner (other than
APH). The “ Retained Amount ” shall mean an amount equal to 5% of the total distributions to which such Limited Partner is
otherwise entitled under to Section 4.1(b) , or such other amount as determined by the General Partner in its discretion from time to
time and on a Limited Partner-by-Limited Partner basis to be reasonable to ensure that an appropriate amount is held back to satisfy
any potential Clawback Payments. The Retained Amount shall be deposited and maintained in a bank account in the name of the
Partnership and invested in cash or cash equivalents. Any interest earned with respect to the Retained Amount shall be for the benefit
of the Limited Partners and allocated to them in proportion to the amount held back with respect to each of them. In the event that
any Clawback Payment of the applicable Limited Partner arises, any Retained Amount in respect of such Limited Partner shall be
used toward the satisfaction thereof. Upon a determination by the General Partner that circumstances no longer require the retention
of all or any portion of the Retained Amount, such amount (including any interest earned thereon), shall be distributed to the
applicable Limited Partners.
Section 4.3 Withholding of Certain Amounts .
(a) If the Partnership incurs a withholding or other tax obligation (a “ Tax Obligation ”) with respect to the
share of Partnership income allocable to any Partner (including pursuant to section 6225 of the BBA Audit Rules), then the General
Partner, without limitation of any other rights of the Partnership, may cause the amount of such Tax Obligation to be debited against
the Capital Account of such Partner when the Partnership pays such Tax Obligation, and any amounts then or thereafter distributable
to such Partner shall be reduced by the amount of such taxes. If the amount of such taxes is greater than any such then distributable
amounts, then such Partner and any successor to such Partner’s interest shall indemnify and hold harmless the Partnership and the
General Partner against, and shall pay to the Partnership as a contribution to the capital of the Partnership, upon demand of the
General Partner, the amount of such excess.
(b) If a Tax Obligation is required to be paid by the Partnership (including with respect to a tax liability
imposed under section 6225 of the BBA Audit Rules) and the General Partner determines that such amount is allocable to the
interest in the Partnership of a Person that is at such time a Partner, such Tax Obligation shall be treated as being made on behalf of
or with respect to such Partner for purposes of this Section 4.3(b) whether or not the tax in question applies to a taxable period of the
Partnership during which such Partner held an interest in the Partnership. To the extent that any liability with respect to a Tax
Obligation (including a liability imposed under section 6225 of the BBA Audit Rules) relates to a former Partner that has transferred
all or a part of its interest in the Partnership, such former Partner (which in the case of a partial Transfer shall include a continuing
Partner with respect to the portion of its interests in the Partnership so transferred) shall indemnify the Partnership for its allocable
portion of such liability, unless otherwise agreed to by the General Partner in writing. Each Partner acknowledges that,
notwithstanding the Transfer of all or any portion of its interest in the Partnership, it may remain liable, pursuant to this
Section 4.3(b) , for tax liabilities with respect to its allocable share of income and gain of the Partnership for the Partnership’s
taxable years (or portions thereof) prior to such Transfer, as applicable (including any such liabilities imposed under section 6225 of
the BBA Audit Rules).
(c) The General Partner may withhold from any distribution to any Limited Partner pursuant to this
Agreement any other amounts due from such Limited Partner or a Related Party (without duplication) to the Partnership or to any
other Affiliate of AGM pursuant to any binding agreement or published policy to the extent not otherwise paid. Any amounts so
withheld shall be applied by the General Partner to discharge the obligation in respect of which such amounts were withheld.
Section 4.4 Limitation on Distributions .
Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner
on behalf of the Partnership, shall not make a distribution to any Partner on account of his interest in the Partnership if such
distribution would violate the Act or other applicable law.
Section 4.5 Distributions in Excess of Basis .
Notwithstanding anything in this Agreement to the contrary, the General Partner may refrain from making, at any
time prior to the dissolution of the Partnership, all or any portion of any cash distribution that otherwise would be made to a Partner
or Retired Partner, if such distribution would exceed such Person’s United States federal income tax basis in the Partnership. Any
amount that is not distributed to a Partner or Retired Partner due to the preceding sentence, as determined by the General Partner,
either shall be retained by the Partnership on such Person’s behalf or loaned to such Person. Subject to the first sentence of this
Section 4.5 , 100% of any or all subsequent cash distributions shall be distributed to such Person (or, if there is more than one such
Person, pro
rata
to all such Persons based on the aggregate amount of distributions each such Person has not yet received) until each
such Person has received the same aggregate amount of distributions such Person would have received had distributions to such
Person not been deferred pursuant to this Section 4.5 . If any amount is loaned to a Partner or Retired Partner pursuant to this
Section 4.5 , (a) any amount thereafter distributed to such Person shall be applied to repay the principal amount of such loan, and
(b) interest, if any, accrued or received by the Partnership on such loan shall be allocated and distributed to such Person. Any such
loan shall be repaid no later than immediately prior to the liquidation of the Partnership. Until such repayment, for purposes of any
determination hereunder based on amounts distributed to a Person, the principal amount of such loan shall be treated as having been
distributed to such Person.
Section 5.1 Rights and Powers of the General Partner .
ARTICLE V
MANAGEMENT
(a) Subject to the terms and conditions of this Agreement, the General Partner shall have complete and
exclusive responsibility (i) for all management decisions to be made on behalf of the Partnership, and (ii) for the conduct of the
business and affairs of the Partnership, including all such decisions and all such business and affairs to be made or conducted by the
Partnership in its capacity as Fund General Partner of any of the Funds and the general partner of certain Voting Affiliated Feeder
Funds.
(b) Without limiting the generality of the foregoing, the General Partner shall have full power and authority
to execute, deliver and perform such contracts, agreements and other undertakings, and to engage in all activities and transactions, as
it may deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Section 5.1 ,
including, without in any manner limiting the generality of the foregoing, contracts, agreements, undertakings and transactions with
any Partner or with any other Person having any business, financial or other relationship with any Partner or Partners; provided , that
the General Partner shall not have authority to cause the Partnership to borrow any funds for its own account on a secured basis
without the consent of the Required Voting Partners. The Partnership, and the General Partner on behalf of the Partnership, may
enter into and perform the Fund LP Agreements, any governing documents of the Voting Affiliated Feeder Funds and any
documents contemplated thereby or related thereto and (subject to any vote requirement in Section 5.2(d)(iv) ) any amendments
thereto, without any further act, vote or approval of any Person, including any Partner, notwithstanding any other provision of this
Agreement. The General Partner is hereby authorized to enter into the documents described in the preceding sentence on behalf of
the Partnership, but such authorization shall not be deemed a restriction on the power of the General Partner to enter into other
documents on behalf of the Partnership. Except as otherwise expressly provided herein or as required by law, all powers and
authority vested in the General Partner by or pursuant to this Agreement or the Act shall be construed as being exercisable by the
General Partner in its sole and absolute discretion.
(c) With respect to all taxable years to which the TEFRA Audit Rules apply, the Tax Matters Partner shall
be permitted to take any and all actions under the TEFRA Audit Rules (including making or revoking all applicable tax elections)
and shall have any powers necessary to perform fully in such capacity, in consultation with the General Partner if the General
Partner is not the Tax Matters Partner. With respect to all taxable years to which the BBA Audit Rules apply, the Partnership
Representative shall be permitted to take any and all actions under the BBA Audit Rules (including making or revoking the election
referred to in section 6226 of the BBA Audit Rules and all other applicable tax elections) and to act as the Partnership
Representative thereunder, and shall have any powers necessary to perform fully in such capacity, in consultation with the General
Partner if the General Partner is not the Partnership Representative. The General Partner shall (or shall cause another Applicable Tax
Representative to) promptly inform the Limited Partners of any tax deficiencies assessed or proposed to be assessed (of which an
Applicable Tax Representative or the General Partner is actually aware) by any taxing authority against the Partnership or the
Limited Partners. Notwithstanding anything to the contrary contained herein, the acts of the General Partner (and with respect to
applicable tax matters, any other Applicable Tax Representative) in carrying on the business of the Partnership as authorized herein
shall bind the Partnership. Each Partner shall upon request supply the information necessary to properly give effect to any elections
described in this Section 5.1(c) or to otherwise enable an Applicable Tax Representative to implement the provisions of this
Section 5.1(c) (including filing tax returns, defending tax audits or other similar proceedings and conducting tax planning). The
Limited Partners agree to reasonably cooperate with the Partnership or General Partner, and undertake any action reasonably
requested by the Partnership or the General Partner, in connection with any elections made by the Applicable Tax Representative or
as determined to be reasonably necessary by the Applicable Tax Representative under the BBA Audit Rules.
(d) Each Partner agrees not to treat, on his United States federal income tax return or in any claim for a
refund, any item of income, gain, loss, deduction or credit in a manner inconsistent with the treatment of such item by the
Partnership. The General Partner shall have the exclusive authority to make any elections required or permitted to be made by the
Partnership under any provisions of the Code or any other law.
Section 5.2 Delegation of Duties .
powers and authority vested in it hereunder on such terms and conditions as it may consider appropriate.
(a) Subject to Section 5.1 , the General Partner may delegate to any Person or Persons any of the duties,
(b) Without limiting the generality of Section 5.2(a) , the General Partner shall have the power and
authority to appoint any Person, including any Person who is a Limited Partner, to provide services to and act as an employee or
agent of the Partnership and/or General Partner, with such titles and duties as may be specified by the General Partner. Any Person
appointed by the General Partner to serve as an employee or agent of the Partnership shall be subject to removal at any time by the
General Partner; and shall report to and consult with the General Partner at such times and in such manner as the General Partner
may direct.
(c) Any Person who is a Limited Partner and to whom the General Partner delegates any of its duties
pursuant to this Section 5.2 or any other provision of this Agreement shall be subject to the same standard of care, and shall be
entitled to the same rights of indemnification and exoneration, applicable to the General Partner under and pursuant to Section 5.7 ,
unless such Person and the General Partner mutually agree to a different standard of care or right to indemnification and exoneration
to which such Person shall be subject.
following matters shall be taken only in accordance with the directions of the Required Voting Partners:
(d) Except as otherwise expressly provided herein, action by the General Partner with respect to any of the
of the Partnership;
(i) the exercise of the Partnership’s authority to borrow any funds on a secured basis for the account
(ii) the determination of whether to conduct a business other than serving as a general partner of
private equity funds;
(iii) the amendment of this Agreement, and the exercise of the authority of the Partnership with
respect to the approval of any amendment to the Fund LP Agreement, in each case, that adversely affects, obligations, rights
or economic interests of Team Members; and
(iv) to the fullest extent permitted by law, the voluntary dissolution of the Partnership, and the
exercise of the authority of the Partnership to cause a voluntary dissolution of any of the Funds other than in connection with
an Event of Dissolution (as defined in the applicable Fund LP Agreement) of the Funds.
The foregoing shall not restrict the General Partner from delegating authority to execute or implement any such determinations made
by the General Partner.
(e) The General Partner shall be permitted to designate one or more committees of the Partnership which
committees may include Limited Partners as members. Any such committees shall have such powers and authority granted by the
General Partner. Any Limited Partner who has agreed to serve on a committee shall not be deemed to have the power to bind or act
for or on behalf of the Partnership in any manner and in no event shall a member of a committee be considered a general partner of
the Partnership by agreement, estoppel or otherwise or be deemed to participate in the control of the business of the Partnership as a
result of the performance of his duties hereunder or otherwise.
Manager, which arrangement shall require the Investment Manager to pay all costs and expenses of the Partnership.
(f) The General Partner shall cause the Partnership to enter into an arrangement with the Investment
(g) The General Partner hereby designates the Investment Manager to serve as the investment adviser to the
Funds pursuant to investment management agreements entered into by and among the Partnership (or other general partners of the
Funds), the Investment Manager and the Funds.
Section 5.3 Transactions with Affiliates .
To the fullest extent permitted by applicable law, the General Partner (or any Affiliate of the General Partner), when
acting on behalf of the Partnership, is hereby authorized to (a) purchase property from, sell property to, lend money to or otherwise
deal with any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of any of the foregoing Persons, and
(b) obtain services from any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of the foregoing
Persons.
Section 5.4 Expenses .
the General Partner for, all costs and expenses arising in connection with the organization and operations of the Partnership.
(a) Subject to the arrangement contemplated by Section 5.2(f) , the Partnership shall pay, or shall reimburse
(b) Any withholding taxes payable by the Partnership, to the extent determined by the General Partner to
have been paid or withheld on behalf of, or by reason of particular circumstances applicable to, one or more but fewer than all of the
Partners, shall be allocated among and debited against the Capital Accounts of only those Partners on whose behalf such payments
are made or whose particular circumstances gave rise to such payments in accordance with Section 4.3 .
Section 5.5 Rights of Limited Partners .
(a) Limited Partners shall have no right to take part in the management or control of the Partnership’s
business, nor shall they have any right or authority to act for the Partnership or to vote on matters other than as set forth in this
Agreement or as required by applicable law.
(b) Without limiting the generality of the foregoing, the General Partner shall have the full and exclusive
authority, without the consent of any Limited Partner, to compromise the obligation of any Limited Partner to make a capital
contribution or to return money or other property paid or distributed to such Limited Partner in violation of the Act.
behalf of the Partnership as an agent or in any other capacity, except for any amounts payable in accordance with this Agreement.
(c) Nothing in this Agreement shall entitle any Partner to any compensation for services rendered to or on
(d) Subject to the Fund LP Agreements and to full compliance with AGM’s code of ethics and other written
policies relating to personal investment transactions, membership in the Partnership shall not prohibit a Limited Partner from
purchasing or selling as a passive investor any interest in any asset.
Section 5.6 Other Activities of General Partner . Nothing in this Agreement shall prohibit the General Partner from
engaging in any activity other than acting as General Partner hereunder.
Section 5.7 Duty of Care; Indemnification .
(a) The General Partner (including, without limitation, for this purpose each former and present director,
officer, manager, member, employee and stockholder of the General Partner), the Tax Matters Partner, the Partnership
Representative and each Limited Partner (including any former Limited Partner) in his capacity as such, and to the extent such
Limited Partner participates, directly or indirectly, in the Partnership’s activities, whether or not a Retired Partner (each, a “ Covered
Person ” and collectively, the “ Covered Persons ”), shall not be liable to the Partnership or to any of the other Partners for any loss,
claim, damage or liability occasioned by any acts or omissions in the performance of his services hereunder, unless it shall ultimately
be determined by final judicial decision from which there is no further right to appeal (a “ Final Adjudication ”) that such loss, claim,
damage or liability is due to an act or omission of a Covered Person (i) made in bad faith or with criminal intent, or (ii) that
adversely affected any Fund and that failed to satisfy the duty of care owed pursuant to the applicable Fund LP Agreement or as
otherwise required by law.
(b) A Covered Person shall be indemnified to the fullest extent permitted by law by the Partnership against
any losses, claims, damages, liabilities and expenses (including attorneys’ fees, judgments, fines, penalties and amounts paid in
settlement) incurred by or imposed upon him by reason of or in connection with any action taken or omitted by such Covered Person
arising out of the Covered Person’s status as a Partner or his activities on behalf of the Partnership, including in connection with any
action, suit, investigation or proceeding before any judicial, administrative, regulatory or legislative body or agency to which it may
be made a party or otherwise involved or with which it shall be threatened by reason of being or having been the General Partner, the
Tax Matters Partner, the Partnership Representative or a Limited Partner or by reason of serving or having served, at the request of
the Partnership in its capacity as Fund General Partner of the Funds, as a director, officer, consultant, advisor, manager, member or
partner of any enterprise in which any of the Funds has or had a financial interest, including Portfolio Companies; provided , that the
Partnership may, but shall not be required to, indemnify a Covered Person with respect to any matter as to which there has been a
Final Adjudication that his acts or his failure to act (i) were in bad faith or with criminal intent, or (ii) were of a nature that makes
indemnification by the Funds unavailable. The right to indemnification granted by this Section 5.7 shall be in addition to any rights
to which a Covered Person may otherwise be entitled and shall inure to the benefit of the successors by operation of law or valid
assigns of such Covered Person. The Partnership shall pay the expenses incurred by a Covered Person in defending a civil or
criminal action, suit, investigation or proceeding in advance of the final disposition of such action, suit, investigation or proceeding,
upon receipt of an undertaking by the Covered Person to repay such payment if there shall be a Final Adjudication that he is not
entitled to indemnification as provided herein. In any suit brought by the Covered Person to enforce a right to indemnification
hereunder it shall be a defense that the Covered Person has not met the applicable standard of conduct set forth in this Section 5.7 ,
and in any suit in the name of the Partnership to recover expenses advanced pursuant to the terms of an undertaking the Partnership
shall be entitled to recover such expenses upon Final Adjudication that the Covered Person has not met the applicable standard of
conduct set forth in this Section 5.7 . In any such suit brought to enforce a right to indemnification or to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the Covered Person is not entitled to be indemnified, or
to an advancement of expenses, shall be on the Partnership (or any Limited Partner acting derivatively or otherwise on behalf of the
Partnership or the Limited Partners). The General Partner may not satisfy any right of indemnity or reimbursement granted in this
Section 5.7 or to which it may be otherwise entitled except out of the assets of the Partnership (including, without limitation,
insurance proceeds and rights pursuant to indemnification agreements), and no Partner shall be personally liable with respect to any
such claim for indemnity or reimbursement. The General Partner may enter into appropriate indemnification agreements and/or
arrangements reflective of the provisions of this Article V and obtain appropriate insurance coverage on behalf and at the expense of
the Partnership to secure the Partnership’s indemnification obligations hereunder and may enter into appropriate indemnification
agreements and/or arrangements reflective of the provisions of this Article V . Each Covered Person shall be deemed a third party
beneficiary (to the extent not a direct party hereto) to this Agreement and, in particular, the provisions of this Article V , and shall be
entitled to the benefit of the indemnity granted to the Partnership by each of the Funds pursuant to the terms of the Fund LP
Agreements.
(c) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or the Partners, the Covered Person shall not be liable to the Partnership or to any
Partner for his good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they
restrict or eliminate the duties and liabilities of a Covered Person otherwise existing at law or in equity to the Partnership or the
Partners, are agreed by the Partners to replace such other duties and liabilities of each such Covered Person.
(d) Notwithstanding any of the foregoing provisions of this Section 5.7 , the Partnership may, but shall not
be required to, indemnify (i) a Retired Partner (or any other former Limited Partner) with respect to any claim for indemnification or
advancement of expenses arising from any conduct occurring more than six months after the date of such Person’s retirement (or
other withdrawal or departure), or (ii) a Limited Partner with respect to any claim for indemnification or advancement of expenses as
a director, officer or agent of any Portfolio Company to the extent arising from conduct in such capacity occurring more than six
months after the complete disposition of such Portfolio Company by the Fund.
ARTICLE VI
ADMISSIONS, TRANSFERS AND WITHDRAWALS
Section 6.1 Admission of Additional Limited Partners; Effect on Points .
(a) The General Partner may at any time admit as an additional Limited Partner any Person who has agreed
to be bound by this Agreement and may assign Points to such Person and/or increase the Points of any existing Limited Partner, in
each case, subject to and in accordance with Section 7.1 .
(b) Each additional Limited Partner shall execute (i) either a counterpart to this Agreement or a separate
instrument evidencing, to the satisfaction of the General Partner, such Limited Partner’s intent to become a Limited Partner, and
(ii) the documents contemplated by Section 7.1(b) , and shall be admitted as a Limited Partner upon such execution.
Section 6.2 Admission of Additional General Partner . The General Partner may admit one or more additional
general partners at any time without the consent of any Limited Partner, other than the Required Voting Partners if such additional
general partner is not an Affiliate of AGM. No reduction in the Points of any Limited Partner shall be made as a result of the
admission of an additional general partner or the increase in the Points of any general partner without the consent of such Limited
Partner. Any additional general partner shall be admitted as a general partner upon its execution of a counterpart signature page to
this Agreement.
Section 6.3 Transfer of Interests of Limited Partners .
(a) No Transfer of any Limited Partner’s interest in the Partnership, whether voluntary or involuntary, shall
be valid or effective, and no transferee shall become a substituted Limited Partner, unless the prior written consent of the General
Partner has been obtained, which consent may be given or withheld by the General Partner. Notwithstanding the foregoing, any
Limited Partner may Transfer to any Related Party of such Limited Partner all or part of such Limited Partner’s interest in the
Partnership (subject to continuing obligations of such Limited Partner, including, without limitation, vesting and restrictive
covenants); provided , that the Transfer has been previously approved in writing by the General Partner, such approval not to be
unreasonably withheld. In the event of any Transfer, all of the conditions of the remainder of this Section 6.3 must also be satisfied.
(b) A Limited Partner or his legal representative shall give the General Partner notice before the proposed
effective date of any voluntary Transfer and within 30 days after any involuntary Transfer, and shall provide sufficient information
to allow legal counsel acting for the Partnership to make the determination that the proposed Transfer shall not result in any of the
following consequences:
laws of any jurisdiction;
(i) require registration of the Partnership or any interest therein under any securities or commodities
the status of the Partnership as a partnership for United States federal income tax purposes; or
(ii) result in a termination of the Partnership under section 708(b)(1)(B) of the Code or jeopardize
applicable law, rule or regulation of any jurisdiction.
(iii) violate, or cause the Partnership, the General Partner or any Limited Partner to violate, any
Such notice must be supported by proof of legal authority and a valid instrument of assignment acceptable to the General Partner.
(c) In the event any Transfer permitted by this Section 6.3 shall result in multiple ownership of any Limited
Partner’s interest in the Partnership, the General Partner may require one or more trustees or nominees to be designated to represent
a portion of the interest transferred or the entire interest transferred for the purpose of receiving all notices which may be given and
all payments which may be made under this Agreement, and for the purpose of exercising the rights which the transferees have
pursuant to the provisions of this Agreement.
(d) A permitted transferee shall be entitled to the allocations and distributions attributable to the interest in
the Partnership transferred to such transferee and to Transfer such interest in accordance with the terms of this Agreement; provided
, that such transferee shall not be entitled to the other rights of a Limited Partner as a result of such transfer until he becomes a
substituted Limited Partner. No transferee may become a substituted Limited Partner except with the prior written consent of the
General Partner (which consent may be given or withheld by the General Partner). Such transferee shall be admitted to the
Partnership as a substituted Limited Partner upon execution of a counterpart of this Agreement or such other instrument evidencing,
to the satisfaction of the General Partner, such Limited Partner’s intent to become a Limited Partner. Notwithstanding the above, the
Partnership and the General Partner shall incur no liability for allocations and distributions made in good faith to the transferring
Limited Partner until a written instrument of Transfer has been received and accepted by the Partnership and recorded on its books
and the effective date of the Transfer has passed.
(e) Any other provision of this Agreement to the contrary notwithstanding, to the fullest extent permitted by
law, any successor or transferee of any Limited Partner’s interest in the Partnership shall be bound by the provisions hereof. Prior to
recognizing any Transfer in accordance with this Section 6.3 , the General Partner may require the transferee to make certain
representations and warranties to the Partnership and Partners and to accept, adopt and approve in writing all of the terms and
provisions of this Agreement.
(f) In the event of a Transfer or in the event of a distribution of assets of the Partnership to any Partner, the
Partnership, at the direction of the General Partner, may, but shall not be required to, file an election under section 754 of the Code
and in accordance with the applicable Treasury Regulations, to cause the basis of the Partnership’s assets to be adjusted as provided
by section 734 or 743 of the Code.
(g) The Partnership shall maintain books for the purpose of registering the transfer of partnership interests
in the Partnership. No transfer of a partnership interest shall be effective until the transfer of the partnership interest is registered
upon books maintained for that purpose by or on behalf of the Partnership.
(h) In the event of a Transfer of all of a Limited Partner’s interest in the Partnership, such Limited Partner
shall remain liable to the Partnership as contemplated by Section 4.3(b) and shall, if requested by the General Partner, expressly
acknowledge such liability in such agreements as may be entered into by such Limited Partner in connection with such Transfer.
Section 6.4 Withdrawal of Partners .
A Partner in the Partnership may not withdraw from the Partnership prior to its dissolution. For the avoidance of
doubt, any Limited Partner who transfers to a Related Party such Limited Partner’s entire remaining entitlement to allocations and
distributions shall remain a Limited Partner, notwithstanding the admission of the transferee Related Party as a Limited Partner, for
as long as the transferee Related Party remains a Limited Partner.
Section 6.5 Pledges .
(a) A Limited Partner shall not pledge or grant a security interest in such Limited Partner’s interest in the
Partnership unless the prior written consent of the General Partner has been obtained (which consent may be given or withheld by
the General Partner).
(b) Notwithstanding Section 6.5(a) and subject to the requirements of applicable law, any Limited Partner
may grant to a bank or other financial institution a security interest in such part of such Limited Partner’s interest in the Partnership
as relates solely to the right to receive distributions of Operating Profit in the ordinary course of obtaining bona fide loan financing
to fund his contributions to the capital of the Partnership or Co-Investors (A). If the interest of the Limited Partner in the Partnership
or Co-Investors (A) or any portion thereof in respect of which a Limited Partner has granted a security interest ceases to be owned
by such Limited Partner in connection with the exercise by the secured party of remedies resulting from a default by such Limited
Partner or upon the occurrence of such similar events with respect to such Limited Partner’s interest in Co-Investors (A), such
interest of the Limited Partner in the Partnership or portion thereof shall thereupon become a non-voting interest and the holder
thereof shall not be entitled to vote on any matter pursuant to this Agreement and, if applicable, shall no longer be considered a
Voting Partner for purposes of this Agreement.
(c) For purposes of the grant, pledge, attachment or perfection of a security interest in a partnership interest
in the Partnership or otherwise, each such partnership interest shall constitute a “security” within the meaning of, and governed by,
(i) article 8 of the Uniform Commercial Code (including section 8‑102(a)(15) thereof) as in effect from time to time in the State of
Delaware (the “ DEUCC ”), and (ii) article 8 of the Uniform Commercial Code of any other applicable jurisdiction that now or
hereafter substantially includes the 1994 revisions to article 8 thereof as adopted by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995.
(d) Any partnership interest in the Partnership may be evidenced by a certificate issued by the Partnership
in such form as the General Partner may approve. Every certificate representing an interest in the Partnership shall bear a legend
substantially in the following form:
Each partnership interest constitutes a “security” within the meaning of, and governed by, (i) article 8 of the Uniform Commercial
Code (including section 8‑102(a)(15) thereof) as in effect from time to time in the State of Delaware, and (ii) article 8 of the
Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to
article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws
and approved by the American Bar Association on February 14, 1995.
THE TRANSFER OF THIS CERTIFICATE AND THE PARTNERSHIP INTERESTS REPRESENTED HEREBY IS
RESTRICTED AS DESCRIBED IN THE AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF THE
PARTNERSHIP, dated February 14, 2017 and effective as of March 18, 2016, AS THE SAME MAY BE AMENDED OR
RESTATED FROM TIME TO TIME.
facsimile signature of the General Partner on behalf of the Partnership.
(e) Each certificate representing a partnership interest in the Partnership shall be executed by manual or
(f) Notwithstanding any provision of this Agreement to the contrary, to the extent that any provision of this
Agreement is inconsistent with any non-waivable provision of article 8 of the DEUCC, such provision of article 8 of the DEUCC
shall control.
ARTICLE VII
ALLOCATION OF POINTS; ADJUSTMENTS OF POINTS
AND RETIREMENT OF PARTNERS
Section 7.1 Allocation of Points .
(a) Points may be allocated to a new Limited Partner and/or adjusted for any existing Limited Partner, in
each case, solely in accordance with the terms and conditions set forth herein. Notwithstanding anything to the contrary herein, there
shall be a maximum of 2,000 Points available for issuance with respect to each Portfolio Investment.
become effective until:
(b) Unless otherwise agreed by the General Partner, the allocation of Points to any Limited Partner shall not
(i) the receipt of the following documents, in form and substance satisfactory to the General Partner,
executed by such Limited Partner: (A) a customary and standard guarantee or guarantees, for the benefit of Fund investors, of
the Limited Partner’s Clawback Share of the Partnership’s obligation to make Clawback Payments, and (B) a customary and
standard undertaking to reimburse APH for any payment made by it (or by another AGM Affiliate) that is attributable to such
Limited Partner’s Clawback Share of any Clawback Payment; and
(ii) the effective date of the acceptance by Co-Investors (A) of a capital commitment from such
Limited Partner (or his Related Party, as applicable) in an amount equal to the percentage of total Fund commitments
specified in the Points Award Memo delivered to such Limited Partner by the General Partner. Upon the occurrence of a
material default, after the expiration of the applicable cure period set forth in section 4.2 of the Co-Investors (A) Partnership
Agreement, in the obligation to contribute capital to Co-Investors (A) in accordance with the Co-Investors (A) Partnership
Agreement by a Limited Partner, the General Partner may reduce or eliminate the Points of any such Limited Partner
(including the Vested Points of any Retired Partner); and
(iii) if the Limited Partner is not the individual participant to whom all of the Restrictive Covenants
apply, the receipt of an undertaking, in form and substance satisfactory to the General Partner, executed by such participant
to comply with the Restrictive Covenants and an acknowledgement of an agreement to the matters set forth in Section 9.1 .
forth in Section 2.8(c) , 7.1(b)(ii) , 7.1(f) , 7.3 and 9.1(b) .
(c) The number of Account Points allocated to a Team Member shall not be reduced except as expressly set
(d) The General Partner shall maintain on the books and records of the Partnership a record of the number
of Points allocated to each Partner and shall give notice to each Limited Partner of the number of such Limited Partner’s Account
Points upon admission to the Partnership of such Limited Partner and promptly upon any change in such Limited Partner’s Points
pursuant to this Article VII and such notice shall include the calculations used by the General Partner to determine the amount of
any such reduction.
(e) In the event that the General Partner in good faith enters into an agreement pursuant to which a Person
other than AGM or a subsidiary of AGM would receive a distribution of Operating Profit relating to one or more, but not all,
specified Portfolio Investments that would be made prior to any distribution of Operating Profit with respect to the same Portfolio
Investment for Team Members or their Related Parties (a “ Priority Distribution ”), distributions to Partners of Operating Profit with
respect to such Portfolio Investment must be commenced following the Priority Distribution at the same time to all Partners, in each
case, in accordance with Section 4.1(b) .
(f) Account Points may be prospectively adjusted upward or downward on an annual basis beginning on the
second anniversary of the date on which such Account Points are awarded. If a Limited Partner’s Account Points are reduced in an
aggregate cumulative amount of at least 10% of the highest number of Account Points held by such Limited Partner at any time, the
General Partner shall arrange for such Limited Partner’s capital commitment to Co-Investors (A) to be reduced to an amount that is
proportionate to such Limited Partner’s Account Points; provided , that if a Limited Partner’s Account Points are subsequently
increased, the General Partner shall arrange for such Limited Partner’s capital commitment to Co-Investors (A) to be increased to an
amount that is proportionate to such Limited Partner’s Account Points.
Section 7.2 Retirement of Partner .
(a) A Limited Partner shall become a Retired Partner upon:
Partner’s employment by AGM or an Affiliate thereof, unless otherwise determined by the General Partner;
(i) delivery to such Limited Partner of a notice by the General Partner terminating such Limited
(ii) delivery by such Limited Partner of a notice to the General Partner, AGM or an Affiliate thereof
stating that such Limited Partner elects to resign from or otherwise terminate his or her employment by or service to AGM or
an Affiliate thereof; or
treated as a Retired Partner in the place of the deceased Limited Partner, or the Disability of the Limited Partner.
(iii) the death of the Limited Partner, whereupon the estate of the deceased Limited Partner shall be
(b) If (i) a Limited Partner becomes a Retired Partner for a reason other than an election to resign from
employment by or service to AGM or an Affiliate or involuntary termination of employment or service by reason of a Bad Act and
(ii) such Limited Partner’s Account Points are reduced upon retirement pursuant to Section 7.3 , upon the request of such Retired
Partner, the General Partner shall arrange for such Limited Partner’s capital commitment to Co-Investors (A) to be reduced to an
amount that is proportionate to such Limited Partner’s Vested Account Points. Otherwise, if a Limited Partner’s Points with respect
to a Plan Year are reduced upon retirement pursuant to Section 7.3 , the General Partner may, but shall not be required to, arrange for
such Limited Partner’s capital commitment to Co-Investors (A) to be reduced to an amount that is proportionate to such Limited
Partner’s Vested Account Points. Any compulsory or discretionary decrease in the proportionate capital commitment to Co-Investors
(A) shall apply only to new Portfolio Investments of the Fund made on or after the date the General Partner arranges for such
decreased commitment. Such decreased commitment shall not apply to any additional investments relating to a Portfolio Investment
made prior to the date the General Partner arranges for such decreased commitment. A Limited Partner’s capital commitment to Co-
Investors (A) shall not be otherwise reduced or released as a result of a Limited Partner becoming a Retired Partner.
(c) Nothing in this Agreement shall obligate the General Partner to treat Retired Partners alike, and the
exercise of any power or discretion by the General Partner in the case of any one such Retired Partner shall not create any obligation
on the part of the General Partner to take any similar action in the case of any other such Retired Partner, it being understood that
any power or discretion conferred upon the General Partner shall be treated as having been so conferred as to each such Retired
Partner separately.
Section 7.3 Effect of Retirement on Points .
(a) The Points of any Limited Partner who becomes a Retired Partner shall be reduced automatically to
(i) zero, if such retirement is the consequence of a Bad Act and (ii) otherwise, an amount equal to such Limited Partner’s Vested
Points calculated as of the Retirement Date. Any such reduction shall be effective as of the Retirement Date or such subsequent date
as may be determined by the General Partner; provided , that the General Partner may agree to a lesser reduction (or to no reduction)
of the Points of any such Limited Partner who becomes a Retired Partner.
(b) If one or more Partners or Retired Partners is assigned additional Points and such Partner or Retired
Partner and the General Partner agree in connection with such assignment that such assignment may be, for purposes of section 83 of
the Code, a transfer in connection with the performance of services of an interest that would not qualify as a “profits interest” within
the meaning of IRS Revenue Procedure 93-27, then to the extent mutually agreed by such Partner or Retired Partner and the General
Partner, the Partnership may make such adjustments to the amounts allocated and distributed to such Partner or Retired Partner with
respect to such interest (and corresponding adjustments to other allocations and distributions for Partners and Retired Partners as
determined by the General Partner) so as to cause such interest to qualify as a “profits interest” within the meaning of IRS Revenue
Procedure 93-27.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION
Section 8.1 Dissolution and Liquidation of Partnership .
(a) Upon dissolution of the Partnership in accordance with the Act, the General Partner shall liquidate the
business and administrative affairs of the Partnership, except that, if the General Partner is unable to perform this function, a
liquidator may be elected by a majority in interest (determined by Account Points) of Limited Partners and upon such election such
liquidator shall liquidate the Partnership. Capital Profit and Capital Loss, Operating Profit and Operating Loss during the Fiscal
Years that include the period of liquidation shall be allocated pursuant to Section 3.4 . The proceeds from liquidation shall be
distributed in the following manner:
(i) first, the debts, liabilities and obligations of the Partnership including the expenses of liquidation
(including legal and accounting expenses incurred in connection therewith), up to and including the date that distribution of
the Partnership’s assets to the Partners has been completed, shall be satisfied (whether by payment or by making reasonable
provision for payment thereof); and
balances of their respective Capital Accounts, as adjusted pursuant to Article III .
(ii) thereafter, the Partners shall be paid amounts pro rata in accordance with and up to the positive
(b) Anything in this Section 8.1 to the contrary notwithstanding, the General Partner or liquidator may
distribute ratably in kind rather than in cash, upon dissolution, any assets of the Partnership in accordance with the priorities set forth
in Section 8.1(a) , provided , that if any in kind distribution is to be made the assets distributed in kind shall be valued as of the
actual date of their distribution and charged as so valued and distributed against amounts to be paid under Section 8.1(a) .
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Restrictive Covenants of Limited Partners .
(a) Each Limited Partner hereby undertakes and agrees to comply with the Restrictive Covenants. Each
Limited Partner acknowledges that the General Partner would not have assigned any Points to such Limited Partner if it had not
agreed to be bound by such covenants.
(b) Each Limited Partner agrees and acknowledges that each Restrictive Covenant is reasonable as to
duration, terms and geographical area and that the same protects the legitimate interests of AGM and its Affiliates, imposes no undue
hardship on such Limited Partner or its Related Parties, is not injurious to the public, and that any violation of any of the Restrictive
Covenants shall be specifically enforceable in any court with jurisdiction upon short notice. If any provision of the Restrictive
Covenants as applied to a Limited Partner or to any circumstance is adjudged by a court or arbitral tribunal to be invalid or
unenforceable, the same shall in no way affect any other circumstance or the validity or enforceability of any other provision of the
Restrictive Covenants. If the scope of any such provision, or any part thereof, is too broad to permit enforcement of such provision
to its full extent, each Limited Partner agrees that the court or arbitral tribunal making such determination shall have the power to
reduce the duration and/or area of such provision, and/or to delete specific words or phrases, to the extent necessary to permit
enforcement, and, in its reduced form, such provision shall then be enforceable and shall be enforced. Each Limited Partner agrees
and acknowledges that any such breach of any provision of the Restrictive Covenants will cause irreparable injury to AGM and its
Affiliates, and upon breach of any provision of the Restrictive Covenants, the General Partner, AGM and/or its Affiliates, as
applicable, shall be entitled to injunctive relief, specific performance or other equitable relief; provided , that this shall in no way
limit any other remedies available to the General Partner, AGM or its Affiliates. Notwithstanding the foregoing, to the extent that an
arbitral tribunal or court of competent jurisdiction makes a final determination that any restrictive covenant regarding
noncompetition or non-interference contained in the Restrictive Covenants is unenforceable as a matter of law as applied to any
Limited Partner, upon such determination the General Partner, AGM and/or its Affiliates shall not seek to enjoin such Limited
Partner from engaging in an activity precluded by such provision (or to otherwise pursue proceedings to enforce such provision) but
if the General Partner determines in good faith that such Limited Partner has breached any such noncompetition provision or
materially breached any such non-interference provision, the General Partner shall provide such Limited Partner with written notice
thereof, and such Limited Partner shall have fifteen Business Days to cure such breach. If such breach is not cured within such
period, such Limited Partner shall forfeit all rights to any Points without payment of any consideration in respect thereof. The
Restrictive Covenants shall specifically survive the retirement of a Limited Partner and the termination of this Agreement.
Section 9.2 Strategic Partnership Carried Interest related to the Fund . To the extent that (a) the strategic
partnership or managed account set forth on Exhibit B (the “ Strategic Partnership ”) invests in or co-invests with the Fund, either
directly or through a special purpose vehicle of the Strategic Partnership, and (b) its general partner or any other AGM entity derives
any carried interest distribution or incentive allocation attributable to such investment or co-investments, AGM and the General
Partner shall cause such carried interest distribution or incentive allocation (as adjusted, as necessary, taking into account the
arrangements described in the next sentence of this Section 9.2 ) to be allocated and distributed among holders of Points in
accordance with the provisions regarding Operating Profit received by or allocated to the Partnership, but without duplication, either
by causing the Partnership to hold an equity or tracking interest in the entity deriving such carried interest or incentive allocation or
in some other manner reasonably calculated to accomplish the intent of this provision. The Partners hereby acknowledge and
understand that nothing contained herein shall restrict the right of the General Partner, AGM or any of its Affiliates to implement
procedures or methodologies for the purpose of giving effect to the foregoing, including to (i) take into account any preferred return
and target hurdles, (ii) apply any netting arrangements with respect to any fees or charges, including management fees, carried
interest or incentive allocations, in respect of the Strategic Partnership across all or any portion of the investments or co-investments
made by the Strategic Partnership, and (iii) provide for holdbacks, escrows or similar reserves for the purpose of satisfying
givebacks, clawbacks and similar obligations, or provide for other reserves or holdbacks determined to be appropriate by the General
Partner, AGM, any of its Affiliates or the ultimate general partner of such Strategic Partnership, in each case, acting in good faith.
Section 9.3 Amendment of Partnership Agreement and Co-Investors (A) Partnership Agreement .
(a) The General Partner may amend this Agreement at any time, in whole or in part, without the consent of
any Limited Partner by giving notice of such amendment to any Limited Partner whose rights or obligations as a Limited Partner
pursuant to this Agreement are changed thereby; provided , that any amendment that would effect a materially adverse change in the
contractual rights or obligations of a Partner (such rights or obligations determined without regard to the amendment power reserved
herein) may only be made if the written consent of such Partner is obtained prior to the effectiveness thereof; provided , that any
amendment that increases a Partner’s obligation to contribute to the capital of the Partnership or increases such Partner’s Clawback
Share shall not be effective with respect to such Partner, unless such Partner consents thereto in advance in writing. Notwithstanding
the foregoing, the General Partner may amend this Agreement at any time, in whole or in part, without the consent of any Limited
Partner to enable the Partnership to (i) comply with the requirements of the “Safe Harbor” Election within the meaning of the
Proposed Revenue Procedure of Notice 2005-43, 2005-24 IRB 1, Proposed Treasury Regulation section 1.83-3(e)(1) or Proposed
Treasury Regulation section 1.704-1(b)(4)(xii) at such time as such proposed Procedure and Regulations are effective and to make
any such other related changes as may be required by pronouncements or Treasury Regulations issued by the Internal Revenue
Service or Treasury Department after the date of this Agreement and (ii) enable, when applicable, the Partnership (or the Partnership
Representative) to comply with the BBA Audit Rules or to make any elections or take any other actions available thereunder. An
adjustment of Points shall not be considered an amendment to the extent effected in compliance with the provisions of Section 7.1 or
Section 7.3 as in effect on the date hereof or as hereafter amended in compliance with the requirements of this Section 9.3(a) or
relating to future Plan Years. The General Partner’s approval of or consent to any transaction resulting in the substitution of another
Person in place of the Partnership as the managing or general partner of any of the Funds or any change to the scheme of distribution
under any of the Fund LP Agreements that would have the effect of reducing the Partnership’s allocable share of the Net Income of
any Fund shall require the consent of any Limited Partner adversely affected thereby.
(b) Notwithstanding the provisions of this Agreement, including Section 9.3(a) , it is hereby acknowledged
and agreed that the General Partner on its own behalf or on behalf of the Partnership without the approval of any Limited Partner or
any other Person may enter into one or more side letters or similar agreements with one or more Limited Partners which have the
effect of establishing rights under, or altering or supplementing the terms of this Agreement. The parties hereto agree that any terms
contained in a side letter or similar agreement with one or more Limited Partners shall govern with respect to such Limited Partner
or Limited Partners notwithstanding the provisions of this Agreement. Any such side letters or similar agreements shall be binding
upon the Partnership or the General Partner, as applicable, and the signatories thereto as if the terms were contained in this
Agreement, but no such side letter or similar agreement between the General Partner and any Limited Partner or Limited Partners
and the Partnership shall adversely amend the contractual rights or obligations of any other Limited Partner without such other
Limited Partner’s prior consent.
(c) The provisions of this Agreement that affect the terms of the Co-Investors (A) Partnership Agreement
applicable to Limited Partners constitute a “side letter or similar agreement” between each Limited Partner and the general partner of
Co-Investors (A), which has executed this Agreement exclusively for purposes of confirming the foregoing.
(d) This Agreement constitutes the entire agreement of the parties hereto and supersedes any other
agreement thereof with respect to the subject matter hereof, except to the extent set forth in any side letter pursuant to Section 9.3(b)
or the Points Award Memo.
Section 9.4 Special Power-of-Attorney .
(a) Each Partner hereby irrevocably makes, constitutes and appoints the General Partner with full power of
substitution, the true and lawful representative and attorney-in-fact, and in the name, place and stead of such Partner, with the power
from time to time to make, execute, sign, acknowledge, swear to, verify, deliver, record, file and/or publish:
(including the provisions of Section 9.3 );
(i) any amendment to this Agreement which complies with the provisions of this Agreement
(ii) all such other instruments, documents and certificates which, in the opinion of legal counsel to
the Partnership, may from time to time be required by the laws of the United States of America, the State of Delaware or any
other jurisdiction, or any political subdivision or agency thereof, or which such legal counsel may deem necessary or
appropriate to effectuate, implement and continue the valid and subsisting existence and business of the Partnership as a
limited partnership;
(iii) all such instruments, certificates, agreements and other documents relating to the conduct of the
investment program of any of the Funds which, in the opinion of such attorney-in-fact, in consultation with the legal counsel
to the Funds, are reasonably necessary to accomplish the legal, regulatory and fiscal objectives of the Funds in connection
with its or their acquisition, ownership and disposition of investments, including, without limitation:
for any of the Funds and any amendments thereto; and
(A) the governing documents of any management entity formed as a part of the tax planning
investments,
(B) documents relating to any restructuring transaction with respect to any of the Funds’
provided , that such documents referred to in clauses (A) and (B) above, viewed individually or in the aggregate, provide
substantially equivalent financial and economic rights and obligations with respect to such Limited Partner and otherwise do not:
(1) increase the Limited Partner’s overall financial obligation to make capital
contributions with respect to the relevant Fund (directly or through any associated vehicle in which the Limited
Partner holds an interest);
(2) diminish the Limited Partner’s overall entitlement to share in profits and
distributions with respect to the relevant Fund (directly or through any associated vehicle in which the Limited
Partner holds an interest);
debts or obligations of the Partnership; or
(3) cause the Limited Partner to become subject to increased personal liability for any
Limited Partner in relation to the conduct of the investment program of any of the Funds;
(4) otherwise result in an adverse change in the overall rights or obligations of the
(iv) any instrument or document necessary or advisable to implement the provisions of Section 3.9
of this Agreement, including, but not limited to, the limited partnership agreement of Apollo Special Situations Advisors (IH-
A), L.P., a Cayman Islands exempted limited partnership, or any joinder in relation to such Partner’s admission as a partner
of Apollo Special Situations Advisors (IH-A), L.P.;
(v) any written notice or letter of resignation from any board seat or office of any Person (other than
a company that has a class of equity securities registered under the United States Securities Exchange Act of 1934, as
amended, or that is registered under the United States Investment Company Act of 1940, as amended), which board seat or
office was occupied or held at the request of the Partnership or any of its Affiliates; and
(vi) all such proxies, consents, assignments and other documents as the General Partner determines
to be necessary or advisable in connection with any merger or other reorganization, restructuring or other similar transaction
entered into in accordance with this Agreement (including the provisions of Section 9.8(c) ).
(b) Each Limited Partner is aware that the terms of this Agreement permit certain amendments to this
Agreement to be effected and certain other actions to be taken or omitted by or with respect to the Partnership without his consent. If
an amendment of the Certificate or this Agreement or any action by or with respect to the Partnership is taken by the General Partner
in the manner contemplated by this Agreement, each Limited Partner agrees that, notwithstanding any objection which such Limited
Partner may assert with respect to such action, the General Partner is authorized and empowered, with full power of substitution, to
exercise the authority granted above in any manner which may be necessary or appropriate to permit such amendment to be made or
action lawfully taken or omitted. Each Partner is fully aware that each other Partner will rely on the effectiveness of this special
power-of-attorney with a view to the orderly administration of the affairs of the Partnership. This power-of-attorney is a special
power-of-attorney and is coupled with an interest in favor of the General Partner and as such:
(i) shall be irrevocable and continue in full force and effect notwithstanding the subsequent death or
incapacity of any party granting this power-of-attorney, regardless of whether the Partnership or the General Partner shall
have had notice thereof; and
(ii) shall survive any Transfer by a Limited Partner of the whole or any portion of its interest in the
Partnership, except that, where the transferee thereof has been approved by the General Partner for admission to the
Partnership as a substituted Limited Partner, this power-of-attorney given by the transferor shall survive such Transfer for the
sole purpose of enabling the General Partner to execute, acknowledge and file any instrument necessary to effect such
substitution.
Section 9.5 Good Faith; Discretion .
To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or in any agreement
contemplated herein or applicable provisions of law or equity or otherwise, whenever in this Agreement the General Partner is
permitted or required to make a decision (a) in its “sole discretion” or “discretion,” the General Partner shall be entitled to consider
only such interests and factors as it desires, including its and its Affiliates’ own interests, and shall have no duty or obligation to give
any consideration to any interest of or factors affecting the Partnership or any other Person, or (b) in its “good faith” or under another
express standard, the General Partner shall act under such express standard and shall not be subject to any other or different standard.
Section 9.6 Notices .
Any notice required or permitted to be given under this Agreement shall be in writing. A notice to the General Partner
shall be directed to the attention of Leon D. Black with a copy to the general counsel of the Partnership. A notice to a Limited
Partner shall be directed to such Limited Partner’s last known residence as set forth in the books and records of the Partnership or its
Affiliates (a Limited Partner’s “ Home Address ”). A notice shall be considered given when delivered to the addressee either by hand
at his Partnership office or electronically to the primary e-mail account supplied by the Partnership or its Affiliates for AGM
business communications, except that a notice to a Retired Partner or a notice demanding cure of a Bad Act shall be considered
given only when delivered by hand, by a recognized overnight courier, or by mailing with the United States Postal System by regular
mail to such Retired Partner’s Home Address.
Section 9.7 Agreement Binding Upon Successors and Assigns . This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors by operation of law, but the rights and obligations of the Partners hereunder
shall not be assignable, transferable or delegable except as expressly provided herein, and any attempted assignment, transfer or
delegation thereof that is not made in accordance with such express provisions shall be void and unenforceable.
Section 9.8 Merger, Consolidation, Etc.
(a) Subject to Section 9.8(b) and Section 9.8(c) , the Partnership may merge or consolidate with or into one
or more limited partnerships formed under the Act or other business entities (as defined in section 17-211 of the Act) pursuant to an
agreement of merger or consolidation which has been approved by the General Partner.
(b) Subject to Section 9.8(c) but notwithstanding any other provision to the contrary contained elsewhere in
this Agreement, an agreement of merger or consolidation approved in accordance with Section 9.8(a) may, to the extent permitted by
section 17-211(g) of the Act and Section 9.8(a) , (i) effect any amendment to this Agreement, (ii) effect the adoption of a new
partnership agreement for the Partnership if it is the surviving or resulting limited partnership in the merger or consolidation, or
(iii) provide that the partnership agreement of any other constituent limited partnership to the merger or consolidation (including a
limited partnership formed for the purpose of consummating the merger or consolidation) shall be the partnership agreement of the
surviving or resulting limited partnership.
(c) The General Partner shall have the power and authority to approve and implement any merger,
consolidation or other reorganization, restructuring or similar transaction without the consent of any Limited Partner, other than any
Limited Partner with respect to which the General Partner has determined that such transaction will, or is more likely than not to,
result in any material adverse change in the financial and other material rights such Limited Partner conferred by this Agreement and
any side letter or similar agreement entered into pursuant to Section 9.3(b) or the imposition of any material new financial obligation
on such Limited Partner. Subject to the foregoing, the General Partner may require one or more of the Limited Partners to sell,
exchange, transfer or otherwise dispose of their interests in the Partnership in connection with any such transaction, and each
Limited Partner shall take such action as may be directed by the General Partner to effect any such transaction.
Section 9.9 Governing Law; Dispute Resolution .
governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict of laws rules thereof.
(a) This Agreement, and the rights and obligations of each and all of the Partners hereunder, shall be
(b) Subject to Section 9.9(c) , any dispute, controversy, suit, action or proceeding arising out of or relating
to this Agreement (including any Points Award Memo or other ancillary documentation) other than injunctive relief, shall be settled
exclusively by confidential arbitration, conducted before a single arbitrator in New York County, New York (applying Delaware
law) in accordance with, and pursuant to, the applicable rules of JAMS (“ JAMS ”). The decision of the arbitrator shall be final and
binding upon the parties hereto. Any arbitral award may be entered as a judgment or order in any court of competent jurisdiction.
Either party may commence litigation in court to obtain injunctive relief in aid of arbitration, to compel arbitration, or to confirm or
vacate an award, to the extent authorized by the United States Federal Arbitration Act or the New York Arbitration Act. The party
that is determined by the arbitrator not to be the prevailing party shall pay all of the JAMS administrative fees, the arbitrator’s fee
and expenses. Each party shall be responsible for such party’s attorneys’ fees. If neither party is so determined, such fees shall be
shared. Each party shall be responsible for such party’s attorneys’ fees. IF THIS AGREEMENT TO ARBITRATE IS HELD
INVALID OR UNENFORCEABLE THEN, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT
BE WAIVED, EACH PARTNER AND THE PARTNERSHIP WAIVE AND COVENANT THAT THE PARTNER AND THE
PARTNERSHIP SHALL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS
AGREEMENT, WHETHER NOW OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AND AGREE THAT ANY OF THE PARTNERSHIP OR ANY OF ITS AFFILIATES OR THE PARTNER MAY
FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY
AND BARGAINED-FOR AGREEMENT AMONG THE PARTNERSHIP AND ITS AFFILIATES, ON THE ONE HAND, AND
THE PARTNER, ON THE OTHER HAND, IRREVOCABLY TO WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING WHATSOEVER BETWEEN SUCH PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THAT ANY PROCEEDING PROPERLY HEARD BY A COURT UNDER THIS AGREEMENT SHALL INSTEAD BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
(c) Nothing in this Section 9.9 shall prevent the General Partner or a Limited Partner from applying to a
court for preliminary or interim relief or permanent injunction in a judicial proceeding (e.g., injunction or restraining order), in
addition to and not in lieu of any other remedy to which it may be entitled at law or in equity, if such relief from a court is necessary
to preserve the status quo pending resolution or to prevent serious and irreparable injury in connection with any breach or anticipated
breach of covenants applicable pursuant to Section 9.1 ; provided , that all parties explicitly waive all rights to seek preliminary,
interim, injunctive or other relief in a judicial proceeding and all parties submit to the exclusive jurisdiction of the forum described in
Section 9.9(b) hereto for any dispute or claim concerning continuing entitlement to distributions or other payments, even if such
dispute or claim involves or relates to Section 9.1 . For the purposes of this Section 9.9(c) , each party hereto consents to the
exclusive jurisdiction and venue of the courts of the state and federal courts within the County of New York in the State of
New York.
Section 9.10 Termination of Right of Action .
Every right of action arising out of or in connection with this Agreement by or on behalf of any past, present or future
Partner or the Partnership against any past, present or future Partner shall, to the fullest extent permitted by applicable law,
irrespective of the place where the action may be brought and irrespective of the residence of any such Partner, cease and be barred
by the expiration of three years from the date of the act or omission in respect of which such right of action arises.
Section 9.11 Not for Benefit of Creditors .
The provisions of this Agreement are intended only for the regulation of relations among Partners and between
Partners and former or prospective Partners and the Partnership. This Agreement is not intended for the benefit of any Person who is
not a Partner other than the Covered Persons, who shall be third party beneficiaries hereto, and no rights are intended to be granted
to any other Person who is not a Partner under this Agreement.
Section 9.12 Reports .
As soon as practicable after the end of each taxable year, the General Partner shall furnish to each Limited Partner
(a) such information as may be required to enable each Limited Partner to properly report for United States federal and state income
tax purposes his distributive share of each Partnership item of income, gain, loss, deduction or credit for such year, and (b) a
statement of the total amount of Operating Profit or Operating Loss for such year, including a copy of the United States Internal
Revenue Service Schedule “K-1” issued by the Partnership to such Limited Partner, and a reconciliation of any difference between
(i) such Operating Profit or Operating Loss, and (ii) the aggregate net profits or net losses allocated by the Funds to the Partnership
for such year (other than any difference attributable to the aggregate Capital Profit or Capital Loss allocated by the Funds to the
Partnership for such year).
Section 9.13 Filings .
The Partners hereby agree to take any measures necessary (or, if applicable, refrain from any action) to ensure that the
Partnership is treated as a partnership for federal, state and local income tax purposes.
Section 9.14 Headings, Gender, Etc.
The section headings in this Agreement are for convenience of reference only, and shall not be deemed to alter or
affect the meaning or interpretation of any provisions hereof. As used herein, masculine pronouns shall include the feminine and
neuter, and the singular shall be deemed to include the plural.
Section 9.15 Corporate Clawback .
Notwithstanding any other provision herein contained, to the extent mandated by applicable law and/or as set forth in
a written clawback policy, any amounts distributed with respect to Points (whether or not vested) may be subject to such policy,
unless otherwise required by law, to the extent such policy was in effect on and as of the date the applicable Points were awarded.
Signature
Page
Follows
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
General
Partner
:
APOLLO SPECIAL SITUATIONS ADVISORS GP, LLC
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
Limited
Partners
:
APH HOLDINGS, L.P.
By: Apollo Principal Holdings III GP, Ltd.,
its general partner
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
Each person who shall sign an Execution Page and who shall be accepted by the
General Partner to the Partnership
Solely for purposes of Section 9.3(c) :
APOLLO CO-INVESTORS MANAGER, LLC
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
12
Exhibit 10.81
CONFIDENTIAL & PROPRIETARY
EXECUTION VERSION
This exempted limited partnership is the general partner of Financial
Credit Investment I, L.P. and its parallel funds and earns the “carried
interest” on Financial Credit Investment I, L.P. profits.
Financial Credit Investment Advisors I, L.P.
First Amended and Restated Agreement of Exempted
Limited Partnership
Dated March 13, 2013
and agreed as amongst the parties hereto to be of effect from January 7, 2011
THE TRANSFER OF THE LIMITED PARTNERSHIP INTERESTS
CONSTITUTED BY THIS AGREEMENT
IS RESTRICTED AS DESCRIBED HEREIN.
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 FORMATION AND ORGANIZATION 7
Section 2.1
Continuation 7
Section 2.2
Name 7
Section 2.3
Organizational Certificates and Other Filings 7
Section 2.4
Offices 7
Section 2.5
Term of Partnership 8
Section 2.6
Purpose of the Partnership 8
Section 2.7
Actions by Partnership 9
Section 2.8
Continuation and/or Admission of Partners 9
ARTICLE 3 CAPITAL 9
Section 3.1
Contributions to Capital 9
Section 3.2
Rights of Partners in Capital 10
Section 3.3
Capital Accounts 10
Section 3.4
Allocation of Profit and Loss 11
Section 3.5
Tax Allocations 12
Section 3.6
Reserves; Adjustments for Certain Future Events 12
Section 3.7
Finality and Binding Effect of General Partner’s Determinations 13
Section 3.8
Alternative GP Vehicles 13
i
ARTICLE 4 DISTRIBUTIONS 14
Section 4.1
Distributions 14
Section 4.2
Withholding of Certain Amounts 14
Section 4.3
Limitation on Distributions 15
ARTICLE 5 MANAGEMENT 15
Section 5.1
Rights and Powers of the General Partner 15
Section 5.2
Delegation of Duties 16
Section 5.3
Transactions with Affiliates 17
Section 5.4
Expenses 18
Section 5.5
Rights of Limited Partners 18
Section 5.6
Other Activities of Partners 18
Section 5.7
Duty of Care; Indemnification 19
ARTICLE 6 ADMISSIONS, TRANSFERS AND WITHDRAWALS 20
Section 6.1
Admission of Additional Limited Partners; Effect on Points 20
Section 6.2
Admission of Additional General Partner 21
Section 6.3
Transfer of Interests of Limited Partners 22
Section 6.4
Withdrawal of Partners 23
Section 6.5
Pledges 23
ARTICLE 7 ALLOCATION OF POINTS; ADJUSTMENTS OF POINTS AND RETIREMENT OF PARTNERS 24
Section 7.1
Allocation of Points 24
ii
Section 7.2
Retirement of Partner 24
Section 7.3
Effect of Retirement on Points 25
ARTICLE 8 DISSOLUTION AND LIQUIDATION 25
Section 8.1
Liquidation and Dissolution of Partnership 25
ARTICLE 9 GENERAL PROVISIONS 26
Section 9.1
Amendment of Partnership Agreement 26
Section 9.2
Special Power-of-Attorney 27
Section 9.3
Notices 28
Section 9.4
Agreement Binding Upon Successors and Assigns 29
Section 9.5
Merger, Consolidation, etc. 29
Section 9.6
Governing Law 30
Section 9.7
Termination of Right of Action 30
Section 9.8
Confidentiality 30
Section 9.9
Not for Benefit of Creditors 31
Section 9.10
Reports 31
Section 9.11
Filings 31
Section 9.12
Headings, Gender, Etc. 31
iii
FINANCIAL CREDIT INVESTMENT ADVISORS I, L.P.
A Cayman Islands exempted Limited Partnership
FIRST AMENDED AND RESTATED AGREEMENT OF EXEMPTED LIMITED PARTNERSHIP
This First Amended and Restated Agreement of Exempted Limited Partnership (this “Agreement”) of Financial Credit
Investment Advisors I, L.P. (the “Partnership”), a Cayman Islands exempted limited partnership, is dated March 13, 2013 and agreed
as amongst the parties to be of effect from January 7, 2011, by and among Financial Credit I Capital Management, LLC, a Delaware
limited liability company, as the sole general partner of the Partnership (the “General Partner”), and the Persons whose names and
addresses are set forth on the Register of Partners (as defined herein) under the caption Limited Partners.
W I T N E S S E T H :
WHEREAS, the Partnership was formed pursuant to an Initial Exempted Limited Partnership Agreement of the Partnership,
dated October 26, 2010 (the “Original Agreement”), entered into between the General Partner and Apollo Principal Holdings III,
L.P. and registered as an exempted limited partnership under the Partnership Law (as defined herein) on October 26, 2010;
WHEREAS, with effect from August 2, 2011, Apollo Principal Holdings III, L.P. transferred its entire interest as a Limited
Partner to APH Holdings, L.P.; and
WHEREAS, the parties wish to amend and restate the Original Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein made and intending to be legally
bound hereby, the parties hereto hereby agree to amend and restate the Original Agreement in its entirety to read as follows:
ARTICLE 1
DEFINITIONS
“Affiliate” means with respect to any Person any other Person directly or indirectly controlling, controlled by or under
common control with such Person.
“Agreement” means this First Amended and Restated Agreement of Exempted Limited Partnership, as amended or
supplemented from time to time.
“Alternative GP Vehicle” has the meaning ascribed to that term in Section 3.8.
“AGM” means, with reference to any individual Limited Partner, Apollo Global Management, LLC, a Delaware limited
liability company, and any Affiliate that employs such individual to perform services relating to the Fund.
1
“APH” means APH Holdings, L.P., a Cayman Islands exempted limited partnership, in its capacity as a Limited Partner.
“Capital Account” means with respect to each Partner the capital account established and maintained on behalf of such
Partner as described in Section 3.3.
“Capital Loss” means, for each Fund with respect to any Fiscal Year, the portion of any Net Loss and any Portfolio
Investment Loss allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership in
proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
“Capital Profit” means, for each Fund with respect to any Fiscal Year, the portion of any Net Income and any Portfolio
Investment Gain allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership in
proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
“Clawback Payment” means any payment required to be made by the Partnership to any Fund pursuant to Section 10.3 of the
Fund LP Agreement of such Fund.
“Clawback Share” means, with respect to any Limited Partner and any Clawback Payment, a portion of such Clawback
Payment equal to (a) the cumulative amount distributed to such Limited Partner prior to the time of determination of Operating
Profit attributable to the Fund to which the Clawback Payment is required to be made, divided by (b) the cumulative amount so
distributed to all Partners with respect to such Operating Profit attributable to such Fund.
“Co-Investors (A)” means FCI Co-Investors I (A), L.P., a Cayman Islands exempted limited partnership.
“Code” means the United States Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor
law.
“Confidential Information” means information that has not been made publicly available by or with the permission of the
General Partner and that is obtained or learned by a Limited Partner as a result of or in connection with his association with the
Partnership or any of its Affiliates concerning the business, affairs or activities of the Partnership, any of its Affiliates or any of the
Portfolio Investments, including, without limitation, models, codes, client information (including client identity and contacts, client
lists, client financial or personal information), financial data, know-how, computer software and related documentation, trade
secrets, and other forms of sensitive or valuable non-public information obtained or learned by the Limited Partner as a result of such
Limited Partner’s participation in the Partnership. For the avoidance of doubt, Confidential Information does not include information
concerning non-proprietary business or investment practices, methods or relationships customarily employed or entered into by
comparable business enterprises
“Covered Person” has the meaning ascribed to that term in Section 5.7.
2
“Disability” has the meaning ascribed to that term in the Apollo Global Management LLC 2007 Omnibus Equity Incentive
Plan.
“FCI” means Financial Credit Investment I, L.P., a Cayman Islands exempted limited partnership, and any successor thereto,
to the extent the context so requires.
“Final Adjudication” has the meaning ascribed to that term in Section 5.7.
“Fiscal Year” means, with respect to a year, the period commencing on January 1 of such year and ending on December 31
of such year (or on the date of a final distribution pursuant to Section 8.1(a)), unless the General Partner shall elect another fiscal
year for the Partnership which is a permissible taxable year under the Code.
“Fund” means each of FCI and each “Parallel Fund” within the meaning of the Fund LP Agreement of FCI. Such term also
includes each alternative investment vehicle created by FCI and/or any such Parallel Fund, to the extent the context so requires. As
of the date hereof, the Funds are FCI.
“Fund General Partner” means the Partnership in its capacity as a general partner of any of the Funds pursuant to the Fund
LP Agreements.
“Fund LP Agreement” means the limited partnership agreement of any of the Funds, as amended from time to time, and, to
the extent the context so requires, the corresponding constituent agreement, certificate or other document governing each such Fund.
“General Partner” means Financial Credit I Capital Management, LLC, a Delaware limited liability company, in its capacity
as general partner of the Partnership or any successor to the business of the General Partner in its capacity as general partner of the
Partnership.
“Investment Committee” means the committee constituted pursuant to the limited partnership agreement of the Management
Company, as amended from time to time.
“Limited Partner” means any Person admitted as a limited partner to the Partnership in accordance with this Agreement,
including any Retired Partner and any Voting Partner, until such Person is withdrawn entirely as a limited partner of the Partnership
in accordance with the terms hereof, in his capacity as a limited partner of the Partnership. All references herein to a Limited Partner
shall be construed as referring collectively to such Limited Partner and to each Related Party of such Limited Partner (and to each
Person of which such Limited Partner is a Related Party) that also is or that previously was a Limited Partner, except to the extent
that the General Partner determines that the context does not require such interpretation as between such Limited Partner and his
Related Parties. For purposes of the Partnership Law, all Limited Partners shall be considered a single class or group and only those
Persons who are recorded, from time to time, on the Register of Partners shall be deemed to be a limited partner of the Partnership.
“Management Company” has the meaning ascribed to that term in each of the Fund LP Agreements.
3
“Net Income” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Net Loss” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Operating Loss” means, with respect to any Fiscal Year, any net loss of the Partnership, adjusted to exclude (a) any Capital
Profit or Capital Loss and (b) the effect of any reorganization, restructuring or other capital transaction proceeds derived by the
Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be determined in
accordance with the same accounting policies, principles and procedures applicable to the determination by the relevant Fund, and
any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and procedures used by
the Partnership for United States federal income tax purposes.
“Operating Profit” means, with respect to any Fiscal Year, any net income of the Partnership, adjusted to exclude (a) any
Capital Profit or Capital Loss and (b) the effect of any reorganization, restructuring or other capital transaction proceeds derived by
the Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be determined in
accordance with the same accounting policies, principles and procedures applicable to the determination by the relevant Fund, and
any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and procedures used by
the Partnership for United States federal income tax purposes.
“Partner” means the General Partner or any of the Limited Partners, and “Partners” means the General Partner and all of the
Limited Partners.
“Partnership” means the exempted limited partnership continued pursuant to this Agreement.
“Partnership Law” means the Exempted Limited Partnership Law (as amended) of the Cayman Islands, as amended from
time to time and any successor law thereto.
“Permanent Disability” means a Disability that continues for (a) periods aggregating at least 24 months during any period of
48 consecutive months or (b) such shorter period as the General Partner may determine.
“Person” means any individual, partnership (whether or not having separate legal personality), corporation, limited liability
company, joint venture, joint stock company, unincorporated organization or association, trust (including the trustees thereof, in their
capacity as such), government, governmental agency, political subdivision of any government, or other entity.
“Point” means a share of Operating Profit or Operating Loss. The aggregate number of Points available for assignment to all
Partners initially shall be [ ] and shall be subject to adjustment from time to time as provided herein.
“Points Percentage” with respect to any Partner or group of Partners means the percentage determined by dividing the
number of Points held by such Partner or group of Partners by the total number of outstanding Points.
4
“Portfolio Investment” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Portfolio Investment Gain” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Portfolio Investment Loss” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Reference Rate” means the interest rate described in Section 3.1(c) (or the corresponding provision) of each of the Fund LP
Agreements.
“Register of Partners” means the register of partnership interests for the Partnership, recording, as the Partnership Law may
require from time to time, the names of each of the Partners, their Capital Commitments, the date and amount of their Capital
Contributions including the return of any amounts, and their business addresses, maintained by the General Partner (or its designee)
in the books and records of the Partnership.
“Registrar” means the Cayman Islands Registrar of Exempted Limited Partnerships appointed pursuant to Section 8 of the
Partnership Law.
“Related Party” means, with respect to any Limited Partner:
(a) any spouse, child, parent or other lineal descendant of such Limited Partner or such Limited Partner’s parent, or any
natural Person who occupies the same principal residence as the Limited Partner;
(b) any trust or estate in which the Limited Partner and any Related Party or Related Parties (other than such trust or estate)
collectively have more than 80 percent of the beneficial interests (excluding contingent and charitable interests);
(c) any entity of which the Limited Partner and any Related Party or Related Parties (other than such entity) collectively are
beneficial owners of more than 80 percent of the equity interest; and
(d) any Person with respect to whom such Limited Partner is a Related Party.
“Required Voting Partners” means, at any time, at least two-thirds by number of Limited Partners that are Voting Partners at
such time.
“Retired Partner” means any Limited Partner who has become a retired partner in accordance with or pursuant to Section 7.2.
“Retirement Date” means, with respect to any Limited Partner, the date as of which such Person becomes a Retired Partner.
“Team Member” has the meaning ascribed to that term in Section 6.1(c).
5
“Transfer” means any direct or indirect sale, exchange, transfer, assignment or other disposition by a Partner of any or all of
his interest in the Partnership (whether respecting, for example, economic rights only or all the rights associated with the interest) to
another Person, whether voluntary or involuntary.
“United States” or “U.S.” means the United States of America.
“Vested Points” means, with respect to any Retired Partner, the product of such Retired Partner’s Points as of such Retired
Partner’s Retirement Date multiplied by the applicable Vesting Percentage with respect to each of such Points at such time.
“Vesting Percentage” means, with respect to each of the Points of any Retired Partner: [ ].
“Vesting Start Date” means, with respect to each Limited Partner other than APH, the commencement date of the 60-month
vesting period with respect to such Limited Partner, as specified by the General Partner at the time of such Limited Partner’s
admission (which, for the avoidance of doubt, may be a date preceding the applicable admission date).
“Voting Partner” means each of the members of the Investment Committee, so long as he has not become a Retired Partner.
All references herein to a Voting Partner (except in the definition of Required Voting Partners) shall be construed as referring
collectively to such Voting Partner and to each Related Party of such Voting Partner that also is or that previously was a Limited
Partner (unless such Limited Partner is a Retired Partner), except to the extent that the General Partner determines that the context
does not require such interpretation as between such Voting Partner and his Related Parties.
“Winding-Up Event” has the meaning given to that term in Section 2.5 of this Agreement.
Section 2.1 Continuation
ARTICLE 2
FORMATION AND ORGANIZATION
The parties hereto agree to continue the Partnership as an exempted limited partnership pursuant to the Partnership Law on
the terms of this Agreement. The parties hereby agree that for all purposes this Agreement shall take effect and shall be deemed to
have taken effect as at and from January 7, 2011.
Section 2.2 Name
The name of the Partnership continued hereby shall be “Financial Credit Investment Advisors I, L.P.”. The General Partner is
authorized to make any variations in the Partnership’s name which the General Partner may deem necessary or advisable to comply
with the laws of any jurisdiction in which the Partnership may operate (other than any variation which references the name of any
Limited Partner without the prior consent of such Limited Partner); provided that such name shall contain the words “Limited
Partnership”, the abbreviation “L.P.” or the designation “LP” as required by the Partnership Law. The General Partner shall file a
statement in accordance with
6
Section 10 of the Partnership Law with the Registrar and provide written notice to each Limited Partner of any change in the name
of the Partnership.
Section 2.3 Organizational Certificates and Other Filings
If requested by the General Partner, the Limited Partners shall immediately execute all certificates and other documents, and
any amendments or renewals of such certificates and other documents as thereafter required, consistent with the terms of this
Agreement necessary for the General Partner to accomplish all filing, recording, publishing and other acts as may be appropriate to
comply with all requirements for (a) the continuation and operation of the Partnership as an exempted limited partnership under the
laws of the Cayman Islands, (b) if the General Partner deems it advisable, the operation of the Partnership as a limited partnership, or
partnership in which the Limited Partners have limited liability, in all jurisdictions where the Partnership proposes to operate and (c)
all other filings required to be made by the Partnership.
Section 2.4 Offices
(a) The Partnership shall maintain its principal office, and may maintain one or more additional offices, at such place or
places as the General Partner may from time to time determine.
(b) The General Partner shall arrange for the Partnership to have and maintain in the Cayman Islands, at the expense of the
Partnership, a registered office and registered agent for service of process on the Partnership as required by the Partnership Law.
Section 2.5 Term of Partnership
The term of the Partnership commenced at the time of its registration as an exempted limited partnership under the
Partnership Law and shall continue until the first to occur of any of the following events (each a “Winding-Up Event”):
(i) the dissolution (without continuation) of all of the Funds; or
(ii) at any time there are no Limited Partners; or
(iii) upon any event that results in the General Partner ceasing to be a general partner of the Partnership pursuant to
Section 15(5)(a), (b) or (c) of the Partnership Law, provided that the Partnership shall not be dissolved and required to be wound up
in connection with any such event if (A) at the time of the occurrence of such event there is at least one remaining qualifying general
partner of the Partnership who is hereby authorized to and does carry on the business of the Partnership, or (B) within 90 days after
notice of the occurrence of such event, a majority of the Limited Partners agree in writing or vote to continue the business of the
Partnership and to the appointment, effective from the date of such event, if required, of one or more additional general partners of
the Partnership; or
(iv) an order of any court of the Cayman Islands, pursuant to the Partnership Law, for the winding up and
dissolution of the Partnership.
7
(b) The parties agree that irreparable damage would be done to the goodwill and reputation of the Partners if any Limited
Partner should bring an action for the winding up of the Partnership. Care has been taken in this Agreement to provide for fair and
just payment in liquidation of the interests of all Partners. Accordingly, to the fullest extent permitted by law, each Limited Partner
hereby undertakes and agrees and further waives and renounces its right to seek the appointment of a liquidator for the Partnership,
except as expressly provided herein. Further the provisions of Section 15(2), 15(6) and 15(7) of the Partnership Law shall not apply
to the Partnership.
Section 2.6 Purpose of the Partnership
The principal purpose of the Partnership is to act as the sole general partner or as the managing general partner (as the case
may be) of each of the Funds pursuant to their respective Fund LP Agreements and to undertake such related and incidental activities
and execute and deliver such related documents necessary or incidental thereto. The purpose of the Partnership shall be limited to
serving as a general partner of direct investment funds, including any of their Affiliates, and the provision of investment
management and advisory services.
Section 2.7 Actions by Partnership
The Partnership may execute, deliver and perform, and the General Partner may execute and deliver, all contracts,
agreements and other undertakings, and engage in all activities and transactions as may in the opinion of the General Partner be
necessary or advisable to carry out the objects and purposes of the Partnership, without the approval or vote of any Limited Partner.
Section 2.8 Continuation and/or Admission of Partners
On the date hereof, the Persons whose names are set forth on the Register of Partners as “Limited Partners” shall be admitted
to the Partnership or shall continue, as the case may be, as limited partners of the Partnership upon their execution of this
Agreement, or of a deed of adherence to this Agreement, or such other instrument evidencing, to the satisfaction of the General
Partner, such Limited Partner’s intent to become a Limited Partner of the Partnership and to adhere to and be bound by the
provisions of this Agreement. The General Partner agrees to continue as the General Partner of the Partnership upon its execution of
this Agreement.
Section 3.1 Contributions to Capital
ARTICLE 3
CAPITAL
(a) Any required contribution of a Limited Partner to the capital of the Partnership shall be as set forth on the Register of
Partners. Contributions to the capital of the Partnership shall be made on the date of admission of such Limited Partner as a limited
partner of the Partnership and on each such other date as may be specified by the General Partner. Except as otherwise permitted by
the General Partner, all contributions to the capital of the Partnership by each Limited Partner shall be payable exclusively in cash.
8
(b) APH shall make capital contributions from time to time to the extent necessary to ensure that the Partnership meets its
obligations to make contributions of capital to each of the Funds.
(c) No Partner shall be obligated, nor shall any Partner have any right, to make any contribution to the capital of the
Partnership other than as specified in this Section 3.1. No Limited Partner shall be obligated to restore any deficit balance in his
Capital Account.
(d) To the extent, if any, that at the time of the Final Distribution (as defined in each of the Fund LP Agreements), it is
determined that the Partnership, as a general partner of each of the Funds, is required to make any Clawback Payment with respect to
any of the Funds, each Limited Partner shall be required to participate in such payment and contribute to the Partnership for ultimate
distribution to the limited partners of the relevant Fund an amount equal to such Limited Partner’s Clawback Share of any Clawback
Payment, but not in any event in excess of the cumulative amount theretofore distributed to such Limited Partner with respect to the
Operating Profit attributable to such Fund.
Section 3.2 Rights of Partners in Capital
(a) No Partner shall be entitled to interest on his capital contributions to the Partnership.
(b) No Partner shall have the right to distributions or the return of any contribution to the capital of the Partnership except
(i) for distributions in accordance with Section 4.1 or (ii) upon dissolution of the Partnership. The entitlement to any such return at
such time shall be limited to the value of the Capital Account of the Partner. The General Partner shall not be liable for the return of
any such amounts.
Section 3.3 Capital Accounts
(a) The Partnership shall maintain for each Partner a separate Capital Account.
(b) Each Partner’s Capital Account shall have an initial balance equal to the amount of cash and the net value of any
securities or other property constituting such Partner’s initial contribution to the capital of the Partnership.
(c) Each Partner’s Capital Account shall be increased by the sum of:
(i) the amount of cash and the net value of any securities or other property constituting additional contributions by
such Partner to the capital of the Partnership permitted pursuant to Section 3.1, plus
(ii) in the case of APH, any Capital Profit allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iii) the portion of any Operating Profit allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
9
(iv) such Partner’s allocable share of any decreases in any reserves recorded by the Partnership pursuant to Section
3.6 and any receipts determined to be applicable to a prior period pursuant to Section 3.6(b), to the extent the General Partner
determines that, pursuant to any provision of this Agreement, such item is to be credited to such Partner’s Capital Account on a basis
which is not in accordance with the current respective Points of all Partners.
(d) Each Partner’s Capital Account shall be reduced by the sum of (without duplication):
(i) in the case of APH, any Capital Loss allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(ii) the portion of any Operating Loss allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iii) the amount of any cash and the net value of any property distributed to such Partner pursuant to Section 4.1 or
8.1 including any amount deducted pursuant to Section 4.2 or 5.4 from any such amount distributed, plus
(iv) any withholding taxes or other items payable by the Partnership and allocated to such Partner pursuant to
Section 5.4(b), any increases in any reserves recorded by the Partnership pursuant to Section 3.6 and any payments determined to be
applicable to a prior period pursuant to Section 3.6(b), to the extent the General Partner determines that, pursuant to any provision of
this Agreement, such item is to be charged to such Partner’s Capital Account on a basis which is not in accordance with the current
respective Points of all Partners.
Section 3.4 Allocation of Profit and Loss
(a) Allocations of Profit. Capital Profit and Operating Profit for any Fiscal Year shall be allocated to the Partners:
(i) first, to Partners to which Capital Loss and Operating Loss previously have been allocated pursuant to Section
3.4(b), to the extent of and in proportion to the amount of such losses;
(ii) next, to the extent that the cumulative amount of distributions pursuant to Article 4 (other than distributions
representing a return of such Partners’ capital contributions) exceeds the cumulative amount of Capital Profit and Operating Profit
previously allocated to such Partners pursuant to Section 3.4(a), in the order that such distributions occurred; and
(iii) thereafter, any remaining such Capital Profit and Operating Profit shall be allocated among the Partners so as
to produce Capital Accounts (computed after taking into account any other Capital Profit and Operating Profit or Capital Loss and
Operating Loss for the Fiscal Year in which such event occurred and all distributions pursuant to Article 4 with respect to such
Fiscal Year and after adding back each Partner’s share, if any, of Partner Nonrecourse Debt Minimum Gain, as defined in Treasury
Regulations Sections 1.704 - 2(b)(2) and 1.704 - 2(i), or Partnership Minimum Gain, as defined in Treasury Regulations Sections
1.704 - 2(b)(2) and 1.704 - 2(d)) for
10
the Partners such that a distribution of an amount of cash equal to such Capital Account balances in accordance with such Capital
Account balances would be in the amounts, sequence and priority set forth in Article 4.
(b) Allocations of Losses. Subject to the limitation of Section 3.4(c), Capital Loss for any Fiscal Year shall be allocated to
APH, and Operating Loss for any Fiscal Year shall be allocated among the Partners in proportion to their respective Points as of the
close of such Fiscal Year.
(c) To the extent that the allocations of Capital Loss or Operating Loss contemplated by Section 3.4(b) would cause the
Capital Account of any Limited Partner to be less than zero, such Capital Loss or Operating Loss shall to that extent instead be
allocated to and debited against the Capital Account of the General Partner (or, at the direction of the General Partner, to those
Limited Partners who are members of the General Partner in proportion to their limited liability company interests in the General
Partner). Following any such adjustment pursuant to Section 3.4(c) with respect to any Limited Partner, any Capital Profit or
Operating Profit for any subsequent Fiscal Year which would otherwise be credited to the Capital Account of such Limited Partner
pursuant to Section 3.4(a) shall instead be credited to the Capital Account of the General Partner (or relevant Limited Partners) until
the cumulative amounts so credited to the Capital Account of the General Partner (or relevant Limited Partners) with respect to such
Limited Partner pursuant to Section 3.4(c) is equal to the cumulative amount debited against the Capital Account of the General
Partner (or relevant Limited Partners) with respect to such Limited Partner pursuant to Section 3.4(c).
(d) Each Limited Partner’s rights and entitlements as a Limited Partner are limited to the rights to receive allocations and
distributions of Capital Profit and Operating Profit expressly conferred by this Agreement and any side letter or similar agreement
entered into pursuant to Section 9.1(b) and the other rights expressly conferred by this Agreement and any such side letter or similar
agreement to the extent permitted, and save as otherwise expressly prohibited or required, by the Partnership Law, and a Limited
Partner shall not be entitled to any other allocations, distributions or payments in respect of his interest, or to have or exercise any
other rights, privileges or powers.
Section 3.5 Tax Allocations
(a) For United States federal, state and local income tax purposes, Partnership income, gain, loss, deduction or credit (or
any item thereof) for each Fiscal Year shall be allocated to and among the Partners in order to reflect the allocations of Capital
Profit, Capital Loss, Operating Profit and Operating Loss pursuant to the provisions of Section 3.4 for such Fiscal Year, taking into
account any variation between the adjusted tax basis and book value of Partnership property in accordance with the principles of
Section 704(c) of the Code.
(b) If any Partner or Partners are treated for United States federal income tax purposes as realizing ordinary income
because of receiving interests in the Partnership (whether under Section 83 of the Code or under any similar provision of any law,
rule or regulation) and the Partnership is entitled to any offsetting deduction (net of any income realized by the Partnership as a
result of such receipt), the Partnership’s net deduction shall be allocated to and among the Partners in such manner as to offset, as
nearly as possible, the ordinary income realized by such Partner or Partners.
11
Section 3.6 Reserves; Adjustments for Certain Future Events
(a) Appropriate reserves may be created, accrued and charged against the Operating Profit or Operating Loss for
contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner or as of each other
date as the General Partner deems appropriate, such reserves to be in the amounts which the General Partner deems necessary or
appropriate. The General Partner may increase or reduce any such reserve from time to time by such amounts as the General Partner
deems necessary or appropriate. The amount of any such reserve, or any increase or decrease therein, shall be proportionately
charged or credited, as appropriate, to the Capital Accounts of those parties who are Partners at the time when such reserve is
created, increased or decreased, as the case may be, in proportion to their respective Points at such time; provided that, if any
individual reserve item, as adjusted by any increase therein, exceeds the lesser of $500,000 or one percent of the aggregate value of
the Capital Accounts of all such Partners, the amount of such reserve, increase or decrease shall instead be charged or credited to
those parties who were Partners at the time, as determined by the General Partner, of the act or omission giving rise to the contingent
liability for which the reserve item was established in proportion to their respective Points at that time.
(b) If at any time an amount is paid or received by the Partnership and such amount was not accrued or reserved for but
would nevertheless, in accordance with the Partnership’s accounting practices, be treated as applicable to one or more prior periods,
then such amount may be proportionately charged or credited by the General Partner, as appropriate, to those parties who were
Partners during such prior period or periods.
(c) If any amount is required by Section 3.6(a) or (b) to be credited to a Person who is no longer a Partner, such amount
shall be paid to such Person in cash, with interest from the date on which the General Partner determines that such credit is required
at the Reference Rate in effect on that date. Any amount required to be charged pursuant to Section 3.6(a) or (b) shall be debited
against the current balance in the Capital Account of the affected Partners. To the extent that the aggregate current Capital Account
balances of such affected Partners are insufficient to cover the full amount of the required charge, the deficiency shall be debited
against the Capital Accounts of the other Partners in proportion to their respective Capital Account balances at such time; provided
that each such other Partner shall be entitled to a preferential allocation, in proportion to and to the extent of such other Partner’s
share of any such deficiency, together with a carrying charge at a rate equal to the Reference Rate, of any Operating Profit that
would otherwise have been allocable after the date of such charge to the Capital Accounts of the affected Partners whose Capital
Accounts were insufficient to cover the full amount of the required charge. In no event shall a current or former Partner be obligated
to satisfy any amount required to be charged pursuant to Section 3.6(a) or (b) other than by means of a debit against such Partner’s
Capital Account.
Section 3.7 Finality and Binding Effect of General Partner’s Determinations
All matters concerning the determination, valuation and allocation among the Partners with respect to any profit or loss of the
Partnership and any associated items of income, gain, deduction, loss and credit, pursuant to any provision of this Article 3,
including any accounting procedures applicable thereto, shall be determined by the General Partner unless specifically and expressly
12
otherwise provided for by the provisions of this Agreement, and such determinations and allocations shall be final and binding on all
the Partners.
Section 3.8 Alternative GP Vehicles
If the General Partner determines that for legal, tax, regulatory or other reasons (a) any investment or other activities of the
Fund should be conducted through one or more parallel funds or other alternative investment vehicles as contemplated by the Fund
LP Agreement, (b) any of such separate entities comprising the Fund should be managed or controlled by one or more separate
entities serving as a general partner or in a similar capacity (each, an “Alternative GP Vehicle”), and (c) some or all of the Partners
should participate through any such Alternative GP Vehicle, the General Partner may require any or all of the Partners, as
determined by the General Partner, to participate directly or indirectly through any such Alternative GP Vehicle and to undertake
such related and incidental activities and execute and deliver such related documents necessary or incidental thereto with and/or in
lieu of the Partnership, and the General Partner shall have all necessary authority to implement such Alternative GP Vehicle. Each
Partner shall take such actions and execute such documents as the General Partner determines are reasonably needed to accomplish
the foregoing.
Section 4.1 Distributions
ARTICLE 4
DISTRIBUTIONS
(a) Any amount of cash or property received as a distribution from any of the Funds by the Partnership in its capacity as a
partner, to the extent such amount is determined by reference to the capital commitment of the Partnership in, or the capital
contributions of the Partnership to, any of the Funds, shall be promptly distributed by the Partnership to APH.
(b) The General Partner shall use reasonable efforts to cause the Partnership to distribute, as promptly as practicable after
receipt by the Partnership, any available cash or property attributable to items included in the determination of Operating Profit,
subject to the provisions of Section 10.3 of the Fund LP Agreements and subject to the retention of such reserves as the General
Partner considers appropriate for purposes of the prudent and efficient financial operation of the Partnership’s business including in
accordance with Section 3.6 hereof. Any such distributions shall be made to Partners in proportion to their respective Points,
determined:
(i) in the case of any amount of cash or property received from any of the Funds that is attributable to the
disposition of a Portfolio Investment by such Fund, as of the date of such disposition by such Fund; and
(ii) in any other case, as of the date of receipt of such cash or property by the Partnership.
13
(c) Subject to Section 5.2(d)(ii), any other distributions or payments in respect of the interests of Limited Partners shall be
made at such time, in such manner and to such Limited Partners as the General Partner shall determine.
(d) The General Partner may cause the Partnership to pay distributions to the Partners at any time in addition to those
contemplated by Section 4.1(a), (b) or (c), in cash or in kind; provided that the General Partner shall only make a distribution in kind
either to all Partners ratably or to those Partners who have agreed to accept such a distribution in kind. Distributions of any such
amounts shall be made to the Partners in proportion to their respective Points, determined immediately prior to giving effect to such
distribution.
Section 4.2 Withholding of Certain Amounts
(a) If the Partnership incurs a withholding tax or other tax obligation with respect to the share of Partnership income
allocable to any Partner, then the General Partner, without limitation of any other rights of the Partnership, may cause the amount of
such obligation to be debited against the Capital Account of such Partner when the Partnership pays such obligation, and any
amounts then or thereafter distributable to such Partner shall be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such then distributable amounts, then such Partner and any successor to such Partner’s interest shall indemnify and
hold harmless the Partnership and the General Partner against, and shall pay to the Partnership as a contribution to the capital of the
Partnership, upon demand of the General Partner, the amount of such excess.
(b) The General Partner may withhold from any distribution to any Limited Partner pursuant to this Agreement any other
amounts due from such Limited Partner to the Partnership or to any other Affiliate of AGM to the extent not otherwise paid. Any
amounts so withheld shall be applied by the General Partner to discharge the obligation in respect of which such amounts were
withheld.
Section 4.3 Limitation on Distributions
Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on
behalf of the Partnership, shall not make a distribution to any Partner on account of his interest in the Partnership if such distribution
would violate the Partnership Law or other applicable law.
Section 5.1 Rights and Powers of the General Partner
ARTICLE 5
MANAGEMENT
(a) Subject to the terms and conditions of this Agreement, the General Partner shall have complete and exclusive
responsibility (i) for all management decisions to be made on behalf of the Partnership and (ii) for the conduct of the business and
affairs of the Partnership, including all such decisions and all such business and affairs to be made or conducted by the Partnership in
its capacity as Fund General Partner of any of the Funds.
14
(b) Without limiting the generality of the foregoing, the General Partner shall have full power and authority to execute,
deliver and perform such contracts, agreements and other undertakings, and to engage in all activities and transactions, as it may
deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Section 5.1, including,
without in any manner limiting the generality of the foregoing, contracts, agreements, undertakings and transactions with any Partner
or with any other Person having any business, financial or other relationship with any Partner or Partners; provided that the General
Partner shall not have authority to cause the Partnership to borrow any funds for its own account on a secured basis without the
consent of the Required Voting Partners. The Partnership, and the General Partner on behalf of the Partnership, may enter into and
perform the Fund LP Agreements and any documents contemplated thereby or related thereto and any amendments thereto, without
any further act, vote or approval of any Person, including any Partner, notwithstanding any other provision of this Agreement. The
General Partner is hereby authorized to enter into the documents described in the preceding sentence on behalf of the Partnership,
but such authorization shall not be deemed a restriction on the power of the General Partner to enter into other documents on behalf
of the Partnership. Except as otherwise expressly provided herein or as required by law, all powers and authority vested in the
General Partner by or pursuant to this Agreement or the Partnership Law shall be construed as being exercisable by the General
Partner in its sole and absolute discretion.
(c) The General Partner, or a Limited Partner designated by the General Partner, shall be the tax matters partner for
purposes of Section 6231(a)(7) of the Code. Each Partner agrees not to treat, on his United States federal income tax return or in any
claim for a refund, any item of income, gain, loss, deduction or credit in a manner inconsistent with the treatment of such item by the
Partnership. The General Partner shall have the exclusive authority to make any elections required or permitted to be made by the
Partnership under any provisions of the Code or any other law.
Section 5.2 Delegation of Duties
(a) Subject to Section 5.1 and Section 5.2(d), the General Partner may delegate to any Person or Persons any of the duties,
powers and authority vested in it hereunder on such terms and conditions as it may consider appropriate.
(b) Without limiting the generality of Section 5.2(a), but subject to the limitations contained in Section 5.2(d), the General
Partner shall have the power and authority to appoint any Person, including any Person who is a Limited Partner, to provide services
to the Partnership and/or to act as an employee of the Partnership or agent of the General Partner, with such titles and duties as may
be specified by the General Partner, including the following:
(i) a chief financial officer, to whom the General Partner may delegate its authority to disburse funds for the
account of the Partnership and the Funds for any proper purpose, to establish deposit accounts with banks or other financial
institutions, to make permitted investments of Partnership assets, and to take any other permitted actions pertaining to the finances of
the Partnership and the Funds;
15
(ii) a chief accounting officer, to whom the General Partner may delegate its authority to prepare and maintain
financial and accounting books, records and statements of the Partnership and the Funds; and
(iii) one or more vice presidents, treasurers and controllers, to whom the General Partner may delegate its authority
to execute any of its decisions and to take any other permitted actions on behalf of the Partnership (including in its capacity as a
Fund General Partner of any of the Funds) subject to the supervision of the chief executive officer, the chief financial officer or the
chief accounting officer.
Any Person appointed by the General Partner to serve as an officer, employee or agent of the Partnership and/or the General Partner
shall be subject to removal at any time by the General Partner; and shall report to and consult with the General Partner at such times
and in such manner as the General Partner may direct.
(c) Any Person who is a Limited Partner and to whom the General Partner delegates any of its duties pursuant to this
Section 5.2 or any other provision of this Agreement shall be subject to the same standard of care, and shall be entitled to the same
rights of indemnification and exoneration, applicable to the General Partner under and pursuant to Section 5.7, unless such Person
and the General Partner mutually agree to a different standard of care or right to indemnification and exoneration to which such
Person shall be subject.
(d) Except as otherwise expressly provided herein, action by the General Partner with respect to any of the following
matters shall be taken only in accordance with the directions of the Required Voting Partners:
(i) the waiver of any provision of Section 5.6 hereof concerning other activities of Limited Partners;
(ii) the amount and timing of any discretionary distribution to Partners pursuant to Section 4.1(c), and any decision
to pay any distribution to Partners in kind;
(iii) the exercise of the authority of the Partnership to (A) cause any of the Funds to pay a distribution in kind and
(B) elect to receive any such distribution in kind;
(iv) the exercise of the Partnership’s authority to borrow any funds on a secured basis for the account of the
Partnership;
(v) the determination of whether to conduct a business other than serving as a general partner of the Funds; and
(vi) to the fullest extent permitted by law, the voluntary dissolution of the Partnership, and the exercise of the
authority of the Partnership to cause a voluntary dissolution of any of the Funds.
The foregoing shall not restrict the General Partner from delegating authority to execute or implement any such determinations made
by the General Partner.
16
(e) The General Partner shall be permitted to designate one or more committees of the Partnership which committees may
include Limited Partners as members. Any such committees shall have such powers and authority granted by the General Partner.
Any Limited Partner who has agreed to serve on a committee shall not be deemed to have the power to bind or act for or on behalf of
the Partnership in any manner and in no event shall a member of a committee be considered a general partner of the Partnership by
agreement, estoppel or otherwise or be deemed to participate in the control and/or conduct of the business of the Partnership as a
result of the performance of his duties hereunder or otherwise.
(f) The General Partner shall cause the Partnership to enter into an arrangement with the Management Company which
arrangement shall require the Management Company to pay all costs and expenses of the Partnership.
Section 5.3 Transactions with Affiliates
To the fullest extent permitted by applicable law, the General Partner (or any Affiliate of the General Partner), when acting
on behalf of the Partnership, is hereby authorized to (a) purchase property from, sell property to, lend money to or otherwise deal
with any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of any of the foregoing Persons, and (b)
obtain services from any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of the foregoing Persons.
Section 5.4 Expenses
(a) Subject to the arrangement contemplated by Section 5.2(f), the Partnership will pay, or will reimburse the General
Partner for, all costs and expenses arising in connection with the organization and operations of the Partnership.
(b) Any withholding taxes payable by the Partnership, to the extent determined by the General Partner to have been paid or
withheld on behalf of, or by reason of particular circumstances applicable to, one or more but fewer than all of the Partners, shall be
allocated among and debited against the Capital Accounts of only those Partners on whose behalf such payments are made or whose
particular circumstances gave rise to such payments in accordance with Section 4.2.
Section 5.5 Rights of Limited Partners
(a) Limited Partners shall have no right to take part in the management, control or conduct of the Partnership’s business,
nor shall they have any right or authority to act for the Partnership or to vote on matters other than as set forth in this Agreement or
as required by applicable law.
(b) Without limiting the generality of the foregoing, the General Partner shall have the full and exclusive authority,
without the consent of any Limited Partner, to compromise the obligation of any Limited Partner to make a capital contribution or to
return money or other property paid or distributed to such Limited Partner in violation of the Partnership Law.
17
(c) Nothing in this Agreement shall entitle any Partner to any compensation for services rendered to or on behalf of the
Partnership as an agent or in any other capacity, except for any amounts payable in accordance with this Agreement.
Section 5.6 Other Activities of Partners
(a) No Limited Partner other than a Retired Partner shall engage in any occupation, profession, employment or other
business, as an officer, director, partner, manager, member, employee, agent, consultant or otherwise, without the prior written
consent of the General Partner, unless such activity is carried out on behalf of the Partnership or an Affiliate.
(b) Subject to the Fund LP Agreements (including, without limitation, Section 6.7 thereof) and to full compliance with the
Partnership’s code of ethics and other written policies relating to personal investment transactions, membership in the Partnership
shall not prohibit a Limited Partner from purchasing or selling as a passive investor any interest in any asset.
(c) Nothing in this Agreement shall prohibit the General Partner from engaging in any activity other than acting as General
Partner hereunder.
Section 5.7 Duty of Care; Indemnification
(a) The General Partner (including, without limitation, for this purpose each former and present director, officer, manager,
member, employee and stockholder of the General Partner) and each Limited Partner (including any former Limited Partner) in his
capacity as such, and to the extent such Limited Partner participates, directly or indirectly, in the Partnership’s activities, whether or
not a Retired Partner (each, a “Covered Person” and collectively, the “Covered Persons”), shall not be liable to the Partnership or to
any of the other Partners for any loss, claim, damage or liability occasioned by any acts or omissions in the performance of his
services hereunder, unless it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a
“Final Adjudication”) that such loss, claim, damage or liability is due to an act or omission of a Covered Person (i) made in bad faith
or with criminal intent or (ii) that adversely affected any Fund and that failed to satisfy the duty of care owed pursuant to the
applicable Fund LP Agreement or as otherwise required by law.
(b) A Covered Person shall be indemnified to the fullest extent permitted by law by the Partnership against any losses,
claims, damages, liabilities and expenses (including attorneys’ fees, judgments, fines, penalties and amounts paid in settlement)
incurred by or imposed upon him by reason of or in connection with any action taken or omitted by such Covered Person arising out
of the Covered Person’s status as a Partner or his activities on behalf of the Partnership, including in connection with any action,
suit, investigation or proceeding before any judicial, administrative, regulatory or legislative body or agency to which it may be
made a party or otherwise involved or with which it shall be threatened by reason of being or having been the General Partner or a
Limited Partner or by reason of serving or having served, at the request of the Partnership in its capacity as Fund General Partner of
the Funds, as a director, officer, consultant, advisor, manager, member or partner of any enterprise in which any of the Funds has or
had a financial interest, including issuers of Portfolio Investments; provided that the Partnership may, but shall not be required to,
indemnify
18
a Covered Person with respect to any matter as to which there has been a Final Adjudication that his acts or his failure to act (i) were
in bad faith or with criminal intent or (ii) were of a nature that makes indemnification by the Funds unavailable. The right to
indemnification granted by this Section 5.7 shall be in addition to any rights to which a Covered Person may otherwise be entitled
and shall inure to the benefit of the successors by operation of law or valid assigns of such Covered Person. The Partnership shall
pay the expenses incurred by a Covered Person in defending a civil or criminal action, suit, investigation or proceeding in advance of
the final disposition of such action, suit, investigation or proceeding, upon receipt of an undertaking by the Covered Person to repay
such payment if there shall be a Final Adjudication that he is not entitled to indemnification as provided herein. In any suit brought
by the Covered Person to enforce a right to indemnification hereunder it shall be a defense that the Covered Person has not met the
applicable standard of conduct set forth in this Section 5.7, and in any suit in the name of the Partnership to recover expenses
advanced pursuant to the terms of an undertaking the Partnership shall be entitled to recover such expenses upon Final Adjudication
that the Covered Person has not met the applicable standard of conduct set forth in this Section 5.7. In any such suit brought to
enforce a right to indemnification or to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the Covered Person is not entitled to be indemnified, or to an advancement of expenses, shall be on the Partnership (or
any Limited Partner acting derivatively or otherwise on behalf of the Partnership or the Limited Partners). The General Partner may
not satisfy any right of indemnity or reimbursement granted in this Section 5.7 or to which it may be otherwise entitled except out of
the assets of the Partnership (including, without limitation, insurance proceeds and rights pursuant to indemnification agreements),
and no Partner shall be personally liable with respect to any such claim for indemnity or reimbursement. The General Partner may
enter into appropriate indemnification agreements and/or arrangements reflective of the provisions of this Article 5 with any
Covered Person, whether or not such Covered Person is themselves a party to this Agreement, and obtain appropriate insurance
coverage on behalf and at the expense of the Partnership to secure the Partnership’s indemnification obligations hereunder without
the further consent of any Limited Partner. Subject to applicable law, each Covered Person shall be deemed a third party beneficiary
(to the extent not a direct party hereto) to this Agreement and, in particular, the provisions of this Article 5, and shall be entitled to
the benefit of the indemnity granted to the Partnership by each of the Funds pursuant to the terms of the Fund LP Agreements.
(c) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating
thereto to the Partnership or the Partners, the Covered Person shall not be liable to the Partnership or to any Partner for his good faith
reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or eliminate the duties
and liabilities of a Covered Person otherwise existing at law or in equity to the Partnership or the Partners, are agreed by the Partners
to replace such other duties and liabilities of each such Covered Person, save that the General Partner shall act at all times in good
faith in accordance with the requirements of the Partnership Law.
(d) Notwithstanding any of the foregoing provisions of this Section 5.7, the Partnership may but shall not be required to
indemnify (i) a Retired Partner (or any other former Limited Partner) with respect to any claim for indemnification or advancement
of expenses arising from any conduct occurring more than six months after the date of such Person’s retirement (or other withdrawal
or
19
departure), or (ii) a Limited Partner with respect to any claim for indemnification or advancement of expenses as a director, officer
or agent of the issuer of any Portfolio Investment to the extent arising from conduct in such capacity occurring more than six months
after the complete disposition of such Portfolio Investment by the Fund.
ARTICLE 6
ADMISSIONS, TRANSFERS AND WITHDRAWALS
Section 6.1 Admission of Additional Limited Partners; Effect on Points
(a) The General Partner may at any time admit as an additional Limited Partner any Person who has agreed to be become a
limited partner of the Partnership and to adhere to and be bound by the provisions of this Agreement and assign Points to such
Person and/or increase the Points of any existing Limited Partner. Once assigned, such Points shall not be subject to forfeiture except
as contemplated pursuant to Section 7.3 in connection with a Partner’s retirement.
(b) Each additional Limited Partner shall execute a deed of adherence, in a form satisfactory to the General Partner, to this
Agreement pursuant to which such Limited Partner undertakes and agrees to become a Limited Partner of the Partnership and to
adhere to and be bound by the provisions of this Agreement on admission as a Limited Partner.
(c) No Team Member shall experience a Points Percentage reduction as a consequence of an award of Points to any other
new or existing Partner unless, after giving effect to all Points adjustments in connection with any such award:
(i) Team Members will hold at least [ ] Points;
(ii) such Team Member’s Points Percentage will not be less than two percent; and
(iii) x/y
will not be less than a/b
, where:
x
= such Team Member’s new Points Percentage
y
= such Team Member’s previous Points Percentage
a
= APH’s new Points Percentage
b
= APH’s previous Points Percentage
For purposes of the foregoing, the term “Team Member” means (x) a natural person who is actively involved, directly or indirectly,
in the Fund’s investment program, (y) a Retired Partner who was so involved prior to his Retirement Date, or (z) a Related Party of
the foregoing.
Section 6.2 Admission of Additional General Partner
20
The General Partner may admit one or more additional general partners at any time without the consent of any Limited
Partner other than the Required Voting Partners and any other Voting Partner whose Points are proposed to be reduced in connection
with such admission. No reduction in the Points Percentage of any Limited Partner shall be made as a result of the admission of an
additional general partner or the increase in the Points of any general partner without the consent of such Limited Partner. Any
additional general partner shall, for the purposes of this Agreement, be deemed admitted as a general partner of the Partnership upon
its execution of a deed of adherence, in a form satisfactory to the General Partner, to this Agreement pursuant to which such person
undertakes and agrees to become a General Partner of the Partnership and to adhere to and be bound by the provisions of this
Agreement on admission as a General Partner. The incumbent General Partner shall make such filings with the Registrar as are
necessary pursuant to the Partnership Law to effect the legal admission of any additional general partner of the Partnership.
Section 6.3 Transfer of Interests of Limited Partners
(a) No Transfer of any Limited Partner’s interest in the Partnership, whether voluntary or involuntary, shall be valid or
effective, and no transferee shall become a substituted Limited Partner, unless the prior written consent of the General Partner has
been obtained, which consent may be given or withheld by the General Partner. In the event of any Transfer, all of the conditions of
the remainder of this Section 6.3 must also be satisfied.
(b) A Limited Partner or his legal representative shall give the General Partner notice before the proposed effective date of
any voluntary Transfer and within 30 days after any involuntary Transfer, and shall provide sufficient information to allow legal
counsel acting for the Partnership to make the determination that the proposed Transfer will not result in any of the following
consequences:
(i) require registration of the Partnership or any interest therein under any securities or commodities laws of any
jurisdiction;
(ii) result in a termination of the Partnership under Section 708(b)(1)(B) of the Code or jeopardize the status of the
Partnership as a partnership for United States federal income tax purposes; or
(iii) violate, or cause the Partnership, the General Partner or any Limited Partner to violate, any applicable law, rule
or regulation of any jurisdiction.
Such notice must be supported by proof of legal authority and a valid instrument of assignment acceptable to the General Partner.
(c) In the event any Transfer permitted by this Section 6.3 shall result in the multiple beneficial ownership of any Limited
Partner’s interest in the Partnership, the General Partner may require one or more trustees or nominees, whose names will be entered
on the Register of Partners, to be designated to hold the legal title to the interest and to represent the entire interest transferred for the
purpose of receiving all notices which may be given and all payments which may be made under this Agreement, and for the
purpose of exercising the rights which the transferees have
21
pursuant to the provisions of this Agreement. The Partnership shall not otherwise be required to recognize any trust or other
beneficial ownership of any interest.
(d) A permitted transferee shall be entitled to the allocations and distributions attributable to the interest in the Partnership
transferred to such transferee and to Transfer such interest in accordance with the terms of this Agreement; provided that such
transferee shall not be entitled to the other rights of a Limited Partner as a result of such transfer until he becomes a substituted
Limited Partner. No transferee may become a substituted Limited Partner except with the prior written consent of the General
Partner (which consent may be given or withheld by the General Partner). Such transferee shall be admitted to the Partnership as a
substituted Limited Partner upon execution of a deed of adherence, in a form satisfactory to the General Partner, to this Agreement
pursuant to which such transferee undertakes and agrees to become a Limited Partner of the Partnership and to adhere to and be
bound by the provisions of this Agreement on admission as a Limited Partner. Notwithstanding the above, the Partnership and the
General Partner shall incur no liability for allocations and distributions made in good faith to the transferring Limited Partner until a
written instrument of Transfer has been received and accepted by the Partnership and recorded on its books and the effective date of
the Transfer has passed.
(e) Any other provision of this Agreement to the contrary notwithstanding, to the fullest extent permitted by law, any
successor or transferee of any Limited Partner’s interest in the Partnership shall be bound by the provisions hereof. Prior to
recognizing any Transfer in accordance with this Section 6.3, the General Partner may require the transferee to make certain
representations and warranties to the Partnership and Partners and to accept, adopt and approve in writing all of the terms and
provisions of this Agreement.
(f) In the event of a Transfer or in the event of a distribution of assets of the Partnership to any Partner, the Partnership, at
the direction of the General Partner, may, but shall not be required to, file an election under Section 754 of the Code and in
accordance with the applicable Treasury Regulations, to cause the basis of the Partnership’s assets to be adjusted as provided by
Section 734 or 743 of the Code.
(g) No transfer of a partnership interest shall be effective until the transfer of the partnership interest is registered by the
General Partner on the Register of Partners.
Section 6.4 Withdrawal of Partners
A Partner in the Partnership may not withdraw from the Partnership prior to its dissolution. For the avoidance of doubt, any
Limited Partner who transfers to a Related Party such Limited Partner’s entire remaining entitlement to allocations and distributions
shall remain a Limited Partner, notwithstanding the admission of the transferee Related Party as a Limited Partner, for as long as the
transferee Related Party remains a Limited Partner.
Section 6.5 Pledges
22
(a) A Limited Partner shall not pledge or grant a security interest in such Limited Partner’s interest in the Partnership
unless the prior written consent of the General Partner has been obtained (which consent may be given or withheld by the General
Partner).
(b) Any partnership interest in the Partnership may be evidenced by a certificate issued by the Partnership in such form as
the General Partner may approve.
(c) Each certificate representing a partnership interest in the Partnership shall be executed by manual or facsimile signature
of the General Partner on behalf of the Partnership.
ARTICLE 7
ALLOCATION OF POINTS; ADJUSTMENTS OF POINTS
AND RETIREMENT OF PARTNERS
Section 7.1 Allocation of Points
(a) Except as otherwise provided herein, the General Partner shall be responsible for the allocation of Points from time to
time to the Limited Partners. The allocation of Points to any Limited Partner who is invited to become a member of Co-Investors (A)
shall not become effective until the effective date of the acceptance by Co-Investors (A) of a capital commitment from such Limited
Partner (or his Related Party, as applicable) in a mutually agreed amount. Points allocated to a Limited Partner, and the Points
Percentage represented by such Points, may not be reduced except as set forth in Section 6.1 and Section 7.3.
(b) The General Partner shall maintain on the books and records of the Partnership a record of the number of Points
allocated to each Partner and shall give notice to each Limited Partner of the number of such Limited Partner’s Points upon
admission to the Partnership of such Limited Partner and promptly upon any change in such Limited Partner’s Points pursuant to this
Article 7 or otherwise.
Section 7.2 Retirement of Partner
(a) A Limited Partner shall become a Retired Partner upon:
(i) delivery to such Limited Partner of a notice by the General Partner declaring such Limited Partner to be a
Retired Partner (which shall be deemed to have been given upon delivery of a notice terminating such Limited Partner’s employment
by AGM, unless otherwise determined by the General Partner);
(ii) a date specified in a notice delivered by such Limited Partner to the General Partner stating that such Limited
Partner elects to become a Retired Partner, which date shall not be less than 60 days after the General Partner’s receipt of such
notice; or
(iii) the death of the Limited Partner, whereupon the estate of the deceased Limited Partner shall be treated as a
Retired Partner in the place of the deceased Limited Partner, or the Permanent Disability of the Limited Partner.
23
(b) Nothing in this Agreement shall obligate the General Partner to treat Retired Partners alike, and the exercise of any
power or discretion by the General Partner in the case of any one such Retired Partner shall not create any obligation on the part of
the General Partner to take any similar action in the case of any other such Retired Partner, it being understood that any power or
discretion conferred upon the General Partner shall be treated as having been so conferred as to each such Retired Partner separately.
Section 7.3 Effect of Retirement on Points
(a) The Points of any Limited Partner who becomes a Retired Partner shall be reduced automatically to an amount equal to
such Limited Partner’s Vested Points calculated as of the Retirement Date. Any such reduction shall be effective on the Retirement
Date or such subsequent date as may be determined by the General Partner; provided that the General Partner may agree to a lesser
reduction (or to no reduction) of the Points of any such Limited Partner who becomes a Retired Partner.
(b) The General Partner shall determine the manner of apportioning any Points that become available for reallocation
pursuant to Section 7.3(a) as a result of any Partner becoming a Retired Partner.
(c) Except as contemplated by Section 7.3(a), the General Partner shall have no authority under the provisions of this
Agreement to reduce the Points of any Limited Partner.
Section 8.1 Liquidation and Dissolution of Partnership
ARTICLE 8
DISSOLUTION AND LIQUIDATION
(a) The General Partner, except where, the General Partner is unable to perform this function, a liquidator elected by a
majority in interest (determined by Points) of Limited Partners, shall commence the winding-up of the Partnership pursuant to
Section 15(1) of the Partnership Law upon occurrence of any Winding-Up Event. The General Partner or appointed liquidator shall
terminate the business and administrative affairs of the Partnership and commence the liquidation of the Partnership’s assets.
(b) Capital Profit and Capital Loss, Operating Profit and Operating Loss during the Fiscal Years that include the period of
liquidation shall be allocated pursuant to Section 3.4. The proceeds from liquidation shall be distributed in the following manner:
(i) first, the debts, liabilities and obligations of the Partnership including the expenses of liquidation (including
legal and accounting expenses incurred in connection therewith), up to and including the date that distribution of the Partnership’s
assets to the Partners has been completed, shall be satisfied (whether by payment or by making reasonable provision for payment
thereof); and
24
(ii) thereafter, the Partners shall be paid amounts pro rata in accordance with and up to the positive balances of
their respective Capital Accounts, as adjusted pursuant to Article 3.
(c) Anything in this Section 8.1 to the contrary notwithstanding, the General Partner or liquidator may distribute ratably in
kind rather than in cash, upon the winding-up of the Partnership, any assets of the Partnership in accordance with the priorities set
forth in Section 8.1(a), provided that if any in kind distribution is to be made the assets distributed in kind shall be valued as of the
actual date of their distribution and charged as so valued and distributed against amounts to be paid under Section 8.1(a).
(d) Upon completion of the winding-up of the Partnership in accordance with the terms hereof the Partnership shall be
dissolved by the filing of a notice of dissolution in accordance with the provisions of the Partnership Law.
Section 9.1 Amendment of Partnership Agreement
ARTICLE 9
GENERAL PROVISIONS
(a) The General Partner may amend this Agreement at any time, in whole or in part, without the consent of any Limited
Partner by giving notice of such amendment to any Limited Partner whose rights or obligations as a Limited Partner pursuant to this
Agreement are changed thereby; provided that any amendment that would effect a material adverse change in the contractual rights
of a Partner may only be made if the written consent of such Partner is obtained prior to the effectiveness thereof. Notwithstanding
the foregoing, the General Partner may amend this Agreement at any time, in whole or in part, without the consent of any Limited
Partner (other than a Limited Partner whose rights to allocations and distributions would suffer a material adverse change as a result
of such amendment), to enable the Partnership to comply with the requirements of the “Safe Harbor” Election within the meaning of
the Proposed Revenue Procedure of Notice 2005-43, 2005-24 IRB 1, Proposed Treasury Regulation Section 1.83-3(e)(1) or
Proposed Treasury Regulation Section 1.704-1(b)(4)(xii) at such time as such proposed Procedure and Regulations are effective and
to make any such other related changes as may be required by pronouncements or Treasury Regulations issued by the Internal
Revenue Service or Treasury Department after the date of this Agreement. An adjustment of Points shall not be considered an
amendment to the extent effected in compliance with the provisions of Section 6.1 or 7.3 as in effect on the date hereof or as
hereafter amended in compliance with the requirements of this Section 9.1(a). The General Partner’s approval of or consent to any
transaction resulting in the substitution of another Person in place of the Partnership as the managing or general partner of any of the
Funds or any change to the scheme of distribution under any of the Fund LP Agreements that would have the effect of reducing the
Partnership’s allocable share of the Net Income of any Fund shall require the consent of any Limited Partner adversely affected
thereby.
(b) Notwithstanding the provisions of this Agreement, including Section 9.1(a), it is hereby acknowledged and agreed that
the General Partner on its own behalf or on behalf of the Partnership without the approval of any Limited Partner or any other Person
may enter into one or more side letters or similar agreements with one or more Limited Partners which have the effect of
25
establishing rights under, or altering or supplementing the terms of this Agreement. The parties hereto agree that any terms contained
in a side letter or similar agreement with one or more Limited Partners shall govern with respect to such Limited Partner or Limited
Partners notwithstanding the provisions of this Agreement. Any such side letters or similar agreements shall be binding upon the
Partnership or the General Partner, as applicable, and the signatories thereto as if the terms were contained in this Agreement, but no
such side letter or similar agreement between the General Partner and any Limited Partner or Limited Partners and the Partnership
shall adversely amend the contractual rights of any other Limited Partner without such other Limited Partner’s prior consent.
Section 9.2 Special Power-of-Attorney
(a) Each Partner hereby irrevocably makes, constitutes and appoints the General Partner with full power of substitution,
the true and lawful representative and attorney-in-fact, and in the name, place and stead of such Partner, with the power from time to
time to make, execute, sign, acknowledge, swear to, verify, deliver, record, file and/or publish:
(i) any amendment to this Agreement which complies with the provisions of this Agreement (including the
provisions of Section 9.1);
(ii) all such other instruments, documents and certificates which, in the opinion of legal counsel to the Partnership,
may from time to time be required by the laws of the Cayman Islands or any other jurisdiction, or which such legal counsel may
deem necessary or appropriate to effectuate, implement and continue the valid and subsisting existence and business of the
Partnership as an exempted limited partnership or partnership in which the limited partners thereof enjoy limited liability;
(iii) all such instruments, certificates, agreements and other documents relating to the conduct of the investment
program of any of the Funds which, in the opinion of such attorney-in-fact and the legal counsel to the Funds, are reasonably
necessary to accomplish the legal, regulatory and fiscal objectives of the Funds in connection with its or their acquisition, ownership
and disposition of investments, including, without limitation:
(A)
the governing documents of any management entity formed as a part of the tax planning for any of the
Funds and any amendments thereto; and
(B)
documents relating to any restructuring transaction with respect to any of the Funds’ investments,
provided
that such documents referred to in clauses (A) and (B) above, viewed individually or in the
aggregate, provide substantially equivalent financial and economic rights with respect to such Limited
Partner and otherwise do not:
(1)
increase the Limited Partner’s overall financial obligation to make capital contributions with
respect to the relevant Fund
26
(2)
(3)
(4)
(directly or through any associated vehicle in which the Limited Partner holds an interest);
diminish the Limited Partner’s overall entitlement to share in profits and distributions with
respect to the relevant Fund (directly or through any associated vehicle in which the Limited
Partner holds an interest);
cause the Limited Partner to become subject to increased personal liability for any debts or
obligations of the Partnership; or
otherwise result in an adverse change in the overall rights or obligations of the Limited Partner
in relation to the conduct of the investment program of any of the Funds;
(iv) any instrument or document necessary or advisable to implement the provisions of Section 3.8 of this
Agreement;
(v) any written notice or letter of resignation from any board seat or office of any Person (other than a company
that has a class of equity securities registered under the United States Securities Exchange Act of 1934, as amended, or that is
registered under the United States Investment Company Act of 1940, as amended), which board seat or office was occupied or held
at the request of the Partnership or any of its Affiliates; and
(vi) all such proxies, consents, assignments and other documents as the General Partner determines to be necessary
or advisable in connection with any merger or other reorganization, restructuring or other similar transaction entered into in
accordance with this Agreement (including the provisions of Section 9.5(c)).
(b) Each Limited Partner is aware that the terms of this Agreement permit certain amendments to this Agreement to be
effected and certain other actions to be taken or omitted by or with respect to the Partnership without his consent. If an amendment
to this Agreement or any action by or with respect to the Partnership is taken by the General Partner in the manner contemplated by
this Agreement, each Limited Partner agrees that, notwithstanding any objection which such Limited Partner may assert with respect
to such action, the General Partner is authorized and empowered, with full power of substitution, to exercise the authority granted
above in any manner which may be necessary or appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Partner is fully aware that each other Partner will rely on the effectiveness of this power-of-attorney with a view to the
orderly administration of the affairs of the Partnership. Each Limited Partner agrees that the power-of-attorney granted hereby is
intended to secure an interest in property and, in addition, the obligations of each such Limited Partner under this Agreement and as
such:
27
(i) shall be irrevocable and continue in full force and effect notwithstanding the subsequent death or incapacity of
any party granting this power-of-attorney, regardless of whether the Partnership or the General Partner shall have had notice thereof;
and
(ii) shall survive any Transfer by a Limited Partner of the whole or any portion of its interest in the Partnership,
except that, where the transferee thereof has been approved by the General Partner for admission to the Partnership as a substituted
Limited Partner, this power of attorney given by the transferor shall survive such Transfer for the sole purpose of enabling the
General Partner to execute, acknowledge and file any instrument necessary to effect such substitution.
Section 9.3 Notices
Any notice required or permitted to be given under this Agreement shall be in writing. A notice to the General Partner shall
be directed to the attention of Leon D. Black with a copy to the general counsel of the Partnership. A notice to a Limited Partner
shall be directed to such Limited Partner’s last known residence as set forth in the books and records of the Partnership or its
Affiliates (a Limited Partner’s “Home Address”). A notice shall be considered given when delivered to the addressee either by hand
at his Partnership office or electronically to the primary e-mail account supplied by the Partnership for Partnership business
communications, except that a notice to a Retired Partner shall be considered given when delivered by hand by a recognized
overnight courier together with mailing through the United States Postal System by regular mail to such Retired Partner’s Home
Address.
Section 9.4 Agreement Binding Upon Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors by operation of
law, but the rights and obligations of the Partners hereunder shall not be assignable, transferable or delegable except as expressly
provided herein, and any attempted assignment, transfer or delegation thereof that is not made in accordance with such express
provisions shall be void and unenforceable.
Section 9.5 Merger, Consolidation, etc.
(a) Subject to Sections 9.5(b) and 9.5(c), the Partnership may merge or consolidate with or into one or more limited
partnerships formed under any applicable law or other business entities under applicable law pursuant to an agreement of merger or
consolidation which has been approved by the General Partner.
(b) Subject to Section 9.1(a) but notwithstanding any other provision to the contrary contained elsewhere in this
Agreement, an agreement of merger or consolidation approved in accordance with Section 9.5(a) may, to the extent permitted by
Section 9.5(a), (i) effect any amendment to this Agreement, (ii) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership in the merger or consolidation, or (iii) provide that the partnership
agreement of any other constituent limited partnership to the merger
28
or consolidation (including a limited partnership formed for the purpose of consummating the merger or consolidation) shall be the
partnership agreement of the surviving or resulting limited partnership.
(c) The General Partner shall have the power and authority to approve and implement any merger, consolidation or other
reorganization, restructuring or similar transaction without the consent of any Limited Partner, other than any Limited Partner with
respect to which the General Partner has determined that such transaction will, or is more likely than not to, result in any material
adverse change in the financial and other material rights of such Limited Partner conferred by this Agreement and any side letter or
similar agreement entered into pursuant to Section 9.1(b) or the imposition of any material new financial obligation on such Limited
Partner. Subject to the foregoing, the General Partner may require one or more of the Limited Partners to sell, exchange, transfer or
otherwise dispose of their interests in the Partnership in connection with any such transaction, and each Limited Partner shall take
such action as may be directed by the General Partner to effect any such transaction.
Section 9.6 Governing Law
This Agreement, and the rights of each and all of the Partners hereunder, shall be governed by and construed in accordance
with the laws of the Cayman Islands, without regard to conflict of laws rules thereof. The parties hereby consent to the exclusive
jurisdiction and venue for any action arising out of this Agreement (to the extent not subject to arbitration pursuant to this Section
9.6) in any appropriate court in any of the Cayman Islands, or Delaware or New York. In addition to any other means available at
law for service of process, each Limited Partner hereby agrees, to the fullest extent permitted by law, that service of process will be
duly effectuated when delivered to a Limited Partner’s Home Address by hand or by a recognized overnight carrier together with
mailing through the United States Postal System by regular mail.
Section 9.7 Termination of Right of Action
Every right of action arising out of or in connection with this Agreement by or on behalf of any past, present or future Partner
or the Partnership against any past, present or future Partner shall, to the fullest extent permitted by applicable law, irrespective of
the place where the action may be brought and irrespective of the residence of any such Partner, cease and be barred by the
expiration of three years from the date of the act or omission in respect of which such right of action arises.
Section 9.8 Confidentiality
(a) Each Limited Partner acknowledges and agrees that the information contained in the books and records of the
Partnership concerning the Points assigned with respect to any other Limited Partner (including any Retired Partner) is confidential,
and, to the fullest extent permitted by applicable law, each Limited Partner waives, and covenants not to assert, any claim or
entitlement whatsoever to gain access to any such information. The Limited Partners agree that the restrictions set forth in this
Section 9.8(a) shall constitute reasonable standards under the Partnership Law regarding access to information.
29
(b) Each Limited Partner acknowledges and agrees not to, at any time, either during the term of such Limited Partner’s
participation in the Partnership or thereafter, disclose, use, publish or in any manner reveal, directly or indirectly, to any Person
(other than on a confidential basis to such Limited Partner’s legal and tax advisors who have a need to know such information) the
contents of this Agreement or any Confidential Information, except (i) as may be necessary to the performance of the Limited
Partner’s duties hereunder, (ii) with the prior written consent of the General Partner, (iii) to the extent that any such information is in
the public domain other than as a result of the Limited Partner’s breach of any of his obligations, or (iv) where required to be
disclosed by court order, subpoena or other government process; provided that, to the fullest extent permitted by law, the Limited
Partner shall promptly notify the General Partner upon becoming aware of any such disclosure requirement and shall cooperate with
any effort by the General Partner to prevent or limit such disclosure.
(c) Notwithstanding any of the provisions of this Section 9.8, each Limited Partner may disclose to any and all Persons,
without limitation of any kind, the tax treatment and tax structure of an investment in the Partnership and all materials of any kind
(including tax opinions or other tax analyses) that are provided to the Limited Partner relating to such tax treatment. For this
purpose, “tax treatment” is the purported or claimed United States federal income tax treatment of a transaction and “tax structure” is
limited to any fact that may be relevant to understanding the purported or claimed United States federal income tax treatment of a
transaction. For this purpose, the names of the Partnership, the Partners, their affiliates, the names of their partners, members or
equity holders and the representatives, agents and tax advisors of any of the foregoing are not items of tax structure.
Section 9.9 Not for Benefit of Creditors
The provisions of this Agreement are intended only for the regulation of relations among Partners and between Partners and
former or prospective Partners and the Partnership. This Agreement is not intended for the benefit of any Person who is not a
Partner, and no rights are intended to be granted to any other Person who is not a Partner under this Agreement.
Section 9.10 Reports
As soon as practicable after the end of each taxable year, the General Partner shall furnish to each Limited Partner (a) such
information as may be required to enable each Limited Partner to properly report for United States federal and state income tax
purposes his distributive share of each Partnership item of income, gain, loss, deduction or credit for such year, and (b) a statement
of the total amount of Operating Profit or Operating Loss for such year and a reconciliation of any difference between (i) such
Operating Profit or Operating Loss and (ii) the aggregate net profits or net losses allocated by the Funds to the Partnership for such
year (other than any difference attributable to the aggregate Capital Profit or Capital Loss allocated by the Funds to the Partnership
for such year).
Section 9.11 Filings
30
The Partners hereby agree to take any measures necessary (or, if applicable, refrain from any action) to ensure that the
Partnership is treated as a partnership for United States federal, state and local income tax purposes.
Section 9.12 Headings, Gender, Etc.
The section headings in this Agreement are for convenience of reference only, and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof. As used herein, masculine pronouns shall include the feminine and neuter, and
the singular shall be deemed to include the plural.
Signature
Page
Follows
31
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as a deed on the day and year first
above written.
General
Partner:
FINANCIAL CREDIT I CAPITAL MANAGEMENT, LLC
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
in the presence of: Ellen W. McCarthy
Name: Ellen W. McCarthy
Limited
Partner:
APH HOLDINGS, L.P.
By: Apollo Principal Holdings III GP, Ltd.,
its general partner
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
in the presence of: Ellen W. McCarthy
Name: Ellen W. McCarthy
Financial
Credit
Investment
Advisors
I,
L.P.
First
Amended
and
Restated
Limited
Partnership
Agreement
Signature
Page
On behalf of all Limited Partners listed in the Register of Partners as Limited Partners
(other than any person whose signature appears herein) who are being admitted to the
Partnership as a Limited Partner pursuant to powers of attorney granted to FINANCIAL
CREDIT I CAPITAL MANAGEMENT, LLC
FINANCIAL CREDIT I CAPITAL MANAGEMENT, LLC
By: /s/ Laurie D. Medley
Name: Laurie D. Medley
Title: Vice President
in the presence of: Ellen W. McCarthy
Name: Ellen W. McCarthy
Financial
Credit
Investment
Advisors
I,
L.P.
First
Amended
and
Restated
Limited
Partnership
Agreement
Signature
Page
Exhibit 10.82
CONFIDENTIAL & PROPRIETARY
This exempted limited partnership is the general partner of Financial Credit
Investment II, L.P. and its parallel funds and earns the “carried interest” on
Financial Credit Investment II, L.P. profits.
Financial Credit Investment Advisors II, L.P.
Amended and Restated Agreement of Exempted
Limited Partnership
Dated June 12, 2014
and agreed as amongst the parties hereto to be effective from January 1, 2014
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS1
ARTICLE 2 FORMATION AND ORGANIZATION7
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Section 2.5
Section 2.6
Section 2.7
Section 2.8
Continuation 7
Name 7
Organizational Certificates and Other Filings 7
Offices 7
Term of Partnership 7
Purpose of the Partnership 8
Actions by Partnership 8
Continuation and/or Admission of Partners 8
ARTICLE 3 CAPITAL9
Section 3.1
Section 3.2
Section 3.3
Section 3.4
Section 3.5
Section 3.6
Section 3.7
Section 3.8
Contributions to Capital 9
Rights of Partners in Capital 10
Capital Accounts 10
Allocation of Profit and Loss 11
Tax Allocations 12
Reserves; Adjustments for Certain Future Events 12
Finality and Binding Effect of General Partner’s Determinations 13
Alternative GP Vehicles 13
i
ARTICLE 4 DISTRIBUTIONS14
Section 4.1
Section 4.2
Section 4.3
Section 4.4
Section 4.5
Distributions 14
Mandatory Purchases and Repurchases of AGM Shares 15
Withholding of Certain Amounts 16
Limitation on Distributions 16
Distributions in Excess of Basis 16
ARTICLE 5 MANAGEMENT17
Section 5.1
Section 5.2
Section 5.3
Section 5.4
Section 5.5
Section 5.6
Section 5.7
Rights and Powers of the General Partner 17
Delegation of Duties 18
Transactions with Affiliates 19
Expenses 19
Rights of Limited Partners 19
Other Activities of General Partner 20
Duty of Care; Indemnification 20
ARTICLE 6 ADMISSIONS, TRANSFERS AND WITHDRAWALS22
Section 6.1
Section 6.2
Section 6.3
Section 6.4
Section 6.5
Admission of Additional Limited Partners; Effect on Points 22
Admission of Additional General Partner 22
Transfer of Interests of Limited Partners 22
Withdrawal of Partners 24
Pledges 24
ii
ARTICLE 7 ALLOCATION OF POINTS; ADJUSTMENTS OF POINTS AND RETIREMENT OF PARTNERS24
Section 7.1
Section 7.2
Section 7.3
Allocation of Points 24
Retirement of Partner 27
Effect of Retirement on Points 27
ARTICLE 8 DISSOLUTION AND LIQUIDATION29
Section 8.1
Liquidation and Dissolution of Partnership 29
ARTICLE 9 GENERAL PROVISIONS29
Section 9.1
Section 9.2
Section 9.3
Section 9.4
Section 9.5
Section 9.6
Section 9.7
Section 9.8
Section 9.9
Section 9.10
Section 9.11
Section 9.12
Consistent Economic Treatment 29
Amendment of Partnership Agreement and Co-Investors (A) Partnership Agreement 30
Special Power-of-Attorney 31
Notices 33
Agreement Binding Upon Successors and Assigns 33
Merger, Consolidation, etc. 33
Governing Law; Dispute Resolution 34
Termination of Right of Action 35
Not for Benefit of Creditors 35
Reports 35
Filings 35
Headings, Gender, Etc. 36
iii
iv
FINANCIAL CREDIT INVESTMENT ADVISORS II, L.P.
A Cayman Islands exempted Limited Partnership
AMENDED AND RESTATED AGREEMENT OF EXEMPTED LIMITED PARTNERSHIP
This Amended and Restated Agreement of Exempted Limited Partnership (this “Agreement”) of Financial Credit Investment
Advisors II, L.P. (the “Partnership”), a Cayman Islands exempted limited partnership, is dated June 12, 2014 and agreed as amongst
the parties to be effective from January 1, 2014, by and among Financial Credit II Capital Management, LLC, a Delaware limited
liability company, as the sole general partner of the Partnership (the “General Partner”), and the Persons whose names and addresses
are set forth on the Register of Partnership Interests (as defined herein) under the caption “Limited Partners” as limited partners.
W I T N E S S E T H :
WHEREAS, the Partnership was formed pursuant to an Initial Exempted Limited Partnership Agreement of the Partnership,
dated May 10, 2013 (the “Original Agreement”), entered into between the General Partner and APH Holdings, L.P., a Cayman
Islands exempted limited partnership and registered as an exempted limited partnership under the Partnership Law (as defined
herein) on May 10, 2013; and
WHEREAS, the parties wish to amend and restate the Original Agreement in its entirety.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used but not otherwise defined herein have the following meanings:
“Affiliate” means with respect to any Person any other Person directly or indirectly controlling, controlled by or under
common control with such Person. Except as the context otherwise requires, the term “Affiliate” in relation to AGM includes each
collective investment fund and other client account sponsored or managed by AGM or its affiliated asset management entities, but,
in each case, does not include Portfolio Companies except with respect to Bad Acts.
“AGM” means Apollo Global Management, LLC, a Delaware limited liability company.
“AGM Share” means one Class A share of AGM issued in accordance with the terms and conditions set forth in Section 4.2
and Exhibits A-1 and A-2 hereto.
“Agreement” means this Amended and Restated Agreement of Exempted Limited Partnership, as amended or supplemented
from time to time.
“Alternative GP Vehicle” has the meaning ascribed to that term in Section 3.8.
1
“APH” means APH Holdings, L.P., a Cayman Islands exempted limited partnership, and any other entity that holds Points
for the benefit (directly or indirectly) of AGM and AP Professional Holdings, L.P. in its capacity as a Limited Partner.
“Applicable Points” has the meaning ascribed to that term in Section 7.1(d)(v).
“Award Letter” means, with respect to any Limited Partner, the letter agreement between the Partnership and such Limited
Partner setting forth (a) such Limited Partner’s initial Points, (b) any restrictive covenants with respect to such Limited Partner, and
(c) any other terms applicable to such Partner.
“Bad Act” means a Limited Partner’s:
(a) commission of an intentional violation of a material law or regulation in connection with any transaction
involving the purchase, sale, loan, pledge or other disposition of, or the rendering of investment advice with respect to, any
security, asset, futures or forward contract, insurance contract, debt instrument or currency, in each case, that has a significant
adverse effect on the Limited Partner’s ability to perform his or her services to AGM or any of its Affiliates;
(b) commission of an intentional and material breach of a material provision of a written AGM Code of Conduct
(other than any AGM Code of Conduct adopted after the date of such Limited Partner’s admission to the Partnership with the
primary purpose of creating or finding “Bad Acts”);
(c) commission of intentional misconduct in connection with the performance by the Limited Partner of his or her
services for AGM or any of its Affiliates;
(d) commission of any misconduct that, individually or in the aggregate, has caused or substantially contributed to,
or is reasonably likely to cause or substantially contribute to, material economic or reputational harm to AGM or any of its
Affiliates (excluding any mistake of judgment made in good faith with respect to a portfolio investment or account managed
by AGM or its Affiliates, or a communication made to the principals or other partners, in a professional manner, of a good
faith disagreement with a proposed action by AGM or any of its Affiliates);
(e) conviction of a felony or plea of no contest to a felony charge, in each case if such felony relates to AGM or any
of its Affiliates;
(f) fraud in connection with the performance by the Limited Partner of his or her services for AGM or any of its
Affiliates; or
(g) embezzlement from AGM or any of its Affiliates or interest holders;
provided, however, that
2
(i) the Limited Partner has failed to cure within 15 days after notice thereof, to the extent such occurrence is
susceptible to cure, the items set forth in clauses (b) and (d), and
(ii) during the pendency of any felony charge under clause (e), AGM and its Affiliates may suspend payment of any
distributions in respect of the Limited Partner’s Points, and if (A) the Limited Partner is later acquitted or otherwise
exonerated from such charge, or (B) the employment or service of such Limited Partner with AGM or its applicable Affiliate
does not terminate, then (1) AGM or its applicable Affiliate shall pay to the Limited Partner all such accrued but unpaid
distributions with respect to vested Points, with interest calculated from the date such distributions were suspended at the
prime lending rate in effect on the date of such suspension, and (2) throughout the period of suspension (or until the date of
termination of employment or service, if earlier), distributions with respect to unvested Points shall continue to accrue, and
Points shall continue to vest, in accordance with the terms and conditions set forth herein.
“Capital Account” means with respect to each Partner the capital account established and maintained on behalf of such
Partner as described in Section 3.3.
“Capital Loss” means, for each Fund with respect to any Fiscal Year, the portion of any Net Loss and any Portfolio
Investment Loss allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership in
proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
“Capital Profit” means, for each Fund with respect to any Fiscal Year, the portion of any Net Income and any Portfolio
Investment Gain allocable to the Partnership, but only to the extent such allocation is made by such Fund to the Partnership in
proportion to the Partnership’s capital contribution to such Fund, as determined pursuant to the Fund LP Agreement.
“Clawback Payment” means any payment required to be made by the Partnership to any Fund pursuant to section 10.3 of the
Fund LP Agreement of such Fund.
“Clawback Share” means, with respect to any Limited Partner and any Clawback Payment, a portion of such Clawback
Payment equal to (a) the cumulative amount distributed to such Limited Partner prior to the time of determination of Operating
Profit attributable to the Fund to which the Clawback Payment is required to be made, divided by (b) the cumulative amount so
distributed to all Partners with respect to such Operating Profit attributable to such Fund.
“Co-Investors (A)” means FCI Co-Investors II (A), L.P., a Cayman Islands exempted limited partnership.
“Co-Investors (A) Partnership Agreement” means the amended and restated limited partnership agreement of Co-Investors
(A), dated the date hereof.
“Code” means the United States Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor
law.
3
“Covered Person” has the meaning ascribed to that term in Section 5.7.
“Disability” has the meaning ascribed to that term in the Apollo Global Management LLC 2007 Omnibus Equity Incentive
Plan.
“FCI” means Financial Credit Investment II, L.P., a Cayman Islands exempted limited partnership, and any successor thereto,
to the extent the context so requires.
“Final Adjudication” has the meaning ascribed to that term in Section 5.7.
“Fiscal Year” means, with respect to a year, the period commencing on January 1 of such year and ending on December 31
of such year (or on the date of a final distribution pursuant to Section 8.1(a)), unless the General Partner shall elect another fiscal
year for the Partnership which is a permissible taxable year under the Code.
“Fund” means each of FCI and each “Parallel Fund” within the meaning of the Fund LP Agreement of FCI. Such term also
includes each alternative investment vehicle created by FCI and/or any such Parallel Fund, to the extent the context so requires. As
of the date hereof, the Funds are FCI.
“Fund General Partner” means the Partnership in its capacity as a general partner of any of the Funds pursuant to the Fund
LP Agreements.
“Fund LP Agreement” means the limited partnership agreement of any of the Funds, as amended from time to time, and, to
the extent the context so requires, the corresponding constituent agreement, certificate or other document governing each such Fund.
“General Partner” means Financial Credit II Capital Management, LLC, a Delaware limited liability company, in its capacity
as general partner of the Partnership or any successor to the business of the General Partner in its capacity as general partner of the
Partnership.
“Grant Date” has the meaning ascribed to that term in Section 4.2(b).
“Holdback Amount” has the meaning ascribed to that term in Section 4.2(a).
“JAMS” has the meaning ascribed to that term in Section 9.7(b).
“Limited Partner” means any Person admitted as a limited partner to the Partnership in accordance with this Agreement,
including any Retired Partner, until such Person is withdrawn entirely as a limited partner of the Partnership in accordance with the
terms hereof, in his capacity as a limited partner of the Partnership. All references herein to a Limited Partner shall be construed as
referring collectively to such Limited Partner and to each Related Party of such Limited Partner (and to each Person of which such
Limited Partner is a Related Party) that also is or that previously was a Limited Partner, except to the extent that the General Partner
determines that the context does not require such interpretation as between such Limited Partner and his Related Parties. For
purposes of the Partnership Law, all Limited Partners shall be considered a single class or group and only
4
those Persons who are recorded, from time to time, on the Register of Partnership Interests shall be deemed to be a limited partner of
the Partnership.
“Management Company” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Net Income” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Net Loss” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Operating Loss” means, with respect to any Fiscal Year, any net loss of the Partnership, adjusted to exclude (a) any Capital
Profit or Capital Loss and (b) the effect of any reorganization, restructuring or other capital transaction proceeds derived by the
Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be determined in
accordance with the same accounting policies, principles and procedures applicable to the determination by the relevant Fund, and
any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and procedures used by
the Partnership for United States federal income tax purposes.
“Operating Profit” means, with respect to any Fiscal Year, any net income of the Partnership, adjusted to exclude (a) any
Capital Profit or Capital Loss and (b) the effect of any reorganization, restructuring or other capital transaction proceeds derived by
the Partnership. To the extent derived from any Fund, any items of income, gain, loss, deduction and credit shall be determined in
accordance with the same accounting policies, principles and procedures applicable to the determination by the relevant Fund, and
any items not derived from a Fund shall be determined in accordance with the accounting policies, principles and procedures used by
the Partnership for United States federal income tax purposes.
“Partner” means the General Partner or any of the Limited Partners, and “Partners” means the General Partner and all of the
Limited Partners.
“Partnership” means the exempted limited partnership continued pursuant to this Agreement.
“Partnership Law” means the Exempted Limited Partnership Law (as amended) of the Cayman Islands, as amended from
time to time and any successor law thereto or re-enactment thereof.
“Person” means any individual, partnership (whether or not having separate legal personality), corporation, limited liability
company, joint venture, joint stock company, unincorporated organization or association, trust (including the trustees thereof, in their
capacity as such), government, governmental agency, political subdivision of any government, or other entity.
“Point” means a share of Operating Profit or Operating Loss. The aggregate number of Points available for assignment to all
Partners shall be [ ].
“Portfolio Investment” has the meaning ascribed to that term in each of the Fund LP Agreements.
5
“Portfolio Investment Gain” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Portfolio Investment Loss” has the meaning ascribed to that term in each of the Fund LP Agreements.
“Reference Rate” means the interest rate described in Section 3.1(c) (or the corresponding provision) of each of the Fund LP
Agreements.
“Register of Partnership Interests” means the register of partnership interests for the Partnership maintained by the General
Partner in accordance with the Act.
“Registrar” means the Cayman Islands Registrar of Exempted Limited Partnerships appointed pursuant to Section 8 of the
Partnership Law.
“Related Party” means, with respect to any Limited Partner:
(a) any spouse, child, parent or other lineal descendant of such Limited Partner or such Limited Partner’s parent, or any
natural Person who occupies the same principal residence as the Limited Partner;
(b) any trust or estate in which the Limited Partner and any Related Party or Related Parties (other than such trust or estate)
collectively have more than 80 percent of the beneficial interests (excluding contingent and charitable interests);
(c) any entity of which the Limited Partner and any Related Party or Related Parties (other than such entity) collectively are
beneficial owners of more than 80 percent of the equity interest; and
(d) any Person with respect to whom such Limited Partner is a Related Party.
“Required Voting Partners” means, at any time, at least two-thirds by number of Limited Partners who are Voting Partners at
such time.
“Reserved Team Points” means a number of Points equal to the sum of the total initial number of Points that were offered by
the General Partner to prospective Team Members at the time when prospective Team Members were initially invited to join the
Partnership, plus any Points reserved for prospective Team Members, as confirmed in an email from AGM’s Head of Human
Resources to the Lead Partner of Credit.
“Retired Partner” means any Limited Partner who has become a retired partner in accordance with or pursuant to Section 7.2.
“Retirement Date” means, with respect to any Limited Partner, the date as of which such Person becomes a Retired Partner.
“Share Plan Participant” has the meaning ascribed to that term in Section 4.2(a)
6
“Team Member” has the meaning ascribed to that term in Section 7.1(d).
“Third Party Priority Distribution” has the meaning ascribed to that term in Section 7.1(f).
“Transfer” means any direct or indirect sale, exchange, transfer, assignment or other disposition by a Partner of any or all of
his interest in the Partnership or an economic benefit thereof (whether respecting, for example, economic rights only or all the rights
associated with the interest) to another Person, whether voluntary or involuntary.
“United States” or “U.S.” means the United States of America.
“Vested Points” means, with respect to any Retired Partner, the product of such Retired Partner’s Points as of such Retired
Partner’s Retirement Date multiplied by such Retired Partner’s Vesting Percentage at such time.
“Vesting Commencement Date” means, with respect to each Limited Partner other than APH, the commencement date of the
vesting period with respect to such Limited Partner, as specified by the General Partner at the time of such Limited Partner’s
admission (which, for the avoidance of doubt, may be a date preceding the applicable admission date).
“Vesting Percentage” means, with respect to any Retired Partner: [ ].
“Voting Partner” means each Partner set forth on Exhibit B, so long as he has not become a Retired Partner. All references
herein to a Voting Partner (except in the definition of Required Voting Partners) shall be construed as referring collectively to such
Voting Partner and to each Related Party of such Voting Partner that also is or that previously was a Limited Partner (unless such
Limited Partner is a Retired Partner), except to the extent that the General Partner determines that the context does not require such
interpretation as between such Voting Partner and his Related Parties.
“Winding-Up Event” has the meaning given to that term in Section 2.5 of this Agreement.
Section 2.1 Continuation
ARTICLE 2
FORMATION AND ORGANIZATION
The parties hereto agree to continue the Partnership as an exempted limited partnership pursuant to the Partnership Law on
the terms of this Agreement. The parties hereby agree that for all purposes this Agreement shall take effect and shall be deemed to
have taken effect as at and from January 1, 2014.
Section 2.2 Name
The name of the Partnership continued hereby shall be “Financial Credit Investment Advisors II, L.P.” The General Partner
is authorized to make any variations in the Partnership’s name which the General Partner may deem necessary or advisable to
comply with the laws of any
7
jurisdiction in which the Partnership may operate (other than any variation which references the name of any Limited Partner
without the prior consent of such Limited Partner); provided that such name shall contain the words “Limited Partnership”, the
abbreviation “L.P.” or the designation “LP” as required by the Partnership Law. The General Partner shall file a statement in
accordance with the Partnership Law with the Registrar and provide written notice to each Limited Partner of any change in the
name of the Partnership.
Section 2.3 Organizational Certificates and Other Filings
If requested by the General Partner, the Limited Partners shall immediately execute all certificates and other documents, and
any amendments or renewals of such certificates and other documents as thereafter required, consistent with the terms of this
Agreement necessary for the General Partner to accomplish all filing, recording, publishing and other acts as may be appropriate to
comply with all requirements for (a) the continuation and operation of the Partnership as an exempted limited partnership under the
laws of the Cayman Islands, (b) if the General Partner deems it advisable, the operation of the Partnership as a limited partnership, or
partnership in which the Limited Partners have limited liability, in all jurisdictions where the Partnership proposes to operate and (c)
all other filings required to be made by the Partnership.
Section 2.4 Offices
(a) The Partnership shall maintain its principal office, and may maintain one or more additional offices, at such place or
places as the General Partner may from time to time determine.
(b) The General Partner shall arrange for the Partnership to have and maintain in the Cayman Islands, at the expense of the
Partnership, a registered office and registered agent for service of process on the Partnership as required by the Partnership Law.
Section 2.5 Term of Partnership
The term of the Partnership commenced at the time of its registration as an exempted limited partnership under the
Partnership Law and shall continue until the first to occur of any of the following events (each a “Winding-Up Event”):
(i) the dissolution (without continuation) of all of the Funds; or
(ii) at any time there are no Limited Partners; or
(iii) upon any event that results in the General Partner ceasing to be a general partner of the Partnership pursuant to
the Partnership Law, provided that the Partnership shall not be dissolved and required to be wound up in connection with any
such event if (A) at the time of the occurrence of such event there is at least one remaining qualifying general partner of the
Partnership who is hereby authorized to and does carry on the business of the Partnership, or (B) within 90 days after notice
of the occurrence of such event, a majority of the Limited Partners agree in writing or vote to continue the business of the
Partnership
8
and to the appointment, effective from the date of such event, if required, of one or more additional general partners of the
Partnership; or
(iv) an order of any court of the Cayman Islands, pursuant to the Partnership Law, for the winding up and
dissolution of the Partnership.
(b) The parties agree that irreparable damage would be done to the goodwill and reputation of the Partners if any Limited
Partner should bring an action for the winding up of the Partnership. Care has been taken in this Agreement to provide for fair and
just payment in liquidation of the interests of all Partners. Accordingly, to the fullest extent permitted by law, each Limited Partner
hereby undertakes and agrees and further waives and renounces its right to seek the appointment of a liquidator for the Partnership,
except as expressly provided herein.
Section 2.6 Purpose of the Partnership
The principal purpose of the Partnership is to act as the sole general partner or as the managing general partner (as the case
may be) of each of the Funds pursuant to their respective Fund LP Agreements and to undertake such related and incidental activities
and execute and deliver such related documents necessary or incidental thereto. The purpose of the Partnership shall be limited to
serving as a general partner of direct investment funds, including any of their Affiliates, and the provision of investment
management and advisory services.
Section 2.7 Actions by Partnership
The Partnership may execute, deliver and perform, and the General Partner may execute and deliver, all contracts,
agreements and other undertakings, and engage in all activities and transactions as may in the opinion of the General Partner be
necessary or advisable to carry out the objects and purposes of the Partnership, without the approval or vote of any Limited Partner.
Section 2.8 Continuation and/or Admission of Partners
On the date hereof, the Persons whose names are set forth on the Register of Partnership Interests as “Limited Partners” shall
be admitted to the Partnership or shall continue, as the case may be, as limited partners of the Partnership upon their execution of
this Agreement, or of a deed of adherence to this Agreement, or such other instrument evidencing, to the satisfaction of the General
Partner, such Limited Partner’s intent to become a Limited Partner of the Partnership and to adhere to and be bound by the
provisions of this Agreement. The General Partner agrees to continue as the General Partner of the Partnership upon its execution of
this Agreement.
Section 3.1 Contributions to Capital
ARTICLE 3
CAPITAL
(a) Subject to the remaining provisions of this Section 3.1, (i) any required contribution of a Limited Partner to the capital
of the Partnership shall be as set forth on the Register of Partnership Interests or on such other record of the amount and date of the
contributions of Limited Partners
9
(as the case may be), and (ii) contributions to the capital of the Partnership shall be made on the date of admission of such Limited
Partner as a limited partner of the Partnership and on each such other date as may be specified by the General Partner. Except as
otherwise permitted by the General Partner, all contributions to the capital of the Partnership by each Limited Partner shall be
payable exclusively in cash.
(b) APH shall make capital contributions from time to time to the extent necessary to ensure that the Partnership meets its
obligations to make contributions of capital to each of the Funds.
(c) No Partner shall be obligated, nor shall any Partner have any right, to make any contribution to the capital of the
Partnership other than as specified in this Section 3.1. No Limited Partner shall be obligated to restore any deficit balance in his
Capital Account.
(d) To the extent, if any, that at the time of the Final Distribution (as defined in each of the Fund LP Agreements), it is
determined that the Partnership, as a general partner of each of the Funds, is required to make any Clawback Payment with respect to
any of the Funds, each Limited Partner shall be required to participate in such payment and contribute to the Partnership for ultimate
distribution to the limited partners of the relevant Fund an amount equal to such Limited Partner’s Clawback Share of any Clawback
Payment, but not in any event in excess of the cumulative amount theretofore distributed to such Limited Partner with respect to the
Operating Profit attributable to such Fund. For purposes of determining each Limited Partner’s required contribution, each Limited
Partner’s allocable share of any escrow account set up pursuant to section 10.3(b) of the Fund LP Agreements, to the extent applied
to satisfy any portion of a Clawback Payment, shall be treated as if it had been distributed to such Limited Partner and re-contributed
by such Limited Partner pursuant to this Section 3.1(d) at the time of such application. For purposes of calculating a Limited
Partner’s Clawback Share, AGM Shares (including, for the avoidance of doubt, any such shares that have previously vested, but
excluding any such shares that have previously been mandatorily repurchased by AGM) shall be valued, without regard to any
restrictions thereon and/or whether or not the Partner still retains such AGM Shares, based on the purchase price of such AGM
Shares as set forth on the grant notice provided with respect to such AGM Shares.
(e) Cash proceeds derived by a Share Plan Participant from a mandatory repurchase of AGM Shares shall be contributed to
the Partnership as contemplated by Section 4.2(g).
Section 3.2 Rights of Partners in Capital
(a) No Partner shall be entitled to interest on his capital contributions to the Partnership.
(b) No Partner shall have the right to distributions or the return of any contribution to the capital of the Partnership except
(i) for distributions in accordance with Section 4.1 or (ii) upon dissolution of the Partnership. The entitlement to any such return at
such time shall be limited to the value of the Capital Account of the Partner. The General Partner shall not be liable for the return of
any such amounts.
Section 3.3 Capital Accounts
10
(a) The Partnership shall maintain for each Partner a separate Capital Account.
(b) Each Partner’s Capital Account shall have an initial balance equal to the amount of cash and the net value of any
securities or other property constituting such Partner’s initial contribution to the capital of the Partnership.
(c) Each Partner’s Capital Account shall be increased by the sum of:
(i) the amount of cash and the net value of any securities or other property constituting additional contributions by
such Partner to the capital of the Partnership permitted pursuant to Section 3.1, plus
(ii) in the case of APH, any Capital Profit allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iii) the portion of any Operating Profit allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iv) such Partner’s allocable share of any decreases in any reserves recorded by the Partnership pursuant to Section
3.6 and any receipts determined to be applicable to a prior period pursuant to Section 3.6(b), to the extent the General Partner
determines that, pursuant to any provision of this Agreement, such item is to be credited to such Partner’s Capital Account on
a basis which is not in accordance with the current respective Points of all Partners.
(d) Each Partner’s Capital Account shall be reduced by the sum of (without duplication):
(i) in the case of APH, any Capital Loss allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(ii) the portion of any Operating Loss allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iii) the amount of any cash and the net value of any property distributed to such Partner pursuant to Section 4.1 or
Section 8.1 including any amount deducted pursuant to Section 4.3 or Section 5.4 from any such amount distributed, plus
(iv) any withholding taxes or other items payable by the Partnership and allocated to such Partner pursuant to
Section 5.4(b), any increases in any reserves recorded by the Partnership pursuant to Section 3.6 and any payments
determined to be applicable to a prior period pursuant to Section 3.6(b), to the extent the General Partner determines that,
pursuant to any provision of this Agreement, such item is to be charged to such Partner’s Capital Account on a basis which is
not in accordance with the current respective Points of all Partners.
(e) If securities and/or other property are to be distributed in kind to the Partners or Retired Partners, including in
connection with a liquidation pursuant to Section 8.1, they shall first
11
be written up or down to their fair market value as of the date of such distribution, thus creating gain or loss for the Partnership, and
the value of the securities and/or other property received by each Partner and each Retired Partner as so determined shall be debited
against such Person’s Capital Account at the time of distribution.
Section 3.4 Allocation of Profit and Loss
(a) Capital Profit and Operating Profit or Capital Loss and Operating Loss for any Fiscal Year shall be allocated to the
Partners so as to produce Capital Accounts (computed after taking into account any other Capital Profit and Operating Profit or
Capital Loss and Operating Loss for the Fiscal Year in which such event occurred and all distributions pursuant to Article 4 with
respect to such Fiscal Year and after adding back each Partner’s share, if any, of Partner Nonrecourse Debt Minimum Gain, as
defined in Treasury Regulations Sections 1.704 - 2(b)(2) and 1.704 - 2(i), or Partnership Minimum Gain, as defined in Treasury
Regulations Sections 1.704 - 2(b)(2) and 1.704 - 2(d)) for the Partners such that a distribution of an amount of cash equal to such
Capital Account balances in accordance with such Capital Account balances would be in the amounts, sequence and priority set forth
in Article 4.
(b) To the extent that the allocations of Capital Loss or Operating Loss contemplated by Section 3.4(a) would cause the
Capital Account of any Limited Partner to be less than zero, such Capital Loss or Operating Loss shall to that extent instead be
allocated to and debited against the Capital Account of the General Partner (or, at the direction of the General Partner, to those
Limited Partners who are members of the General Partner in proportion to their limited liability company interests in the General
Partner). Following any such adjustment pursuant to Section 3.4(b) with respect to any Limited Partner, any Capital Profit or
Operating Profit for any subsequent Fiscal Year which would otherwise be credited to the Capital Account of such Limited Partner
pursuant to Section 3.4(a) shall instead be credited to the Capital Account of the General Partner (or relevant Limited Partners) until
the cumulative amounts so credited to the Capital Account of the General Partner (or relevant Limited Partners) with respect to such
Limited Partner pursuant to Section 3.4(b) is equal to the cumulative amount debited against the Capital Account of the General
Partner (or relevant Limited Partners) with respect to such Limited Partner pursuant to Section 3.4(b).
(c) Each Limited Partner’s rights and entitlements as a Limited Partner are limited to the rights to receive allocations and
distributions of Capital Profit and Operating Profit expressly conferred by this Agreement and any side letter or similar agreement
entered into pursuant to Section 9.2(b) and the other rights expressly conferred by this Agreement and any such side letter or similar
agreement or required by the Partnership Law, and a Limited Partner shall not be entitled to any other allocations, distributions or
payments in respect of his interest, or to have or exercise any other rights, privileges or powers.
Section 3.5 Tax Allocations
(a) For United States federal, state and local income tax purposes, Partnership income, gain, loss, deduction or credit (or
any item thereof) for each Fiscal Year shall be allocated to and among the Partners in order to reflect the allocations of Capital
Profit, Capital Loss, Operating Profit and Operating Loss pursuant to the provisions of Section 3.4 for such Fiscal Year, taking into
account
12
any variation between the adjusted tax basis and book value of Partnership property in accordance with the principles of Section
704(c) of the Code.
(b) If any Partner or Partners are treated for United States federal income tax purposes as realizing ordinary income
because of receiving interests in the Partnership (whether under Section 83 of the Code or under any similar provision of any law,
rule or regulation) and the Partnership is entitled to any offsetting deduction (net of any income realized by the Partnership as a
result of such receipt), the Partnership’s net deduction shall be allocated to and among the Partners in such manner as to offset, as
nearly as possible, the ordinary income realized by such Partner or Partners.
Section 3.6 Reserves; Adjustments for Certain Future Events
(a) Appropriate reserves may be created, accrued and charged against the Operating Profit or Operating Loss for
contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner or as of each other
date as the General Partner deems appropriate, such reserves to be in the amounts which the General Partner deems necessary or
appropriate. The General Partner may increase or reduce any such reserve from time to time by such amounts as the General Partner
deems necessary or appropriate. The amount of any such reserve, or any increase or decrease therein, shall be proportionately
charged or credited, as appropriate, to the Capital Accounts of those parties who are Partners at the time when such reserve is
created, increased or decreased, as the case may be, in proportion to their respective Points at such time; provided that, if any
individual reserve item, as adjusted by any increase therein, exceeds the lesser of $500,000 or one percent of the aggregate value of
the Capital Accounts of all such Partners, the amount of such reserve, increase or decrease shall instead be charged or credited to
those parties who were Partners at the time, as determined by the General Partner, of the act or omission giving rise to the contingent
liability for which the reserve item was established in proportion to their respective Points at that time. The amount of any such
reserve charged against the Capital Account of a Partner shall reduce the distributions such Partner would otherwise be entitled to
under Section 4.1 or Section 8.1; and the amount of any such reserve credited to the Capital Account of a Partner shall increase the
distributions such Partner would otherwise be entitled to under Section 4.1 or Section 8.1.
(b) If at any time an amount is paid or received by the Partnership, and such amount was not accrued or reserved for but
would nevertheless, in accordance with the Partnership’s accounting practices, be treated as applicable to one or more prior periods,
then such amount may be proportionately charged or credited by the General Partner, as appropriate, to those parties who were
Partners during such prior period or periods, based on each such Partner’s Points for such applicable period.
(c) If any amount is required by Section 3.6(a) or (b) to be credited to a Person who is no longer a Partner, such amount
shall be paid to such Person in cash, with interest from the date on which the General Partner determines that such credit is required
at the Reference Rate in effect on that date. Any amount required to be charged pursuant to Section 3.6(a) or (b) shall be debited
against the current balance in the Capital Account of the affected Partners. To the extent that the aggregate current Capital Account
balances of such affected Partners are insufficient to cover the full amount of the required charge, the deficiency shall be debited
against the Capital Accounts of
13
the other Partners in proportion to their respective Capital Account balances at such time; provided that each such other Partner shall
be entitled to a preferential allocation, in proportion to and to the extent of such other Partner’s share of any such deficiency,
together with a carrying charge at a rate equal to the Reference Rate, of any Operating Profit that would otherwise have been
allocable after the date of such charge to the Capital Accounts of the affected Partners whose Capital Accounts were insufficient to
cover the full amount of the required charge. In no event shall a current or former Partner be obligated to satisfy any amount required
to be charged pursuant to Section 3.6(a) or (b) other than by means of a debit against such Partner’s Capital Account.
Section 3.7 Finality and Binding Effect of General Partner’s Determinations
All matters concerning the determination, valuation and allocation among the Partners with respect to any profit or loss of the
Partnership and any associated items of income, gain, deduction, loss and credit, pursuant to any provision of this Article 3,
including any accounting procedures applicable thereto, shall be determined by the General Partner unless specifically and expressly
otherwise provided for by the provisions of this Agreement, and such determinations and allocations shall be final and binding on all
the Partners.
Section 3.8 Alternative GP Vehicles
If the General Partner determines that for legal, tax, regulatory or other reasons (a) any investment or other activities of the
Fund should be conducted through one or more parallel funds or other alternative investment vehicles as contemplated by the Fund
LP Agreement, (b) any of such separate entities comprising the Fund should be managed or controlled by one or more separate
entities serving as a general partner or in a similar capacity (each, an “Alternative GP Vehicle”), and (c) some or all of the Partners
should participate through any such Alternative GP Vehicle, the General Partner may require any or all of the Partners, as
determined by the General Partner, to participate directly or indirectly through any such Alternative GP Vehicle and to undertake
such related and incidental activities and execute and deliver such related documents necessary or incidental thereto with and/or in
lieu of the Partnership, and the General Partner shall have all necessary authority to implement such Alternative GP Vehicle;
provided that to the maximum extent practicable and subject to applicable legal, tax, regulatory or similar technical reasons, each
Partner shall have the same economic interest in all material respects in an Alternative GP Vehicle formed pursuant to this Section
3.8 as such Partner would have had if it had participated in all Portfolio Investments through the Partnership, and the terms of such
Alternative GP Vehicle shall be substantially the same in all material respects to those of the Partnership and this Agreement. Each
Partner shall take such actions and execute such documents as the General Partner determines are reasonably needed to accomplish
the foregoing.
Section 4.1 Distributions
ARTICLE 4
DISTRIBUTIONS
(a) Any amount of cash or property received as a distribution from any of the Funds by the Partnership in its capacity as a
partner, to the extent such amount is determined by reference to
14
the capital commitment of the Partnership in, or the capital contributions of the Partnership to, any of the Funds, shall be promptly
distributed by the Partnership to APH.
(b) The General Partner shall use reasonable efforts to cause the Partnership to distribute, as promptly as practicable after
receipt by the Partnership, any available cash or property attributable to items included in the determination of Operating Profit,
subject to the provisions of section 10.3 of the Fund LP Agreements and subject to the retention of such reserves as the General
Partner considers appropriate for purposes of the prudent and efficient financial operation of the Partnership’s business including in
accordance with Section 3.6. Any such distributions (before adjustment for Holdback Amounts) shall be made to Partners in
proportion to their respective Points, determined:
(i) in the case of any amount of cash or property received from any of the Funds that is attributable to the
disposition of a Portfolio Investment by such Fund, as of the date of such disposition by such Fund; and
(ii) in any other case, as of the date of receipt of such cash or property by the Partnership.
Notwithstanding the foregoing, the General Partner shall retain from the distribution amount apportioned to each Limited Partner
other than APH any Holdback Amount with respect to such Limited Partner, determined in accordance with Section 4.2(a). Such
amount shall be applied to the purchase of AGM Shares for the account of such Limited Partner in accordance with the provisions of
Section 4.2.
(c) Subject to Section 4.2, distributions of amounts attributable to Operating Profit shall be made in cash; provided,
however, that if the Partnership receives a distribution from the Fund in the form of property other than cash, the General Partner
may distribute such property in kind to Partners in proportion to their respective Points. AGM Shares shall be purchased on behalf of
Partners (other than APH) in accordance with Section 4.2.
(d) Cash proceeds derived from the mandatory repurchase of AGM Shares and contributed to the Partnership pursuant to
Section 4.2(g) shall be distributed to APH.
(e) Any distributions or payments in respect of the interests of Limited Partners unrelated to Capital Profit or Operating
Profit shall be made at such time, in such manner and to such Limited Partners as the General Partner shall determine.
Section 4.2 Mandatory Purchases and Repurchases of AGM Shares
(a) A portion of all distributions to be made to any Limited Partner (other than APH) (the “Holdback Amount”) in a given
quarter will be required to be used by such Limited Partner (a “Share Plan Participant”) to purchase AGM Shares in accordance with
the Restricted Share Award Agreement and related grant notice (as attached hereto as Exhibit A-1) or, to the extent applicable for a
Retired Partner, in accordance with the terms and conditions set forth in the Retired Partner Share Award Agreement under the
Apollo Global Management LLC 2007 Omnibus Equity Incentive
15
Plan and related grant notice (as attached hereto as Exhibit A-2). The Holdback Amount will be [ ].
(b) The Holdback Amount for a particular quarter, if any, will be distributed to the Share Plan Participant on the first
business day on which a “trading window” for AGM Shares occurs during the calendar quarter following the quarter end to which
the distribution relates, or, if earlier, 10 days before the end of such succeeding quarter or, if such date falls on a weekend or holiday,
the next preceding business day (the “Grant Date”).
(c) The General Partner (or its designee) shall serve as agent in effecting the acquisition by the Share Plan Participant of
the AGM Shares on the Grant Date and no cash distribution will actually be made to the Share Plan Participants, but rather, the
Holdback Amount with respect to each Share Plan Participant will be paid directly to AGM on behalf of such Share Plan Participant
to acquire AGM Shares. In the case of AGM Shares that are subject to vesting pursuant to the terms of Exhibit A-1, the vesting
commencement date shall be the midpoint of the calendar quarter in which the Holdback Amount was reserved, without regard to
the actual date in a subsequent calendar quarter on which such AGM Shares are purchased with such Holdback Amount.
(d) The number of AGM Shares to be granted shall be based on the volume weighted average price of a Class A Share of
AGM on the Grant Date, rounded down to the nearest whole AGM Share. Only whole AGM Shares will be acquired, and cash shall
be distributed to the Share Plan Participants in lieu of fractional AGM Shares.
(e) Delivery of AGM Shares to a Share Plan Participant shall be subject to the execution of the applicable grant notice
(substantially in the form attached as Exhibit A-1 or Exhibit A-2, as applicable) by such Share Plan Participant.
(f) Following the separation of service of any Share Plan Participant who retains Vested Points, a Holdback Amount shall
still apply, but any AGM Shares acquired will not be subject to vesting or forfeiture and may be granted outside of the Apollo Global
Management, LLC 2007 Omnibus Equity Incentive Plan. However, such AGM Shares shall be subject solely to the transfer
restrictions and other terms set forth or referenced in Exhibit A-2. Notwithstanding anything to the contrary herein, if (i) following
the distribution of a Holdback Amount to a Share Plan Participant, and (ii) prior to the time of the acquisition of the applicable AGM
Shares with respect to such Holdback Amount for such Share Plan Participant, such Share Plan Participant becomes a Retired
Partner, then the AGM Shares (that would have otherwise been acquired with the Holdback Amount), or a portion thereof, as
applicable, shall be forfeited to the same extent as AGM Shares would have been forfeited if purchased on the Grant Date.
(g) In the case of any AGM Shares that are subject to mandatory repurchase by AGM from a Share Plan Participant
pursuant to the provisions of Exhibit A-1 or Exhibit A-2, the cash proceeds of such mandatory repurchase shall be contributed by
AGM, as agent for such Share Plan Participant, to the Partnership for distribution to APH and, for all purposes of this Agreement,
such cash contribution shall be treated as contributed by such Share Plan Participant to the Partnership and will increase the Capital
Account of the related Partner.
16
Section 4.3 Withholding of Certain Amounts
(a) If the Partnership incurs a withholding tax or other tax obligation with respect to the share of Partnership income
allocable to any Partner, then the General Partner, without limitation of any other rights of the Partnership, may cause the amount of
such obligation to be debited against the Capital Account of such Partner when the Partnership pays such obligation, and any
amounts then or thereafter distributable to such Partner shall be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such then distributable amounts, then such Partner and any successor to such Partner’s interest shall indemnify and
hold harmless the Partnership and the General Partner against, and shall pay to the Partnership as a contribution to the capital of the
Partnership, upon demand of the General Partner, the amount of such excess.
(b) The General Partner may (i) withhold from any distribution to any Limited Partner pursuant to this Agreement and (ii)
arrange the withholding from any distribution from Co-Investors (A) to such Limited Partner any other amounts due from such
Limited Partner or a Related Party (without duplication) to the Partnership, Co-Investors (A) or to any other Affiliate of AGM
pursuant to any binding agreement or published policy to the extent not otherwise paid. Any amounts so withheld shall be applied by
the General Partner to discharge the obligation in respect of which such amounts were withheld.
Section 4.4 Limitation on Distributions
Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on
behalf of the Partnership, shall not make a distribution to any Partner on account of his interest in the Partnership if such distribution
would violate the Partnership Law or other applicable law.
Section 4.5 Distributions in Excess of Basis
Notwithstanding anything in this Agreement to the contrary, the General Partner may refrain from making, at any time prior
to the dissolution of the Partnership, all or any portion of any cash distribution that otherwise would be made to a Partner or Retired
Partner, if such distribution would exceed such Person’s U.S. federal income tax basis in the Partnership. Any amount that is not
distributed to a Partner or Retired Partner due to the preceding sentence, as determined by the General Partner, either shall be
retained by the Partnership on such Person’s behalf or loaned to such Person. Subject to the first sentence of this Section 4.5, 100%
of any or all subsequent cash distributions shall be distributed to such Person (or, if there is more than one such Person, pro rata to
all such Persons based on the aggregate amount of distributions each such Person has not yet received) until each such Person has
received the same aggregate amount of distributions such Person would have received had distributions to such Person not been
deferred pursuant to this Section 4.5. If any amount is loaned to a Partner or Retired Partner pursuant to this Section 4.5, (i) any
amount thereafter distributed to such Person shall be applied to repay the principal amount of such loan and (ii) interest, if any,
accrued or received by the Partnership on such loan shall be allocated and distributed to such Person. Any such loan shall be repaid
no later than immediately prior to the liquidation of the Partnership. Until such repayment, for purposes of any determination
17
hereunder based on amounts distributed to a Person, the principal amount of such loan shall be treated as having been distributed to
such Person.
Section 5.1 Rights and Powers of the General Partner
ARTICLE 5
MANAGEMENT
(a) Subject to the terms and conditions of this Agreement, the General Partner shall have complete and exclusive
responsibility (i) for all management decisions to be made on behalf of the Partnership and (ii) for the conduct of the business and
affairs of the Partnership, including all such decisions and all such business and affairs to be made or conducted by the Partnership in
its capacity as Fund General Partner of any of the Funds.
(b) Without limiting the generality of the foregoing, the General Partner shall have full power and authority to execute,
deliver and perform such contracts, agreements and other undertakings, and to engage in all activities and transactions, as it may
deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Section 5.1, including,
without in any manner limiting the generality of the foregoing, contracts, agreements, undertakings and transactions with any Partner
or with any other Person having any business, financial or other relationship with any Partner or Partners; provided that the General
Partner shall not have authority to cause the Partnership to borrow any funds for its own account on a secured basis without the
consent of the Required Voting Partners. The Partnership, and the General Partner on behalf of the Partnership, may enter into and
perform the Fund LP Agreements and any documents contemplated thereby or related thereto and (subject to any vote requirement
in Section 5.2(d)(iv)) any amendments thereto, without any further act, vote or approval of any Person, including any Partner,
notwithstanding any other provision of this Agreement. The General Partner is hereby authorized to enter into the documents
described in the preceding sentence on behalf of the Partnership, but such authorization shall not be deemed a restriction on the
power of the General Partner to enter into other documents on behalf of the Partnership. Except as otherwise expressly provided
herein or as required by law, all powers and authority vested in the General Partner by or pursuant to this Agreement or the
Partnership Law shall be construed as being exercisable by the General Partner in its sole and absolute discretion.
(c) The General Partner shall be the tax matters partner for purposes of Section 6231(a)(7) of the Code. Each Partner
agrees not to treat, on his United States federal income tax return or in any claim for a refund, any item of income, gain, loss,
deduction or credit in a manner inconsistent with the treatment of such item by the Partnership. The General Partner shall have the
exclusive authority to make any elections required or permitted to be made by the Partnership under any provisions of the Code or
any other law.
Section 5.2 Delegation of Duties
(a) Subject to Section 5.1, the General Partner may delegate to any Person or Persons any of the duties, powers and
authority vested in it hereunder on such terms and conditions as it may consider appropriate.
18
(b) Without limiting the generality of Section 5.2(a), the General Partner shall have the power and authority to appoint any
Person, including any Person who is a Limited Partner, to provide services to and act as an employee or agent of the Partnership
and/or the General Partner, with such titles and duties as may be specified by the General Partner.
Any Person appointed by the General Partner to serve as an employee or agent of the Partnership shall be subject to removal
at any time by the General Partner; and shall report to and consult with the General Partner at such times and in such manner as the
General Partner may direct.
(c) Any Person who is a Limited Partner and to whom the General Partner delegates any of its duties pursuant to this
Section 5.2 or any other provision of this Agreement shall be subject to the same standard of care, and shall be entitled to the same
rights of indemnification and exoneration, applicable to the General Partner under and pursuant to Section 5.7, unless such Person
and the General Partner mutually agree to a different standard of care or right to indemnification and exoneration to which such
Person shall be subject.
(d) Except as otherwise expressly provided herein, action by the General Partner with respect to any of the following
matters shall be taken only in accordance with the directions of the Required Voting Partners:
(i) the exercise of the Partnership’s authority to borrow any funds on a secured basis for the account of the
Partnership;
(ii) the determination of whether to conduct a business other than serving as a general partner of the Funds;
(iii) the amendment of this Agreement, and the exercise of the authority of the Partnership with respect to the
approval of any amendment to the Fund LP Agreement, in each case, that adversely affects, obligations, rights or economic
interests of Team Members; and
(iv) to the fullest extent permitted by law, the voluntary dissolution of the Partnership, and the exercise of the
authority of the Partnership to cause a voluntary dissolution of any of the Funds.
The foregoing shall not restrict the General Partner from delegating authority to execute or implement any such determinations made
by the General Partner.
(e) The General Partner shall be permitted to designate one or more committees of the Partnership which committees may
include Limited Partners as members. Any such committees shall have such powers and authority granted by the General Partner.
Any Limited Partner who has agreed to serve on a committee shall not be deemed to have the power to bind or act for or on behalf of
the Partnership in any manner and in no event shall a member of a committee be considered a general partner of the Partnership by
agreement, estoppel or otherwise or be deemed to participate in the control and/or conduct of the business of the Partnership as a
result of the performance of his duties hereunder or otherwise.
19
(f) The General Partner shall cause the Partnership to enter into an arrangement with the Management Company which
arrangement shall require the Management Company to pay all costs and expenses of the Partnership.
Section 5.3 Transactions with Affiliates
To the fullest extent permitted by applicable law, the General Partner (or any Affiliate of the General Partner), when acting
on behalf of the Partnership, is hereby authorized to (a) purchase property from, sell property to, lend money to or otherwise deal
with any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of any of the foregoing Persons, and (b)
obtain services from any Affiliates, any Limited Partner, the Partnership, any of the Funds or any Affiliate of the foregoing Persons.
Section 5.4 Expenses
(a) Subject to the arrangement contemplated by Section 5.2(f), the Partnership will pay, or will reimburse the General
Partner for, all costs and expenses arising in connection with the organization and operations of the Partnership.
(b) Any withholding taxes payable by the Partnership, to the extent determined by the General Partner to have been paid or
withheld on behalf of, or by reason of particular circumstances applicable to, one or more but fewer than all of the Partners, shall be
allocated among and debited against the Capital Accounts of only those Partners on whose behalf such payments are made or whose
particular circumstances gave rise to such payments in accordance with Section 4.3.
Section 5.5 Rights of Limited Partners
(a) Limited Partners shall have no right to take part in the management, control or conduct of the Partnership’s business,
nor shall they have any right or authority to act for the Partnership or to vote on matters other than as set forth in this Agreement or
as required by applicable law.
(b) Without limiting the generality of the foregoing, the General Partner shall have the full and exclusive authority,
without the consent of any Limited Partner, to compromise the obligation of any Limited Partner to make a capital contribution or to
return money or other property paid or distributed to such Limited Partner in violation of the Partnership Law.
(c) Nothing in this Agreement shall entitle any Partner to any compensation for services rendered to or on behalf of the
Partnership as an agent or in any other capacity, except for any amounts payable in accordance with this Agreement.
(d) Subject to the Fund LP Agreements and to full compliance with AGM’s code of ethics and other written policies
relating to personal investment transactions, membership in the Partnership shall not prohibit a Limited Partner from purchasing or
selling as a passive investor any interest in any asset.
Section 5.6 Other Activities of General Partner
20
Nothing in this Agreement shall prohibit the General Partner from engaging in any activity other than acting as General
Partner hereunder.
Section 5.7 Duty of Care; Indemnification
(a) The General Partner (including, without limitation, for this purpose each former and present director, officer, manager,
member, employee and stockholder of the General Partner) and each Limited Partner (including any former Limited Partner) in his
capacity as such, and to the extent such Limited Partner participates, directly or indirectly, in the Partnership’s activities, whether or
not a Retired Partner (each, a “Covered Person” and collectively, the “Covered Persons”), shall not be liable to the Partnership or to
any of the other Partners for any loss, claim, damage or liability occasioned by any acts or omissions in the performance of his
services hereunder, unless it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a
“Final Adjudication”) that such loss, claim, damage or liability is due to an act or omission of a Covered Person (i) made in bad faith
or with criminal intent or (ii) that adversely affected any Fund and that failed to satisfy the duty of care owed pursuant to the
applicable Fund LP Agreement or as otherwise required by law.
(b) A Covered Person shall be indemnified to the fullest extent permitted by law by the Partnership against any losses,
claims, damages, liabilities and expenses (including attorneys’ fees, judgments, fines, penalties and amounts paid in settlement)
incurred by or imposed upon him by reason of or in connection with any action taken or omitted by such Covered Person arising out
of the Covered Person’s status as a Partner or his activities on behalf of the Partnership, including in connection with any action,
suit, investigation or proceeding before any judicial, administrative, regulatory or legislative body or agency to which it may be
made a party or otherwise involved or with which it shall be threatened by reason of being or having been the General Partner or a
Limited Partner or by reason of serving or having served, at the request of the Partnership in its capacity as Fund General Partner of
the Funds, as a director, officer, consultant, advisor, manager, member or partner of any enterprise in which any of the Funds has or
had a financial interest, including issuers of Portfolio Investments; provided that the Partnership may, but shall not be required to,
indemnify a Covered Person with respect to any matter as to which there has been a Final Adjudication that his acts or his failure to
act (i) were in bad faith or with criminal intent or (ii) were of a nature that makes indemnification by the Funds unavailable. The
right to indemnification granted by this Section 5.7 shall be in addition to any rights to which a Covered Person may otherwise be
entitled and shall inure to the benefit of the successors by operation of law or valid assigns of such Covered Person. The Partnership
shall pay the expenses incurred by a Covered Person in defending a civil or criminal action, suit, investigation or proceeding in
advance of the final disposition of such action, suit, investigation or proceeding, upon receipt of an undertaking by the Covered
Person to repay such payment if there shall be a Final Adjudication that he is not entitled to indemnification as provided herein. In
any suit brought by the Covered Person to enforce a right to indemnification hereunder it shall be a defense that the Covered Person
has not met the applicable standard of conduct set forth in this Section 5.7, and in any suit in the name of the Partnership to recover
expenses advanced pursuant to the terms of an undertaking the Partnership shall be entitled to recover such expenses upon Final
Adjudication that the Covered Person has not met the applicable standard of conduct set forth in this Section 5.7. In any such suit
brought to enforce a right to indemnification
21
or to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Covered Person is
not entitled to be indemnified, or to an advancement of expenses, shall be on the Partnership (or any Limited Partner acting
derivatively or otherwise on behalf of the Partnership or the Limited Partners). The General Partner may not satisfy any right of
indemnity or reimbursement granted in this Section 5.7 or to which it may be otherwise entitled except out of the assets of the
Partnership (including, without limitation, insurance proceeds and rights pursuant to indemnification agreements), and no Partner
shall be personally liable with respect to any such claim for indemnity or reimbursement. The General Partner may enter into
appropriate indemnification agreements and/or arrangements reflective of the provisions of this Article 5 with any Covered Person,
whether or not such Covered Person is itself a party to this Agreement, and obtain appropriate insurance coverage on behalf and at
the expense of the Partnership to secure the Partnership’s indemnification obligations hereunder without the further consent of any
Limited Partner. Subject to applicable law, each Covered Person shall be deemed a third party beneficiary (to the extent not a direct
party hereto) to this Agreement and, in particular, the provisions of this Article 5, may enforce any rights granted to it pursuant to
this Agreement in its own right as if it were a party to this Agreement and shall be entitled to the benefit of the indemnity granted to
the Partnership by each of the Funds pursuant to the terms of the Fund LP Agreements.
(c) To the fullest extent permitted by law, to the extent that, at law or in equity, a Covered Person has duties (including
fiduciary duties) and liabilities relating thereto to the Partnership or the Partners, the Covered Person shall not be liable to the
Partnership or to any Partner for his good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to
the extent that they restrict or eliminate the duties and liabilities of a Covered Person otherwise existing at law or in equity to the
Partnership or the Partners, are agreed by the Partners to replace such other duties and liabilities of each such Covered Person, save
that the General Partner shall act at all times in good faith in accordance with the requirements of the Partnership Law.
(d) To the fullest extent permitted by law, notwithstanding any of the foregoing provisions of this Section 5.7, the
Partnership may but shall not be required to indemnify (i) a Retired Partner (or any other former Limited Partner) with respect to any
claim for indemnification or advancement of expenses arising from any conduct occurring more than six months after the date of
such Person’s retirement (or other withdrawal or departure), or (ii) a Limited Partner with respect to any claim for indemnification or
advancement of expenses as a director, officer or agent of the issuer of any Portfolio Investment to the extent arising from conduct in
such capacity occurring more than six months after the complete disposition of such Portfolio Investment by the Fund.
ARTICLE 6
ADMISSIONS, TRANSFERS AND WITHDRAWALS
Section 6.1 Admission of Additional Limited Partners; Effect on Points
(a) The General Partner may at any time admit as an additional Limited Partner any Person who has agreed to be bound by
this Agreement and may assign Points to such Person in accordance with Section 7.1.
22
(b) Each additional Limited Partner shall execute (i) either a counterpart to this Agreement or a separate instrument
evidencing, to the satisfaction of the General Partner, such Limited Partner’s intent to become a Limited Partner and (ii) the
documents contemplated by Section 7.1(b), and shall be admitted as a Limited Partner upon such execution.
Section 6.2 Admission of Additional General Partner
The General Partner may admit one or more additional general partners at any time without the consent of any Limited
Partner, other than the Required Voting Partners if such additional general partner is not an Affiliate of AGM. Any additional
general partner shall, for the purposes of this Agreement, be deemed admitted as a general partner of the Partnership upon its
execution of a deed of adherence, in a form satisfactory to the General Partner, to this Agreement pursuant to which such person
undertakes and agrees to become a General Partner of the Partnership and to adhere to and be bound by the provisions of this
Agreement on admission as a General Partner. The incumbent General Partner shall make such filings with the Registrar as are
necessary pursuant to the Partnership Law to effect the legal admission of any additional general partner of the Partnership.
Section 6.3 Transfer of Interests of Limited Partners
(a) No Transfer of any Limited Partner’s interest in the Partnership, whether voluntary or involuntary, shall be valid or
effective, and no transferee shall become a substituted Limited Partner, unless the prior written consent of the General Partner has
been obtained, which consent may be given or withheld by the General Partner. In the event of any Transfer, all of the conditions of
the remainder of this Section 6.3 must also be satisfied.
(b) A Limited Partner or his legal representative shall give the General Partner notice before the proposed effective date of
any voluntary Transfer and within 30 days after any involuntary Transfer, and shall provide sufficient information to allow legal
counsel acting for the Partnership to make the determination that the proposed Transfer will not result in any of the following
consequences:
(i) require registration of the Partnership or any interest therein under any securities or commodities laws of any
jurisdiction;
(ii) result in a termination of the Partnership under Section 708(b)(1)(B) of the Code or jeopardize the status of the
Partnership as a partnership for United States federal income tax purposes; or
(iii) violate, or cause the Partnership, the General Partner or any Limited Partner to violate, any applicable law, rule
or regulation of any jurisdiction.
Such notice must be supported by proof of legal authority and a valid instrument of assignment acceptable to the General Partner.
(c) In the event any Transfer permitted by this Section 6.3 shall result in multiple ownership of any Limited Partner’s
interest in the Partnership, the General Partner may require one
23
or more trustees or nominees, whose names will be entered on the Register of Partnership Interests, to be designated to hold the legal
title to the interest and to represent the entire interest transferred for the purpose of receiving all notices which may be given and all
payments which may be made under this Agreement, and for the purpose of exercising the rights which the transferees have pursuant
to the provisions of this Agreement. The Partnership shall not otherwise be required to recognize any trust or other beneficial
ownership of any interest.
(d) At the direction of a transferring Limited Partner, a permitted transferee shall be entitled to be paid the allocations and
distributions attributable to the economic interest in the Partnership transferred to such transferee (and any such payment shall
constitute a good and valid discharge of such obligation on the part of the General Partner); provided that such transferee shall not be
entitled to the other rights of a Limited Partner as a result of such transfer until he becomes a substituted Limited Partner. No
transferee may become a substituted Limited Partner except with the prior written consent of the General Partner (which consent
may be given or withheld by the General Partner). Such transferee shall be admitted to the Partnership as a substituted Limited
Partner upon execution of a deed of adherence, in a form satisfactory to the General Partner, to this Agreement pursuant to which
such transferee undertakes and agrees to become a Limited Partner of the Partnership and to adhere to and be bound by the
provisions of this Agreement on admission as a Limited Partner. Notwithstanding the above, the Partnership and the General Partner
shall incur no liability for allocations and distributions made in good faith to the transferring Limited Partner until a written
instrument of Transfer has been received and accepted by the Partnership and recorded on its books and the effective date of the
Transfer has passed.
(e) Any other provision of this Agreement to the contrary notwithstanding, to the fullest extent permitted by law, any
successor or transferee of any Limited Partner’s interest in the Partnership shall be bound by the provisions hereof. Prior to
recognizing any Transfer in accordance with this Section 6.3, the General Partner may require the transferee to make certain
representations and warranties to the Partnership and Partners and to accept, adopt and approve in writing all of the terms and
provisions of this Agreement.
(f) In the event of a Transfer or in the event of a distribution of assets of the Partnership to any Partner, the Partnership, at
the direction of the General Partner, may, but shall not be required to, file an election under Section 754 of the Code and in
accordance with the applicable Treasury Regulations, to cause the basis of the Partnership’s assets to be adjusted as provided by
Section 734 or 743 of the Code.
(g) No transfer of a partnership interest shall be effective until the transfer of the partnership interest is registered by the
General Partner on the Register of Partnership Interests.
Section 6.4 Withdrawal of Partners
A Partner in the Partnership may not withdraw from the Partnership prior to its dissolution. For the avoidance of doubt, any
Limited Partner who transfers to a Related Party such Limited Partner’s entire remaining entitlement to allocations and distributions
shall remain a Limited Partner, notwithstanding the admission of the transferee Related Party as a Limited Partner, for as long as the
transferee Related Party remains a Limited Partner.
24
Section 6.5 Pledges
(a) A Limited Partner shall not pledge or grant a security interest in such Limited Partner’s interest in the Partnership
unless the prior written consent of the General Partner has been obtained (which consent may be given or withheld by the General
Partner).
(b) Notwithstanding Section 6.5(a), any Limited Partner may grant to a bank or other financial institution a security
interest in such part of such Limited Partner’s interest in the Partnership as relates solely to the right to receive distributions of
Operating Profit in the ordinary course of obtaining bona fide loan financing to fund his contributions to the capital of the
Partnership or Co-Investors (A). If the interest of the Limited Partner in the Partnership or Co-Investors (A) or any portion thereof in
respect of which a Limited Partner has granted a security interest ceases to be owned by such Limited Partner in connection with the
exercise by the secured party of remedies resulting from a default by such Limited Partner or upon the occurrence of such similar
events with respect to such Limited Partner’s interest in Co-Investors (A), such interest of the Limited Partner in the Partnership or
portion thereof shall thereupon become a non-voting interest and the holder thereof shall not be entitled to vote on any matter
pursuant to this Agreement and, if applicable, shall no longer be considered a Voting Partner for purposes of this Agreement.
(c) Any partnership interest in the Partnership may be evidenced by a certificate issued by the Partnership in such form as
the General Partner may approve.
(d) Each certificate representing a partnership interest in the Partnership shall be executed by manual or facsimile signature
of the General Partner on behalf of the Partnership.
ARTICLE 7
ALLOCATION OF POINTS; ADJUSTMENTS OF POINTS
AND RETIREMENT OF PARTNERS
Section 7.1 Allocation of Points
(a) Except as otherwise provided herein, the General Partner shall be responsible for the allocation of Points from time to
time to the Limited Partners. The General Partner may allocate Points to a new Limited Partner and/or increase or reduce the Points
of any existing Limited Partner at any time; provided that, except as expressly set forth in Sections 7.1(b)(ii), 7.1(d) and 7.3, the
General Partner may not reduce (i) a Limited Partner’s Points more than once in a 12-month period or (ii) a Retired Partner’s Vested
Points. Notwithstanding anything to the contrary herein, there shall be a maximum of 2,000 Points available for issuance.
(b) Unless otherwise agreed by the General Partner, the initial allocation of Points to any Limited Partner shall not become
effective until:
(i) the receipt of the following documents, in form and substance satisfactory to the General Partner, executed by
such Limited Partner a customary and standard guarantee
25
or guarantees, for the benefit of Fund investors, of the Limited Partner’s Clawback Share of the Partnership’s obligation to
make Clawback Payments; and
(ii) the effective date of the acceptance by Co-Investors (A) of a capital commitment from such Limited Partner (or
his Related Party, as applicable) in an amount specified in such Limited Partner’s Award Letter. Upon the occurrence of a
default, after the expiration of the applicable cure period set forth in section 4.2 of the Co-Investors (A) Partnership
Agreement, in the obligation to contribute capital to Co-Investors (A) in accordance with the Co-Investors (A) Partnership
Agreement by a Limited Partner, the General Partner may reduce or eliminate the Points of any such Limited Partner
(including the Vested Points of any Retired Partner); and
(iii) if the Limited Partner is not the individual to whom any covenants contained in such Limited Partner’s Award
Letter apply, the receipt of an undertaking, in form and substance satisfactory to the General Partner, executed by the
individual to comply with the covenants contained in such Award Letter.
(c) The number of Points allocated to a Team Member shall not be reduced except as expressly set forth in Sections 7.1(a),
7.1(b)(ii), 7.1(d) and 7.3.
(d) In addition to Section 7.1(a), the number of Points allocated to a Team Member may be reduced as a consequence of an
allocation of Points to another Partner if all of the following conditions are satisfied:
(i) The allocation of Points is to be made to a Person who is (or will become at the time of the Point allocation) a
Team Member.
(ii) Team Members will hold a number of Points that is greater than the Reserved Team Points.
(iii) After giving effect to any reduction in a Team Member’s Points, such Team Member will have at least [ ]
Points (or, in the case of a Retired Partner, the product of [ ] multiplied by such Retired Partner’s Vesting Percentage at the
time of Retirement).
(iv) The “Commitment Period” (as defined in the Fund LP Agreement) has not expired.
(v) The reduction in a Team Member’s Points shall be equal to a
x
b,
where:
a
= the excess of the number of Points described in clause (i), above, over the number, determined before
such allocation, of Reserved Team Points that are not held by Team Members (“Applicable Points”).
b
= a percentage equal to the aggregate number of Points that were held immediately prior to such reduction
by the Team Member whose Points are to be reduced divided by the sum of (a) the aggregate number of
Points that were held immediately prior to such reduction by all Team
26
Members whose Points are to be reduced and (b) the aggregate number of Points that were held by APH
immediately prior to such reduction and (c) the aggregate number of Points that were held by each other
Limited Partner who had more than [ ] Points at such time.
If, as a result of the reduction described in clause (v) above, a Team Member’s Points would be reduced to below [ ], such Team
Member’s Points shall be reduced to [ ] and the balance of the Points that would otherwise have reduced such Team Member’s
Points shall instead be treated as Applicable Points and shall reduce the Points of the other Team Members whose Points are to be
reduced in accordance with clause (v) above. The same principle shall apply to any other Limited Partner, other than APH, whose
Points would be reduced to below [ ].
For purposes of this Agreement, the term “Team Member” means (x) a natural person whose services to AGM or its Affiliates are
substantially dedicated to AGM’s or its Affiliates’ credit business, (y) a natural person who, following the date hereof, becomes a
Retired Partner and who, on or following the date hereof, held Points in his capacity as a Team Member, or (z) a Related Party of
any of the foregoing.
(e) The General Partner shall maintain on the books and records of the Partnership a record of the number of Points
allocated to each Partner and shall give notice to each Limited Partner of the number of such Limited Partner’s Points upon
admission to the Partnership of such Limited Partner and promptly upon any change in such Limited Partner’s Points pursuant to this
Article 7 and such notice shall include the calculations used by the General Partner to determine the amount of any such reduction.
(f) In the event that the General Partner in good faith enters into an agreement with respect to a specific transaction
pursuant to which a Person other than AGM, a subsidiary of AGM or any of their respective personnel would receive a distribution
of Operating Profit that would be made prior to any distribution of Operating Profit with respect to the same transaction for Team
Members or their Related Parties (a “Third Party Priority Distribution”), distributions of Operating Profit with respect to such
transaction to Partners must be commenced following the Third Party Priority Distribution at the same time to all Partners, in each
case, in accordance with Section 4.1(b).
(g) If a Limited Partner’s Points are reduced pursuant to Section 7.1(a) or 7.1(d) in an aggregate cumulative amount of at
least 10% of the highest number of Points held by such Limited Partner at any time, the General Partner shall arrange for such
Limited Partner’s capital commitment to Co-Investors (A) to be reduced to an amount that is proportionate to such Limited Partner’s
Points; provided that if a Limited Partner’s Points are subsequently increased pursuant to Section 7.3(b), the General Partner shall
arrange for such Limited Partner’s capital commitment to Co-Investors (A) to be increased to an amount that is proportionate to such
Limited Partner’s Points.
Section 7.2 Retirement of Partner
(a) A Limited Partner shall become a Retired Partner upon:
27
(i) delivery to such Limited Partner of a notice by the General Partner terminating such Limited Partner’s
employment by AGM or an Affiliate thereof, unless otherwise determined by the General Partner;
(ii) delivery by such Limited Partner of a notice to the General Partner, AGM or an Affiliate thereof stating that
such Limited Partner elects to resign from or otherwise terminate his or her employment by or service to AGM or an Affiliate
thereof; or
(iii) the death of the Limited Partner, whereupon the estate of the deceased Limited Partner shall be treated as a
Retired Partner in the place of the deceased Limited Partner, or the Disability of the Limited Partner.
(b) If (i) a Limited Partner becomes a Retired Partner for a reason other than an election to resign from employment by or
service to AGM or an Affiliate or involuntary termination of employment or service by reason of a Bad Act and (ii) such Limited
Partner’s Points are reduced upon retirement pursuant to Section 7.3, upon the request of such Retired Partner, the General Partner
shall arrange for such Limited Partner’s capital commitment to Co-Investors (A) to be reduced to an amount that is proportionate to
such Limited Partner’s Vested Points. Otherwise, if a Limited Partner’s Points are reduced upon retirement pursuant to Section 7.3,
the General Partner may, but shall not be required to, arrange for such Limited Partner’s capital commitment to Co-Investors (A) to
be reduced to an amount that is proportionate to such Limited Partner’s Vested Points. A Limited Partner’s capital commitment to
Co-Investors (A) shall not be otherwise reduced or released as a result of a Limited Partner becoming a Retired Partner.
(c) Nothing in this Agreement shall obligate the General Partner to treat Retired Partners alike, and the exercise of any
power or discretion by the General Partner in the case of any one such Retired Partner shall not create any obligation on the part of
the General Partner to take any similar action in the case of any other such Retired Partner, it being understood that any power or
discretion conferred upon the General Partner shall be treated as having been so conferred as to each such Retired Partner separately.
Section 7.3 Effect of Retirement on Points
(a) The Points of any Limited Partner who becomes a Retired Partner shall be reduced automatically to (i) zero if such
retirement is the consequence of a Bad Act and (ii) otherwise, an amount equal to such Limited Partner’s Vested Points calculated as
of the Retirement Date. Any such reduction shall be effective as of the Retirement Date or such subsequent date as may be
determined by the General Partner; provided that the General Partner may agree to a lesser reduction (or to no reduction) of the
Points of any such Limited Partner who becomes a Retired Partner.
(b) If any Points become available for reallocation as a result of a reduction pursuant to Section 7.3(a) at a time when any
Team Member’s Points have been reduced pursuant to Section 7.1(d) and not fully restored, such available Points shall be
reallocated, on a pro rata basis, among (i) all such Team Members having any such unrestored Points, (ii) APH and (iii) any other
Limited Partner whose Points were reduced, until all such reduced Points of all such Team Members have been fully restored. For
this purpose, “pro rata” with respect to any Team Member means a/b
, where:
28
a
=
b
=
the reduction amounts for such Team Member pursuant to Section 7.1(d), net of all amounts previously
restored.
the aggregate of all such net unrestored reduction amounts for all Team Members and APH taking into
account only reductions incurred as a consequence of allocations to Team Members, excluding reductions of
APH’s Points that increased the number of Reserved Team Points then allocated to Team Members.
If a reduction occurred prior to retirement of a Limited Partner and a Retired Partner has unrestored Points at the time of Retirement,
the quantity of such unrestored Points shall be adjusted at that time by multiplying such amount by the Vesting Percentage
applicable to such Retired Partner. After restoration of all previously reduced Points, the General Partner shall determine the manner
of reallocating any Points that become available as a result of a reduction pursuant to Section 7.3(a).
(c) Notwithstanding Section 7.3(b), unless otherwise determined by the General Partner in its good faith discretion, the
aggregate amount of forfeited Points reallocated to non-Retired Team Members who hold Points shall be apportioned among them in
accordance with the Points held by such Team Members at the time the relevant Points are forfeited.
(d) If one or more Partners or Retired Partners is assigned additional Points and such Partner or Retired Partner and the
General Partner agree in connection with such assignment that such assignment may be, for purposes of Section 83 of the Code, a
transfer in connection with the performance of services of an interest that would not qualify as a “profits interest” within the
meaning of IRS Revenue Procedure 93-27, then to the extent mutually agreed by such Partner or Retired Partner and the General
Partner, the Partnership may make such adjustments to the amounts allocated and distributed to such Partner or Retired Partner with
respect to such interest (and corresponding adjustments to other allocations and distributions for Partners and Retired Partners as
determined by the General Partner) so as to cause such interest to qualify as a “profits interest” within the meaning of IRS Revenue
Procedure 93-27.
Section 8.1 Liquidation and Dissolution of Partnership
ARTICLE 8
DISSOLUTION AND LIQUIDATION
(a) The General Partner, except where, the General Partner is unable to perform this function, a liquidator elected by a
majority in interest (determined by Points) of Limited Partners, shall commence the winding-up of the Partnership pursuant to the
Partnership Law upon occurrence of any Winding-Up Event. The General Partner or appointed liquidator shall terminate the
business and administrative affairs of the Partnership and commence the liquidation of the Partnership’s assets.
(b) Capital Profit and Capital Loss, Operating Profit and Operating Loss during the Fiscal Years that include the period of
liquidation shall be allocated pursuant to Section 3.4. The proceeds from liquidation shall be distributed in the following manner:
29
(i) first, the debts, liabilities and obligations of the Partnership including the expenses of liquidation (including
legal and accounting expenses incurred in connection therewith), up to and including the date that distribution of the
Partnership’s assets to the Partners has been completed, shall be satisfied (whether by payment or by making reasonable
provision for payment thereof); and
(ii) thereafter, the Partners shall be paid amounts pro rata in accordance with and up to the positive balances of
their respective Capital Accounts, as adjusted pursuant to Article 3.
(c) Anything in this Section 8.1 to the contrary notwithstanding, the General Partner or liquidator may distribute ratably in
kind rather than in cash, upon the winding-up of the Partnership, any assets of the Partnership in accordance with the priorities set
forth in Section 8.1(a), provided that if any in kind distribution is to be made the assets distributed in kind shall be valued as of the
actual date of their distribution and charged as so valued and distributed against amounts to be paid under Section 8.1(a).
(d) Upon completion of the winding-up of the Partnership in accordance with the terms hereof the Partnership shall be
dissolved by the filing of a notice of dissolution in accordance with the provisions of the Partnership Law.
Section 9.1 Consistent Economic Treatment
ARTICLE 9
GENERAL PROVISIONS
Except as otherwise specifically provided herein, the General Partner shall not treat any Limited Partner other than APH in a
manner that is materially adverse in comparison with the treatment of APH with respect to allocations of Operating Profit,
distributions of Operating Profit, Point dilution and funding of Clawback Shares. For the avoidance of doubt, the foregoing is not
intended to limit the General Partner’s authority relating to forfeiture of Points due to retirement or Bad Acts and allocation of Points
to APH to the extent not required to be allocated to Team Members.
Section 9.2 Amendment of Partnership Agreement and Co-Investors (A) Partnership Agreement
(a) The General Partner may amend this Agreement at any time, in whole or in part, without the consent of any Limited
Partner by giving notice of such amendment to any Limited Partner whose rights or obligations as a Limited Partner pursuant to this
Agreement are changed thereby; provided that any amendment that would effect a materially adverse change in the contractual rights
or obligations of a Partner (such rights or obligations determined without regard to the amendment power reserved herein) may only
be made if the written consent of such Partner is obtained prior to the effectiveness thereof; provided that any amendment that
increases a Partner’s obligation to contribute to the capital of the Partnership or increases such Partner’s Clawback Share shall not be
effective with respect to such Partner, unless such Partner consents thereto in advance in writing. Notwithstanding the foregoing, the
General Partner may amend this Agreement at any
30
time, in whole or in part, without the consent of any Limited Partner to enable the Partnership to (i) comply with the requirements of
the “Safe Harbor” Election within the meaning of the Proposed Revenue Procedure of Notice 2005-43, 2005-24 IRB 1, Proposed
Treasury Regulation Section 1.83-3(e)(1) or Proposed Treasury Regulation Section 1.704-1(b)(4)(xii) at such time as such proposed
Procedure and Regulations are effective and to make any such other related changes as may be required by pronouncements or
Treasury Regulations issued by the Internal Revenue Service or Treasury Department after the date of this Agreement and (ii)
comply with applicable law; provided that any amendment pursuant to clause (i) that would cause a Limited Partner’s rights to
allocations and distributions to suffer a material adverse change only may be made if the written consent of such Limited Partner is
obtained prior to the effectiveness thereof. An adjustment of Points shall not be considered an amendment to the extent effected in
compliance with the provisions of Section 7.1 or Section 7.3 as in effect on the date hereof or as hereafter amended in compliance
with the requirements of this Section 9.2(a). The General Partner’s approval of or consent to any transaction resulting in the
substitution of another Person in place of the Partnership as the managing or general partner of any of the Funds or any change to the
scheme of distribution under any of the Fund LP Agreements that would have the effect of reducing the Partnership’s allocable share
of the Net Income of any Fund shall require the consent of any Limited Partner adversely affected thereby.
(b) Notwithstanding the provisions of this Agreement, including Section 9.2(a), it is hereby acknowledged and agreed that
the General Partner on its own behalf or on behalf of the Partnership without the approval of any Limited Partner or any other Person
may enter into one or more side letters or similar agreements with one or more Limited Partners which have the effect of establishing
rights under, or altering or supplementing the terms of this Agreement. The parties hereto agree that any terms contained in a side
letter or similar agreement with one or more Limited Partners shall govern with respect to such Limited Partner or Limited Partners
notwithstanding the provisions of this Agreement. Any such side letters or similar agreements shall be binding upon the Partnership
or the General Partner, as applicable, and the signatories thereto as if the terms were contained in this Agreement, but no such side
letter or similar agreement between the General Partner and any Limited Partner or Limited Partners and the Partnership shall
adversely amend the contractual rights or obligations of any other Limited Partner without such other Limited Partner’s prior
consent.
(c) The provisions of this Agreement that affect the terms of the Co-Investors (A) Partnership Agreement applicable to
Limited Partners constitute a “side letter or similar agreement” between each Limited Partner and the general partner of Co-Investors
(A), which has executed this Agreement exclusively for purposes of confirming the foregoing.
(d) Notwithstanding any term of this Agreement, the consent of or notice to any person who is not a party to this
Agreement shall not be required for any termination, rescission or agreement to any variation, waiver, assignment, novation, release
or settlement under this Agreement at any time.
Section 9.3 Special Power-of-Attorney
(a) Each Partner hereby irrevocably makes, constitutes and appoints the General Partner with full power of substitution,
the true and lawful representative and attorney-in-fact, and in the
31
name, place and stead of such Partner, with the power from time to time to make, execute, sign, acknowledge, swear to, verify,
deliver, record, file and/or publish:
(i) any amendment to this Agreement which complies with the provisions of this Agreement (including the
provisions of Section 9.2);
(ii) all such other instruments, documents and certificates which, in the opinion of legal counsel to the Partnership,
may from time to time be required by the laws of the Cayman Islands or any other jurisdiction, or which such legal counsel
may deem necessary or appropriate to effectuate, implement and continue the valid and subsisting existence and business of
the Partnership as an exempted limited partnership or partnership in which the limited partners thereof enjoy limited liability;
(iii) all such instruments, certificates, agreements and other documents relating to the conduct of the investment
program of any of the Funds which, in the opinion of such attorney-in-fact and the legal counsel to the Funds, are reasonably
necessary to accomplish the legal, regulatory and fiscal objectives of the Funds in connection with its or their acquisition,
ownership and disposition of investments, including, without limitation:
(A)
the governing documents of any management entity formed as a part of the tax planning for any of the
Funds and any amendments thereto; and
(B)
documents relating to any restructuring transaction with respect to any of the Funds’ investments,
provided
that such documents referred to in clauses (A) and (B) above, viewed individually or in the
aggregate, provide substantially equivalent financial and economic rights and obligations with respect to such
Limited Partner and otherwise do not:
(1)
(2)
(3)
increase the Limited Partner’s overall financial obligation to make capital contributions with
respect to the relevant Fund (directly or through any associated vehicle in which the Limited
Partner holds an interest);
diminish the Limited Partner’s overall entitlement to share in profits and distributions with
respect to the relevant Fund (directly or through any associated vehicle in which the Limited
Partner holds an interest);
cause the Limited Partner to become subject to increased personal liability for any debts or
obligations of the Partnership; or
32
(4)
otherwise result in an adverse change in the overall rights or obligations of the Limited Partner
in relation to the conduct of the investment program of any of the Funds;
(iv) any instrument or document necessary or advisable to implement the provisions of Section 3.8;
(v) any written notice or letter of resignation from any board seat or office of any Person (other than a company
that has a class of equity securities registered under the United States Securities Exchange Act of 1934, as amended, or that is
registered under the United States Investment Company Act of 1940, as amended), which board seat or office was occupied
or held at the request of the Partnership or any of its Affiliates; and
(vi) all such proxies, consents, assignments and other documents as the General Partner determines to be necessary
or advisable in connection with any merger or other reorganization, restructuring or other similar transaction entered into in
accordance with this Agreement (including the provisions of Section 9.6(c)).
(b) Each Limited Partner is aware that the terms of this Agreement permit certain amendments to this Agreement to be
effected and certain other actions to be taken or omitted by or with respect to the Partnership without his consent. If an amendment
to this Agreement or any action by or with respect to the Partnership is taken by the General Partner in the manner contemplated by
this Agreement, each Limited Partner agrees that, notwithstanding any objection which such Limited Partner may assert with respect
to such action, the General Partner is authorized and empowered, with full power of substitution, to exercise the authority granted
above in any manner which may be necessary or appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Partner is fully aware that each other Partner will rely on the effectiveness of this power-of-attorney with a view to the
orderly administration of the affairs of the Partnership. Each Limited Partner agrees that the power-of-attorney granted hereby is
intended to secure an interest in property and, in addition, the obligations of each such Limited Partner under this Agreement and as
such:
(i) shall be irrevocable and continue in full force and effect notwithstanding the subsequent death or incapacity of
any party granting this power-of-attorney, regardless of whether the Partnership or the General Partner shall have had notice
thereof; and
(ii) shall survive any Transfer by a Limited Partner of the whole or any portion of its interest in the Partnership,
except that, where the transferee thereof has been approved by the General Partner for admission to the Partnership as a
substituted Limited Partner, this power of attorney given by the transferor shall survive such Transfer for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument necessary to effect such substitution.
Section 9.4 Notices
33
Any notice required or permitted to be given under this Agreement shall be in writing. A notice to the General Partner shall
be directed to the attention of Leon D. Black with a copy to the general counsel of the Partnership. A notice to a Limited Partner
shall be directed to such Limited Partner’s last known residence as set forth in the books and records of the Partnership or its
Affiliates (a Limited Partner’s “Home Address”). A notice shall be considered given when delivered to the addressee either by hand
at his Partnership office or electronically to the primary e-mail account supplied by the Partnership for Partnership business
communications, except that a notice to a Retired Partner or a notice demanding cure of a Bad Act shall be considered given only
when delivered by hand or by a recognized overnight courier, together with mailing through the United States Postal System by
regular mail to such Retired Partner’s Home Address.
Section 9.5 Agreement Binding Upon Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors by operation of
law, but the rights and obligations of the Partners hereunder shall not be assignable, transferable or delegable except as expressly
provided herein, and any attempted assignment, transfer or delegation thereof that is not made in accordance with such express
provisions shall be void and unenforceable.
Section 9.6 Merger, Consolidation, etc.
(a) Subject to Sections 9.6(b) and 9.6(c), the Partnership may merge or consolidate with or into one or more limited
partnerships formed under any applicable law or other business entities under applicable law pursuant to an agreement of merger or
consolidation which has been approved by the General Partner.
(b) Subject to Section 9.6(c) but notwithstanding any other provision to the contrary contained elsewhere in this
Agreement, an agreement of merger or consolidation approved in accordance with Section 9.6(a) may, to the extent permitted by
Section 9.6(a), (i) effect any amendment to this Agreement, (ii) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership in the merger or consolidation, or (iii) provide that the partnership
agreement of any other constituent limited partnership to the merger or consolidation (including a limited partnership formed for the
purpose of consummating the merger or consolidation) shall be the partnership agreement of the surviving or resulting limited
partnership.
(c) The General Partner shall have the power and authority to approve and implement any merger, consolidation or other
reorganization, restructuring or similar transaction without the consent of any Limited Partner, other than any Limited Partner with
respect to which the General Partner has determined that such transaction will, or is more likely than not to, result in any material
adverse change in the financial and other material rights of such Limited Partner conferred by this Agreement and any side letter or
similar agreement entered into pursuant to Section 9.2(b) or the imposition of any material new financial obligation on such Limited
Partner. Subject to the foregoing, the General Partner may require one or more of the Limited Partners to sell, exchange, transfer or
otherwise dispose of their interests in the Partnership in connection with any such transaction, and each Limited Partner shall take
such action as may be directed by the General Partner to effect any such transaction.
34
Section 9.7 Governing Law; Dispute Resolution
(a) This Agreement, and the rights of each and all of the Partners hereunder, shall be governed by and construed in
accordance with the laws of the Cayman Islands, without regard to conflict of laws rules thereof.
(b) Subject to Section 9.7(c), any dispute, controversy, suit, action or proceeding arising out of or relating to this
Agreement, other than injunctive relief, will be settled exclusively by arbitration, conducted before a single arbitrator in New York
County, New York (applying Cayman Islands law) in accordance with, and pursuant to, the applicable rules of JAMS (“JAMS”).
The decision of the arbitrator will be final and binding upon the parties hereto. Any arbitral award may be entered as a judgment or
order in any court of competent jurisdiction. Either party may commence litigation in court to obtain injunctive relief in aid of
arbitration, to compel arbitration, or to confirm or vacate an award, to the extent authorized by the U.S. Federal Arbitration Act or
the New York Arbitration Act. The party that is determined by the arbitrator not to be the prevailing party will pay all of the JAMS
administrative fees, the arbitrator’s fee and expenses. Each party shall be responsible for such party’s attorneys’ fees. If neither party
is so determined, such fees shall be shared. Each party shall be responsible for such party’s attorneys’ fees. IF THIS AGREEMENT
TO ARBITRATE IS HELD INVALID OR UNENFORCEABLE THEN, TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTNER AND THE PARTNERSHIP WAIVE AND COVENANT
THAT THE PARTNER AND THE PARTNERSHIP WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN
CONNECTION WITH THIS AGREEMENT, WHETHER NOW OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AND AGREE THAT ANY OF THE PARTNERSHIP OR ANY OF ITS AFFILIATES
OR THE PARTNER MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTNERSHIP AND ITS AFFILIATES,
ON THE ONE HAND, AND THE PARTNER, ON THE OTHER HAND, IRREVOCABLY TO WAIVE THE RIGHT TO TRIAL
BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN SUCH PARTIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THAT ANY PROCEEDING PROPERLY HEARD BY A COURT UNDER THIS AGREEMENT WILL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
(c) Nothing in this Section 9.7(c) will prevent the General Partner or a Limited Partner from applying to a court for
preliminary or interim relief or permanent injunction in a judicial proceeding (e.g., injunction or restraining order), in addition to and
not in lieu of any other remedy to which it may be entitled at law or in equity, if such relief from a court is necessary to preserve the
status quo pending resolution or to prevent serious and irreparable injury in connection with any breach or anticipated breach of
covenants applicable pursuant to a Limited Partner’s Award Letter; provided, however, that all parties explicitly waive all rights to
seek preliminary, interim, injunctive or other relief in a judicial proceeding and all parties submit to the exclusive jurisdiction of the
forum described in Section 9.7(b) for any dispute or claim concerning continuing entitlement
35
to distributions or other payments, even if such dispute or claim involves or relates to any restrictive covenants set forth in such
Limited Partner’s Award Letter. For the purposes of this Section 9.7(c), each party hereto consents to the exclusive jurisdiction and
venue of the courts of the state and federal courts within the County of New York in the State of New York.
Section 9.8 Termination of Right of Action
Every right of action arising out of or in connection with this Agreement by or on behalf of any past, present or future Partner
or the Partnership against any past, present or future Partner shall, to the fullest extent permitted by applicable law, irrespective of
the place where the action may be brought and irrespective of the residence of any such Partner, cease and be barred by the
expiration of three years from the date of the act or omission in respect of which such right of action arises.
Section 9.9 Not for Benefit of Creditors
The provisions of this Agreement are intended only for the regulation of relations among Partners and between Partners and
former or prospective Partners and the Partnership. This Agreement is not intended for the benefit of any Person who is not a
Partner, and no rights are intended to be granted to any other Person who is not a Partner under this Agreement.
Section 9.10 Reports
As soon as practicable after the end of each taxable year, the General Partner shall furnish to each Limited Partner (a) such
information as may be required to enable each Limited Partner to properly report for United States federal and state income tax
purposes his distributive share of each Partnership item of income, gain, loss, deduction or credit for such year, and (b) a statement
of the total amount of Operating Profit or Operating Loss for such year, including a copy of the United States Internal Revenue
Service Schedule “K-1” issued by the Partnership to such Limited Partner, and a reconciliation of any difference between (i) such
Operating Profit or Operating Loss and (ii) the aggregate net profits or net losses allocated by the Funds to the Partnership for such
year (other than any difference attributable to the aggregate Capital Profit or Capital Loss allocated by the Funds to the Partnership
for such year).
Section 9.11 Filings
The Partners hereby agree to take any measures necessary (or, if applicable, refrain from any action) to ensure that the
Partnership is treated as a partnership for United States federal, state and local income tax purposes.
Section 9.12 Headings, Gender, Etc.
The section headings in this Agreement are for convenience of reference only, and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof. As used herein, masculine pronouns shall include the feminine and neuter, and
the singular shall be deemed to include the plural.
Signature
Page
Follows
36
37
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as a deed on the day and year first
above written.
General
Partner:
FINANCIAL CREDIT II CAPITAL MANAGEMENT, LLC
By: /s/ Joseph D. Glatt
Name: Joseph D. Glatt
Title: Vice President
in the presence of: /s/ Kristina Hoops
Name: Kristina Hoops
Limited
Partner:
APH HOLDINGS, L.P.
By: Apollo Principal Holdings III GP, Ltd.,
its general partner
By: /s/ Joseph D. Glatt
Name: Joseph D. Glatt
Title: Vice President
in the presence of: /s/ Kristina Hoops
Name: Kristina Hoops
Financial
Credit
Investment
Advisors
II,
L.P.
Amended
and
Restated
Agreement
of
Exempted
Limited
Partnership
Signature
Page
On behalf of all Limited Partners listed in the Register of Partnership Interests as
Limited Partners (other than any person whose signature appears herein) who are being
admitted to the Partnership as a Limited Partner pursuant to powers of attorney granted
to FINANCIAL CREDIT II CAPITAL MANAGEMENT, LLC
FINANCIAL CREDIT II CAPITAL MANAGEMENT, LLC
By: /s/ Joseph D. Glatt
Name: Joseph D. Glatt
Title: Vice President
in the presence of: /s/ Kristina Hoops
Name: Kristina Hoops
For
purposes
of
Section
9.2(c):
APOLLO CO-INVESTORS MANAGER, LLC
By: /s/ Joseph D. Glatt
Name: Joseph D. Glatt
Title: Vice President
in the presence of: /s/ Kristina Hoops
Name: Kristina Hoops
Financial
Credit
Investment
Advisors
II,
L.P.
Amended
and
Restated
Agreement
of
Exempted
Limited
Partnership
Signature
Page
Exhibit 10.83
CONFIDENTIAL AND PROPRIETARY
EXECUTION VERSION
This partnership is a Class C Limited Partner of
AAA Associates, L.P.
AAA Life Re Carry, L.P.
Amended and Restated
Limited Partnership Agreement
Dated October 15, 2009
THE TRANSFER OF THE PARTNERSHIP INTERESTS DESCRIBED IN THIS
AGREEMENT IS RESTRICTED AS DESCRIBED HEREIN.
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 FORMATION AND ORGANIZATION 6
Section 2.1 Formation 6
Section 2.2 Name 6
Section 2.3 Offices 7
Section 2.4 Term of the Partnership 7
Section 2.5 Purpose of the Partnership 7
Section 2.6 Actions by the Partnership 8
Section 2.7 Admission of Limited Partners 8
Section 2.8 Withdrawal of the Initial Limited Partner 8
ARTICLE 3 CAPITAL 8
Section 3.1 Contributions to Capital 8
Section 3.2 Rights of Partners in Capital 9
Section 3.3 Capital Accounts 9
Section 3.4 Allocation of Profit and Loss 10
Section 3.5 Tax Allocations 11
Section 3.6 Reserves; Adjustments for Certain Future Events 11
Section 3.7 Finality and Binding Effect of General Partner’s Determinations 12
ARTICLE 4 DISTRIBUTIONS 12
Section 4.1 Distributions 12
Section 4.2 Withholding of Certain Amounts 12
Section 4.3 Limitation on Distributions 13
ARTICLE 5 MANAGEMENT 13
Section 5.1 Rights and Powers of the General Partner 13
Section 5.2 Delegation of Duties 14
Section 5.3 Transactions with Affiliates 14
Section 5.4 Expenses 14
Section 5.5 Rights of Limited Partners 15
Section 5.6 Other Activities of Partners 15
Section 5.7 Duty of Care; Indemnification 15
ARTICLE 6 ADMISSIONS, TRANSFERS AND WITHDRAWALS 17
Section 6.1 Admission of Additional Limited Partners; Effect on Points 17
Section 6.2 Admission of Additional General Partner 17
Section 6.3 Transfer of Interests of Limited Partners 18
Section 6.4 Withdrawal of Partners 19
Section 6.5 Pledges 20
i
ARTICLE 7 POINTS 20
Section 7.1 Allocation of Points 20
Section 7.2 Retirement of Partner 21
Section 7.3 Effect of Retirement on Points 21
Section 7.4 Points as Profits Interests 22
ARTICLE 8 DISSOLUTION AND LIQUIDATION 23
Section 8.1 Winding-Up and Liquidation of Partnership 23
Section 8.2 Dissolution 23
ARTICLE 9 GENERAL PROVISIONS 23
Section 9.1 Amendment of this Agreement 23
Section 9.2 Notices 24
Section 9.3 Agreement Binding Upon Successors and Assigns 24
Section 9.4 Governing Law 24
Section 9.5 Termination of Right of Action 25
Section 9.6 Confidentiality 25
Section 9.7 Not for Benefit of Creditors 26
Section 9.8 Consents 26
Section 9.9 Reports 26
Section 9.10 Filings 26
Section 9.11 Miscellaneous 26
ii
AAA LIFE RE CARRY, L.P.
A Cayman Islands Exempted Limited Partnership
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of AAA LIFE RE CARRY, L.P. (the
“Partnership”) is made on October 15, 2009 by and among Apollo Advisors VII (EH), L.P., a Cayman Islands exempted limited
partnership, as the sole general partner (the “General Partner”), the persons whose names and addresses are set forth in the Register
of Partners under the caption “Limited Partners” as the limited partners and the Initial Limited Partner (as defined herein), solely for
the purpose of effecting his withdrawal as a limited partner with effect as of the date hereof (the “Agreement”).
W I T N E S S E T H :
WHEREAS, the Partnership was formed pursuant to the laws of the Cayman Islands and an Agreement of Limited
Partnership of the Partnership, dated July 30, 2009, between the General Partner and the Initial Limited Partner (the “Original
Agreement”); and
WHEREAS, the parties hereto wish to amend and restate the Original Agreement in its entirety to reflect the withdrawal of
the Initial Limited Partner, the admission as Limited Partners of the parties listed on the Register of Partners as Limited Partners and
the modifications to the Original Agreement as set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
“AAA Associates” means AAA Associates, L.P., a Guernsey limited partnership and the general partner of the Fund.
“AAA Associates LP Agreement” means the limited partnership agreement of AAA Associates, as amended from time to
time.
“Act” means the Exempted Limited Partnership Law (as revised) of the Cayman Islands, as the same may be amended from
time to time, or any successor law.
“Advisors VII LP Agreement” means the limited partnership agreement of Apollo Advisors VII, L.P., as amended from time
to time.
“Affiliate” means with respect to any Person any other Person directly or indirectly controlling, controlled by or under
common control with such Person.
“Agreement” means this Amended and Restated Limited Partnership Agreement, as amended or supplemented from time to
time.
“APH” means Apollo Principal Holdings III, L.P. (or its assignees or transferees).
“Capital Account” means with respect to each Partner the capital account established and maintained on behalf of such
Partner as described in Section 3.3.
“Cause” means with respect to any Limited Partner, an election by such Limited Partner in accordance with Section 7.2(a)(ii)
or a determination by the General Partner that any of the following events has occurred with respect to such Limited Partner:
(a) the Limited Partner’s conviction of a felony or plea of no contest to a felony charge;
(b) the Limited Partner’s intentional violation of law in connection with any transaction involving the purchase, sale, loan
or other disposition of, or the rendering of investment advice with respect to, any security, futures or forward contract, insurance
contract, debt instrument or currency;
(c) dishonesty, bad faith, gross negligence (as defined and interpreted in accordance with the laws of the State of New York
in the United States of America), willful misconduct, fraud or willful or reckless disregard of duties by a Limited Partner in
connection with the performance of any services on behalf of the Partnership or any Affiliate of the Partnership;
(d) intentional failure by a Limited Partner to comply with any reasonable directive of the General Partner in connection
with the performance of any services on behalf of the Partnership or any Affiliate of the Partnership;
(e) intentional breach by a Limited Partner of any material provision of this Agreement, the AAA Associates LP
Agreement, the limited partnership agreement of the Fund or any of the equivalent agreements of any Affiliate of the Partnership;
(f) intentional violation by a Limited Partner of any material written policies adopted by the General Partner governing the
conduct of Persons performing services on behalf of the Partnership or any Affiliate of the Partnership;
(g) the taking of or omission to take any action that has caused or substantially contributed to a material deterioration in the
business or reputation of the Partnership or any of its Affiliates, or that was otherwise materially disruptive of their business or
affairs; provided that the term Cause shall not include for this purpose (i) any mistake of judgment made in good faith with respect to
any transaction respecting a Fund Investment or (ii) a communication to other Partners or other Apollo professionals, in a
professional and business-like manner, of any bona fide disagreement or suggestion concerning a proposed action by the Partnership
or an Affiliate;
(h) the failure by a Limited Partner to devote a significant portion of time to performing services as an agent of the
Partnership or any of its Affiliates without the prior consent of the General Partner, other than by reason of death or Disability;
(i) the obtaining by a Limited Partner of any material improper personal benefit as a result of a breach by such Limited
Partner of any covenant or agreement (including, without limitation, a breach by a Limited Partner of the code of ethics of Apollo
Global Management, LLC
2
or any of its Affiliates or a material breach by a Limited Partner of other written policies furnished to the Limited Partner relating to
personal investment transactions or of any covenant, agreement, representation or warranty contained in the Associates LP
Agreement or the limited partnership agreement of the Fund); or
(j) the Limited Partner being deemed a “Retired Partner for Cause” under the Advisors VII LP Agreement;
provided that if a failure, breach, violation or action or omission described in any of clauses (d) through (g) is capable of being
cured, the Limited Partner has failed to do so after being given notice and a reasonable opportunity to cure.
“Certificate” means the Certificate of Registration of Exempted Limited Partnership of the Partnership and any amendments
thereto as issued by the Cayman Islands Registrar of Exempted Limited Partnerships.
“Class C Interest” means the Partnership’s limited partner interest in AAA Associates that represents the entitlement of the
Partnership to allocations and distributions by AAA Associates of amounts derived by AAA Associates from the Fund GP Book
Account attributable to the Class C Investment and as set forth in the Class Designation Schedule adopted by the general partner of
AAA Associates.
“Class C Investment” means the Fund’s investment in Athene Holding Ltd. only.
“Class C Limited Partner” means the Partnership in its capacity as a limited partner of AAA Associates holding a Class C
Interest.
“Class C Shares” means the Class Shares attributable to the Class C Investment.
“Class Designation Schedule” has the meaning ascribed to that term in the AAA Associates LP Agreement.
“Class Share” has the meaning ascribed to that term in the AAA Associates LP agreement.
“Code” means the United States Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor
law.
“Confidential Information” means information that has not been made publicly available by or with the permission of the
General Partner and that is obtained or learned by a Limited Partner as a result of or in connection with such Limited Partner’s
association with the Partnership or any of its Affiliates concerning the business, affairs or activities of the Partnership, AAA
Associates, any of their Affiliates or any Fund Investments, including, without limitation, models, codes, client information
(including client identity and contacts, client lists, client financial or personal information), financial data, know-how, computer
software and related documentation, trade secrets, and other forms of sensitive or valuable non-public information obtained or
learned by the Limited Partner as a result of such Limited Partner’s participation in the Partnership. For the avoidance of doubt,
Confidential Information does not include information concerning non-proprietary business
3
or investment practices, methods or relationships customarily employed or entered into by comparable business enterprises.
“Covered Person” has the meaning ascribed to that term in Section 5.7.
“Disability” means, with respect to a Limited Partner, any physical or mental illness, disability or incapacity that prevents the
Limited Partner from performing substantially all of the duties delegated to him as an agent of the Partnership pursuant to Section
5.2 or as an agent of Apollo Advisors VII, L.P. pursuant to the Advisors VII LP Agreement.
“Final Adjudication” has the meaning ascribed to that term in Section 5.7.
“Fiscal Year” means, with respect to a year, the period commencing on January 1 of such year and ending on December 31
of such year (or on the date of a final distribution pursuant to Section 8.1(a)), unless the General Partner shall elect another fiscal
year for the Partnership which is a permissible taxable year under the Code.
“Fund” has the meaning ascribed to that term in the AAA Associates LP Agreement.
“Fund GP Book Account” has the meaning ascribed to that term in the AAA Associates LP Agreement.
“Fund Investment” has the meaning ascribed to that term in the AAA Associates LP Agreement.
“General Partner” means Apollo Advisors VII (EH), L.P., a Cayman Islands exempted limited partnership, in its capacity as
general partner of the Partnership or any successor to the business of the General Partner in its capacity as general partner of the
Partnership.
“Initial Limited Partner” means Patrick Head.
“Investment Manager” has the meaning ascribed to that term in the AAA Associates LP Agreement.
“Limited Partner” means any Person admitted as a limited partner to the Partnership in accordance with this Agreement,
including any Retired Partner, until such Person withdraws entirely as a limited partner of the Partnership, in its capacity as a limited
partner of the Partnership.
“Loss” means, with respect to any Fiscal Year, any net loss of the Partnership. To the extent derived from AAA Associates,
any items of income, gain, loss, deduction and credit shall be determined in accordance with the same accounting policies, principles
and procedures applicable to the determination by AAA Associates, and any items not derived from AAA Associates shall be
determined in accordance with the accounting policies, principles and procedures used by the Partnership for United States federal
income tax purposes.
“Partner” means the General Partner and any of the Limited Partners and “Partners” means the General Partner and all of the
Limited Partners.
4
“Partnership” means the exempted limited partnership continued pursuant to this Agreement.
“Permanent Disability” means a Disability that continues for (a) periods aggregating at least 24 months during any period of
48 consecutive months, or (b) such shorter period as the General Partner may determine.
“Person” means any individual, partnership, corporation, limited liability company, joint venture, joint stock company,
unincorporated organization or association, trust (including the trustees thereof, in their capacity as such), government, governmental
agency, political subdivision of any government, or other entity.
“Point” means a 1/x share of Profit or Loss. The aggregate number of Points assigned or available for assignment to all
Partners shall not at any time exceed [ ].
“Profit” means, with respect to any Fiscal Year, any net income of the Partnership. To the extent derived from AAA
Associates, any items of income, gain, loss, deduction and credit shall be determined in accordance with the same accounting
policies, principles and procedures applicable to the determination by AAA Associates, and any items not derived from AAA
Associates shall be determined in accordance with the accounting policies, principles and procedures used by the Partnership for
United States federal income tax purposes.
“Register of Partners” means the register of Partners maintained by the General Partner showing the following information
with respect to each Partner: name, address, date of admission and withdrawal and the date and amount of receipt of any required
capital contribution (if any) made to the Partnership and the date and amount of any payment representing a return of any part of the
contribution of any Partner.
“Retired Partner” means any Limited Partner who has become a retired partner in accordance with or pursuant to Section 7.2.
“Transfer” means any direct or indirect sale, exchange, transfer, assignment or other disposition by a Partner of any or all of
such Partner’s interest in the Partnership (whether respecting, for example, economic rights only or all the rights associated with the
interest) to another Person, whether voluntary or involuntary.
“Treasury Regulations” means the regulations promulgated under the Code.
“Unvested Points” means, with respect to any Limited Partner as of the commencement of any Vesting Period, any amount
by which (a) the total Points assigned to such Limited Partner as of such date, excluding, unless otherwise determined by the General
Partner, any Points assigned to such Limited Partner pursuant to Section 7.3(c), exceed (b) such Limited Partner’s Vested Points, if
any, as of such time.
“Vested Points” means, with respect to any Limited Partner at any time, the sum of:
5
(a) with respect to the first Vesting Period, the product of (i) such Limited Partner’s Points as of the commencement of the
first Vesting Period, multiplied by (ii) such Limited Partner’s Vesting Percentage with respect to the first Vesting Period, plus
(b) with respect to each Vesting Period after the first Vesting Period and without duplication (i) such Limited Partner’s
Vested Points, if any, as of the close of the immediately preceding Vesting Period, plus (ii) the product of (A) such Limited Partner’s
Unvested Points as of the commencement of such Vesting Period, multiplied by (B) such Limited Partner’s Vesting Percentage with
respect to such Vesting Period.
“Vesting Date” means, with respect to any Limited Partner, the last day of the calendar month coinciding with or
immediately preceding any of the following:
(a) the date on which such Limited Partner becomes a Retired Partner; or
(b) the date of an increase in such Limited Partner’s Points pursuant to Section 6.1(a).
“Vesting Percentage” means, with respect to any Vesting Period of any Limited Partner: [ ].
“Vesting Period” means, with respect to any Limited Partner, an initial period that commences as of the later of (a) July 15,
2009, and (b) the effective date of such Limited Partner’s admission to the Partnership and ends on the first Vesting Date thereafter,
and each subsequent period that commences on the next day following the immediately preceding Vesting Date and ends on the next
succeeding Vesting Date.
“Winding-up Event” has the meaning ascribed to that term in Section 2.4(b).
ARTICLE 2
FORMATION AND ORGANIZATION
Section 2.1 Formation
The Partnership was formed pursuant to the Original Agreement and is hereby continued as an exempted limited partnership
under and pursuant to the terms hereof and in accordance with the Act. The Certificate was issued on July 30, 2009. The General
Partner shall execute, acknowledge and file any statements as may be required by the Act and any other instruments, documents and
certificates which, in the opinion of the Partnership’s legal counsel, may from time to time be required by the laws of the Cayman
Islands or any other jurisdiction in which the Partnership shall determine to do business, or any political subdivision or agency
thereof, or which such legal counsel may deem necessary or appropriate to effectuate, implement and continue the valid and
subsisting existence and business of the Partnership.
Section 2.2 Name
6
The name of the Partnership shall be “AAA Life Re Carry, L.P.” or such other name as the General Partner may hereafter
adopt upon causing an appropriate amendment to be made to this Agreement and the filing of an appropriate statement in accordance
with the Act. Promptly thereafter, the General Partner shall send notice thereof to each Limited Partner.
Section 2.3 Offices
(a) The Partnership shall maintain its principal office, and may maintain one or more additional offices, at such place or
places as the General Partner may from time to time determine.
(b) The General Partner shall arrange for the Partnership to have and maintain in the Cayman Islands, at the expense of the
Partnership, a registered office at the office of Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town,
Grand Cayman KY1-9005 or at such place or places in the Cayman Islands as the General Partner may decide.
Section 2.4 Term of the Partnership
(a) The term of the Partnership shall continue until it is terminated in accordance with the further terms hereof.
(b) The Partnership shall only be wound up at the time or upon the occurrence of any of the following events (each a
“Winding-Up Event”) and sections 15(2), 15(5), 15(6) and 15(7) of the Act shall not apply to the Partnership save as otherwise
expressly provided herein:
(i) any date on which the General Partner shall elect to commence the winding-up and dissolution of the
Partnership; or
(ii) the withdrawal of the last remaining Limited Partner; or
(iii) following the occurrence of any event described in paragraphs (a), (b) or (c) of section 15(5) of the Act in
relation to the sole or last remaining qualifying General Partner unless all remaining Partners agree in writing to continue the
business of the Partnership and to appoint a replacement general partner within 90 days after such General Partner (or its legal
representative) gives notice of the event giving rise to the automatic dissolution trigger.
(c) The parties agree that irreparable damage would be done to the goodwill and reputation of the Partners if any Limited
Partner should bring an action to dissolve the Partnership. Care has been taken in this Agreement to provide for fair and just payment
in liquidation of the interests of all Partners. Accordingly, to the fullest extent permitted by law, each Limited Partner hereby waives
and renounces its right to apply for such a decree of dissolution or to seek the winding-up and appointment of a liquidator for the
Partnership, except as provided herein.
(d) Upon the occurrence of a Winding-Up Event the Partnership shall be wound up and dissolved in accordance with the
terms of Article 8 of this Agreement and the Act.
Section 2.5 Purpose of the Partnership
7
The principal purpose of the Partnership is to (a) act as a Class C Limited Partner of AAA Associates pursuant to the AAA
Associates LP Agreement, (b) engage in any lawful act or activity for which limited partnerships may be formed under the Act, and
(c) undertake such related and incidental activities and execute and deliver such related documents necessary or incidental thereto.
Section 2.6 Actions by the Partnership
The Partnership may execute, deliver and perform, and the General Partner may execute and deliver, all contracts,
agreements and other undertakings, and engage in all activities and transactions as may in the opinion of the General Partner be
necessary or advisable to carry out the objects and purposes of the Partnership, without the approval or vote of any Limited Partner.
Section 2.7 Admission of Limited Partners
On the date hereof, the Persons whose names are set forth in the Schedule of Partners under the caption “Limited Partners”
shall be admitted to the Partnership as limited partners of the Partnership upon their execution of a deed of adherence to this
Agreement or such other instrument evidencing, to the satisfaction of the General Partner, such Limited Partner’s intent to become a
Limited Partner and to be bound by the terms of this Agreement.
Section 2.8 Withdrawal of the Initial Limited Partner
On the date hereof, immediately following the admission of the first Limited Partner to the Partnership in accordance with
the terms of Section 2.7 hereof, the Initial Limited Partner shall be deemed to have automatically withdrawn as a Partner of the
Partnership and shall have no continuing rights, obligations or liabilities hereunder or with respect to the Partnership or the
remaining Partners of the Partnership.
ARTICLE 3
CAPITAL
Section 3.1 Contributions to Capital
(a) Any required contribution of a Limited Partner to the capital of the Partnership shall be as set forth in the Register of
Partners. Contributions to the capital of the Partnership shall be made as of the date of admission of such Limited Partner as a limited
partner of the Partnership and as of each such other date as may be specified by the General Partner. Except as otherwise permitted
by the General Partner, all contributions to the capital of the Partnership by each Limited Partner shall be payable exclusively in
cash.
(b) No Partner shall be obligated, nor shall any Partner have any right, to make any contribution to the capital of the
Partnership other than as specified in this Section 3.1 or Section 4.2(a). No Limited Partner shall be obligated to restore any deficit
balance in its Capital Account.
8
(c) The General Partner shall not be required to make capital contributions except as may be required by the Act.
Section 3.2 Rights of Partners in Capital
(a) No Partner shall be entitled to interest on its capital contributions to the Partnership.
(b) No Partner shall have the right to distributions or the return of any contribution to the capital of the Partnership except
(i) for distributions in accordance with Section 4.1 or Section 6.4, or (ii) upon the winding-up of the Partnership. The entitlement to
any such return at such time shall be limited to the value of the Capital Account of the Partner. The General Partner shall not be
liable for the return of any such amounts.
Section 3.3 Capital Accounts
(a) The Partnership shall maintain for each Partner a separate Capital Account.
(b) Each Partner’s Capital Account shall have an initial balance equal to the amount of any cash and the net value of any
securities or other property constituting such Partner’s initial contribution to the capital of the Partnership.
(c) Each Partner’s Capital Account shall be increased by the sum of:
(i) the amount of cash and the net value of any securities or other property constituting additional contributions by
such Partner to the capital of the Partnership permitted pursuant to Section 3.1, plus
(ii) the portion of any Profit allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(iii) such Partner’s allocable share of any decreases in any reserves recorded by the Partnership pursuant to Section
3.6, to the extent the General Partner determines that, pursuant to any provision of this Agreement, such item is to be credited to
such Partner’s Capital Account on a basis which is not in accordance with the current respective Points of all Partners.
(d) Each Partner’s Capital Account shall be reduced by the sum of (without duplication):
(i) the portion of any Loss allocated to such Partner’s Capital Account pursuant to Section 3.4, plus
(ii) the amount of any cash and the net value of any property distributed to such Partner pursuant to Section 4.1,
Section 6.4 or Section 8.1 including any amount deducted pursuant to Section 4.2 or Section 5.4 from any such amount distributed,
plus
(iii) any withholding taxes or other items payable by the Partnership and allocated to such Partner pursuant to
Section 5.4(b), any increases in any reserves recorded by the Partnership pursuant to Section 3.6, to the extent the General Partner
determines that, pursuant to any provision
9
of this Agreement, such item is to be charged to such Partner’s Capital Account on a basis which is not in accordance with the
current respective Points of all Partners.
Section 3.4 Allocation of Profit and Loss
(a) Allocations of Profit. Profit for any Fiscal Year shall be allocated among the Partners in proportion to their respective
Points as of the close of such Fiscal Year.
(b) Allocations of Losses. Subject to the limitation of Section 3.4(c), Loss for any Fiscal Year shall be allocated among the
Partners in proportion to their respective Points as of the close of such Fiscal Year.
(c) To the extent that the allocations of Loss contemplated by Section 3.4(b) would cause the Capital Account of any
Limited Partner to be less than zero, such Loss shall to that extent instead be allocated to and debited against the Capital Account of
the General Partner. Following any such adjustment pursuant to Section 3.4(c) with respect to any Limited Partner, any Profit for
any subsequent Fiscal Year which would otherwise be credited to the Capital Account of such Limited Partner pursuant to Section
3.4(a) shall instead be credited to the Capital Account of the General Partner until the cumulative amounts so credited to the Capital
Account of the General Partner with respect to such Limited Partner pursuant to Section 3.4(c) is equal to the cumulative amount
debited against the Capital Account of the General Partner with respect to such Limited Partner pursuant to Section 3.4(c).
(d) Special Allocations.
(i) Qualified Income Offset . In the event any Partner unexpectedly receives any adjustments, allocations, or
distributions described in Treasury Regulations section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Partnership income and gain shall
be specially allocated to each such Limited Partner in an amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the deficit balance in the Capital Account of such Partner as quickly as possible; provided that an allocation
pursuant to this Section 3.4(d)(i) may be made only if and to the extent that such Partner would have a deficit balance in its Capital
Account after all other allocations provided for in this Article 3 have been tentatively made as if this Section 3.4(d)(i) were not in
this Agreement. This Section 3.4(d)(i) is intended to constitute a “qualified income offset” within the meaning of Treasury
Regulations section 1.704-1(b)(2)(ii), and shall be interpreted consistently therewith.
(ii) Gross Income Allocation . In the event any Partner has a deficit Capital Account at the end of any Fiscal Year
that is in excess of the sum of (i) the amount such Partner is obligated to restore pursuant to any provision of this Agreement, and
(ii) the amount such Partner is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations
sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the
amount of such excess as quickly as possible; provided that an allocation pursuant to this Section 3.4(d)(ii) may be made only if and
to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for
10
in this Article 3 have been made as if Section 3.4(d)(i) and this Section 3.4(d)(ii) were not in this Agreement.
(iii) Other Special Allocations. Special allocations shall be made in accordance with the requirements set forth in
the Treasury Regulations sections 1.704-2(f), (g) and (j) (minimum gain chargeback), 1.704-2(i)(4) (partner minimum gain
chargeback), 1.704-2(i)(2) (nonrecourse deductions), and, to the extent that an election under section 754 of the Code is in effect,
1.704-1(b)(2)(iv)(m) (section 754 adjustments).
(e) Each Limited Partner’s rights and entitlements as a Limited Partner are limited to the rights to receive allocations and
distributions of Profit expressly conferred by this Agreement and any side letter or similar agreement entered into pursuant to
Section 9.1(b) and the other rights expressly conferred by this Agreement and any such side letter or similar agreement or required
by the Act, and a Limited Partner shall not be entitled to any other allocations, distributions or payments in respect of its interest, or
to have or exercise any other rights, privileges or powers.
Section 3.5 Tax Allocations
(a) For United States federal, state and local income tax purposes, Partnership income, gain, loss, deduction or credit (or
any item thereof) for each Fiscal Year shall be allocated to and among the Partners in order to reflect the allocations of Profit and
Loss pursuant to Section 3.4 for such Fiscal Year, taking into account any variation between the adjusted tax basis and book value of
Partnership property in accordance with the principles of section 704(c) of the Code.
(b) If any Partner or Partners are treated for United States federal income tax purposes as realizing ordinary income
because of receiving an interest in the Partnership (whether under section 83 of the Code or under any similar provision of any law,
rule or regulation) and the Partnership is entitled to any offsetting deduction (net of any income realized by the Partnership as a
result of such receipt), the Partnership’s net deduction shall be allocated to and among the Partners in such manner as to offset, as
nearly as possible, the ordinary income realized by such Partner or Partners.
Section 3.6 Reserves; Adjustments for Certain Future Events
(a) Appropriate reserves may be created, accrued and charged against Profit or Loss for contingent liabilities, if any, as of
the date any such contingent liability becomes known to the General Partner or as of each other date as the General Partner deems
appropriate, such reserves to be in the amounts which the General Partner deems necessary or appropriate. The General Partner may
increase or reduce any such reserve from time to time by such amounts as the General Partner deems necessary or appropriate. The
amount of any such reserve, or any increase or decrease therein, shall be proportionately charged or credited, as appropriate, to the
Capital Accounts of those parties who are Partners at the time when such reserve is created, increased or decreased, as the case may
be, in proportion to their respective Points at such time.
(b) If any amount is required by Section 3.6(a) to be credited to a Person who is no longer a Partner, such amount shall be
paid to such Person in cash. Any amount required to be
11
charged pursuant to Section 3.6(a) shall be debited against the current balance in the Capital Account of the affected Partners. To the
extent that the aggregate current Capital Account balances of such affected Partners are insufficient to cover the full amount of the
required charge, the deficiency shall be debited against the Capital Accounts of the other Partners in proportion to their respective
Capital Account balances at such time; provided that each such other Partner shall be entitled to a preferential allocation, in
proportion to and to the extent of such other Partner’s share of any such deficiency of any Profit that would otherwise have been
allocable after the date of such charge to the Capital Accounts of the affected Partners whose Capital Accounts were insufficient to
cover the full amount of the required charge.
Section 3.7 Finality and Binding Effect of General Partner’s Determinations
All matters concerning the determination, valuation and allocation among the Partners with respect to any profit or loss of the
Partnership and any associated items of income, gain, deduction, loss and credit, pursuant to any provision of this Article 3,
including any accounting procedures applicable thereto, shall be determined by the General Partner, and such determinations and
allocations shall be final and binding on all the Partners.
ARTICLE 4
DISTRIBUTIONS
Section 4.1 Distributions
(a) The General Partner shall use reasonable efforts to cause the Partnership to distribute, as promptly as practicable after
receipt by the Partnership, any available revenues, subject to the retention of such reserves as the General Partner considers
appropriate or necessary for purposes of the prudent and efficient financial operation of the Partnership’s business including in
accordance with Section 3.6 hereof. Any such distributions shall be made to Partners in proportion to their respective Capital
Account balances until such time as the Capital Account balance of every Partner is zero and thereafter in proportion to their
respective Points, in either case determined:
(A) in the case of any amount of revenue received from AAA Associates as of the date immediately prior to
giving effect to such distribution; and
(B) in any other case, as of the date of receipt of such revenue by the Partnership.
(b) Any other distributions or payments in respect of the interests of Partners shall be made at such time, in such manner
and to such Partners as the General Partner shall determine.
(c) The General Partner may cause the Partnership to pay distributions to the Partners at any time in addition to those
contemplated by Section 4.1(a) or (b), in cash or in kind. Distributions of any such amounts shall be made to the Partners in
proportion to their respective Points, determined immediately prior to giving effect to such distribution.
12
Section 4.2 Withholding of Certain Amounts
(a) If the Partnership or AAA Associates incurs a withholding tax or other tax obligation with respect to the share of
Partnership income allocable to any Partner, then the General Partner, without limitation of any other rights of the Partnership, may
cause the amount of such obligation to be debited against the Capital Account of such Partner when the Partnership pays such
obligation, and any amounts then or thereafter distributable to such Partner shall be reduced by the amount of such taxes. If the
amount of such taxes is greater than any such then distributable amounts, then such Partner and any successor to such Partner’s
interest shall indemnify and hold harmless the Partnership, AAA Associates and the General Partner against, and shall pay to the
Partnership as a contribution to the capital of the Partnership, upon demand of the General Partner, the amount of such excess.
(b) The General Partner may withhold from any distribution or other payment to any Limited Partner pursuant to this
Agreement or otherwise any other amounts due from such Limited Partner to the Partnership or the General Partner pursuant to this
Agreement to the extent not otherwise paid. Any amounts so withheld shall be applied by the General Partner to discharge the
obligation in respect of which such amounts were withheld.
Section 4.3 Limitation on Distributions
Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on
behalf of the Partnership, shall not make a distribution to any Partner on account of such Partner’s interest in the Partnership if such
distribution would violate the Act or other applicable law.
ARTICLE 5
MANAGEMENT
Section 5.1 Rights and Powers of the General Partner
(a) Subject to the terms and conditions of this Agreement, the General Partner shall have complete and exclusive
responsibility (i) for all management decisions to be made on behalf of the Partnership, and (ii) for the conduct of the business and
affairs of the Partnership.
(b) Without limiting the generality of the foregoing, the General Partner shall have full power and authority to execute,
deliver and perform such contracts, agreements and other undertakings, and to engage in all activities and transactions, as it may
deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Section 5.1, including,
without in any manner limiting the generality of the foregoing, contracts, agreements, undertakings and transactions with any Partner
or with any other Person having any business, financial or other relationship with any Partner or Partners. The Partnership, and the
General Partner on behalf of the Partnership, may enter into and perform the AAA Associates LP Agreement and any documents
contemplated thereby or related thereto and any amendments thereto, without any further act, vote or approval of any Person,
including any Partner, notwithstanding any other provision of this
13
Agreement. The General Partner is hereby authorized to enter into the documents described in the preceding sentence on behalf of
the Partnership, but such authorization shall not be deemed a restriction on the power of the General Partner to enter into other
documents on behalf of the Partnership. Except as otherwise expressly provided herein or as required by law, all powers and
authority vested in the General Partner by or pursuant to this Agreement or the Act shall be construed as being exercisable by the
General Partner in its sole, absolute and non-appealable discretion.
(c) The General Partner shall be the “tax matters partner” for purposes of section 6231(a)(7) of the Code. Each Partner
agrees not to treat, on such Partner’s United States federal income tax return or in any claim for a refund, any item of income, gain,
loss, deduction or credit in a manner inconsistent with the treatment of such item by the Partnership. The General Partner shall have
the exclusive authority to make any elections required or permitted to be made by the Partnership under any provisions of the Code
or any other revenue laws.
Section 5.2 Delegation of Duties
(a) Subject to Section 5.1, the General Partner may delegate to any Person or Persons any of the duties, powers and
authority vested in it hereunder on such terms and conditions as it may consider appropriate.
(b) Any Person who is a Limited Partner and to whom the General Partner delegates any of its duties pursuant to this
Section 5.2 or any other provision of this Agreement shall be subject to the same standard of care, and shall be entitled to the same
rights of indemnification and exoneration, applicable to the General Partner under and pursuant to Section 5.7, unless such Person
and the General Partner mutually agree to a different standard of care or right to indemnification and exoneration to which such
Person shall be subject.
(c) The General Partner shall cause the Partnership to enter into an arrangement with the Investment Manager which
arrangement shall require the Investment Manager to pay all costs and expenses of the Partnership.
Section 5.3 Transactions with Affiliates
To the fullest extent permitted by applicable law, the General Partner (or any Affiliate of the General Partner), when acting
on behalf of the Partnership, is hereby authorized to (a) purchase property from, sell property to, lend money to or otherwise deal
with any Affiliates, any Partner, the Partnership, AAA Associates, the Fund or any Affiliate of any of the foregoing Persons, and (b)
obtain services from any Affiliates, any Partner, the Partnership, AAA Associates, the Fund or any Affiliate of the foregoing
Persons.
Section 5.4 Expenses
14
(a) Subject to the arrangement contemplated by Section 5.2(c), the Partnership will pay, or will reimburse the General
Partner for, all costs and expenses arising in connection with the organization and operations of the Partnership.
(b) Any withholding taxes payable by the Partnership or AAA Associates, to the extent determined by the General Partner
to have been paid or withheld on behalf of, or by reason of particular circumstances applicable to, one or more but fewer than all of
the Partners, shall be allocated among and debited against the Capital Accounts of only those Partners on whose behalf such
payments are made or whose particular circumstances gave rise to such payments in accordance with Section 4.2.
Section 5.5 Rights of Limited Partners
(a) Limited Partners shall have no right to take part in the management, conduct or control of the Partnership’s business,
nor shall they have any right or authority to act for the Partnership or to vote on matters other than as set forth in this Agreement or
as required by applicable law.
(b) Without limiting the generality of the foregoing, the General Partner shall have the full and exclusive authority,
without the consent of any Limited Partner, to compromise the obligation of any Limited Partner to make a capital contribution or to
return money or other property paid or distributed to such Limited Partner in violation of the Act.
(c) Nothing in this Agreement shall entitle any Partner to any compensation for services rendered to or on behalf of the
Partnership as an agent or in any other capacity, except for any amounts payable in accordance with this Agreement.
Section 5.6 Other Activities of Partners
(a) Subject to the AAA Associates LP Agreement and to full compliance with the code(s) of ethics of Apollo Global
Management, LLC and its Affiliates and other written policies relating to personal investment transactions, membership in the
Partnership shall not prohibit a Partner from purchasing or selling as a passive investor any interest in any asset.
(b) Nothing in this Agreement shall prohibit the General Partner from engaging in any lawful activity not expressly
prohibited by this Agreement.
Section 5.7 Duty of Care; Indemnification
(a) To the fullest extent permitted by law, the General Partner and its Affiliates and their respective partners, members,
managers, shareholders, officers, directors, employees and associates and, with the approval of the General Partner, any agent of any
of the foregoing (including their respective executors, heirs, assigns, successors or other legal representatives) (each, a “Covered
Person” and collectively, the “Covered Persons”), shall not be liable to the Partnership or to any of the other Partners for any loss,
claim, damage or liability occasioned by any acts or omissions in the performance of its services hereunder, except to the extent that
it shall ultimately be determined
15
by final judicial decision from which there is no further right to appeal (a “Final Adjudication”) that such loss, claim, damage or
liability is due to an act or omission of a Covered Person is due to an act or omission of such a Covered Person that constituted a bad
faith violation of the implied contractual covenant of good faith and fair dealing.
(b) A Covered Person shall be indemnified to the fullest extent permitted by law by the Partnership against any losses,
claims, damages, liabilities and expenses (including attorneys’ fees, judgments, fines, penalties and amounts paid in settlement)
incurred by or imposed upon it by reason of or in connection with any action taken or omitted by such Covered Person arising out of
the Covered Person’s status as a Partner or its activities on behalf of the Partnership, including in connection with any action, suit,
investigation or proceeding before any judicial, administrative, regulatory or legislative body or agency to which it may be made a
party or otherwise involved or with which it shall be threatened by reason of being or having been a Partner or by reason of serving
or having served, at the request of the Partnership, as a director, officer, consultant, advisor, manager, member or partner of any
enterprise in which AAA Associates has or had a financial interest, including issuers of Portfolio Investments; provided that the
Partnership may, but shall not be required to, indemnify a Covered Person with respect to any matter as to which there has been a
Final Adjudication that such Covered Person’s acts or its failure to act (i) constituted a bad faith violation of the implied contractual
covenant of good faith and fair dealing, or (ii) were of a nature that makes indemnification by AAA Associates unavailable. The
right to indemnification granted by this Section 5.7 shall be in addition to any rights to which a Covered Person may otherwise be
entitled and shall inure to the benefit of the successors by operation of law or valid assigns of such Covered Person. The Partnership
shall pay the expenses incurred by a Covered Person in defending a civil or criminal action, suit, investigation or proceeding in
advance of the final disposition of such action, suit, investigation or proceeding, upon receipt of an undertaking by the Covered
Person to repay such payment if there shall be a Final Adjudication that it is not entitled to indemnification as provided herein. In
any suit brought by the Covered Person to enforce a right to indemnification hereunder it shall be a defense that the Covered Person
has not met the applicable standard of conduct set forth in this Section 5.7, and in any suit in the name of the Partnership to recover
expenses advanced pursuant to the terms of an undertaking the Partnership shall be entitled to recover such expenses upon Final
Adjudication that the Covered Person has not met the applicable standard of conduct set forth in this Section 5.7. In any such suit
brought to enforce a right to indemnification or to recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the Covered Person is not entitled to be indemnified, or to an advancement of expenses, shall be on the
Partnership (or any Limited Partner acting derivatively or otherwise on behalf of the Partnership or the Limited Partners). The
General Partner may not satisfy any right of indemnity or reimbursement granted in this Section 5.7 or to which it may be otherwise
entitled except out of the assets of the Partnership (including, without limitation, insurance proceeds and rights pursuant to
indemnification agreements), and no Partner shall be personally liable with respect to any such claim for indemnity or
reimbursement. The General Partner may enter into appropriate indemnification agreements and/or arrangements reflective of the
provisions of this Article 5 and obtain appropriate insurance coverage on behalf and at the expense of the Partnership to secure the
Partnership’s indemnification obligations hereunder and may enter into appropriate indemnification agreements and/or arrangements
reflective of the provisions of this Article 5. Each Covered Person
16
shall be deemed a third party beneficiary (to the extent not a direct party hereto) to this Agreement and, in particular, the provisions
of this Article 5.
(c) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating
thereto to the Partnership or the Partners, the Covered Person shall not be liable to the Partnership or to any Partner for its good faith
reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or eliminate the duties
and liabilities of a Covered Person otherwise existing at law or in equity to the Partnership or the Partners, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered Person. Notwithstanding anything to the contrary contained in this
Agreement or otherwise applicable provision of law or equity, to the maximum extent permitted by the Act, a Covered Person shall
owe no duties (including fiduciary duties) to the Partnership or the Partners other than those specifically set forth herein; provided
that (a) a Covered Person shall have the duty to act in accordance with the implied contractual covenant of good faith and fair
dealing, and (b) the General Partner shall act at all times in good faith in the interests of the Partnership in accordance with section
4(3) of the Act.
(d) Notwithstanding any of the foregoing provisions of this Section 5.7, the Partnership may, but shall not be required to,
indemnify (i) a Retired Partner (or any other former Limited Partner) with respect to any claim for indemnification or advancement
of expenses arising from any conduct occurring more than six months after the date of such Person’s retirement (or other
withdrawal or departure), or (ii) a Limited Partner with respect to any claim for indemnification or advancement of expenses as a
director, officer or agent of the issuer of the Fund Investment to the extent arising from conduct in such capacity occurring more
than six months after the complete disposition of such Fund Investment by the Fund.
(e) Each of the Covered Persons may consult with legal counsel, accountants and other experts selected by it and any act
or omission suffered or taken by it on behalf of the Partnership or in furtherance of the interests of the Partnership, AAA Associates
or the Fund in good faith in reliance upon and in accordance with the advice of such counsel, accountants or other experts shall
create a rebuttable presumption of the good faith and due care of such Covered Person with respect to such act or omission.
(f) The General Partner shall be entitled to enter into one or more agreements and/or deeds on behalf of the Partnership to
give effect to the indemnification provisions of this Section 5.7.
ARTICLE 6
ADMISSIONS, TRANSFERS AND WITHDRAWALS
Section 6.1 Admission of Additional Limited Partners; Effect on Points
The General Partner may at any time admit as an additional Limited Partner any Person who has agreed to be bound by this
Agreement, assign Points to such Person and/or increase the Points of any existing Limited Partner. Each additional Limited Partner
shall execute either a counterpart
17
to this Agreement or a separate instrument evidencing, to the satisfaction of the General Partner, such Limited Partner’s intent to
become a Limited Partner and to be bound by the terms of this Agreement and shall be admitted as a Limited Partner upon such
execution. In connection with such admission or increase in Points of any Partner, the Points of APH shall be reduced in an amount
determined by the General Partner.
Section 6.2 Admission of Additional General Partner
(a) The General Partner may admit one or more additional general partners at any time without the consent of any Limited
Partner. Any additional general partner shall be admitted as a general partner upon its execution of a counterpart signature page to
this Agreement.
(b) The General Partner may transfer its interest as a general partner in the Partnership without the consent of any other
Person. Any such Transfer shall be subject to the existence of at least one other General Partner, incorporated or registered in the
Cayman Islands, continuing to act as General Partner after such cessation.
Section 6.3 Transfer of Interests of Limited Partners
(a) No Transfer of any Limited Partner’s interest in the Partnership, whether voluntary or involuntary, shall be valid or
effective, and no transferee shall become a substituted Limited Partner, unless the prior written consent of the General Partner has
been obtained, which consent may be given or withheld by the General Partner. In the event of any Transfer, all of the conditions of
the remainder of this Section 6.3 must also be satisfied.
(b) A Limited Partner requesting approval of a Transfer, or such Partner’s legal representative, shall give the General
Partner reasonable notice before the proposed effective date of any requested Transfer, and shall provide sufficient information to
allow legal counsel acting for the Partnership to make the determination that the proposed Transfer will not:
(i) require registration of the Partnership or any interest therein under any securities or commodities laws of any
jurisdiction;
(ii) result in a termination of the Partnership under section 708(b)(1)(B) of the Code or jeopardize the status of the
Partnership as a partnership for United States federal income tax purposes; or
(iii) violate, or cause the Partnership, AAA Associates, the Fund, the General Partner or any Limited Partner to
violate, any applicable law, rule or regulation of any jurisdiction.
Such notice must be supported by proof of legal authority and a valid instrument of assignment acceptable to the General
Partner.
(c) A permitted transferee shall be entitled to the allocations and distributions attributable to the interest in the Partnership
transferred to such transferee and to Transfer such interest in accordance with the terms of this Agreement; provided that such
transferee shall not be entitled to the other rights of a Limited Partner as a result of such transfer until it becomes a substituted
Limited
18
Partner. No transferee may become a substituted Limited Partner except with the prior written consent of the General Partner (which
consent may be given or withheld by the General Partner). Such transferee shall be admitted to the Partnership as a substituted
Limited Partner upon execution of a deed of adherence to this Agreement or such other instrument evidencing, to the satisfaction of
the General Partner, such Limited Partner’s intent to become a Limited Partner and to be bound by the terms of this Agreement.
Notwithstanding the above, the Partnership and the General Partner shall incur no liability for allocations and distributions made in
good faith to the transferring Limited Partner until a written instrument of Transfer has been received and accepted by the General
Partner and recorded on the books of the Partnership and the effective date of the Transfer has passed.
(d) Any other provision of this Agreement to the contrary notwithstanding, to the fullest extent permitted by law, any
successor or transferee of any Limited Partner’s interest in the Partnership shall be bound by the provisions hereof. Prior to
recognizing any Transfer in accordance with this Section 6.3, the General Partner may require the transferee to make certain
representations and warranties to the Partnership and the Partners and to accept, adopt and approve in writing all of the terms and
provisions of this Agreement.
(e) In the event of a Transfer or in the event of a distribution of assets of the Partnership to any Partner, the Partnership, at
the direction of the General Partner, may, but shall not be required to, file an election under section 754 of the Code and in
accordance with the applicable Treasury Regulations, to cause the basis of the Partnership’s assets to be adjusted as provided by
section 734 or section 743 of the Code.
(f) The Partnership shall maintain books for the purpose of registering the transfer of interests in the Partnership. No
transfer of an interest in the Partnership shall be effective until the transfer of such interest is registered upon books maintained for
that purpose by or on behalf of the Partnership.
Section 6.4 Withdrawal of Partners
(a) A Limited Partner may not withdraw from the Partnership prior to dissolution of the Partnership without the prior
written consent of the General Partner which consent may be given or withheld by the General Partner.
(b) Notwithstanding the foregoing, a Limited Partner shall cease to be a Partner and be deemed to have withdrawn its
interest in the Partnership automatically upon any date (and with immediate effect from such date) on which such Limited Partner
(or, in the case of a Limited Partner that was admitted to the Partnership by virtue of its relationship with an employee of Apollo
Global Management, LLC or one of its Affiliates, such employee) becomes a Retired Partner for Cause.
(c) Payment of a withdrawing Limited Partner’s withdrawal proceeds (being an amount equal to the balance of such
Limited Partner’s capital account as of the effective date of withdrawal) will generally be made at the same time as such amounts
would have been distributed to such Limited Partner under Section 4.1; provided that the General Partner may (i) delay such
payment if such delay is reasonably necessary to prevent such withdrawal from having a material adverse impact on the Partnership,
the Fund, AAA Associates or the remaining Partners, and (ii) hold back
19
from any payments such reserves as the General Partner determines to be necessary or appropriate, including, without limitation, as
provided in Section 4.1(a) and Section 6.4(c). Amounts withdrawn by a Partner will not be adjusted as a result of audit adjustments
made after the final payment date relating to the applicable withdrawal and will not earn interest for the period from the applicable
withdrawal date through the settlement date. The General Partner may deduct from any withdrawal proceeds due to any Partner an
amount representing the actual or estimated expenses of the Partnership associated with processing the withdrawal and any other
amounts owed by the withdrawing Partner to the General Partner or its Affiliates whether under this Agreement or otherwise.
(d) The right of any Partner to receive distributions pursuant to this Section 6.4 is subject to the provision by the General
Partner for all liabilities of the Partnership and for reserves for contingencies as provided in Section 3.6.
(e) A former Partner shall remain liable to make capital contributions to the Partnership pursuant to Section 4.2(a),
notwithstanding that such Person may have withdrawn from the Partnership and ceased to be a Partner.
Section 6.5 Pledges
(a) A Limited Partner shall not pledge or grant a security interest in such Limited Partner’s interest in the Partnership
unless the prior written consent of the General Partner has been obtained (which consent may be given or withheld by the General
Partner).
(b) The Partner who is granting a security interest in all or part of its interest in the Partnership shall provide written notice
to the Partnership at its registered office of such security interest, together with a copy of the instrument creating such security
interest signed by both the Partner and the holder of the security interest.
(c) Any partnership interest in the Partnership may be evidenced by a certificate issued by the Partnership in such form as
the General Partner may approve. Every certificate representing an interest in the Partnership, if any such certificates are issued,
shall bear a legend substantially in the following form.
THE TRANSFER OF THIS CERTIFICATE AND THE PARTNERSHIP INTERESTS REPRESENTED HEREBY IS
RESTRICTED AS DESCRIBED IN THE AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF THE
PARTNERSHIP, DATED OCTOBER 15, 2009, AS THE SAME MAY BE AMENDED OR RESTATED FROM TIME TO TIME
AND AS MAY BE PRESCRIBED UNDER THE EXEMPTED LIMITED PARTNERSHIP LAW (AS REVISED) OF THE
CAYMAN ISLANDS.
(d) Each certificate representing a partnership interest in the Partnership shall be executed by manual or facsimile signature
of the General Partner on behalf of the Partnership.
20
ARTICLE 7
POINTS
Section 7.1 Allocation of Points
(a) Except as otherwise provided herein, the General Partner shall be responsible for the allocation of Points from time to
time to the Limited Partners. At each such time of allocation, all Points available for allocation shall be so allocated to the Limited
Partners (including APH) by the General Partner. Points allocated to Limited Partners (other than APH) may not be reduced except
as set forth in Section 6.1 and Section 7.3. Upon any allocation of Points by the General Partner to an existing or new Limited
Partner other than APH, there shall be a corresponding reduction in the Points of APH, as provided in Section 6.1.
(b) The General Partner shall maintain on the books and records of the Partnership a record of the number of Points
allocated to each Limited Partner and shall give notice to each Limited Partner of the number of such Limited Partner’s Points upon
admission to the Partnership of such Limited Partner and as soon as reasonably practicable upon any change in such Limited
Partner’s Points.
Section 7.2 Retirement of Partner
(a) A Limited Partner shall become a Retired Partner upon:
(i) delivery to such Limited Partner of a notice by the General Partner declaring such Limited Partner to be a
Retired Partner;
(ii) a date specified in a notice delivered by such Limited Partner to the General Partner stating that such Limited
Partner elects to become a Retired Partner, which date shall not be less than 60 days after the General Partner’s receipt of such
notice;
(iii) the death of the Limited Partner, whereupon the estate of the deceased Limited Partner shall be treated as a
Retired Partner in the place of the deceased Limited Partner, or the Permanent Disability of the Limited Partner; or
(iv) the date on which such Limited Partner has become a “Retired Partner” under the Advisors VII LP Agreement.
(b) The notice declaring any Limited Partner to be a Retired Partner shall specify whether such Limited Partner is being
declared a Retired Partner for Cause or a Retired Partner other than for Cause. Retirement by reason of death or Permanent
Disability shall constitute retirement other than for Cause. A written notice of retirement given by a Limited Partner shall be deemed
to constitute a declaration that such Limited Partner is a Retired Partner for Cause. For the avoidance of doubt, any Partner who
becomes a “Retired Partner for Cause” under the Advisors VII LP Agreement automatically shall be deemed a Retired Partner for
Cause under this Agreement and any Partner who becomes a “Retired Partner other than for Cause” under the Advisors VII LP
21
Agreement automatically shall be deemed a Retired Partner other than for Cause under this Agreement.
(c) Nothing in this Agreement shall obligate the General Partner to treat Retired Partners alike, and the exercise of any
power or discretion by the General Partner in the case of any one such Retired Partner shall not create any obligation on the part of
the General Partner to take any similar action in the case of any other such Retired Partner; it being understood that any power or
discretion conferred upon the General Partner shall be treated as having been so conferred as to each such Retired Partner separately.
Section 7.3 Effect of Retirement on Points
(a) The Points of any Limited Partner that becomes a Retired Partner for Cause shall be reduced automatically to zero and
shall be forfeited as of the date on which such Limited Partner becomes a Retired Partner or such subsequent date as may be
determined by the General Partner; provided that the General Partner may agree to a lesser reduction (or to no reduction) of the
Points of any such Limited Partner who becomes a Retired Partner for Cause.
(b) The Points of any Limited Partner who becomes a Retired Partner other than for Cause shall be reduced automatically
to an amount equal to such Limited Partner’s Vested Points as of the date such Limited Partner became a Retired Partner. Any such
reduction shall be effective as of the date such Limited Partner became a Retired Partner or such subsequent date as may be
determined by the General Partner; provided that the General Partner may agree to a lesser reduction (or to no reduction) of the
Points of any such Limited Partner who becomes a Retired Partner other than for Cause.
(c) Any Points that are forfeited pursuant to Section 7.3(a) as a result of any Partner becoming a Retired Partner for Cause
or become available for reallocation pursuant to Section 7.3(b) as a result of any Partner becoming a Retired Partner other than for
Cause shall, automatically and without any action on the part of any Person, be reallocated to APH, unless otherwise determined by
the General Partner; and no Limited Partner other than APH shall have any right or claim with respect to such Points.
Section 7.4 Points as Profits Interests
(a) Except to the extent not permitted by law, the Partnership and each Limited Partner agree to treat Points as “profits
interests” within the meaning of United States Internal Revenue Service Revenue Procedure (“Rev. Proc.”) 93-27, 1993-2 C.B. 343.
Except to the extent not permitted by law, in accordance with Rev. Proc. 2001-43, 2001-2 C.B. 191, the Partnership shall treat each
Limited Partner as the holder of Points from the issue date of such Points, and shall file its Partnership tax return, and issue
appropriate Schedules K-1 to such Limited Partner, allocating to such Limited Partner its distributive share of all items of income,
gain, loss, deduction and credit associated with such Points and each such Limited Partner agrees to take into account such
distributive share in computing such Limited Partner’s United States federal income tax liability for the entire period during which
such Limited Partner holds such Points. Except as required pursuant to a “Determination” as defined in section 1313(a) of the Code,
the Partnership and each
22
Limited Partner agree not to claim a deduction (as wages, compensation or otherwise) for the fair market value of any Points issued
to a Limited Partner at the time of issuance of the Points. The undertakings contained in this Section 7.4(a) shall be construed in
accordance with section 4 of Rev. Proc. 2001-43. Except to the extent not permitted by law, the provisions of this Section 7.4(a)
shall apply regardless of whether the Limited Partner files an election pursuant to section 83(b) of the Code.
(b) Notwithstanding the provisions of this Agreement, the General Partner shall have the discretion to vary the
allocations of Profit and Loss and the distributions pursuant to this Agreement to the extent necessary to ensure that the issuance of
Points to a Limited Partner does not result, in the General Partner’s discretion, in a taxable capital shift (unless the General Partner
otherwise intends) to such Limited Partner, including by treating as additional Profit or Loss for the taxable period and by allocating
such Profit and Loss to the Limited Partners other than the Limited Partner receiving the Points, any unrealized appreciation or
deprecation in the Partnership’s assets as of the time the Points are issued.
ARTICLE 8
DISSOLUTION AND LIQUIDATION
Section 8.1 Winding-Up and Liquidation of Partnership
(a) Upon the occurrence of a Winding-Up Event, the General Partner shall liquidate the business and administrative affairs
of the Partnership, except that, if the General Partner is unable to perform this function, a liquidator may be elected by a majority in
interest (determined by Points) of Limited Partners and upon such election such liquidator shall liquidate the Partnership, in each
case pursuant to section 15(1) of the Act. Profit and Loss during the Fiscal Years that include the period of liquidation shall be
allocated pursuant to Section 3.4. The proceeds from liquidation shall be distributed, subject to the Act, in the following manner:
(i) first, the debts, liabilities and obligations of the Partnership including the expenses of liquidation (including
legal and accounting expenses incurred in connection therewith and any remuneration due to the General Partner or liquidator of the
Partnership), up to and including the date that distribution of the Partnership’s assets to the Partners has been completed, shall be
satisfied (whether by payment or by making reasonable provision for payment thereof); and
(ii) thereafter, the Partners shall be paid amounts pro rata in accordance with and up to the positive balances of
their respective Capital Accounts, as adjusted pursuant to Article 3.
(b) Anything in this Section 8.1 to the contrary notwithstanding, the General Partner or liquidator may distribute ratably in
kind rather than in cash, upon winding-up, any assets of the Partnership in accordance with the priorities set forth in Section 8.1(a);
provided that if any in kind distribution is to be made, the assets distributed in kind shall be valued as of the actual date of their
distribution and charged as so valued and distributed against amounts to be paid under Section 8.1(a).
23
Section 8.2 Dissolution
On completion of the winding-up of the Partnership, the Partnership shall be dissolved upon the filing of a notice of
dissolution with the Registrar of Exempted Limited Partnerships in the Cayman Islands in accordance with the requirements of
section 15(3) of the Act.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Amendment of this Agreement
(a) The General Partner may amend this Agreement at any time, in whole or in part, without the consent of any other
Partner; provided that any amendment which would increase the obligation of any Partner to make any contribution to the capital of
the Partnership shall not be made unless such Partner has consented thereto. Without limiting the foregoing, the General Partner may
amend this Agreement at any time, in whole or in part, without the consent of any other Partner, to enable the Partnership to comply
with the requirements of the “Safe Harbor” Election within the meaning of the Proposed Revenue Procedure of Notice 2005-43,
2005-24 IRB 1, Proposed Treasury Regulation section 1.83-3(e)(1) or Proposed Treasury Regulation section 1.704-1(b)(4)(xii) at
such time as such proposed Procedure and Regulations are effective and to make any such other related changes as may be required
by pronouncements or Treasury Regulations issued by the Internal Revenue Service or Treasury Department after the date of this
Agreement. An adjustment of Points shall not be considered an amendment to the extent effected in compliance with the provisions
of Section 6.1 or Article 7 as in effect on the date hereof or as hereafter amended in compliance with the requirements of this Section
9.1(a).
(b) Notwithstanding the provisions of this Agreement, including Section 9.1(a), it is hereby acknowledged and agreed that
the General Partner on its own behalf or on behalf of the Partnership without the approval of any Limited Partner or any other Person
may enter into one or more side letters or similar agreements with one or more Limited Partners which have the effect of establishing
rights under, or altering or supplementing the terms of this Agreement. The parties hereto agree that any terms contained in a side
letter or similar agreement with one or more Partners shall govern with respect to such Partner or Partners notwithstanding the
provisions of this Agreement. Any such side letters or similar agreements shall be binding upon the Partnership or the General
Partner, as applicable, and the signatories thereto as if the terms were contained in this Agreement.
Section 9.2 Notices
Any notice required or permitted to be given under this Agreement shall be in writing. A notice to the General Partner shall
be directed to the attention of John J. Suydam. A notice to a Limited Partner shall be directed to such Limited Partner’s last known
residence as set forth in the books and records of the Partnership or its Affiliates (a Limited Partner’s “Home Address”). A notice
shall be considered given when delivered to the addressee either by hand at such Partner’s Partnership office or electronically to the
primary e-mail account supplied by the Partnership for
24
Partnership business communications, except that a notice to a Retired Partner or former Partner shall be considered given when
delivered by hand by a recognized overnight courier together with mailing by regular mail to such Retired Partner or former
Partner’s Home Address.
Section 9.3 Agreement Binding Upon Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors by
operation of law, but the rights and obligations of the Limited Partners hereunder shall not be assignable, transferable or delegable
except as expressly provided herein, and any attempted assignment, transfer or delegation thereof that is not made in accordance
with such express provisions shall be void and unenforceable.
Section 9.4 Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the Cayman Islands and each party hereto
submits to the non-exclusive jurisdiction of the courts of the Cayman Islands. To the fullest extent permitted by applicable law, the
General Partner and each Limited Partner hereby agree that any claim, action or proceeding by any Limited Partner seeking any
relief whatsoever against any Indemnified Person based on, arising out of or in connection with, this Agreement or the Partnership’s
business or affairs shall be brought only in the courts of the Cayman Islands.
Section 9.5 Termination of Right of Action
Every right of action arising out of or in connection with this Agreement by or on behalf of any past, present or future Partner
or the Partnership against any past, present or future Partner shall, to the fullest extent permitted by applicable law, irrespective of
the place where the action may be brought and irrespective of the residence of any such Partner, cease and be barred by the
expiration of three years from the date of the act or omission in respect of which such right of action arises.
Section 9.6 Confidentiality
(a) Each Limited Partner acknowledges and agrees that the information contained in the books and records of the
Partnership concerning the Points assigned with respect to any other Limited Partner (including any Retired Partner) is confidential,
and, to the fullest extent permitted by applicable law, each Limited Partner waives, and covenants not to assert, any claim or
entitlement whatsoever to gain access to any such information. The Limited Partners agree that the restrictions set forth in this
Section 9.6(a) shall constitute reasonable standards under the Act regarding access to information.
(b) Each Limited Partner acknowledges and agrees not to, at any time, either during the term of such Limited Partner’s
participation in the Partnership or thereafter, disclose, use, publish or in any manner reveal, directly or indirectly, to any Person
(other than on a confidential basis to such Limited Partner’s legal and tax advisors who have a need to know such information) the
contents of this Agreement or any Confidential Information, except (i) with the prior written consent of the General Partner, (ii) to
the extent that any such information is in the public domain other than
25
as a result of the Limited Partner’s breach of any of his obligations, or (iii) where required to be disclosed by court order, subpoena
or other government process; provided that, to the fullest extent permitted by law, the Limited Partner shall promptly notify the
General Partner upon becoming aware of any such disclosure requirement and shall cooperate with any effort by the General Partner
to prevent or limit such disclosure.
(c) Notwithstanding any of the provisions of this Section 9.6, each Limited Partner may disclose to any and all Persons,
without limitation of any kind, the tax treatment and tax structure of an investment in the Partnership and all materials of any kind
(including tax opinions or other tax analyses) that are provided to the Limited Partner relating to such tax treatment. For this
purpose, “tax treatment” is the purported or claimed United States federal income tax treatment of a transaction and “tax structure” is
limited to any fact that may be relevant to understanding the purported or claimed United States federal income tax treatment of a
transaction. For this purpose, the names of the Partnership, the Partners, their affiliates, the names of their partners, members or
equity holders and the representatives, agents and tax advisors of any of the foregoing are not items of tax structure.
Section 9.7 Not for Benefit of Creditors
The provisions of this Agreement are intended only for the regulation of relations among Partners and between Partners and
former or prospective Partners and the Partnership. Subject to the rights of Covered Persons provided by Section 5.7, this Agreement
is not intended for the benefit of any Person who is not a Partner, and no rights are intended to be granted to any other Person who is
not a Partner under this Agreement.
Section 9.8 Consents
Any and all consents, agreements or approvals provided for or permitted by this Agreement shall be in writing and a signed
copy thereof shall be filed and kept with the books of the Partnership.
Section 9.9 Reports
As soon as practicable after the end of each taxable year, the General Partner shall furnish to each Limited Partner (a) such
information as may be required to enable each Limited Partner to properly report for United States federal and state income tax
purposes such Partner’s distributive share of each Partnership item of income, gain, loss, deduction or credit for such year, and (b) a
statement of the total amount of Profit or Loss for such year and a reconciliation of any difference between (i) such Profit or Loss
and (ii) the aggregate net profits or net losses allocated by AAA Associates to the Partnership for such year.
Section 9.10 Filings
The Partners hereby agree to take any measures necessary (or, if applicable, refrain from any action) to ensure that the
Partnership is treated as a partnership for United States federal, state and local income tax purposes.
26
Section 9.11 Miscellaneous
(a) The captions and titles preceding the text of each Section hereof shall be disregarded in the construction of this
Agreement.
(b) As used herein, masculine pronouns shall include the feminine and neuter, and the singular shall be deemed to include
the plural.
(c) This Agreement may be executed in counterparts, each of which shall be deemed to be an original hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
Signature
Page
Follows
General
Partner
:
APOLLO ADVISORS VII (EH), L.P.
By: Apollo Advisors VII (EH-GP), Ltd.
its General Partner
By: /s/ John J. Suydam
Name: John J. Suydam
Title: Vice President
Limited
Partner
:
APOLLO PRINCIPAL HOLDINGS III, L.P.
By: Apollo Principal Holdings III GP, Ltd.
its General Partner
By: /s/ John J. Suydam
Name: John J. Suydam
Title: Vice President
Initial
Limited
Partner
:
/s/ Patrick Head
Patrick Head
27
LIST OF SUBSIDIARIES
Entity Name
Jurisdiction of Organization
Exhibit 21.1
2012 CMBS-I GP LLC
2012 CMBS-I Management LLC
2012 CMBS-II GP LLC
2012 CMBS-II Management LLC
2012 CMBS-III GP LLC
2012 CMBS-III Management LLC
AA Direct GP, LLC
A-A Mortgage Opportunities Corp.
AAA Associates (Co-Invest VII GP), Ltd.
AAA Associates (Co-Invest VII), L.P.
AAA Associates, L.P.
AAA Guernsey Limited
AAA Holdings GP Limited
AAA Holdings, L.P.
AAA Life Re Carry, L.P.
AAA MIP Limited
AAM GP Ltd.
AAM Holdings, L.P.
AAME UK CM, LLC
ACC Advisors A/B, LLC
ACC Advisors C, LLC
ACC Advisors D, LLC
ACC Management, LLC
ACE Credit Advisors GP, LLC
ACE Credit Advisors, LP
ACE Credit Management, LLC
ACF Europe Management, LLC
Acra Re Ltd.
ACREFI Management, LLC
AEM GP, LLC
AES Advisors II GP, LLC
AES Advisors II, L.P.
AES Co-Investors II, LLC
AGM Incentive Pool, L.P.
AGM India Advisors Private Limited
AGM Marketing Pool, L.P.
AGRE - CRE Debt Manager, LLC
AGRE - DCB, LLC
AGRE - E2 Legacy Management, LLC
AGRE Asia Pacific Legacy Management, LLC
AGRE Asia Pacific Management, LLC
AGRE Asia Pacific Real Estate Advisors GP, Ltd.
AGRE Asia Pacific Real Estate Advisors, L.P.
AGRE CMBS GP II LLC
AGRE CMBS GP LLC
AGRE CMBS Management II LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Guernsey
Guernsey
Guernsey
Guernsey
Cayman Islands
Guernsey
Cayman Islands
Cayman Islands
Anguilla
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Bermuda
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
India
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
AGRE CMBS Management LLC
AGRE Debt Fund I GP, Ltd.
AGRE Europe Co-Invest Advisors GP, LLC
AGRE Europe Co-Invest Advisors, L.P.
AGRE Europe Co-Invest Management GP, LLC
AGRE Europe Co-Invest Management, L.P.
AGRE Europe Legacy Management, LLC
AGRE Europe Management, LLC
AGRE GP Holdings, LLC
AGRE Hong Kong Management, LLC
AGRE NA Legacy Management, LLC
AGRE NA Management, LLC
AGRE U.S. Real Estate Advisors Cayman, Ltd.
AGRE U.S. Real Estate Advisors GP, LLC
AGRE U.S. Real Estate Advisors, L.P.
AGRE U.S. Senior Living Advisors, L.P.
AGRE U.S. Senior Living Management, LLC
AGRE-E Legacy Management, LLC
AHL 2014 Investor GP, Ltd.
AIF III Management, LLC
AIF IX Management, LLC
AIF V Management, LLC
AIF VI Management Pool Investors, L.P.
AIF VI Management, LLC
AIF VII Management, LLC
AIF VIII Management, LLC
AIM (P2) Anguilla, LLC
AIM Pool Investors, L.P.
AION Co-Investors (D) Ltd
ALM Funding Ltd.
ALME Loan Funding II Designated Activity Company
ALME Loan Funding III Designated Activity Company
AMH Holdings (Cayman), L.P.
AMH Holdings GP, Ltd.
AMI (Holdings), LLC
AMI (Luxembourg) S.a r.l.
ANRP EPE GenPar, Ltd.
ANRP II GenPar, Ltd.
ANRP Talos GenPar, Ltd.
AP AOP VII Transfer Holdco, LLC
AP ARX Co-Invest GP, LLC
AP Dakota Co-Invest GP, LLC
AP Elbow Co-Invest GP, LLC
AP EPF III Helix Co-Invest GP, LLC
AP Inception Co-Invest GP, LLC
AP Special Sits Lowell Holdings GP, LLC
AP Transport LLC
AP TSL Funding, LLC
AP VIII Olympus VoteCo, LLC
Delaware
Cayman Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Anguilla
Delaware
Mauritius
Cayman Islands
Ireland
Ireland
Cayman Islands
Cayman Islands
Delaware
Luxembourg
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
AP VIII Prime Security Services Management, LLC
AP ZWP Holdings LLC
AP-CB Servicer, LLC
APH HFA Holdings GP, Ltd.
APH HFA Holdings, L.P.
APH Holdings (DC), L.P.
APH Holdings (FC), L.P.
APH Holdings, L.P.
APH I (Sub I), Ltd.
APH III (Sub I), Ltd.
APO (FC II), LLC
APO (FC III), LLC
APO (FC), LLC
APO Asset Co., LLC
APO Corp (Holdings Parent), L.P.
APO Corp Holdings (2P DC), Inc.
APO Corp.
APO MidCap B Holdings, LLC
APO UK (FC), Limited
Apollo Accord Advisors GP II, LLC
Apollo Accord Advisors II, L.P.
Apollo Accord Advisors, LLC
Apollo Accord Co-Investors (D), L.P.
Apollo Accord Co-Investors II (D), L.P.
Apollo Accord Management II, LLC
Apollo Accord Management, LLC
Apollo Achilles Co-Invest GP, LLC
Apollo Administration GP Ltd.
Apollo Advisors (Mauritius) Ltd.
Apollo Advisors (MHE), LLC
Apollo Advisors Highlands Co-Invest GP, LLC
Apollo Advisors IV, L.P.
Apollo Advisors IX (EH), L.P.
Apollo Advisors IX (EH), S.a r.l.
Apollo Advisors IX (EH-GP), LLC
Apollo Advisors IX, L.P.
Apollo Advisors V (EH Cayman), L.P.
Apollo Advisors V (EH), LLC
Apollo Advisors V, L.P.
Apollo Advisors VI (APO DC), L.P.
Apollo Advisors VI (APO DC-GP), LLC
Apollo Advisors VI (APO FC), L.P.
Apollo Advisors VI (APO FC-GP), LLC
Apollo Advisors VI (EH), L.P.
Apollo Advisors VI (EH-GP), Ltd.
Apollo Advisors VI, L.P.
Apollo Advisors VII (APO DC), L.P.
Apollo Advisors VII (APO DC-GP), LLC
Apollo Advisors VII (APO FC), L.P.
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Anguilla
Cayman Islands
Anguilla
Delaware
Delaware
Delaware
Delaware
Delaware
England and Wales
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Anguilla
Cayman Islands
Mauritius
Delaware
Delaware
Cayman Islands
Cayman Islands
Luxembourg
Cayman Islands
Cayman Islands
Cayman Islands
Anguilla
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Anguilla
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Apollo Advisors VII (APO FC-GP), LLC
Apollo Advisors VII (EH), L.P.
Apollo Advisors VII (EH-GP), Ltd
Apollo Advisors VII, L.P.
Apollo Advisors VIII (APO DC), L.P.
Apollo Advisors VIII (APO DC-GP), LLC
Apollo Advisors VIII (APO FC), L.P.
Apollo Advisors VIII (APO FC-GP), Ltd.
Apollo Advisors VIII (EH), L.P.
Apollo Advisors VIII (EH-GP), Ltd.
Apollo Advisors VIII, L.P.
Apollo AGER Co-Investors Management, LLC
Apollo AGRE APREF Co-Investors (D), L.P.
Apollo AGRE Prime Co-Investors (D), LLC
Apollo AGRE USREF Co-Investors (B), LLC
Apollo AIE II Co-Investors (B), L.P.
Apollo AION Capital Partners (APO DC), L.P.
Apollo AION Capital Partners (APO DC-GP), LLC
Apollo AION Capital Partners GP, LLC
Apollo AION Capital Partners, L.P.
Apollo AJB Management, LLC
Apollo ALS Holdings II GP, LLC
Apollo ALST GenPar, Ltd.
Apollo ALST Voteco, LLC
Apollo Alteri Investments Advisors, L.P.
Apollo Alteri Investments Management, Ltd.
Apollo Alternative Assets GP Limited
Apollo Alternative Assets, L.P.
Apollo Alternative Credit Long Short Advisors LLC
Apollo Alternative Credit Long Short Fund L.P.
Apollo Alternative Credit Long Short Management LLC
Apollo A-N Credit Advisors (APO FC Delaware), L.P.
Apollo A-N Credit Advisors (APO FC-GP), LLC
Apollo A-N Credit Co-Investors (FC-D), L.P.
Apollo A-N Credit Management, LLC
Apollo ANRP Advisors (APO DC), L.P.
Apollo ANRP Advisors (APO DC-GP), LLC
Apollo ANRP Advisors (APO FC), L.P.
Apollo ANRP Advisors (APO FC-GP), LLC
Apollo ANRP Advisors (IH), L.P.
Apollo ANRP Advisors (IH-GP), LLC
Apollo ANRP Advisors II (APO DC), L.P.
Apollo ANRP Advisors II (APO DC-GP), LLC
Apollo ANRP Advisors II (IH), L.P.
Apollo ANRP Advisors II (IH-GP), LLC
Apollo ANRP Advisors II, L.P.
Apollo ANRP Advisors III (P1 APO DC), L.P.
Apollo ANRP Advisors III (P1 APO DC-GP), LLC
Apollo ANRP Advisors III (P2), L.P.
Anguilla
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Anguilla
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Anguilla
Cayman Islands
Anguilla
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Apollo ANRP Advisors III, L.P
Apollo ANRP Advisors, L.P.
Apollo ANRP Capital Management II, LLC
Apollo ANRP Capital Management III, LLC
Apollo ANRP Capital Management, LLC
Apollo ANRP Co-Investors (D), L.P.
Apollo ANRP Co-Investors (DC-D), L.P.
Apollo ANRP Co-Investors (FC-D), LP
Apollo ANRP Co-Investors (IH-D), LP
Apollo ANRP Co-Investors II (D), L.P.
Apollo ANRP Co-Investors II (DC-D), L.P.
Apollo ANRP Co-Investors II (IH-D), L.P.
Apollo ANRP Co-Investors III (D), L.P
Apollo ANRP Co-Investors III (DC-D), L.P.
Apollo ANRP Fund Administration, LLC
Apollo ANRP Management III, LLC
Apollo APC Advisors, L.P.
Apollo APC Capital Management, LLC
Apollo APC Management GP, LLC
Apollo APC Management, L.P.
Apollo Arrowhead Management, LLC
Apollo Asia Administration, LLC
Apollo Asia Advisors, L.P.
Apollo Asia Capital Management, LLC
Apollo Asia Hurstville Co-Investment Advisors L.P.
Apollo Asia Link Coinvestment Advisors, L.P.
Apollo Asia Management GP, LLC
Apollo Asia Management, L.P.
Apollo Asia Real Estate AAC Advisors, L.P.
Apollo Asia Real Estate Advisors (APO DC), L.P.
Apollo Asia Real Estate Advisors (APO DC-GP), LLC
Apollo Asia Real Estate Advisors GP, LLC
Apollo Asia Real Estate Advisors, L.P.
Apollo Asia Real Estate Co-Investors (FC-D), Ltd.
Apollo Asia Real Estate Management, LLC
Apollo Asia Sprint Co-Investment Advisors, L.P.
Apollo Asian Infrastructure Management, LLC
Apollo ASPL Management, LLC
Apollo Asset Management Europe LLP
Apollo Asset Management Europe PC LLP
Apollo Athene Strategic Partnership Advisors, LLC
Apollo Athlon GenPar, Ltd.
Apollo Athora Advisors GP, LLC
Apollo Athora Advisors, L.P.
Apollo Atlas Advisors (APO FC), L.P.
Apollo Atlas Advisors (APO FC-GP), LLC
Apollo Atlas Management, LLC
Apollo Belenos Management LLC
Apollo BSL Management, LLC
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Anguilla
Anguilla
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Anguilla
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
England and Wales
England and Wales
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Apollo Capital Credit Management, LLC
Apollo Capital Efficient Advisors, LLC
Apollo Capital Efficient Co-Investors (D), L.P.
Apollo Capital Management GP, LLC
Apollo Capital Management IV, Inc.
Apollo Capital Management IX, LLC
Apollo Capital Management V, Inc.
Apollo Capital Management VI, LLC
Apollo Capital Management VII, LLC
Apollo Capital Management VIII, LLC
Apollo Capital Management, L.P.
Apollo Centre Street Advisors (APO DC), L.P.
Apollo Centre Street Advisors (APO DC-GP), LLC
Apollo Centre Street Co-Investors (DC-D), L.P.
Apollo Centre Street Management, LLC
Apollo CERPI Management LLC
Apollo CIP European SMAs & CLOs, L.P.
Apollo CIP GenPar, Ltd.
Apollo CIP Global SMAs (FC), L.P.
Apollo CIP Global SMAs, L.P.
Apollo CIP Hedge Funds (FC), L.P.
Apollo CIP Hedge Funds, L.P.
Apollo CIP Partner Pool, L.P.
Apollo CIP Professionals, L.P.
Apollo CIP Structured Credit, L.P.
Apollo CIP US SMAs, L.P.
Apollo CKE GP, LLC
Apollo COF I Capital Management, LLC
Apollo COF II Capital Management, LLC
Apollo COF Investor, LLC
Apollo Co-Investment Capital Management, LLC
Apollo Co-Investment Management, LLC
Apollo Co-Investors IX (D), L.P.
Apollo Co-Investors Manager, LLC
Apollo Co-Investors VI (D), L.P.
Apollo Co-Investors VI (DC-D), L.P.
Apollo Co-Investors VI (EH-D), LP
Apollo Co-Investors VI (FC-D), LP
Apollo Co-Investors VII (D), L.P.
Apollo Co-Investors VII (DC-D), L.P.
Apollo Co-Investors VII (EH-D), LP
Apollo Co-Investors VII (FC-D), L.P.
Apollo Co-Investors VII (NR D), L.P.
Apollo Co-Investors VII (NR DC-D), L.P.
Apollo Co-Investors VII (NR EH-D), LP
Apollo Co-Investors VII (NR FC-D), LP
Apollo Co-Investors VIII (D), L.P.
Apollo Co-Investors VIII (DC-D), L.P.
Apollo Co-Investors VIII (EH-D), L.P.
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Anguilla
Anguilla
Delaware
Delaware
Anguilla
Anguilla
Cayman Islands
Cayman Islands
Anguilla
Anguilla
Delaware
Delaware
Cayman Islands
Apollo Co-Investors VIII (FC-D), L.P.
Apollo Commodities Management GP, LLC
Apollo Commodities Management, L.P.
Apollo Commodities Management, L.P., with respect to Series I
Apollo Consumer Credit Advisors, LLC
Apollo Consumer Credit Fund, L.P.
Apollo Consumer Credit Master Fund, L.P.
Apollo Converse Co-Investors, LLC
Apollo Converse Holdings GP, LLC
Apollo Credit Advisors I, LLC
Apollo Credit Advisors III, LLC
Apollo Credit Income Co-Investors (D) LLC
Apollo Credit Income Management LLC
Apollo Credit Liquidity Advisors, L.P.
Apollo Credit Liquidity Capital Management, LLC
Apollo Credit Liquidity CM Executive Carry, L.P.
Apollo Credit Liquidity Investor, LLC
Apollo Credit Liquidity Management GP, LLC
Apollo Credit Liquidity Management, L.P.
Apollo Credit Management (CLO), LLC
Apollo Credit Management (European Senior Debt), LLC
Apollo Credit Management (Senior Loans) II, LLC
Apollo Credit Management (Senior Loans), LLC
Apollo Credit Management International Limited
Apollo Credit Management, LLC
Apollo Credit Opportunity Advisors I, L.P.
Apollo Credit Opportunity Advisors II, L.P.
Apollo Credit Opportunity Advisors III (APO FC) GP LLC
Apollo Credit Opportunity Advisors III (APO FC) LP
Apollo Credit Opportunity Advisors III GP LLC
Apollo Credit Opportunity Advisors III LP
Apollo Credit Opportunity CM Executive Carry I, L.P.
Apollo Credit Opportunity CM Executive Carry II, L.P.
Apollo Credit Opportunity Co-Investors III (D) LLC
Apollo Credit Opportunity Co-Investors III (FC-D) LLC
Apollo Credit Opportunity Management III LLC
Apollo Credit Opportunity Management, LLC
Apollo Credit Short Opportunities Co-Investors (D), LLC
Apollo Credit Short Opportunities Management, LLC
Apollo Delos Investments Advisors, S.a r.l.
Apollo Delos Investments Management, LLC
Apollo DSB Co-Invest GP, LLC
Apollo Emerging Markets Debt Advisors LP
Apollo Emerging Markets Debt Advisors GP LLC
Apollo Emerging Markets Debt Co-Investors (D) GP LLC
Apollo Emerging Markets Debt Co-Investors (D) LP
Apollo Emerging Markets Debt Management LLC
Apollo Emerging Markets Fixed Income Strategies Advisors GP, LLC
Apollo Emerging Markets Fixed Income Strategies Management, LLC
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
England and Wales
Delaware
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Luxembourg
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Apollo Emerging Markets, LLC
Apollo Energy Opportunity Advisors (APO DC) GP LLC
Apollo Energy Opportunity Advisors (APO DC) LP
Apollo Energy Opportunity Advisors GP LLC
Apollo Energy Opportunity Advisors LP
Apollo Energy Opportunity Co-Investors (D), LLC
Apollo Energy Opportunity Co-Investors (DC-D) LLC
Apollo Energy Opportunity Management, LLC
Apollo Energy Yield Co-Investors (D) LLC
Apollo Energy Yield Management LLC
Apollo EPF Administration, Limited
Apollo EPF Advisors II (APO DC), L.P.
Apollo EPF Advisors II, L.P.
Apollo EPF Advisors III (APO DC), L.P.
Apollo EPF Advisors III, L.P.
Apollo EPF Advisors, L.P.
Apollo EPF Capital Management, Limited
Apollo EPF Co-Investors (B), L.P.
Apollo EPF Co-Investors II (D), L.P.
Apollo EPF Co-Investors II (Euro), L.P.
Apollo EPF Co-Investors III (D), L.P
Apollo EPF II Capital Management (APO DC-GP), LLC
Apollo EPF II Capital Management, LLC
Apollo EPF III (Lux Euro B GP) S.a r.l.
Apollo EPF III Capital Management (APO DC-GP), LLC
Apollo EPF III Capital Management, LLC
Apollo EPF Management GP, LLC
Apollo EPF Management II GP, LLC
Apollo EPF Management II, L.P.
Apollo EPF Management III, LLC
Apollo EPF Management, L.P.
Apollo Europe Advisors III, L.P.
Apollo Europe Advisors, L.P.
Apollo Europe Capital Management III, LLC
Apollo Europe Capital Management, Ltd.
Apollo Europe Co-Investors III (D), LLC
Apollo Europe Management III, LLC
Apollo Europe Management, L.P.
Apollo European Credit Advisors GP, LLC
Apollo European Credit Advisors, L.P.
Apollo European Credit Co-Investors, LLC
Apollo European Credit Management GP, LLC
Apollo European Credit Management, L.P.
Apollo European Long Short Advisors GP, LLC
Apollo European Long Short Management, LLC
Apollo European Middle Market Private Debt Management, LLC
Apollo European Senior Debt Advisors, LLC
Apollo European Senior Debt Management, LLC
Apollo European Strategic Advisors GP, LLC
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Marshall Islands
Luxembourg
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Apollo European Strategic Advisors, L.P.
Apollo European Strategic Co-Investors, LLC
Apollo European Strategic Management GP, LLC
Apollo European Strategic Management, L.P.
Apollo Executive Carry VII (NR APO DC), L.P.
Apollo Executive Carry VII (NR APO FC), L.P.
Apollo Executive Carry VII (NR EH), L.P.
Apollo Executive Carry VII (NR), L.P.
Apollo Franklin Advisors (APO DC), L.P.
Apollo Franklin Advisors (APO DC-GP), LLC
Apollo Franklin Co-Investors (DC-D), L.P.
Apollo Franklin Management, LLC
Apollo Fund Administration IV, L.L.C.
Apollo Fund Administration IX, LLC
Apollo Fund Administration V, L.L.C.
Apollo Fund Administration VI, LLC
Apollo Fund Administration VII, LLC
Apollo Fund Administration VIII, LLC
Apollo Gaucho GenPar, Ltd.
Apollo Global Carry Pool Aggregator, L.P.
Apollo Global Carry Pool GP, LLC
Apollo Global Carry Pool GP, LLC with respect to Series A
Apollo Global Carry Pool GP, LLC with respect to Series I
Apollo Global Carry Pool GP, LLC with respect to Series I (DC)
Apollo Global Carry Pool GP, LLC with respect to Series I (FC)
Apollo Global Carry Pool Intermediate (DC), L.P.
Apollo Global Carry Pool Intermediate (FC), L.P.
Apollo Global Carry Pool Intermediate, L.P.
Apollo Global Funding, LLC
Apollo Global Real Estate Management GP, LLC
Apollo Global Real Estate Management, L.P.
Apollo Global Securities, LLC
Apollo GSS GP Limited
Apollo HD Advisors GP, LLC
Apollo HD Advisors, L.P.
Apollo HD Management GP, LLC
Apollo HD Management, L.P.
Apollo Hercules Advisors GP, LLC
Apollo Hercules Advisors, L.P.
Apollo Hercules AIV Advisors GP, LLC
Apollo Hercules AIV Co-Investors (D), LLC
Apollo Hercules Co-Investors (D), LLC
Apollo Hercules Management, LLC
Apollo HK TMS Investment Holdings GP, LLC
Apollo HK TMS Investment Holdings Management, LLC
Apollo HVF Co-Investors (D), L.P.
Apollo HVF Co-Investors (DC-D), L.P.
Apollo Hybrid Value Advisors (APO DC), L.P.
Apollo Hybrid Value Advisors (APO DC-GP), LLC
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Guernsey
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Apollo Hybrid Value Advisors (APO FC), L.P.
Apollo Hybrid Value Advisors (APO FC-GP), LLC
Apollo Hybrid Value Advisors, L.P.
Apollo Hybrid Value Capital Management, LLC
Apollo Hybrid Value Management GP, LLC
Apollo Hybrid Value Management, L.P.
Apollo Hybrid Value Overseas Partners (Lux) GP, S.a r.l.
Apollo Incubator Advisors, LLC
Apollo Incubator Management, LLC
Apollo India Credit Opportunity Management, LLC
Apollo India Services LLP
Apollo Infra Equity Advisors (APO DC UT), L.P.
Apollo Infra Equity Advisors (APO DC), L.P.
Apollo Infra Equity Advisors (APO DC-GP), LLC
Apollo Infra Equity Advisors (IH UT), L.P.
Apollo Infra Equity Advisors (IH), L.P.
Apollo Infra Equity Advisors (IH-GP), LLC
Apollo Infra Equity Co-Investors (D), L.P.
Apollo Infra Equity Co-Investors (IH-D), L.P.
Apollo Infra Equity Management GP, LLC
Apollo Infra Equity Management L.P.
Apollo International Management (Canada) ULC
Apollo International Management (India), LLC
Apollo International Management GP, LLC
Apollo International Management, L.P.
Apollo Investment Administration, LLC
Apollo Investment Consulting Europe Ltd.
Apollo Investment Consulting LLC
Apollo Investment Management Europe (Luxembourg) S.a r.l.
Apollo Investment Management Europe LLP
Apollo Investment Management, L.P.
Apollo IP Holdings, LLC
Apollo IPF Advisors, LLC
Apollo IPF Real Estate Management, LLC
Apollo Jupiter Resources Co-Invest GP, LLC
Apollo Jupiter Resources Co-Invest GP, ULC
Apollo Kings Alley Credit Advisors (DC), L.P.
Apollo Kings Alley Credit Advisors (DC-GP), LLC
Apollo Kings Alley Credit Advisors, L.P.
Apollo Kings Alley Credit Capital Management, LLC
Apollo Kings Alley Credit Co-Investors (D), L.P.
Apollo Kings Alley Credit Fund Management, LLC
Apollo KP Management, LLC
Apollo Laminates Agent, LLC
Apollo Life Asset Ltd.
Apollo Lincoln Fixed Income Advisors (APO DC), L.P.
Apollo Lincoln Fixed Income Advisors (APO DC-GP), LLC
Apollo Lincoln Fixed Income Management, LLC
Apollo Lincoln Private Credit Advisors (APO DC), L.P.
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Luxembourg
Delaware
Delaware
Delaware
India
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
British Columbia
Delaware
Delaware
Delaware
Delaware
England and Wales
Delaware
Luxembourg
England and Wales
Delaware
Delaware
Cayman Islands
Delaware
Delaware
British Columbia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Apollo Lincoln Private Credit Advisors (APO DC-GP), LLC
Apollo Lincoln Private Credit Co-Investors (DC-D), L.P.
Apollo Lincoln Private Credit Management, LLC
Apollo Longevity, LLC
Apollo Management (AOP) IX, LLC
Apollo Management (AOP) VII, LLC
Apollo Management (AOP) VIII, LLC
Apollo Management (Germany) VI, LLC
Apollo Management (UK) VI, LLC
Apollo Management Advisors España, S.L.U.
Apollo Management Advisors GmbH
Apollo Management Asia Pacific Limited
Apollo Management GP, LLC
Apollo Management Holdings GP, LLC
Apollo Management Holdings, L.P.
Apollo Management Hong Kong Limited
Apollo Management III, L.P.
Apollo Management International LLP
Apollo Management IV, L.P.
Apollo Management IX, L.P.
Apollo Management Japan Limited
Apollo Management Singapore Pte. Ltd.
Apollo Management V, L.P.
Apollo Management VI, L.P.
Apollo Management VII, L.P.
Apollo Management VIII, L.P.
Apollo Management, L.P.
Apollo Maritime Management, LLC
Apollo MidCap B Intermediate Holdings, L.P.
Apollo MidCap FinCo Feeder GP LLC
Apollo MidCap Holdings (Cayman) GP, Ltd.
Apollo MidCap Holdings (Cayman) II GP, Ltd.
Apollo MidCap Holdings (Cayman) II, L.P.
Apollo MidCap Holdings (Cayman), L.P.
Apollo Moultrie Capital Management, LLC
Apollo Moultrie Credit Fund Advisors, L.P.
Apollo Moultrie Credit Fund Management, LLC
Apollo Multi-Credit Fund GP (Lux) S.a r.l.
Apollo NA Management II, LLC
Apollo Natural Resources Partners (Lux) III GP, S.a r.l.
Apollo Natural Resources Partners (Lux) III, SCSp
Apollo ND Services, LLC
Apollo Net Lease Co., LLC
Apollo Oasis Advisors GP, LLC
Apollo Oasis Advisors, L.P.
Apollo Oasis Management, LLC
Apollo Olympus Co-Invest GP, LLC
Apollo Overseas Partners (Lux) IX GP, S.a r.l.
Apollo Palmetto Advisors, L.P.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Spain
Germany
Hong Kong
Delaware
Delaware
Delaware
Hong Kong
Delaware
England and Wales
Delaware
Delaware
Hong Kong
Singapore
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Luxembourg
Delaware
Luxembourg
Luxembourg
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Luxembourg
Delaware
Apollo Palmetto Athene Advisors, L.P.
Apollo Palmetto Athene Management, LLC
Apollo Palmetto HFA Advisors, L.P.
Apollo Palmetto Management, LLC
Apollo Parallel Partners Administration, LLC
Apollo PE VIII Director, LLC
Apollo Principal Holdings I GP, LLC
Apollo Principal Holdings I, L.P.
Apollo Principal Holdings II GP, LLC
Apollo Principal Holdings II, L.P.
Apollo Principal Holdings III GP, Ltd.
Apollo Principal Holdings III, L.P.
Apollo Principal Holdings IV GP, Ltd.
Apollo Principal Holdings IV, L.P.
Apollo Principal Holdings IX GP, Ltd.
Apollo Principal Holdings IX, L.P.
Apollo Principal Holdings V GP, LLC
Apollo Principal Holdings V, L.P.
Apollo Principal Holdings VI GP, LLC
Apollo Principal Holdings VI, L.P.
Apollo Principal Holdings VII GP, Ltd.
Apollo Principal Holdings VII, L.P.
Apollo Principal Holdings VIII GP, Ltd.
Apollo Principal Holdings VIII, L.P.
Apollo Principal Holdings X GP, Ltd.
Apollo Principal Holdings X, L.P.
Apollo Principal Holdings XI, LLC
Apollo Principal Holdings XII GP, LLC
Apollo Principal Holdings XII, L.P.
Apollo Real Estate Europe (Lux) GP, S.a r.l.
Apollo Resolution Servicing GP, LLC
Apollo Resolution Servicing, L.P.
Apollo Rose GP, L.P.
Apollo Rose II (I), L.P.
Apollo Royalties Management, LLC
Apollo RRI Management LLC
Apollo SA Management, LLC
Apollo SB Advisors, LLC
Apollo Senior Loan Fund Co-Investors (D), L.P.
Apollo SK Strategic Advisors GP, L.P.
Apollo SK Strategic Advisors, LLC
Apollo SK Strategic Co-Investors (DC-D), LLC
Apollo SK Strategic Management, LLC
Apollo Socrates Co-Invest GP, LLC
Apollo Socrates Global Co-Invest GP, LLC
Apollo SOMA Advisors, L.P.
Apollo SOMA Capital Management, LLC
Apollo Special Situations Advisors (APO DC), L.P.
Apollo Special Situations Advisors (APO DC-GP), LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Anguilla
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Anguilla
Cayman Islands
Cayman Islands
Luxembourg
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Cayman Islands
Anguilla
Marshall Islands
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Apollo Special Situations Advisors (IH), L.P.
Apollo Special Situations Advisors (IH-GP), Ltd.
Apollo Special Situations Advisors GP, LLC
Apollo Special Situations Advisors, L.P.
Apollo Special Situations Co-Investors (D), L.P.
Apollo Special Situations Co-Investors (IH-D), L.P.
Apollo Special Situations Management, L.P.
Apollo Special Situations Management, LLC
Apollo SPN Advisors (APO DC), L.P.
Apollo SPN Advisors (APO FC), L.P.
Apollo SPN Advisors, L.P.
Apollo SPN Capital Management (APO DC-GP), LLC
Apollo SPN Capital Management (APO FC-GP), LLC
Apollo SPN Capital Management, LLC
Apollo SPN Co-Investors (D), L.P.
Apollo SPN Co-Investors (DC-D), L.P.
Apollo SPN Co-Investors (FC-D), L.P.
Apollo SPN Management, LLC
Apollo ST Advisors, LLC
Apollo ST Capital LLC
Apollo ST CLO Holdings GP, LLC
Apollo ST Credit Partners GP LLC
Apollo ST Credit Strategies GP LLC
Apollo ST Debt Advisors LLC
Apollo ST Fund Management LLC
Apollo ST Operating LP
Apollo ST Structured Credit Recovery Partners II GP LLC
Apollo Structured Credit Recovery Advisors III (APO DC) LLC
Apollo Structured Credit Recovery Advisors III LLC
Apollo Structured Credit Recovery Advisors IV LLC
Apollo Structured Credit Recovery Co-Investors III (D), LLC
Apollo Structured Credit Recovery Co-Investors IV (D) LLC
Apollo Structured Credit Recovery Management III LLC
Apollo Structured Credit Recovery Management IV LLC
Apollo SVF Administration, LLC
Apollo SVF Advisors, L.P.
Apollo SVF Capital Management, LLC
Apollo SVF Management GP, LLC
Apollo SVF Management, L.P.
Apollo Tactical Value SPN Advisors (APO DC), L.P.
Apollo Tactical Value SPN Capital Management (APO DC-GP), LLC
Apollo Tactical Value SPN Co-Investors (DC-D), L.P.
Apollo Tactical Value SPN Management, LLC
Apollo Tail Convexity Advisors, LLC
Apollo Tail Convexity Management, LLC
Apollo Talos GenPar, Ltd.
Apollo Thunder Advisors GP, Ltd.
Apollo Thunder Advisors, L.P.
Apollo Thunder Co-Investors (D), LLC
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Anguilla
Anguilla
Anguilla
Anguilla
Anguilla
Anguilla
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Anguilla
Anguilla
Delaware
Cayman Islands
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Apollo Thunder Management, LLC
Apollo Total Return Advisors GP LLC
Apollo Total Return Advisors LP
Apollo Total Return Co-Investors (D) GP LLC
Apollo Total Return Co-Investors (D) LP
Apollo Total Return Enhanced Advisors GP LLC
Apollo Total Return Enhanced Advisors LP
Apollo Total Return Enhanced Management LLC
Apollo Total Return ERISA Advisors GP LLC
Apollo Total Return ERISA Advisors LP
Apollo Total Return Management LLC
Apollo Tower Credit Advisors (DC), L.P.
Apollo Tower Credit Advisors (DC-GP), LLC
Apollo Tower Credit Advisors, LLC
Apollo Tower Credit Co-Investors (DE FC-D), L.P.
Apollo Tower Credit Management, LLC
Apollo TRF CM Management, LLC
Apollo TRF MP Management, LLC
Apollo U.S. Real Estate Advisors GP II, LLC
Apollo U.S. Real Estate Advisors II, L.P.
Apollo Union Street Advisors, L.P.
Apollo Union Street Capital Management, LLC
Apollo Union Street Co-Investors (D), L.P.
Apollo Union Street Management, LLC
Apollo Union Street SPV Advisors, LLC
Apollo Union Street SPV Co-Investors (D), L.P.
Apollo USRE Advisors II (HP Industrial II) LLC
Apollo USREF Co-Investors II (D), LLC
Apollo Value Administration, LLC
Apollo Value Advisors, L.P.
Apollo Value Capital Management, LLC
Apollo Value Management GP, LLC
Apollo Value Management, L.P.
Apollo Verwaltungs V GmbH
Apollo VII TXU Administration, LLC
Apollo VIII GenPar, Ltd.
Apollo Zeus Strategic Advisors, L.P.
Apollo Zeus Strategic Advisors, LLC
Apollo Zeus Strategic Co-Investors (DC-D), LLC
Apollo Zeus Strategic Management, LLC
Apollo Zohar Advisors LLC
Apollo/Cavenham EMA Advisors II, L.P.
Apollo/Cavenham EMA Capital Management II, LLC
Apollo/Cavenham EMA Management II, LLC
ARM Manager, LLC
Athene Asset Management LLC
Athene Investment Analytics LLC
Athene Momentum Investment Advisors GP, LLC
Athene Momentum Investment Advisors, L.P.
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Germany
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Athene Mortgage Opportunities GP, LLC
August Global Management, LLC
Avalon Acquisition, LLC
BlueWater SM LLC
CAI Strategic European Real Estate Advisors GP, LLC
CAI Strategic European Real Estate Advisors, L.P.
Champ GP, LLC
Champ II Luxembourg Holdings S.a r.l.
Champ L.P.
Champ Luxembourg Holdings S.a r.l.
CMP Apollo LLC
CPI Asia G-Fdr General Partner GmbH
CPI Capital Partners Asia Pacific GP Ltd.
CPI Capital Partners Europe GP Ltd.
CPI European Carried Interest, L.P.
CPI European Fund GP LLC
CPI NA Fund GP LP
CPI NA GP LLC
CPI NA WT Fund GP LP
CTM Aircraft Investors GP, Ltd.
Cyclone Royalties, LLC
Delaware Rose GP, L.L.C.
EPE Acquisition Holdings, LLC
EPE Debt Co-Investors GP, LLC
EPF II Team Carry Plan (APO DC), L.P.
EPF II Team Carry Plan, L.P.
FCI Co-Investors IV (D), L.P.
Financial Credit I Capital Management, LLC
Financial Credit II Capital Management, LLC
Financial Credit III Capital Management, LLC
Financial Credit Investment Advisors I, L.P.
Financial Credit Investment Advisors II, L.P.
Financial Credit Investment Advisors III, L.P.
Financial Credit Investment Advisors IV, L.P.
Financial Credit Investment I Manager, LLC
Financial Credit Investment II Manager, LLC
Financial Credit Investment III Manager, LLC
Financial Credit Investment IV Manager, LLC
Financial Credit IV Capital Management, LLC
Greenhouse Holdings, Ltd.
GSAM Apollo Holdings, LLC
Gulf Stream Asset Management LLC
Harvest Holdings II (C), L.P.
Harvest Holdings II (V), L.P.
Harvest Holdings II GP, LLC
Harvest Holdings, LLC
Insight Solutions GP, LLC
Karpos Investments II (C), L.P.
Karpos Investments II (V), L.P.
Delaware
Florida
Cayman Islands
Delaware
Marshall Islands
Marshall Islands
Delaware
Luxembourg
Cayman Islands
Luxembourg
Delaware
Germany
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Cayman Islands
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Marshall Islands
Cayman Islands
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Delaware
North Carolina
Cayman Islands
Cayman Islands
Cayman Islands
Marshall Islands
Delaware
Cayman Islands
Cayman Islands
Karpos Investments, LLC
Lapithus EPF II Team Carry Plan (APO DC), L.P.
Lapithus EPF II Team Carry Plan, L.P.
LeverageSource Management, LLC
London Prime Apartments Guernsey Limited
Lowell GP, LLC
MMJV LLC
Prime Security Services GP, LLC
Redding Ridge Advisors LLC
RRH Asset Management CIV GP, LLC
RWNIH-ALL Advisors, LLC
Smart & Final Holdco LLC
ST Holdings GP, LLC
ST Management Holdings, LLC
Stanhope Life Advisors, L.P.
Stone Tower Europe LLC
VA Capital Management CIV GP, LLC
VC GP C, LLC
VC GP, LLC
Venator Investment Management Consulting (Shanghai) Limited
Venator Real Estate Capital Partners (Hong Kong) Limited
Verso Paper Investments Management LLC
Wolfcamp Co-Investors GP, LLC
Marshall Islands
Cayman Islands
Marshall Islands
Delaware
Guernsey
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Cayman Islands
Cayman Islands
Delaware
Delaware
Delaware
Delaware
China
Hong Kong
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of our report, dated March 1, 2019, relating to the consolidated
financial statements of Apollo Global Management, LLC and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial
reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2018:
Exhibit 23.1
• Registration Statement No. 333-211226 on Form S-3ASR
• Registration Statement No. 333-211225 on Form S-3ASR
• Registration Statement No. 333-188417 on Form S-3ASR
• Registration Statement No. 333-211227 on Form S-8
/s/ Deloitte & Touche LLP
New York, New York
March 1, 2019
Exhibit 31.1
I, Leon Black, certify that:
CHIEF EXECUTIVE OFFICER CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Apollo Global Management, LLC;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s
most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
Date: March 1, 2019
/s/ Leon Black
Leon Black
Chief Executive Officer
Exhibit 31.2
I, Martin Kelly, certify that:
CHIEF FINANCIAL OFFICER CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Apollo Global Management, LLC
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s
most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
Date: March 1, 2019
/s/ Martin Kelly
Martin Kelly
Chief Financial Officer and Co-Chief Operating Officer
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of Apollo Global Management, LLC (the “Company”) on Form 10-K for the year ended December 31, 2018 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leon Black, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2019
/s/ Leon Black
Leon Black
Chief Executive Officer
*
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report of Apollo Global Management, LLC (the “Company”) on Form 10-K for the year ended December 31, 2018 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin Kelly, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2019
/s/ Martin Kelly
Martin Kelly
Chief Financial Officer and Co-Chief Operating Officer
*
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.