KKR Annual Report 2015 | Quarterlytics

Plain-text annual report

KKR & CO. INC. FORM 10-K (Annual Report) Filed 02/26/16 for the Period Ending 12/31/15 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 9 WEST 57TH STREET, SUITE 4200 NEW YORK, NY, 10019 212-750-8300 0001404912 KKR 6282 - Investment Advice Investment Management & Fund Operators Financials 12/31 http://www.edgar-online.com © Copyright 2020, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use. Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 Form 10-K ý ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended December 31, 2015 Or o o 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 001-34820 KKR & CO. L.P.(Exact name of Registrant as specified in its charter) Delaware 26-0426107(State or other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification Number) 9 West 57 th Street, Suite 4200New York, New York 10019Telephone: (212) 750-8300(Address, zip code, and telephone number, includingarea code, of registrant’s principal executive office.) Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon units representing limitedpartner interestsNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to thisForm 10‑K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýThe aggregate market value of the common units of the registrant held by non‑affiliates as of June 30, 2015, was approximately $10.1 billion. As ofFebruary 22, 2016 , there were 449,251,468 Common Units of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCENone Table of ContentsKKR & CO. L.P. FORM 10-K For the Year Ended December 31, 2015 INDEX Page No. PART 1 Item 1.Business5 Item 1A.Risk Factors32 Item 1B.Unresolved Staff Comments89 Item 2.Properties89 Item 3.Legal Proceedings89 Item 4.Mine Safety Disclosures89 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities90 Item 6.Selected Financial Data93 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations94 Item 7A.Quantitative and Qualitative Disclosures About Market Risk162 Item 8.Financial Statements and Supplementary Data166 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure236 Item 9A.Controls and Procedures236 Item 9B.Other Information237 PART III Item 10.Directors, Executive Officers and Corporate Governance238 Item 11.Executive Compensation242 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters256 Item 13.Certain Relationships and Related Transactions, and Director Independence260 Item 14.Principal Accounting Fees and Services267 PART IV Item 15Exhibits , Financial Statement Schedules268 SIGNATURES 2742Table of ContentsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of theSecurities Exchange Act of 1934, or the Exchange Act, which reflect our current views with respect to, among other things, our operations and financialperformance. You can identify these forward looking statements by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may,""should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or otherstatements that do not relate strictly to historical or factual matters. Without limiting the foregoing, statements regarding the strategic partnership with MarshallWace LLP, the declaration and payment of distributions on common units of KKR, the timing, manner and volume of repurchases of common units pursuant to arepurchase program and the expected synergies from the acquisitions or strategic partnerships, may constitute forward-looking statements that are subject to the riskthat the benefits and anticipated synergies from such transactions are not realized. Forward looking statements are subject to various risks and uncertainties.Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Webelieve these factors include those described under the section entitled "Risk Factors" in this report. These factors should be read in conjunction with the othercautionary statements that are included in this report and in our other periodic filings. We do not undertake any obligation to publicly update or review any forwardlooking statement, whether as a result of new information, future developments or otherwise. In this report, references to "KKR," "we," "us," "our" and "our partnership" refer to KKR & Co. L.P. and its consolidated subsidiaries. Prior to KKR & Co. L.P.becoming listed on the New York Stock Exchange ("NYSE") on July 15, 2010, KKR Group Holdings L.P. ("Group Holdings") consolidated the financial results ofKKR Management Holdings L.P. and KKR Fund Holdings L.P. (together, the "KKR Group Partnerships") and their consolidated subsidiaries. On August 5, 2014,KKR International Holdings L.P. became a KKR Group Partnership. Each KKR Group Partnership has an identical number of partner interests and, when heldtogether, one Class A partner interest in each of the KKR Group Partnerships together represents one KKR Group Partnership Unit.References to "our Managing Partner" are to KKR Management LLC, which acts as our general partner and unless otherwise indicated, references to equityinterests in KKR's business, or to percentage interests in KKR's business, reflect the aggregate equity of the KKR Group Partnerships and are net of amounts thathave been allocated to our principals and other employees and non-employee operating consultants in respect of the carried interest from KKR's business as part ofour "carry pool" and certain minority interests. References to "principals" are to our senior employees and non-employee operating consultants who hold interests inKKR's business through KKR Holdings L.P., which we refer to as "KKR Holdings," and references to our "senior principals" are to our senior employees who holdinterests in our Managing Partner entitling them to vote for the election of its directors.References to non-employee operating consultants include employees of KKR Capstone and are not employees of KKR. KKR Capstone refers to a group ofentities that are owned and controlled by their senior management. KKR Capstone is not a subsidiary or affiliate of KKR. KKR Capstone operates under severalconsulting agreements with KKR and uses the "KKR" name under license from KKR.Prior to October 1, 2009, KKR's business was conducted through multiple entities for which there was no single holding entity, but were under common controlof senior KKR principals, and in which senior principals and KKR's other principals and individuals held ownership interests (collectively, the "PredecessorOwners"). On October 1, 2009, we completed the acquisition of all of the assets and liabilities of KKR & Co. (Guernsey) L.P. (f/k/a KKR Private EquityInvestors, L.P. or "KPE") and, in connection with such acquisition, completed a series of transactions pursuant to which the business of KKR was reorganized into aholding company structure. The reorganization involved a contribution of certain equity interests in KKR's business that were held by KKR's Predecessor Owners tothe KKR Group Partnerships in exchange for equity interests in the KKR Group Partnerships held through KKR Holdings. We refer to the acquisition of the assetsand liabilities of KPE and to our subsequent reorganization into a holding company structure as the "KPE Transaction."In this report, the term "GAAP" refers to accounting principles generally accepted in the United States of America.We disclose certain financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP. We believethat providing these performance measures on a supplemental basis to our GAAP results is3Table of Contentshelpful to unitholders in assessing the overall performance of KKR's businesses. These financial measures should not be considered as a substitute for similarfinancial measures calculated in accordance with GAAP, if available. We caution readers that these non-GAAP financial measures may differ from the calculationsof other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable, are includedwithin "Financial Statements and Supplementary Data — Note 13. Segment Reporting" and later in this report under "Management's Discussion and Analysis ofFinancial Condition and Results of Operations — Segment Balance Sheet."This report uses the terms assets under management or AUM, fee paying assets under management or FPAUM, fee related earnings or FRE, economic netincome or ENI, equity invested, gross dollars invested, syndicated capital, equity invested, book value and adjusted units. You should note that our calculations ofthese financial measures and other financial measures may differ from the calculations of other investment managers and, as a result, our financial measures maynot be comparable to similar measures presented by other investment managers. These and other financial measures are defined in the section "Management'sDiscussion and Analysis of Financial Condition & Results of Operations—Key Financial Measures under GAAP—Segment Operating and Performance Measures"and "— Segment Balance Sheet —Liquidity—Liquidity Needs."References to "our funds" or "our vehicles" refer to investment funds, vehicles and/or accounts advised, sponsored or managed by one or more subsidiaries ofKKR including CLO and CMBS vehicles, unless context requires otherwise. They do not include investment funds, vehicles or accounts of any hedge fund managerwith which we have formed a strategic partnership where we have acquired a non-controlling interest.Unless otherwise indicated, references in this report to our fully exchanged and diluted common units outstanding, or to our common units outstanding on afully exchanged and diluted basis, reflect (i) actual common units outstanding, (ii) common units into which KKR Group Partnership Units not held by us areexchangeable pursuant to the terms of the exchange agreement described in this report, (iii) common units issuable in respect of exchangeable equity securitiesissued in connection with the acquisition of Avoca Capital ("Avoca"), and (iv) common units issuable pursuant to any equity awards actually issued or vested butnot yet delivered under the KKR & Co. L.P. 2010 Equity Incentive Plan, which we refer to as our "Equity Incentive Plan," but do not reflect common units availablefor issuance pursuant to our Equity Incentive Plan for which grants have not yet been made.4Table of ContentsPART IITEM 1. BUSINESSOverviewWe are a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate,credit and hedge funds. We aim to generate attractive investment returns by following a patient and disciplined investment approach, employing world‑class people,and driving growth and value creation in the assets we manage. We invest our own capital alongside the capital we manage for fund investors and bring debt andequity investment opportunities to others through our capital markets business.Our business offers a broad range of investment management services to our fund investors and provides capital markets services to our firm, our portfoliocompanies and third parties. Throughout our history, we have consistently been a leader in the private equity industry, having completed more than 260 privateequity investments in portfolio companies with a total transaction value in excess of $515 billion. We have grown our firm by expanding our geographical presenceand building businesses in areas, such as credit, special situations, hedge funds, collateralized loan obligations (“CLOs”), capital markets, infrastructure, energy andreal estate. Our balance sheet has provided a significant source of capital in the growth and expansion of our business, and has allowed us to further align ourinterests with those of our fund investors. These efforts build on our core principles and industry expertise, allowing us to leverage the intellectual capital andsynergies in our businesses, and to capitalize on a broader range of the opportunities we source. Additionally, we have increased our focus on meeting the needs ofour existing fund investors and in developing relationships with new investors in our funds.We conduct our business with offices throughout the world, providing us with a pre‑eminent global platform for sourcing transactions, raising capital andcarrying out capital markets activities. Our growth has been driven by value that we have created through our operationally focused investment approach, theexpansion of our existing businesses, our entry into new lines of business, innovation in the products that we offer investors in our funds, an increased focus onproviding tailored solutions to our clients and the integration of capital markets distribution activities.As a global investment firm, we earn management, monitoring, transaction, incentive fees and carried interest for providing investment management,monitoring and other services to our funds, vehicles, CLOs, managed accounts and portfolio companies, and we generate transaction‑specific income from capitalmarkets transactions. We earn additional investment income from investing our own capital alongside that of our fund investors, from other assets on our balancesheet and from the carried interest we receive from our funds and certain of our other investment vehicles. A carried interest entitles the sponsor of a fund to aspecified percentage of investment gains that are generated on third‑party capital that is invested.Our investment teams have deep industry knowledge and are supported by a substantial and diversified capital base, an integrated global investment platform,the expertise of operating consultants and senior advisors and a worldwide network of business relationships that provide a significant source of investmentopportunities, specialized knowledge during due diligence and substantial resources for creating and realizing value for stakeholders. These teams invest capital, asubstantial portion of which is of a long duration and not subject to redemption. With over 75% of our fee paying assets under management not subject toredemption for at least 8 years from inception, we have significant flexibility to grow investments and select exit opportunities. We believe that these aspects of ourbusiness will help us continue to expand and grow our business and deliver strong investment performance in a variety of economic and financial conditions.Our FirmWith offices around the world, we have established ourselves as a leading global investment firm. We have multilingual and multicultural investment teamswith local market knowledge and significant business, investment, and operational experience in the countries in which we invest. We believe that our globalcapabilities have helped us to raise capital, capture a greater number of investment opportunities, and assist our portfolio companies in their increasing reliance onglobal markets and sourcing, while enabling us to diversify our operations.Though our operations span multiple continents and asset classes, our investment professionals are supported by an integrated infrastructure and operate undera common set of principles and business practices that are monitored by a variety of committees. The firm operates with a single culture that rewards investmentdiscipline, creativity, determination, and patience and the sharing of information, resources, expertise, and best practices across offices and asset classes. Whenappropriate, we staff transactions across multiple offices and businesses in order to take advantage of the industry‑ specific expertise of our investmentprofessionals, and we hold regular meetings in which investment professionals throughout our offices share their5Table of Contentsknowledge and experiences. We believe that the ability to draw on the local cultural fluency of our investment professionals while maintaining a centralized andintegrated global infrastructure distinguishes us from other investment firms and has been a substantial contributing factor to our ability to raise funds, investinternationally and expand our businesses.Since our inception, one of our fundamental philosophies has been to align the interests of the firm and our principals with the interests of our fund investors,portfolio companies and other stakeholders. We achieve this by putting our own capital behind our ideas. As of December 31, 2015 , we and our employees andother personnel have approximately $12.3 billion invested in or committed to our own funds and portfolio companies, including $8.9 billion funded through ourbalance sheet, $1.4 billion of additional commitments from our balance sheet to investment funds, $1.0 billion in personal investments and $1.0 billion of additionalcommitments from personal investments.Our Segments Private Markets Through our Private Markets segment, we manage and sponsor a group of private equity funds and co-investment vehicles that invest capital for long-termappreciation, either through controlling ownership of a company or strategic minority positions. We also manage and sponsor a group of funds and co-investmentvehicles that invest capital in real assets, such as infrastructure, energy and real estate. These funds, vehicles and accounts are managed by Kohlberg KravisRoberts & Co. L.P., an SEC registered investment adviser. As of December 31, 2015 , the segment had $66.0 billion of AUM and FPAUM of $45.3 billion ,consisting of $34.9 billion in private equity and $10.4 billion in real assets (including infrastructure, energy and real estate) and other strategies. Prior to 2010,FPAUM in the Private Markets segment consisted entirely of private equity funds. (1)For the years 2006 through 2008, assets under management are presented pro forma for the KPE Transaction, and therefore, exclude the net asset value of KPE and its formercommitments to our investment funds. AUM as of and after December 31, 2014 has been adjusted to include capital commitments for which we are eligible to receive fees or carriedinterest upon deployment of capital. This item increased our AUM by approximately $3.1 billion as of December 31, 2014 but is excluded from AUM for all prior years presented.6Table of ContentsThe table below presents information as of December 31, 2015 relating to our current private equity funds and other investment vehicles for which we have theability to earn carried interest. This data does not reflect acquisitions or disposals of investments, changes in investment values or distributions occurring afterDecember 31, 2015 . Investment Period (1) Amount ($ in millions) Commencement DateEnd Date Commitment (2)UncalledCommitmentsPercentageCommitted byGeneralPartnerInvestedRealizedRemainingCost (3)RemainingFair ValuePrivate Markets Private Equity Funds European Fund IV12/201412/2020 $3,468.0$3,307.15.7%$160.9$—$160.9$185.7Asian Fund II4/20134/2019 5,825.03,979.31.3%2,599.7753.91,845.83,163.6North America Fund XI9/20129/2018 8,718.43,704.02.9%5,932.11,733.84,635.46,983.8China Growth Fund11/201011/2016 1,010.0307.61.0%702.4283.4544.4713.4E2 Investors (Annex Fund)8/200911/2013 195.8—4.9%195.8195.718.110.3European Fund III3/20083/2014 6,121.8812.14.6%5,309.74,447.23,224.24,240.2Asian Fund7/20074/2013 3,983.3129.52.5%3,853.85,397.41,918.72,534.02006 Fund9/20069/2012 17,642.2525.62.1%17,116.618,411.57,703.313,028.5European Fund II11/200510/2008 5,750.8—2.1%5,750.86,611.1825.02,003.2Millennium Fund12/200212/2008 6,000.0—2.5%6,000.012,517.4714.01,521.1European Fund12/199912/2005 3,085.4—3.2%3,085.48,748.0—17.1Total Private Equity Funds 61,800.712,765.2 50,707.259,099.421,589.834,400.9Co-Investment VehiclesVariousVarious 5,774.02,709.6Various3,137.42,511.02,118.02,865.8 Total Private Equity 67,574.715,474.8 53,844.661,610.423,707.837,266.7 Real Assets Energy Income and Growth Fund9/20139/2018 1,974.21,142.612.8%831.6143.9757.1544.3Natural Resources FundVariousVarious 887.42.9Various884.596.6809.9200.1Global Energy OpportunitiesVariousVarious 1,026.4808.7Various252.755.0144.8124.7Global Infrastructure Investors9/201110/2014 1,039.9100.94.8%967.0216.4847.8972.7Global Infrastructure Investors II10/201410/2020 3,028.32,685.74.1%346.58.9338.9354.0Infrastructure Co-InvestmentsVariousVarious 1,125.0—Various1,125.0377.91,124.41,520.1Real Estate Partners Americas5/201312/2016 1,229.1598.216.3%777.5314.5630.5740.7Real Estate Partners Europe9/2015(4) 591.3591.310.9%————Real Assets 10,901.65,930.3 5,184.81,213.24,653.44,456.6 Unallocated Commitments 1,361.21,361.2Various———— Private Markets Total $79,837.5$22,766.3 $59,029.4$62,823.6$28,361.2$41,723.3 (1)The commencement date represents the date on which the general partner of the applicable fund commenced investment of the fund’s capital or the date of the first closing. The end daterepresents the earlier of (i) the date on which the general partner of the applicable fund was or will be required by the fund’s governing agreement to cease making investments on behalf ofthe fund, unless extended by a vote of the fund investors or (ii) the date on which the last investment was made.(2)The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general partner. Foreign currencycommitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate that prevailed onDecember 31, 2015 , in the case of uncalled commitments.(3)The remaining cost represents the initial investment of the general partner and limited partners, with the limited partners’ investment reduced for any return of capital and realized gainsfrom which the general partner did not receive a carried interest.(4)Four years from final close.7Table of ContentsPerformanceWe take a long‑term approach to Private Markets investing and measure the success of our investments over a period of years rather than months. Given theduration of these investments, the firm focuses on realized multiples of invested capital and IRRs when deploying capital in these transactions. We have more thandoubled the value of capital that we have invested in our Private Markets investment funds, turning $71.0 billion of capital into $147.4 billion of value from ourinception in 1976 to December 31, 2015 . Over this same period, the value of capital that we have invested in our Private Markets investment funds and that hasbeen realized and partially realized has grown from $51.1 billion to $126.5 billion .Amount Invested and Total Value forPrivate Markets Investment FundsAs of December 31, 2015 From our inception in 1976 through December 31, 2015 , our investment funds with at least 36 months of investment activity generated a cumulative gross IRRof 25.6%, compared to the 11.7% and 8.7% gross IRR achieved by the S&P 500 Index and MSCI World Index, respectively, over the same period, despite thecyclical and sometimes challenging environments in which we have operated. The S&P 500 Index and MSCI World Index are unmanaged indices and such returnsassume reinvestment of distributions and do not reflect any fees or expenses. Our past performance, however, may not be representative of performance in anygiven period. For example, as of March 31, 2009, the date of the lowest aggregate valuation of our private equity funds during the most recent downturn, theinvestments in certain of our private equity funds at the time were marked down to 67% of original cost. For additional information regarding impact of marketconditions on the value and performance of our investments, see “Risk Factors-Risks Related to Our Business-Difficult market conditions can adversely affect ourbusiness in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploycapital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition.” and “-Risks Related to the Assets WeManage-The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of ourfunds or of our future results or of any returns on our common units.”The tables below present information as of December 31, 2015 relating to the historical performance of certain of our Private Markets investment vehiclessince inception, which we believe illustrates the benefits of our investment approach. The information presented under Total Investments includes all of theinvestments made by the specified investment vehicle, while the information presented under Realized/Partially Realized Investments includes only thoseinvestments that have been disposed of or have otherwise generated disposition proceeds or current income including dividends that has been distributed8Table of Contentsby the relevant fund. This data does not reflect additional capital raised since December 31, 2015 or acquisitions or disposals of investments, changes in investmentvalues or distributions occurring after that date. Past performance is no guarantee of future results. Amount Fair Value of Investments Private Markets Investment FundsCommitmentInvested (5) Realized (5)Unrealized Total Value GrossIRR (5)Net IRR (5) Multiple ofInvestedCapital (5)($ in millions) Total Investments Legacy Funds (1) 1976 Fund$31.4$31.4 $537.2$— $537.2 39.5 %35.5 % 17.11980 Fund356.8356.8 1,827.8— 1,827.8 29.0 %25.8 % 5.11982 Fund327.6327.6 1,290.7— 1,290.7 48.1 %39.2 % 3.91984 Fund1,000.01,000.0 5,963.5— 5,963.5 34.5 %28.9 % 6.01986 Fund671.8671.8 9,080.7— 9,080.7 34.4 %28.9 % 13.51987 Fund6,129.66,129.6 14,949.2— 14,949.2 12.1 %8.9 % 2.41993 Fund1,945.71,945.7 4,143.3— 4,143.3 23.6 %16.8 % 2.11996 Fund6,011.66,011.6 12,476.9— 12,476.9 18.0 %13.3 % 2.1Subtotal - Legacy Funds16,474.516,474.5 50,269.3— 50,269.3 26.1 %19.9 % 3.1Included Funds European Fund (1999) (2)3,085.43,085.4 8,748.017.1 8,765.1 26.9 %20.2 % 2.8Millennium Fund (2002)6,000.06,000.0 12,517.41,521.1 14,038.5 22.2 %16.3 % 2.3European Fund II (2005) (2)5,750.85,750.8 6,611.12,003.2 8,614.3 6.4 %4.7 % 1.52006 Fund (2006)17,642.217,116.6 18,411.513,028.5 31,440.0 11.6 %8.9 % 1.8Asian Fund (2007)3,983.33,853.8 5,397.42,534.0 7,931.4 18.7 %13.5 % 2.1European Fund III (2008) (2)6,121.85,309.7 4,447.24,240.2 8,687.4 15.2 %9.6 % 1.6E2 Investors (Annex Fund) (2009) (2)195.8195.8 195.710.3 206.0 1.5 %1.1 % 1.1China Growth Fund (2010)1,010.0702.4 283.4713.4 996.8 15.1 %8.0 % 1.4Natural Resources Fund (2010)887.4884.5 96.6200.1 296.7 (45.8)%(48.5)% 0.3Global Infrastructure Investors (2011) (2)1,039.9967.0 216.4972.7 1,189.1 9.1 %7.6 % 1.2North America Fund XI (2012)8,718.45,932.1 1,733.86,983.8 8,717.6 26.4 %19.5 % 1.5Asian Fund II (2013) (3)5,825.02,599.7 753.93,163.6 3,917.5 N/AN/A N/AReal Estate Partners Americas (2013) (3)1,229.1777.5 314.5740.7 1,055.2 N/AN/A N/AEnergy Income and Growth Fund (2013) (3)1,974.2831.6 143.9544.3 688.2 N/AN/A N/AGlobal Infrastructure Investors II (2014) (2) (3)3,028.3346.5 8.9354.0 362.9 N/AN/A N/AEuropean Fund IV (2015) (2) (3)3,468.0160.9 —185.7 185.7 N/AN/A N/AReal Estate Partners Europe (2015) (2) (3)591.3— —— — N/AN/A N/ASubtotal - Included Funds70,550.954,514.3 59,879.737,212.7 97,092.4 15.4 %11.1 % 1.8 All Funds$87,025.4$70,988.8 $110,149.0$37,212.7 $147,361.7 25.6 %18.9 % 2.1 9Table of Contents Amount Fair Value of Investments Private Markets Investment FundsCommitmentInvested (5) Realized (5)Unrealized Total Value Gross IRR (5)Net IRR (5) Multiple ofInvested Capital (5)($ in millions) Realized/Partially Realized Investments (4) Legacy Funds (1) 1976 Fund$31.4$31.4 $537.2$— $537.2 39.5 %35.5 % 17.11980 Fund356.8356.8 1,827.8— 1,827.8 29.0 %25.8 % 5.11982 Fund327.6327.6 1,290.7— 1,290.7 48.1 %39.2 % 3.91984 Fund1,000.01,000.0 5,963.5— 5,963.5 34.5 %28.9 % 6.01986 Fund671.8671.8 9,080.7— 9,080.7 34.4 %28.9 % 13.51987 Fund6,129.66,129.6 14,949.2— 14,949.2 12.1 %8.9 % 2.41993 Fund1,945.71,945.7 4,143.3— 4,143.3 23.6 %16.8 % 2.11996 Fund6,011.66,011.6 12,476.9— 12,476.9 18.0 %13.3 % 2.1Subtotal - Legacy Funds16,474.516,474.5 50,269.3— 50,269.3 26.1 %19.9 % 3.1Included Funds European Fund (1999) (2)3,085.43,085.4 8,748.017.1 8,765.1 26.9 %20.2 % 2.8Millennium Fund (2002)6,000.05,599.4 12,517.41,402.2 13,919.6 25.0 %19.4 % 2.5European Fund II (2005) (2)5,750.85,245.4 6,611.12,001.6 8,612.7 7.8 %6.7 % 1.62006 Fund (2006)17,642.210,867.0 18,411.57,208.4 25,619.9 17.1 %14.8 % 2.4Asian Fund (2007)3,983.32,953.6 5,397.41,791.2 7,188.6 22.3 %19.1 % 2.4European Fund III (2008) (2)6,121.82,694.3 4,447.21,324.9 5,772.1 22.0 %18.6 % 2.1E2 Investors (Annex Fund) (2009) (2)195.894.8 195.7— 195.7 19.8 %19.8 % 2.1China Growth Fund (2010)1,010.0371.3 283.4377.0 660.4 20.3 %18.1 % 1.8Natural Resources Fund (2010)887.4884.6 96.6200.1 296.7 (45.8)%(48.5)% 0.3Global Infrastructure Investors (2011) (2)1,039.9765.1 216.3711.5 927.8 7.8 %7.8 % 1.2North America Fund XI (2012)8,718.42,074.9 1,733.92,551.7 4,285.6 49.6 %48.7 % 2.1Asian Fund II (2013) (4)5,825.0— —— — —— —Real Estate Partners Americas (2013) (4)1,229.1— —— — —— —Energy Income and Growth Fund (2013) (4)1,974.2— —— — —— —Global Infrastructure Investors II (2014) (2) (4)3,028.3— —— — —— —European Fund IV (2015) (2) (4)3,468.0— —— — —— —Real Estate Partners Europe (2015) (2) (4)591.3— —— — —— —Subtotal - Included Funds70,550.934,635.8 58,658.517,585.7 76,244.2 19.4 %16.1 % 2.2 All Realized/Partially Realized Investments$87,025.4$51,110.3 $108,927.8$17,585.7 $126,513.5 25.8 %20.8 % 2.5(1) These funds were not contributed to KKR as part of the KPE Transaction.(2)The capital commitments of the European Fund, European Fund II, European Fund III, E2 Investors (Annex Fund), European Fund IV, Global Infrastructure Investors, Global InfrastructureInvestors II and Real Estate Partners Europe include euro-denominated commitments of €196.5 million, €2,597.5 million, €2,882.8 million, €55.5 million, €1,626.1 million, €30.0 million,€243.8 million and €275.6 million, respectively. Such amounts have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and(ii) the exchange rate prevailing on December 31, 2015 in the case of unfunded commitments.(3)The gross IRR, net IRR and multiple of invested capital are calculated for our investment funds that have invested for at least 36 months prior to December 31, 2015. None of the AsianFund II, Real Estate Partners Americas, Energy Income and Growth Fund, Global Infrastructure Investors II, European Fund IV or Real Estate Partners Europe have invested for at least36 months as of December 31, 2015 . We therefore have not calculated gross IRRs, net IRRs and multiples of invested capital with respect to those funds.(4)An investment is considered partially realized when it has been disposed of or has otherwise generated disposition proceeds or current income that has been distributed by the relevant fund.In periods prior to the three months ended September 30, 2015, realized proceeds excluded current income such as dividends and interest. None of the Asian Fund II, Real Estate PartnersAmericas, Energy Income and Growth Fund, Global Infrastructure Investors II, European Fund IV or Real Estate Partners Europe have any investments that are considered partiallyrealized. We therefore have not calculated gross IRRs, net IRRs and multiples of invested capital with respect to the investments of those funds.(5)IRRs measure the aggregate annual compounded returns generated by a fund’s investments over a holding period. Net IRRs presented under Total Investments are calculated after givingeffect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees. Net IRRs presented under Realized/Partially Realized Investments arecalculated after giving effect to the allocation of realized and unrealized carried interest, but before payment of any applicable management fees as management fees are applied to funds,not investments. Gross IRRs are calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees. The multiples of invested capital measure the aggregate value generated by a fund’s investments in absolute terms. Each multiple of invested capital is calculated by adding together thetotal realized and unrealized values of a fund’s investments and dividing by the total amount of capital invested by the fund. Such amounts do not give effect to the allocation of any realizedand unrealized returns on a fund’s investments to the fund’s general partner pursuant to a carried interest or the payment of any applicable management fees.KKR Private Markets funds may utilize third party financing facilities to provide liquidity to such funds. In such event IRRs are calculated from the time capital contributions aredue from fund investors to the time fund investors receive a related distribution from the fund, and the use of such financing10Table of Contentsfacilities generally decreases the amount of invested capital that would otherwise be used to calculate IRRs and multiples of invested capital, which tends to increase IRRs and multipleswhen fair value grows over time and decrease IRRs and multiples when fair value decreases over time. KKR Private Markets funds also generally provide in certain circumstances, whichvary depending on the relevant fund documents, for a portion of capital returned to investors to be restored to unused commitments as recycled capital. For KKR's Private Markets funds thathave a preferred return, we take into account recycled capital in the calculation of IRRs and multiples of invested capital because the calculation of the preferred return includes the effect ofrecycled capital. For KKR's Private Markets funds that do not have a preferred return, we do not take recycled capital into account in the calculation of IRRs and multiples of investedcapital. The inclusion of recycled capital generally causes invested and realized amounts to be higher and IRRs and multiples of invested capital to be lower than had recycled capital notbeen included. The inclusion of recycled capital would reduce the composite net IRR of all Included Funds by 0.1% and the composite net IRR of all Legacy Funds by 0.5%, and wouldreduce the composite multiple of invested capital of Included Funds by less than 0.1 and the composite multiple of invested capital of Legacy Funds by 0.4. For more information, see “Risk Factors-Risks Related to the Assets We Manage-The historical returns attributable to our funds, including those presented inthis report, should not be considered as indicative of the future results of our funds or of our future results or of any returns on our common units.”Private EquityWe are a world leader in private equity, having raised 19 funds with approximately $78.3 billion of capital commitments through December 31, 2015 . Weinvest in industry‑leading franchises and attract world‑class management teams. Our investment approach leverages our capital base, sourcing advantage, globalnetwork and industry knowledge. It also leverages a sizeable team of operating consultants, who work exclusively with our investment professionals and portfoliocompany management teams and otherwise at our direction, as well as senior advisors, many of whom are former chief executive officers and leaders of thebusiness community.PortfolioThe following chart presents information concerning the amount of capital invested by private equity funds by geography through December 31, 2015 . Webelieve that this data illustrates the benefits of our business approach and our ability to source and invest in deals in multiple geographies.Our current private equity portfolio consists of over 108 companies with approximately $200 billion of annual revenues. These companies are headquartered in21 countries and operate in 19 general industries which take advantage of our broad and deep industry and operating expertise. Many of these companies are leadingfranchises with global operations, strong management teams and attractive growth prospects, which we believe will provide benefits through a broad range ofbusiness conditions.11Table of ContentsInvestment ApproachOur approach to making private equity investments focuses on achieving multiples of invested capital and attractive risk‑adjusted IRRs by selecting high‑quality investments that may be made at attractive prices, applying rigorous standards of due diligence when making investment decisions, implementing strategicand operational changes that drive growth and value creation in acquired businesses, carefully monitoring investments, and making informed decisions whendeveloping investment exit strategies.We believe that we have achieved a leading position in the private equity industry by applying a disciplined investment approach and by building strongpartnerships with highly motivated management teams who put their own capital at risk. When making private equity investments, we seek out strong businessfranchises, attractive growth prospects, leading market positions, and the ability to generate attractive returns. In our private equity funds, we do not effecttransactions that are “hostile”, meaning a target company’s board of directors makes an unfavorable recommendation with respect to the transaction or publiclyopposes the consummation of the transaction.Sourcing and Selecting InvestmentsWe have access to significant opportunities for making private equity investments as a result of our sizeable capital base, global platform, and relationshipswith leading executives from major companies, commercial and investment banks, and other investment and advisory institutions. Members of our global networkcontact us with new investment opportunities, including a substantial number of exclusive investment opportunities and opportunities that are made available toonly a limited number of other firms. We also proactively pursue business development strategies that are designed to generate deals internally based on the depthof our industry knowledge and our reputation as a leading financial sponsor.To enhance our ability to identify and consummate private equity investments, we have organized our investment professionals in industry‑specific teams. Ourindustry teams work closely with our operating consultants and other advisors to identify businesses that can be grown and improved. These teams conduct theirown primary research, develop a list of industry themes and trends, identify companies and assets in need of operational improvement, and seek out businesses andassets that they believe will benefit from our involvement. They possess a detailed understanding of the economic drivers, opportunities for value creation, andstrategies that can be designed and implemented to improve companies across the industries in which we invest.Due Diligence and the Investment DecisionWhen an investment team determines that an investment proposal is worth consideration, the proposal is formally presented to the applicable regionalinvestment committee and the due diligence process commences if appropriate. The objective of the due diligence process is to identify attractive investmentopportunities based on the facts and circumstances surrounding an investment and to prepare a framework that may be used from the date of an acquisition to driveoperational improvement and value creation. When conducting due diligence, investment teams evaluate a number of important business, financial, tax, accounting,environmental, social, governance, legal and regulatory issues in order to determine whether an investment is suitable. While the due diligence process differsdepending on the type of investment we make, generally, in connection with the private equity due diligence process, investment professionals spend significantamounts of time meeting with a company’s management and operating personnel, visiting plants and facilities, and where appropriate, speaking with otherstakeholders interested in and impacted by the investment in order to understand the opportunities and risks associated with the proposed investment. Ourinvestment professionals may also use the services of outside accountants, consultants, lawyers, investment banks, and industry experts as appropriate to assist themin this process. Investment committees monitor all due diligence practices, and the applicable investment committee must approve an investment before it may bemade.Building Successful and Competitive BusinessesPortfolio management committees are responsible for working with our investment professionals from the date on which a private equity investment is madeuntil the time it is exited in order to ensure that strategic and operational objectives are accomplished and that the performance of the investment is closelymonitored. When investing in a private equity portfolio company, we partner with management teams to execute on our investment thesis, and we rigorously trackperformance through regular monitoring of detailed operational and financial metrics as well as appropriate environmental, social and governance issues. We havedeveloped a global network of experienced managers and operating executives who assist the private equity portfolio companies in making operationalimprovements and achieving growth. We augment these resources with operational guidance from operating consultants at KKR Capstone, senior advisors, andinvestment teams, and with “100‑Day Plans” that focus the firm’s efforts and drive our strategies. We seek to emphasize efficient capital management, top‑linegrowth, R&D spending, geographical expansion, cost optimization, and investment for the long‑term.12Table of ContentsRealizing InvestmentsWe have developed substantial expertise for realizing private equity investments. From our inception through December 31, 2015 , the firm has generatedapproximately $110.2 billion of cash proceeds from the sale of our private equity portfolio companies in initial public offerings and secondary offerings, dividends,and sales to strategic buyers. When exiting private equity investments, our objective is to structure the exit in a manner that optimizes returns for fund investors and,in the case of publicly traded companies, minimizes the impact that the exit has on the trading price of the company’s securities. We believe that our ability tosuccessfully realize investments is attributable in part to the strength and discipline of our portfolio management committees and capital markets business, as well asthe firm’s longstanding relationships with corporate buyers and members of the investment banking and investing communities.Private Equity Fund StructuresThe private equity funds that we sponsor and manage have finite lives and investment periods. Each fund is organized as one or more partnerships, and eachpartnership is controlled by a general partner. Private equity fund investors are limited partners who agree to contribute a specified amount of capital to the fundfrom time to time for use in qualifying investments during the investment period, which generally lasts up to six years depending on how quickly capital isdeployed. The investment period for certain funds may be terminated upon supermajority vote (based on capital commitment) of the fund’s limited partners or bythe fund’s advisory committee. The term of our private equity funds generally last for 10 to 12 years and may last up to 15 years from the date of the fund’s first orlast investment, subject to a limited number of extensions with the consent of the limited partners or the applicable advisory committee. Given the length of theinvestment periods and terms of our private equity funds and the limited conditions under which such periods can be terminated and commitments may bewithdrawn, the AUM of our private equity funds provide a long‑term stable capital base.Each private equity fund’s general partner is generally entitled to a carried interest that allocates to it 20% of the net profits realized by the limited partnersfrom the fund’s investments. Our newer private equity funds, the North America Fund XI, Asian Fund II and European Fund IV have a performance hurdle whichrequires that we return 7%, compounded annually, to limited partners in the fund prior to receiving our 20% share of net profits realized by limited partners. Suchperformance hurdles are subject to a catch‑up allocation to the general partner after the hurdle has been reached. Our earlier private equity funds do not include aperformance hurdle. The timing of receipt of carried interest in respect of investments of our carry funds is dictated by the terms of the partnership agreements thatgovern such funds, and is distributed to the general partner of a private equity fund only after all of the following are met: (i) a realization event has occurred(e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achieved positive overall investment returns since its inception, in excess of performancehurdles where applicable; and (iii) with respect to investments with a fair value below cost, cost has been returned to fund investors in an amount sufficient toreduce remaining cost to the investments’ fair value. For a fund that has a fair value above cost, overall, but has one or more investments where fair value is belowcost, the shortfall between cost and fair value for such investments is referred to as a “netting hole.” See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations-Liquidity-Sources of Liquidity” for a discussion of netting holes. Net realized profit or loss is not netted between or amongfunds except for the Annex Fund as discussed below under “-Other Private Equity Investment Vehicles-E2 Investors (Annex Fund)”. In addition, the agreementsgoverning KKR’s private equity funds generally include a “clawback” or, in certain instances, a “net loss sharing” provision that, if triggered, may give rise to acontingent obligation that may require the general partner to return or contribute amounts to the fund for distribution to fund investors at the end of the life of thefund. Our newer private equity funds do not have a net loss sharing provision. See “Management’s Discussion and Analysis of Financial Condition and Results ofOperations-Critical Accounting Policies-Clawback Provision”, “Management’s Discussion and Analysis of Financial Condition-Critical Accounting Policies-NetLoss Sharing Provision” and “Risk Factors-The “clawback” or “net loss sharing” provisions in our governing agreements may give rise to a contingent obligationthat may require us to return or contribute amounts to our funds and fund investors.”We enter into management agreements with our private equity funds pursuant to which we receive management fees in exchange for providing the funds withmanagement and other services. Gross management fees for our private equity funds generally range from 1% to 2% of committed capital during the fund’sinvestment period and is generally 0.75% to 1.25% of invested capital after the expiration of the fund’s investment period with subsequent reductions over time,which causes the fees to be reduced as investments are liquidated. These management fees are paid by private equity fund investors, who generally contributecapital to the fund in order to allow the fund to pay the fees to us. Our private equity funds generally require that management fees be returned to fund investorsbefore a carried interest may be paid.We also enter into monitoring agreements with our portfolio companies pursuant to which we receive periodic monitoring fees in exchange for providing themwith management, consulting, and other services, and we typically receive transaction fees for providing portfolio companies with financial, advisory and otherservices in connection with specific transactions. Monitoring fees may provide for a termination payment following an initial public offering or change of control.In some cases,13Table of Contentswe may be entitled to other fees that are paid by an investment target upon closing a transaction or when a potential investment is not consummated. Our privateequity fund agreements typically require us to share 80% to 100% of any monitoring, transaction and other fees that are allocable to a fund (after reduction forexpenses incurred allocable to a fund from unconsummated transactions) with fund investors.In addition, the agreements governing our private equity funds enable investors in those funds to reduce their capital commitments available for furtherinvestments, on an investor‑by‑investor basis, in the event certain “key persons” (for example, both of Messrs. Kravis and Roberts, and, in the case of certaingeographically or product focused funds, one or more of the investment professionals focused on such funds) cease to be actively involved in the management of thefund. While these provisions do not allow investors in our funds to withdraw capital that has been invested or cause a fund to terminate, the occurrence of a “keyman” event could cause disruption in our business, reduce the amount of capital that we have available for future investments, and make it more challenging to raiseadditional capital in the future.Because private equity fund investors typically are unwilling to invest their capital in a fund unless the fund’s manager also invests its own capital in the fund’sinvestments, our private equity fund documents generally require the general partners of the funds to make minimum capital commitments to the funds. Theamounts of these commitments, which are negotiated by fund investors, generally range from 2% to 5% of a fund’s total capital commitments at final closing, butmay be greater for certain funds pursuing newer strategies. When investments are made, the general partner contributes capital to the fund based on its fundcommitment percentage and acquires a capital interest in the investment that is not subject to a carried interest or management fees.Other Private Equity Investment VehiclesE2 Investors (Annex Fund). We established the Annex Fund in 2009 to enable fund investors in the European Fund II and the Millennium Fund to makeadditional investments in portfolio companies of the European Fund II, which had already been fully invested. This fund has several features that distinguish it fromour other private equity funds, including: (i) it does not pay a management fee to us; (ii) its general partner is only entitled to a carried interest after netting anylosses, costs, and expenses relating to European Fund II and certain Millennium Fund investments from the profits of the Annex Fund investments; and (iii) notransaction or incremental monitoring fees are charged in connection with investments in which the Annex Fund participates. The Annex Fund reached the end ofits investment period in November 2013.Other Private Equity Products. We have offered significant co‑investment opportunities to both fund investors and other third parties. We have built out ourcapital markets and distribution capabilities and created new investment structures and products that allow us to syndicate a portion of the equity needed to financeacquisitions. These structures include co‑investment vehicles and a principal‑protected private equity product, which generally entitles the firm to receivemanagement fees and/or a carried interest. In addition, we manage certain separately managed accounts in the form of separate investment vehicles based on termsthat are separately negotiated with investors in those vehicles. We also offer multi‑strategy products, which invest in our funds, co‑investment vehicles and externalfunds and have launched a strategy focused on growth equity opportunities in the technology, media and telecommunications sector.Real AssetsEnergyIn 2010 we launched our first dedicated energy fund, which acquired and operated oil and natural gas properties in mature basins located primarily in theUnited States. In acquiring these properties, which are typically considered to be non‑core by their sellers, we sought to generate value through optimizingproduction , reducing operating costs, and optimizing commercial and marketing arrangements.Since the launch of our first dedicated energy fund, we have invested in our capabilities, both with respect to our team of investment professionals and ourrelationships with technical partners. With these capabilities, we have expanded our energy platform to target real asset investment opportunities across theupstream and midstream segments of the oil and gas industry. As part of this effort, we have completed investments in oil and gas drilling development transactionswith operating companies and have also acquired mineral and royalty interests. We invest in these energy strategies through the KKR Energy Income and GrowthFund. As of December 31, 2015 , we have received $2.9 billion of capital commitments to our energy funds and $1.0 billion of capital commitments to this strategythrough separately managed accounts.Our energy business aims to deliver current returns to fund investors through distributions generated by producing and selling oil and natural gas reserves andcapital appreciation. The goal is to provide investors with exposure to commodity prices14Table of Contentsand optionality associated with future drilling and production. We work closely with external teams of technical and operational experts to assist in the selection,evaluation and operation of investments.InfrastructureWe manage infrastructure investments and began investing through our first dedicated infrastructure fund, KKR Global Infrastructure Investors L.P., in 2011.We believe that the global infrastructure market provides an opportunity for the firm’s private investment, operational improvement capabilities and stakeholderengagement. This strategy seeks to achieve returns including current income through the acquisition and operational improvement of assets important to thefunctioning of the economy. Through this strategy we have made investments in parking, alternative energy, district heating and contracted electricity generation,water and wastewater, locomotive transportation, midstream and telecommunications infrastructure. As of December 31, 2015 , we had received $4.1 billion ofcapital commitments to our infrastructure funds and $1.1 billion of capital commitments to this strategy through separately managed accounts and co‑investmentvehicles.Real EstateThe firm developed a dedicated real estate strategy beginning in 2011 using our own seed capital. Since launching our first dedicated real estate fund, KKRReal Estate Partners Americas, in 2013, we have expanded our real estate strategy to pursue real estate investments in Western Europe and real estate credit. Inaddition, we have the flexibility to invest in real estate transactions across the capital structure through various vehicles, including our private equity and alternativecredit funds. We have also established investment platforms with strategic partners to invest in commercial real estate in Germany and the United States. Our realestate platform targets real estate opportunities, including direct investments in real property, debt, special situations transactions and businesses with significantreal estate holdings that can benefit from KKR’s operational expertise. We seek to partner with real estate owners, lenders, operators, and developers to provideflexible capital to respond to transaction specific needs, including the outright purchase or financing of existing assets or companies and the funding of futuredevelopment or acquisition opportunities. Through this strategy, we have made real estate investments in residential and commercial assets. As of December 31,2015 , we have received $1.8 billion of capital commitments through our real estate funds.Real Asset Investment ProcessOur energy, infrastructure and real estate funds have a similar investment process as that described under “-Private Equity.” Investment teams for a particularreal asset strategy formally present investments to the applicable strategy oriented investment committee, which monitors all due diligence practices and mustapprove an investment before it may be made. Most of our real asset strategies also have a portfolio management committee that works with our investmentprofessionals from the date on which an investment is made until the time it is exited in order to ensure that strategic and operational objectives are accomplishedand that the performance of the investment is closely monitored. In addition to leveraging the resources of the firm, our energy and real estate investment teamspartner with technical experts and operators to manage our real asset investments.Real Asset Fund StructuresOur energy, infrastructure and real estate funds generally have investment periods of up to 6 years and generally have a fund term of up to 13 years.Management fees for such funds range from 0.75% to 1.5% on commitments, invested capital or net asset value during the investment period and on investedcapital or net asset value for investments thereafter, subject to certain adjustments. These funds generally have performance hurdles of 8% to 10% subject to acatch‑up allocation to the general partner after the hurdle has been reached. Thereafter the general partners of such funds generally share in 10% to 20% of netprofits realized by limited partners. Public Markets We operate and report our combined credit and hedge funds businesses through the Public Markets segment. Our credit business advises funds, CLOs,separately managed accounts, and investment companies registered under the Investment Company Act, including a business development company or BDC,undertakings for collective investment in transferable securities or UCITS, and alternative investments funds or AIFs, which invest capital in (i) leveraged creditstrategies, such as leveraged loans, high yield bonds and opportunistic credit, and (ii) alternative credit strategies such as mezzanine investments, direct lendinginvestments, special situations investments and long/short credit investment strategies. The funds, accounts, registered investment companies and CLOs in ourleveraged credit and alternative credit strategies are managed by KKR Credit Advisors (US) LLC, which is an SEC‑registered investment adviser, KKR CreditAdvisors (Ireland), regulated by the Central15Table of ContentsBank of Ireland, and KKR Credit Advisors (UK), regulated by the United Kingdom Financial Conduct Authority, or FCA. KKR Credit Advisors (Ireland) and KKRCredit Advisors (UK) (formerly known collectively as Avoca Capital) were acquired by KKR on February 19, 2014. Our Public Markets segment also includes ourhedge funds business that offers a variety of investment strategies including customized hedge fund portfolios and hedge fund‑of‑fund solutions. The funds andaccounts in our hedge fund business are managed by Prisma Capital Partners LP (KKR Prisma or Prisma), an SEC‑registered investment adviser. Through ourPublic Markets segment, we also have developed strategic partnerships by acquiring minority stakes in other hedge fund managers.We intend to continue to grow the Public Markets business by leveraging our global investment platform, experienced investment professionals and the abilityto adapt our investment strategies to different market conditions to capitalize on investment opportunities that may arise at various levels of the capital structure andacross market cycles.As of December 31, 2015 , this segment had $53.5 billion of AUM, comprised of $17.4 billion of assets managed in our leveraged credit strategies, $15.5billion of assets managed in our alternative credit strategies, $11.0 billion of assets managed in our hedge fund solutions strategies, $8.7 billion of assets managed inour strategic partnerships and $0.9 billion of assets managed in other strategies. Our alternative credit investments include $2.0 billion of assets managed in ourmezzanine strategy, $6.5 billion of assets managed in our direct lending strategy, $6.6 billion of assets managed in our special situations strategies and $0.4 billionof assets managed in our long/short credit strategy. The following chart presents the growth in the AUM of our Public Markets segment from the commencement ofits operations in August 2004 through December 31, 2015 .16Table of Contents (1)For years 2006 through 2008, assets under management are presented pro forma for the KPE Transaction and, therefore, exclude the net asset value of KPE and its formercommitments to our investment funds. Assets under management of KKR Prisma and Avoca are included in the years on and after the completion of the respective acquisitions.(2)AUM as of and after December 31, 2014 has been adjusted to include (i) KKR's pro-rata portion of AUM managed by other asset managers in which KKR holds a minority stake and(ii) capital commitments for which we are eligible to receive fees or carried interest upon deployment of capital. These two items increased our AUM by approximately $5.4 billion asof December 31, 2014 but are excluded from AUM for all prior years presented.CreditPerformanceWe generally review our performance in our credit business by investment strategy. Our leveraged credit strategies principally invest in leveraged loans andhigh yield bonds, or a combination of both. In certain cases these strategies have meaningful track records and may be compared to widely‑known indices. Thefollowing table presents information regarding larger leveraged credit strategies managed by KKR from inception to December 31, 2015 . Past performance is noguarantee of future results.17Table of ContentsLeveraged Credit Strategies: Inception-to-Date Annualized Gross Performance vs. Benchmark by Strategy($ in millions) Inception Date GrossReturns NetReturns Benchmark (1) BenchmarkGrossReturnsBank Loans Plus High Yield (2) Jul 2008 8.07% 7.41% 65% S&P/ LSTA, 35% BoAML HY Master II Index (3) 5.72%Opportunistic Credit (4) May 2008 12.18% 10.21% BoAML HY Master II Index (4) 6.96%Bank Loans (2) Apr 2011 4.38% 3.76% S&P/ LSTA Loan Index (5) 3.07%High Yield (2) Apr 2011 5.50% 4.92% BoAML HY Master II Index (6) 4.00%Bank Loans Conservative Apr 2011 4.24% 3.62% S&P/ LSTA BB-B Loan Index (7) 3.30%European Leveraged Loans (8) Sep 2009 5.88% 5.36% CS Inst West European Leveraged Loan Index (9) 4.92% (1)The Benchmarks referred to herein include the S&P/LSTA Leveraged Loan Index (the “S&P/LSTA Loan Index”), the Bank of America Merrill Lynch High Yield Master II Index (the“BoAML HY Master II Index”), the S&P European Leveraged Loan Index (the “ELLI”) and Credit Suisse Institutional Western European Leveraged Loan Index (the “CS Inst EuropeanLeveraged Loan Index”). The S&P/LSTA Loan Index is an index that comprises all loans that meet the inclusion criteria and that have marks from the LSTA/LPC mark-to-market service.The inclusion criteria consist of the following: (i) syndicated term loan instruments consisting of term loans (both amortizing and institutional), acquisition loans (after they are drawn down)and bridge loans; (ii) secured; (iii) U.S. dollar denominated; (iv) minimum term of one year at inception; and (v) minimum initial spread of LIBOR plus 1.25%. The BoAML HY Master IIIndex is a market value weighted index of below investment grade U.S. dollar denominated corporate bonds publicly issued in the U.S. domestic market. “Yankee” bonds (debt of foreignissuers issued in the U.S. domestic market) are included in the BoAML HY Master II Index provided that the issuer is domiciled in a country having investment grade foreign currency long-term debt rating. Qualifying bonds must have maturities of one year or more, a fixed coupon schedule and minimum outstanding of US$100 million. In addition, issuers having a creditrating lower than BBB3, but not in default, are also included. The ELLI is based upon Euro denominated facilities. The index reflects the market-weighted performance of institutionalleveraged loan portfolios investing in European credits. All the index components are loans syndicated to European loan investors. The ELLI series uses real-time market weightings,spreads and interest payments. The Index was calculated monthly from January 1, 2002 to January 1, 2004; then weekly until May 2, 2013, and is currently calculated daily. The CS InstEuropean Leveraged Loan Index contains only institutional loan facilities priced above 90 , excluding TL and TLa facilities and loans rated CC, C or are in default. It is designed to moreclosely reflect the investment criteria of institutional investors. While the returns of these strategies reflect the reinvestment of income and dividends, none of the indices presented in thechart above reflect such reinvestment, which has the effect of increasing the reported relative performance of these strategies as compared to the indices. Furthermore, these indices are notsubject to management fees, incentive allocations or expenses. It is not possible to invest directly in unmanaged indices.(2)The AUM of the Bank Loans Plus High Yield strategy is also included in the AUM of the High Yield strategy and the AUM of the Bank Loans strategy.(3)Performance is based on a blended composite of Bank Loans Plus High Yield strategy accounts. The Benchmark used for purposes of comparison for the Bank Loans Plus High Yieldstrategy is based on 65% S&P/LSTA Loan Index and 35% BoAML HY Master II Index.(4)The Opportunistic Credit strategy invests in high yield securities and corporate loans with no preset allocation. The Benchmark used for purposes of comparison for the Opportunistic Creditstrategy presented herein is based on the BoAML HY Master II Index. Funds within this strategy may utilize third party financing facilities to provide liquidity to such funds. In cases wherefinancing facilities are used, the amounts drawn on the facility are deducted from the assets of the fund in the calculation of net asset value, which tends to increase returns when net assetvalue grows over time and decrease returns when net asset value decreases over time.(5)Performance is based on a composite of portfolios that primarily invest in leveraged loans. The Benchmark used for purposes of comparison for the Bank Loans strategy is based on theS&P/LSTA Loan Index.(6) Performance is based on a composite of portfolios that primarily invest in high yield securities. The Benchmark used for purposes of comparison for the High Yield strategy is based on theBoAML HY Master II Index.(7) Performance is based on a composite of portfolios that primarily invest in leveraged loans rated B-/Baa3 or higher. The Benchmark used for purposes of comparison for the Bank Loansstrategy is based on the S&P/LSTA BB/B Loan Index.(8) The AUM amounts reflected have been converted to U.S. dollars based on the exchange rate prevailing on December 31, 2015 . The returns presented are calculated based on localcurrency.(9) Performance is based on a composite of portfolios that primarily invest in higher quality leveraged loans. The Benchmark used for purposes of comparison for the European Senior Loansstrategy is based on the CS Inst West European Leveraged Loan Index.Our alternative credit strategies primarily invest in more illiquid instruments through private investment funds. The following table presents informationregarding our Public Markets alternative credit funds where investors are subject to capital commitments from inception to December 31, 2015 . Some of ouralternative credit funds have begun investing more recently and therefore have not yet developed meaningful track records, and thus their performance is notincluded below. Past performance is no guarantee of future results.18Table of ContentsAlternative Credit Strategies: Fund Performance Amount Fair Value of Investments Public Markets Investment Funds Inception Date Commitment Invested* Realized* Unrealized Total Value GrossIRR** Net IRR** Multiple of InvestedCapital***($ in Millions) Special Situations Fund Dec-12 $2,257.6 $2,129.6 $257.6 $2,205.6 $2,463.2 9.6% 7.0% 1.2Special Situations Fund II Dec-14 2,675.5 592.1 — 452.4 452.4 N/A N/A N/AMezzanine Partners Mar-10 1,022.8 872.2 541.0 634.3 1,175.3 13.8% 8.4% 1.3Lending Partners Dec-11 460.2 369.7 181.5 303.3 484.8 11.4% 9.4% 1.3Lending Partners II Jun-14 1,335.9 446.3 26.4 475.7 502.1 10.9% 8.2% 1.1Lending Partners Europe Mar-15 780.1 16.5 — 24.0 24.0 N/A N/A N/ARevolving Credit Partners May-15 510.0 — — (2.8) (2.8) N/A N/A N/APrivate Credit OpportunitiesPartners II Dec-15 350.0 — — — — N/A N/A N/AAll Funds $9,392.1 $4,426.4 $1,006.5 $4,092.5 $5,099.0 1.2* Recycled capital is excluded from the amounts invested and realized. ** KKR alternative credit funds may utilize third party financing facilities to provide liquidity to such funds, and in such event IRRs are calculated from the time capital contributions are duefrom fund investors to the time fund investors receive a related distribution from the fund. In cases where financing facilities are used, their use generally decreases the amount of investedcapital that would otherwise be used to calculate IRRs, which tends to increase IRRs when fair value grows over time and decrease IRRs when fair value decreases over time. IRRs measurethe aggregate annual compounded returns generated by a fund’s investments over a holding period and are calculated taking into account recycled capital. Net IRRs presented are calculatedafter giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees. Gross IRRs are calculated before giving effect to theallocation of carried interest and the payment of any applicable management fees. *** The multiples of invested capital measure the aggregate value generated by a fund’s investments in absolute terms. Each multiple of invested capital is calculated by adding together thetotal realized and unrealized values of a fund’s investments and dividing by the total amount of capital invested by the fund. In cases where financing facilities are used, their use generallydecreases the amount of invested capital that would otherwise be used to calculate multiples of invested capital, which tends to increase multiples when fair value grows over time anddecrease multiples when fair value decreases over time. . Such amounts do not give effect to the allocation of any realized and unrealized returns on a fund’s investments to the fund’sgeneral partner pursuant to a carried interest or the payment of any applicable management fees and are calculated without taking into account recycled capital.Such past performance may not be representative of performance in any given period. For additional information regarding impact of market conditions on thevalue and performance of our investments, see “Risk Factors-Risks Related to Our Business-Difficult market conditions can adversely affect our business in manyways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each ofwhich could negatively impact our net income and cash flow and adversely affect our financial condition.” and “-Risks Related to the Assets We Manage-Thehistorical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of ourfuture results or of any returns on our common units.”Investment ApproachOur approach to making investments focuses on creating investment portfolios that seek to generate attractive risk‑adjusted returns by selecting investmentsthat may be made at attractive prices, subjecting investments to regular monitoring and oversight, and, for more liquid investments, making buy and sell decisionsbased on price targets and relative value parameters. The firm employs both “top‑down” and “bottom‑up” analyses when making investments. Our top‑downanalysis involves, as appropriate, a macro analysis of relative asset valuations, long‑term industry trends, business cycles, regulatory trends, interest rateexpectations, credit fundamentals and technical factors to target specific industry sectors and asset classes in which to invest. From a bottom‑up perspective, ourinvestment decision is predicated on an investment thesis that is developed using our proprietary resources and knowledge and due diligence.Sourcing and Selecting InvestmentsWe source investment opportunities through a variety of channels, including internal deal generation strategies and the firm’s global network of contacts atmajor companies, corporate executives, commercial and investment banks, financial intermediaries, other private equity sponsors and other investment and advisoryinstitutions. We are also provided with opportunities to invest in certain strategies, where appropriate, in the securities of KKR’s private equity portfolio companies,though there are limitations across the platform on the maximum size of such KKR‑affiliated investments.19Table of ContentsDue Diligence and the Investment DecisionOnce a potential investment has been identified, our investment professionals screen the opportunity and make a preliminary determination concerning whetherwe should proceed with further diligence. When evaluating the suitability of an investment for our funds, we typically employ a relative value framework andsubject the investment to due diligence. This review considers many factors including, as appropriate, expected returns, capital structure, credit ratings, historicaland projected financial data, the issuer’s competitive position, the quality and track record of the issuer’s management team, margin stability, and industry andcompany trends. Investment professionals use the services of outside advisors and industry experts as appropriate to assist them in the due diligence process and,when relevant and permitted, leverage the knowledge and experience of our Private Markets investment professionals. Strategy‑specific investment committeesmonitor all due diligence practices.Monitoring InvestmentsWe monitor our portfolios of investments using, as applicable, daily, quarterly and annual analyses. Daily analyses include morning market meetings, industryand company pricing runs, industry and company reports and discussions with the firm’s Private Markets investment professionals on an as‑needed basis. Quarterlyanalyses include the preparation of quarterly operating results, reconciliations of actual results to projections and updates to financial models (baseline and stresscases). Annual analyses involve conducting internal audits, and testing compliance with monitoring and documentation requirements.Credit StrategiesOur credit strategies business pursues investments in debt securities ranging from liquid securities such as leveraged loans and high‑yield bonds to alternativecredit including longer‑duration strategies such as mezzanine, special situations and direct lending and revolving credit. These investments may be made across arange of vehicles including funds, single‑ or cross‑strategy separately managed accounts, and registered investment companies. These managed accounts enable usto tailor an investment program to meet the specific risk, return and investment objective of investors in our funds.Leveraged Credit. Our leveraged credit strategies are principally directed at investing in leveraged loans, high‑yield bonds or a combination of both. Ouropportunistic credit strategy seeks to deploy capital across investment themes that take advantage of credit market dislocations, spanning asset types and liquidityprofiles. These leveraged credit strategies are pursued primarily through separately managed accounts and registered investment companies, with a smaller amountof capital residing in funds. We are entitled to receive a fee or a combination of a fee and an incentive allocation for managing these vehicles.Structured Credit Vehicles. We manage structured credit vehicles in the form of collateralized loan obligation transactions, or CLOs. CLOs are typicallystructured as bankruptcy‑remote, special purpose investment vehicles which acquire, monitor and, to varying degrees, manage a pool of credit assets. The CLOsserve as long term financing for credit investments and as a way to minimize refinancing risk, minimize maturity risk and secure a fixed cost of funds over anunderlying market interest rate. We may receive a fee for managing certain CLOs.Alternative Credit. Our alternative credit strategies leverage the knowledge and relationships developed in the leveraged credit business. These strategiesinclude private credit strategies such as mezzanine and distressed investing and special situations strategies. As with our leveraged credit strategy, these are pursuedthrough a combination of separately managed accounts, a BDC and funds. For managing these accounts and funds, we are entitled to receive either fees or acombination of fees and carried interest.Direct Lending. We seek to make investments in proprietarily sourced primarily senior debt financings for middle‑market companies through ourdirect lending strategy. We closed our first dedicated direct lending fund, KKR Lending Partners L.P. in December 2012 and had AUM of $6.5 billion inthis strategy as of December 31, 2015 .Mezzanine. We seek to make mezzanine investments in directly sourced third‑party mezzanine and mezzanine-like transactions through this strategy.These investments often consist of mezzanine debt, which generates a current yield, coupled with marginal equity exposure with additional upsidepotential. We closed our first dedicated mezzanine fund, KKR Mezzanine Partners I L.P. in August 2011 and had AUM of $2.0 billion in this strategy as ofDecember 31, 2015 .Special Situations. We seek to make opportunistic investments largely in distressed companies through our special situations investment strategy.These investments include secondary market distressed investments (including post‑ restructuring equity), control‑oriented opportunities, rescue financing(debt or equity investments made to20Table of Contentsaddress covenant, maturity or liquidity issues), debtor‑in‑possession or exit financing, structured principal investments, and other event‑driven investmentsin debt or equity. We closed our first dedicated special situations fund, KKR Special Situations Fund L.P., in December 2013 and had AUM of $6.6 billionin this strategy as of December 31, 2015 .Long/short credit. Our long/short credit strategy invests across capital structures with a focus primarily on corporate credit opportunities and hadAUM of $0.4 billion in this strategy as of December 31, 2015 .Products for Individual InvestorsKKR Credit Advisors (US) LLC serves as the registered investment adviser to an investment company registered under the Investment Company Act (or, in thecase of the BDC we manage, as its sub‑adviser), which are subject to the Investment Company Act and the rules thereunder. The management fees we receive fromthese registered investment companies are generally paid on a regular basis (typically monthly) and proportionately increase or decrease based on the net asset valueor gross assets of the investment company. The management fees we are paid for managing these investment companies will generally be subject to contractualrights that require their board of directors to provide prior notice (or, in the case of the BDC we manage, the investment adviser) in order to terminate ourinvestment management services.Hedge FundsOverviewOur hedge fund business is comprised of customized hedge fund solutions and minority interests in other public markets managers and funds. We establishedour hedge fund business in October 2012 with the acquisition of Prisma Capital Partners LP through which we provide customized hedge fund portfolio and hedgefund‑of‑fund solutions. We expect to grow this business with the acquisition of majority and minority interests or stakes in third party hedge fund managementcompanies or by seeding strategies with strategic hedge fund partners.KKR PrismaKKR Prisma constructs and manages customized hedge fund portfolios and hedge fund‑of‑funds. It seeks to deliver superior performance by utilizing portfolioconstruction techniques and an integrated, quantitative approach to risk management. KKR Prisma takes a specialist approach by seeking leading niche hedge fundmanagers in various alternative investment strategies. Various strategies are offered to investors, including moderate and low‑volatility, equity, credit andopportunistic, in both commingled and separate account portfolios. For the period beginning in June 2004 through December 31, 2015 , our hedge fund-of-fundslow volatility strategy, which consists of the majority of our hedge fund-of-funds AUM and FPAUM, generated a gross annualized return of 7.0%. As ofDecember 31, 2015 , our hedge fund-of-funds accounted for $11.0 billion of AUM.Strategic PartnershipsThrough our Public Markets segment, we also have developed strategic partnerships by acquiring minority stakes in other hedge fund managers. In thisbusiness we have a 24.9% interest in Marshall Wace LLP, a leading global liquid alternatives manager, a 24.9% interest in Nephila Capital Ltd., or Nephila, aninvestment manager focused on investing in natural catastrophe and weather risk, a 24.9% interest in BlackGold Capital Management L.P., or BlackGold, acredit‑oriented investment manager focused on investing in energy and hard asset investments. We have also seeded Acion Partners Limited, a Hong Kong basedinvestment manager that manages Asian event driven investments.21Table of ContentsPublic Markets Vehicle StructuresThe table below presents information as of December 31, 2015 relating to our Public Markets vehicles:($ in millions) AUM FPAUM Typical ManagementFee Rate Incentive Fee /CarriedInterest PreferredReturn Durationof CapitalLeveraged Credit: Leveraged Credit SMAs/Funds $7,129 $6,647 0.50%-1.50% Various (1) Various (1) Subject to redemptionsCLO’s 9,021 9,021 0.50% Various (1) Various (1) 10-14 Years (2)Total Leveraged Credit 16,150 15,668 Alternative Credit Vehicles (3) 13,463 7,340 0.75%-1.50% (4) 10.00-20.00% 8.00-12.00% 8-15 Years (2)Hedge Fund Solutions 11,028 10,530 0.50%-1.50% Various (1) Various (1) Subject to redemptionsStrategic Partnerships (6) 8,737 8,737 0.75%-2.00% Various Various Subject to redemptionsCorporate Capital Trust (5) 4,138 4,138 1.00% 10.00% 7.00% 7 years (5)Total $53,516 $46,413 (1)Certain funds and CLOs are subject to a performance fee in which the manager or general partner of the funds share in up to 20% (in our hedge fund solutions business, up to 10%) of thenet profits earned by investors in excess of performance hurdles (generally tied to a benchmark or index) and subject to a provision requiring the funds and vehicles to regain prior lossesbefore any performance fee is earned.(2)Term for duration of capital is since inception. Inception dates for CLOs were between 2004 and 2015 and for separately managed accounts and funds investing in alternative creditstrategies from 2009 through 2015.(3)AUM and FPAUM include all assets invested by vehicles that principally invest in alternative credit strategies, respectively, and consequently may include a certain amount of assets,currently less than $1.0 billion, invested in other strategies.(4)Lower fees on uninvested capital in certain vehicles.(5)Corporate Capital Trust is a BDC sub-advised by KKR. By December 31, 2018, the capital in the Corporate Capital Trust vehicle may have an indefinite duration. This vehicle invests inboth leveraged credit and alternative credit strategies.(6)Includes KKR's pro rata portion of AUM and FPAUM managed by other asset managers in which KKR holds a minority interest.Capital Markets Our Capital Markets segment is comprised primarily of our global capital markets business. Our capital markets business supports our firm, our portfoliocompanies and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seekingfinancing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other types ofcapital markets services. When we underwrite an offering of securities or a loan on a firm commitment basis, we commit to buy and sell an issue of securities orindebtedness and generate revenue by purchasing the securities or indebtedness at a discount or for a fee. When we act in an agency capacity, we generate revenuefor arranging financing or placing securities or debt with capital markets investors. We may also provide issuers with capital markets advice on security selection,access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. KKR Capital Markets LLC isan SEC-registered broker-dealer and a FINRA member, and we are also registered or authorized to carry out certain broker-dealer activities in various countries inNorth America, Europe, Asia-Pacific and the Middle East. Our third party capital markets activities are generally carried out through Merchant CapitalSolutions LLC, a joint venture with one other unaffiliated partner, and non-bank financial companies, or NBFCs, in India.Client & Partner GroupWe have a Client & Partner Group that is responsible for raising capital for us globally across all products, expanding our client relationships across assetclasses and across types of fund investors, developing products to meet our clients’ needs, and servicing existing fund investors and products. We also providefundraising services to fund managers in whom we have invested through our stakes business. As of December 31, 2015 , we had 80 executives and professionalsdedicated to our Client & Partner Group.22Table of ContentsAs of December 31, 2015 , we had 895 investors in funds across all our strategies, which reflects the addition of over 100 investors during the year. Onaverage, a fund investor is invested in approximately 1.7 of our products as of December 31, 2015 . The following charts detail our investor base by type andgeography as of December 31, 2015 . _________________________(1)Based on the AUM of our Private Markets investment funds, Private Markets co‑investment vehicles, and Public Markets separately managed accounts and investment funds. Thesecharts exclude (a) commitments in connection with Private and Public Markets vehicles for which we are entitled to management fees or carried interest upon the satisfaction of certainconditions, which had not been met as of December 31, 2015 and (b) assets managed by other asset managers with which KKR has formed strategic partnerships where KKR does nothold more than a 50% ownership interest. Allocations are assigned to a type or geographic region according to subscriptions received from a limited partner.Principal Activities Through our Principal Activities segment, we manage the firm’s own assets and deploy capital to support and grow our businesses. We use our PrincipalActivities assets to support our investment management and capital markets businesses. Typically, the funds in our Private Markets and Public Markets businessescontractually require us, as general partner of the funds, to make sizable capital commitments from time to time. We believe our general partner commitments areindicative of the conviction we have in a given fund’s strategy, which assists us in raising new funds from limited partners. We also deploy Principal Activitiesassets in order to help establish a track record for fundraising purposes in new strategies. We may also use our own capital to seed investments for new funds, tobridge capital selectively for our funds’ investments or finance strategic acquisitions and partnerships, although the financial results of an acquired business orstrategic partnership have been reported in our other segments.Our Principal Activities assets also provide the required capital to fund the various commitments of our Capital Markets business when underwriting orsyndicating securities, or when providing term loan commitments for transactions involving our portfolio companies and for third parties. Our Principal Activitiesassets also may be utilized to satisfy regulatory requirements for our Capital Markets business and risk retention requirements for our CLO business.We also make opportunistic investments through our Principal Activities segment, which include co-investments alongside our Private Markets and PublicMarkets funds, as well as make Principal Activities investments that do not involve our Private Markets or Public Markets funds.We endeavor to use our balance sheet strategically and opportunistically to generate an attractive risk-adjusted return on equity in a manner that is consistentwith our fiduciary duties and in compliance with applicable laws.23Table of ContentsThe chart below presents the holdings of our Principal Activities segment by asset class as of December 31, 2015.Holdings by Asset Class (1)_________________________(1)General partner commitments in our funds are included in the various asset classes shown above. Assets and revenues of other asset managers with which KKR has formed strategicpartnerships where KKR does not hold more than 50% ownership interest are not included in our Principal Activities business but are reported in the financial results of ourother segments. Private equity funds represent holdings in KKR sponsored private equity funds. Equity investments consist of opportunistic investments including co-investments alongside such KKR sponsored private equity funds. However, equity investments in other asset classes, such as real estate, special situations and energy appearin these other asset classes.CompetitionWe compete with other investment managers for both fund investors and investment opportunities. The firm’s competitors consist primarily of sponsors ofpublic and private investment funds, real estate development companies, business development companies, investment banks, commercial finance companies andoperating companies acting as strategic buyers. We believe that competition for fund investors is based primarily on investment performance, investor liquidity andwillingness to invest, investor perception of investment managers’ drive, focus and alignment of interest, business reputation, duration of relationships, quality ofservices, pricing, fund terms including fees, and the relative attractiveness of the types of investments that have been or are to be made. We believe that competitionfor investment opportunities is based primarily on the pricing, terms and structure of a proposed investment and certainty of execution. In addition to thesetraditional competitors within the global investment management industry, we also face competition from local and regional firms, financial institutions andsovereign wealth funds, in the various countries in which we invest. In certain emerging markets, local firms may have more established relationships with thecompanies in which we are attempting to invest. These competitors often fall into one of the aforementioned categories but in some cases may represent new typesof fund investors, including high net worth individuals, family offices and state‑ sponsored entities.There are numerous funds focused on private equity, real assets, credit and hedge fund strategies that compete for investor capital. Fund managers have alsoincreasingly adopted investment strategies outside of their traditional focus. For example,24Table of Contentsfunds focused on credit and equity strategies have become active in taking control positions in companies, while private equity funds have acquired minority equityor debt positions in publicly listed companies. This convergence could heighten competition for investments. Furthermore, as institutional fund investorsincreasingly consolidate their relationships for multiple investment products with a few investment firms, competition for capital from such institutional fundinvestors may become more acute.Some of the entities that we compete with as an investment firm may have greater financial, technical, marketing and other resources and more personnel thanus and, in the case of some asset classes, longer operating histories, more established relationships or greater experience. Several of our competitors also haveraised, or may raise, significant amounts of capital and have investment objectives that are similar to the investment objectives of our funds, which may createadditional competition for investment opportunities. Some of these competitors may also have lower costs of capital and access to funding sources that are notavailable to us, which may create competitive advantages for them. For example, master limited partnerships, or MLPs, which typically invest in oil and gas assets,may have a lower cost of capital than, and may compete with our energy funds for investment opportunities. In addition, some of these competitors may have higherrisk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider range of investments and to bid more aggressivelythan us for investments. Strategic buyers may also be able to achieve synergistic cost savings or revenue enhancements with respect to a targeted portfolio company,which may provide them with a competitive advantage in bidding for such investments.We expect to compete as a capital markets business primarily with investment banks and independent broker‑dealers in the North America, Europe, Asia‑Pacific and the Middle East. We principally focus our capital markets activities on the firm, our portfolio companies and fund investors, but we also seek to serviceother third parties, principally through Merchant Capital Solutions LLC. While we generally target customers with whom we have existing relationships, thosecustomers may have similar relationships with the firm’s competitors, many of whom will have access to competing securities transactions, greater financial,technical or marketing resources or more established reputations than us. The limited operating history of our capital markets business could make it difficult for usto compete with established investment banks or broker‑dealers, participate in capital markets transactions of issuers or successfully grow the firm’s capital marketsbusiness over time.Competition is also intense for the attraction and retention of qualified employees and consultants. Our ability to continue to compete effectively in ourbusinesses will depend upon our ability to attract new employees and consultants and retain and motivate our existing employees and consultants.Employees, Consultants and AdvisorsAs of December 31, 2015 , we employed approximately 1,200 people worldwide:Investment Professionals370Other Professionals569Support Staff257Total Employees(1)1,196 (1) Does not include consolidated consultants and other consultants who provide services to us or our funds.Investment ProfessionalsOur 370 investment professionals come from diverse backgrounds in private equity, real assets, credit, hedge funds and other asset classes and includeexecutives with operations, strategic consulting, risk management, liability management and finance experience. As a group, these professionals provide us with astrong global team for identifying attractive investment opportunities, creating value, and generating superior returns.Other ProfessionalsOur 569 other professionals come from diverse backgrounds in capital markets, capital raising, client services, public affairs, finance, tax, legal, compliance,human resources, and information technology. As a group, these professionals provide us with a strong team for overseeing investments and performing capitalmarkets activities, servicing our existing fund investors and creating relationships with new fund investors globally. Additionally, a majority of these otherprofessionals are responsible for supporting the global infrastructure of KKR.25Table of ContentsKKR CapstoneWe have developed an institutionalized process for creating value in investments. As part of our effort, we utilize a team of 49 operating consultants at KKRCapstone, who are not KKR employees but work exclusively with our investment professionals and portfolio company management teams or our designees. Withprofessionals in North America, Europe and the Asia‑Pacific, KKR Capstone provides additional expertise for assessing investment opportunities and assistingmanagers of portfolio companies in defining strategic priorities and implementing operational changes. During the initial phases of an investment, KKR Capstone’swork seeks to implement our thesis for value creation. These operating consultants may assist portfolio companies in addressing top‑line growth, cost optimizationand efficient capital allocation and in developing operating and financial metrics. Over time, this work shifts to identifying challenges and taking advantage ofbusiness opportunities that arise during the life of an investment. KKR Capstone is consolidated in KKR’s financial results for GAAP purposes, but is not asubsidiary or affiliate of KKR.Senior AdvisorsTo complement the expertise of our investment professionals, we have a team of senior advisors and other advisors. While not KKR employees, they provideus with additional operational and strategic insights. The responsibilities of senior advisors include serving on the boards of our portfolio companies, helping ussource and evaluate individual investment opportunities and assisting portfolio companies with operational matters. These individuals include current and formerchief executive officers, chief financial officers and chairmen of major corporations and leading positions of public agencies worldwide.26Table of ContentsOrganizational StructureThe following simplified diagram illustrates our organizational structure as of December 31, 2015 , unless otherwise noted. Certain entities depicted below maybe held through intervening entities not shown in the diagram.(1)KKR Management LLC serves as the general partner of KKR & Co. L.P., which is governed by a Board of Directors consisting of a majority of independent directors. KKRManagement LLC does not hold any economic interests in KKR & Co. L.P. and is owned by senior KKR employees.(2)KKR Holdings is the holding vehicle through which certain of our current and former employees and other persons indirectly own their interest in KKR. KKR Group Partnership Unitsthat are held by KKR Holdings are exchangeable for our common units on a one‑for‑one basis, subject to customary conversion rate adjustments for splits, unit distributions andreclassifications and compliance with applicable vesting and transfer restrictions. As limited partner interests, these KKR Group Partnership Units are non‑voting and do not entitleKKR Holdings to participate in the management of our business and affairs. As of December 31, 2015, KKR Holdings had a 44.1% interest in our business indirectly through itslimited partner interests in the KKR Group Partnerships.(3)KKR Holdings holds special non‑economic voting units in our partnership that entitle it to cast, with respect to those limited matters that may be submitted to a vote of our unitholders,a number of votes equal to the number of KKR Group Partnership Units that it holds from time to time.(4)KKR Group Finance Co. LLC is a wholly‑owned subsidiary of KKR Management Holdings Corp. and the issuer of our $500 million aggregate principal amount of 6.375% SeniorNotes due 2020 (the “2020 Senior Notes”). The 2020 Senior Notes are guaranteed by KKR & Co. L.P. and the KKR Group Partnerships.(5)KKR Group Finance Co. II LLC is a wholly‑owned subsidiary of KKR Management Holdings Corp. and the issuer of our $500 million aggregate principal amount of 5.500% SeniorNotes due 2043 (the “2043 Senior Notes”), which were issued on February 1, 2013. The 2043 Senior Notes are guaranteed by KKR & Co. L.P. and the KKR Group Partnerships.(6)KKR Group Finance Co. III LLC is a wholly‑owned subsidiary of KKR Management Holdings Corp. and the issuer of our $1,000 million aggregate principal amount of 5.125%Senior Notes due 2044 (the “2044 Senior Notes”), which were issued on May 29, 2014 and on March 18, 2015. The 2044 Senior Notes are guaranteed by KKR & Co. L.P. and theKKR Group Partnerships.(7)Because the income of KKR Management Holdings L.P. is likely to be primarily non‑qualifying income for purposes of the qualifying income exception to the publicly tradedpartnership rules, we formed KKR Management Holdings Corp., which is subject to taxation as a corporation for U.S. federal income tax purposes, to hold our KKR Group PartnershipUnits in KKR Management Holdings L.P. Accordingly, our allocable share of the taxable income of KKR Management Holdings L.P. will be subject to taxation at a corporate rate.KKR Management Holdings L.P., which is treated as a partnership for U.S. federal income tax purposes, was formed to hold interests in our fee generating businesses and other assetsthat may not generate qualifying income for purposes of the qualifying income exception to the publicly traded partnership rules. KKR Fund Holdings L.P., which is also treated as apartnership for U.S. federal income tax purposes, was formed to hold interests in our businesses and assets that will generate qualifying income for purposes of the qualifying incomeexception to the publicly traded partnership rules. KKR International27Table of ContentsHoldings L.P. was formed generally to hold certain non‑U.S. assets that may generate non‑qualifying income under the U.S. federal income tax laws applicable to publicly tradedpartnerships. As of February 22, 2016, KKR International Holdings L.P. holds no assets.(8)KKR Management Holdings L.P. is the parent company of Kohlberg Kravis Roberts & Co. L.P., the SEC‑registered investment adviser, which in turn is generally the parent companyfor most of KKR’s other management and capital markets subsidiaries including KKR Credit Advisors (US) LLC, Prisma Capital Partners LP and KKR Capital MarketsHoldings L.P., the holding company for KKR Capital Markets LLC. KKR Fund Holdings L.P. is the parent company of KKR Credit Advisors (Ireland).(9)40% of the carried interest earned in relation to our investment funds and carry paying co‑investment vehicles is allocated to a carry pool, from which carried interest is allocable to ouremployees and selected other individuals. No carried interest has been allocated with respect to co‑investments acquired from KPE in the KPE Transaction.RegulationOur operations are subject to regulation and supervision in a number of jurisdictions. The level of regulation and supervision to which we are subject variesfrom jurisdiction to jurisdiction and is based on the type of business activity involved. We, in conjunction with our outside advisors and counsel, seek to manage ourbusiness and operations in compliance with such regulation and supervision. The regulatory and legal requirements that apply to our activities are subject to changefrom time to time and may become more restrictive, which may make compliance with applicable requirements more difficult or expensive or otherwise restrict ourability to conduct our business activities in the manner in which they are now conducted. Changes in applicable regulatory and legal requirements, includingchanges in their enforcement, could materially and adversely affect our business and our financial condition and results of operations. As a matter of public policy,the regulatory bodies that regulate our business activities are generally responsible for safeguarding the integrity of the securities and financial markets andprotecting fund investors who participate in those markets rather than protecting the interests of our unitholders.United StatesRegulation as an Investment AdviserWe conduct our advisory business through our investment adviser subsidiaries, including Kohlberg Kravis Roberts & Co. L.P. and its wholly‑ownedsubsidiaries KKR Credit Advisors (US) LLC and Prisma Capital Partners LP, each of which is registered as an investment adviser with the SEC under theInvestment Advisers Act. The investment advisers are subject to the anti‑fraud provisions of the Investment Advisers Act and to fiduciary duties derived from theseprovisions which apply to our relationships with our advisory clients globally, including funds that we manage. These provisions and duties impose restrictions andobligations on us with respect to our dealings with our fund investors and our investments, including for example restrictions on agency cross and principaltransactions. Our registered investment advisers are subject to periodic SEC examinations and other requirements under the Investment Advisers Act and relatedregulations primarily intended to benefit advisory clients. These additional requirements relate, among other things, to maintaining an effective and comprehensivecompliance program, recordkeeping and reporting requirements and disclosure requirements. The Investment Advisers Act generally grants the SEC broadadministrative powers, including the power to limit or restrict an investment adviser from conducting advisory activities in the event it fails to comply with federalsecurities laws. Additional sanctions that may be imposed for failure to comply with applicable requirements include the prohibition of individuals from associatingwith an investment adviser, the revocation of registrations and other censures and fines.KKR Credit Advisors (US) LLC is also subject to regulation under the Investment Company Act as an investment adviser to a registered investment company.The KKR Income Opportunities Fund is a closed‑end management company registered under the Investment Company Act. The closed‑end management companyand KKR Credit Advisors (US) LLC are subject to the Investment Company Act and the rules thereunder, which among other things regulate the relationshipbetween a registered investment company and its investment adviser and prohibit or restrict principal transactions and joint transactions.Regulation as a Broker‑DealerKKR Capital Markets LLC, one of our subsidiaries, is registered as a broker‑ dealer with the SEC under the Exchange Act and in all 50 U.S. States and U.S.territories and is a member of the Financial Industry Regulatory Authority, or FINRA. MCS Capital Markets LLC is registered as a broker‑ dealer with the SECunder the Exchange Act and in 35 U.S. States. As registered broker‑dealers, KKR Capital Markets LLC and MCS Capital Markets LLC are subject to periodic SECand FINRA examinations and reviews. A broker‑dealer is subject to legal requirements covering all aspects of its securities business, including sales and tradingpractices, public and private securities offerings, use and safekeeping of customers’ funds and securities, capital structure, record‑ keeping and retention and theconduct and qualifications of directors, officers, employees and other associated persons. These requirements include the SEC’s “uniform net capital rule,” whichspecifies the minimum28Table of Contentslevel of net capital that a broker‑dealer must maintain, requires a significant part of the broker‑ dealer’s assets to be kept in relatively liquid form, imposes certainrequirements that may have the effect of prohibiting a broker‑dealer from distributing or withdrawing its capital and subjects any distributions or withdrawals ofcapital by a broker‑dealer to notice requirements. These and other requirements also include rules that limit a broker‑dealer’s ratio of subordinated debt to equity inits regulatory capital composition, constrain a broker‑dealer’s ability to expand its business under certain circumstances and impose additional requirements whenthe broker‑dealer participates in securities offerings of affiliated entities. Violations of these requirements may result in censures, fines, the issuance ofcease‑and‑desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities industry of the broker‑dealer or its officers oremployees or other similar consequences by regulatory bodies.United KingdomWe have several subsidiaries which are authorized and regulated by the United Kingdom Financial Conduct Authority, or FCA, under the Financial Servicesand Markets Act 2000, or FSMA, and are authorized in the United Kingdom with permission to engage in certain specified activities. FSMA and related rulesgovern most aspects of investment business, including sales, research and trading practices, provision of investment advice, corporate finance, use and safekeepingof client funds and securities, regulatory capital, record keeping, margin practices and procedures, approval standards for individuals, anti‑money laundering,periodic reporting and settlement procedures. The FCA is responsible for administering these requirements and our compliance with the FSMA and related rules.Violations of these requirements may result in censures, fines, imposition of additional requirements, injunctions, restitution orders, revocation or modification ofpermissions or registrations, the suspension or expulsion from certain “controlled functions” within the financial services industry of officers or employeesperforming such functions or other similar consequences.KKR Capital Markets Limited has permission to engage in a number of regulated activities regulated under FSMA, including dealing as principal or agent andarranging deals in relation to certain types of specified investments and arranging the safeguarding and administration of assets. KKR Capital Markets Limited alsobenefits from a passport under the single market directives to offer services cross border into all countries in the European Economic Area and Gibraltar. KohlbergKravis Roberts & Co. Partners LLP has permission to engage in a number of regulated activities including advising on and arranging deals relating to corporatefinance business in relation to certain types of specified investments. KKR Asset Management Partners LLP has permission to engage in a number of regulatedactivities including and advising on and arranging deals in relation to certain types of specified investments. KKR Credit Advisors (UK) has permission to advise,arrange, manage and deal as agent in certain types of investments. Prisma Capital Management International LLP is authorized to carry on any investment servicesand activities on a regular basis except reception and transmission of orders in relation to one or more financial instruments or investment advice.Other JurisdictionsCertain other subsidiaries or funds that we advise are registered with, have been licensed by or have obtained authorizations to operate in their respectivejurisdictions outside of the United States. These registrations, licenses or authorizations relate to providing investment advice, broker‑dealer activities, marketing ofsecurities and other regulated activities. Failure to comply with the laws and regulations governing these subsidiaries and funds that have been registered, licensedor authorized could expose us to liability and/or damage our reputation.KKR Credit Advisors (Ireland) and KKR Alternative Investment Management are regulated by the Central Bank of Ireland. KKR Credit Advisors (Ireland) isauthorized to carry out a number of regulated activities including receiving and transmitting orders, portfolio management and providing investment advice. KKRAlternative Investment Management is an authorized EU alternative investment manager permitted to conduct portfolio management, risk management and certainadministrative activities.KKR Capital Markets LLC and MCS Capital Markets LLC, respectively, are also registered as an international dealer under the Securities Act (Ontario). Thisregistration permits us to trade in non‑Canadian equity and debt securities with certain types of investors located in Ontario, Canada.KKR Capital Markets Japan Limited, a joint stock corporation, is registered as a Type I and Type II Financial Instruments Business Operator (broker dealer)under the Financial Instruments and Exchange Act of Japan, and a money lender under the Money Lending Business Act of Japan.29Table of ContentsKKR MENA Limited, a Dubai International Financial Centre company, is licensed to arrange credit or deals in investments, advise on financial products orcredit, and manage assets, and is regulated by the Dubai Financial Services Authority.KKR Saudi Limited is licensed by the Capital Market Authority in Saudi Arabia and is authorized for the activity of arranging in the securities business.KKR Australia Pty Limited and KKR Australia Investment Management Pty Limited are Australian financial services licensed and are authorized to provideadvice on and deal in financial products for wholesale clients, and are regulated by the Australian Securities and Investments Commission.KKR Capital Markets Asia Limited is licensed by the Securities and Futures Commission in Hong Kong to carry on dealing in securities and advising onsecurities regulated activities.KKR Singapore Pte. Ltd. holds a capital markets services license to conduct fund management for accredited and/or institutional investors only, and isregulated by Monetary Authority of Singapore.KKR Holdings Mauritius, Ltd. and KKR Account Adviser (Mauritius), Ltd. are unrestricted investment advisers authorized to manage portfolios of securitiesand give advice on securities transactions, and are regulated by the Financial Services Commission, Mauritius.KKR Account Adviser (Mauritius), Ltd. is registered as a Foreign Institutional Investor, or FII, with the Securities and Exchange Board of India ("SEBI"),under the SEBI (Foreign Institutional Investors) Regulations, 1995 pursuant to which it can make investments in listed and unlisted securities of Indian issuers.KKR Mauritius Direct Investments I, Ltd. is registered as a Foreign Portfolio Investor, or FPI, with SEBI under the SEBI (Foreign Portfolio Investor)Regulations, 2014 pursuant to which it can make investments in listed and unlisted securities of Indian issuers, and is incorporated as an investment holdingcompany in Mauritius regulated by the Financial Services Commission, Mauritius.KKR India Financial Services Private Limited is registered with the Reserve Bank of India as a non‑deposit taking non‑banking financial company and isauthorized to undertake lending and financing activities.KKR Capital Markets India Private Limited is licensed by the SEBI as a merchant bank that is authorized to execute capital market mandates, underwriteissues, offer investment advisory and other consultancy/advisory services.Silverview Investments Pte. Ltd., Silverview Portfolio Investments Pte. Ltd. (earlier known as KKR Asia II Portfolio Investors Pte. Ltd.), Moneyline PortfolioInvestments Limited are registered with SEBI either as an FII sub‑account or an FPI pursuant to which they can make investments in listed and unlisted securities ofIndian issuers.KKR India Asset Finance Private Limited (formerly known as Motichand Finance Private Limited) is registered with the Reserve Bank of India as a non‑deposit taking non‑banking financial company and is authorized to undertake lending and financing activities.Daena Venture Capital Investments, Ltd. is incorporated as an investment holding company in Mauritius regulated by the Financial Services Commission,Mauritius and was registered with SEBI as a foreign venture capital investor, or FVCI; however the FVCI certificated of registration has been surrendered witheffect from December 18, 2015.KKR Asia II Venture Investments Pte Ltd. is registered with SEBI as a foreign venture capital investor, or FVCI, under the SEBI (Foreign Venture CapitalInvestors) Regulations, 2000 pursuant to which it can make certain investments in securities of Indian issuers and is incorporated as an investment holding companyin Singapore.From time to time, one or more of our investment funds or their related investment vehicles may be regulated as a mutual fund by the Cayman IslandsMonetary Authority, regulated as an investment limited partnership by the Central Bank of Ireland, listed on the Irish Stock Exchange, notified with the FinancialServices Agency of Japan for sale pursuant to certain private placement exemptions and/or for investment pursuant to certain exemption, registered with theFinancial Supervisory Service of the Republic of Korea, licensed by or granted in principal approval from SEBI, subject to the regulatory supervision of theCommission de Surveillance du Secteur Financier of Luxembourg, notified with the Netherlands Authority for Financial Markets for sale pursuant to certain privateplacement exemptions, or registered under the Investment Company Act.30Table of ContentsThere are a number of legislative and regulatory initiatives in the United States and in Europe that could significantly affect our business. Please see “RiskFactors-Risks Related to Our Business-Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties.The possibility of increased regulatory focus or legislative or regulatory changes could result in additional burdens on our business.”Website and Availability of SEC FilingsOur website address is www.kkr.com . Information on our website is not incorporated by reference herein and is not a part of this Form 10‑K. We makeavailable free of charge on our website or provide a link on our website to our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q and Current Reportson Form 8‑K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicableafter those reports are electronically filed with, or furnished to, the SEC. To access these filings, go to the “KKR & Co. L.P.” portion of our “Investor Center” pageon our website, then click on “SEC Filings”. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E.,Washington, DC 20549. Please call the SEC at 1‑800‑SEC‑0330 for further information on the public reference room. In addition these reports and the otherdocuments we file with the SEC are available at a website maintained by the SEC 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 ourcompany is routinely posted on and accessible at www.kkr.com . In addition, you may automatically receive e‑mail alerts and other information about our companyby enrolling your e‑mail address by visiting the “E‑ mail Alerts” section at under the “KKR & Co. L.P.” section of the “Investor Center” heading at www.kkr.com .31Table of ContentsITEM 1A. RISK FACTORS Investing in our securities involves risk. Persons investing in our securities should carefully consider the risks described below and the other informationcontained in this report and other filings that we make from time to time with the SEC, including our consolidated and combined financial statements andaccompanying notes. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. Our business,financial condition or results of operations could also be adversely affected by additional factors that apply to all companies generally, as well as other risks that arenot currently known to us or that we currently view to be immaterial. In any such case, the trading price of our securities could decline and you may lose all or partof your original investment. While we attempt to mitigate known risks to the extent we believe to be practicable and reasonable, we can provide no assurance, andwe make no representation, that our mitigation efforts will be successful.Risks Related to Our BusinessDifficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manageor by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect ourfinancial prospects and condition.Our business and the businesses of the companies in which we invest are materially affected by conditions in the financial markets and economic conditions orevents throughout the world, such as interest rates, availability of credit, inflation 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 orsecurity operations). For example, the unprecedented turmoil in the global financial markets during 2008 and 2009 provoked significant volatility of securitiesprices, contraction in the availability of credit and the failure of a number of companies, including leading financing institutions, and had a material adverse effecton our businesses and the businesses of the companies in which we invest. A more recent example of volatility has occurred beginning in the late summer of 2015and is continuing.Low levels of growth and high levels of government debt in major markets including the United States and Europe persists, and Europe continues to experiencehigh unemployment and ongoing austerity. Concerns regarding sovereign defaults and the possibility that one or more countries might leave the European Unionhave resurfaced. The pace of China’s fixed asset investment growth has been slowing, which may pose a risk to the economic stability of China and its majortrading partners. China’s slowing also has the potential to hinder the demand for and prices of many important global commodities and consequently reduce capitalspending in industries dependent on commodity prices. Although lower commodity prices, including the falling price of oil, are expected to benefit the economiesof commodity importing countries, certain of our investments focused on the development, exploration and production of oil and natural gas properties, as well asthe sale of products or services used in the natural resources sector, have and will continue to suffer from such a decline. In addition, the Federal Reserve maycontinue to raise interest rates in 2016, thus raising the cost of financing and possibly slowing economic growth in the United States. Furthermore, higher interestrates in the United States could also reduce the relative attractiveness of other global markets, thereby applying pressure to foreign asset values and currencies.Such market and economic conditions and events are outside our control and may affect the level and volatility of securities prices and the liquidity and thevalue of our investments. In addition, we may not be able to or may choose not to manage our exposure to these conditions and/or events. For example, as ofMarch 31, 2009, the date of the lowest aggregate valuation of our private equity funds during the 2008 and 2009 financial market turmoil, the investments in theprivate equity funds contributed to us in the KPE Transaction were marked down to 67% of original cost, and values across all geographies declined. For example,as of March 31, 2009, the European Fund II, European Fund III, 2006 Fund and Asian Fund had multiples of invested capital of 0.5x, 0.6x, 0.7x and 0.8x,respectively. If not reversed, recent declines in the equity, commodity and debt in the markets are also expected to cause write down in our investments and theinvestments of our funds. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costswithin a time frame sufficient to match any decreases in net income relating to changes in market and economic conditions.Unfavorable market conditions may reduce opportunities for our funds to make, exit and realize value from their investments. For example, when financing isnot available, it is difficult for potential buyers to raise sufficient capital to purchase assets in our funds’ portfolios. Consequently, we may earn lower than expectedreturns on investments, which could cause us to realize diminished or no carried interest. In addition, we may not be able to find suitable investments for the fundsto effectively deploy capital, which could adversely affect our ability to raise new funds because we can generally only raise capital for a successor fund followingthe substantial and successful deployment of capital from the existing fund. In the event of poor performance by existing funds or during periods of unfavorablefundraising conditions, pressures by fund investors for32Table of Contentslower fees, different fee sharing arrangements for transaction or other fees, and other concessions (for example, the inclusion of performance hurdles that require usin our newer funds, including all our newer private equity funds such as North America Fund XI, Asian Fund II and European Fund IV, to generate a specifiedreturn on investment prior to our right to receive carried interest) will likely continue and could increase. The outcome of such negotiations could result in ouragreement to terms that are materially less favorable to us than for prior funds we have managed. In addition, successor funds raised by us when such unfavorablecircumstances described above exist would also likely result in smaller funds than our comparable predecessor funds. Fund investors may also seek to redeploycapital away from certain of our credit or other non‑private equity investment vehicles, which permit redemptions on relatively short notice, in order to meetliquidity needs or invest in other asset classes or with other managers. Any of these developments could adversely affect our future revenues, net income, cash flow,financial condition or ability to retain our employees. See “-Our inability to raise additional or successor funds could have a material adverse impact on ourbusiness” and “-Our investors in future funds may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable tous than those of our existing funds, which could adversely affect our revenues.”During periods of difficult market or economic conditions or slowdowns (which may occur across one or more industries, sectors or geographies), companiesin which we have invested may experience decreased revenues, financial losses, credit rating downgrades, difficulty in obtaining access to financing and increasedfunding costs. These companies may also have difficulty in expanding their businesses and operations or be unable to meet their debt service obligations or otherexpenses as they become due, including amounts payable to us. Negative financial results in our funds’ portfolio companies may result in lower investment returnsfor our investment funds, which could materially and adversely affect our operating results and cash flow. To the extent the operating performance of such portfoliocompanies (as well as valuation multiples) deteriorate or do not improve, our funds may sell those assets at values that are less than we projected or even at a loss,thereby significantly affecting those funds’ performance and consequently our operating results and cash flow and resulting in lower or no carried interest beingpaid to us. Adverse conditions may also increase the risk of default with respect to private equity, credit and other investments that we manage or the abandonmentor foreclosure of our real asset investments. Even if economic and market conditions do improve broadly, adverse conditions in particular sectors may also causeour performance to suffer. Finally, low interest rates related to monetary stimulus, economic stagnation or deflation may negatively impact expected returns on alltypes of investments as the demand for relatively higher return assets increases and the supply decreases. In addition, our Capital Markets segment generates feesthrough a variety of activities in connection with the issuance and placement of equity and debt securities and credit facilities, with the size of fees generallycorrelated to overall transaction sizes. As a result, the conditions in financial markets as described above, as well as transaction activity in our Private Marketssegment and to a lesser extent, Public Markets segment, impact both the frequency and size of fees generated by this segment.Changes in the debt financing markets may negatively impact the ability of our investment funds, their portfolio companies and strategies pursued with ourbalance sheet assets to obtain attractive financing for their investments or refinance existing debt 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 onunfavorable terms, our funds may have difficulty completing otherwise profitable acquisitions or may generate profits that are lower than would otherwise be thecase, 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 alsoexpose us to potential claims by sellers of businesses which we may have contracted to purchase. Similarly, certain of the strategies pursued using our balance sheetassets rely on the use of leverage, including the issuance of CLOs, and other secured and unsecured borrowings. Additionally, credit spreads in the lowest rated highyield bonds have increased from cyclical lows in 2014, and financing sources particularly in the U.S., are exercising caution in providing new credits. Thistightening in debt financing could impact our ability to finance transactions. Our ability to generate returns on these assets and make cash available for distributionto our unitholders would be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that can bederived from the assets acquired and financed. Similarly, our portfolio companies regularly utilize the corporate debt markets in order to obtain financing for theiroperations. To the extent that credit markets render such financing difficult to obtain or more expensive, this may negatively impact the operating performance ofthose portfolio companies and, therefore, the investment returns on our funds. In addition, to the extent that conditions in the credit markets impair the ability of ourportfolio companies to refinance or extend maturities on their outstanding debt, either on favorable terms or at all, the operating performance of those portfoliocompanies may be negatively impacted, which could impair the value of our investment in those portfolio companies and lead to a decrease in the investmentincome earned by us. In some cases, the inability of our portfolio companies to refinance or extend maturities may result in the inability of those companies to repaydebt at maturity and may cause the companies to sell assets, undergo a recapitalization or seek bankruptcy protection, which would also likely impair the value ofour investment and lead to a decrease in investment income earned by us.33Table of ContentsWe have significant liquidity requirements, and adverse economic and market conditions may adversely affect our sources of liquidity, which could adverselyaffect our business operations in the future.We expect that our primary liquidity needs will consist of cash required to:•continue to grow our business, including seeding new strategies and funding our capital commitments made to existing and future funds, co‑ investmentsand any net capital requirements of our capital markets companies;•warehouse investments in portfolio companies or other investments for the benefit of one or more of our funds, accounts or CLOs pending the contributionof committed capital by the investors in such vehicles;•service debt obligations including the payment of obligations upon maturity or redemption, as well as any contingent liabilities that may give rise to futurecash payments;•fund cash operating expenses and amounts recorded for litigation matters;•pay amounts that may become due under our tax receivable agreement with KKR Holdings;•make cash distributions in accordance with our distribution policy;•underwrite commitments within our capital markets business;•fund our equity commitment to joint ventures such as Merchant Capital Solutions LLC;•make future purchase price payments in connection with our proprietary acquisitions, such as our acquisition of Prisma and strategic partnerships withother fund managers;•acquire additional principal assets, including other businesses and office space; and•repurchase KKR & Co. L.P. common units, including pursuant to the unit repurchase program announced on October 27, 2015.These liquidity requirements are significant and, in some cases, involve capital that will remain invested for extended periods of time. As of December 31,2015, we have approximately $1.4 billion of remaining unfunded capital commitments to our investment funds. Our commitments to our funds will requiresignificant cash outlays over time, and there can be no assurance that we will be able to generate sufficient cash flows from realizations of investments to fund them.In addition, as of December 31, 2015, we had $2.0 billion of borrowings outstanding under our credit facilities and debt securities and $1.3 billion of cash andshort‑term investments. This includes KFN’s debt obligations of $657.3 million and KFN’s 7.375% Series A LLC preferred shares of $373.8 million, which do notprovide for recourse to KKR beyond the assets of KFN. While we have long‑term committed financings with substantial facility limits, the terms of those facilitieswill expire in 2017 and 2019, and our senior notes become due in 2020, 2043 and 2044, and any borrowings thereunder will require refinancing or renewal, whichcould result in higher borrowing costs, or issuing equity. Depending on credit or other market conditions, we may not be able to renew all or part of theseborrowings or find alternate sources of financing on commercially reasonable terms and we may not be able to raise equity. In addition, the incurrence of additionaldebt by us or our subsidiaries in the future could result in downgrades of our existing corporate credit ratings, which could limit the availability of future financingand increase our costs of borrowing.In addition, the underwriting commitments for our capital markets business may require significant cash obligations, and these commitments may also putpressure on our liquidity. The holding company for our capital markets business has entered into a credit agreement that provides for revolving borrowings of up to$500 million, which can only be used in connection with our capital markets business, including placing and underwriting securities offerings. To the extent wecommit to buy and sell an issue of securities in firm commitment underwritings or otherwise, we may be required to borrow under our credit agreement for ourcapital markets business to fund such obligations, which, depending on the size and timing of the obligations, may limit our ability to enter into other underwritingarrangements or similar activities, service existing debt obligations or otherwise grow our business. Regulatory capital requirements may also limit the ability of ourbroker‑dealer subsidiaries to participate in underwriting or other transactions or to allocate our capital more efficiently across our businesses.34Table of ContentsIn connection with our acquisition of Prisma and strategic partnerships with Nephila and Marshall Wace, we may be obligated to make future purchase pricepayments based on the respective performance of these businesses or the exercise of certain options. In addition in connection with the development of a new KKRoffice in New York City, we will be required to pay for the construction and completion of the office.In the event that our liquidity requirements were to exceed available liquid assets for the reasons specified above or for any other reason, we could be forced tosell assets or seek to raise debt or equity capital on unfavorable terms. For further discussion of our liquidity needs see “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations-Liquidity.”The “clawback” or “net loss sharing” provisions in our governing agreements may give rise to a contingent obligation that may require us to return orcontribute amounts to our funds and fund investors.The partnership documents governing our carry‑paying funds, including funds relating to private equity, infrastructure, energy, real estate, mezzanine, directlending and special situations investments, generally include a “clawback” provision that, if triggered, may give rise to a contingent obligation requiring the generalpartner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of afund, the general partner is required to return, typically on an after‑tax basis, previously distributed carry to the extent that, due to the diminished performance oflater investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the generalpartner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners of funds that werenot contributed to us in the KPE Transaction, as of December 31, 2015, no carried interest was subject to this clawback obligation, assuming that all applicablecarry paying funds were liquidated at their December 31, 2015 fair values. Had the investments in such funds been liquidated at zero value, the clawback obligationwould have been $2,423.4 million .Certain private equity funds that were contributed to us in the KPE Transaction in 2009 also include a “net loss sharing provision.” Upon the liquidation of aninvestment vehicle to which a net loss sharing obligation applies, the general partner is required to contribute capital to the vehicle, to fund 20% of the net losses oninvestments. In these vehicles, such losses would be required to be paid by us to the fund investors in those vehicles in the event of a liquidation of the fundregardless of whether any carried interest had previously been distributed, and a greater share of investment losses would be allocable to us relative to the capitalthat we contributed to it as general partner. Based on the fair market values as of December 31, 2015, there would have been no net loss sharing obligation. If thevehicles were liquidated at zero value, the net loss sharing obligation would have been zero as of December 31, 2015.Prior to the KPE Transaction in 2009, certain of our principals who received carried interest distributions with respect to certain private equity fundscontributed to us had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds torepay amounts to fund investors pursuant to the general partners’ clawback obligations. The terms of the KPE Transaction require that our principals remainresponsible for any clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million . Throughinvestment realizations, this amount has been reduced to $159.7 million as of December 31, 2015. Using valuations as of December 31, 2015, no amounts are duewith respect to the clawback obligation required to be funded by our principals. Carry distributions arising subsequent to the KPE Transaction may give rise toclawback obligations that may be allocated generally to us and our principals who participate in the carry pool. Unlike the clawback obligation, we will beresponsible for amounts due under a net loss sharing obligation and will indemnify our principals for any personal guarantees that they have provided with respectto such amounts. In addition, guarantees of or similar arrangements relating to clawback or net loss sharing obligations in favor of third party investors in anindividual investment partnership by entities we own may limit distributions of carried interest more generally.Our earnings and cash flow are highly variable due to the nature of our business and we do not intend to provide earnings guidance, each of which may causethe value of interests in our business to be volatile.Our earnings are highly variable from quarter to quarter due to the volatility of investment returns of most of our funds, other investment vehicles and ourprincipal assets and the fees earned from our businesses. We recognize earnings on investments in our funds based on our allocable share of realized and unrealizedgains (or losses) reported by such funds and for certain of our recent funds, when a performance hurdle is achieved. During times of market volatility, as we arepresently experiencing, the fair value of our funds and our principal assets are more variable, and as publicly traded equity securities currently represent a higherproportion of the assets of many of our funds and principal assets than in the prior year, volatility in the equity markets may have a greater impact on our reportedresults than in the past. See also "Management's Discussion and Analysis of Financial Condition & Results of Operations--Critical Accounting Policies -- FairValue Measurements" for a35Table of Contentsdiscussion of the impact of equity markets on the value of private equity investments. A decline in realized or unrealized gains, a failure to achieve a performancehurdle or an increase in realized or unrealized losses, would adversely affect our net income.Fee income, which we recognize when contractually earned, can vary due to fluctuations in AUM, the number of investment transactions made by our funds,the number of portfolio companies we manage, the fee provisions contained in our funds and other investment products and transactions by our capital marketsbusiness. In any particular quarter, fee income may vary significantly due to the receipt of termination fees or fees received by our Capital Markets business fromsyndications, in particular large equity syndications. While these events occur periodically, they generally do not occur every quarter and their size and frequencyare variable. Fees and Other for the years ended December 31, 2013, 2014 and 2015 were $762.5 million and $1,110.0 million and $1,043.8 million , respectively.We may create new funds or investment products or vary the terms of our funds or investment products (for example our newer funds include performance hurdles),which may alter the composition or mix of our income from time to time. We may also experience fluctuations in our results from quarter to quarter, including ourrevenue and net income, due to a number of other factors, including changes in the values of our funds’ investments, changes in the amount of distributions orinterest earned in respect of investments, changes in our operating expenses, the degree to which we encounter competition and general economic and marketconditions. In addition, our earnings and cash flows are dependent in part on the performance of KFN, a specialty finance company that we acquired in 2014, and issubject to the risks to KFN’s businesses as described elsewhere in the report. Although KFN is a subsidiary of KKR, KFN has its own indebtedness and preferredshares outstanding. The terms of its indebtedness and preferred shares impose limitations on KFN’s current and future operations and may restrict its ability to makedistributions to KKR. Net income (loss) attributable to KKR & Co. L.P. for the years ended December 31, 2013, 2014 and 2015 was $691.2 million , $477.6 millionand $488.5 million , respectively. Such fluctuations may lead to variability in the value of interests in our business and cause our results for a particular period not tobe indicative of our performance in future periods. It may be difficult for us to achieve steady growth in net income and cash flow on a quarterly basis, which couldin turn lead to large adverse movements in the value of interests in our business.The timing and receipt of carried interest from our investment funds are unpredictable and will contribute to the volatility of our cash flows. For example, withrespect to our private equity funds, carried interest is distributed to the general partner of a private equity fund with a clawback or net loss sharing provision onlyafter all of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achieved positive overallinvestment returns since its inception, in excess of performance hurdles where applicable; and (iii) with respect to investments with a fair value below cost, cost hasbeen returned to fund investors in an amount sufficient to reduce remaining cost to the investments’ fair value. Carried interest payments from investments dependon our funds’ performance and opportunities for realizing gains, which may be limited. It takes a substantial period of time to identify attractive investmentopportunities, 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, publicoffering or other exit. To the extent an investment is not profitable, no carried interest will be received from our funds with respect to that investment and, to theextent such investment remains unprofitable, we will only be entitled to a management fee on that investment. Furthermore, certain vehicles and separatelymanaged accounts may not provide for the payment of any carried interest at all. Even if an investment proves to be profitable, it may be several years before anyprofits can be realized in cash. We cannot predict when, or if, any realization of investments will occur. In addition, if finance providers, such as commercial andinvestment banks, make it difficult for potential purchasers to secure financing to purchase companies in our investment funds’ portfolio, it may decrease potentialrealization events and the potential to earn carried interest. A downturn in the equity markets would also make it more difficult to exit investments by selling equitysecurities. If we were to have a realization event in a particular quarter, the event may have a significant impact on our cash flows during the quarter that may not bereplicated in subsequent quarters. A decline in realized or unrealized gains, or an increase in realized or unrealized losses, would adversely affect our investmentincome, which could further increase the volatility of our quarterly results.The timing and receipt of carried interest also varies with the life cycle of certain of our funds. Our carry paying funds that have completed their investmentperiods and are able to realize mature investments, sometimes referred to as being in a harvesting period, are more likely to make larger distributions than our carrypaying funds that are in their fund raising or investment periods that precede the harvesting period. During times when a significant portion of our assets undermanagement is attributable to carry paying funds that are not in their harvesting periods, we may receive substantially lower carried interest distributions.In addition, with respect to certain of the funds that we advise, such as hedge funds and fund of funds, we are entitled to incentive fees that are generally paidannually in June and December if the net asset value of a fund has increased over a certain pre‑determined hurdle rate or a specified high‑water mark. These fundsgenerally also have “high‑water mark” provisions whereby if the funds have experienced losses in prior periods, we will not be able to earn incentive fees withrespect to a fund investor’s account until the net asset value of the fund investor’s account exceeds the highest period end value on which incentive fees werepreviously paid. The incentive fees we earn are therefore dependent on the net asset value of these funds or36Table of Contentsvehicles, which could lead to volatility in our quarterly results and cash flow. Fees, including incentive fees, from KFN have been eliminated upon the completionof the KFN merger on a segment basis.A decline in the pace or size of investment by our funds, or a change in the terms governing transaction fees, management fees or monitoring fees would resultin our receiving less revenue from fees.The transaction and management or monitoring fees that we earn are driven in part by the pace at which our funds make investments and the size of thoseinvestments. Any decline in that pace or the size of investments would reduce our revenue from transaction and management or monitoring fees. Likewise, duringan attractive selling environment, our funds may capitalize on increased opportunities to exit investments. Any increase in the pace at which our funds exitinvestments, if not offset by new commitments and investments, would reduce future management fees. Many factors could cause such a decline in the pace ofinvestment or the transaction and management or monitoring fees we receive, including:•the inability of our investment professionals to identify attractive investment opportunities;•competition for such opportunities among other potential acquirers;•decreased availability of capital or financing on attractive terms;•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;•terms we may agree with or provide to our fund investors or investors in separately managed accounts with respect to fees such as increasing thepercentage of transaction or other fees we may share with our fund investors; and•new regulations, guidance or other actions provided or taken by regulatory authorities.Our inability to raise additional or successor funds (or raise successor funds of a comparable size as our predecessor funds) could have a material adverseimpact on our business.Our current private equity funds and certain other funds and investment vehicles have a finite life and a finite amount of commitments from fund investors.Once a fund nears the end of its investment period, our success depends on our ability to raise additional or successor funds in order to keep making investmentsand, over the long term, earning management fees (although our funds and investment vehicles generally continue to earn management fees at a reduced fee rateafter the expiration of their investment periods). Even if we are successful in raising successor funds, to the extent we are unable to raise successor funds of acomparable size to our predecessor funds or the extent that we are delayed in raising such a successor fund, our revenues may decrease as the investment period ofour predecessor funds expire and associated fees decrease. For example, KKR North America Fund XI and European IV are smaller than their respectivepredecessor funds . The performance of our funds also impacts our ability to raise capital, and deterioration in the performance of our funds would result inchallenges to future fundraising. The evolving preferences of our fund investors may necessitate that alternatives to the traditional investment fund structure, such asmanaged accounts, smaller funds and co‑investment vehicles, become a larger part of our business going forward. This could increase our cost of raising capital atthe scale we have historically achieved. Furthermore, in order to raise capital for new strategies and products without drawing capital away from our existingproducts, we will need to seek new sources of capital such as individual investors.To raise new funds and pursue new strategies, we have and expect to continue to use the capital from our balance sheet, which may decrease the liquidityavailable for other parts of our business. In addition if a new strategy or fund does not develop as anticipated and such assets are not ultimately transferred to a fund,we may be forced to realize losses on these retained assets. Institutional investors in funds that have suffered from decreasing returns, liquidity pressure, increasedvolatility or difficulty maintaining targeted asset allocations, may materially decrease or temporarily suspend making new fund investments. Such investors mayelect to reduce their overall portfolio allocations to alternative investments such as private equity funds, resulting in a smaller overall pool of available capital in ourindustry. In addition, the asset allocation rules or regulations or investment policies to which such third‑party investors are subject, could inhibit or restrict theability of third‑party investors to make investments in our investment funds. Coupled with a lack of distributions from their existing investment portfolios, many ofthese investors may have been left with disproportionately outsized remaining commitments to, and invested capital in, a number of investment funds, which maysignificantly limit their ability to make new commitments to third‑party managed investment funds such as those advised by us.37Table of ContentsFund investors may also seek to redeploy capital away from certain of our credit vehicles, hedge fund, fund of funds, registered investment products or otherinvestment vehicles, which permit redemptions on relatively short notice in order to meet liquidity needs or invest in other asset classes. We believe that our abilityto avoid excessive redemption levels primarily depends on our funds’ continued satisfactory performance, although redemptions may also be driven by other factorsimportant to our fund investors, including their need for liquidity and compliance with investment mandates, even if our performance is superior. Investors' liquidityneeds tend to be more pronounced during periods of market volatility, as at present. Any such redemptions would decrease our AUM and revenues. Investors mayalso deploy capital away from funds of funds if they deem this asset class’s fee structure unattractive relative to the fees of other alternative products.In addition, the Dodd Frank Wall Street Reform and Consumer Protection Act, or Dodd Frank Act, under what has become known as the “Volcker Rule,”broadly prohibits depository institution holding companies (including foreign banks with U.S. branches, agencies or commercial lending companies and certaininsurance companies), insured depository institutions and their subsidiaries and controlled affiliates, or "banking entities," from investing in “covered funds,”including third party private equity funds like ours. Final regulations implementing the Volcker Rule were approved by the federal banking agencies, the SEC andthe CFTC on December 10, 2013, although there is still some uncertainty regarding the implementation of the Volcker Rule and the final regulations and theirpractical implications. Although banking entities are expected to have until July 21, 2017 to conform their covered fund investments and relationships that were inplace prior to December 31, 2013 to the requirements of the final regulations ( and may have until July 21, 2022 to conform investments in a private equity fund thatqualifies as an "illiquid fund"), U.S. banking entities will be limited in their ability to undertake new contractual commitments to private equity funds like ours.Foreign banking entities may be able to continue to invest in private equity funds like ours under a Volcker Rule exemption for covered fund activities andinvestment that occur solely outside of the United States.Banking entities have historically represented an important class of investors for our funds, with financial institutions constituting approximately 16% of ourAUM as of December 31, 2015, and it is possible that other institutions will not be available to replace this traditional source of capital for our private equity funds.Furthermore, divestitures by banking entities of interests in private equity funds and hedge funds over the next several years to comply with the Volcker Rule maylead to lower prices in the secondary market for our fund interests, which could have adverse implications for our ability to raise funds from investors who mayhave considered the availability of secondary market liquidity as a factor in determining whether to invest. In addition to federal law, changes in state and local lawmay limit investment activities of state pension plans and insurance companies.The number of funds raising capital varies from year to year, and in years where relatively few funds are raising capital, the growth of our AUM, FPAUM andassociated fees may be significantly lower. For example, for the year ended December 31, 2015, our AUM increased to $119.5 billion of which $19.9 billion wasattributable to new capital raised, while AUM as of December 31, 2014 on an adjusted basis was $107.1 billion of which $13.3 billion was attributable to newcapital raised. We had several successful fundraises in 2015 for newer strategies such as European real estate, infrastructure, direct lending, mezzanine and specialsituations, there is no assurance that fundraises for other new strategies or successor funds will experience similar success in the future.Our investors in future funds, including separately managed accounts, may negotiate to pay us lower management fees or reimburse us for fewer expenses andthe economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues or profitability.In connection with raising new funds or securing additional investments in existing funds, we negotiate terms for such funds and investments with investors.The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than the terms of prior funds we have advised orfunds advised by our competitors. For example, such terms could restrict our ability to raise investment funds with investment objectives or strategies that competewith existing funds, reduce fee revenues we earn, reduce the percentage of profits on third‑party capital in which we share, include a performance hurdle thatrequires us to generate a specified return on investment prior to our right to receive carried interest or add expenses and obligations for us in managing the fund orincrease our potential liabilities. For example our newer private equity funds, including North America Fund XI, Asian Fund II and European Fund IV, include aperformance hurdle that requires us to generate a 7% return on investment prior to receiving our share of fund gains. Furthermore, as institutional investorsincreasingly consolidate their relationships with investment firms and competition becomes more acute, we may receive more of these requests to modify the termsin our new funds. Certain of our newer funds also include more favorable terms for fund investors that commit to early closes for our funds. Additionally, in certainfunds, we have agreed to charge management fees based on invested capital or net asset value as opposed to charging management fees based on committed capital.In certain cases, we have provided “fee holidays” to certain investors in which we do not charge management fees for a fixed period of time (such as the first sixmonths). Agreement to terms that are materially less favorable to us could result in a decrease in our profitability.38Table of ContentsCertain institutional investors have also publicly criticized certain fund fee and expense structures, including monitoring fees and transaction and advisory fees.We have received and expect to continue to receive requests from a variety of fund investors and groups representing such investors to decrease fees and to modifyour carried interest and incentive fee structures, which could result in a reduction or delay in the timing of receipt of the fees and carried interest and incentive feeswe earn. The SEC has also recently focused on certain fund fees and expenses, including whether such fees and expenses were appropriately disclosed to limitedpartners, which may cause fund investor resistance to our receipt of fees and /expenses be reimbursed to us. In our newer flagship private equity funds, we haveincreased the percentage of transaction and monitoring fees that are credited against fund management fees to as much as 100% of the amount of the transaction andmonitoring fee attributable to that fund. In September of 2009, the Institutional Limited Partners Association, or “ILPA,” published a set of Private EquityPrinciples, or the “Principles,” which were revised in January 2011. The Principles were developed in order to encourage discussion between limited partners andgeneral partners regarding private equity fund partnership terms. Certain of the Principles call for enhanced alignment of interests between general partners andlimited partners through modifications of some of the terms of fund arrangements, including proposed guidelines for fees and carried interest structures. Weprovided ILPA our endorsement of the Principles, representing an indication of our general support for the efforts of ILPA.In addition, certain institutional investors, including sovereign wealth funds and public pension funds, have demonstrated an increased preference foralternatives to the traditional investment fund structure, such as managed accounts, specialized funds and co‑investment vehicles. We also have entered intostrategic partnerships with individual investors whereby we manage that investor’s capital across a variety of our products on separately negotiated terms. There canbe no assurance that such alternatives will be as profitable to us as the traditional investment fund structure, and the impact such a trend could have on our results ofoperations, if widely implemented, is unclear. Moreover, certain institutional investors are demonstrating a preference to in‑source their own investmentprofessionals and to make direct investments in alternative assets without the assistance of investment advisers like us. Such institutional investors may become ourcompetitors and could cease to be our clients.Any agreement to or changes in terms less favorable to us could adversely affect our revenues and profitability.The investment management business is intensely competitive, which could have a material adverse impact on our business.We compete as an investment manager for both fund investors and investment opportunities. The investment management business is highly fragmented, withour competitors consisting primarily of sponsors of public and private investment funds, real estate development companies, business development companies,investment banks, commercial finance companies and operating companies acting as strategic buyers of businesses. We believe that competition for fund investorsis based primarily on:•investment performance;•investor liquidity and willingness to invest;•investor perception of investment managers’ drive, focus and alignment of interest;•business reputation;•the duration of relationships with fund investors;•the quality of services provided to fund investors;•pricing;•fund terms (including fees); and•the relative attractiveness of the types of investments that have been or will be made.We believe that competition for investment opportunities is based primarily on the pricing, terms and structure of a proposed investment and certainty ofexecution. 39Table of ContentsA number of factors serve to increase our competitive risks:•a number of our competitors in some of our businesses may have greater financial, technical, marketing and other resources and more personnel than wedo, and, in the case of some asset classes, longer operating histories, more established relationships or greater experience;•fund investors may materially decrease their allocations in new funds due to their experiences following an economic downturn, the limited availability ofcapital, regulatory requirements or a desire to consolidate their relationships with investment firms;•some of our competitors may have better expertise or be regarded by fund investors as having better expertise in a specific asset class or geographic regionthan we do;•some of our competitors have agreed to terms on their investment funds or products that may be more favorable to fund investors than our funds orproducts, such as lower management fees, greater fee sharing, or performance hurdles for carried interest, and therefore we may be forced to match orotherwise revise our terms to be less favorable to us than they have been in the past;•some of our funds may not perform as well as competitors’ funds or other available investment products;•our competitors have raised or may raise significant amounts of capital, and many of them have similar investment objectives and strategies to our funds,which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that many alternativeinvestment strategies seek to exploit;•some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitivedisadvantages for us with respect to investment opportunities;•some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a widervariety of investments and to bid more aggressively than us for investments;•some of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly may have more flexibility to undertake and executecertain businesses or investments than we do and/or bear less expense to comply with such regulations than we do;•there are relatively few barriers to entry impeding the formation of new funds, including a relatively low cost of entering these businesses, and thesuccessful efforts of new entrants into our various lines of business, including major commercial and investment banks and other financial institutions,have resulted in increased competition;•some fund investors may prefer to invest with an investment manager that is not publicly traded, is smaller, or manages fewer investment products; and•other industry participants will from time to time seek to recruit our investment professionals and other employees away from us.We may lose investment opportunities in the future if we do not match investment prices, structures and terms offered by competitors. Our competitors that arecorporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding foran investment. Alternatively, we may experience decreased investment returns and increased risks of loss if we match investment prices, structures and termsoffered by competitors. Moreover, as a result, if we are forced to compete with other investment firms on the basis of price, we may not be able to maintain ourcurrent fund fee, carried interest or other terms. There is a risk that fees and carried interest in the alternative investment management industry will decline, withoutregard to the historical performance of a manager. Fee or carried interest income reductions on existing or future funds, without corresponding decreases in our coststructure, would adversely affect our revenues and profitability.In addition, if interest rates were to rise or if market conditions for competing investment products become or are favorable and such products begin to offerrates of return superior to those achieved by our funds, the attractiveness of our funds relative to investments in other investment products could decrease. Thiscompetitive pressure could adversely affect our ability to make successful investments and limit our ability to raise future funds, either of which would adverselyimpact our business, results of operations and cash flow.40Table of ContentsOur structure involves complex provisions of U.S. federal income tax laws for which no clear precedent or authority may be available. These structures also aresubject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.The U.S. federal income tax treatment of our unitholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S.federal income tax laws for which no clear precedent or authority may be available. The U.S. federal income tax rules are constantly under review by personsinvolved in the legislative process, the Internal Revenue Service, or IRS, and the U.S. Department of the Treasury, frequently resulting in revised interpretations ofestablished concepts, statutory changes, revisions to regulations and other modifications and interpretations. The present U.S. federal income tax treatment ofowning our common units may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments andcommitments previously made. The maintenance of the structure and tax attributes of the KKR Group Partnerships, which comprise our businesses, requiressignificant monitoring and resources. Failure to maintain this structure could result in material adverse tax consequences. Our organizational documents andagreements give the Managing Partner broad authority to modify the amended and restated partnership agreement from time to time as the Managing Partnerdetermines to be necessary or appropriate, without the consent of the unitholders, to address changes in U.S. federal, state and local income tax regulations,legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all unitholders.The U.S. Congress has considered legislation that would have (i) in some cases after a ten‑‑year period, precluded us from qualifying as a partnership orrequired us to hold carried interest through taxable subsidiary corporations and (ii) taxed certain income and gains at increased rates. If any similar legislationwere to be enacted and apply to us, the after‑‑tax income and gain related to our business, as well as the market price of our units, could be reduced.In the past, a number of legislative and administrative proposals have been introduced and, in certain cases, have been passed by the U.S. House ofRepresentatives, that would have, in general, treated all or a portion of our carried interest as income subject to a tax rate that is higher than under current law. It isunclear when or whether the U.S. Congress will pass such legislation or what provisions will be included in any legislation, if enacted.Some legislative and administrative proposals have provided that, for taxable years beginning after the date of enactment (or in some cases, beginning ten yearsafter the date of enactment), income derived with respect to carried interest would not meet the qualifying income requirements under the publicly tradedpartnership rules. Therefore, if similar legislation is enacted, following such enactment (or such ten‑year period), we would be precluded from qualifying as apartnership for U.S. federal income tax purposes. If we were taxed as a U.S. corporation, our effective tax rate would increase significantly. The federal statutoryrate for corporations is currently 35%. In addition, we could be subject to increased state and local taxes. Furthermore, you could be subject to tax on our conversioninto a corporation.States and other jurisdictions have also considered legislation to increase taxes with respect to carried interest. For example, New York has periodicallyconsidered legislation under which you could be subject to New York state income tax on income in respect of our common units as a result of certain activities ofour affiliates in New York, although it is unclear when or whether such legislation will be enacted.If the proposed legislation described above or any similar legislation were to be enacted and apply to us, the after‑tax income and gain related to our business,our ability to fund cash distributions, as well as the market price of our units, could be reduced.Additional proposed changes in the U.S. and foreign taxation of businesses could adversely affect us.The U.S. Congress, the Organization for Economic Co‑operation and Development (or, OECD) and other government agencies in jurisdictions in which weand our affiliates invest or do business have maintained a focus on issues related to the taxation of multinational companies. The OECD is contemplating changes tonumerous long‑standing tax principles through its base erosion and profit shifting (or, BEPS) project, which is focused on a number of issues, including thedistribution of profits between affiliated entities in different tax jurisdictions. Additionally, the Obama administration has announced other proposals for potentialreform to the U.S. federal income tax rules for businesses, including reducing the deductibility of interest for corporations, reducing the top marginal rate oncorporations and subjecting entities, like many of our entities, currently treated as partnerships for tax purposes to an entity‑level income tax similar to the corporateincome tax. A number of European jurisdictions have enacted taxes on financial transactions, and the European Commission has proposed legislation to harmonizethese taxes under the so-called "enhanced cooperation procedure", which provides for adoption of EU-level legislation applicable to some but not all EU MemberStates. Several of these proposals for reform, if enacted by the U.S. or by other countries in which we or our affiliates invest or do business, could adversely affectour investment returns and could reduce the41Table of Contentscash we have available for distributions to unitholders or for other uses by us. It is unclear what any actual legislation could provide, when it would be proposed orwhat its prospects for enactment could be.We depend on our founders and other key personnel, the loss of whose services could have a material adverse effect on our business, results and financialcondition.We depend on the efforts, skills, reputations and business contacts of our employees, including our founders, Henry Kravis and George Roberts, and other keypersonnel, the information and deal flow they and others generate during the normal course of their activities and the synergies among the diverse fields of expertiseand knowledge held by our professionals. Accordingly, our success depends on the continued service of these individuals, who are not obligated to remainemployed with us. The loss of the services of any of them could have a material adverse effect on our revenues, net income and cash flows and could harm ourability to maintain or grow AUM in existing funds or raise additional funds in the future.Our employees and other key personnel possess substantial experience and expertise and have strong business relationships with investors in our funds andother members of the business community. As a result, the loss of these personnel could jeopardize our relationships with investors in our funds and members of thebusiness community and result in the reduction of AUM or fewer investment opportunities. For example, if any of our principals were to join or form a competingfirm, our business, results and financial condition could suffer.Furthermore, the agreements governing our committed capital funds generally provide that in the event certain “key persons” (for example, both ofMessrs. Kravis and Roberts for our private equity funds, and, in the case of certain geographically or product focused funds, one or more of the executives focusedon such funds) generally cease to actively manage a fund or be substantially involved in KKR activities, investors in the fund will be entitled to reduce, in whole orin part, their capital commitments available for further investments on an investor‑by‑investor basis. In the case of certain of our fully paid-up funds, investors maybe permitted to terminate their investment in the event a "key persons" provision is triggered, which could possibly lead to a liquidation of those funds. In addition,the occurrence of such a "key person" event could cause us to agree to less favorable ongoing terms with respect to the affected fund. The occurrence of such anevent would likely have a significant negative impact on our revenue, net income and cash flow.If we cannot retain and motivate our principals and other key personnel and recruit, retain and motivate new employees and other key personnel, our business,results and financial condition could be adversely affected.Our most important asset is our people, and our continued success is highly dependent upon the efforts of our employees and other key personnel, and to asubstantial degree on our ability to retain and motivate our employees and other key personnel and to strategically recruit, retain and motivate new talentedemployees, including qualified investment professionals. However, we may not be successful in these efforts as the market for qualified investment professionals isextremely competitive. Our ability to recruit, retain and motivate our employees is dependent on our ability to offer highly attractive incentive opportunities. Ifpreviously proposed legislation regarding the increased taxation of carried interest were to be enacted, income and gains recognized with respect to carried interestwould be treated for U.S. federal income tax purposes as ordinary income rather than as capital gain. Such legislation would materially increase the amount of taxesthat we, our employees and other key personnel would be required to pay, thereby adversely affecting our ability to offer such attractive incentive opportunities. See“-Risks Related to U.S. Taxation”. Similarly, changes in the United Kingdom with respect to the taxation of carried interest, including the proposal to tax certaincarried interest returns as income from April 6, 2016 would impact our ability to recruit, retain and motivate employees and key personnel in the United Kingdom.In addition, there have been proposed laws and regulations that sought to regulate the compensation of certain of our employees. See “-Extensive Regulation of ourbusiness affects our activities and creates the potential for significant liabilities and penalties.” The possibility of increased regulatory focus or legislative orregulatory changes could result in additional burdens on our business.” The loss of even a small number of our investment professionals could jeopardize theperformance of our funds and other investment products, which would have a material adverse effect on our results of operations. Efforts to retain or attractemployees, including our investment professionals, may result in significant additional expenses, which could adversely affect our profitability.Many of our employees hold interests in our business through KKR Holdings. These individuals historically received financial benefits from our business in theform of distributions and amounts funded by KKR Holdings and through their direct and indirect participation in the value of KKR Group Partnership Units held byKKR Holdings. While all of our employees receive base salaries from us, annual cash bonuses for certain employees currently are borne by KKR Holdings fromcash reserves based upon distributions on a portion of KKR Group Partnership Units held by KKR Holdings. In 2015, the amount of such annual cash bonuses paidby KKR Holdings L.P. was $74.6 million. Effective with the distribution to be paid on March 8, 2016, with respect to the quarter ending December 31, 2015, KKRhas changed its distribution policy. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units in anamount of $0.16 per common unit per quarter. To the extent that distributions are made on KKR Group Partnership Units underlying any unvested42Table of ContentsKKR Holdings units, such amounts under the new distribution policy would be insufficient to fund annual cash bonus compensation. We, therefore, expect to payan increasing portion and eventually all of the cash bonus payments from other sources, including cash from our operations and the carry pool. As a result, eitherour profit margins or our employee retention or both may be adversely impacted. There can be no assurance that the carry pool will have sufficient cash available tocontinue to make such cash payments in the future and fluctuations from the distributions generated from the carry pool, if not offset by compensation from othersources, could render our compensation less attractive. In any of these circumstances, a higher percentage of our revenue may be paid out in the form of cashcompensation, which would be expected to have an adverse impact on our profit margins.Moreover, in connection with the KPE Transaction, we made large grants of KKR Holdings units that vested in installments over a five year periodcommencing October 1, 2009 and that completely vested on October 1, 2014, subject to certain transfer restrictions. We have granted and expect to grant equityawards from our Equity Incentive Plan, which has caused dilution. While we evaluate the grant of equity awards from our Equity Incentive Plan to employees on anannual basis, the size of the grants, if any, is made at our discretion and is expected to be generally smaller in number of units than the grants of KKR Holdings unitsmade on October 1, 2009 and with service‑based vesting periods generally of approximately three years from date of grant. As we increase the use of equity awardsfrom our Equity Incentive Plan in the future, expense associated with equity based compensation may increase materially. For example, in 2016 we allocated equityawards relating to 13.3 million KKR & Co. L.P. common units, under the Equity Incentive Plan. In 2016 KKR Holdings granted 28.9 million KKR Holdings unitsto certain senior employees and non-employee operating consultants. Such grants are subject to price vesting conditions in addition to service-based vestingconditions, which may make such grants a less effective retention mechanism if the price vesting condition is not achieved. See "Executive Compensation--Compensation Discussion and Analysis--Compensation Elements--KKR Holdings Market Condition Awards" for the terms and conditions of such KKR Holdingsunits. The value of the KKR Holdings units and common units may drop in value or be volatile, which may make our equity less attractive to our employees. In July2015, the SEC also proposed rules requiring companies to develop and enforce recovery policies that in the event of an accounting restatement, “claw back” fromcurrent and former executive officers incentive-based compensation they would not have received based on the restatement. If such rules are adopted as proposedand are deemed applicable to any component of our compensation, the effectiveness of our compensation as a retention mechanism may be further reduced. Inaddition, less carried interest from the carry pool may be allocated to certain of our employees, which may result in less cash payments to such employees. To theextent our equity incentive or carry pool programs are not effective, we may be limited in our ability to attract, retain and motivate talented employees and other keypersonnel and we may need to increase the level of cash compensation that we pay.In addition, there is no guarantee that the confidentiality and restrictive covenant agreements to which our employees and other key personnel are subject,together with our other arrangements with them, will prevent them from leaving us, joining our competitors or otherwise competing with us. Depending on whichentity is a party to these agreements and/or the laws applicable to them, we may not be able to enforce them or become subject to lawsuits or other claims, andcertain of these agreements might be waived, modified or amended at any time without our consent. Even when enforceable, these agreements expire after a certainperiod of time, at which point each of our employees and other key personnel are in any event free to compete against us and solicit our fund investors andemployees. See “Certain Relationships and Related Transactions, and Director Independence-Confidentiality and Restrictive Covenant Agreements.”We strive to maintain a work environment that reinforces our culture of collaboration, motivation and alignment of interests with fund investors. If we do notcontinue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfullyand achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations.Operational risks and data security breaches may disrupt our businesses, result in losses or limit our growth.We rely heavily on our financial, accounting and other data processing systems. If any of these systems do not operate properly or are disabled, we could sufferfinancial loss, a disruption of our businesses, liability to our funds, regulatory intervention or reputational damage. In addition, we operate in businesses that arehighly dependent on information systems and technology. For example, we face operational risk from errors made in the execution, confirmation or settlement oftransactions. We also face operational risk from transactions not being properly recorded, evaluated or accounted for in our funds. In particular, our Public Marketsbusiness is highly dependent on our ability to process and evaluate, on a daily basis, transactions across markets and geographies in a time-sensitive, efficient andaccurate manner. Our information systems and technology may not continue to be able to accommodate our growth, may not be suitable for new products andstrategies and may be subject to security risks, and the cost of maintaining such systems may increase from our current level. Such a failure to accommodategrowth, or an increase in costs related to such information systems, could have a material adverse effect on our business. Furthermore, we depend on our principaloffices in New York City, where most of our administrative personnel are43Table of Contentslocated, and technology and infrastructure concentrated in New York City and other offices for the continued operation of our business. We are also dependent onan increasingly concentrated group of third party vendors that we do not control for hosting solutions and technologies. A disaster or a disruption in theinfrastructure that supports our businesses, including a disruption involving electronic communications or other services used by us, our vendors or third partieswith whom we conduct business, or directly affecting our principal offices, could have a material adverse impact on our ability to continue to operate our businesswithout interruption. Our business continuation or disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster ordisruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. We facevarious security threats on a regular basis, including ongoing cyber security threats to and attacks on our information technology infrastructure that are intended togain access to our proprietary information, destroy data or disable, degrade or sabotage our systems. Although we take protective measures and endeavor to modifythem as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, theft, misuse, computer viruses or othermalicious code, and other events that could have a security impact. We and our employees may be the target of fraudulent emails. The costs related to cyber orother security threats or disruptions may not be fully insured or indemnified by other means. In addition, cyber security has become a top priority for regulatorsaround the world. If one or more of such events occur, this potentially could jeopardize our or our fund investors’ or counterparties’ confidential and otherinformation processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our fundinvestors’, our counterparties’ or third parties’ operations, which could result in significant losses, increased costs, disruption of our business, liability to our fundinvestors and other counter-parties, regulatory intervention or reputational damage. Finally, we rely on third party service providers for certain aspects of ourbusiness, including for certain information systems, technology, administration, tax and compliance matters. Any interruption or deterioration in the performance ofthese third parties could impair the quality of our and our funds’ operations and could impact our reputation and adversely affect our businesses and limit our abilityto grow.Our portfolio companies also rely on data processing systems and the secure processing, storage and transmission of information, including payment and healthinformation. A disruption or compromise of these systems could have a material adverse effect on the value of these businesses. Our funds may invest in strategicassets having a national or regional profile or in infrastructure assets, the nature of which could expose them to a greater risk of being subject to a terrorist attack orsecurity breach than other assets or businesses. Such an event may have adverse consequences on our investment or assets of the same type or may require portfoliocompanies to increase preventative security measures or expand insurance coverage.Our organizational documents do not limit our ability to enter into new lines of businesses, and we may expand into new investment strategies, geographicmarkets 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 seek to grow our businesses by increasing AUM in existing businesses, pursuing new investmentstrategies, including investment opportunities in new asset classes, developing new types of investment structures and products (such as managed accounts andstructured products), and expanding into new geographic markets and businesses. We have in the past opened offices in Asia, the Middle East and Latin America,and also developed a capital markets business in the United States, Europe, the Middle East and Asia-Pacific, which we intend to grow and diversify. We have alsolaunched a number of new investment initiatives in areas such as real estate, energy, infrastructure, hedge funds and growth equity.Our organic growth strategy focuses on providing resources to foster the development of new product offerings and business strategies by our investmentprofessionals and launching successor and related products, such that our new strategies achieve a level of scale and profitability. Given our diverse platform, theseinitiatives could create conflicts of interests with existing products, increase our costs and expose us to new market risks, and legal and regulatory requirements. Thesuccess of our organic growth strategy will also depend on, among other things, our ability to correctly identify and create products that appeal to the limitedpartners of our funds and vehicles. While we have made significant expenditures to develop these new strategies and products, there is no assurance that they willachieve a satisfactory level of scale and profitability. We have and may continue to pursue growth through acquisitions of other investment management companies,acquisitions of critical business partners, strategic partnerships or other strategic initiatives, which may include entering into new lines of business. In addition, weexpect opportunities will arise to acquire other alternative or traditional investment managers. For example, we have built and expanded our hedge fund solutionsbusiness with the acquisition of Prisma and expanded our European credit business with our acquisition of Avoca. We have also made minority investments inhedge fund managers, and we have entered into joint ventures with third parties to participate in new real estate investment strategies. To the extent we makestrategic44Table of Contentsinvestments or acquisitions, undertake other strategic initiatives or enter into a new line of business, we will face numerous risks and uncertainties, including risksassociated with:•our ability to successfully negotiate and enter into beneficial arrangements with our counterparties;•the required investment of capital and other resources;•the incurrence of substantial transaction-related costs including non-recurring transaction-related costs;•delays or failure to complete an acquisition or other transaction in a timely manner or at all due to a failure to obtain shareholder or regulatory approvals orsatisfy any other closing conditions, which may subject us to damages or require us to pay significant costs;•lawsuits challenging an acquisition or unfavorable judgments in such lawsuits, which may prevent the closing of the transaction, cause delays, or require usto incur substantial costs including in costs associated with the indemnification of directors;•the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk or liability orhave not appropriately planned for such activities;•the possibility of diversion of management’s time and attention from our core business;•the possibility of disruption of our ongoing business;•the failure to realize the anticipated benefits from an acquired business or strategic partnership in a timely manner, if at all;•combining, integrating or developing operational and management systems and controls including an acquired business’s internal controls and procedures;•integration of the businesses including the employees of an acquired business;•potential increase in concentration of the investors in our funds;•disagreements with joint venture partners or other stakeholders in strategic partnerships;•the additional business risks of the acquired business and the broadening of our geographic footprint, including the risks associated with conductingoperations in foreign jurisdictions such as taxation;•properly managing conflicts of interests;•our ability to obtain requisite regulatory approvals and licenses without undue cost or delay and without being required to comply with material restrictionsor material conditions that would be detrimental to us or to the combined organization; and•regulatory scrutiny or litigation exposure due to the activities of the third party hedge fund managers or joint venture partners.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, andmay lead to increased litigation and regulatory risk and costs. If a new business generates insufficient revenues or if we are unable to efficiently manage ourexpanded operations, our results of operations will be adversely affected. Our strategic initiatives include joint ventures or the acquisition of minority interests inthird parties, 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 reputationaldamage relating to, systems, controls and personnel that are not under our control.We may not be successful in executing upon or managing the complexities of new investment strategies, markets and businesses, which could adversely affectour business, results of operations and financial condition.Our growth strategy is based, in part, on the expansion of our platform through selective investment in, and development or acquisition of, businesses andinvestment strategies complementary to our business. The expansion into new products and geographies has demanded greater management attention and dedicationof resources to manage the increasing complexity of operations and regulatory compliance. This growth strategy involves a number of risks, including the risk thatthe expected45Table of Contentssynergies from a newly developed product or strategic alliance will not be realized, that the expected results will not be achieved, that new strategies are notappropriately planned for or integrated into the firm, that the new strategies may conflict, detract from or compete against our existing businesses, that theinvestment process, controls and procedures that we have developed around our existing platform will prove insufficient or inadequate or that our informationsystems and technology, including related security systems, may prove to be inadequate. We have also entered into strategic partnerships and separately managedaccounts, which lack the scale of our traditional funds and are more costly to administer. The prevalence of these accounts may also present conflicts and introducecomplexity in the deployment of capital. The offering of investment products to retail investors, including any funds registered under the Investment Company Act,may result in increased compliance and litigation costs. We may also incur significant charges in connection with such investments, which ultimately may result insignificant losses and costs. Such losses could adversely impact our business, results of operations and financial condition, as well as do harm to our professionalreputation.If we are unable to syndicate the securities or indebtedness or realize returns on investments financed with our balance sheet assets, our liquidity, business,results of operations and financial condition could be adversely affected.Our balance sheet assets provide us with a significant source of capital to grow and expand our business, increase our participation in our transactions andunderwrite commitments in our capital markets business. Our balance sheet assets have provided a source of capital to underwrite loans, securities or other financialinstruments, which we generally expect to syndicate to third parties. To the extent that we are unable to do so, we may be required to sell such investments at asignificant loss or hold them indefinitely. If we are required to retain investments on our balance sheet for an extended period of time, the inability of our capitalmarkets business to complete additional transactions would impair our results.We generally have a larger balance sheet than many of our competitors, and consequently, the performance of these balance sheet assets has a greater impact onour results of operations. Our success in deploying our balance sheet and generating returns on this capital will depend among other things on the availability ofsuitable opportunities after giving priority in investment opportunities to our advised investment funds and accounts, the level of competition from other companiesthat may have greater financial resources and our ability to value potential development or acquisition opportunities accurately and negotiate acceptable terms forthose opportunities. To the extent we are unsuccessful in deploying our balance sheet , our business and financial results may suffer. In addition, as our balancesheet has been a significant source of capital for new strategies, to the extent that such strategies are not successful or our balance sheet assets cease to provideadequate liquidity, we would be limited in our ability to seed new businesses or support our existing business as effectively as contemplated. See also “-If we areunable to consummate or successfully integrate additional development opportunities, acquisitions or joint ventures, we may not be able to implement our growthstrategy successfully.”Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increasedregulatory focus or legislative or regulatory changes could adversely affect our business.Our business is subject to extensive regulation, including periodic examinations, inquiries and investigations by governmental and self‑regulatory organizationsin the jurisdictions in which we operate around the world. Many of these regulators, including U.S. federal and state and foreign government agencies andself‑regulatory organizations, are empowered to impose fines, suspensions of personnel or other sanctions, including censure, the issuance of cease‑and‑desistorders or the suspension or expulsion of applicable licenses and memberships; any of the foregoing may damage our relations with existing fund investors, mayimpair our ability to raise capital for successor funds, or may contravene provisions concerning compliance with law in agreements to which we are a party. Even ifa sanction is not imposed or the sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to theregulatory activity or imposition of these sanctions could harm our reputation and cause us to lose existing fund investors or fail to gain new fund investors. Inaddition, actions by regulators against other investment managers can cause changes in business practices that could materially adversely affect our business,financial condition and results of operations.In particular, the private equity industry has come under increased regulatory and news media scrutiny with governmental officials and regulators, including theSEC, focusing on the private equity industry’s fees, allocation of expenses to funds, valuation practices, allocation of fund investment opportunities, and disclosuresto fund investors. SEC focus areas have recently included the acceleration of monitoring fees, the allocation of broken-deal expenses, the disclosure, use andcompensation of operating partners or consultants, outside business activities of firm principals and employees, group purchasing arrangements and generalconflicts of interest disclosures.Any changes in the regulatory framework applicable to our business, including the changes and potential changes described below, as well as adverse newsmedia attention, may impose additional expenses or capital requirements on us, limit our fundraising for our investment products, result in limitations in the mannerin which our business is conducted, have an adverse impact upon our financial condition, results of operations, reputation or prospects, impair employee retention or46Table of Contentsrecruitment and require substantial attention by senior management. It is impossible to determine the extent of the impact of any new laws, regulations, initiatives orregulatory guidance that may be proposed or may become law on our business or the markets in which we operate. If enacted, any new regulation or regulatoryframework could negatively impact our funds and us in a number of ways, including increasing our costs and the cost for our funds of investing, borrowing, hedgingor operating, increasing the funds’ or our regulatory operating costs, imposing additional burdens on the funds’ or our staff, and potentially requiring the disclosureof sensitive information. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmentalauthorities and self‑regulatory organizations. New laws or regulations could make compliance more difficult or more expensive, affect the manner in which weconduct business and divert significant management and operational resources and attention from our business. Moreover, we anticipate the potential for an increasein regulatory investigations and new or enhanced reporting requirements of the trading and other investment activities of alternative investment management fundsand firms, including our funds and us. Such investigations and reporting obligations will likely impose additional expenses on us, may require the attention of seniormanagement and increase the complexity of managing our business and may result in fines or other sanctions if we or any of our funds are deemed to have violatedany law or regulations.Regulation under the Dodd‑‑Frank Act. There have been a number of legislative and regulatory proposals affecting the financial sector in the United States. Inparticular, the Dodd‑Frank Wall Street Reform and Consumer Protection Act, or Dodd‑Frank Act, that President Obama signed into law on July 21, 2010, created asignificant amount of new regulation. Among other things, the Dodd‑Frank Act:•established the Financial Stability Oversight Council, or FSOC, an inter‑agency body charged with, among other things, designating systemicallyimportant nonbank financial companies for heightened prudential supervision and making recommendations regarding the imposition of enhancedregulatory standards regarding capital, leverage, conflicts and other requirements for financial firms deemed to pose a systemic threat to U.S. financialstability;•requires private equity and hedge fund advisers to register with the SEC under the Investment Advisers Act (as described elsewhere in this report,Kohlberg Kravis Roberts & Co. L.P. and its wholly‑owned subsidiaries KKR Credit Advisors (US) LLC and Prisma Capital Partners LP are registeredwith the SEC as investment advisers under the Investment Advisers Act), to maintain extensive records and to file reports if deemed necessary forpurposes of systemic risk assessment by certain governmental bodies;•directs federal regulatory agencies to review and, in certain cases, prohibit compensation arrangements at financial institutions that give employeesincentives to engage in conduct deemed to encourage inappropriate risk taking by covered financial institutions;•requires public companies to adopt and disclose policies requiring, in the event the company is required to issue an accounting restatement, the clawbackof related incentive compensation from current and former executive officers;•restricts the ability of banking organizations to sponsor or invest in private equity and hedge funds;•granted the U.S. government resolution authority to liquidate or take emergency measures with regard to troubled financial institutions that fall outside theexisting resolution authority of the Federal Deposit Insurance Corporation, or FDIC; and•created a Consumer Financial Protection Bureau within the U.S. Federal Reserve.Some of these provisions are subject to further rule making and to the discretion of regulatory bodies, such as the FSOC. For example, the followingrulemakings have been enacted and the following notices of proposed rulemakings have been announced that may apply to us or our subsidiaries:•On April 3, 2012, the FSOC issued a final rule and interpretive guidance regarding the process by which it designates nonbank financial companies assystemically important. The rule and guidance detail a three‑stage review process, with the level of scrutiny increasing at each stage. During the first stage,the FSOC applies a broad set of uniform quantitative metrics to identify nonbank financial companies that warrant additional review. In this first stage, theFSOC considers whether a nonbank financial company has at least $50 billion in total consolidated assets and whether it meets other thresholds relating tocredit default swaps outstanding, derivative liabilities, loans and bonds outstanding, a minimum leverage ratio of total consolidated assets to total equity of15 to 1, and a short‑term debt ratio of debt (with maturities less than 12 months) to total consolidated assets of 10%. A company that meets both the assettest and at least one of the other thresholds will be subject to additional review in Stage 2. Although we have47Table of Contentsmore than $50 billion in total consolidated assets as of December 31, 2015, we believe we do not currently meet the Stage 1 criteria outlined above;however, those criteria as well as our business may evolve over time. Additional uncertainty is created because the FSOC retains authority to designate anynonbank financial company as systemically important, even if the company does not meet the Stage 1 criteria. The FSOC will consider in the futurewhether to establish “an additional set of metrics or thresholds tailored to evaluate hedge funds and private equity firms and their advisers.” The preambleto the final rule notes that less regulatory data is generally available for hedge funds and private equity firms, but indicates that, in developing any suchadditional metrics or thresholds, it intends to review financial disclosures that private fund advisers are required to file with the SEC and CFTC, as furtherdescribed below.•In May 2014, the FSOC hosted a public conference devoted exclusively to the asset management industry to help inform the FSOC’s ongoing assessmentof potential risks to U.S. financial stability. On December 18, 2014, the FSOC issued a notice seeking public comment on potential systemic risks fromasset management products and activities, focusing in particular on (1) liquidity and redemption risks, (2) use of leverage, (3) operational functions, and(4) resolution‑related issues. According to such notice, the FSOC has not made any determination regarding the existence or nature of any potential risksto financial stability posed by the asset management industry.•If the FSOC were to determine that we were a systemically important nonbank financial company, we would be subject to a heightened degree ofregulation, including more stringent standards relating to capital, leverage, liquidity, risk management, resolution planning, credit exposure reporting, andconcentration limits, restrictions on acquisitions and annual stress testing by the Federal Reserve. There can be no assurance that nonbank financial firmssuch as us will not become subject to the aforementioned restrictions or other requirements for financial firms deemed to be systemically important to thefinancial stability of the U.S. economy.•The Dodd‑Frank Act, under what has become known as the “Volcker Rule,” broadly prohibits depository institution holding companies (including foreignbanks with U.S. branches or agencies), insured depository institutions and their subsidiaries and controlled affiliates (or banking entities), from investing inthird‑party private equity funds like ours. See “-Our inability to raise additional or successor funds (or raise successor funds of a comparable size as ourpredecessor funds) could have a material adverse impact on our business.”•On October 26, 2011, the SEC adopted a rule requiring certain advisers to private funds to periodically file reports on Form PF. Large private fundadvisers including advisers with at least $1.5 billion in assets under management attributable to hedge funds and advisers with at least $2 billion in assetsunder management attributable to private equity funds are subject to more detailed and in certain cases more frequent reporting requirements. Theinformation is to be used by the FSOC in monitoring risks to the U.S. financial system.•On March 2, 2011, the SEC issued for public comment a proposed a rule as part of a joint rule‑making effort with other federal regulatory agenciesdesigned to prohibit certain incentive‑based compensation arrangements deemed to encourage inappropriate risk taking by covered financial institutions byproviding "excessive" compensation, fees or benefits or that could lead to material losses. The proposed rule would cover financial institutions with totalconsolidated assets of at least $1 billion, including investment advisers and broker‑dealers, and provide heightened requirements for financial institutionswith total consolidated assets of at least $50 billion. The application of this rule to us could require us to substantially revise our compensation strategy andaffect our ability to recruit and retain qualified employees.•The Dodd‑Frank Act amended the Exchange Act to compensate and protect whistleblowers who voluntarily provide original information to the SEC andestablishes 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 sanctionsimposed in a successful government action resulting from the information provided by the whistleblower.As mandated by the Dodd‑Frank Act, the Commodity Futures Trading Commission, or CFTC, has proposed or adopted a series of rules to establish acomprehensive new regulatory framework for swaps. Under Title VII of the Dodd‑Frank Act, the CFTC has assumed regulatory authority over many types ofswaps. As a result:•Operating pooled funds, or providing investment advice to clients that trade swaps is now a basis for registration with the CFTC, absent an applicableexemption. Also, although not mandated by the Dodd‑Frank Act, the CFTC in 2012 issued a final rule that rescinded an exemption from CFTC registrationfor commodity pool operators in connection with privately offered funds. Operating our funds in a manner consistent with one or more exemptions fromregistration with the CFTC may limit the activities of certain of our funds, and monitoring and analysis of these48Table of Contentsexemptions requires management and operational resources and attention. Registration with the CFTC, if required, could impact our operations and addadditional costs associated with ongoing compliance.•The Dodd‑Frank Act also imposes regulatory requirements on the trading of swaps, including requirements that most swaps be executed on an exchange or“swap execution facility” and cleared through a central clearing house. Although these requirements presently apply only to certain classes of interest rateand credit default swaps, the CFTC is expected to mandate central execution and clearing with respect to additional classes of swaps in the future.•The CFTC issued regulations with quantitative tests and thresholds to determine whether entities acting as “swap dealers” or “major swap participants”must register in the appropriate category and comply with capital, margin, record keeping, reporting and business conduct rules. Our funds could becomesubject to the requirement to register as major swap participants due to changes to the funds’ investment strategy or valuations, or revisions to thethresholds for registration.•The CFTC has proposed rules instituting position limits on certain physical commodity futures contracts that, if finalized as proposed, would limitpositions in 28 agricultural, energy and metals commodities, including swaps, futures and options that are economically equivalent to those commoditycontracts. If the proposed rules are adopted in substantially the form proposed and to the extent that we do not qualify for an exemption, we may berequired to aggregate the positions of our various investment funds and the positions of our portfolio companies, which in turn may require us and ourportfolio companies to limit our trading activities, and impact the ability of our investment funds to invest or remain invested in certain derivatives, orengage in otherwise profitable acquisitions in particular industries. The Dodd-Frank Act also requires SEC to establish position limits on security-basedswaps, which rules could have a similar impact on our business.•The CFTC and banking regulators have adopted, and the SEC has proposed, rules regarding minimum margin and capital requirements forover‑the‑counter swaps. The imposition of these requirements could increase the cost of trading in the derivative markets, which could in turn make itmore expensive and difficult for us or our funds to enter into swaps and other derivatives in the normal course of our business and reduce the effectivenessof the funds’ investment strategies. These rules could also adversely impact liquidity in derivatives markets, which could expose our funds to greater risksand reduce hedging opportunities in connection with their trading activities. The compliance dates for the CTFC and banking margin rules will be phasedin between 2016 and 2020, depending on the aggregate notional amount of over-the-counter swaps traded by market participants and their affiliates.Additionally, federal banking and housing agencies finalized rules implementing the Dodd-Frank Act's five percent risk retention requirement for originators ofasset-backed securities. Although such rules will not become fully effective until December 24, 2016, they contain provisions may have an adverse effect on usand/or the holders of the notes issued by our CLOs, or on the primary or secondary market for CLO securities generally, including the level of liquidity and tradingof CLO securities.The implementation of any new regulations could increase the cost of trading in the commodities and derivative markets, which could in turn make it moreexpensive and difficult for us or our funds to enter into swaps and other derivatives in the normal course of our business. Moreover, these increased regulatoryresponsibilities and increased costs could reduce trading levels in the commodities and derivative markets by a number of market participants, which could in turnadversely impact liquidity in the markets and expose our funds to greater risks in connection with their trading activities.EU‑‑Wide Regulations. The EU Alternative Investment Fund Managers Directive (AIFMD) entered into effect on July 22, 2013. The AIFMD establishes acomprehensive regulatory and supervisory framework for alternative investment fund managers (AIFMs) managing and/or marketing alternative investment funds(AIFs) in the EU. The AIFMD imposes various substantive requirements on authorized AIFMs including rules on the structure of remuneration for certainpersonnel that are similar to those applicable under CRD III and IV (as defined below), a threshold for regulatory capital, reporting obligations in respect ofcontrolled EU portfolio companies and increased transparency towards investors and regulators and allows authorized AIFMs to market AIFs to professionalinvestors throughout the EU under an “EU passport”. The AIFMD also imposes a new, strict depositary regime.The EU passport has been available to authorized EU AIFMs, since July 2013 but has yet to become available to non EU AIFMs. In the meantime (and until atleast 2018), non‑EU AIFMs may continue to market within the EU under the private placement regimes (NPPRs) of the individual member states, where available,subject to complying with certain minimum requirements imposed by the AIFMD and any additional requirements that individual member states may impose. In2015, the European Securities and Markets Authority (ESMA) published advice in relation to the application of the EU passport to non-EU AIFMs and AIFs fromcertain jurisdictions and its opinion on the function of the EU passport for EU AIFMS and NPPRs.49Table of ContentsUpon the effectiveness of any measures adopted by the EU Commission extending the EU passport to non-EU AIFMs and AIFs, the NPPRs allowing marketing bynon-EU authorized AIFMs in certain member states will likely be further restricted, and NPPRs may become unavailable for marketing by non-EU authorizedAIFMs in all member states as early as 2019. While our authorized EU AIFs continue to be marketed under an EU passport, the availability of the NPPRs and theuncertainty regarding the application of the EU passport to non EU AIFMs and AIFs may adversely impact the marketing of new strategies.The AIFMD, the Level 2 Regulation and EU member state implementing measures could have an adverse effect on our businesses by, among other things,(i) imposing disclosure obligations and restrictions on distributions by EU portfolio companies of the funds we manage, (ii) potentially requiring changes in ourcompensation structures for key personnel, thereby potentially affecting our ability to recruit and retain these personnel, and (iii) generally increasing ourcompliance costs. Although a subsidiary of ours is registered as an Irish AIFM, we may not be able to benefit from the EU marketing passport for all of our fundsunder the AIFMD. In addition, there are areas of the AIFMD that are subject to legal uncertainty, including the scope of the legal structures qualifying as AIFswhose management and marketing requires authorization, and failure to comply even in areas where there is legal uncertainty can result in fines. Compliance withthe AIFMD has also increased the cost and complexity of raising capital for our funds and consequently may also slow the pace of fundraising.In July 2014, revisions to the Markets in Financial Instruments Directive (known as MiFID I), consisting of the revised directive, MiFID II, and a new relatedregulation, MiFIR, came into force; however, the date upon which they will apply to our business is uncertain. MiFID II and MiFIR further strengthen the EUregulatory framework for the provision of investment services and trading in financial instruments by introducing a number of substantial reforms in regards totransaction reporting, market structure, securities trading and conduct of business rules, including new harmonized rules for authorization of EU branches of thirdcountry firms looking to provide certain investment services in the EU. Work on the Level 2 measures on MiFID II is still under way, and the final delegated actshave not yet been adopted. The application of MiFID II and MiFIR will result in new regulatory burdens, including the requirement to trade certain derivatives onregulated trading venues. The increased regulatory burden could result in increased costs, and any failure to comply with the new requirements, even in areas wherethere is legal uncertainty, could result in fines.On January 1, 2011, an amendment to the Capital Requirements Directive (CRD III) entered into force. Among other things, CRD III required EU memberstates to introduce stricter controls on remuneration for key employees and risk takers within specified credit institutions and investment firms. The CRD III wasfurther amended by the Capital Requirements Directive IV and the Capital Requirements Regulation as discussed below, which introduced a limited number ofadditional remuneration requirements, including a cap on variable remuneration. Two of our subsidiaries (established in the UK and Ireland) are subject to theremuneration‑related requirements of CRD IV and similar requirements under the AIFMD. Additionally, the European Banking Authority has published finalguidelines on sound remuneration policies under CRD IV which set out the requirements for remuneration policies, group application and proportionality, alongwith criteria for the allocation of remuneration as fixed and variable and details on the disclosures required under the Capital Requirements Regulation. Theseguidelines will apply from January 1, 2017. These measures required changes in our compensation structures for key personnel, thereby potentially affecting thesesubsidiaries’ ability to recruit and retain these personnel.In 2010, the Basel Committee on Banking Supervision, an international body comprised of senior representatives of bank supervisory authorities and centralbanks from 27 countries, including the United States, finalized a comprehensive set of capital and liquidity standards, commonly referred to as “Basel III,” forinternationally active banking organizations. These new standards, which are expected to be fully phased in by 2019, are expected to require banks to hold morecapital, predominantly in the form of common equity, than under the current capital framework. In the EU, Basel III’s capital and liquidity standards have beenimplemented in a revision to CRD III and a new Capital Requirements Regulation, collectively referred to as CRD IV, which came into force on January 1, 2014.CRD IV replaced CRD III and created a single harmonized prudential rule book for banks, introducing new corporate governance rules and enhanced the powers ofregulators. Like CRD III, CRD IV applies to specified credit institutions and investment firms. CRD IV has enhanced our financial reporting obligations andsubjected us to new reporting requirements, which increases costs and the risk of non‑compliance.In August 2012, the regulation on OTC Derivatives, Central Counterparties and Trade Repositories (also known as the European Market InfrastructureRegulation, or EMIR) became effective. EMIR applies to derivatives transactions in which one of the parties is established in the EU, and may in somecircumstances apply to transactions between two non‑EU counterparties where these contracts have a direct, substantial and foreseeable effect within the EU.Certain of the requirements of EMIR came into force in March 2013, and other obligations will be phased in. In particular, EMIR imposes a requirement that certain“standardized” OTC derivatives contracts are centrally cleared. This requirement will be phased in based on the relevant entities' activities over a period from June2016 to December 2018. Where OTC transactions are not subject to central clearing, techniques must be employed to monitor, measure and mitigate the operationaland counterparty risks presented by the transaction. These risk mitigation techniques include trade confirmation, reconciliation processes, exchange of margin, andthe daily mark to market of trades. Certain of these risk mitigation and reporting obligations are already in force. Initial margin50Table of Contentsrequirement for uncleared trades are expected to be phased in between September 1, 2016 and September 1, 2020. Variation margin requirements for unclearedtrades are expected to be phased in between September 1, 2016, and March 1, 2017. The European Commission has not yet adopted an equivalence decision for theU.S., but “conditional” equivalence has been proposed in relation to certain parts of the CFTC and SEC regimes, whereby adherence to the relevant U.S. regimes aswell as a number of additional stipulations would deemed equivalent to EMIR. Ongoing regulatory uncertainty regarding the interaction between U.S. and EUrequirements for central clearing and related activities could result in duplicative regulatory obligations in the two jurisdictions and could increase our costs ofcompliance. The implementation of any new regulations could increase the cost of trading in the commodities and derivative markets, which could in turn make itmore expensive and difficult for us or our funds to enter into swaps and other derivatives in the normal course of our business. Moreover, these increased regulatoryresponsibilities and increased costs could reduce trading levels in the commodities and derivative markets by a number of market participants, which could in turnadversely impact liquidity in the markets and expose our funds to greater risks in connection with their trading activities.A number of other EU financial regulatory initiatives have the potential to adversely affect our business. Future acquisitions by KKR or our funds could lead toapplication of the EU’s Financial Conglomerates Directive, which introduced a prudential regime for financial conglomerates to address perceived risks associatedwith large cross‑sector businesses, and could increase the costs of investing in insurance companies and banks in the EU. Other recent EU financial regulatoryinitiatives include the Short Selling Regulation, which limits sovereign and naked short selling of government bonds and stocks, the Bank Recovery and ResolutionDirective (BRRD), which established a recovery and resolution framework for EU credit institutions and investment firms, a new regulation (CSDR) on centralsecurities depositories (CSDs), which introduces common securities settlement standards across the EU and harmonizes the rules governing CSDs, and a newregulation on reporting and transparency of securities financing transactions (SFT Regulation), which requires all SFTs to be reported to trade repositories, placesadditional reporting requirements on investment managers, and introduces prior risk disclosures and written consent before assets are rehypothecated. The EuropeanCommission has also proposed a Money Market Funds (MMF) Regulation. The EU has adopted certain risk retention and due diligence requirements in respect ofvarious types of EU-regulated investors that, among other things, restrict investors from taking positions in securitization. The implementation of these newrequirements could increase our and our funds’ costs and the complexity of managing our business and could result in fines if we or any of our funds were deemedto have violated any of the new regulations.Other regulations of the financial markets. Certain requirements imposed by regulators are designed primarily to ensure the integrity of the financial marketsand are not designed to protect holders of interests in our business or our funds. Consequently, these regulations often serve to limit our activities. In addition tomany of the regulations and proposed regulations described above under “-Regulation under the Dodd‑Frank Act,” and “-EU‑Wide Regulation,” U.S. federal bankregulatory agencies have issued leveraged lending guidance covering transactions characterized by a degree of financial leverage. Such guidance limits the amountor availability of debt financing and may increase the cost of financing we are able to obtain for our transactions and may cause the returns on our investments tosuffer.Regulators in the U.S. and abroad are also considering a variety of regulatory measures that could affect various non‑bank financial institutions that operateoutside of the regulated banking system and the activities in which they engage. These reform measures are generally intended to mitigate against the kind ofmarket disruptions that prevailed in 2008 and 2009 and that ultimately affected both banks and non‑banks. If these regulations are adopted, they could imposeadditional regulatory burdens and costs, including potentially imposing capital requirements, limiting financing and leverage and increasing costs, in each casecausing the returns on our lending and credit investment activities to suffer. Certain of our businesses may also be directly subject to such new regulation, whichcould cause such businesses to limit or cease engaging in certain activities.Certain of the funds and accounts we manage that engage in originating, lending and/or servicing loans, may consider investments that would subject us to stateand federal regulation, borrower disclosure requirements, limits on fees and interest rates on some loans, state lender licensing requirements and other regulatoryrequirements in the conduct of their business. If our funds and accounts make these investments, they may also be subject to consumer disclosures and substantiverequirements on consumer loan terms and other federal regulatory requirements applicable to consumer lending that are administered by the Consumer FinancialProtection Bureau. These state and federal regulatory programs are designed to protect borrowers.State and federal regulators and other governmental entities have authority to bring administrative enforcement actions or litigation to enforce compliance withapplicable lending or consumer protection laws, with remedies that can include fines and monetary penalties, restitution of borrowers, injunctions to conform tolaw, 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 behalfof borrowers for violations of laws or unfair or deceptive practices. If we enter into transactions that subject us to these risks, failure to conform to applicableregulatory and legal requirements could be costly and have a detrimental impact on certain of our funds and accounts and ultimately on us51Table of ContentsPortfolio Company Regulatory Environment. We are subject to certain laws, such as certain environmental laws, takeover laws, anti‑bribery andanti‑corruption laws, escheat or abandoned property laws, and antitrust laws, that may impose requirements on us and our portfolio companies as an affiliatedgroup. As a result, we could become jointly and severally liable for all or part of fines imposed on our portfolio companies or be fined directly for violationscommitted by portfolio companies, and such fines imposed directly on us could be greater than those imposed on the portfolio company. Compliance with theselaws or contracts could also require us to commit significant resources and capital towards information gathering and monitoring thereby increasing our operatingcosts. For example, on April 2, 2014, the European Commission announced that it had fined 11 producers of underground and submarine high voltage power cablesa total of 302 million euro for participation in a ten‑year market and customer sharing cartel. Fines were also imposed on parent companies of the producersinvolved, including Goldman Sachs, the former parent company of one of the cartel members. The Federal Energy Regulatory Commission (FERC) has proposed arule requiring regional transmission organizations and independent systems operators to collect, report and keep updated substantial information concerning theirownership structure and corporate relationships, corporate officers, direct and indirect investors (including non-controlling and passive non-voting investors), andlending and other material contractual relationships. If such rules are adopted as proposed, we and certain of our portfolio companies may become subject to costlyand burdensome data collection and reporting requirements.In the United States, certain statutes may subject us or our funds to the liabilities of our portfolio companies. The Comprehensive Environmental Response,Compensation and Liability Act, also referred to as the Superfund, requires cleanup of sites from which there has been a release or threatened release of hazardoussubstances, and authorizes the EPA to take any necessary response action at Superfund sites, including ordering potentially responsible parties liable for the releaseto pay for such actions. Potentially responsible parties are broadly defined under CERCLA. In addition, we or certain of our investment funds could potentially beheld liable under ERISA for the pension obligations of one or more of our portfolio companies if we or the investment fund were determined to be a “trade orbusiness” under ERISA and deemed part of the same “controlled group” as the portfolio company under such rules, and the pension obligations of any particularportfolio company could be material. In a decision of a federal appellate court ( Sun Capital Partners III LP v. New England Teamsters & Trucking Indus. PensionFund ), a private equity firm was held to be engaged in a “trade or business” under ERISA.Similarly, our portfolio companies may be subject to contractual obligations which may impose obligations or restrictions on their affiliates. The interpretationof such contractual provisions will depend on local laws. Given that we do not control all of our portfolio companies and that our portfolio companies generallyoperate independently of each other, there is a risk that we could contravene one or more of such laws, regulations and contractual arrangements due to limitedaccess and opportunities to monitor compliance. In addition, compliance with these laws or contracts could require us to commit significant resources and capitaltowards information gathering and monitoring thereby increasing our operating costs.Complex regulations may limit our ability to raise capital, increase the costs of our capital raising activities and may subject us to penalties .We regularly rely on exemptions in the United States from various requirements of the Securities Act, the Exchange Act, the Investment Company Act, theCommodity Exchange Act and the U.S. Employee Retirement Income Security Act of 1974, or ERISA, in conducting our investment management activities. Theseexemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason theseexemptions were to become unavailable to us, we could become subject to additional restrictive and costly registration requirements, regulatory action, or thirdparty claims and our business could be materially and adversely affected. For example, in raising new funds, we typically rely on private placement exemptionsfrom registration under the Securities Act, including Regulation D, which was recently amended to prohibit issuers (including our funds) from relying on certain ofthe exemptions from registration if the fund or any of its “covered persons” (including certain officers and directors, but also including certain third partiesincluding, 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 a “bad actor,” which can include a variety of criminal, regulatory and civil matters. If any of the covered persons associated with our fundsis 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 business, financial condition and results ofoperations. In addition, if certain of our employees or any potential significant investor has been the subject of a disqualifying event, we could be required toreassign 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. See also “-Risks Related to Our Organizational Structure-If we were deemed to be an “investmentcompany” subject to regulation under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business ascontemplated and could have a material adverse effect on our business.”52Table of ContentsWe are and will become further subject to additional regulatory and compliance burdens as we expand our product offerings and investment platform to includeretail investors. For example, funds in our Public Markets segment are registered under the Investment Company Act as management investment companies. Thesefunds and KKR Credit Advisors (US) LLC, which serves as their investment adviser (or in the case of a BDC, as its sub‑adviser), are subject to the InvestmentCompany Act and the rules thereunder, which, among other things, regulate the relationship between a registered investment company (or business developmentcompany) and its investment adviser and prohibit or severely restrict principal transactions and joint transactions. As our business expands we may be required tomake additional registrations, including in jurisdictions outside the U.S. Compliance with these rules will increase our compliance costs and create potential foradditional liabilities and penalties the management of which would divert management’s attention from our business and investments.In June 2010, the SEC approved Rule 206(4)‑5 under the Advisers Act regarding “pay to play” practices by investment advisers involving campaigncontributions and other payments to government clients and elected officials able to exert influence on such clients. Among other restrictions, the rule prohibitsinvestment advisers from providing advisory services for compensation to a government client for two years, subject to very limited exceptions, after the investmentadviser, its senior executives or its personnel involved in soliciting investments from government entities make contributions to certain candidates and officials inposition to influence the hiring of an investment adviser by such government client. Advisers are required to implement compliance policies designed, among othermatters, to track contributions by certain of the adviser’s employees and engagements of third parties that solicit government entities and to keep certain records inorder to enable the SEC to determine compliance with the rule. There has also been similar rule‑making on a state‑level regarding “pay to play” practices byinvestment advisers, including in California and New York, and FINRA has proposed its own set of regulations. Any failure on our part to comply with these rulescould cause us to lose compensation for our advisory services or expose us to significant penalties and reputational damage.Federal, state and foreign anti‑‑corruption and sanctions laws applicable to us and our portfolio companies creates the potential for significant liabilities andpenalties and reputational harm .We are also subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictionsimposed by the Foreign Corrupt Practices Act, or FCPA, as well as trade sanctions and export control laws administered by the Office of Foreign Assets Control, orOFAC, 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 officialsand political parties, and requires public companies in the United States to keep books and records that accurately and fairly reflect those companies’ transactions.OFAC, the U.S. Department of Commerce and the U.S. Department of State administer and enforce various export control laws and regulations, includingeconomic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. These laws andregulations relate to a number of aspects of our business, including servicing existing fund investors, finding new fund investors, and sourcing new investments, aswell as activities by the portfolio companies in our investment portfolio or other controlled investments.The Iran Threat Reduction and Syrian Human Rights Act of 2012 (“ITRA”) expanded the scope of U.S. sanctions against Iran and amended the Exchange Act.Specifically, Section 219 of the ITRA amended the Exchange Act to require public reporting companies to disclose in their annual or quarterly reports any dealingsor transactions the company or its affiliates engaged in during the previous reporting period involving Iran or other individuals and entities targeted by certainOFAC sanctions. In some cases, ITRA requires companies to disclose these types of transactions even if they are permissible under U.S. law or are conductedoutside of the United States by a foreign affiliate. We are required to separately file, concurrently with this annual report, a notice that such activities have beendisclosed in this 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. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation, to determinewhether sanctions should be imposed. Disclosure of such activity, even if such activity is not subject to sanctions under applicable law, and any sanctions actuallyimposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business.Similar laws in non‑U.S. jurisdictions, such as EU sanctions or the U.K. Bribery Act, as well as other applicable anti‑bribery, anti‑corruption, anti‑moneylaundering, or sanction or other export control laws in the U.S. and abroad, may also impose stricter or more onerous requirements than the FCPA, OFAC, the U.S.Department of Commerce and the U.S. Department of State, and implementing them may disrupt our business or cause us to incur significantly more costs tocomply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult. If we fail to comply with theselaws and regulations, we could be exposed to claims for damages, civil or criminal financial penalties, reputational harm, incarceration of our employees,restrictions on our operations and other liabilities, which could negatively affect our business, operating results and financial condition. In addition, we may besubject to successor liability for FCPA53Table of Contentsviolations or other acts of bribery, or violations of applicable sanctions or other export control laws committed by companies in which we or our funds invest orwhich we or our funds acquire.We are subject to substantial litigation risks and may face significant liabilities and damage to our professional reputation as a result of litigation allegationsand negative publicity.The activities of our businesses, including the investment decisions we make and the activities of our employees in connection with our portfolio companies,may subject us and them to the risk of litigation by third parties, including fund investors dissatisfied with the performance or management of their funds, debt orequity holders of our portfolio companies, and a variety of other potential litigants. See the section entitled “Litigation” appearing in Note 17 “Commitments andContingencies” of our financial statements included elsewhere in this report. By way of example, we, our funds and certain of our employees are each exposed tothe risks of litigation relating to investment activities of our funds and actions taken by the officers and directors (some of whom may be KKR employees) ofportfolio companies, such as the risk of shareholder litigation by other shareholders of public companies or holders of debt instruments of companies in which ourfunds have significant investments. We are also exposed to risks of litigation, investigation or negative publicity in the event of any transactions that are alleged notto have been properly addressed.To the extent investors in our investment funds suffer losses resulting from fraud, gross negligence, willful misconduct or other similar misconduct, suchinvestors may have remedies against us, our investment funds, our employees or our affiliates. Investors in our funds do not have legal remedies against us, thegeneral partners of our funds, our funds, our employees or our affiliates solely based on their dissatisfaction with the investment performance of those funds. Whilethe general partners and investment advisers to our investment funds, including their directors, officers, employees and affiliates, are generally indemnified to thefullest extent permitted by law with respect to their conduct in connection with the management of the business and affairs of our investment funds, such indemnitygenerally does not extend to actions determined to have involved fraud, gross negligence, willful misconduct or other similar misconduct.In addition, we have formed and may continue to form funds targeting retail investors, which may subject us to additional risk of litigation and regulatoryscrutiny. See-“Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility ofincreased regulatory focus or legislative or regulatory changes could adversely affect our business.”If any civil or criminal lawsuits were brought against us and resulted in a finding of substantial legal liability or culpability, the lawsuit could materiallyadversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could seriously impact 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 fund investorsand 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 privateequity industry in general, whether or not valid, may harm our reputation, which may be more damaging to our business than to other types of businesses.In addition, with a workforce composed of many highly paid professionals, we face the risk of litigation relating to claims for compensation or other damages,which may, individually or in the aggregate, be significant in amount. The cost of settling any such claims could negatively impact our business, financial conditionand results of operations.Misconduct of our employees or by our portfolio companies could harm us by impairing our ability to attract and retain clients and subjecting us to significantlegal liability and reputational harm.There is a risk that our principals and employees could engage in misconduct that adversely affects our business. We are subject to a number of obligations andstandards arising from our business and our authority over the assets we manage. The violation of these obligations and standards by any of our employees wouldadversely affect our clients and us. We may also be adversely affected if there is misconduct by senior management of portfolio companies in which our fundsinvest, even though we may be unable to control or mitigate such misconduct. Our business often requires that we deal with confidential matters of greatsignificance to companies in which we may invest. If our employees were improperly to use or disclose confidential information, we could suffer serious harm toour reputation, financial position and current and future business relationships, as well as face potentially significant litigation. It is not always possible to detect ordeter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases. If any of our employees or theemployees of portfolio companies were to engage in misconduct or were to be accused of such misconduct, our business and our reputation could be adverselyaffected.54Table of ContentsUnderwriting, syndicating and securities placement activities expose us to risks.KKR Capital Markets LLC or KCM, a subsidiary of ours, may act as an underwriter, syndicator or placement agent in securities offerings, and our jointventure’s subsidiary, MCS Capital Markets LLC, may also act as an underwriter, syndicator or placement agent in securities offerings. We may incur losses and besubject to reputational harm to the extent that, for any reason, we are unable to sell securities or indebtedness we purchased or placed as an underwriter, syndicatoror placement agent at the anticipated price levels. As an underwriter, syndicator or placement agent, we also may be subject to potential liability for materialmisstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite, syndicate or place.We are subject to risks in using prime brokers, custodians, administrators and other agents.Certain of our investment funds and our principal activities depend on the services of prime brokers, custodians, administrators and other agents to carry outcertain securities transactions.In the event of the insolvency of a prime broker and/or custodian, our funds may not be able to recover equivalent assets in full as they will rank among theprime broker’s and custodian’s unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, our andour funds’ cash held with a prime broker or custodian may not be segregated from the prime broker’s or custodian’s own cash, and our funds therefore may rank asunsecured creditors in relation thereto. The inability to recover assets from the prime broker or custodian could have a material impact on the performance of ourfunds and our business, financial condition and results of operations. Counterparties have generally reacted to recent market volatility by tightening theirunderwriting standards and increasing their margin requirements for all categories of financing, which has the result of decreasing the overall amount of leverageavailable and increasing the costs of borrowing. Many of our funds have credit lines, and if a lender under one or more of these credit lines were to becomeinsolvent, we may have difficulty replacing the credit line and one or more of our funds may face liquidity problems.Default risk may arise from events or circumstances that are difficult to detect, foresee or evaluate. In addition, concerns about, or a default by, one largeparticipant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses. We may not accurately anticipate theimpact of market stress or counterparty financial condition, and as a result, we may not have taken sufficient action to reduce these risks effectively.Compliance with applicable accounting requirements may materially strain our resources, materially increase our annual expenses and exposes us to otherrisks.The SEC may require in the future that we report our financial results under International Financial Reporting Standards, or IFRS, instead of under U.S. GAAP.IFRS is a set of accounting principles that has been gaining acceptance on a worldwide basis. These standards are published by the London‑ based InternationalAccounting Standards Board (“IASB”) and are more focused on objectives and principles and less reliant on detailed rules than U.S. GAAP. Today, there remainsignificant and material differences in several key areas between U.S. GAAP and IFRS which would affect us if we were required to prepare financial statements inconformity with IFRS. Additionally, U.S. GAAP provides specific guidance in classes of accounting transactions for which equivalent guidance in IFRS does notexist. The adoption of IFRS is highly complex and would have an impact on many aspects and operations of KKR, including but not limited to financial accountingand reporting systems, internal controls, taxes, borrowing covenants and cash management. It is expected that a significant amount of time, internal and externalresources and expenses over a multi‑year period would be required for this conversion.Risks Related to the Assets We ManageAs an investment manager, we sponsor and manage funds that make investments worldwide on behalf of third‑party investors and, in connection with thoseactivities, are required to deploy our own capital in those investments. The investments of these funds are subject to many risks and uncertainties which, to theextent they are material, are discussed below. In addition, we have balance sheet investments and manage those assets on our own behalf. These risks, as they applyto our balance sheet investments, may have a greater impact on our results and financial conditions as we directly bear the full risk of our balance sheet. As a result,the gains and losses on such assets are reflected in our net income and the risks set forth below relating to the assets that we manage will directly affect ouroperating performance.55Table of ContentsThe historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of ourfunds, our balance sheet or of our future results or of any returns on our common units.We have presented in this report certain information relating to our investment returns, such as net and gross IRRs, multiples of invested capital and realizedand unrealized investment values for funds that we have sponsored and managed. The historical and potential future returns of the funds that we manage are notdirectly linked to returns on KKR Group Partnership Units.Moreover, historical returns of our funds may not be indicative of the future results that you should expect from us, which could negatively impact the fees andincentive amounts received by us from such funds. In particular, the future results of our funds or balance sheet assets may differ significantly from their historicalresults including for the following reasons:•the rates of returns of our funds reflect unrealized gains as of the applicable valuation date that may never be realized, which may adversely affect theultimate value realized from those funds’ investments;•the historical returns that we present in this report derive largely from the performance of our earlier private equity funds, whereas future fund returns willdepend increasingly on the performance of our newer funds, which may have little or no investment track record, and in particular you will not benefitfrom any value that was created in our funds prior to the KPE Transaction to the extent such value has been realized and we may be required to repayexcess amounts previously received in respect of carried interest in our funds if, upon liquidation of the fund, we have received carried interestdistributions in excess of the amount to which we were entitled;•the future performance of our funds will be affected by macroeconomic factors, including negative factors arising from disruptions in the global financialmarkets that were not prevalent in the periods relevant to the historical return data included in this report;•in some historical periods, the rates of return of some of our funds have been positively influenced by a number of investments that experienced asubstantial decrease in the average holding period of such investments and rapid and substantial increases in value following the dates on which thoseinvestments were made; the actual or expected length of holding periods related to investments is likely longer than such historical periods; those trendsand rates of return may not be repeated in the future;•our newly established funds may generate lower returns during the period that they take to deploy their capital;•our funds’ returns have benefited from investment opportunities and general market conditions in certain historical periods that may not repeat themselves,and there can be no assurance that our current or future funds will be able to avail themselves of comparable investment opportunities or marketconditions; and•we may create new funds and investment products in the future that reflect a different asset mix in terms of allocations among funds, investment strategies,geographic and industry exposure, vintage year and economic terms.In addition, our historical rates of return reflect our historical cost structure, which has varied and may vary further in the future. Certain of our newer funds, forexample, have lower fee structures and also have performance hurdles. Future returns will also be affected by the risks described elsewhere in this report, includingrisks of the industry sectors and businesses in which a particular fund invests and changes in laws. See “-Risks Related to our Business-Difficult market conditionscan adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of ourfunds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition.”Valuation methodologies for certain assets in our funds and on our balance sheet can be subjective and the fair value of assets established pursuant to suchmethodologies may never be realized, which could result in significant losses for our funds and us.There are no readily ascertainable market prices for a substantial majority of illiquid investments of our investment funds, our finance vehicles or other assetson our balance sheet. When determining fair values of investments, we use the last reported market price as of the statement of financial condition date forinvestments that have readily observable market prices. When an investment does not have a readily available market price, the fair value of the investmentrepresents the value, as determined by us in good faith, at which the investment could be sold in an orderly disposition over a reasonable period of time between56Table of Contentswilling parties other than in a forced or liquidation sale. There is no single standard for determining fair value in good faith and in many cases fair value is bestexpressed as a range of fair values from which a single estimate may be derived. When making fair value determinations for our private equity investments, wetypically use a market multiples approach that considers a specified financial measure (such as EBITDA) and/or a discounted cash flow analysis. Real assetinvestments in infrastructure, energy and real estate are valued using one or more of the discounted cash flow analysis, market comparables analysis and directincome capitalization, which in each case incorporates significant assumptions and judgments. Credit investments are valued using values obtained from dealers ormarket makers, and where these values are not available, credit investments are valued by us based on ranges of valuations determined by an independent valuationfirm.Each of these methodologies requires estimates of key inputs and significant assumptions and judgments. We also consider a range of additional factors that wedeem relevant, including the applicability of a control premium or illiquidity discount, the presence of significant unconsolidated assets and liabilities, any favorableor unfavorable tax attributes, the method of likely exit, financial projections, estimates of assumed growth rates, terminal values, discount rates including risk freerates, capital structure, risk premiums and other factors, and determining these factors may involve a significant degree of our management’s judgment and thejudgment of management of our portfolio companies.Because valuations, and in particular valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuateover short periods of time and may be based on estimates, determinations of fair value may differ materially from the values that would have resulted if a readymarket had existed. Even if market quotations are available for our investments, such quotations may not reflect the value that we would actually be able to realizebecause of various factors, including possible illiquidity associated with a large ownership position, subsequent illiquidity in the market for a company’s securities,future market price volatility or the potential for a future loss in market value based on poor industry conditions or the market’s view of overall company andmanagement performance. Our partners’ capital could be adversely affected if the values of investments that we record is materially higher than the values that areultimately realized upon the disposal of the investments and changes in values attributed to investments from quarter to quarter may result in volatility in our AUMand such changes could materially affect the results of operations that we report from period to period. There can be no assurance that the investment values that werecord from time to time will ultimately be realized and that we will be able to realize the investment values that are presented in this report.Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of investments reflected in aninvestment fund’s or finance vehicle’s net asset value, or NAV, do not necessarily reflect the prices that would actually be obtained by us on behalf of the fund orfinance vehicle when such investments are realized. For example there may be liabilities such as unknown or uncertain tax exposures with respect to investments,especially those outside the United States, which may not be fully reflected in valuations. Realizations at values significantly lower than the values at whichinvestments have been reflected in prior fund NAVs would result in losses for the applicable fund and the loss of potential carried interest and other fees. Also, ifrealizations of our investments produce values materially different than the carrying values reflected in prior fund NAVs, fund investors may lose confidence in us,which could in turn result in difficulty in raising capital for future funds.In addition, because we value our entire portfolio only on a quarterly basis, subsequent events that may have a material impact on those valuations may not bereflected until the next quarterly valuation date.Our investments are impacted by various economic conditions that are difficult to quantify or predict, and may have a significant impact on the valuation of ourinvestments and, therefore, on the investment income we realize and our financial condition and results of operations.Our investments are impacted by various economic conditions that are difficult to quantify or predict and may have a significant impact on the valuation of ourinvestments and, therefore, on the investment income we realize and our financial condition and results of operations. For example,•Global equity markets, which may be volatile, significantly impact the valuation of our portfolio companies and, therefore, the investment income that werecognize. For our investments that are publicly listed and thus have readily observable market prices, global equity markets have a direct impact onvaluation. For other investments, these markets have an indirect impact on valuation as we typically utilize market multiples (i.e. stock price of comparablecompanies divided by earnings or cash flow) as a critical input to ascertain fair value of our investments that do not have readily observable market prices.In addition, the valuation for any particular period may not be realized at the time of disposition. For example, because our private equity funds often holdvery large amounts of the securities of their portfolio companies, the disposition of these securities often takes place over a long period of time, which canfurther expose us to volatility risk. In addition, the receptivity of equity markets to initial public offerings, or IPOs, as57Table of Contentswell as subsequent secondary equity offerings by companies already public, impacts our ability to realize investment gains. Unfavorable marketconditions, market volatility and other factors may also adversely impact the performance of our hedge fund businesses and our strategic partnerships withhedge fund asset managers and the level or pace of subscriptions or redemptions from the funds in these businesses.•Changes in credit markets can also impact valuations and may have offsetting results depending on the valuation methodology used. For example, wetypically use a discounted cash flow analysis as one of the methodologies to ascertain the fair value of our investments that do not have readily observablemarket prices. If applicable interest rates rise, then the assumed cost of capital for those portfolio companies would be expected to increase under thediscounted cash flow analysis, and this effect would negatively impact their valuations if not offset by other factors. Rising U.S. interest rates may alsonegatively impact certain foreign currencies that depend on foreign capital flows. Conversely, a fall in interest rates can positively impact valuations ofcertain portfolio companies if not offset by other factors. These impacts could be substantial depending upon the magnitude of the change in interest rates.In certain cases, the valuations obtained from the discounted cash flow analysis and the other primary methodology we use, the market multiples approach,may yield different and offsetting results. For example, the positive impact of falling interest rates on discounted cash flow valuations may offset thenegative impact of the market multiples valuation approach and may result in less of a decline in value than for those investments that had a readilyobservable market price. Finally, low interest rates related to monetary stimulus and economic stagnation may also negatively impact expected returns onall investments, as the demand for relatively higher return assets increases and supply decreases.•Foreign exchange rates can materially impact the valuations of our investments that are denominated in currencies other than the U.S. dollar. For example,U.S. dollar appreciation relative to other currencies is likely to cause a decrease in the dollar value of non‑U.S. investments to the extent unhedged.•Conditions in commodity markets impact the performance of our portfolio companies and other investments in a variety of ways, including through thedirect or indirect impact on the cost of the inputs used in their operations as well as the pricing and profitability of the products or services that they sell.The price of commodities has historically been subject to substantial volatility, which among other things, could be driven by economic, monetary,political or weather related factors. If certain of our portfolio companies are unable to raise prices to offset increases in the cost of raw materials or otherinputs, or if consumers defer purchases of or seek substitutes for the products of such portfolio companies, such portfolio companies could experiencelower operating income which may in turn reduce the valuation of those portfolio companies. The value of energy real asset investments generally increaseor decrease with the increase or decrease, respectively, of commodity prices. As we make additional investments in oil and gas companies and assets, thevalue of our portfolio and the investment income we realize may become increasingly sensitive to oil and gas prices. Apart from our energy real assetinvestments, a number of our other investments may be dependent to varying degrees on the energy sector through, for example, the provision ofequipment and services used in energy exploration and production. These companies may benefit from an increase or suffer from a decline in commodityprices.Changes in these factors can have a significant effect on the results of the valuation methodologies used to value our portfolio, and our reported fair values forthese assets could vary materially if these factors from prior quarters were to change significantly. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations-Business Environment.”Global and regional economic conditions have a substantial impact on the value of investments. See “-Risks Related to Our Business-Difficult marketconditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing theability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition.”Dependence on significant leverage in investments by our funds and our balance sheet assets could adversely affect our ability to achieve attractive rates ofreturn on those investments.Because many of our funds’ investments and our balance sheet assets often rely heavily on the use of leverage, our ability to achieve attractive rates of returnwill depend on our continued ability to access sufficient sources of indebtedness at attractive rates. For example, our credit funds use varying degrees of leveragewhen making investments. Similarly, in many private equity investments, indebtedness may constitute 70% or more of a portfolio company’s total debt and equitycapitalization, including debt that may be incurred in connection with the investment, and a portfolio company’s indebtedness may also increase in recapitalizationtransactions subsequent to the company’s acquisition. The absence of available sources of sufficient debt financing for extended periods of time could thereforematerially and adversely affect our funds and our58Table of Contentsportfolio companies. Also, an increase in either the general levels of interest rates or in the risk spread demanded by sources of indebtedness such as we experiencedduring 2009 would make it more expensive to finance those investments. In addition, increases in interest rates could decrease the value of fixed‑rate debtinvestments that our balance sheet assets, finance vehicles or our funds make. Increases in interest rates could also make it more difficult to locate and consummateprivate equity and other investments because other potential buyers, including operating companies acting as strategic buyers, may be able to bid for an asset at ahigher price due to a lower overall cost of capital or their ability to benefit from a higher amount of cost savings following the acquisition of the asset. In addition, aportion of the indebtedness used to finance private equity investments often includes high‑ yield debt securities issued in the capital markets. Capital markets arevolatile, and there may be times when we might not be able to access those markets at attractive rates, or at all, when completing an investment.Investments in highly leveraged entities are also inherently more sensitive to declines in revenues, increases in expenses and interest rates and adverseeconomic, market and industry developments. The incurrence of a significant amount of indebtedness by an entity could, among other things:•subject the entity to a number of restrictive covenants, terms and conditions, any violation of which would be viewed by creditors as an event of defaultand could materially impact our ability to realize value from our investment;•allow even moderate reductions in operating cash flow to render it unable to service its indebtedness;•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 changingindustry conditions to the extent additional cash is needed for the response, to make unplanned but necessary capital expenditures or to take advantage ofgrowth opportunities;•limit the entity’s ability to adjust to changing market conditions, thereby placing it at a competitive disadvantage compared to its competitors who haverelatively 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 capitalor other general corporate purposes.A leveraged company’s income and equity also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed.As a result, the risk of loss associated with a leveraged company is generally greater than for comparable companies with comparatively less debt. For example,leveraged companies could default on their debt obligations due to a decrease in revenues and cash flow precipitated by an economic downturn or by poor relativeperformance at such a company. Similarly, the leveraged nature of some of our investments in real assets increases the risk that a decline in the fair value of theunderlying real asset will result in their abandonment or foreclosure. For example, if the property-level debt on a particular investment has reached its maturity andthe underlying asset value has declined below its debt-level, we may, in absence of cooperation with the lender in regards to a partial debt-write-off, be forced to putthe investment into liquidation.When our existing portfolio investments reach the point when debt incurred to finance those investments matures in significant amounts and must be eitherrepaid or refinanced, those investments may materially suffer if they have generated insufficient cash flow to repay maturing debt and there is insufficient capacityand availability in the financing markets to permit them to refinance maturing debt on satisfactory terms, or at all. If the financing for such purposes were to beunavailable or uneconomic when significant amounts of the debt incurred to finance our existing portfolio investments start to come due, these investments could bematerially and adversely affected. In the event of default or potential default under applicable financing arrangements, one or more of our portfolio companies maygo bankrupt, which could give rise to substantial investment losses, adverse claims or litigation against us or our employees and damage to our reputation.Among the sectors particularly challenged by downturns in the global credit markets, including the downturn experienced from 2008 through 2010, are theCLO and leveraged finance markets. We have significant exposure to these markets through our CLO subsidiaries, which we principally acquired in the acquisitionsof KFN and Avoca. As of December 31, 2015, we indirectly hold below investment grade corporate loans and securities with a $8.4 billion estimated fair marketvalue through our CLO subsidiaries. Each of these subsidiaries is a special purpose company that issued to us and other investors notes secured by a pool ofcollateral consisting primarily of corporate leveraged loans. In most cases, our CLO holdings are deeply subordinated, representing the CLO subsidiary’s substantialleverage, which increases both the opportunity for higher returns as well as the magnitude of losses when compared to holders or investors that rank more senior tous in right of payment. These59Table of Contentsloans and bonds also generally involve a higher degree of risk than investment grade rated debt including the risks described in the paragraphs above. Our CLOsubsidiaries have historically experienced an increase in downgrades, depreciations in market value and defaults in respect of leveraged loans in their collateralduring downturns in credit markets. The CLOs’ portfolio profile tests set limits on the amount of discounted obligations a CLO can hold. During any time that aCLO issuer exceeds such a limit, the ability of the CLO’s manager to sell assets and reinvest available principal proceeds into substitute assets is restricted. In suchcircumstances, CLOs may fail certain over‑collateralization tests, which would cause diversions of cash flows away from us as holders of the more junior CLO,which may impact our cash flows. The ability of the CLOs to make interest payments to the holders of the senior notes of those structures is highly dependent uponthe performance of the CLO collateral. If the collateral in those structures were to experience a significant decrease in cash flow due to an increased default level,payment of all principal and interest outstanding may be accelerated as a result of an event of default or by holders of the senior notes. There can be no assurancethat market conditions giving rise to these types of consequences will not occur, re‑occur, subsist or become more acute in the future. In July 2009, KFNsurrendered for cancellation approximately $298.4 million in aggregate of notes issued to it by certain of its CLOs. The surrendered notes were cancelled and theobligations due under such notes were deemed extinguished. Because our CLO structures involve complex collateral and other arrangements, the documentation forsuch structures is complex, is subject to differing interpretations and involves legal risk. These CLOs have served as long‑term, non‑recourse financing for debtinvestments and as a way to minimize refinancing risk, minimize maturity risk and secure a fixed cost of funds over an underlying market interest rate. An inabilityto continue to utilize CLOs or other similar financing vehicles successfully could limit our ability to fund future investments, grow our business or fully execute ourbusiness strategy and our results of operations may be adversely affected.Our CLO subsidiaries regularly use significant leverage to finance their assets. An inability by such subsidiaries to continue to raise or utilize leverage, torefinance or extend the maturities of their outstanding indebtedness or to maintain adequate levels of collateral under the terms of their collateralized loanobligations could limit their ability to grow their business, reinvest principal cash, distribute cash to us or fully execute their business strategy, and our results ofoperations may be adversely affected. If these subsidiaries are unable to maintain their operating results and access to capital resources, they could face substantialliquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. These CLO strategies and the valueof the assets of such CLO subsidiaries are also sensitive to changes in interest rates because these strategies rely on borrowed money and because the value of theunderlying portfolio loans can fall when interest rates rise. If interest rates on CLO borrowings increase and the interest rates on the portfolio do not also increase,the CLO strategy is unlikely to achieve its projected returns. Also, if interest rates increase in the future, our CLO portfolio will likely experience a reduction invalue because it would hold assets receiving below market rates of interest.Our hedge fund‑of‑funds, long/short credit fund, other credit‑ oriented funds and CLOs may choose to use leverage as part of their respective investmentprograms and regularly borrow a substantial amount of their capital. The use of leverage poses a significant degree of risk and enhances the possibility of asignificant loss in the value of the investment portfolio. A fund may borrow money from time to time to purchase or carry securities or debt obligations or may enterinto derivative transactions (such as total return swaps) with counterparties that have embedded leverage. The interest expense and other costs incurred inconnection 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 suchlosses may be accelerated or exacerbated-in the event of a decline in the market value of such securities or debt obligations. Gains realized with borrowed fundsmay 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 ofborrowings, the fund’s net asset value could also decrease faster than if there had been no borrowings.Any of the foregoing circumstances could have a material adverse effect on our financial condition, results of operations and cash flow.The due diligence process that we undertake in connection with our investments may not reveal all facts that may be relevant in connection with an investment.Before making our investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to eachinvestment. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding aninvestment, to identify possible risks associated with that investment and, in the case of private equity investments, to prepare a framework that may be used fromthe date of an acquisition to drive operational achievement and value creation. When conducting due diligence, we typically evaluate a number of importantbusiness, financial, tax, accounting, environmental and legal issues in determining whether or not to proceed with an investment. Outside consultants, legal advisors,accountants and investment banks are involved in the due diligence process in varying degrees depending on the type of investment. Nevertheless, when conductingdue diligence and making an assessment regarding an investment, we rely on resources available to us, including information provided by the60Table of Contentstarget of the investment and, in some circumstances, third‑party investigations. The due diligence process may at times be subjective with respect to newlyorganized companies or carve-out transactions for which only limited information is available.Instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect, and fraud and other deceptivepractices can be widespread in certain jurisdictions. Several of our funds invest in emerging market countries that may not have established laws and regulationsthat are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced. For example, our funds investthroughout jurisdictions that have material perceptions of corruption according to international rating standards (such as Transparency International and CorruptionPerceptions Index) such as China, India, Indonesia, Latin America, the Middle East and Africa. Due diligence on investment opportunities in these jurisdictions isfrequently more complicated because consistent and uniform commercial practices in such locations may not have developed. Bribery, fraud, accountingirregularities and corrupt practices can be especially difficult to detect in such locations.The due diligence conducted for certain of our Public Markets strategies is limited to publicly available information. Accordingly, we cannot be certain that thedue diligence investigation that we will carry out with respect to any investment opportunity will reveal or highlight all relevant facts (including fraud, bribery andother illegal activities and contingent liabilities) that may be necessary or helpful in evaluating such investment opportunity, including the existence of contingentliabilities. We also cannot be certain that our due diligence investigations will result in investments being successful or that the actual financial performance of aninvestment will not fall short of the financial projections we used when evaluating that investment.When we conduct due diligence in making and monitoring investments in third party hedge funds, we rely on information supplied by third party hedge fundsor by service providers to such third party hedge funds. The information we receive from them may not be accurate or complete and therefore we may not have allthe relevant facts necessary to properly assess and monitor our funds’ investment in a particular hedge fund.Our investment management activities involve investments in relatively high‑‑risk, illiquid assets, and we may fail to realize any profits from these activities for aconsiderable period of time or lose some or all of the capital invested.Many of our funds and our balance sheet may hold investments in securities that are not publicly traded. In many cases, our funds or we may be prohibited bycontract or by applicable securities laws from selling such securities at many points in time. Our funds or we will generally not be able to sell these securitiespublicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration is available, and then only at such times whenwe do not possess material nonpublic information. The ability of many of our funds or us to dispose of investments is heavily dependent on the capital markets andin particular the public equity markets. For example, the ability to realize any value from an investment may depend upon the ability to complete an initial publicoffering of the portfolio company in which such investment is made. Even if the securities are publicly traded, large holdings of securities can often be disposed ofonly over a substantial length of time, exposing our investment returns to risks of downward movement in market prices during the intended disposition period.Moreover, because the investment strategy of many of our funds, particularly our private equity funds, often entails or having representation on our funds' publicportfolio company boards, our funds may be restricted in their ability to effect such sales during certain time periods. As certain of our funds have a finite term, wecould also be forced to dispose of investments sooner than otherwise desirable. Accordingly, under certain conditions, our funds may be forced to either sellsecurities at lower prices than they had expected to realize or defer sales that they had planned to make, potentially for a considerable period of time. Moreover, wemay determine that we may be required to sell our balance sheet assets alongside our funds’ investments at such times. We have made and expect to continue tomake significant capital investments in our current and future funds and other strategies. Contributing capital to these funds is risky, and we may lose some or all ofthe principal amount of our investments.Our investments are subject to a number of inherent risks.Our results are highly dependent on our continued ability to generate attractive returns from our investments. Investments made by our private equity, credit orother investments involve a number of significant risks inherent to private equity, credit and other investing, including the following:•companies in which investments are made may have limited financial resources and may be unable to meet their obligations under their securities, whichmay be accompanied by a deterioration in the value of their equity securities or any collateral or guarantees provided with respect to their debt;61Table of Contents•companies in which investments are made are more likely to depend on the management talents and efforts of a small group of persons and, as a result, thedeath, disability, resignation or termination of one or more of those persons could have a material adverse impact on their business and prospects;•companies in which private equity investments are made may be businesses or divisions acquired from larger operating entities which may require arebuilding or replacement of financial reporting, information technology, operational and other functions;•companies in which investments are made may from time to time be parties to litigation, may be engaged in rapidly changing businesses with productssubject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain theircompetitive position;•instances of bribery, fraud and other deceptive practices committed by senior management of portfolio companies in which our funds or we invest mayundermine our due diligence efforts with respect to such companies, and if such fraud is discovered, negatively affect the valuation of a fund’s investmentsas well as contribute to overall market volatility that can negatively impact a fund’s or our investment program;•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 suchfund’s term or otherwise, resulting in a lower than expected return on the investments and, potentially, on the fund itself;•our portfolio companies generally have capital structures established on the basis of financial projections based primarily on management judgments andassumptions, and general economic conditions and other factors may cause actual performance to fall short of these financial projections, which couldcause a substantial decrease in the value of our equity holdings in the portfolio company and cause our funds’ or our performance to fall short of ourexpectations;•executive officers, directors and employees of an equity sponsor may be named as defendants in litigation involving a company in which an investment ismade or is being made, and we or our funds may indemnify such executive officers, directors or employees for liability relating to such litigation;•we advise funds that invest in businesses that operate in a variety of industries that are subject to extensive domestic and foreign regulation (includingcompanies that supply services to governmental agencies), such as the telecommunications industry, the defense and government services industry, thehealthcare industry and oil and gas industry, that may involve greater risk due to rapidly changing market and governmental conditions in those sectors;•our transactions involve complex tax structuring that could be challenged or disregarded, which may result in losing treaty benefits or would otherwiseadversely impact our investments; and•significant failures of our portfolio companies to comply with laws and regulations applicable to them could affect the ability of our funds or us to invest inother companies in certain industries in the future and could harm our reputation;Our investments in real assets such as real estate, infrastructure assets and energy may expose us to increased risks and liabilities and may expose ourunitholders to adverse tax consequences.Investments in real assets, which may include real estate, infrastructure assets, oil and gas properties and other energy assets, may expose us to increased risksand liabilities that are inherent in the ownership of real assets. For example,•Ownership of real assets in our funds or vehicles may increase our risk of liability under environmental laws that impose, regardless of fault, joint andseveral liability for the cost of remediating contamination and compensation for damages. In addition, changes in environmental laws or regulations or theenvironmental condition of an investment may create liabilities that did not exist at the time of acquisition that would not have been foreseen. Even incases where we are indemnified by a seller with respect to an investment against liabilities arising out of violations of environmental laws and regulations,there can be no assurance as to the financial viability of the seller to satisfy such indemnities or our ability to achieve enforcement of such indemnities.•Ownership of real assets may also present additional risk of liability for personal and property injury or impose significant operating challenges and costs,for example with respect to compliance with zoning, environmental or other applicable laws.62Table of Contents•Real asset investments may face construction risks, without limitation: (i) labor disputes, shortages of material and skilled labor, or work stoppages;(ii) slower than projected construction progress and the unavailability or late delivery of necessary equipment; (iii) less than optimal coordination withpublic utilities in the relocation of their facilities; (iv) adverse weather conditions and unexpected construction conditions; (v) accidents or the breakdownor failure of construction equipment or processes; (vi) catastrophic events such as explosions, fires, and terrorist activities, and other similar events and(vii) risks associated with holding direct or indirect interests in undeveloped land or underdeveloped real property. These risks could result in substantialunanticipated delays or expenses (which may exceed expected or forecasted budgets) and, under certain circumstances, could prevent completion ofconstruction activities once undertaken. Certain real asset investments may remain in construction phases for a prolonged period and, accordingly, may notbe 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 thepart of the contractor.•The operation of real 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 real assets, cause personal injury or loss of life, damage property, orinstigate disruptions of service. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged serviceinterruptions may result in permanent loss of customers, litigation, or penalties for regulatory or contractual non‑compliance. Force majeure events that areincapable of, or too costly to, cure may also have a permanent adverse effect on an investment.•The management of the business or operations of a real asset may be contracted to a third‑party management company unaffiliated with us. Although itwould 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 the portfoliocompany’s best interest, or the breach by an operator of applicable agreements or laws, rules, and regulations, could have an adverse effect on theinvestment’s financial condition or results of operations. Real asset investments may involve the subcontracting of design and construction activities inrespect of projects, and as a result our investments are subject to the risk that contractual provisions passing liabilities to a subcontractor could beineffective, the subcontractor fails to perform services which it has agreed to provide and in cases where a single subcontractor provides services to variousinvestments, the subcontractor becomes insolvent.Without limiting the foregoing disclosure, we note that investments that we have made and will continue to make in the oil and gas industries may presentspecific environmental, safety and other inherent risks, and such investments are subject to stringent and complex foreign, federal, state and local laws, ordinancesand regulations specific to oil and gas industries, for example governing controls, taxes, transportation of oil and natural gas, exploration and production, permitting,and various conservation laws and regulations applicable to oil and natural gas production and related operations in addition to regulations governing occupationalhealth and safety, the discharge of materials into the environment or otherwise relating to environmental protection. Failure to comply with applicable laws andregulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of orders enjoiningsome or all of our operations in affected areas. These laws and regulations may also restrict the rate of oil and natural gas production below the rate that wouldotherwise be possible and increase the cost of production thus reducing profitability. Our oil and gas investments are subject to other risks, such as:•The acquisition of oil and gas properties at appropriate prices.•Currently unforeseen environmental incidents may occur or past non‑ compliance with environmental laws or regulations may be discovered making itdifficult to predict the future costs or impact of compliance.•The oil and gas industries present inherent risk of personal and property injury, for which we may not be fully insured.•The use of new technologies, including hydraulic fracturing.•Our estimated oil, natural gas, and natural gas liquids reserve quantities and future production rates are based on many assumptions that may prove to beinaccurate. Any material inaccuracies in these reserve estimates or the underlying assumptions will materially affect the quantities and value of ourreserves.•The performance of our energy investments depend on the skill, ability and decisions of third party operators. The success of our investment will dependon their exploitation, development, construction and drilling activities and the timing and cost of drilling, completing and operating wells. Failure of suchoperators to comply with applicable laws, rules and regulations could result in liabilities to us, reduce the value of our interest in the oil and natural gasproperties, adversely affect our cash flows and results of operations.63Table of Contents•If commodity prices decline and remain depressed for a prolonged period, a significant portion of our development projects may become uneconomic andcause write downs of the value of our oil and natural gas properties, which may reduce the value of our energy investments, have a negative impact on ourability to use these investments as collateral or otherwise have a material adverse effect on our results of operations.Investments in real estate are subject to the risks inherent in the ownership and operation of real estate and real estate related businesses and assets. These risksinclude those associated with the burdens of ownership of real property, general and local economic conditions, changes in supply of and demand for competingproperties in an area (as a result, for instance, of overbuilding), fluctuations in the average occupancy, the financial resources of tenants, changes in building,environmental and other laws, energy and supply shortages, various uninsured or uninsurable risks, natural disasters, changes in government regulations (such asrent control), changes in real property tax rates, changes in interest rates, the reduced availability of mortgage funds which may render the sale or refinancing ofproperties difficult or impracticable, negative developments in the economy that depress travel activity, environmental liabilities, contingent liabilities ondisposition of assets, terrorist attacks, war and other factors that are beyond our control.•The success of certain investments will depend on the ability to restructure and effect improvements in the operations of the applicable properties, andthere is no assurance, we will be successful in identifying or implementing such restructuring programs and improvements.•If we acquire direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non‑income producing, they will besubject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoningand other regulatory or environmental approvals, the cost and timely completion of construction (including risks beyond the control of our fund, such asweather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.•The strategy of our real estate funds may be based, in part, on the availability for purchase of assets at favorable prices, and upon the continuation orimprovement of market conditions, or on the availability of refinancing. No assurance can be given that the real estate businesses or assets can be acquiredor disposed of at favorable prices or that refinancing will be available.•Lenders in commercial real estate financing customarily will require a “bad boy” guarantee, which typically provides that the lender can recover lossesfrom the guarantors for certain bad acts, such as fraud or intentional misrepresentation, intentional waste, willful misconduct, criminal acts,misappropriation of funds, voluntary incurrence of prohibited debt and environmental losses sustained by lender. For our acquisitions, “bad boy”guarantees would generally be extended by our funds, our balance sheet or a combination of both depending on the ownership of the relevant asset. Inaddition, “bad boy” guarantees typically provide that the loan will be a full personal recourse obligation of the guarantor, for certain actions, such asprohibited transfers of the collateral or changes of control and voluntary bankruptcy of the borrower. It is expected that commercial real estate financingarrangements generally will require “bad boy” guarantees and in the event that such a guarantee is called, a fund’s or our assets could be adverselyaffected. Moreover, “bad boy” guarantees could apply to actions of the joint venture partners associated with the investments, and in certain cases the actsof such joint venture partner could result in liability to our funds or us under such guarantees.•The acquisition, ownership and disposition of real properties carry certain specific litigation risks. Litigation may be commenced with respect to a propertyacquired in relation to activities that took place prior to the acquisition of such property. In addition, at the time of disposition, other potential buyers maybring claims related to the asset or for due diligence expenses or other damages. After the sale of a real estate asset, buyers may later sue our funds or usfor losses associated with latent defects or other problems not uncovered in due diligence.•Our funds or we may be subject to certain risks associated with investments in particular assets. Real estate investment trusts (or REITs) be affected bychanges in the value of their underlying properties and by defaults by borrowers or tenants. REITs depend on their ability to generate cash flow to makedistributions and may be impacted by changes in tax laws or by a failure to qualify for tax‑free pass through income. Investments in real estate debtinvestments may be unsecured and subordinated to a substantial amount of indebtedness. Such debt investments may not be protected by financialcovenants. Non‑performing real estate loans may require a substantial amount of workout negotiations and/or restructuring, which may entail, among otherthings, a substantial reduction in the interest rate and a substantial write-down of the principal of such loan. Investments in commercial mortgage loans aresubject to risks of delinquency and foreclosure, and risks of loss. In the event of any default under a mortgage loan held directly by our fund or us, our fundor we will bear a risk of loss of principal to the extent of any deficiency between the value of the64Table of Contentscollateral and the principal to the extent of any deficiency between the value of the collateral the principal and accrued interest of the loan. Investments inassets or businesses that are distressed may have little or no near term cash flow and involve a high degree of risk. Such investments subject to bankruptcyor insolvency could be subordinated or disallowed.Infrastructure investments often involve an ongoing commitment to a municipal, state, federal or foreign government or regulatory agencies. The nature ofthese obligations exposes the owners of infrastructure investments to a higher level of regulatory control than typically imposed on other businesses. They may alsorely on complex government licenses, concessions, leases or contracts, which may be difficult to obtain or maintain. Revenues for such investments may rely oncontractual agreements for the provision of services with a limited number of counterparties, and are consequently subject to counterparty default risk. Theoperations and cash flow of infrastructure investments are also more sensitive to inflation and, in certain cases, commodity price risk. Furthermore, servicesprovided by infrastructure investments may be subject to rate regulations by government entities that determines or limits 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 reducing the profitability of suchinfrastructure investments.In addition, investments in real assets may cause adverse tax consequences for certain non‑U.S. unitholders regarding income effectively connected with theconduct of a U.S. trade or business and the imposition of certain tax withholding. Please see “-Risks Related to U.S. Taxation-Non‑ U.S. persons face unique U.S.tax issues from owning our common units that may result in adverse tax consequences to them”. Moreover, investments in real assets may also require all ourunitholders to file tax returns and pay taxes in various state and local jurisdictions in the U.S. and abroad where these real assets are located. Please see “RisksRelated to U.S. Taxation-Holders of our common units may be subject to state, local and foreign taxes and return filing requirements as a result of owning suchcommon units”.Certain of our funds and CLOs and our firm through our principal assets hold high‑‑yield, below investment grade or unrated debt, or securities of companiesthat are experiencing significant financial or business difficulties, which generally entail greater risk, and if those losses are realized, it could adversely affectour results of operations, and our cash available for distribution to unitholders.Certain of our funds and CLOs in our Public Markets segment and our firm through our principal assets 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 ofhigh yield or unrated debt may be highly leveraged, and their relatively high debt‑to‑equity ratios create increased risks that their operations might not generatesufficient 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, investmentsmay be made in loans and other forms of debt that are not marketable securities and therefore are not liquid. In the absence of appropriate 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 maynot 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 orsufficient 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 sameobligor 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 resultof having no direct contractual relationship with underlying borrowers. Debt securities and instruments may be rated below investment grade by recognized ratingagencies or unrated and face ongoing uncertainties and exposure to adverse business, financial or economic conditions and the issuer’s failure to make timelyinterest and principal payments.Certain of our investment funds, especially in our special situations strategy, and our firm through principal assets may hold interests in business enterprisesinvolved in work‑outs, liquidations, reorganizations, bankruptcies and similar transactions and may purchase high risk receivables. An investment in such businessenterprises 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 adistribution 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 ofwhich such distribution is received. In addition, if an anticipated transaction does not in fact occur, we or the fund may be required to sell the investment at a loss.Investments in troubled companies may also be adversely affected by U.S. federal and state and non‑U.S. laws relating to, among other things, fraudulentconveyances, 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 ofreorganization in a bankruptcy case may also involve substantial litigation, which has the potential to adversely impact us or unrelated funds or portfolio companies.Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies, there is a potential risk of loss of theentire investment in65Table of Contentssuch company. Such investments involve a substantial degree of risk, and a decline in value of the assets would have a material adverse effect on our financialperformance.Our investment in Nephila is exposed to natural catastrophe and weather risk.Our investment in Nephila, an investment manager focused on investing in natural catastrophe and weather risk, is exposed to a risk of reduced revenuesresulting from natural disasters. Because catastrophic loss events are by their nature unpredictable, historical results of operations of Nephila may not be indicativeof its future results of operations. As a result of the occurrence of one or more major catastrophes in any given period, the expected returns from this investmentmay fall short of our expectations.We often pursue investment opportunities that involve business, regulatory, legal or other complexities.As an element of our investment style, we often pursue complex investment opportunities. This can often take the form of substantial business, regulatory orlegal complexity that would deter other investment managers. Our tolerance for complexity presents risks, as such transactions can be more difficult, expensive andtime consuming to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions; and such transactionssometimes entail a higher level of regulatory scrutiny, the application of complex tax laws or a greater risk of contingent liabilities. Our transactions involvecomplex tax structures that are costly to establish, monitor and maintain, and as we pursue a larger number of transactions across multiple assets classes and inmultiple jurisdictions, such costs will increase and the risk that a tax matter is overlooked or inadequately or inconsistently addressed will increase. Consequently,we may fail to achieve the desired tax benefit or otherwise decrease the returns of our investments or damage the reputation of our firm. Changes in law andregulation and in the enforcement of existing law and regulation, such as antitrust laws and tax laws, also adds complexity and risk to our business. Further, we,directly or through our funds, may acquire an investment that is subject to contingent liabilities, which could be unknown to us at the time of acquisition or, if theyare 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 forus or our funds. In addition, in connection with the disposition of an investment in a portfolio company, we or a fund may be required to make representations aboutthe business and financial affairs of such portfolio company typical of those made in connection with the sale of a business. We or a fund may also be required toindemnify the purchasers of such investment to the extent that any such representations are inaccurate. These arrangements may result in the incurrence ofcontingent liabilities by us or a fund, even after the disposition of an investment. Any of these risks could harm the performance of us or our funds.Our private equity investments are typically among the largest in the industry, which involves certain complexities and risks that are not encountered in small‑‑and medium‑‑sized investments.Our private equity funds make investments in companies with relatively large capitalizations, which involves certain complexities and risks that are notencountered in small‑ and medium‑sized investments. For example, larger transactions may be more difficult to finance and exiting larger deals may presentincremental challenges. In addition, larger transactions may pose greater challenges in implementing changes in the company’s management, culture, finances oroperations, and may entail greater scrutiny by regulators, interest groups and other third parties. These constituencies may be more active in opposing some largerinvestments by certain private equity firms.In some transactions, the amount of equity capital that is required to complete a large capitalization private equity transaction may be significant and arerequired to be structured as a consortium transaction. A consortium transaction involves an equity investment in which two or more other private equity firms servetogether or collectively as equity sponsors. While we have sought to limit where possible the amount of consortium transactions in which we have been involved,we have participated in a significant number of those transactions. Consortium transactions generally entail a reduced level of control by our firm over theinvestment because governance rights must be shared with the other consortium investors. Accordingly, we may not be able to control decisions relating to aconsortium investment, including decisions relating to the management and operation of the company and the timing and nature of any exit, which could result inthe risks described in “-Our funds have made investments in companies that we do not control, exposing us to the risk of decisions made by others with which wemay not agree.” Any of these factors could increase the risk that our larger investments could be less successful. The consequences to our investment funds of anunsuccessful larger investment could be more severe given the size of the investment. Moreover, we have significant co‑investments in such large investments, andas a result the poor performance of any such large investment may have a material adverse impact on our financial results. See “-We and certain of our funds maymake a limited number of investments, or investments that are concentrated in certain geographic regions or asset types, which could negatively affect ourperformance or the performance of our funds to the extent those concentrated investments perform poorly” and “-Because we hold interests in some of our portfoliocompanies both through our management of private equity66Table of Contentsfunds as well as through separate investments in those funds and direct co‑investments, fluctuation in the fair values of these portfolio companies may have adisproportionate impact on the investment income earned by us.”We and our funds have made investments in companies that we do not control, exposing us to the risk of decisions made by others with which we may not agree.We and our funds and accounts hold investments that include debt instruments and equity securities of companies that we do not control, and such investmentsmay comprise an increasing part of our business. Such instruments and securities may be acquired by our funds and accounts through trading activities or throughpurchases of securities from the issuer or we may purchase such instruments and securities on a principal basis. In addition, our funds and accounts may acquireminority equity interests, particularly when making private equity investments in Asia or sponsoring investments as part of a large investor consortium or throughmany of our Public Markets funds, and may also dispose of a portion of their majority equity investments in portfolio companies over time in a manner that resultsin the funds or accounts retaining a minority investment. We and our funds, including our newer private equity funds, have made certain minority investments inpublicly traded companies. We have also increasingly made minority investments in companies including hedge fund managers with our balance sheet assets.Transactions made by companies we do not control could be viewed as unwanted, damage our reputation, and consequently impair our ability to source transactionsin the future. Those investments will be subject to the risk that the company in which the investment is made may make business, financial or managementdecisions 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 notserve our interests. These companies may be subject to complex regulatory requirements and instances of non-compliance by them may subject us to reputationalharm or in certain cases, liability. We are also reliant on the systems and processes of these companies including for financial information and valuations of ourinvestments in or with them, including hedge fund managers and their funds, but we do not control the decisions and judgments made during such processes. Ourinvestments in hedge fund managers through our stakes and seeding business may subject us to additional regulatory complexities or scrutiny if we are deemed tocontrol the company for regulatory purposes, despite our minority interest. These asset managers may also be dependent on their founders and other key persons,and the loss of these key personnel could adversely impact our investment. If any of the foregoing were to occur, the value of the investments held by our funds oraccounts or by us could decrease and our financial condition, results of operations and cash flow could be adversely affected.We make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing incompanies that are based in the United States.Many of our funds, vehicles and accounts invest or have the flexibility to invest a significant portion of their assets in the equity, debt, loans or other securitiesof issuers that are based outside of the United States. A substantial amount of these investments consist of private equity investments made by our private equityfunds. For example, as of December 31, 2015, approximately 49% of the unrealized value of the investments of those funds and accounts was attributable to foreigninvestments. Investing in companies that are based or have significant operations in countries outside of the United States and, in particular, in emerging marketssuch as China and India, Eastern Europe, countries in south and southeast Asia, Brazil, Latin America and Africa, involves risks and considerations that are nottypically associated with investments in companies established in the United States. These risks may include the following:•the possibility of exchange control regulations, restrictions on repatriation of profit on investments or of capital invested, political and social instability,nationalization or expropriation of assets;•the imposition of non‑U.S. taxes and changes in tax law;•differences in the legal and regulatory environment, for example the recognition of information barriers, or enhanced legal and regulatory compliance;•greater levels of corruption and potential exposure to the FCPA and other laws that prohibit improper payments or offers of payments to foreigngovernments, their officials and other third parties;•violations of sanctions regimes;•limitations on borrowings to be used to fund acquisitions or dividends;•limitations on permissible counterparties in our transactions or consolidation rules that effectively restrict the types of businesses in which we may invest;67Table of Contents•political risks generally, including political hostility to investments by foreign or private equity investors;•less liquid markets;•reliance on a more limited number of commodity inputs, service providers and/or distribution mechanisms;•adverse fluctuations in currency exchange rates and costs associated with conversion of investment principal and income from one currency into another;•higher rates of inflation;•less available current information about an issuer;•higher transaction costs;•less government supervision of exchanges, brokers and issuers;•less developed bankruptcy and other laws;•greater application of concepts like equitable subordination, which may, in bankruptcy or insolvency, result in the subordination of debt or other seniorinterests held by our investment funds, vehicles or accounts in companies in which our investment funds, vehicles or accounts also hold equity interests;•difficulty in enforcing contractual obligations;•lack of uniform accounting, auditing and financial reporting standards;•less stringent requirements relating to fiduciary duties;•fewer investor protections; and•greater price volatility.As a result of the complexity of and lack of clear laws, precedent or authority with respect to the application of various income tax laws to our structures, theapplication of rules governing how transactions and structures should be reported is also subject to differing interpretations. In particular, certain jurisdictions haveeither proposed or adopted rules that seek to limit the amount of interest that may be deductible where the lender and the borrower are related parties (or where thirdparty borrowings have been guaranteed by a related party) and in some cases, without regard to whether the lender is a related party, or may seek to interpretexisting rules in a more restrictive manner. In addition, the tax authorities of certain countries have sought to disallow tax deductions for transaction and certainother costs at the portfolio company level either on the basis that the entity claiming the deduction does not benefit from the costs incurred or on other grounds.These measures will most likely adversely affect portfolio companies in those jurisdictions in which our investment funds have investments, and limit the benefitsof additional investments in those countries. Our business is also subject to the risk that similar measures might be introduced in other countries in which ourinvestment funds currently have investments or plan to invest in the future, or that other legislative or regulatory measures that negatively affect their respectiveportfolio investments might be promulgated in any of the countries in which they invest.In addition, certain countries such as Australia, China, India, Japan, Brazil and South Korea, where we have made investments, have sought to tax investmentgains derived by nonresident investors, including private equity funds, from the disposition of the equity in companies operating in those countries. In some casesthis development is the result of new legislation or changes in the interpretation of existing legislation and local authority assertions that investors have a localtaxable presence or are holding companies for trading purposes rather than for capital purposes, or are not otherwise entitled to treaty benefits.Further, the tax authorities in certain countries, such as Australia, Belgium, China, India, Japan, Denmark, Germany, and South Korea have sought to deny thebenefits of income tax treaties or EU Directives with respect to withholding taxes on interest and dividends and capital gains, of nonresident entities. Benefits ofincome tax treaties or EU Directives could be denied under each country's general anti-avoidance rules or on the basis that the entity benefiting from such treaty orDirective68Table of Contentsis not the owner of the income, is a mere conduit inserted primarily to access treaty benefits or Directives, or otherwise lacks substance.These various proposals and initiatives could result in an increase in taxes paid by our funds and/or increased tax withholding with respect to our investors.In July 2013, the Organisation for Economic Co-operation and Development ("OECD") published its Action Plan on Base Erosion and Profit Shifting("BEPS"). The OECD released its final reports in October 2015 describing measures for a reform of the international tax rules to be implemented by the memberstates by the end of 2016. The BEPS project looks at various different ways in which domestic tax rules around the world, and the bilateral double tax treaties thatgovern the interplay between them, could be amended to address issues such as "double non-taxation" or "profit shifting". Among measures published by theOECD, there are specific Actions to prevent treaty abuse, the deductibility of interest expense and neutralizing the effects of certain hybrid mismatch arrangementswhich are potentially very relevant to some of our structures and could have an adverse tax impact on our funds, investors and/or our portfolio companies.As a result of the complexity of our structures, foreign jurisdictions may seek to tax an additional portion of the fee income associated with our managementadvisory activity. Foreign jurisdictions may assert that an additional amount of fee income is subject to local tax, potentially reducing our profits associated withsuch income, although this risk may be mitigated by the availability of foreign tax credits. We or our funds may also inadvertently establish a taxable presence in ajurisdiction because of activities conducted there. Compliance with tax laws and structures in these jurisdictions and the costs of adapting to changes in tax policiesrequire significant oversight and cost.Although we expect that most of the capital commitments of our funds, vehicles and accounts will be denominated in U.S. dollars, our investments and capitalcommitments that are denominated in a foreign currency, such as euro, will be subject to the risk that the value of a particular currency will change in relation to oneor more other currencies. Among the factors that may affect currency values are trade balances, the ability of countries to pay their national debt, levels ofshort‑term interest rates, differences in relative values of similar assets in different currencies, long‑term opportunities for investment and capital appreciation andpolitical developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that such strategies will be effective or evenavailable at all. If we engage in hedging transactions, we may be exposed to additional risks associated with such transactions. See “-Risk management activitiesmay adversely affect the return on our investments.” Furthermore, we or our funds have and expect to continue to invest in European companies and companies thathave operations that may be affected by the Eurozone economy. While concerns about sovereign defaults and the possibility that one or more countries might leavethe European Union or the Eurozone are unresolved, such an event or austerity and other measures introduced in order to limit or contain these issues, could have amaterial adverse effect on investments by our funds in European companies. Legal uncertainty about the funding of euro denominated obligations following anybreak up of or exits from the Eurozone could also materially adversely affect a fund.Third party 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 certain of our funds make capital commitments to those funds that the funds are entitled to call from those investors at any time during prescribedperiods. We depend on fund investors fulfilling their commitments when we call capital from them in order for such funds to consummate investments andotherwise pay their obligations (for example, management fees) when due. Any fund investor that did not fund a capital call would generally be subject to severalpossible penalties, including having a significant amount of existing investment forfeited in that fund. However, the impact of the penalty is directly correlated tothe amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance early in the life of the fund, thenthe forfeiture penalty may not be as meaningful. Investors may in the future also negotiate for lesser or reduced penalties at the outset of the fund, thereby inhibitingour ability to enforce the funding of a capital call. If our fund 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.Our equity investments and many of our debt investments often rank junior to investments made by others, exposing us to greater risk of losing our investment.In many cases, the companies in which we or our funds invest have, or are permitted to have, outstanding indebtedness or equity securities that rank senior toour or our fund’s investment. By their terms, such instruments may provide that their holders are entitled to receive payments of distributions, interest or principalon or before the dates on which payments are to be made in respect of our investment. Also, in the event of insolvency, liquidation, dissolution, reorganization orbankruptcy of a company in which an investment is made, holders of securities ranking senior to our investment would typically be entitled to69Table of Contentsreceive payment in full before distributions could be made in respect of its investment. In addition, debt investments made by us or our funds in our portfoliocompanies may be equitably subordinated to the debt investments made by third parties in our portfolio companies. After repaying senior security holders, thecompany may not have any remaining assets to use for repaying amounts owed in respect of our investment. To the extent that any assets remain, holders of claimsthat rank equally with our investment would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periodsof financial distress or following an insolvency, the ability of us or our funds to influence a company’s affairs and to take actions to protect an investment may besubstantially less than that of the senior creditors.Risk management activities may adversely affect the return on our investments.When managing exposure to market risks, we employ hedging strategies or certain forms of derivative instruments to limit our exposure to changes in therelative values of investments that may result from market developments, including changes in prevailing interest rates and currency exchange rates. The scope ofrisk management activities undertaken by us is selective and varies based on the level and volatility of interest rates, prevailing foreign currency exchange rates, thetypes of investments that are made and other changing market conditions. The use of hedging transactions and other derivative instruments to reduce the effects of adecline 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.However, such activities can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of the position.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 marketdevelopment 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 transactions that we enter into generally will depend on our ability to correctly predict market changes. As aresult, while we may enter into such transactions in order to reduce our exposure to market risks, unanticipated market changes may result in poorer overallinvestment performance than if the hedging or other derivative transaction had not been executed. In addition, the degree of correlation between price movements ofthe instruments used in connection with hedging activities and price movements in a position being hedged may vary. Moreover, for a variety of reasons, we maynot seek or be successful in establishing a perfect correlation between the instruments used in hedging or other derivative transactions and the positions beinghedged. An imperfect correlation could prevent us from achieving the intended result and could give rise to a loss. In addition, it may not be possible to fully orperfectly limit our exposure against all changes in the value of its investments, because the value of investments is likely to fluctuate as a result of a number offactors, some of which will be beyond our control or ability to hedge.While hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks. These arrangements may require theposting of cash collateral, including at a time when a fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires thesale of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, includingpotential tax costs, that reduce the returns generated by a fund. The CFTC has proposed or adopted regulations governing swaps and security‑ based swaps, whichmay limit our trading activities and our ability to implement effective hedging strategies or increase the costs of compliance. See “Risks Related to Our Business-Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatoryfocus or legislative or regulatory changes could result in additional burdens on our business.”The assets of our funds and our firm through our principal assets may make a limited number of investments, or investments that are concentrated in certainissuers, geographic regions or asset types, which could negatively affect our performance or the performance of our funds to the extent those concentratedassets perform poorly.The governing agreements of our funds contain only limited investment restrictions and only limited requirements as to diversification of fund investments,either by geographic region or asset type. Our private equity funds generally permit up to 20% of the fund to be invested in a single company. Similarly, subject tocertain concentration limits, our balance sheet may hold significant exposures to certain issuers, industries or asset classes. As of December 31, 2015, investments inprivate equity, CLOs, alternative credit, energy and real estate each represent more than 5% of our investments on a consolidated segment basis. During periods ofdifficult market conditions or slowdowns in these sectors or geographic regions, decreased revenues, difficulty in obtaining access to financing and increasedfunding costs may be exacerbated by this concentration of investments, which would result in lower investment returns. Because a significant portion of a fund’scapital may be invested in a single investment or portfolio company, a loss with respect to such investment or portfolio company could have a significant adverseimpact on such fund’s capital. Accordingly, a lack of diversification on the part of a fund could adversely affect a fund’s performance and therefore, our financialcondition and results of operations. Where our balance sheet has a significant exposure to an issuer, industry or asset class, as was the case with energy investmentsbeginning in late 2014 through and into70Table of Contents2016, losses may have an even greater impact on our financial condition and results of operations, as we would directly bear the full extent of such losses.Because we hold interests in some of our portfolio companies both through our management of private equity funds as well as through separate investments inthose funds and direct co‑‑investments, fluctuation in the fair values of these portfolio companies may have a disproportionate impact on the investment incomeearned by us.We hold interests in some of our portfolio companies through our management of private equity and other funds, as well as through separate investments inthose funds and co‑investments in certain portfolio companies of such funds. As of December 31, 2015, we hold significant aggregate investments in each of FirstData Corporation and Walgreens Boots Alliance Inc. (the company resulting from Walgreen’s acquisition of Alliance Boots GmbH), which each represent morethan 5% of our investments on a consolidated segment basis. As a result of our disproportionate investment in these companies, or any other portfolio companies forwhich similar investments are held in the future, any fluctuation in the fair values of these portfolio companies may have a disproportionate impact on theinvestment income earned by us as compared to other portfolio companies.Our business activities may give rise to a conflict of interest with our funds.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 toinvestment activities among our various funds and also our own account. For example,•In pursuing the interest of our fund investors, we may take actions that could reduce our AUM or our profits that we could otherwise realize in the shortterm.•We may be required to allocate investment opportunities among investment vehicles that may have overlapping investment objectives, including vehiclesthat may have different fee structures, and among KKR co‑investment vehicles (including vehicles in which KKR employees may investment) and thirdparty co‑investors.•We may, on behalf of our funds or KKR itself, buy, sell, hold or otherwise deal with securities or other investments that may be purchased, sold or held byour other funds or that are otherwise issued by a portfolio company in which our funds invest. Conflicts of interest may arise between a fund, on one hand,and KKR on the other or among our funds including but not limited to those relating to the purchase or sale of investments, the structuring of, or exerciseof rights with respect to investment transactions and the advice we provide to our funds. For example we may sell an investment at a different time or fordifferent consideration than our funds.•We may invest on behalf of our fund or for our own account in a portfolio company of one fund that is a competitor, service provider, supplier, customer,or other counterparty with respect to a portfolio company of another fund.•We may structure an investment in a manner that may be attractive to fund investors or to KKR Holdings L.P., from a tax perspective but that may requirecorporate taxation to unitholders.•A decision to acquire material non‑public information about a company while pursuing an investment opportunity for a particular fund or our own accountmay result in our having to restrict the ability of other funds to take any action.•Our fiduciary obligations to our fund investors may preclude us from pursuing attractive proprietary investment opportunities, in particular as we enter intostrategic relationships with broad investment mandates similar to the investments we make with our balance sheet. Notwithstanding the foregoing, we alsoallocate certain investments, which we believe are not suitable for our funds to our balance sheet.•Conflicts may arise in allocating investments, time, services, expenses or resources among the investment activities of our funds, KKR, otherKKR‑affiliated entities and the employees of KKR.•Our principals have made personal investments in a variety of our investment funds, which may result in conflicts of interest among investors of our fundsor unitholders regarding investment decisions for these funds.•The general partner’s entitlement to receive carried interest from many of our funds may create an incentive for that general partner to make riskier andmore speculative investments on behalf of a fund than would be the case in the absence of such an arrangement. In addition, for our funds that pay carriedinterest based on accrued rather than realized gains, the amount of carried interest to which the general partner is entitled and the timing of its receipt ofcarried interest will depend on the valuation by the general partner of the fund’s investment.71Table of Contents•From time to time, one of our funds may seek to effect a purchase or sale of an investment with one or more of our other funds in a so‑called “crosstransaction”.•The investors in our investment vehicles are based in a wide variety of jurisdictions and take a wide variety of forms, and consequently have diverginginterests among themselves from a regulatory, tax or legal perspective or with respect to investment policies and target risk/return profiles.•We or our affiliates, including our capital markets business, may receive fees or other compensation in connection with specific transactions or differentclients that may give rise to conflicts. The decision to take on an opportunity in one of our businesses may, as a practical matter, also limit the ability ofone or our other businesses to take advantage of other related opportunities.In addition, our funds and accounts also invest in a broad range of asset classes throughout the corporate capital structure. These investments includeinvestments in corporate loans and debt securities, preferred equity securities and common equity securities. In certain cases, we may manage separate funds oraccounts 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’sdebt and may make debt investments in a company that is owned by one of our private equity funds. In those cases, the interests of our funds may not always bealigned, which could create actual or potential conflicts of interest or the appearance of such conflicts. For example, one of our private equity funds could have aninterest in pursuing an acquisition, divestiture or other transaction that, in its judgment, could enhance the value of the private equity investment, even though theproposed transaction would subject one of our credit fund’s debt investments to additional or increased risks. Finally, our ability to effectively implement a publicsecurities strategy may be limited to the extent that contractual obligations entered into in the ordinary course of our private equity business impose restrictions onour engaging in transactions that we may be interested in otherwise pursuing.We may also cause different investment funds to invest in a single portfolio company, for example where the fund that made an initial investment no longer hascapital available to invest. Conflicts may also arise where we make balance sheet investments for our own account or permit employees to invest alongside ourinvestment vehicles or our balance sheet for their own account. In certain cases, we may require that a transaction or investment be approved by fund investors ortheir advisory committees, be approved by an independent valuation expert, be subject to a fairness opinion, be based on arms‑length pricing data or be calculatedin accordance with a formula provided for in a fund’s governing documents prior to the completion of the relevant transaction to address potential conflicts ofinterest. Such instances include principal transactions where we or our affiliates warehouse an investment in a portfolio company for the benefit of one or more ofour funds or accounts pending the contribution of committed capital by the investors in such funds or accounts, follow‑on investments by a fund other than a fundwhich made an initial investment in a company or transactions in which we arrange for one of our funds or accounts to buy a security from, or sell a security to,another one of our funds or accounts.Appropriately dealing with conflicts of interest is complex and difficult and we could suffer reputational damage or potential liability if we fail, or appear tofail, to deal appropriately with conflicts as they arise. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverseeffect on our reputation which could in turn materially adversely affect our business in a number of ways, including as a result of an inability to raise additionalfunds and a reluctance of counterparties to do business with us.Investors in certain of our Public Markets funds may redeem their investments in these funds with minimal notice.Investors in our funds of funds along with those in our long/short credit strategy and other investment vehicles may generally submit redemptions to redeemtheir investments on a quarterly or monthly basis following the expiration of a specified period of time or in certain cases capital may be withdrawn earlier subjectto a fee, in each case subject to the applicable fund’s specific redemption provisions. For certain KKR Prisma funds managed as part of a single investor’s mandatethe length of time to redeem an investment may vary and will depend on the liquidity constraints of each KKR Prisma fund’s underlying hedge fund portfolio.Factors which could result in investors leaving our funds include changes in interest rates that make other investments more attractive, changes in investorperception regarding our focus or alignment of interest, unhappiness with a fund’s performance or investment strategy, changes in our reputation, departures orchanges in responsibilities of key investment professionals, performance and liquidity needs of fund investors. In a declining market or period of economicdisruption or uncertainty, the pace of redemptions and consequent reduction in our AUM could accelerate. The decrease in revenues that would result fromsignificant redemptions from our funds of funds or other similar investment vehicles could have a material adverse effect on our business, revenues, net income andcash flows.A portion of assets invested in our fund of hedge funds strategy are managed through separately managed accounts or entities structured for investment by oneinvestor or related investors whereby we earn management and incentive fees, and we72Table of Contentsintend to continue to seek additional separately managed account or single entity mandates. The investment management agreements we enter into in connectionwith managing separately managed accounts or entities on behalf of certain clients may be terminated by such clients on as little as 30 days’ prior written notice, orless in certain prescribed circumstances. In addition, the boards of directors of certain funds we manage could terminate our advisory engagement of thosecompanies, on as little as 30 days’ prior written notice. Similarly, we provide subadvisory services to other investment advisors and managers. Such investmentadvisors and managers could terminate our subadvisory agreements on as little as 30 days’ prior written notice. In the case of any such terminations, themanagement and incentive fees we earn in connection with managing such account or company would immediately cease, which could result in a significantadverse impact on our revenues.In addition, certain funds in our Public Markets business are registered under the Investment Company Act as management investment companies. These fundsand KKR Credit Advisors (US) LLC, which serves as their investment adviser (or, in the case of the business development company, as its sub‑adviser), are subjectto the Investment Company Act and the rules thereunder. One of these funds is a New York Stock Exchange‑listed closed‑end fund. In addition, the managementfees we are paid for managing investment companies will generally be subject to contractual rights the company’s board of directors (or, in the case of the businessdevelopment company we manage, the investment adviser) has to terminate our management of an account on as short as 60 days’ prior notice. Termination ofthese agreements would reduce the fees we earn from the relevant funds, which could have a material adverse effect on our results of operations.Our funds of funds may be subject to risks related to the limited rights it has to withdraw, transfer or otherwise liquidate its investments.A fund of funds is subject to risks related to the limited rights it has to withdraw, transfer or otherwise liquidate its investments from the underlying hedgefunds or other funds in which it invests. Hedge funds, including those in which our fund of funds are invested and the hedge funds we offer to our fund investors,may make investments or hold trading positions in markets that are volatile and which may become illiquid. Timely divestiture or sale of trading positions can beimpaired by decreased trading volume, increased price volatility, concentrated trading positions, limitations on the ability to transfer positions in highly specializedor structured transactions to which they may be a party, and changes in industry and government regulations. It may be impossible or costly for hedge funds toliquidate positions rapidly in order to meet margin calls, withdrawal requests or otherwise, particularly if there are other market participants seeking to dispose ofsimilar assets at the same time or the relevant market is otherwise moving against a position or in the event of trading halts or daily price movement limits on themarket or otherwise.Moreover, these risks may be exacerbated for funds of funds such as those we manage. For example, if one of our funds of funds were to invest a significantportion of its assets in two or more hedge funds that each had illiquid positions in the same issuer, the illiquidity risk for our funds of hedge funds would becompounded. In 2008 many hedge funds experienced significant declines in value. In many cases, these declines in value were both provoked and exacerbated bymargin calls and forced selling of assets, often at distressed prices. Moreover, certain funds of funds were invested in hedge funds that halted redemptions in theface of illiquidity and other issues, which precluded those funds of funds from receiving their capital back on request. There can be no guarantee that such asituation would not recur, particularly in times of market distress.Terms of the governing documents may also limit a fund of funds’ ability to withdraw, transfer or otherwise liquidate their investments in underlying portfoliofunds. Under the terms of the governing documents of the relevant portfolio funds or other investments, the ability of a fund of funds or account to redeem anyamount invested therein may be subject to certain restrictions and conditions, including restrictions on the redemption of capital for an initial period, restrictions onthe amount of redemptions and the frequency with which redemptions can be made, and investment minimums that must be maintained. Additionally, portfoliofunds typically reserve the right to reduce (“gate”) or suspend redemptions, to set aside (“side pocket”) capital that cannot be redeemed for so long as an event orcircumstance has not occurred or ceased to exist, respectively, and to satisfy redemptions by making distributions in‑kind, under certain circumstances. The abilityof our funds of funds or accounts to redeem portfolio fund interests may be adversely affected to varying degrees by such restrictions depending on, among otherthings, the length of any restricted periods imposed by the portfolio fund, the amount and timing of a requested redemption in relation to the time remaining of anyrestricted periods imposed by portfolio funds, the aggregate amount of redemption requests, the next regularly scheduled redemption dates of such portfolio funds,the imposition of “gates” or suspensions, the use of “side pockets”, the decision by a portfolio fund to satisfy redemptions in‑kind, and the satisfaction of otherconditions.73Table of ContentsInvestments by our fund of funds, other hedge funds and similar investment vehicles and strategic partnerships with hedge fund managers are subject tonumerous additional risks.Investments by one or more hedge funds and investment vehicles with similar characteristics that we currently advise or may organize in the future are subjectto numerous additional risks including the following:•Generally, there are few limitations on the execution of investment strategies of a hedge fund or fund of funds, which are subject to the sole discretion ofthe management company or the general partner of such funds.•Hedge funds may engage in short selling, which is subject to theoretically unlimited loss, in that the price of the underlying security could theoreticallyincrease without limit, thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the security necessaryto cover a short position will be available for purchase. Purchasing securities to close out the short position can itself cause the prices of the securities torise further, thereby exacerbating the loss.•We may enter into credit default swaps (or CDS) as investments or hedges. CDS involve greater risks than investing in the reference obligation directly. Inaddition to general market risks, CDS are subject to risks related to changes in interest rates, credit spreads, credit quality and expected recovery rates ofthe underlying credit instrument. A CDS is a contract in which the protection “buyer” is generally obligated to pay the protection “seller” an upfront or aperiodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. If a creditevent occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverableobligations of the issuer (also known as the reference entity) of the underlying credit instrument referenced in the CDS, or, if the swap is cash settled, theseller may be required to deliver the related net cash amount. The protection buyer will lose its investment and recover nothing should no event of defaultoccur. If an event of default were to occur, the value of the reference obligation received by the protection seller (if any), coupled with the periodicpayments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. If we act as theprotection seller in respect of a CDS contract, we would be exposed to many of the same risks of leverage described herein since if an event of defaultoccurs the seller must pay the buyer the full notional value of the reference obligation.•Hedge funds and investment vehicles with similar characteristics are exposed to the risk that a counterparty will not settle a transaction in accordance withits 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, thuscausing the fund to suffer a loss. Counterparty risk is accentuated for contracts with longer maturities where events may intervene to prevent settlement, orwhere the fund has concentrated its transactions with a single or small group of counterparties. Generally, hedge funds and investment vehicles withsimilar characteristics are not restricted from dealing with any particular counterparty or from concentrating any or all of their transactions with onecounterparty. Moreover, the fund’s internal consideration of the creditworthiness of their counterparties may prove insufficient. The absence of a regulatedmarket to facilitate settlement may increase the potential for losses.•Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their liquidity or operational needs, sothat a default by one institution causes a series of defaults by the other institutions. This systemic risk may adversely affect the financial intermediaries(such as clearing agencies, clearing houses, banks, securities firms and exchanges) with which the hedge funds and investment vehicles with similarcharacteristics interact on a daily basis.•The efficacy of investment and trading strategies depend largely on the ability to establish and maintain an overall market position in a combination offinancial instruments. A hedge fund’s trading orders may not be executed in a timely and efficient manner due to various circumstances, including systemsfailures or human error. In such event, the funds might only be able to acquire some but not all of the components of the position, or if the overall positionwere to need adjustment, the funds might not be able to make such adjustment. As a result, the funds would not be able to achieve the market positionselected by the management company or general partner of such funds, and might incur a loss in liquidating their position.•These funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved, either by expiration ofsuch fund’s term or otherwise. Although we generally expect that investments will be disposed of prior to dissolution or be suitable for in-kind distributionat dissolution, and the general partners of the funds have a limited ability to extend the term of the fund with the consent of fund investors or the advisoryboard of the fund, as applicable, our funds may have to sell, distribute or otherwise dispose of investments at a disadvantageous74Table of Contentstime as a result of dissolution. This would result in a lower than expected return on the investments and, perhaps, on the fund itself.•These funds may rely on computer programs, internal infrastructure and services, quantitative models (both proprietary models and those supplied by thirdparties) and information and data provided by third parties to trade, clear and settle securities and other transactions, among other activities, that are criticalto the oversight of certain funds’ activities. If any such models, information or data prove to be incorrect or incomplete, any decisions made in reliancethereon could expose the funds to potential risks. Any hedging based on faulty models, information or data may prove to be unsuccessful and adverselyimpact a fund’s profits.•Hedge fund investments are also subject to risks relating to investments in commodities, futures, options and other derivatives, the prices of which arehighly volatile and may be subject to the theoretically unlimited risk of loss in certain circumstances, including if the fund writes a call option. Pricemovements of commodities, futures and options contracts and payments pursuant to swap agreements are influenced by, among other things, interest rates,changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments and national andinternational political and economic events and policies. The value of futures, options and swap agreements also depends upon the price of thecommodities underlying them. In addition, hedge funds’ assets are subject to the risk of the failure of any of the exchanges on which their positions tradeor of their clearinghouses or counterparties. Most U.S. commodities exchanges limit fluctuations in certain commodity interest prices during a single dayby imposing “daily price fluctuation limits” or “daily limits,” the existence of which may reduce liquidity or effectively curtail trading in particularmarkets. Our fund of hedge fund business may also be subject to and may subject our firm to extensive regulations, including those of the CommodityFutures Trading Commission and the regulations described under “-Risks Related to Our Business-Extensive regulation of our businesses affects ouractivities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus or legislative or regulatory changescould result in additional burdens on our business”.The hedge fund managers with which we have strategic partnerships are subject to the risks above. To the extent the financial condition of these hedge fundmanagers is adversely affected by these risks, our revenues, AUM and FPAUM may decline.Risks Related to Our Common UnitsAs a limited partnership, we qualify for some exemptions from the corporate governance and other requirements of the NYSE.We are a limited partnership and, as a result, qualify for exceptions from certain corporate governance and other requirements of the rules of the NYSE.Pursuant to these exceptions, limited partnerships may elect, and we have elected, not to comply with certain corporate governance requirements of the NYSE,including the requirements: (i) that the listed company have a nominating and corporate governance committee that is composed entirely of independent directors;(ii) that the listed company have a compensation committee that is composed entirely of independent directors and (iii) that the compensation committee be requiredto consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisers. In addition, as a limited partnership,we are not required to obtain unitholder approval for (a) the issuance of common units to certain related parties where the number of common units exceeds onepercent of the outstanding common units or voting power, (b) the issuance of common units that equals or exceeds 20% of the outstanding common units or votingpower, or (c) a change of control transaction, and we are not required to hold annual unitholder meetings. Accordingly, you do not have the same protectionsafforded to equity holders of entities that are subject to all of the corporate governance requirements of the NYSE.Our founders are able to determine or influence the outcome of any matter that may be submitted for a vote of our limited partners.Very few matters are required to be submitted to a vote of our unitholders, and generally such matters require a majority or more of all the outstanding votingunits. As of February 22, 2016, KKR Holdings owns 361,346,588 KKR Group Partnership Units, or 44% of the outstanding KKR Group Partnership Units.Depending upon the number of units actually voted, we believe our senior employees should generally have sufficient voting power to substantially influencematters subject to a majority or more of all outstanding voting units. Matters that require a vote of a majority of all outstanding voting units include a merger orconsolidation of our business, a sale of all or substantially all of our assets and amendments to our partnership agreement that may be material to holders of ourcommon units. In addition, our limited partnership agreement contains provisions that require a majority vote of all outstanding voting units to make certainamendments to our partnership agreement that would materially and adversely affect all holders of our common units or a particular class of holders of commonunits, and since approximately 44% of our voting units, as of February 22, 2016, are controlled by KKR Holdings, we believe KKR75Table of ContentsHoldings should generally have the ability to substantially influence amendments that could materially and adversely affect the holders of our common units eitheras a whole or as a particular class.The voting rights of holders of our common units are further restricted by provisions in our limited partnership agreement stating that any of our common unitsheld by a person that beneficially owns 20% or more of any class of our common units then outstanding (other than our Managing Partner or its affiliates, or a director subsequently approved transferee of our Managing Partner or its affiliates) cannot be voted on any matter. Our limited partnership agreement also containsprovisions limiting the ability of the holders of our common units to call meetings, to acquire information about our operations, and to influence the manner ordirection of our management. Our limited partnership agreement does not restrict our Managing Partner’s ability to take actions that may result in our partnershipbeing treated as an entity taxable as a corporation for U.S. federal (and applicable state) income tax purposes. Furthermore, holders of our common units would notbe entitled to dissenters’ rights of appraisal under our limited partnership agreement or applicable Delaware law in the event of a merger or consolidation, a sale ofsubstantially all of our assets or any other transaction or event.Our limited partnership agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of our Managing Partner and limit remediesavailable to unitholders for actions that might otherwise constitute a breach of duty. It will be difficult for unitholders to successfully challenge a resolution of aconflict of interest by our Managing Partner or by its conflicts committee.Our limited partnership agreement contains provisions that require holders of our common units to waive or consent to conduct by our Managing Partner andits affiliates that might otherwise raise issues about compliance with fiduciary duties or applicable law. For example, our limited partnership agreement providesthat when our Managing Partner is acting in its individual capacity, as opposed to in its capacity as our Managing Partner, it may act without any fiduciaryobligations to holders of our common units, whatsoever. When our Managing Partner, in its capacity as our general partner, or our conflicts committee is permittedto 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 ManagingPartner or the conflicts committee will be entitled to consider only such interests and factors as it desires, including its own interests, and will have no duty orobligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting us or any holder of our common units and will not be subject toany different standards imposed by our limited partnership agreement, the Delaware Revised Uniform Limited Partnership Act, which is referred to as the DelawareLimited Partnership Act, or under any other law, rule or regulation or in equity. These standards reduce the obligations to which our Managing Partner wouldotherwise be held. See also “-We are a Delaware limited partnership, and there are provisions in our limited partnership agreement regarding exculpation andindemnification of our officers and directors that differ from the Delaware General Corporation Law (DGCL) in a manner that may be less protective of the interestsof our common unitholders.”The above modifications of fiduciary duties are expressly permitted by Delaware law. Hence, we and holders of our common units will only have recourse andbe able to seek remedies against our Managing Partner if our Managing Partner breaches its obligations pursuant to our limited partnership agreement. Unless ourManaging Partner breaches its obligations pursuant to our limited partnership agreement, we and holders of our common units will not have any recourse againstour Managing Partner even if our Managing Partner were to act in a manner that was inconsistent with traditional fiduciary duties. Furthermore, even if there hasbeen a breach of the obligations set forth in our limited partnership agreement, our limited partnership agreement provides that our Managing Partner and its officersand directors will not be liable to us or holders of our common units, for errors of judgment or for any acts or omissions unless there has been a final andnon‑appealable judgment by a court of competent jurisdiction determining that our Managing Partner or its officers and directors acted in bad faith or engaged infraud or willful misconduct. These provisions are detrimental to the holders of our common units because they restrict the remedies available to unitholders foractions that without such limitations might constitute breaches of duty including fiduciary duties.Whenever a potential conflict of interest exists between us and our Managing Partner, our Managing Partner may resolve such conflict of interest. If ourManaging Partner 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 fromunrelated third parties or is fair and reasonable to us, taking into account the totality of the relationships between us and our Managing Partner, then it will bepresumed that in making this determination, our Managing Partner acted in good faith. A holder of our common units seeking to challenge this resolution of theconflict of interest would bear the burden of overcoming such presumption. This is different from the situation with Delaware corporations, where a conflictresolution 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.Also, if our Managing Partner obtains the approval of the conflicts committee of our Managing Partner, the resolution will be conclusively deemed to be fairand reasonable to us and not a breach by our Managing Partner of any duties it may owe to us or holders of our common units. This is different from the situationwith Delaware corporations, where a conflict resolution by a committee consisting solely of independent directors may, in certain circumstances, merely shift theburden of76Table of Contentsdemonstrating unfairness to the plaintiff. If you purchase, receive or otherwise hold a common unit, you will be treated as having consented to the provisions setforth in our limited partnership agreement, including provisions regarding conflicts of interest situations that, in the absence of such provisions, might be considereda breach of fiduciary or other duties under applicable state law. As a result, unitholders will, as a practical matter, not be able to successfully challenge an informeddecision by the conflicts committee.We have also agreed to indemnify our Managing Partner and any of its affiliates and any member, partner, tax matters partner, officer, director, employeeagent, fiduciary or trustee of our partnership, our Managing Partner or any of our affiliates and certain other specified persons, to the fullest extent permitted by law,against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest,settlements or other amounts incurred by our Managing Partner or these other persons. We have agreed to provide this indemnification unless there has been a finaland non‑appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. Wehave also agreed to provide this indemnification for criminal proceedings.Our Managing Partner may exercise its right to call and purchase common units as provided in our limited partnership agreement or assign this right to one ofits affiliates or to us. Our Managing Partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result,a unitholder may have his common units purchased from him at an undesirable time or price. For additional information, see our limited partnership agreement filedas an exhibit to this annual report.Any claims, suits, actions or proceedings concerning the matters described above or any other matter arising out of or relating in any way to the limitedpartnership agreement may only be brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, anyother court in the State of Delaware with subject matter jurisdiction.The market price and trading volume of our common units may be volatile, which could result in rapid and substantial losses for our common unitholders.The market price of our common units may be highly volatile, could be subject to wide fluctuations and could decline significantly in the future. In addition,the trading volume in our common units may fluctuate and cause significant price variations to occur. If the market price of our common units declinessignificantly, you may be unable to sell your common units at an attractive price, if at all. Some of the factors that could negatively affect the price of our commonunits or result in fluctuations in the price or trading volume of our common units include:•variations in our quarterly operating results or distributions, which may be substantial;•our policy of taking a long‑term perspective on making investment, operational and strategic decisions, which is expected to result in significant andunpredictable variations in our quarterly returns;•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 common units sufficiently;•additions or departures of our principals and other key management personnel;•adverse market reaction to any indebtedness we may incur or securities we may issue in the future;•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 business or enforcement of these laws and regulations,or announcements relating to these matters;•a lack of liquidity in the trading of our common units;77Table of Contents•adverse publicity about the investment management or private equity industry generally or individual scandals, specifically; and•general market and economic conditions.An investment in our common units is not an investment in any of our funds, and the assets and revenues of our funds are not directly available to us.Our common units are only securities of KKR & Co. L.P., the holding company of the KKR business. While our historical consolidated and combined financialinformation includes financial information, including assets and revenues, of certain funds on a consolidated basis, and our future financial information willcontinue to consolidate certain of these funds, such assets and revenues are available to the fund and not to us except to a limited extent through management fees,carried interest or other incentive income, distributions and other proceeds arising from agreements with funds, as discussed in more detail in this report.Our common unit price may decline due to the large number of common units eligible for future sale, for exchange, and issuable pursuant to our equityincentive plan and acquisitions.The market price of our common units could decline as a result of sales of a large number of common units in the market or the perception that such sales couldoccur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell common units in the future at a time and at a pricethat we deem appropriate. As of February 22, 2016, we have 457,834,875 common units outstanding, which amount excludes common units beneficially owned byKKR Holdings in the form of KKR Group Partnership Units discussed below and common units available for future issuance under the KKR & Co. L.P. 2010Equity Incentive Plan, which we refer to as our Equity Incentive Plan.As of February 22, 2016, KKR Holdings owns 361,346,588 KKR Group Partnership Units that may be exchanged, on a quarterly basis, for our common unitson a one‑for‑one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. Except for interests held by our foundersand certain interests held by other principals that were vested upon grant, interests in KKR Holdings that are held by our principals are subject to service,performance and/or price-based vesting at the time of grant and, following such vesting, additional restrictions in certain cases on exchanges. During 2015,3,100,780 previously unvested units in KKR Holdings vested. The market price of our common units could decline as a result of the exchange or the perception thatan exchange may occur of a large number of KKR Group Partnership Units for our common units. These exchanges, or the possibility that these exchanges mayoccur, also might make it more difficult for holders of our common units to sell our common units in the future at a time and at a price that they deem appropriate.In addition, we will continue to issue additional common units pursuant to our Equity Incentive Plan. The total number of common units which may be issuedunder our Equity Incentive Plan is equivalent to 15% of the number of fully exchanged and diluted common units outstanding as of the beginning of the year. Theamount may be increased each year to the extent that we issue additional equity. As of February 19, 2016, KKR may issue common units registered on KKR'sregistration statement on Form S-8 (no. 333-171601) for this purpose and may also issue 24.6 million common units under the Equity Incentive Plan that were notregistered on KKR’s registration statement on Form S‑8. In addition previously issued awards that were canceled or are canceled in the future, or in certain cases,withheld in respect of tax withholding obligations, are or will become available for further grant under the terms of the Equity Incentive Plan. See “ExecutiveCompensation-KKR & Co. L.P. Equity Incentive Plan”. In addition, our limited partnership agreement authorizes us to issue an unlimited number of additionalpartnership securities and options, rights, warrants and appreciation rights relating to partnership securities for the consideration and on the terms and conditionsestablished by our Managing Partner in its sole discretion without the approval of our unitholders. In accordance with the Delaware Limited Partnership Act and theprovisions of our partnership agreement, we may also issue additional partner interests that have designations, preferences, rights, powers and duties that aredifferent from, and may be senior to, those applicable to our common units. Similarly, the partnership agreements of the KKR Group Partnerships authorize thegeneral partners of the KKR Group Partnerships to issue an unlimited number of additional securities of the KKR Group Partnerships with such designations,preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the KKR Group Partnerships Units, and which may beexchangeable for KKR Group Partnership Units. In the past, we have issued and sold common units of KKR & Co. L.P. to generate cash proceeds to paywithholding taxes, social benefit payments or similar payments payable by us in respect of awards granted pursuant to the Equity Incentive Plan or the amount ofcash delivered in respect of awards granted pursuant to the Equity Incentive Plan that are settled in cash instead of common units. As of February 19, 2016, we mayissue up to 0.8 million common units as registered on our registration statement on Form S-3 (no. 333-196059) in respect of such withholding taxes and cash settledequity awards.78Table of ContentsWe have used and in the future may continue to use common units as consideration in acquisitions and strategic investments. For example, in connection withKKR’s acquisition of KFN, KKR issued approximately 104.3 million common units of KKR & Co. L.P., in connection with KKR’s acquisition of Avoca, we issuedsecurities exchangeable into 4.9 million common units and in connection with KKR's acquisition of Marshall Wace, we issued approximately 7.3 million commonunits. In addition, in connection with the Prisma and Nephila transactions, we may make certain contingent payments in the form of common units. If our valuationsof these transactions are not accurate or if the value of these acquisitions and investments is not realized, our distributions per common unit and the value of ourcommon units may decline.Risks Related to Our Organizational StructurePotential conflicts of interest may arise among our Managing Partner, our affiliates and us. Our Managing Partner and our affiliates have limited fiduciaryduties to us and the holders of KKR Group Partnership Units, which may permit them to favor their own interests to our detriment and that of the holders ofKKR Group Partnership Units.Our Managing Partner, which is our general partner, will manage the business and affairs of our business, and will be governed by a board of directors that isco‑chaired by our founders, who also serve as our Co‑Chief Executive Officers. Conflicts of interest may arise among our Managing Partner and its affiliates, onthe one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our Managing Partner may favor its own interests and the interests of itsaffiliates over us and our unitholders. These conflicts include, among others, the following:•Our Managing Partner indirectly through its holding of controlling entities determines the amount and timing of the KKR Group Partnership’s investmentsand dispositions, cash expenditures, including those relating to compensation, indebtedness, issuances of additional partner interests, tax liabilities andamounts of reserves, each of which can affect the amount of cash that is available for distribution to holders of KKR Group Partnership Units;•Our Managing Partner is allowed to take into account the interests of parties other than us in resolving conflicts of interest, which has the effect of limitingits duties, including fiduciary duties, to us. For example, our affiliates that serve as the general partners of our funds or as broker‑dealers have fiduciaryand/or contractual obligations to our fund investors or other third parties. Such obligations may cause such affiliates to regularly take actions with respectto the allocation of investments among our investment funds (including funds that have different fee structures), the purchase or sale of investments in ourinvestment funds, the structuring of investment transactions for those funds and the advice and services we provide that comply with these fiduciary andcontractual obligations but that might adversely affect our near‑term results of operations or cash flow. Our Managing Partner will have no obligation tointervene in, or to notify us of, such actions by such affiliates;•Because certain of our principals indirectly hold their KKR Group Partnership Units through KKR Holdings L.P. and its subsidiaries, which are not subjectto corporate income taxation and we hold some of the KKR Group Partnership Units through one or more wholly‑owned subsidiaries that are taxable as acorporation, conflicts may arise between our principals and us relating to the selection and structuring of investments or transactions, declaringdistributions and other matters; without limiting the foregoing, certain investments made by us or through our funds may be determined to be held throughKKR Management Holdings L.P., which would result in less taxation to our principals who are limited partners in KKR Holdings as compared to ourunitholders;•Our Managing Partner, including its directors and officers, has limited its and their liability and reduced or eliminated its and their duties, includingfiduciary duties, under our partnership agreement to the fullest extent permitted by law, while also restricting the remedies available to holders of commonunits for actions that, without these limitations, might constitute breaches of duty, including fiduciary duties. In addition, we have agreed to indemnify ourManaging Partner, including its directors and officers, and our Managing Partner’s affiliates to the fullest extent permitted by law, except with respect toconduct involving bad faith, fraud or willful misconduct;•Our partnership agreement does not restrict our Managing Partner from paying us or our affiliates for any services rendered, or from entering intoadditional contractual arrangements with any of these entities on our behalf, so long as the terms of any such additional contractual arrangements are fairand reasonable to us as determined under our partnership agreement. Neither our limited partnership agreement nor any of the other agreements, contractsand arrangements between us on the one hand, and our Managing Partner and its affiliates on the other, are or will be the result of arm’s‑lengthnegotiations. The conflicts committee will be responsible for, among other things, enforcing our rights and those of our unitholders under certainagreements against KKR Holdings and certain of its subsidiaries and designees, a general partner or limited partner of KKR Holdings, or a person whoholds a partnership or equity interest in the foregoing entities;79Table of Contents•Our Managing Partner and its affiliates will have no obligation to permit us to use any facilities or assets of our Managing Partner and its affiliates, exceptas may be provided in contracts entered into specifically dealing with such use. There will not be any obligation of our Managing Partner and its affiliatesto enter into any contracts of this kind.•Our Managing Partner determines how much debt we incur and that decision may adversely affect any credit ratings we receive;•Our Managing Partner determines which costs incurred by it and its affiliates are reimbursable by us;•Other than as set forth in the confidentiality and restrictive covenant agreements, which in certain cases may only be agreements between our principalsand KKR Holdings and which may not be enforceable by us or otherwise waived, modified or amended, affiliates of our Managing Partner and existingand former personnel employed by our Managing Partner are not prohibited from engaging in other businesses or activities, including those that might bein direct competition with us;•Our Managing Partner controls the enforcement of obligations owed to the KKR Group Partnerships by us and our affiliates; and•Our Managing Partner or our Managing Partner conflicts committee decides whether to retain separate counsel, accountants or others to perform servicesfor us.See “Certain Relationships and Related Transactions, and Director Independence.”Certain actions by our Managing Partner’s board of directors require the approval of the Class A shares of our Managing Partner, all of which are held by oursenior employees.All of our Managing Partner’s outstanding Class A shares are held by our senior employees. Although the affirmative vote of a majority of the directors of ourManaging Partner is required for any action to be taken by our Managing Partner’s board of directors, certain specified actions approved by our Managing Partner’sboard of directors will also require the approval of a majority of the Class A shares of our Managing Partner. These actions consist of the following:•the entry into a debt financing arrangement by us in an amount in excess of 10% of our existing long‑term indebtedness (other than the entry into certainintercompany debt financing arrangements);•the issuance by our partnership or our subsidiaries of any securities that would (i) represent, after such issuance, or upon conversion, exchange or exercise,as the case may be, at least 5% on a fully diluted, as converted, exchanged or exercised basis, of any class of our or their equity securities or (ii) havedesignations, preferences, rights, priorities or powers that are more favorable than those of KKR Group Partnership Units;•the adoption by us of a shareholder rights plan;•the amendment of our limited partnership agreement or the limited partnership agreements of the KKR Group Partnerships;•the exchange or disposition of all or substantially all of our assets or the assets of any KKR Group Partnership;•the merger, sale or other combination of the partnership or any KKR Group Partnership with or into any other person;•the transfer, mortgage, pledge, hypothecation or grant of a security interest in all or substantially all of the assets of the KKR Group Partnerships;•the appointment or removal of a Chief Executive Officer or a Co‑Chief Executive Officer of our Managing Partner or our partnership;•the termination of the employment of any of our officers or the officers of any of our subsidiaries or the termination of the association of a partner with anyof our subsidiaries, in each case, without cause;•the liquidation or dissolution of the partnership, our Managing Partner or any KKR Group Partnership; and•the withdrawal, removal or substitution of our Managing Partner as our general partner or any person as the general partner of a KKR Group Partnership,or the transfer of beneficial ownership of all or any part of a general partner interest in our partnership or a KKR Group Partnership to any person otherthan one of its wholly-owned subsidiaries.80Table of ContentsIn addition, holders representing a majority of the Class A shares of our Managing Partner have the authority to unilaterally appoint our Managing Partner’sdirectors and also have the ability to appoint the officers of our Managing Partner. Messrs. Kravis and Roberts, as the designated members of our Managing Partner,represent a majority of the total voting power of the outstanding Class A shares, when they act together. However, neither of them controls the voting of the Class Ashares, when acting alone.Our common unitholders do not elect our Managing Partner or vote on our Managing Partner’s directors and have limited ability to influence decisionsregarding our business.Our common unitholders do not elect our Managing Partner or its board of directors and, unlike the holders of common stock in a corporation, have onlylimited voting rights on matters affecting our business and therefore limited ability to influence decisions regarding our business. Furthermore, if our commonunitholders are dissatisfied with the performance of our Managing Partner, they have no ability to remove our Managing Partner, with or without cause.The control of our Managing Partner may be transferred to a third party without our consent.Our Managing Partner may transfer its general partner interest to a third party in a merger or consolidation or in a transfer of all or substantially all of its assetswithout our consent or the consent of our common unitholders. Furthermore, the members of our Managing Partner may sell or transfer all or part of their limitedliability company interests in our Managing Partner without our approval, subject to certain restrictions. A new general partner may not be willing or able to formnew 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 alsohave a different investment philosophy, employ investment professionals who are less experienced, be unsuccessful in identifying investment opportunities or havea track record that is not as successful as our track record. If any of the foregoing were to occur, we could experience difficulty in making new investments, and thevalue of our existing investments, our business, our results of operations and our financial condition could materially suffer.We intend to pay periodic distributions to the holders of our common units, but our ability to do so may be limited by our holding company structure andcontractual restrictions.We intend to pay cash distributions on a quarterly basis. We are a holding company and have no material assets other than the KKR Group Partnership Unitsthat we hold through wholly‑owned subsidiaries and have no independent means of generating income. Accordingly, we intend to cause the KKR GroupPartnerships to make distributions on the KKR Group Partnership Units, including KKR Group Partnership Units that we directly or indirectly hold, in order toprovide us with sufficient amounts to fund distributions we may declare. If the KKR Group Partnerships make such distributions, other holders of KKR GroupPartnership Units, including KKR Holdings, will be entitled to receive equivalent distributions pro rata based on their KKR Group Partnership Units.The declaration and payment of any future distributions will be at the sole discretion of our Managing Partner, which may change our distribution policy at anytime. Our Managing Partner will take into account general economic and business conditions, our strategic plans and prospects, our business and investmentopportunities, our financial condition and operating results, compensation expense, working capital requirements and anticipated cash needs, debt and contractualrestrictions and obligations (including payment obligations pursuant to the tax receivable agreement), legal, tax and regulatory restrictions, restrictions or otherimplications on the payment of distributions by us to the holders of KKR Group Partnership Units or by our subsidiaries to us and such other factors as ourManaging Partner may deem relevant. Under the Delaware Limited Partnership Act, we may not make a distribution to a partner if after the distribution all ourliabilities, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property ofthe partnership, would exceed the fair value of our assets. If we were to make such an impermissible distribution, any limited partner who received a distributionand knew at the time of the distribution that the distribution was in violation of the Delaware Limited Partnership Act would be liable to us for the amount of thedistribution for three years. Furthermore, by paying cash distributions rather than investing that cash in our businesses, we risk slowing the pace of our growth, ornot having a sufficient amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise.Our ability to characterize such distributions as capital gains or qualified dividend income may be limited, and you should expect that some or all of suchdistributions may be regarded as ordinary income.81Table of ContentsWe will be required to pay our principals for most of the benefits relating to any additional tax depreciation or amortization deductions we may claim as a resultof the tax basis step‑‑up we receive in connection with subsequent exchanges of our common units and related transactions.We and one or more of our intermediate holding companies are required to acquire KKR Group Partnership Units from time to time pursuant to our exchangeagreement with KKR Holdings. To the extent this occurs, the exchanges are expected to result in an increase in one of our intermediate holding company’s share ofthe tax basis of the tangible and intangible assets of KKR Management Holdings L.P., primarily attributable to a portion of the goodwill inherent in our business,that would not otherwise have been available. This increase in tax basis may increase (for tax purposes) depreciation and amortization and therefore reduce theamount of income tax our intermediate holding companies would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (orincrease loss) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.We are party to a tax receivable agreement with KKR Holdings requiring our intermediate holding company to pay to KKR Holdings or transferees of its KKRGroup Partnership Units 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the intermediate holding companies actuallyrealize as a result of this increase in tax basis, as well as 85% of the amount of any such savings the intermediate holding companies actually realize as a result ofincreases in tax basis that arise due to future payments under the agreement. A termination of the agreement or a change of control could give rise to similarpayments based on tax savings that we would be deemed to realize in connection with such events. This payment obligation will be an obligation of ourintermediate holding companies and not of either KKR Group Partnership. In the event that any of our current or future subsidiaries become taxable as corporationsand acquire KKR Group Partnership Units in the future, or if we become taxable as a corporation for U.S. federal income tax purposes, we expect that each suchentity will become subject to a tax receivable agreement with substantially similar terms. While the actual increase in tax basis, as well as the amount and timing ofany payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of our common units at the time ofthe exchange, the extent to which such exchanges are taxable and the amount and timing of our taxable income, we expect that as a result of the size of the increasesin the tax basis of the tangible and intangible assets of the KKR Group Partnerships, the payments that we may be required to make to our existing owners will besubstantial. The payments under the tax receivable agreement are not conditioned upon our existing owners’ continued ownership of us. We may need to incur debtto finance payments under the tax receivable agreement to the extent our cash resources are insufficient to meet our obligations under the tax receivable agreementas a result of timing discrepancies or otherwise. In particular, our intermediate holding companies’ obligations under the tax receivable agreement would beeffectively accelerated in the event of an early termination of the tax receivable agreement by our intermediate holding companies or in the event of certain mergers,asset sales and other forms of business combinations or other changes of control. In these situations, our obligations under the tax receivable agreement could have asubstantial negative impact on our liquidity.Payments under the tax receivable agreement will be based upon the tax reporting positions that our Managing Partner will determine. We are not aware of anyissue that would cause the IRS to challenge a tax basis increase. However, neither KKR Holdings nor its transferees will reimburse us for any payments previouslymade under the tax receivable agreement if such tax basis increase, or the tax benefits we claim arising from such increase, is successfully challenged by the IRS.As a result, in certain circumstances, payments to KKR Holdings or its transferees under the tax receivable agreement could be in excess of the intermediate holdingcompanies’ cash tax savings. The intermediate holding companies’ ability to achieve benefits from any tax basis increase, and the payments to be made under thisagreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.If we were deemed to be an “investment company” subject to regulation under the Investment Company Act, applicable restrictions could make it impracticalfor us to continue our business as contemplated and could have a material adverse effect on our business.A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:•it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or•absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets(exclusive of U.S. government securities and cash items) on an unconsolidated basis.We believe that we are engaged primarily in the business of providing investment management services and not in the business of investing, reinvesting ortrading in securities. We regard ourselves as an investment management firm and do not82Table of Contentspropose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are an “orthodox” investmentcompany as defined in Section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above.With regard to the provision described in the second bullet point above, we have no material assets other than our equity interests in subsidiaries, which in turnhave no material assets other than equity interests, directly or indirectly, in the KKR Group Partnerships. Through these interests, we indirectly are the sole generalpartners of the KKR Group Partnerships and indirectly are vested with all management and control over the KKR Group Partnerships. We do not believe our equityinterests in our subsidiaries are investment securities, and we believe that the capital interests of the general partners of our funds in their respective funds areneither securities nor investment securities. Accordingly, based on our determination, less than 40% of the partnership’s total assets (exclusive of U.S. governmentsecurities and cash items) on an unconsolidated basis are comprised of assets that could be considered investment securities. However, our subsidiaries have asignificant number of investment securities, and we expect to make investments in other investment securities from time to time. We monitor these holdingsregularly to confirm our continued compliance with the 40% test described in the second bullet point above. The need to comply with this 40% test may cause us torestrict our business and subsidiaries with respect to the assets in which we can invest and/or the types of securities we may issue, sell investment securities,including on unfavorable terms, acquire assets or businesses that could change the nature of our business or potentially take other actions which may be viewed asadverse by the holders of our common units, in order to ensure conformity with exceptions provided by, and rules and regulations promulgated under, theInvestment Company Act.With respect to our subsidiary KFN, we believe it is not and does not propose to be primarily engaged in the business of investing, reinvesting or trading insecurities, and we do not believe that KFN has held itself out as such. KFN conducts its operations primarily through its majority‑owned subsidiaries, each of whichis either outside of the definition of an investment company as defined in the Investment Company Act or excepted from such definition under the InvestmentCompany Act. KFN monitors its holdings regularly to confirm its continued compliance with the 40% test described in the second bullet point above, and restrictsits subsidiaries with respect to the assets in which each of them can invest and/or the types of securities each of them may issue in order to ensure conformity withexceptions provided by, and rules and regulations promulgated under, the Investment Company Act. If the SEC were to disagree with KFN’s treatment of one ormore of its subsidiaries as being excepted from the Investment Company Act, with its determination that one or more of its other holdings are not investmentsecurities for purposes of the 40% test, or with its determinations as to the nature of its business or the manner in which it holds itself out, KFN and/or one or moreof its subsidiaries could be required either (i) to change substantially the manner in which it conducts its operations to avoid being subject to the InvestmentCompany Act or (ii) to register as an investment company. Either of these would likely have a material adverse effect on KFN, its ability to service its indebtednessand to make distributions on its shares, and on the market price of its shares and securities, and could thereby materially adversely affect our business, financialcondition and results of operations.The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among otherthings, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equitysecurities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not bedeemed to be an investment company under the Investment Company Act. If anything were to happen which would cause the partnership to be deemed to be aninvestment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital structure,ability to transact business with affiliates and ability to compensate key employees, would make it impractical for us to continue our business as currentlyconducted, impair the agreements and arrangements between and among the partnership, the KKR Group Partnerships and KKR Holdings, or any combinationthereof, and materially adversely affect our business, financial condition and results of operations. In addition, we may be required to limit the amount ofinvestments that we make as a principal, potentially divest of our investments or otherwise conduct our business in a manner that does not subject us to theregistration and other requirements of the Investment Company Act.On August 31, 2011 the SEC published an advance notice of proposed rulemaking regarding Rule 3a‑7 and a concept release seeking information onSection 3(c)(5)(C), two provisions with which KKR’s subsidiaries, including KFN, must comply under the 40% test described above. Among the issues for whichthe SEC has requested comment is whether Rule 3a‑7 should be modified so that parent companies of subsidiaries that rely on Rule 3a‑7 should treat their interestsin such subsidiaries as investment securities for purposes of the 40% test. The SEC is also seeking information about the nature of entities that invest in mortgagesand mortgage‑related pools and how the SEC staff’s interpretive positions in connection with Section 3(c)(5)(C) affect these entities. Any guidance or action fromthe SEC or its staff, including changes that the SEC may ultimately propose and adopt to the way Rule 3a‑7 applies to entities or new or modified interpretivepositions related to83Table of ContentsSection 3(c)(5)(C), could further inhibit KKR’s ability, or the ability of any of its subsidiaries, including KFN, to pursue its current or future operating strategies,which could have a material adverse effect on us.We are a Delaware limited partnership, and there are certain provisions in our limited partnership agreement regarding exculpation and indemnification of ourofficers and directors that differ from the Delaware General Corporation Law (DGCL) in a manner that may be less protective of the interests of our commonunitholders.Our limited partnership 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 knowingviolations 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 directorderived an improper personal benefit. In addition, our limited partnership agreement provides that we indemnify our directors and officers for acts or omissions tothe fullest extent provided by law. However, under the DGCL, a corporation can only indemnify directors and officers for acts or omissions if the director or officeracted 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 noreasonable cause to believe his conduct was unlawful. Accordingly, our limited partnership agreement may be less protective of the interests of our commonunitholders, when compared to the DGCL, insofar as it relates to the exculpation and indemnification of our officers and directors. See also “-Our limitedpartnership agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of our limited partner and limit remedies available forunitholders for actions that might otherwise constitute a breach of duty. It will be difficult for unitholders to successfully challenge a resolution of a conflict ofinterest by our Managing Partner or by its conflicts committee.”Risks Related to U.S. TaxationIf we were treated as a corporation for U.S. federal income tax or state tax purposes, then our distributions to you would be substantially reduced and the valueof our common units could be adversely affected.The value of your investment in us depends in part on our being treated as a partnership for U.S. federal income tax purposes, which requires that 90% or moreof our gross income for every taxable year consist of qualifying income, as defined in Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”),and that our partnership not be registered under the Investment Company Act. Qualifying income generally includes dividends, interest, capital gains from the saleor other disposition of stocks and securities, gain from the sale or other disposition of real property, real property rents, income and gains from energy and oil andgas investments and certain other forms of investment income. We intend to structure our investments so as to satisfy these requirements, including by generallyholding investments that generate non‑qualifying income through one or more subsidiaries that are treated as corporations for U.S. federal income tax purposes.Nonetheless, we may not meet these requirements, may not correctly identify investments that should be owned through corporate subsidiaries, or current law maychange so as to cause, in any of these events, us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to U.S. federal incometax. We have not requested, and do not plan to request, a ruling from the IRS, on this or any other matter affecting us.If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal, state and local income tax on our taxable income at theapplicable tax rates. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits wouldotherwise flow through to you. Because a tax would be imposed upon us as a corporation, our distributions to you would be substantially reduced which could causea reduction in the value of our common units.Our unitholders may be subject to U.S. federal income tax on their share of our taxable income, regardless of whether they receive any cash distributions, andthey may recognize income in excess of cash distributions.As long as 90% of our gross income for each taxable year constitutes qualifying income as defined in Section 7704 of the Code and we are not registered as aninvestment company under the Investment Company Act on a continuing basis, and assuming there is no change in law, we will be treated, for U.S. federal incometax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Accordingly, each unitholder will be required totake into account its allocable share of our items of income, gain, loss and deduction. Distributions to a unitholder will generally be taxable to the unitholder forU.S. federal income tax purposes only to the extent the amount distributed exceeds the unitholder's tax basis in the unit. That treatment contrasts with the treatmentof a shareholder in a corporation. For example, a shareholder in a corporation who receives a distribution of earnings from the corporation will generally report thedistribution as dividend income for U.S. federal income tax purposes. In contrast, a holder of our units who receives a distribution of earnings from us will notreport the distribution as dividend income (and will treat the distribution as taxable only to the extent the amount84Table of Contentsdistributed exceeds the unitholder's tax basis in the units), but will instead report the holder's allocable share of items of our income for U.S. federal income taxpurposes. As a result, a unitholder may be subject to U.S. federal, state, local and possibly, in some cases, foreign income taxation on its allocable share of our itemsof income, gain, loss, deduction and credit (including its allocable share of those items of any entity in which we invest that is treated as a partnership or isotherwise subject to tax on a flow through basis) for each of our taxable years ending with or within the unitholder’s taxable year, regardless of whether or not suchunitholder receives cash distributions. See “-Risks Related to Our Business-The U.S. Congress has considered legislation that would have (i) in some cases after aten‑year period, precluded us from qualifying as a partnership or required us to hold carried interest through taxable subsidiary corporations and (ii) taxed certainincome and gains at increased rates. If any similar legislation were to be enacted and apply to us, the after‑tax income and gain related to our business, as well as themarket price of our units, could be reduced.”You should not expect to receive cash distributions equal to your allocable share of our net taxable income, because, among other things, we currently have afixed distribution policy. In addition, certain of our holdings, including holdings, if any, in controlled foreign corporations, or a CFCs, passive foreign investmentcompanies, or a PFICs, or entities treated as partnerships for U.S. federal income tax purposes, may produce taxable income prior to the receipt of cash relating tosuch income, and holders of our common units that are U.S. taxpayers may be required to take such income into account in determining their taxable income. In theevent of an inadvertent termination of the partnership status for which the IRS has granted limited relief, each holder of our common units may be obligated to makesuch adjustments as the IRS may require to maintain our status as a partnership. Such adjustments may require the holders of our common units to recognizeadditional amounts in income during the years in which they hold such units. In addition, because of our methods of allocating income and gain among holders ofour common units, you may be taxed on amounts that accrued economically before you became a unitholder.We can make no assurances that our cash distributions to you will be sufficient to cover your tax liability arising from your investment in us in any given year,quarter or other period. We are under no obligation to make any distribution, and we generally do not make annual tax distributions. In addition, in certaincircumstances, we may not be able to make any distributions or will only be making distributions in amounts less than your tax liability attributable to yourinvestment in us. To the extent taxable income is allocated to you in excess of the cash distributions made, the excess amount would typically be applied to increasethe tax basis of your investment in us under applicable U.S. federal tax laws. Furthermore, when we make cash distributions, we anticipate making cashdistributions on a quarterly basis while allocating taxable income on a monthly basis. As a result, if you dispose of your common units, you may be allocatedtaxable income during the time you held your common units without receiving any cash distributions corresponding to that period. Moreover, when an investment isrealized at the end of a fiscal quarter, taxable income allocable to such realization is generally made during the same taxable period, but the distribution, if any,generated by such realization may not be paid until a later period. Accordingly, you should ensure that you have sufficient cash flow from sources other than ourcash distributions to pay for all of your tax liabilities.Our interests in certain of our businesses will be held through intermediate holding companies, which will be treated as corporations for U.S. federal incometax purposes; such corporations may be liable for significant taxes and may create other adverse tax consequences, which could potentially adversely affect thevalue of our common units.In light of the publicly traded partnership rules under U.S. federal income tax laws and other requirements, we will hold our interest in certain of our businessesthrough intermediate holding companies, which will be treated as corporations for U.S. federal income tax purposes. The intermediate holding companies organizedin the United States or otherwise subject to regular U.S. federal income taxation will be liable for U.S. federal income taxes at regular rates on all of their taxableincome as well as applicable state, local and other taxes. These taxes would reduce the amount of distributions available to be made on our common units. Inaddition, these taxes could be increased if the IRS were to successfully reallocate deductions or income of the related entities conducting our business.Changes in U.S. tax law could adversely affect our ability to raise funds from certain foreign investors.Under legislation known as the U.S. Foreign Account Tax Compliance Act, or FATCA, U.S. withholding agents and all entities in a broadly defined class offoreign financial institutions, or FFIs, are required to comply with a complicated and expansive reporting regime or be subject to a 30% United States withholdingtax on certain U.S. payments (and beginning in 2019, a 30% withholding tax on gross proceeds from the sale of U.S. stocks and securities) and non‑U.S. entitieswhich are not FFIs are required to either certify they have no substantial U.S. beneficial ownership or to report certain information with respect to their substantialU.S. beneficial ownership or be subject to a 30% U.S. withholding tax on certain U.S. payments (and beginning in 2019, a 30% withholding tax on gross proceedsfrom the sale of U.S. stocks and securities). The reporting85Table of Contentsobligations imposed under FATCA and related intergovernmental require FFIs to enter into agreements with the IRS and other jurisdictions to obtain and discloseinformation about certain fund investors to the IRS. In addition, the administrative and economic costs of compliance with FATCA may discourage some foreigninvestors from investing in U.S. funds, which could adversely affect our ability to raise funds from these investors.We may hold or acquire certain investments through an entity classified as a PFIC or CFC for U.S. federal income tax purposes.Certain of our investments may be in foreign corporations or may be acquired through a foreign subsidiary that would be classified as a corporation for U.S.federal income tax purposes. Such an entity may be PFIC for U.S. federal income tax purposes. In addition, we may hold certain investments in foreign corporationsthat are treated as CFCs. Unitholders may experience adverse U.S. tax consequences as a result of holding an indirect interest in a PFIC or CFC. These investmentsmay produce taxable income prior to the receipt of cash relating to such income, and unitholders that are U.S. taxpayers will be required to take such income intoaccount in determining their gross income subject to tax. In addition, all or a portion of gain on the sale of a CFC may be taxable at ordinary income rates. Further,with respect to gain on the sale of and excess distributions from a PFIC for which an election for current inclusions is not made, such income would be taxable atordinary income rates and be subject to an additional tax charge equivalent to an interest charge on the deferral of income inclusions from that PFIC.Tax gain or loss on disposition of our common units could be more or less than expected.If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your adjusted tax basis allocated tothose common units. Prior distributions to you in excess of the total net taxable income allocated to you will have decreased the tax basis in your common units.Therefore, such excess distributions will increase your taxable gain, or decrease your taxable loss, when the common units are sold and may result in a taxable gaineven if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, may be ordinary income to you.Unitholders may be allocated taxable gain on the disposition of certain assets, even if they did not share in the economic appreciation inherent in such assets.We and our intermediate holding companies will be allocated taxable gains and losses recognized by the KKR Group Partnerships based upon our percentageownership in each KKR Group Partnership. Our share of such taxable gains and losses generally will be allocated pro rata to our unitholders. In somecircumstances, under the U.S. federal income tax rules affecting partners and partnerships, the taxable gain or loss allocated to a unitholder may not correspond tothat unitholder’s share of the economic appreciation or depreciation in the particular asset. This is primarily an issue of the timing of the payment of tax, rather thana net increase in tax liability, because the gain or loss allocation would generally be expected to be offset as a unitholder sells units.Non‑‑U.S. persons face unique U.S. tax issues from owning our common units that may result in adverse tax consequences to them.We expect that a portion of our income will be treated as income effectively connected with a U.S. trade or business for U.S. federal income tax purposes, orECI, with respect to non-U.S. unitholders, including by reason of investments in certain U.S. real property holding corporations, real estate investment trusts (orREITS), real estate assets and energy assets. To the extent our income is treated as ECI, non‑U.S. unitholders generally would be subject to withholding tax on theirallocable share of such income, would be required to file a U.S. federal income tax return for such year reporting their allocable share of income effectivelyconnected 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 suchincome (state and local income taxes and filings may also apply in that event). Non‑U.S. unitholders that are corporations may also be subject to a 30% branchprofits tax (potentially reduced under an applicable treaty) on their actual or deemed distributions of such income. In addition, distributions to non‑U.S. unitholdersthat are attributable to profits on the sale of a U.S. real property interest may also be subject to 30% withholding tax. Also, non‑U.S. unitholders may be subject to30% withholding on allocations of our income that are U.S. source fixed or determinable annual or periodic income under the Code, unless an exemption from or areduced rate of such withholding applies (under an applicable treaty of the Code) and certain tax status information is provided. Finally, if we are treated as beingengaged in a U.S. trade or business, a portion of any gain recognized by non‑U.S. unitholders on the sale or exchange of common units may be treated for U.S.federal income tax purposes as ECI, and hence such non‑U.S. unitholders could be subject to U.S. federal income tax on the sale or exchange of common units.86Table of ContentsTax‑‑exempt entities and tax-exempt or tax-deferred accounts face unique tax issues from owning common units that may result in adverse tax consequences tothem.Generally, a tax‑exempt partner of a partnership would be treated as earning unrelated business taxable income, or UBTI, if the partnership regularly engagesin a trade or business that is unrelated to the exempt function of the tax‑exempt partner, if the partnership derives income from debt financed property or if thepartner interest itself is debt‑financed. As a result of our ownership of real estate assets and energy assets and incurrence of acquisition indebtedness we will deriveincome that constitutes UBTI. Consequently, a holder of common units that is a tax‑exempt entity (including an individual retirement account, or IRA, or a 401(k)plan participant) will likely be subject to unrelated business income tax to the extent that its allocable share of our income consists of UBTI and thus may be subjectto U.S. federal income taxes and U.S. federal income tax reporting with respect to such income. In addition, a tax‑exempt investor may be subject to unrelatedbusiness income tax on a sale of their common units.We cannot match transferors and transferees of common units, and we will therefore adopt certain income tax accounting conventions that may not conformwith all aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect the value of our common units.Because we cannot match transferors and transferees of common units, we have adopted depreciation, amortization and other tax accounting positions that maynot conform with all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefitsavailable to our unitholders. It also could affect the timing of these tax benefits or the amount of gain on the sale of common units and could have a negative impacton the value of our common units or result in audits of and adjustments to our unitholders’ tax returns.In addition, our taxable income and losses are determined and apportioned among unitholders using conventions we regard as consistent with applicable law.As a result, if you transfer your common units, you may be allocated income, gain, loss and deduction realized by us after the date of transfer. Similarly, a transfereemay be allocated income, gain, loss and deduction realized by us prior to the date of the transferee’s acquisition of our common units. A transferee may also bearthe cost of withholding tax imposed with respect to income allocated to a transferor through a reduction in the cash distributed to the transferee.The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our partnership for U.S. federal income tax purposes.We will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in ourcapital and profits within a 12‑month period. A termination of our partnership would, among other things, result in the closing of our taxable year for all unitholdersand may make it more likely that we are unable to meet the qualifying income requirements necessary to maintain our status as a partnership for U.S. federalincome tax purposes.Holders of our common units may be subject to state, local and foreign taxes and return filing requirements as a result of owning such units.In addition to U.S. federal income taxes, holders of our common units may be subject to other taxes, including state, local and foreign 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 the holders of ourcommon units do not reside in any of those jurisdictions. Holders of our common units may be required to file state and local income tax returns and pay state andlocal income taxes in some or all of these jurisdictions in the U.S. and abroad. Further, holders of our common units may be subject to penalties for failure tocomply with those requirements. It is the responsibility of each unitholder to file all U.S. federal, state, local and foreign tax returns that may be required of suchunitholder. In addition our investments in real assets may expose unitholders to additional adverse tax consequences. See “-Our investments in real assets such asreal estate and energy may expose us to increased risks and liabilities and may expose our unitholders to adverse tax consequences.”Certain U.S. holders of common units are subject to additional tax on “net investment income.”U.S. holders that are individuals, estates or trusts are subject to a Medicare tax of 3.8% 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 gainattributable to the disposition of investment property. It is anticipated that net income and gain attributable to an investment in our common units will be included ina U.S. holder’s “net investment income” subject to this Medicare tax.87Table of ContentsWe may not be able to furnish to each unitholder specific tax information within 90 days after the close of each calendar year, which means that holders ofcommon units 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.As a publicly traded partnership, our operating results, including distributions of income, dividends, gains, losses or deductions, and adjustments to carryingbasis, will be reported on Schedule K‑1 and distributed to each unitholder annually. It may require longer than 90 days after the end of our fiscal year to obtain therequisite information from all lower‑tier entities so that Schedule K‑1s may be prepared for the unitholders. For this reason, holders of common units 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 oftheir income tax return for the taxable year.88Table of ContentsWe may be liable for adjustments to our tax returns as a result of recently enacted legislation.Legislation was recently enacted that significantly changes the rules for U.S. federal income tax audits of partnerships. Such audits will continue to beconducted at a partnership level, but with respect to tax returns for taxable years beginning after December 31, 2017, unless a partnership qualifies for andaffirmatively elects an alternative procedure, any adjustments to the amount of tax due (including interest and penalties) will be payable by the partnership. Underthe elective alternative procedure, a partnership would issue information returns to persons who were partners in the audited year, who would then be required totake the adjustments into account in calculating their own tax liability, and the partnership would not be liable for the adjustments. If a partnership elects thealternative procedure for a given adjustment, the amount of taxes for which its partners would be liable would be increased by any applicable penalties and a specialinterest charge. There can be no assurance that we will be eligible to make such an election or that we will, in fact, make such an election for any given adjustment.If we do not or are not able to make such an elections, then (1) our then-current unitholders, in the aggregate, could indirectly bear income tax liabilities in excess ofthe aggregate amount of taxes that would have been due had we elected the alternative procedure, and (2) a given unitholder may indirectly bear taxes attributable toincome allocable to other unitholders or former unitholders, including taxes (as well as interest and penalties) with respect to periods prior to such holder'sownership of common units. Amounts available for distribution to our unitholders may be reduced as a result of our obligation to pay any taxes associated with anadjustment, Many issues and overall effect of this new legislation on us are uncertain, and unitholders should consult their own tax advisors regarding all aspects ofthis legislation as it affects their particular circumstances.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESOur principal executive offices are located in leased office space at 9 West 57th Street, New York, New York. We also lease the space for our other offices. Wedo not own any real property as of December 31, 2015. We consider these facilities to be suitable and adequate for the management and operations of our business.On October 29, 2015, we entered into agreements relating to the construction and development of office space at 30 Hudson Yards in New York, New York toserve as our new corporate headquarters beginning in 2020.ITEM 3. LEGAL PROCEEDINGS The section entitled “Litigation” appearing in Note 17 “Commitments and Contingencies” of our financial statements included elsewhere in this report isincorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 89Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESOur common units representing limited partner interests began trading on the New York Stock Exchange, or NYSE, on July 15, 2010 and are traded under thesymbol "KKR." The following table sets forth the high and low intra-day sales prices per unit of our common units, for the periods indicated, as reported by theNYSE. Sales price 2015 2014 High Low High HighFirst Quarter$25.04 $22.36 $26.50 $22.07Second Quarter$23.79 $22.35 $24.69 $21.20Third Quarter$24.79 $8.00 $25.58 $21.51Fourth Quarter$19.20 $14.33 $23.59 $18.84The number of holders of record of our common units as of February 22, 2016 was 74. This does not include the number of unitholders that hold shares in"street-name" through banks or broker-dealers.Distribution PolicyThe following table presents the distributions paid to holders of our common units at the close of business on the specified record date during fiscal 2014 and2015 :Payment Date Record Date Distribution per unitMarch 4, 2014 February 18, 2014 $0.48May 23, 2014 May 9, 2014 $0.43August 19, 2014 August 4, 2014 $0.67November 18, 2014 November 3, 2014 $0.45March 6, 2015 February 20, 2015 $0.35May 18, 2015 May 4, 2015 $0.46August 18, 2015 August 3, 2015 $0.42November 24, 2015 November 6, 2015 $0.35Our distribution policy for 2014 through the nine months ended September 30, 2015 was to make quarterly cash distributions in amounts that in the aggregateconstituted substantially all of the cash earnings of our investment management business, 40% of the net realized investment income of KKR (other than KFN), and100% of the net realized investment income of KFN, in each case in excess of amounts determined by us to be necessary or appropriate to provide for the conductof our business, to make appropriate investments in our business and our investment funds and to comply with applicable law and any of our debt instruments orother obligations.On October 27, 2015, KKR announced a change to its distribution policy effective beginning with the distribution declared on February 11, 2016 with respect to thequarter ending December 31, 2015. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units in anamount of $0.16 per common unit per quarter. KKR's regular distribution per common unit of $0.16 was declared on February 11, 2016 for the quarter endedDecember 31, 2015.Because we make our investment in our business through a holding company structure and the applicable holding companies do not own any material cash-generating assets other than their direct and indirect holdings in KKR Group Partnership Units, distributions are expected to be funded in the following manner:90Table of Contents• First, the KKR Group Partnerships will make distributions to holders of KKR Group Partnership Units, including the holding companies through whichwe invest, in proportion to their percentage interests in the KKR Group Partnerships;• Second, the holding companies through which we invest will distribute to us the amount of any distributions that they receive from the KKR GroupPartnerships, after deducting any applicable taxes, and• Third, we will distribute to holders of our units the amount of any distributions that we receive from our holding companies through which we invest.The partnership agreements of the KKR Group Partnerships provide for cash distributions, which are referred to as tax distributions, to the partners of suchpartnerships if we determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. However, holders should not expectthe KKR Group Partnerships will make any tax distributions, and there can be no assurance that, for any particular holder, our distributions will be sufficient to paysuch holder's actual U.S. or non-U.S. tax liability.The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P., which maychange the distribution policy at any time, and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intendedor at all, that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. or that any particulardistribution policy will be maintained. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKRbusiness), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships. Furthermore, the declaration and payment ofdistributions is subject to legal, contractual and regulatory restrictions on the payment of distributions by us or our subsidiaries, including restrictions contained inour debt agreements, and such other factors as the board of directors of our Managing Partner considers relevant including, among others, our available cash andcurrent and anticipated cash needs, including funding of investment commitments and debt service and future debt repayment obligations; general economic andbusiness conditions; our strategic plans and prospects; our results of operations and financial condition; and our capital requirements.The board of directors of the general partner of KKR & Co. L.P. may change the distribution policy at any time and from time to time. We are not currentlyrestricted by any contract from making distributions to our unitholders, although certain of our subsidiaries are bound by credit agreements that contain certainrestricted payment and/or other covenants, which may have the effect of limiting the amount of distributions that we receive from our subsidiaries. See"Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Sources of Cash". In addition, under Section 17-607 of theDelaware Limited Partnership Act, we will not be permitted to make a distribution if, after giving effect to the distribution, our liabilities would exceed the fairvalue of our assets.91Table of ContentsCommon Unit Repurchases in the Fourth Quarter of 2015The table below sets forth the information with respect to purchases made by or on behalf of KKR & Co. L.P. or any “affiliated purchaser” (as defined inRule 10b-18(a)(3) under the Securities Exchange Act of 1934) of our common units during the fourth quarter of the year ended December 31, 2015 . Issuer Purchases of Common Units (amounts in thousands, except per unit amounts) Total Number ofUnits Purchased Average Price PaidPer Units Cumulative Numberof Units Purchased asPart of PubliclyAnnounced Plans orPrograms (1) Approximate DollarValue of Units thatMay Yet Be PurchasedUnder the Plans orPrograms Month #1(October 1, 2015 toOctober 31, 2015)— N/A — $500,000 Month #2(November 1, 2015 toNovember 30, 2015)2,108,800 $17.85 2,108,800 $462,349 Month #3(December 1, 2015 toDecember 31, 2015)7,811,092 $15.91 9,919,892 $338,071 Total through December 31, 20159,919,892 Purchases subsequent to December 31, 2015: (January 1, 2016 toFebruary 11, 2016)7,535,292 $14.34 17,455,184 $230,000 Total through February 11, 2016 (date of Earnings Release)17,455,184 (1) On October 27, 2015, KKR announced the authorization of a program providing for the repurchase by KKR of up to $500 million in the aggregate of its outstanding common units. Underthis unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amountof any unit repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. KKRexpects that the program, which has no expiration date, will be in effect until the maximum approved dollar amount has been used to repurchase common units. The program does not requireKKR to repurchase any specific number of common units, and the program may be suspended, extended, modified or discontinued at any time. During the fourth quarter of 2015 in addition to the units repurchased as described in the table above, (1) cash was used to pay the amount of withholding taxes,social benefit payments or similar payments payable by us in respect of awards granted pursuant to the Equity Incentive Plan and (2) cash was delivered in respectof certain awards granted pursuant to the Equity Incentive Plan. These payments represented the equivalent of equity awards representing 1,660,645 KKR commonunits. Since cash was used to settle the amounts in (1) and (2) above, 1,660,645 KKR common units were canceled, and accordingly, such units are no longerincluded in KKR's common unit count on a fully diluted basis.Additionally, during the fourth quarter of 2015 , 3,284,253 KKR Group Partnership Units were exchanged by KKR Holdings and its principals for an equalnumber of our common units, resulting in an increase in our ownership of the KKR Group Partnerships and a corresponding decrease in the ownership of the KKRGroup Partnerships by KKR Holdings.Unregistered Sales of Equity SecuritiesOn September 9, 2015, a subsidiary of KKR & Co. L.P. agreed to acquire a 24.9% equity interest in Marshall Wace for a combination of cash and KKR & Co.L.P. common units. On November 2, 2015, the transaction closed, and KKR & Co. L.P. delivered 7,364,545 common units to the sellers of the Marshall Wacebusiness in partial satisfaction of its obligations under the acquisition agreement. These common units were issued in reliance on Section 4(a)(2) of the SecuritiesAct of 1933, as a transaction by the issuer not involving a public offering. Each of the unit recipients represented that it was an accredited investor. KKR & Co.L.P. also entered into a registration rights agreement with the selling shareholders of Marshall Wace.92Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following tables set forth our selected historical consolidated financial data as of and for the years ended December 31, 2015 , 2014, 2013, 2012 and 2011.We derived the selected historical consolidated financial data as of December 31, 2015 and 2014 and for the years ending December 31, 2015 , 2014 and 2013 fromthe audited consolidated financial statements included elsewhere in this report. We derived the selected historical consolidated financial data as of December 31,2013, 2012 and 2011 and for the years ended December 31, 2012 and 2011 from our audited consolidated financial statements which are not included in this report.You should read the following data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidatedfinancial statements and related notes included elsewhere in this report. Year Ended December 31, 2015 2014 2013 2012 2011 (all dollars are in thousands, except unit and per unit data)Statement of Operations Data: Fees and Other$1,043,768 $1,110,008 $762,546 $568,442 $723,620Less: Total Expenses1,871,225 2,196,067 1,767,138 1,598,788 1,214,005Total Investment Income (Loss)6,169,125 6,544,748 8,896,746 9,101,995 1,456,116Income (Loss) Before Taxes5,341,668 5,458,689 7,892,154 8,071,649 965,731Income Taxes66,636 63,669 37,926 43,405 89,245Net Income (Loss)5,275,032 5,395,020 7,854,228 8,028,244 876,486Net Income (Loss) Attributable toRedeemable Noncontrolling Interests(4,512) (3,341) 62,255 34,963 4,318Net Income (Loss) Attributable toNoncontrolling Interests andAppropriated Capital4,791,062 4,920,750 7,100,747 7,432,445 870,247Net Income (Loss) Attributable toKKR & Co. L.P.$488,482 $477,611 $691,226 $560,836 $1,921 Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit Basic$1.09 $1.25 $2.51 $2.35 $0.01Diluted$1.01 $1.16 $2.30 $2.21 $0.01Weighted Average Common Units Outstanding Basic448,884,185 381,092,394 274,910,628 238,503,257 220,235,469Diluted482,699,194 412,049,275 300,254,090 254,093,160 222,519,174Statement of Financial Condition Data (period end): Total Assets$71,057,759 $65,872,745 $51,427,201 $44,426,353 $40,377,645Total Liabilities$21,590,174 $14,168,684 $4,842,383 $3,020,899 $2,692,995Redeemable Noncontrolling Interests$188,629 $300,098 $627,807 $462,564 $275,507Noncontrolling Interests$43,731,774 $46,004,377 $43,235,001 $38,938,531 $36,080,445Appropriated Capital$— $16,895 $— $— $—Total KKR & Co. L.P. Partners' Capital (1)$5,547,182 $5,382,691 $2,722,010 $2,004,359 $1,328,698 (1)Total KKR & Co. L.P. partners' capital reflects only the portion of equity attributable to KKR & Co. L.P. (56% interest in the KKR Group Partnerships as of December 31, 2015) anddiffers from book value reported on a segment basis primarily as a result of the exclusion of the equity impact of KKR Management Holdings Corp. and allocations of equity to KKRHoldings. KKR Holdings' 44% interest in the KKR Group Partnerships as of December 31, 2015 is reflected as noncontrolling interests and is not included in total KKR & Co. L.P.partners' capital. 93Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements of KKR and the related notes includedelsewhere in this report. The historical consolidated financial data discussed below reflects the historical results and financial position of KKR. In addition, thisdiscussion and analysis contains forward looking statements and involves numerous risks and uncertainties, including those described under “Cautionary NoteRegarding Forward‑looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward looking statements. Overview of Business For a detailed discussion about our businesses, business segments and our firm, see “Item 1--Business.”Business EnvironmentMarket ConditionsGlobal Economic Conditions . As a global investment firm, we are affected by financial and economic conditions globally. Global and regional economicconditions have a substantial impact on our financial condition and results of operations, impacting the values of the investments we make, our ability to exit theseinvestments profitably and our ability to make new investments. According to the Bureau of Economic Analysis as of January 2016, real GDP in the U.S. increasedat a seasonally adjusted annualized rate of 2.4% for the full year ended December 31, 2015. According to the Bureau of Labor Statistics, the U.S. unemploymentrate decreased to 5.0% as of December 31, 2015 compared to 5.6% as of December 31, 2014. As of January 2016, Eurostat projects GDP growth for the full yearended December 31, 2015 in the Euro Area of 1.5% relative to the prior year. Continuing controversy and uncertainty surrounding key issues such as immigration,austerity, and globalization and European Union exit risk surrounding Greece and the United Kingdom may continue to impair growth and lead to volatility. In theevent of an exit, losses incurred by U.K. and Greek counterparties could have adverse repercussions across financial markets, which could adversely affectvaluations within our European investments. As of January 2016, the IMF estimates that China’s economy will expand at a rate of 6.9% for 2015, lower than the7.3% rate in 2014 but higher than its 6.3% estimate for 2016. This slowdown could adversely impact the value of our investments in China and the global economygenerally, and other emerging markets, in particular, could also suffer from weaker Chinese imports of both their commodities and finished goods. In addition, thesharp correction and high volatility in China's stock market coupled with the devaluation of the Chinese yuan may adversely impact the value of our investments inChina and make it more difficult to access capital in those markets. For a further discussion of how market conditions may affect our businesses, see “Risk Factors-Risks Related to Our Business - Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of theinvestments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flowand adversely affect our financial condition.”Global Equity and Credit Markets . Global equity and debt markets have a substantial effect on our financial condition and results of operations. In general, aclimate of reasonable interest rates and high levels of liquidity in the debt and equity capital markets provide a positive environment for us to generate attractiveinvestment returns in our funds that generate carry. Periods of volatility and dislocation in the capital markets present substantial risks, but also can present us withopportunities to invest at reduced valuations that position us for future growth.Most of our investments are in equities, so a change in global equity prices or in market volatility directly impacts the value of our investments and ourprofitability as well as our ability to realize investment gains and the receptiveness of fund investors to our investment products. For the year ended December 31,2015, global equity markets were mixed, with the S&P 500 Index up 1.4% and the MSCI World Index down 0.3% on a total return basis including dividends.However, since December 31, 2015, equity markets have fallen significantly, with the S&P 500 Index down 4.5% and the MSCI World Index down 6.0% on a totalreturn basis including dividends as of February 22, 2016, adversely impacting, at least for the time being, the overall value of our equity investments, in particularour publicly traded securities, including our sizable holding of First Data Corporation (NYSE:FDC). As of February 22, 2016, the market prices of publicly heldequity securities held through our private equity funds and in our Principal Activities segment have declined, which we estimate would result in a decrease of atleast approximately $550 million to our economic net income in the first quarter of 2016 if the market prices of these securities do not appreciate or if the declinesare not offset by gains in other investments or income elsewhere in our business. Of this amount, First Data Corporation accounts for approximately $350 million ofthe decrease. With respect to the total decrease to our economic net income, approximately 55.9% would be allocable to KKR & Co. L.P. The foregoing amounts donot reflect changes in value of any of our investments other than our publicly held equity securities and may not, therefore be reflective of94Table of Contentsour business as a whole. Equity market volatility as evidenced by the Chicago Board Options Exchange Market Volatility Index, or the VIX, a measure of volatility,ended at 18.2 as of December 31, 2015, remaining relatively unchanged from 19.2 as of December 31, 2014. However, since December 31, 2015, equity marketvolatility has increased meaningfully, rising from 18.2 as at December 31, 2015 to 28.1 as at February 11, 2016. For a further discussion of our valuation methods,see “Risk Factors-Risks Related to the Assets We Manage - Our investments are impacted by various economic conditions that are difficult to quantify or predict,and may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our financial condition and results ofoperations” in our Annual Report and “-Critical Accounting Policies-Fair Value Measurements-Level III Valuation Methodologies” in this report.Many of our investments are in credit instruments, and our funds and their portfolio companies also rely on credit financing and the ability to refinance existingdebt. Consequently, any decrease in the value of credit instruments that we have invested in or any increase in the cost of credit financing reduces our returns anddecreases our net income. In particular due in part to holdings of credit assets such as CLOs on our balance sheet, the performance of the credit markets has had anamplified impact on our financial results, as we directly bear the full extent of such losses. Credit markets can also impact valuations because a discounted cashflow analysis is generally used as one of the methodologies used to ascertain the fair value of our investments that do not have readily observable market prices. Inaddition, with respect to our credit investments, increased credit spreads lead to a reduction in the value of these investments, if not offset by hedging or otherfactors. Within credit markets, spreads have widened during the fiscal year ended December 31, 2015 with significant increases in spreads in the third and fourthquarters of the year. Low interest rates related to monetary stimulus and economic stagnation also has negatively impact expected returns on all investments, as thedemand for relatively higher return assets increases and supply decreases. Higher interest rates in conjunction with slower growth or weaker currencies in someemerging market economies may cause the default risk of these countries to increase, and this could impact the operations or value of our investments that operatein these regions. Areas such as the Eurozone and Japan, which have ongoing central bank quantitative easing campaigns and comparatively low interest ratesrelative to the Unites States, could potentially endure further currency volatility and weakness relative to the U.S. dollar.The subinvestment grade credit indices fell during the year ended December 31, 2015, with the S&P/LSTA Leveraged Loan Index down 0.7% and the BoAMLHY Master II Index down 4.6%. In the quarter ended December 31, 2015, government bond yields rose as the U.S. Federal Reserve increased the target range forthe Fed Funds rate by 25 basis points, raising rates for the first time since December 2008. For the year ended December 31, 2015, 10-year government bond yieldsrose 10 basis points in the United States and 9 basis points in Germany and fell 6 basis points in Japan and 80 basis points in China. For further discussion of theimpact of global credit markets on our financial condition and results of operations, see “Risk Factors - Risks Related to the Assets We Manage -Changes in thedebt financing markets may negatively impact the ability of our investment funds, their portfolio companies and strategies pursued with our balance sheet assets toobtain attractive financing for their investments or refinance existing debt 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,” “-Risks Related to the Assets We Manage - Our investments are impacted by various economicconditions that are difficult to quantify or predict, and may have a significant impact on the valuation of our investments and, therefore, on the investment incomewe realize and our financial condition and results of operations” and “- Because we hold interests in some of our portfolio companies both through our managementof private equity funds as well as through separate investments in those funds and direct co-investments, fluctuation in the fair values of these portfolio companiesmay have a disproportionate impact on the investment income earned by us” and “-Critical Accounting Policies-Fair Value Measurements-Level III ValuationMethodologies” in this report.Foreign Exchange Rates . Foreign exchange rates have a substantial impact on the valuations of our investments that are denominated in currencies other thanthe U.S. dollar. Currency volatility, which has become more pronounced in recent quarters, can also affect our businesses which deal in cross‑border trade. The U.S.dollar has appreciated against a number of currencies over recent periods, which is likely to cause a decrease in the U.S. dollar value of our non‑U.S. investments tothe extent unhedged, contributing to portfolio companies that export to the U.S. suffering a decline in revenues, and making the exports of U.S. based companiesless competitive. While this may cause a decrease in the U.S. dollar values of our assets and portfolio companies outside the United States, we also expect it tocreate opportunities to invest at more attractive U.S. dollar prices in certain countries. For the year ended December 31, 2015, the euro and the British pound bothfell 10.2 % and 5.4%, respectively, relative to the U.S. dollar. In China, the potential for greater CNY depreciation remains a large source of uncertainty. Thecumulative devaluation of the yuan since August 2015, which effectively makes Chinese exports cheaper and imports more expensive, may impact global tradesubstantially for the reasons discussed above. For additional information regarding our foreign exchange rate risk, see “Quantitative and Qualitative DisclosureAbout Market Risk - Exchange Rate Risk” in this report.95Table of ContentsCommodity Markets . Our Private Markets portfolio contains energy real asset investments and certain of our Public Markets strategies and products, includingdirect lending, special situations and CLOs, have meaningful investments in energy sector. The value of these investments are heavily influenced by the price ofnatural gas and oil, which have declined meaningfully over the course of the year. The long-term price of WTI crude oil declined from approximately $67 per barrelto $50 per barrel and the long-term price of natural gas declined from approximately $3.77 per mcf to $2.90 per mcf as of December 31, 2014 and December 31,2015, respectively. Since December 31, 2015 the long-term price of WTI crude oil and natural gas has continued to decline with the long-term price of WTI crudeoil at $45 per barrel and the long-term price of natural gas at $2.56 per mcf, in each case as of February 22, 2016. If such decline in prices persists or worsens or if itis not offset by other factors, we would expect the value of our energy real asset investments to be adversely impacted. In addition, due in part to holdings of directenergy assets on our balance sheet, which had a fair value of $0.6 billion as of December 31, 2015, these price movements have had an amplified impact on ourfinancial results, as we directly bear the full extent of such losses. For additional information regarding our energy real assets, see “-Critical Accounting Policies-Fair Value Measurements-Level III Valuation Methodologies-Real Asset Investments” in this report and “Risk Factors - Risks Related to the Assets We Manage -Because we hold interests in some of our portfolio companies both through our management of private equity funds as well as through separate investments in thosefunds and direct co-investments, fluctuation in the fair values of these portfolio companies may have a disproportionate impact on the investment income earned byus” in this report.Business ConditionsOur segment revenues consist of fees, performance income and investment income. Our ability to grow our revenues depends in part on our ability to attractnew capital and investors, our successful deployment of capital including from our balance sheet and our ability to realize investments.•Our ability to attract new capital and investors. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which theycontinue to see the alternative asset management industry generally, and our investment products specifically, as an attractive vehicle for capitalappreciation or income. Since 2010, we have expanded into strategies such as energy, infrastructure, real estate, alternative credit and hedge funds. Inseveral of these strategies, our first time funds have begun raising successor funds, and we expect the cost of raising such successor funds to be lower. Wehave also reached out to a new investor base of retail and high net worth clients. However, fundraising continues to be competitive. While we had severalsuccessful fundraises in 2015 for newer strategies such as real estate, European real estate, infrastructure, direct lending, mezzanine and special situations ,there is no assurance that fundraises for other new strategies or successor funds will experience similar success in the future. While our flagship Americasfund has begun fundraising, our other flagship private equity funds have completed fundraising or are not expected to commence fundraising in early 2016.Consequently, our AUM, FPAUM and associated fees attributable to new capital raised may be lower than in prior years. New capital raised for the fiscalyears ended December 31, 2013, 2014 and 2015 was $21.2 billion, $13.3 billion and $19.8 billion, which in the case of new capital raised in the fiscal yearended December 31, 2015, includes our pro-rata portion of new capital of other asset managers in which we have a minority interest and the inclusion ofnew capital commitments for which KKR is eligible to receive fees or carried interest upon deployment of capital.•Our successful deployment of capital including from our balance sheet. Our ability to maintain and grow our revenue base is dependent upon our abilityto successfully deploy the capital from our funds and our balance sheet. Greater competition, high valuations, increased overall cost of credit and othergeneral market conditions may impact our ability to identify and execute attractive investments. Additionally, because we seek to make investments whichhave an ability to achieve our targeted returns while taking on a reasonable level of risk, we may experience periods of reduced investment activity. Wehave a long‑term investment horizon and the capital deployed in any one quarter may vary significantly from the capital deployed in any other quarter orthe quarterly average of capital deployed in any given year. Reduced levels of transaction activity also tends to result in a reduced potential futureinvestment gains, lower transaction fees and lower fees for our capital markets business, which may earn fees in the syndication of equity or debt. Equityinvested for the fiscal years ended December 31, 2013, 2014 and 2015 were $7.4 billion, $10.2 billion and $7.7 billion, and syndicated capital for the fiscalyears ended December 31, 2013, 2014 and 2015 were $1.1 billion, $2.6 billion and $0.9 billion, such that 2014 reflects unusually high levels of activity forus on a historical basis.•Our ability to sell investments. The strength and liquidity of the U.S. and relevant global equity markets generally, and the initial public offering marketspecifically affects the value of, and our ability to successfully exit, our equity positions in our private equity portfolio companies in a timely manner. Wemay also realize investments through strategic sales. For the fiscal years ended December 31 2013, 2014 and 2015, through exit activity in ourinvestments, we realized carried interest of $0.7 billion, $1.2 billion and $1.0 billion. Since December 31, 2015, we have closed the96Table of Contentsstrategic sales of Dalmia Cement (manufacturing sector), Masan Consumer Corporation (consumer products sector) and Legends Outlets Kansas City (realestate asset). We have also completed a dividend recapitalization at US Foods (retail sector). Such sales, however, are episodic and reduced levels of saleactivity in future quarters would reduce transaction fees, realized carry and distributions.Basis of Accounting We consolidate the financial results of the KKR Group Partnerships and their consolidated subsidiaries, which include the accounts of our investmentmanagement and capital markets companies, the general partners of certain unconsolidated funds and vehicles, general partners of consolidated funds and theirrespective consolidated funds and certain other entities including certain consolidated CLOs and commercial real estate mortgage-backed securities ("CMBS", andtogether with CLOs, referred to hereafter as collateralized financing entities "CFEs").In accordance with accounting principles generally accepted in the United States of America, or GAAP, certain entities, including a substantial number of ourfunds and CFEs, are consolidated notwithstanding the fact that we may hold only a minority economic interest in those entities. In particular, in the majority of ourconsolidated funds and other investment vehicles, we hold a general partner interest that gives us substantive controlling rights over such funds and vehicles. Withrespect to our consolidated funds and vehicles, we generally have operational discretion and control, and fund investors have no substantive rights to impactongoing governance and operating activities of the fund, including the ability to remove the general partner, also known as kick-out rights. As of December 31,2015 , our AUM in our Private Markets segment included 21 consolidated investment funds and 21 unconsolidated investment vehicles. Our AUM in our PublicMarkets segment included 32 consolidated investment vehicles, including CLOs, and 69 unconsolidated vehicles. When an entity is consolidated, we reflect the assets, liabilities, fees, expenses, investment income and cash flows of the consolidated entity on a gross basis.While the consolidation of a consolidated fund or entity does not have an effect on the amounts of net income attributable to KKR or KKR's partners' capital thatKKR reports, the consolidation does significantly impact the financial statement presentation. This is due to the fact that the assets, liabilities, fees, expenses andinvestment income of the consolidated funds and entities are reflected on a gross basis while the allocable share of those amounts that are attributable to third partiesare reflected as single line items. The single line items in which the assets, liabilities, fees, expenses and investment income attributable to third parties are recordedare presented as noncontrolling interests on the consolidated statements of financial condition and net income attributable to noncontrolling interests on theconsolidated statements of operations. For a further discussion of our consolidation policies, see "Item 8. Financial Statements and Supplementary Data--Summaryof Significant Accounting Policies." Key Financial Measures Under GAAP Fees and Other Fees and other consist primarily of (i) transaction fees earned in connection with successful investment transactions and from capital markets activities,(ii) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles and separately managedaccounts, (iii) monitoring fees from providing services to portfolio companies, (iv) revenue earned by oil and gas-producing entities that are consolidated and(v) consulting fees earned by entities that employ non-employee operating consultants. These fees are based on the contractual terms of the governing agreementsand are recognized when earned, which coincides with the period during which the related services are performed and in the case of transaction fees, upon closingof the transaction. Monitoring fees may provide for a termination payment following an initial public offering or change of control. These termination payments arerecognized in the period when the related transaction closes. Fees and other reported in our consolidated financial statements do not include the management or incentive fees that we earn from consolidated funds andother entities, because those fees are eliminated in consolidation. However, because those management and incentive fees are earned from, and funded by, third-party investors who hold noncontrolling interests in the consolidated funds and entities, net income attributable to KKR is increased by the amount of themanagement fees that are eliminated in consolidation. Accordingly, while the consolidation of funds and other entities impacts the amount of fees that arerecognized in our financial statements, it does not affect the ultimate amount of net income attributable to KKR or KKR's partners' capital. For a further discussion of our fee policies, see “Item 8. Financial Statements and Supplementary Data--Summary of Significant Accounting Policies." 97Table of ContentsExpenses Compensation and Benefits Compensation and benefits expense includes cash compensation consisting of salaries, bonuses, and benefits, as well as equity-based compensation consistingof charges associated with the vesting of equity-based awards and carry pool allocations. All employees and employees of certain consolidated entities receive abase salary that is paid by KKR or its consolidated entities, and is accounted for as compensation and benefits expense. These employees are also eligible to receivediscretionary cash bonuses based on performance, overall profitability and other matters. While cash bonuses paid to most employees are borne by KKR and certainconsolidated entities and result in customary compensation and benefits expense, cash bonuses that are paid to certain employees are currently borne by KKRHoldings. These bonuses are funded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passedon to holders of unvested units of KKR Holdings. The distributions to be paid by KKR are expected to decrease in 2016 and subsequent years as a result of thechange in distribution policy announced on October 27, 2015. Because employees are not entitled to receive distributions on units that are unvested, any amountsallocated to employees in excess of an employee's vested equity interests are reflected as employee compensation and benefits expense. These compensationcharges are recorded based on the unvested portion of quarterly earnings distributions received by KKR Holdings at the time of the distribution. See "Risks Relatedto Our Business - If we cannot retain and motivate our principals and other key personnel and recruit, retain and motivate new principals and other key personnel,our business, results and financial condition could be adversely affected" regarding the adequacy of such distributions to fund future discretionary cash bonuses.With respect to KKR's active and future funds and co-investment vehicles that provide for carried interest, KKR allocates to its employees and other personnela portion of the carried interest earned as part of its carry pool. KKR currently allocates approximately 40% of the carry it earns from these funds and vehicles to itscarry pool. These amounts are accounted for as compensatory profit-sharing arrangements in conjunction with the related carried interest income and recorded ascompensation and benefits expense for KKR employees and general, administrative and other expense for certain non-employee consultants and service providersin the consolidated statements of operations. General, Administrative and Other General, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs,travel and related expenses, communications and information services, depreciation and amortization charges, changes in fair value of contingent consideration,expenses incurred by oil and gas-producing entities (including impairment charges) that are consolidated and other general and operating expenses which are notborne by fund investors and are not offset by credits attributable to fund investors' noncontrolling interests in consolidated funds. General, administrative and otherexpense also consists of costs incurred in connection with pursuing potential investments that do not result in completed transactions, a substantial portion of whichare borne by fund investors.Investment Income (Loss) Net Gains (Losses) from Investment Activities Net gains (losses) from investment activities consist of realized and unrealized gains and losses arising from our investment activities. The majority of our netgains (losses) from investment activities are related to our private equity investments. Fluctuations in net gains (losses) from investment activities between reportingperiods is driven primarily by changes in the fair value of our investment portfolio as well as the realization of investments. The fair value of, as well as the abilityto recognize gains from, our private equity investments is significantly impacted by the global financial markets, which, in turn, affects the net gains (losses) frominvestment activities recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains and losses are reversed and anoffsetting realized gain or loss is recognized in the current period. Since our investments are carried at fair value, fluctuations between periods could be significantdue to changes to the inputs to our valuation process over time. For a further discussion of our fair value measurements and fair value of investments, see "—Critical Accounting Policies—Fair Value Measurements."Dividend Income Dividend income consists primarily of distributions that investment funds receive from portfolio companies in which they invest. Dividend income isrecognized primarily in connection with (i) dispositions of operations by portfolio companies, (ii) distributions of excess cash generated from operations fromportfolio companies and (iii) other significant refinancings undertaken by portfolio companies.98Table of ContentsInterest Income Interest income consists primarily of interest that is received on our cash balances and other investments including credit instruments in which our consolidatedfunds and other entities invest. Interest Expense Interest expense is incurred from debt issued by KKR, including debt issued by KFN which was consolidated upon completion of the acquisition of KFN, creditfacilities entered into by KKR, debt securities issued by consolidated CFEs and financing arrangements at our consolidated funds entered into primarily with theobjective of managing cash flow. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN. Debt securities issued by consolidated CFEs aresupported solely by the investments held at the CFE and are not collateralized by assets of any other KKR entity. Our obligations under financing arrangements atour consolidated funds are generally limited to our pro-rata equity interest in such funds. Our management companies bear no obligations with respect to financingarrangements at our consolidated funds. We also capitalize debt financing costs incurred in connection with new debt arrangements. Such costs are amortized intointerest expense using either the interest method or the straight-line method, as appropriate. See "—Liquidity". Income Taxes The KKR Group Partnerships and certain of their subsidiaries operate in the United States as partnerships for U.S. federal income tax purposes and as corporateentities in non-U.S. jurisdictions. Accordingly, these entities, in some cases, are subject to New York City unincorporated business taxes, or non-U.S. income taxes.Furthermore, we hold our interest in one of the KKR Group Partnerships through KKR Management Holdings Corp., which is treated as a corporation for U.S.federal income tax purposes, and certain other subsidiaries of the KKR Group Partnerships are treated as corporations for U.S. federal income tax purposes.Accordingly, such subsidiaries of KKR, including KKR Management Holdings Corp., and of the KKR Group Partnerships are subject to U.S. federal, state andlocal corporate income taxes at the entity level and the related tax provision attributable to KKR's share of this income is reflected in the financial statements. Wealso generate certain interest income to our unitholders and interest deductions to KKR Management Holdings Corp.We use the asset and liability method to account for income taxes in accordance with GAAP. Under this method, deferred tax assets and liabilities arerecognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis usingcurrently 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 all or a portion of the deferred tax assets will not be realized.Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is requiredin determining tax expense and in evaluating tax positions including evaluating uncertainties. We review our tax positions quarterly and adjust our tax balances asnew information becomes available. Net Income (Loss) Attributable to Noncontrolling Interests Net income (loss) attributable to noncontrolling interests represents the ownership interests that certain third parties hold in entities that are consolidated in thefinancial statements as well as the ownership interests in our KKR Group Partnerships that are held by KKR Holdings. The allocable share of income and expenseattributable to these interests is accounted for as net income (loss) attributable to noncontrolling interests. Historically, the amount of net income (loss) attributableto noncontrolling interests has been substantial and has resulted in significant charges and credits in the statements of operations. Given the consolidation of certainof our investment funds and the significant ownership interests in our KKR Group Partnerships held by KKR Holdings, we expect this activity to continue.99Table of ContentsSegment Operating and Performance Measures The segment key performance measures that follow are used by management in making operating and resource deployment decisions as well as assessing theoverall performance of each of KKR's reportable business segments. The reportable segments for KKR's business are presented prior to giving effect to theallocation of income (loss) between KKR & Co. L.P. and KKR Holdings L.P. and as such represent the business in total. In addition, KKR's reportable segments arepresented without giving effect to the consolidation of the funds or CFEs that KKR manages. We disclose the following financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP. Webelieve that providing these performance measures on a supplemental basis to our GAAP results is helpful to unitholders in assessing the overall performance ofKKR's businesses. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP, ifavailable. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not becomparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparablefinancial measures calculated and presented in accordance with GAAP, where applicable, are included within "Financial Statements and Supplementary Data —Note 13. Segment Reporting" and later in this report under "—Segment Balance Sheet."Adjusted UnitsAdjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. (including equity awards issued under the EquityIncentive Plan), KKR Holdings and other holders of securities exchangeable into common units of KKR & Co. L.P. and represent the fully diluted unit count usingthe if-converted method. We believe this measure is useful to unitholders as it provides an indication of the total equity ownership of KKR as if all outstandingKKR Holdings units, equity awards issued under the Equity Incentive Plan and other exchangeable securities had been exchanged for common units of KKR & Co.L.P. After-Tax Cash EarningsAfter-tax cash earnings is used by management as a measure of the cash earnings of KKR. KKR believes this measure, which was formerly referred to as totaldistributable earnings, is useful to unitholders as it provides a supplemental measure to assess performance, excluding the impact of mark-to-market gains (losses).After-tax cash earnings excludes certain realized investment losses to the extent unrealized losses on these investments were recognized prior to the combinationwith KPE on October 1, 2009.Assets Under Management ("AUM")Assets under management represent the assets managed by KKR or by its strategic partners from which KKR is entitled to receive fees or a carried interest(either currently or upon deployment of capital) and general partner capital. We believe this measure is useful to unitholders as it provides additional insight intoKKR's capital raising activities and the overall activity in its investment funds and strategic partnerships. As of December 31, 2014, AUM has been adjusted toinclude (i) capital commitments for which we are eligible to receive fees or carried interest upon deployment of capital and (ii) KKR's pro-rata portion of AUMmanaged by other asset managers in which KKR holds a minority stake. Our reported AUM for periods prior to December 31, 2014 does not include these twoitems.As of and subsequent to December 31, 2014, KKR calculates the amount of AUM as the sum of: (i) the fair value of the investments of KKR's investmentfunds; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which KKR is currently not earning management fees orcarried interest; (iii) the fair value of investments in KKR's co-investment vehicles; (iv) the par value of outstanding CLOs (excluding CLOs wholly-owned byKKR); (v) KKR's pro-rata portion of the AUM managed by strategic partnerships in which KKR holds a minority ownership interest and (vi) the fair value of otherassets managed by KKR. The pro-rata portion of the AUM managed by strategic partnerships is calculated based on KKR’s percentage ownership interest in suchentities multiplied by such entity’s respective AUM. KKR's definition of AUM is not based on any definition of AUM that may be set forth in the agreementsgoverning the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory definitions.Fee Paying AUM ("FPAUM")Fee paying AUM ("FPAUM") represents only those assets under management of KKR or its strategic partners from which KKR receives management fees. Webelieve this measure is useful to unitholders as it provides additional insight into the capital base upon which KKR earns management fees. As of December 31,2014, FPAUM has been adjusted to include KKR's100Table of Contentspro-rata portion of FPAUM managed by other asset managers in which KKR holds a minority stake. Our reported FPAUM for periods prior to December 31, 2014does not include this item.FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's fees and differs from AUM in the following respects: (i) assets andcommitments from which KKR does not receive a fee are excluded (i.e., assets and commitments with respect to which it receives only carried interest or isotherwise not currently receiving a fee) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capitalas opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.Book ValueBook value is a measure of the net assets of KKR’s reportable segments and is used by management primarily in assessing the unrealized value of KKR’sinvestment portfolio, including carried interest, as well as KKR’s overall liquidity position. We believe this measure is useful to unitholders as it provides additionalinsight into the assets and liabilities of KKR excluding the assets and liabilities that are allocated to noncontrolling interest holders. Book value differs from KKR &Co. L.P. partners’ capital on a GAAP basis primarily as a result of the exclusion of ownership interests attributable to KKR Holdings.Economic net income (loss) (“ENI”)Economic net income (loss) is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of theoperating and investment earnings of KKR and its business segments. We believe this measure is useful to unitholders as it provides additional insight into theoverall profitability of KKR’s businesses inclusive of carried interest and related carry pool allocations and investment income. ENI is comprised of total segmentrevenues less total segment expenses and certain economic interests in KKR’s segments held by third parties. ENI differs from net income (loss) on a GAAP basisas a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses ofcertain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of non-cash equity-based charges andother non-cash compensation charges borne by KKR Holdings or incurred under the Equity Incentive Plan and other securities that are exchangeable for commonunits of KKR & Co. L.P.; (v) the exclusion of certain non-recurring items; (vi) the exclusion of investment income (loss) relating to noncontrolling interests; and(vii) the exclusion of income taxes.Equity InvestedEquity invested is the aggregate amount of equity capital that has been invested by KKR’s investment funds and carry-yielding co-investment vehicles and isused as a measure of investment activity for KKR and its business segments during a given period. We believe this measure is useful to unitholders as it providesadditional insight into KKR’s investments among its investment funds and carry-yielding co-investment vehicles. Such amounts include: (i) capital invested by fundinvestors and co-investors with respect to which KKR is entitled to a carried interest and (ii) capital invested by KKR’s investment funds, including investmentsmade using investment financing arrangements.Gross Dollars InvestedGross dollars invested is the aggregate amount of capital that has been invested by all of KKR’s Public Markets investment vehicles in our private credit non-liquid strategies and is used as a measure of investment activity for a portion of KKR’s Public Markets segment in a given period. We believe this measure is usefulto unitholders as it provides additional insight into KKR’s investment of capital across private credit non-liquid strategies for all the investment vehicles in thePublic Markets segment. Such amounts include capital invested by fund investors and co-investors with respect to which KKR’s Public Markets business is entitledto a fee or carried interest.Syndicated CapitalSyndicated capital is generally the aggregate amount of capital in transactions originated by KKR and its investment funds and carry-yielding co-investmentvehicles, which has been distributed to third parties in exchange for a fee. It does not include (i) capital invested in such transactions by KKR investment funds andcarry-yielding co-investment vehicles, which is instead reported in equity invested and (ii) debt capital that is arranged as part of the acquisition financing oftransactions originated by KKR investment funds. Syndicated capital is used as a measure of investment activity for KKR and its business segments during a givenperiod, and we believe that this measure is useful to unitholders as it provides additional insight into levels of syndication activity in KKR's Capital Marketssegment and across its investment platform.Uncalled CommitmentsUncalled commitments are used as a measure of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles havereceived from partners to contribute capital to fund future investments. We believe this101Table of Contentsmeasure is useful to unitholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds to make future investments.Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements.Consolidated Results of Operations The following is a discussion of our consolidated results of operations for the years ended December 31, 2015 and 2014 . You should read this discussion inconjunction with the consolidated financial statements and related notes included elsewhere in this report. For a more detailed discussion of the factors that affectedthe results of operations of our three business segments in these periods, see “—Segment Analysis.”Year ended December 31, 2015 compared to year ended December 31, 2014 Year Ended December 31, 2015 December 31, 2014 Change ($ in thousands)Revenues Fees and Other$1,043,768 $1,110,008 $(66,240) Expenses Compensation and Benefits1,180,591 1,263,852 (83,261)Occupancy and Related Charges65,683 62,564 3,119General, Administrative and Other624,951 869,651 (244,700)Total Expenses1,871,225 2,196,067 (324,842) Investment Income (Loss) Net Gains (Losses) from Investment Activities4,672,627 4,778,232 (105,605)Dividend Income850,527 1,174,501 (323,974)Interest Income1,219,197 909,207 309,990Interest Expense(573,226) (317,192) (256,034)Total Investment Income (Loss)6,169,125 6,544,748 (375,623) Income (Loss) Before Taxes5,341,668 5,458,689 (117,021) Income Tax / (Benefit)66,636 63,669 2,967 Net Income (Loss)5,275,032 5,395,020 (119,988)Net Income (Loss) Attributable to Redeemable Noncontrolling Interests(4,512) (3,341) (1,171)Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital4,791,062 4,920,750 (129,688) Net Income (Loss) Attributable to KKR & Co. L.P.$488,482 $477,611 $10,871Fees and Other The net decrease was primarily due to (i) an $87.5 million decrease in transaction fees, (ii) a $74.5 million decrease in revenues earned by consolidated oil andgas producing entities and (iii) a $34.3 million decrease in incentive fees. These decreases were partially offset by a $145.6 million increase in monitoring fees. Thedecrease in transaction fees was primarily attributable to a decrease in both our Private Markets segment and Capital Markets segment. In our Private Marketssegment the decreases were primarily attributable to a decrease in the average fee earned on completed investments. During the year ended December 31, 2015, inour Private Markets segment there were 37 transaction fee-generating investments paying an102Table of Contentsaverage fee of $3.9 million compared to 33 transaction fee-generating investments paying an average fee of $6.5 million during the year ended December 31, 2014.Transaction fees vary by investment based upon a number of factors, the most significant of which are transaction size, the particular discussions as to the amountof the fees, the complexity of the transaction and KKR’s role in the transaction. In our Capital Markets Segment transaction fees decreased primarily due to adecrease in the number and size of capital markets transactions for the year ended December 31, 2015 compared to the year ended December 31, 2014. Wecompleted 116 capital markets transactions for the year ended December 31, 2015 of which 16 represented equity offerings and 100 represented debt offerings, ascompared to 139 transactions for the year ended December 31, 2014 of which 15 represented equity offerings and 124 represented debt offerings. The decrease inrevenue earned by consolidated oil and gas producing entities was primarily the result of a decrease in oil prices for the year ended December 31, 2015 as comparedto the prior period, and to a lesser extent, reduced production volumes that resulted from assets sold in the third and fourth quarters of 2014, partially offset byrevenues of oil and gas producing entities of KFN, which was acquired on April 30, 2014. The decrease in incentive fees was due primarily to a decrease inincentive fees received from KFN as a result of our acquisition of it on April 30, 2014, as incentive fees from KFN after that date were eliminated from segmentresults, as well as lower incentive fees in our hedge fund-of-funds platform and European credit platform driven by less favorable financial performance in thecurrent year. The increase in monitoring fees was primarily the result of $198.8 million of monitoring fees received during 2015 from the termination of monitoringfee arrangements in connection with the initial public offering (IPO) or partial exits of First Data Corporation (NYSE: FDC), Walgreens Boots Alliance, Inc.(NASDAQ: WBA), J.M. Smucker Company (NYSE: SJM), Zimmer Biomet Holdings, Inc. (NYSE: ZBH) and GoDaddy, Inc. (NYSE: GDDY) compared toapproximately $23.2 million of such fees received during the year ended December 31, 2014. These types of termination payments may occur in the future;however, they are infrequent in nature and are generally correlated with IPO and other realization activity in our private equity portfolio. This increase inmonitoring fees from termination payments was partially offset by a decrease in recurring monitoring fees of $46.1 million. The decrease in recurring monitoringfees was primarily the result of a decrease in the number of portfolio companies paying a monitoring fee and a decrease in the average size of the fee. For the yearended December 31, 2015, we had 43 portfolio companies that were paying an average monitoring fee of $1.5 million compared with 50 portfolio companies thatwere paying an average monitoring fee of $2.2 million for the year ended December 31, 2014. In future periods, we anticipate that recurring monitoring fees willcontinue to decrease as a result of realizations and other transactions such as initial public offerings, if not offset by additional portfolio companies paying recurringmonitoring fees. Expenses The decrease was primarily due to a decrease in general administrative and other expense of $244.7 million and a decrease in compensation and benefits of$83.3 million. The decrease in general administrative and other expense was primarily attributable to (i) a lower level of impairment charges relating to long-livedassets at our consolidated oil and gas producing entities during the year ended December 31, 2015 as compared to the year ended December 31, 2014, (ii) a decreasein operating expenses of our consolidated oil and gas producing entities that resulted primarily from assets sold in the third and fourth quarters of 2014 and areduction in depreciation in 2015 as a result of an impairment of the long-lived assets of these entities in the fourth quarter of 2014 and (iii) non-recurring amountsaccrued for litigation in 2014. The decrease in compensation and benefits is due primarily to (i) lower carry pool allocations as a result of the recognition of a lowerlevel of carried interest during the year ended December 31, 2015 as compared to the year ended December 31, 2014, (ii) lower equity-based compensation relatedto KKR Holdings reflecting fewer KKR Holdings units vesting for expense recognition purposes and a lower level of amounts allocated to principals in excess ofsuch principal’s vested equity interests. These decreases were partially offset by (i) an increase in cash compensation reflecting a higher level of fees whichgenerally results in higher compensation expense and (ii) higher equity-based compensation relating primarily to additional equity grants under the Equity IncentivePlan. 103Table of ContentsNet Gains (Losses) from Investment Activities The following is a summary of net gains (losses) from investment activities: Year Ended December 31, 2015 2014 ($ in thousands)Net Gains (Losses) from Private Equity Investments$5,592,970 $4,586,193Other Net Gains (Losses) from Investment Activities (1)(920,343) 192,039Net Gains (Losses) from Investment Activities$4,672,627 $4,778,232 (1) The 2015 amount includes a realized loss of approximately $2 billion on a consolidated basis relating to the write off of Energy Future Holdings (energy sector) which had previously beenmarked at zero on an unrealized basis. Accordingly, this write off had no impact on our Net Gains (Losses) from Investment Activities during the year ended December 31, 2015. The majority of our net gains (losses) from investment activities relate to our private equity portfolio. The following is a summary of the components of netgains (losses) from investment activities for private equity investments which illustrates the variances from the prior period. See “—Segment Analysis—PrivateMarkets Segment” for further information regarding gains and losses in our private equity portfolio. Year Ended December 31, 2015 2014 ($ in thousands)Realized Gains$4,701,511 $6,224,683Unrealized Losses from Sales of Investments and Realization of Gains (a)(4,024,214) (6,278,529)Realized Losses(248,918) (1,238,897)Unrealized Gains from Sales of Investments and Realization of Losses (b)239,587 1,233,070Unrealized Gains from Changes in Fair Value9,669,247 9,218,981Unrealized Losses from Changes in Fair Value(4,744,243) (4,573,115)Net Gains (Losses) from Investment Activities - Private Equity Investments$5,592,970 $4,586,193(a)Amounts represent the reversal of previously recognized unrealized gains in connection with realization events where such gains become realized.(b)Amounts represent the reversal of previously recognized unrealized losses in connection with realization events where such losses become realized.A significant driver of net gains (losses) from investment activities for the year ended December 31, 2015 was related to unrealized gains and losses fromchanges in fair value in our private equity investments. The net increase in the value of our private markets portfolio was driven primarily by net unrealized gains of$1.8 billion, $1.5 billion and $0.9 billion in our 2006 Fund, North America Fund XI and Asian Fund II, respectively. For the year ended December 31, 2015 , thevalue of our private equity investment portfolio increased 14.2%. This was comprised of a 19.5% increase in the share prices of various publicly held or publiclyindexed investments and a 9.3% increase in value of our privately held investments. The most significant increases in share prices of various publicly held orpublicly indexed investments were gains in Walgreens Boots Alliance, Inc., PRA Health Sciences, Inc. (NASDAQ: PRAH) and GoDaddy, Inc. These increaseswere partially offset by decreased share prices of various publicly held investments, the most significant of which were RigNet (NASDAQ: RNET), HCA Holdings,Inc. (NYSE: HCA) and CITIC Envirotech Ltd. (SES: U19.SI). Subsequent to December 31, 2015, world equity markets declined sharply with both the S&P 500and the MSCI World Index down on a total return basis, including dividends, as of February 22, 2016. See "--Business Environment". Our privately heldinvestments contributed the remainder of the change in value, the most significant of which were gains relating to Panasonic Healthcare Co. Ltd (healthcare sector),Capital Safety Group (industrial sector) and Alliant Insurance Services (financial services sector). The unrealized gains on our privately held investments werepartially offset by unrealized losses relating primarily to BIS Industries Ltd. (industrial sector), Acteon Group Ltd (energy sector) and Aceco TI S.A (technologysector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) in the case of Capital SafetyGroup and Alliant Insurance Services, valuations that reflect agreements to sell these investments in whole or in part, (ii) an increase in the value of marketcomparables and (iii) individual company performance. The decreased valuations of individual companies in our privately held investments, in the aggregate,generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables. 104Table of ContentsA significant driver of net gains (losses) from investment activities for the year ended December 31, 2014 was related to unrealized gains and losses fromchanges in fair value in our private equity investments. The net unrealized investment gains in our private equity portfolio were driven primarily by net unrealizedgains of $2.2 billion, $1.2 billion and $1.1 billion in our 2006 Fund, European Fund III and North America Fund XI, respectively. Approximately 23% of the netchange in value for the year ended December 31, 2014 was attributable to changes in share prices of various publicly-listed investments, the most significant ofwhich were gains on PRA Health Sciences, Inc., HCA, Inc., NXP Semiconductors N.V. (NASDAQ: NXPI) and Yageo Corporation (TW: 2327). These increaseswere partially offset by decreased share prices of various publicly held investments, the most significant of which were Tarkett S.A. (PA:TKTT), ProSiebenSat.1Media AG (XETRA: PSM) and China Greenland Rundong Auto Group Ltd (HK: 1365). Our privately‑held investments contributed the remainder of the change invalue, the most significant of which were gains relating to Alliance Boots GmbH (healthcare sector), Biomet, Inc. (healthcare sector) and WILD Flavors GmbH(consumer products sector). The unrealized gains on our privately‑held investments were partially offset by unrealized losses relating primarily to NorthgateInformation Solutions (technology sector), Samson Resources (energy sector) and Toys R Us (retail sector). The unrealized gains were also offset by unrealizedlosses in our energy assets from our Natural Resources Fund and Energy Income and Growth Fund of approximately $352 million. The increased valuations ofindividual companies in our privately‑held investments, in the aggregate, generally related to (i) an increase in the value of market comparables and individualcompany performance, (ii) in the case of WILD Flavors GmbH and Biomet, Inc., an increase that primarily reflected agreements to sell these investments, with thesale of WILD Flavors GmbH completed in October 2014, and (iii) in the case of Alliance Boots GmbH, primarily due to an agreement to exit the investment and toa lesser extent an increase in the value of a publicly traded stock that was expected to be delivered pursuant to this agreement, which was completed onDecember 31, 2014. The decreased valuations of individual companies in our privately‑held investments, in the aggregate, generally related to individual companyperformance or, in certain cases, an unfavorable business outlook. The decreased valuation of energy assets are generally related to decreases in commodity prices.Dividend Income During the year ended December 31, 2015 we received dividends of $123.7 million from WMF (consumer products sector), $114.9 million from CITICEnvirotech Ltd., $86.2 million from MMI Holdings Limited (technology sector), $80.5 million from Academy Sports and Outdoors (retail sector), $65.9 millionfrom Aricent Inc. (technology sector) and an aggregate of $379.3 million of dividends from other investments. During the year ended December 31, 2014, wereceived dividends of $178.6 million from Visma (technology sector), $171.6 million from Capsugel (manufacturing sector), $162.1 million from Capital SafetyGroup, $87.7 million from WMF and an aggregate of $574.5 million of dividends from other investments. Significant dividends from portfolio companies aregenerally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. Interest Income The increase was primarily due to a net increase in (i) the amount of credit instruments in our consolidated Public Markets investment vehicles, includinggrowth in our CLO platform when compared to the prior period, (ii) the consolidation of CMBS entities beginning in the second quarter of 2015, and (iii) theacquisition of KFN on April 30, 2014 which did not contribute to our interest income for the first four months of 2014.Interest Expense The increase was primarily due to (i) increased interest expense in connection with the growth of our CLO platforms, the majority of which are consolidated,(ii) interest expense on our 2044 Senior Notes issued on May 29, 2014 and an additional issuance of such notes on March 18, 2015, (iii) increased interest expenserelated to financing facilities entered into by our consolidated investment funds for purposes of financing their operating and investing activities, (iv) theconsolidation of CMBS entities beginning in the second quarter of 2015 and (v) the acquisition of KFN on April 30, 2014 which did not contribute to our interestexpense for the first four months of 2014. Income (Loss) Before Taxes The decrease was primarily due to lower investment income and lower fees and other, partially offset by lower expenses, as described above.105Table of ContentsIncome Tax (Benefit)Income taxes for the year ended December 31, 2015 remained largely unchanged from the year ended December 31, 2014. Because certain investment fundsowned by the KKR Group Partnerships are subject to corporate taxes, unrealized losses recognized by those funds during 2015 offset an increase in KKR & Co.L.P.'s weighted average ownership percentage in the KKR Group Partnerships, which increased from approximately 49.5% for the year ended December 31, 2014to approximately 54.9% for the year ended December 31, 2015. The increase in ownership, primarily the result of exchanges of units in KKR Holdings for KKRcommon units during 2015, subjects a greater level of income to corporate taxes.Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital The decrease was primarily driven by lower investment income as described above and a decrease in KKR Holdings' weighted average ownership percentagein the KKR Group Partnerships from approximately 50.5% for the year ended December 31, 2014 to approximately 45.1% for the year ended December 31, 2015.This decrease in ownership percentage is primarily due to exchanges of units in KKR Holdings for KKR common units during the year. Net Income (Loss) Attributable to KKR & Co. L.P. Net income attributable to KKR & Co L.P. for the year ended December 31, 2015 remained largely unchanged from the year ended December 31, 2014 due tothe net impact of lower investment income as described above, which was offset by an increase in KKR & Co. L.P's weighted average ownership percentage in theKKR Group Partnerships from approximately 49.5% for the year ended December 31, 2014 to approximately 54.9% for the year ended December 31, 2015.106Table of ContentsYear ended December 31, 2014 compared to year ended December 31, 2013 Year Ended December 31, 2014 December 31, 2013 Change ($ in thousands)Revenues Fees and Other$1,110,008 $762,546 $347,462 Expenses Compensation and Benefits1,263,852 1,266,592 (2,740)Occupancy and Related Charges62,564 61,720 844General, Administrative and Other869,651 438,826 430,825Total Expenses2,196,067 1,767,138 428,929 Investment Income (Loss) Net Gains (Losses) from Investment Activities4,778,232 7,826,082 (3,047,850)Dividend Income1,174,501 695,521 478,980Interest Income909,207 474,759 434,448Interest Expense(317,192) (99,616) (217,576)Total Investment Income (Loss)6,544,748 8,896,746 (2,351,998) Income (Loss) Before Taxes5,458,689 7,892,154 (2,433,465) Income Tax / (Benefit)63,669 37,926 25,743 Net Income (Loss)5,395,020 7,854,228 (2,459,208)Net Income (Loss) Attributable to Redeemable Noncontrolling Interests(3,341) 62,255 (65,596)Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital4,920,750 7,100,747 (2,179,997) Net Income (Loss) Attributable to KKR & Co. L.P.$477,611 $691,226 $(213,615)Fees and Other The net increase was primarily due to an increase in revenues earned by consolidated oil and gas producing entities of $164.8 million, an increase in transactionfees of $137.6 million and an increase in management fees of $37.3 million. The increase in revenue earned by consolidated oil and gas producing entities wasprimarily the result of the acquisition of KFN, which owned oil and gas producing entities, completed on April 30, 2014, and to a lesser extent, growth in theactivities of our other consolidated oil and gas producing entities. The increase in transaction fees was primarily driven by (i) an increase in the size offee‑generating investments completed during the year ended December 31, 2014 in our Private Markets segment and (ii) an increase in transaction fees in ourcapital markets business reflecting larger transaction sizes when compared to the prior period, including a capital markets fee received from the syndication ofequity in First Data Corporation of approximately $43 million. During the year ended December 31, 2014, our Private Markets segment had 33 transactionfee‑generating investments with a total combined transaction value of approximately $15.4 billion compared to 33 transaction fee‑generating investments with atotal combined transaction value of approximately $15.0 billion during the year ended December 31, 2013. Transaction fees vary by investment based upon anumber of factors, the most significant of which are transaction size, the particular discussions as to the amount of the fees, the complexity of the transaction andKKR’s role in the transaction. The increase in management fees was primarily the result of the acquisition of Avoca on February 19, 2014 and to a lesser extent newcapital raised primarily in our Public Markets segment, partially offset by a decrease in management fees received from KFN as a result of our acquisition of KFNon April 30, 2014, as management fees from KFN after that date are now eliminated in consolidation.107Table of ContentsExpensesThe increase was primarily due to an increase in general, administrative and other expenses of $430.8 million, partially offset by a decrease in compensationand benefits of $2.7 million. The increase in general, administrative and other expenses is primarily due to an increase of approximately $330 million relating to theactivities of our consolidated oil and gas producing entities which were not consolidated prior to the third quarter of 2013 as well as the activities of oil and gasproducing entities acquired in the acquisition of KFN completed on April 30, 2014. This increase included an impairment charge of approximately $220 millionrelating to long‑lived assets at our consolidated oil and gas producing entities. In addition, general, administrative, and other expenses increased as a result of(i) increased expenses attributable to Avoca which we acquired on February 19, 2014, (ii) expenses incurred by consolidated CLOs that were consolidatedsubsequent to the acquisition of Avoca and the acquisition of KFN, which was completed on April 30, 2014, and (iii) an increase in amounts accrued for litigation.The decrease in compensation and benefits is due primarily to (i) lower equity‑based compensation reflecting fewer KKR Holdings units vesting for expenserecognition purposes under the graded attribution method of expense recognition, (ii) lower carry pool allocations as a result of the recognition of a lower level ofcarried interest during the year ended December 31, 2014 as compared to the year ended December 31, 2013, partially offset by (i) an increase in cash compensationreflecting a higher level of fees as well as increased headcount and (ii) higher equity‑based compensation relating primarily to additional equity grants under theEquity Incentive Plan. Net Gains (Losses) from Investment Activities The following is a summary of net gains (losses) from investment activities: Year Ended December 31, 2014 2013 ($ in thousands)Net Gains (Losses) from Private Equity Investments$4,586,193 $7,716,772Other Net Gains (Losses) from Investment Activities192,039 109,310Net Gains (Losses) from Investment Activities$4,778,232 $7,826,082 The majority of our net gains (losses) from investment activities relate to our private equity portfolio. The following is a summary of the components of netgains (losses) from investment activities for private equity investments which illustrates the variances from the prior period. See “—Segment Analysis—PrivateMarkets Segment” for further information regarding gains and losses in our private equity portfolio. Year Ended December 31, 2014 2013 ($ in thousands)Realized Gains$6,224,683 $4,712,997Unrealized Losses from Sales of Investments and Realization of Gains (a)(6,278,529) (4,155,261)Realized Losses(1,238,897) (1,048,778)Unrealized Gains from Sales of Investments and Realization of Losses (b)1,233,070 1,058,710Unrealized Gains from Changes in Fair Value9,218,981 9,361,938Unrealized Losses from Changes in Fair Value(4,573,115) (2,212,834)Net Gains (Losses) from Investment Activities - Private Equity Investments$4,586,193 $7,716,772(a)Amounts represent the reversal of previously recognized unrealized gains in connection with realization events where such gains become realized.(b)Amounts represent the reversal of previously recognized unrealized losses in connection with realization events where such losses become realized.The appreciation in the market value of our private equity portfolio was driven primarily by net unrealized gains of $2.2 billion, $1.2 billion and $1.1 billion inour 2006 Fund, European Fund III and North America Fund XI, respectively. Approximately 23% of the net change in value for the year ended December 31, 2014was attributable to changes in share prices of various publicly‑listed investments, the most significant of which were gains on PRA Health Sciences, Inc., HCA,Inc., NXP Semiconductors N.V. and Yageo Corporation. These increases were partially offset by decreased share prices of various publicly held investments, themost significant of which were Tarkett S.A., ProSiebenSat.1 Media AG and China Greenland Rundong Auto Group Ltd. Our privately‑held investments contributedthe remainder of the change in value, the108Table of Contentsmost significant of which were gains relating to Alliance Boots GmbH, Biomet, Inc. and WILD Flavors GmbH. The unrealized gains on our privately‑heldinvestments were partially offset by unrealized losses relating primarily to Northgate Information Solutions, Samson Resources and Toys R Us. The unrealizedgains were also offset by unrealized losses in our energy assets from our Natural Resources Fund and Energy Income and Growth Fund of approximately$352 million. The increased valuations of individual companies in our privately‑held investments, in the aggregate, generally related to (i) an increase in the valueof market comparables and individual company performance, (ii) in the case of WILD Flavors GmbH and Biomet, Inc., an increase that primarily reflectedagreements to sell these investments, with the sale of WILD Flavors GmbH completed in October 2014, and (iii) in the case of Alliance Boots GmbH, primarily dueto an agreement to exit the investment and to a lesser extent an increase in the value of a publicly traded stock that is expected to be delivered pursuant to thisagreement, which was completed on December 31, 2014. The decreased valuations of individual companies in our privately‑held investments, in the aggregate,generally related to individual company performance or, in certain cases, an unfavorable business outlook. The decreased valuation of energy assets are generallyrelated to decreases in commodity prices.Dividend IncomeDuring the year ended December 31, 2014, we received dividends of $178.6 million from Visma, $171.6 million from Capsugel, $162.1 million from CapitalSafety Group, $87.7 million from WMF and an aggregate of $574.5 million of dividends from other investments. During the year ended December 31, 2013, wereceived dividends of $191.6 million from Capsugel, $139.7 million from Pets at Home Ltd. (LSE: PETS.L), $113.9 million from Visma, $85.6 million fromTarkett S.A., $52.0 million from Santander Consumer USA (NYSE: SC) and an aggregate of $112.7 million of dividends from other investments. Significantdividends from portfolio companies are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable.Interest IncomeThe increase was primarily due to the consolidation of debt instruments held by KFN including CLOs, subsequent to the acquisition of KFN on April 30, 2014,as well as a net increase in the amount of credit instruments in our consolidated Public Markets investment vehicles, including CLOs acquired in the Avocaacquisition on February 19, 2014.Interest ExpenseThe increase was primarily due to (i) interest expense associated with consolidated CLOs acquired in the Avoca and KFN acquisitions which were completedon February 19, 2014 and April 30, 2014, respectively, (ii) interest expense associated with senior and subordinated debt at KFN and (iii) interest expense on our2044 Senior Notes issued on May 29, 2014.Income (Loss) Before TaxesThe decrease was primarily due to a decrease in investment income and increase in expenses, partially offset by an increase in fees.Income TaxesThe increase was primarily due to an increase in the amount of income in the KKR Group Partnerships that is subject to either corporate or local taxes, or both,as well as an increase in KKR & Co. L.P.’s ownership percentage in the KKR Group Partnerships from approximately 39.9% for the year ended December 31, 2013to approximately 49.5% for the year ended December 31, 2014. This increase in ownership subjects a greater level of income to corporate taxes.Net Income (Loss) Attributable to Redeemable Noncontrolling InterestsThe decrease was primarily driven by the termination of our KKR Equity Strategies fund and to a lesser extent decreased investment income for funds andvehicles where noncontrolling interests are redeemable.Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated CapitalThe decrease was primarily attributable to the overall decrease in investment income described above as well as a decrease in KKR Holdings’ ownershippercentage in the KKR Group Partnerships from approximately 60.1% for the year ended December 31, 2013 to approximately 50.5% for the year endedDecember 31, 2014.109Table of ContentsNet Income (Loss) Attributable to KKR & Co. L.P.The decrease was primarily attributable to the decrease in income before taxes as described above, partially offset by an increase in KKR & Co. L.P.’sownership percentage in the KKR Group Partnerships from approximately 39.9% for the year ended December 31, 2013 to approximately 49.5% for the year endedDecember 31, 2014. This increase in ownership percentage was principally the result of the issuance of KKR common units in connection with the acquisition ofKFN. 110Table of ContentsSegment Analysis The following is a discussion of the results of our four reportable business segments for years ended December 31, 2015 , 2014 and 2013 . You should read thisdiscussion in conjunction with the information included under “—Basis of Financial Presentation—Segment Operating and Performance Measures” and theconsolidated financial statements and related notes included elsewhere in this report. KKR’s management has reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of eachof KKR’s operating segments. As a result, KKR has modified the presentation of its segment financial information. In addition, since becoming a public company,our principal assets have grown in significance and are a meaningful contributor to our financial results.Certain of the more significant changes between KKR’s current segment presentation and its previously reported segment presentation are described in thefollowing commentary.Inclusion of a Fourth SegmentAll income (loss) on investments is attributed to a new fourth segment called Principal Activities. Previously, income on investments held directly by KKR wasreported in the Private Markets segment, Public Markets segment or Capital Markets segment based on the character of the income generated. For example, incomefrom private equity investments was previously included in the Private Markets segment. However, the financial results of acquired businesses and strategicpartnerships have been reported in our other segments.Expense AllocationsWe have changed the manner in which expenses are allocated among our operating segments. Specifically, as described below, (i) a portion of expenses, exceptfor broken deal expenses, previously reflected in our Private Markets, Public Markets or Capital Markets segments are now reflected in the Principal Activitiessegment and (ii) corporate expenses are allocated across all segments.Expenses Allocated to Principal Activities A portion of our cash compensation and benefits, occupancy and related charges and other operating expenses previously included in the Private Markets,Public Markets and Capital Markets segments is now allocated to the Principal Activities segment. The Principal Activities segments incurs its own direct costs, andan allocation from the other segments is also made to reflect the estimated amount of costs that are necessary to operate our Principal Activities segment, which areincremental to those costs incurred directly by the Principal Activities segment. The total amount of expenses (other than its direct costs) that is allocated toPrincipal Activities is based on the proportion of revenue earned by Principal Activities, relative to other operating segments, over the preceding four annualperiods. This allocation percentage is updated annually or more frequently if there are material changes to our business. Below is a summary of the allocation toPrincipal Activities, relative to other operating segments, for the years ended December 31, 2015, 2014 and 2013:•2015 Allocation: 25.4%, based on revenues earned in 2014, 2013, 2012 and 2011•2014 Allocation: 31.7%, based on revenues earned in 2013, 2012, 2011 and 2010•2013 Allocation: 37.8%, based on revenues earned in 2012, 2011, 2010 and 2009The expense allocation expected to be used in 2016 to allocate expense to the Principal Activities segment, based on revenues earned in 2015, 2014, 2013 and2012 is approximately 23%, subject to adjustments if there are material changes to our business. Once the total amount of expense to be allocated to the Principal Activities segment is estimated for each reporting period, the amount of this expense will beallocated from the Private Markets, Public Markets and Capital Markets segments based on the proportion of headcount in each of these three segments.111Table of ContentsAllocations of Corporate OverheadCorporate expenses are allocated to each of the Private Markets, Public Markets, Capital Markets and Principal Activities segments based on the proportion ofrevenues earned by each segment over the preceding four calendar years. In our previously reported segment presentation, all corporate expenses were allocated tothe Private Markets segment. Below is a summary of the allocations to each of our operating segments for the years ended December 31, 2015, 2014 and 2013. Expense AllocationSegment 2015 2014 2013 Private Markets 58.7% 56.2% 53.0%Public Markets 9.8% 7.1% 4.8%Capital Markets 6.1% 5.0% 4.4%Principal Activities 25.4% 31.7% 37.8%Total Reportable Segments 100.0% 100.0% 100.0% Based on revenue earned in 2014, 2013, 2012 & 2011 2013, 2012, 2011 & 2010 2012, 2011, 2010 & 2009 Based on the proportion of revenues earned by each segment in 2015, 2014, 2013 and 2012, the corporate expense allocation expected to be used in 2016 toallocate expense to the Private Markets, Public Markets, Capital Markets and Principal Activities segments is approximately 61%, 10%, 6% and 23%, respectively,subject to adjustments if there are material changes to our business. In connection with these modifications, segment information for the years ended December 31, 2014 and 2013 has been presented in this Annual Report onForm 10-K in conformity with KKR’s current segment presentation. Consequently, this information will not be consistent with historical segment financial resultspreviously reported. While the modified segment presentation impacted the amount of economic net income reported by each operating segment, it had no impacton KKR’s economic net income on a total reportable segment basis.112Table of ContentsPrivate Markets Segment The following tables set forth information regarding the results of operations and certain key operating metrics for our Private Markets segment for the yearsended December 31, 2015 and 2014 .Year ended December 31, 2015 compared to year ended December 31, 2014 Year Ended December 31, 2015 December 31, 2014 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees$465,575 $453,210 $12,365Monitoring Fees264,643 135,160 129,483Transaction Fees144,652 214,612 (69,960)Fee Credits(195,025) (198,680) 3,655Total Management, Monitoring and Transaction Fees, Net679,845 604,302 75,543 Performance Income Realized Incentive Fees— — —Realized Carried Interest1,018,201 1,159,011 (140,810)Unrealized Carried Interest182,628 70,058 112,570Total Performance Income1,200,829 1,229,069 (28,240) Investment Income (Loss) Net Realized Gains (Losses)— — —Net Unrealized Gains (Losses)— — —Total Realized and Unrealized— — —Interest Income and Dividends— — —Interest Expense— — —Net Interest and Dividends— — —Total Investment Income (Loss)— — — Total Segment Revenues1,880,674 1,833,371 47,303 Segment Expenses Compensation and Benefits Cash Compensation and Benefits193,995 153,339 40,656Realized Performance Income Compensation407,280 463,605 (56,325)Unrealized Performance Income Compensation74,560 33,430 41,130Total Compensation and Benefits675,835 650,374 25,461Occupancy and related charges33,640 30,946 2,694Other operating expenses127,836 125,398 2,438Total Segment Expenses837,311 806,718 30,593 Income (Loss) attributable to noncontrolling interests1,645 1,424 221 Economic Net Income (Loss)$1,041,718 $1,025,229 $16,489 Assets Under Management$66,028,600 $64,611,300 $1,417,300Fee Paying Assets Under Management$45,307,400 $47,262,500 $(1,955,100)Equity Invested$5,527,900 $7,223,400 $(1,695,500)Uncalled Commitments$22,766,300 $18,272,400 $4,493,900113Table of ContentsSegment Revenues Management, Monitoring and Transaction Fees, Net The net increase was primarily due to an increase in monitoring fees of $129.5 million and an increase in management fees of $12.4 million, partially offset bya decrease in transaction fees of $70.0 million. The increase in monitoring fees was primarily the result of $198.8 million of monitoring fees received during 2015from the termination of monitoring fee arrangements in connection with the initial public offering (IPO) or partial exits of First Data Corporation (NYSE: FDC),Walgreens Boots Alliance, Inc. (NASDAQ: WBA), J.M. Smucker Company (NYSE: SJM), Zimmer Biomet Holdings, Inc. (NYSE: ZBH) and GoDaddy, Inc.(NYSE: GDDY) compared to approximately $23.2 million of such fees received during the year ended December 31, 2014. These types of termination paymentsmay occur in the future; however, they are infrequent in nature and are generally correlated with IPO and other realization activity in our private equity portfolio.This increase in monitoring fees from termination payments was partially offset by a decrease in recurring monitoring fees of $46.1 million. The decrease inrecurring monitoring fees was primarily the result of a decrease in the number of portfolio companies paying a monitoring fee and a decrease in the average size ofthe fee. For the year ended December 31, 2015, we had 43 portfolio companies that were paying an average monitoring fee of $1.5 million compared with 50portfolio companies that were paying an average monitoring fee of $2.2 million for the year ended December 31, 2014. In future periods, we anticipate thatrecurring monitoring fees will continue to decrease as a result of realizations and other transactions such as initial public offerings, if not offset by additionalportfolio companies paying recurring monitoring fees. The increase in management fees was primarily due to new capital raised in European Fund IV and GlobalInfrastructure Investors II offset by a decrease in management fees attributable to lower invested capital in our European Fund II, 2006 Fund and European Fund IIIas a result of realizations. See also discussion under “- Assets Under Management” and “- Fee-Paying Assets Under Management”. The decrease in transaction feeswas primarily attributable to a decrease in the average fee earned on completed investments during the year ended December 31, 2015. During the year endedDecember 31, 2015, there were 37 transaction fee-generating investments paying an average fee of $3.9 million compared to 33 transaction fee-generatinginvestments paying an average fee of $6.5 million during the year ended December 31, 2014. Transaction fees vary by investment based upon a number of factors,the most significant of which are transaction size, the particular discussions as to the amount of the fees, the complexity of the transaction and KKR’s role in thetransaction.Performance Income The net decrease is attributable to lower net carried interest losses primarily resulting from a lower level of investment gains at carry earning funds during thecurrent period.Realized carried interest for the year ended December 31, 2015 consisted primarily of realized gains from the sales or partial sale of Walgreens Boots Alliance,Inc., Capital Safety Group and Zimmer Biomet Holdings, Inc. Realized carried interest for the year ended December 31, 2014 consisted primarily of realized gains from the sales of Oriental Brewery (consumer productssector), WILD Flavors GmbH and Versatel GmbH (telecom sector).114Table of ContentsThe following table presents net unrealized carried interest by investment vehicle for the years ended December 31, 2015 and 2014 : Year Ended December 31, 2015 2014 ($ in thousands)North America Fund XI$209,361 $189,063Asian Fund II163,645 58,967European Fund III42,923 (34,914)China Growth Fund31,730 (6,346)European Fund II30,797 (112,091)Real Estate Partners Americas14,669 (662)Global Infrastructure Investors6,678 —European Fund IV3,813 —European Fund(3,705) (826)E2 Investors(20,564) (20,253)Millennium Fund(26,714) (40,489)Co-Investment Vehicles and Other(39,248) 99,0262006 Fund(111,965) 128,970Asian Fund(116,185) (176,456)Management Fee Refunds(2,607) (13,931) Total (a)$182,628 $70,058(a)The above table excludes any funds for which there was no unrealized carried interest during either of the periods presented. For the year ended December 31, 2015 , the net unrealized carried interest income of $182.6 million included $1,021.5 million representing net increases in thevalue of various portfolio companies, which were partially offset by unrealized losses of $838.9 million primarily representing reversals of previously recognizednet unrealized gains in connection with the occurrence of realization events such as partial or full sales and management fee refunds. For the year ended December 31, 2015 , the value of our private equity investment portfolio increased 14.2%. This was comprised of a 19.5% increase in theshare prices of various publicly held or publicly indexed investments and a 9.3% increase in value of our privately held investments. The most significant increasesin share prices of various publicly held or publicly indexed investments were gains in Walgreens Boots Alliance, Inc., PRA Health Sciences, Inc. (NASDAQ:PRAH) and GoDaddy, Inc. These increases were partially offset by decreased share prices of various publicly held investments, the most significant of which wereRigNet (NASDAQ: RNET), HCA Holdings, Inc. (NYSE: HCA) and CITIC Envirotech Ltd. (SES: U19.SI). Subsequent to December 31, 2015, world equitymarkets declined sharply with both the S&P 500 and the MSCI World Index down on a total return basis, including dividends, as of February 22, 2016. See "--Business Environment". Our privately held investments contributed the remainder of the change in value, the most significant of which were gains relating toPanasonic Healthcare Co. Ltd (healthcare sector), Capital Safety Group (industrial sector) and Alliant Insurance Services (financial services sector). The unrealizedgains on our privately held investments were partially offset by unrealized losses relating primarily to BIS Industries Ltd. (industrial sector), Acteon Group Ltd(energy sector) and Aceco TI S.A (technology sector). The increased valuations of individual companies in our privately held investments, in the aggregate,generally related to (i) in the case of Capital Safety Group and Alliant Insurance Services, valuations that reflect agreements to sell these investments in whole or inpart, (ii) an increase in the value of market comparables and (iii) individual company performance. The decreased valuations of individual companies in ourprivately held investments, in the aggregate, generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) adecrease in the value of market comparables. The reversals of previously recognized net unrealized gains for the year ended December 31, 2015 resulted primarily from the sale or partial sales of WalgreensBoots Alliance, Inc., Capital Safety Group and Zimmer Biomet Holdings, Inc. During the year ended December 31, 2015, we wrote off Energy Future Holdings(energy sector) and recognized realized losses. This write-off did not have a significant impact on our 2015 net carried interest because this investment had alreadybeen written down to zero value in prior periods. See "--Segment Analysis--Principal Activities Segment" and "--Liquidity--Liquidity115Table of ContentsNeeds--Cash Earnings" for a discussion of how the Energy Future Holdings write-off impacted Principal Activities and our cash earnings. Subsequent to December31, 2015, we expect to write-off our investment in Samson Resources once our losses are realized. Since this investment has already been written down to zerovalue in periods prior to December 31, 2015, this write-off is not expected to have a significant impact on our net carried interest in future periods. For the year ended December 31, 2014, the net unrealized carried interest income of $70.1 million include $1,098.2 million representing net increases in thevalue of various portfolio companies, which were partially offset by unrealized losses of $1,028.1 million primarily representing reversals of previously recognizednet unrealized gains in connection with the occurrence of realization events such as partial or full sales and management fee refunds.For the year ended December 31, 2014, the value of our private equity investment portfolio increased 12.8%. Increased share prices of various publicly heldinvestments comprised approximately 23% of the net increase in value for the year ended December 31, 2014, the most significant of which were gains on PRAHealth Sciences, Inc., HCA, Inc., NXP Semiconductors N.V. and Yageo Corporation. These increases were partially offset by decreased share prices of variouspublicly held investments, the most significant of which were Tarkett S.A., ProSiebenSat.1 Media AG and Rundong Automobile Group. Our privately‑heldinvestments contributed the remainder of the change in value, the most significant of which were gains relating to Alliance Boots GmbH, Biomet, Inc. and WILDFlavors GmbH. The unrealized gains on our privately‑held investments were partially offset by unrealized losses relating primarily to Northgate InformationSolutions, Samson Resources and Toys R Us. The increased valuations of individual companies in our privately‑held investments, in the aggregate, generallyrelated to (i) an increase in the value of market comparables and individual company performance, (ii) in the case of WILD Flavors GmbH and Biomet, Inc., anincrease that primarily reflected agreements to sell these investments, with the sale of WILD Flavors GmbH completed in October 2014, and (iii) in the case ofAlliance Boots GmbH, primarily due to an agreement to exit the investment and to a lesser extent an increase in the value of a publicly traded stock that wasexpected to be delivered pursuant to this agreement, which was completed on December 31, 2014. The decreased valuations of individual companies in ourprivately‑held investments, in the aggregate, generally related to individual company performance or, in certain cases, an unfavorable business outlook.The reversals of previously recognized net unrealized gains for the year ended December 31, 2014 resulted primarily from the sale of Oriental Brewery, thesale of WILD Flavors GmbH, the partial sale of HCA, Inc. and the sale of Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ). During the year ended December 31,2014, we wrote off A.T.U Auto‑Teile‑Unger (retail sector) and U.N RO‑RO Isletmeleri A.S. (transportation sector) and recognized realized losses. These 2014write‑offs did not have a significant impact on our 2014 net carried interest because these interests had already been substantially written down in prior periods. Segment Expenses Compensation and Benefits The net increase was due primarily to (i) higher cash compensation and benefits consistent with a higher level of fee income in the current period and (ii) adecrease in the amount of compensation expenses allocated from Private Markets to Principal Activities as result of a decrease in the proportion of revenue earnedby Principal Activities relative to other operating segments during 2015. These increases were partially offset by lower allocations to carry pool driven by the lowerlevels of net carried interest as discussed in "Performance Income" above.Occupancy and Other Operating Expenses The net increase was primarily driven by (i) higher allocations of corporate operating expenses to Private Markets due to an increase in both the amount ofcorporate operating expenses incurred by the firm and an increase in the proportion of revenue earned by Private Markets relative to other operating segments in2015, (ii) a decrease in the amount of operating expenses allocated from Private Markets to Principal Activities as a result of a decrease in the proportion of revenueearned by Principal Activities relative to other operating segments during 2015 and (iii) an increase in professional fees and other expenses. These increases werepartially offset by a decrease in expenses for unconsummated transactions, also known as broken deal expenses. Economic Net Income (Loss) The increase was primarily due to higher fee income, partially offset by an increase in segment expenses and a decrease in performance income as describedabove. 116Table of ContentsAssets Under Management The following table reflects the changes in our Private Markets AUM from December 31, 2014 to December 31, 2015 : ($ in thousands)December 31, 2014 - As Adjusted$64,611,300New Capital Raised6,950,200Distributions(11,832,500)Change in Value6,299,600December 31, 2015$66,028,600As of December 31, 2014, AUM has been adjusted to include capital commitments for which we are eligible to receive fees or carried interest upon deploymentof capital. Our reported AUM for periods prior to December 31, 2014 does not include this item.AUM for the Private Markets segment was $66.0 billion at December 31, 2015 , an increase of $1.4 billion, compared to $64.6 billion at December 31, 2014 ,on an as adjusted basis. The increase was primarily attributable to new capital raised primarily in European Fund IV and Global Infrastructure Investors II and to alesser extent an increase in value of our Private Markets portfolio. These increases were partially offset by distributions to private equity fund investors of $11.8billion comprised of $6.9 billion of realized gains and $4.9 billion of return of original cost. The increase in the value of our Private Markets portfolio was driven primarily by net unrealized gains of $1.8 billion, $1.5 billion and $0.9 billion in our 2006Fund, North America Fund XI and Asian Fund II, respectively. This was comprised of a 19.5% increase in the share prices of various publicly held or publiclyindexed investments and a 9.3% increase in value of our privately held investments. The most significant increases in share prices of various publicly held orpublicly indexed investments were gains in Walgreens Boots Alliance, Inc., PRA Health Sciences, Inc. (NASDAQ: PRAH) and GoDaddy, Inc. These increaseswere partially offset by decreased share prices of various publicly held investments, the most significant of which were RigNet (NASDAQ: RNET), HCA Holdings,Inc. (NYSE: HCA) and CITIC Envirotech Ltd. (SES: U19.SI). Subsequent to December 31, 2015, world equity markets declined sharply with both the S&P 500and the MSCI World Index down on a total return basis, including dividends, as of February 22, 2016. See "--Business Environment". Our privately heldinvestments contributed the remainder of the change in value, the most significant of which were gains relating to Panasonic Healthcare Co. Ltd (healthcare sector),Capital Safety Group (industrial sector) and Alliant Insurance Services (financial services sector). The unrealized gains on our privately held investments werepartially offset by unrealized losses relating primarily to BIS Industries Ltd. (industrial sector), Acteon Group Ltd (energy sector) and Aceco TI S.A (technologysector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) in the case of Capital SafetyGroup and Alliant Insurance Services, valuations that reflect agreements to sell these investments in whole or in part, (ii) an increase in the value of marketcomparables and (iii) individual company performance. The decreased valuations of individual companies in our privately held investments, in the aggregate,generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables. Fee-Paying Assets Under Management The following table reflects the changes in our Private Markets FPAUM from December 31, 2014 to December 31, 2015 : ($ in thousands)December 31, 2014$47,262,500New Capital Raised3,896,100Distributions and Other(5,545,200)Change in Value(306,000)December 31, 2015$45,307,400 FPAUM in our Private Markets segment was $45.3 billion at December 31, 2015 , a decrease of $2.0 billion, compared to $47.3 billion at December 31, 2014 .The decrease was primarily attributable to distributions to private equity fund investors and a reduction in FPAUM attributable to the invested capital of SamsonResources due to its bankruptcy proceedings which is included within distributions and other in the table above. These decreases were partially offset by new capitalraised of $3.9 billion primarily in our European Fund IV and Global Infrastructure Investors II funds. 117Table of ContentsEquity Invested The decrease was due to a decrease in the amount of equity invested in our private equity platform, which was partially offset by an increase in equity investedin our real assets platforms (real estate, energy and infrastructure). For the years ended December 31, 2015 and 2014 , equity invested in our private equity platformwas $4.1 billion and $5.9 billion, respectively, and equity invested in our real assets platforms was $1.4 billion and $1.3 billion, respectively. Generally, theoperating companies acquired through our private equity business have higher transaction values and result in higher equity invested relative to transactions in ourreal assets businesses. The number of large private equity investments made in any quarter is volatile and consequently, a significant amount of equity invested inone quarter or a few quarters may not be indicative of a similar level of capital deployment in future quarters.Uncalled Commitments As of December 31, 2015 , our Private Markets segment had $22.8 billion of remaining uncalled capital commitments that could be called for investments innew transactions.118Table of ContentsThe following tables set forth information regarding the results of operations and certain key operating metrics for our Private Markets segment for the yearsended December 31, 2014 and 2013.Year ended December 31, 2014 compared to year ended December 31, 2013 Year Ended December 31, 2014 December 31, 2013 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees$453,210 $459,496 $(6,286)Monitoring Fees135,160 120,267 14,893Transaction Fees214,612 150,118 64,494Fee Credits(198,680) (136,662) (62,018)Total Management, Monitoring and Transaction Fees, Net604,302 593,219 11,083 Performance Income Realized Incentive Fees— — —Realized Carried Interest1,159,011 690,027 468,984Unrealized Carried Interest70,058 661,803 (591,745)Total Performance Income1,229,069 1,351,830 (122,761) Investment Income (Loss) Net Realized Gains (Losses)— — —Net Unrealized Gains (Losses)— — —Total Realized and Unrealized— — —Interest Income and Dividends— — —Interest Expense— — —Net Interest and Dividends— — —Total Investment Income (Loss)— — — Total Segment Revenues1,833,371 1,945,049 (111,678) Segment Expenses Compensation and Benefits Cash Compensation and Benefits153,339 148,557 4,782Realized Performance Income Compensation463,605 276,011 187,594Unrealized Performance Income Compensation33,430 282,003 (248,573)Total Compensation and Benefits650,374 706,571 (56,197)Occupancy and related charges30,946 31,769 (823)Other operating expenses125,398 106,917 18,481Total Segment Expenses806,718 845,257 (38,539) Income (Loss) attributable to noncontrolling interests1,424 1,498 (74) Economic Net Income (Loss)$1,025,229 $1,098,294 $(73,065) Assets Under Management$64,611,300 $61,242,900 $3,368,400Fee Paying Assets Under Management$47,262,500 $50,156,300 $(2,893,800)Equity Invested$7,223,400 $5,840,900 $1,382,500Uncalled Commitments$18,272,400 $20,101,600 $(1,829,200) 119Table of ContentsSegment Revenues Management, Monitoring and Transaction Fees, NetThe net increase was primarily due to an increase in transaction fees of $64.5 million, partially offset by an increase in fee credits of $62.0 million. The increasein transaction fees was attributable to an increase in the size of fee‑generating investments completed. During the year ended December 31, 2014, there were 33transaction fee‑generating investments with a total combined transaction value of approximately $15.4 billion compared to 33 transaction fee‑generatinginvestments with a total combined transaction value of approximately $15.0 billion during the year ended December 31, 2013. Transaction fees vary by investmentbased upon a number of factors, the most significant of which are transaction size, the particular discussions as to the amount of the fees, the complexity of thetransaction and KKR’s role in the transaction. The increase in fee credits is primarily attributable to the increase in transaction fees, as described above. See alsodiscussion under “-Assets Under Management” and “-Fee‑Paying Assets Under Management”.Performance IncomeThe net decrease primarily reflects a lower level of unrealized appreciation in our private equity portfolio in the 2014 period than in the 2013 period. While thevalue of our private equity portfolio increased in the 2014 period, the amount of appreciation was less than that in the prior period.Realized carried interest for the year ended December 31, 2014 increased compared to the year ended December 31, 2013 and consisted primarily of realizedgains from the sales of Oriental Brewery, WILD Flavors GmbH and Versatel GmbH.Realized carried interest for the year ended December 31, 2013 consisted primarily of realized gains from the partial sale and final sale of Dollar GeneralCorporation (NYSE: DG), the partial sale of HCA, Inc. and sale of Intelligence, Ltd. (services sector).The following table presents net unrealized carried interest by investment vehicle for the year ended December 31, 2014 and 2013: Year Ended December 31, 2014 2013 ($ in thousands)North America Fund XI$189,063 $34,3892006 Fund128,970 294,883Co-Investment Vehicles and Other99,026 22,009Asian Fund II58,967 —Real Estate Partners Americas(662) 12,516European Fund(826) 19China Growth Fund(6,346) 6,937E2 Investors(20,253) 14,774European Fund III(34,914) 124,463Millennium Fund(40,489) 12,128European Fund II(112,091) 169,819Asian Fund(176,456) 148Management Fee Refunds(13,931) (30,282) Total (a)$70,058 $661,803(a)The above table excludes any funds for which there was no unrealized carried interest during either of the periods presented. For the year ended December 31, 2014, the net unrealized carried interest income of $70.1 million included $1,098.2 million representing net increases in thevalue of various portfolio companies, which were partially offset by unrealized losses of $1,028.1 million primarily representing reversals of previously recognizednet unrealized gains in connection with the occurrence of realization events such as partial or full sales and management fee refunds.120Table of ContentsFor the year ended December 31, 2014, the value of our private equity investment portfolio increased 12.8%. Increased share prices of various publicly heldinvestments comprised approximately 23% of the net increase in value for the year ended December 31, 2014, the most significant of which were gains on PRAHealth Sciences, Inc., HCA, Inc., NXP Semiconductors N.V. and Yageo Corporation. These increases were partially offset by decreased share prices of variouspublicly held investments, the most significant of which were Tarkett S.A., ProSiebenSat.1 Media AG and Rundong Automobile Group. Our privately‑heldinvestments contributed the remainder of the change in value, the most significant of which were gains relating to Alliance Boots GmbH, Biomet, Inc. and WILDFlavors GmbH. The unrealized gains on our privately‑held investments were partially offset by unrealized losses relating primarily to Northgate InformationSolutions, Samson Resources and Toys R Us. The increased valuations of individual companies in our privately‑held investments, in the aggregate, generallyrelated to (i) an increase in the value of market comparables and individual company performance, (ii) in the case of WILD Flavors GmbH and Biomet, Inc., anincrease that primarily reflected agreements to sell these investments, with the sale of WILD Flavors GmbH completed in October 2014, and (iii) in the case ofAlliance Boots GmbH, primarily due to an agreement to exit the investment and to a lesser extent an increase in the value of a publicly traded stock that is expectedto be delivered pursuant to this agreement, which was completed on December 31, 2014. The decreased valuations of individual companies in our privately‑heldinvestments, in the aggregate, generally related to individual company performance or, in certain cases, an unfavorable business outlook.The reversals of previously recognized net unrealized gains for the year ended December 31, 2014 resulted primarily from the sale of Oriental Brewery, thesale of WILD Flavors GmbH, the partial sale of HCA, Inc. and the sale of Jazz Pharmaceuticals, Inc. During the year ended December 31, 2014, we wrote offA.T.U Auto‑Teile‑Unger and U.N RO‑RO Isletmeleri A.S. and recognized realized losses. These 2014 write‑offs did not have a significant impact on our 2014 netcarried interest because these interests had already been substantially written down in prior periods.For the year ended December 31, 2013, the unrealized carried interest gain of $661.8 million included $1,174.6 million reflecting net increases in the value ofvarious portfolio companies, which were partially offset by $512.8 million primarily representing reversals of previously recognized net unrealized gains inconnection with the occurrence of realization events such as partial or full sales and management fee refunds.For the year ended December 31, 2013, the value of our private equity investment portfolio increased 20.2%. Increased share prices of various publicly heldinvestments comprised approximately 46% of the net increase in value for the year ended December 31, 2013, the most significant of which were gains onHCA, Inc., ProSiebenSat.1 Media AG and NXP Semiconductors N.V. These increases were partially offset by decreased share prices of various publicly heldinvestments, the most significant of which were Bharti Infratel Ltd. (NS: INFRATEL) and China Outfitters Holdings Ltd (HK: 1146). Our private portfoliocontributed the remainder of the change in value, the most significant of which were gains relating to Alliance Boots GmbH, Academy Sports and Outdoors andOriental Brewery. The unrealized gains on our private portfolio were partially offset by unrealized losses relating primarily to Toys R Us, Samson Resources, andU.N RO‑RO Isletmeleri A.S. The increased valuations of our private portfolio, in the aggregate, generally related to (i) an increase in the value of marketcomparables and individual company performance and (ii) in the case of Alliance Boots GmbH, in part due to the increase in the value of a publicly traded stockthat was delivered pursuant to a previously announced transaction, which was completed on December 31, 2014. The decreased valuations of our private portfolio,in the aggregate, generally related to individual company performance or, in certain cases, an unfavorable business outlook.The reversals of previously recognized net unrealized gains for the year ended December 31, 2013 resulted primarily from the partial sales and final sale ofDollar General Corporation, the partial sales of HCA, Inc. and sale of Intelligence, Ltd. During the year ended December 31, 2013, we wrote off PagesJaunes Group(media sector) (currently known as Solocal Group SA (PA: LOCAL) and our remaining warrants in Eastman Kodak (NYSE: KODK) and sold our remaininginvestment in Seven West Media Ltd. (AX: SWM) realizing a modest loss. None of these write‑offs had a material impact on our 2013 net carried interest becausethese interests had already been substantially written down in prior periods.Segment ExpensesCompensation and BenefitsThe net decrease was due primarily to lower allocations to carry pool driven by the lower levels of unrealized carried interest, partially offset by an increase inrealized carried interest and higher cash compensation and benefits primarily reflecting (i) increased headcount, (ii) higher allocations of corporate compensation toPrivate Markets due to an increase in both the amount of corporate compensation incurred by the firm primarily as a result of an increase in headcount and anincrease in the proportion of revenue earned by Private Markets relative to other operating segments in 2014 and (iii) a higher level of fees, which generally resultsin higher compensation expenses.121Table of ContentsOccupancy and Other Operating ExpensesThe net increase was primarily driven by (i) an increase in expenses for unconsummated transactions, also known as broken deal expenses, (ii) an increase inprofessional fee expenses reflecting the overall growth of this segment and (iii) a decrease in the amount of operating expenses allocated from Private Markets toPrincipal Activities primarily as result of a decrease in the proportion of revenue earned by Principal Activities relative to other operating segments during 2014.These increases were partially offset by lower allocations of corporate operating expenses to Private Markets due primarily to a decrease in the amount of corporateoperating expenses incurred by the firm.Economic Net Income (Loss)The decrease was primarily due to the decrease in performance income, partially offset by increases in management, monitoring and transaction fees, net and adecrease in segment expenses as described above. Assets Under Management The following table reflects the changes in our Private Markets AUM from December 31, 2013 to December 31, 2014 : ($ in thousands)December 31, 2013$61,242,900New Capital Raised6,056,000Distributions(10,724,800)Net Changes in Fee Base of Certain Funds(933,800)Change in Value5,865,500December 31, 2014 - As Reported61,505,800Capital Commitments Where Fees or Carry are Payable Upon Deployment3,105,500December 31, 2014 - As Adjusted$64,611,300 AUM for the Private Markets segment was $64.6 billion at December 31, 2014, on an as adjusted basis, an increase of $3.4 billion, compared to $61.2 billion atDecember 31, 2013. The increase was primarily attributable to new capital raised of $6.1 billion and appreciation in the market value of our private equity portfolioof $5.9 billion. These increases were partially offset by distributions to private equity fund investors of $10.7 billion comprised of $7.3 billion of realized gains and$3.4 billion of return of original cost. In addition, AUM as of December 31, 2014 has been adjusted to include capital commitments for which we are eligible toreceive fees or carried interest upon deployment of capital. This item increased our AUM by approximately $3.1 billion as of December 31, 2014 but is excludedfrom AUM as of December 31, 2013.The appreciation in the market value of our private equity portfolio was driven primarily by net unrealized gains of $2.2 billion, $1.2 billion and $1.1 billion inour 2006 Fund, European Fund III and North America Fund XI, respectively. Approximately 23% of the net change in value for the year ended December 31, 2014was attributable to changes in share prices of various publicly‑listed investments, the most significant of which were gains on PRA Health Sciences, Inc.,HCA, Inc., NXP Semiconductors N.V. and Yageo Corporation. These increases were partially offset by decreased share prices of various publicly held investments,the most significant of which were Tarkett S.A., ProSiebenSat.1 Media AG and Rundong Automobile Group. Our privately‑held investments contributed theremainder of the change in value, the most significant of which were gains relating to Alliance Boots GmbH, Biomet, Inc. and WILD Flavors GmbH. Theunrealized gains on our privately‑held investments were partially offset by unrealized losses relating primarily to Northgate Information Solutions, SamsonResources and Toys R Us. The unrealized gains were also offset by unrealized losses in our energy assets from our Natural Resources Fund and Energy Income andGrowth Fund of approximately $352 million. The increased valuations of individual companies in our privately‑held investments, in the aggregate, generally relatedto (i) an increase in the value of market comparables and individual company performance, (ii) in the case of WILD Flavors GmbH and Biomet, Inc., an increasethat primarily reflected agreements to sell these investments, with the sale of WILD Flavors GmbH completed in October 2014, and (iii) in the case of AllianceBoots GmbH, primarily due to an agreement to exit the investment and to a lesser extent an increase in the value of a publicly traded stock that is expected to bedelivered pursuant to this agreement, which was completed on December 31, 2014. The decreased valuations of individual companies in our privately‑heldinvestments, in the aggregate, generally related to individual company performance or, in certain cases, an unfavorable business outlook. The decreased valuation ofenergy assets are generally related to decreases in commodity prices.122Table of ContentsFee-Paying Assets Under Management The following table reflects the changes in our Private Markets FPAUM from December 31, 2013 to December 31, 2014 : ($ in thousands)December 31, 2013$50,156,300New Capital Raised5,298,500Distributions(6,833,800)Net Changes in Fee Base of Certain Funds(964,700)Change in Value(393,800)December 31, 2014$47,262,500 FPAUM in our Private Markets segment was $47.3 billion at December 31, 2014, a decrease of $2.9 billion, compared to $50.2 billion at December 31, 2013.The decrease was primarily attributable to (i) distributions to private equity fund investors, (ii) a reduction in FPAUM attributable to the invested capital of EnergyFuture Holdings due to its bankruptcy and (iii) a reduction reflecting the impact of our European Fund III entering its post‑investment period. This decrease waspartially offset by new capital raised of $5.3 billion relating primarily to additional capital raised in our Infrastructure Investors Fund II, European Fund IV andcapital deployed in our 2006 Fund which earns fees on invested capital in its post‑investment period.Equity InvestedThe increase was due to an increase in the number and size of private equity investments closed during the year ended December 31, 2014 as compared withthe year ended December 31, 2013. Generally, the operating companies acquired through our private equity business have higher transaction values and result inhigher equity invested, relative to transactions in our real assets businesses. The number of large private equity investments made in any quarter is volatile andconsequently, a significant amount of equity invested in one quarter or a few quarters may not be indicative of a similar level of capital deployment in futurequarters. For the year ended December 31, 2014, there were 96 transactions with a total combined transaction value of approximately $21.8 billion compared to 70transactions with a total combined transaction value of approximately $17.0 billion for the year ended December 31, 2013.Uncalled CommitmentsAs of December 31, 2014, our Private Markets Segment had $18.3 billion of remaining uncalled capital commitments that could be called for investments innew transactions.123Table of ContentsPublic Markets Segment The following tables set forth information regarding the results of operations and certain key operating metrics for our Public Markets segment for the yearsended December 31, 2015 and 2014 .Year ended December 31, 2015 compared to year ended December 31, 2014 Year Ended December 31, 2015 December 31, 2014 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $266,458 $272,833 $(6,375)Monitoring Fees — — —Transaction Fees 28,872 27,145 1,727Fee Credits (24,595) (23,357) (1,238)Total Management, Monitoring and Transaction Fees, Net 270,735 276,621 (5,886) Performance Income Realized Incentive Fees 19,647 47,807 (28,160)Realized Carried Interest 8,953 34,650 (25,697)Unrealized Carried Interest (19,083) 40,075 (59,158)Total Performance Income 9,517 122,532 (113,015) Investment Income (Loss) Net Realized Gains (Losses) — — —Net Unrealized Gains (Losses) — — —Total Realized and Unrealized — — —Interest Income and Dividends — — —Interest Expense — — —Net Interest and Dividends — — —Total Investment Income (Loss) — — — Total Segment Revenues 280,252 399,153 (118,901) Segment Expenses Compensation and Benefits Cash Compensation and Benefits 73,863 64,530 9,333Realized Performance Income Compensation 11,438 32,984 (21,546)Unrealized Performance Income Compensation (7,633) 16,029 (23,662)Total Compensation and Benefits 77,668 113,543 (35,875)Occupancy and related charges 9,808 7,214 2,594Other operating expenses 40,591 31,501 9,090Total Segment Expenses 128,067 152,258 (24,191) Income (Loss) attributable to noncontrolling interests 1,259 1,636 (377) Economic Net Income (Loss) $150,926 $245,259 $(94,333) Assets Under Management $53,515,700 $42,508,000 $11,007,700Fee Paying Assets Under Management $46,413,100 $38,594,700 $7,818,400Equity Invested $2,214,700 $3,027,400 $(812,700)Uncalled Commitments $6,690,800 $2,841,300 $3,849,500Gross Dollars Invested $5,244,900 $4,425,600 $819,300 124Table of ContentsSegment Revenues Management, Monitoring and Transaction Fees, Net The net decrease was primarily due to a decrease in management fees of $6.4 million. The decrease in management fees was due primarily to (i) a decrease inmanagement fees received from KFN as a result of our acquisition of it on April 30, 2014, as management fees from KFN after that date were eliminated fromsegment results, (ii) redemptions in our hedge funds business and (iii) our mezzanine fund entering its post-investment period where it earns fees at a lower rate andon invested rather than committed capital. These decreases were partially offset by management fees earned from new capital raised primarily in Corporate CapitalTrust (a BDC sub‑advised by KKR) as well as management fees earned relating to our investment in Marshall Wace LLP ("Marshall Wace") which was completedin the fourth quarter of 2015. Performance Income The net decrease was primarily attributable to net carried interest losses in 2015 and a lower level of incentive fees. The net carried interest losses wereprimarily due to losses in our special situations strategy accounts and funds as well as lower overall appreciation in our mezzanine and direct lending strategiesduring 2015. The decrease in incentive fees is due primarily to a decrease in incentive fees received from KFN as a result of our acquisition of it on April 30, 2014,as incentive fees from KFN after that date were eliminated from segment results, as well as lower incentive fees in our hedge fund-of-funds platform and Europeancredit platform driven primarily by less favorable financial performance in the current year. Incentive fees are typically determined for the twelve-month periodsending in either the second or fourth quarters of the calendar year, however, such fees may also be determined quarterly or at other points during the year. Whetheran incentive fee from KKR vehicles is payable in any given period, and the amount of an incentive fee payment, if any, depends on the investment performance ofthe vehicle and as a result are expected to vary significantly from period to period. Segment Expenses Compensation and Benefits The decrease was primarily due to (i) reversals of unrealized performance income compensation in connection with net carried interest losses in 2015 in certaincarry earning funds, (ii) lower appreciation in certain carry earning funds in 2015 and (iii) a decrease in realized performance income compensation reflecting thedecrease in incentive fees, each of which are described above. Occupancy and Other Operating Expenses The increase was primarily driven by (i) higher occupancy costs reflecting the cost of an exit of office space during the year, (ii) higher allocations of corporateother operating expenses to Public Markets due to an increase in both the amount of corporate other operating expenses incurred by the firm and an increase in theproportion of revenue earned by Public Markets relative to other operating segments in 2015 and (iii) a decrease in the amount of operating expenses allocated fromPublic Markets to Principal Activities as result of a decrease in the proportion of revenue earned by Principal Activities relative to other operating segments during2015.Economic Net Income (Loss) The decrease is primarily attributable to the decrease in performance income and fees partially offset by lower expenses as described above. 125Table of ContentsAssets Under Management The following table reflects the changes in our Public Markets AUM from December 31, 2014 to December 31, 2015 : ($ in thousands)December 31, 2014 - As Adjusted$42,508,000New Capital Raised12,926,300Acquisitions6,010,800Distributions(4,087,900)Redemptions(2,873,500)Net Changes in Fee Base of Certain Funds(238,600)Change in Value(729,400)December 31, 2015$53,515,700As of December 31, 2014, AUM has been adjusted to include (i) capital commitments for which we are eligible to receive fees or carried interest upondeployment of capital and (ii) KKR's pro-rata portion of AUM managed by other asset managers in which KKR holds a minority stake. Our reported AUM forperiods prior to December 31, 2014 does not include these items.AUM in our Public Markets segment totaled $53.5 billion at December 31, 2015 , an increase of $11.0 billion compared to AUM of $42.5 billion atDecember 31, 2014 , on an as adjusted basis. The increase for the period was primarily due to new capital raised across multiple strategies primarily in our CLOs,special situations strategy, hedge funds business and Corporate Capital Trust. In addition, in the fourth quarter of 2015, KKR acquired 24.9% of Marshall Wace,resulting in the inclusion of KKR's pro-rata portion of the AUM managed by Marshall Wace. Partially offsetting these increases were (i) redemptions anddistributions of $7.0 billion from certain investment vehicles across multiple strategies including our hedge funds business, strategic partnerships and CLOs, (ii)decreases in value of $0.7 billion primarily in our European credit platform related to foreign currency fluctuations and (iii) a net change in fee base of $0.2 billionreflecting our Mezzanine Fund entering its post-investment period. Fee-Paying Assets Under Management The following table reflects the changes in our Public Markets FPAUM from December 31, 2014 to December 31, 2015 : ($ in thousands)December 31, 2014 - As Adjusted$38,594,700New Capital Raised9,212,400Acquisitions6,010,800Distributions(3,455,800)Redemptions(2,873,500)Net Changes in Fee Base of Certain Funds(325,200)Change in Value(750,300)December 31, 2015$46,413,100As of December 31, 2014, FPAUM has been adjusted to include KKR's pro-rata portion of AUM managed by other asset managers in which KKR holds aminority stake. Our reported AUM for periods prior to December 31, 2014 does not include this item.FPAUM in our Public Markets segment was $46.4 billion at December 31, 2015 , an increase of $7.8 billion compared to FPAUM of $38.6 billion atDecember 31, 2014 , on an as adjusted basis. The increase was primarily due to new capital raised of $9.2 billion across multiple strategies primarily in our CLOs,special situations strategy, hedge funds business and Corporate Capital Trust. In addition, in the fourth quarter of 2015, KKR acquired 24.9% of Marshall Wace,resulting in the inclusion of KKR's pro-rata portion of the FPAUM managed by Marshall Wace. Partially offsetting these increases were (i) decreases of $6.3 billionrelating to redemptions and distributions from certain investment vehicles across multiple strategies primarily in CLOs, our hedge funds platform and strategicpartnerships, (ii) decreases in value primarily in our European credit and hedge fund platforms related to foreign currency fluctuations and (iii) a net change in feebase of $0.3 billion reflecting our Mezzanine Fund entering its post-investment period.Equity Invested The increase is primarily due to a higher level of net capital deployed in our direct lending, special situations and mezzanine strategies.126Table of ContentsUncalled Commitments As of December 31, 2015 , our Public Markets segment had $6.7 billion of uncalled capital commitments that could be called for investments in newtransactions.Gross Dollars Invested The increase is primarily due to a higher level of investment activity in our direct lending, special situations and mezzanine strategies.127Table of ContentsThe following tables set forth information regarding the results of operations and certain key operating metrics for our Public Markets segment for the yearsended December 31, 2014 and 2013.Year ended December 31, 2014 compared to year ended December 31, 2013 Year Ended December 31, 2014 December 31, 2013 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $272,833 $206,134 $66,699Monitoring Fees — — —Transaction Fees 27,145 40,314 (13,169)Fee Credits (23,357) (29,950) 6,593Total Management, Monitoring and Transaction Fees, Net 276,621 216,498 60,123 Performance Income Realized Incentive Fees 47,807 72,359 (24,552)Realized Carried Interest 34,650 — 34,650Unrealized Carried Interest 40,075 62,338 (22,263)Total Performance Income 122,532 134,697 (12,165) Investment Income (Loss) Net Realized Gains (Losses) — — —Net Unrealized Gains (Losses) — — —Total Realized and Unrealized — — —Interest Income and Dividends — — —Interest Expense — — —Net Interest and Dividends — — —Total Investment Income (Loss) — — — Total Segment Revenues 399,153 351,195 47,958 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 64,530 24,696 39,834Realized Performance Income Compensation 32,984 28,944 4,040Unrealized Performance Income Compensation 16,029 24,935 (8,906)Total Compensation and Benefits 113,543 78,575 34,968Occupancy and related charges 7,214 2,837 4,377Other operating expenses 31,501 36,006 (4,505)Total Segment Expenses 152,258 117,418 34,840 Income (Loss) attributable to noncontrolling interests 1,636 1,560 76 Economic Net Income (Loss) $245,259 $232,217 $13,042 Assets Under Management $42,508,000 $33,077,400 $9,430,600Fee Paying Assets Under Management $38,594,700 $27,241,200 $11,353,500Equity Invested $3,027,400 $1,553,000 $1,474,400Uncalled Commitments $2,841,300 $2,362,300 $479,000Gross Dollars Invested $4,425,600 $4,213,300 $212,300128Table of ContentsSegment RevenuesManagement, Monitoring and Transaction Fees, NetThe net increase was primarily due to an increase in management fees of $66.7 million and a decrease in fee credits of $6.6 million, partially offset by adecrease in transaction fees of $13.2 million. The increase in management fees is due primarily to our acquisition of Avoca on February 19, 2014 and new capitalraised, primarily in our special situations strategies, Corporate Capital Trust and our hedge fund of funds platform. These increases were partially offset by adecrease in management fees received from KFN as a result of our acquisition of it on April 30, 2014 as management fees from KFN after that date are eliminatedfrom segment results. The decrease in transaction fees is due primarily to a decrease in the size of fee earning transactions in the current period. The decrease in feecredits is due primarily to the decrease in transaction fees as described above.Performance IncomeThis decrease was primarily driven by a decrease in incentive fees of $24.6 million and a lower level of unrealized carried interest of $22.3 million, partiallyoffset by a higher level of realized carried interest of $34.7 million. During the year ended December 31, 2014, we realized $34.7 million of carried interest fromtwo alternative credit accounts. The decrease in incentive fees is due to a decrease in investment income in our hedge funds business and loss of incentive feesreceived from KFN as a result of our acquisition of it on April 30, 2014, partially offset by an increase in incentive fees received from Avoca following ouracquisition of Avoca on February 19, 2014, and Corporate Capital Trust resulting from favorable performance. Incentive fees are typically determined for thetwelve‑ month periods ending in either the second or fourth quarters of the calendar year, however, such fees may be determined at other points during the year forcertain strategies. Whether an incentive fee from KKR vehicles is payable in any given period, and the amount of an incentive fee payment, if any, depends on theinvestment performance of the vehicle and as a result are expected to vary significantly from period to period. The decrease in unrealized carried interest wasprimarily driven by the reversals of previously recognized net unrealized gains for the year ended December 31, 2014, partially offset by an increase in unrealizedcarried interest across our carry‑earning funds, the most significant of which were in our special situations strategy.Segment ExpensesCompensation and BenefitsThe increase was primarily due to (i) higher compensation expenses relating to Avoca, which was acquired on February 19, 2014, (ii) higher allocations tocarry pool driven by the higher levels of net carried interest, as described above and (iii) an increase in compensation and benefits in connection with the increase infees, which generally results in higher compensation expense. These increases were partially offset by a decrease in compensation associated with incentive fees asa result of the overall decrease in incentive fees of as described above.Occupancy and Other Operating ExpensesThis decrease was due to the net effect of a $9.7 million one‑time expense incurred in connection with the launch of a closed end fund in the 2013 period whichwas partially offset in the 2014 period by the operating expenses of Avoca, which we acquired on February 19, 2014.Economic Net Income (Loss)The increase is primarily attributable to the increase in management fees, which was partially offset by the decrease in performance income and the increase insegment expenses.129Table of ContentsAssets Under Management The following table reflects the changes in our Public Markets AUM from December 31, 2013 to December 31, 2014 : ($ in thousands)December 31, 2013$33,077,400New Capital Raised7,253,000Acquisitions8,423,000KFN Acquisition(4,511,900)Distributions(3,967,300)Redemptions(3,303,900)Change in Value136,400December 31, 2014 - As Reported$37,106,700Net AUM of Strategic Partnerships (pro-rata based on ownership interest)2,810,800Capital Commitments Where Fees or Carry are Payable Upon Deployment2,590,500December 31, 2014 - As Adjusted42,508,000AUM in our Public Markets segment totaled $42.5 billion at December 31, 2014, on an as adjusted basis, an increase of $9.4 billion compared to AUM of$33.1 billion at December 31, 2013. The increase was primarily due to the acquisition of Avoca, which contributed $8.4 billion of AUM, as well as $7.3 billion ofnew capital raised. These increases were partially offset by the acquisition of KFN, which reduced AUM by $4.5 billion, and $7.3 billion of distributions andredemptions from certain investment vehicles, the most significant of which were from our hedge fund of funds platform and CLOs. In addition, AUM as ofDecember 31, 2014 has been adjusted to include (i) KKR's pro-rata portion of AUM managed by other asset managers in which KKR holds a minority stake and (ii)capital commitments for which we are eligible to receive fees or carried interest upon deployment of capital. These two items increased our AUM by approximately$5.4 billion as of December 31, 2014 but are excluded from AUM as of December 31, 2013.Fee-Paying Assets Under Management The following table reflects the changes in our Public Markets FPAUM from December 31, 2013 to December 31, 2014 : ($ in thousands)December 31, 2013$27,241,200New Capital Raised6,304,600Acquisitions7,971,000KFN Acquisition(2,684,700)Distributions(1,929,500)Redemptions(3,303,900)Change in Value(424,000)Other2,609,200December 31, 2014 - As Reported$35,783,900Net FPAUM of Strategic Partnerships (pro-rata based on ownership interest)2,810,800December 31, 2014 - As Adjusted38,594,700FPAUM in our Public Markets segment was $35.8 billion at December 31, 2014, on an as adjusted basis, an increase of $8.6 billion compared to FPAUM of$27.2 billion at December 31, 2013. The increase was primarily due to the acquisition of Avoca, which contributed $8.0 billion of FPAUM, $6.3 billion of newcapital raised and $2.6 billion of CLOs partially owned by KKR that were not previously included in FPAUM and was not new capital raised during the period(included in Other above). These increases were partially offset by the acquisition of KFN, which reduced FPAUM by $2.7 billion, and $5.2 billion of redemptionsand distributions from certain investment vehicles, the most significant of which were from our CLOs and hedge fund of funds platform. In addition, FPAUM hasbeen adjusted to include KKR's pro-rata portion of FPAUM managed by other asset managers in which KKR holds a minority stake. This item increased our AUMby approximately $2.8 billion as of December 31, 2014 but is excluded from FPAUM as of as of December 31, 2013.Equity InvestedThe increase is primarily due to a higher level of net capital deployed, primarily in our special situations and direct lending strategies partially offset by a lowerlevel of capital deployed in our mezzanine strategy.130Table of ContentsUncalled CommitmentsAs of December 31, 2014, our Public Markets segment had $2.8 billion of uncalled capital commitments that could be called for investments in newtransactions.Gross Dollars InvestedThe increase is primarily due to a higher level of investment activity in our special situations and direct lending strategies, partially offset by a decrease ininvestment activity in our mezzanine strategies.131Table of ContentsCapital Markets Segment The following tables set forth information regarding the results of operations and certain key operating metrics for our Capital Markets segment for the yearsended December 31, 2015 and 2014 .Year ended December 31, 2015 compared to year ended December 31, 2014 Year Ended December 31, 2015 December 31, 2014 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $— $— $—Monitoring Fees — — —Transaction Fees 191,470 217,920 (26,450)Fee Credits — — —Total Management, Monitoring and Transaction Fees, Net 191,470 217,920 (26,450) Performance Income Realized Incentive Fees — — —Realized Carried Interest — — —Unrealized Carried Interest — — —Total Performance Income — — — Investment Income (Loss) Net Realized Gains (Losses) — — —Net Unrealized Gains (Losses) — — —Total Realized and Unrealized — — —Interest Income and Dividends — — —Interest Expense — — —Net Interest and Dividends — — —Total Investment Income (Loss) — — — Total Segment Revenues 191,470 217,920 (26,450) Segment Expenses Compensation and Benefits Cash Compensation and Benefits 34,562 41,551 (6,989)Realized Performance Income Compensation — — —Unrealized Performance Income Compensation — — —Total Compensation and Benefits 34,562 41,551 (6,989)Occupancy and related charges 2,641 1,523 1,118Other operating expenses 14,618 11,497 3,121Total Segment Expenses 51,821 54,571 (2,750) Income (Loss) attributable to noncontrolling interests 13,103 11,886 1,217 Economic Net Income (Loss) $126,546 $151,463 $(24,917) Syndicated Capital $868,900 $2,567,300 $(1,698,400) Segment Revenues Management, Monitoring and Transaction Fees, NetTransaction fees decreased due to a decrease in the number and size of capital markets transactions for the year ended December 31, 2015 compared to the yearended December 31, 2014. Our capital markets business does not generate management or monitoring fees. Overall, we completed 116 capital markets transactionsfor the year ended December 31, 2015132Table of Contentsof which 16 represented equity offerings and 100 represented debt offerings, as compared to 139 transactions for the year ended December 31, 2014 of which 15represented equity offerings and 124 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services.While each of the capital markets transactions that we undertake in this segment is separately negotiated, our fee rates are generally higher with respect tounderwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we collect for like transactions generally correlates withoverall transaction sizes. Our capital markets fees are sourced from our Private Markets and Public Markets platforms as well as third party companies. For the yearended December 31, 2015 approximately 24% of our transaction fees were earned from third parties as compared to 31% for the year ended December 31, 2014.Our transaction fees are comprised of fees from various geographic regions. For the year ended December 31, 2015 approximately 44% of our transaction fees weresourced outside the United States as compared to approximately 38% for the year ended December 31, 2014. Our capital markets business is dependent on theoverall capital markets environment, which is influenced by, among other things, equity prices, credit spreads and volatility.Segment ExpensesCompensation and BenefitsThe decrease was primarily due to a decrease in cash compensation and benefits related to lower transaction fees, which generally results in lowercompensation expense.Occupancy and Other Operating ExpensesThe increase was primarily driven by higher allocations of corporate other operating expenses to Capital Markets due to an increase in both the amount ofcorporate other operating expenses incurred by the firm and to a lesser extent an increase in the proportion of revenue earned by Capital Markets relative to otheroperating segments in 2015. Additionally, there was a decrease in the amount of operating expenses allocated from Capital Markets to Principal Activities as resultof a decrease in the proportion of revenue earned by Principal Activities relative to other operating segments during 2015.Economic Net Income (Loss)The decrease is primarily attributable to the decrease in transaction fees as described aboveSyndicated CapitalThe decrease is primarily due to a decrease in the size of syndication transactions in the year ended December 31, 2015 as compared to the year endedDecember 31, 2014. The 2014 amounts included the syndication of equity in First Data Corporation of approximately $1.8 billion. Overall, we completed 10syndication transactions for the year ended December 31, 2015 as compared to 8 syndication transactions for the year ended December 31, 2014.133Table of ContentsThe following tables set forth information regarding the results of operations and certain key operating metrics for our Capital Markets segment for the yearsended December 31, 2014 and 2013.Year ended December 31, 2014 compared to year ended December 31, 2013 Year Ended December 31, 2014 December 31, 2013 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $— $— $—Monitoring Fees — — —Transaction Fees 217,920 146,254 71,666Fee Credits — — —Total Management, Monitoring and Transaction Fees, Net 217,920 146,254 71,666 Performance Income Realized Incentive Fees — — —Realized Carried Interest — — —Unrealized Carried Interest — — —Total Performance Income — — — Investment Income (Loss) Net Realized Gains (Losses) — — —Net Unrealized Gains (Losses) — — —Total Realized and Unrealized — — —Interest Income and Dividends — — —Interest Expense — — —Net Interest and Dividends — — —Total Investment Income (Loss) — — — Total Segment Revenues 217,920 146,254 71,666 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 41,551 31,118 10,433Realized Performance Income Compensation — — —Unrealized Performance Income Compensation — — —Total Compensation and Benefits 41,551 31,118 10,433Occupancy and related charges 1,523 877 646Other operating expenses 11,497 9,698 1,799Total Segment Expenses 54,571 41,693 12,878 Income (Loss) attributable to noncontrolling interests 11,886 3,329 8,557 Economic Net Income (Loss) $151,463 $101,232 $50,231 Syndicated Capital $2,567,300 $1,112,100 $1,455,200 Segment Revenues Management, Monitoring and Transaction Fees, NetTransaction fees increased primarily due to an increase in the size of capital markets transactions in the year ended December 31, 2014 compared to the yearended December 31, 2013, including syndication fees received from First Data Corporation of approximately $43 million in the third quarter of 2014. Our capitalmarkets business does not generate management or monitoring fees. Overall, we completed 139 capital markets transactions for the year ended December 31, 2014of which 15 represented equity offerings and 124 represented debt offerings, as compared to 128 transactions for the year ended134Table of ContentsDecember 31, 2013 of which 16 represented equity offerings and 112 represented debt offerings. We earned fees in connection with underwriting, syndication andother capital markets services. While each of the capital markets transactions that we undertake in this segment is separately negotiated, our fee rates are generallyhigher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we collect for like transactionsgenerally correlates with overall transaction sizes. Our capital markets fees are sourced from our Private Markets and Public Markets platforms as well as third partycompanies. For the years ended December 31, 2014 approximately 31% of our transaction fees were earned from third parties, as compared to 29% for the yearended December 31, 2013. Our transaction fees are comprised of fees from various global regions. For the year ended December 31, 2014 approximately 38% ofour transaction fees were sourced internationally as compared to approximately 30% for the year ended December 31, 2013. Our capital markets business isdependent on the overall capital markets environment, which is influenced by equity prices, credit spreads and volatility.Segment ExpensesCompensation and BenefitsThe increase was primarily due to an increase in cash compensation and benefits related to higher fees, which generally results in higher compensation expense,and to a lesser extent increased headcount.Occupancy and Other Operating ExpensesThis increase was primarily driven by an increase in professional fees in connection with the higher overall level of capital markets transaction activity.Economic Net Income (Loss)The increase is primarily attributable to the increase in transaction fees, partially offset by the increase in compensation and benefits, described above.Syndicated CapitalThe increase is primarily due to an increase in the size of syndication transactions when compared to year ended December 31, 2013, which included thesyndication of equity in First Data Corporation of approximately $1.8 billion in the third quarter of 2014. Overall, we completed 8 syndication transactions for theyear ended December 31, 2014 as compared to 10 syndication transactions for the year ended December 31, 2013.135Table of ContentsPrincipal Activities Segment The following tables set forth information regarding the results of operations for our Principal Activities segment for the years ended December 31, 2015 and2014 .Year ended December 31, 2015 compared to year ended December 31, 2014 Year Ended December 31, 2015 December 31, 2014 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $— $— $—Monitoring Fees — — —Transaction Fees — — —Fee Credits — — —Total Management, Monitoring and Transaction Fees, Net — — — Performance Income Realized Incentive Fees — — —Realized Carried Interest — — —Unrealized Carried Interest — — —Total Performance Income — — — Investment Income (Loss) Net Realized Gains (Losses) 337,023 628,403 (291,380)Net Unrealized Gains (Losses) (391,962) (396,425) 4,463Total Realized and Unrealized (54,939) 231,978 (286,917)Interest Income and Dividends 411,536 408,084 3,452Interest Expense (203,085) (134,909) (68,176)Net Interest and Dividends 208,451 273,175 (64,724)Total Investment Income (Loss) 153,512 505,153 (351,641) Total Segment Revenues 153,512 505,153 (351,641) Segment Expenses Compensation and Benefits Cash Compensation and Benefits 107,572 121,161 (13,589)Realized Performance Income Compensation — — —Unrealized Performance Income Compensation — — —Total Compensation and Benefits 107,572 121,161 (13,589)Occupancy and related charges 16,568 18,104 (1,536)Other operating expenses 50,573 60,673 (10,100)Total Segment Expenses 174,713 199,938 (25,225) Income (Loss) attributable to noncontrolling interests — — — Economic Net Income (Loss) $(21,201) $305,215 $(326,416) 136Table of ContentsSegment Revenues Investment Income The net decrease is primarily due to a decrease in total realized and unrealized gains of $286.9 million, as well as a decrease in net interest and dividends of$64.7 million.For the year ended December 31, 2015, net realized gains were comprised primarily of gains from the sale of private equity investments, generally held throughor alongside our funds, including the sales or partial sales of Walgreens Boots Alliance, Inc., The Nielsen Company B.V. (NYSE: NLSN), Zimmer BiometHoldings, Inc. and Kion GmbH (XETRA: KGX). These realized gains were partially offset by realized losses on the sale or write off of other private equityinvestments, generally held through or alongside our funds, including the write-off of Energy Future Holdings. Realized investment losses from balance sheetinvestments that were already written down as of October 1, 2009 that have been excluded from net realized gains (losses) above related to Energy Future Holdingsand amounted to approximately $100 million for the year ended December 31, 2015. Net unrealized losses were primarily attributable to (i) the reversal of gains onsales of private equity investments noted in the realized gains commentary above and (ii) overall reductions in value of our investments in CLOs, energyinvestments in working interests in oil and gas producing properties and special situations investments. A decrease in the value of our CLO portfolio wasexperienced in each quarter of 2015 and was due primarily to a decrease in the market value of underlying collateral as well as a reduction in overall market pricesfor these securities. With respect to our energy portfolio, a decrease in value was experienced in three of four quarters during 2015 and is due primarily to a drop inlong‑term oil, condensate, natural gas liquids, and natural gas prices during the year ended December 31, 2015. Offsetting these unrealized losses were unrealizedgains resulting from increases in value of various investments, most notably First Data Corporation, Walgreens Boots Alliance, Inc. and WMI Holdings Corp.(NASDAQ: WMIH), as well as the reversal of unrealized losses related to the write-off of Energy Future Holdings, Corp. Subsequent to December 31, 2015, thevalue of First Data Corporation has declined sharply. See "--Business Environment". Additionally, subsequent to December 31, 2015, we expect to write-off ourinvestment in Samson Resources once our losses become realized. Since this investment has already been written down to zero value in periods prior to December31, 2015, this write-off is not expected to have a significant impact on our economic net income in future periods. However, this write-off could reduce our cashearnings by approximately $250 million.As of December 31, 2015, we held $96.6 million of investments in CLOs that are not held for investment purposes and are carried at cost. For the year endedDecember 31, 2015, the unrealized loss relating to changes in fair value for these investments in CLOs was $7.6 million. Prior to the quarter ended September 30,2015, all CLOs were carried at fair value.For the year ended December 31, 2014, net realized gains were comprised primarily of gains from the sale of private equity investments, generally held throughor alongside our funds, including the sales or partial sales of HCA, Inc., NXP Semiconductors N.V. and The Nielsen Company B.V. Net unrealized losses areprimarily related to (i) the reversal of gains on sales of private equity investments noted in the realized gains commentary above, (ii) declines in value of variousinvestments in working interests in oil and gas producing properties, (iii) a decline in value for Samson Resources, (iv) overall reductions in value of ourinvestments in CLOs, driven primarily by a decrease in the market value of underlying collateral and (v) a decline in value of investments in specialty financecompanies. For the year ended December 31, 2014, mark-to-market unrealized losses reflected in net unrealized losses relating to our energy investments inworking interests in oil and gas producing properties were approximately $149 million, the majority of which occurred in the fourth quarter of 2014 primarily as aresult of a decline in oil and gas prices. These unrealized losses and reversals of gains upon realization events were partially offset by unrealized gains resultingfrom increases in value of various private equity investments including First Data Corporation, Alliance Boots GmbH and Biomet, Inc.For the year ended December 31, 2015, interest income and dividends were comprised of (i) $316.5 million of interest income which consists primarily ofinterest that is received from interest yielding CLOs and credit investments and, to a lesser extent, from our cash balances and other assets and (ii) $95.0 million ofdividend income received primarily from distributions received through our investment funds and other assets. For the year ended December 31, 2014, interestincome and dividends were comprised of (i) $241.7 million of interest income which consists primarily of interest that is received from interest yielding CLOs andcredit investments and, to a lesser extent, from our cash balances and other assets and (ii) $166.4 million of dividend income received primarily from distributionsreceived through our investment funds and other assets, including approximately $84 million received from our energy investments in working interests in oil andgas producing properties. The increase from the prior period is primarily due to more significant levels of investments in interest yielding CLOs and creditinvestments, which were largely offset by a decrease in dividend income from our private equity and energy investments portfolio. 137Table of ContentsThe increase in interest expense is primarily due to our 2044 Senior Notes issued on May 29, 2014 and an additional issuance of such notes on March 18, 2015,as well as the debt obligations of KFN acquired on April 30, 2014 which did not contribute to our interest expense for the first four months of 2014.Segment Expenses Compensation and BenefitsThe decrease was primarily due to a decrease in the amount of compensation and benefits expenses allocated from the other operating segments to PrincipalActivities, as well as a lower amount of corporate compensation allocated to Principal Activities, in each case as a result of a decrease in the proportion of revenueearned by Principal Activities relative to other operating segments during 2015. Partially offsetting these decreases was an increase in the aggregate compensationand benefits expense in our other operating segments that are allocable to the Principal Activities segment. See “-Segment Analysis-Private Markets”, “-SegmentAnalysis-Public Markets” and “-Segment Analysis-Capital Markets” for additional information regarding the compensation and benefit expenses of these othersegments, and “-Segment Analysis" for a discussion of expense allocations among segments.Occupancy and Other Operating ExpensesThe decrease was primarily driven by a decrease in the amount of occupancy and other operating expenses allocated from the other operating segments as aresult of a decrease in the proportion of revenue earned by Principal Activities relative to other operating segments during 2015. Economic Net Income (Loss) The decrease is primarily attributable to the decrease in investment income as described above.138Table of ContentsThe following tables set forth information regarding the results of operations for our Principal Activities segment for the years ended December 31, 2014 and2013.Year ended December 31, 2014 compared to year ended December 31, 2013 Year Ended December 31, 2014 December 31, 2013 Change ($ in thousands)Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $— $— $—Monitoring Fees — — —Transaction Fees — — —Fee Credits — — —Total Management, Monitoring and Transaction Fees, Net — — — Performance Income Realized Incentive Fees — — —Realized Carried Interest — — —Unrealized Carried Interest — — —Total Performance Income — — — Investment Income (Loss) Net Realized Gains (Losses) 628,403 635,633 (7,230)Net Unrealized Gains (Losses) (396,425) 301,262 (697,687)Total Realized and Unrealized 231,978 936,895 (704,917)Interest Income and Dividends 408,084 87,168 320,916Interest Expense (134,909) (65,662) (69,247)Net Interest and Dividends 273,175 21,506 251,669Total Investment Income (Loss) 505,153 958,401 (453,248) Total Segment Revenues 505,153 958,401 (453,248) Segment Expenses Compensation and Benefits Cash Compensation and Benefits 121,161 110,457 10,704Realized Performance Income Compensation — — —Unrealized Performance Income Compensation — — —Total Compensation and Benefits 121,161 110,457 10,704Occupancy and related charges 18,104 20,844 (2,740)Other operating expenses 60,673 63,262 (2,589)Total Segment Expenses 199,938 194,563 5,375 Income (Loss) attributable to noncontrolling interests — — — Economic Net Income (Loss) $305,215 $763,838 $(458,623) 139Table of ContentsSegment Revenues Investment IncomeThe net decrease is primarily due to a decrease in total realized and unrealized gains of $704.9 million, which were partially offset by an increase in net interestand dividends of $251.7 million.For the year ended December 31, 2014, net realized gains were comprised primarily of gains from the sale of private equity investments, generally held throughor alongside our funds, including the sales or partial sales of HCA, Inc., NXP Semiconductors N.V. and The Nielsen Company B.V. Net unrealized losses areprimarily related to (i) the reversal of gains on sales of private equity investments noted in the realized gains commentary above, (ii) declines in value of variousinvestments in working interests in oil and gas producing properties, (iii) a decline in value for Samson Resources, (iv) overall reductions in value of ourinvestments in CLOs, driven primarily by a decrease in the market value of underlying collateral and (v) a decline in value of investments in specialty financecompanies. For the year ended December 31, 2014, mark-to-market unrealized losses reflected in net unrealized losses relating to our energy investments inworking interests in oil and gas producing properties were approximately $149 million, the majority of which occurred in the fourth quarter of 2014 primarily as aresult of a decline in oil prices. These unrealized losses and reversals of gains upon realization events were partially offset by unrealized gains resulting fromincreases in value of various private equity investments including First Data Corporation, Alliance Boots GmbH and Biomet, Inc.For the year ended December 31, 2013, net realized gains were comprised primarily of realized gains from the sales or partial sales of private equityinvestments, generally held through or alongside our funds, the most significant of which were HCA, Inc., Dollar General Corporation, NXP Semiconductors N.V.and Intelligence, Ltd. These realized gains were partially offset by realized losses primarily related to the sale or write-off of private equity investments, generallyheld through or alongside our funds, including the write-off of PagesJaunes Group. Realized investment losses from balance sheet investments that were alreadywritten down as of October 1, 2009 that have been excluded from net realized gains (losses) above amounted to approximately $205 million for the year endedDecember 31, 2013. The net unrealized gains related primarily to increases in the value of various private equity investments, most notably HCA, Inc.,ProSiebenSat.1 Media AG and Alliance Boots GmbH, partially offset by unrealized losses relating to our investment in Samson Resources, as well as reversals ofunrealized gains primarily in connection with the sales of the investments noted in the realized gains commentary above.For the year ended December 31, 2014, interest income and dividends were comprised of (i) $241.7 million of interest income which consisted primarily ofinterest that was received from interest yielding CLOs and credit investments and, to a lesser extent, from our cash balances and other assets and (ii) $166.4 millionof dividend income received primarily from distributions received through our investment funds and other assets, including approximately $84 million receivedfrom our energy investments in working interests in oil and gas producing properties. For the year ended December 31, 2013, interest income and dividends werecomprised of (i) $41.2 million of interest income which consists primarily of interest received on our cash balances and (ii) $46.0 million of dividend incomereceived primarily from distributions received through our investment funds and other assets. The increase from the prior period is primarily due to an increase individend income in our private equity and energy investments portfolio as well as more significant levels of investments in interest yielding CLOs and creditinvestments as a result of our acquisition of KFN on April 30, 2014 and to a lesser extent our acquisition of Avoca on February 19, 2014.The increase in interest expense is primarily due to our 2044 Senior Notes issued on May 29, 2014 as well as interest expense relating to debt obligations atKFN subsequent to KKR’s acquisition of it on April 30, 2014.Segment ExpensesCompensation and BenefitsThe increase was primarily due to (i) an increase in cash compensation and benefits incurred directly by the Principal Activities segment and (ii) an increase inthe aggregate compensation and benefits expense in our other operating segments that are allocable to the Principal Activities segment. See commentary for theseoperating segments in “-Segment Analysis-Private Markets”, “-Segment Analysis-Public Markets” and “-Segment Analysis-Capital Markets”. These increases werepartially offset by a decrease in the amount of compensation and benefits expenses allocated from the other operating segments as a result of a decrease in theproportion of revenue earned by Principal Activities relative to other operating segments during 2014.140Table of ContentsOccupancy and Other Operating ExpensesThe decrease was primarily driven by a decrease in the amount of occupancy and other operating expenses allocated from the other operating segments as aresult of a decrease in the proportion of revenue earned by Principal Activities relative to other operating segments during 2014. This decrease was partially offsetby an increase in occupancy and other operating expenses incurred directly by the Principal Activities segment.Economic Net Income (Loss)The decrease is primarily attributable to the decrease in investment income, described above.Segment Balance Sheet Our segment balance sheet is the balance sheet of KKR & Co. L.P. and its subsidiaries on a segment basis which include, but are not limited to, our investmentmanagement companies, broker-dealer companies, general partners of our investment funds and KFN. Our segment balance sheet excludes the assets and liabilitiesof our investment funds and CFEs. Investments Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority investments in subsidiariesthat operate KKR's asset management and other businesses, including the general partner interests of KKR's investment funds.Cash and Short-Term Investments Cash and short-term investments represent cash and liquid short-term investments in high-grade, short-duration cash management strategies used by KKR togenerate additional yield on our excess liquidity and is used by management in evaluating KKR's liquidity position. We believe this measure is useful to unitholdersas it provides additional insight into KKR's available liquidity. Cash and short-term investments differ from cash and cash equivalents on a GAAP basis as a resultof the inclusion of liquid short-term investments in cash and short-term investments. The impact that these liquid short-term investments have on cash and cashequivalents on a GAAP basis is reflected in the consolidated statements of cash flows within cash flows from operating activities. Accordingly, the exclusion ofthese investments from cash and cash equivalents on a GAAP basis has no impact on cash provided (used) by operating activities, investing activities or financingactivities. As of December 31, 2015 , we had cash and short-term investments on a segment basis of approximately $1.3 billion . Excluding approximately $0.2billion of liquid short-term investments, cash and short-term investments may be reconciled to cash and cash equivalents of approximately $1.0 billion as ofDecember 31, 2015 . 141Table of ContentsThe following tables present our segment balance sheet as of December 31, 2015 and December 31, 2014 : As of As of December 31, 2015 December 31, 2014 ($ in thousands, except per unit amounts)Cash and short-term investments $1,287,650 $1,121,385Investments 8,958,089 9,807,606Unrealized carry (a) 1,415,478 1,283,022Other assets 1,613,139 999,654Corporate Real Estate 154,942 —Total assets $13,429,298 $13,211,667 Debt obligations - KKR (ex-KFN) $2,000,000 $1,527,000Debt obligations - KFN 657,310 657,310Preferred shares - KFN 373,750 373,750Other liabilities 291,537 413,808Total liabilities 3,322,597 2,971,868 Noncontrolling interests 127,472 121,574 Book Value $9,979,229 $10,118,225 Book Value Per Outstanding Adjusted Unit $12.18 $12.48 Book Value Per Adjusted Unit $11.78 $12.07 (a) Unrealized Carry Private Markets $1,340,556 $1,196,633Public Markets 74,922 86,389Total $1,415,478 $1,283,022The following table presents our most significant investments based on their fair market value as of December 31, 2015. As of December 31, 2015 ($ in thousands)Significant Investments: FairValue Fair Value as a Percentage of Total InvestmentsFirst Data Corporation (NYSE: FDC) $1,266,196 14.1%Walgreens Boots Alliance (NASDAQ: WBA) 748,688 8.4%WMI Holdings Corp. (NASDAQ: WMIH) 311,270 3.5%Oil & Gas Royalties Investment 173,800 1.9%HCA Holdings, Inc. (NYSE: HCA) 169,332 1.9%Total Significant Investments 2,669,286 29.8% Other Investments 6,288,803 70.2%Total Investments $8,958,089 100.0%142Table of ContentsThe following tables provide reconciliations of KKR’s GAAP Common Units Outstanding - Basic to Adjusted Units and KKR & Co. L.P. Partners’ Capital toBook Value: As of December 31, 2015GAAP Common Units Outstanding - Basic457,834,875Adjustments: Unvested Common Units (a)23,212,300Other Exchangeable Securities (b)4,689,610GAAP Common Units Outstanding - Diluted485,736,785Adjustments: KKR Holdings Units (c)361,346,588Adjusted Units847,083,373Adjustments: Unvested Common Units and Unvested Other Exchangeable Securities(24,060,289)Adjusted Units Eligible for Distribution823,023,084Adjustments: Vested Other Exchangeable Securities (b)(3,841,621)Outstanding Adjusted Units819,181,463 (a)Represents equity awards granted under the Equity Incentive Plan. The issuance of common units of KKR & Co. L.P. pursuant to awards under the Equity Incentive Plandilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business.(b)Represents securities in a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. that are exchangeable into KKR & Co. L.P. common units issued in connectionwith the acquisition of Avoca.(c)Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units. As of($ in thousands, except per unit amounts)December 31, 2015KKR & Co. L.P. Partners’ Capital$5,547,182 Noncontrolling interests held by KKR Holdings L.P.4,347,153 Equity impact of KKR Management Holdings Corp. and other84,894 Book Value$9,979,229Liquidity We manage our liquidity and capital requirements by focusing on our cash flows before the consolidation of our funds and CFEs and the effect of changes inshort term assets and liabilities, which we anticipate will be settled for cash within one year. Our primary cash flow activities on a segment basis typically involve:(i) generating cash flow from operations; (ii) generating income from investment activities, by investing in investments that generate yield (namely interest anddividends) as well as the sale of investments and other assets; (iii) funding capital commitments that we have made to our funds and CLOs, (iv) developing andfunding new investment strategies, investment products and other growth initiatives, including acquisitions; (v) underwriting and funding commitments in ourcapital markets business; (vi) distributing cash flow to our fund investors, unitholders and certain holders of certain exchangeable securities; and (vii) borrowings,interest payments and repayments under credit agreements, our senior notes and other borrowing arrangements. As of December 31, 2015 , we had cash and short-term investments on a segment basis of $1.3 billion . See "-Liquidity - Liquidity Needs - Distributions."Sources of Liquidity Our primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned from our funds, managed accounts,portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment funds; (iii) interest and dividends from investmentsthat generate yield, including our investments in CLOs; (iv) realizations on and sales of investments and other assets; and (v) borrowings under our credit facilities,debt offerings and other borrowing arrangements. In addition, we may generate cash proceeds from sales of equity securities. 143Table of ContentsWith respect to our private equity funds, carried interest is distributed to the general partner of a private equity fund with a clawback or net loss sharingprovision only after all of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achievedpositive overall investment returns since its inception, in excess of performance hurdles where applicable; and (iii) with respect to investments with a fair valuebelow cost, cost has been returned to fund investors in an amount sufficient to reduce remaining cost to the investments' fair value. As of December 31, 2015 ,certain of our funds had met the first and second criteria, as described above, but did not meet the third criteria. In these cases, carried interest accrues on theconsolidated statement of operations, but will not be distributed in cash to us as the general partner of an investment fund upon a realization event. For a fund thathas a fair value above cost, overall, but has one or more investments where fair value is below cost, the shortfall between cost and fair value for such investments isreferred to as a "netting hole." When netting holes are present, realized gains on individual investments that would otherwise allow the general partner to receivecarried interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the netting hole. Once netting holes havebeen filled with either (a) return of capital equal to the netting hole for those investments where fair value is below cost, or (b) increases in the fair value of thoseinvestments where fair value is below cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in aposition to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the next material realization event, whichincludes funds with no netting holes as well as funds with a netting hole that is sufficiently small in size such that the next material realization event would beexpected to result in the payment of carried interest. As of December 31, 2015 , netting holes in excess of $50 million existed at four of our private equity funds, the most significant of which were our NorthAmerica Fund XI, European Fund II and European Fund III which had netting holes of approximately $232 million, $213 million and $87 million, respectively. Inaccordance with the criteria set forth above, funds may develop netting holes in the future and netting holes for those and other funds may otherwise increase ordecrease in the future.We have access to funding under various credit facilities and other borrowing arrangements that we have entered into with major financial institutions or whichwe receive from the capital markets. For a full discussion of the principal terms of these sources of funding, see Note 9 “Debt Obligations” of our financialstatements included elsewhere in this report. The following describes other sources of liquidity.KFN Securities In addition to the sources of funding described in Note 9 “Debt Obligations” of our financial statements included elsewhere in this report, KFN has thefollowing issuance of preferred stock.•On January 17, 2013, KFN issued 14.95 million of Series A LLC Preferred Shares (the "KFN Preferred Shares") at a price of $25 per share. The KFNPreferred Shares trade on the NYSE under the ticker symbol "KFN.PR" and began trading on January 28, 2013. Distributions on the KFN Preferred Sharesare cumulative and are payable by KFN, when, as, and if declared by KFN's board of directors, quarterly on January 15, April 15, July 15 and October 15of each year at a rate per annum equal to 7.375%. Unless distributions have been declared and paid or declared and set apart for payment on the KFNPreferred Shares for the then-current quarterly distribution period and all past quarterly distribution periods, subject to certain exceptions, KFN may notdeclare or pay or set apart payment for distributions on KFN's common shares or other junior shares, including payments to KKR. If KFN experiences adissolution event, then the holders of the KFN Preferred Shares outstanding at such time will be entitled to receive a payment out of KFN's assets availablefor distribution to such holders equal to the sum of the $25 liquidation preference per KFN Preferred Share and accumulated and unpaid distributions(whether or not declared), if any, to, but excluding, the date of the dissolution event (the "Series A Liquidation Value"), to the extent that KFN hassufficient gross income (excluding any gross income attributable to the sale or exchange of capital assets) in the year of the dissolution event and in theprior years in which the KFN Preferred Shares have been outstanding to ensure that each holder of KFN Preferred Shares will have a capital accountbalance equal to the Series A Liquidation Value. The KFN Preferred Shares are not convertible into shares of any other class or series of the KFN's shares.Except under limited circumstances relating to an event of default in the payment of distributions, holders of the KFN Preferred Shares have no votingrights. At any time or from time to time on or after January 15, 2018, KFN may, at its option, redeem the KFN Preferred Shares, in whole or in part, uponnot less than 30 nor more than 60 days' notice, at a price of $25 per KFN Preferred Share plus accumulated and unpaid distributions (whether or notdeclared), if any, to, but excluding, the redemption date, if any. Holders of the KFN Preferred Shares have no right to require the redemption of the KFNPreferred Shares. 144Table of ContentsCommon Units •On May 16, 2014, KKR & Co. L.P. filed a registration statement with the Securities and Exchange Commission for the sale by us from time to time of upto 5,000,000 common units of KKR & Co. L.P. to generate cash proceeds (a) up to (1) the amount of withholding taxes, social benefit payments or similarpayments payable by us in respect of awards granted pursuant to the Equity Incentive Plan, the KKR Financial Holdings LLC 2007 Share Incentive Plan(the "KFN Share Incentive Plan") and the KKR Asset Management LLC 2011 Share Incentive Plan (the "KAM Share Incentive Plan"), and together withthe Equity Incentive Plan and the KFN Share Incentive Plan, the "Plans", and (2) the amount of cash delivered in respect of awards granted pursuant to thePlans that are settled in cash instead of common units; and (b) to the extent the net proceeds from the sale of common units exceeds the amounts due underclause (a), for general corporate purposes. The administrator of the Equity Incentive Plan is expected to reduce the maximum number of common unitseligible to be issued under the Equity Incentive Plan by the number of common units issued and sold pursuant to this Registration Statement, as applicable,unless such reduction is already provided for with respect to such awards under the terms of the Equity Incentive Plan. The KFN Share Incentive Planterminated in May 2015, but continues to govern unexpired awards. No additional equity awards will be issued under the KFN Share Incentive Plan or theKAM Share Incentive Plan. The Securities and Exchange Commission declared the registration statement effective on June 4, 2014. As of December 31,2015 , 4,173,039 common units have been issued and sold under the registration statement and are included in our basic common units outstanding as ofDecember 31, 2015 . In the quarter ended December 31, 2015, we canceled 1.7 million granted equity awards for approximately $27 million to satisfy taxobligations in connection with their vesting. As of February 22, 2015, there are no equity awards withheld for tax obligations.Liquidity Needs We expect that our primary liquidity needs will consist of cash required to:•continue to grow our business, including seeding new strategies and funding our capital commitments made to existing and future funds, co-investments and any net capital requirements of our capital markets companies; •warehouse investments in portfolio companies or other investments for the benefit of one or more of our funds, vehicles, accounts or CLOs pendingthe contribution of committed capital by the investors in such vehicles;•service debt obligations, as well as any contingent liabilities that may give rise to future cash payments;•fund cash operating expenses and amounts recorded for litigation matters; •pay amounts that may become due under our tax receivable agreement with KKR Holdings; •make cash distributions in accordance with our distribution policy; •underwrite commitments within our capital markets business;•fund our equity commitment to joint ventures such as Merchant Capital Solutions LLC; •make future purchase price payments in connection with our proprietary acquisitions or investments, such as our acquisition of Prisma and strategicpartnerships with Nephila and Marshall Wace; •acquire additional principal assets, including other businesses and corporate real estate; and•repurchase KKR & Co. L.P. common units pursuant to the unit repurchase program announced on October 27, 2015.145Table of ContentsKKR & Co. L.P. Unit Repurchase ProgramOn October 27, 2015, KKR announced the authorization of a program providing for the repurchase by KKR of up to $500 million in the aggregate of itsoutstanding common units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiatedtransactions or otherwise. The timing, manner, price and amount of any unit repurchases will be determined by KKR in its discretion and will depend on a variety offactors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will be in effect untilthe maximum approved dollar amount has been used to repurchase common units. The program does not require KKR to repurchase any specific number ofcommon units, and the program may be suspended, extended, modified or discontinued at any time. Since inception of the unit repurchase program throughDecember 31, 2015, KKR has repurchased and canceled approximately 9.9 million of outstanding common units for approximately $161.9 million. From December31, 2015 through February 11, 2016, KKR has repurchased and canceled approximately 7.6 million of outstanding common units for approximately $108.1 million.For additional information regarding units repurchased since the inception of this program see "Item 5--Market for Registrant's Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities."Capital CommitmentsThe agreements governing our active investment funds generally require the general partners of the funds to make minimum capital commitments to suchfunds, which usually range from 2% to 5% of a fund's total capital commitments at final closing, but may be greater for certain funds pursuing newer strategies. Inaddition, we are responsible for certain limited partner interests in some of our private equity funds. The following table presents our uncalled commitments to ouractive investment funds as of December 31, 2015 : UncalledCommitmentsPrivate Markets($ in thousands)European Fund IV$184,700Energy Income and Growth Fund147,100Global Infrastructure Investors II110,900North America Fund XI100,500Real Estate Partners Americas97,300European Fund III66,300Real Estate Partners Europe64,700Asian Fund II50,9002006 Fund22,700Co-Investment Vehicles69,600Other Private Markets Funds10,600Total Private Markets Commitments925,300 Public Markets Special Situations Fund14,900Special Situations Fund II195,100Mezzanine Fund6,500Lending Partners13,900Lending Partners II33,300Lending Partners Europe39,600Other Alternative Credit Vehicles125,200Total Public Markets Commitments428,500 Total Uncalled Commitments$1,353,800 As of December 31, 2015 , KKR had unfunded commitments consisting of (i) $1,353.8 million , as shown above, to its active private equity and otherinvestment vehicles, (ii) $191.1 million in connection with commitments by KKR's capital markets business, (iii) $128.6 million relating to Merchant CapitalSolutions as described below and (iv) other investment146Table of Contentscommitments of $171.6 million . Whether these amounts are actually funded, in whole or in part depends on the terms of such commitments, including thesatisfaction or waiver of any conditions to funding. Prisma Capital Partners On October 1, 2012, KKR acquired all of the equity interests of Prisma subject to potential purchase price payments in 2014 and 2017. KKR may becomeobligated to make future purchase price payments in 2017 based on whether the Prisma business grows to achieve certain operating performance metrics whenmeasured in such year. KKR has the right in its sole discretion to pay a portion of such future purchase price payment, if any, in KKR & Co. L.P. common unitsrather than in cash. See "—Liquidity—Contractual Obligations, Commitments and Contingencies on an Unconsolidated Basis."Merchant Capital Solutions Merchant Capital Solutions LLC (MCS, formerly known as MerchCap Solutions LLC) is a joint venture partnership with Stone Point Capital. MCS seeks toprovide capital markets services to mid-market and sponsor-backed companies as well as make certain balance sheet investments to support client needs. As ofDecember 31, 2015 each of KKR and Stone Point have committed $150 million of equity to MCS to support its business for total equity commitments of $300million. KKR's remaining unfunded commitment is approximately $128.6 million as of December 31, 2015 . KKR expects that certain capital markets activities forthird parties (other than KKR and its portfolio companies) will be principally conducted by MCS.Investment in Marshall Wace LLPOn November 2, 2015, KKR entered into a long-term strategic relationship with Marshall Wace LLP and its affiliates ("Marshall Wace") and acquired a 24.9%interest in Marshall Wace through a combination of cash and common units. KKR and Marshall Wace have the option to grow KKR's ownership interest over timeto 39.9%, which would require the use of cash and/or KKR common units. KKR's investment in Marshall Wace is accounted for using the equity method ofaccounting.Tax Receivable AgreementWe and certain intermediate holding companies that are taxable corporations for U.S. federal, state and local income tax purposes, may be required to acquireKKR Group Partnership Units from time to time pursuant to our exchange agreement with KKR Holdings. KKR Management Holdings L.P. made an election underSection 754 of the Internal Revenue Code that will remain in effect for each taxable year in which an exchange of KKR Group Partnership Units for common unitsoccurs, which may result in an increase in our intermediate holding companies' share of the tax basis of the assets of the KKR Group Partnerships at the time of anexchange of KKR Group Partnership Units. Certain of these exchanges are expected to result in an increase in our intermediate holding companies' share of the taxbasis of the tangible and intangible assets of the KKR Group Partnerships, primarily attributable to a portion of the goodwill inherent in our business that would nototherwise have been available. This increase in tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce the amount ofincome tax our intermediate holding companies would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss)on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.We have entered into a tax receivable agreement with KKR Holdings, which requires our intermediate holding companies to pay to KKR Holdings, or tocurrent and former principals who have exchanged KKR Holdings units for KKR common units as transferees of KKR Group Partnership Units, 85% of the amountof cash savings, if any, in U.S. federal, state and local income tax that the intermediate holding companies realize as a result of the increase in tax basis describedabove, as well as 85% of the amount of any such savings the intermediate holding companies realize as a result of increases in tax basis that arise due to futurepayments under the agreement. We expect our intermediate holding companies to benefit from the remaining 15% of cash savings, if any, in income tax that theyrealize. A termination of the agreement or a change of control could give rise to similar payments based on tax savings that we would be deemed to realize inconnection with such events. In the event that other of our current or future subsidiaries become taxable as corporations and acquire KKR Group Partnership Unitsin the future, or if we become taxable as a corporation for U.S. federal income tax purposes, we expect that each will become subject to a tax receivable agreementwith substantially similar terms.These payment obligations are obligations of our intermediate holding companies and not the KKR Group Partnerships. As such, cash payments received bycommon unitholders may vary from those received by holders of KKR Group Partnership Units held by KKR Holdings and its current and former principals to theextent payments are made to those parties under the tax receivable agreement. Payments made under the tax receivable agreement are required to be made within90 days of the147Table of Contentsfiling of the tax returns of our intermediate holding companies, which may result in a timing difference between the tax savings received by KKR's intermediateholdings companies and the cash payments made to the selling holders of KKR Group Partnership Units.For the years ended December 31, 2015, 2014 and 2013, cash payments that have been made under the tax receivable agreement were $5.7 million , $5.7million and $4.7 million, respectively. We expect our intermediate holding companies to benefit from the remaining 15% of cash savings, if any, in income tax thatthey realize. As of December 31, 2015, $3.4 million of cumulative income tax savings have been realized. See "-Liquidity-Other Liquidity Needs- ContractualObligations, Commitments and Contingencies" for a discussion of amounts payable and cumulative cash payments made under this agreement.Distributions On October 27, 2015, KKR announced a change to its distribution policy effective beginning with the distribution declared on February 11, 2016 with respectto the quarter ending December 31, 2015. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units in anamount of $0.16 per common unit per quarter. KKR's regular distribution per common unit of $0.16 was declared on February 11, 2016 for the quarter endedDecember 31, 2015.The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P., which maychange the distribution policy at any time, and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intendedor at all, that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. or that any particulardistribution policy will be maintained. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKRbusiness), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships. Furthermore, the declaration and payment ofdistributions is subject to legal, contractual and regulatory restrictions on the payment of distributions by us or our subsidiaries, including restrictions contained inour debt agreements, and such other factors as the board of directors of our Managing Partner considers relevant.148Table of ContentsCash EarningsThe following table presents our cash earnings and distributions for the year ended December 31, 2015 , 2014 and 2013 as described above. For a discussion ofthe components that drove the changes in our cash earnings, see “—Segment Analysis.” Year Ended($ in thousands except per unit data) December 31, 2015 December 31, 2014 December 31, 2013Cash Revenues Fees $1,142,050 $1,098,843 $955,971Realized performance income (loss) 1,046,801 1,241,468 762,386Net realized investment income (loss) 545,474(1)901,578 657,139Total Cash Revenues 2,734,325 3,241,889 2,375,496 Cash Expenses Cash compensation and benefits 409,992 380,581 314,828Realized performance income compensation 418,718 496,589 304,955Occupancy and related charges 62,657 57,787 56,327Other operating expenses 233,618 229,069 215,883Total Cash Expenses 1,124,985 1,164,026 891,993 Cash Earnings Before Noncontrolling Interests and Local Taxes 1,609,340 2,077,863 1,483,503 Less: Corporate and local income taxes paid (140,677) (131,081) (120,052)Less: Noncontrolling interests (16,007) (14,946) (6,387) Cash Earnings $1,452,656 $1,931,836 $1,357,064 Cash Earnings Per Adjusted Units Eligible for Distribution $1.78 $2.47 $1.97 Distribution Per KKR & Co LP common unit $1.39 $1.90 $1.40 (1) Amount includes a $100.0 million realized loss on a segment basis relating to the write off of Energy Future Holdings which had previously been marked at zero on an unrealized basis. Accordingly, this write off had no impact on our Economic Net Income during the year ended December 31, 2015. Fee Related Earnings (“FRE”) Fee related earnings is comprised of (i) total management, monitoring and transaction fees, net, less (ii) cash compensation and benefits, occupancy and relatedcharges and other operating expenses that have not been allocated to our Principal Activities segment. Fee related earnings is a measure of the operating earnings ofKKR and its business segments before performance income, related performance income compensation and investment income. KKR believes this measure isuseful to unitholders as it provides additional insight into the operating profitability of KKR's fee generating management companies and capital marketsbusinesses. Our calculation of FRE as described above differs from our calculation of FRE for periods prior to September 30, 2015 in that the above calculation (a)excludes incentive fees and related compensation and (b) excludes expenses that have been allocated to our Principal Activities segment. For a discussion of thechanges in the components of FRE, see "--Segment Analysis."149Table of ContentsA reconciliation of Net Income (Loss) Attributable to KKR & Co. L.P. on a GAAP basis to ENI and FRE is provided below. Year Ended December 31, 2015 December 31, 2014 December 31, 2013 ($ in thousands)Net income (loss) attributable to KKR & Co. L.P. $488,482 $477,611 $691,226Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. 433,693 585,135 1,056,126Plus: Non-cash equity-based charges 261,579 310,403 307,514Plus: Amortization of intangibles and other, net 47,599 290,348 102,789Plus: Income tax (benefit) 66,636 63,669 37,926Economic Net Income (Loss) 1,297,989 1,727,166 2,195,581Plus: Income attributable to segment noncontrolling interests 16,007 14,946 6,387Less: Total investment income (loss) 153,512 505,153 958,401Less: Net performance income (loss) 724,701 805,553 874,634Plus: Expenses of Principal Activities Segment 174,713 199,938 194,563Fee Related Earnings 610,496 631,344 563,496 Other Liquidity Needs We may also be required to fund various underwriting commitments in our capital markets business in connection with the underwriting of loans, securities orother financial instruments. We generally expect that these commitments will be syndicated to third parties or otherwise fulfilled or terminated, although we may insome instances elect to retain a portion of the commitments for our own investment.Contractual Obligations, Commitments and Contingencies on an Unconsolidated Basis In the ordinary course of business, we enter into contractual arrangements that may require future cash payments. The following table sets forth informationrelating to anticipated future cash payments as of December 31, 2015 on an unconsolidated basis before the consolidation of funds and CFEs: Payments due by PeriodTypes of Contractual Obligations <1 Year 1-3 Years 3-5 Years >5 Years Total ($ in millions)Uncalled commitments to investment funds (1) $1,353.8 $— $— $— $1,353.8Debt payment obligations (2) — — 500.0 2,157.3 2,657.3Interest obligations on debt (3) 155.3 298.4 298.4 2,592.8 3,344.9Underwriting commitments (4) 126.2 — — — 126.2Lending commitments (5) 64.9 — — — 64.9Other commitments (6) 252.6 45.1 — 2.5 300.2Lease obligations 53.0 91.5 77.7 23.6 245.8Corporate real estate (7) — — 292.5 — 292.5Total $2,005.8 $435.0 $1,168.6 $4,776.2 $8,385.6(1)These uncalled commitments represent amounts committed by us to fund a portion of the purchase price paid for each investment made by our investmentfunds which are actively investing. Because capital contributions are due on demand, the above commitments have been presented as falling due within oneyear. However, given the size of such commitments and the rates at which our investment funds make investments, we expect that the capital commitmentspresented above will be called over a period of several years. See "—Liquidity—Liquidity Needs." (2)Represents the 2020 Senior Notes, 2043 Senior Notes, 2044 Senior Notes, KFN 2041 Senior Notes, KFN 2042 Senior Notes, KFN Junior SubordinatedNotes and any borrowings outstanding on the Corporate Credit Agreement and KCM Credit Agreement which are presented gross of unamortized discountsand net of unamortized premiums. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN.(3)These interest obligations on debt represent estimated interest to be paid over the maturity of the related debt obligation, which has been calculated assumingthe debt outstanding at December 31, 2015 is not repaid until its maturity. Future150Table of Contentsinterest rates are assumed to be those in effect as of December 31, 2015 , including both variable and fixed rates, as applicable, provided for by the relevantdebt agreements. The amounts presented above include accrued interest on outstanding indebtedness.(4)Represents various commitments in our capital markets business in connection with the underwriting of loans, securities and other financial instruments.These commitments are shown net of amounts syndicated.(5)Represents obligations in our capital markets business to lend under various revolving credit facilities. (6)Represents our commitment to MCS and investment commitments of KFN. See "—Liquidity—Liquidity Needs—Merchant Capital Solutions." (7)Represents the purchase price due upon delivery of a new KKR office being constructed, all or a portion of which represents construction financing obtainedby the developer and may be refinanced upon delivery of the completed office.The commitment table above excludes contractual amounts owed under the tax receivable agreement, because the ultimate amount and timing of the amountsdue are not presently known. As of December 31, 2015 , a payable of $128.0 million has been recorded in due to affiliates in the consolidated financial statementsrepresenting management's best estimate of the amounts currently expected to be owed under the tax receivable agreement. As of December 31, 2015 ,approximately $19.0 million of cumulative cash payments have been made under the tax receivable agreement. See "—Liquidity Needs—Tax ReceivableAgreement." The commitment table above excludes certain contingent consideration payments that may be owed in connection with acquisitions and other investmentsbecause the ultimate amounts due are not presently known. As of December 31, 2015 , the recorded amount of contingent consideration obligations where theamounts are not currently known was approximately $46.6 million . In the normal course of business, we enter into contracts that contain a variety of representations and warranties that provide general indemnifications. Inaddition, certain of our consolidated funds and KFN have provided certain indemnities relating to environmental and other matters and have provided nonrecoursecarve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of certain real estate investments thatwe have made. Our maximum exposure under these arrangements is unknown as this would involve future claims that may be made against us that have not yetoccurred. However, based on prior experience, we expect the risk of material loss to be low. The partnership documents governing our carry-paying funds, including funds and vehicles relating to private equity, mezzanine, infrastructure, energy, directlending and special situations investments, generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring the generalpartner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of afund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance oflater investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the generalpartner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners of funds that werenot contributed to us in the KPE Transaction, as of December 31, 2015 , no carried interest was subject to this clawback obligation, assuming that all applicablecarry paying funds were liquidated at their December 31, 2015 fair values. Had the investments in such funds been liquidated at zero value, the clawback obligationwould have been $2,423.4 million . Carried interest is recognized in the statement of operations based on the contractual conditions set forth in the agreementsgoverning the fund as if the fund were terminated and liquidated at the reporting date and the fund's investments were realized at the then estimated fair values.Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and whereapplicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carriedinterest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed theamount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, ifany, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawbackobligation, if any, is reflected as a reduction of our investment balance as this is where carried interest is initially recorded. Certain private equity funds that were contributed to us in the KPE Transaction in 2009 also include a "net loss sharing provision." Upon the liquidation of aninvestment vehicle to which a net loss sharing obligation applies, the general partner is151Table of Contentsrequired to contribute capital to the vehicle, to fund 20% of the net losses on investments. In these vehicles, such losses would be required to be paid by us to thefund investors in those vehicles in the event of a liquidation of the fund regardless of whether any carried interest had previously been distributed, and a greatershare of investment losses would be allocable to us relative to the capital that we contributed to it as general partner. Based on the fair market values as ofDecember 31, 2015 , there would have been no net loss sharing obligation. If the vehicles were liquidated at zero value, the net loss sharing obligation would havebeen zero as of December 31, 2015 . Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed to ushad personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repay amounts tofund investors pursuant to the general partners' clawback obligations. The terms of the KPE Transaction require that principals remain responsible for any clawbackobligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million . Through investment realizations, KKR'spotential exposure has been reduced to $159.7 million as of December 31, 2015 . Using valuations as of December 31, 2015 , no amounts are due with respect to theclawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise to clawback obligations thatmay be allocated generally to us and to persons who participate in the carry pool. Unlike the clawback obligation, we will be responsible for amounts due under anet loss sharing obligation and will indemnify principals for any personal guarantees that they have provided with respect to such amounts. In addition, guaranteesof or similar arrangements relating to clawback or net loss sharing obligations in favor of third party investors in an individual investment partnership by entities weown may limit distributions of carried interest more generally. Contractual Obligations, Commitments and Contingencies on a Consolidated Basis In the ordinary course of business, we and our consolidated funds and CFEs enter into contractual arrangements that may require future cash payments. Thefollowing table sets forth information relating to anticipated future cash payments as of December 31, 2015 . This table differs from the table presented above whichsets forth contractual commitments on an unconsolidated basis principally because this table includes the obligations of our consolidated funds and CFEs. Payments due by PeriodTypes of Contractual Obligations <1 Year 1-3 Years 3-5 Years >5 Years Total ($ in millions)Uncalled commitments to investment funds (1) $25,142.0 $— $— $— $25,142.0Debt payment obligations (2) 1,512.1 1,594.9 1,392.8 14,314.0 18,813.8Interest obligations on debt (3) 614.8 1,091.3 1,044.8 4,168.7 6,919.6Underwriting commitments (4) 126.2 — — — 126.2Lending commitments (5) 64.9 — — — 64.9Other commitments (6) 252.6 45.1 — 2.5 300.2Lease obligations 53.0 91.5 77.7 23.6 245.8Corporate real estate (7) — — 292.5 — 292.5Total $27,765.6 $2,822.8 $2,807.8 $18,508.8 $51,905.0(1)These uncalled commitments represent amounts committed by our consolidated investment funds, which include amounts committed by KKR and our fundinvestors, to fund the purchase price paid for each investment made by our investment funds which are actively investing. Because capital contributions aredue on demand, the above commitments have been presented as falling due within one year. However, given the size of such commitments and the rates atwhich our investment funds make investments, we expect that the capital commitments presented above will be called over a period of several years. See "—Liquidity—Liquidity Needs."(2)Amounts include (i) the 2020 Senior Notes, 2043 Senior Notes and 2044 Senior Notes of $2.0 billion gross of unamortized discount, (ii) KFN 2041 SeniorNotes and KFN 2042 Senior Notes of $0.4 billion, net of unamortized premium, (iii) KFN Junior Subordinated Notes of $0.3 billion, gross of unamortizeddiscount, (iv) financing arrangements entered into by our consolidated funds with the objective of providing liquidity to the funds of $3.6 billion, (v) debtsecurities issued by our consolidated CLOs of $8.2 billion, (vi) debt securities issued by our consolidated CMBS entities of $4.3 billion and any borrowingsoutstanding on the Corporate Credit Agreement and KCM Credit Agreement. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN.Debt securities issued by consolidated CLOs and CMBS entities are supported solely by the investments held at the CLO and CMBS vehicles and are notcollateralized by assets of any other KKR entity. Obligations under financing arrangements entered into by our consolidated funds are generally limited toour pro-rata equity interest in such funds. Our management companies bear no obligations to repay any financing arrangements at our consolidated funds.152Table of Contents(3)These interest obligations on debt represent estimated interest to be paid over the maturity of the related debt obligation, which has been calculated assumingthe debt outstanding at December 31, 2015 is not repaid until its maturity. Future interest rates are assumed to be those in effect as of December 31, 2015 ,including both variable and fixed rates, as applicable, provided for by the relevant debt agreements. The amounts presented above include accrued interest onoutstanding indebtedness.(4)Represents various commitments in our capital markets business in connection with the underwriting of loans, securities and other financial instruments.These commitments are shown net of amounts syndicated. (5)Represents obligations in our capital markets business to lend under various revolving credit facilities.(6)Represents our commitment to MCS and investment commitments of KFN. See "—Liquidity—Liquidity Needs—Merchant Capital Solutions."(7)Represents the purchase price due upon delivery of a new KKR office being constructed, all or a portion of which represents construction financing obtainedby the developer and may be refinanced upon delivery of the completed office.The commitment table above excludes contractual amounts owed under the tax receivable agreement because the ultimate amount and timing of the amountsdue are not presently known. As of December 31, 2015 , a payable of $128.0 million has been recorded in due to affiliates in the consolidated financial statementsrepresenting management's best estimate of the amounts currently expected to be owed under the tax receivable agreement. As of December 31, 2015 ,approximately $19.0 million of cumulative cash payments have been made under the tax receivable agreement. See "—Liquidity Needs—Tax ReceivableAgreement." The commitment table above excludes certain contingent consideration payments that may be owed in connection with acquisitions and other investmentsbecause the ultimate amounts due are not presently known. As of December 31, 2015 , the recorded amount of contingent consideration obligations where theamounts are not currently known was approximately $46.6 million . Off Balance Sheet Arrangements Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheetfinancings or liabilities.Consolidated Statement of Cash Flows The accompanying consolidated statements of cash flows include the cash flows of our consolidated entities which, in particular, include our consolidatedfunds and CFEs notwithstanding the fact that we may hold only a minority economic interest in those funds and CFEs. The assets of our consolidated funds andCFEs, on a gross basis, are substantially larger than the assets of our business and, accordingly, have a substantial effect on the cash flows reflected in ourconsolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors;(ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realizationof investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds and CFEs are treated asinvestment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations. Net Cash Provided by (Used in) Operating Activities Our net cash provided by (used in) operating activities was $0.4 billion, $1.5 billion and $2.6 billion during the years ended December 31, 2015, 2014 and2013, respectively. These amounts primarily included: (i) proceeds from sales of investments and principal payments net of purchases of investments by our fundsand CFEs of $(0.7) billion, $1.0 billion and $1.4 billion during the years ended December 31, 2015, 2014 and 2013, respectively; (ii) net realized gains (losses) oninvestments of $3.0 billion, $5.4 billion and $3.9 billion during the years ended December 31, 2015, 2014 and 2013, respectively; and (iii) change in unrealizedgains (losses) on investments of $1.7 billion, $(0.7) billion and $3.9 billion during the years ended December 31, 2015, 2014 and 2013, respectively. Certain KKRfunds and CFEs are, for GAAP purposes, investment companies and reflect their investments and other financial instruments at fair value. 153Table of ContentsNet Cash Provided by (Used in) Investing Activities Our net cash provided by (used in) investing activities was $(425.2) million, $(22.9) million and $15.5 million during the years ended December 31, 2015,2014 and 2013, respectively. Our investing activities included: (i) a change in restricted cash and cash equivalents (that primarily funds collateral requirements) of$(164.6) million, $(10.8) million and $29.9 million during the years ended December 31, 2015, 2014 and 2013, respectively; (ii) the purchases of fixed assets of$(169.4) million, $(12.2) million and $(14.4) million during the years ended December 31, 2015, 2014 and 2013, respectively; (iii) proceeds from sales of oil andnatural gas properties, net of development of oil and natural gas properties of $(91.1) million and $(151.4) million for the years ended December 31, 2015 and 2014,respectively; and (iv) net of cash acquired of $151.5 million for the year ended December 31, 2014. Net Cash Provided by (Used in) Financing Activities Our net cash provided by (used in) financing activities was $169.4 million, $(1.9) billion and $(2.5) billion during the years ended December 31, 2015, 2014and 2013, respectively. Our financing activities primarily included: (i) distributions to, net of contributions by our noncontrolling and redeemable noncontrollinginterests, of $(7.0) billion, $(2.7) billion and $(2.9) billion during the years ended December 31, 2015, 2014 and 2013, respectively; (ii) proceeds received net ofrepayment of debt obligations of $8.1 billion, $1.7 billion and $0.8 billion during the years ended December 31, 2015, 2014 and 2013, respectively; and(iii) distributions to our partners of $(706.6) million, $(785.0) million and $(431.6) million during the years ended December 31, 2015, 2014 and 2013, respectively.154Table of ContentsCritical Accounting Policies The preparation of our consolidated financial statements in accordance with GAAP requires our management to make estimates and judgments that affect thereported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of fees, expenses and investment income. Ourmanagement bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under thecircumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances orchanges in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the consolidated financialstatements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially differentresults if we were to change underlying estimates, judgments or assumptions.The following discussion details certain of our critical accounting policies. For a full discussion of all critical accounting policies, please see the notes to theconsolidated financial statements "--Item 8. Financial Statements and Supplementary Data--Summary of Significant Accounting Policies." Fair Value Measurements Investments and other financial instruments are measured and carried at fair value. The majority of investments and other financial instruments are held by theconsolidated funds and vehicles. KKR's funds are, for GAAP purposes, investment companies and reflect their investments and other financial instruments at fairvalue. KKR has retained the specialized accounting for the consolidated funds and vehicles in consolidation. Accordingly, the unrealized gains and losses resultingfrom changes in fair value of the investments held by KKR's funds are reflected as a component of Net Gains (Losses) from Investment Activities in theconsolidated statements of operations. For investments and other financial instruments that are not held in a consolidated fund or vehicle, KKR has elected the fair value option since theseinvestments and other financial instruments are similar to those in the consolidated funds and vehicles. Such election is irrevocable and is applied on an investmentby investment basis at initial recognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of Net Gains (Losses) fromInvestment Activities in the consolidated statements of operations. The methodology for measuring the fair value of such investments and other financialinstruments is consistent with the methodologies applied to investments and other financial instruments that are held in consolidated funds and vehicles. In addition,KKR has elected the fair value option for the investments and debt obligations of consolidated CFEs. The carrying amounts of Other Assets, Accounts Payable, Accrued Expenses and Other Liabilities recognized on the consolidated statements of financialcondition (excluding fixed assets, goodwill, intangible assets, oil and gas assets, net, contingent consideration and certain debt obligations) approximate fair valuedue to their short term maturities. Further information on Fixed Assets is presented in Note 7, "Other Assets and Accounts Payable, Accrued Expenses and OtherLiabilities". Further information on Goodwill and Intangible Assets is presented in Note 16 "Goodwill and Intangible Assets." Further information on contingentconsideration is presented in Note 14 "Acquisitions." Further information on KKR's debt obligations is presented in Note 9, "Debt Obligations". Fair value 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 themeasurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observableprices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, thedegree of which is dependent on a variety of factors. See Note 5, "Fair Value Measurements" for further information on KKR's valuation techniques that involveunobservable inputs. Assets and liabilities recorded at fair value in the statements of financial condition are categorized based upon the level of judgment associatedwith the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputsto the valuation of these assets and liabilities. The hierarchical levels defined under GAAP are as follows:Level I Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The type of investments and other financialinstruments included in this category are publicly-listed equities and debt and securities sold short. We classified 27.1% of total investments measured and reportedat fair value as Level I at December 31, 2015 . 155Table of ContentsLevel II Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level II inputs include quoted prices for similarinstruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The type of investments and other financialinstruments included in this category are credit investments, investments and debt obligations of consolidated CMBS vehicles and consolidated CLOs (beginning onJanuary 1, 2015), convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivativessuch as foreign currency option and forward contracts. We classified 23.9% of total investments measured and reported at fair value as Level II at December 31,2015 . Level III Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The types of assetsand liabilities generally included in this category are private portfolio companies, real assets investments and credit investments for which a sufficiently liquidtrading market does not exist. We classified 49.0% of total investments measured and reported at fair value as Level III at December 31, 2015 . The valuation of ourLevel III investments at December 31, 2015 represents management's best estimate of the amounts that we would anticipate realizing on the sale of theseinvestments at such date. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchywithin which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement inits entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factorsspecific to the asset. A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative offair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis oftransactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example,the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, andcurrent market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fairvalue requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level III.The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels I, II, and III, which werecognize at the beginning of the reporting period. Investments and other financial instruments that have readily observable market prices (such as those traded on a securities exchange) are stated at the lastquoted sales price as of the reporting date. We do not adjust the quoted price for these investments, even in situations where we hold a large position and a salecould reasonably affect the quoted price. Level II Valuation Methodologies Financial assets and liabilities categorized as Level II consist primarily of credit investments, investments and debt obligations of consolidated CFEs,convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreigncurrency option and forward contracts. Credit investments, investments of consolidated CLOs and CMBS debt obligations: These instruments generally have bid and ask prices that can be observed inthe marketplace. Bid prices reflect the highest price that KKR and others are willing to pay for an instrument. Ask prices represent the lowest price that KKR andothers are willing to accept for an instrument. For financial assets and liabilities whose inputs are based on bid-ask prices obtained from third party pricing services,fair value may not always be a predetermined point in the bid-ask range. KKR’s policy is generally to allow for mid-market pricing and adjusting to the point withinthe bid-ask range that meets KKR’s best estimate of fair value. Securities indexed to publicly listed securities: The securities are typically valued using standard convertible security pricing models. The key inputs into thesemodels that require some amount of judgment are the credit spreads utilized and the volatility assumed. To the extent the company being valued has otheroutstanding debt securities that are publicly-traded, the implied credit spread on the company’s other outstanding debt securities would be utilized in the valuation.To the extent the156Table of Contentscompany being valued does not have other outstanding debt securities that are publicly-traded, the credit spread will be estimated based on the implied creditspreads observed in comparable publicly-traded debt securities. In certain cases, an additional spread will be added to reflect an illiquidity discount due to the factthat the security being valued is not publicly-traded. The volatility assumption is based upon the historically observed volatility of the underlying equity securityinto which the convertible debt security is convertible and/or the volatility implied by the prices of options on the underlying equity security.Restricted Equity Securities: The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of arestriction.Derivatives: The valuation incorporates observable inputs comprising yield curves, foreign currency rates and credit spreads.CLO Debt Obligations: Beginning on January 1, 2015 with the adoption of ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value ofthe financial assets of the CLO.Investments of consolidated CMBS entities: KKR measures the investments of CMBS vehicles on the basis of the fair value of the financial liabilities of theCMBS. Level III Valuation Methodologies Management’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that aremanagement's best estimates after consideration of a variety of internal and external factors. Financial assets and liabilities categorized as Level III consist primarily of the following: Private Equity Investments: We generally employ two valuation methodologies when determining the fair value of a private equity investment. The firstmethodology is typically a market comparables analysis that considers key financial inputs and recent public and private transactions and other available measures.The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputsused in this methodology include the weighted average cost of capital for the investment and assumed inputs used to calculate terminal values, such as exit EBITDAmultiples. Other inputs are also used in both methodologies. For valuations determined for periods other than at year end, various inputs may be estimated prior tothe end of the relevant period. Also, as discussed in greater detail under "—Business Environment" and "Risk Factors—Risks Related to the Assets We Manage—Our investments are impacted by various economic conditions that are difficult to quantify or predict, but may have a significant adverse impact on the value of ourinvestments," a change in interest rates could have a significant impact on valuations. In certain cases the results of the discounted cash flow approach can besignificantly impacted by these estimates. In addition, when a definitive agreement has been executed to sell an investment, KKR generally considers a significantdeterminant of fair value to be the consideration to be received by KKR pursuant to the executed definitive agreement. Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method, and an illiquidity discount is typically appliedwhere appropriate. The ultimate fair value recorded for a particular investment will generally be within a range suggested by the two methodologies, except that thevalue may be higher or lower than such range in the case of investments being sold pursuant to an executed definitive agreement. When determining the weighting ascribed to each valuation methodology, we consider, among other factors, the availability of direct market comparables, theapplicability of a discounted cash flow analysis, the expected hold period and manner of realization for the investment, and in the case of investments being soldpursuant to an executed definitive agreement, the probability of such sale being completed. These factors can result in different weightings among investments inthe portfolio and in certain instances may result in up to a 100% weighting to a single methodology. Across the Level III private equity investment portfolio,approximately 80.0% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flowanalysis. Less than 5% of the fair value of the Level III private equity investment portfolio is derived from investments that are valued either based 100% on marketcomparables or 100% on a discounted cash flow analysis. As of December 31, 2015 , the overall weights ascribed to the market comparables methodology, thediscounted cash flow methodology and a methodology based on pending sales for our Level III private equity investments were 46% and 51% and 3%, respectively.As of December 31, 2015 , we believe that the approach of using the market multiples methodology, the discounted cash flow methodology and valuations based onpending sales resulted in valuations of our aggregate Level III private equity portfolio that were 3.1% lower than if only the discounted cash flow methodology hadbeen used and only 3.2% higher than if only the market comparables methodology had been used.157Table of Contents When an illiquidity discount is to be applied, we seek to take a uniform approach across our portfolio and generally apply a minimum 5% discount to all privateequity investments. We then evaluate such private equity investments to determine if factors exist that could make it more challenging to monetize the investmentand, therefore, justify applying a higher illiquidity discount. These factors generally include (i) whether we are unable to freely sell the portfolio company orconduct an initial public offering of the portfolio company due to the consent rights of a third party or similar factors, (ii) whether the portfolio company isundergoing significant restructuring activity or similar factors and (iii) characteristics about the portfolio company regarding its size and/or whether the portfoliocompany is experiencing, or expected to experience, a significant decline in earnings. These factors generally make it less likely that a portfolio company would besold or publicly offered in the near term at a price indicated by using just a market multiples and/or discounted cash flow analysis, and these factors tend to reducethe number of opportunities to sell an investment and/or increase the time horizon over which an investment may be monetized. Depending on the applicability ofthese factors, we determine the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time we hold the investment,the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any timerequires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment.Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than thatestimated by us in our valuations. Real Assets Investments: Real asset investments in infrastructure, energy and real estate are valued using one or more of the discounted cash flow analysis,market comparables analysis and direct income capitalization, which in each case incorporates significant assumptions and judgments. Infrastructure investmentsare generally valued using the discounted cash flow analysis. Key inputs used in this methodology include the weighted average cost of capital and assumed inputsused to calculate terminal values, such as exit EBITDA multiples. Energy investments are generally valued using a discounted cash flow analysis. Key inputs usedin this methodology that require estimates include the weighted average cost of capital. In addition, the valuations of energy investments generally incorporate bothcommodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than,commodity prices on certain indices for equivalent future dates. Certain energy investments do not include an illiquidity discount. Long-term commodity priceforecasts are utilized to capture the value of the investments across a range of commodity prices within the energy investment portfolio associated with futuredevelopment and to reflect a range of price expectations. Real estate investments are generally valued using a combination of direct income capitalization anddiscounted cash flow analysis. Key inputs used in such methodologies that require estimates include an unlevered discount rate and current capitalization rate, andcertain real estate investments do not include a minimum illiquidity discount. The valuations of real assets investments also use other inputs. During the year ended December 31, 2015 , the value of our energy real asset investments in oil and gas producing properties decreased meaningfully. Thisdecrease in value was primarily attributable to a drop in long‑term oil, condensate, natural gas liquids, and natural gas prices during the year ended December 31,2015 . The long-term price of WTI crude oil declined from approximately $67 per barrel to $50 per barrel and the long-term price of natural gas declined fromapproximately $3.77 per mcf to $2.90 per mcf as of December 31, 2014 and December 31, 2015, respectively.On a segment basis, our energy real asset investments in oil and gas producing properties as of December 31, 2015 had a fair value of approximately $581million . Based on this fair value, we estimate that an immediate, hypothetical 10% decline in the fair value of these energy investments from one or more adversemovements to the investments' valuation inputs would result in a decline in investment income of $58.1 million and a decline in net income attributable toKKR & Co. L.P. of $32.5 million, after deducting amounts that are attributable to noncontrolling interests held by KKR Holdings L.P. As of December 31, 2015 , ifwe were to value our energy investments using only the commodity prices as quoted on indices and did not use long-term commodity price forecasts, and also heldall other inputs to their valuation constant, we estimate that investment income would have been approximately $53 million lower, resulting in a lower amount ofnet income attributable to KKR & Co. L.P. of approximately 55.9% of the overall decrease in investment income, after deducting amounts that are attributable tononcontrolling interests held by KKR Holdings L.P.These hypothetical declines relate only to investment income. There would be no current impact on KKR's carried interest since all of the investment fundswhich hold these types of energy investments have investment values that are below their cost and as such are not currently accruing carried interest. Additionally,there would be no impact on fees since fees earned from investment funds which hold investments in oil and gas producing properties are based on either committedcapital or capital invested.For GAAP purposes, where KKR holds energy investments consisting of working interests in oil and gas producing properties directly and not through aninvestment fund, such working interests are consolidated based on the proportion of the158Table of Contentsworking interests held by us. Accordingly, we reflect the assets, liabilities, revenues, expenses, investment income and cash flows of the consolidated workinginterests on a gross basis and changes in the value of these energy investments are not reflected as unrealized gains and losses in the consolidated statements ofoperations. Accordingly, a change in fair value for these investments does not result in a decrease in net gains (losses) from investment activities, but may result inan impairment charge reflected in general, administrative and other expenses. For segment purposes, these directly held working interests are treated as investmentsand changes in value are reflected in our segment results as unrealized gains and losses.Credit Investments: Credit investments are valued using values obtained from dealers or market makers, and where these values are not available, creditinvestments are valued by us based on ranges of values determined by an independent valuation firm. Valuation models are based on discounted cash flow analyses,for which the key inputs are determined based on market comparables, which incorporate similar instruments from similar issuers. Other Investments: We generally employ the same valuation methodologies as described above for private equity investments when valuing these otherinvestments. CLO Debt Obligations: Prior to January 1, 2015 and the adoption of ASU 2014-13, collateralized loan obligation senior secured and subordinated notes wereinitially valued at the transaction price and were subsequently valued using a third party valuation service. The approach used to estimate the fair values was thediscounted cash flow method, which includes consideration of the cash flows of the debt obligation based on projected quarterly interest payments and quarterlyamortization. The debt obligations were discounted based on the appropriate yield curve given the debt obligation's respective maturity and credit rating. The mostsignificant inputs to the valuation of these financial instruments were default and loss expectations and discount margins. Beginning on January 1, 2015, with theadoption of ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO. Key unobservable inputs that have a significant impact on our Level III investment valuations as described above are included in Note 5 "Fair ValueMeasurements" of the financial statements included elsewhere in this report. We utilize several unobservable pricing inputs and assumptions in determining the fairvalue of our Level III investments. These unobservable pricing inputs and assumptions may differ by investment and in the application of our valuationmethodologies. Our reported fair value estimates could vary materially if we had chosen to incorporate different unobservable pricing inputs and other assumptionsor, for applicable investments, if we only used either the discounted cash flow methodology or the market comparables methodology instead of assigning aweighting to both methodologies. Level III Valuation Process The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments toan appropriate level of consistency, oversight, and review. As of December 31, 2015, the valuation process for Level III measurements, as described below,subjected valuations to the review and oversight of various committees. We have a Private Markets valuation committee for private equity and real assetsinvestments and a valuation committee for credit and credit related investments. The Private Markets valuation committee is assisted by subcommittees in thevaluation of real asset and growth equity investments, and is also assisted by a valuation team. The Private Markets valuation committee is comprised only ofemployees who are not investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The valuationteams and subcommittees for real asset and growth equity investments, however, include investment professionals who participate in the preparation of preliminaryvaluations or are responsible for oversight for those investments. The credit valuation committee is also assisted by a valuation team. The credit valuation teamsinclude investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The credit valuation committeeis comprised of investment professionals with no responsibility for preparing preliminary valuations, but certain committee members are responsible for oversightof the investments being valued. The valuation committees and teams are responsible for coordinating and consistently implementing our quarterly valuationpolicies, guidelines and processes. For Private Markets investments classified as Level III, investment professionals prepare preliminary valuations based on theirevaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. These preliminaryvaluations are reviewed with the investment professionals by the applicable valuation team and are also reviewed by an independent valuation firm engaged by us toperform certain procedures in order to assess the reasonableness of our valuations annually for all Level III investments in Private Markets and quarterly forinvestments other than investments which have values less than pre-set value thresholds and which in the aggregate comprise less than 5% of the total value of ourLevel III Private Markets investments. For most investments classified as Level III in credit, in general, an independent valuation firm is engaged by us to providethird party valuations, or ranges of valuations from which our investment professionals select a point in the range to determine the preliminary valuation, or anindependent valuation firm is engaged by us to perform certain procedures in order to assess the reasonableness and provide positive assurance of our valuations.Approximately 8% of the total value of our Level III159Table of Contentscredit investments are not valued with the engagement of an independent valuation firm. These preliminary valuations are reviewed by senior investmentprofessionals for each credit strategy. All preliminary valuations in Private Markets and credit are then reviewed by the applicable valuation committee, and afterreflecting any input by their respective valuation committees, the preliminary valuations are presented to the firm's management committee. When these valuationsare approved by this committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level IIinvestments, are presented to the audit committee of our board of directors and are then reported on to the board of directors. As of December 31, 2015 , upon completion by, where applicable, an independent valuation firm of certain limited procedures requested to be performed bythem, the independent valuation firm concluded that the fair values, as determined by KKR, of Private Markets investments reviewed by them were reasonable. Thelimited procedures did not involve an audit, review, compilation or any other form of examination or attestation under generally accepted auditing standards andwere not conducted on all Level III investments. We are responsible for determining the fair value of investments in good faith, and the limited proceduresperformed by an independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to determine the fair value of thecommensurate investments. As described above, Level II and Level III investments were valued using internal models with significant unobservable inputs and our determinations of thefair values of these investments may differ materially from the values that would have resulted if readily observable inputs had existed. Additional external factorsmay cause those values, and the values of investments for which readily observable inputs exist, to increase or decrease over time, which may create volatility in ourearnings and the amounts of assets and partners' capital that we report from time to time. Changes in the fair value of the investments of our consolidated private equity funds may impact the net gains (losses) from investment activities of our privateequity funds as described under "—Key Financial Measures under GAAP—Investment Income (Loss)—Net Gains (Losses) from Investment Activities." Based onthe investments of our private equity funds as of December 31, 2015 , we estimate that an immediate 10% decrease in the fair value of the funds' investmentsgenerally would result in a commensurate change in the amount of net gains (losses) from investment activities (except that carried interest would likely be moresignificantly impacted), regardless of whether the investment was valued using observable market prices or management estimates with significant unobservablepricing inputs. The impact that the consequential decrease in investment income would have on net income attributable to KKR would generally be significantlyless than the amount described above, given that a majority of the change in fair value would be attributable to noncontrolling interests and therefore we are onlyimpacted to the extent of our carried interest and our balance sheet investments. As of December 31, 2015 , investments which represented greater than 5% of consolidated investments consisted of Walgreens Boots Alliance, Inc. and FirstData Corporation valued at $5.1 billion and $4.3 billion , respectively. On a segment basis, as of December 31, 2015 , investments which represented greater than5% of total reportable segments investments consisted of First Data Corporation and Walgreens Boots Alliance, Inc. valued at $1,266.2 million and $748.7 million ,respectively. Our investment income can be impacted by volatility in the public markets related to our holdings of publicly traded securities, including our sizableholdings of First Data Corporation (NYSE:FDC) and Walgreens Boots Alliance, Inc. (NASDAQ: WBA). See "--Business Environment." Recognition of Investment Income Investment income consists primarily of the net impact of: (i) realized and unrealized gains and losses on investments, (ii) dividends, (iii) interest income,(iv) interest expense and (v) foreign exchange gains and losses relating to mark-to-market activity on foreign exchange forward contracts, foreign currency options,foreign denominated debt and debt securities issued by consolidated CFEs. Unrealized gains or losses resulting from the aforementioned activities are included innet gains (losses) from investment activities. Upon disposition of an instrument that is marked-to-market, previously recognized unrealized gains or losses arereversed and a realized gain or loss is recognized. While this reversal generally does not significantly impact the net amounts of gains (losses) that we recognizefrom investment activities, it affects the manner in which we classify our gains and losses for reporting purposes. Due to the consolidation of the majority of our funds, the portion of our funds' investment income that is allocable to our carried interests and capitalinvestments is not shown in the consolidated financial statements. For funds that are consolidated, all investment income (loss), including the portion of a funds'investment income (loss) that is allocable to KKR's carried interest, is included in investment income (loss) on the consolidated statements of operations. Thecarried interest that KKR retains in net income (loss) attributable to KKR & Co. L.P. is reflected as an adjustment to net income (loss) attributable to noncontrollinginterests. Because the substantial majority of our funds are consolidated and because we hold only a minority160Table of Contentseconomic interest in our funds' investments, our share of the investment income generated by our funds' investment activities is significantly less than the totalamount of investment income presented in the consolidated financial statements. Recognition of Carried Interest in the Statement of Operations Carried interest entitles the general partner of a fund to a greater allocable share of the fund's earnings from investments relative to the capital contributed bythe general partner and correspondingly reduces noncontrolling interests' attributable share of those earnings. Amounts earned pursuant to carried interest areincluded as investment income (loss) in net gains (losses) from investment activities and are earned by the general partner of those funds to the extent thatcumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment returns decrease or turn negative insubsequent periods, recognized carried interest will be reversed and reflected as investment losses in net gains (losses) from investment activities. Carried interest is recognized in the statement of operations based on the contractual conditions set forth in the agreements governing the fund as if the fundwere terminated and liquidated at the reporting date and the fund's investments were realized at the then estimated fair values. Due to the extended durations of ourprivate equity funds, we believe that this approach results in income recognition that best reflects our periodic performance in the management of those funds.Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and whereapplicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carriedinterest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed theamount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, ifany, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawbackobligation, if any, is reflected as a reduction of our investment balance as this is where carried interest is initially recorded. Recently Issued Accounting Pronouncements For a full discussion of recently issued accounting pronouncements, please see the notes to the consolidated financial statements "--Item 8. FinancialStatements and Supplementary Data--Summary of Significant Accounting Policies."161Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risks primarily relates to movements in the fair value of investments, including the effect that those movements have on ourmanagement fees, carried interest and net gains from investment activities. The fair value of investments may fluctuate in response to changes in the values ofinvestments, foreign currency exchange rates and interest rates. Additionally, interest rate movements can adversely impact the amount of interest income wereceive on credit instruments bearing variable rates and could also impact the amount of interest that we pay on debt obligations bearing variable rates.The quantitative information provided in this section was prepared using estimates and assumptions that management believes are appropriate in order toprovide a reader with an indication of the directional impact that a hypothetical adverse movement in certain risks would have on net income attributable to KKR &Co. L.P. In all cases, these directional impacts are presented after deducting amounts that are attributable to noncontrolling interests held by KKR Holdings L.P. Asof December 31, 2015 , KKR & Co. L.P. and KKR Holdings L.P. held interests in our business of 56% and 44% , respectively. The actual impact of a hypotheticaladverse movement in these risks could be materially different from the amounts shown below.The firm uses various committees to help manage market risk and general business risks.Management of Market RiskWhen we commit capital of a certain amount from our balance sheet to investments or transactions, a balance sheet committee of senior employees, includingour two Co-Chief Executive Officers, the Chief Financial Officer and Chief Administrative Officer, must approve the investment or transaction before it may bemade. The committee may delegate authority to other employees subject to maximum commitment sizes or other limitations determined by the committee. Inaddition, this committee supervises activities governing KKR's capital structure, liquidity, and the composition of our balance sheet.Certain securities transactions by our capital markets business are subject to risk tolerance limits, regulatory capital requirements and the review and approvalof one or more committees in compliance with rules applicable to broker-dealers pursuant to the Securities Exchange Act of 1934. When our capital is committed tocapital markets transactions, after diligence is conducted, such transactions are subject to the review and approval of a capital markets underwriting committee.These transactions are also subject to risk tolerance limits. The risk tolerance limits establish the level of investment we may make in a single company or type oftransaction, for example and are designed to avoid undue concentration and risk exposure. Regulatory capital requirements also place limits on the size of securitiesunderwritings the capital markets business can conduct based on quantitative measure of assets, liabilities and certain off-balance-sheet items. Aggregate balancesheet risk is monitored on an ongoing basis by the balance sheet committee referenced above.With respect to the funds and other investment vehicles through which we make investments for our fund investors, KKR manages risk by subjectingtransactions to the review and approval of an applicable investment committee, and then a portfolio management committee (or other applicable senior employees)regularly monitors these investments. Before making an investment, investment professionals identify risks in due diligence, evaluating, among other things,business, financial, legal and regulatory issues, financial data and other information. An investment team presents the investment and its identified risks to aninvestment committee, which must approve each investment before it may be made. If an investment is made, a portfolio management committee (or otherapplicable senior employees) is responsible for working with our investment professionals to monitor the investment on an ongoing basis.Management of General Business RiskKKR has a risk committee comprised of senior employees from across our business segments and across business operations, and includes our ChiefAdministrative Officer, our Chief Financial Officer, and our General Counsel. The risk committee monitors and evaluates KKR's general business risks. The ChiefAdministrative Officer, who also serves as the chairman of the risk committee, regularly reports to our Co-Chief Executive Officers and quarterly to the AuditCommittee, which is the chief committee that monitors risk on behalf of the Board of Directors.KKR's global conflicts committee is responsible for analyzing and addressing new or potential conflicts of interest that may arise in KKR's business, includingconflicts relating to specific transactions and circumstances as well as those implicit in the overall activities of KKR and its various businesses and monitorscompliance matters. Our Chief Administrative Officer, Chief Financial Officer, General Counsel and Chief Compliance Officer are members of this committee.162KKR's management committee is responsible for evaluating certain matters affecting the business of KKR. It consists of our Co-Chief Executive Officers,Chief Administrative Officer, Chief Financial Officer, General Counsel and other senior employees across our business segments and across business operations,and is chaired by our Chief Administrative Officer. The management committee was responsible for approving the valuations of our Level III investments in PrivateMarkets and Public Markets as of December 31, 2015.Changes in Fair ValueThe majority of our investments are reported at fair value. Net changes in the fair value of investments impact the net gains (losses) from investment activitiesin our consolidated statements of operations. Based on investments held as of December 31, 2015 , we estimate that an immediate 10% decrease in the fair value ofinvestments generally would result in a commensurate change in the amount of net gains (losses) from investment activities (except that carried interest wouldlikely be more significantly impacted), regardless of whether the investment was valued using observable market prices or management estimates with significantunobservable pricing inputs. The impact that the consequential decrease in investment income would have on net income attributable to KKR & Co. L.P. wouldgenerally be significantly less than the amount described above, given that a majority of the change in fair value would be attributable to noncontrolling interestsand therefore we are only impacted to the extent of our carried interest and our balance sheet investments and to a lesser extent our management fees. Because ofthis, the quantitative information that follows represents the impact that a reduction to each of the income streams shown below would have on net incomeattributable to KKR & Co. L.P. The actual impact to individual line items within the consolidated statements of operations would differ from the amounts shownbelow as a result of (i) the elimination of management fees and carried interest, (ii) the gross-up of net gains (losses) from investment activities, in each case as aresult of the consolidation of the majority of our private equity and credit funds and (iii) the inclusion of amounts attributable to KKR Holdings L.P. in individualline items within the consolidated statement of operations.Based on the fair value of investments as of December 31, 2015 , we estimate that an immediate, hypothetical 10% decline in the fair value of investmentswould result in declines in net income attributable to KKR & Co. L.P. in 2016 from reductions in the following items, if not offset by other factors: Year Ended December 31, 2015 Management fees Carried Interest, Net ofCarry Pool Allocation Net Gains/(Losses) FromInvestment ActivitiesExcluding CarriedInterest ($ in thousands) 10% Decline in Fair Value of Investments (1)$12,074(2)$231,314(3)$500,757(3) (1)An immediate, hypothetical 10% decline in the fair value of investments would also impact our ability to earn incentive fees. Since the majority of our incentive fees are earned atDecember 31st or June 30th of each calendar year and are not subject to clawback, a 10% decline in fair value would generally result in the recognition of no incentive fees on aprospective basis and result in lower net income relative to prior years where such incentive fees may have been earned. (2)Represents an annualized reduction in management fees. (3)Decrease would impact our statement of operations in a single quarter. With respect to carried interest, for purposes of this analysis the impact of preferred returns are ignored.Management FeesOur management fees in our Private Markets investment funds are generally calculated based on the amount of capital committed or invested by a fund, asdescribed under "Business—Our Segments—Private Markets." Accordingly, movements in the fair value of investments do not significantly affect the amount offees we may charge in Private Markets funds. In the case of our Public Markets business, management fees are often calculated based on the average NAV of thefund or vehicle for that particular period, although certain funds in our Public Markets segment have management fees based on the amount of capital committed orinvested. To the extent that management fees are calculated based on the NAV of the fund's investments, the amount of fees that we may charge will be increased ordecreased in direct proportion to the effect of changes in the fair value of the fund's investments. The proportion of our management fees that are based on NAVdepends on the number and type of funds in existence. For the year ended December 31, 2015 , the fund management fees that were recognized based on the NAVof the applicable funds or separately managed accounts was approximately 25% .163Publicly Traded SecuritiesOur investment funds and KKR's balance sheet hold certain investments in portfolio companies whose securities are publicly traded. The market prices ofsecurities may be volatile and are likely to fluctuate due to a number of factors beyond our control. These factors include actual or anticipated fluctuations in thequarterly and annual results of such companies or of other companies in the industries in which they operate, market perceptions concerning the availability ofadditional securities for sale, general economic, social or political developments, industry conditions, changes in government regulation, shortfalls in operatingresults from levels forecasted by securities analysts, the general state of the securities markets and other material events, such as significant management changes,re-financings, acquisitions and dispositions. In addition, although the majority of our investments are comprised of investments in portfolio companies whosesecurities are not publicly traded, the value of these privately held investments may also fluctuate as our Level III investments are valued in part using a marketcomparables analysis. Consequently due to similar factors beyond our control as described above for portfolio companies whose securities are publicly traded, thevalue of these Level III investments may fluctuate with market prices. Subsequent to December 31, 2015, world equity markets declined sharply with both the S&P500 and the MSCI World Index down substantially on a total return basis, including dividends, as of February 22, 2016. See "--Management's Discussion andAnalysis of Financial Condition and Results of Operations--Business Environment".Exchange Rate RiskOur investment funds and KKR's balance sheet hold investments denominated in currencies other than the U.S. dollar. Those investments expose us and ourfund investors to the risk that the value of the investments will be affected by changes in exchange rates between the currency in which the investments aredenominated and the currency in which the investments are made. Additionally, a portion of our management fees are denominated in non-U.S. dollar currencies.Our policy is to minimize these risks by employing hedging techniques, including using foreign currency options and foreign exchange forward contracts to reduceexposure to future changes in exchange rates when a meaningful amount of capital has been invested in currencies other than the currencies in which theinvestments are denominated.Our primary exposure to exchange rate risk relates to movements in the value of exchange rates between the U.S. dollar and other currencies in which ourinvestments are denominated (primarily euros and British pounds), net of the impact of foreign exchange hedging strategies. The quantitative information thatfollows represents the impact that a reduction to each of the income streams shown below would have on net income attributable to KKR & Co. L.P. The actualimpact to individual line items within the statements of operations would differ from the amounts shown below as a result of (i) the elimination of management feesand carried interest, (ii) the gross-up of net gains (losses) from investment activities, in each case as a result of the consolidation of the majority of our private equityand credit funds and (iii) the inclusion of amounts attributable to KKR Holdings L.P. in individual line items within the consolidated statement of operations.We estimate that an immediate, hypothetical 10% decline in the exchange rates between the U.S. dollar and all of the major foreign currencies in which ourinvestments and fees were denominated as of December 31, 2015 (i.e. an increase in the value of the U.S. dollar against these foreign currencies) would result indeclines in net income attributable to KKR & Co. L.P. in 2016 from reductions in the following items, net of the impact of foreign exchange hedging strategies, ifnot offset by other factors: Year Ended December 31, 2015 Management fees Carried Interest, Net ofCarry Pool Allocation Net Gains/(Losses) FromInvestment ActivitiesExcluding Carried Interest ($ in thousands) 10% Decline in Foreign Currencies Against the U.S.Dollar (1)$6,806(2)$33,210(3)$21,215(3) (1)An immediate, hypothetical 10% decline in exchange rates between the U.S. dollar and all of the major foreign currencies in which our investments were denominated would onlymarginally impact our ability to earn incentive fees since the majority of our funds in which we are entitled to earn incentive fees are denominated in U.S. dollars. (2)Represents an annualized reduction in management fees. (3)Decrease would impact our statement of operations in a single quarter. With respect to carried interest, for purposes of this analysis the impact of preferred returns are ignored.164Interest Rate RiskValuation of InvestmentsChanges in credit markets and in particular, interest rates, can impact investment valuations, particularly our Private Markets investments and may haveoffsetting results depending on the valuation methodology used. For example, we typically use a discounted cash flow analysis as one of the methodologies toascertain the fair value of our investments that do not have readily observable market prices. If applicable interest rates rise, then the assumed cost of capital forthose portfolio companies would be expected to increase under the discounted cash flow analysis, and this effect would negatively impact their valuations if notoffset by other factors. Conversely, a fall in interest rates can positively impact valuations of certain portfolio companies if not offset by other factors. Theseimpacts could be substantial depending upon the magnitude of the change in interest rates. In certain cases, the valuations obtained from the discounted cash flowanalysis and the other primary methodology we use, the market multiples approach, may yield different and offsetting results. For example, the positive impact offalling interest rates on discounted cash flow valuations may offset the negative impact of the market multiples valuation approach and may result in less of adecline in value than for those investments that had a readily observable market price. Finally, low interest rates related to monetary stimulus and economicstagnation may also negatively impact expected returns on all investments, as the demand for relatively higher return assets increases and supply decreases.Interest IncomeWe and our consolidated funds hold credit investments, including CFEs that generate interest income based on variable interest rates. We are exposed tointerest rate risk relating to investments that generate yield since a meaningful portion of credit investments held by us and our consolidated funds earn incomebased on variable interest rates. However, the contractual interest rate structure for a large portion of our credit investments bearing variable rates have "floors"which establish a minimum rate of interest that will be earned. In the current low interest rate environment, a large portion of the credit investments held by us andour consolidated funds are earning interest at the contractual floor and therefore, for these investments, a decrease in variable interests rates would not impact theamount of interest income earned. With respect to consolidated funds and CFEs, the impact on net income attributable to KKR & Co. L.P. resulting from a decreaseof a hypothetical 100 basis points in variable interest rates used in the recognition of interest income would not be expected to be material since (i) many variablerate investments are subject to floors as described above and (ii) a substantial portion of this decrease would be attributable to noncontrolling interests. With respectto credit investments held by KKR outside of the consolidated funds, all of the interest income earned inures to KKR & Co. L.P., however a large portion of theseinvestments are subject to floors as described above. Accordingly, the impact on net income attributable to KKR & Co. L.P. resulting from a decrease of ahypothetical 100 basis points in variable interest rates used in the recognition of interest income would not be expected to be material.Interest ExpenseOur consolidated funds have debt obligations that include revolving credit agreements, certain investment financing arrangements and debt securities issued byCFE vehicles structured through the use of term loans and revolving credit facilities that accrue interest at variable rates. Changes in these rates would affect theamount of interest payments that our consolidated funds would have to make. With respect to consolidated funds, the impact on net income attributable to KKR &Co. L.P. resulting from an increase of a hypothetical 100 basis points in variable interest rates used in the recognition of interest expense would not be expected tobe material since a substantial portion of this increase would be attributable to noncontrolling interests. With respect to debt obligations held by KKR outside of theconsolidated funds, as of December 31, 2015, KKR had no debt obligations outstanding that accrue interest at a variable rate.Credit RiskWe are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties areunable to meet the terms of such agreements. In these agreements, we depend on these counterparties to make payment or otherwise perform. We generallyendeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions. Inaddition, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.165Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm167Consolidated Statements of Financial Condition as of December 31, 2015 and 2014168Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013170Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013171Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013172Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013173Notes to Consolidated Financial Statements175166Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Unitholders of KKR & Co. L.P.:We have audited the accompanying consolidated statements of financial condition of KKR & Co. L.P. and subsidiaries (the "Company") as of December 31,2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years inthe period ended December 31, 2015. Our audits also included the financial statement schedule listed in Item 15. We also have audited the Company's internalcontrol over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and financial statementschedule, 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 financialstatements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal controlover financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receiptsand expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on thefinancial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness ofthe internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KKR & Co. L.P. andsubsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Also,in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteriaestablished in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission./s/ Deloitte & Touche LLPNew York, New YorkFebruary 26, 2016167Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Amounts in Thousands, Except Unit Data) December 31, 2015 December 31, 2014Assets Cash and Cash Equivalents$1,047,740 $918,080Cash and Cash Equivalents Held at Consolidated Entities1,472,120 1,372,775Restricted Cash and Cash Equivalents267,628 102,991Investments65,305,931 60,167,626Due from Affiliates139,783 147,056Other Assets2,824,557 3,164,217Total Assets$71,057,759 $65,872,745 Liabilities and Equity Debt Obligations$18,730,017 $10,837,784Due to Affiliates144,807 131,548Accounts Payable, Accrued Expenses and Other Liabilities2,715,350 3,199,352Total Liabilities21,590,174 14,168,684 Commitments and Contingencies Redeemable Noncontrolling Interests188,629 300,098 Equity KKR & Co. L.P. Partners’ Capital (457,834,875 and 433,330,540 common units issued and outstanding as ofDecember 31, 2015 and 2014, respectively)5,575,981 5,403,095Accumulated Other Comprehensive Income (Loss)(28,799) (20,404)Total KKR & Co. L.P. Partners’ Capital5,547,182 5,382,691Noncontrolling Interests43,731,774 46,004,377Appropriated Capital— 16,895Total Equity49,278,956 51,403,963Total Liabilities and Equity$71,057,759 $65,872,745 See notes to consolidated financial statements.168Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)(Amounts in Thousands) The following presents the portion of the balances presented in the consolidated statements of financial condition attributable to consolidated variable interestentities (“VIEs”) as of December 31, 2015 and 2014 . The assets of consolidated collateralized financing entities (“CFEs”) holding collateralized loan obligations("CLOs") and commercial real estate mortgage-backed securities ("CMBS”), which comprise the majority of KKR’s consolidated VIEs, are held solely as collateralto satisfy the obligations of the CFEs. KKR has no right to the benefits from, nor does KKR bear the risks associated with, the assets held by these CFEs beyondKKR’s beneficial interest therein and any fees generated from the CFEs. The assets in each CFE can be used only to settle the debt of the related CFE. Thenoteholders and other creditors of the CFEs have no recourse to KKR’s general assets. There are neither explicit arrangements nor does KKR hold implicit variableinterests that would require KKR to provide any ongoing financial support to the CFEs. December 31, 2015 December 31, 2014Assets Cash and Cash Equivalents Held at Consolidated Entities$975,433 $1,046,018Investments12,735,309 8,559,967Other Assets133,953 129,949Total Assets$13,844,695 $9,735,934 Liabilities Debt Obligations$12,365,222 $7,615,340Accounts Payable, Accrued Expenses and Other Liabilities546,129 638,953Total Liabilities$12,911,351 $8,254,293 See notes to consolidated financial statements.169Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in Thousands, Except Unit Data) For the Years Ended December 31, 2015 2014 2013Revenues Fees and Other$1,043,768 $1,110,008 $762,546 Expenses Compensation and Benefits1,180,591 1,263,852 1,266,592Occupancy and Related Charges65,683 62,564 61,720General, Administrative and Other624,951 869,651 438,826Total Expenses1,871,225 2,196,067 1,767,138 Investment Income (Loss) Net Gains (Losses) from Investment Activities4,672,627 4,778,232 7,826,082Dividend Income850,527 1,174,501 695,521Interest Income1,219,197 909,207 474,759Interest Expense(573,226) (317,192) (99,616)Total Investment Income (Loss)6,169,125 6,544,748 8,896,746 Income (Loss) Before Taxes5,341,668 5,458,689 7,892,154 Income Tax / (Benefit)66,636 63,669 37,926 Net Income (Loss)5,275,032 5,395,020 7,854,228Net Income (Loss) Attributable to Redeemable Noncontrolling Interests(4,512) (3,341) 62,255Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital4,791,062 4,920,750 7,100,747 Net Income (Loss) Attributable to KKR & Co. L.P.$488,482 $477,611 $691,226 Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit Basic$1.09 $1.25 $2.51Diluted$1.01 $1.16 $2.30Weighted Average Common Units Outstanding Basic448,884,185 381,092,394 274,910,628Diluted482,699,194 412,049,275 300,254,090 See notes to consolidated financial statements.170Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(Amounts in Thousands) For the Years Ended December 31, 2015 2014 2013Net Income (Loss)$5,275,032 $5,395,020 $7,854,228 Other Comprehensive Income (Loss), Net of Tax: Foreign Currency Translation Gain (Loss)(27,176) (37,119) (4,642) Comprehensive Income (Loss)5,247,856 5,357,901 7,849,586 Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests(4,512) (3,341) 62,255Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests and AppropriatedCapital4,771,152 4,897,831 7,096,898 Comprehensive Income (Loss) Attributable to KKR & Co. L.P.$481,216 $463,411 $690,433 See notes to consolidated financial statements.171Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Amounts in Thousands, Except Unit Data) KKR & Co. L.P. CommonUnits Partners’Capital AccumulatedOtherComprehensiveIncome (Loss) NoncontrollingInterests Appropriated Capital TotalEquity RedeemableNoncontrollingInterestsBalance at January 1, 2013253,363,691 $2,008,965 $(4,606) $38,938,531 $— $40,942,890 $462,564Net Income (Loss) 691,226 7,100,747 7,791,973 62,255Other Comprehensive Income (Loss)-ForeignCurrency Translation (Net of Tax) (793) (3,849) (4,642) Contributions of Net Assets of previouslyUnconsolidated Entities 294,767 294,767 Exchange of KKR Holdings L.P. Units and OtherExchangeable Securities to KKR & Co. L.P.Common Units28,184,258 333,804 (776) (333,028) — Tax Effects Resulting from Exchange of KKRHoldings L.P. Units and delivery of KKR & Co. L.P.Common Units 18,924 276 19,200 Net Delivery of Common Units-Equity Incentive Plan6,595,378 (8,136) (8,136) Equity Based Compensation 114,709 192,805 307,514 Capital Contributions 7,475,577 7,475,577 176,503Capital Distributions (431,583) (10,430,549) (10,862,132) (73,515)Balance at December 31, 2013288,143,327 $2,727,909 $(5,899) $43,235,001 $— $45,957,011 $627,807Net Income (Loss) 477,611 4,929,337 (8,587) 5,398,361 (3,341)Other Comprehensive Income (Loss)-Foreign CurrencyTranslation (Net of Tax) (14,200) (20,725) (2,194) (37,119) Exchange of KKR Holdings L.P. Units and OtherExchangeable Securities to KKR & Co. L.P. CommonUnits and transfers of CLO beneficial interests toappropriated capital27,228,991 332,479 (833) (359,322) 27,676 — Tax Effects Resulting from Exchange of KKRHoldings L.P. Units and delivery of KKR & Co. L.P.Common Units 46,311 528 46,839 Net Delivery of Common Units-Equity Incentive Plan9,952,634 (8,757) (8,757) Equity Based Compensation 158,927 151,476 310,403 Acquisitions108,005,588 2,453,610 435,478 2,889,088 Capital Contributions 11,236,018 11,236,018 148,355Capital Distributions (784,995) (13,602,886) (14,387,881) (472,723)Balance at December 31, 2014433,330,540 $5,403,095 $(20,404) $46,004,377 $16,895 $51,403,963 $300,098Net Income (Loss) 488,482 4,791,062 5,279,544 (4,512)Other Comprehensive Income (Loss)- ForeignCurrency Translation (Net of Tax) (7,266) (19,910) (27,176) Cumulative-effect adjustment from adoption ofaccounting guidance (307) (16,895) (17,202) Exchange of KKR Holdings L.P. Units and OtherSecurities to KKR & Co. L.P. Common Units16,095,538 207,114 (1,483) (205,631) — Tax Effects Resulting from Exchange of KKRHoldings L.P. Units and delivery of KKR & Co. L.P.Common Units 18,244 354 18,598 Net Delivery of Common Units-Equity Incentive Plan10,964,144 15,245 15,245 Equity Based Compensation 186,346 75,233 261,579 Common Units Issued in Connection with the Purchaseof an Investment7,364,545 126,302 126,302 Unit Repurchases(9,919,892) (161,929) (161,929) Capital Contributions 0 6,274,296 6,274,296 193,269Capital Distributions (706,611) (13,187,653) (13,894,264) (300,226)Balance at December 31, 2015457,834,875 $5,575,981 $(28,799) $43,731,774 $— $49,278,956 $188,629 See notes to consolidated financial statements.172Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands) For the Years Ended December 31, 2015 2014 2013Operating Activities Net Income (Loss)$5,275,032 $5,395,020 $7,854,228Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by OperatingActivities: Equity Based Compensation261,579 310,403 307,514Net Realized (Gains) Losses on Investments(3,001,884) (5,433,586) (3,909,432)Change in Unrealized (Gains) Losses on Investments(1,670,743) 655,354 (3,916,650)Other Non-Cash Amounts(78,522) 73,061 (95,961)Cash Flows Due to Changes in Operating Assets and Liabilities: Change in Cash and Cash Equivalents Held at Consolidated Entities(160,092) (166,275) 166,552Change in Due from / to Affiliates15,264 (3,368) (25,314)Change in Other Assets605,305 (150,131) 248,330Change in Accounts Payable, Accrued Expenses and Other Liabilities(187,661) (156,176) 578,724Investments Purchased(27,936,898) (37,935,909) (31,844,648)Proceeds from Sale of Investments and Principal Payments27,264,024 38,900,257 33,214,410Net Cash Provided (Used) by Operating Activities385,404 1,488,650 2,577,753 Investing Activities Change in Restricted Cash and Cash Equivalents(164,637) (10,849) 29,852Purchases of Fixed Assets(169,419) (12,163) (14,396)Development of Oil and Natural Gas Properties(95,959) (233,777) —Proceeds from Sale of Oil and Natural Gas Properties4,863 82,423 —Net Cash Acquired— 151,491 —Net Cash Provided (Used) by Investing Activities(425,152) (22,875) 15,456 Financing Activities Distributions to Partners(706,611) (784,995) (431,583)Distributions to Redeemable Noncontrolling Interests(300,226) (472,723) (73,515)Contributions from Redeemable Noncontrolling Interests193,269 148,355 176,503Distributions to Noncontrolling Interests(13,187,653) (13,602,886) (10,430,549)Contributions from Noncontrolling Interests6,274,296 11,196,066 7,475,577Net Delivery of Common Units - Equity Incentive Plan15,245 (8,757) (8,136)Unit Repurchases(161,929) — —Proceeds from Debt Obligations14,014,510 5,433,135 1,374,343Repayment of Debt Obligations(5,926,162) (3,728,195) (594,970)Financing Costs Paid(45,331) (34,078) (4,960)Net Cash Provided (Used) by Financing Activities169,408 (1,854,078) (2,517,290) Net Increase/(Decrease) in Cash and Cash Equivalents129,660 (388,303) 75,919Cash and Cash Equivalents, Beginning of Period918,080 1,306,383 1,230,464Cash and Cash Equivalents, End of Period$1,047,740 $918,080 $1,306,383 See notes to consolidated financial statements.173Table of ContentsKKR & CO. L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(Amounts in Thousands) For the Years Ended December 31, 2015 2014 2013Supplemental Disclosures of Cash Flow Information Payments for Interest$485,739 $195,055 $74,835Payments for Income Taxes$40,468 $47,138 $81,419Supplemental Disclosures of Non-Cash Investing and Financing Activities Non-Cash Contributions of Equity Based Compensation$261,579 $310,403 $307,514Cumulative effect adjustment from adoption of accounting guidance$(17,202) $— $—Debt Obligations - Net Gains (Losses), Translation and Other$226,577 $328,464 $(5,435)Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co.L.P. Common Units$18,598 $46,839 $19,200Non-Cash Contributions from Noncontrolling Interests$— $39,952 $—Impairments of Oil and Natural Gas Properties$53,926 $220,063 $—Gains on Sales of Oil and Natural Gas Properties$— $16,924 $—Net Assets Acquired Cash and Cash Equivalents Held at Consolidated Entities$— $765,231 $—Restricted Cash and Cash Equivalents$— $35,038 $—Investments$— $9,225,660 $—Other Assets$— $885,314 $—Debt Obligations$— $7,538,726 $—Accounts Payable, Accrued Expenses and Other Liabilities$— $616,979 $—Contribution of Net Assets of Previously Unconsolidated Entities Investments$— $— $294,767 See notes to consolidated financial statements.174Table of ContentsKKR & CO. L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(All Amounts in Thousands, Except Unit, Per Unit Data, and Except Where Noted)1. ORGANIZATION KKR & Co. L.P. (NYSE: KKR), together with its consolidated subsidiaries (“KKR”), is a leading global investment firm that manages investments acrossmultiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns byfollowing a patient and disciplined investment approach, employing world class people, and driving growth and value creation at the asset level. KKR invests itsown capital alongside the capital it manages for fund investors and brings debt and equity investment opportunities to others through its capital markets business. KKR & Co. L.P. was formed as a Delaware limited partnership on June 25, 2007 and its general partner is KKR Management LLC (the “Managing Partner”).KKR & Co. L.P. is the parent company of KKR Group Limited, which is the non-economic general partner of KKR Group Holdings L.P. (“Group Holdings”), andKKR & Co. L.P. is the sole limited partner of Group Holdings. Group Holdings holds a controlling economic interest in each of (i) KKR ManagementHoldings L.P. (“Management Holdings”) through KKR Management Holdings Corp., a Delaware corporation which is a domestic corporation for U.S. federalincome tax purposes, (ii) KKR Fund Holdings L.P. (“Fund Holdings”) directly and through KKR Fund Holdings GP Limited, a Cayman Island limited companywhich is a disregarded entity for U.S. federal income tax purposes, and (iii) KKR International Holdings L.P. (“International Holdings”, and together withManagement Holdings and Fund Holdings, the “KKR Group Partnerships”) directly and through KKR Fund Holdings GP Limited. Group Holdings also ownscertain economic interests in Management Holdings through a wholly owned Delaware corporate subsidiary of KKR Management Holdings Corp. and certaineconomic interests in Fund Holdings through a Delaware partnership of which Group Holdings is the general partner with a 99% economic interest and KKRManagement Holdings Corp. is a limited partner with a 1% economic interest. KKR & Co. L.P., through its indirect controlling economic interests in the KKRGroup Partnerships, is the holding partnership for the KKR business. KKR & Co. L.P. both indirectly controls the KKR Group Partnerships and indirectly holds Class A partner units in each KKR Group Partnership (collectively,“KKR Group Partnership Units”) representing economic interests in KKR’s business. The remaining KKR Group Partnership Units are held by KKR Holdings L.P.(“KKR Holdings”), which is not a subsidiary of KKR. As of December 31, 2015 , KKR & Co. L.P. held approximately 56% of the KKR Group Partnership Unitsand principals through KKR Holdings held approximately 44% of the KKR Group Partnership Units. The percentage ownership in the KKR Group Partnershipswill continue to change as KKR Holdings and/or principals exchange units in the KKR Group Partnerships for KKR & Co. L.P. common units or when KKR & Co.L.P. otherwise issues or repurchases KKR & Co. L.P. common units.For acquisitions KKR made during the year ended December 31, 2014, see Note 14 “Acquisitions”.The following table presents the effect of changes in the ownership interest in the KKR Group Partnerships on KKR: For the Years Ended December 31, 2015 2014 2013Net income (loss) attributable to KKR & Co. L.P.$488,482 $477,611 $691,226Transfers from noncontrolling interests: Exchange of KKR Group Partnership units held by KKR Holdings L.P.(a)212,043 380,916 341,410Change from net income (loss) attributable to KKR & Co. L.P. and transfersfrom noncontrolling interests held by KKR Holdings$700,525 $858,527 $1,032,636(a)Increase in KKR’s partners’ capital for exchange of 15,850,161 , 27,172,269 and 28,184,258 for the years ended December 31, 2015, 2014, and 2013, respectively, KKR GroupPartnerships units held by KKR Holdings L.P., inclusive of deferred taxes.175Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements (referred to hereafter as the “financial statements”) have been prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”).KKR & Co. L.P. consolidates the financial results of the KKR Group Partnerships and their consolidated subsidiaries, which include the accounts of KKR’sinvestment management and capital markets companies, the general partners of certain unconsolidated funds and vehicles, general partners of consolidated fundsand their respective consolidated funds and certain other entities including CFEs. References in the accompanying financial statements to “principals” are to KKR’ssenior employees and non‑employee operating consultants who hold interests in KKR’s business through KKR Holdings, and references to “Senior Principals” areto KKR’s senior employees who hold interests in the Managing Partner entitling them to vote for the election of the Managing Partner’s directors.All intercompany transactions and balances have been eliminated. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of fees, expenses andinvestment income (loss) during the reporting periods. Such estimates include but are not limited to the valuation of investments and financial instruments. Actualresults could differ from those estimates, and such differences could be material to the financial statements. Principles of Consolidation The types of entities KKR assesses for consolidation include (i) subsidiaries, including management companies, broker-dealers and general partners ofinvestment funds that KKR manages, (ii) entities that have all the attributes of an investment company, like investment funds, (iii) CFEs and (iv) other entities,including entities that employ non-employee operating consultants. Each of these entities is assessed for consolidation on a case by case basis depending on thespecific facts and circumstances surrounding that entity. Pursuant to its consolidation policy, KKR first considers whether an entity is considered a VIE and therefore whether to apply the consolidation guidance underthe VIE model. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities (“VOEs”) under the voting interest model. The consolidation rules were revised effective January 1, 2010 which had the effect of changing the criteria for determining whether a reporting entity is theprimary beneficiary of a VIE. However, the adoption of these new consolidation rules was indefinitely deferred (the “Deferral”) for a reporting entity’s interests incertain entities. In particular, entities that have all the attributes of an investment company such as investment funds generally meet the conditions necessary for theDeferral. Entities that are securitization or asset-backed financing entities such as CFEs would generally not qualify for the Deferral. Accordingly, when making theassessment of whether an entity is a VIE, KKR considers whether the entity being assessed meets the conditions for the Deferral and therefore would be subject tothe rules that existed prior to January 1, 2010. Under both sets of rules, VIEs for which KKR is determined to be the primary beneficiary are consolidated and suchVIEs generally include certain CFEs and entities that employ non-employee operating consultants. An entity in which KKR holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient topermit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of equity investment at risk (as a group) lack eitherthe direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the success ofthe legal entity or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors aredisproportionate to their obligation to absorb the expected losses of the legal entity, their rights to receive the expected residual returns of the legal entity, or bothand substantially all of the legal entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.With respect to VIEs such as KKR’s investment funds that qualify for the Deferral and therefore apply the previous consolidation rules, KKR is determined tobe the primary beneficiary if its involvement, through holding interests directly or indirectly in the VIE or contractually through other variable interests (e.g., carriedinterest), would be expected to absorb a176Notes to Consolidated Financial Statements (Continued)majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. In cases where two or more KKR related parties hold avariable interest in a VIE, and the aggregate variable interest held by those parties would, if held by a single party, identify that party as the primary beneficiary,then KKR is determined to be the primary beneficiary to the extent it is the party within the related party group that is most closely associated with the VIE. Under the voting interest model, KKR consolidates those entities it controls through a majority voting interest or through other means, including those VOEs inwhich the general partner is presumed to have control. KKR does not consolidate those VOEs in which the presumption of control by the general partner has beenovercome through either the granting of substantive rights to the unaffiliated fund investors to either dissolve the fund or remove the general partner (“kick-outrights”) or the granting of substantive participating rights. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE depends on the facts and circumstancessurrounding each entity and therefore certain of KKR’s investment funds may qualify as VIEs whereas others may qualify as VOEs. With respect to KKR’s consolidated funds that are not CFEs, KKR meets the criteria for the Deferral and therefore applies the consolidation rules that existedprior to January 1, 2010. For these funds, KKR generally has operational discretion and control, and fund investors have no substantive rights to impact ongoinggovernance and operating activities of the fund, including the ability to remove the general partner, also known as kick-out rights. As a result, a fund should beconsolidated unless KKR has a nominal level of equity at risk. To the extent that KKR commits a nominal amount of equity to a given fund and has no obligation tofund any future losses, the equity at risk to KKR is not considered substantive and the fund is typically considered a VIE. In these cases, the fund investors aregenerally deemed to be the primary beneficiaries, and KKR does not consolidate the fund. In cases when KKR’s equity at risk is deemed to be substantive, the fundis generally considered to be a VOE and KKR generally consolidates the fund under the VOE model. With respect to CFEs, which are generally VIEs, the criteria for the Deferral are not met and therefore KKR applies the consolidation rules issued on January 1,2010. With respect to CLOs, in its role as collateral manager, KKR generally has the power to direct the activities of the CLO entities that most significantly impactthe economic performance of the entity. In some, but not all cases, KKR, through both its residual interest in the CLO and the potential to earn an incentive fee,may have variable interests that represent an obligation to absorb losses of, or a right to receive benefits from, the CLO that could potentially be significant to theCLO. In cases where KKR has both (a) the power to direct the activities of the CLO that most significantly impact the CLOs economic performance and (b) theobligation to absorb losses of the CLO or the right to receive benefits from the CLO that could potentially be significant to the CLO, KKR consolidates the CLO.With respect to consolidated CMBS vehicles, KKR holds unrated and non-investment grade rated securities issued by the CMBS, which are the mostsubordinate tranche of the CMBS vehicle. The economic performance of the CMBS is most significantly impacted by the performance of the underlying assets.Thus, the activities that most significantly impact the CMBS economic performance are the activities that most significantly impact the performance of theunderlying assets. The special servicer has the ability to manage the CMBS assets that are delinquent or in default to improve the economic performance of theCMBS. KKR generally has the right to unilaterally appoint and remove the special servicer for the CMBS and as such is considered the controlling class of theCMBS vehicle. These rights give KKR the ability to direct the activities that could most significantly impact the economic performance of the CMBS. Additionally,as the holder of the most subordinate tranche, KKR is in a first loss position and has the right to receive benefits, including the actual residual returns of the CMBS,if any. In these cases, KKR is deemed to be the primary beneficiary and consolidates the CMBS. Certain of KKR’s funds and CFEs are consolidated by KKR notwithstanding the fact that KKR has only a minority economic interest in those funds and CFEs.KKR’s financial statements reflect the assets, liabilities, fees, expenses, investment income (loss) and cash flows of the consolidated KKR funds and CFEs on agross basis. With respect to KKR's consolidated funds, the majority of the economic interests in those funds, which are held by fund investors or other third parties,are attributed to noncontrolling interests in the accompanying financial statements. All of the management fees and certain other amounts earned by KKR fromthose funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by noncontrolling interests, KKR’s attributableshare of the net income (loss) from those funds is increased by the amounts eliminated. Accordingly, the elimination in consolidation of such amounts has no effecton net income (loss) attributable to KKR or KKR partners’ capital. With respect to consolidated CFEs, interests held by third party investors are recorded in debtobligations. 177Notes to Consolidated Financial Statements (Continued)KKR’s funds are, for GAAP purposes, investment companies and therefore are not required to consolidate their investments in portfolio companies even ifmajority-owned and controlled. Rather, the consolidated funds and vehicles reflect their investments at fair value as described below in “Fair Value Measurements”. Business Combinations Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilitiesassumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred. Intangible Assets Intangible assets consist primarily of contractual rights to earn future fee income, including management and incentive fees, and are recorded in Other Assets inthe accompanying consolidated statements of financial condition. Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimateduseful lives and amortization expense is included within General, Administrative and Other in the accompanying consolidated statements of operations. Intangibleassets are reviewed for impairment when circumstances indicate impairment may exist. KKR does not have any indefinite-lived intangible assets. Goodwill Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwillis assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred. Goodwill is recorded in Other Assets in theaccompanying consolidated statements of financial condition. Redeemable Noncontrolling Interests Redeemable Noncontrolling Interests represent noncontrolling interests of certain investment vehicles and funds that are subject to periodic redemption by fundinvestors following the expiration of a specified period of time (typically between one and three years ), or may be withdrawn subject to a redemption fee during theperiod when capital may not be otherwise withdrawn. Fund investors interests subject to redemption as described above are presented as RedeemableNoncontrolling Interests in the accompanying consolidated statements of financial condition and presented as Net Income (Loss) Attributable to RedeemableNoncontrolling Interests in the accompanying consolidated statements of operations. When redeemable amounts become legally payable to fund investors, they are classified as a liability and included in Accounts Payable, Accrued Expenses andOther Liabilities in the accompanying consolidated statements of financial condition. For all consolidated investment vehicles and funds in which redemption rightshave not been granted, noncontrolling interests are presented within Equity in the accompanying consolidated statements of financial condition as noncontrollinginterests. Noncontrolling Interests Noncontrolling interests represent (i) noncontrolling interests in consolidated entities and (ii) noncontrolling interests held by KKR Holdings. Noncontrolling Interests in Consolidated Entities Noncontrolling interests in consolidated entities represent the non-redeemable ownership interests in KKR that are held primarily by: (i)third party fund investors in KKR’s funds;(ii)third parties entitled to up to 1% of the carried interest received by certain general partners of KKR’s funds and 1% of KKR’s other profits (losses)through and including December 31, 2015;(iii)certain former principals and their designees representing a portion of the carried interest received by the general partners of KKR’s private equityfunds that was allocated to them with respect to private equity investments made during such former principals’ tenure with KKR prior to October1, 2009;178Notes to Consolidated Financial Statements (Continued)(iv)certain principals and former principals representing all of the capital invested by or on behalf of the general partners of KKR’s private equity fundsprior to October 1, 2009 and any returns thereon;(v)third parties in KKR’s capital markets business;(vi)holders of exchangeable equity securities representing ownership interests in a subsidiary of a KKR Group Partnership issued in connection with theacquisition of Avoca; and(vii)holders of the 7.375% Series A LLC Preferred Shares of KFN whose rights are limited to the assets of KFN. Noncontrolling Interests held by KKR Holdings Noncontrolling interests held by KKR Holdings include economic interests held by principals in the KKR Group Partnerships. Such principals receive financialbenefits from KKR’s business in the form of distributions received from KKR Holdings and through their direct and indirect participation in the value of KKRGroup Partnership Units held by KKR Holdings. These financial benefits are not paid by KKR and are borne by KKR Holdings. The following table presents the calculation of noncontrolling interests held by KKR Holdings: For the Years Ended December 31, 2015 2014 2013Balance at the beginning of the period$4,661,679 $5,116,761 $4,981,864Net income (loss) attributable to noncontrolling interests held by KKR Holdings (a)433,693 585,135 1,056,126Other comprehensive income (loss), net of tax (b)(14,030) (15,202) (3,114)Impact of the exchange of KKR Holdings units to KKR & Co. L.P. common units (c) (203,127) (357,551) (333,028)Equity based compensation59,114 129,012 192,805Capital contributions25,573 30,402 31,553Capital distributions(615,749) (826,878) (809,445)Balance at the end of the period$4,347,153$4,661,679 $5,116,761 (a)Refer to the table below for calculation of Net income (loss) attributable to noncontrolling interests held by KKR Holdings.(b)Calculated on a pro rata basis based on the weighted average KKR Group Partnership Units held by KKR Holdings during the reporting period. (c)Calculated based on the proportion of KKR Holdings units exchanged for KKR & Co. L.P. common units pursuant to the exchange agreement during the reporting period. Theexchange agreement provides for the exchange of KKR Group Partnership Units held by KKR Holdings for KKR & Co. L.P. common units.Net income (loss) attributable to KKR & Co. L.P. after allocation to noncontrolling interests held by KKR Holdings, with the exception of certain tax assetsand liabilities that are directly allocable to KKR Management Holdings Corp., is attributed based on the percentage of the weighted average KKR GroupPartnership Units held by KKR and KKR Holdings, each of which hold equity of the KKR Group Partnerships. However, primarily because of the (i) contributionof certain expenses borne entirely by KKR Holdings, (ii) the periodic exchange of KKR Holdings units for KKR & Co. L.P. common units pursuant to the exchangeagreement and (iii) the contribution of certain expenses borne entirely by KKR associated with the KKR & Co. L.P. 2010 Equity Incentive Plan (“Equity IncentivePlan”), equity allocations shown in the consolidated statement of changes in equity differ from their respective pro-rata ownership interests in KKR’s net assets.179Notes to Consolidated Financial Statements (Continued)The following table presents net income (loss) attributable to noncontrolling interests held by KKR Holdings: For the Years Ended December 31, 2015 2014 2013Net income (loss)$5,275,032 $5,395,020 $7,854,228Less: Net income (loss) attributable to Redeemable Noncontrolling Interests(4,512) (3,341) 62,255Less: Net income (loss) attributable to Noncontrolling Interests in consolidated entities andappropriated capital4,357,369 4,335,615 6,044,621Plus: Income tax / (benefit) attributable to KKR Management Holdings Corp.21,241 28,806 15,387Net income (loss) attributable to KKR & Co. L.P. and KKR Holdings$943,416 $1,091,552 $1,762,739 Net income (loss) attributable to noncontrolling interests held by KKR Holdings$433,693 $585,135 $1,056,126 Investments Investments consist primarily of private equity, real assets, credit, investments of consolidated CFEs, and other investments. Investments are carried at theirestimated fair values, with unrealized gains or losses resulting from changes in fair value reflected as a component of Net Gains (Losses) from Investment Activitiesin the consolidated statements of operations. Investments denominated in currencies other than the U.S. dollar are valued based on the spot rate of the respectivecurrency at the end of the reporting period with changes related to exchange rate movements reflected as a component of Net Gains (Losses) from InvestmentActivities in the consolidated statements of operations. Security and loan transactions are recorded on a trade date basis. Further disclosure on investments ispresented in Note 4, “Investments.” The following describes the types of securities held within each investment class. Private Equity — Consists primarily of equity investments in operating businesses. Real Assets — Consists primarily of investments in (i) energy related assets, principally oil and natural gas producing properties, (ii) infrastructure assets,and (iii) real estate, principally residential and commercial real estate assets and businesses, which, in each case, are held through consolidated investmentvehicles. Credit — Consists primarily of investments in below investment grade corporate debt securities (primarily high yield bonds and syndicated bank loans),distressed and opportunistic debt and interests in unconsolidated CLOs. Investments of Consolidated CFEs — Consists primarily of (i) investments in below investment grade corporate debt securities (primarily high yield bondsand syndicated bank loans) held directly by the consolidated CLOs and (ii) investments in newly originated, fixed-rate mortgage loans held directly by theconsolidated CMBS vehicles. Other — Consists primarily of (i) investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets,credit or investments of consolidated CFEs and (ii) equity method investments.Energy Investments Held Through Consolidated Investment VehiclesCertain energy investments are made through KKR’s consolidated investment funds, including investments in working and royalty interests in oil and naturalgas producing properties as well as investments in operating companies that operate in the energy industry. Since these investments are held through investmentfunds, such investments are reflected at fair value as of the end of the reporting period. Investments in operating companies that are held through KKR’s investment funds are generally classified within private equity investments and investments inworking and royalty interests in oil and natural gas producing properties are generally classified as real asset investments. See also "Energy Investments helddirectly by KKR" within this footnote.180Notes to Consolidated Financial Statements (Continued)Fair Value Measurements Investments and other financial instruments are measured and carried at fair value. The majority of investments and other financial instruments are held by theconsolidated funds and vehicles. KKR’s funds are, for GAAP purposes, investment companies and reflect their investments and other financial instruments at fairvalue. KKR has retained the specialized accounting for the consolidated funds and vehicles in consolidation. Accordingly, the unrealized gains and losses resultingfrom changes in fair value of the investments held by KKR’s funds are reflected as a component of Net Gains (Losses) from Investment Activities in theconsolidated statements of operations. For investments and other financial instruments that are not held in a consolidated fund or vehicle, KKR has elected the fair value option since theseinvestments and other financial instruments are similar to those in the consolidated funds and vehicles. Such election is irrevocable and is applied on an investmentby investment basis at initial recognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of Net Gains (Losses) fromInvestment Activities in the consolidated statements of operations. The methodology for measuring the fair value of such investments and other financialinstruments is consistent with the methodologies applied to investments and other financial instruments that are held in consolidated funds and vehicles. In addition,KKR has elected the fair value option for the investments of consolidated CFEs. The carrying amounts of Other Assets, Accounts Payable, Accrued Expenses and Other Liabilities recognized on the consolidated statements of financialcondition (excluding fixed assets, goodwill, intangible assets, oil & gas assets, net, contingent consideration and certain debt obligations) approximate fair value dueto their short term maturities. Further information on KKR’s debt obligations are presented in Note 9, “Debt Obligations.” Fair value 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 themeasurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observableprices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, thedegree of which is dependent on a variety of factors. See Note 5, “Fair Value Measurements” for further information on KKR’s valuation techniques that involveunobservable inputs. Assets and liabilities recorded at fair value in the statements of financial condition are categorized based upon the level of judgment associatedwith the inputs used to measure their fair value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with theinputs to the valuation of these assets and liabilities. The hierarchical levels defined under GAAP are as follows: Level I Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The type of investments and other financialinstruments included in this category are publicly-listed equities, debt and securities sold short.Level II Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level II inputs include quoted prices for similarinstruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The type of investments and other financialinstruments included in this category are credit investments, investments and debt obligations of consolidated CMBS vehicles and consolidated CLO entities(beginning on January 1, 2015), convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreign currency option and forward contracts. Level III Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The types of assetsand liabilities generally included in this category are private portfolio companies, real assets investments, credit investments and debt obligations of consolidatedCLOs (prior to January 1, 2015) for which a sufficiently liquid trading market does not exist. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchywithin which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement inits entirety. KKR’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factorsspecific to the asset.181Notes to Consolidated Financial Statements (Continued) A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative offair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis oftransactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example,the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, andcurrent market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fairvalue requires more judgment. Accordingly, the degree of judgment exercised by KKR in determining fair value is greatest for instruments categorized in Level III.The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels I, II, and III, which KKRrecognizes at the beginning of the reporting period. Investments and other financial instruments that have readily observable market prices (such as those traded on a securities exchange) are stated at the lastquoted sales price as of the reporting date. KKR does not adjust the quoted price for these investments, even in situations where KKR holds a large position and asale could reasonably affect the quoted price. Management’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that aremanagement’s best estimates after consideration of a variety of internal and external factors.Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity As of January 1, 2015, KKR has adopted the measurement alternative included in ASU 2014-13, “Measuring the Financial Assets and the Financial Liabilitiesof a Consolidated Collateralized Financing Entity” (“ASU 2014-13”), and has applied the amendments using a modified retrospective approach by recording acumulative-effect adjustment to equity as of January 1, 2015. Refer to the consolidated statements of changes in equity for the impact of this adjustment. Pursuant toASU 2014-13, KKR measures both the financial assets and financial liabilities of the consolidated CFEs in its consolidated financial statements using the moreobservable of the fair value of the financial assets and the fair value of the financial liabilities.Prior to the adoption of ASU 2014-13, KKR elected the fair value option for the assets and liabilities of the consolidated CLO vehicles. As of January 1, 2015,KKR did not hold any beneficial interests in any CMBS vehicle, and consequently did not consolidate any CMBS vehicles. KKR accounted for the differencebetween the fair value of the assets and the fair value of the liabilities of the consolidated CLOs in Net Gains (Losses) from Investment Activities in theconsolidated statements of operations. This amount was attributed to KKR and third party beneficial interest holders based on each beneficial holder’s residualinterest in the consolidated CLOs. The amount attributed to third party beneficial interest holders was reflected in the consolidated statements of operations in NetIncome (Loss) Attributable to Noncontrolling Interests and Appropriated Capital and in the consolidated statements of financial condition in Appropriated Capitalwithin Equity. The amount was recorded as Appropriated Capital since the other holders of the CLOs’ beneficial interests, not KKR, received the benefits orabsorbed the losses associated with their proportionate share of the CLOs’ assets and liabilities.Pursuant to the adoption of ASU 2014-13, KKR is required to determine whether the fair value of the financial assets or financial liabilities are moreobservable. For the consolidated CLO entities, KKR has determined that the fair value of the financial assets of the consolidated CLOs, which are Level II assetswithin the GAAP hierarchical levels, are more observable than the fair value of the financial liabilities of the consolidated CLOs, which are Level III liabilities. As aresult, the financial assets of the consolidated CLOs are being measured at fair value and the financial liabilities are being measured in consolidation as: (1) the sumof the fair value of the financial assets and the carrying value of any nonfinancial assets that are incidental to the operations of the CLOs less (2) the sum of the fairvalue of any beneficial interests retained by KKR (other than those that represent compensation for services) and KKR’s carrying value of any beneficial intereststhat represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained byKKR).For the consolidated CMBS vehicles, KKR has determined that the fair value of the financial liabilities of the consolidated CMBS vehicles, which are Level IIliabilities within the GAAP hierarchical levels, are more observable than the fair value of the financial assets of the consolidated CMBS vehicles, which are LevelIII assets. As a result, the financial liabilities of the consolidated CMBS vehicles are being measured at fair value and the financial assets are being measured inconsolidation as: (1) the sum of the fair value of the financial liabilities (other than the beneficial interests retained by KKR), the fair value of the beneficial interestsretained by KKR and the carrying value of any nonfinancial liabilities that are incidental to the operations of182Notes to Consolidated Financial Statements (Continued)the CMBS vehicles less (2) the carrying value of any nonfinancial assets that are incidental to the operations of the CMBS vehicles. The resulting amount isallocated to the individual financial assets.Under the measurement alternative pursuant to ASU 2014-13, KKR’s consolidated net income (loss) reflects KKR’s own economic interests in theconsolidated CFEs including (i) changes in the fair value of the beneficial interests retained by KKR and (ii) beneficial interests that represent compensation forservices rendered.Level II Valuation Methodologies Financial assets and liabilities categorized as Level II consist primarily of credit investments, investments and debt obligations of consolidated CFEs,convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreigncurrency option and forward contracts. Credit investments, investments of consolidated CLOs and CMBS debt obligations: These instruments generally have bid and ask prices that can be observed inthe marketplace. Bid prices reflect the highest price that KKR and others are willing to pay for an instrument. Ask prices represent the lowest price that KKR andothers are willing to accept for an instrument. For financial assets and liabilities whose inputs are based on bid-ask prices obtained from third party pricing services,fair value may not always be a predetermined point in the bid-ask range. KKR’s policy is generally to allow for mid-market pricing and adjusting to the point withinthe bid-ask range that meets KKR’s best estimate of fair value. Securities indexed to publicly listed securities: The securities are typically valued using standard convertible security pricing models. The key inputs into thesemodels that require some amount of judgment are the credit spreads utilized and the volatility assumed. To the extent the company being valued has otheroutstanding debt securities that are publicly-traded, the implied credit spread on the company’s other outstanding debt securities would be utilized in the valuation.To the extent the company being valued does not have other outstanding debt securities that are publicly-traded, the credit spread will be estimated based on theimplied credit spreads observed in comparable publicly-traded debt securities. In certain cases, an additional spread will be added to reflect an illiquidity discountdue to the fact that the security being valued is not publicly-traded. The volatility assumption is based upon the historically observed volatility of the underlyingequity security into which the convertible debt security is convertible and/or the volatility implied by the prices of options on the underlying equity security.Restricted Equity Securities: The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of arestriction.Derivatives: The valuation incorporates observable inputs comprising yield curves, foreign currency rates and credit spreads.CLO Debt Obligations: Beginning on January 1, 2015 with the adoption of ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value ofthe financial assets of the CLO.Investments of consolidated CMBS vehicles: KKR measures the investments of CMBS vehicles on the basis of the fair value of the financial liabilities of theCMBS.Level III Valuation Methodologies Financial assets and liabilities categorized as Level III consist primarily of the following:Private Equity Investments: KKR generally employs two valuation methodologies when determining the fair value of a private equity investment. The firstmethodology is typically a market comparables analysis that considers key financial inputs and recent public and private transactions and other available measures.The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputsused in this methodology include the weighted average cost of capital for the investment and assumed inputs used to calculate terminal values, such as exit EBITDAmultiples. Other inputs are also used in both methodologies. However, when a definitive agreement has been executed to sell an investment, KKR generallyconsiders a significant determinant of fair value to be the consideration to be received by KKR pursuant to the executed definitive agreement. Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method, and an illiquidity discount is typically appliedwhere appropriate. The ultimate fair value recorded for a particular investment will183Notes to Consolidated Financial Statements (Continued)generally be within a range suggested by the two methodologies, except that the value may be higher or lower than such range in the case of investments being soldpursuant to an executed definitive agreement. When determining the weighting ascribed to each valuation methodology, KKR considers, among other factors, the availability of direct market comparables,the applicability of a discounted cash flow analysis, the expected hold period and manner of realization for the investment, and in the case of investments being soldpursuant to an executed definitive agreement, the probability of such sale being completed. These factors can result in different weightings among investments inthe portfolio and in certain instances may result in up to a 100% weighting to a single methodology. Across the Level III private equity investment portfolio,approximately 80.0% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flowanalysis. Less than 5% of the fair value of the Level III private equity investment portfolio is derived from investments that are valued either based 100% on marketcomparables or 100% on a discounted cash flow analysis. When an illiquidity discount is to be applied, KKR seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to allprivate equity investments. KKR then evaluates such private equity investments to determine if factors exist that could make it more challenging to monetize theinvestment and, therefore, justify applying a higher illiquidity discount. These factors generally include (i) whether KKR is unable to sell the portfolio company orconduct an initial public offering of the portfolio company due to the consent rights of a third party or similar factors, (ii) whether the portfolio company isundergoing significant restructuring activity or similar factors and (iii) characteristics about the portfolio company regarding its size and/or whether the portfoliocompany is experiencing, or expected to experience, a significant decline in earnings. These factors generally make it less likely that a portfolio company would besold or publicly offered in the near term at a price indicated by using just a market multiples and/or discounted cash flow analysis, and these factors tend to reducethe number of opportunities to sell an investment and/or increase the time horizon over which an investment may be monetized. Depending on the applicability ofthese factors, KKR determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time KKR holds theinvestment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount appliedat any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individualinvestment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower thanthat estimated by KKR in its valuations. Real Assets Investments: Real asset investments in infrastructure, energy and real estate are valued using one or more of the discounted cash flow analysis,market comparables analysis and direct income capitalization, which in each case incorporates significant assumptions and judgments. Infrastructure investmentsare generally valued using the discounted cash flow analysis. Key inputs used in this methodology include the weighted average cost of capital and assumed inputsused to calculate terminal values, such as exit EBITDA multiples. Energy investments are generally valued using a discounted cash flow analysis. Key inputs usedin this methodology that require estimates include the weighted average cost of capital. In addition, the valuations of energy investments generally incorporate bothcommodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than,commodity prices on certain indices for equivalent future dates. Certain energy investments do not include an illiquidity discount. Long-term commodity priceforecasts are utilized to capture the value of the investments across a range of commodity prices within the energy investment portfolio associated with futuredevelopment and to reflect a range of price expectations. Real estate investments are generally valued using a combination of direct income capitalization anddiscounted cash flow analysis. Key inputs used in such methodologies that require estimates include an unlevered discount rate and current capitalization rate, andcertain real estate investments do not include a minimum illiquidity discount. The valuations of real assets investments also use other inputs.Credit Investments: Credit investments are valued using values obtained from dealers or market makers, and where these values are not available, creditinvestments are valued by KKR based on ranges of valuations determined by an independent valuation firm. Valuation models are based on discounted cash flowanalyses, for which the key inputs are determined based on market comparables, which incorporate similar instruments from similar issuers.Other Investments: With respect to other investments including equity method investments for which the fair value election has been made, KKR generallyemploys the same valuation methodologies as described above for private equity investments when valuing these other investments.CLO Debt Obligations: Prior to January 1, 2015 and the adoption of ASU 2014-13, collateralized loan obligation senior secured and subordinated notes wereinitially valued at the transaction price and were subsequently valued using a third party valuation service. The approach used to estimate the fair values was thediscounted cash flow method, which includes consideration of the cash flows of the debt obligation based on projected quarterly interest payments and quarterly184Notes to Consolidated Financial Statements (Continued)amortization. The debt obligations were discounted based on the appropriate yield curve given the debt obligation's respective maturity and credit rating. The mostsignificant inputs to the valuation of these financial instruments were default and loss expectations and discount margins. As described above in Fair ValueMeasurements - Summary of Significant Accounting Policies - Level II Valuation Methodologies, beginning on January 1, 2015, with the adoption of ASU 2014-13,KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO. Key unobservable inputs that have a significant impact on KKR’s Level III investment valuations as described above are included in Note 5 “Fair ValueMeasurements.” KKR utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level III investments. These unobservablepricing inputs and assumptions may differ by investment and in the application of KKR’s valuation methodologies. KKR’s reported fair value estimates could varymaterially if KKR had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if KKR only used either thediscounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies. Level III Valuation Process The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments toan appropriate level of consistency, oversight, and review. As of December 31, 2015, the valuation process for Level III measurements, as described below,subjected valuations to the review and oversight of various committees. KKR has a Private Markets valuation committee for private equity and real assetsinvestments and a valuation committee for credit and credit-related investments. The Private Markets valuation committee is assisted by subcommittees in thevaluation of real asset and growth equity investments, and is also assisted by a valuation team. The Private Markets valuation committee is comprised only ofemployees who are not investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The valuationteams and subcommittees for real asset and growth equity investments, however, include investment professionals who participate in the preparation of preliminaryvaluations or are responsible for oversight for those investments. The credit valuation committee is also assisted by a valuation team. The credit valuation teamsinclude investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The credit valuation committeeis comprised of investment professionals with no responsibility for preparing preliminary valuations, but certain committee members are responsible for oversightof the investments being valued. The valuation committees and teams are responsible for coordinating and consistently implementing KKR’s quarterly valuationpolicies, guidelines and processes. For Private Markets investments classified as Level III, investment professionals prepare preliminary valuations based on theirevaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. These preliminaryvaluations are reviewed with the investment professionals by the applicable valuation team and are also reviewed by an independent valuation firm engaged byKKR to perform certain procedures in order to assess the reasonableness of KKR’s valuations annually for all Level III investments in Private Markets and quarterlyfor investments other than certain investments, which have values less than pre-set value thresholds and which in the aggregate comprise less than 5% of the totalvalue of KKR’s Level III Private Markets investments. For most investments classified as Level III in credit, in general, an independent valuation firm is engagedby KKR to provide third party valuations, or ranges of valuations from which KKR’s investment professionals select a point in the range to determine thepreliminary valuation, or an independent valuation firm is engaged by KKR to perform certain procedures in order to assess the reasonableness and provide positiveassurance of KKR’s valuations. These preliminary valuations are reviewed by senior investment professionals for each credit strategy. All preliminary valuations inPrivate Markets and Public Markets are then reviewed by the applicable valuation committee, and after reflecting any input by their respective valuationcommittees, the preliminary valuations are presented to the firm’s management committee. When these valuations are approved by this committee after reflectingany input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the audit committee ofKKR’s board of directors and are then reported on to the board of directors.Energy Investments Held Directly by KKRKKR makes certain energy investments directly in working and royalty interests in oil and natural gas producing properties outside its investment funds, whichas a result of the acquisition of KKR Financial Holdings LLC ("KFN") on April 30, 2014 became more significant. Oil and natural gas producing activities areaccounted for under the successful efforts method of accounting and such working interests are consolidated based on the proportion of the working interests heldby KKR. Accordingly, KKR reflects its proportionate share of the underlying statements of financial condition and statements of operations of the consolidatedworking interests on a gross basis and changes in the value of these working interests are not reflected as unrealized gains and losses in the consolidated statementsof operations. Under the successful efforts method, exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Coststhat are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Lease acquisition costs are185Notes to Consolidated Financial Statements (Continued)capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs ofcertain nonproducing leasehold costs are charged to expense as incurred. Expenditures for repairs and maintenance, including workovers, are charged to expense as incurred. The capitalized costs of producing oil and natural gas properties are depleted on a field-by-field basis using the units-of production method based on the ratio ofcurrent production to estimated total net proved oil, natural gas and natural gas liquid reserves. Proved developed reserves are used in computing depletion rates fordrilling and development costs and total proved reserves are used for depletion rates of leasehold costs. Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, are capitalized at their estimated net present value andamortized on a unit-of-production basis over the remaining life of the related proved developed reserves.Whenever events or changes in circumstances indicate that the carrying amounts of oil and natural gas properties may not be recoverable, KKR evaluates theproved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made basedupon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by adiscounted cash flow analysis, with the carrying value of the related asset. Unproved oil and natural gas properties are assessed periodically and, at a minimum,annually on a property-by-property basis, and any impairment in value is recognized when incurred and is recorded in General, Administrative, and Other expensein the consolidated statements of operations.Fees and Other Fees and other consist primarily of (i) transaction fees earned in connection with successful investment transactions and from capital markets activities,(ii) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managedaccounts, (iii) monitoring fees from providing services to portfolio companies, (iv) revenue earned by oil and gas-producing entities that are consolidated and(v) consulting fees earned by entities that employ non-employee operating consultants.For the years ended December 31, 2015 , 2014 and 2013 , respectively, fees and other consisted of the following: For the Years Ended December 31, 2015 2014 2013Transaction Fees$337,544 $425,019 $287,387Monitoring Fees336,159 190,584 161,796Management Fees201,006 215,266 177,961Oil and Gas Revenue112,328 186,876 22,105Consulting Fees40,316 41,573 47,930Incentive Fees16,415 50,690 65,367Total Fees and Other$1,043,768 $1,110,008 $762,546 All fees presented in the table above, except for oil and gas revenue, are earned from KKR investment funds, vehicles and portfolio companies. Consulting feesare earned by certain consolidated entities that employ non-employee operating consultants from providing advisory and other services to portfolio companies andother companies and are recognized as the services are rendered. These fees are separately negotiated with each company for which services are provided and arenot shared with KKR. Transaction FeesTransaction fees are earned by KKR primarily in connection with successful investment transactions and capital markets activities. Transaction fees arerecognized upon closing of the transaction. Fees are typically paid on or shortly after the closing of a transaction.In connection with pursuing successful portfolio company investments, KKR receives reimbursement for certain transaction‑related expenses.Transaction‑related expenses, which are reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Other Assets onthe consolidated statements of financial condition on the186Notes to Consolidated Financial Statements (Continued)date incurred. The costs of successfully completed transactions are borne by the KKR investment funds and included as a component of the investment’s cost basis.Subsequent to closing, investments are recorded at fair value each reporting period as described in the section above titled “Investments”. Upon reimbursementfrom a third party, the cash receipt is recorded and the deferred amounts are relieved. No fees or expenses are recorded for these reimbursements.Monitoring FeesMonitoring fees are earned by KKR for services provided to portfolio companies and are recognized as services are rendered. These fees are generally paidbased on a fixed periodic schedule by the portfolio companies either in advance or in arrears and are separately negotiated for each portfolio company.In connection with the monitoring of portfolio companies and certain unconsolidated funds, KKR receives reimbursement for certain expenses incurred onbehalf of these entities. Costs incurred in monitoring these entities are classified as general, administrative and other expenses and reimbursements of such costs areclassified as monitoring fees. In addition, certain monitoring fee provisions may provide for a termination payment following an initial public offering or change ofcontrol. These termination payments are recognized in the period when the related transaction closes.Management FeesManagement fees are recognized in the period during which the related services are performed in accordance with the contractual terms of the relatedagreement. Management fees earned from private equity funds and certain investment vehicles are based upon a percentage of capital committed or capital investedduring the investment period, and thereafter generally based on remaining invested capital or net asset value. For certain other investment vehicles, CLOs, andseparately managed accounts, management fees are recognized in the period during which the related services are performed and are based upon the net asset value,gross assets or as otherwise defined in the respective agreements.Management fees received from KKR’s consolidated funds and vehicles are eliminated in consolidation. However, because these amounts are funded by, andearned from, noncontrolling interests, KKR’s allocated share of the net income from KKR’s consolidated funds and vehicles is increased by the amount of fees thatare eliminated. Accordingly, the elimination of these fees does not have an effect on the net income (loss) attributable to KKR or KKR partners’ capital.Private Equity FundsFor KKR’s consolidated and unconsolidated private equity funds, gross management fees generally range from 1% to 2% of committed capital during thefund’s investment period and is generally 0.75% to 1.25% of invested capital after the expiration of the fund’s investment period with subsequent reductions overtime. Typically, an investment period is defined as a period of up to six years. The actual length of the investment period may be shorter based on the timing anddeployment of committed capital.Certain of KKR’s private equity funds require the management company to refund up to 20% of any cash management fees earned from limited partners in theevent that the funds recognize a carried interest. At such time as the fund recognizes a carried interest in an amount sufficient to cover 20% of the cash managementfees earned or a portion thereof, a liability to the fund’s limited partners is recorded and revenue is reduced for the amount of the carried interest recognized, not toexceed 20% of the cash management fees earned. The refunds to the limited partners are paid, and the liabilities relieved, at such time that the underlyinginvestments are sold and the associated carried interests are realized. In the event that a fund’s carried interest is not sufficient to cover all or a portion of the amountthat represents 20% of the earned cash management fees, these fees would not be returned to the funds’ limited partners, in accordance with the respective fundagreements.Other Investment VehiclesCertain other investment vehicles that invest capital in real assets, credit and hedge fund strategies provide for management fees determined quarterly based onan annual rate generally ranging from 0.5% to 1.5% . Such rate may be based on the investment vehicles’ average net asset value, capital commitments, or investedcapital.CLOsKKR’s management agreements for its CLO vehicles provide for senior collateral management fees and subordinate collateral management fees. Seniorcollateral management fees are determined based on an annual rate ranging from 0.15% to 0.20% of collateral and subordinate collateral management fees aredetermined based on an annual rate ranging from 0.30% to187Notes to Consolidated Financial Statements (Continued)0.35% of collateral. If amounts distributable on any payment date are insufficient to pay the collateral management fees according to the priority of payments, anyshortfall is deferred and payable on subsequent payment dates. KKR has the right to waive all or any portion of any collateral management fee. For the purpose ofcalculating the collateral management fees, collateral, the payment dates, and the priority of payments are terms defined in the management agreements.Oil and Gas Revenue Recognition Oil and gas revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferredand collectability of the revenue is reasonably assured. The oil and gas producing entities consolidated by KKR follow the sales method of accounting for naturalgas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the entity is entitledbased on KKR’s working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when these entities have taken lessthan their share of production and no payables are recorded when it has taken more than its share of production unless reserves are not sufficient. Consulting FeesConsulting fees are earned by certain consolidated entities that employ non‑employee operating consultants from providing advisory and other services toportfolio companies and other companies and are recognized as the services are rendered. These fees are separately negotiated with each company for whichservices are provided and are not shared with KKR.Incentive FeesIncentive fees earned on the performance of certain hedge fund structures are recognized based on fund performance, subject to the achievement of minimumreturn levels, and/or high water marks, in accordance with the respective terms set out in each fund’s governing agreements. Incentive fee rates generally range from5% to 20% . KKR does not record performance‑based incentive fees until the end of each fund’s measurement period (which is generally one year) when theperformance‑based incentive fees become fixed and determinable.Investment IncomeInvestment income consists primarily of the net impact of:(i)Realized and unrealized gains and losses on investments, securities sold short and debt obligations of consolidated CFEs which are recorded in Net Gains(Losses) from Investment Activities.(ii)Foreign exchange gains and losses relating to mark‑to‑market activity on foreign exchange forward contracts, foreign currency options and foreigndenominated debt which are recorded in Net Gains (Losses) from Investment Activities.(iii)Dividends, which are recognized on the ex‑dividend date, or in the absence of a formal declaration, on the date it is received.(iv)Interest income, which is recognized as earned.(v)Interest expense, which is recognized as incurred. In addition to these interest costs, KKR capitalizes debt financing costs incurred in connection with newdebt arrangements. Such costs are amortized into interest expense using either the interest method or the straight‑line method, as appropriate.Unrealized gains or losses result from changes in fair value of investments during the period and are included in Net Gains (Losses) from Investment Activities.Upon disposition of an investment, previously recognized unrealized gains or losses are reversed and a realized gain or loss is recognized.Carried InterestCarried interest entitles the general partner of a fund to a greater allocable share of the fund’s earnings from investments relative to the capital contributed bythe general partner and correspondingly reduces noncontrolling interests’ attributable share of those earnings. Amounts earned pursuant to carried interest areincluded as investment income (loss) in Net Gains (Losses)188Notes to Consolidated Financial Statements (Continued)from Investment Activities in the consolidated statements of operations and are earned by the general partner of those funds to the extent that cumulative investmentreturns are positive and where applicable, preferred return thresholds have been met. If these investment returns decrease or turn negative in subsequent periods,recognized carried interest will be reversed and reflected as investment losses in Net Gains (Losses) from Investment Activities in the consolidated statements ofoperations. Carried interest is recognized based on the contractual formula set forth in the agreements governing the fund as if the fund was terminated at thereporting date with the then estimated fair values of the investments realized. Due to the extended durations of KKR’s private equity funds and other investmentvehicles, KKR believes that this approach results in income recognition that best reflects the periodic performance of KKR in the management of those funds. Forfunds that are consolidated, all investment income (loss), including the portion of a funds’ investment income (loss) that is allocable to KKR’s carried interest, isincluded in investment income (loss) on the consolidated statements of operations. The carried interest that KKR retains in net income (loss) attributable toKKR & Co. L.P. is reflected as an adjustment to net income (loss) attributable to noncontrolling interests. See Note 13 “Segment Reporting” for the amount ofcarried interest income earned or reversed for years ended December 31, 2015 , 2014 and 2013 .The agreements governing KKR’s private equity funds generally include a “clawback” or, in certain instances, a “net loss sharing” provision that, if triggered,may give rise to a contingent obligation that may require the general partner to return or contribute amounts to the fund for distribution to fund investors at the endof the life of the fund. See Note 17 “Commitments and Contingencies.”Compensation and BenefitsCompensation and Benefits expense includes cash compensation consisting of salaries, bonuses, and benefits, as well as equity based compensation consistingof charges associated with the vesting of equity‑based awards and carry pool allocations.All KKR employees and employees of certain consolidated entities receive a base salary that is paid by KKR or its consolidated entities, and is accounted for asCompensation and Benefits expense in the consolidated statements of operations. These employees are also eligible to receive discretionary cash bonuses based onperformance, overall profitability and other matters. While cash bonuses paid to most employees are borne by KKR and certain consolidated entities and result incustomary compensation and benefits expense, cash bonuses that are paid to certain of KKR’s principals are currently borne by KKR Holdings. These bonuses arefunded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passed on to holders of unvestedunits of KKR Holdings. Because KKR principals are not entitled to receive distributions on units that are unvested, any amounts allocated to principals in excess ofa principal’s vested equity interests are reflected as employee compensation and benefits expense. These compensation charges are recorded based on the unvestedportion of quarterly earnings distributions received by KKR Holdings at the time of the distribution.Further disclosure regarding equity based compensation is presented in Note 11 “Equity Based Compensation.”Carry Pool AllocationWith respect to KKR’s active and future funds and co‑investment vehicles that provide for carried interest, KKR allocates to its employees and employees ofcertain consolidated entities a portion of the carried interest earned in relation to these funds as part of its carry pool. KKR currently allocates approximately 40% ofthe carry it earns from these funds and vehicles to its carry pool. These amounts are accounted for as compensatory profit‑sharing arrangements in AccountsPayable, Accrued Expenses and Other Liabilities within the accompanying consolidated statements of financial condition in conjunction with the related carriedinterest income and recorded as compensation expense for KKR employees and general, administrative and other expense for certain non‑employee consultants andservice providers in the consolidated statements of operations. See Note 13 “Segment Reporting” for the amount of carry pool allocation expense recognized for theyears ended December 31, 2015 , 2014 and 2013 .Profit Sharing PlanKKR provides certain profit sharing programs for KKR employees and other eligible personnel. In particular, KKR provides a 401(k) plan (the “Plan”) foreligible employees in the United States. For certain professionals who are participants in the Plan, KKR may, in its discretion, contribute an amount after the end ofthe Plan year. For the years ended December 31, 2015 , 2014 and 2013 , KKR incurred expenses of $7.9 million , $6.9 million and $7.7 million , respectively, inconnection with the Plan and other profit sharing programs.189Notes to Consolidated Financial Statements (Continued)General, Administrative and OtherGeneral, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs,travel and related expenses, communications and information services, depreciation and amortization charges, changes in fair value of contingent consideration,expenses incurred by oil and gas‑producing entities (including impairment charges) that are consolidated and other general and operating expenses which are notborne by fund investors and are not offset by credits attributable to fund investors’ noncontrolling interests in consolidated funds. General, administrative and otherexpense also consists of costs incurred in connection with pursuing potential investments that do not result in completed transactions, a substantial portion of whichare borne by fund investors.Foreign CurrencyConsolidated entities which have a functional currency that differs from KKR’s reporting currency are primarily KKR’s investment management and capitalmarkets companies located outside the United States. Foreign currency denominated assets and liabilities are translated using the exchange rates prevailing at theend of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustmentsare included as a component of accumulated other comprehensive income (loss) until realized. Foreign currency income or expenses resulting from transactionsoutside of the functional currency of a consolidated entity are recorded as incurred in general, administrative and other expense in the consolidated statements ofoperations.DerivativesDerivative contracts include forward, swap and option contracts related to foreign currencies and credit standing of reference entities to manage foreignexchange risk and credit risk arising from certain assets and liabilities. All derivatives are recognized in Other Assets or Accounts Payable, Accrued Expenses andOther Liabilities and are presented gross in the consolidated statements of financial condition and measured at fair value with changes in fair value recorded in NetGains (Losses) from Investment Activities in the accompanying consolidated statements of operations. KKR’s derivative financial instruments contain credit risk tothe extent that its counterparties may be unable to meet the terms of the agreements. KKR attempts to minimize this risk by limiting its counterparties to majorfinancial institutions with strong credit ratings.Securities Sold ShortWhether part of a hedging transaction or a transaction in its own right, securities sold short represent obligations of KKR to deliver the specified security at thecontracted price at a future point in time, and thereby create a liability to repurchase the security in the market at the prevailing prices. The liability for suchsecurities sold short, which is recorded in Accounts Payable, Accrued Expenses and Other Liabilities in the statement of financial condition, is marked to marketbased on the current fair value of the underlying security at the reporting date with changes in fair value recorded as unrealized gains or losses in Net Gains (Losses)from Investment Activities in the accompanying consolidated statements of operations. These transactions may involve market risk in excess of the amountcurrently reflected in the accompanying consolidated statements of financial condition.Cash and Cash EquivalentsKKR considers all highly liquid short‑term investments with original maturities of 90 days or less when purchased to be cash equivalents.Cash and Cash Equivalents Held at Consolidated EntitiesCash and cash equivalents held at consolidated entities represents cash that, although not legally restricted, is not available to fund general liquidity needs ofKKR as the use of such funds is generally limited to the investment activities of KKR’s investment funds and CFEs.Restricted Cash and Cash EquivalentsRestricted cash and cash equivalents primarily represent amounts that are held by third parties under certain of KKR’s financing and derivative transactions.190Notes to Consolidated Financial Statements (Continued)Due from and Due to AffiliatesKKR considers its principals and their related entities, unconsolidated funds and the portfolio companies of its funds to be affiliates. Receivables from andpayables to affiliates are recorded at their current settlement amount.Fixed Assets, Depreciation and AmortizationFixed assets consist primarily of corporate real estate, leasehold improvements, furniture and computer hardware. Such amounts are recorded at cost lessaccumulated depreciation and amortization and are included in Other Assets within the accompanying consolidated statements of financial condition. Depreciationand amortization are calculated using the straight‑line method over the assets’ estimated economic useful lives, which for leasehold improvements are the lesser ofthe lease terms or the life of the asset, and three to seven years for other fixed assets.Comprehensive Income (Loss)Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances,excluding those resulting from contributions from and distributions to owners. In the accompanying consolidated financial statements, comprehensive incomerepresents Net Income (Loss), as presented in the consolidated statements of operations and net foreign currency translation gains / (losses).Net Income (Loss) Attributable to KKR & Co. L.P. Per Common UnitBasic Income (Loss) Attributable to KKR per common unit is calculated by dividing Net Income (Loss) Attributable to KKR by the weighted‑average numberof common units outstanding for the period. Diluted Income (Loss) Attributable to KKR per common unit reflects the assumed conversion of all dilutive securities.Diluted Income (Loss) Attributable to KKR per common unit excludes the anti‑dilutive effect of KKR Holdings units, which are exchangeable on a one‑for‑onebasis into common units of KKR & Co. L.P. The KKR Holdings units are excluded from the diluted calculation since the exchange of these units would not diluteKKR’s respective ownership interests in the KKR Group Partnerships.Income TaxesThe consolidated entities of KKR are generally treated as partnerships or disregarded entities for U.S. and non‑U.S. tax purposes. However, certainconsolidated subsidiaries are treated as corporations for U.S. and non‑U.S tax purposes and are therefore subject to U.S. federal, state and/or local income taxes atthe entity‑level. In addition, certain consolidated entities which are treated as partnerships for U.S. tax purposes are subject to the New York City UnincorporatedBusiness Tax or other local taxes.Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for theexpected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for theyear in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period whenthe change is enacted. Deferred tax assets, which are recorded in Other Assets within the statement of financial condition, are reduced by a valuation allowancewhen, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. When evaluatingthe realizability of the deferred tax assets, all evidence, both positive and negative, is considered. Items considered when evaluating the need for a valuationallowance include the ability to carry back losses, future reversals of existing temporary differences, tax planning strategies, and expectations of future earnings. For a particular tax‑paying component of an entity and within a particular tax jurisdiction, deferred tax assets and liabilities are offset and presented as a singleamount within Other Assets or Accounts Payable, Accrued and Other Liabilities, as applicable, in the accompanying statements of financial position.KKR analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well asfor all open tax years in these jurisdictions. If, based on this analysis, KKR determines that uncertainties in tax positions exist, a reserve is established. KKRrecognizes accrued interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of operations.KKR records uncertain tax positions on the basis of a two‑step process: (a) determination is made whether it is more likely than not that the tax positions willbe sustained based on the technical merits of the position and (b) those tax positions that191Notes to Consolidated Financial Statements (Continued)meet the more‑likely‑than‑not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimatesettlement with the related tax authority.Recently Issued Accounting Pronouncements Revenue from Contracts with Customers In May 2014, the FASB issued ASU 2014 -09 , Revenue from Contracts with Customers Topic 606 (“ASU 2014 -09 ”) which outlines a single comprehensivemodel for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, includingindustry-specific guidance. Revenue recorded under ASU 2014 -09 will depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of ASU 2014 -09to annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of annual reporting periods beginning after December 15, 2016,including interim reporting periods within those annual periods. A full retrospective or modified retrospective approach is required. KKR is currently evaluating theimpact the adoption of this guidance may have on its financial statements, including with respect to the timing of the recognition of carried interest. Measurement of Financial Assets and Liabilities - Consolidated Collateralized Financing Entities In August 2014, the FASB issued ASU 2014‑13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized FinancingEntity” (“CFE”), such as CLO and CMBS vehicles. ASU 2014‑13 provides an entity with an election to measure the financial assets and financial liabilities of aconsolidated CFE on the basis of either the fair value of the CFE’s financial assets or financial liabilities, whichever is more observable. The guidance is effectivefor annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted and this guidance was earlyadopted by KKR on January 1, 2015 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of theannual period. Refer above to Variable Interest Entities - Collateralized Loan Obligations .ConsolidationIn February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). The guidancein ASU 2015-02 eliminates the presumption that a general partner should consolidate a limited partnership and also eliminates the consolidation model specific tolimited partnerships. The amendments also clarify how to treat fees paid to an asset manager or other entity that makes the decisions for the investment vehicle andwhether such fees should be considered in determining when a variable interest entity should be reported on an asset manager's balance sheet. ASU 2015-02 iseffective for reporting periods starting after December 15, 2015 and for interim periods within the fiscal year. Early adoption is permitted, and a full retrospective ormodified retrospective approach is required. KKR is evaluating the impact on its financial statements and expects to deconsolidate a significant number ofinvestment funds, vehicles and entities upon adoption of this guidance.Interest - Imputation of InterestIn April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs(“ASU 2015-03”). The guidance in ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a directdeduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB clarified that line-of-credit arrangements areoutside the scope of ASU 2015-03. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.Early adoption is permitted, and a retrospective approach is required. The adoption of this guidance is not expected to have a material impact on KKR’s financialstatements. 192Notes to Consolidated Financial Statements (Continued)Disclosures for Investments in Certain Entities that Calculate Net Asset Value per ShareIn May 2015, the FASB issued amended guidance on the disclosures for investments in certain entities that calculate net asset value per share (or itsequivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the netasset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to bemeasured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected tomeasure the fair value using that practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods withinthose years. The guidance shall be applied retrospectively for all periods presented. Early application is permitted. The guidance is not expected to have a materialimpact on KKR’s financial statements.Financial InstrumentsIn January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities(“ASU 2016-01”). The amended guidance (i) requires equity investments (except those accounted for under the equity method of accounting or those that result inconsolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) eliminates the requirement to disclose themethod(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at fair value; (iii)requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in theinstrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and(iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans andreceivables) on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15,2017, including interim periods within those fiscal years. The amended guidance should be applied by means of a cumulative-effect adjustment to the balance sheetas of the beginning of the fiscal year of adoption. The amended guidance related to equity securities without readily determinable fair values (including thedisclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. KKR is currently evaluating the impact on thefinancial statements.193Notes to Consolidated Financial Statements (Continued)3. NET GAINS (LOSSES) FROM INVESTMENT ACTIVITIES Net Gains (Losses) from Investment Activities in the consolidated statements of operations consist primarily of the realized and unrealized gains and losses oninvestments (including foreign exchange gains and losses attributable to foreign denominated investments and related activities) and other financial instruments,including those for which the fair value option has been elected. Unrealized gains or losses result from changes in the fair value of these investments and otherfinancial instruments during a period. Upon disposition of an investment or financial instrument, previously recognized unrealized gains or losses are reversed andan offsetting realized gain or loss is recognized in the current period. The following table summarizes total Net Gains (Losses) from Investment Activities for the years ended December 31, 2015 , 2014 and 2013, respectively: For the Years Ended December 31, 2015 2014 2013 Net RealizedGains (Losses) Net UnrealizedGains (Losses) Net RealizedGains (Losses) Net UnrealizedGains (Losses) Net Realized Gains (Losses) Net Unrealized Gains (Losses)Private Equity (a)$4,452,593 $1,140,377 $4,985,786 $(399,593) $3,664,219 $4,052,553Credit and Other (a)138,915 (800,027) 323,676 (229,004) 351,417 182,752Investments of Consolidated CFEs (a)(54,367) (220,577) 15,921 (237,199) — —Real Assets (a)(2,035,727) 1,591,541 225,497 (548,788) 15,868 (64,667)Foreign Exchange Forward Contracts and Options (b)415,370 87,482 (10,620) 787,682 17,760 (235,794)Securities Sold Short (b)(6,860) 3,909 (59,071) 21,057 (105,513) (19,205)Other Derivatives17,694 2,449 (34,319) (15,384) (24,223) (2,030)Debt Obligations - Net Gains (Losses) and Other (c)74,266 (134,411) (13,284) (34,125) (10,096) 3,041Total Net Gains (Losses) from InvestmentActivities$3,001,884 $1,670,743 $5,433,586 $(655,354) $3,909,432$3,916,650 (a)See Note 4 “Investments.”(b)See Note 7 “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities.”(c)See Note 9 "Debt Obligations."4. INVESTMENTS Investments consist of the following: Fair Value Cost December 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014Private Equity$36,398,474 $38,222,255 $26,370,241 $29,317,314Credit6,300,004 6,702,740 7,144,934 6,906,583Investments of Consolidated CFEs12,735,309 8,559,967 13,203,483 8,815,286Real Assets4,048,281 3,130,404 4,681,228 5,354,191Other5,823,863 3,552,260 5,687,660 3,182,917Total Investments$65,305,931 $60,167,626 $57,087,546 $53,576,291 As of December 31, 2015 , investments which represented greater than 5% of total investments consisted of Walgreens Boots Alliance, Inc. of $5.1 billion andFirst Data Corporation of $4.3 billion . As of December 31, 2014, investments which represented greater than 5% of total investments consisted of Walgreens BootsAlliance, Inc. of $5.5 billion and First Data Corporation of $3.8 billion . In addition, as of December 31, 2015 and 2014, investments totaling $14.2 billion and$11.4 billion , respectively, were pledged as direct collateral against various financing arrangements. See Note 9 “Debt Obligations.” The majority of the securitiesunderlying private equity investments represent equity securities.194Notes to Consolidated Financial Statements (Continued)The following table represents private equity investments by industry as of December 31, 2015 and 2014, respectively: Fair Value December 31, 2015 December 31, 2014Health Care$10,477,069 $10,269,605Financial Services6,265,748 5,691,815Technology4,686,795 4,262,800Retail4,187,517 4,141,276Manufacturing3,602,594 4,227,859Other7,178,751 9,628,900 $36,398,474 $38,222,255 In the table above, other investments represent private equity investments in the following industries: Consumer Products, Education, Energy, Forestry, Media,Services, Telecommunications, Transportation, Hotel/Leisure, Packaging, Mining, Agriculture and Recycling. None of these industries represents more than 10% oftotal private equity investments as of December 31, 2015 .Equity Method As of December 31, 2015 and 2014, KKR had equity method investments totaling $1,929.6 million and $1,467.4 million , respectively, which are recorded inOther Investments. Equity method investments include (i) certain investments in private equity funds, real assets funds and credit funds, which are not consolidatedand (ii) certain investments in operating companies in which KKR is deemed to exert significant influence.Under the equity method of accounting, KKR’s share of earnings (losses) from equity method investments is reflected as a component of Net Gains (Losses)from Investment Activities in the consolidated statements of operations. Because the underlying investments of unconsolidated investment funds are reported at fairvalue, the carrying value of these equity method investments representing KKR’s interests in unconsolidated funds approximates fair value. The carrying value ofequity method investments in certain operating companies, which KKR is determined to exert significant influence, is determined based on the amounts invested byKKR, adjusted for the equity in earnings or losses of the investee allocated based on KKR’s respective ownership percentage, less distributions. In some cases,KKR has elected the fair value option to account for certain of these equity method investments. With respect to equity method investments where KKR has electedthe fair value option, KKR's share of the investee's underlying net income or loss predominantly represents fair value adjustments in the investments. Changes inestimated fair value are recorded in Net Gains (Losses) from Investment Activities in the consolidated statements of operations.KKR evaluates each of its equity method investments to determine if any are significant as defined by guidance from the United States Securities and ExchangeCommission. As of and for the years ended December 31, 2015, 2014 and 2013, no individual equity method investment held by KKR met the significance criteria.As such, KKR is not required to present separate financial statements for any of its equity method investments.Summarized Financial InformationThe following table shows summarized financial information relating to the statements of financial condition for KKR's equity method investments assuming100% ownership as of December 31, 2015 and 2014: December 31, 2015December 31, 2014Total Assets$8,759,354$7,157,281Total Liabilities$2,387,866$1,814,781Total Equity$6,371,488$5,342,500 195Notes to Consolidated Financial Statements (Continued)The following table shows summarized financial information relating to the statements of operations for KKR's equity method investments assuming 100%ownership for the years ended December 31, 2015, 2014 and 2013: For the years ended December 31, 2015 2014 2013Investment Related Revenues$240,877 $175,343 $112,850Other Revenues623,714 409,984 333,382Investment Related Expenses53,081 29,157 8,238Other Expenses675,293 448,096 185,636Net Realized and Unrealized Gain/(Loss) from Investments(307,301) 350,248 (5,829)Net Income$(171,084)$458,322$246,529 5 . FAIR VALUE MEASUREMENTS The following tables summarize the valuation of KKR’s assets and liabilities reported at fair value by the fair value hierarchy levels described in Note 2“Summary of Significant Accounting Policies” as of December 31, 2015 and 2014 including those investments, other financial instruments and debt obligations ofconsolidated CFEs for which the fair value option has been elected. Equity Method Investments for which the fair value option has not been elected have beenexcluded from the tables below.Assets, at fair value: December 31, 2015 Quoted Prices inActive Markets forIdentical Assets(Level I) Significant OtherObservable Inputs(Level II) SignificantUnobservable Inputs(Level III) TotalPrivate Equity$16,614,008 $880,928 $18,903,538 $36,398,474Credit— 1,287,649 5,012,355 6,300,004Investments of Consolidated CFEs— 12,735,309 — 12,735,309Real Assets— — 4,048,281 4,048,281Other817,328 449,715 3,472,794 4,739,837Total17,431,336 15,353,601 31,436,968 64,221,905 Foreign Exchange Contracts and Options— 635,183 — 635,183Other Derivatives— 5,703 — 5,703Total Assets$17,431,336 $15,994,487 $31,436,968 $64,862,791 December 31, 2014 Quoted Prices inActive Markets forIdentical Assets(Level I) Significant OtherObservable Inputs(Level II) SignificantUnobservable Inputs(Level III) TotalPrivate Equity$5,940,470 $6,005,764 $26,276,021 $38,222,255Credit— 2,510,038 4,192,702 6,702,740Investments of Consolidated CFEs— 8,467,472 92,495 8,559,967Real Assets— — 3,130,404 3,130,404Other573,983 276,051 2,133,001 2,983,035Total6,514,453 17,259,325 35,824,623 59,598,401 Foreign Exchange Contracts and Options— 517,088 — 517,088Other Derivatives2,246 9,651 — 11,897Total Assets$6,516,699 $17,786,064 $35,824,623 $60,127,386196Notes to Consolidated Financial Statements (Continued)Liabilities, at fair value: December 31, 2015 Quoted Prices inActive Markets forIdentical Assets(Level I) Significant OtherObservable Inputs(Level II) SignificantUnobservable Inputs(Level III) TotalSecurities Sold Short$286,981 $13,009 $— $299,990Foreign Exchange Contracts and Options— 83,748 — 83,748Unfunded Revolver Commitments— 15,533 — 15,533Other Derivatives— 104,518 — 104,518Debt Obligations of Consolidated CFEs— 12,365,222 — 12,365,222Total Liabilities$286,981 $12,582,030 $— $12,869,011 December 31, 2014 Quoted Prices inActive Markets forIdentical Assets(Level I) Significant OtherObservable Inputs(Level II) SignificantUnobservable Inputs(Level III) TotalSecurities Sold Short$630,794 $2,338 $— $633,132Foreign Exchange Contracts and Options— 71,956 — 71,956Unfunded Revolver Commitments— 3,858 — 3,858Other Derivatives— 75,150 — 75,150Debt Obligations of Consolidated CFEs— — 7,615,340 7,615,340Total Liabilities$630,794 $153,302 $7,615,340 $8,399,436The following tables summarize changes in assets and liabilities reported at fair value for which Level III inputs have been used to determine fair value for theyears ended December 31, 2015 and 2014, respectively: For the Year Ended December 31, 2015 Level III Assets Level III Liabilities PrivateEquity Credit Investments ofConsolidatedCFEs Real Assets Other Total Level IIIAssets Debt Obligations ofConsolidated CFEsBalance, Beg. of Period$26,276,021 $4,192,702 $92,495 $3,130,404 $2,133,001 $35,824,623 $7,615,340Transfers In (1)— 45,461 108,340 — 1,187 154,988 —Transfers Out (2)(6,775,013) (12,860) (153,656) — (1,710) (6,943,239) —Acquisitions— — — — — — —Purchases1,822,388 2,641,247 1,308 1,489,967 1,615,298 7,570,208 —Sales(4,698,120) (1,601,897) (3,138) (127,906) (350,844) (6,781,905) —Settlements— 291,341 (883) — — 290,458 —Net Realized Gains (Losses)1,806,962 (33,943) — (2,035,726) 61,533 (201,174) —Net Unrealized Gains (Losses)471,300 (496,416) (44,466) 1,591,542 7,273 1,529,233 —Change in Accounting Principle(3)— — — — — — (7,615,340)Change in Other ComprehensiveIncome— (13,280) — — 7,056 (6,224) —Balance, End of Period$18,903,538 $5,012,355 $— $4,048,281 $3,472,794 $31,436,968 $— Changes in Net Unrealized Gains(Losses) Included in Net Gains(Losses) from InvestmentActivities related to Level IIIAssets and Liabilities still heldas of the Reporting Date$1,820,279 $(601,455) $— $(442,524) $26,992 $803,292 $—197Notes to Consolidated Financial Statements (Continued) For the Year Ended December 31, 2014 Level III Assets Level III Liabilities PrivateEquity Credit Investments ofConsolidatedCFEs Real Assets Other Total Level IIIAssets Debt Obligations ofConsolidated CFEsBalance, Beg. of Period$29,646,471 $1,944,464 $— $2,736,708 $348,486 $34,676,129 $—Transfers In (1)— 614,289 — — 54,397 668,686 —Transfers Out (2)(7,081,883) (149,860) — — (202,010) (7,433,753) —Acquisitions82,986 405,720 97,996 35,192 606,914 1,228,808 6,814,217Purchases6,341,501 2,360,565 4,884 1,163,161 1,497,251 11,367,362 2,463,639Sales(5,767,506) (991,408) (15,907) (482,485) (152,406) (7,409,712) (1,435,708)Settlements— 194,997 6,691 — (2,054) 199,634 3,988Net Realized Gains (Losses)2,312,973 (3,643) — 217,004 5,200 2,531,534 —Net Unrealized Gains (Losses)741,479 (156,221) (1,169) (539,176) (22,777) 22,136 (23,840)Change in Other ComprehensiveIncome— (26,201) — — — (26,201) (206,956)Balance, End of Period$26,276,021 $4,192,702 $92,495 $3,130,404 $2,133,001 $35,824,623 $7,615,340 Changes in Net Unrealized Gains(Losses) Included in Net Gains(Losses) from InvestmentActivities related to Level IIIAssets and Liabilities still heldas of the Reporting Date$3,200,086 $(127,323) $(1,786) $(543,891) $(18,036) $2,509,050 $(23,840) (1)The Transfers In noted in the tables above for credit, investments of consolidated CFEs and other investments are principally attributable to certain investments that experienced aninsignificant level of market activity during the period and thus were valued in the absence of observable inputs.(2)The Transfers Out noted in the tables above for private equity investments are attributable to portfolio companies that are now valued using their publicly traded market price. TheTransfers Out noted above for credit, investments of consolidated CFEs and other investments are principally attributable to certain investments that experienced a higher level ofmarket activity during the period and thus were valued using observable inputs.(3)Upon adoption of ASU 2014-13, the debt obligations of consolidated CLOs are no longer Level III financial liabilities under the GAAP fair value hierarchy. As of December 31, 2015, the debt obligations of consolidated CLOs are measured on the basis of the fair value of the financial assets of the CLO and are classified as Level II financial liabilities. See Note 2 "Summary of Significant Accounting Policies". Total realized and unrealized gains and losses recorded for Level III investments are reported in Net Gains (Losses) from Investment Activities in theaccompanying consolidated statements of operations. For private equity investments, there were three transfers for $5,539.0 million for the year ended December31, 2015 between Level I and Level II investments. There was one transfer for $318.9 million between Level I and Level II for private equity investments during theyear ended December 31, 2014 . Transfers were attributable to portfolio companies that are now valued using their publicly traded market prices. The following table presents additional information about valuation methodologies and significant unobservable inputs used for investments that are measuredat fair value and categorized within Level III as of December 31, 2015 : Fair ValueDecember 31,2015 ValuationMethodologies Unobservable Input(s) (1) WeightedAverage (2) Range Impact to Valuationfrom anIncrease inInput (3) Private EquityInvestments$18,903,538 Retail$3,583,195 Inputs to market comparable anddiscounted cash flow Illiquidity Discount 8.2% 5.0% - 20.0% Decrease Weight Ascribed to Market Comparables 49.9% 0% - 50.0% (4) Weight Ascribed to Discounted Cash Flow 50.1% 50.0% - 100% (5) Market comparables Enterprise Value/LTM EBITDA Multiple 10.3x 5.6x - 13.6x Increase Enterprise Value/Forward EBITDA Multiple 9.7x 5.5x - 13.2x Increase Discounted cash flow Weighted Average Cost of Capital 10.7% 9.1% - 24.7% Decrease Enterprise Value/LTM EBITDA Exit Multiple 8.3x 6.0x - 10.0x Increase198Notes to Consolidated Financial Statements (Continued) Manufacturing$3,181,626 Inputs to market comparable, discountedcash flow and transaction cost Illiquidity Discount 8.3% 5.0% - 15.0% Decrease Weight Ascribed to Market Comparables 44.8% 33.3% - 50.0% (4) Weight Ascribed to Discounted Cash Flow 53.6% 33.3% - 66.7% (5) Weight Ascribed to Transaction Price 33.3% 33.3% - 33.3% (6) Market comparables Enterprise Value/LTM EBITDA Multiple 11.4x 8.0x - 16.5x Increase Enterprise Value/Forward EBITDA Multiple 10.5x 7.8x - 12.9x Increase Control Premium 20.0% 20.0% - 20.0%(7)Increase Discounted cash flow Weighted Average Cost of Capital 13.0% 10.0% - 20.1% Decrease Enterprise Value/LTM EBITDA Exit Multiple 9.3x 7.0x - 10.5x Increase Technology$3,090,729 Inputs to market comparable, discountedcash flow and transaction cost Illiquidity Discount 10.7% 5.0% - 15.0% Decrease Weight Ascribed to Market Comparables 50.2% 0% - 100% (4) Weight Ascribed to Discounted Cash Flow 45.4% 0% - 100% (5) Weight Ascribed to Transaction Price 34.3% 25.0% - 100% (6) Market comparables Enterprise Value/LTM EBITDA Multiple 13.8x 6.0x - 18.0x Increase Enterprise Value/Forward EBITDA Multiple 11.6x 5.1x - 15.4x Increase Discounted cash flow Weighted Average Cost of Capital 11.5% 7.2% - 31.3% Decrease Enterprise Value/LTM EBITDA Exit Multiple 9.3x 5.5x - 11.0x Increase Healthcare$2,276,992 Inputs to market comparable, discountedcash flow and transaction cost Illiquidity Discount 8.9% 5.0% - 15.0% Decrease Weight Ascribed to Market Comparables 38.2% 0% - 50.0% (4) Weight Ascribed to Discounted Cash Flow 61.8% 50.0% - 100% (5) Market comparables Enterprise Value/LTM EBITDA Multiple 10.7x 10.4x - 11.9x Increase Enterprise Value/Forward EBITDA Multiple 10.2x 10.0x - 10.8x Increase Discounted cash flow Weighted Average Cost of Capital 10.2% 8.6% - 11.8% Decrease Enterprise Value/LTM EBITDA Exit Multiple 8.6x 7.5x - 10.0x Increase Other$6,770,996 Inputs to market comparable, discountedcash flow and transaction cost Illiquidity Discount 11.8% 5.0% - 20.0% Decrease Weight Ascribed to Market Comparables 45.3% 0% - 50.% (4) Weight Ascribed to Discounted Cash Flow 50.9% 12.5% - 100% (5) Weight Ascribed to Transaction Price 56.1% 33.3% - 75.0% (6) Market comparables Enterprise Value/LTM EBITDA Multiple 12.4x 5.9x - 33.1x Increase Enterprise Value/Forward EBITDA Multiple 10.5x 5.5x - 17.8x Increase Control Premium 15.7% 10.0% - 20.0%(7)Increase Discounted cash flow Weighted Average Cost of Capital 11.5% 7.4% - 20.0% Decrease Enterprise Value/LTM EBITDA Exit Multiple 10.1x 6.0x - 12.0x Increase Real Assets$4,048,281 Energy$1,221,243 Discounted cash flow Weighted Average Cost of Capital 11.1% 8.1% - 17.0% Decrease Average Price Per BOE (10) $34.37 $24.39- $41.70 Increase Infrastructure$1,657,950 Discounted cash flow Weighted Average Cost of Capital 7.6% 5.4% - 9.8% Decrease Enterprise Value/LTM EBITDA Exit Multiple 10.4x 7.8x - 15.0x Increase Real Estate$1,169,088 Inputs to direct income capitalization anddiscounted cash flow Weight Ascribed to Direct Income Capitalization 40.4% 0% - 100% (9) Weight Ascribed to Discounted Cash Flow 59.6% 0% - 100% (5) Direct Income Capitalization Current Capitalization Rate 6.6% 5.1% - 10.9% Decrease Discounted cash flow Unlevered Discount Rate 10.9% 6.8% - 20.0% Decrease Credit$5,012,355(8)Yield Analysis Yield 9.4% 5.5% - 30.3% Decrease Net Leverage 4.6x 0.5x - 18.3xDecrease EBITDA Multiple 6.4x 0.8x - 25.4x Increase199Notes to Consolidated Financial Statements (Continued)In the table above, Other Investments, within private equity investments, represents the following industries: Financial Services, Consumer Products,Education, Energy, Forestry, Media, Services, Telecommunications, Transportation, Hotels/Leisure, Packaging, Agriculture and Recycling. None of these industriesrepresents more than 10% of total Level III private equity investments as of December 31, 2015 . (1)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparablecompanies and company specific developments including exit strategies and realization opportunities. Management has determined that market participants would take these inputsinto account when valuing the investments. LTM means Last Twelve Months and EBITDA means Earnings Before Interest Taxes Depreciation and Amortization.(2)Inputs were weighted based on the fair value of the investments included in the range.(3)Unless otherwise noted, this column represents the directional change in the fair value of the Level III investments that would result from an increase to the correspondingunobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantlyhigher or lower fair value measurements.(4)The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level III investments if the marketcomparables approach results in a higher valuation than the discounted cash flow approach and transaction price. The opposite would be true if the market comparables approachresults in a lower valuation than the discounted cash flow approach and transaction price.(5)The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level III investments if the discounted cashflow approach results in a higher valuation than the market comparables approach, transaction price and direct income capitalization approach. The opposite would be true if thediscounted cash flow approach results in a lower valuation than the market comparables approach and transaction price.(6)The directional change from an increase in the weight ascribed to the transaction price would increase the fair value of the Level III investments if the transaction price results in ahigher valuation than the market comparables and discounted cash flow approach. The opposite would be true if the transaction price results in a lower valuation than the marketcomparables approach and discounted cash flow approach.(7)Level III private equity investments whose valuations include a control premium represent less than 10% of total Level III private equity investments. The valuations for the remaininginvestments do not include a control premium.(8)Amounts include $546.4 million of investments that were valued using dealer quotes or third party valuation firms.(9)The directional change from an increase in the weight ascribed to the direct income capitalization approach would increase the fair value of the Level III investments if the directincome capitalization approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the direct income capitalization approach results in alower valuation than the discounted cash flow approach.(10)The total Energy fair value amount includes multiple investments (in multiple locations throughout North America) that are held in multiple investment funds and produce varyingquantities of oil, condensate, natural gas liquids, and natural gas. Commodity price may be measured using a common volumetric equivalent where one barrel of oil equivalent, orBOE, is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregateof all price inputs for the various investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset forpurposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratioof approximately 68% liquids and 32% natural gas. In the table above, certain private equity investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value. Inaddition, certain valuations of private equity investments may be entirely or partially derived by reference to observable valuation measures for a pending orconsummated transaction. The table above excludes Other Investments in the amount of $3.5 billion comprised primarily of privately-held equity and equity-like securities (e.g. warrants)in companies that are neither private equity, real assets nor credit investments. These investments were valued using Level III valuation methodologies that aregenerally the same as those shown for private equity investments. The various unobservable inputs used to determine the Level III valuations may have similar or diverging impacts on valuation. Significant increases anddecreases in these inputs in isolation and interrelationships between those inputs could result in significantly higher or lower fair value measurements as noted in thetable above.200Notes to Consolidated Financial Statements (Continued)6. NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT For the years ended December 31, 2015 , 2014 , and 2013, basic and diluted Net Income (Loss) attributable to KKR & Co. L.P. per common unit were calculated asfollows: For the Years Ended December 31, 2015 2014 2013Net Income (Loss) Attributable to KKR & Co. L.P.$488,482 $477,611 $691,226Basic Net Income (Loss) Per Common Unit Weighted Average Common Units Outstanding - Basic448,884,185 381,092,394 274,910,628Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Basic$1.09 $1.25 $2.51Diluted Net Income (Loss) Per Common Unit Weighted Average Common Units Outstanding - Basic448,884,185 381,092,394 274,910,628Weighted Average Unvested Common Units and Other Exchangeable Securities33,815,009 30,956,881 25,343,462Weighted Average Common Units Outstanding - Diluted482,699,194 412,049,275 300,254,090Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Diluted$1.01 $1.16 $2.30 Weighted Average Common Units Outstanding—Diluted primarily includes unvested equity awards that have been granted under the Equity Incentive Plan aswell as exchangeable equity securities issued in connection with the acquisition of Avoca. Vesting or exchanges of these equity interests dilute KKR and KKRHoldings pro rata in accordance with their respective ownership interests in the KKR Group Partnerships. For the Years Ended December 31, 2015 2014 2013Weighted Average KKR Holdings Units Outstanding368,399,872 388,198,713 414,581,851For the years ended December 31, 2015 , 2014 and 2013, KKR Holdings units have been excluded from the calculation of Net Income (Loss) attributable toKKR & Co. L.P. per common unit - diluted since the exchange of these units would not dilute KKR’s respective ownership interests in the KKR GroupPartnerships.201Notes to Consolidated Financial Statements (Continued)7. OTHER ASSETS AND ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES Other Assets consist of the following: December 31, 2015 December 31, 2014Foreign Exchange Contracts and Options (a)$635,183 $517,088Interest, Dividend and Notes Receivable (b)372,699 594,288Due from Broker (c)365,678 561,554Oil & Gas Assets, net (d)355,537 460,658Deferred Tax Assets, net275,391 237,982Fixed Assets, net (e)226,340 76,247Intangible Assets, net (f)176,987 209,202Goodwill (f)89,000 89,000Deferred Financing Costs80,645 46,058Receivables78,297 55,876Unsettled Investment Sales (g)74,862 176,622Deferred Transaction Related Expenses35,422 14,981Prepaid Taxes24,326 31,267Prepaid Expenses13,697 8,812Derivative Assets5,703 11,897Other14,790 72,685Total$2,824,557 $3,164,217 (a)Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign denominated investments. Such instruments are measured at fairvalue with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. The cost bases for theseinstruments at December 31, 2015 and 2014 was $27,191 and $2,332 , respectively. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair valueassociated with these instruments.(b)Represents interest and dividend receivables and promissory notes due from third parties. The promissory notes bear interest at rates ranging from 2.0% - 3.0% per annum andmature between 2016 and 2018.(c)Represents amounts held at clearing brokers resulting from securities transactions.(d) Includes proved and unproved oil and natural gas properties under the successful efforts method of accounting, which is net of impairment write-downs, accumulated depreciation,depletion and amortization. Depreciation, depletion and amortization amounted to $69.6 million and $86.2 million for the years ended December 31, 2015 and 2014, respectively.Whenever events or changes in circumstances indicate that the carrying amounts of such oil and natural gas properties may not be recoverable, KKR evaluates its proved andunproved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. For the years ended December 31, 2015 and 2014, KKRrecorded impairment charges totaling approximately $54.0 million and $220.1 million , respectively, to write down certain of its oil and natural gas properties. The impairmentcharge is recorded in General, Administrative and Other in the consolidated statements of operations. (e) Net of accumulated depreciation and amortization of $135,487 and $122,908 as of December 31, 2015 and 2014 , respectively. Depreciation and amortization expense of $15,418 ,$15,923 and $14,714 for the years ended December 31, 2015 , 2014 and 2013, respectively, is included in General, Administrative and Other in the accompanying consolidatedstatements of operations.(f)See Note 16 “Goodwill and Intangible Assets.”(g)Represents amounts due from third parties for investments sold for which cash settlement has not occurred.202Notes to Consolidated Financial Statements (Continued)Accounts Payable, Accrued Expenses and Other Liabilities consist of the following: December 31, 2015 December 31, 2014Amounts Payable to Carry Pool (a)$1,199,000 $1,100,943Unsettled Investment Purchases (b)594,152 891,649Securities Sold Short (c) 299,990 633,132Accounts Payable and Accrued Expenses112,007 119,491Interest Payable102,195 61,643Foreign Exchange Contracts and Options (d)83,748 71,956Derivative Liabilities104,518 75,150Contingent Consideration Obligation (e)46,600 40,600Income Taxes Payable8,770 6,362Due to Broker (f)27,121 72,509Deferred Rent and Income21,706 26,894Accrued Compensation and Benefits17,765 17,799Other Liabilities97,778 81,224Total$2,715,350 $3,199,352 (a)Represents the amount of carried interest payable to principals, professionals and other individuals with respect to KKR’s active funds and co-investment vehicles that provide forcarried interest.(b)Represents amounts owed to third parties for investment purchases for which cash settlement has not occurred.(c)Represents the obligations of KKR to deliver a specified security at a future point in time. Such securities are measured at fair value with changes in fair value recorded in NetGains (Losses) from Investment Activities in the accompanying consolidated statements of operations. See Note 3 “Net Gains (Losses) from Investment Activities” for the netchanges in fair value associated with these instruments. The cost bases for these instruments at December 31, 2015 and 2014 were $298,838 and $628,071 , respectively.(d)Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign denominated investments. Such instruments are measured at fairvalue with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. The cost bases for theseinstruments at December 31, 2015 and 2014 was $6,038 and $0 , respectively. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair valueassociated with these instruments.(e)Represents the fair value of the contingent consideration related to the acquisition of Prisma. During the year ended December 31, 2014, a portion of the obligation recorded as ofJune 30, 2014 was settled for $123.6 million . Of this amount, approximately $84.1 million was settled with the issuance of 3.7 million KKR & Co. L.P. common units.(f)Represents amounts owed for securities transactions initiated at clearing brokers.203Notes to Consolidated Financial Statements (Continued)8. VARIABLE INTEREST ENTITIES Consolidated VIEs KKR consolidates certain VIEs in which it is determined that KKR is the primary beneficiary, which predominately are CFEs. In developing its conclusion thatit is the primary beneficiary of these CFEs, KKR determined that it has more than an insignificant variable interest in these CFEs by virtue of its residual interest inthese CFEs and, in certain cases, the presence of an incentive fee. These two variable interests were determined to expose KKR to a more than insignificant amountof these CFEs’ variability relative to its anticipated economic performance. In addition, KKR has the power to direct the activities that most significantly impact theeconomic performance of the entities. In each case, KKR’s variable interests represent an obligation to absorb losses of or a right to receive benefits from the entitythat could potentially be significant to the entity. In consideration of these factors, KKR concluded that it was the primary beneficiary of these CFEs forconsolidation accounting purposes. The primary purpose of these CFEs is to provide investment opportunities with the objective of generating current income forthese CFE investors. The investment strategies of these CFEs are similar and the fundamental risks of these CFEs have similar characteristics, which include loss ofinvested capital and loss of management fees and/or incentive based fees in certain cases. KKR does not provide performance guarantees and has no other financialobligation to provide funding to these consolidated CFEs. Unconsolidated VIEs KKR holds variable interests in certain VIEs which are not consolidated as it is determined that KKR is not the primary beneficiary. VIEs that are notconsolidated include (i) certain investment funds sponsored by KKR where the equity at risk to KKR is not considered substantive and (ii) certain CLO vehicleswhere KKR does not hold a variable interest that exposes KKR to a more than insignificant amount of the CLO vehicle’s variability. Investments in Unconsolidated Investment Funds KKR’s investment strategies differ by investment fund; however, the fundamental risks have similar characteristics, including loss of invested capital and lossof management fees and carried interests. KKR’s maximum exposure to loss as a result of its investments in the unconsolidated investment funds is the carryingvalue of such investments, which was $262.7 million at December 31, 2015 . Accordingly disaggregation of KKR’s involvement by type of unconsolidatedinvestment fund would not provide more useful information. For these unconsolidated investment funds in which KKR is the sponsor, KKR may have an obligationas general partner to provide commitments to such investment funds. As of December 31, 2015 , KKR's commitments to these unconsolidated investment funds was$10.0 million . KKR has not provided any financial support other than its obligated amount as of December 31, 2015 . Investments in Unconsolidated CLO Vehicles KKR provides collateral management services for, and has made nominal investments in, certain CLO vehicles that it does not consolidate. KKR’s investmentsin the unconsolidated CLO vehicles, if any, are carried at fair value in the consolidated statements of financial condition. KKR earns management fees, includingsubordinated collateral management fees, for managing the collateral of the CLO vehicles. At December 31, 2015 , combined assets under management in the poolsof unconsolidated CLO vehicles were $1.4 billion . KKR’s maximum exposure to loss as a result of its investments in the residual interests of unconsolidated CLOvehicles is the carrying value of such investments, which was $1.6 million at December 31, 2015 . CLO investors in the CLO vehicles may only use the assets of theCLO to settle the debt of the related CLO, and otherwise have no recourse against KKR for any losses sustained in the CLO structures. As of December 31, 2015 and 2014, the maximum exposure to loss, before allocations to the carry pool, if any, for those VIEs in which KKR is determined notto be the primary beneficiary but in which it has a variable interest is as follows: December 31, 2015 December 31, 2014Investments$264,277 $375,061Due from Affiliates, net4,315 3,478Maximum Exposure to Loss$268,592 $378,539204Notes to Consolidated Financial Statements (Continued)9. DEBT OBLIGATIONS KKR borrows and enters into credit agreements and issues debt for its general operating and investment purposes and certain of its investment funds borrow tomeet financing needs of their operating and investing activities. In connection with the acquisition of KFN on April 30, 2014, KKR consolidates and reports KFN'sdebt obligations which are non-recourse to KKR beyond the assets of KFN.Fund financing facilities have been established for the benefit of certain KKR investment funds. When a KKR investment fund borrows from the facility inwhich it participates, the proceeds from the borrowings are strictly limited for their intended use by the borrowing investment fund. KKR’s obligations with respectto these financing arrangements are generally limited to KKR’s pro-rata equity interest in such funds.In addition, consolidated CFE vehicles issue debt securities to third party investors which are collateralized by assets held by the CFE vehicle. KKR bears noobligation with respect to financing arrangements at KKR’s consolidated CFEs. Debt securities issued by CFEs are supported solely by the assets held at the CFEsand are not collateralized by assets of any other KKR entity. KKR’s borrowings consisted of the following: December 31, 2015 2014 FinancingAvailable BorrowingOutstanding Fair Value FinancingAvailable BorrowingOutstanding Fair Value Revolving Credit Facilities: Corporate Credit Agreement$1,000,000 $— $— $1,000,000 $— $— KCM Credit Agreement500,000 — — 473,000 27,000 27,000(j)Notes Issued: KKR Issued 6.375% Notes Due 2020 (a)— 499,012 578,510(k)— 498,804 583,692(k)KKR Issued 5.500% Notes Due 2043 (b)— 494,836 517,880(k)— 494,644 566,250(k)KKR Issued 5.125% Notes Due 2044 (c)— 998,589 994,960(k)— 493,214 539,797(k)KFN Issued 8.375% Notes Due 2041 (d)— 289,660 273,965(l)— 290,861 287,359(l)KFN Issued 7.500% Notes Due 2042 (e)— 123,346 120,425(l)— 123,663 125,856(l)KFN Issued Junior Subordinated Notes (f)— 248,498 216,757 — 246,907 228,087 Other Consolidated Debt Obligations: Fund Financing Facilities (g)3,465,238 3,710,854 3,710,854(m)2,150,819 1,047,351 1,047,351(m)CLO Debt Obligations (h)— 8,093,141 8,093,141 — 7,615,340 7,615,340 CMBS Debt Obligations (i)— 4,272,081 4,272,081 — — — $4,965,238 $18,730,017 $18,778,573 $3,623,819 $10,837,784 $11,020,732 (a)$500 million aggregate principal amount of 6.375% senior notes of KKR due 2020.(b)$500 million aggregate principal amount of 5.500% senior notes of KKR due 2043.(c)$1.0 billion aggregate principal amount of 5.125% senior notes of KKR due 2044.(d)KKR consolidates KFN and thus reports KFN’s outstanding $259 million aggregate principal amount of 8.375% senior notes due 2041.(e)KKR consolidates KFN and thus reports KFN’s outstanding $115 million aggregate principal amount of 7.500% senior notes due 2042. (f)KKR consolidates KFN and thus reports KFN’s outstanding $284 million aggregate principal amount of junior subordinated notes. The weighted average interest rate is 5.4% andthe weighted average years to maturity is 21.0 years as of December 31, 2015 . These debt obligations are classified as Level III within the fair value hierarchy and valued usingthe same valuation methodologies as KKR’s Level III credit investments.(g)Certain of KKR’s investment funds have entered into financing arrangements with major financial institutions, generally to enable such investment funds to make investmentsprior to or without receiving capital from fund limited partners. The weighted average interest rate is 2.3% and 2.9% as of December 31, 2015 and 2014, respectively. In addition,the weighted average years to maturity is 2.5 years and 2.9 years as of December 31, 2015 and 2014, respectively.(h)CLO debt obligations are carried at fair value and are classified as Level II within the fair value hierarchy. See Note 5 “Fair Value Measurements.”(i)CMBS debt obligations are carried at fair value and are classified as Level II within the fair value hierarchy. See Note 5 “Fair Value Measurements.”(j)Carrying value approximates fair value given the credit facility's interest rate is variable.205Notes to Consolidated Financial Statements (Continued)(k)The notes are classified as Level II within the fair value hierarchy and fair value is determined by third party broker quotes.(l)The notes are classified as Level I within the fair value hierarchy and fair value is determined by quoted prices in active markets since the debt is publicly listed.(m)Carrying value approximates fair value given the fund financing facilities’ interest rates are variable.Revolving Credit FacilitiesCorporate Credit AgreementOn October 22, 2014, Kohlberg Kravis Roberts & Co. L.P. and the KKR Group Partnerships, as borrowers, entered into a credit agreement with certain lendinginstitutions and HSBC Bank USA, National Association, as Administrative Agent (the "Corporate Credit Agreement"). The Corporate Credit Agreement providesthe borrowers with a senior unsecured multicurrency revolving credit facility in an aggregate principal amount of $1.0 billion , as of the closing date, with the optionto request an increase in the facility amount of up to an additional $250 million , for an aggregate principal amount of $1.25 billion , subject to certain conditions,including obtaining new or increased commitments from new or existing lenders. The credit facility is a five ‑year facility, scheduled to mature on October 22,2019, with the borrowers’ option to extend the maturity date, subject to the consent of the applicable lenders, and the borrowers may prepay, terminate or reduce thecommitments under the credit facility at any time without penalty. Interest on borrowings under the credit facility are based on either London Interbank OfferedRate (LIBOR) or Alternate Base Rate, with the applicable margin (per annum in excess of LIBOR or the Alternate Base Rate) based on a corporate ratings‑basedpricing grid ranging from 69 basis points to 120 basis points (for LIBOR borrowings). Borrowings under the credit facility are guaranteed by KKR & Co. L.P. andany other entity (other than the borrowers) that guarantees the 2020 Senior Notes, 2043 Senior Notes or the 2044 Senior Notes. The Corporate Credit Agreementreplaces a credit agreement dated February 26, 2008,which was terminated on October 22, 2014. For the years ended December 31, 2015 and 2014 , no amountswere borrowed under the credit facility, except for a letter of credit of $15.0 million .KCM Credit AgreementOn February 27, 2008, KKR Capital Markets entered into a revolving credit agreement with a major financial institution (the “KCM Credit Agreement”) foruse in KKR’s capital markets business. This financial institution also holds an ownership interest in our capital markets business. The KCM Credit Agreement, asamended, provides for revolving borrowings of up to $500 million with a $500 million sublimit for letters of credit.On March 30, 2012, an agreement was made to extend the maturity of the KCM Credit Agreement from February 27, 2013 to March 30, 2017. In addition toextending the term, certain other terms of the KCM Credit Agreement were renegotiated including a reduction of the cost of funding on amounts drawn and areduced commitment fee. If a borrowing is made on the KCM Credit Agreement, the interest rate will vary depending on the type of drawdown requested. If theloan is a Eurocurrency Loan, it will be based on the LIBOR Rate plus the applicable margin which ranges initially between 1.25% and 2.50% , depending on theamount and nature of the loan. If the loan is an ABR Loan, it will be based on the Prime Rate plus the applicable margin which ranges initially between 0.25% and1.50% depending on the amount and nature of the loan. Borrowings under this facility may only be used for KKR’s capital markets business, and its only obligorsare entities involved in our capital markets business, and its liabilities are non-recourse to other parts of KKR's business.For the year ended December 31, 2015 , a total of $97 million was borrowed under the KCM Credit Agreement. Repayments under the KCM Credit Agreementwere $124 million for the year ended December 31, 2015. For the year ended December 31, 2014 , $751.0 million was borrowed and $724.0 million was repaidunder the credit facility.Notes IssuedKKR Issued 6.375% Notes Due 2020On September 29, 2010, KKR Group Finance Co. LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of6.375% Senior Notes (the “2020 Senior Notes”), which were issued at a price of 99.584% . The 2020 Senior Notes are unsecured and unsubordinated obligations ofKKR Group Finance Co. LLC and will mature on September 29, 2020, unless earlier redeemed or repurchased. The 2020 Senior Notes are fully and unconditionallyguaranteed, jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of theguarantors.The 2020 Senior Notes bear interest at a rate of 6.375% per annum, accruing from September 29, 2010. Interest is payable semi‑annually in arrears onMarch 29 and September 29 of each year.206Notes to Consolidated Financial Statements (Continued)The indenture, as supplemented by a first supplemental indenture, relating to the 2020 Senior Notes includes covenants, including limitations on KKR GroupFinance Co. LLC and the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests oftheir subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides thatthe trustee or the holders of not less than 25% in aggregate principal amount of the outstanding 2020 Senior Notes may declare the 2020 Senior Notes immediatelydue and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specifiedevents of bankruptcy, insolvency, receivership or reorganization, the principal amount of the 2020 Senior Notes and any accrued and unpaid interest on the 2020Senior Notes automatically becomes due and payable. All or a portion of the 2020 Senior Notes may be redeemed at the issuer’s option in whole or in part, at anytime, and from time to time, prior to their stated maturity, at the make‑whole redemption price set forth in the 2020 Senior Notes. If a change of control repurchaseevent occurs, the 2020 Senior Notes are subject to repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the2020 Senior Notes repurchased plus any accrued and unpaid interest on the 2020 Senior Notes repurchased to, but not including, the date of repurchase.KKR Issued 5.500% Notes Due 2043On February 1, 2013, KKR Group Finance Co. II LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of5.50% Senior Notes (the “2043 Senior Notes”), which were issued at a price of 98.856% . The 2043 Senior Notes are unsecured and unsubordinated obligations ofKKR Group Finance Co. II LLC and will mature on February 1, 2043, unless earlier redeemed or repurchased. The 2043 Senior Notes are fully and unconditionallyguaranteed, jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of theguarantors.The 2043 Senior Notes bear interest at a rate of 5.50% per annum, accruing from February 1, 2013. Interest is payable semi‑annually in arrears on February 1and August 1 of each year.The indenture, as supplemented by a first supplemental indenture, relating to the 2043 Senior Notes includes covenants, including limitations on KKR GroupFinance Co. II LLC and the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests oftheir subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides thatthe trustee or the holders of not less than 25% in aggregate principal amount of the outstanding 2043 Senior Notes may declare the 2043 Senior Notes immediatelydue and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specifiedevents of bankruptcy, insolvency, receivership or reorganization, the principal amount of the 2043 Senior Notes and any accrued and unpaid interest on the 2043Senior Notes automatically becomes due and payable. All or a portion of the 2043 Senior Notes may be redeemed at the issuer’s option in whole or in part, at anytime, and from time to time, prior to their stated maturity, at the make‑whole redemption price set forth in the 2043 Senior Notes. If a change of control repurchaseevent occurs, the 2043 Senior Notes are subject to repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the2043 Senior Notes repurchased plus any accrued and unpaid interest on the 2043 Senior Notes repurchased to, but not including, the date of repurchase.KKR Issued 5.125% Notes Due 2044On May 29, 2014, KKR Group Finance Co. III LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of5.125% Senior Notes due 2044 (the “2044 Senior Notes”), which were issued at a price of 98.612% . The 2044 Senior Notes are unsecured and unsubordinatedobligations of the issuer and will mature on June 1, 2044, unless earlier redeemed or repurchased. The 2044 Senior Notes are fully and unconditionally guaranteed,jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of the guarantors.The 2044 Senior Notes bear interest at a rate of 5.125% per annum, accruing from May 29, 2014. Interest is payable semi‑annually in arrears on June 1 andDecember 1 of each year, commencing on December 1, 2014.The indenture, as supplemented by a first supplemental indenture, relating to the 2044 Senior Notes includes covenants, including limitations on the issuer’sand the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiariesor merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides that the trustee or theholders of not less than 25% in aggregate principal amount of the outstanding 2044 Senior Notes may declare the 2044 Senior Notes immediately due and payableupon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy,insolvency, receivership or reorganization, the principal amount of the 2044 Senior Notes and any accrued and unpaid interest on the 2044 Senior Notesautomatically becomes due and207Notes to Consolidated Financial Statements (Continued)payable. All or a portion of the 2044 Senior Notes may be redeemed at the issuer’s option in whole or in part, at any time, and from time to time, prior to their statedmaturity, at the make‑whole redemption price set forth in the 2044 Senior Notes. If a change of control repurchase event occurs, the 2044 Senior Notes are subjectto repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2044 Senior Notes repurchased plus any accruedand unpaid interest on the 2044 Senior Notes repurchased to, but not including, the date of repurchase.On March 18, 2015, KKR Group Finance Co. III LLC, a subsidiary of KKR Management Holdings Corp., issued an additional $500 million aggregateprincipal amount of its 2044 Notes, which were priced at 101.062% . The 2044 Notes issued in March 2015 form a single series with the 2044 Notes issued in May2014, and the terms are identical to each other except for the issue date, issue price, the first payment date, June 1, 2015, and the date from which interest begins toaccrue for the 2044 Notes issued in March 2015.KFN Issued 8.375% Notes Due 2041On November 15, 2011, KFN issued $258.8 million par amount of 8.375% Senior Notes (“KFN 2041 Senior Notes”), resulting in net proceeds to KFN of$250.7 million . The notes trade under the ticker symbol “KFH” on the NYSE. Interest on the 8.375% Senior Notes is payable quarterly in arrears on February 15,May 15, August 15 and November 15 of each year. The KFN 2041 Senior Notes will mature on November 15, 2041 unless previously redeemed or repurchased inaccordance with their terms prior to such date. KFN may redeem the KFN 2041 Senior Notes, in whole or in part, at any time on or after November 15, 2016 at aredemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Upon a change of control and reductionin the KFN 2041 Senior Notes’ ratings to below investment grade by two nationally recognized statistical ratings organizations, as defined in the indenture, KFNwill be required to make an offer to repurchase all outstanding KFN 2041 Senior Notes at a price in cash equal to 101% of the principal amount of the notes, plusaccrued and unpaid interest to, but not including, the repurchase date. The KFN 2041 Senior Notes contain certain restrictions on KFN’s ability to create liens overits equity interests in its subsidiaries and to merge, consolidate or sell all or substantially all of its assets. If an event of default with respect to the KFN 2041 SeniorNotes occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare the principal of thenotes to be due and payable immediately.KFN Issued 7.500% Notes Due 2042On March 20, 2012, KFN issued $115.0 million par amount of 7.500% Senior Notes (“KFN 2042 Senior Notes”), resulting in net proceeds to KFN of $111.4million . The notes trade under the ticker symbol “KFI” on the NYSE. Interest on the 7.500% Senior Notes is payable quarterly in arrears on June 20, September 20,December 20 and March 20 of each year. The KFN 2042 Senior Notes will mature on March 20, 2042 unless previously redeemed or repurchased in accordancewith their terms prior to such date. KFN may redeem the KFN 2042 Senior Notes, in whole or in part, at any time on or after March 20, 2017 at a redemption priceequal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Upon a change of control and reduction in the KFN 2042Senior Notes’ ratings to below investment grade by two nationally recognized statistical ratings organizations, all terms as defined in the applicable indenture, KFNwill be required to make an offer to repurchase all outstanding KFN 2042 Senior Notes at a price in cash equal to 101% of the principal amount of the notes, plusaccrued and unpaid interest to, but not including, the repurchase date. The KFN 2042 Senior Notes contain certain restrictions on KFN’s ability to create liens overits equity interests in its subsidiaries and to merge, consolidate or sell all or substantially all of its assets, subject to qualifications and limitations set forth in theapplicable indenture. Otherwise, the Indenture does not contain any provisions that would limit KFN's ability to incur indebtedness. If an event of default withrespect to the KFN 2042 Senior Notes occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstandingmay declare the principal of the notes to be due and payable immediately.KFN Issued Junior Subordinated NotesKFN has also established six 30 ‑year trusts from 2006 through 2007 for the sole purpose of issuing trust preferred securities. These trusts issued preferredsecurities to unaffiliated investors and common securities to KFN. The combined proceeds were invested by the trusts in junior subordinated notes issued by KFN.The junior subordinated notes are the sole assets of trusts and mature between 2036 and 2037. Interest is payable quarterly and are fixed, floating or a combinationamong the six trusts.Other Consolidated Debt ObligationsFund Financing FacilitiesCertain of KKR’s investment funds have entered into financing arrangements with major financial institutions, generally in connection with the management ofcapital calls to fund limited partners to provide liquidity to such investment funds. These208Notes to Consolidated Financial Statements (Continued)financing arrangements are generally not direct obligations of the general partners of KKR’s investment funds or its management companies. Such borrowings havevarying maturities and bear interest at floating rates. Borrowings are generally secured by the investment purchased with the proceeds of the borrowing and/or theuncalled capital commitment of each respective fund. When an investment vehicle borrows, the proceeds are available only for use by that investment vehicle andare not available for the benefit of other investment vehicles or KKR. Collateral within each investment vehicle is also available only against borrowings by thatinvestment vehicle and not against the borrowings of other investment vehicles or KKR. For the years ended December 31, 2015 and 2014 , $7.2 billion wasborrowed and $3.6 billion was repaid and $2.4 billion was borrowed and $2.2 billion was repaid, respectively.Debt Obligations of Consolidated CFEs As of December 31, 2015 , debt obligations of consolidated CFEs consisted of the following: BorrowingOutstanding WeightedAverageInterest Rate Weighted AverageRemainingMaturity in YearsSenior Secured Notes of Consolidated CLOs$7,802,665 2.2% 9.8Debt Obligations of Consolidated CMBS Vehicles4,272,081 3.4% 33.0Subordinated Notes of Consolidated CLOs290,476 (a) 8.9 $12,365,222 (a) The subordinated notes do not have contractual interest rates but instead receive a pro rata amount of the net distributions from the excess cash flows of the respective CLO vehicle.Accordingly, weighted average borrowing rates for the subordinated notes are based on cash distributions during the period, if any.Debt obligations of consolidated CFEs are collateralized by assets held by each respective CFE vehicle and assets of one CFE vehicle may not be used tosatisfy the liabilities of another. As of December 31, 2015 , the fair value of the consolidated CFE assets was $13.8 billion . This collateral consisted of Cash andCash Equivalents Held at Consolidated Entities, Investments, and Other Assets.As part of KKR’s borrowing arrangements, KKR is subject to certain financial and operating covenants. KKR was in compliance with all of its debt covenantsas of December 31, 2015 .Scheduled principal payments for debt obligations at December 31, 2015 are as follows: Revolving CreditFacilities Notes Issued Other ConsolidatedDebt Obligations Total2016$— $— $1,512,122 $1,512,1222017 ‑ 2018— — 1,594,913 1,594,9132019 ‑ 2020— 500,000 892,839 1,392,8392021 and Thereafter— 2,157,250 12,156,682 14,313,932 $— $2,657,250 $16,156,556 $18,813,806 209Notes to Consolidated Financial Statements (Continued)10. INCOME TAXES The provision (benefit) for income taxes consists of the following: For the Years Ended December 31, 2015 2014 2013Current Federal Income Tax$27,978 $29,388 $35,234State and Local Income Tax6,320 8,921 6,269Foreign Income Tax42,036 31,972 22,740Subtotal76,334 70,281 64,243Deferred Federal Income Tax(19,133) (6,327) (21,277)State and Local Income Tax8,264 344 (4,319)Foreign Income Tax1,171 (629) (721)Subtotal(9,698) (6,612) (26,317)Total Income Taxes$66,636 $63,669 $37,926The following table reconciles the U.S. Federal Statutory Tax Rate to the Effective Income Tax Rate: For the Years Ended December 31, 2015 2014 2013Statutory U.S. Federal Income Tax Rate35.00 % 35.00 % 35.00 %Income not attributable to KKR Management Holdings Corp. (a)(36.04)% (36.36)% (35.84)%Foreign Income Taxes0.81 % 0.58 % 0.28 %State and Local Income Taxes0.21 % 0.13 % 0.00 %Compensation Charges Borne by KKR Holdings1.92 % 2.08 % 1.35 %Change in Valuation Allowance0.29 % 0.08 % — %Other(0.94)% (0.34)% (0.31)%Effective Income Tax Rate1.25 % 1.17 % 0.48 % (a)Represents primarily income attributable to (i) redeemable noncontrolling interests, (ii) noncontrolling interests and appropriated capital and (iii) investment income of certain entitiesand net carried interest of certain general partners of KKR investment funds that are not controlled and consolidated by KKR Management Holdings L.P.210Notes to Consolidated Financial Statements (Continued)Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. Asummary of the tax effects of the temporary differences is as follows: As of December 31, 2015 2014Deferred Tax Assets Fund Management Fees$76,017 $74,775Equity Based Compensation32,193 27,373KKR Holdings Unit Exchanges (a)156,202 147,531Depreciation and Amortization34,128 30,571Federal Foreign Tax Credit25,041 6,389Other10,291 904Total Deferred Tax Assets before Valuation Allowance333,872 287,543Valuation Allowance(19,781) (4,153)Total Deferred Tax Assets314,091 283,390Deferred Tax Liabilities Investment Basis Differences / Net Unrealized Gains38,700 45,408Total Deferred Tax Liabilities38,700 45,408Total Deferred Taxes, Net$275,391 $237,982 (a)In connection with exchanges of KKR Holdings units into common units of KKR & Co. L.P., KKR records a deferred tax asset associated with an increase in KKR ManagementHoldings Corp.’s share of the tax basis of the tangible and intangible assets of KKR Management Holdings L.P. This amount was offset by an adjustment to record amounts due toKKR Holdings and principals under the tax receivable agreement, which is included within Due to Affiliates in the consolidated statements of financial condition. The net impact ofthese adjustments was recorded as an adjustment to equity at the time of the exchanges.Future realization of the above deferred tax assets is dependent on KKR generating sufficient taxable income within the period of time that the tax benefits areexpected to reverse. KKR considers projections of taxable income in evaluating its ability to utilize those deferred tax assets. In projecting its taxable income, KKRbegins with historical results and incorporates assumptions concerning the amount and timing of future pretax operating income. Those assumptions requiresignificant judgment and are consistent with the plans and estimates that KKR uses to manage its business. As of December 31, 2015, KKR had a federal foreign taxcredit (“FTC”) carryforward of $25 million . The FTCs are related to taxes paid in foreign jurisdictions, which if not utilized, will begin to expire in 2024. KKR hasdetermined that a portion of the FTC carryforward will not ultimately be realized due to federal limitations on FTC utilization. Therefore, KKR has established avaluation allowance of $19.8 million as of December 31, 2015 against the deferred tax asset. For all other deferred tax assets, KKR has determined that it is morelikely than not that they will be realized and that a valuation allowance is not needed as of December 31, 2015. In addition, because KKR has not recorded anoperating loss since its inception, KKR has not recorded a deferred tax asset for any federal or state net operating tax loss carry forwards.KKR files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, KKR is subject to examinationby federal and certain state, local and foreign tax regulators. As of December 31, 2015, the federal, state and local tax returns of KKR and its predecessor entities forthe years 2012 through 2014 are open under normal statute of limitations and are therefore subject to examination.211Notes to Consolidated Financial Statements (Continued)At December 31, 2015, 2014 and 2013, KKR’s unrecognized tax benefits, excluding related interest and penalties, were: For the Years Ended December 31, 2015 2014 2013Unrecognized Tax Benefits, beginning of period$7,180 $6,028 $4,627Gross increases in tax positions in prior periods— 44 —Gross decreases in tax positions in prior periods(116) — (33)Gross increases in tax positions in current period15,959 1,369 2,741Lapse of statute of limitations(231) (261) (1,307)Unrecognized Tax Benefits, end of period$22,792 $7,180 $6,028If the above tax benefits were recognized it would reduce the annual effective income tax rate. KKR believes that there will not be a significant increase ordecrease to the tax positions within 12 months of the reporting date.The unrecognized tax benefits are recorded in Accounts Payable, Accrued Expenses and Other Liabilities. KKR recognizes interest and penalties accruedrelated to unrecognized tax positions in income taxes. For the years ended December 31, 2015, 2014 and 2013, interest and penalties included in KKR’s taxprovision were immaterial. 212Notes to Consolidated Financial Statements (Continued)11. EQUITY BASED COMPENSATION The following table summarizes the expense associated with equity based compensation for the years ended December 31, 2015 , 2014 and 2013, respectively. Year Ended December 31, 2015 2014 2013Equity Incentive Plan Units$186,346 $158,927 $114,709Other Exchangeable Securities16,119 22,464 —KKR Holdings Principal Awards6,726 29,838 88,641KKR Holdings Restricted Equity Units132 887 3,768Discretionary Compensation52,256 98,287 100,396Total$261,579 $310,403 $307,514 Equity Incentive Plan Under the Equity Incentive Plan, KKR is permitted to grant equity awards representing ownership interests in KKR & Co. L.P. common units. Vested awardsunder the Equity Incentive Plan dilute KKR & Co. L.P. common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests inthe KKR Group Partnerships.The total number of common units that may be issued under the Equity Incentive Plan is equivalent to 15% of the number of fully diluted common unitsoutstanding, subject to annual adjustment. Equity awards have been granted under the Equity Incentive Plan and are generally subject to service based vesting,typically over a three to five year period from the date of grant. In certain cases, these awards are subject to transfer restrictions and/or minimum retained ownershiprequirements. The transfer restriction period, if applicable, lasts for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) twoyears with respect to the other one-half of the interests vesting on such vesting date. While providing services to KKR, if applicable, certain of these recipients arealso subject to minimum retained ownership rules requiring them to continuously hold common unit equivalents equal to at least 15% of their cumulatively vestedinterests. Expense associated with the vesting of these awards is based on the closing price of the KKR & Co. L.P. common units on the date of grant, discounted for thelack of participation rights in the expected distributions on unvested units, which ranges from 8% to 56% (for awards granted prior to December 31, 2015)multiplied by the number of unvested units on the grant date. The grant date fair value of a KKR & Co. L.P. common unit reflects a discount for lack of distributionparticipation rights, because equity awards are not entitled to receive distributions while unvested. The discount range for awards granted prior to December 31,2015 was based on management’s estimates of future distributions that unvested equity awards will not be entitled to receive between the grant date and the vestingdate. Therefore, units granted prior to December 31, 2015 that vest in earlier periods have a lower discount as compared to units that vest in later periods, whichhave a higher discount. The discount range will generally increase when the level of expected annual distributions increased relative to the grant date fair value of aKKR & Co. L.P. common unit. A decrease in expected annual distributions relative to the grant date fair value of a KKR & Co. L.P. common unit would generallyhave the opposite effect.In connection with the change to KKR's distribution policy effective beginning with the distribution declared on February 11, 2016, KKR intends to make equalquarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter ( $0.64 per year). Accordingly, for grants under the EquityIncentive Plan made subsequent to December 31, 2015, the discount for the lack of participation rights in the expected distributions on unvested units will based onthe $0.64 expected annual distribution.Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 8% annually based upon expected turnover byclass of recipient.213Notes to Consolidated Financial Statements (Continued) As of December 31, 2015 , there was approximately $225.3 million of estimated unrecognized expense related to unvestedawards. That cost is expected to be recognized as follows:Year Unrecognized Expense (in millions)2016 $130.02017 76.02018 18.72019 0.6Total $225.3 A summary of the status of unvested awards granted under the Equity Incentive Plan from January 1, 2015 through December 31, 2015 is presented below: Units WeightedAverage GrantDate Fair ValueBalance, January 1, 201520,488,737 $12.33Granted16,104,931 16.98Vested(10,648,392) 13.85Forfeited(2,817,048) 14.44Balance, December 31, 201523,128,228 $14.61 The weighted average remaining vesting period over which unvested awards are expected to vest is 1.1 years. A summary of the remaining vesting tranches of awards granted under the Equity Incentive Plan is presented below:Vesting Date UnitsApril 1, 2016 7,136,962October 1, 2016 4,189,133April 1, 2017 5,320,984October 1, 2017 1,338,201April 1, 2018 4,055,043October 1, 2018 997,308April 1, 2019 6,947October 1, 2019 83,650 23,128,228Subsequent to December 31, 2015, approximately 13.3 million common units were issued under the Equity Incentive Plan with terms and conditionssubstantially the same as the units described above. Other Exchangeable Securities In connection with the acquisition of Avoca, KKR issued 2,545,602 equity securities of a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. bothof which are exchangeable into common units of KKR & Co. L.P. on a one -for-one basis (“Other Exchangeable Securities”). Certain Other ExchangeableSecurities are subject to time based vesting (generally over a three -year period from February 19, 2014) and are not exchangeable into common units until vested,and in certain cases are subject to minimum retained ownership requirements and transfer restrictions. Consistent with grants of KKR Holdings awards and grantsmade under the KKR Equity Incentive Plan, holders of Other Exchangeable Securities are not entitled to receive distributions while unvested. The fair value of Other Exchangeable Securities is based on the closing price of KKR & Co. L.P. common units on the date of grant. KKR determined this tobe the best evidence of fair value as a KKR & Co. L.P. common unit is traded in an active market and has an observable market price. Additionally, OtherExchangeable Securities are instruments with terms and214Notes to Consolidated Financial Statements (Continued)conditions similar to those of a KKR & Co. L.P. common unit. Specifically, these Other Exchangeable Securities are exchangeable into KKR & Co. L.P. commonunits on a one -for-one basis upon vesting. Expense associated with the vesting of these Other Exchangeable Securities is based on the closing price of a KKR & Co. L.P. common unit on the date ofgrant, discounted for the lack of participation rights in the expected distributions on unvested Other Exchangeable Securities, which currently ranges from 8% to56% (for awards granted prior to December 31, 2015) multiplied by the number of unvested Other Exchangeable Securities on the issuance date. The discount rangewas based on management’s estimates of future distributions that unvested Other Exchangeable Securities will not be entitled to receive between the issuance dateand the vesting date. Therefore, Other Exchangeable Securities granted prior to December 31, 2015 that vest in earlier periods have a lower discount as compared toOther Exchangeable Securities that vest in later periods, which have a higher discount. The discount range will generally increase when the level of expected annualdistributions increases relative to the issuance date fair value of a KKR & Co. L.P. common unit. A decrease in expected annual distributions relative to the grantdate fair value of a KKR & Co. L.P. common unit would generally have the opposite effect. No Other Exchangeable Securities are anticipated to be issuedsubsequent to December 31, 2015. Expense is recognized on a straight line basis over the life of the security and assumes a forfeiture rate of up to 8% annuallybased upon expected turnover by class of recipient. As of December 31, 2015 , there was approximately $9.6 million of estimated unrecognized expense related to unvested Other Exchangeable Securities. Thatcost is expected to be recognized by October 1, 2016. A summary of the status of unvested Other Exchangeable Securities from January 1, 2015 through December 31, 2015 is presented below: Units WeightedAverage GrantDate Fair ValueBalance, January 1, 20151,695,972 $18.45Granted— —Vested(847,983) 19.62Forfeited— —Balance, December 31, 2015847,989 $17.28 The weighted average remaining vesting period over which unvested Other Exchangeable Securities are expected to vest is less than one year and all units willvest on October 1, 2016.KKR Holdings—Principal Awards Certain KKR employees and non-employee operating consultants and other service providers received grants of KKR Holdings units (“Principal Awards”)which are exchangeable for KKR Group Partnership Units. These units are generally subject to minimum retained ownership requirements and allow for theirexchange into common units of KKR & Co. L.P. on a one -for-one basis. As of December 31, 2015 and 2014, KKR Holdings owned approximately 44.1% , or361,346,588 and 46.5% , or 377,196,749 , respectively, of the outstanding KKR Group Partnership Units. Substantially all Principal Awards are fully vested as ofOctober 1, 2015 and there is no material unrecognized expense with respect to them. KKR Holdings—Restricted Equity Units Grants of restricted equity units based on KKR Group Partnership Units held by KKR Holdings were made to professionals, support staff, and other personnel(“Holdings REU Awards”). These grants are funded by KKR Holdings and do not dilute KKR’s interests in the KKR Group Partnerships. Substantially all HoldingsREU Awards were fully vested as of April 1, 2015 and there is no material unrecognized expense with respect to them.KKR Holdings - Market Condition AwardsIn 2016, certain KKR employees and non-employee operating consultants received grants of approximately 28.9 million KKR Holdings units subject to priceand service-based vesting requirements (“Market Condition Awards”). Tranches of these Market Condition Awards become eligible to vest periodically over a threeyear period beginning on January 1, 2018, upon satisfaction of a service-based vesting condition and also a price vesting condition based on the price of KKRcommon units reaching and maintaining certain specified price thresholds for a specified period of time. None of these Market Condition215Notes to Consolidated Financial Statements (Continued)Awards are eligible to vest prior to January 1, 2018 and if applicable price targets are not achieved by the close of business on January 1, 2021, any unvested MarketCondition Awards will be automatically canceled and forfeited. These Market Condition Awards are not subject to additional transfer restrictions after vesting butare subject to minimum retained ownership requirements.The Market Condition Awards are outstanding but previously unallocated units, and consequently these grants will not increase the number of KKR Holdingsunits outstanding and if and when vested and exchanged, these Incentive Awards would not dilute KKR's respective ownership interests in the KKR GroupPartnerships.Discretionary Compensation All KKR employees and certain employees of certain consolidated entities are eligible to receive discretionary cash bonuses. While cash bonuses paid to mostemployees are borne by KKR and certain consolidated entities and result in customary compensation and benefits expense, cash bonuses that are paid to certainprincipals are currently borne by KKR Holdings. These bonuses are funded with distributions that KKR Holdings receives on KKR Group Partnership Units held byKKR Holdings but are not then passed on to holders of unvested units of KKR Holdings. Because principals are not entitled to receive distributions on units that areunvested, any amounts allocated to principals in excess of a principal’s vested equity interests are reflected as employee compensation and benefits expense. Thesecompensation charges are recorded based on the unvested portion of quarterly earnings distributions received by KKR Holdings at the time of the distribution.216Notes to Consolidated Financial Statements (Continued)12. RELATED PARTY TRANSACTIONS Due from Affiliates consists of: December 31, 2015 December 31, 2014Amounts due from portfolio companies$46,716 $64,989Amounts due from unconsolidated investment funds74,409 47,229Amounts due from related entities18,658 34,838Due from Affiliates$139,783 $147,056Due to Affiliates consists of: December 31, 2015 December 31, 2014Amounts due to KKR Holdings in connection with the tax receivable agreement$127,962 $121,803Amounts due to related entities16,845 9,745Due to Affiliates$144,807 $131,548 Tax Receivable AgreementKKR and certain intermediate holding companies that are taxable corporations for U.S. federal, state and local income tax purposes, may be required to acquireKKR Group Partnership Units from time to time pursuant to the exchange agreement with KKR Holdings. KKR Management Holdings L.P. made an election underSection 754 of the Internal Revenue Code that will remain in effect for each taxable year in which an exchange of KKR Group Partnership Units for common unitsoccurs, which may result in an increase in KKR’s intermediate holding companies’ share of the tax basis of the assets of the KKR Group Partnerships at the time ofan exchange of KKR Group Partnership Units. Certain of these exchanges are expected to result in an increase in KKR’s intermediate holding companies’ share ofthe tax basis of the tangible and intangible assets of the KKR Group Partnerships, primarily attributable to a portion of the goodwill inherent in KKR’s business thatwould not otherwise have been available. This increase in tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce theamount of income tax KKR’s intermediate holding companies would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (orincrease loss) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.KKR has entered into a tax receivable agreement with KKR Holdings, which requires KKR’s intermediate holding companies to pay to KKR Holdings, or tocurrent and former principals who have exchanged KKR Holdings units for KKR common units (as transferees of KKR Group Partnership Units), 85% of theamount of cash savings, if any, in U.S. federal, state and local income tax that the intermediate holding companies realize as a result of the increase in tax basisdescribed above, as well as 85% of the amount of any such savings the intermediate holding companies realize as a result of increases in tax basis that arise due tofuture payments under the agreement. A termination of the agreement or a change of control could give rise to similar payments based on tax savings that KKRwould be deemed to realize in connection with such events. In the event that other of KKR’s current or future subsidiaries become taxable as corporations andacquire KKR Group Partnership Units in the future, or if KKR becomes taxable as a corporation for U.S. federal income tax purposes, KKR expects that each willbecome subject to a tax receivable agreement with substantially similar terms.These payment obligations are obligations of KKR’s intermediate holding companies and not the KKR Group Partnerships and are recorded within Due toAffiliates in the accompanying consolidated statements of financial condition. As such, cash payments received by common unitholders may vary from thosereceived by holders of KKR Group Partnership Units held by KKR Holdings and KKR’s current and former principals to the extent payments are made to thoseparties under the tax receivable agreement. Payments made under the tax receivable agreement are required to be made within 90 days of the filing of the taxreturns of KKR’s intermediate holding companies which may result in a timing difference between the tax savings received by KKR’s intermediate holdingscompanies and the cash payments made to the selling holders of KKR Group Partnership Units.For the years ended December 31, 2015 , 2014 and 2013 , cash payments that have been made under the tax receivable agreement were $5.7 million , $5.7million and $4.7 million , respectively. KKR expects its intermediate holding companies to benefit from the remaining 15% of cash savings, if any, in income taxthat they realize. As of December 31, 2015 , $3.4 million of cumulative income tax savings have been realized.217Notes to Consolidated Financial Statements (Continued)Discretionary InvestmentsCertain of KKR’s investment professionals, including its principals and other qualifying personnel are permitted to invest, and have invested, their own capitalin side‑by‑side investments with KKR’s investment vehicles and with KKR in its strategic partnerships with and seed investments in other asset managers.Side‑by‑side investments are made on the same terms and conditions as those acquired by the applicable investment vehicle, except that the side‑ by‑sideinvestments do not subject the investor to management fees, incentive fees or a carried interest. The cash invested by these individuals aggregated $434.9 million ,$398.3 million and $292.8 million for the years ended December 31, 2015 , 2014 and 2013 , respectively.Aircraft and Other ServicesCertain of the Senior Principals own aircraft that KKR uses for business purposes in the ordinary course of its operations. These Senior Principals paid for thepurchase of these aircraft with personal funds and bear all operating, personnel and maintenance costs associated with their operation. The hourly rates that KKRpays for the use of these aircraft are based on current market rates for chartering private aircraft of the same type. KKR incurred $4.4 million , $3.4 million and $4.2million for the use of these aircraft for the years ended December 31, 2015 , 2014 and 2013 , respectively.FacilitiesCertain trusts, whose beneficiaries include children of Mr. Kravis and Mr. Roberts, and certain other Senior Principals who are not executive officers of KKR,are partners in a real‑estate based partnership that maintains an ownership interest in KKR’s Menlo Park location. Payments made to this partnership were $7.3million , $7.2 million and $7.2 million for the years ended December 31, 2015 , 2014 and 2013 , respectively.218Notes to Consolidated Financial Statements (Continued)13. SEGMENT REPORTING KKR operates through four reportable business segments. These segments, which are differentiated primarily by their business objectives and investmentstrategies are presented below. These financial results represent the combined financial results of the KKR Group Partnerships on a segment basis. Private Markets Through KKR’s Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsors a group of funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate. These funds, vehicles and accounts are managed by KohlbergKravis Roberts & Co. L.P., an SEC registered investment adviser. Public Markets KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business advises funds, CLOs,separately managed accounts, and investment companies registered under the Investment Company Act, including a business development company or BDC,undertakings for collective investment in transferable securities or UCITS, and alternative investment funds or AIFs, which invest capital in (i) leveraged creditstrategies, such as leveraged loans, high yield bonds and opportunistic credit, and (ii) alternative credit strategies such as mezzanine investments, direct lendinginvestments, special situations investments, and long/short credit investment strategies. The funds, accounts, registered investment companies and CLOs in KKR'sleveraged credit and alternative credit strategies are managed by KKR Credit Advisors (US) LLC, which is an SEC-registered investment adviser, KKR CreditAdvisors (Ireland), regulated by the Central Bank of Ireland, and KKR Credit Advisors (UK) LLP, regulated by the United Kingdom Financial Conduct Authorityor FCA. KKR’s Public Markets segment also includes its hedge funds business that offers a variety of investment strategies, including customized hedge fundportfolios and hedge fund-of-fund solutions. The funds and accounts in our hedge fund business are managed by Prisma Capital Partners LP (KKR Prisma orPrisma), an SEC‑registered investment adviser. Through our Public Markets segment, we also have developed strategic partnerships by acquiring minority stakesin other hedge fund managers. Capital Markets The Capital Markets segment is comprised primarily of KKR’s global capital markets business. KKR’s capital markets business supports the firm, portfoliocompanies, and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seekingfinancing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other types ofcapital markets services. When KKR underwrites an offering of securities or a loan on a firm commitment basis, KKR commits to buy and sell an issue of securitiesor indebtedness and generate revenue by purchasing the securities or indebtedness at a discount or for a fee. When KKR acts in an agency capacity, KKR generatesrevenue for arranging financing or placing securities or debt with capital markets investors. We may also provide issuers with capital markets advice on securityselection, access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. KKR CapitalMarkets LLC is an SEC-registered broker-dealer and a FINRA member, and KKR is also registered or authorized to carry out certain broker-dealer activities invarious countries in North America, Europe, Asia-Pacific and the Middle East. KKR’s third party capital markets activities are generally carried out throughMerchant Capital Solutions LLC, a joint venture with one other unaffiliated partner, and non-bank financial companies, or NBFCs, in India.Principal ActivitiesThrough KKR's Principal Activities segment, we manage the firm’s assets and deploy capital to support and grow our businesses.We use KKR's Principal Activities assets to support KKR's investment management and capital markets businesses. Typically, the funds in our Private Marketsand Public Markets businesses contractually require KKR, as general partner of the funds, to make sizable capital commitments from time to time. KKR alsodeploys Principal Activities assets in order to help establish a track record for fundraising purposes in new strategies. KKR may also use its own capital to seedinvestments for new funds, to bridge capital selectively for its funds’ investments or finance strategic acquisitions and partnerships, although the financial results ofan acquired businesses or strategic partnership may be reported in our Public Markets segment.219Notes to Consolidated Financial Statements (Continued)Principal Activities assets also provide the required capital to fund the various commitments of the Capital Markets business when underwriting or syndicatingsecurities, or when providing term loan commitments for transactions involving portfolio companies and for third parties. Principal Activities assets also may beutilized to satisfy regulatory requirements for the Capital Markets business and risk retention requirements for CLOs. KKR earns the majority of its fees from subsidiaries located in the United States.Key Performance Measure - Economic Net Income (“ENI”) ENI is used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportablebusiness segments. The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. andKKR Holdings and as such represents the business in total. In addition, KKR’s reportable segments are presented without giving effect to the consolidation of thefunds that KKR manages.ENI is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investmentearnings of KKR and its business segments. ENI is comprised of total segment revenues; less total segment expenses and certain economic interests in KKR’ssegments held by third parties. ENI differs from net income (loss) on a GAAP basis as a result of: (i) the inclusion of management fees earned from consolidatedfunds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to theamortization of intangible assets; (iv) the exclusion of non-cash equity-based charges and other non-cash compensation charges borne by KKR Holdings or incurredunder the Equity Incentive Plan and other securities that are exchangeable for common units of KKR & Co. L.P.; (v) the exclusion of certain non-recurring items;(vi) the exclusion of investment income (loss) relating to noncontrolling interests; and (vii) the exclusion of income taxes.Modification of Segment InformationKKR’s management has reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of eachof KKR’s operating segments. As a result, KKR has modified the presentation of its segment financial information. In addition, since becoming a public company,KKR's principal assets have grown in significance and are a meaningful contributor to its financial results.Certain of the more significant changes between KKR’s current segment presentation and its previously reported segment presentation are described in thefollowing commentary.Inclusion of a Fourth SegmentAll income (loss) on investments is attributed to a new fourth segment called Principal Activities. Previously, income on investments held directly by KKR wasreported in the Private Markets segment, Public Markets segment or Capital Markets segment based on the character of the income generated. For example, incomefrom private equity investments was previously included in the Private Markets segment. However, the financial results of acquired businesses and strategicpartnerships have been reported in our other segments.Expense AllocationsKKR has changed the manner in which expenses are allocated among its operating segments. Specifically, as described below, (i) a portion of expenses, exceptfor broken deal expenses, previously reflected in the Private Markets, Public Markets or Capital Markets segments are now reflected in the Principal Activitiessegment and (ii) corporate expenses are allocated across all segments.Expenses Allocated to Principal Activities A portion of the cash compensation and benefits, occupancy and related charges and other operating expenses previously included in the Private Markets,Public Markets and Capital Markets segments is now allocated to the Principal Activities segment. The Principal Activities segment incurs its own direct costs, andan allocation from the other segments is also made to reflect the estimated amount of costs that are necessary to operate the Principal Activities segment, which areincremental to those costs incurred directly by the Principal Activities segment. The total amount of expenses (other than its direct costs) that is allocated toPrincipal Activities is based on the proportion of revenue earned by Principal Activities, relative to other220Notes to Consolidated Financial Statements (Continued)operating segments, over the preceding four annual periods. This allocation percentage is updated annually or more frequently if there are material changes toKKR's business.Once the total amount of expense to be allocated to the Principal Activities segment is estimated for each reporting period, the amount of this expense will beallocated from the Private Markets, Public Markets and Capital Markets segments based on the proportion of headcount in each of these three segments.Allocations of Corporate OverheadCorporate expenses are allocated to each of the Private Markets, Public Markets, Capital Markets and Principal Activities segments based on the proportion ofrevenues earned by each segment over the preceding four calendar years. In KKR's previously reported segment presentation, all corporate expenses were allocatedto the Private Markets segment.In connection with these modifications, segment information for the years ended December 31, 2014 and 2013 has been presented in conformity with KKR’scurrent segment presentation. Consequently, this information will not be consistent with historical segment financial results previously reported. While the modifiedsegment presentation impacted the amount of economic net income reported by each operating segment, it had no impact on KKR’s economic net income on a totalreportable segment basis. 221Notes to Consolidated Financial Statements (Continued)The following tables present the financial data for KKR’s reportable segments: As of and for the Year Ended December 31, 2015 PrivateMarkets Public Markets CapitalMarkets PrincipalActivities TotalReportableSegmentsSegment Revenues Management, Monitoring and Transaction Fees, Net Management Fees$465,575 $266,458 $— $— $732,033Monitoring Fees264,643 — — — 264,643Transaction Fees144,652 28,872 191,470 — 364,994Fee Credits (1)(195,025) (24,595) — — (219,620)Total Management, Monitoring and Transaction Fees,Net679,845 270,735 191,470 — 1,142,050 Performance Income Realized Incentive Fees— 19,647 — — 19,647Realized Carried Interest1,018,201 8,953 — — 1,027,154Unrealized Carried Interest182,628 (19,083) — — 163,545Total Performance Income1,200,829 9,517 — — 1,210,346 Investment Income (Loss) Net Realized Gains (Losses)— — — 337,023 337,023Net Unrealized Gains (Losses)— — — (391,962) (391,962)Total Realized and Unrealized— — — (54,939) (54,939)Interest Income and Dividends— — — 411,536 411,536Interest Expense— — — (203,085) (203,085)Net Interest and Dividends— — — 208,451 208,451Total Investment Income (Loss)— — — 153,512 153,512 Total Segment Revenues1,880,674 280,252 191,470 153,512 2,505,908 Segment Expenses Compensation and Benefits Cash Compensation and Benefits193,995 73,863 34,562 107,572 409,992Realized Performance Income Compensation407,280 11,438 — — 418,718Unrealized Performance Income Compensation74,560 (7,633) — — 66,927Total Compensation and Benefits675,835 77,668 34,562 107,572 895,637Occupancy and Related Charges33,640 9,808 2,641 16,568 62,657Other Operating Expenses127,836 40,591 14,618 50,573 233,618Total Segment Expenses837,311 128,067 51,821 174,713 1,191,912 Income (Loss) attributable to noncontrolling interests1,645 1,259 13,103 — 16,007 Economic Net Income (Loss)$1,041,718 $150,926 $126,546 $(21,201) $1,297,989 Total Assets$1,831,716 $1,232,404 $521,927 $9,843,251 $13,429,298(1)KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoringand transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to thefund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certainfund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may varyfrom fund to fund as well as among different classes of investors within a fund.222Notes to Consolidated Financial Statements (Continued) As of and for the Year Ended December 31, 2014 PrivateMarkets PublicMarkets CapitalMarkets PrincipalActivities TotalReportableSegmentsSegment Revenues Management, Monitoring and Transaction Fees, Net Management Fees$453,210 $272,833 $— — $726,043Monitoring Fees135,160 — — — 135,160Transaction Fees214,612 27,145 217,920 — 459,677Fee Credits (1)(198,680) (23,357) — — (222,037)Total Management, Monitoring and Transaction Fees,Net604,302 276,621 217,920 — 1,098,843 Performance Income Realized Incentive Fees— 47,807 — — 47,807Realized Carried Interest1,159,011 34,650 — — 1,193,661Unrealized Carried Interest70,058 40,075 — — 110,133Total Performance Income1,229,069 122,532 — — 1,351,601 Investment Income (Loss) Net Realized Gains (Losses)— — — 628,403 628,403Net Unrealized Gains (Losses)— — — (396,425) (396,425)Total Realized and Unrealized— — — 231,978 231,978Interest Income and Dividends— — — 408,084 408,084Interest Expense— — — (134,909) (134,909)Net Interest and Dividends— — — 273,175 273,175Total Investment Income (Loss)— — — 505,153 505,153 Total Segment Revenues1,833,371 399,153 217,920 505,153 2,955,597 Segment Expenses Compensation and Benefits Cash Compensation and Benefits153,339 64,530 41,551 121,161 380,581Realized Performance Income Compensation463,605 32,984 — — 496,589Unrealized Performance Income Compensation33,430 16,029 — — 49,459Total Compensation and Benefits650,374 113,543 41,551 121,161 926,629Occupancy and Related Charges30,946 7,214 1,523 18,104 57,787Other Operating Expenses125,398 31,501 11,497 60,673 229,069Total Segment Expenses806,718 152,258 54,571 199,938 1,213,485 Income (Loss) attributable to noncontrolling interests1,424 1,636 11,886 — 14,946 Economic Net Income (Loss)$1,025,229 $245,259 $151,463 $305,215 $1,727,166 Total Assets$1,658,164 $685,809 $462,072 $10,405,622 $13,211,667(1)KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoringand transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to thefund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certainfund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may varyfrom fund to fund as well as among different classes of investors within a fund.223Notes to Consolidated Financial Statements (Continued) As of and for the Year Ended December 31, 2013 PrivateMarkets Public Markets CapitalMarkets PrincipalActivities TotalReportableSegmentsSegment Revenues Management, Monitoring and Transaction Fees, Net Management Fees$459,496 $206,134 $— $— $665,630Monitoring Fees120,267 — — — 120,267Transaction Fees150,118 40,314 146,254 — 336,686Fee Credits (1)(136,662) (29,950) — — (166,612)Total Management, Monitoring and Transaction Fees,Net593,219 216,498 146,254 — 955,971 Performance Income Realized Incentive Fees— 72,359 — — 72,359Realized Carried Interest690,027 — — — 690,027Unrealized Carried Interest661,803 62,338 — — 724,141Total Performance Income1,351,830 134,697 — — 1,486,527 Investment Income (Loss) Net Realized Gains (Losses)— — — 635,633 635,633Net Unrealized Gains (Losses)— — — 301,262 301,262Total Realized and Unrealized— — — 936,895 936,895Interest Income and Dividends— — — 87,168 87,168Interest Expense— — — (65,662) (65,662)Net Interest and Dividends— — — 21,506 21,506Total Investment Income (Loss)— — — 958,401 958,401 Total Segment Revenues1,945,049 351,195 146,254 958,401 3,400,899 Segment Expenses Compensation and Benefits Cash Compensation and Benefits148,557 24,696 31,118 110,457 314,828Realized Performance Income Compensation276,011 28,944 — — 304,955Unrealized Performance Income Compensation282,003 24,935 — — 306,938Total Compensation and Benefits706,571 78,575 31,118 110,457 926,721Occupancy and Related Charges31,769 2,837 877 20,844 56,327Other Operating Expenses106,917 36,006 9,698 63,262 215,883Total Segment Expenses845,257 117,418 41,693 194,563 1,198,931 Income (Loss) attributable to noncontrolling interests1,498 1,560 3,329 — 6,387 Economic Net Income (Loss)$1,098,294 $232,217 $101,232 $763,838 $2,195,581 Total Assets$1,600,433 $360,891 $441,012 $6,580,721 $8,983,057(1)KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoringand transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to thefund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certainfund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may varyfrom fund to fund as well as among different classes of investors within a fund.224Notes to Consolidated Financial Statements (Continued)The following tables reconcile KKR’s total reportable segments to the most directly comparable financial measures calculated and presented in accordancewith GAAP: Fees For the Years Ended December 31, 2015 2014 2013Total Segment Revenues$2,505,908 $2,955,597 $3,400,899Management fees relating to consolidated funds and other entities(531,027) (510,777) (487,669)Fee credits relating to consolidated funds202,269 203,466 144,416Net realized and unrealized carried interest(1,190,699) (1,303,794) (1,414,168)Total investment income (loss)(153,512) (505,153) (958,401)Revenue earned by oil & gas producing entities112,328 186,876 22,105Reimbursable expenses66,144 55,424 41,529Other32,357 28,369 13,835Fees and Other$1,043,768 $1,110,008 $762,546 Expenses For the Years Ended December 31, 2015 2014 2013Total Segment Expenses$1,191,912 $1,213,485 $1,198,931Equity based compensation261,579 310,403 307,514Reimbursable expenses103,307 92,366 58,358Operating expenses relating to consolidated funds andother entities65,012 93,182 26,835Expenses incurred by oil & gas producing entities153,611 333,123 20,442Intangible amortization, acquisition, litigation and certainnon-recurring costs49,766 102,877 92,593Other46,038 50,631 62,465Total Expenses$1,871,225 $2,196,067 $1,767,138 Income (Loss) Before Taxes For the Years Ended December 31, 2015 2014 2013Economic net income$1,297,989 $1,727,166 $2,195,581Income tax (benefit)(66,636) (63,669) (37,926)Amortization of intangibles and other, net(47,599) (290,348) (102,789)Equity based compensation(261,579) (310,403) (307,514)Net income (loss) attributable to noncontrolling interests held by KKR Holdings(433,693) (585,135) (1,056,126)Net income (loss) attributable to KKR & Co. L.P.$488,482 $477,611 $691,226Net income (loss) attributable to noncontrolling interests and appropriated capital4,791,062 4,920,750 7,100,747Net income (loss) attributable to redeemable noncontrolling interests(4,512) (3,341) 62,255Income tax (benefit)66,636 63,669 37,926Income (loss) before taxes$5,341,668 $5,458,689 $7,892,154 225Notes to Consolidated Financial Statements (Continued)The items that reconcile KKR’s total reportable segments to the corresponding consolidated amounts calculated and presented in accordance with GAAP fornet income (loss) attributable to redeemable noncontrolling interests and income (loss) attributable to noncontrolling interests and appropriated capital are primarilyattributable to the impact of the consolidation of KKR's funds and certain other entities.Assets As of December 31, 2015 2014Total Segment Assets$13,429,298 $13,211,667Consolidation of KKR Funds, CFEs and other entities57,581,456 52,617,368Accounting basis difference for oil & natural gas properties47,005 43,710Total Assets$71,057,759 $65,872,745226Table of Contents14. ACQUISITIONS Acquisition of KFN On April 30, 2014, KKR completed its acquisition of KFN by merger (the “Merger”) contemplated by an Agreement and Plan of Merger (the “MergerAgreement”), pursuant to which KFN became a subsidiary of KKR. KFN is a specialty finance company with expertise in a range of asset classes in which itinvests, consisting primarily of corporate loans, also known as leveraged loans, high yield debt securities, interests in joint ventures and partnerships, and interestsin oil and gas properties. The addition of KFN provided KKR with over $2 billion of permanent equity capital to support the continued growth of its business. The total consideration paid was approximately $2.4 billion consisting entirely of the issuance of 104.3 million KKR common units as follows (amounts inthousands except unit data):Number of KKR common units issued104,340,028KKR common unit price on April 30, 2014$22.71Estimated fair value of KKR common units issued$2,369,559 The following is a summary of the estimated fair values of the assets acquired and liabilities as of April 30, 2014, the date they were assumed (amounts inthousands):Cash and cash equivalents$210,413Cash and cash equivalents held at consolidated entities614,929Restricted cash and cash equivalents35,038Investments1,235,813Investments of consolidated CLOs6,742,768Other assets642,721Other assets of consolidated CLOs133,036Total assets9,614,718 Debt obligations724,509Debt obligations of consolidated CLOs5,663,666Accounts payable, accrued expenses and other liabilities118,427Other liabilities of consolidated CLOs344,660Total liabilities6,851,262 Noncontrolling interests378,983 Fair value of Net Assets Acquired2,384,473Less: Fair value of consideration transferred2,369,559Gain on acquisition$14,914 As of April 30, 2014, the fair value of the net assets acquired exceeded the fair value of consideration transferred by approximately $14.9 million and relatesprimarily to the difference between the fair value of the assets and liabilities of CLOs consolidated by KFN. This amount has been recorded in net gains (losses)from investment activities in the consolidated statements of operations. The consolidated statement of operations for the year ended December 31, 2014 includes the financial results of KFN since the date of acquisition, April 30,2014, through December 31, 2014. During this period, KFN’s revenues and net income (loss) attributable to KKR & Co. L.P. were $57.6 million and $(113.2)million , respectively. Fees for KFN represent oil and gas revenue from working and royalty interests in oil and natural gas producing properties consolidated byKKR. Additionally, the portion of net income that is allocable to KKR reflects KKR’s approximate ownership interest in the KKR Group Partnerships afterapplicable corporate and local income taxes for the year ended December 31, 2014.On a segment basis, the financial results of KFN are included within the Principal Activities segment.227Table of ContentsKKR incurred $8.3 million of acquisition related costs through the date of closing, which were expensed as incurred and are reflected within General,Administrative and Other. Acquisition of Avoca Capital On February 19, 2014, KKR closed its acquisition of 100% of the equity interests of Avoca Capital and its affiliates (“Avoca”). Avoca, now renamed KKRCredit Advisors (Ireland), was a European credit investment manager with approximately $8.2 billion in assets under management at the time of acquisition. Theaddition of Avoca provided KKR with a greater presence in the European leveraged credit markets.The total consideration included $83.3 million in cash and $56.5 million in securities of a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. thatare exchangeable into approximately 2.4 million KKR & Co. L.P. common units, at any time, at the election of the holders of the securities. In connection with thistransaction, there is no contingent consideration payable in the future. The following is a summary of the estimated fair values of the assets acquired and liabilities as of February 19, 2014, the date they were assumed:Cash and cash equivalents$24,381Investments20,905Investments of consolidated CLOs1,226,174Other assets of consolidated CLOs186,609Other assets7,370Intangible assets65,880Total assets1,531,319 Liabilities13,584Debt obligations of consolidated CLOs1,150,551Other liabilities of consolidated CLOs140,308Total liabilities1,304,443 Fair Value of Net Assets Acquired226,876Less: Fair value of subordinated notes of consolidated CLOs held by KKR prior to acquisition (a)74,029Less: Fair value of consideration transferred139,798Gain on acquisition$13,049(a)Represents subordinated notes in one of the consolidated CLOs held by KKR prior to the acquisition of Avoca. Upon acquisition of Avoca, KKR’s investment in the subordinatednotes was offset against the corresponding debt obligations of the consolidated CLO in purchase accounting. As of February 19, 2014, the fair value of the net assets acquired exceeded the fair value of consideration transferred by approximately $13.0 million andrelates primarily to the difference between the fair value of the assets and liabilities of CLOs required to be consolidated in connection with the Avoca transaction. This amount has been recorded in net gains (losses) from investment activities in the consolidated statements of operations.The consolidated statement of operations for the year ended December 31, 2014 includes the financial results of Avoca since the date of acquisition,February 19, 2014, through December 31, 2014. During this period, Avoca’s revenues and net income (loss) attributable to KKR & Co. L.P. were $39.7 million and$(3.3) million , respectively. This net income (loss) attributable to KKR & Co. L.P. reflects amortization of intangible assets and equity based compensation chargesassociated with Avoca since the date of the acquisition. Additionally, the portion of net income that is allocable to KKR reflects KKR’s approximate ownershipinterest in the KKR Group Partnerships after applicable corporate and local income taxes for the year ended December 31, 2014.On a segment basis, the financial results of Avoca are included within the Public Markets segment. 228Table of ContentsKKR incurred $4.4 million of acquisition related costs through the date of closing, which were expensed as incurred and are reflected within General,Administrative and Other.Pro Forma Financial InformationThe information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to KKR & Co. L.P. as if theacquisitions of KFN and Avoca had been consummated as of January 1, 2013 . Such information is unaudited and is based on estimates and assumptions whichKKR believes are reasonable. These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that wouldhave actually been realized had KKR, KFN and Avoca been a combined entity during 2014 and 2013 (amounts in thousands except unit data). Year Ended December 31,Selected Pro Forma Financial Information2014 2013Revenues$1,152,397 $871,144Net Income (Loss) attributable to KKR & Co. L.P.$533,828 $820,352Net Income (Loss) attributable to KKR & Co. L.P. per common unit-basic$1.28 $2.16Net Income (Loss) attributable to KKR & Co. L.P. per common unit-diluted$1.19 $2.00229Notes to Consolidated Financial Statements (Continued)15. TOTAL EQUITYUnit Repurchase ProgramOn October 27, 2015, KKR announced the authorization of a program providing for the repurchase by KKR of up to $500 million in the aggregate of itsoutstanding common units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiatedtransactions or otherwise. The timing, manner, price and amount of any unit repurchases will be determined by KKR in its discretion and will depend on a varietyof factors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will be in effectuntil the maximum approved dollar amount has been used to repurchase common units. The program does not require KKR to repurchase any specific number ofcommon units, and the program may be suspended, extended, modified or discontinued at any time. Since inception of the unit repurchase program throughDecember 31, 2015, KKR has repurchased approximately 9.9 million of outstanding common units.Distribution PolicyOn October 27, 2015, KKR announced a change to its distribution policy effective beginning with the distribution declared on February 11, 2016 with respectto the quarter ending December 31, 2015. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units inan amount of $0.16 per common unit per quarter. The declaration and payment of any distributions are subject to the discretion of the board of directors of thegeneral partner of KKR and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all, thatunitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR or that any particular distribution policy will bemaintained.230Notes to Consolidated Financial Statements (Continued)16. GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill from the acquisition of Prisma Capital Partners LP and its affiliates ("Prisma") represents the excess of acquisition costs over the fair value of nettangible and intangible assets acquired and is primarily attributed to synergies expected to arise after the acquisition of Prisma. The carrying value of goodwill was$89.0 million as of December 31, 2015 and December 31, 2014 , and is recorded within Other Assets on the consolidated statements of financial condition.Goodwill has been allocated entirely to the Public Markets segment. As of December 31, 2015 , the fair value of KKR’s reporting units substantially exceeded theirrespective carrying values. All of the goodwill is currently expected to be deductible for tax purposes. See Note 7 “Other Assets and Accounts Payable, AccruedExpenses and Other Liabilities.” Intangible Assets Intangible Assets, Net consists of the following: As of December 31, 2015 December 31, 2014Finite-Lived Intangible Assets$284,766 $284,766Accumulated Amortization (includes foreign exchange)(107,779) (75,564)Intangible Assets, Net$176,987 $209,202 Changes in Intangible Assets, Net consists of the following: Years Ended December 31, 2015 December 31, 2014Balance, Beginning of Period$209,202 $177,545Avoca Acquisition— 65,880Amortization Expense(27,004) (27,080)Foreign Exchange(5,211) (7,143)Balance, End of Period$176,987 $209,202 Amortization expense including foreign exchange relating to intangible assets held at December 31, 2015 is expected to be as follows:2016 $26,9072017 26,3572018 19,9222019 16,9882020 16,8362021 and thereafter 69,977Total Amortization Expense of Intangible Assets $176,987The intangible assets as of December 31, 2015 are expected to amortize over a weighted‑average period of 8.9 years.231Notes to Consolidated Financial Statements (Continued)17. COMMITMENTS AND CONTINGENCIES Debt Covenants Borrowings of KKR contain various debt covenants. These covenants do not, in management’s opinion, materially restrict KKR’s operating business orinvestment strategies. KKR is in compliance with its debt covenants in all material respects as of December 31, 2015 .Investment Commitments As of December 31, 2015 , KKR had unfunded commitments consisting of (i) $1,353.8 million to its active private equity and other investment vehicles and(ii) $191.1 million in connection with commitments by KKR’s capital markets business, (iii) $128.6 million relating to Merchant Capital Solutions LLC and (iv)other investment commitments of $171.6 million . Whether these amounts are actually funded, in whole or in part depends on the terms of such commitments,including the satisfaction or waiver of any conditions to funding. Non-cancelable Operating LeasesKKR’s non-cancelable operating leases consist primarily of leases of office space around the world. There are no material rent holidays, contingent rent, rentconcessions or leasehold improvement incentives associated with any of these property leases. In addition to base rentals, certain lease agreements are subject toescalation provisions and rent expense is recognized on a straight‑line basis over the term of the lease agreement.As of December 31, 2015 , the approximate aggregate minimum future lease payments, net of sublease income, required on the operating leases are as follows:2016$52,965201748,181201843,353201939,2922020 and thereafter62,018Total minimum payments required$245,809Contingent Repayment Guarantees The partnership documents governing KKR’s carry—paying funds, including funds relating to private equity, infrastructure, energy, real estate, mezzanine,direct lending and special situations investments, generally include a “clawback” provision that, if triggered, may give rise to a contingent obligation requiring thegeneral partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon theliquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminishedperformance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount towhich the general partner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners offunds that were not contributed to KKR in the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private EquityInvestors, L.P.) on October 1, 2009 (the “KPE Transaction”), as of December 31, 2015 , no carried interest was subject to this clawback obligation, assuming thatall applicable carry paying funds were liquidated at their December 31, 2015 fair values. Had the investments in such funds been liquidated at zero value, theclawback obligation would have been $2,423.4 million . Carried interest is recognized in the statement of operations based on the contractual conditions set forth inthe agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund’s investments were realized at the then estimatedfair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positiveand where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognizedcarried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceedthe amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation,if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawbackobligation, if any, is reflected as a reduction of KKR’s investment balance as this is where carried interest is initially recorded. 232Notes to Consolidated Financial Statements (Continued)Certain private equity funds that were contributed to KKR in the KPE Transaction in 2009 also include a “net loss sharing provision.” Upon the liquidation ofan investment vehicle to which a net loss sharing obligation applies, the general partner is required to contribute capital to the vehicle, to fund 20% of the net losseson investments. In these vehicles, such losses would be required to be paid by KKR to the fund investors in those vehicles in the event of a liquidation of the fundregardless of whether any carried interest had previously been distributed, and a greater share of investment losses would be allocable to KKR relative to the capitalthat KKR contributed to it as general partner. Based on the fair market values as of December 31, 2015 , there would have been no net loss sharing obligation. If thevehicles were liquidated at zero value, the net loss sharing obligation would have been zero as of December 31, 2015 . Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed toKKR had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repayamounts to fund investors pursuant to the general partners’ clawback obligations. The terms of the KPE Transaction require that principals remain responsible forany clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million . Through investmentrealizations, KKR's potential exposure has been reduced to $159.7 million as of December 31, 2015 . Using valuations as of December 31, 2015 , no amounts aredue with respect to the clawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise toclawback obligations that may be allocated generally to KKR and persons who participate in the carry pool. Unlike the clawback obligation, KKR will beresponsible for all amounts due under a net loss sharing obligation and will indemnify principals for any personal guarantees that they have provided with respect tosuch amounts. In addition, guarantees of or similar arrangements relating to clawback or net loss sharing obligations in favor of third party investors in an individualinvestment partnership by entities KKR owns may limit distributions of carried interest more generally. Indemnifications In the normal course of business, KKR enters into contracts that contain a variety of representations and warranties that provide general indemnifications andother indemnities relating to contractual performance. In addition, certain of KKR’s consolidated funds and KFN have provided certain indemnities relating toenvironmental and other matters and has provided nonrecourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each inconnection with the financing of certain real estate investments that KKR has made. KKR’s maximum exposure under these arrangements is unknown as this wouldinvolve future claims that may be made against KKR that have not yet occurred. However, based on experience, KKR expects the risk of material loss to be low. Litigation From time to time, KKR is involved in various legal proceedings, lawsuits and claims incidental to the conduct of KKR’s business. KKR’s business is alsosubject to extensive regulation, which may result in regulatory proceedings against it. KKR currently is and expects to continue to become, from time to time, subject to examinations, inquiries and investigations by various U.S. and non U.S.governmental and regulatory agencies, including but not limited to the U.S. Securities and Exchange Commission, or SEC, Department of Justice, state attorneygenerals, Financial Industry Regulatory Authority, or FINRA, and the U.K. Financial Conduct Authority. Such examinations, inquiries and investigations may resultin the commencement of civil, criminal or administrative proceedings against KKR or its personnel. Moreover, in the ordinary course of business, KKR is and can be both the defendant and the plaintiff in numerous lawsuits with respect to acquisitions,bankruptcy, insolvency and other types of proceedings. Such lawsuits may involve claims that adversely affect the value of certain investments owned by KKR’sfunds. KKR establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable.In such cases, there may be an exposure to loss in excess of any amounts accrued. No loss contingency is recorded for matters where such losses are either notprobable or reasonably estimable (or both) at the time of determination. Such matters may be subject to many uncertainties, including among others (i) theproceedings may be in early stages; (ii) damages sought may be unspecified, unsupportable, unexplained or uncertain; (iii) discovery may not have been started or isincomplete; (iv) there may be uncertainty as to the outcome of pending appeals or motions; (v) there may be significant factual issues to be resolved; or (vi) theremay be novel legal issues or unsettled legal theories to be presented or a large number of parties. Consequently, management is unable to estimate a range ofpotential loss, if any, related to these matters. In addition, loss contingencies may be, in part or in whole, subject to insurance or other payments such ascontributions and/or indemnity, which may reduce any ultimate loss. 233Notes to Consolidated Financial Statements (Continued)It is not possible to predict the ultimate outcome of all pending legal proceedings, and some of the matters discussed above seek or may seek potentially largeand/or indeterminate amounts. As of such date, based on information known by management, management has not concluded that the final resolutions of thematters above will have a material effect upon the consolidated financial statements. However, given the potentially large and/or indeterminate amounts sought ormay be sought in certain of these matters and the inherent unpredictability of investigations and litigations, it is possible that an adverse outcome in certain matterscould, from time to time, have a material effect on KKR’s financial results in any particular period. 18. REGULATORY CAPITAL REQUIREMENTS KKR has a registered broker-dealer subsidiary which is subject to the minimum net capital requirements of the SEC and the FINRA. Additionally, KKRentities based in London and Ireland are subject to the regulatory capital requirements of the U.K. Financial Conduct Authority and the Central Bank of Ireland,respectively. In addition, KKR has an entity based in Hong Kong which is subject to the capital requirements of the Hong Kong Securities and Futures Ordinance,an entity based in Japan subject to the capital requirements of Financial Services Authority of Japan, and two entities based in Mumbai which are subject to capitalrequirements of the Reserve Bank of India or RBI and the Securities and Exchange Board of India or SEBI. All of these entities have continuously operated inexcess of their respective minimum regulatory capital requirements. The regulatory capital requirements referred to above may restrict KKR’s ability to withdraw capital from its registered broker-dealer entities. At December 31,2015 , approximately $152.6 million of cash at KKR’s registered broker-dealer entities may be restricted as to the payment of cash dividends and advances to KKR. 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Three Months Ended, March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015Statement of Operations Data: Fees and Other$291,345 $255,874 $188,626 $307,923Less: Total Expenses515,033 554,177 276,920 525,095Total Investment Income (Loss)2,182,835 3,634,718 (1,136,991) 1,488,563Income (Loss) Before Taxes1,959,147 3,336,415 (1,225,285) 1,271,391Income Tax / (Benefit)16,138 30,547 (7,390) 27,341Net Income (Loss)1,943,009 3,305,868 (1,217,895) 1,244,050Less: Net Income (Loss) Attributable to RedeemableNoncontrolling Interests1,933 (891) (12,925) 7,371Less: Net Income (Loss) Attributable to NoncontrollingInterests and Appropriated Capital1,670,569 2,930,453 (1,014,382) 1,204,422Net Income (Loss) Attributable to KKR & Co. L.P.$270,507 $376,306 $(190,588) $32,257Net Income (Loss) Attributable to KKR & Co. L.P.Per Common Unit Basic$0.62 $0.84 $(0.42) $0.07Diluted$0.57 $0.78 $(0.42) $0.07Weighted Average Common Units Outstanding Basic434,874,820 446,794,950 452,165,697 461,374,013Diluted472,225,344 482,651,491 452,165,697 489,704,787234Notes to Consolidated Financial Statements (Continued) Three Months Ended, March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014Statement of Operations Data: Fees and Other$302,926 $249,370 $344,768 $212,944Less: Total Expenses473,171 585,325 504,410 633,161Total Investment Income (Loss)2,196,113 2,394,627 1,060,953 893,055Income (Loss) Before Taxes2,025,868 2,058,672 901,311 472,838Income Tax / (Benefit)21,702 6,176 29,267 6,524Net Income (Loss)2,004,166 2,052,496 872,044 466,314Less: Net Income (Loss) Attributable to RedeemableNoncontrolling Interests10,637 (6,809) (2,462) (4,707)Less: Net Income (Loss) Attributable to NoncontrollingInterests and Appropriated Capital1,783,488 1,881,090 784,568 471,604Net Income (Loss) Attributable to KKR & Co. L.P.$210,041 $178,215 $89,938 $(583)Net Income (Loss) Attributable to KKR & Co. L.P.Per Common Unit Basic$0.72 $0.47 $0.21 $0.00Diluted$0.65 $0.43 $0.20 $0.00Weighted Average Common Units Outstanding Basic293,490,461 377,542,161 419,961,455 431,432,521Diluted325,104,229 410,179,838 452,019,742 458,982,85920. SUBSEQUENT EVENTS Distribution A distribution of $0.16 per KKR & Co. L.P. common unit was announced on February 11, 2016 , and will be paid on March 8, 2016 to unitholders of record asof the close of business on February 22, 2016 . KKR Holdings will receive its pro rata share of the distribution from the KKR Group Partnerships.235Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. Item 9A. CONTROLS AND PROCEDURES Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of our disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and 15d- 15(e) under the Exchange Act) as of the end of the period covered by this report. Based on suchevaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and proceduresare at the reasonable assurance level: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclosein the reports that we file or submit under the Exchange Act; and (ii) effective in ensuring that information that we are required to disclose in the reports that we fileor submit under the Exchange Act is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.Management's Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (asdefined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, a company's principal executive andprincipal financial officers and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes thosepolicies and procedures that:• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that couldhave a material effect on the financial statements.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 . In making this assessment, managementused the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework, thatwas issued in 2013.Based on its assessment, our management has concluded that, as of December 31, 2015 , our internal control over financial reporting is effective.Changes in Internal Control Over Financial ReportingNo changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the fourth quarter of2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Attestation Report of the Independent Registered Public Accounting FirmOur independent registered public accounting firm, Deloitte & Touche LLP, has issued its attestation report on our internal control over financial reportingwhich is included in Item 8. Financial Statements and Supplementary Data.236Table of ContentsITEM 9B. OTHER INFORMATION On February 23, 2016, the board of directors of our Managing Partner authorized grants of restricted equity units as deferred equity bonus compensation toeach of our Chief Administrative Officer, Chief Financial Officer, and General Counsel. See "Executive Compensation—Compensation Discussion and Analysis—Compensation Elements—Year-End Bonus Compensation" for more information regarding the number of units granted and the terms of the awards, which isincorporated herein by reference. On February 23, 2016, board of directors of our Managing Partner consented to the grant by KKR Holdings L.P. of units in KKR Holdings L.P. to each of ourChief Administrative Officer, Chief Financial Officer, and General Counsel. See "Executive Compensation—Compensation Discussion and Analysis—Compensation Elements—KKR Holdings Market Condition Awards" for more information regarding the number of units granted and the terms of the awards,which is incorporated herein by reference.237Table of ContentsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Our Managing PartnerAs is commonly the case with limited partnerships, our limited partnership agreement provides for the management of our business and affairs by a generalpartner rather than a board of directors. Our Managing Partner serves as our sole general partner. Our Managing Partner has a board of directors that is co-chairedby our founders Henry Kravis and George Roberts, who also serve as our Co-Chief Executive Officers and are authorized to appoint our other officers. OurManaging Partner does not have any economic interest in our partnership.Directors and Executive OfficersThe following table presents certain information concerning the board of directors and executive officers of our Managing Partner.NameAge Position with Managing PartnerHenry R. Kravis72 Co-Chief Executive Officer, Co-Chairman and DirectorGeorge R. Roberts72 Co-Chief Executive Officer, Co-Chairman and DirectorDavid C. Drummond52 DirectorJoseph A. Grundfest64 DirectorJohn B. Hess61 Director Patricia F. Russo63 DirectorThomas M. Schoewe63 DirectorRobert W. Scully66 DirectorTodd A. Fisher50 Chief Administrative OfficerWilliam J. Janetschek53 Chief Financial OfficerDavid J. Sorkin56 General Counsel and SecretaryHenry R. Kravis co-founded KKR in 1976 and is Co-Chairman and Co-Chief Executive Officer of our Managing Partner. He is actively involved in managingthe firm and serves on regional Private Equity Investment and Portfolio Management Committees. Mr. Kravis currently serves on the boards of First DataCorporation and ICONIQ Capital, LLC. He also serves as a director, chairman emeritus or trustee of several cultural, professional, and educational institutions,including The Business Council, Claremont McKenna College, Columbia Business School, Mount Sinai Hospital, Partnership for New York City, Partnership Fundfor New York City, Rockefeller University, Sponsors for Educational Opportunity and Tsinghua University School of Economics and Management . He earned aB.A. from Claremont McKenna College in 1967 and an M.B.A. from the Columbia Business School in 1969. Mr. Kravis has more than four decades of experiencefinancing, analyzing, and investing in public and private companies, as well as serving on the boards of a number of KKR portfolio companies . As our co-founderand Co-Chief Executive Officer, Mr. Kravis has an intimate knowledge of KKR's business, which allows him to provide insight into various aspects of our businessand is of significant value to the board of directors. Mr. Kravis is a first cousin of Mr. Roberts.George R. Roberts co-founded KKR in 1976 and is Co-Chairman and Co-Chief Executive Officer of our Managing Partner. He is actively involved inmanaging the firm and serves on regional Private Equity Investment and Portfolio Management Committees. Mr. Roberts serves as a director or trustee of severalcultural and educational institutions, including Claremont McKenna College. He is also founder and chairman of the board of directors of REDF, a San Franciscononprofit organization. He earned a B.A. from Claremont McKenna College in 1966 and a J.D. from the University of California (Hastings) Law School in 1969.Mr. Roberts has more than four decades of experience financing, analyzing, and investing in public and private companies, as well as serving on the boards of anumber of KKR portfolio companies. As our co-founder and Co-Chief Executive Officer, Mr. Roberts has an intimate knowledge of KKR's business, which allowshim to provide insight into various aspects of our business and is of significant value to the board of directors. Mr. Roberts is a first cousin of Mr. Kravis.238Table of ContentsDavid C. Drummond has been a member of the board of directors of our Managing Partner since March 14, 2014. Mr. Drummond has served as the seniorvice president, corporate development of Alphabet Inc. (and its predecessor Google Inc.) since January 2006, as its chief legal officer since December 2006, and asits secretary since 2002. Previously, he served as Google Inc.'s vice president, corporate development and general counsel since February 2002. Prior to joiningGoogle Inc., from July 1999 to February 2002, Mr. Drummond served as chief financial officer of SmartForce, an educational software applications company. Priorto that, Mr. Drummond was a partner at the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Drummond holds a Juris Doctor degree from Stanford Universityand a Bachelor of Arts degree in history from Santa Clara University. Mr. Drummond provides significant value to the oversight and development of our businessthrough his management and leadership roles at a publicly-traded global technology business and his insight into legal developments affecting global enterprises.Joseph A. Grundfest has been a member of the board of directors of our Managing Partner since July 15, 2010. Mr. Grundfest has been a member of thefaculty of Stanford Law School since 1990, where he is the William A. Franke Professor of Law and Business. He is also senior faculty of the Arthur and ToniRembe Rock Center for Corporate Governance at Stanford University; founder and director of Directors' College, a venue for the professional education of directorsof publicly traded corporations; and co-founder of Financial Engines, Inc., a provider of services and advice to participants in employer-sponsored retirement plans,where he has served as a director since its inception in 1996. Mr. Grundfest was a Commissioner of the SEC from 1985 to 1990. He holds a B.A. in Economicsfrom Yale University and a J.D. from Stanford Law School. Mr. Grundfest's knowledge and expertise in capital markets, corporate governance, and securities lawsprovides significant value to the oversight and development of our business.John B. Hess has been a member of the board of directors of our Managing Partner since July 28, 2011. Mr. Hess has been the chief executive officer of HessCorporation since 1995 and a director since 1978. He was also director of Dow Chemical Co. from 2006 to 2013. He serves on the Secretary of Energy AdvisoryBoard Quadrennial Review Task Force and as a director on the Business Council, the Trilateral Commission and the Council on Foreign Relations and on theexecutive committee of the American Petroleum Institute. Mr. Hess is a member of the board of trustees at the New York Public Library, Mount Sinai Hospital, theLincoln Center for the Performing Arts and the Dean's Advisors at Harvard Business School, and chairs The Harvard Business School Campaign. Mr. Hess earned aB.A. from Harvard College and an M.B.A. from Harvard Business School. Mr. Hess provides significant value to the oversight and development of our businessthrough his management and leadership roles at a global energy business, and his involvement with major businesses and public policy organizations also providesvaluable perspectives for our company.Patricia F. Russo has been a member of the board of directors of our Managing Partner since April 15, 2011. Ms. Russo served as chief executive officer ofAlcatel-Lucent from 2006 to 2008. Prior to the merger of Alcatel and Lucent in 2006, she served as chairman and chief executive officer of Lucent Technologies,Inc. from 2003 to 2006, and as president and chief executive officer from 2002 to 2003. Before rejoining Lucent in 2002, Ms. Russo was president and chiefoperating officer of Eastman Kodak Company from March 2001 to December 2001. Since November 2015, Ms. Russo has been the chairman of Hewlett PackardEnterprise Company, which was spun off from Hewlett-Packard Company, where Ms. Russo served as a director from 2011 to November 2011. She also serves adirector of Alcoa Inc. since 2008, Merck & Co., Inc. since 2009 and General Motors Company since 2009. Prior to its merger with Merck in 2009, Ms. Russoserved as a director of Schering-Plough since 1995. She graduated from Georgetown University with a bachelor's degree in political science and history, andobtained an Advanced Management Degree from Harvard Business School's Advanced Management Program. Ms. Russo's management and leadership experienceas chief executive officer of complex global companies as well as her experience with corporate strategy, mergers and acquisitions, and sales and marketing bringsimportant expertise to the oversight and development of our business. Ms. Russo also brings extensive experience in corporate governance as a member of boardsand board committees of other public companies.Thomas M. Schoewe has been a member of the board of directors of our Managing Partner since March 14, 2011. Mr. Schoewe was executive vice presidentand chief financial officer for Wal-Mart Stores, Inc., a position he held from 2000 to 2010, and was employed by Walmart in a transitional capacity to January 2011.Prior to his employment at Walmart, Mr. Schoewe served as senior vice president and chief financial officer for Black and Decker Corp., a position he held from1993 to 1999. Prior to that, he served for four years as Black and Decker's vice president of finance. He previously held the position of vice president of businessplanning and analysis. He joined Black and Decker in 1986 after serving at Chicago-based Beatrice Companies, where he was chief financial officer and controllerof Beatrice Consumer Durables, Inc. He has served on the board of directors of Northrop Grumman Corporation and General Motors Company since 2011. From2001 to May 2012, he served on the board of directors of PulteGroup Inc., which merged with Centex Corporation in 2009 and previously served on the Centexboard. Mr. Schoewe graduated from Loyola University of Chicago with a bachelor's of business administration degree in finance. Mr. Schoewe's experience infinancial reporting, accounting and control, and business planning and analysis brings important expertise to the oversight and development of our business.239Table of ContentsRobert W. Scully has been a member of the board of directors of our Managing Partner since July 15, 2010. Mr. Scully was a member of the Office of theChairman of Morgan Stanley from 2007 until his retirement in 2009, where he had previously been co-president, chairman of global capital markets and vicechairman of investment banking. Prior to joining Morgan Stanley, he served as a managing director at Lehman Brothers and at Salomon Brothers. Mr. Scully hasserved as a director of Zoetis Inc. since June 2013 and Chubb Limited (formerly ACE Limited) since May 2014 and as a public governor of the Financial IndustryRegulatory Authority, or FINRA, since November 2014. Previously, he was a director of Bank of America Corporation until May 2013 and has also served as adirector of GMAC Financial Services and MSCI Inc. He holds an A.B. from Princeton University and an MBA from Harvard Business School. Mr. Scully's 35-yearcareer in the financial services industry brings important expertise to the oversight of our business. In addition, his leadership experience with a global financialservices company brings an industry perspective to our business development within and outside the U.S. as well as issues such as talent development, senior clientrelationship management, strategic initiatives, risk management and audit and financial reporting.Todd A. Fisher joined KKR in 1993 and is Chief Administrative Officer of our Managing Partner. Mr. Fisher is responsible for overseeing the finance, legal,information technology, human resources, public affairs and office operations functions, coordinating with the various businesses and geographies of KKR andoverseeing the firm's efforts in real estate investments. He is a member of KKR's Real Estate Investment and Portfolio Management Committees and also chairs thefirm's Risk Committee. He served as a director of Maxeda B.V. until October 2015, as a director of Rockwood Holdings, Inc. until January 2013 and NorthgateInformation Solutions plc until 2012. Prior to joining KKR, Mr. Fisher worked for Goldman, Sachs & Co. in New York and for Drexel Burnham Lambert in LosAngeles. Mr. Fisher holds a B.A. from Brown University, an M.A. in International Affairs from Johns Hopkins University, and an M.B.A. from the Wharton Schoolof the University of Pennsylvania. He is currently a member of the Board of Trustees of Brown University, the Board of Advisors for The Johns Hopkins UniversitySchool for Advanced International Studies, the Advisory Board of the Clinton Health Access Initiative, the United States Holocaust Memorial Council and theCouncil on Foreign Relations.William J. Janetschek joined KKR in 1997 and is Chief Financial Officer of our Managing Partner. He has also been the president and chief executive officerof KKR Financial Services LLC since June 2014 and a director since May 2014. Prior to joining KKR, he was a Tax Partner at Deloitte & Touche LLP. He holds aB.S. from St. John's University and an M.S., Taxation from Pace University. Mr. Janetschek is actively involved in the community, serving as a sponsor andmember of a variety of non-profit organizations including Student Sponsor Partners and St. John's University.David J. Sorkin joined KKR in 2007 and is General Counsel and Secretary of our Managing Partner. Prior to joining KKR, Mr. Sorkin was with SimpsonThacher & Bartlett LLP for 22 years. He served as a partner at the law firm and also served on the executive committee and was one of KKR's principal outsidecounsels. He received a B.A., summa cum laude, from Williams College and a J.D., cum laude, from Harvard Law School.Independence and Composition of the Board of DirectorsOur Managing Partner's board of directors consists of eight directors, six of whom, Messrs. Drummond, Grundfest, Hess, Schoewe and Scully and Ms. Russo,are independent under NYSE rules relating to corporate governance matters and the independence standards described in our corporate governance guidelines. Inaddition. Dieter Rampl, who served as a director for a portion of the fiscal year ended December 31, 2015, was an independent director during such time. While weare exempt from NYSE rules relating to board independence, our Managing Partner intends to maintain a board of directors that consists of at least a majority ofdirectors who are independent under NYSE rules relating to corporate governance matters. In addition, the board has considered transactions and relationshipsbetween KKR and the companies and organizations on whose boards or other similar governing bodies where our directors also serve or where our directors serveas executive officers.Board CommitteesOur Managing Partner's board of directors has four standing committees: an audit committee, a conflicts committee, a nominating and corporate governancecommittee and an executive committee that operate pursuant to written charters as described below. Because we are a limited partnership, our Managing Partner'sboard is not required by NYSE rules to establish a compensation committee or a nominating and corporate governance committee or to meet other substantiveNYSE corporate governance requirements. While the board has established a nominating and governance committee, we rely on available exemptions concerningthe committee's composition and mandate. 240Table of ContentsAudit CommitteeThe audit committee consists of Messrs. Grundfest (Chairman), Schoewe and Scully. The purpose of the audit committee is to provide assistance to the boardof directors in fulfilling its responsibility with respect to its oversight of: (i) the quality and integrity of our financial statements, including investment valuations; (ii)our compliance with legal and regulatory requirements; (iii) our independent registered public accounting firm's qualifications, independence and performance; and(iv) the performance of our internal audit function. The members of the audit committee meet the independence standards and financial literacy requirements forservice on an audit committee of a board of directors pursuant to the Exchange Act and NYSE rules applicable to audit committees. The Managing Partner's boardof directors has determined that each of Messrs. Grundfest, Schoewe and Scully is an "audit committee financial expert" within the meaning of Item 407(d)(5) ofRegulation S-K. The audit committee has a charter which is available at the Investor Center section of our internet website at www.kkr.com.Conflicts CommitteeThe conflicts committee consists of Messrs. Drummond, Grundfest, Hess, Schoewe and Scully and Ms. Russo. The conflicts committee is responsible forreviewing specific matters that the board of directors believes may involve a conflict of interest and for enforcing our rights under any of the exchange agreement,the tax receivable agreement, the limited partnership agreement of any KKR Group Partnership or our limited partnership agreement, which we refer collectively toas the covered agreements, against KKR Holdings and certain of its subsidiaries and designees, a general partner or limited partner of KKR Holdings, or a personwho holds a partnership or equity interest in the foregoing entities. The conflicts committee is also authorized to take any action pursuant to any authority or rightsgranted to such committee under any covered agreement or with respect to any amendment, supplement, modification or waiver to any such agreement that wouldpurport to modify such authority or rights. In addition, the conflicts committee shall approve any amendment to any of the covered agreements that in the reasonablejudgment of our Managing Partner's board of directors is or will result in a conflict of interest. The conflicts committee will determine if the resolution of anyconflict of interest submitted to it is fair and reasonable to our partnership. Any matters approved by the conflicts committee will be conclusively deemed to be fairand reasonable to our partnership and not a breach of any duties that may be owed to our unitholders. In addition, the conflicts committee may review and approveany related person transactions, other than those that are approved pursuant to our related person policy, as described under "Certain Relationships and RelatedTransactions, and Director Independence—Statement of Policy Regarding Transactions with Related Persons," and may establish guidelines or rules to coverspecific categories of transactions. The members of the conflicts committee meet the independence standards under our corporate governance guidelines as requiredfor service on the conflicts committee in accordance with its charter.Nominating and Corporate Governance CommitteeThe nominating and corporate governance committee consists of Messrs. Kravis, Roberts and Scully. The nominating and corporate governance committee isresponsible for identifying and recommending candidates for appointment to the board of directors and for assisting and advising the board of directors with respectto matters relating to the general operation of the board and corporate governance matters. Mr. Scully meets the independence standards under the rules of theNYSE as required for service on the nominating and corporate governance committee in accordance with its charter.Executive CommitteeThe executive committee consists of Messrs. Kravis and Roberts. The purpose of the executive committee is to act, when necessary, in place of our ManagingPartner's full board of directors during periods in which the board is not in session. The executive committee is authorized and empowered to act as if it were thefull board of directors in overseeing our business and affairs, except that it is not authorized or empowered to take actions that have been specifically delegated toother board committees or to take actions with respect to: (i) the declaration of distributions on our common units; (ii) a merger or consolidation of our partnershipwith or into another entity; (iii) a sale, lease or exchange of all or substantially all of our assets; (iv) a liquidation or dissolution of our partnership; (v) any actionthat must be submitted to a vote of our Managing Partner's members or our unitholders; or (vi) any action that may not be delegated to a board committee under ourManaging Partner's limited liability company agreement or the Delaware Limited Liability Company Act.241Table of ContentsCode of Business Conduct and EthicsWe have a Code of Business Conduct and Ethics which applies to our principal executive officers, principal financial officer and principal accounting officerand is available on our internet website at www.kkr.com under the "Investor Center" section. In accordance with, and to the extent required by the rules andregulations of the Securities and Exchange Commission, we intend to disclose any amendment to or waiver of the Code of Business Conduct and Ethics on behalfof an executive officer or director either on our internet website or in a Current Report on Form 8-K filing.Corporate Governance GuidelinesOur Managing Partner's board of directors has a governance policy which addresses matters such as the board of directors' responsibilities and duties, the boardof directors' composition and compensation and director independence. The governance guidelines are available on our internet website at www.kkr.com under the"Investor Center" section.Communications to the Board of DirectorsThe non-management members of our Managing Partner's board of directors meet regularly. At each meeting of the non-management members, the non-management directors choose a director to lead the meeting. All interested parties, including any employee or unitholder, may send communications to the non-management members of our Managing Partner's board of directors by writing to: the General Counsel, KKR & Co. L.P., 9 West 57th Street, Suite 4200, NewYork, New York 10019. Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act, requires the executive officers and directors of our general partner, and persons who beneficially own more than ten percentof a registered class of the Partnership's equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and furnish thePartnership with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports or written representationsfrom 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 tothe fiscal year ended December 31, 2015 , such persons complied with all such filing requirements except that KKR Holdings had one late Form 4 filing relating toone transaction.ITEM 11. EXECUTIVE COMPENSATIONCompensation Discussion and AnalysisCompensation PhilosophyOur compensation program has three primary objectives: (1) to attract, motivate and retain our employees, (2) to align their interests with those of ourunitholders and fund investors, and (3) to reinforce our culture and values.Our employees. Our business as an investment firm is dependent on the services of our employees, including our named executive officers. Among otherthings, we depend on their ability to find, select and execute investments, manage and improve portfolio company operations, find and develop relationships withfund investors and other sources of capital, and provide other services, and we cannot compete without their continued employment with us. Therefore, it isimportant that our key employees are compensated in a manner that motivates them to excel consistently and encourages them to remain with the firm.Alignment of interests. Management equity ownership in the businesses in which we invest has been a guiding principle throughout our firm's history, and weapply that principle to ourselves: every employee of the firm is expected to have an equity interest in KKR. This equity ownership serves to align the interests of ouremployees with those of our unitholders. In addition, because we invest in and alongside our investment funds and have a carry pool from which we can allocate toour employees 40% of the carried interest that we generate through our business, we believe that our employees' interests are also aligned with those of ourinvestors in the funds, vehicles and accounts that we manage, which in turn benefits our unitholders.Culture and values. One of our most important values is our "one- firm" approach with shared responsibility and success, and we also subscribe to a culture ofmeritocracy and fairness. Therefore, compensation is based on the performance of the firm as a whole as well as on an individual's contributions to the firm. Forexample, we do not compensate people based merely on an individual's accomplishments in relation to the profits and losses of his or her business unit. In addition,we conduct, at least annually, an evaluation process based on input from a wide range of persons regarding each employee's contribution to the242Table of Contentsfirm, including his or her commitment to the firm's culture and values. We believe that using this kind of an evaluation process also promotes a measure ofobjectivity as a balance to a single manager's judgment.We refer to our two Co-Chief Executive Officers, our Chief Administrative Officer, our Chief Financial Officer and our General Counsel as our "namedexecutive officers." We believe that the elements of compensation discussed below for our named executive officers serve these primary objectives. We, as alimited partnership with no annual meeting of unitholders, are not required to conduct say-on-pay or say-on-frequency votes as provided in the Dodd-Frank Act.However, we intend periodically to review the elements of our compensation, and we may make changes to the compensation structure relating to one or morenamed executive officers based on the outcome of such reviews from time to time.KKR HoldingsEach of our named executive officers holds interests in our business through KKR Holdings, which is the entity that indirectly owns all of the outstanding KKRGroup Partnership Units that are not allocable to us.KKR Holdings units are, subject to certain restrictions, exchangeable for our common units, on a one-for-one basis, and generally cannot be sold to third partiesfor monetary value unless they are first exchanged for our common units. Because KKR Holdings units are exchangeable for our common units, we believe that ournamed executive officers' interests are aligned with those of our unitholders.KKR Holdings, from time to time, receives distributions that are made on KKR Group Partnership Units that are held by it. To the extent such distributions arereceived on KKR Group Partnership Units that underlie any KKR Holdings units that have satisfied their respective vesting requirements, if any, at the timedistributions are declared on the underlying KKR Group Partnership Units, such distributions will be allocated and further distributed to the named executiveofficers as and when received. To the extent that such distributions are made on KKR Group Partnership Units underlying any KKR Holdings units that have notsatisfied all vesting requirements at the time distributions are declared on the underlying KKR Group Partnership Units, such distributions may be allocated orotherwise applied in such amounts and in such manner as our Co-Chief Executive Officers, acting through the general partner of KKR Holdings, may determine.KKR Holdings units subject solely to service-based vesting requirements generally vested three to five years from the date of grant. KKR Holdings units subject toprice and service-based vesting requirements, which were first granted to certain of our named executive officers in 2016, are eligible to vest periodically intranches over a three year period starting on January 1, 2018 subject to the satisfaction of certain price and service-based vesting requirements. See "-CompensationElements - Year-End Bonus Compensation" for a description of these grants. As of February 22, 2016, approximately 7.7 million KKR Holdings units remainunallocated or unvested. In 2015 , our named executive officers received distributions on their vested KKR Holdings units, and because these distributions are not considered to becompensation, they have not been reported in the Summary Compensation Table.Compensation ElementsBase SalaryFor 2015 , each of our named executive officers was paid an annual salary of $300,000. We believe that the base salary of our named executive officers shouldtypically not be the most significant component of total compensation. Our Co-Chief Executive Officers determined that this amount was a sufficient minimum basesalary for our named executive officers and decided that it should be the same for all named executive officers. We are responsible for funding this base salary.Year-End Bonus CompensationOther than their salary and certain incidental benefits noted below under "Other Compensation," our Co-Chief Executive Officers did not receive any additionalcompensation in 2015 . They have decided at this time not to receive any bonus or other amounts from us or from KKR Holdings in excess of distributions payablewith respect to their KKR Holdings units. Instead, they have decided that year-end bonus payments from KKR Holdings for 2015 should be made to our otheremployees in order to motivate and retain them for the benefit of the firm.In 2015 , our Chief Administrative Officer, Chief Financial Officer and General Counsel were awarded additional year-end compensation as bonus paymentsthat were determined by our Co-Chief Executive Officers. Our Co-Chief Executive Officers made their subjective determinations by assessing our overallperformance and the contributions that our Chief Administrative Officer, Chief Financial Officer and General Counsel made to our development and success, as afirm, during the year. Certain factors that were considered when determining the size of the bonus payments for our Chief Administrative Officer, Chief243Table of ContentsFinancial Officer and General Counsel include (i) their respective contributions and accomplishments in 2015 in terms of driving commercial results for the firm,leading and managing people, and living the firm's values; (ii) their respective performance and contributions relative to other senior employees at the firm, (iii)their respective performance and contributions in 2015 as compared to the prior year, and (iv) the overall financial performance of the firm in 2015 as compared tothe prior year based on certain financial measures considered by management, including but not limited to cash earnings. More specifically, in assessing Mr.Fisher's contributions, they considered his service as the firm's Chief Administrative Officer, his role in overseeing the growth and operations of the firm, hisleadership in the development of our real estate business and his leadership on the strategic direction of the firm generally. In assessing Mr. Janetschek'scontributions, they considered his service as the Chief Financial Officer and his leadership and oversight of our finance, tax and accounting functions and relatedoperations and his role with respect to strategic initiatives undertaken by the firm. Finally, in assessing Mr. Sorkin's contributions, they considered his leadershipand oversight of our global legal and compliance functions and his role with respect to the strategic initiatives undertaken by the firm. In part, because the firm'sperformance in 2015 was mixed, with strong capital deployment and fundraising offset by weaker cash earnings and investment income than in 2014, the aggregatesize of the bonus granted to the named executive officers, consisting of their cash bonus and deferred equity bonus, with respect to fiscal 2015 was generally lowerrelative to the total bonus granted with respect to fiscal 2014. In making these determinations, our Co-Chief Executive Officers consulted with certain of our senioremployees and, with respect to the determinations for our Chief Financial Officer and General Counsel, considered the recommendations of our ChiefAdministrative Officer. We believe that the discretion permitted to our Co-Chief Executive Officers permits them to award bonus compensation in an amount theydetermine to be necessary to motivate and retain these named executive officers.Once the bonus amount is determined, the bonus amount is divided into cash compensation and, for our named executive officers, a recommendation to ourManaging Partner's board of directors for an award of deferred equity bonus compensation and, in some years, additional equity compensation. The amount ofdeferred equity bonus compensation for our principals is calculated using a graduated range of percentages applied to different incremental amounts of total salaryand bonus compensation ranging from 5% to 50%. In addition, senior employees including our named executive officers are eligible, in some years, for additionalequity compensation without reference to the graduated range of percentages. Grants of additional equity compensation may be made to our named executiveofficers in order to deliver a total bonus compensation determined by our Co-Chief Executive Officers as described above, less the cash compensation and deferredequity bonus. No grants of additional equity compensation were made to our named executive officers in connection with 2015 year-end bonus compensation,although market condition awards were granted to our named executive officers by KKR Holdings. See "—Market Condition Awards."The cash bonus amounts paid to our Chief Administrative Officer, our Chief Financial Officer and our General Counsel for 2015 are reflected in the Bonuscolumn of the 2015 Summary Compensation Table below.The portion of the bonus payment granted to our named executive officers (other than our Co-Chief Executive Officers, who received none) as 2015 deferredequity bonus compensation consists of grants of equity awards issued under the Equity Incentive Plan. These equity awards are restricted equity units that may besettled for our common units on a one-for-one basis. See below under "Terms of Restricted Equity Units" for more information. We call these equity grants"deferred" equity bonus compensation, because our named executive officers' ability to monetize them into cash is deferred to the future when the vestingprovisions (and any applicable transfer restrictions) discussed below lapse.The number of restricted equity units granted to our named executive officers (other than our Co-Chief Executive Officers, who received none) is determinedby our Managing Partner's board of directors. As part of 2015 year-end bonus compensation, our Managing Partner's board of directors approved the followinggrants: 101,540 restricted equity units to our Chief Administrative Officer, 57,727 restricted equity units to our Chief Financial Officer, and 59,799 restricted equityunits to our General Counsel, in each case as deferred equity bonus compensation. The number of restricted equity units was determined by dividing the dollaramount of deferred equity bonus compensation recommended by the Co-Chief Executive Officers to the board of directors by the average closing price of ourcommon units over the ten trading days ending December 4, 2015. Because these grants were made after December 31, 2015 and the associated restricted equityunits are generally issued in the first quarter of the following year, they do not appear in the tables below, but will appear in the tables for the year ended December31, 2016.The restricted equity units that were granted as deferred equity bonus compensation in respect of fiscal 2015 year-end compensation are subject to a three-yearservice-based vesting condition (with the first vesting event occurring on April 1, 2017). The restricted equity units for the deferred equity bonus are not subject toadditional transfer restrictions after vesting or any minimum retained ownership requirement. While our named executive officers did not receive restricted equityunits as additional equity compensation in connection with fiscal 2015 year-end compensation, such additional restricted equity units received in respect of fiscal2014 year-end compensation are subject to transfer restrictions after vesting and minimum retained244Table of Contentsownership requirements. From time to time such restrictions may be lifted and applied to an equivalent number of KKR Holdings Units held by an officer throughKKR Holdings L.P. Vesting requirements serve as an employment retention mechanism and thereby enhance the alignment of interests between our namedexecutive officers who receive year-end compensation payments and the firm. Because these restricted equity units are generally issued in the first quarter of thefollowing year, they do not appear in the tables below, but will appear in the tables for the year ended December 31, 2016.Our named executive officers along with other employees at the firm were eligible for additional equity compensation awards based on their performance andcontributions during the year as described above. Eligibility for this additional equity compensation was introduced for 2014 year-end compensation for our namedexecutive officers and grants made in February 2015 for 2014 year-end compensation are reflected in the Summary Compensation Table. While no additional equitycompensation was granted to our named executive officers in connection with 2015 year-end bonus compensation, these additional equity compensation awardsmay become a component of our annual year-end bonus determination for our named executive officers in the future. However, see "—Market Condition Awards"for market condition awards granted to our named executive officers by KKR Holdings.Market Condition AwardsIn 2016 our named executive officers (other than our Co-Chief Executive Officers, who received none) also received grants of KKR Holdings units subject toprice and service-based vesting requirements. The objective of these grants was to incentivize and retain certain senior employees, including certain of our namedexecutive officers, align their interests with those of unitholders and provide meaningful incremental long-term economic incentives in addition to year-endcompensation. These awards were not designed as an annual compensation program, but rather a retention and long-term incentive award program. The number ofKKR Holdings units granted to our named executive officers was determined by the general partner of KKR Holdings. Following the receipt of the consent of ourManaging Partner's board of directors, the general partner of KKR Holdings made the following grants: 900,000 KKR Holdings units to our Chief AdministrativeOfficer, 550,000 KKR Holdings units to our Chief Financial Officer, and 550,000 KKR Holdings units to our General Counsel. The KKR Holdings units granted toour named executive officers are outstanding but previously unallocated units, and consequently these grants will not increase the number of KKR Holdings unitsoutstanding. If and when vested and exchanged, these KKR Holdings units would not dilute KKR's respective ownership interests in the KKR Group Partnerships.The KKR Holdings units granted to these named executive officers are subject to price and service-based vesting requirements. Tranches of these KKRHoldings units become eligible to vest periodically over a three year period beginning on January 1, 2018 upon satisfaction of a service-based vesting condition andalso a price vesting condition based on the price of KKR common units reaching and maintaining certain specified price thresholds for a specified period of time.None of these KKR Holdings units are eligible to vest prior to January 1, 2018 and if applicable price targets are not achieved by the close of business on January 1,2021, any of these KKR Holdings units that remain unvested will be automatically forfeited. These KKR Holdings units are not subject to additional transferrestrictions after vesting but are subject to minimum retained ownership requirements. Because these grants were made after December 31, 2015, they do not appearin the tables below, but will appear in the tables for the year ended December 31, 2016.Carried InterestWe have available to allocate and distribute to a carry pool 40% of the carried interest that we earn, from which our employees are eligible to receive a carriedinterest allocation. Carry pool allocations for the named executive officers are made by first determining a total dollar value for the named executive officer'sinterest in the carry pool. Due to their unique status as co-founders of our firm, our Co-Chief Executive Officers determine their own allocation from the carry pool.To make this total dollar value determination for the other named executive officers, our Co-Chief Executive Officers take into consideration the executive officer'sinvolvement with investments and impact on the portfolio, the size of the executive officer's bonus, and other factors similar to those considered when determiningthe size of the bonus, as described under "—Year-End Bonus Compensation". However, the total dollar value available to be allocated to the named executiveofficers and other employees is limited by the total amount of investments made by our investment funds during the fiscal year, and executive officers and otheremployees may not be allocated any dollar value of carry in any given year. After a total dollar value, if any, for each named executive officer is determined, suchdollar value is then divided by the total value of investments made by our funds for the year, which yields a certain percentage for the named executive officer. Thispercentage is then applied consistently to each investment made during the year. Because the size of each investment is different, the nominal amount of the carrypool allocation differs by investment, although the percentage applied to each investment is consistent.A portion of the carried interest that is available for allocation to our employees is not immediately allocated when it becomes available and is instead reserved.This reserved carried interest is later allocated to a discrete number of employees245Table of Contentswhen it is determined that they deserve additional carried interest allocations based on their performance. The carry pool is maintained and administered by KKRAssociates Holdings L.P., which, similar to KKR Holdings, is not a subsidiary of ours. Allocations are determined by our Co-Chief Executive Officers actingthrough the general partner of KKR Associates Holdings L.P.Carried interest, if any, from the carry pool in respect of any particular investment is only paid in cash after all of the following are met: (i) a realization eventhas occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achieved positive overall investment returns since its inception, in excess ofperformance hurdles where applicable; and (iii) with respect to investments with a fair value below cost, cost has been returned to fund investors in an amountsufficient to reduce remaining cost to the investments' fair value. To the extent any "clawback" obligation is triggered, carried interest previously distributed by thefund would have to be returned to such fund, thereby reducing the named executive officer's overall compensation for any such year. A portion of certain carriedinterest payable is generally not distributed to the recipient and is instead held in escrow in order to enhance the recipient's ability to satisfy any future clawbackobligation. Because the amount of carried interest payable is directly tied to the realized performance of the underlying investments, we believe this fosters a strongalignment of interests among the investors in those funds and the named executive officers, and thus benefits our unitholders. In addition, several of our competitorsuse participation in carried interest as an important compensation element, and we believe that we must do the same in order to attract and retain the most qualifiedpersonnel.Participation in our carry pool for our employees, including our named executive officers, is subject only to service-based vesting with certain exceptions,including acceleration upon death or disability. In general, the vesting for carry pool allocations for investments made during or after 2013 is annual over a four-year period (other than for our Co-Chief Executive Officers). The vesting schedules for investments made prior to 2013 range from four-year vesting (with novesting upon grant) for the most junior employees up to two-year vesting (and 50% vesting upon grant) for most senior employees. Vesting serves as anemployment retention mechanism and enhances the alignment of interests between a participant in our carry pool and the firm as well as the limited partners in ourinvestment funds. Due to their status as co-founders of our firm, our Co-Chief Executive Officers are typically completely vested in their carried interest allocationsupon grant.Other CompensationOur Co-Chief Executive Officers are reimbursed by us for the use of a car and driver, and we pay for the compensation of certain personnel who administerpersonal matters for them. We believe that these benefits are appropriate in light of the time that they spend on our business, the limited compensation paid by us fortheir services, and their unique status as co-founders of our firm. In addition, we may pay for certain tax preparation fees for our named executive officers.Minimum Retained OwnershipWhile employed by us, unless waived in whole or in part, each of our named executive officers is required to hold at least 25% of the cumulative amount ofKKR Holdings units that have satisfied vesting conditions during the duration of his employment with the firm. In addition, unless waived in whole or in part, eachof our named executive officers may be required, on a grant by grant basis, to hold common unit equivalents of 15% of the cumulative restricted equity unitsgranted under the Equity Incentive Plan that have satisfied the service-based vesting condition during the duration of his employment with the firm.Compensation and RiskOur compensation program includes elements that we believe discourage excessive risk-taking and align the compensation of our employees with the long-term performance of the firm. For example, other than certain equity that either immediately vested as part of the grants to all employees or our founders or thatwere made in exchange for the contribution of assets, in each case in connection with the consummation of the KPE Transaction in October 2009, a significantmajority of the equity awards granted to our employees are subject to a multi-year vesting conditions, one- and two-year post-vesting transfer restriction periods,and/or a minimum retained ownership requirement. Because our equity awards have multi-year vesting provisions, the actual amount of compensation realized bythe recipient will be tied to the long- term performance of our common units. In addition, market-condition KKR Holdings units granted to our senior employees in2016, include price vesting conditions based on the price of our common stock in addition to service-based vesting requirements. We believe these vestingconditions more closely align the interests of these senior employees with those of our unitholders. Pursuant to our internal policies, our employees are notpermitted to buy or sell derivative securities, including for hedging purposes, or to engage in short-selling to hedge their economic risk of ownership. In addition,we only make cash payments of carried interest to our employees when profitable investments have been realized and after sufficient cash has been distributed tothe investors in our funds. Moreover, the general partner of a fund is required to return carried interest distributions to the fund due to, for246Table of Contentsexample, underperformance by the relevant fund subsequent to the payment of such carried interest. Accordingly, the employees would be subject to a "clawback,"i.e., be required to return carried interest payments previously made to a principal, all of which further discourages excessive risk-taking by our personnel.Summary Compensation TableThe following table presents summary information concerning compensation that was paid for services rendered by our named executive officers during thefiscal years ended December 31, 2013 , 2014 and 2015 .In 2013 , 2014 and 2015 , our named executive officers received distributions based on their vested KKR Holdings units or common units. Because thesedistributions are not considered to be compensation, these distributions are not reflected as compensation in the table below. There are certain contractualarrangements we entered into with KKR Holdings at the time of the KPE Transaction in October 2009 and thereafter, including a tax receivable agreement, thatrelate to payments to our named executive officers that are not compensatory and are described in "Certain Relationships and Related Transactions, and DirectorIndependence." Because restricted equity units and market-condition KKR Holdings units granted to our named executive officers as part of 2015 year-end bonuscompensation and incentive awards were made after December 31, 2015, they do not appear in the tables below, and will appear in the tables for the year endedDecember 31, 2016.Carried interest distributions to our named executive officers in respect of the carry pool for the years ended December 31, 2013 , 2014 and 2015 are reflectedin the All Other Compensation column in the 2015 Summary Compensation Table below.247Table of Contents2015 Summary Compensation TableName and Principal Position Year Salary($) Bonus($) (1) Stock Awards($) (2) All OtherCompensation ($) (3) Total($)Henry R. Kravis 2015 300,000 — — 51,994,055(4)52,294,055Co-Chief Executive Officer 2014 300,000 — — 64,151,272 64,451,272 2013 300,000 — — 43,905,435 44,205,435 George R. Roberts 2015 300,000 — — 52,064,278(5)52,364,278Co-Chief Executive Officer 2014 300,000 — — 64,075,416 64,375,416 2013 300,000 — — 43,808,078 44,108,078 Todd A. Fisher 2015 300,000 3,485,000 3,600,328 10,622,133(6)18,007,461Chief Administrative Officer 2014 300,000 2,260,000 1,589,225 12,381,439 16,530,664 2013 300,000 3,985,000 1,601,971 9,677,086 15,564,057 William J. Janetschek 2015 300,000 2,325,000 3,676,867 2,705,105(7)9,006,972Chief Financial Officer 2014 300,000 2,455,000 674,433 3,080,524 6,509,957 2013 300,000 2,260,000 543,859 2,075,121 5,178,980 David J. Sorkin 2015 300,000 2,390,000 3,676,867 1,396,629(7)7,763,496General Counsel 2014 300,000 2,455,000 649,323 1,730,754 5,135,077 2013 300,000 2,195,000 543,859 452,134 3,490,993 (1)Represents distributions received by KKR Holdings with respect to unvested KKR Holdings units that have been distributed to the named executive officer as bonus. Thediscretionary bonus payments in 2013, 2014 and 2015 were made by KKR Holdings and accordingly were not economically borne by us. (2)Stock awards reflected in the table above for each year presented represents equity award grants made in such reporting period relating to the equity portion of the prior yearbonus compensation and reflect the grant date fair value of restricted equity units. Fair value of the restricted equity units granted to our named executive officers is calculated inaccordance with Accounting Standards Codification Topic 718, Compensation—Stock Compensation ("ASC 718"). See Note 11 of the financial statements included elsewherein this report for additional information about the valuation assumptions with respect to all grants reflected in this column. These amounts reflect the aggregate grant date fairvalues calculated under ASC Topic 718 and may not correspond to the actual value that will be recognized by our named executive officers. (3)Carried interest is presented on the basis of cash received by our named executive officers in the respective fiscal year. We believe that presenting actual cash received by ournamed executive officers is a more representative disclosure of their compensation than presenting accrued carried interest, because carried interest is paid only if and whenthere are profitable realization events relating to the underlying investments. Carried interest also includes amounts retained and allocated for distribution to the respectivenamed executive officer, but not yet distributed to the named executive officer, which could be used to fund potential future clawback obligations if any were to arise. (4)Consists of $ 51,527,045 in cash payments of carried interest from the carry pool during 2015; $40,000 in fees for Mr. Kravis's service as a KKR-designated director on theboard of directors of First Data Corporation, a KKR portfolio company, during 2015; $5,000 in f ees for Mr. Kravis's service as a KKR-designated director on the board ofdirectors of China International Capital Corporation Limited, a KKR portfolio company, during 2015; $165,454 rela ted to Mr. Kravis's use of a car and driver during 20 15;$236,556 related to certain personnel who administer personal matters for Mr. Kravis during 2015; and $20,000 rela ted to tax preparation fees. SEC rules require thattransportation and personnel expenses not directly and integrally related to our business be disclosed as compensation to Mr. Kravis. Because we do not separately trackpersonnel expenses based on whether they are incurred for business or for personal reasons, 100% of the preceding costs have been reported for Mr. Kravis. (5)Consists of $51,527,045 in cash payments of ca rried interest from the car ry pool during 2015; $197,630 re lated to Mr. Roberts's use of a car and driver during 201 5;$319,603 related to certain personnel who administer personal matters for Mr. Roberts during 2015; and $20,000 rela ted to tax preparation fees. SEC rules require thattransportation and personnel expenses not directly and integrally related to our business be disclosed as compensation to Mr. Roberts. Because we do not separately trackpersonnel expenses based on whether they are incurred for business or personal reasons, 100% of the preceding costs have been reported for Mr. Roberts. (6)Consists of $10,564,231 in cash payments of carried interest from the carry pool during 2015; $37,902 in fees for Mr. Fisher's service as a KKR-designated director on theboard of directors of Maxeda, a KKR portfolio company, during 2015; and $20,000 relate d to tax preparation fees. (7)Consists of cash payments of carried interest from the carry pool during 2015 and $20,000 related to tax preparation fees.248Table of ContentsGrants of Plan-Based Awards in 2015The following table provides supplemental information relating to grants of equity awards in the year ended December 31, 2015 provided in our SummaryCompensation Table.Name Grant Date All Other StockAwards: Number ofShares of Stock orUnits (#) (1) Grant Date FairValue of Stock andOption Awards ($) (2) Henry R. Kravis — — — George R. Roberts — — — Todd A. Fisher 02/23/15 216,193 $3,600,328 William J. Janetschek 02/23/15 220,789 $3,676,867 David J. Sorkin 02/23/15 220,789 $3,676,867 (1)Stock awards reflected in the table above represent grants made in the year ended December 31, 2015 relating to the equity portion of the prior year bonus compensation.The amounts reflected in this column represent restricted equity units. Each grant of restricted equity units is subject to a service-based vesting condition over a period ofthree years (with the first vesting event occurring on April 1, 2016). The vesting terms of these grants are described under the caption "Narrative Disclosure to SummaryCompensation Table and Grants of Plan-Based Awards—Terms of Restricted Equity Units" below. (2)Amount represents the grant date fair value of the restricted equity units granted to our named executive officers as calculated in accordance with ASC Topic 718. See Note11 of the financial statements included elsewhere in this report for additional information about the valuation assumptions with respect to all grants reflected in thiscolumn. These amounts reflect the aggregate grant date fair values calculated under ASC Topic 718 and may not correspond to the actual value that will be recognized byour named executive officers. Narrative Disclosure to Summary Compensation Table and Grants of Plan‑‑ Based AwardsTerms of KKR Holdings UnitsThe following description applies to KKR Holdings units granted prior to 2016.Certain units that our named executive officers and other principals hold in KKR Holdings as of December 31, 2015 are subject to transfer restrictions and,except for interests held by our Co‑Chief Executive Officers and certain interests that were vested when granted in connection with the KPE Transaction in October2009, were subject to multi‑year service‑based vesting requirements upon their initial grant. Due to their unique status as co‑founders of our firm, our Co‑ChiefExecutive Officers are completely vested in their ownership of KKR Holdings units.In general, unvested KKR Holdings units initially vested in equal installments over a multi‑year period (which ranged from three to five years) from the grantdate, subject to the recipient’s continued employment with us. Following this initial vesting (or the grant date if interests were vested upon grant), interests remainedcontingently vested while they were subject to certain transfer restrictions. Unvested KKR Holdings units were not entitled to receive distributions. As ofFebruary 22, 2016, 324,772,683 outstanding KKR Holdings units have vested, constituting 90% of the KKR Holdings units outstanding. All of the KKR Holdingsunits granted to our named executive officers in 2009 and 2011 have vested as of the date of this filing; however 1.0 million units held by our named executiveofficers remain subject to transfer restrictions that will lapse in 2016.KKR Holdings units that are subject to transfer restrictions, unless waived, may not be sold, exchanged or otherwise transferred for a specified period of timefollowing the initial vesting date. The transfer restriction period typically lasts for (1) one year with respect to one‑half of the units vesting on the vesting date and(2) two years with respect to the other one‑half of the units vesting on such vesting date. Transfer restricted units become fully vested and transferable and may beexchanged into common units at the end of the transfer restriction period if the holder is not terminated for cause and has complied with the terms of his or herconfidentiality and restrictive covenant agreement during the transfer restrictions period. See “Terms of Confidentiality and Restrictive Covenant Agreements”below.Because KKR Holdings is a partnership, all of the KKR Holdings units have been legally allocated, but the allocation of certain of these units had not beencommunicated to each respective principal as of December 31, 2015. The units whose allocation has not been communicated are subject to performance‑ basedvesting conditions, which include, (i) whether the principal is in good standing and has adhered to our policies and rules, (ii) performance of assigned tasks andduties in an effective, efficient and diligent manner, (iii) contribution and commitment to the growth, development and profitability of KKR249Table of Contentsand our business, (iv) contribution and commitment to our management and general administration; (v) contribution and commitment to the culture, businessprinciples, reputation and morale of KKR as a whole and the team or teams to which the principal has been assigned, and (vi) contribution and commitment to ourrecruiting, business development, public image and marketing efforts and the professional development of our personnel. These criteria are not sufficiently specificto constitute performance conditions for accounting purposes, and the achievement, or lack thereof, will be determined based upon the exercise of judgment by thegeneral partner of KKR Holdings. Each principal will ultimately receive between zero and 100% of the units initially allocated. The allocation of these units has notyet been communicated to the award recipients as this was management’s decision on how to best incentivize its principals. It is anticipated that additionalservice‑based vesting conditions will be imposed at the time the allocation is initially communicated to the respective principals. We applied the guidance of ASCTopic 718 and concluded that these KKR Holdings units do not yet meet the criteria for recognition of compensation cost because neither the grant date nor theservice inception date has occurred. In reaching a conclusion that the service inception date has not occurred, we considered (1) the fact that the vesting conditionsare not sufficiently specific to constitute performance conditions for accounting purposes, (2) the significant judgment that can be exercised by the general partnerof KKR Holdings in determining whether the vesting conditions are ultimately achieved, and (3) the absence of communication to the principals of any informationrelated to the number of units they were initially allocated. The allocation of these units will be communicated to the award recipients when the performance‑basedvesting conditions have been met, and currently there is no plan as to when the communication will occur. The determination as to whether the award recipientshave satisfied the performance‑based vesting conditions is made by the general partner of KKR Holdings, and is based on multiple factors primarily related to theaward recipients’ individual performance.While employed by our firm, our principals, including our named executive officers, are also subject to minimum retained ownership rules that require them tocontinuously hold at least 25% of their cumulatively vested KKR Holdings units, unless waived.The transfer and vesting restrictions and minimum retained ownership rules applicable to KKR Holdings units may not be enforceable in all cases and can bewaived, modified or amended by KKR Holdings at any time without our consent.The terms of the KKR Holdings units described above are distinct from equity awards issuable under our Equity Incentive Plan, which are described below.Terms of Restricted Equity UnitsRestricted equity units are equity awards issuable under our Equity Incentive Plan, which after vesting, may be settled for our common units on a one‑ for‑onebasis (or an amount of cash equal to the fair market value of such common units).In general, restricted equity units are subject to a service‑based vesting condition and vest in equal annual installments over a multi‑year period (generally threeto five years) from a specified date, subject to the recipient’s continued employment with us. Following this service‑based vesting, certain restricted equity unitgrant agreements may also subject the common units delivered upon settlement of such restricted equity units to transfer restrictions and/or minimum retainedownership requirements. Unvested restricted equity units granted under our Equity Incentive Plan are not entitled to receive distributions.Common units delivered upon settlement of restricted equity units that are subject to transfer restrictions, unless waived, typically may not be sold, exchangedor otherwise transferred for a specified period of time following the vesting date. The transfer restriction period typically lasts for (1) one year with respect toone‑half of the units vesting on the service‑based vesting date and (2) two years with respect to the other one‑half of the units vesting on such service‑based vestingdate. Transfer restricted common units become saleable at the end of the transfer restriction period if the holder has not been terminated for cause and has notbreached in any significant or intentional manner, as determined by the Administrator, the terms of his or her confidentiality and restrictive covenants contained inthe grant agreement during the transfer restriction period. See “Terms of Confidentiality and Restrictive Covenant Agreements” below.While employed by our firm, our employees, including our named executive officers, may also be subject to a minimum retained ownership requirement underthe restricted equity unit grant agreement, which would obligate them to continuously hold common unit equivalents of 15% of their cumulatively vested restrictedequity units, unless waived. From time to time, the transfer restrictions and minimum retained ownership requirements applicable to restricted equity units of certainemployees, including our named executive officers, may be transferred to such employees’ KKR Holdings units, if any, so that the total units of equity subject totransfer restrictions and minimum retained ownership requirements are expected to be the same, unless waived.250Table of ContentsFor additional information about equity awards granted under our Equity Incentive Plan, please also see “KKR & Co. L.P. Equity Incentive Plan” below.Terms of Confidentiality and Restrictive Covenant AgreementsThe confidentiality and restrictive covenant agreements with each of our named executive officers include prohibitions on them competing with us or solicitingcertain fund investors or senior‑level employees of our firm and specified subsidiaries and affiliates during a restricted period following their departure from thefirm. These agreements also require personnel to protect and use the firm’s confidential information only in accordance with confidentiality restrictions set forth inthe agreement.The restricted periods for our Co‑Chief Executive Officers expire on (1) for voluntary terminations or terminations with cause, two years from termination and(2) for terminations without cause, one year from termination. The restricted periods for our other named executive officers expire on (1) for voluntary terminationsor terminations with cause, 18 months from termination, and (2) for terminations without cause, nine months from termination. These restricted periods are subjectto reduction for any “garden leave” or “notice period” that an employee serves prior to termination of employment.Our named executive officers other than our Co‑Chief Executive Officers have entered into these confidentiality and restrictive covenant agreements with usthrough their restricted equity unit grant agreements and separately also with KKR Holdings, which is entitled to waive, modify or amend them at any time withoutour consent. However, because our Co‑Chief Executive Officers have not received any restricted equity units, their confidentiality and restrictive covenantagreements are solely with KKR Holdings. Because KKR Holdings is the party to these agreements and not us, we may not be able to enforce them, and theseagreements might be waived, modified or amended at any time without our consent.Outstanding Equity Awards at 2015 Fiscal Year‑‑EndThe following table sets forth information concerning unvested restricted equity units for each of the named executive officers as of December 31, 2015 . Stock AwardsName Number of Sharesor Units of Stockthat Have NotVested (#) Market Value of Sharesor Units of Stockthat Have NotVested ($)(1)Henry R. Kravis— —George R. Roberts— —Todd A. Fisher325,997(2) $5,082,293William J. Janetschek263,232(3) $4,103,787David J. Sorkin262,271(4) $4,088,805 (1)These amounts are based on the closing market price of our common units on the last trading day of the year ended December 31, 2015 , of $15.59 per commonunit.(2)Includes (i) 48,960 restricted equity units granted on February 21, 2013, which will vest on April 1, 2016; (ii) 60,844 restricted equity units granted on February 5,2014, which will vest in equal installments on April 1, 2016 and April 1, 2017; and (iii) 216,193 restricted equity units granted on February 23, 2015, which willvest in equal installments on April 1, 2016, April 1, 2017 and April 1, 2018.(3)Includes (i) 16,622 restricted equity units granted on February 21, 2013, which will vest on April 1, 2016; (ii) 25,821 restricted equity units granted on February 5,2014, which will vest in equal installments on April 1, 2016 and April 1, 2017; and (iii) 220,789 restricted equity units granted on February 23, 2015, which willvest in equal installments on April 1, 2016, April 1, 2017 and April 1, 2018.(4)Includes (i) 16,622 restricted equity units granted on February 21, 2013, which will vest on April 1, 2016, (ii) 24,860 restricted equity units granted on February 5,2014, which will vest in equal installments on April 1, 2016 and April 1, 2017; and (iii) 220,789 restricted equity units granted on February 23, 2015, which willvest in equal installments on April 1, 2016, April 1, 2017 and April 1, 2018.251Table of ContentsOption Exercises and Stock Vested in 2015The following table sets forth information concerning the vesting of KKR Holdings units and restricted equity units held by each of our named executiveofficers during the year ended December 31, 2015 . Stock AwardsName Number ofShares Acquired onVesting (#)(1)Value Realized onVesting ($)(2)Henry R. Kravis——George R. Roberts——Todd A. Fisher163,197$3,766,587William J. Janetschek54,301$1,253,267David J. Sorkin55,277$1,275,793 (1)The amounts reflected in this column represent KKR Holdings units and common units delivered. Upon vesting, KKR Holdings units and a portion of restrictedequity units delivered upon vesting are subject to one‑ and two‑year transfer restrictions.(2)These amounts are based on the closing market price of our common units on each respective vesting date.Pension Benefits for 2015We provided no pension benefits during the year ended December 31, 2015 .Nonqualified Deferred Compensation for 2015We provided no defined contribution plan for the deferral of compensation on a basis that is not tax‑qualified during the year ended December 31, 2015 .Potential Payments Upon Termination or Change in ControlUpon termination of employment, vesting generally ceases for restricted equity units that have not vested. In addition, transfer restricted vested KKR Holdingsunits, which consist of KKR Holdings units that were subject solely to service-based vesting conditions, and, if applicable, transfer restricted equity units (whichterm includes the transfer restricted common units that may be delivered upon settlement of such restricted equity units) remain subject to transfer restrictions forone‑ and two‑year periods, except as described below. See "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters"for additional information regarding KKR Holdings units and transfer restricted equity units of our named executive officers.An employee who retires after the first date on which his or her age plus years of service to KKR equals 80 will continue to vest in his or her unvestedrestricted equity units for an additional two years following retirement, subject to compliance, if applicable, with the requirement that the holder not violate theterms and conditions of his or her confidentiality and restrictive covenants during the period in which such restricted equity unit, if applicable, remains transferrestricted over one‑ and two‑year periods. None of our named executive officers retired in the year ended December 31, 2015.Upon death or permanent disability, a holder of restricted equity units becomes immediately vested in all unvested restricted equity units, and the transferrestrictions, if any, immediately lapse. The values of unvested restricted equity units held by the named executive officers as of December 31, 2015 are set forthabove in the Outstanding Equity Awards at 2015 Fiscal Year‑End Table.In addition, upon a change in control of KKR, a holder of restricted equity units becomes immediately vested in all unvested restricted equity units, and thetransfer restrictions, if any, immediately lapse. As noted above, the values of unvested restricted equity units held by the named executive officers as ofDecember 31, 2015 are set forth above in the Outstanding Equity Awards at 2015 Fiscal Year‑End Table.In addition, the KKR Holdings units subject to price and service-based vesting conditions, which were granted to certain of the named executive officers in2016, provide for additional vesting eligibility in connection with an involuntary termination252Table of Contentswithout cause. Upon involuntary termination of employment without cause, KKR Holdings units that are subject to price and service-based vesting conditionswould continue to be eligible to vest according to the vesting dates specified under the applicable service-based vesting condition, provided that the price vestingcondition has been met prior to the termination . Any KKR Holdings units for which the price vesting condition has not been met at the time of termination areforfeited. Upon death or permanent disability, such KKR Holdings units would continue to vest pursuant to the applicable price and time-based vesting conditions.Upon termination of employment for retirement or in the event of a change in control, there are no additional vesting eligibility for such KKR Holdings units.Upon termination of employment, vesting generally ceases for carried interest allocations, except that for allocations made for investments in 2012 and in prioryears only, the vesting of carried interest allocations of our named executive officers and other principals may continue for a certain pre‑ determined period of timeif they are terminated without cause or if they leave without cause, subject to compliance, if applicable, with the requirement that the person not violate the termsand conditions of his or her confidentiality and restrictive covenant agreement. In addition, carried interest allocations become immediately vested upon death orpermanent disability.Director CompensationWe limit compensation for service on our Managing Partner’s board of directors to the independent directors. Each independent director receives (1) an annualcash retainer of $75,000, (2) an additional annual cash retainer of $15,000 if such independent director is a member of the nominating and corporate governancecommittee, (3) an additional annual cash retainer of $25,000 if such independent director is a member of the audit committee and (4) an additional annual cashretainer of $15,000 if such independent director serves as the chairman of the audit committee. Cash retainers are pro rated if, during the calendar year, a directorjoins the board of directors of our Managing Partner or a director joins or resigns from a committee. In addition, on July 24, 2015, 6,219 restricted equity units wereapproved for grant to each independent director pursuant to our Equity Incentive Plan.Name FeesEarned orPaid in Cash($)StockAwards($)(1)Total($)David C. Drummond75,000150,000225,000Joseph A. Grundfest115,000150,000265,000John B. Hess75,000150,000225,000Dieter Rampl (2)75,000150,000225,000Patricia F. Russo75,000150,000225,000Thomas M. Schoewe100,000150,000250,000Robert W. Scully115,000150,000265,000 (1)Represents the aggregate grant date fair value of restricted equity units granted to each of the independent directors during the year ended December 31, 2015 ascalculated in accordance with ASC Topic 718. See Note 11 of the financial statements included elsewhere in this report for additional information about thevaluation assumptions with respect to all grants reflected in this column. These amounts reflect the aggregate grant date fair values calculated under ASC Topic 718and may not correspond to the actual value that will be recognized by the independent directors.(2)Dieter Rampl, a former independent director, resigned from our Managing Partner's board of directors on November 5, 2015, and upon his resignation 6,219unvested restricted equity units were forfeited. 253Table of ContentsThe following table details grants of restricted equity units to each of our independent directors of our Managing Partner in the year ended December 31, 2015 . Thetable includes the grant date and grant date fair value of 2015 restricted equity units and the aggregate number of unvested restricted equity units as of December 31,2015 owned by each independent director who served as a director during the year ended December 31, 2015 :Name GrantDate(1)StockAwards(#)Grant DateFair Value($)(2)Total Number ofUnvested RestrictedEquity Awards onDecember 31, 2015(#)David C. Drummond7/24/20156,219150,0006,219Joseph A. Grundfest7/24/20156,219150,0006,219John B. Hess7/24/20156,219150,0006,219Dieter Rampl (3)7/24/20156,219150,0006,219Patricia F. Russo7/24/20156,219150,0006,219Thomas M. Schoewe7/24/20156,219150,0006,219Robert W. Scully7/24/20156,219150,0006,219 (1)The restricted equity awards approved for grant on July 24, 2015 vest on October 1, 2016.(2)This column represents the grant date fair value of restricted equity units granted to each of the independent directors during the year ended December 31, 2015 ascalculated in accordance with ASC Topic 718. These amounts reflect the aggregate grant date fair values calculated under ASC Topic 718 and may not correspondto the actual value that will be recognized by the independent directors.(3)Dieter Rampl, a former independent director, resigned from our Managing Partner's board of directors on November 5, 2015, and upon his resignation 6,219unvested restricted equity units were forfeited.KKR & Co. L.P. Equity Incentive PlanOur Managing Partner has adopted the KKR & Co. L.P. 2010 Equity Incentive Plan, which is referred to as the Equity Incentive Plan.AdministrationThe board of directors of our Managing Partner administers the Equity Incentive Plan. However, the board of directors of our Managing Partner may delegatesuch authority, including to a committee or subcommittee of the board of directors. Under the terms of the Equity Incentive Plan, the board of directors of ourManaging Partner, or the committee or subcommittee thereof to whom authority to administer the Equity Incentive Plan has been delegated, as the case may be, isreferred to as the Administrator. The Administrator determines who will receive awards under the Equity Incentive Plan, as well as the form of the awards, thenumber of units underlying the awards and the terms and conditions of the awards, consistent with the terms of the Equity Incentive Plan. The Administrator has fullauthority to interpret and administer the Equity Incentive Plan and its determinations will be final and binding on all parties concerned. The Administrator maydelegate the authority to grant awards and the day‑to‑day administration of the plan to any of our employees. Grants of equity awards to our named executiveofficers under our Equity Incentive Plan are made only by our Managing Partner’s board of directors.Common Units Subject to the Equity Incentive PlanThe total number of our common units that may be issued under the Equity Incentive Plan as of the effective date of the plan was equivalent to 15% of thenumber of fully diluted and exchanged common units outstanding as of such date; provided that beginning with the first fiscal year after the Equity Incentive Planbecame effective and continuing with each subsequent fiscal year occurring thereafter, the aggregate number of common units covered by the plan will beincreased, on the first day of each fiscal year of KKR & Co. L.P. occurring during the term of the plan, by a number of common units equal to the positivedifference, if any, of (x) 15% of the aggregate number of common units outstanding (on a fully‑diluted and exchanged basis) on the last day of the immediatelypreceding fiscal year minus (y) the aggregate number of common units available for issuance under the plan as of the last day of such year, unless the Administratorshould decide to increase the number of common units covered by the plan by a lesser amount on any such date.254Table of ContentsOptions and Unit Appreciation RightsThe Administrator may award non‑qualified unit options and unit appreciation rights under the Equity Incentive Plan. Options and unit appreciation rightsgranted under the Equity Incentive Plan will become vested and exercisable at such times and upon such terms and conditions as may be determined by theAdministrator at the time of grant, but no option or unit appreciation right will be exercisable for a period of more than 10 years after it is granted. The exerciseprice per common unit will be determined by the Administrator, provided that options and unit appreciation rights granted to participants who are U.S. taxpayers(i) will not be granted with an exercise price less than 100% of the fair market value per underlying common unit on the date of grant and (ii) will not be grantedunless the common unit on which it is granted constitutes equity of the participant’s “service recipient” within the meaning of Section 409A of the Internal RevenueCode of 1986, as amended. To the extent permitted by the Administrator, the exercise price of an option may be paid in cash or its equivalent, in common unitshaving a fair market value equal to the aggregate exercise price and satisfying such other requirements as may be imposed by the Administrator, partly in cash andpartly in common units or through net settlement in common units. As determined by the Administrator, unit appreciation rights may be settled in common units,cash or any combination thereof.Other Equity‑‑Based AwardsThe Administrator, in its sole discretion, may grant or sell common units, restricted common units, deferred restricted common units, phantom restrictedcommon units, and any other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of, the common units,including restricted equity units that may be granted from time to time, to our employees, including our named executive officers. Equity awards with price andservice-based vesting conditions similar to those that apply to the KKR Holdings units described under "--KKR Holdings Market Condition Awards", which may ormay not be subject to a minimum retained ownership requirement and transfer restrictions may also be granted. Any of these other equity‑based awards may be insuch form, and dependent on such conditions, as the Administrator determines, including without limitation the right to receive, or vest with respect to, one or morecommon units (or the equivalent cash value of such units) upon the completion of a specified period of service, the occurrence of an event and/or the attainment ofperformance objectives. The Administrator may, in its discretion, determine whether other equity‑based awards will be payable in cash, common units or otherassets or a combination of cash, common units and other assets.Compensation Committee Interlocks and Insider ParticipationBecause we are a limited partnership, our Managing Partner’s board of directors is not required by NYSE rules to establish a compensation committee. Ourfounders, Messrs. Kravis and Roberts, serve as Co‑Chairmen of the board of directors of our Managing Partner and participated in discussions regarding executivecompensation. For a description of certain transactions between us and our founders, see “Certain Relationships and Related Transactions, and DirectorIndependence.”Compensation Committee ReportThe board of directors of our Managing Partner does not have a compensation committee. The entire board of directors has reviewed and discussed withmanagement the foregoing Compensation Discussion and Analysis and, based on such review and discussion, has determined that the Compensation Discussion andAnalysis should be included in this annual report. Henry R. KravisGeorge R. RobertsDavid C. DrummondJoseph A. GrundfestJohn B. HessPatricia F. RussoThomas M. SchoeweRobert W. Scully255Table of ContentsITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSOur Common UnitsThe following table sets forth the beneficial ownership of our common units and KKR Group Partnership Units that are exchangeable for our common units by:•each person known to us to beneficially own more than 5% of any class of the outstanding voting securities of our partnership based on our review offilings with the SEC;•each of the directors, persons chosen to become a director and named executive officers of our Managing Partner; and•the directors, persons chosen to become a director and executive officers of our Managing Partner as a group.The numbers of common units and KKR Group Partnership Units outstanding and the percentage of beneficial ownership are based on 449,251,468 commonunits issued and outstanding and 361,346,588 KKR Group Partnership Units that are exchangeable for our common units as of February 22, 2016. Beneficialownership is in each case determined in accordance with the rules of the SEC, and includes equity securities of which that person has the right to acquire beneficialownership within 60 days of February 22, 2016. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a personmay be deemed a beneficial owner of securities as to which he has no economic interest. Common UnitsBeneficially Owned†KKR GroupPartnership Units andSpecial Voting UnitsBeneficially Owned†† Percentageof CombinedBeneficialName(1) Number PercentNumber Percent Ownership†††KKR Holdings(2)(4)55,047 *361,346,588 100.0% 44.6%FMR LLC(3)41,778,361 9.3%— — 9.3Henry R. Kravis(2)(4)(5)7,017,496 1.6361,346,588 100.0 45.4George R. Roberts(2)(4)(5)5,931,368 1.3361,346,588 100.0 45.3David C. Drummond8,660 *— — *Joseph A. Grundfest43,276 *— — *John B. Hess116,876 *— — *Patricia F. Russo36,276 *— — *Thomas M. Schoewe43,876 *— — *Robert W. Scully211,676 *— — *Todd A. Fisher(6)217,900 *9,288,035 2.6 2.1William J. Janetschek(6)103,127 *3,170,827 * *David J. Sorkin(6)102,647 *3,123,593 * *Directors and executive officers as a group(11 persons)9,110,967 2.0%361,346,588 100.0% 45.7% *Less than 1.0%.†KKR Group Partnership Units held by KKR Holdings are exchangeable (together with the corresponding special voting units) for our common units on aone‑for‑one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications and compliance with lock‑ up,vesting and transfer restrictions as described under “Certain Relationships and Related Transactions, and Director Independence-Exchange Agreement.”Beneficial ownership of KKR Group Partnership Units reflected in this table has not also been reflected as beneficial ownership of our common units forwhich such KKR Group Partnership Units may be exchanged.††On any matters that may be submitted to a vote of our unitholders, the special voting units provide their holders with a number of votes that is equal to theaggregate number of KKR Group Partnership Units that such holders hold and entitle such holders to participate in the vote on the same basis as ourunitholders.256Table of Contents†††This column assumes the exchange of KKR Group Partnership Units beneficially owned into common units and a number of outstanding common unitscalculated in accordance with Rule 13d‑3(d)(1) of the Exchange Act.(1)The address of each director and executive officer is c/o KKR Management LLC, 9 West 57th Street, 42nd Floor, New York, New York 10019.(2)KKR Holdings owns, beneficially or of record, an aggregate of 55,047 common units and 361,346,588 exchangeable KKR Group Partnership Units. Ourprincipals hold interests in KKR Holdings that will entitle them to participate in the value of the KKR Group Partnership Units held by KKR Holdings.KKR Holdings is a limited partnership that is controlled by KKR Holdings GP Limited, its sole general partner, which has investment control over allKKR Group Partnership Units and common units held by KKR Holdings and voting control over all special voting units held by KKR Holdings. Each ofMessrs. Kravis and Roberts disclaims beneficial ownership of the securities that may be deemed to be beneficially owned by him, except to the extent ofhis own pecuniary interest therein. Messrs. Kravis and Roberts, by virtue of their rights under the organizational documents of KKR Holdings GP Limited(the general partner of KKR Holdings), may be deemed to share dispositive and/or voting power with respect to the KKR Group Partnership Units, specialvoting units and common units held by KKR Holdings. Mr. Kravis disclaims beneficial ownership of the securities that may be deemed to be beneficiallyowned by him, except with respect to 81,709,475 KKR Group Partnership Units in which he and certain related entities have a pecuniary interest.Mr. Roberts disclaims beneficial ownership of the securities that may be deemed to be beneficially owned by him, except with respect to 86,709,475 KKRGroup Partnership Units in which he and certain related entities have a pecuniary interest. The address of KKR Holdings is c/o KKR Management LLC, 9West 57th Street, 42nd Floor, New York, New York 10019.(3)Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2016, FMR LLC and Abigail P. Johnson may be deemedto beneficially own and have the sole power to dispose or to direct the disposition of 41,778,361 common units. The address of these beneficial owners is245 Summer Street, Boston, Massachusetts 02210. Certain affiliates of Fidelity provide services to us in connection with the investment management,record keeping and administration of our Equity Incentive Plan and our retirement savings plans for which they received customary fees and expenses notin excess of $1.1 million, although certain of these fees are paid by participants in the respective plans. Affiliates of Fidelity have invested or committed toinvest approximately $82.3 million as of December 31, 2015, in our investment vehicles. Fidelity and its affiliates have in the past and may in the futureparticipate in offerings, syndications or similar transactions with our capital markets business, including in certain cases where equity of KKR portfoliocompanies are offered to Fidelity’s retail and institutional brokerage customers, on the same terms and conditions provided to other participants in suchtransactions. Affiliates of Fidelity may also sell common units owned by our employees, including our executive officers and directors, in ordinarybrokerage transactions from time to time.(4)KKR MIF Fund Holdings L.P. owns, beneficially or of record, an aggregate of 1,028,156 common units. The sole general partner of KKR MIF FundHoldings L.P. is KKR MIF Carry Holdings L.P. The sole general partner of KKR MIF Carry Holdings L.P. is KKR MIF Carry Limited. Each of KKR MIFCarry Holdings L.P. (as the sole general partner of KKR MIF Fund Holdings L.P.); KKR MIF Carry Limited (as the sole general partner of KKR MIFCarry Holdings L.P.); KKR Index Fund Investments L.P. (as the sole shareholder of KKR MIF Carry Limited); KKR IFI GP L.P. (as the sole generalpartner of KKR Index Fund Investments L.P.); KKR IFI Limited (as the sole general partner of KKR IFI GP L.P.); KKR Fund Holdings L.P. (as the soleshareholder of KKR IFI Limited); KKR Fund Holdings GP Limited (as a general partner of KKR Fund Holdings L.P.); KKR Group Holdings L.P. (as ageneral partner of KKR Fund Holdings L.P. and the sole shareholder of KKR Fund Holdings GP Limited); KKR Group Limited (as the sole generalpartner of KKR Group Holdings L.P.); KKR & Co. L.P. (as the sole shareholder of KKR Group Limited); and KKR Management LLC (as the sole generalpartner of KKR & Co. L.P.) may be deemed to be the beneficial owner of the securities. Messrs. Kravis and Roberts are the designated members of KKRManagement LLC and may be deemed to share dispositive power with respect to the common units held by KKR MIF Fund Holdings L.P. Each ofMessrs. Kravis and Roberts disclaims beneficial ownership of the securities.(5)KKR Reference Fund Investments L.P. owns, beneficially or of record, an aggregate of 3,639,010 common units. The sole general partner of KKRReference Fund Investments L.P. is KKR IFI GP L.P. Each of KKR IFI GP L.P. (as the sole general partner of KKR Reference Fund Investments L.P.);KKR IFI Limited (as the sole general partner of KKR IFI GP L.P.); KKR Fund Holdings L.P. (as the sole shareholder of KKR IFI Limited); KKR FundHoldings GP Limited (as a general partner of KKR Fund Holdings L.P.); KKR Group Holdings L.P. (as a general partner of KKR Fund Holdings L.P. andthe sole shareholder of KKR Fund Holdings GP Limited); KKR Group Limited (as the sole general partner of KKR Group Holdings L.P.);KKR & Co. L.P. (as the sole shareholder of KKR Group Limited); and KKR Management LLC (as the sole general partner of KKR & Co. L.P.) may bedeemed to be the beneficial owner of257Table of Contentsthe securities. Messrs. Kravis and Roberts are the designated members of KKR Management LLC and may be deemed to share dispositive power withrespect to the common units held by KKR MIF Fund Holdings L.P. Each of Messrs. Kravis and Roberts disclaims beneficial ownership of the securities.(6)The common units above for Mr. Fisher include 151,445 common units that will vest within 60 days of February 22, 2016, and the common units abovefor Messrs. Janetschek and Sorkin consist solely of common units that will vest within 60 days of February 22, 2016. The reported KKR Group PartnershipUnits include 478,253, 282,878 and 270,351 units beneficially owned by Messrs. Fisher, Janetschek and Sorkin, respectively, that are subject to transferrestrictions.Our Managing PartnerOur Managing Partner’s outstanding limited liability company interests consist of Class A shares, which are entitled to vote on the election and removal ofdirectors and all other matters that have not been delegated to the board of directors or reserved for the vote of Class B members, and Class B shares, which areentitled to vote only with respect to any matter requiring the approval of holders of voting interests held directly or indirectly by us in the general partners of ournon‑U.S. funds. Notwithstanding the number of Class A shares held by the Class A members, under our Managing Partner’s limited liability company agreement,Messrs. Kravis and Roberts, as the designated members of KKR Management LLC, are deemed to represent a majority of the Class A shares outstanding whenacting together for purposes of voting on matters upon which holders of Class A shares are entitled to vote. Messrs. Kravis and Roberts may, in their discretion,designate one or more holders of Class A shares to hold such voting power and exercise all of the rights and duties of Messrs. Kravis and Roberts under ourManaging Partner’s limited liability company agreement. While Messrs. Kravis and Roberts historically have acted with unanimity when managing our business,they have not entered into any agreement relating to the voting of their Class A shares. All of our Managing Partner’s other Class A shares are held by our othersenior principals. Our Managing Partner’s Class B shares are divided equally among twelve principals, each of whom holds less than 10% of the voting power ofthe Class B shares. None of the shares in our Managing Partner provide these holders with economic interests in our business. See also “Risk Factors-Our limitedpartnership agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of our limited partner and limit remedies available forunitholders for actions that might otherwise constitute a breach of duty. It will be difficult for unitholders to successfully challenge a resolution of a conflict ofinterest by our Managing Partner or by its conflicts committee.” In addition, see “Risk Factors-We are a Delaware limited partnership, and there are provisions inour limited partnership agreement regarding exculpation and indemnification of our officers and directors that differ from the Delaware General Corporation Law(DGCL) in a manner that may be less protective of the interests of our common unitholders.”Securities Authorized for Issuance under Equity Compensation PlansThe table set forth below provides information concerning the awards that may be issued under our Equity Incentive Plan as of December 31, 2015 . Number ofSecurities to beIssued UponExercise ofOutstanding Options,Warrants and Rights(a)Weighted‑‑AverageExercise Priceof OutstandingOptions, Warrantsand RightsNumber ofSecurities RemainingAvailable for FutureIssuance Under EquityCompensation Plans(excluding securitiesreflected in column(a))(b)Equity Compensation Plans Approved by Security Holders23,212,300—71,960,560Equity Compensation Plans Not Approved by Security Holders———Total23,212,300—71,960,560 (a)Reflects the aggregate number of restricted equity units granted under our Equity Incentive Plan and outstanding as of December 31, 2015 .(b)The aggregate number of common units covered by the Equity Incentive Plan is increased on the first day of each fiscal year during its term by a numberof units equal to the positive difference, if any, of (a) 15% of the aggregate258Table of Contentsnumber of common units outstanding (on a fully‑diluted basis) on the last day of the immediately preceding fiscal year minus (b) the aggregate number ofcommon units available for issuance under the Equity Incentive Plan as of such date (unless the Administrator of the Equity Incentive Plan should decideto increase the number of common units covered by the plan by a lesser amount). We have filed a registration statement and intend to file additionalregistration statements on Form S‑8 under the Securities Act to register common units covered by the Equity Incentive Plan (including pursuant toautomatic annual increases). Any such Form S‑8 registration statement will automatically become effective upon filing. Accordingly, common unitsregistered under such registration statement will be available for sale in the open market.259Table of ContentsITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe following description is a summary of the material terms of the agreements described below, and does not contain all of the information that you may finduseful. For additional information, you should read the copies of our investment agreement, our exchange agreement, our registration rights agreement, our taxreceivable agreement and the partnership agreements of the KKR Group Partnerships, all of which have been filed as exhibits to this report.The Investment AgreementOn August 4, 2009, we entered into an investment agreement by and among us, certain of our affiliates, KPE and certain of its affiliates, as a condition to theKPE Transaction.U.S. ListingThe investment agreement provided that we and KPE each had the right to require that the other use its reasonable best efforts to cause KPE to contribute itsunits representing limited partner interests in KKR Group Holdings L.P. to us in exchange for an equivalent number of our common units and, in connectiontherewith, our common units received by KPE to be listed and traded on the NYSE by delivering an election notice to the other party. On February 24, 2010, wedelivered an election notice to KPE pursuant to the investment agreement, and we commenced trading on the NYSE on July 15, 2010 under the symbol "KKR".Indemnification and InsuranceThe investment agreement provides that, for a period of six years after the closing of the NYSE listing on July 15, 2010, the KKR Group Partnerships willindemnify each present and former director and officer of the general partner of KPE and certain other persons serving in a similar role against all losses, liabilities,damages, judgments and fines incurred in connection with any suit, claim, action, proceeding, arbitration or investigation arising out of or related to actions taken bythem in their capacity as directors or officers of the general partner of KPE or taken by them at the request of KPE or the general partner of KPE. In addition, theinvestment agreement also provides that the KKR Group Partnerships will indemnify us, KPE, each present and former director and officer of the general partner ofKPE and certain other persons serving a similar role against all losses, liabilities, damages, judgments and fines to which any of them may become subject under theSecurities Act, the Exchange Act, or other applicable law, statute, rule or regulation insofar as such losses, liabilities, damages, judgments and fines arise out of orare based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to our common units to be issuedto, and distributed by KPE or any other document issued by us, KPE or any of their respective affiliates in connection with, or otherwise relating to, our NYSElisting, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make thestatements therein, in the light of the circumstances under which they were made, not misleading.Pursuant to the investment agreement, we obtained directors' and officers' liability insurance for the benefit of the directors and officers (and former directorsand officers) of the general partner of KPE which (i) is effective for a period from the date of the dissolution of KPE through and including the date that is six yearsafter such date, (ii) covers claims arising out of or relating to any action, statement or omission of such directors and officers whether on or before the date of suchdissolution (including the transactions contemplated by the investment agreement and the decision making process by the directors of the general partner of KPE inconnection therewith) to the same extent as the directors and officers of our Managing Partner acting in their capacities as the directors and officers of the generalpartner of KPE are insured with respect thereto, and (iii) contains a coverage limit of $100 million.Exchange AgreementWe have entered into an exchange agreement with KKR Holdings, the entity through which certain of our employees, including Messrs. Kravis, Roberts,Fisher, Janetschek and Sorkin, hold their KKR Group Partnership Units, pursuant to which KKR Holdings or certain transferees of its KKR Group Partnership Unitsmay, on a quarterly basis (subject to the terms of the exchange agreement), exchange KKR Group Partnership Units held by them (together with correspondingspecial voting units) for our common units on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions andreclassifications. At the election of certain of our intermediate holding companies that are partners of the KKR Group Partnerships, the intermediate holdingcompanies may settle exchanges of KKR Group Partnership Units with cash in an amount equal to the fair market value of the common units that would otherwisebe deliverable in such exchanges. To the extent that KKR Group Partnership Units held by KKR Holdings or its transferees are exchanged for our common units,our interests in the KKR Group Partnerships will be correspondingly increased. Any common units received upon such exchange260Table of Contentswill be subject to any restrictions that were applicable to the exchanged KKR Group Partnership Units, including any applicable transfer restrictions. During theyear ended December 31, 2015 , 15,850,161 KKR Group Partnership Units were exchanged for our common units pursuant to this agreement.On November 2, 2010, the exchange agreement was amended and restated to provide certain rights to cancel exchanges or limit the number of units exchangedin a given quarter. The amendments also provided that certain exchanges will be with a new subsidiary, the result of which is that the income tax character of asmall portion of income distributed to unitholders may differ from what it would have been absent the amendment. If additional taxes result from the inclusion ofthis subsidiary of ours, KKR Holdings will make payments to one of our subsidiaries in respect of those taxes.Certain interests in KKR Holdings that are held by our employees are subject to transfer restrictions and vesting requirements that, unless waived, modified oramended, limit the ability of our employees to cause KKR Group Partnership Units to be exchanged under the exchange agreement so long as applicable vestingand transfer restrictions apply. The general partner of KKR Holdings, which is controlled by our founders, will have sole authority for waiving any applicablevesting or transfer restrictions.As contemplated by the exchange agreement, a coordinated selling program has been established relating to sales of common units received pursuant to theexchanges by holders of KKR Holdings units. Pursuant to the program, sales generally take place quarterly, and management is permitted to establish an overalllimit on such sales based upon the trading volume of our common units or any other factor that may be considered relevant.Registration Rights AgreementIn connection with our NYSE listing, we entered into a registration rights agreement with KKR Holdings pursuant to which we granted KKR Holdings, itsaffiliates and transferees of its KKR Group Partnership Units the right, under certain circumstances and subject to certain restrictions, to require us to register underthe Securities Act our common units (and other securities convertible into or exchangeable or exercisable for our common units) held or acquired by them. Underthe registration rights agreement, holders of registration rights will have the right to request us to register the common units received upon the exchange of theirKKR Holdings units and the sale of such common units and also have the right to require us to make available shelf registration statements permitting sales ofcommon units into the market from time to time over an extended period. In addition, holders of registration rights will have the ability to exercise certainpiggyback registration rights in connection with registered offerings requested by other holders of registration rights or initiated by us. On October 1, 2010, theregistration statement we filed pursuant to this agreement was declared effective, and a post-effective amendment was declared effective on September 21, 2011. Asof December 31, 2015, 361,346,588 common units remain unissued under that registration statement.Tax Receivable AgreementWe and one or more of our intermediate holding companies may be required to acquire KKR Group Partnership Units from time to time pursuant to ourexchange agreement with KKR Holdings. KKR Management Holdings L.P. has made an election under Section 754 of the Internal Revenue Code, which willremain in effect for each taxable year in which an exchange of KKR Group Partnership Units for common units occurs. Certain of these exchanges are expected toresult in an increase in certain of our intermediate holding companies' share of the tax basis of the tangible and intangible assets of the KKR Group Partnerships,primarily attributable to a portion of the goodwill inherent in our business, that would not otherwise have been available. This increase in tax basis may increasedepreciation and amortization deductions for tax purposes and therefore reduce the amount of income tax our intermediate holding companies would otherwise berequired to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent tax basisis allocated to those capital assets.We have entered into a tax receivable agreement with KKR Holdings requiring our intermediate holding companies to pay to KKR Holdings or transferees ofits KKR Group Partnership Units 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that our intermediate holding companiesactually realize as a result of this increase in tax basis, as well as 85% of the amount of any such savings our intermediate holding companies actually realize as aresult of increases in tax basis that arise due to future payments under the agreement. A termination of the agreement or a change of control could give rise tosimilar payments based on tax savings that we would be deemed to realize in connection with such events. This payment obligation is an obligation of theintermediate holding companies and not of either KKR Group Partnership. As such, the cash distributions to common unitholders may vary from holders of KKRGroup Partnership Units (held by KKR Holdings and others) to the extent payments are made under the tax receivable agreement to exchanging holders of KKRGroup261Table of ContentsPartnership Units. As the payments reflect actual tax savings received by KKR entities, there may be a timing difference between the tax savings received by KKRentities and the cash payments to exchanging holders of KKR Group Partnership Units. We expect the intermediate holding companies to benefit from theremaining 15% of cash savings, if any, in income tax that they realize. In the event that other of our current or future subsidiaries become taxable as corporationsand acquire KKR Group Partnership Units in the future, or if we become taxable as a corporation for U.S. federal income tax purposes, we expect that each willbecome subject to a tax receivable agreement with substantially similar terms.For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing the actual income tax liability of our intermediateholding companies to the amount of such taxes that the y would have been required to pay had there been no increase to the tax basis of the tangible and intangibleassets of the KKR Group Partnerships as a result of the exchanges of KKR Group Partnership Units and had the intermediate holding companies not entered into thetax receivable agreement. The term of the tax receivable agreement continues until all such tax benefits have been utilized or expired, unless the intermediateholding companies exercise their right to terminate the tax receivable agreement for an amount based on the agreed payments remaining to be made under theagreement. Estimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amountspayable depends on a variety of factors. The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, willvary depending upon a number of factors, including:• the timing of exchanges—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, ofthe KKR Group Partnership Units, which will depend on the fair market value of the depreciable or amortizable assets of the KKR Group Partnerships atthe time of the transaction;• the price of our common units at the time of the exchange—the increase in any tax deductions, as well as the tax basis increase in other assets, of theKKR Group Partnerships, is directly proportional to the price of our common units at the time of the exchange;• the extent to which such exchanges are taxable—if an exchange is not taxable for any reason (for instance, in the case of a charitable contribution),increased deductions will not be available; and• the amount of tax, if any, our intermediate holding company is required to pay aside from any tax benefit from the exchanges, and the timing of any suchpayment. If our intermediate holding companies do not have taxable income aside from any tax benefit from the exchanges, they will not be required tomake payments under the tax receivable agreement for that taxable year because no tax savings will have been actually realized. We expect that as a result of the amount of the increases in the tax basis of the tangible and intangible assets of the KKR Group Partnerships, assuming nomaterial changes in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefit of the increased amortization of our assets, futurepayments under the tax receivable agreement will be substantial. The payments under the tax receivable agreement are not conditioned upon our principals'continued ownership of us and are required to be made within 90 days of the filing of the tax return s of our intermediate holding companies. For the year endedDecember 31, 2015 such payments made to our principals, none of whom included a member of the board of directors of our Managing Partner, were approximately$5.2 million. Such payments to KKR Holdings were $0.6 million and a de minimis amount was paid to Messrs. Fisher, Janetschek and Sorkin.The intermediate holding companies may terminate the tax receivable agreement at any time by making an early termination payment to KKR Holdings or itstransferees, based upon the net present value (based upon certain assumptions in the tax receivable agreement) of all tax benefits that would be required to be paidby the intermediate holding companies to KKR Holdings or its transferees. In addition, the tax receivable agreement provides that upon certain mergers, asset sales,other forms of combination transactions or other changes of control, the minimum obligations of our intermediate holding companies or their successor with respectto exchanged or acquired KKR Group Partnership Units (whether exchanged or acquired before or after such transaction) would be based on certain assumptions,including that our intermediate holding companies would have sufficient taxable income to fully utilize the increased tax deductions and increased tax basis andother benefits related to entering into the tax receivable agreement. In these situations, our obligations under the tax receivable agreement could have a substantialnegative impact on our liquidity.262Table of Contents Decisions made by our senior principals in the course of running our business, such as with respect to mergers, asset sales, other forms of businesscombinations or other changes of control, may influence the timing and amount of payments that are received by an exchanging or selling holder of partner interestsin the KKR Group Partnerships under the tax receivable agreement. For example, the earlier disposition of assets following an exchange or acquisition transactionwill generally accelerate payments under the tax receivable agreement and increase the present value of such payments, and the disposition of assets before anexchange or acquisition transaction will increase a principals' tax liability without giving rise to any rights of a principal to receive payments under the taxreceivable agreement. Payments under the tax receivable agreement will be based upon the tax reporting positions that our Managing Partner will determine. We are not aware of anyissue that would cause the IRS to challenge a tax basis increase. However, neither KKR Holdings nor its transferees will reimburse us for any payments previouslymade under the tax receivable agreement if such tax basis increase, or the tax benefits we claim arising from such increase, is successfully challenged by the IRS.As a result, in certain circumstances payments to KKR Holdings or its transferees under the tax receivable agreement could be in excess of the intermediate holdingcompan ies ' cash tax savings. The intermediate holding compan ies ' ability to achieve benefits from any tax basis increase, and the payments to be made under thisagreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.KKR Group Partnership AgreementsWe indirectly control the general partners of the KKR Group Partnerships and, through the KKR Group Partnerships and their subsidiaries, the KKR business.Because our Managing Partner operates and controls us, our Managing Partner's board of directors and our officers are ultimately responsible for all materialdecisions of the KKR Group Partnerships and the KKR Group Partnerships' businesses.On July 28, 2014, KKR formed KKR International Holdings L.P., a Cayman Islands limited partnership. KKR designated KKR International Holdings L.P. as a"KKR Group Partnership" and, in connection therewith, on August 5, 2014, KKR International Holdings L.P. entered into an amendment and joinder to theexchange agreement among KKR, KKR Fund Holdings L.P., KKR Management Holdings L.P., KKR Holdings, and the other parties thereto. Pursuant to thepartnership agreements of the KKR Group Partnerships, our partnership, as the controlling general partner of KKR Fund Holdings L.P., KKR ManagementHoldings L.P. and KKR International Holdings L.P., have the indirect right to determine when distributions will be made to the holders of KKR Group PartnershipUnits and the amount of any such distributions.The partnership agreements of the KKR Group Partnerships provide for tax distributions to the holders of KKR Group Partnership Units if the general partnersof the KKR Group Partnerships determine that distributions from the KKR Group Partnerships would otherwise be insufficient to cover the tax liabilities of a holderof a KKR Group Partnership Unit. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the relevant partnershipallocable to a holder of a KKR Group Partnership Unit multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state andlocal income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses andthe character of our income).The partnership agreements of the KKR Group Partnerships authorize the general partners of the KKR Group Partnerships to issue an unlimited number ofadditional securities of the KKR Group Partnerships with such designations, preferences, rights, powers and duties that are different from, and may be senior to,those applicable to the KKR Group Partnerships Units, and which may be exchangeable for KKR Group Partnership Units.Firm Use of Private AircraftCertain of our senior employees, including Messrs. Kravis and Roberts, own aircraft that we use for business purposes in the ordinary course of our operations.These senior employees paid for the purchase of these aircraft with their personal funds and bear all operating, personnel and maintenance costs associated withtheir operation. The hourly rates that we pay for the use of these aircraft are based on current market rates for chartering private aircraft of the same type. Weincurred $4.4 million for the use of these aircraft during the year ended December 31, 2015 , of which substantially all was paid to entities collectively controlled byMessrs. Kravis and Roberts.263Table of ContentsSide-By-Side and Other InvestmentsBecause fund investors typically are unwilling to invest their capital in a fund unless the fund's manager also invests its own capital in the fund's investments,our investment fund documents generally require the general partners of our investment funds to make minimum capital commitments to the funds. The amount ofthese commitments, which are negotiated by fund investors, generally range from 2% to 5% of a fund's total capital commitments at final closing, but may begreater for certain funds pursuing new strategies. When investments are made, the general partner contributes capital to the fund based on its fund commitmentpercentage and if applicable, acquires a capital interest in the investment that is not subject to a carried interest. Historically, these capital contributions have beenfunded with cash from operations that otherwise would be distributed to our employees. In connection with the KPE Transaction, we did not acquire capital interests in investments that were funded by our employees or others involved in ourbusiness prior to October 1, 2009. Rather, those capital interests were allocated to our employees or others involved in our business and are reflected in our financialstatements as noncontrolling interests in consolidated entities to the extent that we hold the general partner interest in the fund. Any capital contributions that ourprivate equity fund general partners are required to make to a fund will be funded by us and we will be entitled to receive our allocable share of the returns thereon.In addition, our employees and certain other qualifying personnel are permitted to invest and have invested their own capital in our funds, side-by-sideinvestments with our funds or the firm and the funds managed by our strategic partnerships with other fund managers. Side-by-side investments are investmentsgenerally made on the same terms and conditions as those available to the applicable fund or the firm and, they, together with their investments in our funds or thefunds managed by our strategic partnerships with other funds managers, are not generally subject to management fees or a carried interest. The cash invested by ourexecutive officers and their investment vehicles aggregated to $434.9 million for the year ended December 31, 2015 , of which $30.0 million, $25.6 million, $4.4million, $2.0 million and $0.6 million was invested by Messrs. Kravis, Roberts, Fisher, Janetschek, and Sorkin respectively. These investments are not included inthe accompanying consolidated financial statements. In addition, our funds invested $6.0 million in 2015 from the commitments of certain investment vehiclesassociated with Mr. Hess. Such investments associated with Mr. Hess were made on the same terms and conditions as for other fund investors includingmanagement fees and/or a carried interest applicable to the relevant fund. Indemnification of Directors, Officers and OthersUnder our partnership agreement, in most circumstances we will indemnify the following persons, to the fullest extent permitted by law, from and against alllosses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts:our Managing Partner; any departing Managing Partner; any person who is or was an affiliate of our Managing Partner or any departing Managing Partner; anyperson who is or was a member, partner, tax matters partner, officer, director, employee, agent, fiduciary or trustee of our partnership or our subsidiaries, the generalpartner or any departing general partner or any affiliate of us or our subsidiaries, our Managing Partner or any departing Managing Partner; any person who is orwas serving at the request of a Managing Partner or any departing Managing Partner or any affiliate of a Managing Partner or any departing Managing Partner as anofficer, director, employee, member, partner, agent, fiduciary or trustee of another person; or any person designated by our Managing Partner. We have agreed toprovide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted inbad faith or engaged in fraud or willful misconduct. We have also agreed to provide this indemnification for criminal proceedings. Any indemnification under theseprovisions will only be out of our assets. Unless it otherwise agrees, our Managing Partner will not be personally liable for, or have any obligation to contribute orloan funds or assets to us to enable us to effectuate, indemnification. The indemnification of the persons described above shall be secondary to any indemnificationsuch person is entitled from another person or the relevant KKR fund to the extent applicable. We may purchase insurance against liabilities asserted against andexpenses incurred by persons in connection with our activities, regardless of whether we would have the power to indemnify the person against liabilities under ourpartnership agreement.Each member of the board of directors (each an "Indemnitee") has entered into an indemnification agreement with the Managing Partner and us. Eachindemnification agreement provides that the Indemnitee, subject to the limitations set forth in each indemnification agreement, shall be indemnified and heldharmless by the Managing Partner on an after tax basis from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legalfees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands,actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which the Indemniteemay be involved, or is threatened to be involved, as a party or otherwise, by reason of being or having been or having agreed to serve as a member of the board ofdirectors, or while serving264Table of Contentsas a member of the board of directors, being or having been serving or having agreed to serve at the request of the Managing Partner as a director, officer, employeeor agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership,joint venture, trust, employee benefit plan or other enterprise, whether arising from acts or omissions to act occurring on, before or after the date of suchindemnification agreement. Each indemnification agreement provides that the Indemnitee shall not be indemnified and held harmless if there has been a final andnon-appealable judgment entered by an arbitral tribunal or court of competent jurisdiction determining that, in respect of the matter for which the Indemnitee isseeking indemnification pursuant to the indemnification agreement, the Indemnitee acted in bad faith or engaged in fraud or willful misconduct.Guarantee of Contingent Obligations to Fund Partners; IndemnificationThe partnership documents governing KKR's carry—paying funds, including funds relating to private equity, mezzanine, infrastructure, energy, real estate,direct lending and special situations investments, generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring thegeneral partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon theliquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminishedperformance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount towhich the general partner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners offunds that were not contributed to KKR in the KPE Transaction, as of December 31, 2015 , no carried interest was subject to this clawback obligation, assumingthat all applicable carry paying funds were liquidated at their December 31, 2015 fair values. Had the investments in such funds been liquidated at zero value, theclawback obligation would have been $2,423.4 million . Carried interest is recognized in the statement of operations based on the contractual conditions set forth inthe agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund's investments were realized at the then estimatedfair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positiveand where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognizedcarried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceedthe amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation,if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawbackobligation, if any, is reflected as a reduction of KKR's investment balance as this is where carried interest is initially recorded.Certain private equity funds that were contributed to KKR in the KPE Transaction in 2009 also include a "net loss sharing provision." Upon the liquidation ofan investment vehicle to which a net loss sharing obligation applies, the general partner is required to contribute capital to the vehicle, to fund 20% of the net losseson investments. In these vehicles, such losses would be required to be paid by KKR to the fund investors in those vehicles in the event of a liquidation of the fundregardless of whether any carried interest had previously been distributed, and a greater share of investment losses would be allocable to KKR relative to the capitalthat KKR contributed to it as general partner. Based on the fair market values as of December 31, 2014, there would have been no net loss sharing obligation. If thevehicles were liquidated at zero value, the net loss sharing obligation would have been zero as of December 31, 2015 .Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed toKKR had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repayamounts to fund investors pursuant to the general partners' clawback obligations. The terms of the KPE Transaction require that principals remain responsible forany clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million. Through investment realizations,this amount has been reduced to $159.7 million as of December 31, 2015 . Using valuations as of December 31, 2015 , no amounts are due with respect to theclawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise to clawback obligations thatmay be allocated generally to KKR and principals who participate in the carry pool. Unlike the clawback obligation, KKR will be responsible for all amounts dueunder a net loss sharing obligation and will indemnify principals for any personal guarantees that they have provided with respect to such amounts. In addition,guarantees of or similar arrangements relating to clawback or net loss sharing obligations in favor of third party investors in an individual investment partnership byentities KKR owns may limit distributions of carried interest more generally.265Table of ContentsFacilitiesCertain trusts, whose beneficiaries include children of Mr. Kravis and Mr. Roberts, and certain other senior employees who are not executive officers of theCompany, are partners in a real-estate based partnership that maintains an ownership interest in our Menlo Park location. Payments made from us to this partnershipaggregated $7.3 million for the year ended December 31, 2015 .Confidentiality and Restrictive Covenant AgreementsOur employees have entered into confidentiality and restrictive covenant agreements that include prohibitions on our employees competing with us or solicitingcertain fund investors or senior-level employees of our firm during a restricted period following their departure from the firm. For further information on theseagreements, see "Executive Compensation—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2015 —Terms ofConfidentiality and Restrictive Covenant Agreements."Other Transactions with Related PersonsDuring part of 2015 , Mr. Hess's son was employed by the firm as an investment professional. In 2015 , in addition to customary benefits, he received totalcompensation of less than $200,000, consisting of a base salary and cash bonus. Such compensation and benefits was determined according to the firm'scompensation philosophy and practices applicable to similarly situated employees. In February 2016, after appropriate appraisals were conducted, a companyowned by Mr. Kravis purchased art from KKR for $537,900.We have and may in the future continue to enter into ordinary course transactions with unaffiliated entities known to us to beneficially own more than 5% ofany class of the outstanding voting securities of our partnership. These transactions may include investments by them in our funds generally on the same terms andconditions offered to other unaffiliated fund investors and participation in our capital markets transactions, including underwritings and syndications, generally onthe same terms and conditions offered to other unaffiliated capital markets participants. See "Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters."Statement of Policy Regarding Transactions with Related PersonsThe board of directors of our Managing Partner adopted a written statement of policy for our partnership regarding transactions with related persons, which werefer to as our related person policy. Our related person policy requires that a "related person" (as defined as in Item 404(a) of Regulation S-K) must promptlydisclose to our General Counsel or other designated person any "related person transaction" (defined as any transaction, arrangement or relationship, or series ofsimilar transactions, arrangements or relationships, including, without limitation, any loan, guarantee of indebtedness, transfer or lease of real estate, or use ofcompany property) 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. Those individuals willthen communicate that information to the board of directors of our Managing Partner. No related person transaction will be consummated without the approval orratification of a committee of the board consisting exclusively of disinterested directors; provided, however, the conflicts committee of our board of directors haspre-approved certain ordinary course transactions with persons known to us to beneficially own more than 5% of our outstanding common units on terms generallynot less favorable as obtained from other third parties, including investments in our funds as limited partners and participation in capital markets transactions likeunderwritings and syndications, the renewal of pre-existing strategic relationships with an owner of more than 5% of our outstanding common units, the use ofaircraft owned by our senior employees for business purposes, the employment of a director's son on terms made available to other similarly situated employees,certain investments by eligible employees in side-by-side investments with our firm and funds managed by our strategic partnership with other fund managers, andcertain pro rata cash contributions to the Group Partnerships for cash management purposes. It is our policy that directors interested in a related person transactionwill recuse themselves from any vote on a related person transaction in which they have an interest. All transactions entered into prior to July 14, 2010 were notapproved in accordance with this policy as they were entered into prior to the date of adoption of the policy. All side-by-side and other investments described in thissection are pre-approved in accordance with the terms of the policy.Director IndependencePlease see "Directors, Executive Officers and Corporate Governance—Independence and Composition of Board of Directors" for information on directorindependence.266Table of ContentsITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe following table summarizes the aggregate fees for professional services provided by Deloitte & Touche LLP, the member firms of Deloitte ToucheTohmatsu Limited or their respective affiliates (collectively, the "Deloitte Entities") for the years ended December 31, 2015 and 2014. For the Year EndedDecember 31, 2015 KKR CompletedTransactions (in thousands) Audit Fees$20,241(a)$— Audit-Related Fees$7,157(b)$6,102(d)Tax Fees$28,988(c)$4,619(d)All Other Fees$— $— For the Year EndedDecember 31, 2014 KKR CompletedTransactions (in thousands) Audit Fees$20,224(a)$— Audit-Related Fees$5,352(b)$9,786(d)Tax Fees$20,735(c)$9,226(d)All Other Fees$305(e)$— (a)Audit Fees consisted of estimated fees for each audit year for (1) the audits of our consolidated financial statements in our Annual Report on Form 10-K and services related to, or required by, statute or regulation; (2) reviews of the interim consolidated financial statements included in our quarterlyreports on Form 10-Q; and (3) comfort letters, consents and other services related to SEC and other regulatory filings. Estimate to actual adjustmentsfor settlements of audit fees are reflected in the year audit fees are settled. (b)Audit-Related Fees primarily included merger, acquisition, and investment due diligence services for strategic acquisitions or investments in targetcompanies for in-process transactions and transactions not completed. (c)Tax Fees consisted of fees for services rendered for tax compliance, planning and advisory services as well as tax fees for merger, acquisition, andinvestment due diligence services for strategic acquisitions or investments in target companies for in-process transactions and transactions notcompleted. (d)Audit-Related and Tax Fees included merger, acquisition, and investment due diligence services for strategic acquisitions or investments in portfoliocompanies that have been completed. In addition, the Deloitte Entities provided audit, audit-related, tax and other services to the portfolio companies,which are approved directly by the portfolio company's management and are not included in the amounts presented here. (e)All Other Fees in 2014 included a sourcing assessment and an accounting consultation related to a portfolio company. Our audit committee charter, which is available on our website at www.kkr.com under "Investor Center—KKR & Co. L.P.—Corporate Governance—AuditCharter", requires the audit committee to approve in advance all audit and non-audit related services to be provided by our independent registered public accountingfirm in accordance with the audit and non-audit related services pre-approval policy. All services reported in the Audit, Audit-Related, Tax, and All Othercategories above were approved by the audit committee.267Table of ContentsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this annual report.1. Financial StatementsSee Item 8 above.2. Financial Statement Schedules:See Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 2015, 2014 and 2013 of this Annual Report on Form 10- K. The otherschedules are omitted as they are not applicable or the amounts involved are not material.3. Exhibits:2.1Amended and Restated Purchase and Sale Agreement (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the KKR & Co. L.P.registration statement on Form S-1 (File No. 133-165414) filed on April 16, 2010).2.2Amended and Restated Investment Agreement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the KKR & Co. L.P.registration statement on Form S-1 (File No. 133-165414) filed on April 16, 2010).2.3Merger Agreement, dated as of December 16, 2013, among KKR & Co. L.P., KKR Fund Holdings L.P., Copal Merger Sub LLC, a Delawarelimited liability company and KKR Financial Holdings LLC (incorporated by reference to Exhibit 2.1 to the KKR & Co. L.P. Current Reporton Form 8-K filed on December 17, 2013).3.1Certificate of Limited Partnership of the Registrant (incorporated by reference to Exhibit 3.1 to the KKR & Co. L.P. registration statement onForm S-1 (File No. 133-165414) filed on March 12, 2010 (the "Registration Statement").3.2Amended and Restated Limited Partnership Agreement of the Registrant (incorporated by reference to Exhibit 3.1 to the KKR & Co. L.P.Current Report on Form 8-K filed on July 20, 2010).3.3Certificate of Formation of the Managing Partner of the Registrant (incorporated by reference to Exhibit 3.3 of the Registration Statement).3.4Amended and Restated Limited Liability Company Agreement of the Managing Partner of the Registrant (incorporated by reference to Exhibit3.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 5, 2011).4.1Indenture dated as of September 29, 2010 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKRFund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to the KKR& Co. L.P. Current Report on Form 8-K filed on September 30, 2010).4.2First Supplemental Indenture dated as of September 29, 2010 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on September 30, 2010).268Table of Contents4.3 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 4.4 Form of 6.375% Senior Note due 2020 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on September 30,2010). 4.5 Registration Rights Agreement of KKR & Co. L.P., dated as of October 1, 2012, by and among KKR & Co. L.P., AUSA Holding Companyand the other persons listed on the signature page thereto (incorporated by reference to Exhibit 4.1 to the KKR & Co. L.P. Quarterly Report onForm 10-Q filed on November 2, 2012). 4.6 Indenture dated as of February 1, 2013 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKRFund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to theKKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.7 First Supplemental Indenture dated as of February 1, 2013 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.8 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.2 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 4.9 Form of 5.500% Senior Note due 2043 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.10 Registration Rights Agreement of KKR & Co. L.P. dated as of February 19, 2014, by and among KKR & Co. L.P. and the sellers of Avocalisted on the signature pages thereto (included in Exhibit 4.8 to the KKR & Co. L.P. Annual Report on Form 10-K filed on February 24, 2014). 4.11 Indenture dated as of May 29, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKR FundHoldings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to theKKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.12 First Supplemental Indenture dated as of May 29, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.13 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014).4.14 Form of 5.125% Senior Note due 2044 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.15 Indenture, dated as of November 15, 2011, between the KKR Financial Holdings LLC and Wilmington Trust, National Association, as Trustee(incorporated by reference to Exhibit 4.1 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on November 15, 2011). 269Table of Contents4.16 Supplemental Indenture, dated as of November 15, 2011, between the KKR Financial Holdings LLC, Wilmington Trust, National Association,as Trustee and Citibank, N.A., Authenticating Agent, Paying Agent and Security Registrar (incorporated by reference to Exhibit 4.2 to the KKRFinancial Holdings LLC Current Report on Form 8-K filed on November 15, 2011). 4.17 Form of 8.375% Senior Note due November 15, 2041 of KKR Financial Holdings LLC (included in Exhibit 4.2 to the KKR FinancialHoldings LLC Current Report on Form 8-K filed on November 15, 2011). 4.18 Second Supplemental Indenture, dated as of March 20, 2012, between KKR Financial Holdings LLC, Wilmington Trust, National Association,as Trustee and Citibank, N.A., as Authenticating Agent, Paying Agent and Security Registrar (incorporated by reference to Exhibit 4.2 to theKKR Financial Holdings LLC Current Report on Form 8-K filed on March 20, 2012). 4.19 Form of 7.500% Senior Note due March 20, 2042 of KKR Financial Holdings LLC (incorporated by reference to Exhibit 4.2 to the KKRFinancial Holdings LLC Current Report on Form 8-K filed on March 20, 2012). 4.20 Share Designation of the 7.375% Series A LLC Preferred Shares of KKR Financial Holdings LLC, dated as of January 17, 2013 (incorporatedby reference to Exhibit 3.1 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on January 17, 2013). 4.21Registration Rights Agreement, dated as of November 2, 2015, by and among KKR & Co. L.P., MW Group (GP) LTD and the other personslisted on the signature pages thereto (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form S-3 (No. 333-208019)filed on November 13, 2015). 10.1 Second Amended and Restated Limited Partnership Agreement of KKR Management Holdings L.P. (incorporated by reference to Exhibit 10.1of the Registration Statement). 10.2 Second Amended and Restated Limited Partnership Agreement of KKR Fund Holdings L.P. (incorporated by reference to Exhibit 10.2 of theRegistration Statement). 10.3 Amendment to Second Amended and Restated Limited Partnership Agreement of KKR Fund Holdings L.P. dated August 5, 2014 (incorporatedby reference to Exhibit 10.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 10.4 Amended and Restated Limited Partnership Agreement of KKR International Holdings L.P., dated August 5, 2014 (incorporated by referenceto Exhibit 10.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 10.5 Registration Rights Agreement dated July 14, 2010, by and among KKR & Co. L.P., KKR Holdings L.P. and the persons from time to timeparty thereto (incorporated by reference to Exhibit 10.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20, 2010). 10.6*Form of KKR & Co. L.P. 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the RegistrationStatement filed on June 3, 2010). 10.7 Tax Receivable Agreement (incorporated by reference to Exhibit 10.3 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20,2010). 10.8 Amended and Restated Exchange Agreement (incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Current Report on Form 8-Kfiled on November 3, 2010).10.9 Amendment and Joinder Agreement to Exchange Agreement, dated as of August 5, 2014 among KKR Management Holdings L.P., KKR FundHoldings L.P., KKR Holdings L.P., KKR & Co. L.P., KKR Group Holdings L.P., KKR Subsidiary Partnership L.P., KKR Group Limited, andKKR International Holdings L.P. (incorporated by reference to Exhibit 10.2 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed onAugust 7, 2014). 270Table of Contents10.10 Credit Agreement, dated as of October 22, 2014, among Kohlberg Kravis Roberts & Co. L.P., KKR Fund Holdings L.P., KKR ManagementHoldings L.P. and KKR International Holdings L.P., the other borrowers from time to time party thereto, the guarantors from time to time partythereto, the lending institutions from time to time party thereto and HSBC Bank USA, National Association, as Administrative Agent.(incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Current Report on Form 8-K filed October 24, 2014).10.11 Amendment No. 1 to Credit Agreement, dated as of August 18, 2015 by and among Kohlberg Kravis Roberts & Co. L.P. and HSBC BankUSA, National Association (incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed November5, 2015).10.12*Form of Confidentiality and Restrictive Covenant Agreement (Senior Principals) (incorporated by reference to Exhibit 10.9 of the RegistrationStatement). 10.13*Form of Confidentiality and Restrictive Covenant Agreement (Founders) (incorporated by reference to Exhibit 10.10 of the RegistrationStatement). 10.14*Form of Indemnification Agreement by and among each member of the Board of Directors of KKR Management LLC, KKR Management LLCand KKR & Co. L.P. (incorporated by reference to Exhibit 10.4 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20, 2010). 10.15*Independent Director Compensation Program (incorporated by reference to Exhibit 10.15 of the KKR & Co. L.P. Annual Report on Form 10-Kfiled on March 7, 2011). 10.16*Form of Grant Certificate (incorporated by reference to Exhibit 10.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on May 5,2011). 10.17*Form of Public Company Equity Unit Award Agreement of KKR & Co. L.P. (Directors) (incorporated by reference to Exhibit 10.1 of theKKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 3, 2012). 10.18*Form of Public Company Holdings Unit Award Agreement of KKR & Co. L.P. (Executive Officers) (incorporated by reference to Exhibit 10.1of the KKR & Co. L.P. Annual Report on Form 10-K filed on February 27, 2015).10.19*Form of Public Company Holdings Unit Award Agreement of KKR & Co. L.P. (Executive Officers). 10.20*Form of Grant Certificate (Executive Officers). 10.21**KKR Financial Holdings LLC 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.2 to the KKR Financial Holdings LLCCurrent Report on Form 8-K filed on May 4, 2007). 10.22**KKR Financial Holdings LLC Non-Employee Directors' Deferred Compensation and Share Award Plan (incorporated by reference toExhibit 10.3 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on May 4, 2007).10.23Development Agreement, dated as of October 28, 2015, by and between ERY Developer LLC and KKR HY LLC. 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Registered Public Accounting Firm Relating to the Financial Statements of KKR & Co. L.P. 31.1 Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 271Table of Contents31.2 Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.3 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 32.2 Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 32.3 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition as of December 31, 2015and December 31, 2014, (ii) the Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, (iii) theConsolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013, (iv) the ConsolidatedStatements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013 (v) the Consolidated Statements of Cash Flows for theyears ended December 31, 2015, 2014 and 2013, and (vi) the Notes to the Consolidated Financial Statements.* Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.** Management contract or compensatory plan in which directors and/or executive officers of KKR Financial Holdings LLC are eligible toparticipate.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 tothe terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties madeby 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 actualstate of affairs as of the date they were made or at any other time.272Table of ContentsSCHEDULESCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSValuation Allowance for Deferred Tax Assets (in thousands) Balance at Beginning ofPeriod Tax Valuation AllowanceCharged to Income TaxProvision Tax Valuation AllowanceCredited to Income TaxProvision Balance at End of PeriodYear Ended: December 31, 2013$— $— $— $—December 31, 2014$— $4,153(a)$— $4,153December 31, 2015$4,153 $15,628(a)$— $19,781 (a)Includes an increase in valuation allowance due to foreign tax credits, the benefit of which is not currently recognizable due to uncertaintyregarding realization.273Table of ContentsSIGNATURES Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized. Date:February 26, 2016 KKR & CO. L.P. By: KKR Management LLC, its General Partner Name:William J. Janetschek Title:Chief Financial Officer Pursuant to the requirements of the Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in thecapacities indicated below on the dates indicated below. Signature Title Date /s/ HENRY R. KRAVIS Co-Chairman and Co-Chief Executive Officer Henry R. Kravis (principal executive officer) of KKR February 26, 2016 Management LLC /s/ GEORGE R. ROBERTS Co-Chairman and Co-Chief Executive Officer George R. Roberts (principal executive officer) of KKR February 26, 2016 Management LLC /s/ DAVID C. DRUMMOND Director of KKR Management LLC February 26, 2016David C. Drummond /s/ JOSEPH A. GRUNDFEST Director of KKR Management LLC February 26, 2016Joseph A. Grundfest /s/ JOHN. B. HESS Director of KKR Management LLC February 26, 2016John. B. Hess /s/ PATRICK F. RUSSO Director of KKR Management LLC February 26, 2016Patricia F. Russo /s/ THOMAS M. SCHOEWE Director of KKR Management LLC February 26, 2016Thomas M. Schoewe /s/ ROBERT W. SCULLY Director of KKR Management LLC February 26, 2016Robert W. Scully /s/ WILLIAM J. JANETSCHEK Chief Financial Officer (principal financial and accountingofficer) of KKR Management LLC February 26, 2016William J. Janetschek 274Table of ContentsINDEX TO EXHIBITS The following is a list of all exhibits filed or furnished as part of this report: 2.1Amended and Restated Purchase and Sale Agreement (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the KKR & Co. L.P.registration statement on Form S-1 (File No. 133-165414) filed on April 16, 2010).2.2Amended and Restated Investment Agreement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the KKR & Co. L.P.registration statement on Form S-1 (File No. 133-165414) filed on April 16, 2010).2.3Merger Agreement, dated as of December 16, 2013, among KKR & Co. L.P., KKR Fund Holdings L.P., Copal Merger Sub LLC, a Delawarelimited liability company and KKR Financial Holdings LLC (incorporated by reference to Exhibit 2.1 to the KKR & Co. L.P. Current Reporton Form 8-K filed on December 17, 2013).3.1Certificate of Limited Partnership of the Registrant (incorporated by reference to Exhibit 3.1 to the KKR & Co. L.P. registration statement onForm S-1 (File No. 133-165414) filed on March 12, 2010 (the "Registration Statement").3.2Amended and Restated Limited Partnership Agreement of the Registrant (incorporated by reference to Exhibit 3.1 to the KKR & Co. L.P.Current Report on Form 8-K filed on July 20, 2010).3.3Certificate of Formation of the Managing Partner of the Registrant (incorporated by reference to Exhibit 3.3 of the Registration Statement).3.4Amended and Restated Limited Liability Company Agreement of the Managing Partner of the Registrant (incorporated by reference to Exhibit3.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 5, 2011).4.1Indenture dated as of September 29, 2010 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKRFund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to the KKR& Co. L.P. Current Report on Form 8-K filed on September 30, 2010).4.2First Supplemental Indenture dated as of September 29, 2010 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on September 30, 2010).275Table of Contents 4.3 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 4.4 Form of 6.375% Senior Note due 2020 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on September 30,2010). 4.5 Registration Rights Agreement of KKR & Co. L.P., dated as of October 1, 2012, by and among KKR & Co. L.P., AUSA Holding Companyand the other persons listed on the signature page thereto (incorporated by reference to Exhibit 4.1 to the KKR & Co. L.P. Quarterly Report onForm 10-Q filed on November 2, 2012). 4.6 Indenture dated as of February 1, 2013 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKRFund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to theKKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.7 First Supplemental Indenture dated as of February 1, 2013 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.8 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. II LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.2 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 4.9 Form of 5.500% Senior Note due 2043 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on February 1, 2013). 4.10 Registration Rights Agreement of KKR & Co. L.P. dated as of February 19, 2014, by and among KKR & Co. L.P. and the sellers of Avocalisted on the signature pages thereto (included in Exhibit 4.8 to the KKR & Co. L.P. Annual Report on Form 10-K filed on February 24, 2014). 4.11 Indenture dated as of May 29, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR Management Holdings L.P., KKR FundHoldings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to theKKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.12 First Supplemental Indenture dated as of May 29, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P. and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference toExhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.13 Second Supplemental Indenture dated as of August 5, 2014 among KKR Group Finance Co. III LLC, KKR & Co. L.P., KKR ManagementHoldings L.P., KKR Fund Holdings L.P., KKR International Holdings L.P. and The Bank of New York Mellon Trust Company, N.A., astrustee (incorporated by reference to Exhibit 4.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014).4.14 Form of 5.125% Senior Note due 2044 (included in Exhibit 4.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on May 29, 2014). 4.15 Indenture, dated as of November 15, 2011, between the KKR Financial Holdings LLC and Wilmington Trust, National Association, as Trustee(incorporated by reference to Exhibit 4.1 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on November 15, 2011).276Table of Contents 4.16 Supplemental Indenture, dated as of November 15, 2011, between the KKR Financial Holdings LLC, Wilmington Trust, National Association,as Trustee and Citibank, N.A., Authenticating Agent, Paying Agent and Security Registrar (incorporated by reference to Exhibit 4.2 to the KKRFinancial Holdings LLC Current Report on Form 8-K filed on November 15, 2011). 4.17 Form of 8.375% Senior Note due November 15, 2041 of KKR Financial Holdings LLC (included in Exhibit 4.2 to the KKR FinancialHoldings LLC Current Report on Form 8-K filed on November 15, 2011). 4.18 Second Supplemental Indenture, dated as of March 20, 2012, between KKR Financial Holdings LLC, Wilmington Trust, National Association,as Trustee and Citibank, N.A., as Authenticating Agent, Paying Agent and Security Registrar (incorporated by reference to Exhibit 4.2 to theKKR Financial Holdings LLC Current Report on Form 8-K filed on March 20, 2012). 4.19 Form of 7.500% Senior Note due March 20, 2042 of KKR Financial Holdings LLC (incorporated by reference to Exhibit 4.2 to the KKRFinancial Holdings LLC Current Report on Form 8-K filed on March 20, 2012). 4.20 Share Designation of the 7.375% Series A LLC Preferred Shares of KKR Financial Holdings LLC, dated as of January 17, 2013 (incorporatedby reference to Exhibit 3.1 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on January 17, 2013). 4.21Registration Rights Agreement, dated as of November 2, 2015, by and among KKR & Co. L.P., MW Group (GP) LTD and the other personslisted on the signature pages thereto (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form S-3 (No. 333-208019)filed on November 13, 2015). 10.1 Second Amended and Restated Limited Partnership Agreement of KKR Management Holdings L.P. (incorporated by reference to Exhibit 10.1of the Registration Statement). 10.2 Second Amended and Restated Limited Partnership Agreement of KKR Fund Holdings L.P. (incorporated by reference to Exhibit 10.2 of theRegistration Statement). 10.3 Amendment to Second Amended and Restated Limited Partnership Agreement of KKR Fund Holdings L.P. dated August 5, 2014 (incorporatedby reference to Exhibit 10.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 10.4 Amended and Restated Limited Partnership Agreement of KKR International Holdings L.P., dated August 5, 2014 (incorporated by referenceto Exhibit 10.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 7, 2014). 10.5 Registration Rights Agreement dated July 14, 2010, by and among KKR & Co. L.P., KKR Holdings L.P. and the persons from time to timeparty thereto (incorporated by reference to Exhibit 10.2 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20, 2010). 10.6*Form of KKR & Co. L.P. 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the RegistrationStatement filed on June 3, 2010). 10.7 Tax Receivable Agreement (incorporated by reference to Exhibit 10.3 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20,2010). 10.8 Amended and Restated Exchange Agreement (incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Current Report on Form 8-Kfiled on November 3, 2010).277Table of Contents10.9 Amendment and Joinder Agreement to Exchange Agreement, dated as of August 5, 2014 among KKR Management Holdings L.P., KKR FundHoldings L.P., KKR Holdings L.P., KKR & Co. L.P., KKR Group Holdings L.P., KKR Subsidiary Partnership L.P., KKR Group Limited, andKKR International Holdings L.P. (incorporated by reference to Exhibit 10.2 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed onAugust 7, 2014). 10.10 Credit Agreement, dated as of October 22, 2014, among Kohlberg Kravis Roberts & Co. L.P., KKR Fund Holdings L.P., KKR ManagementHoldings L.P. and KKR International Holdings L.P., the other borrowers from time to time party thereto, the guarantors from time to time partythereto, the lending institutions from time to time party thereto and HSBC Bank USA, National Association, as Administrative Agent.(incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Current Report on Form 8-K filed October 24, 2014).10.11 Amendment No. 1 to Credit Agreement, dated as of August 18, 2015 by and among Kohlberg Kravis Roberts & Co. L.P. and HSBC BankUSA, National Association (incorporated by reference to Exhibit 10.1 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed November5, 2015).10.12*Form of Confidentiality and Restrictive Covenant Agreement (Senior Principals) (incorporated by reference to Exhibit 10.9 of the RegistrationStatement). 10.13*Form of Confidentiality and Restrictive Covenant Agreement (Founders) (incorporated by reference to Exhibit 10.10 of the RegistrationStatement). 10.14*Form of Indemnification Agreement by and among each member of the Board of Directors of KKR Management LLC, KKR Management LLCand KKR & Co. L.P. (incorporated by reference to Exhibit 10.4 to the KKR & Co. L.P. Current Report on Form 8-K filed on July 20, 2010). 10.15*Independent Director Compensation Program (incorporated by reference to Exhibit 10.15 of the KKR & Co. L.P. Annual Report on Form 10-Kfiled on March 7, 2011). 10.16*Form of Grant Certificate (incorporated by reference to Exhibit 10.3 to the KKR & Co. L.P. Quarterly Report on Form 10-Q filed on May 5,2011). 10.17*Form of Public Company Equity Unit Award Agreement of KKR & Co. L.P. (Directors) (incorporated by reference to Exhibit 10.1 of theKKR & Co. L.P. Quarterly Report on Form 10-Q filed on August 3, 2012). 10.18*Form of Public Company Holdings Unit Award Agreement of KKR & Co. L.P. (Executive Officers) (incorporated by reference to Exhibit 10.1of the KKR & Co. L.P. Annual Report on Form 10-K filed on February 27, 2015).10.19*Form of Public Company Holdings Unit Award Agreement of KKR & Co. L.P. (Executive Officers). 10.20*Form of Grant Certificate (Executive Officers). 10.21**KKR Financial Holdings LLC 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.2 to the KKR Financial Holdings LLCCurrent Report on Form 8-K filed on May 4, 2007). 10.22**KKR Financial Holdings LLC Non-Employee Directors' Deferred Compensation and Share Award Plan (incorporated by reference toExhibit 10.3 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on May 4, 2007).10.23Development Agreement, dated as of October 28, 2015, by and between ERY Developer LLC and KKR HY LLC. 278Table of Contents21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Registered Public Accounting Firm Relating to the Financial Statements of KKR & Co. L.P. 31.1 Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.3 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 32.2 Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 32.3 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition as of December 31, 2015and December 31, 2014, (ii) the Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, (iii) theConsolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013, (iv) the ConsolidatedStatements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013 (v) the Consolidated Statements of Cash Flows for theyears ended December 31, 2015, 2014 and 2013, and (vi) the Notes to the Consolidated Financial Statements.* Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.** Management contract or compensatory plan in which directors and/or executive officers of KKR Financial Holdings LLC are eligible to participate.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 tothe terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties madeby 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 actualstate of affairs as of the date they were made or at any other time.279Exhibit 10.19 PUBLIC COMPANY HOLDINGS UNIT AWARD AGREEMENT OF KKR & CO. L.P.(Executive Officers)CONFIDENTIALTable of ContentsPageARTICLE I GRANT OFPUBLIC COMPANY HOLDINGS UNITS 2Section 1.1. Grantof Public Company Holdings Units; Conditions of Grant 2Section 1.2. REUsand Agreement Subject to Plan; Administrator 2ARTICLE II VESTING andSETTLEMENT OF REUS 3Section 2.1. Vesting of REUs 3Section 2.2. Settlement of REUs 4Section 2.3. NoDistribution Payments 5ARTICLE IIIRESTRICTIONS ON TRANSFERS AND OTHER LIMITATIONS 5Section 3.1. Transfer Restrictions on REUs 5Restrictive Covenants5Section 3.3. Post-Settlement Transfer Restrictions on Common Units 5Section 3.4. Transfers to Other Holders 7Section 3.5. Minimum Retained Ownership Requirement 8ARTICLE IVMISCELLANEOUS 9Section 4.1. Governing Law 9Section 4.2. Arbitration 9Section 4.3. Remedies; Recoupment; Right to Set-Off 10Section 4.4. Amendments and Waivers 10Section 4.5. Withholding 11Section 4.6. Notices 12Section 4.7. EntireAgreement; Termination of Agreement; Survival 12Section 4.8. Severability 12Section 4.9. Binding Effect 13Section 4.10. Appendices 13Section 4.11. Further Assurances 13Section 4.12. Interpretation; Defined Terms; Section 409A; Employment with Designated Service Recipient; Headings 13Section 4.13. Counterparts 14APPENDIX A DEFINITIONSA-1APPENDIX B REU GRANT CERTIFICATEB-1APPENDIX C ADDITIONAL TERMS AND CONDITIONSC-1APPENDIX D CONFIDENTIALITY AND RESTRICTIVE COVENANT OBLIGATIONSD-1APPENDIX E KKR & CO. L.P. 2010 EQUITY INCENTIVE PLANE-1PUBLIC COMPANY HOLDINGS UNIT AWARD AGREEMENT OF KKR & CO L.P.This PUBLIC COMPANY HOLDINGS UNIT AWARD AGREEMENT (this “ Agreement ”) of KKR & CO L.P. (the “ Partnership”) is made by and between the Partnership and the undersigned (the “ Grantee ”). Capitalized terms used herein and nototherwise defined herein or in the KKR & Co. L.P. 2010 Equity Incentive Plan, as amended from time to time (the “ Plan ”), shallbe as defined in Appendix A attached hereto and the Plan is hereby attached as Appendix E and incorporated by referenceherein.RECITALSWHEREAS , the general partner of the Partnership has determined it is in the best interests of the Partnership to provide theGrantee with this Agreement pursuant to and in accordance with the terms of the Plan.NOW, THEREFORE , in consideration of the mutual promises and agreements herein made and intending to be legally boundhereby, the parties hereto agree to the following:ARTICLE I GRANT OF PUBLIC COMPANY HOLDINGS UNITSSection 1.1. Grant of Public Company Holdings Units; Conditions of GrantThe Partnership hereby grants to the Grantee, effective as of the Grant Date specified on the REU Grant Certificate attachedhereto as Appendix B (the “ Grant Date ”), the number of “public company holdings units”, which are restricted equity units setforth in the REU Grant Certificate attached hereto, subject to the terms and conditions of this Agreement. Each restricted equityunit that is granted pursuant to this Agreement represents the right to receive delivery of one Common Unit, subject to anyadjustment pursuant to Section 9 of the Plan (each such restricted equity unit, an “ REU ”). Notwithstanding the foregoing, thegrant of REUs hereunder is conditioned upon the Grantee’s agreement to the covenants and obligations contained in theConfidentiality and Restrictive Covenant Obligations attached hereto as Appendix D incorporated herein by reference.Section 1.2. REUs and Agreement Subject to Plan; AdministratorThis Agreement and the grant of REUs provided for herein shall be subject to the provisions of the Plan, except that if there areany express differences or inconsistencies between the provisions of the Plan and this Agreement, the provisions of thisAgreement shall govern. For the avoidance of doubt, the Partnership may delegate to any employee of the KKR Group its dutiesand powers hereunder, and any reference to the “Administrator” contained herein shall be deemed to include any such delegate.ARTICLE II VESTING AND SETTLEMENT OF REUSSection 2.1. Vesting of REUs(a)The following vesting provisions shall apply to the REUs:(i)Subject to the Grantee’s continued Employment through the Service Vesting Date or Service Vesting Dates, asapplicable, as specified in the REU Grant Certificate attached hereto, the REUs shall become vested onsuch date or dates, as applicable, as to the percentage(s) set forth in such REU Grant Certificate.(ii)If, prior to the date the REUs are vested as provided in Section 2.1(a)(i) above or otherwise terminate and areforfeited pursuant to Section 2.1(b) and (c) below: (A) the Grantee’s Employment terminates due to theGrantee’s Retirement, if applicable, then all Retirement REUs shall, in the discretion of the Administrator,be fully vested as a result thereof; (B) the Grantee dies or experiences a Disability, then all unvestedREUs shall be vested as a result thereof, provided that if the Grantee is not an employee of the KKRGroup, then any vesting of unvested REUs described in this clause (B) shall be in the discretion of theAdministrator; or (C) there occurs a Change in Control prior to any termination of the Grantee’sEmployment, then all or any portion of any unvested REUs may, in the discretion of the Administrator, bevested as a result thereof. Notwithstanding the foregoing, if the Partnership receives an opinion ofcounsel that there has been a legal judgment and/or legal development in the Grantee’s jurisdiction thatwould likely result in the favorable treatment applicable to the Retirement REUs pursuant to this Section2.1(a)(ii) being deemed unlawful and/or discriminatory, then the Partnership will not apply the favorabletreatment at the time the Grantee’s Employment terminates due to the Grantee’s Retirement underclause (A) above, and the REUs will be treated as set forth in Section 2.1(a)(i), 2.1(b), 2.1(c) or the otherprovisions of this Section 2.1(a)(ii), as applicable.(iii)All REUs that become vested under this Section 2.1(a) are eligible to be Settled pursuant to Section 2.2 of thisAgreement.(b)If the Grantee’s Employment terminates for any reason other than due to the Grantee’s death, Disability orRetirement, each as provided for in Section 2.1(a) above, all then unvested REUs (including any REUs that are notRetirement REUs) shall immediately terminate and be forfeited without consideration, and no Common Units shallbe delivered hereunder.(c)The Grantee’s right to vest in the REUs under the Plan, if any, will terminate effective as of the date that theGrantee is no longer actively providing services (even if still considered employed or engaged under local Law)and will not be extended by any notice period mandated under local Law (e.g., active Employment would notinclude a period of “garden leave” or similar period pursuant to local Law) except as may be otherwise agreed inwriting by the Partnership or the Designated Service Recipient with the Grantee; the Administrator shall have theexclusive discretion to determine when the Grantee is no longer actively employed or engaged for purposes of theREUs.Section 2.2. Settlement of REUs(a)To the extent that (i) an REU granted hereunder becomes vested pursuant to Section 2.1(a) above and (ii) therelated Service Vesting Date has also occurred, then with respect to such percentage of REUs set forth next to theapplicable Service Vesting Date on the REU Grant Certificate, such REU shall be Settled as soon asadministratively practicable on or following the applicable Service Vesting Date for such REU; provided that theAdministrator may determine that such Settlement may instead occur on or as soon as administratively practicableafter the first day of the next permissible trading window of Common Units that opens for employees of the KKRGroup to sell Common Units (provided that in any event such Settlement shall not be later than the time permittedunder Section 409A, if applicable). For the avoidance of doubt, the Settlement of any REUs that become vestedpursuant to Section 2.1(a)(ii) above shall not be accelerated, such that, with respect to any such REUs, only thatpercentage of such REUs that would otherwise have become vested on each applicable Service Vesting Date asset forth on the REU Grant Certificate pursuant to Section 2.1(a)(i) shall be Settled at each such Service VestingDate in accordance with the foregoing sentence. The date on which any REU is to be Settled hereunder is referredto as a “ Delivery Date. ” The Settlement of each REU shall be effected in accordance with, and subject to theprovisions of, Section 2.2(b) below.(b)On any Delivery Date, each vested REU that is then being Settled shall be cancelled in exchange for thePartnership delivering to the Grantee either (i) the number of Common Units equal to the number of REUs that areto be Settled on such Delivery Date pursuant to Section 2.2(a) above or (ii) an amount of cash, denominated inU.S. dollars, equal to the Fair Market Value of the foregoing number of Common Units (a “ Cash Payment ”). TheAdministrator may elect in its sole discretion whether to Settle the REUs in Common Units or by a Cash Payment,and in the case of the Cash Payment, whether to have the Cash Payment delivered by the member of the KKRGroup that employs or engages the Grantee or to which the Grantee otherwise is rendering services (the “Designated Service Recipient ”).(c)Subject to the provisions of this Article II relating to the number of REUs that are to be Settled on any applicableDelivery Date and solely to the extent permitted under Section 409A, if applicable, the Partnership may imposesuch other conditions and procedures in relation to the Settlement of REUs as it may reasonably determine. Inaddition to the foregoing and notwithstanding anything else in this Agreement, the Administrator may require thatany or all of the Common Units that may be delivered to the Grantee under this Section 2.2 that the Granteeintends to sell, from time to time, may only be sold through a coordinated sales program as defined by theAdministrator.(d)Any of the foregoing payments or deliveries shall in all instances be subject to Sections 4.3 and 4.5 below, asapplicable.Section 2.3. No Distribution PaymentsThe REUs granted to the Grantee hereunder do not include the right to receive any distribution payments.ARTICLE III RESTRICTIONS ON TRANSFERS AND OTHER LIMITATIONSSection 3.1. Transfer Restrictions on REUs(e)The Grantee may not Transfer all or any portion of the Grantee’s REUs to any Other Holder (including to anyFamily Related Holder) without the prior written consent of the Administrator, which consent may be given orwithheld, or made subject to such conditions (including the receipt of such legal or tax opinions and otherdocuments that the Partnership may require) as are determined by the Administrator, in its sole discretion.(f)Any Transfer of REUs by the Grantee to Other Holders permitted by the Administrator pursuant to Section 3.1(a)shall be made in accordance with Section 3.4.(g)Any purported Transfer of REUs that is not in accordance with this Section 3.1 is null and void.Section 3.2. Confidentiality and Restrictive CovenantsThe Grantee acknowledges and agrees that Grantee is bound by and will comply with the Confidentiality and RestrictiveCovenant Obligations contained in Appendix D, which obligations are incorporated by reference herein, and any otheragreements that the Grantee has entered into with the Designated Service Recipient, the Partnership, KKR Holdings L.P., KKRAssociates Holdings L.P., or any other member of the KKR Group, with respect to the Grantee’s obligation to keep confidentialthe nonpublic, confidential or proprietary information of the KKR Group and its affiliates, as applicable, and, if applicable, anyrestrictive covenants concerning the Grantee’s obligations not to compete with the KKR Group or solicit its clients or employeesafter termination of Employment), as such agreements may be amended from time to time. If the Grantee is a limited partner ofKKR Holdings L.P. or KKR Associates Holdings L.P., the Grantee further acknowledges and agrees that references to aConfidentiality and Restrictive Covenant Agreement in the limited partnership agreements of KKR Holdings L.P. and KKRAssociates Holdings L.P. shall be deemed to include and also refer to the Confidentiality and Restrictive Covenant Obligationscontained in Appendix D hereto (and authorizes and consents to the general partners of KKR Holdings L.P. and KKR AssociatesHoldings L.P. to amend their respective limited partnership agreements to reflect the foregoing).Section 3.3. Post-Settlement Transfer Restrictions on Common UnitsThe provisions of this Section 3.3 shall or shall not be applicable to the REUs granted to the Grantee hereunder as indicated onthe REU Grant Certificate.(a)The Grantee may not Transfer all or any portion of the Grantee’s Transfer Restricted Common Unit (as definedbelow) (including to any Family Related Holder) without the prior written consent of the Administrator, whichconsent may be given or withheld, or made subject to such conditions (including the receipt of such legal or taxopinions and other documents that the Partnership may require) as are determined by the Administrator, in its solediscretion. For the avoidance of doubt, Transfer Restricted Common Units may only be held in an account with aninstitution, and subject to terms and conditions, which have been approved by the Administrator from time to time.Any Transfer of Transfer Restricted Common Units by the Grantee to Other Holders permitted by the Administratorpursuant to Section 3.3(a) shall be made in accordance with Section 3.4.(b)A “ Transfer Restricted Common Unit ” refers to all Common Units delivered upon Settlement of a vested REUuntil (i) the first anniversary of the Service Vesting Date related thereto, in the case of 50% of such Common Unitsand (ii) the second anniversary of such Service Vesting Date, in the case of the other 50% of such Common Units.(c)If the Grantee breaches in any significant or intentional manner, as determined by the Administrator in his solediscretion, any of the Grantee’s covenants as stated in the Confidentiality and Restrictive Covenant Obligationscontained in Appendix D, the Administrator, in his sole discretion, may direct that the Grantee forfeit all or a portionof the Transfer Restricted Common Units held by the Grantee in an amount determined by the Administrator in hissole discretion. The Grantee hereby consents and agrees to immediately surrender and deliver such TransferRestricted Common Units to the Partnership, without the payment of any consideration, receipt of any furthernotice or fulfillment of any other condition.(d)If for any reason the Grantee’s Employment is terminated for Cause, unless otherwise determined by theAdministrator in writing, all Transfer Restricted Common Units held by the Grantee shall automatically be forfeitedby the Grantee without payment of any consideration. The Grantee hereby consents and agrees to immediatelysurrender and deliver such Transfer Restricted Common Units to the Partnership, without the payment of anyconsideration, receipt of any further notice or fulfillment of any other condition.(e)Any forfeiture of Transfer Restricted Common Units contemplated by Section 3.3(c) or Section 3.3(d) shall requireno additional procedures on the part of the Partnership or its affiliates. The Grantee hereby acknowledges that theAdministrator may take any and all actions to reflect the forfeiture of Transfer Restricted Common Units hereunder,including but not limited to the delivery of a written notice to the institution contemplated in Section 3.3(a) that holdsthe Transfer Restricted Common Units, and agrees to take any further action to memorialize such forfeiture as theAdministrator may require.(f)The Administrator may, from time to time, waive the provisions of this Section 3.3, subject to the imposition of anyconditions or further requirements, as determined by the Administrator in his sole discretion. Without limiting theforegoing, (i) the Administrator may impose equivalent transfer or forfeiture restrictions on the Grantee’s otherequity, if any, held in KKR Holdings, L.P., the Partnership or any of their respective affiliates (or any of theirrespective equity incentive plans) to the extent that the provisions of this Section 3.3 are waived, and (ii) theGrantee hereby consents in advance to the imposition of such equivalent transfer or forfeiture restrictions forpurposes of the governing documents of Grantee’s other equity, if any, held in KKR Holdings, L.P., the Partnershipor any of their respective affiliates (or any of their respective equity incentive plans) to the extent the Administratorwaives the application of this Section 3.3 to the Transfer Restricted Common Units.(g)For the avoidance of doubt, the provisions of this Section 3.3 also apply in the event the Grantee receives a CashPayment in Settlement of a vested REU on a Delivery Date as provided in Section 2.2(b).(h)Any purported Transfer of Transfer Restricted Common Units that is not in accordance with this Section 3.3 is nulland void.Section 3.4. Transfers to Other Holders(a)Transfers of REUs or Transfer Restricted Common Units by the Grantee to Other Holders are not permitted unlessthe Administrator provides his prior written consent pursuant Section 3.1 or Section 3.3. Prior to a Transfer of anyREUs or Transfer Restricted Common Units to any Other Holder, the Other Holder must consent in writing to bebound by this Agreement as an Other Holder and deliver such consent to the Administrator.(b)If an REU or Transfer Restricted Common Unit is held by an Other Holder, such Other Holder shall be bound bythis Agreement in the same manner and to the same extent as the Grantee is bound hereby (or would be boundhereby had the Grantee continued to hold such REU or Transfer Restricted Common Unit). Any Transfer to anOther Holder must be undertaken in compliance with Section 3.1(a). For the avoidance of doubt, any vestingrequirement of Section 2.1 above that applies to an REU or transfer or forfeiture restrictions that are applicable toTransfer Restricted Common Units (including those Transfer Restricted Common Units delivered upon Settlementof a Transferred REU) held by an Other Holder shall be satisfied or deemed to be satisfied under this Article IIIonly to the extent that such vesting requirement or transfer or forfeiture restrictions, as applicable, would otherwisehave been satisfied if the REU or Transfer Restricted Common Unit had not been Transferred by the Grantee, andany REU and Transfer Restricted Common Unit, as applicable, that is held by an Other Holder shall cease to beheld by such Other Holder under this Article III if the REU or Transfer Restricted Common Unit, as applicable,would have then ceased to be held by the Grantee if the REU or Transfer Restricted Common Unit had not beenTransferred by the Grantee to such Other Holder.(c)In the event of a property settlement or separation agreement between the Grantee and his or her spouse, theGrantee agrees that he or she shall use reasonable efforts to retain all of his or her REUs and Transfer RestrictedCommon Units and shall reimburse his or her spouse for any interest he or she may have under this Agreementout of funds, assets or proceeds separate and distinct from his or her interest under this Agreement.Section 3.5. Minimum Retained Ownership RequirementThe provisions of this Section 3.5 shall or shall not be applicable to the REUs granted to the Grantee hereunder as indicated onthe REU Grant Certificate.(a)For so long as the Grantee retains his or her Employment, the Grantee (collectively with all Family Related Holderswho become Other Holders, if applicable) must continuously hold an aggregate number of Common UnitEquivalents that is at least equal to fifteen percent (15%) of the cumulative amount of (x) all REUs granted to theGrantee under this Agreement and (y) all other REUs designated as “public company holdings units” that havebeen or are hereafter granted to the Grantee under the Plan, in each case that have become vested pursuant toSection 2.1(a) (or similar provision in any other “public company holdings units” grant agreement), prior to any netSettlement permitted by Section 4.5.(b)“ Common Unit Equivalents ” means any combination of: (i) REUs that are or become vested pursuant to Section2.1 of this Agreement and Common Units delivered upon Settlement of any such REUs (even if they are TransferRestricted Common Units) and (ii) REUs designated as “public company holdings units” granted to the Granteeunder the Plan that are or become vested pursuant to a provision similar to Section 2.1 of this Agreement andCommon Units delivered upon Settlement of any such REUs (even if a provision similar to the transfer restrictionson Transfer Restricted Common Units has not yet been satisfied).(c)The Administrator may, from time to time, waive the provisions of this Section 3.5, subject to the imposition of anyconditions or further requirements, as determined by the Administrator in his sole discretion. Without limiting theforegoing, (i) the Administrator may impose equivalent transfer restrictions on the Grantee’s other equity, if any,held in KKR Holdings, L.P., the Partnership or any of their respective affiliates (or any of their respective equityincentive plans) to the extent that the provisions of this Section 3.5 are waived, and (ii) the Grantee herebyconsents in advance to the imposition of such equivalent transfer restrictions for purposes of the governingdocuments of Grantee’s other equity, if any, held in KKR Holdings, L.P., the Partnership or any of their respectiveaffiliates (or any of their respective equity incentive plans) to the extent the Administrator waives the application ofthis Section 3.5 to the Common Unit Equivalents.(d)Any purported Transfer of any Common Units that would result in a violation of this Section 3.5 is null and void.Notwithstanding anything to the contrary contained in this Agreement (including, without limitation, Section 4.7) thisSection 3.5 shall survive any termination of this Agreement.ARTICLE IV MISCELLANEOUSSection 4.1. Governing LawThis Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, United States ofAmerica, without giving effect to any otherwise governing principles of conflicts of law that would apply the Laws of anotherjurisdiction.Section 4.2. Arbitration(a)Any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of,relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performanceof this Agreement (including the validity, scope and enforceability of this arbitration provision) shall be finallysettled by arbitration conducted by a single arbitrator in New York, New York in accordance with the then-existingRules of Arbitration of the International Chamber of Commerce. If the parties to the dispute fail to agree on theselection of an arbitrator within 30 days of the receipt of the request for arbitration, the International Chamber ofCommerce shall make the appointment. The arbitrator shall be a lawyer and shall conduct the proceedings in theEnglish language. Performance under this Agreement shall continue if reasonably possible during any arbitrationproceedings. Except as required by Law or as may be reasonably required in connection with ancillary judicialproceedings to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirmor challenge an arbitration award, the arbitration proceedings, including any hearings, shall be confidential, and theparties shall not disclose any awards, any materials in the proceedings created for the purpose of the arbitration, orany documents produced by another party in the proceedings not otherwise in the public domain. Judgment onany award rendered by an arbitration tribunal may be entered in any court having jurisdiction thereover.(b)Notwithstanding the provisions of Section 4.2(a), the Partnership may bring an action or special proceeding in anycourt of competent jurisdiction for the purpose of compelling the Grantee to arbitrate, seeking temporary orpreliminary relief in aid of an arbitration hereunder, or enforcing an arbitration award and, for the purposes of thisclause (b), the Grantee (i) expressly consents to the application of Section 4.2(c) below to any such action orproceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of thisAgreement would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocablyappoints the Secretary or General Counsel of the Partnership (or any officer of the Partnership) at the addressidentified for the Partnership as set forth in Section 4.6 below as such Grantee’s agent for service of process inconnection with any such action or proceeding and agrees that service of process upon such agent, who shallpromptly advise such Grantee of any such service of process, shall be deemed in every respect effective service ofprocess upon the Grantee in any such action or proceeding.(c)EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE U.S. FEDERAL ANDSTATE COURTS LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY JUDICIALPROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 4.2, OR ANYJUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISINGOUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings includeany suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid ofarbitration, or to confirm or challenge an arbitration award. The parties acknowledge that the forums designated bythis clause (c) have a reasonable relation to this Agreement and to the parties’ relationship with one another. Theparties hereby waive, to the fullest extent permitted by applicable Law, any objection which they now or hereaftermay have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding referredto in this Section 4.2 brought in any court referenced therein and such parties agree not to plead or claim thesame.Section 4.3. Remedies; Recoupment; Right to Set-Off(a)The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by anyparty shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given inaddition to any other rights the parties may have by Law or under the terms of any other applicable agreement.(b)To the extent required or advisable, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Actand any rules promulgated thereunder and any other similar Laws including but not limited to the EuropeanDirectives 2011/61/EU, 2013/36/EU and 2014/91/EU, the Administrator may specify in any other document or apolicy to be incorporated into this Agreement by reference, that the Grantee’s rights, payments, and benefits withrespect to REUs awarded hereunder and/or Common Units delivered to the Grantee in respect of REUs awardedhereunder shall be subject to reduction, cancellation, forfeiture or recoupment.(c)The Administrator may set-off any amounts due under this Agreement or otherwise against any amounts whichmay be owed to the Partnership or its Affiliates by the Grantee under this Agreement, any other relationship orotherwise. The Grantee hereby expressly authorizes the Partnership and its Affiliates to take any and all actions onthe Grantee’s behalf (including, without limitation, payment, credit and satisfaction of amounts owed) in connectionwith the set-off of any amounts owed to the Partnership or its Affiliates or otherwise.Section 4.4. Amendments and Waivers(a)This Agreement (including the Definitions contained in Appendix A attached hereto, the REU Grant Certificateattached as Appendix B hereto, the Additional Terms and Conditions attached as Appendix C hereto, theConfidentiality and Restrictive Covenant Obligations attached as Appendix D hereto, and any other provisions asmay be required to be appended to this Agreement under applicable local Law) may be amended, supplemented,waived or modified only in accordance with Section 4(c) of the Plan or Section 13 of the Plan, as applicable, or asmay be required for purposes of compliance or enforceability with applicable local Law; provided, however, that theREU Grant Certificate shall be deemed amended from time to time to reflect any adjustments provided for underthe Plan.(b)No failure or delay by any party in exercising any right, power or privilege hereunder (other than a failure or delaybeyond a period of time specified herein) shall operate as a waiver thereof nor shall any single or partial exercisethereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.Section 4.5. WithholdingRegardless of any action the Partnership or the Designated Service Recipient takes with respect to any or all income tax, socialinsurance, payroll tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legallyapplicable to the Grantee (“ Tax-Related Items ”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items isand remains the Grantee’s responsibility and may exceed the amount actually withheld by the Partnership or the DesignatedService Recipient. The Grantee further acknowledges that the Partnership and/or the Designated Service Recipient (1) make norepresentations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the REUs,including, but not limited to, the grant, vesting or Settlement of the REUs, the delivery of Common Units or a Cash Payment uponSettlement of the REUs, the lapse of any restrictions imposed on the Grantee’s Transfer Restricted Common Units, thesubsequent sale of Common Units acquired under the Plan and the receipt of any distributions; and (2) do not commit to and areunder no obligation to structure the terms of the REUs or any aspect of the REUs to reduce or eliminate the Grantee’s liability forTax-Related Items or achieve any particular tax result. Further, if the Grantee has become subject to tax in more than onejurisdiction, the Grantee acknowledges that the Partnership and/or the Designated Service Recipient (or the Affiliate formerlyemploying, engaging or retaining the Grantee, as applicable) may be required to withhold or account for Tax-Related Items inmore than one jurisdiction.Prior to any relevant taxable or tax withholding event, as applicable, the Grantee will pay or make adequate arrangementssatisfactory to the Partnership and/or the Designated Service Recipient to satisfy all Tax-Related Items. In this regard, theGrantee authorizes the Partnership and/or the Designated Service Recipient, or their respective agents, at their discretion, tosatisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:(a)withholding from the Cash Payment, the Grantee’s wages or other cash compensation paid to the Grantee by thePartnership and/or the Designated Service Recipient; or(b)withholding from proceeds of the sale of Common Units delivered upon Settlement of the REUs either through avoluntary sale or through a mandatory sale arranged by the Partnership (on the Grantee’s behalf pursuant to thisauthorization); or(c)withholding in Common Units to be delivered upon Settlement of the REUs.To avoid negative accounting treatment, the Partnership may withhold or account for Tax-Related Items by consideringapplicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items issatisfied by withholding in Common Units, for tax purposes, the Grantee is deemed to have been issued the full number ofCommon Units subject to the Settled Common Units, notwithstanding that a number of the Common Units are held back solelyfor the purpose of paying the Tax-Related Items due as a result of any aspect of the Grantee’s participation in the Plan.Finally, the Grantee shall pay to the Partnership or the Designated Service Recipient any amount of Tax-Related Items that thePartnership or the Designated Service Recipient may be required to withhold or account for as a result of the Grantee’sparticipation in the Plan that cannot be satisfied by the means previously described. The Partnership may refuse to issue ordeliver the Common Units, the Cash Payment or the proceeds of the sale of Common Units, if the Grantee fails to comply withthe Grantee’s obligations in connection with the Tax-Related Items.Section 4.6. NoticesAll notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall bedeemed to have been duly given upon receipt) by delivery in person, by courier service, by fax or by registered or certified mail(postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for aparty as shall be specified for purposes of notice given in accordance with this Section 4.6):(a)If to the Partnership, to:KKR & Co. L.P. 9 West 57th Street, Suite 4200 New York, New York 10019U.S.A. Attention: Chief Financial Officer(b)If to the Grantee, to the most recent address for the Grantee in the books and records of the Partnership or theDesignated Service Recipient.Section 4.7. Entire Agreement; Termination of Agreement; Survival(a)This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereofand supersedes all prior agreements and understandings, whether oral or written, pertaining thereto. The Granteeacknowledges that the grant of REUs provided for under this Agreement is in full satisfaction of any and all grantsof equity or equity-based awards that representatives of the Partnership or its Affiliates, on or prior to the datehereof, may have informed the Grantee that such Grantee is entitled to receive.(b)This Agreement shall terminate when the Grantee and all Other Holders cease to hold any of the REUs or TransferRestricted Common Units that have been granted or delivered, as applicable, hereunder. Notwithstanding anythingto the contrary herein, this Article IV shall survive any termination of this Agreement.Section 4.8. SeverabilityIf any term or other provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any rule of Law, orpublic policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as theeconomic or legal substance of the transactions is not affected in any manner materially adverse to any party. Upon adetermination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiatein good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutuallyacceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullestextent possible.Section 4.9. Binding EffectThis Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement,their successors, executors, administrators, heirs, legal representatives and assigns.Section 4.10. AppendicesAppendices A, B, C and D constitute part of this Agreement. Notwithstanding the provisions of this Article IV, the provisions ofSections 7 through 16 (inclusive) of Appendix D shall govern solely with respect to, and shall be applicable only to theinterpretation, administration and enforcement of, the provisions of Appendix D, but not to any other provisions of this Agreementor any other of its Appendices, including but not limited to Sections 3.2 and 3.3(c) of this Agreement. For the further avoidance ofdoubt, and without limiting the foregoing sentence, Sections 3.2 and 3.3(c) of this Agreement shall only be governed by, and shallonly be subject to administration and enforcement under, the provisions of this Article IV, and shall not be governed by or subjectto interpretation, administration or enforcement under any of Sections 7 through 16 (inclusive) of Appendix D.Section 4.11. Further AssurancesThe Grantee shall perform all other acts and execute and deliver all other documents as may be necessary or appropriate tocarry out the purposes and intent of this Agreement.Section 4.12. Interpretation; Defined Terms; Section 409A; Employment with Designated Service Recipient; Headings(a)Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter,singular or plural, whichever shall be applicable. Unless otherwise specified, all references herein to “Articles,”“Sections” and clauses shall refer to corresponding provisions of this Agreement. The word “including” is not meantto be exclusive, but rather shall mean “including without limitation” wherever used in this Agreement. Reference to“hereto”, “herein” and similar words is to this entire Agreement (including any Appendices) and not a particularsentence or section of this Agreement. All references to “date” and “time” shall mean the applicable date (otherthan a Saturday or Sunday or any day on which the Federal Reserve Bank of New York is closed or any day onwhich banks in the city of New York, New York are required to close, in which case such date refers to the nextoccurring date that is not described in this parenthetical) or time in New York, New York.(b)This Section 4.12(b) applies to Grantees who are U.S. tax residents (such as, a U.S. citizen, greencard holder or aU.S. tax resident under the substantial presence test) to the extent applicable. All references to any “separationfrom service” or termination of the Employment of, or the services to be provided by, the Grantee, shall be deemedto refer to a “separation from service” within the meaning of Section 409A, if applicable. Notwithstanding anythingherein to the contrary, (i) if at the time of the Grantee’s termination of Employment the Grantee is a “specifiedemployee” as defined in Section 409A of the Code and the deferral of the commencement of any payments ordelivery of Common Units otherwise payable or provided hereunder as a result of such termination of employmentis necessary in order to prevent any accelerated or additional tax under Section 409A, then the Partnership willdefer the commencement of the payment of any such payments or delivery hereunder (without any reduction insuch payments or delivery of Common Units ultimately paid or provided to the Grantee) until the date that is sixmonths following the Grantee’s termination of Employment (or the earliest date as is permitted under Section409A) and (ii) if any other payments or other deliveries due to the Grantee hereunder could cause the applicationof an accelerated or additional tax under Section 409A, such payments or other deliveries shall be deferred ifdeferral will make such payment or other delivery compliant under Section 409A, or otherwise such payment orother delivery shall be restructured, to the extent possible, in a manner, determined by the Administrator, that doesnot cause such an accelerated or additional tax. The Partnership shall use commercially reasonable efforts toimplement the provisions of this Section 4.12(b) in good faith; provided that none of the Partnership, the GeneralPartner, the Administrator nor any of the Partnership’s, KKR Group’s employees, directors or representatives shallhave any liability to the Grantee with respect to this Section 4.12(b).(c)For the avoidance of doubt, any references to the Employment of the Grantee in this Agreement refer solely to theEmployment of the Grantee by the Designated Service Recipient or any other member of the KKR Group. Thegrant of REUs under this Agreement in no way implies any Employment relationship with the General Partner, thePartnership or with any other member of the KKR Group, other than the Designated Service Recipient with which aformal Employment relationship is currently in effect with the Grantee, or any other member of the KKR Group withwhich a formal Employment relationship is currently in effect with the Grantee. If the Grantee changes Employmentfrom the Designated Service Recipient as of the Grant Date to another member of the KKR Group, references toDesignated Service Recipient hereunder shall refer to such other member of the KKR Group with which theGrantee has Employment.(d)The headings and subheadings in this Agreement are included for convenience and identification only and are in noway intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provisionhereof.Section 4.13. CounterpartsThis Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by thedifferent parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an originalbut all of which taken together shall constitute one and the same agreement. Copies of executed counterparts transmitted bytelecopy or other electronic transmission service shall be considered original executed counterparts for purposes of thisAgreement.[Rest of page intentionally left blank]IN WITNESS WHEREOF , the Partnership has executed this Agreement as of the date specified under the signature of theGrantee.KKR & CO. L.P.By: KKR MANAGEMENT LLC, its general partnerBy:/s/William J. Janetschek William J. Janetschek Chief Financial OfficerIN WITNESS WHEREOF , the undersigned Grantee has caused this counterpart signature page to this Agreement to be dulyexecuted as of the date specified under the signature of the Grantee.“GRANTEE”Electronic SignatureName: Participant NameDated: Grant DateAPPENDIX A DEFINITIONSIn addition to the defined terms set forth in the preamble and recitals of the Agreement, as well as the defined terms set forth inthe Plan, the following terms shall have the following meanings for purposes of the Agreement:“ Cause ” means, with respect to the Grantee, the occurrence or existence of any of the following as determined fairly on aninformed basis and in good faith by the Administrator: (i) any act of fraud, misappropriation, dishonesty, embezzlement or similarconduct by the Grantee against any member of the KKR Group (including the Partnership), KKR Holdings L.P., KKR AssociatesHoldings L.P., a Fund, or a Portfolio Company, (ii) a Regulatory Violation that has a material adverse effect on (x) the business ofany member of the KKR Group or (y) the ability of the Grantee to function as an employee, associate or in any similar capacity(including consultant) with respect to the KKR Group, taking into account the services required of the Grantee and the nature ofthe business of the KKR Group, or (iii) a material breach by the Grantee of a material provision of any Written Policies or thedeliberate failure by the Grantee to perform the Grantee’s duties to the KKR Group, provided that in the case of this clause (iii),the Grantee has been given written notice of such breach or failure within 45 days of the KKR Group becoming aware of suchbreach or failure and, where such breach or failure is curable, the Grantee has failed to cure such breach or failure within (A) 15days of receiving notice thereof or (B) such longer period of time, not to exceed 30 days, as may be reasonably necessary tocure such breach or failure provided that the Grantee is then working diligently to cure such breach or failure. If such breach orfailure is not capable of being cured, the notice given to the Grantee may contain a date of termination that is earlier than 15 daysafter the date of such notice.“ Disability ” means, as to any Person, such Person’s inability to perform in all material respects such Person’s duties andresponsibilities to the KKR Group by reason of a physical or mental disability or infirmity which inability is reasonably expected tobe permanent and has continued (i) for a period of six consecutive months or (ii) such shorter period as the Administrator mayreasonably determine in good faith.“ Employment ” means the Grantee’s employment or engagement with (x) the Designated Service Recipient or any othermember of the KKR Group or (y) any consultant or service provider that provides services to any member of the KKR Group;provided that in the case of clause (y), service provided as a consultant or service provider must be approved by theAdministrator in order to qualify as “Employment” hereunder.“ Family Related Holder ” means, in respect of the Grantee, any of the following: (i) such Grantee’s spouse, parents, parents-in-law, children, siblings and siblings-in-law, descendants of siblings, and grandchildren, (ii) any trust or other personal or estateplanning vehicle established by such Grantee, (iii) any charitable organization established by such Grantee and (iv) anysuccessor-in-interest to such Grantee, including but not limited to a conservator, executor or other personal representative.“ Law ” means any statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other orderissued or promulgated by any national, supranational, state, federal, provincial, local or municipal government or anyadministrative or regulatory body with authority therefrom with jurisdiction over the Partnership or any Participant, as the casemay be.“ Other Holder ” means any Person that holds an REU, other than the Grantee.“ Portfolio Company ” means a company over which a Fund exercises a significant degree of control as an investor.“ Regulatory Violation ” means, with respect to the Grantee (i) a conviction of the Grantee based on a trial or by an acceptedplea of guilt or nolo contendere of any felony or misdemeanor crime involving moral turpitude, false statements, misleadingomissions, forgery, wrongful taking, embezzlement, extortion or bribery, (ii) a final determination by any court of competentjurisdiction or governmental regulatory body (or an admission by the Grantee in any settlement agreement) that the Grantee hasviolated any U.S. federal or state or comparable non-U.S. securities laws, rules or regulations or (iii) a final determination by self-regulatory organization having authority with respect to U.S. federal or state or comparable non-U.S. securities laws, rules orregulations (or an admission by the Grantee in any settlement agreement) that the Grantee has violated the written rules of suchself-regulatory organization that are applicable to any member of the KKR Group.“ Retirement ” means the resignation by the Grantee of the Grantee’s Employment with the KKR Group (other than for Cause)on or after the date that the Grantee’s age, plus the Grantee’s years of Employment with the KKR Group equals at least 80;provided that such date shall be no earlier than December 31, 2012.“ Retirement REUs ” means, with respect to any Grantee whose Employment terminates due to Retirement, any REUs with aService Vesting Date that would, if the Grantee’s Employment were not so terminated, occur within two years after the date ofsuch termination due to Retirement.“ REU Grant Certificate ” means the REU Grant Certificate delivered to the Grantee and attached to this Agreement, as thesame may be modified pursuant to Section 4.4(a) of the Agreement.“ Section 409A ” means Section 409A of the U.S. Internal Revenue Code of 1986, as the same may be amended from time totime, and the applicable regulations, including temporary regulations, promulgated under such Section, as such regulations maybe amended from time to time (including corresponding provisions of succeeding regulations).“ Service Vesting Date ” means, with respect to any REU, the date set forth in the REU Grant Certificate as the “Service VestingDate.”“ Settle ”, “ Settled ” or “ Settlement ” means the discharge of the Partnership’s obligations in respect of an REU through thedelivery to the Grantee of (i) Common Units or (ii) a Cash Payment, in each case in accordance with Article II.“ Transfer ” or “ Transferred ” means with respect to any REU or Common Unit, any (i) sale, assignment, transfer or otherdisposition thereof or any interests therein or rights attached thereto, whether voluntarily or by operation of Law, or (ii) creation orplacement of any mortgage, claim, lien, encumbrance, conditional sales or other title retention agreement, right of first refusal,preemptive right, pledge, option, charge, security interest or other similar interest, easement, judgment or imperfection of title ofany nature whatsoever.“ Written Policies ” means with respect to any Grantee having Employment with a member of the KKR Group, the writtenpolicies of the KKR Group included in its employee manual, code of ethics and confidential information and information barrierpolicies and procedures and other documents relating to the Grantee's Employment, association or other similar affiliation withthe KKR Group.APPENDIX BREU GRANT CERTIFICATEGrantee Name: Participant NameGrant Date: Grant DateNumber of REUs: Number of Awards GrantedService Vesting Date: The following sets forth each applicable Service Vesting Date uponwhich the REUs granted hereunder shall become vested, subject to the Grantee’s continued Employmentthrough each such date:Percentage of REUs that Become Vested onApplicable Service Vesting DateApplicable Service Vesting Date Vesting and Settlement of the REUs is subject to all terms and conditions contained in the Agreement to which this REU GrantCertificate is attached. Notwithstanding the foregoing:The post-settlement transfer restrictions contained in Section 3.3 of the Agreement shall / shall not be applicable to theREUs (and any resulting Common Units) granted under this REU Grant Certificate.The minimum retained ownership requirements contained in Section 3.5 of the Agreement shall / shall not be applicableto the REUs (and any resulting Common Units) granted under this REU Grant Certificate.APPENDIX CADDITIONAL TERMS AND CONDITIONSThe terms and conditions in this Appendix C supplement the provisions of the Agreement, unless otherwise indicated herein.Capitalized terms contained in this Appendix C and not defined herein shall have the same meaning as such terms are defined inthe Agreement into which this Appendix C is incorporated by reference therein and to which this Appendix C is attached, or thePlan, as applicable.1. Data PrivacyThe Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or otherform, of the Grantee’s personal data as described in this Agreement and any other Award materials (“Data”) by andamong, as applicable, the Designated Service Recipient, the Partnership and its Affiliates for the exclusive purpose ofimplementing, administering and managing the Grantee’s participation in the Plan.The Grantee understands that the Partnership and the Designated Service Recipient may hold certain personalinformation about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number,date of birth, social insurance number or other identification number, salary, nationality, job title, any Common Units ordirectorships held in the Partnership, details of all REUs or any other entitlement to Common Units awarded, canceled,exercised, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing,administering and managing the Plan.The Grantee understands that Data will be transferred to any third parties assisting the Partnership with theimplementation, administration and management of the Plan. The Grantee understands that the recipients of the Datamay be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may havedifferent data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she mayrequest a list with the names and addresses of any potential recipients of the Data by contacting his or her local humanresources representative. The Grantee authorizes the Partnership, its subsidiaries, the Designed Service Recipient andany other possible recipients which may assist the Partnership (presently or in the future) with implementing,administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form,for the sole purpose of implementing, administering and managing his or her participation in the Plan. The Granteeunderstands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’sparticipation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additionalinformation about the storage and processing of Data, require any necessary amendments to Data or refuse or withdrawthe consents herein, in any case without cost, by contacting in writing his or her local human resources representative.Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If theGrantee does not consent, or if the Grantee later seeks to revoke his or her consent, the Grantee’s employment statusor service and career with the Designated Service Recipient will not be adversely affected; the only adverseconsequence of refusing or withdrawing the Grantee’s consent is that the Partnership would not be able to grant him orher REUs or other awards or administer or maintain such awards. Therefore, the Grantee understands that refusing orwithdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on theconsequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or shemay contact his or her local human resources representative.2. Nature of GrantIn accepting the Award, the Grantee acknowledges, understands and agrees that:(a)the Plan is established voluntarily by the Partnership, it is discretionary in nature and it may be modified, amended,suspended or terminated by the Partnership at any time;(b)the grant of the REUs is voluntary and occasional and does not create any contractual or other right to receivefuture grants, or benefits in lieu of REUs, even if REUs have been granted in the past;(c)all decisions with respect to future grants of REUs, if any, will be at the sole discretion of the Partnership;(d)the Grantee’s participation in the Plan shall not create a right to further Employment with the Designated ServiceRecipient and shall not interfere with the ability of the Designated Service Recipient to terminate the Grantee’sEmployment or service relationship (if any) at any time;(e)the Grantee is voluntarily participating in the Plan;(f)the REUs and the Common Units subject to the REUs, and the income and value of same, are extraordinary items,which are outside the scope of the Grantee’s Employment or service contract, if any;(g)the REUs and the Common Units subject to the REUs, and the income and value of same, are not part of normalor expected compensation for purposes of calculating any severance, resignation, termination, redundancy,dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits orsimilar payments;(h)the grant of REUs and the Grantee’s participation in the Plan will not be interpreted to form an Employment orservice contract or relationship with the Partnership, the Designated Service Recipient or any Affiliate;(i)the future value of the underlying Common Units is unknown, indeterminable and cannot be predicted withcertainty;(j)no claim or entitlement to compensation or damages shall arise from forfeiture of the REUs resulting fromtermination of the Grantee’s Employment (for any reason whatsoever and whether or not in breach of local laborlaws and whether or not later found to be invalid), and in consideration of the grant of REUs to which the Granteeis otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Partnership, theDesignated Service Recipient or any Affiliate, waives his or her ability, if any, to bring any such claim, and releasesthe Partnership, the Designated Service Recipient and any Affiliate from any such claim; if, notwithstanding theforegoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, theGrantee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and alldocuments necessary to request dismissal or withdrawal of such claims;(k)unless otherwise agreed with the Partners in writing, the REUs and the Common Units subject to the REUs, andthe income and value of same, are not granted as consideration for, or in connection with, the service the Granteemay provide as a director of the Designated Service Recipient, the Partnership or any Affiliate;(l)subject to Section 9 of the Plan, the REUs and the benefits under the Plan, if any, will not automatically transfer toanother company in the case of a merger, take-over or transfer of liability; and(m)the following provisions apply only if the Grantee is providing services outside the United States:(i)the REUs and the Common Units subject to the REUs, and the income and value of same, are not part of normalor expected compensation or salary for any purposes;(ii)the REUs and the Common Units subject to the REUs, and the income and value of same, are not intended toreplace any pension rights or compensation; and(iii)neither the Designated Service Recipient, the Partnership nor any Affiliate shall be liable for any foreignexchange rate fluctuation between the Grantee’s local currency and the United States Dollar that mayaffect the value of the REUs or of any amounts due to the Grantee pursuant to the vesting of the REUsor the subsequent sale of any Common Units acquired upon vesting.3. No Advice Regarding AwardThe Partnership is not providing any tax, legal or financial advice, nor is the Partnership making any recommendations regardingthe Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying Common Units. The Grantee shouldconsult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before takingany action related to the Plan.4. LanguageIf the Grantee has received the Agreement or any other document related to the Plan translated into a language other thanEnglish and if the meaning of the translated version is different than the English version, the English version will control.5. Electronic Delivery and AcceptanceThe Partnership may, in its sole discretion, decide to deliver any documents related to current or future participation in the Planby electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate inthe Plan through an on-line or electronic system established and maintained by the Partnership or a third party designated by thePartnership.6. Restrictions on Trading in SecuritiesIn addition to any policies and procedures which govern Grantee's ability to trade in Common Units as well as other securities ofthe Partnership set forth in the Partnership's trading window policy, Grantee may be subject to additional securities trading andmarket abuse laws in his or her country of residence. These laws may affect Grantee's ability to acquire or dispose of CommonUnits or rights to Common Units (e.g., REUs) under the Plan, particularly during such times as the Grantee is considered to haveaccess to material nonpublic information concerning the Partnership (as defined by the Laws of the Grantee's country). Anyrestrictions under these Laws or regulations are separate from and in addition to any policies and procedures set forth by thePartnership. The Grantee is responsible for ensuring compliance with any applicable restrictions and should consult his or herpersonal legal advisor on this matter.7. Foreign Asset / Account, Exchange Control ReportingDepending upon the country to which Laws the Grantee is subject, the Grantee may have certain exchange control, foreign assetand/or account reporting requirements that may affect the Grantee’s ability to acquire or hold Common Units under the Plan orcash received from participating in the Plan (including from any sale proceeds arising from the sale of Common Units) in theGrantee’s Fidelity brokerage account or a bank or other brokerage account outside the Grantee’s country of residence. TheGrantee’s country may require that he or she report such accounts, assets or transactions to the applicable authorities in theGrantee’s country. The Grantee is responsible for knowledge of and compliance with any such regulations and should speak withhis or her own personal tax, legal and financial advisors regarding same.APPENDIX D Confidentiality and Restrictive Covenant ObligationsA. In connection with the Grantee’s employment, engagement, association or other similar affiliation with the Partnershipor other entity of the KKR Group (“ KKR ” or the “ Company ” and such Grantee, a “ KKR Employee ”), the Grantee is beingissued one or more REUs pursuant to the Agreement to which this Appendix D is attached;B. The Grantee acknowledges and agrees that the Grantee will receive financial benefits from KKR’s business throughtheir participation in the value of the REUs;C. The Grantee further acknowledges and agrees that (i) during the course of the Grantee’s employment, engagement,association or other similar affiliation with KKR, the Grantee will receive and have access to confidential information of KKR andthe Portfolio Companies (collectively, the “ KKR Related Entities ”) and have influence over and the opportunity to developrelationships with Clients, Prospective Clients, Portfolio Companies and partners, members, employees and associates of theCompany (as defined below); and (ii) such confidential information and relationships are extremely valuable assets in which KKRhas invested, and will continue to invest, substantial time, effort and expense in developing and protecting; andD. The Grantee acknowledges and agrees that (i) the REUs will materially benefit the Grantee; (ii) it is essential toprotect the business interests and goodwill of the Company and that the Company be protected by the restrictive covenants andconfidentiality undertaking set forth herein; (iii) it is a condition precedent to the Grantee receiving REUs that the Grantee agreeto be bound by the restrictive covenants and confidentiality undertaking contained herein; and (iv) KKR would suffer significantand irreparable harm from a violation by the Grantee of the confidentiality undertaking set forth herein as well as the restrictivecovenants set forth herein for a period of time after the termination of the Grantee’s employment, engagement, association orother similar affiliation with KKR.E . Capitalized terms contained in this Appendix D and not defined herein shall have the same meaning as such termsare defined in the Agreement into which this Appendix D is incorporated by reference therein and to which this Appendix D isattached, or the Plan, as applicable.F. This Appendix D is made in part for the benefit of the Designated Service Recipient and the parties intend,acknowledge, and agree that the Designated Service Recipient is a third party beneficiary of this Appendix D and is authorized towaive compliance with any provision hereof by delivering a written statement clearly expressing the intent to waive suchcompliance to the Grantee and a duly authorized representative of KKR.NOW, THEREFORE, to provide the Company with reasonable protection of its and goodwill and in consideration for (i)the REUs and any other consideration that the Grantee will receive in connection with and as a result of the Grantee’semployment, engagement, association or other similar affiliation with KKR; (ii) the material financial and other benefits that theGrantee will derive from such REUs and other consideration (if any); and (iii) other good and valuable consideration, the receiptand adequacy of which are hereby acknowledged, the Grantee hereby agrees to the following restrictions:1.Outside Business Activities.The Grantee acknowledges that, during the course of the Grantee’s employment, engagement, association or other similaraffiliation with KKR, the Grantee will be subject to the Written Policies. The Written Policies include restrictions that limit the abilityof the Grantee to engage in outside business activities without the prior approval of the Company. If the Grantee has anemployment, engagement or other similar contract with KKR, the Grantee may be subject to similar restrictions under thatagreement. The Grantee hereby agrees that, during the Grantee’s employment, engagement, association or other similaraffiliation with KKR, the Grantee will comply with all such restrictions that are from time to time in effect which are applicable tothe Grantee.2.Confidentiality Undertaking.The Grantee acknowledges that, during the course of the Grantee’s employment, engagement, association or other similaraffiliation with KKR, the Grantee will receive and have access to Confidential Information of the Company and the PortfolioCompanies. Recognizing that any disclosure of such information could have serious consequences to one or more of theCompany and the Portfolio Companies, the Grantee hereby agrees to comply with the confidentiality undertaking set forth inSchedule I hereto. Such restrictions are incorporated by reference into, and form a material part of, this Appendix D.3.Non-Compete.The Grantee hereby agrees that, while employed, engaged, associated or otherwise similarly affiliated with KKR, and inaddition during the Post-Termination Restricted Period, the Grantee will not set up, be employed or engaged by, hold an office inor provide consulting, advisory or other similar services to or for the benefit of, a Competing Business where the activities orservices of the Grantee in relation to the Competing Business are substantially the same as the activities that the Granteeengaged in, or the services that the Grantee provided, in connection with the Grantee’s employment, engagement, association orother similar affiliation with KKR.For the purposes of this Appendix D, a “ Competing Business ” means a business that competes (i) in a Covered Countrywith any business conducted by the Company on the date on which the Grantee’s employment, engagement, association orother similar affiliation with KKR is terminated (the “ Termination Date ”) and in which the Grantee had material involvementduring the 12 months preceding the Termination Date or (ii) in any country with any business that the Company was, on theTermination Date, formally considering conducting and where the Grantee had material involvement in the preparation, planningor formal consideration of such business. A “ Covered Country ” means the United States, United Kingdom, the Republic ofIreland, France, Hong Kong, China, Japan, the Republic of Korea, Australia, India, United Arab Emirates, Saudi Arabia, Brazil,Canada, Singapore, Spain, Mexico, Luxembourg or any other country where the Company conducted business on theTermination Date; provided that if the Grantee is located in Japan, the definition of Covered Country shall exclude the phrase“any other country where the Company conducted business on the Termination Date” to the extent unenforceable underapplicable law.Notwithstanding the foregoing, nothing in this Appendix D shall be deemed to prohibit the Grantee from (i) associating withany business whose activities consist principally of making passive investments for the account and benefit of the Grantee and/ormembers of the Grantee’s immediate family where such business does not, within the knowledge of the Grantee, compete with abusiness of KKR for specific privately negotiated investment opportunities; (ii) associating, during the Post-Termination RestrictedPeriod, with any business that does not have a Competing Amount of Capital; (iii) making and holding passive investments inpublicly traded securities of a Competing Business where such passive investment does not exceed 5% of the amount of suchsecurities that are outstanding at the time of investment; or (iv) making and holding passive investments in limited partner orsimilar interests in any investment fund or vehicle with respect to which the Grantee does not exercise control, discretion orinfluence over investment decisions. For the purposes of this paragraph, a “ Competing Amount of Capital ” means (x) US$1billion of capital that is invested or targeted for investment substantially in private equity investments in Pan-North America, Pan-Europe or the United States or as part of a global private equity investment program or (y) US$500 million of capital that isinvested or targeted for investment substantially in other types of investments, including private equity investments, that do notfall within clause (x) above. 4.Non-Solicitation of Clients and Prospective Clients; Non-Interference.The Grantee hereby agrees that, while employed, engaged, associated or otherwise similarly affiliated with KKR, and inaddition during the Post-Termination Restricted Period, the Grantee will not (i) solicit, or assist any other person in soliciting, thebusiness of any Client or Prospective Client for, or on behalf of, a Competing Business; (ii) provide, or assist any other person inproviding, for any Client or Prospective Client any services that are substantially similar to those that the Company provided orproposed to be provided to such Client or Prospective Client; or (iii) impede or otherwise interfere with or damage, or attempt toimpede or otherwise interfere with or damage, any business relationship and/or agreement between the Company and any Clientor Prospective Client. As used in this Section 4, “ solicit ” means to have any direct or indirect communication inviting, advising,encouraging or requesting any person to take or refrain from taking any action with respect to the giving by such person ofbusiness to a Competing Business, regardless of who initiated such communication.For purposes of this Appendix D, “ Client ” means any person (a) for whom the Company provided services, including anyinvestor in an investment fund, account or vehicle that is managed, advised or sponsored by KKR (a “ KKR Fund ”), or that wasa Portfolio Company of a KKR Fund and (b) with whom the Grantee or individuals reporting to the Grantee had material contactor dealings on behalf of the Company during the 12 months prior to the Termination Date; and “ Prospective Client ” means anyperson with whom (I) the Company has had material negotiations or discussions concerning becoming a Client and (II) theGrantee or individuals reporting to the Grantee had material contact or dealings on behalf of the Company during the 12 monthsprior to the Termination Date.5.Non-Solicitation of Personnel.The Grantee hereby agrees that, while employed, engaged, associated or otherwise similarly affiliated with KKR, and inaddition during the Post-Termination Restricted Period, the Grantee will not solicit, employ, engage or retain, or assist any otherperson in soliciting, employing, engaging or retaining, any Key Person. As used in this Section 5, “ solicit ” means to have anydirect or indirect communication inviting, advising, encouraging or requesting any Key Person to terminate his or heremployment, engagement, association or other affiliation with KKR or KKR Capstone or recommending or suggesting that a thirdparty take any of the foregoing actions, including by way of identifying such Key Person to the third party, in each case regardlessof who initiated such communication.For purposes of this Appendix D, a “ Key Person ” means a person (a) with whom the Grantee had material contact ordealings during the course of the Grantee’s employment, engagement, association or other similar affiliation with KKR and (b)who on the Termination Date was either (i) employed or engaged by the Company as an executive-level employee or officer orotherwise associated or similarly affiliated with the Company in any position, including as a member or partner, having functionsand duties substantially similar to those of an executive-level employee or officer; (ii) a senior advisor to KKR; (iii) employed orengaged by KKR Capstone as an executive level employee or officer or otherwise associated or similarly affiliated with KKRCapstone in any position, including as a member or partner, having functions and duties substantially similar to those of anexecutive level employee or officer; or (iv) a person who provides services exclusively to the Company or any Portfolio Companyand has functions and duties that are substantially similar to those of a person listed in sub-clauses (i), (ii) or (iii) above; and “KKR Capstone ” means (I) KKR Capstone Americas LLC, Capstone Europe Limited, KKR Capstone Asia Limited and any other“Capstone” branded entity that provides similar consulting services to the KKR Group and Portfolio Companies and (II) the directand indirect parents and subsidiaries of the foregoing.6.Post-Termination Restricted Period.The “ Post-Termination Restricted Period ” for the Grantee shall commence on the Termination Date and shall expireupon the eighteen-month anniversary of the Termination Date. Notwithstanding the foregoing, if the Grantee’s employment,engagement, association or other similar affiliation with KKR is terminated involuntarily and without Cause, the Post-TerminationRestricted Period will expire on the nine-month anniversary of the Termination Date. To the extent that the Grantee continues tobe employed or engaged by, or otherwise associated or similarly affiliated with, KKR, during any “garden leave” or “notice” periodin which the Grantee is required to not perform any services for or enter the premises of the Company, and to otherwise complywith all terms and conditions imposed on the Grantee during such “garden leave” or “notice” period, the applicable Post-Termination Restricted Period shall be reduced by the amount of any such “garden leave” or “notice” period in which the Granteecomplies with such terms.7.Intellectual Property; Works Made for HireExcept as otherwise agreed in writing between the Grantee and the Partnership, the Designated Service Recipient or othermember of the KKR Group, as applicable, the Grantee agrees that all work and deliverables that the Grantee prepares, creates,develops, authors, contributes to or improves, either alone or with third parties, during the course of the Grantee’s employment,engagement, association or other similar affiliation with the KKR Group, within the scope of the services provided to or with theuse of any of the resources of the KKR Group, including but not limited to notes, drafts, scripts, documents, designs, inventions,data, presentations, research results, developments, reports, processes, programs, spreadsheets and other materials and allrights and intellectual property rights thereunder (collectively, “Work Product”), are works-made-for-hire owned exclusively by theKKR Group. The Grantee hereby irrevocably assigns, transfers and conveys, to the maximum extent permitted by law, all right,title and interest that the Grantee may have in such Work Product (and any written records thereof) to the KKR Group (or any ofits designees), to the extent ownership of any such rights does not vest originally with KKR Group. To the extent the foregoingassignment is deemed to be invalid or unenforceable, Grantee grants the KKR Group, at no additional charge an exclusive,worldwide, irrevocable, royalty-free, perpetual, assignable license under all intellectual property in and to the Work Product.8.Non-Disparagement.The Grantee hereby agrees that the Grantee will not at any time during his or her employment with the Designated ServiceRecipient or for five years thereafter make any disparaging, defamatory, or derogatory written or oral statements or othercommunications about or in reference to the Designated Service Recipient, the Partnership, KKR Holdings L.P., KKR AssociatesHoldings L.P., or any other member of the KKR Group or KKR Capstone, as applicable (including their respective businesses orreputations) or any of their Clients, Prospective Clients, Portfolio Companies, or Key Persons; provided that this provision shallnot prevent the Grantee from (i) making truthful reports to or testifying truthfully before any court, agency, or regulatory body orpursuant to any legal or regulatory process or proceeding or (ii) engaging in activity protected by applicable law, rule orregulations, including the U.S. National Labor Relations Act.9.Representations; Warranties; Other Agreements.The Grantee acknowledges and agrees that the Grantee will derive material financial and other benefits from the Grantee’semployment, engagement, association or other similar affiliation with KKR, and that the restrictions contained herein arereasonable in all circumstances and necessary to protect the legitimate business interests of the Company, to have and enjoy thefull benefit of its business interests and goodwill. The Grantee further agrees and acknowledges that such restrictions will notunnecessarily or unreasonably restrict or otherwise limit the professional opportunities of the Grantee should his or heremployment, engagement, association or other similar affiliation with KKR terminate, that the Grantee is fully aware of theGrantee’s obligations under this Appendix D and that the livelihood of the Grantee is not impaired by the Grantee’s entry into thecovenants contained herein. The Partnership and the Designated Service Recipient shall have the right, exercisable in its solediscretion, to directly or indirectly make a payment to the Grantee or grant other consideration if, and to the extent, necessary toenforce the restrictions contained herein in accordance with any applicable law.10.Certain Relationships.The Grantee acknowledges and agrees that the Grantee’s compliance with this Appendix D is a material part of theGrantee’s arrangements with the Company, if applicable. Notwithstanding anything to the contrary herein, this Appendix D doesnot constitute an employment, engagement or other similar agreement between the Grantee and the Company, or any other KKRRelated Entity (including but not limited to KKR & Co. L.P.), and shall not interfere with or otherwise affect any rights any suchperson or entity may have to terminate the Grantee’s employment, engagement, association or other similar affiliation at any timeupon such notice as may be required by law or the terms of any agreement or arrangement with the Grantee.11.Injunctive Relief; Third Party Beneficiaries.The Grantee acknowledges and agrees that the remedies of the Partnership and the Designated Service Recipient at lawfor any breach of this Appendix D would be inadequate and that for any breach of this Appendix D, the Partnership and theDesignated Service Recipient may terminate your employment, engagement, association or other similar affiliation with theCompany and shall, in addition to any other remedies that may be available to it at law or in equity, or as provided for in thisAppendix D, be entitled to an injunction, restraining order or other equitable relief, without the necessity of posting a bond,restraining the Grantee from committing or continuing to commit any violation of this Appendix D. The Grantee furtheracknowledges and agrees that the Partnership and the Designated Service Recipient shall not be required to prove, or offerproof, that monetary damages for a breach of this Appendix D would be difficult to calculate and that any remedies at law wouldbe inadequate for any breach of this Appendix D. The parties intend, acknowledge, and agree that each member of the KKRGroup is a third party beneficiary of this Agreement and is authorized to enforce any provision hereof by delivering a writtenstatement expressing the intent to enforce the provisions hereof to the Grantee or the Designated Service Recipient.12.Amendment; Waiver.This Appendix D may not be amended, restated, supplemented or otherwise modified other than by an agreement inwriting signed by the parties hereto; provided, however, that KKR & Co. L.P. or the Designated Service Recipient may reduce thescope of, or waive compliance with any part of, any obligation of the Grantee arising under this Appendix D, at any time withoutany action, consent or agreement of any other party. No failure to exercise and no delay in exercising, on the part of any party, ofany right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of anyright, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right,remedy, power or privilege. The waiver of any particular right, remedy, power or privilege shall not affect or impair the rights,remedies, powers or privileges of any person with respect to any subsequent default of the same or of a different kind by anyparty hereunder. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights,remedies, powers and privileges provided by law. No waiver of any provision hereto shall be effective unless it is in writing andsigned by the person asserted to have granted such waiver.13.Assignment.This Appendix D may not be assigned by any party hereto without the prior written consent of the other party hereto,except that the consent of the Grantee shall be deemed to have been given to the Partnership and the Designated ServiceRecipient (and the Grantee acknowledges that the Partnership and the Designated Service Recipient shall therefore have theright without further consent) to assign its rights hereunder, in whole or in part, to (i) any member of KKR that becomes aDesignated Service Recipient or (ii) any person who is a successor of the Partnership or the Designated Service Recipient bymerger, consolidation or purchase of all or substantially all of its assets, in which case such assignee shall be substituted for thePartnership and the Designated Service Recipient hereunder with respect to the provisions so assigned and be bound under thisAppendix D and by the terms of the assignment in the same manner as the Partnership and the Designated Service Recipientwas bound hereunder. Any purported assignment of this Appendix D in violation of this section shall be null and void.14.Governing Law.This Appendix D shall be governed by and construed in accordance with the laws of the State of New York.15.Resolution of Disputes.(a)Subject to paragraphs (b) and (c) below, any and all disputes which cannot be settled amicably, including any ancillaryclaims of any party, arising out of, relating to or in connection with the validity, negotiation, execution,interpretation, performance, non performance or termination of this Appendix D (including the validity,scope and enforceability of this arbitration provision) (each a “ Dispute ”) shall be finally settled byarbitration conducted by a single arbitrator in New York, New York in accordance with the then existingRules of Arbitration of the International Chamber of Commerce (the “ ICC ”). If the parties to the Disputefail to agree on the selection of an arbitrator within 30 days of the receipt of the request for arbitration, theICC shall make the appointment. The arbitrator shall be a lawyer and shall conduct the proceedings in theEnglish language. Performance under this Appendix D shall continue if reasonably possible during anyarbitration proceedings.(b)Prior to filing a Request for Arbitration or an Answer under the Rules of Arbitration of the ICC, as the case may be, thePartnership or the Designated Service Recipient may, in its sole discretion, require all Disputes or anyspecific Dispute to be heard by a court of law in accordance with paragraph (e) below and, for thepurposes of this paragraph (b), each party expressly consents to the application of paragraphs (e) and (f)below to any such suit, action or proceeding. If an arbitration proceeding has already been commenced inconnection with a Dispute at the time that the Partnership or the Designated Service Recipientcommences such proceedings in accordance with this paragraph (b), such Dispute shall be withdrawnfrom arbitration.(c)Subject to paragraph (b) above, either party may bring an action or special proceeding in any court of law (or, ifapplicable, equity) for the purpose of compelling a party to arbitrate, seeking temporary or preliminaryrelief in aid of an arbitration hereunder or enforcing an arbitration award and, for the purposes of thisparagraph (c), each party expressly consents to the application of paragraphs (e) and (f) below to anysuch suit, action or proceeding.(d)Except as required by law or as may be reasonably required in connection with judicial proceedings to compelarbitration, to obtain temporary or preliminary judicial relief in aid of arbitration or to confirm or challengean arbitration award, the arbitration proceedings, including any hearings, shall be confidential, and theparties shall not disclose any awards, any materials in the proceedings created for the purpose of thearbitration or any documents produced by another party in the proceedings not otherwise in the publicdomain. Judgment on any award rendered by an arbitration tribunal may be entered in any court havingjurisdiction thereover.(e)EACH PARTY HEREBY IRREVOCABLY SUBMITS AND AGREES TO THE EXCLUSIVE JURISDICTION OF THECOURTS, AND VENUE, LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY SUIT,ACTION OR PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPHS(B) OR (C) ABOVE. The parties acknowledge that the forum designated by this paragraph (e) has areasonable relation to this Appendix D, and to the parties' relationship with one another. The partieshereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereaftermay have to personal jurisdiction or to the laying of venue of any suit, action or proceeding brought in anycourt referred to in the preceding sentence or pursuant to paragraphs (b) or (c) above and such partiesagree not to plead or claim the same.(f)The parties agree that if a suit, action or proceeding is brought under paragraphs (b) or (c) proof shall not be requiredthat monetary damages for breach of the provisions of this Appendix D would be difficult to calculate andthat remedies at law would be inadequate, and they irrevocably appoint the Secretary or General Counselof the Partnership or the Designated Service Recipient or an officer of the Partnership or the DesignatedService Recipient (at the then-current principal business address of the Partnership or the DesignatedService Recipient) as such party’s agent for service of process in connection with any such action orproceeding and agrees that service of process upon such agent, who shall promptly advise such party ofany such service of process, shall be deemed in every respect effective service of process upon the partyin any such action or proceeding.16.Entire Agreement.This Appendix D contains the entire agreement and understanding among the parties hereto with respect to the subjectmatter of this Appendix D and supersedes all prior and contemporaneous agreements, understandings, inducements andconditions, express or implied, oral or written, of any nature whatsoever with the Partnership with respect to the subject matter ofthis Appendix D (including but not limited to any prior grant agreement for an equity award under the Plan that contains one ormore appendices with respect to the subject matter of this Appendix D), other than (unless otherwise waived in writing by KKRHoldings L.P., KKR Associates Holdings L.P. or any member of the Company, as applicable) any agreements and arrangements(i) set forth in any Confidentiality and Restrictive Covenant Agreement with KKR Holdings L.P., (ii) set forth in the instrumentsgoverning any equity incentive plans or grants, phantom stock plans or grants, deferred compensation arrangements, allocationsof carried interest or similar arrangements involving KKR Holdings L.P., KKR Associates Holdings L.P. or any member of theCompany to which the Grantee is a party or beneficiary (excluding, for the avoidance of doubt, the Agreement to which thisAppendix D is attached) or (iii) that specifically reference any such Confidentiality and Restrictive Covenant Agreement with KKRHoldings L.P or this Appendix D. The express terms of this Appendix D control and supersede any course of performance andany usage of the trade inconsistent with any of the terms of this Appendix D.17.Severability .Notwithstanding Section 12 or any other provision of this Appendix D to the contrary, any provision of this Appendix D thatis prohibited or unenforceable in any jurisdiction (including but not limited to the application, if applicable, of Rule 5.6 of the NewYork Rules of Professional Conduct (or successor rule)) shall, as to such jurisdiction, be ineffective to the extent of suchprohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability inany jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such event, the invalidprovision shall be substituted with a valid provision which most closely approximates the intent and the economic effect of theinvalid provision and which would be enforceable to the maximum extent permitted in such jurisdiction or in such case.18.Interpretation .Notwithstanding anything contained in Article IV of the Agreement, the provisions of Sections 8 through 17 (inclusive) ofthis Appendix D shall govern with respect to, and shall be applicable only to the interpretation, administration and enforcement of,the provisions of this Appendix D, and shall not govern or otherwise apply to, or have any administrative or interpretive effect on,any other provisions of the remainder of the Agreement or any other of its Appendices.Schedule IConfidentiality UndertakingThe Grantee hereby agrees that, except as provided herein, the Grantee will not under any circumstances (either whileemployed, engaged, associated or otherwise affiliated with KKR, or at any time after the Termination Date) for any purpose otherthan in the ordinary course of the performance of the Grantee’s duties as an employee, consultant, associate or other affiliatedperson of KKR, use or divulge, communicate, publish, make available, or otherwise disclose any Confidential Information to anyperson or entity, including but not limited to any business, firm, governmental body, partnership, corporation, press service orotherwise, other than to (i) any executive or employee of the Company in the ordinary course of the performance of Grantee’sduties as an employee, consultant, associate or other affiliated person of KKR; (ii) any person or entity to the extent explicitlyauthorized by an executive of the Company in the ordinary course of the performance of Grantee’s duties as an employee,consultant, associate or other affiliated person of KKR; (iii) any attorney, accountant, consultant or similar service providerretained by the Company who is required to know such information and is obligated to keep such information confidential; or (iv)any person or entity to the extent the law or legal process requires disclosure by the Grantee, provided that, in the case of clause(iv), the Grantee must first give the Partnership or the Designated Service Recipient prompt written notice of any suchrequirement, disclose no more information than is so required in the opinion of competent legal counsel, and cooperate fully withall efforts by the Company to obtain a protective order or similar confidentiality treatment for such information; provided, however,the Partnership shall not enforce and shall cause its subsidiaries not to enforce any confidentiality agreement that prohibits theGrantee from reporting possible violations of federal law or regulation to any governmental agency or entity, including but notlimited to the U.S. Securities and Exchange Commission, or making other disclosures to the extent protected under thewhistleblower provisions of federal law or regulation (or comparable laws or regulations that similarly prohibit the impediment ofsuch protected disclosures). Notwithstanding the foregoing, neither the Partnership nor the Designated Service Recipientauthorizes the waiver of (or the disclosure of information covered by) the attorney-client privilege or work product protection orany other privilege or protection belonging to the Partnership, the Designated Service Recipient or their subsidiaries, to the fullestextent permitted by law.As used in this Schedule I, an “ executive ” of KKR means an officer, member, managing director, director, principal oremployee of the Company, acting in a supervisory capacity. “ Confidential Information ” means (a) all confidential, proprietaryor non-public information of, or concerning the business, operations, activities, personnel, finances, plans, personal lives, habits,history, clients, investors, or otherwise of, any person who at any time is or was a member, partner, officer, director, otherexecutive, employee or stockholder of any of the foregoing, (b) all confidential, proprietary or non-public information of orconcerning any member of a family of any of the individuals referred to in clause (a), whether by birth, adoption or marriage(including but not limited to any of their current or former spouses or any living or deceased relatives), and (c) all confidential,proprietary or non-public information of or concerning any of the clients or investors of the KKR Related Entities or any otherperson or entity with which or whom any of the KKR Related Entities or their respective clients or investors does business or hasa relationship. Confidential Information includes information about the KKR Related Entities relating to or concerning any of their(i) finances, investments, profits, pricing, costs, and accounting, (ii) intellectual property (including but not limited to patents,inventions, discoveries, plans, research and development, processes, formulae, reports, protocols, computer software,databases, documentation, trade secrets, know-how and business methods), (iii) personnel, compensation, recruiting andtraining, and (iv) any pending or completed settlements, arbitrations, litigation, governmental investigations and similarproceedings. Notwithstanding the foregoing, Confidential Information does not include any portions of the foregoing that theGrantee can demonstrate by sufficient evidence satisfactory to the Company that has been (i) lawfully published in a formgenerally available to the public prior to any disclosure by the Grantee in breach of this Appendix D or (ii) made legitimatelyavailable to the Grantee by a third party without breach of any obligation of confidence owed to the Company or any PortfolioCompany.Without limiting the generality of the foregoing, the Grantee agrees that it will be a breach of this Appendix D to writeabout, provide, disclose or use in any fashion at any time any Confidential Information that is or becomes part of the basis for, oris used in any way in connection with any part of any book, magazine or newspaper article, any interview or is otherwisepublished in any media of any kind utilizing any technology now known or created in the future.Upon termination of the Grantee's employment, engagement, association or other similar affiliation with KKR for anyreason, the Grantee hereby agrees to (i) cease and not thereafter commence any and all use of any Confidential Information; (ii)upon the request of the Company promptly deliver to the Company or, at the option of the Company destroy, delete or expungeall originals and copies of any Confidential Information in any form or medium in the Grantee’s possession or control (includingany of the foregoing stored or located in the Grantee’s home, laptop or other computer that is not the property of the Company,its affiliates or Portfolio Companies); (iii) notify and fully cooperate with the Company regarding the delivery or destruction of anyother Confidential Information of which the Grantee is aware; and (iv) upon the request of the Company sign and deliver astatement that the foregoing has been accomplished.The Grantee acknowledges that he or she is aware that applicable securities laws place certain restrictions on any personwho has received from an issuer material, non-public information concerning the issuer with respect to purchasing or sellingsecurities of such issuer or from communicating such information to any other person and further agrees to comply with suchsecurities laws. Without limiting anything in this Appendix D, the Grantee hereby expressly confirms his or her explicitunderstanding that the Grantee’s obligations hereunder are in addition to, and in no way limit, the Grantee’s obligations undercompliance procedures of the Company including those contained in the Written Policies.Notwithstanding anything in this Appendix D to the contrary, the Grantee may disclose to any and all persons, withoutlimitation of any kind, the tax treatment and tax structure of any member of the Company in which the Grantee holds an interestand all materials of any kind (including opinions or other tax analyses) that are provided to the Grantee relating to such taxtreatment and tax structure.APPENDIX EKKR & CO. L.P. 2010 EQUITY INCENTIVE PLAN1. Purpose of the PlanThe KKR & Co. L.P. 2010 Equity Incentive Plan (the “ Plan ”) is designed to promote the long term financial interests andgrowth of KKR & Co. L.P., a Delaware limited partnership (the “ Partnership ”) and its Affiliates by (i) attracting and retainingdirectors, officers, employees, consultants or other service providers of the Partnership or any of its Affiliates, including but notlimited to directors of KKR Management LLC, the Partnership’s general partner (the “ General Partner ”) and (ii) aligning theinterests of such individuals with those of the Partnership and its Affiliates by providing them with equity-based awards based onthe common units of limited partner interest in the Partnership (the “ Common Units ”).2. DefinitionsThe following capitalized terms used in the Plan have the respective meanings set forth in this Section:(a) Act : The Securities Exchange Act of 1934, as amended, or any successor thereto.(b) Administrator : The Board, or the committee or subcommittee thereof to whom authority to administer the Planhas been delegated pursuant to Section 4 hereof.(c) Affiliate : With respect to any specified Person, any other Person that directly or indirectly through one or moreintermediaries Controls, is Controlled by or is under common control with such specified Person. As used herein, the term “Control ” (including the terms “ Controlled by ” and “ under common Control with ”) means the possession, directly or indirectly,of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership ofvoting securities, as trustee or executor, by contract or otherwise, including the ownership, directly or indirectly, of securitieshaving the power to elect a majority of the board of directors or similar body governing the affairs of such Person.(d) Award : Individually or collectively, any Option, Unit Appreciation Right, or Other Unit-Based Awards based on orrelating to the Common Units issuable under the Plan.(e) Board : The board of directors of the General Partner.(f) Change in Control : Except as otherwise set forth in any applicable Award agreement, (i) the occurrence of anyPerson, other than a Person approved by the General Partner, becoming the general partner of the Partnership, (ii) the director indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation) in one or more seriesof related transactions of all or substantially all of the combined assets of the Group Partnerships taken as a whole to anyPerson other than a Permitted Person, (iii) the consummation of any transaction or a series of related transactions (includingany merger or consolidation) that results in any Person (other than a Permitted Person) becoming the beneficial owner of amajority of the controlling interests in any one or more Group Partnerships that together hold all or substantially all of thecombined assets of the Group Partnerships taken as a whole, or (iv) the occurrence of any other event as determined by theBoard to constitute a Change in Control. Solely for the purpose of this definition, the term “ person ” shall have the meaninggiven to such term under Section 13(d)(3) of the Act or any successor provision thereto; and for purposes of the Plan, the term“ beneficial owner ” shall have the meaning given to such term under Rule 13d-3 promulgated under the Act or any successorprovision thereto, and the combined assets of the Group Partnerships shall exclude the portion of any such assets that areallocable to holders of any non-controlling interests in any consolidated subsidiaries.(g) Code : The Internal Revenue Code of 1986, as amended, or any successor thereto.(h) Effective Date : The date on which the Board adopts the Plan, or such later date as is designated by the Board,provided that in no event shall such date be prior to the date that limited partnership interests of the Partnership become listedand traded on the New York Stock Exchange or The NASDAQ Stock Market.(i) Employee Exchange Agreement : That certain Exchange Agreement, dated as of July 14, 2010, by and amongKKR & Co. L.P., KKR Management Holdings L.P., KKR Fund Holdings L.P., and KKR Holdings L.P.(j) Employment : The term “Employment” as used herein shall be deemed to refer to (i) a Participant’s employment ifthe Participant is an employee of the Partnership or any of its Affiliates, (ii) a Participant’s services as a consultant or partner, ifthe Participant is consultant to, or partner of, the Partnership or of any of its Affiliates, and (iii) a Participant’s services as annon-employee director, if the Participant is a non-employee member of the Board.(k) Fair Market Value : Of a Common Unit on any given date means (i) the closing sale price per Common Unit on theNew York Stock Exchange or The NASDAQ Stock Market (a “ U.S. Exchange ”) on that date (or, if no closing sale price isreported, the last reported sale price), (ii) if the Common Units are not listed for trading on a U.S. Exchange, the closing saleprice (or, if no closing sale price is reported, the last reported sale price) as reported on that date in composite transactions forthe principal national securities exchange registered pursuant to the Act on which the Common Units are listed, (iii) if theCommon Units are not so listed on a U.S. Exchange, the last quoted bid price for the Common Units on that date in the over-the-counter market as reported by Pink Sheets LLC or a similar organization, or (iv) if the Common Units are not so quoted byPink Sheets LLC or a similar organization, the average of the mid-point of the last bid and ask prices for the Common Units onthat date from a nationally recognized independent investment banking firm selected by the General Partner for this purpose.(l) Group Partnerships : KKR Management Holdings L.P., a Delaware limited partnership, and KKR Fund HoldingsL.P., a Cayman Island exempted limited partnership, along with any partnership designated in the future as a “GroupPartnership” by the Partnership.(m) Group Partnership Unit : A “Group Partnership Unit” as defined in the Pre-Listing Plan.(n) KKR Group : The Group Partnerships, the direct and indirect parents of the Group Partnerships (the “ Parents ”),any direct or indirect subsidiaries of the Parents or the Group Partnerships, the general partner or similar controlling entities ofany investment fund or vehicle that is managed, advised or sponsored by the KKR Group (the “ Funds ”) and any other entitythrough which any of the foregoing directly or indirectly conducts its business, but shall exclude any company over which aFund exercises a significant degree of control as an investor.(o) Option : An option to purchase Common Units granted pursuant to Section 6 of the Plan.(p) Option Price : The purchase price per Common Unit of an Option, as determined pursuant to Section 6(a) of thePlan.(q) Other Unit-Based Awards : Awards granted pursuant to Section 8 of the Plan.(r) Participant : A director, officer, employee, consultant or other service provider of the Partnership or of any of itsAffiliates, including but not limited to any director of the General Partner, who is selected by the Administrator to participate inthe Plan.(s) Permitted Person : The term “Permitted Person” means (i) an individual who (a) is an executive of the KKRGroup, (b) devotes substantially all of his or her business and professional time to the activities of the KKR Group and (c) didnot become an executive of the KKR Group or begin devoting substantially all of his or her business and professional time tothe activities of the KKR Group in contemplation of a Change in Control or (ii) any Person in which any one or more suchindividuals directly or indirectly holds a majority of the controlling interests.(t) Person : A ny individual, corporation, partnership, limited partnership, limited liability company, limited company,joint venture, trust, unincorporated or governmental organization or any agency or political subdivision thereof .(u) Pre-Listing Award : Any equity-based award (whether an option, unit appreciation right, restricted equity unit,phantom equity unit, or other equity-based award based in whole or in part on the fair market value of any equity unit orotherwise) granted pursuant to the Pre-Listing Plan.(v) Pre-Listing Plan : KKR Management Holdings L.P. 2009 Equity Incentive Plan.(w) Unit Appreciation Right : A unit appreciation right granted pursuant to Section 7 of the Plan.3. Common Units Subject to the PlanSubject to Section 9 hereof, the total number of Common Units which shall be available for issuance under the Plan shallbe, as of the Effective Date, 15% of the Common Units outstanding as of the Effective Date on a fully converted and diluted basis(the “ Initial Plan Amount ”), of which all or any portion may be issued as Common Units. Notwithstanding the foregoing,beginning with the first fiscal year of the Partnership occurring after the Effective Date and continuing with each subsequent fiscalyear of the Partnership occurring thereafter, the aggregate number of Common Units covered by the Plan will be increased, onthe first day of each fiscal year of the Partnership occurring during the term of the Plan, by a number of Common Units equal tothe positive difference, if any, of (x) 15% of the aggregate number of Common Units outstanding on the last day of theimmediately preceding fiscal year of the Partnership minus (y) the Initial Plan Amount, as such amount may have been increasedby this sentence in any prior fiscal year, unless the Administrator should decide to increase the number of Common Unitscovered by the Plan by a lesser amount on any such date. The issuance of Common Units or the payment of cash upon theexercise of an Award or any Pre-Listing Award or in consideration of the settlement, cancellation or termination of an Award orany Pre-Listing Award shall reduce the total number of Common Units covered by and available for issuance under the Plan, asapplicable (with any Awards or Pre-Listing Awards settled in cash reducing the total number of Common Units by the number ofCommon Units determined by dividing the cash amount to be paid thereunder by the Fair Market Value of one Common Unit onthe date of payment), and the issuance of Group Partnership Units in consideration of the settlement, cancellation or terminationof any Pre-Listing Award shall reduce the total number of Common Units covered by and available for issuance under the Plan bya number of Common Units equal to the number of Group Partnership Units so issued multiplied by the Exchange Rate (asdefined in the Employee Exchange Agreement). Common Units which are subject to Awards which are cancelled, forfeited,terminated or otherwise expired by their terms without the payment of consideration, and Common Units which are used to paythe exercise price of any Award, may be granted again subject to Awards under the Plan. For the avoidance of doubt, CommonUnits which are subject to Awards other than Options or Unit Appreciation Rights which are withheld to pay tax withholdingobligations will be deemed not to have been delivered and will be available for further Awards under the Plan.For purposes of this Section 3, the number of Common Units that, as of a particular date, will be considered to be“covered by” the Plan will be equal to the sum of (i) the number of Common Units available for issuance pursuant to the Plan butwhich are not subject to an outstanding Award or Pre-Listing Award as of such date, (ii) the number of Common Units subject tooutstanding Awards or Pre-Listing Awards as of such date and (iii) the number of Group Partnership Units subject to outstandingPre-Listing Awards as of such date multiplied by the Exchange Rate (as defined in the Employee Exchange Agreement) as ineffect on such date. For purposes of this Section 3, (A) an Option or Unit Appreciation Right that has been granted under thePlan or the Pre-Listing Plan will be considered to be an “outstanding” Award or Pre-Listing Award, as applicable, until is itexercised or cancelled, forfeited, terminated or otherwise expires by its terms, (B) a Common Unit that has been granted as anAward under the Plan that is subject to vesting conditions will be considered an “outstanding” Award until the vesting conditionshave been satisfied or the Award otherwise terminates or expires unvested by its terms, (C) a Group Partnership Unit that hasbeen granted as a Pre-Listing Award under the Pre-Listing Plan that is subject to vesting conditions will be considered an“outstanding” Pre-Listing Award until the vesting conditions have been satisfied or the Pre-Listing Award otherwise terminates orexpires unvested by its terms and (D) any Award or Pre-Listing Award other than an Option, Unit Appreciation Right, CommonUnit or Group Partnership Unit that is subject to vesting conditions will be considered to be an “outstanding” Award or Pre-ListingAward, as applicable, until it has been settled.4. Administration(a) Administration and Delegation . The Plan shall be administered by the Administrator. The Administrator maydelegate the authority to grant Awards under the Plan to any employee or group of employees of the Partnership or of anyAffiliate of the Partnership; provided that such delegation and grants are consistent with applicable law and guidelinesestablished by the Board from time to time. The Administrator may delegate the day-to-day administration of the Plan to anyemployee or group of employees of the Partnership or the General Partner or any of their respective Affiliates or a nationallyrecognized third-party stock plan administrator.(b) Substitution of Prior Awards . Awards may, in the discretion of the Administrator, be made under the Plan inassumption of, or in substitution for, outstanding awards previously granted by the Partnership, any Affiliate of the Partnershipor any entity acquired by the Partnership or with which the Partnership combines. The number of Common Units underlyingsuch substitute awards shall be counted against the aggregate number of Common Units available for Awards under the Plan.(c) Interpretation; Corrections; Final and Binding Decisions . The Administrator is authorized to interpret the Plan, toestablish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that itdeems necessary or desirable for the administration of the Plan. The Administrator may correct any defect or supply anyomission or reconcile any inconsistency in the Plan or Award agreement in the manner and to the extent the Administratordeems necessary or desirable, without the consent of any Participant. Any decision of the Administrator in the interpretationand administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final,conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries andsuccessors).(d) Establishment of Award Terms . The Administrator shall have the full power and authority to establish the termsand conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time(including, without limitation, accelerating or waiving any vesting conditions).(e) Payment of Taxes Due . The Administrator shall require payment of any amount it may determine to benecessary to withhold for federal, state, local or other taxes as a result of the exercise, grant or vesting of an Award. To theextent that such withholding arises in connection with the settlement of an Award with Common Units, the Administrator may,in its sole discretion, cause such payments to be funded by reducing the Common Units delivered upon settlement by anamount of Common Units having a Fair Market Value equal to the amount of payments that would then be due (and if anAward is settled in cash, the Administrator may withhold cash in respect to such taxes due). The Administrator shall establishthe manner in which any such tax obligation may be satisfied by the Participant.5. LimitationsNo Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore grantedmay extend beyond that date.6. Terms and Conditions of OptionsOptions granted under the Plan shall be non‑qualified options for federal income tax purposes, and shall be subject to theforegoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as theAdministrator shall determine:(a) Option Price . The Option Price per Common Unit shall be determined by the Administrator, provided that, solelyfor the purposes of an Option granted under the Plan to a Participant who is a U.S. taxpayer, in no event will the Option Pricebe less than 100% of the Fair Market Value on the date an Option is granted.(b) Exercisability . Options granted under the Plan shall be exercisable at such time and upon such terms andconditions as may be determined by the Administrator, but in no event shall an Option be exercisable more than ten years afterthe date it is granted.(c) Exercise of Options .(i) Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, orfrom time to time any part, of the Common Units for which it is then exercisable. For purposes of this Section 6 of the Plan, theexercise date of an Option shall be the later of the date a notice of exercise is received by the Partnership and, if applicable, thedate payment is received by the Partnership pursuant to clauses (A), (B), (C) or (D) in the following sentence.(ii) The Option Price for the Common Units as to which an Option is exercised shall be paid to the Partnership,and in the manner designated by the Administrator, pursuant to one or more of the following methods: (A) in cash or itsequivalent (e.g., by personal check); (B) in Common Units having a Fair Market Value equal to the aggregate Option Price for theCommon Units being purchased and satisfying such other requirements as may be imposed by the Administrator; provided thatsuch Common Units have been held by the Participant for such period as may be established from time to time by theAdministrator in order to avoid adverse accounting treatment applying generally accepted accounting principles; (C) partly in cashand partly in such Common Units; (D) if there is a public market for the Common Units at such time, through the delivery ofirrevocable instructions to a broker to sell Common Units obtained upon the exercise of the Option and to deliver promptly to thePartnership an amount out of the proceeds of such sale equal to the aggregate Option Price for the Common Units beingpurchased, or (E) to the extent permitted by the Administrator, through net settlement in Common Units.(iii) To the extent compliant with applicable laws, no Participant shall have any rights to distributions or other rightsof a holder with respect to Common Units subject to an Option until the Participant has given written notice of exercise of theOption, paid in full the Option Price for such Common Units and, if applicable, has satisfied any other conditions imposed by theAdministrator pursuant to the Plan.(d) Attestation . Wherever in this Plan or any agreement evidencing an Award a Participant is permitted to pay theOption Price of an Option or taxes relating to the exercise of an Option by delivering Common Units, the Participant may,subject to procedures satisfactory to the Administrator, satisfy such delivery requirement by presenting proof of beneficialownership of such Common Units, in which case the Partnership shall treat the Option as exercised without further paymentand/or shall withhold such number of Common Units from the Common Units acquired by the exercise of the Option, asappropriate.7. Terms and Conditions of Unit Appreciation Rights(a) Grants . The Administrator may grant (i) a Unit Appreciation Right independent of an Option or (ii) a UnitAppreciation Right in connection with an Option, or a portion thereof. A Unit Appreciation Right granted pursuant to clause (ii)of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise orcancellation of the related Option, (B) shall cover the same number of Common Units covered by an Option (or such lessernumber of Common Units as the Administrator may determine) and (C) shall be subject to the same terms and conditions assuch Option except for such additional limitations as are contemplated by this Section 7 (or such additional limitations as maybe included in an Award agreement).(b) Exercise Price . The exercise price per Common Unit of a Unit Appreciation Right shall be an amount determinedby the Administrator; provided , however , that in the case of a Unit Appreciation Right granted in conjunction with an Option, ora portion thereof, the exercise price may not be less than the Option Price of the related Option; provided , further that, solelyfor the purposes of a Unit Appreciation Right granted under the Plan to a Participant who is a U.S. taxpayer, in the case of aUnit Appreciation Right that was not granted in conjunction with an Option, the exercise price per Unit Appreciation Right shallnot be less than 100% of the Fair Market Value on the date the Unit Appreciation Right is granted.(c) Terms of Grant : Each Unit Appreciation Right granted independent of an Option shall entitle a Participant uponexercise to an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Common Unit over(B) the exercise price per Common Unit, times (ii) the number of Common Units covered by the Unit Appreciation Right. EachUnit Appreciation Right granted in conjunction with an Option, or a portion thereof, shall entitle a Participant to surrender to thePartnership the unexercised Option, or any portion thereof, and to receive from the Partnership in exchange therefore anamount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Common Unit over (B) the Option Priceper Common Unit, times (ii) the number of Common Units covered by the Option, or portion thereof, which is surrendered.Payment shall be made in Common Units or in cash, or partly in Common Units and partly in cash (any such Common Unitsvalued at such Fair Market Value), all as shall be determined by the Administrator.(d) Exercisability : Unit Appreciation Rights may be exercised from time to time upon actual receipt by thePartnership of written notice of exercise stating the number of Common Units with respect to which the Unit Appreciation Rightis being exercised. The date a notice of exercise is received by the Partnership shall be the exercise date. The Administrator,in its sole discretion, may determine that no fractional Common Units will be issued in payment for Unit Appreciation Rights,but instead cash will be paid for the fractional Common Units and the number of Common Units to be delivered will be roundeddownward to the next whole Common Unit.(e) Limitations . The Administrator may impose, in its discretion, such conditions upon the exercisability of UnitAppreciation Rights as it may deem fit, but in no event shall a Unit Appreciation Right be exercisable more than ten years afterthe date it is granted.8. Other Unit-Based AwardsThe Administrator, in its sole discretion, may grant or sell Awards of Common Units, restricted Common Units, deferredrestricted Common Units, phantom restricted Common Units or other Common Unit-based awards based in whole or in part onthe Fair Market Value of the Common Units (“ Other Unit-Based Awards ”). Such Other Unit-Based Awards shall be in such form,and dependent on such conditions, as the Administrator shall determine, including, without limitation, the right to receive, or vestwith respect to, one or more Common Units (or the equivalent cash value of such Common Units) upon the completion of aspecified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Unit-BasedAwards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan,the Administrator shall determine to whom and when Other Unit-Based Awards will be made, the number of Common Units to beawarded under (or otherwise related to) such Other Unit-Based Awards; whether such Other Unit-Based Awards shall be settledin cash, Common Units, or other assets or a combination of cash, Common Units and other assets; and all other terms andconditions of such Awards (including, without limitation, the vesting provisions thereof and provisions ensuring that all CommonUnits so awarded and issued shall be fully paid and non-assessable).9. Adjustments Upon Certain EventsNotwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards grantedunder the Plan:(a) Equity Restructurings . In the event of any extraordinary Common Unit distribution or split, recapitalization, rightsoffering, split-up or spin-off or any other event that constitutes an “equity restructuring” (as defined under Financial AccountingStandards Board (FASB) Accounting Standards Codification 718) with respect to Common Units, the Administrator shall, in themanner determined appropriate or desirable by the Administrator and without liability to any person, adjust any or all of (i) thenumber of Common Units or other securities of the Partnership (or number and kind of other securities or property) withrespect to which Awards may be granted under the Plan, and (ii) the terms of outstanding Awards, including, but not limited to(A) the number of Common Units or other securities of the Partnership (or number and kind of other securities or property)subject to outstanding Awards or to which outstanding Awards relate, (B) the Option Price or exercise price of any Option orUnit Appreciation Right and (C) any performance targets or other applicable terms.(b) Mergers, Reorganizations and Other Corporate Transactions . In the event of any reorganization, merger,consolidation, combination, repurchase or exchange of Common Units or other securities of the Partnership, issuance ofwarrants or other rights to purchase Common Units or other securities of the Partnership, or other similar corporate transactionor event that affects the Common Units such that an adjustment is determined by the Administrator in its discretion to beappropriate or desirable, the Administrator in its sole discretion and without liability to any person shall make such substitutionor adjustment, if any, as it deems to be equitable as to (i) the number of Common Units or other securities of the Partnership(or number and kind of other securities or property) with respect to which Awards may be granted under the Plan, and (ii) theterms of any outstanding Award, including (A) the number of Common Units or other securities of the Partnership (or numberand kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate, (B) the OptionPrice or exercise price of any Option or Unit Appreciation Right and (C) any performance targets or other applicable terms.(c) Change in Control . In the event of a Change in Control after the Effective Date, (i) if determined by theAdministrator in the applicable Award agreement or otherwise, any outstanding Awards then held by Participants which areunexercisable or otherwise unvested or subject to lapse restrictions shall automatically be deemed exercisable or otherwisevested or no longer subject to lapse restrictions, as the case may be, as of immediately prior to such Change in Control and (ii)the Administrator may (subject to Sections 16 and 18), but shall not be obligated to: (A) accelerate, vest or cause therestrictions to lapse with respect to all or any portion of an Award; (B) cancel such Awards for fair value (as determined in thesole discretion of the Administrator) which, in the case of Options and Unit Appreciation Rights, may equal the excess, if any,of value of the consideration to be paid in the Change in Control transaction to holders of the same number of Common Unitssubject to such Options or Unit Appreciation Rights (or, if no consideration is paid in any such transaction, the Fair MarketValue of the Common Units subject to such Options or Unit Appreciation Rights) over the aggregate exercise price of suchOptions or Unit Appreciation Rights; (C) provide that any Options or Unit Appreciation Right having an exercise price perCommon Unit that is greater than the per Common Unit value of the consideration to be paid in the Change in Controltransaction to a holder of a Common Unit shall be cancelled without payment of any consideration therefor; (D) provide for theissuance of substitute Awards that will substantially preserve the otherwise applicable terms of any affected Awards previouslygranted hereunder as determined by the Administrator in its sole discretion; or (E) provide that for a period of at least 15 daysprior to the Change in Control, such Options shall be exercisable as to all shares subject thereto and that upon the occurrenceof the Change in Control, such Options shall terminate and be of no further force and effect.10. No Right to Employment or AwardsThe granting of an Award under the Plan shall impose no obligation on the Partnership or any Affiliate to continue theEmployment of a Participant and shall not lessen or affect the Partnership’s or Affiliate’s right to terminate the Employment ofsuch Participant. No Participant or other Person shall have any claim to be granted any Award (including as a result of recurringprior Award), and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Awards. No Awardshall constitute compensation for purposes of determining any benefits under any benefit plan. The terms and conditions ofAwards and the Administrator’s determinations and interpretations with respect thereto need not be the same with respect toeach Participant (whether or not such Participants are similarly situated).11. Successors and AssignsThe Plan shall be binding on all successors and assigns of the Partnership and a Participant, including without limitation,the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy orrepresentative of the Participant’s creditors.12. Nontransferability of AwardsUnless otherwise determined or approved by the Administrator, an Award shall not be transferable or assignable by theParticipant otherwise than by will or by the laws of descent and distribution. Any transfer or assignment in violation of the priorsentence shall be null and void. An Award exercisable after the death of a Participant may be exercised by the legatees, personalrepresentatives or distributees of the Participant.13. Amendments or TerminationThe Board may amend, alter or discontinue the Plan or any outstanding Award, but no amendment, alteration ordiscontinuation shall be made, without the consent of a Participant, if such action would materially diminish any of the rights ofthe Participant under any Award theretofore granted to such Participant under the Plan; provided , however , that theAdministrator may without the Participant’s consent (a) amend the Plan or any outstanding Award in such manner as it deemsnecessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws (including, withoutlimitation, to avoid adverse tax consequences to the Partnership or to Participants as provided in Section 14 and Section 18below), and (b) amend any outstanding Awards in a manner that is not adverse (other than in a de minimis manner) to aParticipant, except as otherwise may be permitted pursuant to Section 9 hereof or as is otherwise contemplated pursuant to theterms of the Award, without the Participant’s consent.14. International ParticipantsWith respect to Participants who reside or work outside the United States of America, the Administrator may, in its solediscretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms with therequirements of local law or to obtain more favorable tax or other treatment for a Participant, the Partnership or an Affiliate.15. Choice of LawThe Plan shall be governed by and construed in accordance with the law of the State of New York without giving effect toany otherwise governing principles of conflicts of law that would apply the laws of another jurisdiction.16. Other Laws; Restrictions on Transfer of Common UnitsThe Administrator may refuse to issue or transfer any Common Units or other consideration under an Award if, acting in itssole discretion, it determines that the issuance or transfer of such Common Units or such other consideration might violate anyapplicable law or regulation or entitle the Partnership to recover the same under Section 16(b) of the Act, as amended, and anypayment tendered to the Partnership by a Participant, other holder or beneficiary in connection with the exercise of such Awardshall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, noAward granted hereunder shall be construed as an offer to sell securities of the Partnership, and no such offer shall beoutstanding, unless and until the Administrator in its sole discretion has determined that any such offer, if made, would be incompliance with all applicable requirements of the United States federal and any other applicable securities laws.17. Effectiveness of the PlanThe Plan shall be effective as of the Effective Date.18. Section 409ATo the extent applicable, this Plan and Awards issued hereunder shall be interpreted in accordance with Section 409A ofthe Code and Department of Treasury regulations and other interpretative guidance issued thereunder, including withoutlimitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding other provisions ofthe Plan or any Award agreements issued thereunder, no Award shall be granted, deferred, accelerated, extended, paid out ormodified under this Plan in a manner that would result in the imposition of an additional tax under Section 409A of the Code upona Participant. In the event that it is reasonably determined by the Administrator that, as a result of Section 409A of the Code,payments in respect of any Award under the Plan may not be made at the time contemplated by the terms of the Plan or therelevant Award agreement, as the case may be, without causing the Participant holding such Award to be subject to taxationunder Section 409A of the Code, consistent with the provisions of Section 13(a) above, the Partnership may take whateveractions the Administrator determines necessary or appropriate to comply with, or exempt the Plan and Award agreement from therequirements of Section 409A of the Code and related Department of Treasury guidance and other interpretive materials as maybe issued after the Effective Date including, without limitation, (a) adopting such amendments to the Plan and Awards andappropriate policies and procedures, including amendments and policies with retroactive effect, that the Administrator determinesnecessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Awards hereunderand/or (b) taking such other actions as the Administrator determines necessary or appropriate to avoid the imposition of anadditional tax under Section 409A of the Code, which action may include, but is not limited to, delaying payment to a Participantwho is a “specified employee” within the meaning of Section 409A of the Code until the first day following the six-month periodbeginning on the date of the Participant’s termination of Employment . The Partnership shall use commercially reasonable effortsto implement the provisions of this Section 18 in good faith; provided that neither the Partnership, the Administrator nor anyemployee, director or representative of the Partnership or of any of its Affiliates shall have any liability to Participants with respectto this Section 18 . FIDELITY STOCK PLAN SERVICES, LLCPARTICIPANT CONSENTKKR & CO. L.P.PARTICIPANT CONSENTPursuant to provisions of this grant agreement between me and KKR & Co. L.P. (the “Company”) and/or other parties thereto, and as a condition of receiving suchgrant agreement, I hereby authorize Fidelity Stock Plan Services, LLC and its affiliates (including, but not limited to Fidelity Brokerage Services LLC, NationalFinancial Services LLC, and Fidelity Personal Trust Company, FSB) (“Fidelity”) (i) to act upon the directions of Company or its designee direction to restrict myability to sell, transfer or to take other actions with respect to certain Company equity that I may hold, and (ii) to act the directions of the Company or its designee,pursuant to provisions of the Company’s plans and this grant agreement requiring my forfeiture of Company equity if I violate certain restrictive covenants, totransfer in kind Company equity held by Fidelity on my behalf to the Company or its designee.Participant Name: Participant NameParticipant Signature: Electronic SignatureDate: Acceptance DateVer. 1/7/2014 Exhibit 10.20GRANT CERTIFICATE (Executive Officers)Market Condition Equity Grant — Participant NameThis Grant Certificate confirms that you have been granted the Units identified below (the “ Granted Units ”), which uponissuance are Fully Unvested Units and become vested only in accordance with the terms and conditions set forth herein. TheGranted Units are subject to the terms of the First Amended and Restated Limited Partnership Agreement of KKR Holdings L.P.,dated October 1, 2009, as amended (the “ Holdings LPA ”), and (save for the matters specifically addressed in this GrantCertificate) to the applicable terms of any other written documents executed by you relating to your interests in KKR HoldingsL.P. (which may include a Consent, Admission and Award Agreement). Capitalized terms not otherwise defined herein have themeanings set forth in the Holdings LPA. In the event of a conflict between any term or provision contained in the Holdings LPAand this Grant Certificate, the applicable terms and provisions of this Grant Certificate will govern and prevail.Without limiting the foregoing, and notwithstanding anything to the contrary in this Grant Certificate, the Holdings LPA or anyother document, this award of Granted Units is conditioned upon and subject to your agreement to be bound by theConfidentiality and Restrictive Covenant Obligations contained in each grant agreement with respect to the equity awardsgranted or to be granted to you under the KKR & Co. L.P. 2010 Equity Incentive Plan (the “ Public Company Plan ”) and anyother similar confidentiality and restrictive covenant agreement with any member of the KKR Group or KKR Capstone, asapplicable, that you have previously executed or will execute while a Limited Partner (collectively, referred to as the “Confidentiality and Restrictive Covenant Agreement ”).Grant Date: Grant DateNumber of Granted Units : Number of Awards GrantedTerms and Conditions of Granted Units:Service Condition for VestingProvided that the applicable Price Condition (as defined below) has been achieved, a percentage of the Granted Unitsshall become Fully Vested Units subject to the Limited Partner’s continued Employment (as defined below) through and atthe close of business on the applicable Service Vesting Date (the “ Service Condition ”). The following table sets forththe maximum number of Granted Units that are eligible to become Fully Vested Units on each Service Vesting Date.1 Maximum Percentage of Granted Units that maybecome Vested on Applicable Service Vesting DateApplicable Service Vesting Date To the extent the percentage of Granted Units that have achieved the Price Condition exceed the maximum percentage ofGranted Units that may become Fully Vested Units on a given Service Vesting Date, such excess (up to the nextapplicable maximum percentage) shall become Fully Vested Units on the next Service Vesting Date, subject to theLimited Partner’s continued Employment through the close of business on such date.To the extent the Service Condition with respect to any Granted Units is satisfied prior to the achievement of the PriceCondition applicable to such Granted Units, then the relevant percentage of Granted Units will be Fully Vested Units onlyon the date such Price Condition is achieved.“ Employment ” means the Limited Partner’s employment or engagement (including any similar association determinedby the General Partner in its sole discretion to constitute employment or engagement for purposes of this GrantCertificate) with (x) any member of the KKR Group or KKR Capstone, as applicable, or (y) any consultant or serviceprovider that provides services to any member of the KKR Group; provided that in the case of clause (y), service providedas a consultant or service provider other than through KKR Capstone must be approved by the General Partner in its solediscretion in order to qualify as “Employment” hereunder.Price Condition for VestingThe “ Price Condition ” shall be achieved with respect to the percentage of the Granted Units when the Closing Price (asdefined below) per Issuer Unit meets or exceeds the applicable “Price Target” for a period of twenty (20) consecutivetrading days, in each case, as set forth in the table below:TrancheIncremental Percentage of Granted Unitsthat Satisfy the Price ConditionPrice Target(at closing for 20 consecutive tradingdays)1 2 3 4 2 The Price Condition is not achieved if the Closing Price is below the Price Target during such twenty (20) consecutivetrading days.In the event of any extraordinary unit distribution, unit split, unit combination, recapitalization, rights offering, split-up, spin-off or similar event that constitutes an “equity restructuring” (as defined under Financial Accounting Standards Board(FASB) Accounting Standards Codification 718) with respect to the Issuer Units, then the General Partner shall, in themanner determined appropriate or desirable by the General Partner and without liability to any person, adjust any or all of(x) the Price Target, (y) the number of Granted Units, and (z) any other term applicable to the Granted Units.“ Closing Price ” for any trading day shall mean the closing price per Issuer Unit reported on the NYSE (or, if not listed onthe NYSE, the principal securities exchange on which the Issuer Units are listed). If Issuer Units are not listed on anysecurities exchange, the Closing Price shall be the Fair Value thereof as reasonably determined by the General Partner.Overall Vesting PrinciplesNotwithstanding any provision to the contrary, (i) both the Service Condition and the Price Condition must be satisfied forany Granted Unit to constitute a Fully Vested Unit, (ii) no Granted Unit shall be a Fully Vested Unit prior to January 1,2018, and (iii) any Granted Unit that fails to become a Fully Vested Unit by the close of business on January 1, 2021 shallbe canceled and forfeited without any consideration.No Vesting Upon Retirement Notwithstanding anything to the contrary in the Holdings LPA, the Granted Units shall not be affected when a LimitedPartner becomes a Terminated Limited Partner due to Retirement, and Section 3.6(c) of the Holdings LPA shall not applyto the Granted Units.No Vesting Upon Change of ControlNotwithstanding anything to the contrary in the Holdings LPA, the Granted Units shall not be affected by the occurrence ofany Change of Control, and Section 3.5(b)(iv) of the Holdings LPA shall not apply to the Granted Units.Continued Service Condition Vesting Upon Death or DisabilityNotwithstanding anything to the contrary in the Holdings LPA, in the event of the Limited Partner’s death or Disability, theGranted Units shall remain outstanding until January 1, 2021 and, to the extent the applicable Price Conditions aresatisfied with respect thereto, shall be eligible to become Fully Vested Units on the applicable Service Vesting Dates (asthough the Limited Partner’s Employment had not terminated). Notwithstanding3 anything to the contrary in the Holdings LPA, the determination of a Limited Partner’s Disability shall be determined by theGeneral Partner in its sole discretion.Continued Service Condition Vesting for Termination without CauseNotwithstanding anything to the contrary in the Holdings LPA, in the event that the Employment of the Limited Partner isinvoluntarily terminated by the KKR Group or KKR Capstone, as applicable, for any reason other than for Cause or byreason of death or Disability (a “ Involuntary Termination without Cause ”), each Granted Unit for which the applicablePrice Condition has been satisfied prior to the date of the Termination without Cause shall be eligible to become a FullyVested Unit on the applicable Service Vesting Dates (as though the Limited Partner’s Employment had not terminated).This vesting eligibility shall not occur pursuant to this paragraph for any (i) termination of Employment by the LimitedPartner for any reason, (ii) involuntary termination of Employment by the KKR Group or KKR Capstone, as applicable, forCause, or (iii) termination of Employment by reason of death or Disability (which is governed by the paragraph above).Forfeiture for Any Other TerminationIf the Limited Partner’s Employment terminates for any reason other than for death, Disability or Involuntarily Terminationwithout Cause as provided in this Grant Certificate, then all Granted Units that are not Fully Vested Units at the time oftermination of Employment shall be canceled and forfeited without consideration.Two-Year Clawback for Termination for Cause or Breach of Confidentiality and Restrictive Covenant Agreement If either (i) for any reason the Limited Partner’s Employment is terminated for Cause or (ii) the Limited Partner breaches theconfidentiality, non-competition and non-solicitation provisions set forth in the Limited Partner’s Confidentiality andRestrictive Covenant Agreement (each event in clauses (i) or (ii), a “ Triggering Event ”), then a number of Units (whetherGranted Units or any other Units owned by such Limited Partner) equal to the number of Granted Units that became FullyVested Units during the two (2) year period immediately prior to the date of the Triggering Event shall be canceled andforfeited without consideration (or, if exchanged or sold, the Limited Partner may be required to return or repay to thePartnership the net proceeds of such exchange or sale), unless otherwise determined in writing by the General Partner inits sole discretion. Any Granted Units that became Fully Vested Units earlier than the two (2) year period immediately priorto the Triggering Event shall not be subject to the provisions of this paragraph, and nothing in this paragraph shall bedeemed to limit any other rights or remedies that may be available to the General Partner, the Partnership or their Affiliateswith respect to the occurrence of a Triggering Event.4 No Additional Vesting Provisions and No Transfer Restrictions The additional vesting provisions set forth in Appendix B of the Holdings LPA and the transfer restrictions set forth inAppendix C and Appendix D of the Holdings LPA shall not apply to the Granted Units.[Remainder of Page Intentionally Left Blank]5 In Witness Whereof , the parties hereto have executed this Grant Certificate as of the date specified under the signature of theLimited Partner KKR HOLDINGS L.P. By:KKR HOLDINGS GP LIMITED, its general partnerBy:/s/ William J. Janetschek William Janetschek Director6 In Witness Whereof , the undersigned Limited Partner has caused this signature page to the Grant Certificate of KKRHOLDINGS L.P. to be duly executed on the date specified under the signature of the Limited Partner. “LIMITED PARTNER” Electronic SignatureName: Participant Name Dated: Grant Date7 Exhibit 10.23DEVELOPMENT AGREEMENTDated as of October 28, 2015betweenERY DEVELOPER LLC, as developerandKKR HY LLCTABLE OF CONTENTSPageARTICLE 1 CERTAIN DEFINITIONSSection 1.01 Defined Terms 2Section 1.02 Rules of Construction 31ARTICLE 2 DEVELOPER’S RESPONSIBILITIESSection 2.01 Retention of Developer 32Section 2.02 Developer’s Responsibilities 33Section 2.03 Standard of Performance 36Section 2.04 Development Fee 36Section 2.05 Survival 37ARTICLE 3 ARCHITECT AND CONSULTANTS; PLANS, AND CHANGES TO PLANS; 30 HY PROJECT DOCUMENTSSection 3.01 Project Architect and Consultants; Construction Manager 37Section 3.02 Plans 37Section 3.03 Consultation with PE Member and PE’s Consultants 38Section 3.04 PE Member’s Approval Rights; Change Orders; Changes Required by Law 39Section 3.05 Field Changes; Force Majeure Changes 41Section 3.06 Developer’s Approval Over Design Changes Initiated by PE Member; Paymentfor Such Changes 42Section 3.07 Statement of Changes; Time for Approvals 43Section 3.08 PE Member’s Review of Plans Not a Representation or Assumption 45Section 3.09 Plans and Materials Available 46Section 3.10 ERY Site Plan 46Section 3.11 Delivery of Plans 48Section 3.12 Construction Loan Documents; 30 HY Project Documents. 48ARTICLE 4 ACCESS TO INFORMATION; PAYMENT OF PE MEMBER TOTAL DEVELOPMENT COST AND PE MEMBERADDITIONAL DEVELOPMENT COSTS; AUDIT RIGHTS; BOOKS AND RECORDS; ENVIRONMENTAL REPORTSSection 4.01 Access to Information; Meeting with the Construction Lender 49Section 4.02 Draw Requests; Payment of PE Member Total Development Cost, PE MemberAdditional Development Costs and PE Member Additional Payment. 50Section 4.03 Audit of Construction Costs 53Section 4.04 Books and Records 54Section 4.05 Environmental Reports 54Section 4.06 Survival 56ARTICLE 5 LABOR MATTERSSection 5.01 Project Labor Agreement 56Section 5.02 MWBE 56ARTICLE 6 SCHEDULE AND UPDATES; PE DELAY; HOLDOVER COSTS; AUTOMATIC TERMINATION OF AGREEMENTSection 6.01 Project Schedule; Updates 56Section 6.02 PE Delay 57Section 6.03 Delivery Blocks, Holdover Costs, Etc. 58Section 6.04 Automatic Termination 64Section 6.05 Survival 65ARTICLE 7 SUBGUARD; DEVELOPER’S INSURANCESection 7.01 Subguard 65Section 7.02 Insurance Coverages 65ARTICLE 8 PE FINISH WORK; SITE LOGISTICSSection 8.01 Design of PE Finish Work 66Section 8.02 Intentionally Omitted 69Section 8.03 Site Logistics Procedures 69Section 8.04 Performance of PE Finish Work 70Section 8.05 Cost of Performing PE Finish Work 71Section 8.06 PE Member Violations 71Section 8.07 Survival 71ARTICLE 9 INSPECTION RIGHTS DURING CONSTRUCTION; DELIVERY DATE, DELIVERY BLOCKS, DC PUNCH LIST;WARRANTIES; DEFECTIVE WORKSection 9.01 Inspection by PE Member During Construction; On-Going Consultation 72Section 9.02 Delivery Date; DC Punch List; Acceptance Procedure 72Section 9.03 Contractor Warranties; Defective Work; Latent Defects 74Section 9.04 PE Member’s Right to Remove Developer Violations 75ARTICLE 10 PE Member TOTAL DEVELOPMENT COST; PE MEMBER ADDITIONAL DEVELOPMENT COSTS; DEVELOPERDEFAULTSection 10.01 PE Member Total Development Cost; PE Member Additional DevelopmentCosts 76Section 10.02 Developer Default 78ARTICLE 11 SEVERANCE DATE CLOSING; PE DEPOSIT; RESCISSIONSection 11.01 Severance Date Transactions 81Section 11.02 Disclosures 85Section 11.03 PE Deposit. 85Section 11.04 Rescission Right. 86ARTICLE 12 UNIT CLOSING; PAYMENT OF PE Unit Allocated Construction Loan Amount and PE MEMBER True-Up PaymentSection 12.01 PE Unit Closing 87Section 12.02 Unit Carry Costs 90Section 12.03 Repayment of PE Unit Allocated Construction Loan Amount; Release of PEUnit 91Section 12.04 Issuance of Severed Leasehold Interest for PE Unit 93ARTICLE 13 DC PUNCH LIST WORK; DELIVERIES AND PAYMENTS TO BE MADE FOLLOWING THE CLOSING; FINAL ACCOUNTINGSection 13.01 Completion of DC Punch List Work 93Section 13.02 Payment of the Cost of Post-Distribution Work Properly Allocable to the PEUnit 94Section 13.03 Final Accounting at Final Completion; Final Payments 94Section 13.04 Developer’s Obligation to Discharge Liens and Remove Violations After theClosing 94Section 13.05 Survival 95ARTICLE 14 DISPUTE RESOLUTIONSection 14.01 Dispute Resolution 95ARTICLE 15 REPRESENTATIONS AND WARRANTIES OF DEVELOPER AND PE MemberSection 15.01 Developer’s Representations 97Section 15.02 PE Member’s Representations 99ARTICLE 16 FLOOR AREASection 16.01 Floor Area 100ARTICLE 17 EXCULPATION; INDEMNIFICATIONSection 17.01 Exculpation 101Section 17.02 Indemnification 101Section 17.03 Survival 102ARTICLE 18 NOTICESSection 18.01 Notices 102Section 18.02 Email Notices 103Section 18.03 Approvals 103ARTICLE 19 MISCELLANEOUSSection 19.01 Further Assurances 104Section 19.02 Governing Law 104Section 19.03 Submission to Jurisdiction; Waiver of Jury Trial 104Section 19.04 Amendments and Waivers in Writing 105Section 19.05 Confidentiality; Publicity 105Section 19.06 Non-Waiver of Rights 106Section 19.07 Execution in Counterparts 106Section 19.08 Exhibits and Schedules 107Section 19.09 Headings 107Section 19.10 Assignments of this Agreement 107Section 19.11 Successors and Assigns 108Section 19.12 Severability 108Section 19.13 No Third Party Beneficiaries 108Section 19.14 No Joint Venture or Partnership 108Section 19.15 No Construction Against Draftsperson 109Section 19.16 Brokerage 109Section 19.17 Authorized Representatives 109Section 19.18 Prevailing Party Entitled to Fees and Costs 109Section 19.19 Survival 109Section 19.20 Remedies 109EXHIBITSExhibit ALLC Amendment Term Sheet 101Exhibit BForm of Building Completion Guaranty 101Exhibit CForm of Certificate of Substantial Completion (Architect) 102Exhibit DDelivery Condition 102Exhibit EStatement of Changes 103Exhibit FDual Obligee Rider 104Exhibit GArbiters 104Exhibit HWork Dispute Arbiters 104Exhibit IForm of 50 HY Deed Restriction 105Exhibit JForm of 50 HY Mortgage Subordination 105DEVELOPMENT AGREEMENTDEVELOPMENT AGREEMENT (as the same may be amended in accordance herewith, this “ Agreement ”) made as of [--],2015 by and between ERY DEVELOPER LLC , a Delaware limited liability company with an office at c/o The RelatedCompanies, L.P., 60 Columbus Circle, New York, New York 10023 (“ Developer ”) and KKR HY LLC , a Delaware limitedliability company with an office at 9 West 57 th Street, Suite 4200, New York, NY 10019 (“ PE Member ”).Introductory StatementA. ERY Tenant LLC, a Delaware limited liability company (“ ERY Tenant ”), as ground lessee, entered into that certainAgreement of Lease (Eastern Rail Yard Section of the John D. Caemmerer West Side Yard), dated as of April 10, 2013, with theMetropolitan Transportation Authority, a body corporate and politic constituting a public benefit corporation of the State of NewYork (the “ MTA ”), as ground lessor, as amended by that certain First Amendment to Lease dated as of December 30, 2013, and asfurther amended by that certain Second Amendment to Lease dated as of March 17, 2014 (as modified, amended or restated fromtime to time in accordance with the terms of this Agreement and the Operating Agreement (as hereinafter defined), the “ InitialBalance Lease ”), pursuant to which ERY Tenant ground leased from the MTA certain airspace above and terra firma within theEastern Rail Yard Section (the “ ERY ”) of the John D. Caemmerer West Side Yard in the City, County and State of New York, asmore particularly described in the Initial Balance Lease (the “ Initial Balance Lease Premises ”);B. ERY Tenant, as lessee, entered into that certain Agreement of Lease (Eastern Rail Yard Section of the John D.Caemmerer West Side Yard – Tower A/Retail Parcel) dated as of March 17, 2014 with the MTA, as lessor (as amended, restated,replaced, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement and the OperatingAgreement, the “ A/B Balance Lease ”), pursuant to which ERY Tenant leases from the MTA the real property described therein (the“ A/B Balance Lease Premises ”);C. R/O Member, the Office Member and TW NY Properties LLC, a Delaware limited liability company (“ TW Member ”)entered into that certain Master Agreement of Limited Liability Company of Hudson Yards North Tower Holdings LLC (the “ LLC”) dated as of January 16, 2014, as amended by the First Amendment to Master Agreement of Limited Liability Company of HudsonYards North Tower Holdings LLC, dated as of March 17, 2014 (as so amended, the “ Original Operating Agreement ”) with respectto the LLC.D. R/O Member, the Office Member, TW Member and ERY North Tower Ob Deck Member LLC, a Delaware limitedliability company (“ Observation Deck Member ”), entered into that certain Amended and Restated Master Agreement of LimitedLiability Company of the LLC dated as of February 17, 2015 (as modified, amended or restated from time to time in accordancetherewith, the “ Operating Agreement ”).E. Upon satisfaction of certain conditions more particularly set forth in the A/B Balance Lease and herein, R/O Membershall cause the MTA to (A) enter into the Initial Condominium Documents (as hereinafter defined) dividing the A/B Balance LeasePremises and the improvements to be constructed thereon into multiple Units (as hereinafter defined), currently intended to be four(4) Units, as more fully set forth in the Preliminary Submitted Condominium Documents (as defined herein) and subject to theMembers’ rights to exercise the Multiple Unit Election (as defined in the Operating Agreement), and (B) effectuate Severances (ashereinafter defined) so as to create (i) a Severed Parcel (as defined in the A/B Balance Lease) for the Time Warner Unit, the OfficeUnit and the Ob Deck Unit (each as defined in the Preliminary Submitted Condominium Documents), with such Units collectivelybeing referred to herein as the “ Tower Units ”), and, with respect to such Severed Parcel, to enter into, as landlord, a Severed ParcelLease (as defined in the A/B Balance Lease) with Hudson Yards North Tower Tenant LLC, a Delaware limited liability company (“Tower A Tenant ”), which is a wholly owned, direct or indirect subsidiary of the LLC, as tenant, substantially in the form andsubstance of the Severed Parcel Lease attached to the A/B Balance Lease (the “ Tower A Lease ,” and the premises demisedthereunder being referred to as the “ Tower A Severed Parcel ”), and (ii) a Severed Parcel for the Retail Unit (as defined in thePreliminary Submitted Condominium Documents) (such Unit, the “ Destination Retail Unit ”), and, with respect to such SeveredParcel, to enter into, as landlord, a Severed Parcel Lease with ERY Retail Podium LLC, a Delaware limited liability company (“Destination Retail Tenant ”), which is a wholly owned, direct or indirect subsidiary of Destination Retail JV (as hereinafter defined),as tenant, substantially in the form and substance of the Severed Parcel Lease attached to the A/B Balance Lease (the “ DestinationRetail Lease ,” and the premises demised thereunder being referred to as the “ Destination Retail Severed Parcel ”). Simultaneouslytherewith and as a condition to Severance, Tower A Tenant and Destination Retail Tenant will enter into the Co-ConstructionAgreement.F. Subject to the satisfaction of the conditions set forth herein, concurrently with the effectuation of the Severance DateTransactions (as hereinafter defined), (i) Office Member and PE Member shall have executed the Assignment Agreement (ashereinafter defined), pursuant to which PE Member shall be admitted to the LLC as an Economic Member (as defined in theOperating Agreement) owning a Series (as defined in the Operating Agreement) representing beneficial ownership in the PE Unit andthe Leasehold Estate (as hereinafter defined) with respect thereto, and (ii) PE Member and the Other Members shall have executedand delivered the LLC Amendment (as hereinafter defined).G. Developer will develop and construct, in accordance with the terms of this Agreement, the Tower Building and certainportions of the Destination Retail Building as more fully set forth herein and in the Co-Construction Agreement.NOW, THEREFORE, in consideration of the promises and obligations of Developer and PE Member set forth in thisAgreement, subject to the terms of this Agreement and intending to be legally bound hereby, the parties agree as follows:ARTICLE 1 CERTAIN DEFINITIONSSection 1.01 Defined Terms . For all purposes of this Agreement, except as otherwise expressly provided in thisAgreement:“ 30 HY Project Documents ” has the meaning set forth in Section 15.01(g) .“ 50 HY Block ” has meaning set forth in Section 15.01(j) .“ 50 HY Deed Restriction ” means an Agreement Re: Restrictive Covenant in the form of Exhibit I attached hereto.“ 50 HY Mortgage ” has the meaning set forth in Section 11.01(a)(xv) .“ 50 HY Mortgage Subordination ” has the meaning set forth in Section 11.01(a)(xv).“ 50 HY Restrictive Covenant ” has the meaning set forth in Section 3.10(d) .“ A/B Balance Lease ” has the meaning set forth in the Recitals.“ A/B Balance Lease Premises ” has the meaning set forth in the Recitals.“ Actual PE Unit SF ” means 343,328 RSF.“ Additional Lease Extension ” means, with respect to any Additional Lease, any amendment or other agreement (includingwithout limitation any occupancy agreement) entered into after the initial execution of an Additional Lease in accordance with theterms of this Agreement extending an Additional Lease Tenant’s right under such Additional Lease to occupy the premises undersuch Additional Lease, that has been approved (or deemed approved) by Developer as and to the extent required under Section6.03(e) .“ Additional Lease Tenant ” means, individually or collectively, as the context may require, an Affiliate of PE Member whichis the holder of the occupant’s interest under an Additional Lease.“ Additional Leases ” means one or more leases entered into by PE Member or an Affiliate for space not exceeding onehundred thousand (100,000) rentable square feet in the aggregate that meets the following criteria: (i) such lease is coterminous withthe Existing Leases, (ii) the lease is on commercially reasonable market terms, (iii) the gross rents payable under any such lease doesnot exceed One Hundred Dollars ($100) per rentable square foot, and (iv) the holdover provisions in such lease have been approvedin writing by Developer (such approval not to be unreasonably withheld). Any such individual lease is referred to herein as an “Additional Lease ”. Each “ Additional Lease ” shall include any amendment thereof entered into after the date of original executionthereof that constitutes an Additional Lease Extension entered into in accordance with Section 6.03(e) .“ Additional Parties ” has the meaning set forth in Section 19.03(a) .“ Additional Rent ” means, collectively, all amounts payable under any Existing Lease or Additional Lease other than “fixedrent” or its equivalent, including, without limitation, escalations or pass through payments with respect to taxes and operatingexpenses, porters wage escalations, charges for services and expense reimbursements.“ Additional Space ” means, with respect to any Additional Lease entered into in accordance with the provisions of thisAgreement, the space demised to the applicable Additional Lease Tenant under such Additional Lease as of the date of execution ofsuch Additional Lease, as such space may be modified by any Additional Lease Extension.“ Affiliate ” means, with respect to a Person, 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. The LLC shall not be deemed an Affiliate of any ofits Members (for the avoidance of doubt, the LLC shall be deemed an Affiliate of Developer), but each of Related Parent and OxfordParent are Affiliates of Developer and R/O Member. For the purposes of Sections 17.01 and 19.10 , an Affiliate of Oxford Parent andOxford Guarantor shall include, without limitation, any Person in which OAC holds directly or indirectly at least a 50% economicinterest.“ Agreement ” has the meaning set forth in the Recitals.“ Ancillary Rights Agreement ” means that certain Ancillary Rights Agreement, dated as of the date hereof (but effective onlyas of the Severance Date), by and between PE Member and Gen-Par, as the same may be amended or replaced from time to time.“ Anti-Terrorism Order ” means Executive Order No. 13224, dated September 24, 2001, issued by the President of the UnitedStates (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or SupportTerrorism), as may be amended or supplemented from time to time.“ Approved Replacement Developer ” has the meaning set forth in the Operating Agreement.“ Arbiter ” has the meaning set forth in Section 14.01(a) .“ Arbitration ” means an arbitration in accordance with the provisions of Article 14 .“ Area Charts and Area Diagrams ” means the document titled Area Charts and Diagrams, in the form agreed by the Partiesand dated as of the date hereof (which sets forth certain area charts and area diagrams relating to the Project, and the area calculationmethodology applicable thereto).“ Assignment Agreement ” means an agreement, in form and substance reasonably acceptable to PE Member and the OfficeMember, pursuant to which (i) “Series C” (as defined in the Operating Agreement) shall be subdivided into one or more Seriescollectively representing beneficial ownership in the Office Unit and (ii) Office Member shall assign, transfer and convey to PEMember the Series representing beneficial ownership in the PE Unit and the Leasehold Estate (as hereinafter defined) with respectthereto and PE Member shall be admitted to the LLC as an Economic Member.“ Assumption Agreement ” has the meaning set forth in Section 6.04(a) .“ Assumption Notice ” has the meaning set forth in Section 6.04(a) .“ Authorized Representative ” means, with respect to each party, each Person relating thereto identified on the List ofAuthorized Representatives and Notice Addresses, as such list of Authorized Representatives may be amended upon a party’s givingto the other party not less than three (3) Business Days’ notice and otherwise in accordance with this Agreement.“ Base Building ” has the meaning set forth in the Operating Agreement.“ Base Building Lighting ” means the lighting plan for the Tower Building exterior that is part of the Plans.“ Base Building Work ” means all items of work, labor, material, equipment and installation necessary to construct andcomplete the Base Building in accordance with the Plans and Schedule.“ Benefitted Parties ” means Tower A Tenant, any owner of the Office Unit (prior to subdivision) or subdivided unit of theOffice Unit comprising floors 74 through 83 (the “Upper Office Unit”) (from and after such subdivision), any Declarant Net Lessee(as defined in the Condominium Documents) of the Office Unit (prior to such subdivision) or the Upper Office Unit (from and aftersuch subdivision), PE Member, and their respective successors and assigns.“ Best Efforts ” means, as applied to Developer, those commercially reasonable efforts that a well-qualified and diligentdevelopment manager would use to fulfill the obligations of Developer hereunder, using its best professional skill and judgment andconsistent with best practices in the industry.“ Broker ” has the meaning set forth in Section 19.16 .“ Building ” has the meaning set forth in the Operating Agreement.“ Building Completion Guaranty ” means a guaranty to be delivered on and dated as of the Severance Date by Related/OxfordGuarantor in favor of PE Member in the form of Exhibit B .“ Business Day ” has the meaning set forth in the Operating Agreement.“ Cap ” has the meaning set forth in Section 10.02(a) .“ Certificate of Substantial Completion ” means a certificate of substantial completion signed by the Project Architect in theform of Exhibit C .“ City ” means the City of New York.“ Claims ” has the meaning set forth in Section 17.02(a) .“ Closing ” has the meaning set forth in the Operating Agreement.“ Closing Date ” has the meaning set forth in the Operating Agreement.“ Co-Construction Agreement ” has the meaning set forth in the Operating Agreement.“ Co-Construction Term Sheet ” has the meaning set forth in the Operating Agreement.“ Common Elements ” has the meaning set forth in the Condominium Documents.“ Completion Deposits ” means, with respect to any Construction Loan, collectively, any and all amounts required to bedeposited from time to time pursuant to the Construction Loan Documents in order for such Construction Loan to be “in balance”.Each of the Completion Deposits is referred to herein as a “ Completion Deposit ”.“ Condominium ” has the meaning set forth in the Condominium Documents.“ Condominium Board ” has the meaning set forth in the Condominium Documents.“ Condominium Documents ” means, (i) prior to Severance, the Preliminary Submitted Condominium Documents, and (ii)from and after Severance, the Initial Condominium Documents as the same may be amended, restated, supplemented, replaced orotherwise modified from time to time from and after Severance (it being understood and agreed thata modification or amendment to the Condominium Documents following Severance shall require the approval of PE Member to theextent that such modification or amendment would have required PE Member’s approval if, as of the date of such modification oramendment, PE Member were a Unit Owner thereunder and the PE Unit were a Unit thereunder).“ Condominium Warranty ” has the meaning set forth in Section 9.03(a) .“ Construction Agreement ” has the meaning set forth in the Operating Agreement.“ Construction Lender ” has the meaning set forth in the Operating Agreement.“ Construction Loan ” has the meaning set forth in the Operating Agreement.“ Construction Loan Documents ” has the meaning set forth in the Operating Agreement.“ Construction Management Agreement ” means that certain Construction Agreement dated as of June 30, 2015, betweenExecutive Construction Manager and Tishman Construction Corporation, as the same may be amended or replaced from time to time.“ Construction Manager ” means each construction manager engaged by Developer relating to the construction of the Project.“ Consultant ” means any or all of PE’s Consultants or Developer’s Consultants, as applicable in context.“ Contractor Warranty ” has the meaning set forth in Section 9.03(a) .“ Core & Shell TCO ” means a temporary certificate of occupancy for the core and shell of the Tower Building issuedpursuant to Section 645 of the New York City Charter.“ Covered Period ” means, as to each Existing Lease and any Additional Lease, the period commencing on the OccupancyDate and continuing until the earlier to occur of (1) the date on which the applicable Affiliates of PE Member or PE Guarantors havemoved into the PE Unit, or would have moved into the PE Unit if PE Member had complied with its obligations under Section6.03(c) or (2) if Developer delivers a Holdover Termination Notice in accordance with Section 6.03(b)(i) , the Holdover TerminationDate.“ DC Punch List ” means the Proposed DC Punch List for each Delivery Block, as amended following resolution byDeveloper and PE Member or by the Work Dispute Arbiter in an Arbitration of any dispute with respect thereto (including in respectof the dates for completion of the DC Punch List Work).“ DC Punch List Work ” means, collectively, with respect to each Delivery Block or portion thereof, minor or insubstantialdetails of construction, decoration, mechanical adjustment, or installation, the non-completion of which does not prevent the use andoccupancy of the PE Areas for their intended purposes.“ DC Punch List Work Completion Dates ” has the meaning set forth in Section 9.02(b) .“ Declaration of Easements ” has the meaning set forth in the Operating Agreement.“ Default Rate ” means interest at the rate of ten percent (10%) per annum.“ Defective Work ” has the meaning set forth in Section 9.03(a) .“ Deferred ERY Completion Condition ” has the meaning set forth in Section 12.03(c) .“ Delivery Block ” means each of the First Delivery Block and the Second Delivery Block, each of which groups of floorsshall be delivered to PE Member as a single block of floors or space (subject to Developer’s right to deliver full floor portions thereofin accordance with Section 9.02 ).“ Delivery Condition ” means the conditions for delivery of each Delivery Block described on Exhibit D attached hereto.“ Delivery Date ” means, with respect to each Delivery Block, the date on which such Delivery Block has been delivered toPE Member in Delivery Condition, as agreed to by Developer and PE Member (or as shall be deemed to have occurred in the eventthat PE Member fails to timely deliver an Exceptions Notice) in accordance with the provisions of Section 9.02 , or, in the event PEMember timely delivers an Exceptions Notice and the parties do not agree on the Delivery Date, as determined by Arbitration asprovided herein.“ Destination Retail Building ” has the meaning set forth in the Co-Construction Agreement Term Sheet.“ Destination Retail JV ” means ERY Retail Podium Holdings LLC, a Delaware limited liability company, together with itssuccessors and assigns.“ Destination Retail JV Member ” means any member of Destination Retail JV from time to time.“ Destination Retail Lease ” has the meaning set forth in the Recitals.“ Destination Retail Severed Parcel ” has the meaning set forth in the Recitals.“ Destination Retail Tenant ” has the meaning set forth in the Recitals.“ Destination Retail Unit ” has the meaning set forth in the Recitals.“ Developer ” has the meaning set forth in the Preamble.“ Developer Default ” means any failure by Developer, beyond any applicable notice and cure periods (if any), in fulfilling,achieving or complying with Developer’s obligations hereunder, including any Developer Misconduct Default and any ProfessionalStandard Default.“ Developer Finish Work ” means the items of PE Finish Work described in the Gensler Plans and Specifications Commentsas being performed by Developer and such other items of PE Finish Work that may be performed by Developer as set forth in theDeveloper Finish Work Agreement.“ Developer Finish Work Agreement ” means an agreement to be entered into between Developer and PE Member at or priorto Severance regarding the design, performance and construction of the Developer Finish Work which shall provide for (i)performance by Developer of the Developer Finish Work in accordance with the terms thereof in exchange for payment by PEMember to Developer of the actual costs of the Developer Finish Work plus a development fee equal to 3% of such costs and apayment in respect of Developer’s overhead equal to 3% of such costs, and (ii) such other terms and provisions regarding the design,performance and construction of the Developer Finish Work as reasonably agreed to by Developer and PE Member.“ Developer Indemnitees ” means Developer, Related Parent, Oxford Guarantor, Construction Lender, and all Affiliates ofDeveloper, Related Parent or Oxford Guarantor, Developer’s Consultants and the Project Architect, and the respective directors,officers, shareholders, principals, partners, members, managers, agents and employees of the foregoing, and their respectivesuccessors and assigns; and the term “Developer Indemnitee” means any one of the Developer Indemnitees, as the context requires.“ Developer Misconduct Default ” means any failure by Developer in fulfilling, achieving or complying with Developer’sobligations hereunder arising from Developer’s gross negligence, willful misconduct, bad faith, intentional breach of this Agreement,or fraud.“ Developer Violations ” means all Violations filed, noticed or notified to the PE Unit (or in respect of any PE Area) thatwould reasonably be expected to prevent or delay PE Member or its Affiliates from using or occupying the PE Areas or any CommonElements, or any portion thereof, for the normal conduct of PE Member’s (and its Affiliates’) business in the ordinary course, otherthan any Violations resulting from PE Finish Work or otherwise arising from any act or wrongful omission (i.e., where there is anobligation to affirmatively act) of PE Member, PE Member’s Architect or any of PE Member’s Consultants.“ Developer Work ” means the completion by Developer of the following, in each case in accordance with the Plans to theextent applicable: (a) the core and shell of the Tower Building and any other Base Building Work; (b) such other portions of theBuilding as shall be necessary (i) to complete the PE Exclusive Areas or the PE Shared Building Systems and Areas or (ii) to causeany such areas or systems to be operational and reasonably accessible to PE Member and its Affiliates and their respectiveemployees; (c) the Required Destination Retail Building Work (other than portions of such work to be exclusively used or occupiedby Other Members); (d) the PE Areas; (e) the core bathrooms within the PE Unit; (f) all sidewalks, including paving, directlyadjacent to the Tower Building; (g) all Landscaping; (h) all Base Building Lighting; (i) all entrances and points of ingress to andegress from the Tower Building; and (j) the Subway Entrance. For the avoidance of doubt, the Developer Work (i) shall not includeany PE Finish Work, and (ii) shall include the foundation and entire exterior envelope of the Tower Building (including the curtainwall, windows and roofs (whether setback or otherwise)) and the entire superstructure of the Tower Building (including the columns,girders, beams, supports, all support and metal deck floor slabs).“ Developer’s Consultant(s) ” means any or all of the architects, engineers, consultants, or advisors (other than theConstruction Manager, the Executive Construction Manager, and the Project Architect) engaged by or on behalf of the LLC, TowerA Tenant, or Developer, as agent for Tower A Tenant, or by the Executive Construction Manager, with respect to the design andconstruction of the Developer Work.“ Development Management Agreement ” has the meaning set forth in the Operating Agreement.“ Dispute ” has the meaning set forth in Section 14.01(b) .“ Dispute Notice ” has the meaning set forth in Section 14.01(b) .“ Disputing Party ” has the meaning set forth in Section 14.01(b) .“ DLLCA ” means the Delaware Limited Liability Company Act.“ DMA Development Fee ” has the meaning set forth in Section 2.04(a) .“ DOB ” means the New York City Department of Buildings or any successor agency responsible for conducting inspectionsand issuing building permits, certificates of occupancy or elevator or other like permits or certificates.“ Draw Request ” means, as the context requires, (a) a requisition to any Member for a capital contribution to the LLC, madeby a Member or Developer (on behalf of a Member), to fund Project Costs pursuant to and in accordance with the terms of theOperating Agreement and this Agreement, or (b) a requisition for an advance of proceeds under the Construction Loan to fundProject Costs, submitted by Tower A Tenant or Developer (on behalf of Tower A Tenant), in each case which complies with theapplicable provisions of this Agreement, the Operating Agreement, and the Construction Loan Documents, to the extent applicable.“ DRB CM ” has the meaning set forth in Section 2.02(e) .“ DRB Construction Lenders ” means all lenders advancing any DRB Construction Loan from time to time.“ DRB Construction Loan ” means, collectively, any mortgage loans and any mezzanine loans to finance a portion of the costsof construction of the Destination Retail Building (including, without limitation, the Common Elements and exclusive easement areaslocated therein), secured (i) in the case of a mortgage loan, by one or more leasehold mortgages of Destination Retail Tenant’sLeasehold Estate in the Destination Retail Unit or (ii) in the case of a mezzanine loan, secured by pledges of equity in DestinationRetail Tenant or one or more mezzanine borrowers.“ DRB Development Agreement ” means, with respect to the Destination Retail Building, that certain DevelopmentAgreement, dated as of October 1, 2014, between Destination Retail Tenant and Developer, as the same may be amended or replacedfrom time to time.“ DRB ECM ” has the meaning set forth in the definition of DRB ECM Agreement.“ DRB ECM Agreement ” means, with respect to the Destination Retail Building, that certain Executive ConstructionManagement Agreement, dated as of October 1, 2014, between Developer, as agent for Destination Retail Tenant, and ExecutiveConstruction Manager (the “ DRB ECM ”), as the same may be amended or replaced from time to time.“ Email Notice ” has the meaning set forth in Section 18.02(b) .“ Encumbrance ” has the meaning set forth in the Operating Agreement.“ Environmental Laws ” means, collectively, the Comprehensive Environmental Response, Compensation, and Liability Act(42 U.S.C. Section 9601 et seq.), and any federal, state of local statute, law, ordinance, code, rule, regulation, order or decreeregulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, radioactive, biohazardous ordangerous waste, substance or materials, including any regulations adopted and publications promulgated with respect thereto.“ ERY ” has the meaning set forth in the Recitals.“ ERY Completion Condition ” has the meaning set forth in Section 12.03(c) .“ ERY Holdback Amount ” has the meaning set forth in Section 12.03(c) .“ ERY Site Logistics Plan ” means the site logistics plan for the ERY, in the form agreed by the Parties and dated as of thedate hereof.“ ERY Site Plan ” means the site plan for the ERY, in the form agreed by the Parties and dated as of the date hereof.“ ERY Tenant ” has the meaning set forth in the Recitals.“ Estimated Delivery Date ” means (i) with respect to the First Delivery Block, January 31, 2019, and (ii) with respect to theSecond Delivery Block, March 31, 2019.“ Exceptions Notice ” has the meaning set forth in Section 9.02(c) .“ Excluded Lease Costs ” has the meaning set forth in the definition of Holdover Costs.“ Executive Construction Management Agreement ” means that certain Executive Construction Management Agreement,dated as of February 17, 2015, between Developer, as agent for Tower A Tenant, and Executive Construction Manager, as the samemay be amended, or replaced from time to time.“ Executive Construction Manager ” means Hudson Yards Construction LLC, a Delaware limited liability company.“ Exhibits ” means, collectively, the exhibits attached to this Agreement (or subsequently incorporated herein throughamendments hereto), as the same may be amended from time to time in accordance with this Agreement.“ Existing Lease Disclosure Certificate ” has the meaning set forth in Section 6.03(d) .“ Existing Lease Estoppel ” has the meaning set forth in Section 6.03(d) .“ Existing Lease Expiration Date ” means December 31, 2020.“ Existing Lease Extension ” means, with respect to any Existing Lease, any amendment or other agreement (includingwithout limitation any occupancy agreement) entered into after the date hereof extending the Existing Lease Tenant’s right undersuch Existing Lease to occupy the premises under such Existing Lease, that has been approved (or deemed approved) by Developeras and to the extent required under Section 6.03(e) .“ Existing Lease Tenant ” means, individually or collectively, as the context may require, an Affiliate of PE Member which isthe holder of the occupant’s interest under an Existing Lease. Each Existing Lease Tenant in existence as of the date hereof is setforth on the Existing Lease Disclosure Certificate.“ Existing Leases ” means, collectively, the leases for the Existing Space described on the Existing Lease DisclosureCertificate and “ Existing Lease ” means any of the Existing Leases, as the context requires. Each “Existing Lease” shall include anyamendment thereof entered into after the date hereof that constitutes an Existing Lease Extension entered into in accordance withSection 6.03(e) .“ Existing Space ” means the space occupied by the Existing Lease Tenants at 9 West 57 th Street, New York, New York10019 pursuant to the Existing Leases, consisting of approximately 195,974 square feet in the aggregate as of the date hereof, as suchspace may be modified by any Existing Lease Extension.“ Field Changes ” means changes necessitated by job conditions in the field which are customarily resolved by architects andconstruction managers and which have no material design ramifications and do not constitute discretionary scope changes.“ Field Office ” means that certain office of Developer for the Project located at 511 West 33 rd Street in New York, NewYork, or any replacement office for the Project maintained by Developer from time to time.“ Fifth Floor Entrance ” means the fifth floor entrance to the Destination Retail Building from the Tower Building as shownon the Plans.“ Final Completion ” means the stage in the development of the Project when all of the following have occurred: (a) the completion of all Developer Work (other than the Subway Entrance) and the achievement of SubstantialCompletion;(b) the completion of all DC Punch List work and all Punch List Work in accordance with (i) the Plans, (ii) thisAgreement, and (iii) all applicable Laws;(c) the completion of all Base Building Lighting in accordance with (i) the Plans, (ii) this Agreement, and (iii) allapplicable Laws;(d) the Executive Construction Manager, the Construction Manager, the Project Architect and Developer’sConsultants, and any executive construction manager, construction manager, project architect and any Developer’s consultants withrespect to the Destination Retail Building, and all direct “hard cost” contractors and subcontractors retained or contracted inconnection with the Developer Work and/or work in and to the PE Unit (other than PE Finish Work) have all delivered waivers ofliens and claims for all work performed and paid for to the date of Final Completion (or, if not, Developer shall provide evidence ofthe bonding of any such lien(s) or the provision of other security (reasonably satisfactory to PE Member) sufficient to discharge anysuch liens);(e) Developer has delivered to PE Member all operations and maintenance manuals in Developer’s possession withrespect to all PE Exclusive Areas (if any), to the extent not previously delivered; and(f) Developer has assigned or caused to be assigned to the Condominium Board all Condominium Warranties (tothe extent not previously assigned to the Condominium Board or to the extent relating to portions of the Project not constitutingDeveloper Work which are not yet complete, which Condominium Warranties shall be assigned to the Condominium Board when theapplicable work is complete).“ Finish Work ” means the installations, furnishing, fixtures, finishes, equipment, fitting-out and other improvements, if any,to be developed and constructed from time to time by or on behalf of a Member or its Affiliate and its contractors (as opposed toDeveloper on behalf of Tower A Tenant or Destination Retail Tenant) within any Unit owned or to be owned (directly or beneficiallythrough Tower A Tenant or Destination Retail Tenant) in order to ready the same for initial use and occupancy by such Member or itsAffiliate or any tenant of such Unit.“ Fireman’s Elevator ” means that certain elevator designated as “SA1” on the Plans, which shall serve the Tower Units inaccordance with the Condominium Documents.“ First Delivery Block ” means the group of floors consisting of floors 74 through 79 of the Tower Building as shown on thePlans.“ Floor ” has the meaning set forth in Section 10.02(a) .“ Floor Area ” has the meaning ascribed thereto in Section 12-10 of the Zoning Resolution and shall be measured inaccordance with the standards set forth in the Zoning Resolution (notwithstanding that the Building may be exempt from applicationof the Zoning Resolution under Public Authorities Law Section 1266(8)).“ Force Majeure ” means any failure of or delay in the availability of any public utility; any City-wide strikes or labordisputes; any unusual delays or shortages encountered in transportation, fuel, material or labor supplies; casualties; earthquake,hurricane, flood, tidal wave or other severe weather events and other acts of God; acts of a public enemy or of war or terrorism;governmental embargo restrictions; injunctions; other acts or occurrences beyond the reasonable control of a party; provided ,however , that (i) any of the foregoing events or occurrences shall not be a Force Majeure event if caused by the party claiming ForceMajeure or its Affiliate (and, if Developer is the party claiming Force Majeure, if caused by R/O Member, Destination Retail JV,Destination Retail Tenant, Related Parent, Oxford Parent or any Affiliate of any of the foregoing), (ii) in each case, Developer (if it isthe party claiming Force Majeure) shall have given PE Member notice of any such claim on or prior to the date which is the earlier tooccur of (y) five (5) Business Days after the cessation of such Force Majeure event and (z) ten (10) Business Days after the LLC,Tower A Tenant, Developer or any Affiliate of any of such Persons (other than PE Member or its Affiliates) has knowledge of theexistence of the Force Majeure event, and (iii) in each case, Developer (if it is the party claiming Force Majeure) shall use BestEfforts to minimize the delay occasioned thereby. In no event shall a Force Majeure event result from (or be deemed to have occurredas a result of) (x) any failure or inability to fund, or any delay in funding, any construction or other work or (y) any breach or defaultby any party (other than PE Member or its Affiliates) to the 30 HY Project Documents (it being acknowledged and agreed thatDeveloper shall not be deemed in default of its obligations under this Agreement solely as a result of any such breach or default underthe 30 HY Project Documents by any party that is not Developer or an Affiliate of Developer).“ Force Majeure Change ” has the meaning set forth in Section 3.05(b) .“ Gen-Par ” means Hudson Yards Gen-Par LLC, a Delaware limited liability company, together with its successors.“ General Common Elements ” has the meaning set forth in the Condominium Documents.“ Gensler Plans and Specifications Comments ” means the document prepared by Gensler titled “Project K Comments toPlans and Specifications,” dated October 23, 2015, in the form agreed by the Parties.“ Government Entity ” means the United States of America; the State of New York; the City; any other political subdivisionof any of the foregoing; and any agency, authority, department, court, commission or other legal entity of any of the foregoing.“ Hazardous Material(s) ” means materials, substances, fluids, chemicals, gases, or other compounds the presence, use,storage, emission, drainage, leakage, effusion, modification or disposition of which is prohibited by applicable Law or is subject byapplicable Law to specific procedures, controls or restrictions, or which are otherwise deemed toxic, poisonous or unsafe, and shallinclude asbestos, lead paint and polychlorinated biphenyls.“ Holdover ” means, with respect to any Existing Lease or Additional Lease, any holdover by the Existing Lease Tenant orAdditional Lease Tenant under such Existing Lease or Additional Lease, as applicable, beyond the Existing Lease Expiration Date.“ Holdover Cost Satisfaction Date ” has the meaning set forth in Section 6.03(b) .“ Holdover Cost Trigger Date ” has the meaning set forth in Section 6.03(b) .“ Holdover Cost Trigger Event ” has the meaning set forth in Section 6.03(b) .“ Holdover Costs ” means (1) with respect to each Existing Lease and any Additional Lease entered into in accordance withthe provisions of this Agreement, the Total Rent (including, without limitation, any holdover or other penalty or premium, increase tofair market rental value or “use and occupancy”, but expressly excluding any Excluded Lease Costs) actually paid or actuallyrequired to be paid in respect of the Covered Period by the applicable Existing Lease Tenant or Additional Lease Tenant under suchExisting Lease or Additional Lease; and (2) in the event any Existing Lease Tenant or Additional Lease Tenant (or any Affiliate ofPE Member) vacates any Existing Space or Additional Space with respect to one or more Existing Leases or Additional Leases andmoves into PE Temporary Space, (a) the Total Rent actually paid or actually required to be paid by the applicable Existing LeaseTenant or Additional Lease Tenant (or any Affiliate of PE Member) (“ Temporary Space Tenant ”) under the occupancy agreementfor such PE Temporary Space (“ Temporary Space Agreement ”) for the Covered Period (to the extent that (x) such Total Rent is atfair market rental rates and terms, taking into account all relevant factors, including the short-term nature of such occupancyagreement and available space in the market and (y) the holdover provisions in such Temporary Space Agreement are reasonablyapproved by Developer), plus (b) reasonable out-of-pocket moving expenses to relocate to the Temporary Space, plus (c)commercially reasonable third party transaction costs incurred in good faith by the Temporary Space Tenant (or any of its Affiliates)in connection with entering into such Temporary Space Agreement for such PE Temporary Space (including, without limitation,brokerage commissions, attorneys’ fees, alterations costs and amounts paid to telecommunications providers for relocation andtemporary service), but expressly excluding any Excluded Lease Costs. “ Holdover Costs ” also includes (x) damages and indemnitypayments (including indemnity payments to the landlord from claims, losses, damages, liabilities, costs and expenses such asattorney’s fees and disbursements and claims made by any succeeding tenant) actually paid or actually required to be paid by theapplicable Existing Lease Tenant, Additional Lease Tenant or Temporary Space Tenant in respect of the Covered Period on accountof such Holdover, but only to the extent the same are (1) provided for in the Existing Lease as in effect as of the date hereof (as thesame may be modified by any Existing Lease Extension) or the Additional Lease entered into in accordance with the provisions ofthis Agreement (as the same may be modified by any Additional Lease Extension) or the Temporary Space Agreement, as applicable,and are applicable to such Holdover pursuant to such Existing Lease (as the same may be modified by any Existing Lease Extension),Additional Lease (as the same may be modified by any Additional Lease Extension) or Temporary Space Agreement, as applicable,or (2) awarded to the landlord by a court of competent jurisdiction, after exhaustion of all appeals, by reason of a Holdover undersuch Existing Lease (as modified by any Existing Lease Extension), Additional Lease (as the same may be modified by anyAdditional Lease Extension) or Temporary Space Agreement, as applicable, (y) any costs, without duplication, specified as “holdovercosts” or the like in the Existing Lease (or Existing Lease Extension), any Additional Lease (or Additional Lease Extension) orTemporary Space Agreement, as applicable, and in each case claimed by the landlord, and (z) any legal fees or enforcement costsexpressly required to be paid to the landlord under such Existing Lease (or Existing Lease Extension), any Additional Lease (orAdditional Lease Extension), as applicable, and in each case to the extent resulting from such Holdover.Notwithstanding the foregoing, “ Holdover Costs ” shall not include (and in no event shall Developer be liable for) any of thefollowing items (or any holdover penalty or premium that is based on any of the following) (collectively, the “ Excluded Lease Costs”): (i) any damages or additional rents or charges to the extent arising from a default or breach by the applicable Existing LeaseTenant, or those claiming by, through or under such Existing Lease Tenant, of the Existing Lease (or such Additional Lease Tenantof such Additional Lease or such Temporary Space Tenant of such Temporary Space Agreement) (other than the Holdover, subject toclause (ii) below), including, without limitation, any failure to make repairs, maintenance or improvements, any failure to clean orrestore the applicable Existing Space, Additional Space, Temporary Space or any portion thereof, to the condition required undersuch Existing Lease, Additional Lease or Temporary Space and any failure to turn over plans, security codes, software or similaritems, (ii) any damages or additional rents or charges that arise out of any holding over by any subtenant, licensee, or other occupant(in each such instance, other than an Affiliate of PE Member) claiming by, through or under the Existing Lease Tenant, AdditionalLease Tenant, or Temporary Space Tenant, (iii) any additional rents or liability attributable to repairs, maintenance, or restorationwith respect to the Existing Space or any Additional Space or any PE Temporary Space, including capital expenditures (other thanoperating expense pass-throughs charged by the landlord), (iv) any reimbursements of the landlord’s legal, architectural or otherprofessional fees, including fees for approval of assignments, subleases or alterations or other consents, other than fees resulting froma Holdover, (v) additional rents in respect of the Existing Lease Tenant’s or any Additional Lease Tenant’s indemnificationobligations under the Existing Lease or any Additional Lease (other than additional rent or indemnification obligations with respectto a Holdover), (vi) additional rents for any services requested of the landlord under such Existing Lease or Additional Lease orTemporary Space Agreement which are in excess of the ordinary and customary services obtained by the Existing Lease Tenant orAdditional Lease Tenant or Temporary Space Tenant consistent with its past practices, (vii) rents that accrue in respect of a periodother than the Covered Period, and (viii) any of the foregoing amounts to the extent directly and solely arising from PE Delay. Foravoidance of doubt, Holdover Costs shall not include (and in no event shall Developer be liable for) any of PE Member’s, anyExisting Lease Tenant’s or Additional Lease Tenant’s or any of their respective Affiliates’ (as opposed to the applicable landlord’s)consequential damages, special damages, punitive damages, lost opportunity costs, or other similar damages or costs.“ Holdover Delay Period ” has the meaning set forth in Section 6.03(b) .“ Holdover Termination Date ” has the meaning set forth in Section 6.03(b)(i) .“ Holdover Termination Notice ” has the meaning set forth in Section 6.03(b)(i) .“ IDA ” has the meaning set forth in the Operating Agreement.“ IDA Documents ” has the meaning set forth in the Operating Agreement.“ Initial Balance Lease ” has the meaning set forth in the Recitals.“ Initial Balance Lease Premises ” has the meaning set forth in the Recitals.“ Initial Condominium Documents ” means the declaration and by-laws for the Building to be entered into by the MTA andrecorded against the Property at Severance (including all schedules and exhibits thereto), which shall be approved by PE Member tothe extent required under Section 11.01(a)(v) .“ Insurance Coverage Specifications ” means the document titled Insurance Coverage, in the form agreed by the Parties anddated as of the date hereof.“ Interest Rate ” means, with respect to any amount advanced or contributed, interest at the rate of five percent (5%) perannum.“ KPF ” means Kohn Pederson Fox Associates PC.“ Land ” has the meaning set forth in the Operating Agreement.“ Landlord Claim ” has the meaning set forth in Section 6.03(g) .“ Landscaping ” means the permanent landscaping and hardscaping described on the Plans.“ Law ” or “ Laws ” means any law, rule, regulation, order, statute, ordinance, resolution, regulation, code, decree, judgment,injunction, mandate or other legally binding requirement of any Government Entity.“ Leasehold Estate ” has the meaning set forth in the Operating Agreement.“ Leave-Out Hoists Plan ” means the document titled Leave-Out Hoists Plan, in the form agreed by the Parties and dated as ofthe date hereof.“ LEED ” means Leadership in Energy and Environmental Design.“ Legal Proceeding ” means an action, litigation, arbitration, administrative proceeding or other legal or equitable proceedingof any kind.“ Lender Election Date ” has the meaning set forth in Section 6.04(a) .“ Lender Transfer Date ” has the meaning set forth in Section 6.04(a) .“ Letter of Credit ” means a standby letter of credit that (a) is issued by a bank reasonably acceptable to Developer, (b) has anexpiry date not earlier than December 15, 2015, (c) may be drawn upon by presentation by Developer of a sight draft in a locationreasonably satisfactory to Developer, and (d) is otherwise in form and substance reasonably satisfactory to Developer.“ Limited Common Elements ” has the meaning set forth in the Condominium Documents.“ List of Authorized Representatives and Notice Addresses ” means the document titled List of Authorized Representativesand Notice Addresses, in the form agreed by the Parties and dated as of the date hereof.“ List of Qualified Developers ” means the document titled List of Qualified Developers, in the form agreed by the Parties anddated as of the date hereof.“ LLC ” has the meaning set forth in the Recitals.“ LLC Amendment ” means an amendment to the Operating Agreement (or an amended and restated limited liabilitycompany agreement for the LLC), in form and substance reasonably satisfactory to PE Member and the Other Members, pursuant towhich the Operating Agreement is amended (or amended and restated) to incorporate the matters described in the LLC AmendmentTerm Sheet.“ LLC Amendment Term Sheet ” means the term sheet for the matters to be set forth in the LLC Amendment that is attachedhereto as Exhibit A .“ Losses ” means any actual loss, actual cost, actual damage, actual charge, actual liability or actual expense (includinginterest thereon at the Default Rate from the date incurred to the date of recovery).“ Management Change Event ” has the meaning set forth in Section 10.02(d) .“ Managing Member ” has the meaning set forth in the Operating Agreement.“ Maximum PE Change Cost ” has the meaning set forth in Section 3.07(b) .“ Maximum PE Change Delay ” has the meaning set forth in Section 3.07(b) .“ Member ” has the meaning set forth in the Operating Agreement.“ Member Designee ” has the meaning set forth in Section 12.01(a)(ii) .“ MTA ” has the meaning set forth in the Recitals.“ MTA Parties ” has the meaning set forth in the Operating Agreement.“ MTA Project Documents ” has the meaning set forth in the Operating Agreement.“ Multiple Unit Election ” has the meaning set forth in the Operating Agreement.“ Net Increased Cost ” has the meaning set forth in Section 3.07(b) .“ Non-Compete Agreement ” means that certain Non-Compete Agreement, dated as of the date hereof (but effective only asof the Severance Date), by and between Related Guarantor and PE Guarantors, as the same may be amended or replaced from time totime.“ Northeast Building Entrance ” means the entrance to the Building at 33 rd Street and 10 th Avenue as shown on the Plans.“ Northwest Building Entrance ” means the entrance to the Building at 33 rd Street and Hudson Boulevard as shown on thePlans.“ Notes and Acknowledgements ” means, with respect to any set of the Plans, all notes and acknowledgements with respectthereto that are agreed to in writing by the parties.“ Notice ” has the meaning set forth in Section 18.01 .“ OAC ” has the meaning set forth in the Operating Agreement.“ Observation Deck Member ” has the meaning set forth in the Recitals.“ Ob Deck Member LLC Agreement ” has the meaning set forth in Section 12.03(c) .“ Ob Deck Pref Interest ” has the meaning set forth in Section 12.03(c) .“ Ob Deck Pref Pledge ” has the meaning set forth in Section 12.03(c) .“ Ob Deck Unit ” has the meaning set forth in the Condominium Documents.“ Occupancy Date ” means December 31, 2020, subject to extension on a day-for-day basis for each day that the OutsideDelivery Date or the Outside Substantial Completion Date was delayed as a result of PE Delay.“ occupiable ” means, with respect to any PE Areas or similar terms, that such area is intended for human occupancy,including office and studio space, lobbies, and rest rooms, but excluding risers, shafts, elevators or elevator shafts, fire stairs,mechanical or equipment rooms and other core areas.“ Office Member ” has the meaning set forth in the Recitals.“ Office Unit ” has the meaning set forth in the Condominium Documents.“ Office Unit Messenger Center ” means the “Tower Messenger Center” as defined in the Condominium Documents.“ Operating Agreement ” has the meaning set forth in the Recitals.“ Original Operating Agreement ” has the meaning set forth in the Recitals.“ Other Disputing Party ” has the meaning set forth in Section 14.01(b) .“ Other Members ” means the Members of the LLC other than PE Member or PE Member’s successors and assigns.“ Other Tower Units ” means all Tower Units other than the PE Unit.“ Other Units ” means all Units of the Condominium other than the PE Unit.“ Outside Delivery Date ” means December 31, 2019, as such date is extended on a day-for-day basis for each day thatdelivery of any Delivery Block is delayed as a result of PE Delay.“ Outside Severance Date ” has the meaning set forth in Section 11.03(a) .“ Outside Substantial Completion Date ” means August 31, 2020, as such date is extended on a day-for-day basis for each daythat Substantial Completion is delayed as a result of PE Delay.“ Oxford Guarantor ” has the meaning set forth in the Operating Agreement.“ Oxford Parent ” has the meaning set forth in the Operating Agreement.“ PE Approval Areas has the meaning set forth in Section 3.04(a) .“ PE Areas ” means, collectively, (a) the Tower A Access Areas, (b) the PE Core Areas, (c) the PE Elevators, (d) the PEExclusive Areas, and (e) the PE Shared Building Systems and Areas.“ PE Change Delay ” has the meaning set forth in Section 3.07(b) .“ PE Change Delay Cost ” has the meaning set forth in Section 3.07(b) .“ PE Change Development Fee ” has the meaning set forth in Section 3.07(b) .“ PE Change Order ” has the meaning set forth in Section 3.06(a) .“ PE Core Areas ” means, as shown on the Plans, collectively, (a) those portions of the Tower Building in which are locatedthe PE Elevators, (b) such other risers, air shafts, elevators, elevator shafts and elevator lobbies, electrical and other utility closets,equipment rooms, fire doors and fire stairways serving the PE Areas, and (c) the “core” bathrooms located in portions of the TowerBuilding that are to be used and/or occupied exclusively by PE Member and/or its Affiliates.“ PE Dedicated First Floor Lobby ” means the dedicated lobby for the PE Unit located on the first floor of the Tower Buildingas shown on the Plans and the PE Exclusive Areas Plan.“ PE Delay ” means any PE Change Delay, any PE Work Delay and/or any other delay expressly described in this Agreementas constituting PE Delay; provided , however , for all purposes of this Agreement, concurrent PE Delays shall be counted only once,as a single period of delay.“ PE Deposit LOC ” has the meaning set forth in Section 11.03(a) .“ PE Developer Guaranty ” means the Member Guaranty (as defined in the Operating Agreement), dated as of the date hereof(but effective only as of the Severance Date), by PE Guarantors in favor of Developer and R/O Member.“ PE Elevators ” means the PE Podium Elevators and the PE High-Rise Elevators, which shall be Limited Common Elementsunder the Condominium Documents.“ PE Exclusive Areas ” means those portions in the Tower Building depicted on the PE Exclusive Areas Plan.“ PE Exclusive Areas Plan ” means the document titled PE Exclusive Areas, in the form agreed by the Parties and dated as ofthe date hereof.“ PE Finish Work ” means the Finish Work to be constructed or installed by or on behalf of PE Member or its Affiliates andtheir contractors (and not by Developer) within the PE Areas. For the avoidance of doubt, “PE Finish Work” does not include theDeveloper Work.“ PE Floor Area ” has the meaning set forth in Section 16.01 .“ PE Guarantors ” means, collectively, KKR Fund Holdings L.P., a Cayman Islands limited partnership, KKR ManagementHoldings L.P., a Delaware limited partnership and KKR International Holdings L.P., a Cayman Islands limited partnership, or, ifapplicable, a Guarantor Successor (as defined in the PE Developer Guaranty).“ PE High-Rise Elevators ” means the passenger elevators from the PE Sky Lobby to the PE Unit designated as elevators“G1” through “G9” on the Plans.“ PE Indemnitees ” means PE Member, PE Guarantors, and all Affiliates of PE Member and PE Guarantors, and PE’sArchitect, PE’s Consultants, and each of their respective directors, officers, shareholders, principals, partners, members, managers,agents and employees, and each of their respective successors and assigns; and the term “ PE Indemnitee ” means any one of the PEIndemnitees, as the context requires.“ PE Lobbies ” means the PE Sky Lobby and the PE Dedicated First Floor Lobby.“ PE Member ” has the meaning set forth in the Preamble.“PE Member Additional Development Costs ” has the meaning set forth in Section 10.01(b) .“ PE Member Additional Payment ” means an amount equal to $2,400,000.00.“ PE Member Condominium Term Sheet ” means the term sheet for matters to be included in the Condominium Documentsprior to the PE Unit Closing, in the form agreed by the Parties and dated as of the date hereof.“ PE Member Debt Funding Amount ” means an amount equal to $292,566,955.20 .“ PE Member Equity Funding Amount ” means an amount equal to $ 157,536,052.80 .“ PE Member Fixed Land Cost ” means an amount equal to $67,292,288.00.“ PE Member Fixed MTA Deed Payment ” means an amount equal to $25,406,272.00.“ PE Member Preliminary Equity Payments Schedule ” means the preliminary schedule for payment of the PE MemberEquity Funding Amount that is attached to the term sheet titled KKR Purchase at 30 Hudson Yards and dated as of June 3, 2015.“ PE Member Remaining Equity Amount ” means the amount by which (i) the PE Member Equity Funding Amount, exceeds(ii) the PE Member Severance Date Payment.“ PE Member Remaining Equity Payments ” means payments of the PE Member Remaining Equity Amount to be made byPE Member following the Severance Date, which shall be made in such amounts (not to exceed in the aggregate the PE MemberRemaining Equity Amount) and at such times as set forth in the PE Member Remaining Equity Payments Schedule.“ PE Member Remaining Equity Payments Schedule ” has the meaning set forth in Section 11.01(a)(x) .“ PE Member Severance Date Payment ” means the sum of (i) the PE Member Fixed Land Cost plus (ii) the PE Share of allProject Costs incurred on or prior to the Severance Date; provided , however , the PE Member Severance Date Payment shall notexceed the PE Member Equity Funding Amount.“ PE Member Total Development Cost ” means an amount equal to $450,103,008.00.“ PE Member True-Up Payment ” means the amount (if any) by which (x) the PE Member Total Development Cost exceeds(y) the sum of (in each case to the extent actually funded by the PE Member) (i) the PE Member Severance Date Payment, plus (ii)the PE Member Remaining Equity Payments, plus (iii) amounts (if any) to be funded by PE Member pursuant to Section 4.02(b)(iii)in respect of the PE Share in the event that the Construction Lender does not fund requisitioned Construction Loan proceeds inrespect of the PE Share, plus (iv) the PE Unit Allocated Construction Loan Amount.“ PE Podium Elevators ” means the passenger elevators from the first floor of the Tower Building to the PE Sky Lobbydesignated as elevators “D1”, “D2”, “D3” and “SA4” on the Plans.“ PE Punch List Delay ” has the meaning set forth in Section 13.01(a) .“ PE Share ” means the share of Project Costs allocated (on a reasonable, equitable and non-discriminatory basis) to the PEUnit; provided , however , the PE Share shall not include any PE Member Additional Development Costs.“ PE Shared Building Systems and Areas ” means, collectively, (a) the heating, ventilating, air conditioning, electrical,communications, plumbing, mechanical and fire protection systems within the Building or below the Platform, the Tower A LoadingDocks/Bays and the Fireman’s Elevator, including, with respect to each of the foregoing, the fixtures, equipment and areas withrespect thereto, in each case which are to be shared by the PE Unit and Other Units as shown on the Plans and set forth in theCondominium Documents, (b) the Office Unit Messenger Center, and (c) any other areas and facilities in the Tower Building orRetail Building to be shared by the PE Unit and Other Units, including, without limitation, the risers, air shafts, elevator shafts,freight elevators, lobbies, lobby escalators, electrical and other utility closets, equipment rooms, bathrooms, fire doors and firestairways which contain (or in which are located) any such shared systems, fixtures, equipment or utilities as shown on the Plans andset forth in the Condominium Documents.“ PE Sky Lobby ” means the dedicated portion of the lobby on the 35 th floor of the Tower Building as shown on the Plans andthe PE Exclusive Areas Plan.“ PE Temporary Space ” means each short-term temporary space to which an Existing Lease Tenant or Additional LeaseTenant relocates which is a reasonable replacement under the circumstances for such Existing Lease Tenant’s Existing Space or suchAdditional Lease Tenant’s Additional Space, in each case for the reasonably expected period between the expiration of the ExistingLease or Additional Lease, as applicable, and relocation to the Tower Building, taking into account the availability of short-termtemporary space.“ PE Unit ” means the PE Exclusive Areas (which will include a condominium unit in the Condominium containing floors 74through 79, a portion of floor 80 and floors 81 through 83 of the Tower Building as shown on the Plans and the PE Exclusive AreasPlan and the PE Podium Elevators) together with an undivided interest in the portions of the Building designated in theCondominium Documents as the “General Common Elements” and the rights to Limited Common Elements and exclusive easements(and other rights and interests) appurtenant thereto to be described in the Condominium Documents (as the same will be modifiedprior to the PE Unit Closing in accordance with Section 12.01(a)(iii) ). The PE Unit shall initially (as of Severance) be a portion ofthe Office Unit described in the Initial Condominium Documents, and, prior to the PE Unit Closing, will be subdivided into aseparate condominium unit pursuant to an amendment to the Condominium Documents to be entered into prior to the PE UnitClosing in accordance with Section 12.01(a)(iii) .“ PE Unit Allocated Construction Loan Amount ” means the total loan proceeds actually funded by Construction Lender inrespect of the PE Share; provided, that the PE Unit Allocated Construction Loan Amount shall not exceed the PE Member DebtFunding Amount (less amounts (if any) funded by PE Member under Section 4.02(b)(iii) ).“ PE Unit Closing ” has the meaning set forth in Section 12.01(a) .“ PE Unit Closing Date ” has the meaning set forth in Section 12.01(b) .“ PE Unit Lender Agreement ” means a non-disturbance agreement to be entered into between PE Member and ConstructionLender at Severance in form reasonably acceptable to Construction Lender and PE Member.“ PE Work Delay ” has the meaning set forth in Section 8.04(b) .“ PE’s Architect ” means Gensler, or any successor architectural firm designated by PE Member.“ PE’s Consultant(s) ” means any or all of the architects (other than PE’s Architect), engineers, consultants or advisors, and/orany of their respective subconsultants, engaged by PE Member with respect to the Project, as applicable in context. For the avoidanceof doubt, certain of the foregoing persons have also been engaged by Developer (and/or its Affiliates) and/or other Members and suchPersons shall only be deemed to be “PE’s Consultants” when acting for PE Member (or its Affiliates).“ Permitted Encumbrances ” has the meaning set forth in the Operating Agreement.“ Person ” has the meaning set forth in the Operating Agreement.“ PILOT ” has the meaning set forth in the Operating Agreement.“ Plan Revision Cost ” has the meaning set forth in Section 3.07(b) .“ Plans ” means, collectively, (i) the final construction drawings and final technical specifications for the Project (includingthe PE Unit and the Common Elements within the Tower Building), in the form agreed by the Parties and dated as of the date hereof,and the other documents (if any) agreed by the Parties to constitute the Plans as of the date hereof, (ii) the Basis of Design / DesignCriteria prepared by Jaros, Baum & Bolles dated August 6, 2015 and (iii) the Area Charts and Area Diagrams, and further including,in each case, the Notes and Acknowledgements from PE Member thereon (which Notes and Acknowledgements are reflected in andconsist of the Gensler Plans and Specifications Comments and will be incorporated into the final construction drawings subject toadditional costs to be paid by the PE Member as noted therein).“ Platform ” has the meaning set forth in the Operating Agreement .“ Platform Funding Agreement ” has the meaning set forth in the Operating Agreement .“ Preliminary Submitted Condominium Documents ” means the Condominium Declaration, Condominium By-Laws (ExhibitA to such Condominium Declaration) and Non-Competition Requirements (Exhibit D to such Condominium Declaration), in theform agreed by the Parties and dated as of the date hereof.“ Professional Standard Default ” means any failure by Developer, beyond any applicable notice and cure periods (if any), infulfilling Developer’s obligations hereunder, arising from Developer’s failure to comply in all material respects with the standards ofa well-qualified diligent development manager, using its best professional skill and judgment consistent with the best practices in theindustry, or Developer’s negligence. For avoidance of doubt, Professional Standard Default shall not include any DeveloperMisconduct Default.“ Professional Standard Default Claim ” means any claim arising from or based on (i) a Professional Standard Default (butexcluding any Developer Misconduct Default), including (without limitation) any increase in the actual cost of PE Finish Workarising from a Professional Standard Default and/or (ii) any negligence of R/O Member, Destination Retail JV, or Destination RetailTenant under this Agreement.“ Professional Standard Default Liability ” means any Losses arising out of any Professional Standard Default Claim.“ Project ” means the design, construction, development and completion of the Tower Building and the Developer Work, eachin accordance with the Plans, to the extent applicable. For avoidance of doubt, the Project does not include any Finish Work, theDestination Retail Building, the Platform or any other improvements being constructed by Developer or its Affiliates at the ERY,other than the Tower Building and the Developer Work.“ Project Architect ” means KPF, which is the “core and shell” architect for the Building, or any other “core and shell”architect selected by Developer, on behalf of Tower A Tenant and Destination Retail Tenant.“ Project Architect Agreement ” means that certain Architectural Services Agreement, dated as of July 22, 2013, betweenDeveloper and KPF with respect to the Tower Building (a true and complete copy of which Developer represents and warrants to PEMember was delivered to PE Member prior to the date hereof), as the same may be amended or replaced from time to time. TheProject Architect Agreement was assigned by Developer to Tower A Tenant pursuant to an Assignment, Amendment andAssumption Agreement (30 Hudson Yards/Tower A) dated as of October 28, 2014.“ Project Costs ” means all hard and soft costs of designing, constructing and developing the Project. For avoidance of doubt,such soft costs include all actual out-of-pocket costs (including legal fees) incurred in connection with establishing theCondominium, including without limitation, the preparation and filing of the Initial Condominium Documents and any amendment,supplement, restatement, replacement or other modification thereto entered into prior to the PE Unit Closing, and real estate taxes andPILOT accruing from and after Commencement of Construction (as defined in the Operating Agreement) and overhead payable byPE Member in respect of PE Change Orders to the extent set forth in this Agreement. Project Costs shall be allocated (on areasonable, equitable and non-discriminatory basis) between the Office Unit and the Other Units (and, as to Project Costs allocated(on a reasonable, equitable and non-discriminatory basis) to the Office Unit, between the KKR Unit and other portions of the OfficeUnit on a reasonable, equitable and non-discriminatory basis).“ Project Data Site ” means a data site for the Project using e-Builder, Buzzsaw or other similar software programs,reasonably approved by PE Member from time to time, and to which PE Member and PE’s Consultants have complete, uninterruptedand continuous access to the documents and information described in Section 4.01 and any other documents or information providedby Developer by posting to the Project Data Site pursuant to this Agreement (subject to password protection consistent with PEMember’s need to access the Project Data Site and outages beyond Developer’s control).“ Project Documents ” has the meaning set forth in the Operating Agreement.“ Project Labor Agreement ” has the meaning set forth in the Operating Agreement.“ Property ” means the Land and the Tower Building, collectively (whether or not submitted to a condominium regime).“ Proposed DC Punch List ” has the meaning set forth in Section 9.02(b) .“ Proposed PE Delay Mitigation Estimate ” has the meaning set forth in Section 6.02(b) .“ Proposed PE Delay Mitigation Plan ” has the meaning set forth in Section 6.02(b) .“ Punch List Work ” means, collectively, minor or insubstantial details of construction, decoration, mechanical adjustment, orinstallation, the non-completion of which does not prevent the use and occupancy of the Tower Building for its intended purposes.“ Qualified Developer ” means either (i) a developer that is on the List of Qualified Developers or (ii) another reputable,experienced and nationally recognized real estate development company that is approved by PE Member (such approval not to beunreasonably withheld, conditioned or delayed).“ R/O Member ” has the meaning set forth in the Recitals.“ R/O Parties ” has the meaning set forth in Section 19.10(a) .“ Related/Oxford Guarantor ” means, collectively, Related Parent and Oxford Guarantor, together with their respectivepermitted successors and assigns.“ Related/Oxford Parties ” has the meaning set forth in the Operating Agreement.“ Related Affiliate ” means any Person (a) over which any Related Control Person exercises day-to-day operational andmanagerial control as a managing member or otherwise, and (b) of which one or more Related Beneficial Owners collectively own,directly or indirectly, at least two percent (2%) of the economic interests.“ Related Beneficial Owner ” means any of Stephen M. Ross or Jeff T. Blau or Bruce A. Beal, Jr., and their respectivespouses, descendants, heirs, legatees and devisees, and any trust created for the benefit of any of such persons.“ Related Control Person ” means any of Stephen M. Ross or Jeff T. Blau or Bruce A. Beal, Jr.“ Related Parent ” means The Related Companies, L.P., a New York limited partnership, together with its successors.“ Required Destination Retail Building Work ” has the meaning set forth in the Co-Construction Term Sheet.“ Rescission Effective Date ” has the meaning set forth in Section 11.04(a) .“ Rescission Election ” has the meaning set forth in Section 11.04(a) .“ Rescission Election Notice ” has the meaning set forth in Section 11.04(a) .“ Rescission Open Date ” means December 31, 2021, as such date is extended on a day-for-day basis for each day thatdelivery of any Delivery Block (in accordance with Section 11.04(a) ) is delayed as a result of a Force Majeure event or PE Delay(provided, the Rescission Open Date shall not be extended for more than six (6) months in the aggregate due to Force Majeureevents).“ Rescission Payment ” has the meaning set forth in Section 11.04(a) .“ Response Period ” has the meaning set forth in Section 18.03(a) .“ Retail Services Agreement ” means that certain Retail Services Agreement, dated as of the date hereof (but effective only asof the Severance Date), by and between Retail Tenant and PE Member, as the same may be amended or replaced from time to time.“ RSF ” means rentable square feet, determined on the basis of the Recommended Method of Floor Measurement for OfficeBuildings of the Real Estate Board of New York, effective January 1, 1987, using a twenty-nine percent (29%) loss factor.“ Satellite Dish Terrace ” means the portion of the 80 th floor of the Tower Building where TW Member’s satellite dishes areto be located, as shown on the Plans (which is referred to the Condominium Documents as the “TW Mechanical Terrace”).“ Schedule ” means the schedule for the predevelopment, development and construction of the Project, in the form agreed bythe Parties and dated as of the date hereof, as modified from time to time.“ Second Delivery Block ” means the group of floors consisting of a portion of floor 80 and floors 81 through 83 of the TowerBuilding as shown on the Plans.“ Severance ” has the meaning set forth in the A/B Balance Lease.“ Severance Date ” means the date on which each the Severance Date Transactions have been consummated (includingperformance by PE Member of all its obligations under this Agreement to be performed at Severance).“ Severance Date Transactions ” has the meaning set forth in the Operating Agreement.“ Severed Parcel ” has the meaning set forth in the A/B Balance Lease.“ Severed Parcel Lease ” has the meaning set forth in the A/B Balance Lease.“ Shop Drawings, Product Data and Samples ” means (i) drawings, diagrams, schedules and other data to illustrate someportion of the construction work, (ii) illustrations, standard schedules, performance charts, instructions, brochures, diagrams and otherinformation to illustrate materials or equipment for some portion of the construction work, and (iii) physical examples whichillustrate materials, equipment or workmanship and establish standards by which the construction work will be evaluated, all as thesame relate to construction of the Developer Work.“ Sign Off ” means, with respect to the PE Finish Work, any approval (including by self-certification) required by applicableGovernment Entities (including the DOB, the New York City Department of Environmental Protection, the Fire Department of theCity of New York, the Electrical Advisory Board, and the New York City Department of Transportation).“ Site Logistics Procedures ” has the meaning set forth in Section 8.03 .“ Specified Finish Work Costs ” has the meaning set forth in Section 6.03(h) .“ Standby Power Agreement ” means an agreement to be entered into by the Condominium Board with respect to thepurchase of backup power (and payment for reservation thereof) by each of the Tower Units from the “Cogen Facility” which shallbe substantially on the terms set forth in the Terms for Standby Power Agreement and otherwise in form and substance reasonablyacceptable to PE Member.“ State ” means the State of New York.“ Statement of Changes ” has the meaning set forth in Section 3.07(b) .“ Subguard Insurer ” has the meaning set forth in Section 7.01(a) .“ Subguard Policy ” has the meaning set forth in Section 7.01(a) .“ Substantial Completion ” means the stage in the development of the Project when all of the following have occurred, subjectto completion of Punch List Work:(a) (x) both Delivery Blocks have been delivered to the PE Member in Delivery Condition, (y) the core and shell ofthe Tower Building and any other Base Building Work is substantially completed in accordance with the Plans, thisAgreement and applicable Laws, and (z) Developer has obtained a Core & Shell TCO;(b) without limiting clause (a) above, the PE Shared Building Systems and Areas, inclusive of permanent lightingand life safety systems in the building stairwells, core mechanical equipment rooms, core tel/data rooms, core standpipe andcore sprinkler systems and core toilet rooms, have been completed in accordance with the Plans, this Agreement andapplicable Laws so that regular and permanent service is available, and all such systems have been turned over to PE Memberfor “Beneficial Use”, defined as the point when equipment has been installed in accordance with the Plans, this Agreementand all applicable Laws. Notwithstanding the foregoing, if certain PE Shared Building Systems and Areas are not completebut do not have a material adverse impact on PE Member’s or its Affiliates’ occupancy of the PE Unit, then SubstantialCompletion will be deemed to have occurred, and Developer shall complete the remaining work within 120 days;(c) the exterior envelope and curtain wall of the Building are complete and the Building is fully and permanentlyenclosed in a water and weather-tight manner and as shown on the Plans, except for leave-outs for hoists which shall bedetermined on or before the Severance Date and shall be reasonably acceptable to PE Member and shall be consistent with theLeave-Out Hoists Plan and/or shown on the Site Logistics Procedures (other than limited instances of scratched or failed glasspanels that Developer will replace at Developer’s cost), and PE Member agrees that Developer shall have reasonable access tothe PE Areas following Substantial Completion to remove leave-out hoists and replace any such glass panels;(d) except as provided in the Leave-Out Hoists Plan, any tower cranes affixed to or penetrating the PE Areas in theTower Building (or the façade surrounding the same) and any brackets relating to any such tower cranes shall have beenremoved, and any penetrations through the core of such PE Areas (or the façade surrounding the same) resulting from anytower crane removal shall have been patched, any temporary enclosures facilitating use of the hoist (i.e., vestibules) withinsuch PE Areas (or the façade surrounding the same) shall have been removed, and any penetrations through the core of suchPE Areas (or the façade surrounding the same) resulting from such removal (which shall include, but is not limited to, fireproofing, fire stopping, rust proofing, slabs, penetrations and curtain wall) shall have been patched; except in the location ofthe northern hoist as described in the Leave-Out Hoists Plan;(e) except for the hoist complex and associated protection permitted to remain at Substantial Completion inaccordance with the Site Logistics Procedures and/or the Leave-Out Hoists Plan, removal of construction trailers and sidewalkprotection sheds surrounding the Tower Building and completion of all permanent sidewalks and pavement required by theNew York City Department of Transportation to restore the street pursuant to the Builder’s Pavement Plan approved by DOB,except for certain limited construction logistics areas necessary to complete the base building, such areas configured to allowreasonable access to the building as shown on the document titled Condition of Areas Surrounding Building at SubstantialCompletion, in the form agreed by the Parties and dated as of the date hereof; provided, that if and to the extent the DOBrequires any such sidewalk protection shed(s) to be maintained, the maintenance of such sidewalk protection shed(s) shall notbe deemed a failure to satisfy this condition (provided that Developer shall use reasonable efforts to configure or locate thesame in an area or areas that minimize any disruption of access to and use and occupancy of the PE Unit for the normalconduct of PE Members’ (and its Affiliates) business in the ordinary course);(f) PE Elevators sufficient to provide reasonable access for PE Member and its Affiliates to access the PE Unit andone Tower Building elevator providing access to the Tower Building roof: (i) have been finished, tested and adjusted, (ii) areoperational, and (iii) have been inspected and certified for use by the DOB, provided that all PE Elevators and one TowerBuilding elevator shall satisfy the foregoing conditions within ninety (90) days after Substantial Completion;(g) the elevator frames and doors, and the hall call buttons and lanterns and associated devices, are permanentlyinstalled in or for the PE Elevators;(h) safe and continuous access is available to the office areas within the PE Exclusive Areas in the Tower Buildingthrough the PE Dedicated First Floor Lobby and safe and continuous access is available to all other PE Exclusive Areas; all“front of house” areas that will directly serve PE Member employees (excluding service corridors, loading dock space andmechanical areas) in PE Member dedicated office areas and shared Common Elements as required for access to PE Memberdedicated office areas within the Tower Building (other than Limited Common Elements for the exclusive use of any OtherUnits) are cleared of any debris, construction materials or equipment (except as reasonably required for the completion ofPunch List Work), surplus materials, rubbish, rubble, tools, discarded equipment, spillage of solid or liquid waste (except tothe extent such debris or other items are present as a result of any PE Finish Work); access routes to all other PE ExclusiveAreas will be cleared of debris, construction materials or equipment and surplus materials (except as reasonably required forthe completion of Punch List Work or as necessary for the completion of the Building);(i) the removal of such Developer Violations as are required (subject to PE Member’s completion of the PE FinishWork) to obtain a temporary certificate of occupancy for the PE Unit; and(j) receipt by PE Member of a Certificate of Substantial Completion solely with respect to the Base Building Workand the Developer Work.“ Subway Entrance ” means the passages (including entrances thereto) leading from the Tower Building to the number 7subway station at Hudson Boulevard, as shown on the Plans and the document titled Subway Entrance, in the form agreed by theParties and dated as of the date hereof, as modified from time to time in accordance with this Agreement.“ Temporary Space Agreement ” has the meaning set forth in the definition of Holdover Costs.“ Temporary Space Tenant ” has the meaning set forth in the definition of Holdover Costs.“ Terms for Standby Power Agreement ” means the document titled Terms for Standpower Power Agreement, in the formagreed by the Parties and dated as of the date hereof.“ Title Insurer(s) ” has the meaning set forth in the Operating Agreement.“ Title Policy ” has the meaning set for in Section 12.01(a)(viii) .“ Total Rent ” means, with respect to any lease or occupancy agreement, the total rent and other charges, costs or amountsactually paid or actually required to be paid under such lease or occupancy agreement, including, without limitation, Additional Rent.“ Total PE Change Cost ” has the meaning set forth in Section 3.07(b) .“ Tower A Access Areas ” means those areas located within the Tower Building that are reasonably required for access to oruse, operation, maintenance, or repair of the PE Unit and any Limited Common Elements and any exclusive easements appurtenantthereto.“ Tower A Lease ” has the meaning set forth in the Recitals.“ Tower A Loading Docks/Bays ” means the loading bays within the Tower Building as shown on the Plans.“ Tower A Severed Parcel ” has the meaning set forth in the Recitals.“ Tower A Tenant ” has the meaning set forth in the Recitals.“ Tower Building ” has the meaning set forth in the Co-Construction Agreement Term Sheet.“ Tower Unit(s) ” has the meaning set forth in the Recitals.“ Transfer ” has the meaning set forth in the Operating Agreement.“ Transfer Taxes ” means the transfer taxes, including any interest or penalties thereon, payable in connection with thetransactions contemplated hereunder, the Original Operating Agreement, and the Operating Agreement pursuant to the Transfer TaxLaws.“ Transfer Tax Laws ” has the meaning set forth in the Operating Agreement.“ TW Agreements ” has the meaning set forth in Section 3.04(b) .“ TW Development Agreement ” has the meaning set forth in the Operating Agreement.“ TW Member ” has the meaning set forth in the Recitals.“ Unburdened Parcel ” has the meaning set forth in Section 3.10(d) .“ Unburdened Parcel Mortgage ” has the meaning set forth in Section 3.10(d) .“ Unburdened Parcel Mortgage Subordination ” has the meaning set forth in Section 3.10(d) .“ Unburdened Parcel Restriction ” has the meaning set forth in Section 3.10(d) .“ Unit(s) ” has the meaning set forth in the Condominium Documents .“ Unit Carry Costs ” has the meaning set forth in Section 12.02 .“ Unit Closing Conditions ” has the meaning set forth in Section 12.01(a) .“ Unit Owner ” means the owner of a Unit.“ UTEP ” has the meaning set forth in the Operating Agreement .“ Violation ” means any note or notice of any violation of law noted in or issued by any Government Entity against or withrespect to the Building or any portion thereof.“ Walk-Through Date ” has the meaning set forth in Section 9.02(b) .“ Work Dispute Arbiter ” has the meaning set forth in Section 14.01(a) .“ ZLDA ” has the meaning set forth in the Operating Agreement .“ Zoning Resolution ” means the Zoning Resolution of the City of New York, effective December 15, 1961, as amended todate.Section 1.02 Rules of Construction . Wherever used in this Agreement:(a) the word “day” means a calendar day unless otherwise specified;(b) the word “party” means one or more of the signatories to this Agreement, as the context requires;(c) the word “notice” means a notice in writing, whether or not specifically so stated;(d) unless otherwise specifically provided herein to the contrary, all consents and approvals to be granted hereundershall, in order to be valid and recognized by the parties, be and be required to be in writing, whether or not specifically so stated. Allreferences in this Agreement to a matter “approved” by a party (or “consented to” or words of similar import) shall include a matterthat has been deemed approved pursuant to any provisions of this Agreement or the Operating Agreement providing for deemedapproval;(e) “month” means a calendar month unless otherwise specified;(f) the word “amended” or “modified” means “amended, restated, replaced, supplemented, or otherwise modifiedfrom time to time”; and the word “amendment” or “modification” means “amendment, restatement, replacement, supplement, orother modification”;(g) the phrase “subject to the terms of this Agreement” means “upon and subject to all terms, covenants, conditionsand provisions of this Agreement”;(h) the word “withheld” means “withheld, conditioned or delayed”;(i) the word “or” is not exclusive and the word “including,” and all variations thereof, are not limiting;(j) the word “approval” means “written approval”;(k) the word “delay” means a delay or interference to a particular schedule which (i) will require more than aminimal rearrangement of or delay in other activities or commitments by the affected party, (ii) was not caused by action or inactionof the affected party, and (iii) is the sole cause of the rearrangement of or delay in other activities or commitments by the affectedparty;(l) wherever a party has the right to give or withhold a consent or approval in its “sole discretion,” or words ofsimilar import, the same shall be deemed to mean “sole but good faith discretion”;(m) wherever this Agreement refers to a “floor” of the Tower Building, the same shall be deemed to refer to amarketing floor, unless otherwise specified;(n) except as otherwise specifically provided herein, all references to sections are to those of this Agreement;(o) the words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement refer tothis Agreement as a whole and not to any particular provision; and(p) all meanings attributed to defined terms herein are equally applicable to both the singular and plural forms of theterms so defined.ARTICLE 2 DEVELOPER’S RESPONSIBILITIESSection 2.01 Retention of Developer . PE Member hereby retains Developer to act as PE Member’s developer inconnection with the Developer Work and to provide the services hereinafter set forth. Developer hereby accepts the obligations setforth in this Agreement, including, without limitation, with respect to (a) the design, budgeting and scheduling of the Project, and (b)the performance of the Developer Work. Developer shall act in good faith, shall use Best Efforts and shall do all things necessary toperform its obligations and services under this Agreement. Notwithstanding anything to the contrary contained herein, all amountsrequired to be paid or contributed by PE Member pursuant to the provisions of this Agreement shall be deemed to be capitalcontributions to the LLC, and PE Member shall have no obligation to make any payments of the PE Member Total DevelopmentCost or PE Member Additional Development Costs directly to Developer or any other Person, other than payments owed toDeveloper Indemnitees pursuant to any indemnification obligations of PE Member hereunder and other than payment of (i) the PEUnit Allocated Construction Loan Amount, which shall be paid directly to Construction Lender in accordance with the provisions ofSection 12.01(b) below and (ii) the PE Member Fixed MTA Deed Payment which shall be paid to (or at the direction of) Developerin accordance with the provisions of Section 12.01(b) below.Section 2.02 Developer’s Responsibilities . Developer shall (i) use Best Efforts to coordinate, supervise and facilitate suchservices as may be necessary to implement the development, construction and completion of the Project in accordance with thisAgreement, the Plans and the Schedule, and (ii) provide consultation, advice and assistance to PE Member concerning all matterswith respect to the development of the Project. Developer shall supply the personnel necessary to perform its responsibilities underthis Agreement, and all such persons shall be employees of Developer or an Affiliate of Developer or Developer’s Consultants andshall not be, or be deemed to be, employees of PE Member or the LLC or any of their direct or indirect subsidiaries. Developer’sobligations under this Agreement shall include, but shall not be limited to, the following:(a) Developer, Tower A Tenant or the Executive Construction Manager, as applicable, shall: (i) employ or continueto employ the Project Architect pursuant to the Project Architect Agreement, and (ii) enforce its rights and remedies (as appropriate)under any such agreements, to the extent commercially reasonable to do so; provided , however , that this subparagraph shall notpreclude Developer from terminating, or causing the termination of (in each case in accordance with the terms of this Agreement),the Project Architect Agreement or any future contracts entered into by Developer, on account of a breach thereof by any such Personor counter-party, nor shall this subparagraph preclude Developer from entering into additional contracts with architects or otherconsultants in accordance with this Agreement;(b) Developer, as agent for Tower A Tenant, shall: (i) employ or continue to employ the Executive ConstructionManager pursuant to the Executive Construction Management Agreement; and (ii) cause the Executive Construction Manager toemploy or continue to employ the Construction Manager pursuant to the Construction Management Agreement; and (iii) enforce, andcause the Executive Construction Manager to enforce, its rights and remedies (as appropriate) under the Construction ManagementAgreement to the extent commercially reasonable to do so;(c) Developer, as agent for Tower A Tenant (and as agent for Destination Retail Tenant), shall or shall cause theExecutive Construction Manager to (i) retain such Persons, and (ii) make such purchases of materials, equipment and supplies, asshall be necessary or appropriate to design, construct and complete the Developer Work and to achieve Final Completion (andcompletion of the Subway Entrance) and (iii) enforce its (or their) rights and remedies (as appropriate) under any agreements withany such Persons, to the extent commercially reasonable to do so;(d) Developer, as agent for Tower A Tenant (and as agent for Destination Retail Tenant), shall, or shall cause theExecutive Construction Manager, to comply in all material respects with their obligations under any contracts, letter agreements orpurchase orders or other agreements they enter into (or have entered into) in connection with the construction of the Developer Work;provided , however , that nothing in this Agreement shall preclude Developer from terminating, or causing the termination of, theConstruction Management Agreement or the Project Architect Agreement or any of the contracts or purchase orders entered into byDeveloper or the Executive Construction Manager, on account of a breach thereof by the Construction Manager or by any such otherPerson or counter-party, nor shall it preclude the Executive Construction Manager from terminating, or causing the termination of,any contract or canceling any purchase order entered into in connection with the Project on account of a breach by the applicablecontractor, consultant or materialman;(e) Developer, as agent for Destination Retail Tenant, shall: (i) employ or continue to employ the ExecutiveConstruction Manager pursuant to the DRB ECM Agreement; (ii) cause the Executive Construction Manager, to employ or continueto employ the construction manager for the Required Destination Retail Building Work (“ DRB CM ”); (iii) cause the ExecutiveConstruction Manager, to employ or continue to employ contractors, subcontractors, consultants, advisors and suppliers whichperform work or provide materials in connection with the Required Destination Retail Building Work pursuant to their respectiveapplicable agreements; and (iv) enforce, and cause the Executive Construction Manager to enforce, its respective rights and remedies(as appropriate) under any such agreements, to the extent commercially reasonable to do so;(f) Developer shall oversee, manage and coordinate the development of the Project, so as to, without limiting theforegoing, (i) cause the Developer Work to be completed and cause Substantial Completion, Punch List Work, and Final Completionto be achieved, and cause the Subway Entrance to be completed (subject to and in accordance with the terms and conditions ofSection 3.10(b) ) in each case, in accordance with the Plans, the Schedule, the applicable Construction Loan Documents, thisAgreement and all applicable Laws, free from fault or defect, on a lien-free basis (subject only to Permitted Encumbrances andDeveloper’s right to bond and contest liens in good faith by appropriate proceedings) in a good and workman-like manner andincorporating only new materials and equipment, and by means and methods complying with all applicable Laws and insurancerequirements and the MTA Project Documents; (ii) apply for and obtain (or cause to be applied for and obtained) all building andother permits required for the Project, as and when required in accordance with the Schedule, including all certificates of occupancyto be obtained by Developer as required herein; (iii) manage and oversee the performance by (and enforce and pursue claims against,as appropriate and where reasonable to do so) the Executive Construction Manager, the Project Architect, the Construction Managerand all of Developer’s Consultants, contractors, subcontractors and vendors involved in the Project (except for any of the foregoingobtained or retained by any Member, in connection with the performance of any Finish Work for such Member); (iv) enforce theobligations of Destination Retail Tenant under the Co-Construction Agreement; and (v) cause the entire Building to be completed inaccordance with a first-class standard;(g) Prior to the assignment of any Contractor Warranty as provided in Section 9.03 , Developer shall use BestEfforts to enforce all such Contractor Warranties to the extent set forth in Section 9.03 ;(h) Developer shall or shall cause the Executive Construction Manager, the DRB ECM or the applicable contractorto remove or bond or satisfy all mechanic’s or materialmen’s liens filed (including, with respect to the PE Unit only, after the PE UnitClosing) against, or which encumber, the PE Unit or the Property (or any portion thereof) resulting from any work (other than PEFinish Work) performed by or on behalf of Developer, the LLC, Tower A Tenant, the Executive Construction Manager, the DRBECM or any other Person, in each case within forty-five (45) days of delivery by Developer (or the LLC, Tower A Tenant, theExecutive Construction Manager, the DRB ECM, or such other Person) of copies of any such lien (or shall cause the Title Insurer toinsure over such lien(s), if permitted by the Construction Lender in order to have a Draw Request funded), or at the PE Unit Closingshall cause the title insurer of PE Member to insure over such liens with respect to the PE Unit and cause the title insurer of PEMember’s lenders, if any (if permitted by such lenders) to insure over such lien(s)) with respect to the PE Unit; and Developer shallcure and remove of record (or cause to be cured and removed of record) all Developer Violations within forty-five (45) days ofdelivery of copies of any such violation or as soon thereafter as is practicable. The costs to cure such liens and/or Violations shall beProject Costs;(i) Developer shall, or shall cause the Executive Construction Manager and/or the DRB ECM to, coordinate the safeand efficient performance, by all Unit Owners, of any Finish Work to be performed in the Building (in, except as otherwise providedin Section 8.03 of this Agreement, a reasonable, equitable and non-discriminatory manner and otherwise as required herein and in theSite Logistics Procedures), and shall coordinate the safe and efficient performance and completion of any Developer Work with anyFinish Work being performed (likewise, except as otherwise provided in Section 8.03 , in a reasonable, equitable and non-discriminatory manner but in a manner so as not to impede the completion of the Project, and otherwise as required herein and in theSite Logistics Procedures), which coordination, from and after the Severance Date, shall also be subject to the applicable provisionsof the Condominium Documents and Co-Construction Agreement;(j) Developer shall, or shall cause the Executive Construction Manager and the DRB ECM to, be responsible fordeveloping, with the approval of all requisite City departments, and implementing a site safety plan for all construction work beingperformed in and around the Building (including, without limitation, such netting and sidewalk sheds and other elements as requiredby applicable Law);(k) Developer shall arrange for the testing and inspecting and commissioning of all facilities, systems andequipment that are part of the Developer Work and promptly deliver to PE Member copies of all reports, results, sign-offs andcertifications with respect thereto to PE Member;(l) Within one hundred eighty (180) days of achieving Final Completion, Developer shall cause to be prepared anddelivered to PE Member a complete set of final “as built” construction drawings in a format reasonably acceptable to PE Memberwith respect to the Developer Work;(m) Developer shall cause the Project to be constructed so that the Building is eligible to achieve, at a minimum,LEED BD+C Gold for New Construction v2009 certification from the United States Green Building Council and shall use BestEfforts to obtain such certification. In addition, Developer shall cause the ERY to be constructed in a manner so that it is eligible toachieve LEED Neighborhood Development Certification from the United States Green Building Council and shall use Best Efforts toobtain such certification;(n) Developer shall pay, or shall cause Other Members or other Persons (other than PE Member) to pay, all ProjectCosts in excess of the PE Member Total Development Cost, other than any PE Member Additional Development Costs;(o) Upon request from PE Member, Developer shall provide (and Developer will use commercially reasonableefforts to cause its Affiliates to provide) reasonable assistance to (and shall reasonably cooperate with) PE Member to help facilitatePE Member’s financing of the PE Member Total Development Cost and any financing, leasing and/or sale of the PE Unit;(p) Upon request from PE Member, Developer shall provide (and Developer will use commercially reasonableefforts to cause its Affiliates to provide) reasonable assistance to PE Member to help facilitate PE Member’s search for up to 60,000square feet of Additional Space during the period from and after the date hereof and prior to the PE Unit Closing Date;(q) Developer shall use reasonable efforts to provide temporary work space for 1-2 personnel of PE Member (and/orPE Member’s Consultants) at the Field Office to work for short periods of time upon reasonable advance request from PE Member (itbeing acknowledged that the foregoing is subject to availability of space and there will not be permanent work space or a permanentwork station or office dedicated to PE Member in the Field Office); and(r) Developer shall perform all other obligations of Developer described elsewhere in this Agreement.Section 2.03 Standard of Performance . Without limiting Developer’s obligations under this Agreement, Developer shalluse Best Efforts in the performance of its obligations under Section 2.01 and Section 2.02 .Section 2.04 Development Fee .(a) The PE Member Total Development Cost includes and covers the PE Member’s share of the Development Feeas defined in the Development Management Agreement (the “ DMA Development Fee ”). Notwithstanding anything to the contrarycontained in the Development Management Agreement, PE Member shall have no liability, as a Member of the LLC or otherwise, onaccount of the DMA Development Fee (or any other fee to Developer or its Affiliates) other than the fees included in and covered bythe PE Member Total Development Cost and any PE Change Development Fee payable pursuant to Section 3.07(b) .(b) In the event any PE Change Development Fee is payable in respect of PE Change Orders in accordance with theprovisions of Section 3.07(b) , such PE Change Development Fee shall be included in each Draw Request with respect to any PEChange Orders as to which such PE Change Development Fee is payable. Overhead with respect to any PE Change Orders shall beincluded in each Draw Request with respect to such PE Change Orders.Section 2.05 Survival . The provisions of this Article 2 shall survive the PE Unit Closing.ARTICLE 3 ARCHITECT AND CONSULTANTS; PLANS, AND CHANGES TO PLANS; 30 HY PROJECT DOCUMENTSSection 3.01 Project Architect and Consultants; Construction Manager .(s) PE Member hereby acknowledges that KPF has been engaged as the Project Architect pursuant to the ProjectArchitect Agreement. Developer, Tower A Tenant, Destination Retail Tenant and/or the LLC shall have the right to retain anysubstitute firm to act as the Project Architect and/or to amend to the Project Architect Agreement, and to amend or modify itsseparate contract with the Project Architect with respect to the Destination Retail Building, in each case without PE Member’sconsent.(t) All costs associated with the performance of the Developer Work by the Developer, the Project Architect, theExecutive Construction Manager, the Construction Manager or any substitute or additional Project Architect, Executive ConstructionManager, Construction Manager or other contractor or consultant are included in (and covered by) the PE Member TotalDevelopment Cost.(u) PE Member acknowledges that Hudson Yards Construction LLC has been engaged as the ExecutiveConstruction Manager for the Project, Tishman Construction has been engaged as the Construction Manager for the Project, TutorPerini Building Corp. has been engaged as the DRB CM and the Executive Construction Manager is the DRB ECM. Developerand/or the LLC shall have the right to (i) retain any substitute firm to act as executive construction manager, construction manager orgeneral contractor for the Project or the Destination Retail Building, (ii) enter into the Construction Management Agreement, or (iii)enter into any amendment to the Executive Construction Management Agreement, Construction Management Agreement, any newcontract with the initial Executive Construction Manager or Construction Manager or any substitute Executive Construction Manageror Construction Manager, or any amendment to any such new contract, in each case without the prior written approval of PEMember. For avoidance of doubt, Destination Retail Tenant and the DRB ECM shall have the right to amend or modify the contractwith DRB CM without PE Member’s consent.Section 3.02 Plans .(a) Each of PE Member, Tower A Tenant, Developer, the LLC, and Destination Retail Tenant acknowledges that ithas approved the Plans. Developer shall have the right to amend or modify the Plans from time to time; provided , however , PEMember’s prior written approval shall be required for any amendment or modification to the Plans to the extent the approval of PEMember is expressly required therefor under the provisions of this Agreement.(b) Developer shall timely requisition, or cause to be requisitioned, funds from the LLC, Destination Retail Tenant,any Construction Lender and/or any DRB Construction Lender in order to cause the Project Architect, Developer’s Consultants, theExecutive Construction Manager and the Construction Manager and all consultants and contractors performing the Developer Workto be paid amounts due to such Persons when due in order to ensure continuity and diligent prosecution of the design anddevelopment process; provided , however , that, so long as (after the Severance Date) the same is permitted pursuant to the applicableConstruction Loan Documents and subject to compliance with the applicable provisions thereof, nothing herein shall precludeDeveloper or the LLC, on behalf of Tower A Tenant or Destination Retail Tenant, from withholding payment in connection with avalid dispute with any such Person.Section 3.03 Consultation with PE Member and PE’s Consultants .(c) Developer shall cause Developer’s Consultants, the Executive Construction Manager and the DRB ECM toconsult directly with PE Member and PE’s Architect and PE’s Consultants (and/or any agent, representative or other designee of theforegoing) on matters affecting the PE Unit, the PE Areas or the PE Approval Areas, including, without limitation, the costs ofdesign, construction, operation or maintenance or tax treatment thereof, the Developer Work, the Schedule, the schedule for TWMember’s Finish Work (as defined in the Operating Agreement), the timing for delivery of the Delivery Blocks and SubstantialCompletion (but in the case of the schedule for TW Member’s Finish Work (as defined in the Operating Agreement), only to theextent such information is made available to Developer and Developer is not subject to confidentiality restrictions with respectthereto prohibiting disclosure thereof), all on reasonable notice to, and in the presence of, Developer’s representatives. PE Memberand PE’s Architect and PE’s Consultants (and/or any agent, representative or other designee of the foregoing) shall have the right toattend weekly principal project and design meetings involving or affecting the PE Unit, PE Areas, the PE Approval Areas, theDeveloper Work, the timing for delivery of the Delivery Blocks and Substantial Completion and/or the Schedule or the overall BaseBuilding design, as well as any design changes to any Other Units which would affect any of the PE Approval Areas, the PE Areas orthe PE Unit, including, without limitation, the costs of design, construction, operation or maintenance or tax treatment thereof.Developer, PE Member, PE’s Architect and PE’s Consultants (and/or any agent, representative or other designee of the foregoing)shall meet not less often than monthly (or more frequently at PE Member’s reasonable request), to review changes to the Plans andSchedule, and to evaluate the status and progress of the design, development or construction of the Project or the ERY. Developerwill not be obligated to include PE Member in design meetings that do not involve or affect the PE Unit, the Schedule, any PE Areas,any Developer Work or any PE Approval Areas. Developer shall cause Developer’s Consultants, the Executive ConstructionManager and the DRB ECM to promptly provide directly to PE Member, PE’s Architect and PE’s Consultants (and/or any agent,representative or other designee of the foregoing) all plans, specifications and other materials prepared by any such Persons whichrelate to the Developer Work, the PE Unit (and the Limited Common Elements and exclusive easement areas appurtenant thereto andaccess thereto and therefrom), the PE Areas or the other PE Approval Areas or as otherwise provided herein.(d) PE Member shall cause PE’s Architect and PE’s Consultants to consult directly with Developer and the ProjectArchitect and Developer’s Consultants with respect to any PE Finish Work impacting any areas of the Building other than the PEAreas.Section 3.04 PE Member’s Approval Rights; Change Orders; Changes Required by Law .(a) Subject to the provisions of Sections 3.04(b) , 3.04(c) , 3.04(d) and 3.05 , PE Member’s prior written approvalshall be required for any change to the Plans which affects or impacts any PE Exclusive Area or any PE Approval Area other than toa de minimis extent, which approval shall not be unreasonably withheld (except with respect to the PE Approval Areas described inclauses (ii), (iii), (v), (vii) (but only to the extent relating to the PE Exclusive Areas), (viii) (but only with respect to access), (xii) and(xvi) below, for which approval may be given or withheld in PE Member’s sole discretion). For purposes of this Agreement, “ PEApproval Area ” means the following:(i) the Schedule for delivery of the Delivery Blocks, Substantial Completion, DC Punch List Work and/orFinal Completion;(ii) the volume (including floor-to-ceiling heights), area, quality, lay-out, use, safety, functionality orefficiency of any of the PE Exclusive Areas and the finishes in any of the PE Exclusive Areas to the extent they are to beperformed by Developer;(iii) the location and size of any columns and floor penetrations in or through PE Exclusive Areas;(iv) the specifications for, any of the systems, utilities or fixtures forming a part of the PE Shared BuildingSystems and Areas (but only as they affect the PE Exclusive Areas);(v) the location and specifications of any elevator, escalator, stairway and stairwell serving the PEExclusive Areas (including, without limitation, the PE Elevators);(vi) any acoustical ratings for the curtain wall;(vii) the design of the PE Lobbies or other lobbies in the Tower Building, access from the occupiable PEAreas to the PE Lobbies, including without limitation the PE Sky Lobby, or signage at or in the PE Lobbies;(viii) the design of, or access from the occupiable PE Areas to, any shared Tower Building lobbies;(ix) the massing, envelope and superstructure of the Tower Building, the facade of the Tower Building(including any change to the exterior finishes and materials of the Tower Building), and any crown or treatment on the top ofthe Tower Building;(x) the Northeast Building Entrance, the Northwest Building Entrance, the Fifth Floor Entrance and anyother entrance to the Tower Building by which the general public enters the Tower Building, or access from the occupiablePE Areas to any such entrances;(xi) subject to all applicable Laws, signage at the PE Lobbies and any lobby shared by PE Member and anyother owner of a Tower Unit and signage at the Northeast Building Entrance, the Northwest Building Entrance, the Fifth FloorEntrance, and any other Tower Building entrance and signage at any lobby areas adjacent to such entrances;(xii) the total Floor Area allocated to the PE Unit;(xiii) the water proofing details or acoustical systems, as applicable, for any floor of any Other Tower Unitthat is immediately above or immediately below an occupiable floor of the PE Unit, and any areas of the PE Unit that areimmediately adjacent to a shared lobby, if such floor or areas are intended to be occupied for a use that will create anunreasonable risk of water leaks or unreasonable disturbance from noise or vibrations (in each case taking into account theintended use of the affected space within the PE Unit). Developer shall give advance Notice to PE of any elements proposedto be installed on any floors above the PE Unit that create any unreasonable risk of water leaks, transmission of sound orvibrations or fire, and will require the Member owning the Other Tower Units in which such floors are located to incorporatereasonable protections with respect to such risks, consistent with Class A buildings in New York City;(xiv) changes to the design of the Subway Entrance, or access from Tower Building lobby to the SubwayEntrance, that in either case prevent or materially impair reasonable access from the Tower Building lobby to the number 7subway station on Hudson Boulevard;(xv) the Tower Units’ qualification for any real estate tax abatements, including, without limitation, the taxabatement under UTEP; or(xvi) the configuration of and access to the Satellite Dish Terrace (including the screening).(b) If a change in the Plans is required by applicable Law or the MTA Parties or Construction Lender, and if suchchange would otherwise require the approval of PE Member under Section 3.04(a) , Developer shall advise and promptly consultwith PE Member as to the particular requirement and the solution or solutions it is considering. Unless there is only one clear way tocomply with such requirement, Developer shall obtain PE Member’s prior written approval for the proposed change, which approvalshall not be unreasonably withheld; provided , that, to the extent economically feasible, Developer shall use Best Efforts to makesuch change in the manner that has the least impact on (x) the Plans for the Developer Work, (y) the delivery of the Delivery Blockson or prior to the Outside Delivery Date and (z) the PE Areas and the PE Approval Areas (so long as such manner does notdiscriminate in its impact on the Plans against any Other Unit or the cost of any Other Unit or result in a breach of any obligation ofDeveloper or its Affiliates under any agreements with Time Warner and its Affiliates (the “ TW Agreements ”)). For the avoidance ofdoubt, Developer shall not be obligated to make any change to the Plans requested by PE Member if, and to the extent, such changewould violate the terms of the MTA Project Documents, the IDA Documents, the Construction Loan Documents or the TWAgreements, as applicable, or which has been disapproved by the MTA Parties, the IDA, the Construction Lender, TW Member or itsAffiliates, if and to the extent the MTA Parties, the IDA, Construction Lender or TW Member or its Affiliates has a discretionaryright to disapprove such change under the MTA Project Documents, the IDA Documents, or the Construction Loan Documents, asapplicable.(c) Except as otherwise provided in Section 3.05 , if PE Member does not respond, object to, or comment on, anywritten request for approval of any change to the Plans requiring PE Member’s approval within ten (10) Business Days of delivery ofa written request for approval from Developer (which may be given by Email Notice) and such request includes on the first pagethereof (or in the Email Notice) in bold face print the phrase “ REQUEST FOR APPROVAL OF CHANGE TO PLANSPURSUANT TO SECTION 3.04 OF THE DEVELOPMENT AGREEMENT; FAILURE TO RESPOND WITHIN 10BUSINESS DAYS WILL RESULT IN DEEMED APPROVAL PURSUANT TO SECTION 3.04(c) OF THEDEVELOPMENT AGREEMENT ”, then PE Member will be deemed to have approved the proposed change.(d) Any dispute as to whether any matter is subject (or not) to the approval of PE Member (or, if applicable, thereasonableness of any such approval) as set forth in Section 3.04(a) above shall be submitted to Arbitration to be resolved inaccordance with the provisions of Article 14 .Section 3.05 Field Changes; Force Majeure Changes .(a) Field Changes . PE Member shall make a representative available to approve or disapprove Field Changes whichare subject to PE Member’s approval in accordance with the provisions of Section 3.04 within two (2) Business Days followingdelivery to PE Member of Email Notice that a proposed Field Change is available on the Project Data Site together with such relevantinformation and materials as shall be reasonably required to consider such proposed Field Change, including the reason for the FieldChange and the impact, if any, on (x) the occurrence of the Delivery Date for any Delivery Block on or prior to the Outside DeliveryDate, or (y) the occurrence of Substantial Completion on or prior to the Outside Substantial Completion Date. It is understood andagreed that Field Changes are non-discretionary changes and accordingly any such approval by PE Member shall be limited toapproving the appropriate means of addressing the event or events that necessitated the Field Change in question. If PE Member doesnot approve or disapprove a Field Change which is subject to PE Member’s approval (in accordance with the provisions of Section3.04 ) within such two (2) Business Day period, then PE Member will be deemed to have approved such Field Change.(b) Force Majeure Changes .(i) If any Force Majeure event occurs, and any change is required that would otherwise be subject to PEMember’s approval under Section 3.04(a) , PE Member shall have the right to approve (such approval not to be unreasonablywithheld) the appropriate means of addressing such Force Majeure event, which means may include changes to the Plans,change orders, amendments to soft cost contracts or trade contracts, or new Plans required to address such Force Majeureevent (each a “ Force Majeure Change ”). PE Member’s approval or disapproval shall be given within five (5) Business Daysfollowing delivery to PE Member of Email Notice that a Force Majeure event has occurred and proposing the means ofaddressing the same. If PE Member does not approve or disapprove any Force Majeure Change which is subject to PEMember’s approval within such five (5) Business Day period, then PE Member will be deemed to have approved such ForceMajeure Change.(ii) Any dispute concerning the existence or duration of a Force Majeure event or the need for any ForceMajeure Change shall be resolved by Arbitration.(c) Developer shall maintain a log of all Field Changes and Force Majeure Changes at the Field Office or on theProject Data Site, and shall keep such log current, and shall make such log available for inspection by PE Member, PE’s Architect,and PE’s Consultants promptly upon request therefor. Any dispute as to whether any Field Change or Force Majeure Change is (or isnot) subject to the approval of PE Member, or as to the reasonableness of any approval shall be submitted to Arbitration to beresolved in accordance with the provisions of Article 14 .Section 3.06 Developer’s Approval Over Design Changes Initiated by PE Member; Payment for Such Changes .(a) PE Member may, from time to time, request changes in the design of the PE Exclusive Areas or the “core”bathrooms located in portions of the Building that are to be used and/or occupied exclusively by PE Member and/or its Affiliates asreflected in the Plans (a “ PE Change Order ”) by submitting to Developer a written request describing the change in question. Anysuch change shall be subject to Developer’s approval (not to be unreasonably withheld); provided , however , PE Member shall nothave the right to request changes in the design of any PE Exclusive Areas if such change will require more than de minimis changesto any portion of the Building other than to the PE Exclusive Areas, or to the Platform or Subway Entrance. The aggregate Total PEChange Cost (if any) of implementing all PE Change Orders, determined in accordance with Section 3.07 , will constitute PEMember Additional Development Costs and shall be paid for solely by PE Member. For the avoidance of doubt and without limitingthe foregoing conditions of this Section 3.06(a) , (1) PE Member shall not have the right to request changes to the Plans other thanchanges to the PE Exclusive Areas and the “core” bathrooms located in portions of the Building that are to be used and/or occupiedexclusively by PE Member and/or its Affiliates, (2) Developer shall not be obligated to make any change to the Plans requested byPE Member if, and to the extent, such change would violate the terms of the MTA Project Documents, the IDA Documents, or theConstruction Loan Documents, as applicable, or which has been disapproved by the MTA Parties, the IDA, or the ConstructionLender, if and to the extent the MTA Parties, the IDA, or Construction Lender has a discretionary right to disapprove such changeunder the MTA Project Documents, the IDA Documents, or the Construction Loan Documents, as applicable, and (3) it shall bereasonable for Developer to disapprove of any change to the Plans requested by the PE Member if such change would not bepermitted under Section 3.04(d) of the TW Development Agreement.(b) PE Member acknowledges that, in some cases, the ability of Developer to implement or consent to a PE ChangeOrder may be subject to obtaining the consent of TW Member and/or other Unit Owners, the MTA Parties and/or the ConstructionLender which, if Developer is otherwise prepared to approve, Developer shall promptly seek and use Best Efforts to obtain wheresame is required, shall keep PE Member reasonably apprised of the progress of obtaining such consent, and shall notify PE Memberpromptly if and when such consent is obtained or denied. Any consent granted by Developer to any change requested by PE Membershall be deemed a representation by Developer that it has obtained (or has determined that it was not required to obtain) the priorconsent of the MTA Parties, the Construction Lender, and any other Unit Owner (including, without limitation, TW Member) to suchchange, unless, together with the giving of its consent, Developer notifies PE Member that the consent of the MTA Parties, theConstruction Lender, or any other Unit Owner (including, without limitation, TW Member), as applicable, to such change is requiredand has not yet been obtained, in which event Developer shall advise PE Member if it has an estimate of the time required to obtainsuch consent. Any actual delay attributable to the process of obtaining such consents with respect to a PE Change Order shall be PEDelay, and PE shall pay any costs associated with obtaining such consents.(c) PE Member shall be responsible for depositing with Construction Lender any Completion Deposits that arerequired by Construction Lender as a result of any PE Change Order.(d) Subject to the terms of the TW Agreements, Developer shall also consult with, and consider in good faith, theviews of, PE Member if PE Member wishes to propose changes to the Plans affecting the lobby space or elevators in the TowerBuilding that PE Member shares with Other Members (including, without limitation, the elevator bank screen walls, interiors ofshared elevators, shared areas and floors within the PE Sky Lobby and entrance into the PE High-Rise Elevators from the shared skylobby); provided , however , Developer shall not have any liability to PE Member for failure to implement PE Member’s views withrespect to such changes. Developer and PE Member shall consult and coordinate with each other in good faith with respect to theforegoing areas.Section 3.07 Statement of Changes; Time for Approvals .(a) Where PE Member’s approval of any change in the Plans (other than Field Changes or Force Majeure Changes)is required or requested by Developer hereunder, Developer shall provide (or cause the Project Architect to provide) PE Member,PE’s Architect and PE’s Consultants (and/or any agent, representative or other designee of the foregoing) with notice of such changeand shall make the documents reasonably required to evaluate such change available for review by PE Member, PE’s Architect andPE’s Consultants on the Project Data Site, in each case in order to solicit PE Member’s views and obtain PE Member’s writtenapproval(s) thereto (to the extent required pursuant to the provisions of Section 3.04 and subject to the provisions of Section 3.05 ).Any Shop Drawings, Product Data and Samples with respect thereto shall be made available in accordance with Section 3.09 .(b) With respect to any PE Change Order, as soon as practicable but no later than ten (10) Business Days afterdelivery to Developer of PE Member’s written request with respect thereto, Developer shall furnish (or cause the ExecutiveConstruction Manager to furnish) to PE Member, a reasonably detailed statement (a “ Statement of Changes ”) in the form of ExhibitE setting forth in reasonable detail Developer’s best reasonable estimate of (i) the net actual delay (the “ PE Change Delay ”), if any,that such proposed change will cause to the Schedule, including, without limitation, to the occurrence of Substantial Completion,which may be expressed as an anticipated range or maximum (the high end of such range or such maximum being referred to as the “Maximum PE Change Delay ”), (ii) the actual net out-of-pocket cost that will be incurred, if any, solely as a result of any such net PEChange Delay, which cost shall include, without limitation, any costs required to be paid by Developer under the ConstructionManagement Agreement or agreement with the DRB CM and to the Executive Construction Manager or the DRB ECM (collectively,the “ PE Change Delay Cost ”), (iii) the actual net out-of-pocket amount, if any, by which such proposed change will increase thecost of constructing the Project (including, without limitation, any increase in the Project Costs and overhead in the amount of threepercent (3%) of the cost of the change (the amounts described in this clause (iii), the “ Net Increased Cost ”), and (iv) a developmentfee in the amount of three percent (3%) of the cost of the change (any such development fee, an “ PE Change Development Fee ”),(v) the actual out-of-pocket cost that shall be incurred by Developer, if any, in connection with the preparation of revised Plans as aresult of such proposed change (such actual cost, the “ Plan Revision Cost ”) and (vi) any actual decrease in the cost of constructingthe Project as a result of such change. The sum of the PE Change Delay Cost, the PE Change Development Fee, the Net IncreasedCost and the actual Plan Revision Cost with respect to any PE Change Order (net of any actual decrease in the cost of constructingthe Project resulting from such change) is referred to herein as the “ Total PE Change Cost ”. Notwithstanding the foregoing oranything to the contrary herein, in no event shall the Total PE Change Cost be less than zero and in the event shall the same reducethe PE Member Total Development Cost. Developer’s reasonable estimate of the foregoing costs or savings may be expressed as areasonably anticipated range or maximum (with one hundred five percent (105%) of the high end of such range or such maximumbeing referred to as the “ Maximum PE Change Cost ”). PE Member shall pay, subject to the provisions of this Section 3.07(b) , allactual out-of-pocket architectural, engineering and cost estimating fees incurred by Developer in connection with the preparation ofthe Statement of Changes, whether or not PE Member elects to proceed with the PE Change Order. All Total PE Change Costs withrespect to any PE Change Order shall constitute PE Member Additional Development Costs. PE Member acknowledges that the TotalPE Change Cost and the PE Change Delay Cost, calculated as set forth above, are good-faith estimates only and PE Member andDeveloper agree that Developer shall not undertake to perform any such change order work unless and until PE Member authorizesDeveloper in writing to proceed with such work and agrees in writing to pay (exclusive of the PE Member Total Development Cost)the Total PE Change Cost (which may be on a time and materials basis as if Developer was performing such work for its ownaccount); provided , that notwithstanding the foregoing or anything contained in this Agreement to the contrary, in no event shall (i)any PE Change Delay in excess of the Maximum PE Change Delay be a PE Delay or (ii) any Total PE Change Cost in excess of theMaximum PE Change Cost be included in the PE Member Additional Development Costs or payable by PE Member. PE Membershall comply, to the extent compliance by PE Member (as opposed to compliance by Tower A Tenant or Developer) is required, withthe funding provisions of the Construction Loan Documents applicable thereto; provided , that notwithstanding any such agreement,PE Member and Developer shall attempt in good faith to agree on the Total PE Change Costs as set forth in Section 3.07(c) , whichprocess for agreement shall not interrupt or delay Developer’s construction of the Project in accordance with the change requested byPE Member or limit PE Member’s rights hereunder.(c) Subject to Section 3.07(b) , Developer and PE Member (and their respective Consultants) shall consult andattempt, in good faith, to agree on the Total PE Change Cost (with respect to any PE Change Order), any adjustment in the Schedule(which PE Member shall have the right to approve only if such change has the effect of delaying (x) the occurrence of the DeliveryDate for any Delivery Block on or prior to the Outside Delivery Date, or (y) the occurrence of Substantial Completion on or prior tothe Outside Substantial Completion Date) and any PE Delay arising therefrom, in each case as soon as practicable and within nomore than ten (10) Business Days after PE Member receives a Statement of Changes and all additional information it may reasonablyrequest in accordance with Section 18.03(a) to evaluate such Statement of Changes. Any such agreement (if, as and when reached)shall be memorialized in writing or in an amended and (to the extent PE Member has a right to approve the same) approved Scheduleor set of Plans. Developer’s approval or implementation of a change pursuant to a PE Change Order, as aforesaid, shall be deemed arepresentation by Developer that it has obtained (or has determined that it was not required to obtain) the prior consent of the MTAParties, the Construction Lender and any other Unit Owner to such change, unless, together with the giving of its consent, Developernotifies PE Member that the consent of the MTA Parties, the Construction Lender, or any other Unit Owner is required and has notyet been obtained. If Developer and PE Member are unable to agree on any Statement of Change, or on any component thereof,including, without limitation, any PE Change Delay or the Total PE Change Cost, within ten (10) Business Days, then either partymay submit the dispute to Arbitration pursuant to the provisions of Article 14 .(d) Developer shall keep accurate books and records in accordance with generally accepted accounting principles(or other accounting method reasonably acceptable to PE Member) consistently applied to all items included in all Statements ofChanges and shall make such books and records and all invoices, receipts, contracts, subcontracts and other information pertaining tothe computation thereof available to PE Member (and/or its agents, representatives and/or designees) in accordance with theprovisions of this Agreement.Section 3.08 PE Member’s Review of Plans Not a Representation or Assumption . The review and/or approval by PEMember (or PE’s Architect or any of PE’s Consultants on behalf of PE Member) of any of the Plans shall in no event be or bedeemed to be (i) a representation or agreement, implied or otherwise, by PE Member, PE’s Architect or any of PE’s Consultants, thatany such Plans or other materials comply with applicable Laws, the Construction Loan Documents, the IDA Documents or the MTAProject Documents, or (ii) an assumption by PE Member, PE’s Architect or PE’s Consultants of any liability in respect of any suchPlans or materials, or in respect of the implementation of any such Plans or materials.Section 3.09 Plans and Materials Available . Developer shall maintain on the Project Data Site (or other comparableelectronic data retention system reasonably acceptable to PE Member), for inspection and use by PE Member, PE’s Architect, andPE’s Consultants and/or any agent, representative or other designee of the foregoing (on a non-exclusive basis), at least one recordcopy of (i) the Plans, and any change orders or other modifications to any such Plans, in each case in good order, and (ii) all ShopDrawings, Product Data and Samples showing or related to all current and pending Developer Work. The obligations of Developerpursuant to this Section 3.09 shall survive the PE Unit Closing and the termination of this Agreement for a period of seven (7) yearsafter the latest of the PE Unit Closing, such termination, the date on which Final Completion is achieved, and the date on which theSubway Entrance is completed in accordance with this Agreement.Section 3.10 ERY Site Plan .(a) Developer and, by joining in the execution of this Agreement below, ERY Tenant, Tower A Tenant andDestination Retail Tenant each hereby agrees and covenants, for the benefit of PE Member, that to the extent the Related/OxfordParties or any of their respective Affiliates engage in any further development or construction of the Initial Balance Lease Premises,or the ERY or any portion thereof, including any Severed Parcel, whether for its own account or otherwise, the same shall bedeveloped and constructed substantially in accordance with the ERY Site Plan (without regard to the identity of any tenants or usersstated thereon). Any breach by Developer, ERY Tenant, Tower A Tenant or Destination Retail Tenant of the terms of this Section3.10(a) shall entitle PE Member to seek and obtain injunctive relief.(b) Developer and ERY Tenant shall (i) cause the landscaping and hardscaping on the public plaza of the ERY to becompleted substantially in accordance with the ERY Site Plan; provided , that, except as otherwise expressly provided herein,Developer shall not be subject to any penalties or liability to PE Member if the same are not completed within any particular time, (ii)cause the open space required under applicable zoning laws to be substantially completed no later than December 31, 2018 (subject tomaintenance of hoists, protection and similar items pursuant to the Site Logistics Procedures or ERY Site Logistics Plan necessaryfor the completion of the Tower Building), and (iii) cause the Platform to be substantially completed by December 31, 2016.Developer shall use Best Efforts to cause the Subway Entrance to be completed within two (2) years following issuance of atemporary certificate of occupancy for the PE Unit, subject to receipt of all necessary approvals from the MTA and other governmentagencies. Developer agrees to pursue diligently all such approvals.(c) From and after the PE Unit Closing, Developer shall provide (or cause to be provided) valet parking services forthe Tower Building at cost subject to reasonable guidelines.Developer represents and warrants to PE Member, as of the date hereof,that Developer or its Affiliate has entered into binding agreements to purchase the parcels of real property designated as Block 705,Lots 45 and 46, and such agreements are in full force and effect. Developer shall, or shall cause such Affiliate to, use its best effortsto cause the acquisition of such parcels pursuant to such agreements. If Developer or its Affiliate acquires ownership or control afterthe date hereof of such parcels or any other parcel of real property within the 50 HY Block, Developer shall, or shall cause suchAffiliate to, (1) record a restrictive covenant substantially in the form of the 50 HY Deed Restriction (the 50 HY Deed Restriction orany other restrictive covenant substantially in the form of the 50 HY Deed Restriction, a “ 50 HY Restrictive Covenant ”) againstsuch parcel in the appropriate local land records ( provided , if such parcel is acquired by Developer or its Affiliate prior toSeverance, such 50 HY Restrictive Covenant shall be recorded at Severance), and (2) simultaneously with or prior to the execution ofsuch 50 HY Restrictive Covenant, cause any third party who may become the owner of any such parcel pursuant to a 50 HYMortgage in effect as of the date of such acquisition to execute and record an instrument in the form of the 50 HY MortgageSubordination subordinating its rights under such 50 HY Mortgage to the applicable 50 HY Restrictive Covenant. PE Memberacknowledges and agrees that from and after the transfer by Developer or any of its Affiliates of any parcel within the 50 HY Blockthat is subject to a 50 HY Restrictive Covenant and (if applicable) a 50 HY Mortgage Subordination to any third party (that is notDeveloper or an Affiliate of Developer), neither Developer nor any of its Affiliates shall have any obligation to enforce such 50 HYRestrictive Covenant or 50 HY Mortgage Subordination nor any liability for any breach of such 50 HY Restrictive Covenant or 50HY Mortgage Subordination by such transferee or any subsequent third-party owner of such parcel (that is not Developer or anAffiliate of Developer). In no event shall Developer or any Affiliate thereof transfer Floor Area from any parcel located on the 50 HYBlock to another parcel located on the 50 HY Block that is not subject to a 50 HY Restrictive Covenant (any such parcel on the 50HY Block that is not subject to such a restrictive covenant, an “ Unburdened Parcel ”), unless, prior to any such transfer of FloorArea, (A) the transferee of such Floor Area executes and records against such Unburdened Parcel a restrictive declaration or otheragreement, for the benefit of the Benefited Parties (as defined in the 50 HY Deed Restriction), that prohibits the construction ordevelopment on any portion of such Unburdened Parcel of any building, structure or improvement (including, without limitation, anyparapet, bulkhead, fence, elevator shaft, water tower, antenna, cell tower, satellite dish, chimney, pipe, ladder, fire escape, or othermechanical or telecommunications equipment) that exceeds the Height Limit (as defined in the 50 HY Deed Restriction) (any suchrestrictive declaration or similar agreement recorded against an Unburdened Parcel, an “ Unburdened Parcel Restriction ”) and (B)the transferee of such Floor Area causes any third party who may become the owner of any such Unburdened Parcel pursuant to arecorded instrument (including, without limitation, a mortgage or lease with an option to purchase) (any such instrument, an “Unburdened Parcel Mortgage ”) in effect as of the date of such transfer of Floor Area to execute and record an instrumentsubstantially in the form of the 50 HY Mortgage Subordination subordinating its rights under such Unburdened Parcel Mortgage tothe applicable Unburdened Parcel Restriction (any such instrument, an “ Unburdened Parcel Mortgage Subordination ”). PE Memberand Developer acknowledge and agree that (i) from and after the recording of any such Unburdened Parcel Restriction and (ifapplicable) Unburdened Parcel Mortgage Subordination against any such Unburdened Parcel that is owned or controlled by a thirdparty (that is not Developer or an Affiliate of Developer), (x) the Benefitted Parties shall have the sole right to enforce suchUnburdened Parcel Restriction and Unburdened Parcel Mortgage Subordination, and Developer and its Affiliates shall have noobligation to enforce such Unburdened Parcel Restriction or Unburdened Parcel Mortgage Subordination and (y) Developer and itsAffiliates shall have no liability to PE Member or its Affiliates in connection with the transfer of Floor Area to such UnburdenedParcel or any breach of such Unburdened Parcel Restriction or Unburdened Parcel Mortgage Subordination by the transferee of suchFloor Area or any subsequent third-party owner of such Unburdened Parcel (that is not Developer or an Affiliate of Developer) and(ii) any transfer of Floor Area to an Unburdened Parcel without the prior recordation of an Unburdened Parcel Restriction and (ifapplicable) Unburdened Parcel Mortgage Subordination shall be void, and PE Member shall be entitled to obtain equitable relief byway of injunction and/or to compel specific performance of Developer’s obligation to obtain such Unburdened Parcel Restriction orUnburdened Parcel Mortgage Subordination (without the need to prove or demonstrate damages).(d) The provisions of this Section 3.10 shall survive the PE Unit Closing. Delivery of PlansSection 3.11 Construction Loan Documents; 30 HY Project Documents .(a) PE Member’s prior written approval shall be required for any amendment, modification, supplement or waiverto the Construction Loan Documents (or the documents evidencing any refinancing of the Construction Loan) that (i) changes theamount of proceeds of the Construction Loan available for disbursement with respect to the PE Unit, (ii) changes the timing or (orconditions to) the obligation of PE Member with respect to payment of the PE Unit Allocated Construction Loan Amount in anymaterial respect, (iii) imposes any liability on PE Member or PE Guarantors with respect to the Construction Loan other than as setforth in the PE Developer Guaranty, (iv) increases the liability of PE Guarantors under the PE Developer Guaranty, (v) changes anyprovision regarding the Construction Lender’s consent or approval rights (if any) with respect to the PE Finish Work, or (vi) modifiesthe subordination (or priority) applicable to the Building Completion Guaranty.(b) PE Member’s prior written approval (not to be unreasonably withheld, conditioned or delayed) shall be requiredfor entering into or approving any new 30 HY Project Document, or any amendment, modification, supplement or waiver to any 30HY Project Document, in each case to the extent the same (x) discriminates against PE Member or the PE Unit as compared to theOther Members or Other Units, as applicable or (y) has a disproportionate material adverse effect on the PE Unit as compared to theOther Units. The foregoing shall not be deemed to replace or supersede (and shall be in addition to and shall supplement) anyapproval rights or consent rights provided to PE Member elsewhere in this Agreement or in the Operating Agreement (or in any otheragreement with Developer or its Affiliates relating to the Project or the ERY to which PE Member is or becomes a direct party).(c) During the period prior to the time which PE Member (or its Affiliate) becomes a “Member” under theOperating Agreement (and entitled to exercise the rights and privileges of a Member), Developer shall not take (and shall ensure thatManaging Member and/or the LLC shall not take) without the prior consent of PE Member (x) any action or decision constituting aMajor Decision (as defined in the Operating Agreement) or (y) any action or decision for which the consent of PE Member (or itsAffiliate) would be required if the Assignment Agreement were effective and PE Member (or its Affiliate) were a Member (in eachcase subject to the same standards and provisions for approval as provided in the Operating Agreement).(d) Developer shall provide PE Member (on a reasonably prompt basis) with copies of (i) any new 30 HY ProjectDocument, (ii) any material amendment, modification, supplement to any 30 HY Project Document and (iii) any written notice ofdefault sent or received under any 30 HY Project Document (which obligation shall be satisfied by making any such document oragreement on the Project Data Site).ARTICLE 4 ACCESS TO INFORMATION; PAYMENT OF PE MEMBER TOTAL DEVELOPMENT COST AND PE MEMBERADDITIONAL DEVELOPMENT COSTS; AUDIT RIGHTS; BOOKS AND RECORDS; ENVIRONMENTAL REPORTSSection 4.01 Access to Information; Meeting with the Construction Lender .(c) PE Member and PE’s Consultants (and/or any agent, representative or other designee of the foregoing) shallhave prompt and complete access (on an unrestricted, complete and “open book” basis) to all spreadsheets and systems supportingany numbers or categories of costs relating to any Project Costs (including cost breakdowns and allocations), all revised Schedules,and all material financial analyses, studies and materials performed or prepared in connection with the Project. Developer shall makeavailable on the Project Data Site or deliver as an attachment to an Email Notice all or any such materials prepared by Developer,Developer’s Consultants, or other Persons employed in connection with the Project, and shall cause all of Developer’s Consultantsand other Persons employed in connection with the Project to provide prompt, complete and unrestricted access (subject to passwordprotection (consistent with PE Member’s need to access the Project Data Site) and outages beyond Developer’s control) to all suchmaterials to PE Member (and/or any agent, representative or other designee of PE Member), in each case promptly upon request ofPE Member. In addition, upon request to Developer, Developer shall provide PE Member, PE’s Architect and PE’s Consultants(and/or any agent, representative or other designee of the foregoing) such other information and materials relating to the design, costand construction of the Project or the ERY that PE Member may reasonably request.(d) Without limiting the generality of the foregoing, Developer shall invite, or cause the LLC or Tower A Tenant toinvite, PE Member and PE’s Consultants to attend all regular monthly requisition meetings with the Construction Lender or itsdisbursement agents, and all other material meetings with the Construction Lender, and shall, simultaneously with any Draw Requestor other material submission made to the Construction Lender or any disbursement agent regarding the Developer Work, copy, orcause the Executive Construction Manager to copy, PE Member on such Draw Request or submission, or make the same available onthe Project Data Site (including providing or making available on the Project Data Site a copy of all supporting documentationsimultaneously submitted to the Construction Lender or the disbursement agent for the Construction Lender), including copies of lienwaivers, title continuations, architect’s certificates or revised budgets showing re-allocations among line items included therein andnotify PE Member thereof by Email Notice. For the avoidance of doubt, the foregoing obligations shall not apply with respect to theDRB Construction Loan or any meetings with or submissions to the DRB Construction Lender.(e) To the extent (x) the schedule for TW Member’s Finish Work (or any amendment thereto) is made available toDeveloper and (y) Developer is not restricted by confidentiality provisions from disclosing the same, Developer shall, upon receipt,promptly provide to PE Member copies of TW Member’s schedule for its Finish Work (including amendments to such schedule).Section 4.02 Draw Requests; Payment of PE Member Total Development Cost, PE Member Additional Development Costsand PE Member Additional Payment .(e) From and after the Severance Date, Developer shall deliver to PE Member a copy of each Draw Request forpayment of Project Costs being requisitioned from any Member or Construction Lender. Each such Draw Request shall set forth, tothe extent applicable, (i) the applicable PE Member Remaining Equity Payment to be funded by PE Member at such time inaccordance with the PE Member Remaining Equity Payments Schedule, and (ii) a specific delineation of any Project Costs thatconstitute PE Member Additional Development Costs that are required to be paid in connection with such Draw Request. PE Membershall pay any amounts which it is responsible to pay pursuant to any such Draw Request as provided in Sections 4.02(b) or 4.02(c)below within ten (10) days following delivery to PE Member of the applicable Draw Request.(f) The PE Member Total Development Cost shall be funded as follows:(i) On the Severance Date, PE Member shall make the Severance Date Payment in accordance with theprovisions of Section 11.01(b) ;(ii) Following the Severance Date, PE Member shall fund the PE Member Remaining Equity Payments inaccordance with the PE Member Remaining Equity Payments Schedule within ten (10) days following receipt of theapplicable Draw Request requesting each such PE Member Remaining Equity Payment;(iii) Following the funding by PE Member of the PE Member Remaining Equity Payments, Developer shallrequisition funds from the Construction Lender to pay for the PE Share of all Project Costs set forth in any subsequent DrawRequest until the total amount of Construction Loan proceeds funded in respect of the PE Share of Project Costs equals the PEMember Debt Funding Amount. Notwithstanding the foregoing, in the event that the Construction Lender does not fundConstruction Loan proceeds requisitioned to pay for the PE Share of Project Costs set forth in any such Draw Request despitesatisfaction of all material conditions to such funding as set forth in the Construction Loan Documents, PE Member shallmake payments of the PE Member Total Development Cost in respect of such PE Share of Project Costs requisitioned in suchDraw Request; provided , however , any such payments by PE Member pursuant to this clause (iii) shall not exceed in theaggregate the PE Member Debt Funding Amount; and(iv) PE Member shall pay the PE Unit Allocated Construction Loan Amount, the PE Member Fixed MTADeed Payment and, if applicable, the PE Member True-Up Payment in accordance with the provisions of Section 12.01 .(g) Notwithstanding anything to the contrary set forth herein, all Project Costs consisting of PE Member AdditionalDevelopment Costs shall be the sole responsibility of PE Member (and shall not be included in the PE Member Total DevelopmentCost) and PE Member shall pay all such PE Member Additional Development Costs to the extent set forth in any Draw Requestwithin ten (10) days following delivery to PE Member of such Draw Request, or as such PE Member Additional Development Costsotherwise are payable pursuant to the provisions of this Agreement.(h) Developer shall be solely responsible to pay (or cause to be paid) the PE Share of any Project Costs in excess ofthe PE Member Total Development Cost (other than PE Member Additional Development Costs).(i) PE Member shall have the right to review each Draw Request, and shall have the right to dispute all or anyportion of each Draw Request consisting of costs that are PE Member Additional Development Costs, and the allocation of costsconsisting of PE Member Additional Development Costs to PE Member as shown in each Draw Request, as follows:(i) If, in PE Member’s opinion, the amount of any hard cost item to be funded pursuant to a Draw Requestthat constitutes PE Member Additional Development Costs is not supported by the work performed as of the date of suchDraw Request, then within three (3) Business Days after delivery to PE Member of such Draw Request, PE Member shallinform Developer in writing (which may be by Email Notice) of its objection to the amount of such hard cost item orpercentage of completion (it being agreed that any objection raised after such three (3) Business Day period shall be addressedin the following month’s Draw Request). Developer, the Executive Construction Manager, and the Construction Managershall review and attempt to resolve PE Member’s objections within two (2) Business Days after delivery to Developer of suchobjection, and Developer and PE Member shall agree to do one of the following: (A) adjust such hard cost item, and theamount of such adjustment, in such Draw Request, (B) require additional documentation or inspection (including contractswith subcontractors, invoices, change orders, Field Change authorizations and drawings associated with the applicable DrawRequest), or (C) remove the amount for such hard cost item in its entirety from such Draw Request. In the event that PEMember and Developer are unable to agree on the amount of any hard cost item included in a Draw Request, then such DrawRequest shall be delivered for funding, including the amount of such hard cost item in dispute, and the dispute with respect tosuch amount shall be resolved through Arbitration pursuant to the provisions of Article 14 .(ii) If, in PE Member’s opinion, the amount of any design professional costs or other soft costs to be fundedpursuant to a Draw Request that constitutes PE Member Additional Development Costs is not supported by the workperformed as of the date of such Draw Request, then within three (3) Business Days after delivery to PE Member of suchDraw Request, PE Member shall inform Developer in writing (which may be by Email Notice) of its objection to the amountof such soft cost item or percentage of completion (it being agreed that any objection raised after such three (3) Business Dayperiod shall be addressed in the following month’s Draw Request). Developer shall respond (which may be by Email Notice)within two (2) Business Days after delivery to Developer of such objection by (A) adjusting the amount for such item in suchDraw Request, (B) providing additional documentation to PE Member (including contracts with subcontractors, invoices, andchange orders), (C) removing the amount for such item in its entirety from such Draw Request or (D) notifying PE Memberthat Developer does not agree with such objection. In the event that PE Member and Developer are unable to agree on theamount of any soft cost item included in a Draw Request, then such Draw Request shall be delivered for funding, includingthe amount of such soft cost item in dispute, and the dispute with respect to such amount shall be resolved through Arbitrationpursuant to the provisions of Article 14 .(iii) PE Member shall be entitled to all materials and information that are reasonably necessary to evaluateand analyze the cost information in each Draw Request that includes PE Member Additional Development Costs (includingcontracts with subcontractors, invoices, change orders, Field Change authorizations and drawings associated with theapplicable Draw Request), and Developer shall provide PE Member, PE’s Architect and the applicable PE’s Consultants withall such material and information. If PE Member disputes the allocation to PE Member of any cost in any Draw Requestconstituting PE Member Additional Development Costs, it shall notify Developer in writing (which may be by Email Notice)within five (5) Business Days after delivery to PE Member of such Draw Request together with such material and information(it being agreed that any objection raised after such five (5) Business Day period shall be addressed in the following month’sDraw Request). Developer and PE Member shall consult in good faith to resolve any allocation dispute, and any re-allocationof costs in resolution of such dispute will be implemented in the following month’s Draw Request in accordance with thefurther provisions of this Section 4.02 . In the event that PE Member and Developer are unable to agree on the allocation ofany cost in the Draw Request constituting PE Member Additional Development Costs, then such Draw Request shall bedelivered for funding, including the amount in dispute, and the dispute with respect to such amount shall be resolved throughArbitration pursuant to the provisions of Article 14 .(iv) In no event shall any dispute between PE Member and Developer with respect to any Draw Requestgive PE Member the right to withhold or delay the payment thereof beyond the due date set forth in the Operating Agreement.(j) If PE Member fails to pay any amounts required to be paid by it pursuant to a Draw Request as provided in thisSection 4.02 within ten (10) days after delivery of the Draw Request, or fails to pay any other sum due hereunder on the date set forthherein, then PE Member shall pay to Developer (which amount shall not be a capital contribution to the LLC) a late charge in theamount of five percent (5%) of the unpaid portion of the amount set forth in such Draw Request; provided that with respect to thefirst two (2) instances during the term of this Agreement that a Draw Request is not paid on the due date thereof, no late charge shallbe payable unless such failure continues for more than three (3) Business Days after written notice from Developer. Such late chargeshall constitute compensation to Developer for the additional expense and inconvenience arising out of late payment by PE Member,and shall not be deemed to be a penalty. In addition, if PE Member fails to pay any Draw Request by the applicable due date therefor,then any actual delay caused by such late payment shall be a PE Delay.(k) Concurrent with the payment by PE Member of the first PE Member Remaining Equity Payment followingSeverance, PE Member shall also pay to Developer the PE Member Additional Payment.Section 4.03 Audit of Construction Costs .(e) PE Member and its representatives (but excluding any consultant that is paid in whole or in part on acontingency fee basis) shall have the right, on an annual basis to inspect, make copies of and, where applicable to the extent relatingto PE Member Additional Development Costs, audit, all books and records of the LLC and its subsidiaries or Developer, and allmaterials in Developer’s possession or in the possession of the LLC, the Executive Construction Manager, the Construction Manager(but, in such case, only to the extent relating to the Project or Project Costs), the Project Architect (but in such case, only to the extentrelating to the Project or Project Costs), any of the Members and their Affiliates (including, without limitation, R/O Member and itsAffiliates) that are not otherwise provided by Developer or the LLC and its subsidiaries, which may be posted on the Project DataSite (it being acknowledged and agreed that PE Member shall only have the right to audit such materials to the extent the same relateto expenses that are included in PE Member Additional Development Costs). Any such inspection, copying or, to the extent relatingto expenses that are included in PE Member Additional Development Costs, audit shall be conducted during business hours, onreasonable notice, and at PE Member’s cost and expense; provided , that if such audit reveals any over-charging or over-allocation toPE Member of Project Costs constituting PE Member Additional Development Costs in excess of three percent (3%) of the aggregateamounts charged or allocated to PE Member which are the subject of such audit, then Developer shall reimburse PE Member for allreasonable out-of-pocket costs and expenses actually incurred by PE Member in conducting such audit. Any overcharge shall be paidwith interest at the Interest Rate from the date of such overcharge to the date such excess is reimbursed ( provided , that in the eventan audit reflects an overcharge in excess of three percent (3%), then interest shall be at the Default Rate in lieu of the Interest Rate).Any such audit may cover all prior monthly Draw Requests that have not been the subject of a prior audit (unless it shall benecessary, in the reasonable judgment of the auditor, in order to understand and evaluate the particular transactions or payments thatare the subject of the audit in question, to review transactions or payments which were the subject of any prior audit); provided , thatno such audit may be commenced after the outside date for audits set forth in Section 13.03 . PE Member shall deliver (which may beby Email Notice) a report of its findings (in each audit) to Developer not later than ten (10) Business Days after it concludes eachsuch audit and such findings are finalized.(f) Developer and PE Member shall consult in good faith to resolve any matter in dispute raised in any auditconducted by PE Member as provided in paragraph (a) above within ten (10) Business Days after delivery to Developer of such auditreport. If Developer and PE Member cannot resolve a particular dispute (with respect to any matter raised in such audit report) withinsuch ten (10) Business Day period, the dispute shall be submitted to Arbitration pursuant to the provisions of Article 14 . In no eventshall a dispute prevent or delay Draw Requests from being processed and paid, subject in all events to the satisfaction of allconditions applicable thereto.(g) If any amounts paid are ultimately determined to have been improperly charged to PE Member as PE MemberAdditional Development Costs, then PE Member Additional Development Costs will be appropriately reduced and credited withinterest at the Interest Rate from the date payment on account of such Project Costs was made through the date such credit is appliedto the next Draw Request or such amount is repaid ( provided , that in the event an audit reflects an overcharge in excess of threepercent (3%), as described in Section 4.03(a) , then interest on the portion of the overcharge that exceeds three percent (3%) shall beat the Default Rate in lieu of the Interest Rate).(h) Nothing herein shall prevent PE Member from conducting an inspection of all books and records of the LLC,Developer, its subsidiaries, the Executive Construction Manager or the Construction Manager to the extent relating to PE MemberAdditional Development Costs for purposes of the final accounting pursuant to Section 13.03 .Section 4.04 Books and Records . Developer shall maintain electronic copies of all Draw Requests, invoices and otherdocumentation (electronic or otherwise) as shall be necessary to establish and verify the Project Costs for a period of seven (7) yearsfollowing the date on which Final Completion occurs (or, if later, such date on which the Subway Entrance is completed inaccordance with this Agreement); provided , that such maintenance shall give PE Member no additional rights or time periods foraudit and provided further that, if PE Member requests (at any time prior to the expiration of such seven (7) year period) thatDeveloper deliver to PE Member (at PE Member’s sole cost and expense) copies of all such Draw Requests, invoices and otherdocumentation, then Developer shall deliver all such materials to PE Member.Section 4.05 Environmental Reports .(e) Developer has provided to PE Member, or made available on the Project Data Site, copies of all environmentalassessments commissioned by Developer or its Affiliates pertaining to the Land in connection with entering into the initial groundlease of the ERY from the MTA. Developer shall provide PE Member with, or make available on the Project Data Site (and promptlydeliver Email Notice to PE Member thereof), a copy of all reports, inspections, or analyses concerning the presence (or possiblepresence) of Hazardous Materials in or on the Land or the Building, including, without limitation, drafts thereof, which Developercommissions or receives from and after the date hereof, in each case promptly after receipt thereof.(f) In connection with all aspects of the Project, Developer shall comply, and shall use Best Efforts to cause theProject Architect and any Developer’s Consultants (and any architects, engineers, consultants or advisors engaged by or on behalf ofDestination Retail Tenant) to comply, with all Environmental Laws, and shall take all such actions with respect to the Project whichmay be required by any Government Entity to comply with any such Environmental Laws.(g) Developer shall indemnify, defend, reimburse, and hold harmless PE Member, and each of the PE Indemnitees,from and against any and all costs and claims (i) relating to any alleged violation or contravention of any Environmental Laws byDeveloper or any of its Affiliates or any of Developer’s Consultants with respect to the Land, the ERY, the Developer Work or anyFinish Work performed by or on behalf of Developer or any of its Affiliates, and (ii) in connection with any remediation or cleanupof the Land or the ERY required by Environmental Laws resulting from the acts or omissions of any Person; except, in each case, tothe extent such losses, claims or costs result from PE Member’s, PE’s Consultants’ or any of the PE Indemnitees’ carrying out of anyPE Finish Work. The provisions of this Section 4.05(c) and the obligations of Developer hereunder shall survive the PE Unit Closingand the termination of this Agreement; provided , that Developer shall have no further obligations or liabilities under this Section4.05(c) (other than for then existing claims hereunder) from and after both of the following occur: (x) the third (3rd) anniversary ofthe date on which Final Completion is achieved (or, if later, such date on which the Subway Entrance is completed in accordancewith this Agreement), as agreed to by Developer and PE Member or, in the absence of such agreement, as determined by Arbitrationas provided in this Agreement, and (y) the delivery by Developer to PE Member of a current Phase I environmental site assessment(and, if applicable, a current Phase II environmental assessment) for the Property, dated on or about the date referred to in clause (x)above, prepared consistent with ASTM Practice E 1527 that does not identify any recognized environmental conditions that requirefurther investigation or remediation. Nothing contained in this Section 4.05(c) is intended to limit PE Member’s rights against anyother Person.(h) PE Member shall indemnify, defend, reimburse, and hold harmless Developer, and each of the DeveloperIndemnitees, from and against any and all costs and claims relating to any alleged violation or contravention of any EnvironmentalLaws by PE Member or any of PE’s Consultants with respect to their performance of the PE Finish Work; except, in each case, to theextent such losses, claims or costs (i) are caused by Developer or any of the Developer Indemnitees, (ii) result from Developer orDeveloper’s Consultants carrying out of any Developer Work or any work performed in the Destination Retail Building (other thanby PE Member or its Affiliates) or (iii) result from the Finish Work of any Other Member. The provisions of this Section 4.05(d) andthe obligations of PE Member hereunder shall survive the PE Unit Closing; provided , that PE Member shall have no furtherobligations or liabilities under this Section 4.05(d) (other than for then existing claims hereunder) from and after the third (3 rd )anniversary of the date on which both Delivery Blocks have been delivered to PE Member in Delivery Condition.(e) Developer represents and warrants to PE Member that, to its knowledge, Developer is in compliance with its obligationspursuant to Article 9 of the Construction Agreement.(f) ERY Tenant represents and warrants to PE Member that, to its knowledge, ERY Tenant is in compliance with itsobligations pursuant to Section 20.3 of the A/B Balance Lease and Section 6.4 of the Declaration of Easements.Section 4.06 Survival . Except as otherwise expressly provided in Section 4.05 , the provisions of this Article 4 shallsurvive the PE Unit Closing and the termination of this Agreement.ARTICLE 5 LABOR MATTERSSection 5.01 Project Labor Agreement . Developer has provided a copy of the Project Labor Agreement to PE Member.Developer hereby represents and warrants to PE Member that the Project Labor Agreement by its terms will no longer apply to thePE Unit or any owner or occupant thereof from and after the substantial completion of the PE Finish Work (including any PE FinishWork punch list items). Developer shall, and shall cause the Executive Construction Manager to, deliver to PE Member prior toexecution thereof any amendment or supplement to the Project Labor Agreement, or any separate or additional letter or agreementsent to or entered into with the Building & Construction Trade Council of Greater New York or with any individual union or othertrade group in connection with the Project. Developer shall consult with PE Member with respect to any amendment to the ProjectLabor Agreement, or any new agreement with any trade group or union affecting the construction of the Project or the PE FinishWork, in each case that affects the PE Unit, the PE Areas, the PE Member Total Development Cost, PE Member AdditionalDevelopment Costs or PE Finish Work, and shall not, and shall not cause or permit the LLC, Tower A Tenant, Destination RetailTenant, the Construction Manager or the DRB CM, and the LLC, Tower A Tenant, and Destination Retail Tenant shall not, enter intoany of the foregoing without PE Member’s prior written consent if the same materially adversely affects the PE Finish Work (or thecost thereof), the PE Unit, the PE Areas, or the PE Member Additional Development Costs. PE Member acknowledges that theBuilding will be subject to collective bargaining agreements with Local 32BJ and Local 94.Section 5.02 MWBE . If Developer implements, or causes the Executive Construction Manager to implement, any programwith respect to Minority and/or Women-owned Business Enterprise or maintains any statistics with respect thereto, Developer shallupon request deliver to PE Member, or make available on the Project Data Site (and simultaneously deliver an Email Notice to PEMember notifying PE Member thereof), to the extent available, a copy of any such program, statistics of participation, informationwith respect to participation levels achieved and such other materials and information with respect thereto as PE Member mayreasonably request.ARTICLE 6 SCHEDULE AND UPDATES; PE DELAY; HOLDOVER COSTS; AUTOMATIC TERMINATION OF AGREEMENTSection 6.01 Project Schedule; Updates .(i) PE Member hereby approves the Schedule, in the form agreed by the Parties and dated as of the date hereof.(j) Developer shall provide monthly updates of the Schedule in connection with the monthly meetings described inSection 3.03 .(k) Developer shall use Best Efforts to adhere to, and shall instruct and use Best Efforts to cause the ExecutiveConstruction Manager, the Project Architect, the DRB ECM and other Consultants and all contractors to adhere to, the dates and timeperiods set forth in the Schedule (subject to Force Majeure events and PE Delays).(l) Developer shall give PE Member (for PE Member’s review) monthly updates of the Schedule and monthly“look-aheads” with respect to the Schedule (or on such other more frequent basis as any such updates are prepared and issued by theExecutive Construction Manager or Developer).(m) Notwithstanding anything to the contrary contained herein, no progress update or amendment to the Scheduleshall be deemed to extend, modify or amend the Outside Delivery Date or the Outside Substantial Completion Date or affect PEMember’s rights under Section 6.03 or Section 11.04 (except to the extent by reason of PE Delay as provided in the definitionsthereof).Section 6.02 PE Delay .(d) With respect to any claim of PE Work Delay pursuant to this Agreement, if Developer fails to notify PEMember in writing (which may be by Email Notice) of any delay that could become a PE Work Delay within five (5) Business Daysafter Developer becomes aware of such delay, then such delay shall not be deemed to be a PE Delay unless and until such notice isdelivered, and if such notice is delivered after such five (5) Business Day period has expired, only the delay (if any) occurring fromand after delivery of such notice shall constitute PE Delay.(e) If Developer or PE Member believes that any PE Delay (or any delay which may result in a PE Delay) might bemitigated by the expenditure of additional funds, including for additional labor or performance of overtime work, Developer or PEMember, as applicable, may give notice thereof to the other party setting forth in reasonable detail Developer’s or PE Member’s, asapplicable, proposed plan of mitigation (any such proposed plan, a “ Proposed PE Delay Mitigation Plan ”). In addition, if requestedby PE Member, Developer shall endeavor to propose a Proposed PE Delay Mitigation Plan that, in Developer’s reasonable judgment,might mitigate the PE Delay in question. With respect to any Proposed PE Delay Mitigation Plan proposed by Developer andapproved by PE Member, or proposed by PE Member and approved by Developer (which approval in each case shall not beunreasonably withheld), Developer shall promptly notify PE Member of Developer’s estimate of the cost, including the amount ofadditional labor or overtime work required to implement any such mitigation plan (such notice, a “ Proposed PE Delay MitigationEstimate ”). If, within ten (10) days after delivery to PE Member of such Proposed PE Delay Mitigation Estimate, PE Memberdelivers notice that PE Member elects to proceed with such Proposed PE Delay Mitigation Plan, then Developer shall proceed toimplement such Proposed PE Delay Mitigation Plan (to the extent such labor is available and to the extent overtime work is permittedby applicable Laws). Any actual costs arising from implementation of such Proposed PE Delay Mitigation Plan that PE Memberelects to pursue (including costs that exceed Developer’s estimate) shall be PE Member Additional Development Costs, and PEMember may not require Developer to apply funds from any contingency reserve for the Project to pay such costs. Theimplementation of such Proposed PE Delay Mitigation Plan shall not affect the existence of such PE Delay to the extent such delay isnot mitigated, reduced or eliminated. Any calculation of PE Delay shall be made on a net basis taking into account actual timesavings, if any, resulting from any acts of PE Member, PE’s Architect, PE’s Consultants or any of such parties’ agents, employees orcontractors, or resulting from any mitigation efforts taken by Developer or Developer’s Consultants.(f) For all purposes of this Agreement, concurrent PE Delays shall be counted only once, as a single period of delay.Section 6.03 Delivery Blocks, Holdover Costs, Etc.(i) Developer shall use Best Efforts to deliver to PE Member each Delivery Block in Delivery Condition on or priorto the Estimated Delivery Date for such Delivery Block in accordance with the provisions of Section 9.02 ; provided , however ,Developer shall have no liability to PE Member for failure to timely delivery any Delivery Block other than (i) the liability (if any)under Section 6.03(b) below for failure to deliver both Delivery Blocks on or prior to the Outside Delivery Date, (ii) any Developerliability for Specified Finish Work Costs under Section 6.03(h) , and (iii) the obligations of Developer under Section 11.04 (if any).Without limiting the foregoing provisions of this Section 6.03 and Section 9.02 with respect to Delivery Condition, the parties agreethat the delivery to, and acceptance by, PE Member of any Delivery Block shall constitute an acknowledgement that such DeliveryBlock, or such floor or floors, as applicable, was or were in Delivery Condition (subject to any DC Punch List Work) at the date ofsuch acceptance.(j) If (1) Developer fails to (x) cause the Delivery Date for both Delivery Blocks to occur on or prior to the OutsideDelivery Date or (y) cause Substantial Completion to occur on or prior to the Outside Substantial Completion Date (the occurrence ofeither (x) or (y), a “ Holdover Cost Trigger Event ” and the applicable deadline for each such Holdover Cost Trigger Event as setforth in the foregoing clauses (x) or (y), a “ Holdover Cost Trigger Date ”), and (2) PE Member and/or its Affiliates are actuallydelayed in completing the PE Finish Work and moving into the PE Unit for the normal conduct of their business in the ordinarycourse on or prior to the Occupancy Date (assuming PE Member complies with its obligations under Section 6.03(c) ), Developershall pay to, or as directed by, PE Member, from time to time, Holdover Costs in accordance with this Section 6.03(b) . The expressliability of Developer for Holdover Costs under this Section 6.03(b) shall be PE Member’s sole remedy against Developer withrespect to Developer’s failure to cause the Holdover Cost Trigger Events to occur on or prior to the applicable Holdover Cost TriggerDate; provided , that the foregoing shall not reduce Developer’s obligation to pay costs payable by Developer pursuant toSection 6.03(c) or Section 6.03(h) , and shall not reduce PE Member’s rights pursuant to Section 10.02(d) or affect PE Member’srights under Section 11.04 . If a PE Delay occurs after Holdover Costs have commenced to accrue, to the extent such PE Delayactually delays achievement of a Holdover Cost Trigger Event giving rise to such Holdover Costs, then such Holdover Costs shall besuspended during the period of any such actual delay caused by PE Delay. All such payments shall be made by Developer within ten(10) days after demand therefor, accompanied by reasonably satisfactory evidence of the amount so due and the due date thereof(which shall be no earlier than five (5) days prior to the date when such funds are due to the applicable landlord under the applicableExisting Lease or any Additional Lease or Temporary Space Agreement) (and any such payments not timely made by Developershall incur interest at the Default Rate from the date due until the date such payment is made). Notwithstanding anything to thecontrary herein (but subject to the provisions of Section 6.03(b)(i) below), it is expressly understood and agreed that if any HoldoverCost Trigger Event does not occur on or prior to the applicable Holdover Cost Trigger Date, then Developer’s aggregate liability forHoldover Costs shall not exceed the amount of Holdover Costs attributable to the period (“ Holdover Delay Period ”) commencing onthe Occupancy Date and continuing for the number of days between the applicable Holdover Cost Trigger Date and the applicableHoldover Cost Satisfaction Date (provided that, if under the applicable Existing Lease, Additional Lease or Temporary SpaceAgreement holdover rent may not be determined on a per diem basis, such period shall extend to the end of the month in which theHoldover Satisfaction Date occurs); provided , further , that if more than one Holdover Cost Trigger Event does not occur by theapplicable Holdover Cost Trigger Date, then Developer shall be solely liable for Holdover Costs for the longest Holdover DelayPeriod applicable to any such Holdover Cost Trigger Events. For example, if there is a 30 day Holdover Delay Period with respect tothe first Holdover Cost Trigger Date (i.e., the Holdover Cost Satisfaction Date for the first Holdover Cost Trigger Event is 30 daysafter the Holdover Cost Trigger Date applicable to such Holdover Cost Trigger Event) and a 15 day Holdover Delay Period withrespect to the second Holdover Cost Trigger Date, then Developer’s liability for Holdover Costs on account of failing to cause boththe first and second Holdover Cost Trigger Events to occur on or prior to their respective Holdover Cost Trigger Dates shall be 30days in the aggregate. For purposes of the foregoing, the “ Holdover Cost Satisfaction Date ” means (1) in the case of a HoldoverCost Trigger Date resulting from the failure to cause delivery of both Delivery Blocks on or prior to the Outside Delivery Date, thedate on which both Delivery Blocks have been delivered in Delivery Condition (or, if a PE Delay occurs after the Outside DeliveryDate, the date that such Delivery Block would have been delivered in Delivery Condition if such PE Delay had not occurred) and (2)in the case of a Holdover Cost Trigger Date resulting from the failure to cause Substantial Completion to occur on or prior to theOutside Substantial Completion Date, the date on which Substantial Completion occurs (or, if a PE Delay occurs after the OutsideSubstantial Completion Date, the date that Substantial Completion would have occurred if such PE Delay had not occurred).(i) Notwithstanding the foregoing, if a Holdover Delay Period has commenced and the applicable HoldoverCost Satisfaction Date has not occurred prior to the Rescission Open Date, the Holdover Delay Period shall also include (inaddition to the period from the Occupancy Date through the Rescission Open Date) the period from and after the RescissionOpen Date and continuing until the earlier to occur of (i) the date on which the applicable Holdover Cost Satisfaction Dateoccurs (or, if a PE Delay occurs after the Rescission Open Date, the date that the Holdover Cost Satisfaction Date would haveoccurred if such PE Delay had not occurred) and (ii) the Rescission Effective Date (if any); provided , however , if (x) theHoldover Cost Satisfaction Date has not occurred as of the one (1) year anniversary of the Rescission Open Date and (y) thefailure of the Holdover Cost Satisfaction Date to occur is not the result of (I) a material breach by Developer (which, if PEMember has knowledge of the same, continues beyond a reasonable cure period) or (II) a breach by Developer of thisAgreement for the purposes of selling or leasing the PE Unit to another purchaser or tenant, then, at any time from and afterthe one (1) year anniversary of the Rescission Open Date, Developer may elect to terminate its obligation to pay HoldoverCosts by giving Notice of such election to PE Member (such Notice, a “ Holdover Termination Notice ”), in which case theHoldover Delay Period shall be deemed to have concluded on the date that is the earlier to occur of (1) the date that is twelve(12) months following the delivery the Holdover Termination Notice to PE Member (such date, the “ Holdover TerminationDate ”) or (2) the Holdover Cost Satisfaction Date.(ii) Notwithstanding the provisions of this Section 6.03(b) , if Developer fails to cause a Holdover CostTrigger Event to occur on or prior to the applicable Holdover Cost Trigger Date and PE Member and/or its Affiliates areactually delayed in completing the PE Finish Work and moving into the PE Unit for the normal conduct of their business inthe ordinary course on or prior to the Occupancy Date, then Developer shall not be liable for Holdover Costs under thisSection 6.03(b) in respect of such failure to cause such Holdover Cost Trigger Event to occur on or prior to the applicableHoldover Cost Trigger Date to the extent that (A) Developer is able to prove that the failure of PE Member and/or itsAffiliates to complete the PE Finish Work or move into the PE Unit was caused by the failure of PE Member to prosecute thePE Finish Work and move into the PE Unit with reasonable diligence and otherwise in accordance with the provisions ofSection 6.03(c) following the relevant Delivery Date (taking into account any applicable constraints imposed by the SiteLogistics Procedures and applicable Law), including, without limitation, as a result of any Force Majeure event affecting suchprosecution by PE Member of the PE Finish Work or such moving into the PE Unit following the Delivery Date and (B)Developer notifies PE Member that it intends to assert the foregoing defense prior to the date on which PE Membercommences payment of holdover rent under the applicable Existing Lease, Additional Lease or Temporary Space Agreement.(iii) Notwithstanding anything to the contrary herein, in the event that Developer is obligated to payHoldover Costs to PE Member during a Holdover Delay Period, then PE Member shall be responsible for, and Developershall receive a credit against such Holdover Costs for, the amount of Construction Loan interest allocable to the PE Unitduring the Holdover Delay Period. Any amounts payable by PE Member on account of Construction Loan interest pursuant tothis Section 6.03(b)(iii) shall constitute PE Member Additional Development Costs.(k) PE Member shall (and shall cause each Existing Lease Tenant, Additional Lease Tenant and Affiliates of PEMember to) promptly commence the PE Finish Work with respect to any Delivery Block upon delivery to PE Member of suchDelivery Block in Delivery Condition and use commercially reasonable efforts to diligently prosecute completion of the PE FinishWork and to move all personnel and property out of the applicable Existing Space and into the portion of the PE Unit to which suchpersonnel and property are intended to be relocated as soon as commercially practicable after completion of the PE Finish Work insuch space. The parties acknowledge and agree that PE Member shall have no obligation to move personnel, or commence any move,into such space until Substantial Completion has been achieved and PE Finish Work has been substantially completed. If Developerbelieves in good faith that any delay in completion of the PE Finish Work or delay in the occupancy of the PE Unit by PE Memberand its Affiliates for the normal conduct of their business in the ordinary course resulting from (x) the failure of the Delivery Date forboth Delivery Blocks to occur on or prior to the Outside Delivery Date, or (y) the failure to achieve Substantial Completion on orprior to the Outside Substantial Completion Date, in either case might be mitigated, or that any Holdover Costs may otherwise beminimized, in either case by the expenditure of additional money, by the performance of overtime work, or by other reasonablemeans, then Developer may give notice thereof to PE Member setting forth in reasonable detail Developer’s proposed plan ofmitigation. If any such plan of mitigation is approved by PE Member (which approval shall not be unreasonably withheld), PEMember shall cause its Affiliates and PE’s Consultants and contractors to implement the plan and Developer shall pay all reasonablecosts and expenses of implementing such plan of mitigation (other than costs attributable to PE Delay). All such payments shall bemade by Developer within ten (10) days after demand therefor, accompanied by reasonably satisfactory evidence of the amount sodue and any such costs incurred by PE Member and not timely paid by Developer to PE Member shall incur interest at the DefaultRate from the date paid by PE Member until the date reimbursed by Developer. The performance of any such mitigation work(including, without limitation, the payment of additional money by Developer or the performance of overtime work at Developer’ssole cost and expense) shall not affect any of Developer’s obligations to PE Member with respect to such delay (except to the extentany such delay is actually mitigated or eliminated).(l) PE Member shall deliver to Developer a certificate (the “ Existing Lease Disclosure Certificate ”), dated as of thedate hereof and duly executed by an officer of PE Member, certifying that PE Member has delivered to Developer true, correct andcomplete copies of the Existing Leases, that except as set forth in such certificate the Existing Leases have not been amended,modified or supplemented, and that the facts set forth with respect to each Existing Lease in such certificate are true, correct andcomplete in all material respects as of the date hereof. To the extent PE Member delivers to Developer estoppel certificates from thelandlords under one or more Existing Leases certifying with respect to the facts represented by PE Member in the Existing LeaseDisclosure Certificate, which estoppel certificates state that they may be relied upon by Developer and its Affiliates and otherwise bein form and substance reasonably acceptable to Developer (each, an “ Existing Lease Estoppel ”), then PE Member shall have nofurther liability under this Section 6.03(d) or the Existing Lease Disclosure Certificate with respect to each Existing Lease as to whichan Existing Lease Estoppel is delivered, but only to the extent the applicable Existing Lease Estoppel confirms the applicablerepresentations made by PE Member in the Existing Lease Disclosure Certificate. To the extent the same is then available to PEMember, PE Member shall provide to Developer, for Developer’s information only, simultaneously with delivery of PE Member’sschedule for the PE Finish Work, a schedule of PE Member’s move-in plans or PE Member’s reasonable estimate thereof, includinganticipated move-in dates and indication of the Existing Space from which Existing Lease Tenants or PE Member Affiliates aremoving and their intended location within the PE Unit; it being understood that provision of such schedule of PE Member’s move-inplans or PE Member’s reasonable estimate thereof does not constitute a representation by PE Member and shall be subject tomodification by PE Member, in its sole discretion, from time to time.(m) (i) PE Member shall consult with Developer concerning potential Existing Lease Extensions and AdditionalLease Extensions, the term of such extension and strategies for managing potential disputes with landlords pertaining to a Holdoverand/or the amount of Holdover Costs (but shall not be required to accept any recommendations made by Developer).(ii) PE Member shall keep Developer apprised of any negotiations PE Member or its Affiliates may havewith respect to any Existing Lease or Additional Lease, and PE Member shall not permit any Existing Lease Extensionor Additional Lease Extension to be effectuated after the date hereof in a manner that (x) accelerates the expirationdate under such Existing Lease or Additional Lease, (y) increases the Total Rent payable under such Existing Lease orAdditional Lease from and after the Existing Lease Expiration Date, or in any way establishes the amount of holdoverrent that may be applicable in the event of a Holdover (including by acknowledging the fair market rental value or“use and occupancy” charges of any Existing Space or Additional Space), or (z) otherwise results in an increase in theHoldover Costs that might arise as a result of a Holdover, in each case, without Developer’s prior written consent,which shall not be unreasonably withheld, and Developer shall not be liable pursuant to this Section 6.03 for anyincrease in Holdover Costs resulting from any such amendment entered into without Developer’s consent. PE Membershall deliver any proposed Existing Lease Extension or Additional Lease Extension which requires Developer’sconsent under clauses (x), (y) or (z) above to Developer (which may be in the form of an Email Notice) and Developershall have five (5) Business Days to respond. If Developer fails to respond within such five (5) Business Dayperiod(s), PE Member may send a Notice to Developer (which may be in the form of an Email Notice), which noticeshall conspicuously indicate “REQUEST FOR APPROVAL OF [EXISTING LEASE EXTENSION/ADDITIONALLEASE EXTENSION]; FAILURE TO RESPOND WITHIN THREE (3) BUSINESS DAYS MAY RESULT INDEEMED APPROVAL PURSUANT TO SECTION 6.03(e) OF THE DEVELOPMENT AGREEMENT,” and ifDeveloper does not respond or object to such Notice within such three (3) Business Day period, then such ExistingLease Extension or Additional Lease Extension shall be deemed approved by Developer.(n) PE Member shall deliver to Developer, promptly following execution thereof, true and correct copies of anyAdditional Lease it enters and any amendment it enters into with respect to any Existing Lease or Additional Lease.(o) PE Member shall deliver to Developer, promptly following receipt thereof, copies of any written noticesreceived from any landlord (or from its counsel, property manager or agent) under any of the Existing Leases with respect to theimpending expiration of an Existing Lease, under any of the Additional Leases with respect to the impending expiration of anAdditional Lease or with respect to any actual or threatened claim that is reasonably likely to give rise to Holdover Costs (“ LandlordClaim ”). If the entire amount of any costs, penalties or damages under an Existing Lease will constitute Holdover Costs to be paid byDeveloper pursuant to this Section 6.03 , then Developer shall have the sole right to defend or settle any such Landlord Claim,provided , that Developer bears all legal fees and expenses incurred by Developer or its Affiliates (and the legal fees and expensesincurred by PE Member and its Affiliates to the extent expressly set forth in this clause (j) below) in connection with such settlement,such settlement does not result in PE Member (or its Affiliates) incurring any liability with respect to holdover costs, penalties,damages and the landlord under such Existing Lease or Additional Lease executes and delivers a release to PE Member and/or theapplicable Affiliates solely with respect to such holdover costs, penalties or damages, which release shall be in form and substancereasonably acceptable to PE Member. PE Member shall have the right to participate in the defense of any Landlord Claim withcounsel selected by it (subject to Developer’s right to control the defense thereof). The fees and disbursements of such counsel shallbe at the expense of PE Member, provided , that if Developer fails to undertake the defense of any Landlord Claim, or if in thereasonable opinion of counsel to PE Member, there exists a conflict of interest between Developer and PE Member that cannot bewaived, Developer shall be liable for the reasonable fees and expenses of counsel to PE Member in defending the Landlord Claim.PE Member shall cooperate in all commercially reasonable respects in connection with such defense and PE Member shall have noright to settle such claim without Developer’s prior written approval, which shall not be unreasonably withheld. If only a portion ofsuch holdover costs, penalties or damages under an Existing Lease will constitute Holdover Costs to be paid by Developer pursuantto this Section 6.03 , then the parties shall cooperate in the defense of the claim, and neither party will have the right to settle theclaim without the prior written approval of the other, which approval shall not be unreasonably withheld.(p) Without limiting the foregoing provisions of this Section 6.03 , if Developer fails to obtain a Core & Shell TCOon or prior to date on which the Delivery Blocks have been delivered to PE Member in Delivery Condition, then Developer shall beresponsible for (and shall pay to PE Member) any actual increase in the Specified Finish Work Costs actually caused by the failure tohave a Core & Shell TCO and actually incurred by PE Member during the period from and after delivery of the Delivery Blocks toPE Member until a Core & Shell TCO is obtained. As used herein, “ Specified Finish Work Costs ” means any (i) “standby labor”costs, (ii) costs to provide temporary HVAC or electricity, (iii) costs of vertical transportation, (iv) costs to open the job site beyondnormal business for purposes of construction and (v) the costs of maintaining any temporary restrooms that would not have beenrequired to be maintained had a Core & Shell TCO been obtained. For the avoidance of doubt, nothing herein shall obligateDeveloper to deliver the Delivery Blocks to PE Member prior to the Outside Delivery Date if a Core & Shell TCO has not beenobtained, notwithstanding that the Delivery Blocks may then be in Delivery Condition; provided , at the request of PE Member,Developer shall deliver the Delivery Blocks (to the extent then in Delivery Condition) prior to the Outside Delivery Date even thougha Core & Shell TCO has not been obtained, in which case Developer shall not be liable for any increased Specified Finish WorkCosts incurred by PE Member in performing its Finish Work during the period from and after such delivery of the Delivery Blocksuntil the Outside Delivery Date.(q) Time is of the essence with respect to Developer’s obligation to cause the Holdover Cost Trigger Events tooccur on or prior to the applicable Holdover Cost Trigger Date.Section 6.04 Automatic Termination .(e) Notwithstanding anything to the contrary contained herein, if, in connection with the exercise of remedies byConstruction Lender under the Construction Loan Documents, the Construction Lender or its designee takes title to the Property priorto the PE Unit Closing (by foreclosure, or deed-in-lieu, appointment or receiver or otherwise) or takes control of the Tower A Tenantprior to the PE Unit Closing (the date on which Construction Lender, its designee or any third party takes title to the Property orcontrol of Tower A Tenant, a “ Lender Transfer Date ”), then Construction Lender or such designee shall have the right to cause anQualified Developer to assume the obligations of Developer under this Agreement by delivering to PE Member, within 120 daysfollowing the Lender Transfer Date (the date that is 120 days following the Lender Transfer Date, the “ Lender Election Date ”),written notice of Construction Lender’s election to cause an Qualified Developer to assume the obligations of Developer hereunder(an “ Assumption Notice ”) accompanied by a written agreement and undertaking by such Qualified Developer to assume suchobligations of Developer in accordance with the terms of this Section 6.04 (an “ Assumption Agreement ”); provided , however , thatsuch Qualified Developer shall not be required to assume (i) the obligations of Developer under Sections 3.10(a) , 3.10(b) , 6.03(b) ,and 12.03(c) hereof, (ii) the obligation of Developer to pay the Rescission Payment under Section 11.04 hereof ( provided , that, PEMember shall continue to have the right to exercise the Rescission Election in accordance with the terms thereof), or (iii) any liabilityof Developer under Section 10.02 with respect to Developer Defaults occurring prior to the Lender Transfer Date. If ConstructionLender delivers such Assumption Notice and such Assumption Agreement (duly executed by an Qualified Developer) to PE Memberon or prior to the Lender Election Date, then this Agreement shall continue in full force and effect and PE Member shall recognizethe performance by such Qualified Developer of the obligations of Developer under this Agreement and shall continue to beobligated to perform its obligations hereunder subject to the terms and provisions of this Agreement. Notwithstanding anything to thecontrary herein, no such assumption by an Qualified Developer shall affect or limit (A) the rights of PE Member against Developerunder Section 6.03(b) , (B) the right of PE Member to exercise the Rescission Election under Section 11.04 or the obligation ofDeveloper to pay the Rescission Payment in accordance with Section 11.04 , (C) the rights and remedies of PE Member againstDeveloper under Section 10.02 with respect to any Developer Default occurring prior to the Lender Transfer Date or (D) the rights ofPE Member against Related/Oxford Guarantor under the Building Completion Guaranty. Subject to the terms of the PE Unit LenderAgreement (and the rights of PE Member thereunder), if Construction Lender does not deliver such Assumption Notice and suchAssumption Agreement (duly executed by an Qualified Developer) on or prior to the Lender Election Date, then this Agreement shallautomatically terminate and be of no further force or effect on the Lender Election Date (except for those provisions which, pursuantto the provisions of Section 19.19 or otherwise expressly survive such termination); provided , that any such termination shall notaffect the rights of PE Member against Related/Oxford Guarantor under the Building Completion Guaranty or any obligations ofRelated/Oxford Guarantor under the Building Completion Guaranty(f) Notwithstanding any provision of this Agreement to the contrary, if (a) the MTA terminates the A/B BalanceLease or, if then executed, the Tower A Lease, then this Agreement shall automatically terminate and be of no further force or effecton such date (except for those provisions which, pursuant to the provisions of Section 19.19 or otherwise expressly survive suchtermination); provided, that any such termination shall not affect the rights of PE Member against Related/Oxford Guarantor underthe Building Completion Guaranty or any obligations of Related/Oxford Guarantor under the Building Completion Guaranty;provided , further , if, upon the termination of the A/B Balance Lease or, if then executed, the Tower A Lease, Construction Lenderor its designee obtains a new lease with the MTA with respect to the premises demised thereunder pursuant to the mortgageeprotection provisions in such lease, then the date on which Lender or its designees enters into any such new lease with the MTA shallbe treated as a Lender Transfer Date for purposes of Section 6.04(a) above, and Construction Lender or such designee shall have theright to cause an Qualified Developer to assume the obligations of Developer under this Agreement in accordance with the provisionsof Section 6.04(a) above.Section 6.05 Survival . The provisions of this Article 6 shall survive the PE Unit Closing and any termination of thisAgreement.ARTICLE 7 SUBGUARD; DEVELOPER’S INSURANCESection 7.01 Subguard .(g) Developer shall obtain and maintain “subguard insurance” (or an equivalent policy) (the “ Subguard Policy ”) ina form and issued by a company (the “ Subguard Insurer ”) selected by Developer for the benefit of the LLC, Tower A Tenant andDestination Retail Tenant with respect to the Project.(h) Notwithstanding the foregoing provisions of Section 7.01(a) , Developer may, in lieu of obtaining andmaintaining a Subguard Policy, obtain or cause to be obtained (i) dual obligee payment and performance bonds for all trade contractsrelating to the Developer Work with a contract amount in excess of Two Million Dollars ($2,000,000.00), which dual obligeepayment and performance bonds shall be substantially in the form of Exhibit F attached hereto with a surety company selected byDeveloper and licensed to do business in the State of New York, as surety, and with, inter alia , the Executive Construction Manager,Developer, the LLC, Tower A Tenant, PE Member and the Construction Lender as dual obligees (or the Destination Retail Tenant,the DRB ECM and DRB Construction Lenders, in the case of the Destination Retail Building), and (ii) a guaranty in favor of, interalia , the Executive Construction Manager, Developer, the LLC, Tower A Tenant, and PE Member (or Destination Retail Tenant, inthe case of the Destination Retail Building), from the creditworthy parent entity of Construction Manager (or DRB CM, asapplicable) with respect to any work that is “self-performed” by Construction Manager (or DRB CM, as applicable) or any Affiliatethereof.Section 7.02 Insurance Coverages .(r) Developer and/or the Executive Construction Manager shall cause to be maintained (from Commencement ofConstruction through Substantial Completion and completion of all Punch List Work or such later date on which the Condominium isrequired to obtain property and liability insurance pursuant to the Condominium Documents) the insurance coverages listed anddescribed in the Insurance Coverage Specifications, naming the parties described in the Insurance Coverage Specifications as namedor additional insureds, as applicable.(s) Developer shall maintain in full force and effect the OCIP “Wrap-Up” liability insurance policy which iscurrently in effect until Substantial Completion and completion of Punch List Work (or such later date on which the Condominium isrequired to obtain property and liability insurance pursuant to the Condominium Documents). The OCIP Wrap-Up policy shall belimited to the activities that are performed on the ERY site and shall be implemented on or prior to the Commencement ofConstruction. PE Member and each PE Guarantor shall be named insured for any policies issued under the OCIP “Wrap-Up.”Developer shall use Best Efforts to cause the Project Architect to maintain in full force and effect the errors and omissions policieswhich are currently in effect until the work described in clause (a) of the definition of Developer Work is completed.(t) With respect to all insurance policies maintained by Developer as required hereunder, Developer shall (i) providePE Member with a copy of the lead policy form that all underwriters have agreed to and (ii) provide PE Member with insurancecertificates evidencing such insurance policies.(u) Each insurance policy provided under Sections 7.02(a) , (b) or (c) above shall provide that it will not expire orterminate or be cancelled without, in each case, the insurer’s providing to PE Member at least thirty (30) days’ prior written notice ofsuch expiration, termination or cancellation.(v) During the performance of any PE Finish Work or other work within the PE Unit by PE Member, PE Membershall comply with the insurance requirements set forth in the Operating Agreement.(w) The costs of the insurance described in Section 7.01 and 7.02 shall be included in Project Costs.ARTICLE 8 PE FINISH WORK; SITE LOGISTICSSection 8.01 Design of PE Finish Work .(x) PE Member shall design the PE Finish Work, at PE Member’s expense, and shall consult with Developer on anon-going basis in order to facilitate proper coordination of the design of the PE Finish Work with the design and construction of thePE Unit and the rest of the Building. PE Member has delivered (or will deliver) to Developer for information purposes only apreliminary schedule for design and construction of the PE Finish Work and shall periodically update such schedule. PE Membershall deliver design development documents and final construction documents showing the PE Finish Work when available. To theextent any PE Finish Work requires the prior consent of the Construction Lender pursuant to the terms of the Construction LoanDocuments, the performance of such work shall be subject to Construction Lender’s consent and Developer shall promptly seek, orshall cause Tower A Tenant to promptly seek, Construction Lender’s consent and shall reasonably cooperate with PE Member anduse Best Efforts to obtain such consents.(y) Developer will have the right to review plans for the PE Finish Work and may submit comments to PE Memberwith respect to PE Finish Work plans (it being understood and agreed by Developer and PE Member that, except as set forth in theimmediately following sentence, Developer’s review of such plans is for informational purposes only and PE Member may disregardany such comments). Developer may disapprove (provided, that Developer shall not unreasonably disapprove same) any designfeature in a plan or design relating to the PE Finish Work only if the design feature or element (i) violates the MTA ProjectDocuments or applicable Laws, (ii) is structurally or mechanically incompatible with any aspect of the Building as shown on thePlans or as built, or the Platform, (iii) would require changes in the Building as shown on the Plans or as built, or in the Platformdesign, to accommodate such design feature (it being understood that Developer’s right to disapprove any such change and the designfor the PE Finish Work shall, in such instance, be governed by the provisions of Section 3.06 , which provisions are incorporatedherein by this reference), (iv) would increase the costs of construction of any portion of the Building including the PE Unit (unless, inthe case of any such increased construction costs, PE Member funds such costs at such time through payments under (and subject tothe provisions of) Section 4.03 of the Operating Agreement or otherwise) or would increase the costs of operation of any portion ofthe Building other than the PE Unit, (v) would delay completion of the Building or the Platform in accordance with the then currentSchedule or delay completion of the Finish Work being performed by (or on behalf of) TW Member to the TW Unit, (vi) wouldcause the Floor Area of the PE Unit to exceed the PE Floor Area, (vii) relates to PE Dedicated First Floor Lobby or (viii) relates tothe interior design of the PE Sky Lobby or the corridor within the PE Sky Lobby that is shared by PE Member with Other Members.In addition, Developer shall have the right to approve the water proofing details or acoustical systems, as applicable, for any floor ofthe PE Unit (or the Limited Common Elements or exclusive easement areas) that is immediately above or below a floor of any OtherUnit, if the floor in the PE Unit is intended to be occupied for a use that will create an unreasonable risk of water leaks orunreasonable disturbance from noise or vibrations, as to which Developer’s approval shall not be unreasonably withheld. PE Membershall give advance Notice to Developer of any elements of PE Finish Work proposed to be installed on any floors of the PE Unit thatcreate any unreasonable risk of water leaks, transmission of sound or vibrations or fire to floors below the PE Unit, and willincorporate reasonable protections with respect to such risks, consistent with the practices of Class A buildings in New York City.(z) Developer shall approve or object to any plans for the PE Finish Work (to the extent Developer has the right todo so pursuant to Section 8.01(b) ) within ten (10) Business Days after delivery to Developer of such plans and all additionalinformation reasonably requested by Developer. If Developer gives comments or objections within such ten (10) Business Dayperiod, Developer and PE Member shall consult in an effort to resolve any issues. PE Member shall furnish interpretations,explanations, and additional information if and as requested by Developer within the ten (10) Business Day period under this Section8.01(c) . Any consent granted by Developer to any plan submitted by PE Member which impacts the design or construction of theBase Building shall be deemed a representation by Developer that it has obtained (or has determined that it was not required toobtain) the prior consent of the Construction Lender to such plan, unless, together with the giving of its consent, Developer notifiesPE Member that the consent of the Construction Lender to such plan is required and has not yet been obtained, in which caseDeveloper shall promptly seek, and use Best Efforts to obtain, the consent of the Construction Lender and shall notify PE Memberpromptly if and when such consent is obtained or denied, and if denied, the reasons therefor.(aa) If Developer does not respond or object to any plans for the PE Finish Work within ten (10) Business Daysafter delivery to Developer of such plan and all additional information reasonably requested by Developer, then Developer will bedeemed to have approved such proposed change and the implementation thereof, provided , that with respect to any proposed changethat would cause the Floor Area of the PE Unit to exceed the PE Floor Area, if Developer fails to respond within such ten (10)Business Day period, PE Member may send a second notice to Developer of such failure to respond and if Developer does notrespond or object, in reasonable detail, to such second notice within five (5) days after PE Member has delivered same to Developer,then Developer will be deemed to have approved such proposed change. PE Member understands that any deemed consent byDeveloper as provided in this Section 8.01(d) shall not bind the Construction Lender (if its consent is required under the ConstructionLoan Documents). Developer agrees, however, that it shall seek and use Best Efforts to obtain the consent of the Construction Lender(to the extent such consent is required).(bb) PE Member may not proceed to construct any aspect of the PE Finish Work which has been disapproved byDeveloper until the issue is resolved. Any dispute as to whether any matter is subject (or not) to the approval of Developer as set forthin Section 8.01(b) shall be submitted to Arbitration to be resolved in accordance with the provisions of Article 14 .(cc) Without limiting the provisions of Section 3.03 , Section 9.01 or Section 9.02 , PE Member, PE’s Architect andPE’s Consultants (and any agent, representative or designee of the foregoing) shall have the right, but not the obligation, prior tosatisfaction of the Delivery Condition, to enter any portion of the PE Unit between the hours of 8:00 a.m. and 3:00 p.m. and at allother times during which a hoist or any other vertical transportation is in operation at the Tower Building or Destination RetailBuilding, as applicable, for the purposes of inspecting, measuring and designing the same, subject to reasonable notice to Developer.Developer shall have the right to have its representatives present during such access.(dd) PE Member may not proceed to construct any aspect of the PE Finish Work unless PE Member first obtains allapplicable DOB or other permits required by applicable Law, and shall perform all PE Finish Work in accordance with applicableLaw and the applicable terms of the Condominium Documents, the Co-Construction Agreement and the Operating Agreement (to theextent the Operating Agreement is consistent with this Agreement). PE Member shall coordinate with Developer’s in-house codeconsultant (and Developer and Developer’s in-house code consultant will coordinate with PE Member) with respect to buildingpermits and other similar filings to be made with DOB or other Government Entity in connection with the PE Finish Work.Developer shall, promptly upon request, provide to PE Member and PE’s Consultants all information and materials necessary (andexecute the same if required) for PE Member to obtain all applicable DOB or other approvals and permits required by applicable Lawwith respect to the PE Finish Work. Developer’s execution of any applications or other materials with respect to permits for PEFinish Work shall not be deemed an approval by Developer of any such PE Finish Work or a confirmation that such PE Finish Workcomplies with applicable Law.(ee) PE Member shall perform the PE Finish Work in accordance with LEED Gold certification requirements. TheDeveloper will develop certain Unit Owner and/or tenant fit out specifications to protect building attributes necessary for LEED Goldcertification and will inform Unit Owners and tenants of high performance tenant fit out features that will reduce Unit Owner and/ortenant energy costs, raise the building’s energy performance for LEED and improve the building’s Energy Star and Energy UseIntensity scores, which will be publicly reported in accordance with Local Law 84. All PE Finish Work shall be designed to preserveand promote the LEED Gold certification requirement.(ff) PE Member covenants and agrees that the design of the PE Dedicated First Floor Lobby will be consistent withthe overall design of the lobbies on the first floor of the Tower Building and the “shared highrise elevator corridor” (as defined in thePlans) in the PE Sky Lobby will be consistent with the overall design of the sky lobby in the Tower Building. Developer covenantsand agrees to use Best Efforts to assist PE Member with the design of the portion of the terrace on the 80 th floor of the TowerBuilding to be occupied by PE Member, as shown on the Plans (which is referred to in the Condominium Documents as the “OfficeTerrace”) in a manner such that the space therein is permitted to be used as a terrace and will not constitute Floor Area and to assistPE Member in communicating with the applicable governmental authorities with respect thereto.Section 8.02 Intentionally Omitted .Section 8.03 Site Logistics Procedures . Developer has prepared the plan and written procedures for provision of certainservices, logistics, hoisting and access for the Tower Building, as set forth in the document titled Site Logistics Procedures, in theform agreed by the Parties and dated as of the date hereof (as may be amended from time to time, the “ Site Logistics Procedures ”).Developer shall have the right to amend and expand upon the Site Logistics Procedures from time to time; provided , however ,Developer and PE Member agree that any revisions or additions to the Site Logistics Procedures (or any new like plan or procedure)shall, and that Developer and the Executive Construction Manager in implementing same, shall: (i) not discriminate against PEMember (e.g., favor Other Members or their occupants), it being understood, however, that (x) the Developer Work shall havepriority over Finish Work performed by the Members and (y) with respect to the Site Logistics Procedures for the Tower Building,the Finish Work being performed by (or on behalf of) TW Member in respect of its Unit shall have priority in advanced schedulingover all Finish Work performed by any Members; (ii) not cause or permit any shut-downs of the Building or of any temporary orpermanent services (including, without limitation, electrical, mechanical and plumbing services), including, without limitation, shut-downs necessary to accommodate the switch-over to permanent building services, without (x) advance coordination with the PEFinish Work and (y) five (5) Business Days advance notice to PE Member (except that no such advance coordination or notice shallbe required in an emergency); (iii) following the delivery of any Delivery Block to PE Member in Delivery Condition, provide PEMember non-exclusive access to, and use of areas, services and facilities (each if and to the extent operational) for use by PEMember, PE’s Consultants and their respective workers and vendors (as more fully described in the Site Logistics Procedures,including, without limitation, construction hoists, cranes, freight elevator, loading docks and staging areas (outdoor or indoor asappropriate) in accordance with the Site Logistics Procedures; in all cases, PE Member and Developer hereby agreeing to coordinatethe performance of the Project and the PE Finish Work in accordance with the Site Logistics Procedures and (iv) shall provide thethat PE Finish Work and the Finish Work of any Other Member other than PE Member or TW Member shall be coordinated in amanner so as not to delay the Finish Work being performed by TW Member. PE Member, PE’s Consultants and their respectiveworkers and vendors use of freight elevators and construction hoists in accordance with the Site Logistics Procedures during normalbusiness hours shall be charged to PE Member at the direct cost thereof to Developer with no additional markup to PE Member;provided , the charges for the use thereof during overtime hours shall include the incremental cost to Developer of running the freightelevators and construction hoists during such overtime hours (equitably allocated between PE Member and any other user of thefreight elevators and construction hoists during such overtime hours). Charges to PE Member for use of freight elevators andconstruction hoists as provided in this Section 8.03 shall constitute PE Member Additional Development Costs.Section 8.04 Performance of PE Finish Work .(a) Developer understands that PE Member may perform PE Finish Work both prior to and after the occurrence ofSubstantial Completion and the PE Unit Closing Date. PE Member understands that its contractors and subcontractors performingany PE Finish Work, whether prior to or after Substantial Completion or the PE Unit Closing Date and until Developer completes allof its work in the Building, will be subject to the direction and coordination of Developer and the Executive Construction Manager inaccordance with the Site Logistics Procedures. PE Member shall comply with the Site Logistics Procedures, and shall repair anydamage to the Building caused by PE Member or its contractors and subcontractors in the performance of any PE Finish Work.Developer shall comply with the Site Logistics Procedures, and shall repair any damage to the PE Finish Work, the PE Unit or anyPE Areas caused by Developer or its contractors and subcontractors in the performance of any Developer Work.(b) If (i) prior to the Substantial Completion Date, PE Member performs PE Finish Work with respect to anyDelivery Block delivered in a manner that is not consistent with the Site Logistics Procedures, and such performance of PE FinishWork results in an actual delay in the occurrence of the Delivery Date for any Delivery Block on or prior to the Outside DeliveryDate or the occurrence of Substantial Completion on or prior to the Outside Substantial Completion Date, (ii) PE Member fails tocomply with its obligations under this Agreement or the Operating Agreement in connection with the performance of PE Finish Workand such failure results in an actual delay in the occurrence of the Delivery Date for any Delivery Block on or prior to the OutsideDelivery Date or the occurrence of Substantial Completion on or prior to the Outside Substantial Completion Date, or (iii) PE’sArchitect or PE’s Consultants act in a manner that is outside the scope of their engagement in connection with the Project andinconsistent with the provisions of this Agreement and such actions result in an actual delay in the occurrence of the Delivery Datefor any Delivery Block on or prior to the Outside Delivery Date or the occurrence of Substantial Completion on or prior to theOutside Substantial Completion Date, then, in each case, such delay shall constitute “ PE Work Delay ”.(c) Any Developer Work, Finish Work (including, without limitation, PE Finish Work), and other work on theProject shall be performed in a manner that does not (i) violate the Project Labor Agreement or any other union contracts affectingthe Project, or (ii) create any work stoppage, picketing, labor disruption or labor disharmony at the Project. Notwithstanding theforegoing, the parties shall cooperate to implement procedures whereby PE Member may install certain PE Member-suppliedequipment using labor forces that may not be members of a union that is party to the Project Labor Agreement, provided , the samedo not create a work stoppage, picketing, labor disruption or labor disharmony, and at no additional cost to Developer or OtherMembers and provided further that the indemnification provisions of the Operating Agreement with respect to Finish Work shallapply with respect to the foregoing.(d) Developer and PE Member shall coordinate, consult, assist and cooperate with each other in connection withobtaining DOB filings necessary in connection with the Project and the PE Unit. Developer will execute all required DOB forms inadvance of reviewing and (if applicable) approving plans for PE Finish Work pursuant to Section 8.01(b) .Section 8.05 Cost of Performing PE Finish Work . Notwithstanding anything to the contrary in this Agreement, the cost ofdesign and construction of the PE Finish Work shall not be the responsibility of Developer, the LLC or the Other Members of theLLC, but shall be paid for solely by PE Member.Section 8.06 PE Member Violations . PE Member shall promptly cure and discharge all Violations arising from PE FinishWork and obtain all Sign Offs required in connection with PE Finish Work, in each case to the extent such Violations or the absenceof such Sign Offs prevent or delay the issuance of a certificate of occupancy for the Building or any Other Units. If Developernotifies PE Member that PE Member is not timely removing Violations arising from PE Finish Work or has not obtained all suchSign Offs, and that such failure is preventing or delaying the issuance of a certificate of occupancy for the Building or any OtherUnits, and if PE Member fails within thirty (30) days following delivery of any such notice to commence to remove or cure suchViolations and to prosecute such removal or cure with diligence, or to commence to obtain such Sign Offs and prosecute obtainingsame with diligence, then Developer shall have the right (but not the obligation) to remove such Violations and/or pay the fineimposed in connection therewith, or to seek to obtain such Sign Offs. In such event, PE Member shall reimburse Developer for actualout-of-pocket costs of removing such Violation within fifteen (15) days of receiving an invoice therefor from Developer, togetherwith reasonably satisfactory evidence of the amount of the expenditure. Any such costs incurred by Developer not timely paid by PEMember to Developer shall incur interest at the Default Rate from the date paid by Developer until the date reimbursed by PEMember. Amounts payable by PE Member to Developer pursuant to this Section 8.06 in respect of Violations arising from PE FinishWork shall constitute PE Member Additional Development Costs.Section 8.07 Survival . The provisions of this Article 8 shall survive the PE Unit Closing and termination of thisAgreement.ARTICLE 9 INSPECTION RIGHTS DURING CONSTRUCTION; DELIVERY DATE, DELIVERY BLOCKS, DC PUNCH LIST;WARRANTIES; DEFECTIVE WORKSection 9.01 Inspection by PE Member During Construction; On-Going Consultation . From and after the Severance Date,PE Member and its representatives and designees (including PE’s Consultants) will have the right, at PE Member’s expense, and onreasonable notice, between the hours of 8:00 a.m. and 3:00 p.m. and at all other times during which a hoist or any other verticaltransportation is in operation at the Building, to inspect from time to time any construction work with respect to the Building beingperformed by (or on behalf of) the LLC, Tower A Tenant, Destination Retail Tenant or Developer if such work comprises or relatesto the Developer Work ( provided , that access to such areas may be subject to restrictions imposed by the MTA Parties). Inspectionby PE Member pursuant to the provisions of this Section 9.01 will not, however, be construed as acceptance, by PE Member, or PEMember’s representatives, of work which is defective, incomplete, or otherwise not in compliance with the Plans, or as a waiver byPE Member of any rights under this Agreement, or as a release by PE Member of Developer or any of Developer’s contractors or anysurety from any warranty, guarantee, or obligation provided under this Agreement or the Plans or the applicable constructioncontract(s). Any inspection performed by PE Member or its representatives shall be performed in compliance with the site safety planfor the Building, and any inspection of below-platform mechanical areas shall be subject to the provisions of the MTA ProjectDocuments and the MTA Severance Agreement. PE Member acknowledges that its rights of inspection hereunder shall give it noright to direct any portion of the work.Section 9.02 Delivery Date; DC Punch List; Acceptance Procedure . Developer and PE Member agree that the followingprocedures shall apply to determine when the Delivery Date for each Delivery Block has been achieved:(a) Developer shall give PE Member at least one hundred eighty (180) and then ninety (90) days’ prior notice ofDeveloper’s good faith estimate of the Delivery Date for each Delivery Block (it being understood that such dates shall constituteestimates only and shall in no way affect the actual occurrence of the Delivery Date for such Delivery Block).(b) With respect to each Delivery Block, Developer shall give PE Member a notice stating that Developer believesthat the Delivery Date is, or is about to be, achieved, and setting forth a date, not less than ten (10) Business Days after the giving ofsuch notice (such date, a “ Walk-Through Date ”), for the parties to conduct a joint walk through of such Delivery Block. On or priorto the Walk-Through Date, Developer shall deliver to PE Member (i) a proposed list of DC Punch List Work for the applicableDelivery Block (the “ Proposed DC Punch List ”), and (ii) the outside date(s) by which Developer expects each item or group ofitems listed on the Proposed DC Punch List to be completed (such dates being hereinafter referred to as the “ DC Punch List WorkCompletion Dates ”). On the Walk-Through Date, PE Member, PE’s Consultants, Developer and the Project Architect (and/or anyagent, representative or other designee of the foregoing) shall conduct one or more inspection(s) of the applicable Delivery Block toconfirm whether the Delivery Date has occurred with respect to such Delivery Block and, further (subject to Section 9.02(c) ), toconfirm the DC Punch List Work to be performed and the DC Punch List Work Completion Dates for the applicable DC Punch ListWork. If PE Member concurs that the applicable Delivery Block (or full floors thereof) is in Delivery Condition, PE Member shallthereupon be deemed to have accepted delivery of such Delivery Block (or full floors thereof), subject to completion of any DCPunch List Work, any latent defects and any other defects, omissions, or failures in Delivery Condition not readily ascertainable by avisual inspection. Notwithstanding the foregoing, if one or more whole (but not partial) floors within a Delivery Block are inDelivery Condition (but not the balance of such Delivery Block), PE Member shall accept delivery of such floor or floors (but not ofthe balance of such Delivery Block), provided that any such whole floors so delivered are the lowest floor or floors in the DeliveryBlock in question; provided , however , PE Member’s acceptance of delivery of any floor or floors constituting a portion of anyDelivery Block shall not reduce or offset Developer’s obligation to deliver an entire Delivery Block in Delivery Condition nor in anyway affect, reduce or limit any rights or remedies of PE Member set forth in this Agreement or otherwise with respect to any failureto deliver to PE Member the balance of such Delivery Block to PE Member on or prior to the Outside Delivery Date.(c) If PE Member believes that the Delivery Date for the applicable Delivery Block has not yet occurred, or if PEMember objects to (or believes corrections or additions are required to be made to) the Proposed DC Punch List or the applicable DCPunch List Work Completion Date, PE Member shall give Developer notice (such notice, and each subsequent objection notice ascontemplated in the further provisions of this Section 9.02(c), an “ Exceptions Notice ”), within ten (10) Business Days following PEMember’s inspection in accordance with Section 9.02(b) , detailing (i) any conditions to delivery of such Delivery Block in DeliveryCondition which PE Member asserts have yet to be satisfied, and/or (ii) any other revisions to the Proposed DC Punch List, and/or tothe DC Punch List Work Completion Dates. Developer and PE Member shall cooperate and proceed expeditiously to confirm theDelivery Date, the list of DC Punch List Work and the DC Punch List Work Completion Dates, and shall perform such additionalinspections of the Building as shall be required to confirm such date and lists.(d) If Developer and PE Member are unable to agree on whether the applicable Delivery Block has been deliveredto PE Member in Delivery Condition, the date on which such Delivery Block has been delivered to PE Member in DeliveryCondition or on the DC Punch List for such Delivery Block (including the DC Punch List Work Completion Dates) within fifteen(15) Business Days after delivery to Developer an Exceptions Notice, then either PE Member or Developer may submit the mattersstill in dispute to Arbitration, to be resolved in accordance with the provisions of Article 14 .(e) If the parties agree (or it is determined pursuant to Arbitration) that additional work is required in order toachieve the Delivery Date for such Delivery Block, Developer shall cause such work to be performed with due diligence, and thesame procedure (including, without limitation, as to inspections and delivery of Exceptions Notices, and timing for delivery ofExceptions Notices) shall be repeated to the extent necessary until the parties agree upon, or an Arbiter has determined, (i) whethersuch Delivery Block has been delivered to PE Member in Delivery Condition, (ii) the Delivery Date for such Delivery Block, and(iii) the DC Punch List for such Delivery Block, provided , that subsequent inspections shall be performed at a mutually satisfactorytime within five (5) Business Days following notice from Developer and any revised Exceptions Notice shall be delivered within five(5) Business Days after re-inspection.(f) If PE Member fails to deliver an Exceptions Notice to Developer within the applicable period(s) referred to inSection 9.02(c) , Developer may send notice to PE Member of such failure, which notice shall conspicuously indicate on the firstpage thereof in bold face print “ REQUEST FOR EXCEPTIONS NOTICE: FAILURE TO RESPOND WITHIN FIVE (5)BUSINESS DAYS MAY RESULT IN DEEMED APPROVAL PURSUANT TO SECTION 9.02(f) OF THEDEVELOPMENT AGREEMENT ”, then if PE Member does not respond or object, in reasonable detail, to such notice within five(5) Business Days after delivery of the same, then PE Member shall have waived its right to deliver an Exceptions Notice for suchDelivery Block, the Delivery Date for such Delivery Block shall be deemed to have occurred and the Proposed DC Punch List (or therevised Proposed DC Punch List or revised DC Punch List Work Completion Dates, as the case may be) for such Delivery Blockshall be deemed approved by PE Member and shall constitute the DC Punch List for such Delivery Block.(g) Notwithstanding any provision of this Agreement to the contrary, any agreement regarding Delivery Condition,and any resolution by Arbitration of any dispute regarding Delivery Condition or the Delivery Date, shall not preclude PE Memberfrom asserting any claims for latent defects as and to the extent provided in Section 9.03(b) .(h) If the only matters in dispute regarding the occurrence of the Delivery Date for any Delivery Block are the DCPunch List Work Completion Dates, then, notwithstanding any provision of this Agreement to the contrary, the Delivery Date forsuch Delivery Block will be deemed to have occurred, and in such event Developer shall complete the DC Punch List Work inaccordance with the schedule determined by the parties or by Arbitration.(i) The provisions of this Section 9.02 shall survive the PE Unit Closing and the termination of this Agreement.Section 9.03 Contractor Warranties; Defective Work; Latent Defects .(a) Developer agrees that it has or shall include, or cause to be included, in each hard cost contract which governs(in whole or in part) the performance of the Developer Work, warranty/guaranty provisions customary for the type or category ofwork involved for projects of similar scope and character as the Project that are assignable as contemplated herein (any suchwarranty/guaranty, a “ Contractor Warranty ”), under which the respective contractor will be required, at its (or their) expense, torepair, replace, and/or correct work which is incorrect, inadequate, defective, incomplete, omitted, or otherwise not in compliancewith the applicable Plans and this Agreement (any such work, “ Defective Work ”) for such period as is customary for such type orcategory of work. Developer shall obtain the written agreement of each contractor that the Condominium shall be a third-partybeneficiary of (and, in any event, a permitted assignee of), and may enforce directly, each Contractor Warranty as to any workperformed in respect of the PE Areas or the Common Elements (Developer hereby agrees to ensure, or cause the ExecutiveConstruction Manager and the DRB ECM to ensure, that each such Condominium Warranty is severable and assignable (in whole orin part) and to assign, or cause the Executive Construction Manager or each contractor to assign, such warranties to theCondominium when the contractor completes its work in the Project, if later (any such assigned warranties, a “ CondominiumWarranty ”)). Each Contractor Warranty that is not a Condominium Warranty shall be assigned to Tower A Tenant or the applicableOther Member (or Tower A Tenant or such Other Member shall be a third-party beneficiary thereunder and may enforce suchContractor Warranty with respect to work performed in respect of the Other Units). If a contractor raises ongoing claims withDeveloper, the LLC, Tower A Tenant, Destination Retail Tenant, any Member (other than PE Member), the owner of any Other Unitor any Destination Retail JV Member as a defense in any claim by PE Member for Defective Work against such contractor, thenDeveloper will remain responsible to use Best Efforts to enforce the applicable Contractor Warranty in accordance with its terms andconditions so as to cause such contractor, at the contractor’s expense, to repair, replace, and/or correct such Defective Work, butDeveloper shall have no liability, except as otherwise expressly provided in this Agreement, for any failure of any contractor torepair, replace, or correct such Defective Work. Upon request by PE Member, Developer shall provide PE Member with copies of allContractor Warranties relating to the PE Areas. Developer shall not waive any Contractor Warranty.(b) Notwithstanding any provision of this Agreement to the contrary, if, in the course of performing PE Finish Workor at any other time, whether before or following the PE Unit Closing, PE Member discovers Defective Work in any DeveloperWork, the PE Areas or the Common Elements performed on behalf of Developer, Tower A Tenant, Destination Retail Tenant or theLLC, and if the Defective Work is covered by a Condominium Warranty, then, until such time as Developer both closes out theapplicable contract and assigns the applicable Contractor Warranty to the Condominium Board, Developer shall use Best Efforts toenforce any applicable Condominium Warranty so as to cause the contractor to correct or replace the Defective Work. Anyreasonable third party costs incurred in connection with enforcing warranties, as aforesaid shall constitute a Project Cost.(c) The provisions of this Section 9.03 shall survive the PE Unit Closing and the termination of this Agreement.Section 9.04 PE Member’s Right to Remove Developer Violations . Developer shall promptly cure and discharge allDeveloper Violations, in each case to the extent such Violations prevent or delay PE Member from obtaining the approvals requiredunder applicable Laws, including, without limitation, any approvals required under applicable Laws for PE Member to lawfully useand occupy the PE Areas for the normal conduct of PE Member’s (and its Affiliates’) business in the ordinary course. Withoutlimiting the provisions of Section 9.02 , if PE Member notifies Developer that Developer is not timely removing DeveloperViolation(s) and that such failure is preventing or delaying PE Member from obtaining the approvals required under applicable Laws,including any approvals required under applicable Laws for PE Member to lawfully use and occupy the PE Areas for the normalconduct of PE Member’s (and its Affiliates’) business in the ordinary course, and if Developer fails within thirty (30) days followingdelivery of any such notice to commence to remove or cure the Developer Violation and to prosecute such removal or cure withdiligence, then PE Member shall have the right (but not the obligation) to remove such Developer Violation or pay the fine imposedin connection therewith, but only to the extent such work can be performed exclusively within the PE Unit or within PE Member’sexclusive Common Elements or exclusive easement areas. In such event, Developer shall reimburse PE Member for the costs ofremoving such Violation (including payment of any fines) within fifteen (15) days of receiving an invoice therefor from PE Member.Any such costs incurred by PE Member not timely paid by Developer to PE Member shall incur interest at the Default Rate from thedate paid by PE Member until the date reimbursed by Developer.ARTICLE 10 PE MEMBER TOTAL DEVELOPMENT COST; PE MEMBER ADDITIONAL DEVELOPMENT COSTS; DEVELOPERDEFAULTSection 10.01 PE Member Total Development Cost; PE Member Additional Development Costs .(j) PE Member shall be responsible for paying, as and when provided in and subject to the provisions of thisAgreement and the Operating Agreement, the PE Member Total Development Cost. The parties agree that the PE Member is payingfor the cost of the PE Unit through payment of the PE Member Total Development Cost, and the PE Member Total DevelopmentCost represents the best estimate of the parties of the actual cost to perform the Developer Work, provided, if the actual cost thereof isless than the PE Member Total Development Cost, then as additional compensation to Developer for the performance of itsobligations hereunder the PE Member shall pay to Developer the remainder of the PE Member Total Development Cost to Developerin accordance with the terms hereof, and if the actual cost thereof exceeds the PE Member Total Development Cost, then inconsideration of PE Member’s agreement to include a portion of the DMA Development Fee as part of the PE Member TotalDevelopment Cost, Developer shall pay such excess. The foregoing sentence shall not in any way limit the obligations of the partiesto make the payments specified in this Agreement or otherwise modify, increase, limit or affect the rights or obligations of the partiesset forth elsewhere in this Agreement. Notwithstanding anything to the contrary set forth herein, all Project Costs consisting of PEMember Additional Development Costs shall be the sole responsibility of PE Member and PE Member shall pay all such PE MemberAdditional Development Costs as such costs become due and payable pursuant to the provisions of this Agreement; provided ,however , for the avoidance of doubt, all costs and expenses of PE’s Architect, PE’s Consultants and any other consultants, engineersor advisors engaged by PE Member in connection with the Project, and all other costs incurred by PE Member in connection with itsdue diligence review of the Project, the negotiation and execution of this Agreement and the other documents executed in connectionherewith or pursuant to the terms hereof, PE Member’s review of the 30 HY Project Documents and any other documentation oragreements relating to the Project or the ERY, and the performance by PE Member of PE Member’s obligations (and exercise by PEMember of PE Member’s rights) hereunder and under the Operating Agreement and any other agreements entered into in connectionherewith or pursuant to the terms hereof, and any other costs expressly identified as PE Member Additional Development Costs, shallin each case be paid solely by PE Member and shall not constitute part of the PE Member Total Development Cost. The partieshereby acknowledge and agree that (except for PE Member Additional Development Costs, the PE Member Additional Payment andthe costs and expenses incurred by PE Member and referenced in the proviso to the immediately preceding sentence) the PE MemberTotal Development Cost represents the “all-in,” full and fixed consideration payable by PE Member for (i) the development,construction, financing and delivery of the PE Unit, (ii) Final Completion (and all components thereof), (iii) the operation andadministration of the LLC (including all legal, accounting, auditing, reporting and compliance costs) to the extent relating to theconstruction of the Building and the performance by the Managing Member, R/O Member and the LLC of their obligations under theOperating Agreement (but excluding any costs of complying with any specific requests by PE Member pursuant to the LLCAgreement or any costs arising out of any breach or default by PE Member under the LLC Agreement or any indemnificationobligations of PE Member under the LLC Agreement), (iv) the PE Member Fixed Land Cost, (v) any amounts due to the Brokers and(vi) the performance and completion by Developer (and, as applicable, Developer’s Affiliates and/or third-parties) of the DeveloperWork and Developer’s obligations under this Agreement and the 30 HY Project Documents (in each case whether pursuant to thisAgreement or the Operating Agreement, and whether performed prior to or following the PE Unit Closing). Without limiting theforegoing, the PE Member Total Development Cost shall cover and include (without limitation) the Project Costs (or other costs andexpenses) to be borne by (or allocated to) PE Member that are referenced in the following sections of the Operating Agreement(except to the extent any such cost is expressly specified to be a PE Member Additional Development Cost under this Agreement):Section 1.01(d), Section 1.10(i), Section 3.04(a) (other than Unit Carry Costs that are the responsibility of PE Member hereunder),Section 3.04(b) (other than Unit Carry Costs that are the responsibility of PE Member hereunder), Section 3.05(b), Section 4.01(a),Section 5.05(b), Section 6.02(a), Section 6.02(c), Section 6.03(a)-(g), Section 6.03(i), Section 6.04, Section 7.08, Section 11.01 andSection 11.03 (except to the extent PE Member would have liability with respect thereto pursuant to Section 17.02 hereof), and/orSection 11.05.(k) The following costs shall constitute “ PE Member Additional Development Costs ” (which shall not be includedin the PE Member Total Development Cost), and, in addition to paying the PE Member Total Development Cost as provided in thisAgreement, PE Member shall be solely responsible for paying all such PE Member Additional Development Costs as the samebecomes due and payable pursuant to the provisions of this Agreement:(i) all Transfer Taxes payable in connection with (x) the transactions contemplated under the AssignmentAgreement (including the assignment to PE Member of an interest in the LLC and admission of PE Member as a member ofthe LLC) and (y) the PE Unit Closing (if any);(ii) all Total PE Change Costs with respect to all PE Change Orders, provided , that in no event shall theTotal PE Change Cost for any PE Change Order included in this calculation exceed the Maximum PE Change Cost for suchPE Change Order;(iii) any actual increase in Project Costs caused by any PE Work Delay;(iv) any actual costs arising from implementation of a Proposed PE Delay Mitigation Plan that PE Memberelects to pursue in accordance with the provisions of Section 6.02(b) ;(v) any amounts payable by PE Member in respect of the Construction Loan interest pursuant to Section6.03(b)(iii) above;(vi) any amounts payable by PE Member for use of freight elevators and construction hoists pursuant toSection 8.03 ;(vii) all costs of design and construction of, and other costs relating to, the PE Finish Work, and allpayments to be made by PE Member pursuant to the Developer Finish Work Agreement;(viii) any amounts payable by PE Member to Developer pursuant to Section 8.06 in respect of Violationsarising from PE Finish Work;(ix) any Unit Carry Costs payable by PE Member pursuant to Section 12.02 below;(x) the PE Member Fixed MTA Deed Payment;(xi) any costs that are the responsibility of PE Member pursuant to Section 12.01(b)(iv) ;(xii) any costs of bringing or resolving a Dispute allocated to PE Member by the Arbiter or Work DisputeArbiter pursuant to Section 14.01 ;(xiii) any amounts payable by PE Member in respect of its indemnification obligations under Sections 17.02and 19.16 ;(xiv) any amounts payable by PE Member pursuant to Section 19.18 ; and(xv) any other costs expressly provided in this Agreement as being PE Member Additional DevelopmentCosts or being the responsibility of PE Member.(l) Developer may include any PE Member Additional Development Costs in a Draw Request delivered to PEMember in accordance with Section 4.02 and PE Member shall pay such PE Member Additional Development Costs as and whenprovided under Section 4.02 .(m) Any disputes between Developer and PE Member as to whether any costs constitute PE Member AdditionalDevelopment Costs shall be resolved by Arbitration as provided in Article 14 .Section 10.02 Developer Default .(d) Subject to Section 10.02(b) , Developer shall be liable for all Professional Standard Default Liabilities, but only to theextent that such Professional Standard Default Liabilities exceed $250,000 in the aggregate (the “ Floor ”), and provided thatDeveloper shall not be liable for any such Professional Standard Default Liabilities in excess of $1,500,000 in the aggregate (for allProfessional Standard Default Liabilities) (the “ Cap ”). For all purposes under this Agreement and the Operating Agreement, ifDeveloper, R/O Member, Destination Retail JV, Destination Retail Tenant, or the LLC receives any recoveries from insurance,consultants, contractors or other third parties with respect to any Professional Standard Default Claim, then any Professional StandardDefault Liabilities that would otherwise have arisen from any such Professional Standard Default Claim shall be excluded to theextent of such recoveries in determining whether the Professional Standard Default Liabilities caused the Floor to be exceeded or theCap to be reached. Except as expressly provided in this Section 10.02(a) (and subject in all cases to Section 10.02(b) ), PE Member’ssole remedy with respect to any Developer Default (other than a Developer Misconduct Default) shall be to seek specificperformance of the obligations of Developer under this Agreement and PE Member shall not be entitled to pursue or recovermonetary damages from Developer on account of any Developer Default (other than a Developer Misconduct Default).(e) Notwithstanding the foregoing provisions of Section 10.02(a) or anything contained in this Agreement to the contrary:(i) Upon the occurrence of any breach or default by Developer of its obligations under this Agreement(including, without limitation, any Developer Default), PE Member shall have the right, without prejudice to any other rightsand remedies otherwise available to PE Member under this Agreement, (x) to obtain equitable relief by way of injunction or(y) to compel specific performance by Developer of its obligations hereunder (without the need to prove or demonstratedamages).(ii) Without limiting (and in addition to) the available remedies in Section 10.02(b)(i) , in the case of anyDeveloper Misconduct Default PE Member shall be entitled to pursue and recover Losses from Developer (for the avoidanceof doubt, without regard to the provisions of Section 10.02(a) ).(iii) If Developer challenges or contests the availability or appropriateness of equitable relief or specificperformance as the remedy for any Developer Default hereunder (whether such Developer Default constitutes a ProfessionalStandard Default, Developer Misconduct Default or otherwise), then PE Member shall be entitled to pursue and recover allLosses arising from such Developer Default without regard to the provisions of Section 10.02(a) ).(iv) PE Member’s sole remedy with respect to any delay in the performance of Developer’s obligationsunder this Agreement relating to the design, construction, development, or completion of the Tower Building or theDeveloper Work shall be limited to (A) the right to require Developer to pay Holdover Costs and other amounts payable to PEMember by Developer as expressly set forth in Section 6.03 and (B) PE Member’s rights under Section 11.04 (and nothingcontained in Section 10.02(a) shall limit Developer’s obligation to reimburse or pay any amount set forth in Section 6.03 orSection 11.04 or the right of PE Member to pursue a monetary claim in connection therewith).(v) Nothing contained in Section 10.02(a) shall limit Developer’s obligation to reimburse or pay anyamounts otherwise specifically required to be paid or reimbursed by Developer under this Agreement (or the right of PEMember to pursue a monetary claim in connection therewith), including obligations to refund any overpayments by PEMember hereunder or obligations to reimburse PE Member with respect to the exercise of any self-help rights containedherein, Developer’s liability for Claims under Section 17.02(b) or Developer’s indemnification obligations under Section 4.05.(vi) Nothing contained in Section 10.02(a) shall be deemed to modify the conditions to the Severance DateTransactions, Substantial Completion, Final Completion or the PE Unit Closing.(vii) Nothing contained in Section 10.02(a) shall limit PE Member’s rights against trade contractors(including Affiliates of Developer) under any Contractor Warranty, rights of recovery under any applicable insurance policies,or any other rights of recovery against any other indemnitors.(viii) Except as expressly set forth in Section 6.03(b) , no party shall be entitled to recover special, punitiveor consequential damages, including loss of profits or business opportunity, arising under or in connection with thisAgreement or any default by any other party hereunder.(ix) For the avoidance of doubt, nothing contained in Section 10.02(a) shall limit PE Member’s rightsagainst any Unit Owner for indemnification in connection with such Unit Owner’s Finish Work, as set forth in the OperatingAgreement or the Co-Construction Agreement.(f) PE Member shall use Best Efforts to notify Developer of any Developer Default within no more than thirty (30)days following the date on which PE Member has knowledge of such Developer Default. In addition, at the PE Unit Closing, PEMember shall notify Developer whether it has actual knowledge of any Developer Default(s) as of such date. PE Member shallrecognize any cure of a Developer Default(s), whether performed by Developer, the LLC, Destination Retail Tenant, R/O Member,the Related/Oxford Guarantor or the Construction Lender; provided , that such recognition shall not entitle Developer, the LLC,Destination Retail Tenant, R/O Member, the Related/Oxford Guarantor or Construction Lender to any notice or additional cureperiod with respect to any Developer Default. As used in this Agreement, the term “PE Member knows of” or “PE Member hasknowledge of” any Developer Default shall mean solely the actual knowledge of Ralph Rosenberg or Peggy Shaughnessy, and anysenior level project manager(s) responsible for the Project as shall be designated in writing (for the specific purpose of having “actualknowledge”, as provided in this Section 10.02(c) ) by PE Member from time to time.(g) Without limiting the foregoing, upon the removal of R/O Member as the managing member of the LLC as aresult of any Management Change Event (as defined in the Operating Agreement), PE Member shall have the right, without prejudiceto any other rights and remedies otherwise available to PE Member, to terminate this Agreement and Developer’s rights under thisAgreement upon delivery of a termination notice to Developer and, in its capacity as a Non-Affiliated Member (as defined in theOperating Agreement) and subject to the provisions of the Operating Agreement (including, without limitation, Section 5.04 thereof)to appoint or engage, or cause the LLC or Tower A Tenant to appoint or engage, an Approved Replacement Developer for the Projectin accordance with the terms of the Operating Agreement and the Co-Construction Agreement; provided , that PE Member obtains allrequired consents required under, and otherwise subject to compliance with the applicable terms of, the Operating Agreement,Construction Loan Documents (or waiver thereof by the Construction Lender), Co-Construction Agreement and the MTA ProjectDocuments (or the waiver thereof by the applicable counterparties) with respect to such termination and/or appointment of anApproved Replacement Developer. For the avoidance of doubt, PE Member shall not have the right to remove Developer as thedeveloper for the Project or remove R/O Member as the managing member of the LLC or otherwise prevent Developer or R/OMember, as the case may be, from exercising their rights as developer of the Project or as managing member of the LLC, or terminatethis Agreement, except for (a) in PE Member’s capacity as a Non-Affiliated Member (as defined in the Operating Agreement), theright to remove R/O Member as the managing member of the LLC, remove Developer as the developer for the Project and/or appointan Approved Replacement Developer upon the occurrence of a Management Change Event (as defined in the Operating Agreement)and otherwise pursuant to and accordance with the provisions of the Operating Agreement (including, without limitation, Section5.04 thereof) and (b) the right to terminate this Agreement pursuant to this Section 10.02(d) . For purposes of this Agreement and ascontemplated by Section 5.04(a)(ii) of the Operating Agreement, “ Management Change Event ” means a Developer MisconductDefault provided that, in the event of any dispute with respect thereto, it shall have been determined by (I) Arbitration wheneverrequired or permitted hereunder that a Developer Misconduct Default occurred (or, in the event such Arbitration is challenged incourt, determined by a court in accordance with clause (II) below), or (II) a court of competent jurisdiction (which determination hasbecome final and non-appealable) that a Developer Misconduct Default occurred.(h) The failure or delay by PE Member in exercising any right, power or privilege shall not operate as a waiverthereof, nor shall any single or partial exercise thereof preclude any other or further exercise.(i) The provisions of this Section 10.02 shall survive the PE Unit Closing and the termination of this Agreement.ARTICLE 11 SEVERANCE DATE CLOSING; PE DEPOSIT; RESCISSIONSection 11.01 Severance Date Transactions .(j) Each of the following shall be conditions precedent to the effectuation of Severance and the obligations of PEMember to enter into the Severance Date Transactions, in addition to the conditions set forth in Sections 1.10 and 1.11 of theOperating Agreement:(xvi) the MTA and Destination Retail Tenant shall have entered into and delivered the Destination RetailLease and a memorandum of the Destination Retail Lease shall have been submitted for recording and all conditionsprecedent to the commencement of the Developer Work and Required Destination Retail Building Work set forth in theTower A Lease and/or the Destination Retail Lease shall have been satisfied or waived by the MTA in writing;(xvii) PE Member shall have been provided with evidence reasonably acceptable to PE Member that thereare sufficient funds available from the construction financing and/or creditworthy direct and indirect owners of one or more ofthe Other Members in order to pay for all Project Costs necessary to substantially complete the Building in accordance withthis Agreement, the MTA Project Documents, and the Operating Agreement and to cause the MTA to convey fee title to thePE Unit to PE Member;(xviii) the Construction Loan with respect to the Tower Building shall have closed and PE Member shallhave approved the Construction Loan Documents in writing;(xix) the DRB Construction Loan shall have closed;(xx) (A) if the Initial Condominium Documents reflect any modification or change from the PreliminarySubmitted Condominium Documents which modification or change would, pursuant to the terms of the PreliminarySubmitted Condominium Documents, have required the approval of PE Member, TW Member and/or any Other Member ifsuch party were a Unit Owner thereunder as of the date of such modification or change and the Unit owned by such partyconstituted a Unit thereunder as of the date of such modification or change, then PE Member, TW Member and/or any suchOther Member, as applicable, shall have approved in writing (not to be unreasonably withheld) such modification or changeto the Preliminary Submitted Condominium Documents; (B) if the Initial Condominium Documents include any schedulesand/or exhibits that were not included in the Preliminary Submitted Condominium Documents, PE Member shall haveapproved in writing (not to be unreasonably withheld) such schedules and/or exhibits (and any provisions of the declarationand/or by-laws reasonably related to such schedules and/or exhibits); and (C) the Initial Condominium Documents shall havebeen executed and recorded in accordance with the provisions of the Operating Agreement and this Agreement, which InitialCondominium Documents shall expressly acknowledge the obligations of the parties under the Co-Construction Agreement;(xxi) PE Member shall have approved in writing (not to be unreasonably withheld), (x) the form andsubstance of the Co-Construction Agreement and (y) the form and substance of any other document requiring the approval of(or that must be “reasonably satisfactory” to) the Members pursuant to Section 1.10 of the Operating Agreement, and TowerA Tenant and Destination Retail Tenant shall have executed and delivered the Co-Construction Agreement;(xxii) Related/Oxford Guarantor shall have executed the Building Completion Guaranty and delivered thesame to PE Member;(xxiii) Developer shall have obtained all building permits and other municipal permits, authorizations,consents, approvals and licenses necessary to commence the Developer Work;(xxiv) Developer shall have executed all construction agreements necessary to commence verticalconstruction of the Developer Work;(xxv) PE Member and Developer shall have agreed on a schedule for payment of the PE Member RemainingEquity Payments following the Severance Date which sets forth the amount of each such payment (which shall equal in theaggregate the PE Member Equity Remaining Equity Amount) and time at which PE Member shall fund such payment to theLLC (such schedule, the “ PE Member Remaining Equity Payments Schedule ”), which PE Member Remaining EquityPayments Schedule shall be based on the PE Member Preliminary Equity Payments Schedule as updated in order to accountfor the Actual PE Unit SF and the actual amount of the PE Member Severance Date Payment;(xxvi) Office Member and PE Member have executed and delivered the Assignment Agreement;(xxvii) PE Member, R/O Member, the Office Member, TW Member and Observation Deck Member haveexecuted and delivered the LLC Amendment, and PE Member shall have approved any other changes to the OperatingAgreement effectuated following the date of this Agreement;(xxviii) Gen-Par and PE Member have executed and delivered the Ancillary Rights Agreement;(xxix) Destination Retail Tenant and PE Member have executed and delivered the Retail ServicesAgreement;(xxx) Developer shall, or shall cause its Affiliate that is the owner of the applicable parcels to, (a) executeand deliver to PE Member a 50 HY Restrictive Covenant with respect to the parcels designated as Block 705, Lots 29, 32, 39and 50, along with any other parcel of real property within the 50 HY Block over which Developer or its Affiliate acquiresownership after the date hereof but prior to the Severance Date, and shall cause the same to be recorded against such parcelsin the appropriate local land records and (b) cause any third party who may become the owner of any such parcel pursuant to arecorded instrument (including, without limitation, any mortgage or lease with an option to purchase) (any such instrument, a“ 50 HY Mortgage ”) in effect as of the Severance Date to execute and record an instrument in the form of Exhibit J attachedhereto (the “ 50 HY Mortgage Subordination ”) subordinating its rights under such 50 HY Mortgage to the applicable 50 HYRestrictive Covenant;(xxxi) Related Guarantor and PE Guarantors have executed and delivered the Non-Compete Agreement;(xxxii) the certificate of formation of the LLC has been amended (in a manner reasonably satisfactory to PEMember) to include the notice of limitation on liabilities of a series in accordance with DLLCA § 18-215(b);(xxxiii) Developer has confirmed that the “put right” of TW Member under the Platform FundingAgreement has lapsed and is no longer exercisable by TW Member;(xxxiv) the Condominium Board has entered into the Standby Power Agreement;(xxxv) Gen-Par shall (or shall cause its applicable Affiliate(s) to) execute and deliver in favor of PE Memberthe Ob Deck Pref Pledge, and shall provide to PE Member a fully executed copy of the Ob Deck Member LLC Agreement;and(xxxvi) Construction Lender and PE Member have executed and delivered the PE Unit Lender Agreement.(k) Provided that the conditions to Severance set forth in Section 11.01(a) above and in Sections 1.10 and 1.11 ofthe Operating Agreement have been satisfied (or waived by PE Member), Developer and the LLC shall be permitted to effectuate theSeverance Date Transactions on the Severance Date and PE Member shall be obligated to perform the obligations of PE Member setforth below in this Section 11.01(b) concurrent with the consummation of the Severance Date Transactions. The following provisionsshall apply to PE Member with respect to the Severance Date Transactions, in addition to the terms and conditions set forth in Section1.10 and Section 1.11 of the Operating Agreement, and any actions or documents described below shall be taken or delivered, as thecase may be, on the date that Severance occurs:(i) PE Member shall execute and deliver (a) the Assignment Agreement, (b) the LLC Amendment and (c)the PE Unit Lender Agreement.(ii) PE Member shall contribute the PE Member Severance Date Payment to the LLC;(iii) PE Member shall pay any Transfer Taxes payable in connection with the transactions effectuated underthe Assignment Agreement and shall file any returns required in connection therewith; and(iv) PE Member shall execute and deliver an instrument confirming its approval in writing of anydocuments, other than those described above, as to which its written approval is required hereunder or under the OperatingAgreement as of the occurrence of Severance and consummation of the Severance Date Transactions.(l) Notwithstanding anything to the contrary herein, PE Member’s sole remedy in respect of any breach of thisAgreement by Developer prior to Severance or any failure of the conditions precedent to PE Member’s obligation to enter into theSeverance Date Transactions to be satisfied by the Outside Severance Date shall be to receive the return of the PE Deposit LOC inaccordance with the provisions of Section 11.03 . Notwithstanding anything to the contrary herein, except as set forth in Section6.03(b) , no party shall be entitled to recover special, punitive or consequential damages, including loss of profits or businessopportunity, arising under or in connection with this Agreement or any default by any other party hereunder.(m) PE Member acknowledges and agrees that the Condominium Board will be entering into the Standby PowerAgreement providing for the purchase of backup power (and payment for reservation therefore) by each of the Tower Units,including the PE Unit.(n) PE Member acknowledges and agrees that Developer’s rights under this Agreement and the PE DeveloperGuaranty shall be collaterally assigned to Construction Lender as additional security for the obligations of Tower A Tenant under theConstruction Loan Documents.Section 11.02 Disclosures . Developer shall advise all Other Members on or before the Severance Date of the conditions tothe Severance Date Transactions set forth in Section 11.01(a) , and Developer shall disclose to PE Member the conditions to theSeverance Date Transactions set forth in all Other Members’ development agreements (other than provisions relating to economicobligations of such Other Members) promptly after the execution of such development agreement or any amendment thereof.Section 11.03 PE Deposit .(a) Simultaneously with (or within seventy-two (72) hours following) the execution and delivery of this Agreement,PE Member has delivered (or will deliver) to Developer a Letter of Credit in the amount of Twenty Five Million Dollars($25,000,000) (the “ PE Deposit LOC ”). In the event that Severance has not occurred by June 30, 2016 (the “ Outside SeveranceDate ”), for any reason (other than a breach by PE Member of its obligation to close the Severance Date Transactions despitesatisfaction of the conditions to Severance set forth in Section 11.01(a) and in Sections 1.10 and 1.11 of the Operating Agreement),then PE Member shall have the right, by delivering written notice to Developer within thirty (30) days of the Outside Severance Date(time of the essence), to receive the return of the PE Deposit LOC, in which event this Agreement shall automatically terminate andbe of no further force or effect except for those provisions of this Agreement which expressly survive such termination.Notwithstanding anything to the contrary in this Agreement, PE Member’s sole remedy in respect of any breach of this Agreement byDeveloper prior to Severance or any failure of Severance to occur on or prior to the Outside Severance Date shall be to receive thereturn of the PE Deposit LOC in accordance with the provisions of this Section 11.03(a) .(b) PE Member shall cause the PE Deposit LOC to be extended from time to time such that at least forty-five(45) days remain until its expiry date. If at any time less than forty-five (45) days remain until the expiration of the PE Deposit LOC,then Developer may draw upon the PE Deposit LOC and hold such amounts as an advance on PE Member’s obligations under thisAgreement.(c) Upon the consummation of the Severance Date Transactions on the Severance Date, Developer shall return thePE Deposit LOC to the PE Member for cancellation.(d) If PE Member fails to close the Severance Date Transactions and perform its obligations at Severance as andwhen required pursuant to the provisions hereof and the Operating Agreement, despite the satisfaction of all conditions precedent toits obligation to do so as set forth herein and in the Operating Agreement, then PE Member shall be in default under this Agreementand Developer shall have the right to draw the full amount of the PE Deposit LOC and retain such amounts (including any amountspreviously drawn by Developer on the PE Deposit LOC and being held by Developer in accordance with Section 11.03(b) above) asliquidated damages, in which event this Agreement shall terminate and the parties shall have no further obligations hereunder exceptthose which by the express terms of this Agreement survive termination.(e) Related/Oxford Guarantor has executed the Joinder to this Agreement for the purposes of guaranteeingDeveloper’s obligation to return the PE Deposit LOC to PE Member as and when required pursuant to this Section 11.03 .Section 11.04 Rescission Right .(a) If (x) Developer fails to deliver both Delivery Blocks to PE Member in Delivery Condition on or prior to theRescission Open Date and (y) Substantial Completion has not occurred on or prior to the Rescission Open Date, then at any timefollowing the Rescission Open Date and prior to the date on which both Delivery Blocks are delivered to PE Member in DeliveryCondition and Substantial Completion has occurred, PE Member may elect (such election, the “ Rescission Election ”) not toconsummate the acquisition of the PE Unit and to receive a refund of all amounts paid by it in respect of the PE Member TotalDevelopment Cost and the PE Member Additional Payment by delivering Notice to Developer of its intent to exercise the RescissionElection (such written notice, a “ Rescission Election Notice ”). If PE Member timely delivers a Rescission Election Noticeexercising the Rescission Election, then on the date (the “ Rescission Effective Date ”) that is thirty (30) days following the deliveryof such Rescission Election Notice, Developer shall pay to PE Member an amount (the “ Rescission Payment ”) equal to the totalamount actually previously paid by PE Member or PE Guarantors hereunder or under the Operating Agreement in respect of the PEMember Total Development Cost and the PE Member Additional Payment whereupon this Agreement (and any guarantees deliveredby PE Guarantors) shall automatically terminate and be of no further force or effect except for those provisions of this Agreement andany such documents which expressly survive such termination, and PE Member shall withdraw as an Economic Member of the LLC;provided , however , if, following the delivery of a Rescission Election Notice but prior to the Rescission Effective Date, Developerdelivers both Delivery Blocks to PE Member in Delivery Condition and Substantial Completion occurs (or would have delivered bothDelivery Blocks in Delivery Condition and/or caused Substantial Completion to occur but for PE Delay), then (i) the RescissionElection shall be null and void and this Agreement shall continue in full force and effect, (ii) PE Member shall continue to beobligated to perform its obligations under this Agreement (including, without limitation, payment of the PE Unit AllocatedConstruction Loan Amount, the PE Member Fixed MTA Deed Payment and, if applicable, the PE Member True-Up Payment, andconsummation of the PE Unit Closing in accordance with the terms of this Agreement), (iii) Developer shall not be obligated to paythe Rescission Payment to PE Member and (iv) this Section 11.04 shall be null and void and PE Member shall have no further rightshereunder, and provided , further , as a condition to Developer’s obligation to pay the Rescission Payment to PE Member, PEMember shall execute such documentation evidencing its withdrawal as an Economic Member of the LLC as shall be reasonablyrequired by Developer.(b) Related/Oxford Guarantor has executed the Joinder to this Agreement for the purposes of guaranteeingDeveloper’s obligation to pay the Rescission Payment to PE Member as and when required pursuant to Section 11.04(a) .ARTICLE 12 UNIT CLOSING; PAYMENT OF PE UNIT ALLOCATED CONSTRUCTION LOAN AMOUNT AND PE MEMBERTRUE-UP PAYMENTSection 12.01 PE Unit Closing .(a) Notwithstanding anything herein or in the Operating Agreement to the contrary (but subject to the provisions ofSection 11.04 ), PE Member shall be obligated to consummate the Closing with respect to the PE Unit (the “ PE Unit Closing ”) uponthe satisfaction of the following conditions (the “ Unit Closing Conditions ”):(i) Both Delivery Blocks have been delivered to PE Member in Delivery Condition;(ii) Provided that PE Member has paid (or by means of a customary escrow or similar arrangement at the PEUnit Closing will pay) (a) the PE Unit Allocated Construction Loan Amount to Construction Lender, (b) the PE MemberTrue-Up Payment (if any) to the LLC and (c) the PE Member Fixed MTA Deed Payment to (or at the direction of) Developer,Developer has caused the MTA to (x) deliver the Deed (as defined in the Operating Agreement) to the PE Unit to PE Memberor, subject to Section 12.01(f) , an Affiliate thereof or other designee as designated by the PE Member to acquire fee title tothe PE Unit at the PE Unit Closing (any such Affiliate or designee, a “ Member Designee ”), subject to the Multiple UnitElection (as defined in the Operating Agreement) if exercised by the PE Member in accordance with the provisions of theOperating Agreement, in which event multiple Deeds shall be so delivered to PE Member and/or any such Member Designee,or (y) if PE Member has elected in accordance with Section 12.04 to acquire the leasehold interest in the PE Unit in lieu of afee interest therein, enter into a Severed Parcel Lease (as defined in the Tower A Lease) with respect to the PE Unit and hascaused Tower A Tenant to assign such Severed Parcel Lease to PE Member or a Member Designee;(iii) The Condominium Documents shall have been amended to (i) subdivide the PE Unit as a separate unitin the Condominium, and (ii) incorporate the matters set forth in the PE Member Condominium Term Sheet;(iv) Substantial Completion has been achieved;(v) The conditions to release of the PE Unit under the Construction Loan Documents shall be satisfied orwaived by the Construction Lender (it being understood that, except for PE Member’s express obligations under thisAgreement, R/O Member shall have the obligation to satisfy such conditions);(vi) Provided that, PE Member has paid (or by means of a customary escrow or similar arrangement at thePE Unit Closing will pay) (a) the PE Unit Allocated Construction Loan Amount to Construction Lender, (b) the PE MemberTrue-Up Payment (if any) to the LLC and (c) the PE Member Fixed MTA Deed Payment to (or at the direction of) Developer,Developer shall have caused Construction Lender to execute and deliver to PE Member and/or its Member Designee (and/orany lender for the foregoing) such documents as are necessary or appropriate in order to release the PE Unit from the lien ofany mortgages on the PE Unit securing the Construction Loan as of the PE Unit Closing Date;(vii) The IDA shall have executed and delivered such documents as it is obligated to execute and deliverpursuant to the IDA Documents in order to sever the IDA Documents from the PE Unit in accordance with the terms andconditions of the IDA Documents such that the PE Unit maintains the existing tax benefits applicable to the PE Unit;(viii) On the PE Unit Closing Date, title to the PE Unit is free of Encumbrances other than the PermittedEncumbrances, and, at PE Member’s election and its sole cost and expense, a market standard pro forma ALTA form of titlepolicy (showing no Encumbrances other than the Permitted Encumbrances) to be issued upon payment, naming the PEMember or the Member Designee as the insured thereunder, shall be provided to PE Member by the Title Insurer (the “ TitlePolicy ”);(ix) Subject to the payment by the PE Member at the PE Unit Closing of all amounts then due and payableby the PE Member as provided in Section 12.01(b) below, the LLC shall have caused Tower A Tenant to subsever the TowerA Lease with respect to the PE Unit in accordance with the terms thereof to exclude the PE Unit as of the PE Closing Date;(x) There has occurred no Major Event (as defined in the Operating Agreement);(xi) A No Action Letter (as defined in the Operating Agreement) shall have been issued by the NYSDepartment of Law or any required offering plan shall have been filed and accepted by the NYS Department of Law on orprior to the first Closing with respect to a Unit;(xii) The New York City Department of Finance shall have issued a separate tax lot(s) for the distributedUnit;(xiii) Either (a) an all-risk casualty insurance policy with standard coverages and endorsements (as specifiedin the Condominium Documents) covering the Common Elements (to the extent constructed and in existence as of such date)to the extent of the full replacement value (and all other insurance coverage required to be maintained by the Condominiumpursuant to the Condominium Documents in effect on the PE Unit Closing Date) thereof shall be obtained and maintained bythe Condominium Board and shall be in force, valid and enforceable on the PE Unit Closing Date, or (b) the builders riskpolicy maintained by the LLC during construction of the Developer Work remains in full force and effect; and(xiv) Without limiting the foregoing provisions of this Section 12.01(a) , at the PE Unit Closing, theManaging Member shall have caused the LLC to execute and deliver, or as appropriate, caused Developer, Tower A Tenant,ERY Tenant, the LLC and the MTA (as applicable) to execute and deliver, the following:a the Transfer Tax Forms (as defined in the Operating Agreement);b such title affidavits or indemnities (if any) as the Title Insurer shall reasonably require to cause theTitle Policy to be issued;c a certificate of non-foreign status pursuant to Section 1445 of the Internal Revenue Code, dulyexecuted and acknowledged by the MTA, in the form attached to the Operating Agreement as Exhibit X;d a certificate of good standing of the LLC and all approvals, authorizations, consents or otheractions by or filings with any Person (if any) which are required to be obtained or completed by the LLC, Tower ATenant or ERY Tenant in connection with the execution and delivery of any of the Closing documents; ande the Redemption Agreement.(b) Subject to PE Member’s rights under Section 11.04 and provided that the Unit Closing Conditions have beensatisfied (or waived in writing by PE Member), PE Member shall, upon ten (10) Business Days’ notice from Developer specifyingthe Closing Date for the PE Unit (the “ PE Unit Closing Date ”), pay the following amounts and consummate the PE Unit Closing:(v) PE Member shall pay to (or at the direction of) Developer the PE Member Fixed MTA Deed Payment.(vi) PE Member shall pay the PE Unit Allocated Construction Loan Amount to Construction Lender (to theextent not previously paid).(vii) PE Member shall pay the PE Member True-Up Payment (if any) to the LLC (to the extent notpreviously paid).(viii) PE Member shall pay (w) the costs of any Title Policy, (x) all costs and expenses incurred by PEMember or any Member Designee in connection with any financing of the PE Unit obtained by PE Member or any MemberDesignee, (y) any Transfer Taxes payable in connection with the PE Unit Closing and (z) all legal expenses or other expenseincurred by the PE Member in connection with the PE Unit Closing that are not the responsibility of Developer pursuant to anexpress provision of this Agreement or the Operating Agreement.(ix) PE Member shall pay all PE Member Additional Development Costs and any other sums due andpayable by PE Member under this Agreement or the Operating Agreement to the extent not paid prior to the PE Unit ClosingDate.For the avoidance of doubt, the amounts required to be paid by PE Member pursuant to this Section 12.01(b) shall constitute theamounts required to be paid by PE Member for purposes of Section 6.03(h)(1) of the Operating Agreement at the PE Unit Closing.(c) At the PE Unit Closing, PE Member shall execute and deliver, or cause to be executed and delivered, all suchdocuments and instruments as required of the Withdrawing Member (as defined in the Operating Agreement) pursuant to Section6.03(h)(ii) of the Operating Agreement.(d) On the PE Unit Closing Date, PE Member shall be paid, by wire transfer of immediately available federal fundsto such account(s) as PE Member shall designate, to the extent not previously paid, any Holdover Costs or any other sums that aredue and payable by the LLC, Developer, R/O Member or their Affiliates to PE Member under this Agreement or the OperatingAgreement, together with any interest accrued and unpaid thereon in accordance with the terms of this Agreement or the OperatingAgreement.(e) Developer shall use (and Developer shall cause the LLC and its Affiliates to use) commercially reasonableefforts to obtain (at PE Member’s cost) such other documents, closing deliveries and/or information (in addition to the documents,closing deliveries and/or information specified in Section 12.01 ) as PE Member (or a Member Designee) may reasonably request inorder to effect the PE Unit Closing (or any financing transaction(s) executed in connection with the PE Unit Closing), provided thatPE Member shall not be obligated to pay for the cost of Developer obtaining or delivering any documents, closing deliveries and/orinformation that Developer or its Affiliate is otherwise obligated to provide (at Developer’s cost) under this Agreement or theOperating Agreement.(f) As a condition precedent to PE Member’s ability to designate a Member Designee to take title to the PE Unit atthe PE Unit Closing, PE Member shall cause such Member Designee to assume in all of the remaining obligations and liabilities ofPE Member under this Agreement as of the PE Unit Closing pursuant to a written instrument reasonably acceptable to Developer.Section 12.02 Unit Carry Costs . Notwithstanding anything to the contrary set forth herein and without limiting theprovisions of Section 12.02 (but subject to PE Member’s rights under Section 11.04 ), if PE Member fails to consummate the PE UnitClosing despite satisfaction (or waiver in writing by PE Member) of all Unit Closing Conditions, then PE Member shall be deemed tobe in default under this Agreement and, in addition to any other remedies available to the LLC, the Members or Developer by reasonof such failure, PE Member shall be liable for, and shall pay from time to time upon written demand from Developer, all carry costsattributable to the PE Unit, including, without limitation, all rent and additional rent under the Tower A Lease (including PILOT andreal estate taxes), all interest and other costs under the Construction Loan allocable to the PE Unit, and all common chargesapplicable to the PE Unit under the Condominium Documents (collectively, “ Unit Carry Costs ”) from the date of such default untilthe PE Unit Closing occurs, with interest thereon at the Default Rate from the date of such default. For the avoidance of doubt, PEMember shall be obligated to pay Unit Carry Costs pursuant to the preceding sentence regardless of whether Developer is payingHoldover Costs pursuant to Section 6.03 above, and the obligation of PE Member to pay Unit Carry Costs pursuant to the precedingsentence shall be exclusive of PE Member’s obligation, if any, to pay Construction Loan interest allocable to the PE Unit for anyHoldover Delay Period in accordance with Section 6.03(b)(ii) above ( provided that PE Member shall not be obligated to pay suchamount twice). All Unit Carry Costs payable by PE Member pursuant to this Section 12.02 shall constitute PE Member AdditionalDevelopment Costs.Section 12.03 Repayment of PE Unit Allocated Construction Loan Amount; Release of PE Unit .(c) Upon payment by PE Member of (i) the PE Unit Allocated Construction Loan Amount to Construction Lender,(ii) the PE Member Fixed MTA Deed Payment to (or at the direction of) Developer, and (iii) the PE Member True-Up Payment (ifany) to the LLC, Developer shall cause Construction Lender to execute and deliver to PE Member and/or its Member Designee(and/or any lender for the foregoing) such documents as are necessary or appropriate in order to release the PE Unit from the lien ofany mortgages on the PE Unit securing the Construction Loan (or, at PE Member’s request, to sever the allocable portion of themortgage and assign such severed portion to PE Member’s (or its Member Designee’s) lender).(d) Developer and PE Member shall cause the PE Unit Closing (or issuance of a severed leasehold interest, if PEMember so elects in accordance with Section 12.04 below) pursuant to Section 6.03 of the Operating Agreement to be consummatedsimultaneously with the payment by PE Member or its Member Designee, in accordance with the provisions of Section 12.01(b) , of(i) the PE Unit Allocated Construction Loan Amount to Construction Lender, (ii) the PE Member Fixed MTA Deed Payment to (or atthe direction of) Developer, and (iii) the PE Member True-Up Payment to the LLC.(e) If any ERY Completion Condition (as hereinafter defined) has not been satisfied as of the PE Unit Closing Date(any ERY Completion Condition that is not satisfied as of the PE Unit Closing Date, a “ Deferred ERY Completion Condition ”),then (1) at the PE Unit Closing, Developer shall pay to PE Member an amount equal to Seven Million Five Hundred Thousand and00/100 Dollars ($7,500,000.00) for each such Deferred ERY Completion Condition (the aggregate amount (up to Forty Five Millionand 00/100 Dollars ($45,000,000)) so required to be paid by Developer to PE Member, the “ ERY Holdback Amount ”), and (2) uponsatisfaction of each Deferred ERY Completion Condition, PE Member shall repay to Developer (to the extent previously paid byDeveloper to PE Member pursuant to Section 12.03(c)(1) ) a portion of the ERY Holdback Amount equal to Seven Million FiveHundred Thousand and 00/100 Dollars ($7,500,000.00). The parties agree, for all U.S. federal, state, local and foreign tax purposes,(i) to treat any payment by Developer to PE Member of the ERY Holdback Amount pursuant to clause (1) of the immediatelypreceding sentence as a rebate of the purchase price of the PE Unit and (ii) to treat any payment by PE Member to Developer of theERY Holdback Amount pursuant to clause (2) of the immediately preceding sentence as a deferred payment of the purchase price ofthe PE Unit (except for amounts properly characterized as payments of interest under U.S. federal income tax principles). As usedherein, each of the following items (i) through (vi) is individually referred to herein as an “ ERY Completion Condition ”:(i) a Core & Shell TCO (or temporary certificate of occupancy for first tenant occupancy) has been obtainedfor the building in the ERY commonly known as 10 Hudson Yards;(ii) a Core & Shell TCO (or temporary certificate of occupancy for first tenant occupancy) has been obtainedfor the building in the ERY commonly known as 15 Hudson Yards (excluding the “Culture Shed”);(iii) construction has commenced on the building in the ERY commonly known as 35 Hudson Yards and thestructure thereon is at least 20 construction floors high;(iv) a Core & Shell TCO (or temporary certificate of occupancy for first tenant occupancy) has beenobtained for the building in the ERY commonly known as 55 Hudson Yards;(v) the core and shell of the Destination Retail Building has been completed, a Core & Shell TCO (ortemporary certificate of occupancy for first tenant occupancy) has been obtained for the Destination Retail Building, and theDestination Retail Building is open to the public; and(vi) the open space in the ERY between 30 th street and 33 rd street (including plaza, roads and landscaping)has been completed and is open to the public.Developer’s obligation (if any) to pay the ERY Holdback Amount to PE Member at the PE Unit Closing shall be guaranteed byRelated/Oxford Guarantor at Severance pursuant to the Building Completion Guaranty. In addition, at Severance, Gen-Par shall (orshall cause its applicable Affiliates holding such interest to) execute and deliver a pledge agreement to PE Member, in form andsubstance reasonably acceptable to PE Member (which senior preferred equity interest shall be subordinate to any bona fide thirdparty debt financing and, for the avoidance of doubt, shall rank senior in priority to any equity interests or any obligations orliabilities due or payable to Gen-Par or its Affiliates) (the “ Ob Deck Pref Pledge ”), pledging in favor of PE Member, as additionalsecurity for Developer’s obligation to pay the ERY Holdback Amount in accordance with the provisions of this Section 12.03(c) , asenior preferred equity interest in Observation Deck Member (the “ Ob Deck Pref Interest ”). The Ob Deck Pref Interest shall beevidenced by an amended and restated limited liability company agreement for Observation Deck Member entered into as ofSeverance in form and substance reasonably acceptable to PE Member (the “ Ob Deck Member LLC Agreement ”).(f) At Severance, PE Guarantors shall guaranty, pursuant to the PE Guaranty, (A) PE Member’s obligation to pay the PEUnit Allocated Construction Loan Amount as and when required in accordance with the provisions of Section 12.01(b) , (B) PEMember’s obligation to pay the PE Member True-Up Payment to the LLC if, as and when required in accordance with the provisionsof Section 12.01(b) and (C) PE Member’s obligation to pay the PE Member Fixed MTA Deed Payment as and when required inaccordance with the provisions of Section 12.01(b) .Section 12.04 Issuance of Severed Leasehold Interest for PE Unit . Notwithstanding anything to the contrary set forthherein or in the Operating Agreement, but subject to the ability of Developer to obtain the agreement of the MTA to effectuate thesame, PE Member shall have the right, by delivering Notice to Developer no less than six (6) months prior to the date set forth inSection 6.03(d) of the Operating Agreement for the PE Unit Closing, to elect to acquire a leasehold interest to the PE Unit (and notthe fee interest to the PE Unit) at the PE Unit Closing. If PE Member makes such election, then Developer and R/O Member shallcause the MTA to enter into a Severed Parcel Lease (as defined in the Tower A Lease) with respect to the PE Unit and shall causeTower A Tenant to assign such Severed Parcel Lease to PE Member at the PE Unit Closing in lieu of the delivery by the MTA of theDeed to the PE Unit.ARTICLE 13 DC PUNCH LIST WORK; DELIVERIES AND PAYMENTS TO BE MADE FOLLOWING THE CLOSING; FINAL ACCOUNTINGSection 13.01 Completion of DC Punch List Work .(f) Developer shall cause to be completed the DC Punch List Work in accordance with the Plans and all applicableLaws, and with due diligence and, in any event, by the DC Punch List Work Completion Date, subject to Force Majeure, PE Delayand PE Punch List Delay. If PE Member fails to comply with its obligations under this Agreement or the Operating Agreement inconnection with the performance of PE Finish Work and such failure results in an actual delay in the completion of DC Punch ListWork by the applicable DC Punch List Work Completion Date, then such failure shall constitute a “ PE Punch List Delay .”(g) If Developer fails to commence (or cause to be commenced) the DC Punch List Work promptly followingagreement on the DC Punch List or if Developer does not thereafter diligently progress and complete (or cause the progression andcompletion of) such DC Punch List Work by the applicable DC Punch List Work Completion Date (subject to extension for ForceMajeure, PE Delay and PE Punch List Delay), and if PE Member notifies Developer that the applicable contractors have notcommenced and/or are not proceeding with due diligence and within the agreed-upon time periods to complete such DC Punch ListWork (subject to extension for Force Majeure, PE Delay and PE Punch List Delay) and of PE Member’s intention to perform the DCPunch List Work, then within fifteen (15) Business Days thereafter, if the DC Punch List Work is not completed or being diligentlyprosecuted to completion by Developer (subject to extension for Force Majeure, PE Delay and PE Punch List Delay) (and provided,such Punch List Work is in the PE Areas), PE Member shall have the right (but not the obligation) to undertake the DC Punch ListWork; provided that Developer shall reimburse, or cause R/O Member to reimburse, within ten (10) days after PE Member’s demandtherefor, PE Member for any actual, out-of-pocket costs incurred by PE Member in connection with PE Member’s performance (asopposed to Developer’s performance) of such DC Punch List Work. Any such costs incurred by PE Member and not timely paid byDeveloper to PE Member shall incur interest at the Default Rate from the date paid by PE Member until the date PE Member isreimbursed therefor by Developer or R/O Member.Section 13.02 Payment of the Cost of Post-Distribution Work Properly Allocable to the PE Unit .(g) Following the PE Unit Closing, (x) PE Member shall continue to make payments for any PE Member AdditionalDevelopment Costs payable thereafter, and (y) Developer will continue to make payments for all amounts for which Developer isresponsible pursuant to Section 10.01(a) .(h) As more fully provided elsewhere in this Agreement, Developer shall simultaneously copy (or shall cause theExecutive Construction Manager to simultaneously copy) PE Member on all Draw Requests (including all back-up documentation)and submissions made to the Construction Lender, including for work performed following the PE Unit Closing. Following the PEUnit Closing, each such copy to PE Member shall be accompanied by a title continuation search with respect to the PE Unit.Section 13.03 Final Accounting at Final Completion; Final Payments . Promptly following Final Completion, Developershall prepare and deliver to PE Member a final statement of all the PE Member Additional Development Costs, including a detailedstatement of any costs incurred since the last Draw Request through the date of Final Completion. PE Member shall have the rightwithin two (2) years following delivery of such final statement, to audit such final statement and all the books and records of theProject for the purposes of (i) verifying or confirming any matters set forth in such final statement which relate to any PE MemberAdditional Development Costs, (ii) reconciling PE Member Additional Development Costs and/or (iii) determining whether any costswere mistakenly or improperly allocated to PE Member as PE Member Additional Development Costs during the course of theProject. PE Member and Developer shall endeavor to resolve promptly any issues arising out of such examination. If the parties areunable to resolve such matters promptly, either PE Member or Developer may submit any dispute for resolution to Arbitration underthe provisions of Article 14 . If this final accounting shall establish that the amounts paid by or on behalf of PE Member exceed thefinal PE Member Additional Development Costs determined as provided in this Agreement, then, within thirty (30) days after thecompletion of said final accounting, Developer shall cause R/O Member or the applicable Other Member to pay (through the LLC) toPE Member the amount of such excess together with interest thereon at the Interest Rate, from the date paid by PE Member untilreimbursed by R/O Member or such applicable Other Member. If the final accounting shall establish that the final PE MemberAdditional Development Costs exceed amounts paid by PE Member to date, then, within thirty (30) days after the completion of saidfinal accounting, PE Member shall pay to the LLC (for distribution to the applicable Other Members) the amount of such deficiencytogether with interest thereon at the Interest Rate, from the date paid by such applicable Other Members until reimbursed by PEMember.Section 13.04 Developer’s Obligation to Discharge Liens and Remove Violations After the Closing . Developer shall causeto be bonded or removed any liens or other Encumbrances (other than Permitted Encumbrances) filed or recorded against the PE Unitafter the PE Unit Closing by any Person performing Developer Work or by any Person asserting a claim against Developer, Tower ATenant, Destination Retail Tenant, Destination Retail JV or the LLC with respect thereto, in each case within thirty (30) days after thefiling thereof, provided , that if Developer fails to cause to be bonded or removed any such liens or other Encumbrances within suchthirty (30) day period, PE Member shall have the right (but not the obligation) to remove any such lien or Encumbrance, in whichevent Developer shall reimburse PE Member for the costs thereof within ten (10) days of receiving an invoice therefor from PEMember. Any such costs incurred by PE Member and not timely paid by Developer to PE Member shall incur interest at the DefaultRate from the date paid by PE Member until the date PE Member is reimbursed therefor by Developer. In addition, Developer shallproceed with due diligence to cause to be removed all Developer Violations which are noticed or filed against the Building after thePE Unit Closing.Section 13.05 Survival . The provisions of this Article 13 shall survive the PE Unit Closing and the termination of thisAgreement.ARTICLE 14 DISPUTE RESOLUTIONSection 14.01 Dispute Resolution .(i) If a dispute arises that the parties are unable to resolve and for which this Agreement provides resolution byArbitration or pursuant to the provisions of this Article 14 , then, in any such case, PE Member or Developer shall present the disputeto a single arbiter from among the arbiters identified in Exhibit G attached hereto (each, an “ Arbiter ”), who are listed in the order ofpriority (i.e., the second individual serves only if the first is not available and the third individual serves only if the first and secondare not available) and who will resolve the dispute as provided in this Article 14 ; provided , that if this Agreement provides that adispute is to be resolved by a Work Dispute Arbiter, then PE Member or Developer shall present the dispute to the arbiters identifiedin Exhibit H attached hereto (each, a “ Work Dispute Arbiter ”), who are listed in the order of priority (i.e., the second individualserves only if the first is not available and the third individual serves only if the first and second are not available) and who willresolve the dispute as provided in this Article 14 . If one from among the panel of Arbiters (or Work Dispute Arbiters) resigns orbecomes unable to serve hereunder, a successor individual shall be selected by the parties hereto. Except during the pendency of anarbitration proceeding pursuant to the procedures contained herein, either party may, by written notice to the other, disqualify any ofthe Arbiters or Work Dispute Arbiters for reasonable cause and propose additional arbitrators to be Arbiters or Work Dispute Arbitersto be agreed upon by the parties hereto.(j) A party (“ Disputing Party ”) may submit a request for resolution of a dispute (a “ Dispute ”) pursuant to theprovisions of this Agreement by giving notice (a “ Dispute Notice ”) of the Dispute to the other party to the Dispute (the “ OtherDisputing Party ”) and to the Arbiter (or Work Dispute Arbiter), which Dispute Notice shall identify the provision of the Agreementat issue and shall specify in reasonable detail: (i) the nature of the dispute and the interpretation or decision requested; (ii) the party’sproposal to resolve the dispute; and (iii) a written explanation of its position, together with any materials that it deems relevant forsuch purpose.(k) Within five (5) Business Days after receiving the Dispute Notice, the Other Disputing Party to the Dispute shallhave the right to deliver to the Arbiter (or Work Dispute Arbiter), with a copy to the Disputing Party, its written statement settingforth (i) its position in reasonable detail with respect to the matters in Dispute, (ii) its proposal to resolve the dispute, and (iii) awritten explanation of its position, together with any materials that it deems relevant for such purpose. The Arbiter (or Work DisputeArbiter) shall coordinate among the Disputing Party and the Other Disputing Party in order to arrange for a time or time(s) to meetand present positions within the time deadlines as provided below. The Disputing Party and the Other Disputing Party shall eachmake themselves available during such time deadlines and if no mutually convenient time is agreed upon, each party shall beavailable during business hours on the last Business Day of such time deadline.(l) The Disputing Party and Other Disputing Party shall each be entitled to present additional evidence andarguments to the Arbiter (or Work Dispute Arbiter) (in addition to the initial written statements described above) in accordance withprocedures, if any, determined by the Arbiter (or Work Dispute Arbiter), which procedures shall be implemented by the Arbiter (orWork Dispute Arbiter) so as to cause the time deadlines set forth below to be met. All evidence and arguments must be presented tothe Arbiter (or Work Dispute Arbiter) within five (5) Business Days after the expiration of the five (5) Business Day period describedin Section 14.01(c) . The Arbiter (or Work Dispute Arbiter) shall in all events render its decision by the later of (i) ten (10) BusinessDays after delivery of the second initial statements of the Other Disputing Party pursuant to Section 14.01(c) or (y) seven (7)Business Days after all evidence and arguments have been presented under this Section 14.01(d) . The Arbiter (or Work DisputeArbiter) shall issue a single written decision stating, in reasonable detail, the basis for its decision. The Arbiter (or Work DisputeArbiter) shall allocate the costs of the Dispute (including, without limitation, the costs of the Arbitration, any expert witnesses andreasonable attorney’s fees) between the Disputing Parties as it deems appropriate and shall set forth such cost allocation in itsdecision. The Arbiter (and Work Dispute Arbiter) shall not vary the terms of this Agreement, and any decision shall be subject to thelimitations on liability and remedies set forth in this Agreement, including Section 10.02 , and the Operating Agreement. Thedecision of the Arbiter (or Work Dispute Arbiter) need not accept, in its entirety, the position(s), or the specific cost allocations,advanced by either Disputing Party. The Arbiter’s (or Work Dispute Arbiter’s) decision shall be conclusive and binding on all Partiesto the Dispute and shall be confirmable in a court of competent jurisdiction.(m) Developer shall not stop the design or construction of the Building during the pendency of any dispute, but shallnot proceed with any aspects of the work at issue in the dispute if any work performed might have to be changed depending on theresolution of the Arbitration. The initiation or pendency of any Arbitration shall not give any Member the right to withhold or delaypayment of any Draw Request or other sum due hereunder, provided that the making of such payment shall not prejudice PEMember’s right to pursue the dispute in question.(n) Proceedings before or involving dispute resolution under this Article in and of themselves shall not constituteevents of Force Majeure or PE Delay. Notwithstanding the foregoing, if the Arbiter in any Arbitration determines that PE Memberacted unreasonably (where PE Member is obligated to be reasonable) in withholding its approval or consent, and that the dispute andArbitration resulted in actual delay, then such delay shall be PE Delay.(o) No dispute or matter arising under this Agreement shall be subject to resolution under this Article 14 unless thisAgreement specifically provides for such dispute or matter to be resolved by Arbitration under this Article 14 .(p) To the extent provided in the Co-Construction Agreement and/or the Co-Construction Agreement Term Sheet,Destination Retail Tenant shall join in and be bound by any arbitration conducted pursuant to this Article 14 .(q) The provisions of this Article 14 shall survive the PE Unit Closing and the termination of this Agreement.ARTICLE 15 REPRESENTATIONS AND WARRANTIES OF DEVELOPER AND PE MEMBERSection 15.01 Developer’s Representations . Developer represents and warrants to PE Member, as of the date hereof, asfollows:(a) Developer is a limited liability company duly formed, validly existing and in good standing under the laws of theState of Delaware and has all requisite power and authority to carry on its business as now being conducted. Developer has therequisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, deliveryand performance by Developer of this Agreement and the transactions contemplated hereby have been duly and validly authorized byall requisite organizational action (including such requisite action by the direct and indirect members of Developer). This Agreementhas been - duly executed and delivered by Developer. This Agreement constitutes a legal, valid and binding obligation of Developerenforceable against Developer in accordance with its terms.(b) The execution and delivery of this Agreement by Developer and the consummation of the transactionscontemplated hereby by Developer do not and will not (i) violate or conflict with the limited liability company agreement ofDeveloper (or the organizational documents of any R/O Party), (ii) violate or conflict with any judgment, decree or order of any courtapplicable to or affecting Developer or any R/O Party, (iii) breach any provisions of, or constitute a default under, any contract,agreement, instrument or obligation to which Developer or any R/O Party is a party or by which Developer or any R/O Party is bound(including, without limitation, the DRB Development Agreement, the Construction Management Agreement and the DRB ECMAgreement), or (iv) violate or conflict with any Laws applicable to Developer or any R/O Party.(c) No approval, authorization, consent or other actions by or filing with any third party or governmental agency orauthority is required for the execution of this Agreement by Developer and the performance of Developer’s obligation hereunder,other than (i) any such approval, authorization, consent or other action or filing which has been obtained, taken or made, and (ii)building and other similar governmental permits or approvals which, in accordance with best construction practices in New York Cityfor similar first class projects, will be obtained in the regular course of construction of the Project and which are not otherwiserequired under the Construction Loan Documents as a condition precedent to the initial advance of the Construction Loan.(d) Neither Developer nor any of its constituent owners have engaged in any dealings or transactions, directly orindirectly, (i) in contravention of any U.S., international or other money laundering regulations or conventions, including, withoutlimitation, the United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, the United StatesInternational Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Trading with the Enemy Act (50 U.S.C. § 1 etseq. , as amended), or any foreign asset control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V,as amended) or any enabling legislation or executive order relating thereto, or (ii) in contravention of the Anti-Terrorism Order or onbehalf of terrorists or terrorist organizations, including those persons or entities that are included on any relevant lists maintained bythe United Nations, North Atlantic Treaty Organization, Organization of Economic Cooperation and Development, Financial ActionTask Force, U.S. Office of Foreign Assets Control, U.S. Securities & Exchange Commission, U.S. Federal Bureau of Investigation,U.S. Central Intelligence Agency, U.S. Internal Revenue Service, or any country or organization, all as may be amended from time totime. Neither Developer nor any of its constituent owners (A) are or will be conducting any business or engaging in any transactionwith any person appearing on the U.S. Treasury Department’s Office of Foreign Assets Control list of restrictions and prohibitedpersons, or (B) are a person described in Section 1 of the Anti-Terrorism Order, and to the best of Developer’s knowledge,respectively neither Developer nor any of its Affiliates have engaged in any dealings or transactions, or otherwise been associatedwith any such person. Developer and its constituent owners have in place written policies and procedures, internal controls andsystems that are reasonably designed to ensure compliance by Developer and its constituent owners with the anti-corruption, anti-terrorism and other laws and regulations referenced in this Section 15.01(d) .(e) There are no actions, suits or proceedings at law or in equity by or before any Government Entity now pendingor threatened against or affecting Developer, Related Parent, the Oxford Guarantor, any Affiliates of Developer or any of theirrespective assets, which actions, suits or proceedings, if determined against Developer, Related Parent, the Oxford Guarantor anysuch Affiliate of Developer or Related Parent or the Oxford Guarantor or any of such assets, might reasonably be expected tomaterially adversely affect the condition (financial or otherwise) or business of Developer or Related Parent or the Oxford Guarantoror the condition or ownership of any of their respective assets or their ability to perform their respective obligations under thisAgreement, the Co-Construction Agreement (or the Co-Construction Agreement Term Sheet) or the Building Completion Guaranty.(f) Developer, as developer, has entered into the Executive Construction Management Agreement, and suchagreement is in full force and effect and has not been amended, modified or supplemented. To Developer’s knowledge, no party is inbreach of the Executive Construction Management Agreement.(g) Developer has delivered to PE Member or made available on the Project Data Site prior to the date of thisAgreement, true, correct and complete copies of (1) the Operating Agreement (including all exhibits and schedules), (2) the ProjectDocuments, (3) the TW Development Agreement (redacted, where applicable), including all exhibits and schedules, (4) the ProjectLabor Agreement, (5) the ZLDA, and (6) any other agreement (redacted where necessary) entered into by the Tower A Tenant or anyR/O Party or binding upon the Tower A Tenant, the Tower Building or the Land that, in Developer’s reasonable opinion, is materialto the design, construction, development, ownership, use or occupancy of the Tower Building other than (x) design and constructioncontracts (but excluding the Construction Management Agreement, the Executive Construction Management Agreement, theArchitect’s Agreement, the DRB Executive Construction Management Agreement and the DRB Development Agreement) and (y)any agreement that solely affects one or more Other Units and does not impact the PE Unit (the agreements and documentsreferenced in this Section 15.01(g) (including for the avoidance of doubt any agreements or documents attached as exhibits, annexesor schedules to the foregoing), collectively, the “ 30 HY Project Documents ”).(h) To Developer’s actual knowledge, no material default, or event which with the giving of notice or lapse of timeor both would be a material default, exists under any 30 HY Project Document. Developer has not received any written notice ofmaterial default under any 30 HY Project Document which remains uncured.(i) Prior to the date hereof, Developer has commenced erection of building steel above the Platform.(j) Developer represents and warrants that the parcels referred to in the 50 HY Deed Restriction are the only parcelsof real property currently owned or controlled by Developer or its Affiliate within the block bounded by 10 th Avenue in the east,Hudson Boulevard in the west, 33 rd Street in the south and 34 th Street in the north, in the City, County and State of New York (the “50 HY Block ”).Section 15.02 PE Member’s Representations . PE Member represents and warrants to Developer, as of the date hereof, asfollows:(a) PE Member is a limited liability company duly formed, validly existing and in good standing under the laws ofthe State of Delaware. PE Member has all requisite power and authority to execute and deliver this Agreement and to perform itsobligations hereunder. The execution, delivery and performance by PE Member of this Agreement and the transactions contemplatedhereby have been duly and validly authorized by all requisite organizational action. This Agreement has been duly executed anddelivered by PE Member. This Agreement constitutes a legal, valid and binding obligation of PE Member enforceable against PEMember in accordance with its terms.(b) The execution and delivery of this Agreement by PE Member and the consummation of the transactionscontemplated hereby by PE Member do not and will not (i) violate or conflict with the limited liability company agreement of PEMember, (ii) violate or conflict with any judgment, decree or order of any court applicable to or affecting PE Member, (iii) breachany provisions of, or constitute a default under, any contract, agreement, instrument or obligation to which PE Member is a party orby which PE Member is bound, or (iv) violate or conflict with any Laws applicable to PE Member.(c) No approval, authorization, consent or other actions by or filing with any third party or governmental agency orauthority is required for the execution of this Agreement by PE Member and the performance of PE Member’s obligation hereunder,other than any such approval, authorization, consent or other action or filing which has been obtained, taken or made.(d) Neither PE Member nor any of its constituent owners have engaged in any dealings or transactions, directly orindirectly, (i) in contravention of any U.S., international or other money laundering regulations or conventions, including, withoutlimitation, the United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, the United StatesInternational Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Trading with the Enemy Act (50 U.S.C. § 1 etseq. , as amended), or any foreign asset control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V,as amended) or any enabling legislation or executive order relating thereto, or (ii) in contravention of the Anti-Terrorism Order or onbehalf of terrorists or terrorist organizations, including those persons or entities that are included on any relevant lists maintained bythe United Nations, North Atlantic Treaty Organization, Organization of Economic Cooperation and Development, Financial ActionTask Force, U.S. Office of Foreign Assets Control, U.S. Securities & Exchange Commission, U.S. Federal Bureau of Investigation,U.S. Central Intelligence Agency, U.S. Internal Revenue Service, or any country or organization, all as may be amended from time totime. Neither PE Member nor any of its constituent owners (A) are or will be conducting any business or engaging in any transactionwith any person appearing on the U.S. Treasury Department’s Office of Foreign Assets Control list of restrictions and prohibitedpersons, or (B) are a person described in Section 1 of the Anti-Terrorism Order, and to the best of PE Member’s knowledge,respectively neither PE Member nor any of its Affiliates have engaged in any dealings or transactions, or otherwise been associatedwith any such person.(e) There are no actions, suits or proceedings at law or in equity by or before any Government Entity now pendingor threatened against or affecting PE Member, the PE Guarantors, any Affiliates of PE Member or the PE Guarantors or any of theirrespective assets, which actions, suits or proceedings, if determined against PE Member, the PE Guarantors, any Affiliates of PEMember or the PE Guarantors or any of such assets, might reasonably be expected to materially adversely affect the condition(financial or otherwise) of PE Member or the PE Guarantors or the condition or ownership of any of their respective assets or theirability to perform their obligations under this Agreement or the PE Developer Guaranty.ARTICLE 16 FLOOR AREASection 16.01 Floor Area . PE Member and Developer agree that the Floor Area of the PE Unit (the “ PE Floor Area ”) andthe other Units shall be set forth in the Condominium Documents. Subject to compliance with the provisions of this Agreement as tochanges in the Plans, PE Member may alter the PE Areas (or elements within the PE Areas) so as to re-allocate RSF (or the FloorArea in the PE Unit) in the PE Areas, provided , that the PE Areas shall not exceed the Actual PE Unit SF (or, after the PE Floor Areahas been determined, the PE Floor Area) in the aggregate.ARTICLE 17 EXCULPATION; INDEMNIFICATIONSection 17.01 Exculpation .(a) Except for obligations and liabilities of the PE Guarantors under the PE Developer Guaranty, no Affiliate of PEMember and no direct or indirect partner, member or shareholder in or of PE Member or any Affiliate of PE Member (and no officer,director, manager, employee or agent of PE Member or such Affiliate or any such partner, member or shareholder) will be liable forthe performance of PE Member’s obligations under this Agreement.(b) Except for obligations and liabilities of (x) the Related/Oxford Guarantor under the Building CompletionGuaranty or (y) the Joinder Parties under the Joinder to this Agreement, no Affiliate of Developer and no direct or indirect partner,member or shareholder in or of Developer or any Affiliate of Developer (and no officer, director, manager, employee or agent of anysuch partner, member or shareholder), will be liable for the performance of Developer’s obligations under this Agreement. Theforegoing shall not be deemed to alter or vitiate the obligations and liabilities of R/O Member under the Operating Agreement.Section 17.02 Indemnification .(a) Subject to the provisions of Section 17.02(c) , PE Member shall defend, indemnify and hold harmless theDeveloper Indemnitees from and against all actual losses, damages, charges, liabilities and expenses (including, without limitation,reasonable attorneys’ fees and expenses) arising from any third-party claims of any nature (hereinafter, collectively, “ Claims ”)relating to or arising from (i) PE Member’s breach or default in the performance of any of PE Member’s obligations under and inaccordance with the terms of this Agreement or (ii) PE Member’s failure (other than by reason of Developer’s default under thisAgreement) or refusal to comply with or abide by any applicable Laws, provided , that the foregoing indemnity shall not apply to theextent such claim results from the negligence or willful misconduct of the Developer Indemnitees or breach of this Agreement by theDeveloper Indemnitees.(b) Subject to the provisions of Section 17.02(c) , Developer shall defend, indemnify and hold harmless the PEIndemnitees from and against all actual losses, damages, charges, liabilities and expenses (including, without limitation, reasonableattorneys’ fees and expenses) arising from any Claims relating to or arising in connection with the Developer Work (including,without limitation, any Claims relating to or arising in connection with (i) Developer’s breach or default in the performance of any ofDeveloper’s obligations under and in accordance with the terms of this Agreement or (ii) Developer’s failure (other than by reason ofPE Member’s default under this Agreement) or refusal to comply with or abide by any applicable Laws); provided that the foregoingindemnity shall not apply to the extent any such Claim or Legal Proceeding results from (1) the negligence or willful misconduct ofthe PE Indemnitees or breach of this Agreement by the PE Indemnitees or (2) any matter for which PE Member is responsible toindemnify the Developer Indemnitees under clause (a) above. Developer’s liability under this Section 17.02 shall not be subject to theFloor or the Cap.(c) In no event shall PE Member or Developer be liable for, and each party, on behalf of itself and its respective PEIndemnitees or Developer Indemnitees (as applicable), hereby waives any claim for, any special, punitive or consequential damages(except, with respect to Developer, as expressly set forth herein with respect to Holdover Costs), including loss of profits or businessopportunity, arising under or in connection with this Agreement or any default by the other party hereunder.(d) If any action shall be brought against any PE Indemnitee or Developer Indemnitee (each, for purposes of thisSection 17.02(d) , an “ Indemnitee ”) based upon any Claim for which such Indemnitee is indemnified hereunder, the Indemniteeshall promptly notify the indemnitor in writing thereof and the indemnitor shall promptly assume the defense thereof. TheIndemnitees shall have the right to employ separate counsel in any such action and to participate in the defense thereof (subject toindemnitors’ right to control the defense thereof). The fees and disbursements of such counsel shall be at the expense of theIndemnitees; provided that if the indemnitor fails to undertake the defense of any Claim for which the Indemnitees are indemnifiedhereunder, or if in the reasonable opinion of counsel to the Indemnitees, there exists a conflict of interest between the indemnitor andthe Indemnitees that cannot be waived, then the indemnitor shall be liable for the reasonable fees and expenses of one counselrepresenting the Indemnitees collectively in defending the Claim. The indemnitor and Indemnitees shall cooperate in allcommercially reasonable respects in connection with the defense of any Claim. The indemnitors shall not have the right to settle anyClaim without the prior written approval of Indemnitees, and the Indemnitees shall not have the right to settle any Claim without theprior written approval of the indemnitors, which approval in each case shall not be unreasonably withheld; provided , however , theindemnitors shall have the right to settle any Claim without the approval of the Indemnitees if such settlement shall release theapplicable Indemnitees against whom liability has been asserted from all liability with respect to such Claim without contribution oradmission of wrongdoing from such Indemnitees.Section 17.03 Survival . The provisions of this Article 17 shall survive the PE Unit Closing and the termination of thisAgreement.ARTICLE 18 NOTICESSection 18.01 Notices . Except as otherwise provided in Section 18.02 , any and all notices, demands, requests, consents,approvals, objections, comments, responses or other communications (each, a “ Notice ”) permitted or required to be made under thisAgreement shall be in writing, signed by the party giving such Notice and shall be delivered (a) by hand (with signed confirmation ofreceipt), or (b) by nationally or internationally recognized overnight mail or courier service (with signed confirmation of receipt). Allsuch Notices shall be deemed delivered, as applicable: (i) on the date of the personal delivery if delivered by 5:00 p.m., and ifdelivered after 5:00 p.m. then on the next business day; or (ii) on the next business day if delivered by overnight mail. Noticesdirected to a party shall be delivered to the parties at the addresses set forth in the List of Authorized Representatives and NoticeAddresses or at such other address or addresses as may be supplied by written Notice given in conformity with the terms of thisSection 18.01 .Section 18.02 Email Notices .(a) Subject to the provisions of Section 18.02(b) , except as otherwise expressly provided in this Agreement, anyNotice permitted or required to be made pursuant to Article 3 , Article 5 , Article 6 or Article 8 may be given in the form of an EmailNotice; provided , that if any materials, documents or other information are intended, or required, to be given with such Notice orotherwise made available to PE Member or Developer, as applicable, such materials or other information shall be attached to suchEmail Notice or posted on the Project Data Site (in which event PE Member shall be notified of the availability of such materialsdocuments or other information by Email Notice).(b) With respect to any Notices that are expressly permitted or required in this Agreement to be given in the form ofan Email Notice, such Notices shall be delivered by email addressed to the parties at the email addresses set forth in the List ofAuthorized Representatives and Notice Addresses, or such other email address or addresses as may be supplied by written Noticegiven in conformity with the terms of Section 18.01 . All such notices shall, in the subject line, include the following language:“Notice pursuant to the PE Tower A Development Agreement.” All such Notices shall be deemed delivered upon sending to theindividuals for PE Member or Developer, as applicable, listed on the List of Authorized Representatives and Notice Addresses on thedate such email is delivered if delivered by 5:00 pm New York time and, if delivered after 5:00 pm New York time, on the nextBusiness Day, provided , that (x) the Notice is not returned to the sender as undeliverable (in which event the returned message shallnot count toward the required individuals), and (y) to the extent the Email Notice requires, or is intended to advise of, the posting ofcertain information, documents or other materials to the Project Data Site, such notice shall not be deemed delivered until the ProjectData Site is accessible by PE Member and its designees and the required materials are posted thereon and available to PE Memberand its designees and from and after the giving of Email Notice. Any Email Notice that advises of the posting of information on theProject Data Site shall include a link to such information, or shall otherwise indicate that such information will be so posted.Notwithstanding anything contained herein, if this Agreement sets forth a time period for PE Member to respond to any Notice givenby Email Notice and such Notice and/or information, documents or other materials relating to such Notice are required to be provided(or are reasonably requested by PE Member) and are posted on the Project Data Site, such time period shall be extended by one (1)day for each day (if the Response Period is measured in days) or Business Day (if the response period is measured in Business Days)during such period when the Project Data Site is not available for viewing by PE Member’s designees for substantially all hoursduring such day or Business Day, as applicable. Any Notice given in accordance with this Section 18.02 shall be referred to as an “Email Notice .”Section 18.03 Approvals .(a) Notwithstanding anything to the contrary contained herein, if either party receives a request from the other partyfor consent to or approval of a matter as to which consent or approval is required herein within a specified period of time (suchperiod, a “ Response Period ”), and if the receiving party reasonably determines that (i) additional information is required that is inthe possession or control of the requesting party and (ii) a decision cannot reasonably be made within the Response Period withoutsuch additional information, then if the receiving party gives Notice (which may be an Email Notice) thereof within a reasonableperiod of time after receipt of the request for approval, the Response Period shall not begin until the Business Day on which suchadditional information is received. For purposes of the foregoing sentence, the words “a reasonable period of time” means (x) five (5)Business Days if the Response Period is fifteen (15) Business Days or more, (y) three (3) Business Days if the Response Period ismore than five (5) but fewer than fifteen (15) Business Days, and (z) two (2) Business Days if the Response Period is five (5)Business Days or fewer.(b) Whenever Article 3 or Article 5 provides PE Member with a specified time period within which to comment onor approve any request from Developer, and PE Member fails to comment on or approve such request within such time period(subject to Section 18.03(a) ), PE Member shall be deemed to have approved such request. If any item is deemed approved inaccordance with the foregoing or otherwise in accordance with this Agreement, then any such specified time periods required forsuch deemed approval to have occurred shall not constitute PE Delay.ARTICLE 19 MISCELLANEOUSSection 19.01 Further Assurances . Each of the parties shall take such actions and execute and deliver such otherinstruments and documents as may be reasonable, necessary or appropriate to effectuate the transactions contemplated under thisAgreement; provided , however , that the taking of such acts or the execution of such documents will not result in any cost or liability(other than a de minimis cost or expense) to the respective party which is not otherwise required under this Agreement.Section 19.02 Governing Law . This Agreement shall be governed and - construed in accordance with the laws of the State,without regard to principles of conflicts of law that would apply the laws of another jurisdiction.Section 19.03 Submission to Jurisdiction; Waiver of Jury Trial .(a) Developer, PE Member and each of the other signatories and acknowledgement parties hereto (such othersignatories and acknowledgement parties, collectively, the “ Additional Parties ”) hereby irrevocably and unconditionally (i) agreethat the exclusive forum for any suit, action or other legal proceeding arising out of or relating to this Agreement shall be theSupreme Court of the State of New York in New York County or the United States, Southern District of New York; (ii) consent to,and waive any and all personal rights under the laws of any state to object to the jurisdiction of each such court in any such suit,action or proceeding; and (iii) waive any objection which it may have to the laying of venue of any such suit, action or proceeding inany of such courts. In furtherance of such agreement, Developer, PE Member and each of the Additional Parties agree, upon requestof any other party, to discontinue (or cause to be discontinued) any such suit, action or proceeding pending in any other jurisdictionor court and Developer, PE Member and each Additional Party irrevocably consent to the service of any and all process in any suchsuit, action or proceeding by service of copies of such process to Developer, PE Member and/or each Additional Party, as the casemay be, at its address provided herein. Nothing contained in this Section 19.03 , however, shall affect the right of Developer, PEMember or any Additional Parties to serve legal process in any other manner permitted by applicable Law.(b) TO THE FULL EXTENT PERMITTED BY LAW, DEVELOPER, PE MEMBER AND EACH ADDITIONALPARTY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OFCOMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY JURY IN ANYACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT ORANY CONDUCT, ACT OR OMISSION OF DEVELOPER OR PE MEMBER, OR ANY OF THEIR RESPECTIVE DIRECTORS,OFFICERS, SHAREHOLDERS, PARTNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANYAFFILIATES, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.(c) The waivers contained in this Section 19.03 are given knowingly and voluntarily by Developer, PE Member andeach Additional Party and, with respect to the waiver of jury trial, is intended to encompass individually each instance and each issueas to which the right to a trial by jury would otherwise accrue. Developer, PE Member each Additional Party are hereby authorized tofile a copy of this Section 19.03 in any proceeding as conclusive evidence of these waivers by the other parties.Section 19.04 Amendments and Waivers in Writing . This Agreement may not be amended, supplemented or otherwisemodified, except by a written instrument executed by PE Member and Developer. No provision of this Agreement may be waivedexcept by a written instrument executed by the party against whom the enforcement of such waiver is sought and then only to theextent set forth in such instrument.Section 19.05 Confidentiality; Publicity .(a) PE Member, Developer and their respective partners, principals, members, owners, shareholders, partners,attorneys, agents, employees and consultants (and their respective successors and assigns) shall treat the terms of this Agreement andall information disclosed to it by the other party, or otherwise gained through the Project, as confidential, giving it the same care as itsown confidential information, and make no use of any such disclosed information not independently known to it, except (A) inconnection with the transactions contemplated hereby, (B) to the extent legally compelled or requested by a regulatory or othergovernmental authority (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process)to disclose the same, (C) to the extent required by any federal, state, local or foreign laws, or by any rules or regulations of the UnitedStates Securities and Exchange Commission (or its equivalent in any foreign country) or any domestic or foreign public stockexchange or stock quotation system, that may be applicable to Developer or PE Member or any of their direct or indirect constituentowners or Affiliates (including that require this Agreement to be publicly filed) or (D) to the extent required by the MTA ProjectDocuments or the Construction Loan Documents, but in such case disclosure may only be made to the MTA or the ConstructionLender. Notwithstanding the foregoing, the terms of this Agreement (and/or any other information subject to the confidentiality andnon-disclosure restrictions set forth in the preceding sentence) may be disclosed to (i) a party’s accountants, attorneys, employees,agents, actual or potential direct or indirect transferees, sublessees, direct or indirect investors and direct or indirect lenders, andothers in privity with such party or its Affiliates or actual or potential transferees or lenders, purchasers, lessors, tenants and/orfinancial counterparties, in each case to the extent reasonably necessary for such party’s business purposes or in connection with adispute hereunder, (ii) the LLC, Tower A Tenant, the Other Members and any Construction Lender or other lender providingfinancing to PE Member or its Affiliates or to the Other Members or their respective Affiliates, which financing shall be secured bythe PE Unit or the Other Units or any direct or indirect interests therein, and (iii) any equity investor in PE Member or its Affiliates orthe Other Members or their respective Affiliates providing equity capital for the Project. In the event of a termination of thisAgreement, each party shall promptly return or destroy all confidential information it has received (except for such information thatis required to be retained pursuant to applicable law or regulation or internal compliance procedures, for as long as the same is sorequired to be retained).(b) All publicity or signs located at or about the Tower Building that identify the PE Member or its Affiliates shallfirst be approved by PE Member. Neither party may, without the other party’s prior consent, permit the public dissemination of anypublic relations releases, advertisements or similar communications or materials with respect to the Project that includes or describesthe identity of the other party or its constituents or affiliates.(c) Notwithstanding anything to the contrary herein, Developer shall have the right to disclose the Plans, Schedule,trade contracts, any budgets, and other similar information for the Project to Destination Retail Tenant and its direct and indirectowners, lenders, and tenants, including, without limitation, those portions of such information that may affect areas located within theTower Building that are part of the Destination Retail Unit, the Limited Common Elements appurtenant to the Destination Retail Unitand/or any portion of the Project Costs for which Destination Retail Tenant or the owner of any Unit in the Destination RetailBuilding may be liable.Section 19.06 Non-Waiver of Rights . Except as expressly provided in this Agreement, no delay on the part of any partyhereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof or as a waiver of any other right, poweror privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or furtherexercise hereunder. The waiver of any breach hereunder shall not be deemed to be a waiver of any other or any subsequent breach ofthis Agreement.Section 19.07 Execution in Counterparts . This Agreement may be executed in two or more counterparts, each of whichwill be deemed an original, but all of which together shall constitute one and the same instrument.Section 19.08 Exhibits and Schedules . All Exhibits and Schedules attached to this Agreement are hereby made (and shallbe deemed to be) incorporated herein as a part of this Agreement with the same effect as if set forth in the body of this Agreement.Section 19.09 Headings . The Article and Section headings in this Agreement are inserted only as a matter of convenienceand are not to be given any effect (whether limiting or otherwise) in construing any provision of this Agreement.Section 19.10 Assignments of this Agreement .(a) Developer shall not assign this Agreement, or any of its rights or obligations herein or hereunder, except withthe prior written consent of PE Member (and only if such assignee assumes Developer’s obligations hereunder from and after the dateof such assignment, it being understood that no such assumption shall be required in the event of a change in control that is deemed tobe an assignment hereunder). Notwithstanding the foregoing (but subject to the applicable provisions of the Co-ConstructionAgreement (and the Co-Construction Term Sheet), Construction Loan Documents and the MTA Project Documents), Developer may,without the consent of PE Member, (i) assign its interest under this Agreement and its rights and obligations herein or hereunder to(w) Related Parent, (x) Oxford Parent, (y) a Related Affiliate or (z) an Affiliate of Related Parent and/or Oxford Parent (collectively,the “ R/O Parties ”); provided , that in each case (A) such assignee assumes in writing reasonably satisfactory to PE Member, all theobligations of Developer hereunder, (B) no such assignment shall impair, vitiate or otherwise affect the obligations of Developerhereunder or the Related/Oxford Guarantor under the Building Completion Guaranty, (C) such assignment is made in connectionwith an assignment of all of Developer’s other rights and interests in and to the Project to such assignee, (D) such assignment is madeat the sole expense of Developer, (E) Related/Oxford Guarantor executes and delivers to PE Member a written ratification, in formand substance reasonably satisfactory to PE Member, confirming that the Building Completion Guaranty remains in full force andeffect and (F) such assignee (if not controlled by Related or a Related Affiliate or Oxford Properties Group) shall retain a qualifieddeveloper reasonably acceptable to PE Member with experience in the New York, New York market comparable to that of Related tocomplete the Project, and (ii) collaterally assign this Agreement to the Construction Lender (subject to any applicable terms andconditions as may be set forth in the Construction Loan Documents). Any transfer of a direct or indirect interest in Developer shallconstitute an assignment of this Agreement for purposes hereof if, as a result of such transfer, Developer is no longer controlled by(x) Related Parent, (y) a Related Affiliate or (z) Related Parent and/or Oxford Parent. Any attempted assignment in violation of thisSection 19.10(a) shall be null and void. Without limiting the foregoing, PE Member acknowledges and agrees that Oxford PropertiesGroup is a qualified developer satisfactory to PE Member so long as Oxford Properties Group or any wholly-owned subsidiarythereof is a “Qualified Replacement Developer” under and as defined in the MTA Project Documents.(b) PE Member shall not assign this Agreement, or any of its rights or obligations herein or hereunder, except withthe prior consent of Developer (and only if such assignee assumes PE Member’s obligations hereunder from and after the date ofsuch assignment). Notwithstanding the foregoing (but subject to the applicable provisions of the Construction Loan Documents), PEMember may, without the consent of Developer, assign this Agreement and its rights and obligations herein or hereunder to (i) the PEGuarantors or one or more Affiliates of the PE Guarantors, (ii) an entity created by merger, reorganization or recapitalization of orwith the PE Guarantors or any Affiliate thereof, (iii) a purchaser of all or substantially all of PE Member’s, a PE Guarantor’s, or theirrespective Affiliate’s assets or a purchaser of a controlling share of PE Member’s, a PE Guarantor’s, or their respective Affiliate’sstock or other ownership interest, or (iv) to any person or entity to whom or to which a Transfer (as defined in the LLC Agreement) ispermitted to be made by PE Member pursuant to the LLC Agreement; provided , that in each case (A) no such assignment shallimpair, vitiate or otherwise affect the obligations of PE Member hereunder or the PE Guarantors under the PE Developer Guarantyand (B) such assignment is made at the sole expense of PE Member. Any transfer of a direct or indirect interest in PE Member shallconstitute an assignment of this Agreement for purposes hereof if, as a result of such transfer, PE Member is no longer an Affiliate ofthe PE Guarantors. Any attempted assignment in violation of this Section 19.10(b) shall be null and void. Nothing contained in thisSection 19.10 is intended to vitiate PE Member’s right to exercise the Multiple Unit Election.Section 19.11 Successors and Assigns . This Agreement (and all terms thereof, whether so expressed or not), shall bebinding upon the respective successors, permitted assigns and legal representatives of the parties and shall inure to the benefit of andbe enforceable by the parties and their respective successors, permitted assigns and legal representatives.Section 19.12 Severability . If any term, covenant, condition or provision of this Agreement is determined by a finaljudgment to be invalid or unenforceable, the remaining terms, covenants, conditions and provisions of this Agreement shall not beaffected thereby; and each other term, covenant, condition and provision of this Agreement shall be valid and enforceable to thefullest extent permitted by Law.Section 19.13 No Third Party Beneficiaries . The representations, warranties, covenants and agreements of the partiescontained herein are intended solely for the benefit of the parties (and their successors and permitted assigns) to whom suchrepresentations, warranties, covenants or agreements are made and shall confer no rights hereunder, whether legal or equitable, uponany other party, and no other party shall be entitled to rely thereon, except that (a) the PE Indemnitees and the Developer Indemniteesmay rely on and shall have the right to enforce any indemnification of such Person under and in accordance with the terms of thisAgreement and (b) notwithstanding the foregoing, Tower A Tenant and Construction Lender shall be a direct third-party beneficiaryof (and shall be entitled to directly enforce) the representations, warranties, covenants and agreements of PE Member under thisAgreement and PE Member shall accept the performance by Tower A Tenant and/or Construction Lender of the obligations ofDeveloper under this Agreement.Section 19.14 No Joint Venture or Partnership . PE Member and Developer intend that the relationships created hereunderand under the other transaction documents be solely that of owner and developer. Nothing herein or therein is intended to create ajoint venture or partnership relationship between PE Member and Developer.Section 19.15 No Construction Against Draftsperson . This Agreement shall be construed without regard to anypresumption requiring construction against the party drafting this Agreement.Section 19.16 Brokerage . Each party hereby represents and warrants to the other that it has had no communication withany broker, consultant, finder or similar person in connection with the transactions contemplated hereby, other than CBRE, Inc. andERY Manager LLC (collectively, “ Broker ”). Each party shall indemnify and hold the other harmless against and from all costs,expenses, damages and liabilities, including reasonable attorneys’ fees and disbursements, arising from any claims for brokeragecommissions, finders’ fees or other compensation resulting from or arising out of any conversations, negotiations or actions (orclaims of the same) that the indemnifying party had by itself or anyone acting on behalf of itself, with any broker, consultant, finderor similar person, other than Broker. R/O Member shall be solely responsible to compensate each Broker pursuant to the terms ofseparate agreements with such brokers and shall indemnify and hold PE Member harmless against and from all costs, expenses,damages and liabilities, including reasonable attorneys’ fees and disbursements, arising from any claims for brokerage commissions,finders’ fees or other compensation resulting from or arising out of Developer’s failure to pay any commission due and owing toBroker.Section 19.17 Authorized Representatives . The signature of any one of a party’s Authorized Representatives, acting alone,shall constitute the duly authorized, valid and binding act of the party for whom the respective person is the AuthorizedRepresentative. A party may change (or add) Authorized Representative(s) at any time by notice to the other party; and each partyshall be entitled to rely upon the written certificate or consent of any person designated by the other party as an AuthorizedRepresentative.Section 19.18 Prevailing Party Entitled to Fees and Costs . In the event of any Legal Proceeding between or among PEMember and Developer concerning this Agreement, the prevailing party shall be entitled to reimbursement from the losing party forthe reasonable fees and costs of such proceeding incurred by the prevailing party. For this purpose, “ prevailing party ” means theparty who obtains a judgment or order, final beyond appeal, adverse to the other party. The foregoing provisions shall not apply to thefees and costs of any dispute that is resolved by Arbitration in accordance with Article 14 .Section 19.19 Survival . The provisions of this Article 19 shall survive the PE Unit Closing and the termination of thisAgreement.Section 19.20 Remedies . Except as specifically provided herein (including, without limitation, Section 10.02), each partyhas and may pursue all rights available at law or in equity by reason of the failure, by any other party hereto, to keep or perform suchother party’s agreements or obligations under this Agreement.[remainder of page intentionally left blank]IN WITNESS WHEREOF, DEVELOPER AND PE MEMBER HAVE EXECUTED THIS AGREEMENT AS OF THEDATE FIRST ABOVE WRITTEN:ERY DEVELOPER LLC, a Delaware limited liability companyBy:/s/ L. Jay Cross______________________ Name: L. Jay Cross Title: PresidentKKR HY LLC,a Delaware limited liability companyBy: /s/ Ralph Rosenberg__________________ Name: Ralph Rosenberg Title: Vice PresidentJOINDERBy executing this Agreement, each of the undersigned (each, a “ Joinder Party ”) hereby acknowledges and agrees to be bound solelyby the sections of this Agreement set forth next to the applicable Joinder Party’s name below (the “ Applicable Sections ”). PEMember and each Joinder Party hereby expressly acknowledges and agrees that the obligations and liabilities of each Joinder Partypursuant to the Applicable Sections are limited by Section 10.02 of this Agreement, as if each Joinder Party were Developerhereunder. Solely for purposes of the obligations covered by this Joinder, (a) “Developer Misconduct Default” means a failure by theapplicable Joinder Party in fulfilling its obligations under the Applicable Sections arising from such Joinder Party’s gross negligence,willful misconduct, intentional breach of the Applicable Sections for which such Joinder Party is liable pursuant to this Joinder, orfraud, and (b) “Professional Standard Default” means a failure by the applicable Joinder Party, beyond any applicable notice and cureperiods (if any), in fulfilling, achieving or complying with its obligations under the Applicable Sections for which such Joinder Partyis liable pursuant to this Joinder, arising from such Joinder Party’s negligence. Joinder PartyApplicable SectionsLLC§§ 2.01, 2.02, 2.04, 2.05, 3.01(a) and (b), 3.02(a), 4.03, 4.06, 5.01, 9.01,10.01(a), 11.04(a), 13.03 and 13.05Tower A Tenant§§ 2.02(a)-(d), 2.05, 3.01(a) and (b), 3.02(a), 3.10(a) and (e), 5.01, 9.01,19.13 and 19.19Destination Retail Tenant§§ 3.02(a), 3.10(a) and (e), 5.01, 9.01, 13.03, 13.05 and 14.01(h) and (i)ERY Tenant§§ 3.10(a), (b) and (e), 4.05(f) and 4.06R/O Member§§ 4.03, 4.06, 12.01(v), 12.04, 17.01(b), 17.03, 19.16, 19.19Related/Oxford Guarantor§§11.03, 11.04TOWER A TENANT:HUDSON YARDS NORTH TOWER TENANT LLC , a Delaware limited liabilitycompanyBy: /s/ L. Jay Cross___________________Name: L. Jay CrossTitle: President DESTINATION RETAIL TENANT:ERY RETAIL PODIUM LLC , a Delaware limited liability companyBy: /s/ L. Jay Cross___________________Name: L. Jay CrossTitle: PresidentLLC:HUDSON YARDS NORTH TOWER HOLDINGS LLC , a Delaware limitedliability companyBy: /s/ L. Jay Cross___________________Name: L. Jay CrossTitle: Authorized SignatoryERY TENANT:ERY TENANT LLC , a Delaware limited liability companyBy: /s/ L. Jay Cross___________________Name: L. Jay CrossTitle: PresidentR/O MEMBER :ERY NORTH TOWER MEMBER LLC , a Delaware limited liability companyBy: /s/ L. Jay Cross___________________Name: L. Jay CrossTitle: President RELATED/OXFORD GUARANTOR :THE RELATED COMPANIES, L.P. , a New York limited partnershipBy:THE RELATED REALTY GROUP, INC. , a Delaware corporation, itsgeneral partnerBy: /s/ Richard O’Toole_________Name: Richard O’TooleTitle: Executive Vice PresidentOP USA DEBT HOLDINGS LIMITED PARTNERSHIP , an Ontario limitedpartnershipBy:OP USA DEBT GP INC. , its general partnerBy: /s/ Andrea L. Fellows-PaparizosName: Andrea L. Fellows-PaparizosTitle: Assistant SecretaryBy: /s/ Alysha C. Valenti_________Name: Alysha C. ValentiTitle: Vice PresidentExhibit A LLC Amendment Term Sheet1.Section 8.01 of the Operating Agreement will be amended to provide that, notwithstanding the provisions of Section 8.01(a) ofthe Operating Agreement , PE Member may, without the consent or approval of any Other Member, (A) Transfer (as such term isdefined in the Operating Agreement) its membership interest in the Company and/or (B) Transfer (or permit or suffer to occurany Transfer of) any direct or indirect interest in PE Member and/or in the membership interest held by PE Member, in each caseto PE Parent or its Affiliates, so long as (i) in the case of any Transfer under clause (A) or (B), PE Parent controls, directly orindirectly, and owns at least 51% of the direct or indirect equity interests in, PE Member, and (ii) in the case of a Transfer underclause (A) only, (x) PE Parent provides confirmation that PE Guaranty shall continue to apply and (y) PE Member provides notless than ten (10) days’ prior written notice to the Other Members, which notice shall be accompanied by such documentation asis reasonably necessary to permit the Other Members to determine whether such Transfer complies with Article VIII of theOperating Agreement. On the effective date of any Transfer pursuant to clause (A) of the preceding sentence, the relevanttransferee shall become the PE Member of the Company, and shall have the same rights and obligations with respect to the PEUnit as the original PE Member has under this Agreement. “ PE Parent ” means KKR & Co. L.P., together with its successors.The following provision will be added to Section 8.01 of the Operating Agreement: “For the avoidance of doubt, “Transfer” doesnot include any agreement or commitment to enter into a financing, lease, sale or other transaction (and/or any mortgage, pledgeor other grant of security), provided that the completion of any such transaction (and/or grant of security) is conditional on theprior occurrence of Unit Closing.”2.A provision will be added to the Operating Agreement clarifying that references in the Operating Agreement to the Memberspaying their share of Project Costs shall mean, in reference to any Member, only that such Member shall be required to make thepayments required to be made by such Member under its applicable Member Agreements.3.Sections 6.03(i)(2) and (ii)(1) will be modified to clarify that the references therein to transfer taxes and transfer tax forms shallonly apply to the extent required under applicable law.4.Section 7.03 will be modified to clarify that no “tax matters partner” shall exist (and the Managing Member shall not perform theacts required of the “tax matters partner thereunder) with respect to a Series that is a “disregarded” for federal income tax purposes.5.The definition of “Tower Unit” will be modified to provide that, prior to any Unit Closing with respect to the Tower Unit, theTower Unit will be subdivided into multiple Units, and that each Economic Member owning a Series representing beneficialownership in a portion of the Tower Unit will own a separate Unit prior to its applicable Unit Closing. 6.Clause (i) of Section 5.04(a) will be amended to state that with respect to each Economic Member other than TW Member, a“Management Change Event” under clause (i) of Section 5.04(a) shall occur if Substantial Completion as defined in suchMember’s Development Agreement does not occur by the date required for achievement of Substantial Completion in suchMember’s Development Agreement.7.The references to term sheets that have been replaced with agreements or to documents that have been modified since theOperating Agreement was signed will be updated (e.g., Exhibit E (Condominium Document Term Sheet), Exhibit N (PreliminaryBuilding Site Logistics Plan)).8.The references to Condominium Document Term Sheet will be updated to refer to the Initial Condominium Documents, asapplicable. 9.A new provision will be added to specify the percentage interest of PE Member and that PE Member will be a member of theLLC.10.The reference in Section 4.04(a) to Section 4.02 will be changed to refer to Section 4.03.Exhibit B Form of Building Completion Guaranty(see attached)GUARANTY AGREEMENT THE RELATED COMPANIES, L.P.,ANDOP USA DEBT HOLDINGS LIMITED PARTNERSHIP,as GuarantorGUARANTY AGREEMENTTHIS GUARANTY AGREEMENT (as the same may be amended, restated, replaced, supplemented or otherwise modifiedfrom time to time in accordance herewith, this “ Guaranty ”) is made as of _____________, 2015, by THE RELATEDCOMPANIES, L.P., a New York limited partnership, having an office at 60 Columbus Circle, New York, New York 10023 (“Related ”), and OP USA DEBT HOLDINGS LIMITED PARTNERSHIP, an Ontario limited partnership, having an office at 200 BayStreet, Royal Bank Plaza, North Tower, Suite 900, Toronto, Ontario M5J 2J2 Canada (“ OPUSA ”; OPUSA and Related, eachindividually or collectively, as the context shall require, “ Guarantor ”), jointly and severally, to and for the benefit of KKR HY LLC,a Delaware limited liability company, having an office at 9 West 57 th Street, New York, New York 10019 (“ PE Member ”).W I T N E S S E T H :WHEREAS, ERY Tenant LLC, a Delaware limited liability company (“ ERY Tenant ”), as ground lessee, and theMetropolitan Transportation Authority, a body corporate and politic constituting a public benefit corporation of the State of NewYork (the “ MTA ”), as ground lessor, entered into that certain Agreement of Lease (Eastern Rail Yard Section of the John D.Caemmerer West Side Yard), dated as of April 10, 2013, as amended by that certain First Amendment to Lease dated as of December30, 2013, and as further amended by that certain Second Amendment to Lease dated as of March 17, 2014 (as further amended,restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms of the DevelopmentAgreement and the Operating Agreement (as each term is hereinafter defined), the “ Initial Balance Lease ”), pursuant to which ERYTenant ground leased from the MTA certain airspace above and terra firma within the Eastern Rail Yard Section of the John D.Caemmerer West Side Yard in the City, County and State of New York (the “ ERY ”), as more particularly described in the InitialBalance Lease;WHEREAS, ERY Tenant, as lessee, and the MTA, as lessor, entered into that certain Agreement of Lease (EasternRail Yard Section of the John D. Caemmerer West Side Yard –Tower A/Retail Parcel), dated as of March 17, 2014 (said lease, asamended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms of the DevelopmentAgreement and the Operating Agreement, the “ A/B Balance Lease ”), pursuant to which ERY Tenant leased from the MTA realproperty demised therein;WHEREAS, TW New York Properties, LLC (“ TW Member ”), ERY North Tower Member LLC, a Delaware limitedliability company (the “ R/O Member ”), ERY North Tower Office Member LLC, a Delaware limited liability company (the “ OfficeMember ”) and ERY North Tower Ob Deck Member LLC, a Delaware limited liability company (“ Observation Deck Member ”)entered into that certain Amended and Restated Master Agreement of Limited Liability Company of Hudson Yards North TowerHoldings LLC (the “ LLC ”) dated as of February 17, 2015 (as the same may be amended, restated, replaced, supplemented orotherwise modified from time to time in accordance with the terms thereof and the Development Agreement, the “ OperatingAgreement ”). TW Member, the R/O Member, the Office Member, Observation Deck Member and PE Member are simultaneouslyherewith entering into that certain LLC Amendment (as defined in the Development Agreement) amending the Operating Agreementand providing for the admission of PE Member as an Economic Member of the LLC;WHEREAS, on or before the date hereof, the A/B Balance Lease has been further severed into the Tower A Lease andthe Destination Retail Lease (as each term is defined in the Development Agreement) pursuant to which the Tower A Severed Parceland the Destination Retail Severed Parcel (as each term is defined in the Development Agreement) have been leased to Tower ATenant and Destination Retail Tenant (as each term is defined in the Development Agreement), respectively;WHEREAS, Tower A Tenant, Destination Retail Tenant and Developer intend to construct, or cause to beconstructed, within the Tower A Severed Parcel and Destination Retail Severed Parcel, a mixed use development referred to as the “Building ” (as defined in the Operating Agreement);WHEREAS, pursuant to the terms of that certain Development Agreement (the “ Development Agreement ”), dated asof ___________, 2015, between ERY Developer LLC, a Delaware limited liability company (“ Developer ”) and PE Member,Developer has agreed to perform (in accordance with the provisions thereof, the Co-Construction Agreement (as hereinafter defined)and the Operating Agreement) the Developer Work (as defined in the Development Agreement), to make certain payments, and tocause certain actions to be taken as more specifically provided therein;WHEREAS, pursuant to the terms of the Operating Agreement, R/O Member has agreed to undertake certainobligations and make certain payments;WHEREAS, in order to facilitate the construction of the Building (including, without limitation, the performance ofthe Base Building Work and Developer Work under the Development Agreement and the Operating Agreement), Tower A Tenantand Destination Retail Tenant are simultaneously herewith entering into that certain Co-Construction Agreement with respect to theBuilding (said agreement as the same may be amended, restated, supplemented or otherwise modified from time to time inaccordance with the terms thereof, the Operating Agreement and the Development Agreement, the “ Co-Construction Agreement ”);WHEREAS, all capitalized terms used in this Guaranty and not otherwise defined herein shall have the respectivemeanings specified in the Development Agreement (to the extent any capitalized term is not defined in either this Guaranty or theDevelopment Agreement, it shall have the meaning set forth in the Operating Agreement);WHEREAS, as a material inducement to PE Member to enter into the Development Agreement and the LLCAmendment and consummate the transactions contemplated thereunder and under the Operating Agreement, Guarantor agreed toexecute and deliver this Guaranty in order to assure the payment and performance of the Guaranteed Obligations (as hereinafterdefined); andWHEREAS, Guarantor will derive, directly or indirectly, substantial benefits from the execution and delivery by PEMember of the LLC Amendment, the Development Agreement and the other Transaction Documents (as hereinafter defined) as wellas the performance by PE Member of the transactions contemplated thereby.NOW, THEREFORE, in consideration of the promises herein contained, and other good and valuable consideration,the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:SECTION 1. Guaranteed Obligations .(a) Subject to and in accordance with the succeeding provisions of this Guaranty (including, withoutlimitation, Section 1(b) , Section 1(c) and Section 6 ), Guarantor does hereby, jointly and severally, unconditionally, absolutely andirrevocably, as primary obligor and not merely as surety, guarantee, for the benefit of PE Member (each of the following GuaranteedObligations (as defined below) being a separate and independent obligation):(i) Final Completion (including, without limitation, Substantial Completion and the Punch ListWork), subject to and in accordance with the terms and conditions of the Development Agreement and the Operating Agreement,except to the extent that the failure to achieve Final Completion arises from PE Member’s failure (beyond the expiration of anyapplicable notice and/or cure periods) to pay any amounts required to be paid by PE Member pursuant to the DevelopmentAgreement and/or the Operating Agreement;(ii) if the Development Agreement terminates or is terminated (pursuant to Section 6.04 of theDevelopment Agreement, in connection with the appointment or engagement of an Approved Replacement Developer or otherwise,except to the extent such termination is due to a default by PE Member under the Development Agreement and for the avoidance ofdoubt excluding any termination or expiration of the Development Agreement following completion of the obligations of Developerthereunder), or if an Approved Replacement Developer assumes the obligations of Developer under the Development Agreement (inconnection with the exercise of remedies by Construction Lender or its designee or otherwise), payment of any damages, losses,liabilities, costs and expenses (including interest thereon at the Default Rate from the date incurred to the date of recovery) incurredby PE Member or its Affiliates as a result of (x) such termination or assumption and/or (y) any uncompleted or unperformedobligations of the Developer under the Development Agreement (provided that PE Member shall not be entitled to recover special,punitive or consequential damages, including loss of profits or business opportunity);(iii) the performance of the obligations of Developer and/or the other applicable affiliates ofGuarantor under the Ancillary Rights Agreement, the Retail Services Agreement, Section 3.10 of the Development Agreement andthe 50 HY Deed Restriction (it being acknowledged that (i) in the event Developer or its Affiliates transfers any parcel in the 50 HYBlock that is subject to the 50 HY Deed Restriction or a 50 HY Restrictive Covenant (as defined in the Development Agreement) to athird party (that is not Developer or any Affiliate of Developer), Guarantor shall not have any liability hereunder for any breach of the50 HY Deed Restriction or such 50 HY Restrictive Covenant by such transferee or any subsequent third-party owner of any suchparcel (that is not Developer or an Affiliate of Developer), and (ii) in the event Developer or its Affiliates transfers any Floor Area (asdefined in the Development Agreement) to any Unburdened Parcel (as defined in the Development Agreement) that is owned orcontrolled by a third party (that is not Developer or an Affiliate of Developer) and, in connection with such transfer an UnburdenedParcel Restriction (as defined in the Development Agreement) is recorded against such Unburdened Parcel, Guarantor shall not haveany liability hereunder for any breach by the transferee of such Floor Area or any subsequent third-party owner of such UnburdenedParcel (that is not Developer or an Affiliate of Developer) of the applicable Unburdened Parcel Restriction);(iv) the removal of any and all liens or claims of any Persons (as defined in the DevelopmentAgreement) furnishing materials, labor or services in connection with the Developer Work, or in connection with any other work inand to the PE Unit (other than any such liens or claims due to (x) PE Finish Work, (y) liens caused by PE Member’s failure to fundany amounts required to be funded by PE Member under the Operating Agreement or the Development Agreement or (z) liens orclaims attributable to any other work performed by PE Member), by bonding or other discharge within the time periods provided inthe Development Agreement, subject to the rights of Developer, Tower A Tenant, Destination Retail Tenant and any MezzanineBorrower (as defined in the Operating Agreement), as applicable, in accordance with the terms and conditions set forth in theDevelopment Agreement and the Construction Loan Documents to contest any such liens or claims which are otherwise so removedby bonding;(v) the payment in full of (1) all Holdover Costs for which Developer is liable pursuant to Section6.03 of the Development Agreement and (2) any amounts payable by Developer under Section 12.03(c) of the DevelopmentAgreement ;(vi) the payment and performance of all obligations of the Tower A Tenant as the tenant under theTower A Lease that are required to be paid or performed on or prior to, or in respect of periods ending on or prior to, the ClosingDate for the PE Unit (except to the extent that the failure to pay or perform such obligations arises from PE Member’s failure (beyondthe expiration of any applicable notice and/or cure periods) to pay any amounts required to be paid by PE Member pursuant to theDevelopment Agreement and/or the Operating Agreement) (collectively, the “ Lease Obligations ”), provided, that the GuaranteedObligations shall not include any Lease Obligations that constitute Unit Carry Costs for which PE Member is liable pursuant toSection 12.02 of the Development Agreement;(vii) the payment in full of: (A) all costs, sums, charges and other amounts due to or for the accountof PE Member under the Development Agreement and/or the Operating Agreement, if any (including, without limitation, anyrepayment of Member Loans (as defined in the Operating Agreement), liquidated and other damages, penalties, self-help costs andinterest charges payable by any of the Related/Oxford Parties (as hereinafter defined) under the Development Agreement and/or theOperating Agreement, as applicable); (B) any amounts payable to the Construction Lender to release the PE Unit from the lien of itsmortgage (except to the extent that the failure to pay or perform such obligations arises from PE Member’s failure (beyond theexpiration of any applicable notice and/or cure periods) to pay any amounts required to be paid by PE Member pursuant to theDevelopment Agreement and/or the Operating Agreement); (C) subject to payment by PE Member of the PE Member Fixed MTADeed Payment (as defined in the Development Agreement), any amounts required to be paid to the MTA in order to cause the MTAto deliver the Deed (as defined in the Development Agreement) or the leasehold estate to the PE Unit to PE Member at the PE UnitClosing; and (D) any and all other costs, sums, charges and other amounts that R/O Member or Developer is required to fund underthe Operating Agreement or the Development Agreement, respectively, including without limitation under Section 4.04(c) of theOperating Agreement and under Section 2.02(n) of the Development Agreement, in all cases whether arising or accruing before, on,or after the date hereof;(viii) the payment and performance of any obligations of Developer under the DevelopmentAgreement, subject to Sections 10.02(a) and 10.02(b) of the Development Agreement;(ix) the conveyance of the PE Unit to PE Member or its Member Designee (as defined in theOperating Agreement) , or, at PE Member’s election, the conveyance of multiple units within the PE Unit to multiple MemberDesignees, in accordance with the provisions of the Operating Agreement and the performance by Developer of Developer’sobligations under Section 12.01 of the Development Agreement ;(x) satisfaction of and compliance with any indemnification obligations or other payment obligationsof (I) Developer under the Development Agreement (including, without limitation, pursuant to Section 4.05 and/or Section 17.02 ofthe Development Agreement) or (II) R/O Member under the Operating Agreement;(xi) the payment of the Rescission Payment to PE Member, in the event that PE Member exercises theRescission Election, subject to and in accordance with the terms and conditions set forth in Section 11.04(a) of the DevelopmentAgreement; and(xii) the payment of, or reimbursement to PE Member of, all reasonable out-of-pocket, third-partycosts and expenses incurred by PE Member in connection with its enforcement of one or more of the foregoing GuaranteedObligations, where such enforcement is brought either against Guarantor or in a combined action against both Guarantor and any orall Related/Oxford Parties and PE Member is the prevailing party with respect thereto (such costs, “ Enforcement Costs ”).The obligations set forth in clauses (i) through (xii) above are hereinafter collectively referred to as the “ Guaranteed Obligations ”(provided, that there shall be no duplication of any such obligation to the extent the same underlying obligation is included in morethan one such clause).(b) Subject to the provisions of Section 1(c) , if at any time, whether or not a default shall have occurred orbe continuing under the Development Agreement, the Operating Agreement or other Transaction Documents (as hereinafter defined),but subject to the rights of PE Member and the Related/Oxford Parties with respect to the arbitration of disputes between or amongsuch parties pursuant to the terms of the Development Agreement or the Operating Agreement, as applicable, any of the GuaranteedObligations shall not have been duly paid or performed after the expiration of applicable notice and cure periods (if any), thenGuarantor shall, within ten (10) Business Days of written notice and demand made by PE Member, pay and perform such GuaranteedObligations.(c) Notwithstanding anything to the contrary contained in this Guaranty, no amounts payable to PE Memberhereunder shall duplicate any payments actually made to PE Member or any Affiliate thereof in respect of the same underlyingobligation under the Operating Agreement or the Development Agreement (or any other agreements or instruments executed by anyRelated/Oxford Party pursuant thereto). The Operating Agreement, the Development Agreement, this Guaranty and any otheragreements and instruments executed between any R/O Party, on the one hand, and PE Member or its Affiliates, on the other hand, inconnection with the transactions evidenced thereby shall collectively be referred to herein as the “ Transaction Documents ”.(d) For purposes hereof, “ Related/Oxford Parties ” means Developer, R/O Member, Office Member,Observation Deck Member, Related Parent, Oxford Parent, Destination Retail JV, and Destination Retail Tenant.SECTION 2. Nature of Guaranty .(a) Each Guarantor’s liability under this Guaranty is a guaranty of payment and performance and not ofcollection. PE Member has the right to require each Guarantor to pay, comply with and satisfy its obligations and liabilities under thisGuaranty, and shall have the right to proceed immediately against any or both Persons constituting Guarantor with respect thereto,without being required to attempt recovery first from any other Related/Oxford Party, any other Guarantor or any other Person, andwithout demonstrating that PE Member has exercised (to any degree) or exhausted any of PE Member’s rights against anyRelated/Oxford Party under any of the Transaction Documents. This Guaranty is continuing in nature and applies to all GuaranteedObligations, whether existing now or in the future, including Guaranteed Obligations arising or accruing after any bankruptcy of anyRelated/Oxford Party or any Person constituting Guarantor or any sale or other disposition of any security for this Guaranty under theTransaction Documents.(b) Each Guarantor acknowledges and agrees that it may be impossible to measure accurately the damages toPE Member resulting from a breach of such Guarantor’s covenant to (i) complete or cause Final Completion (including, withoutlimitation, Substantial Completion and the Punch List Work) in accordance with the terms and conditions of the DevelopmentAgreement, (ii) cause the PE Unit Closing to occur in accordance with the terms of the Operating Agreement and the DevelopmentAgreement, and (iii) perform any of the other Guaranteed Obligations, that such a breach will cause irreparable injury to PE Memberand that PE Member may not have an adequate remedy at law in respect of such breach. As a consequence, each Guarantor agreesthat such covenants shall be specifically enforceable against such Guarantor and hereby waives, and agrees not to assert, any defenseagainst any action for specific performance of any or all such covenants.SECTION 3. Representations and Warranties .(a) Related hereby represents and warrants as of the date hereof as follows:(i) It is a limited partnership, duly organized, validly existing and in good standing under the laws ofthe State of New York, and owns an indirect interest in Developer and the R/O Member.(ii) It has the power, authority and legal right, (x) to own and operate its properties and assets, (y) tocarry on the business now being conducted, and (z) to execute, deliver and perform its obligations under, and engage in thetransactions contemplated by, this Guaranty, and it has duly authorized, executed and delivered this Guaranty.(iii) There is no provision of any agreement or contract binding on it which would prohibit, conflictwith, or in any way prevent the execution, delivery and performance of this Guaranty.(iv) All financial statements of Related and other documents and reports delivered to PE Member byRelated in connection herewith are true and correct as of their respective dates and there has been no change in Related’s ReportingMethodology (unless the effect of such change is set forth in reasonable detail in such financial statements) and no material adversechange in Related’s financial condition since such dates.(v) True, correct and complete copies of the organizational documents of Related and eachamendment thereto entered into as of the date hereof (collectively, the “ Related Organizational Documents ”) have been delivered toPE Member. The Related Organizational Documents are not subject to any right of rescission, set-off, counterclaim or defense by anypartner, member or shareholder, and no partner, member or shareholder has asserted any right of rescission, set-off, counterclaim ordefense. The Related Organizational Documents are the only documents in existence among the parties thereto relating to the subjectmatter thereof.(vi) It has, independently and without reliance upon PE Member and based on such documents andinformation as Guarantor has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty.(vii) It is not a Prohibited Person (as such term is defined in the A/B Balance Lease). Neither Relatednor, to Related’s knowledge, any of its constituent owners has engaged in any dealings or transactions, directly or indirectly, (i) incontravention of any U.S., international or other money laundering regulations or conventions, including, without limitation, theUnited States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, the United States International MoneyLaundering Abatement and Anti-Terrorist Financing Act of 2001, Trading with the Enemy Act (50 U.S.C. § 1 et seq., as amended),or any foreign asset control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) orany enabling legislation or executive order relating thereto, or (ii) in contravention of the Anti-Terrorism Order or on behalf ofterrorists or terrorist organizations, including those persons or entities that are included on any relevant lists maintained by the UnitedNations, North Atlantic Treaty Organization, Organization of Economic Cooperation and Development, Financial Action Task Force,U.S. Office of Foreign Assets Control, U.S. Securities & Exchange Commission, U.S. Federal Bureau of Investigation, U.S. CentralIntelligence Agency, U.S. Internal Revenue Service, or any country or organization, all as may be amended from time to time.Neither Related nor, to Related’s knowledge, any of its constituent owners (A) is or will knowingly be conducting any business orengaging in any transaction with any person appearing on the U.S. Treasury Department’s Office of Foreign Assets Control list ofrestrictions and prohibited persons, or (B) is a person described in Section 1 of the Anti-Terrorism Order, and to Related’sknowledge, neither Related nor any of its Affiliates has engaged in any dealings or transactions, or otherwise been associated withany such person. Related and, to Related’s knowledge, each of its constituent owners has in place written policies and procedures,internal controls and systems that are reasonably designed to ensure compliance by Related and such constituent owner with the anti-corruption, anti-terrorism and other laws and regulations referenced in this Section 3(a)(vii).(viii) There are no actions, suits or proceedings at law or in equity by or before any GovernmentEntity now pending or, to Related’s knowledge, threatened against Related, any Affiliates of Related or any of their respective assets,which actions, suits or proceedings, if determined against Related, any such Affiliate of Related or any of such assets, mightreasonably be expected to materially adversely affect the financial condition of Related or its ability to perform its obligations underthis Guaranty.(ix) This Guaranty in all respects represents valid and legally binding obligations, which areenforceable against Related in accordance with the terms hereof, subject only to the effects of bankruptcy, insolvency, reorganization,moratorium or other similar laws affecting the enforcement of creditors’ rights generally.(x) Related satisfies the Minimum Net Worth Requirement and Minimum Liquidity Requirement.(xi) No approval, authorization, consent or other actions by or filing with any third party orgovernmental agency or authority is required for the execution of this Guaranty by Related and the performance of Related’sobligation hereunder that has not been obtained, taken or filed.(b) OPUSA hereby represents and warrants as of the date hereof as follows:(i) It is a limited partnership, duly organized, validly existing and in good standing under the laws ofthe Province of Ontario, Canada, and all or substantially all of the partnership interests in OPUSA are held by Oxford USA DebtHoldings Trust (“ Oxford USA ”), and OMERS Administration Corporation (“ OAC ”), a non-share capital corporation continuedpursuant to the Ontario Municipal Employees Retirement System Act, 2006, as administrator of the OMERS pension plans and astrustee of the pension funds, indirectly holds substantially all of the economic interests in Oxford USA and the economic interest ofOxford Hudson Yards LLC in the R/O Member and Developer.(ii) It has the power, authority and legal right, (x) to own and operate its properties and assets, (y) tocarry on the business now being conducted, and (z) to execute, deliver and perform its obligations under, and engage in thetransactions contemplated by, this Guaranty, and it has duly authorized, executed and delivered this Guaranty.(iii) There is no provision of any agreement or contract binding on it which would prohibit, conflictwith, or in any way prevent the execution, delivery and performance of this Guaranty.(iv) All financial statements of OPUSA and other documents and reports delivered to PE Member byOPUSA in connection herewith are true and correct as of their respective dates and there has been no change in OPUSA’s ReportingMethodology (unless the effect of such change is set forth in reasonable detail in such financial statements) and no material adversechange in OPUSA’s financial condition since such dates.(v) True, correct and complete copies of the organizational documents of OPUSA and eachamendment thereto entered into as of the date hereof (collectively, the “ OPUSA Organizational Documents ”) have been delivered toPE Member. The OPUSA Organizational Documents are not subject to any right of rescission, set-off, counterclaim or defense byany partner, member or shareholder, and no partner, member or shareholder has asserted any right of rescission, set-off, counterclaimor defense. The OPUSA Organizational Documents are the only documents in existence among the parties thereto relating to thesubject matter thereof.(vi) It has, independently and without reliance upon PE Member and based on such documents andinformation as Guarantor has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty.(vii) It is not a Prohibited Person. Neither OPUSA nor, to OPUSA’s knowledge, any of its constituentowners has engaged in any dealings or transactions, directly or indirectly, (i) in contravention of any U.S., international or othermoney laundering regulations or conventions, including, without limitation, the United States Bank Secrecy Act, the United StatesMoney Laundering Control Act of 1986, the United States International Money Laundering Abatement and Anti-Terrorist FinancingAct of 2001, Trading with the Enemy Act (50 U.S.C. § 1 et seq., as amended), or any foreign asset control regulations of the UnitedStates Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relatingthereto, or (ii) in contravention of the Anti-Terrorism Order or on behalf of terrorists or terrorist organizations, including thosepersons or entities that are included on any relevant lists maintained by the United Nations, North Atlantic Treaty Organization,Organization of Economic Cooperation and Development, Financial Action Task Force, U.S. Office of Foreign Assets Control, U.S.Securities & Exchange Commission, U.S. Federal Bureau of Investigation, U.S. Central Intelligence Agency, U.S. Internal RevenueService, or any country or organization, all as may be amended from time to time. Neither OPUSA nor, to OPUSA’s knowledge, anyof its constituent owners (A) is or will knowingly be conducting any business or engaging in any transaction with any personappearing on the U.S. Treasury Department’s Office of Foreign Assets Control list of restrictions and prohibited persons, or (B) is aperson described in Section 1 of the Anti-Terrorism Order, and to OPUSA’s knowledge, neither OPUSA nor any of its Affiliateshave engaged in any dealings or transactions, or otherwise been associated with any such person. OPUSA and, to OPUSA’sknowledge, each of its constituent owners has in place written policies and procedures, internal controls and systems that arereasonably designed to ensure compliance by OPUSA and such constituent owner with the anti-corruption, anti-terrorism and otherlaws and regulations referenced in this Section 4(a)(vii).(viii) There are no actions, suits or proceedings at law or in equity by or before any GovernmentEntity now pending or, to OPUSA’s knowledge, threatened against OPUSA, any Affiliates of OPUSA or any of their respectiveassets, which actions, suits or proceedings, if determined against OPUSA, any such Affiliate of OPUSA or any of such assets, mightreasonably be expected to materially adversely affect the financial condition of OPUSA or its ability to perform its obligations underthis Guaranty.(ix) This Guaranty in all respects represents valid and legally binding obligations, which areenforceable against OPUSA in accordance with the terms hereof, subject only to the effects of bankruptcy, insolvency,reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally.(x) A true, correct and complete copy of the Contribution Agreement (as defined in Section 4(h) ) isattached as Exhibit A hereto. A true, correct and complete copy of the Put Agreement (as defined in Section 4(i) ) has been deliveredby OPUSA to PE Member.(xi) OPUSA satisfies the Minimum Net Worth Requirement.(xii) No approval, authorization, consent or other actions by or filing with any third party orgovernmental agency or authority is required for the execution of this Guaranty by OPUSA and the performance of OPUSA’sobligation hereunder that has not been obtained, taken or filed.SECTION 4. Financial Covenants and Statements .(a) Each Guarantor shall maintain, at all times while this Guaranty is in force and effect, a Net Worth not lessthan such Guarantor’s Minimum Net Worth Requirement (as such terms are hereinafter defined), and Related shall maintain, at alltimes while this Guaranty is in force and effect, Liquidity of not less than the Minimum Liquidity Requirement (as such terms arehereinafter defined).(b) As used herein:(i) “ Cash ” shall mean the legal tender of the United States of America.(ii) “ Cash Equivalents ” shall mean any one or a combination of the following: (A) securities issuedor directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided thatthe full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve (12)months from the date of acquisition, (B) U.S. dollar denominated time deposits and certificates of deposit of (x) any domesticcommercial bank of recognized standing having capital and surplus in excess of $500,000,000 and having a long-term seniorunsecured debt obligations credit rating of not less than A- from Standard and Poor’s Ratings Group (“ S&P ”) and the equivalentrating from another recognized major credit ratings agency (or if not rated by S&P, the equivalent rating from two or morerecognized major credit ratings agencies) or (y) any bank whose short-term commercial paper rating from S&P is at least A-1 or theequivalent thereof or from Moody’s Investors Service, Inc. ( “ Moody’s ”) is at least P-1 or the equivalent thereof (any such bankbeing an “ Approved Bank ”), in each case with maturities of not more than 270 days from the date of acquisition thereof by theapplicable Guarantor , (C) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parentcompany of such Approved Bank with corporate credit ratings not less than those required of the Approved Bank) or any variablerate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or theequivalent thereof) or better by Moody’s and maturing within six months of the date of acquisition thereof by the applicableGuarantor , (D) repurchase agreements entered into by any person or entity with a bank or trust company or recognized securitiesdealer having capital and surplus in excess of $500,000,000 and having a long-term senior unsecured debt obligations credit rating ofnot less than A- from S&P and the equivalent rating from another recognized major credit ratings agency (or if not rated by S&P, theequivalent rating from two or more recognized major credit ratings agencies) for direct obligations issued by or fully guaranteed bythe United States of America in which such person or entity shall have a perfected first priority security interest (subject to no otherliens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations,(E) investments in individual money market investment programs, registered under the Investment Company Act of 1940, asamended, classified in accordance with generally accepted accounting principles as current assets, and limited to 20% of anyindividual money market investment program, which are administered by reputable financial institutions having capital of at least$500,000,000 and having a long-term senior unsecured debt obligations credit rating of not less than A- from S&P and the equivalentrating from another recognized major credit ratings agency (or if not rated by S&P, the equivalent rating from two or morerecognized major credit ratings agencies) and the portfolios of which are limited to investments of the character described in theforegoing subdivisions (A) through (D), (F) 50% of the current market value of readily marketable common or preferred shares ofstock having trading privileges on the New York Stock Exchange or the American Stock Exchange or which are subject to pricequotations on the NASDAQ Stock Market’s National Market System and are not pledged or encumbered or otherwise restricted fromtransfer, (G) letter(s) of credit unconditionally drawable upon sight by the applicable Guarantor issued by a lending institution havinga long-term senior unsecured debt obligations credit rating of not less than A- from S&P and the equivalent rating from anotherrecognized major credit ratings agency (or if not rated by S&P, the equivalent rating from two or more recognized major creditratings agencies) (“ Letters of Credit ”), which Letters of Credit shall be valued at the face amount thereof and any collateralcharacterized as a Cash Equivalent of the applicable Guarantor securing such Letters of Credit shall be excluded from the calculationof Liquidity , (H) without duplication, undrawn lines of credit available to a Guarantor issued by a lending institution having a long-term senior unsecured debt obligations credit rating of not less than A- from S&P and the equivalent rating from another recognizedmajor credit ratings agency (or if not rated by S&P, the equivalent rating from two or more recognized major credit ratings agencies)with respect to which (x) there are no conditions to such lines of credit other than the giving of notice, other administrativerequirements or other conditions which have been satisfied as of such relevant date (“ Lines of Credit ”), and (y) such lines of creditare not secured by any other collateral characterized as a Cash Equivalent of the applicable Guarantor unless the value of suchcollateral is excluded from the calculation of Liquidity, (I) without duplication, unfunded and unencumbered capital commitmentsand recallable capital of the partners of Guarantor that are reflected on the audited balance sheet of such Guarantor as an asset andwith respect to which there are no conditions to funding such commitments, other than the giving of notice or demand therefor andother administrative requirements or other conditions have been satisfied as of such relevant date, and as to which thecreditworthiness of such partner is reasonably satisfactory to PE Member, and (J) with respect to OPUSA, (x) amounts due andpayable to OPUSA pursuant to the Contribution Agreement or any equity commitment letter issued by OAC or any Affiliate of OACto OPUSA, and (y) amounts (marked to market) due to OPUSA from any Affiliate of OPUSA, OAC or any Affiliate of OAC that aredue and payable on demand by OPUSA and are not pledged or encumbered.(iii) “ Liquidity ” shall mean Unencumbered Cash or Cash Equivalents.(iv) “ Minimum Liquidity Requirement ” shall mean, with respect to Related , Liquidity equal to orgreater than Fifty Million Dollars ($50,000,000.00) .(v) “ Minimum Net Worth Requirement ” shall mean, ( A) with respect to Related , Net Worth equalto or greater than Three Hundred Million Dollars ($300,000,000.00), and (B) with respect to OPUSA , Net Worth equal to or greaterthan [Four Hundred Million Dollars ($400,000,000.00)].(vi) “ Net Worth ” shall mean: (A) with respect to Related, an amount equal to the excess ofconsolidated total assets of Related over consolidated total liabilities of Related, determined in accordance with the ReportingMethodology , and (B) with respect to OPUSA, an amount equal to the excess of the value of all assets of OPUSA, including, withoutlimitation and without duplication, all Cash and Cash Equivalents, as shown on a balance sheet of OPUSA, over all liabilities ofOPUSA as of such date, (i) minus intangible assets and prepaid taxes and/or expenses, (ii) plus amounts due from OPUSA to anyAffiliate of OPUSA, OAC or any Affiliate of OAC to the extent structurally or expressly subordinated to the payment of theGuaranteed Obligations, and all amounts due to OPUSA under any loan made by OPUSA to any Affiliate of OAC, all on or as ofsuch date and with respect to any Canadian Dollar denominated amounts, calculated in U.S. Dollars based on the conversion ratefrom Canadian Dollars to U.S. Dollars as of such date. For the purposes of calculating OPUSA’s, Net Worth, all Qualified Guaranties(as hereinafter defined) shall be excluded as liabilities of OPUSA except for any claim made under any such Qualified Guaranty thatis required to be reflected as a liability of OPUSA in accordance with the Reporting Methodology .(vii) “ Reporting Methodology ” shall mean, with respect to (A) Related, generally acceptedaccounting principles as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Instituteof Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies withsimilar functions of comparable stature and authority within the accounting profession, or in such other statements by such entity asmay be in general use by significant segments of the U.S. accounting profession, to the extent such principles are applicable to thefacts and circumstances on the date of determination, and (B) OPUSA, International Financing Reporting Standard (“ IFRS ”) or anyother methodology for financial accounting and reporting which is commonly used by OPUSA and is recognized as standard in theprincipal industry in which OPUSA operates.(viii) “ Unencumbered Cash or Cash Equivalents ” shall mean Cash or Cash Equivalents that havenot been pledged to any Person as security for any obligation of any Guarantor or any other Person.(c) Notwithstanding the foregoing, if a Guarantor or an Affiliate of Guarantor is the Person providing theguaranty of completion of construction of the Tower Building to a Construction Lender in connection with a Construction Loan (anysuch guaranty, the “ Lender Guaranty ; and Guarantor, in such case, a “ Lender-Approved Guarantor ”), the Minimum Net WorthRequirement and the Minimum Liquidity Requirement for such Guarantor shall be the greater of (i) the Minimum Net WorthRequirement and the Minimum Liquidity Requirement, and (ii) minimum Net Worth and Liquidity, respectively, required by anyConstruction Lender. PE Member acknowledges and, by its acceptance hereof, agrees that if (A) at any time the Construction Lendershall dispute the Net Worth set forth in any of the financial statements of OPUSA in accordance with the dispute resolutionprocedures set forth in the Lender Guaranty, (B) PE Member is permitted to participate in such dispute resolution proceeding, at itsexpense, as a party in interest thereto, and (C) such dispute is then resolved in accordance with such dispute resolution procedures setforth in the Lender Guaranty, then PE Member shall accept and be bound by the determination of OPUSA’s Net Worth made inaccordance with such dispute resolution procedures. The valuation of OPUSA’s assets shall occur not less frequently than annuallybut may be based on an internal mark to market of such assets.(d) Not more than one hundred twenty (120) days after the end of each fiscal year of each Guarantor duringthe period that this Guaranty is in effect, each Guarantor shall deliver or cause to be delivered to PE Member: (i) such Guarantor’saudited annual financial statements and notes thereto (which statements shall include, without limitation, a balance sheet, incomestatement and a statement of cash flows) for such year, as certified by Guarantor’s independent certified public accountant preparedin accordance with the Reporting Methodology, evidencing such Guarantor’s satisfaction of its applicable Minimum LiquidityRequirement and Minimum Net Worth Requirement, (ii) a statement of cash flow for such fiscal year prepared in accordance with theReporting Methodology, and (iii) concurrently with any delivery of financial statements under clause (i) or (ii) above, a certificationof such Guarantor’s Chief Financial Officer or other responsible senior officer (x) setting forth reasonably detailed calculationsdemonstrating compliance with its applicable Minimum Liquidity Requirement and Minimum Net Worth Requirement, and (y)stating whether any change in Reporting Methodology or in the application thereof has occurred since the date of the auditedfinancial statements referred to in Section 4(d)(i) , which has not been previously disclosed by the Guarantor pursuant to this Section4(d) , and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying suchcertificate .(e) Not more than sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year ofGuarantor, and not more than ninety (90) days after the end of the last fiscal quarter of each fiscal year of Guarantor, during theperiod that this Guaranty is in effect, each Guarantor shall deliver to PE Member (i) a balance sheet as of the end of such quarter andstatements of income and expense for such quarter and the fiscal year to date, in each case prepared in accordance with the ReportingMethodology, and (ii) concurrently with any delivery of balance sheets and statements of income and expense under clause (i) above,a certification of such Guarantor’s Chief Financial Officer or other responsible senior officer (x) setting forth reasonably detailedcalculations demonstrating compliance with its applicable Minimum Liquidity Requirement and Minimum Net Worth Requirement,and (y) stating whether any change in Reporting Methodology or in the application thereof has occurred since the date of the mostrecent audited financial statements referred to in Section 4(d)(i) , which has not been previously disclosed by the Guarantor pursuantto Section 4(d) , and, if any such change has occurred, specifying the effect of such change on the financial statements accompanyingsuch certificate .(f) Promptly following the giving of a notice of default under any Construction Loan Document, MemberAgreement (as defined in the Operating Agreement), or MTA Project Document (collectively, the “ Notice Documents ”) to anyRelated/Oxford Party, ERY Tenant, the LLC, or Tower A Tenant, or any Affiliate thereof, but no more than five (5) Business Daysthereafter, Guarantor shall deliver (or cause to be delivered) to PE Member a true, correct, and complete copy of such notice ofdefault. In addition, promptly following the giving (but no later than five (5) Business Days thereafter) by Related /Oxford Party,ERY Tenant, the LLC, or Tower A Tenant, or any Affiliate thereof to any other party to any Notice Document any certification orother written report or statement as to whether a material default by any Related/Oxford Party, ERY Tenant, the LLC, Tower ATenant or any Affiliate thereof, then exists under any Notice Document (“ Default Statement ”), Guarantor shall deliver (or cause tobe delivered) a true, correct, and complete copy of such Default Statement to PE Member. Further, a t any time following the givingof a notice of default under any Notice Document to any Related/Oxford Party, ERY Tenant, the LLC, or Tower A Tenant, or anyAffiliate thereof, or a Default Statement identifying a material default by any Related/Oxford Party, ERY Tenant, the LLC, Tower ATenant or any Affiliate then existing under any Notice Document, Guarantor shall deliver to PE Member, within ten (10) BusinessDays after a request therefor (or as soon thereafter as may be reasonably practicable), a certification of such Guarantor’s ChiefFinancial Officer or other responsible senior officer certifying as to (x) whether such default under such Notice Document remainsuncured and (y) whether to the knowledge of such Chief Financial Officer or other responsible senior officer there has been an eventor occurrence since the most recent quarterly financial statements that is reasonably expected to have a material adverse effect on theNet Worth or Liquidity of the Guarantor by comparison with the Net Worth or Liquidity set forth on the most recent quarterlystatements, and stating to the knowledge of such Chief Financial Officer or other responsible senior officer his or her good-faithestimate of the impact on the Net Worth or Liquidity of such event or occurrence .(g) Prior to the date hereof, each Guarantor has delivered to PE Member true, correct and complete copies ofthe following documents and information, as applicable: (i) the organizational documents of such Guarantor; and (ii) the documentsor other evidence provided in Section 4(d) and Section 4(e) for the fiscal year [●], and (to the extent such documents or evidence areavailable therefor) any quarterly periods thereafter with respect to Guarantor.(h) On the date hereof, Oxford USA, OAC and OPUSA have executed and delivered that certainContribution Agreement, dated as of the date hereof (as amended or modified from time to time, the “ Contribution Agreement ”), acopy of which is attached hereto as Exhibit A . OPUSA acknowledges that the Contribution Agreement expressly provides that thePE Member is an intended third party beneficiary under the Contribution Agreement and has the right to enforce directly thecontribution obligations of Oxford USA and OAC thereunder, and to execute and deliver all notices and demands, including, withoutlimitation, demand for contribution by OAC to Oxford USA and Oxford USA to OPUSA, in PE Member’s own name, and not asagent for OPUSA, and OPUSA agrees and consents thereto. In addition, OPUSA agrees that until the Guaranteed Obligations havebeen paid and performed in full, the Contribution Agreement may not be amended, supplemented, terminated or replaced without theprior written consent of PE Member in each instance. PE Member acknowledges and agrees that the obligation of OAC to contributeor cause to be contributed to Oxford USA and the obligation of Oxford USA to contribute or cause to be contributed to OPUSA anycash or assets required to satisfy the Minimum Net Worth Requirement pursuant to the Contribution Agreement or any net worth andliquidity covenants contained in any other Qualified Guaranty pursuant to any other contribution or similar agreements executed byOxford USA and/or OAC in connection with such Qualified Guaranty, shall be without duplication, and any contribution of fundsmade or caused to be made to OPUSA by Oxford USA or OAC shall satisfy such obligation under the Contribution Agreement andall such other agreements. As used in this Guaranty, the term “ Qualified Guaranties ” means, collectively, (A) all guaranties made byOPUSA in favor of the MTA or any other Person in connection with the Property (as defined in the Development Agreement) or anyother portion of the ERY or the acquisition, ownership, development, construction, leasing and/or financing of any parcel of landlocated in Block 705 on the Tax Map of the City of New York, Borough of Manhattan (collectively, the “ 50 HY Property ”), whethergiven prior to, on or at any time following the date hereof, (B) that certain Default Payments Guaranty (Western Rail Yard Section ofthe John D. Caemmerer West Side Yard), dated as of April 10, 2014, made by OPUSA and Related in favor of the MTA, as the samemay be amended or modified from time to time, and (C) all guaranties made by OPUSA in favor of any Person in connection with theproperties commonly known as 650 Madison Avenue and 450 Park Avenue in New York, New York, the property known as GalleryPlace located in the District of Columbia, and the properties collectively known as the Greenfield US Portfolio prior to the datehereof. Each of the Qualified Guaranties is referred to herein as a “ Qualified Guaranty ”.(i) OAC and OPUSA have executed and delivered that certain Put Agreement, dated as of [the date hereof](as amended or modified from time to time, the “ Put Agreement ”), a copy of which has been furnished to PE Member. OPUSAacknowledges and agrees that PE Member is an intended third party beneficiary under the Put Agreement as the holder of thisGuaranty, and has the right to enforce directly the obligations of OAC thereunder, and to execute and deliver all notices anddemands, including, without limitation, to exercise the Put Right (as defined in the Put Agreement), in PE Member's own name, andnot as agent for OPUSA, and OPUSA agrees and consents thereto. In addition, OPUSA agrees that until the Guaranteed Obligationshave been paid and performed in full, the Put Agreement may not be amended, supplemented, terminated or replaced without theprior written consent of PE Member in each instance, and further agrees that it shall give PE Member written notice of (i) any writtendemand for payment or performance by OPUSA (or OPUSA and Related) of any obligation guaranteed under any QualifiedGuaranty made by the holder of such Qualified Guaranty in accordance with the terms thereof, (ii) any demand for contribution byOxford USA and OAC made by the holder of any Qualified Guaranty pursuant to any contribution or similar agreement entered intoby Oxford USA and/or OAC in connection with such Qualified Guaranty, or (iii) any exercise of the Put Right by OPUSA or anythird party beneficiary (other than PE Member) thereunder.(j) Until the Guaranteed Obligations have been paid and performed in full, (i) no transfers of assets may bemade by a Guarantor for other than fair market value except pursuant to the Put Agreement, and (ii) no dividends or distributions maybe made by a Guarantor to any of its partners, members, shareholders or other constituent owner if such Guarantor, either at the timeof the making of such dividend or distribution or as a result of the making of such dividend or distribution, fails or would fail tosatisfy either the Minimum Net Worth Requirement or the Minimum Liquidity Requirement. Until the Guaranteed Obligations havebeen paid and performed in full, no obligations of any Person shall be guaranteed and no guaranty shall be made by OPUSA exceptwith respect to and in connection with the ERY, the Western Rail Yard Section of the John D. Caemmerer West Side Yard and theacquisition, ownership, development, construction, leasing and/or financing 50 HY Property.SECTION 5. Obligations Independent . The obligations of Guarantor under this Guaranty shall be independent of, andshall not be measured or affected by, (a) the legal sufficiency or insufficiency of the Development Agreement, the OperatingAgreement or any other Transaction Document, (b) the modification, expiration, rescission or termination of the DevelopmentAgreement, the Operating Agreement or any other Transaction Document (except as any modifications shall modify the GuaranteedObligations), (c) any extension of time for performance under the Development Agreement, the Operating Agreement, the Co-Construction Agreement or any Transaction Document (except as any extensions of time shall extend the time to perform theGuaranteed Obligations), (d) the terms and provisions of the Construction Loan Documents or the sufficiency of the funds advancedto Tower A Tenant or any Mezzanine Borrower by a Construction Lender pursuant thereto, (e) the terms and provisions of the DRBConstruction Loan Documents or the sufficiency of the funds advanced to Destination Retail Tenant or any mezzanine borrower by aDRB Construction Lender pursuant thereto, (f) any bankruptcy, insolvency or other discharge of any Related/Oxford Party, and (g)any offsets or defenses available to any Related/Oxford Party or any other offsets or defenses to liability of Guarantor (other than anyoffset based on a default by PE Member in the payment of any PE Member Total Development Costs or any other amounts to be paidby PE Member in accordance with the applicable provisions of the Development Agreement or the Operating Agreement, asapplicable), all of which are hereby waived. Notwithstanding the foregoing, the Guaranteed Obligations shall be deemed to bemodified to the extent that the obligations of the applicable Related/Oxford Party with respect to the Developer Work pursuant to theDevelopment Agreement or the Operating Agreement shall be modified. Notwithstanding the foregoing or anything to the contraryset forth in this Guaranty, if PE Member exercises the Rescission Election pursuant to Section 11.04 of the Development Agreementand receives payment in full of the Rescission Payment, all obligations of Guarantor under this Guaranty shall terminate and be of nofurther force and effect.SECTION 6. Remedies . Notwithstanding anything to the contrary herein, it is expressly understood that Guarantor’sliability under this Guaranty, and the remedies available to PE Member to enforce payment and performance of the GuaranteedObligations, shall be subject to the limitations on the liability of Developer, R/O Member and/or their Affiliates set forth in Sections10.02(a) and 10.02(b) of the Development Agreement and Section 11.03 of the Operating Agreement. Notwithstanding the foregoing,the limitations on liability set forth in Sections 10.02(a) and 10.02(b) of the Development Agreement and Section 11.03 of theOperating Agreement do not apply to the Guaranteed Obligations referenced in Section 1(a)(ii) .SECTION 7. Limitation on Obligations . Notwithstanding anything to the contrary contained herein or in any otherTransaction Document to the contrary, the maximum liability of Guarantor under this Guaranty shall be One and 00/100 Dollar($1.00) less than the amounts which, under applicable federal and state laws, including those relating to the insolvency of debtors,and after giving effect to all applicable rights of contribution, would result in the avoidance or illegality of the obligations ofGuarantor hereunder or, if applicable, under any other Transaction Document. Nothing herein shall be construed to shift to PEMember the burden of proof with respect to the maximum liability of Guarantor.SECTION 8. Survival of Obligations . Subject to the final sentence in Section 5 , the Guaranteed Obligations shallsurvive any rescission, termination, surrender, summary proceeding, foreclosure or other proceeding involving the DevelopmentAgreement, the Operating Agreement, the Tower A Lease, the Destination Retail Lease or any other Transaction Document and/orthe exercise by PE Member of any of its remedies pursuant to the Development Agreement, the Operating Agreement, the Tower ALease or any other Transaction Document. The Guaranteed Obligations shall survive until performed in full, and shall be reinstated inthe event that any payment made is rescinded.SECTION 9. Obligations Absolute .(a) T he obligations and liability of Guarantor hereunder shall remain in full force and effect without regardto, and shall not be impaired by, the following: (i) any amendment, modification, renewal, supplement or extension of or waiverunder (or the termination or assumption of) the Development Agreement, the Co-Construction Agreement, the Operating Agreementor any other Transaction Document or any obligations thereunder (except that the Guaranteed Obligations shall be deemed to bemodified to the extent that any such amendment, modification, renewal, supplement, extension or waiver shall modify anyobligations of any Related/Oxford Party that constitute Guaranteed Obligations); (ii) any exercise or non-exercise by PE Member of(or any delay in exercising) any right or privilege under the Development Agreement, the Operating Agreement or any otherTransaction Document; (iii) any voluntary or involuntary bankruptcy, insolvency, reorganization, composition, adjustment,dissolution, liquidation or similar proceeding relating to any Related/Oxford Party or Guarantor or any of the assets belonging toeither of them, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding,whether or not Guarantor shall have had notice or knowledge of any of the foregoing; (iv) any release, waiver or discharge ofGuarantor from liability under any of the Transaction Documents (other than liability under this Guaranty); (v) any subordination,compromise, settlement, release (by operation of law or otherwise), discharge, collection or liquidation of any of the TransactionDocuments or any repossession or surrender of the Premises (as defined in the Tower A Lease) under the Tower A Lease; (vi) anyassignment or other transfer of any or all of the Development Agreement, the Co-Construction Agreement, the Operating Agreementor the other Transaction Documents, in whole or in part; (vii) any acceptance of a partial performance of any of the obligations ofGuarantor (except to the extent of such partial performance); (viii) any transfer of any or all of the Building or any Unit or anyconsent thereto; (ix) any bid or purchase at any sale of any or all of the Tower Building, the Destination Retail Building or any Unit;(x) any change in the composition of any Related/Oxford Party, or any member, partner or shareholder of any Related/Oxford Party,including, without limitation, the withdrawal or removal of any Guarantor from any current or future position of direct or indirectownership, management or control of the R/O Member and/or Developer or such member, partner or shareholder; (xi) any failure tofile or record the Tower A Lease or any documents related thereto or any failure to take or perfect any security interest intended to beprovided thereby; (xii) any breach or inaccuracy of a representation, warranty or covenant made by any Related/Oxford Party,whether express or implied; and (xiii) any replacement of Developer or the removal or other termination of Developer’s status as thedeveloper for the Project or the Building.(b) Guarantor unconditionally waives: (i) any right to require PE Member to rescind or terminate theDevelopment Agreement, the Operating Agreement or any other Transaction Document or to pursue any other remedy whatsoeverunder the Development Agreement, the Operating Agreement or any other Transaction Document or otherwise; (ii) any defensearising by reason of any invalidity or unenforceability of the Development Agreement, the Operating Agreement or any otherTransaction Document or any of the respective provisions thereof; (iii) any defense based upon an election of remedies by PEMember, including, without limitation, any election to proceed by rescission (subject to the final sentence in Section 5 ) ortermination of the Development Agreement, the Operating Agreement or any other Transaction Document, or exercise of any otherremedies of PE Member under the Development Agreement, the Operating Agreement or any other Transaction Document; (iv) anydefense to the recovery by PE Member against either or both of the Persons constituting Guarantor of any deficiency or otherwise tothe enforcement of this Guaranty (except as otherwise expressly provided herein); (v) demand, presentment for payment, notice ofnonpayment or other default by any Related/Oxford Party, protest, notice of protest and all other notices of any kind, or the lack ofany thereof, including, without limiting the generality of the foregoing, notice of the existence, creation or incurring of any new oradditional indebtedness or obligation or of any action or non-action on the part of PE Member, any endorser or creditor of Guarantoror any other person whomsoever under this or any other instrument in connection with any obligation or evidence of indebtednessheld by PE Member, except for notices required under this Guaranty; (vi) any right or claim of right to cause a marshaling of theassets of either or both of the Persons constituting Guarantor; (vii) any duty on the part of PE Member to disclose to Guarantor anyfacts PE Member may now or hereafter know about the Building, the PE Areas (as defined in the Development Agreement) or theLand, regardless of whether PE Member has reason to believe that any such facts materially increase the risk beyond that whichGuarantor intends to assume or has reason to believe that such facts are unknown to Guarantor or has a reasonable opportunity tocommunicate such facts to Guarantor, it being understood and agreed that Guarantor is fully responsible for being and keepinginformed of the condition of the Building, the Land and PE Areas and of any and all circumstances bearing on the risk that liabilitymay be incurred by Guarantor hereunder; (viii) any lack of notice of disposition or of manner of disposition of any collateral for anyTransaction Document or the Guaranteed Obligations; (ix) any deficiencies in the collateral for any Transaction Document or theGuaranteed Obligations or any deficiency in the ability of PE Member to collect or to obtain performance from any Persons now orhereafter liable for the payment and performance of any of the Guaranteed Obligations; (x) any defense arising by reason of theincapacity, lack of authority or any disability or other defense of the PE Member, including, without limitation, any defense based onor arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relatedthereto or by reason of the cessation of the liability of any PE Member from any cause other than payment, performance andcompletion in full of the Guaranteed Obligations; (xi) any release, discharge, modification, impairment or limitation of the liability ofthe PE Member to the Developer, whether consented to by the Developer, consensual or arising by operation of law or anyproceedings in bankruptcy or reorganization, or from any other cause; (xii) any principles or provisions of law, statutory or otherwise,which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of any Guarantor’s obligationshereunder (other than payment, performance and completion of the Guaranteed Obligations), the benefit of any statute of limitationsaffecting Guarantor's liability hereunder or the enforcement hereof, any rights to setoffs, recoupments and counterclaims andpromptness and diligence; and (xiii) any other circumstance which might otherwise constitute a defense available to a guaranty orsurety, or a discharge of any of the Guaranteed Obligations. Without limiting the generality of the foregoing, Guarantor herebywaives all rights and defenses arising out of an election of remedies by PE Member and all rights of subrogation or contribution,whether arising by contract or operation of law or otherwise by reason of any payment by Guarantor pursuant to the provisions hereoffor so long as the obligations of the applicable Related/Oxford Party under the Development Agreement or any other TransactionDocument remain outstanding (to the extent such subrogation or contribution adversely affects the exercise of PE Member’s rightshereunder). Furthermore, Guarantor shall not have any right of recourse against PE Member or any of its Affiliates, or any other PEIndemnitee, by reason of any action that any PE Indemnitee may take or omit to take under the provisions of this Guaranty, theDevelopment Agreement or, if applicable, any other Transaction Document, except as set forth in such Transaction Document or tothe extent such action or omission constitutes gross negligence or willful misconduct, and provided that nothing in this Guaranty shalllimit any rights or remedies of Guarantor or any of its Affiliates under the Development Agreement, the Operating Agreement or anyother Transaction Document in the event of any default thereunder or violation of the terms thereof by PE Member.SECTION 10. Intentionally Omitted .SECTION 11. Release of Guaranty . Subject to the provisions of Section 24 regarding reinstatement of GuaranteedObligations, Guarantor shall be released and discharged from all liability for the Guaranteed Obligations under this Guaranty at suchtime (the “ Release Date ”) as all of the following have occurred and have been satisfied: (a) the PE Unit Closing shall have occurredin accordance with the applicable provisions of the Operating Agreement and the Development Agreement, provided , that if allconditions precedent to the obligations of PE Member to consummate the PE Unit Closing under Section 12.01 of the DevelopmentAgreement have been satisfied (subject to the provisions of Section 11.04 of the Development Agreement), and PE Member fails toconsummate the PE Unit Closing on the date set forth in Section 12.01(b) of the Development Agreement and such failure continuesbeyond thirty (30) days following the ten (10) Business Day period provided in Section 12.01(b) of the Development Agreement ,then the condition specified in this clause (a) shall be deemed to have been satisfied as of the expiration of such 30-day cure period;(b) Final Completion shall have been achieved in accordance with the terms and provisions of the Development Agreement (provided that if the failure to achieve Final Completion was caused by PE Member’s failure to pay, as and when required, allamounts owed under the Development Agreement and/or the Operating Agreement (subject to any applicable notice and cure periodsset forth in the applicable agreement), then Final Completion shall be deemed to have been achieved on the date they would haveoccurred, if not for such nonpayment); (c) all Enforcement Costs have been paid in full; and (d) the satisfaction in full of any and allother Guaranteed Obligations, provided that if the failure to satisfy any other Guaranteed Obligations was caused by PE Member’sfailure to pay, as and when required, all amounts owed under the Development Agreement and/or the Operating Agreement (subjectto any applicable notice and cure periods set forth in the applicable agreement) then the condition set forth in this clause (d) as tosuch Guaranteed Obligation shall be deemed to have been satisfied on the date such Guaranteed Obligation would have been satisfiedif not for such nonpayment; provided , that Guarantor shall remain liable under this Guaranty with respect to any enforcement actionsunder this Guaranty in existence as of such Release Date (collectively, the “ Enforcement Actions ”) . Upon satisfaction of theGuaranteed Obligations and the conditions set forth in this Section 11 , at the request of Guarantor, PE Member will deliver a writteninstrument evidencing the termination of this Guaranty and the release of Guarantor of all obligations hereunder in form andsubstance reasonably satisfactory to PE Member and Guarantor, which release shall be subject to reinstatement as provided in Section24 , and subject to any Enforcement Actions; provided that PE Member’s failure to deliver such release shall not impair thetermination of this Guaranty.SECTION 12. Intentionally Omitted .SECTION 13. Recourse; Exculpation .(a) Guarantor’s liability hereunder shall be fully recourse and shall not be subject to, limited by or affected inany way by any non-recourse provisions contained in the Development Agreement, the Operating Agreement or any otherTransaction Document, but shall be subject to the limitations on remedies and damages contained herein, including, for the avoidanceof doubt, the provisions of Section 1(c) hereof. Guarantor hereby acknowledges that it is the intent of PE Member to create separateobligations of Guarantor hereunder which can be enforced against Guarantor without regard to the existence of any other TransactionDocument or the rights, liens or security interests created therein. Guarantor agrees that the agreements made and given in thisGuaranty are separate from, independent of and in addition to the undertakings under any other guaranty now existing or hereaftermade by Guarantor in favor of any other Person with respect to any of the Guaranteed Obligations (“ Other Guarantees ”). Guarantoragrees that a separate action may be brought to enforce the provisions of this Guaranty which shall in no way be deemed to be anaction on any of the Other Guaranties, the Development Agreement, the Operating Agreement or any other Transaction Document.(b) PE Member shall not be required (and Guarantor hereby waives any rights that Guarantor may have torequire PE Member), in order to enforce the obligations of Guarantor hereunder, first to (i) institute any suit or exhaust any remediesagainst any Related/Oxford Party or any other Person liable under the Development Agreement, the Operating Agreement or anyother Transaction Documents, (ii) enforce PE Member’s rights against any other guarantors of the Guaranteed Obligations, (iii)enforce PE Member’s rights against any collateral which shall ever have been given to secure the Development Agreement, theOperating Agreement or any other Transaction Document, (iv) join any Related/Oxford Party or any other Person liable for theGuaranteed Obligations in any action seeking to enforce this Guaranty, or (v) resort to any other means of obtaining payment of theGuaranteed Obligations. PE Member shall not be required to mitigate damages or take any other action to reduce, collect or enforcethe Guaranteed Obligations.(c) Guarantor shall have no right of recourse against PE Member by reason of any enforcement action thatPE Member may take or omit to take under the provisions of this Guaranty or any of the Transaction Documents in connection withthe enforcement of the Guaranteed Obligations in compliance with law and with such Transaction Documents.(d) No personal liability shall be asserted, sought or obtained by PE Member under this Guaranty orenforceable by PE Member under this Guaranty against (i) any Affiliate of Guarantor, (ii) any Person owning, directly or indirectly,any legal or beneficial interest in Guarantor or any Affiliate of Guarantor or (iii) any direct or indirect partner, member, principal,officer, beneficiary, trustee, advisor, shareholder, employee, agent, Affiliate or director of any Persons described in clauses (i) and (ii)above, other than any such Person that is itself a Guarantor (collectively, the “ Exculpated Parties ”), and none of the ExculpatedParties shall have any personal liability in respect of any of the Guaranteed Obligations or any other liabilities and obligations ofGuarantor under this Guaranty. Nothing in this Section 13(d) shall derogate from or reduce the rights of PE Member in respect of anyseparate undertakings or agreements given in connection herewith.SECTION 14. Independent Actions . Guarantor waives any right to require that any action be brought by PE Memberagainst any other Person, or that any other remedy under the Development Agreement, the Operating Agreement or any otherTransaction Document be exercised. PE Member may, subject to compliance with any notice obligations set forth in the TransactionDocuments, at its option, proceed against Guarantor in the first instance to collect monies when due or obtain performance under thisGuaranty, without first resorting to the Development Agreement, the Operating Agreement or any other Transaction Document orany remedies thereunder.SECTION 15. Assignment .(a) Guarantor may not assign any of its rights and obligations under this Guaranty without the prior writtenconsent of PE Member, which consent may be granted or withheld by PE Member in its sole and absolute discretion.(b) Subject to the provisions of the Transaction Documents, Guarantor acknowledges and agrees that PEMember shall have the right, upon notice to Guarantor but without Guarantor’s consent, to assign, transfer, sell, lease, negotiate,pledge, grant or otherwise hypothecate all or any portion of its rights in and to the PE Unit, the Development Agreement, theOperating Agreement, or any other Transaction Documents and/or this Guaranty to any permitted transferee of its interest under andin accordance with the terms of the Development Agreement, the Operating Agreement, or such other Transaction Document, and nosuch assignment, transfer, sale, lease, negotiation, pledge, grant or hypothecation, and/or transfer of PE Member’s rights thereunderor hereunder, shall in any way impair or affect, or constitute a defense to, Guarantor’s liability under this Guaranty.SECTION 16. Successors and Assigns Included in Parties . Whenever in this Guaranty any of Guarantor, PE Memberor any Related/Oxford Party is named or referred to, the heirs, legal representatives, successors and permitted assigns of such Personshall be included and all covenants and agreements contained in this Guaranty by or on behalf of Guarantor shall bind and inure tothe benefit of their respective heirs, legal representatives, successors and permitted assigns, whether so expressed or not.SECTION 17. Number and Gender . Whenever the singular or plural number, or the masculine, feminine or neutergender is used herein, it shall equally include the other.SECTION 18. Computation of Time Periods . In this Guaranty, with respect to the computation of periods of timefrom a specified date to a later specified date, the word “from” means both “from and including” and the words “to” and “until” bothmean “to but excluding”.SECTION 19. Notices .(a) Any request, notice, report, demand, approval, objection, comment, response or other communication(each, a “ Notice ”) permitted or required by this Guaranty to be given or furnished shall be in writing signed by the party giving suchNotice and shall be delivered (x) by hand (with signed confirmation of receipt) or (y) by nationally or internationally recognizedovernight mail or courier service (with signed confirmation of receipt). All such Notices shall be deemed delivered, as applicable: (i)on the date of the personal delivery if delivered by 5:00 p.m., and if delivered after 5:00 p.m. then on the next Business Day (asdefined in the Development Agreement); or (ii) on the next Business Day for overnight mail.(b) Each Guarantor and PE Member may change the entity, address or the attention party to which anyNotice is to be given to such Person by furnishing written Notice of such change to each Guarantor and PE Member in the mannerspecified above. Rejection or refusal to accept, or inability to deliver because of changed address or because no notice of changedaddress was given, shall be deemed to be receipt of any such Notice.(c) Notices directed to a Guarantor and/or PE Member shall be delivered to the applicable Persons at theaddresses set forth below or at such other address or addresses as may be supplied by written Notice given in conformity with theterms of this Section 19 :if to PE Member:9 West 57 th Street New York, New York 10019 Attention: Facsimile:with a copy to each of the following:Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: Facsimile:if to Related:The Related Companies, L.P. 60 Columbus Circle, 19th Floor New York, New York 10023 Attention: Jeff T. Blau and L. Jay Cross Facsimile : (212) 801-3540with a copy to each of the following:The Related Companies, L.P. 60 Columbus Circle New York, New York 10023 Attention: Richard O’Toole, Esq. Facsimile: (212) 801-1036The Related Companies, L.P. 60 Columbus Circle New York, New York 10023 Attention: Amy Arentowicz, Esq. Facsimile: (212) 801-1003Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166-0193 Attention: Andrew J. Dady, Esq. Facsimile: (212) 351-4035if to OPUSA:OP USA Debt Holdings Limited Partnership c/o Oxford Properties Group Royal Bank Plaza, North Tower 200 Bay Street, Suite 900 Toronto, Ontario M5J 2J2 Canada Attention: Chief Legal Counsel Facsimile: ( 416) 868-3799and, if different than the address set forth above, to the address posted from time to time as the corporate head office of Oxford Properties Group on the website www.oxfordproperties.com to the attention of the Chief Legal Counsel (unlessthe same is not readily ascertainable or accessible by the public in the ordinary course)with a copy to each of the following:Oxford Hudson Yards LLC c/o Oxford Properties Group 320 Park Avenue, 17th Floor New York, New York 10022 Attention: Dean J. Shapiro Facsimile: (212) 986-7510Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Attention: Stuart D. Freedman, Esq. Facsimile: (212) 593-5955if to OAC:OMERS Administration Corporation One University Avenue, Suite 400 Toronto, Ontario M5J 2P1 Canada Attention: Chief Financial Officer Facsimile: ( 416) 360-0217with a copy to:OMERS Administration Corporation One University Avenue, Suite 400 Toronto, Ontario M5J 2P1 Canada Attention: Chief Legal Officer Facsimile: ( 416) 360-0217if to Oxford USA:Oxford USA Debt Holdings Trust c/o Oxford Properties Group Royal Bank Plaza, South Tower 200 Bay Street, Suite 2010 Toronto, Ontario M5J 2J2, Canada Attention: Chief Legal Counsel Facsimile: (416) 868-3799with a copy to:2266226 Ontario Inc. c/o Oxford Properties Group Royal Bank Plaza, North Tower 200 Bay Street, Suite 200 Toronto, Ontario M5J 2J2, Canada Attention: Chief Legal Counsel Facsimile: (416) 868-3799The attorney for any Person may send notices on that Person’s behalf.SECTION 20. Governing Law . This Guaranty shall be governed by and construed in accordance with the laws of theState of New York applicable to contracts made and to be performed solely within such State.SECTION 21. Consent to Jurisdiction; Waiver of Jury Trial . Each Person constituting Guarantor hereby irrevocablyand unconditionally (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Guaranty shall bebrought in the courts of record of the State of New York in New York County or the courts of the United States, Southern District ofNew York; (b) consents to, and waives any and all personal rights under the laws of any state or the United States to object to, thejurisdiction of each such court in any such suit, action or proceeding; and (c) waives any objection which it may have to the laying ofvenue of any such suit, action or proceeding in any of such courts. In furtherance of such agreement, each such Person hereby agrees,upon request of PE Member, to discontinue (or allow to be discontinued) any such suit, action or proceeding pending in any otherjurisdiction or court. Nothing contained herein, however, shall prevent PE Member from bringing any suit, action or proceeding orexercising any rights against any security or against any Guarantor, or against any property of any Guarantor, in any other state orcourt. Initiating such suit, action or proceeding or taking such action in any state shall in no event constitute a waiver of theagreement contained herein that the laws of the State of New York shall govern the rights and obligations of each Guarantor and PEMember hereunder or thereunder or the submission herein or therein by each Guarantor to personal jurisdiction within the State ofNew York. Each Guarantor hereby irrevocably consents to the service of any and all process in any such suit, action or proceeding byservice of copies of such process to Guarantor at its address provided herein. Nothing in this Section 21 , however, shall affect theright of PE Member to serve legal process in any other manner permitted by law. TO THE FULLEST EXTENT PERMITTED BYLAW, EACH GUARANTOR AND PE MEMBER, EACH KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITHAND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHTTO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAYRELATING TO THIS GUARANTY OR ANY CONDUCT, ACT OR OMISSION OF ANY GUARANTOR OR PE MEMBER, ORANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, ATTORNEYS ORAFFILIATES, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.The waivers contained in this Section 21 are given knowingly and voluntarily by each Guarantor and PE Member, as the case maybe, and, with respect to the waiver of jury trial, are intended to encompass individually each instance and each issue as to which theright to a trial by jury would otherwise accrue. PE Member and each Guarantor are hereby authorized to file a copy of this Section 21in any proceeding as conclusive evidence of these waivers.SECTION 22. Invalid Provisions to Affect No Others . If fulfillment of any provision hereof at the time performanceof such provision shall be due, shall involve transcending the limit of validity presently prescribed by law, with regard to obligationsof like character and amount, then, ipso facto , the obligation to be fulfilled shall be reduced to the limit of such validity; and if anyclause or provision herein contained operates or would prospectively operate to invalidate this Guaranty in whole or in part, then suchclause or provision only shall be held for naught, as though not herein contained, and the remainder of this Guaranty shall remainoperative and in full force and effect to the fullest extent permitted by law.SECTION 23. No Waiver . No failure or delay on the part of PE Member to exercise any power, right or privilegeunder this Guaranty shall impair or be construed to be a waiver of any such power, right or privilege, or be construed to be a waiverof any default or an acquiescence therein, nor shall any single or partial exercise of such power, right or privilege preclude any otheror further exercise thereof or of any other right, power or privilege.SECTION 24. Reinstatement of Guaranteed Obligations . If at any time all or any part of any payment made by anyRelated/Oxford Party or any Guarantor or received by PE Member from any Related/Oxford Party or any Guarantor under or withrespect to the Guaranteed Obligations and/or this Guaranty is or may be voided in bankruptcy proceedings as a preference or for anyother reason, or shall at any time be required to be restored or returned by PE Member upon the insolvency, bankruptcy orreorganization of any Related/Oxford Party or such Guarantor, or for any other reason, then the obligations of Guarantor hereundershall, to the extent of the payment voided, rescinded or returned, be deemed to be reinstated and to have continued in existence,notwithstanding such previous payment made by any Related/Oxford Party or any Guarantor, or receipt of payment by PE Member,and the obligations of Guarantor hereunder shall continue to be effective or be reinstated, as the case may be, as to such payment, allas though such previous payment by any Related/Oxford Party or such Guarantor had never been made.SECTION 25. Time of the Essence . Time is of the essence with respect to the performance by Guarantor of itsobligations hereunder.SECTION 26. Successive Actions . Separate and successive actions may be brought hereunder to enforce any of theprovisions hereof at any time and from time to time. No action hereunder shall preclude any subsequent action, and Guarantor herebywaives and covenants not to assert any defense in the nature of splitting of causes of action or merger of judgments.SECTION 27. Headings . The headings of the Sections and subsections of this Guaranty are for the convenience ofreference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof.SECTION 28. Waiver . Guarantor hereby covenants and agrees that upon the commencement of a voluntary orinvoluntary bankruptcy proceeding by or against any Related/Oxford Party, Guarantor shall not seek a supplemental stay pursuant tothe United States Bankruptcy Code or any other debtor relief law (whether statutory, common law, case law, or otherwise) of anySECTION 28. the United States Bankruptcy Code or any other debtor relief law (whether statutory, common law, case law, or otherwise) of anyjurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, to stay, interdict, condition, reduce or inhibitthe ability of PE Member to enforce its rights against Guarantor by virtue of this Guaranty or otherwise.SECTION 29. Amendments . Neither this Guaranty nor any provision hereof may be changed, waived, discharged orterminated orally, but only by instrument in writing signed by the party against whom enforcement of the change, waiver, dischargeor termination is sought.SECTION 30. Counterparts . This Guaranty may be executed in any number of counterparts, each of which, whenexecuted and delivered, shall be deemed an original, and such counterparts shall constitute but one and the same instrument and shallbe binding upon each party hereto as fully and completely as if all had signed but one instrument. The exchange of copies of thisGuaranty, any signature pages required hereunder or any other documents required or contemplated hereunder by facsimile orportable document format (“ PDF ”) transmission shall constitute effective execution and delivery of such signature pages and maybe used in lieu of the original signature pages for all purposes. Signatures of the parties transmitted by facsimile or PDF shall bedeemed to be their original signatures for all purposes.SECTION 31. Entire Agreement . This Guaranty embodies the entire agreement and understanding between theparties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, whether oral orwritten, relating to the subject matter hereof, except as specifically agreed to the contrary.SECTION 32. [ Intentionally Omitted ].SECTION 33. Approval Standard . In any circumstance where this Guaranty specifies that the approval or consent ofPE Member must be given, or that any matter or circumstance must be satisfactory or acceptable to PE Member, then unlessexpressly set forth to the contrary, or unless PE Member expressly agrees hereunder or under the applicable Transaction Document tobe reasonable, such approval or consent or such determination of satisfaction or acceptability, shall be within the sole and absolutediscretion of PE Member.SECTION 34. Statute of Limitations . Each Guarantor hereby expressly waives and releases, to the fullest extentpermitted by law, the pleading of any statute of limitations as a defense to payment or performance of its obligations hereunder.SECTION 35. Confidentiality .(a) Each of PE Member and each Guarantor and their respective partners, principals, members, owners,shareholders, partners, attorneys, agents, employees and consultants (and their respective successors and assigns) shall treat the termsof this Guaranty as confidential, giving it the same care as its own confidential information, and make no use of any such disclosedinformation not independently known to it, except (i) in connection with the transactions contemplated hereby, (ii) to the extentlegally compelled or requested by a regulatory or other governmental authority (by deposition, interrogatory, request for documents,subpoena, civil investigative demand or similar process) to disclose the same, (iii) to the extent required by any federal, state, local orforeign laws, or by any rules or regulations of the United States Securities and Exchange Commission (or its equivalent in anyforeign country) or any domestic or foreign public stock exchange or stock quotation system that may be applicable to any partyhereto or any of their direct or indirect constituent owners or Affiliates (including that require this Agreement to be publicly filed) or(iv) to the extent required by the MTA Project Documents or the Construction Loan Documents, but in such case disclosure may onlybe made to the MTA or the Construction Lender. Notwithstanding the foregoing, the terms of this Guaranty (and/or any otherinformation subject to the confidentiality and non-disclosure restrictions set forth in the preceding sentence) may be disclosed to (A)a party’s accountants, attorneys, employees, agents, actual or potential direct or indirect transferees, sublessees, direct or indirectinvestors and direct or indirect lenders, and others in privity with such party or its Affiliates or actual or potential transferees orlenders, purchasers, lessors, tenants and/or financial counterparties. in each case to the extent reasonably necessary for such party’sbusiness purposes or in connection with a dispute hereunder, (B) the LLC, Tower A Tenant, the Other Members and anyConstruction Lender or other lender providing financing to PE Member or its Affiliates or to the Other Members or their respectiveAffiliates, which financing shall be secured by the PE Unit or the Other Units or any direct or indirect interests therein, (C) any equityinvestor in PE Member or its Affiliates or the Other Members or their respective Affiliates providing equity capital for the Projectand (D) as otherwise permitted under the terms of the Development Agreement. In the event of a termination of this Guaranty, eachparty shall promptly return or destroy all confidential information it has received (except for such information that is required to beretained pursuant to applicable law or regulation or internal compliance procedures, for as long as the same is so required to beretained).(b) None of Guarantors, nor PE Member nor any Member may, without all other parties’ prior consent,permit the public dissemination of any public relations releases, advertisements or similar communications or materials with respectto the Project that includes or describes the identity of the other party or its constituents or affiliates.SECTION 36. Joint and Several Liability . If more than one Person executes this Guaranty as Guarantor, theobligations of those Persons under this Guaranty shall be joint and several. PE Member may, in its sole and absolute discretion, (a)bring suit against Guarantor, or any one or more of the Persons comprising Guarantor, jointly and severally, or against any one ormore of them; (b) compromise or settle with any one or more of the Persons comprising Guarantor for such consideration as PEMember may deem proper; (c) release one or more of the Persons comprising Guarantor from liability; and (d) otherwise deal withGuarantor or any one or more of them, in any manner, and no such action shall impair the rights of PE Member to collect fromGuarantor any amount guaranteed by Guarantor under this Guaranty.Guarantor any amount guaranteed by Guarantor under this Guaranty.[SIGNATURES ON FOLLOWING PAGE]IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered as of the date firstabove written.GUARANTOR:THE RELATED COMPANIES, L.P., a New York limited partnershipBy:The Related Realty Group, Inc., a Delaware corporation, its general partnerBy:Name: Title:OP USA DEBT HOLDINGS LIMITED PARTNERSHIP, an Ontario limitedpartnershipBy:OP USA Debt GP Inc., an Ontario corporation, its general partnerBy:Name: Title:By:Name: Title:For purposes of agreeing to Sections 1(c) , 4(h) , 13 and 35 hereof :________________, a Delaware limited liability companyBy: Name: Title:STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK )On the ____ day of _____________, 2015, before me, the undersigned, a Notary Public in and for the State of NewYork, personally appeared ____________, personally known to me or who proved to me on the basis of satisfactory evidence to bethe individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity,and that by his signature on the instrument, the individual or person upon behalf of which the individual acted, executed theinstrument.Notary Public (Seal) My commission expires:PROVINCE OF ONTARIOOn the ____ day of _____________, 2015, before me, the undersigned, a Notary Public in and for the Province ofOntario, personally appeared ____________ and ___________, personally known to me or who proved to me on the basis ofsatisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me thathe/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signatures on the instrument, the individual(s) orperson upon behalf of which the individual(s) acted, executed the instrument.Notary Public My commission expires:STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK )On the ____ day of _____________, 2015, before me, the undersigned, a Notary Public in and for the State of NewYork, personally appeared ____________, personally known to me or who proved to me on the basis of satisfactory evidence to bethe individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity,and that by his signature on the instrument, the individual or person upon behalf of which the individual acted, executed theinstrument.Notary Public (Seal) My commission expires:Exhibit AContribution Agreement(See following pages)Exhibit C Form of Certificate of Substantial Completion(see attached)FORM OF ARCHITECT’S CERTIFICATE OF SUBSTANTIAL COMPLETION Kohn Pedersen Fox Associates PC[___________ __, 20__]Hudson Yards North Tower Tenant LLC (“ Tower A Owner ”)c/o The Related Companies, L.P.60 Columbus CircleNew York, New York 10023[___________] (“ PE Member ”) [___________] [___________] [___________]Re:Project: Hudson Yards, New York, New York — Tower A and Retail PodiumLadies and Gentlemen:The undersigned (“ Architect ”) entered into (i) an Architectural Services Agreement with ERY Developer LLC (“ Developer ”) datedas of July 22, 2013 (as amended and assigned by Developer to Tower A Owner by that certain Assignment, Amendment, and AssumptionAgreement made and entered into on October 28, 2014 and as may be further amended from time to time, collectively, the “ Tower AArchitect Agreement ”), with respect to the design and development by Tower A Owner of the building commonly referred to as Tower A (30Hudson Yards) on the property located at the southwest corner of West 33rd Street and 10th Avenue and known as Parcel A of the EasternRail Yard Section of John D. Caemmerer West Side Yard, and (ii) an Architectural Services Agreement with Developer dated as of December23, 2014 and effective as of April 1, 2013, as assigned from Developer to ERY Tenant LLC pursuant to that certain Assignment andAssumption Agreement dated as of December 23, 2014 and effective as of June 30, 2014, as further assigned from ERY Tenant to ERY RetailPodium LLC (“ Retail Owner ” and together with Tower A Owner, collectively, “ Owners ”) pursuant to that certain Assignment andAssumption Agreement, dated as of December 31, 2014 (and as may be further amended from time to time, collectively, the “ Retail ArchitectAgreement ”, and together with the Tower A Architect Agreement, collectively, the “ Architect Agreements ”), with respect to the design anddevelopment by Retail Owner of the building commonly referred to as the Retail Podium on the property bounded by Tower A to the north,Tower C to the south, Hudson Boulevard to the west, and 10th Avenue to the east, and known as Parcel B of the Eastern Rail Yard Section ofJohn D. Caemmerer West Side Yard (collectively, the “ Projects, ” as more specifically described in the Architect Agreements). Architect hasbeen engaged by each of Tower A Owner and Retail Owner to act as the architect of record for the respective Projects. PE Member andDeveloper have entered into that certain Development Agreement, dated as of [____], 2015, with respect to certain portions of the Project (the“ Development Agreement ”). Capitalized terms used but not defined herein shall have the meaning set forth in the Development Agreement.In connection with the Projects and in accordance with the terms of the Architect Agreements, Architect hereby certifies to Ownersand the PE Member that, in the Architect’s professional opinion, made in accordance with current, accepted professional architecturalstandards appropriate for the size, complexity, schedule and other characteristics of the Projects in the jurisdiction in which the Project islocated (the “ Standard of Care ”) and based on (i) Architect’s performance of its services under the Architect Agreements; (ii) as to mattersoutside the services of the Architect, based on and limited to written representation of others (including but not limited to the main contractor,various subcontractors, and engineers and other consultants retained directly by Owners); and (iii) based upon all necessary information andcertifications by others (which universe of information and certifications must be mutually agreed upon by Owners and Architect) supportingthe below statements which must be supplied to Architect before Architect can provide this Certification, and further, based on the foregoingand upon the Architect’s knowledge, information and belief, the construction of the Developer Work designed by Architect is sufficientlycomplete in accordance with the Plans (as defined herein) so that the Owners can occupy or utilize the Developer Work designed by Architectfor its intended use as specified below (“substantially complete”) and the date of such substantial completion for such Developer Work is thedate hereof. For all matters outside the scope of Architect’s services, all certifications below are merely certifying that the Architect receivedinformation from the relevant parties confirming the information set forth below.1.The Developer Work is in substantial conformance with the plans and specifications identified in Exhibit A attached hereto (the “Plans ”) [this exhibit should list all of the Plans, as defined in the Development Agreement, as modified by Change Orders, andomitting only those plans prepared by PE Member’s Architect], other than the completion of the Developer Work set forth on thepunch lists prepared by Architect and others.2.As of the date hereof, the Developer Work (other than (i) any Base Building Lighting work not required in order to obtain a temporarycertificate of occupancy for the core and shell of the Tower Building pursuant to Section 645 of the New York City Charter and(ii) the Subway Entrance) is substantially completed in accordance with the Plans and in accordance with applicable Laws, otherthan the completion of the Developer Work set forth on the punch lists prepared by Architect and others.3.The exterior envelope and curtain wall of Tower A (excluding the interior enclosing wall thereof) appear to be substantially complete,other than the completion of the Developer Work set forth on the punch lists prepared by Architect and others.4.All PE Elevators (excluding, for all purposes of this paragraph 5, the elevator cab interiors) and one Tower A elevator providingaccess to the roof (i) have been substantially completed and (ii) have been inspected and certified for use by the NYC DOB.Notwithstanding anything to the contrary herein or otherwise, nothing contained in this Certificate, including but not limited to thecapitalized terms not defined herein and the definitions thereof, shall increase Architect’s duties or obligations or decrease Architect’s rightsunder the Architect Agreements or with regard to the Plans, the Projects, or otherwise. Furthermore, without limiting the foregoing, any andall liability of Architect under this Certificate shall be subject to the same limitations of liability contained in the Architect Agreements. Thiscertification is not a representation as to the performance of any of the systems or construction components contained in the Developer Work,and no opinions are expressed regarding the quality or completeness of the designs or work provided by any entity other than the Architect.Very truly yours,KOHN PEDERSEN FOX ASSOCIATES PCBy: Name:Title:[ARCHITECT SEAL]Acknowledged by:[PE Member]By:______________________________Name:Title:Exhibit D30 HUDSON YARDSDelivery ConditionsDeveloper shall perform all work, and furnish and install all materials and equipment, so that the Building, Premises (i.e., the PE Unit), and building systems aredelivered to PE Member free of hazardous materials and asbestos and in compliance with all applicable Laws:1.Floors will be delivered with base building HVAC as follows:a.Developer provides PE Member with a Water Cooled Local Floor Packaged Air Conditioning Unit in the core mechanical room, floors81 to 83 fed from dedicated Packaged Air Conditioning Units (one unit per floor) that are to be located on the 85th floor machine roomfloor. Permanent cooling will be available at building core and shell 0% TCO no later than March 2019.b.Condenser water will be circulated 24x7, year round.c.Supply and Return air ducts including any fire/smoke dampers as may be required connected to the buildings fire alarm system fromWater Cooled Local Floor Packaged Air Conditioning Units, or central Air Conditioning Units for floors all PE Member floors, shall becapped at core wall on both the North and South sides of the core for distribution by PE Memberi.The base mechanical design for cooling will be 5.0 watts per usable square foot demand load for lighting and power, and 49degree supply airii.The outside air ventilation is designed at 20 CFM per person based on one (1) person per 140 usable square foot1.Note, the air change rate of the floor directly correlates to the ceiling height of the space because it is a volumecalculation. Assuming a 9’ -6” ceiling, the air change rate would be approximately 4.5 Air Changes on the Mid Rise and High Rise and 5 AirChanges per hour on the Upper Office Floors. This air change rate is based on design conditions. Since it is a variablevolume system, the air change rate will vary.iii.The post-fire smoke exhaust is designed at 6 air changes per hour.iv.All PE Member floors will be provided with a 2½” condenser water tap (for future PE Member connection), withapproximately 30 tons per floor of capacity. The condenser water piping size (taps) can be increased or decreased in size inorder to provide each floor with more or less capacity, as long as the total does not exceed the design criteria of 30 tons / floor(300 tons total for 10 floors).d.Secondary hot water supply and return risers (SHWS&R) at the perimeter of each floore.Capped toilet supply air duct at North and South sides of coref.Capped toilet exhaust duct at North and South sides of coreg.Return air duct at North and South sides of coreh.Primary hot water to be used by PE Member to create via heat exchanger domestic hot water to serve kitchens/serveries and fitnesscenter.i.Future Kitchen Exhaust Riser Shaft only at core. PE Member to furnish and install or work with Developer on terms to have installed atthe time of the core and shell build out all material and equipment including, but not limited to, ductwork, risers, taps, precipitator, fans,filtration, etc. associated with their kitchen facilities. Note the following:i.Kitchen exhaust black-iron fire-wrap insulated ductwork riser from 81 st Floor PE Member kitchen to base building MER (alsoon 81 st Floor), where a new electrostatic precipitator shall be located to treat kitchen exhaust before discharge to atmosphere. Location of precipitator discharge to be positioned to prevent odors on PE Member 80 th floor terrace.ii.Additional kitchen exhaust black-iron fire-wrap insulated ductwork riser from a second PE Member kitchen (to be locatedwithin floors 74 to 79) to base building MER (80 th Floor), where a new electrostatic precipitator shall be located to treatkitchen exhaust before discharge to atmosphere. The most likely location for a second kitchen would be the 79 th floor. If floorother than 79 is selected for a 2 nd PE Member kitchen (i.e. 74 through 78), the appropriate black-iron-fire-wrap insulatedductwork and required access doors / clean outs will be coordinated in order to perform proper maintenance.iii.Makeup air insulated ductwork riser, originating from a new gas-fired H+V unit located within the base building MER (81 stFloor), routing to PE Member kitchen.iv.Additional make-up air system with insulated ductwork riser, originating from a new gas-fired H+V unit located within thebase building MER (80 th Floor), routing to PE Member kitchen (to be located within floors 74 to 79).v.Type II Hood ductwork riser from PE Member amenity floor with a warming pantry to base building MER, where an exhaustsystem will be located to exhaust heat and vapors from the warming pantry to the atmosphere.vi.Type II Hood ductwork riser from PE Sky Lobby demised space from a warming pantry to base building MER, where anexhaust system will be located to exhaust heat and vapors from the warming pantry to the atmosphere.vii.A 4” gas service is currently provided to the 52nd floor and can be extended to two (2) PE Member kitchen floors. (+/-5,000CFH)viii.Two (2) dedicated 400A/460V electric services to serve two (2) separate PE Member kitchens/cafeterias and associatedequipment located in base building electric closet on the floor proper.ix.Two (2) dedicated 200A/460V electric services to serve PE Member warming pantry equi p ment locations in base buildingelectric closet on the floor proper.j.Developer will provide sub-metering of all HVAC piping and electrical systemsk.Developer shall provide HVAC during Building Hours, 8:00 AM to 6:00 PM, Monday through Friday, and 9:00 AM to 1:00 PMSaturday. The cost of electricity to power PE Member’s water cooled DX unit (AC) will be submetered and allocated to PE Member.The HVAC system shall have floor by floor temperature and system controls accessible by PE Member for its use.l.The Building BMS will accommodate the connection of PE Member systems & devices. All connections shall be made at PE Member’s solecost and expense. The maintenance and service of these devices and points will be at the sole cost and expense of PE Member.m.Developer shall provide temporary heating within the core shell spaces on PE Member floors to the extent floors are delivered prior to buildingTCO.2.Floors will be delivered with base building plumbing at the core walls as follows:a.(2) 2” cold water valved outletb.(2) 1” hot water valved outletc.(2) 3/4” hot water circulation valved outletd.(2) 4” sanitary plugged outlete.(2) 3” vent plugged outlet3.Electrical service shall be distributed to each floor of the Premises via 265/460V Bus Duct risers serving high voltage lighting panel, step downtransformer and utility panel in each of the (2) electric closets. Building design will be based on 5.0 watts / USF demand load, plus two (2)400A/460V and one (1) 200A/460V supplemental power source to serve the PE Member Kitchen/café as noted above to be provided uponbuilding substantial completion by March 2019. At initial delivery January 2019, floors shall be on temporary power.4.All sub-metering of utilities is included in base building work.5.Developer will provide an Emergency Power System (EPS), at no additional cost to PE Member, which will support all code required Building systemsand all code required systems in PE Member’s Premises (including ¼ watt per rentable square foot for PE Member’s emergency lighting needs).In addition, Developer and PE Member to discuss alternative solutions available to address any additional emergency power requirementsspecific to PE Member’s Premises.6.Corridor walls, if any, to be completed with PE Member’s side ready to receive finishes. If shown on plans as drywall, it shall be taped, spackled,and sanded smooth.7.Steel columns, bracing and beams with spray fireproofing will be exposed.8.Mechanical equipment rooms including acoustical rated walls and doors shall be provided and completed by Developer, the assembly shall berate at no more than 40 STC at the mechanical equipment room walls/doors and where there is drywall it shall be taped, spackled, and sandedsmooth. PE Member will have an acoustical engineer of their choice to ensure the mechanical rooms meet the minimum standards for sound andvibration for a commercial office space. Any remedies to meet the minimum standard will be paid for by the Developer.9.All core doors and frames installed. Construction cores to be provided at locksets.10.Smooth unsealed concrete floors. All trowel finished slabs shall achieve an overall tolerance of FF25 and all float finished surfaces shall achievean overall tolerance of FF20. Slab surface deviation from level not to exceed 3/8” in 10’-0” with an overall maximum of ¾”.11.Fire alarm/sprinkler and life safety system installed in core areas containing required points for base building code requirements & futureconnection points for PE Member’s fit-out installation. The Base Building Contractor will provide for the final programming at their cost for thePE Member fit out work.12.Fire sprinkler system distributed including sprinkler heads installed (but not commissioned) in core toilets, Mechanical Equipment rooms,electrical closets, tele-data rooms and janitor closets and other code required base building areas. 2½” sprinkler mains will be capped at the Eastand West sides of the core. The appropriate sprinkler system coverage per the Plans will be installed on each PE Member floor in order to achieveTCO. System will not be commissioned.13.Men’s and Women’s rest rooms on each floor shall be constructed and completed but not functioning. Core Restrooms are to be functional at thetime of TCO/Turn-over to PE Member. PE Member will have approval rights over the interior design of the bathrooms on its floors (e.g. finishes,fixtures etc.) excluding major structural or mechanical changes. Bathrooms have been designed to meet NYC Building Code with 1 fixture perapproximately 28 occupants on Floors 74 – 79 and 1 fixture per approximately 20 occupants on Floors 80─83.14.Temporary water and power will be provided to the Premises.15.Premises shall be delivered in broom clean condition.16.Insulation on Base Building pipes and ducts, if required, will be completed.17.Fire stopping in all areas of building core and perimeter completely in place and signed-off by a NYCDOB-certified Special Inspector.18.Floors are closed in and weather tight exclusive of standard leave-outs or come-back areas of curtain wall (e.g. hoist or crane openings). Infilllogistic plan to be provided for PE Member review. The North will be removed by October 2019, although it may come off the building earlierdepending on the timing of the various interior fit-outs. Leave-out areas will be provided by Related’s Contractor in a configuration that is to besubmitted for PE Member approval such that PE Member’s interior fit-out can proceed around these locations. Refer to the Leave-Out HoistsPlan. Vertical transportation during construction to be provided as described in the Site Logistics Procedures.19.PE Member will submit a plan for any proposed penetrations (e.g. inter-floor connecting stairs) through floor slabs (within its stack) identifyingthe size, location, etc. for review by the base building Structural Engineer during PE Member’s schematic design process. Upon approval, PEMember will provide all required: structural reinforcing; fire safing; etc. as required by said approval and all applicable codes.Two (2) 4” empty conduits from each of two (2) Points-of-Entry routing express vertically with pull boxes where required up to the 74 th Floor(PE Member MDF Room).The two Points of Entry shall provide PE Member redundant Carrier Central Office connectivity. At its option, PE Member can establishconnectivity to the Site Wide Loop and 10th Avenue to provide additional diversity (the latter which would be considered an Upgrade BeyondDI-48/100% CDs (the Plans defined in the Development Agreement) at PE Member’s cost.Additionally, provisions will be made to add four (4) 4” conduits in one of the shafts for connectivity of the 74 th Floor PE Member MDF Roomto the following locations; (a) Ground Floor Lobby, (b) 35 th Floor Sky Lobby, (c) 81 st Floor Terrace Level and (d) 82 nd Floor Upper Stack. Seeattached drawing E-TC-501.00 dated 8.10.15.20.Fire hose valve outlets will be provided as required by code for Core & Shell.21.Refer to the Gensler Plans and Specifications for the additional Delivery Conditions and clarification if portions of Delivery Conditions areconsidered Developer Fitout Work or Upgrade Beyond DI-48/100% CDs (the Plans defined in the Development Agreement) at PE Member’scost.Exhibit E Form of Statement of Changes(see attached)ERY Developer LLCStatement of ChangesDate: OSCR # SAMPLE[PE MEMBER] [____________] [____________] Attention: [_____]Dear [______]:Pursuant to Section 3.06(a) of the Development Agreement, PE Member has submitted the request for a PE Change Order attachedhereto as Exhibit A . Pursuant to Section 3.07(b) of the Development Agreement, the Developer is furnishing this Statement ofChanges to PE Member in connection with such requested PE Change Order.Total PE Change Cost Direct Construction Cost of Change (Detail Attached) Design Consulting Services (Detail Attached) Bond Total — (__%) Subtotal$_____________________ Cost of OCIP Insurance — (__% of Construction & Bond Only) Construction Manager Fee — (__% of Construction, Bond & OCIP) ECM Fee (1%) Developer Fee — (3.0%) Overhead — (3.0%) Sales Tax - (Estimate to be adjusted to actual, 8.875% of construction materials) Contingency — (__%) Subtotal — ECM Cost$____________________ Other$___________________ Total PE Change Cost$____________________The preceding change will add a maximum of [__] days to the Schedule and the Maximum PE Change Cost is reasonably estimatedto be no greater than [$__].[remainder of page left blank]Developer Approval of Change:ERY DEVELOPER LLC, a Delaware limited liability companyBy: ___________________________ Name: ________________________ Title: ________________________PE Member Approval:The PE Member acknowledges the preceding estimate of the Total PE Change Cost, Maximum PE Change Cost and the additionaltime (if noted) as an addition to the Schedule.Acknowledged and Accepted:[PE MEMBER]By: Name: Title: Exhibit APE Change Order RequestExhibit F Dual Obligee Rider(see attached)FORM OF PERFORMANCE AND PAYMENT BONDPERFORMANCE BOND Bond No: CONTRACTOR/PRINCIPAL:SURETY:Name: Address: Name: Address: OBLIGEE:CONSTRUCTION CONTRACT/PROJECT:Name: Hudson Yards Construction LLC Address: c/o The Related Companies, L.P. 60 Columbus Circle New York, New York 10023Name: Hudson Yards — Tower A/30 Hudson Yards Address: 500 West 33 rd Street New York, New York 10001BONDDate Amount 1. The Contractor and Surety, jointly and severally, bind themselves, their heirs, executors, administrators, successors andassigns to the Obligee for the performance of the Construction Contract, which is incorporated herein by reference.2. If the Contractor performs the Construction Contract, the Surety and the Contractor shall have no obligation under this Bond.3. The Surety’s obligation under this Bond shall arise after(i) the Obligee declares the Contractor in Default, terminates the Construction Contract and notifies the Surety of suchDefault and termination; and(ii) the Obligee has agreed to pay the Balance of the Contract Price in accordance with the terms of the ConstructionContract to the Surety or to a contractor selected by the Surety to perform the Construction Contract.4. Within ten (10) days after the Obligee has satisfied the conditions of Section 3, the Surety shall, at its sole cost and expense,take one of the following actions:(i) arrange for the Contractor, with the consent of the Obligee, to perform and complete the Construction Contract;(ii) undertake to perform and complete the Construction Contract itself, through its agents or independent contractors;(iii) obtain bids or negotiated proposals from qualified contractors acceptable to the Obligee for a contract for performanceand completion of the Construction Contract, arrange for a contract to be prepared for execution by the Obligee and acontractor selected with the Obligee’s concurrence, to be secured with performance and payment bonds executed by aqualified surety equivalent to the bonds issued on the Construction Contract, and pay to the Obligee the amount of damages asdescribed in Section 6 in excess of the Balance of the Contract Price incurred by the Obligee as a result of the ContractorDefault; or(iv) waive its right to perform and complete, arrange for completion, or obtain a new contractor and with reasonablepromptness under the circumstances:a) after investigation, determine the amount for which it may be liable to the Obligee and, as soon as practicable after theamount is determined, make payment to the Obligee; orb) deny liability in whole or in part and notify the Obligee, citing the reasons for denial.5. If the Surety does not proceed as provided in Section 4, the Surety shall be deemed to be in default on this Bond seven (7)days after receipt of an additional written notice from the Obligee to the Surety demanding that the Surety perform its obligationsunder this Bond, and the Obligee shall be entitled to enforce any remedy available to the Obligee. If the Surety proceeds asprovided in Section 4(iv), and the Obligee refuses the payment or the Surety has denied liability, in whole or in part, withoutfurther notice the Obligee shall be entitled to enforce any remedy available to the Obligee.6. If the Surety elects to act under Sections 4(i), 4(ii) or 4(iii), then the responsibilities of the Surety to the Obligee shall not begreater than those of the Contractor under the Construction Contract, and the responsibilities of the Obligee to the surety shall notbe greater than those of the Obligee under the Construction Contract. Subject to the commitment by the Obligee to pay theBalance of the Contract Price, the Surety is obligated, without duplication, for(i) the responsibilities of the Contractor for correction of defective work and completion of the Construction Contract;(ii) additional legal, design professional and delay costs resulting from the Contractor’s Default, and resulting from theactions or failure to act of the Surety under Section 4; and(iii) liquidated damages, or if no liquidated damages are specified in the Construction Contract, actual damages caused bydelayed performance or non-performance of the Contractor.7. If the Surety elects to act under Section 4(i), 4(ii) or 4(iii), the Surety’s liability is limited to the amount of this Bond.8. The Surety shall not be liable to the Obligee or others for obligations of the Contractor that are unrelated to the ConstructionContract, and the Balance of the Contract Price shall not be reduced or set off on account of any such unrelated obligations. Noright of action shall accrue on this Bond to any person or entity other than the Obligee or its heirs, executors, administrators,successors and assigns.9. The Surety hereby waives notice of any change, including changes of time, to the Construction Contract or to relatedsubcontracts, purchase orders and other obligations. The Surety agrees that no change, extension of time, alteration, addition,omission or other modification of the Construction Contract, the Contract Documents or the Work to be performed, shall in anyway affect its obligation under this Bond.10. Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the locationin which the work or part of the work is located and shall be instituted within two years after a declaration of Contractor Defaultor within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform itsobligations under this Bond, whichever occurs first.11. Notice to the Surety, the Obligee or the Contractor shall be mailed or delivered to the address shown on the first page of thisBond.12. Definitions:(i) Balance of the Contract Price: The total amount payable by the Obligee to the Contractor under the ConstructionContract after all proper adjustments have been made, including allowance to the Contractor of any amounts received or to bereceived by the Obligee in settlement of insurance or other claims for damages to which the Contractor is entitled, reduced byall valid and proper payments made to or on behalf of the Contractor under the Construction Contract.(ii) Construction Contract: The agreement between the Obligee and Contractor identified on the cover page, including allContract Documents and changes made to the agreement and the Contract Documents.(iii) Contractor Default. Failure of the Contractor, which has not been remedied or waived, to perform or otherwise tocomply with a material term of the Construction Contract.(iv) Contract Documents. All the documents that comprise the agreement between the Obligee and Contractor.13. If this Bond is issued for an agreement between a Contractor and Subcontractor, the term Contractor in this Bond shall bedeemed to be Subcontractor and the term Owner shall be deemed to be Contractor.CONTRACTOR/PRINCIPALNameSignatureName and TitleSURETYNameSignatureName and TitleRIDER TO PERFORMANCE BOND ADDING ADDITIONAL OBLIGEERider to be attached to and form a part of Bond Number , dated the ___ day of , 20__, executed by (the “Surety”) on behalf of (the “Principal”) in favor of HUDSON YARDS CONSTRUCTIONLLC (the “Obligee”),WHEREAS, the Principal has by written agreement dated , 20_, entered into a contract (the “Construction Contract”) with the Obligee for ; andWHEREAS, upon the request of the Principal and Obligee the attached bond is hereby amended to add HUDSON YARDSNORTH TOWER TENANT LLC, ERY RETAIL PODIUM LLC, ERY TENANT LLC, KKR HY LLC, [TOWER A LENDER],[RETAIL LENDER], METROPOLITAN TRANSPORTATION AUTHORITY and THE LONG ISLAND RAIL ROADCOMPANY, and their respective successors and assigns as additional Obligees,In no event shall the aggregate liability of the Surety to either or to both Obligees exceed the penal sum of the attached bond,nor shall the Surety be liable except for a single payment for each single breach or default. At the Surety’s election, any payment dueto either Obligee may be made by its check issued jointly both.This change is effective this ___ day of , 20__.The attached bond shall be subject to all of its terms, conditions and limitations except as herein modified.DATED as of this ___ day of ______, 20__.CONTRACTOR/PRINCIPAL:Name Signature Name and Title SURETY:Name Signature Name and Title PAYMENT BOND Bond No: CONTRACTOR/PRINCIPAL:SURETY:Name: Address: Name: Address: OBLIGEE:CONSTRUCTION CONTRACT/PROJECT:Name: Hudson Yards Construction LLC Address: c/o The Related Companies, L.P. 60 Columbus Circle New York, New York 10023Name: Hudson Yards — Tower A Address: 500 West 33 rd Street New York, New York 10001BONDDate Amount 1.The Contractor and Surety, jointly and severally, bind themselves, their heirs, executors, administrators, successors and assigns tothe Obligee for the payment of the above sum well and truly to be made.2.The Contractor has entered into a written Construction Contract with the Obligee, which is incorporated herein by reference.3.The condition of this Bond is such that, if the Contractor shall promptly pay all persons having just claims for (a) labor, materials,services, insurance, supplies, machinery, equipment, rentals, fuels, oils, implements, tools and/or appliances and any other itemsof whatever nature, furnished for, used or consumed in the prosecution of the work called for by said contract and any and allmodifications thereof, whether lienable or nonlienable and whether or not permanently incorporated in said work; (b) pension,welfare, vacation and/or other supplemental employee benefit contributions payable under collective bargaining agreements withrespect to persons employed upon said work; and (c)federal, state and local taxes and/or contributions required by law to bewithheld and/or paid with respect to the employment of persons upon said work, then this obligation shall be null and void;otherwise it shall remain in full force and effect.4.The Surety hereby waives notice of any change, including changes of time, to the Construction Contract or to relatedsubcontracts, purchase orders and other obligations. The Surety agrees that no change, extension of time, alteration, addition,omission or other modification of the Construction Contract, the Contract Documents or the Work to be performed, shall in anyway affect its obligation under this Bond.5.The Contractor and the Surety agree that this Bond shall inure to the benefit of all persons supplying labor and material in theprosecution of the work provided for in the Construction Contract, as well as to the Obligee, and that such persons may maintainindependent actions upon this Bond in their own names.6.Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location inwhich the work or part of the work is located.7.Notice to the Surety, the Obligee or the Contractor shall be mailed or delivered to the address shown on the first page of thisBond.8.Definitions:(i)Construction Contract: The agreement between the Obligee and Contractor identified on the cover page, including allContract Documents and changes made to the agreement and the Contract Documents.(ii)Contract Documents. All the documents that comprise the agreement between the Obligee and Contractor.9.If this Bond is issued for an agreement between a Contractor and Subcontractor, the term Contractor in this Bond shall bedeemed to be Subcontractor and the term Owner shall be deemed to be Contractor.CONTRACTOR/PRINCIPAL:Name Signature Name and Title SURETY:Name Signature Name and Title RIDER TO PAYMENT BOND ADDING ADDITIONAL OBLIGEERider to be attached to and form a part of Bond Number , dated the ___ day of , 20__, executed by (the “Surety”) on behalf of (the “Principal”) in favor of HUDSON YARDS CONSTRUCTIONLLC (the “Obligee”),WHEREAS, the Principal has by written agreement dated , 20_, entered into a contract (the “Construction Contract”) with the Obligee for ; andWHEREAS, upon the request of the Principal and Obligee the attached bond is hereby amended to add HUDSON YARDSNORTH TOWER TENANT LLC, ERY RETAIL PODIUM LLC, ERY TENANT LLC, [TOWER A LENDER], [RETAILLENDER], METROPOLITAN TRANSPORTATION AUTHORITY and THE LONG ISLAND RAIL ROAD COMPANY, andtheir respective successors and assigns as additional Obligees,In no event shall the aggregate liability of the Surety to either or to both Obligees exceed the penal sum of the attached bond,nor shall the Surety be liable except for a single payment for each single breach or default. At the Surety’s election, any payment dueto either Obligee may be made by its check issued jointly both.This change is effective this ___ day of , 20__.The attached bond shall be subject to all of its terms, conditions and limitations except as herein modified.DATED as of this ___ day of _____, 20__.CONTRACTOR/PRINCIPAL:SURETY:Name Signature Name and Title Name Signature Name and Title 101838571.3Exhibit G ArbitersHonorable Bernard J. FriedHonorable Stephen G. CraneMichael Young, Esq.Exhibit H Work Dispute ArbitersWalter Hunt, FAIAKenneth D. Levien, AIAExhibit I Form of 50 HY Deed Restriction(see attached)AGREEMENT RE RESTRICTIVE COVENANTbetween_____________________________ LLC,a Delaware limited liability company, (“Owner”)andHUDSON YARDS NORTH TOWER TENANT LLC ,a Delaware limited liability company(“Tower A Tenant”)Block: _____Lot: _____County: New YorkAddress: ________________________After recording, please return by mail to:Sullivan & Cromwell LLP125 Broad StreetNew York, NY 10004Attention: Robert M. Schlein, Esq.AGREEMENT RE RESTRICTIVE COVENANTTHIS AGREEMENT RE RESTRICTIVE COVENANT (this “ Agreement ”) made this _____ day of _______, 2015 by andbetween _____________________ LLC, a Delaware limited liability company, having an office at c/o The Related Companies, L.P.,60 Columbus Circle, New York, New York 10023 (or its successors or assigns as owner of the Burdened Premises or any portionthereof, “ Owner ”) and Hudson Yards North Tower Tenant LLC, a Delaware limited liability company, having an office at c/o TheRelated Companies, L.P., 60 Columbus Circle, New York, New York 10023 (“ Tower A Tenant ”).WHEREAS, Owner is the owner of certain real property situated in the Borough of Manhattan, County of New York andState of New York, known and designated as Block ___, Lot __ (the “ Burdened Premises ”), as shown on the tax map of the City ofNew York for the County of New York and as more particularly described in Exhibit A hereto;WHEREAS, Tower A Tenant is the lessee of the Office Unit, as defined in the Declaration Establishing a Plan forCondominium Ownership of the Premises known as 30 Hudson Yards, New York, New York, Pursuant to Article 9-B of the RealProperty Law of the State of New York, dated ________________, 2015 (the “ Declaration ”), intended to be recordedsimultaneously herewith with respect to the real property known and designated as Block 702, [Lot 125] and more particularlydescribed in Exhibit B hereto. The Office Unit is known and designated as Block 702, [Lot ___];WHEREAS, Tower A Tenant intends to further subdivide the Office Unit into one or more Subdivided Units (as defined inthe bylaws of the Condominium attached to the Declaration (the “ Bylaws ”), including a Subdivided Unit comprising [floors 74-83]of the Building (as defined in the Declaration) (the “ Upper Office Unit ”) (the Office Unit prior to such subdivision, and the UpperOffice Unit following such subdivision, being referred to herein as the “ Benefited Unit ”);WHEREAS, the benefits conferred upon the Benefited Unit pursuant to this Agreement are essential to preserving sight lines,air and proper sunlight for the Office Unit and the Upper Office Unit; andWHEREAS, the parties hereto wish to set forth certain agreements between Owner and Tower A Tenant relating to theimprovements to be constructed at the Burdened Premises.NOW, THEREFORE, it is agreed as follows:1. Restrictions . Owner hereby restricts the use and development of the Burdened Premises for the benefit of the BenefitedParties (as hereinafter defined) in perpetuity as expressly set forth in this Section 1 :(a) In no event shall Owner construct, develop, maintain or rebuild, or permit or suffer to be constructed, developed,maintained or rebuilt, any building, structure or improvement (including, without limitation, any parapet, bulkhead, fence, elevatorshaft, water tower, antenna, cell tower, satellite dish, chimney, pipe, ladder, fire escape, or other mechanical or telecommunicationsequipment) on the Burdened Premises that exceeds the lesser of (i) the height of the top slab of the 79 th floor of the Building (asdepicted in the construction drawings for the Building attached to the Initial Construction Agreements (as defined in the Declaration))or (ii) the horizontal plane that is one thousand ten (1,010) feet above the Base Level (as hereinafter defined) (the “ Height Limit ”),irrespective of whether the same would be permitted under the Zoning Resolution of the City of New York or any other legalrequirement. Owner acknowledges and agrees that the foregoing restriction on the Burdened Premises is to benefit the Benefited Unitby affording light, air and view for the perpetual benefit of the Benefited Parties. For purposes of the foregoing, “ Base Level ” meansthe Borough of Manhattan Datum 2.75 feet above mean sea level at Sandy Hook, New Jersey as determined by the United StatesCoast and Geodetic Survey.(b) In no event shall Owner transfer Floor Area from the Burdened Premises to another parcel located on the 50 HY Blockthat is not subject to a restrictive covenant substantially in the form of this Agreement (any such parcel on the 50 HY Block that is notsubject to such a restrictive covenant, an “ Unburdened Parcel ”), unless, prior to any such transfer of Floor Area, the transferee ofsuch Floor Area executes and records against such Unburdened Parcel a restrictive declaration or other agreement, for the benefit ofthe Benefited Parties, that prohibits the construction or development on any portion of such Unburdened Parcel of any building,structure or improvement (including, without limitation, any parapet, bulkhead, fence, elevator shaft, water tower, antenna, celltower, satellite dish, chimney, pipe, ladder, fire escape, or other mechanical or telecommunications equipment) that exceeds theHeight Limit (any such restrictive declaration or similar agreement recorded against an Unburdened Parcel, an “ Unburdened ParcelRestriction ”). Any transfer of Floor Area to an Unburdened Parcel without the prior recordation of such an Unburdened ParcelRestriction shall be void, and the Benefited Parties shall be entitled to obtain equitable relief by way of injunction and/or to compelspecific performance of Owner’s obligation to obtain such Unburdened Parcel Restriction (without the need to prove or demonstratedamages). From and after the recording of any such Unburdened Parcel Restriction against any such Unburdened Parcel that isowned or controlled by a third party (that is not Owner or an Affiliate of Owner), (i) the Benefited Parties shall have the sole right toenforce such Unburdened Parcel Restriction, and Owner and its Affiliates shall have no obligation to enforce such Unburdened ParcelRestriction and (ii) Owner and its Affiliates shall have no liability to the Benefited Parties in connection with the transfer of FloorArea to such Unburdened Parcel or any breach of such Unburdened Parcel Restriction by the transferee of such Floor Area or anysubsequent third-party owner of such Unburdened Parcel (that is not Developer or an Affiliate of Developer). For purposes of thisAgreement (x) “ Floor Area ” shall have the meaning ascribed thereto in Section 12-10 of the Zoning Resolution and shall bemeasured in accordance with the standards set forth in the Zoning Resolution (notwithstanding that the Building may be exempt fromapplication of the Zoning Resolution under Public Authorities Law Section 1266(8)) and (y) “ 50 HY Block ” shall mean the blockbounded by 10th Avenue in the east, Hudson Boulevard in the west, 33rd Street in the south and 34th Street in the north, in the City,County and State of New York.2. Covenants Running With the Land . The provisions of this Agreement shall run with the land and inure to the benefit ofand be binding upon each party and its successors and assigns. Any present or future estate in the Burdened Premises and any lien,obligation, covenant, lease, mortgage, deed of trust or other encumbrance of any kind at any time arising, claimed or asserted in theBurdened Premises shall be subject and subordinate to this Agreement and the Benefited Parties’ interest herein, except in each casewith respect to the Title Exceptions (as hereinafter defined). Notwithstanding the foregoing, upon the filing of an amendment to theDeclaration subdividing the Office Unit and creating the Upper Office Unit, this Agreement shall automatically terminate and be ofno further force or effect with respect to the owner or lessee of any portion of the Office Unit or the Building other than the UpperOffice Unit. For purposes of this Agreement, “ Benefited Parties ” means Tower A Tenant, any owner of the Office Unit (prior tosuch subdivision) or the Upper Office Unit (from and after such subdivision), any Declarant Net Lessee (as defined in the Bylaws) ofthe Office Unit (prior to such subdivision) or the Upper Office Unit (from and after such subdivision), KKR HY LLC, a Delawarelimited liability company, and their respective successors and assigns.3. Representations and Warranties of Owner . Owner hereby represents and warrants that it (a) owns fee simple title to theBurdened Premises, subject to any matters of record as of the date of recordation of this Agreement, including without limitation anymortgage recorded against the Burdened Premises; liens for real estate taxes and assessments; unrecorded leases; any laws, rules,regulations, statutes, ordinances, orders or other legal requirements affecting the Burdened Premises; and any state of facts which acurrent survey or inspection of the Burdened Premises would disclose (collectively, the “ Title Exceptions ”); (b) has all power andauthority to enter into this Agreement, and (c) in connection with the Burdened Premises, has not transferred any development rights,air rights or rights or options to purchase to any third party.4. Estoppels . Each party shall, upon at least twenty (20) days’ prior written request, deliver to the other party a writtenstatement, setting forth whether this Agreement is in full force and effect; the extent to which this Agreement has been modified bywritten instrument not of record; the extent to which the responding party has served any written notice of default under thisAgreement, which default remains uncured; and that the statement may be relied upon by the requesting party and said designee.5. Remedies . In the event of a default by Owner under this Agreement, the Benefited Parties shall have the right to seekany and all administrative and judicial remedies as may be available at law or equity, including without limitation an action forinjunctive relief or specific performance (it being agreed that any violation by Owner of the covenants contained in this Agreementwould cause irreparable harm to the Benefited Parties as to which an award of money damages may be an inadequate remedy) or fordamages (including the diminution in value of the Benefited Unit, if any). In the event of any action, suit or proceeding between theparties, the prevailing party shall be entitled to reimbursement from the non-prevailing party of the legal fees and expenses incurredby the prevailing party in connection with such action, suit or proceeding.6. No Transfer of Development Rights . Nothing in this Agreement shall be construed as conveying or otherwisetransferring the fee or any other interest in the property owned or leased by either party to the other party, or in any air rights ordevelopment rights.7. Miscellaneous .(a) This Agreement shall be governed by, and construed in accordance with, the law of the State of New York withoutreference to principles of conflicts of laws, and the parties each individually agrees to submit to the jurisdiction of all Federal andNew York State courts located in the State and County of New York in connection with any litigation instituted under thisAgreement.(b) This Agreement shall be construed without regard to the presumption or other rule requiring construction against theparty causing this Agreement to be drafted.(c) Except as expressly set forth in this Agreement, no party shall be deemed to have made any representations, warrantiesor promises, express or implied, concerning anything affected by this Agreement.(d) This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to bean original and all of which shall be deemed to be one and the same investment. In addition, the parties may execute separatesignature and acknowledgment pages, and such signature and acknowledgment pages (and/or signature and acknowledgment pagesthat have been detached from one or more duplicate original copies of this Agreement) may be combined and attached to one or morecopies of this Agreement so that such copies shall contain the signatures and acknowledgments of all of the parties hereto.(e) In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegalor unenforceable in any respect, such invalidity, illegality, or enforceability shall not affect any other provision hereof, and thisAgreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.(f) Except as expressly set forth in this Agreement, no covenant or agreement contained in this Agreement shall inure to thebenefit of any party other than the parties hereto and their respective successors and assigns. For the avoidance of doubt, theBenefited Parties are expressly intended to be third party beneficiaries of this Agreement, and each of them shall have full power andauthority to enforce this Agreement. Neither the members, managers, partners, shareholders, directors, officers or principals, directand indirect, of Owner shall be liable for the performance of Owner’s obligations under this Agreement. From and after the transferby Owner of the Burdened Premises to any third party (that is not Owner or an Affiliate of Owner), neither Owner nor any of itsAffiliates shall have any obligation to enforce this Agreement nor shall either of them have any liability for any breach of thisAgreement by such transferee or any subsequent third-party owner of the Burdened Premises (that is not Owner or an Affiliate ofOwner).(g) The titles set forth in this Agreement are intended for ease of reference only and shall have no force or effect in theinterpretation of this Agreement.(h) Each party shall execute, acknowledge and deliver such further instruments, and take such other or further actions asmay be reasonably required in order to carry out and effectuate the intent and purpose of this Agreement, all at the sole cost andexpense of the party requesting such further assurances.(i) This Agreement may not be amended or modified except by a written instrument duly executed by each party hereto orits respective successor in interest hereto.(j) This Agreement shall be recorded against the Burdened Premises and the Benefited Unit in the Office of the CityRegister for New York County.(k) Owner represents, covenants and warrants that any consideration received by it will be received subject to the provisionsof Section 13 of the Lien Law.[ Signature pages follow ]IN WITNESS WHEREOF, this Agreement has been duly executed the day and year first above written.OWNER:_______________________ LLC, a Delaware limited liability companyBy: _______________________________Name:Title:TOWER A TENANT:Hudson Yards North Tower Tenant LLC, a Delaware limited liability companyBy: _______________________________Name:Title:STATE OF NEW YORK )) SS:COUNTY OF NEW YORK )On the ____ day of ______ in the year 2015, before me, the undersigned, personal appeared [Name of signatory] personally known tome or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument andacknowledged to me that he/she/they executed the same in his authorized capacity, and that by his signatures on the instrument the persons, orthe entity upon behalf of which the person acted, executed the instrument._______________________________Signature of NotarySTATE OF NEW YORK )) SS:COUNTY OF NEW YORK )On the ____ day of ______ in the year 2015, before me, the undersigned, personal appeared [Name of signatory] personally known tome or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument andacknowledged to me that he/she/they executed the same in his authorized capacity, and that by his signatures on the instrument the persons, orthe entity upon behalf of which the person acted, executed the instrument._______________________________Signature of NotaryExhibit ALegal DescriptionExhibit J Form of Mortgage Subordination (see attached)WAIVER AND SUBORDINATION OF MORTGAGETHIS WAIVER AND SUBORDINATION OF MORTGAGE made by MERCANTIL COMMERCEBANK, N.A. ,having an office at 11 East 51st Street, New York, New York 10022 (together with its successors and assigns, “ Mortgagee ”).Mortgagee is the holder of that certain Amended, Restated and Consolidated Mortgage, Security Agreement and Assignmentof Leases and Rents (as the same may be amended, restated, spread, replaced or otherwise modified from time to time, the “Mortgage ”), made by and among 507-511 WEST 33RD STREET ASSOCIATES LLC , a limited liability company dulyorganized, validly existing and in good standing under the laws of the State of Delaware, having an office at c/o The RelatedCompanies, L.P., 60 Columbus Circle, 19th Floor, New York, New York 10023 (“ 33 rd Street Associates ”), and 413 10THAVENUE PROPERTY, LLC , a limited liability company duly organized, validly existing and in good standing under the laws ofthe State of Delaware, having an office at c/o The Related Companies, L.P., 60 Columbus Circle, 19th Floor, New York, New York10023 (“ 10 th Avenue Property LLC ”; together with 33 rd Street Associates, together with their respective successors and assigns,collectively, “ Mortgagor ”), as is more particularly described on Exhibit A annexed hereto and made a part hereof, encumbering (i)33 rd Street Associates’ fee interest in the premises known as Tax Lot 29 in Block 705 on the Tax Map of the City of New York,County of New York, which is known by the street address 507-511 West 33 rd Street, New York, New York and (ii) 10 th AvenueProperty LLC’s fee interest in the premises known as Tax Lot 32 in Block 705 on the Tax Map of the City of New York, County ofNew York, which is known by the street address 413 Tenth Avenue, New York, New York, in each case, as is more particularlydescribed on Exhibit B annexed hereto and made a part hereof (collectively, the “ Premises ”).Mortgagee:1. Hereby waives its rights to execute that certain (i) Agreement RE Restrictive Covenant (the “ 33 rd Street RestrictiveCovenant ”), dated as of the date hereof, by and between 33 rd Street Associates and Hudson Yards North Tower Tenant LLC, aDelaware limited liability company (“ HY North Tower Tenant ”), and (ii) Agreement RE Restrictive Covenant (the “ 10 th AvenueRestrictive Covenant ”; and together with the 33 rd Street Restrictive Covenant, collectively, the “ Restrictive Covenant ”), dated as ofthe date hereof, by and between 10 th Avenue Property LLC and HY North Tower Tenant, together with any amendments thereofwith respect to the Premises;2. Hereby agrees that the Mortgage and the lien thereof and any extensions, renewals, modifications, amendments,replacements, supplements, assignments and/or consolidations of the Mortgage shall in all respects be subject and subordinate to theRestrictive Covenant.3. Hereby represents that it has not assigned or further encumbered the Mortgage; and4. Hereby agrees that all of the covenants and agreements contained in this instrument: (a) shall run with the lands andbuildings affected by this instrument and the undersigned’s interest therein; and (b) shall be binding on the undersigned, and itssuccessors and assigns.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]IN WITNESS WHEREOF , the undersigned has executed this Waiver and Subordination this ______ day of__________, 2015.MERCANTIL COMMERCEBANK, N.A.By:________________________________ Name: Title:STATE OF NEW YORK )) ss:COUNTY OF NEW YORK )On the ____ day of ____________, 2015 before me, the undersigned, a notary in and for said state, personallyappeared ___________________, personally known to me or proved to me on the basis of satisfactory evidence to be theindividual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the samein his/her/their capacity and that by his/her/their signature(s) on the instrument, the individual, or the person upon behalf of which theindividual(s) acted, executed the instrument.____________________________________Notary PublicEXHIBIT ASchedule of MortgagesA.Mortgage made by Avon Development Enterprises Corp. to Citibank, N.A. in the original principal amount of $600,000.00,dated as of May 26, 1983 and recorded in the New York City Register’s Office on June 1, 1983 in Reel 692, Page 228.1.which Mortgage A was assigned by Citibank, N.A. to Apple Bank for Savings pursuant to that certain Assignment ofMortgage Without Covenant, dated as of November 3, 1988 and recorded in the New York City Register’s Office onNovember 21, 1988 in Reel 1496, Page 2497.B.Mortgage made by Avon Development Enterprises, Corp. to John Ford and William Goodman in the original principalamount of $600,000.00, dated as of May 26, 1983 and recorded in the New York City Register’s Office on June 1, 1983 inReel 692, Page 243.1.which Mortgage B was assigned by John Ford and William Goodman to Apple Bank for Savings pursuant to thatcertain Assignment of Mortgage With Covenant, dated as of November 4, 1988 and recorded in the New York CityRegister’s Office on November 21, 1988 in Reel 1496, Page 2495.C.Mortgage made by Avon Development Enterprises Corp. to Apple Bank for Savings in the original principal amount of$142,667.38, dated as of November 4, 1988 and recorded in the New York City Register’s Office on November 21, 1988 inReel 1496, Page 2388.Mortgage Tax Paid: $2,140.50.1.which Mortgage C, was consolidated with Mortgages A and B above, pursuant to that certain Consolidation,Modification and Extension Agreement by and between Avon Development Enterprises Corp. and Apple Bank forSavings, dated as of November 4, 1988 and recorded in the New York City Register’s Office on November 21, 1988in Reel 1496, Page 2393, to form a single lien in the amount of $1,300,000.00.2.which Mortgages A, B and C, as consolidated, were assigned by Apple Bank for Savings to National Bank of NewYork City pursuant to that certain Assignment of Mortgage, dated as August 17, 1999 and recorded in the New YorkCity Register’s Office on December 15, 1999 in Reel 3010, Page 1119.D.Mortgage and Security Agreement made by Avon Development Enterprises, Corp. to National Bank of New York City in theoriginal principal amount of $909,940.89, dated as of September 17, 1999 and recorded in the New York City Register’sOffice on December 15, 1999 in Reel 3010, Page 1123.Mortgage Tax Paid: $25,022.25.1.which Mortgage D, was consolidated with Mortgages A, B and C above, pursuant to that certain Agreement ofConsolidation of Notes and Mortgage and Modification of the Consolidated Mortgage by and between AvonDevelopment Enterprises, Corp. and National Bank of New York City, dated as of September 17, 1999 and recordedin the New York City Register’s Office on December 15, 1999 in Reel 3010, Page 1164, to form a single lien in theamount of $2,000,000.00.E.Mortgage and Security Agreement made by Avon Development Enterprises, Corp. to National Bank of New York City in theoriginal principal amount of $162,028.46, dated as of May 1, 2002 and recorded in the New York City Register’s Office onMay 24, 2002 in Reel 3524, Page 2339.Mortgage Tax Paid: $3,240.00.1.which Mortgage E, was consolidated with Mortgages A, B, C and D above, pursuant to that certain Agreement ofConsolidation of Notes and Mortgages and Modification of the Consolidated Mortgage by and between AvonDevelopment Enterprises, Corp. and National Bank of New York City, dated as of May 1, 2002 and recorded in theNew York City Register’s Office on May 24, 2002 in Reel 3524, Page 2379, to form a single lien in the amount of$2,100,000.00.F.Second Mortgage and Security Agreement made by Avon Development Enterprises, Corp. to National Bank of New YorkCity in the original principal amount of $300,000.00, dated as of October 23, 2003 and recorded in the New York CityRegister’s Office on November 25, 2003 as CRFN 2003000472189.Mortgage Tax Paid: $6,000.00.G.Mortgage and Security Agreement made by Avon Development Enterprises, Corp. to National Bank of New York City in theoriginal principal amount of $1,413,858.94, dated as of July 19, 2007 and recorded in the New York City Register’s Office onAugust 28, 2007 as CRFN 2007000444155.1.which Mortgage G, was consolidated with Mortgages A, B, C, D, E and F above, pursuant to that certain Agreementof Consolidation, Extension and Modification of Mortgage by and between Avon Development Enterprises, Corp. andNational Bank of New York City, dated as of July 19, 2007 and recorded in the New York City Register’s Office onAugust 28, 2007 as CRFN 2007000444156, to form a single lien in the amount of $3,500,000.00.H.Mortgage and Security Agreement made by Avon Development Enterprises, Corp. to National Bank of New York City in theoriginal principal amount of $450,000.00, dated as of September 16, 2009 and recorded in the New York City Register’sOffice on September 28, 2009 as CRFN 2009000312250.1.which Mortgage H, was consolidated with Mortgages A, B, C, D, E, F and G above, pursuant to that certainAgreement of Consolidation, Extension and Modification of Mortgage by and between Avon DevelopmentEnterprises, Corp. and National Bank of New York City, dated as of September 16, 2009 and recorded in the NewYork City Register’s Office on September 28, 2009 as CRFN 2009000312251, to form a single lien in the amount of$3,762,393.13.2.which Mortgages A, B, C, D, E, F, G and H, as consolidated, were assigned by National Bank of New York City toJPMorgan Chase Bank, N.A. pursuant to that certain Assignment of Mortgages, dated as of July 12, 2012 and recordedin the New York City Register’s Office on August 3, 2012 as CRFN 2012000306939.I.Mortgage made by Avon Development Enterprises, Corp. to JPMorgan Chase Bank, N.A. in the original principal amount of$216,154.82, dated as of July 16, 2012 and recorded in the New York City Register’s Office of New York on August 3, 2012as CRFN 2012000306940.1.which Mortgage I, was consolidated with Mortgages A, B, C, D, E, F, G and H above, pursuant to that certainMortgage Consolidation, Modification and Extension Agreement by and between Avon Development Enterprises,Corp. and JPMorgan Chase Bank, N.A., dated as of July 16, 2012 and recorded in the New York City Register’sOffice on August 3, 2012 as CRFN 2012000306941, to form a single lien in the amount of $3,800,000.00.2.which Mortgages A, B, C, D, E, F, G, H and I, as consolidated, were assigned by JPMorgan Chase Bank, N.A. toMercantil CommerceBank, N.A. pursuant to that certain Assignment of Mortgage, dated as of 8/4/2015 and recordedin the New York City Register’s Office on 8/31/2015 as CRFN 2015000302776.J.Gap Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing made by 507-511 West 33rd StreetAssociates LLC and 413 10th Avenue Property, LLC to Mercantil CommerceBank, N.A., in the original principal amount of$26,630,074.69, dated as of 8/12/2015 and recorded in the New York City Register’s Office on 8/31/2015, as CRFN2015000302778.1.which Mortgage J was consolidated and spread with Mortgages A, B, C, D, E, F, G, H, and I above, pursuant to thatcertain Amended, Restated and Consolidated Mortgage, Security Agreement and Assignment of Leases and Rents byand among 507-511 West 33rd Street Associates LLC, 413 10th Avenue Property, LLC and MercantilCommerceBank, N.A., dated as of 8/12/2015 and recorded in the New York City Register’s Office on 8/31/2015, asCRFN 2015000302779, to form a single lien in the amount of $30,000,000.EXHIBIT BMetes and Bounds Description of the PremisesLot 29:ALL THAT CERTAIN plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and beingin the Borough of Manhattan, City, County and State of New York, bounded and described as follows:BEGINNING at a point on the northerly side of West 33rd Street, distant 125 feet westerly from the corner formed by the intersectionof the westerly side of 10th Avenue with the said northerly side of West 33rd Street;RUNNING THENCE northerly parallel with said westerly side of 10th Avenue, and part of the distance through a party wall, 98 feet9 inches to the center line of the block;THENCE westerly along said center line of the block, 80 feet;THENCE southerly again parallel with said westerly side of 10th Avenue, 98 feet 9 inches to the said northerly side of West 33rdStreet;THENCE easterly along said northerly side of West 33rd Street, 80 feet to the point or place of BEGINNING.For Information Only: Said premises are known as 507-511 West 33rd Street, New York, NY and designated as Block 705 Lot 29as shown on the Tax Map of the City of New York, County of New York.Lot 32:ALL THAT CERTAIN plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and beingin the Borough of Manhattan, County of New York, City and State of New York, bounded and described as follows:BEGINNING at the corner formed by the intersection of the Westerly line of Tenth Avenue with the Northerly line of West 33 rdStreet;RUNNING THENCE Westerly along the Northerly line of West 33 rd Street, 75 feet;THENCE Northerly parallel with Tenth Avenue, 24 feet 9 inches (record) 24.75 feet (survey);THENCE Easterly parallel with West 33 rd Street and part of the way through the center of a party wall 75 feet to the Westerly line ofTenth Avenue aforesaid;THENCE Southerly along said Westerly line of Tenth Avenue, 24 feet 9 inches (record) 24.75 feet (survey) to the Northerly side ofWest 33 rd Street to the corner, at the point or place of BEGINNING.For Information Only: Said premises are known as 413 10th Avenue, New York, NY and designated as Block 705 Lot 32 as shownon the Tax Map of the City of New York, County of New York.Exhibit 21.1Subsidiaries of the RegistrantName JurisdictionAllstar Co‑Invest GP LLCDelawareASF Walter Co‑Invest GP LimitedCayman IslandsAsian Fund (Ireland II) ILPIrelandAsian Fund (Ireland III ELP) ILPIrelandAsian Fund (Ireland III MIT) ILPIrelandAsian Fund (Ireland) ILPIrelandAvoca CapitalIrelandAvoca Capital CLO X LimitedIrelandAvoca Capital Jersey UnlimitedJerseyAvoca Capital PropertyIrelandAvoca CLO XI LimitedIrelandAvoca CLO XII LimitedIrelandAvoca CLO XIII LimitedIrelandAvoca CLO XIV LimitedIrelandAvoca CLO XV LimitedIrelandAvoca Convertible Bond Partners LLPEngland & WalesAvoca Securities InvestmentsIrelandBlue Holdings Co‑Invest GP LLCDelawareCDP-KKR PE PartnershipCayman IslandsCH Co‑Investors GP LimitedCayman IslandsCPS Associates L.P.Cayman IslandsCPS GP LimitedCayman IslandsDorms Asia Real Estate (GP) Pte. Ltd.SingaporeDorms Asia Real Estate LPSingaporeDorms Pte. Ltd.SingaporeFan Co-Invest GP LimitedCayman IslandsFan Co-Invest L.P.Cayman IslandsFan Investors GP LimitedCayman IslandsFan Investors L.P.Cayman IslandsFan Investors LimitedCayman IslandsFortune Creek Co‑Invest GP LimitedCayman IslandsGDG Co‑Invest GP LLCDelawareGenesis Holdings L.P.Cayman IslandsHelios Co-Invest GP LimitedCayman IslandsHupah Co‑Invest LimitedCayman IslandsKAG Europe GP S.à r.l.LuxembourgKAG Italy S.C.S.LuxembourgKAM Advisors LLCDelawareKAM Credit Advisors LLCDelawareKAM Fund Advisors LLCDelawareKAM Funds GP LimitedCayman IslandsKAM Loan Administration LLCDelawareKappa Holdings Ltd.Cayman IslandsName JurisdictionKeats General Infrastructure L.P.Cayman IslandsKEDI Holdings S.à.r.l.LuxembourgKFH III Holdings Ltd.Cayman IslandsKFH PE Holdings I LLCDelawareKFH PE Holdings II LLCDelawareKFH PE Holdings III LLCDelawareKFH PE Holdings IV LLCDelawareKFH Real Asset Holdings L.P.DelawareKFH Royalties GP LLCDelawareKFH Royalties II GP LLCDelawareKFH Royalties II LLCDelawareKFH Royalties L.P.DelawareKFH Royalties LLCDelawareKFN Birch Feeder LLCDelawareKFN Broadway Feeder LLCDelawareKFN BTS Feeder LLCDelawareKFN CC Portfolio Feeder LLCDelawareKFN Colonie Feeder LLCDelawareKFN HG Hotel Feeder LLCDelawareKFN HHV Feeder LLCDelawareKFN Midland Feeder LLCDelawareKFN PEI IX, LLCDelawareKFN PEI V, LLCDelawareKFN PEI XI, LLCDelawareKFN Pelican 1 Feeder LLCDelawareKFN Rad Philly Feeder LLCDelawareKFN Sentinel REIT LLCDelawareKFN WTC Oahu Feeder LLCDelawareKFN YTC Feeder LLCDelawareKFN‑SSFD, LLCDelawareKKR (Cayman) LimitedCayman IslandsKKR 2006 AIV GP LLCDelawareKKR 2006 AIV LimitedCayman IslandsKKR 2006 Fund (Allstar) L.P.DelawareKKR 2006 Fund (GDG) L.P.DelawareKKR 2006 Fund (Invictus) L.P.Cayman IslandsKKR 2006 Fund (Ireland) GP LimitedIrelandKKR 2006 Fund (Overseas), Limited PartnershipCayman IslandsKKR 2006 Fund (Samson) L.P.DelawareKKR 2006 Fund L.P.DelawareKKR 2006 GDG Blocker L.P.DelawareKKR 2006 GP (Energy II) LLCDelawareKKR 2006 GP LLCDelawareKKR 2006 LimitedCayman IslandsKKR 8 NA LimitedCayman IslandsKKR Account Adviser (Mauritius), Ltd.MauritiusKKR AHI GP LLCDelawareKKR AHI Investors L.P.DelawareName JurisdictionKKR Alternative Credit L.P.DelawareKKR Alternative Credit LimitedCayman IslandsKKR Alternative Credit LLCDelawareKKR Alternative Investment ManagementIrelandKKR Americas XII EEA LimitedCayman IslandsKKR Americas XII EEA LLCDelawareKKR Americas XII LimitedCayman IslandsKKR Apex Equity Master Fund LPCayman IslandsKKR Apex Tactical Fund Ltd.Cayman IslandsKKR Arcadia Co-Invest GP LLCDelawareKKR ASF Walter PE LimitedCayman IslandsKKR Asia (Ireland) LimitedIrelandKKR Asia II Japan AIV LimitedCayman IslandsKKR Asia II LimitedCayman IslandsKKR Asia LimitedHong KongKKR Asia LimitedCayman IslandsKKR Asia LLCDelawareKKR Asia S.à.r.l.LuxembourgKKR Asian Fund (Ireland) GP LimitedIrelandKKR Asian Fund II DE AIV L.P.DelawareKKR Asian Fund II Japan AIV L.P.Cayman IslandsKKR Asian Fund II L.P.Cayman IslandsKKR Asian Fund L.P.Cayman IslandsKKR Asset Management (International) Partners LLPDelawareKKR Asset Management LtdEngland & WalesKKR Asset Management Partners LLPEngland & WalesKKR Associates 2006 (Overseas) AIV L.P.Cayman IslandsKKR Associates 2006 (Overseas), Limited PartnershipCayman IslandsKKR Associates 2006 AIV L.P.DelawareKKR Associates 2006 L.P.DelawareKKR Associates 8 NA L.P.Cayman IslandsKKR Associates Americas XII L.P.Cayman IslandsKKR Associates ASF Walter PE L.P.Cayman IslandsKKR Associates Asia (Japan) L.P.Cayman IslandsKKR Associates Asia II Japan AIV L.P.Cayman IslandsKKR Associates Asia II L.P.Cayman IslandsKKR Associates Asia L.P.Cayman IslandsKKR Associates CDP PE L.P.Cayman IslandsKKR Associates China Growth L.P.Cayman IslandsKKR Associates CIS Global L.P.Cayman IslandsKKR Associates Credit Select L.P.Cayman IslandsKKR Associates CS I L.P.Cayman IslandsKKR Associates CS II L.P.Cayman IslandsKKR Associates CS III L.P.Cayman IslandsKKR Associates CS IX L.P.Cayman IslandsKKR Associates CS V L.P.DelawareKKR Associates CS VIII L.P.Cayman IslandsKKR Associates CS X L.P.Cayman IslandsName JurisdictionKKR Associates E2 L.P.Cayman IslandsKKR Associates EIGF AIV L.P.DelawareKKR Associates EIGF L.P.DelawareKKR Associates EIGF TE AIV L.P.DelawareKKR Associates EIGF TE L.P.DelawareKKR Associates Europe II, Limited PartnershipAlbertaKKR Associates Europe III, Limited PartnershipCayman IslandsKKR Associates Europe IV L.P.Cayman IslandsKKR Associates Europe, Limited PartnershipAlbertaKKR Associates GFIP L.P.Cayman IslandsKKR Associates Global Credit Opportunities GP L.P.Cayman IslandsKKR Associates Infrastructure (AIV) L.P.DelawareKKR Associates Infrastructure II L.P.Cayman IslandsKKR Associates Infrastructure L.P.Cayman IslandsKKR Associates Lending Europe L.P.Cayman IslandsKKR Associates Lending II L.P.DelawareKKR Associates Lending L.P.DelawareKKR Associates LR Energy L.P.Cayman IslandsKKR Associates Mezzanine I L.P.DelawareKKR Associates Millennium (Overseas), Limited PartnershipAlbertaKKR Associates Millennium L.P.DelawareKKR Associates NGT L.P.Cayman IslandsKKR Associates North America XI AIV L.P.DelawareKKR Associates North America XI L.P.Cayman IslandsKKR Associates NR I L.P.DelawareKKR Associates NR II L.P.DelawareKKR Associates NZSF L.P.Cayman IslandsKKR Associates PCOP II (Offshore) L.P.Cayman IslandsKKR Associates PCOP II L.P.DelawareKKR Associates PIP L.P.DelawareKKR Associates Principal Opportunities (Domestic) L.P.Cayman IslandsKKR Associates Principal Opportunities (Offshore) L.P.Cayman IslandsKKR Associates Principal Opportunities AIV (Domestic) L.P.Cayman IslandsKKR Associates Principal Opportunities AIV (Offshore) L.P.Cayman IslandsKKR Associates RECOI L.P.Cayman IslandsKKR Associates REPA AIV‑3 L.P.DelawareKKR Associates REPA AIV‑4 L.P.DelawareKKR Associates REPA AIV‑5 L.P.Cayman IslandsKKR Associates REPA L.P.DelawareKKR Associates REPE L.P.Cayman IslandsKKR Associates Revolving Credit Partners L.P.Cayman IslandsKKR Associates SA Co‑Invest L.P.Cayman IslandsKKR Associates SA Master L.P.Cayman IslandsKKR Associates Shanda L.P.Cayman IslandsKKR Associates SMRS L.P.DelawareKKR Associates Special Situations (Domestic) II L.P.Cayman IslandsKKR Associates Special Situations (Domestic) L.P.Cayman IslandsKKR Associates Special Situations (EEA) II LimitedCayman IslandsName JurisdictionKKR Associates Special Situations (EEA) II LLPGuernseyKKR Associates Special Situations (Offshore) II L.P.Cayman IslandsKKR Associates Special Situations (Offshore) L.P.Cayman IslandsKKR Associates SPN L.P.Cayman IslandsKKR Associates TFO L.P.Cayman IslandsKKR Associates TV SPN L.P.Cayman IslandsKKR Atlanta Co‑Invest GP LimitedCayman IslandsKKR Australia Investment Management Pty LimitedAustraliaKKR Australia Pty LimitedAustraliaKKR Biosimilar GP LLCDelawareKKR Biosimilar L.P.DelawareKKR Brazil Aggregator GP LLCDelawareKKR Brazil LLCDelawareKKR Brickman Co‑Invest GP LLCDelawareKKR Canada LLCDelawareKKR Canada ULCNova ScotiaKKR Capital Markets Asia LimitedHong KongKKR Capital Markets Holdings GP LLCDelawareKKR Capital Markets Holdings L.P.DelawareKKR Capital Markets India Private LimitedIndiaKKR Capital Markets Japan Holdings LLCDelawareKKR Capital Markets Japan LimitedJapanKKR Capital Markets LimitedEngland & WalesKKR Capital Markets LLCDelawareKKR CC Co-Invest GP LLCDelawareKKR CDP PE LimitedCayman IslandsKKR China Growth Fund L.P.Cayman IslandsKKR China Growth LimitedCayman IslandsKKR Chrome Investors GP, LLCDelawareKKR Chrome Investors L.P.DelawareKKR CIS Global LimitedCayman IslandsKKR Click Investors LimitedCayman IslandsKKR CLO 10 Ltd.Cayman IslandsKKR CLO 11 Ltd.Cayman IslandsKKR CLO 13 Ltd.Cayman IslandsKKR CLO 9 Ltd.Cayman IslandsKKR Co G.P S.à.r.l.LuxembourgKKR Co L.P S.à.r.l.LuxembourgKKR Corporate Capital Services LLCDelawareKKR Corporate Credit Partners L.P.Cayman IslandsKKR Corporate Lending (Cayman) LimitedCayman IslandsKKR Corporate Lending (UK) LLCDelawareKKR Corporate Lending LLCDelawareKKR Credit Advisors (Hong Kong) LimitedHong KongKKR Credit Advisors (Ireland)IrelandName JurisdictionKKR Credit Advisors (UK) LLPEngland & WalesKKR Credit Advisors (US) LLCDelawareKKR Credit Alpha Fund (US) L.P.DelawareKKR Credit Alpha GP LimitedCayman IslandsKKR Credit Fund Advisors LLCDelawareKKR Credit Relative Value GP L.P.Cayman IslandsKKR Credit Relative Value Master Fund L.P.Cayman IslandsKKR Credit Select LimitedCayman IslandsKKR CRV GP LimitedCayman IslandsKKR CS Advisors I LLCDelawareKKR CS I LimitedCayman IslandsKKR CS II LimitedCayman IslandsKKR CS III LimitedCayman IslandsKKR CS IX LimitedCayman IslandsKKR CS V LLCDelawareKKR CS VIII Investor LLCDelawareKKR CS VIII LimitedCayman IslandsKKR CS X LimitedCayman IslandsKKR Cyprus Holdings LLCDelawareKKR DBFH LLCDelawareKKR DBMH LLCDelawareKKR de Mexico, S.C.MexicoKKR Debt Investors 2006 S.à.r.l.LuxembourgKKR DI 2006 GP LimitedCayman IslandsKKR DI 2006 L.P.Cayman IslandsKKR do Brasil Gestão de Investimentos e Participações Ltda.BrazilKKR E2 Investors L.P.Cayman IslandsKKR E2 LimitedCayman IslandsKKR Eagle Co‑Invest GP LimitedCayman IslandsKKR EIGF AIV LLCDelawareKKR EIGF Feeder GP LimitedCayman IslandsKKR EIGF LLCDelawareKKR Energy HF Stake LimitedCayman IslandsKKR Energy Income and Growth Fund I AIV L.P.DelawareKKR Energy Income and Growth Fund I L.P.DelawareKKR Energy Income and Growth Fund I‑TE L.P.DelawareKKR Energy Income and Growth Fund I‑TE AIV L.P.DelawareKKR Engage Investors GP LLCDelawareKKR Engage Investors L.P.DelawareKKR Europe II LimitedCayman IslandsKKR Europe III LimitedCayman IslandsKKR Europe IV EEA LimitedCayman IslandsKKR Europe IV EEA LLCDelawareKKR Europe IV Investments GP LimitedCayman IslandsKKR Europe IV LimitedCayman IslandsKKR Europe LimitedCayman IslandsKKR European Fund II, Limited PartnershipAlbertaKKR European Fund III (AIV I) L.P.Cayman IslandsName JurisdictionKKR European Fund III (AIV II) L.P.Cayman IslandsKKR European Fund III, Limited PartnershipCayman IslandsKKR European Fund IV (EEA) L.P.England & WalesKKR European Fund IV Investments L.P.Cayman IslandsKKR European Fund IV L.P.Cayman IslandsKKR European Fund, Limited PartnershipAlbertaKKR European Infrastructure Investors II L.P.England & WalesKKR European Infrastructure Investors L.P.ScotlandKKR European Infrastructure LimitedCayman IslandsKKR European Infrastructure LLCDelawareKKR European Special Opportunities LimitedCayman IslandsKKR FH Investment LimitedCayman IslandsKKR FI Advisors Cayman Ltd.Cayman IslandsKKR FI Advisors LLCDelawareKKR FI Advisors V LimitedCayman IslandsKKR Finance LLCDelawareKKR Financial Advisors II, LLCDelawareKKR Financial Advisors IV LLCDelawareKKR Financial Advisors LLCDelawareKKR Financial Capital Trust IDelawareKKR Financial Capital Trust IIDelawareKKR Financial Capital Trust IIIDelawareKKR Financial Capital Trust IVDelawareKKR Financial Capital Trust VDelawareKKR Financial Capital Trust VIDelawareKKR Financial CLO 2005-1, Ltd.Cayman IslandsKKR Financial CLO 2005‑2, Ltd.Cayman IslandsKKR Financial CLO 2006‑1, Ltd.Cayman IslandsKKR Financial CLO 2007‑1, Ltd.Cayman IslandsKKR Financial CLO 2007-A Blocker 1 Corp.DelawareKKR Financial CLO 2007‑A, Ltd.Cayman IslandsKKR Financial CLO 2009‑1, Ltd.Cayman IslandsKKR Financial CLO 2011‑1, Ltd.Cayman IslandsKKR Financial CLO 2012‑1, Ltd.Cayman IslandsKKR Financial CLO 2013‑1 Holdings, Ltd.Cayman IslandsKKR Financial CLO 2013‑1, Ltd.Cayman IslandsKKR Financial CLO 2013‑2 Holdings, Ltd.Cayman IslandsKKR Financial CLO 2013‑2, Ltd.Cayman IslandsKKR Financial CLO Holdings II LLCDelawareKKR Financial CLO Holdings, LLCDelawareKKR Financial Holdings II, LLCDelawareKKR Financial Holdings II, Ltd.Cayman IslandsKKR Financial Holdings III, LLCDelawareKKR Financial Holdings III, Ltd.Cayman IslandsKKR Financial Holdings LLCDelawareKKR Financial Holdings, Inc.DelawareKKR Financial Holdings, Ltd.Cayman IslandsKKR Floating Rate Fund L.P.Cayman IslandsName JurisdictionKKR Fund Holdings GP LimitedCayman IslandsKKR Fund Holdings L.P.Cayman IslandsKKR Genetic Disorder GP LLCDelawareKKR GFIP LimitedCayman IslandsKKR Global Credit Opportunities Fund L.P.DelawareKKR Global Infrastructure Investors (Keats) L.P.Cayman IslandsKKR Global Infrastructure Investors (Water) L.P.DelawareKKR Global Infrastructure Investors II (EEA) L.P.England & WalesKKR Global Infrastructure Investors II L.P.Cayman IslandsKKR Global Infrastructure Investors L.P.Cayman IslandsKKR GMO GP LimitedCayman IslandsKKR GMO Holdings L.P.Cayman IslandsKKR GMO Holdings LimitedCayman IslandsKKR GMO II Holdings L.P.Cayman IslandsKKR GMO II Holdings LimitedCayman IslandsKKR GMO II US Holdings LLCDelawareKKR Greek Aggregator GP LimitedCayman IslandsKKR Group Finance Co. II LLCDelawareKKR Group Finance Co. III LLCDelawareKKR Group Finance Co. IV LLCDelawareKKR Group Finance Co. LLCDelawareKKR Group Holdings L.P.Cayman IslandsKKR Group LimitedCayman IslandsKKR Gym Aggregator L.P.Cayman IslandsKKR Gym GP LimitedCayman IslandsKKR Harbourview Holdings Pty LtdAustraliaKKR Harbourview Pty LtdAustraliaKKR Holdings Mauritius, Ltd.MauritiusKKR HY LLCDelawareKKR IFI GP L.P.Cayman IslandsKKR IFI LimitedCayman IslandsKKR ILP LLCDelawareKKR India Advisors Private LimitedIndiaKKR India Credit Opportunities Fund IIndiaKKR India Debt Fund IIndiaKKR India Debt Opportunities Fund IIIIndiaKKR India Finance Holdings LLCDelawareKKR India Financial Services Private LimitedIndiaKKR India LLCDelawareKKR India Reconstruction Pte. Ltd.SingaporeKKR Indigo Co‑Invest GP LLCDelawareKKR Infrastructure (AIV) GP LLCDelawareKKR Infrastructure II EEA LimitedCayman IslandsKKR Infrastructure II EEA LLCDelawareKKR Infrastructure II LimitedCayman IslandsKKR Infrastructure LimitedCayman IslandsKKR International Holdings L.P.Cayman IslandsKKR Investment Advisory (Shanghai) LLCChinaName JurisdictionKKR Investment Advisory (Zhuhai Hengqin) Company LimitedChinaKKR Investment Consultancy (“Beijing”) Company LimitedChinaKKR Investment Holdings I (Mauritius), Ltd.MauritiusKKR Investment Management LLCDelawareKKR Investments LLCDelawareKKR Irish Holdings SPC LimitedCayman IslandsKKR Irish Parent S.à.r.l.LuxembourgKKR Japan LimitedJapanKKR Korea Limited Liability CorporationKorea, Republic ofKKR KPE LLCDelawareKKR Latin America LLCDelawareKKR Lending Europe GP LimitedCayman IslandsKKR Lending Europe GP LLPGuernseyKKR Lending Europe LimitedCayman IslandsKKR Lending GP LLCDelawareKKR Lending II GP LLCDelawareKKR Lending Partners Europe (Euro) L.P.England & WalesKKR Lending Partners Europe (Euro) Unlevered L.P.England & WalesKKR Lending Partners Europe (GBP) Unlevered L.P.England & WalesKKR Lending Partners Europe (USD) L.P.England & WalesKKR Lending Partners II L.P.DelawareKKR Lending Partners L.P.DelawareKKR LR Energy LimitedCayman IslandsKKR Luxembourg S.à r.l.LuxembourgKKR Mackellar Partners GP LimitedCayman IslandsKKR Management Holdings Corp.DelawareKKR Management Holdings L.P.DelawareKKR Matterhorn Co‑Invest GP LimitedCayman IslandsKKR Mauritius PE Investments I, Ltd.MauritiusKKR MENA Holdings LLCDelawareKKR MENA LimitedDubai International Financial CentreKKR Mexico LLCDelawareKKR Mezzanine GP LLCDelawareKKR Mezzanine I Advisors LLCDelawareKKR Mezzanine Partners I L.P.DelawareKKR Millennium Fund (Overseas), Limited PartnershipAlbertaKKR Millennium Fund L.P.DelawareKKR Millennium GP LLCDelawareKKR Millennium LimitedCayman IslandsKKR Natural Resources Fund I‑A L.P.DelawareKKR Natural Resources I L.P.DelawareKKR Nautilus Aggregator LimitedCayman IslandsKKR Next Gen Tech Growth LimitedCayman IslandsKKR Next Generation Technology Growth Fund (EEA) L.P.England & WalesKKR Next Generation Technology Growth Fund L.P.Cayman IslandsKKR NGT EEA LimitedCayman IslandsKKR NGT EEA LLCDelawareName JurisdictionKKR North America Fund XI (AIV I) L.P.Cayman IslandsKKR North America Fund XI (AIV II) L.P.Cayman IslandsKKR North America Fund XI (AMG) LLCDelawareKKR North America Fund XI (Brazil A) L.P.QuébecKKR North America Fund XI (Brazil B) L.P.QuébecKKR North America Fund XI (Buckeye) L.P.DelawareKKR North America Fund XI (Indigo) L.P.DelawareKKR North America Fund XI (Sage) L.P.DelawareKKR North America Fund XI (Wave) L.P.DelawareKKR North America Fund XI Brazil GP LLCDelawareKKR North America Fund XI L.P.Cayman IslandsKKR North America XI AIV GP LLCDelawareKKR North America XI LimitedCayman IslandsKKR NR I LLCDelawareKKR NR II LLCDelawareKKR NR Investors I‑A GP LLCDelawareKKR NR Investors I‑A L.P.DelawareKKR NZSF LimitedCayman IslandsKKR Oracle Co‑Invest GP LLCDelawareKKR PCOP II (EEA) LimitedCayman IslandsKKR PCOP II (EEA) LLCDelawareKKR PCOP II (Offshore) LimitedCayman IslandsKKR PCOP II GP LLCDelawareKKR PEI Alternative Investments LimitedCayman IslandsKKR PEI Associates, L.P.GuernseyKKR PEI GP LimitedCayman IslandsKKR PEI Investments, L.P.GuernseyKKR PEI Opportunities GP Ltd.Cayman IslandsKKR PEI Opportunities, L.P.Cayman IslandsKKR PEI Securities Holdings Ltd.Cayman IslandsKKR Phorm Investors GP LLCDelawareKKR Phorm Investors L.P.DelawareKKR PIP GP LLCDelawareKKR Principal Opportunities (Domestic) LimitedCayman IslandsKKR Principal Opportunities (Offshore) LimitedCayman IslandsKKR Principal Opportunities AIV (Domestic) LimitedCayman IslandsKKR Principal Opportunities AIV (Offshore) L.P.Cayman IslandsKKR Principal Opportunities AIV (Offshore) LimitedCayman IslandsKKR Principal Opportunities Partnership (Offshore) L.P.Cayman IslandsKKR Prisma Associates GP L.P.Cayman IslandsKKR Prisma GP LimitedCayman IslandsKKR Prisma LP LimitedCayman IslandsKKR Prisma PABF GP LLCDelawareKKR Prisma-Noah GP Associates LimitedCayman IslandsKKR Real Estate Credit Opportunities India Feeder LPSingaporeKKR Real Estate Finance Holdings L.P.DelawareKKR Real Estate Finance Manager LLCDelawareKKR Real Estate Finance Trust Inc.MarylandName JurisdictionKKR Real Estate Fund AIV 1 L.P.DelawareKKR Real Estate Fund AIV 1 LLCDelawareKKR Real Estate Fund GP LLCDelawareKKR Real Estate Fund Holdings L.P.DelawareKKR Real Estate Management GP LLCDelawareKKR Real Estate Management Holdings L.P.DelawareKKR Real Estate Partners Americas L.P.DelawareKKR Real Estate Partners Europe (A) L.P.Cayman IslandsKKR Real Estate Partners Europe (EEA) AIV L.P.DelawareKKR Real Estate Partners Europe (EEA) L.P.England & WalesKKR Real Estate Partners Europe L.P.Cayman IslandsKKR RECOI (Cayman) LimitedCayman IslandsKKR RECOI (Singapore) Pte. Ltd.SingaporeKKR Renaissance Co‑Invest GP LLCDelawareKKR REPA AIV‑1 L.P.DelawareKKR REPA AIV‑2 L.P.DelawareKKR REPA AIV‑3 GP LLCDelawareKKR REPA AIV‑3 L.P.DelawareKKR REPA AIV‑4 GP Ltd.Cayman IslandsKKR REPA AIV‑4 L.P.DelawareKKR REPA AIV‑5 GP Ltd.Cayman IslandsKKR REPA AIV‑5 L.P.Cayman IslandsKKR REPA GP LLCDelawareKKR REPE EEA LimitedCayman IslandsKKR REPE EEA LLCDelawareKKR REPE GP LimitedCayman IslandsKKR Revolving Credit Partners L.P.Cayman IslandsKKR Revolving Credit Partners LimitedCayman IslandsKKR Rise Co-Invest GP LimitedCayman IslandsKKR Royalty Aggregator LLCDelawareKKR Royalty Splitter LLCDelawareKKR SA Co‑Invest GP LimitedCayman IslandsKKR SA Master GP LimitedCayman IslandsKKR Saudi LimitedSaudi ArabiaKKR Selena Co‑Invest GP LimitedCayman IslandsKKR Sentinel Co‑Invest GP LLCDelawareKKR Shanda LimitedCayman IslandsKKR Singapore Pte. Ltd.SingaporeKKR SMRS LLCDelawareKKR Spark Power Holdings I (Mauritius), Ltd.MauritiusKKR Special Situations (Domestic) Fund L.P.Cayman IslandsKKR Special Situations (EEA) Fund II L.P.England & WalesKKR Special Situations (Domestic) Fund II L.P.Cayman IslandsKKR Special Situations (Domestic) II LimitedCayman IslandsKKR Special Situations (Domestic) LimitedCayman IslandsKKR Special Situations (Offshore) Fund L.P.Cayman IslandsKKR Special Situations (Offshore) II LimitedCayman IslandsKKR Special Situations (Offshore) LimitedCayman IslandsName JurisdictionKKR SPN GP LimitedCayman IslandsKKR SPN Investments L.P.Cayman IslandsKKR Sprint SLP LimitedCayman IslandsKKR Strategic Capital Fund MRO TrustDelawareKKR Strategic Capital Holdings GP, Ltd.Cayman IslandsKKR Strategic Capital Institutional Fund, Ltd.Cayman IslandsKKR Strategic Capital Management, L.L.C.DelawareKKR Strategic Capital Partners, L.L.C.DelawareKKR Subsidiary Corp.DelawareKKR Subsidiary Partnership L.P.DelawareKKR TC Investors GP LimitedCayman IslandsKKR TE Seeder LLCDelawareKKR TFO GP LimitedCayman IslandsKKR TFO Partners L.P.Cayman IslandsKKR TRS Holdings Ltd.Cayman IslandsKKR Turbine Investors LLCDelawareKKR TV SPN GP LimitedCayman IslandsKKR Upstream Associates LLCDelawareKKR Upstream LLCDelawareKKR Victoria GP LimitedCayman IslandsKKR Vision Investors GP LLCDelawareKKR Vision Investors L.P.DelawareKKR YC AIV‑1 Associates L.P.DelawareKKR YC Associates GP L.P.Cayman IslandsKKR YC Associates GP LimitedCayman IslandsKKR YC Associates L.P.Cayman IslandsKKR‑CDP Partners L.P.Cayman IslandsKKR‑Keats Associates Pipeline (AIV) L.P.DelawareKKR‑Keats Associates Pipeline L.P.DelawareKKR‑Keats Capital Partners L.P.Cayman IslandsKKR‑Keats Pipeline (AIV) LLCDelawareKKR‑Keats Pipeline LLCDelawareKKR‑Milton Capital Partners L.P.Cayman IslandsKKR‑Yanchang Global Energy Fund AIV‑1 L.P.DelawareKKR‑Yanchang Global Energy Fund L.P.Cayman IslandsKNR Trinity Holdings LLCDelawareKohlberg Kravis Roberts & Co. (International) Partners LLPDelawareKohlberg Kravis Roberts & Co. L.P.DelawareKohlberg Kravis Roberts & Co. LtdEngland & WalesKohlberg Kravis Roberts & Co. Partners LLPEngland & WalesKohlberg Kravis Roberts & Co. SASFranceKohlberg Kravis Roberts (España) Asesores SLSpainKREF Capital LLCDelawareKREF Holdings I LLCDelawareKREF Holdings II LLCDelawareKREF Holdings III LLCDelawareName JurisdictionKREF Lending I LLCDelawareKREF Lending II LLCDelawareKREF Lending III LLCDelawareKREF Securities Holdings II, LLCDelawareKREF Securities Holdings, LLCDelawareKREFT 625NMA, LLCDelawareKREFT REOC LLCDelawareLemonade Investors LLCDelawareLombard Street CLO I Public Limited CompanyIrelandMachine Investors GP LimitedCayman IslandsMachine Investors L.P.Cayman IslandsMachine2014 GmbHGermanyMagic Investors GP LLCDelawareMagic Investors L.P.DelawareMBF Co‑Invest GP LimitedCayman IslandsNew Omaha Co‑Invest GP, LLCDelawareNew Omaha SLP LLCDelawareNIM Aggregator LLCDelawarePacova LimitedJerseyPing Investors LLCDelawarePrisma Capital Advisors LLCDelawarePrisma Capital Management International LLPEngland & WalesPrisma Capital Management International LtdEngland & WalesPrisma Capital Management LLCDelawarePrisma Capital Partners EH LLCDelawarePrisma Capital Partners I, L.P.DelawarePrisma Capital Partners I, LLCDelawarePrisma Capital Partners LLCDelawarePrisma Capital Partners LPDelawarePrisma GP LLCDelawareREFH 909 Half Street Investors LLCDelawareREFH Holdings LLCDelawareREFH SR Mezz LLCDelawareRenee C-I Holding L.P.DelawareRoyalty (GP) Pte. Ltd.SingaporeSamson Co‑Invest GP LLCDelawareSilverview Investments Pte. Ltd.SingaporeSprint Co-Invest 2 GP LimitedCayman IslandsValhalla Co‑Invest GP LimitedCayman IslandsExhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-171601 on Form S-8, Registration Statement No. 333-208019 on Form S-3, asamended by Amendment No. 1, Registration Statement No. 333-196059 on Form S-3, Registration Statement No. 333-196052 on Form S-3, Registration StatementNo. 333-194249 on Form S-3 and Registration Statement No. 333-169433 on Form S-1, as amended by Post-Effective Amendment No. 2 on Form S-3 of our reportdated February 26, 2016, relating to the consolidated financial statements and financial statement schedule of KKR & Co. L.P. 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 endedDecember 31, 2015./s/ Deloitte & Touche LLPNew York, New York February 26, 2016Exhibit 31.1 CO-CHIEF EXECUTIVE OFFICER CERTIFICATION I, Henry R. Kravis, certify that:1.I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2015 of KKR & Co. L.P.;2.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 statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:2/26/2016 /s/ Henry R. Kravis Henry R. Kravis Co-Chief Executive OfficerExhibit 31.2 CO-CHIEF EXECUTIVE OFFICER CERTIFICATION I, George R. Roberts, certify that: 1.I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2015 of KKR & Co. L.P.;2.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 statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:2/26/2016 /s/ George R. Roberts George R. Roberts Co-Chief Executive OfficerExhibit 31.3 CHIEF FINANCIAL OFFICER CERTIFICATION I, William J. Janetschek, certify that: 1.I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2015 of KKR & Co. L.P.;2. 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 statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:2/26/2016 /s/ William J. Janetschek William J. Janetschek Chief Financial OfficerExhibit 32.1 CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of KKR & Co. L.P. (the “Partnership”) on Form 10-Q for the period ended December 31, 2015 as filed with theSecurities and Exchange Commission (the “Report”), I, Henry R. Kravis, Co-Chief Executive Officer of the general partner of the Partnership, certify, pursuant to18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of thePartnership. Date:2/26/2016 /s/ Henry R. Kravis Henry R. Kravis Co-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 separatedisclosure document.Exhibit 32.2 CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of KKR & Co. L.P. (the “Partnership”) on Form 10-Q for the period ended December 31, 2015 as filed with theSecurities and Exchange Commission (the “Report”), I, George R. Roberts, Co-Chief Executive Officer of the general partner of the Partnership, certify, pursuant to18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of thePartnership. Date:2/26/2016 /s/ George R. Roberts George R. Roberts Co-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 separatedisclosure document.Exhibit 32.3 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of KKR & Co. L.P. (the “Partnership”) on Form 10-Q for the period ended December 31, 2015 as filed with theSecurities and Exchange Commission (the “Report”), I, William J. Janetschek, Chief Financial Officer of the general partner of the Partnership, certify, pursuant to18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of thePartnership. Date:2/26/2016 /s/ William J. Janetschek William J. Janetschek Chief Financial 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 separatedisclosure document.

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