MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a 1 year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its consolidated financial statements and determined that they are not material.

The following table summarizes the components of related party management compensation on the Company’s consolidated statements of operations, which are described in further detail below (amounts in thousands):



	Successor Company				Predecessor Company
	Year ended December 31, 2015		Eight months ended December 31, 2014		Four months ended April 30, 2014		Year ended December 31, 2013
Base management fees, net	$	9,532	$	15,145	$	5,253	$	25,029
CLO management fees	28,554		18,619		11,016		17,282
Incentive fees	—		—		12,882		22,741
Manager share-based compensation	—		—		690		3,524
Total related party management compensation	$	38,086	$	33,764	$	29,841	$	68,576

Base Management Fees

The Company pays its Manager a base management fee quarterly in arrears. Beginning in 2013, certain related party fees received by affiliates of the Manager were credited to the Company via an offset to the base management fee (“Fee Credits”). Specifically, as described in further detail under “CLO Management Fees” below, a portion of the CLO management fees received by an affiliate of the Manager for certain of the Company’s CLOs were credited to the Company via an offset to the base management fee.

In addition, during 2014 and 2013, the Company invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, the Manager agreed to reduce the Company’s base management fee payable to the Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership.

The table below summarizes the aggregate base management fees (amounts in thousands):



	Successor Company						Predecessor Company
	Year ended December 31, 2015			Eight months ended December 31, 2014			Four months ended April 30, 2014			Year ended December 31, 2013
Base management fees, gross	$	30,620		$	25,883		$	13,364		$	39,065
CLO management fees credit(1)	(21,088		)	(9,968		)	(8,111		)	(10,042		)
Other related party fees credit	—			(770		)	—			(3,994		)
Total base management fees, net	$	9,532		$	15,145		$	5,253		$	25,029


(1)	See “CLO Management Fees” for further discussion.

The Manager waived base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company’s common share closing price on the NYSE was $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $2.9 million during the four months ended April 30, 2014 and $8.8 million for the year ended December 31, 2013.

CLO Management Fees

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for all of the Company’s Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

Fees Waived

The collateral manager waived CLO management fees totaling of $2.0 million for CLO 2005-2 during the year ended December 31, 2015. Comparatively, the collateral manager waived CLO management fees totaling $4.2 million for CLO 2005-2 and CLO 2006-1 during the eight months ended December 31, 2014 and $1.6 million during the four months ended April 30, 2014. The Company called CLO 2005-2 in November 2015 and CLO 2006-1 in February 2015. During the year ended December 31, 2013, the collateral manager waived CLO management fees totaling $19.7 million for all CLOs, except for CLO 2005‑1 and CLO 2012‑1, and for partial periods for CLO 2007‑1 and CLO 2007‑A.

Fees Charged and Fee Credits

The Company recorded management fees expense for CLO 2005‑1, CLO 2007‑1, CLO 2012‑1, CLO 2013‑1, CLO 2013‑2, CLO 9, CLO 10 and CLO 11 during 2015. CLO 2005-1 was called in July 2015 and its last payment, which included CLO management fees, was made the same month. Comparatively, the Company recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2 during 2014. CLO 2007-A was called in July 2014 and its last payment, which included CLO management fees, was made in October 2014. The Company recorded management fees expense for CLO 2005‑1, CLO 2007‑1, CLO 2007‑A and CLO 2012‑1 during the year ended December 31, 2013.

Beginning in June 2013, the Manager credited the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 9 and CLO 11 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of these CLOs (with the remaining subordinated notes held by third parties), the Company received a Fee Credit equal only to the Company’s pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of the Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by the Company. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to the Company, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by the Company to the third party holder of the CLO’s subordinated notes. Similarly, the Manager credited the Company the CLO management fees from CLO 2013-1, CLO 2013-2 and CLO 10 based on the Company’s 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):



	Successor Company				Predecessor Company
	Year ended December 31, 2015		Eight months ended December 31, 2014		Four months ended April 30, 2014		Year ended December 31, 2013
Charged and retained CLO management fees(1)	$	7,466	$	8,651	$	2,905	$	7,240
CLO management fees credit	21,088		9,968		8,111		10,042
Total CLO management fees	$	28,554	$	18,619	$	11,016	$	17,282


(1)	Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by the Company based on its ownership percentage in the CLO.

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. The Company records any residual proceeds due to subordinated note holders as interest expense on the consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Incentive Fees

The Manager earned incentive fees totaling zero for both the year ended December 31, 2015 and eight months ended December 31, 2014. Incentive fees totaled $12.9 million for the four months ended April 30, 2014 and $22.7 million for the year ended December 31, 2013.

Manager Share-Based Compensation

As described above in Note 2, in connection with the Merger Transaction, the Predecessor Company’s common shares were converted into KKR & Co. common units. Prior to the Effective Date, the Company accounted for share‑based compensation issued to its directors and to its Manager using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company’s directors was measured at its estimated fair value at the grant date, and was amortized and expensed over the vesting period on a straight‑line basis. Compensation cost related to restricted common shares and common share options issued to the Manager was initially measured at estimated fair value at the grant date, and was remeasured on subsequent dates to the extent the awards were unvested. The Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million for the four months ended April 30, 2014 and $3.5 million for the year ended December 31, 2013.

Reimbursable General and Administrative Expenses

Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. The Company incurred reimbursable general and administrative expenses to its Manager totaling $5.5 million for the year ended December 31, 2015. The Company incurred reimbursable general and administrative expenses to its Manager totaling $3.0 million for the eight months ended December 31, 2014, $2.8 million for the four months ended April 30, 2014 and $9.8 million for the year ended December 31, 2013. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the consolidated statements of operations.

Contributions and Distributions

The Company has made certain distributions to its Parent, as the sole holder of its common shares. The Company distributed $179.1 million in cash for the year ended December 31, 2015.

Common shareholders of the Predecessor Company received a quarterly distribution in respect of the KKR & Co. common units that such holders received as a result of the Merger Transaction and held as of the record date, or May 9, 2014. The distribution on all KKR & Co. common units was $0.43 per common unit and was paid by KKR & Co. on May 23, 2014. The Company distributed $44.9 million in cash to its Parent in May 2014 in connection with this distribution and $76.2 million to its Parent, as the sole holder of its common shares, during the rest of 2014.

In addition, during the year ended December 31, 2015 and eight months ended December 31, 2014, certain assets and cash were contributed from and distributed to the Parent. Specifically, during the year ended December 31, 2015, the Company's board of directors approved the receipt of certain general interests in an alternative credit fund from the Parent with an estimated fair value of $251.7 million. The table below summarizes the estimated fair value of contributions and distributions at the time of transfer, certain of which were different from the carrying value of assets transferred (amounts in thousands):



	Year ended December 31, 2015		Eight months ended December 31, 2014
Cash	$	—	$	235,759
Securities	—		116,526
Loans	—		16,049
Equity investments, at estimated fair value	—		38,346
Interests in joint ventures and partnerships	251,748		67,310
Other	—		854
Total contributions from Parent	$	251,748	$	474,844

Cash	$	251,748	$	192,037
Equity investments, at estimated fair value	—		101,042
Oil and gas properties, net	—		179,203
Total distributions to Parent	$	251,748	$	472,282

Affiliated Investments

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of December 31, 2015, the aggregate par amount of these affiliated investments totaled $734.3 million, or approximately 11% of the total investment portfolio, and consisted of 8 issuers. The total $734.3 million in affiliated investments was comprised of $723.3 million of corporate loans and $11.0 million of equity investments. As of December 31, 2014, the aggregate par amount of these affiliated investments totaled $1.7 billion, or approximately 20% of the total investment portfolio, and consisted of 19 issuers. The total $1.7 billion in affiliated investments was comprised of $1.6 billion of corporate loans, $9.5 million of corporate debt securities and $13.6 million of equity investments.

In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of December 31, 2015 and December 31, 2014, the estimated fair value of these interests in joint ventures and partnerships totaled $805.5 million and $618.6 million, respectively.