DS9 Document EFTA01086067

I 1 I 1 I I I EFTA01086067 EMPIRE VALUATION CONSULTANTS. tic PRIVATE & CONFIDENTIAL November 1 I, 2014 Alan Halperin, Esq. Paul, Weiss, Riflcind, Wharton & Garrison LLP 1285 Avenue of the Americas, Suite 3115 New York, NY 10019-6064 Dear Mr. Halperin: You have requested Empire Valuation Consultants. LW ("Empire") to estimate the fair market value of a 2.6640% limited partnership interest (the "Interest") in Black Family Partners, LP ("BFP" or the "Partnership") as of March 3, 2014 (the "Valuation Date"). It is our understanding that this summary letter will be used by Mr. Leon Black for estate planning purposes. Valuation Summary Based on the following review and analysis. and subject to the attached Statement of Limiting Conditions, it is our estimate that the fair market value of a 2.6640% limited partnership interest in Black Family Partners, LP is reasonably stated as $63,205,947 as of March 3, 2014. Methodology BFP has been valued on a going concern basis. Since the Partnership is closely-held, and thus without a public market for its ownership interests, this appraisal was conducted according to guidelines established by the Internal Revenue Service ("IRS") and USPAP, and in conformity with the American Society of Appraisers' Principles of Appraisal Practice and Code of Ethics, together with other standards that were deemed relevant to this engagement. 350 Fifth Avenue Suite 6115 New York. NY 10118 T: New York Rochester Boston Cleveland We.t Hartford EFTA01086068 Alan Halperin, Esq. November 11, 2014 APO! GRAT No. 2 - Valuation Date: March 3, 2014 Page 2 This summary letter is by its nature a "Restricted Use Appraisal Report" under Standards Rule 10-2 of USPAP. As such, it does not contain the required disclosures regarding the nature, history, outlook, ownership, or other factors regarding BFP, nor does it contain details regarding the valuation analyses considered and used. Therefore, it is for the exclusive use of you, and at your request, those of your advisors who have the requisite knowledge to understand the risks, opportunities, and the valuation theories and analyses discussed and applied in this situation. For purposes of this report, fair market value is defined in accordance with Treasury Regulations established for income, estate and gift taxes as the price at which ownership interests would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Sources of Information Information used in determining the fair market value of the Interest was provided by the documents and sources listed below: • A copy of BFP's Amended Limited Partnership Agreement, dated May 17, 2007 as amended December 2009 (the "BIT Agreement"): • A copy of BFP's pro forma tax returns, prepared from Mr. Leon Black's personal tax returns, for the years ending December 31, 2009 through 2012; • Documents and information regarding BFP's assets include the most current available: (I) capital account statements; (2) K-I statements; (3) operating agreements, including amendments; and (4) financial statements;' • Conversations and correspondence regarding BFP, its management policies, financial status and investments with Mr. Richard Joslin, BFP's CFO, and Mr. Richard of BFP (collectively referred to as "Management"); and • Other reviews, analyses, and research as were deemed necessary. See Appendix A for a list of defined terms regarding BFP's investments and key agreements reviewed in this report. EMPIRE Vat At ION COSSI.I.TASI‘ EFTA01086069 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 3 Partnership Profile BFP operated as an investment holding company. The Partnership was formed on May 17, 2007. As of the Valuation Date, the Partnership's primary asset was a 45.9% interest in BRH Holdings LP ("BRH"). BRH owned 88.18% of AP Professional Holdings LP ("Holdings"), which held 60.58% of the Apollo Operating Group ("AOG") units.' The Partnership was also invested in co-investment funds managed by Apollo Global Management LLC and its consolidated affiliates (the "Company" or "Apollo"). In addition to the Apollo co- investment entities, BFP was invested in additional private investment funds and companies. Additionally, BFP has issued multiple promissory notes. Based on capital account balances available as of the Valuation Date, the Partnership had a capital account balance of $3.28 billion, rounded.' Pro forma financial statements for BFP, compiled using the records of Raich, Ende, Maher & Co LLP, are presented in Exhibits A through C. A. Apollo Operating Group Apollo was formed as a Delaware limited liability company on July 3, 2007 and completed a reorganization of its predecessor businesses on July 13, 2007 (the "Reorganization"). Apollo is managed and operated by its manager, AGM Management, LLC, which in turn is wholly-owned and controlled by Leon Black, Joshua Harris and Marc Rowan (the "Managing Partners"). Apollo has three primary business segments: private equity ("PE"); Capital Markets ("CM"); and Real Estate ("RE"). See Apollo's public filings for an organizational diagram for Apollo and its ownership structure. Apollo also entered into an exchange agreement with Holdings that allows the partners in Holdings, subject to the vesting and minimum retained ownership requirements and transfer restrictions set forth in the partnership agreements of the Apollo Operating Group, to exchange their AOG Units for the Company's Class A shares on a one-for-one basis up to four times each year, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. A limited partner must exchange one partnership unit in each of the ten Apollo Operating Group partnerships to effect an exchange for one Class A share. 2 Percentages based on Apollo Global Management LLC's 10-K filing as of December 31, 2013. 3 The Tax Receivable Agreement benefits associated with the AOG Units held by BFP and the July 2007 reorganization of Apollo do not have a stated book value and are not included in the $3.28 billion total. The value of these assets are included in the valuation section of this report. EMPIRE VALUATION CONSULTANTS EFTA01086070 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 4 On April 4, 2011, Apollo completed the initial public offering ("IPO") of its Class A shares. Apollo received net proceeds from the initial public offering of approximately $382.5 million, which was used to acquire additional AOG Units. Shares of Apollo traded between $31.00 and $31.93 per share and closed at $31.90 per share on the Valuation Date, with the mean value being $31.47 per share. B. Description of Assets BFP was invested in cash, multiple Apollo funds, Apollo Operating Group units through BRH and Holdings and non-Apollo investment funds. Details regarding the assets are provided below. A summary of the capital account balance for each interest is presented in Exhibit D. Cash and Marketable Securities: The Partnership had a checking account held at Bank of America with a balance of $24.1 million as of the Valuation Date. Additionally, BFP had a brokerage account with JP Morgan. which held $1.5 million in cash, $5.2 million in Apollo Investment Corp.' stock (603,632 shares with a mean value of $8.66 per share). $0.6 million in Environmental Solutions Worldwide (Ticker: ESWW)' stock, $0.9 million in AP Alternative Assets, LP' stock (28,370 shares with a mean value of $31.92 per share), and $2.4 million in K12, Inc.' stock (106,026 shares with a mean value of $22.37 per share) as of the Valuation Date. Apollo Private Equity Investment Funds: BFP participated in Apollo's PE funds, specifically AIF Ill. AIF IV, AIF V and AIF VI. For each fund. BFP invested in a related co-investor entity established for Apollo affiliates and employees to participate in Apollo's individual PE funds. As of the Valuation Date, the Partnership had a capital account balance in ACIII. ACIV, ACV and ACVI. The Partnership's co-invest interests were not subject to management or carried interest fees. In effect, they earned the underlying fund's return on investment, net of any non-fee fund expenses. • Apollo Investment Corp. ('AINV") is a publicly traded business development company ("BDC") managed by Apollo. BFP held 11,380 shares in ESWW. The shares were thinly traded with a most recent closing price of SSO per share. • AP Alternative Assets, LP ("AAA") is a publicly traded investment company managed by Apollo. The company is listed on the Amsterdam stock exchange. • K12, Inc. ("LBW) was received as an in•kind distribution from BFP's investment in Knowledge Universe Education M. EMPIRE VALUATION COSSULTANTs EFTA01086071 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 5 BFP also retained a 36% interest (720.5 of 2,000 points) in AIF III's general partner's carried interest. As of the Valuation Date, the capital account related to the carry points for AIF III was a deficit of $4.7 million, i.e. the general partner was subject to a clawback based on the market value of AIF Ill's remaining assets. The AIF funds employed a 1.5% management fee and 20% carried interest fee structure. The management fees could vary based on life-cycle of the fund. Carried interest was subject to an 8% preferred for its fee-paying limited partners. The fund's limited partners could not withdraw, and transfers required the permission of the respective fund GP entity. The fund size for AIF Ill, AIF IV, AIF V and AIF VI was $1.5 billion, $3.6 billion, $5 billion and $10.1 billion, respectively. AC111, ACIV, ACV and ACVI were bound to invest and divest at the same time as AIF Ill. AIF IV, Alf; V and A1F VI, respectively. AIF III, AIF IV and AIF V were all on extension in order to liquidate remaining positions. ACIII, ACIV, ACV and ACVI had no control over the funds, or their selection or timing of investment acquisitions or divestitures. Withdrawal from ACIII, ACIV, ACV and ACVI was not permitted and transfers required the consent of the respective managing members. Apollo Private Equity Co-Invest Entities Emit. ACIII Capital ‘ectiatit \ :due' $2,150,877 .term Itspirat ion The underlying fund was on extension. At the Valuation Date there was no indication when the portfolio company would be sold.9 ACIV $539,414 The underlying fund was on indefinite extension. There was no indication when the iirtfolio comianies would be sold. ACV $3,893,465 The underlying fund was on contractual extension. There was no indication when the portfolio companies would be sold. ACVI 540,649,393 The fund's term expires January 12, 2016. However, the fund could be extended for two additional ears. Apollo Capital Market Fund Interests: ASC and AVC are invested in capital market funds affiliated with Apollo. Apollo's capital market funds held securities from all portions of a portfolio company's capital structure, with a focus on ' Based on most recent quarterly account statements. Capital account balances were adjusted to account for distributions and contributions made between the capital account date and the Valuation Date. 9 As of the writing of this report, Empire was informed by BFP that Apollo liquidated the remaining portfolio company held by ACIII and AIF III later in March 2014. EMPIRE \AU ATKIN CONMITAN-rS EFTA01086072 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 6 distressed companies. BFP's interests in ASC and AVC were not subject to management or performance fees. While ASC's and AVC's legal agreements stated that the funds had annual and quarterly withdrawal provisions, respectively. Apollo's Management indicated that BFP was allowed to make monthly withdrawal requests from ASC and AVC. As of the Valuation Date. BFP was able to withdraw its capital from both ASC and AVC effective March 31, 2014.1° Apollo Capital Market Co-Invest Entities Capital Arummt able" ASC AVC 52.939,940 $7,989,924 FCI II: BFP made a $25 million commitment to FCI II on June 21, 2013. FCI II co-invests in FCI Fund as a Schedule I limited partner. FCI Fund purchased a portfolio of 67 life insurance policies from a European bank with a total policy face amount of $371 million for approximately $27 million. The balance of BFP's future capital contributions are expected to be for premiums, fees and expenses. The Partnership's interest in FCI II was not subject to management or carried interest fees. In effect, it earned the underlying fund's return on investment, net of any non-fee fund expenses. BFP's capital account balance was $16.1 million at the Valuation Date. FC1 Fund employed a 0.5% management fee and 10% carried interest fee structure. The management fees could vary based on life-cycle of the fund. Carried interest was subject to a 6% preferred for its fee-paying limited partners. The fund's limited partners could not withdraw, and transfers required the permission of the fund GP. FCI II had no control over the fund, or its selection or timing of investment acquisitions or divestitures. Withdrawal from FCI II was not permitted and transfers required the consent of the general partner. APTP: APTP is a venture capital fund launched by Apollo principals and managing partners. BFP has a nominal capital account balance of $13,863. The fund has been inactive for years and was not expected to resume investment activities. All remaining assets in APTP were considered side pocket investments. The agreement provisions for ASC require 90 days notice for withdrawals that are permitted annually on the anniversary date (March I) of the investment. The agreement provisions for Apollo VIF Co-Investors, LLC require 65 days notice for withdrawals that are permitted at the end of each calendar quarter. However, based on conversations with Apollo, it was Empire's understanding that BFP's interest in ASC and AVC could be withdrawn at any month end. " Based on January 31, 2014 monthly account statements. EMPIRE VALUATION CI NSt I IAN EFTA01086073 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3. 2014 Page 7 APSHL: APSHL is an investment fund launched by Apollo principals and managing partners. BFP has a nominal capital account balance of $40,864. The fund has been inactive and was not expected to resume investment activities. All remaining assets in APSHL were considered side pocket investments. Apollo Ownership Interests: The Partnership has an indirect ownership position in the Apollo Operating Group through AOG Units held through BRH. In total BFP held 92,727,166 AOG Units. At the Valuation Date, Apollo's stock closed at $31.90 per share, with a mean value of $31.47 per share. AOG Units could be exchanged for Class A shares at various future dates.I2 The agreements governing the AOG Units are discussed in greater detail below. The impact of the agreement provisions was considered in the estimation of fair market value for the AOG Units. On an unadjusted basis the capital account value of the AOG units was $2,917.660,278." In addition to the AOG Units held, the Partnership also received an annual payment from Apollo in connection with the tax receivable agreement ("TRA") associated with Apollo ownership sold in the July 2007 transaction which resulted from the reorganization of Apollo and its listing on GSTrUE." Non-Apollo Investment Interests: BFP's other investments included interests in four fixed-term private equity funds, five evergreen hedge funds, four development stage/private companies and multiple promissory notes. All of these investments were non-controlling and non-marketable, and subject to certain restrictions. None of the funds made regular distributions. Each subset is described further below. [SPACE LEFT BLANK INTENTIONALLY] 7.5% of the block of AOG Units became exchangeable on March 29. 2013. 33 Based on the mean value per share of $31.47. GSTrUE is a secondary market for qualified institutional and individual investors. Apollo stopped trading on GSTrUE after its public listing in 2011. EMPIRE CAI UAI ION CON%L LTANTS EFTA01086074 Alan Halperin, Esq. November II, 2014 APO! GRAT No. 2 - Valuation Date: March 3, 2014 Page 8 Private-Equity Funds: These investments were subject to transfer restrictions (i.e. requires fund general partner consent), and withdrawal was not permitted prior to the end of the fund's term. Distributions were only anticipated upon the harvest of underlying investments, and the timing and amount of distributions would be determined by each fund's manager or general partner. A summary of key information associated with these funds is presented in the following table. Non-Apollo Private Equity Investments - Key Terms I IIIII% HAO ISIP's ( apital \eco % aloe" 53,541,795 Description The fund is focused on investments in Asia, with a focus on China. tee Stnicture's 2%/20% NMI I snit m i.,n 12/5/2015 SWE S19,371,092 The fund is focused on timberland properties in the southeastern United States. 1%,15% 5/1/2018 WCP S2,688,750 The fund is focused on active minority investments located in emerging markets, with a focus on BRIC.' 2%/20% 2/23/2019 TEN4 5446,590 The fund is targeting SI million investments in growth stage "Big Data" companies. Total fund size is 525 million. 2%/20% 4/1/2023 [SPACE LEFT BLANK INTENTIONALLY] 13 Based on most recent quarterly account statements. Capital account balances were adjusted to account for distributions and contributions made between the capital account date and the Valuation Date. '6 Stated annually, as "management fee percentage/performance fee percentage." " Brazil, Russia, India and China. EMPIRE VALUMION CONSULTANT% EFTA01086075 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 9 Hedge Funds: The evergreen funds allowed withdrawal of capital based on a combination of lock-up periods and limited opportunities to withdraw (e.g. annually, quarterly). Although the interests were subject to transfer and other restrictions, the withdrawal rights were considered to be most important. A summary of key information associated with the evergreen funds is presented in the following table. Non-Apollo Hedge Fund Investments - Key Terms 1.6111‘ . ACP BFP's Capital Account Value's $16,541,691 Description Debt focused special situations fund. MI ucture" 1. 5 %/20 % Withdrawal Date 6/30/2014 CVRF $18,160,603 Debt and equity event-driven fund. 1.5%/20% 12/31/2014 KSC $971' 848 Global long/short credit and event-driven fund. I.5%/20% N/AS1 LC $35,074,951 Lon onl c uit fund. 1.75%/0% 6/30/2014 MG $23,567,120 Arbitrate fund 0%22/20% 6/30/2014 Truckast LLC ("Truckast"): BFP initially invested in iCrete LLC which had developed proprietary technology for mixing concrete. BFP held a Class B interest in iCrete. According to the Partnership's 2013 K-I. BFP had a capital account balance of $1.2 million and a capital sharing percentage of 0.7655%. iCrete had a $5.9 million members' deficit as of December 31, 201223 and has been unprofitable since inception. As of the writing of this report, and effective December 5. 2013, Pacific Concrete Technologies, LLC acquired of all of the right, title, and interest in and to certain property formerly owned by iCrete, LLC, including 100% of the membership interests of iCrete. Further, on December 5, 2013, Pacific Concrete Technologies, LLC transferred 100% of the membership interests of the company to GKW Holdings. GKW Holdings formed Truckast to hold these interests. '8 Based on December 31, 2013 monthly account statements. 18 Stated annually, as "management fee percentage/performance fee percentage." 30 Withdrawal date represents when BFP was allowed to withdraw its capital from the underlying fund as of the Valuation Date based on the provisions of the respective underlying fund agreement. This applies only to ACP, CVRF, LC and MG. Entire balance is a side pocket investment. BET is withdrawn waiting to receive a final distribution, the net amount of which is $907,805. KSC retained $117,838 from the withdrawal of unrestricted capital for future management fees with respect to the side pocket investment. 22 There is no management fee. However, partners bear pro rata levels of fund expenses. ~3 The most recent financial statement available at the Valuation Date. EMPIRE VASA:Al ION CONSULIANIN EFTA01086076 Alan Halperin. Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 10 KUE: Knowledge Universe Education ■. was a holding company with a portfolio of development stage secondary education companies. The carrying value of BFP's interest in KUE was estimated to be $31.5 million based on its 2013 K-I capital account balance. Per BFP's K-1, the Partnership had a 4.7328% capital interest. KUE's aggregate book value of equity was $718.5 million as of December 31, 2013. On October 15, 2013 BFP received a $1.4 million cash distribution and $0.8 million stock distribution (105,951 shares of LRN) from KUE. The distribution was considered a return of contributions to KUE's investors, though not 100%. The KUE Agreement was amended August 9, 2013. The amendment reflected that KUE has a target exit date of October 2015 through an IPO. If an IPO is not successfully KUE will wind down by October 2017 through some other means. When BFP invested in KUE, the investment also included an investment in KUE Management Inc. ("KUE GP"), KUE's general partner. Based on the initial investment, BFP's capital contribution was allocated 99.9% to KUE and 0.1 % to KUE GP. KUE GP's carrying value was estimated at $31,514. ESWW Convertible Notes: ESWW, through its wholly-owned subsidiaries, is engaged in the designing, developing, manufacturing and selling of emissions control technologies. The company also provides emissions testing and environmental certification services with its primary focus on the North American on-road and off- road diesel retrofit market. ESWW manufactures and markets a line of catalytic emission control and enabling technologies for a number of applications. ESWW is focused on the international medium duty and heavy duty diesel engine market for on-road and off-road vehicles, as well as the utility engine, mining, marine, locomotive and military industries. ESWW also offers engine and after treatment emissions verification testing and certification services. In 2013, BIT invested $2.9 million in ESWW in the form of convertible notes.' The notes pay 10% simple interest, semi-annually. The notes will convert at a rate of $80 per share to common equity on March 22, 2018, or sooner if a majority of the note holders elect to convert the notes to common stock. Rally Labs: Rally Labs LLC markets and distributes an over-the-counter drug called Blowfish, which is an effervescent, morning-after hangover remedy. BFP invested $200,000 on June 28. 2013 as pan of Rally Labs effort to raise $2 million in investment capital in order to finance its general business operations and marketing initiatives to support a national rollout. The Partnership bought 20,000 units at a price per unit of $10.00. The total offering was 200.000 units. The full allotment 24 The total aggregate offering was $4,596,929. EMPIRE VAt moon (20NA LTAS r. EFTA01086077 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 11 of units offered by the company represents 25% of the Rally Lab's fully-diluted capitalization. BFP's carrying value was estimated at $188,015. T-INK, Inc.: T-INK markets and develops technology enabled ink and printing capabilities. BFP invested $100,003 to purchase 6,094 common shares on December 9, 2013 as pan of T-INK's effort to raise investment capital. Promissory Notes and Receivables: The Partnership has issued eight promissory notes. There are two outstanding notes with Leon Black, totaling $43.3 million including accrued interest, the Black Family 1997 Trust has two notes totaling $8.2 million, and PLB LLC has two notes totaling $3.2 million. One note totaling $25.0 million is due from Narrow Holdings LLC. BFP also had a promissory note due from AIF IV Management Inc. in the amount of $7.5 million. Note terms end between July 9. 2015 and October 2, 2017. Annual interest rates are between 0.18% and 0.25% for the notes. One note, due from the 1997 Trust, is related to Phaidon and charges 3.0% interest annually. All notes are interest only with principal payments due at the end of each note's term. BFP has receivables of $2.5 million and $2.1 million due from BRH Holdings, LP and LBF Holdings, LLC, respectively. Additionally, BFP opened a $15.0 million credit line to Phaidon Global which was drawn $8.7 million, including accrued interest, at the Valuation Date. Interest on the Phaidon Global credit line was I -month LIBOR plus 200 basis points. The credit line is available through September 2014. Liabilities: BFP had no liabilities at the Valuation Date, with the exception of the clawback liability related to carried interest points for AIF Ill. Summary: Based on the most recent capital account statements and holdings information provided by Apollo and BFP Management, the Partnership's total assets had an aggregate market value of $3.3 billion (which excluded the TRA benefit). Since BEP had only a $4.7 million clawback liability its aggregate partners' capital was $3.3 billion (based on the mean value per share of Apollo, AINV, and AAA stock as of the Valuation Date). See Exhibit D. Valuation adjustments necessary to reflect the market value of the Partnership's individual assets taking into consideration various restrictions that hinder BFP's control over the assets and lack of a ready market to dispose of or trade its assets is considered in detail in the valuation section of this report. EMPIRE VA tUA1 CCINMATANTS EFTA01086078 Alan Halperin, Esq. November II, 2014 A PO I GRAT No. 2 - Valuation Date: March 3, 2014 Page 12 C. BFP Agreement Provisions BFP was formed pursuant to Delaware Revised Uniform Limited Partnership Act (the "Act"). The BFP Agreement dictates the rights, responsibilities and restrictions placed on the Interest. A summary of key provisions impacting the fair market value of the Interest is presented below. • Management: The Partnership shall be managed solely at the discretion of the GP (i.e. Black Family GP, LLC). (7.1-7.2.) No LP shall have the ability to act on behalf of the Partnership in its capacity as such. (7.6.) There are no restrictions on the actions of the GP, and the GP may not be removed. (7.4.) Upon an event of withdrawal by the GP, a successor GP shall be appointed by a majority in interest of the LPs. (7.7.) • Allocations and Distributions: allocations shall be made on a pro rata basis. (5.2.) The timing and amount of distributions shall be determined by the GP in its sole and absolute discretion. Such distributions are based on sharing ratios. (5.4.) • Costs: Any costs incurred by the GP on behalf of the Partnership for its operations shall be reimbursed by the Partnership. (Article 4.) • Restrictions on Transfer: Transfers of economic interests are permitted. However, no transferee shall become a partner without the prior written consent of the GP. (9.1.) Upon death, a partner's economic rights shall be transferred to his legal representative. (9.3.) In addition to the required consent of the GP, other administrative tasks must be completed in order to effect the admission of a transferee as a substitute LP. (9.4.) • Restrictions on Withdrawal: Any Partner may withdraw any portion of his, her, or its capital account at any time. Upon such withdrawal, the Partnership shall distribute to such Partner assets of the Partnership with an aggregate fair market value equal to (i) the value of all of the assets of the Partnership, multiplied by (ii) such Partner's Sharing Ratio, multiplied by (iii) the percentage of such Partner's capital account being withdrawn by such Partner. If the Partnership's assets consist of assets other than cash or marketable securities, the FMV shall be determined by a qualified appraiser selected by the GP. (3.4.) • Books and Information: The GP shall cause complete books and records to be maintained at the principal offices of the Partnership. Such records shall EMPIRE BALI. ATKIN COWAVIANTI EFTA01086079 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 13 be open to inspection and examination of all partners in person or by their duly authorized representatives, who have the right to make copies at their own expense during normal business hours. (8.1.) The GP may, but is not required to, have annual financial statements prepared. Such statements need not be audited. If prepared, copies of such statements shall be delivered to the LPs. (8.2.) The Partnership's accountants shall prepare all federal, state and local income tax returns for the Partnership. (8.3(a).) • Dissolution: The Partnership will be dissolved at such time as the first of the following should occur: (I) the bankruptcy or dissolution of the GP; (2) the determination of the GP to dissolve the Partnership; (3) the entry of a decree of judicial dissolution; (4) any event under the act sufficient to cause dissolution. (10.1.) • Amendment: The Agreement may only be amended by the unanimous agreement of the Partners. (12.1.) AOG Unit Agreement Provisions The Interest and AOG Units are subject to provisions of multiple agreements. The impact of these agreements is that the value of an AOG Unit will vary from the value of a share of Apollo's Class A stock, based on the restrictions and benefits imposed on the AOG Units. Transfer and exchange restrictions remove the ability to participate in a liquid market. The TRA outlines how the tax benefit derived from an AOG Unit exchange is shared between the exchanging unit holder and Apollo. Empire reviewed the key agreements. as well as the summary for each agreement that is included in Apollo's public filings. The descriptions provided below are paraphrased from the content provided in the filings, and are intended to have the meaning conveyed therein. A. The Exchange Agreement BFP entered into an exchange agreement with Holdings which provides for the exchange of AOG Units owned by Holdings for Class A shares of Apollo. Subject to certain procedures and restrictions's and upon 60 days' written notice prior to a 25 Restrictions include the vesting schedules applicable to the Managing Partners, as well as any applicable transfer restrictions and lock-up agreements. EMPIRE VAIL ♦1MW COMMA:CS EFTA01086080 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 14 designated quarterly date, each of Holdings' ownersm has the right to cause Holdings to exchange the AOG Units owned indirectly by such owner for BFP Class A shares. The Class A shares received in the exchange would then be sold immediately at the prevailing market price, or at a lower acceptable price, and the net proceeds distributed to the owner affecting the exchange. In connection with the exchange, BFP's interest in the AOG Units will be correspondingly increased and the voting power of the Class B share will be correspondingly decreased. B. The Principals Agreement The Principals Agreement provides that each Managing Partner's Pecuniary Interest27 in the AOG Units that he holds indirectly through Holdings shall be subject to vesting. The Managing Partners own Holdings in accordance with their respective sharing percentages. Pursuant to the Principals Agreement, the AOG Units attributable to each of Messrs. Harris and Rowan will vest in in 60 equal monthly installments. The AOG Units attributable to Mr. Black in which BFP has an indirect interest will vest in 72 equal monthly installments. Although the Principals Agreement was entered into on July I3, 2007, AOG's Managing Partners are credited for their employment as of January I, 2007 for purposes of its vesting provisions. C. The Shareholder Agreement While the Exchange Agreement allows for quarterly exchanges of AOG Units into Class A shares of BFP, the Shareholder Agreement restricts the amount and timing of such exchanges involving a Managing Partner's aggregate equity interest ("Equity Interests") via its transfer restrictions. These restrictions are described below. No Managing Partner' may affect cumulative transfers of Equity Interests, representing more than: I. 0.0% of his Equity Interests at any time prior to the second anniversary of the date on which the registration statement of which the S-I forms a part became effective (the "shelf effectiveness date"), i.e. March 29. 2011: Including Managing Partners, contributing partners, and certain transferees thereof. 27 Pecuniary Interest - With respect to each Managing Partner, the number of AOG units that would be distributable to such Managing Partner assuming that Holdings were liquidated and its assets distributed in accordance with its governing agreements. 3 This applies to Managing Partners and their permitted transferees. EMPIRE VAR AflON COW. I TANI, EFTA01086081 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 15 2. 7.5% of his Equity Interests at any time on or after the second anniversary and prior to the third anniversary of the shelf effectiveness date; 3. 15% of his Equity Interests at any time on or after the third anniversary and prior to the fourth anniversary of the shelf effectiveness date; 4. 22.5% of his Equity Interests at any time on or after the fourth anniversary and prior to the fifth anniversary of the shelf effectiveness date; 5. 30% of his Equity Interests at any time on or after the fifth anniversary and prior to the sixth anniversary of the shelf effectiveness date; or 6. 100% of his Equity Interests at any time on or after the sixth anniversary of the shelf effectiveness date. Certain transfers were not subject to the restrictions described above, including transfers: (1) from one founder to another founder; (2) to a permitted transferee of such Managing Partner; and (3) in connection with a sale by one or more of the Managing Partners in one or a related series of transactions resulting in the Managing Partners owning or controlling, directly or indirectly, less than 50.1% of the economic or voting interests in Apollo or AOG, or any other person exercising control in Apollo or the AOG by contract, which would include a transfer of control of their manager. D. Tax Receivable Agreement In the event that an exchange pursuant to the Exchange Agreement is a taxable transaction, Apollo Management Holdings, ■. and the AOG entities that it controls will make a Section 754 election which may result in an adjustment to the tax basis of a portion of the assets owned by the AOG at the time of the exchange. The taxable exchanges may result in increases in the tax depreciation and amortization deductions from depreciable and amortizable assets, as well as an increase in the tax basis of other assets, of AOG that otherwise would not have been available. A portion of any increase in depreciation and amortization tax deductions, as well as the increase in the tax basis of such other assets, will reduce the amount of tax that APO Corp. would otherwise be required to pay on future income. Additionally, Apollo's acquisition of AOG Units in such an exchange may result in increases in tax deductions and tax basis that reduces the amount of tax that APO Corp. would otherwise be required to pay in the future. This occurred in EMPIRE %PAU AtION CO V4 EFTA01086082 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 16 connection with the Apollo's acquisition of AOG Units from the Managing Partners in the strategic investors' transaction in July 2007. The TRA requires APO Corp. to pay the Managing Partner (or to a permitted transferee of such Managing Partner, i.e. BFP) or contributing partner involved in such an exchange 85% of the amount of actual cash savings, if any, in U.S. Federal, state, local and foreign income tax that APO Corp. realizes29 as a result of these increases in tax deductions and tax basis, and certain other tax benefits, including imputed interest expense. APO Corp. expects to benefit from the remaining 15% of actual cash savings, if any, in income tax that it realizes. For purposes of the TRA, cash savings in income tax will be computed by comparing APO Corp's actual income tax liability to the amount of such taxes that APO Corp. would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of the applicable AOG entity as a result of the transaction and had APO Corp. not entered into the TRA. The tax savings achieved may not ensure that APO Corp. has sufficient cash available to pay the tax liability or generate additional distributions to its investors. Also, APO Corp. may need to incur additional debt to repay the TRA if its cash flows are not met. The term of the TRA will continue until all such tax benefits have been utilized or expired, unless APO Corp. exercises the right to terminate the TRA by paying an amount based on the present value of payments remaining to be made under the agreement with respect to units that have been exchanged or sold and units which have not yet been exchanged or sold. The present value of remaining payments will be determined based on certain assumptions, including that APO Corp. would have sufficient taxable income to fully utilize the deductions that would have arisen from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. No payments will be made if a Managing Partner or contributing partner elects to exchange his or her AOG Units in a tax-free transaction. In the event that other of Apollo's current or future subsidiaries become taxable as corporations and acquire AOG Units in the future, or if Apollo becomes taxable as a corporation for U.S. Federal income tax purposes, each will become subject to a tax receivable agreement with substantially similar terms. 29 Or is deemed to realize in the case of an early termination payment by APO Corp. or a change of control. EMPIRE VALIJMION CONSULTANT's EFTA01086083 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 17 Valuation of Black Family Partners, LP A. Introduction Generally, there are three commonly used approaches, to determine the value of a company/asset, none of which is necessarily superior to the others. These three approaches are the Income, Market and Cost Approaches. The nature of the business, industry, and economic circumstances of the particular company/asset being valued at the specific valuation date, as well as the availability of data will dictate which approach(es) will ultimately be used in determining the company's/asset's value. B. Valuation Methodologies Applied I. Income Approach Discounted Cash Flows Methodology ("DCF"): The discounted future income methodology can use cash flows as a basis to forecast the income which the business or asset will generate. Thereafter, an aggregate present value is calculated for the future cash flows using a required rate of return known as the discount rate. The strength of this methodology is that it facilitates the analysis of operational practices and their impact upon the business' value. Its weakness. however, is that it relies heavily upon projections of cash flows or net income which, for some firms, are difficult to make with any accuracy. The DCF method was applied to value certain BFP assets represented by expected future cash flow sources. For BFP, as an investment holding company, an asset based approach was considered more appropriate. 2. Market Approach Guideline Company Methodology: The objective of the guideline company methodology is to identify business entities that have publicly traded securities, as well as business and financial risks, which are comparable to those of the entity being valued. The pricing multiples of the selected public companies are then used to derive a market value for the owners' capital of the company under analysis. For an investment holding company, comparison with similar publicly traded investment companies, such as closed-end funds, is generally considered appropriate. There are two important pricing multiples that can be derived from the freely traded shares in investment holding companies: (I) discount to net asset value EMPIRE VA I VATkIN CONN!, LTANTS EFTA01086084 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 18 ("NAV"); and (2) price to yield. Discount (or premium) to NAV is calculated by dividing the company's market price by its reported NAV per share, and then subtracting the result (as a percentage) from 100%. A discount to NAV is also referred to as an investment company discount ("1CD"). The other important pricing measure for public investment holding companies, particularly for those that earn substantial income (e.g., municipal bonds, utility stocks, commercial real estate) and pay out most of this income, is yield (i.e., the dividend per share divided by the market price per share). When either of these pricing measures is applied to the closely held investment company's corresponding financial figures, the end result is the fully marketable value of owners' capital on a non-controlling (i.e.. minority) interest basis. This methodology was applied, in conjunction with a variant of the NAV method, described below, to derive the fair market value of BFP. 3. Asset Accumulation Method The asset accumulation method ("AAM") focuses primarily on the balance sheet. It requires restatement of the company's assets and liabilities in order to reflect their market values. Using this method, the value of the subject enterprise's equity is equal to the market values of its assets less its liabilities. The general method of individual asset and liability revaluation has also been referred to as the net asset value method, the adjusted net asset value method, the adjusted book value method, and the asset build-up method. Application of this method will typically indicate the value of 100% of the subject company equity on a controlling ownership interest basis. However, the method's relevance generally weakens when valuing an operating company whose value is best reflected as a going concern. Exceptions are when sale of the company's net assets is considered highly probable. when the realizable value of its net assets equals, or exceeds, the value of its distributions to its owners, or when the company's value is tied directly to the value of its underlying investments. Note that unless otherwise noted, use of this method assumes that transaction and built-in gains tax costs are reflected in the consideration of the discounts for lack of control and marketability. Because the Interest is an investment in an investment holding company, the value of its underlying assets and any related liabilities are important to an investor. This is true even though a minority interest is being valued, and such an interest EMPIRE VAR MAAS 0",AVIAVIN EFTA01086085 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 19 obviously does not have the right to liquidate the partnership or its assets. Therefore, the AAM was used to determine the minority value of the Interest. C. Valuation Summary The AAM was used to value the Interest. First, the adjusted book value of BFP's assets (except cash and marketable securities) were calculated. The summary of which is presented in Exhibit D. The assets were placed in three groups. The first group consisted of the interests in fixed-term funds?' most of which were not expected to liquidate for several years after the Valuation Date. The most recent available capital account balances were used as a starting point, reflecting the pro rata NAV in each fund associated with the subject interests. A restriction period discount was then applied to reflect the rights and restrictions associated with each investment, together with its economic characteristics. Application of this adjustment resulted in a cash equivalent value (i.e. fair market value) that was included in the derivation of BFP's adjusted book value ("ABV"). This analysis is presented in Exhibits E-I through E-3. The second group consisted of BFP's interest in the capital market funds?' The capital market investments, i.e. hedge funds, are subject to riskn between the Valuation Date and their earliest possible withdrawal dates. One quantitative method to assist in determining the restriction period discount applicable to the subject interests is to estimate the costs that would be incurred by an investor if he were to attempt to "hedge" his position over the restriction period. In other words, if an investor is restricted from selling his interest should he change his outlook (or the stock price begins dropping), he would want protection (a hedge) from potential losses that could be incurred during the restriction period, yet would not want to give up the upside potential, as that is the reason for the investment in the first place. This provides a reasonable tool to estimate at least the liquidity-related portion of the restriction period discount. However, it was considered that this method of estimating a restriction period discount would only result in a "floor" value for the discount. Several factors contribute to this, including, but not limited to, the following: (I) to the extent that they are available, volatility metrics for hedge funds are generally based on monthly (not daily) reported data, which may lead to a smoothing of volatility measures over time; (2) 3° ACIII, ACIV, ACV, ACVI, HAO, SWF, WCP and TEN4. ASC, AVC, FCI II, APTP, APSHL, ACP, CVRF, KSC, LC and MG. " Risks included factors that could affect future performance of each fund. Risk factors may include, but are not limited to, the fund remaining a going concern, the fund maintaining the same investment strategy, regulatory issues, or a change in investment manager. EMPIRE VALL'A I KM tI INWI1AS r• EFTA01086086 Alan Halperin, Esq. November II. 2014 APO I GRAT No. 2 - Valuation Date: March 3. 2014 Page 20 volatility metrics based on historical investment returns only provide a measure of the historical risk of the underlying investment portfolio, but do not measure the business risk of the fund itself; (3) these measures do not account for risks associated with the fund general partner's right to suspend or curtail withdrawals in certain situations; (4) such an analysis cannot capture the adverse impact of a gate, which generally limits withdrawals to a certain percentage of fund assets; and (5) perhaps most importantly, public investment vehicles that would be required for an investor to implement a perfect hedge against an illiquid asset such as a hedge fund interest simply do not exist. Despite these complications, a theoretical put option model was considered as one indicator to use in estimating a restriction period discount for the unrestricted portions of the capital market interests. In addition, certain restricted stock data was also considered, largely because the put option model implicitly does not account for certain risks outlined above. The put option model and the restricted stock data are discussed further below. This analysis is presented in Exhibits F- I through F-3. Additionally, the fair market value of AOG Units held by the Partnership was estimated based on a restricted stock analysis that employed a put option model to estimate a restriction period discount applicable to the AOG Units and the TRA benefit payable to BFP pursuant to the TRA agreement. A DCF analysis was employed to value both the existing TRA payment stream and potential future TRA benefit from the AOG units held by BFP at the Valuation Date. These analyses are presented in Exhibits G- I through H-2. Once BFP's adjusted book value was estimated, the pro rata ABV associated with the Interest was calculated. Next, a combined discount for lack of control and lack of marketability was applied to estimate the fair market value ("FM V ") of the Interest. Valuation of Fixed-Term Fund Interests In assessing the fair market value of the Partnership's underlying PE fund investments the capital account balance associated with each interest was used as a starting point. An appropriate restriction period discount was then applied to account for the economic characteristics of the interest, its performance, and the investment risks associated with the underlying investment fund, together with the rights and restrictions attributable to the interest as described in the fund's governing documents. Market and general economic conditions at the Valuation Date were also a consideration. EMPIRE VAI I Al 14P. IlASI. EFTA01086087 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 21 In estimating an appropriate restriction period discount to apply to the Partnership's underlying PE fund investments, we considered the economic and financial risks of each investment as a prospective investor may perceive them. In addition to each fund's vintage year, investment strategy, portfolio composition and other descriptive information provided earlier in this report, several risk factors were considered, including, but not limited to, the following: (1) remaining term; (2) stage of lifecycle; (3) remaining capital commitment; (4) cumulative returns; (5) distributions; (6) preferred returns to limited partners, if any; and (7) potential carried interest payments to the general partner, if any. The general impact of each on the selected restriction period discount is discussed below. On a relative basis, estimated restriction period discounts would be greater for funds with: (I) longer remaining terms, which would also suggest that the funds were earlier in the fund cycle and could have greater investment risk; (2) larger unfunded capital commitments, which could reduce the number of potential buyers;" (3) capital appreciation as the expected source of value creation, as investors in funds expected to create value through cash flow (i.e., debt service income or rental income) were likely to receive distributions earlier than investors in otherwise similar funds that were invested for capital appreciation; (4) lower distributions as a percentage of contributed capital and net multiples of contributed capital, both of which could suggest a lack of strong historical performance; and (5) no preferred return, which would provide less of a return to limited partners before carried interest payments could be made to general partners or managers. In selecting a reasonable restriction period discount to be applied to each of the Company's underlying private investments, several benchmarks were considered. These included, but were not limited to, the following: (1) discounts to NAV associated with publicly-traded closed-end investment companies ("CEICs"); (2) restricted stock studies; and (3) the limited market data available for the private equity interests in the secondary market. Each is described further below. • CEIC Samples: Two closed-end fund samples were developed: (1) business development companies ("BDCs") and CEICs invested in underlying private equity investments; and (2) capital appreciation securities. The BDC sample included nine domestic closed-end funds invested primarily in mezzanine debt, private equity and venture capital securities. Implied discounts to NAV ranged from a premium of 9.4% to a discount of 33 In addition to the fact that the landscape of potential willing buyers would be limited to "accredited investors" in most situations, any potential buyer would need to have the capacity to fund future capital calls. EMPIRE VALUATION CONSULTANTS EFTA01086088 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 22 45.3%, with mean and median observed discounts of 12.3% and 13.7% for the sample. Note that discounts for equity focused funds had discounts between 17.0% and 45.3%. The capital appreciation sample had implied discounts that ranged between 4.4% and 20.5%, with mean and median implied discounts of 11.8% and 11.1% respectively. Note that the CEICs in the capital appreciation sample invested in publicly traded equity securities. See Exhibits I-1 and 1-2. • Restricted Stock Studies: Addendum 4 to this report describes the results of several restricted stock studies which encompass several hundred restricted stock transactions that were completed between 1966 and 2008. Addendum 4 demonstrates that restricted stock discounts have declined over time as Rule 144 resale provisions have become less restrictive. Median restricted stock discounts for studies involving transactions completed prior to 1990, involving minimum required holding periods of at least two years, generally range from 25% to 45%. Median discounts associated with these studies are generally concentrated between 30% and 35%. • Secondary Market Data: Median bids for all fund sectors had implied discounts to NAV of 23.7%.4 Application of the PE Analysis: Application of a selected restriction period discount to each PE interest resulted in their respective market values, which were then included in the derivation of the Company's ABV. BFP's existing PE interest included four Apollo co-invest interests, and four non-Apollo related PE fund interests. Details regarding the funds were presented earlier in the report. All funds, except SWF, had remaining capital that could be called. ACIV, ACV, ACV1, HAO and WCP were only likely to have fund related expenses called!' SWF was fully funded. TEN4 was recently formed and would have substantial capital calls, relative to the commitment, in the next few years. Apollo related PE interests did not pay management or carried interest fees. All of the PE fund interests were restrictive in that transfers were not allowed without the fund general partner's consent and withdrawals were not permitted. The Partnership did not have the ability to influence the future investments or divestitures of its holdings. 31 NYPPEX Holdings, LLC's ("NYPPEX") 2014 Secondary Market Valuation Trends and Outlook for Private Funds & Companies Worldwide, March 2014. ACIII made a final liquidation distribution shortly after the Valuation Date. Therefore, no discount was considered for this investment. EMPIRE VAI I'M ION Cow ITANIS EFTA01086089 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 23 The primary risk factor for the interests was the likely remaining term of each fund. The term, in addition to the other risk characteristics of the interests, were considered in the selection of the appropriate restriction period discounts. The following table summarizes the estimated cash equivalent value of the PE interests. Selected Restriction Period Discounts ha it y ACID Rettiaittitig Item ( iy us.)' 0.00 apital .‘ccotmt $2,150,877 Selected Discount 0% Nlarhei \ ;due, rounded 52.150,877 ACIV 2.00 5539.414 25% $405,000 ACV 2.00 $3,893,465 25% $2,920,000 ACVI 1.86 $40,649,393 25% $30,490,000 HAO 1.76 $3,541,795 30% $2,480,000 SWF 4.16 $19,371,092 35% 512,590,000 WCP 4.98 $2,688,750 35% $1,750,000 TEN4 9.08 $446,590 35% $290,000 See Exhibit D for summary details of BFP's ABV and Exhibits E-I through E-3 for PE restriction period discount details. Valuation of Capital Market Interests The Partnership has three Apollo related evergreen fund interests (ASC, AVC and FCI II) and seven non-Apollo related interests (APTP, APSHL, ACP, CVRF, KSC, LC and MG). Empire's analysis began by segregating the capital accounts between unrestricted capital, which had liquidity rights with knowable withdrawal dates, and side-pocket investments, which had no liquidity rights or known term. A summary of the capital account balance for each capital market fund interest is presented in Exhibit F-I. Also included in Exhibit F-I is each interest's allocation between side-pocketed investments and liquid investments available for withdrawal proceeds or requests. Put Option Analysis: The Partnership is subject to risk with respect to the unrestricted capital between the Valuation Date and the earliest possible withdrawal The terms for ACIV and ACV were past their contractual length, including extensions. Two years was used as an estimate for the period of time required to liquidate the remaining assets of each fund. EMPIRE VALl' AM" CONS. LTANTS EFTA01086090 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 24 dates. One quantitative method to assist in determining the restriction period discount applicable to the Partnership's underlying investments is to estimate the costs that would be incurred by an investor if he were to attempt to "hedge" his position over the restriction period. In other words, if an investor is restricted from selling his interest should he change his outlook (or the stock price begins dropping), he would want protection (a hedge) from potential losses that could be incurred during the restriction period, yet would not want to give up the upside potential, as that is the reason for the investment in the first place. This provides a reasonable tool to estimate at least the liquidity-related portion of the restriction period discount. However, it was considered that this method of estimating a restriction period discount would only result in a "floor" value for the discount. Several factors contribute to this, including, but not limited to, the following: (1) to the extent that they are available, volatility metrics for hedge funds are generally based on monthly (not daily) reported data, which may lead to a smoothing of volatility measures over time; (2) volatility metrics based on historical investment returns only provide a measure of the historical risk of the underlying investment portfolio, but do not measure the business risk of the fund itself; (3) these measures do not account for risks associated with the fund general partner's or managing member's right to suspend or curtail withdrawals in certain situations: (4) such an analysis cannot capture the adverse impact of a gate, which generally limits withdrawals to a certain percentage of fund assets; and (5) perhaps most importantly, public investment vehicles that would be required for an investor to implement a perfect hedge against an illiquid asset such as a hedge fund interest simply do not exist. Due to these complications, it was considered that the application of an adjustment to each investment's capital account value based on a put option analysis only captured a portion of the overall risks associated with the investment, and did not result in the fair market value of the underlying investment. Instead, it was recognized that the investments remained subject to material business risks that were not captured by such an adjustment. Black Scholes Option Pricing Model Description: A put option gives the holder the right, but not the obligation, to sell a stock at a fixed price (a "strike" or "exercise" price) to a buyer. This type of option rises in value as the underlying stock price drops below the price at which the holder can sell it. The greater the drop in price, the more valuable the right to sell the shares at a fixed, higher price, becomes. A put option, with an exercise price equal to the capital account balance as of the Valuation Date, can be used to hedge a stock holding from downward price drops, since the value of the put rises to offset any drop in the EMPIRE SALTA, ION COSSUI TAN IA EFTA01086091 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 25 stock price. The two assets combined, at expiration, should approximately equal the value of the stock position at the time the hedge was put in place, net of the costs related to the hedge. The Black-Scholes option model for valuing call options (the right but not the obligation to buy a share of stock at a fixed price) was developed by Fisher Black and Myron Scholes in the 1970s. The model is widely used in the pricing of options in the public markets, in risk-management (hedging), and in the accounting for compensation options under Financial Accounting Standards Board ("FASB") guidelines. The model, using short sales and borrowings, reflects results assuming that the option value is equal to the security price, times a probability (that the ending price will exceed the strike price), minus the present value of the exercise price, times a probability. In valuing a put option, the output of the Black-Scholes model can be modified to determine the probability of a downward movement in a stock's price over time (relevant to a put). as opposed to an upward movement in the price (relevant to a call). To do so, the model's probabilities are changed to their reciprocals, and certain signs are changed to make the stock position assumed by the model a short position. instead of a long position with borrowed funds. These adjustments result in a put option model.' The model has six inputs that determine value: (1) stock price: (2) exercise price: (3) risk-free rate; (4) the life, or term, of the option; (5) expected volatility; and (6) dividend yield. The first three inputs are easily observable; the impact of the last three inputs requires further discussion, as do the manner in which they were derived. 1. Asset Price: The value of the underlying asset or stock. In this case, the unrestricted capital account balance of the Partnership's interest in a fund. 2. Exercise Price: The price at which the holder of the option could sell the underlying asset upon exercise of the option. In this situation, the exercise price is equal to the asset price. 3. Risk Free Rate: The risk rate used in the model is the continuously compounded risk-free rate for the term corresponding to the length of time remaining on an option. The appropriate yield was benchmarked by the return on U.S. Treasury securities having maturities that correspond with 37 Model based on article by James R. Mountain. Journal of Accountancy, January 1996. EMPIRE VAItAl ION CONSULTANT% EFTA01086092 Alan Halperin, Esq. November 11, 2014 APO! GRAT No. 2 - Valuation Date: March 3, 2014 Page 26 the term of the option. The Federal Reserve Statistical Release H.15 was used to determine the appropriate risk-free rate. 4. Term of the Option: The term, or expected remaining life, of an option also has a significant impact on value. The longer the expected remaining life, the longer the stock has to potentially rise or fall to greater extent, making the option more valuable. A longer term option on a high volatility stock can have significant value, whether it is a put or a call option. In this case, the term would be the period of time between the Valuation Date and the earliest possible withdrawal date after the Valuation Date. 5. Volatility: The volatility of the underlying stock price has a significant impact on the value of an option. Volatility is a measure of how far up or down a stock could potentially go over a given period of time, based on the historical day-to-day trading patterns. Higher volatility increases the value of both call and put options. The higher the volatility, the higher the possible profits from owning an option and, hence, the higher the option's value. This relationship is somewhat counterintuitive, as the prospect of high volatility and greater investment risk generally lowers equity prices. The key difference, relative to equity pricing, is the limited downside risk of an option, which gives its owner the right but not the obligation to sell. Empire was provided with historical return and volatility specific to BFP's investments, as well as comparable benchmark hedge fund index returns and volatility were considered in estimated volatility for each subject interest. 6. Dividends: Dividend payments impact value, but to a much lesser extent. Dividend payments reduce the value of a call option and increase the value of a put option, because cash flows out of the company to its shareholders but not to the option holders. The net result is that the prospective growth in the stock value of the company is slowed. When dividends are to be paid before the option expires, it is necessary to adjust the formula. In general, BFP's fund investments did not make regular distributions unless it is associated with investor withdrawals. As a result, dividend yield was assumed to be 0%. EMPIRE VAIL Ailt" (}.]µ VIAAT, EFTA01086093 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 27 The Black-Scholes put option implied discounts are presented in Exhibit F-2. Other factors were also considered. Other Factors: The analysis outlined above indicates a theoretical cost of a protective put option of the value of the underlying security. However, the full cost incurred to hedge the value of the capital accounts until they could be redeemed would also include: (1) transaction costs associated with establishing such custom put options, or a series of custom put options. over the stated period of time; (2) the financial counter-party in the put transaction would require compensation for assuming the risk associated with incomplete financial information resulting from the investments' private status; (3) payment methods that may be employed by the funds, i.e. payments may not be in cash; and (4) delayed and staggered payment after capital withdrawal from the funds. The total implied restriction period discount implied by the Black-Scholes put option pricing model and consideration for other factors is presented in Exhibit F-2. Restricted Stock Data: Restricted stock studies were sought for use in determining one possible benchmark for the discounts appropriate for application to each investment. Relevant restricted stock studies are summarized and described in Addendum 4 to this report. Overview: The restricted stock studies demonstrate that discounts do exist to compensate investors for their relative inability to liquidate an investment over the course of a given holding period. The statistics associated with the studies fell within a reasonably close range, although variation of implied discounts was noted within each of the studies. Variations in observed discounts were generally attributed to company-specific (i.e., investment specific) factors. The restricted stock study data also supports the notion that discounts declined when holding periods were reduced, which can be anticipated based on accepted financial theory. Based on these studies, we estimated that the discounts appropriate for lock-up periods of two years could be as high as 33%. While data points underlying the specific studies suggested that discounts could range much higher, it was considered that such high levels of discounts were frequently observed with investments that were subject to high levels of stock price volatility or business risk. As a result, the overall median restricted stock discount of approximately 33% for a two-year holding period was considered a reasonable upper boundary for use in this analysis. TVA Study - Holding Period Analysis: Addendum 4 includes a description of a study completed by Trugman Valuation Associates, Inc. ("TVA") that was published EMPIRE IN I .AIM'S COSM.LIANIN EFTA01086094 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 28 in the fall of 2009. After a detailed screening process, TVA identified 80 transactions occurring between January 1, 2007 and August 19, 2008. The summary statistics associated with this study are presented at the beginning of Addendum 4. As a component of its study, TVA completed a holding period analysis by analyzing the impact of contractual registration rights on implied discounts. TVA indicated that a large majority of the 80 transactions in the study had registration rights. TVA performed additional research to verify the actual registration date, and calculated the number of days between the transaction date and the actual registration date. If no registration statement was filed with respect to a specific transaction, TVA assumed that the securities remained unregistered for the entire required holding period.7° TVA separated this data into quartiles, resulting in the statistics shown in the following table. TVA Analysis of Registration Rights Quartile Da,s Before Reci.traibm %% race DIAC1)11111 Median Standard ne‘iatiun 0-31 days 11.6% 10.0% 8.0% 2 32-63 days 14.3% 12.9% 113% 3 64-185 days 20.4% 15.9% 18.4% 4 185+ days 26.9% 18.8% 18.6% TVA's registration rights analysis suggests that implied discounts are positively correlated to implied holding periods, and provides useful information to assist in the development of benchmark discounts for holding periods up to six months. This analysis implies that holding period discounts even for short periods of time can be relatively significant. Although this information is helpful, the lack of block size and volatility data associated with each quintile makes the data difficult to interpret. For example, registered shares may still be subject to trading restrictions depending on the block size. Therefore, it is not clear based on the published data that the subject blocks of stock would be fully liquid upon registration. Further, discounts are generally recognized to increase as volatility increases, and the data presented does not permit an assessment of the relative impact of volatility on the observed discount. Analysis of FMV Study Data: Addendum 4 describes the 2007 edition of the FMV Restricted Stock Study" (the "2007 Discount Study") in detail, together with 365 days prior to the change in Rule 144 on February 15, 2008, and 182 days thereafter. EMPIRE Vu I ♦na> CLVAALLTAAT‘ EFTA01086095 Alan Halperin, Esq. November 11. 2014 APO1 GRAT No. 2 - Valuation Date: March 3, 2014 Page 29 Empire's analysis of the underlying transaction data. To provide some additional data that will assist in developing benchmark discounts to account for the illiquidity of hedge fund investments, we refer to Empire's analysis of stock price volatility on implied discounts. This is considered relevant given the relatively low volatility that may be associated with hedge fund investments in comparison to many of the companies included in the data set. As described further in Addendum 4. the 475 transactions in the 2007 Discount Study were filtered and sorted based on certain key variables, including volatility. The sorted data included 285 transactions, and was divided into quintiles. The lowest quintile of volatility data had historical stock price volatility ranging from 2.8% to 53.2%, with an average of 39.3%. Implied discounts associated with this quintile ranged from 0% to 84.3%. This quintile reflected a median discount of 12.9%, as compared to a discount of 21.3% for the 280 remaining transactions for which volatility data was available. Conclusion: The overall restricted stock study data suggests that discounts arc clearly applicable to account for lock-up periods during which an investment cannot be sold. The holding period analysis conducted by TVA provided the most relevant data for short periods. However, it must be considered that the underlying securities in these transactions may not be hilly liquid upon registration, whereas a hedge fund investor generally has liquidity as of a given withdrawal date. Further, the underlying stock price volatility associated with the transactions in the TVA Study is likely to be higher than the volatility associated with the subject hedge funds. Taking these and other factors into account, we estimated a reasonable range of discounts likely applicable to investments with lock-up periods up to two years. This is shown in the following table. Estimated Restriction Period Discounts I m k-tip Period 0-1 Months I slimatud Di‘t mini Ranu 1.5% 1-6 Months 5.7% 6-12 Months 7-10% 13-18 Months 11-25% 19-24 Months 26-33% It should be recognized that these estimated ranges are likely to overlap; i.e., the restriction period discount ultimately appropriate to a specific investment is dependent on the attributes of that particular investment. EMPIRE vMt ATOM. CONSCLTANTS EFTA01086096 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 30 Application of the Capital Market Analysis: Application of a selected restriction period discount to each capital market fund interest resulted in their respective market values, which were then included in the derivation of the Partnership's ABV. Side-pocket investments were considered to be more like a PE investment. As such, side-pocket portions of the capital account balances were discounted based on methods described above with respect to PE investments. Note. FCI ll had an unfunded capital commitment balance of approximately $8.9 million. All other investments considered did not have required capital contributions in the foreseeable future. The following table summarizes the estimated cash equivalent value of the capital market interests. Selected Restriction Period Discounts - Capital Market Funds I mit, ASC SI& POCIOA (Apical $136,595 ll III TAO It IL il t :11111.11 $2,803,345 Selected Side Multi RI'D'' 30% Selected liquid Capital RPD 1.00% NI.II kt I N.due $2,870,000 AVC $80,720 $7,909,204 30% 1.00% $7,890,000 FCI II $16,115,560 SO 30% n/a $11,280,000 APTP $13,863 SO 30% n/a $10,000 APSHL $40,864 SO 30% n/a $29,000 ACP SO $16,541,691 n/a 4.00% $15,880,000 CVRF $0 $18,160,603 n/a 5.00% $17,250,000 KSC $971,848 SO 30% n/a $680,000 LC SO $35,074,951 n/a 5.00% $33,320,000 MG SO $23,567,120 n/a 4.00% $22,620,000 See Exhibit D for summary details of BFP's ABV and Exhibits F-I through F-3 for capital market fund restriction period discount details. Valuation of Miscellaneous Interests A. Valuation of Interest in Truckast Truckast was a development stage company whose primary product was proprietary software for the concrete industry. As of the Valuation Date, Truckast has yet to be profitable and, according to the accountants review for 2012 financial statements, 10 Restriction Period Discount EMPIRE VALUATION CONSULTANTS EFTA01086097 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3. 2014 Page 31 its ability to survive as a going concern was not certain. BFP had no ability to cause an exit event for the company's current investors and the company had a perpetual term. Additionally. BFP could not sell or transfer its interest in Truckast in the interim without written consent from its managing member. As such, a combined discount of 35% for lack of control and marketability was applied to BFP's capital account balance. Therefore, the fair market value of BFP's interest in Truckast was estimated to be $796,301 f$1,225,078 x (I - 35%)]. See Exhibit D. B. Valuation of Interest In KUE KUE was a development stage holding company whose subsidiaries were for profit education companies for the 'K through 12' level. BFP's capital account balance indicated a price-to-book value for KUE of approximately 0.9 times. Comparable guideline companies have price-to-book ratios between 0.0 times and 15.4 times, with a mean and median of 3.1 times and 1.8 times. Therefore, BFP's capital account balance was considered a reasonable proxy for the fully marketable minority value for the subject interest. BFP had no ability to cause an exit event for the company's current investors and the company had a perpetual term. Additionally, BFP could not sell or transfer its interest in KUE in the interim without written consent from its managing member. KUE did make its first distribution to its investors during the third quarter of 2013. Further, the company is seeking to complete an IPO by October 2015. or if an IPO does not occur, some other exit event by October 2017. As such, a combined discount of 25% for lack of marketability and lack of control was applied to BFP's capital account balance of $31,482,728. Therefore, the fair market value of BFP's interest in KUE was estimated to be $23.6 million [$31,482.728 x (1 - 25%)l. The same discount was applied to BFP's interest in KUE GP. resulting in a value of $23,635 for the subject interest [$31,514 x (1 - 25%)]. See Exhibit D. C. Valuation of Interests in ESWW Stock and Convertible Notes The ESWW stock had a market price of $50 per share at the Valuation Date. The stock is thinly traded, with a median trading volume of 100 shares per day traded in the six months prior to the Valuation Date. The stock only traded on 18 days over the same period. The company had approximately 130,000 shares outstanding. Based on BFP's specific block of stock and control position an illiquidity discount was considered appropriate. Based on the restricted stock studies and TVA study discussed above and the size of the block relative to the depth of the market a 10% discount was considered reasonable. Therefore, the adjusted value of the ESWW common stock held by BFP was $512,100. EMPIRE AT IOS lTA\I♦ EFTA01086098 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 32 The ESWW convertible notes have a face value of $2,941,093. The notes have a conversion price of $80 per common share. The notes have an annual interest rate of 10% paid semi-annually in March and September. The notes mature March 22, 2018. The estimated value of the ESWW convertible notes are based on the sum of the conversion value of the notes' face value plus the present value of expected future interest payments. Similar to the illiquidity discount applied to the common stock position, the value of the notes attributable to the conversion value was adjusted to account for its illiquidity and restriction period. Again, the notes would not convert until March 2018. Based on the studies mentioned above and the specific attributes of the ESWW convertible notes, an illiquidity discount of 25% was applied to the market price at the Valuation Date. Based on an adjusted share price of $37.50 per share the estimated market value of the ESWW convertible notes was $2.5 million, at the Valuation Date. D. Valuation of Interest in Rally Rally was a development stage company whose primary product was an over the counter hangover remedy. BFP had no ability to cause an exit event for the company's current investors and the company had a perpetual term. Additionally, BFP could not sell or transfer its interest in Rally in the interim without written consent from its managing member. As such, a combined discount of 35% for lack of control and marketability was applied to BFP's capital account balance. Therefore, the fair market value of BFP's interest in Rally was estimated to be $122,210 [$188,015 x (I - 35%)]. See Exhibit D. E. Valuation of Interest in T-INK T-INK was a development stage company whose primary product was an interactive, technology enabled ink. BFP had no ability to cause an exit event for the company's current investors and the company had a perpetual term. As such, a combined discount of 35% for lack of control and marketability was applied to BFP's capital account balance. Therefore, the fair market value of BFP's interest in T-INK was estimated to be $65,002 [$100,003 x (1 - 35%)]. See Exhibit D. Valuation of Apollo Ownership Interests At the Valuation Date, the Partnership held the following ownership interests in Apollo and the Apollo Operating Group. The mean between the high and the low of Apollo's stock was $31.47 per share on the Valuation Date. EMPIRE VAIA:ATIOS CONSMANTS EFTA01086099 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 33 Apollo Ownership Units Unit •1} pt. AOG 92,727,166 7/13/2007 itrest ilk led alit': $2,917,660,278 The AOG Units were restricted from trading. By definition, restricted shares cannot be considered as marketable as freely tradable shares. Therefore, in order to determine the market value of the units, the impact of these restrictions must be considered and incorporated into the valuation. Empirical studies indicate that the factors which most influence the size of the lack of marketability discounts applicable to a block of restricted stock are: (1) the length of time which the stock has to be held (time value of money) before sale (resale restrictions); (2) the volatility of the security (risk); (3) the size of the block and the stock's available trading float; (4) the capitalization size and creditworthiness of the corporation; and (5) the outlook for the company, its industry, and its relative position therein. The analysis for the AOG Units is presented below. A put option analysis, as described previously was applied to estimate the appropriate restriction period discount. Additionally, the TRA benefit associated with AOG Units is considered and valued separately below. The DCF method was applied to value the TRA benefit. A. Apollo Operating Group Units The AOG Units were subject to a schedule that restricted their trading established in July 2007 when Apollo was formed through the consolidation of the Apollo operating group. Again, according to the Exchange Agreement, AOG Units would be exchangeable into Class A Apollo shares. Since Apollo had successfully completed its IPO the restriction period had officially begun and the restriction period was known for the Partnership's AOG Units. Based on annual delivery on March 29 that began in 2013 and will go through 2017, a put option analysis could be modeled for each block of AOG Units delivered or available for exchange. As of the Valuation Date, BFP's first tranche was exchangeable, but due to the insider status of Leon Black and his affiliation with the Partnership, the 6.9 million exchangeable AOG units were still subject to SEC Rule 144 trading restrictions. Again, the Black-Scholes option pricing model was previously discussed. Specific input parameters used for the put option model are presented in Exhibit G-1. These EMPIRE VAIL /CRON CONMUANT, EFTA01086100 Alan Halperin, Esq. November 11, 2014 APO! GRAT No. 2 - Valuation Date: March 3, 2014 Page 34 included: (1) block value; (2) exercise price; (3) term; (4) volatility; (5) dividend yield; and (6) risk-free rate. An incremental adjustment for other factors not captured by the theoretical implied discount derived from the put option model was added to the implied discount and ranged between 2.0% and 3.5%. Overall, implied discounts for the restriction period imposed on the AOG Units ranged between 12.6% and 30.6%. Applying the implied discounts to the appropriate AOG Unit blocks resulted in a restriction period adjusted market value of $2.14 billion for BFP's AOG Units. See Exhibit G-I . As noted above, the AOG Units have an associated TRA benefit derived from the tax shield provided upon exchange to APO Corp. The value of the TRA benefit is calculated in the following section. B. AOG Unit TRA Tax Shield As with many complex assets, the TRA could be valued using different methods or inputs. In this instance, valuing an explicitly projected future cash flow stream for the TRA, incorporating the myriad of assumptions for Apollo's status upon future conversions (e.g., future share price values, tangible asset values, business segment breakouts related to the TRA, existence and timing of IPO, etc.) was viewed as being highly unreliable and purely speculative in nature. In order to simplify the analysis, it was assumed the exchange occurs immediately at today's price and known facts about the business. A present value for the amortization benefit was then calculated. Since this derived value would not begin flowing for a number of years (2.9 years on a weighted average basis based on conversion restrictions as discussed earlier), the TRA value was assumed to be locked-up for that period of time. This treats the asset similar to a restricted stock that could, in fact, fluctuate up or down in value over the 2.9 years. The TRA value could go up or down if any of many things, including the following, change: company share price, business mix, tangible versus intangible assets, future interest/discount rates, etc. To account for this restriction period, a lack of liquidity/marketability discount was calculated and applied to the present value of the TRA derived below, again similar to the put option analysis approach applied to the AOG Units (excluding the TRA benefit) in the previous section. While one can argue there are other methods one might use, this was considered to provide a reasonable estimate of this portion of the value of the AOG Units. EMPIRE VALUAI ION CON4 HAMS EFTA01086101 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 35 Projected TRA Cash Flows: In order to complete a DCF analysis, it is necessary to develop an explicit forecast for TRA cash flows, together with a required rate of return by which those cash flows can be discounted back to their present value. The TRA cash flows are derived from the step-up in basis upon the exchange of the AOG Units into Class A shares for sale. Again, according to Management, the basis of the AOG Units is SO. Therefore, upon an exchange of the Units, the price per Class A share multiplied by the number of Units exchanged for Class A shares represents the step-up in basis. The value of Apollo's Class A shares is derived from the expected future cash flows attributed to its ownership of APO Asset Co., LLC and APO Corp. However, the tax benefit derived by the step-up in basis upon the exchange of the AOG Units is realized only by APO Corp. According to internal reports provided by Apollo regarding fair value of reporting units in the Apollo Operating Group, APO Corp. accounted for approximately 69.99% of Apollo's value. Consequently, the aggregate value amortizable due to a future exchange is estimated to be $2.0 billion. This amount is amortizable over a I5-year period, or $136.1 million per year. This results in an annual tax benefit of $54.9 million per year based on an effective tax rate of 40.35%. The effective tax rate is based on Management's projections for the statutory federal and state corporate tax rates. See Exhibit G-3. To the extent that APO Corp. does not have sufficient taxable income to fully recognize the amortization expense derived from the exchange, the remaining balance can be carried over as a net operating loss carry-forward until such time as a sufficient taxable income amount is earned where the expense can be charged and a tax benefit realized. The cash flows attributable to the tax benefit of an exchange of the AOG Units have been determined. Next, an appropriate discount rate must be applied in order to determine the present value of the TRA's tax benefit. Derivation of Required Rate of Return: The discount rate to be derived for the tax benefit of the TRA represents the required rate of return which an investor would demand at a point in time in order to invest in the TRA asset. This discount rate reflects current rates of return seen in the public capital markets plus a number of company- and industry-specific factors. The appropriate required rate of return for the TRA is based on Apollo's cost of equity, since the tax benefit is based on taxable income, i.e. after debt service. EMPIRE VALI Alla% CONILUANTS EFTA01086102 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 36 The equity discount rate to be derived for an entity's cash flows represents the required rate of return that an investor would demand at a point in time in order to hold an ownership interest in its capital. This discount rate reflects current rates of return seen in the public capital markets plus a number of company- and industry- specific factors. Additionally, market-based rates of return at the Valuation Date are summarized in the following table. Details regarding the selection of discount rates based on comparable guideline companies are presented in Exhibit H-I and H-2. Summary of Required Rates of Return Rcquirtd Rutc Si lilt 4: of Return 20- ear U.S. Treasu Rate risk-free rate)C 3 27 Prime Rate' 3.25% Lar:e Ca. Stocks" 9.37% Small Ca. Stocks" 15.67% The discount rate, or the rate of return that investors require, incorporates the following elements: • A "risk-free rate." which generally is the rate available on instruments considered to have no default risk, such as U.S. Treasuries. The risk-free rate compensates the investor for renting out their money and for the expected loss of purchasing power (inflation) during the holding period. • A premium for risk, which incorporates the degree of uncertainty as to the realization of the expected return. The risk premium includes: (I) systematic risk related to the movements in returns on the investment market in general; and (2) unsystematic risk, which is risk specific to the subject investment. Federal Reserve Statistical Release H.I5. "I Ibid. 41 Stocks, Bonds, Bills and Inflation: Classic Edition 2014 Yearbook, Morningstar, Inc., 2014, Chicago, Illinois. For large capitalization stocks the calculation is a sum of the risk•free rate and the expected returns of 6.1% realized on large capitalization stocks over the risk-free rate. Small capitalization stocks, which are riskier by virtue of their smaller revenue and income base and capitalization, have returned an additional 6.3% above the return witnessed for large capitalization stocks. " Ibid. EMPIRE WILIAM." COSS% OAST EFTA01086103 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 37 This discount rate reflects current rates of return seen in the public capital markets, plus a number of company- and industry-specific factors. Capital Asset Pricing Model ("CAPM"): The cost of equity estimate was developed with the CAPM. The CAPM is a model that is commonly used to obtain discount rates for valuation purposes. The basic logic of the CAPM model is that a company's risk premium is determined by the sensitivity of its stock price, i.e. equity value, to the price changes of the market as measured by an appropriate broad-based index, e.g. S&P 500 ("systematic risk," measured by Beta). This model has been one of the primary underpinnings of applied work in finance due to its simple. intuitive logic and ease of application. The model used to develop our estimates of cost of equity is as follows: K, = RI + R, (Beta) + Where: Cost of Equity 12( = Risk free rate of return Rp = Market Risk Premium = Small Company Risk Premium Beta = Sensitivity of the security to changes in the market The cost of equity. K, was identified based upon publicly available information. Betas of a group of selected U.S.-traded guideline companies were obtained from the Bloomberg Network. The betas were first unlevered based upon the respective firms' capital structures and an unlevered beta was selected for Apollo to use as a proxy for the three GP entities considered in this section. Then, the selected beta was relevered based upon the guideline companies' debt-to-equity ratios and Apollo's expected long-term debt-to-equity ratio. See Exhibit H-I. The resulting cost of equity of 13.19E is based upon an unlevered beta factor of 1.4. The determination of the cost of equity using the CAPM is included in Exhibit H-2. Asset Specific Risk Adjustments: Again, the unadjusted equity rate of 13.1% selected above is without consideration of asset specific risk factors for the TRA. Therefore, in order to reflect asset-specific risks, an additional risk adjustment must EMPIRE VALUATION CONSULTANT% EFTA01086104 Alan Halperin, Esq. November 11, 2014 APO! GRAT No. 2 - Valuation Date: March 3, 2014 Page 38 be considered for application to the equity discount rate derived above. Risk factors relevant to the revenue stream are discussed below. • The exact timing of the future tax benefits is based on achieving sufficient taxable income necessary to receive the tax benefit over the minimum period of 15 years. • The taxable income sufficient to fully recognize the TRA tax benefit may be impacted by the exchange of other AOG Units with similar tax receivable agreements, as well as the existing tax benefit resulting from the restructuring of AOG and subsequent 144A sale in 2007. • TRA payments are on par with unsecured debt, and are senior to dividend payments to AOG Class A shares. Based on the risk factors cited above, a TRA specific discount rate of 13% was selected. Conclusion of Fully Marketable Value of TRA: Applying the discount rate of 13% to the forecasted TRA tax benefit cash flows results in the present value of the incremental benefit at $354.8 million. The calculated benefit related to the exchange of the AOG Units is shared 85% by the AOG Unit-holder and 159E by APO Corp (a wholly-owned subsidiary of Apollo.) Therefore, the fully marketable value attributable to the TRA associated with the AOG Units is $301.6 million. Put Option Analysis - TRA: The put option analysis described above with respect to the restriction period of the AOG Units was applied to determine the restriction period discount for the TRA. Below are the specific inputs utilized to derive the cost of hedging the TRA with a put option as of the Valuation Date. See also Exhibit G-4. • Current Stock Price and Exercise Price: $301.6 million per the analysis discussed above and presented in Exhibit G-4. • Volatility: 40% was selected as the volatility input. This figure was determined after analyzing the historical and implied volatilities of the comparable guideline companies and reviewing the Company's volatility assumptions as stated in its SEC filings. A sample set of guideline companies' volatility measures was gathered and is presented in Exhibit G-2. EMPIRE \'AIL ATMs (MR LTA,T' EFTA01086105 Alan Halperin. Esq. November I1, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 39 • Dividend yield: 0% was used as this is a hypothetical situation. Since the option holder will get any dividends paid since they own the underlying shares, their position is not harmed by such payments. • Term: The term used was based on the schedule provided by the Exchange Agreement. Based on the Shareholders Agreement, the Units can be exchanged after the expiration of a two-year lock-up following the successful pricing of the Company's IPO. The exchange is subject to a schedule that allows the Unit-holder to exchange 7.5% of the aggregate Units held in each of four successive years. The remaining 70% of the Units can be exchanged in the fifth year following the initial lock-up. Again, the first tranche was exchangeable as of the Valuation Date, but was subject to SEC Rule 144. The weighted average age of an exchange (and SEC Rule 144 for the first tranche) is 2.9 years. This is the period which the hypothetical buyer would have to wait before effectively beginning to realize the benefit of the TRA payments. • Risk-free Rate: The Valuation Date yield of 0.66%, on a continuously compounded basis, for U.S. Treasury notes of 3-years was used. The theoretical cost of a put option for the Units calculated to be 25.3% of the fully marketable value of the TRA. See Exhibit G-4. The TRA was not publicly traded (like the Class A shares). Therefore, based on the implied lack of marketability discount from the put option analysis, Empire selected 25% for the lack of marketability discount applicable to the fully marketable value of the TRA. Applying a 25% lack of marketability discount to the fully marketable value of $301.6 million for the TRA results in a fair market value estimate of $226.0 million, rounded for the TRA associated with the AOG Units. See Exhibit G-3. C. 2007 Transaction TRA Benefit Management provided projections for existing TRA dividend payment liability." The aggregate projected TRA dividend payments and pro rata 41.68V share " The term 'existing' is used to distinguish it from the. potential TRA tax benefit associated with the 92.7 million AOG units discussed in the previous sections of this repon. Whereas the existing TRA tax benefit amount, and to a large extent timing, are known, it is not the case for the potential TRA tax benefit associated with the possible future sale of AOG units. EMPIRE VALUATION CONSULTASTS EFTA01086106 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 40 attributable to BFP are presented in Exhibit G-5. Next, an appropriate discount rate must be applied in order to determine the present value of the TRA dividends. As estimated above, Apollo's cost of equity was 13.1%. Pursuant to the TRA, dividend payments made pursuant to the agreement are always subordinate to any debt payments Apollo may have at the Valuation Date or in the future. This argues for a rate of return of at least a high-yield corporate bond.' At the same time, the dividend payments were considered less risky than Apollo's cost of equity since the TRA dividend did have a contractual claim on the Company's cash flows prior to any shareholder distributions. As such a reasonable range to consider for the discount rate applicable to the existing TRA benefit was between 6.5% and 13.1%. The projected existing TRA dividend payments were considered more like debt than equity. Therefore, Empire selected 10% as the required rate of return to apply to the projected existing TRA dividend payments. Concluded Value of the Existing TRA Dividends: A 10% discount rate was applied to BFP's projected pro rata share of existing TRA dividends. The present value of BFP's aggregate TRA dividend was $102.0 million. See Exhibit G-5 Valuation of Black Family Partners, LP A. BFP's Adjusted Book Value As discussed above, a willing buyer would typically assess the value of BFP's capital on the basis of its underlying assets. Thus, it is reasonable to utilize AAM as a valuation method. Book value, unadjusted, is another name for the shareholders' equity account as it appears on the balance sheet. Again, ABV as a willing buyer would assess it involves determining the value of a company's bundle of assets, less its liabilities, but before transaction costs. This analysis began by using the Partnership's Valuation Date balance sheet. In doing so, each asset and liability was assessed to determine its estimated market value as of the Valuation Date. A summary of the Partnership's assets and liabilities adjusted to reflect their market values as of the Valuation Date is summarized below. In general the adjustments made to stated capital account 's The pro rata share of 41.68% is based on the historical sharing ratio attributable to BFP at the July 2007 transaction that triggered the TRA benefit. The 2013 dividend will be different due to under-allocation to BFP in prior years. BB rated corporate bonds had an average yield of 6.49% at the Valuation Date. EMPIRE VALI, 'MON 0o"lITANTh EFTA01086107 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 41 balances reflect the restrictions imposed upon BFP and its inherent inability to realize the stated capital account balance value of its assets. Detailed analyses regarding the adjustments were discussed above. • Cash: The Partnership had a checking account with $24.1 million and a money market account with $1.5 million. No adjustments were made to the cash account balances. • AINV Stock: The Partnership held 603,632 shares of AINV stock. The stock closed at $8.74 per share on the Valuation Date, with a mean value of $8.66 per share. Therefore, the block of stock had a value of $5.2 million (based on the mean per share value) at the Valuation Date. • ESWW Stock: The Partnership held 11.380 shares of ESWW stock. The stock closed at $50 per share on the Valuation Date, with a mean value of $50 per share. The per share price was reduced by 10% for illiquidity, as discussed above Therefore, the block of stock had an adjusted value of $512,100 (based on the mean per share value) at the Valuation Date. • AAA Stock: The Partnership held 28,370 shares of AAA stock. The stock closed at $31.95 per share on the Valuation Date, with a mean value of $31.92 per share. Therefore, the block of stock had a value of $905,429 (based on the mean per share value) at the Valuation Date. • K12 Stock: The Partnership held 106.026 shares of K12 stock. The stock closed at $22.39 per share on the Valuation Date, with a mean value of $22.37 per share. Therefore, the block of stock had a value of $2.4 million (based on the mean per share value) at the Valuation Date. • PE/Fixed-Term Entity Direct Interests: The PE interests were direct investments in various Apollo private equity funds and non-Apollo private equity funds. The capital account balances were adjusted, as summarized in detail previously in this report. The following table presents the capital account balance and adjusted book value of each interest. [SPACE LEFT BLANK INTENTIONALLY] EMPIRE VAll Al cue.st HAM, EFTA01086108 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 42 PE/Fixed-Tenn Fund Interests I lint % ACIII ( apical %eel/1111i Rahn( e $2,150,877 %chiral. (1 Book Value, fullok (I 52.150,877 ACIV S539,414 5405.000 ACV 53,893,465 52,920,000 ACVI 540.649.393 530,490.000 HAO $3,541,795 52,480,000 SWF 519,371,092 512.590.000 WCP 52.688,750 51.750.000 TEN4 $446,590 5290,000 • Capital Market/Hedge Funds: The Partnership had investments in five Apollo related funds and one unrelated fund. The following table presents the capital account balance and adjusted book value of each interest. Capital Market Fund Interests I Min ASC ( ainial \ Lk ount Bal Int I $2,939,940 %Illus.', II 'tool. \ dm I I IIIIIIII II $2,870,000 AVC S7,989.924 $7,890,000 FCI 11 516.115.560 511,280,000 APTP $13,863 $10,000 APSHL $40,864 529,000 ACP 516,541,691 S15,880,000 CV RF 518,160,603 517,250,000 KSC 5971,848 $680,000 LC 535,074,951 533.320.000 MG 523,567,120 $22,620,000 • Apollo Operating Group Ownership: The Partnership, through BRH and Holdings, holds a block of AOG Units. AOG Unit ownership has significant restrictions regarding when the Partnership is able to sell the respective units. These details were discussed previously. Additionally, the AOG Units have the TRA which provided an economic benefit to the Partnership via its indirect ownership of the AOG Units not captured by Apollo's stock price. EMPIRE LIM I Al ION CONSULTANTS EFTA01086109 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 43 Apollo Operating Group Interests I(at it AOG Units (w/o TRA) TRA Benefit (future) TRA Benefit (existin:) Capital Account Balance $2,917,660,278 SO So Adjusted Book alue $2,140,000,000 5226,000,000 S102,000,000 • Miscellaneous Interests: A summary of the Partnership's other assets is presented in the following table. Miscellaneous Interests i a Truckast LLC capital Account lt.d.im e $1,225,078 Adjusted Book \ Alm-. rounded $796,301 ICnowled:e Universe Education LP 531,482,728 $23,612,046 KUE Mana:ement, Inc. 531,514 $23,635 ESWW Convertible Notes 53,065,184 $2,521,198 Rall Labs, LLC 5188.015 5122,210 T-INK, Inc. $100,003 $65,002 • Promissory Notes and Receivables: No adjustments were made to BFP's related party note balances or receivables. • Liabilities: The Partnership's only liability at the Valuation Date was a clawback liability of $4.7 million related to carried interest points from AIF Ill. Based on the estimated market value of BFP's assets and liabilities, the Partnership's ABV can be stated at $2,791,309,630, or $74,359,937 for a pro rata 2.6640% limited partnership interest. See Exhibit D. B. Discount for Lack of Control and Marketability The appraisal of any business is as much an art as a science. One reason that the value of a closely-held business is never completely objective is that much of this value lies in less quantifiable factors, such as marketability and control. The value that was derived above using the asset accumulation method is a fully controlling, EMPIRE %/MAI ION CONSIITANTS EFTA01086110 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3. 2014 Page 44 fully marketable value. However, a minority shareholder of BFP has neither a control position nor a ready market for his or her interest. The following discussion will address the factors which are considered relevant when determining appropriate discounts for control and lack of marketability. It should be noted that the criteria used to determine each discount individually can overlap. As such, although the following discussion addresses each discount separately, a combined discount for lack of control and marketability was applied to the freely tradable value of BFP's equity to determine its fair market value. I. Discount for Lack of Control When valuing a company, a valuation methodology which utilizes required rates of return from the public market is generally assumed to be a minority interest value. However, when consideration is given for a controlling interest position, as is the case when using the asset accumulation method, the controlling interest holder has the ability to exercise the prerogatives of control (e.g., the ability to set dividends and salaries, and make daily business decisions). The value of this control is usually recognized by a premium over the non-controlling interest valuation, as is demonstrated by the transaction data cited below. Since a non-controlling interest position is being valued, some discount for lack of control, or the inverse of the stated premiums. must be considered. The application of a discount for lack of control is particularly warranted in appraising limited partnership and non-managing membership interests in investment holding companies. Even without oven restrictions, a holding company interposes itself between an owner and the investment assets, thus creating administrative costs that would otherwise not be present. If an investor can purchase the same investment assets directly, without a discount there is no incentive for that investor to buy an interest in a holding company at its pro rata capital account value. The owners of non-controlling interests lack the ability to control operations, make or determine the level of distributions, or force dissolution. In order to benchmark an appropriate discount for lack of control to use in valuing a non-managing membership interest, several benchmarks were considered. These included: (i) generic evidence of lack of control: and (ii) a sample of CEIC's invested in U.S Government and Agency bonds. Mergerstat Data: Publicly traded stocks are by definition freely tradable interests. Thus, when a bidder seeks control of a public company, a premium over its stocks' market pricing is usually paid. This is because certain prerogatives, or levels of EMPIRE VALUATICAS CONSVITANTS EFTA01086111 Alan Halperin, Esq. November 1 I. 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 45 control, are transferred with percentages of ownership above 50%, such as the authority to: • Determine management compensation and perquisites; • Declare and pay dividends; • Sell or acquire assets and/or liabilities; • Change the articles of incorporation or by-laws; and • Liquidate, dissolve, sell, or recapitalize the company. In determining an enterprise value, then, the incremental value of control is usually recognized by a premium over the non-controlling interest valuation, as is demonstrated by the transactions cited below. Conversely, the use of an asset-based valuation method is implicitly assumed to generate a 100% controlling interest, or enterprise, value. Since a non-controlling interest is under analysis, however, the inverse of these stated premiums° should be considered representative of the diminution of value due to lack of control. A publication by FactSet Mergerstat LLC ("Mergerstat"). entitled Mergerstaneyiew 20/4 was surveyed for comparatively generic evidence of the discounts appropriate for lack of control in companies. Mergerstat tracks merger and acquisition activity for public companies. For all industries over the five years 2009 to 2013: (i) the mean control premiums paid over a stock's market pricing varied from 44.0% to 58.7%; (ii) the median premiums varied from 29.7% to 39.8%; and (iii) the five-year transaction-weighted average of the median premium was 35.8%. This latter premium corresponds to a discount for lack of control of 26.4% (1 - )1 + (1 + 35.8%))). Additionally, information from Mergerstarst Fourth Quarter 2013 Control Premium Study (the "Premium Study") was considered. It reported that, between January 1, 2013 and December 31, 2013, there were 452 transactions across all industries in which control was acquired, with a median premium of 32.4% and a mean premium of 46.3%. These premiums mathematically correspond to respective lack of control discounts of 24.5% and 31.6%. Closed-End Investment Company Benchmark: Discounts to NAV, or ICDs, associated with publicly traded closed-end funds or limited partnerships provide estimates that can serve as a base to determine a reasonable proxy for a lack of control discount. Generally, ICDs tend to be lower for funds with diversified portfolios of low risk assets (i.e.. U.S. government and agency securities). 1CDs 17 Implied discount for lack of control equals 1 - (I + 11 + control premiurra EMPIRE VAIUATION CONSULTANTS EFTA01086112 Alan Halperin, Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 46 tend to increase as the portfolios become more risky (equities and private investments) or less diversified (either concentrated in one industry or with a concentration in a specific security). A sample of six CEICs invested primarily in government bonds and securities is presented in Exhibit 1-3. ICDs associated with this sample ranged between 1.8% and 12.7%, with a median ICD of 9.9% and an average 1CD of 8.9%. The sample's median yield was 3.4%. 2. Discount for Lack of Marketability a. Background Since there is no public market for the Partnership's stock, we applied a lack of marketability discount to account for the illiquid nature of the stock. In selecting an appropriate discount for lack of marketability, we performed both a qualitative and quantitative analysis. The qualitative analysis involved an assessment of key factors impacting marketability, as well as relevant restricted stock studies. The quantitative assessment involved analyzing restricted stock data based on key financial measures that influence the degree of marketability for the interest in question. b. Restricted Stock Studies - Qualitative Assessment As part of the qualitative analysis, we reviewed restricted stock studies covering transactions between 1966 and 2008. These studies are summarized in Addendum 4 of this report. The studies, which cover several hundred transactions over the specified time period, concluded that mean or median lack of marketability discounts typically range between 25% and 35%. It is important to note that all shares of restricted stock observed in these studies would be tradable (subject to blockage issues) on an established public exchange following the expiration of a defined restriction period.° As the required holding period decreased from two years to one year. observed restricted stock discounts declined. This is consistent with financial theory that the required discount should decline as holding period restrictions are relaxed. a Due to changes in securities law over time, the initial restriction period declined from two years to one year in 1997. Prior to that, the adoption of Rule 144A in 1990 provided partially improved liquidity, but did not modify the two-year holding period requirement. The initial required restriction period was reduced to one year effective April 1997 and further shortened, to six months, effective February 2008. EMPIRE VAL t AI kr, CON4 I. TAN T, EFTA01086113 Alan Halperin, Esq. November II, 2014 APO1 GRAT No. 2 - Valuation Date: March 3, 2014 Page 47 However, changes in the securities laws which have resulted in shorter required holding periods do not make the older restricted stock studies obsolete. In contrast to restricted stock, which can trade on an exchange once the restricted period has lapsed, shares of most privately-held companies will never have access to such a market because the characteristics of those businesses do not make them candidates for public stock offerings. As a result, the observed discounts in the pre-1990 restricted stock studies (i.e., when the restrictions were most stringent) provide a useful comparison along with the more current studies. c. Estimated Lack of Marketability Discount - Qualitative Analysis • The impact of the qualitative factors on marketability is determined after reviewing many factors including, but not limited to. the factors discussed below. • Level of Distributions: A company with a history of paying consistent distributions is generally considered more marketable than one that does not have such a history. BFP was invested in fixed-term funds, evergreen funds and development stage companies, assets seeking capital appreciation. BFP's interest in BRH (comprised of the AOG Units owned through Holdings and TRA dividend payments) provided a potential source of capital appreciation and a source of cash dividends. While BFP received cash dividends, the proceeds have historically been used to make additional investments with entities not related to Apollo. However, the Partnership has recently begun to make distributions of unreserved cash. Distribution amounts and timing are at the discretion of the general partner. Accordingly, there is no formal policy in place for distributions, and a limited partner cannot assume or expect distributions at any given time (or at all). If made, any distributions must be pro rata among all members. This situation tends to enhance the marketability of the subject interest. • Information Access & Reliability: A purchaser of a non-controlling interest has to accept the information provided, and that information can often be curtailed by the general partners or managers. Concern about this issue is mitigated somewhat when management has a history of providing the minority owners with audited financial statements and/or access to the company's books and records. EMPIRE VALUATION eirkS/11/STS EFTA01086114 Alan Halperin, Esq. November II, 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 48 The Partnership does not prepare audited financial statements or file its own tax return. This situation tends to reduce the marketability of the subject interest. • Transfer and Withdrawal Restrictions: The ability of an investor to transfer or liquidate his interest, along with the time required to do so, is a major factor in assessing the appropriate discount for lack of marketability. BFP permits transfers without the prior written consent of the general partner. However, the consent of the general partner is required for such transferee to be admitted as a partner of BFP. Although BFP does provide for the withdrawal of capital, all such withdrawals would be made in-kind at the discretion of the general partner. To be clear, a partner requesting a withdrawal of capital would receive assets upon withdrawal, and the assets distributed would be selected at the discretion of the general partner. Since at the Valuation Date BFP had significant unfunded capital commitments in the fixed-term funds, there would be no incentive for the general partner to distribute cash in the event that a withdrawal was requested; all available cash was required to meet capital commitments. Therefore, distributed assets were expected to be illiquid. There was no way to exit or redeem capital for the underlying investments representing approximately 90% of BFP's adjusted asset value. This situation was significantly less attractive than one in which a withdrawing partner was required to receive cash or marketable securities upon a withdrawal. This combination of factors tends to reduce the marketability of the Interest. However, the reduction in marketability of the Interest was mitigated by the ability to at least withdraw assets. • Expected Holding Period: The length of the expected holding period of the interest impacts marketability; the longer the expected holding period, the less marketable an asset will be. For example, the presence of a near-term exit event, such as dissolution, an IPO, or a sale/merger, generally improves marketability. While the existence of legal restrictions may adversely impact an owner's ability to sell, the absence of such restrictions does not necessarily improve marketability if there is no active public market in which an asset can be sold. Separately, to the extent that the owner of an equity interest in a subject company has a contractual or legal right to "put" the stock back to the company or the other owners, the marketability of an interest is typically improved. EMPIRE VAIL Alit IN Ci".4 EFTA01086115 Alan Halperin. Esq. November 11, 2014 APOI GRAT No. 2 - Valuation Date: March 3. 2014 Page 49 Probability of an Exit Event: BFP does not have a specific term and the Partnership is not considering liquidation. This situation tends to reduce the marketability of the Interest. Existence of Put Rights: BFP's partners do not specifically possess put rights. This situation tends to reduce the marketability of the Interest. • Historical Trading Activity: To the extent that arms' length transaction activity exists involving shares of the subject company's stock, marketability may be improved. Empire is not aware of any historical trading activity involving limited partnership interests in BFP. This situation tends to reduce the marketability of the subject interest. d. Restricted Stock Study Data - Quantitative Assessment In 2007, FMV Opinions updated The FMV Restricted Stock Stud?" (referred to here as the "2007 Discount Study"), which contains 475 restricted stock transactions occurring from 1980 to 2005, and provides data on approximately 50 variables for each transaction. The market reference price used to calculate the discount is the average of the highest and lowest share price for the month of the transaction. The overall average discount in the 2007 Discount Study data is 22.3%, while the median discount is 19.5%.'' Several conclusions reached by the 2007 Discount Study are listed in Addendum 4. The underlying data from the 2007 Discount Study can be used to estimate a discount for lack of marketability for closely-held companies. The 2007 Discount Study recommends using a two-step process in which: (I) a quantitative analysis of the company-specific risk factors results in an "as if" publicly traded Restricted Stock Equivalent Discount; "1 and (2) a second quantitative analysis is used to 19 Determining Discounts for Lack of Marketability: A Companion Guide to the FMV Restricted Stock Study." FMV Opinions, Inc., 2007. 1° The reported overall discounts are based on the full data set of 475 transactions. s' For this step, we limited the sample to transactions involving block sizes of 20% or less of a firm's outstanding stock following the restricted stock transaction. Due to the relatively long periods generally required to liquidate larger blocks of restricted stock following the expiration of the initial restriction period, larger blocks of restricted stock in the 2007 Discount Study tend to have illiquidity characteristics more similar to stock in privately-held companies (in blocks of any size), for which no market exists. Therefore, an adjustment based on the differential discounts between small and large blocks of restricted stock is appropriate to estimate a discount for lack of marketability. EMPIRE VALl ABA" COS'''. iTAND4 EFTA01086116 Alan Halperin, Esq. November 11, 2014 APO] GRAT No. 2 - Valuation Date: March 3, 2014 Page 50 estimate an incremental discount above the Restricted Stock Equivalent Discount to recognize the similar illiquidity characteristics between privately-held companies and large blocks of restricted stock to estimate a Private Company Discount Increment. We followed this process for the quantitative pan in estimating the lack of marketability discount. e. Summary Findings from the 2007 Discount Study Data Please see Addendum 4 for a description of how we analyzed the data, and the conclusions drawn, from the 2007 Discount Study. Some of the more significant findings from this analysis are highlighted below. Analysis of Size Metrics: As shown in Exhibit J-1, implied restricted stock discounts are inversely related to a company's size, measured as revenue, market value, book value or total assets. Analysis of Risk Metrics: Discounts are positively correlated with volatility, given that a greater lack of marketability discount would be demanded by an investor for taking on greater risk. See Exhibit J-2. Analysis of Profitability Metrics: Discounts are inversely related to net profit margins. See Exhibit J-2. Dividend Payments: As shown in Exhibit J-2, discounts for dividend paying firms are less than for those not paying dividends. f. Quantitative Analysis Based on 2007 Discount Study Restricted Stock Equivalent Discount: The previously identified variables were considered in calculating the Restricted Stock Equivalent Discount. Each of the inputs was analyzed to identify the relevant quintile for each metric. The median observed restricted stock discount from the appropriate quintile was then selected for that measure. This is described in greater detail below. • Historical Financial Metrics: These metrics were based on the subject entity's most recent annual financial results. Regarding net profit margin and dividends, the analysis was based on whether or not the subject company was: (I) profitable or not profitable; and EMPIRE VALL:Al 'OS COMA LTANTS EFTA01086117 Alan Halperin, Esq. November 11, 2014 APO] GRAT No. 2 - Valuation Date: March 3, 2014 Page 51 (2) dividend paying or non-dividend paying!' BFP was both profitable and distributing on a regular basis during the period reviewed. • Market Value of Equity: This is equivalent to the aggregate marketable minority interest value of the subject entity's equity derived in Empire's analysis. • Volatility: Empire reviewed the volatility measures for Apollo and comparable companies since the AOG Units through BRH and Holdings were the largest holding of the Partnership. See Exhibit G-2. Based on these observations we selected 40% as a reasonable estimate for the Partnership's expected volatility. Exhibit J-3 summarizes the calculation of the Restricted Stock Equivalent Discount estimated to be reasonable for BFP. In deriving this discount, the results of the analysis of each metric were weighted as follows: (1) 25% to size factors, equally weighted between revenue and market value of equity;" (2) 25% to volatility; (3) 25% to profitability; and (4) 25% to dividend policy. As a result of this analysis, a reasonable Restricted Stock Equivalent Discount for BFP was estimated at 13.9%. Again, see Exhibits J-I through J-3. Private Company Discount Increment:$4 A Private Company Discount Increment was selected based primarily on an analysis of the differential discounts between large and small block transactions and also considers the qualitative factors impacting marketability. As shown in Exhibit J-4, a range of Private Company Discount Increments of 1.49 times to 1.94 times the Restricted Stock Equivalent Discount was calculated. This calculation is based on a comparison of: (1) the median Restricted Stock Equivalent Discount of 22% for all 285 transactions involving less than 20% of the post- transaction shares outstanding; and (2) the minimum and maximum observed median discounts for block sizes in excess of 20% shown in Exhibit J-4. S2 In the event that the subject company is a pass-through entity, the company would be considered to be "dividend-paying" if it paid dividends or distributions in excess of those required for the payment of related income taxes. " The Partnership's book value metrics were based on tax returns and not considered indicative of BFP's actual size from a financial perspective. 34 See Addendum 4 for further detail regarding the Private Company Discount Increment. EMPIRE VALI. AIR" CONM IJANT, EFTA01086118 Alan Halperin, Esq. November 11, 2014 APO1 GRAT No. 2 - Valuation Date: March 3, 2014 Page 52 Applying the range of Private Equity Discount Increments to the selected Restricted Stock Equivalent Discount of 13.9% for BFP indicates that a reasonable discount for lack of marketability would range from 21% to 27%, rounded, with a mid-point of 24%. C. Conclusion Empire selected a combined discount for incremental lack of control and marketability based on the foregoing review and analysis, including but not limited to: (i) a member's ability to withdraw from the Partnership, per the Agreement provisions described above; (ii) restriction period discounts applied to the Partnership's assets; and (iii) the market based evidence for discounts of lack of control and lack of marketability, a combined discount for lack of control and marketability of 15% was considered appropriate. Applying a 15% discount to the fully marketable value of $74,359,937 results in a fair market value of $63,205,947, rounded, for a 2.6640% non-managing membership interest as of the Valuation Date. [$74,359,937 x (1 - 15%).] See Exhibit D. [SPACE LEFT BLANK INTENTIONALLY] EMPIRE VALVATION COSIVIIANTS EFTA01086119 Alan Halperin, Esq. November IL 2014 APOI GRAT No. 2 - Valuation Date: March 3, 2014 Page 53 Valuation Summary Given the foregoing review and analysis, and subject to the attached Statement of Limiting Conditions, it is our estimate that the fair market value of a 2.6640% limited partnership interest in Black Family Partners. LP is reasonably stated as $63,205,947 as of March 3, 2014. It is our understanding that this report will be used by Mr. Leon Black for estate planning purposes. This appraisal is not intended for any other purpose nor for any other users and the sharing of the contents herein is not permitted without the express written consent of Empire Valuation Consultants, LLC. Empire has no obligation to update this appraisal for information that comes to our attention after the date of this report. Respectfully submitted, Empire Valuation Consultants, LLC Jeffrey Senior Valuatio Associate ,fit/%ifv✓' IJ~vid J. Th6mpson, CFA Manager oc lt A. Nammacher, ASA, CFA Managing Director EMPIRE VAIL I AT ION CONSULTANTS EFTA01086120 Addendum I-1 STATEMENT OF LIMITING CONDITIONS 1. Financial statements and other related information provided by or on behalf of the client entity or its representatives, in the course of this engagement, have been accepted without any verification as fully and correctly reflecting the enterprise's business conditions and operating results for the respective periods, except as specifically noted herein. Empire Valuation Consultants, LLC has not audited, reviewed, or compiled the financial information provided to us and, accordingly, we express no audit opinion or any other form of assurance on this information. 2. Public information and industry and statistical information have been obtained from sources we believe to be reliable. However, we make no representation as to the accuracy or completeness of such information and have performed no procedures to corroborate the information. Information used was limited to that available on or before the Valuation Date, or which could be reasonably ascertained as of that date. We reserve the right to make such adjustments to the valuation herein reported as may be required by consideration of additional or more reliable data that may become available subsequent to the issuance of this report. 3. We do not provide assurance on the achievability of the results forecasted by the client entity because events and circumstances frequently do not occur as expected; differences between actual and expected results may be material; and achievement of the forecasted results is dependent on actions, plans, and assumptions of management. 4. The conclusion of value arrived at herein is based on the assumption that the current level of management expertise and effectiveness would continue to be maintained, and that the character and integrity of the enterprise through any sale, reorganization, exchange, or diminution of the owners' participation would not be materially or significantly changed. 5. This report and the conclusion of value arrived at herein are for the exclusive use of our client for the sole and specific purposes as noted herein. They may not be used for any other purpose or by any other party for any purpose. Furthermore the report and conclusion of value are not intended by Empire Valuation Consultants, LLC and should not be construed by the reader to be investment advice in any manner whatsoever. The conclusion of value represents the considered opinion of Empire Valuation Consultants, LLC, based on information furnished to them by the client entity and other sources. 6. Neither all nor any part of the contents of this report (especially the conclusion of value, the identity of any valuation specialist(s), or the firm with which such valuation specialists are connected or any reference to any of their professional designations) should be disseminated to the public through advertising EFTA01086121 Addendum 1-2 media, public relations, news media, sales media, mail, direct transmittal, or any other means of communication without the prior written consent and approval of Empire Valuation Consultants, LLC. 7. Future services regarding the subject matter of this report, including, but not limited to testimony or attendance in court, shall not be required of Empire Valuation Consultants, LLC unless previous arrangements have been made in writing. 8. Empire Valuation Consultants. LLC is not an environmental consultant or auditor, and it takes no responsibility for any actual or potential environmental liabilities. Any person entitled to rely on this report, wishing to know whether such liabilities exist, or the scope and their effect on the value of the property, is encouraged to obtain a professional environmental assessment. Empire Valuation Consultants, LLC does not conduct or provide environmental assessments and has not performed one for the subject property. 9. Empire Valuation Consultants, LLC has not determined independently whether the client entity is subject to any present or future liability relating to environmental matters (including, but not limited to CERCLA/Superfund liability) nor the scope of any such liabilities. Empire Valuation Consultants, LLC's valuation takes no such liabilities into account, except as they have been reported to Empire Valuation Consultants, LLC by the client entity or by an environmental consultant working for the client entity, and then only to the extent that the liabil- ity was reported to us in an actual or estimated dollar amount. Such matters, if any, are noted in the report. To the extent such information has been reported to us. Empire Valuation Consultants. LLC has relied on it without verification and offers no warranty or representation as to its accuracy or completeness. 10. Empire Valuation Consultants, LLC has not made a specific compliance survey or analysis of the subject property to determine whether it is subject to, or in compliance with, the Americans with Disabilities Act of 1990. and this valuation does not consider the effect, if any, of noncompliance. II. No change of any item in this appraisal report shall be made by anyone other than Empire Valuation Consultants. LLC, and we shall have no responsibility for any such unauthorized change. 12. Unless otherwise stated, no effort has been made to determine the possible effect, if any, on the subject business due to future Federal. state, or local legislation, including any environmental or ecological matters or interpretations thereof. 13. If prospective financial information approved by management has been used in our work, we have not examined or compiled the prospective financial information and therefore, do not express an audit opinion or any other form of assurance on the prospective financial information or the related assumptions. Events and EFTA01086122 Addendum 1-3 circumstances frequently do not occur as expected and there will usually be differences between prospective financial information and actual results, and those differences may be material. 14. We have conducted interviews with the current management of the client entity concerning the past, present, and prospective operating results of the company, as applicable for this analysis. IS. Except as noted, we have relied on the representations of the owners, management. and other third parties concerning the value and useful condition of all equipment, real estate, investments used in the business, and any other assets or liabilities, except as specifically stated to the contrary in this report. We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances or that the client entity has good title to all assets. 16. The fee established for the formulation and reporting of these conclusions is not contingent upon the value or other opinions presented. 17. Neither the appraiser nor any officer or employee of Empire Valuation Consultants, LLC has any interest in the property appraised. 18. We assume that there are no hidden or unexpected conditions of the assets valued that would adversely affect value. 19. No opinion is intended for matters which require legal or specialized expertise, investigation or knowledge. beyond that customarily employed by appraisers. EFTA01086123 Addendum 2 CERTIFICATION OF APPRAISERS We the appraisers certify that, to the best of our knowledge and belief: I. Our analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 2. All statements of fact contained in this report are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 4. Neither Empire nor any of its employees has, to the best of our knowledge, either a present or intended financial interest in the entity that is the subject of this report, in any affiliates that may exist, or with respect to the parties involved. 5. Empire has performed services as an appraiser regarding the property that is the subject of this report on a quarterly basis since August 2013. 6. We have no bias with respect to the entity that is the subject of this report or to the parties involved with this assignment. 7. Empire's engagement in this assignment was not contingent upon developing or reporting predetermined results. 8. The professional fee paid to Empire for the preparation of this report is not contingent upon its conclusion, including: developing or reporting a predetermined value or direction of value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 9. No one provided significant business appraisal assistance to the persons signing this certification, unless specifically stated herein. The American Society of Appraisers has a mandatory recertification program for all of its Accredited Senior Appraisers. The senior members signing below, designated by the "ASA," arc in compliance with that program. Scott A. Nammacher, ASA, CFA Managing Director November 11, 2014 EFTA01086124 Addendum 3-1 EMPIRE VALUATION CONSULTANTS, LLC www.empireval.com 777 Canal View Blvd. Suite 200 Rochester, NY 14623 Tel: (585) 475-9260 Fax: (585) 475-9380 350 Fifth Avenue Suite 6115 New York NY 10118 Tel: (212) 714-0122 Fax: (212) 714-0124 61 South Main Street Suite 201 West Hanford, CT 06107 Tel: (860) 233-6552 Fax: (860) 521-7575 One International Place Suite 1400 Boston, MA 02110 Tel: (617) 535-7785 Fax: (617) 535-7555 1422 Euclid Avenue Suite 706 Cleveland, OH 44115 Tel: (2 6) 861-0500 Valuation Services Empire Valuation Consultants, LLC provides valuations to private equity and hedge funds, business owners, attorneys, accountants, commercial bankers, investment bankers, trust departments, insurance agents, and financial planners, among others. Empire's consultants have prepared or managed the preparation of over 20,000 appraisals for the following reasons: • Private Equity & Hedge Fund Marking• Financial and SEC Reporting • Transfer Pricing • Fairness Opinions • Solvency Opinions • Litigation Support • Buy/Sell Agreements • Redemptions • Gifting Programs • Recapitalizations • Estate Taxes • Going Private Transactions • Mergers & Acquisitions • Stock Option Plans • Blocks of Publicly • Dissenting Shareholder Suits Traded Securities • Impairment Testing • Employee Stock Ownership • Intellectual Property Plans (ESOPs) • Purchase Price Allocations Other Financial Services Litigation Support & Expert Testimony Empire can assist you with research and litigation support and its professionals are available to provide expert testimony in matters involving questions of valuation. ESOP Feasibility Studies & Preliminary Valuations Empire is available to work with our client's team of fmancial advisors or participate in independent feasibility studies and preliminary valuation reviews in connection with ESOP formation planning. EFTA01086125 Addendum 3-2 JEFFREY T. SCHULTZ Academic Degrees University of Rochester. William E. Simon Graduate School of Business Administration. Finance. 2004 B.S. Rochester Institute of Technology, College of Business, Manufacturing and Materials Management, 1996 Employment Empire Valuation Consultants. Rochester, New York Senior Valuation Associate. 2006 - Present. Ontario and Trumansburg Telephone Cos., Phelps. NY Customer Service and Sales Manager, 2004 - 2006. Rochester Gas and Electric Corp., Rochester, NY Subprocess Owner, 1980 - 2003. Experience Mr. Schultz joined Empire Valuation Consultants in 2006. bringing with him strong quantitative and financial analysis experience, as well as significant operational, managerial and consulting skills. While at Rochester Gas and Electric, he was responsible for creating and providing testimony for gas and electric rate cases. Mr. Schultz' work also involved developing detailed analysis that highlighted the costs, projected savings, and net present value for numerous technology deployments. Mr. Schultz is a former Board Member of the Wayne Central School District Board of Education. During his tenure, he acted as the Board's President, Vice President, and Chairperson for the District's Audit Committee. EFTA01086126 Addendum 3-3 DAVID J. THOMPSON, CFA Academic Degrees University of New South Wales & University of Sydney. Australian Graduate School of Management. Finance. Dean Scholarship winner, 2005 University at Buffalo, Secondary Mathematics Education, 1997 B.A. University at Buffalo, Mathematics, with distinction, magna cum laude 1994 Employment Empire Valuation Consultants. Rochester, New York Manager. 2011 - Present Senior Valuation Associate. 2008 - 2011 Valuation Associate. 2006 - 2008 Idea Connections Consulting. Inc., Rochester, New York Vice President of Operations, 2002 - 2003 and 2005 - 2006 IKON Office Solutions, Buffalo New York Senior Application Developer, 1998 - 2002 Experience David is a Chartered Financial Analyst. Since joining Empire, David has been involved in hundreds of business valuations covering a diverse array of industries. He has been involved in the valuation of various classes of equity and debt, family limited partnerships, limited liability companies, intangible assets, purchase price allocations and stock options. These valuations have been for estate and gift tax reporting, employee stock ownership plan administration, acquisitions, recapitalizations, matrimonial litigation, general corporate reporting, and SEC reporting. He has extensive experience with the valuation hedge fund and private equity fund management companies and general partners. Prior to joining Empire, David worked as Vice President of Operations at Idea Connections where he was responsible for financial analysis and projections, effective cost control, project management and assisted in the negotiations for the separation of the group from its parent company. While with IKON he developed workflow and document management applications for private companies and government agencies. EFTA01086127 Addendum 3-4 SCOTT A. NAMMACHER, ASA, CFA Academic Degrees New York University Graduate School of Business, Finance, 1985 B.S. University of Minnesota. Business. 1977 Employment Principal and Managing Director. Empire Valuation Consultants. LLC, New York, New York, 1992-Present Manager. Financial Valuations, Arthur Andersen & Co., New York. 1990-1991 ■., Marigold Capital Development. Investment Banking Div. of Marigold Enterprises. Greenwich, Connecticut, 1989-1990 Manager - Domestic Finance, PepsiCo, Inc. Purchase, New York, 1985-1989 Experience Mr. Nammacher is an Accredited Senior Appraiser (ASA) of the American Society of Appraisers and is a Chartered Financial Analyst (CFA). He has over 20 years of experience in financial consulting and business valuations. He has valued the equity, debt, warrants, NOLs, etc. of publicly and privately held businesses for acquisitions, divestitures. stock repurchases. estate and gift tax reporting. buy/sell agreements, recapitalizations. and general corporate planning purposes. Mr. Nammacher has also developed business plans and financing packages, and has been involved in completed transactions totaling over $1.5 billion. In addition, he played key roles in the successful launch of a new business publication. Mr. Nammacher has testified as an expert witness in U.S. Tax Court, U.S. Bankruptcy Court, Delaware Chancery Court and other courts and arbitration settings around the country, and published a book and several articles on "junk bonds." He also received the prestigious "Graham & Dodd Scroll Award" from the Financial Analysis Journal for outstanding financial writing relating to a cover story he co-authored. He served two terms as an elected member of the American Society of Appraisers' Business Valuation Committee, the oversight entity for the business valuation ann of the ASA. He has spoken on valuation issues around the country and has chaired an annual valuation conference in New York City for over 17 years. He co-chaired the first joint AICPA/ASA valuation conference ever presented. EFTA01086128 Addendum 4-1 LACK OF MARKETABILITY BENCHMARK STUDIES Table I Overview of Restricted Stock Studies' Study Two-Year Holding Period Studies Enclitic Pre-1990 Years Covered 0 of Transactions Mesa Discount Median Obeisant SEC. Overall Average 1966-1969 398 25.8% 24.0% SEC, Non-reporting OTC Companies 1966-1969 112 N/A 32.6% Gelman 1968-1970 89 33.0% 33.0% Trout 1968-1972 60 33.5% N/A Moroney Unknown2 146 35.5% 33.0% Maher 1969-1973 33 35.4% 33.3% Standard Research Consultants 1978-1982 28 N/A 45.0% Hemel & Smith 1980-1987 106 20.1% 13.3% Willamette Management Associates 1981-1984 33 N/A 31.2% Silber 1981-1988 69 33.8% 35.0% Studies Endine After 1990 FMV Opinions. Inc. (Pre-3/I/1997? 1980 • Feb. 1997 196 N/A 21.0% Management Planning, Inc. 1980-1995 49 27.7% 28.9% Management Planning, Inc. 1980-1996 53 27.0% 25.0% Bruce Johnson 1991-1995 72 20.0% N/A Columbia Financial Advisors, Inc. 1996-1997 23 21.0% 14.0% One-Year Holding Period Columbia Financial Advisors, Inc. 1997.1998 15 13.0% 9.0% FMV Opinions, Inc. 3/1/97.11/15/07 165 N/A 20.5% Trugman Valuation Associates. Inc. PI/07.11/15/07 46 17.9% 14.7% Six Month Holding Period Trugman Valuation Associates, Inc. 1(/16/07-I2/31/08 34 18.4% 14.4% FMV Opinions, Inc. I I/16/07-12/31/08 II N/A 15.0% ' Citations are included with the subsequent description of each study. Although the years covered in this study we likely to be 1969-1972. no specific years were given in the published account. The results of the FMV Opinions, Inc. studies for all holding periods exclude transactions with registration rights, as well as those which took place at implied premiums. EFTA01086129 Addendum 42 The restricted stock studies are divided into three primary groups: (I) studies ending before May 1997, when the required holding period under SEC' Rule 144 was two years; (2) studies ending after May 1997, when the required holding period was reduced to one year, and prior to November 15. 2007; (3) studies including transactions after November 15. 2007, when the SEC announced that the required holding period would be reduced to six months.' The first group is subdivided into two categories, before 1990 and after 1990. In 1990, the SEC adopted Rule I44A, which relaxed the SEC ruling restrictions on private transactions. The rule allows qualified institutional investors to trade unregistered securities among themselves without filing registration statements, which improved liquidity. As noted above, the rule change which reduced the Rule 144 required holding period to six months was announced by the SEC on November 15. 2007, and would take effect 60 days after its publication in the Federal Register. The rule was published in the Federal Register on December 17, 2007,° and took effect on February 15. 2008. Therefore, although the rule did not take effect until February 15. 2008. the pending rule change would have been a consideration to potential buyers after its announcement on November 15, 2007. The studies are discussed further in the following sections of this document. Institutional Investor Study:' The SEC published study #77-287 in 1971, called the "Institutional Investor Study." The Institutional Investor Study examined the amount of discount at which transactions in restricted stock, or letter stock, took place compared to the prices of identical but unrestricted stock on the open market from 1966 through 1969. The study shows that the discounts on the letter stocks were the least for New York Stock Exchange ("NYSE") listed stocks, but increased, in order, for American Stock Exchange ("ASE") listed stocks, over-the-counter (-OTC") reporting companies and OTC non-reporting companies. For OTC non- reporting companies, the largest number of restricted stock transactions fell in the 30% to 40% discount range. Slightly over 56% of the OTC non-reporting companies experienced discounts greater than 30% on the sale of their restricted stock. A little over 30% of the OTC reporting companies experienced discounts over 30%, and over 52% experienced discounts over 20%. The following table segments the data observed by the SEC according to the size of the discount. (This space intentionally left blank] Securities and Exchange Commission. ''SEC Votes to Adopt Three Rules to Improve Regulation of Smaller Businesses." vAvw.sec.eovhsevsloressr200712007-233120. ° Federal Register, Vol. 72, No. 241., pg. 71551. December 17, 2007. 7 "Discounts Involved in Purchases of Common Stock 11966-19691." Institutional Investor Snotty Report of the Securities and Exchange Commission, H.R. Doc. No. 64. Part 5, 92d Congress.. 1st Session. 1971, pp. 2444-2056. EFTA01086130 Addendum 4-3 Table II Institutional Investors Study Data Discount (Premium) Number of Transactions Percent of Study Total -15.0% to 0.0% 26 6.5% 0.1% to 10.0% 67 16.8% 10.1% to 20.0% 78 19.6% 20.1% to 30.0% 77 19.3% 30.1% to 40.0% 67 16.8% 40.1% to 50.0% 35 8.8% 50.1% to 80.0% 48 12.1% -15.0% to 80.0% (total) 398 100.0% The magnitude of he discount for restricted securities from the trading price of the unrestricted securities was generally related to the factors listed below. • Earnings: Earnings played the most significant role in determining the discounts at which these stocks were sold from the current market price. The degree of risk of an investment is determined more by earnings patterns, rather than sales patterns. • Sales: Companies with the largest sales volumes received the smallest discounts and the companies with the smallest sales volumes received the largest discounts. • Trading Market: Discounts were greatest on restricted stocks with unrestricted counterparts traded over-the-counter. followed by those with unrestricted counterparts listed on the ASE, while the discounts for those stocks with unrestricted counterparts listed on the NYSE were the smallest. Gelman Study:' Milton Gelman conducted a study analyzing the prices paid by four closed-end investment companies specializing in restricted securities investments. Based on an analysis of 89 transactions between 1968 and 1970, Gelman found both the mean and median discounts to be 33%. Almost (4)% of the transactions were at discounts of 30% or more. and over one-third were at discounts of 40% or more. Trout Study:' Robert Trout studied 60 transactions involving the purchase of restricted stock by mutual funds between 1968 and 1972. He observed a mean discount of 33.5%. Moroney Study:" In an article published in 1973. Robert Moroney presented the results of his study of the prices paid in 146 transactions for restricted securities by 10 registered investment companies. The mean discount in these transactions was 35.5%, and the median discount was 33%. Gelman, Milton. "An Economist-Financial Analyst's Approach to Valuing Stock of a Closely Held Company." Journal of Taxation. June 1972, pp. 353-354. 9 Trout, Robert It. "Estimation of the Discount Associated with the Transfer of Restricted Securities," Taxes, June 1977. pp. 381.385. EFTA01086131 Addendum 4-4 Maher Study:" In 1976, Michael Maher published the results of a study of restricted stock discounts in 33 transactions taking place from 1969 to 1973. He found that the mean discount was 35.4%. The median discount calculated to be 33.3%. Standard Research Consultants Study:" In 1983, Standard Research Consultants conducted a study of 28 private placements of common stock from October 1978 through June 1982. A median discount of 45% was observed. Hertzel & Smith:" In a 1993 article published in the Journal of Finance, Henzel & Smith analyzed a sample of 106 private placements from the 1980-1987 period with overall average and median discounts of 20.1% and 13.3%, respectively. A lower average discount was observed for registered shares. The authors theorized that the discounts observed in private placements can be explained as compensation to the investors for costs they incurred to reduce asymmetries of information. The authors performed regression analysis on the data to test their theory. They regressed the discount on a number of variables associated with increased uncertainty about Finn value, such as evidence of distress or high market-to-book ratios. Willamette Management Associates ("Willamette") Study:" Willamette Management Associates analyzed private placements of restricted stocks that occurred during the period from January I, 1981 to May 31, 1984. Most of these transactions occurred in 1983. Willamette identified 33 arm's length transactions during that period for which an unrestricted publicly traded equivalent was available. The median implied discount for the 33 transactions in this study was 31.2%. Silber Study:IS In 1991, William Silber published the results of a study of restricted stock discounts in 69 transactions taking place between 1981 and 1988. He found that the mean discount was 33.8% and median was 35%. This study found larger discounts when the size of the restricted stock block was large in proportion to the total shares outstanding. Additionally, the study indicated that firms with higher revenues, earnings and market capitalizations are associated with lower discounts. FMV Opinions, Inc. ("FMV"): FMV has produced several studies involving the sale of restricted stocks, and certain statistics related to the sale of restricted stocks during the different Rule 144 restriction periods is presented in summary in the table at the beginning of this addendum. The study published by FMV in 2007 is discussed in detail in the main body of our report. In November 2009. Lance Hall of FMV gave a teleconference presentation in connection with Business Valuation Resources'. in which he indicated that FMV's database had been updated to Moroney, Robert E. "Most Courts Overvalue Closely Held Stocks." Taxes. March 1973, pp. 144-154. " Maher, J. Michael. "Discounts for Lack of Marketability for Closely-Held Business Interests," Tates, September 1976, pp. 562.571. 11 "Revenue Ruling 77-287 Revisited." SRC Quarterly Reports, Spring 1983. pp. 1-3. " Hertzel, M, and R. Smith (1993), "Market Discounts and Shareholder Gains for Placing Equity Privately," Journal of Finance, 48, 459-485. "1 Valuing a Business The Analysis and Appraisal of Closely Held Companies (Fifth Edition), Shannon P. Pratt and Alina V. Niculita (New York: McGraw Hill: 2008). p. 425. 15 Silber, William L. "Discounts on Restricted Stock: The Impact of Illiquidity on Stock Prices," Financial Analysts Journal, July-August 1991, pp. 60-64. 16 Hall, Lance S. "Looking at the New Data in the FMV Restricted Stock Study"' and How to Use it!" November 11, 2009. EFTA01086132 Addendum 4-5 include a total of 597 arm's length transactions between 1980 and 2008. The update included the addition of more than 120 new transactions. FMV screened the 597 transactions to remove those which occurred at implied premiums or included registration rights, resulting in 372 transactions. FMV sorted the 372 transactions in a time sequence, breaking them down into three groups based on the Rule 144 required holding period. The results are presented in the following table. Table III FMV November 2009 Data — Statistics Transaction Dates Number of Transactions Volatility Median Discount Prior to 3/1/1997 196 71.2% 21.0°4 3/1:97 to 11/15/07 165 86.4% 20.5% After 11:16:07 11 72.7% 15.0% FMV also analyzed the relationship of several factors to the implied discounts. In ummary. FMV found that implied restricted stock discounts are negatively correlated with the ubject entities' market value, revenues, earnings and profit margin, dividend payout ratio. total asset book value of shareholders' equity, stock price per share trading volume, and the dollar value of the block sold. FMV found that implied restricted stock discounts are positively correlated with the ubject entities' market to book ratio and unrestricted stock price volatility, as well as the subject block size relative to trading volume, the subject block size as a percentage of shares outstanding and the level of forward-looking market volatility. Management Planning, Inc. ("MPI") Study: The MPI study was published in The Handbook of Advanced Business Valuation' in 2000. Some of its key findings, discussed below, were summarized in Business Valuation Discounts and Premiums" and Valuing a Business: The Analysis and Appraisal of Closely Held Companies (Fifth Edition).'9 MPI studied private placements for the period from January I. 1980 to December 31. 1996. MPI began with 231 transactions, excluding transactions involving the following: • Companies with sales volume under S3 million, as well as all start-up or developmental stage companies; • Companies with share prices for their publicly traded common stock below S2; Oliver, Robert P. and Meyers, Roy H. "Discounts Seen in Private Placements of Restricted Stock: The Management Planning Inc. Long-Term Study (1980-1996)," Chapter 5 in the Handbook of .4dvanced Business Valuation, Robert F. Reilly and Robed P. Schweihs. eds. (New York: McGraw-Hill. 2000). " Business Valuation Discounts and Premiums, Pratt, Shannon P. (New York: John Wiley & Sons, Inc.: 2001), pp. 102-104. 1 Valuing a Business The Analysis and Appraisal of Closely Held Companies (Fifth Edition), Pratt, Shannon P. and Niculita, Aline V. (New York: McGraw Hill: 2008). pp. 425-427. EFTA01086133 Addendum 4-6 • Companies with inadequate information about the private transaction or the company itself; • Companies that were not profitable in the year prior to the transaction; and • Transactions involving registration rights. This resulted in 53 remaining transactions, 52 of which occurred at a discount to the market price. The average implied discount was about 27% and the median implied discount was about 25%. The final screening criteria removed 27 transactions which included registration rights. These transactions had a median implied discount of 9.1% and an average implied discount of 12.8%. The median and average discounts associated with these 27 transactions relative to the median and average discounts of the 53 transactions without registration rights demonstrate the perceived value of liquidity created by the registration rights, as reflected in the lower discounts. The authors of the study analyzed several variables believed to have an impact on the magnitude of implied discounts, and concluded the following: • Private transactions of larger companies (as measured by either revenue or earnings) have lower discounts than smaller companies, on average; • Private transactions of companies with stronger growth (as measured by either revenues or earnings) have lower discounts than companies with slower growth, on average; • Private transactions of companies with better revenue or earnings stability have smaller discounts than those of companies with less stability, on average: • Private transactions that involve blocks that are relatively small, compared to trading volume or the number of shares outstanding, have lower discounts than blocks of stock that are large relative to trading volume and shares outstanding, on average: and • Private transactions occur at lower discounts in cases where the publicly traded counterpart showed more price stability than in cases where there was less price stability, on average. This study superseded a similar study completed by MPI that was first published in Mercer's Quantifying Marketability Discounts,10 which included 49 transactions between January I. 1980 and December 31. 1995. The mean and median implied discounts associated with these 49 transactions were 27.7% and 28.9%. respectively. 10 Quantifying Marketability Discounts. Mercer, Christopher Z. (Peabody Publishing, LP: 1997), Chapter 12. EFTA01086134 Addendum 4-7 Bruce Johnson Study:" Mr. Johnson conducted a restricted stock study in which he examined 72 transactions that occurred between 1991 and 1995. These transactions exhibited a median implied discount of 20%. Columbia Financial Advisors, Inc. ("CFAI") Study: 77 CFAI conducted a study of the sale of restricted securities in the U.S. in which they examined 23 private common equity placements over the period January I, 1996 through April 30. 1997. The resulting mean discount was 21% and median discount was 14%. A similar study was repeated over the period January 1997 through December 1998 in which 15 transactions were identified. The mean discount was 13% and median discount was 9%. Trugman Valuation Associates, Inc. ("TVA") Study:13 The intent of the TVA Study was to analyze implied restricted stock discounts associated with transactions that took place between January 2007 and December 2008. After a detailed screening process, TVA identified 80 transactions occurring between January I, 2007 and August 19, 2008. Notably, TVA did not find any transactions that met its search criteria between August 19. 2008 and December 31.2008, which encompasses the period of the financial market collapse in September and October 2008. Separately. Empire sorted the transactions and broke the data set into two groups: (I ) transactions that took place on or before November IS, 2007; and (2) transactions after November 15, 2007. Again, on November 15, 2007, the SEC announced the pending change in the Rule 144 required holding period from one year to six months. The statistics associated with each data set are shown in the following table. Table IV TVA Study Data - Statistics Transaction Dates Number of Transactions Mean Discount Median Discount Standard Deviation 1/1'07 - 11/15/07 46 17.9% 14.7% 14.8% 11;16/07 - 8;19;08" 34 18.4% 14.4% 16.9% Overall 80 18.1% 14.4% 15.6% TVA analyzed the data to assess the correlation between the size of the implied discount and several factors, including, but not limited to, the following: (I) volatility:2$ (2) debt ratio; (3) trading volume: (4) shares placed per average volume (i.e.. block size); (5) share tumover;26 (6) market capitalization; (7) trailing twelve month revenue; (8) total assets; (9) book value of equity; and (10) days until registration. TVA found that historical stock price volatility was the main driver in the magnitude of the implied discounts based on its regression analysis. Although TVA considered the $1 "Restricted Stock Discounts: 1991-1995 "Shannon Pratt,i Business Valuation Update (March 1999): 1.5. 71 Aschwald, Kathryn F.. "Restricted Stock Discounts Decline as Result of 1-Year Holding Period." Shannon Pratt's Business Valuation Update. May 2000. pp. 1-5. 11 Harris, William. - Trugman Valuation Associates, Inc. (TVA) Restricted Stock Study: Business Valuation Review. Volume 28. No. 3. 24 No transactions occurred between August 19, 2008 and December 31, 2008. 13 As measured by one year annualized historical daily price volatility. 26 Average volume divided by total shares outstanding. EFTA01086135 Addendum 4-8 explanatory power of most other variables to be weaker, it noted that the directional trends suggested by the correlation coefficients were consistent with expectations. In general, TVA's quartile analysis by variable suggested that: • The magnitude of implied discounts was positively correlated with measures of risk, such as volatility and debt ratios; • The magnitude of implied discounts was negatively correlated with measures of liquidity, such as trading volume and share turnover, • The magnitude of implied discounts was positively correlated with shares placed per average volume, or block size, as well as days until registration; and • The magnitude of implied discounts was negatively correlated with measures of size. including market capitalization, revenue, total assets and book value. TVA did not analyze the impact of dividend paying history on implied discounts, primarily because a significant majority of the 80 transactions involved non-dividend paying companies. Due to the extremely small number of companies in the sample which paid dividends. TVA concluded that such an analysis was unlikely to produce meaningful results. TVA also completed a holding period analysis by analyzing the impact of contractual registration rights on implied discounts. TVA indicated that a large majority of the 80 transactions in the study had registration rights. TVA performed additional research to verify the actual registration date, and calculated the number of days between the transaction date and the actual registration date. If no registration statement was filed with respect to a specific transaction, TVA assumed that the securities remained unregistered for the entire required holding period." TVA separated this data into quartiles, resulting in the statistics shown in the following table. Table V TVA Analysis of Registration Rights Quertlk Days Before Registration Avenge Discount Median Discount Standard Deviation 1 0-31 days Ilk% 10.0% 8.0% 2 32.63 days 14.3% 12.9% 11.3% 3 64.185 days 20.4% 15.9% 18.4% 4 185- days 26.9% 18.8% 18.6% TVA's registration rights analysis suggests that implied discounts are positively correlated to implied holding periods. The growth in the standard deviation for each quartile also appears to be consistent with the notion that risk increases as the required holding period grows. However, Empire noted that the exact period of time between the transaction date and the registration date may not have been known in all cases at the time the transactions took place. :7 365 days prior to the change in Rule 144 on February 15. 2008, and 182 days thereafter. EFTA01086136 Addendum 4-9 Quantitative Analysis of FMV Database A. FMV Restricted Stock Study — Quantitative Assessment In 2007, FMV Opinions updated The FMV Restricted Stock Study-n*12$ (the "2007 Discount Study"). The 2007 Discount Study, which contains 475 restricted stock transactions occurring from 1980 to 2005, provides data on approximately 50 variables for each transaction. The market reference price used to calculate the discount is the average of the highest and lowest share price for the month of the transaction. The overall average discount in the 2007 Discount Study data is 22.25%. while the median discount is 19A5%.n Several conclusions reached by the 2007 Discount Study are listed below. I. Average and median discounts do not vary significantly across industries. This conclusion is based upon an analysis of 327 underlying transactions10 by primary SIC grouping. This supports the assertion that the most important determinants of marketability are: (1) company-specific risk factors; and (2) the differential in observed discounts between small and large blocks of restricted stock. 2. Observed discounts tend to increase in periods of overall economic and financial uncertainty. 3. Observed discounts tend to be inversely related to measures of company size, including revenue, book value, market value and total assets: i.e., as these measures increase, discounts tend to decrease. Companies which tend to have larger revenues, book value, market value or total assets will tend to be more financially stable than smaller companies. suggesting a lower degree of financial risk. 4. Observed discounts tend to increase with a decrease in stock prices, particularly if the stock price drops below a threshold that would trigger de-listing. The declining stock price is perceived as a measure of increased risk. 5. The 2007 Discount Study identified the market-to-book ("MTB") ratio as a measure of balance sheet risk not tied directly to firm size. It was observed that discounts tended to increase as: (I) MTB ratios increased above the range of 1.0 times to 2.0 times, suggesting that firms having a high market value relative to their asset base are more risky; and (2) MTB ratios declined below 1.0 times, suggesting that firms with a market value below book value or limn with a negative book value are more risky. 6. Observed discounts tend to increase as stock price volatility increases. Stock price volatility is an observable measure of risk. As risk increases, discounts can be expected to increase. 3 Determining Discounts for lock of Marketability A Companion Guide to the FMY Restricted Stock Mink*" FMV Opinions, Inc., 2007. 9 The reported overall discounts are based on the full data set of 475 transactions. 1° The data in this analysis excludes transactions with registration rights and transactions in which premiums were observed, resulting in a sample size of 327 transactions. EFTA01086137 Addendum 4-10 7. Observed discounts tend to be inversely related to profitability. No clear relationship was identified between the absolute dollar value of firm profit and observed discounts. However, profitable firms (as measured by net profit margin) were observed to have lower observed discounts than firms which were not profitable. 8. Dividend-paying firms tend to have lower observed discounts than non-dividend paying firms. 9. The size of the block of restricted stock being sold impacts the expected holding period because of the limitations imposed by Rule 144 following the expiration of the initial restriction period; i.e., larger blocks of restricted stock are frequently subject to the "dribble-out" provisions of Rule 144, which limit the number of shares that can be sold in a given three-month period. As a result, the required holding period generally increases with block size. Observed discounts increase as the expected holding period increases, with holding periods expressed in terms of block size. In the valuation of interests in closely- held companies, regardless of the block size of the subject interest in the closely-held company, the transactions in the data set involving large blocks of restricted stock become most comparable because they represent the most illiquid blocks of restricted stocks being traded. The underlying data from the 2007 Discount Study can be used to estimate a discount for lack of marketability for closely-held companies. The 2007 Discount Study recommends using a two-step process in which: (I) a quantitative analysis of the company-specific risk factors results in an "as if' publicly traded restricted stock discount (the "Restricted Stock Equivalent Discount"); and (2) a second quantitative analysis is used to estimate an incremental discount above the Restricted Stock Equivalent Discount to recognize the similar illiquidity characteristics between privately-held companies and large blocks of restricted stock (the "Private Company Discount Increment"). Empire considered the results of the 2007 Discount Study to determine discounts for lack of marketability that would be reasonable to apply in valuing privately-held businesses. We then applied the two-step process described in the preceding paragraph to estimate a reasonable discount for lack of marketability to apply in valuing the subject interest. We applied the quantitative analysis described in the first step using a sample of the most liquid restricted stock transactions to estimate a Restricted Stock Equivalent Discount, limiting the sample to transactions involving block sizes of 20% or less of a firm's outstanding stock following the restricted stock transaction." We then estimated a range of Private Company Discount Increments based on the discount differential between small and large block restricted stock transactions. Because of the relatively long periods generally required to liquidate larger blocks of restricted stock following the expiration of the initial restriction period, larger blocks of restricted stock in the 2007 Discount Study data set tend to have illiquidity characteristics more similar to stock in privately-held companies (in blocks of any size), for which no market exists. Therefore, an adjustment based on the differential discounts between small and large blocks of restricted stock is appropriate to estimate a discount for lack of marketability. EFTA01086138 Addendum 4-11 B. Empire's Analysis of the 2007 Discount Study Data The 2007 Discount Study dataset included 475 transactions. Again, the discounts observed in the study data are calculated from the difference between the price for the restricted shares and the average of the highest and lowest market prices of the company's shares for the month of the transaction. Empire first reduced the sample to 438 transactions by removing 37 transactions which occurred at a premium to the average monthly price. These transactions were removed because it was considered to be highly likely that observed premiums were due to material company-specific or transaction- specific factors, as an illiquidity premium is counterintuitive and not consistent with financial theory. Empire further reduced the data set by excluding 109 transactions in which the subject block of restricted stock included registration rights. It is recognized that registration rights improve marketability, and that the shares of closely-held companies do not have such rights. This screen reduced the sample set to 329 transactions. The remaining sample of 329 transactions was separated into two groups, based on block size, using a break point between the small and large block samples of 20% of the subject firm's outstanding stock following the transaction. There were 285 transactions involving blocks of less than 20%, and 44 transactions involving blocks greater than 20%. Finally, the 285 transactions involving blocks less than 20% were sorted based on the following metrics selected by Empire: (I) revenue; (2) market value; (3) book value; (4) total assets: (5) volatility; (6) net profit margin; and (7) dividends. In selecting these metrics, several factors were considered, including, but not limited to. the following: (1 ) analysis of revenue, market value, book value, total assets and volatility produced clear trends in observed discounts across quintiles in the data set; (2) there were clear differences in median observed discounts between profitable and unprofitable firms, as measured by net profit margin; and (3) there were clear differences in median observed discounts between dividend-paying and non-dividend paying firms. Additional measures of profitability were not included in the selected metrics because the determinant of financial risk appeared to be profitability versus lack of profitability, rather than the relative magnitude of profit margins, and because this test could be applied to all firms. Empire opted not to utilize the MTB ratio as a measure of risk because it was recognized that challenges exist in interpreting the data and applying it appropriately. Recall that the 2007 Discount Study observed that discounts increased as MTB ratios increased, as well as when they declined below 1.0 times. While an MTB ratio below 1.0 times likely indicates financial distress, high MTB ratios will not necessarily be caused by balance sheet risk. For example. a service business may have very stable cash flows and a low asset base. If the market places value on the company's stable cash flows, it is likely that the company will exhibit an MTB ratio in excess of 1.0 times. As a result, one cannot assume that a high MTB ratio is a clear indicator of financial risk. The results of Empire's analysis are summarized below. Analysis of Size Metrics: Implied restricted stock discounts are inversely related to a company's size, measured as revenue, market value, book value or total assets. This is demonstrated by the trend in the median discounts for each quintile. EFTA01086139 Addendum 4-12 Analysis of Risk Metrics: Discounts are positively correlated with volatility, given that a greater lack of marketability discount would be demanded by an investor for taking on greater risk. Analysis of Profitability Metrics: Discounts are inversely related to net profit margins. Many of the companies in the data set are start-up firms which have not yet reached profitability. For the 85 companies with a net profit margin greater than 0%. the median discount was 15.4%. This compared to a median of 24.4% for companies with negative margins. Dividend Payments: Finally, discounts for dividend paying firms are less than for those not paying dividends. This result also likely reflects the fact that dividends provide shareholders with more immediate economic returns, partially mitigating the impact of illiquidity. A company's dividend history and expectations for dividends going forward should therefore be considered, as a richer payout policy provides an early form of liquidity. Analysis of Block Size Comparisons: In addition to the initial holding period requirements under Rule 144, restricted stock is subject to 'dribble out' provisions following the expiration of the holding period. This provision limits the volume of quarterly resales to the greater of: (I) one percent of the total shares outstanding; or (2) the average weekly trading volume for the four weeks preceding the sale. Therefore, a 20% block could take up to five years after the expiration of the initial required holding period to fully resell. Because of the relatively long periods generally required to liquidate larger blocks of restricted stock following the expiration of the initial restriction period, larger blocks of restricted stock in the 2007 Discount Study data set tend to have illiquidity characteristics more similar to stock in privately-held companies (in blocks of any size), for which no market exists. As described earlier, there were 44 transactions involving blocks of more than 20%. These were reviewed, and segmented further as block size increased up to 40% and greater. This additional segmentation further reflects that observed median discounts tend to increase with block size. Table VI Block Size Comparative Analysis Observations Median Discount More than 40% 4 42.6% More than 35% 5 41.9% More than 30% II 41.9% More than 25% 21 37.39E More than 20% 44 32.8% 20% or Less 285 22.0% The median discount for blocks less than 20% was 22%, while median discounts for transactions involving larger blocks ranged from 32.8% to 42.6%. These results demonstrate that larger blocks of restricted stock are more illiquid than smaller blocks of restricted stock. As noted earlier, larger blocks of restricted stock (i.e., blocks representing more than 20% of post- transaction shares outstanding) are considered to be more similar to the securities of privately-held EFTA01086140 Addendum 4-13 companies (in blocks of any size) due to the liquidity issues they face. Therefore, if a Restricted Stock Equivalent Discount is estimated based on an analysis of the subject company's financial risk characteristics relative to small blocks of restricted stock (i.e., blocks representing less than 20% of post-transaction shares outstanding), an adjustment based on the differential discounts between small and large blocks of restricted stock is appropriate to estimate a discount for lack of marketability. As discussed previously, this is referred to as the Private Company Discount Increment. C. Quantitative Analysis Based on 2007 Discount Study Based on Empire's analysis of the 2007 Discount Study data, we estimated a reasonable range of discounts for lack of marketability. In doing so, an estimated Restricted Stock Equivalent Discount was developed by comparing the subject's financial metrics to the size, risk, profitability and distribution paying metrics analyzed by Empire in the previous section. Next, a range of Private Company Discount Increments was developed based on the block size analysis described earlier. This results in an estimated range of reasonable discounts for lack of marketability for the subject interest. Restricted Stock Equivalent Discount: The seven variables which were identified and described earlier are considered in the calculation of the Restricted Stock Equivalent Discount. They include measures of size (revenue, market value, book value and total assets), volatility, net profit margin, and dividends. Private Company Discount Increment: As discussed earlier, the selection of the Restricted Stock Equivalent Discount was based upon an analysis of the subject's financial characteristics relative to the financial characteristics of transactions involving blocks of restricted stock representing less than 20% of the post-transaction shares outstanding. However, it was shown earlier that transactions involving large blocks of restricted stock (i.e., greater than 20% of the post-transaction shares outstanding) have illiquidity characteristics more in common with the equity of closely-held companies. This is because the volume limitations imposed by Rule 144 following the expiration of the initial restriction period generally prevent large blocks of restricted stock from being sold quickly; i.e., the liquidity issues associated with larger blocks of restricted stock are generally much more significant than those associated with smaller blocks of restricted stock due to the Rule 144 volume limitations. A Private Company Discount Increment was applied to the subject interest based on: (I ) an analysis of the differential discounts between large and small block transactions; and (2) an analysis of the qualitative factors impacting marketability. Results from Empire's quantitative analysis as it pertains to the subject company are summarized in the narrative of the valuation report. EFTA01086141 Appendix A-1 Apollo Entities Defined Terms for Black Family Partners LP Investments A. Apollo Operating Group Units ("AOG Units") • A signed copy of the Amended and Restated Tax Receivable Agreement by and among APO Corp.. Apollo Principal Holdings II, LP ("APH II"), Apollo Principal Holdings IV. LP ("APH IV"), Apollo Principal Holdings VI, LP ("APH VI"), Apollo Principal Holdings VIII, LP ("APH VIII"), Apollo Management Holdings ("AMH") and any other entity or persons which APO Corp acquired an interest from, dated May 6, 2013 (the "TRA"); • A signed copy of Apollo's Amended and Restated Limited Liability Company Agreement, dated July 13. 2007 (the 'Apollo Agreement'); • A signed copy of the Agreement Among Principals, dated July 13. 2007 (the "Principals Agreement'); • A signed copy of the Amended and Restated Exchange Agreement, dated May 6, 2013 (the "Exchange Agreement"); • A signed copy of the Shareholders Agreement, dated July 13, 2007, and a signed copy of the First Amendment and Joinder, dated August IS. 2009 by and among Apollo. AP Professional Holdings M, BRH Holdings M., Black Family Partners MJR Foundation LLC, Leon D. Black, Marc J. Rowan and Joshua Harris (the "Shareholder Agreement"); • A copy of BRH Holdings. •'s ("BRH") initial Exempted Limited Partnership Agreement, dated July 13. 2007 (the -BRH Agreement"); and B. Apollo Co-Invest Entities The Co-Invest Entities' are invested in funds affiliated with Apollo. • Apollo Co-Investors III. LLC ("ACIII") • Apollo Co-Investors IV, LLC ("ACIV") • Apollo Co-Investors V. LLC ("ACV") • Apollo Co-Investors VI (A), LLC (- ACVI-)2 ' Collectively, ACIII, ACIV, ACV, ACVI, AVC, ASC and Fa II are referred to as the "Co-Invest Entities." ACVI is formerly known as Apollo Co-Investors VI, LLC EFTA01086142 Appendix A-2 Apollo Entities Defined Terms for Black Family Partners LP Investments • Apollo VIF Co-Investors, LLC ("AVC")3 • Apollo SOMA Co-Investors, LLC ("ASC") • FCI Co-Investors II (A), ■. ("FCI II") • AP Technology Partners LLC ("APTP") • AP SHL Investors LLC ("APSHL") C. Investments Not related to Apollo • Anchorage Capital Partners ("ACP") • Canyon Value Realization Fund ("CVRF") • King Street Capital ("KSC") • Lone Cascade, LP ("LC") • Millennium Group USA ("MG") • HAO Capital Fund II. LP ("HAO") • Sustainable Woodlands Fund II, LP ("SWF") • Wolfensohn Capital Partners, LP ("WCP") • Northgate Holdings Fund I, LP ("NHF") • iCrete LLC ("iCrete") • Truckast LLC ("Truckast") • Knowledge Universe Education, LP ("KUE") • Environmental Solutions Worldwide ("ESWW") • Rally Labs, LLC ("Rally") • T-INK, Inc. ("T-INK) AVC is formerly known as Apollo DIF Co-Investors, LLC. EFTA01086143 EXHIBIT A COMPARATIVE INCOME STATEMENTS BLACK FAMILY PARTNERS, LP FOR THE YEARS ENDED DECEMBER 31, HISTORY 2009 HISTORY 2010 HISTORY 2011 HISTORY 2012 Interest Income 39.886,173 39,559,148 33,249,458 50,219,778 Dividends 1,627,995 2,276,840 7,417,671 27,525,302 Portfolio Income 3.058,819 3.403,283 4,774.754 10.060,768 Passthrough Income 0 0 2,119.898 133,861 Net Short-Tenn Capital Gain (Loss) 6.554,802 20,437,720 6,212,510 4,584,881 Net Long-Term Capital Gain (Loss) (17,836.001) 20,885,007 70,875.303 219,985.333 TOTAL REVENUES 33.291.788 86.561.998 124,849.394 312.509,923 Depredation (1,453) 5.488 0 5 Deductions Related to Portfolio Income 6,373.106 8.880.968 8.173.457 10.634.735 Charitable Contributions 120.372 181 108,728 1,722 Travel and Entertainment 524,956 0 7.642 473,595 Total Operating Expenses 7,016.983 8,886.637 8.289,827 11.110,057 NET OPERATING INCOME 26,274,805 77,675,361 118.359.567 301,399,866 Ordinary Income from Partnerships 21.603.971 (1.161.368) 14,762,810 52,580.261 imerest Expense (17,102,172) (5.657.423) (20,509,986) (24.876.987) Real Estate Income 327 4,249 5.455 17.113 Amortization Expenditures 0 (919.361) (919,833) (734.176) Foreign Taxes (1.165.147) (66.945) (930.893) (1.028.670) Total Other Income (Expense) 3,336,979 (7.800,848) (7.592,447) 25.957,541 PRE-TAX INCOME 29.611.784 69.874,513 108.767.120 327,357,407 Provision (Benefit) for Taxes 0 0 0 0 NET INCOME 29.611,784 69,874,513 108,767,120 327.357,407 Fmanoal Statements comphs0 using Me reconis Pt Rath Eng, MS 4 Co UP and we press on a non-GAAP bass EFTA01086144 EXHIBIT B COMPARATIVE BALANCE SHEETS BLACK FAMILY PARTNERS, LP FOR THE YEARS ENDED DECEMBER 31, ASSETS HISTORY 2009 HISTORY 2010 HISTORY 2011 HISTORY 2012 33,820,889 56.286.395 13,289,724 18,748.910 62.496 0 0 0 964,895.987 987.923,724 965.786.061 1.139.271.686 Total Current Assets 998.779.372 1,044,210.119 979,075,785 1,158,020.596 Loans Receivable 45,000,000 0 75.000,000 136,000,000 Due To/From LBF Holdings 280.983.533 0 0 0 Apollo Investment Corp Sloe..., 0 8.319,017 8.318,966 8,319.017 Other Assets 0 0 0 5,081.091 Total Other Assets 325,983,533 8.319.017 83.318.986 149.400,108 TOTAL ASSETS 1,324,762,905 1,052,529,136 1,062,394,751 1,307,420,704 LIABILITIES & PARTNERS' CAPITAL TOTAL LIABILITIES 0 0 0 78,200 Partners' Capital Accounts 1.324.762,905 1,052,529,136 1.062.394.751 1,307,342.504 Total Pachuca' Capital 1.324.762,905 1,052,529,136 1.062,394,751 1,307,342.504 TOTAL LIABILITIES & PARTNERS' CAPITAL 1,324,762.905 1,052,529,136 1.062.394.751 1,307.420,704 Financoi Sustennenrs c,cinpadd using the moons of Retie Enda Malice S Co LLP and are presented on I non-GMP basis EFTA01086145 EXHIBIT C COMPARATIVE CASH FLOW STATEMENTS BLACK FAMILY PARTNERS, LP FOR THE YEARS ENDED DECEMBER 31, CASH FLOW FROM OPERATING ACTIVITIES HISTORY 2010 HISTORY 2011 HISTORY 2012 Net Income 69.874,513 108.767,120 327,357,407 Adjustments to reconcile Net Income to Net Cash Provided from Operating Activities Depreciation 5.488 0 5 (Inc.) Dec in Accrued Interest 62 ,496 0 0 (Inc.) Dec in Loans Receivable 45.000,000 (75.000.000) (61.000,000) (Inc ) Dec. in Other Assets 0 0 (5,081,091) Inc (Dec ) in TOTAL LIABILITIES 0 0 78,200 Net Cash Provided By (Used In) Operating Activities 114.942,497 33,767,120 261,354.521 CASH FLOW FROM INVESTING ACTIVITIES Capital Expenditures (5.488) 0 (5) Investments (23.027.737) 22.137,663 (173.485.625) Apollo Investment Corp Stocks (8.319.017) 51 (51) Due To/From LBF Holdings. LLC 280.983.533 0 0 Net Cash Provided By (Used In) Investing Activities 249,631,291 22,131,714 (173.485.681) CASH FLOW FROM FINANCING ACTIVITIES Contnbutions 0 93.466,375 0 Distnbutions (342.109.052) (192,367,880) (82,409,654) Prior Year Adjustment 770 0 0 Net Cash Provided By (Used In) Financing Activities (342,108.282) (98,901,505) (82,409.654) NET INCREASE (DECREASE) IN CASH 22.465.506 (42,996,671) 5.459,186 Beginning Cash 33,820,889 56,286,395 13,289,724 Ending Cash 56.286.395 13.289,724 18,748.910 Faunas, Statements compiled using me records ot Pact, Endo. Metter d Co UP and WO presented on a non-GAAP baps EFTA01086146 UNIIIT 0 CALCULATION OF NET ASSET VALUE : E I FAMILY PARTNERS, LP ANFI0 C...6 gorigtol• losioden ant., Attes10 Cogge gown% 6 gag gaol %ma JO goo. Iloolege Angst • Can JP gyp Iketnew AD:cog • ANN or. gown Cop i Tap AiNs0 JO Wow. StootoNve Novae Effivenggi %Neon WEN fray ESPY° JP pstp... voyage Ammo • AP Alseng.• Avg t P (Tam AM msot.t00%) Gil At it.., LPN Apo% Fps hers pop as 40essi• 6.pg Dog gag) APO%) Co P. gm m, .LC Iooft Co ,e.tsion N SIC Ogg Celasosaws V SIC MONT ACC1600 /*LOIN ADJUSTMENTS IlOgiglIg Agit 94% 410 M 1.04.143 "••••• it-3 Ego0142 $241064112 111124AM $622443 MOAN 1106420 S2,311271 3313177 $43 414 SSINS sc 10 SC 1054 MC 10 10 SO 004 4141 (107344$I IN 004136 SI %NISI 11224.436 1112109 $114.426 12 371 271 SI ISO 977 $405 000 SI 920 NO 09% 01% 02% 00% 00M 01% Os% 00% 0I% N044 Cowngsps N W LLC 1143.01.3 669160291 PIO 150 /10000.010 I I% 16.6-Apol. Fluid lee b0/.. Volga togs 0Ing Igge%) MAO gig OW II LP 11 Owl* 11.3 1)041.710 al 011.1.6i 12.400.01) 01% Poiling. Waging Pug I. 13) f..100440444 $1127' 01 1$4711011 117540.003 004 Pthgresstoi CANS Pogo* LP 11.1•SiglIE4 MONA* ISMILSSOI III.710.030 01% Ng. %Egg Ogg LP goal QOM Ogg Egg Ogg psil 0 ore in.r.onsto I VI Ogg $4 O4µ.160 1154.1601 UPON 00% APO* SNAG gollgolen 13C VIINOPP Oo 12130.940 IMO 0401 1.170,000 11% Nig VlO Cog get LLC VI Ogg 04 17111924 (1941 9241 17.103.000 01% Ib Cogrestros • IN. GP AD T.On0.S. Pegg. P.1 WM% 2, 1111.113.340 (14 6141101 )ures= 04% time F-) $13.10 113.4031 110 000 00% I AD St% %Naos 1.1 any. 7 1 140064 11111041 129100 00% LLC ItedIpelloggel NEMO /0044 11400/ Ise.. pen. von).. 6W Nog VP GNP) logng AI ••••4.1.3 111441101 ISM Ali 11.040600 04% Cargo VON ISignI030 F.ne F1114.10) 116.140103 111110103, 1112.0.009 ow Kg WM Corgi 4.1 0404414-3 WI Mt 1$101.04.1 1004 000 00% Low Cskade . LP 0.1 040474 131074131 11700411 10411000/ I 3% AllsoalonCegp USA F.I eve. 7-5 123 347 120 1394712% 112.2000) 0a% MI MOON. IA 00044.2 omit' Ng Ogg. CNN uovla SI 913 660230 0777000216) SI NO COO 000 261% Sp ItaNgt40AINNVE OPA) SO 17/0000109 IMAM COO 61% Tr Raga.. Apse.. Jo% NOT iNgnIpsa wnlrg 13.5 SO 1102.000.000 1140.000 OW )6% %NUN MC Only NCI 11221079 11421.7771 130101 ay% meow.. wee. Eagan LP 1141/» AI 970 41121 12)1121111 01% KITE Manappaoal by 131 314 07.671) 104036 00% ISM/ Canweink, Nan 0411114 (164).111•1 12621 MI 01% Igs log SSC $166011 001/01) 1122210 00% PIK Pc 100 .003 (133001) MS 002 00% Pna4tn Peg M georriSlon Po. own Nov D goi 14517111 0,0 U32291)1 11% Cu* gm both Fogy IN? Pup 31101 SO $4I 144 021 0)% Pm loom PLO RC 13203140 $0 1//01940 01% Psi 6.en %snow nogg 1261441” le la 041170 01% W. hotAP N No009.%).11 17474604 Se V 474111 0)% ove *OM Sin 0410000 LP 12 479 944 10 12 414 914 01% C.G. hem LOS Istgle ttC 62 )06 )09 SG SI NO SCI9 01% Out nom Prep. Cog. la 0414 01 10 14174104 0)% C.• en Send CNN. 190) PO $0 1107041 ca TOTAL ASSESS 1)264 Urns 4441 412 I 7th 12.111.030n4 Yelinklehani/ASSAMAL IOTA. 4AYOIt$ 4µ4P Moss GI LP <OP Cart CM.600 Lagos 14 770 514 10 S4 72011 PAWNERS* GAVIAL 0279 irt of NISI NI ?I, 12 PS, 309 610 TOTAL LIAIIIUTO 4 CAMAJ. 3 &I 4 I I .4PV*0 Iforft 12 711 )09 6)0 PI0 Pots AM/Y gag. Piton. :Ogg $76 35.9 933 Congeol 1304,,04 N• tan 44 C4,100. c4 Mioneareg NO% OM gig vog Os 7 Ogg Law Pintsge lotamo 71500514/ RS Ole Limbed Pase4400 moms M1PO44 $41.204147 gag Vag 06114S F S EFTA01086147 EXHIBIT E-1 PRIVATE EQUITY INVESTMENTS - CAPITAL ACCOUNT ANALYSIS BLACK FAMILY PARTNERS, LP AS OF MARCH 3. 2014 Fund Name Total Capital Commitment Total Capital Contributed Distributions Since inception % of Capital Called (1) Capital Account Balance (2) M. Investment Positions 1 Apollo Co-Investors III, LLC $39,778,654 $47,578,702 $68,340,059 120% $2,150,877 2 Apollo Co-Investors IV, LLC $26,099,000 $26,816.435 $42,865,434 103% $539,414 3 Apollo Co-Investors V, LLC $23,647,681 $34,648,327 $68,095,515 147% $3,893,465 4 Apollo Co-Investors VI (A), LLC $45.503255 $62,201,846 $57,088,168 137% $40,649,393 5 HAO Capital Fund II LP $6.000,000 $4,980,000 $1,395,142 83% $3,541,795 6 Sustainable Woodlands Fund Ii. LP $20.000,000 $20.000,000 $2,113,491 100% $19,371,092 7 Wolfensohn Capital Partners LP $5,000,000 $4,758,909 $1,544,463 95% $2,688,750 8 Tenfore Holdings Fund I, LP $1,500,000 $294,134 $21,633 20% $446,590 Total Capital Account Balance $73,281,376 (1) Certain distributions were recallable. albsving for called amounts greater than 100% (2) The most recent quarterly capital account balance was actusted to reflect contributions and distributions after the statement date and as of the Valuation Date EFTA01086148 Cimert PRIVATE EQUITY INVESTMENTS • RISK ANALYSIS BLACK FAMILY PARTNERS. LP AS OF MARCH 3 2014 V te 19/2014 Dist•Vpaod Tow 486/%00 tapecOod IS) (%) CPO NM Contnktval 84unmen• yon Plmaty CNN of Rem.wavig Remain," a• • % Hump% o4 Funel INN Tommnalen Pesubl* Remarung LArcycl• Invounime Growth CHIN 4041 Connt.0•0 ContAPAN Pne•rrod Can144 On* On 'Meal in Teem SUN MI %wan (I in WIN Commera1(3) Nennianywn Cepa& (4) Cap/u1 151 Roturn % InIereet % 1080001001lon• I Apollo 09104•101111.1LC Y1712005 WM 000 KAI Acc IN 106 915 154% 1456% I5 00% 00% 2 AVON COPNI4Ors 1V LLC 91302010 108 100 Nill 000 1127.203 05% i 59 II% 15 00% 00% 3 Apo., Ce•InvePon VI MX 4/302012 NM 200 CM ACV 5407.017 66% IN 5% 21 00% 00% 4 003)C.Invesiors (A) LLC 1/1212015 500 166 KM 00 11974149 39% 910% 16 00% 00% 5 IMO CopYi und 1119 12N2015 500 175 VON APP 61.050.000 170% 200% 10 50% 500% 13•00989% VANdands 9..01 LP 110016 400 416 VC/11 APO SO 00% NMI 11 60% 150% Wollereohn C0481Pannon LP 2/23/2019 500 495 VCAI A00 5794.403 159% 32 6% 09 80% 200% 74.4or•110003 rune t LP 4/10023 500 900 VON 00 61227.490 61 6% 74% 16 00% 20 0% 0) inveslmor4 Stage. NM * Value C000•040‘841 MAN 121 FOr • Fuld d Funes. 0 • 0.01 13) 1nclude n%9016 deintan (4) (D, t440 CNN <5.091bv (CAPP. COP09,00•11 (5) (Cnt100 Cash • CamlatAmatit 9419•01 °rood 0 ICAptar Convevla141 EFTA01086149 EXHIBIT E-3 PRIVATE EQUITY INVESTMENTS - SUMMARY OF FAIR MARKET VALUES BLACK FAMILY PARTNERS, LP AS OF MARCH 3, 2014 Fund Name Selected Restriction Period Discount Capital Account Balance Less: Selected Restriction Period Discount Estimated Fair Market Value M. Investment Positions 1 Apollo Co-Investors III, LLC 0% $2.150,877 $0 $2,150,877 2 Apollo Co-Investors IV, LLC 25% $539,414 ($134,854) $405,000 3 Apollo Co-Investors V. LLC 25% $3.893,465 ($973.366) $2,920,000 4 Apollo Co-Investors VI (A), LLC 25% $40.649,393 ($10,162,348) $30,490,000 5 HAO Capital Fund II LP 30% $3.541.795 ($1,062,539) $2,480,000 6 Sustainable Woodlands Fund II, LP 35% $19,371,092 ($6,779,882) $12,590,000 7 Wolfensohn Capital Partners LP 35% $2.688.750 ($941,063) $1,750,000 8 Tenfore Holdings Fund I, LP 35% $446.590 ($156.307) $290,000 Total Fair Market Value of Private Equity Interests $53,075,877 EFTA01086150 EXHIBIT F-1 CAPITAL MARKET/HEDGE FUNDS - CAPITAL ACCOUNT SUMMARY BLACK FAMILY PARTNERS, LP AS OF MARCH 3. 2014 Valuation Date 3/3/2014 Capital Unrestricted Account Sidepocket Capital Fund Name Balance Amount Amount Apollo SOMA Co-Investors, LLC $2,939.940 $136.595 $2.803,345 Apollo VIF Co-Investors, LLC $7,989.924 $80,720 $7,909,204 FCI Co-Investors II (A), LP $16.115.560 $16,115,560 $0 AP Technology Partners, $13,863 $13,863 $0 AP SHL Investors, LLC $40,864 $40,864 $0 Anchorage Capital Partners $16,541,691 $0 $16.541,691 Canyon Value Realization Fund $18,160,603 $0 $18,160,603 King Street Capital $971,848 $971,848 $0 Lone Cascade, LP $35,074,951 $0 $35,074.951 Millennium Group USA $23,567,120 $0 $23,567,120 Total $121,416,364 $17,359,450 $104,056,914 EFTA01086151 EIMBIT F.3 CAPITAL MARKET/HEDGE FUNDS - UNRESTRICTED CAPITAL ANALYSIS BLACK FAMILY PARTNERS, LP Capital Account Balance at Velum°, Date (unrestricted) Earliest Withdrawal Oate Aalailo SOYA Co- ApelO VIE CO. Andreae Copied Canyon Value tillesieluen Owe meows. LLC zawalon, LLC Fares Realization Pend Lane Caeca LP USA 52103.345 57.908204 516.541.691 516,160803 535.074851 523.567120 3131/2014 3/31/2014 6/30,2014 12/31/2014 6/30/2014 8/30/2014 PUT OPTION ANALYSIS INPUT VARIABLES Unrestncted Capital Balance Most Recent Avaaable) 52.803.345 57838204 518541891 $18180.803 535.074.951 523.567./20 Exercise Price 52803.345 57.908204 516.541.691 518,160803 535,074,951 523.567.120 Term (years) 008 008 033 083 033 0.33 Volabley 1350% 1350% 7.50% 750% 1500% 5.00% Annual Rats of Ouarterty Dividends 000% 0.00% 0.00% 000% 000% 000% Continuously Compounded Rile Free Rate 004% 004% 005% 0.10% 0.05% 005% Put Option Value $41.771 5117.850 $281,214 $487.285 51,195.148 3268.472 Discount Implied by Slat Schdes Model 149% 149% 170% 268% 341% 1.13% Plus Adjustment for Otter Factors 025% 025% 050% 1.00% 0.50% 0.50% Estimated Discount Based on Put Analysis 170% 170% 220% 3.70% 390% 160% RESTRICTED STOCK STUDY • ClUALATATIVE ANALYSIS Estimated Disown Based cm Qualitative Analyhs 100% I 00% 6 00% 700% 600% 800% HOLDING PERIOD SUMMARY ANALYSIS Selected Liquidity Discount for Holding Period 1.0% 1.0% 4.0% 6,0% SO% 4.0% Note The term for Apollo SOMA Co-Investors. LLC and Avoid VIF Co-Investors. LLC assumes weer/nal at tie end of the Current month The agreement provision for Apollo SOMA Coinvestors. LLC replan 90 days notice for wextrawats that we reed annually on the anniversary dale (March 1st) of the investment The agreement provisions for Acerb VIF Co-Investors. LLC repute 65 den notice for withdrawals thel are pemeted at the end of each calendar quart EFTA01086152 EXHIBIT F.3 CAPITAL MARKET/HEDGE FUNDS HOLDING PERIOD DISCOUNT SUMMARY BLACK FAMILY PARTNERS, LP AS OF MARCH 3. 2014 Voltaic.) Dale 3r4c20 14 Sawdust Primary Trot* Unrestricted Loss. Balance. less Lock-up Unrestricted Less: Salome, In. Lock-up Elalinc%1944 Lock," Period Olscount Sclepocket Capital Sidepocket Lock.up Period Period OftwouM Capital Lock-up Period Poclocl Discount Fund Name Discount % Discoom % Amount OtscouM 011 Amount Oiscount (B) Value (n) Asollo SOMA Co-Invetlion. LLC 30% 1.00% $136.595 1$40.979) $95.617 $5803.345 429.033) $2,175312 52370.000 Apollo VW Colnwslon.l.AC 30% 100% 160720 1124.216) $56.504 $7.909204 ($79.092) $7.830.112 UAW= FC1Co.Inves9xs 0 1A). LP AP Technokcy Palms.. 30% 0.00% $16415.560 (14.834.660) 511.290392 $0 $0 $0 111280.000 30% 000% $13.883 ($4.169) 59.704 SO SO W $10.030 AP Slit Invasion. LLC 30% 000% 140.8e4 ($12.259) 129.605 $O $0 $0 $29.000 Mc001.040 C40441 Partner 0% 400% 50 so so $tekssiew (swop $15.860.023 $15.800.003 Cavan VNuti ReNirmion Find 0% 500% SO SO 10 118.160.903 (*020.030) $17,252,573 517250300 King Sleet Canal 30% 000% $971 848 ($291.5541 5690.294 SO SO 50 5680.003 Lone Cascada. LP 0% 500% $O $0 $0 $35074.951 41.753.748) $33.321203 133.320.000 Malenrium Group USA 0% • CO% $0 SO $0 123.567.120 15142085) $22.824.435 $22520300 Total Fair Wicket Value 01 Capital Market Fund Invesmoims 3111355300 EFTA01086153 EXHIBIT 61 APOLLO OPERATING GROUP UNITS FLA K FAMILY PARTNERS, LP Std. 21 Annual Penni al A00 Units SMOC1 IQ 144 VOW'S Reatard) ZOO Mt 2011 Zeit 3017 AOG Unid 10 be delivered 6.954.537 6.954.537 6.954.537 6.054,537 84,909.016 Pen:ore of neat Mc* delivered 75% 75% 75% 75% 70.0% Share Price al Valuation Dote $31 47 $31 47 331 47 $3147 $31 47 Regatta Value of Delivered Shares 3218.824,521 3218,824,521 3218,824 521 3218 824,521 $2,042,362,195 Aggregate AOG Units. Unrestncted Value 32.917.660,278 INPUT Vitiate-3 Unrestricted Black Value 9218.824,521 $218.024.521 3218.1)24.521 $218,824,521 12.042.382.195 Exercise PM* 3218,824521 9218.824 52i $218.824.521 9218.824.521 92.042,362,195 Estimated Tenn (yews) 058 058 1.33 233 358 Validity 3500% 35 03% 40 00% 40.00% 4000% Annual Rate of Ouarterty Dividends 000% 0 00% 0.00% 0.00% 0.00% Continuously Compounded Risk Free Rate 008% 0 08% 022% 049% 1.06% Discount Implied by Black Scheibe Model 1056% 1056% 1804% 2328% 27.12% Plus. Adarstment for Other Foams 200% 200% 2.50% 3.00% 3.50% Estimate) Duo:aunt Based on Put Analysis 1280% 12.60% 2050% 26.30% 30.80% Selected Liquidity Discount for Lockup Period 1260% 12.60% 20.60% 26.30% 30.10% AOG Units, Unrestricted Value 3218.824.521 3218.824.521 3218,824,521 3218.824.521 92.042.382.195 Less. Restriction Period Discount (327,571,890) (527,571,890) (344,859,027) ($57,550,849) (3624.982,832) AOG Units, Estimated Resinchon Adarsted Value 3191.252.631 3191.252,631 3173.965.494 3161.273.672 $1417,399,363 Aggregate AOG Units, Esbmaled Restriction Adjulled Value 12.135.143.792 Aggregate Units. Estimated Restriction Misled Value. 92.140.000,000 AOG rowdy) EFTA01086154 EXHIBIT G-2 APOLLO GLOBAL MANAGEMENT, LLC - VOLATILITY BLACK FAMILY PARTNERS, LP AS OF MARCH 3.2014 Company Ticker I 1 yr. 2 yr. 3 yr. s yr. I IMPLIED VOLATILITY I Ocit.bff Camel Management O2M 280% 313% 35.1% 390% 325% Blackstone BX 27 5% 29 ex 37 3% 45.7% 299% Fortress Investment Group LLC FIG 34 4% 36 7% 42.9% 65 5% 37.3% Kohlberg Kravis Roberts IS Co KKR 23 6% 25.2% 35.5% ilia 253% Apollo Global Management APO 34 2% 33.0% 39.7% Na 326% The Carlyle Group CG 268% 27.1% Ws Na 322% Oaktree Capital Group, LLC OAK 15 3% 234% Na Na 21 7% Mean 27 1% 29 5% 381% 50 1% 302% Median 27 5% 298% 37 3% 457% 32.2% Mn 15 3% 23 4% 351% 390% 21 7% Max 34 4% 367% 42 9% 655% 37.3% &Hatted Volatility for Apollo Global Management, LLC Periods > 1 yr. 40.0% Periods < 1 yr. 35.0% 'Vo'ataly Oats from Me Noomberg Networt AVE. Pet Ape%) (iletiN Management LLC's 2/31/2013 'NV management et coned *email vciato.ry et 45% EFTA01086155 EXHIBIT G4 APOLLO OPERATING GROUP - TAX RECEIVABLE AGREEMENT BLACK FAMILY PARTNERS, LP AS OF MARCH 3, 2014 Number of Shares Pnce per Share 92.727.166 $31.47 Value of Block $2.917.660,278 Value Attributable to APO Corp 69.99% $2,042.070,429 Annual Amortization (15 yr ) $138,138,029 Effective Tax Rate (Per Management) 4035% Discount Rale 13% (Smilb0.15) Year TRA Amortization TRA Tax Shield Days PV Factor Present Value of TRA Tax Benefit 1 5136.136.029 554,931,695 365 088 $48.612,119 2 $136.138.029 $54.931.695 731 078 $43,005,172 3 $136,138,029 $54,931,695 1,096 069 538.057,674 4 5136.138.029 554.931.695 1,461 061 $33,679,358 5 $136,138,029 554,931.695 1.826 054 $29,804,741 6 $136,138,029 554.931,695 2,192 048 526.367.047 7 $136,138,029 554.931.695 2,557 042 523.333.670 8 $138,138,029 $54.931.695 2,922 038 520.649.265 9 $136,138,029 554.931.695 3,287 033 518.273.686 10 5136,138.029 $54,931,695 3,653 029 516.165,990 11 $136.138.029 554.931.695 4,018 026 514.306.186 12 $136.138,029 $54.931.695 4.383 023 512.660.341 13 $136,138.029 554.931.695 4,748 020 511.203.842 14 $136,138.029 554.931.695 5.114 018 $9,911585 15 $136.138.029 554,931,695 5.479 016 $8,771,314 $354.801.991 Aggregate Present Value of TRA Tax Benefit rounded $354.800.030 TRA Tax Benefit Sharing Percentage 85% Net Unrestricted TRA Tax Benefit Available to Block $301.580,000 Less Restriction Period Discount (from Exhibit G-4) 25% (575.395.000) Net Fear Market Value of TRA Tax Benefit Available to BlocA. rounded $226,003.000 EFTA01086156 EXHIBIT G-4 APOLLO OPERATING GROUP UNITS BLACK FAMILY PARTNERS, LP AS OF MARCH 3. 2014 Estimated Restricted TRA Value $301,580,000 Weighted Average Restriction Period (yrs.) 2.9 INPUT VARIABLES Unrestricted Block Value $301,580,000 Exercise Price $301,580,000 Estimated Term (years) 2.9 Volatility 40.00% Annual Rate of Quarterly Dividends 0.00% Continuously Compounded Risk Free Rate 0.66% Put Option Value $76,425,778 Discount Implied by Black Scholes Model 25.34% Selected Restriction Period Discount for TRA Value 25% EFTA01086157 EXHIBIT G.E. APOLLO OPERATING GROUP - TAX RECEIVABLE AGREEMENT BLACK FAMILY PARTNERS, LP AS OF MARCH 3. 2014 Effective Entity Ownership of Existing TRA Discount Rate" 'Mellon} Payment for Fiscal Year* 41.68% 10% Effective Entity Aggregate Existing Ownership of Existing TRA Payments* Entity Pro Rata Share Days PV Factor Present Value of IRA Tax Benefit 2013 529.631261 44 05% 513.053.998 NIA 1.00 513.053.998 2014 528.763.115 41.68% $11.987.935 303 0.92 511.075.996 2015 $31.278.125 41 68% $13.035.311 668 0.84 510.948,815 2016 531.750.169 4168% S13.232.884 1,034 0.76 510.101.692 2017 $33.385.565 41 68% 513.914.495 1.399 0.69 $9,656,381 2018 535.444.666 41 68% 514.772,682 1.764 0 63 $9,319.950 2019 538.038.627 41 68% $15.853.797 2.129 0.57 $9.092.742 2020 $41.614,271 41 68% 517.344.059 2.495 0.52 59.040.787 2021 547.707.862 41 68% 519.883.758 2.880 0.47 59,422,393 2022 537.731.640 41 66% 515,725,851 3225 043 56.774,610 2023 512.965.663 41.88% 55.403.849 3.590 0.39 52.116.317 2024 54.455.370 4168% 51.856.916 3.956 0.38 5660.942 2025 51,530.992 4188% 5638.089 4.321 032 $206,471 2026 5528.092 41.68% 5219,265 4.686 0.29 564.499 2027 $180.780 41.68% 575.346 5.051 0 27 $20.149 2028 562.121 41.68% 525.891 5.417 0.24 58.293 2029 521.347 41.68% 58.897 5.782 0.22 51.966 2030 57.335 41 68% 53.057 6.147 0.20 $614 5375.093.021 $157.036.078 5101.564,615 Concluded Pro Rata Present Value of Existing TM Benefit dividends $102,000,000 Projected IRA netted arnorerefron Per based on MiltWOONWI3 OnveCtiOns Rd nki s85% of no• mead On won Bases 0 thfrtneetv p N* yi COfpOia bond rigds (913 said is 6 5%.s ot Me VehrebOo Oahe. 01 Ape* °prang Gioia cog of soak 440 (4) asset weak Ask Axton CmtnOoton o TRA Deeded recent by Bleck Ferree Partners by Ape 15 of me Sannuent yaw E g Facer 2013 cfroolimcl rW be fece•ed by Ao-1 is. 2014 2013 .meta porno: Me a neet e • pomontage sham OMR Mn MA Oerrrtery memoOtefron o °Mee ndedustt .rd snows EFTA01086158 EXHIBIT /1.1 BETA CALCULATION APOLLO GLOBAL MANAGEMENT, LLC AS OF MARCH 3.2010 Pew Group Dna as of Company Name Ocixal CapiW Manor! Madmen ratans VA.Siete Group LLC Pact Global Manaprimant LLC Kelton Kravis Retorts 8 Co The Cary° Group. IP Oaltirt. CABS Grow. LLC Armee Mellen VS2014 Symbol Beta' R• Share Prke Sham Outstanding (MM) MV of Equity OMNI LT Debt (1MM) Preferred ISMIAI PAM (1MM) Tex Rate- Debt/Equill/ OZM 131 389% 51384 471526 $6.5259 $355 I 500 $6911 I 450% 59% EX 165 507% $3268 1.131612 538.981 I 51.6643 S00 538845 4 450% 45% FIG 2.22 437% 58 51 430 679 53.6661 500 S00 53.6661 38.5% 00% APO 135 351% $3190 KM HD 512.127.8 5750 0 100 512.6778 41.0% 62% KKR 140 454% 52365 700 104 516.5575 5993 1 500 $17.5505 390% 60% CG 085 99% 53550 326 257 $11.5821 59406 S00 512.5227 40.0% 81% OAK 092 176% $6124 151 057 59.2507 5579 5 S00 598302 390% 6.3% 1.39 345% 513/8129 5768..9 $0.0 514.571.8 41.1% 1.35 MAI% $11242.1 peo.o $0.0 $12,522.7 40.0% 6.0% Unlereted Beta Calculation*" Bu • BW(I•((14KOEED) up% We. lax rata and me *visits deb' to equity ratio me reported Was an AM untreated below and Mel Severed xi the calculaMn b the NH 0thal Capt. Minorment Moslem Fortress Woodmen Group DX APHo Gabel Management. LLC Keiser') Krme Roberts & Co The Cable Grow. LP °Mame Capital Group.U.0 1 27 61 222 130 1 35 N/A NIA Overall Average Oman Median Selected • • 1 56 1 35 1.48 Relenned Both CalCulatiOn B • 41•((I.IXOIED) Bu • 140 DIE • 6.2% • 404% B • 1.45 induary DtbUTOIAI Capital Cakotatkns DebUTnal My Capital 58% Ematyff dal Mv Capital 94 2% Tea Rate Calculation Combined Tax Reit 4035% Inn Llbeseee Moans -rn nes *feat an SX n Os net SEC dr'g an nate., wl clatiren owe peed **NI* mann% canbre.te. ••• Mr. Cs• ••••••• • aing•*•0• 040 4994 d IcaP sou. Mean* •••uullestralkej dab lot Munn/ CO STIONI tae catul•nont EFTA01086159 EXHIBIT H-2 CAPM SUMMARY APOLLO GLOBAL MANAGEMENT, LLC AS OF MARCH 3. 2014 The cost of equity capital using the Capital Asset Pricing Model (CAPM) is as follows Re • Rf xi Rm-Rf Rsm Where: Rf = Return on a risk-free asset Beta - a measure of the systematic risk of the firm compared to the risk of an investment in a fully diversified stock market portfolio Rm Rf = The market risk premium defined as the expected return required for investing in a fully diversified portfolio (Rm) less the risk-free rate (Rf) Rsm = Small stock premium We then calculated the Re as follows. Variable Value Source Rf = 3 27% 20•yr treasury bond rate Rm Rf = 6.00% Equity Risk Premium = 145 Computed Beta, see Page 3 Rsm 1 12% Ibbotsons Mid-Cap Company Stock Premium (Deciles 3-5) Re= Rf+(6x(Rm•Rf))+Rsm 327%+(600%• 145)+112% Re • 13.1% EFTA01086160 EXHIBIT 1.1 PRICE & HISTORICAL VOLATILITIES OF PUBLICLY TRADED BUSINESS DEVELOPMENT COMPANIES AND CEICS INVESTED PRIMARILY IN PRIVATE EQUITY AS OF MARCH 3. 2014 COMPANY TICKER TYPE OF ENTITY (1) PRICE 03/0312014 (2) NAV PER SHARE (2,3) DISCOUNT FROM/ (PREMIUM OVER) NAV 5-YEAR VOLATILITY (2) 1 Ares Capital Corporation ARCC BDC $18.00 $16.46 -9.4% 30 4% 2 Apollo investment Corporation MNV BDC $8.74 $8.57 -2.0% 46.3% 3 TICC Capital Corp. TICC BDC $10.40 $9.90 -5.1% 24.5% 4 MCG Capital Corp. MCGC BDC $4.40 $5.10 13.7% 45.5% 5 Gladstone Capital Corp. GLAD BDC $10 02 $10.10 0.8% 29.6% 6 American Capital. Ltd. ACAS BDC $15.31 $18.97 19.3% 57.1% 7 RENN Global Entrepreneurs Fund. Inc RCG CEIC $1 45 $2.65 45.3% 34.2% 8 MVC Capital. Inc. MVC BDC $1441 $17.36 17.0% 23.3% 9 Capital Southwest Corporation CSWC BDC $3460 $50.25 31.1% 25.8% AVERAGE 12.3% 35.2% MEDIAN 13.7% 30.4% MINIMUM -9 4% 23.3% MAXIMUM 45.3% 57.1% WC domes a hugeness development company. and "CE IC' domain • cbsoderd evostmoot compeny. stood Jo poets eouty Soon* Beeson Altriwort. for BDCs. CE,Connoci ore+ for CECs Close, Prom 1 Functs I IM.4yn So. lacuna on cletersoOm0n. W W &ea 6 emir 9 am tonal On Ma* ', OJOS'S NAVs omen kw DOCa are as Um most recent «pie* quarter NM% omen *Me Gees vé> as ol V* Vahan DM EFTA01086161 EXHIBIT 1.2 PRICE & DIVIDEND YIELDS FOR PUBLICLY-TRADED CLOSED END FUNDS PRIMARILY INVESTED IN CAPITAL APPRECIATION SECURITIES AS OF MARCH 3. 2014 a COMPANY' TICKER PER PRICE 03103/14 NAV SHARE' DISCOUNT FROM NAV' LTM DIVIDEND INCOME' LTM INCOME YIELD 5-YEAR VOLATILITY' Adams Express ADX $1287 $1501 143% 020 16'X, 181% 7 Cohen 5. Steers Divdend Majors DVM $1545 $1699 91% 021 13% 201% Denah Fund DNY $1976 $7486 205% 005 02% 188% 4 Eagle Capital Growth GRE $764 $842 9.3% 014 18% 299% 5 General American Investors GAM $34 62 $40 57 14.7% 0 18 0 5% 196% 6 Nuveen Core Equity Alpha JCE $1744 $1824 44% 013 08% 176% 7 Source Capital Inc SOR $6900 $7538 85% 000 00% 211% 8 Tri-Continental Corporation TY $1975 $2319 14.8% 066 33% 173% 9 Zweig Fund ZF $1477 $1593 12.8% 016 11% 170% 10 Zweig Total Return ZTR $1395 $1541 9.5% 031 22% 115% AVERAGE 112% 1.3% 19.1% MEDIAN 11.1% 1.2% 18.5% MINIMUM 4.4% 0.0% 11.5% MAXIMUM 20.5% 3.3% 29.9% Sampe was created using funds listed in Barron's 'Information horn - 'Information horn Bloomberg. closing prices EFTA01086162 EXHIBIT 1-3 PRICE & DIVIDEND YIELDS FOR PUBLICLY-TRADED CLOSED END FUNDS INVESTED PRIMARILY IN GOVERNMENT BONDS AND SECURITIES AS OF MARCH 3 2014 a COMPANY' TICKER PRICE 03/03/14 NAV PER SHARE' DISCOUNT FROM/ NAV' LTM DIVIDEND INCOME? LTM INCOME YIELD 5-YEAR VOLATILITY' 1 AllianceBernstein Income Fund ACG $739 $8.32 112% $044 59% 84% 2 BlackRock Enhanced Gov Fund EGF $1405 $15.22 77% $049 35% 7 1% 3 Mai:Wool( Income Trust BKT $6 60 $7.31 9 7% $0 36 5 5% 7 3% 4 Federated Enhanced Treasury In FTT $1339 $14.90 101% $014 1 0% N'A 5 Western Asset Inflation Manage IMF $1789 $18.21 1 8% $060 34% 73% 6 Western/Claymore Inn Lnkd Sec WIA $1172 $13.43 12.7% $013 1 1% 82% AVERAGE 8.9% 3.4% 7.7% MEDIAN 9.9% 3.4% 7.3% MINIMUM 1.8% 1.0% 7.1% MAXIMUM 12.7% 5.9% 8.4% Sample was created using funds listed in Batton s 'Info•mabon from 3Informabon from Bloomberg closing prices EFTA01086163 EXHIBIT J.1 QUANTITATIVE FINANCIAL RISK ANALYSIS BLACK FAMILY PARTNERS. LP MEASURES OF COMPANY SIZE A. Revenue Revenue ($MM Low I High t Average Top Quintile Second Quintile Third Quintile Fourth Quintile Bottom Quintile B. Market Value of Equity Top Quintile Second Quintile Third Quintile Fourth Quintile Bottom Quintile 48 19 13 49 5.01 0 63 0 00 1.791 45 47 45 1300 4.81 0.59 240.61 26.02 9.16 2.42 0.16 Discount Low j High i Avenge I Median 00% 00% 00% 0.0% 00% 53 3% 843% 59 2% 70 0% 810% 17 5% 14.7% 210% 151% 23.3% 20.8% 296% 261% 292% 278% Market Value ($MM) Discount C. Book Value of Equity Top Quintile Second Quintile Third Quintile Fourth amble Bottom Quintile Low I High I Average 159.71 90.13 44.68 23.33 2.02 5.726.14 157.88 69.34 44.63 22.96 521.98 117.12 87.10 32.04 13.05 Low I High I Average I Median 0.0% 0.0% 00% 0.0% 00% 64.2% 56.8% 84 3% 81 0% 59.2% 17.8% 18 5% 25 2% 32 1% 269% 13.2% 147% 24 4% 30.9% 259% Book Value ($MM) Discount Low High Average 35 90 12 15 4 96 1.50 -26 40 D. Book Value of Total Asset* Top Quintile Second Quintile Third Quintile Fourth Quintile Bottom Quintile 789.38 35 69 11 72 460 1 49 130 52 23 48 7 53 2.77 -1.59 Low I High I Average I Median 00% 00% 0.0% 2.3% 0.0% 53.3% 84 3% 700% 61.5% 81.0% 14.0% 112% 200% 154% 27.3% 25.9% 28 2% 27 3% 31.1% 28.9% Total Assets ($MM) Discount Low I High I Average Low High I Average I Median 74.04 12.471 37 980 53 0 0% 84 3% 17 1% 13.2% 26 59 72.54 47.10 0 0% 64.2% 16 5% 12.8% 983 28.42 16 43 23% 601% 234% 227% 4 02 9.83 7 07 0 0% 70 0% 29 9% 27.8% 000 4.00 228 00% 81.0% 337% 333% EFTA01086164 EO118iT J-2 QUANTITATIVE FINANCIAL RISK ANALYSIS BLACK FAMILY PARTNERS, LP MEASURES OF RISK 8 PROFITABILITY A. EQUITY VOLATILITY 1.2 3 Volatility Discount Low I High I Average Low I High I Average I Median Top Quintile 1108% 2024 7% 203 9% 00% 81 0% 37 1% 35 5% Second Quintile 83 9% 110 2% 97 1% 19% 55 6% 26 6% 266% Third Quintile 724% 82 0% 76 5% 00% 64 2% 20 4% 170% Fourth Quintile 54 0% 71 2% 61 1% 0 0% 53 3% 196% 181% Bottom Quintile 2 8% 53 2% 39 3% 00% 84 3% 162% 129% B. NET PROFIT MARGIN Net Profit Margin Discount Low I High I No. Low I High I Average I Median Margin > 0% Margin c 0% No Data Reported C. DIVIDENDS Dividend Paying Non-Dividend Paying 0% 536% 85 00% 84 3% 154% -58225% 0% 185 00% 810% 26 5% 24 4% N/A N/A 15 N/A N/A N/A N/A Dividend Yield Discount High I Average I No. Low 1 High I Average I Median 17 9% N/A 4 8% NPA 268 10 0 0% 00% 84 3% 24 8% 23 0% Plrit Volatility is °ens as me anneekzeo Standard 00viat,00 0 Me 00nInuOuSly Oter0Oun0aCI rale 04 ret✓n on the company's common sion The Wand re aviation was calculated using Os change in weekly closing prices wen the onotoor period prior to Om transaction Ora ulnas 280 bansocborn VOialthty was not reported wit 5 eansaotons ) unmade osoarts ire posit/serf co-related with voiabwty and neaabvey Correatea with we rnet/cs EFTA01086165 EXHIBIT J-3 ESTIMATED RESTRICTED STOCK EQUIVALENT DISCOUNT BLACK FAMILY PARTNERS, LP BASED ON QUANTITATIVE FINANCIAL RISK ANALYSIS Metric Exhibit Company Measure Implied Quintile Median Discount Weighting Weighted Average Size Metrics Revenue ($MM) EXHIBIT J-1 $312.5 Top Quintile 14.7% 12.50% 1.8% Market Value of Equity ($MM) EXHIBIT J-1 $2,791.3 Top Quintile 13.2% 12.50% 1.7% Book Value of Equity ($MM) EXHIBIT J-1 $3,279.8 Top Quintile 11.2% 0.00% 0.0% Total Assets ($MM) EXHIBIT J-1 $3,284.5 Top Quintile 13.2% 0.00% 0.0% Other Metrics Equity Volatility (%) EXHIBIT J-2 40% Bottom Quintile 12.9% 25.00% 3.2% Profitable (Based on Net Profit Margin)' EXHIBIT J-2 Y N/A 15.4% 25.00% 3.8% Dividend-Paying' EXHIBIT J-2 Y N/A 13.4% 25.00% 3.4% ESTIMATED RESTRICTED STOCK EQUIVALENT DISCOUNT (TO EXHIBIT .1-4) 100.0% 13.9% Notes: = Yes; N= No EFTA01086166 EXHIBIT J4 ESTIMATED PRIVATE COMPANY DISCOUNT INCREMENT BLACK FAMILY PARTNERS, LP BASED ON BLOCK SIZE ILLIQUIDITY ANALYSIS % Shares Placed Discount Low High No. Low High Average Median More than 40% 40.2% 429% 4 40.2% 42.9% 42.1% 42.6% More than 35% 38.9% 42.9% 5 32.3% 62.4% 46.8% 41.9% More than 30% 30 4% 42.9% 11 9.9% 72.4% 44.3% 41.9% More than 25% 25.0% 42.9% 21 1.7% 72.4% 33.5% 37.3% More than 20% 20 2% 42.9% 44 1 7% 91 3% 31 8% 32.8% 20% or Less 01% 198% 285 0.0% 84.3% 24.1% 22.0% Summary Low Mid High Minimum or Maximum or Median for blocks >20% 32.8% 37.7% 42.6% Divided by Median for Blocks < 20% 22.0% 22.0% 22.0% Multiplicative Adjusbnent Factors for Private Company Discount Increment' 1.49 1.71 1.94 Times. Estimated Restricted Stock Equivalent Discount (see EXHIBIT J•3) 139% 13.9% 13.9% Implied Reasonable Range of Private Company Discounts ' 20 7% 23.8% 26.9% Blocks > 20%. excluding blocks with registration rights Implied Reasonable Range of Discounts for Lack of Marketability 21.0% 27.0% Notes: Equal to min or max median discount for block sizes > than 20% divided by median discount for block sizes < 20% 2 Equal to multiplicative adjustment factor times the restricted stock equivalent discount. EFTA01086167