UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): December 6, 2018 (December 5, 2018)

 

 

OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   001-33805   26-0354783

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

9 West 57th Street, New York, New York   10019
(Address of Principal Executive Offices)   (Zip Code)

212-790-0000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Item 1.01. Entry into a Material Definitive Agreement.

On December 6, 2018, Och-Ziff Capital Management Group LLC (the “Company” or “Oz Management”) announced that the Company and certain of its subsidiaries, and Daniel S. Och, the Chairman of the Board of Directors of the Company (the “Board”) and its largest shareholder, entered into a letter agreement dated December 5, 2018 providing for the implementation of certain transactions as set forth in the term sheet attached thereto (the letter agreement, together with the term sheet attached thereto, the “Agreement”). The Agreement provides for, among other things, the preparation and execution of further agreements (the “Implementing Agreements”) and other actions to implement the transactions contemplated by the Agreement. The Agreement is binding on the parties, except that the obligations of the parties to, and the effectiveness of the transactions contemplated by, the Agreement are subject to certain conditions, as described below under “Conditions to Effectiveness.”

The Nominating, Corporate Governance and Conflicts Committee of the Board (the “Conflicts Committee”) unanimously approved the terms of the Agreement and unanimously recommended that the Board approve the terms of the Agreement. The Board, acting on the unanimous recommendation of the Conflicts Committee, approved the terms of the Agreement. The Conflicts Committee serves as the “Conflicts Committee” (as defined in the Second Amended and Restated Limited Liability Company Agreement of the Company (the “Company’s LLC Agreement”)) for purposes of evaluating the Agreement and the transactions contemplated thereby. In such capacity, the Conflicts Committee has determined that (i) each member thereof is independent and disinterested with respect to (A) the management of the Company and (B) the transactions contemplated by the Agreement and (ii) the Conflicts Committee’s approval of the Agreement and such transactions constitutes a Special Approval (as defined in the Company’s LLC Agreement) for purposes of Section 5.20 of the Company’s LLC Agreement.

The following description of the Agreement does not purport to be complete and is qualified in its entirety by the full text of the Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference. The Agreement includes provisions intended to give effect to certain corporate governance arrangements described in the previously announced letter agreement, dated January 27, 2018 (including the term sheet attached thereto), that was entered into by Mr. Och, the Company, certain of the Company’s subsidiaries and others (the “January Governance Term Sheet”), which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated January 30, 2018. The terms of the January Governance Term Sheet remain in full force and effect, except as expressly modified by the terms of the Agreement.

Recapitalization of Equity Interests in the Operating Partnerships

The Agreement provides that Mr. Och and the other holders of Class A common units (“Class A Units”) in OZ Management LP, OZ Advisors LP and OZ Advisors II LP (each, an “Operating Partnership” and, collectively, the “Operating Partnerships”) will collectively reallocate 35% of their Class A Units to existing members of senior management and new hires. The reallocation will be effected by (i) recapitalizing such Class A Units into a separate class of units in each Operating Partnership (the “Class A-1 Units”) to be held by the holders of the Class A Units and (ii) creating and making grants to existing members of senior management of a newly created class of equity incentive units in the Operating Partnerships that are only entitled to future profits and gains (such interests, the “Class E Units”), which Class E Units will be granted on the effective date of the recapitalization and will vest over five years commencing on January 1, 2018, provided that (i) such Class A-1 Units will be canceled only at such time and to the extent as such Class E Units vest and achieve a book-up (it being understood that Class E Units will vest upon a liquidation or upon a change of control transaction) and (ii) upon vesting, holders of Class E Units will be entitled to vote the corresponding Class B shares of the Company (the “Class B Shares”). A Class E Unit in an Operating Partnership will entitle the holder to the same distributions of annual profits as a Class A Unit in such Operating Partnership following the Distribution Holiday but will only entitle the holder to participate in a sale, exchange or liquidation to the extent the Class E Unit (i) satisfies certain vesting conditions and (ii) such Operating Partnership has experienced sufficient cumulative net gains following the recapitalization to result in the capital account of such Class E Unit becoming economically equivalent to the capital account of a Class B common unit (a “Class B Unit”) in such Operating Partnership (a “book up”). Up to 10% of the Class E Units will not be granted on the effective date of the recapitalization, and instead will be available for future grants to new hires. With respect to any current holder of Class A Units who is also receiving Class E Units in the recapitalization, then, solely with respect to a number of Class E Units equal to the number of reallocated Class A Units of such holder, such Class E Units shall have a one-year vesting period (rather than the five-year vesting period applicable to Class E Units generally). Following the Liquid Fund Balance Redemption (as described below) and Mr. Och’s receipt of the Credit Fund

 

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Balance (as described below), and until such time as the relevant Class E Units become vested, the Class B Shares corresponding to the Class A-1 Units will be voted pro rata in accordance with the vote of the Class A shares of the Company (the “Class A Shares”) held by non-affiliates. The Class B Shares corresponding to the applicable Class A-1 Units will be canceled upon the vesting of the corresponding Class E Units and an equal number of new Class B Shares will be issued to the holders of such vested Class E Units. The Class A-1 Units will not be eligible to receive distributions at any time; provided, however, that upon certain exchange, change of control or liquidation events, Class A-1 Units that have not yet been canceled as described above will be eligible to participate based on their capital accounts at the time of the recapitalization.

Holders of Class D common units of the Operating Partnerships (“Class D Units”) will have a one-time election to convert such holders’ Class D Units into Class E Units. Former executive managing directors will be able to elect to convert their Class D Units into vested Class E Units. Active executive managing directors will be able to convert their vested Class D Units into Class E Units, subject to a one-year vesting period. However, such units would vest if the active executive managing director is terminated without cause. Active executive managing directors will be able to convert their unvested Class D Units into Class E Units that would retain their existing vesting schedules. Unvested Class D Units that are scheduled to vest in less than 12 months at time of conversion will be subject to a one-year vesting period. Except as expressly provided above, the Class E Units received in respect of Class D Units will have no Class A-1 Units associated with them and will retain all rights of the applicable Class D Units, including, without limitation, rights to receive TRA payments (as defined below), participation in change of control and full voting rights.

Following the termination of the Distribution Holiday, Class A Units and Class E Units (whether vested or unvested) will receive distributions even if such Class A Units and Class E Units, as applicable, are not booked-up.

Distribution Holiday

The Operating Partnerships will initiate a Distribution Holiday (as defined in the Agreement) on the Class A Units, Class D Units, Class E Units and Class P common units (“Class P Units”) of the Operating Partnerships and on the Class A restricted share units (“RSUs”) that will terminate on the earlier of (x) the achievement of $600 million of “Distribution Holiday Economic Income” (to be defined in the Implementing Agreements as described in the Agreement) and (y) April 1, 2026. During the Distribution Holiday: (i) Class P Unit prices will be adjusted to take into account performance and distributions during such period, (ii) RSUs will receive in-kind distributions in respect of dividends or distributions paid on the Company’s Class A Shares, in each of the foregoing clauses (i) and (ii) in an aggregate amount not to exceed $0.40 per Class P Unit or RSU, as applicable, cumulatively during the Distribution Holiday, and in accordance with their existing terms (provided that such $0.40 cap shall not apply to any RSUs held by employees (other than executive managing directors) or executive managing directors that are not receiving Class E Units) and (iii) income will be allocated for book and tax purposes to reflect the revised distribution entitlements of the Class A / B / D / E / P Units. For clarity, the Distribution Holiday does not apply to Class B Units or Class A Shares.

Cash Sweep Arrangements

The Company and its subsidiaries (collectively, the “Oz Group”) will institute a cash sweep arrangement during the Distribution Holiday under which, on a quarterly basis, 100% of all “economic income” (to be defined in the Implementing Agreements as described in the Agreement) (after accounting for normalized public dividends as determined by the Board (but subject to an annual minimum of 20% of distributable earnings per year, and an annual maximum of up to 30% of distributable earnings or, if the minimum would be $0.10 or less, then up to $0.10 per Class A Share per year) (the “Permitted Dividend”)) will be applied to repay the 2018 Credit Facility (as defined below) and then to redeem the New Preferred Securities (as defined below), in each case, together with accrued interest. These cash sweep arrangements will not apply to the extent that it would result in the Oz Group having a minimum “free cash balance” (to be defined in the Implementing Agreements as described in the Agreement) of less than $200 million except in certain specified circumstances. The “2018 Credit Facility” refers to the Credit and Guaranty Agreement, dated as of April 10, 2018, among the Operating Partnerships, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, that was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated April 10, 2018.

In addition, (i) certain of the proceeds resulting from the realization of certain assets specified in the Agreement (the “Designated Accrued Unrecognized Incentive”), (ii) 85% of the after tax proceeds from any asset sales or other dispositions and (iii) no later than January 1, 2019, all free cash balance in excess of the minimum free cash balance, together with any gross cash resulting from the realization of any incentive income earned in respect of the Oz Management funds that are currently being wound down, in each case, will be used to repay the 2018 Credit Facility and the New Preferred Securities in the order of priority described in the Agreement.

 

3

As long as the cash sweep is in effect, the Oz Group may only engage in certain Restricted Activities (as defined below) or any other activities related to the strategic expansion of the Oz Group using funds from the Discretionary Basket (as defined below), and may not use any other funds of the Oz Group to fund such activities, subject to certain exceptions. The Oz Group may establish a cumulative discretionary one-time basket of up to $50 million in the aggregate which will not be subject to the Distribution Holiday or the cash sweep described above (the “Discretionary Basket”) that, subject to certain exceptions, may only be used to fund new firm investments or new firm products or to fund share buybacks (including RSU cash settlements in excess of permitted amounts) in an aggregate amount not to exceed $25 million (the “Restricted Activities”). The Discretionary Basket may not be used to fund employee compensation payments.

Restructuring of Preferred Units

The existing Preferred Units issued by the Operating Partnerships (the “Existing Preferred”) will be restructured as described below. In addition, the holders of the Existing Preferred will forfeit 7.5 million Class A Units which will be recapitalized into Class A-1 Units as described above and the Operating Partnerships will have the ability to grant a corresponding number of Class E Units as determined by the Chief Executive Officer and the Compensation Committee of the Board (the “Compensation Committee”). Such Class A-1 Units will be canceled upon the vesting and book-up of such Class E Units. In connection with such restructuring, Mr. Och has also agreed to waive his right to reallocate (and, under certain circumstances, be reissued) the common units canceled pursuant to the previously announced Cancellation, Reallocation and Grant Agreement, dated March 28, 2018, that was filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, dated May 3, 2018.

Debt Securities

$200 million of the Existing Preferred will be restructured into debt (the “Debt Securities”) that (i) will not accrue interest until February 2020; (ii) will be unsecured and will rank (x) junior to the 2018 Credit Facility and (y) senior to the New Preferred Securities (as defined below) and all other current or future indebtedness of the Oz Group; (iii) will have a maturity date of the earlier of (x) the five-year anniversary of the repayment of the New Preferred Securities and (y) April 1, 2026; and (iv) will otherwise have the same terms and conditions as the 2018 Credit Facility, subject to certain exceptions.

The Debt Securities will be subject to mandatory, straight-line annual amortization of 20% per annum commencing upon the earlier of (x) the one-year anniversary of the repayment of the New Preferred Securities and (y) March 31, 2022, provided that the aggregate annual amortization payments on the Debt Securities and the Incremental Debt Securities (as defined below) will not be required to exceed $40 million.

Under the terms of the Debt Securities, for a period of nine months after the repayment of the New Preferred Securities, Oz Management will have the option to voluntarily repay up to $200 million of the initial Debt Securities at a 5% discount.

New Preferred Securities; Incremental Debt Securities

The remaining $200 million of the Existing Preferred will be restructured into new preferred equity securities in the Operating Partnerships (the “New Preferred Securities” and, together with the Debt Securities and Incremental Debt Securities, the “Preferred Securities”) which will have the terms and conditions described in the Agreement.

Other than following the occurrence of a Discount Termination Event (as defined in the Agreement), Oz Management will have the option to voluntarily repay the remaining $200 million of the New Preferred Securities at a 25% discount until April 1, 2021 and then at a 10% discount at any time between April 1, 2021 and March 31, 2022, and any mandatory payments as a result of the cash sweep described above will be entitled to the same discount.

To the extent that the New Preferred Securities are not repaid in full on or prior to March 31, 2022 then, at the option of the holder thereof, all or any portion of the principal amount of such New Preferred Securities (together with any accrued but unpaid interest thereon) will be automatically converted into Debt Securities on a dollar-for-dollar basis without any further action by the Oz Group or any other person (the “Incremental Debt Securities”), with such Incremental Debt Securities having the same terms as the initial $200 million of Debt Securities.

 

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Certain Restrictions

So long as any New Preferred Securities are outstanding, without the consent of the holders’ committee of the holders of New Preferred Securities (to be comprised of Mr. Och as the sole member) (the “Holders’ Committee”), the Oz Group will not create any new class of equity securities or issue any equity securities in any existing class that would be senior or pari passu to the New Preferred Securities (or amend the terms of an existing class of equity securities to become senior or pari passu to the New Preferred Securities).

In addition, the consent of the Holders’ Committee will be required (i) for so long as any New Preferred Securities or Incremental Debt Securities are outstanding, if the Oz Group proposes to waive or modify the terms of the Designated Accrued Unrecognized Incentive, including the timing of any realization thereof and (ii) for so long as any Preferred Securities are outstanding, to refinance or incur any new indebtedness (or incur liens or divert assets), other than indebtedness that is incurred and issued to contemporaneously pay in full all obligations under the Preferred Securities and subject to certain other exceptions.

While any Preferred Securities are outstanding, the Oz Group will maintain a minimum free cash balance of no more than $200 million.

Exchanges of Interests in the Operating Partnerships

Class A Units, Class D Units and Class E Units will be subject to achieving a book-up before they can be exchanged into Class A Shares of Oz Management. The book-up of the Class A Units, Class D Units and Class E Units will occur automatically, upon a sale, exchange or liquidation at any time or from time to time after the end of the Distribution Holiday, in each case in accordance with the applicable waterfall and an objective book-up methodology to be mutually agreed in the Implementing Agreements.

As and when the book-ups occur, the applicable vested Class A Units will be freely exchangeable into Class A Shares and such Class A Shares will be freely tradeable, subject to certain exceptions as described below.

Prior to the expiration of the Distribution Holiday, an exchange committee (to be comprised of the Chief Executive Officer and the Chief Financial Officer of the Company), in consultation with the Board, will have the authority to permit exchanges of vested and booked-up Class A Units, Class D Units and Class E Units, which exchange windows will be made available to all holders of such vested and booked-up units on a pro rata basis.

Following the termination of the Distribution Holiday, any holder of Class A Units, Class D Units or Class E Units will be free to exchange his or her vested and booked-up units over a period of two years in three equal installments commencing upon the date of the termination of the Distribution Holiday and on each of the first and second anniversary thereof (and thereafter such units will be exchangeable), provided that the restrictions on exchange of any such classes will not be more or less favorable to the holders of such class relative to such other classes (other than Class B Units held by the Company), except to the extent resulting from book-up or vesting limitations.

Tax Receivable Agreement

Subject to the implementation of the corporate conversion of the Company described below, the First Amended and Restated Tax Receivable Agreement, dated as of January 12, 2009, by and among the Company, certain Company subsidiaries and the current and former limited partners of the Operating Partnerships (as amended, the “Tax Receivable Agreement”) will be amended to provide that no payments are due to Mr. Och and the other recipients of payments (collectively, the “TRA Recipients”) under the Tax Receivable Agreement (“TRA payments”) in respect of tax years 2017 and 2018, and the percentage of cash savings required to be paid with respect to the 2019 tax year and thereafter, as well as with respect to cash savings from subsequent exchanges, will be reduced to 75% (from the current 85%), subject to certain exceptions (the “TRA Amendment”).

To the extent Class E Units are exchanged in the future, Mr. Och and the other current holders of Class A-1 Units will be entitled to TRA payments with respect to the cash savings realized in respect of such exchanges as described in the Agreement. Holders of Class A Units and Class D Units will retain their entitlement to future TRA payments to the extent they exchange such units. Recipients of Class E Units resulting from the reallocation of Class A-1 Units will not be entitled to any TRA payments with respect to such Class E Units, rather such TRA payments will be paid to Mr. Och and the other holders of Class A-1 Units.

 

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Redemptions by Mr. Och

As of September 30, 2018, Mr. Och’s balances in the Oz Management funds were approximately 3% of the Company’s assets under management. In connection with his transition from the Company, Mr. Och intends to redeem all of his liquid balances in the Oz Management funds representing approximately 66% of his total balance as of September 30, 2018 (approximately half of which will be redeemed on December 31, 2018). These liquid balances will, subject to certain exceptions, be redeemed by the end of the first quarter of 2019.

Corporate Governance Matters

Class B Shareholders Agreement

The Class B Shareholder Committee will be disbanded and the Class B Shareholders Agreement, dated as of November 13, 2007, by and among the Company and the Class B shareholders will be terminated (the “Class B Committee Dissolution”) effective as of the date that is the 30 th day following the Liquid Fund Balance Redemption (the “Transition Date”), subject to extension in certain cases whereby Mr. Och is not permitted to effect such redemptions.

Board Composition

No later than the next annual meeting of shareholders of Oz Management that is at least 30 days following the Transition Date, Mr. Och will resign as a director of the Board but he will have the right to designate a director (the “DSO Designated Director”) to serve in his place as a director of the Board for as long as he continues to own specified amounts of Preferred Securities or common equity units. Subject to the DSO Designated Director satisfying the New York Stock Exchange’s (“NYSE”) director independence requirements, the DSO Designated Director will be entitled to serve as a member of the Compensation Committee until the earlier of (i) the repayment of the New Preferred Securities, (ii) April 1, 2022 and (iii) October 1, 2021 if 50% of the New Preferred Securities are repaid on or prior to such date.

If any director who is a designee of the Class B Shareholder Committee (other than Mr. Och or the DSO Designated Director) (a “Class B Director”) resigns or otherwise ceases to serve on the Board at or prior to the 2019 annual meeting of shareholders (including any adjournment or postponement thereof, the “2019 Meeting”), the replacement director will be an individual who qualifies as an independent director and will be appointed as a Class B Director by Mr. Och (in his capacity as the sole member of the Class B Shareholder Committee) with the approval of the Conflicts Committee, not to be unreasonably withheld.

If any other member of the Board resigns at or prior to the 2019 Meeting, the Conflicts Committee will nominate a successor, subject to approval by Mr. Och, not to be unreasonably withheld.

Transition of Mr. Och

Effective as of the Transition Date, (i) the Chief Executive Officer and Chief Financial Officer of the Company will be appointed as the sole members of the boards of Och-Ziff Holding Corporation and Och-Ziff Holding LLC; (ii) the Chief Executive Officer of the Company will replace Mr. Och as PMC Chairman (as defined in the limited partnership agreements of the Operating Partnerships) and as the Chairman of the Partner Management Committee; (iii) Mr. Och will resign as a member of all internal firm committees; and (iv) the then-current director(s) of the boards of the applicable Oz Management funds (other than Mr. Och) and, if elected by the Company, the Chief Executive Officer and/or the Chief Financial Officer of the Company, will serve as directors of such Oz Management fund boards.

Management Arrangements

As a condition to the recapitalization and the other transactions contemplated by the Agreement, certain members of senior management will be required to enter into binding arrangements with the Oz Group regarding commitments, compensation and restrictive covenants that are no less favorable than those described in the Agreement (such arrangements, the “Management Arrangements”). Such matters include: (i) a 20% reduction of annual compensation to certain executive managing directors and (ii) entry by certain executive managing directors into 2 year non-compete agreements. During the Distribution Holiday, the Management Arrangements may not be waived or modified without the approval of the Chief Executive Officer of the Company and the Compensation Committee. Additionally, the Management Arrangements of the named executive officers (as defined in Regulation S-K) of the Oz Group (“NEOs”) may not be waived or modified in any material respect, and the Oz Group may not issue equity securities to such NEOs, without the approval of a supermajority of the Board (as described in the Agreement) supported by the advice of a third party compensation consultant.

 

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Certain Additional Provisions

The Implementing Agreements will include certain additional provisions as described in the Agreement, including (i) affirmative and negative covenants on the same terms as contained in the 2018 Credit Facility; and (ii) prohibitions on the Oz Group, without the consent of the holders of a majority of Class A Units, (A) taking any action that is adverse to the holders of Class A Units in a manner disproportionate to the holders of the Class A Shares, (B) issuing any Class A Units, or (C) creating any new class of equity securities that would be senior or pari passu to the Class A Units (or amending the terms of an existing class of equity securities to become senior or pari passu to the Class A Units) during the period from the date of the Agreement until the achievement of the book-up following the end of the Distribution Holiday.

Change of Tax Classification

The Company intends to change its tax classification from a partnership to a corporation effective December 31, 2018; provided that (i) there can be no assurance that such date will be achieved and (ii) the Company will make a public filing confirming the actual date of effectiveness on or before December 31, 2018.

Other Provisions

Mutual Releases

The Oz Group, the Board and the Company’s active executive managing directors will provide Mr. Och and the participating former executive managing directors with a full release, and Mr. Och and the participating former executive managing directors will provide the Oz Group, the Board and the Company’s active executive managing directors with a full release, in each case, in relation to the transactions contemplated by the Agreement.

Expenses

The Oz Group will reimburse Mr. Och for all out-of-pocket fees and expenses incurred in connection with the transactions contemplated by the Agreement, including the fees and expenses of attorneys and a financial advisor to Mr. Och, up to $5 million. In addition, the OZ Group will reimburse the holders of the Debt Securities, New Preferred Securities and the Class A Units with respect to any reasonable fees and expenses (including attorneys’ fees) incurred by such holders in connection with protecting the interests or enforcing the rights of such securities.

Indemnification

The Oz Group will provide full indemnification protection to Mr. Och and the participating former executive managing directors with respect to the transactions contemplated by the Agreement.

Name

The Oz Group will cease using the “Och” and “Ziff” names in any capacity no later than December 31, 2019.

Equity Plan

The parties to the Agreement will take such further action to provide for shareholder approval (at a special meeting of shareholders) of an amendment to the Company’s 2013 Incentive Plan in accordance with applicable stock exchange rules, authorizing the issuance of all Class E Units as may be necessary to effect the transactions contemplated by the Agreement.

Conditions to Effectiveness

The transactions contemplated by the Agreement are, unless otherwise mutually agreed by the Company and Mr. Och, in each case subject to and conditioned upon, among other things, (i) approval by the holders of a majority of the minority of the holders of Class A Units (which for the avoidance of doubt does not include Mr. Och or any holders of Class A Units that receive Class E Units); (ii) with respect to the TRA Amendment, approval by the requisite beneficiaries under the Tax Receivable Agreement; (iii) consent of the lenders under the 2018 Credit Facility; (iv) the absence of a material adverse effect on the Company from and after the date on which the transactions contemplated by the Agreement are announced; (v) the execution of definitive release agreements by the applicable releasing parties to give effect to the releases described above under “Mutual Releases” and the related sections of the Agreement; (vi) the receipt by Oz Management of a customary solvency opinion; (vii) the Oz Group and members of senior management entering into binding Management Arrangements regarding commitments, compensation and restrictive covenants that are no less favorable than those set forth in the Agreement; and (viii) entry into definitive documentation implementing the recapitalization and related transactions.

 

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Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information included in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

The information included in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.02.

Item 7.01. Regulation FD Disclosure.

On December 6, 2018, the Company posted on its website a presentation regarding the transactions contemplated by the Agreement and the Reverse Share Split. A copy of the presentation is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.

The information provided pursuant to this Item 7.01, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Item 8.01. Other Events.

On December 6, 2018, the Company issued a press release announcing that the (i) parties have entered into the Agreement and (ii) Board has approved a one-for-ten reverse share split (the “Reverse Share Split”) of the Class A Shares. The Reverse Share Split is expected to take place and be effective at the close of trading on January 3, 2019. The Class A Shares are expected to begin trading on a split adjusted basis on the NYSE at the opening of trading on January 4, 2019. When the Reverse Share Split becomes effective, every ten issued and outstanding Class A Shares will combine into one Class A Share. Based on the number of Class A Shares outstanding on December 4, 2018, the Reverse Share Split will reduce the number of Class A Shares from approximately 192 million pre-reverse split Class A Shares to approximately 19.2 million post-reverse split Class A Shares. Corresponding adjustments will be made to the Class B Shares. To reflect the Reverse Share Split, the Company expects to amend the Company’s LLC Agreement to make corresponding reductions in the number of Class A Shares and Class B Shares that the Company is authorized to issue.

No fractional shares will be issued in connection with the Reverse Share Split. If a shareholder of the Company would otherwise receive fractional shares as a result of the Reverse Share Split, each fractional share will be rounded to the nearest whole share (and a 0.5 share will be rounded to the next higher share) in accordance with the Company’s LLC Agreement. Proportionate adjustments to reflect the Reverse Share Split will be made to the outstanding awards and to the number of shares issued and issuable under the Company’s 2007 Equity Incentive Plan and 2013 Incentive Plan. In addition, pursuant to certain amendments to the limited partnership agreements of the Operating Partnerships, corresponding adjustments will be made to the Class A Units, Class B Units, Class D Units and Class P Units and Profit Sharing Interests in the Operating Partnerships.

The Reverse Share Split and the related adjustments described above will not affect any shareholder’s ownership percentage of the Company’s shares or the relative interests in the Operating Partnerships of the Company’s executive managing directors and Och-Ziff Holding Corporation and Och-Ziff Holding LLC, the general partners of the Operating Partnerships, except to the extent of the rounding of fractional interests described above.

The Company’s Class A Shares will continue to trade on the NYSE under the symbol “OZM” but, at the market open on January 4, 2019, the Class A Shares are expected to trade on a split-adjusted basis under a new CUSIP number.

A copy of the press release is attached hereto as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit
No.

  

Description

10.1    Letter Agreement (including Term Sheet attached as Exhibit A), dated December 5, 2018
99.1    Company Presentation, dated December 6, 2018
99.2    Press Release of the Company, dated December 6, 2018

 

8

Forward-Looking Statements

The information contained in this Current Report on Form 8-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect the Company’s current views with respect to, among other things, the recapitalization and other transactions described herein, including the timing for completing the recapitalization and other transactions described herein; its effect on the Company, including on the Company’s cash flows, balance sheet and earnings; the Company’s ability to create value; the Company’s growth prospects; the anticipated benefits of changing the Company’s tax classification from a partnership to a corporation; future events and financial performance. The Company generally identifies forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.

Any forward-looking statements contained in this Current Report on Form 8-K are based upon historical information and on the Company’s current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated by the Company will be achieved.

The Company cautions that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving the Company; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice; the Company’s ability to implement the conversion and the recapitalization and the other transactions described in this Current Report on Form 8-K, including obtaining all applicable consents and approvals, satisfying all conditions to effectiveness on a timely basis or at all and reaching agreement on the Implementing Agreements relating to all such transactions, and whether the Company realizes all or any of the anticipated benefits from the conversion and the recapitalization; whether the conversion and the recapitalization result in any increased or unforeseen costs or have an impact on the Company’s ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; the Company’s ability to retain existing investor capital; the Company’s ability to successfully compete for fund investors, assets, professional talent and investment opportunities; the Company’s ability to retain its active executive managing directors, managing directors and other investment professionals; the Company’s successful formulation and execution of its business and growth strategies; the Company’s ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to the Company’s business; and assumptions relating to the Company’s operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.

If one or more of these or other risks or uncertainties materialize, or if the Company’s assumptions or estimates prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in the Company’s filings with the SEC, including but not limited to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, dated February 23, 2018, as well as may be updated from time to time in the Company’s other SEC filings. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not known. The Company does not undertake to update any forward-looking statement, because of new information, future developments or otherwise.

This Current Report on Form 8-K does not constitute an offer of any Oz Management fund.

 

9

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC (Registrant)
By:  

/s/ Thomas M. Sipp

  Thomas M. Sipp
  Chief Financial Officer and
  Executive Managing Director

December 6, 2018

 

10

Exhibit 10.1

EXECUTION VERSION

Och-Ziff Capital Management Group LLC

9 West 57 th Street

New York, New York 10019

December 5, 2018

Daniel S. Och

c/o Willoughby Capital Holdings, LLC

10 Bank Street, Suite 1120

White Plains, New York 10606

Re: OZ Recapitalization

Ladies and Gentlemen:

This binding letter agreement (as amended, supplemented or otherwise modified from time to time, this “ Agreement ”) is effective as of December 5, 2018 (the “ Effective Date ”) and sets forth the agreements, arrangements, understandings and intentions of Och-Ziff Capital Management Group LLC (the “ Company ”) and the subsidiaries of the Company set forth on the signature pages hereto (the “ OZ Subsidiaries ” and, together with the Company, the “ OZ Parties ”), on the one hand, and Daniel S. Och (“ DSO ”), on the other, with respect to certain recapitalization arrangements to be implemented at the Company and its subsidiaries.

In connection with the foregoing, the parties hereto, each intending to be legally bound, agree, subject to (i) the terms and conditions set forth in Exhibit A hereto, including without limitation, the approval by (A) a majority of the minority of the holders of Class A Units (as defined in Exhibit A hereto) (i.e., excluding DSO and any holders of Class A Units that receive Class E Units (as defined in Exhibit A hereto)), (B) in the case of the amendment to the Tax Receivable Agreement, dated as of January 12, 2009 (the “ TRA ”), the requisite beneficiaries under the TRA, (C) the OZ Parties’ senior lenders and (D) senior management of the Company or its subsidiaries that are signing the Management Arrangements (as defined in Exhibit A hereto) (the “ Management Arrangement Parties ”) (clauses (A), (B), (C) and (D), collectively, the “ Required Consents ”), (ii) the absence of a material adverse effect on the Company from and after the date on which the transactions contemplated by this Agreement are announced, (iii) the execution of definitive release agreements by the applicable releasing parties to give effect to the “Release” section in Exhibit A and the sections related thereto contained in this Agreement and (iv) the receipt of a customary solvency opinion (it being agreed that the effectiveness of this Agreement, including the obligations of the parties hereto, shall be conditioned on the conditions in the foregoing clauses (i)-(iv), unless otherwise mutually agreed by the Company and DSO), in each case, as follows:

1. Recapitalization Terms and Conditions . As of the Effective Date, the OZ Parties and DSO, on behalf of themselves and their affiliates and related parties, hereby agree to the terms and conditions set forth on Exhibit A , the terms of which are hereby incorporated by reference. As promptly as practicable following the date hereof, the parties hereto shall in good faith negotiate and execute such definitive documentation as is reasonably necessary to reflect the terms hereof and such amendments to the organizational documents of the OZ Parties and any other agreement to which an OZ Party, DSO or their respective affiliates or related parties is a party (collectively, the “ Existing OZ Agreements ”), which Existing OZ Agreements include (a) (i) the Unit Designation of the Preferences and Relative, Participating, Option and Other Special Rights, Powers and Duties of Class A Cumulative Preferred Units of OZ Management LP, dated October 5, 2016 (as amended), (ii) the Unit Designation of the Preferences and Relative, Participating, Option and Other Special Rights, Powers and Duties of Class A Cumulative Preferred Units of OZ Advisors LP, dated October 5, 2016 (as amended) and (iii) the Unit Designation of the Preferences and Relative, Participating, Option and Other Special Rights, Powers and Duties of Class A Cumulative Preferred Units of OZ Advisors II LP, dated October 5, 2016 (as amended), (b) the partner agreements with active Och-Ziff partners who will be parties to new Management Arrangements (as defined in Exhibit A ), (c) the Second Amended and Restated Limited Liability Company Agreement of the Company, as amended (the “ Company LLC Agreement ”), (d) the Class B Shareholders Agreement, dated as of November 13, 2007, by and among the Company and the individuals set forth on the signature pages thereto, as amended, and (e) the Amended and Restated Exchange Agreement, dated as of August 1, 2012, by and among the Company the subsidiaries of the Company party

thereto and the Och-Ziff Limited Partners and Class B Shareholders from time to time party thereto, as amended, and shall take such other actions as are reasonably necessary to reflect the terms hereof (including using commercially reasonable efforts to obtain the Required Consents and using commercially reasonable efforts to cause the Management Arrangement Parties to enter into Management Arrangements on terms and conditions consistent with Exhibit A hereto as promptly as practicable after the date hereof). In the event of any conflict between any provision of an Existing OZ Agreement, on the one hand, and any provision of this Agreement, on the other hand, the provisions of this Agreement shall control.

2. Representations and Warranties . Each of the OZ Parties and DSO represents and warrants to the other as follows: (a) in the case of an OZ Party, it is duly organized, validly existing and in good standing under the laws of the jurisdiction where it purports to be organized; (b) such party has full power and authority (and, in the case of DSO, legal capacity) to enter into and perform its obligations under this Agreement; (c) all actions (including, in the case of the OZ Parties, the approval of the Conflicts Committee (as defined in the Company LLC Agreement)) necessary to authorize such party’s signing and delivery of this Agreement, the performance of its obligations hereunder and the acknowledgements made by such party hereunder, have been duly taken; (d) in the case of an OZ Party, this Agreement has been duly signed and delivered by a duly authorized officer or other representative of such OZ Party; (e) this Agreement constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms (except as such enforceability may be affected by applicable bankruptcy, insolvency or other similar laws affecting creditors’ rights generally, and except that the availability of equitable remedies is subject to judicial discretion); (f) no consent, approval or notification of any other person or entity (including any governmental authority) is required in connection with the signing, delivery and performance of this Agreement by such party that have not been obtained (other than the Required Consents); and (g) the signing, delivery and performance of this Agreement do not violate the organizational documents of such party (in the case of the OZ Parties) or any material agreement to which such party is a party or by which it is bound.

3. Expenses. Except as set forth in Exhibit A , each party hereto shall bear its own costs and expenses in connection with this Agreement and the transactions contemplated hereby.

4. Notices . All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the parties at the following addresses (or at such other address for a party as will be specified by like notice):

A. if to an OZ Party, to:

Och-Ziff Capital Management Group LLC

9 West 57th Street

New York, New York 10019

Email: David.Levine@ozm.com

Attention: Chief Legal Officer

with a copy (which will not constitute notice) to:

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Email: joseph.coco@skadden.com

Email: peter.serating@skadden.com

Attention: Joseph A. Coco

Attention: Peter D. Serating

B. if to DSO, to:

Daniel S. Och

c/o Willoughby Capital Holdings, LLC

10 Bank Street, Suite 1120

White Plains, NY 10606

with a copy (which will not constitute notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019-6064

Facsimile: (212) 757-3990

Email: Ajdeckelbaum@paulweiss.com

Eching@paulweiss.com

Attention: Ariel J. Deckelbaum

Attention: Ellen N. Ching

 

2

All such notices or communications will be deemed to have been delivered and received (a) if delivered in person, on the day of such delivery, (b) if by facsimile or electronic mail, on the day on which such facsimile or electronic mail was sent; provided , that receipt is confirmed, (c) if by certified or registered mail (return receipt requested), on the seventh business day after the mailing thereof or (d) if by reputable overnight delivery service, on the second business day after the sending thereof.

5. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflict of laws. Each party hereto (i) irrevocably submits to the jurisdiction of the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, any Delaware state court or U.S. federal court sitting in Wilmington, Delaware in any action arising out of this Agreement and (ii) consents to the service of process by mail.

6. Counterparts . This Agreement may be executed in counterparts and signatures may be delivered by facsimile or by e-mail delivery of a “.pdf” format data file, each one of which shall be deemed an original and all of which together shall constitute one and the same Agreement.

7. Construction; Headings . As used herein, (i) “or” shall mean “and/or”; (ii) the terms “hereof”, “herein”, “hereby” and derivative or similar words refer to this entire Agreement; and (iii) “including” or “include” shall mean “including, without limitation.” The headings and captions herein are inserted for convenience of reference only and are not intended to govern, limit or aid in the construction of any term or provision hereof. It is the intention of the parties that every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party (notwithstanding any rule of law requiring an Agreement to be strictly construed against the drafting party), it being understood that the parties to this Agreement are sophisticated and have had adequate opportunity and means to retain counsel to represent their interests and to otherwise negotiate the provisions of this Agreement.

8. Successors and Assigns . Except as otherwise provided herein, all of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon each of the parties hereto and their respective permitted assigns and transferees. This Agreement may not be assigned by any of the parties without the prior written consent of the other parties hereto.

8. Entire Agreement . Except as expressly contemplated herein, this Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

10. No Third Party Beneficiaries . It is understood and agreed among the parties that this Agreement and the covenants made herein are made expressly and solely for the benefit of the parties hereto, and that, except as otherwise expressly provided for in this Agreement, no other person or entity shall be entitled or be deemed to be entitled to any benefits or rights hereunder, nor be authorized or entitled to enforce any rights, claims or remedies hereunder or by reason hereof.

11. Amendments; Remedies and Waivers . No provision of this Agreement may be amended, modified or waived except in writing signed by the Company and DSO. Except as otherwise expressly set forth herein, no delay or omission on the part of any party to this Agreement in exercising any right, power or remedy provided by law or provided hereunder shall impair such right, power or remedy or operate as a waiver thereof. The single or partial exercise of any right, power or remedy provided by law or provided hereunder shall not preclude any other or further exercise of any other right, power or remedy. The rights, powers and remedies provided hereunder are cumulative and are not exclusive of any rights, powers and remedies provided by law.

12. Further Action . The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

13. Specific Performance . The parties hereto agree that irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity, and shall not be required to post a bond or other collateral in connection therewith.

 

3

14. Public Announcements . The initial press release and other filings announcing the entry into this Agreement (the “ Initial Filings ”) shall be mutually agreed by the Company and DSO. No party hereto shall issue, or cause to be issued, any public announcements or disseminate any marketing material concerning the existence or terms of this Agreement without the prior written approval of the other party, except to the extent such announcement is required by law or stock exchange requirements; provided , however , that the foregoing shall not apply to any press release or materials to the extent it contains substantially the same information as previously communicated in the Initial Press Filings or by one or more of the parties without breach of the provisions hereof. If a public announcement is required by law or stock exchange requirements, the parties hereto will consult with each other before making the public announcement. To the extent any announcement or any marketing material permitted under this Section 14 expressly refers to any party or its affiliates or related party, such party shall, in its sole discretion, have the right to revise such announcement or advertising or marketing material prior to granting such written approval.

15. Actions and Determinations by the OZ Parties . With respect to any notice, consent, approval, waiver or other action or determination that is required or permitted to be taken, given or made by any of the OZ Parties pursuant to this Agreement, such notice, consent, approval, waiver or other action or determination shall be taken, given or made only by or with the express authorization of the Conflicts Committee. The Conflicts Committee shall be entitled to exercise all rights and remedies of the OZ parties against DSO hereunder, and the parties hereto shall take all action necessary to cause the OZ Parties to comply with the directives of the Conflicts Committee issued pursuant hereto.

 

4

If this Agreement correctly sets forth our understanding, please so acknowledge by signing below and returning a signed copy of this Agreement to us.

 

Very truly yours,
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer

Accepted and Agreed as of the date first set forth above:

 

DSO :

/s/ Daniel S. Och

Daniel S. Och

 

OZ SUBSIDIARIES :

 

OZ MANAGEMENT LP

 

By: Och-Ziff Holding Corporation, its general partner

 

By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer

OZ ADVISORS LP

 

By: Och-Ziff Holding Corporation, its general partner

By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer

OZ ADVISORS II LP

 

By: Och-Ziff Holding LLC, its general partner

By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer
OCH-ZIFF HOLDING CORPORATION
By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer
OCH-ZIFF HOLDING LLC
By:  

/s/ Robert Shafir

  Name: Robert Shafir
  Title: Chief Executive Officer

 

5

Exhibit A

Recapitalization Terms

 

6

EXHIBIT A

TERM SHEET

This term sheet (this “ Term Sheet”) sets forth the terms relating to a restructuring with respect to Och-Ziff Capital Management Group LLC (“ Och-Ziff ”, and together with its subsidiaries, the “ Och-Ziff Group” ) .

 

EQUITY REALLOCATION:

 

Subject to the Och-Ziff Group and members of senior management entering into binding arrangements (such arrangements, the “ Management Arrangements ”) regarding commitments, compensation and restrictive covenants that are no less favorable than those set forth on Annex A attached hereto:

 

•  DSO and the holders of Class A Units will together reallocate 35% of their Class A Units to existing senior management and new hires, which reallocation shall be accomplished by recapitalizing such Class A Units into a separate class of units (“ Class A-1 Units ”) and granting an equal number of units of a newly created class of equity incentives that are only entitled to future profits and gains (such interests, the “ Class E Units ”), which Class E Units will be granted on the effective date of the recapitalization; provided , that (i) such Class A-1 Units shall be cancelled only at such time and to the extent as such Class E Units vest 1 and achieve a book-up (it being understood that Class E Units shall vest upon a liquidation or upon a change of control transaction), and (ii) except as set forth under “Redemption” below, such Class A-1 Units shall not be entitled to vote unless and until reallocated as E Units (the “ Vote Holiday ”), 2 provided that the Class E Units shall be entitled to vote to the extent vested, and (iii) up to 10% of such Units shall be granted to new hires. With respect to any current holder of Class A Units who is also receiving Class E Units in the recapitalization, then, solely with respect to a number of Class E Units equal to the number of reallocated Class A Units of such holder, such Class E Units shall have a one-year vesting period (rather than the five-year vesting period applicable to Class E Units generally). For the avoidance of doubt, book-up may occur on a partial basis and, in the event of a change of control, Class A Units, Class A-1 Units and Class E Units will participate based on their capital accounts relative to those of the Class B Units.

 

1  

See footnote with description of vesting below.

2  

Specific mechanics to be agreed so that such Class A Units vote proportionately with the public shares; i.e., Class A Shares.

 

 

•   Treatment of Cancelled / Re-Allocated Units. See “Preferred Securities – Additional Consideration.”

 

•  Vesting criteria and termination consequences with respect to the reallocated Units will be determined by the Board of Directors of Och-Ziff (the “ Board ”) (in a manner no less favorable than the existing plan terms). 3

 

•  Any Class A-1 Units that are not cancelled in connection with the vesting of Class E Units in accordance with their terms will be forfeited and cancelled by Och-Ziff.

 

•  During the Distribution Holiday (as defined below), the Management Arrangements shall not be waived, amended, supplemented or otherwise modified without the approval of the Chief Executive Officer and the Compensation Committee of the Company; provided , that in the case of the “Named Executive Officers” of the Och-Ziff Group, such Management Arrangements shall not be waived, amended, supplemented or otherwise modified in any material respect, including any issuance of equity securities to the parties to the Management Arrangements, without (i) the applicable CEO / Compensation Committee approvals and (ii) the approval of at least 5 out of 7 members of the Board (or if the size of the Board is subsequently increased or decreased, such other supermajority vote as represents at least two-thirds of the directors) supported by the advice of a third party compensation consultant.

 

3  

i.e. , pro-rata vesting in years 3, 4 and 5 (1/3 on each of December 31, 2020, 2021 and 2022), with (i) all unvested units to be forfeited upon a termination for cause to the extent consistent with the Och-Ziff Group’s existing practice, (ii) all unvested units to be forfeited upon a resignation and (iii) upon a termination without cause, all units to continue to vest proportionately based upon (x) the period from December 31, 2017 that such individual was employed plus an additional 12 month period relative to (y) the period commencing on December 31, 2017 and ending December 31, 2022 (e.g., in the case of a termination without cause on December 31, 2019, 3/5 of such individual’s units would be vested); provided, however, that in no event shall the vesting of units described in this clause (iii) exceed 100%.

 

8

 

 

•   Class  D Units. Holders of Class D Units will have a one-time election to convert to Class E Units. Former executive managing directors will be able to elect to convert their Class D Units to vested Class E Units. Active executive managing directors will be able to convert their vested Class D Units to Class E Units, subject to a one-year vesting period. However, such units would vest if the active executive managing director is terminated without cause. Active executive managing directors will be able to convert their unvested Class D Units to Class E Units that would retain their existing vesting schedules. Unvested Class D Units that are scheduled to vest in less than 12 months at time of restructure will be subject to a one-year vesting period. Except as expressly provided above, the Class E Units received in respect of Class D Units will have no Class A-1 Units associated with them and will retain all rights, including, without limitation, rights to receive TRA payments, participation in change of control and full voting rights.

DISTRIBUTION HOLIDAY; MINIMUM CASH BALANCE:  

•  The Och-Ziff Group will initiate a “Distribution Holiday” on the A / D / E / P Units and RSUs that will terminate on the earlier of (i) the achievement of $600 million of “Distribution Holiday Economic Income” and (ii) April 1, 2026. 4 During the Distribution Holiday (i) P Unit prices will be adjusted to take into account performance and distributions during such period, (ii) RSUs shall receive in-kind distributions in respect of dividends or distributions paid to the A Shares, in each case of the foregoing clauses (i) and (ii) in an aggregate amount not to exceed $0.40 per P Unit or RSU cumulatively during the Distribution Holiday, as applicable, and in accordance with their existing terms (provided that such $0.40 cap shall not apply to any RSUs held by non-executive managing director employees or non-participating executive managing directors) and (iii) income will be allocated for book and tax purposes to reflect the revised distribution entitlements of the Class A / B / D / E / P Units.

 

4  

“Distribution Holiday Economic Income” to be defined as Economic Income, calculated in a manner consistent with the practice of Och-Ziff as of the date hereof, as adjusted for non-cash items, less any preferred dividends and/or interest, less any Permitted Dividends.

 

9

 

 

•  The Och-Ziff Group will maintain a minimum free cash balance 5 of no more than $200M while any Preferred Securities (as defined below) are outstanding.

 

•  The Och-Ziff Group may establish a cumulative discretionary one-time basket of up to $50M in the aggregate which will not be subject to the Distribution Holiday or any cash sweep described in this Term Sheet (the “ Discretionary Basket ”); provided , however , that (i) up to $7 million per 12-month period in respect of non-financed risk retention for CLOs, (ii) warehouse lines for CLOs consistent with the Och-Ziff Group’s past practice, (iii) the funding of unfunded commitments in respect of existing investments by the Och-Ziff Group in Och-Ziff funds (excluding CLOs) and (iv) recycling of proceeds from redemptions of existing investments by the Och-Ziff Group in Och-Ziff products in new firm products shall each be permitted and, for the avoidance of doubt, shall not be subject to the Discretionary Basket. Other than as described in the preceding sentence, the Och-Ziff Group may only use the Discretionary Basket to fund new firm investments or new firm products, or to fund share buybacks in an amount not to exceed $25 million in the aggregate (which will include any amounts in respect of Excess RSU Settlements) (the “ Restricted Activities ”), and, for the avoidance of doubt, shall not use such Discretionary Basket to fund employee compensation payments. 6 The Och-Ziff Group may only engage in the Restricted Activities or any other activities related to the strategic expansion of the Och-Ziff Group using funds from the Discretionary Basket, and for the avoidance of doubt, the Och-Ziff Group may not use any other funds of the Och-Ziff Group with respect to such activities. The foregoing will only apply as long as the cash sweep is in effect.

 

5  

“Free cash balance” to be mutually agreed and defined in a manner consistent with the practice of Och-Ziff as of the date hereof, eliminating any double counting and in a manner consistent with the treatment of items that are specifically addressed herein (e.g., cash sweep of any Designated Proceeds or Accrued Unrecognized Incentive other than the Designated Accrued Unrecognized Incentive and TRA payments).

6  

For the avoidance of doubt, the basket cannot be used for new compensation arrangements for employees; however, any cash settlement of RSUs in excess of the Permitted RSU Settlements (as defined below) would be permitted, subject to Board approval (“ Excess RSU Settlements ”); however, any such Excess RSU Settlements may only be funded using the $25 million aggregate basket permitted to be used for share buybacks.

 

10

 

•  Class A / D / E Units will be subject to achieving a book-up before they can be exchanged into Class A Shares of Och-Ziff. Once the book-up occurs, the applicable Class A Units shall be freely exchangeable and tradeable, subject to the exchange restrictions below. The P Units will continue to be subject to their existing book-up thresholds.

 

•  The book-up of the Class A /D / E Units shall occur automatically, upon (i) a sale, exchange or liquidation at any time or (ii) from time to time after the end of the Distribution Holiday, in each case accordance with the applicable waterfall and an objective book-up methodology (collectively, the “ Book-up Methodology ”) to be mutually agreed. The Book-up Methodology will provide, among other things, (1) that the holders of Class A Units will retain the benefit of the capital accounts (including following the reallocation and/or forfeiture of the Class A-1 Units) as of the date immediately preceding announcement of the transactions contemplated hereunder (and federal income tax basis and other tax attributes, including, without limitation, the debt allocations pursuant to Section 752 of the Internal Revenue Code of 1986, as amended, to the extent permissible) with respect to the Class A-1 Units to be reallocated and/or forfeited hereunder, (2) the principles for book-up of the Class A Units which will result in, to the extent possible, allocations of net gains such that each Class A Unit’s capital account will be no less per unit than each Class B Unit’s capital account and (3) the objective criteria with respect to the eligibility of Class A Units for a book-up. Except as required by a change in applicable laws, regulations or other IRS guidance following the date on which the Book-up Methodology is agreed or upon the written advice of outside counsel to the Och-Ziff Group as to the interpretation of the tax law, the Book-up Methodology may not be amended (directly or indirectly, whether by merger, recapitalization, amendment, or otherwise) in a manner that is adverse to the Class A Units without the consent of holders of a majority of Class A Units.

 

11

 

•  Prior to the expiration of the Distribution Holiday, an Exchange Committee (to be comprised of the CEO and CFO), in consultation with the Board, will have the authority to permit exchanges of vested and booked-up Class A / D / E Units, which exchange windows will be made available to all holders of vested and booked-up Class A / D / E Units on a pro rata basis.

 

•  Following the termination of the Distribution Holiday, any holder of Class A / D / E Units shall be free to exchange his or her vested units over a period of two years in three equal installments commencing upon the date of the termination of the Distribution Holiday and on each of the first and second anniversary thereof (and thereafter such units shall be freely exchangeable); provided , that in no event shall the restrictions on exchange of any such classes be more or less favorable to the holders of such class relative to such other classes (other than any Class B Units held by Och-Ziff), except to the extent resulting from book-up or vesting limitations.

 

•  Following the termination of the Distribution Holiday, Class A Units and Class E Units (whether vested or unvested) will receive distributions even if such Class A Units and Class E Units, as applicable, are not booked-up.

PREFERRED SECURITIES:  

New Debt Securities. $200M of the existing preferred securities (the “ Existing Preferred ”) will be restructured into debt which shall have the same terms and conditions as Och-Ziff’s 2018 credit facility (the “ Debt Securities ”) (other than in respect of amortization, as described below, or as otherwise expressly set forth herein). The $200M of Debt Securities will not accrue interest until February 2020.

 

•  Debt Securities will be unsecured and will rank (i) junior to the 2018 credit facility and (ii) senior to the New Preferred Securities (as defined below) and all other current or future indebtedness of the Och-Ziff Group.

 

•  The Debt Securities will have a maturity date of the earlier of (i) 5 years from the repayment of the New Preferred Securities and (ii) April 1, 2026.

 

12

 

•  The $200M of the Debt Securities shall be subject to mandatory, straight-line annual amortization of 20% per annum (provided that in no event shall amortization payments on the Debt Securities, together with amortization payments on the Incremental Debt Securities (as defined below), be required to exceed $40M; it being understood that the payment of the remaining balance of the Debt Securities and Incremental Debt Securities (together with any interest or other outstanding obligations thereunder) on the maturity date will not be subject to such restrictions), commencing upon the earlier of (i) the one-year anniversary of the repayment of the New Preferred Securities and (ii) 3/31/22.

 

•  For a period of nine months after the repayment of the New Preferred Securities, Och-Ziff will have the option to voluntarily repay up to $200M of the initial Debt Securities at a 5% discount.

 

•  If the Och-Ziff Group is prohibited from repurchasing any New Preferred Securities with the Designated Proceeds pursuant to the cash sweep described below, the Debt Securities shall provide that the Och-Ziff Group shall (i) deposit the Designated Proceeds into a third party escrow account and (ii) to the extent such prohibitions remain, use the amounts in such escrow account to repay any New Preferred Securities upon conversion into Incremental Debt Securities; provided , that such amount shall be used to repurchase New Preferred Securities to the extent that such prohibition is no longer in effect.

 

New Preferred Securities. The remaining $200M of the Existing Preferred will be restructured into a new preferred equity security (the “ New Preferred Securities ” and, together with the Debt Securities and Incremental Debt Securities, the “ Preferred Securities ”) which will have substantially the same terms and conditions as the Existing Preferred (including the formation of a Holders’ Committee to be comprised of DSO as the sole member), except that, other than following the occurrence of a Discount Termination Event, Och-Ziff will have the option to voluntarily repay the remaining $200M of the New Preferred Securities at a (1) 25% discount until 4/1/21; and then (2) 10% discount at any time between 4/1/21 and 3/31/22 (such applicable rate, the “ Discount Rate ”), and any mandatory payments as a result of the cash sweep described below will be entitled to the same discount. For purposes hereof,

 

13

 

“ Discount Termination Event ” means any of (i) a material and ongoing default under Och-Ziff’s credit agreement or the agreement governing the Debt Securities, (ii) a decrease in AUM (other than funds in wind-down as of the date hereof, CLO AUM and other than any redemptions made by DSO or other former executive managing directors of Och-Ziff or their related entities (including the Liquidity Redemption)) (the “ Non-Affiliate AUM ”) in excess of 40% as compared to the Non-Affiliate AUM as of December 31, 2018, (iii) a liquidation, bankruptcy or other restructuring or (iv) the occurrence of other similar events to be set forth in definitive agreements.

 

To the extent that the New Preferred Securities are not repaid in full on or prior to 3/31/22, then, at the option of the holder thereof, all or any portion of the principal amount of such New Preferred Securities (together with any accrued but unpaid interest thereon) shall be automatically converted into Debt Securities on a dollar-for-dollar basis without any further action by the Och-Ziff Group or any other person (the “ Incremental Debt Securities ”). For the avoidance of doubt, such converted Debt Securities will have the same terms as the $200M of Debt Securities.

 

So long as any New Preferred Securities are outstanding, without the consent of the Holders’ Committee, the Och-Ziff Group shall not create any new class of equity securities or issue any equity securities in any existing class that would be senior or pari passu to the New Preferred Securities (or amend the terms of an existing class of equity securities to become senior or pari passu to the New Preferred Securities).

 

14

 

 

Cash Sweep .

 

a)  During the Distribution Holiday, on a quarterly basis, 7 100% of all economic income 8 (after accounting for normalized public dividends as determined by the Board (but subject to an annual minimum of 20% of distributable earnings per year, and an annual maximum of up to 30% of distributable earnings or, if the minimum would be $0.10 or less, then up to $0.10 per public share per annum) (the “ Permitted Dividend ”) will be applied to repay the 2018 credit facility and then repurchase the New Preferred Securities (in each case, together with accrued interest); and

 

b)  Any gross proceeds resulting from the realization of Accrued Unrecognized Incentive in respect of the Specified Funds (the “ Designated Accrued Unrecognized Incentive ”) (net of compensation arising from such realization consistent with compensation allocations as of the date hereof) and 85% of the after tax proceeds from any asset sales or other dispositions will be used to repay the 2018 credit facility and then the New Preferred Securities (collectively, the “ Designated Proceeds ”). For purposes of the foregoing, the “Specified Funds” shall be consist of the funds listed on Schedule 2 .

 

7  

Details to be mutually agreed and subject to further analysis.

8  

“Economic income” to be mutually agreed and defined in a manner consistent with the practice of Och-Ziff as of the date hereof, eliminating any double counting and in a manner consistent with the treatment of items that are specifically addressed herein (e.g., cash sweep of any Designated Proceeds or Accrued Unrecognized Incentive other than Designated Accrued Unrecognized Incentive and TRA payments). For the avoidance of doubt, and consistent with the Company’s financial model, Economic Income for the purposes of the Cash Sweep shall be adjusted for non-cash items and net of the following items, in an amount not to exceed $9 million per year in the aggregate with respect to items (1) through (4): (1) release of the risk retention capital with respect to the existing U.S. CLOs; (2) Partnership’s Ownership Stake in TRA Liability; (3) CLO Risk Retention; (4) Annual Capex; (5) 50% normal course cash settlement for up to 20 million RSUs per year (“ Permitted RSU Settlements ”); (6) Mandatory Preferred Debt Amortization (New Debt Securities); (7) Preferred Dividends and/or Interest; and (8) Permitted Dividends.

 

15

 

c)  No later than January 1, 2019, all free cash on the balance sheet in excess of the minimum free cash balance together with any gross cash resulting from the realization of any incentive income earned in respect of the Och-Ziff funds that are currently in wind down (estimated at approximately $60 million) will be used to repay the 2018 credit facility. Any gross proceeds resulting from the realization of Accrued Unrecognized Incentive other than the Designated Accrued Unrecognized Incentive (net of compensation arising from such realization consistent with compensation allocations as of the date hereof) will be used to repay the 2018 credit facility debt only. However, it is the intention of the parties that the Designated Proceeds be used to repurchase the New Preferred Securities; accordingly, if any of the Designated Proceeds are used to repay the 2018 credit facility debt, then following repayment of the 2018 credit facility debt, the Company will use proceeds realized from Accrued Unrecognized Incentive other than the Designated Accrued Unrecognized Incentive to repay a corresponding amount of the New Preferred Securities.

 

d)  For the avoidance of doubt, in no situation shall the Cash Sweep described in clause (a) above force the Och-Ziff Group to drop below a minimum free cash balance of $200M.

 

Accrued Unrecognized Incentive Protections. Any direct or indirect amendment, waiver or other modification of the terms of the Designated Accrued Unrecognized Incentive or the real estate commingled funds Accrued Unrecognized Incentive (including any material change in the timing of any realization thereof, subject to any mutually agreed exceptions consistent with past practice and, in the case of the real estate commingled funds, excluding any delay or deferral based on commercially reasonable business rationale provided that such delay or deferral similarly impacts all beneficiaries of such incentive including the general partner of the relevant fund) will require the consent of the Holders’ Committee of New Preferred Securities. In addition, the Och-Ziff Group shall continue to manage the Specified Funds in a manner that is consistent with past practice and, without the prior consent of the Holders’ Committee of New Preferred Securities, it shall not take any action with respect to the Specified Funds which would adversely impact the Designated Accrued Unrecognized Incentive or otherwise result in the payment of proceeds associated with the realization of Designated Accrued Unrecognized Incentive to be

 

16

 

delayed to a date following the expiration of the term of each Specified Fund, subject to any mutually agreed exceptions consistent with past practice. The parties will agree on mutually acceptable terms regarding realization and collection of any Designated Proceeds and Designated Accrued Unrecognized Incentive. The foregoing provisions of this paragraph are subject to the exception set forth on Schedule 1 .

 

For the avoidance of doubt, the cash sweep and the foregoing Accrued Unrecognized Incentive protections will cease to apply at such time as none of the New Preferred Securities and Incremental Debt Securities are outstanding.

 

Prohibition on New Indebtedness . The Och-Ziff Group will be prohibited from refinancing or incurring any new indebtedness (or incurring liens or diverting assets) (other than in respect of capital leases and risk retention with respect to CLOs, aircraft leasing transactions, and, if mutually agreed, other securitizations to be discussed as part of the definitive documentation, in each case entered into in the ordinary course of business consistent with past practice) without the consent of the Holders’ Committee of New Preferred Securities other than indebtedness that is incurred and issued to contemporaneously pay in full all obligations (including principal, interest and other amounts owed or accrued) under the Preferred Securities.

 

Additional Consideration . As additional consideration for the restructuring of the Preferred Units, (x) the holders of the Preferred Units will forfeit 7.5 million Class A Units (which units may be reallocated for use by the CEO and the Compensation Committee) and (y) DSO will waive his right to reallocate (and, under certain circumstances, be reissued) the Units cancelled pursuant to the 3/28/18 reallocation agreement.

REDEMPTION:  

•  DSO and his related entities (collectively for this section and the Governance section, “ DSO ”) will redeem all of his liquid balances in the Och-Ziff Group each fiscal quarter for a period lasting two consecutive fiscal quarters starting with the fourth quarter of 2018, other than the liquid balances currently in the OZ credit opportunities

 

17

 

fund (the “ Credit Fund Balance” ), which will be redeemed in full on September 30, 2019 (the payment of all such redemptions other than the OZ Credit Balance in full, the “ Liquidity Redemption ”). 9 The Liquidity Redemption shall be made as to 50% of the liquid balances in the fourth quarter of 2018, and as to the remainder in the first quarter of 2019. If (i) the Och-Ziff Group has advised DSO in writing that he may not withdraw capital invested in the firm that he has requested to withdraw, or (ii) (x) DSO is advised in writing by his counsel (which written advice is promptly furnished to the Och-Ziff Group) that he is prohibited by law from withdrawing capital invested in the firm that he has requested to withdraw and (y) counsel to the Och-Ziff Group does not thereafter inform DSO in writing that he is not so prohibited (any such blockage or restriction, a “ Withdrawal Restriction ”), then the Transition Date (as defined in the Governance section below) shall be deferred and the Liquidity Redemption extended if and to the extent contemplated by the following subparagraph.

 

•  In the event that (i) DSO is prohibited by a Withdrawal Restriction from withdrawing an amount of capital that he has, in accordance with the applicable fund documents, requested to withdraw during a redemption window, (ii) DSO so seeks in each subsequent redemption window pertinent to such withdrawal request to withdraw any unwithdrawn amount of such request and (iii) DSO is prohibited by subsequent Withdrawal Restrictions from withdrawing the remaining unwithdrawn amount thereof, then the Transition Date shall be tolled until 30 days following the closing of the next redemption window pertinent to such withdrawal request as to which no Withdrawal Restriction restricts DSO’s ability to withdraw unwithdrawn amounts requested to be withdrawn. The provisions of the preceding sentence may apply sequentially to subsequent redemption windows and simultaneously to multiple requests to withdraw capital.

 

9  

For the avoidance of doubt, Liquidity Redemption will exclude side pockets and related holdbacks, funds in wind-down and audit holdbacks. If any such investments are liquidated or otherwise released, then, without further action by DSO or any other person, such investments will be redeemed during the next redemption window.

 

18

 

•  In addition, notwithstanding anything to the contrary contained herein, the Vote Holiday is subject to and shall not be of any force or effect unless and until the occurrence of the Liquidity Redemption and until DSO shall have received the Credit Fund Balance.

GOVERNANCE:  

•  On the 30 th day following the completion of the Liquidity Redemption (such date, the “ Transition Date ”), DSO will relinquish his proxy under the Class B Shareholders Agreement and disband the Class B Shareholder Committee. The Transition Date shall be tolled as described herein and, for the avoidance of doubt, shall not occur unless and until DSO shall have received all of the liquid balances (other than in respect of the Credit Fund Balance).

 

•  No later than the next annual meeting of shareholders of Och-Ziff that is at least 30 days following the Transition Date, DSO will resign as a director of the Board but will have the right to designate a director (which such director shall not be subject to the New York Stock Exchange’s (“ NYSE ”) director independence requirements (the “ DSO Designated Director ”) to serve in his place as a director of the Board for as long as DSO continues to own either (i) Preferred Securities with an initial liquidation preference not less than 33% of the initial liquidation preference of the Preferred Securities owned by DSO immediately following the creation of the Preferred Securities or (ii) a number of common equity units (on an as-converted basis) of the Och-Ziff Group not less than 33% of the number of common equity units (on an as-converted basis) of the Och-Ziff Group owned by DSO, in each case, immediately after giving effect to the transactions contemplated hereby. 10

 

•  The existing slate of directors would be expected to continue for another term. If any Class B director (other than DSO or his replacement as contemplated by the preceding bullet) resigns or otherwise ceases to serve on the Board at or prior to annual meeting of shareholders in 2019 (including any adjournment or postponement

 

10  

Subject to the DSO Designated Director satisfying the NYSE’s director independence requirements, the DSO Designated Director shall be entitled to serve as a member of the Compensation Committee until the earlier of (i) the repayment of the New Preferred Securities, (ii) April 1, 2022 and (iii) October 1, 2021 if 50% of the New Preferred Securities are repaid on or prior to such date.

 

19

 

thereof, the “ 2019 Meeting ”), the replacement director shall be an individual who shall qualify as an independent director and be appointed by DSO (in his capacity as the member of the Class B Committee) as a Class B Director with the approval, which should not be unreasonably withheld, of the Nominating, Corporate Governance and Conflicts Committee.

 

•  If any other member of the Board of Directors resigns at or prior to the 2019 Meeting, the Nominating, Corporate Governance and Conflicts Committee will nominate a successor, subject to approval by DSO, which should not be unreasonably withheld.

 

•  Effective as of the Transition Date, (i) the Chief Executive Officer and Chief Financial Officer of the Company will be appointed as the directors of Och-Ziff Holding Corporation and the members of Och-Ziff Holding LLC (consistent with the Governance Term Sheet), (ii) the Chief Executive Officer of the Company will replace DSO as PMC Chairman and Chairman of the PMC, (iii) the Chief Executive Officer and Chief Financial Officer of the Company will replace DSO as the general partner of the operating partnerships and as a member of all internal firm committees and (iv) the then-current director(s) of the fund boards other than DSO and, if elected by the Company, the Chief Executive Officer and/or the Chief Financial Officer of the Company, will serve as directors of the fund boards.

TAX RECEIVABLE AGREEMENT:  

•  Subject to the implementation of the corporate conversion of Och-Ziff, the Tax Receivable Agreement will be amended to provide that no amounts are payable to DSO and all other recipients of TRA payments (collectively, the “ TRA Recipients ”) for the 2017 and 2018 tax year under the Tax Receivable Agreement; except to the extent of the excess of (A) the actual amount payable in respect of the 2018 tax year over (B) the theoretical amount payable determined assuming (1) the C-corporation conversion described below occurs in 2019 and (2) that taxable income does not exceed reported economic income, it being acknowledged and agreed that to the extent the actual TRA liability payment for 2018 exceeds the theoretical TRA liability calculated using the aforementioned assumptions, such excess will be payable to the TRA Recipients for calendar year 2018 in accordance with the normal payment schedule.

 

20

 

•  Beginning with the 2019 tax year payments and thereafter, the 85% of tax savings that TRA Recipients are entitled to receive under the Tax Receivable Agreement will be reduced to 75%, and Och-Ziff will retain the remaining 25% of the tax savings that are not paid to the TRA Recipients.

 

•  DSO and the current holders of Class A Units will retain their TRA benefits in respect of any units reallocated as described above.

 

•  For the avoidance of doubt, holders of Class D Units will retain their TRA benefits.

 

•  Recipients of Class E Units resulting from the reallocation of Class A-1 Units will not be entitled to any TRA payments with respect to such Class E Units, rather such TRA payments shall be paid to DSO and the other holders of Class A-1 Units. For the avoidance of doubt, recipients of converted Class D Units to Class E Units do retain TRA payments.

CERTAIN PROTECTIONS:  

The definitive agreements to include customary affirmative and negative covenants to protect the terms of the restructured Preferred Securities and Class A Units, including:

 

•  The consent of holders of a majority of Class A Units shall be required for the Och-Ziff Group to take any action (directly or indirectly, whether by merger, recapitalization, amendment, or otherwise) that is adverse to the holders of Class A Units in a manner disproportionate to the holders of the Class A Shares (taking into account, for such purposes, the effect on the Class A Shares and/or the Class B Units in the operating partnerships), including, for the avoidance of doubt, any amendments to the terms of the Class D / E / P Units or RSUs, the disproportionate allocation of income (loss) to any class of units or the creation of any class of equity securities pari passu or senior to the Class A Units. In addition, the consent of holders of a majority of Class A Units shall be required for the issuance of any Class A Units. Notwithstanding the foregoing, during the period from the effective date until the achievement of the book-up following the end of the Distribution Holiday (the “ Outstanding

 

21

 

Book-up Period ”), without the consent of the holders of a majority of the Class A Units, the Och-Ziff Group shall not create any new class of equity securities that would be senior or pari passu to the Class A Units (or amend the terms of an existing class of equity securities to become senior or pari passu to the Class A Units). 11 In connection with any consent to be obtained from the holders of Class A Shares, no consent fee or other consideration shall be offered to such holders.

 

•  The Och-Ziff Group will reimburse the holders of the Debt Securities, New Preferred Securities and the Class A Units with respect to any reasonable fees and expenses (including attorneys’ fees) incurred by such holders in connection with protecting the interests or enforcing the rights of such securities.

 

•  Other covenants on the same terms as those contained in the Och-Ziff Group’s 2018 credit facility debt.

 

•  For the avoidance of doubt, the transactions contemplated hereby, and any discussions in connection herewith, will not constitute a “Withdrawal” by DSO pursuant to the limited partnership agreements of OZ Advisors LP, OZ Advisors II LP and OZ Management LP (each such entity, an “ Operating LP ” and together, the “ Operating Group ”, and each such limited partnership agreement, a “ LPA ”) or the Class B Shareholders Agreement, and DSO’s continuing rights and obligations with respect to the Och-Ziff Group will be determined in the manner set forth in this Term Sheet.

NAME:   The Och-Ziff Group will cease using the “Och” and “Ziff” names in any official or unofficial capacity no later than December 31, 2019.
CONSENTS:   The transactions contemplated hereby have been approved by (i) DSO and (ii) the Conflicts Committee. The transactions contemplated hereby are subject to (a) the further approval of (1) a majority of the minority of the holders of Class A Units (i.e., excluding DSO and any holders of Class A Units that receive Class E Units), (2) in the case of the TRA amendment, the requisite beneficiaries under the TRA, including those listed on Schedule 3, and (3) the Och-Ziff Group’s senior lenders and (b) the receipt of a customary solvency opinion.

 

11  

For the avoidance of doubt, such consent right will not limit the rights of the preferred holders, which currently have rights to issuances of pari passu or senior equity.

 

22

  The transactions contemplated hereby will be conditioned on the Och-Ziff Group and members of senior management entering into binding Management Arrangements regarding commitments, compensation and restrictive covenants that are no less favorable than those set forth on Annex A attached hereto.
EQUITY PLAN   The parties agree to take such further action (which may include voting of the Class B proxy) to provide for shareholder approval (at a special meeting of shareholders) of an amendment to the Company’s equity compensation plan(s) in accordance with applicable stock exchange rules, authorizing the issuance of all Class E Units as may be necessary to effect the transactions contemplated hereby.
INDEMNIFICATION:   The OZ Group will provide full indemnification protection to DSO and the participating former executive managing directors with respect to the transactions contemplated by this Term Sheet.
RELEASE:   In relation to the transactions contemplated by this Term Sheet, the OZ Group, its Board and the active partners shall provide DSO and the participating former executive managing directors with a full release, and DSO and the participating former executive managing directors shall provide the OZ Group, its Board and the active partners with a full release.
COMMUNICATIONS:   The parties will agree to consistent messaging. In this regard, the parties will help the Och-Ziff Group craft, create and participate in messaging regarding the benefits brought by the restructuring contemplated by this Term Sheet to the Och-Ziff Group, including its public shareholders.
DEFINITIVE DOCUMENTATION:   The obligations of the parties hereto are subject to DSO and the Och-Ziff Group entering into definitive documentation memorializing the terms and conditions contained in this Term Sheet as soon as possible, and in any event no later than January 15, 2019.
EXPENSES:   The Och-Ziff Group will reimburse DSO for all out-of-pocket fees and expenses incurred in connection with the transactions contemplated by this Term Sheet, including the fees and expenses of attorneys and a financial advisor selected by DSO, up to $5 million.

 

23

NON-CIRCUMVENTION:  

•  The Och-Ziff Group and DSO will be bound by non-circumvention restrictions prohibiting the Och-Ziff Group from taking actions that would otherwise be inconsistent with the terms and intent of this Term Sheet.

 

•  Notwithstanding the foregoing, nothing in this Term Sheet will limit or otherwise modify any of DSO’s contractual rights or any of DSO’s rights as a shareholder of OZ (including, without limitation, the consent and other rights relating to DSO’s preferred securities) that are not expressly to be modified or amended pursuant to this Term Sheet. Without limiting the foregoing, except as expressly modified by this Term Sheet, the terms of that certain “Governance Terms” term sheet, dated January 27, 2018, shall remain in full force and effect.

TAX CLASSIFICATION   Och-Ziff intends to change its tax classification from a partnership to a corporation effective December 31, 2018; provided that (i) there can be no assurance that such date will be achieved and (ii) Och-Ziff will make a public filing confirming the actual date of effectiveness on or before December 31, 2018.

 

24

Annex A

Compensation

 

  •  

There will be a 20% reduction of annual compensation to certain executive managing directors.

 

  •  

Subject to Section 409A of the Internal Revenue Code of 1986, as amended, the remainder will be subject to vesting and be awarded to certain executive managing directors (except J. Levin & R. Shafir, whose compensation splits will remain consistent with the splits in their current contracts) as follows: 75% in cash (breakpoints and lower cash % for higher comp levels); and 25% in RSUs and/or DFIs, with the percentages to be awarded in RSUs and DFIs to be decided annually and approved by the Compensation Committee.

 

  •  

The 2018 Partner Incentive Pool will be extended to continue during the Distribution Holiday, provided that the Partner Incentive Pool shall not be on terms more favorable than those approved by the Compensation Committee of the Board in July 2018.

Senior Management Team Commitment

 

  •  

Jimmy Levin will commit to a two (2) year non-compete that steps down to one (1) year on January 1, 2022.

 

  •  

Wayne Cohen, Tom Sipp and David Levine will each commit to a two (2) year non-compete that steps down to one year (1) on January 1, 2021.

 

  •  

Rob Shafir to continue with his non-compete: two (2) year non-compete that steps down to 18 months at the conclusion of the term of his contract (February 5, 2022).

 

  •  

The senior investment professionals named on Schedule 4 will each commit to a two (2) year non-compete that steps down to one (1) year on January 1, 2021.

 

25

SLIDE 1

Strategic Actions – Positioning for Long-Term Success December 6, 2018 Exhibit 99.1

SLIDE 2

Disclaimer Forward-Looking Statements The information contained in this presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect the Company's current views with respect to, among other things, the recapitalization and other transactions described herein, including the timing for completing the recapitalization and other transactions described herein; their effect on the Company, including on the Company’s cash flows, balance sheet and earnings; the Company’s ability to create value; the Company’s growth prospects; the anticipated benefits of changing the Company’s tax classification from a partnership to a corporation (the “Conversion”); and future events and financial performance. The Company generally identifies forward-looking statements by terminology such as "outlook," "believe," "expect," "potential," "continue," "may," "will," "should," "could," "seek," "approximately," "predict," "intend," "plan," "estimate," "anticipate," "opportunity," "comfortable," "assume," "remain," "maintain," "sustain," "achieve," "see," "think," "position" or the negative version of those words or other comparable words. Any forward-looking statements contained in this presentation are based upon historical information and on the Company's current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated by the Company will be achieved. The Company cautions that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving the Company; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice; the Company's ability to implement the Conversion and the recapitalization and the other transactions described in this presentation, including obtaining all applicable consents and approvals, satisfying all conditions to effectiveness on a timely basis or at all and reaching agreement on the further agreements relating to the implementation of all such transactions, and whether the Company realizes all or any of the anticipated benefits from the Conversion and the recapitalization; whether the Conversion and the recapitalization result in any increased or unforeseen costs or have an impact on the Company's ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; the Company's ability to retain existing investor capital; the Company's ability to successfully compete for fund investors, assets, professional talent and investment opportunities; the Company's ability to retain its active executive managing directors, managing directors and other investment professionals; the Company's successful formulation and execution of its business and growth strategies; the Company's ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to the Company's business; and assumptions relating to the Company's operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if the Company's assumptions or estimates prove to be incorrect, the Company's actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in the Company's filings with the SEC, including but not limited to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, dated February 23, 2018, as well as may be updated from time to time in the Company's other SEC filings. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not known. The Company does not undertake to update any forward-looking statement, because of new information, future developments or otherwise. This presentation does not constitute an offer of any Oz Management fund. 1

SLIDE 3

Oz Management Highlights 24 year track record delivering strong investment performance Broad suite of investment products and solutions Deep bench and long-tenured investment talent Transition plan to next generation announced Strategic actions expected to position the Company to grow assets under management 2

SLIDE 4

Transaction Summary We are excited to announce a series of strategic actions that are expected to drive value creation and position Oz Management for growth Strategic Corporate Actions – Components ___________________________ Former EMDs include EMDs who have retired or are expected to retire.  See page 11 for additional information on the terms of the new debt and new preferred. See page 12 for further details. Current Executive Managing Directors (“EMDs”) to exchange a portion of annual compensation for long-term equity awards reallocated from former EMDs Former EMDs(1) will reallocate 35% of their Class A Units Current and former EMDs temporarily foregoing distributions on all their common units in the Oz Operating Group (the “Distribution Holiday”). Forgone unitholder distributions expected to go to pay down the Company’s debt and preferred securities and for public shareholder distributions Expect to maintain dividends to public shareholders during Distribution Holiday Tax Receivable Agreement will be amended to waive certain payments for tax years 2017 and 2018, freeing up between $50mm and $60mm to pay down, along with existing cash, approximately $100mm of the existing term loan Existing Preferred restructured into $200mm of new debt and $200mm of new preferred with terms substantially similar to the existing debt and preferred. The new debt and preferred have options to repay both at a discount that could result in combined principal savings of up to $60mm (2) The Company intends to change its tax classification from a partnership to a corporation These strategic corporate actions are subject to certain stakeholder and lender approvals and other conditions (3) Equity Realignment Near-Term Debt Paydown and Restructuring to Facilitate Deleveraging A B C-Corporation Conversion C Strategic Actions – Components Approvals 3

SLIDE 5

Strategic Rationale Materially improves long-term alignment of current EMDs Drives enhanced core earnings power Near-term repayment of Term Loan Restructuring facilitates deleveraging Simplifies shareholder tax reporting which expands eligible investor universe Positions firm to grow assets under management The strategic actions are expected to achieve a number of key objectives and unlock long-term value for all Oz Management stakeholders 4

SLIDE 6

Equity Realignment Description Ownership Summary (2,3) Institutes a revised compensation structure and creates long-term incentives for current EMDs without additional dilution to shareholders Certain key EMDs to reduce current compensation Former EMDs(1) to reallocate 35% of their Class A common units to current EMDs and new hires Long-term vesting Benefits Reduces compensation expense Materially improves alignment of current EMDs with shareholders Strengthens retention mechanism A ___________________________ Former EMDs include EMDs who have retired or are expected to retire.  As of September 30, 2018. Assumes full reallocation of the 7.5 million Class A Units forfeited by the holders of the Existing Preferred to Current EMDs and Employees. 5

SLIDE 7

Accelerated Balance Sheet Strengthening A series of initiatives expected to facilitate accelerated balance sheet strengthening Distribution Holiday 1 Tax Receivable Agreement (“TRA”) 2 Preferred Restructuring 3 EMDs of Oz Management to forgo distributions on all of their units until the earlier of the achievement of $600mm of Distribution Holiday Economic Income and April 1, 2026 Cash that would have otherwise been received by unitholders to be used to pay down debt and preferred securities and for public shareholder distributions The company expects to maintain dividend payouts to public shareholders of 20% to 30% of distributable earnings per year during the Distribution Holiday (1) Modifications to the terms of the Existing Preferred Economic concessions including incentives for accelerated redemption that could reduce principal by up to $60mm Existing debt and New Preferred will be subject to a cash sweep (2) $200mm of the preferred securities will convert into debt Both the New Debt and New Preferred will not pay interest until February 2020 TRA amendment frees up between $50mm and $60mm of cash Cash from TRA amendment targeted at strengthening the firm’s financial condition B ___________________________ See page 11 for further details. See page 11 for further details. 6

SLIDE 8

Simplified Tax Structure Broader Eligible Investor Universe Key Benefits Include: Eliminates Schedule K-1s and simplifies shareholder tax reporting Conversion should open public shares to a broader shareholder base, enhancing liquidity Improvements to liquidity may lead to increased capital markets access and lower volatility 1 2 3 The Company intends to change its tax classification from a partnership to a corporation and expects to effect a conversion to a corporation Corporate Conversion (Summary) C 7

SLIDE 9

___________________________ Based on a blended tax rate based on the character of income passed through to investor. For the purposes of this presentation, the ratio of long-term capital gain income earned in 2017 has been adjusted to account for the impact of 2018 TCJA changes to carried interest. Subject to other simplifying assumptions. Assumes the same ratio of distributions relative to the adjusted Distributable Earnings in the corporate structure. Assumes NYC resident individual federal, state and local tax rates on qualified dividend income. While the corporate conversion may increase corporate income taxes and TRA payments, the corporate conversion is expected to increase after-tax distributions to taxable U.S. Class A shareholders Corporate Conversion (Illustrative Impact of Conversion Only) C A B A B C D E D E F ✕ = ✕ = D C F G − = − C F G 8

SLIDE 10

4 5 Current Transaction Adjustments Pro Forma at Closing Pro Forma Post-Holiday (1) ($ in millions) Total Cash $482 $482 $382 Cash Designated for ‘17/’18 TRA $55 $0 $0 Other Cash $427 $482 $382 Term Loan $200 $200 $100 $0 Preferred $400 New Debt $200 $200 $0 New Preferred $200 $200 $0 Expected Balance Sheet Impact of the Transaction 1 TRA amendment increases available cash by approximately $55mm Existing preferred is restructured into New Debt and New Preferred Approximately $100mm of available cash (including as a result of the of the benefit of the TRA amendment) pays down the Term Loan at closing Distribution Holiday on $600mm of earnings expected to accelerate debt pay down New Debt and New Preferred can be repaid at discounts totaling up to $60mm of principal value 1 2 3 4 5 ___________________________ Note: Current as of September 30, 2018. Assumes achievement of $600mm of Distribution Holiday Economic Income prior to April 1, 2026. 2 3 3 9

SLIDE 11

Expected Earnings Impact of the Transaction Positions firm to drive growth in assets under management Reduces compensation expense to enhance earnings power Lower interest payments from pay down of outstanding term loan Incentive to repay New Debt and New Preferred at a discount Dividend payout ratio to public shareholders of at least 20% of distributable earnings anticipated during the Distribution Holiday Dividend payout ratios expected to return to historical levels following the Distribution Holiday 10

SLIDE 12

Appendix

SLIDE 13

Preferred Securities Terms $200mm of the Existing Preferred will be restructured into debt (the “New Debt”) The New Debt will be unsecured and have a maturity date of the earlier of (i) 5 years from the repayment of the New Preferred and (ii) April 1, 2026 The New Debt will not accrue interest until February 2020, after such date New Debt will accrue interest at the rate of the 2018 Term Loan The New Debt shall be subject to mandatory, straight-line annual amortization of 20% per annum (subject to a $40mm annual limit), commencing upon the earlier of (i) the one-year anniversary of the repayment of the New Preferred and (ii) 3/31/22 For a period of nine months after the repayment of the New Preferred, the Company will have the option to voluntarily repay up to $200M of the initial New Debt at a 5% discount The remaining $200mm of the Existing Preferred will be restructured into a new preferred equity security (the “New Preferred”) which will have substantially the same terms and conditions as the Existing Preferred Except subject to certain discount termination events, the Company will have the option to voluntarily repay the remaining $200M of the New Preferred at a (1) 25% discount until 4/1/21; and then (2) 10% discount at any time between 4/1/21 and 3/31/22, and any mandatory payments as a result of the cash sweep described below will be entitled to the same discount To the extent the New Preferred is not repaid in full on or prior to 3/31/22, at the option of the holder, all or any outstanding portion of the New Preferred shall be automatically converted into debt (the “Incremental Debt”) on the same terms as the New Debt During the Distribution Holiday, on a quarterly basis, 100% of all adjusted economic income (after accounting for normalized public dividends as determined by the Board (but subject to an annual minimum of 20% of distributable earnings per year, and an annual maximum of up to 30% of distributable earnings or, if the minimum would be $0.10 or less, then up to $0.10 per public share per annum) will be applied to repay the 2018 credit facility and then repurchase the New Preferred (in each case, together with accrued interest) In no situation shall the Cash Sweep force the Company to drop below a minimum free cash balance of $200mm Additionally, any gross proceeds resulting from the realization of Accrued Unrecognized Incentive in respect of the Specified Funds (the “Designated Accrued Unrecognized Incentive”) (net of compensation) and 85% of the after tax proceeds from any asset sales or other dispositions will be used to repay the 2018 credit facility and then the New Preferred New Preferred New Debt Cash Sweep ___________________________ Note: Full details of the Preferred Securities available in the Term Sheet. 11

SLIDE 14

Conditions to Effectiveness and Additional Information The restructuring contemplated by the plan described in this presentation are, unless otherwise mutually agreed by the Company and Mr. Och, subject to and conditioned upon, among other things, (i) approval by the holders of a majority of the minority of the holders of Class A Units (which for the avoidance of doubt does not include Mr. Och or any holders of Class A Units that will receive Class E Units); (ii) with respect to the TRA Amendment, approval by the requisite beneficiaries under the TRA; (iii) approval of the senior lenders of the Company and its subsidiaries; (iv) the absence of a material adverse effect on the Company; (v) the execution of definitive release agreements by the applicable releasing parties; (vi) the receipt by Oz Management of a customary solvency opinion; (vii) the Company and its subsidiaries and certain current EMDs entering into binding management arrangements regarding commitments, compensation and restrictive covenants that are no less favorable than those set forth in the plan; and (viii) entry into of definitive documentation implementing the recapitalization and related transactions. Details about the strategic realignment and its impact to shareholders and clients are in the Company’s Current Report on Form 8-K filed on December 6, 2018 (the "Form 8-K"), and an investor presentation, which is available at http://shareholders.ozm.com. The Company encourages current or potential shareholders to read both of these documents prior to making any investment decisions. 12

Exhibit 99.2

 

LOGO

OZ MANAGEMENT ANNOUNCES STRATEGIC PLAN TO COMPLETE GENERATIONAL

TRANSFER AND POSITION THE FIRM FOR LONG-TERM SUCCESS

Daniel Och and Former Executive Managing Directors Agree to Reallocate Significant Equity

Creates Long-Term Alignment for Current EMDs with Shareholders and Clients

Near-Term Debt Paydown and Restructuring to Facilitate Deleveraging

Elects to Change Tax Classification from Partnership to C-Corporation

Announces 1-For-10 Reverse Stock Split for Class A Shares

NEW YORK, December 6, 2018 - Och-Ziff Capital Management Group LLC (NYSE: OZM) (the “Company,” or “Oz Management” or “Oz”) announced today a comprehensive strategic plan that includes a significant equity reallocation by Chairman Daniel S. Och and former executive managing directors to current executive managing directors, facilitates deleveraging of the Company’s balance sheet, and converts the Company’s tax classification from a partnership to a corporation.

Robert Shafir, Oz Chief Executive Officer, said, “We believe the suite of strategic actions we are announcing today solidifies Oz’s future, providing long-term stability and setting the firm on a path for continued success. By materially increasing equity ownership by the current partners and taking steps to enhance our capital structure, we expect to be better positioned to serve our clients.”

Mr. Och said, “The plan announced today is a positive outcome for the firm that underscores our collective focus on aligning incentives across the organization in order to achieve outstanding results for our shareholders and global clients. I look forward to moving on based on my confidence that Oz will be in good hands with Rob and his leadership team.”

Mr. Shafir continued, “Dan and the Oz founding partners have built an enduring firm with a culture of collaboration and a deeply rooted investment process that has generated strong risk-adjusted returns for our clients over many years. We appreciate the willingness of Dan and the former executive managing directors to transfer a substantial portion of their equity to further incentivize the firm’s next generation over the long term. We have a deep, long tenured team of over 100 investment professionals, including Jimmy Levin, who leads the investment team, and a seasoned executive team that are well-positioned to continue to deliver for our clients.”

Allan Bufferd, Independent Director and member of the Board since Oz went public, said, “It is a testament to the current and former partners that Oz has been able to perform through market cycles and has put in place a plan that charts a clear path forward. I would like to sincerely thank Dan for his support of the Company, and for this plan which creates strong alignment with clients and shareholders.”

In connection with this announcement, the Company is filing a Current Report on Form 8-K which includes additional information regarding the plan (including a copy of the Letter Agreement and term sheet entered into by the parties). Capitalized or quoted terms used and not defined in this press release are defined and/or described in the Form 8-K. Additional details about the plan and its impact to shareholders and clients are also included in an investor presentation, which is available at http://shareholders.ozm.com. The Company encourages current or potential shareholders to read the Form 8-K and investor presentation prior to making any investment decisions.

Equity Reallocation

As part of the plan, Daniel Och and the other holders of Class A Units in the Company’s operating partnerships will collectively reallocate 35% of their Class A Units to current executive managing directors in the form of a new class of interests entitling holders to future profits and gains. The Class E Units related to this reallocation will fully vest over a multi-year period to ensure the stability and commitment of the Company’s key senior investment professionals and senior leadership. In addition, the holders of the Existing Preferred will forfeit 7.5 million of their Class A Units which will be reallocated. In conjunction with the foregoing, certain key executive managing directors are expected to enter into certain arrangements with the Company, which will include a reduction in current annual compensation.

Near-Term Debt Paydown and Restructuring to Facilitate Deleveraging

The following series of initiatives are expected to facilitate the deleveraging of the Company’s balance sheet:

 

  •  

Distribution Holiday – Current and former executive managing directors of Oz are temporarily foregoing distributions on all their common units in the Oz Operating Group to enable the Company to pay down its debt and preferred securities and to make distributions to public shareholders. All holders of publicly traded shares are expected to receive distributions, subject to an annual minimum of 20% and an annual maximum of up to 30% of distributable earnings per year or, if the minimum would be $0.10 or less per Class A Share per year, then up to $0.10 per Class A Share per year. The Distribution Holiday will remain in place until the earlier of such time that $600 million of cash has accumulated for use as described in this paragraph and April 1, 2026.

 

  •  

Tax Receivable Agreement – The Company will amend the existing Tax Receivable Agreement to provide that certain payments are no longer due to the recipients for tax years 2017 and 2018. This amendment provides the Company with cash of between $50 million and $60 million, which will be used, along with existing cash, to pay down at closing approximately $100 million of the outstanding term loan under the Company’s 2018 Credit Facility.

 

  •  

Preferred Restructuring – The Existing Preferred will be restructured into $200 million of New Debt and $200 million into New Preferred with substantially the same terms as the Existing Preferred, except that the Company will have the opportunity to repay both securities at a discount which could result in combined principal savings of up to $60 million. The new securities will not accrue interest until February 2020. To the extent the New Preferred is not paid in full on or prior to March 31, 2022, then, at the option of the holders thereof, such New Preferred may be converted into New Debt.

 

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  •  

Cash Sweep Arrangements – Oz will institute a cash sweep arrangement during the Distribution Holiday under which substantially all “economic income” after public distributions, will be applied to repay the outstanding term loan and then to redeem the New Preferred. These cash sweep arrangements will not apply if it would result in Oz having a minimum “free cash balance” of less than $200 million, except in certain specified circumstances.

Redemptions by Mr. Och

As of September 30, 2018, Mr. Och’s balances in the Oz funds were approximately 3% of the Company’s assets under management. In connection with his transition from the Company, Mr. Och intends to redeem all of his liquid balances in the Oz funds representing approximately 66% of his total balance as of September 30, 2018 (approximately half of which will be redeemed on December 31, 2018). These liquid balances will, subject to certain exceptions, be redeemed by the end of the first quarter of 2019.

Corporate Governance Matters

The plan contemplates a number of corporate governance changes to implement Mr. Och’s transition, as more fully described in the Company’s Form 8-K. Among other things, the Class B Shareholder Committee is expected to be disbanded and the Class B Shareholders Agreement will be terminated; Mr. Och and the Conflicts Committee will have certain rights to appoint replacement directors to the Company’s Board of Directors, if applicable, prior to the 2019 annual stockholders meeting; and certain transition changes will be made to the boards of the general partners of the Oz Operating Group entities, the Partner Management Committee, the firm’s internal committees and the boards of the applicable Oz funds, in each case, on the timelines and subject to the occurrence of certain events as described in the Form 8-K. In addition, the plan provides that Mr. Och will resign as a director at the next annual meeting held at least 30 days following Mr. Och’s redemptions (subject to Mr. Och’s right to designate a director for as long as he continues to own specified amounts of preferred securities or common units).

Conversion to C-Corporation

The Company intends to change its tax classification from a partnership to a corporation effective December 31, 2018; provided that (i) there can be no assurance that such date will be achieved and (ii) the Company will make a public filing confirming the actual date of effectiveness on or before December 31, 2018. In addition, the Company expects to effect a conversion of its organizational form from a limited liability company to a corporation in 2019 in connection with the implementation of the announced plan. Oz believes that a simplified tax structure and entity conversion has multiple benefits, including a broadening of the potential shareholder base and simplifying shareholder tax reporting.

Reverse Stock Split

Following the close of trading on the New York Stock Exchange on January 3, 2019 (the “Effective Date”), it is expected that Oz will effect a 1 for 10 reverse stock split of its Class A Shares. Oz’s Class A Shares will begin trading on a reverse split-adjusted basis at the opening of trading on January 4, 2019. Upon the effectiveness of the reverse stock split, every 10 Class A Shares issued and outstanding on the Effective Date will be consolidated into one issued and outstanding Class A Share, except to the extent that the reverse stock split results in any of the Company’s shareholders owning a fractional share, in which case such shares will be rounded up or down in accordance with the Company’s Second Amended and Restated Limited Liability Company Agreement.

The Class A Shares will continue trading on a split-adjusted basis under the existing trading symbol “OZM” but, from the opening of the markets on January 4, 2019 they are expected to trade under a new CUSIP number. Based on the number of Class A Shares currently outstanding on December 4, 2018, the reverse stock split will reduce the number of Class A Shares from approximately 192 million pre-reverse split Class A Shares to approximately 19.2 million post-reverse split Class A Shares. The Class B shares will be subject to a similar reverse stock split.

 

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All outstanding Class A restricted stock units outstanding under the Company’s equity-based compensation plans, as well as any common units or PSIs in the Oz Operating Group that are outstanding immediately prior to the reverse stock split will also be adjusted by the same 1 for 10 ratio.

The Company has retained its transfer agent, American Stock Transfer & Trust Company LLC (“AST”), to act as its exchange agent for the reverse stock split. AST will send shareholders of record holding physical share certificates as of the Effective Date a letter of transmittal providing instructions for the exchange of their share certificates. Shareholders owning shares via a broker or other nominee will have their positions automatically adjusted to reflect the reverse stock split, subject to brokers’ particular processes, and will not be required to take any action in connection with the reverse stock split. Please contact American Stock Transfer and Trust Company for further information at (800) 937-5449 or (718) 921-8317.

Timing and Conditions to Effectiveness

The Company expects the strategic actions described in this press release to be completed on or before January 15, 2019.

The restructuring contemplated by the plan described above (other than the reverse share split) are, unless otherwise mutually agreed by the Company and Mr. Och, subject to and conditioned upon, among other things, (i) approval by the holders of a majority of the minority of the holders of Class A Units (which for the avoidance of doubt does not include Mr. Och or any holders of Class A Units that will receive Class E Units); (ii) with respect to the amendment to the TRA described above, approval by the requisite beneficiaries under the TRA; (iii) approval of the senior lenders of the Company and its subsidiaries; (iv) the absence of a material adverse effect on the Company; (v) the execution of definitive release agreements by the applicable releasing parties; (vi) the receipt by Oz Management of a customary solvency opinion; (vii) the Company and its subsidiaries and certain current EMDs entering into binding Management Arrangements regarding commitments, compensation and restrictive covenants that are no less favorable than those set forth in the plan; and (viii) entry into of definitive documentation implementing the recapitalization and related transactions.

Conflicts Committee and Board Approval

The Conflicts Committee of the Company’s Board unanimously approved the plan and unanimously recommended that the Board approve the plan. The Board, acting on the unanimous recommendation of the Conflicts Committee, approved the terms of the plan.

Advisors

Barclays Capital Inc. is acting as lead financial advisor, J.P. Morgan Securities LLC is also acting as financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is providing legal counsel, to Oz Management. Houlihan Lokey Capital, Inc. is acting as financial advisor, and Richards, Layton & Finger is providing legal counsel, to the Conflicts Committee of the Company’s Board of Directors. Perella Weinberg Partners LP is acting as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is providing legal counsel to Mr. Och.

 

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Forward-Looking Statements

The information contained in this press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect the Company’s current views with respect to, among other things, the recapitalization and other transactions described herein, including the timing for completing the recapitalization and other transactions described herein; their effect on the Company, including on the Company’s cash flows, balance sheet and earnings; the Company’s ability to create value; the Company’s growth prospects; the anticipated benefits of changing the Company’s tax classification from a partnership to a corporation; and future events and financial performance. The Company generally identifies forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.

Any forward-looking statements contained in this press release are based upon historical information and on the Company’s current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated by the Company will be achieved.

The Company cautions that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving the Company; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice; the Company’s ability to implement the Conversion and the recapitalization and the other transactions described in this press release, including obtaining all applicable consents and approvals, satisfying all conditions to effectiveness on a timely basis or at all and reaching agreement on the further agreements relating to the implementation of all such transactions, and whether the Company realizes all or any of the anticipated benefits from the Conversion and the recapitalization; whether the Conversion and the recapitalization result in any increased or unforeseen costs or have an impact on the Company’s ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; the Company’s ability to retain existing investor capital; the Company’s ability to successfully compete for fund investors, assets, professional talent and investment opportunities; the Company’s ability to retain its active executive managing directors, managing directors and other investment professionals; the Company’s successful formulation and execution of its business and growth strategies; the Company’s ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to the Company’s business; and assumptions relating to the Company’s operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.

If one or more of these or other risks or uncertainties materialize, or if the Company’s assumptions or estimates prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in the Company’s filings with the SEC, including but not limited to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, dated February 23, 2018, as well as may be updated from time to time in the Company’s other SEC filings. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not known. The Company does not undertake to update any forward-looking statement, because of new information, future developments or otherwise.

This press release does not constitute an offer of any Oz Management fund.

*        *        *         *

 

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About Oz Management

Oz Management is one of the largest institutional alternative asset managers in the world, with offices in New York, London, Hong Kong, Mumbai, Beijing, and Shanghai. Oz provides asset management services to investors globally through its multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. Oz seeks to generate consistent, positive, absolute returns across market cycles, with low volatility compared to the broader markets, and with an emphasis on preservation of capital. Oz’s funds invest across multiple strategies and geographies, consistent with the investment objectives for each fund. The global investment strategies Oz employs include convertible and derivative arbitrage, corporate credit, long/short equity special situations, merger arbitrage, private investments, real estate and structured credit. As of December 1, 2018, Oz had approximately $32.3 billion in assets under management. For more information, please visit Oz’s website (www.ozm.com).

 

Investor Relations Contact    Media Relations Contacts
Adam Willkomm    Jonathan Gasthalter
Head of Business Development and Shareholder Services    Gasthalter & Co. LP
+1-212-719-7381    +1-212-257-4170
investorrelations@ozm.com    jg@gasthalter.com

 

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