UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
________________   
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     .
Commission File Number 001-35500
________________
Oaktree Capital Group, LLC
(Exact name of registrant as specified in its charter)
________________
Delaware
 
26-0174894
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Telephone: (213) 830-6300
(Address, zip code, and telephone number, including
area code, of registrant’s principal executive offices)
________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x     No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   x     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
 
Large accelerated filer   x
Accelerated filer   o
 
Non-accelerated filer   o
Smaller reporting company   o
(Do not check if a smaller reporting company)
Emerging growth company   o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   o    No   x
As of October 29, 2018, there were 71,510,743 Class A units and 85,625,657 Class B units of the registrant outstanding.


TABLE OF CONTENTS
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 

1

FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of Section   27A of the U.S. Securities Act of 1933, as amended (the “ Securities Act ” ), and Section   21E of the U.S. Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ), which reflect our current views with respect to, among other things, our future results of operations and financial performance. In some cases, you can identify forward-looking statements by words such as “ anticipate, ” “ approximately, ” “ believe, ” “ continue, ” “ could, ” “ estimate, ” “ expect, ” “ intend, ” “ may, ” “ outlook, ” “ plan, ” “ potential, ” “ predict, ” “ seek, ” “ should, ” “ will ” and “ would ” or the negative version of these words or other comparable or similar words. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those indicated in these statements. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward-looking statements are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity, including, but not limited to, changes in our anticipated revenue and income, which are inherently volatile; changes in the value of our investments; the pace of our raising of new funds; changes in assets under management; the timing and receipt of, and impact of taxes on, carried interest; distributions from and liquidation of our existing funds; the amount and timing of distributions on our preferred units and our Class A units; changes in our operating or other expenses; the degree to which we encounter competition; and general political, economic and market conditions. The factors listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (“annual report”) filed with the U.S. Securities and Exchange Commission (“SEC”) on February 23, 2018, which is accessible on the SEC’s website at www.sec.gov, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in our forward-looking statements.
Forward-looking statements speak only as of the date of this quarterly report. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.



In this quarterly report, unless the context otherwise requires:
“Oaktree,” “OCG,” “we,” “us,” “our” or “our company” refers to Oaktree Capital Group, LLC and, where applicable, its subsidiaries and affiliates.
“Oaktree Operating Group,” or “Operating Group,” refers collectively to the entities in which we have a minority economic interest and indirect control that either (i) act as or control the general partners and investment advisers of our funds or (ii) hold interests in other entities or investments generating income for us.
“OCGH” refers to Oaktree Capital Group Holdings, L.P., a Delaware limited partnership, which holds an interest in the Oaktree Operating Group and all of our Class B units.
“OCGH unitholders” refers collectively to our senior executives, current and former employees and certain other investors who hold interests in the Oaktree Operating Group through OCGH.
“assets under management,” or “AUM,” generally refers to the assets we manage and equals the NAV (as defined below) of the assets we manage, the leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments, and our pro-rata portion of AUM managed by DoubleLine (as defined below) in which we hold a minority ownership interest. For our collateralized loan obligation vehicles (“CLOs”), AUM represents the aggregate par value of collateral assets and principal cash, for our publicly-traded BDCs, gross assets (including assets acquired with leverage), net of cash, and for DoubleLine funds, NAV. Our AUM amounts include AUM for which we charge no management fees. Our definition of AUM is not based on any definition contained in our operating agreement or the agreements governing the funds that we manage. Our calculation of AUM and the two AUM-related metrics described below may not be directly comparable to the AUM metrics of other investment managers.
•
“management fee-generating assets under management,” or “management fee-generating AUM,” is a forward-looking metric and generally reflects the beginning AUM on which we will earn management fees in the following quarter, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures—Assets Under Management—Management Fee-generating Assets Under Management.”
•
“incentive-creating assets under management,” or “incentive-creating AUM,” refers to the AUM that may eventually produce incentive income, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures—Assets Under Management—Incentive-creating Assets Under Management.”
“Class A units” refer to the common units of OCG designated as Class A units.
“common units” or “common unitholders” refer to the Class A common units of OCG or Class A common unitholders, respectively, unless otherwise specified.
“consolidated funds” refers to the funds and CLOs that Oaktree is required to consolidate as of the applicable reporting date.
“DoubleLine” refers to DoubleLine Capital LP and its affiliates.
“funds” refers to investment funds and, where applicable, CLOs and separate accounts that are managed by us or our subsidiaries.
“initial public offering” refers to the listing of our Class A units on the New York Stock Exchange on April 12, 2012 whereby Oaktree sold 7,888,864 Class A units and selling unitholders sold 954,159 Class A units.
“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.
“net asset value,” or “NAV,” refers to the value of all the assets of a fund (including cash and accrued interest and dividends) less all liabilities of the fund (including accrued expenses and any reserves established by us, in our discretion, for contingent liabilities) without reduction for accrued incentives (fund level) because they are reflected in the partners ’ capital of the fund.  
“preferred units” or “preferred unitholders” refer to the Series A and Series B preferred units of OCG or Series A and Series B preferred unitholders, respectively, unless otherwise specified.


“Relevant Benchmark” refers, with respect to:
•
our U.S. High Yield Bond product, to the FTSE US High-Yield Cash-Pay Capped Index;
•
our Global High Yield Bond product, to an Oaktree custom global high yield index that represents 60% ICE BofAML High Yield Master II Constrained Index and 40% ICE BofAML Global Non-Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the ICE BofAML Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;
•
our European High Yield Bond product, to the ICE BofAML Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index (USD Hedged);
•
our U.S. Senior Loan product (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index;
•
our European Senior Loan product, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged);
•
our U.S. Convertible Securities product, to an Oaktree custom convertible index that represents the Credit Suisse Convertible Securities Index from inception through December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100 Index from January 1, 2000 through June 30, 2004, and the ICE BofAML All U.S. Convertibles Index thereafter;
•
our non-U.S. Convertible Securities strategy, to an Oaktree custom non-U.S. convertible index that represents the JACI Global ex-U.S. (Local) Index from inception through December 31, 2014 and the Thomson Reuters Global Focus ex-U.S. (USD hedged) Index thereafter;
•
our High Income Convertible Securities strategy, to the FTSE US High-Yield Market Index; and
•
our Emerging Markets Equities strategy, to the Morgan Stanley Capital International Emerging Markets Index (Net).
“senior executives” refers collectively to Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank and Sheldon M. Stone.
“Sharpe Ratio” refers to a metric used to calculate risk-adjusted return. The Sharpe Ratio is the ratio of excess return to volatility, with excess return defined as the return above that of a riskless asset (based on the three-month U.S. Treasury bill, or for our European Senior Loan strategy, the Euro Overnight Index Average) divided by the standard deviation of such return. A higher Sharpe Ratio indicates a return that is higher than would be expected for the level of risk compared to the risk-free rate.
This quarterly report and its contents do not constitute and should not be construed as an offer of securities of any Oaktree funds.



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Oaktree Capital Group, LLC
Condensed Consolidated Statements of Financial Condition (Unaudited)
($ in thousands)
 
 
As of

September 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and cash-equivalents
$
543,229

 
$
481,631

U.S. Treasury and other securities
469,800

 
176,602

Corporate investments (includes $70,719 and $50,778 measured at fair value as of September 30, 2018 and December 31, 2017, respectively)
1,055,351

 
1,009,631

Due from affiliates
149,899

 
223,224

Deferred tax assets
243,059

 
202,460

Other assets
543,031

 
564,529

Assets of consolidated funds:
 
 
 
Cash and cash-equivalents
312,832

 
477,834

Investments, at fair value
6,000,681

 
5,660,540

Dividends and interest receivable
22,834

 
21,144

Due from brokers
17,278

 
54,289

Receivable for securities sold
69,427

 
141,582

Derivative assets, at fair value
1,700

 
731

Other assets
928

 
599

Total assets
$
9,430,049

 
$
9,014,796

Liabilities and Unitholders’ Capital
 
 
 
Liabilities:
 
 
 
Accrued compensation expense
$
228,639

 
$
274,984

Accounts payable, accrued expenses and other liabilities
143,102

 
158,716

Due to affiliates
192,267

 
177,873

Debt obligations
745,812

 
746,274

Liabilities of consolidated funds:
 
 
 
Accounts payable, accrued expenses and other liabilities
27,133

 
18,111

Payables for securities purchased
359,169

 
580,906

Securities sold short, at fair value
19,463

 
86,467

Derivative liabilities, at fair value
590

 
953

Distributions payable
82,550

 
7,354

Borrowings under credit facilities
863,997

 
862,401

Debt obligations of CLOs
3,648,217

 
3,219,592

Total liabilities
6,310,939

 
6,133,631

Commitments and contingencies (Note 17)

 


Non-controlling redeemable interests in consolidated funds
696,307

 
860,548

Unitholders’ capital:
 
 
 
Series A preferred units, 7,200,000 units issued and outstanding as of September 30, 2018
173,669

 
—

Series B preferred units, 9,400,000 units issued and outstanding as of September 30, 2018
226,915

 
—

Class A units, no par value, unlimited units authorized, 71,510,743 and 65,310,226 units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
—

 
—

Class B units, no par value, unlimited units authorized, 85,625,657 and 90,975,687 units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
—

 
—

Paid-in capital
881,982

 
788,413

Retained earnings
76,203

 
80,128

Accumulated other comprehensive income
764

 
443

Unitholders’ capital attributable to Oaktree Capital Group, LLC
1,359,533

 
868,984

Non-controlling interests in consolidated subsidiaries
1,056,314

 
1,121,237

Non-controlling interests in consolidated funds
6,956

 
30,396

Total unitholders’ capital
2,422,803

 
2,020,617

Total liabilities and unitholders’ capital
$
9,430,049

 
$
9,014,796


Please see accompanying notes to condensed consolidated financial statements.

1

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per unit amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 

 
 
 
 

Management fees
$
175,195

 
$
181,312

 
$
538,706

 
$
542,268

Incentive income
66,032

 
53,720

 
253,125

 
616,404

Total revenues
241,227

 
235,032

 
791,831

 
1,158,672

Expenses:
 
 
 
 
 
 
 
Compensation and benefits
(101,787
)
 
(98,224
)
 
(315,614
)
 
(304,713
)
Equity-based compensation
(14,747
)
 
(15,828
)
 
(44,614
)
 
(45,529
)
Incentive income compensation
(27,294
)
 
(26,362
)
 
(127,327
)
 
(327,526
)
Total compensation and benefits expense
(143,828
)
 
(140,414
)
 
(487,555
)
 
(677,768
)
General and administrative
(38,051
)
 
(24,096
)
 
(110,459
)
 
(90,703
)
Depreciation and amortization
(6,459
)
 
(3,037
)
 
(19,412
)
 
(9,865
)
Consolidated fund expenses
(2,829
)
 
(2,226
)
 
(9,383
)
 
(7,425
)
Total expenses
(191,167
)
 
(169,773
)
 
(626,809
)
 
(785,761
)
Other income (loss):
 
 
 
 
 
 
 
Interest expense
(39,456
)
 
(35,776
)
 
(115,504
)
 
(128,797
)
Interest and dividend income
74,490

 
55,218

 
205,089

 
155,092

Net realized gain (loss) on consolidated funds’ investments
(9,812
)
 
3,392

 
(12,509
)
 
1,755

Net change in unrealized appreciation (depreciation) on consolidated funds’ investments
10,552

 
3,662

 
(34,939
)
 
56,793

Investment income
58,196

 
51,061

 
149,682

 
150,618

Other income, net
5,629

 
5,418

 
7,240

 
14,979

Total other income
99,599

 
82,975

 
199,059

 
250,440

Income before income taxes
149,659

 
148,234

 
364,081

 
623,351

Income taxes
(6,568
)
 
(13,857
)
 
(17,832
)
 
(31,700
)
Net income
143,091

 
134,377

 
346,249

 
591,651

Less:
 
 
 
 
 
 
 
Net income attributable to non-controlling interests in consolidated funds
(14,427
)
 
(9,990
)
 
(17,792
)
 
(23,543
)
Net income attributable to non-controlling interests in consolidated subsidiaries
(72,005
)
 
(78,546
)
 
(187,945
)
 
(350,028
)
Net income attributable to Oaktree Capital Group, LLC
56,659

 
45,841

 
140,512

 
218,080

Net income attributable to preferred unitholders
(3,909
)
 
—

 
(3,909
)
 
—

Net income attributable to Oaktree Capital Group, LLC Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

 
 
 
 
 
 
 
 
Distributions declared per Class A unit
$
0.55

 
$
1.31

 
$
2.27

 
$
2.65

Net income per Class A unit (basic and diluted):
 
 
 
 
 
 
 
Net income per Class A unit
$
0.74

 
$
0.71

 
$
1.95

 
$
3.41

Weighted average number of Class A units outstanding
71,369

 
64,394

 
70,167

 
63,875






Please see accompanying notes to condensed consolidated financial statements.

2

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
143,091

 
$
134,377

 
$
346,249

 
$
591,651

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
773

 
(1,693
)
 
683

 
(7,347
)
Unrealized gain on interest rate swap designated as cash flow hedge
—

 
—

 
—

 
60

Other comprehensive income (loss), net of tax
773

 
(1,693
)
 
683

 
(7,287
)
Total comprehensive income
143,864

 
132,684

 
346,932

 
584,364

Less:
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interests in consolidated funds
(14,427
)
 
(9,990
)
 
(17,792
)
 
(23,543
)
Comprehensive income attributable to non-controlling interests in consolidated subsidiaries
(72,434
)
 
(77,561
)
 
(188,307
)
 
(345,718
)
Comprehensive income attributable to OCG
57,003

 
45,133

 
140,833

 
215,103

Comprehensive income attributable to preferred unitholders
(3,909
)
 
—

 
(3,909
)
 
—

Comprehensive income attributable to OCG Class A unitholders
$
53,094

 
$
45,133

 
$
136,924

 
$
215,103
































Please see accompanying notes to condensed consolidated financial statements.

3

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
346,249

 
$
591,651

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Adoption of revenue recognition standard
48,709

 
—

Investment income
(149,682
)
 
(150,618
)
Depreciation and amortization
19,412

 
9,865

Equity-based compensation
44,614

 
45,529

Net realized and unrealized (gain) loss from consolidated funds’ investments
47,448

 
(58,548
)
Amortization (accretion) of original issue and market discount of consolidated funds’ investments, net
(3,488
)
 
(2,926
)
Income distributions from corporate investments in funds and companies
177,864

 
132,385

Other non-cash items
1,468

 
779

Cash flows due to changes in operating assets and liabilities:
 
 
 
Decrease in other assets
28,353

 
6,161

Increase in net due to affiliates
53,430

 
56,956

Decrease in accrued compensation expense
(47,365
)
 
(79,447
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
(14,873
)
 
18,694

Cash flows due to changes in operating assets and liabilities of consolidated funds:
 
 
 
Increase in dividends and interest receivable
(2,030
)
 
(386
)
Decrease in due from brokers
37,010

 
45,234

(Increase) decrease in receivables for securities sold
72,118

 
(142,086
)
(Increase) decrease in other assets
(724
)
 
91

Increase in accounts payable, accrued expenses and other liabilities
9,619

 
3,442

Increase (decrease) in payables for securities purchased
(212,499
)
 
347,416

Purchases of securities
(3,443,337
)
 
(3,847,188
)
Proceeds from maturities and sales of securities
2,849,135

 
2,784,686

Net cash used in operating activities
(138,569
)
 
(238,310
)
Cash flows from investing activities:
 
 
 
Purchases of U.S. Treasury and other securities
(791,401
)
 
(422,820
)
Proceeds from maturities and sales of U.S. Treasury and other securities
498,104

 
855,993

Corporate investments in funds and companies
(212,427
)
 
(75,316
)
Distributions and proceeds from corporate investments in funds and companies
245,801

 
163,951

Purchases of fixed assets
(3,527
)
 
(27,036
)
Proceeds from sale of fixed assets
—

 
5,048

Net cash provided by (used in) investing activities
(263,450
)
 
499,820


(continued)







 
Please see accompanying notes to condensed consolidated financial statements.

4

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) — (Continued)
(in thousands)
 

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Net proceeds from issuance of Class A units
$
219,750

 
$
—

Purchase of OCGH units
(219,525
)
 
—

Repurchase and cancellation of units
(12,195
)
 
(11,470
)
Distributions to Class A unitholders
(160,883
)
 
(170,034
)
Distributions to preferred unitholders
(3,909
)
 
—

Distributions to OCGH unitholders
(218,575
)
 
(296,240
)
Distributions to non-controlling interests
(3,700
)
 
(3,617
)
Net proceeds from issuance of preferred units
400,584

 
—

Payment of debt issuance costs
(2,235
)
 
—

Cash flows from financing activities of consolidated funds:
 
 
 
Contributions from non-controlling interests
107,962

 
210,964

Distributions to non-controlling interests
(236,929
)
 
(41,197
)
Proceeds from debt obligations issued by CLOs
1,170,317

 
1,218,737

Payment of debt issuance costs
(1,771
)
 
(7,782
)
Repayment on debt obligations issued by CLOs
(729,458
)
 
(1,244,698
)
Borrowings on credit facilities
—

 
702,100

Repayments on credit facilities
—

 
(367,444
)
Net cash provided by (used in) financing activities
309,433

 
(10,681
)
Effect of exchange rate changes on cash
1,497

 
26,021

Net increase (decrease) in cash and cash-equivalents
(91,089
)
 
276,850

Deconsolidation of funds
(12,315
)
 
—

Cash and cash-equivalents, beginning balance
959,465

 
959,200

Cash and cash-equivalents, ending balance
$
856,061

 
$
1,236,050

 
 
 
 
 
 
 
 
Reconciliation of cash and cash-equivalents
 
 
 
Cash and cash-equivalents – Oaktree
$
543,229

 
$
705,121

Cash and cash-equivalents – Consolidated Funds
312,832

 
530,929

Total cash and cash-equivalents
$
856,061

 
$
1,236,050

 
 
 
 
 
 
 
 
 
 
 
 











Please see accompanying notes to condensed consolidated financial statements.

5

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Changes in Unitholders’ Capital (Unaudited)
(in thousands)

 
Oaktree Capital Group, LLC  
 
Non-controlling Interests in Consolidated Subsidiaries
 
Non-controlling Interests in Consolidated Funds
 
Total Unitholders’ Capital
 
Class A Units
 
Class B Units
 
Series A Preferred Units
 
Series B Preferred Units
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitholders’ capital as of December 31, 2017
65,310

 
90,976

 
$
—

 
$
—

 
$
788,413

 
$
80,128

 
$
443

 
$
1,121,237

 
$
30,396

 
$
2,020,617

Activity for the nine months ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative-effect adjustment from adoption of accounting guidance
—

 
—

 
—

 
—

 
—

 
20,355

 
—

 
28,354

 
—

 
48,709

Issuance of units
6,534

 
182

 
173,669

 
226,915

 
219,750

 
—

 
—

 
—

 
—

 
620,334

Cancellation of units associated with forfeitures
(112
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units
—

 
(428
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Repurchase and cancellation of units
(221
)
 
(5,104
)
 
—

 
—

 
(228,469
)
 
—

 
—

 
(3,251
)
 
—

 
(231,720
)
Purchase of non-controlling interests in subsidiary
—

 
—

 
—

 
—

 
(1,320
)
 
—

 
—

 
(1,596
)
 
—

 
(2,916
)
Deferred tax effect resulting from the purchase of OCGH units
—

 
—

 
—

 
—

 
6,051

 
—

 
—

 
—

 
—

 
6,051

Equity reallocation between controlling and non-controlling interests
—

 
—

 
—

 
—

 
78,269

 
—

 
—

 
(78,269
)
 
—

 
—

Capital increase related to equity-based compensation
—

 
—

 
—

 
—

 
19,288

 
—

 
—

 
23,807

 
—

 
43,095

Distributions declared
—

 
—

 
(3,909
)
 
—

 
—

 
(160,883
)
 
—

 
(222,275
)
 
(22,833
)
 
(409,900
)
Net income
—

 
—

 
3,909

 
—

 
—

 
136,603

 
—

 
187,945

 
(607
)
 
327,850

Foreign currency translation adjustment, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
321

 
362

 
—

 
683

Unitholders’ capital as of September 30, 2018
71,511

 
85,626

 
$
173,669

 
$
226,915

 
$
881,982

 
$
76,203

 
$
764

 
$
1,056,314

 
$
6,956

 
$
2,422,803

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitholders’ capital as of December 31, 2016
63,032

 
91,758

 
$
—

 
$
—

 
$
749,618

 
$
54,494

 
$
1,793

 
$
1,050,319

 
$
28,947

 
$
1,885,171

Activity for the nine months ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative-effect adjustment from adoption of accounting guidance
—

 
—

 
—

 
—

 
(352
)
 
352

 
—

 
—

 
—

 
—

Issuance of units
1,800

 
524

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units associated with forfeitures
(21
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units
—

 
(515
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Repurchase and cancellation of units
(206
)
 
(85
)
 
—

 
—

 
(8,454
)
 
—

 
—

 
(3,016
)
 
—

 
(11,470
)
Equity reallocation between controlling and non-controlling interests
—

 
—

 
—

 
—

 
14,581

 
—

 
—

 
(14,581
)
 
—

 
—

Capital increase related to equity-based compensation
—

 
—

 
—

 
—

 
18,343

 
—

 
—

 
26,338

 
—

 
44,681

Distributions declared
—

 
—

 
—

 
—

 
—

 
(170,034
)
 
—

 
(299,857
)
 
(1,791
)
 
(471,682
)
Net income
—

 
—

 
—

 
—

 
—

 
218,080

 
—

 
350,028

 
1,748

 
569,856

Foreign currency translation adjustment, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
(3,001
)
 
(4,346
)
 
—

 
(7,347
)
Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
24

 
36

 
—

 
60

Unitholders’ capital as of September 30, 2017
64,605

 
91,682

 
$
—

 
$
—

 
$
773,736

 
$
102,892

 
$
(1,184
)
 
$
1,104,921

 
$
28,904

 
$
2,009,269




Please see accompanying notes to condensed consolidated financial statements.

6

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2018
($ in thousands, except where noted)



1. ORGANIZATION AND BASIS OF PRESENTATION
Oaktree Capital Group, LLC (together with its subsidiaries, “Oaktree” or the “Company”) is a leader among global investment managers specializing in alternative investments. Oaktree emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. Funds managed by Oaktree (the “Oaktree funds”) include commingled funds, separate accounts, collateralized loan obligation vehicles (“CLOs”) and publicly-traded business development companies (“BDCs”). Commingled funds include open-end and closed-end limited partnerships in which the Company makes an investment and for which it serves as the general partner. CLOs are structured finance vehicles in which the Company typically makes an investment and for which it serves as collateral manager.
Oaktree Capital Group, LLC is a Delaware limited liability company that was formed on April 13, 2007. The Company is owned by its Class A and Class B unitholders and its preferred unitholders. Oaktree Capital Group Holdings GP, LLC acts as the Company’s manager and is the general partner of Oaktree Capital Group Holdings, L.P. (“OCGH”), which owns 100% of the Company’s outstanding Class B units. OCGH is owned by the Company’s senior executives, current and former employees, and certain other investors (collectively, the “OCGH unitholders”). The Company’s operations are conducted through a group of operating entities collectively referred to as the “Oaktree Operating Group.” OCGH has a direct economic interest in the Oaktree Operating Group and the Company has an indirect economic interest in the Oaktree Operating Group. The interests in the Oaktree Operating Group are referred to as the “Oaktree Operating Group units.” An Oaktree Operating Group unit is not a separate legal interest but represents one limited partnership interest in each of the Oaktree Operating Group entities. Class A units are entitled to one vote per unit. Class B units are entitled to ten votes per unit and do not represent an economic interest in the Company. The number of Class B units held by OCGH increases or decreases in response to corresponding changes in OCGH’s economic interest in the Oaktree Operating Group; consequently, the OCGH unitholders’ economic interest in the Oaktree Operating Group is reflected within non-controlling interests in consolidated subsidiaries in the accompanying condensed consolidated financial statements.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The condensed consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. Certain of the Oaktree funds consolidated by the Company are investment companies that follow a specialized basis of accounting established by GAAP. All intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 23, 2018.

7

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies of the Company
Consolidation
The Company consolidates entities in which it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. A limited partnership or similar entity is a variable interest entity (“VIE”) if the unaffiliated limited partners do not have substantive kick-out or participating rights. Most of the Oaktree funds are VIEs because they have not granted unaffiliated limited partners substantive kick-out or participating rights. The Company consolidates those VIEs in which it is the primary beneficiary. An entity is deemed to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine (a) whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance-based fees), would give it a controlling financial interest. A decision maker’s fee arrangement is not considered a variable interest if (a) it is compensation for services provided, commensurate with the level of effort required to provide those services, and part of a compensation arrangement that includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length (“at-market”), and (b) the decision maker does not hold any other variable interests that absorb more than an insignificant amount of the potential VIE’s expected residual returns.
The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing documents of the respective Oaktree funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. The Company does not consolidate most of the Oaktree funds because it is not the primary beneficiary of those funds due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in those funds that are considered to be more than insignificant. Please see note 5 for more information regarding both consolidated and unconsolidated VIEs. For entities that are not VIEs, consolidation is evaluated through a majority voting interest model.
“Consolidated funds” refers to Oaktree-managed funds and CLOs that the Company is required to consolidate. When funds or CLOs are consolidated, the Company reflects the assets, liabilities, revenues, expenses and cash flows of the funds or CLOs on a gross basis, and the majority of the economic interests in those funds or CLOs, which are held by third-party investors, are reflected as non-controlling interests in consolidated funds or debt obligations of CLOs in the condensed consolidated financial statements. All of the revenues earned by the Company as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to the Company.
Certain entities in which the Company has the ability to exert significant influence, including unconsolidated Oaktree funds for which the Company acts as general partner, are accounted for under the equity method of accounting.
Non-controlling Redeemable Interests in Consolidated Funds
The Company records non-controlling interests to reflect the economic interests of the unaffiliated limited partners. These interests are presented as non-controlling redeemable interests in consolidated funds within the condensed consolidated statements of financial condition, outside of the permanent capital section. Limited

8

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

partners in open-end and evergreen funds generally have the right to withdraw their capital, subject to the terms of the respective limited partnership agreements, over periods ranging from one month to three years . While limited partners in consolidated closed-end funds generally have not been granted redemption rights, these limited partners do have withdrawal or redemption rights in certain limited circumstances that are beyond the control of the Company, such as instances in which retaining the limited partnership interest could cause the limited partner to violate a law, regulation or rule.
The allocation of net income or loss to non-controlling redeemable interests in consolidated funds is based on the relative ownership interests of the unaffiliated limited partners after the consideration of contractual arrangements that govern allocations of income or loss. At the consolidated level, potential incentives are allocated to non-controlling redeemable interests in consolidated funds until such incentives become allocable to the Company under the substantive contractual terms of the limited partnership agreements of the funds.
Non-controlling Interests in Consolidated Funds
Non-controlling interests in consolidated funds represent the equity interests held by third-party investors in CLOs that had not yet priced as of the respective period end. All non-controlling interests in those CLOs are attributed a share of income or loss arising from the respective CLO based on the relative ownership interests of third-party investors after consideration of contractual arrangements that govern allocations of income or loss. Investors in those CLOs are generally unable to redeem their interests until the respective CLO liquidates, is called or otherwise terminates.
Non-controlling Interests in Consolidated Subsidiaries
Non-controlling interests in consolidated subsidiaries reflect the portion of unitholders’ capital attributable to OCGH unitholders (“OCGH non-controlling interest”) and third parties. All non-controlling interests in consolidated subsidiaries are attributed a share of income or loss in the respective consolidated subsidiary based on the relative economic interests of the OCGH unitholders or third parties after consideration of contractual arrangements that govern allocations of income or loss. Please see note 13 for more information.
Acquisitions
The Company accounts for business combinations using the acquisition method of accounting, which requires the use of estimates and judgment to measure the fair value of identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquiree as of the acquisition date. Contingent consideration that is determined to be part of the business combination is recognized at fair value as of the acquisition date and is included in the purchase price. Transaction costs are expensed as incurred.
Transactions that do not meet the definition of a business are accounted for as asset acquisitions. The cost of an asset acquisition is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Transaction costs are included in the cost of the acquisition and no goodwill is recognized.
Goodwill and Intangibles
Goodwill represents the excess of cost over the fair value of identifiable net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead is tested for impairment annually in the fourth quarter of each fiscal year, or more frequently when events or circumstances indicate that impairment may have occurred.
The Company’s acquired identifiable intangible assets primarily relate to contractual rights to earn future management fees and incentive income. Finite-lived intangible assets are amortized over their estimated useful lives, which range from seven to 25 years, and are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable.

9

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Fair Value of Financial Instruments
GAAP establishes a hierarchical disclosure framework that prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market observability. Market price observability is affected by a number of factors, such as the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.
Financial assets and liabilities measured and reported at fair value are classified as follows:
•
Level I – Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement. The types of investments in Level I include exchange-traded equities, debt and derivatives with quoted prices.
•
Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level II inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II generally include corporate bonds and loans, government and agency securities, less liquid and restricted equity investments, over-the-counter traded derivatives, debt obligations of consolidated CLOs, and other investments where the fair value is based on observable inputs.
•
Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect the Company’s assessment of the assumptions that market participants use to value the investment based on the best available information. Level III inputs include prices of quoted securities in markets for which there are few transactions, less public information exists or prices vary among brokered market makers. The types of investments in Level III include non-publicly traded equity, debt, real estate and derivatives.
In some instances, the inputs used to value an instrument may fall into multiple levels of the fair-value hierarchy. In such instances, the instrument’s level within the fair-value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair-value measurement. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. Transfers of assets into or out of each fair value hierarchy level as a result of changes in the observability of the inputs used in measuring fair value are accounted for as of the beginning of the reporting period. Transfers resulting from a specific event, such as a reorganization or restructuring, are accounted for as of the date of the event that caused the transfer.
In the absence of observable market prices, the Company values Level III investments using valuation methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being valued by the investment and/or valuation teams. With the exception of open-end funds, all unquoted Level III investment values are reviewed and approved by (i) the Company’s valuation officer, who is independent of the investment teams, (ii) a designated investment professional of each strategy and (iii) for a substantial majority of unquoted Level III holdings as measured by market value, a valuation committee of the respective strategy.  For open-end funds, unquoted Level III investment values are reviewed and approved by the Company’s valuation officer. For certain investments, the valuation process also includes a review by independent valuation parties, at least annually, to determine whether the fair values determined by management are reasonable. Results of the valuation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted or recalibrated. In connection with this process, the Company periodically evaluates changes in fair-value measurements for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.
Certain assets are valued using prices obtained from pricing vendors or brokers. The Company seeks to obtain prices from at least two pricing vendors for the subject or similar securities. In cases where vendor pricing is not reflective of fair value, a secondary vendor is unavailable, or no vendor pricing is available, a comparison value made up of quotes for the subject or similar securities received from broker dealers may be used. These investments may be classified as Level III because the quoted prices may be indicative in nature for securities that

10

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions. The Company evaluates the prices obtained from brokers or pricing vendors based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. The Company also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, the Company performs due diligence procedures surrounding pricing vendors to understand their methodology and controls to support their use in the valuation process.
Fair Value Option
The Company has elected the fair value option for certain corporate investments that otherwise would not have reflected unrealized gains and losses in current-period earnings. Such election is irrevocable and is applied on an investment-by-investment basis at initial recognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of investment income in the condensed consolidated statements of operations. The Company’s accounting for these investments is similar to its accounting for investments held by the consolidated funds at fair value and the valuation methods are consistent with those used to determine the fair value of the consolidated funds’ investments.
The Company has elected the fair value option for the financial assets and financial liabilities of its consolidated CLOs. The assets and liabilities of CLOs are primarily reflected within the investments, at fair value and within the debt obligations of CLOs line items in the condensed consolidated statements of financial condition. The Company’s accounting for CLO assets is similar to its accounting for its funds with respect to both carrying investments held by CLOs at fair value and the valuation methods used to determine the fair value of those investments. The fair value of CLO liabilities are measured as the fair value of CLO assets less the sum of (a) the fair value of any beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services. Realized gains or losses and changes in the fair value of CLO assets, respectively, are included in net realized gain on consolidated funds’ investments and net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations. Interest income of CLOs is included in interest and dividend income, and interest expense and other expenses, respectively, are included in interest expense and consolidated fund expenses in the condensed consolidated statements of operations. Changes in the fair value of a CLO’s financial liabilities in accordance with the CLO measurement guidance are included in net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations. Please see notes 7 and 11 for more information.
Accounting Policies of Consolidated Funds
Investments, at Fair Value
The consolidated funds include investment limited partnerships and CLOs that reflect their investments, including majority-owned and controlled investments, at fair value. The Company has retained the specialized investment company accounting guidance under GAAP for investment limited partnerships with respect to consolidated investments and has elected the fair value option for the financial assets of CLOs. Thus, the consolidated investments are reflected in the condensed consolidated statements of financial condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).
Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are not available are valued by management using valuation methodologies applied on a consistent basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. The Company reviews the significant unobservable inputs, valuations of comparable investments and other similar transactions for investments valued at acquisition price to determine whether another valuation methodology should be utilized. Subsequent valuations will depend on the facts and circumstances known as of the valuation date and the application of valuation methodologies as further described below under “—Non-publicly Traded Equity and

11

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Real Estate Investments.” The fair value may also be based on a pending transaction expected to close after the valuation date.
Exchange-traded Investments
Securities listed on one or more national securities exchanges are valued at their last reported sales price on the date of valuation. If no sale occurred on the valuation date, the security is valued at the mean of the last “bid” and “ask” prices on the valuation date. Securities that are not readily marketable due to legal restrictions that may limit or restrict transferability are generally valued at a discount from quoted market prices. The discount would reflect the amount market participants would require due to the risk relating to the inability to access a public market for the security for the specified period and would vary depending on the nature and duration of the restriction and the perceived risk and volatility of the underlying securities. Securities with longer duration restrictions or higher volatility are generally valued at a higher discount. Such discounts are generally estimated based on put option models or an analysis of market studies. Instances where the Company has applied discounts to quoted prices of restricted listed securities have been infrequent. The impact of such discounts is not material to the Company’s condensed consolidated statements of financial condition and results of operations for all periods presented.
Credit-oriented Investments (including Real Estate Loan Portfolios)
Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputable broker-dealers.
The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing expected future cash flows and discounted using estimated current market rates. Discounted cash-flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrower. Consideration is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly Traded Equity and Real Estate Investments.”
Non-publicly Traded Equity and Real Estate Investments
The fair value of equity and real estate investments is determined using a cost, market or income approach. The cost approach is based on the current cost of reproducing a real estate investment less deterioration and functional and economic obsolescence. The market approach utilizes valuations of comparable public companies and transactions, and generally seeks to establish the enterprise value of the portfolio company or investment property using a market-multiple methodology. This approach takes into account the financial measure (such as EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company or investment property. Consideration also may be given to factors such as acquisition price of the security or investment property, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company or investment property relative to its comparable companies or properties, industry trends, general economic and market conditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount and capitalization rates, capital structure, terminal values, and other factors. The applicability and weight assigned to market and income approaches are determined based on the availability of reliable projections and comparable companies and transactions.
The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering of the securities, the size of the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including the transaction pursuant to which the investment was made and the elapsed time from the date of the investment to the valuation date), and applicable restrictions on the transferability of the securities.
These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company do not necessarily represent the amounts that eventually may be realized from sales or other dispositions of investments. Fair values may differ from the values that would have been used had a ready

12

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

market for the investment existed, and the differences could be material to the condensed consolidated financial statements.
Recent Accounting Developments
In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance that changes the fair value measurement disclosure requirements. The amendments remove or modify certain disclosures, while others were added. The guidance is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company expects that adoption of this guidance will not have a material impact on the consolidated financial statements.
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairments by eliminating step 2 of the goodwill impairment test. This step currently requires an entity to perform a hypothetical purchase price allocation to derive the implied fair value of goodwill. Under the new guidance, an impairment loss is recognized if the carrying value of a reporting unit exceeds its fair value. The impairment loss would equal the amount of that excess, limited to the total amount of goodwill. All other goodwill impairment guidance remains largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance is effective for the Company in the first quarter of 2020 on a prospective basis, with early adoption permitted. The Company expects that adoption of this guidance will not have a material impact on the consolidated financial statements.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amendments add to or clarify guidance on a number of cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity-method investees and beneficial interests in securitization transactions. The Company adopted this guidance in the first quarter of 2018 on a retrospective basis. The impact of adoption was not material to the Company’s consolidated financial statements.
In February 2016, the FASB issued guidance that will require a lessee to recognize a lease asset and a lease liability for most of its operating leases. Under current GAAP, operating leases are not recognized by a lessee in its statements of financial position. In general, the new asset and liability will each equal the present value of lease payments. The guidance does not significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee. The Company expects to adopt the guidance in the first quarter of 2019 under the simplified transition method. The simplified transition method allows companies to forgo the comparative reporting requirements initially required under the modified retrospective transition approach and apply the new guidance prospectively. The Company does not expect that adoption will have a material impact on the consolidated statements of operations because all of the Company’s leases are currently classified as operating leases, which under the guidance will continue to be recognized as expense on a straight-line basis. The adoption, however, will result in a significant gross-up in total assets and total liabilities on the consolidated statements of financial position. As of September 30, 2018, the gross-up impact is estimated to be approximately $125 million , which represents the aggregate discounted amount of the Company’s minimum lease payments under lease obligations as of that date.
In May 2014, the FASB issued guidance on revenue recognition that superseded most existing revenue recognition guidance, including industry-specific guidance. The guidance outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, and provides a largely principles-based framework for addressing revenue recognition issues on a comprehensive basis. Under the guidance, revenue is recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration for which the entity expects to be entitled for that good or service. The guidance also requires qualitative and quantitative disclosures about revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts, significant judgments and changes in those judgments made by management in recognizing revenue, disaggregation of revenue, and information about contract balances.  The Company adopted this guidance in the first quarter of 2018 on a modified retrospective basis.  The most significant effect of the guidance for the Company relates to the recognition of incentive income.  The guidance requires the Company to recognize incentive income when it concludes that it is probable that significant reversals of revenue will not occur in subsequent periods.  Under legacy

13

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

GAAP, the amount of incentive income recognized by the Company was generally limited to the amount not contingent on a future event. Upon adoption, the Company recorded a cumulative-effect increase to unitholders’ capital of $ 48.7 million , net of tax, as of January 1, 2018. This adjustment relates to incentive income that would have met the “probable that significant reversal will not occur” criteria as of that date. In addition, effective January 1, 2018, certain reimbursements received by the Company from the investment funds it manages are reported as revenues on a gross basis with an equal offset to expenses in the consolidated statements of operations. Please see note 4 for more information on revenues.
3. ACQUISITIONS
On October 17, 2017, the Company completed a transaction in which it became the new investment adviser to two business development companies (the “BDCs”): Oaktree Specialty Lending Corporation (NASDAQ: OCSL) and Oaktree Strategic Income Corporation (NASDAQ: OCSI). Upon the closing of the transaction (the “BDC acquisition”), the Company paid $ 320.0 million in cash to Fifth Street Management LLC (“FSM”), net of certain transaction-related expenses, for all of FSM’s right, title and interest in specified business records related to FSM’s then-existing investment advisory agreements with each BDC. The transaction was accounted for as an asset acquisition. The net purchase price was $ 319.4 million , consisting of the $ 320.0 million cash payment, net of certain transaction-related expenses and reimbursements received from the seller. Substantially all of the purchase price was allocated to finite-lived contractual rights. While FSM pledged cash and other assets with an estimated fair value of $ 56.2 million to indemnify the Company or the BDCs against potential claims or assessments, the Company determined that the amount of the potential liability associated with these claims could not be reasonably estimated as of the acquisition date so no amounts were recognized in purchase accounting related to the indemnification agreement.
4. REVENUES
On January 1, 2018, the Company adopted the new revenue recognition standard on a modified retrospective basis. As a result, prior period amounts continue to be reported under historic GAAP. Upon adoption, the Company recorded a cumulative-effect increase to unitholders’ capital as of January 1, 2018 of $ 48.7 million , net of tax. This adjustment relates to incentive income that would have met the “probable that significant reversal will not occur” criteria as of January 1, 2018 under the new revenue standard.
Revenue Recognition
The Company earns management fees and incentive income from the investment advisory services it provides to its customers. Revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. The Company typically enters into contracts with investment funds to provide investment management and administrative services. These services are generally capable of being distinct and each is accounted for as separate performance obligations comprised of distinct service periods because the services are performed over time. The Company determined that for accounting purposes the investment funds are generally considered to be the customers with respect to commingled funds, while the individual investors are the customers with respect to separate account and fund-of-one vehicles. The Company receives management fees and/or incentive income with respect to its investment management services, and it is reimbursed by the funds for expenses incurred or paid on behalf of the funds with respect to its investment advisory services and its administrative services. The Company evaluates whether it is the principal (i.e., report as management fees on a gross basis) or agent (i.e., report as management fees on a net basis) with respect to each performance obligation and associated reimbursement arrangements. The Company has elected to apply the variable consideration exemption for its fee arrangements with its customers.
Management Fees
Management fees are recognized over the period in which the investment management services are performed because customers simultaneously consume and receive benefits that are satisfied over time. The contractual terms of management fees generally vary by fund structure. For most closed-end funds, the management fee rate is applied against committed capital during the fund’s investment period and the lesser of total

14

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

funded capital or cost basis of assets in the liquidation period. Certain closed-end funds pay management fees during the investment period based on drawn capital or cost basis. Additionally, for closed-end funds that pay management fees based on committed capital, the Company may elect to delay the start of the fund’s investment period and thus its full management fees, in which case it earns management fees based on drawn capital, and in certain cases outstanding borrowings under a fund-level credit facility made in lieu of drawing capital, until the Company elects to start the fund’s investment period. In the case of CLOs, the management fee is based on the aggregate par value of collateral assets and principal cash, as defined in the applicable CLO indentures, and a portion of the management fees is dependent on the sufficiency of the particular vehicle’s cash flow. For open-end and evergreen funds, the management fee is generally based on the NAV of the fund. For the publicly-traded BDCs, the management fee is based on gross assets (including assets acquired with leverage), net of cash. In the case of certain open-end fund accounts, the Company has the potential to earn performance-based fees, typically in reference to a relevant benchmark index or hurdle rate, which are classified as management fees. The Company also earns quarterly incentive fees on the investment income from certain evergreen funds, such as the publicly-traded BDCs and other fund accounts, which are generally recurring in nature and reflected as management fees.
The ultimate amount of management fees that will be earned over the life of the contract is subject to a large number and broad range of possible outcomes due to market volatility and other factors outside of the Company’s control. As a result, the amount of revenue earned in any given period is generally determined at the end of each reporting period and relates to services performed during that period. The impact on management fees as a result of applying the new revenue standard for the three and nine months ended September 30, 2018 was an increase of $2.8 million and $9.5 million , respectively. This amount relates to the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company has determined it is the principal. Such costs are presented in compensation and benefits and general and administrative expenses.
Incentive Income
Incentive income generally represents 20% of each closed-end fund’s profits, subject to the return of contributed capital and a preferred return of typically 8% per annum, and up to 20% of certain evergreen fund’s annual profits, subject to high-water marks or hurdle rates. Incentive income is recognized when it is probable that a significant reversal will not occur. Revenue recognition is typically met (a) for closed-end funds, only after all contributed capital and the preferred return on that capital have been distributed to the fund’s investors, and (b) for certain evergreen funds, at the conclusion of each annual measurement period. Potential incentive income is highly susceptible to market volatility, the judgment and actions of third parties, and other factors outside of the Company’s control. The Company’s experience has demonstrated little predictive value in the amount of potential incentive income ultimately earned due to the highly uncertain nature of returns inherent in the markets and contingencies associated with many realization events. As a result, the amount of incentive income recognized in any given period is generally determined after giving consideration to a number of factors, including whether the fund is in its investment or liquidation period, and the nature and level of risk associated with changes in fair value of the remaining assets in the fund. In general, it would be unlikely that any amount of potential incentive income would be recognized until (a) the uncertainty is resolved or (b) the fund is near final liquidation, assets are under contract for sale or are of low risk of significant fluctuation in fair value, and the assets are significantly in excess of the threshold at which incentive income would be earned. The impact on incentive income as a result of applying the new revenue standard for the three and nine months ended September 30, 2018 was a decrease of $4.9 million and $52.0 million , respectively.
Incentives received by Oaktree before the revenue recognition criteria have been met are deferred and recorded as a deferred incentive income liability within accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition. The Company may receive tax distributions related to taxable income allocated by funds, which are treated as an advance of incentive income and subject to the same recognition criteria. Tax distributions are contractually not subject to clawback.

15

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

The following schedule presents revenues disaggregated by fund structure, each of which is affected by economic factors related to the asset class composition of the holdings and the contractual terms such as the basis for calculating the management fees and investors’ ability to redeem:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Management Fees
 
 
 
 
 
 
 
Closed-end
$
112,415

 
$
126,973

 
$
353,225

 
$
380,951

Open-end
34,942

 
40,669

 
109,051

 
120,897

Evergreen
27,838

 
13,670

 
76,430

 
40,420

Total
$
175,195

 
$
181,312

 
$
538,706

 
$
542,268

 
 
 
 
 
 
 
 
Incentive Income
 
 
 
 
 
 
 
Closed-end
$
65,661

 
$
53,537

 
$
249,447

 
$
611,902

Evergreen
371

 
183

 
3,678

 
4,502

Total
$
66,032

 
$
53,720

 
$
253,125

 
$
616,404

Contract Balances
The Company receives management fees monthly or quarterly in accordance with its contracts with customers. Incentive income is received when the fund makes a distribution. Contract assets relate to the Company’s conditional right to receive payment for its performance completed under the contract. Receivables are recorded when the right to consideration becomes unconditional (i.e., only requires the passage of time). Contract liabilities (i.e., deferred revenues) relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenues when the Company provides investment management services.
The table below sets forth contract balances for the periods indicated:
 
As of
 
September 30, 2018
 
December 31, 2017
 
 
 
 
Receivables (1)
$
55,552

 
$
98,738

Contract assets (1)
20,500

 
54,221

Contract liabilities (2)
(31,166
)
 
(25,297
)
 
 
 
 
 
(1)
The decline in balances was primarily related to payments received, net of accruals.
(2)
Revenue recognized in the three and nine months ended September 30, 2018 from amounts included in the contract liability balance was $2.3 million and $23.9 million , respectively.

16

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

5. VARIABLE INTEREST ENTITIES
The Company consolidates VIEs for which it is the primary beneficiary. VIEs include funds managed by Oaktree and CLOs for which Oaktree acts as collateral manager. The purpose of these VIEs is to provide investment opportunities for investors in exchange for management fees and, in certain cases, performance-based fees. While the investment strategies of the funds and CLOs differ by product, in general the fundamental risks of the funds and CLOs have similar characteristics, including loss of invested capital and reduction or absence of management and performance-based fees. As general partner or collateral manager, respectively, Oaktree generally considers itself the sponsor of the applicable fund or CLO. The Company does not provide performance guarantees and, other than capital commitments, has no financial obligation to provide funding to VIEs.
Consolidated VIEs
As of September 30, 2018, the Company consolidated 20 VIEs for which it was the primary beneficiary, including 10 funds managed by Oaktree, nine CLOs for which Oaktree serves as collateral manager, and Oaktree AIF Holdings, Inc., which was formed to hold certain assets for regulatory and other purposes. Two of the consolidated funds, Oaktree Enhanced Income Retention Holdings III, LLC and Oaktree CLO RR Holder, LLC, were formed to satisfy risk retention requirements under Section 15G of the Exchange Act. One of the CLOs had not priced as of September 30, 2018. As of December 31, 2017, the Company consolidated 21 VIEs.
As of September 30, 2018, the assets and liabilities of the 19 consolidated VIEs representing funds and CLOs amounted to $6.0 billion and $4.8 billion , respectively. The assets of these consolidated VIEs primarily consisted of investments in debt and equity securities, while their liabilities primarily represented debt obligations issued by CLOs. The assets of these VIEs may be used only to settle obligations of the same VIE. In addition, there is no recourse to the Company for the VIEs’ liabilities. In exchange for managing either the funds’ or CLOs’ collateral, the Company typically earns management fees and may earn performance fees, all of which are eliminated in consolidation. As of September 30, 2018, the Company’s investments in consolidated VIEs had a carrying value of $506.5 million , which represented its maximum risk of loss as of that date. The Company’s investments in CLOs are generally subordinated to other interests in the CLOs and entitle the Company to receive a pro-rata portion of the residual cash flows, if any, from the CLOs. Please see note 11 for more information on CLO debt obligations.
Unconsolidated VIEs
The Company holds variable interests in certain VIEs in the form of direct equity interests that are not consolidated because it is not the primary beneficiary, inasmuch as its fee arrangements are considered at-market and it does not hold interests in those entities that are considered more than insignificant.
The carrying value of the Company’s investments in VIEs that were not consolidated are shown below.
 
Carrying Value as of
 
September 30, 2018
 
December 31, 2017
 
 
 
 
Corporate investments
$
963,239

 
$
930,699

Due from affiliates
88,390

 
160,257

Maximum exposure to loss
$
1,051,629

 
$
1,090,956


17

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

6. INVESTMENTS
Corporate Investments
Corporate investments consist of investments in funds and companies in which the Company does not have a controlling financial interest. Investments for which the Company is deemed to exert significant influence are accounted for under the equity method of accounting and reflect Oaktree’s ownership interest in each fund or company. In the case of investments for which the Company is not deemed to exert significant influence or control, the fair value option of accounting has been elected. Investment income represents the Company’s pro-rata share of income or loss from these funds or companies, or the change in fair value of the investment, as applicable. Oaktree’s general partnership interests are substantially illiquid. While investments in funds reflect each respective fund’s holdings at fair value, equity-method investments in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”) and other companies are not adjusted to reflect the fair value of the underlying company. The fair value of the underlying investments in Oaktree funds is based on the Company’s assessment, which takes into account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and other liquidity factors are integral to valuing these instruments.
Corporate investments consisted of the following:
 
As of
Corporate Investments
September 30, 2018
 
December 31,
2017
 
 
 
 
Equity-method investments:
 
 
 
Funds
$
958,265

 
$
916,559

Companies
26,367

 
42,294

Other investments, at fair value
70,719

 
50,778

Total corporate investments
$
1,055,351

 
$
1,009,631

The components of investment income are set forth below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Investment Income
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Equity-method investments:
 
 
 
 
 
 
 
Funds
$
39,041

 
$
34,733

 
$
92,105

 
$
104,216

Companies
18,870

 
17,441

 
54,438

 
52,164

Other investments, at fair value
285

 
(1,113
)
 
3,139

 
(5,762
)
Total investment income
$
58,196

 
$
51,061

 
$
149,682

 
$
150,618


18

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Equity-method Investments
The Company’s equity-method investments include its investments in Oaktree funds for which it serves as general partner and other third-party funds and companies that are not consolidated but for which the Company is deemed to exert significant influence. The Company’s share of income or loss generated by these investments is recorded within investment income in the condensed consolidated statements of operations. The Company’s equity-method investments in Oaktree funds principally reflect the Company’s general partner interests in those funds, which typically does not exceed 2.5% in each fund. The Oaktree funds are investment companies that follow a specialized basis of accounting established by GAAP. Equity-method investments in companies include the Company’s one-fifth equity stake in DoubleLine.
Each reporting period, the Company evaluates each of its equity-method investments to determine if any are considered significant, as defined by the SEC. As of or for the year ended December 31, 2017, no individual equity-method investment met the significance criteria. As a result, separate financial statements were not required for any of the Company’s equity-method investments.
Summarized financial information of the Company’s equity-method investments is set forth below.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Statements of Operations
2018
 
2017
 
2018
 
2017
Revenues / investment income
$
489,240

 
$
387,281

 
$
1,423,993

 
$
1,464,961

Interest expense
(70,803
)
 
(62,636
)
 
(203,418
)
 
(167,507
)
Other expenses
(210,752
)
 
(205,998
)
 
(628,109
)
 
(618,255
)
Net realized and unrealized gain on investments
832,725

 
1,066,616

 
2,178,524

 
2,933,914

Net income
$
1,040,410

 
$
1,185,263

 
$
2,770,990

 
$
3,613,113

Other Investments, at Fair Value
Other investments, at fair value primarily consist of (a) investments in certain Oaktree and non-Oaktree funds for which the fair value option of accounting has been elected and (b) derivatives utilized to hedge the Company’s exposure to investment income earned from its funds.
The following table summarizes net gains (losses) attributable to the Company’s other investments:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Realized gain (loss)
$
104

 
$
3,697

 
$
1,072

 
$
5,252

Net change in unrealized gain (loss)
181

 
(4,810
)
 
2,067

 
(11,014
)
Total gain (loss)
$
285

 
$
(1,113
)
 
$
3,139

 
$
(5,762
)


19

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Investments of Consolidated Funds
Investments, at Fair Value
Investments held and securities sold short by the consolidated funds are summarized below:
 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
United States:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Communication services
$
442,666

 
$
178,984

 
7.4
%
 
3.2
%
Consumer discretionary
479,398

 
796,681

 
8.1

 
14.0

Consumer staples
100,650

 
100,863

 
1.7

 
1.8

Energy
178,494

 
106,414

 
3.0

 
1.9

Financials
284,437

 
161,807

 
4.7

 
2.9

Government
2,498

 
3,033

 
0.0

 
0.1

Health care
476,470

 
416,779

 
7.9

 
7.4

Industrials
379,776

 
441,440

 
6.3

 
7.8

Information technology
466,062

 
431,010

 
7.8

 
7.6

Materials
294,444

 
384,310

 
4.9

 
6.8

Real estate
174,245

 
146,836

 
2.9

 
2.6

Utilities
103,609

 
117,805

 
1.7

 
2.1

Total debt securities (cost: $3,386,701 and $3,284,346 as of September 30, 2018 and December 31, 2017, respectively)
3,382,749

 
3,285,962

 
56.4

 
58.2

Equity securities:
 
 
 

 
 
 
 

Communication services
220

 
305

 
0.0

 
0.0

Consumer discretionary
1,735

 
1,778

 
0.0

 
0.0

Energy
136

 
649

 
0.0

 
0.0

Financials
1,255

 
3,061

 
0.0

 
0.1

Health care
1,291

 
527

 
0.0

 
0.0

Industrials
52,135

 
316

 
1.0

 
0.0

Utilities
1,107

 
1,192

 
0.0

 
0.0

Total equity securities (cost: $58,323 and $8,102 as of September 30, 2018 and December 31, 2017, respectively)
57,879

 
7,828

 
1.0

 
0.1

Real estate:
 
 
 
 
 
 
 
Real estate
—

 
121,588

 
—

 
2.1

Total real estate securities (cost: $0 and $121,582 as of September 30, 2018 and December 31, 2017, respectively)
—

 
121,588

 
—

 
2.1


20

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Europe:
 
 
 

 
 
 
 

Debt securities:
 
 
 
 
 
 
 
Communication services
$
502,581

 
$
278,358

 
8.4
%
 
4.9
%
Consumer discretionary
480,925

 
573,270

 
8.0

 
10.1

Consumer staples
145,166

 
121,636

 
2.4

 
2.1

Energy
13,146

 
5,929

 
0.2

 
0.1

Financials
46,370

 
40,130

 
0.8

 
0.7

Health care
400,500

 
333,693

 
6.7

 
5.9

Industrials
242,496

 
163,972

 
4.0

 
2.9

Information technology
177,836

 
95,409

 
3.0

 
1.7

Materials
256,671

 
267,252

 
4.3

 
4.7

Real estate
24,137

 
12,528

 
0.4

 
0.2

Utilities
1,172

 
8,949

 
0.0

 
0.2

Total debt securities (cost: $2,292,008 and $1,894,727 as of September 30, 2018 and December 31, 2017, respectively)
2,291,000

 
1,901,126

 
38.2

 
33.5

Equity securities:
 
 
 

 
 
 
 

Consumer staples
31

 
1,449

 
0.0

 
0.0

Energy
—

 
3,827

 
—

 
0.1

Financials
—

 
7,410

 
—

 
0.1

Health care
1,310

 
601

 
0.0

 
0.0

Materials
—

 
1,622

 
—

 
0.0

Total equity securities (cost: $343 and $12,787 as of September 30, 2018 and December 31, 2017, respectively)
1,341

 
14,909

 
0.0

 
0.2

Asia and other:
 
 
 

 
 
 
 

Debt securities:
 
 
 

 
 
 
 

Communication services
7,370

 
8,104

 
0.1

 
0.1

Consumer discretionary
34,970

 
30,332

 
0.6

 
0.5

Consumer staples
12,160

 
748

 
0.2

 
0.0

Energy
17,355

 
10,175

 
0.3

 
0.2

Financials
9,286

 
20,362

 
0.2

 
0.4

Government
2,662

 
—

 
0.0

 
—

Health care
2,529

 
13,806

 
0.0

 
0.2

Industrials
37,547

 
22,935

 
0.6

 
0.4

Information technology
796

 
536

 
0.0

 
0.0

Materials
17,146

 
8,515

 
0.3

 
0.2

Real estate
41,576

 
6,272

 
0.7

 
0.1

Utilities
5,517

 
769

 
0.1

 
0.0

Total debt securities (cost: $188,561 and $124,723 as of September 30, 2018 and December 31, 2017, respectively)
188,914

 
122,554

 
3.1

 
2.1


21

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Asia and other:
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 

Communication services
$
—

 
$
1,735

 
—
%
 
0.0
%
Consumer discretionary
1,840

 
29,026

 
0.0

 
0.5

Consumer staples
1,604

 
7,279

 
0.0

 
0.1

Energy
526

 
5,551

 
0.0

 
0.1

Financials
25,498

 
58,632

 
0.4

 
1.2

Industrials
26,301

 
34,019

 
0.4

 
0.7

Information technology
3,234

 
23,900

 
0.2

 
0.4

Materials
12,848

 
28,590

 
0.2

 
0.5

Real estate
6,947

 
15,339

 
0.1

 
0.3

Utilities
—

 
2,502

 
—

 
0.0

Total equity securities (cost: $72,166 and $185,164 as of September 30, 2018 and December 31, 2017, respectively)
78,798

 
206,573

 
1.3

 
3.8

Total debt securities
5,862,663

 
5,309,642

 
97.7

 
93.8

Total equity securities
138,018

 
229,310

 
2.3

 
4.1

Total real estate securities
—

 
121,588

 
—

 
2.1

Total investments, at fair value
$
6,000,681

 
$
5,660,540

 
100.0
%
 
100.0
%
Securities Sold Short
 
 
 
 
 
 
 

Equity securities (proceeds: $19,112 and $82,502 as of September 30, 2018 and December 31, 2017, respectively)
$
(19,463
)
 
$
(86,467
)
 
 
 
 

As of September 30, 2018 and December 31, 2017, no single issuer or investment had a fair value that exceeded 5% of Oaktree’s total consolidated net assets.

22

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Net Gains (Losses) From Investment Activities of Consolidated Funds
Net gains (losses) from investment activities in the condensed consolidated statements of operations consist primarily of realized and unrealized gains and losses on the consolidated funds’ investments (including foreign-exchange gains and losses attributable to foreign-denominated investments and related activities) and other financial instruments. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments. Upon disposition of an investment, unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.
The following table summarizes net gains (losses) from investment activities:
 
Three Months Ended September 30,
 
2018
 
2017
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
 
 
 
 
 
 
 
Investments and other financial instruments
$
(11,493
)
 
$
51,969

 
$
3,839

 
$
2,012

CLO liabilities (1)  
—

 
(42,458
)
 
—

 
1,595

Foreign-currency forward contracts (2)  
1,496

 
1,193

 
(555
)
 
200

Total-return and interest-rate swaps (2)  
—

 
—

 
70

 
(185
)
Options and futures (2)  
185

 
(152
)
 
38

 
40

Total
$
(9,812
)
 
$
10,552

 
$
3,392

 
$
3,662


 
Nine Months Ended September 30,
 
2018
 
2017
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
 
 
 
 
 
 
 
Investments and other financial instruments
$
(14,027
)
 
$
(25,119
)
 
$
6,075

 
$
10,941

CLO liabilities (1)  
—

 
(9,601
)
 
—

 
44,943

Foreign-currency forward contracts (2)  
428

 
17

 
(945
)
 
(210
)
Total-return and interest-rate swaps (2)  
858

 
29

 
(1,398
)
 
813

Options and futures (2)  
232

 
(265
)
 
(1,977
)
 
306

Total
$
(12,509
)
 
$
(34,939
)
 
$
1,755

 
$
56,793

 
 
 
 
 
(1)
Represents the net change in the fair value of CLO liabilities based on the more observable fair value of CLO assets, as measured under the CLO measurement guidance. Please see note 2 for more information.
(2)
Please see note 8 for additional information.

23

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

7. FAIR VALUE
Fair Value of Financial Assets and Liabilities
The short-term nature of cash and cash-equivalents, receivables and accounts payable causes each of their carrying values to approximate fair value. The fair value of short-term investments included in cash and cash-equivalents is a Level I valuation. The Company’s other financial assets and financial liabilities by fair-value hierarchy level are set forth below. Please see notes 11 and 18 for the fair value of the Company’s outstanding debt obligations and amounts due from/to affiliates, respectively.
 
As of September 30, 2018
 
As of December 31, 2017
 
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other securities (1)  
$
469,800

 
$
—

 
$
—

 
$
469,800

 
$
176,602

 
$
—

 
$
—

 
$
176,602

Corporate investments
—

 
30,051

 
40,599

 
70,650

 
—

 
1,833

 
50,902

 
52,735

Foreign-currency forward contracts (2)
—

 
2,872

 
—

 
2,872

 
—

 
5,020

 
—

 
5,020

Total assets
$
469,800

 
$
32,923

 
$
40,599

 
$
543,322

 
$
176,602

 
$
6,853

 
$
50,902

 
$
234,357

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liability (3)  
$
—

 
$
—

 
$
(6,591
)
 
$
(6,591
)
 
$
—

 
$
—

 
$
(18,778
)
 
$
(18,778
)
Foreign-currency forward contracts (4)  
—

 
(1,045
)
 
—

 
(1,045
)
 
—

 
(13,154
)
 
—

 
(13,154
)
Cross-currency swap (3)  
—

 
(9,119
)
 
—

 
(9,119
)
 
—

 
(7,479
)
 
—

 
(7,479
)
Total liabilities
$
—

 
$
(10,164
)
 
$
(6,591
)
 
$
(16,755
)
 
$
—

 
$
(20,633
)
 
$
(18,778
)
 
$
(39,411
)
 
 
 
 
 
(1)
Carrying value approximates fair value due to the short-term nature.
(2)
Amounts are included in other assets in the condensed consolidated statements of financial condition, except for $69 as of September 30, 2018, which is included within corporate investments in the condensed consolidated statements of financial condition.
(3)
Amounts are included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition.
(4)
Amounts are included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition, except for $1,957 as of December 31, 2017, which is included within corporate investments in the condensed consolidated statements of financial condition.
There were no transfers between Level I and Level II positions for the nine months ended September 30, 2018 and 2017.

24

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

The table below sets forth a summary of changes in the fair value of Level III financial instruments:
 
Three Months Ended September 30,
 
2018
 
2017
 
Corporate Investments
 
Contingent Liability
 
Corporate Investments
 
Contingent Liability
 
 
 
 
 
 
 
 
Beginning balance
$
31,084

 
$
(9,129
)
 
$
77,657

 
$
(24,029
)
Contributions or additions
10,258

 
—

 
5

 
—

Distributions
(290
)
 
—

 
(5,482
)
 
—

Net gain (loss) included in earnings
(453
)
 
2,538

 
3,460

 
4,921

Ending balance
$
40,599

 
$
(6,591
)
 
$
75,640

 
$
(19,108
)
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) attributable to financial instruments still held at end of period
$
(557
)
 
$
2,538

 
$
(239
)
 
$
4,921

 
NIne Months Ended September 30,
 
2018
 
2017
 
Corporate Investments
 
Contingent Liability
 
Corporate Investments
 
Contingent Liability
 
 
 
 
 
 
 
 
Beginning balance
$
50,902

 
$
(18,778
)
 
$
74,663

 
$
(23,567
)
Contributions or additions
16,668

 
—

 
209

 
—

Distributions
(31,145
)
 
—

 
(9,052
)
 
—

Net gain (loss) included in earnings
4,174

 
12,187

 
9,820

 
4,459

Ending balance
$
40,599

 
$
(6,591
)
 
$
75,640

 
$
(19,108
)
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) attributable to financial instruments still held at end of period
$
3,102

 
$
12,187

 
$
3,788

 
$
4,459

The table below sets forth a summary of the valuation techniques and quantitative information utilized in determining the fair value of the Company’s Level III financial instruments:
 
 
Fair Value as of
 
 
 
Significant Unobservable Input
 
 
 
 
Financial Instrument
 
September 30, 2018
 
December 31, 2017
 
Valuation Technique
 
 
Range
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate investment – Limited partnership interests
 
$
40,599

 
$
50,902

 
Market approach
(value of underlying assets)
 
Not applicable
 
Not applicable
 
Not applicable
Contingent liability
 
(6,591
)
 
(18,778
)
 
Discounted cash flow
 
Assumed % of total potential contingent payments
 
0% – 100%
 
23%


25

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Fair Value of Financial Instruments Held By Consolidated Funds
The short-term nature of cash and cash-equivalents held at the consolidated funds causes their carrying value to approximate fair value. The fair value of cash-equivalents is a Level I valuation. Derivatives may relate to a mix of Level I, II or III investments, and therefore their fair-value hierarchy level may not correspond to the fair-value hierarchy level of the economically hedged investment. The table below summarizes the investments and other financial instruments of the consolidated funds by fair-value hierarchy level:
 
As of September 30, 2018
 
As of December 31, 2017
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt – bank debt
$
—

 
$
4,773,586

 
$
107,891

 
$
4,881,477

 
$
—

 
$
4,340,860

 
$
86,999

 
$
4,427,859

Corporate debt – all other
1,132

 
833,491

 
146,563

 
981,186

 
736

 
805,659

 
75,388

 
881,783

Equities – common stock
80,422

 
162

 
54,841

 
135,425

 
222,439

 
65

 
3,427

 
225,931

Equities – preferred stock
1,165

 
13

 
1,415

 
2,593

 
3,041

 
338

 
—

 
3,379

Real estate
—

 
—

 
—

 
—

 
—

 
—

 
121,588

 
121,588

Total investments
82,719

 
5,607,252

 
310,710

 
6,000,681

 
226,216

 
5,146,922

 
287,402

 
5,660,540

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
—

 
1,700

 
—

 
1,700

 
—

 
590

 
—

 
590

Swaps
—

 
—

 
—

 
—

 
—

 
49

 
—

 
49

Options and futures
—

 
—

 
—

 
—

 
92

 
—

 
—

 
92

Total derivatives
—

 
1,700

 
—

 
1,700

 
92

 
639

 
—

 
731

Total assets
$
82,719

 
$
5,608,952

 
$
310,710

 
$
6,002,381

 
$
226,308

 
$
5,147,561

 
$
287,402

 
$
5,661,271

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLO debt obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes (1)  
$
—

 
$
(3,521,664
)
 
$
—

 
$
(3,521,664
)
 
$
—

 
$
(3,107,955
)
 
$
—

 
$
(3,107,955
)
Subordinated notes (1)  
—

 
(126,553
)
 
—

 
(126,553
)
 
—

 
(111,637
)
 
—

 
(111,637
)
Total CLO debt obligations
—

 
(3,648,217
)
 
—

 
(3,648,217
)
 
—

 
(3,219,592
)
 
—

 
(3,219,592
)
Securities sold short:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
(19,463
)
 
—

 
—

 
(19,463
)
 
(86,467
)
 
—

 
—

 
(86,467
)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
—

 
(442
)
 
—

 
(442
)
 
—

 
(817
)
 
—

 
(817
)
Swaps
—

 
—

 
—

 
—

 
—

 
(136
)
 
—

 
(136
)
Options and futures
(148
)
 
—

 
—

 
(148
)
 
—

 
—

 
—

 
—

Total derivatives
(148
)
 
(442
)
 
—

 
(590
)
 
—

 
(953
)
 
—

 
(953
)
Total liabilities
$
(19,611
)
 
$
(3,648,659
)
 
$
—

 
$
(3,668,270
)
 
$
(86,467
)
 
$
(3,220,545
)
 
$
—

 
$
(3,307,012
)
 
 
 
 
 
(1)
The fair value of CLO liabilities is classified based on the more observable fair value of CLO assets. Please see notes 2 and 11 for more information.

26

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

The following tables set forth a summary of changes in the fair value of Level III investments:
 
 
Corporate Debt – Bank Debt
 
Corporate Debt – All Other
 
Equities – Common Stock
 
Equities – Preferred Stock
 
Real Estate
 
Total
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
83,529

 
$
123,936

 
$
54,934

 
$
1,586

 
$
—

 
$
263,985

Transfers into Level III
7,698

 
—

 
—

 
—

 
—

 
7,698

Transfers out of Level III
(11,549
)
 
—

 
—

 
—

 
—

 
(11,549
)
Purchases
49,347

 
41,063

 
197

 
—

 
—

 
90,607

Sales
(22,253
)
 
(17,580
)
 
(76
)
 
—

 
—

 
(39,909
)
Realized gains (losses), net
144

 
65

 
59

 
—

 
—

 
268

Unrealized appreciation (depreciation), net
975

 
(921
)
 
(273
)
 
(171
)
 
—

 
(390
)
Ending balance
$
107,891

 
$
146,563

 
$
54,841

 
$
1,415

 
$
—

 
$
310,710

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
1,140

 
$
(508
)
 
$
(273
)
 
$
(171
)
 
$
—

 
$
188

Three Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
151,229

 
$
43,469

 
$
7,287

 
$
—

 
$
—

 
$
201,985

Transfers into Level III
349

 
—

 
—

 
—

 
—

 
349

Transfers out of Level III
(5,059
)
 
(1,978
)
 
—

 
—

 
—

 
(7,037
)
Purchases
44,199

 
21,363

 
—

 
—

 
2,494

 
68,056

Sales
(28,567
)
 
(13,347
)
 
(74
)
 
—

 
(2,005
)
 
(43,993
)
Realized gains (losses), net
(325
)
 
175

 
—

 
—

 
5

 
(145
)
Unrealized appreciation (depreciation), net
2,842

 
(548
)
 
501

 
—

 
11

 
2,806

Ending balance
$
164,668

 
$
49,134

 
$
7,714

 
$
—

 
$
505

 
$
222,021

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
2,219

 
$
(538
)
 
$
501

 
$
—

 
$
11

 
$
2,193



27

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

 
 
Corporate Debt – Bank Debt
 
Corporate Debt – All Other
 
Equities – Common Stock
 
Equities – Preferred Stock
 
Real Estate
 
Total
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
86,999

 
$
75,388

 
$
3,427

 
$
—

 
$
121,588

 
$
287,402

Deconsolidation of funds
—

 
—

 
—

 
—

 
(121,087
)
 
(121,087
)
Transfers into Level III
36,627

 
899

 
490

 
—

 
—

 
38,016

Transfers out of Level III
(25,041
)
 
(490
)
 
(658
)
 
—

 
—

 
(26,189
)
Purchases
58,534

 
119,328

 
52,253

 
1,248

 
—

 
231,363

Sales
(51,577
)
 
(47,628
)
 
(387
)
 
—

 
(501
)
 
(100,093
)
Realized gains (losses), net
612

 
314

 
59

 
—

 
—

 
985

Unrealized appreciation (depreciation), net
1,737

 
(1,248
)
 
(343
)
 
167

 
—

 
313

Ending balance
$
107,891

 
$
146,563

 
$
54,841

 
$
1,415

 
$
—

 
$
310,710

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
1,566

 
$
(1,054
)
 
$
(343
)
 
$
167

 
$
—

 
$
336

Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
208,868

 
$
28,793

 
$
6,693

 
$
—

 
$
—

 
$
244,354

Transfers into Level III
22,537

 
1,978

 
—

 
—

 
—

 
24,515

Transfers out of Level III
(54,179
)
 
(1,978
)
 
—

 
—

 
—

 
(56,157
)
Purchases
67,516

 
48,481

 
136

 
—

 
2,494

 
118,627

Sales
(83,772
)
 
(28,072
)
 
(713
)
 
—

 
(2,005
)
 
(114,562
)
Realized gains (losses), net
(114
)
 
486

 
87

 
—

 
5

 
464

Unrealized appreciation (depreciation), net
3,812

 
(554
)
 
1,511

 
—

 
11

 
4,780

Ending balance
$
164,668

 
$
49,134

 
$
7,714

 
$
—

 
$
505

 
$
222,021

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
3,366

 
$
(441
)
 
$
1,511

 
$
—

 
$
11

 
$
4,447


Total realized and unrealized gains and losses recorded for Level III investments are included in net realized gain on consolidated funds’ investments or net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations.
Transfers between Level I and Level II positions for the nine months ended September 30, 2018 included $ 0.7 million from Level I to Level II due to a decline in trading activity for one credit-oriented security, which was valued using vendor prices. Transfers between Level I and Level II positions for the nine months ended September 30, 2017 included $0.4 million from Level I to Level II due to a decline in trading activity for one credit-oriented security, which was valued using broker quotes.
Transfers out of Level III are generally attributable to certain investments that experienced a more significant level of market trading activity or completed an initial public offering during the respective period and thus were valued using observable inputs. Transfers into Level III typically reflect either investments that experienced a less significant level of market trading activity during the period or portfolio companies that undertook restructurings or bankruptcy proceedings and thus were valued in the absence of observable inputs.





28

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

The following table sets forth a summary of the valuation techniques and quantitative information utilized in determining the fair value of the consolidated funds’ Level III investments as of September 30, 2018:
Investment Type
 
Fair Value
 
Valuation Technique
 
Significant Unobservable
Inputs  (1)(2)
 
Range
 
Weighted Average (3)
 
 
 
 
 
 
 
 
 
 
 
Credit-oriented investments:
 
 
 
 
 
 
 
 
 
 
Communication services:
 
$
14,490

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
634

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
7x – 9x
 
8x
Financials:
 
68,527

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
1,580

 
Discounted cash flow (4)
 
Discount rate
 
10% – 12%
 
11%
Health care:
 
31,186

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
11,461

 
Discounted cash flow (4)
 
Discount rate
 
8% – 16%
 
13%
Information technology:
 
15,804

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
2,447

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
Real estate:
 
76,773

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
2,663

 
Discounted cash flow (4)
 
Discount rate
 
12% – 14%
 
13%
Other:
 
19,719

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
5,949

 
Discounted cash flow (4)
 
Discount rate
 
11% – 14%
 
12%
 
 
3,221

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
52,025

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
 
 
2,094

 
Discounted cash flow (4)
 
Discount rate
 
10% – 30%
 
13%
 
 
2,137

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
5x – 11x
 
7x
Total Level III
investments
 
$
310,710

 
 
 
 
 
 
 
 
The following table sets forth a summary of the valuation techniques and quantitative information utilized in determining the fair value of the consolidated funds’ Level III investments as of December 31, 2017:
Investment Type
 
Fair Value
 
Valuation Technique
 
Significant Unobservable
Inputs  (1)(2)
 
Range
 
Weighted Average (3)
 
 
 
 
 
 
 
 
 
 
 
Credit-oriented investments:
 
 
 
 
 
 
 
 
 
 
Financials:
 
$
53,732

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Industrials:
 
14,563

 
Discounted cash flow (4)
 
Discount rate
 
6% – 11%
 
7%
 
 
3,782

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Information
technology:
 
5,331

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
 
 
13,965

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Real estate:
 
2,897

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
 
 
22,297

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
327

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Other:
 
15,881

 
Discounted cash flow (4)
 
Discount rate
 
8% – 20%
 
12%
 
 
660

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
8x – 10x
 
9x
 
 
29,452

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
378

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
9x – 11x
 
10x
 
 
1,343

 
Discounted cash flow (4)
 
Discount rate
 
11% – 30%
 
13%
 
 
1,707

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Real estate investments:
 
 
 
 
 
 
 
 
 
 
Real estate:
 
121,087

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Total Level III
investments
 
$
287,402

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
The discount rate is the significant unobservable input used in the fair-value measurement of performing credit-oriented investments in which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments and real estate loan portfolios. An increase (decrease) in the discount rate would result in a lower (higher) fair-value measurement.
(2)
Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value measurement of distressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling interest in the underlying issuer, equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple would result in a higher (lower) fair-value measurement.
(3)
The weighted average is based on the fair value of the investments included in the range.
(4)
A discounted cash-flow method is generally used to value performing credit-oriented investments in which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments, real estate-oriented investments and real estate loan portfolios.
(5)
Certain investments are valued using vendor prices or broker quotes for the subject or similar securities.  Generally, investments valued in this manner are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.
(6)
A market approach is generally used to value distressed investments and investments in which the consolidated funds have a controlling interest in the underlying issuer.
(7)
Earnings multiples are based on comparable public companies and transactions with comparable companies. The Company typically utilizes multiples of EBITDA; however, in certain cases the Company may use other earnings multiples believed to be most relevant to the investment. The Company typically applies the multiple to trailing twelve-months’ EBITDA. However, in certain cases other earnings measures, such as pro forma EBITDA, may be utilized if deemed to be more relevant.
(8)
Certain investments are valued based on recent transactions, generally defined as investments purchased or sold within six months of the valuation date. The fair value may also be based on a pending transaction expected to close after the valuation date.

A significant amount of judgment may be required when using unobservable inputs, including assessing the accuracy of source data and the results of pricing models. The Company assesses the accuracy and reliability of the sources it uses to develop unobservable inputs. These sources may include third-party vendors that the Company believes are reliable and commonly utilized by other marketplace participants. As described in note 2, other factors beyond the unobservable inputs described above may have a significant impact on investment valuations.
During the nine months ended September 30, 2018, the valuation technique for one Level III credit-oriented investment changed from a discounted cash flow to a market approach based on comparable companies due to the anticipated restructuring of the portfolio company. There were no changes in the valuation techniques for Level III securities for the nine months ended September 30, 2017.
8. DERIVATIVES AND HEDGING
The Company enters into derivatives as part of its overall risk management strategy or to facilitate its investment management activities. Risks associated with fluctuations in interest rates and foreign-currency exchange rates in the normal course of business are addressed as part of the Company’s overall risk management strategy that may include the use of derivatives to economically hedge or reduce these exposures. From time to time, the Company may enter into (a) foreign-currency option and forward contracts to reduce earnings and cash-flow volatility associated with changes in foreign-currency exchange rates, and (b) interest-rate swaps to manage all or a portion of the interest-rate risk associated with its variable-rate borrowings. As a result of the use of these or other derivative contracts, the Company is exposed to the risk that counterparties will fail to fulfill their contractual obligations. The Company attempts to mitigate this counterparty risk by entering into derivative contracts only with major financial institutions that have investment-grade credit ratings. Counterparty credit risk is evaluated in determining the fair value of derivatives.
When the Company enters into a derivative contract, it may elect to designate the derivative as a hedging instrument and apply hedge accounting as part of its overall risk management strategy. In other situations, when a derivative does not qualify for hedge accounting or when the derivative and the hedged item are both recorded in current-period earnings and thus deemed to be economic hedges, hedge accounting is not applied. Freestanding derivatives are financial instruments that the Company enters into as part of its overall risk management strategy but does not utilize hedge accounting. These financial instruments may include foreign-currency exchange contracts, interest-rate swaps and other derivative contracts. There were no derivatives outstanding that were designated as hedging instruments for accounting purposes as of September 30, 2018 and December 31, 2017.
The fair value of freestanding derivatives consisted of the following:
 
Assets
 
Liabilities
 
Notional
 
Fair Value
 
Notional
 
Fair Value
As of September 30, 2018
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
128,511

 
$
2,872

 
$
(55,373
)
 
$
(1,045
)
Cross-currency swap
—

 
—

 
(247,023
)
 
(9,119
)
Total
$
128,511

 
$
2,872

 
$
(302,396
)
 
$
(10,164
)
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
288,451

 
$
5,020

 
$
(242,972
)
 
$
(13,154
)
Cross-currency swap
—

 
—

 
(255,210
)
 
(7,479
)
Total
$
288,451

 
$
5,020

 
$
(498,182
)
 
$
(20,633
)


29

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Realized and unrealized gains and losses arising from freestanding derivatives were recorded in the condensed consolidated statements of operations as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Investment income
$
419

 
$
(4,141
)
 
$
(1,898
)
 
$
(13,469
)
General and administrative expense (1)  
929

 
(3,111
)
 
(374
)
 
(12,062
)
Total
$
1,348

 
$
(7,252
)
 
$
(2,272
)
 
$
(25,531
)
 
 
 
 
 
(1)
To the extent that the Company’s freestanding derivatives are utilized to hedge its foreign-currency exposure to investment income and management fees earned from consolidated funds, the related hedged items are eliminated in consolidation, with the derivative impact (a positive number reflects a reduction in expenses) reflected in consolidated general and administrative expense.


Derivatives Held By Consolidated Funds
Certain consolidated funds utilize derivatives in their ongoing investment operations. These derivatives primarily consist of foreign-currency forward contracts and options utilized to manage currency risk, interest-rate swaps to hedge interest-rate risk, options and futures used to hedge certain exposures for specific securities, and total-return swaps utilized mainly to obtain exposure to leveraged loans or to participate in foreign markets not readily accessible. The primary risk exposure for options and futures is price, while the primary risk exposure for total-return swaps is credit. None of the derivative instruments are accounted for as a hedging instrument utilizing hedge accounting.
The following tables summarize net gains (losses) from derivatives held by the consolidated funds:
 
Three Months Ended September 30,
 
2018
 
2017
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
1,496

 
1,193

 
(555
)
 
200

Total-return and interest-rate swaps
—

 
—

 
70

 
(185
)
Options and futures
185

 
(152
)
 
38

 
40

Total
$
1,681

 
$
1,041

 
$
(447
)
 
$
55


 
Nine Months Ended September 30,
 
2018
 
2017
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
428

 
17

 
(945
)
 
(210
)
Total-return and interest-rate swaps
858

 
29

 
(1,398
)
 
813

Options and futures
232

 
(265
)
 
(1,977
)
 
306

Total
$
1,518

 
$
(219
)
 
$
(4,320
)
 
$
909


30

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Balance Sheet Offsetting
The Company recognizes all derivatives as assets or liabilities at fair value in its condensed consolidated statements of financial condition. In connection with its derivative activities, the Company generally enters into agreements subject to enforceable master netting arrangements that allow the Company to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative assets and liabilities with the same counterparty. While these derivatives are eligible to be offset in accordance with applicable accounting guidance, the Company has elected to present derivative assets and liabilities based on gross fair value in its condensed consolidated statements of financial condition. The table below sets forth the setoff rights and related arrangements associated with derivatives held by the Company. The “gross amounts not offset in statements of financial condition” columns represent derivatives that management has elected not to offset in the consolidated statements of financial condition even though they are eligible to be offset in accordance with applicable accounting guidance.
 
Gross and Net Amounts of Assets (Liabilities) Presented
 
Gross Amounts Not Offset in Statements of Financial Condition
 
Net Amount
As of September 30, 2018
 
Derivative Assets (Liabilities)
 
Cash Collateral Received (Pledged)
 
Derivative Assets:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
2,872

 
$
1,045

 
$
—

 
$
1,827

Derivative assets of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
1,700

 
1

 
—

 
1,699

Total
$
4,572

 
$
1,046

 
$
—

 
$
3,526

 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
(1,045
)
 
$
(1,045
)
 
$
—

 
$
—

Cross-currency swap
(9,119
)
 
—

 
—

 
(9,119
)
Subtotal
(10,164
)
 
(1,045
)
 
—

 
(9,119
)
Derivative liabilities of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
(442
)
 
(1
)
 
(259
)
 
(182
)
Options and futures
(148
)
 
—

 
—

 
(148
)
Subtotal
(590
)
 
(1
)
 
(259
)
 
(330
)
Total
$
(10,754
)
 
$
(1,046
)
 
$
(259
)
 
$
(9,449
)

31

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

 
Gross and Net Amounts of Assets (Liabilities) Presented
 
Gross Amounts Not Offset in Statements of Financial Condition
 
Net Amount
As of December 31, 2017
 
Derivative Assets (Liabilities)
 
Cash Collateral Received (Pledged)
 
Derivative Assets:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
5,020

 
$
5,020

 
$
—

 
$
—

Derivative assets of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
590

 
115

 
—

 
475

Total-return and interest-rate swaps
49

 
49

 
—

 
—

Options and futures
92

 
—

 
—

 
92

Subtotal
731

 
164

 
—

 
567

Total
$
5,751

 
$
5,184

 
$
—

 
$
567

 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
(13,154
)
 
$
(5,020
)
 
$
—

 
$
(8,134
)
Cross-currency swap
(7,479
)
 
—

 
—

 
(7,479
)
Subtotal
(20,633
)
 
(5,020
)
 
—

 
(15,613
)
Derivative liabilities of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
(817
)
 
(115
)
 
—

 
(702
)
Total-return and interest-rate swaps
(136
)
 
(49
)
 
(87
)
 
—

Subtotal
(953
)
 
(164
)
 
(87
)
 
(702
)
Total
$
(21,586
)
 
$
(5,184
)
 
$
(87
)
 
$
(16,315
)

9. FIXED ASSETS
Fixed assets, which consist of furniture and equipment, capitalized software, office leasehold improvements, and company-owned aircraft, are included in other assets in the condensed consolidated statements of financial position.
The following table sets forth the Company’s fixed assets and accumulated depreciation:
 
As of
 
September 30, 2018
 
December 31, 2017
 
 
 
 
Furniture, equipment and capitalized software
$
26,120

 
$
25,618

Leasehold improvements
68,785

 
66,940

Corporate aircraft
66,120

 
66,120

Other
4,905

 
5,229

Fixed assets
165,930

 
163,907

Accumulated depreciation
(59,935
)
 
(53,744
)
Fixed assets, net
$
105,995

 
$
110,163


32

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

10. GOODWILL AND INTANGIBLES
Goodwill represents the excess of cost over the fair value of identifiable net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead is tested for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that impairment may have occurred. As of September 30, 2018, the Company had determined there was no goodwill impairment. The carrying value of goodwill was $69.3 million as of September 30, 2018 and December 31, 2017.
The following table summarizes the carrying value of intangible assets:
 
As of
 
September 30, 2018
 
December 31, 2017
 
 
 
 
Contractual rights
$
347,452

 
$
347,452

Accumulated amortization
(28,929
)
 
(16,301
)
Intangible assets, net
$
318,523

 
$
331,151

Amortization expense associated with the Company’s intangible assets was $4.2 million and $12.6 million for the three and nine months ended September 30, 2018, respectively, and $1.0 million and $3.0 million for the three and nine months ended September 30, 2017, respectively. Amortization expense is estimated to be $4.2 million for the remaining three months of 2018, $16.8 million per annum for each of the years ending December 31, 2019 and 2020, $15.1 million for 2021, and $12.8 million for 2022.
Goodwill and intangible assets are included in other assets in the condensed consolidated statements of financial position.
11. DEBT OBLIGATIONS AND CREDIT FACILITIES
The Company’s debt obligations are set forth below:
 
As of
 
September 30, 2018
 
December 31, 2017
 
 
 
 
$250,000, 3.78%, issued in December 2017, payable on December 18, 2032
$
250,000

 
$
250,000

$250,000, variable-rate term loan, issued in March 2014, payable on March 29, 2023 (1)  
150,000

 
150,000

$50,000, 3.91%, issued in September 2014, payable on September 3, 2024
50,000

 
50,000

$100,000, 4.01%, issued in September 2014, payable on September 3, 2026
100,000

 
100,000

$100,000, 4.21%, issued in September 2014, payable on September 3, 2029
100,000

 
100,000

$100,000, 3.69%, issued in July 2016, payable on July 12, 2031
100,000

 
100,000

Total remaining principal
750,000

 
750,000

Less: Debt issuance costs
(4,188
)
 
(3,726
)
Debt obligations
$
745,812

 
$
746,274

 
 
 
 
 
(1)
On March 29, 2018, the credit facility was amended to among other things, extend the maturity date from March 31, 2021 to March 29, 2023, favorably update the commitment fee in the corporate ratings-based pricing grid and increase the permitted combined leverage ratio to a ratio of 3:50 to 1:00. The credit facility consists of a $150 million term loan and a $500 million revolving credit facility. Borrowings generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the revolving credit facility is 0.10% per annum. The credit agreement contains customary financial covenants and restrictions, including ones regarding a maximum

33

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

leverage ratio and a minimum required level of assets under management (as defined in the credit agreement, as amended above). As of September 30, 2018, the Company had no outstanding borrowings under the revolving credit facility.
As of September 30, 2018, future scheduled principal payments of debt obligations were as follows:
Last three months of 2018
$
—

2019
—

2020
—

2021
—

2022
—

Thereafter
750,000

Total
$
750,000

The Company was in compliance with all financial maintenance covenants associated with its senior notes and bank credit facility as of September 30, 2018 and December 31, 2017.
The fair value of the Company’s debt obligations, which are carried at amortized cost, is a Level III valuation that is estimated based on a discounted cash-flow calculation using estimated rates that would be offered to Oaktree for debt of similar terms and maturities. The fair value of these debt obligations, gross of debt issuance costs, was $734.1 million and $762.7 million as of September 30, 2018 and December 31, 2017, respectively, utilizing an average borrowing rate of 4.2% and 3.6% , respectively. As of September 30, 2018, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $709.8 million , whereas a 10% decrease would increase the estimated fair value to $759.4 million .
In July 2017, the Company agreed to guarantee a $17.5 million standby letter of credit extended to one of the investment funds that it manages, which expired in January 2018.
Credit Facilities of the Consolidated Funds
Certain consolidated funds may maintain revolving credit facilities that are secured by the assets of the fund or may issue senior variable rate notes to fund investments on a longer term basis, generally up to ten years. The obligations of the consolidated funds are nonrecourse to the Company.
The consolidated funds had the following debt obligations outstanding:
 
Outstanding Amount as of
 
Facility Capacity
 
Weighted Average Interest Rate
 
Weighted Average Remaining Maturity (years)
 
Commitment Fee Rate
 
L/C Fee
Credit Agreement
September 30, 2018
 
December 31, 2017
Senior variable rate notes
$
870,098

 
$
870,098

 
$
870,100

 
3.69%
 
10.0
 
N/A
 
N/A
Less: Debt issuance costs
(6,101
)
 
(7,697
)
 
 
 
 
 
 
 
 
 
 
Total debt obligations, net
$
863,997

 
$
862,401

 
 
 
 
 
 
 
 
 
 
As of both September 30, 2018 and December 31, 2017, the consolidated funds had debt obligations with an aggregate outstanding principal balance of $870.1 million . The fair value of the senior variable rate notes is a Level III valuation and aggregated $871.9 million and $872.1 million as of September 30, 2018 and December 31, 2017, respectively, using prices obtained from pricing vendors. Financial instruments that are valued using quoted prices for the security or similar securities are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.

34

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Debt Obligations of CLOs
Debt obligations of CLOs represent amounts due to holders of debt securities issued by the CLOs, as well as term loans of CLOs that had not priced as of period end.
Outstanding debt obligations of CLOs were as follows:
 
As of September 30, 2018
 
As of December 31, 2017
 
Fair Value (1)
 
Weighted Average Interest Rate
 
Weighted Average Remaining Maturity (years)
 
Fair Value (1)
 
Weighted Average Interest Rate
 
Weighted Average Remaining Maturity (years)
Senior secured notes
$
3,521,664

 
2.50%
 
10.2
 
$
3,107,955

 
2.18%
 
10.7
Subordinated notes (2)  
126,553

 
N/A
 
10.5
 
111,637

 
N/A
 
10.8
Total CLO debt obligations
$
3,648,217

 
 
 
 
 
$
3,219,592

 
 
 
 
 
 
 
 
 
(1)
The fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (a) the fair value of any beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services. Please see notes 2 and 7 for more information.
(2)
The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess cash flows generated by the CLO.
The debt obligations of CLOs are nonrecourse to the Company and are backed by the investments held by the respective CLO. Assets of one CLO may not be used to satisfy the liabilities of another. As of September 30, 2018 and December 31, 2017, the fair value of CLO assets was $4.1 billion and $3.9 billion , respectively, and consisted of cash, corporate loans, corporate bonds and other securities.
As of September 30, 2018, future scheduled principal or par value payments with respect to the debt obligations of CLOs were as follows:
Last three months of 2018
$
103,782

2019
—

2020
—

2021
—

2022
—

Thereafter
3,517,041

Total
$
3,620,823


35

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

12. NON-CONTROLLING REDEEMABLE INTERESTS IN CONSOLIDATED FUNDS
The following table sets forth a summary of changes in the non-controlling redeemable interests in the consolidated funds. Dividends reinvested and in-kind contributions or distributions are non-cash in nature and have been presented on a gross basis in the table below.
 
Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
Beginning balance
$
860,548

 
$
344,047

Initial consolidation of a fund
—

 
70,817

Contributions
107,962

 
210,964

Distributions
(214,096
)
 
(39,397
)
Net income
18,399

 
21,795

Change in distributions payable
(75,196
)
 
1,128

Foreign currency translation and other
(1,310
)
 
—

Ending balance
$
696,307

 
$
609,354

 
13. UNITHOLDERS’ CAPITAL
Unitholders’ capital reflects the economic interests attributable to Class A unitholders, preferred unitholders, non-controlling interests in consolidated subsidiaries and non-controlling interests in consolidated funds. Non-controlling interests in consolidated subsidiaries represent the portion of unitholders’ capital attributable to the OCGH non-controlling interest and third parties. The OCGH non-controlling interest is determined at the Oaktree Operating Group level, after giving effect to distributions, if any, attributable to the preferred unitholders, based on the proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Certain expenses, such as income taxes and related administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. As of September 30, 2018 and December 31, 2017, respectively, OCGH units represented 85,625,657 of the total 157,136,400 Oaktree Operating Group units and 90,975,687 of the total 156,285,913 Oaktree Operating Group units. Based on total allocable Oaktree Operating Group capital of $1,927,088 and $1,912,517 as of September 30, 2018 and December 31, 2017, respectively, the OCGH non-controlling interest was $1,050,105 and $1,113,314 . As of September 30, 2018 and December 31, 2017, non-controlling interests attributable to third parties was $6,209 and $7,923 , respectively.
Class A Unit Issuance
On February 12, 2018, the Company issued and sold 5,000,000 Class A units in a public offering, resulting in $ 219.5 million in net proceeds to the Company. The Company did not retain any proceeds from the sale of Class A units in this offering. The proceeds were used to acquire interests in the Company’s business from certain of the Company’s directors, employees and other investors, including certain senior executives and other members of the Company’s senior management.
Preferred Unit Issuances
On May 17, 2018, the Company issued 7,200,000 of its 6.625% Series A preferred units representing limited liability company interests with a liquidation preference of $25.00 per unit. The issuance resulted in $173.7 million in net proceeds to the Company. Distributions on the Series A preferred units, when and if declared by the board of directors of Oaktree, will be paid quarterly on March 15, June 15, September 15 and December 15 of each year. The first distribution was paid on September 17, 2018. Distributions on the Series A preferred units are non-cumulative.
On August 9, 2018, the Company issued 9,400,000 of its 6.550% Series B preferred units representing limited liability company interests with a liquidation preference of $ 25.00 per unit. The issuance resulted in $226.9 million in net proceeds to the Company. Distributions on the Series B preferred units, when and if declared by the

36

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

board of directors of Oaktree, will be paid quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on December 17, 2018. Distributions on the Series B preferred units are non-cumulative.
Unless distributions have been declared and paid or declared and set apart for payment on the preferred units for a quarterly distribution period, during the remainder of that distribution period the Company may not repurchase any common units or any other units that are junior in rank, as to the payment of distributions, to the preferred units and the Company may not declare or pay or set apart payment for distributions on any common units or junior units for the remainder of that distribution period, other than certain Permitted Distributions (as defined in the unit designation related to the applicable preferred units (each, the “Preferred Unit Designation”)). These restrictions are not applicable during the initial distribution period, which is the period from the original issue date to, but excluding, September 15, 2018 and December 15, 2018 in regards to the Series A and Series B preferred units, respectively.
The Company may redeem, at its option, out of funds legally available, the preferred units, in whole or in part, at any time on or after June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, at a price of $25.00 per preferred unit plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. Holders of the preferred units have no right to require the redemption of the preferred units.
If a Change of Control Event (as defined in the applicable Preferred Unit Designation) occurs prior to June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, the Company may, at its option, out of funds legally available, redeem the applicable preferred units, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Change of Control Event, at a price of $25.25 per preferred unit, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.
If a Tax Redemption Event or Rating Agency Event (each, as defined in the applicable Preferred Unit Designation) occurs prior to June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, the Company may, at its option, out of funds legally available, redeem the applicable preferred units, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Tax Redemption Event or Rating Agency Event, at a price of $25.50 per preferred unit, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.
The preferred units are not convertible into Class A units or any other class or series of the Company’s interests or any other security. Holders of the preferred units do not have any of the voting rights given to holders of our Class A units, except that holders of the preferred units are entitled to certain voting rights under certain conditions.

37

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

The following table sets forth a summary of net income attributable to the preferred unitholders, the OCGH unitholders’ non-controlling interest and the Class A common unitholders:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average Oaktree Operating Group units outstanding (in thousands):
 
 
 
 
 
 
 
OCGH non-controlling interest
85,775

 
91,864

 
86,675

 
91,750

Class A unitholders
71,369

 
64,394

 
70,167

 
63,875

Total weighted average units outstanding
157,144

 
156,258

 
156,842

 
155,625

Oaktree Operating Group net income:
 
 
 

 
 
 
 

Net income attributable to preferred unitholders (1)
$
3,909

 
$
—

 
$
3,909

 
$
—

Net income attributable to OCGH non-controlling interest
71,408

 
77,822

 
185,959

 
348,058

Net income attributable to OCG Class A unitholders
59,417

 
54,552

 
149,956

 
242,479

Oaktree Operating Group net income (2)  
$
134,734

 
$
132,374

 
$
339,824

 
$
590,537

Net income attributable to Oaktree Capital Group, LLC Class A unitholders:
 
 
 

 
 
 
 

Oaktree Operating Group net income attributable to OCG Class A unitholders
$
59,417

 
$
54,552

 
$
149,956

 
$
242,479

Non-Operating Group income (expense)
(321
)
 
(62
)
 
(629
)
 
(549
)
Income tax expense of Intermediate Holding Companies
(6,346
)
 
(8,649
)
 
(12,724
)
 
(23,850
)
Net income attributable to Oaktree Capital Group, LLC Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

 
 
 
 
 
(1)
Represents distributions declared, if any, on the preferred units.
(2)
Oaktree Operating Group net income does not include amounts attributable to other non-controlling interests, which amounted to $597 and $1,986 for the three and nine months ended September 30, 2018, respectively, and $724 and $1,970 for the three and nine months ended September 30, 2017, respectively.
The change in the Company’s ownership interest in the Oaktree Operating Group is set forth below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income attributable to Oaktree Capital Group, LLC Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

Equity reallocation between controlling and non-controlling interests
4,514

 
5,082

 
78,269

 
14,581

Change from net income attributable to Oaktree Capital Group, LLC Class A unitholders and transfers from non-controlling interests
$
57,264

 
$
50,923

 
$
214,872

 
$
232,661

 
Please see notes 14, 15 and 16 for additional information regarding transactions that impacted unitholders’ capital.

38

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

14. EARNINGS PER UNIT
The computation of net income per Class A unit is set forth below:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income per Class A unit (basic and diluted):
(in thousands, except per unit amounts)
 
 
 
 
 
 
 
Net income attributable to OCG Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

Weighted average number of Class A units outstanding (basic and diluted)
71,369

 
64,394

 
70,167

 
63,875

Basic and diluted net income per Class A unit
$
0.74

 
$
0.71

 
$
1.95

 
$
3.41

OCGH units may be exchanged on a one -for- one basis into Class A units, subject to certain restrictions. As of September 30, 2018, there were 85,625,657 OCGH units outstanding, which are vested or will vest through February 15, 2028, that ultimately may be exchanged into 85,625,657 Class A units. The exchange of these units would proportionally increase the Company’s interest in the Oaktree Operating Group. However, as the restrictions set forth in the exchange agreement were in place at the end of each respective reporting period, those units were not included in the computation of diluted earnings per unit for the three and nine months ended September 30, 2018 and 2017.
A deferred equity unit represents a special unit award that, when vested, will be settled with an unvested OCGH unit on a one -for- one basis. The number of deferred equity units that will vest is based on the achievement of certain performance targets through June 2021. Once a performance target has been met, the applicable number of OCGH units will be issued and begin to vest over 4.0 years. The holder of a deferred equity unit is not entitled to any distributions until the issuance of an OCGH unit in settlement of a deferred equity unit. As of September 30, 2018, no OCGH units were considered issuable under the terms of the arrangement; consequently, no contingently issuable units were included in the computation of diluted earnings per unit for the three and nine months ended September 30, 2018. Please see note 15 for more information.
Certain compensation arrangements include performance-based awards that could result in the issuance of up to 340,000 OCGH units in total, which would vest over periods of four to ten years from date of issuance. As of September 30, 2018, no OCGH units were considered issuable under the terms of these arrangements; consequently, no contingently issuable units were included in the computation of diluted earnings per unit for the three and nine months ended September 30, 2018.
The Company had a contingent consideration liability that was payable in cash and fully-vested OCGH units. In May 2018, the contingent consideration arrangement was modified in respect of certain performance targets and payment terms. The new arrangement provides for contingent consideration payable in cash and Class A units. No Class A units or OCGH units were considered issuable under the terms of the arrangement for the three and nine months ended September 30, 2018 and 2017; consequently no contingently issuable units were included in the computation of diluted earnings per unit for for such periods. Please see note 17 for more information.

39

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

15. EQUITY-BASED COMPENSATION
Class A and OCGH Unit Awards
During the nine months ended September 30, 2018, the Company granted 1,164,601 Class A units and 124,051 restricted OCGH units to its employees and directors, subject to annual vesting over a weighted average period of approximately 4.4 years . The grant date fair value of OCGH units awarded during the nine months ended September 30, 2018 was determined by applying a 20% discount to the Class   A unit trading price on the New York Stock Exchange as of the grant date. With respect to forfeitures, the Company has made an accounting policy election to account for forfeitures when they occur. Accordingly, no forfeitures have been assumed in the calculation of compensation expense.
As of September 30, 2018, the Company expected to recognize compensation expense on its unvested Class A and OCGH unit awards of $148.5 million over a weighted average period of 3.7 years.  
A summary of the status of the Company’s unvested Class A and OCGH unit awards and changes for the period presented are set forth below (actual dollars per unit):
 
Class A Units
 
OCGH Units (1)
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
 
 
 
 
 
 
 
Balance, December 31, 2017
2,556,316

 
$
44.05

 
2,158,835

 
$
39.79

Granted
1,164,601

 
39.61

 
124,051

 
31.80

Vested
(913,479
)
 
42.57

 
(337,976
)
 
37.24

Forfeited
(97,053
)
 
40.53

 
—

 
—

Balance, September 30, 2018
2,710,385

 
$
42.76

 
1,944,910

 
$
39.72

 
 
 
 
 
(1)
Excludes certain performance-based awards that could result in the issuance of up to 340,000 OCGH units, which would vest over periods of four to ten years from date of issuance. Though no units have been issued to date under these arrangements, as of September 30, 2018 the Company expected to recognize compensation expense on 228,500 unvested OCGH performance awards of $6.8 million over a weighted average period of 4.6 years under applicable accounting rules.
Equity Value Units
OCGH equity value units (“EVUs”) represent special limited partnership units in OCGH that entitle the holder the right to receive special distributions that will be settled in OCGH units, based on value created during a specified period in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on the appreciation of the Class A units and certain components of quarterly distributions with respect to OCGH units over the period beginning on January 1, 2015 and ending on each of December 31, 2019, December 31, 2020 and December 31, 2021, with one-third of the EVUs recapitalizing on each such date. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.
The value received under the EVUs will be reduced by (i) distributions received by the holder on 225,000 OCGH units granted to the holder on April 26, 2017, (ii) the value of the portion of profit sharing payments received by the holder attributable to the net incentive income received from certain funds, and (iii) the full value of the OCGH units granted to the holder on April 26, 2017. To the extent that the reduction relates to the value of any such OCGH units that are unvested at the time of the reduction, such OCGH units will vest at that time.
Certain EVUs provide the holder with liquidity rights in respect of the special distributions, if any, that will be settled in OCGH units. The Company accounts for EVUs with liquidity rights as liability-classified awards. As of September 30, 2018, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs

40

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

outstanding. As of September 30, 2018, the Company expected to recognize $1.8 million of compensation expense on its unvested EVUs over the next 1.3 years . Equity-classified EVUs that require future service are expensed on a straight-line basis over the requisite service period. Liability-classified EVUs are remeasured at the end of each quarter.
The fair value of EVUs was determined using a Monte Carlo simulation model. The fair value is affected by the Class A unit trading price and assumptions regarding certain complex and subjective variables, including the expected Class A unit trading price volatility, distributions and exercise timing, and the risk-free interest rate.
Deferred Equity Units
A deferred equity unit represents a special unit award that, when vested, will be settled with an unvested OCGH unit on a one -for- one basis. The number of deferred equity units that will vest is based on the achievement of certain performance targets through June 2021. Once a performance target has been met, the applicable number of OCGH units will be issued and begin to vest over 4.0 years. The holder of a deferred equity unit is not entitled to any distributions until settled by the issuance of an OCGH unit. As of September 30, 2018, there were 250,000 deferred equity units outstanding, all of which were granted in the second quarter of 2017. As of September 30, 2018, none of the deferred equity units were expected to vest.
The fair value of the deferred equity units was determined at the grant date based on the then-prevailing Class A unit trading price and reflected a 20% lack-of-marketability discount for the OCGH units that will be issued upon vesting.
16. INCOME TAXES AND RELATED PAYMENTS
Oaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate Holding Companies, are wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries is subject to U.S. federal and state income taxation and taxed at prevailing rates. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree Operating Group’s unitholders.  The Company’s effective tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between the subsidiaries that are or are not subject to income tax; consequently, from period to period the effective tax rate is subject to significant variation. The Company’s effective tax rate used for interim periods is based on the estimated full-year income tax rate. Certain future items that cannot be reliably estimated, such as incentive income, are excluded from the estimated annual effective tax rate. The tax expense or benefit stemming from these items is recognized in the same period as the underlying income or expense.
Tax authorities currently are examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. Over the next four quarters ending September 30, 2019, the Company believes that it is reasonably possible that one outcome of these examinations and expiring statutes of limitation on other items may be the release of up to approximately $2.2 million of previously accrued Operating Group income taxes. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not have a material adverse effect on the Company’s consolidated financial statements; however, there can be no assurances as to the ultimate outcomes.
Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act reduced the corporate income tax rate from 35% to 21%, and included significant changes to other domestic and international corporate income tax provisions. The rate change resulted in a net reduction to net income attributable to Oaktree Capital Group, LLC of $ 33.2 million in the fourth quarter of 2017. The SEC Staff issued Staff Accounting Bulletin No. 118 in December 2017, which allows a financial statement issuer that does not have all necessary information to fully account for the income tax effect of the Tax Act to record a provisional amount in its financial statements that may be subject to adjustment during a subsequent measurement period.  As of September 30, 2018, no adjustments have been made to the above provisional amounts.  The Company will continue to evaluate the impact of the Tax Act with respect to certain international provisions as well as provisions that have been identified as

41

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

requiring additional technical guidance.  The Company expects to complete its evaluation of the provisional amounts with the 2018 year-end financial statements as technical guidance is released.
Exchange Agreement and Tax Receivable Agreement
Subject to certain restrictions and the approval of the Company’s board of directors, each holder of OCGH units has the right to exchange his or her vested units for, at the option of the Company’s board of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices and/or other consideration of equal value. Certain of the Oaktree Operating Group entities made an election under Section 754 of the U.S. Internal Revenue Code, as amended, which may result in an adjustment to the tax basis of the assets owned by the Oaktree Operating Group at the time of an exchange. These exchanges may result in increases in tax deductions and tax basis that would reduce the amount of tax that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. would otherwise be required to pay in the future.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the Oaktree Operating Group. When an exchange of OCGH units results in an increase to the tax basis of the assets owned by the Oaktree Operating Group, a deferred tax asset and an associated liability for payments to OCGH unitholders under the tax receivable agreement are recorded, subject to realizability considerations. The establishment of a deferred tax asset increases additional paid-in capital because the transactions are between Oaktree and its unitholders.
Assuming no further material changes in the relevant tax law and that the Company earns sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected estimated future payments to OCGH unitholders under the tax receivable agreement, as of September 30, 2018, are set forth below:
Transaction
Total Future Payments
 
Payments Through Fiscal Year
 
 
2007 Private Offering
$
13,327

 
2029
Initial public offering
32,511

 
2034
May 2013 Offering
45,785

 
2035
March 2014 Offering
34,732

 
2036
March 2015 Offering
29,558

 
2037
February 2018 Offering
34,288

 
2040
Total
$
190,201

 
 
Future estimated payments to OCGH unitholders under the tax receivable agreement are subject to increase in the event of additional exchanges of OCGH units. For the nine months ended September 30, 2018, $20.7 million was paid under the tax receivable agreement.

42

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

17. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Oaktree enters into contracts that contain certain representations, warranties and indemnifications. The Company’s exposure under these arrangements would involve future claims that have not yet been asserted. Inasmuch as no such claims currently exist or are expected to arise, the Company has not accrued any liability in connection with these indemnifications.
Legal Actions
Oaktree, its affiliates, investment professionals, and portfolio companies are routinely involved in litigation and other legal actions in the ordinary course of their business and investing activities.  In addition, Oaktree is subject to the authority of a number of U.S. and non-U.S. regulators, including the SEC and the Financial Industry Regulatory Authority, and those authorities periodically conduct examinations of Oaktree and make other inquiries that may result in the commencement of regulatory proceedings against Oaktree and its personnel. Oaktree is currently not subject to any pending actions or regulatory proceedings that either individually or in the aggregate are expected to have a material impact on its consolidated financial statements.
Incentive Income
In addition to the incentive income recognized by the Company, certain of its funds have amounts recorded as potentially allocable to the Company as its share of potential future incentive income, based on each fund’s net asset value. Inasmuch as this incentive income is contingent upon future investment activity and other factors, it is not recognized by the Company as revenue until it is probable that a significant reversal will not occur. As of September 30, 2018 and December 31, 2017, respectively, the aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company was $1,923,544 and $1,918,952 , for which related direct incentive income compensation expense was estimated to be $1,010,268 and $1,000,232 .
Contingent Liabilities
The Company had a contingent consideration obligation of up to $60.0 million related to the Highstar acquisition that was payable in cash and fully-vested OCGH units. The amount of contingent consideration was based on the achievement of certain performance targets over a period of up to seven years from the acquisition date of August 2014. In May 2018, the contingent consideration arrangement was modified in respect of certain performance targets and payment terms. The new arrangement provides for contingent consideration of up to $36.1 million , payable in cash and Class A units. The modification resulted in a $7.1 million reduction in the contingent consideration liability. As of September 30, 2018 and December 31, 2017, respectively, the fair value of the contingent liability was $6.6 million and $18.8 million . Changes in this liability resulted in income of $2.5 million and $12.2 million for the three and nine months ended September 30, 2018, respectively, and income of $4.9 million and $4.5 million for the three and nine months ended September 30, 2017, respectively. The fair value of the contingent consideration liability is a Level III valuation, which uses a discounted cash-flow analysis based on a probability-weighted average estimate of certain performance targets, including fundraising and revenue levels. The assumptions used in the analysis are inherently subjective, and thus the ultimate amount of the contingent consideration liability may differ materially from the most recent estimate. The contingent consideration liability is included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition. Changes in the liability are recorded in general and administrative expense in the condensed consolidated statements of operations.
In connection with the October 2017 BDC acquisition, FSM pledged assets with an estimated fair value of $ 56.2 million to indemnify the Company or the BDCs against any claims or assessments arising from the period during which it managed the BDCs. Please see note 3 for more information.
Commitments to Funds
As of September 30, 2018 and December 31, 2017, the Company, generally in its capacity as general partner, had undrawn capital commitments of $455.0 million and $429.1 million , respectively, including commitments to both unconsolidated and consolidated funds.

43

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Investment Commitments of the Consolidated Funds
Certain of the consolidated funds are parties to credit arrangements that provide for the issuance of letters of credit and/or revolving loans, which may require the particular fund to extend loans to investee companies. The consolidated funds use the same investment criteria in making these commitments as they do for investments that are included in the condensed consolidated statements of financial condition. The unfunded liability associated with these credit arrangements is equal to the amount by which the contractual loan commitment exceeds the sum of funded debt and cash held in escrow, if any. As of September 30, 2018 and December 31, 2017, the consolidated funds had potential aggregate commitments of $11.4 million and $6.0 million , respectively. These commitments are expected to be funded by the funds’ cash balances, proceeds from asset sales or drawdowns against existing capital commitments.
A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. As of September 30, 2018 and December 31, 2017, there were no guaranteed amounts under such arrangements.
Certain consolidated funds are investment companies that are required to disclose financial support provided or contractually required to be provided to any of their portfolio companies. During the nine months ended September 30, 2018, the consolidated funds did not provide any financial support to portfolio companies.
18. RELATED-PARTY TRANSACTIONS
The Company considers its senior executives, employees and unconsolidated Oaktree funds to be affiliates (as defined in the FASB ASC Master Glossary). Amounts due from and to affiliates are set forth below. The fair value of amounts due from and to affiliates is a Level III valuation and was valued based on a discounted cash-flow analysis. The carrying value of amounts due from affiliates approximated fair value due to their short-term nature or because their average interest rate, which ranged from 2.0% to 3.0% , approximated the Company’s cost of debt. The fair value of amounts due to affiliates approximated $96,469 and $93,772 as of September 30, 2018 and December 31, 2017, respectively, based on a discount rate of 10.0% .
 
As of
 
September 30, 2018
 
December 31, 2017
Due from affiliates:
 
 
 
Loans
$
3,344

 
$
9,239

Amounts due from unconsolidated funds
67,036

 
57,155

Management fees and incentive income due from unconsolidated funds
76,052

 
152,959

Payments made on behalf of unconsolidated entities
3,467

 
3,784

Non-interest bearing advances made to certain non-controlling interest holders and employees
—

 
87

Total due from affiliates
$
149,899

 
$
223,224

Due to affiliates:
 
 
 

Due to OCGH unitholders in connection with the tax receivable agreement (please see note 16)
$
190,201

 
$
176,283

Amounts due to senior executives, certain non-controlling interest holders and employees
2,066

 
1,590

Total due to affiliates
$
192,267

 
$
177,873

Loans
Loans primarily consist of interest-bearing loans made to certain non-controlling interest holders, primarily certain employees, to meet tax obligations related to vesting of equity awards. The loans, which are generally recourse to the borrower or secured by vested equity and other collateral, typically bear interest at the Company’s cost of debt and generated interest income of $22 and $193 for the three and nine months ended September 30, 2018, respectively, and $94 and $369 for the three and nine months ended September 30, 2017, respectively.

44

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

Due From Oaktree Funds and Portfolio Companies
In the normal course of business, the Company advances certain expenses on behalf of Oaktree funds. Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain expenses paid by the Company, which typically are employee travel and other costs associated with particular portfolio company holdings, are reimbursed to the Company by the portfolio companies.
Revenues Earned From Oaktree Funds
Management fees and incentive income earned from unconsolidated Oaktree funds totaled $218.0 million and $719.6 million for the three and nine months ended September 30, 2018, respectively, and $206.0 million and $1,070.9 million for the three and nine months ended September 30, 2017, respectively.
Other Investment Transactions
The Company’s senior executives, directors and senior professionals are permitted to invest their own capital (or the capital of family trusts or other estate planning vehicles they control) in Oaktree funds, for which they pay the particular fund’s full management fee but not its incentive allocation. To facilitate the funding of capital calls by funds in which employees are invested, the Company periodically advances on a short-term basis the capital calls on certain employees’ behalf. These advances are reimbursed generally toward the end of the calendar quarter in which the capital calls occurred. Amounts advanced by the Company are included within “non-interest bearing advances made to certain non-controlling interest holders and employees” in the above table.
Aircraft Services
The Company owns an aircraft for business purposes. Howard Marks, the Company’s co-chairman, may use this aircraft for personal travel and will reimburse the Company to the extent his use of the aircraft for personal travel exceeds a certain threshold pursuant to a Company policy adopted as of January 1, 2017.  The Company also provides certain senior executives a personal travel allowance for private aircraft usage up to a certain threshold pursuant to the same Company policy. Additionally, the Company occasionally makes use of an aircraft owned by one of its senior executives for business purposes at a price to the Company that is based on market rates.
Special Allocations
Certain senior executives receive special allocations based on a percentage of profits of the Oaktree Operating Group. These special allocations, which are recorded as compensation expense, are made on a current basis for so long as they remain senior executives of the Company, with limited exceptions.
19. SEGMENT REPORTING
As a global investment manager, the Company provides investment management services through funds and separate accounts. The Company earns revenues from the management fees and incentive income generated by the funds that it manages. Management uses a consolidated approach to assess performance and allocate resources. As such, the Company’s business is comprised of one segment, the investment management business. The Company conducts its investment management business primarily in the United States, where substantially all of its revenues are generated.

45

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
September 30, 2018
($ in thousands, except where noted)

20. SUBSEQUENT EVENTS
Class A Unit Distribution
On October 25, 2018, the Company announced a distribution of $0.70 per Class A unit. This distribution, which is related to the third quarter of 2018, will be paid on November 13, 2018 to Class A unitholders of record at the close of business on November 5, 2018.
Series A Preferred Unit Distribution
On October 25, 2018, the Company announced a distribution of $0.414063 per Series A preferred unit, which will be paid on December 17, 2018 to Series A preferred unitholders of record at the close of business on December 1, 2018.
Series B Preferred Unit Distribution
On October 25, 2018, the Company announced a distribution of $0.573125 per Series B preferred unit, which will be paid on December 17, 2018 to Series B preferred unitholders of record at the close of business on December 1, 2018. The first distribution on Series B preferred units is calculated based on the date of the original issuance, reflecting a period longer than three months. Future distributions will reflect a period of three months.


46

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Oaktree Capital Group, LLC and the related notes included within this quarterly report. This discussion contains forward-looking statements that are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. The factors listed under “Risk Factors” and “Forward-Looking Statements” in this quarterly report and under “Risk Factors” in our annual report provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in any forward-looking statements.
Business Overview
Oaktree is a leader among global investment managers specializing in alternative investments, with $123.5 billion in AUM as of September 30, 2018. Our mission is to deliver superior investment results with risk under control and to conduct our business with the highest integrity. We emphasize an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. Over more than three decades, we have developed a large and growing client base through our ability to identify and capitalize on opportunities for attractive investment returns in less efficient markets.
We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele (excluding DoubleLine’s clientele) includes 73 of the 100 largest U.S. pension plans, 38 state retirement plans in the United States, over 400 corporations and/or their pension funds, over 340 university, charitable and other endowments and foundations, over 15 sovereign wealth funds, and over 350 other non-U.S. institutional investors. As measured by AUM (excluding our pro-rata portion of DoubleLine’s AUM), approximately 74% of our clients are invested in two or more different investment strategies, and 35% are invested in four or more. Headquartered in Los Angeles, we serve these clients with over 900 employees and offices in 18 cities worldwide.
Our business is comprised of one segment, our investment management business, which consists of the investment management services that we provide to our clients. Our revenue flows from the management fees and incentive income generated by the funds that we manage, as well as the investment income earned from the investments we make in our funds, third-party funds and other companies. The management fees that we receive are based on the contractual terms of the relevant fund and are typically calculated as a fixed percentage of the capital commitments (as adjusted for distributions during a fund’s liquidation period), drawn capital, cost basis or net asset value (“NAV”) of the particular fund. Incentive income represents our share (up to 20%) of the investors’ profits in most of the closed-end and evergreen funds. Investment income reflects the investment return on a mark-to-market basis and our equity participation on the amounts that we invest in Oaktree and third-party funds, as well as in CLOs and other companies.
Business Environment and Developments
As a global investment manager, we are affected by a wide range of factors, including the condition of the global economy and financial markets; the relative attractiveness of our investment strategies and investors’ demand for them; and regulatory or other governmental policies or actions. Global economic conditions can significantly impact the values of our funds’ investments and our ability to make new investments or sell existing investments for our funds. Historically, however, the diversified nature of both our investment strategies and our revenue mix has generally allowed us to benefit from both strong and weak economic environments. Weak economies and the declining financial markets that typically accompany them tend to dampen our revenues from asset-based management fees, investment realizations or price appreciation, but their prospect can present us with opportunities to raise relatively larger amounts of capital for certain strategies, especially Distressed Debt. Additionally, weak financial markets may also present us with more opportunities to make investments for our funds at reduced prices. Conversely, strong financial markets generally increase the value of our funds’ investments, which positions us for growth in management fees that are based on asset value, and typically create favorable exit opportunities that enhance the prospect for incentive income and fund-related investment income proceeds. Those same markets may delay or diminish opportunities to deploy capital and thus management fees from certain of our funds.
Global equity markets were mostly positive in the third quarter despite rising U.S. interest rates. U.S. equities outperformed most other major equity markets, reaching new record highs in the quarter, primarily driven by continued economic growth and solid corporate earnings data. The S&P 500 Index finished the quarter with a total return of 7.7% and the Russell 2000 Index returned 3.6%. The U.S. dollar continued to strengthen against most other currencies. Non-U.S. equities, as measured by the MSCI ACWI ex-USA Index, returned 0.7% in U.S.

47

dollar terms and 1.5% in local currency terms. Emerging market equities, as measured by the MSCI Emerging Markets Investable Market Index, delivered a -1.5% return in U.S. dollar terms and -0.4% in local currency terms. European equity markets, as measured by the MSCI Europe Index, returned 0.8% in U.S. dollar terms and 1.2% in local currency terms. U.S. Treasury bond prices declined in the quarter, as the yield on the 10-year U.S. Treasury rose 20 basis points, to 3.05%, from 2.85% at the end of the second quarter of 2018. The U.S. Federal Reserve raised short-term interest rates by 25 basis points in September, marking the third increase this year and the eighth since it began raising rates in 2015. U.S. high yield bonds, as measured by the FTSE US High Yield Cash-Pay Capped Index, returned 2.3% for the quarter, European high yield bonds, as measured by the ICE BofAML Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index, returned 2.2% and emerging market corporate bonds, as measured by the JP Morgan Corporate Emerging Markets Bond Index (CEMBI), returned 1.5%.
Against this backdrop, Oaktree’s incentive-creating closed-end funds delivered an overall blended gross return of 3.2% for the quarter and 13.6% for the 12 months ended September 30, 2018. These returns exclude Highstar Capital IV, the infrastructure fund we inherited when adding the Highstar team back in 2014. Including Highstar Capital IV, the overall blended gross return was 3.1% for the quarter and 10.7% over the last twelve months. As of September 30, 2018, AUM was $123.5 billion and management fee-generating AUM was $100.7 billion . Gross capital raised was $3.4 billion and $10.2 billion for the quarter and 12 months ended September 30, 2018, respectively. As of September 30, 2018, uncalled capital commitments were $21.4 billion . Of these commitments, $15.4 billion were not yet generating management fees (“shadow AUM”).  The largest portion of the shadow AUM, at $8.3 billion, was represented by Oaktree Opportunities Fund Xb (“Opps Xb”).  Currently, we do not expect Opps Xb to start its investment period and thus begin generating management fees based on committed capital until the latter half of 2019.  Most of the remaining $7.1 billion of shadow AUM charges management fees based on drawn capital, NAV or cost basis and, therefore, we currently expect it will start generating management fees on a gradual basis over multiple years. As a result, we do not expect management fees to grow significantly until the start of the investment period of Opps Xb.
Acquisition
On October 17, 2017, we completed a transaction in which we became the new investment adviser to two BDCs: Oaktree Specialty Lending Corporation (NASDAQ: OCSL) and Oaktree Strategic Income Corporation (NASDAQ: OCSI). Upon the closing of the transaction (the “BDC acquisition”), we paid $320 million in cash to Fifth Street Management LLC, net of certain transaction-related expenses. The financial results in this quarterly report include the impact of the BDC acquisition beginning on October 17, 2017.
Understanding Our Results—Consolidation of Oaktree Funds
Generally accepted accounting principles in the United States (“GAAP”) requires us to consolidate entities in which we have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. A limited partnership or similar entity is a variable interest entity (“VIE”) if the unaffiliated limited partners do not have substantive kick-out or participating rights. Most of the Oaktree funds are VIEs because they have not granted unaffiliated limited partners substantive kick-out or participating rights. Oaktree consolidates those VIEs in which we are the primary beneficiary. For entities that are not VIEs, consolidation is evaluated through a majority voting interest model. Please see note 2 to our condensed consolidated financial statements for more information.
We do not consolidate most of the Oaktree funds that are VIEs because we are not the primary beneficiary due to the fact that our fee arrangements are considered at-market and thus not deemed to be variable interests, and we do not hold any other interests in those funds that are considered to be more than insignificant. However, investment vehicles in which we have a significant investment, such as CLOs and certain Oaktree funds, are consolidated under GAAP (“consolidated funds”). When a CLO or fund is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated funds on a gross basis, and the majority of the economic interests in those consolidated funds, which are held by third-party investors, are reflected as debt obligations of CLOs or non-controlling interests in consolidated funds in the consolidated financial statements. All of the revenues earned by us as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to us.

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Certain entities in which we have the ability to exert significant influence, including unconsolidated Oaktree funds for which we act as general partner, are accounted for under the equity method of accounting.
Management makes operating decisions and assesses business performance based on financial and operating metrics and data that are presented without the consolidation of any funds. For a more detailed discussion of the factors that affect the results of operations of our business, please see “—Non-GAAP Results” below.  
Revenues
On January 1, 2018, we adopted the new revenue recognition standard on a modified retrospective basis. As a result, prior period amounts continue to be reported under historic GAAP. Upon adoption, we recorded a cumulative-effect increase to retained earnings as of January 1, 2018 of $48.7 million, net of tax. This adjustment relates to incentive income that would have met the “probable that significant reversal will not occur” criteria as of January 1, 2018 under the new revenue standard. Please see note 4 to our condensed consolidated financial statements included elsewhere in this quarterly report for additional information on revenues.
Our business generates three types of revenue: management fees, incentive income and investment income. Management fees are billed monthly or quarterly based on annual rates and are typically earned for each of the funds that we manage. The contractual terms of management fees generally vary by fund structure. Management fees also may include performance-based fees earned from certain open-end and evergreen fund accounts. For non-GAAP reporting, management fees include the portion of the earnings from management fees attributable to our minority equity interest in DoubleLine. We also have the opportunity to earn incentive income from most of our closed-end and evergreen funds. Our closed-end funds generally provide that we receive incentive income only after we have returned to our investors all of their contributed capital plus an annual preferred return, typically 8%. Once this occurs, we generally receive as incentive income 80% of all distributions otherwise attributable to our investors, and those investors receive the remaining 20% until we have received, as incentive income, 20% of all such distributions in excess of the contributed capital from the inception of the fund. Thereafter, all such future distributions attributable to our investors are distributed 80% to those investors and 20% to us as incentive income. For non-GAAP reporting, incentive income also includes the portion of the performance fees attributable to our minority equity interest in DoubleLine earned in the period. Our third revenue source, investment income, represents our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds and companies.
Our consolidated revenues reflect the elimination of all management fees, incentive income and investment income earned by us as investment manager of our consolidated funds. Investment income is presented within the other income (loss) section of our condensed consolidated statements of operations. Please see “Business—Structure and Operation of Our Business—Structure of Funds” in our annual report for a detailed discussion of the structure of our funds.
Expenses
Compensation and Benefits
Compensation and benefits expense reflects all compensation-related items not directly related to incentive income, investment income or the vesting of Class A units, OCGH units, OCGH equity value units (“EVUs”), deferred equity units and other performance-based units, and includes salaries, bonuses, compensation based on management fees or a definition of profits, employee benefits, payroll taxes and phantom equity awards. Phantom equity awards represent liability-classified awards subject to vesting and remeasurement at the end of each reporting period. Phantom equity award expense reflects the vesting of those liability-classified awards, the equity distribution declared in the period and changes in the Class A unit trading price. For GAAP, compensation and benefits expense reflects the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company has determined it is the principal.
Equity-based Compensation
Equity-based compensation expense reflects the non-cash charge associated with grants of Class A units, OCGH units, EVUs, deferred equity units and other performance-based units. Our GAAP statements of operations include equity-based compensation expense for units granted both before and after our initial public offering. Our non-GAAP measure of adjusted net income differs from GAAP because it excludes equity-based compensation

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expense for units granted before our initial public offering (please see “—Non-GAAP Measures—Adjusted Net Income” below). 
As of September 30, 2018, there was $157.1 million of unrecognized compensation expense for GAAP purposes, which is expected to be recognized as expense in our GAAP consolidated financial statements over a weighted average vesting period of 3.5 years. As of September 30, 2018, there was $144.4 million of unrecognized compensation expense for adjusted net income, with the difference versus the GAAP figure representing unit grants made before our initial public offering.  The $144.4 million is expected to be recognized as expense in adjusted net income over a weighted average vesting period of approximately 3.6 years, as shown in the table below. These amounts are subject to change as a result of future unit grants, including those from our annual bonus awards which are typically issued in the first quarter of the following fiscal year, forfeitures, possible modifications to award terms, changes in the fair value of liability-classified EVUs, and changes in the estimated number of deferred equity units and other performance-based units that are expected to vest.
The following table summarizes the estimated amount of equity-based compensation expense to be included in adjusted net income:
Equity-based Compensation Expense Included in ANI
 
Last Three Months of 2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
 
(in millions)
Estimated expense from equity grants awarded through September 2018
 
$
14.1

 
$
49.7

 
$
34.6

 
$
21.8

 
$
8.6

 
$
15.6

 
$
144.4

Incentive Income Compensation
Incentive income compensation expense primarily reflects compensation directly related to incentive income, which generally consists of percentage interests (sometimes referred to as “points”) that we grant to our investment professionals associated with the particular fund that generated the incentive income, and secondarily, compensation directly related to investment income. There is no fixed percentage for the incentive income-related portion of this compensation, either by fund or strategy. In general, within a particular strategy more recent funds have a higher percentage of aggregate incentive income compensation expense than do older funds. The percentage that consolidated incentive income compensation expense represents of the particular period’s consolidated incentive income may not be meaningful because incentive income from consolidated funds is eliminated in consolidation, whereas no incentive income compensation expense is eliminated in consolidation, and, in periods prior to the adoption of the new revenue standard on January 1, 2018, the criteria for recognizing income and expense differed under GAAP and thus may have resulted in timing differences. For the most meaningful percentage relationship, please see “—Non-GAAP Results” below.
General and Administrative
General and administrative expense includes costs related to occupancy, outside auditors, tax professionals, legal advisers, research, consultants, travel and entertainment, communications and information services, business process outsourcing, foreign-exchange activity, insurance, placement costs, changes in the contingent consideration liability, and other general items related directly to the Company’s operations. These expenses are net of amounts borne by fund investors and are not offset by credits attributable to fund investors’ non-controlling interests in consolidated funds. For GAAP, general and administrative expense reflects the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company has determined it is the principal.
Depreciation and Amortization
Depreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software, office leasehold improvements, corporate aircraft and acquired intangibles. Furniture and equipment and capitalized software costs are depreciated using the straight-line method over the estimated useful life of the asset, which is generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the respective estimated useful life or the lease term. Company-owned aircraft are depreciated using the straight-line method over the estimated useful life. Acquired intangibles primarily relate to contractual rights and are amortized over their estimated useful lives, which range from seven to 25 years.

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Consolidated Fund Expenses
Consolidated fund expenses consist primarily of costs, expenses and fees that are incurred by, or arise out of the operation and activities of or otherwise are related to, our consolidated funds, including, without limitation, travel expenses, professional fees, research and software expenses, insurance, and other costs associated with administering and supporting those funds. Inasmuch as most of these fund expenses are borne by third-party investors, they reduce the investors’ interests in the consolidated funds and have no impact on net income or loss attributable to the Company.
Other Income (Loss)
Interest Expense
Interest expense primarily reflects the interest expense of the consolidated funds, as well as the interest expense of Oaktree and its operating subsidiaries.
Interest and Dividend Income
Interest and dividend income consists of interest and dividend income earned on the investments held by our consolidated funds, and interest income earned by Oaktree and its operating subsidiaries.
Net Realized Gain (Loss) on Consolidated Funds’ Investments
Net realized gain (loss) on consolidated funds’ investments consists of realized gains and losses arising from dispositions of investments held by our consolidated funds.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments reflects both unrealized gains and losses on investments held by our consolidated funds and the reversal upon disposition of investments of unrealized gains and losses previously recognized for those investments.
Investment Income
Investment income represents our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds and companies. Investment income, as reflected in our condensed consolidated statements of operations, excludes investment income earned by us from our consolidated funds. For non-GAAP reporting, investment income attributable to our minority equity interest in DoubleLine is reflected in management fees and incentive income as discussed under “Revenues” above.  
Other Income (Expense), Net
Other income (expense), net represents non-operating income or expense, including income related to amounts received from a legacy Highstar fund for contractually reimbursable costs in connection with the Highstar acquisition. The legacy Highstar fund stopped paying management fees in the fourth quarter of 2017. As a result, we will no longer be receiving such income .
Income Taxes
Oaktree is a publicly traded partnership. Because it satisfies the qualifying income test, it is not required to be treated as a corporation for U.S. federal and state income tax purposes. Instead, it is taxed as a partnership. Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., which are two of our five Intermediate Holding Companies and wholly-owned subsidiaries, are subject to U.S. federal and state income taxes. The remainder of Oaktree’s income is generally not subject to corporate-level taxation.
Oaktree’s effective tax rate is dependent on many factors, including the mix of revenues and expenses between our two corporate Intermediate Holding Companies that are subject to income tax and our three other Intermediate Holding Companies that are not; consequently, the effective tax rate is subject to significant variation from period to period. Oaktree’s effective tax rate used for interim periods is based on the estimated full year income tax rate. Certain items that cannot be reliably estimated, such as incentive income, are excluded from the estimated annual effective tax rate. The tax expense or benefit stemming from these items is recognized in the same period as the underlying income or expense.

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Oaktree’s non-U.S. income or loss before taxes is generally not significant in relation to total pre-tax income or loss, and is generally more predictable because, unlike U.S. pre-tax income, it is not significantly impacted by unrealized gains or losses. Non-U.S. tax expense typically represents a disproportionately large percentage of total income tax expense because nearly all of our non-U.S. income or loss is subject to corporate-level income tax, whereas a substantial portion of our U.S.-based income or loss is not subject to corporate-level taxes. In addition, changes in the proportion of non-U.S. pre-tax income to total pre-tax income impact Oaktree’s effective tax rate to the extent non-U.S. rates differ from the combined U.S. federal and state tax rate.
Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets would be reduced by a valuation allowance if it becomes more likely than not that some portion or all of the deferred tax assets will not be realized.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests represents the ownership interests that third parties hold in entities that are consolidated in our financial statements. These interests fall into two categories:
•
Net Income Attributable to Non-controlling Interests in Consolidated Funds. This category represents the economic interests of the unaffiliated investors in the consolidated funds, as well as the equity interests held by third-party investors in CLOs that had not yet priced as of the respective period end. Those interests are primarily driven by the investment performance of the consolidated funds. In comparison to net income, this measure excludes our operating results and other items solely attributable to the Company;
•
Net Income Attributable to Non-controlling Interests in Consolidated Subsidiaries. This category primarily represents the economic interest in the Oaktree Operating Group owned by OCGH (“OCGH non-controlling interest”), as well as the economic interest in certain consolidated subsidiaries held by third parties. The OCGH non-controlling interest is determined at the Oaktree Operating Group level based on the weighted average proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Inasmuch as the number of outstanding Oaktree Operating Group units corresponds with the total number of outstanding Class A and OCGH units, changes in the economic interest held by the OCGH unitholders are driven by our additional issuances of Class A and OCGH units, as well as repurchases and forfeitures of, and exchanges between, Class A and OCGH units. Certain of our expenses, such as income tax and related administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. Please see note 13 to our condensed consolidated financial statements included elsewhere in this quarterly report for additional information on the economic interest in the Oaktree Operating Group owned by OCGH; and
Net Income Attributable to Preferred Unitholders
This category represents distributions declared, if any, on our preferred units. Please see note 13 to our condensed consolidated financial statements for more information.

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Non-GAAP Measures
Our business is comprised of one segment, our investment management business, which consists of the investment management services that we provide to our clients. Management makes operating decisions and assesses the performance of our business based on financial and operating metrics and data that are presented without the consolidation of any funds. The data most important to management in assessing our performance are adjusted net income, distributable earnings and fee-related earnings, each for both the Operating Group and per Class A unit. For a detailed reconciliation of the non-GAAP results of operations to our condensed consolidated statements of operations, please see “—Non-GAAP Results—Reconciliation of GAAP to Non-GAAP Results” below.
Adjusted Net Income
We use adjusted net income (“ANI”) to help evaluate the financial performance of, and make resource allocation and other operating decisions for, our investment management business. The components of revenues (“adjusted revenues”) and expenses (“adjusted expenses”) used in the determination of ANI do not give effect to the consolidation of the funds that we manage. Adjusted revenues include investment income (loss) that is classified in other income (loss) in the GAAP statements of operations, and management fees and incentive income include the portion of the earnings from management fees and performance fees, respectively, attributable to our 20% ownership interest in DoubleLine, which are reflected as investment income in our GAAP statements of operations. In addition, ANI excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items, including amortization of intangibles and changes in the contingent consideration liability, (c) income taxes, (d) other income or expenses applicable to OCG or its Intermediate Holding Companies, (e) the adjustment for non-controlling interests, (f) preferred unit distributions, and (g) the Tax Cuts and Jobs Act, including the remeasurement of our deferred tax assets and tax receivable liability in the fourth quarter of 2017. Moreover, gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period. For ANI, unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged, and foreign-currency transaction gains and losses are included in other income (expense), net. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP statements of operations, for which the revenue standard is probable that significant reversal will not occur and the expense standard is probable and reasonably estimable. CLO investments are carried at fair value for GAAP reporting, whereas for ANI, they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. In periods prior to 2018, adjusted revenues and adjusted expenses reflected Oaktree’s proportionate economic interest in Highstar, whereby amounts received for contractually reimbursable costs from a legacy Highstar fund were classified as expenses for ANI and as other income under GAAP. The legacy Highstar fund stopped paying management fees in 2017. As a result, we no longer receive such reimbursement amounts. ANI is calculated at the Operating Group level.
Among other factors, our accounting policy for recognizing incentive income and the inclusion of non-cash equity-based compensation expense related to unit grants made after our initial public offering will likely make our calculation of ANI not directly comparable to economic net income or other similarly named measures utilized by other asset managers.
We calculate adjusted net income-Class A, or adjusted net income per Class A unit, a non-GAAP performance measure, to provide Class A unitholders with a measure that shows the portion of ANI attributable to their ownership. Adjusted net income-Class A represents ANI including the effect of (a) preferred unit distributions, (b) the OCGH non-controlling interest, (c) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (d) any Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur federal and state income taxes for their shares of Operating Group income. Generally, those two corporate entities hold an interest in the Operating Group’s management fee-generating assets and a small portion of its incentive and investment income-generating assets. As a result, historically our fee-related earnings generally have been subject to corporate-level taxation, and most of our incentive income and other investment income generally has not been subject to corporate-level taxation. Thus, the blended effective income tax rate has generally tended to be higher to the extent that fee-related earnings

53

represented a larger proportion of our ANI. A variety of other factors affect income tax expense and the effective income tax rate, and there can be no assurance that this historical relationship will continue going forward.
Distributable Earnings
We use distributable earnings to help evaluate the financial performance of, and make resource allocation and other operating decisions for, our business. Distributable earnings is a non-GAAP performance measure derived from ANI that we use to measure our earnings at the Operating Group level without the effects of the consolidated funds for the purpose of, among other things, assisting in the determination of equity distributions from the Operating Group. However, the declaration, payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board of directors, which may change our distribution policy at any time.
Distributable earnings and distributable earnings revenues differ from ANI in that they exclude investment income or loss and include the portion of income or loss on distributions received from funds and companies. In addition, distributable earnings differs from ANI in that (a) any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO and (b) make-whole premium charges related to the repayment of debt included in ANI are, for distributable earnings purposes, amortized through the original maturity date of the repaid debt. Finally, distributable earnings differs from ANI in that it is net of Operating Group income taxes and excludes non-cash equity-based compensation expense.
Investment income or loss, which for equity-method investments in funds represents our pro-rata share of income or loss, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds, is largely non-cash in nature. By excluding investment income or loss, which is not directly available to fund our operations or make equity distributions, and including the portion of distributions from Oaktree and non-Oaktree funds and companies to us that represents the income or loss component of the distributions and not a return of our capital contributions, distributable earnings aids us in measuring amounts that are actually available to meet our obligations under the tax receivable agreement and our liabilities for expenses incurred at OCG and the Intermediate Holding Companies, as well as for distributions to Class A and OCGH unitholders.
Distributable earnings-Class A, or distributable earnings per Class A unit, is a non-GAAP performance measure calculated to provide Class A unitholders with a measure that shows the portion of distributable earnings attributable to their ownership. Distributable earnings-Class A represents distributable earnings, including the effect of (a) preferred unit distributions, (b) the OCGH non-controlling interest, (c) expenses, such as current income tax expense, applicable to OCG or its Intermediate Holding Companies and (d) amounts payable under a tax receivable agreement.  The income tax expense included in distributable earnings-Class A represents the implied current provision for income taxes calculated using an approach similar to that which is used in calculating the income tax provision for adjusted net income-Class A.
Fee-related Earnings
Fee-related earnings is a non-GAAP performance measure that we use to monitor the baseline earnings of our business. Fee-related earnings is derived from our non-GAAP results and is comprised of management fees (“fee-related earnings revenues”) less operating expenses other than incentive income compensation expense and non-cash equity-based compensation expense. Fee-related earnings is considered baseline because it excludes all non-management fee revenue sources and applies all cash compensation and benefits other than incentive income compensation expense, as well as all general and administrative expenses, to management fees, even though those expenses also support the generation of incentive and investment income. Fee-related earnings is presented before income taxes.
Fee-related earnings-Class A, or fee-related earnings per Class A unit, is a non-GAAP performance measure calculated to provide Class A unitholders with a measure that shows the portion of fee-related earnings attributable to their ownership. Fee-related earnings-Class A represents fee-related earnings including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. The income tax expense included in fee-related earnings-Class A is calculated excluding any incentive income or investment income (loss).

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Assets Under Management
AUM generally refers to the assets we manage and equals the NAV of the assets we manage, the leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments, and our pro-rata portion of AUM managed by DoubleLine in which we hold a minority ownership interest. For our CLOs, AUM represents the aggregate par value of collateral assets and principal cash, for our publicly-traded BDCs, gross assets (including assets acquired with leverage), net of cash, and for DoubleLine funds, NAV. Our AUM includes amounts for which we charge no management fees. Our definition of AUM is not based on any definition contained in our operating agreement or the agreements governing the funds that we manage. Our calculation of AUM and the two AUM-related metrics below may not be directly comparable to the AUM metrics of other investment managers.
•
Management Fee-generating Assets Under Management. Management fee-generating AUM is a forward-looking metric and generally reflects the beginning AUM on which we will earn management fees in the following quarter, as well as our pro-rata portion of the fee basis of DoubleLine’s AUM. Our closed-end funds typically pay management fees based on committed capital, drawn capital or cost basis during the investment period, without regard to changes in NAV, and during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund. Certain closed-end funds pay management fees based on gross assets or NAV. The annual management fee rate generally remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds typically pay management fees based on their NAV, our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash, as defined in the applicable CLO indentures, our publicly-traded BDCs pay management fees based on gross assets (including assets acquired with leverage), net of cash, and DoubleLine funds typically pay management fees based on NAV.
•
Incentive-creating Assets Under Management. Incentive-creating AUM refers to the AUM that may eventually produce incentive income. It generally represents the NAV of our funds for which we are entitled to receive an incentive allocation, excluding CLOs and investments made by us and our employees and directors (which are not subject to an incentive allocation), gross assets (including assets acquired with leverage), net of cash, for our publicly-traded BDCs, and our pro-rata portion of DoubleLine’s incentive-creating AUM. All funds for which we are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are currently above their preferred return or high-water mark and therefore generating incentives. Incentive-creating AUM does not include undrawn capital commitments.
Accrued Incentives (Fund Level) and Incentives Created (Fund Level)
Our funds record as accrued incentives the incentive income that would be paid to us if the funds were liquidated at their reported values as of the date of the financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated by the funds during the period, and includes our pro-rata portion of performance fees attributable to our minority interest in DoubleLine earned in the period. We refer to the amount of accrued incentives recognized as revenue by us as incentive income. Amounts recognized by us as incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-level accruals. The amount of incentives created may fluctuate substantially as a result of changes in the fair value of the underlying investments of the fund, as well as incentives created in excess of our typical 20% share due to catch-up allocations for applicable closed-end funds. Generally speaking, while in the catch-up layer, approximately 80% of any increase or decrease, respectively, in the fund’s NAV results in a commensurate amount of positive or negative incentives created (fund level).
The same performance and market risks inherent in incentives created (fund level) affect the ability to ultimately realize accrued incentives (fund level). One consequence of the accounting method we follow for incentives created (fund level) is that accrued incentives (fund level) is an off-balance sheet metric, rather than being an on-balance sheet receivable that could require reduction if fund performance suffers. We track accrued incentives (fund level) because it provides an indication of potential future value, though the timing and ultimate realization of that value are uncertain.  
Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.”

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Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many other factors.
Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to risk of substantial fluctuation by the time the underlying investments are liquidated. We earn the incentive income, if any, that the fund is then obligated to pay us with respect to our incentive interest (generally 20%) in the profits of our unaffiliated investors, subject to an annual preferred return of typically 8%. Under GAAP, incentive income is recognized when it is probable that significant reversal of revenue will not occur. For purposes of ANI and distributable earnings, we recognize incentive income when the underlying fund distributions are known or knowable as of the respective quarter end, which reduces the possibility that revenue recognized by us would be reversed in a subsequent period. We track incentives created (fund level) because it provides an indication of the value for us currently being created by our investment activities and facilitates comparability with those companies in our industry that account for investments in carry funds as equity-method investments, thus effectively reflecting an accrual-based method for recognizing incentive income in their financial statements.
Uncalled Capital Commitments
Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-end funds through their investment periods and certain evergreen funds. If a closed-end fund distributes capital during its investment period, that capital is typically subject to possible recall, in which case it is included in uncalled capital commitments.  
Invested Capital
Invested capital reflects deployed capital, whether involving drawn or recycled equity capital, or borrowings from fund-level credit facilities.  This metric is used in connection with incentive-creating closed-end funds and certain evergreen funds.

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GAAP Consolidated Results of Operations (1)  
The following table sets forth our unaudited condensed consolidated statements of operations:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per unit data)
Revenues:
 
 
 
 
 
 
 
Management fees
$
175,195

 
$
181,312

 
$
538,706

 
$
542,268

Incentive income
66,032

 
53,720

 
253,125

 
616,404

Total revenues
241,227

 
235,032

 
791,831

 
1,158,672

Expenses:
 
 
 
 
 
 
 
Compensation and benefits
(101,787
)
 
(98,224
)
 
(315,614
)
 
(304,713
)
Equity-based compensation
(14,747
)
 
(15,828
)
 
(44,614
)
 
(45,529
)
Incentive income compensation
(27,294
)
 
(26,362
)
 
(127,327
)
 
(327,526
)
Total compensation and benefits expense
(143,828
)
 
(140,414
)
 
(487,555
)
 
(677,768
)
General and administrative
(38,051
)
 
(24,096
)
 
(110,459
)
 
(90,703
)
Depreciation and amortization
(6,459
)
 
(3,037
)
 
(19,412
)
 
(9,865
)
Consolidated fund expenses
(2,829
)
 
(2,226
)
 
(9,383
)
 
(7,425
)
Total expenses
(191,167
)
 
(169,773
)
 
(626,809
)
 
(785,761
)
Other income (loss):
 
 
 
 
 
 
 
Interest expense
(39,456
)
 
(35,776
)
 
(115,504
)
 
(128,797
)
Interest and dividend income
74,490

 
55,218

 
205,089

 
155,092

Net realized gain (loss) on consolidated funds’ investments
(9,812
)
 
3,392

 
(12,509
)
 
1,755

Net change in unrealized appreciation (depreciation) on consolidated funds’ investments
10,552

 
3,662

 
(34,939
)
 
56,793

Investment income
58,196

 
51,061

 
149,682

 
150,618

Other income, net
5,629

 
5,418

 
7,240

 
14,979

Total other income
99,599

 
82,975

 
199,059

 
250,440

Income before income taxes
149,659

 
148,234

 
364,081

 
623,351

Income taxes
(6,568
)
 
(13,857
)
 
(17,832
)
 
(31,700
)
Net income
143,091

 
134,377

 
346,249

 
591,651

Less:
 
 
 
 
 
 
 
Net income attributable to non-controlling interests in consolidated funds
(14,427
)
 
(9,990
)
 
(17,792
)
 
(23,543
)
Net income attributable to non-controlling interests in consolidated subsidiaries
(72,005
)
 
(78,546
)
 
(187,945
)
 
(350,028
)
Net income attributable to OCG
56,659

 
45,841

 
140,512

 
218,080

Net income attributable to preferred unitholders
(3,909
)
 
—

 
(3,909
)
 
—

Net income attributable to OCG Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

 
 
 
 
 
 
 
 
Distributions declared per Class A unit
$
0.55

 
$
1.31

 
$
2.27

 
$
2.65

Net income per Class A unit (basic and diluted):
 
 
 
 
 
 
 
Net income per Class A unit
$
0.74

 
$
0.71

 
$
1.95

 
$
3.41

Weighted average number of Class A units outstanding
71,369

 
64,394

 
70,167

 
63,875

 
 
 
 
 
(1)
In the first quarter of 2018, Oaktree adopted the new revenue recognition standard on a modified retrospective basis, which did not require prior periods to be recast. Instead, a cumulative-effect adjustment to increase retained earnings of $48.7 million, net of tax, was recorded as of January 1, 2018. This adjustment relates to revenues that would have met the recognition criteria under the new standard as of January 1, 2018.



57

Third Quarter Ended September 30, 2018 Compared to the Third Quarter Ended September 30, 2017
Revenues
Management Fees
Management fees decreased $6.1 million, or 3.4% , to $175.2 million for the third quarter of 2018, from $181.3 million for the third quarter of 2017. The decrease reflected an aggregate decline of $25.8 million primarily attributable to unconsolidated closed-end funds in liquidation, partially offset by an aggregate increase of $19.7 million principally from the BDC acquisition, closed-end funds that pay management fees based on drawn capital, NAV or cost basis, and the impact of applying the new revenue standard effective in the first quarter of 2018 which resulted in a $2.8 million increase in the third quarter of 2018.
Incentive Income
Incentive income increased $12.3 million, or 22.9% , to $66.0 million for the third quarter of 2018, from $53.7 million for the third quarter of 2017. The third quarter of 2018 included $45.8 million from OCM Opportunities Fund VIIb and $14.0 million from Emerging Markets Debt funds. The impact of applying the new revenue standard effective in the first quarter of 2018 resulted in a $4.9 million decrease in incentive income for the third quarter of 2018.
Expenses
Compensation and Benefits
Compensation and benefits expense increased $3.6 million, or 3.7% , to $101.8 million for the third quarter of 2018, from $98.2 million for the third quarter of 2017, in part due to the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company is the principal in connection with the adoption of the new revenue standard in the first quarter of 2018.
Equity-based Compensation
Equity-based compensation expense decreased $1.1 million, or 7.0% , to $14.7 million for the third quarter of 2018, from $15.8 million for the third quarter of 2017.
Incentive Income Compensation
Incentive income compensation expense increased $0.9 million, or 3.4% , to $27.3 million for the third quarter of 2018, from $26.4 million for the third quarter of 2017, primarily reflecting the growth in incentive income, largely offset by a lower overall compensation percentage in the third quarter of 2018.
General and Administrative
General and administrative expense increased $14.0 million, or 58.1% , to $38.1 million for the third quarter of 2018, from $24.1 million for the third quarter of 2017. Excluding the impact of foreign currency-related items, which stemmed primarily from foreign-currency hedges used to economically hedge our non-U.S. dollar denominated revenues and expenses, general and administrative expense increased $11.4 million, or 45.2%, to $36.6 million from $25.2 million, primarily reflecting higher placement costs associated with fundraising for closed-end and evergreen funds, professional fees and other general operating items, as well as the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company is the principal in connection with adoption of the new revenue standard in the first quarter of 2018.
Depreciation and Amortization
Depreciation and amortization expense increased $3.5 million, or 116.7% , to $6.5 million for the third quarter of 2018, from $3.0 million for the third quarter of 2017, primarily reflecting the amortization of intangibles related to the BDC acquisition in the fourth quarter of 2017.
Consolidated Fund Expenses
Consolidated fund expenses increased $0.6 million, or 27.3% , to $2.8 million for the third quarter of 2018, from $2.2 million for the third quarter of 2017. The increase reflected higher professional fees and other costs of our consolidated funds.

58

Other Income (Loss)
Interest Expense
Interest expense increased $3.7 million, or 10.3% , to $39.5 million for the third quarter of 2018, from $35.8 million for the third quarter of 2017. The increase was primarily attributable to our consolidated funds, partially offset by the refinancing of our senior notes in the fourth quarter of 2017.
Interest and Dividend Income
Interest and dividend income increased $19.3 million, or 35.0% , to $74.5 million for the third quarter of 2018, from $55.2 million for the third quarter of 2017. The increase was primarily attributable to our consolidated funds.
Net Realized Gain (Loss) on Consolidated Funds’ Investments
Net realized gain (loss) on consolidated funds’ investments decreased $13.2 million, to a loss of $9.8 million for the third quarter of 2018, from a gain of $3.4 million for the third quarter of 2017. The decrease reflected our consolidated funds’ performance in each period.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments increased $6.9 million, to a gain of $10.6 million for the third quarter of 2018, from $3.7 million for the third quarter of 2017. Excluding the impact of the reversal of net realized gain (loss) on consolidated funds’ investments, the net change in unrealized appreciation (depreciation) on consolidated funds’ investments decreased $6.4 million, to a net gain of $0.7 million for the third quarter of 2018, from $7.1 million for the third quarter of 2017, reflecting our consolidated funds’ performance in each period.
Investment Income
Investment income increased $7.1 million, or 13.9% , to $58.2 million for the third quarter of 2018, from $51.1 million for the third quarter of 2017. The increase primarily reflected higher returns on non-Oaktree investments.
Other Income, Net
Other income, net increased $0.2 million, or 3.7% , to $5.6 million for the third quarter of 2018, from $5.4 million for the third quarter of 2017. The third quarter of 2018 primarily reflected gains associated with non-operating corporate activities. The third quarter of 2017 primarily reflected reimbursements received from a legacy Highstar fund for certain expenses related to the infrastructure investing team that stopped paying such reimbursements in the fourth quarter of 2017.
Income Taxes
Income taxes decreased $7.3 million, or 52.5% , to $6.6 million for the third quarter of 2018, from $13.9 million for the third quarter of 2017.  The decrease primarily reflected a lower effective tax rate for the third quarter of 2018, in part due to the Tax Act that was enacted in December 2017. The effective tax rates applicable to Class A unitholders for the third quarters of 2018 and 2017 were 11% and 19%, respectively, resulting from full-year effective rates of 8% and 12%, respectively.  The effective tax rate used for interim fiscal periods is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with the tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and may vary significantly within or between years.  Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”
Net Income Attributable to Non-controlling Interests in Consolidated Funds
Net income attributable to non-controlling interests in consolidated funds increased $4.4 million, to $14.4 million for the third quarter of 2018, from $10.0 million for the third quarter of 2017. The increase reflected our consolidated funds’ performance attributable to third-party investors in each period.

59

Net Income Attributable to Oaktree Capital Group, LLC Class A Unitholders
Net income attributable to Oaktree Capital Group, LLC Class A unitholders increased $7.0 million, or 15.3% , to $52.8 million for the third quarter of 2018, from $45.8 million for the third quarter of 2017, primarily reflecting higher profits, as well as a larger allocation of income to OCG Class A unitholders resulting from an increase in the average number of Class A units outstanding.
Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017
Revenues
Management Fees
Management fees decreased $3.6 million, or 0.7% , to $538.7 million for the first nine months of 2018, from $542.3 million for the first nine months of 2017. The decrease reflected an aggregate decline of $66.6 million primarily attributable to unconsolidated closed-end funds in liquidation, largely offset by an aggregate increase of $63.0 million principally from the BDC acquisition, the start of the investment period for Oaktree European Principal Fund IV (“EPF IV”) in July 2017, closed-end funds that pay management fees based on drawn capital, NAV or cost basis, and the impact of applying the new revenue standard effective in the first quarter of 2018 which resulted in a $9.5 million increase for the first nine months of 2018.
Incentive Income
Incentive income decreased $363.3 million, or 58.9% , to $253.1 million for the first nine months of 2018, from $616.4 million for the first nine months of 2017. The decrease was primarily attributable to lower incentive income from OCM Principal Opportunities Fund IV (“POF IV”), which started paying incentive income in the second quarter of 2017. The impact of applying the new revenue standard effective in the first quarter of 2018 resulted in a $52.0 million decrease in incentive income for the first nine months of 2018.
Expenses
Compensation and Benefits
Compensation and benefits expense increased $10.9 million, or 3.6% , to $315.6 million for the first nine months of 2018, from $304.7 million for the first nine months of 2017, in part reflecting growth in average headcount, as well as the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company is the principal in connection with the adoption of the new revenue standard in the first quarter of 2018.
Equity-based Compensation
Equity-based compensation expense decreased $0.9 million, or 2.0% , to $44.6 million for the first nine months of 2018, from $45.5 million for the first nine months of 2017.
Incentive Income Compensation
Incentive income compensation expense decreased $200.2 million, or 61.1% , to $127.3 million for the first nine months of 2018, from $327.5 million for the first nine months of 2017, primarily reflecting the decline in incentive income.
General and Administrative
General and administrative expense increased $19.8 million, or 21.8% , to $110.5 million for the first nine months of 2018, from $90.7 million for the first nine months of 2017. Excluding the impact of foreign currency-related items, which stemmed primarily from foreign-currency hedges used to economically hedge our non-U.S. dollar denominated revenues and expenses, general and administrative expense increased $14.7 million, or 16.0%, to $106.8 million from $92.1 million, primarily reflecting higher placement costs associated with fundraising for closed-end and evergreen funds, new product development costs and other general operating items, as well as the gross-up of reimbursable costs incurred on behalf of Oaktree funds in which the Company is the principal in connection with the adoption of the new revenue standard in the first quarter of 2018. These increases were partially offset by changes in the contingent consideration liability.

60

Depreciation and Amortization
Depreciation and amortization expense increased $9.5 million, or 96.0% , to $19.4 million for the first nine months of 2018, from $9.9 million for the first nine months of 2017, primarily reflecting the amortization of intangibles related to the BDC acquisition in the fourth quarter of 2017.
Consolidated Fund Expenses
Consolidated fund expenses increased $2.0 million, or 27.0% , to $9.4 million for the first nine months of 2018, from $7.4 million for the first nine months of 2017. The increase reflected higher professional fees and other costs of our consolidated funds.
Other Income (Loss)
Interest Expense
Interest expense decreased $13.3 million, or 10.3% , to $115.5 million for the first nine months of 2018, from $128.8 million for the first nine months of 2017. The decrease reflected the refinancing of our senior notes in the fourth quarter of 2017 and lower interest expense of our consolidated funds.
Interest and Dividend Income
Interest and dividend income increased $50.0 million, or 32.2% , to $205.1 million for the first nine months of 2018, from $155.1 million for the first nine months of 2017. The increase was primarily attributable to our consolidated funds.
Net Realized Gain (Loss) on Consolidated Funds’ Investments
Net realized gain (loss) on consolidated funds’ investments decreased $14.3 million, to a loss of $12.5 million for the first nine months of 2018, from income of $1.8 million for the first nine months of 2017, reflecting our consolidated funds’ performance in each period.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments decreased $91.7 million, to a loss of $34.9 million for the first nine months of 2018, from a gain of $56.8 million for the first nine months of 2017. Excluding the impact of the reversal of net realized gain (loss) on consolidated funds’ investments, the net change in unrealized appreciation (depreciation) on consolidated funds’ investments decreased $105.9 million, to a net loss of $47.4 million for the first nine months of 2018, from a net gain of $58.5 million for the first nine months of 2017, reflecting our consolidated funds’ performance in each period.
Investment Income
Investment income decreased $0.9 million, or 0.6% , to $149.7 million for the first nine months of 2018, from $150.6 million for the first nine months of 2017, reflecting overall returns on our unconsolidated fund investments.
Other Income, Net
Other income, net decreased $7.8 million, or 52.0% , to $7.2 million for the first nine months of 2018, from $15.0 million for the first nine months of 2017. The decrease primarily reflected reimbursements we received in 2017 from a legacy Highstar fund for certain expenses related to the infrastructure investing team that stopped paying such reimbursements in the fourth quarter of 2017, partially offset by gains associated with non-operating corporate activities in 2018.

61

Income Taxes
Income taxes decreased $13.9 million, or 43.8% , to $17.8 million for the first nine months of 2018, from $31.7 million for the first nine months of 2017.  The decrease primarily reflected lower pre-tax income attributable to Class A unitholders, as well as a lower effective tax rate, in part due to the Tax Act. The effective tax rates applicable to Class A unitholders for the first nine months of 2018 and 2017 were 10% and 11%, respectively.  The effective tax rate used for interim fiscal periods is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with the tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and may vary significantly within or between years.  Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”
Net Income Attributable to Non-controlling Interests in Consolidated Funds
Net income attributable to non-controlling interests in consolidated funds decreased $5.7 million, or 24.3% , to $17.8 million for the first nine months of 2018, from $23.5 million for the first nine months of 2017. The decrease reflected our consolidated funds’ performance attributable to third-party investors in each period.
Net Income Attributable to Oaktree Capital Group, LLC Class A Unitholders
Net income attributable to Oaktree Capital Group, LLC Class A unitholders decreased $81.5 million, or 37.4% , to $136.6 million for the first nine months of 2018, from $218.1 million for the first nine months of 2017. The decrease primarily reflected lower incentive income and the adoption of the new revenue standard in the first quarter of 2018.


62

Non-GAAP Financial Data
Oaktree presents certain revenues and financial measures, including measures that are calculated and presented on a basis other than GAAP (“non-GAAP”). Examples of such non-GAAP measures are identified in the table below. Such non-GAAP measures should be considered in addition to, and not as a substitute for or superior to, net income, net income per Class A unit or other financial measures calculated in accordance with GAAP.
The following table presents non-GAAP financial data:
 
As of or for the Three Months
Ended September 30,
 
As of or for the Nine Months
Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per unit data or as otherwise indicated)
Non-GAAP Results: (1)
 
 
 
 
 
 
 
Adjusted revenues
$
320,166

 
$
304,756

 
$
1,044,847

 
$
1,400,305

Adjusted net income
137,511

 
131,436

 
389,369

 
574,254

Adjusted net income per Class A unit
0.78

 
0.67

 
2.20

 
3.26

 
 
 
 
 
 
 
 
Distributable earnings revenues
319,822

 
282,867

 
1,084,141

 
1,360,471

Distributable earnings
147,849

 
119,030

 
456,108

 
567,541

Distributable earnings per Class A unit
0.88

 
0.74

 
2.74

 
3.28

 
 
 
 
 
 
 
 
Fee-related earnings revenues
197,056

 
203,440

 
595,938

 
607,361

Fee-related earnings
56,286

 
76,579

 
165,648

 
209,359

Fee-related earnings per Class A unit
0.34

 
0.42

 
0.99

 
1.13

 
 
 
 
 
 
 
 
Weighted Average Units:
 
 
 
 
 
 
 
OCGH
85,775

 
91,864

 
86,675

 
91,750

Class A
71,369

 
64,394

 
70,167

 
63,875

Total
157,144

 
156,258

 
156,842

 
155,625

 
 
 
 
 
 
 
 
Operating Metrics: (1)
 
 
 
 
 
 
 
Assets under management (in millions):
 
 
 
 
 
 
 
Assets under management
$
123,516

 
$
122,589

 
$
123,516

 
$
122,589

Management fee-generating assets under management
100,693

 
103,244

 
100,693

 
103,244

Incentive-creating assets under management
33,626

 
31,564

 
33,626

 
31,564

Uncalled capital commitments
21,435

 
21,202

 
21,435

 
21,202

Accrued incentives (fund level):
 
 
 
 
 
 
 
Incentives created (fund level)
134,966

 
135,595

 
365,468

 
508,414

Incentives created (fund level), net of associated incentive income compensation expense
59,278

 
61,387

 
172,497

 
245,715

Accrued incentives (fund level)
1,924,410

 
1,860,665

 
1,924,410

 
1,860,665

Accrued incentives (fund level), net of associated incentive income compensation expense
914,886

 
899,891

 
914,886

 
899,891

 
 
 
 
 
(1)
Beginning with the first quarter of 2018, management fees and incentive income reflect the portion of the earnings from management fees and performance fees, respectively, attributable to our 20% ownership interest in DoubleLine. Such earnings were previously reported as investment income. Additionally, AUM, management fee-generating AUM, incentive-creating AUM and incentives created (fund level) now reflect our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM, management fee-generating AUM, incentive-creating AUM and performance fees, respectively. All prior periods have been recast to reflect this change.


63

Operating Metrics
We monitor certain operating metrics that are either common to the alternative asset management industry or that we believe provide important data regarding our business. These operating metrics include AUM, management fee-generating AUM, incentive-creating AUM, incentives created (fund level), accrued incentives (fund level) and uncalled capital commitments.
Assets Under Management
 
As of
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Assets Under Management:
(in millions)
Closed-end funds
$
57,734

 
$
56,294

 
$
57,769

Open-end funds
32,454

 
32,824

 
35,793

Evergreen funds
8,672

 
8,426

 
5,953

DoubleLine (1)  
24,656

 
24,040

 
23,074

Total
$
123,516

 
$
121,584

 
$
122,589


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Change in Assets Under Management:
(in millions)
Beginning balance
$
121,584

 
$
121,053

 
$
123,930

 
$
120,801

Closed-end funds:
 
 
 
 
 
 
 
Capital commitments/other (2)  
2,205

 
654

 
5,268

 
1,802

Distributions for a realization event/other (3)  
(1,478
)
 
(2,160
)
 
(5,561
)
 
(8,036
)
Change in uncalled capital commitments for funds entering or in liquidation (4)  
90

 
(198
)
 
(142
)
 
(51
)
Foreign-currency translation
(41
)
 
302

 
(266
)
 
849

Change in market value (5)  
745

 
829

 
1,701

 
2,714

Change in applicable leverage
(81
)
 
19

 
(137
)
 
387

Open-end funds:
 
 
 
 
 
 
 
Contributions
841

 
1,427

 
2,456

 
4,764

Redemptions
(1,745
)
 
(2,209
)
 
(5,436
)
 
(7,050
)
Foreign-currency translation
(49
)
 
241

 
(241
)
 
702

Change in market value (5)  
583

 
706

 
234

 
2,272

Evergreen funds:
 
 
 
 
 
 
 
Contributions or new capital commitments (6)  
306

 
632

 
809

 
665

Redemptions or distributions (7)  
(205
)
 
(138
)
 
(636
)
 
(420
)
Foreign-currency translation
1

 
—

 
—

 
(1
)
Change in market value (5)  
144

 
150

 
583

 
414

DoubleLine:
 
 
 
 
 
 
 
Net change in DoubleLine
616

 
1,281

 
954

 
2,777

Ending balance
$
123,516

 
$
122,589

 
$
123,516

 
$
122,589

 
 
 
 
 
(1)
DoubleLine AUM reflects our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM.
(2)
These amounts include capital commitments, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.
(3)
These amounts include distributions for a realization event, tax-related distributions, reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs, and recallable distributions at the end of the investment period.
(4)
The change in uncalled capital commitments generally reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.

64

(5)
The change in market value reflects the change in NAV of our funds, less management fees and other fund expenses, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.
(6)
These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.
(7)
These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.
Management Fee-generating AUM
 
As of
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Management Fee-generating AUM:
(in millions)
Closed-end funds:
 
 
 
 
 
Senior Loans
$
8,297

 
$
7,896

 
$
8,073

Other closed-end funds
28,054

 
28,754

 
31,953

Open-end funds
32,120

 
32,520

 
35,570

Evergreen funds
7,566

 
7,337

 
4,574

DoubleLine
24,656

 
24,040

 
23,074

Total
$
100,693

 
$
100,547

 
$
103,244


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Change in Management Fee-generating AUM:
2018
 
2017
 
2018
 
2017
(in millions)
Beginning balance
$
100,547

 
$
101,600

 
$
104,287

 
$
100,064

Closed-end funds:
 
 
 
 
 
 
 
Capital commitments to funds that pay fees based on committed capital/other (1)  
465

 
925

 
465

 
968

Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis
608

 
493

 
1,552

 
1,269

Change attributable to funds in liquidation  (2)  
(1,052
)
 
(1,350
)
 
(3,628
)
 
(3,197
)
Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital (3)  
(174
)
 
—

 
(174
)
 
—

Distributions by funds that pay fees based on NAV / other (4) .
(95
)
 
(333
)
 
(449
)
 
(756
)
Foreign-currency translation
(36
)
 
236

 
(242
)
 
720

Change in market value (5) .
63

 
45

 
115

 
167

Change in applicable leverage
(78
)
 
19

 
(133
)
 
361

Open-end funds:
 
 
 
 
 
 
 
Contributions
791

 
1,407

 
2,355

 
4,618

Redemptions
(1,721
)
 
(2,209
)
 
(5,412
)
 
(7,043
)
Foreign-currency translation
(49
)
 
241

 
(241
)
 
702

Change in market value
579

 
702

 
230

 
2,259

Evergreen funds:
 
 
 
 
 
 
 
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV (6)  
302

 
234

 
999

 
411

Redemptions or distributions (7)  
(206
)
 
(187
)
 
(558
)
 
(456
)
Change in market value (5) .
133

 
140

 
573

 
380

DoubleLine:
 
 
 
 
 
 
 
Net change in DoubleLine
616

 
1,281

 
954

 
2,777

Ending balance
$
100,693

 
$
103,244

 
$
100,693

 
$
103,244


65

 
 
 
 
 
(1)
These amounts include capital commitments to funds that pay fees based on committed capital, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.
(2)
These amounts include the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which typically declines as the fund sells assets.
(3)
The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.
(4)
These amounts include distributions by funds that pay fees based on NAV, as well as reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs.
(5)
The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.
(6)
These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.
(7)
These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.

A reconciliation of AUM to management fee-generating AUM is set forth below:  
 
As of
Reconciliation of AUM to Management Fee-generating AUM:
September 30, 2018
 
June 30, 2018
 
September 30, 2017
(in millions)
Assets under management
$
123,516

 
$
121,584

 
$
122,589

Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds (1)  
(3,040
)
 
(2,326
)
 
(2,920
)
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods
(10,098
)
 
(10,092
)
 
(8,675
)
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis
(5,263
)
 
(4,042
)
 
(3,714
)
Oaktree’s general partner investments in management fee-generating funds
(1,798
)
 
(1,724
)
 
(1,883
)
Funds that pay no management fees (2)  
(2,624
)
 
(2,853
)
 
(2,153
)
Management fee-generating assets under management
$
100,693

 
$
100,547

 
$
103,244

 
 
 
 
 
(1)
This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
(2)
This includes funds that are no longer paying management fees, co-investments that pay no management fees, certain accounts that pay administrative fees intended to offset Oaktree’s costs related to the accounts and CLOs in the warehouse stage that pay no management fees.


66

The period-end weighted average annual management fee rates applicable to the closed-end, open-end and evergreen management fee-generating AUM balances above are set forth below.
 
As of
Weighted Average Annual Management Fee Rates:
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Closed-end funds:
 
 
 
 
 
Senior Loans
0.50
%
 
0.50
%
 
0.50
%
Other closed-end funds
1.46

 
1.47

 
1.49

Open-end funds
0.45

 
0.45

 
0.46

Evergreen funds (1)  
1.19

 
1.20

 
1.17

All Oaktree funds (2)  
0.90

 
0.91

 
0.91

 
 
 
 
 
(1)
Fee rates reflect the applicable asset-based management fee rates, exclusive of quarterly incentive fees on investment income that are included in management fees.
(2)
Excludes DoubleLine funds.

Incentive-creating Assets Under Management
Incentive-creating AUM is set forth below. The portion of incentive-creating AUM generating incentives at the fund level was $21.1 billion as of September 30, 2018 and $21.0 billion as of both June 30, 2018 and September 30, 2017. Incentive-creating AUM does not include undrawn capital commitments.  
 
As of
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Incentive-creating AUM:
(in millions)
Closed-end funds
$
26,801

 
$
26,677

 
$
27,555

Evergreen funds
6,236

 
6,006

 
3,465

DoubleLine
589

 
608

 
544

Total
$
33,626

 
$
33,291

 
$
31,564

Third Quarter Ended September 30, 2018
AUM increased $1.9 billion , or 1.6% , to $123.5 billion as of September 30, 2018, from $121.6 billion as of June 30, 2018. The increase primarily reflected $2.2 billion in new capital commitments to closed-end funds, $1.5 billion in market-value gains and $0.6 billion attributable to DoubleLine, partially offset by $1.5 billion of distributions to closed-end fund investors and $0.9 billion of net outflows from open-end funds. Commitments to closed-end funds included $0.7 billion for our Middle Market Direct Lending strategy, $0.5 billion for Oaktree Special Situations Fund II (“SSF II”) and $0.4 billion for our Emerging Markets Debt strategy.
Management fee-generating AUM, a forward-looking metric, increased $0.2 billion , or 0.2% , to $100.7 billion as of September 30, 2018, from $100.5 billion as of June 30, 2018. The increase primarily reflected $0.8 billion in market-value gains, $0.6 billion attributable to DoubleLine and $0.6 billion from capital drawn by funds that pay fees based on drawn capital, NAV or cost basis, largely offset by $1.2 billion attributable to closed-end funds in liquidation and $0.9 billion of net outflows from open-end funds.
Incentive-creating AUM increased $0.3 billion , or 0.9% , to $33.6 billion as of September 30, 2018, from $33.3 billion as of June 30, 2018. The increase reflected an aggregate $2.0 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains, partially offset by an aggregate $1.7 billion decline primarily attributable to distributions by closed-end funds.
Third Quarter Ended September 30, 2017
AUM increased $1.5 billion, or 1.2%, to $122.6 billion as of September 30, 2017, from $121.1 billion as of June 30, 2017. The increase primarily reflected $1.7 billion in market-value gains, $1.3 billion in new capital commitments to closed-end and evergreen funds, $1.3 billion attributable to DoubleLine, and $0.5 billion of

67

favorable foreign-currency translation, largely offset by $2.2 billion of distributions to closed-end fund investors and $0.8 billion of net outflows from open-end funds. Commitments to closed-end and evergreen funds included $0.4 billion for our Emerging Markets Debt strategy and $0.3 billion to our European Private Debt strategy.
Management fee-generating AUM, a forward-looking metric, increased $1.6 billion, or 1.6%, to $103.2 billion as of September 30, 2017, from $101.6 billion as of June 30, 2017. The increase primarily reflected an aggregate $1.4 billion increase from the start of the investment period for EPF IV in July 2017 and capital drawn by funds that pay fees based on drawn capital, NAV or cost basis, $1.3 billion attributable to DoubleLine, and $0.9 billion in market-value gains. These increases were partially offset by $1.4 billion attributable to closed-end funds in liquidation and $0.8 billion of net outflows from open-end funds.
Incentive-creating AUM increased $0.3 billion, or 1.0%, to $31.6 billion as of September 30, 2017, from $31.3 billion as of June 30, 2017, reflecting an aggregate $2.3 billion principally from drawdowns or contributions by closed-end and evergreen funds and market-value gains, partially offset by an aggregate $2.0 billion decline primarily attributable to distributions by closed-end funds.
Nine Months Ended September 30, 2018
AUM decreased $0.4 billion , or 0.3% , to $123.5 billion as of September 30, 2018, from $123.9 billion as of December 31, 2017. The decrease primarily reflected $5.6 billion of distributions to closed-end fund investors, $3.0 billion of net outflows from open-end funds and $0.5 billion of unfavorable foreign-currency translation, largely offset by $5.3 billion in new capital commitments to closed-end funds, $2.5 billion in market-value gains and $1.0 billion attributable to DoubleLine. Commitments to closed-end funds included $1.2 billion for SSF II, $1.1 billion for Oaktree Transportation Infrastructure Fund (“TIF”), $0.9 billion to Oaktree Real Estate Debt Fund II, $0.7 billion for our Middle Market Direct Lending strategy and $0.5 billion for our Emerging Markets Debt strategy.
Management fee-generating AUM, a forward-looking metric, decreased $3.6 billion , or 3.5% , to $100.7 billion as of September 30, 2018, from $104.3 billion as of December 31, 2017. The decrease primarily reflected $3.6 billion attributable to closed-end funds in liquidation, $3.1 billion of net outflows from open-end funds and $0.5 billion of unfavorable foreign-currency translation, partially offset by $1.6 billion from capital drawn by closed-end funds that pay fees based on drawn capital, NAV or cost basis, $1.0 billion attributable to DoubleLine, $0.9 billion in market-value gains and $0.4 billion of net capital inflows to evergreen funds.
Incentive-creating AUM increased $0.3 billion , or 0.9% , to $33.6 billion as September 30, 2018, from $33.3 billion as of December 31, 2017. The increase reflected an aggregate $6.2 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains, partially offset by an aggregate $5.9 billion decline primarily attributable to distributions by closed-end funds.
Nine Months Ended September 30, 2017
AUM increased $1.8 billion, or 1.5%, to $122.6 billion as of September 30, 2017, from $120.8 billion as of December 31, 2016. The increase primarily reflected $5.4 billion in market-value gains, $2.8 billion attributable to DoubleLine, $2.2 billion of capital commitments to closed-end funds and fee-generating leverage, and $1.6 billion of favorable foreign-currency translation, partially offset by $8.0 billion of distributions to closed-end fund investors and $2.3 billion of net outflows from open-end funds.
Management fee-generating AUM, a forward-looking metric, increased $3.1 billion, or 3.1%, to $103.2 billion as of September 30, 2017, from $100.1 billion as of December 31, 2016. The increase primarily reflected $2.8 billion in market-value gains, $2.8 billion attributable to DoubleLine, an aggregate $2.6 billion increase from the start of the investment period for EPF IV in July 2017, capital drawn by funds that pay fees based on drawn capital, NAV or cost basis, and fee-generating leverage, and $1.4 billion of favorable foreign-currency translation. These increases were partially offset by $4.0 billion attributable to closed-end funds in liquidation and $2.4 billion of net outflows from open-end funds.
Incentive-creating AUM decreased $2.6 billion, or 7.6%, to $31.6 billion as of September 30, 2017, from $34.2 billion as of December 31, 2016, reflecting an aggregate $8.3 billion decline primarily attributable to distributions by closed-end funds, partially offset by an aggregate $5.7 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains.

68

Accrued Incentives (Fund Level) and Incentives Created (Fund Level)
Accrued incentives (fund level), gross and net of incentive income compensation expense, as well as changes in accrued incentives (fund level), are set forth below.  
 
As of or for the Three Months
Ended September 30,
 
As of or for the Nine Months
Ended September 30,
 
2018
 
2017
 
2018
 
2017
Accrued Incentives (Fund Level):
(in thousands)
Beginning balance
$
1,863,932

 
$
1,779,578

 
$
1,920,339

 
$
2,014,097

Incentives created (fund level):
 
 
 
 
 
 
 
Closed-end funds
115,659

 
122,273

 
315,815

 
471,501

Evergreen funds
18,787

 
12,542

 
49,033

 
33,434

DoubleLine
520

 
780

 
620

 
3,479

Total incentives created (fund level)
134,966

 
135,595

 
365,468

 
508,414

Less: incentive income recognized by us
(74,488
)
 
(54,508
)
 
(361,397
)
 
(661,846
)
Ending balance
$
1,924,410

 
$
1,860,665

 
$
1,924,410

 
$
1,860,665

Accrued incentives (fund level), net of associated incentive income compensation expense
$
914,886

 
$
899,891

 
$
914,886

 
$
899,891

As of September 30, 2018, June 30, 2018 and September 31, 2017, the portion of net accrued incentives (fund level) represented by funds that were currently paying incentives was $329.9 million (or 36%), $214.6 million (24%) and $274.1 million (30%), respectively, with the remainder arising from funds that as of that date were not at the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions.
As of September 30, 2018, $720.8 million, or 79%, of the net accrued incentives (fund level) was in evergreen or closed-end funds in their liquidation period, and approximately 21% of the assets underlying total net accrued incentives (fund level) were Level I or Level II securities. Please see note 2 for a discussion of the fair-value hierarchy level established by GAAP.
Third Quarters Ended September 30, 2018 and 2017
Incentives created (fund level) was $135.0 million for the third quarter of 2018, primarily reflecting $53.4 million of incentives created (fund level) from Private Equity funds, $38.9 million from Credit funds and $35.5 million from Real Asset funds.
Incentives created (fund level) was $135.6 million for the third quarter of 2017, primarily reflecting $54.0 million of incentives created (fund level) from Credit funds, $39.5 million from Real Asset funds and $36.7 million from Private Equity funds.
Nine Months Ended September 30, 2018 and 2017
Incentives created (fund level) was $365.5 million for the first nine months of 2018, primarily reflecting $174.3 million of incentives created (fund level) from Credit funds, $104.6 million from Private Equity funds and $79.1 million from Real Asset funds.
Incentives created (fund level) was $508.4 million for the first nine months of 2017, primarily reflecting $244.2 million of incentives created (fund level) from Credit funds, $168.7 million from Private Equity funds and $82.5 million from Real Asset funds.
Uncalled Capital Commitments
As of September 30, 2018, June 30, 2018, and September 30, 2017, uncalled capital commitments were $21.4 billion , $20.3 billion and $21.2 billion, respectively. Invested capital during the quarter and 12 months ended September 30, 2018 aggregated $2.8 billion and $8.7 billion, respectively, as compared with $1.9 billion and $7.4 billion for the comparable prior-year periods.

69

Non-GAAP Results
Our business is comprised of one segment, our investment management business, which consists of the investment management services that we provide to our clients. Management makes operating decisions and assesses the performance of our business based on financial data that are presented without the consolidation of our funds. The data most important to management in assessing our performance are adjusted net income, distributable earnings and fee-related earnings, each for both the Operating Group and per Class A unit. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented below under “—Reconciliation of GAAP to Non-GAAP Results.”
Adjusted Net Income
The following schedules set forth the components of adjusted net income: 
Adjusted Revenues
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Management fees
$
197,056

 
$
203,440

 
$
595,938

 
$
607,361

Incentive income
74,488

 
54,508

 
361,397

 
661,846

Investment income
48,622

 
46,808

 
87,512

 
131,098

Total adjusted revenues
$
320,166

 
$
304,756

 
$
1,044,847

 
$
1,400,305


Adjusted Expenses
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Expenses:
 
 
 
 
 
 
 
Compensation and benefits
$
(100,589
)
 
$
(95,691
)
 
$
(309,001
)
 
$
(297,097
)
Equity-based compensation
(13,649
)
 
(14,691
)
 
(40,788
)
 
(40,971
)
Incentive income compensation
(31,508
)
 
(26,362
)
 
(182,934
)
 
(369,480
)
General and administrative
(37,963
)
 
(29,134
)
 
(114,508
)
 
(94,042
)
Depreciation and amortization
(2,218
)
 
(2,036
)
 
(6,781
)
 
(6,863
)
Total adjusted expenses
$
(185,927
)
 
$
(167,914
)
 
$
(654,012
)
 
$
(808,453
)

Adjusted Net Income
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
 
 
 
 
 
 
 
 
Interest expense, net of interest income (1)  
$
(2,197
)
 
$
(6,280
)
 
$
(8,006
)
 
$
(19,795
)
Other income, net
5,469

 
874

 
6,540

 
2,197

Adjusted net income (2)
$
137,511

 
$
131,436

 
$
389,369

 
$
574,254

 
 
 
 
 
(1)
Interest income was $4.0 million and $9.9 million for the three and nine months ended September 30, 2018, respectively, and $2.7 million and $6.8 million for the three and nine months ended September 30, 2017, respectively.
(2)
This reflects the sum of total adjusted revenues, adjusted expenses, net interest expense and other income, net.





70

Third Quarter Ended September 30, 2018 Compared to the Third Quarter Ended September 30, 2017
Adjusted Revenues
Management Fees
A summary of management fees is set forth below:
 
Three Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Management fees:
 
 
 
Closed-end funds
$
114,236

 
$
131,612

Open-end funds
36,201

 
40,882

Evergreen funds
28,269

 
14,121

DoubleLine
18,350

 
16,825

Total management fees
$
197,056

 
$
203,440

 
Management fees decreased $6.3 million, or 3.1% , to $197.1 million for the third quarter of 2018, from $203.4 million for the third quarter of 2017, for the reasons described below.
•
Closed-end funds .    Management fees attributable to closed-end funds decreased $17.4 million, or 13.2% , to $114.2 million for the third quarter of 2018, from $131.6 million for the third quarter of 2017. The decrease reflected an aggregate decline of $22.5 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $5.1 million principally from closed-end funds that pay management fees based on drawn capital, NAV or cost basis.
•
Open-end funds .    Management fees attributable to open-end funds decreased $4.7  million, or 11.5% , to $36.2 million for the third quarter of 2018, from $40.9 million for the third quarter of 2017. The decrease was primarily attributable to net outflows, partially offset by market-value gains.
•
Evergreen funds .    Management fees attributable to evergreen funds increased $14.2  million, or 100.7% , to $28.3 million for the third quarter of 2018, from $14.1 million for the third quarter of 2017, primarily reflecting the BDC acquisition.
•
DoubleLine .    Management fees attributable to DoubleLine increased $1.6 million, or 9.5% , to $18.4 million for the third quarter of 2018, from $16.8 million for the third quarter of 2017, primarily reflecting growth in AUM.
Incentive Income
A summary of incentive income is set forth below:  
 
Three Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Incentive Income:
 
 
 
Closed-end funds
$
73,576

 
$
53,545

Evergreen funds
392

 
183

DoubleLine
520

 
780

Total
$
74,488

 
$
54,508

Incentive income increased $20.0 million, or 36.7% , to $74.5 million for the third quarter of 2018, from $54.5 million for the third quarter of 2017. The third quarter of 2018 included $45.8 million from OCM Opportunities Fund VIIb and $14.0 million from Emerging Markets Debt funds.

71

Investment Income
A summary of investment income is set forth below:  
 
Three Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Oaktree funds:
 
 
 
Credit
$
21,537

 
$
26,199

Private Equity
7,063

 
3,985

Real Assets
4,031

 
6,063

Listed Equities
2,255

 
8,312

Non-Oaktree
13,736

 
2,249

Total investment income
$
48,622

 
$
46,808

Investment income increased $1.8 million, or 3.8% , to $48.6 million for the third quarter of 2018, from $46.8 million for the third quarter of 2017. The increase primarily reflected higher returns on our Private Equity and non-Oaktree investments, largely offset by lower returns on our Credit, Real Assets and Listed Equities investments.
Adjusted Expenses
Compensation and Benefits
Compensation and benefits expense increased $4.9 million, or 5.1% , to $100.6 million for the third quarter of 2018, from $95.7 million for the third quarter of 2017, primarily reflecting higher expenses relating to the infrastructure investing team that Oaktree acquired in 2014.  In 2017, a portion of the expenses attributable to that team were paid for by a legacy Highstar fund.  That fund stopped paying management fees in the fourth quarter of 2017, and thereafter Oaktree became responsible for all of the expenses of the infrastructure team.
Equity-based Compensation
Equity-based compensation expense decreased $1.1 million, or 7.5% , to $13.6 million for the third quarter of 2018, from $14.7 million for the third quarter of 2017.
Incentive Income Compensation
Incentive income compensation expense increased $5.1 million, or 19.3% , to $31.5 million for the third quarter of 2018, from $26.4 million for the third quarter of 2017, primarily reflecting the growth in incentive income, partially offset by a lower overall compensation percentage in the third quarter of 2018.
General and Administrative
General and administrative expense increased $8.9 million, or 30.6% , to $38.0 million for the third quarter of 2018, from $29.1 million for the third quarter of 2017. The increase primarily reflected higher expenses relating to the infrastructure investing team, placement costs associated with fundraising for closed-end and evergreen funds, professional fees and other general operating items.
Depreciation and Amortization
Depreciation and amortization expense increased $0.2 million, or 10.0% , to $2.2 million for the third quarter of 2018, from $2.0 million for the third quarter of 2017.
Interest Expense, Net of Interest Income
Interest expense, net decreased $4.1 million, or 65.1% , to $2.2 million for the third quarter of 2018, from $6.3 million for the third quarter of 2017. The decline reflected the refinancing of our senior notes in the fourth quarter of 2017 and higher interest income.

72

Other Income, Net
Other income, net increased $4.6 million, to $5.5 million for the third quarter of 2018, from $0.9 million for the third quarter of 2017. The increase primarily reflected gains associated with non-operating corporate activities in the third quarter of 2018.
Adjusted Net Income
ANI increased $6.1 million, or 4.6% , to $137.5 million for the third quarter of 2018, from $131.4 million for the third quarter of 2017, primarily reflecting $14.8 million in higher incentive income, net of incentive income compensation expense (“net incentive income”), $4.6 million in higher other income, $4.1 million in lower net interest expense and $1.8 million in higher investment income, partially offset by $20.3 million in lower fee-related earnings. The portion of ANI attributable to our Class A units was $55.6 million , or $0.78 per unit, and $43.3 million , or $0.67 per unit, for the third quarters of 2018 and 2017, respectively.
Income Taxes-Class A
Income taxes decreased $6.0 million, or 55.6% , to $4.8 million for the third quarter of 2018, from $10.8 million for the third quarter of 2017.  The decrease primarily reflected a lower effective tax rate for the third quarter of 2018, in part due to the Tax Act that was enacted in December 2017. The effective tax rates applied to ANI for the third quarters of 2018 and 2017 were 8% and 20%, respectively, resulting from full-year effective rates of 9% and 12%, respectively. The effective tax rate used for interim fiscal quarters is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and often vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings and certain incentive and investment income rises, and vice versa.
Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017
Adjusted Revenues
Management Fees
A summary of management fees is set forth below:
 
Nine Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Management fees:
 
 
 
Closed-end funds
$
352,718

 
$
395,215

Open-end funds
111,399

 
121,507

Evergreen funds
77,758

 
41,772

DoubleLine
54,063

 
48,867

Total management fees
$
595,938

 
$
607,361

 
Management fees decreased $11.5 million, or 1.9% , to $595.9 million for the first nine months of 2018, from $607.4 million for the first nine months of 2017, for the reasons described below.
•
Closed-end funds .    Management fees attributable to closed-end funds decreased $42.5 million, or 10.8% , to $352.7 million for the first nine months of 2018, from $395.2 million for the first nine months of 2017. The decrease reflected an aggregate decline of $65.5 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $23.0 million principally from the start of the investment period for EPF IV in July 2017 and closed-end funds that pay management fees based on drawn capital, NAV or cost basis.
•
Open-end funds .    Management fees attributable to open-end funds decreased $10.1  million, or 8.3% , to $111.4 million for the first nine months of 2018, from $121.5 million for the first nine months of 2017. The decrease was primarily attributable to net outflows, partially offset by market-value gains.

73

•
Evergreen funds .    Management fees attributable to evergreen funds increased $36.0  million, or 86.1% , to $77.8 million for the first nine months of 2018, from $41.8 million for the first nine months of 2017, primarily reflecting the BDC acquisition.
•
DoubleLine .    Management fees attributable to DoubleLine increased $5.2 million, or 10.6% , to $54.1 million for the first nine months of 2018, from $48.9 million for the first nine months of 2017, primarily reflecting growth in AUM.
Incentive Income
A summary of incentive income is set forth below:  
 
Nine Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Incentive Income:
 
 
 
Closed-end funds
$
357,029

 
$
653,865

Evergreen funds
3,748

 
4,502

DoubleLine
620

 
3,479

Total
$
361,397

 
$
661,846

Incentive income decreased $300.4 million, or 45.4% , to $361.4 million for the first nine months of 2018, from $661.8 million for the first nine months of 2017. The decrease was primarily attributable to lower incentive income from POF IV, which started paying incentive income in the second quarter of 2017. Tax-related incentive income represented $117.7 million and $81.2 million for the first nine months of 2018 and 2017, respectively.
Investment Income
A summary of investment income is set forth below:  
Investment Income
Nine Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Oaktree funds:
 
 
 
Credit
$
59,338

 
$
76,545

Private Equity
14,515

 
15,055

Real Assets
17,683

 
14,519

Listed Equities
(19,829
)
 
18,738

Non-Oaktree
15,805

 
6,241

Total investment income
$
87,512

 
$
131,098

Investment income decreased $43.6 million, or 33.3% , to $87.5 million for the first nine months of 2018, from $131.1 million for the first nine months of 2017. The decrease primarily reflected lower returns on our Credit and Listed Equities investments, partially offset by our non-Oaktree investments.
Adjusted Expenses
Compensation and Benefits
Compensation and benefits expense increased $11.9 million, or 4.0% , to $309.0 million for the first nine months of 2018, from $297.1 million for the first nine months of 2017. The increase primarily reflected expenses relating to the infrastructure investing team that Oaktree acquired in 2014. 
Equity-based Compensation
Equity-based compensation expense decreased $0.2 million, or 0.5% , to $40.8 million for the first nine months of 2018, from $41.0 million for the first nine months of 2017.

74

Incentive Income Compensation
Incentive income compensation expense decreased $186.6 million, or 50.5% , to $182.9 million for the first nine months of 2018, from $369.5 million for the first nine months of 2017, primarily reflecting the decline in incentive income.
General and Administrative
General and administrative expense increased $20.5 million, or 21.8% , to $114.5 million for the first nine months of 2018, from $94.0 million for the first nine months of 2017. The increase primarily reflected higher expenses relating to the infrastructure investing team, placement costs associated with fundraising for closed-end and evergreen funds, new product development costs and other general operating items.
Depreciation and Amortization
Depreciation and amortization expense decreased $0.1 million, or 1.4% , to $6.8 million for the first nine months of 2018, from $6.9 million for the first nine months of 2017.
Interest Expense, Net of Interest Income
Interest expense, net decreased $11.8 million, or 59.6% , to $8.0 million for the first nine months of 2018, from $19.8 million for the first nine months of 2017. The decline reflected the refinancing of our senior notes in the fourth quarter of 2017 and higher interest income.
Other Income, Net
Other income, net increased $4.3 million, to $6.5 million for the first nine months of 2018, from $2.2 million for the first nine months of 2017. The increase primarily reflected gains associated with non-operating corporate activities in the current-year period.
Adjusted Net Income
ANI decreased $184.9 million, or 32.2% , to $389.4 million for the first nine months of 2018, from $574.3 million for the first nine months of 2017. The decrease primarily reflected declines of $113.9 million in net incentive income, $43.6 million in investment income and $43.8 million in fee-related earnings, partially offset by an $11.8 million decrease in net interest expense. The portion of ANI attributable to our Class A units was $154.6 million , or $2.20 per unit, and $208.2 million , or $3.26 per unit, for the first nine months of 2018 and 2017, respectively.
Income Taxes-Class A
Income taxes decreased $10.5 million, or 38.7% , to $16.6 million for the first nine months of 2018, from $27.1 million for the first nine months of 2017.  The decrease primarily reflected lower adjusted net income-Class A before income taxes and a lower effective tax rate for the first nine months of 2018, in part due to the Tax Act. The effective tax rates applied to ANI for the first nine months of 2018 and 2017 were 10% and 12%, respectively. The effective tax rate used for interim fiscal quarters is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and often vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings and certain incentive and investment income rises, and vice versa.

75

Distributable Earnings
Distributable earnings are set forth below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Distributable Earnings:
(in thousands)
 
 
 
 
 
 
 
 
Adjusted net income
$
137,511

 
$
131,436

 
$
389,369

 
$
574,254

Investment income
(48,622
)
 
(46,808
)
 
(87,512
)
 
(131,098
)
Realized investment income proceeds (1)  
48,278

 
24,919

 
126,806

 
91,264

Equity-based compensation
13,649

 
14,691

 
40,788

 
40,971

Other (income) expense, net (2)  
(2,745
)
 
—

 
(8,235
)
 
—

Operating Group income taxes
(222
)
 
(5,208
)
 
(5,108
)
 
(7,850
)
Distributable earnings
$
147,849

 
$
119,030

 
$
456,108

 
$
567,541

 
 
 
 
 
(1)
Amounts reflect the portion of income or loss on distributions received from funds and companies. In general, the income or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO to align with the timing of expected cash flows.
(2)
For distributable earnings purposes, the $22 million make-whole premium charge that was included in ANI in the fourth quarter of 2017 in connection with the early repayment of our 2019 Notes is amortized through the original maturity date of December 2019.
Third Quarter Ended September 30, 2018 Compared to the Third Quarter Ended September 30, 2017
Distributable earnings increased $28.8 million, or 24.2% , to $147.8 million for the third quarter of 2018, from $119.0 million for the third quarter of 2017, primarily reflecting increases of $23.4 million in realized investment income proceeds, $14.8 million in net incentive income, $4.6 million in other income and a $4.1 million decrease in net interest expense, partially offset by a $20.3 million decline in fee-related earnings. For the third quarters of 2018 and 2017, realized investment income proceeds totaled $48.3 million and $24.9 million , respectively. The portion of distributable earnings attributable to our Class A units was $0.88 and $0.74 per unit for the third quarters of 2018 and 2017, respectively, reflecting distributable earnings per Operating Group unit of $0.94 and $0.76 , respectively, less preferred unit distributions and costs borne by Class A unitholders for professional fees and other expenses, cash taxes attributable to the Intermediate Holding Companies, and amounts payable pursuant to the tax receivable agreement.
Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017
Distributable earnings decreased $111.4 million, or 19.6% , to $456.1 million for the first nine months of 2018, from $567.5 million for the first nine months of 2017, primarily reflecting declines of $113.9 million in net incentive income and $43.8 million in fee-related earnings, partially offset by a $35.5 million increase in realized investment income proceeds and an $11.8 million decrease in net interest expense. For the first nine months of 2018 and 2017, realized investment income proceeds totaled $126.8 million and $91.3 million , respectively. The portion of distributable earnings attributable to our Class A units was $2.74 and $3.28 per unit for the first nine months of 2018 and 2017, respectively, reflecting distributable earnings per Operating Group unit of $2.91 and $3.65 , respectively.
Fee-related Earnings
Third Quarter Ended September 30, 2018 Compared to the Third Quarter Ended September 30, 2017
Fee-related earnings decreased $20.3 million, or 26.5% , to $56.3 million for the third quarter of 2018, from $76.6 million for the third quarter of 2017, primarily reflecting $6.3 million in lower management fees, $4.9 million in higher compensation and benefits expense and $8.9 million in higher general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $0.34 and $0.42 per unit for the third quarters of 2018 and 2017, respectively.

76

The effective tax rates applicable to fee-related earnings for the third quarters of 2018 and 2017 were 5% and 14% , respectively, resulting from full-year effective tax rates of 6% and 15%, respectively.  The rate used for interim fiscal periods is based on the estimated full-year effective tax rate, which is subject to change as the year progresses. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa.
Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017
Fee-related earnings decreased $43.8 million, or 20.9% , to $165.6 million for the first nine months of 2018, from $209.4 million for the first nine months of 2017, primarily reflecting $11.5 million in lower management fees, $11.9 million in higher compensation and benefits expense, and $20.5 million in higher general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $0.99 and $1.13 per unit for the first nine months of 2018 and 2017, respectively.
The effective tax rates applicable to fee-related earnings for the first nine months of 2018 and 2017 were 5% and 15% , respectively. 
Reconciliation of GAAP to Non-GAAP Results
The following table reconciles net income attributable to Oaktree Capital Group, LLC Class A unitholders to adjusted net income, fee-related earnings and distributable earnings.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Net income attributable to OCG Class A unitholders
$
52,750

 
$
45,841

 
$
136,603

 
$
218,080

Preferred unit distributions
3,909

 
—

 
3,909

 
—

Incentive income (1)
7,935

 
—

 
107,581

 
41,954

Incentive income compensation (1)  
(4,214
)
 
—

 
(55,607
)
 
(41,954
)
Investment income (2)  
(3,174
)
 
(1,983
)
 
(7,055
)
 
(24,630
)
Equity-based compensation (3)
1,098

 
1,137

 
3,826

 
4,558

Foreign-currency hedging (4)  
(247
)
 
(833
)
 
(3,110
)
 
(960
)
Acquisition-related items (5)  
1,703

 
(3,919
)
 
443

 
(1,456
)
Income taxes (6)  
6,568

 
13,857

 
17,832

 
31,700

Non-Operating Group (income) expenses (7)
321

 
62

 
629

 
549

Non-controlling interests (7)
70,862

 
77,274

 
184,318

 
346,413

Adjusted net income (10)
137,511

 
131,436

 
389,369

 
574,254

Incentive income
(74,488
)
 
(54,508
)
 
(361,397
)
 
(661,846
)
Incentive income compensation
31,508

 
26,362

 
182,934

 
369,480

Investment income
(48,622
)
 
(46,808
)
 
(87,512
)
 
(131,098
)
Equity-based compensation (8)  
13,649

 
14,691

 
40,788

 
40,971

Interest expense, net of interest income
2,197

 
6,280

 
8,006

 
19,795

Other (income) expense, net
(5,469
)
 
(874
)
 
(6,540
)
 
(2,197
)
Fee-related earnings (10)
56,286

 
76,579

 
165,648

 
209,359

Incentive income
74,488

 
54,508

 
361,397

 
661,846

Incentive income compensation
(31,508
)
 
(26,362
)
 
(182,934
)
 
(369,480
)
Realized investment income proceeds (9)  
48,278

 
24,919

 
126,806

 
91,264

Interest expense, net of interest income
(2,197
)
 
(6,280
)
 
(8,006
)
 
(19,795
)
Other (income) expense, net
2,724

 
874

 
(1,695
)
 
2,197

Operating Group income taxes
(222
)
 
(5,208
)
 
(5,108
)
 
(7,850
)
Distributable earnings (10)
$
147,849

 
$
119,030

 
$
456,108

 
$
567,541

 
 
 
 
 
(1)
This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between GAAP and adjusted net income.

77

(2)
This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between GAAP and adjusted net income.
(3)
This adjustment adds back the effect of equity-based compensation expense related to unit grants made before our initial public offering, which is excluded from adjusted net income because it is a non-cash charge that does not affect our financial position.
(4)
This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between GAAP and adjusted net income.
(5)
This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.
(6)
Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.
(7)
Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.
(8)
This adjustment adds back the effect of equity-based compensation expense related to unit grants made after our initial public offering, which is excluded from fee-related earnings and distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations.
(9)
This adjustment reflects the portion of distributions received from funds characterized as realized investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.
(10)
Per Class A unit amounts are calculated to evaluate the portion of adjusted net income, fee-related earnings and distributable earnings attributable to Class A unitholders. Reconciliations of adjusted net income to adjusted net income-Class A, fee-related earnings to fee-related earnings-Class A and distributable earnings to distributable earnings-Class A are presented below.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per unit data)
 
 
 
 
 
 
 
 
Adjusted net income
$
137,511

 
$
131,436

 
$
389,369

 
$
574,254

Preferred unit distributions
(3,909
)
 
—

 
(3,909
)
 
—

Adjusted net income after preferred unit distributions
133,602

 
131,436

 
385,460

 
574,254

Adjusted net income attributable to OCGH non-controlling interest
(72,925
)
 
(77,271
)
 
(213,617
)
 
(338,471
)
Non-Operating Group income (expense)
(321
)
 
(62
)
 
(629
)
 
(549
)
Income taxes-Class A
(4,760
)
 
(10,794
)
 
(16,569
)
 
(27,078
)
Adjusted net income-Class A
$
55,596

 
$
43,309

 
$
154,645

 
$
208,156

Adjusted net income per Class A unit
$
0.78

 
$
0.67

 
$
2.20

 
$
3.26

Weighted average number of Class A units outstanding
71,369

 
64,394

 
70,167

 
63,875

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per unit data)
Fee-related earnings
$
56,286

 
$
76,579

 
$
165,648

 
$
209,359

Fee-related earnings attributable to OCGH non-controlling interest
(30,723
)
 
(45,020
)
 
(91,614
)
 
(123,404
)
Non-Operating Group expenses
(239
)
 
(209
)
 
(984
)
 
(886
)
Fee-related earnings-Class A income taxes
(1,170
)
 
(4,532
)
 
(3,324
)
 
(12,697
)
Fee-related earnings-Class A
$
24,154

 
$
26,818

 
$
69,726

 
$
72,372

Fee-related earnings per Class A unit
$
0.34

 
$
0.42

 
$
0.99

 
$
1.13

Weighted average number of Class A units outstanding
71,369

 
64,394

 
70,167

 
63,875


78

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per unit data)
Distributable earnings
$
147,849

 
$
119,030

 
$
456,108

 
$
567,541

Preferred unit distributions
(3,909
)
 
—

 
(3,909
)
 
—

Distributable earnings after preferred unit distributions
143,940

 
119,030

 
452,199

 
567,541

Distributable earnings attributable to OCGH non-controlling interest
(78,568
)
 
(69,978
)
 
(250,726
)
 
(334,518
)
Non-Operating Group income (expense)
(321
)
 
(62
)
 
(629
)
 
(549
)
Distributable earnings-Class A income taxes
1,687

 
4,323

 
3,327

 
(7,012
)
Tax receivable agreement
(4,008
)
 
(5,415
)
 
(11,874
)
 
(16,193
)
Distributable earnings-Class A
$
62,730

 
$
47,898

 
$
192,297

 
$
209,269

Distributable earnings per Class A unit
$
0.88

 
$
0.74

 
$
2.74

 
$
3.28

Weighted average number of Class A units outstanding
71,369

 
64,394

 
70,167

 
63,875



The following table reconciles GAAP revenues to adjusted revenues, fee-related earnings revenues and distributable earnings revenues.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
GAAP revenues
$
241,227

 
$
235,032

 
$
791,831

 
$
1,158,672

Consolidated funds (1)
15,982

 
20,646

 
2,808

 
73,691

Incentive income (2)
7,935

 
—

 
107,581

 
41,954

Investment income (3)
55,022

 
49,078

 
142,627

 
125,988

Adjusted revenues
320,166

 
304,756

 
1,044,847

 
1,400,305

Incentive income
(74,488
)
 
(54,508
)
 
(361,397
)
 
(661,846
)
Investment income
(48,622
)
 
(46,808
)
 
(87,512
)
 
(131,098
)
Fee-related earnings revenues
197,056

 
203,440

 
595,938

 
607,361

Incentive income
74,488

 
54,508

 
361,397

 
661,846

Realized investment income proceeds
48,278

 
24,919

 
126,806

 
91,264

Distributable earnings revenues
$
319,822

 
$
282,867

 
$
1,084,141

 
$
1,360,471

 
 
 
 
 
(1)
This adjustment represents amounts attributable to the consolidated funds that were eliminated in consolidation, the reclassification of gains and losses related to foreign-currency hedging activities from general and administrative expense to revenues, the elimination of non-controlling interests from adjusted revenues, and certain compensation and administrative related expense reimbursements netted with expenses.
(2)
This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3)
This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.



79

The following tables reconcile GAAP consolidated financial data to non-GAAP data: 
 
As of or for the Three Months Ended September 30, 2018
 
Consolidated
 
Adjustments
 
ANI
 
(in thousands)
Management fees (1)
$
175,195

 
$
21,861

 
$
197,056

Incentive income (1)
66,032

 
8,456

 
74,488

Investment income (1)
58,196

 
(9,574
)
 
48,622

Total expenses (2)
(191,167
)
 
5,240

 
(185,927
)
Interest expense, net (3)
(39,456
)
 
37,259

 
(2,197
)
Other income, net (4)
5,629

 
(160
)
 
5,469

Other income of consolidated funds (5)
75,230

 
(75,230
)
 
—

Income taxes
(6,568
)
 
6,568

 
—

Net income attributable to non-controlling interests in consolidated funds
(14,427
)
 
14,427

 
—

Net income attributable to non-controlling interests in consolidated subsidiaries
(72,005
)
 
72,005

 
—

Net income attributable to preferred unitholders
(3,909
)
 
3,909

 
—

Net income attributable to OCG Class A unitholders / ANI
$
52,750

 
$
84,761

 
$
137,511

 
 
 
 
 
(1)
The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $18,350 to management fees and $520 to incentive income, (c) for management fees, reclassifies $46 of net losses related to foreign-currency hedging activities from general and administrative expense and $2,835 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $7,935 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $3,174 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $1,098 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $3,620, (c) expenses incurred by the Intermediate Holding Companies of $239, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $4,214, (e) acquisition-related items of $1,703, (f) $41 of net gains related to foreign-currency hedging activities, and (g) $2,835 of reimbursements grossed-up as revenues for GAAP reporting, but netted with expenses for ANI.
(3)
The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4)
The adjustment to other income (expense), net represents adjustments related to the reclassification of $160 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5)
The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.



80

 
As of or for the Three Months Ended September 30, 2017
 
Consolidated
 
Adjustments
 
ANI
 
(in thousands)
Management fees (1)
$
181,312

 
$
22,128

 
$
203,440

Incentive income (1)
53,720

 
788

 
54,508

Investment income (1)
51,061

 
(4,253
)
 
46,808

Total expenses (2)
(169,773
)
 
1,859

 
(167,914
)
Interest expense, net (3)
(35,776
)
 
29,496

 
(6,280
)
Other income, net (4)  
5,418

 
(4,544
)
 
874

Other income of consolidated funds (5)
62,272

 
(62,272
)
 
—

Income taxes
(13,857
)
 
13,857

 
—

Net income attributable to non-controlling interests in consolidated funds
(9,990
)
 
9,990

 
—

Net income attributable to non-controlling interests in consolidated subsidiaries
(78,546
)
 
78,546

 
—

Net income attributable to OCG Class A unitholders / ANI
$
45,841

 
$
85,595

 
$
131,436

 
 
 
 
 
(1)
The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $16,825 to management fees and $780 to incentive income, (c) for management fees, reclassifies $199 of net gains related to foreign-currency hedging activities from general and administrative expense, and (d) for investment income, includes $1,983 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $1,137 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $950, (c) expenses incurred by the Intermediate Holding Companies of $209, (d) acquisition-related items of $3,919, (e) adjustments of $4,357 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (f) $870 of net gains related to foreign-currency hedging activities.
(3)
The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4)
The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $4,357 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $187 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5)
The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.

81

 
As of or for the Nine Months Ended September 30, 2018
 
Consolidated
 
Adjustments
 
ANI
 
(in thousands)
Management fees (1)
$
538,706

 
$
57,232

 
$
595,938

Incentive income (1)
253,125

 
108,272

 
361,397

Investment income (1)
149,682

 
(62,170
)
 
87,512

Total expenses (2)
(626,809
)
 
(27,203
)
 
(654,012
)
Interest expense, net (3)
(115,504
)
 
107,498

 
(8,006
)
Other income, net (4)
7,240

 
(700
)
 
6,540

Other income of consolidated funds (5)
157,641

 
(157,641
)
 
—

Income taxes
(17,832
)
 
17,832

 
—

Net income attributable to non-controlling interests in consolidated funds
(17,792
)
 
17,792

 
—

Net income attributable to non-controlling interests in consolidated subsidiaries
(187,945
)
 
187,945

 
—

Net income attributable to preferred unitholders
(3,909
)
 
3,909

 
—

Net income attributable to OCG Class A unitholders / ANI
$
136,603

 
$
252,766

 
$
389,369

 
 
 
 
 
(1)
The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $54,063 to management fees and $620 to incentive income, (c) for management fees, reclassifies $4,234 of net losses related to foreign-currency hedging activities from general and administrative expense and $9,508 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $107,581 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $7,055 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $3,826 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $11,819, (c) expenses incurred by the Intermediate Holding Companies of $984, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $55,607, (e) acquisition-related items of $443, (f) $1,824 of net losses related to foreign-currency hedging activities, and (g) $9,508 of reimbursements grossed-up as revenues for GAAP reporting, but netted with expenses for ANI.
(3)
The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4)
The adjustment to other income (expense), net represents adjustments related to the reclassification of $700 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5)
The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.



82

 
As of or for the Nine Months Ended September 30, 2017
 
Consolidated
 
Adjustments
 
ANI
 
(in thousands)
Management fees (1)
$
542,268

 
$
65,093

 
$
607,361

Incentive income (1)
616,404

 
45,442

 
661,846

Investment income (1)
150,618

 
(19,520
)
 
131,098

Total expenses (2)
(785,761
)
 
(22,692
)
 
(808,453
)
Interest expense, net (3)
(128,797
)
 
109,002

 
(19,795
)
Other income, net (4)  
14,979

 
(12,782
)
 
2,197

Other income of consolidated funds (5)
213,640

 
(213,640
)
 
—

Income taxes
(31,700
)
 
31,700

 
—

Net income attributable to non-controlling interests in consolidated funds
(23,543
)
 
23,543

 
—

Net income attributable to non-controlling interests in consolidated subsidiaries
(350,028
)
 
350,028

 
—

Net income attributable to OCG Class A unitholders / ANI
$
218,080

 
$
356,174

 
$
574,254

 
 
 
 
 
(1)
The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $48,867 to management fees and $3,479 to incentive income, (c) for management fees, reclassifies $2,298 of net gains related to foreign-currency hedging activities from general and administrative expense, (d) for incentive income, includes $41,954 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $24,630 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $4,558 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $5,782, (c) expenses incurred by the Intermediate Holding Companies of $886, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $41,954, (e) acquisition-related items of $1,456, (f) adjustments of $13,747 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $4,250 of net gains related to foreign-currency hedging activities.
(3)
The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4)
The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $13,747 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $967 in net gains related to foreign-currency hedging activities from general and administrative expense.
(5)
The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.


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GAAP Statement of Financial Condition (Unaudited)
We manage our financial condition without the consolidation of our funds. Since our founding, we have managed our financial condition in a way that builds our capital base and maintains sufficient liquidity for known and anticipated uses of cash. We have issued debt largely to help fund our corporate investments in funds and companies, favoring longer terms to better match the multi-year nature of our typical investments. Our assets do not include accrued incentives (fund level), an off-balance sheet metric, nor do they reflect the fair-market value of our 20% interest in DoubleLine, which is carried at cost, as adjusted under the equity method of accounting.
The following table presents our unaudited condensed consolidating statement of financial condition:
 
As of September 30, 2018
 
Oaktree and Operating Subsidiaries
 
Consolidated Funds
 
Eliminations
 
Consolidated
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash-equivalents
$
543,229

 
$
—

 
$
—

 
$
543,229

U.S. Treasury and other securities
469,800

 
—

 
—

 
469,800

Corporate investments
1,753,683

 
—

 
(698,332
)
 
1,055,351

Deferred tax assets
243,059

 
—

 
—

 
243,059

Receivables and other assets
715,896

 
—

 
(22,966
)
 
692,930

Assets of consolidated funds
—

 
6,425,680

 
—

 
6,425,680

Total assets
$
3,725,667

 
$
6,425,680

 
$
(721,298
)
 
$
9,430,049

Liabilities and Capital:
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
371,741

 
$
—

 
$
—

 
$
371,741

Due to affiliates
192,267

 
—

 
—

 
192,267

Debt obligations
745,812

 
—

 
—

 
745,812

Liabilities of consolidated funds
—

 
5,025,502

 
(24,383
)
 
5,001,119

Total liabilities
1,309,820

 
5,025,502

 
(24,383
)
 
6,310,939

Non-controlling redeemable interests in consolidated funds
—

 
—

 
696,307

 
696,307

Capital:
 
 
 
 
 
 
 
Capital attributable to OCG preferred unitholders
400,584

 
—

 
—

 
400,584

Capital attributable to OCG Class A unitholders
958,949

 
317,165

 
(317,165
)
 
958,949

Non-controlling interest in consolidated subsidiaries
1,056,314

 
379,750

 
(379,750
)
 
1,056,314

Non-controlling interest in consolidated funds
—

 
703,263

 
(696,307
)
 
6,956

Total capital
2,415,847

 
1,400,178

 
(1,393,222
)
 
2,422,803

Total liabilities and capital
$
3,725,667

 
$
6,425,680

 
$
(721,298
)
 
$
9,430,049




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Corporate Investments
A summary of corporate investments is set forth below:
 
As of
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
(in thousands)
Oaktree funds:
 
 
 
 
 
Credit
$
1,026,207

 
$
925,539

 
$
949,174

Private Equity
296,224

 
299,961

 
250,244

Real Assets
239,208

 
189,109

 
133,129

Listed Equities
94,258

 
117,939

 
139,628

Non-Oaktree
63,936

 
62,037

 
118,504

Total corporate investments – Non-GAAP
1,719,833

 
1,594,585

 
1,590,679

Adjustments (1)  
33,850

 
29,010

 
17,403

Total corporate investments – Oaktree and operating subsidiaries
1,753,683

 
1,623,595

 
1,608,082

Eliminations
(698,332
)
 
(611,749
)
 
(553,095
)
Total corporate investments – Consolidated
$
1,055,351

 
$
1,011,846

 
$
1,054,987

 
 
 
 
 
(1)
This adjusts CLO investments carried at amortized cost to fair value for GAAP reporting.

Liquidity and Capital Resources
We manage our liquidity and capital requirements by focusing on our cash flows before the consolidation of our funds and the effect of normal changes in short-term assets and liabilities. Our primary cash flow activities on an unconsolidated basis involve (a) generating cash flow from operations, (b) generating income from investment activities, including strategic investments in certain third parties, (c) funding capital commitments that we have made to our funds, (d) funding our growth initiatives, (e) distributing cash flow to our Class A and OCGH unitholders, (f) borrowings, interest payments and repayments under credit agreements, our senior notes and other borrowing arrangements, and (g) issuances of, and distributions made on, our preferred units. As of September 30, 2018, Oaktree and its operating subsidiaries had $1.0 billion of cash and U.S. Treasury and other securities, and $746 million in outstanding debt, which included no borrowings outstanding against its $500 million revolving credit facility. Our investments in funds and companies on a non-GAAP basis had a carrying value of $1.7 billion as of September 30, 2018.
Ongoing sources of cash include (a) management fees, which are collected monthly or quarterly, (b) incentive income, which is volatile and largely unpredictable as to amount and timing, and (c) distributions stemming from our corporate investments in funds and companies. As of September 30, 2018, corporate investments of $1.7 billion included unrealized investment income proceeds of $353 million, of which $147 million was in closed-end funds in their liquidation period. We primarily use cash flow from operations and distributions from our corporate investments to pay compensation and related expenses, general and administrative expenses, income taxes, debt service, capital expenditures and distributions. This same cash flow, together with proceeds from equity and debt issuances, is also used to fund corporate investments, fixed assets and other capital items. If cash flow from operations was insufficient to fund distributions, we may suspend paying such distributions.
We use distributable earnings, which is derived from ANI, to assess performance and assist in the determination of equity distributions from the Operating Group. Our quarterly distributable earnings may be affected by potential seasonal factors that may, in turn, affect the level of the cash distributions applicable to a particular quarter. For example, we generally receive tax-related incentive distributions from certain closed-end funds in the first quarter of the year, which if received generate distributable earnings in that period. Additionally, certain evergreen funds pay incentives, if any, in the fourth quarter of the year. As a result, the distribution amount for any given period is likely to vary materially due to these and other factors.
Tax distributions are not required in respect of the Class A units and are only required from the Oaktree Operating Group entities if and to the extent there is sufficient cash available for distribution. Accordingly, if there were insufficient cash flow from operations to fund quarterly or tax distributions by the Oaktree Operating Group

85

entities, we expect that these distributions would not be made. We believe that we have sufficient access to cash from existing balances, our operations and the revolving credit facility described below to fund our operations and commitments.
Distributions on the preferred units are discretionary and non-cumulative. We may redeem, at our option, out of funds legally available, the preferred units, in whole or in part, at any time on or after June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, at a price of $25.00 per preferred unit plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. Holders of the preferred units have no right to require the redemption of such preferred units.
Consolidated Cash Flows
The accompanying condensed consolidated statements of cash flows include our consolidated funds, despite the fact that we typically have only a minority economic interest in those funds. The assets of consolidated funds, on a gross basis, are larger than the assets of our business and, accordingly, have a substantial effect on the cash flows reflected in our condensed consolidated statements of cash flows. The primary cash flow activities of our consolidated funds involve:
•
raising capital from third-party investors;
•
using the capital provided by us and third-party investors to fund investments and operating expenses;
•
financing certain investments with indebtedness;
•
generating cash flows through the realization of investments, as well as the collection of interest and dividend income; and
•
distributing net cash flows to fund investors and to us.
Because our consolidated funds are either treated as investment companies for accounting purposes or represent CLOs whose primary operations are investing activities, their investing cash flow amounts are included in our cash flows from operations. We believe that each of the consolidated funds and Oaktree has sufficient access to cash to fund their respective operations in the near term.
Significant amounts from our condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 are discussed below.
Operating Activities
Operating activities used $138.6 million and $238.3 million of cash in the first nine months of 2018 and 2017, respectively. These amounts principally reflected net income, net of non-cash adjustments, in each respective period and net purchases of securities of the consolidated funds.
Investing Activities
Investing activities used $263.5 million and provided $499.8 million of cash in the first nine months of 2018 and 2017, respectively. Net activity from purchases, maturities and sales of U.S. Treasury and other securities included net purchases of $293.3 million and net proceeds of $433.2 million for the first nine months of 2018 and 2017, respectively. Corporate investments in funds and companies of $212.4 million and $75.3 million for the first nine months of 2018 and 2017, respectively, consisted of the following:
 
Nine Months Ended September 30,


2018
 
2017
 
(in thousands)
Funds
$
469,702

 
$
274,462

Eliminated in consolidation
(257,275
)
 
(199,146
)
Total investments
$
212,427

 
$
75,316



86

Distributions and proceeds from corporate investments in funds and companies of $245.8 million and $164.0 million for the first nine months of 2018 and 2017, respectively, consisted of the following:
 
Nine Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Funds
$
356,702

 
$
218,238

Eliminated in consolidation
(110,901
)
 
(54,287
)
Total proceeds
$
245,801

 
$
163,951


Purchases of fixed assets were $3.5 million and $27.0 million for the first nine months of 2018 and 2017, respectively. Additionally, the first nine months of 2017 included proceeds of $5.0 million from the sale of a corporate aircraft.
Financing Activities
Financing activities provided $309.4 million and used $10.7 million of cash in the first nine months of 2018 and 2017, respectively, and included: (a) net distributions to non-controlling interests in consolidated funds of $129.0 million and net contributions from non-controlling interests in consolidated funds $169.8 million ; (b) distributions to unitholders of $383.4 million and $466.3 million ; (c) net unit purchases of $12.0 million and $11.5 million ; (d) proceeds from CLO debt obligations of $1,170.3 million and $1,218.7 million and repayments of $729.5 million and $1,244.7 million , and (e) payments of debt issuance costs of $4.0 million and $7.8 million . Additionally, the first nine months of 2018 included $400.6 million in net proceeds from the issuance of preferred units and the first nine months of 2017 included $334.7 million in net borrowings on credit facilities of the consolidated funds.
Future Sources and Uses of Liquidity
We expect to continue to make distributions to our preferred unitholders in accordance with their contractual terms and our Class A unitholders pursuant to our distribution policy for our common units as described in our annual report. In the future, we may also issue additional units or debt and other equity securities with the objective of increasing our available capital. In addition, we may, from time to time, repurchase our Class A units or preferred units in open market or privately negotiated purchases or otherwise, redeem our Class A units or preferred units pursuant to the terms of our operating agreement, or repurchase OCGH units. Our board of directors has authorized our executive committee to make decisions in its discretion to repurchase our Class A units, from time to time, on an opportunistic basis.
In addition to our ongoing sources of cash that include management fees, incentive income and distributions related to our corporate investments in funds and companies, we also have access to liquidity through our debt financings, credit agreements and equity financings. We believe that the sources of liquidity described below will be sufficient to fund our working capital requirements for at least the next twelve months.
Debt Financings
In March 2018, Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P., and Oaktree Capital I, L.P. (collectively, the “Borrowers”) entered into the Fourth Amendment to Credit Agreement (the “Fourth Amendment”), which amended the credit agreement dated as of March 31, 2014 (as amended through and including the Third Amendment, the “Credit Agreement”). The Credit Agreement consists of a $150 million fully-funded term loan, and a $500 million revolving credit facility (the “Revolver”). The Fourth Amendment extended the maturity date of the Credit Agreement from March 31, 2021 to March 29, 2023, at which time the entire remaining principal balance of $150 million is due, and provides the Borrowers with the option to extend the new maturity date by one year if the lenders holding at least 50% of the aggregate amount of the term loan and the revolving loan commitment thereunder on the date of the Borrowers’ extension request consent to such extension. The Fourth Amendment also favorably updated the commitment fee in the corporate ratings-based pricing grid. Borrowings under the Credit Agreement generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.10% per annum. The Credit Agreement contains customary financial covenants and restrictions, including (after giving effect to the Fourth Amendment) covenants regarding a maximum leverage ratio of 3.50-to-1.00 and a minimum required level of assets under management (as defined in the credit agreement). The Fourth Amendment increased the maximum

87

leverage ratio to 3.50-to-1.00 and made certain other amendments to the provisions of the Credit Agreement. As of September 30, 2018, we had no outstanding borrowings under our $500 million revolving credit facility.
In December 2017, our indirect subsidiary, Oaktree Capital Management, L.P., issued and sold to certain accredited investors $250 million of 3.78% senior notes due 2032 (the “2032 Notes”). The 2032 Notes are senior unsecured obligations of the issuer, jointly and severally guaranteed by our indirect subsidiaries, Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. The proceeds from the sale of the 2032 Notes and cash on hand were used to redeem the $250 million of 6.75% Senior Notes due 2019 and to pay the related make-whole premium to holders thereof. In connection with the Notes offering, we entered into a cross-currency swap agreement to euros, reducing the interest cost to 1.95% per year. The 2032 Notes provide for certain affirmative and negative covenants, including financial covenants relating to the issuer’s and guarantors’ combined leverage ratio and minimum assets under management. In addition, the 2032 Notes contain customary representations and warranties of the issuer and the guarantors, and customary events of default, in certain cases, subject to cure periods. The issuer may prepay all, or from time to time any part of, the 2032 Notes at any time, subject to the issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the issuer will be required to make an offer to prepay the 2032 Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.
In July 2016, Oaktree Capital Management, L.P., issued and sold to certain accredited investors $100 million of 3.69% senior notes due July 12, 2031 (the “2031 Notes”). The 2031 Notes are senior unsecured obligations of the issuer, jointly and severally guaranteed by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. pursuant to a note and guaranty agreement. The proceeds from the sale of the 2031 Notes were used to simultaneously repay $100 million of borrowings outstanding under our $250 million term loan due March 31, 2021. The 2031 Notes provide for certain affirmative and negative covenants, including financial covenants relating to the issuer’s and guarantors’ combined leverage ratio and minimum assets under management. In addition, the 2031 Notes contain customary representations and warranties of the issuer and the guarantors, and customary events of default, in certain cases, subject to cure periods. The issuer may prepay all, or from time to time any part of, the 2031 Notes at any time, subject to the issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the issuer will be required to make an offer to prepay the 2031 Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.
In September 2014, Oaktree Capital Management, L.P. issued and sold to certain accredited investors $50 million aggregate principal amount of 3.91% Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100 million aggregate principal amount of 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and $100 million aggregate principal amount of 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series C Notes” and together with the Series A Notes and the Series B Notes, the “Senior Notes”) pursuant to a note and guarantee agreement . The Senior Notes are senior unsecured obligations of the issuer, guaranteed on a joint and several basis by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. Interest on the 2014 Notes is payable semi-annually. The Senior Notes provide for certain affirmative and negative covenants, including financial covenants relating to the issuer’s and guarantors’ combined leverage ratio and minimum assets under management. In addition, the Senior Notes contain customary representations and warranties of the issuer and the guarantors, and customary events of default, in certain cases, subject to cure periods. The issuer may prepay all, or from time to time any part of, the Senior Notes at any time, subject to the issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the issuer will be required to make an offer to prepay the Senior Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.
Preferred Unit Issuances
On May 17, 2018, we issued 7,200,000 of our 6.625% Series A preferred units representing limited liability company interests with a liquidation preference of $25.00 per unit. The issuance resulted in $173.7 million in net proceeds to us. Distributions on the Series A preferred units, when and if declared by the board of directors of Oaktree, will be paid quarterly on March 15, June 15, September 15 and December 15 of each year. The first distribution was paid on September 17, 2018. Distributions on the Series A preferred units are non-cumulative.
On August 9, 2018, we issued 9,400,000 of our 6.550% Series B preferred units representing limited liability company interests with a liquidation preference of $25.00 per unit. The issuance resulted in $226.9 million in net proceeds to us. Distributions on the Series B preferred units, when and if declared by the board of directors of

88

Oaktree, will be paid quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on December 17, 2018. Distributions on the Series B preferred units are non-cumulative.
Unless distributions have been declared and paid or declared and set apart for payment on the preferred units for a quarterly distribution period, during the remainder of that distribution period we may not repurchase any common units or any other units that are junior in rank, as to the payment of distributions, to the preferred units and we may not declare or pay or set apart payment for distributions on any common units or junior units for the remainder of that distribution period, other than certain Permitted Distributions (as defined in the unit designation related to the applicable preferred units (each, the “Preferred Unit Designation”)). These restrictions are not applicable during the initial distribution period, which is the period from the original issue date to, but excluding, September 15, 2018 and December 15, 2018 in regards to the Series A and Series B preferred units, respectively.
We may redeem, at our option, out of funds legally available, the preferred units, in whole or in part, at any time on or after June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, at a price of $25.00 per preferred unit plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. Holders of the preferred units have no right to require the redemption of the preferred units.
If a Change of Control Event (as defined in the applicable Preferred Unit Designation) occurs prior to June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, we may, at our option, out of funds legally available, redeem the applicable preferred units, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Change of Control Event, at a price of $25.25 per preferred unit, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.
If a Tax Redemption Event or Rating Agency Event (each, as defined in the applicable Preferred Unit Designation) occurs prior to June 15, 2023 in respect of the Series A preferred units or September 15, 2023 in respect of the Series B preferred units, we may, at our option, out of funds legally available, redeem the applicable preferred units, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Tax Redemption Event or Rating Agency Event, at a price of $25.50 per preferred unit, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.
The preferred units are not convertible into Class A units or any other class or series of our interests or any other security. Holders of the preferred units do not have any of the voting rights given to holders of our Class A units, except that holders of the preferred units are entitled to certain voting rights under certain conditions.
Class A Unit Issuance
On February 12, 2018, we issued and sold 5,000,000 Class A units in a public offering, resulting in $219.5 million in net proceeds to us. We did not retain any proceeds from the sale of Class A units in this offering. The proceeds were used to acquire interests in our business from certain of our directors, employees and other investors, including certain senior executives and other members of our senior management.
Tax Receivable Agreement
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the Oaktree Operating Group. When an exchange of OCGH units results in an increase to the tax basis of the assets owned by the Oaktree Operating Group, a deferred tax asset and an associated liability for payments to OCGH unitholders under the tax receivable agreement are recorded, subject to realizability considerations. The establishment of a deferred tax asset increases additional paid-in capital because the transactions are between Oaktree and its unitholders.
Assuming no further material changes in the relevant tax law and that Oaktree earns sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, as of September 30, 2018, future payments of this nature were estimated to aggregate $13.3 million over the period ending approximately in 2029 with respect to the 2007 Private Offering , $32.5 million over the period ending approximately in 2034 with respect to the initial public offering, $45.8 million over the period ending approximately in 2035 with respect to the public

89

offering in May 2013, $34.7 million over the period ending approximately in 2036 with respect to the public offering in March 2014, $29.6 million over the period ending approximately in 2037 with respect to the public offering in March 2015, and $34.3 million over the period ending approximately in 2040 with respect to the public offering in February 2018. Future estimated payments to OCGH unitholders under the tax receivable agreement are subject to increase in the event of additional exchanges of OCGH units .
For the nine months ended September 30, 2018, $20.7 million was paid under the tax receivable agreement.
Capital Requirements of Regulated Entities
We are required to maintain minimum net capital balances for regulatory purposes in the U.S. and certain non-U.S. jurisdictions in which we do business, which are met in part by retaining cash and cash-equivalents in those jurisdictions. As a result, we may be restricted in our ability to transfer cash between different jurisdictions. As of September   30, 2018, we were required to maintain approximately $186 million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements as of such date.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, Oaktree and our consolidated funds enter into contractual arrangements that may require future cash payments. The following table sets forth information related to anticipated future cash payments as of September 30, 2018:  
 
Last Three Months of 2018
 
2019-2020
 
2021-2022
 
Thereafter
 
Total
 
(in thousands)
Oaktree and Operating Subsidiaries:
 
 
 
 
 
 
 
 
 
Operating lease obligations  (1)  
$
4,761

 
$
37,126

 
$
32,353

 
$
80,064

 
$
154,304

Debt obligations payable (2)  
—

 
—

 
—

 
750,000

 
750,000

Interest obligations on debt  (3)  
7,050

 
56,398

 
51,511

 
189,425

 
304,384

Tax receivable agreement
—

 
30,225

 
32,697

 
127,279

 
190,201

Contingent consideration (4)
8,246

 
—

 
—

 
—

 
8,246

Commitments to Oaktree and third-party funds  (5)  
454,955

 
—

 
—

 
—

 
454,955

Subtotal
475,012

 
123,749

 
116,561

 
1,146,768

 
1,862,090

Consolidated Funds:
 

 
 

 
 

 
 

 
 

Debt obligations payable (2)  
—

 
—

 
—

 
870,098

 
870,098

Interest obligations on debt  (3)  
8,017

 
64,135

 
64,135

 
181,512

 
317,799

Debt obligations of CLOs (2)  
103,782

 
—

 
—

 
3,517,041

 
3,620,823

Interest on debt obligations of CLOs (3)  
21,743

 
171,661

 
171,661

 
500,918

 
865,983

Commitments to fund investments  (6)  
11,421

 
—

 
—

 
—

 
11,421

Total
$
619,975

 
$
359,545

 
$
352,357

 
$
6,216,337

 
$
7,548,214

 
 
 
 
 
(1)
We lease our office space under agreements that expire periodically through 2030. The table includes only guaranteed minimum lease payments for these leases and does not project other lease-related payments. These leases are classified as operating leases for financial statement purposes and as such are not recorded as liabilities in our consolidated financial statements.
(2)
These obligations represent future principal payments, gross of debt issuance costs, and for CLOs, the par value.
(3)
Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest rates are applied to estimate future interest obligations on variable-rate debt.
(4)
This represents the undiscounted contingent consideration obligation as of September 30, 2018. Due to uncertainty in the timing of payment, if any, the entire amount is presented in the 2018 column. Please see note 17 to our condensed consolidated financial statements for more information.
(5)
These obligations represent commitments by us to provide general partner capital funding to our funds and limited partner capital funding to funds managed by unaffiliated third parties. These amounts are generally due on demand and are therefore presented in the 2018 column. Capital commitments are expected to be called over a period of several years.
(6)
These obligations represent commitments by our funds to make investments or fund uncalled contingent commitments. These amounts are generally due either on demand or by various contractual dates that vary by investment and are therefore presented in the 2018 column. Capital commitments are expected to be called over a period of several years.

90

In some of our service contracts or management agreements, we have agreed to indemnify third-party service providers or separate account clients under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has neither been included in the above table nor recorded in our condensed consolidated financial statements as of September 30, 2018.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements. Please see note 17 to our condensed consolidated financial statements included elsewhere in this quarterly report for information on our commitments and contingencies.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. For a summary of our significant accounting policies, please see the notes to our condensed consolidated financial statements included elsewhere in this quarterly report and the notes to our consolidated financial statements in our annual report. For a summary of our critical accounting policies, please see “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Critical Accounting Policies” in our annual report.
The table below summarizes the fair value of the investments and other financial instruments held by our consolidated funds by fund structure and fair-value hierarchy levels and the debt obligations of our CLOs for each period presented in our condensed consolidated statements of financial condition (in thousands):

As of September 30, 2018  
Level I
 
Level II
 
Level III
 
Total
 
 
 
 
 
 
 
 
Closed-end funds
$
4,399

 
$
5,094,857

 
$
164,867

 
$
5,264,123

Open-end funds
2,297

 
482,192

 
145,843

 
630,332

Evergreen funds
56,412

 
31,461

 
—

 
87,873

Total
$
63,108

 
$
5,608,510

 
$
310,710

 
$
5,982,328

 
 
 
 
 
 
 
 
CLO debt obligations
$
—

 
$
(3,648,217
)
 
$
—

 
$
(3,648,217
)
As of December 31, 2017
 
 
 
 
 
 
 
Closed-end funds
$
4,430

 
$
4,598,334

 
$
117,527

 
$
4,720,291

Open-end funds
3,813

 
548,361

 
48,788

 
600,962

Evergreen funds
131,598

 
(87
)
 
121,087

 
252,598

Total
$
139,841

 
$
5,146,608

 
$
287,402

 
$
5,573,851

 
 
 
 
 
 
 
 
CLO debt obligations
$
—

 
$
(3,219,592
)
 
$
—

 
$
(3,219,592
)

Recent Accounting Developments
Please see note 2 to our condensed consolidated financial statements included elsewhere in this quarterly report for information regarding recent accounting developments.

91

Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to a broad range of risks inherent in the financial markets in which we participate, including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk, counterparty risk and foreign exchange-rate risk. Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit or financial market dislocations.
Our predominant exposure to market risk is related to our role as general partner or investment adviser to our funds and as an investor in our CLOs, and the sensitivities to movements in the fair value of their investments on management fees, incentive income and investment income, as applicable. The fair value of the financial assets and liabilities of our funds and CLOs may fluctuate in response to changes in, among many factors, the fair value of securities, foreign-exchange rates, commodities prices and interest rates.
Price Risk
Impact on Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
As of September 30, 2018, we had investments, at fair value of $6.0 billion related to our consolidated funds, primarily consisting of investments held by our CLOs. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation (depreciation) on the consolidated funds’ investments of $600.1 million. Of this decline, approximately $113.3 million would impact net income attributable to OCG Class A unitholders, with the remainder attributable to non-controlling interests and third-party debt holders in our CLOs. The magnitude of the impact on net income attributable to OCG Class A unitholders is largely affected by the percentage of our equity ownership interest and levered nature of our CLO investments.
Impact on Management Fees (before consolidation of funds)
Management fees are generally assessed in the case of (a) our open-end and evergreen funds, based on NAV, and (b) our closed-end funds, based on committed capital, drawn capital or cost basis during the investment period and, during the liquidation period, based on the lesser of (i) the total funded committed capital or (ii) the cost basis of assets remaining in the fund. Management fees are affected by changes in market values to the extent they are based on NAV. For the nine months ended September 30, 2018 and 2017, NAV-based management fees represented approximately 37% and 33%, respectively, of total management fees. Based on investments held as of September 30, 2018, we estimate that a 10% decline in market values of the investments held in our funds would result in an approximate $7.1 million decrease in the amount of quarterly management fees. These estimated effects are without regard to a number of factors that would be expected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilities in certain of our funds or the timing of fund flows.
Impact on Incentive Income (before consolidation of funds)
Incentive income is recognized only when it is probable that a significant reversal will not occur, which in the case of (a) our closed-end funds, generally occurs only after all contributed capital and an annual preferred return on that capital (typically 8%) have been distributed to the fund’s investors and (b) our active evergreen funds, generally occurs as of December 31, based on the increase in the fund’s NAV during the year, subject to any high-water marks or hurdle rates. In the case of closed-end funds, the link between short-term fluctuations in market values and a particular period’s incentive income may in part be indirect. Thus the effect on incentive income of a 10% decline in market values is not readily quantifiable. A decline in market values would be expected to cause a decline in incentive income.
Impact on Investment Income (before consolidation of funds)
Investment income or loss arises from our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds or companies. This income is directly affected by changes in market risk factors. Based on investments held as of September 30, 2018, a 10% decline in fair values of the investments held in our funds and other holdings would result in a $358.9 million decrease in the amount of investment income. The estimated decline of $358.9 million is greater than 10% of the September 30, 2018 corporate investments balance primarily due to the levered nature of our CLO investments. These estimated effects are without regard to a number of factors that would be expected to

92

increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilities in certain of our funds, the timing of fund flows or the timing of new investments or realizations.
Exchange-rate Risk
Our business is affected by movements in the exchange rate between the U.S. dollar and non-U.S. dollar currencies in the case of (a) management fees that vary based on the NAV of our funds that hold investments denominated in non-U.S. dollar currencies, (b) management fees received in non-U.S. dollar currencies, (c) operating expenses for our foreign offices that are denominated in non-U.S. dollar currencies, and (d) cash and other balances we hold in non-U.S. dollar currencies. We manage our exposure to exchange-rate risks through our regular operating activities and, when appropriate, through the use of derivative instruments.
We estimate that for the nine months ended September 30, 2018, without considering the impact of derivative instruments, a 10% decline in the average exchange rate of the U.S. dollar would have resulted in the following approximate effects on our operating results:
•
our management fees (relating to (a) and (b) above) would have increased by $8.4 million;
•
our operating expenses would have increased by $10.4 million;  
•
OCGH interest in net income of consolidated subsidiaries would have decreased by $1.1 million; and
•
our income tax expense would have decreased by $0.2 million.
These movements would have decreased our net income attributable to OCG Class A unitholders by $0.7 million.
At any point in time, some of the investments held by our closed-end and evergreen funds may be denominated in non-U.S. dollar currencies on an unhedged basis. Changes in currency rates could affect incentive income, incentives created (fund level) and investment income with respect to such closed-end and evergreen funds; however, the degree of impact is not readily determinable because of the many indirect effects that currency movements may have on individual investments.
Credit Risk
We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.
Interest-rate Risk
As of September 30, 2018, Oaktree and its operating subsidiaries had $745.8 million in debt obligations, consisting of three senior notes issuances and a funded term loan. Each senior notes issuance accrues interest at a fixed rate. The funded term loan accrues interest at a variable rate. As of September 30, 2018, interest expense attributable to Oaktree and its operating subsidiaries would increase by $1.5 million on an annualized basis as a result of a 100-basis point increase in interest rates. Of the $1.0 billion of aggregate cash and U.S. Treasury and other securities as of September 30, 2018, we estimate that Oaktree and its operating subsidiaries would generate an additional $10.1 million in interest income on an annualized basis as a result of a 100-basis point increase in interest rates.
Our consolidated funds have debt obligations, most of which accrue interest at variable rates. Changes in these rates would affect the amount of interest payments that our funds would have to make, impacting future earnings and cash flows. As of September 30, 2018, the consolidated funds had $4.5 billion of principal or par value, as applicable, outstanding under these debt obligations. We estimate that interest expense relating to variable-rate debt would increase on an annualized basis by $41.0 million in the event interest rates were to increase by 100 basis points.
As credit-oriented investors, we are also subject to interest-rate risk through the securities we hold in our consolidated funds. A 100-basis point increase in interest rates would be expected to negatively affect prices of

93

securities that accrue interest income at fixed rates and therefore negatively impact the net change in unrealized appreciation (depreciation) on consolidated funds’ investments. The actual impact is dependent on the average duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefit from a 100-basis point increase in interest rates because these securities would generate higher levels of current income and therefore positively impact interest and dividend income. In cases where our funds pay management fees based on NAV, we would expect our management fees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during our most recent quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


94

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of legal proceedings, please see the section entitled “Legal Actions” in note 17 to our condensed consolidated financial statements included elsewhere in this quarterly report, which section is incorporated herein by reference. Also, please see “Item 1A. Risk Factors—Risks Related to Our Business—Extensive regulation in the United States and abroad affects our activities and creates the potential for significant liabilities and penalties that could adversely affect our business and results of operations” in our annual report.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, please see the information under “Risk Factors” in our annual report. There have been no material changes to the risk factors as disclosed in our annual report.
The risks described in our annual report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Under our operating agreement, we are required to issue one Class B unit for each OCGH unit issued.  Accordingly, we issued 67,765 Class B units to OCGH on August 3, 2018, which corresponded to the number of OCGH units issued by OCGH pursuant to our 2011 Equity Incentive Plan, subject to time-based vesting.
No purchase price was paid by OCGH to the Company for the issuances of the Class B units to OCGH.  These issuances, to the extent they constitute sales, were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving any public offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Fund Data
Information regarding our closed-end, open-end and evergreen funds, together with benchmark data where applicable, is set forth below. For our closed-end and evergreen funds, no benchmarks are presented in the tables as there are no known comparable benchmarks for these funds’ investment philosophy, strategy and implementation.


95

Closed-end Funds
 
 
 
 
 
As of September 30, 2018
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Incentive Income Recog-
nized (Non-GAAP)
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
Credit
(in millions)
Distressed Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Opportunities Fund Xb (7)(13)  
TBD
 
—
 
$
8,872

 
9
%
 
5
%
 
$
—

 
$
—

 
$
443

 
$
438

 
$
—

 
$
—

 
$
456

 
nm
 
nm
 
1.0x
Oaktree Opportunities Fund X (7)  
Jan. 2016
 
Jan. 2019
 
3,603

 
86

 
72

 
1,081

 
152

 
3,518

 
3,486

 
—

 
210

 
2,777

 
33.3
%
 
21.1
%
 
1.5
Oaktree Opportunities Fund IX
Jan. 2014
 
Jan. 2017
 
5,066

 
nm

 
100

 
698

 
1,672

 
4,092

 
3,554

 
—

 
—

 
5,292

 
5.7

 
3.2

 
1.2
Oaktree Opportunities Fund VIIIb
Aug. 2011
 
Aug. 2014
 
2,692

 
nm

 
100

 
938

 
2,100

 
1,530

 
1,469

 
52

 
—

 
1,860

 
9.0

 
6.2

 
1.5
Special Account B
Nov. 2009
 
Nov. 2012
 
1,031

 
nm

 
100

 
629

 
1,568

 
171

 
165

 
16

 
3

 
53

 
13.8

 
11.4

 
1.7
Oaktree Opportunities Fund VIII
Oct. 2009
 
Oct. 2012
 
4,507

 
nm

 
100

 
2,613

 
6,444

 
677

 
635

 
209

 
300

 
—

 
13.1

 
9.2

 
1.7
Special Account A
Nov. 2008
 
Oct. 2012
 
253

 
nm

 
100

 
317

 
554

 
16

 
23

 
60

 
3

 
—

 
28.1

 
22.8

 
2.3
OCM Opportunities Fund VIIb
May 2008
 
May 2011
 
10,940

 
nm

 
90

 
9,053

 
18,257

 
640

 
640

 
1,634

 
125

 
—

 
21.9

 
16.6

 
2.0
OCM Opportunities Fund VII
Mar. 2007
 
Mar. 2010
 
3,598

 
nm

 
100

 
1,487

 
4,843

 
242

 
—

 
87

 
—

 
419

 
10.2

 
7.5

 
1.5
Legacy funds (8)
Various
 
Various
 
12,495

 
nm

 
100

 
10,456

 
22,931

 
21

 
—

 
1,558

 
5

 
—

 
23.6

 
18.5

 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
22.0
%
 
16.1
%
 
 
Private/Alternative Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree European Capital Solutions Fund (7)(9)(10)
Dec. 2015
 
Dec. 2018
 
€
703

 
80
%
 
64
%
 
€
47

 
€
214

 
€
269

 
€
321

 
€
—

 
€
6

 
€
250

 
13.0
%
 
8.4
%
 
1.1x
Oaktree European Dislocation Fund (10)  
Oct. 2013
 
Oct. 2016
 
€
294

 
nm

 
57

 
€
39

 
€
203

 
€
18

 
€
17

 
€
3

 
€
3

 
€
—

 
19.5

 
13.8

 
1.3
Special Account E (10)  
Oct. 2013
 
Apr. 2015
 
€
379

 
nm

 
69

 
€
64

 
€
321

 
€
4

 
€
3

 
€
9

 
€
1

 
€
—

 
14.3

 
11.0

 
1.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14.9
%
 
10.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Mezzanine Fund IV  (9)  
Oct. 2014
 
Oct. 2019
 
$
852

 
81
%
 
78
%
 
$
110

 
$
232

 
$
540

 
$
514

 
$
—

 
$
14

 
$
523

 
11.4
%
 
8.3
%
 
1.2x
Oaktree Mezzanine Fund III (11)
Dec. 2009
 
Dec. 2014
 
1,592

 
nm

 
89

 
465

 
1,796

 
92

 
104

 
17

 
30

 
22

 
15.3

10.4 / 9.1
1.4
OCM Mezzanine Fund II
Jun. 2005
 
Jun. 2010
 
1,251

 
nm

 
88

 
493

 
1,691

 
54

 
—

 
—

 
—

 
131

 
10.9

 
7.4

 
1.6
OCM Mezzanine Fund (12)
Oct. 2001
 
Oct. 2006
 
808

 
nm

 
96

 
302

 
1,075

 
—

 
—

 
38

 
—

 
—

 
15.4

 
10.8 / 10.5
1.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.0
%
 
8.7
%
 
 
Emerging Markets Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Emerging Markets Opportunities Fund II (13)
TBD
 
—
 
$
178

 
8
%
 
8
%
 
$
—

 
$
—

 
$
13

 
$
25

 
$
—

 
$
—

 
$
12

 
nm

 
nm

 
1.0x
Oaktree Emerging Market Opportunities Fund
Sep. 2013
 
Sep. 2017
 
384

 
nm

 
78

 
117

 
324

 
92

 
78

 
8

 
13

 
51

 
15.7
%
 
10.6
%
 
1.5
Special Account F
Jan. 2014
 
Sep. 2017
 
253

 
nm

 
96

 
76

 
263

 
55

 
54

 
6

 
9

 
28

 
15.3

 
10.8

 
1.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.5
%
 
10.7
%
 
 
Private Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Private Equity
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
Oaktree European Principal Fund IV (7)(10)(13)
Jul. 2017
 
Jul. 2022
 
€
1,119

 
77
%
 
63
%
 
€
135

 
€
9

 
€
835

 
€
1,093

 
€
—

 
€
26

 
€
751

 
nm
 
nm
 
1.1x
Oaktree European Principal Fund III (10)   
Nov. 2011
 
Nov. 2016
 
€
3,164

 
nm

 
85

 
€
2,567

 
€
2,140

 
€
3,176

 
€
2,455

 
€
—

 
€
499

 
€
1,696

 
19.1
%
 
13.3
%
 
2.1
OCM European Principal Opportunities Fund II (10)
Dec. 2007
 
Dec. 2012
 
€
1,759

 
nm

 
100

 
€
225

 
€
1,865

 
€
90

 
€
348

 
€
29

 
€
—

 
€
757

 
6.9

 
2.5

 
1.3
OCM European Principal Opportunities Fund
Mar. 2006
 
Mar. 2009
 
$
495

 
nm

 
96

 
$
454

 
$
927

 
$
—

 
$
—

 
$
87

 
$
—

 
$
—

 
11.7

 
8.9

 
2.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
13.6
%
 
9.0
%
 
 


96

 
 
 
 
 
As of September 30, 2018
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Incentive Income Recog-
nized (Non-GAAP)
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since
Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Power Opportunities Fund IV
Nov. 2015
 
Nov. 2020
 
$
1,106

 
89
%
 
88
%
 
$
115

 
$
1

 
$
1,086

 
$
1,078

 
$
—

 
$
—

 
$
1,088

 
12.2
%
 
7.8
%
 
1.2x
Oaktree Power Opportunities Fund III
Apr. 2010
 
Apr. 2015
 
1,062

 
nm

 
69

 
641

 
970

 
408

 
319

 
26

 
97

 
—

 
23.7

 
16.0

 
2.0
Legacy funds (8)
Various
 
Various
 
1,470

 
nm

 
63

 
1,689

 
2,616

 
—

 
—

 
123

 
—

 
—

 
35.1

 
27.4

 
2.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
34.5
%
 
26.2
%
 
 
Special Situations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Special Situations Fund II (7)
TBD
 
—
 
$
1,217

 
1
%
 
1
%
 
$
(1
)
 
$
—

 
$
15

 
$
57

 
$
—

 
$
—

 
$
16

 
n/a

 
n/a

 
n/a
Oaktree Special Situations Fund (7)  
Nov. 2015
 
Nov. 2018
 
1,377

 
100

 
73

 
208

 
163

 
1,049

 
1,125

 
—

 
38

 
933

 
28.5
%
 
15.8
%
 
1.3x
Other funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Principal Fund V
Feb. 2009
 
Feb. 2015
 
$
2,827

 
nm

 
91
%
 
$
556

 
$
1,760

 
$
1,382

 
$
1,381

 
$
50

 
$
—

 
$
2,137

 
7.7
%
 
3.7
%
 
1.4x
Special Account C
Dec. 2008
 
Feb. 2014
 
505

 
nm

 
91

 
196

 
423

 
233

 
242

 
21

 
—

 
273

 
10.1

 
6.9

 
1.5
OCM Principal Opportunities Fund IV
Oct. 2006
 
Oct. 2011
 
3,328

 
nm

 
100

 
2,947

 
6,166

 
110

 
—

 
554

 
20

 
—

 
12.3

 
8.9

 
2.0
Legacy funds (8)
Various
 
Various
 
3,701

 
nm

 
100

 
2,713

 
6,404

 
10

 
—

 
407

 
2

 
—

 
14.4

 
11.1

 
1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.0
%
 
9.3
%
 
 
Real Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Real Estate Opportunities Fund VII (13)(14)  
Jan. 2016
 
Jan. 2020
 
$
2,921

 
82
%
 
37
%
 
$
384

 
$
244

 
$
1,229

 
$
2,747

 
$
—

 
$
74

 
$
897

 
nm
 
nm
 
1.5x
Oaktree Real Estate Opportunities Fund VI
Aug. 2012
 
Aug. 2016
 
2,677

 
nm

 
100

 
1,422

 
2,458

 
1,641

 
1,290

 
70

 
205

 
1,146

 
15.3
%
 
10.3
%
 
1.6
Oaktree Real Estate Opportunities Fund V
Mar. 2011
 
Mar. 2015
 
1,283

 
nm

 
100

 
987

 
2,081

 
189

 
113

 
152

 
36

 
—

 
17.2

 
12.7

 
1.9
Special Account D
Nov. 2009
 
Nov. 2012
 
256

 
nm

 
100

 
207

 
429

 
42

 
—

 
16

 
4

 
—

 
14.8

 
12.8

 
1.8
Oaktree Real Estate Opportunities Fund IV
Dec. 2007
 
Dec. 2011
 
450

 
nm

 
100

 
392

 
779

 
63

 
51

 
61

 
13

 
—

 
15.8

 
10.7

 
2.0
Legacy funds (8)
Various
 
Various
 
2,341

 
nm

 
99

 
2,010

 
4,324

 
2

 
—

 
232

 
—

 
—

 
15.2

 
11.9

 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.6
%
 
11.9
%
 
 
 
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 

 
 
Oaktree Real Estate Debt Fund II (9)(13)  
Mar. 2017
 
Mar. 2020
 
$
2,087

 
47
%
 
14
%
 
$
31

 
$
32

 
$
288

 
$
894

 
$
—

 
$
5

 
$
267

 
nm
 
nm
 
1.2x
Oaktree Real Estate Debt Fund
Sep. 2013
 
Oct. 2016
 
1,112

 
nm

 
81

 
183

 
653

 
454

 
492

 
10

 
16

 
325

 
20.7
%
 
15.4
%
 
1.3
Oaktree PPIP Fund (15)
Dec. 2009
 
Dec. 2012
 
2,322

 
nm

 
48

 
457

 
1,570

 
—

 
—

 
47

 
—

 
—

 
28.2

 
n/a
 
1.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Account G (Real Estate Income) (9)(13)  
Oct. 2016
 
Oct. 2020
 
$
615

 
87
%
 
87
%
 
$
82

 
$
70

 
$
544

 
$
499

 
$
—

 
$
16

 
$
511

 
nm
 
nm
 
1.2x
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Infrastructure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Transportation Infrastructure Fund
TBD
 
—
 
$
1,091

 
—
%
 
—
%
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
n/a

 
n/a

 
n/a
Highstar Capital IV (16)
Nov. 2010
 
Nov. 2016
 
2,000

 
nm

 
100

 
77

 
904

 
1,173

 
1,328

 
—

 
—

 
1,830

 
5.6
%
 
1.5
%
 
1.2x
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
27,722

(10)  
 
1,859

(10)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (17)
 
 
8,520

 
 
 
5

 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Total (18)
 
 
$
36,242

 
 
 
$
1,864

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings, if any, outstanding, under a fund-level credit facility where such borrowings were made in lieu of drawing capital from fund investors.
(2)
Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended September 30, 2018 was $0.9 billion.
(3)
Accrued incentives (fund level) exclude non-GAAP incentive income previously recognized.
(4)
Unreturned drawn capital plus accrued preferred return reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.
(5)
The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or the discount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions/distributions to investors and the residual value of such investor’s capital accounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund’s general partner. To the extent

97

material, gross returns include certain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds’ activities (we credit all such fee income back to the respective fund(s) so that our funds’ investors share pro rata in the fee income’s economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.
(6)
Multiple of drawn capital is calculated as drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by drawn capital.
(7)
Fund data include the performance of the main fund and any associated fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.
(8)
Legacy funds represent certain predecessor funds within the relevant strategy or product that have substantially or completely liquidated their assets, including funds managed by certain Oaktree investment professionals while employed at the Trust Company of the West prior to Oaktree’s founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of the West and Oaktree.
(9)
Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of September 30, 2018 management fee-generating AUM included only that portion of committed capital that had been drawn.
(10)
Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the September 30, 2018 spot rate of $1.16.
(11)
The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.4% and Class B interests was 9.1%. The combined net IRR for Class A and Class B interests was 9.8%.
(12)
The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.8% and Class B interests was 10.5%. The combined net IRR for the Class A and Class B interests was 10.6%.
(13)
The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through September 30, 2018 was less than 36 months.
(14)
A portion of this fund pays management fees based on drawn, rather than committed, capital.
(15)
Due to differences in the allocation of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, a combined net IRR is not presented. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively.
(16)
The fund follows the American-style distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of September 30, 2018, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.
(17)
This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.
(18)
The total excludes one closed-end fund with management fee-generating AUM of $109 million as of September 30, 2018, which has been included as part of the Strategic Credit strategy within the evergreen funds table.


98

Open-end Funds
 
 
 
Manage-
ment Fee-gener-
ating AUM
as of
Sept. 30, 2018
 
Twelve Months Ended
September 30, 2018
 
Since Inception through September 30, 2018
 
Strategy Inception
 
 
Rates of Return (1)
 
Annualized Rates of Return (1)
 
Sharpe Ratio
 
Oaktree
 
Rele-
vant Bench-
mark
 
Oaktree
 
Rele-
vant Bench-
mark
 
Oaktree Gross
 
Rele-
vant Bench-
mark
 
Gross
 
Net
 
 
Gross
 
Net
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Yield Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. High Yield Bonds
1986
 
$
14,722

 
2.0
%
 
1.5
 %
 
3.2
 %
 
9.1
%
 
8.6
%
 
8.2
%
 
0.80
 
0.57
Global High Yield Bonds
2010
 
3,617

 
2.5

 
2.0

 
3.0

 
7.0

 
6.4

 
6.7

 
1.12
 
1.10
European High Yield Bonds
1999
 
463

 
3.7

 
3.2

 
2.4

 
7.9

 
7.4

 
6.3

 
0.72
 
0.46
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertibles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Convertibles
1987
 
2,080

 
10.1

 
9.5

 
12.2

 
9.4

 
8.9

 
8.4

 
0.51
 
0.40
Non-U.S. Convertibles
1994
 
1,344

 
2.6

 
2.1

 
0.3

 
8.1

 
7.6

 
5.4

 
0.78
 
0.40
High Income Convertibles
1989
 
1,058

 
5.0

 
4.4

 
3.3

 
11.1

 
10.3

 
8.1

 
1.06
 
0.61
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Senior Loans
2008
 
688

 
5.8

 
5.2

 
5.6

 
6.0

 
5.5

 
5.3

 
1.14
 
0.68
European Senior Loans
2009
 
1,455

 
2.2

 
1.7

 
2.8

 
7.4

 
6.8

 
8.0

 
1.65
 
1.67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-Strategy Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-Strategy Credit (2)  
Various
 
2,677

 
nm
 
nm
 
nm
 
nm
 
nm
 
nm
 
nm
 
nm
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Listed Equities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Markets Equities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Markets Equities
2011
 
4,016

 
0.6

 
(0.2
)
 
(0.8
)
 
2.3

 
1.4

 
1.2

 
0.10
 
0.05
Total
 
$
32,120

 
 
 
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
(1)
Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns for Relevant Benchmarks are presented on a gross basis.
(2)
Includes Global Credit Fund and individual accounts across various strategies with different investment mandates. As such, a combined performance measure is not considered meaningful (“nm”).


99

Evergreen Funds
 
 
 
As of September 30, 2018
 
Twelve Months Ended September 30, 2018
 
Since Inception through
September 30, 2018
 
 
 
AUM
 
Manage-
ment
Fee-gener-
ating AUM
 
Accrued Incen-
tives (Fund Level)
 
 
 
Strategy Inception
 
 
 
 
Rates of Return (1)
 
Annualized Rates
of Return (1)
 
 
 
Gross
 
Net
 
Gross
 
Net
 
 
 
(in millions)
 
 
 
 
 
 
 
 
Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private/Alternative Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic Credit (2) .
2012
 
$
5,390

 
$
4,950

 
$
14

 
12.3
%
 
9.6
%
 
9.8
%
 
7.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distressed Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value Opportunities
2007
 
1,124

 
1,042

 
20

 
19.7

 
14.6

 
10.2

 
6.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Markets Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Markets Debt (3)  
2015
 
902

 
430

 
4

 
6.8

 
4.9

 
13.9

 
10.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Listed Equities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value/Other Equities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value Equities (4)  
2012
 
544

 
519

 
6

 
24.7

 
18.0

 
21.0

 
15.2

 
 
 
 
 
6,941

 
44

 
 
 
 
 
 
 
 
Other (5)
 
 
734

 
11

 
 
 
 
 
 
 
 
Restructured funds
 
 
—

 
5

 
 
 
 
 
 
 
 
Total (2)
 
 
$
7,675

 
$
60

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Returns represent time-weighted rates of return.
(2)
Includes our publicly-traded BDCs and one closed-end fund with $108 million and $109 million of AUM and management fee-generating AUM, respectively. The rates of return reflect the performance of a composite of certain evergreen accounts and exclude our publicly-traded BDCs.
(3)
Includes the Emerging Markets Debt Total Return and Emerging Markets Opportunities strategies. The rates of return reflect the performance of a composite of accounts for the Emerging Markets Debt Total Return strategy, including a single account with a December 2014 inception date.
(4)
Includes performance of a proprietary fund with an initial capital commitment of $25 million since its inception in May 2012.
(5)
Includes certain Real Estate and Multi-Strategy Credit accounts.


100

Item 6. Exhibits
For a list of exhibits filed with this report, refer to the Exhibits Index on the page immediately preceding the exhibits, which Exhibit Index is incorporated herein by reference.

101

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 2, 2018  
 
Oaktree Capital Group, LLC
 
By:
/s/    Daniel D. Levin
 
Name:
Daniel D. Levin
 
 
 
 
Title:
Chief Financial Officer and Authorized Signatory


102

EXHIBITS INDEX
Exhibit No.
Description of Exhibit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.



103
EXHIBIT 3.2


FOURTH AMENDED AND RESTATED OPERATING AGREEMENT
OF
OAKTREE CAPITAL GROUP, LLC

Dated as of May 17, 2018

        
        

TABLE OF CONTENTS
 
 
ARTICLE I
Page

 
 
DEFINITIONS
 
 
 
 
 
Section 1.1
 
Definitions
2

Section 1.2
 
Construction
11

 
 
 
 
 
 
ARTICLE II
 
 
 
ORGANIZATION
 
 
 
 
 
Section 2.1
 
Formation
11

Section 2.2
 
Name
11

Section 2.3
 
Registered Office; Registered Agent; Principal Office; Other Offices
12

Section 2.4
 
Purposes
12

Section 2.5
 
Powers
12

Section 2.6
 
Power of Attorney
12

Section 2.7
 
Term
14

Section 2.8
 
Title to Company Assets
14

 
 
 
 
 
 
ARTICLE III
 
 
 
MEMBERS; CERTIFICATES; RECORD HOLDERS; TRANSFERS OF UNITS
 
 
 
 
 
Section 3.1
 
Members
15

Section 3.2
 
Rights of a Member
16

Section 3.3
 
Certificates
17

Section 3.4
 
Record Holders
18

Section 3.5
 
Registration and Transfer of Units
18

Section 3.6
 
Restrictions on Transfer
20

Section 3.7
 
[Reserved]
21

Section 3.8
 
[Reserved]
21

Section 3.9
 
Citizenship Requirements
21

Section 3.10
 
[Reserved]
22

Section 3.11
 
[Reserved]
22

Section 3.12
 
Splits and Combinations
22

Section 3.13
 
Redemption of Units
22

 
 
 
 
 
 
ARTICLE IV
 
 
 
DESIGNATION OF UNITS; CAPITAL CONTRIBUTIONS
 
 
 
 
 
Section 4.1
 
Designation of Class A Units and Class B Units
24

Section 4.2
 
Treatment under the Uniform Commercial Code
24


i    
        
        

Section 4.3
 
[Reserved]
24

Section 4.4
 
Issuance and Cancellation of Class B Units
24

Section 4.5
 
[Reserved]
24

Section 4.6
 
Issuances of Additional Units
25

Section 4.7
 
Preemptive Rights
26

Section 4.8
 
Fully Paid and Non-Assessable Nature of Units
26

Section 4.9
 
Purchases of Units
26

 
 
 
 
 
 
ARTICLE V
 
 
 
ALLOCATIONS AND DISTRIBUTIONS
 
 
 
 
 
Section 5.1
 
Capital Accounts
26

Section 5.2
 
Allocations
27

Section 5.3
 
Distributions to Record Holders
28

 
 
 
 
 
 
ARTICLE VI
 
 
 
MANAGEMENT AND OPERATION OF BUSINESS
 
 
 
 
 
Section 6.1
 
Power and Authority of Board of Directors
29

Section 6.2
 
Number, Qualification and Term of Office of Directors
32

Section 6.3
 
Election of Directors
32

Section 6.4
 
Removal
32

Section 6.5
 
Resignations
33

Section 6.6
 
Vacancies
33

Section 6.7
 
Chairman of Meetings
33

Section 6.8
 
Place of Meetings
33

Section 6.9
 
Meetings; Notice
33

Section 6.10
 
Action Without Meeting
34

Section 6.11
 
Conference Telephone Meetings
34

Section 6.12
 
Quorum
34

Section 6.13
 
Committees
34

Section 6.14
 
Alternate Members of Committees
35

Section 6.15
 
Remuneration
35

Section 6.16
 
Exculpation, Indemnification, Advances and Insurance
35

Section 6.17
 
Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties
40

Section 6.18
 
Certificate of Formation
43

Section 6.19
 
Officers
43

Section 6.20
 
Duties of Officers and Directors
44

Section 6.21
 
Reliance by Third Parties
44

Section 6.22
 
Manager
45

 
 
 
 
 
 
 
 
 
 
 
 

ii    
        
        

 
 
ARTICLE VII
 
 
 
BOOKS, RECORDS, ACCOUNTING AND REPORTS
 
 
 
 
 
Section 7.1
 
Records and Accounting
46

Section 7.2
 
Fiscal Year
46

Section 7.3
 
Reports
46

 
 
 
 
 
 
ARTICLE VIII
 
 
 
TAX MATTERS
 
 
 
 
 
Section 8.1
 
Tax Returns and Information
47

Section 8.2
 
Tax Elections
47

Section 8.3
 
Tax Controversies
47

Section 8.4
 
Withholding
48

Section 8.5
 
Election to be Treated as a Corporation
48

 
 
 
 
 
 
ARTICLE IX
 
 
 
DISSOLUTION AND LIQUIDATION
 
 
 
 
 
Section 9.1
 
Dissolution
48

Section 9.2
 
Liquidator
49

Section 9.3
 
Liquidation
49

Section 9.4
 
Cancellation of Certificate of Formation
50

Section 9.5
 
Return of Contributions
50

Section 9.6
 
Waiver of Partition
50

Section 9.7
 
Capital Account Restoration
50

 
 
 
 
 
 
ARTICLE X
 
 
 
AMENDMENT OF AGREEMENT
 
 
 
 
 
Section 10.1
 
General
51

Section 10.2
 
Specified Amendments
51

Section 10.3
 
Amendments to be Adopted Solely by the Board of Directors
52

Section 10.4
 
Amendments to the Terms of Preferred Units
54

 
 
 
 
 
 
ARTICLE XI
 
 
 
MERGER, CONSOLIDATION OR CONVERSION
 
 
 
 
 
Section 11.1
 
Authority
54

Section 11.2
 
Procedure for Merger, Consolidation, Conversion or Other Business Combination
54

Section 11.3
 
Approval by Members of Merger, Consolidation, Conversion or Other Business Combination
56

Section 11.4
 
Certificate of Merger, Conversion or Consolidation
57


iii    
        
        

Section 11.5
 
Amendment of Operating Agreement
57

Section 11.6
 
Preferred Units
57

 
 
 
 
 
 
ARTICLE XII
 
 
 
MEMBER MEETINGS
 
 
 
 
 
Section 12.1
 
Member Meetings
58

Section 12.2
 
Notice of Meetings of Members
58

Section 12.3
 
Record Date
59

Section 12.4
 
Adjournment
59

Section 12.5
 
Waiver of Notice; Approval of Meeting
60

Section 12.6
 
Quorum; Required Vote for Member Action; Voting for Directors
60

Section 12.7
 
Conduct of a Meeting
60

Section 12.8
 
Action Without a Meeting
61

Section 12.9
 
Voting and Other Rights
62

Section 12.10
 
Proxies and Voting
62

 
 
 
 
 
 
ARTICLE XIII
 
 
 
RIGHT TO ACQUIRE UNITS
 
 
 
 
 
Section 13.1
 
Right to Acquire Units
63

Section 13.2
 
Notice of Election to Purchase
63

 
 
 
 
 
 
ARTICLE XIV
 
 
 
GENERAL PROVISIONS
 
 
 
 
 
Section 14.1
 
Addresses and Notices
64

Section 14.2
 
Further Action
65

Section 14.3
 
Binding Effect
65

Section 14.4
 
Integration
65

Section 14.5
 
Creditors
66

Section 14.6
 
Waiver
66

Section 14.7
 
Counterparts
66

Section 14.8
 
Applicable Law
66

Section 14.9
 
Invalidity of Provisions
66

Section 14.0
 
Consent of Members
66

Section 14.11
 
Facsimile Signatures
66

Section 14.12
 
Effectiveness of Amendment
66

 
 
 
 



iv    
        
        

 
EXHIBITS
EXHIBIT 1 – UNIT DESIGNATION WITH RESPECT TO UNITS ISSUED IN 2015 MANDATORY EXCHANGE
EXHIBIT 2 - UNIT DESIGNATION WITH RESPECT TO THE SERIES A PREFERRED UNITS
EXHIBIT 3 - UNIT DESIGNATION WITH RESPECT TO THE SERIES B PREFERRED UNITS
EXHIBIT A – FORM OF CLASS A UNIT CERTIFICATE
EXHIBIT B – FORM OF CLASS B UNIT CERTIFICATE
EXHIBIT C – FORM OF SERIES A PREFERRED UNIT CERTIFICATE
EXHIBIT D – FORM OF SERIES B PREFERRED UNIT CERTIFICATE




v    
        
1

FOURTH AMENDED AND RESTATED OPERATING AGREEMENT
OF
OAKTREE CAPITAL GROUP, LLC
This FOURTH AMENDED AND RESTATED OPERATING AGREEMENT OF OAKTREE CAPITAL GROUP, LLC, is dated as of May 17, 2018. Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in Section 1.1.
WHEREAS, the Company was formed under the Delaware Act pursuant to a Certificate of Formation filed with the Secretary of State of the State of Delaware on April 13, 2007, and a Limited Liability Company Agreement dated as of April 13, 2007 (the “ Original Agreement ”);
WHEREAS, the Original Agreement was amended and restated in its entirety by an Amended and Restated Operating Agreement (the “ First Amended Agreement ”) dated as of May 25, 2007;
WHEREAS, the First Amended Agreement was amended and restated in its entirety by a Second Amended and Restated Operating Agreement (the “ Second Amended Agreement ”) dated as of March 28, 2008;
WHEREAS, the Second Amended Agreement was amended and restated in its entirety by a Third Amended and Restated Operating Agreement (the “ Third Amended Agreement ”) dated as of August 31, 2011;
WHEREAS, the Third Amended Agreement was amended by an Amendment to Third Amended and Restated Operating Agreement (the “ Amendment ”) dated as of March 29, 2012 and supplemented by the Unit Designation, dated as of November 16, 2015, with respect to Units issued in the 2015 Mandatory Exchange attached hereto as Exhibit 1 , (as it may be amended, supplemented or restated from time to time, the “ 2015 Unit Designation ”);
WHEREAS, the Company, effective as of the date hereof, is designating the terms of its Series A Preferred Units by means of the Series A Preferred Unit Designation in connection with the initial issuance of Series A Preferred Units; and
WHEREAS, the Board of Directors of the Company have authorized and approved an amendment and restatement of the Third Amended Agreement, as amended by the Amendment, on the terms set forth herein.
NOW THEREFORE, the Third Amended Agreement, as amended by the Amendment, is hereby amended and restated to read in its entirety as follows:


2

ARTICLE I

DEFINITIONS
Section 1.1         Definitions .
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“ Additional Member ” means a Person admitted as a member of the Company in accordance with Article IV as a result of an issuance of Units to such Person by the Company.
“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with the Person in question; provided , that no Investment Fund or Portfolio Company shall be an “Affiliate” of the Company or of any Subsidiary thereof.
“ Agreement ” means this Fourth Amended and Restated Operating Agreement of the Company and, where the context so requires, any Unit Designation, as each may be amended, supplemented or restated from time to time.
“ Beneficial Owner ” means a Person who is deemed to beneficially own a Unit, as determined pursuant to Section 13 of the Exchange Act.
“ Board of Directors ” has the meaning assigned to such term in Section 6.1(a).
“ Business Day ” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of California shall not be regarded as a Business Day.
“ Capital Account ” has the meaning assigned to such term in Section 5.1.
“ Capital Contribution ” means any cash or cash equivalents or the fair market value (as determined by the Company) of any property or other asset, in such form as may be permitted by the Delaware Act, that a Member contributes to the Company pursuant to this Agreement.
“ Carrying Value ” means, with respect to any Company asset, the asset’s adjusted basis for U.S. federal income tax purposes, except that the initial carrying value of assets contributed to the Company shall be their respective gross fair market values on the date of contribution as determined by the Company, and the Carrying Values of all Company assets shall be adjusted to equal their respective fair market values, in accordance with the rules set forth in

        
3

United States Treasury Regulation Section 1.704-1(b)(2)(iv)(f), except as otherwise provided herein, as of: (a) the date of the acquisition of any additional Unit by any new or existing Member in exchange for more than a de minimis Capital Contribution; (b) the date of the distribution of more than a de minimis amount of Company assets to a Member; (c) the date a Unit is relinquished to the Company; or (d) any other date specified in the United States Treasury Regulations; provided , however , that adjustments pursuant to clauses (a), (b), (c) and (d) above shall be made only if such adjustments are deemed necessary or appropriate by the Company to reflect the relative economic interests of the Members. In the case of any asset that has a Carrying Value that differs from its adjusted tax basis, Carrying Value shall be adjusted by the amount of depreciation calculated for purposes of the definition of “Net Income (Loss)” rather than the amount of depreciation determined for U.S. federal income tax purposes, and depreciation shall be calculated by reference to Carrying Value rather than tax basis once Carrying Value differs from tax basis.
“ Certificate ” means a certificate (a) substantially in the form of Exhibit A , Exhibit B or Exhibit C to this Agreement, (b) in global form in accordance with the rules and regulations of any depositary or (c) in such other form as may be adopted by the Board of Directors, issued by the Company evidencing ownership of one or more Units.
“ Certificate of Formation ” means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware as referenced in Section 6.18, as such Certificate of Formation may be amended, supplemented or restated from time to time.
“ Chairman ” has the meaning assigned to such term in Section 6.7.
“ Chief Executive Officer ” means the chief executive officer of the Company, if any, appointed by the Board of Directors in accordance with Section 6.19.
“ Citizenship Certification ” means a properly completed certificate in such form as may be specified by the Company by which a Member certifies that it (and if it is a nominee holding for the account of another Person, that to the best of its knowledge such other Person) is an Eligible Citizen.
“ Class A Unit ” means a Unit in the Company that is a common unit designated as a “Class A Unit.”
“ Class B Holder ” means any entity or entities that are Controlled by the Principals, other than the Company or any of its Subsidiaries, and that is or becomes the Record Holder of one or more Class B Units. As of the date of this Agreement, Oaktree Capital Group Holdings is the sole Class B Holder.

        
4

“ Class B Unit ” means a Unit in the Company that is a common unit designated as a “Class B Unit.”
“ Code ” means the U.S. Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of any successor law.
“ Common Units ” means the Class A Units, the Class B Units and any other Units that are not Preferred Units.
“ Company ” means Oaktree Capital Group, LLC, a Delaware limited liability company, and any successors thereto.
“ Company Group ” means the Company and each Subsidiary of the Company.
“ Control ” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“ Current Market Price ” means, with respect to any Unit of any class or series as of any date of determination, the average of the daily closing price per Unit of such series or class for the 20 consecutive Trading Days immediately prior to such date.
“ Delaware Act ” means the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
“ DGCL ” means the General Corporation Law of the State of Delaware, 8 Del. C. Section 101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
“ Director ” means a member of the Board of Directors of the Company.
“ electronic transmission ” has the meaning assigned to such term in Section 12.10(a).
“ Eligible Citizen ” means a Person qualified to own interests in real property in jurisdictions in which any Group Member does business or proposes to do business from time to time and whose status as a Member the Company determines in its sole discretion does not or would not subject such Group Member to a significant risk of cancellation or forfeiture of any of its properties or any interest therein.

        
5

“ ERISA ” means the U.S. Employee Retirement Income Security Act of 1974, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“ Exchange Agreement ” means one or more exchange agreements providing for the exchange of Oaktree Operating Group Units in accordance with the terms thereof, including, without limitation, the Second Amended and Restated Exchange Agreement dated as of March 29, 2012, by and among the Company, OCM Holdings I, LLC, Oaktree Holdings, Inc., Oaktree AIF Holdings, Inc. (formerly Oaktree Media Holdings, Inc.), Oaktree Holdings, Ltd., Oaktree Capital Group Holdings and the other parties joined thereto from time to time, as amended, modified or restated from time to time.
“ Fiscal Year ” has the meaning assigned to such term in Section 7.2.
“ Governmental Entity ” means any court, administrative agency, regulatory body, commission or other governmental authority, board, bureau or instrumentality, domestic or foreign and any subdivision thereof.
“ Group Member ” means a member of the Company Group.
“ Indemnified Person ” means (a) any Person who is or was a Director, Officer or Tax Matters Partner of the Company, (b) any Person who is or was an officer, director, member, manager, partner, Tax Matters Partner, agent, fiduciary or trustee of any Group Member or any Affiliate thereof, (c) any Person who is or was serving at the request of the Company or an Affiliate as an officer, director, member, manager, partner, Tax Matters Partner, Partnership Representative, agent, fiduciary or trustee of another Person (including any Subsidiary); provided , that a Person shall not be an Indemnified Person by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services, (d) the Manager, and (e) any Person the Board of Directors in its sole discretion designates as an “Indemnified Person” for purposes of this Agreement.
“ Investment Company Act ” means the U.S. Investment Company Act of 1940, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules or regulations promulgated thereunder.
“ Investment Fund ” means any Person in which an Oaktree Operating Group Partnership owns or otherwise controls, directly or indirectly, shares of stock, or a general

        
6

partner, limited partner, limited liability company or similar ownership interest, organized or formed primarily for the purpose of investing funds contributed to such Person by one or more third parties that are not Affiliates of the Company.
“ Law ” means any federal, state, local, non-U.S. or other law (including common law), statute, code, ordinance, rule or regulation or other requirement enacted, promulgated, issued, entered or put into effect by a Governmental Entity.
“ Liquidator ” means one or more Persons selected by the Board of Directors to perform the functions described in Section 9.2 as liquidating trustee of the Company within the meaning of the Delaware Act.
“ Manager ” means Oaktree Capital Group Holdings GP, LLC, a Delaware limited liability company, or any successor Manager designated or elected pursuant to Section 6.22(b).
“ Member ” means each Record Holder of a Unit, including, unless the context otherwise requires, Oaktree Capital Group Holdings, each Substitute Member and each Additional Member, in each case in such Person’s capacity as a member of the Company.
“ Merger Agreement ” has the meaning assigned to such term in Section 11.1.
“ Net Income (Loss) ” means for any fiscal period the taxable income or loss of the Company for such period as determined in accordance with the accounting method used by the Company for U.S. federal income tax purposes with the following adjustments: (a) any income of the Company that is exempt from U.S. federal income taxation and not otherwise taken into account in computing Net Income (Loss) shall be added to such taxable income or loss; (b) if the Carrying Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, any depreciation, amortization or gain resulting from a disposition of such asset shall be calculated with reference to such Carrying Value; (c) upon an adjustment to the Carrying Value of any asset, pursuant to the definition of Carrying Value, the amount of the adjustment shall be included as gain or loss in computing such taxable income or loss; and (d) any expenditures of the Company not deductible in computing taxable income or loss, not properly capitalizable and not otherwise taken into account in computing Net Income (Loss) pursuant to this definition shall be treated as deductible items.
“ Notice of Election to Purchase ” has the meaning assigned to such term in Section 13.2.
“ Oaktree Capital Group Holdings ” means Oaktree Capital Group Holdings, L.P., a Delaware limited partnership, and any successors thereto.

        
7

“ Oaktree Operating Group ” means, collectively, Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and any other Subsidiary of the Company (whether now existing or hereafter formed) that is designated as part of the Oaktree Operating Group by the Board of Directors. For the avoidance of doubt, unless the Board of Directors determines otherwise, none of Oaktree Holdings, Inc., a Delaware corporation, Oaktree Holdings, LLC, a Delaware limited liability company, OCM Holdings I, LLC, a Delaware limited liability company, Oaktree AIF Holdings, Inc., a Delaware corporation, or Oaktree Holdings, Ltd., a Cayman Islands exempted limited liability company, shall be included in the Oaktree Operating Group.
“ Oaktree Operating Group Partnership ” means any partnership or other entity that is a part of the Oaktree Operating Group.
“ Oaktree Operating Group Partnership Agreement ” means the limited partnership agreement or similar document that governs the terms of an Oaktree Operating Group Partnership, as amended, modified or restated from time to time.
“ Oaktree Operating Group Unit ” means the aggregate of one common unit in each of the Oaktree Operating Group Partnerships, representing a common equity interest in each such entity.
“ Officers ” has the meaning assigned to such term in Section 6.19(a).
“ Opinion of Counsel ” means a written opinion of counsel (who may be regular counsel to the Company or any of its Affiliates) acceptable to the Company.
“ Outside Director ” means any Director who is not an employee of the Company, any Subsidiary of the Company or any of their respective Affiliates Controlled by the Principals.
“ Outstanding ” means, with respect to any Unit, a Unit that is issued by the Company and reflected as outstanding on the Company’s books and records as of the date of determination.
“ Partnership Representative ” has the meaning assigned to such term in Section 6223(a) of the Code.
“ Percentage Interest ” means, as of any date of determination, (a) as to any Class A Units, the product obtained by multiplying (i) 100% less the percentage applicable to the Units referred to in clause (c) by (ii) the quotient obtained by dividing (x) the number of such Class A Units by (y) the total number of all Outstanding Class A Units, (b) as to any Class B Units, 0%, and (c) as to any other Units, the percentage established for such Units by the Board of Directors as a part of the authorization of such Units.
“Permitted Oaktree Holder” means any Principal or any Person Controlled by one or more of the Principals (other than the Company or any of its Subsidiaries).
“ Person ” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, Governmental Entity or other entity.
“ Plan of Conversion ” has the meaning assigned to such term in Section 11.1.
“ Portfolio Company ” means any Person in which an Oaktree Operating Group Partnership owns or otherwise controls, directly or indirectly, shares of stock, or a general partner, limited partner, limited liability company or similar ownership interest, or notes or other instruments, for investment purposes, including any intermediate holding company formed for the purpose of holding any such investment.
“ Preferred Units ” means any class of Units that entitles the Record Holders thereof to a preference or priority over the Record Holders of the Common Units in: (a) the right to share profits or losses or items thereof; (b) the right to share in Company distributions; or (c) rights upon dissolution or liquidation of the Company.
“ President ” means the president of the Company, if any, appointed by the Board of Directors in accordance with Section 6.19.
“ Principal ” means any individual who may from time to time be designated by the Board of Directors as a Principal of the Company, in each case until his or her death, disability, resignation or removal by the Board of Directors. The Principals as of the date of this Agreement are Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank and Sheldon M. Stone.
“ Purchase Date ” has the meaning assigned to such term in Section 13.2.
“ Quarter ” means, unless the context requires otherwise, a fiscal quarter.
“ Record Date ” means the date established by the Company for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Members or entitled to vote by ballot or give approval of Company action in writing without a meeting or entitled to exercise rights in respect of any lawful action of Members or (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer.
“ Record Holder ” means (a) with respect to any Class A Unit, the Person in whose name such Class A Unit is registered on the books of the Transfer Agent as of the close of business on a particular Business Day, and (b) with respect to any Unit of any other class or series, the Person in whose name such Unit is registered on the books that the Company has caused to be kept as of the close of business on such Business Day.
“ Redeemable Units ” means any Units for which a redemption notice has been given, and has not been withdrawn, pursuant to Section 3.13.
“ Registration Statement ” means the Registration Statement on Form S-1 (Registration No. 333-174993), as it has been or as it may be amended or supplemented from time to time, filed by the Company with the SEC under the Securities Act to register the offering and sale of the Class A Units in connection with the initial underwritten public offering of Class A Units.
“ SEC ” means the U.S. Securities and Exchange Commission.
“ Securities Act ” means the U.S. Securities Act of 1933, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“ Securities Exchange ” means an exchange registered with the SEC under Section 6(a) of the Exchange Act or any successor thereto and any other securities exchange (whether or not registered with the SEC under Section 6(a) of the Exchange Act) that the Board of Directors in its sole discretion designates as a Securities Exchange for purposes of this Agreement.
“ Secretary ” means the secretary of the Company appointed by the Board of Directors in accordance with Section 6.19.
“ Series A Preferred Unit Designation ” means the Unit Designation with respect to the Series A Preferred Units, dated as of May 17, 2018, attached hereto as Exhibit 2 , as it may be amended, supplemented or restated from time to time.
“ Series A Preferred Units ” means a Unit in the Company that is a Preferred Unit designated as a “Series A Preferred Unit.”
“ Similar Law ” means any state, local, non-U.S. or other laws or regulations that would cause the underlying assets of the Company to be treated as assets of an investing entity by virtue of its investment (or any beneficial interest) in the Company and thereby subject the Company, the Directors, the Manager or the Class B Holder (or other Persons responsible for the investment and operation of the Company’s assets) to laws or regulations that are similar to the fiduciary responsibility or prohibited transaction provisions contained in Title I of ERISA or Section 4975 of the Code.
“ Subsidiary ” means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests of such Person or holds a sole general partner interest or managing member or similar interest in such Person; provided , that no Investment Fund or Portfolio Company shall be a “Subsidiary” of the Company or any Subsidiary thereof.
“ Substitute Member ” means a Person who is admitted as a Member of the Company pursuant to Section 3.5(e) as a result of a transfer of Units to such Person.
“ Surviving Business Entity ” has the meaning assigned to such term in Section 11.2(b).
“ Tax Matters Partner ” has the meaning assigned to such term in Section 6223(a)(7) of the Code prior to amendment by the U.S. Bipartisan Budget Act of 2015.
“ Tax Receivable Agreement ” means the Second Amended and Restated Tax Receivable Agreement, dated as of March 29, 2012, by and among Oaktree Holdings, Inc., Oaktree AIF Holdings, Inc. (formerly Oaktree Media Holdings, Inc.), Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P., Oaktree AIF Investments, L.P. (formerly Oaktree Media Investments, L.P.) and each other party thereto, as amended, modified or restated from time to time.
“ Third Amended Agreement ” has the meaning assigned to such term in the Recitals.
“ transfer ” has the meaning assigned to such term in Section 3.5(a).
“ Trading Day ” means, with respect to Units of any class or series, a day on which the principal Securities Exchange on which such Units are listed for or admitted to trading is open for the transaction of business or, if Units of a class or series are not listed for or admitted to trading on any Securities Exchange, a day on which banking institutions in the City of Los Angeles are generally open.
“ Transfer Agent ” means, with respect to any class or series of Units, the bank, trust company or other Person (including the Company or one of its Affiliates) appointed from time to time by the Company to act as registrar and transfer agent for such class or series; provided , that if no Transfer Agent is specifically designated for a class or series of Units, the Company shall act in such capacity for such class or series.
“ Trust ” has the meaning assigned to such term in Section 11.3(f).
“ Unit ” means a unit issued by the Company representing a limited liability company interest in the Company, including the right of the Record Holder of such Unit to any and all benefits to which a Record Holder may be entitled as provided in this Agreement, together with the obligation of such Record Holder to comply with all the terms and provisions of this Agreement. Units may be common units or Preferred Units, and may be issued in different classes or series.
“ Unit Designation ” has the meaning assigned to such term in Section 4.6(b).
“ U.S. GAAP ” means United States generally accepted accounting principles consistently applied.
“ Voting Units ” means the Class A Units, the Class B Units and Units of any other class or series that entitle the Record Holder thereof to vote on any matter submitted for consent or approval of Members under this Agreement.
Section 1.2         Construction . Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to “Articles” and “Sections” refer to articles and sections of this Agreement; (c) the term “include” or “includes” means includes, without limitation, and “including” means including, without limitation; (d) the term “or” means, inclusively, and/or; and (e) the terms “herein,” “hereof” and “hereunder” (and terms of similar import) are references to this Agreement in its entirety, and not to any particular provision.
ARTICLE II

ORGANIZATION
Section 2.1         Formation . The Company has been previously formed as a limited liability company pursuant to the provisions of the Delaware Act. Except as expressly provided to the contrary in this Agreement, the rights, duties (including fiduciary duties), liabilities and obligations of the Members and the administration, dissolution and termination of the Company shall be governed by the Delaware Act. All Units shall constitute personal property of the owner thereof for all purposes, and a Member has no interest in specific Company property.
Section 2.2         Name . The name of the Company shall be “Oaktree Capital Group, LLC”. The Company’s business may be conducted under any other name or names, as determined by the Board of Directors. The words “Limited Liability Company,” “LLC” or similar words or letters shall be included in the Company’s name where necessary for the purpose of complying with the laws of any jurisdiction that so requires. The Board of Directors may change the name of the Company at any time and from time to time by filing an amendment to the Certificate of Formation (and upon such filing, this Agreement shall be deemed automatically amended to change the name of the Company) and shall notify the Members of such change in the next regular communication to the Members.
Section 2.3         Registered Office; Registered Agent; Principal Office; Other Offices . Unless and until changed by the Board of Directors by filing an amendment to the Certificate of Formation (and upon such filing, this Agreement shall be deemed automatically amended to change the registered office and registered agent of the Company), the registered office of the Company in the State of Delaware shall be located at Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be Corporation Service Company. The principal office of the Company shall be located at 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071 or such other place as the Board of Directors may from time to time designate. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Board of Directors determines to be necessary or appropriate.
Section 2.4         Purposes . The purposes of the Company shall be to (a) promote, conduct or engage in, directly or indirectly, any business, purpose or activity that lawfully may be conducted by a limited liability company organized pursuant to the Delaware Act, (b) acquire, hold and dispose of interests in any corporation, partnership, joint venture, limited liability company or other entity and, in connection therewith, to exercise all of the rights and powers conferred upon the Company with respect to its interests therein, and (c) conduct any and all activities related or incidental to the foregoing purposes.
Section 2.5         Powers . The Company shall be empowered to do any and all acts and things necessary and appropriate for the furtherance and accomplishment of the purposes described in Section 2.4 and for the protection and benefit of the Company.
Section 2.6         Power of Attorney . Each Member hereby constitutes and appoints the Company and, if a Liquidator shall have been selected pursuant to Section 9.2, the Liquidator (and any successor to the Liquidator by merger, transfer, assignment, election or otherwise) and each of their respective authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as his true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to:
(a)      execute, swear to, acknowledge, deliver, file and record in the appropriate public offices:
(i)      all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments or restatements hereof or thereof) that the Board of Directors or the Liquidator determines to be necessary or appropriate to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property;
(ii)      all certificates, documents and other instruments that the Board of Directors or the Liquidator determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement;
(iii)      all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the Board of Directors or the Liquidator determines to be necessary or appropriate to reflect the dissolution, liquidation and termination of the Company pursuant to the terms of this Agreement;
(iv)      all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments and restatements hereof or thereof) relating to the admission, resignation, removal or substitution of any Member pursuant to, or other events described in, this Agreement;
(v)      all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Units issued pursuant to Section 4.6; and
(vi)      all certificates, documents and other instruments (including agreements and a certificate of merger, conversion or consolidation or similar certificates) relating to a merger, conversion or consolidation of the Company pursuant to Article XI; and
(b)      execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the Board of Directors or the Liquidator determines to be necessary or appropriate to (i) make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Members hereunder or is consistent with the terms of this Agreement or (ii) effectuate the terms or intent of this Agreement; provided , that when required by Section 10.2 or any other provision of this Agreement that establishes a percentage of the voting power of all Outstanding Voting Units of any class or series required to take any action, the Company or the Liquidator may exercise the power of attorney made in this Section 2.6(b) only after the necessary vote, consent, approval, agreement or other action of the Members or of the Members of such class or series, as applicable.
Nothing contained in this Section 2.6 shall be construed as authorizing the Company, the Board of Directors or the Liquidator to amend, change or modify this Agreement except in accordance with Article X or as may be otherwise expressly provided for in this Agreement. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the maximum extent permitted by Law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Member and the transfer of all or any portion of such Member’s Units and shall extend to such Member’s heirs, successors, assigns and personal representatives. Each such Member hereby agrees to be bound by any representation made by the Company or the Liquidator, acting in good faith pursuant to such power of attorney, and each such Member, to the maximum extent permitted by Law, hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the Company or the Liquidator, taken in good faith under such power of attorney in accordance with this Section 2.6. Each Member shall execute and deliver to the Company or the Liquidator, within 15 days after receipt of the request therefor, such further designations, powers of attorney and other instruments as the Company or the Liquidator determines to be necessary or appropriate to effectuate this Agreement and the purposes of the Company.
Section 2.7         Term . The Company’s term commenced upon the filing of the Certificate of Formation in accordance with the Delaware Act and shall continue, unless and until it is dissolved in accordance with the provisions of Article IX. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation as provided in the Delaware Act.
Section 2.8         Title to Company Assets . Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, Director or Officer, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be held in the name of the Company, one or more of its Affiliates, or one or more nominees, as the Board of Directors may determine. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to such Company assets is held.
ARTICLE III

MEMBERS; CERTIFICATES; RECORD HOLDERS; TRANSFERS OF UNITS
Section 3.1         Members .
(a)      Upon the execution of this Agreement, each Person who was a member of the Company pursuant to the Third Amended Agreement shall continue to be a member of the Company. A Person shall be admitted as a Member and shall become bound by the terms of this Agreement when such Person purchases or otherwise lawfully acquires a Unit and becomes the Record Holder of such Unit, with or without execution of this Agreement. A Person may become a Record Holder without the consent or approval of any of the Members. A Person may not become a Member without acquiring a Unit.
(b)      The name and mailing address of each Member shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent. The Company shall update the books and records from time to time as necessary to reflect accurately the information contained therein (or shall cause the Transfer Agent to do so, as applicable).
(c)      Except as otherwise provided in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.
(d)      Subject to Articles XI and XIII, and except as provided in Sections 3.6, 3.9 and 3.13, Members may not be expelled from or removed as members of the Company. Members shall not have any right to resign from the Company; provided , that when a transferee of a Member’s Unit becomes a Record Holder of such Unit, such transferring Member shall cease to be a member of the Company solely with respect to the Unit so transferred.
(e)      Except to the extent expressly provided in this Agreement (including any Unit Designation): (i) no Member shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon dissolution of the Company may be considered as such by Law and then only to the extent provided for in this Agreement; (ii) no Member shall have priority over any other Member either as to the return of Capital Contributions or as to profits, losses or distributions; (iii) no interest shall be paid by the Company on Capital Contributions; and (iv) no Member, in its capacity as such, shall participate in the operation or management of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company.
(f)      Any Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities in direct competition with the Company Group, and none of the same shall constitute a breach of this Agreement or any duty (including fiduciary duties) otherwise existing at law, in equity or otherwise to any Group Member or Member; provided , that this Section 3.1(f) shall not excuse a breach of any provision of this Agreement binding upon a Person, or limit or otherwise modify any duties (including fiduciary duties) owed by a Person at law, in equity or otherwise (including by contract) to the Company or its Affiliates, in each case arising other than from such Person’s capacity as a Member. Neither the Company nor any of the other Members shall have any rights by virtue of this Agreement in any such business interests or activities of any Member.
Section 3.2         Rights of a Member .
(a)      In addition to other rights provided by this Agreement or by applicable Law, and except as limited by Section 3.2(b), each Member shall have the right, for a purpose reasonably related to such Member’s interest as a Member, upon reasonable written demand stating the purpose of such demand and at such Member’s own expense:
(i)      promptly after their becoming available, to obtain a copy of the Company’s U.S. federal, state and local income tax returns for any of the six years preceding such Member’s written demand, provided that such Member was a Member during any part of such year; and
(ii)      to obtain a copy of this Agreement and the Certificate of Formation and all amendments thereto, together with a copy of the executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Formation and all amendments thereto have been executed.
(b)      The Company may keep confidential from the Members, for such period of time as the Company determines in its sole discretion, (i) any information that the Company reasonably believes to be in the nature of trade secrets or (ii) other information the disclosure of which the Company believes (A) is not in the best interests of the Company Group, (B) could damage the Company Group or its business or (C) that any Group Member is required by Law or by agreement with any third party to keep confidential (other than agreements with Affiliates of the Company the primary purpose of which is to circumvent the obligations set forth in this Section 3.2).
Section 3.3         Certificates .
(a)      Upon the Company’s issuance of Units of any class or series to any Person, the Company may, in its discretion, issue or cause to be issued one or more Certificates in the name of such Person evidencing the Units being so issued. Any Certificates shall be executed on behalf of the Company by any two Officers. In the event that a Unit is to be evidenced by a Certificate, no such Certificate shall be valid for any purpose until it has been countersigned by and registered on the books of the Transfer Agent; provided , however , that if the Board of Directors elects to issue any Units, including Common Units and Preferred Units, in global form, the Certificates evidencing such Units shall be valid upon receipt of a certificate from the Transfer Agent certifying that such Units have been duly registered in accordance with the directions of the Company. If any Officer or Transfer Agent who shall have signed or whose facsimile signature shall have been placed upon any such Certificate shall have ceased to be such Officer or Transfer Agent before such Certificate is issued by the Company, such Certificate may nevertheless be issued by the Company with the same effect as if such Person were such Officer or Transfer Agent at the date of issue. Certificates for any class or series of Units shall be uniquely numbered and shall be entered on the books and records of the Company as they are issued and shall exhibit the Record Holder’s name and number and type of Units.
(b)      If any mutilated Certificate is surrendered to the Transfer Agent, the appropriate Officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate evidencing the same number and class or series of Units as the Certificate so surrendered. The appropriate Officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver, a new Certificate in place of any Certificate previously issued if the Record Holder of the Units evidenced by the Certificate: (i) makes proof by affidavit, in form and substance satisfactory to the Company, that a previously issued Certificate has been lost, destroyed or stolen; (ii) requests the issuance of a new Certificate before the Company has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; (iii) if requested by the Company, delivers to the Company a bond, in form and substance satisfactory to the Company, with surety or sureties and with fixed or open penalty as the Company may direct, to indemnify the Company and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and (iv) satisfies any other reasonable requirements imposed by the Company. If a transfer of Units evidenced by a lost, stolen or destroyed Certificate is registered before the Transfer Agent receives notification in writing from the Record Holder regarding such loss, destruction or theft, the Record Holder shall be precluded from making any claim against the Company or the Transfer Agent for such transfer or for a new Certificate. As a condition to the issuance of any new Certificate under this Section 3.3(b), the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.
(c)      The Company may, in its sole discretion, issue one or more uncertificated classes or series of Units and may, with respect to any class or series of Units (unless otherwise provided in the applicable Unit Designation), issue Certificates with respect to some Units of such class or series and issue other Units of such class or series on an uncertificated basis.
Section 3.4         Record Holders . The Company shall be entitled to recognize the Record Holder as the owner with respect to any Unit and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Unit on the part of any other Person, regardless of whether the Company shall have actual or other notice thereof, including in connection with any distribution pursuant to Section 5.3 or 9.3 or the exercise of any voting or other rights pursuant to Section 12.9, except as otherwise provided by Law or any applicable rule, regulation, guideline or requirement of any Securities Exchange on which such Units are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring or holding Units, as between the Company, on the one hand, and such other Person, on the other, such representative Person shall be deemed the Record Holder of such Unit.
Section 3.5         Registration and Transfer of Units .
(a)      The term “ transfer ,” when used in this Agreement with respect to a Unit, shall be deemed to refer to a transaction by which the Record Holder of a Unit assigns such Unit to another Person, and includes a sale, assignment, gift, exchange or any other disposition by Law or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.
(b)      No Unit shall be transferred, in whole or in part, except in accordance with this Article III. To the fullest extent permitted by Law, any transfer or purported transfer of a Unit not made in accordance with this Article III, including any transfer in violation of Section 3.6, shall be null and void.
(c)      The Company shall keep or cause to be kept on behalf of the Company a register which, subject to such reasonable regulations as the Board of Directors may prescribe and subject to Section 3.5(d), will provide for the registration and transfer of Units. A Transfer Agent may be appointed registrar and transfer agent for the purpose of registration of and transfers of Units as herein provided. In the absence of manifest error, the register kept by or on behalf of the Company shall be conclusive as to the identity of the holders of Units. With respect to certificated Units issued by the Company, if any, upon surrender of a Certificate for registration of transfer of any Units evidenced by such Certificate, the Company shall deliver, and in the case of certificated Units of a class or series of Units for which a Transfer Agent has been appointed, the Transfer Agent shall countersign and deliver, in the name of the Record Holder or the designated transferee or transferees, to the extent and as required pursuant to the Record Holder’s instructions, one or more new Certificates evidencing the same aggregate number and type of Units as were evidenced by the Certificate so surrendered. In the case of any transfer of Units permitted by this Agreement, a transferor shall provide the address and other contact information for each such transferee as contemplated by Section 14.1.
(d)      The Company shall not recognize any purported transfer of Units until the transfer is registered on the books of the Transfer Agent; provided , that in the event that any Units are represented by Certificates, notwithstanding Section 5.3 or the registration of the transfer of such certificated Units pursuant to this Section 3.5(d), no distributions shall be paid in respect of any such transferred certificated Units until the Certificates evidencing such Units are surrendered to the Transfer Agent. No charge shall be imposed by the Company for such transfer; provided , that as a condition to the issuance of any new Certificate or the registration of any transfer, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto.
(e)      By acceptance of the transfer of any Unit in accordance with this Article III or the issuance of any Unit in accordance with this Agreement (including in a merger, consolidation or other business combination pursuant to Article XI), each transferee of a Unit, including any nominee holder or agent or representative acquiring such Unit for the account of another Person, (i) shall become the Record Holder of the Unit so transferred or issued, (ii) shall be admitted to the Company as a Substitute Member or Additional Member with respect to the Unit so transferred or issued to such transferee or other recipient when any such transfer or admission is reflected in the books and records of the Company, with or without execution of this Agreement, (iii) shall become bound by the terms of, and shall be deemed to have agreed to be bound by, this Agreement, with or without execution of this Agreement, (iv) represents that the transferee or other recipient has the capacity, power and authority to enter into this Agreement, (v) grants the powers of attorney as specified herein, and (vi) makes the consents, acknowledgements and waivers contained in this Agreement. Neither the transfer of any Unit nor the admission of any new Member shall constitute an amendment to this Agreement.
(f)      No transfer of a Unit shall entitle the transferee to share in the profits and losses, to receive distributions, to receive allocations of income, gain, loss, deduction or credit or any similar item or to any other rights to which the transferor was entitled until the transferee becomes a Member pursuant to Section 3.5(e).
(g)      Subject to (i) the foregoing provisions of this Section 3.5, (ii) Section 3.4, (iii) Sections 3.6 and 3.9, (iv) with respect to any series or class of Units, the provisions of any Unit Designation or amendment to this Agreement, (v) any contractual provisions binding on any Member and (vi) provisions of applicable Law, including the Securities Act, Units shall be freely transferable.
Section 3.6         Restrictions on Transfer .
(a)      Notwithstanding the other provisions of this Article III, no transfer of any Units shall be made if such purported transfer would:
(i)      violate applicable law, including the then-applicable U.S. federal or state securities laws or rules and regulations of the SEC, any state securities commission or any other Governmental Entity with jurisdiction over such transfer;
(ii)      terminate the existence or qualification of the Company under the laws of any jurisdiction;
(iii)      cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed); or
(iv)      require the Company to be subject to the registration requirements of the Investment Company Act.
(b)      [Reserved].
(c)      The Board of Directors may impose additional restrictions on the transfer of Units if it receives advice of counsel acceptable to the Board of Directors (who may be regular counsel to the Company or its Affiliates) that such restrictions are necessary or advisable to avoid a significant risk of (i) the Company becoming taxable as a corporation or otherwise becoming taxable as an entity for U.S. federal income tax purposes or (ii) the Company being subject to the registration requirements of the Investment Company Act. The Board of Directors may impose such restrictions by amending this Agreement without the approval of the Members.
(d)      To the fullest extent permitted by Law, any transfer in violation of this Section 3.6 shall be null and void. In the event that any Person would otherwise become the Record Holder of a Unit through a purported transfer in violation of this Section 3.6, the Company may, in its sole discretion, require that the purported transferor take any steps deemed appropriate by the Company or the Transfer Agent to unwind, cancel or reverse such purported transaction. With respect to the purported transferee, such Person shall have no rights or economic interest in such Units or otherwise, including any consent rights, any rights to receive notice of, or attend, a meeting of the Members and any rights to receive distributions with respect to the Unit. In addition, the Company may, in its sole discretion, redeem the Unit in the manner provided in Section 3.13 or cause the transfer of such Unit to a third party in a transfer permitted by this Agreement and, if such Unit is sold or redeemed, the Company shall distribute the proceeds of such sale (net of any costs or expenses incurred by the Company) to the purported transferor.
(e)      Without prejudice to any remedies available to the Company as a result of such transactions nothing contained in this Agreement, other than the restrictions on transfer set forth in Section 3.6(b), shall preclude the settlement of any transactions involving Units entered into through the facilities of any Securities Exchange on which such Units are listed for trading.
Section 3.7         [Reserved] .
Section 3.8         [Reserved] .
Section 3.9         Citizenship Requirements . If any Group Member is or becomes subject to any Law that, in the determination of the Company in its sole discretion creates a substantial risk of cancellation or forfeiture of any property in which the Group Member has an interest based on the nationality, citizenship or other related status of a Member, the Company may request that any Member furnish to the Company an executed Citizenship Certification or such other information concerning its nationality, citizenship or other related status (or if the Member is a nominee holding for the account of another Person, the nationality, citizenship or other related status of such other Person) as the Company may in its sole discretion request. If a Member fails to furnish to the Company such Citizenship Certification or other requested information within 30 days after receipt of such a request or if, upon receipt of such Citizenship Certification or other requested information, the Company determines, with the advice of counsel, that a Member is not an Eligible Citizen, the Company may, in its sole discretion (i) require that such Member immediately transfer its Class A Units and/or Preferred Units to an Eligible Citizen or (ii) redeem such Class A Units or Preferred Units, as applicable, in the manner set forth in Section 3.13. Any compulsory transfer of Class A Units or Preferred Units pursuant to clause (i) of the preceding sentence shall occur through a Securities Exchange on which Class A Units or Preferred Units, as applicable, are traded and shall comply with the other provisions of this Agreement regarding transfers of Class A Units or Preferred Units, as applicable. Pending such transfer or redemption, with respect to such Record Holder of such Class A Units or Preferred Units, as applicable, the Company may, in its sole discretion, suspend the exercise of any voting or consent rights, any rights to receive notice of or attend meetings of the Members and any rights to receive distributions in respect of such Class A Units or Preferred Units, as applicable.
Section 3.10         [Reserved] .
Section 3.11         [Reserved] .
Section 3.12         Splits and Combinations .
(a)      Subject to Section 3.12(d), the Company may make a pro rata distribution of Units to all Record Holders of a class or series of Units, or may effect a subdivision or combination of a class or series of Units, so long as, after any such event, each Member of such class or series of Units shall have the same Percentage Interest in the Company as before such event, and any amounts calculated on a per Unit basis or stated as a number of Units are proportionately adjusted.
(b)      Whenever such a distribution, subdivision or combination of a class or series of Units is declared, the Board of Directors shall select a Record Date as of which the distribution, subdivision or combination shall be effective and shall send notice thereof at least 20 days prior to such Record Date to each Record Holder of such class or series of Units. The Board of Directors also may cause a firm of independent public accountants selected by it to calculate the number of Units to be held by such Record Holder after giving effect to such distribution, subdivision or combination. The Board of Directors shall be entitled to rely on any certificate provided by such firm as conclusive evidence of the accuracy of such calculation.
(c)      Promptly following any such distribution, subdivision or combination, the Company may issue Certificates to the Record Holders of such class or series of Units as of the applicable Record Date representing the new number of Units held by such Record Holders, or the Board of Directors may adopt such other procedures that it determines to be necessary or appropriate to reflect such changes. If any such combination results in a smaller total number of Units Outstanding of such class or series, the Company shall require, as a condition to the delivery to a Record Holder of any such new Certificate, the surrender of the Certificate(s), if any, held by such Record Holder immediately prior to such Record Date.
(d)      The Company may issue fractional Units upon any distribution, subdivision or combination of Units. If a distribution, subdivision or combination of Units would otherwise result in the issuance of fractional Units but for this Section 3.12(d), the Board of Directors may direct that each fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be rounded to the next higher Unit).
Section 3.13         Redemption of Units . Any redemption of Units by the Company permitted under Article III shall be conducted in accordance with this Section 3.13.
(a)      The Company shall, not later than 30 days before the date fixed for redemption, give notice of redemption to the Member at its last address designated on the records of the Company or the Transfer Agent, by registered or certified mail, postage prepaid, or overnight courier of national reputation. The notice shall be deemed to have been given when so mailed. The notice shall specify the Redeemable Units, the date fixed for redemption, the place of payment, that payment of the redemption price will be made upon the redemption of the Redeemable Units (or, if later in the case of Redeemable Units evidenced by Certificates, upon surrender of the Certificates evidencing such Redeemable Units) and that on and after the date fixed for redemption no further allocations or distributions to which the Member would otherwise be entitled in respect of the Redeemable Units will accrue or be made.
(b)      Except as may be provided by the Unit Designation applicable to any Redeemable Units, the aggregate redemption price for Redeemable Units shall be an amount equal to the Current Market Price (the date of determination of which shall be the date fixed for redemption) of Units of the class to be so redeemed multiplied by the number of Units of each such class included among the Redeemable Units, net of any costs or expenses incurred by the Company in connection with such redemption. Subject to the Delaware Act, the redemption price shall be paid, as determined by the Company in its sole discretion, (i) in cash, (ii) by delivery of a promissory note of the Company in the principal amount of the redemption price, bearing interest at the rate of 8% annually and payable in three equal annual installments of principal together with accrued interest, the first such installment commencing one year after the redemption date (or, if later in the case of Redeemable Units evidenced by Certificates, upon surrender of the Certificates evidencing such Redeemable Units) or (iii) a combination of cash and a promissory note having the terms described in clause (ii).
(c)      The Member or its duly authorized representative shall be entitled to receive the payment for Redeemable Units at the place of payment specified in the notice of redemption (i) in the case of uncertificated Redeemable Units, on the redemption date or (ii) in the case of Redeemable Units evidenced by Certificates, upon surrender, on the redemption date or thereafter, by or on behalf of the Member, of the Certificates evidencing the Redeemable Units, duly endorsed in blank or accompanied by an assignment duly executed in blank.
(d)      After the redemption date, Redeemable Units shall no longer constitute Outstanding Units.
ARTICLE IV

DESIGNATION OF UNITS; CAPITAL CONTRIBUTIONS
Section 4.1         Designation of Class A Units and Class B Units . As of May 17, 2018, two classes of Common Units have been designated: Class A Units and Class B Units. Each Class A Unit shall entitle the Record Holder thereof to one vote on any and all matters submitted for the consent or approval of Members generally. Each Class B Unit shall initially entitle the Record Holder thereof to 10 votes on any and all matters submitted for the consent or approval of Members generally; provided , however , that at such time as the Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, and at all times thereafter, each Class B Unit shall entitle the Record Holder thereof to one vote on any and all matters submitted for the consent or approval of Members generally. Except as specifically provided for in this Agreement, Class A Units and Class B Units shall vote as a single class on any and all matters submitted for the consent or approval of Members.
Section 4.2         Treatment under the Uniform Commercial Code . The Company hereby irrevocably elects that all Units in the Company shall be securities governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware from time to time.
Section 4.3         [Reserved] .
Section 4.4         Issuance and Cancellation of Class B Units . The number of Outstanding Class B Units shall at all times be equal to the aggregate number of issued and outstanding Oaktree Operating Group Units then held by the Permitted Oaktree Holders. Upon the acquisition by any Permitted Oaktree Holder of a newly issued Oaktree Operating Group Unit, the Company shall issue a Class B Unit to the Class B Holder without requiring any Capital Contribution to the Company in respect of such Class B Unit, and upon the disposition (by transfer, sale, exchange or otherwise) of an Oaktree Operating Group Unit by any Permitted Oaktree Holder to any Person other than a Permitted Oaktree Holder, a Class B Unit then held by the Class B Holder shall automatically and without any action by such Member, the Board of Directors or the Company be cancelled, and the Class B Holder shall have no further right to or interest in such Class B Unit. If, notwithstanding the preceding sentence, at any time the number of Class B Units held by the Class B Holder exceeds the aggregate number of Oaktree Operating Group Units then held by all Permitted Oaktree Holders, then such excess Class B Units shall automatically and without any action by the Board of Directors or the Company be cancelled, and the Class B Holder shall have no further right to or interest in such Class B Units.
Section 4.5         [Reserved] .
Section 4.6         Issuances of Additional Units .
(a)      The Company may issue any number of Units, and options, rights, warrants and appreciation rights relating to Units, for any Company purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board of Directors shall determine, all without the approval of any Member or any other Person.
(b)      Additional Units authorized to be issued by the Company pursuant to Section 4.6(a) may be issued in one or more classes, or one or more series of any such classes, with such designations, preferences, rights, powers and duties (which may be junior to, equivalent to or senior or superior to any existing classes or series of Units), as shall be fixed by the Board of Directors and reflected in a written action or actions approved by the Board of Directors in compliance with Section 6.1 (each, a “ Unit Designation ”), including (i) the right to share in Company profits and losses or items thereof; (ii) the right to share in Company distributions, the dates distributions will be payable and whether distributions with respect to such class or series will be cumulative or non-cumulative; (iii) rights upon dissolution and liquidation of the Company (including any payments); (iv) whether, and the terms and conditions upon which, the Company may redeem such Units (including sinking fund provisions); (v) whether such Units are issued with the privilege of conversion or exchange into Units of any other class or series or any other security issued by the Company or another entity and, if so, the terms and conditions of such conversion or exchange; (vi) the terms and conditions upon which such Units will be issued, evidenced by certificates and assigned or transferred; (vii) the method for determining the Percentage Interest, if any, applicable to such Units; and (viii) the right, if any, of the Record Holder of any such Unit to vote on Company matters, including matters relating to the relative rights, preferences and privileges of such Units. A Unit Designation (or any action of the Board of Directors amending any Unit Designation) shall be effective when a duly executed original of the same is delivered to the Secretary for inclusion in the permanent records of the Company, and shall be annexed to, and constitute a part of, this Agreement. As of May 17, 2018, the 2015 Unit Designation and the Series A Preferred Unit Designation have been made part of this Agreement.
(c)      The Board of Directors is hereby authorized to take all actions that it determines to be necessary or appropriate in connection with (i) each issuance of Units and options, rights, warrants and appreciation rights relating to Units pursuant to this Section 4.6, including the admission of Additional Members in connection therewith and any related amendment of this Agreement, and (ii) all additional issuances of Units and options, rights, warrants and appreciation rights relating to Units. The Board of Directors shall determine in its sole discretion the relative rights, powers and duties of the holders of Units or options, rights, warrants or appreciation rights relating to Units being so issued. The Board of Directors is authorized to do all things that it determines to be necessary or appropriate in connection with any future issuance of Units or options, rights, warrants or appreciation rights relating to Units, including compliance with any statute, rule, regulation or guideline of any Governmental Entity or any Securities Exchange on which Units or options, rights, warrants or appreciation rights relating to Units are listed for trading.
Section 4.7         Preemptive Rights . Unless determined otherwise by the Board of Directors, no Person shall have any preemptive, preferential or other similar right with respect to the issuance of any Units, whether unissued, held in the treasury or hereafter created.
Section 4.8         Fully Paid and Non-Assessable Nature of Units . All Units issued pursuant to, and in accordance with the requirements of, this Article IV shall represent fully paid and non-assessable limited liability company interests in the Company, except as such non-assessability may be affected by Sections 18-502, 18-607 or 18-804 of the Delaware Act or this Agreement.
Section 4.9         Purchases of Units . The Company or any other Group Member may purchase or otherwise acquire Units or options, rights, warrants or appreciation rights relating to Units. The Company, any of its Affiliates, any Portfolio Company or any Investment Fund may also purchase or otherwise acquire and sell or otherwise dispose of Units or options, rights, warrants or appreciation rights relating to Units for their own account, subject to the provisions of Articles III and IV. Any Units purchased or otherwise acquired by the Company may be canceled in the discretion of the Board of Directors.
ARTICLE V

ALLOCATIONS AND DISTRIBUTIONS
Section 5.1         Capital Accounts . There shall be established for each Member on the books of the Company as of the date such Member becomes a Member a capital account (each being a “ Capital Account ”). Each Capital Contribution by any Member, if any, shall be credited to the Capital Account of such Member on the date such Capital Contribution is made to the Company. In addition, each Member’s Capital Account shall be (a) increased in respect of any Common Units held by such Member, by (i) such Member’s allocable share of any Net Income of the Company, and (ii) the amount of any Company liabilities that are assumed by the Member or secured by any Company property distributed to the Member, (b) decreased by (i) the amount of distributions (and deemed distributions) to such Member of cash or the fair market value of other property so distributed and (ii) in respect of any Common Units held by such Member, (x) such Member’s allocable share of Net Loss of the Company and expenditures of the Company described or treated under Section 704(b) of the Code as described in Section 705(a)(2)(B) of the Code, and (y) the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by the Member to the Company and (c) otherwise maintained in accordance with the provisions of the Code and the United States Treasury Regulations promulgated thereunder. Any other item which is required to be reflected in a Member’s Capital Account under Section 704(b) of the Code and the United States Treasury Regulations promulgated thereunder or otherwise under this Agreement shall be so reflected. The Company shall make such adjustments to Capital Accounts as it determines in its sole discretion to be appropriate to ensure allocations are made in accordance with a Member’s interest in the Company. Interest shall not be payable on Capital Account balances. The Company shall maintain the Capital Accounts of the Members in accordance with the principles and requirements set forth in Section 704(b) of the Code and the United States Treasury Regulations promulgated thereunder. The Capital Account of each Class B Holder shall at all times be zero, except to the extent such Class B Holder also holds Units other than Class B Units.
Section 5.2         Allocations .
(a)      Subject to Section 2.6 of the Series A Preferred Unit Designation, and subject to the express terms of any Unit Designation, made after May 17, 2018 with respect to the Units whose terms are established by such Unit Designation, Net Income (Loss) of the Company for each fiscal period shall be allocated among the Capital Accounts of the Members that held Common Units in a manner that as closely as possible gives economic effect to the manner in which distributions are or would be made to the Members pursuant to the provisions of Sections 5.3 and 9.3.
(b)      All items of income, gain, loss, deduction and credit of the Company shall be allocated among the Members for U.S. federal, state and local income tax purposes consistent with the manner that the corresponding constituent items of Net Income (Loss) shall be allocated among the Members pursuant to this Agreement, except as may otherwise be provided herein or by the Code. Notwithstanding the foregoing, the Company in its sole discretion shall make such allocations for tax purposes as may be needed to ensure that allocations are in accordance with the interests of the Members in the Company, within the meaning of the Code and United States Treasury Regulations. The Company shall determine all matters concerning allocations for tax purposes not expressly provided for herein in its sole discretion. For the proper administration of the Company and for the preservation of uniformity of Units (or any portion or class or classes thereof), the Company may (i) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of United States Treasury Regulations under Sections 704(b) or 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of Units (or any portion or class or classes thereof), and (ii) adopt and employ or modify such conventions and methods as the Company determines in its sole discretion to be appropriate for (A) the determination for tax purposes of items of income, gain, loss, deduction and credit and the allocation of such items among Members and between transferors and transferees under this Agreement and pursuant to the Code and the United States Treasury Regulations promulgated thereunder, (B) the determination of the identities and tax classification of Members, (C) the valuation of Company assets and the determination of tax basis, (D) the allocation of asset values and tax basis, (E) the adoption and maintenance of accounting methods and (F) taking into account differences between the Carrying Values of Company assets and such asset adjusted tax basis pursuant to Section 704(c) of the Code and the United States Treasury Regulations promulgated thereunder.
(c)      Allocations that would otherwise be made to a Member under the provisions of this Article V, Section 2.6 of the Series A Preferred Unit Designation or a Unit Designation made after May 17, 2018 shall instead be made to the beneficial owner of Units held by a nominee in any case in which the nominee has furnished the identity of such owner to the Company in accordance with Section 6031(c) of the Code or any other method determined by the Company in its sole discretion.
Section 5.3         Distributions to Record Holders .
(a)      The Company may, in its sole discretion, at any time and from time to time, declare, make and pay distributions of cash or other assets to the Members. Subject to the terms of any Unit Designation and to Section 3.5(d), distributions shall be paid to Members in accordance with their respective Percentage Interests as of the Record Date selected by the Company. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not make or pay any distributions of cash or other assets (i) with respect to the Class B Units except for distributions consisting only of additional Class B Units made proportionally with respect to each outstanding Class B Unit and (ii) with respect to any class or series of Preferred Units, except for distributions in accordance with the Unit Designation relating to such class or series of Preferred Units.
(b)      Notwithstanding Section 5.3(a), in the event of the dissolution and liquidation of the Company, all distributions shall be made in accordance with, and subject to the terms and conditions of, Section 9.3.
(c)      All amounts withheld with respect to any payment or other distribution by the Company to the Members and paid over to any U.S. federal, state or local government or any non-U.S. taxing authority shall be treated as amounts paid to the Members with respect to which such amounts were withheld pursuant to this Section 5.3(c) or Section 9.3 for all purposes under this Agreement.
(d)      Notwithstanding anything to the contrary in this Agreement, each distribution in respect of any Unit shall be made by the Company, directly or through the Transfer Agent or through any other Person, only to the Record Holder of such Unit as of the Record Date set for such distribution. Any distribution in accordance with the foregoing shall constitute full payment and satisfaction of the Company’s liability in respect of such distribution, regardless of any claim of any Person who may have an interest in such distribution by reason of an assignment or otherwise.
(e)      Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to make a distribution to a Member if such distribution would violate the Delaware Act or other applicable Law.
ARTICLE VI

MANAGEMENT AND OPERATION OF BUSINESS
Section 6.1         Power and Authority of Board of Directors .
(a)      Except as otherwise expressly provided in this Agreement, the business and affairs of the Company shall be managed by or under the direction of a board of directors (including any committee thereof appointed pursuant to Section 6.13, the “ Board of Directors ”). As provided in Section 6.19, the Board of Directors shall have the power and authority to appoint Officers of the Company. The Directors and Officers shall constitute “managers” within the meaning of the Delaware Act. No Member, in its capacity as such, shall have any management power over the business and affairs of the Company or actual or apparent authority to enter into, execute or deliver contracts on behalf of, or to otherwise bind, the Company. In addition to the powers that now or hereafter can be granted to managers under the Delaware Act and to all other powers granted under any other provision of this Agreement, the Board of Directors shall have full power and authority to do, and to direct the Officers to do, all things and on such terms as it determines to be necessary or appropriate to conduct the business of the Company, to exercise all powers set forth in Section 2.5 and to effectuate the purposes set forth in Section 2.4, including the following:
(i)      the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into Units, and the incurring of any other obligations;
(ii)      the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Company;
(iii)      the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Company or the merger, conversion, consolidation or other combination of the Company with or into another Person (subject, however, to any prior approval of Members that may be required by this Agreement);
(iv)      the use of the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement, including the financing of the conduct of the operations of the Company and its Subsidiaries; the lending of funds to other Persons (including other Group Members); the repayment of obligations of the Company and its Subsidiaries; and the making of capital contributions to any Member of the Company or any of its Subsidiaries;
(v)      the negotiation, execution and performance of any contracts, conveyances or other instruments (including instruments that limit the liability of the Company under contractual arrangements to all or particular assets of the Company);
(vi)      the declaration and payment of distributions of cash or other assets to Members;
(vii)      the selection and dismissal of Officers, employees, agents, outside attorneys, accountants, advisors, consultants and contractors and the determination of their compensation and other terms of employment or hiring, and the creation and operation of employee benefit plans, employee programs and employee practices;
(viii)      the maintenance of insurance for the benefit of the Company Group and the Indemnified Persons;
(ix)      the formation of, or acquisition or disposition of an interest in, and the contribution of property and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity or arrangement;
(x)      the control of any matters affecting the rights and obligations of the Company, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or remediation, and the incurring of legal expense and the settlement of claims and litigation;
(xi)      the indemnification of any Person against liabilities and contingencies to the extent permitted by Law;
(xii)      the entering into of listing agreements with any Securities Exchange and the delisting of some or all of the Units from, or requesting that trading be suspended in, any such Securities Exchange;
(xiii)      the issuance, sale or other disposition, and the purchase or other acquisition, of Units or options, rights, warrants or appreciation rights relating to Units;
(xiv)      the undertaking of any action in connection with the Company’s interest or participation in any Group Member;
(xv)      the registration under the Securities Act and any other applicable securities laws of any offer, issuance, sale or resale of Units or other securities issued or to be issued by the Company (including any resale of Units by Members or other security holders);
(xvi)      the filing of a bankruptcy petition; and
(xvii)      the execution and delivery of agreements with Affiliates of the Company or Portfolio Companies to render services to a Group Member.
(b)      In exercising its authority under this Agreement, the Board of Directors may, but shall be under no obligation to, take into account the tax consequences to any Member of any action taken (or not taken) by it. The Directors and the Company shall not have any liability to a Member for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived by such Member in connection with such decisions except to the extent set forth in Section 6.16(a)(ii).
(c)      Notwithstanding any other provision of this Agreement, the Delaware Act or any other applicable Law, the Members and each other Person who may acquire an interest in Units hereby (i) approve, ratify and confirm the execution, delivery and performance by the parties thereto of the Exchange Agreement, the Tax Receivable Agreement and the other agreements described in the Registration Statement that are related to the transactions contemplated by the Registration Statement; (ii) agree that the Company is authorized to execute, deliver and perform the agreements referred to in clause (i) of this sentence and the other agreements, acts, transactions and matters described in or contemplated by the Registration Statement without any further act, approval or vote of the Members, the other Persons who may acquire an interest in Units or any other Person; and (iii) agree that the execution, delivery or performance by the Company, any Group Member or any Affiliate of any of them, of this Agreement or any agreement contemplated by this Agreement (including the exercise by the Company of the rights accorded pursuant to Article XIII), shall not constitute a breach by the Board of Directors of any duty that the Board of Directors may owe the Company or the Members or any other Persons under this Agreement (or any other agreements) or of any duty (fiduciary or otherwise) existing at law, in equity or otherwise.
Section 6.2         Number, Qualification and Term of Office of Directors . For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, the number of Directors which shall constitute the whole Board of Directors shall be determined from time to time by the Manager. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, the number of Directors which shall constitute the whole Board of Directors shall be determined from time to time by resolution adopted by a majority of the Directors then in office. Each Director shall hold office as provided in Sections 6.3 to 6.5.
Section 6.3         Election of Directors . Directors need not be Members. For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, Directors shall be designated by the Manager. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, Directors shall be elected by the holders of Outstanding Voting Units, voting as a single class, holding a plurality of the voting power of all Outstanding Voting Units present in person or represented by proxy and entitled to vote on the election of Directors at the annual meeting of Members. For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, each Director (including any additional Director designated to fill a vacancy resulting from an increase in the total number of Directors or from the death, disability, resignation or removal from office of a Director or other cause) shall serve until his or her successor is duly elected or appointed and qualified, or until such Director’s death or disability, or until such Director resigns in accordance with Section 6.5 or is removed in accordance with Section 6.4. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, each Director (including any additional Director elected to fill a vacancy resulting from an increase in the total number of Directors or from the death, disability, resignation or removal from office of a Director or other cause) shall serve until the succeeding annual meeting after such Director’s election and until his or her successor is duly elected or appointed and qualified, or until such Director’s death or disability, or until such Director resigns in accordance with Section 6.5 or is removed in accordance with Section 6.4. In no case will a decrease in the number of Directors shorten the term of any incumbent Director.
Section 6.4         Removal . For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, any Director or the whole Board of Directors may be removed, with or without cause, at any time, by the Manager. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, any Director or the whole Board of Directors may be removed, with or without cause, at any time, by the affirmative vote of holders of Outstanding Voting Units, voting as a single class, holding a majority of the voting power of all Outstanding Voting Units, present in person or represented by proxy given at an annual or special meeting of Members called for that purpose and entitled to vote on the election of Directors. The vacancy in the Board of Directors caused by any such removal shall be filled as provided in Section 6.6.
Section 6.5         Resignations . Any Director may resign at any time by giving notice of such Director’s resignation in writing or by electronic transmission to the Company. Any such resignation shall take effect at the time specified therein, or if the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt by the Company. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The vacancy in the Board of Directors caused by any such resignation shall be filled as provided in Section 6.6.
Section 6.6         Vacancies . For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, any vacancy on the Board of Directors will be filled by a designee of the Manager. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, unless otherwise required by applicable Law, (i) any vacancy on the Board of Directors that results from a newly-created directorship resulting from an increase in the authorized number of Directors may be filled by a majority of the Directors then in office, provided that a quorum is present, and any other vacancies may be filled by a majority of Directors then in office, though less than a quorum, or by a sole remaining Director and (ii) if there are no Directors in office, then any vacancies shall be filled by an election of Directors by the holders of Outstanding Voting Units, voting as a single class, holding a plurality of the voting power of all Outstanding Voting Units present in person or represented by proxy and entitled to vote on the election of Directors at an annual or special meeting of Members.
Section 6.7         Chairman of Meetings . The Board of Directors may elect one or more of its members as Chairman or Co-Chairman, as applicable, of the Board of Directors (each, a “ Chairman ”). At each meeting of the Board of Directors, a Chairman or, in the absence of each Chairman, a Director chosen by a majority of the Directors present, shall act as chairman of the meeting.
Section 6.8         Place of Meetings . The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware.
Section 6.9         Meetings; Notice . Meetings of the Board of Directors may be called by a Chairman, the President, the Chief Executive Officer or upon the written request of two Directors, on 24 hours’ notice to each Director, either personally or by telephone or by mail, telegraph, telex, cable, wireless or other form of recorded or electronic communication, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Notice of any such meeting need not be given to any Director, however, if waived by such Director in writing or by telegraph, telex, cable, wireless or other form of recorded or electronic communication, or if such Director shall be present at such meeting.
Section 6.10         Action Without Meeting . Any action required or permitted to be taken at any meeting by the Board of Directors or any committee thereof, as the case may be, may be taken without a meeting if a consent thereto is signed or transmitted electronically, as the case may be, by a majority of the members of the Board or of such committee, as the case may be, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 6.11         Conference Telephone Meetings . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all Persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 6.12         Quorum . At all meetings of the Board of Directors, a majority of the then total number of Directors in office shall constitute a quorum for the transaction of business. At all meetings of any committee of the Board of Directors, the presence of a majority of the total number of members of such committee (assuming no vacancies) shall constitute a quorum. The act of a majority of the Directors or committee members present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as the case may be. If a quorum shall not be present at any meeting of the Board of Directors or any committee, a majority of the Directors or members, as the case may be, present thereat may adjourn the meeting from time to time without further notice other than announcement at the meeting.
Section 6.13         Committees . The Board of Directors may by resolution from time to time designate one or more committees consisting of one or more Directors which, to the extent provided in such resolution or resolutions, shall have and may exercise, subject to the provisions of this Agreement, the powers and authority of the Board of Directors granted hereunder. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The Board of Directors shall have power to change the members of any such committee at any time to fill vacancies, and to discharge any such committee, either with or without cause, at any time.
Section 6.14         Alternate Members of Committees . The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, or if none be so appointed the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Section 6.15         Remuneration . Unless otherwise expressly provided by resolution adopted by the Board of Directors, none of the Directors shall, as such, receive any stated remuneration for their service as a Director, but the Board of Directors may at any time and from time to time by resolution provide that a specified sum shall be paid to any Director, payable in cash or securities, either as such Director’s annual remuneration as such Director or member of any special or standing committee of the Board of Directors or as remuneration for such Director’s attendance at each meeting of the Board of Directors or any such committee. The Board of Directors may also provide that the Company shall reimburse each Director for any expenses paid by such Director on account of such Director’s attendance at any meeting. Nothing in this Section 6.15 shall be construed to preclude any Director from serving the Company or any of its Affiliates in any other capacity and receiving remuneration therefor.
Section 6.16         Exculpation, Indemnification, Advances and Insurance .
(a)      Subject to other applicable provisions of this Article VI, to the fullest extent permitted by applicable Law:
(i)      Oaktree Capital Group Holdings shall not have any liability to the Company, any Subsidiary of the Company, any Director, any Member or any holder of an equity interest in any Subsidiary of the Company, for any act or omission, including any mistake of fact or error in judgment, taken, suffered or made;
(ii)      a Director or Officer shall have liability to the Company, any Subsidiary of the Company, any Director, any Member or any holder of an equity interest in any Subsidiary of the Company, for any act or omission, including any mistake of fact or error in judgment, taken, suffered, or made only if such act or omission constitutes a breach of the duties of such Director or Officer imposed pursuant to Section 6.20(a) and such breach is the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable Law (including any federal or state securities Law), in each case, that has resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud; and
(iii)      all other Indemnified Persons shall have liability to the Company, any Subsidiary of the Company, any Director, any Member or any holder of an equity interest in any Subsidiary of the Company, for any act or omission arising from the performance of such Indemnified Person’s duties and obligations in connection with the Company, any Subsidiary of the Company, this Agreement or any investment made or held by the Company or any Subsidiary of the Company, including with respect to any act or omission made while serving at the request of the Company as an officer, director, member, partner, tax matters partner, fiduciary or trustee of another Person or any employee benefit plan, including any mistake of fact or error in judgment, taken, suffered or made only if such act or omission constitutes a breach of the duties of such Indemnified Person and such breach is the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable Law (including any federal or state securities Law), in each case, that has resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud.
The provisions of this Section 6.16(a) are intended and shall be interpreted as only limiting the liability of an Indemnified Person and not as in any way expanding such Person’s liability.
(b)      The Indemnified Persons shall be indemnified by the Company, to the fullest extent permitted by Law, against all expenses and liabilities (including judgments, fines, penalties, interest, amounts paid in settlement with the approval of the Company and counsel fees and disbursements) arising from the performance of any of their respective duties or obligations in connection with their respective service to the Company, to any Subsidiary of the Company or pursuant to this Agreement, or in connection with any investment made or held by the Company or any of its Subsidiaries, including in connection with any civil, criminal, administrative, investigative or other action, suit or proceeding, whether by or in the right of the Company, to which any such Indemnified Person may hereafter be made party by reason of being or having been an Indemnified Person, except:
(i)      with respect to a Director or Officer, to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions, including any mistake of fact or error in judgment, taken, suffered or made, that constituted a breach of the duties of such Director or Officer imposed pursuant to Section 6.20(a) and such breach was the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable Law (including any federal or state securities Law), in each case, that resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud; and
(ii)      with respect to all Indemnified Persons (other than Directors, Officers and Oaktree Capital Group Holdings), to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions, including any mistake of fact or error in judgment, taken, suffered or made, that constituted a breach of the duties of such Indemnified Person and such breach was the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable Law (including any federal or state securities Law), in each case, that resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud.
Without limitation, the foregoing indemnity shall extend to any liability of any Indemnified Person, pursuant to a loan, guaranty or otherwise, for any indebtedness of the Company or any Subsidiary of the Company (including any indebtedness which the Company or any Subsidiary of the Company has assumed or taken subject to), and the Company is hereby authorized and empowered to enter into one or more indemnity agreements consistent with the provisions of this Section 6.16 in favor of any Indemnified Person having or potentially having liability for any such indebtedness. It is the intention of this Section 6.16(b) that the Company indemnify each Indemnified Person to the fullest extent permitted by Law except as specifically provided in this Section 6.16(b).
(c)      The termination of any action, suit or proceeding relating to or involving an Indemnified Person by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnified Person breached any duty or committed (i) willful malfeasance, gross negligence, a felony or a material violation of applicable Law (including any federal or state securities Law) that has resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (ii) fraud.
(d)      The provisions of this Agreement, to the extent they limit or eliminate the duties and liabilities of an Indemnified Person otherwise existing at law or in equity, including Section 6.20, are agreed by each Member to modify such duties and liabilities of the Indemnified Person to the extent permitted by Law.
(e)      Any indemnification under this Section 6.16 (unless ordered by a court) shall be made by the Company unless the Board of Directors determines in the specific case that indemnification of the Indemnified Person is not proper in the circumstances because such Person has not met the applicable standard of conduct set forth in Section 6.16(b). Such determination shall be made by a majority vote of the Directors who are not parties to the applicable suit, action or proceeding. To the extent, however, that an Indemnified Person has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such Indemnified Person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such Indemnified Person in connection therewith, notwithstanding an earlier determination by the Board of Directors that the Indemnified Person had not met the applicable standard of conduct set forth in Section 6.16(b).
(f)      Notwithstanding any contrary determination in the specific case under Section 6.16(e), and notwithstanding the absence of any determination thereunder, any Indemnified Person may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 6.16(b). The basis of such indemnification by a court shall be a determination by such court that indemnification of the Indemnified Person is proper in the circumstances because such Indemnified Person has met the applicable standard of conduct set forth in Section 6.16(b). Neither a contrary determination in the specific case under Section 6.16(e) nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the Indemnified Person seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 6.16(f) shall be given to the Company promptly upon the filing of such application. If successful, in whole or in part, the Indemnified Person seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
(g)      To the fullest extent permitted by Law, expenses (including attorneys’ fees) actually and reasonably incurred by an Indemnified Person in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company as authorized in this Section 6.16.
(h)      The indemnification and advancement of expenses provided by or granted pursuant to this Section 6.16 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under this Agreement or any other agreement, vote of Members or disinterested Directors or otherwise, and shall continue as to an Indemnified Person who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnified Person unless otherwise provided in a written agreement with such Indemnified Person or in the writing pursuant to which such Indemnified Person is indemnified. The provisions of this Section 6.16 shall not be deemed to preclude the indemnification of any Person who is not specified in Section 6.16(b) but whom the Company has the power or obligation to indemnify under the provisions of the Delaware Act.
(i)      The Company may, but shall not be obligated to, purchase and maintain insurance on behalf of any Indemnified Person against any liability asserted against such Indemnified Person and incurred by such Indemnified Person in any capacity in which such Indemnified Person is entitled to indemnification hereunder, or arising out of such Indemnified Person’s status as such, whether or not the Company would have the power or the obligation to indemnify such Indemnified Person against such liability under the provisions of this Section 6.16.
(j)      The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 6.16 shall, unless otherwise provided when authorized or ratified, inure to the benefit of the heirs, executors and administrators of any Person entitled to indemnification under this Section 6.16.
(k)      The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company and to the employees and agents of the Company Group similar to those conferred in this Section 6.16 to Indemnified Persons.
(l)      If this Section 6.16 or any portion of this Section 6.16 shall be invalidated on any ground by a court of competent jurisdiction, the Company shall nevertheless indemnify each Indemnified Person as to expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, including a grand jury proceeding or action or suit brought by or in the right of the Company, to the full extent permitted by any applicable portion of this Section 6.16 that shall not have been invalidated.
(m)      Each Indemnified Person may, in the performance of such Indemnified Person’s duties, consult with legal counsel and accountants, and any act or omission by such Indemnified Person on behalf of the Company, any Subsidiary of the Company or any investment held by the Company or any Subsidiary of the Company in furtherance of the interests of the Company, any Subsidiary of the Company or any investment held by the Company or any Subsidiary of the Company in good faith in reliance upon, and in accordance with, the advice of such legal counsel or accountants will be full justification for any such act or omission, and such Indemnified Person will be fully protected for such acts and omissions, provided that such legal counsel or accountants were selected with reasonable care by or on behalf of the Company or such Subsidiary.
(n)      An Indemnified Person shall not be denied indemnification in whole or in part under this Section 6.16 because the Indemnified Person had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(o)      Any liabilities which an Indemnified Person incurs as a result of acting on behalf of the Company (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the U.S. Internal Revenue Service, penalties assessed by the U.S. Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities indemnifiable under this Section 6.16, to the maximum extent permitted by Law.
(p)      A Director shall, in the performance of such Director’s duties, be fully protected in relying in good faith upon the records of the Company and on such information, opinions, reports or statements presented to the Company by any of the Officers or employees of the Company or any other Group Member, or committees of the Board of Directors, or by any other Person as to matters the Director reasonably believes are within such Person’s professional or expert competence.
(q)      Any amendment, modification or repeal of this Section 6.16 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of any Indemnified Person under this Section 6.16 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted and provided such Person became an Indemnified Person hereunder prior to such amendment, modification or repeal.
(r)      The provisions of this Section 6.16 shall survive the termination of this Agreement with respect to the acts and omissions of an Indemnified Person occurring prior to such termination.
Section 6.17         Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties .
(a)      Unless otherwise expressly provided in this Agreement, whenever an actual or potential conflict of interest exists or arises between Oaktree Capital Group Holdings, one or more Directors or their respective Affiliates, on the one hand, and the Company, any Group Member or any Member other than Oaktree Capital Group Holdings, on the other, any resolution or course of action by the Board of Directors or its Affiliates in respect of such conflict of interest shall be permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement, of any agreement contemplated herein or of any duty stated or implied by Law or equity, including any fiduciary duty, if the resolution or course of action in respect of such conflict of interest is (i) approved or ratified by the vote of holders of Outstanding Voting Units representing a majority of the total votes that may be cast by all Outstanding Voting Units that are held by disinterested parties, (ii) on terms no less favorable to the Company, Group Member or Member other than Oaktree Capital Group Holdings, as applicable, than those generally being, provided to or available from unrelated third parties, (iii) fair and reasonable to the Company taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Company, Group Member or Member other than Oaktree Capital Group Holdings, as applicable) or (iv) approved or ratified by a majority of the Outside Directors. For the avoidance of doubt, the Company shall be authorized but not required to seek the approval or ratification of the Outside Directors pursuant to clause (iv) of the preceding sentence or the disinterested holders of Outstanding Voting Units pursuant to clause (i) of the preceding sentence, and the Board of Directors may also adopt a resolution or course of action that has not received the approval of the Outside Directors or the disinterested holders of Outstanding Voting Units. Failure to seek such approval shall not be deemed to indicate that a conflict of interest exists or that such approval could not have been obtained. If the Board of Directors determines that the resolution or course of action taken with respect to a conflict of interest satisfies either of the standards set forth in clauses (ii) and (iii) above, then it shall be presumed that, in making its determination, the Board of Directors acted in good faith, and in any proceeding brought by any Member or by or on behalf of such Member or any other Member challenging such determination, the Person bringing or prosecuting such proceeding shall have the burden of overcoming such presumption. Notwithstanding anything to the contrary in this Agreement, the existence of the conflicts of interest described in the Registration Statement are hereby approved by the Members and each other Person who may acquire an interest in Units hereby and shall not constitute a breach of this Agreement or of any duty (fiduciary or otherwise) otherwise existing at law, in equity or otherwise.
(b)      Notwithstanding any other provision of this Agreement or otherwise or any applicable provision of Law or equity, whenever in this Agreement or any other agreement contemplated hereby or otherwise the Manager, the Board of Directors, the Company or an Affiliate of the Company is permitted or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” or under a grant of similar authority or latitude, then, to the fullest extent permitted by Law, the Board of Directors, the Company or such Affiliate, as the case may be, may make such decision in its sole discretion (regardless of whether there is a reference to “sole discretion” or “discretion”), and shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting the Company or the Members, and shall not be subject to any other or different standards imposed by this Agreement, any other agreement contemplated hereby, under the Delaware Act, the DGCL or under any other Law or in equity, but in all circumstances shall exercise such discretion in good faith. Whenever in this Agreement or any other agreement contemplated hereby or otherwise, the Board of Directors or the Company is permitted to or required to make a decision in its “good faith,” then for purposes of this Agreement or otherwise, the Board of Directors or the Company, as the case may be, shall be conclusively presumed to be acting in good faith if such Person or Persons subjectively believe(s) that the decision made or not made is in or not opposed to the best interests of the Company.
(c)      Notwithstanding anything to the contrary in this Agreement, the Board of Directors and the Company shall have no duty or obligation, express or implied, to (i) sell or otherwise dispose of any asset of the Oaktree Operating Group other than in the ordinary course of business or (ii) permit any Group Member to use any facilities or assets of the Directors, except as may be provided in contracts entered into from time to time specifically dealing with such use. Any determination by an Affiliate of the Company to enter into such contracts shall be in such Person’s sole discretion.
(d)      Except as expressly set forth in this Agreement, to the fullest extent permitted by Law, neither the Board of Directors nor any other Indemnified Person shall have any duties or liabilities, including fiduciary duties, to the Company, any Member or any other Person bound by this Agreement, and the provisions of this Agreement, to the extent that they restrict or otherwise modify or eliminate the duties and liabilities, including fiduciary duties, of the Company or any other Indemnified Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of the Company or such other Indemnified Person.
(e)      The Members expressly acknowledge that the Board of Directors is under no obligation to consider the separate interests of the Members (including the tax consequences to Members) in deciding whether to cause the Company to take (or decline to take) any actions, and that the Board of Directors or any Director shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Members in connection with such decisions.
(f)      The Members hereby authorize each of (i) the Board of Directors and (ii) the Outside Directors, on behalf of the Company as a partner or member of any Group Member, to approve of actions by the board of directors, managing member or general partner of such Group Member similar to those actions permitted to be taken by the Board of Directors pursuant to this Section 6.17.
Section 6.18         Certificate of Formation . The Certificate of Formation and amendments thereto have been filed with the Secretary of State of the State of Delaware as required by the Delaware Act, such filings being hereby confirmed, ratified and approved in all respects. The Board of Directors shall use all reasonable efforts to cause to be filed such other certificates or documents that it determines to be necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware or any other state in which the Company may elect to do business or own property. To the extent that the Board of Directors determines such action to be necessary or appropriate, the Company shall file amendments to and restatements of the Certificate of Formation and do all things to maintain the Company as a limited liability company under the laws of the State of Delaware or of any other state in which the Company may elect to do business or own property, and any such Officer so directed shall be an “authorized person” of the Company within the meaning of the Delaware Act for purposes of filing any such certificate with the Secretary of State of the State of Delaware. The Company shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Formation, any qualification document or any amendment thereto to any Member.
Section 6.19         Officers .
(a)      The Board of Directors shall have the power and authority to appoint such officers with such titles, authority and duties as determined by the Board of Directors. Such Persons so designated by the Board of Directors shall be referred to as “ Officers .” The Officers shall have the titles, power, authority and duties as determined by the Board of Directors.
(b)      Each Officer shall hold office until his or her successor is elected and qualified or until his or her earlier death, disability, resignation or removal. Any number of offices may be held by the same Person.
(c)      Any Officer may resign at any time upon written notice to the Company. Any Officer, agent or employee of the Company may be removed by the Board of Directors with or without cause at any time. The Board of Directors may delegate the power of removal as to Officers, agents and employees who have not been appointed by the Board of Directors. Such removal shall be without prejudice to a Person’s contract rights, if any, but the appointment of any Person as an Officer, agent or employee of the Company shall not of itself create contract rights.
(d)      The Board of Directors may from time to time delegate the powers or duties of any Officer to any other Officers or agents, notwithstanding any provision hereof.
(e)      Unless otherwise directed by the Board of Directors, any Chairman, the President, the Chief Executive Officer or any other Officer of the Company shall have power to vote and otherwise act on behalf of the Company, in person or by proxy, at any meeting of members of or with respect to any action of equity holders of any other entity in which the Company may hold securities and otherwise to exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other entities.
Section 6.20         Duties of Officers and Directors .
(a)      Except as otherwise expressly provided in this Agreement or required by the Delaware Act, (i) the duties and obligations owed to the Company by the Officers and Directors shall be the duty of care and duty of loyalty owed to a corporation organized under DGCL by its officers and directors, respectively, and (ii) the duty of care and duty of loyalty owed to the Members by the Officers and Directors shall be the same as the duty of care and duty of loyalty owed to the stockholders of a corporation under the DGCL by its officers and directors, respectively.
(b)      The Board of Directors shall have the right to exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through the duly authorized Officers of the Company, and the Board of Directors shall not be responsible for the misconduct or negligence on the part of any such Officer duly appointed or duly authorized by the Board of Directors in good faith.
Section 6.21         Reliance by Third Parties . Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Board of Directors and any Officer authorized by the Board of Directors to act on behalf of and in the name of the Company has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any authorized contracts on behalf of the Company, and such Person shall be entitled to deal with the Board of Directors or any Officer as if it were the Company’s sole party in interest, both legally and beneficially. Each Member hereby waives, to the fullest extent permitted by Law, any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Board of Directors or any Officer in connection with any such dealing. In no event shall any Person dealing with the Board of Directors or any Officer or their respective representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the Board of Directors or any Officer or their respective representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the Board of Directors or any Officer or their respective representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.
Section 6.22         Manager .
(a)      The Manager shall have only the powers expressly set forth herein to designate and remove members of the Board of Directors, fill vacancies on the Board of Directors, determine from time to time the number of Directors which shall constitute the whole Board of Directors, resign and designate a substitute Manager, in each case as provided in this Article VI. To the fullest extent permitted by Law, in exercising its authority under this Agreement, the Manager may, but shall not be obligated to, take into account the consequences to any Member of any action taken (or not taken) by it. Notwithstanding anything to the contrary contained in this Agreement, to the fullest extent permitted by Law, the Manager shall owe no duties (including any fiduciary duties) to the Company, any Member or any other Person bound by this Agreement and shall have no liability to the Company, any Member or any other Person bound by this Agreement for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived by such Member in connection with such decisions. The Manager shall not be responsible or liable to the Company or any Member or other Person bound by this Agreement for the misconduct or negligence of any Director duly appointed by the Manager hereunder.
(b)      The Manager may resign at any time by giving notice of such resignation in writing or by electronic transmission to the Board of Directors. Any such resignation shall take effect at the time specified therein. The acceptance of such resignation by the Board of Directors shall not be necessary to make it effective. The Manager may at any time designate a substitute Manager that is a Permitted Oaktree Holder, which substitute Manager shall, upon the later of the acceptance of such designation and the effective date of such resignation of the resigning Manager, be subject to the terms and conditions set forth in this Agreement and be deemed the “Manager” for all purposes hereunder. In the event the Manager resigns and does not designate a substitute Manager in accordance with the terms of this Agreement, a substitute Manager shall be elected by the holders of Units representing a majority of the voting power of all Outstanding Voting Units, voting as a single class.
ARTICLE VII

BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 7.1         Records and Accounting . The Board of Directors shall keep or cause to be kept at the principal office of the Company appropriate books and records with respect to the Company’s business, including all books and records necessary to provide to the Members any information required to be provided pursuant to this Agreement. Any books and records maintained by or on behalf of the Company in the regular course of its business, including the record of the Members, books of account and records of Company proceedings, may be kept on, or be in the form of, computer disks, hard drives, punch cards, magnetic tape, photographs, micrographics or any other information storage device; provided , that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The Company shall maintain books and records for tax and financial reporting purposes on an accrual basis in accordance with U.S. GAAP.
Section 7.2         Fiscal Year . The fiscal year of the Company (each, a “ Fiscal Year ”) shall be a year ending December 31. The Board of Directors in its sole discretion may change the Fiscal Year at any time and from time to time, in each case as may be required or permitted under the Code or applicable United States Treasury Regulations, and shall notify the Members of such change in the next regular communication by the Company to the Members.
Section 7.3         Reports .
(a)      The Company shall use its commercially reasonable efforts to mail or make available to each Record Holder of a Unit, as of a date selected by the Board of Directors, within 120 days after the close of each fiscal year, an annual report containing financial statements of the Company for such Fiscal Year, presented in accordance with U.S. GAAP, including a balance sheet and statements of operations, equity and cash flows, such statements to be audited by a registered public accounting firm selected by the Board of Directors, and such other financial information as the Company deems appropriate.
(b)      The Company shall use its commercially reasonable efforts to mail or make available to each Record Holder of a Unit, as of a date selected by the Board of Directors, within 90 days after the close of each Quarter except the last Quarter of each Fiscal Year, a report containing unaudited financial statements of the Company and such other information as may be required by applicable Law or rule of any Securities Exchange on which the Units are listed for trading, or as the Board of Directors determines to be necessary or appropriate.
(c)      The Company shall be deemed to have made a report available to each Record Holder of a Unit as required by this Section 7.3 if it has (i) made such report available on any publicly available website maintained by or on behalf of the Company or (ii) filed such report with the SEC via its Electronic Data Gathering, Analysis and Retrieval system (or any successor system) and such report is publicly available on such system.
ARTICLE VIII

TAX MATTERS
Section 8.1         Tax Returns and Information . The Company shall use its commercially reasonable efforts to timely file all returns of the Company that are required for U.S. federal, state and local income tax purposes on the basis of the accrual method and its Fiscal Year. The Company may, in its sole discretion, furnish to Members estimates of all necessary tax information prior to the availability of definitive tax information; provided , however , that each Member hereby agrees that there can be no assurance that such definitive information will be the same as such estimates, and that the Company shall not be liable to any Member or to any other Person for any information contained in any such estimates or for any differences between such estimates and such definitive information. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for U.S. federal income tax purposes.
Section 8.2         Tax Elections . The Company shall, in its sole discretion, determine whether to make or refrain from making the election provided for in Section 754 of the Code and any and all other elections permitted by the tax laws of the United States, the several states and other relevant jurisdictions.
Section 8.3         Tax Controversies . For taxable periods ending on or before December 31, 2017, the Board of Directors shall designate one Member as the Tax Matters Partner. The initial Tax Matters Partner shall be Oaktree Capital Group Holdings. For taxable periods beginning on or after January 1, 2018, the Board of Directors shall appoint the Partnership Representative. The initial Partnership Representative shall be Oaktree Capital Group Holdings. The Tax Matters Partner, or Partnership Representative, as applicable, is authorized to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Member agrees to cooperate with the Tax Matters Partner, or Partnership Representative, as applicable, and to do or refrain from doing any or all things reasonably required by the Tax Matters Partner, or Partnership Representative, as applicable, to conduct such proceedings.
Section 8.4         Withholding . Notwithstanding any other provision of this Agreement, the Company is authorized to take any action that may be necessary or appropriate to, or cause the Company and other Group Members to, comply with any withholding requirements established under the Code or any other U.S. federal, state or local or non-U.S. Law including pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Company is required or elects to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to any Member (including by reason of Section 1446 of the Code), the Board of Directors may treat the amount withheld as a distribution of cash pursuant to Section 5.3, Section 2.2 of the Series A Preferred Unit Designation, the provisions of any other Unit Designation relating to distributions with respect to the Units established by such Unit Designation or Section 9.3 in the amount of such withholding from such Member.
Section 8.5         Election to be Treated as a Corporation . Notwithstanding anything to the contrary contained herein, if the Board of Directors determines in its sole discretion that it is no longer in the best interests of the Company to continue as a partnership for U.S. federal income tax purposes, the Board of Directors may elect to treat the Company as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes. In the event that the Board of Directors determines that the Company should seek relief pursuant to Section 7704(e) of the Code to preserve the status of the Company as a partnership for U.S. federal (and applicable state) income tax purposes, the Company and each Member shall agree to adjustments required by the tax authorities, and the Company shall pay such amounts as required by the tax authorities, to preserve the status of the Company as a partnership.
ARTICLE IX

DISSOLUTION AND LIQUIDATION
Section 9.1         Dissolution . The Company shall not be dissolved by the admission of Substitute Members or Additional Members. The Company shall dissolve, and its affairs shall be wound up:
(a)      upon an election to dissolve the Company by the Board of Directors that is approved by the holders of Units representing a majority of the voting power of all Outstanding Voting Units;
(b)      upon the entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Delaware Act; or
(c)      at any time when there are no Members of the Company, unless the business of the Company is continued in accordance with the Delaware Act.
Section 9.2         Liquidator . Upon dissolution of the Company, the Board of Directors shall select one or more Persons (which may be the Board of Directors or a Member) to act as Liquidator. The Liquidator (if other than the Board of Directors) shall be entitled to receive such compensation for its services as may be approved by holders of Units representing a majority of the voting power of all Outstanding Voting Units. The Liquidator (if other than the Board of Directors) shall agree not to resign at any time without 15 days’ prior notice and may be removed at any time, with or without cause, by notice of removal approved by holders of Units representing a majority of the voting power of all Outstanding Voting Units. Upon dissolution, death, incapacity, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by holders of Units representing a majority of the voting power of all Outstanding Voting Units. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article IX, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Board of Directors under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers) necessary or appropriate to carry out the duties and functions of the Liquidator hereunder for and during the period of time required to complete the winding up and liquidation of the Company as provided for herein.
Section 9.3         Liquidation . The Liquidator shall proceed to dispose of the assets of the Company, discharge its liabilities and otherwise wind up its affairs in such manner and over such period as determined by the Liquidator, subject to Section 18-804 of the Delaware Act and the following:
(a)      Subject to Section 9.3(c), the assets may be disposed of by public or private sale or by distribution in kind to one or more Members on such terms as the Liquidator may determine. The Liquidator may distribute the Company’s assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Members. Notwithstanding anything to the contrary contained in this Agreement, the Members understand and acknowledge that a Member may be compelled to accept a distribution of any asset in kind from the Company despite the fact that the percentage of the asset distributed to such Member exceeds the percentage of that asset which is equal to the percentage in which such Member shares in distributions from the Company. If any property is distributed in kind, the Member receiving the property shall be deemed for purposes of Section 9.3(c) to have received cash equal to its fair market value as determined by the Board of Directors or the Liquidator in its sole discretion, and contemporaneously therewith appropriate cash distributions must be made to the other Members. The Liquidator may defer liquidation or distribution of the Company’s assets for a reasonable period of time if it determines that an immediate sale or distribution of all or some of the Company’s assets would be impractical or would cause undue loss to the Members.
(b)      Liabilities of the Company include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 9.2) and amounts owed to Members otherwise than in respect of their distribution rights under Article V. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it deems appropriate or establish a reserve of cash or other assets to provide for its payment.
(c)      Subject to the terms of any Unit Designation, all property and all cash in excess of that required to discharge liabilities as provided in Section 9.3(b) shall be distributed to the Members in accordance with their respective Percentage Interests as of a Record Date selected by the Liquidator.
Section 9.4         Cancellation of Certificate of Formation . Upon the completion of the distribution of Company cash and property as provided in Section 9.3 in connection with the liquidation of the Company, the Certificate of Formation and all qualifications of the Company as a foreign limited liability company in jurisdictions other than the State of Delaware shall be cancelled and such other actions as may be necessary to terminate the Company shall be taken.
Section 9.5         Return of Contributions . Neither the Manager nor any Director or Officer shall be personally liable for, or have any obligation to contribute or loan any monies or property to the Company to enable it to effectuate, the return of the Capital Contributions of the Members, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.
Section 9.6         Waiver of Partition . To the maximum extent permitted by Law, each Member hereby waives any right to partition of the Company property.
Section 9.7         Capital Account Restoration . No Member shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Company.
ARTICLE X

AMENDMENT OF AGREEMENT
Section 10.1         General . Except as provided in Sections 10.2 and 10.3, the Board of Directors may amend any of the terms of this Agreement, but only in compliance with the terms, conditions and procedures set forth in this Section 10.1. Amendments to this Agreement may be proposed only by or with the consent of the Board of Directors. If an amendment to any provision of this Agreement other than pursuant to Section 10.3 has been proposed by or with the consent of the Board of Directors, then the Board of Directors shall first adopt a resolution setting forth the amendment proposed, declaring its advisability, and then (a) call a meeting of the Members entitled to vote in respect thereof for the consideration of such amendment or (b) seek the written consent of such Members. Such meeting shall be called and held upon notice in accordance with Article XII of this Agreement. The notice shall set forth such amendment in full or a brief summary of the changes to be effected thereby, as the Board of Directors shall deem advisable. At the meeting, a vote of Members entitled to vote thereon shall be taken for and against the proposed amendment. A proposed amendment shall be effective upon its approval by holders of Units representing a majority of the voting power of all Outstanding Voting Units, unless a greater percentage is required under this Agreement or by the Delaware Act.
Section 10.2         Specified Amendments .
(a)      Notwithstanding the provisions of Sections 10.1 and 10.3, no provision of this Agreement that establishes a percentage of the voting power of Outstanding Voting Units required to take any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of reducing such percentage unless such amendment is approved by the affirmative vote of holders of Outstanding Voting Units whose aggregate Outstanding Voting Units represent not less than the voting requirement sought to be reduced.
(b)      Notwithstanding the provisions of Sections 10.1 and 10.3, no amendment to this Agreement may (i) enlarge the obligations of any Member without its consent, unless such shall be deemed to have occurred as a result of an amendment approved pursuant to Section 10.2(c), (ii) change Section 9.1(a), (iii) change the term of the Company or (iv) except as set forth in Section 9.1(a), give any Person the right to dissolve the Company.
(c)      Except as provided in Sections 10.3 and 11.3, any amendment that would have a material adverse effect on the rights or preferences of any class or series of Units in relation to other classes or series of Units must be approved by the holders of not less than a majority of the Outstanding Units of the class or series affected. The issuance by the Company of securities having rights superior to those of Outstanding Units or Units having a dilutive effect on Outstanding Units shall not be deemed to have material adverse effect on the rights or preferences of any class or series of Units.
(d)      Notwithstanding Section 10.1, the affirmative vote of the holders of Units representing at least two-thirds of the voting power of all Outstanding Voting Units shall be required to alter or amend any provision of this Section 10.2.
Section 10.3         Amendments to be Adopted Solely by the Board of Directors . Notwithstanding Section 10.1, each Member agrees that the Board of Directors, without the approval of any Member or any other Person, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect:
(a)      a change in the name of the Company, the location of the principal place of business of the Company, the registered agent of the Company or the registered office of the Company;
(b)      the admission, substitution, resignation or removal of Members or the Manager in accordance with this Agreement;
(c)      a change that the Board of Directors determines in its sole discretion to be necessary or appropriate to qualify or continue the qualification of the Company as a limited liability company under the laws of any state or to ensure that the Group Members will not be treated as associations taxable as corporations or otherwise taxed as entities for U.S. federal income tax purposes;
(d)      a change that the Board of Directors determines in its sole discretion to be necessary or appropriate to address changes in U.S. federal income tax regulations, legislation or interpretation;
(e)      a change that the Board of Directors in its sole discretion determines (i) does not adversely affect the Members considered as a whole (including any particular class or series of Units as compared to other classes or series of Units) in any material respect, (ii) to be necessary, desirable or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any U.S. federal or state or non-U.S. agency or judicial authority or contained in any U.S. federal or state or non-U.S. statute (including the Delaware Act), (iii) to be necessary, desirable or appropriate to facilitate the trading of Units (including the division of any class or classes or series of Outstanding Units into different classes or series to facilitate uniformity of tax consequences within such classes or series of Units) or comply with any rule, regulation, guideline or requirement of any Securities Exchange on which Units are or will be listed for trading, (iv) to be necessary or appropriate in connection with action taken by the Board of Directors pursuant to Section 3.12 or (v) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement;
(f)      a change in the Fiscal Year or taxable year of the Company and any other changes that the Board of Directors determines to be necessary, desirable or appropriate as a result of a change in the Fiscal Year or taxable year of the Company;
(g)      an amendment that the Board of Directors determines, based on advice of counsel, to be necessary or appropriate to prevent the Company or its Directors, Officers, trustees or agents from having a material risk of being in any manner subjected to the provisions of the Investment Company Act or the Investment Advisers Act of 1940, as amended, or Title I of ERISA, Section 4975 of the Code or any applicable Similar Law currently applied or proposed;
(h)      an amendment that the Board of Directors determines in its sole discretion to be necessary or appropriate in connection with the authorization or issuance of any class or series of Units pursuant to Section 4.6 and the admission of Additional Members;
(i)      an amendment expressly permitted in this Agreement to be made by the Board of Directors acting alone (including pursuant to Sections 3.6(c) or 5.2(b));
(j)      an amendment effected, necessitated or contemplated by a Merger Agreement or Plan of Conversion approved in accordance with Section 11.3;
(k)      an amendment that the Board of Directors determines in its sole discretion to be necessary or appropriate to reflect and account for the formation by the Company of, or investment by the Company in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Company of activities permitted by the terms of Sections 2.4 or 6.1(a);
(l)      an amendment effected, necessitated or contemplated by an amendment to the Oaktree Operating Group Partnership Agreements that requires a holder of an Oaktree Operating Group Unit to provide a statement, certification or other proof of evidence to the Oaktree Operating Group Partnership regarding whether such unitholder is subject to U.S. federal income taxation on the income generated by the Oaktree Operating Group Partnerships;
(m)      a merger, conversion, conveyance or other business combination pursuant to Section 11.3(d), including an amendment permitted pursuant to Section 11.5; or
(n)      any other amendment substantially similar to one or more of the foregoing.
Section 10.4         Amendments to the Terms of Preferred Units . Notwithstanding anything to the contrary, the holders of a class or series of Preferred Units shall have no voting, approval or consent rights under this Article X, except as may be specified in the Unit Designation related to such class or series of Preferred Units. Except as may be provided in the Unit Designation related to a class or series of Preferred Units, the issuance by the Company of securities having rights superior to those of a class or series of Outstanding Preferred Units or Units having a dilutive effect on a class or series of Outstanding Preferred Units shall not be deemed to have a material adverse effect on the rights or preferences of such class or series of Preferred Units.
ARTICLE XI

MERGER, CONSOLIDATION OR CONVERSION
Section 11.1         Authority . The Company may merge or consolidate or otherwise combine with or into one or more corporations, limited liability companies, statutory trusts, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including a partnership (whether general or limited (including a limited liability partnership or a limited liability limited partnership)), or convert into any such entity, formed under the laws of the State of Delaware or any other state of the United States of America, pursuant to a written agreement of merger, consolidation or other business combination (a “ Merger Agreement ”), or a written plan of conversion (a “ Plan of Conversion ”), as the case may be, in accordance with this Article XI.
Section 11.2         Procedure for Merger, Consolidation, Conversion or Other Business Combination . Merger, consolidation, conversion or other business combination of the Company pursuant to this Article XI requires the prior consent of the Board of Directors; provided , however , that to the fullest extent permitted by Law, the Board of Directors shall have no duty or obligation to consent to any merger, consolidation, conversion or other business combination of the Company and, to the fullest extent permitted by Law, may decline to do so free of any duty (including any fiduciary duty) or obligation whatsoever to the Company, any Member or any other Person bound by this Agreement and, in declining to consent to a merger, consolidation, conversion or other business combination, shall not be required to act pursuant to any other standard imposed by this Agreement, any other agreement contemplated hereby or under the Delaware Act or any other Law or at equity. If the Board of Directors shall determine, in the exercise of its sole discretion, to consent to the merger, consolidation or other business combination, the Board of Directors shall approve the Merger Agreement or Plan of Conversion, which shall set forth:
(a)      the names and jurisdictions of formation or organization of each of the business entities proposing to merge, consolidate, convert or combine;
(b)      the name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger, consolidation, conversion or other business combination (the “ Surviving Business Entity ”);
(c)      the terms and conditions of the proposed merger, consolidation, conversion or other business combination;
(d)      the manner and basis of converting or exchanging the equity securities of each constituent business entity for, or into, cash, property or interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any interests in or securities or rights of any constituent business entity are not to be converted or exchanged solely for, or into, cash, property or interests in or rights, securities or obligations of the Surviving Business Entity, the cash, property or interests in or rights, securities or obligations of any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other entity (other than the Surviving Business Entity) which the holders of such interests, securities or rights are to receive upon conversion of, or in exchange for, their interests, securities or rights, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property or interests in or rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered;
(e)      a statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership, operating agreement or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger, consolidation, conversion or other business combination;
(f)      the effective time of the merger, consolidation, conversion or other business combination, which may be the date of the filing of the certificate of merger or consolidation or similar certificate pursuant to Section 11.4 or a later date specified in or determinable in accordance with the Merger Agreement or Plan of Conversion; provided , that if the effective time of such transaction is to be later than the date of the filing of such certificate, the effective time shall be fixed at a date or time certain at or prior to the time of the filing of such certificate and stated therein; and
(g)      such other provisions with respect to the proposed merger, consolidation, conversion or other business combination that the Board of Directors determines in its sole discretion to be necessary or appropriate.
Section 11.3         Approval by Members of Merger, Consolidation, Conversion or Other Business Combination .
(a)      Except as provided in Section 11.3(d), the Board of Directors, upon its approval of the Merger Agreement or Plan of Conversion, shall direct that the Merger Agreement or Plan of Conversion, as applicable, and the merger, consolidation, conversion or other business combination contemplated thereby be submitted to a vote of the Members, whether at an annual meeting or special meeting, in either case in accordance with the requirements of Article XII. A copy or a summary of the Merger Agreement or Plan of Conversion shall be included in or enclosed with the notice of meeting.
(b)      Except as provided in Section 11.3(d), the Merger Agreement or Plan of Conversion and the merger, consolidation, conversion or other business combination contemplated thereby shall be approved upon receiving the affirmative vote of the holders of a majority of the voting power of Outstanding Voting Units.
(c)      Except as provided in Section 11.3(d), after such approval by vote of the Members, and at any time prior to the filing of the certificate of merger, consolidation, conversion or similar certificate pursuant to Section 11.4, the merger, consolidation, conversion or other business combination may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement, or the Plan of Conversion, as the case may be.
(d)      Notwithstanding anything else contained in this Article XI or in this Agreement, the Board of Directors may, without Member approval, (i) convert the Company or any Group Member into a new limited liability entity or (ii) merge the Company or any Group Member into, or convey all of the Company’s assets to, another limited liability entity, which entity shall be newly formed and shall have no assets, liabilities or operations at the time of such conversion, merger or conveyance other than those it receives from the Company or other Group Member; provided , that (A) the Company has received an Opinion of Counsel that the merger or conveyance, as the case may be, will not result in the loss of the limited liability of any Member, (B) the sole purpose of such conversion, merger or conveyance is to effect a mere change in the legal form of the Company into another limited liability entity and (C) the governing instruments of the new entity provide the Members and the Board of Directors with substantially the same rights and obligations as are herein contained.
(e)      Members are not entitled to dissenters’ rights of appraisal in the event of a merger, consolidation or conversion pursuant to this Article XI, a sale of all or substantially all of the assets of the Company or the Company’s Subsidiaries or any other similar transaction or event.
(f)      Without the approval of any Member, the Board of Directors may, at any time, cause the Company to implement a reorganization whereby a Delaware statutory trust (the “ Trust ”) would hold all Outstanding Class A Units and the Record Holder of each Class A Unit would receive, in exchange for such Class A Unit, a common share of the Trust which would represent one beneficial interest in the Trust, and each common share of the Trust would correspond to one underlying Class A Unit; provided , however , that the Board of Directors shall not implement such a trust structure if, in its sole discretion, it determines that such reorganization would be taxable or otherwise alter the benefits or burdens of ownership of the Class A Units, including altering a Member’s allocation of items of income, gain, loss, deduction or credit or the treatment of such items for U.S. federal income tax purposes. The Board of Directors will also be required to implement the reorganization in such a manner that the reorganization does not have a material effect on the voting or economic rights of Class A Units and Class B Units.
Section 11.4         Certificate of Merger, Conversion or Consolidation . Upon the required approval by the Board of Directors and the Members of a Merger Agreement or Plan of Conversion and the merger, consolidation, conversion or business combination contemplated thereby, a certificate of merger, conversion or consolidation or similar certificate shall be executed and filed with the Secretary of State of the State of Delaware and any other applicable Governmental Entity in conformity with the requirements of the Delaware Act and other applicable Law.
Section 11.5         Amendment of Operating Agreement . Pursuant to Section 18-209(f) of the Delaware Act, and notwithstanding Article X hereof, an agreement of merger, consolidation or other business combination approved in accordance with this Article XI may (a) effect any amendment to this Agreement or (b) effect the adoption of a new operating agreement for a limited liability company if it is the Surviving Business Entity. Any such amendment or adoption made pursuant to this Section 11.5 shall be effective at the effective time or date of the merger, consolidation or other business combination.
Section 11.6         Preferred Units . Notwithstanding anything to the contrary, holders of a class or series of Preferred Units shall have no voting, approval or consent rights under this Article XI, except as may be specified in the Unit Designation related to such class or series of Preferred Units.
ARTICLE XII

MEMBER MEETINGS
Section 12.1         Member Meetings .
(a)      All acts of Members to be taken hereunder shall be taken in the manner provided in this Article XII. Meetings of the Members holding any class or series of Units may be called only by a majority of the Board of Directors, or with respect to holders of Voting Preferred Units, as provided in the Unit Designation relating to such Voting Preferred Units. For the avoidance of doubt, the Class A Units and Class B Units shall not constitute separate classes for this purpose. A meeting shall be held at a time and place determined by the Board of Directors in its sole discretion on a date not less than 10 calendar days nor more than 60 calendar days after the mailing of notice of the meeting.
(b)      In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, all elections of Directors shall be by written ballots. Unless otherwise provided by resolution of the Board of Directors, such requirement of a written ballot may be satisfied by a ballot submitted by electronic transmission; provided , that any such electronic transmission must either set forth or be submitted with information from which it can be reasonably determined that the electronic transmission was authorized by the Member or proxyholder.
(c)      For so long as Permitted Oaktree Holders collectively hold 10% or more of the issued and outstanding Oaktree Operating Group Units, the Company shall not be required to have an annual meeting unless otherwise required by applicable Law. In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units and the annual meeting for election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon as is convenient. If there is a failure to hold the annual meeting for a period of 30 days after the date designated for the annual meeting, or if no date has been designated, for a period of 13 months after the last annual meeting, it is the intent of the parties that no annual meeting be held for that year. In such situations, the Board of Directors will cause the Company to provide notice to all Members entitled to vote in the election of Directors as to the manner in which the election shall be conducted and the procedure that such Member must comply with in order to vote in the election of Directors.
Section 12.2         Notice of Meetings of Members . Notice, stating the place, day and hour of any annual or special meeting of the Members, as determined by the Board of Directors, and (a) in the case of a special meeting of the Members, the purpose or purposes for which the meeting is called or (b) in the case of an annual meeting, those matters that the Board of Directors, at the time of giving the notice, intends to present for action by the Members, shall be delivered by the Company not less than 10 calendar days nor more than 60 calendar days before the date of the meeting, in a manner and otherwise in accordance with Section 14.1, to each Record Holder who is entitled to vote at such meeting. Such further notice shall be given as may be required by the Delaware Act. Only such business shall be conducted at a meeting of Members as shall have been brought before the meeting pursuant to the Company’s notice of meeting. Any previously scheduled meeting of the Members may be postponed, and any meeting of the Members may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of the Members.
Section 12.3         Record Date . For purposes of determining the Members entitled to notice of or to vote at a meeting of the Members or to give approvals without a meeting as provided in Section 12.8, the Board of Directors may set a Record Date, which shall not be less than 10 calendar days nor more than 60 calendar days before (a) the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline or requirement of any Securities Exchange on which the Units are listed for trading, in which case the rule, regulation, guideline or requirement of such Securities Exchange shall govern) or (b) in the event that approvals are sought without a meeting, the date by which Members are requested in writing by the Board of Directors to give such approvals. If no Record Date is fixed by the Board of Directors, then (i) the Record Date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the day immediately preceding the day on which notice is given and (ii) the Record Date for determining the Members entitled to give approvals without a meeting shall be the date the first written approval is deposited with the Company in accordance with Section 12.8. A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment or postponement of the meeting; provided , however , that the Board of Directors may fix a new Record Date for the adjourned or postponed meeting.
Section 12.4         Adjournment . In the absence of a quorum, any meeting of Members may be adjourned from time to time by the affirmative vote of Members holding at least a majority of the voting power of the Outstanding Units entitled to vote at such meeting represented either in person or by proxy, but no other business may be transacted, except as provided in this Section 12.4. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than 45 days. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this Article XII.
Section 12.5         Waiver of Notice; Approval of Meeting . The transactions of any meeting of Members, however called and noticed, and whenever held, shall be as valid as if they had occurred at a meeting duly held after regular call and notice if a quorum is present either in person or by proxy. Attendance of a Member at a meeting shall constitute a waiver of notice of the meeting, except (a) when the Member attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business at such meeting because the meeting is not lawfully called or convened, and (b) that attendance at a meeting is not a waiver of any right to disapprove the consideration of matters required to be included in the notice of the meeting, but not so included, if the disapproval is expressly made at the meeting.
Section 12.6         Quorum; Required Vote for Member Action; Voting for Directors .
(a)      The Members holding a majority of the voting power of the Outstanding Units of the class or classes or series for which a meeting has been called represented in person or by proxy shall constitute a quorum at a meeting of the Members of such class or classes or series unless any such action by the Members requires approval by Members holding a greater percentage of the voting power of such Units, in which case the quorum shall be such greater percentage. For the avoidance of doubt, the Class A Units and Class B Units shall not constitute separate classes for this purpose.
(b)      At any meeting of the Members duly called and held in accordance with this Agreement at which a quorum is present, the act of Members holding Outstanding Units that in the aggregate represent a majority of the voting power of the Outstanding Units entitled to vote at such meeting and which are present in person or by proxy at such meeting shall be deemed to constitute the act of all Members, unless a greater or different percentage is required with respect to a matter under the Delaware Act, under the rules of any Securities Exchange on which the Units are listed for trading, or under the provisions of this Agreement, in which case the act of the Members holding Outstanding Units that in the aggregate represent at least such greater or different percentage of the voting power shall be required. The Members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum, if any action taken (other than adjournment) is approved by the required percentage of the voting power of Outstanding Units specified in this Agreement.
(c)      In the event that Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Operating Group Units, Directors shall be elected by a plurality of the votes cast for a particular position.
Section 12.7         Conduct of a Meeting . The Board of Directors shall have full power and authority concerning the manner of conducting any meeting of the Members or solicitation of approvals in writing, including the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of this Article XII, the conduct of voting, the validity and effect of any proxies and the determination of any controversies, votes or challenges arising in connection with or during the meeting or voting. The Board of Directors shall designate a Person to serve as chairman of any meeting and shall further designate a Person to take the minutes of any meeting. All minutes shall be kept with the records of the Company maintained by the Board of Directors. The Board of Directors may make such other regulations consistent with applicable Law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Members or solicitation of approvals in writing, including regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes and approvals, the submission and examination of proxies and other evidence of the right to vote and the revocation of approvals, proxies and votes in writing.
Section 12.8         Action Without a Meeting . Any action that may be taken at a meeting of Members may be taken without a meeting, without a vote and without prior notice, if an approval in writing setting forth the action so taken is signed by Members holding not less than the minimum percentage of the voting power of the Outstanding Voting Units that would be necessary to authorize or take such action at a meeting at which all the Members entitled to vote at such meeting were present and voted (unless such provision conflicts with any rule, regulation, guideline or requirement of any Securities Exchange on which the Units or a class or series thereof are listed for trading, in which case the rule, regulation, guideline or requirement of such Securities Exchange shall govern). Reasonable notice of the taking of action without a meeting shall be given to the Members who would have been entitled to vote on such action and who have not approved in writing. The Board of Directors may specify that a written ballot, if any, submitted to Members for the purpose of taking any action without a meeting shall be returned to the Company within the time period, which shall be not less than 20 days, specified by the Board of Directors in its sole discretion. If a ballot returned to the Company does not vote all of the Units held by a Member, the Units held by such Member and not voted on such ballot shall be deemed to have been voted in the same manner and in the same proportions as the voted Units. If approval of the taking of any action by the Members is solicited by any Person other than by or on behalf of the Board of Directors, the written approvals shall have no force and effect unless and until (a) they are deposited with the Company in the care of the Secretary or another Officer designated by the Board of Directors, (b) approvals sufficient to take the action proposed are dated as of a date not more than 90 days prior to the date sufficient approvals are deposited with the Company and (c) an Opinion of Counsel is delivered to the Company to the effect that the exercise of such right and the action proposed to be taken with respect to any particular matter is permissible under the state statutes then governing the rights, duties and liabilities of the Company and the Members. Nothing contained in this Section 12.8 shall be deemed to require the Board of Directors to solicit all Members in connection with a matter approved by Members holding the requisite percentage of the voting power of the Outstanding Voting Units acting by written consent without a meeting.
Section 12.9         Voting and Other Rights .
(a)      Only those Record Holders of Units on the Record Date set pursuant to Section 12.3 shall be entitled to notice of, and to vote at, a meeting of Members or to act with respect to matters as to which the holders of the Outstanding Voting Units have the right to vote or to act (including the giving of approval in writing). All references in this Agreement to votes of, or other acts that may be taken by, the holders of Outstanding Voting Units shall be deemed to be references to the votes or acts of the Record Holders of such Outstanding Voting Units on such Record Date. For the avoidance of doubt, the provisions of this Section 12.9 (as well as the other provisions of this Agreement) are subject to the provisions of Section 3.4.
(b)      With respect to Outstanding Voting Units that are held for a Person’s account by another Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing), in whose name such Outstanding Voting Units are registered, such other Person shall, in exercising the voting rights in respect of such Outstanding Voting Units on any matter, and unless the arrangement between such Persons provides otherwise, vote such Outstanding Voting Units in favor of, and at the direction of, the Person who is the Beneficial Owner, and the Company shall be entitled to assume it is so acting without further inquiry.
Section 12.10         Proxies and Voting .
(a)      On any matter that is to be voted on by Members, the Members may vote in person or by proxy, and such proxy may be granted in writing, by means of electronic transmission or as otherwise permitted by applicable Law. Any such proxy shall be filed in accordance with the procedure established for the meeting. For purposes of this Agreement, the term “ electronic transmission ” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. Any copy, facsimile or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided , that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing or transmission.
(b)      The Company may, and to the extent required by applicable Law, shall, in advance of any meeting of Members, appoint one or more inspectors to act at the meeting and make a written report thereof. The Company may designate one or more alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of Members, the Person presiding at the meeting may, and to the extent required by applicable Law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballot shall be counted by a duly appointed inspector or inspectors.
(c)      With respect to the use of proxies at any meeting of Members, the Company shall be governed by paragraphs (b), (c), (d) and (e) of Section 212 of the DGCL and other applicable provisions of the DGCL, as though the Company were a Delaware corporation and as though the Members were stockholders of a Delaware corporation.
ARTICLE XIII

RIGHT TO ACQUIRE UNITS

Section 13.1         Right to Acquire Units . Notwithstanding any other provision of this Agreement, if at any time less than 10% of the total Units of any series or class then Outstanding are held by Persons other than the Principals and Persons Controlled by the Principals, the Company shall then have the right, which right it may assign and transfer in whole or in part to any Affiliate, exercisable in its sole discretion, to purchase all, but not less than all, of such Units of such series or class then Outstanding held by Persons other than the Principals and Persons Controlled by the Principals, at the greater of (a) the Current Market Price as of the date three days prior to the date that the notice described in Section 13.2 is mailed and (b) the highest price paid by the Company or any of its Affiliates for any Unit of such series or class purchased during the 90-day period preceding the date that the notice described in Section 13.2 is mailed.
Section 13.2         Notice of Election to Purchase . If the Company or any Affiliate elects to exercise the right to purchase Units of any series or class granted pursuant to Section 13.1, the Company shall deliver to the Transfer Agent notice of such election to purchase (the “ Notice of Election to Purchase ”) and shall cause the Transfer Agent to send by registered or certified mail, postage prepaid, or overnight courier of national reputation, a copy of such Notice of Election to Purchase to the Record Holders of Units of such series or class (as of a Record Date selected by the Company) at least 10, but not more than 60, days prior to the date selected by the Company to purchase the Units (the “ Purchase Date ”). Such Notice of Election to Purchase shall also be published for a period of at least three consecutive days in at least two daily newspapers of general circulation printed in the English language and circulated in the Borough of Manhattan, New York. The Notice of Election to Purchase shall specify the Purchase Date and the price (determined in accordance with Section 13.1) at which Units will be purchased and state that the Company or its Affiliate, as the case may be, elects to purchase such Units (in the case of Units evidenced by Certificates, upon surrender of Certificates representing such Units) in exchange for payment at such office or offices of the Transfer Agent as the Transfer Agent may specify or as may be required by any Securities Exchange on which such Units are listed for trading. Any such Notice of Election to Purchase mailed to a Record Holder of Units at its address as reflected on the records of the Transfer Agent shall be conclusively presumed to have been given regardless of whether the Record Holder receives such notice. On or prior to the Purchase Date, the Company or its Affiliate, as the case may be, shall deposit with the Transfer Agent cash in an amount sufficient to pay the aggregate purchase price of all of such Units to be purchased in accordance with this Section 13.2. If the Notice of Election to Purchase shall have been duly given as aforesaid at least 10 days prior to the Purchase Date, and if on or prior to the Purchase Date the deposit described in the preceding sentence has been made for the benefit of the holders of Units subject to purchase as provided herein, then from and after the Purchase Date, notwithstanding that any Certificate shall not have been surrendered for purchase, all rights of the holders of such Units (including any rights pursuant to Articles IV, V, VII, and XII) shall thereupon cease, except the right to receive the purchase price (determined in accordance with Section 13.1) for Units therefor, without interest (in the case of Units evidenced by Certificates, upon surrender to the Transfer Agent of the Certificates representing such Units) and such Units shall thereupon be deemed to be transferred to the Company or its Affiliate, as the case may be, on the record books of the Transfer Agent, and the Company or its Affiliate, as the case may be, shall be deemed to be the owner of all such Units from and after the Purchase Date and shall have all rights as the owner of such Units (including all rights as owner of such Units pursuant to Articles IV, V, VII and XII).
ARTICLE XIV

GENERAL PROVISIONS
Section 14.1         Addresses and Notices .
(a)      Unless otherwise specified herein, any notice, demand, request, report or proxy materials required or permitted to be given or made to a Member under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or other means of written communication to the Member at the address described below. Any notice, payment in the form of a check, demand, request, report or proxy materials to be given or made to a Member in respect of any Units hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice, demand, request, report or proxy materials or to make such payment shall be deemed conclusively to have been fully satisfied, upon the sending of such notice, payment, demand, request, report or proxy materials to the Record Holder of such Units at its address as shown on the records of the Transfer Agent or as otherwise shown on the records of the Company, regardless of any claim of any Person who may have an interest in such Units by reason of any assignment or otherwise.
(b)      An affidavit or certificate of making of any notice, demand, request, report or proxy materials in accordance with the provisions of this Section 14.1 executed by the Company, the Transfer Agent or the mailing organization shall be prima facie evidence of the giving or making of such notice, demand, request, report or proxy materials. If any notice, demand, request, report or proxy materials given or made in accordance with this Section 14.1 is returned marked to indicate that such notice, demand, request, report or proxy materials was unable to be delivered, then such notice, demand, request, report or proxy materials, and in the case of notice, demand, request, report or proxy materials returned by the United States Postal Service or overnight courier of national reputation (or other physical mail delivery service outside of the United States of America), any subsequent notice, demand, request, report or proxy materials, shall be deemed to have been duly given or made without further mailing (until a reasonable period after such time as such Member or another Person notifies the Transfer Agent or the Company in writing of a change in such Member’s address) or other delivery if it is available for the Member at the principal office of the Company for a period of one year from the date of the giving or making of such notice, demand, request, report or proxy materials to the other Members. Any notice to the Company shall be deemed given if received by the Secretary at the principal office of the Company designated pursuant to Section 2.3. The Board of Directors and any Officer may rely and shall be protected in relying on any notice or other document from a Member or other Person if believed by the Board of Directors or such Officer to be genuine.
Section 14.2         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.
Section 14.3         Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. The Indemnified Persons and their heirs, executors, administrators and successors shall be entitled to receive the benefits of this Agreement.
Section 14.4         Integration . 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.
Section 14.5         Creditors . None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Company.
Section 14.6         Waiver . No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.
Section 14.7         Counterparts . This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a Person acquiring a Unit pursuant to Section 3.1(a), without execution hereof.
Section 14.8         Applicable Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 14.9         Invalidity of Provisions . If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 14.10         Consent of Members . Each Member hereby expressly consents and agrees that, whenever in this Agreement it is specified that an action may be taken upon the affirmative vote or consent of less than all of the Members, such action may be so taken upon the concurrence of less than all of the Members and each Member shall be bound by the results of such action.
Section 14.11         Facsimile Signatures . The use of facsimile signatures affixed in the name and on behalf of an Officer or Transfer Agent on Certificates is expressly permitted by this Agreement.
Section 14.12         Effectiveness of Amendment . The amendment and restatement of the Third Amended Agreement into this Agreement shall take effect on May 17, 2018.
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1

IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
Members :
OAKTREE CAPITAL GROUP, LLC, as attorney-in-fact for the Members of the Company
 
 
 
By:
 
/s/ Daniel D. Levin
 
 
 
 
Name:
 
Daniel D. Levin
 
 
Title:
 
Chief Financial Officer
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer

Manager :
OAKTREE CAPITAL GROUP HOLDINGS GP, LLC
 
 
 
By:
 
/s/ Daniel D. Levin
 
 
 
 
Name:
 
Daniel D. Levin
 
 
Title:
 
Chief Financial Officer
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer



[Oaktree Capital Group, LLC Fourth Amended and Restated Operating Agreement]
        
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EXHIBIT 1
UNIT DESIGNATION WITH RESPECT TO UNITS ISSUED IN 2015 MANDATORY EXCHANGE

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OAKTREE CAPITAL GROUP, LLC
UNIT DESIGNATION
WITH RESPECT TO UNITS ISSUED IN 2015 MANDATORY EXCHANGE
This Unit Designation (this “ Unit Designation ”), dated as of November 16, 2015, is made by Oaktree Capital Group, LLC, a Delaware limited liability company (the “ Company ”). Capitalized terms used but not defined in this Unit Designation shall have the meanings ascribed to such terms in the Third Amended and Restated Operating Agreement of the Company, dated as of August 31, 2011 (as amended through the date hereof, the “ Operating Agreement ”).
WHEREAS, pursuant to Section 4.6(a) of the Operating Agreement, the Company has the authority to issue any number of Units, and options, rights, warrants and appreciation rights relating to such Units, for any Company purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board of Directors shall determine, all without the approval of any Member or any other Person;
WHEREAS, pursuant to Section 4.6(b) of the Operating Agreement, such additional Units may be issued with such designations, preferences, rights, powers and duties as shall be fixed by the Board of Directors and reflected in a written action or actions approved by the Board of Directors in compliance with Section 6.1 of the Operating Agreement, including, among other things, the terms and conditions upon which such Units will be issued or transferred;
WHEREAS, pursuant to Section 4.6(c) of the Operating Agreement, the Board of Directors is authorized to take all actions that it determines to be necessary or appropriate in connection with, and shall determine in its sole discretion the rights relating to, the issuance of additional Units and options, rights, warrants and appreciation rights relating to Units; and
WHEREAS, the Board of Directors has approved this Unit Designation to apply to Class A Units of the Company that are issued in a mandatory exchange effective as of the date hereof of limited partnership units (“ OCGH Units ”) of Oaktree Capital Group Holdings, L.P. (“ OCGH ”) by the limited partners of OCGH (the “ 2015 Mandatory Exchange ”);
NOW, THEREFORE, the Company hereby approves and authorizes the Unit Designation on the terms and conditions set forth herein.
1. Additional Units. The Company authorizes the issuance of Class A Units (the “2015 Mandatory Exchange Units”) to limited partners of OCGH in the 2015 Mandatory Exchange pursuant to the terms set forth herein and in accordance with the Operating Agreement, and each Person to whom 2015 Mandatory Exchange Units are issued, if not already a Member, shall thereupon become a Member in accordance with and subject to the terms of the Operating Agreement and this Unit Designation.
2. Restrictions on Transfer. As used in this Unit Designation, the term “transfer” shall have the meaning given to it in the Operating Agreement. Notwithstanding any other provision of the Operating Agreement, no Person to whom 2015 Mandatory Exchange Units are issued (each, a

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“2015 Mandatory Exchange Member”) may, without the prior written consent of the Company (which consent may be withheld in the Company’s sole discretion), transfer any 2015 Mandatory Exchange Units, except as permitted below in this Section 2 and otherwise in accordance with the terms and conditions of the Operating Agreement:
a. the 2015 Mandatory Exchange Units shall be subject to a restriction on transfer by the 2015 Mandatory Exchange Members that shall, as to each 2015 Mandatory Exchange Member, lapse with respect to one-twelfth of the 2015 Mandatory Exchange Units issued to such 2015 Mandatory Exchange Member on the second business day after the Company publicly releases its quarterly earnings results with respect to (A) the Company’s fourth fiscal quarter of 2015 and (B) each fiscal quarter of the Company thereafter, with the result that such transfer restriction will lapse in its entirety on the second business day after the Company publicly releases its quarterly earnings results with respect to the Company’s third fiscal quarter for 2018; and
b. for each unvested OCGH Unit held by a 2015 Mandatory Exchange Member that is exchanged in the 2015 Mandatory Exchange, such 2015 Mandatory Exchange Unit that is issued to such 2015 Mandatory Exchange Member in respect thereof will be subject to the same vesting periods and conditions, forfeiture provisions and other similar terms and conditions applicable to such unvested OCGH Unit pursuant to the terms of the grant thereof.
c. each 2015 Mandatory Exchange Member who provides (or has provided) services to the Company or any of its Affiliates shall not transfer any 2015 Mandatory Exchange Units issued to such Member unless (1) such Member is at least 65 years old in age at the time of such transfer, (2) such transfer would occur after the first anniversary of the effective date as of which such Member permanently ceased to provide services to the Company and its Affiliates, or (3) after giving effect to such transfer, the remaining number of 2015 Mandatory Exchange Units and OCGH Units held by such Member is at least equal to the number that is 25% of the number of OCGH Units that were issued to such Member on or after January 1, 2014 (“Post-2013 OCGH Units”) and that have vested at the time of such transfer (with the calculation of such vesting taking into account any vesting that has occurred in respect of 2015 Mandatory Exchange Units issued to such Member in exchange for Post-2013 OCGH Units).
3. No Limitation. For the avoidance of doubt, nothing in this Unit Designation supersedes or limits in any way any additional transfer restrictions to which a 2015 Mandatory Exchange Member may otherwise be subject under the Operating Agreement, any equity plan, award or grant or other agreement, or any applicable policies of the Company to which such 2015 Mandatory Exchange Member may be subject.
4. Effectiveness. Pursuant to Section 4.6(b) of the Operating Agreement, this Unit Designation (or any action of the Board of Directors amending this Unit Designation) shall be effective when a duly executed original of the same is delivered to the Secretary for inclusion in the permanent records of the Company, and shall be annexed to, and constitute a part of, the Operating Agreement.
5. Conflicts. To the extent that any provision of this Unit Designation conflicts or is inconsistent with the Operating Agreement, the terms of this Unit Designation shall control.

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6. Governing Law. This Unit Designation shall be governed by and interpreted in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
7. Severability. If any provision of this Unit Designation is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
[Signature Page Follows]
 
 

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OAKTREE CAPITAL GROUP, LLC
 
 
By:
 
/s/ Todd Molz
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel and Chief Administrative Officer
 
 
By:
 
/s/ Richard Ting
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director Associate General Counsel


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EXHIBIT 2
UNIT DESIGNATION WITH RESPECT TO THE SERIES A PREFERRED UNITS

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OAKTREE CAPITAL GROUP, LLC
UNIT DESIGNATION WITH RESPECT TO THE
SERIES A PREFERRED UNITS
This Unit Designation (as it may be amended, supplemented or restated from time to time, this “ Unit Designation ”), dated as of May 17, 2018, is made by Oaktree Capital Group, LLC (the “ Company ”). Capitalized terms used but not defined in this Unit Designation shall have the meanings ascribed to such terms in the Fourth Amended and Restated Operating Agreement of the Company, dated as of May 17, 2018 (as it may be amended, supplemented or restated from time to time, the “ Operating Agreement ”).
WHEREAS, pursuant to Section 4.6(a) of the Operating Agreement, the Company has the authority to issue any number of Units, and options, rights, warrants and appreciation rights relating to such Units, for any Company purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board of Directors shall determine, all without the approval of any Member or any other Person;
WHEREAS, pursuant to Section 4.6(b) of the Operating Agreement, such additional Units may be issued with such designations, preferences, rights, powers and duties as shall be fixed by the Board of Directors and reflected in a written action or actions approved by the Board of Directors in compliance with Section 6.1 of the Operating Agreement, including, among other things, the terms and conditions upon which such Units will be issued or transferred;
WHEREAS, pursuant to Section 4.6(c) of the Operating Agreement, the Board of Directors is authorized to take all actions that it determines to be necessary or appropriate in connection with, and shall determine in its sole discretion the rights relating to, the issuance of additional Units and options, rights, warrants and appreciation rights relating to Units; and
WHEREAS, the Board of Directors determined it advisable and in the best interest of the Company and its Members to establish a committee of the Board of Directors to designate the Series A Preferred Units as a new class of Preferred Units, and the terms of the Series A Preferred Units, as set forth in this Unit Designation, have been duly approved in accordance with the Operating Agreement;
NOW, THEREFORE, the Company hereby approves and authorizes this Unit Designation on the terms and conditions set forth herein.
ARTICLE I
DEFINITIONS
Section 1.1 Definitions .
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Unit Designation. Capitalized terms used but not defined herein shall have the meanings given to them in the Operating Agreement.
“ 2011 Incentive Plan ” means the 2011 Oaktree Capital Group, LLC Equity Incentive Plan, as amended, restated, supplemented or otherwise modified from time to time, and any successor or similar plan.

“ Below Investment Grade Rating Event ” means (x) the rating on any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is lowered by either of the Rating Agencies in respect of a Change of Control and (y) any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are

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outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is rated below Investment Grade by both Rating Agencies on any date from the date of the public notice by the Company of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended until the ratings are announced if during such 60-day period the rating of any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is under publicly announced consideration for possible downgrade by either of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Company that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event). The Company shall request the Rating Agencies to make such confirmation in connection with any Change of Control.

“ Business Day ” means any day that is not a Saturday, Sunday or other day in which banking institutions in New York City are authorized or required by law to close.
“ Change of Control ” means the occurrence of the following:
(a) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties and assets (other than any CLO Subsidiaries) of the Oaktree Issuer Group to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act, or any successor provision), other than to a Continuing Oaktree Person; or
(b) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act or any successor provision), other than a Continuing Oaktree Person, becomes (i) the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act or any successor provision) of a majority of the controlling interests in (A) the Company or (B) one or more entities that, as of the relevant time, is a guarantor to any series of Oaktree Senior Notes comprising all or substantially all of the assets of the Oaktree Issuer Group and (ii) entitled to receive a Majority Economic Interest in connection with such transaction.
For the avoidance of doubt, the failure of the Permitted Oaktree Holders to collectively hold at least 10% of the issued and outstanding Oaktree Capital Group Units shall not, in and of itself, be deemed to be a “Change of Control.”
“ Change of Control Event ” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
“ CLO ” means a collateralized loan obligation vehicle or similar debt securitization vehicle or entity.
“ CLO Subsidiary ” means, at any time, (i) any Subsidiary that (x) manages or has been established to manage one or more CLOs or (y) is an affiliate of a Subsidiary described in clause (x) that purchases or otherwise acquires and/or retains securities, obligations or other interests in such CLO for the purpose of, among other things, satisfying (including on a prospective basis) any applicable risk retention laws, rules, regulations, guidelines, technical standards or guidance of any Governmental Entity and (ii) any Subsidiary of a Subsidiary described in the preceding clause (i). For the avoidance of doubt, the assets and obligations of any CLO Subsidiary will not be deemed to include the assets and obligations of any CLO such CLO Subsidiary may manage, except to the extent of any ownership of securities or obligations issued by, or other interests in, such CLO held by the CLO Subsidiary.

“ Continuing Oaktree Person ” means, immediately prior to and immediately following any relevant date of determination, (a) an individual who is a Senior Executive, (b) an individual who is an executive or other employee

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of the Company and/or its Subsidiaries who, as of any date of determination, has devoted substantially all of his or her business and professional time to the activities of the Company or any of its Subsidiaries during the 12 month period immediately preceding such date (each such person, an “ Executive ”), (c) Oaktree Capital Group Holdings GP, LLC, Oaktree Capital Group Holdings or any other Person in which any one or more of such individuals directly or indirectly, singly or as a group, holds a majority of the Voting Units, (d) any Person that is a family member of such individual or individuals, (e) any trust, foundation or other estate planning vehicle for which such individual acts as a trustee or beneficiary (any Person referred to in clause (c), (d) or (e) is referred to as a “ Related Party ”), or (f) or any Trust or any other entity that acquires all of the Company’s outstanding Class A units in exchange for common equity interests in such entity immediately following which acquisition the former holders of Class A units and other Continuing Oaktree Persons collectively are the Beneficial Owners, directly or indirectly, of a majority of the controlling interests in the Company (any such trust or entity, an “ Eligible Holding Entity ”). Notwithstanding the foregoing, Oaktree Capital Group Holdings GP, LLC, Oaktree Capital Group Holdings, any Eligible Holding Entity, each of the Senior Executives and any Related Party of such Senior Executive and each of the Executives and any Related Party of such Executive shall be deemed to be a Continuing Oaktree Person.
“ Dissolution Event ” means an event giving rise to the dissolution of the Company in accordance with Section 9.1 of the Operating Agreement.
“ Distribution Payment Date ” means March 15, June 15, September 15 and December 15 of each year, commencing with respect to the Series A Preferred Units, on September 15, 2018.
“ Distribution Period ” means the period from and including a Distribution Payment Date to, but excluding, the next Distribution Payment Date, except that the initial Distribution Period with respect to the Series A Preferred Units shall commence on and includes May 17, 2018.
“ Executive ” has the meaning set forth in Section 1.1 of this Unit Designation in the definition of “Continuing Oaktree Person.”
“ Eligible Holding Entity ” has the meaning set forth in Section 1.1 of this Unit Designation in the definition of “Continuing Oaktree Person.”
“ Fitch ” means Fitch Ratings Inc. or any successor thereto.
 
“ Gross Ordinary Income ” means the Company’s gross income excluding any gross income attributable to the sale or exchange of “capital assets” as defined in Section 1221 of the Code. Allocations to Series A Holders of Gross Ordinary Income shall consist of a proportionate share of each Company item of Gross Ordinary Income for such Fiscal Year in accordance with each such holder’s Percentage Interest with respect to such holder’s Series A Preferred Units.
“ Group ” has the meaning set forth in Section 13(d) of the Exchange Act as in effect on the date of this Agreement.
“ Investment Grade ” means a rating of BBB- or better by Fitch (or its equivalent under any successor rating categories of Fitch) and BBB- or better by S&P (or its equivalent under any successor rating categories of S&P) (or, in each case, if such Rating Agency ceases to rate a series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, ceases to assign a long-term issuer rating to the Company) for reasons outside of the Company’s control, the equivalent investment grade credit rating from any Rating Agency selected by the Company as a replacement Rating Agency).
“ Junior Units ” means Class A Units, Class B Units and any other equity securities that the Company may issue after May 17, 2018 ranking, as to the payment of distributions, junior to the Series A Preferred Units.
“ Majority Economic Interest ” means any right or entitlement to receive more than 50% of the equity distributions or partnership allocations (whether such right or entitlement results from the ownership of partner or other equity

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interests, securities, instruments or agreements of any kind) made to all holders of equity interests in the Oaktree Issuer Group (other than to entities within the Oaktree Issuer Group).
“ Nonpayment ” has the meaning set forth in Section 2.7(a) of this Unit Designation.
“ Oaktree Group ” means (i) the Manager and its Affiliates, including their respective general partners, members and limited partners, (ii) the Oaktree Operating Group and its Affiliates, including their respective general partners, members and limited partners, (iii) with respect to each Principal, such Principal and such Principal’s Group, and (iv) any former or current director, executive officer, officer, investment professional, or other employee of the Oaktree Operating Group (or such other entity controlled, directly or indirectly, by a member of the Oaktree Operating Group) and any member of such Person’s Group.

“ Oaktree Issuer Group ” means the Company, the members of the Oaktree Operating Group and any other entity that, as of the relevant time, is a guarantor to any series of Oaktree Senior Notes, and their direct and indirect Subsidiaries (to the extent of their economic ownership interest in such Subsidiaries), taken as a whole.
“ Oaktree Operating Group ” means, for the purpose of this Unit Designation, collectively, (a) as of May 17, 2018, Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and (b) any other subsidiary of the Company (whether now existing or hereafter formed) that is designated from time to time as part of the Oaktree Operating Group by the Board of Directors and that either (i) acts as or Controls the general partners and investment advisers of the Investment Funds or (ii) holds interests in other entities or investments generating income for the Company.

“ Oaktree Senior Notes ” means (i) the 3.91% Senior Notes, Series A, due 2024 issued by Oaktree Capital Management, L.P., (ii) the 4.01% Senior Notes, Series B, due 2026 issued by Oaktree Capital Management, L.P., (iii) the 4.21% Senior Notes, Series C, due 2029 issued by Oaktree Capital Management, L.P., (iv) the 3.69% Senior Notes due 2031 issued by Oaktree Capital Management, L.P., (v) the 3.78% Senior Notes due 2032 issued by Oaktree Capital Management, L.P. and any similar series of senior unsecured debt securities, in each case, guaranteed by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P., each of which is a member of the Oaktree Operating Group.

“ Operating Agreement ” has the meaning set forth in the preamble.
“ Parity Units ” means any Company Units, including Preferred Units, that the Company has authorized or issued or may authorize or issue, the terms of which provide that such securities shall rank equally with the Series A Preferred Units with respect to payment of distributions and distribution of assets upon a Dissolution Event.
“ Permitted Distribution ” means each of the following: (A) Tax Distributions (as defined in the operating agreements of the members of the Oaktree Operating Group) received, directly or indirectly, from the Oaktree Operating Group in accordance with the terms of the operating agreements of the members of the Oaktree Operating Group as in effect on May 17, 2018, (B) the net unit settlement of equity-based awards granted under the 2011 Equity Incentive Plan in order to satisfy associated tax obligations (C) exchanges of Common Units of the Company and/or its Subsidiaries in connection with the exchange of units of Oaktree Capital Group Holdings for Common Units or equity interests of the Company’s Subsidiaries under the Exchange Agreement, (D) purchases pursuant to put or call arrangements with current or former Senior Executives, employees or service partners entered into in good faith in connection with the provision of personal services, (E) distributions of incentive compensation to current or former Senior Executives, employees or service partners in respect of their “points” interests in the Company’s Subsidiaries, (F) distributions, directly or indirectly, to the Company, its Subsidiaries or Oaktree Capital Group Holdings to enable the Company, its Subsidiaries or Oaktree Capital Group Holdings to pay expenses or satisfy other obligations (other than obligations in respect of distributions or purchases of Junior Units that would not otherwise be Permitted Distributions), (G) redemptions of Common Units pursuant to provisions of the Operating Agreement as in effect on May 17, 2018, (H) purchases in connection with the settlement of a bona fide forward purchase or accelerated Unit repurchase arrangement with a third party financial institution that is entered into before the start of the applicable

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Distribution Period, (I) payments made on redemption or conversion of convertible notes or convertible preferred equity or the entry into or settlement of call options, bond hedges and/or warrants to hedge the Company’s exposure in connection with the issuance of the convertible notes or convertible preferred equity, (J) distributions paid in, or exchanges of Junior Units or Oaktree Capital Group Holdings units for, Junior Units or options, warrants or rights to subscribe for or purchase Junior Units or distributions or purchases paid, directly or indirectly, with proceeds from the substantially concurrent sale of Junior Units and (K) distributions, directly or indirectly, to Oaktree Capital Group Holdings or its successor to enable it to (1) make distributions in respect of any outstanding Oaktree Capital Group Holdings equity value units, and (2) purchase any Oaktree Capital Group Holdings units into which the equity value units have been recapitalized pursuant to any put right exercised by the holder of such equity value units.
“ Rating Agency ” means:
(a) each of Fitch and S&P; and
(b) if either of Fitch or S&P ceases to rate any series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, ceases to assign a long-term issuer rating to the Company) or fails to make a rating of any series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, the Company’s long-term issuer rating) publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) of the Exchange Act selected by the Company as a replacement agency for Fitch or S&P, or both, as the case may be.
“ Rating Agency Event ” means a change to the methodology or criteria that were employed by an applicable nationally recognized statistical rating organization for purposes of assigning equity credit to securities with features similar to the Series A Preferred Units on May 17, 2018 (the “current methodology”), which change either (a) shortens the period of time during which equity credit pertaining to the Series A Preferred Units would have been in effect had the current methodology not been changed or (b) reduces the amount of equity credit assigned to the Series A Preferred Units as compared with the amount of equity credit that such rating agency had assigned to the Series A Preferred Units as of May 17, 2018.
“ Related Party ” has the meaning set forth in Section 1.1 in the definition of “Continuing Oaktree Person.”
“ S&P ” means Standard & Poor’s Ratings Services, a division of McGraw-Hill Financial, Inc., or any successor thereto.
“ Senior Executive ” means, as May 17, 2018, Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank and Sheldon M. Stone, and any other person who may from time to time, prior to such time as the Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Capital Group Units, be designated by the Board of Directors as a “Principal” of the Company, in each case until his or her death, disability, resignation or removal by the Board of Directors.
“ Series A Distribution Rate ” means 6.625%.
“ Series A Holder ” means a Record Holder of Series A Preferred Units.
“ Series A Liquidation Preference ” means $25.00 per Series A Preferred Unit.
“ Series A Liquidation Value ” means the sum of the Series A Liquidation Preference and declared and unpaid distributions, if any, to, but excluding, the date of the Dissolution Event on the Series A Preferred Units.
“ Series A Preferred Unit ” means a 6.625% Series A Preferred Unit having the designations, rights, powers and preferences set forth in Article II of this Unit Designation.
“ Series A Record Date ” means, with respect to any Distribution Payment Date, the March 1, June 1, September 1 or December 1, as the case may be, immediately preceding the relevant March 15, June 15, September 15 or

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December 15 Distribution Payment Date, respectively. These Series A Record Dates shall apply regardless of whether a particular Series A Record Date is a Business Day. The Series A Record Dates shall constitute Record Dates with respect to the Series A Preferred Units for the purpose of distributions on the Series A Preferred Units.
 
“ Series A Tax Event ” means, after May 17, 2018, (a) due to an amendment to, or a change in official interpretation of, the Code, Treasury Regulations promulgated thereunder, or administrative guidance or (b) due to an administrative or judicial determination, (i) the Company is advised by nationally recognized counsel or a “Big Four” accounting firm that the Company will be treated as an association taxable as a corporation for U.S. federal income tax purposes or otherwise subject to U.S. federal income tax (other than any tax imposed pursuant to Section 6625 of the Code, as amended by the Bipartisan Budget Act of 2015) or (ii) the Company files an IRS Form 8832 (or successor form) electing that the Company be treated as an association taxable as a corporation for U.S. federal income tax purposes, the Company converts or merges into a corporation, or the Company is otherwise treated as an association taxable as a corporation for U.S. federal income tax purposes.
“ Unit Designation ” has the meaning set forth in the preamble.
“ Voting Preferred Units ” has the meaning set forth in Section 2.7(a) of this Unit Designation.
ARTICLE II
TERMS, RIGHTS, POWERS, PREFERENCES AND DUTIES OF SERIES A
PREFERRED UNITS
Section 2.1 Designation . The Series A Preferred Units are hereby designated and created as a series of Preferred Units. Each Series A Preferred Unit shall be identical in all respects to every other Series A Preferred Unit. There is authorized for issuance an unlimited number of Series A Preferred Units. The Series A Preferred Units are not “Voting Units” for purposes of the Operating Agreement. As of any date of determination, the Percentage Interest as to any Series A Holder in its capacity as such with respect to Series A Preferred Units shall be 0% as such term applies to all Members; provided , however , that when such term is used to only apply to Series A Holders, “Percentage Interest” shall mean, with respect to any holder of Series A Preferred Units in its capacity as such as of any date, the ratio (expressed as a percentage) of the number of Series A Preferred Units held by such holder on such date relative to the aggregate number of Series A Preferred Units Outstanding as of such date. The Capital Account balance of a Member with respect to each Series A Preferred Unit held by such Member shall equal the Liquidation Preference per Series A Preferred Unit as of the date such Series A Preferred Unit is initially issued and shall be increased as set forth in Section 2.6 of this Unit Designation.
Section 2.2 Distributions .
(a) The Series A Holders shall be entitled to receive with respect to each Series A Preferred Unit owned by such holder, when, as and if declared by the Board of Directors, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash distributions, on the applicable Distribution Payment Date that corresponds to the Record Date for which the Board of Directors has declared a distribution, if any, in an amount equal to the product of (i) 25% and (ii) the rate per annum equal to the Series A Distribution Rate (subject to Section 2.5(b) of this Unit Designation) and (iii) the Series A Liquidation Preference. Such distributions shall be non-cumulative. If a Distribution Payment Date is not a Business Day, the related distribution (if declared) shall be paid on the next succeeding Business Day with the same force and effect as though paid on such Distribution Payment Date, without any increase to account for the period from such Distribution Payment Date through the date of actual payment. Distributions payable on the Series A Preferred Units for any period less than a full Distribution Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Declared distributions will be payable on the relevant Distribution Payment Date to Series A Holders as they appear on the Company’s register at the close of business, New York City time, on a Series A Record Date, provided that if the Series A Record Date is not a Business Day, the declared distributions will be payable on the relevant Distribution Payment Date to Series A Holders as they appear on the Company’s register at the close of business, New York City time, on the Business Day immediately preceding such Series A Record Date.

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(b) So long as any Series A Preferred Units are Outstanding, unless, in each case, distributions have been declared and paid or declared and set apart for payment on the Series A Preferred Units for a quarterly Distribution Period, (i) no distribution, whether in cash or property, may be declared or paid or set apart for payment on the Junior Units for the remainder of that quarterly Distribution Period and (ii) the Company and its Subsidiaries shall not directly or indirectly repurchase, redeem or otherwise acquire for consideration any Junior Units other than, in each case, any Permitted Distributions.
(c) The Board of Directors, or a duly authorized committee thereof, may, in its sole discretion, choose to pay distributions on the Series A Preferred Units without the payment of any distributions on any Junior Units.
(d) When distributions are not declared and paid (or duly provided for) on any Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series A Preferred Units, on a distribution payment date falling within the related Distribution Period) in full upon the Series A Preferred Units or any Parity Units, all distributions declared upon the Series A Preferred Units and all such Parity Units payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date falling within the related Distribution Period) shall be declared pro rata so that the respective amounts of such distributions shall bear the same ratio to each other as all declared and unpaid distributions per Unit on the Series A Preferred Units and all unpaid distributions, including any accumulations, on all Parity Units payable on such Distribution Payment Date (or in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series A Preferred Units, on a distribution payment date falling within the related Distribution Period) bear to each other.
(e) No distributions may be declared or paid or set apart for payment on any Series A Preferred Units if at the same time any arrears exist or default exists in the payment of distributions on any Outstanding Units ranking, as to the payment of distributions and distribution of assets upon a Dissolution Event, senior to the Series A Preferred Units, subject to any applicable terms of such Outstanding Units.
(f) Series A Holders shall not be entitled to any distributions, whether payable in cash or property, other than as provided in this Unit Designation and shall not be entitled to interest, or any sum in lieu of interest, in respect of any distribution payment, including any such payment which is delayed or foregone.
(g) The Members intend that no portion of the distributions paid to the Series A Holders pursuant to this Section 2.2 shall be treated as a “guaranteed payment” within the meaning of Section 707(c) of the Code, and no Member shall take any position inconsistent with such intention, except if there is a change in applicable law or final determination by the Internal Revenue Service that is inconsistent with such intention.
Section 2.3 Rank . The Series A Preferred Units shall rank, with respect to payment of distributions and distribution of assets upon a Dissolution Event:
(a) junior to all of the Company’s existing and future indebtedness and any equity securities, including Preferred Units, that the Company may authorize or issue, the terms of which provide that such securities shall rank senior to the Series A Preferred Units with respect to payment of distributions and distribution of assets upon a Dissolution Event;
(b) equally to any Parity Units; and
(c) senior to any Junior Units.
Section 2.4 Optional Redemption .
(a) Except as set forth in Section 2.5 of this Unit Designation, the Series A Preferred Units shall not be redeemable prior to June 15, 2023. At any time or from time to time on or after June 15, 2023, subject to any limitations that may be imposed by law, the Company may, in its sole discretion, redeem the Series A Preferred Units, out of funds legally available therefor, in whole or in part, at a redemption price equal to the Liquidation Preference per Series A Preferred Unit plus an amount equal to declared and unpaid distributions, if any, from the Distribution Payment Date immediately preceding the redemption date to, but excluding, the redemption date. If less than all of the Outstanding Series A Preferred Units are to be redeemed, the Company shall select the Series A

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Preferred Units to be redeemed from the Outstanding Series A Preferred Units not previously called for redemption by lot or pro rata (as nearly as possible) or otherwise in accordance with the applicable procedures of The Depository Trust Company (or its successor or replacement) and in compliance with the requirements of the Securities Exchange on which the Series A Preferred Units are then listed, if then listed on a Securities Exchange.
(b) In the event the Company shall redeem any or all of the Series A Preferred Units in accordance with Section 2.4(a) of this Unit Designation, the Company shall give notice of any such redemption to the Series A Holders (which such notice may be delivered prior to June 15, 2023) not more than 60 nor less than 30 days prior to the date fixed for such redemption. Failure to give notice to any Series A Holder shall not affect the validity of the proceedings for the redemption of any Series A Preferred Units being redeemed.
(c) Notice having been given as herein provided and so long as funds legally available and sufficient to pay the redemption price for all of the Series A Preferred Units called for redemption have been set aside for payment, from and after the redemption date, such Series A Preferred Units called for redemption shall no longer be deemed Outstanding, and all rights of the Series A Holders thereof under this Unit Designation, the Operating Agreement or otherwise shall cease, except for the right to receive the redemption price, without interest.
(d) The Series A Holders shall have no right to require redemption of any Series A Preferred Units.
(e) Without limiting clause (c) of this Section 2.4, if the Company shall deposit, on or prior to any date fixed for redemption of Series A Preferred Units (pursuant to notice delivered in accordance with Section 2.4(b)), with any bank or trust company as a trust fund, funds sufficient to redeem the Series A Preferred Units called for redemption, with irrevocable instructions and authority to such bank or trust company to pay on and after the date fixed for redemption or such earlier date as the Company may determine, to the respective Series A Holders, the redemption price thereof, then from and after the date of such deposit (although prior to the date fixed for redemption) such Series A Preferred Units so called shall be deemed to be redeemed and such deposit shall be deemed to constitute full payment of said Series A Preferred Units to the holders thereof and from and after the date of such deposit said Series A Preferred Units shall no longer be deemed to be Outstanding, and the holders thereof shall cease to be holders of Units with respect to such Series A Preferred Units, and shall have no rights with respect thereto under this Unit Designation, the Operating Agreement or otherwise, except only the right to receive from said bank or trust company, on the redemption date or such earlier date as the Company may determine, payment of the redemption price of such Series A Preferred Units without interest.
Section 2.5 Change of Control Event Redemption; Series A Tax Event Redemption; Rating Agency Event Redemption .
(a) If a Change of Control Event occurs prior to June 15, 2023, within 60 days of the occurrence of such Change of Control Event, the Company may, in its sole discretion, redeem the Series A Preferred Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.25 per Series A Preferred Unit plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
 
(b) If (i) a Change of Control Event occurs (whether before, on or after June 15, 2023) and (ii) the Company does not give notice to the Series A Holders prior to the 31st day following the Change of Control Event to redeem all the Outstanding Series A Preferred Units, the Series A Distribution Rate shall increase by 5.00%, beginning on the 31st day following the consummation of such Change of Control Event.
(c) In connection with any Change of Control and any particular reduction in the rating on a series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, a reduction in the Company’s long-term issuer rating), the Company shall request from the Rating Agencies each such Rating Agency’s written confirmation whether such reduction in the rating on each such series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, the Company’s long-term issuer rating) was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of any Below Investment Grade Rating Event).
(d) If a Series A Tax Event occurs prior to June 15, 2023, within 60 days of the occurrence of such Series A Tax Event, the Company may, in its sole discretion, redeem the Series A Preferred Units, in whole but not in part,

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out of funds legally available therefor, at a redemption price equal to $25.50 per Series A Preferred Unit, plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
(e) If a Rating Agency Event occurs prior to June 15, 2023, within 60 days of the occurrence of such Rating Agency Event, the Company may, in its sole discretion, redeem the Series A Preferred Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series A Preferred Unit, plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
(f) In the event the Company elects to redeem all of the Series A Preferred Units in accordance with Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation, the Company shall give notice of any such redemption to the Series A Holders at least 30 days prior to the date fixed for such redemption. Notice of any redemption, whether in connection with events described in Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation, may be given prior to the completion thereof, and any such redemption or notice may, at the Company’s discretion, be subject to one or more conditions precedent, including, but not limited to, completion or occurrence of the related events described in Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation; provided , however , that any notice subject to one or more conditions precedent shall specify a redemption date no later than June 14, 2023. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Company’s discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date so delayed; provided , however , that the redemption date, if such redemption is conditional, shall not be delayed beyond June 14, 2023. In addition, the Company may provide in such notice that payment of the redemption price and performance of the Company’s obligations with respect to such redemption may be performed by another Person.
(g) The Series A Holders shall have no right to require redemption of any Series A Preferred Units pursuant to this Section 2.5.
Section 2.6 Allocations . Before giving effect to the allocations set forth in Section 5.2 of the Operating Agreement, Gross Ordinary Income for the Fiscal Year shall be specially allocated pro rata to the holders of Series A Preferred Units in accordance with each holder’s Percentage Interest with respect to their Series A Preferred Units in an amount equal to the sum of (i) the amount of cash distributed with respect to the Series A Preferred Units pursuant to Section 2.2 of this Unit Designation during such Fiscal Year and (ii) the excess, if any, of the amount of cash distributed with respect to the Series A Preferred Units pursuant to Section 2.2 of this Unit Designation in all prior Fiscal Years over the amount of Gross Ordinary Income allocated to the Series A Holders pursuant to this Section 2.6 in all prior Fiscal Years. To the extent that there is insufficient Gross Ordinary Income for a Fiscal Year to allocate to the Series A Holders pursuant to the prior sentence and to the holders of any other Parity Units, Gross Ordinary Income shall be allocated to the Series A Holders and holders of Parity Units for such Fiscal Year on a pro rata basis based on the amount of distributions paid in respect of the Series A Preferred Units and such Parity Units, respectively, in such Fiscal Year.
Section 2.7 Voting .
(a) Notwithstanding any provision in the Operating Agreement to the contrary, and except as set forth in this Section 2.7, the Series A Preferred Units shall not have any relative, participating, optional or other voting, consent or approval rights or powers, and the vote, consent or approval of the Series A Holders shall not be required for the taking of any Company action or inaction. Notwithstanding any provision in the Operating Agreement to the contrary, if and whenever six quarterly distributions (whether or not consecutive) payable on the Series A Preferred Units have not been declared and paid (a “ Nonpayment ”), the number of Directors then constituting the Board of Directors automatically shall be increased by two and the Series A Holders, voting together as a single class with the holders of any other class or series of Parity Units then Outstanding upon which like voting rights have been conferred and are exercisable (any such other class or series, “ Voting Preferred Units ”), shall have the right to elect these two additional Directors at a meeting of the Series A Holders and the holders of such Voting Preferred Units called as hereafter provided. When quarterly distributions have been declared and paid on the Series A Preferred

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Units for four consecutive Distribution Periods following the Nonpayment, then the right of the Series A Holders and the holders of such Voting Preferred Units to elect such two additional Directors shall cease and the terms of office of all directors elected by the Series A Holders and holders of the Voting Preferred Units shall forthwith terminate immediately and the number of Directors constituting the whole Board of Directors automatically shall be reduced by two and, for purposes of determining whether a Nonpayment has occurred, the number of quarterly distributions payable on the Series A Preferred Units that have not been declared and paid shall be reset to zero. However, the right of the Series A Holders and the holders of the Voting Preferred Units to elect two additional directors on the Board of Directors shall again vest if and whenever another Nonpayment occurs.
(b) If a Nonpayment or a subsequent Nonpayment shall have occurred, the Company may, and upon the written request of any holder of Series A Preferred Units (addressed to the Company) shall, call a special meeting of the Series A Holders and holders of the Voting Preferred Units for the election of the two Directors to be elected by them. The Directors elected at any such special meeting shall hold office until the next annual meeting or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. The Company shall, in its sole discretion, determine a date for a special meeting applying procedures consistent with Article XII of the Operating Agreement in connection with the expiration of the term of the two Directors elected pursuant to this Section 2.7. The Series A Holders and holders of the Voting Preferred Units, voting together as a class, may remove any director elected by the Series A Holders and holders of the Voting Preferred Units pursuant to this Section 2.7. If any vacancy shall occur among the Directors elected by the Series A Holders and holders of the Voting Preferred Units, a successor shall be elected by the Board of Directors, upon the nomination of the then-remaining Director elected by the Series A Holders and holders of the Voting Preferred Units or the successor of such remaining Director, to serve until the next special meeting (convened as set forth in the immediately preceding sentence) held in place thereof if such office shall not have previously terminated as above provided. Except to the extent expressly provided otherwise in this Section 2.7, any such annual or special meeting shall be called and held applying procedures consistent with Article XII of the Operating Agreement as if references to Members were references to Series A Holders and holders of Voting Preferred Units.
(c) Notwithstanding anything to the contrary in Article XI or Article XII of the Operating Agreement, but subject to Section 2.7(d) of this Unit Designation, so long as any Series A Preferred Units are Outstanding, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the Series A Holders and holders of the Voting Preferred Units, at the time Outstanding, voting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary:
(i) to amend, alter or repeal any of the provisions of the Operating Agreement relating to the Series A Preferred Units or any series of Voting Preferred Units, whether by merger, consolidation or otherwise, to affect materially and adversely the rights, powers and preferences of the Series A Holders or holders of the Voting Preferred Units; and
(ii) to authorize, create or increase the authorized amount of, any class or series of Preferred Units having rights senior to the Series A Preferred Units with respect to the payment of distributions or amounts upon any Dissolution Event; provided , however , that,
 
(A) in the case of subparagraph (i) above, no such vote of the Series A Preferred Units or the Voting Preferred Units, as the case may be, shall be required if in connection with any such amendment, alteration or repeal, by merger, consolidation or otherwise, each Series A Preferred Unit and Voting Preferred Units remains Outstanding without the terms thereof being materially changed in any respect adverse to the holders thereof or is converted into or exchanged for preferred equity securities of the surviving entity having preferences, other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption thereof substantially similar to those of such Series A Preferred Units or the Voting Preferred Units, as the case may be;
(B) in the case of subparagraph (i) above, if such amendment affects materially and adversely the rights, preferences, privileges or powers of one or more but not all of the classes or series of Voting Preferred Units and the Series A Preferred Units at the time Outstanding, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of all such

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classes or series of Voting Preferred Units and the Series A Preferred Units so affected, voting as a single class regardless of class or series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be required in lieu of (or, if such consent is required by law, in addition to) the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the Voting Preferred Units and the Series A Preferred Units otherwise entitled to vote as a single class in accordance herewith; and
(C) in the case of subparagraph (i) or (ii) above, no such vote of the Series A Holders or holders of the Voting Preferred Units, as the case may be, shall be required if, at or prior to the time when such action is to take effect, provision is made for the redemption of all Series A Preferred Units or Voting Preferred Units, as the case may be, at the time Outstanding or proper notice of redemption of the Series A Preferred Units or Voting Preferred Units, as the case may be, at the time Outstanding has been given and funds sufficient to pay the redemption price for all of the Series A Preferred Units or Voting Preferred Units, as the case may be, have been set aside for payment pursuant to the terms of the Operating Agreement.
(d) For the purposes of this Section 2.7, neither:
(i) the amendment of provisions of the Operating Agreement so as to authorize or create or issue, or to increase the authorized amount of, any Junior Units or any Parity Units; nor
(ii) any merger, consolidation or otherwise, in which (1) the Company is the surviving entity and the Series A Preferred Units remain Outstanding with the terms thereof materially unchanged in any respect adverse to the holders thereof; or (2) the resulting, surviving or transferee entity is organized under the laws of any state and substitutes or exchanges the Series A Preferred Units for other preferred equity securities having rights, powers and preferences (including with respect to redemption thereof) substantially similar to that of the Series A Preferred Units under this Unit Designation (except for changes that do not materially and adversely affect the Series A Preferred Units considered as a whole)
shall be deemed to materially and adversely affect the rights, powers and preferences of the Series A Preferred Units or holders of Voting Preferred Units.
(e) For purposes of the foregoing provisions of this Section 2.7, each Series A Holder shall have one vote per Series A Preferred Unit, except that when any other series of Preferred Units shall have the right to vote with the Series A Preferred Units as a single class on any matter, then the Series A Holders and the holders of such other series of Preferred Units shall have with respect to such matters one vote per $25.00 of stated liquidation preference.
(f) The Board of Directors may cause the Company to, from time to time, without notice to or consent of the Series A Holders or holders of other Parity Units, issue additional Series A Preferred Units or other Parity Units.
(g) The foregoing provisions of this Section 2.7 will not apply if, at or prior to the time when the act with respect to which a vote pursuant to this Section 2.7 would otherwise be required shall be effected, the Series A Preferred Units shall have been redeemed or proper notice of redemption of the Series A Preferred Units has been given and funds sufficient to pay the redemption price for all of the Series A Preferred Units have been set aside for payment pursuant to the terms of this Unit Designation.
(h) Notwithstanding any other provision in this Section 2.7, if at any time any Person or Group (other than any member of the Oaktree Group) is the Beneficial Owner of 20% or more of the Outstanding Series A Preferred Units, all Series A Preferred Units owned by such Person or Group shall not be entitled to be voted on any matter and shall not be considered to be Outstanding when sending notices of a meeting of Members to vote on any matter (unless otherwise required by Applicable Law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Unit Designation and the Operating Agreement; provided , that the foregoing limitation shall not apply: (i) to any Person or Group who acquired 20% or more of the Series A Preferred Units then Outstanding directly from any member of the Oaktree Group; (ii) to any Person or Group who acquired 20% or more of the Series A Preferred Units then Outstanding directly or indirectly from a Person or Group described in clause (i) provided that the Board of Directors shall have notified such Person or Group in writing that such limitation shall not apply; or (iii) to any Person or Group who acquired 20% or more of the Series A Preferred Units

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with the prior written approval of the Board of Directors, which approval may be withheld in the Board of Directors’ sole discretion.
(i) So long as any Series A Preferred Units are Outstanding and only in the event of a Nonpayment, the Manager hereby irrevocably (i) agrees that from time to time, automatically and without further action by the Manager, the size of the Board of Directors shall be increased by two and that the corresponding vacancies be filled, as provided by this Section 2.7, and that from time to time directors be removed and the size of the Board of Directors correspondingly decreased, as provided by this Section 2.7, and (ii) delegates to such Members as expressly provided in this Section 2.7 the filling of such vacancies and election of such directors from time to time.
Section 2.8 Liquidation Rights .
(a) Upon any Dissolution Event, after payment or provision for the liabilities of the Company (including the expenses of such Dissolution Event) and the satisfaction of all claims ranking senior to the Series A Preferred Units in accordance with Section 9.3 of the Operating Agreement, the Series A Holders shall be entitled to receive out of the assets of the Company or proceeds thereof available for distribution to Members, before any payment or distribution of assets is made in respect of Junior Units, distributions equal to the lesser of (x) the Series A Liquidation Value and (y) the positive balance in their Capital Accounts (to the extent such positive balance is attributable to ownership of the Series A Preferred Units and after taking into account allocations of Gross Ordinary Income to the Series A Holders pursuant to Section 2.6 of this Unit Designation for the taxable year in which the Dissolution Event occurs) pursuant to Section 9.3 of the Operating Agreement, pro rata based on the full respective distributable amounts to which each Series A Holder is entitled pursuant to this Section 2.8(a).
(b) Upon a Dissolution Event, after each Series A Holder receives a payment equal to the positive balance in its Capital Account (to the extent such positive balance is attributable to ownership of the Series A Preferred Units and after taking into account allocations of Gross Ordinary Income to the Series A Holders pursuant to Section 2.6 for the taxable year in which the Dissolution Event occurs), such Series A Holder shall not be entitled to any further participation in any distribution of assets by the Company.
 
(c) If the assets of the Company available for distribution upon a Dissolution Event are insufficient to pay in full the aggregate amount payable to the Series A Holders and the holders of all other Outstanding Parity Units, if any, such assets shall be distributed to the Series A Holders and the holders of such Parity Units pro rata, based on the full respective distributable amounts to which each such Member is entitled pursuant to this Section 2.8.
(d) Nothing in this Section 2.8 shall be understood to entitle the Series A Holders to be paid any amount upon the occurrence of a Dissolution Event until holders of any classes or series of Units ranking, as to the distribution of assets upon a Dissolution Event, senior to the Series A Preferred Units have been paid all amounts to which such classes or series of Units are entitled.
(e) For the purposes of this Unit Designation, neither the sale, conveyance, exchange or transfer, for cash, Units, securities or other consideration, of all or substantially all of the Company’s property or assets nor the consolidation, merger or amalgamation of the Company with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Company shall be deemed to be a Dissolution Event, notwithstanding that for other purposes, such as for tax purposes, such an event may constitute a liquidation, dissolution or winding up. In addition, notwithstanding anything to the contrary in this Section 2.8, no payment will be made to the Series A Holders pursuant to this Section 2.8 (i) upon the voluntary or involuntary liquidation, dissolution or winding up of any of the Company’s Subsidiaries or upon any reorganization of the Company pursuant to Article XI of the Operating Agreement, with or without approval of the Members (including a transaction pursuant to Section 11.3 of the Operating Agreement) or (ii) if the Company engages in a reorganization or other transaction in which a successor to the Company issues equity securities to the Series A Holders that have rights, powers and preferences that are substantially similar to the rights, powers and preferences of the Series A Preferred Units pursuant to provisions of this Unit Designation that allow the Company to do so without the approval of the Members. Notwithstanding any provision to the contrary in this Article II (including Section 2.7), the Board of Directors may, in its sole discretion and without the consent of any Series A Holder, amend this Article II to allow for the transactions in this Section 2.8(e).

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Section 2.9 No Duties to Series A Holders . Notwithstanding anything to the contrary in the Operating Agreement, to the fullest extent permitted by law, neither the Board of Directors nor any other Indemnified Person shall have any duties or liabilities to the Series A Holders.
Section 2.10 Forum Selection . Each Person that holds or has held a Series A Preferred Unit and each Person that holds or has held any beneficial interest in a Series A Preferred Unit (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise), to the fullest extent permitted by law, (i) irrevocably agrees that any claims, suits, actions or proceedings against the Company, or any Director, officer, employee, control person, underwriter or agent of the Company, asserted under United States federal securities laws, otherwise arising under such laws, or that could have been asserted as a claim arising under such laws, shall be exclusively brought in the federal district courts of the United States of America (except, and only to the extent, that any such claims, actions or proceedings are of a type for which a Member may not waive its right to maintain a legal action or proceeding in the courts of the State of Delaware with respect to matters relating to the organization or internal affairs of the Company as set forth under Section 18-109(d) of the Delaware Limited Liability Company Act); (ii) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding; and (iii) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper.
ARTICLE III
RIGHT TO ACQUIRE UNITS
Section 3.1. Right to Acquire Units . Notwithstanding any other provision in this Unit Designation, Article XIII “Right to Acquire Units” of the Operating Agreement shall apply to the Series A Preferred Units.
ARTICLE IV
MISCELLANEOUS

Section 4.1. Effectiveness . Pursuant to Section 4.6(b) of the Operating Agreement, this Unit Designation (or any action of the Board of Directors amending this Unit Designation) shall be effective when a duly executed original of the same is delivered to the Secretary for inclusion in the permanent records of the Company, and shall be annexed to, and constitute a part of, the Operating Agreement.
Section 4.2 Conflicts . To the extent that any provision of this Unit Designation conflicts or is inconsistent with the Operating Agreement, the terms of this Unit Designation shall control.
Section 4.3 Governing Law . This Unit Designation shall be governed by and interpreted in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 4.4 Severability . If any provision of this Unit Designation is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
[Remainder of page intentionally left blank.]


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IN WITNESS WHEREOF, the parties have caused this Unit Designation to be duly executed and delivered, all as of the date first set forth above.
 
 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
/s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel
 

 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP HOLDINGS GP, LLC, solely in its capacity as a Manager and for the purpose of the Manager’s agreement in Section 2.7(i)
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
/s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel





        
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EXHIBIT 3
UNIT DESIGNATION WITH RESPECT TO THE SERIES B PREFERRED UNITS

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OAKTREE CAPITAL GROUP, LLC
UNIT DESIGNATION WITH RESPECT TO THE
SERIES B PREFERRED UNITS
This Unit Designation (as it may be amended, supplemented or restated from time to time, this “ Unit Designation ”), dated as of August 9, 2018, is made by Oaktree Capital Group, LLC (the “ Company ”). Capitalized terms used but not defined in this Unit Designation shall have the meanings ascribed to such terms in the Fourth Amended and Restated Operating Agreement of the Company, dated as of May 17, 2018, as amended by the Unit Designation with respect to the Series A Preferred Units, dated as of May 17, 2018 (and as it may be further amended, supplemented or restated from time to time, the “ Operating Agreement ”).
WHEREAS, pursuant to Section 4.6(a) of the Operating Agreement, the Company has the authority to issue any number of Units, and options, rights, warrants and appreciation rights relating to such Units, for any Company purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board of Directors shall determine, all without the approval of any Member or any other Person;
WHEREAS, pursuant to Section 4.6(b) of the Operating Agreement, such additional Units may be issued with such designations, preferences, rights, powers and duties as shall be fixed by the Board of Directors and reflected in a written action or actions approved by the Board of Directors in compliance with Section 6.1 of the Operating Agreement, including, among other things, the terms and conditions upon which such Units will be issued or transferred;
WHEREAS, pursuant to Section 4.6(c) of the Operating Agreement, the Board of Directors is authorized to take all actions that it determines to be necessary or appropriate in connection with, and shall determine in its sole discretion the rights relating to, the issuance of additional Units and options, rights, warrants and appreciation rights relating to Units; and
WHEREAS, the Board of Directors determined it advisable and in the best interest of the Company and its Members to establish a committee of the Board of Directors to designate the Series B Preferred Units as a new class of Preferred Units, and the terms of the Series B Preferred Units, as set forth in this Unit Designation, have been duly approved in accordance with the Operating Agreement;
NOW, THEREFORE, the Company hereby approves and authorizes this Unit Designation on the terms and conditions set forth herein.
ARTICLE I
DEFINITIONS
Section 1.1 Definitions .
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Unit Designation. Capitalized terms used but not defined herein shall have the meanings given to them in the Operating Agreement.
“ 2011 Incentive Plan ” means the 2011 Oaktree Capital Group, LLC Equity Incentive Plan, as amended, restated, supplemented or otherwise modified from time to time, and any successor or similar plan.

“ Below Investment Grade Rating Event ” means (x) the rating on any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is lowered by either of the Rating Agencies in

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respect of a Change of Control and (y) any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is rated below Investment Grade by both Rating Agencies on any date from the date of the public notice by the Company of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended until the ratings are announced if during such 60-day period the rating of any series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding or no Oaktree Senior Notes are then rated by the applicable Rating Agency, the Company’s long-term issuer rating by such Rating Agency) is under publicly announced consideration for possible downgrade by either of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Company that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event). The Company shall request the Rating Agencies to make such confirmation in connection with any Change of Control.

“ Business Day ” means any day that is not a Saturday, Sunday or other day in which banking institutions in New York City are authorized or required by law to close.
“ Change of Control ” means the occurrence of the following:
(a) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties and assets (other than any CLO Subsidiaries) of the Oaktree Issuer Group to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act, or any successor provision), other than to a Continuing Oaktree Person; or
(b) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act or any successor provision), other than a Continuing Oaktree Person, becomes (i) the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act or any successor provision) of a majority of the controlling interests in (A) the Company or (B) one or more entities that, as of the relevant time, is a guarantor to any series of Oaktree Senior Notes comprising all or substantially all of the assets of the Oaktree Issuer Group and (ii) entitled to receive a Majority Economic Interest in connection with such transaction.
For the avoidance of doubt, the failure of the Permitted Oaktree Holders to collectively hold at least 10% of the issued and outstanding Oaktree Capital Group Units shall not, in and of itself, be deemed to be a “Change of Control.”
“ Change of Control Event ” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
“ CLO ” means a collateralized loan obligation vehicle or similar debt securitization vehicle or entity.
“ CLO Subsidiary ” means, at any time, (i) any Subsidiary that (x) manages or has been established to manage one or more CLOs or (y) is an affiliate of a Subsidiary described in clause (x) that purchases or otherwise acquires and/or retains securities, obligations or other interests in such CLO for the purpose of, among other things, satisfying (including on a prospective basis) any applicable risk retention laws, rules, regulations, guidelines, technical standards or guidance of any Governmental Entity and (ii) any Subsidiary of a Subsidiary described in the preceding clause (i). For the avoidance of doubt, the assets and obligations of any CLO Subsidiary will not be deemed to include the assets and obligations of any CLO such CLO Subsidiary may manage, except to the extent of any ownership of securities or obligations issued by, or other interests in, such CLO held by the CLO Subsidiary.


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“ Continuing Oaktree Person ” means, immediately prior to and immediately following any relevant date of determination, (a) an individual who is a Senior Executive, (b) an individual who is an executive or other employee of the Company and/or its Subsidiaries who, as of any date of determination, has devoted substantially all of his or her business and professional time to the activities of the Company or any of its Subsidiaries during the 12 month period immediately preceding such date (each such person, an “ Executive ”), (c) Oaktree Capital Group Holdings GP, LLC, Oaktree Capital Group Holdings or any other Person in which any one or more of such individuals directly or indirectly, singly or as a group, holds a majority of the Voting Units, (d) any Person that is a family member of such individual or individuals, (e) any trust, foundation or other estate planning vehicle for which such individual acts as a trustee or beneficiary (any Person referred to in clause (c), (d) or (e) is referred to as a “ Related Party ”), or (f) any Trust or any other entity that acquires all of the Company’s outstanding Class A units in exchange for common equity interests in such entity immediately following which acquisition the former holders of Class A units and other Continuing Oaktree Persons collectively are the Beneficial Owners, directly or indirectly, of a majority of the controlling interests in the Company (any such trust or entity, an “ Eligible Holding Entity ”). Notwithstanding the foregoing, Oaktree Capital Group Holdings GP, LLC, Oaktree Capital Group Holdings, any Eligible Holding Entity, each of the Senior Executives and any Related Party of such Senior Executive and each of the Executives and any Related Party of such Executive shall be deemed to be a Continuing Oaktree Person.
“ Dissolution Event ” means an event giving rise to the dissolution of the Company in accordance with Section 9.1 of the Operating Agreement.
“ Distribution Payment Date ” means March 15, June 15, September 15 and December 15 of each year, commencing with respect to the Series B Preferred Units, on December 15, 2018.
“ Distribution Period ” means the period from and including a Distribution Payment Date to, but excluding, the next Distribution Payment Date, except that the initial Distribution Period with respect to the Series B Preferred Units shall commence on and includes August 9, 2018.
“ Executive ” has the meaning set forth in Section 1.1 of this Unit Designation in the definition of “Continuing Oaktree Person.”
“ Eligible Holding Entity ” has the meaning set forth in Section 1.1 of this Unit Designation in the definition of “Continuing Oaktree Person.”
“ Fitch ” means Fitch Ratings Inc. or any successor thereto.
 
“ Gross Ordinary Income ” means the Company’s gross income excluding any gross income attributable to the sale or exchange of “capital assets” as defined in Section 1221 of the Code. Allocations to Series B Holders of Gross Ordinary Income shall consist of a proportionate share of each Company item of Gross Ordinary Income for such Fiscal Year in accordance with each such holder’s Percentage Interest with respect to such holder’s Series B Preferred Units.
“ Group ” has the meaning set forth in Section 13(d) of the Exchange Act as in effect on the date of this Agreement.
“ Investment Grade ” means a rating of BBB- or better by Fitch (or its equivalent under any successor rating categories of Fitch) and BBB- or better by S&P (or its equivalent under any successor rating categories of S&P) (or, in each case, if such Rating Agency ceases to rate a series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, ceases to assign a long-term issuer rating to the Company) for reasons outside of the Company’s control, the equivalent investment grade credit rating from any Rating Agency selected by the Company as a replacement Rating Agency).
“ Junior Units ” means Class A Units, Class B Units and any other equity securities that the Company may issue after August 9, 2018 ranking, as to the payment of distributions, junior to the Series B Preferred Units.

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“ Majority Economic Interest ” means any right or entitlement to receive more than 50% of the equity distributions or partnership allocations (whether such right or entitlement results from the ownership of partner or other equity interests, securities, instruments or agreements of any kind) made to all holders of equity interests in the Oaktree Issuer Group (other than to entities within the Oaktree Issuer Group).
“ Nonpayment ” has the meaning set forth in Section 2.7(a) of this Unit Designation.
“ Oaktree Group ” means (i) the Manager and its Affiliates, including their respective general partners, members and limited partners, (ii) the Oaktree Operating Group and its Affiliates, including their respective general partners, members and limited partners, (iii) with respect to each Principal, such Principal and such Principal’s Group, and (iv) any former or current director, executive officer, officer, investment professional, or other employee of the Oaktree Operating Group (or such other entity controlled, directly or indirectly, by a member of the Oaktree Operating Group) and any member of such Person’s Group.

“ Oaktree Issuer Group ” means the Company, the members of the Oaktree Operating Group and any other entity that, as of the relevant time, is a guarantor to any series of Oaktree Senior Notes, and their direct and indirect Subsidiaries (to the extent of their economic ownership interest in such Subsidiaries), taken as a whole.
“ Oaktree Operating Group ” means, for the purpose of this Unit Designation, collectively, (a) as of August 9, 2018, Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and (b) any other subsidiary of the Company (whether now existing or hereafter formed) that is designated from time to time as part of the Oaktree Operating Group by the Board of Directors and that either (i) acts as or Controls the general partners and investment advisers of the Investment Funds or (ii) holds interests in other entities or investments generating income for the Company.

“ Oaktree Senior Notes ” means (i) the 3.91% Senior Notes, Series B, due 2024 issued by Oaktree Capital Management, L.P., (ii) the 4.01% Senior Notes, Series B, due 2026 issued by Oaktree Capital Management, L.P., (iii) the 4.21% Senior Notes, Series C, due 2029 issued by Oaktree Capital Management, L.P., (iv) the 3.69% Senior Notes due 2031 issued by Oaktree Capital Management, L.P., (v) the 3.78% Senior Notes due 2032 issued by Oaktree Capital Management, L.P. and any similar series of senior unsecured debt securities, in each case, guaranteed by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P., each of which is a member of the Oaktree Operating Group.

“ Operating Agreement ” has the meaning set forth in the preamble.
“ Parity Units ” means any Company Units, including Preferred Units, that the Company has authorized or issued or may authorize or issue, the terms of which provide that such securities shall rank equally with the Series B Preferred Units with respect to payment of distributions and distribution of assets upon a Dissolution Event. As of August 9, 2018, there were 7,200,000 Series A Preferred Units Outstanding and the Series A Preferred Units were the only Outstanding Company Units that were Parity Units as of such date.
“ Permitted Distribution ” means each of the following: (A) Tax Distributions (as defined in the operating agreements of the members of the Oaktree Operating Group) received, directly or indirectly, from the Oaktree Operating Group in accordance with the terms of the operating agreements of the members of the Oaktree Operating Group as in effect on August 9, 2018, (B) the net unit settlement of equity-based awards granted under the 2011 Equity Incentive Plan in order to satisfy associated tax obligations (C) exchanges of Common Units of the Company and/or its Subsidiaries in connection with the exchange of units of Oaktree Capital Group Holdings for Common Units or equity interests of the Company’s Subsidiaries under the Exchange Agreement, (D) purchases pursuant to put or call arrangements with current or former Senior Executives, employees or service partners entered into in good faith in connection with the provision of personal services, (E) distributions of incentive compensation to current or former Senior Executives, employees or service partners in respect of their “points” interests in the Company’s Subsidiaries, (F) distributions, directly or indirectly, to the Company, its Subsidiaries or Oaktree Capital Group Holdings to enable the Company, its Subsidiaries or Oaktree Capital Group Holdings to pay expenses or satisfy other obligations (other

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than obligations in respect of distributions or purchases of Junior Units that would not otherwise be Permitted Distributions), (G) redemptions of Common Units pursuant to provisions of the Operating Agreement as in effect on August 9, 2018, (H) purchases in connection with the settlement of a bona fide forward purchase or accelerated Unit repurchase arrangement with a third party financial institution that is entered into before the start of the applicable Distribution Period, (I) payments made on redemption or conversion of convertible notes or convertible preferred equity or the entry into or settlement of call options, bond hedges and/or warrants to hedge the Company’s exposure in connection with the issuance of the convertible notes or convertible preferred equity, (J) distributions paid in, or exchanges of Junior Units or Oaktree Capital Group Holdings units for, Junior Units or options, warrants or rights to subscribe for or purchase Junior Units or distributions or purchases paid, directly or indirectly, with proceeds from the substantially concurrent sale of Junior Units and (K) distributions, directly or indirectly, to Oaktree Capital Group Holdings or its successor to enable it to (1) make distributions in respect of any outstanding Oaktree Capital Group Holdings equity value units, and (2) purchase any Oaktree Capital Group Holdings units into which the equity value units have been recapitalized pursuant to any put right exercised by the holder of such units.
“ Rating Agency ” means:
(a) each of Fitch and S&P; and
(b) if either of Fitch or S&P ceases to rate any series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, ceases to assign a long-term issuer rating to the Company) or fails to make a rating of any series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, the Company’s long-term issuer rating) publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) of the Exchange Act selected by the Company as a replacement agency for Fitch or S&P, or both, as the case may be.
“ Rating Agency Event ” means a change to the methodology or criteria that were employed by an applicable nationally recognized statistical rating organization for purposes of assigning equity credit to securities with features similar to the Series B Preferred Units on August 9, 2018 (the “current methodology”), which change either (a) shortens the period of time during which equity credit pertaining to the Series B Preferred Units would have been in effect had the current methodology not been changed or (b) reduces the amount of equity credit assigned to the Series B Preferred Units as compared with the amount of equity credit that such rating agency had assigned to the Series B Preferred Units as of August 9, 2018.
“ Related Party ” has the meaning set forth in Section 1.1 of this Unit Designation in the definition of “Continuing Oaktree Person.”
“ S&P ” means Standard & Poor’s Ratings Services, a division of McGraw-Hill Financial, Inc., or any successor thereto.
“ Senior Executive ” means, as August 9, 2018, Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank and Sheldon M. Stone, and any other person who may from time to time, prior to such time as the Permitted Oaktree Holders collectively hold less than 10% of the issued and outstanding Oaktree Capital Group Units, be designated by the Board of Directors as a “Principal” of the Company, in each case until his or her death, disability, resignation or removal by the Board of Directors.
“Series B Distribution Rate ” means 6.550%.
“Series B Holder ” means a Record Holder of Series B Preferred Units.
“Series B Liquidation Preference ” means $25.00 per Series B Preferred Unit.
“ Series B Liquidation Value ” means the sum of the Series B Liquidation Preference and declared and unpaid distributions, if any, to, but excluding, the date of the Dissolution Event on the Series B Preferred Units.

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“ Series B Preferred Unit ” means a 6.550% Series B Preferred Unit having the designations, rights, powers and preferences set forth in Article II of this Unit Designation.
“ Series B Record Date ” means, with respect to any Distribution Payment Date, the March 1, June 1, September 1 or December 1, as the case may be, immediately preceding the relevant March 15, June 15, September 15 or December 15 Distribution Payment Date, respectively. These Series B Record Dates shall apply regardless of whether a particular Series B Record Date is a Business Day. The Series B Record Dates shall constitute Record Dates with respect to the Series B Preferred Units for the purpose of distributions on the Series B Preferred Units.
 
“ Series B Tax Event ” means, after August 9, 2018, (a) due to an amendment to, or a change in official interpretation of, the Code, Treasury Regulations promulgated thereunder, or administrative guidance or (b) due to an administrative or judicial determination, (i) the Company is advised by nationally recognized counsel or a “Big Four” accounting firm that the Company will be treated as an association taxable as a corporation for U.S. federal income tax purposes or otherwise subject to U.S. federal income tax (other than any tax imposed pursuant to Section 6625 of the Code, as amended by the Bipartisan Budget Act of 2015) or (ii) the Company files an IRS Form 8832 (or successor form) electing that the Company be treated as an association taxable as a corporation for U.S. federal income tax purposes, the Company converts or merges into a corporation, or the Company is otherwise treated as an association taxable as a corporation for U.S. federal income tax purposes.
“ Unit Designation ” has the meaning set forth in the preamble.
“ Voting Preferred Units ” has the meaning set forth in Section 2.7(a) of this Unit Designation.
ARTICLE II
TERMS, RIGHTS, POWERS, PREFERENCES AND DUTIES OF SERIES B
PREFERRED UNITS
Section 2.1 Designation . The Series B Preferred Units are hereby designated and created as a series of Preferred Units. Each Series B Preferred Unit shall be identical in all respects to every other Series B Preferred Unit. There is authorized for issuance an unlimited number of Series B Preferred Units. The Series B Preferred Units are not “Voting Units” for purposes of the Operating Agreement. As of any date of determination, the Percentage Interest as to any Series B Holder in its capacity as such with respect to Series B Preferred Units shall be 0% as such term applies to all Members; provided , however , that when such term is used to only apply to Series B Holders, “Percentage Interest” shall mean, with respect to any holder of Series B Preferred Units in its capacity as such as of any date, the ratio (expressed as a percentage) of the number of Series B Preferred Units held by such holder on such date relative to the aggregate number of Series B Preferred Units Outstanding as of such date. The Capital Account balance of a Member with respect to each Series B Preferred Unit held by such Member shall equal the Liquidation Preference per Series B Preferred Unit as of the date such Series B Preferred Unit is initially issued and shall be increased as set forth in Section 2.6 of this Unit Designation.
Section 2.2 Distributions .
(a) The Series B Holders shall be entitled to receive with respect to each Series B Preferred Unit owned by such holder, when, as and if declared by the Board of Directors, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash distributions, on the applicable Distribution Payment Date that corresponds to the Record Date for which the Board of Directors has declared a distribution, if any, in an amount equal to the product of (i) 25% and (ii) the rate per annum equal to the Series B Distribution Rate (subject to Section 2.5(b) of this Unit Designation) and (iii) the Series B Liquidation Preference. Such distributions shall be non-cumulative. If a Distribution Payment Date is not a Business Day, the related distribution (if declared) shall be paid on the next succeeding Business Day with the same force and effect as though paid on such Distribution Payment Date, without any increase to account for the period from such Distribution Payment Date through the date of actual payment. Distributions payable on the Series B Preferred Units for the Distribution Period commencing on August 9, 2018 and for any period less than a full Distribution Period shall be

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computed on the basis of a 360-day year consisting of twelve 30-day months. Declared distributions will be payable on the relevant Distribution Payment Date to Series B Holders as they appear on the Company’s register at the close of business, New York City time, on a Series B Record Date, provided that if the Series B Record Date is not a Business Day, the declared distributions will be payable on the relevant Distribution Payment Date to Series B Holders as they appear on the Company’s register at the close of business, New York City time, on the Business Day immediately preceding such Series B Record Date.
(b) So long as any Series B Preferred Units are Outstanding, unless, in each case, distributions have been declared and paid or declared and set apart for payment on the Series B Preferred Units for a quarterly Distribution Period, (i) no distribution, whether in cash or property, may be declared or paid or set apart for payment on the Junior Units for the remainder of that quarterly Distribution Period and (ii) the Company and its Subsidiaries shall not directly or indirectly repurchase, redeem or otherwise acquire for consideration any Junior Units other than, in each case, any Permitted Distributions.
(c) The Board of Directors, or a duly authorized committee thereof, may, in its sole discretion, choose to pay distributions on the Series B Preferred Units without the payment of any distributions on any Junior Units.
(d) When distributions are not declared and paid (or duly provided for) on any Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series B Preferred Units, on a distribution payment date falling within the related Distribution Period) in full upon the Series B Preferred Units or any Parity Units, all distributions declared upon the Series B Preferred Units and all such Parity Units payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date falling within the related Distribution Period) shall be declared pro rata so that the respective amounts of such distributions shall bear the same ratio to each other as all declared and unpaid distributions per Unit on the Series B Preferred Units and all unpaid distributions, including any accumulations, on all Parity Units payable on such Distribution Payment Date (or in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series B Preferred Units, on a distribution payment date falling within the related Distribution Period) bear to each other.
(e) No distributions may be declared or paid or set apart for payment on any Series B Preferred Units if at the same time any arrears exist or default exists in the payment of distributions on any Outstanding Units ranking, as to the payment of distributions and distribution of assets upon a Dissolution Event, senior to the Series B Preferred Units, subject to any applicable terms of such Outstanding Units.
(f) Series B Holders shall not be entitled to any distributions, whether payable in cash or property, other than as provided in this Unit Designation and shall not be entitled to interest, or any sum in lieu of interest, in respect of any distribution payment, including any such payment which is delayed or foregone.
(g) The Members intend that no portion of the distributions paid to the Series B Holders pursuant to this Section 2.2 shall be treated as a “guaranteed payment” within the meaning of Section 707(c) of the Code, and no Member shall take any position inconsistent with such intention, except if there is a change in applicable law or final determination by the Internal Revenue Service that is inconsistent with such intention.
Section 2.3 Rank . The Series B Preferred Units shall rank, with respect to payment of distributions and distribution of assets upon a Dissolution Event:
(a) junior to all of the Company’s existing and future indebtedness and any equity securities, including Preferred Units, that the Company may authorize or issue, the terms of which provide that such securities shall rank senior to the Series B Preferred Units with respect to payment of distributions and distribution of assets upon a Dissolution Event;
(b) equally to any Parity Units; and
(c) senior to any Junior Units.
Section 2.4 Optional Redemption .

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(a) Except as set forth in Section 2.5 of this Unit Designation, the Series B Preferred Units shall not be redeemable prior to September 15, 2023. At any time or from time to time on or after September 15, 2023, subject to any limitations that may be imposed by law, the Company may, in its sole discretion, redeem the Series B Preferred Units, out of funds legally available therefor, in whole or in part, at a redemption price equal to the Liquidation Preference per Series B Preferred Unit plus an amount equal to declared and unpaid distributions, if any, from the Distribution Payment Date immediately preceding the redemption date to, but excluding, the redemption date. If less than all of the Outstanding Series B Preferred Units are to be redeemed, the Company shall select the Series B Preferred Units to be redeemed from the Outstanding Series B Preferred Units not previously called for redemption by lot or pro rata (as nearly as possible) or otherwise in accordance with the applicable procedures of The Depository Trust Company (or its successor or replacement) and in compliance with the requirements of the Securities Exchange on which the Series B Preferred Units are then listed, if then listed on a Securities Exchange.
(b) In the event the Company shall redeem any or all of the Series B Preferred Units in accordance with Section 2.4(a) of this Unit Designation, the Company shall give notice of any such redemption to the Series B Holders (which such notice may be delivered prior to September 15, 2023) not more than 60 nor less than 30 days prior to the date fixed for such redemption. Failure to give notice to any Series B Holder shall not affect the validity of the proceedings for the redemption of any Series B Preferred Units being redeemed.
(c) Notice having been given as herein provided and so long as funds legally available and sufficient to pay the redemption price for all of the Series B Preferred Units called for redemption have been set aside for payment, from and after the redemption date, such Series B Preferred Units called for redemption shall no longer be deemed Outstanding, and all rights of the Series B Holders thereof under this Unit Designation, the Operating Agreement or otherwise shall cease, except for the right to receive the redemption price, without interest.
(d) The Series B Holders shall have no right to require redemption of any Series B Preferred Units.
(e) Without limiting clause (c) of this Section 2.4, if the Company shall deposit, on or prior to any date fixed for redemption of Series B Preferred Units (pursuant to notice delivered in accordance with Section 2.4(b)), with any bank or trust company as a trust fund, funds sufficient to redeem the Series B Preferred Units called for redemption, with irrevocable instructions and authority to such bank or trust company to pay on and after the date fixed for redemption or such earlier date as the Company may determine, to the respective Series B Holders, the redemption price thereof, then from and after the date of such deposit (although prior to the date fixed for redemption) such Series B Preferred Units so called shall be deemed to be redeemed and such deposit shall be deemed to constitute full payment of said Series B Preferred Units to the holders thereof and from and after the date of such deposit said Series B Preferred Units shall no longer be deemed to be Outstanding, and the holders thereof shall cease to be holders of Units with respect to such Series B Preferred Units, and shall have no rights with respect thereto under this Unit Designation, the Operating Agreement or otherwise, except only the right to receive from said bank or trust company, on the redemption date or such earlier date as the Company may determine, payment of the redemption price of such Series B Preferred Units without interest.
Section 2.5 Change of Control Event Redemption; Series B Tax Event Redemption; Rating Agency Event Redemption .
(a) If a Change of Control Event occurs prior to September 15, 2023, within 60 days of the occurrence of such Change of Control Event, the Company may, in its sole discretion, redeem the Series B Preferred Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.25 per Series B Preferred Unit plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
 
(b) If (i) a Change of Control Event occurs (whether before, on or after September 15, 2023) and (ii) the Company does not give notice to the Series B Holders prior to the 31st day following the Change of Control Event to redeem all the Outstanding Series B Preferred Units, the Series B Distribution Rate shall increase by 5.00%, beginning on the 31st day following the consummation of such Change of Control Event.
(c) In connection with any Change of Control and any particular reduction in the rating on a series of the Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, a reduction in the Company’s long-term issuer rating), the Company shall request from the Rating Agencies each such Rating Agency’s written confirmation

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whether such reduction in the rating on each such series of Oaktree Senior Notes (or, if no Oaktree Senior Notes are outstanding, the Company’s long-term issuer rating) was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of any Below Investment Grade Rating Event).
(d) If a Series B Tax Event occurs prior to September 15, 2023, within 60 days of the occurrence of such Series B Tax Event, the Company may, in its sole discretion, redeem the Series B Preferred Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series B Preferred Unit, plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
(e) If a Rating Agency Event occurs prior to September 15, 2023, within 60 days of the occurrence of such Rating Agency Event, the Company may, in its sole discretion, redeem the Series B Preferred Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series B Preferred Unit, plus an amount equal to any declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distribution.
(f) In the event the Company elects to redeem all of the Series B Preferred Units in accordance with Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation, the Company shall give notice of any such redemption to the Series B Holders at least 30 days prior to the date fixed for such redemption. Notice of any redemption, whether in connection with events described in Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation, may be given prior to the completion thereof, and any such redemption or notice may, at the Company’s discretion, be subject to one or more conditions precedent, including, but not limited to, completion or occurrence of the related events described in Section 2.5(a), Section 2.5(d) or Section 2.5(e) of this Unit Designation; provided , however , that any notice subject to one or more conditions precedent shall specify a redemption date no later than September 14, 2023. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Company’s discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date so delayed; provided , however , that the redemption date, if such redemption is conditional, shall not be delayed beyond September 14, 2023. In addition, the Company may provide in such notice that payment of the redemption price and performance of the Company’s obligations with respect to such redemption may be performed by another Person.
(g) The Series B Holders shall have no right to require redemption of any Series B Preferred Units pursuant to this Section 2.5.
Section 2.6 Allocations . Before giving effect to the allocations set forth in Section 5.2 of the Operating Agreement, Gross Ordinary Income for the Fiscal Year shall be specially allocated pro rata to the holders of Series B Preferred Units in accordance with each holder’s Percentage Interest with respect to their Series B Preferred Units in an amount equal to the sum of (i) the amount of cash distributed with respect to the Series B Preferred Units pursuant to Section 2.2 of this Unit Designation during such Fiscal Year and (ii) the excess, if any, of the amount of cash distributed with respect to the Series B Preferred Units pursuant to Section 2.2 of this Unit Designation in all prior Fiscal Years over the amount of Gross Ordinary Income allocated to the Series B Holders pursuant to this Section 2.6 in all prior Fiscal Years. To the extent that there is insufficient Gross Ordinary Income for a Fiscal Year to allocate to the Series B Holders pursuant to the prior sentence and to the holders of any other Parity Units, Gross Ordinary Income shall be allocated to the Series B Holders and holders of Parity Units for such Fiscal Year on a pro rata basis based on the amount of distributions paid in respect of the Series B Preferred Units and such Parity Units, respectively, in such Fiscal Year.
Section 2.7 Voting .
(a) Notwithstanding any provision in the Operating Agreement to the contrary, and except as set forth in this Section 2.7, the Series B Preferred Units shall not have any relative, participating, optional or other voting, consent or approval rights or powers, and the vote, consent or approval of the Series B Holders shall not be required for the taking of any Company action or inaction. Notwithstanding any provision in the Operating Agreement to the

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contrary, if and whenever six quarterly distributions (whether or not consecutive) payable on the Series B Preferred Units have not been declared and paid (a “ Nonpayment ”), the number of Directors then constituting the Board of Directors automatically shall be increased by two and the Series B Holders, voting together as a single class with the holders of any other class or series of Parity Units then Outstanding upon which like voting rights have been conferred and are exercisable (any such other class or series, “ Voting Preferred Units ”), shall have the right to elect these two additional Directors at a meeting of the Series B Holders and the holders of such Voting Preferred Units called as hereafter provided. When quarterly distributions have been declared and paid on the Series B Preferred Units for four consecutive Distribution Periods following the Nonpayment, then the right of the Series B Holders and the holders of such Voting Preferred Units to elect such two additional Directors shall cease and the terms of office of all directors elected by the Series B Holders and holders of the Voting Preferred Units shall forthwith terminate immediately and the number of Directors constituting the whole Board of Directors automatically shall be reduced by two and, for purposes of determining whether a Nonpayment has occurred, the number of quarterly distributions payable on the Series B Preferred Units that have not been declared and paid shall be reset to zero. However, the right of the Series B Holders and the holders of the Voting Preferred Units to elect two additional directors on the Board of Directors shall again vest if and whenever another Nonpayment occurs.
(b) If a Nonpayment or a subsequent Nonpayment shall have occurred, the Company may, and upon the written request of any holder of Series B Preferred Units (addressed to the Company) shall, call a special meeting of the Series B Holders and holders of the Voting Preferred Units for the election of the two Directors to be elected by them. The Directors elected at any such special meeting shall hold office until the next annual meeting or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. The Company shall, in its sole discretion, determine a date for a special meeting applying procedures consistent with Article XII of the Operating Agreement in connection with the expiration of the term of the two Directors elected pursuant to this Section 2.7. The Series B Holders and holders of the Voting Preferred Units, voting together as a class, may remove any director elected by the Series B Holders and holders of the Voting Preferred Units pursuant to this Section 2.7. If any vacancy shall occur among the Directors elected by the Series B Holders and holders of the Voting Preferred Units, a successor shall be elected by the Board of Directors, upon the nomination of the then-remaining Director elected by the Series B Holders and holders of the Voting Preferred Units or the successor of such remaining Director, to serve until the next special meeting (convened as set forth in the immediately preceding sentence) held in place thereof if such office shall not have previously terminated as above provided. Except to the extent expressly provided otherwise in this Section 2.7, any such annual or special meeting shall be called and held applying procedures consistent with Article XII of the Operating Agreement as if references to Members were references to Series B Holders and holders of Voting Preferred Units.
(c) Notwithstanding anything to the contrary in Article XI or Article XII of the Operating Agreement, but subject to Section 2.7(d) of this Unit Designation, so long as any Series B Preferred Units are Outstanding, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the Series B Holders and holders of the Voting Preferred Units, at the time Outstanding, voting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary:
(i) to amend, alter or repeal any of the provisions of the Operating Agreement relating to the Series B Preferred Units or any series of Voting Preferred Units, whether by merger, consolidation or otherwise, to affect materially and adversely the rights, powers and preferences of the Series B Holders or holders of the Voting Preferred Units; and
(ii) to authorize, create or increase the authorized amount of, any class or series of Preferred Units having rights senior to the Series B Preferred Units with respect to the payment of distributions or amounts upon any Dissolution Event; provided , however , that,
 
(A) in the case of subparagraph (i) above, no such vote of the Series B Preferred Units or the Voting Preferred Units, as the case may be, shall be required if in connection with any such amendment, alteration or repeal, by merger, consolidation or otherwise, each Series B Preferred Unit and Voting Preferred Units remains Outstanding without the terms thereof being materially changed in any respect adverse to the holders thereof or is converted into or exchanged for preferred equity securities of the surviving entity having preferences, other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption

12

13

thereof substantially similar to those of such Series B Preferred Units or the Voting Preferred Units, as the case may be;
(B) in the case of subparagraph (i) above, if such amendment affects materially and adversely the rights, preferences, privileges or powers of one or more but not all of the classes or series of Voting Preferred Units and the Series B Preferred Units at the time Outstanding, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of all such classes or series of Voting Preferred Units and the Series B Preferred Units so affected, voting as a single class regardless of class or series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be required in lieu of (or, if such consent is required by law, in addition to) the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the Voting Preferred Units and the Series B Preferred Units otherwise entitled to vote as a single class in accordance herewith; and
(C) in the case of subparagraph (i) or (ii) above, no such vote of the Series B Holders or holders of the Voting Preferred Units, as the case may be, shall be required if, at or prior to the time when such action is to take effect, provision is made for the redemption of all Series B Preferred Units or Voting Preferred Units, as the case may be, at the time Outstanding or proper notice of redemption of the Series B Preferred Units or Voting Preferred Units, as the case may be, at the time Outstanding has been given and funds sufficient to pay the redemption price for all of the Series B Preferred Units or Voting Preferred Units, as the case may be, have been set aside for payment pursuant to the terms of the Operating Agreement.
(d) For the purposes of this Section 2.7, neither:
(i) the amendment of provisions of the Operating Agreement so as to authorize or create or issue, or to increase the authorized amount of, any Junior Units or any Parity Units; nor
(ii) any merger, consolidation or otherwise, in which (1) the Company is the surviving entity and the Series B Preferred Units remain Outstanding with the terms thereof materially unchanged in any respect adverse to the holders thereof; or (2) the resulting, surviving or transferee entity is organized under the laws of any state and substitutes or exchanges the Series B Preferred Units for other preferred equity securities having rights, powers and preferences (including with respect to redemption thereof) substantially similar to that of the Series B Preferred Units under this Unit Designation (except for changes that do not materially and adversely affect the Series B Preferred Units considered as a whole)
shall be deemed to materially and adversely affect the rights, powers and preferences of the Series B Preferred Units or holders of Voting Preferred Units.
(e) For purposes of the foregoing provisions of this Section 2.7, each Series B Holder shall have one vote per Series B Preferred Unit, except that when any other series of Preferred Units shall have the right to vote with the Series B Preferred Units as a single class on any matter, then the Series B Holders and the holders of such other series of Preferred Units shall have with respect to such matters one vote per $25.00 of stated liquidation preference.
(f) The Board of Directors may cause the Company to, from time to time, without notice to or consent of the Series B Holders or holders of other Parity Units, issue additional Series B Preferred Units or other Parity Units.
(g) The foregoing provisions of this Section 2.7 will not apply if, at or prior to the time when the act with respect to which a vote pursuant to this Section 2.7 would otherwise be required shall be effected, the Series B Preferred Units shall have been redeemed or proper notice of redemption of the Series B Preferred Units has been given and funds sufficient to pay the redemption price for all of the Series B Preferred Units have been set aside for payment pursuant to the terms of this Unit Designation.
(h) Notwithstanding any other provision in this Section 2.7, if at any time any Person or Group (other than any member of the Oaktree Group) is the Beneficial Owner of 20% or more of the Outstanding Series B Preferred Units, all Series B Preferred Units owned by such Person or Group shall not be entitled to be voted on any matter and shall not be considered to be Outstanding when sending notices of a meeting of Members to vote on any matter (unless otherwise required by Applicable Law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Unit Designation and the Operating Agreement; provided , that the foregoing

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limitation shall not apply: (i) to any Person or Group who acquired 20% or more of the Series B Preferred Units then Outstanding directly from any member of the Oaktree Group; (ii) to any Person or Group who acquired 20% or more of the Series B Preferred Units then Outstanding directly or indirectly from a Person or Group described in clause (i) provided that the Board of Directors shall have notified such Person or Group in writing that such limitation shall not apply; or (iii) to any Person or Group who acquired 20% or more of the Series B Preferred Units with the prior written approval of the Board of Directors, which approval may be withheld in the Board of Directors’ sole discretion.
(i) So long as any Series B Preferred Units are Outstanding and only in the event of a Nonpayment, the Manager hereby irrevocably (i) agrees that from time to time, automatically and without further action by the Manager, the size of the Board of Directors shall be increased by two and that the corresponding vacancies be filled, as provided by this Section 2.7, and that from time to time directors be removed and the size of the Board of Directors correspondingly decreased, as provided by this Section 2.7, and (ii) delegates to such Members as expressly provided in this Section 2.7 the filling of such vacancies and election of such directors from time to time.
Section 2.8 Liquidation Rights .
(a) Upon any Dissolution Event, after payment or provision for the liabilities of the Company (including the expenses of such Dissolution Event) and the satisfaction of all claims ranking senior to the Series B Preferred Units in accordance with Section 9.3 of the Operating Agreement, the Series B Holders shall be entitled to receive out of the assets of the Company or proceeds thereof available for distribution to Members, before any payment or distribution of assets is made in respect of Junior Units, distributions equal to the lesser of (x) the Series B Liquidation Value and (y) the positive balance in their Capital Accounts (to the extent such positive balance is attributable to ownership of the Series B Preferred Units and after taking into account allocations of Gross Ordinary Income to the Series B Holders pursuant to Section 2.6 of this Unit Designation for the taxable year in which the Dissolution Event occurs) pursuant to Section 9.3 of the Operating Agreement, pro rata based on the full respective distributable amounts to which each Series B Holder is entitled pursuant to this Section 2.8(a).
(b) Upon a Dissolution Event, after each Series B Holder receives a payment equal to the positive balance in its Capital Account (to the extent such positive balance is attributable to ownership of the Series B Preferred Units and after taking into account allocations of Gross Ordinary Income to the Series B Holders pursuant to Section 2.6 for the taxable year in which the Dissolution Event occurs), such Series B Holder shall not be entitled to any further participation in any distribution of assets by the Company.
 
(c) If the assets of the Company available for distribution upon a Dissolution Event are insufficient to pay in full the aggregate amount payable to the Series B Holders and the holders of all other Outstanding Parity Units, if any, such assets shall be distributed to the Series B Holders and the holders of such Parity Units pro rata, based on the full respective distributable amounts to which each such Member is entitled pursuant to this Section 2.8.
(d) Nothing in this Section 2.8 shall be understood to entitle the Series B Holders to be paid any amount upon the occurrence of a Dissolution Event until holders of any classes or series of Units ranking, as to the distribution of assets upon a Dissolution Event, senior to the Series B Preferred Units have been paid all amounts to which such classes or series of Units are entitled.
(e) For the purposes of this Unit Designation, neither the sale, conveyance, exchange or transfer, for cash, Units, securities or other consideration, of all or substantially all of the Company’s property or assets nor the consolidation, merger or amalgamation of the Company with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Company shall be deemed to be a Dissolution Event, notwithstanding that for other purposes, such as for tax purposes, such an event may constitute a liquidation, dissolution or winding up. In addition, notwithstanding anything to the contrary in this Section 2.8, no payment will be made to the Series B Holders pursuant to this Section 2.8 (i) upon the voluntary or involuntary liquidation, dissolution or winding up of any of the Company’s Subsidiaries or upon any reorganization of the Company pursuant to Article XI of the Operating Agreement, with or without approval of the Members (including a transaction pursuant to Section 11.3 of the Operating Agreement) or (ii) if the Company engages in a reorganization or other transaction in which a successor to the Company issues equity securities to the Series B Holders that have rights, powers and preferences that are substantially similar to the rights, powers and preferences of the Series B

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Preferred Units pursuant to provisions of this Unit Designation that allow the Company to do so without the approval of the Members. Notwithstanding any provision to the contrary in this Article II (including Section 2.7), the Board of Directors may, in its sole discretion and without the consent of any Series B Holder, amend this Article II to allow for the transactions in this Section 2.8(e).
Section 2.9 No Duties to Series B Holders . Notwithstanding anything to the contrary in the Operating Agreement, to the fullest extent permitted by law, neither the Board of Directors nor any other Indemnified Person shall have any duties or liabilities to the Series B Holders.
Section 2.10 Forum Selection . Each Person that holds or has held a Series B Preferred Unit and each Person that holds or has held any beneficial interest in a Series B Preferred Unit (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise), to the fullest extent permitted by law, (i) irrevocably agrees that any claims, suits, actions or proceedings against the Company, or any Director, officer, employee, control person, underwriter or agent of the Company, asserted under United States federal securities laws, otherwise arising under such laws, or that could have been asserted as a claim arising under such laws, shall be exclusively brought in the federal district courts of the United States of America (except, and only to the extent, that any such claims, actions or proceedings are of a type for which a Member may not waive its right to maintain a legal action or proceeding in the courts of the State of Delaware with respect to matters relating to the organization or internal affairs of the Company as set forth under Section 18-109(d) of the Delaware Limited Liability Company Act); (ii) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding; and (iii) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper.
ARTICLE III
RIGHT TO ACQUIRE UNITS
Section 3.1. Right to Acquire Units . Notwithstanding any other provision in this Unit Designation, Article XIII “Right to Acquire Units” of the Operating Agreement shall apply to the Series B Preferred Units.
ARTICLE IV
MISCELLANEOUS

Section 4.1. Effectiveness . Pursuant to Section 4.6(b) of the Operating Agreement, this Unit Designation (or any action of the Board of Directors amending this Unit Designation) shall be effective when a duly executed original of the same is delivered to the Secretary for inclusion in the permanent records of the Company, and shall be annexed to, and constitute a part of, the Operating Agreement.
Section 4.2 Conflicts . To the extent that any provision of this Unit Designation conflicts or is inconsistent with the Operating Agreement, the terms of this Unit Designation shall control.
Section 4.3 Governing Law . This Unit Designation shall be governed by and interpreted in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 4.4 Severability . If any provision of this Unit Designation is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
[Remainder of page intentionally left blank.]


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IN WITNESS WHEREOF, the parties have caused this Unit Designation to be duly executed and delivered, all as of the date first set forth above.
 
 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
/s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel
 

 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP HOLDINGS GP, LLC, solely in its capacity as a Manager and for the purpose of the Manager’s agreement in Section 2.7(i)
 
 
 
By:
 
/s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
/s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel





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EXHIBIT A

FORM OF CLASS A UNIT CERTIFICATE


17

    

CLASS A UNITS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLASS A UNITS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LOGOA06.JPG
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NUMBER
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, NEW YORK
 
 
 
Oaktree Capital Group, LLC
Formed under the laws of the State of Delaware
 
 
 
 
 
CUSIP
SEE REVERSE FOR DEFINITIONS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THIS CERTIFIES THAT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SPECIMEN
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
is the owner of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A Units of Oaktree Capital Group, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

        
    

 
 
(hereinafter called the “Company”) transferable on the books of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the registrar.
 
LOGO2A02.JPG
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Witness, the facsimile signatures of the duly authorized officers of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



    
        
    

EXHIBIT B
FORM OF CLASS B UNIT CERTIFICATE


        
    

Certificate Evidencing Class B Units
in
Oaktree Capital Group, LLC
 
 
 
 
 
 
No. B-[            ]
 
 
 
[            ] Units
In accordance with the Third Amended and Restated Operating Agreement (as amended, supplemented or restated from time to time, the “ Operating Agreement ”) of Oaktree Capital Group, LLC, a Delaware limited liability company (the “ Company ”), the Company hereby certifies that [            ] (the “ Holder ”) is the registered owner of [            ] Class B Units in the Company (the “ Units ”) transferable on the books of the Company, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. The rights, preferences and limitations of the Units are set forth in, and this Certificate and the Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Operating Agreement. The Operating Agreement is on file at, and a copy will be furnished without charge on delivery of written request to the Company at, the principal office of the Company located at 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071, or such other address as may be specified by notice under the Operating Agreement. Capitalized terms used herein but not defined shall have the meanings given them in the Operating Agreement.
The holder of this Certificate, by acceptance of this Certificate, shall be deemed to have (i) requested admission as, and agreed to become, a Member of the Company; (ii) agreed to comply with, and be bound by, the terms of the Operating Agreement; (iii) granted the powers of attorney provided for in the Operating Agreement; and (iv) made the waivers and given the consents and approvals contained in the Operating Agreement. Any attempted transfer of this Certificate or the Class B Units it represents in violation of the Operating Agreement shall be null and void.
This Certificate shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws thereof.
This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar.
 
 
 
 
 
 
Dated:
 
SPECIMEN
 
 
 

        
    

 
 
 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
 
 
By:
 
 
 
 
 
By:
 
 
 
 
 Name:
 
 
 
 
 
 Name:
 
 
 Title:
 
 
 
 
 
 Title:
Countersigned and Registered by:
 
 
   
as Transfer Agent and Registrar

THE CLASS B UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND, ACCORDINGLY, MAY NOT BE TRANSFERRED OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
 
 
 
 
 
 
 
 
 
 
 
 
TEN COM
 
–
 
as tenants in common
 
UNIF GIFT MIN ACT
 
–
 
                  Custodian                  
TEN ENT
 
–
 
as tenants by the entireties
 
 
 
 
 
  (Cust)                         (Minor)
JT TEN
 
–
 
as joint tenants with right of
survivorship and not as tenants in common
 
 
 
 
 
under Uniform Transfers/Gifts to Minors Act                          
      (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,                            hereby sell, assign and transfer unto
Please insert Social Security or other

    
        
    

identifying number of Assignee
 
 
(Please print or typewrite name and address, including zip code, of Assignee)
                               units represented by the Certificate, and do hereby irrevocably constitute and appoint
                  Attorney to transfer the said units on the books of the Company with full power of substitution
in the premises.
Dated                           .
 
 
 
 
 
 
NOTE: The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
 
SIGNATURE(S) MUST BE GUARANTEED BY A MEMBER FIRM OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
 
SIGNATURE(S) GUARANTEED
 
 
 
(Signature)
 
 
 
 
 
(Signature)
No transfer of the Class B Units evidenced hereby will be registered on the books of the Company unless the Certificate evidencing the Class B Units to be transferred is surrendered for registration of transfer.


    
        
    

EXHIBIT C
FORM OF SERIES A PREFERRED UNIT CERTIFICATE

        
    

Certificate Evidencing 6.625% Series A Preferred Units
(Liquidation Preference as specified below)
 
 
 
 
No. SA-[             ]
 
[             ] Units
In accordance with the Fourth Amended and Restated Operating Agreement (as amended, supplemented or restated from time to time, the “ Operating Agreement ”) of Oaktree Capital Group, LLC, a Delaware limited liability company (the “ Company ”), the Company hereby certifies that [                ] (the “ Holder ”) is the registered owner of [                ] units of the Company’s 6.625% Series A Preferred Units, with a Series A Liquidation Preference of $25.00 per unit (the “ Series A Preferred Units ”). The Series A Preferred Units are transferable on the books of the Transfer Agent, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. The Series A Preferred Units are fully paid and the Holder of such Series A Preferred Units will have no obligation to make payments or contributions to the Company solely by reason of its ownership of such Series A Preferred Units. The designations, rights, privileges, preferences and limitations of the Series A Preferred Units are set forth in, and this Certificate and the Series A Preferred Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Operating Agreement. The Operating Agreement is on file at, and a copy will be furnished without charge on delivery of written request to the Company at, the principal office of the Company located at 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071, or such other address as may be specified by notice under the Operating Agreement. Capitalized terms used herein but not defined shall have the meanings given them in the Operating Agreement.
The holder of this Certificate, by acceptance of this Certificate, shall be deemed to have (i) requested admission as, and agreed to become, a Member of the Company; (ii) agreed to comply with, and be bound by, the terms of the Operating Agreement; (iii) granted the powers of attorney provided for in the Operating Agreement; and (iv) made the waivers and given the consents and approvals contained in the Operating Agreement. Any attempted transfer of this Certificate or the Series A Preferred Units it represents in violation of the Operating Agreement shall be null and void.
This Certificate shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws thereof.
In the case of any conflict between this Certificate and the Operating Agreement, the provisions of the Operating Agreement shall control and govern.
This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar.

        
    

[SPECIMEN]
Dated:
 
 
 
 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
 
 
 
 
  By:
 
 
 
 
Name:
 
 
 
 
 
Name:
 
 
Title:
 
 
 
 
 
Title:
Countersigned and Registered by:
 
 
 
as Transfer Agent and Registrar

    
        
    


REVERSE OF CERTIFICATE FOR SERIES A PREFERRED UNITS
Non-cumulative distributions on each Series A Preferred Unit shall be payable at the applicable rate provided in the Operating Agreement.
The Company shall furnish without charge to each Series A Holder who so requests a summary of the authority of the Company to determine variations for future series within a class of Units and the designations, limitations, preferences and relative, participating, optional or other special rights of each class or series of capital issued by the Company and the qualifications, limitations or restrictions of such preferences and/or rights.

    
        
    



The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
 
 
 
 
 
 
 
 
 
 
 
 
TEN COM
 
–
 
as tenants in common
 
UNIF GIFT MIN ACT
 
–
 
                  Custodian             
TEN ENT
 
–
 
as tenants by the entireties
 
 
 
 
 
(Cust)                     (Minor)
JT TEN
 
–
 
as joint tenants with right of
survivorship and not as tenants in common
 
 
 
 
 
under Uniform Transfers/Gifts to Minors Act                       
            (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,                  hereby sell, assign and transfer unto
Please insert Social Security or other
identifying number of Assignee
 
 
(Please print or typewrite name and address, including zip code, of Assignee)
                  Series A Preferred Units represented by the Certificate, and do hereby irrevocably constitute and appoint                  Attorney to transfer the said Series A Preferred Units on the books of the Transfer Agent with full power of substitution in the premises.
Dated                 .
 
 
 
 
SIGNATURE(S) MUST BE GUARANTEED BY A MEMBER
 
NOTE: The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
 
FIRM OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
 
SIGNATURE(S) GUARANTEED
 
 
(Signature)
 
 
 
(Signature)

    
        
    

No transfer of the Series A Preferred Units evidenced hereby will be registered on the books of the Transfer Agent unless the Certificate evidencing the Series A Preferred Units to be transferred is surrendered for registration of transfer.

    
        
    

EXHIBIT D
FORM OF SERIES B PREFERRED UNIT CERTIFICATE


    
        
    

Certificate Evidencing 6.550% Series B Preferred Units
(Liquidation Preference as specified below)
 
 
 
 
No. SA-[             ]
 
[             ] Units
In accordance with the Fourth Amended and Restated Operating Agreement (as amended, supplemented or restated from time to time, the “ Operating Agreement ”) of Oaktree Capital Group, LLC, a Delaware limited liability company (the “ Company ”), the Company hereby certifies that [                ] (the “ Holder ”) is the registered owner of [                ] units of the Company’s 6.550% Series B Preferred Units, with a Series B Liquidation Preference of $25.00 per unit (the “ Series B Preferred Units ”). The Series B Preferred Units are transferable on the books of the Transfer Agent, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. The Series B Preferred Units are fully paid and the Holder of such Series B Preferred Units will have no obligation to make payments or contributions to the Company solely by reason of its ownership of such Series B Preferred Units. The designations, rights, privileges, preferences and limitations of the Series B Preferred Units are set forth in, and this Certificate and the Series B Preferred Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Operating Agreement. The Operating Agreement is on file at, and a copy will be furnished without charge on delivery of written request to the Company at, the principal office of the Company located at 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071, or such other address as may be specified by notice under the Operating Agreement. Capitalized terms used herein but not defined shall have the meanings given them in the Operating Agreement.
The holder of this Certificate, by acceptance of this Certificate, shall be deemed to have (i) requested admission as, and agreed to become, a Member of the Company; (ii) agreed to comply with, and be bound by, the terms of the Operating Agreement; (iii) granted the powers of attorney provided for in the Operating Agreement; and (iv) made the waivers and given the consents and approvals contained in the Operating Agreement. Any attempted transfer of this Certificate or the Series B Preferred Units it represents in violation of the Operating Agreement shall be null and void.
This Certificate shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws thereof.
In the case of any conflict between this Certificate and the Operating Agreement, the provisions of the Operating Agreement shall control and govern.
This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar.

    
        
    

[SPECIMEN]
Dated:
 
 
 
 
 
 
 
 
 
 
OAKTREE CAPITAL GROUP, LLC
 
OAKTREE CAPITAL GROUP, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
 
 
 
 
  By:
 
 
 
 
Name:
 
 
 
 
 
Name:
 
 
Title:
 
 
 
 
 
Title:
Countersigned and Registered by:
 
 
 
as Transfer Agent and Registrar

    
        
    


REVERSE OF CERTIFICATE FOR SERIES B PREFERRED UNITS
Non-cumulative distributions on each Series B Preferred Unit shall be payable at the applicable rate provided in the Operating Agreement.
The Company shall furnish without charge to each Series B Holder who so requests a summary of the authority of the Company to determine variations for future series within a class of Units and the designations, limitations, preferences and relative, participating, optional or other special rights of each class or series of capital issued by the Company and the qualifications, limitations or restrictions of such preferences and/or rights.

    
        
    



The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
 
 
 
 
 
 
 
 
 
 
 
 
TEN COM
 
–
 
as tenants in common
 
UNIF GIFT MIN ACT
 
–
 
                  Custodian             
TEN ENT
 
–
 
as tenants by the entireties
 
 
 
 
 
(Cust)                     (Minor)
JT TEN
 
–
 
as joint tenants with right of
survivorship and not as tenants in common
 
 
 
 
 
under Uniform Transfers/Gifts to Minors Act                       
            (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,                  hereby sell, assign and transfer unto
Please insert Social Security or other
identifying number of Assignee
 
 
(Please print or typewrite name and address, including zip code, of Assignee)
                  Series B Preferred Units represented by the Certificate, and do hereby irrevocably constitute and appoint                  Attorney to transfer the said Series B Preferred Units on the books of the Transfer Agent with full power of substitution in the premises.
Dated                 .
 
 
 
 
SIGNATURE(S) MUST BE GUARANTEED BY A MEMBER
 
NOTE: The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
 
FIRM OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
 
SIGNATURE(S) GUARANTEED
 
 
(Signature)
 
 
 
(Signature)

    
        
    

No transfer of the Series B Preferred Units evidenced hereby will be registered on the books of the Transfer Agent unless the Certificate evidencing the Series B Preferred Units to be transferred is surrendered for registration of transfer.


    
        
EXHIBIT 10.1

EXECUTION VERSION


 
 
 
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
Oaktree Capital I, L.P.
Dated as of May 17, 2018
 
 
 
THE PARTNERSHIP UNITS OF OAKTREE CAPITAL I, L.P. HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF ANY STATE, PROVINCE OR ANY OTHER APPLICABLE SECURITIES LAWS AND ARE BEING SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH UNITS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR PROVINCE, AND ANY OTHER APPLICABLE SECURITIES LAWS; AND (II) THE TERMS AND CONDITIONS OF THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT. THE UNITS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THIS LIMITED PARTNERSHIP AGREEMENT. THEREFORE, PURCHASERS AND OTHER TRANSFEREES OF SUCH UNITS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.





Table of Contents
 
 
 
 
 
 
 
 
 
 
Page
 
 
ARTICLE I
 
DEFINITIONS
 
 
 
 
SECTION 1.01
 
Definitions
 
 
1
 
 
ARTICLE II
 
FORMATION, TERM, PURPOSE AND POWERS
 
 
 
 
SECTION 2.01
 
Formation
 
 
5
 
SECTION 2.02
 
Name
 
 
5
 
SECTION 2.03
 
Term
 
 
5
 
SECTION 2.04
 
Offices
 
 
5
 
SECTION 2.05
 
Agent for Service of Process
 
 
5
 
SECTION 2.06
 
Business Purpose
 
 
5
 
SECTION 2.07
 
Powers of the Partnership
 
 
5
 
SECTION 2.08
 
Partners; Admission of New Partners
 
 
5
 
SECTION 2.09
 
Withdrawal
 
 
5
 
 
ARTICLE III
 
MANAGEMENT
 
 
 
 
SECTION 3.01
 
General Partner
 
 
6
 
SECTION 3.02
 
Compensation
 
 
6
 
SECTION 3.03
 
Expenses
 
 
6
 
SECTION 3.04
 
Officers
 
 
6
 
SECTION 3.05
 
Authority of Partners
 
 
6
 
SECTION 3.06
 
Action by Written Consent or Ratification
 
 
7
 
 
ARTICLE IV
 
DISTRIBUTIONS
 
 
 
 
SECTION 4.01
 
Distributions
 
 
7
 
SECTION 4.02
 
Liquidation Distribution
 
 
7
 
SECTION 4.03
 
Limitations on Distribution
 
 
7
 
SECTION 4.04 Distributions on Preferred Units
 
 
 
 
 
 

i


ARTICLE V
 
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS;
 
TAX ALLOCATIONS; TAX MATTERS
 
 
 
 
SECTION 5.01
 
Initial Capital Contributions
 
 
7
 
SECTION 5.02
 
No Additional Capital Contributions
 
 
7
 
SECTION 5.03
 
Capital Accounts
 
 
8
 
SECTION 5.04
 
Allocations of Profits and Losses
 
 
8
 
SECTION 5.05
 
Special Allocations
 
 
8
 
SECTION 5.06
 
Tax Allocations
 
 
9
 
SECTION 5.07
 
Tax Advances
 
 
9
 
SECTION 5.08
 
Tax Matters
 
 
9
 
SECTION 5.09
 
Other Allocation Provisions
 
 
10
 
SECTION 5.10
 
Election to be Treated as a Corporation
 
 
10
 
 
ARTICLE VI
 
BOOKS AND RECORDS; REPORTS
 
 
 
 
SECTION 6.01
 
Books and Records
 
 
10
 
 
ARTICLE VII
 
PARTNERSHIP UNITS
 
 
 
 
SECTION 7.01
 
Units
 
 
10
 
SECTION 7.02
 
Register
 
 
11
 
SECTION 7.03
 
Registered Partners
 
 
11
 
 
ARTICLE VIII
 
VESTING; FORFEITURE OF INTERESTS; ADMISSION OF
 
ADDITIONAL PARTNERS; TRANSFER RESTRICTIONS
 
 
 
 
SECTION 8.01
 
Units Subject to Vesting
 
 
11
 
SECTION 8.02
 
Forfeiture of Unvested Units upon Trigger Event
 
 
11
 
SECTION 8.03
 
Limited Partnership Transfers
 
 
11
 
SECTION 8.04
 
Mandatory Exchanges
 
 
12
 
SECTION 8.05
 
Further Restrictions
 
 
12
 
SECTION 8.06
 
Rights of Assignees
 
 
12
 
SECTION 8.07
 
Admissions, Withdrawals and Removals
 
 
12
 
SECTION 8.08
 
Admission of Assignees as Substitute Limited Partners
 
 
12
 
SECTION 8.09
 
Withdrawal and Removal of Limited Partners
 
 
13
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ii


ARTICLE IX
 
DISSOLUTION, LIQUIDATION AND TERMINATION
 
 
 
 
SECTION 9.01
 
No Dissolution
 
 
13
 
SECTION 9.02
 
Events Causing Dissolution
 
 
13
 
SECTION 9.03
 
Distribution upon Dissolution
 
 
14
 
SECTION 9.04
 
Time for Liquidation
 
 
14
 
SECTION 9.05
 
Termination
 
 
14
 
SECTION 9.06
 
Claims of the Partners
 
 
14
 
SECTION 9.07
 
Survival of Certain Provisions
 
 
14
 
 
ARTICLE X
 
LIABILITY AND INDEMNIFICATION
 
 
 
 
SECTION 10.01
 
Liability of Partners
 
 
14
 
SECTION 10.02
 
Indemnification
 
 
15
 
 
ARTICLE XI
 
MISCELLANEOUS
 
 
 
 
SECTION 11.01
 
Severability
 
 
16
 
SECTION 11.02
 
Notices
 
 
16
 
SECTION 11.03
 
Cumulative Remedies
 
 
17
 
SECTION 11.04
 
Binding Effect
 
 
17
 
SECTION 11.05
 
Interpretation
 
 
17
 
SECTION 11.06
 
Counterparts
 
 
17
 
SECTION 11.07
 
Further Assurances
 
 
17
 
SECTION 11.08
 
Entire Agreement
 
 
17
 
SECTION 11.09
 
Governing Law
 
 
17
 
SECTION 11.10
 
Arbitration of Disputes
 
 
17
 
SECTION 11.11
 
Expenses
 
 
18
 
SECTION 11.12
 
Amendments and Waivers
 
 
18
 
SECTION 11.13
 
No Third Party Beneficiaries
 
 
19
 
SECTION 11.14
 
Headings
 
 
19
 
SECTION 11.15
 
Construction
 
 
19
 
SECTION 11.16
 
Power of Attorney
 
 
19
 
SECTION 11.17
 
Partnership Status
 
 
20
 
 
EXHIBITS
Exhibit 1 - UNIT DESIGNATION WITH RESPECT TO THE SERIES A PREFERRED MIRROR UNITS
Exhibit 2 - UNIT DESIGNATION WITH RESPECT TO THE SERIES B PREFERRED MIRROR UNITS



iii


SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
OAKTREE CAPITAL I, L.P.
This SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of Oaktree Capital I, L.P. (the “ Partnership ”) is made as of the 17th day of May, 2018, by and among OCM Holdings I, LLC, a limited liability company formed under the laws of the State of Delaware, as general partner, and the Limited Partners (as defined herein) of the Partnership.
WHEREAS, the Partnership was formed as a limited partnership pursuant to the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. Section 17-101, et seq., as it may be amended from time to time (the “ Act ”), by the filing of a Certificate of Limited Partnership (the “ Certificate ”) with the Office of the Secretary of State of the State of Delaware and the execution of the Limited Partnership Agreement of the Partnership dated as of May 11, 2007 (the “ Original Agreement ”);
WHEREAS, the parties amended and restated the Original Agreement to permit the admission of the Limited Partners to the Partnership on May 25, 2007 (the “ Amended and Restated Agreement ”);
WHEREAS, pursuant to Section 7.01 of the Amended and Restated Agreement, as of December 2, 2014, the General Partner established a new Class of Units designated as the EVU Back-to-Back Units, with such designations, preferences, rights, powers and duties as are set forth in the Unit Designation and Grant Agreement, dated as of December 2, 2014, with respect to the EVU Back-to-Back Units (the “ EVU Back-to-Back Unit Designation ”);
WHEREAS, Section 7.01 of the Amended and Restated Agreement provides that the General Partner may establish, from time to time, other Classes, one or more series of any such Classes, or other Partnership securities with such designations, preferences, rights, powers and duties (which may be senior to existing Classes and series of Units), as shall be determined by the General Partner;
WHEREAS, Section 11.12 of the Amended and Restated Agreement provides that the General Partner may, without the written consent of any Limited Partner or any other Person, amend, supplement, waive or modify any provision of this Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect, among other things, any amendment, supplement, waiver or modification that the General Partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of equity interests in the Partnership; and
WHEREAS, pursuant to the aforementioned sections of the Amended and Restated Agreement, the General Partner desires to establish a new class of interests in the Partnership to be named the Series A Preferred Mirror Units, with such designations, preferences, rights, powers and duties as are set forth in the Unit Designation with respect to the Series A Preferred Mirror Units attached hereto as Exhibit 1 , and, in connection therewith, desires to further amend and restate the Amended and Restated Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein made and intending to be legally bound hereby, the parties hereto agree to amend and restate the Amended and Restated Agreement in its entirety to read as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01  Definitions . Capitalized terms used herein without definition have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):
“ Act ” has the meaning set forth in the preamble of this Agreement.

1

“ Adjusted Capital Account Balance ” means, with respect to each Partner, the balance in such Partner’s Capital Account adjusted (i) by taking into account the adjustments, allocations and distributions described in U.S. Treasury Regulations Sections 1.704-1(b)(2)(ii)(c)(4), (5) and (6); and (ii) by adding to such balance such Partner’s share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, determined pursuant to Regulations Sections 1.704-2(g) and 1.704-2(i)(5), any amounts such Partner is obligated to restore pursuant to any provision of this Agreement or by applicable law. The foregoing definition of Adjusted Capital Account Balance is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
“ Affiliate ” means, with respect to a specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.
“ Agreement ” means this Second Amended and Restated Limited Partnership Agreement of the Partnership, and, where the context so requires, any Unit Designation, as each may be amended, supplemented or restated from time to time.
“ Assignee ” has the meaning set forth in Section 8.06.
“ Assumed Tax Rate ” means the highest effective marginal combined U.S. federal, state and local income tax rate for a Fiscal Year prescribed for an individual or corporate resident in Los Angeles, California or New York, New York (taking into account (a) the nondeductibility of expenses subject to the limitation described in Section 67(a) of the Code and (b) the character (e.g., long-term or short-term capital gain or ordinary or exempt income) of the applicable income). For the avoidance of doubt, the Assumed Tax Rate will be the same for all Partners.
“ Available Cash ” means, with respect to any fiscal period, the amount of cash on hand which the General Partner, in its reasonable discretion, deems available for distribution to the Partners, taking into account all debts, liabilities and obligations of the Partnership then due and amounts which the General Partner, in its reasonable discretion, deems necessary to expend or retain for working capital or to place into reserves for customary and usual claims with respect to the Partnership’s operations.
“ Capital Account ” means the separate capital account maintained for each Partner in accordance with Section 5.03 hereof.
“ Capital Contribution ” means, with respect to any Partner, the aggregate amount of money contributed to the Partnership and the Carrying Value of any property (other than money), net of any liabilities assumed by the Partnership upon contribution or to which such property is subject, contributed to the Partnership pursuant to Article V.
“ Carrying Value ” means, with respect to any Partnership asset, the asset’s adjusted basis for U.S. federal income tax purposes, except that the initial carrying value of assets contributed to the Partnership shall be their respective gross fair market values on the date of contribution as determined by the General Partner, and the Carrying Values of all Partnership assets shall be adjusted to equal their respective fair market values, in accordance with the rules set forth in United States Treasury Regulation Section 1.704-1(b)(2)(iv)(f), except as otherwise provided herein, as of: (a) the date of the acquisition of any additional Partnership Interest by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) the date of the distribution of more than a de minimis amount of Partnership assets to a Partner; (c) the date a Partnership Interest is relinquished to the Partnership; or (d) any other date specified in the United States Treasury Regulations; provided however that adjustments pursuant to clauses (a), (b) (c) and (d) above shall be made only if such adjustments are deemed necessary or appropriate by the General Partner to reflect the relative economic interests of the Partners. In the case of any asset that has a Carrying Value that differs from its adjusted tax basis, Carrying Value shall be adjusted by the amount of depreciation calculated for purposes of the definition of “Net Income (Loss)” rather than the amount of depreciation determined for U.S. federal income tax purposes, and depreciation shall be calculated by reference to Carrying Value rather than tax basis once Carrying Value differs from tax basis.
“ Certificate ” has the meaning set forth in the preamble of this Agreement.
“ Class ” means the classes of Units into which the interests in the Partnership may be classified or divided from time to time pursuant to the provisions of this Agreement.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

2

“ Common Units ” means any class or series of Units issued without a preference or priority over the holders of any other Units in: (a) the right to share profits or losses or items thereof; (b) the right to share in Partnership distributions; or (c) rights upon dissolution or liquidation of the Partnership.
“ Contingencies ” has the meaning set forth in Section 9.03(a).
“ Creditable Foreign Tax ” means a foreign tax paid or accrued for United States federal income tax purposes by the Partnership, in either case to the extent that such tax is eligible for credit under Section 901(a) of the Code. A foreign tax is a creditable foreign tax for these purposes without regard to whether a partner receiving an allocation of such foreign tax elects to claim a credit for such amount.
“ Disabling Event ” means the General Partner ceasing to be the general partner of the Partnership pursuant to Section 17-402 of the Act.
“ Dissolution Event ” has the meaning set forth in Section 9.02 of this Agreement.
“ ERISA ” means the U.S. Employee Retirement Income Security Act of 1974, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“ Exchange Agreement ” means one or more exchange agreements providing for the exchange of Common Units and common units in other members of the Oaktree Operating Group in accordance with the terms thereof.
“ Exchange Transaction ” means the distribution of Common Units by OCGH or other holder thereof to an employee of the Oaktree Operating Group or any other person pursuant to the terms of the partnership agreement of OCGH, the Exchange Agreement or any other applicable document.
“ Fiscal Year ” means (i) the period commencing upon the formation of the Partnership and ending on December 31, 2007 or (ii) any subsequent twelve-month period commencing on January 1 and ending on December 31.
“ GAAP ” means accounting principles generally accepted in the United States of America as in effect from time to time.
 
“ General Partner ” means OCM Holdings I, LLC, a limited liability company formed under the laws of the State of Delaware or any successor general partner admitted to the Partnership in accordance with the terms of this Agreement.
“ Incapacity ” means, with respect to any Person, the bankruptcy, dissolution, termination, entry of an order of incompetence, or the insanity, permanent disability or death of such Person.
“ Issuer ” means Oaktree Capital Group, LLC, a limited liability company formed under the laws of the State of Delaware, or any successor thereto.
“ Law ” means any statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order issued or promulgated by any national, supranational, state, federal, provincial, local or municipal government or any administrative or regulatory body with authority therefrom with jurisdiction over the Partnership or any Partner, as the case may be.
“ Limited Partner ” means each of the Persons from time to time listed as a limited partner in the books and records of the Partnership.
“ Liquidation Agent ” has the meaning set forth in Section 9.03 of this Agreement.
“ Net Taxable Income ” has the meaning set forth in Section 4.01(b).
“ Nonrecourse Deductions ” has the meaning set forth in Treasury Regulations Section 1.704-2(b). The amount of Nonrecourse Deductions of the Partnership for a fiscal year equals the net increase, if any, in the amount of Partnership Minimum Gain of the Partnership during that fiscal year, determined according to the provisions of Treasury Regulations Section 1.704-2(c).
“ Oaktree Operating Group ” means, collectively, the Partnership, Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and any other direct or indirect subsidiary of the Issuer (whether now existing or hereafter formed) that is designated as part of the Oaktree Operating Group by the Board of Directors of the Issuer.

3

“ OCGH ” means Oaktree Capital Group Holdings, L.P., a Delaware limited partnership, and any successors thereto.
“ Partner Nonrecourse Debt Minimum Gain ” means an amount with respect to each partner nonrecourse debt (as defined in Treasury Regulations Section 1.704-2(b)(4)) equal to the Partnership Minimum Gain that would result if such partner nonrecourse debt were treated as a nonrecourse liability (as defined in Treasury Regulations Section 1.752-1(a)(2)) determined in accordance with Treasury Regulations Section 1.704-2(i)(3).
“ Partner Nonrecourse Deductions ” has the meaning ascribed to the term “partner nonrecourse deductions” set forth in Treasury Regulations Section 1.704-2(i)(2).
“ Partners ” means, at any time, each person listed as a Partner (including the General Partner) on the books and records of the Partnership, in each case for so long as he, she or it remains a partner of the Partnership as provided hereunder.
“ Partnership ” has the meaning set forth in the preamble of this Agreement.
 
“ Partnership Minimum Gain ” has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
“ Partnership Representative ” has the meaning set forth in Section 5.08.
“ Person ” means any individual, corporation, partnership, limited partnership, limited liability company, limited company, joint venture, trust, unincorporated or governmental organization or any agency or political subdivision thereof.
“ Preferred Units ” means any class of Units that entitles the holders thereof to a preference or priority over the holders of any Common Units in: (a) the right to share profits or losses or items thereof; (b) the right to share in Partnership distributions; or (c) rights upon dissolution or liquidation of the Partnership.
“ Profits ” and “ Losses ” means, for each Fiscal Year or other period, the taxable income or loss of the Partnership, or particular items thereof, determined in accordance with the accounting method used by the Partnership for U.S. federal income tax purposes with the following adjustments: (a) all items of income, gain, loss or deduction allocated pursuant to Section 5.05 shall not be taken into account in computing such taxable income or loss; (b) any income of the Partnership that is exempt from U.S. federal income taxation and not otherwise taken into account in computing Profits and Losses shall be added to such taxable income or loss; (c) if the Carrying Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, any gain or loss resulting from a disposition of such asset shall be calculated with reference to such Carrying Value; (d) upon an adjustment to the Carrying Value (other than an adjustment in respect of depreciation) of any asset, pursuant to the definition of Carrying Value, the amount of the adjustment shall be included as gain or loss in computing such taxable income or loss; (e) if the Carrying Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, the amount of depreciation, amortization or cost recovery deductions with respect to such asset for purposes of determining Profits and Losses, if any, shall be an amount which bears the same ratio to such Carrying Value as the U.S. federal income tax depreciation, amortization or other cost recovery deductions bears to such adjusted tax basis ( provided that if the U.S. federal income tax depreciation, amortization or other cost recovery deduction is zero, the General Partner may use any reasonable method for purposes of determining depreciation, amortization or other cost recovery deductions in calculating Profits and Losses); and (f) except for items in (a) above, any expenditures of the Partnership not deductible in computing taxable income or loss, not properly capitalizable and not otherwise taken into account in computing Profits and Losses pursuant to this definition shall be treated as deductible items.
“ Similar Law ” means any state, local, non-U.S. or other laws or regulations that would cause the underlying assets of the Partnership to be treated as assets of an investing entity by virtue of its investment (or any beneficial interest) in the Partnership and thereby subject the Partnership, the General Partner or OCGH (or other Persons responsible for the investment and operation of the Partnership’s assets) to laws or regulations that are similar to the fiduciary responsibility or prohibited transaction provisions contained in Title 1 of ERISA or Section 4975 of the Code.
“ Subsidiary ” means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests of such Person or holds a sole general partner interest or managing member or similar interest in such Person; provided , that no investment fund or portfolio company shall be a “Subsidiary” of the Partnership or any Subsidiary thereof.

4

“ Tax Advances ” has the meaning set forth in Section 5.07.
“ Tax Amount ” has the meaning set forth in Section 4.01(b).
“ Tax Distributions ” has the meaning set forth in Section 4.01(b).
“ Tax Matters Partner ” has the meaning set forth in Section 5.08.
“ Total Percentage Interest ” means, with respect to any Partner and as of any date of determination, (a) as to any Common Units, the product obtained by multiplying (i) 100% less the percentage applicable to the Units referred to in clause (b) of this definition by (ii) the quotient obtained by dividing the number of Common Units (vested or unvested) then owned by such Partner by the number of Common Units then owned by all Partners and (b) as to any other Units, the percentage established for such Units by the General Partner as a part of the Unit Designation of such Units.
“ Transfer ” means, in respect of any Unit, property or other asset, any sale, assignment, transfer, distribution or other disposition thereof, whether voluntarily or by operation of Law, including, without limitation, the exchange of any Unit for any other security and any transfer that is part of an Exchange Transaction.
“ Transferee ” means any Person that is a transferee of a Partner’s interest in the Partnership, or part thereof.
“ Treasury Regulations ” means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“ Trigger Event ” means an event or events designated by the General Partner at the time of issuance of any Units subject to vesting upon the occurrence of which any unvested Units subject to such Trigger Even shall be forfeited pursuant to Section 8.02. For the avoidance of doubt, the General Partner may designate as a Trigger Event for any particular Units the termination of the employment of a Person with any member of the Oaktree Operating Group.
“ Unit ” means a unit issued by the Partnership and authorized in accordance with this Agreement, which shall constitute interests in the Partnership as provided in this Agreement and under the Act, entitling the holders thereof to the relative rights, title and interests in the profits, losses, deductions and credits of the Partnership at any particular time as set forth in this Agreement, and any and all other benefits to which a holder thereof may be entitled as a Partner as provided in this Agreement, together with the obligations of such Partner to comply with all terms and provisions of this Agreement.
“ Unit Designation ” means a written action or actions setting forth the designations, preferences, rights, powers and duties of a class or series of Units.
ARTICLE II
FORMATION, TERM, PURPOSE AND POWERS
SECTION 2.01  Formation . The Partnership was formed as a limited partnership under the provisions of the Act by the filing on May 11, 2007 of the Certificate as provided in the preamble of this Agreement and the execution of the Original Agreement. If requested by the General Partner, the Limited Partners shall promptly execute all certificates and other documents consistent with the terms of this Agreement necessary for the General Partner to accomplish all filing, recording, publishing and other acts as may be appropriate to comply with all requirements for (a) the formation and operation of a limited partnership under the laws of the State of Delaware, (b) if the General Partner deems it advisable, the operation of the Partnership as a limited partnership, or partnership in which the Limited Partners have limited liability, in all jurisdictions where the Partnership proposes to operate and (c) all other filings required to be made by the Partnership.
SECTION 2.02  Name . The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of, Oaktree Capital I, L.P.
SECTION 2.03  Term . The term of the Partnership commenced on the date of the filing of the Certificate, and the term shall continue until the dissolution of the Partnership in accordance with Article IX. The existence of the Partnership shall continue until cancellation of the Certificate in the manner required by the Act.

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SECTION 2.04  Offices . The Partnership may have offices at such places either within or outside the State of Delaware as the General Partner from time to time may select.
SECTION 2.05  Agent for Service of Process . The Partnership’s registered agent for service of process in the State of Delaware shall be as set forth in the Certificate, as the same may be amended by the General Partner from time to time.
SECTION 2.06  Business Purpose . The Partnership was formed for the object and purpose of, and the nature and character of the business to be conducted by the Partnership is, engaging in any lawful act or activity for which limited partnerships may be formed under the Act.
SECTION 2.07  Powers of the Partnership . Subject to the limitations set forth in this Agreement, the Partnership will possess and may exercise all of the powers and privileges granted to it by the Act including, without limitation, the ownership and operation of the assets contributed to the Partnership by the Partners, by any other Law or this Agreement, together with all powers incidental thereto, so far as such powers are necessary or convenient to the conduct, promotion or attainment of the purpose of the Partnership set forth in Section 2.06.
SECTION 2.08  Partners; Admission of New Partners . Each of the Persons listed in the books and records of the Partnership, as the same may be amended from time to time in accordance with this Agreement, by virtue of the execution of this Agreement, are admitted as Partners of the Partnership. The rights, duties and liabilities of the Partners shall be as provided in the Act, except as is otherwise expressly provided herein, and the Partners consent to the variation of such rights, duties and liabilities as provided herein. A Person may be admitted from time to time as a new Partner in accordance with Article VIII; provided , however , that each new Partner shall execute and deliver to the General Partner an appropriate supplement to this Agreement pursuant to which the new Partner agrees to be bound by the terms and conditions of the Agreement, as it may be amended from time to time.
 
SECTION 2.09  Withdrawal . No Partner shall have the right to withdraw as a Partner of the Partnership other than following the Transfer of all Units owned by such Partner in accordance with Article VIII; provided , however, that a new General Partner or substitute General Partner may be admitted to the Partnership in accordance with Section 8.07.
ARTICLE III
MANAGEMENT
SECTION 3.01  General Partner . (a) The business, property and affairs of the Partnership shall be managed under the sole, absolute and exclusive direction of the General Partner, which may from time to time delegate authority to officers or to others to act on behalf of the Partnership.
(b) Without limiting the foregoing provisions of this Section 3.01, the General Partner shall have the general power to manage or cause the management of the Partnership (which may be delegated to officers of the Partnership), including, without limitation, the following powers:
(i) to develop and prepare a business plan each year;
(ii) to execute and deliver or to authorize the execution and delivery of contracts, deeds, leases, licenses, instruments of transfer and other documents on behalf of the Partnership;
(iii) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations;
(iv) to employ, retain, consult with and dismiss personnel;
(v) to establish and enforce limits of authority and internal controls with respect to all personnel and functions;
(vi) to engage attorneys, consultants and accountants for the Partnership;

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(vii) to develop or cause to be developed accounting procedures for the maintenance of the Partnership’s books of account; and
(viii) to do all such other acts as shall be authorized in this Agreement or by the Partners in writing from time to time.
 
SECTION 3.02  Compensation . The General Partner shall not be entitled to any compensation for services rendered to the Partnership in its capacity as General Partner.
SECTION 3.03  Expenses . The Partnership shall bear and/or reimburse the General Partner for any expenses incurred by the General Partner in connection with serving as the general partner of the Partnership.
SECTION 3.04  Officers . Subject to the direction and oversight of the General Partner, the day-to-day administration of the business of the Partnership may be carried out by employees and agents who may be designated as officers by the General Partner, with titles as and to the extent authorized by the General Partner. The officers of the Partnership shall have such titles and powers and perform such duties as shall be determined from time to time by the General Partner and otherwise as shall customarily pertain to such offices. Any number of offices may be held by the same person. All employees, agents and officers shall be subject to the supervision and direction of the General Partner and may be removed from such office by the General Partner and the authority, duties or responsibilities of any employee, agent or officer of the Partnership may be suspended by the General Partner from time to time, in each case in the sole discretion of the General Partner. The General Partner shall not cease to be a general partner of the Partnership as a result of the delegation of any duties hereunder. No officer of the Partnership, in its capacity as such, shall be considered a general partner of the Partnership by agreement, estoppel, as a result of the performance of its duties hereunder or otherwise.
SECTION 3.05  Authority of Partners . No Limited Partner, in its capacity as such, shall participate in or have any control over the business of the Partnership. Except as expressly provided herein, the Units do not confer any rights upon the Limited Partners to participate in the affairs of the Partnership described in this Agreement. Except as expressly provided herein, the Limited Partners shall have no right to vote on any matter involving the Partnership, including with respect to any merger, consolidation, combination or conversion of the Partnership. The conduct, control and management of the Partnership shall be vested exclusively in the General Partner. In all matters relating to or arising out of the conduct of the operation of the Partnership, the decision of the General Partner shall be the decision of the Partnership. Except as required or permitted by Law, or expressly provided in the ultimate sentence of this Section 3.05 or by separate agreement with the Partnership, no Partner who is not also a General Partner (and acting in such capacity) shall take any part in the management or control of the operation or business of the Partnership in its capacity as a Partner, nor shall any Partner who is not also a General Partner (and acting in such capacity) have any right, authority or power to act for or on behalf of or bind the Partnership in his or its capacity as a Partner in any respect or assume any obligation or responsibility of the Partnership or of any other Partner. Notwithstanding the foregoing, the Partnership may employ one or more Partners from time to time, and such Partners, in their capacity as employees of the Partnership (and not, for clarity, in their capacity as Limited Partners of the Partnership), may take part in the control and management of the business of the Partnership to the extent such authority and power to act for or on behalf of the Partnership has been delegated to them by the General Partner.
SECTION 3.06  Action by Written Consent or Ratification . Any action required or permitted to be taken by the Partners pursuant to this Agreement shall be taken if all Partners whose consent or ratification is required consent thereto or provide a ratification in writing.
 
ARTICLE IV
DISTRIBUTIONS
SECTION 4.01  Distributions . Subject to Section 4.04 and any Unit Designation related to any outstanding Units:
(a)    The General Partner, in its sole discretion, may authorize distributions by the Partnership to the Partners, which distributions shall be made pro rata in accordance with the Partners’ respective Total Percentage Interests.

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(b)     In addition to the foregoing clause (a), if the General Partner reasonably determines that the taxable income of the Partnership for a Fiscal Year will give rise to taxable income for the Partners (“ Net Taxable Income ”), the General Partner shall cause the Partnership to distribute Available Cash in respect of income tax liabilities (the “ Tax Distributions ”) pro rata in accordance with the Partners’ respective Total Percentage Interest to the extent that other distributions made by the Partnership for such year are otherwise insufficient to cover such tax liabilities. The Tax Distributions payable with respect to a period shall be computed based upon the General Partner’s estimate of the allocable Net Taxable Income in accordance with Article V for such period, multiplied by the Assumed Tax Rate (the “ Tax Amount ”). For purposes of computing the Tax Amount, the effect of any benefit to a Partner under Section 743(b) of the Code will be ignored. The partnership shall make distributions under this Section 4.01 quarterly based on the expected, estimated taxable income of the Partnership for the relevant quarter as reasonably determined by the General Partner, and within 90 days after the end of the Fiscal Year with respect to a Fiscal Year.
SECTION 4.02  Liquidation Distribution . Distributions made upon dissolution of the Partnership shall be made as provided in Section 9.03.
SECTION 4.03  Limitations on Distribution . Notwithstanding any provision to the contrary contained in this Agreement, the General Partner shall not make a Partnership distribution to any Partner if such distribution would violate Section 17-607 of the Act or other applicable Law.
SECTION 4.04  Distributions on Preferred Units . No distributions shall be made with respect to any Class or series of Preferred Units except as permitted under the Unit Designation related to such Class or series of Preferred Units. For the avoidance of doubt, and without limitation of the foregoing, no distributions pursuant to this Section 4.01, including Tax Distributions, shall be made with respect to any Class or series of Preferred Units (unless the applicable Unit Designation expressly provides otherwise in a provision that explicitly refers to Section 4.01).
ARTICLE V
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS;
TAX ALLOCATIONS; TAX MATTERS
SECTION 5.01  Initial Capital Contributions . The Partners have made, on or prior to the date hereof, Capital Contributions and have acquired the number of Units as specified in the books and records of the Partnership.
SECTION 5.02  No Additional Capital Contributions . Except as otherwise provided in this Article V, no Partner shall be required to make additional Capital Contributions to the Partnership without the consent of such Partner or permitted to make additional capital contributions to the Partnership without the consent of the General Partner.
SECTION 5.03  Capital Accounts . A separate capital account (a “ Capital Account ”) shall be established and maintained for each Partner in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv). The Capital Account of each Partner shall be credited with such Partner’s Capital Contributions, if any, all Profits allocated to such Partner pursuant to Section 5.04 and any items of income or gain which are specially allocated pursuant to Section 5.05; and shall be debited with all Losses allocated to such Partner pursuant to Section 5.04, any items of loss or deduction of the Partnership specially allocated to such Partner pursuant to Section 5.05, and all cash and the Carrying Value of any property (net of liabilities assumed by such Partner and the liabilities to which such property is subject) distributed by the Partnership to such Partner. Any references in any section of this Agreement to the Capital Account of a Partner shall be deemed to refer to such Capital Account as the same may be credited or debited from time to time as set forth above. In the event of any transfer of any interest in the Partnership in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest.
SECTION 5.04  Allocations of Profits and Losses . Except as otherwise provided in this Agreement (and subject to the Unit Designation with respect to any Units then outstanding) Profits and Losses (and, to the extent necessary, individual items of income, gain or loss or deduction of the Partnership) shall be allocated in a manner such that the Capital Account of each Partner that holds Common Units, after giving effect to the Special Allocations set forth in Section 5.05 is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made pursuant to

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Article IV if the Partnership were dissolved, its affairs wound up and its assets sold for cash equal to their Carrying Value, all Partnership liabilities were satisfied (limited with respect to each non-recourse liability to the Carrying Value of the assets securing such liability) and the net assets of the Partnership were distributed to the Partners pursuant to this Agreement, minus (ii) such Partner’s share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical sale of assets. The General Partner shall make such adjustments to Capital Accounts as it determines in its sole discretion to be appropriate to ensure allocations are made in accordance with a partner’s interest in the Partnership.
SECTION 5.05  Special Allocations . Notwithstanding any other provision in this Article V, in respect of any Common Units held by a Partner:
(a) Minimum Gain Chargeback . If there is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt Minimum Gain (determined in accordance with the principles of Treasury Regulations Sections 1.704-2(d) and 1.704-2(i)) during any Partnership taxable year, the Partners holding Common Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to their respective shares of such net decrease during such year, determined pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5). The items to be so allocated shall be determined in accordance with Treasury Regulations Section 1.704-2(f). This Section 5.05(a) is intended to comply with the minimum gain chargeback requirements in such Treasury Regulations Sections and shall be interpreted consistently therewith; including that no chargeback shall be required to the extent of the exceptions provided in Treasury Regulations Sections 1.704-2(f) and 1.704-2(i)(4).
(b) Qualified Income Offset . If any Partner holding Common Units unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate the deficit balance in such Partner’s Adjusted Capital Account Balance created by such adjustments, allocations or distributions as promptly as possible; provided that an allocation pursuant to this Section 5.05(b) shall be made only to the extent that a Partner would have a deficit Adjusted Capital Account Balance in excess of such sum after all other allocations provided for in this Article V have been tentatively made as if this Section 5.05(b) were not in this Agreement. This Section 5.05(b) is intended to comply with the “qualified income offset” requirement of the Code and shall be interpreted consistently therewith.
(c) Gross Income Allocation . If any Partner has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Partner is obligated to restore, if any, pursuant to any provision of this Agreement, and (ii) the amount such Partner is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible; provided that an allocation pursuant to this Section 5.05(c) shall be made only if and to the extent that a Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article V have been tentatively made as if Section 5.05(b) and this Section 5.05(c) were not in this Agreement.
(d) Nonrecourse Deductions . Nonrecourse Deductions shall be allocated to the Partners in accordance with their respective Total Percentage Interests.
(e) Partner Nonrecourse Deductions . Partner Nonrecourse Deductions for any taxable period shall be allocated to the Partner who bears the economic risk of loss with respect to the liability to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(j).
(f) Creditable Foreign Taxes . Creditable Foreign Taxes for any taxable period attributable to the Partnership, or an entity owned directly or indirectly by the Partnership, shall be allocated to the Partners in proportion to the partners’ distributive shares of income (including income allocated pursuant to Section 704(c) of the Code) to which the Creditable Foreign Tax relates (under principles of Treasury Regulations Section 1.904-6). The provisions of this Section 5.05(f) are intended to comply with the

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provisions of Temporary Treasury Regulations Section 1.704-1T(b)(4)(xi), and shall be interpreted consistently therewith.
(g) Ameliorative Allocations . Any special allocations of income or gain pursuant to Sections 5.05(b) or 5.05(c) hereof shall be taken into account in computing subsequent allocations pursuant to Section 5.04 and this Section 5.05(g), so that the net amount of any items so allocated and all other items allocated to each Partner shall, to the extent possible, be equal to the net amount that would have been allocated to each Partner if such allocations pursuant to Sections 5.05(b) or 5.05(c) had not occurred.
SECTION 5.06  Tax Allocations . For income tax purposes, each item of income, gain, loss and deduction of the Partnership shall be allocated among the Partners in the same manner as the corresponding items of Profits and Losses and specially allocated items are allocated for Capital Account purposes; provided that, in respect of any Common Units, in the case of any asset the Carrying Value of which differs from its adjusted tax basis for U.S. federal income tax purposes, income, gain, loss and deduction with respect to such asset shall be allocated solely for income tax purposes in accordance with the principles of Sections 704(b) and (c) of the Code (as determined by the General Partner and permitted by the Code and Treasury Regulations) so as to take account of the difference between Carrying Value and adjusted basis of such asset; provided , further , that the Partnership shall use the traditional method (as such term is defined in Treas. Reg. section 1.704-3(b)(1)) for all Section 704(c) and “reverse Section 704(c)” allocations. The General Partner shall make such adjustments to Capital Accounts as it determines in its sole discretion to be appropriate to ensure allocations are made in accordance with a Partner’s interest in the Partnership.
SECTION 5.07  Tax Advances . To the extent the General Partner reasonably believes that the Partnership is required by law to withhold or to make tax payments on behalf of or with respect to any Partner or the Partnership is subjected to tax itself by reason of the status of any Partner (“ Tax Advances ”), the General Partner may withhold such amounts and make such tax payments as so required. All Tax Advances made on behalf of a Partner shall be repaid by reducing the amount of the current or next succeeding distribution or distributions which would otherwise have been made to such Partner or, if such distributions are not sufficient for that purpose, by so reducing the proceeds of liquidation otherwise payable to such Partner. For all purposes of this Agreement such Partner shall be treated as having received the amount of the distribution that is equal to the Tax Advance.
SECTION 5.08  Tax Matters . For taxable periods ending on or before December 31, 2017, the General Partner shall be the initial “tax matters partner” within the meaning of Section 6231(a)(7) of the Code prior to the amendment by the U.S. Bipartisan Budget Act of 2015 (the “ Tax Matters Partner ”). For taxable periods beginning on or after January 1, 2018, the General Partner shall appoint or act as the “partnership representative” within the meaning of Section 6223(a) of the Code (the “Partnership Representative”). The Partnership shall file as a partnership for federal, state and local income tax purposes, except where otherwise required by Law. All elections required or permitted to be made by the Partnership, and all other tax decisions and determinations relating to federal, state or local tax matters of the Partnership, shall be made by the Tax Matters Partner or Partnership Representative, as applicable, in consultation with the Partnership’s attorneys and/or accountants. Tax audits, controversies and litigations shall be conducted under the direction of the Tax Matters Partner or Partnership Representative, as applicable. The Tax Matters Partner or Partnership Representative, as applicable, shall keep the other Partners reasonably informed as to any tax actions, examinations or proceedings relating to the Partnership and shall submit to the other Partners, for their review and comment, any settlement or compromise offer with respect to any disputed item of income, gain, loss, deduction or credit of the Partnership. As soon as reasonably practicable after the end of each Fiscal Year, the Partnership shall send to each Partner a copy of U.S. Internal Revenue Service Schedule K-1, and any comparable statements required by applicable state or local income tax Law, with respect to such Fiscal Year. The Partnership also shall provide the Partners with such other information as may be reasonably requested for purposes of allowing the Partners (or the direct or indirect owners of the Partners) to prepare and file their own tax returns.
SECTION 5.09  Other Allocation Provisions . Certain of the foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such regulations. Sections 5.03, 5.04 and 5.05 may be amended at any time by the General Partner if necessary, in the opinion of tax counsel to the

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Partnership, to comply with such regulations, so long as any such amendment does not materially change the relative economic interests of the Partners.
SECTION 5.10  Election to be Treated as a Corporation . Notwithstanding anything to the contrary contained herein, if the General Partner determines in its sole discretion that it is no longer in the best interests of the Partnership to continue as a partnership for U.S. federal income tax purposes, the General Partner may elect to treat the Partnership as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes. In the event that the General Partner determines that the Partnership should seek relief pursuant to Section 7704(e) of the Code to preserve the status of the Partnership as a partnership for U.S. federal (and applicable state) income tax purposes, the Partnership and each Partner shall agree to adjustments required by the tax authorities, and the Partnership shall pay such amounts as required by the tax authorities, to preserve the status of the Partnership as a partnership.
 
ARTICLE VI
BOOKS AND RECORDS; REPORTS
SECTION 6.01  Books and Records . (a) At all times during the continuance of the Partnership, the Partnership shall prepare and maintain separate books of account for the Partnership in accordance with GAAP.
(b) Except as limited by Section 6.01(c), each Limited Partner shall have the right to receive, for a purpose reasonably related to such Limited Partner’s interest as a Limited Partner in the Partnership, upon reasonable written demand stating the purpose of such demand and at such Limited Partner’s own expense:
(i) a copy of the Certificate and this Agreement and all amendments thereto, together with a copy of the executed copies of all powers of attorney pursuant to which the Certificate and this Agreement and all amendments thereto have been executed; and
(ii) promptly after their becoming available, copies of the Partnership’s federal, state and local income tax returns and reports, if any, for the three most recent years.
(c) The General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole discretion, (i) any information that the General Partner reasonably believes to be in the nature of trade secrets or (ii) other information the disclosure of which the General Partner believes is not in the best interests of the Partnership, could damage the Partnership or its business or that the Partnership is required by law or by agreement with any third party to keep confidential.
ARTICLE VII
PARTNERSHIP UNITS
SECTION 7.01  Units . Interests in the Partnership shall be represented by Units. As of May 17, 2018, the Units are comprised of a single Class of Common Units, a single class of Units designated as the EVU Back-to-Back Units and a single Class of Preferred Units designated as the Series A Preferred Mirror Units. The General Partner may establish, from time to time in accordance with such procedures as the General Partner shall determine from time to time, other Classes, one or more series of any such Classes, or other Partnership securities with such designations, preferences, rights, powers and duties (which may be senior to existing Classes and series of Units), as shall be determined by the General Partner, including (i) the right to share in Profits and Losses or items thereof; (ii) the right to share in Partnership distributions; (iii) the rights upon dissolution and liquidation of the Partnership; (iv) whether, and the terms and conditions upon which, the Partnership may or shall be required to redeem the Units (including sinking fund provisions); (v) whether such Unit is issued with the privilege of conversion or exchange and, if so, the terms and conditions of such conversion or exchange; (vi) the terms and conditions upon which each Unit will be issued, evidenced by certificates and assigned or transferred; (vii) the method for determining the Total Percentage Interest as to such Units; and (viii) the right, if any, of the holder of each such Unit to vote on Partnership matters, including matters relating to the relative designations, preferences, rights, powers and duties of such Units. Except as expressly provided in this Agreement to the contrary, any reference to “Units” shall include all Classes that may be established in accordance with this Agreement. All Units of a particular Class shall have identical rights in all

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respects as all other Units of such Class, except in each case as otherwise specified in this Agreement or in a Unit Designation.
SECTION 7.02  Register . The register of the Partnership shall be the definitive record of ownership of each Unit and all relevant information with respect to each Partner. Unless the General Partner shall determine otherwise, Units shall be uncertificated and recorded in the books and records of the Partnership.
SECTION 7.03  Registered Partners . The Partnership shall be entitled to recognize the exclusive right of a Person registered on its records as the owner of Units for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Units on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Act or other applicable Law.
ARTICLE VIII
VESTING; FORFEITURE OF INTERESTS; ADMISSION OF
ADDITIONAL PARTNERS; TRANSFER RESTRICTIONS
SECTION 8.01  Units Subject to Vesting . (a) Subject to Section 8.02 or as otherwise agreed to in writing between the General Partner and the applicable Limited Partner and reflected in the books and records of the Partnership, the General Partner may issue Common Units that are subject to vesting on a schedule determined by the General Partner at the time such Common Units are issued and reflected in the books and records of the Partnership. The General Partner shall designate a Trigger Event with respect to each Unit issued that is subject to vesting, which shall be set forth in the books and records of the Partnership. All Common Units outstanding as of the date hereof are fully vested.
(b) In addition, the General Partner in its sole discretion may authorize the earlier vesting of all or a portion of any unvested Common Units owned by any one or more Limited Partners at any time and from time to time, and in such event, such unvested Common Units shall vest and thereafter be vested Common Units for all purposes of this Agreement. Any such determination in the General Partner’s discretion in respect of unvested Common Units shall be final and binding. Such determinations need not be uniform and may be made selectively among Limited Partners, whether or not such Limited Partners are similarly situated, and shall not constitute the breach of any duty hereunder or otherwise existing at law, in equity or otherwise.
(c) Upon the vesting of any unvested Common Units in accordance with this Section 8.01, the General Partner shall modify the books and records of the Partnership to reflect such vesting.
SECTION 8.02  Forfeiture of Unvested Common Units upon Trigger Event . (a) Other than as set forth in Section 8.01(b) and except as agreed otherwise between the General Partner and the applicable Limited Partner and reflected in the books and records of the Partnership, upon the occurrence of a Trigger Event any unvested Common Units subject to such Trigger Event shall be immediately forfeited without any consideration, and such Limited Partner shall cease to own or have any rights with respect to such unvested Common Units.
 
(b) Upon the forfeiture of any unvested Common Units in accordance with this Section 8.02, the General Partner shall modify the books and records of the Partnership to reflect such forfeiture.
SECTION 8.03  Limited Partnership Transfers . No Limited Partner or Assignee thereof may Transfer (other than as part of an Exchange Transaction) all or any portion of its Units (or beneficial interest therein) without the prior consent of the General Partner, which consent may be given or withheld, or made subject to such conditions (including, without limitation, the receipt of such legal opinions and other documents that the General Partner may require) as are determined by the General Partner, in each case in the General Partner’s sole discretion. Any such determination in the General Partner’s discretion in respect of Units shall be final and binding. Such determinations need not be uniform and may be made selectively among Limited Partners, whether or not such Limited Partners are similarly situated, and shall not constitute the breach of any duty hereunder or otherwise existing at law, in equity or otherwise. Any purported Transfer of Units that is not in accordance with, or subsequently violates, this Agreement shall be, to the fullest extent permitted by law, null and void.

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SECTION 8.04  Mandatory Exchanges . The General Partner may, with the consent of Partners whose Total Percentage Interests exceed 75% of the Total Percentage Interests of all Partners in the aggregate, require all Limited Partners to Transfer in an Exchange Transaction all Common Units held by them.
SECTION 8.05  Further Restrictions . Notwithstanding any contrary provision in this Agreement, in no event may any Transfer of a Unit be made by any Limited Partner or Assignee if:
(a) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Unit;
(b) such Transfer would require the registration of such transferred Unit or of any Class of Unit pursuant to any applicable United States federal or state securities laws (including, without limitation, the U.S. Securities Act of 1933, as amended, or the U.S. Securities Exchange Act of 1934, as amended) or other foreign securities laws or would constitute a non-exempt distribution pursuant to applicable provincial or state securities laws;
(c) such Transfer would not cause (i) all or any portion of the assets of the Partnership to (A) constitute “plan assets” (under ERISA, the Code or any applicable Similar Law) of any existing or contemplated Limited Partner, or (B) be subject to the provisions of ERISA, Section 4975 of the Code or any applicable Similar Law, or (ii) the General Partner to become a fiduciary with respect to any existing or contemplated Limited Partner, pursuant to ERISA, any applicable Similar Law, or otherwise;
(d) to the extent requested by the General Partner, the Partnership does not receive such legal and/or tax opinions and written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee’s consent to be bound by this Agreement as an Assignee) that are in a form satisfactory to the General Partner, as determined in the General Partner’s sole discretion.
SECTION 8.06  Rights of Assignees . Subject to Section 8.05, the transferee of any permitted Transfer pursuant to this Article VIII will be an assignee only (“ Assignee ”), and only will receive, to the extent transferred, the distributions and allocations of income, gain, loss, deduction, credit or similar item to which the Partner which transferred its Units would be entitled, and such Assignee will not be entitled or enabled to exercise any other rights or powers of a Partner, such other rights, and all obligations relating to, or in connection with, such Interest remaining with the transferring Partner. The transferring Partner will remain a Partner even if it has transferred all of its Units to one or more Assignees until such time as the Assignee(s) is admitted to the Partnership as a Partner pursuant to Section 8.08.
SECTION 8.07  Admissions, Withdrawals and Removals . (a) No Person may be admitted to the Partnership as an additional General Partner or substitute General Partner without the prior written consent or ratification of Partners whose Total Percentage Interests exceed 50% of the Total Percentage Interests of all Partners in the aggregate. A General Partner will not be entitled to Transfer all of its Units or to withdraw from being a General Partner of the Partnership unless another General Partner shall have been admitted hereunder (and not have previously been removed or withdrawn).
(b) No Limited Partner will be removed or entitled to withdraw from being a Partner of the Partnership except in accordance with Section 8.09 hereof.
(c) Except as otherwise provided in Article IX or the Act, no admission, substitution, withdrawal or removal of a Partner will cause the dissolution of the Partnership. To the fullest extent permitted by law, any purported admission, withdrawal or removal that is not in accordance with this Agreement shall be null and void.
SECTION 8.08  Admission of Assignees as Substitute Limited Partners . An Assignee will become a substitute Limited Partner only if and when each of the following conditions is satisfied:
(a) the General Partner consents in writing to such admission, which consent may be given or withheld, or made subject to such conditions as are determined by the General Partner, in each case in the General Partner’s sole discretion;
(b) if required by the General Partner, the General Partner receives written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee’s consent to be bound by this

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Agreement as a substitute Limited Partner) that are in a form satisfactory to the General Partner (as determined in its sole discretion);
(c) if required by the General Partner, the General Partner receives an opinion of counsel satisfactory to the General Partner to the effect that such Transfer is in compliance with this Agreement and all applicable laws; and
 
(d) if required by the General Partner, the parties to the Transfer, or any one of them, pays all of the Partnership’s reasonable expenses connected with such Transfer (including, but not limited to, the reasonable legal and accounting fees of the Partnership).
SECTION 8.09  Withdrawal and Removal of Limited Partners . If a Limited Partner ceases to hold any Units, then such Limited Partner shall withdraw from the Partnership and shall cease to be a Limited Partner and to have the power to exercise any rights or powers of a Limited Partner.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 9.01  No Dissolution . Except as required by the Act, Partnership shall not be dissolved by the admission of additional Partners or withdrawal of Partners in accordance with the terms of this Agreement. The Partnership may be dissolved, liquidated wound up and terminated only pursuant to the provisions of this Article IX, and the Partners hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Partnership or a sale or partition of any or all of the Partnership assets.
SECTION 9.02  Events Causing Dissolution . The Partnership shall be dissolved and its affairs shall be wound up upon the occurrence of any of the following events (each, a “ Dissolution Event ”):
(a) the entry of a decree of judicial dissolution of the Partnership under Section 17-802 of the Act upon the finding by a court of competent jurisdiction that the General Partner (i) is permanently incapable of performing its part of this Agreement, (ii) has been guilty of conduct that is calculated to affect prejudicially the carrying on of the business of the Partnership, (iii) willfully or persistently commits a breach of this Agreement or (iv) conducts itself in a manner relating to the Partnership or its business such that it is not reasonably practicable for the other Partners to carry on the business of the Partnership with the General Partner;
(b) any event which makes it unlawful for the business of the Partnership to be carried on by the Partners;
(c) the written consent of all Partners;
(d) any other event not inconsistent with any provision hereof causing a dissolution of the Partnership under the Act;
(e) the Incapacity or removal of the General Partner or the occurrence of a Disabling Event with respect to the General Partner; provided that the Partnership will not be dissolved or required to be wound up in connection with any of the events specified in this Section 9.02(f) if: (i) at the time of the occurrence of such event there is at least one other general partner of the Partnership who is hereby authorized to, and elects to, carry on the business of the Partnership; or (ii) all remaining Limited Partners consent to or ratify the continuation of the business of the Partnership and the appointment of another general partner of the Partnership, effective as of the event that caused the General Partner to cease to be a general partner of the Partnership, within 90 days following the occurrence of any such event, which consent shall be deemed (and if requested each Limited Partner shall provide a written consent or ratification) to have been given for all Limited Partners if the holders of more than 50% of the Units then outstanding agree in writing to so continue the business of the Partnership.
SECTION 9.03  Distribution upon Dissolution . Upon dissolution, the Partnership shall not be terminated and shall continue until the winding up of the affairs of the Partnership is completed. Upon the winding up of the Partnership, the General Partner, or any other Person designated by the General Partner (the “ Liquidation Agent ”), shall take full account of the assets and liabilities of the Partnership and shall, unless the General Partner determines otherwise,

14

liquidate the assets of the Partnership as promptly as is consistent with obtaining the fair value thereof. The proceeds of any liquidation shall be applied and distributed in the following order:
(a) First, to the satisfaction of debts and liabilities of the Partnership (including satisfaction of all indebtedness to Partners and/or their Affiliates to the extent otherwise permitted by law) including the expenses of liquidation, and including the establishment of any reserve which the Liquidation Agent shall deem reasonably necessary for any contingent, conditional or unmatured contractual liabilities or obligations of the Partnership (“ Contingencies ”). Any such reserve may be paid over by the Liquidation Agent to any attorney-at-law, or acceptable party, as escrow agent, to be held for disbursement in payment of any Contingencies and, at the expiration of such period as shall be deemed advisable by the Liquidation Agent for distribution of the balance in the manner hereinafter provided in this Section 9.03;
(b) Second, to the holders of any Preferred Units then outstanding to the extent so provided by, and in accordance with the terms of, the applicable Unit Designation(s); and
(c) The balance, if any, to the Partners, pro rata to each of the Partners in accordance with their Total Percentage Interests.
SECTION 9.04  Time for Liquidation . A reasonable amount of time shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities to creditors so as to enable the Liquidation Agent to minimize the losses attendant upon such liquidation.
SECTION 9.05  Termination . The Partnership shall terminate when all of the assets of the Partnership, after payment of or due provision for all debts, liabilities and obligations of the Partnership, shall have been distributed to the holders of Units in the manner provided for in this Article IX, and the Certificate shall have been cancelled in the manner required by the Act.
SECTION 9.06  Claims of the Partners . The Partners shall look solely to the Partnership’s assets for the return of their Capital Contributions, and if the assets of the Partnership remaining after payment of or due provision for all debts, liabilities and obligations of the Partnership are insufficient to return such Capital Contributions, the Partners shall have no recourse against the Partnership or any other Partner or any other Person. No Partner with a negative balance in such Partner’s Capital Account shall have any obligation to the Partnership or to the other Partners or to any creditor or other Person to restore such negative balance during the existence of the Partnership, upon dissolution or termination of the Partnership or otherwise, except to the extent required by the Act.
SECTION 9.07  Survival of Certain Provisions . Notwithstanding anything to the contrary in this Agreement, the provisions of Section 10.02 and Section 11.09 shall survive the termination of the Partnership.
ARTICLE X
LIABILITY AND INDEMNIFICATION
SECTION 10.01  Liability of Partners . (a) No Limited Partner shall be liable for any debt, obligation or liability of the Partnership or of any other Partner or have any obligation to restore any deficit balance in its Capital Account solely by reason of being a Partner of the Partnership, except to the extent required by the Act.
(b) This Agreement is not intended to, and does not, create or impose any fiduciary duty on any of the Partners (including without limitation, the General Partner) hereto or on their respective Affiliates. Further, the Partners hereby waive any and all fiduciary duties that, absent such waiver, may exist at or be implied by Law or in equity, and in doing so, recognize, acknowledge and agree that their duties and obligations to one another and to the Partnership are only as expressly set forth in this Agreement and those required by the Act.
(c) To the extent that, at law or in equity, any Partner (including without limitation, the General Partner) has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to another Partner, the Partners (including without limitation, the General Partner) acting under this Agreement will not be liable to the Partnership or to any such other Partner for their good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and

15

liabilities relating thereto of any Partner (including without limitation, the General Partner) otherwise existing at law or in equity, are agreed by the Partners to replace to that extent such other duties and liabilities of the Partners relating thereto (including without limitation, the General Partner).
(d) The General Partner may consult with legal counsel, accountants and financial or other advisors and any act or omission suffered or taken by the General Partner on behalf of the Partnership or in furtherance of the interests of the Partnership in good faith in reliance upon and in accordance with the advice of such counsel, accountants or financial or other advisors will be full justification for any such act or omission, and the General Partner will be fully protected in so acting or omitting to act so long as such counsel or accountants or financial or other advisors were selected with reasonable care.
(e) Notwithstanding any other provision of this Agreement or otherwise applicable provision of law or equity, whenever in this Agreement the General Partner is permitted or required to make a decision (i) in its “sole discretion” or “discretion” or under a grant of similar authority or latitude, such General Partner shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable law, have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or the Limited Partners, or (ii) in its “good faith” or under another expressed standard, such General Partner shall act under such express standard and shall not be subject to any other or different standards.
SECTION 10.02  Indemnification . (a) To the fullest extent permitted by law, the Partnership shall indemnify any person (and such person’s heirs, executors or administrators) who was or is made or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding (brought in the right of the Partnership or otherwise), whether civil, criminal, administrative or investigative, and whether formal or informal, including appeals, by reason of the fact that such person, or a person for whom such person was the legal representative, is or was a Partner (including without limitation, the General Partner) or a director, officer or agent of a Partner (including without limitation, the General Partner) or the Partnership or, while a director, officer or agent of a Partner (including without limitation, the General Partner) or the Partnership, is or was serving at the request of the Partnership as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, limited liability company, nonprofit entity or other enterprise, for and against all loss and liability suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement reasonably incurred by such person or such heirs, executors or administrators in connection with such action, suit or proceeding, including appeals; provided that such person shall not be entitled to indemnification hereunder only to the extent such person’s conduct constituted fraud, bad faith or willful misconduct. Notwithstanding the preceding sentence, except as otherwise provided in Section 10.02(c), the Partnership shall be required to indemnify a person described in such sentence in connection with any action, suit or proceeding (or part thereof) commenced by such person only if the commencement of such action, suit or proceeding (or part thereof) by such person was authorized by the General Partner.
(b) Advancement of Expenses . To the fullest extent permitted by law, the Partnership shall promptly pay expenses (including attorneys’ fees) incurred by any person described in Section 10.02(a) in appearing at, participating in or defending any action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, including appeals, upon presentation of an undertaking on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified under this Section 10.02 or otherwise. Notwithstanding the preceding sentence, except as otherwise provided in Section 10.02(c), the Partnership shall be required to pay expenses of a person described in such sentence in connection with any action, suit or proceeding (or part thereof) commenced by such person only if the commencement of such action, suit or proceeding (or part thereof) by such person was authorized by the General Partner.
(c) Unpaid Claims . If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Section 10.02 is not paid in full within thirty (30) days after a written claim therefor by any person described in Section 10.02(a) has been received by the Partnership, such person may file proceedings to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any

16

such action the Partnership shall have the burden of proving that such person is not entitled to the requested indemnification or advancement of expenses under applicable law.
 
(d) Insurance . To the fullest extent permitted by law, the Partnership may purchase and maintain insurance on behalf of any person described in Section 10.02(a) against any liability asserted against such person, whether or not the Partnership would have the power to indemnify such person against such liability under the provisions of this Section 10.02 or otherwise.
(e) Non-Exclusivity of Rights . The provisions of this Section 10.02 shall be applicable to all actions, claims, suits or proceedings made or commenced after the date of this Agreement, whether arising from acts or omissions to act occurring before or after its adoption. The provisions of this Section 10.02 shall be deemed to be a contract between the Partnership and each person entitled to indemnification under this Section 10.02 (or legal representative thereof) who serves in such capacity at any time while this Section 10.02 and the relevant provisions of applicable law, if any, are in effect, and any amendment, modification or repeal hereof shall not affect any rights or obligations then existing with respect to any state of facts or any action, suit or proceeding then or theretofore existing, or any action, suit or proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Section 10.02 shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect the validity of the remaining provisions hereof. The rights of indemnification provided in this Section 10.02 shall neither be exclusive of, nor be deemed in limitation of, any rights to which any person may otherwise be or become entitled or permitted by contract, this Partnership Agreement or as a matter of law, both as to actions in such person’s official capacity and actions in any other capacity, it being the policy of the Partnership that indemnification of any person whom the Partnership is obligated to indemnify pursuant to Section 10.02(a) shall be made to the fullest extent permitted by law.
For purposes of this Section 10.02, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Partnership” shall include any service as a director, officer, employee or agent of the Partnership which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries.
This Section 10.02 shall not limit the right of the Partnership, to the extent and in the manner permitted by law, to indemnify and to advance expenses to, and purchase and maintain insurance on behalf of, persons other than persons described in Section 10.02(a).
ARTICLE XI
MISCELLANEOUS
SECTION 11.01  Severability . If any term or other provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions is not affected in any manner materially adverse to any party. Upon a determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
SECTION 11.02  Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.02):
(a) If to the Partnership, to:
Oaktree Capital I, L.P.

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333 South Grand Avenue, 28 th Floor
Los Angeles, CA 90071
Attention: General Counsel
Fax: (213) 830-8545
Electronic Mail: tmolz@oaktreecapital.com
(b) If to any Partner, to:
c/o OCM Holdings I, LLC
333 South Grand Avenue, 28 th Floor
Los Angeles, CA 90071
Attention: General Counsel
Fax: (213) 830-8545
Electronic Mail: tmolz@oaktreecapital.com
(c) If to the General Partner, to:
OCM Holdings I, LLC
333 South Grand Avenue, 28 th Floor
Los Angeles, CA 90071
Attention: General Counsel
Fax: (213) 830-8545
Electronic Mail: tmolz@oaktreecapital.com
SECTION 11.03  Cumulative Remedies . The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by Law.
SECTION 11.04  Binding Effect . This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, executors, administrators, heirs, legal representatives and assigns.
 
SECTION 11.05  Interpretation . Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter, singular or plural, whichever shall be applicable. Unless otherwise specified, all references herein to “Articles,” “Sections” and paragraphs shall refer to corresponding provisions of this Agreement.
SECTION 11.06  Counterparts . This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 11.06.
SECTION 11.07  Further Assurances . Each Limited Partner shall perform all other acts and execute and deliver all other documents as may be necessary or appropriate to carry out the purposes and intent of this Agreement.
SECTION 11.08  Entire Agreement . 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. For the avoidance of doubt, notwithstanding any other provision of this Agreement (including the Unit Designation with respect to the Series A Preferred Mirror Units), the amendment and restatement as of the date hereof of this Agreement and the adoption of such Unit Designation as of the date hereof shall not be interpreted to impair, amend or supersede the terms of the EVU Back-to-Back Units Designation.
SECTION 11.09  Governing Law . This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, provided that the enforceability of Section 11.10 shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and not the laws of the State of Delaware.
SECTION 11.10  Arbitration of Disputes . Any and all disputes, claims or controversies arising out of or relating to this Agreement, including any and all disputes, claims or controversies arising out of or relating to (i) the

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Partnership, (ii) any Limited Partner’s rights and obligations hereunder, (iii) the validity or scope of any provision of this Agreement, (iv) whether a particular dispute, claim or controversy is subject to arbitration under this Section 11.10 and (v) the power and authority of any arbitrator selected hereunder, that are not resolved by mutual agreement shall be submitted to final and binding arbitration before Judicial Arbitration and Mediation Services, Inc. (“ JAMS ”) pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. A party hereto may commence the arbitration process by filing a written demand for arbitration with JAMS and delivering a copy of such demand to the other party or parties to the arbitration in accordance with the notice procedures set forth in Section 3.1. The arbitration shall take place in Wilmington, Delaware, and shall be conducted in accordance with the provisions of JAMS Streamlined Arbitration Rules and Procedures in effect at the time of filing of the demand for arbitration. The parties to the arbitration shall cooperate with JAMS and with each other in selecting an arbitrator from JAMS’ panel of neutrals and in scheduling the arbitration proceedings. The arbitrator selected shall be neutral and a former Delaware chancery court judge or, if such judge is not available, a former U.S. federal judge with experience in adjudicating matters under the law of the State of Delaware; provided , that if no such person is both willing and able to undertake such a role, the parties to the arbitration shall cooperate with each other and JAMS in good faith to select such other person as may be available from a JAMS’ panel of neutrals with experience in adjudicating matters under the law of the State of Delaware. The parties to the arbitration shall participate in the arbitration in good faith. Each party to the arbitration shall pay those costs, if any, of arbitration that it must pay to cause this Section 11.10 to be enforceable, and all other costs of arbitration shall be shared equally between the parties to the arbitration.
 
No party to an arbitration shall be entitled to undertake discovery in the arbitration; provided , that, if discovery is required by applicable law, discovery shall not exceed (i) one witness deposition plus the depositions of any expert designated by the other party or parties, (ii) two interrogatories, (iii) ten document requests and (iv) ten requests for admissions; provided , further , that additional discovery may be permitted to the extent such additional discovery is required by applicable law for this Section 11.10 to be enforceable. The arbitrator shall have no power to modify any of the provisions of this Agreement, to make an award or impose a remedy that, in each case, is not available to the Delaware chancery court or to make an award or impose a remedy that was not requested by a party to the dispute, and the jurisdiction of the arbitrator is limited accordingly. To the extent permitted by law, the arbitrator shall have the power to order injunctive relief, and shall expeditiously act on any petition for such relief.
The provisions of this Section 11.10 may be enforced by any court of competent jurisdiction, and, to the extent permitted by law, the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the party against whom enforcement is ordered. Notwithstanding any provision of this Agreement to the contrary, any party to an arbitration pursuant to this Section 11.10 shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any violation of the provisions of this Agreement pending a final determination on the merits by the arbitrator, and each party hereby consents that such a restraining order or injunction may be granted without the necessity of posting any bond.
The details of any arbitration pursuant to this Section 11.10, including the existence and/or outcome of such arbitration and any information obtained in connection with any such arbitration, shall be kept strictly confidential and shall not be disclosed or discussed with any person not a party to the arbitration; provided , that such party may make such disclosures as are required by applicable law or legal process; provided , further , that such party may make such disclosures to its, his or her attorneys, accountants or other agents and representatives who reasonably need to know the disclosed information in connection with any arbitration pursuant to this Section 11.10 and who are obligated to keep such information confidential to the same extent as such party. If a party to an arbitration receives a subpoena or other request for information from a third party that seeks disclosure of any information that is required to be kept confidential pursuant to the prior sentence, or otherwise believes that it, he or she may be required to disclose any such information, such party shall (i) promptly notify the other party to the arbitration and (ii) reasonably cooperate with such other party in taking any legal or otherwise appropriate actions, including the seeking of a protective order, to prevent the disclosure, or otherwise protect the confidentiality, of such information.
For the avoidance of doubt, (i) any arbitration pursuant to this Section 11.10 shall not include any disputes, claims or controversies that do not arise out of or relate to this Agreement, and (ii) any arbitration pursuant to this Section 11.10 of disputes, claims or controversies arising out of or relating to this Agreement is intended to be separate and distinct proceeding from any arbitration or other adjudication of disputes, claims or controversies between parties to this Agreement that do not arise out of or relate to this Agreement.

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SECTION 11.11  Expenses . Except as otherwise specified in this Agreement, the Partnership shall be responsible for all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with its operation.
SECTION 11.12  Amendments and Waivers . (a) Subject to the terms of any Unit Designation then in effect, this Agreement (including the Exhibits hereto) may be amended, supplemented, waived or modified by the written consent of the General Partner; provided that any amendment that would have a material adverse effect on the rights or preferences of any Class of Units in relation to other Classes of Units must be approved by the holders of not less than a majority of the Total Percentage Interests of the Class affected; provided further , that the General Partner may, without the written consent of any Limited Partner or any other Person, amend, supplement, waive or modify any provision of this Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect: (i) any amendment, supplement, waiver or modification that the General Partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of equity interests in the Partnership; (ii) the admission, substitution, withdrawal or removal of Partners in accordance with this Agreement; (iii) a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership; (iv) any amendment, supplement, waiver or modification that the General Partner determines in its sole discretion to be necessary or appropriate to address changes in U.S. federal income tax regulations, legislation or interpretation; (v) a change in the Fiscal Year or taxable year of the Partnership and any other changes that the General Partner determines to be necessary or appropriate as a result of a change in the Fiscal Year or taxable year of the Partnership including a change in the dates on which distributions are to be made by the Partnership.
(b) No failure or delay by any party in exercising any right, power or privilege hereunder (other than a failure or delay beyond a period of time specified herein) shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law.
(c) The General Partner may, in its sole discretion, unilaterally amend this Agreement on or before the effective date of the final regulations to provide for (i) the election of a safe harbor under Proposed Treasury Regulation Section 1.83-3(l) (or any similar provision) under which the fair market value of a partnership interest that is transferred is treated as being equal to the liquidation value of that interest, (ii) an agreement by the Partnership and each of its Partners to comply with all of the requirements set forth in such regulations and Notice 2005-43 (and any other guidance provided by the Internal Revenue Service with respect to such election) with respect to all partnership interests transferred in connection with the performance of services while the election remains effective, (iii) the allocation of items of income, gains, deductions and losses required by the final regulations similar to Proposed Treasury Regulation Section 1.704-1(b)(4)(xii)(b) and (c), and (iv) any other related amendments.
(d) Except as may be otherwise required by law in connection with the winding-up, liquidation, or dissolution of the Partnership, each Partner hereby irrevocably waives any and all rights that it may have to maintain an action for judicial accounting or for partition of any of the Partnership’s property.
 
SECTION 11.13  No Third Party Beneficiaries . This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and successors and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity, any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement (other than pursuant to Section 10.02 hereof).
SECTION 11.14  Headings . The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
SECTION 11.15  Construction . Each party hereto acknowledges and agrees it has had the opportunity to draft, review and edit the language of this Agreement and that it is the intent of the parties hereto that no presumption for or against any party arising out of drafting all or any part of this Agreement will be applied in any dispute relating to, in connection with or involving this Agreement. Accordingly, the parties hereby waive to the fullest extent permitted

20

by law the benefit of any rule of Law or any legal decision that would require that in cases of uncertainty, the language of a contract should be interpreted most strongly against the party who drafted such language.
SECTION 11.16  Power of Attorney . Each Limited Partner, by its execution hereof, hereby irrevocably makes, constitutes and appoints the General Partner as its true and lawful agent and attorney in fact, with full power of substitution and full power and authority in its name, place and stead, to make, execute, sign, acknowledge, swear to, record and file (a) this Agreement and any amendment to this Agreement that has been adopted as herein provided; (b) the original certificate of limited partnership of the Partnership and all amendments thereto required or permitted by law or the provisions of this Agreement; (c) all certificates and other instruments (including consents and ratifications which the Limited Partners have agreed to provide upon a matter receiving the agreed support of Limited Partners) deemed advisable by the General Partner to carry out the provisions of this Agreement (including the provisions of Section 8.04) and Law or to permit the Partnership to become or to continue as a limited partnership or partnership wherein the Limited Partners have limited liability in each jurisdiction where the Partnership may be doing business; (d) all instruments that the General Partner deems appropriate to reflect a change or modification of this Agreement or the Partnership in accordance with this Agreement, including, without limitation, the admission of additional Limited Partners or substituted Limited Partners pursuant to the provisions of this Agreement; (e) all conveyances and other instruments or papers deemed advisable by the General Partner to effect the liquidation and termination of the Partnership; and (f) all fictitious or assumed name certificates required or permitted (in light of the Partnership’s activities) to be filed on behalf of the Partnership.
SECTION 11.17  Partnership Status . The parties intend to treat the Partnership as a partnership for U.S. federal income tax purposes.


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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement or have caused this Agreement to be duly executed by their respective authorized officers, in each case as of the date first above stated.
 
GENERAL PARTNER:
 
 
OCM HOLDINGS I, LLC
 
 
 
By:
 
   /s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
   /s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel
 
LIMITED PARTNERS:
 
 
OCM HOLDINGS I, LLC
 
 
 
By:
 
   /s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
   /s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel

OAKTREE CAPITAL GROUP HOLDINGS, L.P.
By: Oaktree Capital Group Holdings GP, LLC,
 
its general partner
 
 
 
 
 
 
By:
 
   /s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
   /s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel



Exhibit 1

UNIT DESIGNATION WITH RESPECT TO THE SERIES A PREFERRED MIRROR UNITS



EXECUTION VERSION


OAKTREE CAPITAL I, L.P.
UNIT DESIGNATION WITH RESPECT TO THE
SERIES A PREFERRED MIRROR UNITS
This Unit Designation (as it may be amended, supplemented or restated from time to time, this “ Unit Designation ”), dated as of May 17, 2018, is made by Oaktree Capital I, L.P. (the “ Partnership ”). Capitalized terms used but not defined in this Unit Designation shall have the meanings ascribed to such terms in the Second Amended and Restated Limited Partnership Agreement of the Partnership, dated as of May 17, 2018 (as it may be amended, supplemented or restated from time to time, the “ Partnership Agreement ”).
WHEREAS, pursuant to Section 7.01 of the Partnership Agreement, OCM Holdings I, LLC, a Delaware limited liability company, as the general partner of the Partnership (the “ General Partner ”), has the authority to establish and issue, from time to time in accordance with such procedures as the General Partner shall determine from time to time, other Classes, one or more series of any such Classes, or other Partnership securities with such designations, preferences, rights, powers and duties (which may be senior to existing Classes and series of Units), as shall be determined by the General Partner;
WHEREAS, pursuant to Section 11.12 of the Partnership Agreement the General Partner may, without the written consent of any Limited Partner or any other Person, amend, supplement, waive or modify any provision of the Partnership Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect among other things, any amendment, supplement, waiver or modification that the General Partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of equity interest in the Partnership; and
WHEREAS, pursuant to the aforementioned sections of the Partnership Agreement, the General Partner determined it advisable and in the best interest of the Partnership and its Limited Partners to designate the Series A Preferred Mirror Units as a new class of Preferred Units and the terms of the Series A Preferred Mirror Units, as set forth in this Unit Designation, have been duly approved in accordance with the Partnership Agreement;
NOW, THEREFORE, the General Partner hereby approves and authorizes this Unit Designation on the terms and conditions set forth herein.
ARTICLE I
DEFINITIONS
Section 1.1 Definitions .
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Unit Designation. Capitalized terms used but not defined herein shall have the meanings given to them in the Partnership Agreement.
“ 2011 Incentive Plan ” means the 2011 Oaktree Capital Group, LLC Equity Incentive Plan, as amended, restated, supplemented or otherwise modified from time to time, and any successor or similar plan.
“ Business Day ” means any day that is not a Saturday, Sunday or other day in which banking institutions in New York City are authorized or required by law to close.

“ Control ” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“ Change of Control Event ” has the meaning set forth in the OCG Series A Preferred Unit Designation.


1

“ Dissolution Event ” means an event giving rise to the dissolution of the Partnership in accordance with Section 9.02 of the Partnership Agreement.
“ Dissolution Exception ” has the meaning set forth in Section 2.8 of this Unit Designation.
“ Distribution Payment Date ” means March 15, June 15, September 15 and December 15 of each year, commencing with respect to the Series A Preferred Mirror Units, on September 15, 2018.
“ Distribution Period ” means the period from and including a Distribution Payment Date to, but excluding, the next Distribution Payment Date, except that the initial Distribution Period with respect to the Series A Preferred Mirror Units shall commence on and includes May 17, 2018.
 
“ Gross Ordinary Income ” means the Partnership’s gross income excluding any gross income attributable to the sale or exchange of “capital assets” as defined in Section 1221 of the Code. Allocations to Series A Mirror Holders of Gross Ordinary Income shall consist of a proportionate share of each Partnership item of Gross Ordinary Income for such Fiscal Year in accordance with each such holder’s Total Percentage Interest with respect to such holder’s Series A Preferred Mirror Units.
“ Indemnified Person ” means any Person who is entitled to indemnification by the Partnership pursuant to Section 10.02 of the Partnership Agreement.
“ Junior Units ” means Common Units and any other equity securities that the Partnership may issue after May 17, 2018 ranking, as to payment of distributions, junior to the Series A Preferred Mirror Units.
“ Oaktree I Permitted Distribution ” means each of the following: (A) distributions of tax distribution amounts in accordance with the terms of the Partnership Agreement as in effect on May 17, 2018, (B) the net share settlement of equity-based awards granted under the 2011 Equity Incentive Plan, as amended or restated (or any successor or similar plan) in order to satisfy associated tax obligations (C) exchanges of common units of OCG and/or its subsidiaries in connection with the exchange of units of OCGH for OCG’s common units or units of its subsidiaries under the Exchange Agreement, (D) purchases pursuant to put or call arrangements with current or former Senior Executives, employees or service partners entered into in good faith in connection with the provision of personal services, (E) distributions of incentive compensation to current or former Senior Executives, employees or service partners in respect of their “points” interests in OCG’s subsidiaries, (F) distributions, directly or indirectly, to OCG, its subsidiaries or OCGH to enable OCG, its subsidiaries or OCGH to pay expenses or satisfy other obligations (other than obligations in respect of distributions or purchases of junior securities that would not otherwise be Permitted Distributions), (G) redemptions of common units pursuant to provisions of the OCG Operating Agreement as in effect on May 17, 2018, (H) purchases in connection with the settlement of a bona fide forward purchase or accelerated unit repurchase arrangement with a third party financial institution that is entered into before the start of the applicable Distribution Period, (I) payments made on redemption or conversion of convertible notes or convertible preferred equity or the entry into or settlement of call options, bond hedges and/or warrants to hedge OCG’s exposure in connection with the issuance of the convertible notes or convertible preferred equity, (J) distributions paid in, or exchanges of Junior Units or OCGH units for, Junior Units or options, warrants or rights to subscribe for or purchase Junior Units or distributions or purchases paid, directly or indirectly, with proceeds from the substantially concurrent sale of Junior Units and (K) distributions, directly or indirectly, to OCGH or its successor to enable it to (1) make distributions in respect of any outstanding OCGH equity value units, and (2) purchase any OCGH units into which the equity value units have been recapitalized pursuant to any put right exercised by the holder of such units.
“ Oaktree Operating Group ” means, for the purpose of this Unit Designation, collectively, (a) as of May 17, 2018, Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and (b) any other subsidiary of OCG (whether now existing or hereafter formed) that is designated from time to time as part of the Oaktree Operating Group by the board of directors of OCG and that either (i) acts as or Controls the general partners and investment advisers of the


investment funds managed by OCG or its subsidiaries or (ii) holds interests in other entities or investments generating income for OCG.
“ OCG ” means Oaktree Capital Group, LLC, a Delaware limited liability company, or any successor thereto.
“ OCG Operating Agreement ” means the Fourth Amended and Restated Operating Agreement of OCG, dated May 17, 2018, as it may be amended, supplemented or restated from time to time.
“ OCG Series A Preferred Units ” means the 6.625% Series A Preferred Units of OCG having the designations, rights, powers and preferences set forth in the OCG Series A Preferred Unit Designation.
“ OCG Series A Preferred Unit Designation ” means the Series A Preferred Unit designation of OCG, dated May 17, 2018, as it may be amended, supplemented or restated from time to time.
“ Parity Units ” means any Partnership Units, including Preferred Units, that the Partnership has authorized or issued or may authorize or issue, the terms of which provide that such securities shall rank equally with the Series A Preferred Mirror Units with respect to payment of distributions and distribution of assets upon a Dissolution Event.
“Partnership Agreement ” has the meaning set forth in the preamble.
“ Permitted Reorganization ” means the (i) voluntary or involuntary liquidation, dissolution or winding up of any of the Partnership’s Subsidiaries or upon any reorganization of the Partnership into another limited partnership pursuant to provisions of this Agreement that allow the Partnership to convert, merge or convey its assets to another entity with or without General Partner approval or (ii) reorganization or other transaction in which a successor to the Partnership issues equity securities to the Series A Mirror Holders that have rights, powers and preferences that are substantially similar to the rights, powers and preferences of the Series A Preferred Mirror Units pursuant to provisions of this Agreement that allow the Partnership to do so without General Partner approval.
“ Permitted Transfer ” means the sale, conveyance, exchange or transfer, for cash, shares of capital stock, securities or other consideration, of all or substantially all of the Partnership’s property or assets or the consolidation, merger or amalgamation of the Partnership with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Partnership.
“ Rating Agency Event ” has the meaning set forth in the OCG Series A Preferred Unit Designation.
“ Senior Executive ” has the meaning set forth in the OCG Series A Preferred Unit Designation.
“ Series A Mirror Distribution Rate ” means 6.625%.
“ Series A Mirror Holder ” means a holder of Series A Preferred Mirror Units.
“ Series A Mirror Liquidation Preference ” means $25.00 per Series A Preferred Mirror Unit.
“ Series A Mirror Liquidation Value ” means the sum of the Series A Mirror Liquidation Preference and declared and unpaid distributions, if any, to, but excluding, the date of the Dissolution Event on the Series A Preferred Mirror Units.
“ Series A Mirror Record Date ” means, with respect to any Distribution Payment Date, the March 1, June 1, September 1 or December 1, as the case may be, immediately preceding the relevant March 15, June 15, September 15 or December 15 Distribution Payment Date, respectively. These Series A Mirror Record Dates shall apply regardless of whether a particular Series A Mirror Record Date is a Business Day. The Series A Mirror Record Dates shall constitute Record Dates with respect to the Series A Preferred Mirror Units for the purpose of distributions on the Series A Preferred Mirror Units.


“ Series A Preferred Mirror Unit ” means a Preferred Unit designated as a 6.625% Series A Preferred Mirror Unit having the designations, rights, powers and preferences set forth in this Unit Designation.
“ Series A Tax Event ” has the meaning set forth in the Series A Preferred Unit Designation.
“ Substantially All Merger ” means a merger or consolidation of the Partnership with or into another Person that would, in one or a series of related transactions, result in the transfer or other disposition, directly or indirectly, of all or substantially all of the combined assets of the Partnership taken as a whole to a Person that is not a member of the Oaktree Operating Group immediately prior to such transaction.
“ Substantially All Sale ” means a sale, assignment, transfer, lease or conveyance, in one or a series of related transactions, directly or indirectly, of all or substantially all of the assets of the Partnership taken as a whole to a Person that is not a member of the Oaktree Operating Group immediately prior to such transaction.
 
“ Unit Designation ” has the meaning set forth in the preamble.
ARTICLE II
TERMS, RIGHTS, POWERS, PREFERENCES AND DUTIES OF SERIES A
PREFERRED MIRROR UNITS
Section 2.1 Designation . The Series A Preferred Mirror Units are hereby designated and created as a series of Preferred Units. Each Series A Preferred Mirror Unit shall be identical in all respects to every other Series A Preferred Mirror Unit. There is authorized for issuance an unlimited number of Series A Preferred Mirror Units. As of any date of determination, the Total Percentage Interest as to any Series A Mirror Holder in its capacity as such with respect to Series A Preferred Mirror Units shall be 0% as such term applies to all Limited Partners; provided , however , that when such term is used to only apply to Series A Mirror Holders, “Total Percentage Interest” shall mean, with respect to any holder of Series A Preferred Mirror Units in its capacity as such as of any date, the ratio (expressed as a percentage) of the number of Series A Preferred Mirror Units held by such holder on such date relative to the aggregate number of Series A Preferred Mirror Units Outstanding as of such date. The Capital Account balance of a Limited Partner with respect to each Series A Preferred Mirror Unit held by such Limited Partner shall equal the Liquidation Preference per Series A Preferred Mirror Unit as of the date such Series A Preferred Mirror Unit is initially issued and shall be increased as set forth in Section 2.6. The General Partner may cause the Partnership to, from time to time, without notice to or consent of the Series A Mirror Holders or holders of other Parity Units, issue additional Series A Preferred Mirror Units.
Section 2.2 Distributions .
(a) The Series A Mirror Holders shall be entitled to receive with respect to each Series A Preferred Mirror Unit owned by such holder, when, as and if declared by the General Partner, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash distributions, on the applicable Distribution Payment Date that corresponds to the Record Date for which the General Partner has declared a distribution, if any, in an amount equal to the product of (i) 25% and (ii) the rate per annum equal to the Series A Mirror Distribution Rate (subject to Section 2.5 of this Unit Designation) and (iii) the Series A Mirror Liquidation Preference. Such distributions shall be non-cumulative. Distributions payable on the Series A Preferred Mirror Units for any period less than a full Distribution Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Declared distributions will be payable by the relevant Distribution Payment Date to Series A Mirror Holders as they appear on the Partnership’s register at the close of business, New York City time, on a Series A Mirror Record Date, provided that if the Series A Mirror Record Date is not a Business Day, the declared distributions will be payable by the relevant Distribution Payment Date to Series A Mirror Holders as they appear on the Partnership’s register at the close of business, New York City time, on the Business Day immediately preceding such Series A Mirror Record Date.
(b) So long as any Series A Preferred Mirror Units are outstanding, for any then-current Distribution Period, unless distributions have been declared and paid or declared and set apart for payment on (i) the Series A


Preferred Mirror Units or (ii) the OCG Series A Preferred Units, then, in each case for such then-current Distribution Period only, the Partnership may not repurchase its Common Units or any Junior Units and may not declare or pay or set apart payment for distributions on its Junior Units, other than, in each case, any Oaktree I Permitted Distribution, or repurchases or distributions the proceeds of which are used, directly or indirectly, to effect any Oaktree I Permitted Distribution.
(c) The General Partner may, in its sole discretion, choose to pay distributions on the Series A Preferred Mirror Units without the payment of any distributions on any Junior Units.
(d) When distributions are not declared and paid (or duly provided for) on any Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series A Preferred Mirror Units, on a distribution payment date falling within the related Distribution Period) in full upon the Series A Preferred Mirror Units or any Parity Units, all distributions declared upon the Series A Preferred Mirror Units and all such Parity Units payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date falling within the related Distribution Period) shall be declared pro rata so that the respective amounts of such distributions shall bear the same ratio to each other as all declared and unpaid distributions per Unit on the Series A Preferred Mirror Units and all unpaid distributions, including any accumulations, on all Parity Units payable on such Distribution Payment Date (or in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series A Preferred Mirror Units, on a distribution payment date falling within the related Distribution Period) bear to each other.
(e) No distributions may be declared or paid or set apart for payment on any Series A Preferred Mirror Units if at the same time any arrears exist or default exists in the payment of distributions on any outstanding Units ranking, as to the payment of distributions and distribution of assets upon a Dissolution Event, senior to the Series A Preferred Mirror Units, subject to any applicable terms of such outstanding Units.
(f) Series A Mirror Holders shall not be entitled to any distributions, whether payable in cash or property, other than as provided in this Unit Designation and shall not be entitled to interest, or any sum in lieu of interest, in respect of any distribution payment, including any such payment which is delayed or foregone.
(g) The Partnership and Limited Partners intend that no portion of the distributions paid to the Series A Mirror Holders pursuant to this Section 2.2 shall be treated as a “guaranteed payment” within the meaning of Section 707(c) of the Code, and the Partnership and Series A Mirror Holders shall not take any position inconsistent with such intention, except if there is a change in applicable law or final determination by the Internal Revenue Service that is inconsistent with such intention.
Section 2.3 Rank . The Series A Preferred Mirror Units shall rank, with respect to payment of distributions and distribution of assets upon a Dissolution Event:
(a) junior to all of the Partnership’s existing and future indebtedness and any equity securities, including Preferred Units, that the Partnership may authorize or issue, the terms of which provide that such securities shall rank senior to the Series A Preferred Mirror Units with respect to payment of distributions and distribution of assets upon a Dissolution Event;
(b) equally to any Parity Units; and
(c) senior to any Junior Units.
Section 2.4 Optional Redemption .
(a) Notwithstanding anything to the contrary contained in this Unit Designation, at any time or from time to time on or after June 15, 2023, subject to any limitations that may be imposed by law, the Partnership may, in its sole discretion, redeem the Series A Preferred Mirror Units, out of funds legally available therefor, in whole or in part, at a redemption price equal to the Liquidation Preference per Series A Preferred Mirror Unit plus an amount equal to declared and unpaid distributions, if any, from the Distribution Payment Date immediately preceding the redemption date to, but excluding, the redemption date.


(b) If OCG redeems the OCG Series A Preferred Units pursuant to (i) a Change of Control Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series A Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.25 per Series A Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series A Preferred Mirror Units; (ii) a Series A Tax Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series A Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series A Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series A Preferred Mirror Units; and (iii) a Rating Agency Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series A Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series A Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series A Preferred Mirror Units.
(c) Without limiting clause (b) of this Section 2.4, if the Partnership shall deposit, on or prior to any date fixed for redemption of Series A Preferred Mirror Units, with any bank or trust company as a trust fund, or in an account for the benefit of and/or Controlled by the General Partner or the Partnership, a fund sufficient to redeem the Series A Preferred Mirror Units called for redemption, with irrevocable instructions and authority to such bank or trust company (if applicable) to pay on and after the date fixed for redemption or such earlier date as the General Partner may determine, to the respective Series A Mirror Holders, the redemption price thereof, then from and after the date of such deposit (although prior to the date fixed for redemption) such Series A Preferred Mirror Units so called shall be deemed to be redeemed and such deposit shall be deemed to constitute full payment of said Series A Preferred Mirror Units to the holders thereof and from and after the date of such deposit said Series A Preferred Mirror Units shall no longer be deemed to be outstanding, and the holders thereof shall cease to be holders of Units with respect to such Series A Preferred Mirror Units, and shall have no rights with respect thereto under this Unit Designation, the Partnership Agreement or otherwise, except only the right to receive from said bank or trust company, or such account for the benefit of and/or Controlled by the General Partner or the Partnership, on the redemption date or such earlier date as the Partnership may determine, payment of the redemption price of such Series A Preferred Mirror Units without interest.
(d) The Series A Mirror Holders shall have no right to require redemption of any Series A Preferred Mirror Units.
Section 2.5. Series A Mirror Distribution Rate . If the distribution rate per annum on the OCG Series A Preferred Units issued by OCG shall increase pursuant to Section 2.5 of the OCG Series A Preferred Unit Designation, then the Series A Mirror Distribution Rate shall increase by the same amount beginning on the same date as set forth in Article 2 of the OCG Series A Preferred Unit Designation.
Section 2.6 Allocations . Before giving effect to the allocations set forth in Article V of the Partnership Agreement, Gross Ordinary Income for the Fiscal Year shall be specially allocated pro rata to the holders of Series A Preferred Mirror Units in accordance with each holder’s Total Percentage Interest with respect to their Series A Preferred Mirror Units in an amount equal to the sum of (i) the amount of cash distributed with respect to the Series A Preferred Mirror Units pursuant to Section 2.2 of this Unit Designation during such Fiscal Year and (ii) the excess, if any, of the amount of cash distributed with respect to the Series A Preferred Mirror Units pursuant to Section 2.2 of this Unit Designation in all prior Fiscal Years over the amount of Gross Ordinary Income allocated to the Series A Mirror Holders pursuant to this Section 2.6 in all prior Fiscal Years. To the extent there is insufficient Gross Ordinary Income for a fiscal year to allocate to the Series A Mirror Holders pursuant to the prior sentence and to the holders of any other Parity Units, Gross Ordinary Income shall be allocated to the Series A Mirror Holders and holders of Parity Units for such fiscal year on a pro rata basis based on the amount of distributions paid in respect of the Series A Preferred Mirror Units and such Parity Units, respectively in such fiscal year.
Section 2.7 Voting .
Notwithstanding any provision in the Partnership Agreement or the Act to the contrary, and except as set forth in this Section 2.7, the Series A Preferred Mirror Units shall not have any relative, participating, optional or other voting, consent or approval rights or powers, and the vote, consent or approval of the Series A Mirror Holders shall not be required for the taking of any Partnership action or inaction.


Section 2.8 Liquidation Rights .
(a) Upon any Dissolution Event, after payment or provision for the liabilities of the Partnership (including the expenses of such Dissolution Event) and the satisfaction of all claims ranking senior to the Series A Preferred Mirror Units in accordance with Section 9.03 of the Partnership Agreement, the Series A Mirror Holders shall be entitled to receive out of the assets of the Partnership or proceeds thereof available for distribution to the Limited Partners, before any payment or distribution of assets is made in respect of Junior Units, distributions equal to the lesser of (x) the Series A Mirror Liquidation Preference and (y) the positive balance in their Capital Accounts (to the extent such positive balance is attributable to ownership of the Series A Preferred Mirror Units and after taking into account allocations of Gross Ordinary Income to the Series A Mirror Holders pursuant to Section 2.6 of this Unit Designation for the taxable year in which the Dissolution Event occurs) pursuant to Section 9.03 of the Partnership Agreement, pro rata based on the full respective distributable amounts to which each Series A Mirror Holder is entitled pursuant to this Section 2.8(a).
(b) Upon a Dissolution Event, after each Series A Mirror Holder receives a payment equal to the positive balance in its Capital Account (to the extent such positive balance is attributable to ownership of the Series A Preferred Mirror Units and after taking into account allocations of Gross Ordinary Income to the Series A Mirror Holders pursuant to Section 2.6 for the taxable year in which the Dissolution Event occurs), such Series A Mirror Holder shall not be entitled to any further participation in any distribution of assets by the Partnership.
 
(c) If the assets of the Partnership available for distribution upon a Dissolution Event are insufficient to pay in full the aggregate amount payable to the Series A Mirror Holders and the holders of all other outstanding Parity Units, if any, such assets shall be distributed to the Series A Mirror Holders and the holders of such Parity Units pro rata, based on the full respective distributable amounts to which each such Limited Partner is entitled pursuant to this Section 2.8.
(d) Nothing in this Section 2.8 shall be understood to entitle the Series A Mirror Holders to be paid any amount upon the occurrence of a Dissolution Event until holders of any classes or series of Units ranking, as to the distribution of assets upon a Dissolution Event, senior to the Series A Preferred Mirror Units have been paid all amounts to which such classes or series of Units are entitled.
(e) For the purposes of this Section 2.8, a Dissolution Event shall not be deemed to have occurred in connection with (i) a Substantially All Merger or a Substantially All Sale whereby a member of the Oaktree Operating Group is the surviving Person or the Person formed by such transaction and has expressly assumed all of the obligations under the Series A Preferred Mirror Units, (ii) the sale or disposition of the Partnership (whether by merger, consolidation or the sale of all or substantially all of its assets) if such sale or disposition is not a Substantially All Merger or Substantially All Sale, (iii) the sale or disposition of the Partnership should the Partnership not constitute a “significant subsidiary” of OCG under Rule 1-02(w) of Regulation S-X promulgated by the SEC, (iv) an event where the OCG Series A Preferred Units have been fully redeemed pursuant to the terms of the OCG Operating Agreement or if proper notice of redemption of the OCG Series A Preferred Units has been given and funds sufficient to pay the redemption price for all of the OCG Series A Preferred Units called for redemption have been set aside for payment pursuant to the terms of the OCG Operating Agreement, (v) transactions where the assets of the Partnership, in connection with its liquidation, dissolution or winding-up, are immediately contributed to another member of the Oaktree Operating Group that expressly assumes all the obligations under the Series A Preferred Mirror Units, and (vi) with respect to the Partnership, a Permitted Transfer or a Permitted Reorganization (any of (i) through (vi), a “ Dissolution Exception ”).
(f) In the event that the Partnership liquidates, dissolves or winds up, including a Dissolution Event, the Partnership shall not declare or pay or set apart payment on its Junior Units unless the outstanding liquidation preference on all outstanding Series A Preferred Mirror Units shall have been repaid via redemption or otherwise. Notwithstanding the foregoing, no such limitation shall apply to or upon (i) a Dissolution Exception or (ii) an event where the OCG Series A Preferred Units have been fully redeemed pursuant to the terms of the OCG LLC Agreement or if proper notice of redemption of the OCG Series A Preferred Units has been given and funds sufficient to pay the redemption price for all of the OCG Series A Preferred Units called for redemption have been set aside by or on behalf of OCG for payment pursuant to the terms of the OCG Operating Agreement.


Section 2.9 No Duties to Series A Mirror Holders . Notwithstanding anything to the contrary in the Partnership Agreement, to the fullest extent permitted by law, neither the General Partner nor any other Indemnified Person shall have any duties or liabilities to the Series A Mirror Holders.
Section 2.10 Amendments and Waivers . Notwithstanding the provisions of Section 11.12 of the Partnership Agreement, the provisions of this Article 2 may be amended, supplemented, waived or modified by the action of the General Partner without the consent of any other Limited Partner.
ARTICLE III
MISCELLANEOUS

Section 3.1 Conflicts . To the extent that any provision of this Unit Designation conflicts or is inconsistent with the Partnership Agreement, the terms of this Unit Designation shall control.
Section 3.2 Governing Law . This Unit Designation shall be governed by and interpreted in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 3.3 Severability . If any provision of this Unit Designation is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
[Remainder of page intentionally left blank.]



IN WITNESS WHEREOF, the parties have caused this Unit Designation to be duly executed and delivered, all as of the date first set forth above.
 
 
 
 
 
 
 
 
OCM HOLDINGS I, LLC
 
 
 
By:
 
   /s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
   /s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel
 


































[Signature Page to Mirror Interest Designation]


Exhibit 2

UNIT DESIGNATION WITH RESPECT TO THE SERIES B PREFERRED MIRROR UNITS




OAKTREE CAPITAL I, L.P.
UNIT DESIGNATION WITH RESPECT TO THE
SERIES B PREFERRED MIRROR UNITS
This Unit Designation (as it may be amended, supplemented or restated from time to time, this “ Unit Designation ”), dated as of August 9, 2018, is made by Oaktree Capital I, L.P. (the “ Partnership ”). Capitalized terms used but not defined in this Unit Designation shall have the meanings ascribed to such terms in the Second Amended and Restated Limited Partnership Agreement of the Partnership, dated as of May 17, 2018, as amended by the Unit Designation with respect to the Series A Preferred Mirror Units, dated as of May 17, 2018 (and as it may be further amended, supplemented or restated from time to time, the “ Partnership Agreement ”).
WHEREAS, pursuant to Section 7.01 of the Partnership Agreement, OCM Holdings I, LLC, a Delaware limited liability company, as the general partner of the Partnership (the “ General Partner ”), has the authority to establish and issue, from time to time in accordance with such procedures as the General Partner shall determine from time to time, other Classes, one or more series of any such Classes, or other Partnership securities with such designations, preferences, rights, powers and duties (which may be senior to existing Classes and series of Units), as shall be determined by the General Partner;
WHEREAS, pursuant to Section 11.12 of the Partnership Agreement the General Partner may, without the written consent of any Limited Partner or any other Person, amend, supplement, waive or modify any provision of the Partnership Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect among other things, any amendment, supplement, waiver or modification that the General Partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of equity interest in the Partnership; and
WHEREAS, pursuant to the aforementioned sections of the Partnership Agreement, the General Partner determined it advisable and in the best interest of the Partnership and its Limited Partners to designate the Series B Preferred Mirror Units as a new class of Preferred Units and the terms of the Series B Preferred Mirror Units, as set forth in this Unit Designation, have been duly approved in accordance with the Partnership Agreement;
NOW, THEREFORE, the General Partner hereby approves and authorizes this Unit Designation on the terms and conditions set forth herein.
ARTICLE I
DEFINITIONS
Section 1.1 Definitions .
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Unit Designation. Capitalized terms used but not defined herein shall have the meanings given to them in the Partnership Agreement.
“ 2011 Incentive Plan ” means the 2011 Oaktree Capital Group, LLC Equity Incentive Plan, as amended, restated, supplemented or otherwise modified from time to time, and any successor or similar plan.
“ Business Day ” means any day that is not a Saturday, Sunday or other day in which banking institutions in New York City are authorized or required by law to close.

“ Control ” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.


“ Change of Control Event ” has the meaning set forth in the OCG Series B Preferred Unit Designation.
“ Dissolution Event ” means an event giving rise to the dissolution of the Partnership in accordance with Section 9.02 of the Partnership Agreement.
“ Dissolution Exception ” has the meaning set forth in Section 2.8 of this Unit Designation.
“ Distribution Payment Date ” means March 15, June 15, September 15 and December 15 of each year, commencing with respect to the Series B Preferred Mirror Units, on December 15, 2018.
“ Distribution Period ” means the period from and including a Distribution Payment Date to, but excluding, the next Distribution Payment Date, except that the initial Distribution Period with respect to the Series B Preferred Mirror Units shall commence on and includes August 9, 2018.
 
“ Gross Ordinary Income ” means the Partnership’s gross income excluding any gross income attributable to the sale or exchange of “capital assets” as defined in Section 1221 of the Code. Allocations to Series B Mirror Holders of Gross Ordinary Income shall consist of a proportionate share of each Partnership item of Gross Ordinary Income for such Fiscal Year in accordance with each such holder’s Total Percentage Interest with respect to such holder’s Series B Preferred Mirror Units.
“ Indemnified Person ” means any Person who is entitled to indemnification by the Partnership pursuant to Section 10.02 of the Partnership Agreement.
“ Junior Units ” means Common Units and any other equity securities that the Partnership may issue after August 9, 2018 ranking, as to payment of distributions, junior to the Series B Preferred Mirror Units.
“ Oaktree I Permitted Distribution ” means each of the following: (A) distributions of Tax Distribution amounts in accordance with the terms of the Partnership Agreement as in effect on August 9, 2018, (B) the net unit settlement of equity-based awards granted under the 2011 Equity Incentive Plan in order to satisfy associated tax obligations (C) exchanges of common units of OCG and/or its subsidiaries in connection with the exchange of units of OCGH for OCG’s common units or units of its subsidiaries under the Exchange Agreement, (D) purchases pursuant to put or call arrangements with current or former Senior Executives, employees or service partners entered into in good faith in connection with the provision of personal services, (E) distributions of incentive compensation to current or former Senior Executives, employees or service partners in respect of their “points” interests in OCG’s subsidiaries, (F) distributions, directly or indirectly, to OCG, its subsidiaries or OCGH to enable OCG, its subsidiaries or OCGH to pay expenses or satisfy other obligations (other than obligations in respect of distributions or purchases of junior securities that would not otherwise be Permitted Distributions), (G) redemptions of common units pursuant to provisions of the OCG Operating Agreement as in effect on August 9, 2018, (H) purchases in connection with the settlement of a bona fide forward purchase or accelerated unit repurchase arrangement with a third party financial institution that is entered into before the start of the applicable Distribution Period, (I) payments made on redemption or conversion of convertible notes or convertible preferred equity or the entry into or settlement of call options, bond hedges and/or warrants to hedge OCG’s exposure in connection with the issuance of the convertible notes or convertible preferred equity, (J) distributions paid in, or exchanges of Junior Units or OCGH units for, Junior Units or options, warrants or rights to subscribe for or purchase Junior Units or distributions or purchases paid, directly or indirectly, with proceeds from the substantially concurrent sale of Junior Units and (K) distributions, directly or indirectly, to OCGH or its successor to enable it to (1) make distributions in respect of any outstanding OCGH equity value units, and (2) purchase any OCGH units into which the equity value units have been recapitalized pursuant to any put right exercised by the holder of such units.
“ Oaktree Operating Group ” means, for the purpose of this Unit Designation, collectively, (a) as of August 9, 2018, Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings, L.P. and Oaktree AIF Investments, L.P., each a Delaware limited partnership, and Oaktree Capital Management (Cayman), L.P., a Cayman Islands exempted limited partnership, and (b) any other subsidiary of OCG (whether now existing or hereafter formed) that is designated from time to time as part of the Oaktree Operating Group by the


board of directors of OCG and that either (i) acts as or Controls the general partners and investment advisers of the investment funds managed by OCG or its subsidiaries or (ii) holds interests in other entities or investments generating income for OCG.
“ OCG ” means Oaktree Capital Group, LLC, a Delaware limited liability company, or any successor thereto.
“ OCG Operating Agreement ” means the Fourth Amended and Restated Operating Agreement of OCG, dated May 17, 2018, as it may be amended, supplemented or restated from time to time.
“ OCG Series B Preferred Units ” means the 6.550% Series B Preferred Units of OCG having the designations, rights, powers and preferences set forth in the OCG Series B Preferred Unit Designation.
“ OCG Series B Preferred Unit Designation ” means the Series B Preferred Unit designation of OCG, dated August 9, 2018, as it may be amended, supplemented or restated from time to time.
“ Parity Units ” means any Partnership Units, including Preferred Units, that the Partnership has authorized or issued or may authorize or issue, the terms of which provide that such securities shall rank equally with the Series B Preferred Mirror Units with respect to payment of distributions and distribution of assets upon a Dissolution Event. As of August 9, 2018, there were 7,200,000 Series A Preferred Mirror Units Outstanding and the Series A Preferred Mirror Units were the only Outstanding Units of the Partnership that were Parity Units as of such date.
“Partnership Agreement ” has the meaning set forth in the preamble.
“ Permitted Reorganization ” means the (i) voluntary or involuntary liquidation, dissolution or winding up of any of the Partnership’s Subsidiaries or upon any reorganization of the Partnership into another limited partnership pursuant to provisions of this Agreement that allow the Partnership to convert, merge or convey its assets to another entity with or without General Partner approval or (ii) reorganization or other transaction in which a successor to the Partnership issues equity securities to the Series B Mirror Holders that have rights, powers and preferences that are substantially similar to the rights, powers and preferences of the Series B Preferred Mirror Units pursuant to provisions of this Agreement that allow the Partnership to do so without General Partner approval.
“ Permitted Transfer ” means the sale, conveyance, exchange or transfer, for cash, shares of capital stock, securities or other consideration, of all or substantially all of the Partnership’s property or assets or the consolidation, merger or amalgamation of the Partnership with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Partnership.
“ Rating Agency Event ” has the meaning set forth in the OCG Series B Preferred Unit Designation.
“ Senior Executive ” has the meaning set forth in the OCG Series B Preferred Unit Designation.
“ Series B Mirror Distribution Rate ” means 6.550%.
“ Series B Mirror Holder ” means a holder of Series B Preferred Mirror Units.
“ Series B Mirror Liquidation Preference ” means $25.00 per Series B Preferred Mirror Unit.
“ Series B Mirror Liquidation Value ” means the sum of the Series B Mirror Liquidation Preference and declared and unpaid distributions, if any, to, but excluding, the date of the Dissolution Event on the Series B Preferred Mirror Units.
“ Series B Mirror Record Date ” means, with respect to any Distribution Payment Date, the March 1, June 1, September 1 or December 1, as the case may be, immediately preceding the relevant March 15, June 15, September 15 or December 15 Distribution Payment Date, respectively. These Series B Mirror Record Dates shall apply regardless of whether a particular Series A Mirror Record Date is a Business Day. The Series B Mirror Record


Dates shall constitute Record Dates with respect to the Series A Preferred Mirror Units for the purpose of distributions on the Series B Preferred Mirror Units.
“ Series B Preferred Mirror Unit ” means a Preferred Unit designated as a 6.550% Series B Preferred Mirror Unit having the designations, rights, powers and preferences set forth in this Unit Designation.
“ Series B Tax Event ” has the meaning set forth in the Series B Preferred Unit Designation.
“ Substantially All Merger ” means a merger or consolidation of the Partnership with or into another Person that would, in one or a series of related transactions, result in the transfer or other disposition, directly or indirectly, of all or substantially all of the combined assets of the Partnership taken as a whole to a Person that is not a member of the Oaktree Operating Group immediately prior to such transaction.
“ Substantially All Sale ” means a sale, assignment, transfer, lease or conveyance, in one or a series of related transactions, directly or indirectly, of all or substantially all of the assets of the Partnership taken as a whole to a Person that is not a member of the Oaktree Operating Group immediately prior to such transaction.
 
“ Unit Designation ” has the meaning set forth in the preamble.
ARTICLE II
TERMS, RIGHTS, POWERS, PREFERENCES AND DUTIES OF SERIES B
PREFERRED MIRROR UNITS
Section 2.1 Designation . The Series B Preferred Mirror Units are hereby designated and created as a series of Preferred Units. Each Series B Preferred Mirror Unit shall be identical in all respects to every other Series B Preferred Mirror Unit. There is authorized for issuance an unlimited number of Series B Preferred Mirror Units. As of any date of determination, the Total Percentage Interest as to any Series B Mirror Holder in its capacity as such with respect to Series B Preferred Mirror Units shall be 0% as such term applies to all Partners; provided , however , that when such term is used to only apply to Series B Mirror Holders, “Total Percentage Interest” shall mean, with respect to any holder of Series B Preferred Mirror Units in its capacity as such as of any date, the ratio (expressed as a percentage) of the number of Series B Preferred Mirror Units held by such holder on such date relative to the aggregate number of Series B Preferred Mirror Units Outstanding as of such date. The Capital Account balance of a Limited Partner with respect to each Series B Preferred Mirror Unit held by such Limited Partner shall equal the Liquidation Preference per Series B Preferred Mirror Unit as of the date such Series B Preferred Mirror Unit is initially issued and shall be increased as set forth in Section 2.6. The General Partner may cause the Partnership to, from time to time, without notice to or consent of the Series B Mirror Holders or holders of other Parity Units, issue additional Series B Preferred Mirror Units.
Section 2.2 Distributions .
(a) The Series B Mirror Holders shall be entitled to receive with respect to each Series B Preferred Mirror Unit owned by such holder, when, as and if declared by the General Partner, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash distributions, on the applicable Distribution Payment Date that corresponds to the Record Date for which the General Partner has declared a distribution, if any, in an amount equal to the product of (i) 25% and (ii) the rate per annum equal to the Series B Mirror Distribution Rate (subject to Section 2.5 of this Unit Designation) and (iii) the Series B Mirror Liquidation Preference. Such distributions shall be non-cumulative. Distributions payable on the Series B Preferred Mirror Units for the Distribution Period commencing on August 9, 2018 for any period less than a full Distribution Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Declared distributions will be payable by the relevant Distribution Payment Date to Series B Mirror Holders as they appear on the Partnership’s register at the close of business, New York City time, on a Series B Mirror Record Date, provided that if the Series B Mirror Record Date is not a Business Day, the declared distributions will be payable by the relevant Distribution Payment Date to Series B Mirror Holders as they appear on the Partnership’s register at the close of business, New York City time, on the Business Day immediately preceding such Series B Mirror Record Date.


(b) So long as any Series B Preferred Mirror Units are outstanding, for any then-current Distribution Period, unless distributions have been declared and paid or declared and set apart for payment on (i) the Series B Preferred Mirror Units or (ii) the OCG Series B Preferred Units, then, in each case for such then-current Distribution Period only, the Partnership may not repurchase its Common Units or any Junior Units and may not declare or pay or set apart payment for distributions on its Junior Units, other than, in each case, any Oaktree I Permitted Distribution, or repurchases or distributions the proceeds of which are used, directly or indirectly, to effect any Oaktree I Permitted Distribution.
(c) The General Partner may, in its sole discretion, choose to pay distributions on the Series B Preferred Mirror Units without the payment of any distributions on any Junior Units.
(d) When distributions are not declared and paid (or duly provided for) on any Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series B Preferred Mirror Units, on a distribution payment date falling within the related Distribution Period) in full upon the Series B Preferred Mirror Units or any Parity Units, all distributions declared upon the Series B Preferred Mirror Units and all such Parity Units payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date falling within the related Distribution Period) shall be declared pro rata so that the respective amounts of such distributions shall bear the same ratio to each other as all declared and unpaid distributions per Unit on the Series B Preferred Mirror Units and all unpaid distributions, including any accumulations, on all Parity Units payable on such Distribution Payment Date (or in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates pertaining to the Series B Preferred Mirror Units, on a distribution payment date falling within the related Distribution Period) bear to each other.
(e) No distributions may be declared or paid or set apart for payment on any Series B Preferred Mirror Units if at the same time any arrears exist or default exists in the payment of distributions on any outstanding Units ranking, as to the payment of distributions and distribution of assets upon a Dissolution Event, senior to the Series B Preferred Mirror Units, subject to any applicable terms of such outstanding Units.
(f) Series B Mirror Holders shall not be entitled to any distributions, whether payable in cash or property, other than as provided in this Unit Designation and shall not be entitled to interest, or any sum in lieu of interest, in respect of any distribution payment, including any such payment which is delayed or foregone.
(g) The Partnership and Limited Partners intend that no portion of the distributions paid to the Series B Mirror Holders pursuant to this Section 2.2 shall be treated as a “guaranteed payment” within the meaning of Section 707(c) of the Code, and the Partnership and Series B Mirror Holders shall not take any position inconsistent with such intention, except if there is a change in applicable law or final determination by the Internal Revenue Service that is inconsistent with such intention.
Section 2.3 Rank . The Series B Preferred Mirror Units shall rank, with respect to payment of distributions and distribution of assets upon a Dissolution Event:
(a) junior to all of the Partnership’s existing and future indebtedness and any equity securities, including Preferred Units, that the Partnership may authorize or issue, the terms of which provide that such securities shall rank senior to the Series B Preferred Mirror Units with respect to payment of distributions and distribution of assets upon a Dissolution Event;
(b) equally to any Parity Units; and
(c) senior to any Junior Units.
Section 2.4 Optional Redemption .
(a) Notwithstanding anything to the contrary contained in this Unit Designation, at any time or from time to time on or after September 15, 2023, subject to any limitations that may be imposed by law, the Partnership may, in its sole discretion, redeem the Series B Preferred Mirror Units, out of funds legally available therefor, in whole or in part, at a redemption price equal to the Liquidation Preference per Series B Preferred Mirror Unit plus an amount


equal to declared and unpaid distributions, if any, from the Distribution Payment Date immediately preceding the redemption date to, but excluding, the redemption date.
(b) If OCG redeems the OCG Series B Preferred Units pursuant to (i) a Change of Control Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series B Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.25 per Series B Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series B Preferred Mirror Units; (ii) a Series B Tax Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series B Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series B Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series B Preferred Mirror Units; and (iii) a Rating Agency Event then the Partnership may, in the General Partner’s sole discretion, redeem the Series B Preferred Mirror Units, in whole but not in part, out of funds legally available therefor, at a redemption price equal to $25.50 per Series B Preferred Mirror Unit plus an amount equal to the declared and unpaid distributions on such Series B Preferred Mirror Units.
(c) Without limiting clause (b) of this Section 2.4, if the Partnership shall deposit, on or prior to any date fixed for redemption of Series B Preferred Mirror Units, with any bank or trust company as a trust fund, or in an account for the benefit of and/or Controlled by the General Partner or the Partnership, a fund sufficient to redeem the Series B Preferred Mirror Units called for redemption, with irrevocable instructions and authority to such bank or trust company (if applicable) to pay on and after the date fixed for redemption or such earlier date as the General Partner may determine, to the respective Series B Mirror Holders, the redemption price thereof, then from and after the date of such deposit (although prior to the date fixed for redemption) such Series B Preferred Mirror Units so called shall be deemed to be redeemed and such deposit shall be deemed to constitute full payment of said Series B Preferred Mirror Units to the holders thereof and from and after the date of such deposit said Series B Preferred Mirror Units shall no longer be deemed to be outstanding, and the holders thereof shall cease to be holders of Units with respect to such Series B Preferred Mirror Units, and shall have no rights with respect thereto under this Unit Designation, the Partnership Agreement or otherwise, except only the right to receive from said bank or trust company, or such account for the benefit of and/or Controlled by the General Partner or the Partnership, on the redemption date or such earlier date as the Partnership may determine, payment of the redemption price of such Series B Preferred Mirror Units without interest.
(d) The Series B Mirror Holders shall have no right to require redemption of any Series B Preferred Mirror Units.
Section 2.5. Series B Mirror Distribution Rate . If the distribution rate per annum on the OCG Series B Preferred Units issued by OCG shall increase pursuant to Section 2.5 of the OCG Series B Preferred Unit Designation, then the Series B Mirror Distribution Rate shall increase by the same amount beginning on the same date as set forth in Article 2 of the OCG Series B Preferred Unit Designation.
Section 2.6 Allocations . Before giving effect to the allocations set forth in Article V of the Partnership Agreement, Gross Ordinary Income for the Fiscal Year shall be specially allocated pro rata to the holders of Series B Preferred Mirror Units in accordance with each holder’s Total Percentage Interest with respect to their Series B Preferred Mirror Units in an amount equal to the sum of (i) the amount of cash distributed with respect to the Series B Preferred Mirror Units pursuant to Section 2.2 of this Unit Designation during such Fiscal Year and (ii) the excess, if any, of the amount of cash distributed with respect to the Series B Preferred Mirror Units pursuant to Section 2.2 of this Unit Designation in all prior Fiscal Years over the amount of Gross Ordinary Income allocated to the Series B Mirror Holders pursuant to this Section 2.6 in all prior Fiscal Years. To the extent there is insufficient Gross Ordinary Income for a fiscal year to allocate to the Series B Mirror Holders pursuant to the prior sentence and to the holders of any other Parity Units, Gross Ordinary Income shall be allocated to the Series B Mirror Holders and holders of Parity Units for such fiscal year on a pro rata basis based on the amount of distributions paid in respect of the Series B Preferred Mirror Units and such Parity Units, respectively in such fiscal year.
Section 2.7 Voting .
Notwithstanding any provision in the Partnership Agreement or the Act to the contrary, and except as set forth in this Section 2.7, the Series B Preferred Mirror Units shall not have any relative, participating, optional or


other voting, consent or approval rights or powers, and the vote, consent or approval of the Series B Mirror Holders shall not be required for the taking of any Partnership action or inaction.
Section 2.8 Liquidation Rights .
(a) Upon any Dissolution Event, after payment or provision for the liabilities of the Partnership (including the expenses of such Dissolution Event) and the satisfaction of all claims ranking senior to the Series B Preferred Mirror Units in accordance with Section 9.03 of the Partnership Agreement, the Series B Mirror Holders shall be entitled to receive out of the assets of the Partnership or proceeds thereof available for distribution to the Limited Partners, before any payment or distribution of assets is made in respect of Junior Units, distributions equal to the lesser of (x) the Series B Mirror Liquidation Preference and (y) the positive balance in their Capital Accounts (to the extent such positive balance is attributable to ownership of the Series B Preferred Mirror Units and after taking into account allocations of Gross Ordinary Income to the Series B Mirror Holders pursuant to Section 2.6 of this Unit Designation for the taxable year in which the Dissolution Event occurs) pursuant to Section 9.03 of the Partnership Agreement, pro rata based on the full respective distributable amounts to which each Series B Mirror Holder is entitled pursuant to this Section 2.8(a).
(b) Upon a Dissolution Event, after each Series B Mirror Holder receives a payment equal to the positive balance in its Capital Account (to the extent such positive balance is attributable to ownership of the Series B Preferred Mirror Units and after taking into account allocations of Gross Ordinary Income to the Series B Mirror Holders pursuant to Section 2.6 for the taxable year in which the Dissolution Event occurs), such Series B Mirror Holder shall not be entitled to any further participation in any distribution of assets by the Partnership.
 
(c) If the assets of the Partnership available for distribution upon a Dissolution Event are insufficient to pay in full the aggregate amount payable to the Series B Mirror Holders and the holders of all other outstanding Parity Units, if any, such assets shall be distributed to the Series B Mirror Holders and the holders of such Parity Units pro rata, based on the full respective distributable amounts to which each such Limited Partner is entitled pursuant to this Section 2.8.
(d) Nothing in this Section 2.8 shall be understood to entitle the Series B Mirror Holders to be paid any amount upon the occurrence of a Dissolution Event until holders of any classes or series of Units ranking, as to the distribution of assets upon a Dissolution Event, senior to the Series B Preferred Mirror Units have been paid all amounts to which such classes or series of Units are entitled.
(e) For the purposes of this Section 2.8, a Dissolution Event shall not be deemed to have occurred in connection with (i) a Substantially All Merger or a Substantially All Sale whereby a member of the Oaktree Operating Group is the surviving Person or the Person formed by such transaction and has expressly assumed all of the obligations under the Series B Preferred Mirror Units, (ii) the sale or disposition of the Partnership (whether by merger, consolidation or the sale of all or substantially all of its assets) if such sale or disposition is not a Substantially All Merger or Substantially All Sale, (iii) the sale or disposition of the Partnership should the Partnership not constitute a “significant subsidiary” of OCG under Rule 1-02(w) of Regulation S-X promulgated by the SEC, (iv) an event where the OCG Series B Preferred Units have been fully redeemed pursuant to the terms of the OCG Operating Agreement or if proper notice of redemption of the OCG Series B Preferred Units has been given and funds sufficient to pay the redemption price for all of the OCG Series B Preferred Units called for redemption have been set aside for payment pursuant to the terms of the OCG Operating Agreement, (v) transactions where the assets of the Partnership, in connection with its liquidation, dissolution or winding-up, are immediately contributed to another member of the Oaktree Operating Group that expressly assumes all the obligations under the Series B Preferred Mirror Units, and (vi) with respect to the Partnership, a Permitted Transfer or a Permitted Reorganization (any of (i) through (vi), a “ Dissolution Exception ”).
(f) In the event that the Partnership liquidates, dissolves or winds up, including a Dissolution Event, the Partnership shall not declare or pay or set apart payment on its Junior Units unless the outstanding liquidation preference on all outstanding Series B Preferred Mirror Units shall have been repaid via redemption or otherwise. Notwithstanding the foregoing, no such limitation shall apply to or upon (i) a Dissolution Exception or (ii) an event where the OCG Series B Preferred Units have been fully redeemed pursuant to the terms of the OCG LLC Agreement or if proper notice of redemption of the OCG Series B Preferred Units has been given and funds


sufficient to pay the redemption price for all of the OCG Series B Preferred Units called for redemption have been set aside by or on behalf of OCG for payment pursuant to the terms of the OCG Operating Agreement.
Section 2.9 No Duties to Series B Mirror Holders . Notwithstanding anything to the contrary in the Partnership Agreement, to the fullest extent permitted by law, neither the General Partner nor any other Indemnified Person shall have any duties or liabilities to the Series B Mirror Holders.
Section 2.10 Amendments and Waivers . Notwithstanding the provisions of Section 11.12 of the Partnership Agreement, the provisions of this Article 2 may be amended, supplemented, waived or modified by the action of the General Partner without the consent of any other Limited Partner.
ARTICLE III
MISCELLANEOUS

Section 3.1 Conflicts . To the extent that any provision of this Unit Designation conflicts or is inconsistent with the Partnership Agreement, the terms of this Unit Designation shall control.
Section 3.2 Governing Law . This Unit Designation shall be governed by and interpreted in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 3.3 Severability . If any provision of this Unit Designation is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
[Remainder of page intentionally left blank.]



IN WITNESS WHEREOF, the parties have caused this Unit Designation to be duly executed and delivered, all as of the date first set forth above.
 
 
 
 
 
 
 
 
OCM HOLDINGS I, LLC
 
 
 
By:
 
   /s/ Todd Molz
 
 
 
 
Name:
 
Todd Molz
 
 
Title:
 
General Counsel &
Chief Administrative Officer
 
 
 
By:
 
   /s/ Richard Ting
 
 
 
 
Name:
 
Richard Ting
 
 
Title:
 
Managing Director &
Associate General Counsel
 


































[Signature Page to Unit Designation – Series B Preferred Mirror Units]



Exhibit 31.1
CERTIFICATION
I, Jay S. Wintrob, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 of Oaktree Capital Group, LLC;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 2, 2018

 
/s/ Jay S. Wintrob
Jay S. Wintrob
Chief Executive Officer
(Principal Executive Officer)





Exhibit 31.2
CERTIFICATION
I, Daniel D. Levin, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 of Oaktree Capital Group, LLC;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 2, 2018

 
/s/ Daniel D. Levin
Daniel D. Levin
Chief Financial Officer
(Principal Financial Officer)




Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Oaktree Capital Group, LLC (the “Company”) for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay S. Wintrob, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods presented.
Date: November 2, 2018
 
/s/ Jay S. Wintrob
Jay S. Wintrob
Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

 





Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Oaktree Capital Group, LLC (the “Company”) for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel D. Levin, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods presented.
Date: November 2, 2018  
/s/ Daniel D. Levin
Daniel D. Levin
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.